Georgia Capital Plc Annual Report 2021

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FY2021 Annual Report · Georgia Capital Plc

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ANNUAL REPORT 2021

UPSCALING AND MONETISING INVESTMENTS
TO
CREATE VALUE

Georgia Capital PLC

A PLATFORM FOR
INVESTING IN, UPSCALING
AND MONETISING LARGE
OPPORTUNITY BUSINESSES
IN GEORGIA

Photo Bakhmaro village, Georgia.

Georgia Capital PLC Annual Report 2021

STRATEGIC REVIEW
Overview

2 Performance Highlights

Value Creation

8 Strategic Developments in 2021

16 Chairman and CEO Statement

Our Business

20 Georgia Capital Strategy

24 Market and Industry Overview

32 Capital Allocation and Managing Portfolio Companies

38 Our Management Team

40 Our Portfolio Overview

66 S172 Statement

70 Risk Management

75 Risk Overview

84 Resources and Responsibilities

Discussion of Results

98 Alternative Performance Measures

101 Reconciliation of Adjusted IFRS Measures to IFRS Figures

103 Valuation Methodology

105 Financial Review

GOVERNANCE

122 Directors’ Governance Statement

124 Board of Directors

126 Corporate Governance Framework

135 Investment Committee Report

137 Audit and Valuation Committee Report

143 Directors’ Remuneration Report

164 Nomination Committee Report

167 Statement of Directors’ Responsibilities

168 Directors’ Report

FINANCIAL STATEMENTS

171 Independent Auditor’s Report

178 Statement of Financial Position

179 Statement of Profit or Loss and Comprehensive Income

180 Statement of Changes in Equity

181 Statement of Cash Flows

182 Notes to the Financial Statements

ADDITIONAL INFORMATION

212 Abbreviations

213 References

214 Glossary

215 Shareholder Information

Georgia Capital PLC (“Georgia Capital” 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.
Georgia Capital PLC holds 100% of the share
capital of JSC Georgia Capital (“JSC GCAP”),
which together make up a group (the “Group”).

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 16 to 19

STRATEGY
Read about Georgia Capital Strategy on pages 20 to 23

PORTFOLIO
Read about our portfolio companies on pages 40 to 65

For more information on Georgia Capital visit:
georgiacapital.ge

Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview2

PERFORMANCE HIGHLIGHTS

Georgia Capital PLC Annual Report 2021

GEORGIA CAPITAL NAV OVERVIEW

GEORGIA CAPITAL PERFORMANCE

NAV per share (GEL)

63.03 +31.0% y-o-y

NAV per share (GBP)

15.10 +39.7% y-o-y

Net Asset Value (NAV) (GEL billion)

2.9 +30.3% y-o-y

Total portfolio value (GEL billion)

Liquid assets and loans issued (GEL million)

Net debt (GEL million)

3.6 +24.4% y-o-y

426.5 +50.0% y-o-y

711.1 +1.9% y-o-y

PORTFOLIO VALUE (GEL)

PORTFOLIO BREAKDOWN

Private other
6%

Private
investment
stage
8%

Listed
19%

Total value

3.6bln

Private large
67%

As of 31-Dec-21

LISTED PORTFOLIO COMPANIES

BANK OF GEORGIA GROUP

Value in
GEL million

% share
in total
portfolio

681

19%

PRIVATE PORTFOLIO COMPANIES

2,935

81%

LARGE PORTFOLIO COMPANIES

2,407

67%

HEALTHCARE SERVICES

732

20%

RETAIL (PHARMACY)

710

20%

WATER UTILITY1

697

19%

INSURANCE (P&C AND MEDICAL)

INVESTMENT STAGE
PORTFOLIO COMPANIES

RENEWABLE ENERGY

EDUCATION

OTHER PORTFOLIO COMPANIES

268

303

173

130

225

TOTAL PORTFOLIO

3,616

100%

Total portfolio value creation1
(GEL million)

756.4 +57.8% y-o-y

Investments (GEL million)

Dividend income (GEL million)

18.3 -90.6% y-o-y
25.1 NMF

Buybacks (GEL million)

74.4 NMF
681.4 NMF

Net income (GEL million)

Of which, listed business
(GEL million)

164.1 NMF

Of which, private businesses
(GEL million)

592.3 -20.1% y-o-y

Large portfolio companies
(GEL million)

583.9 -32.1% y-o-y

Investment stage portfolio
companies (GEL million)

1.6 -98.3% y-o-y

Other businesses
(GEL million)

6.8 NMF

OUR STRATEGY
Read about our Strategy on page 20

As of the report publication date, Georgia Capital holds a 20% equity interest in the water utility business.

1 The detailed value creation drivers for each business are described on pages 105-121 in the results section of this report.

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 98, and the differences from, and the reconciliation to, the IFRS audited accounts are presented on pages 99 to 102.

Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview

Georgia Capital PLC Annual Report 2021

PERFORMANCE HIGHLIGHTS CONTINUED

PRIVATE PORTFOLIO COMPANIES’ PERFORMANCE HIGHLIGHTS (UNAUDITED)1

Listed portfolio

Private large portfolio companies

The strong momentum in the economic recovery has supported the excellent operating performance across our
high-quality and defensive portfolio companies, which has enabled Georgia Capital to deliver substantial progress
and value creation in 2021.

Aggregated revenue (GEL millions)

Aggregated EBITDA (GEL millions)

+23.8%

+34.9%

1,964

338

1,551

1,587

283
68

1,235

385

21
43

321

286
26
41

219

2020

2021

Large portfolio companies
Investment stage portfolio companies
Other portfolio companies

2020

2021

Large portfolio companies
Investment stage portfolio companies
Other 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 operations;
and c) banking operations in
Belarus (BNB). BoGG 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.10%
growth of its loan book. BoG targets
to maintain a 30%-50% dividend/
share buyback payout ratio through
regular and progressive semi-annual
capital distributions. BoG’s Annual
Report 2021 will be available at
www.bankofgeorgiagroup.com.
As of 31 December 2021, Georgia
Capital owns a 19.9% non-voting
equity stake in BoG (31 December
2020: 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 2021.
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 2021, the
healthcare services business is
100% owned by Georgia Capital
(31 December 2020: 100%).

Retail (pharmacy)
The retail (pharmacy) business,
owned through GHG, is the
largest pharmaceuticals retailer
and wholesaler in Georgia,
with a 35% 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 349 pharmacies,
of which, 344 are in Georgia and
5 are in Armenia. GCAP owns a
67% stake in the retail (pharmacy)
business as of 31 December
2021 (31 December 2020: 67%).
In 2021, GHG signed a share
purchase agreement to acquire
the remaining 33% minority
interest in its retail (pharmacy)
business, which will be spread
out over the next six years. Please
see further details on page 12.

Water Utility
Our water utility business is a
regulated monopoly in Tbilisi and the
surrounding area, where it provides
water and wastewater services to
1.4 million residents representing
more than one-third of Georgia’s
population and c.38,000 legal
entities. Water Utility also operates
hydro power plants with a total
installed capacity of 149 MW. GCAP
owns 100% in Water Utility as of
31 December 2021 (31 December
2020: 100%). In December 2021,
Georgia Capital announced the sale
of an 80% equity interest in the water
utility business to FCC Aqualia, by way
of a two-stage transaction. Please
see further details on page 8.

Aggregated net operating cash flow (GEL millions)

Aggregated cash balance of private businesses (GEL millions)

Private large portfolio companies continued

Private investment stage portfolio companies

-2.1%

-4.0%

373

365

392

377

2020

2021

31-Dec-2020

31-Dec-2021

ORGANIC TRANSITION TO REVENUE GROWTH STRATEGY FROM
PREVIOUSLY ADOPTED CASH PRESERVATION STRATEGY

1 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, but instead measures them at fair value under IFRS. In the
Strategic Review, various stand-alone figures other than those derived from our NAV statement for the individual portfolio companies and the discussion of their business
development are derived from their separate, individual unaudited IFRS accounts.

The P&C insurance business is a
leading player in the local insurance
market with a 28.6% market share
in property and casualty insurance
based on gross premiums written
as of 30 September 2021. P&C
Insurance also offers a variety
of non-property and casualty
products such as life insurance.

Our medical insurance
business is one of the country’s
largest private medical insurers,
with a 23.0% market share based
on 9M21 net insurance premiums.
The business 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 a
100% stake in the insurance
business as of 31 December 2021
(31 December 2020: 100%).

PORTFOLIO COMPANIES
Read more about our companies on pages 40 to 65

Renewable Energy
The renewable energy business
operates three wholly-owned
commissioned renewable assets:
30MW Mestiachala HPP, 20MW
Hydrolea HPPs and 21MW Qartli
wind farm. In 2021, in line with the
outcome of the comprehensive
cost and feasibility assessment,
the restoration process of the
20MW power generating unit of
Mestiachala HPP (the HPP was
flooded and taken offline in late
July 2019) has been suspended.
In addition, the business currently
has a pipeline of up to 172MW
projects at an advanced stage of
development. The renewable energy
business is 100% owned by Georgia
Capital as of 31 December 2021
(100% as of 31 December 2020).

Education
Our education business currently
combines majority stakes in five leading
private schools, acquired in 2019-
2021: 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 existing campus and 90% in new
campus launched under the existing
affordable brand in September 2021)
and Georgian-Austrian School Pesvebi
LLC (81% ownership, where Georgia
Capital also has a call option on the
9% equity stake during the 12 months
starting from August 2022), both
well-positioned in the affordable
education segment.

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VALUE CREATION

Georgia Capital PLC Annual Report 2021

DEFENSIVE, NON-CYCLICAL, HIGH-QUALITY ASSETS
WITH STRONG AND GROWING CASH FLOW STREAMS

AT 31-DEC-21

PORTFOLIO
VALUE

VALUE CREATION
IN 2021

MULTIPLE OF
INVESTED CAPITAL
(MOIC) UNREALISED

LISTED
INVESTMENTS

GEL million

681 +28.1%

GEL million

164

GEL million

2,407 +29.5%

GEL million

584

8.6x

4.4x

OWNERSHIP

VALUATION METHODOLOGY HIGHLIGHTS1

Bank of Georgia (BoG)

19.9% LSE

Healthcare Services

Retail (pharmacy)

Water Utility2

Insurance

100%

Valued externally (combination of DCF and market approaches)

67%

Valued externally (combination of DCF and market approaches)

100%

Sale price

100%

Valued externally (combination of DCF and market approaches)

PRIVATE LARGE
PORTFOLIO
COMPANIES
CLOSE TO
GEL 0.5BLN+ IN VALUE

PRIVATE
INVESTMENT
STAGE PORTFOLIO
COMPANIES
WITH POTENTIAL TO
BECOME GEL 0.5BLN+
IN VALUE

GEL million

303 +0.1%

GEL million

1.5x

Renewable Energy

Education

100%

9.2/12.0/12.5 EV/EBITDA

70%-90%

12.5 EV/EBITDA

OTHER
LIMITED POTENTIAL TO
BECOME GEL 0.5BLN+
IN VALUE

GEL million

225 +4.5%

GEL million

TOTAL
PORTFOLIO

GEL billion

3.6 +24.4%

GEL million

756

Photo Paliastomi Lake aerial view,
Samegrelo, Georgia.

1 The detailed valuation methodology is described on pages 103-104 of this report.
2 As of the report publication date, GCAP holds a 20% interest in the water

utility business.

Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview8

STRATEGIC DEVELOPMENTS IN 2021

Georgia Capital PLC Annual Report 2021

A SUCCESS STORY OF BUYING, SCALING UP AND
MONETISING THE WATER UTILITY BUSINESS

In December 2021, we have announced that our wholly-owned subsidiary JSC Georgia Capital (JSC GCAP), which is the owner
of Georgia Global Utilities JSC (GGU), a holding company for GCAP’s water utility business and the operational renewable energy
assets, has agreed to sell an initial 80% of its equity interest in the water utility business to FCC Aqualia (“Aqualia”) for a cash
consideration of US$ 180 million. This values the entire water utility business at US$ 225 million, a 30% premium to its 30 June
2021 independent investment value. In addition, the seller and the buyer were granted put and call options, respectively, over
JSC GCAP’s remaining 20% interest in the water utility business. The sale marks the achievement of a key strategic priority with
the successful completion of the full investment cycle of our strategy: to invest, grow and monetise via a cash exit, and creates
significant value for GCAP shareholders.

About water utility business
The water utility business is a regulated natural monopoly in Tbilisi and
the surrounding area, providing water and wastewater supply services
to approximately 1.4 million residents and approximately 38,000 legal
entities. The business also operates hydro power plants (HPPs) with a total
installed capacity of 149MW. The water utility business uses a portion of
the power generated by its HPPs associated with the water infrastructure
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 both 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.

Initial acquisition and development
The acquisition of the water utility business was executed in two stages
during 2014-2016 for the total consideration of GEL 214 million (US$ 97
million). An initial 25% minority interest in the business was acquired in
2014 for GEL 50 million (US$ 27 million), while the remaining 75% stake
was purchased in 2016 for GEL 164 million (US$ 70 million) at 4.3x EV/
EBITDA multiple. Since its acquisition, the business delivered exceptional
growth and performance, eventually leading to the disposal with a 226%
premium to the initial investment value of GEL 214 million at 8.9x EV/
EBITDA multiple. In addition, the business distributed GEL 97 million
dividends, which in conjunction with GEL 483 million value appreciation,
translates into GEL 580 million total return to GCAP, throughout the
holding period.

Some of the key milestones achieved by the business are listed below:
• Robust corporate governance: In line with GCAP’s strategic

•

objectives, the business was gradually transformed into an institution
with strong corporate governance, led by a highly experienced
management team.
Improvement of the water utility infrastructure: Since its
acquisition, the business has invested GEL 666 million to upgrade
existing and develop substantial new water utility infrastructure,
improving the rendering of the water supply and wastewater services
to customers and contributing to achieving operational efficiencies.
Through efficient capital expenditures, the business managed
to reduce self-produced electricity consumption by c.45%
(by c. 135GWh) from 2015 to 2021, and hence free up electricity
for market sales.

• Stable regulatory environment with attractive returns: On

the back of intensive capital expenditures implemented during the
past years, water utility tariffs, as well as the regulatory weighted
average cost of capital (WACC), were reset at the end of 2020 by an
independent regulatory body, GNERC. The tariff increase translates
into an annual growth of approximately 38% in allowed water
revenues in the 2021-2023 regulatory period and demonstrates
the transparency of the Georgian regulatory framework and its
alignment with the European Union (EU) principles.

• Strong financial and operating performance: The business
has demonstrated strong total revenue and EBITDA growth, with
a 7.4% and 12.8% CAGR, respectively, since its initial acquisition.
Energy revenue increased 3.2x in 2021 compared to 2014 and grew
at a 17.9% CAGR over the 2014-2021 period. Water supply revenue
increased 1.6x in 2021 compared to 2014 and grew at a 6.6%
CAGR over the same period, where the revenue development
from individual customers was a major driver of the growth
(up 18.1x and 51.3% CAGR).

• Superior access to funding: On the back of strong corporate

governance and solid financial and operating results, in July 2020,
GGU successfully issued an inaugural US$ 250 million green bond
at par value. Despite the global pandemic outbreak, the issuance was
met with significant interest from a geographically diversified investor
base, including 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 improved the financial flexibility of GGU and enhanced
its liquidity profile, supporting the healthy growth of the business,
whilst delivering environmental benefits, and contributing to a more
sustainable economy.

Photo Zhinvali Reservoir,
Dusheti Municipality, Georgia.

ROBUST EQUITY VALUE DEVELOPMENT SINCE AN INITIAL ACQUISITION OF THE BUSINESS

+226% premium to the initial investment value

431

8.8x

484

8.8x

471

9.4x

Dec-18

Dec-19

Dec-20

n
o

i
l
l
i

e
G

214

4.3x2

Investment
cost1

Equity value

EV/EBITDA multiple

1 A 25% equity interest in the water utility business was acquired in 2014, and the remaining 75% – in 2016.
2 Represents the multiple at an acquisition of a 75% interest in the water utility business in 2016.

697

8.9x

Dec-21
Valuation
at the
sale price

Total investment return of GEL 580 million supported by strong annual dividend
inflows from the business

OPERATING PERFORMANCE DEVELOPMENT OVERVIEW IN THE WATER UTILITY BUSINESS

Dividends
collected
97

Total return

GEL 580

million

Capital
allocation
483

n
o

i
l
l
i

e
G

250

200

150

100

44.8%

51.9%

53.9%

53.8%

55.9%

58.2%

56.6%

62.9%

EBITDA Margin

123

119

127

135

149

163

174

204

128

2014

2015

2016

2017

2018

2019

20201

2021

Water supply revenue

Energy revenue

Total revenue

EBITDA

1 2020 water supply revenue and EBITDA are adjusted for the new tariffs, effective from January 2021.

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Georgia Capital PLC Annual Report 2021

STRATEGIC DEVELOPMENTS IN 2021 CONTINUED

Disposal through cash monetisation
The disposal of the water utility business is being implemented via
a two-staged process that, after completion, will lead to Aqualia,
acquiring an 80% equity interest in the water utility business.

The disposal translates into 2.7x MOIC in USD (3.6x MOIC in GEL)
and 20% IRR in USD (27% IRR in GEL) and creates substantial value
for our shareholders.

In addition, the disposal:

SALE OF THE SELECTED COMMERCIAL
REAL ESTATE PROPERTIES

Realises material cash proceeds over and above the needs for refinancing
the renewable energy business, which are intended to be deployed in
a combination of share buybacks, deleveraging, lending to portfolio
companies, and potential further investments.

Leads to a positive impact on the GCAP’s leverage profile, reducing
the market value leverage (MVL) from 24.2% as at 31 December 2021
to 19.2% assuming cash settlement from the Water Utility sale on
31 December 2021, and US$ 95.4 million shareholder loan to
Renewable Energy for the Eurobond redemption financing.

Brings an important international investment and significant industry
expertise into Georgia, that will strengthen the water utility business
to the benefit of its customers, employees and other stakeholders.

Forms a strategic partnership between GCAP and Aqualia that will support
the water utility business at least until such time as either the put option
or call option is exercised.

The first stage of the transaction, which considered the initial sale of
a 65% equity interest in GGU (representing an 80% economic interest
in the water utility business) was successfully completed on 3 February
2022 with the receipt of full sales proceeds and transfer of respective
shares of GGU to Aqualia.

The second stage of the transaction will follow the planned redemption
in July 2022 of an existing bond issued by GGU that will be financed
pro-rata to their interests in GGU by Aqualia and JSC GCAP (the
financing to be provided by JSC GCAP, by way of a shareholder loan,
to GGU, being US$ 95.4 million). Following the bond redemption and
subsequent demerger of the operational renewable energy assets
via a spin-off, GCAP will recover full ownership of GGU’s renewable
energy assets, and Aqualia’s ownership in the water utility business
will increase to 80%. The second stage of the transaction is expected
to be completed by the end of September 2022.

JSC GCAP and Aqualia have granted each other a put option and call
option, respectively, over JSC GCAP’s remaining 20% equity interest
in the water utility business. JSC GCAP’s put option will be exercisable
in 2025-2026 while Aqualia’s call option will be exercisable on the date
of expiry of the put option in 2026 and expiring six months thereafter.
The exercise price of the put and call options are set at 8.25x and 8.90x
EV/EBITDA multiple, respectively, based on the normalised EBITDA and
net debt of the business.

TRANSACTION STRUCTURE

GCAP OWNS
THROUGH
100% STAKE
IN GGU

GCAP OWNS
THROUGH
35% STAKE
IN GGU

100%

GCAP to ensure the
repayment of the
Renewable Energy
portion in Aug-22

PRINCIPAL
OUTSTANDING
US$ 250 MILLION

US$ 95

Water utility
business

Operational renewable
energy assets

DIRECT
OWNERSHIP

100%

GGU

20%

US$ 155

20%

Signing of SPA

Completion of the
first stage: Receipt
of sale proceeds

Renewable Energy
Water Utility

Green Eurobond
repayment

Renewable Energy
demerger
via spin-off

Completion of the
second stage

In 2021, we successfully completed the sale to a combination of local and
regional investors of selected commercial real estate assets for US$ 45.0 million
with an 11.3% premium (US$ 4.6 million) to the book value as of 31 March 2021.
The transaction marks progress on our strategic priority to divest, over the
next few years, subscale portfolio companies which do not have the potential
to reach GEL 500 million equity value. The sale translates into 2.1x MOIC in
US$ terms.

Commercial real estate properties sales (US$)

45.0 million

Since June 2021

PROGRESS SINCE JUNE 2021

Sold assets
$45.0
76%

Total value
as at 31-Dec-21

US$ 58.9

million

Remaining
assets book value
as of 31-Dec-2021
$13.9
24%

Sold assets

$20.3

$21.6

$3.1

Office spaces
Retail spaces
Land plot

• The proceeds from the sale were
used to repay the US$ 30 million
bonds issued by the commercial real
estate business which matured on
31 December 2021.

• The book value of the remaining

disposable assets is approximately
US$ 13.9 million as of 31 December
2021 and is split between commercial
real estate assets (16%) and land
plots (84%).

TRANSACTION DETAILS – 11.3% PREMIUM TO 31 MARCH 2021 BOOK VALUES

Premium to gross value
US$ million

+11.3%

Premium to net asset value
US$ million

+36.9%

289

40.5

45.0

289

12.4

17.0

31-Dec-21

3-Feb-22

Aug-22

Sep-22

Book value
31-Mar-21¹

Sales value

1 At standalone hospitality and commercial real estate business level.

Net asset value
31-Mar-21

Net asset value
31-Mar-21
Adjusted for
sales premium

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Georgia Capital PLC Annual Report 2021

STRATEGIC DEVELOPMENTS IN 2021 CONTINUED
STRATEGIC DEVELOPMENTS IN 2021 CONTINUED

BUYOUT OF THE MINORITY SHAREHOLDERS IN RETAIL (PHARMACY)
In October 2021, Georgia Healthcare Group (GHG), the holding company of GCAP’s healthcare services, retail (pharmacy) and medical
insurance businesses, signed a share purchase agreement to acquire the remaining 33% minority interest in its retail (pharmacy) business
over the next six years. Following the initial pharmacy businesses purchases in 2016 and 2017, GHG has held a 67% equity stake in the
combined retail (pharmacy) business and had a call option on the minority stake, during the 12 months starting from January 2023. The
remaining 33% minority stakeholders, who are also the managing partners of the retail business, had a put option for the minority stake
also during the 12 months starting from January 2023. The exercise price of the call and put options were set at 6.0x and 4.5x EV/EBITDA
multiples, respectively, in 2017, based on the preceding financial year’s results at the time of the exercise. The parties have renegotiated
the initial terms of the agreement and put/call options. Under the sale and purchase agreement (SPA), the minority buyout transaction
will be executed in six tranches at 5.25x EV/EBITDA multiple.

RESUMPTION OF THE SHARE BUYBACK
AND CANCELLATION PROGRAMME

In August 2021, Georgia Capital commenced a US$ 10 million share buyback and cancellation programme, over a 12 month
period. In 2022, the programme was further increased by an additional US$ 10 million. Under the programme, 823,582 shares
with a total value of US$ 7.0 million were repurchased in 2021. The programme provides an opportunity to create significant
value through share buybacks, as the discount to our reported NAV per share remained high at c.50% throughout the year.

Reconfirming our
confidence in the
value creation
potential of the
retail business

In line with our capital
allocation philosophy

k op p o r t u

c
a
b
y
u
B

t y

n i

360°
analysis

ale opportuni t y

p
p
o
r
t
u
n
it
y

Transaction rationale

• The transaction will allow GHG to increase the

dividend inflows attributable to GHG from the retail
(pharmacy) business.

• The renegotiated future payment terms will provide better

visibility for GHG to manage its liquidity position.

• Minority shareholders, who are also the managing partners
of the retail business, will remain with the business for an
extended period.
In 2021, GEL 40.5 million value was created in the retail
(pharmacy) business as a result of the revaluation of the
minority stake on the back of the renegotiated buy-out terms.

•

GCAP SHARE PRICE
IS AT THE CORE OF
OUR DECISION MAKING
VIS-À-VIS INVESTMENTS

Transaction rationale

• Outstanding performance of our portfolio companies, supported

by strong economic recovery.

• Robust liquidity at GCAP level – US$ 90 million liquid funds
(excluding issued loans) as at 30 June 2021 (US$ 88 million
as at 31 December 2021).

• Loan to value (LTV) ratio at 27.4% as of 30 June 2021 (24.2%

as of 31 December 2021), below the targeted threshold of 30%.

Initial terms effective during 2023
EV/EBITDA multiple

Renegotiated terms spread over the next 6 years
EV/EBITDA multiple

6.00x

4.50x

5.25x

Call option

Put option

Renegotiated
multiple

BUYOUT OF A 33% MINORITY INTEREST WILL BE EXECUTED IN SIX ANNUAL TRANCHES

10.0%

11.0%

10.5%

0.5%

2022

2023

2024

2025

2026

2027

ATTRACTIVE OPPORTUNITY FOR DELIVERING GREATER RETURNS

Average discount % to NAV:
25%

COVID-19 period

50%

45%

42%

58%

53%

34%

26%

22%

49.9

44.3

53.9

46.8

31.7

48.1

46.8

54.5

59.8

63.0

Jun-18

Dec-18

Jun-19

Dec-19

Jun-20

Dec-20

Mar-21

Jun-21

Sep-21

Dec-21

NAV per share (GEL)

Discount to NAV per share (%)

Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview
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Georgia Capital PLC Annual Report 2021

STRATEGIC DEVELOPMENTS IN 2021 CONTINUED

US$ 65 MILLION EUROBOND TAP ISSUE
IN MARCH 2021

On 9 March 2021, JSC Georgia Capital (the Georgian holding company) priced a US$ 65 million tap issue (the “New Notes”) which
was consolidated and now 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
Private
and were settled on 16 March 2021.
investment
stage
9%

Private
other
7%

USE OF PROCEEDS

Capital
allocations
c.$35

OUR STRONG LIQUIDITY HAS BEEN
FURTHER ENHANCED

Total issue

US$ 65.0

million

General
corporate
purposes
c.$30

• Strong liquidity at Georgia Capital, up 64.4% to
GEL 467 million in 1Q21, after the tap issuance.

• The transaction was oversubscribed and met with high

demand from the existing bondholders.

• 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.

GEOCAP YIELD TO MATURITY (BID) DEVELOPMENT SINCE 9 MARCH 2018

11%

10%

Private large
66%

6.52%

US$ 65 million Eurobond
tap issue

5.29%

8
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Photo Thick fog on Caucasus mountains,
Svaneti, Georgia.

Strategic ReviewOur BusinessGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOverview
16

CHAIRMAN AND CEO STATEMENT

Georgia Capital PLC Annual Report 2021

Irakli Gilauri
Chairman and
Chief Executive Officer

Dear Fellow Shareholders,

I am writing this, my fourth letter to Georgia
Capital shareholders, at a time of significant
global and regional geopolitical tension, with
the Russian-Ukrainian conflict entering its
fourth week. We all hope and pray for a swift
resolution to the hostilities. In addition to the
devastating impact of the war so far in Ukraine
and the dramatic dislocation of people, there is
increasing evidence of the potential economic
impact across the region. In Georgia, we
expect to see lower economic growth in 2022,
with the exact impact dependent upon the
length of the conflict. Georgia does have a
strong track record of resilience in the face of
such challenges, and I expect that resilience
to continue. Georgia Capital is also well
positioned to withstand the potential pressures,
with a strong mix of business investments in
defensive sectors, and very well managed, and
conservatively positioned, operating companies.

Against this background, I want to reflect on how
the last few years have changed many of the
ways in which we operate – both personally and
professionally – but have not changed the key
principles of our investment philosophy. We have
always sought to invest in high quality businesses
with great market positions, high returns and
the ability to deliver sustainable earnings growth
– this has continued during 2021, and we will
continue to do so in the future. The significant
challenges and uncertainties of the last few
years – be they the global pandemic or the
current geopolitical tensions – have reminded us,
however, to ensure that we always manage our
investments in conservative ways. For Georgia
Capital that means avoiding excessive leverage,
and investing mainly in capital efficient/capital
light sectors and opportunities.

I have always highlighted that we must be
constantly mindful of the risks we face, whilst
continuing to create investment opportunities.
During 2021, we focused almost exclusively
on successfully balancing the varying risks and
opportunities in an ever-changing, very volatile
environment where it was extremely difficult
to predict the short and long-term impacts

of the global pandemic on our people, our
businesses, and our country. By adopting a
relatively conservative approach to managing
our investment portfolio, our cash management
and balance sheet leverage, I believe that
your company successfully navigated these
challenges over the last twelve months. This
is evidenced by the strong delivery of our key
strategic priorities, most particularly the sale
of our water utility business at a premium
to its independent valuation, and exceptional
Net Asset Value (NAV) per share growth.
Our investee businesses, both listed and
private portfolio businesses, have delivered
outstanding risk management and earnings
growth, resulting in improved valuations.

I spoke last year of Georgia Capital’s core
enablers – strong corporate governance; the
development of highly talented management
teams; and access to both domestic and
international capital markets – and, more
particularly, our priority to ensure that we invest
in defensive industries and sectors. During 2021,
your company saw the benefit of these core
enablers as, despite the challenging external
environment, we were able to deliver strongly,
achieve all of our key strategic priorities – which
I will discuss in more detail later in this letter –
and report a 31.0% growth in our NAV per share
during the year. In Sterling terms, reflecting the
appreciation of the Georgian Lari (GEL) over
the last twelve months, this increase in NAV per
share was almost 40%. That Georgia Capital
came into the pandemic in good fundamental
shape was proved by the strength of our
resilience and performance.

The wider economic environment and the
regional markets in which Georgia operates
and trades, have not been for the faint-hearted
over the last few years. A combination of the
global pandemic, rising levels of inflation,
interest rates and oil prices have all combined
to create a challenging external environment,
and these challenges have been exacerbated
more recently by the heightened geopolitical
tensions. In terms of managing through the
impact of the pandemic, the Government of
Georgia has done extremely well. Having initially

provided sizeable economic support to assist
affected households and businesses, and
to support the entire healthcare system, the
Government decided early in 2021 that Georgia
had to “learn to live” with the virus as quickly
as possible. This led to many of the previous
restrictions being relaxed, and ensured that
Georgia and Georgians operated sensibly, with
fewer “lockdown light” restrictions, in a way
that sought to effectively manage the balance
between the epidemiological and economic
risk factors, thereby enabling the economy to
recover strongly and international tourism to
restart. Virus cases did pick up as we moved
into 2022 with the arrival of the Omicron variant
and a vaccination rate that has remained
low. But this wave has already peaked and
ongoing initiatives by the Government should
boost vaccination take up rates across the
country over the next few months. Going
forward, however uncertain the evolution of
the virus could be, we believe that the Georgian
healthcare system, Government and society
as a whole, are better prepared to manage
any potential further pandemic impact.

Our macroeconomic environment
From a macroeconomic perspective, Georgia’s
economic recovery from the effects of the global
pandemic continued to exceed expectations
throughout the year, with real GDP posting
double-digit growth at a preliminary 10.6%
year-on-year in 2021. On the domestic side,
the recovery was driven by an accommodative
fiscal policy as well as robust lending (total loans
increased 18.1% y-o-y in constant currency
terms). On the external side, economic activity
was supported by record remittance inflows (up
25% y-o-y in 2021), record merchandise exports
(up 27% y-o-y in 2021) and tourism revenues
rebounding to 52% of pre-pandemic levels
in the second half of 2021. The Georgian Lari
performed robustly, appreciating by 6% against
the US Dollar during the year. The real effective
exchange rate (REER) has also followed a similar
trend for seven consecutive months since
May and is now approaching its long-run trend.
The currency appreciation was driven by strong
foreign demand for Georgian exports (including
a partial recovery in service exports), robust

“WE HAVE ALWAYS SOUGHT TO INVEST IN HIGH QUALITY
BUSINESSES WITH GREAT MARKET POSITIONS, HIGH
RETURNS AND THE ABILITY TO DELIVER SUSTAINABLE
EARNINGS GROWTH – THIS HAS CONTINUED DURING 2021,
AND WE WILL CONTINUE TO DO SO IN THE FUTURE.”

remittance inflows, tight monetary policy and
accelerated foreign currency lending. Supported
by higher-than-expected real GDP growth and
GEL strengthening, the Government lowered its
public debt-to-GDP ratio to 51% by the end of
2021, down from 60% at the end of 2020, and
the overall budget deficit projection for 2022 has
been narrowed to 6.8% of GDP. The deficit is
planned to be reduced further to 2.8% of GDP
by 2023, returning below the 3% ceiling within
Georgia’s mandated 3-year period.

The National Bank of Georgia tightened the
refinancing rate by a cumulative 250 basis
points during 2021, responding to higher-
than-expected inflation and the potential risk
of entrenched inflationary expectations. Rising
prices have mostly been caused by imported
inflation and headline inflation reached 13.9%
in December 2021 (9.6% on average in 2021),
temporarily boosted as a result of last year’s
Government utility subsidy base effect that
has remained in play in early 2022.

Recent geopolitical tensions will have clear
implications on global and regional macro
trends. Uncertainties relating to the outcome
of the conflict as well as the economic impact
of the sanctions on Russia remain high.
Despite potential spillovers on Georgia, risks
are manageable due to the wide diversification
of FX flows in the country. Foreign currency
inflows (export, remittances, tourism revenues)
increased by 29% in 2021 compared to 2013,
while flows from Russia decreased significantly.
Further tourism revenue recovery is expected as
2021 tourism-related revenues were only at 38%
of the pre-pandemic level. Moreover, NBG’s
reserves have increased consistently and now
stand at US$ 4.0 billion, as of February 2022,
and provide ample cover.

At the portfolio companies’ level, none of our
businesses is materially exposed to Russia or
Ukraine, except for the wine business, where
61% of the 2021 revenues were generated
from sales in these markets. However, with less
than 2% of our overall total portfolio value as at
31 December 2021, any adverse development
across the wine business is not expected to be
material for the Group.

Delivering on our strategic priorities
This Annual Report will go into greater detail
later, but let me highlight here how we continued
to deliver on our strategic priorities in 2021.

• The expansion of the education business
in the affordable segment through several
investments, in line with our capital
allocation programme;

Our key strategic priority, announced a year
ago, was to dispose of one of our large
portfolio companies and I am delighted that,
in what continues to be a challenging global
environment, we successfully completed the
sale of the Group’s water utility business to a
high-quality international strategic investor, FCC
Aqualia. The value achieved of US$ 180 million
for 80% of the water utility business represents
a 30% premium to its independent investment
value at 30 June 2021 and translates into 2.7x
MOIC in US$ (3.6x MOIC in GEL) and 20% IRR
in US$ (27% IRR in GEL). The disposal also
has a very significant positive impact on the
Group’s leverage profile, reducing the market
value leverage from 24.2% as at 31 December
2021 to 19.2%. The sale represents our most
significant monetisation event to date and
marks the completion of the full investment
cycle for one of our large businesses from
acquisition and development, to cash exit.
Our announcement of the sale of the water
utility business during the pandemic once
again underlines the resilience of our portfolio.
In addition, the partnership with FCC Aqualia,
the fourth largest water management company
in Europe, brings international expertise to the
water utility business, whilst also benefiting
the country’s sustainable development.

In addition to the Water Utility disposal, the
following notable events took place in 2021:
• The sale of US$ 45.0 million commercial real
estate properties with an 11.3% premium
to their book value as of 31 March 2021,
translating into 2.1x MOIC in US$ terms and
demonstrating continued progress towards
our previously announced strategic priority
to divest, over the next few years, subscale
portfolio companies which do not have the
potential to reach GEL 500 million equity value;

• The buyout of the minority shareholders in
our retail (pharmacy) business, agreed at
renegotiated terms, providing the path to
GCAP’s 100% ownership and stretching
over six-year/tranches at 5.25x EV/EBITDA;

• The resumption of the Group’s share

buyback and cancellation programme with
an initial US$ 10 million, which was further
increased with an additional US$ 10 million
in early 2022;

• US$ 65 million Eurobond tap issuance in
March 2021, which enhanced our liquidity
and once again demonstrated our superior
access to international capital markets;
• Lastly, as our portfolio companies continued

to deliver on their individual strategic
objectives, our NAV per share increased by
31.0% y-o-y in FY21 and more than doubled
since the start of the COVID-19 pandemic.

Reviewing our strategic priorities
Our existing strategy, which we initially 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, and this certainly proved to be the case
with regard to the sale of the water utility business
to a global strategic partner whose technical and
specialist knowledge in the industry will help take
the water utility business through the next phase
of its development.

The disposal of the water utility business
created both substantial value for GCAP
shareholders and brought in significant cash
proceeds which were received in February
2022. In the short term, the net cash proceeds
are being held in cash and cash equivalents
and yield-bearing marketable debt securities,
pending a wider strategic review by our Board
to determine the appropriate deleveraging,
capital return and investment policies in light of
the prevailing economic outlook, and our share
price and discount to net asset value. This
Board review will be completed shortly, and
we will make a further announcement at our
upcoming Investor Day, which will be hosted
by Georgia Capital’s management team on
9 May 2022 in London.

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Georgia Capital PLC Annual Report 2021

CHAIRMAN AND CEO STATEMENT CONTINUED

Capital allocation and dividends
As the economic recovery in Georgia continued
throughout 2021, we increasingly sought
to transition from what, in response to the
significant uncertainty at the beginning of
the pandemic, was a cash accumulation
and preservation strategy, to a revenue
and business growth strategy. We allocated
capital in two key areas of business investment,
and this translated into investment of
GEL 18.3 million predominantly in our
investment stage businesses:
• GEL 13.7 million was allocated to the
education business for the capacity
expansion of the existing campus of
Buckswood (mid-scale segment,
GEL 4.0 million), the acquisition of the land
and building of a new campus location, and
capacity expansion of the existing campus
of Green School (affordable segment,
GEL 5.8 million), and the acquisition of an
81% equity interest in Georgian-Austrian
School Pesvebi (GEL 3.9 million).

• GEL 3.7 million was allocated to Renewable
Energy for the development of pipeline HPPs
(Darchi and Zoti) and wind farm projects.

Having recommenced our share buyback
and cancellation programme in August
2021, c.1.5 million shares (c.3% of issued
capital) had been repurchased as of 18 March
2022 for a total value of GEL 39.8 million.
From August 2021 through the year-end,
823,582 shares were repurchased under
the programme, and a further 119,162 shares
for the management trust.

During 2021, Georgia Capital collected
GEL 74.4 million in dividends, of which
GEL 14.5 million was received from Bank of
Georgia, GEL 11.5 million from healthcare
services, GEL 11.5 million from retail
(pharmacy), GEL 14.9 million from P&C
insurance, GEL 2.0 million from medical
insurance, and GEL 20.0 million from the
renewable energy businesses. Looking forward
to 2022, we currently expect approximately
GEL 90-100 million in dividends from our
investee companies.

Value creation
Our portfolio value increased by 24.4% to
GEL 3.62 billion during the year, reflecting
23.5% and 28.1% growth in the value of our
private and listed businesses, respectively.
The private portfolio value growth of
GEL 558.9 million mainly reflects the net impact
of a) GEL 592.3 million value creation,
b) investments of GEL 18.3 million, predominantly
in the education and renewable energy
businesses, and c) a decrease of GEL 59.9
million due to dividends received by Georgia
Capital from the private portfolio companies.

levels in all segments, but predominantly in
the consumer, micro and SME portfolio. The
Bank is clearly making significant progress in its
digital transformation, which is leading to strong
customer franchise and revenue generation
growth. Reflecting the strong economic recovery,
BoG’s share price increased by 36.7% in 2021,
strongly supporting our NAV growth with
GEL 164.1 million value creation. In addition, the
Bank restarted its regular dividend programme
with an interim dividend in November 2021 that
generated GEL 14.5 million dividends for Georgia
Capital and, on 22 February 2022, the Bank
announced its board’s intention to recommend
a final dividend for 2021 of GEL 2.33 per ordinary
share at the Bank’s 2022 Annual General
Meeting. This will make a total dividend paid
in respect of the Bank’s 2021 earnings of
GEL 3.81 per share.

The operating performance of our various
private portfolio investments was also
exceptional, as evidenced by the aggregated
revenue and EBITDA growth rates in 2021
of 23.8% and 34.9% respectively. This
performance is even stronger compared to
the 2019 pre-pandemic comparisons, with
equivalent growth rates of 33.9% and 38.5%
respectively. The individual performances
of our private businesses are described in
greater detail later in this report.

Environmental, social and governance
At Georgia Capital, we recognise the increasing
importance of the environmental, social and
governance (ESG) issues that we all face. There
is significantly more detail later in this report
and in our first Sustainability Report with regard
to the good progress we are making and we
are committed to providing more information
to highlight our good work on ESG matters.
We have a strong track record on governance
issues, but will be increasingly focusing on
communicating our progress on environmental
and social issues as well. This is a significant
issue, owned and regularly discussed at
Board level. We are committed to conducting
our business in an environmentally, socially
responsible and sustainable manner in order
to reduce the environmental impact of our
operations, while at the same time improving
social performance to enhance long-term
returns to you, our shareholders.

Our Responsible Investment Policy is now fully
integrated into our investment and portfolio
management processes and procedures, and
is firmly guided by the leading responsible
investment and ownership principles. We have
aligned with, and have adopted to the extent
applicable to our company:
• United Nations-backed Principles of
Responsible Investment (UN PRI) –
6 Principles.

Our listed investment – Bank of Georgia –
delivered a remarkable performance in such a
challenging environment, with an annualised
ROAE of 25.8% and strong 19.8% loan book
growth, on a constant-currency basis, during
2021. The loan book growth was largely
driven by continued strong loan origination

• UN Global Compact – 10 Principles.
Georgia Capital is a signatory to the
UN Global Compact.

• UN Sustainable Development Goals

(UN SDGs).

• Taskforce on Climate-related Financial
Disclosures (TCFD) recommendations.

Who before what – the strength of
our people
Our management and people continue to be the
foundation of Georgia Capital’s success. Since
quality people are our main asset, as in past
Annual Reports, I want to reaffirm to you, our
shareholders, my belief in that quality. This is not
a difficult task, as in my everyday experience
I meet external people of all kinds reviewing our
businesses who are invariably impressed by the
quality of our various teams of people. I firmly
believe that the quality of the team in our water
utility business was a significant selling point in
the recent sale of the business to FCC Aqualia.

At the Georgia Capital level, and in each of
the operating companies, I am able to look
to the future with great optimism. I would not
be able to do that without being confident in
the knowledge that we have attracted, and
continue to attract, the best talent available to
constantly nurture and grow our businesses.
We do not invest in businesses unless we
have certainty that we have the very highest
calibre of people to run them. I want to thank
all of our colleagues for their continuing and
unwavering support, throughout what have
been unprecedented times.

Outlook
While the management teams in our portfolio
companies have demonstrated a strong focus
on and success in navigating the challenges
and opportunities created by the pandemic,
Georgia Capital has continued to deliver on
its key strategic priorities, whilst we too have
managed the, often daily, challenges of the
continuing impact of the global pandemic.
Looking ahead, assuming the Russia-Ukraine
conflict does not spiral out of control, the direct
implications for Georgia’s economy and our
businesses are manageable. Based on our
proven governance, capital discipline, and
sound capabilities to invest, grow and monetise
businesses, I believe Georgia Capital is in a
very good place to take advantage of emerging
opportunities in Georgia and deliver consistent
NAV per share growth.

This Strategic Report as set out on pages
2 to 121 was approved by the Board of
Directors on 24 March 2022 and signed
on behalf by Irakli Gilauri, Chairman and
Chief Executive Officer.

Irakli Gilauri
Chairman and CEO
24 March 2022

Photo Khevsureti, Georgia

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GEORGIA CAPITAL STRATEGY

Georgia Capital PLC Annual Report 2021

GEORGIA CAPITAL – A PLATFORM FOR INVESTING
IN, UPSCALING AND MONETISING LARGE
OPPORTUNITY BUSINESSES IN GEORGIA

• Developing and growing businesses to the equity value of GEL 0.5 billion to realise

proceeds through an exit, as investments mature.

• LSE premium listed, with more than 90% institutional shareholder base.

• Running an efficient cost structure with no management or success fees.

GEORGIA CAPITAL STRATEGY IS BASED ON THREE FUNDAMENTAL ENABLERS

SUPERIOR ACCESS TO CAPITAL1

ACCESS TO GOOD MANAGEMENT

• Only Group of its size and scale focused on investing

• Highly experienced senior management team, which grew

in and 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.

• Proven track record in monetising investments through

cash exits.

• 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.

• 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 (six-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.
• Delivered on last year’s commitment to disclose against the Task
force on Climate-related Financial Disclosures (TCFD framework)
and enhanced ESG reporting by publishing our first annual
standalone Sustainability Report.

• On page 123 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.

Photo View of Georgian capital city, Tbilisi,
skyline cityscape in evening illuminations.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business22

Georgia Capital PLC Annual Report 2021

GEORGIA CAPITAL STRATEGY CONTINUED

STRATEGIC PRIORITIES IN 2021

UPCOMING STRATEGIC UPDATE

PRIORITY #1: REALIZING VALUE OF ONE LARGE INVESTMENT

In November 2020, Georgia Capital announced its objective to execute a trade sale of one of its
large businesses in an 18-24-month period.

The disposal of the water utility business (discussed in detail on page 8), marks the achievement of
that key strategic priority and the successful completion of the full investment cycle of our strategy:
to invest, grow and monetise via a cash exit.

PRIORITY #2: DIVESTMENT OF “OTHER” PORTFOLIO

“Other” portfolio companies comprise 6.2% 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 a 2-3-year period.

The sale of the commercial real estate assets (discussed in detail on page 11) demonstrates steady
progress on our strategic priorities.

The disposal of the water utility business for US$ 180 million creates significant cash proceeds
which have been received in full in February 2022. Currently, the net cash proceeds are being held
in cash and cash equivalents, and yield-bearing marketable debt securities, pending a review by
our Board to determine the appropriate investment, deleveraging and capital return policies in the
light of the prevailing economic outlook, our share price and discount to net asset value, and any
available investment opportunities.

Proceeds in the amount of US$ 180 million will be deployed in a combination of:
• Share buybacks.
• Deleveraging.
• Possible new business investments.
• Lending to our portfolio companies, including US$ 95.4 million towards the

refinancing of the outstanding GGU green bond.

The Board review will be completed shortly, and a further announcement will be made regarding
our updated strategic priorities.

Photo Batumi,
Adjara, Georgia.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business24

MARKET AND INDUSTRY OVERVIEW

Georgia Capital PLC Annual Report 2021

SWIFT REBOUND UNDERSCORES
ECONOMIC RESILIENCE
Georgia has bounced back swiftly following a difficult year that challenged the resilience
of the economy. With a preliminary 10.6% y-o-y growth beating all expectations in 2021,
the economy stands at 103.2% of its 2019 level. Despite substantial uncertainty enduring,
the medium-term outlook remains strong. Exceptional growth has allowed the fiscal policy
to balance the contractionary effects of the tight monetary stance that aims to curb inflation.
With the gradual unwinding of policy support underway, the private sector has proved robust,
and recovery has sustained pace. External demand has aided domestic activity in mitigating
the aftermath of shock, with the tourism sector displaying first signs of recovery and promising
to deliver an additional boost to the economy.

Real GDP growth

50,000

40,000

30,000

7.4%

6.4%

20,000

10,000

-10,000

-20,000

Country rating

Fitch rating outlook

Current account balance (% of nominal GDP)

Georgia is favourably placed among peers

Country

Armenia

Azerbaijan

Belarus

Czech Republic

Georgia

Kazakhstan

Turkey

Ukraine

B+

BB+

AA-

BBB

BB-

Stable

Negative

Stable

Negative

Stable

Macroeconomic overview and outlook
The COVID-19-induced shock made a
significant impact on the Georgian economy
in 2020, as evaporating service exports and
shrinking domestic demand weighed heavily
on economic performance and scaled back
the progress achieved by the end of 2019
with the economy standing very close to its
potential level. However, economic recovery
was swift and forceful in 2021, picking up pace
from March and reaching a preliminary 10.6%
y-o-y in 2021, including a 28.9% y-o-y surge
in the second quarter on the back of pent-
up demand. While the impressive rebound
was aided by a low base effect, the economy
also posted solid growth compared to 2019,
expanding by 3.2% in 2021.

Double-digit recovery of the economy in 2021

10.6%

following a 6.8% recession in 2020

having been cut to -6.8% of gross domestic
product (GDP), as well as robust lending in
both national and foreign currencies (total loans
to the economy up 18.1% y-o-y at the end of
2021 excluding the exchange rate effect). On
the external side, remittance inflows continued
exceptional performance from the previous
year (up 24.6% y-o-y in 2021 and by 35.6%
compared to 2019), while merchandise exports
exceeded 2019 levels by 11.7% (up 26.9%
y-o-y) and tourism revenues rebounded to 58%
of 2019 level in December 2021 (38.1% of 2019
level for the full year, including 52.2% in 2H21),
after bouncing back from the second half of
the year.

Strong rebound in tourism

58%

of 2019 level in December 2021, with average
spending per arrival more than doubling
compared to 2020

beginning of 2021, while, as aggregate demand
strengthened, imports caught up from the
second half of the year, growing by 25.9% y-o-y
in 2021 and by 5.9% compared to 2019.
All of the investment, consumer and
intermediate goods contributed to the recovery
in external trade, as the trade deficit reached
US$ 5.8 billion, up 25% y-o-y and by 2%
compared to 2019. Importantly, domestic
exports (without re-exports) reached a record
high of US$ 3.1 billion in 2021, accounting for
74% of total exports and growing by 29.9% y-o-y.

With strong merchandise export performance
aided by robust remittance inflows and tourism
revenues, the current account balance (CAB)
reached -9.7% of GDP in 9M21, down to
single digits after widening to 12.4% of GDP in
2020. The CAB is expected to continue further
improvement to pre-pandemic levels as service
exports, and tourism revenues, in particular,
are set to bounce back gradually. Foreign
Direct Investment (FDI) inflows made up
US$ 728 million in 9M21, up 3.2% y-o-y.

On the domestic side, the rebound was driven
by expansionary fiscal policy, which remained
accommodative despite the overall deficit

Following a reduction in the merchandise
trade deficit to aid external adjustment in
2020, exports rebounded swiftly from the

The unemployment rate reached 19.0%
in 4Q21, down from the peak of 22.1% in
2Q21. More than 79,000 jobs were added

11.0%

4.4%

3.6%

3.0%

2.9%

4.8%

5.1%

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

-6.8%

-6.4%

9M
2020

9M
2021

Nominal GDP, GEL million

Real GDP growth rate, y-o-y

-10

-20

-30

6.2% 5.9% 10.3%

11.1% 10.3%

12.1% 7.4% 7.7%

6.9% 7.5%

5.5%

3.6%

6.1%

-5.6%

-9.8%

-12.2%

-11.4%

-10.2%

-11.8%

-12.5%

-8.1%

-6.8%

-5.5%

-12.4% -12.1%

-9.7%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

9M
2020

9M
2021

Goods, net
Services, net

Investment income, net
Current transfers, net

Current account
FDI, inflows

Overall balance, IMF modified

-2%

-4%

-6%

-8%

-10%

-2.8% -2.7% -3.0% -2.7%

-2.3%

-2.0%

-3.0% -2.7%

-2.5%

-4.4%

-6.7%

-9.3%

2014

2015

2016

2017

2018

2019

2020

2021F

2022F

2023F

2024F

2025F

12%

10%

-2%

-4%

-6%

-8%

compared to the beginning of the year, while
the number of people participating in the labour
force increased by 145,000, as the labour
participation rate returned to 2019 levels.

The consolidated budget overall deficit was over
GEL -3.8 billion in 2021, down 18% y-o-y, with
the annual deficit (International Monetary Fund
(IMF) modified) planned at -6.8% of GDP, down
from -9.3% in 2020. Reduction in the fiscal
deficit was mostly attributed to high revenues
stemming from a swift economic recovery, with
the consolidated budget revenues growing
by 22% y-o-y, including a 22% y-o-y growth
in tax revenues. Strong revenue performance
allowed current (+15% y-o-y) and capital (+4.5%
y-o-y) expenditures to increase whilst cutting
the deficit in line with the fiscal consolidation
plan, although expenditures also moderated
from the second half of the year, growing by
6% y-o-y in 2H21 as opposed to 13% y-o-y in
1H21. With the Government borrowing in order
to meet financing needs in 2020, the general
Government gross debt increased from 40.4%
to 60.2% of GDP by the end of 2020 but is
expected to have fallen to 51.1% of GDP by
the end of 2021 as GEL has strengthened and
the economy has rebounded. In line with the
Economic Liberty Act of Georgia, which sets
ceilings of 3% for the fiscal deficit and 60%
for debt while allowing for a three-year grace
period, the parliament has ratified the 2022
budget law laying out a path towards the deficit
declining to 3% and debt standing at 50.2%
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 CAB 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 in 2020.
The number of international visitors to Georgia
increased on average by 15% over 2012-2019
but fell by 81% in 2020, rebounding by 7.7%
y-o-y in 2021 as recovery accelerated from the
second half of the year. However, despite the
number of travellers posting modest recovery,
tourism revenues grew 2.3 times in 2021,
reaching US$ 1.2 billion, pointing to significant
growth potential. Outlook for tourism growth
remains uncertain, with the regional tensions,
vaccine roll-out facing complications around the
world and new COVID-19 variants threatening
international travel prospects, although the
future recovery in the tourism sector is set to
inject a reinvigorated stimulus into the economy.

Average inflation was 9.6% in 2021, significantly
above the 3% target. All major components
contributed to rising inflation in 2021 as supply-
side effects persisted throughout the year,
with global food prices reaching record highs
and asymmetrically affecting less developed
nations, oil and energy prices surging, input
costs rising and transportation difficulties
putting further pressure on prices. Despite

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business26

Georgia Capital PLC Annual Report 2021

MARKET AND INDUSTRY OVERVIEW CONTINUED

GEL strengthening, imported inflation has been
by far the most significant driver of increasing
prices on the back of the global supply crunch
affecting the rest of the world. On the domestic
side, rising utility tariffs added to cost-push
effects, exacerbating inflationary pressures.
The National Bank of Georgia (NBG) began
tightening monetary policy from March 2021
and hiked the policy rate to 10.5% in December
by a total of 250 basis points in 2021, citing
strong domestic demand, accelerated lending
and the risk of persisting inflation transforming
into long-term inflationary expectations. Foreign
exchange market interventions were relatively
constrained in 2021, amounting to US$ 333
million, 2.6 times smaller compared to 2020
and the bulk largely coming in the first half of
the year. International reserve assets increased
by 9.2% y-o-y and totalled a record high of
US$ 4.2 billion at the end of December 2021,
providing ample cover.

The nominal effective exchange rate (NEER)
was up by 18% y-o-y and the real effective
exchange rate (REER) was up 20% y-o-y
by the end of 2021. USD/GEL stabilised in
the second half of the year and continued
strengthening into 2022, appreciating by 7.9%
compared to the beginning of 2021 and by
12.7% compared to 2021 low as of 24 February
2022. Appreciation drivers include record-high
remittances, solid recovery in merchandise
exports, rebounding tourism revenues,
accelerating foreign currency lending on the
back of strong economic activity and significant
interest rate differential due to tight monetary
policy, as well as negative expectations easing.
The currency appreciation trend has reversed
since the escalation of the Russia-Ukraine
conflict, as the USD has been strengthening
globally and extraordinary uncertainty has
gripped the markets. Compared to 24 February
2022, Lari depreciated against US dollar by
6.8% as of 18 March 2022.

Robust GEL strengthening

appreciation against US$ compared to the
beginning of 2021 (as of 24 February 2022)

NBG introduced new regulations for
commercial banks aimed at decreasing
dollarisation, reducing reserve requirements
on funds attracted in foreign currency based
on the deposit dollarisation level, and reducing
the currency induced credit risk buffer based
on the loan dollarisation level.

to a strong macroeconomic policy response
and structural reforms carried out within the
IMF Extended Fund Facility (EFF) programme.
After repaying its ten-year, 6.875% coupon
Eurobonds, issued in 2011, the Georgian
Government priced US$ 500 million five-year
Eurobonds at a record low coupon of 2.75% in
April 2021. The low coupon rate marks a strong
achievement for Georgia, giving the country
a competitive edge over comparable regional
countries and confirming investor confidence
in the macroeconomic environment.

Georgia concluded its US$ 285 million three-
year IMF EFF programme in April 2021. The
programme, 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. In its
final assessment, the Executive Board deemed
the policy stances appropriate and welcomed
the implemented structural reforms whilst
advising for continued reform in order to deliver
sustained growth. Discussions are underway
to negotiate a new programme with IMF which
will continue to serve as a macroeconomic
policy anchor.

A new economic and investment plan for the
Eastern Partnership countries, presented in
July 2021, should bring at least EUR 3.9 billion
of investments to Georgia. Enhancing Black
Sea connectivity is a top priority. Deployment of
submarine fiber optic cables, a feasibility study
to deploy submarine electric cables between
Georgia and the EU and developing new ferry/
feeder services as well as refurbishing ports
will further integrate Georgian and EU markets,
contribute to improving energy security and
create direct links for trade and movement
of people. Other important initiatives include
technical support for the small and medium-
sized enterprises (SME) sector to adapt to
the Deep and Comprehensive Free Trade
Agreement (DCFTA) requirements, improving
digital connections by developing high-speed
broadband infrastructure in rural areas and
improving air quality by installing air monitoring
systems and contributing to green and
sustainable transport in Tbilisi.

IMF estimates Georgia’s GDP growth to reach
5.8% in 2022 (October 2021 forecast), with
inflation expected to decelerate close to the
3% target by the end of the year, while the
medium-term growth (2022-2026) to stand
at 5.4%, one of the highest in the region.

Fitch Ratings revised the negative outlook to
stable in August 2021 (and affirmed the stable
outlook in February 2022), citing a “much-
improved macroeconomic baseline” with
growth gaining momentum and a credible
policy mix responding to both domestic and
external pressures. Moody’s reaffirmed the
stable outlook in September 2021, pointing

Medium-term (2022-2026) economic
growth rate

5.4%

One of the highest in the region
(IMF, October 2021 WEO)

However, the uncertainties related to the
outcome of the Russian-Ukrainian conflict
as well as the impact of the potential spillovers
on Georgia remain high.

The fiscal deficit is planned to be narrowed
to -4.4% of GDP in 2022 and to 3.0% in 2023,
while debt is projected to decline to 51.1%
of GDP by the end of 2022 and to 47.7% by
the end of 2025. NBG has declared to strictly
adhere to the inflation target and maintain
the tight policy until inflation and inflationary
expectations subside. The appropriate policy
mix, combined with the swift resurgence and
improving macroeconomic environment, has
ensured that the economy remained resilient in
the face of the crisis, albeit uncertainty persists.

COVID-19 update
The Georgian Government took significant
steps at the early stage of the COVID-19
outbreak, imposing a range of restrictions
like elsewhere around the world. Since
February 2021, the economy has been fully
reopened for the better part of the year.
Despite new COVID-19 cases rising again
periodically, most notably in August and
November 2021, as well as in 2022 due to
the Omicron variant spreading, no new major
restrictions have been imposed, hospital bed
capacity remains adequate, and economic
recovery has sustained pace, pointing to the
ability to successfully manage a potential
epidemiological deterioration.

Land borders have been opened for the EU
and 40 additional countries since 1 June 2021,
while the 11 pm curfew was lifted on 1 July
2021. Since December 2021, the Green Pass
programme came into force, with a green pass
(proof of vaccination, a 72-hour negative PCR
or a 24-hour negative antigen test, or proof
of the previous infection) required to enter
restaurants, cafés, bars, cinemas, theatres,
opera houses, museums, concert halls,
entertainment facilities, casinos, spa centres,
gyms, hotels and mountain resort cable
cars. The Green Pass is no longer required
since February 2022, with the Government
citing a combination of rapid spread with
a relatively low risk of complications due
to the Omicron variant.

Both fiscal and monetary authorities switched
to accommodative measures during the initial
phase of the COVID-19 shock. NBG declared
an active participation policy to prevent liquidity
shortages in both national and foreign currency
markets, eased non-price conditions, released
capital and liquidity buffers, and introduced
swap operations to support liquidity. The
Government managed to attract external
financing at the onset of the crisis, adopting
an expansionary fiscal stance and boosting
the country’s foreign exchange reserves. The
Government introduced targeted measures
to address the crisis, including a GEL 3.5 billion
package for social aid, economic support
and healthcare boosting, as well as special

support packages for the tourism, agriculture
and real estate sectors. Most of the supporting
measures are set to be gradually rolled back
from 2022 as the economy has strengthened
and fiscal consolidation is underway. NBG
has also switched to a tightened policy stance
in order to combat high inflation.

Vaccination has begun since March 2021,
with supply secured for Pfizer-BioNTech,
AstraZeneca, Sinopharm and Sinovac
vaccines. As of 18 March 2022, 47.2% of
the total adult population were vaccinated at
least once, while 43.6% were fully vaccinated.
Pfizer-BioNTech vaccines account for the
bulk of administered shots (over 55%). 28,970
COVID-19 cases (1.8%) remained active, while
the seven-day positive rate was equal to 6.61%.

Reform-driven success
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 in which
to start a business. Furthermore, Georgia
is ranked 12th out of 180 countries by the
Index of Economic Freedom measured by the
Heritage Foundation in 2021 and 29th out of
194 countries in Trace International’s 2021
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 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 taxes, 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
(adopted in September 2020 and into force
since April 2021).

Despite 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 current account (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 employee
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, NBG
took macroprudential measures to decrease
household indebtedness and enhance financial
stability and strengthen regulation, supporting
the financial system’s resilience to currency
fluctuations and FX-induced credit risks.

Public debt down to

51% of GDP

by the end of 2021, from 60%,
according to the Ministry of Finance (MoF)

A business-friendly environment, renowned
in the region for best-in-class governance,
well-developed infrastructure, stable energy
supply, flexible labour legislation, a 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.

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. 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.

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 9M21, total FDI amounted to US$ 728 million,
up 3.2% y-o-y. Major sectors attracting FDI were:
finance (40% of the total), energy (26.5%) and
manufacturing (19%). The share of reinvestment
by foreign companies in total FDI was 84.2% in
9M21, slightly down from 87.5% in 2020, and
significantly higher compared to 48.4% in 2019.
The 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.

Free trade agreements
There have been significant changes in
Georgia’s export structure and destination
markets in recent years; however, Georgia has
not yet fully tapped into international markets.
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. Another significant
change concerns the growing importance of
China as a Georgian exporting market, as the
FTA effective from January 2018 has brought
a major acceleration of exports to China.
Since 2013, Georgia’s developed logistics and
transport infrastructure has helped shore up
opportunities for new re-export commodities,
including copper and pharmaceuticals.
Domestic exports, which posted a positive
3.5% y-o-y growth rate in 2020 to limit the
effect of a significant fall in re-exports, have
remained resilient in 2021, growing by 29.9%
y-o-y in 2021 and accounting for over 74% of
total exports.

Together with established destinations,
improved access to new large markets,
such as the EU, China and Hong Kong,
could increase market penetration. 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.

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Georgia Capital PLC Annual Report 2021

MARKET AND INDUSTRY OVERVIEW CONTINUED

The EU-Georgia Association Agreement, which
came into force in July 2016, and the related
DCFTA, effective since September 2014, have
laid the 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.

Georgia’s FTA with China, effective from January
2018, and its FTA with Hong Kong, effective
from February 2019, has been increasing
opportunities to further accelerate exporting
markets and attract investors by offering a
business-friendly environment, strong corporate
governance standards and access to a market
of 2.8 billion customers. China became the
single largest destination country for Georgian
exports in 2020 and retained its position in
2021, accounting for 14.5% of total exports in
2021 (14.3% in 2020). China is also the largest
consumer of Georgian domestic exports,
responsible for just under a fifth of the total.

of the crisis included suspending the capital
conservation buffer, supported introducing a
three-month grace period for loan repayments,
postponing regulations on credit concentration
and large risks, suspending on-site inspections,
declaring a temporary moratorium on new
regulatory activity, eliminating fines for violating
certain economic limits and easing lending
restrictions. Moreover, 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.

NBG announced in June 2021 that regulatory
assessment showed the banking sector
gradually returning to pre-pandemic trends,
with banks expected to post “solid profit” in
2021. Therefore, NBG decided to reinstate the
capital conservation and currency induced
credit risk buffers from 1 January 2022, with
the banking sector given until 1 January 2024
and 1 January 2023, respectively, to return to
the regulatory requirements.

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 15.8% (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.
The sector has remained resilient in the face
of challenges brought by the COVID-19 shock.
Regulatory assistance from NBG at the onset

NBG continued its active de-dollarisation
policy by introducing new measures aimed
at cutting the dollarisation level. Since July
2021, minimum reserve requirements for funds
attracted in foreign currency are being set
individually for commercial banks, depending
on their deposit dollarisation levels. Instead
of the previous flat 25% ratio, banks are now
required to maintain reserves for only 10%
of foreign currency attracted funds if their
deposit dollarisation rate is under 40%. The
reserve requirement remains 25% if deposit
dollarisation is over 70%, with the reserve ratio
scaling linearly in the 40%-70% range.

Moreover, in December 2021, NBG introduced
a similar measure with respect to the currency
induced credit risk (CICR) buffer, linking the
buffer with the banks’ loan dollarisation levels.
Instead of the previous flat 75% rate, the CICR
buffer has been set at 40% if a bank’s loan
dollarisation level is below 40%, with each
successive percentage point increase in the

Inflation vs inflation target

16
14
13
12
11
9
8
7
6
4
3
2
1
-1

15%

10%

6
1
-
b
e
F

6
1
-
n
u
J

6
1
-
t
c
O

7
1
-
b
e
F

7
1
-
n
u
J

7
1
-
t
c
O

8
1
-
b
e
F

8
1
-
n
u
J

8
1
-
t
c
O

9
1
-
b
e
F

9
1
-
n
u
J

9
1
-
t
c
O

0
2
-
b
e
F

0
2
-
n
u
J

0
2
-
t
c
O

1
2
-
b
e
F

1
2
-
n
u
J

1
2
-
t
c
O

Headline inflation

Core inflation

Target

loan dollarisation level to be followed by a
three percentage point increase in the CICR
buffer up to a maximum of 100%. The new
regulation entered into force in January 2022,
but those banks needing time to adhere to the
CICR buffer requirements have been given a
year to satisfy the criteria. NBG also tightened
foreign currency mortgage lending regulations,
reducing the maximum foreign currency
mortgage maturity to ten years instead of
the previous 15, citing vulnerability due to a
large number of unhedged borrowers and a
subsequent potential systemic risk buildup in
the banking sector.

Fitch Ratings, which downgraded the
outlook on Georgian banks to negative in
April 2020, revised the outlook to stable in
March 2021, citing reduced pressure on the
banks’ credit profiles and the banks’ “intrinsic
strength”. In September 2021, IMF published a
comprehensive report of the Georgian financial
system stability assessment, in conjunction
with an Article IV consultation with Georgia. The
report found that the financial sector has proved
resilient, supported by strong pre-crisis buffers
and profitability, as well as pro-active policy
measures. Simulations with potential adverse
scenarios regarding solvency and liquidity
measures revealed that the banking sector
remains resilient in the face of negative shocks.

The banking sector ended 2021 with record
net profits of GEL 2.1 billion (with 13 banks
out of 14 registering a profit), compared to
GEL 99 million in 2020. The low profit in 2020
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. However, 2021 profits were
significantly higher compared to 2019 as well
(up 2.2 times). Revenues reached GEL 6 billion
in 2021, up 22.3% y-o-y, while total expenses
reached GEL 3.6 billion, down 24.4% y-o-y.
Non-performing loans (IMF methodology)
reached 1.9% of total loans by the end of 2021,
compared to 2.3% at the end of 2020. Return
on assets (ROA) was 3.9% (0.1% at the end of
2020) and return on equity (ROE) was 34.4%
(1.4%), while average capital adequacy ratio
was 19.6% (17.6%) and the liquid asset ratio
was 20.2% (20.4%).

The loan portfolio proved extremely resilient
in 2021, despite a tightened monetary stance, as
credit to the economy increased by 18.1% y-o-y
(excluding the exchange rate effect) by the end of
2021, including a 24% growth in GEL loans and
a 12.7% growth in foreign currency loans. Foreign
currency loans have accelerated significantly,
reflecting rebounding economic activity and the
high interest rate differential. Mortgage loans
increased by 12% by the end of the year, while
business loans increased by 19.3%. As for
deposits, commercial bank deposits increased
by 12% by the end of 2021, including a
26.8% growth in GEL deposits and a 12.4%
growth in foreign currency deposits (without
Government deposits).

Deposit dollarisation was 60% at the end of
2021, down from 61.5% at the end of 2020.
Loan dollarisation followed a similar trend,
reaching 50.8% by the end of 2021, down
from 55.7% by the end of 2020.

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 the
growth of services exports.

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 Universal Health Care (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, 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 vast potential for further increase
since Georgia has one of the lowest per capita
expenditures on healthcare among the benchmark
countries. Healthcare spending per capita 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.

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
a CAGR of 12% over 2011-2020 years and was
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. The growth of overnight visitors,

1 NCDC 2018

Retail (pharmacy)
The pharmaceutical market in Georgia is
highly concentrated, with three major players
holding approximately 78% of the market
share. The Georgian pharmaceutical market
is highly dependent on imports. The share
of locally produced drugs on the market is
c.14% as opposed to only 5% in the early
2000s. There are over 100 importers of
pharmaceutical products in Georgia, but
approximately 80% of all imports are performed
by three companies: GEPHA (approximately
28%), PSP (approximately 28%) and Aversi
(approximately 24%). Domestic production
is represented by over 30 companies and is
dominated by two players, with approximately
83% 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 the new Government initiative,
from January 2022 Turkey has also been
added to the list of parallel import countries,
meaning companies would be allowed to
import, without further national authorisation,
all pharmaceutical products approved by
the Turkish regulator. The initiative aims to
increase the variety and accessibility of pharma
products in the country.

According to management’s estimates based on
the third-party data, generics account for 73%
of the total market revenues, which is somewhat
higher than the EU average (c.50%). However,
there is still market opportunity for generics
– in the leading economies like Germany and
the UK, generics hold a dominant share of
more than 80% (in the reimbursed segment).
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 a
significant contribution to trade turnover. Trade
of medicines packaged in measured doses is
a considerable source of income. Imports of
medicines were the fourth largest commodity
group, amounting to US$ 382 million (3.8%
of total imports), while re-export of medicines
was the ninth-largest export commodity group,
amounting to US$ 99 million (2.3% of total
exports) in 2021.

Water Utility
Georgia is a rich country 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
ensure the 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 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 641,000 private health insurance (PHI)
policies in force by the end of September
2021. The corporate segment accounts for
the major portion of the PHI market – 93.7%
of all policies are acquired by employers, and
the rest (40,100) 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 2020, the Georgian property
and casualty insurance sector grew by
248%, with insurance revenue increasing to
GEL 368 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 380 million in 2020; an increase
of 235%. The largest six insurance providers
in Georgia account for approximately 80%

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Georgia Capital PLC Annual Report 2021

Georgia Capital PLC Annual Report 2021
Georgia Capital PLC Annual Report 2021

31
31

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%.

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

MARKET AND INDUSTRY OVERVIEW CONTINUED

of the market. The level of insurance market
penetration in Georgia amounts to 1.4% (of
which 0.8% is attributable to the property and
casualty insurance market) as at 31 December
2020. This was lower than insurance
penetration in more developed countries such
as the United Kingdom, France, Switzerland
and Belgium, which had penetration rates of
11.1%, 8.6%, 8.4%, and 6.1%, respectively,
and was also lower than penetration in
neighbouring countries such as Slovenia,
Poland, Bulgaria, Turkey and Russia, which
had penetration rates of 5.0%, 2.6%, 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 52% of
the total retail insurance market in Georgia, of
which 11% 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. Electricity demand
for the last decade has been growing on
average by 5.1%. 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 4.5% for the next
decade, the Government is promoting the
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 HPPs constructed after August
2008 have been deregulated, which served as
a first step towards the establishment of a free
electricity market. In 2014, the 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. Deregulation
continued in 2021 – all entities with monthly
consumption of more than 0.4GWh and with
35-110kV access lines were registered as
direct consumers. This process will continue
in 2022 and the following years as well, further
increasing the share of the deregulated market.

At the end of December 2019, the Parliament
of Georgia has adopted the new Law on
Energy and Water Supply and the Law on
Renewable Energy Sources. The draft of the
law on Energy was prepared by the Energy
Community Secretariat taking into account
the specifics of the Georgian energy market.
In 2020 and 2021 several important laws were
adopted to prepare Georgia’s energy market
for the reforms in 2022. The establishment of
the new energy exchange was a step forward
to the reform of the Georgian energy sector.
In December 2019, the Georgian Energy
Exchange was founded with 50%-50%
co-participation of Georgian State Electro
system and Electricity System Commercial
Operator. The Georgian Energy Exchange
will be responsible for organising day-ahead,
intraday and bilateral markets through the
software services of consulting company
“Nord Pool Consulting”.

Education
The private K-12 education industry in Georgia
is growing at a rate twice that of the nominal
GDP growth rate, at a compound annual
growth rate of 16% from 2013 to 2019 to reach
GEL 280 million, according to Galt & Taggart,
driven by both increasing enrolments and rising
tuition fees.

We believe there is a consolidation trend that
represents an opportunity in a fragmented
market. The number of private schools in the
Georgian market has decreased from 245 in
2011 to 218 in 2021 and at the same time, the
average private school size has increased from
212 learners per school to 275 learners per
school. Based on our estimation, the market
share of the ten largest players has increased
from 15% 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 schools
as well as increasing household income and
decreasing unemployment rates (prior to the

Photo Metekhi church – located on the bank of river
Mtkvari, built in the 12th century. In front of the Metekhi
Church stands a statue of King Vakhtang Gorgasali – the
founder of Tbilisi.

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Georgia Capital PLC Annual Report 2021

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. In line with its capital
allocation strategy, the Group emphasizes
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 the 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.
In August 2021, Georgia Capital commenced a
US$ 10 million share buyback and cancellation
programme, over a 12 month period. In
January 2022, the Board approved an increase
in the ongoing buyback and cancellation
programme of an additional US$ 5 million,
which was further increased by US$ 5 million
in March 2022. The programme continues
for the 12-month period beginning 10 August
2021. The developments of the programme are
summarised in the table below.

360-DEGREE ANALYSIS – A STRONG FOUNDATION FOR VALUE CREATION

GCAP’s share price is at the core of our decision-making when it
comes to investments

Georgia Capital’s share buyback highlights

We perform 360-degree analysis each time we make a capital allocation
decision and compare:
•
• Sale opportunity versus buyback opportunity.

Investment opportunity versus buyback opportunity.

Period

2021 year

Value of
shares
repurchased
(US$ million)

Number
of shares
repurchased
(thousand)

1-Jan-22 - 18-Mar-22
Value of
shares
repurchased
(US$ million)

Number
of shares
repurchased
(thousand)

We are targeting to invest in opportunities which produce greater returns than
buying GCAP shares

k opport u

c
a
b
y
u
B

i e s

n i t

360°
analysis

Inve

p
o
r
t
u
n
ity

Sale oppor t u n i

7.95

6.99

0.96

5.81

–

943

824

119

824

679

–

549

Georgia Capital
share buybacks

Of which,
programme

Of which,
management
Trust

Number of
Georgia
Capital shares
cancelled

adopted cash preservation strategy which was
adopted as a response to the uncertainties
caused by the pandemic. This, supported
by robust liquidity at GCAP and a high
discount to the reported NAV, has allowed
for the resumption of the share buyback and
cancellation programme. Throughout the year
there was a particular focus on delivering the
Company’s strategic priorities: realising the
value of one of the large portfolio companies
through a trade sale and divesting the subscale
(“other”) businesses. The sale of the water
utility business, as described in detail on pages
8-10 in this report, represents a milestone
achievement for GCAP, given that the Group
will have completed the full investment cycle
of its current strategy, namely to invest, grow
and monetise a significant investment via
a cash exit. GCAP has also demonstrated
steady progress in the divestment of
subscale businesses by selling US$ 45 million
commercial real estate properties since June
2021. In 2021, in line with its capital allocation
outlook, the Company continued investing
predominantly in Renewable Energy and
Education as set out on pages 34-36 of
this report.

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 strategy to succeed, GCAP
must be disciplined in unlocking the value
of companies in which it invests and that it
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. GCAP’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, GCAP expects
to pursue its first exit route, which envisages
dividend flows for the Group; 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.

The Chief Strategy Officer is responsible for
overseeing the establishment of structured
exit processes for the portfolio companies, as
Georgia Capital is actively engaged in the price
discovery of portfolio assets held.

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 IRR, MOIC and ROIC are fundamental
metrics used in the investment decision-
making process:
•

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 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.

Strategic pivot in 2021
In 2021, the Group took a number of decisive
strategic actions. The economic recovery
and normalisation of the epidemiological
environment in Georgia enabled our portfolio
companies to transition organically to the
revenue growth strategy from the previously

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.

IRR and MOIC are the key drivers
for GCAP to invest in new opportunities

ROIC is at the core of decision-making when
our portfolio companies are investing or
divesting assets/businesses

KEY MONEY MULTIPLES AT GCAP LEVEL

KEY METRIC FOR REINVESTMENT DECISION-
MAKING AT PORTFOLIO COMPANIES’ LEVEL

IRR

MOIC

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.

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34

Georgia Capital PLC Annual Report 2021

CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES CONTINUED

CAPITAL ALLOCATION OUTLOOK

INVESTING IN RENEWABLE ENERGY

Georgia Capital expects to allocate US$ 50 million net equity capital in investment stage
portfolio companies (Renewable Energy and Education) in the 3-5 years period, of which
US$ 3.9 million was allocated in 2021.

Other than already identified greenfield projects in the renewable energy and education businesses, the Group expects to focus on acquisitions.
By driving the development of these two businesses, the Group expects to realise at least 2.0x 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$ 50 million identified
from GCAP over the next 3-5 years

Of which, US$ 3.9 million was allocated in 2021

Renewable Energy

Education

Limiting expansion through greenfield developments and focusing
on buying cash generating assets at attractive multiples

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 the current increase in fossil energy prices and 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 plants (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, dollar linked cash flows.
• Growing market, with 35% of demand satisfied through imports

Total net investment of c.US$ 36 million identified from GCAP
over the next two to three years
• Of which, US$ 1.1 million was allocated in 2021 for the development

and TPPs.

of pipeline HPPs and wind farm projects.

• High capacity factors.
• Low penetration of air conditioners and high Cooling Degree

• Over the next two to three years, we will be launching pipeline

projects: wind farms in Tbilisi and Kaspi, Zoti HPP and Darchi HPP.

Day (CDD).

Current investment overview at 31-Dec-213
GEL millions

Renewable Energy snapshot

MOIC

IRR

(25)

173

Installed capacity4

Run-rate EBITDA

150

Now

1.3x

10.2%

71MW

In 3-5 years

2.0x+

20%+

243MW

GEL 45mln GEL 116mln2,4

GCAP
Equity invested

Value creation

Dividends

Equity value
31-Dec-21

Range for peer trading multiples1

10x-20x

LTM EV/EBITDA

1 Our valuation peer group multiples as of 31 December 2021.
2 Run-rate EBITDA assuming 3.2 GEL/USD exchange rate.
3 Value creation of GEL 48 million represents value created since initial investment.
4

In 2021, in line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the 20MW power generating unit of Mestiachala HPP
(the HPP was flooded and taken offline in late July 2019) has been suspended.

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Georgia Capital PLC Annual Report 2021

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.

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%

Pre-COVID average: 22%

44.1%

41.9%

30%

20.0%

25.8%

17.6%

19.2%

27.9%

33.5%

28.9%

31.2%

27.4%

25.4%

24.2%

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

Jun-20

Sep-20

Dec-20

Mar-21

Jun-21

Sep-21

Dec-21

US$ 138 million liquid funds as of 31-Dec-21

Net debt overview (GEL millions)

Cash
Marketable securities
Loans issued

1,138

272

154

711

Total value (US$mln)

138

Gross debt
Cash and liquid funds
Loans issued
Net debt

Total net investment of c.US$ 14 million identified from GCAP
over the next four to five years by 2025
• Of which, US$ 2.8 million was invested in the education business in 2021.
• 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.
• 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

MOIC

IRR

Capacity (# of learners)

of which, existing schools

of which, M&A

EBITDA

Now

1.9x

34.2%

5,060

–

By 2025

2.0x+

25%+

21,000

7,200

13,800

GEL 10mln2 GEL 50mln+

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.

Range for peer trading multiples1

7x-22x

LTM EV/EBITDA

Current investment overview at 31-Dec-213
GEL millions

130

Of which:

Premium 41
Mid-level 15
Affordable 14

GCAP
Equity invested

Value creation

Equity value
31-Dec-21

EXPANSION OF THE EDUCATION
BUSINESS IN THE AFFORDABLE SEGMENT

We are scaling up our affordable and high-quality
K-12 education in Georgia through investment
projects, executed in 2021:

#1
Acquisition of an 81%4 equity interest in Georgian - Austrian
School Pesvebi for GEL 3.9 million, providing additional capacity
of 1,200 learners.

#2
Launch of a new (second) campus under the existing affordable
brand - Green School, which will provide education to 600
learners, with the potential to expand its capacity to 1,500-2,000
learners over the next few years by utilising the existing premises.

#3
Capacity expansion of the existing campus of Green School,
adding 450 learner capacity.

1 Our valuation peer group multiples as of 31 December 2021.
2 EBITDA for 2020-2021 academic year.
3 Value creation of GEL 60 million represents value created since initial investment.
4 Georgia Capital will have a call option on the 9% equity stake during the 12 months starting from August 2022.

Capacity Development Highlights

+80.1%

5,060

800
16%

2,810

total capacity
5,060
learners

760
15%

3,500
69%

Total capacity
31-Dec-2020

Total capacity
31-Dec-2021

Premium segment
Mid-level segment
Affordable segment

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”)
which was consolidated and formed a single series with the
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.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business38

OUR MANAGEMENT TEAM

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Georgia Capital PLC Annual Report 2021

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 MSc 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
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. Ia holds a BSc degree from London School of Economics and
Political Science, UK.

Giorgi Ketiladze, Managing 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.

Nino Vakhvakhishvili, Chief Economist
Joined Georgia Capital in 2018. Before joining the Company, she spent over five years at the Macroeconomic
and Statistics Department at the National Bank of Georgia. Nino was IMF’s short-term expert, participated in TA
missions in East African countries (Rwanda, Tanzania) in 2019. She was visiting lecturer at the University of Georgia,
conducted lectures on Macroeconomics during the 2015-2019 years. Nino holds a master’s degree in economics
from the International School of Economics (ISET).

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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 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.

Read more about our management team on
pages 164-166 in the Nomination Committee report.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business

Georgia Capital PLC Annual Report 2021

PERFORMANCE TRACK RECORD3

Dividend record
GEL millions

30%

36%

33%

34%

32%

30%

3.1% 3.2%
98

2.7%

102

2.4%

3.1%

4.0%

4.2%

122

124

Interim
dividend

2013

2014

2015

2016

2017

2018

2019

0
2020

2021

Total Dividend paid for the year

Dividend yield1

Payout ratio

1 Dividend yield is calculated based on the closing price of shares immediately prior to ex-dividend date.

Profits & ROAE2
GEL millions

Return on average equity

22.2%

25.2%

26.4%

26.1%

13.0%

25.8%

727

500

370

379

296

295

2016

2017

2018

2019

2020

2021

2 ROAE is adjusted for one-offs in 2018 and 2019 years.

Loan book growth

24.5%

27.0%

21.4%

15.9%

18.9%

13.9%

30%

25%

20%

15%

10%

2016

2017

2018

2019

2020

2021

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 operations (Corporate
and Investment Banking) in Georgia; and c) banking operations in
Belarus (BNB). BoG is well-positioned to benefit from the growth of the
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.

Performance and strategy
Bank of Georgia Group delivered strong results in 2021. Excellent top
and bottom-line growth and outstanding ROAE was supported by the
improving macroeconomic environment in Georgia, notwithstanding the
temporary restrictions put in place throughout the year as a response
to the COVID-19 pandemic. Both Retail Banking and Corporate and
Investment Banking businesses delivered excellent results. Lending
activity was strong, operating income increased, particularly net interest
income and net fee and commission income generation, and loan book
quality has improved significantly in 2021. The BoG continued its focus
on customer satisfaction, employee empowerment and improving its
digital banking and payments business franchise, while maintaining a
healthy cost to income structure. As a result, Bank of Georgia Group
delivered a ROAE of 25.8% in 2021, while maintaining robust liquidity
and capital 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 segment (through
its SOLO brand) and high-net-worth individuals (through its Wealth
Management private banking services in Georgia and internationally
through representative offices). Bank of Georgia is a leader in the
payments business and financial mobile app, with a strong retail
and corporate banking 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 brokerage business, under the Corporate
and Investment Banking business, BoG is focused on profitable
growth, through unlocking retail brokerage potential and fully digitalising
brokerage services.

Considering the updated macroeconomic outlook, greater clarity
on expected regulatory capital requirements following the rebuild
of released capital buffers and resumption of dividend payments,
Bank of Georgia Group’s medium-term strategic priorities have
been revised in 2021 as follows:
• 20%+ ROAE.
• Loan book growth of c.10%.
• Robust capital management:

– Maintain regular progressive semi-annual dividend payouts:
aiming 30%-50% dividend/share buyback payout ratio;

– Given higher levels of lending growth in the near-term, the Board
currently expects the dividend/share buyback payout ratio to be
approximately 35%-40% over the next two years;

– An interim dividend of GEL 1.48 per ordinary share was paid

on 5 November 2021;

– On 22 February 2022, the Bank announced its Board intention

to recommend a final dividend for 2021 of GEL 2.33 per ordinary
share at the Bank’s 2022 Annual General Meeting. This will make
a total dividend paid in respect of the Banks’ 2021 earnings of
GEL 3.81 per share.

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 (36.0%), loans (35.7%),
client deposits (36.4%) and equity (32.7%) as at 31 December 2021.

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.

Strongest retail banking franchise: 40% market share in deposits of
individuals, 39% market share in loans to individuals.

VALUE CREATION POTENTIAL

Leader in payments and financial mobile app: 51% of total POS payments
transactions are executed in BoG POS terminals.

Growing market: The banking sector’s assets growth rate at 23.6%
(CAGR over 2003-2021).

Sustainable growth combined with strong capital, liquidity and robust
profitability.

Outstanding ROAE performance, with ROAE of 20%+ over the last four
years (pre-COVID-19).

Loan book growth c.10%.

Regular progressive semi-annual capital distribution with 30%-50%
dividend/share buyback payout ratio (revised up from 25%-40%).

20%+ ROAE.

1 Market data based on standalone JSC Bank of Georgia accounts as of 31 December 2021 published by the NBG www.nbg.gov.ge.

Numbers are derived from BoG’s unaudited IFRS accounts.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PUBLIC PORTFOLIO CONTINUED

MARKET OPPORTUNITY

Banking sector assets, loans and deposits
GEL billions

21.9% CAGR

5
.
2

3
.
1

7
.
1

2
.
4

1
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2

7
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2

2
.
7

6
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2
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9
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3
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0
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6

6
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3

2
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5

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7
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6
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7
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7

4
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1

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Assets

Deposits

Loans

Source: NBG

One of the lowest levels of non-performing loans (NPLS) worldwide, latest 2021
(NPLs to total gross loans)

3.0

3.4

3.6

4.8

5.1

5.5

5.6

7.5

6.3

0.8

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Source: IMF

1.9

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FINANCIAL METRICS1

Banking business loan book
(GEL millions)

16,169 +13.9% y-o-y

Deposit portfolio
(GEL millions)

ROAE

Net Interest Margin

14,038 +0.1% y-o-y

25.8% +12.8ppts y-o-y

4.9% +0.3ppts y-o-y

Cost/income

NPL coverage adjusted for
discounted value of collateral

Tier 1 capital adequacy ratio

Liquidity coverage ratio

37.2% -2.5ppts y-o-y

147.7% +18.9ppts y-o-y

15.0% +2.6ppts y-o-y

124.0% -14.6ppts y-o-y

1 Numbers are derived from BoG’s unaudited IFRS accounts

OPERATING METRICS

Number of active retail clients
(thousands)

1,636 +10.1% y-o-y

% of transactions through
digital channel

96.1% +0.8ppts y-o-y

Number of mobile banking
transactions (millions)

110.0 +76.0% y-o-y

Market share % by number of
transactions in POS terminals 2021

51.0% +3.0ppts y-o-y

Number of active digital users
(thousands)

921 +21.2% y-o-y

VALUATION HIGHLIGHTS
Stock price performance
GBP

1
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GBP 16.68
as of 31 December 2021

Implied multiple highlights at 31-Dec-21

LTM P/E

4.71x

(-4.35x y-o-y)

P/B

1.11x

(+0.06x y-o-y)

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Georgia Capital PLC Annual Report 2021

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 in 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
GHG’s growth summary and targets in the medium to long term remain
unchanged. GHG businesses continue to focus on improving 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, the accelerated launch of digital channels
is further supporting business growth momentum. Our new EKIMO
platform is already picking up and as at 7 March 2022 has 264,150
downloads, with 154,191 active users and 9,600 monthly paying
users who already transacted 13,545 doctors consultations and
GEL 7.5 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 High Technology Medical Center (HTMC) hospital in 2020);
and driving efficiency across GHG facilities through service process
automation and the full roll-out of the Healthcare Information
System (HIS).

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 buyouts 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.

In October 2021, in line with its strategy, GHG signed a share purchase
agreement to acquire the remaining 33% minority interest in its retail
(pharmacy) business over the next six years. The buyout will be executed
in six annual tranches at a 5.25x EV/EBITDA multiple. The value of
each tranche will be determined based on the financial results of the
preceding 12 months at the time of execution and will be paid in cash
consideration (in GEL). The timeline of the transaction is as follows:
• 10.0% of the shares to be acquired in 2022
• 11.0% of the shares to be acquired in 2023
• 0.5% of the shares to be acquired in 2024
• 0.5% of the shares to be acquired in 2025
• 0.5% of the shares to be acquired in 2026
• 10.5% of the shares to be acquired in 2027

The newly agreed payment terms will provide better visibility for GHG
to manage its liquidity position and allow GHG to increase the dividend
inflows from the retail (pharmacy) business.

Georgia Healthcare Group – The only fully-integrated healthcare provider in the region now with solidified digital channels

Community
Clinics &
Polyclinics

Healthcare
Services

Pharmacy &
Distribution

Referral
Hospitals

Healthcare
Services

Diagnostics

Medical
Insurance

• 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 an integrated level.

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 capital 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% CAGR
2018-2021.

OWNERSHIP

Georgia Capital owns 100% in GHG at 31 December 2021 (100% as at
31 December 2020).

High-growth potential driven by the 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.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business46

Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

PERFORMANCE TRACK RECORD2

Growth

Strong cash flow generation and liquidity

HEALTHCARE SERVICES

745.7

846.3

918.1

973.0

1,211.8

42.4

58.2

121.2

79.2

99.6

12.8

156.5

156.1

160.1

97.7

423.8

78.0

108.1

132.3

145.2

139.4

174.4

(81.5)

(125.4)

2016

2017

2018

20191

20201

2021

2016

2017

2018

20191

20201

2021

Net revenue, GEL millions

EBITDA excluding IFRS 16, GEL millions

Operating cash flow excluding IFRS 16, GEL millions

Free cash flow, GEL millions

Excluding HTMC.

Deleveraging
GEL millions

2.59

2.15

342.4

331.6

20%

15%

10%

2018

2019

Net debt

Net debt to EBITDA

Excluding HTMC.

1.59

222.0

20201

1.11

193.2

2021

ROIC improvement

10.8%

11.0%

12.7%

13.1%

16.2%

20%

15%

10%

2017

2018

2019

20201

2021

Excluding HTMC.

Performance and strategy
Since the beginning of the pandemic, 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. In 2021, GHG mobilised more
than 20 of its healthcare facilities, with c.1,100 beds, across the country
to treat COVID-19 patients. The Government of Georgia fully reimburses
costs associated with COVID-19 treatments and pays a fixed fee amount
per bed designated for COVID patients. A growing number of admissions
for regular elective care and outpatient services, along with COVID-19
treatments, contributed to revenue growth in 2021, which was higher
than comparable growth in 2019. Our diagnostics business is also
actively engaged in testing patients for COVID-19. Overall, in 2021
our healthcare facilities, including “Mega Lab”, conducted 492,000
COVID-19 tests, covering 6.7% of the country’s total population.

After lifting COVID-19-related lockdown and restrictions, the healthcare
services business utilisation levels were up in 2021 at hospitals by 12%
and the number of admissions at clinics also increased by 72% y-o-y.
The diagnostics segment, which apart from regular diagnostics services,
is also engaged in COVID-19 testing, has shown another year of
extremely strong results in 2021, increasing its revenues by 110%, y-o-y.

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
2021. 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.

• The healthcare services business sold 40% equity interest in one

Major growth drivers in medium to long term

of its lowest ROIC generating hospitals – 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.

MARKET OPPORTUNITY

State healthcare budget is increasing in line with the country’s nominal GDP growth
State healthcare spending dynamics
GEL millions

UHC budget – State financing of healthcare:
• The country’s expenditure on healthcare – c.9% of GDP;
• C.40% of the total healthcare expenditure is financed by the State;
• Government expenditure on healthcare as a % of GDP reached c.4% from 1.6%

in 2013;

• Government spending on healthcare accounts for c.13% of the total budget;
• Since 2020, the increase in “State healthcare spending – Other” is due to the

1,043

ever-changing COVID-19 pandemic.

10%

9% 9%

13%

800800

10%

964964

1,680

820820

681681

710710

760760

829829

841841

343343

305305

329329

349349

2016

2017

2018

2019

2020 2021B 2022B

State healthcare spending – UHC
State healthcare spending – Other
Healthcare spending as a % of total state spending

Source: Ministry of Finance of Georgia

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

406.2

81.0

78.4

243.5

263.4

302.0

290.8

283.4

60.1

59.6

41.0

41.6

74.3

70.1

76.0

74.7

61.8

95.5

2016

2017

2018

20191

20201

2021

2016

2017

2018

20191

20201

2021

Net revenue

EBITDA excluding IFRS 16

Operating cash flow excluding IFRS 16

Excluding HTMC.

2 Numbers are derived from GHG’s unaudited IFRS accounts.

2 2021 numbers are derived from GHG’s unaudited IFRS accounts.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

FINANCIAL METRICS1,3

Net revenue
(GEL millions)

406.2 +43.3% y-o-y

EBITDA excluding IFRS 16
(GEL millions)

95.5 +54.5% y-o-y

EBITDA margin excluding IFRS 16
(%)

Operating cash flow excluding
IFRS 16 (GEL millions)

23.3% +1.7ppts y-o-y

78.4 -3.2% y-o-y

EBITDA to cash conversion
excluding IFRS 16 (%)

Free cash flow excluding IFRS 16
(GEL millions)

Net debt
(GEL millions)

Dividend paid to GCAP4
(GEL millions)

82.0% -48.9ppts y-o-y

36.3 -56.3% y-o-y

206.5 -2.2% y-o-y

11.5 NMF

OPERATING METRICS1

Revenue per bed
(GEL)

124 +38.8% y-o-y

Number of referral and
community beds

2,949 NMF

Number of referral hospitals

Referral hospital bed
occupancy rate (%)

Number of community clinics

17 NMF

65.3% +12.2ppts y-o-y

19 NMF

Number of polyclinics

15 NMF

Number of registered patients
at polyclinics

588,771 +13.6% y-o-y

Implied multiple highlights (incl. IFRS 16) at 31-Dec-21

LTM EV/EBITDA1

10.3x

LTM FCF/EV

3.8%

VALUATION HIGHLIGHTS2

Value development overview at 31-Dec-21
GEL millions

1,003

(227)

(44)

732

Enterprise
value

Net debt including
lease liabilities

Minority
interest

Equity
value

1 Excluding HTMC.
2 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
3 Numbers are derived from GHG’s unaudited IFRS accounts.
4

In 2021, Georgia Healthcare Group paid GEL 25 million dividends to GCAP, which is reflected solely in the cash flow of the healthcare services business at GHG level. At GCAP
level, dividends collected from GHG were allocated across all three GHG businesses, Healthcare Services (GEL 11.5 million), Retail (Pharmacy) (GEL 11.5 million) and Medical
Insurance (GEL 2 million).

RETAIL (PHARMACY)

Overview
The retail (pharmacy) business, managed by GHG, is the largest
pharmaceuticals retailer and wholesaler in the country, with a c.35%
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
operates two brands, Pharmadepot and GPC, with a total of 349
pharmacies; 344 in Georgia and five in Armenia.

Performance and strategy
The retail (pharmacy) business has been resilient throughout the
pandemic and continued to grow its retail as well as wholesale
segments. 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: the further expansion
of its pharmacy chains, where in the last three years 79 new pharmacies

Major growth drivers in the medium to long term

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, skincare and perfume company. The business
already opened three standalone flagship stores in the capital city of
Georgia and one in Armenia and developed the shop-in-shop model
in 280 pharmacies.

In 2021 the business has also signed a franchise agreement with Alain
Afflelou SA, one of the leading optical retailers in France. The business
opened its first Afflelou Paris opticians in August in Tbilisi and is planning
to develop and operate a shop-in-shop model in its GPC pharmacies.

Also in 2021, the business opened its first new format (300 square
metres) retail pharma drugstore in Georgia that offers an extensive
range of health, perfume and other beauty products as well as
services through an integrated health hub incorporating lab retail point,
ophthalmology and dermatology cabinets. The business is targeting
to open six more such flagship pharma stores in 2022 (five in Tbilisi
and one in the regions).

MAJOR GROWTH DRIVERS IN THE 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

MID-TEEN EBITDA CAGR NEXT 5 YEARS

PERFORMANCE TRACK RECORD1

Revenue and EBITDA
GEL millions

Number of pharmacies
255

270

518.6

450.3

300

313

679.4

614.7

349

782.4

Operating cash flow (excl. IFRS 16)
GEL millions

80.0

66.1

53.1

38.9

52.2

65.3

70.4

76.2

32.8

16.2

2017 2

2018

2019

2020

2021

2017

2018

2019

2020

2021

Revenue

EBITDA excluding IFRS 16

1 Numbers are derived from GHG’s unaudited IFRS accounts.
2 Pharmadepot was acquired in 2017.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

FINANCIAL METRICS1

Revenue
(GEL millions)

782.4 +15.2% y-o-y

EBITDA excluding IFRS 16
(GEL millions)

76.2 +8.3% y-o-y

Operating cash flow excluding
IFRS 16 (GEL millions)

Free cash flow excluding IFRS 16
(GEL millions)

80.0 +21.1% y-o-y

63.5 +4.5% y-o-y

Gross profit margin
(%)

26.0% +0.6ppts y-o-y

EBITDA margin excluding
IFRS 16 (%)

9.7% -0.7ppts y-o-y

EBITDA to cash conversion
excluding IFRS 16 (%)

Net debt excluding IFRS 16
(GEL millions)

105.0% +11.1ppts y-o-y

14.3 -63.6% y-o-y

INSURANCE

The 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 23.0% market share based on 9M21
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.165,000 persons insured as at 31 December 2021. 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.

Performance and strategy
The business effectively adjusted to the COVID-19 environment, which
has further accelerated the pace of digitalisation across the company.
After benefiting from low mobility countrywide during the lockdown
periods in 2020, in 2021 rebounding trend in the number of admissions
at hospitals and clinics were reflected in the business loss ratio, up 6.3
ppts y-o-y.

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.

Dividend paid to GCAP3
(GEL million)

11.5 NMF

OPERATING METRICS

Number of pharmacies

349 +11.5% y-o-y

Average bill size
(GEL)

18.9 +12.2% y-o-y

Number of bills issued
(million)

29.0 +5.3% y-o-y

Same store revenue growth
(%)

10.6% +4.5ppts y-o-y

VALUATION HIGHLIGHTS2

Value development overview at 31-Dec-21
GEL millions

952

(118)

(124)

710

Enterprise
value

Net debt including
financial leases

Minority
interest

Equity
value

Competitive landscape, market share by gross premium revenue1
GEL millions

Strategic focus

Implied multiple highlights (incl. IFRS 16) at 31-Dec-21

LTM EV/EBITDA

9.3x

LTM FCF/EV

9.5%

23%

35%

14%

16%

Ardi

PSP

6
IC Group

Aversi

Other

GHG in
medical
insurance

Vienna
Insurance
Group

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”

ISSSG as of 31 December 2021.

2 PMI – private medical insurance.

PERFORMANCE TRACK RECORD3

Revenue and net profit
GEL millions

61.5

53.7

55.1

75.4

69.5

72.4

(4.9)

(2.6)

2.9

4.4

6.4

3.8

Combined ratio (%)

100

104.7%
20.6%

102.5%
18.3%

84.1%

84.2%

94.0%
16.8%

77.3%

96.1%
14.7%
81.4%

90.6%
17.6%

73.0%

97.4%
18.1%

79.3%

1 Numbers are derived from GHG’s unaudited IFRS accounts.
2 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
3

2016

2017

2018

2019

2020

2021

2016

2017

2018

2019

2020

2021

Revenue

Net profit

Loss ratio

Expense ratio

3 Numbers are derived from GHG’s unaudited IFRS accounts.

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52

Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

Loss ratio
(%)

Combined ratio
(%)

Net profit
(GEL millions)

79.3% +6.3ppts y-o-y

97.4% +6.8ppts y-o-y

3.8 -41.3% y-o-y

FINANCIAL METRICS1

Net premiums earned
(GEL millions)

72.4 +4.2% y-o-y

Dividend paid to GCAP3
(GEL millions)

2.0 NMF

OPERATING METRICS

Number of insured

Retention rate within GHG (%)

Renewal rate (%)

c.165,000 -5.1% y-o-y

36.3% -1.0ppts y-o-y

78.0% +4.6ppts y-o-y

Implied multiple highlights at 31-Dec-21

IMPLIED LTM P/E

15.0x

LTM ROAE (adjusted for non-recurring items)

12.3%

VALUATION HIGHLIGHTS2

Value development overview at 31-Dec-21
GEL millions

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

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
almost doubled its retail portfolio over the last four years, outperformed
market growth, delivered an average annual ROAE of c.32% in 2014-
2021 and consistently distributed dividends within a 50%-90% payout
ratio each year since 2014. Based on the latest available market data
as at 30 September 2021, Aldagi continues to be the most profitable
insurance company in the local market with a 48% share of the
insurance industry profit and a market share of 29% based on
gross premiums written1.

The current low level of insurance market penetration in Georgia (1.4%,
of which 0.8% relates to property and casualty insurance and 0.6% 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 52% of the total retail insurance market
in Georgia, of which 11% represents border 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 SMEs 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.
As a result, Aldagi’s MSME net premiums written have grown by 70%
in 2021 (from GEL 1.73 million to GEL 2.95 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 corporate clients.

Performance and strategy
Aldagi effectively adjusted to the COVID-19 environment, digitalising its
business operations and offering an online policy purchase experience
to its customers as well as remote claim reimbursement practices. In
aggregate, despite COVID-19 impact and changes in customer spending
habits, performance in major lines of business was strong.

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
2022-2024:
• 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%+

INVESTMENT RATIONALE

VALUE CREATION POTENTIAL

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 through Aldagi.

Compulsory border MTPL effective from 1 March 2018.

Local MTPL is expected to kick in and provide access to untapped
retail CASCO insurance market with only 5% existing penetration.

Increasing footprint in untapped MSME sector, where Aldagi’s revenues
have grown by 71% in 2021 (from GEL 1.4 million to GEL 2.3 million).

Digitalisation.

Undisputed leader in providing insurance solutions to corporate clients.

1 Numbers are derived from GHG’s unaudited IFRS accounts.
2 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
3

1 Source: ISSSG.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

PERFORMANCE TRACK RECORD4

Earned premiums, gross
GEL millions

+ 1 0 . 4 %

0
9

C A G R

6
8

3
2
1

8
9

2
0
1

8
6

1
7

Profit and dividend payout ratio
GEL millions
ROAE

37% 37% 38% 34%1

34%30% 25% 25%2

C A G R + 8 . 2 %

8
1

7
1

6
1

4
1

1
1

64%

68%

61%

51%

55%

88%

2015 2016 2017 2018 2019 2020 2021

2015 2016 2017 20181 2019 2020 20211

MARKET OPPORTUNITY

Market share, YTD Sep-21
Gross Premiums written

%
9
2

%
6
1

r
e
h
t
O

%
4

d
r
A

%
4
n
o
s
V
w
e
N

%
1
1

n
o
s
n
U

%
1
1

H
P
G

%
5

o
a
r
I

%
0
2

e
c
n
a
r
u
s
n

C
B
T

g
a
d
A

Profit

Return on average equity (ROAE)

Dividend payout ratio

1 Adjusted for non-recurring items.
2 Calculated based on net income, adjusted for non-recurring items and average equity,

adjusted for preferred shares.

Insurance penetration and density3

11.1%

8.4%

8.6%

3
2
5
,
4

K
U

4
2
2
,
7

d
n
a
l
r
e
z
t
i

w
S

7
1
3
,
3

e
c
n
a
r
F

Georgia P&C
Penetration 0.8%
Density US$ 34

2.6%

2.4%

1.5% 1.4% 1.4%

9
0
4

d
n
a
o
P

9
3
2

a
i
r
a
g
u
B

8
2
1

y
e
k
r
u
T

6
4
1

a
s
s
u
R

8
5

a
g
r
o
e
G

6.1% 6.8%

5.0%

9
1
7
,
2

m
u
g
e
B

8
0
1
,
3

y
n
a
m
r
e
G

9
2
4
,
1
a
n
e
v
o
S

Source: Insurance State Supervision Service of Georgia

Market and Aldagi gross written premiums5
GEL millions

Insurance density, US$

Insurance penetration Source: Swiss Re Institute

3 Penetration and density are stated including healthcare insurance (as of

latest available data).

36%

5
9
1

38%

2
0
2

39%

8
2
2

8
8
0
0
3
3

29%

0
7

7
7

8
8

0
9

CAGR 2015-2020
Market – 14%
Aldagi – 9%

YTD Sep-21
Market gross
written premiums
GEL 343 million
Aldagi share 29%

0
7
3

0
8
3

28%

5
0
1

29%

0
1
1

FINANCIAL METRICS4

Earned premiums gross
(GEL millions)

122.8 +20.1% y-o-y

Net income
(GEL millions)

18.3 +7.4% y-o-y

Dividend paid to GCAP
(GEL millions)

14.9 +49.7% y-o-y

ROAE5
(%)

24.7% -0.1ppts y-o-y

Combined ratio
(%)

80.8% -0.7ppts y-o-y

OPERATING METRICS

Number of policies written
(Corporate)

87,547 +6.4% y-o-y

Renewal rate (Corporate)
(%)

83.8% +3.7ppts y-o-y

Number of policies written (Retail)

Renewal rate (Retail)
(%)

146,443 +21.4% y-o-y

72.6% +7.7ppts y-o-y

GEL millions, unless otherwise noted

31-Dec-21

31-Dec-20

Change

Valuation method

LTM net income3

Implied P/E multiple

Equity fair value

LTM ROAE5

DCF &
Multiples 2

17.6

12.0x

211.5

17.1

11.6x

197.8

NMF

0.5

0.4x

13.7

24.7%

24.8%

-0.1ppts

VALUATION HIGHLIGHTS1

Value and LTM P/E multiple development overview
GEL millions

11.6x

198

12.0x

212

31-Dec-2020

31-Dec-2021

Equity value

LTM P/E multiple

2015

2016

2017

2018

2019

2020

Market

Aldagi

Market share Source: Insurance State Supervision Service of Georgia

4 Numbers are derived from Aldagi’s unaudited IFRS accounts.
5 Calculated in line with the market approach.

1 The detailed valuation overview and related drivers are described on pages 105-121 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.
5 Calculated based on net income, adjusted for non-recurring items and average equity, adjusted for preferred shares.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

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.38,000 legal entities. Water
Utility also operates HPPs with a 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 capitalising
on favourable electricity market conditions, undergoing liberalisation
and EU alignment reforms.

Water Utility’s investment in infrastructure improves the quality of water
supply and wastewater services to the end customers, as well as
contributes to achieving operational efficiencies. Over the past five years
(2017-2021) the business has rehabilitated over 500 kilometres of water
and wastewater network and deployed over GEL 400 million capital
investments. Through efficient capital expenditures, the water utility
business managed to reduce self-produced electricity consumption by
c.25% (up to 60GWh) from 2017 to 2021, and hence free up electricity for
the market sales.

Performance and strategy
The water utility business FY21 revenue and EBITDA grew significantly
by 56.0% and 104.8% y-o-y, respectively. The enhanced revenue
streams were supported by both increase in water sales (by 47.1%
y-o-y) and electricity realisation (by 3.4x y-o-y). Growth in water sales to
customers was mainly supported by revised WSS tariffs, effective from
January 2021. The business also enjoyed a modest y-o-y increase in the
volume of water sales to commercial customers, which a demonstrated
fast recovery from the COVID-19 pandemic, and following the rebound
in economic activities, the demand on water sales increased throughout
the year, getting close to pre-pandemic levels by end of 2021.

The business also benefited from better hydrological conditions during
2021, compared to the previous year. Water inflows to Zhinvali HPP were
up by 31.6% y-o-y, which resulted in 2.8x KWh higher electricity sales.
Capital expenditures during 2021 were up by 4.9% y-o-y to GEL 84.3
million, reflecting stabilised levels of the investments the business plans
to maintain going forward.

Overall, during 2021 the water utility business delivered strong results, as
well as maintained healthy liquidity and cash position, accumulating
a GEL 59.9 million cash buffer by end of 2021.

On the back of intensive capital expenditures implemented during the
past years, water utility tariffs, as well as regulatory WACC, were reset
by an independent regulatory body, GNERC and enforced from January
2021 for the current regulatory period of 2021-2023. The WSS tariffs1
in Tbilisi 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
current three-year regulatory period. The return on investment (WACC)
was set at 14.98% (15.99% in the previous regulatory period). The tariff
increase was a significant milestone achievement, contributing to the
healthy growth of the revenue generation in coming years, as well as
demonstrating the transparency of the Georgian regulatory framework
and its alignment with the EU principles.

PERFORMANCE TRACK RECORD3

Self-produced electricity consumption
kWh millions

EBITDA track record
GEL millions

Operating and investing cash flow
GEL millions

9
1
3

9
0
3

2014-2021 -40%

6
5
2

9
3
2

3
9
41
7
1

5
7
1

5
8
1

2 0 1 4 - 2 0 2 1 + 1 3 2 %

9
6

3
7

2
6

5
5

5
9

3
8

3
6

8
2
1

Free Cash Flow to the Firm

(2)

(58)

(66)

5
2
1

5
0
1

5
5

8
4

2
5

5
3

4
3

2
3

7
4

6
9

6
7

9
5

0
6

6
5

2
5

7
5

2014 2015

2016 2017 2018 2019 2020 2021

2014 2015

2016 2017 2018 2019 2020 2021

2014 2015

2016 2017 2018 2019 2020 2021

Cash-flow used in investing activities1
Cash-flow used in operating activities2

1 Cash flow used in investing activities includes

capital expenditures.

2 Cash flow used in operating activities includes

maintenance capex.

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 correction4

Allowed revenue

INVESTMENT RATIONALE

OWNERSHIP

Regulated natural monopoly in Tbilisi and surrounding districts with high
entry barriers.

As of 31 December 2021 Water Utility was 100% owned by Georgia
Capital through GGU.

Stable regulatory environment with attractive return on investment.

Full asset ownership of water and wastewater network and self-sufficient
in terms of electricity usage.

Diversified cash flow streams from water and electricity sales, the latter
being US$-denominated and creating natural FX hedge.

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.

In December 2021, we agreed to sell an initial 80% of our equity interest in
the water utility business to FCC Aqualia (“Aqualia”) for a cash consideration
of US$ 180 million. The disposal is being implemented via a two-staged
process that, after completion, will lead to Aqualia, acquiring an 80%
equity interest in the water utility business. Please see page 8 for details.

JSC GCAP and Aqualia have granted each other a put option and call
option, respectively, over JSC GCAP’s remaining 20% equity interest in
the water utility business. The put option will be exercisable in 2025-2026
while Aqualia’s call option will be exercisable on the date of expiry of
the put option in 2026 and expiring six months thereafter. The exercise
price of the put and call options are set at 8.25x and 8.90x EV/EBITDA
multiple, respectively, based on the normalised EBITDA and net debt of
the business.

4 The COVID-19-related unearned revenue from water sales during 2020, was

reimbursed through time value correction in the tariff calculation methodology
for the 2021-2023 regulatory period.

7.000
6.125
5.250
4.375
3.500
2.625
1.750
0.875
0.000

Water Utility tariffs in GEL per m3 of water sold

-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

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).

3 Numbers are derived from GGU’s unaudited IFRS accounts.

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Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED

FINANCIAL METRICS4

Total revenue
(GEL millions)

203.6 +56.0% y-o-y

Water supply revenue
(GEL millions)

183.3 +47.1% y-o-y

Energy revenue
(GEL millions)

20.3 +3.4x y-o-y

EBITDA
(GEL millions)

128.1 +2.0x y-o-y

Operating cash flow
(GEL millions)

95.6 +71.3% y-o-y

Development CAPEX excl. VAT returns
(GEL millions)

61.7 +7.2% y-o-y

OPERATING METRICS

Water sales
(m3 million)

145.5 -12.3% y-o-y

Electricity generation
(kWh thousands)

332.4 +45.4% y-o-y

VALUATION HIGHLIGHTS2

Value development overview at 31-Dec-21
GEL millions

1,130

(433)

697

Number of new connections

3,875 +11.6% y-o-y

Average electricity sales price
(Tetri/kWh)

12.2 -6.2% y-o-y

Energy sales
(kWh million)

147.3 +2.8x y-o-y

LTM EV/EBITDA development1

9.4x

8.9x

Peer companies
• Aguas Andinas | Chile
• EASTW | Thailand
• Tallinna vesi | Estonia

Enterprise
value

Net
debt

Equity
value

31-Dec-2020

31-Dec-2021

GEL millions, unless otherwise noted

31-Dec-21

31-Dec-20

Change

Valuation method3

Enterprise value1

LTM EBITDA

Implied EV/Multiple

Net debt

Equity value

Transaction price DCF & Multiples

1,129.9

128.1

8.9x

(432.9)

697.0

930.9

98.7 1

9.4x

(459.7)

471.1

NMF

199.0

29.4

-0.5x

26.8

225.9

1 31 December 2020 LTM EBITDA reflects new tariffs, announced in 2020.
2 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
3 The water utility business was valued externally for the first time in 4Q20. The valuation method used in 2020 was a combination of income approach (DCF) and market

approach. In 4Q21, Water Utility was valued at the transaction price, according to the announced sale of an 80% of equity interest of the water utility business to FCC Aqualia.
The equity value of a 100% stake of the business was assessed at US$ 225 million (GEL 697.0 million).

4 Numbers are derived from GGU’s unaudited IFRS accounts.

RENEWABLE ENERGY

Overview
Our renewable energy business represents a platform for developing
and operating HPPs and WPPs 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 71MW installed capacity in
aggregate and with average capacity factors of more than 40%:
30MW Mestiachala HPP, 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 dollars. 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 a
further positive impact on electricity sales prices.

Performance and strategy
The renewable energy business delivered a strong 2021 performance.
Revenue from electricity sales were up by 3.1% y-o-y to GEL 43.9 million;
without considering one-off business interruption BI reimbursement for
the 20MW Mestiachala HPP unit, 2021 electricity sales were up 13.0%
y-o-y. Higher sales were backed by favourable hydrological conditions
in Georgia, which resulted in 16.0% higher electricity generation in our
power plants. Moreover, up to 75% of electricity sales were covered by
PPAs with the Government. The revenue stream was also supported by
favourable electricity selling prices, which amounted to US$ 50.7/MWh
for the business. The renewable energy business benefited from the
high EBITDA margin of 75.6% and as a result delivered GEL 33.2 million
EBITDA up by 3.7% y-o-y (without BI, EBITDA increased 17.4% y-o-y).
Cash-flow from operating activities was down -20.4% y-o-y to
GEL 32.0 million. Excluding the one-off effect of BI reimbursement
proceeds received from the insurance company, FY21 operating cash
flow was up by 10.6%. Overall, on the back of solid financial performance
of the power generating assets, the business made GEL 20 million
dividend distribution to Georgia Capital.

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
• 10%+ ROIC in US$
• Strong EBITDA to cash-conversion rate

INVESTMENT RATIONALE

OWNERSHIP

Electricity demand has been growing on average by 5.1% over
the last decade.

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.

Renewable Energy is 100% owned by Georgia Capital.

VALUE CREATION POTENTIAL

Opportunity to establish a renewable energy platform with up to 243MW
operating capacity over the medium term and capitalise on favourable
electricity market conditions.

Diversified portfolio of HPPs and WPPs with c.40% capacity
factors, benefiting from long-term fixed price PPAs formed with
the Government-backed entity.

Availability of competitive funding from both international and local
financial markets for pipeline projects.

High margins and dollar-linked cash flows.

Stable dividend provider capacity in the medium term.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business60

Georgia Capital PLC Annual Report 2021

Gross capacity
factor

40.2%

PPA
expiration

1H34

65%-70%

1H22-2H28

47.3%

2H29

PPA tariff,
US¢/kWh

5.5

5.5-5.6

6.5

43.0%

55%-60%

37%-40%

TBD

1H34

TBD

5.1

5.66

TBD 2

Generation
share during
the deficit
months

72%

79%

85%

68%

76%

82%

84%

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES

RENEWABLE ENERGY PROJECTS OVERVIEW

Targeting to earn on average 10%+ US dollar ROICs from renewable energy projects

Commissioned/acquired projects

Installed
capacity, MWs

Actual/Target
commissioning
date1

30.0 3

20.4

20.7

46.0

17.5

54.0

242.6

1H19

2H19

TBD

1H24

TBD

Mestiachala HPP

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), 2021

1,600

1,400

1,200

1,000

800

600

400

200
0
Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21

Jul 21 Aug 21 Sep 21 Oct 21 Nov 21

Dec 21

Hydro and wind

TPP

Import

2019 consumption

2021 consumption

Electricity import and export dynamics
(KWh million)

• Electricity deficit during July-April.
• 16.2% of total consumption produced
by gas-fired thermal power plants,
13.7% – imported.

• 2021 net electricity deficit stood at
4.0TWh, whereas in 2010, electricity
surplus was at 0.7TWh.

• Consumption growth forecasted at

minimum 4.5% CAGR in the coming
ten years.

• Anticipated deficit of at least 10.6TWh

by 2030.

FINANCIAL METRICS1

Revenue
(GEL millions)

43.9 +3.1% y-o-y

Operating cash flow
(GEL millions)

32.0 -20.4% y-o-y

EBITDA
(GEL millions)

33.2 +3.7% y-o-y

Dividend paid to GCAP
(GEL millions)

20.0 NMF

EBITDA margin
(%)

75.6 +0.4ppts y-o-y

OPERATIONAL METRICS

Electricity generation
(kWh million)

265.8 +16.0% y-o-y

Average electricity sales price per
US¢/kWh

5.1 -4.3% y-o-y

VALUATION HIGHLIGHTS2

Value development overview at 31-Dec-21
GEL millions

428

Enterprise
value

(255)

Net
debt

173

Equity
value

GEL millions, unless otherwise noted

31-Dec-21

31-Dec-20

Change

Valuation method5

Enterprise value

EBITDA3

Selected EV/EBITDA multiple

Investments at cost (EV)4

Net debt

Equity fair value

Multiples Multiples

428.2

489.3

34.9

11.1x

42.0

(255.0)

173.3

27.3

9.7x

224.6

(279.4)

209.9

N/A

(61.1)

7.6

1.4x

(182.6)

24.4

(36.6)

Equity fair value composition at 31-Dec-21
GEL millions

Total value

173

130

Operational assets

Pipeline projects

Peer companies
• Falck Renewables | Italy
• Terna Energy | Greece
• Azure Power Global | India
• BCPG Public Company Limited | Thailand

Electricity exports

Electricity imports

Gas imports for TPPs

Deficit

In case of pipeline projects target, commissioning dates are indicative and subject to regulatory procedures. In case of acquired projects, the date shows the acquisition period.

1
2 PPA terms are under negotiations with the Government.
3 Previously, Mestiachala HPPs comprised of two power generating units with 50MW installed capacity in total. In 2021, in line with the outcome of the comprehensive cost

and feasibility assessment, the restoration process of the 20MW power generating unit of Mestiachala HPP (the HPP was flooded and taken offline in late July 2019) has been
suspended. On this ground, the current installed capacity of 30MW represents only one power generating unit.

1 Numbers are derived from Renewable Energy’s unaudited IFRS accounts.
2 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
3 Run-rate and LTM EBITDA was used for the calculation purposes for different assets.
4
5 Renewable Energy was valued internally. The valuation method used was market approach (multiples) cross checked with income approach (DCF) in 2021 and in 2020.

Investments at cost in 2021 includes the pipeline projects. As of December 2020 figure includes Mestiachala and pipeline projects.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business201020112012201320142015201620172018201920203.911.542.435.896.865.596.65.454.55.289.3115.242021-6.83-22.12-24.77-17.88-20.36-23.79-22.35-22.33-21.15-28.4-28.21-23.8-2.22-4.71-6.15-4.84-7.93-6.99-4.79-14.97-15.09-16.26-16.1-20.06619-1,752-2,564-1,822-2,284-2,418-2,155-3,044-3,035-4,223-4,277-3,99562

Georgia Capital PLC Annual Report 2021

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 13.1% CAGR over 2013-2020. There
are currently c.60,100 learners in private schools in Georgia, representing
9.6% of the total school education market. The private general education
market enjoys growth in enrolments with CAGR of 2.7% over 2013-2021
and rising tuition fees with CAGR of 8.7% over 2013-2021.

Management expects that the private school market will increase by
1.4x 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 private general education market in
Georgia is currently very fragmented with an increasing average school
size and 11% less number of schools over the last decade. Currently,
Georgia Capital is the largest player on the market with a 4.9% market
share in terms of learners, while the second largest player holds 2.3%.
Only 4% 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 currently combines majority stakes in five private school brands
and campuses, acquired in 2019-2021: 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%

ownership1) and Georgian-Austrian School Pesvebi LLC (81% ownership),
both well-positioned in the affordable education segment. The education
business has expanded from the capacity in 2020 of 2,810 learners to
5,060 learners in 2021 through investments in (1) the acquisition of an
81% equity interest in Georgian-Austrian School Pesvebi (1,200 learner
capacity), (2) the launch of a new (second) campus under the existing
affordable brand – Green School (600 learner capacity) and (3) the
expansion of Green School’s existing campus (450 learner capacity).
All five schools have a combined utilisation rate of 62% compared to 90%
last year’s utilization rates, reflecting the addition of a new capacity of
2,250 learners in 3Q21. We expect the utilisation rate to return to 80%+
in the following years. Annual tuition fees range from US$ 1,400 to
US$ 18,000 across all three segments.

Performance and strategy
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 and utilization rate for all grades remained strong with a 16%
increase in the number of 1st graders, reaching 376 learners in the 2021-
2022 academic year compared to 238 1st graders in 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 has a strong platform to facilitate growth and scale to become
the leading integrated education player with up to 21,000 learners by 2025.

1 80% equity stake in the existing campus and 90% in new campus launched under

the existing affordable brand in 3Q21.

TARGETING
FOR 2025…

EQUITY VALUE
GEL 0.5BLN

EBITDA MARGIN
40%+

…THROUGH

Expansion plans with existing
partner schools

M&A
80% affordable & 20% midscale

Capacity (# of learners)

Utilisation on operational campuses

Now

5,060

62%

By 2025

7,200

85%

By 2025

13,800

80%-85%

EBITDA

GEL 9.5mln2

GEL 34mln

GEL 16mln

GCAP new equity investment

US$ 19.0mln3

US$ 2.4mln4

US$ 10.2mln

ROIC

Investment per learner capacity
in affordable segment

20%+

GEL 7,200

GEL 7,000

GEL 6,200

Remaining GCAP new equity
investment by 20255 (US$ millions)

Total EBITDA by 2025
(GEL millions)

Capacity by 2025
(learners)

MAINTAIN ROIC
20%+

134

50+

21k– Of which 7,200 (existing schools)

– Of which, 13,800 (M&As)

RAMP-UP
FOR NEW CAPACITY
(REACHING 80%+
UTILISATION)
3-5 YEARS

• With new equity investment of US$ 2.4 million, GCAP can expand to 7,200 learner capacity and generate

GEL 34 million EBITDA by 2025 on secured real estate locations with existing partner schools.

• US$ 2.4 million new equity investment for expansion plans with existing partner schools is net of the

education business reinvestment of US$ 5.4 million and net of the in-kind contribution of US$ 5.5 million
(assets already on GCAP Balance Sheet).

• US$ 10.2 million new equity investment for M&A pipeline is net of the education business reinvestment

2 EBITDA for 2020-21 academic year.
3
4 Of which, US$ 1.2 million has already been invested in the expansion of the existing campus of Buckswood, the mid-scale segment (construction is expected to be completed

Investment is calculated at 3.2 USD/GEL exchange rate.

of US$ 15.2 million.

before the start of the next academic year).

5 Announced in November 2020.

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

Private K-12 market size in Georgia

9.3%

9.7%

10.0%

9.9%

10.1%

10.4%

10.7%

10.2%

9.6%

51.6

53.9

55.4

56.1

57.6

60.8

63.2

61.9

60.1

7. 5% CAGR
2021E-2 025E
4.6

3.9

403

3.7

3.6

257

280

272

281

1 3 .1% C A G R 2 0 1 3 - 2 0 2 0

3.6

2.6

2.7

2.9

177

192

158

3.2

217

2.0

115

2013

2014

2015

2016

2017

2018

2019

2020

2021

2013

2014

2015

2016

2017

2018

2019

2020

2021E

2025E

Number of private learners, thousands

% of total number of learners

Total revenue, GELmln

Revenue per learner, GEL’000

Lower average annual spending per K-12 learner in Georgia indicating room for further growth

4.4%

3.0%

3.7%

4.5%

3.0%

3.9%

3.3%

3.1%

2.6%

3.3%

2.9%

3.2%

3.0%

2.9%

2.4%

3.6%

3.1%

3.9%

4.0%

2.7%

2.2%

3.1%

13.9

11.0

10.9

9.9

9.3

9.0

8.5

8.4

8.2

7.1

6.8

6.7

5.9

5.3

5.0

K
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Total spend per learner, US$’000

Total spend as % of GDP

Source: G&T, GCAP estimates, OECD, Ministry of Finance of Georgia.
Latest available data.

Georgia has lower spending on education compared
to other countries:
• Total spend per learner is US$ 650 versus c.US$ 9,000

OECD average.

• Total spend as % of GDP stands at 2.2% versus 3.1%

OECD average.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business
64

Georgia Capital PLC Annual Report 2021

OUR PORTFOLIO OVERVIEW CONTINUED
PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED

FINANCIAL METRICS4

Revenue
(GEL millions)

EBITDA margin
(%)

EBITDA
(GEL millions)

31.2 +20.9% y-o-y

32.4% 0.0ppts y-o-y

10.1 +21.1 % y-o-y

Operating cash flow
(GEL millions)

11.9 +50.8% y-o-y

OPERATIONAL METRICS

Average tuition revenue per learner5
(GEL)

Capacity utilisation6
(%)

Number of learners

10,721 +12.6% y-o-y

62.2% -27.3ppts y-o-y

3,148 +25.1% y-o-y

VALUATION HIGHLIGHTS1

Value development overview at 31-Dec-21
GEL millions

3535

140140

8
(8)

Peer companies
• SISB Public Company Limited | Thailand
• Curro Holdings Limited | South Africa
• Overseas Education Limited | Singapore
• Cairo For Investment & Real Estate Development (CIRA) | Egypt

(37)

130

Enterprise
value

Investment
at cost

Net
debt

Minority
interest

Equity
value

GEL millions, unless otherwise noted

31-Dec-21

31-Dec-20

Change

Valuation method3

Enterprise value

EBITDA (LTM)2

Selected EV/EBITDA multiple

Net debt

Equity value

Investments at cost

Total equity value

Multiples Multiples

139.9

11.2

12.5x

(8.4)

131.6

34.9

129.8

119.0

9.5

12.5x

(13.7)

105.3

16.8

93.0

N/A

20.9

1.7

–

5.3

26.3

18.1

36.8

1 The detailed valuation overview and related drivers are described on pages 105-121 of this report.
2 LTM EBITDAs used for valuation purposes includes functional currency adjustment in schools, where applicable.
3 Education was valued internally. The valuation method used was market approach (multiples) cross checked with income approach (DCF).
4 Numbers are derived from Education’s unaudited IFRS accounts.
5 Numbers are adjusted for like for like comparison.
6 The utilisation rate of 62.2% is down compared to last year’s 89.5%, reflecting the addition of a new capacity of 2,250 learners in 3Q21, which will be gradually utilised over the

coming periods.

OTHER PORTFOLIO COMPANIES

Georgia Capital’s other portfolio companies (6.2% of total portfolio
value at 31 December 2021) 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, targeting mainly mass-
market customers by offering affordable, high quality and comfortable
housing. The housing development business is wholly owned through
Georgia Real Estate, previously known as m2. The housing development
business has four ongoing projects, m3 Saburtalo (previously known
as Digomi), Nutsubidze, Mirtskhulava and Chkondideli (Sveti projects).
In connection with the m3 Saburtalo project, the Group has sold 83,084
square meters with US$ 73.4 million sales value in the three stages as
of 31 December 2021. Regarding the three other projects, the Group
assumed responsibility to support the completion of three suspended
projects of the Sveti construction company, adding 176,116 square
meters of the sellable area to its inventory. The projects are 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 71,476 square
metres with a US$ 45.3 million sales value as of 31 December 2021.

HOSPITALITY AND
COMMERCIAL REAL ESTATE

The Group’s hospitality and commercial real estate business is
comprised of two segments: rent-earning commercial assets and a
hotel development business across Georgia. In 2021, Georgia Capital
successfully completed the sale to a combination of local and regional
investors of selected commercial real estate assets for US$ 45.0 million
with an 11.3% premium (US$ 4.6 million) to the book value as of
31 March 2021. The proceeds from the sale were used to repay the
existing US$ 30 million bonds issued by the commercial real estate
business which matured on 31 December 2021. The book value of
the remaining disposable assets is approximately US$ 13.9 million as of
31 December 2021 and is split between commercial real estate assets
(16%) and land plots (84%).

The hotel development business has two operational hotels, Ramada
Encore Kazbegi Tbilisi and Gudauri Lodge, with 273 rooms. 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 have been most affected by the COVID-19 outbreak
across the Group’s portfolio, reflecting pandemic-related uncertainties
for tourism.

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 it 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 9.4 million bottles of wine in 2021,
with approximately 87% of sales coming from exports. The Group has
a market share of 7.7% 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 20.8% market share in 2021. 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
and 2021. 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 347,251 cars (of which, 265,613 were primary checks) in
2021, 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 a c.11% share
in the target market, 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.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business66

S172 STATEMENT

Georgia Capital PLC Annual Report 2021

Statement by the Directors on of their duties under section 172 of the UK Companies Act 2006 (the “Act”)
In accordance with the requirements of section 172 of the Act, the Directors consider that, during the financial year ended 31 December 2021,
they have acted in a way that they consider, in good faith, would most likely promote the success of the Company for the benefit of its members,
having regard to the likely consequences of any decision in the long term and the broader interests of other stakeholders, as required by the Act.
Some examples of the Board’s engagement in 2021 are set out below.

The Directors have identified key stakeholders who are essential to the success of the Company: investors; employees; wider community and
the environment; and regulators. Our key stakeholders and primary ways which we engage with them are set out in the table on pages 130-132.
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.
The Company endeavours to balance any conflicting needs of our stakeholders to ensure all are treated consistently and fairly.

Other steps the Board has taken to meet its section 172 responsibilities:

Section 172 factor

Examples

The likely consequences of any decision in the long term.

Investment Committee report

Corporate Governance Framework

Page

135

126

Interests of employees.

Fostering the company’s business relationships with suppliers,
customers and others.

Impact of operations on the community and the environment.

Maintaining a reputation for high standards of business conduct.

Resources and Responsibilities
Sustainability Report 2021

84
(see separate document)

Acting fairly between members of the company.

Georgia Capital Strategy

The framework detailing the authority for decision-making, where the Board delegates to management, is discussed in the Company’s Corporate
Governance Framework on pages 126-134 and it mandates consideration of these factors as a critical part of delegated authorities.

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 operation 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 stakeholders can be found in the Directors’ Governance Statement on pages 122-123.

Principal decisions
We have processes in place to capture and consider stakeholders’ views (including the matters contained in section 172 of the Act) and feed them
into Board decision-making.

Material business decisions considered by the Board include an analysis of stakeholder considerations, anticipated impact and mitigations.
This process, which has been reinforced, helps the Board to perform the duties outlined in Section 172 of the Act and provides assurance
to the Board that potential impacts on stakeholders have been considered in the development of the proposal.

Set out below are some case studies of principal decisions that have been taken by the Board:

EXPANSION OF THE
EDUCATION BUSINESS
(TOGETHER, THE
“PROJECTS”)

On 25 August 2021, Georgia Capital
announced the expansion of its K-12
education business, in the affordable
segment, through two investment projects:
(1) the acquisition of an 81% equity interest
in Georgian-Austrian School Pesvebi LLC
(the “School” or “Georgian-Austrian School
Pesvebi”), and (2) the launch of
a new (second) campus under the existing
affordable brand in Group’s portfolio –
Green School LLC (“Green School”).

For more details on the transaction please
see our website: https://georgiacapital.ge/
ir/news/education-business-expands-
affordable-segment and page 36 of
this report.

We are further expanding into the affordable
segment of private K-12 education, for the
central district of Tbilisi.

Key stakeholder interests considered:
Investors: The Projects are in line
•
with Georgia Capital’s capital
allocation programme.

• Environment: the School’s plot has
an ecologically friendly environment
and areas for outdoor activities.

• Local Communities: The new campus
will provide education to 600 learners,
with the potential to expand its capacity
to 1,500-2,000 learners over the next few
years by utilising the existing premises.

• Employees: the Projects will bring

employment to Tbilisi.

• Clients: seek high ethical and

sustainability standards to be upheld
end-to-end in the supply chain.

• Employees: seek protection from health
and safety risks and want to feel valued
and appropriately rewarded, by having
an inclusive and diverse place to work
with a respectful corporate culture and
share in our commitment to address
ESG challenges.

ENHANCED ESG
(“ENVIRONMENTAL, SOCIAL AND
GOVERNANCE”) REPORTING

During 2021, a consultant was chosen
to assist with the development of our ESG
disclosures and the implementation of the
TCFD framework.

Further, a standalone Sustainability Report
has been published alongside these
accounts, for FY21, and can be found
here: https://georgiacapital.ge/ir/
sustainability-reports.

We have committed that we will make
disclosures in line with best practice and
global sustainability standards. This includes
the requirement for all premium listed
companies to state, in their Annual Report,
whether their disclosures are consistent
with the TCFD recommendations, or to
explain why not.

For more details on the Company’s
ESG developments please see page 84
of this report and the Company’s
Sustainability Report.

A key factor in determining how the
Company builds a sustainable business that
addresses the wider concerns and needs of
the communities in which it operates is the
execution of its ESG strategy. In 2021, the
Board took the view that it was appropriate
to consider the future ESG strategy for
the Company, aligned with its portfolio
companies’ strategies, and this is detailed
in the Company’s Responsible Investment
Policy. It was important that this ESG strategy
addressed the needs of all stakeholders and
the importance of the global challenges of
climate change.

Key stakeholder interests considered:
•

Investors: ESG strategy and practices
aimed at delivering sustainable,
profitable growth over the long term.

• Governments regulators: ensure
compliance with evolving local
and international legal and
regulatory obligations.

• Local Communities and NGOs: ESG
matters affect the day-to-day lives of
the people in our local communities.

GEORGIA CAPITAL SHARE
BUYBACK AND CANCELLATION
PROGRAMME (THE “BUYBACK
PROGRAMME”)

This decision was influenced by the
Company’s LTV ratio being below the
targeted threshold, robust liquidity levels,
supported by a strong dividend income from
the portfolio companies, and c.50% discount
to the reported NAV per share.

In line with the Company’s capital allocation
programme, on the 10 August 2021, the
Company announced the resumption of
a US$ 10 million buyback programme.
Over a 12-month period, shares are being
purchased on the open market. In January
2022, the Board approved an increase
in the ongoing programme of an additional
US$ 5 million, which was further increased
by US$ 5 million in March 2022.

The purpose of the programme is to create
a more significant value through share
buybacks compared to new investments,
while taking into consideration the share
price discount to the reported NAV per share.
Shares repurchased are being cancelled,
consequently reducing the number of
outstanding shares and delivering greater
per share value to the shareholders.

For more details on the transaction please
see page 13 of this report.

Key stakeholder interests considered:
Investors: Balancing the desire of
•
shareholders for immediate returns
against the need to preserve liquidity and
ensure the sustainability of the business
throughout the COVID-19 pandemic and
uncertainties regarding recovery timings.
The maximum number of shares that
may be repurchased is 7,180,777, being
the number of shares the Company
is authorised to repurchase under the
authority granted by the shareholders at
the 2021 annual general meeting (AGM).

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i

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S172 STATEMENT CONTINUED

BUYOUT OF THE MINORITY
SHAREHOLDERS IN RETAIL
(PHARMACY) (THE “BUYOUT”)

In October, Georgia Capital announced that
JSC Georgia Healthcare Group (GHG), the
holding company of the Group’s healthcare
services, retail (pharmacy) and medical
insurance businesses, has signed a share
purchase agreement (SPA) to acquire a
33% minority interest in its retail (pharmacy)
business (JSC Georgian Pharmacy (GEPHA),
which will be spread out over the next
six years.

The minority stakeholders, who are also the
managing partners of the retail business,
had a put option for the minority stake also
during the 12 months starting from January
2023. The exercise price of the call and put
options were set at 6.0x and 4.5x EV/EBITDA
multiples, respectively, in 2017, based on the
preceding financial year’s results at the time
of the exercise. The parties have renegotiated
the initial terms of the agreement and put/call
options. Under the renegotiated terms, the

minority buyout transaction will be executed
in six tranches at 5.25x EV/EBITDA multiple.
The value of each tranche will be determined
based on the financial results of the preceding
12 months at the time of execution and will be
paid in cash consideration.

For more details on the transaction please
see our website: https://georgiacapital.ge/
ir/news/buyout-minority-shareholders-
retail-pharmacy and page 12 of this report.

Key stakeholder interests considered:
•

Investors: Georgia Capital consulted with
our major shareholders over the buyout,
for their feedback and to affirm their
support. The Board gathered and took into
consideration their views when approving
the buyout.

• Governments and regulators: ensure

compliance with local and international
legal and regulatory obligations, with
regards to competition law.

• Clients: seek to maintain high medical

standards to end users in the supply chain.

Georgia Capital PLC Annual Report 2021

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DISPOSAL OF PART OF THE
WATER UTILITIES BUSINESS

On 31 December 2021, the Company
announced that its wholly-owned subsidiary
JSC Georgia Capital (JSC GCAP), which is the
owner of Georgia Global Utilities JSC (GGU),
a holding company for Georgia Capital’s water
utility business and the operational assets of
its renewable energy business, agreed to sell
an initial 80% of its equity interest in the water
utility business to FCC Aqualia (Aqualia),
by way of a two-stage transaction.

For more details on the transaction please
see our website: https://georgiacapital.ge/
ir/water-utility-disposal and page 8
of this report.

The proposed disposal is a Class 1
transaction and, in accordance with the UK
Listing Rules, requires GCAP shareholders
approval, therefore, the key stakeholder
interests considered:
•

Investors: sought approval of the
Company’s shareholders with a circular
in January 2022. The disposal was in line
with overarching strategy and purpose
setting, aimed at delivering against
shareholders’ needs for long-term,
sustainable and profitable growth.
• Governments and regulators: the

Company devoted time and resources to
ensure regulatory compliance with
the transaction.
Investors: the approval of Company’s
circular in January 2022.

•

• Customers, employees and other
stakeholders: the disposal brings
an important international investment
and significant industry expertise into
Georgia, that will strengthen the water
utility business.

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Photo Gudauri, Mtskheta-Mtianeti,
Georgia

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewDiscussion of ResultsFinancial StatementsStrategic ReviewOur Business

RISK MANAGEMENT

Georgia Capital PLC Annual Report 2021

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: 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 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 137 to 142. 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 135 to 136.

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 75 to 82 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 investment
entity subsidiaries 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
investment entity subsidiaries.

• Provides oversight and
challenge of underlying
assumptions on the valuation
of the private portfolio
companies (81.2% of portfolio
value at 31 December 2021).
All private large portfolio
companies (66.6% of the
total portfolio) are valued
externally by an independent
valuation company on
a semi-annual basis.
• 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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RISK MANAGEMENT CONTINUED

Bodies implementing the risk management system
As mentioned on page 71, 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 others 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. In 2021, the new Head of the Group’s
Internal Audit department was appointed. 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.

Georgia Capital PLC Annual Report 2021

Investment team
The Group’s Investment team has formalised procedures of risk analysis.
As part of the 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 (IFRS). 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 the
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 department, 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 (66.6% of total portfolio value at 31 December 2021) in order
to provide more transparency of Georgia Capital’s portfolio valuations.
The oversight of the third-party professionals is within the scope of
the valuation workgroup. The valuation workgroup also estimates fair
values of investment stage and other portfolio companies (14.6% of
total portfolio value at 31 December 2021, 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.

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. 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 121. 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 as a going concern for a period
of at least 12 months from when the financial statements are authorised
for issue, i.e. the period ending 31 March 2023. The Directors also
considered cash proceeds of US$ 180 million from the sale of controlling
interest in the water utility business received on 2 February 2022. 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 2022, 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. 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 8 to 38;
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,
climate change-related risk and how these risks and uncertainties
are managed, as set out on pages 75 to 82;
the effectiveness of our risk management framework and internal
control processes; and

•

• stress testing, as described on the next page.

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Georgia Capital PLC Annual Report 2021

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 2021, Georgia Capital holds
GEL 427 million assets across cash, marketable debt securities and
loans issued to portfolio companies. Additionally, the Group also holds
GEL 681 million equity securities of London Stock Exchange listed
BoG PLC as at 31 December 2021. As mentioned above, the Group
received US$ 180 million sales proceeds from successful completion
of the Water Utility sale transaction. 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 2022 to
31 December 2024.

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

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/South Ossetia regions. Countries within the region are trading partners of Georgia.

REGIONAL INSTABILITY RISK

Following a significant Russian military build-up near the Russia-Ukraine border and months of rising tensions,
on February 24 Russian troops crossed the border and the situation escalated into a war. In response to the
invasion, all G-7 countries, the European Union and many others countries have announced severe economic
sanctions on Russia, including Russian banks, Russian entities and Russian individuals. Since the start of the
war, there has been a significant depreciation of the Russian Ruble against foreign currencies, as well as a
significant loss of value on the securities markets in Russia and of Russian companies listed in other markets.
The situation is still unfolding, but it has already resulted in a humanitarian crisis and major economic losses
for Ukraine, Russia and the rest of the world. Ukraine and Russia are important trade partners of Georgia. It is
expected that the war may lead to a negative impact on Georgian economic growth in 2022 and could have
a material impact on market confidence, affecting all regional countries. Various tensions have also existed
between Russia and Georgia for more than 15 years, and the two countries also had a brief armed conflict
in 2008 (which led to Russia’s control of the two breakaway territories). Finally, there has also been ongoing
geopolitical tension, political instability, economic instability and military conflict between other regional
countries, with the latest flare-up culminating in a six-week war (September-November 2020) between Armenia
and Azerbaijan over the disputed Nagorno-Karabakh region. Despite the peace agreement, skirmishes have
been reported to have occurred on several occasions. The continuation or escalation of political instability,
geopolitical conflict, the economic decline of Georgia’s trading partners and any future deterioration of Georgia’s
relationship with Russia, including border and territorial disputes, may have a negative impact on the political
or economic stability of Georgia, which in turn may affect our business adversely, including putting adverse
pressure on our business model, our revenues, our financial position and the valuations of our listed and private
portfolio companies.

RISK MANAGEMENT CONTINUED

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 16 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 regional instability, regulatory, investment, liquidity,
portfolio company strategic and execution, the impact of COVID-19 and
currency and macroeconomic environment-related risks. Further, the
Group has identified climate change-related risk as an emerging risk.
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 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 renewable energy business. Supported
by strong operating performance in 2021 Bank of Georgia restored
payment of dividends to shareholders and announced a dividend policy
providing for a 30%-50% payout ratio starting from second half 2021.
On that basis, the stress case scenario includes dividend payments from
the listed asset. Considering the receipt of US$ 180 million proceeds
from the sale of water utility business on 2 February 2022, even in the
stressed scenario the Group has sufficient liquid funds and adequate
resources to continue operations and meet its obligations. The Directors
also considered the maturity of the US$ 365 million Eurobonds issued
by the Group which are due in 1Q24. They remain confident that given
the Group’s track record of proven access to capital even during market
turbulence, the Group will be able to roll-over the US$ 365 million
Eurobonds. The Group demonstrated its superior access to capital
through the successful placement of US$ 65 million Eurobonds in March
2021. The Eurobond refinancing remains one of the options of the use
of proceeds from the water utility sale, but subject to the execution of
other exit strategy targets in accordance with the enhanced strategy
announced in November 2020, the Group will also consider redeeming
the bonds either fully or in part. There are no material subsidiaries to
which cross-default provisions would apply.

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RISK OVERVIEW CONTINUED

Georgia Capital PLC Annual Report 2021

REGIONAL INSTABILITY RISK CONTINUED

CORONAVIRUS (COVID-19) RISK

KEY DRIVERS/TRENDS

MITIGATION

The Russian invasion of Ukraine has resulted in extraordinary economic disruption, as market confidence has
plunged, unprecedented sanctions have been imposed upon the Russian economy, energy prices have surged
and spillover risks have been substantially aggravated, with further economic consequences to follow as the
situation develops. Foreign currency inflows from Russia and Ukraine in 2021 (merchandise exports, tourism
revenues and remittance inflows) amounted to 15% and 7% of the total, respectively. However, the exposure
to currency inflows from these countries has decreased significantly since the 2014 Crimea annexation.
At the Group level, none of our portfolio companies is materially exposed to Russian, Belorussian or Ukrainian
markets, except for the wine business. The magnitude of the impact on the wine business cannot be reliably
measured at this stage. Due its size, however, it is not expected to be material overall for the Group (the value
of the wine business represented less than 2% of the total portfolio value as at 31 December 2021). GCAP’s
exposure to liquid funds such as debt securities issued by affected countries is not material. As the war is
still waging, it is impossible to reliably assess the impact this may have on the Group’s business as there is
uncertainty over the magnitude of the impact on the economy in general.

Although a ceasefire agreement ended the six-week Armenia-Azerbaijan war in November 2020, the conflict
has not been conclusively resolved. Russian peacekeeping forces were deployed for an initial period of five
years. The risks of a further flare-up depend on the success of the 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 Russia 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, the
European Parliament’s approval of a proposal on visa liberalisation for Georgia in 2017, and Georgia’s recent
decision to apply for EU membership, could potentially intensify tensions between the countries. Russia banned
direct flights on 8 July 2019 and recommended stopping the sale of holiday packages to Georgia. The decision
was made in response to anti-Putin protests in Tbilisi, which started after a member of the Russian parliament
addressed the Georgian parliament in Russian from the speaker’s chair. Fresh sanctions were imposed on
several 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 2021, Russia accounted for 14.4% 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. As of 2021, tourism revenues from the EU were the largest (13.7% of
the total), although exposure to Russia and Ukraine remained high (12.2% and 13.2% respectively). Remittance
inflows have been significantly diversified, with Russia accounting for 17.5% of the total in 2021, as opposed
to 54% in 2013. 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. Enhancing linkages with the EU market will be further supported by a
new recovery plan for Eastern Partnership countries, including ambitious investments in improved connectivity
and unlocked potential to get full benefits from the DCFTA. Following the signing of the DCFTA, the EU’s share
in foreign currency inflows (merchandise exports, remittances and tourism revenues) has increased from
19% in 2013 to 24% in 2021 (from 21% to 25% if we include FDI as of 9M21). Following Ukraine’s plea to join
the European Union as it battles Russia’s invasion, Georgia and Moldova on 3 March 2022 submitted their
applications to join the European Union. Georgia previously planned to apply to join the European Union
in 2024. The formal assessment process of the applications was initiated on 7 March 2022 by the president
of France and is still ongoing.

China remains the largest destination country of Georgian exports in 2021 since claiming the position in 2020,
accounting for 14.5% of total exports in 2021 (14.3% in 2020), as well as being the largest destination country
of domestically produced Georgian exports with an 18.6% share (19.1% in 2020).

PRINCIPAL RISK/
UNCERTAINTY

The Georgian Government took significant actions at the early stage of the COVID-19 outbreak, with border
checks and travel restrictions followed by the first lockdown in March-May 2020. After gradually lifting
restrictions since late April, the epidemiological situation worsened in Autumn, and a two-month partial
lockdown was imposed spanning the period from end-November 2020 to February 2021. Since February,
the economy was fully reopened for the better part of the year. Despite new COVID-19 cases rising again
periodically, most notably in August and November 2021, as well as in the beginning of 2022 due to the spread
of the Omicron variant, no new major restrictions have been imposed, and economic recovery has sustained
pace, with the Georgian economy bouncing back strongly with a 10.6% y-o-y growth in 2021. While the
above points to the ability to successfully manage a potential epidemiological deterioration, going forward,
the successful execution of the vaccination programme will be crucial for building on the 2021 recovery,
particularly in light of the emergence of new COVID-19 variants and increased population mobility.
The vaccination programme commenced in March 2021, but as of 18 March 2022, only 43.6% of the total
adult population were fully vaccinated. As is discussed below, the March-May 2020 lockdown in particular
had a serious adverse effect on almost all of our businesses, and any new serious outbreak of COVID-19
or a similar pandemic that required significant new restrictions could do so again.

• At our healthcare services businesses almost all non-emergency services were slowed severely by the

March-May 2020 lockdown. Following the lifting of COVID-19-related lockdown restrictions, the healthcare
services business’ revenue started to rebound in 2021. In 2021, healthcare services mobilised more than
20 of its facilities, with c.1,100 beds, across the country to treat COVID-19 patients. A growing number of
admissions for regular elective care and outpatient services, along with COVID-19 treatments, contributed
to revenue growth in 2021 (the Government of Georgia fully reimburses costs associated with COVID-19
treatments and pays a fixed fee amount per bed designated for COVID patients). Healthcare services is also
actively engaged in testing patients for COVID-19 and is actively engaged and supports the government
in the COVID-19 vaccination process. So, while the business has, since the lifting of the first lockdown,
dealt quite successfully with multiple challenges it has confronted, even in the absence of restrictive new
measures it continues to face a number of COVID-19 related risks going forward. Among these are:
– The health of our own medical personnel affects healthcare services’ ability to continue to deliver
its services, and they are on the front line especially in the event of a renewed outbreak or a new,
vaccine resistant variant;

•

– Adjusting to the new mix between COVID-19 related care and other care as COVID-19 recedes.
In our water utility business, consumption by our higher paying business customers was dramatically
reduced in 2020 with the lockdown and subsequent home working conditions. Following the rebound
in economic activity the demand from business for water increased throughout 2021, getting close to
pre-pandemic levels by end of the year. Renewed restrictive measures, however, would again negatively
impact business consumption.

• The Group’s education business was also significantly affected in 2020 by the lockdown and subsequent
restrictive measures, and adjusted to distance learning which involved offering tuition discounts and roll-
overs of fees for transportation and catering services. Given the improved epidemiological developments in
Georgia, the schools provided on-campus learning during most of 2021. Schools in Tbilisi were reopened
from 15 February 2021 and continued on-campus learning till the end of the year, except for September.
During the distance learning period, schools offered 15%-25% discounts for tuition fees and roll-over of
fees for transportation/catering services. While the education business seems to have developed a model
for coping with COVID type restrictions, it is not as effective and attractive and profitable when distance
learning is imposed.

• The Group’s hospitality and commercial real estate businesses are the businesses that have been most

affected by the COVID-19 outbreak, reflecting pandemic-related uncertainties from tourism and real estate
sectors. We reacted quickly to the change in the environment and are in the process of exiting from these
businesses. While we successfully completed the sale of selected commercial real estate properties
as discussed on page 11 of this report, any serious deterioration of the epidemiological situation could
adversely affect our ability to sell the remaining properties at attractive prices.

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RISK OVERVIEW CONTINUED

Georgia Capital PLC Annual Report 2021

CORONAVIRUS (COVID-19) RISK CONTINUED

CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS

KEY DRIVERS/TRENDS

MITIGATION

Although vaccine development and the ongoing immunisation process have raised hopes of global recovery,
exceptional uncertainty persists with respect to new COVID variants and vaccine take up rates. The coronavirus
has proven to be a significant challenge for the Georgian economy, especially the tourism sector. Tourism
revenues have displayed first signs of rebounding in the second half on 2021, reaching half of 2019 levels since
July (58% of 2019 level in December 2021). Despite this, the outlook remains highly uncertain 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 globally and output is still trying to catch up to pre-pandemic trends. As a small
open economy (external merchandise trade around 76% of GDP as of 9M21), Georgia is highly dependent
on foreign currency inflows to finance its current account deficit. Therefore, a significantly delayed recovery in
tourism revenues or a major fall in foreign investment sentiment would impact growth prospects substantially,
raising the risk premium and upsetting the balance of payments. The global spread of downside risks would
continue to contract foreign demand and, thus, exports and could negatively impact remittance inflows,
which were invaluable in both 2020 and 2021. 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 on the effectiveness of Government measures in preventing the
further spread of COVID-19, reducing its negative economic impact or that more restrictive measures will not be
introduced, any of which could have a material adverse effect on macroeconomic conditions and, in turn, the
Group’s business.

The resurgence in new COVID-19 cases in August-November 2021 and the beginning of 2022 has not been
accompanied by new restrictive measures, economic slowdown or a substantial fall in consumer and investor
sentiment, suggesting experience has been gained to aid managing a potential epidemiological deterioration
without major negative spillovers. In a population of about 3.7 million, there have been 1.64 million confirmed
cases, 1.59 million recovery cases and 16,630 deaths as of 18 March 2022. The vaccination campaign began
on 15 March 2021, with healthcare workers and risk groups given priority. As of 18 March 2022, 47.2% of the
total adult population were vaccinated at least once, while 43.6% were fully vaccinated. Booster doses are also
available, with just over 228,500 people receiving a booster as of 18 March 2022. Various programmes were
introduced to increase the vaccine take up with varying results, as the Government intends to keep on working
on raising the vaccination level.

Starting from 10 November 2021, citizens of Georgia can get booster doses of the three vaccines: Pfizer,
Sinovac and Sinopharm. In addition, the Coordination Council approved the vaccination plan for children aged
12-15 years. Increasing the number of the vaccinated population, has been the primary goal of the National
Center of Disease Control and Public Health (NCDC) in 2021. To support the vaccination campaign, the
Government of Georgia introduced the incentive programme, under which, the citizens of Georgia aged 60
and above, received one-off promotional support with first dose vaccinations. The campaign was valid until the
31 December 2021.

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 12.5% of GDP
in 2020, as tourism revenues, a major source of foreign currency inflows, evaporated. However, the deficit
improved to 9.7% of GDP in 9M21, and is expected to improve further as the tourism sector begins recovery.
Major sources of financing the current account deficit are remittance inflows (up 24.6% y-o-y in 2021) and
merchandise exports (up 26.9% y-o-y), including a particularly strong performance from domestic merchandise
exports (up 29.9% y-o-y). First signs of tourism recovery are also visible, as tourism revenues have reached
around half of 2019 levels each month since July 2021 (58% of 2019 level in December 2021). International
reserve assets increased by 9.2% y-o-y and totalled US$ 4.2 billion at the end of December 2021, providing
ample cover. The National Bank of Georgia sold US$ 333 million in 2021 on the foreign exchange market, with
the bulk of interventions coming in the first half of the year.

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 427 million liquid assets and loans issued as of 31 December 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 in 2020: suspension of capital allocations together with optimisation of cash
operating expenses. However, the improved epidemiological environment and strong economic recovery during
2021, has allowed for a smooth and gradual transition from the cash accumulation and preservation strategy,
implemented in 2020 as our response to the pandemic, towards capturing business growth opportunities
across all our businesses.

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.

KEY DRIVERS/TRENDS

The Group’s operations are primarily located in, and most of its revenue is sourced from Georgia. Factors such
as GDP, inflation, interest and currency exchange rates, as well as unemployment, personal income, tourist
numbers and the financial situation of companies can have a material impact on customer demand for its
products and services.

The Lari floats freely against major currencies. After depreciating in 2020 due to capital outflows from the
emerging and frontier markets, a sudden stop in tourism revenues and shrinking merchandise exports, as
well as rapidly deteriorating expectations, the Lari gained some ground back in 2021. Following a period
of stabilisation, the Lari began strengthening since mid-May 2021, and continued strengthening into 2022,
appreciating by 7.9% compared to the beginning of 2021 and by 12.7% compared to the 2021 low at
24 February 2022. Currency appreciation was aided by continued robust growth in remittance inflows, swift
rebound in merchandise exports, stronger than expected economic growth, tight monetary policy and improved
expectations. The currency appreciation trend has reversed since the escalation of the Russia-Ukraine conflict,
as the USD has been strengthening globally and extraordinary uncertainty has gripped the markets. Compared
to 24 February 2022, Lari depreciated against US dollar by 6.8% as of 18 March 2022. Following rate cuts in
2020 to respond to the COVID-19 shock, NBG reversed the stance and hiked the policy rate by 250 basis points
cumulatively to 10.5% in 2021, responding to high inflation and subsequent rising inflationary expectations.
With COVID-19-induced supply-side bottlenecks and rising costs exacerbated by global food, energy and
commodity prices surging to record-high levels after the Russian invasion of Ukraine, inflation is expected to
remain elevated throughout 2022 in Georgia like elsewhere around the world.

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.

Real GDP growth has bounced back significantly in 2021, with the economy growing by 10.6% y-o-y in 2021,
including a 28.9% y-o-y growth in 2Q21 on the back of pent-up demand. Even though high growth was aided
by the low base effect, growth was high compared to 2019 as well, with 2021 real GDP standing at 103.2% of
2019 level. IMF increased the 2022 real GDP growth forecast to 5.8% (October 2021 WEO) and welcomed both
the fiscal expansion and monetary contraction in order to support recovery and avoid entrenching inflationary
expectations, respectively. Despite downside risks, the outlook for the Georgian economy was significantly
more positive compared to first quarter assessments.

The current account deficit improved and reached 9.7% of GDP in 9M21, compared to 12.5% in 2020. As
merchandise exports and remittance inflows remain robust while tourism revenues display first signs of
recovery, the current account deficit is expected to improve further throughout the year and gradually converge
to pre-pandemic levels.

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 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 and by S&P in February
2021. Fitch Ratings revised the negative outlook to stable in August 2021 (and reaffirmed the stable outlook in
February 2022), while Moody’s reaffirmed the stable outlook in September 2021.

After repaying its ten-year, 6.875% coupon Eurobonds, issued in 2011, the Government priced US$ 500
million five-year Eurobonds at a record low coupon of 2.75% in April 21. The low coupon rate marks a strong
achievement for Georgia, giving the country a competitive edge over comparable regional countries and
confirming investor confidence in the macroeconomic environment. With economic growth rallying, the current
account deficit expected to fall to single digits, reserves standing at US$ 4.2 billion as of December 2021 and
public debt declining well below the fiscal rule ceiling, major challenges stemming from the COVID-19 shock
have been dealt with, albeit risks remain.

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Georgia Capital PLC Annual Report 2021

CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS CONTINUED

LIQUIDITY RISK

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.

PRINCIPAL RISK/
UNCERTAINTY

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.

KEY DRIVERS/TRENDS

REGULATORY RISK

MITIGATION

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.

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.

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 investment entity subsidiaries; excessive investments in long-
term assets and a resulting mismatch in the availability of funding to meet liabilities; or failure to comply with the
creditor covenants causing a default.

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 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 24.2% as of 31 December 2021; and

• Recourse debt and guarantees are limited at GCAP and at each portfolio company level.

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Georgia Capital PLC Annual Report 2021

PORTFOLIO COMPANY STRATEGIC AND EXECUTION RISKS

PRINCIPAL RISK/
UNCERTAINTY

Market conditions may adversely impact our strategy and all our businesses have their own risks specific to their
industry. Our businesses have growth and expansion strategies and we face execution risk in implementing
these strategies.

The Group will normally seek to monetise its investments, primarily through strategic sale, typically within five to
ten years from acquisition, and we face market and execution risk in connection with exits at reasonable prices.

KEY DRIVERS/TRENDS

Each of our 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. The valuations
are audited, increasing the credibility of fair valuation and limiting the risk of mispricing the asset. In addition, the
valuation of private large portfolio companies (66.6% of total portfolio value) is performed by an independent
valuation company on a semi-annual basis.

The Group has a strong track record of growth and has accessed the capital markets on multiple occasions
as part of the BGEO Group PLC, prior to the demerger in May 2018. 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.

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 which the Group do not have previous known experience of against which they can
be assessed, and risks which are expected to crystallise in future periods, typically beyond one year.

In 2021, 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.
Risks and opportunities of our portfolio companies from climate change are discussed on pages 94-95 of this report. Our portfolio companies’
approach and the mitigants to climate risk are discussed further under Resources and Responsibilities section on pages 84-97 and pages 43-51
of the Sustainability Report.

Potential UK corporate governance reform affecting UK listed companies and other UK public interest entities is identified as a possible emerging risk.
This may include or result in attestation over internal controls over financial reporting which (for comparison) may be more extensive than US Sarbanes-
Oxley (SOX) regulatory requirements, changes in regulator and regulatory powers and increased scrutiny over auditing and reporting requirements.

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Photo Meander of the Alazani River,
in Vashlovani National Park, Georgia.

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RESOURCES AND RESPONSIBILITIES

Georgia Capital PLC Annual Report 2021

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 that relate to environmental and social matters, employees, anti-corruption and anti-bribery. We invite you
to read more about these policies, practices and initiatives in the sections below and in conjunction with our Sustainability Report and the rest of
the Annual Report. The non-financial information detailed under section 414CB of the Companies Act 2006, which aims to provide material and
relevant information on the developments in Georgia Capital PLC’s ESG practices for the financial year ending 31 December 2021 is also cross
referenced below.

Our Sustainability Report is available on our website: https://georgiacapital.ge/ir/sustainability-reports.

Copies of the Company’s policies can be found on our website:
https://georgiacapital.ge/governance/cgf/policies.

As a Group, we are committed to a long-term
investment strategy and building effective
relationships with those businesses in which
we invest. We maintain close relationships
with the management of our private portfolio
companies and as a consequence of our
involved investment style, we manage our
portfolio companies in the best interests of
our shareholders and other stakeholders,
fostering long-term relationships by providing
high returns on investment. Additionally,
we seek to contribute to wider society by
encouraging the continuous development
of our employees and contributing to
the economic and social welfare of local
communities while taking into account our

environmental footprint. With a portfolio
of GEL 3.6 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 understand that the indirect
impact of 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 dedicated to
achieving its strategic and investment
objectives while behaving responsibly
as an employer and as an international
corporate citizen. We have recently adopted
a formal Responsible Investment Policy
and supporting documentation for the
investment process.

Task force on Climate-related Financial Disclosures (TCFD)
The Board supports the recommended disclosures of the TCFD and Georgia Capital committed to making this disclosure in line with the TCFD
recommendations and the Listing Rules which apply to UK premium listed companies in our 2021 Annual Report and the Sustainability Report.
The TCFD disclosure was prepared with the guidance from an independent sustainability consulting company, Quarter Penny Consulting Limited.
The Board is entrusted with providing oversight of climate-related risks and opportunities, aided by the Audit and Valuation Committee and the
Investment Committee. Management are increasing their role in assessing and managing climate-related risks and opportunities. We have
enhanced identification and monitoring of climate change risks through our risk management system. Disclosure of Scope 1, 2 and 3 greenhouse
gas emissions and energy usage is shown on page 91 of this report. We are further considering what metrics and disclosures could be appropriate
given the structure of our Group.

Details of Georgia Capital’s response to the recommendations of the TCFD are set out on pages 92-97.

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. Information on our policies can be found on our
website at: https://georgiacapital.ge/governance/cgf/policies.

Reporting Requirement

Further detail

Annual Report
page reference

Sustainability Report

page reference

Social matters

Employee matters

Promoting local community
Sponsorship and charity
Promoting and enhancing a healthy
lifestyle
Sustainable procurement

Our employees
Talent attraction, training and
development
Gender diversity
Human Rights Policy
Code of Conduct and Ethics

Environmental matters Emission disclosure and calculation

methodology
Measures undertaken to improve the
energy efficiency

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Relevant policies

Environmental and Social Policy
Responsible Investment Policy

Code of Conduct and Ethics
Diversity Policy

Whistleblowing Policy
Human Rights Policy
Anti-Bribery and Anti-Corruption
Policy

Page 30

Environmental and Social Policy

Page 34

Responsible Investment Policy

Our approach to responsible investment
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, with a portfolio value of GEL 3.6 million, we have a strong opportunity to positively affect the environment and community
through the decisions we make across our portfolio.

Georgia Capital has recently adopted a Responsible Investment Policy. The Policy is integrated into the investment and portfolio management
processes and procedures and is supported by recently enhanced due diligence questionnaires. This Policy covers Georgia Capital’s responsible
investment approach and ongoing monitoring of the ESG re-assessments of portfolio companies. Georgia Capital monitors the portfolio companies’
ESG performance and uses its resources to encourage the adoption of ESG best practices. It is supplemented with a dedicated Environmental and
Social Policy.

Through the Responsible Investment Policy, ESG considerations are embedded into the deal process, from the initial investment stage to active
ownership. Details on how we implement the Responsible Investment Policy can be found in our Sustainability Report.

INVESTING IN
SOCIALLY AND
ENVIRONMENTALLY
ORIENTED
INDUSTRIES

Our Group, as the largest employer in the
Georgian private sector, is trusted to improve
the future of our community by building
sustainable businesses for tomorrow. We
have a strong track record of investing and
managing our portfolio responsibly, facilitated
by operating according to our clear and
proven governance model and an extensive
network of top-quality talent. Our approach
to ESG matters is reflected in the strategy
and management principles of our portfolio
companies, all of which adhere to sound
ESG standards, as well as local policies
and regulations.

We have been supportive of investments
in socially and environmentally oriented
businesses since 2008 when we first entered
the healthcare market, with the aim of

modernising the healthcare infrastructure,
closing service gaps in the country and
increasing the overall quality of care.
As a result, we have contributed to the
development of the Georgian healthcare
system and our society. Today GHG is
the largest and the only fully-integrated
healthcare provider in the fast-growing,
predominantly privately-owned Georgian
healthcare system. GHG businesses are
the market leaders in the country in each
operating segment: Healthcare Services,
accounting for 20% of the country’s total
hospitals bed capacity; Retail (pharmacy),
with c.35% market share by revenue; and
Medical Insurance, with 23% market share
based on 3Q21 net insurance premiums.

Currently, we are investing in two key sectors
that will benefit the sustainable development
of Georgia: Renewable Energy and Education.

Our renewable energy business, owned
through Georgia Global Utilities, has
contributed to the transition towards a more
sustainable and lower-carbon economy
in Georgia. Through its green projects,
the business has supported climate change
mitigation, natural resources conservation
and pollution prevention. Going forward,

the launch of hydro and wind power
plants will enhance our renewable energy
business’ contribution to green energy
production development.

Our education business has made
a significant contribution to the country’s
education system and society. 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.

Despite being a small share of our total
portfolio, our subscale “other” portfolio
companies have a substantial positive
impact on ESG matters. Our PTI business
represents the largest network of mandatory
periodic technical inspections throughout
Georgia, accounting for 36% of the existing
market. The business is directly engaged
in greenhouse gas emissions and road
accidents reduction in the country.

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RESOURCES AND RESPONSIBILITIES CONTINUED

Committing to the Principals of the
UN Global Compact
In February 2022, we became a signatory
of the UN Global Compact and officially
expressed our commitment to its Ten
Principals. Many of our businesses already
make a positive impact on the environment
and societies in which they operate, including
on some of the themes highlighted by the UN’s
Sustainable Development Goals (SDGs). Going
forward we will further explore opportunities to
align with the SDGs for the greater global effort.

GOVERNANCE
Georgia Capital recognises the importance
of maintaining sound corporate governance
practices and supports high standards of
corporate governance in delivering value
to our stakeholders. For full details of our
governance structure and processes,
please see the Corporate Governance
section of the Annual Report.

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 strive to contribute to society
through: 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 and its portfolio investments
are committed to playing a positive role in our
local community. Since the onset of COVID-19,
our healthcare services business has played a
significant role in managing the pandemic in the
country. To support the Government and the

patients affected by COVID-19, in 2021 GHG
mobilised more than 20 healthcare facilities,
with a total aggregate number of c.1,100
beds, with trained medical personnel, isolated
wards, intensive care and critical care units, to
treat COVID-19 patients across Georgia. The
business is also actively engaged in supporting
the Government in the COVID vaccination
process. Vaccination cabinets were allocated
in 17 of our hospitals and 31 of our clinics. In
September our clinics business opened the
country’s biggest private vaccination centre
with 26 vaccinating rooms and an electronic
management system, which offers a modern
and comfortable service.

To raise awareness and promote the COVID-19
vaccination process in the country, the healthcare
services business organised ten webinars, led by
the country’s well-known medical professionals,
who provided in-depth information regarding
vaccination benefits. The business initiated an
outdoor campaign to positively impact public
opinion where Georgian influencers shared
the statistical data from our hospitals network
experience on how vaccination helps to avoid
possible COVID complications.

Some of our clinics are participating in a
governmental project to treat remote COVID
patients. They managed a total of 35,818 cases
throughout the year. Clinics have also created a
new model of online treatment by Viber groups,
where doctors are available 24/7, providing
online consultations for COVID infected
patients. Furthermore, our clinics business
provided more than 80,000 free phone and
video consultations. The clinics business
also introduced online consultations through
specially created Facebook groups where
patients can receive general recommendations
from the best professionals in the field. Online
“cabinets” comprise more than 23,000
members. So far, more than 7,000 queries
were answered through social media.

In 2021, GHG won the Gold Award in the
Environmental & Social Innovation category
at European Bank for Reconstruction and
Development (EBRD) Sustainability Awards
2021, for its new digital application – EKIMO.
EKIMO is an innovative, independent and
fully-integrated digital healthcare platform,
that combines all components of primary
healthcare: doctors, clinics, laboratories,
radiology units, retail pharmacies and medical
insurance. The application was launched in
March 2020 and is open to any healthcare
service provider or healthcare products seller
in the country. EKIMO is completely free
for all users and provides quick and easy
access to the entire healthcare ecosystem,
such as booking doctor appointments, online
payments, online consultations and pharmacy
delivery. Since its launch, EKIMO’s network
has expanded to 1,012 doctors from 90
different clinics, half of which are independent,
third-party clinics.

P&C insurance business, 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. With the help of
modern technologies an electronic insurance
policy is issued in the client’s name without
physical contact or document exchange.
As a result the user experience became more
enjoyable and safer. 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.

In 2021, Aldagi launched its sub-brand,
“Backapp”, which is the first insurance
application available for Android and iOS
operating systems in Georgia. The application
was designed to raise awareness of safe
driving and the importance of having auto
insurance. The customers are able to buy a
car insurance policy online from the application,
without any physical contact with the insurance
company. Backapp is an innovative product,
offering a unique experience to the Georgian
insurance industry.

Sponsorship and charity
In 2021, the Group spent a total of
GEL 2.1 million in financing sponsorship and
charitable activities. 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 as set out in our
Environmental and Social Policy.

In 2021, Georgia Capital continued to support
the Fulbright programme and covered
the education and travel expenses of one
high-achieving student. Georgia Capital also
extended the sponsorship programme to
support the Caucasus Nature Fund (CNF),
through our involvement 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. Under the programme, GCAP
will contribute GEL 10,000 annually for the
next two years.

For more information on our portfolio
companies’ charitable activities please refer
to our Sustainability Report.

Total sponsorship and charitable expenditure of the
Group, 2021 (GEL million)

0.8

2.1

million

1.3

Sponsorship
Charity

Promoting and enhancing
a healthy lifestyle
Georgia Capital acknowledges the importance
of a healthy lifestyle for 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 were
cancelled. Top management, as well as the
departmental heads, have increased their
support of the emotional well-being of our staff.
We have encouraged an 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.

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.

The breakdown of expenditures by type of
suppliers is provided below.

Safety measures against COVID-19 have
been maintained throughout the year in line
with recommendations and guidance of local
healthcare experts. To avoid the spread of
the disease, the Company encourages its
employees to test daily against the COVID-19.
The rapid tests are provided free of charge at
the GCAP office.

Georgia Capital recognises the importance of
mental health and is aware of the damaging
impact that increased stress and anxiety can
have on an individual. It is our practice to hold
workshops to check on the employees’ mental
health and offer face-to-face counselling.
Employees are encouraged to express their
mental health concerns in an open manner
and seek assistance. We provide opportunities
for a flexible, remote and hybrid working
environment. Respective teams at GCAP
constantly track the workload of the employees
to identify if the hiring of additional staff
is required.

For details on how our portfolio companies
support their employees’ health and well-being,
including occupational health and safety,
please read our Sustainability Report.

Sustainable procurement
At Georgia Capital, we strive to exercise
good corporate citizenship and we take
into consideration the ESG practices of our
suppliers. A large majority of GCAP’s suppliers
are professional advisors and consultants
engaged in counselling Georgia Capital
on various corporate matters. These are
predominantly blue-chip, highly reputable
international organisations with sound ESG
policies and procedures, and low exposure
to ESG-related risks. Considering the small
number of suppliers at the GCAP level and our
active engagement with them, we do not have
a dedicated procurement policy. However, our
existing policies and procedures ensure that an
appropriate level of due diligence is conducted
on prospective suppliers before they are
appointed or any expenditure is committed.
The nature of the due diligence is determined
on a case-by-case basis. As a general rule,
the procedure safeguards the assessment of
risks associated with bribery and corruption,
information and data security, human rights
and employment practices, and other material
aspects as determined during the assessment.

Georgia Capital aims to work with suppliers
whose ESG practices are in line with our
sustainability goals. We invite you to read more
in our Sustainability Report.

In 2021, significant items for Georgia Capital PLC
procurement expenditures were audit, valuation
and compliance services, as well as services
sourced from the professional consultations
and IR services.

Expenses by type of suppliers at Georgia Capital
level, 2021

16%

18%

35%

31%

Audit, valuation and compliance services
Professional consultation and IR services
Legal advisors
Insurance and other services

EMPLOYEE MATTERS
Our employees
Recruiting, developing and retaining 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. 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.

We maintain a Group-wide Code of Conduct
and Ethics for our employees and other
effective HR policies and procedures covering
matters such as:
• staff administration, compensation

and benefits.
recruitment, development and training.

•
• diversity and anti-nepotism.
• succession planning, departure

and dismissal.

• grievances.

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RESOURCES AND RESPONSIBILITIES CONTINUED

mid-level managers to cascade down the
messages and information to those across all
levels of staff at our businesses.

In 2021, we conducted our second employee
satisfaction survey at the holding company
level. According to the survey results, more
than 95% of the participants enjoy working at
Georgia Capital, more than 95% believe that
their job responsibilities match their strengths,
and more than 85% are highly or moderately
satisfied with career growth opportunities at the
Company. Survey participants also provided
their recommendations on the following topics:

1. What Georgia Capital must continue to do;
2. What Georgia Capital must stop doing;
3. What Georgia Capital must start doing.

The results of the survey were fed back
to management.

Our office remained open throughout the year
as there were no lockdowns in 2021. Despite
this, attendance at the office was voluntary. For
our employees who selected to work from the
office, we ensured that they were able to work
in a safe environment, following local legislation
and guidance. Distance and hybrid working
environments facilitated staff engagement
through online platforms.

In 2021, several employee engagement
activities were performed at the GCAP holding
company level and our portfolio companies.
We invite you read more about the activities
in our Sustainability Report.

Talent attraction, training
and development
Georgia Capital Group is the largest employer
in the Georgian private sector. Our approach
to recruiting, developing and retaining our talent
has been widely spread across our portfolio
companies. In 2021, the Group hired 5,515
new employees (4,688 employees in 2020).

Sustained development of the Group’s
businesses requires 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.
All employees at Georgia Capital work on
a full-time employment contract.

To attract young talent, we actively partner
with leading Georgian business schools and
universities, participate in job fairs and run
extensive internships locally and 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 continued to promote
its talent.

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 that 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
sessions, further meetings were held by

Total number and rate of Company’s new employee hires and employee turnover (%)

New hires

New hires rate

Full turnover

Turnover rate

2020

2021

12%

To manage our employees in a way that best
supports both our business strategy and their
professional growth, we seek to help them
contribute to business performance through
personal and professional development.
Despite the slowdown of training activities
due to the pandemic, Georgia Capital
managed to maintain active engagement
in the training process of its employees. In
recent years we created a programme for the
investment department in which participants
are able to gain a good understanding about
new developments in the investment field
and refresh their knowledge. In addition to
specific training courses, regular workshops
are held in the Company which are linked to
more complex matters, such as business
approaches and best practices in related fields.
In December 2021, Georgia Capital held a two-
day meeting and training session for the legal
teams at the portfolio companies on the new
legislation “Law of Georgia on Entrepreneurs”.
Besides in-house training, Georgia Capital
provides designated training and certification

programmes for various departments through
third-party resources.

For details on how our portfolio companies
train and provide continuous development
to their employees, please read our
Sustainability Report.

Gender diversity
Georgia Capital is fully committed to providing
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 the 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 2021,
Georgia Capital, as an investment holding
company, had a total of 43 employees,
of which 26 are female, and 17 are male.

We are supportive of the ambition shown in
recent reviews on diversity, including the Parker
Review regarding ethnic diversity. The Board
is currently in line with recommendations
for UK boards, with Board member Maria
Chatti-Gautier of Syrian heritage (Middle
Eastern) and so representing an ethnically
diverse background.

We are also supportive of the Davies Review,
the Hampton-Alexander Review, and the

recently published FTSE Women Leaders
Review regarding gender diversity, and seek
to apply the UK Corporate Governance Code
in this respect. We will continue to examine
ways in which we can increase female and
ethnic representation at Board and senior
management levels.

Gender diversity at 31 December 2021

Board of Directors at Georgia Capital PLC

2021

2020

Management at Georgia Capital

2021

2020

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

2021

2020

Age diversity at 31 December 2021

All employees at Group level2

21,549

3,837

5,761

5,611

5,847

493

All employees at Georgia Capital1

5
Over 51
41-50 years old
31-40 years old
21-30 years old
Less than 20 years old

All employees at Group level2

21,549

14,648

6,901

13,885

6,429

2021

2020

Female
Male

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.
• 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 disabilities. 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 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 an 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.

1 Employee numbers are presented at JSC Georgia Capital level.
2 Excluding temporary employees.

Anti-Bribery and Anti-Corruption Policy
enforcement processes include:
• an anonymous whistleblowing hotline;
• an internal whistleblowing process;
• 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, the Group conducts
due diligence by 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 2021.

ENVIRONMENTAL MATTERS
Emission disclosure and
calculation methodology
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 also used the most recent Georgian
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. Further conversion
factors have been taken from the UK
Government’s “Greenhouse Gas Conversion
Factors for Company Reporting 2021”. Energy
consumption is disclosed in line with SECR
requirements. The emissions disclosures
are also prepared in accordance with the
TCFD requirements.

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RESOURCES AND RESPONSIBILITIES CONTINUED

Overview:
The operations of Georgia Capital in
London and Tbilisi have relatively low energy
consumption. However, we recognise the
evolving significance of emissions disclosures
in the investment community and in line with
our commitment to increasing transparency,
we voluntarily disclose emissions for JSC
Georgia Capital (intermediate Georgian holding
company) and its portfolio investments.
We have reported on all 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 businesses’ direct operations. All
reported sources fall within our financial
statements. We do not have responsibility
for any emission sources that are not
included in our financial statements.

What we report:
The Group’s “central” operations:
Our reported data is collected in respect of
the Group, including our offices and facilities in
London and Tbilisi. Data on emissions resulting
from travel is reported for business-related
travel only but excludes commuting.

As we do not have any joint ventures,
sub-leased properties or offshore emissions
these have not been included within the
reported figures.

The data has been obtained from the Group’s
locations using both invoices and site meter
readings. Our leased office in the UK operates
with only four employees and the annual
consumption is less than 5MWh (in 2021, UK
office’s annual consumption was 4.1MWh and
3.6MWh for the 2020), the costs of which are
included within the lease fees. The estimated
electricity consumption of the UK office is
included in Scope 2 emissions calculation.

The Group’s portfolio:
Data from our portfolio companies’ Scope
1, 2 and 31 emissions have been aggregated
and presented as a separate line item under
Scope 3 emissions in accordance with
the Greenhouse Gas Protocol. Scope 3
emissions for the year ended 31 December
2019 and 31 December 2020 have been
updated retrospectively to reflect our
approach. These have been reported for all
our private investments, where the Group
holds a controlling stake. Emissions from our
listed asset, Bank of Georgia, have not been
included in the calculations. BoG, as a UK
listed company discloses Scope 1, 2 and 3
emissions in its annual filings, available at:
https://bankofgeorgiagroup.com/reports/
annual.

Summary of GCAP’s greenhouse gas disclosure
The table below summarises the various elements of our disclosure and details the particular greenhouse gas emissions and whether they are included
or excluded.

Element

Description

Included/Excluded

Scope 1 – Static fossil fuel

Scope 1 – Mobile fossil fuel

Combustion of fossil fuels, e.g. natural gas, fuel
oils, diesel and petrol, in stationary equipment at
owned and controlled sites.

Combustion of petrol, diesel and aviation fuel in
owned/operated vehicles.

Excluded – No such processes/equipment
owned or operated by Group.

Business travel has been included.

Scope 1 – Other emissions

Process emissions and refrigerant leakage.

Scope 2 – Consumption of electricity

Consumption of electricity.

Excluded – No such processes/equipment
owned or operated by Group.

Included – Used electricity at owned and
controlled sites using 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. Also included are
emissions of the UK office.

Scope 2 – Consumption of thermal energy

Direct consumption of heat, steam or cooling
generated by others.

Excluded – No such thermal energy supplies
are consumed by Group.

Scope 3

Combustion of petrol, diesel and aviation fuel in
vehicles owned and operated by others.

Investments

Included – 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).
Included – Ground transportation, including
taxis, coaches, trains, etc. owned and operated
by others.
Excluded – emissions from staff commuting.

Included – Scope 1, 2 and 31 of our portfolio
companies where we have a majority stake.

Emissions
Due to the impact of the coronavirus pandemic, the consumption of energy and therefore emissions by the Group and its portfolio companies has
been atypical for almost two years, i.e. 2020 and 2021. As such, to enable useful year-on-year analysis of trends in emissions, it is necessary to go
back to 2019 (the first full year GCAP existed) as the pandemic has distorted the years since then, making them unreliable for comparative purposes.
It is hoped that in 2022 and certainly by 2023 emission patterns should have reverted back to pre-pandemic levels so it may not be until then that
underlying trends in emissions can be confidently deduced.

1 Portfolio company Scope 3 emissions reported for business travel and employee commuting.

owned vehicles.

2021

–
60
3
40,579
5

40,574
40,642
43
945.2
21,549
1.89

Total greenhouse gas emissions (tonnes CO2e)

Data for the period beginning 1 January 2019 and ended 31 December 2021

Scope 1 – Static Fossil Fuel (emissions fuel combustion and facility operations)
Scope 1 – Mobile fossil fuel
Scope 2 (emissions from electricity, heat, steam and cooling purchased for own use)
Scope 3

Of which, air travel and ground transportation provided by third parties plus electricity
heat/steam cooling provided within lease and service agreements
Of which, investment portfolio Scope 1, 2 and 3

Total greenhouse gas emissions
FTEs at JSC Georgia Capital level
Total greenhouse gas emissions per FTE1 (JSC Georgia Capital)
FTEs at JSC Georgia Capital and portfolio investments’ level
Total greenhouse gas emissions per FTE1 (JSC Georgia Capital and portfolio investments’ level)

2019

–
84
13
76,736
197

76,539
76,833
39
1,970.1
21,439
3.58

2020

–
59
2
38,074
12

38,062
38,136
44
866.7
20,314
1.88

SECR report
This report has been produced in accordance with the UK Government’s policy on Streamlined Energy and Carbon Reporting (SECR).
As determined by the Greenhouse Gas Protocol, the scope and boundary of the greenhouse gas emissions herein relate to those where
we have operational control, i.e. those relating to our corporate offices in both London and Tbilisi.

Greenhouse gas emissions and energy data
The following table reports upon greenhouse gas emissions and energy data for the period January 2020 to December 2021. The prior reporting
year has been included for comparative purposes.

Energy consumption (in kilowatt hours, kWh)

Purchased electricity
Gas combustion
Transport fuel
Refrigerants
Total energy consumption (kWh)2

Emissions (per metric tonne of CO2 equivalent, tCO2e)

Purchased electricity
Gas combustion
Transport3
Refrigerant emissions
Total gross emissions
Intensity Ratio (tCO2e per FTE)

Prior reporting year
(2020)

Current reporting year
(2021)

25,946
–
185,635
–
211,581

Total
(2020)

2.5
–
11
–
13.5
1.68

Scope

2
1
3
2
–

Total
(2021)

2.6
–
3
–
5.5
1.57

27,852
–
199,457
–
227,309

Scope

2
1
3
2
–

Quantification and reporting methodology
The greenhouse gas emissions and energy data presented above has been collated, calculated and presented using methodology following the
Greenhouse Gas Protocol, and uses the 2021 Government Emission Conversion Factors for Company Reporting.

Intensity ratio
The intensity ratio used in the table above displays total gross emissions (tCO2e) per FTE.

Measures undertaken to improve the energy efficiency
As an investment holding company with around 40 employees in Georgia and a further four 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. Over the last periods, Georgia Capital has introduced and implemented energy efficient solutions to further reduce energy
consumption by conducting various activities 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, such as boilers and heating ventilation and air
conditioning systems. The real estate business pioneered the introduction of energy efficient construction materials and our clinics business also
joined in energy efficiency initiatives with one of the clinics switching to a solar power system – a renewable energy source. To minimise emissions
and further contribute to eco-friendly energy consumption, two clinics replaced diesel-powered heating systems with gas heating systems. In our
education business, one of our schools successfully introduced solar panels, and gradually other educational infrastructures will follow along. Our
beverages business reduced its energy consumption and carbon footprint by the CO2 recovery plant, alongside with the wastewater treatment plant.
In addition, the company also introduced the Green Fridge policy which will help the business in sustaining the environment by reducing the carbon
footprint of cooling bottled and canned products.

Details of environmental activities of our portfolio companies are reported in our Sustainability Report at
https://georgiacapital.ge/ir/sustainability-reports.

1 FTE is stated excluding temporary employees.
2 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.
3 Transport emissions represent 1) business travel in employee-owned vehicles where the firm is responsible for purchasing the fuel, and 2) business travel in company

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RESOURCES AND RESPONSIBILITIES CONTINUED

TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES (TCFD)

In 2020, the GCAP Board made a commitment to prepare for financial disclosure of climate-related risks in line with the
Task Force on Climate-related Financial Disclosures (TCFD).

During 2021, GCAP appointed independent consultant Quarter Penny Consulting Ltd to assist with the TCFD evaluation.
Working with GCAP representatives they have developed a schedule for the phasing of activities described under the
TCFD framework.

We consider climate-related risks and opportunities may arise from the perspectives of both the Group and our portfolio
of investments. The evaluation of climate-related risks and opportunities, as with other risks, is iterative and evolving and
we expect that our future disclosures will develop accordingly. At this time, we have completed a qualitative evaluation
of the climate-related risks and opportunities for the Group.

GOVERNANCE

Board oversight
The Board is entrusted with providing oversight of climate-related risks
and opportunities, aided by the Audit and Valuation Committee and the
Investment Committee members of which also include Board members.
These two Committees have the responsibility for assessing and
managing climate-related risks and opportunities in relation to GCAP’s
direct operations and to our portfolio companies, as it affects matters
within their remit.

Current, future and emerging risks are included within the standing
item, “Discussion of risks”, of the Audit and Valuation Committee and
Board agendas. Risks, including those relating to climate change,
are discussed, and implications for future strategy considered, semi-
annually, in line with the annual and semi-annual reports.

The Board will be responsible for the approval of the climate-related
metrics and targets that will be established by GCAP during the course
of 2022. It will also be responsible for ensuring progress against agreed
metrics and targets.

Management oversight
Within the management team, the Chief Financial Officer (CFO)
supported by the finance team, is responsible for identifying risks,
including climate change risks, in relation to the investment portfolio and
including these in the valuation process. The Director of Investments
(DoI), supported by the Investment Officers is responsible for identifying
specific risks and opportunities at the initial investment stage.

Materiality may be considered in terms of matters that may have
a material financial impact on the financial performance of GCAP
(revenues, expenditures) and the financial position of the portfolio
companies, as well as capital and financing implications (financial
materiality). These matters may arise from different types of climate
change-related physical and transitional risks.

The CFO and DoI report on monitoring of identified financial and
climate-related risks and significant changes through its regular reports
to the Management Board. Risks are escalated to the Audit and
Valuation Committee.

The Board and management work together to develop and review the
GCAP investment strategy and consider, among other aspects, climate-
related issues. They are also responsible for setting a wide range of
corporate policies and objectives, among them environmental and social
policies, and for monitoring performance against objectives and targets.

Understanding climate related risks
In alignment with TCFD guidance for Board and senior management,
a workshop was held on the topic of climate-related risks. The
objectives of the workshop were to introduce the Board to the approach
and methodology of evaluating potential climate-related risks and
opportunities; to share the modelling scenarios and plausible outcomes
with respect to physical and transitional risks; and to review the potential
risks that should be considered further. The workshop was held in
November 2021 and led by independent consultant Quarter Penny
Consulting Ltd. It was attended by members of the Board, including the
Chair of the Audit and Valuation Committee and Senior Independent
Director, the Chair of the Investment Committee and the management
team. It is noted that the Senior Independent Director was appointed
the Republic of Georgia’s first Environmental Ombudsman in 2019 and
as such has specific knowledge of environmental matters including
climate change.

For 2021, we are reporting our greenhouse gas emissions and energy use
in line with the Greenhouse Gas Protocol, Scope 1, 2 and limited Scope 3.

During 2022, we will be considering suitable goals and targets that
support the resilience of the portfolio with respect to climate change and
in line with the Republic of Georgia Nationally Determined Contributions.
These goals and targets will be appropriate to, and applied to:
•
•

the Group; and
the aggregated performance of the portfolio companies.

The finance team will be responsible for reporting upwards, via the
management team to the Audit and Valuation Committee, on the
progress made against the goals and targets.

STRATEGY
In support of the evaluation of climate-related risks and opportunities
that may be present, a review of GCAP’s direct operations and a macro-
level review of the portfolio companies’ operations was completed by
the independent consultant Quarter Penny Consulting Ltd during 2021.

The work comprised an initial qualitative assessment of the climate-
related impacts associated with the Group and portfolio companies.
It is considered that indirect climate-related risks within the portfolio
companies will be more significant than those present within the
Group’s operations. An early-stage scenario analysis was completed
as part of the process towards understanding how the climate impacts
identified in the qualitative assessment could present as financial risks
to GCAP under different plausible future scenarios. The findings and
potentially material risk implications of such findings (examples of which
are provided below in section “Scenario analysis of plausible futures”)
will inform future strategy. However, it is noted that the current strategy
already incorporates some consideration of climate change aspects
(e.g. GCAP’s focus upon renewable energy, 4.8% share of the portfolio
at 31 December 2021).

Scenario analysis of plausible futures
Network for Greening the Financial System1 (NGFS) scenarios were
chosen for their relevance to the finance sector and to allow for
comparability. Climate change scenarios for the Republic of Georgia
were explored as follows:
• Current policies/(Business as Usual (BAU)) (policy ambition of >3°C

by 2050).

• Delayed transition to net zero (policy ambition of 1.8°C by 2050).
• Orderly transition to net zero (1.5°C by 2050).

GCAP is investing over a three to five year horizon. With this in mind,
the scenario outputs were considered by GCAP in the short term
(year 2025), medium term (year 2030) and long term (year 2050).

Each NGFS scenario explores a different set of assumptions for how
climate policy, emissions and temperatures evolve. The scenario
descriptions using the REMIND-MAgPIE 2.1-4.2 model are as follows:
• Current Policies (or BAU) where the modelled temperature in
2050 exceeds 3°C. This scenario is dominated by physical risks
due to the resulting climate and weather pattern changes. Transition
risks are muted as regulators and technology are not being driven
to change beyond current plans. Georgia would experience a
reduction in the overall volume of precipitation across the country,
including a reduction in the volume of snowfall. Gradual snowmelt
will be replaced by more intense rainfall run-off. This will result in
landscape instability and heightened flood risk with the potential for
infrastructure to be overwhelmed. In addition, there is an expectation
of increasing the frequency of heatwaves.

• Delayed Transition 1.8°C where the temperature rise is 1.8°C by

2050. Physical risks as described under the current policies scenario
are still likely. Delayed transition implies that society remains slow to
act but there is a more urgent response in the 2030s. Consequently,
transition risks, especially those relating to regulation, occur mid-
2030s and are swiftly implemented (not gradual or phased), for
example, fuel use and carbon pricing. Technology will continue to
evolve because R&D generally occurs over 10-15-year horizons, while
consumer preferences and reputation may have more of an influence.

• Net Zero 1.5°C is consistent with a temperature rise of 1.5°C,

reflecting early, planned policy action. Transition risks will dominate
this scenario in relation to regulation, technology and products. There
is an expectation of rapid obsolescence of fossil fuel technologies
and technology advancements that will contribute to the transition.
Consumer preferences towards sustainable choices and reputation
will drive changes in market demand. While physical risk profiles
remain broadly similar up to 2030, they are lower than in other
scenarios after this date.

Carbon prices (including taxation measures) are a key policy instrument
for incentivising carbon emissions reduction. There is a direct relationship
between the ambition (and stringency) of policies and the cost of emissions.
The cost of emissions is also sensitive to the timing and implementation of
the policies, the distribution of policies across all industrial sectors and the
available technology, for example for CO2 removal.

The carbon price in Georgia is a key variable in determining the future
climate-related financial risk for GCAP. The projected carbon price over
the short, medium and long term under the three plausible scenarios
is shown in Table 1. Under current Policies, there is little change in the
carbon price. However, there is a sharp increase in the carbon price
occurring in about 2030-2035 under the Delayed Transition 1.8°C
scenario. Under the Net Zero 1.5°C scenario, a carbon price in
Georgia of US$ 204/tonne by 2030 is projected.

Table 1: Modelled carbon price for Georgia (US$/tonne)

Projected carbon price

NGFS modelled scenario

Year 2025

Year 2030

Year 2035

Year 2050

Current Policies

Delayed Transition 1.8°C

Net Zero 1.5°C

148

204

224

272

497

603

Based on the early-stage scenario modelling and a workshop session
involving a range of GCAP stakeholders and Quarter Penny Consulting
Ltd, initial tables of potentially material climate-related financial risks and
opportunities for each scenario were prepared.

1 www.ngfs.net Network for Greening the Financial System NGFS Climate Scenarios for Central Banks and Supervisors June 2021.

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RESOURCES AND RESPONSIBILITIES CONTINUED

An example summary table of the Delayed Transition 1.8°C scenario is
presented as Table 2. In this example scenario, the increasing carbon
price is likely to be material to each of the portfolio companies either
directly or through their supply chains. In addition, potential financial
impacts under this scenario may also arise associated with:
• Acute physical events for example, from increased flooding or land
instability due to intense rainfall on operations or physical assets.
• Chronic physical changes to climate such as increased average
temperatures affecting the condition or habitability of real estate
assets, the physical condition of distribution networks, and/or
community health.

• Adaptation of operations or assets to mitigate the effect of physical
or transition risks. In this example, transition risks and, in particular,
opportunities for the Group’s investment strategy and portfolio may
be driven by the Georgian Nationally Determined Contributions
and the Georgian 2030 Climate Change Strategy and Action Plan
(CCSAP) Strategy.

It is noted that under the plausible scenarios analysis, there will be
little difference in the physical outcomes between Current Policies and
Delayed Transition 1.8°C before 2050. But under the Delayed Transition
1.8°C scenario, there is significant potential for variation in near-term
policy action which will introduce great uncertainty for businesses.
As part of the TCFD programme in 2022 the qualitatively identified
risks and opportunities will be further developed and quantified.

A narrative summary of qualitatively identified macro-level risks and
opportunities under the Delayed Transition 1.8°C scenario and the
potential impact of these risks is provided below. For each portfolio
company, examples are given which are considered to have the potential
to be material to the portfolio company, if not to the portfolio as a whole.
The percentage value of the portfolio company within the portfolio is
provided as a broad indicator of likely weighting.

Bank of Georgia 18.8% share of the portfolio
at 31 December 2021
• Risks – Within the medium term, the rapid implementation of climate
policy and regulation may result in sharply increasing direct regulatory
expenses in relation to fixed assets such as the Bank’s retail outlets.

• Opportunities – In the short term, and in mitigation, the Bank is
already in the advanced stages of implementing energy efficiency
programmes within its real estate (retail, office and data centres).
By anticipating compliance with regulations relating to fuel efficiency
standards, emissions-reducing regulations and building efficiency
compliance, the Bank will minimise costs in relation to regulations. In
addition, it will lower the energy expenditure and generate a financial
benefit, especially where renewable energy is utilised. Additionally,
the Bank is adopting digital technology to enable all forms of digital
banking, potentially further reducing the need for fixed assets.

Bank of Georgia Group PLC is in the process of completing its own
TCFD assessments, the results of which will be available publicly
in Bank of Georgia Group PLC’s Annual Report and Accounts 2021.

Healthcare Service 20.2% share of the portfolio
at 31 December 2021
• Risks – A delayed transition, it is anticipated that in the medium-term

carbon prices will remain low. After 2030, carbon prices may rise quickly
year on year towards 2050. The implications of this will be financially
more severe for carbon-intensive products, services and operations.
This will result in increased costs of purchase relating to medical
equipment and supplies particularly those originating out-of-country.
• Opportunities – In the short to medium term, commitment to a

low carbon portfolio (e.g. low carbon hospitals) could have material
benefits. A reduction in the portfolio’s carbon intensity will mitigate
future costs associated with increasing carbon prices.

Retail (pharmacy) 19.6% share of the portfolio
at 31 December 2021
• Risks – The principal risks arise from physical aspects of climate

change and may impact the physical assets (refer also to commercial
real estate). Transition risks are considered to mainly relate to carbon
pricing and the effect this will have on the supply chain, for example,
the purchase of drugs and medicines. As the carbon price rapidly
increases post-2030 (medium term) the prices of goods will increase.
While this will be felt across the market and will not be unique to
the portfolio, given the leading market share, this could result in
reputational risk arising from consumer perception.

Table 2: Portfolio 2021: Qualitative presence of potential climate-related physical or transition risks under delayed transition 1.8°C

Portfolio company (% value of total portfolio)

Risk

Opp.

Risk

Opp.

Risk

Opp.

Risk

Opp.

Risk

Opp.

Risk

Opp.

Physical risks2

Transition risks3

Acute

Chronic

Legal/
Regulation

Market

Reputation

Technology/
Digital

Bank of Georgia (18.8%)

Water Utility (19.3%)

Renewable Energy (4.8%)

Healthcare Services (20.2%)

Retail (pharmacy) (19.6%)

Medical Insurance (1.6%)

P&C Insurance (5.8%)

Education (3.6%)

Auto Service

Beverages (beer and wine)

Housing Development, Hospitality
and Commercial Real Estate

Key: The orange blocks indicate potentially material risk areas and the green blocks indicate potentially material opportunities for each of the
portfolio companies. White areas indicate that neither material risks nor material opportunities are anticipated.

2 Physical risks and opportunities are those that occur due to the physical manifestation of climate change – as chronic long-term climate changes or as acute episodic weather events.
3 Transition risks and opportunities are those related to the transition to a low carbon economy including legal/regulatory risks such as carbon prices, market supply and demand,

reputation and technology (e.g. disrupters, improvements and replacement of technology that support the transition to a low carbon economy).

• Opportunities – There is a regulation opportunity for Georgia

Healthcare Group in general. Being an early adopter of fuel efficiency
standards, emissions-reducing regulations and building efficiency
compliance will reduce overall running costs in the medium term.
Good energy management and the use of renewable energy will
not only lower the energy expenditure and generate a financial
benefit but will also reduce the carbon footprint of the operations.

Medical Insurance 1.6% share of the portfolio
at 31 December 2021
• Risks – An increase in medical insurance claims may arise from both
acute short-term weather conditions (flooding and in some regions
landslides, heatwaves) and long-term chronic changes in weather
such as increased average temperatures, impacting health. Failure
of infrastructure may cause longer-term ill health from waterborne
diseases. There is also a risk that the Government introduces a policy
for insurers to maintain policy cover for the “uninsurable”, the costs
of which may not be possible to pass on to the insured.

• Opportunities – Encouraging customers to prepare to be resilient

with respect of climate risks, for example through premium incentives
to have healthy lifestyles, may contribute to the business reputation
and customer base.

P&C Insurance 5.8% share of the portfolio
at 31 December 2021
• Risks – Carbon pricing is a fundamental component of the EU’s new
climate change agenda. Under the Delayed Transition 1.8°C scenario,
carbon pricing is expected to rise sharply after 2030 (medium
term). This will see a progressive rise in the cost of carbon-intensive
products and services, logistics, distribution and any other operations
within the supply chain associated with high carbon emissions. This
will have implications for the cost of insurance, which may be passed
on to the customer.

• Opportunities – Opportunities will likely arise from energy efficiency
regulation which will force customers to upgrade their homes and
vehicles and may require new product offerings.

Water Utility 19.3% share of the portfolio
at 31 December 2021
• Risks – Acute physical risks may impact the utility assets. For example,

in the short to medium term, extreme rain events may overwhelm
infrastructure, causing damaged water treatment and sewage treatment
plants. Pipelines are also at risk from such events, as the overall
integrity is placed under pressure. These will require greater increased
maintenance and repair costs. Landslides in more remote locations
could cause further damage and may block access in some areas.
• Opportunities – In the medium term, decarbonisation of operations
will enable the Water Utility operations to limit the cost consequences
of carbon pricing and provide an advantage over more carbon-
intensive competition.

Renewable Energy 4.8% share of the portfolio
at 31 December 2021
• Risks – In the short to medium term, the infrastructure and

transmission lines are clearly at risk from physical risks such as
landslides, or extreme heat impacting the integrity of lines or pipes.
However, for each of the HPPs and WPPs, the business has taken
steps to improve the resilience of infrastructure to changes in climate.

• Opportunities – The renewable energy business generates

electricity using renewable sources, and there are a number of policy
and Government incentives for solar wind and hydropower generation
in Georgia as part of the Georgian 2030 CCSAP. Renewable energy
sources are considered to be the future of energy and are valued
higher than traditional electricity generation companies.

Education 3.6% share of the portfolio at 31 December 2021
• Risks – The potentially material risks relate to transition type risks, in
particular energy and air quality regulations, that may be introduced
under this scenario at short notice in the medium term. Schools may
be expected to retrofit heating and cooling measures/equipment to

meet regulations. In addition, energy requirements may arise
in response to air conditioner use during prolonged heatwaves for
example. These risks are expected of all real estate and are similar
to those reported for the commercial real estate portfolio.

Auto Service
• Risks – Currently, vehicles on the market and in use in Georgia are
mainly diesel and petrol-fuelled. Initially, in the short term, there will
be a gradual switch to electric vehicles. After 2030, there will likely be
a significant increase in the use of electric vehicles, abruptly reducing
the need for emissions checks. Additionally, the anticipated rise of
carbon pricing and adoption of border adjustment mechanisms after
2030 will affect Amboli’s supply chain and trade of car consumables
and parts. There will likely be an abrupt rise in distribution and retail
costs as a result of increases in carbon pricing.

• Opportunities – In the short to medium term, it may be that there
will be stricter emissions requirements. This may mean that more
vehicles will need to be emissions-checked more regularly or be
modified, causing demand at PTI centres.

Beverages
• Risks – In addition to physical risks (reduced rain, high-intensity

events, prolonged heatwaves) affecting hops and grape production,
the main identified risk relates to regulatory transition risk. In
particular, carbon prices and border taxes such as the EU Carbon
Border Adjustment Mechanism will adversely affect the prices
of both incoming goods and exported products.

Housing Development, Hospitality and Commercial Real
Estate
• Risks – Physical risks to property will occur. These include

deterioration of asset integrity due to flooding or extreme heat. In the
medium term (post-2030) assets that are not energy efficient will be
hit by energy efficiency regulation for retrofitting and increased energy
costs due to carbon pricing.

• Opportunities – Early adoption of fuel efficiency standards,

emissions-reducing regulations and building efficiency compliance
will reduce longer-term costs relating to regulations including a
reduction in potential declines.

As stated previously, GCAP’s period of investing is between two to five
years, which is within the short-term horizon of the scenarios. Management
is taking climate change risk into consideration when determining its
investment strategy. We expect further emphasis to be placed upon climate
resilience as our understanding of climate-related risks and opportunities
matures. Management is also taking into consideration the resilience of
its portfolio with respect to climate change risks as part of the portfolio
strategy. This is described further in the Risk Management section.

Climate change is also reflected in the valuation assessments of the
portfolio companies, as described in the Risk Management section on
page 70. Going forward we will be exploring how to further incorporate
climate change risk into our portfolio valuations. This may include an
assessment of the influence of the projected carbon price under different
scenarios, on the valuation of the portfolio. In addition, the use of
shadow carbon pricing might be reviewed.

Other identified potential risks and opportunities will be evaluated by the
investment and finance teams in discussion with the portfolio companies
during the course of 2022 to determine their financial materiality (impact
on financial performance including revenues and expenditures, and
impact on financial position, assets and liabilities, capital and financing).
Ahead of this evaluation exercise with the portfolio companies, it is
already anticipated that material transition risks including energy and
climate-related regulation and policy and potentially reputation risks
will occur within the short to medium time frame.

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TARGETS AND METRICS
GCAP has collated Scope 1, 2 and limited Scope 3 greenhouse gas
emissions over the past few years.

In 2020 we focused on emissions derived from GCAP operations
(Scope 1, 2 and limited 3). We reported on 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 reported on those emissions under
Scope 3 that are under our control and applicable to our business.
All sources reported in 2020 fell within our financial statements.

For 2021, in accordance with the Greenhouse Gas Protocol and aligning
with TCFD, we have taken the opportunity to present elements of the
emissions derived from our portfolio companies (outside our financial
statements). These are aggregated under Scope 3 – Investment emissions
and are principally the Scope 1 and 2 emissions with limited Scope 3
(business travel and employee commuting) of the portfolio companies.
The data set has been re-reported for 2019, 2020 and 2021.

Since the years 2020 and 2021 are atypical with respect to emissions
due to the change in ways of working arising from COVID-19 measures,
the 2019 data set will form the baseline data set. We note that the Group
has also significantly changed its portfolio businesses since 2019, and
further we have been working on improving data collection, which we
expect to improve in quality each year, with regard to Scope 3 emissions.

GCAP is developing metrics and targets in relation to climate-related
risks and opportunities for GCAP HoldCo (operational emissions) and
GCAP’s aggregated performance (financed emissions) of the portfolio.

During 2021, we reviewed appropriate metrics and targets to be aligned
with the Republic of Georgia commitments to climate change.

Metrics to be adopted are:
1) Absolute Portfolio Emissions (Scopes 1, 2 and 3); and
2) the Weighted Average Carbon Intensity (WACI). WACI is useful to aid
understanding of the portfolio’s dependency on carbon. Depending
on its application, it may be used to highlight particular aspects of the
portfolio that bear the highest carbon inputs.

This year, like 2020, has been disrupted by COVID-19 and the emissions
data is reflective of the modified working conditions. We will be working
towards Science Based Targets (in alignment with TCFD guidance) for
the Group and with the portfolio companies.

RESOURCES AND RESPONSIBILITIES CONTINUED

RISK MANAGEMENT
Climate change risk has been recognised by GCAP as an emerging risk.
During the course of 2022, we will review its classification as part of our
ongoing climate-related work, with particular reference to consideration
of financial materiality of the range of physical and transitional risks that
have, thus far, been identified qualitatively to be potentially material.

Investment stage
In 2021, the investment risk management process was updated
to include consideration of climate-related risks, in line with the
implementation of the Responsible Investment Policy. Procedures for
identifying, describing and managing environmental and social risks
and impacts (including those associated with climate change) have
been incorporated into the investment process from the initial investment,
through to the holding period.

GCAP has a staged approach to investment appraisal which becomes
progressively more detailed. At the early stages of appraisal, the
potential investment is screened against the GCAP Exclusion List. This
list excludes businesses that generate more than 10% of their revenues
from fossil fuels. Subsequent appraisal stages include evaluation of the
carbon and energy emissions, as well as business strategy and plan
elements in relation to carbon and energy management. These plan
elements will consider alignment with the Georgian Government Climate
Goals and incorporate the shadow carbon price.

Current portfolio
Climate change, and the risks relating to climate change, is reflected
in the valuation assessments of the portfolio companies. 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. Private large portfolio companies are valued by applying
a combination of an income approach (DCF) and a market approach
(listed peer multiples and, in some cases, precedent transactions) in
line with International Private Equity Valuation (IPEV) guidelines and
methodology. 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,
which consequently reflects the climate change-related considerations
of the business. Market approach valuation 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. GCAP identifies the 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 (including the climate change risk). Valuation
assessments of the large portfolio companies are performed by

an independent valuation firm on a semi-annual basis. Climate change
risk is factored in the valuation assessments. Climate change risk is also
embedded in the valuation of the investment stage and other portfolio
companies as set out in the Valuation Methodology on page 103.

Understanding the relationship and potential impact of climate change
and its associated risks across different risk categories will be a priority
for GCAP risk management during 2022 as climate risk continues
to be integrated into the risk management framework.

Evaluating macro-level risks:
For each of the portfolio companies, a macro-level review has been
completed within the scenarios and time horizons (short, medium,
and long). This has identified potential risks and opportunities within the
portfolio companies, the financial materiality of which, or whether they
are recognised and managed by the portfolio companies, has not yet
been established.

The determination of the financial materiality of the identified potential
risks and opportunities will be progressed during 2022. The process
might include among other activities:
•

review of the scenarios selection and identified risks and
opportunities with the portfolio companies;

• application of the carbon prices to investee emission profiles

•

to establish the impact; and
further discussion with the portfolio companies on how carbon price
may be used to influence their strategy and impact on their business
plans going forward – including cost of supplied materials, ability
to pass through costs, and potential capex among other aspects.

The initial NGFS modelling scenarios will be re-run annually to assess
changes, if any, that may occur in response to global or Republic
of Georgia commitments and policies towards climate change. It is
expected that the scenario analysis will become more quantitative,
and the outputs will be further incorporated into the portfolio
allocation/ investment strategy.

Monitoring and reporting:
Environment (including climate) and social risks and opportunities are
managed through regular engagement with the portfolio companies.
In 2021, a reporting protocol was developed for use on a semi-
annual basis. Topics cover a range of aspects under the headings
of Governance, Policies, Social, Environment, Carbon and Energy
Management and Suppliers.

Capacity building:
Where appropriate, GCAP will support portfolio companies in training
and upskilling the Investment Managers with respect to climate change
terminology, risks and opportunities during 2022 and beyond.

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Georgia Capital PLC Annual Report 2021

ALTERNATIVE PERFORMANCE MEASURES

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 NAV Statement prepared
under the methodologies 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 NAV 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 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 APMs.

Net asset value (NAV) Statement
The Group makes indirect investments in
portfolio companies, 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
12 within the IFRS financial statements. To
maintain transparency in our report and aid
understanding we present a NAV Statement and
respective reconciliation to the IFRS Balance
Sheet in Note 5 (Segment information) of the
IFRS financial statements. NAV disclosed
under the NAV Statement is the same as
IFRS equity value as at 31 December 2021.
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 roll-forward 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 103.

– 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
103. 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 shareholders.

• 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
and other costs such as non-recurring
or transactions costs if there are any
in a reportable period.

Read more on financial performance
in the Strategic Review on pages
105 to 121.

Read more on about the use of APMs
in the Discussion of Results on pages
98 to 102.

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 121, 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 below 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.

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.

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Georgia Capital PLC Annual Report 2021

101

ALTERNATIVE PERFORMANCE MEASURES CONTINUED

RECONCILIATION OF ADJUSTED IFRS MEASURES TO IFRS FIGURES

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,
depreciation and amortisation.

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.

GCAP’s liquid funds

A measure to evaluate the
Company’s liquidity.

Includes marketable debt securities
and issued loans.

Reconciliation of FY21 adjusted Income Statement to IFRS Incomes Statement
The table below reconciles the adjusted Income Statement to the IFRS Income Statement. Adjustments to reconcile the adjusted 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 profit 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 income/(loss)

Operating expenses (Administrative expenses, salaries and other employee benefits)

GCAP net operating (loss)/income

Transaction costs

Total investment return/ gain on investments at fair value

Administrative expenses, salaries and other employee benefits

Income before foreign exchange movements and non-recurring expenses

Transaction costs

Net foreign currency gain/(loss)

Non-recurring expenses

Net Income

Adjusted IFRS
Income Statement

Adjustment

74,362

23,140

(1,142)

(77,392)

18,968

(36,484)

(17,516)

–

682,074

–

664,558

(21,995)

39,615

(785)

(59,881)

(23,140)

1,142

77,392

(18,986)

36,484

17,516

(2,937)

7,688

(8,203)

28,545

21,995

(39,837)

785

IFRS
Income
Statement

14,481

–

(2,937)

689,762

(8,203)

693,103

–

(222)

–

681,393

11,488

692,881

Subtotals in the “adjustment” columns may not add up as they provide a reconciliation to the statements with different structures and subtotals.

Healthcare Services – reconciliation to IFRS 16 (2021)

Unaudited, GEL thousands, unless otherwise noted

Before IFRS 16

IFRS 16 effects

After IFRS 16

Income statement

Gross profit

Operating expenses

EBITDA

Depreciation and amortization

Net interest income (expense)

Net gains/(losses) from foreign currencies

Net non-recurring income/(expense)

Profit before income tax expense

Income tax benefit/(expense)

Profit for the year from continuing operations

Profit from discontinued operations

Profit for the year

Cash flow statement

Net cash flow from operating activities

Net cash flow from investing activities

Net cash flow from financing activities

Exchange (losses)/gains on cash equivalents

Total cash inflow/(outflow) from continuing operations

Total cash inflow/(outflow) from discontinued operations

Cash balance

Cash, beginning balance

Cash, ending balance

166,685

–

166,685

(71,149)

95,536

(32,733)

(22,711)

1,271

(6,125)

35,238

–

35,238

–

35,238

78,379

(5,834)

(111,994)

(1,849)

(41,298)

–

93,721

52,423

1,880

(1,254)

(781)

637

–

482

–

482

–

482

(69,269)

97,416

(33,987)

(23,492)

1,908

(6,125)

35,720

–

35,720

–

35,720

2,000

–

80,379

(5,834)

(2,000)

(113,994)

–

(1,849)

(41,298)

–

93,721

52,423

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Georgia Capital PLC Annual Report 2021

103

RECONCILIATION OF ADJUSTED IFRS MEASURES TO IFRS FIGURES CONTINUED

VALUATION METHODOLOGY

Retail (pharmacy) – reconciliation to IFRS 16 (2021)

Unaudited, GEL thousands, unless otherwise noted

Before IFRS 16

IFRS 16 effects

After IFRS 16

Income statement

Gross profit

Operating expenses

EBITDA

Depreciation and amortisation

Net interest income (expense)

Net gains/(losses) from foreign currencies

Net non-recurring income/(expense)

Profit before income tax expense

Income tax benefit/(expense)

Profit for the year

Cash flow statement

Net cash flow from operating activities

Net cash flow from investing activities

Net cash flow from financing activities

Exchange (losses)/gains on cash equivalents

Total cash inflow/(outflow)

Cash balance

Cash, beginning balance

Cash, ending balance

203,068

(126,874)

76,194

(5,241)

(8,279)

7,543

(411)

69,806

(1,936)

67,870

80,016

(21,741)

(39,243)

(1,272)

17,760

36,856

54,616

–

26,754

(21,667)

(6,589)

4,504

–

3,002

–

3,002

203,068

(100,120)

102,948

(26,908)

(14,868)

12,047

–

72,808

(1,936)

70,872

26,754

106,770

–

(26,754)

–

(21,741)

(65,997)

(1,272)

17,760

36,856

54,616

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.

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 the 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-months 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 the 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-months 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 FX 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 (NAV) methodology involves estimating the fair value of equity investment in a private portfolio company based on its book value at the
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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Georgia Capital PLC Annual Report 2021

105

VALUATION METHODOLOGY CONTINUED

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.

Exit price
Fair value of a private portfolio company in a sales process, where the price has been agreed but the transaction has not yet settled, is measured
at the best estimate of expected proceeds from the transaction, adjusted pro-rata to the proportion of shareholding sold.

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.

• DCF – DCF valuation method is used to determine fair value of equity investment. Under DCF 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 DCF
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.
In line with our strategy, from time to time, we may receive offers from interested buyers for our private portfolio companies, which would be
considered in the overall valuation assessment, where appropriate.

•

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 2021.

GEL thousands

Valuation performed externally or internally

Valuation method

Large companies

Healthcare Services
Retail (pharmacy)
Water Utility
Insurance

Externally

Externally
Externally
Externally
Externally

Investment stage companies

Internally

Renewable Energy

Internally

Education

Other companies

Internally

1 11.1x is blended multiple for Hydrolea HPPs, Mestiachala HPP and Qartli WPP.

DCF and EV/EBITDA
DCF and EV/EBITDA
EXIT PRICE
DCF and P/E

SOTP (EV/EBITDA and
replacement cost)
EV/EBITDA

EV/EBITDA, EV/Sales, NAV,
DCF

Multiple
applied

10.3x
9.3x
8.9x
12.0x-15.0x

11.1x¹

12.5x

Fair value

2,407,264

731,819
710,385
696,960
268,100

303,136

173,288

129,848

224,645

Financial performance highlights (IFRS)1

GEL thousands, unless otherwise noted
(Unaudited)

Georgia Capital NAV overview

NAV per share, GEL
Net Asset Value (NAV)2
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

Investments
Buybacks
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

Dec-21

Dec-20

Change

63.03
2,883,622
3,616,231
426,531
(711,074)

FY21

756,436
164,109
592,327
18,296
25,089
74,362
681,393

FY21

48.12
2,212,292
2,907,688
284,272
(697,999)

31.0%
30.3%
24.4%
50.0%
1.9%

FY20

Change

479,485
(261,524)
741,009
194,665
6,033
29,870
308,512

57.8%
NMF
-20.1%
-90.6%
NMF
NMF
NMF

FY20

Change

1,551,099
320,770
297,565

1,235,045
218,965
253,025

75,027
43,295
43,951

68,385
40,568
48,191

1,963,708
385,154
364,905

1,586,816
285,507
372,610

25.6%
46.5%
17.6%

9.7%
6.7%
-8.8%

23.8%
34.9%
-2.1%

Key points
• Total portfolio value up 24.4% in FY21.
• NAV per share (GEL) up 31.0% and up 39.7% in GBP terms in FY21, reflecting outstanding performance across our portfolio companies and

GEL’s appreciation against foreign currencies during 2021. The NAV per share growth reflects:
– GEL 164.1 million value creation in our listed asset, BoG, with a positive 7.4 ppts impact.
– GEL 592.3 million value creation across our private portfolio companies with a positive 26.8 ppts impact.

• Aggregated revenues and EBITDA up 23.8% and 34.9% y-o-y respectively in FY21.
• Sale of an 80% interest in the water utility business to FCC Aqualia for US$ 180 million with a 30% premium to its independent investment value at

30 June 2021.

• Sale of US$ 45.0 million commercial real estate properties with an 11.3% premium to their book value as of 31 March 2021, translating into

2.1x MOIC in US$ terms.

• Resumption of the share buyback and cancellation programme under which c.824 thousand shares were repurchased and cancelled in FY21.
• GEL 74.4 million dividends collected from the portfolio companies in FY21.
• Market Value Leverage (MVL) down 4.7 ppts to 24.2% in FY21.

– MVL down to 19.2% when assuming full completion4 of the Water Utility sale as of 31 December 2021.

1 Please read more about “Alternative Performance Measures (APMs)” on pages 98-100.” 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.

2 See page 197 for the reconciliation of Net Asset Value (NAV) to IFRS financial statements as at 31 December 2021.
3 The results of our five smaller businesses included in “other” portfolio companies (described on page 121) are not broken out separately. Performance totals, however, include the

other portfolio companies’ results (and are therefore not the sum of large and investment stage portfolio results).

4 Assuming cash settlement from the Water Utility sale on 31 December 2021, and US$ 95.4 million shareholder loan to Renewable Energy for the Eurobond redemption financing.

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Georgia Capital PLC Annual Report 2021

107

Discussion of Group results
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 for the full year (31 December 2020 and 31 December 2021). The NAV Statement below breaks down NAV
into its components and provides a roll forward of the related changes between the reporting periods.

GEL thousands, unless otherwise noted
(Unaudited)

Dec-20

Value
creation1

2a.
Investment

2b.
Buyback

2c.
Dividend

3.
Operating
expenses

4.
Liquidity/
FX/Other

Dec-21

Change %

Listed portfolio companies
Bank of Georgia (BoG)

531,558

164,109

Total listed portfolio value

531,558

164,109

–

(14,481)

–

681,186

28.1%

681,186

28.1%

Listed portfolio value change %

30.9%

0.0%

-2.7%

0.0%

28.1%

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

1,858,237
571,656
552,745
471,148
262,688
197,806
64,882
302,964
209,902
93,062
214,929

583,852
171,708
169,100
221,179
21,865
28,157
(6,292)
1,632
(21,463)
23,095
6,843

–
–
–
–
–
–
–
17,415
3,724
13,691
881

Total private portfolio value

2,376,130

592,327

18,296

–
–
–
–
–
–
–
–
–
–
–

–

(39,881)
(11,545)
(11,460)
–
(16,876)
(14,881)
(1,995)
(20,000)
(20,000)
–
–

(59,881)

–
–
–
–
–
–
–
–
–
–
–

–

5,056 2,407,264
731,819
710,385
696,960
268,100
211,505
56,595
303,136
173,288
129,848
224,645

–
–
4,633
423
423
–
1,125
1,125
–
1,992

29.5%
28.0%
28.5%
47.9%
2.1%
6.9%
-12.8%
0.1%
-17.4%
39.5%
4.5%

8,173 2,935,045

23.5%

Private portfolio value change %

24.9%

0.8%

0.0%

-2.5%

0.0%

0.3%

23.5%

Total portfolio value (1)

2,907,688

756,436

18,296

–

(74,362)

–

8,173 3,616,231

24.4%

Total portfolio value change %

26.0%

0.6%

0.0%

-2.6%

0.0%

0.3%

24.4%

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 comp.

(697,999)
175,289
108,983
(982,271)

2,603
–

–
–
–
–

–
–

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

2,212,292

756,436

(18,296)
(18,296)
–
–

(25,089)
(25,089)
–
–

74,362
74,362
–
–

–
–

–

–
–

(25,089)

–
–

–

(21,852)
(21,852)
–
–

(14,633)
(14,633)

(22,200)
87,903
45,231
(155,334)

(711,074)
272,317
154,214
(1,137,605)

(9,505)
14,633

(21,535)
–

1.9%
55.4%
41.5%
15.8%

NMF
0.0%

(36,485)

(23,532) 2,883,622

30.3%

NAV change %

34.2%

0.0%

-1.1%

0.0%

-1.6%

-1.1%

30.3%

Shares outstanding1

45,977,247

–

(942,744)

Net Asset Value per share, GEL

48.12

16.45

NAV per share, GEL change %

34.2%

(0.00)

0.0%

0.45

0.9%

–

(0.00)

0.0%

–

717,859 45,752,362

-0.5%

(0.80)

(1.18)

63.03

31.0%

-1.7%

-2.5%

31.0%

In FY21, NAV per share (GEL) increased by 31.0%, reflecting a) GEL 164.1 million value creation in our listed asset, BoG, with a positive 7.4 ppts
impact, b) GEL 592.3 million value creation across our private portfolio companies with a positive 26.8 ppts impact, c) share buybacks – in line with
the ongoing share buyback and cancellation programme (+0.9 ppts impact), and d) GEL appreciation against US Dollar by 5.8%, resulting in a foreign
currency gain of GEL 39.6 million on GCAP net debt (+1.8 ppts impact). These positive NAV per share growth contributors were partially offset by
a number of items, including management platform related costs (-1.7 ppts impact), net interest expense (-2.5 ppts impact) and one-off fees related
to the disposal of an 80% interest in water utility business (-1.0 ppts impact).

The value creation in our private portfolio was the largest contributor to the NAV per share growth in FY21:
• The outstanding performance of our large portfolio companies translated into GEL 583.9 million value creation and 26.4 ppts NAV per share
growth, where the water utility, healthcare services, and retail (pharmacy) businesses contributed to the growth by 10.0 ppts, 7.8 ppts and
7.6 ppts, respectively (+25.4 ppts impact in aggregate).

• Value creation in the investment stage and other portfolio companies amounted to GEL 8.5 million in aggregate (+0.4 ppts impact).

Portfolio overview
Our portfolio value increased by 24.4% to GEL 3.62 billion in FY21, reflecting 23.5% and 28.1% growth in the value of our private and listed
businesses, respectively. The private portfolio value growth of GEL 558.9 million mainly reflects the net impact of a) GEL 592.3 million value creation,
b) investments of GEL 18.3 million predominantly in Education and Renewable Energy, and c) a decrease of GEL 59.9 million due to dividends
received from the private portfolio companies at the GCAP level.

1 Please see definition in glossary on page 214.

1) Value creation
BoG share price during 2021 increased by 36.7%, strongly supporting NAV growth with GEL 164.1 million value creation. The value creation of GEL
592.3 million on the private portfolio mainly reflects a) a GEL 654.7 million operating performance-related increase in the value of our private assets,
partly supported by the strength of the Georgian economy throughout the year, and b) valuation of the water utility business at the sale price and
revaluation of the minority interest in Retail (pharmacy) with GEL 114.3 million positive impact in aggregate. The value creation was partially offset by
the markdown of investment in the 20MW power generating unit of Mestiachala HPP and a GEL 143.8 value decrease due to changes in valuation
multiples and foreign currency exchange rates.

The table below summarises value creation drivers in our businesses in FY21:

Portfolio businesses

GEL thousands, unless otherwise noted
(Unaudited)

Listed
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

Operating
performance1

Greenfields/
buyouts/
exits2

Multiple change
and FX3

Value creation

(1)

(2)

(3)

(1)+(2)+(3)

81,374
114,323
–
40,501
73,822
–
–
–
(32,234)
(33,249)
1,015
(715)

(143,775)
(136,876)
(177,466)
22,893
(20,600)
38,297
6,821
31,476
5,668
5,869
(201)
(12,567)

164,109
164,109
592,327
583,852
171,708
169,100
221,179
21,865
28,159
(6,294)
1,632
(21,463)
23,095
6,843

81,374

(143,775)

756,436

654,728
606,405
349,174
105,706
167,957
(16,432)
21,338
(37,770)
28,198
5,917
22,281
20,125

654,728

Enterprise value (EV) and equity value development of our businesses in FY21 are summarised in the following table:

GEL thousands, unless otherwise noted
(Unaudited)

31-Dec-21

31-Dec-20

Change %

31-Dec-21

31-Dec-20

Change %

% Share in
total portfolio

Enterprise value (EV)

Equity value

Listed portfolio
BoG
Private portfolio
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
Education4
Other

Total portfolio

4,628,048
3,332,718
1,003,385
952,269
1,129,902
247,162
211,505
35,657
568,195
428,248
139,947
727,135

4,333,143
2,846,664
836,918
835,876
930,892
242,978
197,806
45,172
608,298
489,269
119,029
878,181

681,186
681,186
6.8% 2,935,045
17.1% 2,407,264
731,819
19.9%
710,385
13.9%
696,960
21.4%
268,100
1.7%
211,505
6.9%
56,595
-21.1%
303,136
-6.6%
173,288
-12.5%
129,848
17.6%
224,645
-17.2%

531,558
531,558
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

3,616,231

2,907,688

28.1%
28.1%
23.5%
29.5%
28.0%
28.5%
47.9%
2.1%
6.9%
-12.8%
0.1%
-17.4%
39.5%
4.5%

24.4%

18.8%
18.8%
81.2%
66.6%
20.2%
19.6%
19.3%
7.4%
5.8%
1.6%
8.4%
4.8%
3.6%
6.2%

100.0%

Listed businesses (18.8% of total portfolio value)
BoG (18.8% of total portfolio value) – In 2021, BoG delivered an annualised ROAE of 25.8% and strong 13.9% loan book growth y-o-y.
The loan book growth was largely driven by continued strong loan origination levels in all segments, but predominantly in the consumer, micro
and SME portfolios. Reflecting the strong economic recovery, in 2021, BoG’s share price increased by 36.7% to GBP 16.68 at 31 December 2021.
In addition, GEL 14.5 million dividends were collected from the Bank in FY21 and, as a result, the market value of our equity stake in BoG increased
by GEL 149.6 million to GEL 681.2 million. On 22 February 2022, the Bank announced its board’s intention to recommend a final dividend for 2021 of
GEL 2.33 per ordinary share at the Bank’s 2022 Annual General Meeting. This will make a total dividend paid in respect of the Bank’s 2021 earnings
of GEL 3.81 per share. BoG’s public announcement of their FY21 results is available at:
https://www.bankofgeorgiagroup.com/results/earnings.

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 Greenfields/buyouts represent 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. Exits represent the difference between the latest reported fair value and the value of the disposed asset (or assets in the process of disposal) assessed
at a sale price.

3 Change in the fair value attributable to the change in valuation multiples and the effect of exchange rate movement on net debt.
4 Enterprise value is presented excluding non-operational assets, added to the equity value of the education business at cost.

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Georgia Capital PLC Annual Report 2021

109

Private large portfolio companies (66.6% of total portfolio value)1
Valuation assessments of our large portfolio companies at year-end were performed by a third-party independent valuation firm, in line with
International Private Equity Valuation (IPEV) guidelines. The independent valuation assessments, which serve as the basis for Georgia Capital’s
estimate of fair value, were performed by applying a combination of an income approach (DCF) and a market approach (listed peer multiples and,
in some cases, precedent transactions). The independent valuations of the large portfolio companies are intended to provide additional transparency
to our private portfolio valuation and are performed on a semi-annual basis. The water utility business was valued at the sale price in line with the
terms of the disposal.

Education (3.6% of total portfolio value) – The business is valued internally, based on LTM EV/EBITDA. Education EV increased by
GEL 20.9 million to GEL 139.91 million in FY21. Revenues and EBITDA were up by 20.9% and 21.1% y-o-y in FY21, respectively, reflecting an
expansion into the affordable education segment and an increase in average tuition revenue per learner and total enrolments during the year.
In 2021, GCAP invested GEL 13.7 million in the education business. See page 120 for details. Revenues in the premium schools are denominated
in foreign currency. The currency-adjusted LTM EBITDA was up by GEL 1.7 million to GEL 11.2 million and net debt was down by GEL 5.3 million
to GEL 8.4 million, y-o-y in FY21. As a result, the education business was valued at GEL 129.8 million in FY21 (up from GEL 93.0 million in FY20).
The valuation multiple remained unchanged at 12.5x in FY21.

Healthcare Services (20.2% of total portfolio value) – The 19.9% y-o-y increase in Healthcare Services EV to GEL 1,003.4 million in FY21
reflects the rebounding trend of regular elective care and outpatient services during 2021, which translated into an 82.9% and 71.8% y-o-y increase
in the number of admissions at hospitals and clinics, respectively. This, coupled with the strong performance of the diagnostics business, led
to 43.3% y-o-y growth in FY21 revenues. EBITDA (excl. IFRS 16) increased by 54.5% y-o-y in FY21. See page 112 for details. LTM EBITDA (incl.
IFRS 16) increased by GEL 33.8 million to GEL 97.4 million in FY21. Net debt (incl. financial lease liabilities) remained largely flat in FY21 (down by
GEL 3.2 million to GEL 226.9 million). The business paid GEL 11.5 million dividends in FY21. The result was the 28.0% increase in the equity value of
the business to GEL 731.8 million in FY21, up from GEL 571.7 million in FY20, which translates into an implied LTM EV/EBITDA multiple (incl. IFRS 16)
of 10.3x at 31 December 2021 (13.2x at 31 December 2020).

Retail (pharmacy) (19.6% of total portfolio value) – Retail (pharmacy) EV increased by GEL 116.4 million to GEL 952.3 million in FY21. Revenues
were up by 15.2% y-o-y in FY21, reflecting a launch of new pharmacies and organic sales growth, resulting from an overall improvement in the
Georgian macroeconomic environment. EBITDA (excl. IFRS 16) was up 8.3% y-o-y in FY21. See page 114 for details. LTM EBITDA (incl. IFRS
16) was up by GEL 10.5 million y-o-y to GEL 102.9 million in FY21. Net debt (incl. financial lease liabilities) was down by GEL 11.8 million y-o-y
to GEL 118.4 million, reflecting an increased cash balance supported by the strong revenue growth of the business and improved collection of
receivables during the year. The result was GEL 169.1 million value creation in FY21, which also included a GEL 40.5 million positive impact from
the revaluation of the minority interest value following the renegotiated buyout terms (see page 12 for details). The business paid GEL 11.5 million
dividends in FY21. Consequently, the equity value of GCAP’s 67% holding as of 31 December 2021 increased from GEL 552.7 million in FY20
to GEL 710.4 million in FY21. The implied LTM EV/EBITDA (incl. IFRS 16) valuation multiple was 9.3x (up from 9.1x as of 31 December 2020).

Water Utility (19.3% of total portfolio value) – At year-end, Water Utility was valued at the sale price agreed with Aqualia (see page 8 for details).
The consideration of US$ 180 million for an 80% interest in the Water Utility translates into a US$ 225 million (GEL 697.0 million) valuation for a
100% stake of the business. The implied LTM EV/EBITDA valuation multiple was 8.9x as at 31 December 2021 (down from 9.4x as at 31 December
2020). The operational performance of the business during the year was robust. Revenue increased by 56.0% y-o-y in FY21, leading to a 2.0x y-o-y
increase in EBITDA. See page 116 for details. LTM EBITDA, previously used in Water Utility’s multiple-based and DCF valuation, amounted to
GEL 128.1 million as at 31 December 2021 (up by GEL 29.4 million y-o-y). Net debt decreased by GEL 26.8 million to GEL 432.9 million and EV
was up by GEL 199.0 million to GEL 1,129.9 million, y-o-y in FY21.

Insurance (P&C and Medical) (7.4% of total portfolio value) – The insurance business combines: a) P&C Insurance valued at GEL 211.5 million
and b) Medical Insurance valued at GEL 56.6 million.

P&C Insurance – Net premiums earned increased by 19.9% y-o-y to GEL 86.5 million in FY21, mainly reflecting the growth in the motor insurance
line on the back of a boost in the retail client portfolio. The expense ratio was down by 5.2 ppts y-o-y to 32.4% in FY21, reflecting revenue growth
and the well-controlled operating cost base of the business. The combined ratio stood at 80.8% in FY21, an improvement of 0.7 ppts y-o-y.
Consequently, net income was up 7.4% y-o-y to GEL 18.3 million in FY21. See page 117 for details. LTM net income2 was up by GEL 0.5 million y-o-y
to GEL 17.6 million in FY21. The business paid GEL 14.9 million dividends in FY21. Consequently, the equity value of the P&C insurance business was
assessed at GEL 211.5 million at 31 December 2021 (up from GEL 197.8 million at 31 December 2020). The implied LTM P/E valuation multiple was
12.0x at 31 December 2021 (up from 11.6x at 31 December 2020).

Medical Insurance – Net premiums earned increased by 4.2% y-o-y to GEL 72.4 million in FY21, predominantly driven by an increase in the prices
of insurance policies. The net claims expenses were also up by 13.1% y-o-y in FY21, in line with the rebounding trend of elective healthcare services
during 2021. As a result, the net income of the medical insurance business was down 41.3% y-o-y in FY21. See page 117 for details. LTM net income
was down by GEL 2.6 million y-o-y to GEL 3.8 million in FY21. The business paid GEL 2.0 million dividends in FY21, and the equity value of the
business was assessed at GEL 56.6 million at 31 December 2021 (down from GEL 64.9 million at 31 December 2020). The implied LTM P/E valuation
multiple was 15.0x at 31 December 2021 (up from 10.1x at 31 December 2020).

Private investment stage businesses (8.4% of total portfolio value)
Renewable Energy (4.8% of total portfolio value) – The business is valued internally, based on a sum of the parts (EV/EBITDA and replacement
cost). EV was down by 12.5% to GEL 428.2 million in FY21. Revenues and EBITDA were up 3.1% and 3.7% y-o-y in FY21, respectively, reflecting
a 16.0% y-o-y increase of the generation levels at the power assets. See page 119 for details. FY21 valuation of the business reflects GEL 34.8
million negative impact from the mark down of investment in the 20MW power generating unit of Mestiachala HPP, which was flooded and taken
offline in late July 2019. In line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the HPP has been
suspended indefinitely. 30MW Mestiachala HPP, previously valued at cost, was valued based on LTM EV/EBITDA for the first time at year-end. The
pipeline renewable energy projects continued to be measured at an equity investment cost of GEL 43.6 million in aggregate. Net debt decreased by
GEL 24.4 million to GEL 255.0 million in FY21. The business paid GEL 20.0 million dividends in FY21 and as a result, the equity value of the business
was assessed at GEL 173.3 million in FY21 (down from GEL 209.9 million in FY20).

Other businesses (6.2% of total portfolio value)
The “other” private portfolio (Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services) is valued
internally, based on LTM EV/EBITDA in most cases other than the real estate development (DCF) and hospitality and commercial real estate businesses
(NAV). See performance highlights of other businesses on page 121. The portfolio had a combined value of GEL 224.6 million at 31 December 2021,
up by 4.5% in FY21. The value creation of GEL 6.8 million reflects the net impact of a) GEL 49.5 million value creation in our beverages and auto service
businesses, partially offset by b) GEL 37.1 million aggregated value reduction of the housing development and hospitality and commercial real estate
businesses, the latter reflecting decreased revenue streams, associated with the divestment of a significant portion of commercial real estate assets,
where proceeds were used to fully repay the outstanding US$ 30 million bonds in 4Q21.

2) Investments2
In FY21, GCAP invested GEL 18.3 million predominantly in the investment stage businesses, in line with our announced capital allocation programme.
• GEL 3.7 million was allocated to Renewable Energy for the development of pipeline HPPs (Darchi and Zoti) and wind farm projects.
• GEL 13.7 million was allocated to the education business for the capacity expansion of the existing campus of Buckswood (mid-scale segment,
GEL 4.0 million), the acquisition of the land and building of a new campus location, and capacity expansion of the existing campus of Green
School (affordable segment, GEL 5.8 million), and the acquisition of an 81%3 equity interest in Georgian-Austrian School Pesvebi (GEL 3.9 million).

3) Buybacks
During 2021, 942,744 shares were bought back for a total consideration of GEL 25.1 million. 823,582 shares were repurchased under the ongoing
share buyback and cancellation programme and 119,162 shares for the management trust. The total value of shares repurchased through the
buyback and cancellation programme amounted to GEL 21.8 million (US$ 7.0 million) in FY21.

4) Dividends4
In FY21, Georgia Capital collected GEL 74.4 million dividends, of which GEL 14.5 million was received from BoG, GEL 11.5 million from
Healthcare Services, GEL 11.5 million from Retail (pharmacy), GEL 14.9 million from P&C Insurance, GEL 2.0 million from Medical Insurance,
and GEL 20.0 million from Renewable Energy.

Net debt overview
In March 2021, JSC Georgia Capital priced a US$ 65 million tap issue that was consolidated to form a single series with the existing US$ 300 million
6.125% Eurobonds. Approximately US$ 35 million from the proceeds is earmarked to fund capital allocations to the portfolio companies and the
balance for general corporate purposes. Gross debt was up 15.8% to GEL 1,137.6 million in FY21. The tap issuance also translated into improved
liquidity, which coupled with robust dividend income, led to an increase in total cash and liquid funds balance up 50.0% to GEL 426.5 million at
31 December 2021. Overall, the net debt remained largely flat in FY21 (up 1.9% from 31 December 2020) and was impacted by a) investments of
GEL 18.3 million, b) share buybacks of GEL 25.1 million, c) GCAP cash operating expenses of GEL 21.9 million, and d) net interest expense and fair
value losses on liquid funds, in aggregate, of GEL 55.4 million. The impact was largely offset by GEL 74.4 million dividends received from the portfolio
companies and foreign exchange gain of GEL 39.6 million in FY21.

The table below summarises components of net debt as of 31 December 2021 and as of 31 December 2020:

GEL thousands, unless otherwise noted (Unaudited)

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-21

31-Dec-20

132,580
137,215
2,522
154,214

160,536
14,098
655
108,983

426,531

284,272

(1,137,605)

(982,271)

(711,074)

(697,999)

Change

-17.4%
NMF
NMF
41.5%

50.0%

15.8%

1.9%

1 Please read more about valuation methodology on pages 103-104.
2 Adjusted for non-recurring items.

Investments are made at JSC Georgia Capital level, the Georgian holding company.

1 Excluding non-operational assets, added to the equity value of the education business at cost.
2
3 Georgia Capital has a call option on the 9% equity stake during the 12 months starting from August 2022.
4 Dividends are received at JSC Georgia Capital level, the Georgian holding company.

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Georgia Capital PLC Annual Report 2021

111

Income Statement (Adjusted IFRS/APM)
Net income under IFRS was GEL 692.9 million in FY21. 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.

The increase in net interest expense to GEL 54.3 million in FY21 at the GCAP level (GEL 41.5 million in FY20) partially offset the increased dividend
inflows. The Eurobond tap issuance of US$ 65 million on 16 March 2021 led to an increase in interest expense, up 23.9% y-o-y in FY21, which was
not offset by the increase in interest income. GCAP earned an average yield of 5.4% on the average balance of liquid assets and issued loans of
GEL 384.1 million in FY21 (6.7% on GEL 277.3 million in FY20).

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 31 December 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 98-100 of this report. A full reconciliation of the adjusted Income
Statement to the IFRS Income Statement is provided on pages 101-102.

GEL thousands, unless otherwise noted
(Unaudited)

Dividend income
Interest income
Realised/unrealised (loss)/gain on liquid funds
Interest expense
Gross operating income/(loss)
Operating expenses
GCAP net operating income/(loss)

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
Transaction costs
Net foreign currency gain/(loss)
Non-recurring expenses

Net income

FY21

74,362
23,140
(1,142)
(77,392)
18,968
(36,484)
(17,516)

149,628
–
149,628
532,446
543,971
160,163
157,640
221,179
4,989
(18,368)
(41,463)
23,095
6,843
682,074

664,558
(21,995)
39,615
(785)

681,393

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

Change

NMF
10.4%
-61.7%
23.9%
NMF
13.5%
-62.5%

NMF
NMF
NMF
-25.1%
-34.8%
-59.3%
-57.9%
NMF
-93.8%
NMF
NMF
-36.8%
NMF
51.7%

65.0%
NMF
NMF
-76.8%

NMF

GCAP’s results reflect its gross operating income (loss) and its operating expenses and show GEL 17.5 million in net operating loss in FY21
compared to the GEL 46.8 million loss recorded in FY20. The gross operating income was up by GEL 33.6 million y-o-y to GEL 19.0 million in FY21.
The improvement was mainly driven by increased dividend inflows from the portfolio companies. The dividend income by business is presented in
the table below.

Dividends received by portfolio company

GEL ‘000, unless otherwise noted

Bank of Georgia
Healthcare Services
Retail (pharmacy)
Water Utility
P&C Insurance
Medical Insurance
Renewable Energy

Total dividend income

FY21

14,481
11,545
11,460
–
14,881
1,995
20,000

74,362

FY20

Change

–
–
–
15,000
9,943
–
4,927

NMF
NMF
NMF
NMF
49.7%
NMF
NMF

29,870

149.0%

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

GCAP operating expenses components

GEL thousands, unless otherwise noted
(unaudited)

Administrative expenses1
Management expenses – cash-based2
Management expenses – share-based3
Total operating expenses

of which, fund type expense4
of which, management fee5

FY21

(11,380)
(10,471)
(14,633)
(36,484)
(12,541)
(23,943)

FY20

(10,477)
(8,978)
(12,681)
(32,136)
(11,030)
(21,106)

Change

8.6%
16.6%
15.4%
13.5%
13.7%
13.4%

GCAP management fee expenses have a self-targeted cap of 2% of Georgia Capital’s market capitalisation. The LTM management fee expense ratio
was 1.7% at 31 December 2021 (1.8%6 as of 31 December 2020). The total LTM operating expense ratio (which includes fund type expenses) was
2.6% at 31 December 2021 (2.8%6 at 31 December 2020).

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 682.1 million in FY21,
reflecting the growth in the value of listed and private businesses, as described earlier in this report. We discuss valuation drivers for our businesses
on pages 107-109. The performance of each of our private, large and investment stage portfolio companies is discussed on pages 112-121.

The Group’s net income (adjusted IFRS) also reflects the impact of GEL appreciation against US Dollar on GCAP’s net foreign currency liability
balance amounting to c.US$ 252 million (GEL 781 million) at 31 December 2021. Net foreign currency gain was GEL 39.6 million in FY21. As a result
of the movements described above, GCAP’s adjusted IFRS net income was GEL 681.4 million in FY21.

Discussion of the statement of cash flows
2021 IFRS statement of cash flows 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 7.6 million in 2021 (GEL 7.1 million in
2020), reflecting salaries, general and administrative expenses incurred at the Georgia Capital PLC level. Net cash flow from investing activities was
GEL 36.2 million in 2021 (GEL 21.2 million in 2020), reflecting dividend receipt and capital redemption to Georgia Capital PLC from JSC Georgia
Capital during 2021. Net cash flow used in financing activities was GEL 22.1 million in 2021 (GEL 14.5 million in 2020), mainly reflecting the purchases
of treasury shares. The IFRS statement of cash flows is included on page 181 of this report.

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

1
2 Cash-based management expenses are cash salary and cash bonuses paid/accrued for staff and management compensation.
3 Share-based management expenses are share salary and share bonus expenses of management and staff.
4 Fund type expenses include expenses such as audit and valuation fees, fees for legal advisors, Board compensation and corporate secretary costs.
5 Management fee is the sum of cash-based and share-based operating expenses (excluding fund-type costs).
6 FY21 and FY20 ratios are calculated based on period-end market capitalisation due to significant price fluctuations during the respective periods in light of COVID-19.

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Georgia Capital PLC Annual Report 2021

113

Discussion of portfolio companies’ results (stand-alone IFRS)
The following sections present the IFRS results and business development extracted from the individual portfolio company’s IFRS accounts for large
and investment stage entities, where 2021 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 an income approach (DCF) and a market approach (listed peer
multiples and precedent transactions). Under the discounted cash flow (DCF) valuation method, fair value is estimated by deriving the present value
of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate
that quantifies the risk inherent to the business. Under the market approach, listed peer group earnings multiples are applied to the trailing 12 months
(LTM) stand-alone IFRS earnings of the relevant business. As such, the stand-alone IFRS results and developments driving the IFRS earnings of our
portfolio companies are key drivers of their valuations within GCAP’s financial statements. See pages 98-104 for more background.

Large portfolio companies
Discussion of healthcare services business results
The healthcare services business, where GCAP owns 100% equity interests 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 2021. 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);
3) Diagnostics, operating the largest laboratory in the entire Caucasus region – “Mega Lab”.

Key points/valuation drivers
• Revenues up 43.3% y-o-y in FY21, reflecting rebounding demand for regular elective care and outpatient services.
• Strong revenue trend combined with a well-controlled direct cost base translated into the gross profit growth, up 48.9% y-o-y in FY21.
• EBITDA margin (excl. IFRS 16) up 1.7 ppts y-o-y in FY21, reflecting a base effect of a state income tax subsidy for low salary range employees and

one-off gains recorded in other operating income in 2020.

• Excluding the impact of state income tax subsidy and other operating income, EBITDA margin (excl. IFRS 16) was up by 6.3 ppts y-o-y in FY21.
• Operating cash down 3.2% y-o-y in FY21, reflecting increased working capital investments in 2021 due to the robust revenue growth of the business.
• Net debt was down 2.2% in FY21 to GEL 206.5 million as of 31 December 2021, reflecting strong cash flow generation of the business.
• As announced in October 2021, GHG signed a contract to gradually acquire 33% interest in its retail (pharmacy) business. The goodwill arising

on the acquisition comprises GEL 50.4 million; however, since IFRS does not allow recognition of goodwill on minority acquisitions, the transaction
resulted in a respective decrease of equity (as instructed per IFRS).

• GEL 11.5 million dividends1 paid to GCAP in FY21.

FY21 performance (GEL thousands), Healthcare Services2,3
(Unaudited)

Income statement highlights

Revenue, net4
Gross profit
Gross profit margin
Operating expenses (excl. IFRS 16)
EBITDA (excl. IFRS 16)
EBITDA margin (excl. IFRS 16)
Net profit/(loss) (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
Dividends and intersegment loans issued/received
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

FY21

406,230
166,685
40.6%
(71,149)
95,536
23.3%
35,238

FY21

78,379
82.0%
(38,347)
32,513
36,331
(111,994)

FY20

Change

283,447
111,919
39.2%
(50,093)
61,826
21.6%
(11,210)

43.3%
48.9%
1.4ppts
42.0%
54.5%
1.7ppts
NMF

FY20

Change

80,955
130.9%
3,447
13,309
83,228
(15,169)

-3.2%
-48.9ppts
NMF
NMF
-56.3%
NMF

31-Dec-21

31-Dec-20

Change

847,671
52,423
4,241
483,348
263,161

364,323

899,391
93,721
7,133
510,079
312,036

389,312

-5.8%
-44.1%
-40.5%
-5.2%
-15.7%

-6.4%

Income statement highlights
The healthcare services business continues to be actively engaged in supporting the COVID-19 pandemic response in Georgia. Seven of our
hospitals and 12 of our clinics continue receiving COVID patients, with a total aggregate number of c.1,100 beds across the country. The Government
of Georgia fully reimburses costs associated with COVID-19 treatments and pays a fixed fee amount per bed designated for COVID patients.
A growing number of admissions for regular elective care and outpatient services, along with COVID-19 treatments, contributed to robust revenue
growth in FY21, outpacing even 2019 numbers.
• At our hospitals, the occupancy rate was up by 12.2 ppts y-o-y to 65.3% in FY21. Increased demand for elective and outpatient services also
increased the number of admissions (including outpatient and COVID patients’ admissions) to hospitals by 82.9% y-o-y in FY21. These trends
translated into hospitals y-o-y net revenue growth of 38.3% for the year. Revenue was up 29.1% in FY21 compared to FY19.

• At our clinics, similarly, the number of admissions was up by 71.8% y-o-y in FY21. The number of registered patients in Tbilisi increased by

c.35,000 y-o-y to c.257,000 and by c.71,000 y-o-y to c.589,000 in FY21 across the country. This translated into clinics’ y-o-y net revenue growth
of 52.2% in FY21. Clinics also significantly outperformed against 2019 performance, with revenues being up 59.9% in FY21 compared to FY19.
• The diagnostics segment, which, apart from regular diagnostics services, is also engaged in COVID-19 testing, increased its revenue by 109.6%
y-o-y in FY21, reaching GEL 30.4 million. Approximately half of diagnostics revenue relates to COVID-19 testing and another half to regular lab
tests. Revenue from COVID-19 testing was up 2.4x y-o-y in FY21, while the revenue from the regular lab tests was up by 79.9% y-o-y in FY21.

The developments described above translated into the strong 43.3% y-o-y net revenue growth in FY21 (also up 39.7% in FY21 compared to FY19).

The cost of services in the business consists mainly of materials, salaries and utilities. Trends in materials and salary costs are captured in the
materials and direct salary rates1. In FY21:
• The materials rate increased by 1.6 ppts y-o-y, reflecting increased consumption and prices of medical disposables and personal protective

equipment at healthcare facilities due to the COVID-19 driven supply shortage. However, after implementing the new initiatives the materials direct
rate started to stabilise in 4Q21.

• The direct salary rate, on the other hand, showed a positive trend, declining by 3.1 ppts at hospitals and 1.8 ppts at clinics. The direct salary rate
reflects COVID-19-related bonuses granted to our medical personnel as well as the expiration of a six-months state income tax subsidy, the latter
effective from May 2020 till June 2021.

• The cost of utilities was up 48.3%, resulting from increased tariffs on water, gas and electricity, effective since January 2021.

The result was the 40.6% gross margin in FY21, up 1.4 ppts y-o-y. Adjusted for the impact of state income tax subsidy, the gross profit margin was
up by 3.5 ppts y-o-y in FY21.

Overall, the strong revenue trend combined with a well-controlled operating cost base for the year translated into positive operating leverage of
6.9 ppts in FY21 (adjusted to exclude other operating income, operating leverage stood at 24.4 ppts in FY21). This led to the 54.5% y-o-y growth in
FY21 EBITDA (excl. IFRS 16) and the 1.7 ppts increase in EBITDA margin (excl. IFRS 16). Adjusted for the state subsidy impact and excluding other
operating income, EBITDA margin (excl. IFRS 16) was up by 6.3 ppts y-o-y in FY21. In FY21 the EBITDA margin (excl. IFRS 16) at hospitals was
23.0% (up 1.2 ppts y-o-y), at clinics 19.9% (down 0.2 ppts y-o-y) and at diagnostics 23.8% (up 11.5 ppts y-o-y).

To curb the inflation pressure, the National Bank of Georgia continued tightening the monetary policy, with the refinancing rate being up 2.0 ppts
in the last 12 months. Despite this, the full-year net interest expense was down 17.1% y-o-y, to GEL 22.7 million, reflecting the low level of net debt
position of the business throughout the year.

Cash flow highlights
The first half of 2021 was relatively slow in terms of operating cash flow. It was affected by increased working capital needs due to the significant
revenue growth posted by the business, as well as by the collection of receivables from the state due to the delay in the processing of bills during
the preceding period, led by the high number of COVID cases in the country. In the second half, the business demonstrated a full turnaround in terms
of cash flow generation. The result was the 3.2% decline in operating cash flow (excl. IFRS 16) in FY21. The cash conversion rate stood at 82.0%.
Total capex amounted to GEL 33.4 million in 2021. The business paid GEL 11.5 million dividends in FY21 to GCAP.

In 2021, Georgia Healthcare Group paid GEL 25 million dividends to GCAP, which is reflected solely in the cash flow of the healthcare services business at GHG level. At GCAP
level, dividends collected from GHG were allocated across all three GHG businesses, Healthcare Services (GEL 11.5 million), Retail (pharmacy) (GEL 11.5 million) and Medical
Insurance (GEL 2 million).

2 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results. See reconciliation to IFRS 16

on page 101.

3 All numbers in income statement and cash flow statement are adjusted to exclude HTMC hospital, sold in August 2020.
4 Net revenue – gross revenue less corrections and rebates. Margins are calculated from gross revenue.
5 Of which – capex of GEL 33.4 million in FY21 (GEL 24.6 million in FY20); acquisition of subsidiaries/payment of holdback of GEL 12.1 million in FY21 (GEL 5.9 million in FY20);
net proceeds from sale of an associate of GEL 3.4 million in FY21 (net proceeds from sale of subsidiary of GEL 32.8 million in FY20 (HTMC hospital – sold in August 2020)).

6 Operating cash flows less capex, less acquisition of subsidiaries/payment of holdback, plus net proceeds on sale of subsidiaries/associates.

1 The respective costs divided by gross revenues.

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115

Discussion of retail (pharmacy) business results
The retail (pharmacy) business, where GCAP owns 67% equity interests through GHG, is the largest pharmaceuticals retailer and wholesaler in
Georgia, with a 35% 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 349 pharmacies, of which 344 are in Georgia, and five
are in Armenia.

Income statement highlights
The retail (pharmacy) business delivered 15.2% y-o-y revenue growth in FY21, reflecting expansion (adding 36 pharmacies over 12 months), organic
sales growth (same-store revenue up 10.6% in FY21) as well as increased revenue from wholesale during the year. The retail revenue share in total
revenue was 74.6% in FY21 (72.8% in FY20). The revenue from para-pharmacy as a percentage of retail revenue from the pharmacy was 35.3% in
FY21 (34.7% in FY20).

Key points/valuation drivers
• Strong y-o-y growth in FY21 revenues (up 15.2%) and EBITDA (excl. IFRS 16) (up 8.3%), reflecting overall improvement in economic activity and

continuing expansion of the pharmacy chain.

• Robust gross profit margin of 26.0% for the year, resulting from new high-margin contracts in the wholesale business.
• EBITDA margin at 9.7% in 2021, exceeding the targeted 9%+.
• Rebounding trend in cash flow from operating activities, in line with the enhanced revenue streams – up 21.1% y-o-y in FY21, with 105.0% EBITDA

Retail (pharmacy)’s key operating performance highlights for FY21 are noted below:

Unaudited

Same store revenue growth
Number of bills issued (mln)
Average bill size (GEL)

FY21

10.6%
29.0
18.9

FY20

6.1%
27.6
16.8

Change

4.5ppts
5.3%
12.2%

to cash conversion ratio.

• The business paid GEL 11.5 million dividends1 to GCAP in FY21.

Added 36 pharmacies over the last 12 months, expanding from 313 to 349 stores.

FY21 performance (GEL thousands), Retail (pharmacy)2
(Unaudited)

Income statement highlights

Revenue, net

of which, retail
of which, wholesale

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 activities3
Free cash flow, (excl. IFRS 16)4
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

FY21

782,409
583,465
198,944
203,068
26.0%
(126,874)
76,194
9.7%
67,870

FY21

80,016
105.0%
(21,741)
63,470
(39,243)

FY20

Change

679,437
494,728
184,709
172,312
25.4%
(101,925)
70,387
10.4%
32,531

15.2%
17.9%
7.7%
17.8%
0.6ppts
24.5%
8.3%
-0.7ppts
108.6%

FY20

Change

66,074
93.9%
(1,963)
60,759
(37,090)

21.1%
11.1ppts
NMF
4.5%
5.8%

31-Dec-21

31-Dec-20

Change

522,814
54,616
20,922
375,745
89,844
104,613

147,069

464,644
36,856
12,471
361,048
88,608
85,919

103,596

12.5%
48.2%
67.8%
4.1%
1.4%
21.8%

42.0%

The 0.6 ppts increase in gross profit margin in FY21 reflects the strong economic recovery since 2Q21.

The business posted negative operating leverage (excl. IFRS 16) of 6.7 ppts in FY21, mainly reflecting 1) increased rent expense of pharmacies due
to exchange rate developments (about 85% of rental contracts are denominated in US$) as well as the expiration of six to 12-month discounts
obtained from lessors for pharmacy leases at the initial stage of the pandemic; and 2) high marketing costs in 2021 associated to new projects and
store openings. Along with increased salary expense mainly associated with the cancellation of the state tax subsidy, effective during May 2020 –
June 2021, this translated into a y-o-y increase in the operating expenses (excl. IFRS 16) of 24.5% in FY21. The result was the 8.3% y-o-y increase
in EBITDA (excl. IFRS 16) and the 0.7 ppts decline in EBITDA margin for the year.

The robust increase in net profit was also affected by interest expense, which was down 22.1% in FY21 (excl. IFRS 16) due to the 63.6% decrease
in net debt position y-o-y as of 31 December 2021. The business also posted a GEL 7.5 million foreign currency gain in FY21 compared to
GEL 13.2 million loss posted in the same period last year.

Due to the expansion of local business as well as opening new pharmacies internationally (currently in Armenia), the business is upgrading its core
IT system which enables the company to implement a more efficient operating system for the warehouse, decrease the major operational risks and
improve the day-to-day inventory management process. The implementation process will last approximately a year and a half, ending in June 2023,
with the total estimated cost at around US$ 3.2 million.

Cash flow and balance sheet highlights
Operating cash flow was up 21.1% y-o-y in FY21, led by increased retail revenues and increased collection of accounts receivables’ balances, while
the cash conversion rate stood at 105.0%. Increased cash outflows from investing activities reflect increased capex investments attributable to new
projects such as opticians and new format pharmacies, as well as regular expansion of the chain. The business paid GEL 11.5 million dividends to
GCAP in FY21.

In 2021, Georgia Healthcare Group paid GEL 25 million dividends to GCAP, which is reflected solely in the cash flow of the healthcare services business at GHG level. At GCAP
level, dividends collected from GHG were allocated across all three GHG businesses, Healthcare Services (GEL 11.5 million), Retail (pharmacy) (GEL 11.5 million) and Medical
Insurance (GEL 2 million).

2 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results. See reconciliation to IFRS 16

on page 102.

3 Of which – capex of GEL 14.3 million in FY21 (GEL 5.3 million in FY20); acquisition of subsidiaries/payment of holdback of GEL 2.3 million in 2021 (GEL 0 million in 2020).
4 Calculated by deducting capex and acquisition of subsidiaries/payment of holdback from operating cash flows.

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117

Discussion of water utility business results
Our Water Utility is a regulated monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services to c.1.4 million
residents, representing more than one-third of Georgia’s population and c.38,000 legal entities. Water Utility also operates hydro power plants with
a total installed capacity of 149MW. As of 31 December 2021 GCAP owned 100% of the business. In line with the disposal discussed on page 8,
GCAP now holds a 20% economic interest in Water Utility through its 35% stake in JSC Georgia Global Utilities (GGU), the holding company of
GCAP’s water utility business and operational renewable energy assets.

Key points/valuation drivers
• EBITDA up 2.0x y-o-y in FY21, reflecting increased revenues from both water and electricity sales.
• FY21 water sales up by 47.1% y-o-y to GEL 183.3 million, led by revised tariffs and increased demand from legal entities.
• Significant increase in revenue from electricity sales, up 3.4x y-o-y in FY21, supported by more favourable hydrological conditions and higher

water levels in Zhinvali HPP reservoir, compared to last year.

• FY21 cash flow from operating activities up by 71.3% y-o-y to GEL 95.6 million, in line with increased revenue streams from both water and

electricity sales.

FY21 performance (GEL thousands), Water Utility1
(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

FY21

203,590
183,333
20,257
(69,946)
128,102
62.9%
34,032

FY21

95,607
(56,525)
39,082
(33,431)

FY20

130,548
124,651
5,897
(61,733)
62,546
47.9%
(61,082)

FY20

55,822
(51,701)
4,120
21,861

Change

56.0%
47.1%
NMF
13.3%
104.8%
15.0ppts
NMF

Change

71.3%
9.3%
NMF
NMF

31-Dec-21

31-Dec-20

Change

717,194
59,894
600,352
510,119

116,842

653,201
55,577
574,179
498,555

79,022

9.8%
7.8%
4.6%
2.3%

47.9%

Income statement highlights
The business delivered a strong performance in FY21. Revenues increased by 56.0% y-o-y in FY21, reflecting a) an increased water sales revenues
on the back of the tariff revision by the regulator for the 2021-2023 regulatory period, as well as the improved economic activities leading to higher
water consumption and b) increased electricity sales, supported by improved water inflows at Zhinvali HPP reservoir due to better hydrological
conditions compared to last year.

FY21 revenue from water sales was up by 47.1% y-o-y. According to the revised water tariff levels set by the regulatory body for 2021-2023 years,
per cubic meter tariffs in Tbilisi increased from GEL 0.3 to GEL 0.5 for the residential customers and from GEL 4.4 to GEL 6.5 for legal entities
compared to the previous three-year regulatory period (2018-2020). The tariff increase translates into an annual growth of 36.3%2 in allowed water
revenue for the entire water utility business over the 2021-2023 period. Higher y-o-y water sales revenue in FY21 was further driven by increased
demand from legal entities on the back of improved economic activities. FY21 water sales volumes to commercial customers were 27.8 million
cubic meters, up by 5.9% y-o-y, approaching the pre-pandemic consumption levels.

FY21 revenue from electricity sales increased significantly, up by 3.4x y-o-y. The increase continued to be driven by improved water inflows and
generation levels at Zhinvali HPP reservoir. Water utility business produced 332.4GWh of electricity in FY21, up by 45.4% y-o-y, which coupled
with slightly higher y-o-y levels of self-produced electricity consumption of 185.2GWh, led to 2.8x growth in electricity sales volumes of 147.3GWh.
Average selling prices of the electricity during FY21 amounted to 0.122 GEL/KWh, down by 6.2% y-o-y.

Operating expenses in FY21 were up by 13.3% y-o-y, mainly reflecting higher electricity and transmission costs, which were factored into the revised
water tariff set by the regulator. As a result of the developments described above, EBITDA for FY21 more than doubled y-o-y to GEL 128.1 million.

Net interest expense was up by 5.7% y-o-y in FY21, and foreign exchange gain amounted to GEL 25.6 million, the latter reflecting local currency
appreciation against foreign currencies. As a result, FY21 net profit amounted to GEL 34.0 million.

Cash flow highlights
FY21 operating cash flow increased to GEL 95.6 million, up by 71.3% y-o-y. The improvement in operating cash flow was in line with the enhanced
revenue streams from water and electricity sales. FY21 development capex remained broadly stable y-o-y at GEL 61.7 million. FY21 cash outflow
from financing activities amounted to GEL 33.4 million, reflecting annual scheduled coupon payments of the US$ 250 million green bonds. As a result
of strong cash generation in FY21, cash balance stood at GEL 59.9 million as of 31 December 2021.

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 28.6% market share (up by 0.4 ppts
y-o-y) in property and casualty insurance based on gross premiums as of 30 September 2021. P&C Insurance also offers a variety of non-property
and casualty products, such as life insurance. GHG is the country’s largest private medical insurer, with a 23.0% market share based on 9M21 net
insurance premiums. GHG offers a variety of medical insurance products primarily to Georgian corporate and state entities and also to retail clients.
The medical insurance business plays a significant feeder role for GHG’s polyclinics, pharmacies and hospitals. GCAP owns a 100% equity stake
in both insurance businesses.

Total insurance business highlights
P&C insurance and Medical Insurance have a broadly equal share in total revenues, while P&C Insurance had an 83% share in total net profit in
FY21. The increase in the loss ratio by 4.3 ppts y-o-y in FY21, was partially offset by the 1.9 ppts y-o-y reduction in the expense ratio during the
year. Consequently, the combined ratio was up by 2.4 ppts y-o-y in FY21. Net profit was down by 5.9% y-o-y to GEL 22.0 million in FY21. As a result,
ROAE was 20.8% in FY21 (23.8% in FY20). The insurance business provided GEL 16.9 million dividends to GCAP in FY21.

FY21 performance (GEL thousands), Insurance (P&C and Medical)1
(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

FY21

158,870
86,489
72,381
45,773
34,216
11,557
22,038
18,265
3,773

FY21

24,320
19,264
5,056
23,641
18,972
4,669

FY20

Change

141,614
72,128
69,486
47,368
31,242
16,126
23,426
17,002
6,424

FY20

30,958
17,912
13,046
31,616
15,963
15,653

12.2%
19.9%
4.2%
-3.4%
9.5%
-28.3%
-5.9%
7.4%
-41.3%

Change

-21.4%
7.5%
-61.2%
-25.2%
18.8%
-70.2%

31-Dec-21

31-Dec-20

Change

267,627
188,805
78,822
116,464
84,234
32,230

257,887
176,479
81,408
101,507
69,443
32,064

3.8%
7.0%
-3.2%
14.7%
21.3%
0.5%

Discussion of results, P&C Insurance
Key points/valuation drivers
• Gross premiums written up by 20.8% y-o-y in FY21, reflecting a 15.3% y-o-y increase in the number of insurance policies written in FY21.
• A 19.9% y-o-y increase in earned premiums net in FY21, mainly resulting from growth in the motor insurance and credit life insurance lines.
• GEL 14.9 million dividends paid to GCAP in FY21 on the back of strong cash flow generation.
• Combined ratio down 0.7 ppts y-o-y in FY21, reflecting a decrease in the expense ratio by 5.2 ppts y-o-y in FY21.
• Net profit up by 7.4% y-o-y in FY21.

Income statement highlights
FY21 revenues increased by 19.9% y-o-y, mainly driven by the increase in the motor insurance line (excluding compulsory border third-party liability
(MTPL) insurance) by GEL 7.7 million in FY21 on the back of a boost in the retail client portfolio. An increase in credit life insurance revenue by
GEL 3.7 million y-o-y was the second-best contributor to the overall increase in FY21 revenues. An increase in the liability insurance business line
by GEL 1.6 million y-o-y in FY21 also contributed to the overall growth, predominantly reflecting the increase in credit unemployment portfolio by
GEL 0.8 million y-o-y. Similarly, GEL 1.1 million y-o-y growth in the FY21 agricultural insurance line also positively affected robust FY21 revenues.

1 The detailed IFRS financial statements are included in a 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.

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

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119

In aggregate, despite COVID-19 impacts and changes in customer spending habits, net premiums written across the portfolio through direct sales
channels was up by 15.9% y-o-y in FY21. The negative trend of declining MTPL premiums written reversed from 2Q21 and led to a 24.7% y-o-y
growth in 4Q21 MTPL revenues. Worldwide vaccination and reopening of land borders are expected to support a gradual recovery in tourism.
However, recovery of compulsory MTPL premiums to pre-pandemic levels are impeded by uncertainty around the lifting of travel restrictions set
by neighbouring countries, recurring waves of COVID-19 and their slow vaccination rate.

Investment stage portfolio companies
Discussion of renewable energy business results
The renewable energy business operates three wholly-owned commissioned renewable assets: 30MW Mestiachala HPP, 20MW Hydrolea HPPs and
21MW Qartli wind farm. In addition, a pipeline of up to 172MW renewable energy projects is in an advanced stage of development. The renewable
energy business is 100% owned by Georgia Capital.

At 31 December 2021, the distribution mix in FY21 gross premiums written is as follows: various direct sales channels and brokers have a majority
share of 73% (74% in FY20), followed by partnership agreements with financial institutions of 25% (24% in FY20) and MTPL channels of 2%
(2% in FY20), respectively.

P&C Insurance’s key performance ratios for FY21 are noted below:

Key ratios, unaudited

Combined ratio
Expense ratio
Loss ratio
ROAE1

FY21

80.8%
32.4%
48.4%
24.7%

FY20

81.5%
37.6%
44.0%
24.8%

Change

-0.7ppts
-5.2ppts
4.4ppts
-0.1ppts

The FY21 y-o-y decreases in expense ratio reflects robust revenue growth while operating expenses remained largely flat, which translated into
a decrease in the combined ratio of the respective periods. The increase in the FY21 loss ratio reflects higher passenger mobility and thus increased
volume of motor claims in 1H21 due to the lifted pandemic-related lockdown restriction as well as the occurrence of several large property claims
in 2H21. The volume of COVID-19-related credit life insurance claims incurred in FY21 amounts to GEL 4.3 million (GEL 1.1 million in FY20) and
represents 31% of total life insurance claims (10% in FY20). As a result, P&C Insurance’s net profit was up 7.4% y-o-y in FY21. Adjusted for the
FX loss on the natural long position, net profit is up by 19.2% y-o-y in FY21.

Balance sheet and cash flow highlights
P&C Insurance’s solvency ratio was 153% as of 31 December 2021, significantly above the required minimum of 100%. A 7.5% y-o-y increase in
FY21 operating cash inflows resulted from higher underwriting cash flows, primarily reflecting strong cash flow generation from insurance premiums
written and rigorous claims reimbursement procedures of the business. The business paid GEL 14.9 million dividends to GCAP in FY21.

Discussion of results, Medical Insurance
Key points/valuation drivers
• Earned premiums net up 4.2% y-o-y in FY21, reflecting increased prices of the insurance policies.
• On the back of increased demand for healthcare services, the loss ratio was up 6.3 ppts to 79.3% y-o-y in FY21.
•
• The number of insured clients at c.165,000 as of 31 December 2021, down from c.174,000 as of 31 December 2020.
• The business paid GEL 2 million in dividends to GCAP in FY21.

Insurance renewal rate at 78.0% in FY21 (73.4% in FY20).

Income statement highlights
The increase in FY21 earned premiums net by 4.2%, reflects an increase in the prices of insurance policies. Various incentives such as the direct
settlement of claims with the provider mean that, on top of its own positive contribution to GHG’s profitability, the medical insurance business plays
a feeder role in originating and directing patients to GHG’s healthcare facilities, mainly to polyclinics and to pharmacies. The direct settlement improves
claims retention rates within GHG.

Claims retention rates, unaudited

Total claims retained within the GHG
Total claims retained in outpatient

FY21

36.3%
39.0%

FY20

37.3%
41.7%

Change

-1.0ppts
-2.7ppts

In FY21, the net claims expenses were GEL 57.4 million (up 13.1% y-o-y), of which GEL 24.3 million (42.3% of total) was inpatient, GEL 20.4 million
(35.5% of total) was outpatient and GEL 12.7 million (22.2% of total) was related to pharmaceuticals. Reflecting a rebounding trend in the number
of admissions at hospitals and clinics in 2021, compared to patient footprint slowdown at healthcare facilities last year due to the pandemic, the loss
ratio was up 6.3 ppts to 79.3% in FY21. As a result, the combined ratio increased by 6.8 ppts y-o-y in FY21 to 97.4%. The business posted a net
profit of GEL 3.8 million in FY21 (down 41.3% y-o-y).

Balance sheet and cash flow highlights
Operating cash flow decline is associated with the increased claims expense of the business. The business paid GEL 2 million dividends in FY21.

Key points/valuation drivers
• FY21 revenue and EBITDA up by 3.1% and 3.7% y-o-y, respectively. Excluding the impact of one-off business interruption (BI) reimbursement

accrual for 2020 revenues of 20MW Mestiachala HPP unit, FY21 revenue and EBITDA were up 13.0% and 17.4% y-o-y, respectively.

• Strong pick up in electricity generation levels, as FY21 generations increased y-o-y by 16.0%, while average electricity selling price amounted

•

to US$ 50.7 per MWh for the business in FY21 (US$ 53.0 per MWh in FY20).
In line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the 20MW power generating unit
of Mestiachala HPP has been suspended and impairment in the amount of GEL 36.6 million was recorded.

• GEL 20.0 million dividends paid in FY21.

FY21 performance (GEL thousands), Renewable Energy1
(Unaudited)

Income statement highlights

Revenue

of which, PPA
of which, non-PPA
of which, BI reimbursement

Operating expenses
EBITDA
EBITDA margin
Non-recurring expenses2
Net loss

Cash flow highlights

Cash flow from operating activities
Cash flow used in investing activities
Cash flow used in financing activities

Dividends paid out

Balance sheet highlights

Total assets

of which, cash balance

Total liabilities

of which, borrowings

Total equity

FY21

43,914
31,732
11,577
605
(10,703)
33,211
75.6%
(41,249)
(43,875)

FY21

31,985
(16,335)
(39,474)
(20,000)

FY20

Change

42,592
28,584
9,757
4,251
(10,565)
32,027
75.2%
(10,577)
(16,320)

3.1%
11.0%
18.7%
-85.8%
1.3%
3.7%
0.4ppts
NMF
NMF

FY20

Change

40,176
15,866
(29,185)
(4,927)

-20.4%
NMF
35.3%
NMF

31-Dec-21

31-Dec-20

Change

405,932
40,499
314,469
305,536

91,463

482,986
66,821
326,252
318,269

156,734

-16.0%
-39.4%
-3.6%
-4.0%

-41.6%

Income statement highlights
FY21 revenue from electricity sales increased by 3.1% y-o-y (excluding the one-off BI reimbursement for 20MW Mestiachala HPP in 2020, the y-o-y
increase in FY21 revenue was 13.0%). Strong top-line growth was driven mainly by improved hydrologic conditions at the power assets, as reflected
in y-o-y growth of total generation levels of 16.0% in FY21. Moreover, the renewable energy business benefited from favourable average electricity
selling prices, amounting to US$ 50.7 per MWh in FY21 (US$ 53.0 per MWh in FY20). Operating highlights by asset for FY21 are presented in the
table below:

Unaudited, GEL ‘000,
unless otherwise noted

30MW Mestiachala HPP
21MW Qartli wind farm
20MW Hydrolea HPPs

Total

Revenue from
electricity sales

13,533
17,460
12,316

43,309

Change
y-o-y

7.0%
-5.9%
72.3%

13.0%

Electricity
generation
(GWh)

102.3
83.3
80.3

265.8

Change
y-o-y

13.0%
-8.3%
67.7%

16.0%

FY21 operating expenses remaining broadly stable at GEL 10.7 million. EBITDA increased by 3.7% y-o-y to GEL 33.2 million in FY21.

The business recorded GEL 23.1 million net interest expense in FY21, slightly down by 1.5% y-o-y, reflecting GEL appreciation against foreign
currencies. In 2021, in line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the 20MW Mestiachala
HPP has been suspended indefinitely and impairment in the amount of GEL 36.6 million was recorded. As a result of the developments described
above, the business recorded GEL 43.9 million net loss in FY21.

1 Calculated based on net income, adjusted for non-recurring items and average equity, adjusted for preferred shares.

GEL 3.9 million.

1 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.
2 Consists of impairment of 20MW Mestiachala HPP unit (GEL 36.6 million) and costs associated with the disposal of the water utility business (see page 8 for details) –

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121

Cash flow highlights
FY21 operating cash flow amounted to GEL 32.0 million (down by 20.4% y-o-y). Excluding the one-off effect of BI reimbursement proceeds received
from the insurance company, FY21 operation cash flow was up by 10.6% y-o-y. FY21 cash outflow from investing activities was at GEL 16.3
million, while FY20 investing cash inflow amounted to GEL 15.9 million, the latter mainly reflecting property damage reimbursement received from
the insurance company for Mestiachala HPPs. FY21 cash outflow from financing activities increased to GEL 39.5 million from GEL 29.2 million in
FY20, mainly reflecting increased dividend payments made to Georgia Capital on the back of the strong operational performance of the business.
Renewable Energy made a dividend distribution of GEL 20.0 million in total in FY21. As a result, the cash balance of the renewable energy business
amounted to GEL 40.5 million as of 31 December 2021.

Discussion of education business results
Our education business currently combines majority stakes in five private school brands and campuses, acquired in 2019-2021: 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% ownership1) and Georgian-Austrian School Pesvebi LLC
(81%2 ownership), both well-positioned in the affordable education segment.

Key points/valuation drivers
• Revenue up by 20.9% y-o-y in FY21, reflecting a 12.6% y-o-y growth in average tuition revenue per learner in FY21 and increase in the number

of learners by 25.1% y-o-y, the latter supported by the expansion of the business in the affordable segment.

• The increased number of learners translated into a utilisation rate of 62.2% in FY21 compared to last year’s 89.5%, reflecting the addition

of a new capacity of 2,250 learners in the preceding quarter.

• Cash collection rates remained largely at prior year’s levels at 80.9%, translating into a 50.8% y-o-y increase in operating cash flow to

GEL 11.9 million in FY21.

Cash flow highlights
Operating cash flow generation by the education business was up by 50.8% y-o-y to GEL 11.9 million in FY21. The schools managed to deliver
strong cash collection rates before the start of the 2021-22 academic year. Overall, the combined cash collection rate for 2021-2022 tuition fees
stood at 80.9% (80.9% at 31 December 2020), which was in line with the schools’ cash collection policies.

GEL 23.0 million cash outflow on investing activities in FY21 reflects investments in capacity expansion of the operational campuses of Buckswood
by 240 learners, Green School by 450 learners and premium segment by 300 learners, acquisition of land and building for the new campus location
of Green School with the capacity of 600 learners, and acquisition of an 81% interest in Georgian-Austrian School Pesvebi with 1,200 learner capacity.

Investments in 2021
In FY21, the education business expanded in the affordable segment through two investment projects:
•

In August 2021, Georgia Capital signed a share purchase agreement to acquire an 81% equity interest in Georgian-Austrian School Pesvebi,
which is located in a densely populated urban area in Tbilisi with a considerable residential apartment development pipeline. The school has
a capacity of 1,200 learners and is one of the largest private schools in Georgia with recently renovated c.7,400 sq.m. building facilities and a
1.4ha land plot.

• The new (second) campus has been launched under the existing affordable brand in Group’s portfolio – Green School. The campus is located in
the central district of Tbilisi. Despite its urban location, the school has a unique infrastructure with a 5ha land plot, offering an ecologically friendly
environment and areas for outdoor activities. The new campus will provide education to 600 learners, with the potential to expand its capacity
to 1,500-2,000 learners over the next years by utilising the existing premises. Also, the expansion project of Green School’s existing campus
was successfully finalised in September 2021. The school increased its capacity from existing 1,250 learners to 1,700 learners for the 2021-2022
academic year.

• GEL 23.0 million investments in the launch of new campus and expansion of existing campuses in affordable (construction completed), mid-scale
and premium segments (construction is expected to complete before the start of the next academic year) and the acquisition of an 81% interest
in Georgian-Austrian School Pesvebi, in FY21.

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 224.6 million at 31 December 2021, which represented only 6.2% of our total portfolio.

FY21 performance (GEL thousands), Education3
(Unaudited)

Income statement highlights

Revenue
Operating expenses
EBITDA
EBITDA margin
Net income

Cash flow highlights

Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows from financing activities

Balance sheet highlights

Total assets

of which, cash
Total liabilities

of which, borrowings

Total equity

FY21

31,196
(21,090)
10,106
32.4%
11,489

FY21

11,881
(22,956)
14,303

FY20

Change

25,794
(17,446)
8,348
32.4%
3,148

FY20

7,877
(7,129)
78

20.9%
20.9%
21.1%
0.0ppts
NMF

Change

50.8%
NMF
NMF

31-Dec-21

31-Dec-20

Change

138,080
9,096
51,764
25,585

86,316

110,541
6,399
53,396
24,947

57,145

24.9%
42.1%
-3.1%
2.6%

51.0%

Income statement highlights
Given the improved epidemiological developments in Georgia, the schools provided on-campus learning during most of FY21. Schools in Tbilisi
were reopened from 15 February 2021 and continued on-campus learning till the end of the year, except for September. During the distance learning
period, schools offered 15%-25% discounts for tuition fees and roll-over of fees for transportation/catering services.

Revenue in FY21 was up by 20.9% y-o-y. The expansion of the affordable segment through the acquisition and launch of a new campus contributes
to 3.2% of the total revenue growth, while the rest is driven by growth in total enrolments and average fee per learner. Growth in average fee per learner
is supported by tuition fee increases via contract renewals in line with grade-level progression for existing learners and enrolments of new learners.

The intakes remained strong for all grades with a 16.0% increase in the number of 1st graders to 376 learners in the 2021-2022 academic year,
compared to 238 intakes of 1st graders in the 2020-2021 academic year. Overall, the total number of learners was up by 25.1% y-o-y to 3,148
learners at 31 December 2021. The utilisation rate as of 31 December 2021 was 62.2%, compared to last year’s 89.5%, reflecting the addition
of a new capacity of 2,250 learners in 3Q21, which will be gradually utilised over the coming periods.

The business growth reflects an increase in operating expenses by 20.9% y-o-y in FY21. Consequently, EBITDA was up 21.1% y-o-y in FY21.
Overall, the business posted GEL 11.5 million net income in FY21 (GEL 3.1 million in FY20), reflecting foreign currency exchange gains in FY21
compared to foreign currency exchange losses in FY20.

1 80% equity stake in the existing campus and 90% in new campus launched under the existing affordable brand in 3Q21.
2 Georgia Capital has a call option on the 9% equity stake during the 12 months starting from August 2022.
3 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results.

FY21 aggregated performance highlights (GEL thousands), Other portfolio

(Unaudited)

Revenue
EBITDA
Net cash flows from operating activities

FY21

337,581
21,089
23,390

FY20

283,385
25,973
71,392

Change

19.1%
-18.8%
-67.2%

The y-o-y growth in the aggregated revenues of our other businesses (up 19.1% in FY21) was led by strong performances of the beverages and
auto service businesses. The decline in net cash flow from operating activities was in line with the organic transition to revenue growth and the
corresponding increase in working capital requirements.

Housing development, hospitality and commercial real estate businesses – In FY21, revenue of the housing development business was
up by 1.7% y-o-y, while the revenue of the hospitality and commercial real estate business was down by 32.9% y-o-y, the latter reflecting decreased
revenue streams, associated with the divestment of a significant portion of commercial real estate assets. Aggregated EBITDA of these businesses were
down by GEL 16.7 million y-o-y in FY21. In 2021 the housing development business remeasured the ongoing residential project budgets which led to an
increase in expected development costs, mainly negatively impacted by inflated prices on construction materials. Consequently, due to the accounting
treatment, this translated into a one-off GEL 16.3 million y-o-y decrease in EBITDA in FY21. In 2021, we successfully completed the sale to a combination
of local and regional investors of selected commercial real estate assets for US$ 45.0 million with an 11.3% premium (US$ 4.6 million) to the book value
as of 31 March 2021. The sale translates into 2.1x MOIC in US$ terms. The proceeds from the sales were used to repay the US$ 30 million bonds issued
by the commercial real estate business. The book value of the remaining disposable assets is approximately US$ 13.9 million as of 31 December 2021
and is split between commercial real estate assets (16%) and land plots (84%).

Beverages – The beverages business combines three business lines: a wine business, a beer business, and a distribution business.
• Wine business – The net revenues of the wine business in FY21 were up 21.0% y-o-y to GEL 60.0 million and the gross profit margin improved
by 0.4 ppts y-o-y to 43.6% in FY21, mainly attributable to increased sales on the local and international markets in 2021. Consequently, EBITDA
of the business was up 23.5% y-o-y amounting to GEL 13.6 million in FY21.

• Beer business – The net revenue of the beer business increased by 22.8% y-o-y to GEL 56.4 million in FY21. Beer and lemonade y-o-y sales
(in hectolitre) were up 4.6% and 2.7x, respectively, in FY21. Consequently, the EBITDA of the business increased by 2.1x y-o-y amounting to
GEL 4.9 million which reflects the strong revenue growth of the business. The solid performance of the business over the past two years
translated into enhanced creditworthiness, and as a result, GCAP’s guarantee on the borrowing of beer business decreased by c.EUR 2.7 million
to EUR 15.8 million in 2021.

• Distribution business – Revenue of the distribution business increased by 20.6% y-o-y to GEL 114.1 million in FY21, yielding the FY21 y-o-y

EBITDA growth of 45.6% to GEL 4.3 million.

Auto Service – The 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.
• Periodic technical inspection (PTI) business – The PTI business demonstrated a solid performance growth with a 42.5% y-o-y revenue

growth to GEL 15.4 million in FY21. Revenue growth was supported by an increase in total cars serviced, up by 37.8% y-o-y in FY21, out of which
76% were from primary checks. As a result, the EBITDA of the PTI business was up by 2.0x to GEL 8.5 million in FY21, with a y-o-y EBITDA
margin growth of 15.8 ppts to 55.0% in FY21.

• Car services and parts business (Amboli) – In FY21, Amboli’s revenue was up by 65.1% y-o-y to GEL 35.4 million, reflecting an increase in

corporate and wholesale customer segments. Similarly, the FY21 gross profit was up by 85.2% y-o-y to GEL 7.9 million. As a result, the business
posted GEL 2.5 million EBITDA in FY21, up by 2.4x from FY20.

Strategic ReviewOverviewGovernanceAdditional InformationStrategic ReviewOur BusinessFinancial StatementsStrategic ReviewDiscussion of Results122

Georgia Capital PLC Annual Report 2021

123

DIRECTORS’ GOVERNANCE STATEMENT

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 129 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 believes that the current structure better serves our
Company and its stakeholders and 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 in 2020, our healthcare
services and retail (pharmacy) 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 a Non-Executive Chairman in addition to a CEO
in this environment could interfere with the lean Group structure.
It would also add additional cost with no benefit given the factors
set out above.

The Board is highly experienced and almost entirely independent.
• Other than the CEO, our Board is composed solely of Independent

Non-Executive Directors, six in total during 2021. As there is only one
Executive Director, and each Non-Executive Director approaches
the Company with true independence, it is considered extremely
unlikely that the Executive Director could form a block by convincing
a sufficient number of 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 by Independent
Non-Executive Directors.

• 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 major 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 management consulting and private equity experience.

The Investment Committee has a central role in the Company’s
governance framework.
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 rejects 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). All Board members sit on the
Investment Committee, but it is chaired by a Non-Executive Director,
not the Chairman/CEO. The Investment Committee, not management,
had the final say on the sale of the water utility business.

The Group’s NAV is determined by the Audit and Valuation Committee.
The Group’s key financial and investor communications metric is its
NAV 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 137 to 142
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 and will be resumed once it is appropriate
to do so. In 2021, the meetings with senior management and the
workforce were replaced with direct engagement via teleconferencing
and videoconferencing.

Given the structure of the Group 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 2021 AGM voting (voting 95.8%
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 as the
Group develops.

Irakli Gilauri
Chairman and
Chief Executive Officer

David Morrison
Senior Independent
Non-Executive Director

Dear Shareholders
We are delighted to present our fourth 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. The Board is committed
to the highest standards of corporate governance which we maintain
as an anchor of the Group’s culture. While the ongoing COVID pandemic
continued to pose challenges in 2021, the strong recovery of the
Georgian economy combined with excellent execution by our portfolio
companies led to gratifying results.

implemented throughout the business in the successful delivery of the
Group’s strategic priorities.

Caroline Brown will not be seeking re-election to the Board at the
forthcoming AGM and therefore will cease to be a Director of the
Company from the conclusion of the AGM on 20 May 2022. Caroline
joined us in May 2018 and has made an invaluable contribution to the
Board and her experience and expertise has been of particular benefit
to the Audit and Valuation Committee. Kim Bradley will join the Audit
and Valuation Committee effective from 20 May 2022.

The Board’s principal focus in 2021 continued to be our oversight of the
development of the Company’s strategy and its delivery by management.
We engaged closely and intensively with management on the sale of
the water utility business and are delighted with the outcome. With the
conclusion of that process at year-end, we began 2022 with a strategy
update the results of which will be announced in the coming weeks.

Irakli Gilauri
Chairman and Chief Executive Officer
24 March 2022

David Morrison
Senior Independent Non-Executive Director
24 March 2022

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 and virtual conferences, in addition to the
London Stock Exchange announcements and regular quarterly earnings
reports and calls. We also were able to organise several investor road
show visits this year and we look forward to the Investment Committee
resuming face-to-face activities when appropriate during 2022.

The Board remains focused on the Company’s responsibilities to
its stakeholders and the wider expectations of society. We devoted
significant time this year to establishing its initial approach to ESG.
The Board takes the view that good ESG processes should be a key
component of the Company’s business and will take direct responsibility
for continuing to develop our approach to ESG. There is more on ESG
in the detailed report below, but amongst the key points to note on
this subject is that going forward the Company will publish a separate
Sustainability Report.

The entire Board remains committed to working with our management
to ensure that our high standards extend beyond the boardroom and are

Statement of Compliance with the UK Corporate
Governance Code
The Company is committed to maintaining standards of corporate governance.
The Board believes that good corporate governance enhances performance,
reduces risks and promotes the protection of our shareholders’ interests, and
considers it essential to building a successful business for the longer term and
ensuring positive relationships with our key stakeholders.

The Board has overall responsibility for governance and is accountable to its
shareholders. This Governance Report describes how during 2021 the Board has
applied the main principles and complied with the relevant provisions of the Code.
The Code is publicly available at the website of the Financial Reporting Council (FCA)
at www.frc.org.uk.

During the year we have undertaken a number of steps to ensure ongoing
compliance with the Code, including receiving an analysis from the Company
Secretary on the Company’s application of the provisions and principles throughout
the year. We also continue to monitor our governance framework and underlying
governance structures to ensure that they meet the needs of the business.

Throughout 2021, the Company 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 officer 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.

This statement, and the reports from the Board Committees, set out how we applied
the Main Principles of the Code as required by LR 9.8.6. The Directors’ Report also
contains information required to be disclosed under the FCA’s Listing Rules (LR)
and Disclosure Guidance and Transparency Rules (DTR). To the extent necessary,
certain information is incorporated into this Governance Report by reference.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessFinancial StatementsGovernance124

BOARD OF DIRECTORS

Georgia Capital PLC Annual Report 2021

125

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

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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 Investment Committee. He sits on 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 US$ 500
million in endowment capital. For almost two
years in 2019-2020, David Morrison served 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 and Valuation
Committee duties.

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
and sits on the Supervisory Board of
JSC Georgia Capital. With effect from
20 May 2022, Mr Bradley will join the
Audit and Valuation Committee.

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’s prior
experience includes 15 years as a professional
in Goldman Sach’s Real Estate Principal
Investments and Realty Management divisions,
with a focus on investment in European real
estate and distressed real estate and corporate
debt, as well as two bank entities. Assets
under management reached $25 billion during
this period and Mr Bradley’s duties included
participation on valuation committees on all
asset types. In addition, Mr Bradley led Goldman
Sachs’ asset management affiliates in France,
Italy and Germany, where his responsibilities
included working closely with the Management
and Control Division (internal audit) on both the
scope and response to annual audits. He also
has extensive experience with bank regulatory
supervision and served as President of Societa
Gestione Crediti, a Director 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 the United States and
Europe. 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 Managing Partner at Sabino Capital
Partners LLC. 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. Post graduate
education includes bank training in credit analysis
and accounting.

Reasons for appointment: Kim Bradley has
broad 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. Additionally, Mr Bradley has had
extensive experience in corporate distressed debt
resolution including recapitalisation. Mr Bradley’s
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 the corporate
value of the Group.

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 and Remuneration
Committees 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.

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 FTSE 100
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 has
chaired audit committees of listed
companies for the past 19 years.
Dr Brown currently serves on the
Boards of three other London Stock
Exchange premium listed companies:
IP Group plc, a FTSE250 financial
services business and leading
intellectual property commercialisation
company; WAG Payments Solutions
plc, a pan-European integrated
payment and mobility platform
focused on the commercial road
transport industry; and Luceco plc,
an industrial technology firm which
designs, manufactures and distributes
high quality and innovative electrical
products, together with NYSE-listed
Rockley Photonics Holdings Limited,
a hi-tech business revolutionising
blood sensing for medical applications
using integrated silicon photonics
and a new end-to-end platform for
monitoring biomarkers non-invasively.
In addition, she is a current member
of the global Partnership Council
of Clifford Chance, the Supervisory
Board of the magic circle law firm.

Education: Dr Brown holds a first-
class degree and PhD in Natural
Sciences from the University of
Cambridge and an MBA and MA from
the City Business School, University
of London. She is a Fellow of the
Chartered Institute of Management
Accountants and qualified as
a Chartered Financial Analyst
and a Chartered Director.

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 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 MPhil.
and a PhD from Oxford University,
where he attended St. Antony’s
College. He graduated with a BSc 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.

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 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 Boards
of over 30 companies. She currently
serves as Senior Advisor 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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126

Georgia Capital PLC Annual Report 2021

127

CORPORATE GOVERNANCE FRAMEWORK

Our governance structure

CEO

Executive
management

Investment
Committee

Read more
on page 143

Board size, composition 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 127.

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 be found here:
https://georgiacapital.ge/governance/board and on pages 124-125
of this Annual Report.

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 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.

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 135, the Audit and Valuation Committee
report on page 137, the Remuneration Committee report on page 143
and the Nomination Committee report on page 164.

The Board is responsible to shareholders for creating and delivering
shareholder value over the long term through the oversight of the
Group’s operations. 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. 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.

Operation of the Board
The Board continues to follow global travel restrictions in place during
2021 and have held all meeting with Directors via teleconference or via
videoconference. In addition to the quarterly meetings, the Board also
scheduled ad hoc meetings to discuss portfolio valuation, COVID-19
response and the sale of the water utility business.

Each Director also recognises their statutory duty to consider 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.

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 receives regular 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.

Matters reserved for the Board
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.

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CORPORATE GOVERNANCE FRAMEWORK CONTINUED

Board activities during 2021
Details of the areas that the Board considered this year are set out below:

Strategy

• Ongoing consideration of the Company’s strategy.
• Regularly assessed portfolio company composition:

– Reviewed and approved the disposal of the water utility business.
– Continued dispositions of properties in the real estate portfolio in line with the restructuring announced

following the outbreak of the COVID-19 pandemic.

• Approved capital allocations to and discussed the capital allocation outlook for portfolio companies.
• Reviewed Group and portfolio company performance against strategy, particularly in light of the

COVID-19 pandemic.

• Regularly reviewed the Georgian and regional political and economic climate, particularly in light of the

COVID-19 pandemic and regional unrest including in relation to Ukraine.

• Commenced a share buyback and cancellation programme formally approved in August 2021.
• Reviewed the ESG matters and TCFD reporting implementation process.

• Focused on high level governance issues and developments that may have an effect on the

Company’s strategy.

• Received reports from the Audit and Valuation, Nomination, Remuneration and Investment Committees.
• Conducted an externally 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.

• Received reports on the financial performance of the Company’s investments.
• 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.

Governance, assurance
and risk management

Financial reporting

ESG

Succession

Stakeholders

• See below.

• Board and Committee succession planning.

• Considered and implemented s172 duties:

– Re-confirmed identity of different key stakeholder groups.
– Considered how Board decisions impact the interests and priorities of each group.
– Actively engaged with different stakeholders.

Investment matters

• Endorsed the work undertaken by the Investment Committee. See report on pages 135 to 136 for further detail.

Standing items

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.

ESG
As noted above, the Board devoted significant time this year to establishing its initial approach to ESG. The Board takes the view that good ESG
processes should be a key component of the Company’s business and will take direct responsibility for continuing to develop our approach to ESG
matters, and addressing ESG challenges.

• The Company engaged an external consultant to advise on the implementation and reporting of disclosures in line with TCFD recommendations
and the Listing Rules. In addition, targets and other metrics will be established and climate-related risks and opportunities will be incorporated
into the strategy. The Board has also established a Responsible Investment Policy, available on the website at
https://georgiacapital.ge/governance/cgf/policies. The Policy underlines the Board’s commitment to conducting business in an
environmentally, socially responsible and sustainable manner in order to reduce the environmental harm of the operations, while at the same time
improving social impact to enhance long-term returns to our shareholders. See our separate Sustainability Report for a detailed overview.

Board and Committee meeting attendance
Details of Board and Committee meeting attendance in 2021 are as follows:

Members

Irakli Gilauri

David Morrison

Kim Bradley

Massimo Gesua’ sive Salvadori

Caroline Brown

Jyrki Talvitie

Maria Chatti-Gautier

Board

4/4 scheduled
6/6 ad hoc

Audit and
Valuation
Committee

n/a

4/4 scheduled
6/6 ad hoc

n/a

4/4 scheduled
6/6 ad hoc

n/a

Nomination
Committee

Remuneration
Committee

Investment
Committee

1/1

n/a

1/1

n/a

1/1

4/4 scheduled
2/2 ad hoc

n/a

3/3

n/a

3/3

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
The Board continued to 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.

In order to create the multiple strong private business institutions, we
will continue with our plan to develop our leaders so that they become
future entrepreneurs of Georgia, through personal and professional
development. 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. 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, also reinforcing key messages. These
messages are cascaded down from the management team to the
wider employees.

We plan to develop our culture further in line with our purpose, 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, the Board 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.

Evaluation of Board performance
In 2021, Georgia Capital engaged Lintstock Ltd to facilitate a review of
the Board’s performance. Lintstock has previously undertaken Board
Reviews for Bank of Georgia Group and Georgia Healthcare Group,
but has no other connection with Georgia Capital or any of the
Company’s Directors.

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CORPORATE GOVERNANCE FRAMEWORK CONTINUED

The first stage of the process involved Lintstock engaging with the
Company Secretary to determine the scope of the evaluation, and to
tailor survey content to the specific circumstances of the Board and the
business. All Board members were then requested to complete online
surveys addressing the performance of the Board, its Committees and
the Chair; the anonymity of responses was guaranteed by Lintstock
to encourage candid feedback. Directors were also invited to reflect
on their own individual contribution to the Board, and to identify any
personal training or development needs.

In addition to addressing core areas of governance, the exercise had
a particular focus on the following areas, in the context of the ongoing
COVID-19 pandemic:
• The Board’s engagement with shareholders and portfolio companies,
and the oversight of employee sentiment and the culture throughout
the Group.

• The clarity of Georgia Capital’s strategy, and the market changes that
have the greatest potential to influence the Group’s business model
over the coming years.

• The Board’s external focus on digital developments, the competitive
landscape and geopolitical events, and their potential impact on
the Group.

• Risk management and internal controls, and lessons that can

be drawn from events over the last year to improve the Group’s
risk processes.

• Georgia Capital’s focus on ESG, both at the Group-level and in its
investment portfolio, and the pace at which ESG matters are being
addressed by management.

• The structure of the Group at senior levels, the Board’s oversight of
succession plans and the Company’s processes for developing and
retaining talent.

Lintstock collated the Directors’ feedback and produced narrative
reports containing key observations and areas for development. The
reports also provided comparisons to Lintstock’s Governance Index,
which contextualises the results of the Board Review with reference to
Lintstock’s wider client base.

The reports were considered at a subsequent Board meeting, and as a
result of the Review, the Board agreed that a renewed focus on strategy
was a priority for 2022. Succession planning would continue to be
a subject for further development.

The process for evaluating the Chairman’s performance
Given his role as Chairman and CEO, Irakli Gilauri’s performance was
evaluated. 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 2022 are:
• completing a strategic review following the disposition of our water
utility business, and continuous review of overall strategy of the
Company in light of our purpose and values;

• mainstreaming our new ESG Policy and developing Key Performance

Indicators relating to climate change risks and opportunities;

• maintaining focus on succession planning;
• monitoring and assessing culture and how this aligns with our

purpose, values and strategy; and

• 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 164 to 166.

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.

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.

Stakeholder 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 understands the importance
of effective engagement with stakeholders to gain an understanding
of the issues that relate to each stakeholder and those that impact the
Company so that the Board can appropriately consider these views and
their concerns when having Board discussions, when considering the
long-term success of the Company.

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. Shareholders’ considerations are sought out and
then incorporated into our discussions and decisions. For example,
members of the Board and management held approximately 400 calls
with institutional investors and analysts, and participated in more than
10 online investor conferences, and the Company was able to arrange
several investor road shows this year.

The table on pages 131-132 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 66-68.

Key stakeholder

Activities undertaken throughout the year

Investors

Investor Relations team

Types of engagement
• 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
• Meetings with Committee Chairs and other

Investor roadshows

Non-Executive Directors

• Annual Report

How the Board engages with investors
We will engage with shareholders through the Company’s
forthcoming AGM to be held in May 2022, and 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 2021. The Company has established a
comprehensive shareholder engagement programme and
encourages an open and transparent dialogue with existing
and potential shareholders. For example, our UK General
Counsel and our Company Secretary also have ongoing
dialogue with shareholder advisory groups and proxy
voting agencies.

The Company was able to organise several investor road
show visits this year.

How this stakeholder group influenced the
Committee/Board agenda and decision-making

• The Board receives feedback from investors via the

Chairman/CEO and the CFO who are in regular contact
with the Company’s major shareholders. This feedback
informed the Board’s decision-making in respect of the
buyback programme announced in August 2021 and
the disposal of the water utility business announced in
December 2021.

• The Chairman/CEO, the CFO, the Advisor to the CEO and
the Head of Investor Relations, each provide a standing
invitation to shareholders to meet and discuss any matters
they wish to raise.

• The SID acts as an intermediary for shareholders.
• Committee Chairs also make themselves available to
answer questions from investors. The Non-Executive
Directors attend regular investor days and are available
to answer questions.

• The Chairman has overall responsibility for ensuring that
the Board understands the views of major shareholders.
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 Company 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 Company’s corporate
advisors is also shared with the Board.

• We hold regular meetings with JSC Georgia Capital’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

https://georgiacapital.ge/ is updated and reviewed
on a regular basis to ensure that information, including
matters relating to sustainability, are up to date. It provides
shareholders with access to the Company’s results,
press releases, investor presentations, analyst reports,
details on our corporate governance and corporate and
social responsibility framework and our leadership, as
well as other information relevant to our shareholders. We
also ensure that shareholders can access details of the
Company’s results and other news releases through the
London Stock Exchange’s Regulatory News Service.
• Please refer to the Resources and Responsibilities section
on page 84 of this report and the Sustainability Report
for further details on investor-led engagement activities
carried out throughout the year, and the output of
that engagement.

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CORPORATE GOVERNANCE FRAMEWORK CONTINUED

Key stakeholder

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
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.

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 Company’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
utility and renewable energy businesses are involved in
infrastructure programmes and ongoing structural market
reforms. Our auto service business contributes to overall
cleaner air and improved vehicle safety.

The Company 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.

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. Our Senior Independent Director volunteers
as Chairman of the Caucasus Nature Fund, a charitable
foundation providing financial and technical support
to Georgia’s national parks.

How this stakeholder group influenced the
Committee/Board agenda and decision-making

• 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.

• The Chairman and Senior Independent Director participated

in an off-site meeting with GHG in October 2020.

• 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 refer to the Resources and Responsibilities section
on page 84 of this report and the Sustainability Report
for further details on workforce engagement activities
carried out throughout the year, and the output of that
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. This is evidenced
in the Company’s Responsible Investment Policy.

•

• Please refer to the Resources and Responsibilities section
on page 84 of this report and the Sustainability Report
for further details on community engagement activities
carried out throughout the year, and the output of
that engagement.

Directors’ responsibilities
Statements explaining the responsibilities of the Directors for preparing
the Annual Report and financial statements can be found on page 167
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.

Division of responsibilities
The Board has adopted written statements setting out the respective
responsibilities of the Chairman, Senior Independent Director and
Non-Executive Directors. A summary of the responsibilities of the
Directors are set out below.

Chairman/CEO
• Guardian of the Board’s decision-making process.
• Ensures the Board as a whole plays a full and constructive part

in strategic decision making.

• Sets the Board agenda.
• Ensures the Board receives accurate, timely and clear information.
• Shapes the boardroom culture and sets clear expectations.
• Ensures a formal and rigorous evaluation of the Board takes place

each year.

• Responsible for running the Company’s business.
• Operational and strategic management of the Company.
• Develops the Group’s strategy and commercial objectives.
• Leads communication with stakeholders.

Senior Independent Director
• Provides a sounding board for the Chairman and serve as a trusted

intermediary for the other Directors.

• Responsibility for an orderly succession process for the Chairman.
• Available to Non-Executive Directors and shareholders if they have

concerns which normal channels fail to resolve.

• Meets with other Non-Executive Directors for an annual appraisal

of the Chairman’s performance.

Non-Executive Directors
• Provide constructive challenge and specialist advice.
• Provide strategic guidance.
• Take into account the views of shareholders and other stakeholders.
• Scrutinise the performance of management.

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. The Board 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 70 to 74.

For details on the management and mitigation of each principal risk see
pages 75 to 82.

The Group’s Viability Statement is detailed on pages 73.

Please refer to pages 137 to 142 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 70 to 74.

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
Company and its portfolio investments 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 AGM in May 2022. 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. Prior to the pandemic, most of the quarterly
Board meetings were held in Georgia, and dinners with the management
teams of portfolio companies were organised, which allowed for informal
exchange. The Senior Independent Director also spends time outside
Board meetings and meets informally with various staff. In October
2020, he and the Chairman participated in an off-site meeting of GHG
with about a dozen of GHG’s top management team. 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 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 which were held on a virtual platform.

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.

The Board intends to revert to its previous practice of holding quarterly
meetings in Georgia as soon as the current restrictions on international
travel are lifted.

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CORPORATE GOVERNANCE FRAMEWORK CONTINUED

INVESTMENT COMMITTEE REPORT

Please refer to the Resources and Responsibilities section on page 84 of
this report and the Sustainability Report for further details on workforce
engagement activities carried out throughout the year, and the output
of that engagement.

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.

Our office remained open throughout the year as there were no
lockdowns in 2021. Despite this, attendance at the office was entirely
voluntary. For our employees who decided to work from the office, we
ensured that they were able to work in a safe environment, following local
legislation and guidance. Distance and hybrid working environments
facilitated staff engagement through online platforms. Regular weekly
meetings organised by the CEO were held with senior and middle-
management. Messages from these meetings were cascaded down
to all employees.

In 2021, the following workforce engagement activities were performed
at the GCAP holding company level:
• Online seminar/contest about “staff engagement” across the

respective departments of the portfolio companies. The goal of this
seminar was to share best practices among portfolio companies and
incentivise top performers. All participants received symbolic prizes
and the event was concluded with dinner.
In the scope of performance management – exchanged upward,
downward and peer feedback. Through performance evaluation and
talent management process, several staff members were identified
and promoted.

•

• Several farewell events for the leaving employees were held at the

office in line with COVID-19 social distancing measures.

• Facilitate the planning process for “Nonviolent Communication”

training for middle and top management.
In December, we conducted a Staff Satisfaction survey.

•
• Employee recognition plan and social events.

Our portfolio companies are also actively pursuing workforce
engagement activities individually. This was emphasised by the
continuous sourcing of feedback. Along with an informative induction for
new employees, the businesses supported information sharing via email,
intranet, focus-groups and regular meetings (off-site meetings).

Additionally, our business leadership involved staff in the decision-
making process through access to seminar-style talks and online
portals. They continued online trainings, presentations, employee
surveys, workshops and lectures for employees covering topics
related to the challenges caused by the new reality and the pandemic.
This initiative included offering them tools and instruments on how to
overcome challenges, how to manage and motivate teams, and how
to deal with stress and time management.

During 2021, our businesses, and especially Georgia Healthcare Group
(GHG), largely focused on ensuring the performance and well-being of
our employees throughout the organisation as the COVID-19 pandemic
evolved, as well as “cultural transformations”. GHG also provided our
employees with information about our corporate culture, company
strategy and goals, performance-related risks, policies and procedures.
To increase the sense of safety and support experienced by employees,
each GHG company has continued the activities through the “COVID-19
coordination centre” which provides various support 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;

• Well-being support – conducting stress resilience webinars,

providing psychological support;

• Promoted COVID-19 Vaccination campaign; and
• Hotline to provide free medical consultations.

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 AGM, where there is an opportunity for individual
shareholders to question the Chairman and the Chairs of the principal
Board Committees.

After the AGM shareholders can talk informally with the Directors.

As recommended by the Code, all resolutions proposed at the 2022
AGM 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 AGM
regarding feedback received from shareholders and the subsequent
actions taken by the Company.

See page 215 for further shareholder information and page 130 for
further information on shareholder engagement.

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 88-89.

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 2021. The Investment Committee was established to
provide an independent and objective review of investment opportunities
and performance, within the scope of its Terms 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
Transactions1 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, the Committee focused on reviewing the strategies and
business plans of some of the portfolio companies as well as a number
of proposals from management.

•

Key purpose and responsibilities
The Investment Committee is responsible for managing all aspects of
investment policy and its strategy for the Company and provides oversight
of the Company’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 team; such recommendations to be
based upon in-depth, rigorous analysis (of business plans, financial
statements, projections, risks and rewards, fit with the Company’s
strategy, etc.) as well as the legal structure of the investment;

• considering divestment opportunities based upon the

recommendations of the executive management team; such
recommendations to be based upon the review of the potential
divestment target, assessment of the potential buyer universe,
analysis of the optimal transaction structure and a detailed outline
of institutionalised sales process to be followed;
reviewing the material commercial and legal terms of relevant
Major Transactions;

Kim Bradley
Chairman of the Investment Committee
24 March 2022

• assessing the risks and rewards and general attractiveness and

suitability of proposed Major Transactions;

• where it deems appropriate, making investment and divestment
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.

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INVESTMENT COMMITTEE REPORT CONTINUED

AUDIT AND VALUATION COMMITTEE REPORT

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 127 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 again made these visits very difficult 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 2022. The Committee continued to
revisit in detail the business plans and strategy of a number of portfolio
companies, with particular attention on the impact of COVID-19.

Elsewhere in this Annual Report you will read about how the Company
is responding to climate change and the new disclosures that it is
required to make. The Committee has been driving this and in February
2022 approved a new Responsible Investment Policy. The Policy is
integrated into our investment and portfolio management processes
and procedures. This enables environmental and social aspects to
be captured where they may directly or indirectly affect corporate and
portfolio company performance.

In 2021, the Committee reviewed and approved the buyout of the
minority shareholders in the retail (pharmacy) business, which will
be spread out over a six-year period. Following the initial pharmacy
businesses purchases in 2016 and 2017, GHG has held a 67% equity
stake in the combined retail (pharmacy) business and had a call option
on the minority stake, during the 12 months starting from January 2023.
The remaining 33% minority stakeholders, who are also the managing
partners of the retail business, had a put option for the minority stake
also during the 12 months starting from January 2023. The exercise
price of the call and put options were set at 6.0x and 4.5x EV/EBITDA
multiples, respectively, in 2017, based on the preceding financial year’s
results at the time of the exercise. The parties have renegotiated the initial
terms of the agreement and put/call options. Under the renegotiated
terms, the minority buyout transaction will be executed in six tranches at
5.25x EV/EBITDA multiple. The buyout provides better visibility for GHG
to manage its liquidity position through the newly agreed payment terms,
whilst also allowing GHG to increase the dividend inflows from the retail
(pharmacy) business.

The Committee also reviewed and approved the expansion of the K-12
education business in the affordable segment through the investment
projects in (1) the acquisition of an 81% equity interest in Georgian-
Austrian School Pesvebi, (2) the launch of a new (second) campus under
the existing affordable brand – Green School and (3) the expansion
of Green School’s existing campus. The Committee also reviewed
the performance and valuation of their investments including the wine
industry, retail market and the banking sector. The review considered an
updated wine investment strategy leading up to 2024 and the medium-
term business plan and capital allocations of the proposed strategy.

In 2021, the Committee was regularly updated and consulted on the
developments on the strategic priorities, announced in November
2020: a) realising the value of one large investment via a cash exit, and
b) divestment of subscale “other” portfolio companies, that do not offer
scalable growth potential. In 2021, the Company announced that its

wholly-owned subsidiary JSC Georgia Capital, which is the owner of
Georgia Global Utilities, a holding company for the GCAP’s water utility
business and the operational assets of its renewable energy business,
has agreed to sell an initial 80% of its equity interest in the water utility
business to FCC Aqualia, by way of a two-stage transaction, for a
cash consideration of US$ 180 million. The transaction values the
entire water utility business at US$ 225 million, a 30% premium to its
latest independent investment value at 30 June 2021, and marks the
achievement of a key strategic priority with the successful completion
of the full investment cycle of our strategy: to invest, grow and monetise
via a cash exit. See page 8 for details.

Under the Committee’s oversight, the Company also demonstrated
progress on the divestment of subscale assets. Since June 2021, the
Company successfully completed the sale to a combination of local
and regional investors of selected commercial real estate assets for
US$ 45.0 million with an 11.3% premium (US$ 4.6 million) to the book
value as of 31 March 2021. The proceeds from the sale were used to
repay the US$ 30 million bonds issued by the commercial real estate
business which matured on 31 December 2021. See page 11 for details.

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.

Despite the strong recovery of the Georgian economy from the shock of
the COVID-19 pandemic, we expect 2022 to still be a challenging year as
the uncertainties around new variants remain present. 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.

Priorities for 2022
• Closely monitor and collaborate with portfolio companies on recovery

pace, given uncertainty over continued fiscal stimulus in 2022.
• 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; and

• Monitor the implementation of the Responsible Investment Policy.

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 2021.

In 2021, the Committee focused principally on oversight of valuations
of private portfolio companies and related valuation policies and
procedures. The Committee reviewed in detail quarterly, half-yearly
and annual valuations of the Company’s private portfolio companies
and monitored compliance with the Valuation Policy and fair value
measurement under IFRS 13. Other key areas of focus in 2021 included:
the ongoing 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.
Although the economy in Georgia has recovered to some extent, as
in the rest of the world the pandemic continues to present challenges;

• oversight of the independent valuations of our large private

portfolio companies;

• consideration of the appointment of the external auditor through

a tender after the conclusion of the 2021 audit;

• a review of a Bond Tap Transaction by JSC Georgia Capital for a US$

65 million tap on its existing US$ 300 million Eurobond; and

• a review of the financial reporting implications of and reports relating

to the disposal of the water utility business.

The Committee has also continued to oversee the activities of the Internal
Audit function, receiving reports of all internal audit activity and tracking
follow up actions arising from those audits. Since completion of the
GHG share exchange transaction in 2020, the Committee’s oversight
expanded to include the activities of the Internal Audit functions at the
GHG businesses (Healthcare Services, Retail (pharmacy) and Medical
Insurance), which have been reporting to Georgia Capital’s Internal Auditor.
Accordingly, in 2021, the Committee reviewed a detailed report on the
internal audit function of GHG. In 2022 members of the Committee will
meet with GHG’s Clinical and Safety Committee to gain a more detailed
understanding of the Clinical audit work within that business.

Shareholders will recall that following the demerger in 2018, the Company
undertook a tender exercise for the provision of external audit and audit-
related services for the three years (2019, 2020 and 2021) beginning with
the review of Financial Statements for six months ending 30 June 2019
and audit of Financial Statements for the year ending 31 December 2019.
Consequently, at the beginning of 2022, the Committee conducted a full

tender process for the provision of external audit and audit-related services
which is described in more detail later in this Report.

The Committee devotes significant time to its tasks and met ten times
during the year. Unfortunately, given the pandemic, all of our meetings in
2021 were held virtually, although I was able to travel to Georgia to be with
management for one of the meetings. Notwithstanding the limitations of
virtual meetings, we believe that 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
24 March 2022

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 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 during the year were David Morrison
(Chairman), 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 of its 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.

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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. As reported elsewhere, Caroline Brown will not be seeking
re-election to the Board at the forthcoming AGM and therefore ceases to
be a Director of the Company from the conclusion of the AGM on 20 May
2022. I would like to thank Caroline for her invaluable help as a member
of this Committee since the demerger. I am delighted that Kim Bradley
will join the Committee from 20 May 2022. Kim brings to the Committee
very significant experience having previously served as chairman of the
BGEO Group PLC Risk Committee and as a member of its Audit and
Nomination Committees. Kim spent 15 years at Goldman Sachs during
which time he participated on valuation committees covering all asset
types. He also led Goldman Sachs’ asset management affiliates in
France, Italy and Germany, where his responsibilities included working
closely with the Management and Control Division (internal audit)
on both the scope and response to annual audits. This experience,
together with Kim’s position as chairman of the Investment Committee
will be of significant benefit and enhance the Committee’s oversight of
valuation processes and its overall effectiveness. Massimo Gesua’ sive
Salvadori’s extensive experience of valuations is particularly valuable
to the Committee since the private portfolio companies’ valuation is
the key area of focus in Georgia Capital’s financial accounting and
reporting. His expertise and understanding of value drivers is highly
beneficial for the Committee in discharging its responsibilities and will

continue to be important going forward. More detailed biographies
of the Committee members are set out on pages 124-125. The Audit
and Valuation Committee held ten meetings during the year, and the
meeting attendance during the year can be seen on page 129. 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 and Valuation, Head of Finance and
Head of Internal Audit.

In addition, representatives of Ernst & Young LLP (EY), the Company’s
external auditor were 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 prior years, 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.

Activities of the Committee in 2021
The table below summarises the Committee activity during 2021.

Area of focus

Core activities

Financial
reporting

• 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).

• 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.

• Reviewed overall presentation of APMs, evaluated clarity of reconciliations and challenged the nature of adjusting items.

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.

• Provided oversight over independent valuation of large private 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 climate change and 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 which included considerations in respect of internal controls.
• Reviewed the Company’s principal risks and uncertainties statement included in the Annual Report and supporting stress

Internal Audit

External audit

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. Risks relating to climate change and COVID-19 were monitored regularly
throughout the year.

• Reviewed reports of internal audits and monitored findings, action points and follow up actions arising from audit visits.
• A more detailed review of the internal audit functions within Georgia Healthcare Group.
• Approved 2022 Internal Audit Plan.
• Monitored and reviewed the effectiveness of the Company’s Internal Audit function.
• Approved the annual budget for the Internal Audit function.
• New Head of Internal Audit appointed.

• Monitored the effectiveness and performance of EY.
• Conducted an annual evaluation of external audit effectiveness.
• Reviewed and confirmed the objectivity and independence of the external auditor.
• Reviewed the 2021 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 and monitored compliance as well as independence in relation to the non-audit services.
• Considered and decided to conduct an external audit tender process for 2022.

Area of focus

Core activities

Governance

• Reviewed governance processes in place to oversee valuation of portfolio companies.
• Reviewed Terms of Reference of the Committee.
• Reviewed work of reporting accountant and listing documents in relation to the bond tap issue by JSC Georgia Capital.
• Reviewed the respective documents in relation to the disposal of the water utility business.
• Evaluated the effectiveness of the Committee.
• Reviewed proposed changes to the Company’s Non-Audit Services Policy to address new ethical standards announced

by the FCA.

Significant accounting
and financial judgement
matters considered

Portfolio company
fair value estimation
and disclosure

Going concern
and viability

How the Committee addressed the matter

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. The Committee
also reviewed and challenged the independence of the third-party valuation experts and the appropriateness of
their scope of work.

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 and challenged
whether investment entity accounting remains appropriate. The Committee considered in discussions with the external
auditor the methods used to account for significant or unusual valuations where different approaches are possible
(unusual valuations include first-time valuations of the greenfield projects and valuation of a private portfolio companies
at sale price). The Committee also challenged the implications relating to climate change and COVID-19 in the
valuations of the Company’s portfolio investments. 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 ongoing impact of the COVID-19 crisis. The Committee
reviewed and challenged the robustness of stress testing, 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.

Key activity highlights
Financial reporting and valuation
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
valuation of GHG Healthcare Services as its first full year as part of the
private portfolio of Georgia Capital and the resulting adjustments to the
Group’s strategy and refocusing of the portfolio.

A principal responsibility of the Committee is to consider the significant
areas of complexity, 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.

Over the course of 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.

As the investment portfolio comprises a number of private companies,
the Committee and our external auditors spend a significant amount
of time considering and challenging management’s valuations.
The assessment of fair value is subjective and requires a number of
significant and complex judgements to be made by management.
In 2021, the Committee oversaw the independent valuations, performed
by third-party valuation experts, establishing fair value ranges for all large
private portfolio companies (Healthcare Services, Retail (pharmacy),
Water Utility and Insurance) as at 30 June 2021 and 31 December
2021. For these businesses, the valuation methodology applied by
the independent experts were reviewed in detail by the Committee,

as well as key assumptions used and the most appropriate point in
the established range was selected for each business. 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. The Committee also ensured that the valuations
reflected the climate change and COVID-19-related implications on the
future business plans of portfolio companies. Full details on our valuation
policies and procedures which are overseen by the Committee can
be found on page 73 (please see valuation workgroup) and page 103
(please see valuation methodology).

The finance team under the supervision of the Committee, considers the
suitability of the accounting policies which have been adopted, ensuring
that key reporting estimates and judgements were appropriate, including
the assessment of appropriateness of continuing the investment entity
accounting, and ensuring that the external auditors were afforded timely
and full access to relevant information.

Using our own independent knowledge of the Company and its
portfolio investments, 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. When considering financial
reporting, the Committee assesses compliance with relevant accounting
standards, regulations and governance codes. In particular, the
Committee continues its robust review of going concern and viability
assessments under a number of scenarios.

Fair, balanced and understandable reporting
The Committee reviewed quarterly, half yearly and annual financial
statements and performance updates. It assessed whether they provide
a true and fair view of the Company’s affairs for the period and provide

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shareholders with the necessary information in a fair, balanced and
understandable way in order to enable them to assess the Company’s
position, performance, business model and strategy.

As part of that review, the Committee considered the APMs 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 APMs, including the
applicable IFRS reconciliations, on pages 98-102 of the Annual Report.
In reviewing the 2021 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 Company’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 Annual Report
was fair, balanced and understandable:

Is the Annual Report fair?

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 the Annual Report balanced?

Is the Annual Report
understandable?

•
•
•

•
•

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 APMs?

Is there a clear and understandable framework to the Annual Report?
Is the Annual Report presented in straightforward language and a user-friendly and easy to understand
manner?

• Does the Annual Report provide sufficient information to understand the Company’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 Company to ensure balance
and consistency;
reviewed several drafts of the 2021 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 Company’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 Annual Report and Accounts is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company’s performance, business model
and strategy.

Risk management and control environment: Internal Audit
The Committee assists the Board in fulfilling its responsibility to review
the adequacy and effectiveness of the controls over financial reporting
and risk. Where areas for improvement are identified, the Committee
ensures that there are the correct processes in place to effectively take
action to address them. Further information on risk management and
internal controls can be found on pages 70-74.

The Committee is supported by a number of sources of internal
assurance within the Company 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
implementation of 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 of the internal audit visits planned for 2021
have been incorporated into the 2022 Internal Audit Plan, which has
been approved by the Committee. The Committee has satisfied itself
that this change to the 2021 Internal Audit Plan did not give rise to any
material increase in risk.

With respect to external assurance, over the course of 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. Near the end of the year
our Head of Internal Audit left the Company and Georgia to pursue an
opportunity abroad. A new Head has been in place since December.

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 Company and its portfolio
investments’ business and the external environment. During the year,
Internal Audit provided assurance across a range of areas, including the
investment evaluation process in hospitality, budgeting and cost control
in housing development, capital expenditures in water utility and the
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; and
reviewed audit fees.

•

Auditor
EY was appointed by the Board as the statutory auditor in 2018,
following a competitive tender process, and was re-appointed by
shareholders at the 2021 AGM.

Audit tender
For the audit of the Financial Statements in this Annual Report, the
Company complied with the mandatory audit processes and the
Committee complied with the responsibility provisions set out in terms
of the Competition and Markets Authority Statutory Audit Services Order
2014 (“CMA Order”) relating to: (a) putting the audit services engagement
on tender every ten years; and (b) strengthening the accountability of
the external auditors to the Committee, including: requiring that only
the Committee is permitted to agree to the external auditors’ fees and
scope of services; influence the appointment of the audit engagement
partner; make recommendations regarding the appointment of auditors;
and authorise the auditors to carry out non-audit services. Following
the demerger and our listing in May 2018, the Committee conducted a
full tender amongst appropriate firms for the statutory audit and related
services of the Group. The tender was for the provision of external audit
and audit-related services for the three years (2019, 2020 and 2021)
beginning with the review of Financial Statements for six months ending
30 June 2019 and audit of Financial Statements for the year ending
31 December 2019. Consequently, a further tender process has been
conducted for the provision of external audit services for three years
(2022, 2023 and 2024) beginning with the review of Financial Statements
for six months ending 30 June 2022 and audit of Financial Statements
for the year ending 31 December 2022 as described below.

Request for proposal
Requests for Proposals/Invitations to Tender (RFPs) were sent in the
fourth quarter of 2021, including to firms outside of the “Big Four” audit
companies. These were selected as those most likely to fulfil the criteria

in particular for capability, competence and audit quality across their
UK and Georgian teams. The RFP explained that the tender was for
the periods stated above and that the auditor would also be subject to
re-appointment at the Company’s Annual General Meetings. The RFP
outlined that Georgia Capital’s objectives for the tender process were to:
• secure high-quality external audit services;
• appoint a firm who will provide high standards of professional

service; and

• appoint a firm that will provide excellent value for money.

To ensure all participating firms had equal and sufficient information to
understand the Group’s business, the RFP provided general information
about the business, timeline and description of tender process, outline of
evaluation criteria, scope of work and tender response format. The RFP
contained detailed information on the required contents of the proposals
from the firms. We received responses from a number of companies
who confirmed their willingness to participate in the tender process,
confirmed their independence and signed non-disclosure agreements.

Tender process
All firms who confirmed participation had access to equal and sufficient
information to understand the Group’s business through data room,
including historical financial information, Group structure, Group
accounting policies, and risk management and internal audit processes
outlines. The firms also had access to publicly available information, and
to the management of Georgia Capital. All firms provided a proposal and
were invited to present to the Committee in February-March 2022. All
Committee members attended all face to face presentations alongside
the CFO and Head of Technical Accounting and Valuation. Attendees
from the firms were a combination of their UK and Georgian based
teams, and each was given adequate time to present, including time for
Q&As with the Audit and Valuation Committee.

The RFP had set out the criteria that the Committee used in making
a recommendation to the Board on auditor appointment. These were
broken down as follows, with each section given equal weighting:
• capability and competence;
• audit quality and service quality;
• behaviour and deliverables; and
• pricing.

A summary of the proposal was prepared for each firm and circulated
to Committee members along with the full proposals. The Committee
discussed the strengths and weaknesses of each firm. Based on this
process, the Committee determined that PricewaterhouseCoopers
LLP (“PwC”) had the highest capability, competence and quality
for the role. The Committee recommended two firms to the Board
for it to consider for the provision of external audit and audit-related
services indicating a preference for PwC. This recommendation was
accepted by the Board and separate resolutions proposing PwC’s
appointment and determination of PwC’s remuneration by the Audit and
Valuation Committee will be proposed at the 2022 AGM. In making this
recommendation, the Committee confirmed in accordance with clause
489(5) of the Companies Act that: (i) they were free from the influence of
a third party; and (ii) there was no contractual term of the kind mentioned
in The Statutory Auditors and Third Country Auditors (Amendment) (EU
Exit) Regulations 2019 restricting the choice by the general meeting of
shareholders as regards the appointment of a particular statutory auditor
or audit firm. The results of the audit tender will also be communicated
to shareholders via an RNS announcement. PwC has appointed Allan
McGrath as our lead partner.

The external auditor is required to rotate the audit partner responsible for
the Group at least every five years. Following the successfully completed
tender for the provision of external audit services this year, the Group
will be required to put the external audit contract out to tender no later
than 2031.

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Georgia Capital PLC Annual Report 2021

143

AUDIT AND VALUATION COMMITTEE REPORT CONTINUED

DIRECTORS’ REMUNERATION REPORT

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
and nature 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 2021,
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 Company’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 2021 is below 1:1. Non-
audit fees relate to offering circular related work in connection with the
disposal of water utility business. As indicated in Note 9 of the audited
IFRS financial statements for 2021, the total fees paid to EY for the year
ended 31 December 2021 was GEL 2.0 million. The Audit and Valuation
Committee is of the view that engaging EY on occasions for non-audit
work of this kind 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 2021, 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 Committee 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 Company’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 2021.

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 2022
Our priorities for 2022 include among others, continued focus on:
• monitoring new and emerging risks, including the effects on the
Group of the tragic war in Ukraine and the Company’s and its
portfolio investments’ continued response to the COVID-19 pandemic
and climate change;

• monitoring the appropriateness of the use and application of

investment entity basis accounting in accordance with IFRS 10, with
a focus on monitoring compliance with the Company’s Valuation
Policy, individual portfolio company valuations and the effectiveness
of external valuations;

• ensuring continued integrity and balance in the Company’s

financial reporting;

•

• monitoring the control environment and its appropriate roll-out at the
various portfolio companies, including oversight of the new Head of
Internal Audit and his integration into the control environment;
integration of clinical risk review in our risk control framework
following the GHG buyout;
the continued evolution of compliance with TCFD requirements;
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; and

•
•

• completion of audit tender process and the appointment of the

external auditor.

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 2021 and the renewed Directors’ Remuneration
Policy for your approval in accordance with the three-year cycle.

• Shareholding guidelines with an equivalent of 200% of salary

(as compensation vests in tranches, the shareholding is built up
organically). Shareholding requirements are to be maintained for
two years post-employment.

We continue to believe that our Executive Director should fully share
the shareholder experience and we believe that our highly unusual
shareholder-aligned approach to remuneration should be retained.

We continue to take into account strong shareholder support for and
feedback on the existing structure and on the implementation of the
existing Policy to date.

Given this, we are proposing that our existing Remuneration Policy
be renewed for a further three years (the revised or renewed Policy).
Irakli Gilauri’s salary, as well as his performance-based remuneration,
will continue to be comprised of deferred shares alone. Salary and
the maximum opportunity for the performance-based remuneration
(discretionary deferred shares) are set in a number of shares (rather than
a cash figure, which could translate to a higher number of shares when
awarded at a lower share price). Moreover, the renewed Policy retains
the same number of shares for salary and for the maximum opportunity
as we presented to shareholders for their approval three years ago –
there is no increase in salary nor incentive.

2021 has been a transformational year for Georgia Capital, in which
our financial outperformance targets have been exceeded and the
agreed sale of the water utility business has been a significant strategic
achievement. We invite you to read more about our pay structure, policy
and pay for performance below.

Overview of the remuneration structure and shareholder
views and engagement
The existing Directors’ Remuneration Policy (the Policy) was passed in
the 2019 AGM with 99% approval. The Directors’ Remuneration Report
received 98% approval at the 2021 AGM. The Committee has been
strongly encouraged by this level of shareholder support. As noted
above, we are not proposing any change to the existing Policy and we
are seeking approval of the renewed Policy for a further three years.

• Both fixed salary and variable compensation vest over several years

and Irakli Gilauri has no cash salary.

• Malus and clawback provisions are consistent with best practice and
are detailed below. Unusually, malus may also be triggered in certain
circumstances over the salary shares.

The annual salary for our current Executive Director is 200,000 deferred
shares and the maximum discretionary opportunity is also 200,000
shares. The Remuneration Committee reserves discretion to vary the
amount of any component in the package up to the limits set out in the
Policy table in relation to new Executive Directors.

Ahead of proposing to ask shareholders to approve our current Policy,
members of the Remuneration Committee (including myself) and the
Senior Independent Director engaged extensively with our investors
through a combination of letters, calls and meetings. Shareholder
engagement has continued ahead of the renewal of the Policy. The
Committee appreciated and actioned investor feedback on the
enhanced disclosure of the CEO KPIs, weightings and of the range of
minimum, threshold and maximum performance as included in the 2020
Directors’ Remuneration Report and, as a result, has kept the same
structure for this year’s report. Pursuant to investor feedback this year,
we have also increased the weighting on the key strategic KPIs.

Since the approval of the current Policy three years ago we note that
shareholders and proxy advisory groups now prefer that companies explain
the mechanisms of enforcement of their malus provisions. Accordingly,
we wish to disclose that malus and clawback triggers are set out in
the Executive Director’s contract and therefore are legally enforceable.
Furthermore, under the rules of the share plan, the trustee may cause
shares to lapse (malus) or to be recovered (clawback) including in
accordance with the provisions of the Executive Director’s contract. Lastly,
as part of each grant process, the Executive Director signs a confirmation
that they agree to be bound by the terms and conditions set out in the rules
of the share plan, including the malus and clawback provisions.

The structure of the Policy follows relevant guidance including:
• Executive pension contributed by the Company to be the same
as for employees (although our CEO Irakli Gilauri has waived his
pension entitlement).

The Committee also confirms that the 200% Shareholding Requirement
to be built up and held for two years post-employment, is included as an
express provision in Irakli Gilauri’s contract and further unvested shares
(remuneration vests in tranches) are held in the employee benefit trust.

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Georgia Capital PLC Annual Report 2021

145

DIRECTORS’ REMUNERATION REPORT CONTINUED

As part of its responsibilities and in conjunction with the renewed
Policy to be put to shareholders, the Committee considered workforce
compensation. This covered compensation, pension, benefits, leave
and working hours, training and development and number of staff
by salary band. This was covered at the holding company level,
and the Committee also considered the same for the main portfolio
businesses including Water Utility, Renewables, Healthcare, Pharmacy,
Health Insurance, P&C Insurance, Education, Beverages, Hospitality,
Commercial Real Estate, Auto Service and Distribution.

In early 2021, in response to employee consultation and feedback
that the current workforce remuneration structure had a low levels of
personal incentive and in order to be pro-active in executing the new
Group strategy, the Committee oversaw the restructuring of portfolio
companies’ executive management compensation. To effect this, the
remuneration of certain portfolio companies CEOs and their executive
management was adapted to a mix of phantom (proxy) portfolio
company shares and cash salary, discretionary share bonus opportunity
and discretionary cash bonus opportunity. The Company’s share salary
element and the related bonus opportunity in Company shares was
removed from these portfolio companies’ employee compensation.

Kim Bradley is the Company’s designated Non-Executive Director for
workforce engagement, and one of the members of the Remuneration
Committee. Employees are able to raise matters relating to the workforce
(including remuneration) through Kim and further details of engagement
with the workforce can be found on page 133 in the Corporate
Governance Framework. There are only c.40 employees at the holding
company level.

As detailed elsewhere in this report and in the Group’s newly launched
Sustainability Report, the Group is currently further developing its
understanding of climate change and approach to ESG. Kim Bradley
attended a workshop with the TCFD consultants and management
in November to understand and inform the Company’s developing
approach. The correlation between ESG and the share price of
companies is becoming increasingly established. From a remuneration
perspective, the Committee notes that the majority of compensation
delivered to executive management is in shares, or phantom (proxy)
shares, which are deferred for several years. The Committee also retains
ultimate discretion over performance-based remuneration. Therefore, the
incentive structure for executive management is naturally geared towards
the medium to long-term success of our Group and does not raise ESG
risks by inadvertently motivating irresponsible behaviour.

Committee responsibilities and Non-Executive Director fees
From 31 December 2019 the remit of the Audit Committee increased,
and it became the Audit and Valuation Committee at PLC level, as did
the Committee at JSC level in line with the mirror board structure. In
accordance with the Policy, the remuneration of Committee members
may be reviewed from time to time, which may take into account the
time, commitment and technical skills required of that role. Given the
expanded role of the Audit Committees, it was determined that the
Committee fees should increase. However, as stated in last year’s
Annual Report, the Board froze the increase of fees during 2020 to
reflect the impact of COVID-19. The fees of the members and Chair
therefore increased from the later date of 1 January 2021 which reflected
the increased responsibilities and time commitment of review and
oversight of the Valuation Policy and its implementation, considering and
challenging valuations, considering reporting on valuations and review
and challenging procedures of valuation. Their work is summarised in
the Audit and Valuation Committee report on pages 137 to 142. The fees
of the Nomination Committee were also reinstated in 2021, having been
waived in consideration of the COVID-19 pandemic from 1 April 2020
to 31 December 2020 (during which time the Chair only received the
difference between his fee and the member’s fee).

The renewed Policy does not propose any changes to the section
covering the Non-Executive Directors fees.

Effectiveness review
An external review of the Committee’s effectiveness was facilitated
by Lintstock Ltd. The quality of information was very highly rated, and
engagement with management was considered to be frank and detailed.
Remuneration policy was considered to be heavily aligned to shareholder
expectations due to the high proportion of share-based remuneration
and the Committee considered that measures were set carefully to
closely reflect Group strategy. The Committee wished nevertheless to
continue to keep an open mind on its approach to remuneration and
remain receptive to feedback. Further to the feedback of members of the
Committee, the Committee considered that a deeper dive into the wider
workforce remuneration would be a priority in 2022.

Jyrki Talvitie
Chairman of the Remuneration Committee
24 March 2022

What’s in this report
This Directors’ Remuneration Report is split into two sections:
• The new Directors’ Remuneration Policy (set out on pages 146 to 153) which will be voted on at the 2022 AGM. Subject to approval by

shareholders, the new Policy will apply from the date of the AGM.

• The Annual Report on Remuneration (set out on pages 143 to 163) which includes the Annual Statement by the Chair of the Remuneration
Committee, describes the implementation of Georgia Capital PLC Directors’ existing Remuneration Policy and discloses the amounts
earned relating to the year ended 31 December 2021.

The 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 report has been prepared in line with the recommendations of the Code and the requirements
of the FCA Listing Rules.

Changes to the Policy
Given strong shareholder support, we are not proposing to make any
change to the Policy. It is intended that the renewed Policy will be a
continuation of the current Policy. Changes in wording are to illustrate the
vesting years and to disclose that share plan rules covering malus and
clawback have been implemented as promised in the current Policy.

represents a 30% premium to its independent investment value at
30 June 2021 and translates into 2.7x MOIC in US$ (3.6x MOIC in GEL)
and 20% IRR in US$ (27% IRR in GEL). The disposal also has a very
significant positive impact on the Group’s leverage profile, reducing the
market value leverage from 24.2% as at 31 December 2021 to 19.2%.

2021 performance outcomes
The Remuneration Committee agreed that 2021 was a significant year
for Georgia Capital in which, under Mr Gilauri’s leadership, the Group
exceeded all financial targets. In addition to the Water Utility disposal, the
following notable events took place:
1) demonstrating continued progress towards the Group priority to

divest, over 2-3 years, the subscale portfolio companies which do
not have the potential to reach GEL 500 million equity by the sale
of US$45 million commercial real estate properties with an 11.3%
premium to their book value as of 31 March 2021, translating into 2.1x
MOIC in US$ terms;

2) buyout of the minority shareholders in the retail (pharmacy)

business, agreed at renegotiated terms, which provides the path to
GCAP’s 100% ownership and stretching over six-years/tranches at
5.25x EV/EBITDA multiple;

3) expansion of the education business in the affordable segment
through several investments, in line with the capital allocation
programme;

4) resumption of the Group’s share buyback and cancellation
programme in August 2021 in line with its capital allocation
framework; and

5) US$ 65 million Eurobond tap issuance in March 2021 enhanced

liquidity and demonstrated the Group’s superior access to
international capital markets.

The sale represents the Group’s most significant monetisation event
to date and marks the completion of the full investment cycle for one
of the Group’s large businesses, from acquisition and development to
cash exit. The Remuneration Committee were pleased to note that the
resolution on the transaction received 100% shareholder approval at the
General Meeting on 31 January 2022.

The Committee consideration of the CEO’s performance in light of
this and further against the KPIs is set out in “Basis for determining
Mr Gilauri’s discretionary share compensation in respect of 2021” below.

Given this achievement of the number one strategic priority ahead of
schedule and at a 30% premium to its independent investment value,
whilst also noting overall pay for performance and the stakeholder
experience, the Remuneration Committee decided to exercise their
discretion and award a further 3.25% of maximum discretionary deferred
shares opportunity (6,500 shares).

We note in respect of the stakeholder experience, no holding level
companies’ employees were made redundant during the year. None
of the Group companies required support from the Georgian or UK
Governments and the furlough scheme has not been utilised. The
foregoing applies to 2020 and 2021. In 2021, the Company also began a
share buyback programme which continues to receive positive feedback
from shareholders.

As the portfolio companies continued to deliver on their strategic
priorities, NAV per share increased by an extraordinary 31% overall and
24% for the private portfolio value. The Committee notes that this is a key
metric for shareholders and that this has more than doubled since the
start of the COVID-19 pandemic.

As explained in the Policy section above, Irakli Gilauri’s maximum bonus
opportunity is linked to a number of fixed shares rather than a salary
amount and therefore a fall in the Company’s share price does not result
in a higher number of shares being awarded. There is no “windfall”
effect. There is also no cash bonus and no LTIP.

GCAP standalone income far exceeded the outperformance budget
at GEL 681 million. GCAP standalone flow of cash and liquid funds
stood at GEL 97 million, even while the popular buyback programme
was reinstated in line with the capital allocation programme. Expense
ratio achieved the outperformance of the budget at 1.7%. The portfolio
companies aggregate revenue increased to GEL 1,964 million and
aggregate cash flow to GEL 365 million. The strategic priorities of the
group were outperformed as detailed in the KPI table, and the portfolio
companies achieved strong results in progressing towards their mid-to-
long term priorities.

The Group’s key short-term strategic priority, as announced at the
November 2020 Investor Day and which had received positive feedback
from investors, was to dispose of one of its large portfolio companies.
The disposal of the 80% stake in the water utility business was delivered
ahead of time, and at a 30% premium to its independent valuation. The
value achieved of US$ 180 million, for 80% of the water utility business

For 2021, we have awarded Irakli Gilauri, our CEO, an annual bonus
of 200,000 deferred shares which will vest over four years and are
subject to a further one year holding period. The explanation of how
this is decided is set out in section “Basis for determining Mr Gilauri’s
discretionary share compensation in respect of 2021” below. We did
not change our implementation of the Policy in 2021.

Other Remuneration Committee activities and
workforce engagement
The Committee received updates on wider market trends on market
overview of remuneration practices and topics of investor focus. While
our remuneration structure remains highly unusual, it was noted that
on key areas such as pension, shareholding guidelines and malus
and clawback protections, the Company continued to implement best
practice. The Committee also noted benchmarking and remuneration
trends, such as the changes in incentives by type, their usage and
by sector.

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DIRECTORS’ REMUNERATION POLICY
Given strong shareholder support for the existing Policy in 2019, for our Remuneration Reports in 2019, 2020 and 2021 and in shareholder
consultation, it is proposed that the existing Directors’ Remuneration Policy shall be renewed for a further three years. We have updated some of
the notes to the Policy for illustrative purposes (with respect to the vesting years) and we have disclosed that share plan rules covering malus and
clawback have been implemented as promised in the current Policy. Changes are highlighted in gold below for convenience.

The Remuneration Committee is satisfied that the Policy is highly aligned with the shareholder experience and functions
as intended.

Subject to shareholder approval, the renewed Policy will take effect from the date of the 2022 AGM and will become
formally effective for the three years following that date. It is a provision of the Policy that the Group will honour all pre-existing
obligations and commitments that were entered into prior to the Policy taking effect. The terms of those pre-existing obligations and commitments
may differ from the terms of the Policy and may include (without limitation) obligations and commitments under service agreements, deferred share
remuneration schemes and pension and benefit plans.

The Remuneration Committee retains its discretion under the renewed Policy to make minor amendments to the Policy for regulatory exchange
control, tax or administrative purposes or to take account of a change in legislation without obtaining prior shareholder approval.

Executive Directors Remuneration Policy
The Policy provides for an Executive Director’s remuneration package to be comprised of the elements set forth below. For the avoidance of doubt,
all references to Executive Directors refer to the Executive Directors of Georgia Capital PLC to cover the present Executive Director, Irakli Gilauri,
and any future Executive Directors of Georgia Capital PLC whilst the Policy is in force. The compensation structure of executive management (who
serve on the Management Board of JSC Georgia Capital, but who are not Executive Directors of Georgia Capital PLC) is set by the Remuneration
Committee and is modelled on the Policy (except that they may receive a part of their salary in cash) but the Remuneration Committee is not bound
by the Policy when setting their remuneration packages. The Remuneration Committee can set different vesting terms and conditions for the
executive management team as the Remuneration Committee thinks appropriate.

Salary in the form of long-term deferred shares

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.

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.

• The number of deferred share salary is

fixed for the duration of the employment
contracts with Georgia Capital PLC and
JSC Georgia Capital.

• The maximum number of deferred share
salary set for an Executive Director will
be no more than the Remuneration
Committee considers reasonable based
on his/her duties, skills and experience, at
the time when his/her salary is set, which
will normally be at the time at which his/
her service agreement(s) are entered into.

Operation
• The level of base salary for an Executive Director is fixed in his
or her service agreement(s). The level of salary is reviewed by
the Remuneration Committee when a service agreement is up
for renewal.

• No cash salary. 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, and is usually expected to
be awarded within one month of the end of the work year, although
the Remuneration Committee retains the discretion to determine
the timing of the award.

• Deferred share salary in respect of a work year will 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 will receive (in addition to the deferred share
salary) 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.

• Lapse provisions (natural malus) are built into the deferred share salary

as set out in the “Service agreements and policy on payments for
loss of office for our Directors” section below. Extended malus and
clawback provisions do not apply to base salary as the Remuneration
Committee considers that the discretionary deferred shares provide
a sufficiently large pool from which to draw extended malus or
clawback repayments, if necessary in the circumstances to do so.

Performance-based remuneration – discretionary deferred shares

Purpose and link to strategy
• To motivate and reward an

Opportunity
• For Mr Gilauri, the maximum number of

Operation
• Performance-based remuneration is awarded annually entirely in

Executive Director that meets
or exceeds the KPIs set for him
or her by the Remuneration
Committee for the
relevant period.

• Performance-based

remuneration solely in the form
of discretionary deferred shares
(no cash bonus) in order to:

– Closely align the interests
of an Executive Director
with shareholders.

– Minimise risk taking for short-

term gain.

– Encourage long-term

commitment to the Group.

discretionary deferred shares that may be
awarded is capped at 200,000 shares (i.e.
100% of deferred share salary).

the form of nil-cost options over the Group shares subject to vesting
(“discretionary deferred shares”). The Group does not award cash
bonuses to Executive Directors of Georgia Capital PLC.

• For an Executive Director (other than

Mr Gilauri), the maximum opportunity in
respect of the previous work year is 100%
of total salary.

• The Remuneration Committee will determine annually whether an
award is merited based on an Executive Director’s achievement of
the KPIs set for the work year and the performance of the Group
during the work year. If appropriate, where a strategic change or
change in business circumstances has made one or more of the
KPIs an inaccurate gauge of an Executive Director’s performance,
the Remuneration Committee may decide to base its assessment
on alternative measures. The outcome of an Executive Director’s
performance and the Remuneration Committee’s determination will
be reported in the Directors’ Remuneration Report for the work year
in consideration.

• 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, an Executive Director receives cash payments equal to
the dividends paid on the underlying shares between beginning of
the year immediately following the work year and the vesting date.

• KPIs for an Executive Director are set towards the beginning of each
work year and reflect each 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.

• 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.

• Lapse provisions (natural malus) and extended clawback and

malus applies under the circumstances as set out in the notes
to this Policy table.

Pension

Purpose and link to strategy
• The Group is required

Opportunity
• Pension provision will be in line with

Operation
• The same arrangement applies to employees across the Group

to comply with pension
requirements set by the
Georgian Government.

• Pension provision is the same
for all employees in the Group
in Georgia.

Georgian pension legislation, which may
change from time to time.

• There is no provision for the recovery or

withholding of pension payments.

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.

Opportunity
• There is no prescribed maximum amount
payable. 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.

• Shareholders should note that the cost of
providing comparable benefits in different
jurisdictions may vary widely.

• Disclosure of amounts paid will be

provided in the implementation report and
will be explained where the cost of benefit
is significant.

in Georgia.

• In line with current Georgian legislation, an Executive Director and
the Group each contribute 0-2% of total remuneration from JSC
Georgia Capital and the Georgian Government contributes a further
small amount currently 0-2% depending on income levels. However,
Irakli Gilauri has agreed for pension contributions to be waived.

• Pension contributors will only increase above the level if mandated by
Georgian legislation or if mandated by any other applicable legislation
in any jurisdiction.

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.

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Other Executive Director policies – shareholding requirements

Purpose and link to strategy
• To further align Executive Directors’ interests with shareholders.

Operation
• Executive Directors are required to build and then maintain a

• To ensure Executive Directors build and then maintain a significant

shareholding over the long term.

• To ensure departing Executive Directors make long-term decisions and

maintain an interest in the ongoing success of the Group post-employment.

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”).

• For these purposes all beneficially owned shares as well
as unvested (net of tax) and vested deferred share salary
and discretionary deferred shares will count towards the
Required Shareholding (as such awards are not subject
to any performance conditions).

• 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 the discretion in the Group’s next
Remuneration Report. It should be emphasised that there is
no present intention to use the discretion.

Notes to the Policy table – Executive Directors
Deferred share salary
At present there is no cash salary. The Remuneration Committee may determine that some cash salary is appropriate for an incoming Director (see
“Approach to recruitment remuneration”).

The deferred share salary comprises the most important element of the Executive Director’s fixed annual remuneration and is commensurate
with the Executive Director’s role within the Group. Paying salary as deferred share compensation rather than as cash means that the Executive
Director’s day-to-day actions are geared towards sustained Group performance over the long term. The deferred share salary component is neither
a bonus nor an LTIP, it is salary fixed at the outset of each Executive Director’s service contract and is therefore not subject to performance targets
or measures. The salary increases or declines in value depending on Group performance, aligning an Executive Director’s interests directly and
naturally with those of the Group’s shareholders.

While it is not the current intention, the Remuneration Committee has the discretion under the Policy to increase the amount of deferred share salary
for incoming Executive Directors (i.e. not for the current CEO) by 10%.

Performance-based remuneration
Performance is measured entirely through the discretionary deferred share compensation plan (see “Discretionary deferred remuneration”, below),
which measures performance over the financial year. The vast majority of remuneration is inherently linked to performance and shareholder value
as the vast majority of remuneration is in the form of deferred share salary and discretionary deferred shares. The Group does not operate an LTIP
because it believes that there is sufficient long-term incentive built into its deferred share salary and discretionary deferred share remuneration.

Discretionary deferred remuneration
Performance is measured over the course of the financial year, and is paid in nil-cost options, which are granted following the financial year and
vest 25% in each of the second, third, fourth and fifth years following the end of the work year. A further one year holding period from the date
of vesting applies to the vested discretionary deferred shares. For example, any discretionary deferred remuneration in respect of 2022 will be
granted in 2023 and the vesting schedule will be 25% in each of January 2024, January 2025, January 2026 and January 2027, and are
subject to a further holding period of one year on each tranche. Therefore, the total maximum vesting and holding period is five years from the end
of the work year.

Performance measures are chosen to reflect strategic priorities for the Group and are chosen by the Remuneration Committee annually towards
the start of the relevant performance year. The aggregate pool of shares available for each year for awards of discretionary deferred shares for
the Executive Directors and the executive management team as a whole is determined annually by the Remuneration Committee in its absolute
discretion, based on a number of factors including:
financial objectives;
•
• strategic objectives; and
• people and culture objectives.

The Remuneration Committee does not utilise strict weighting of performance measures to ensure that flexibility is encouraged if, for example,
strategic objectives evolve as the Group does or business circumstances change during the year. The Remuneration Committee believes that this
flexibility ensures that the Board can work with an Executive Director so that he/she does not take excessive risk to achieve KPIs when, for example,
markets have turned. The Remuneration Committee has the discretion to reduce awards, including to zero, when performance outcomes do not
align to the shareholder experience. The precise measures will be determined by the Remuneration Committee and disclosed retrospectively in the
Remuneration Report following the year of the Remuneration Committee’s determination.

As mentioned in the Policy table, the maximum value of discretionary deferred shares that the current CEO, Mr Gilauri, may be awarded in a given
year for the remainder of his service contract with the Group is capped at the same number of shares as his total deferred share salary. In the event
that it does introduce cash salary for a new Executive Director, the Remuneration Committee retains the discretion to determine how total salary is
measured for the purposes of the cap in the Policy table.

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, wilful misconduct, deliberate action/inaction and/or gross negligence of the Executive Director),
malus and clawback applies to discretionary deferred remuneration awarded for the year in question.

The above provisions form part of Mr Gilauri’s service contract. Further, the Group has also amended the Executive
Equity Compensation plan to allow shares to be lapsed, including to zero, or clawed back in accordance with the
provisions in the Executive Director’s contract.

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. Please see the “Termination of the JSC Georgia Capital service agreement” in the table below for more information.

Discretion
The Remuneration Committee retains a substantial degree of discretion in relation to the Policy. This includes:
•
• selection of KPIs that will determine the discretionary deferred remuneration, which may vary from year to year in order to align with strategy

the determination of discretionary deferred shares, if any;

and financial objectives;

• any adjustments required to an Executive Director’s KPIs during the work year when, for example, there has been a change in strategy

or business circumstances which results in one or more of KPIs becoming an inaccurate gauge of performance; and
the discretion to override any formulaic outcomes when it considers it reasonable in the circumstances to do so.

•

Equity compensation trust and dilution limits
An equity compensation trust (“Trust”) was established by JSC Georgia Capital for the purposes of satisfying deferred share salary and
discretionary deferred share compensation in the form of nil-cost options awarded to Executive Directors and eligible members of the executive
management team. The Trust was established in 2018.

Business expenses
Executive Directors are reimbursed for reasonable business expenses incurred in the course of carrying out duties under their service contract,
on provision of valid receipts.

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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 2022 under the proposed 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.

US$ 8,000,000

US$ 6,000,000

US$ 4,000,000

US$ 2,000,000

US$ 6,621,000

US$ 4,414,000

38.2%

34%

25%

US$ 3,908,000

US$2,730,000

30.2%

100%

69.8%

61.8%

41%

US$ 1,954,400

30.2%

69.8%

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 Remuneration
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) to approve the contract.

2 For the purpose of calculating the value of discretionary deferred shares for illustration in this chart a share price of US$ 8.42 per share was used which was the share
price of the most recent discretionary deferred remuneration award. The actual value of the discretionary deferred share award in respect of the performance of
the 2022 work year will be reported in the 2022 Annual Report and Accounts as at latest closing share price before the Remuneration 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 On-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.

Approach to recruitment remuneration
Any new Executive Director appointed to the Board would be paid no more than the Remuneration Committee considers reasonably necessary to
attract a candidate with the relevant skills and experience. His or her maximum remuneration package would comprise the components described
in the Policy table above. The Remuneration Committee may, at its sole discretion and taking into account the role assumed by the new Executive
Director, vary the amount of any component in the package up to the limits set out in the Policy table above in relation to new Executive Directors.
In particular, the Remuneration Committee may determine it is appropriate to also pay a cash salary to a newly-appointed Director. Should the
Remuneration Committee elect to pay some salary in cash, (a) a commensurate reduction will be made to the fixed share salary and (b) the
Remuneration Committee retains the discretion to determine how total salary is measured for the purposes of the cap in the Policy table. These
discretions will only be exercised to the extent required to facilitate the recruitment of the particular individual.

In addition to the components and outside the limits set out in the Policy table, the Remuneration Committee may also decide to provide to an
incoming Executive Director:
• Relocation support, tax support and legal fees depending on the individual’s circumstances, including, where relevant, to his or her family.
The Group has not set a maximum aggregate amount that may be paid in respect of any individual’s relocation support, but it will aim to
provide support of an appropriate level and quality on the best terms that can reasonably be obtained.

• Upon the recommendation of the Remuneration Committee, a “buyout” incentive award intended to compensate the incoming Executive Director
for any awards granted to an incoming Executive Director by a previous employer and which have been foregone as a result of the individual’s
employment with the Group. In these circumstances, the Group’s approach will be to match the estimated current value of the foregone awards
by granting awards of deferred share compensation which vest over a similar period to the awards being bought out or longer. The application
of performance conditions and/or clawback provisions may also be considered, where appropriate. Such new awards may be granted in addition
to any deferred share salary and discretionary deferred share compensation.

Service agreements and policy on payments for loss of office for our Directors
The Group’s policy towards exit payments allows for a variety of circumstances whereby an Executive Director may leave the Group.
The Remuneration Committee reserves the right to determine exit payments other than those set out below where appropriate and reasonable in
the circumstances to do so, including where an Executive Director leaves by mutual agreement. The Remuneration Committee may decide to pay
some or all of the Executive Director’s legal fees in relation to the termination. In all circumstances, the Remuneration Committee does not intend
to reward failure and will make decisions based on individual circumstances. The Remuneration Committee’s objective is that any such agreements
are determined on an individual basis and are in the best interests of the Group and shareholders at the time.

The following sections (1) and (2) summarise the termination and payments for loss of office provisions pursuant to Mr Gilauri’s service agreement
with Georgia Capital PLC and JSC Georgia Capital, respectively. The Remuneration Committee retains the discretion to apply different notice,
termination and payment for loss of office provisions to incoming Executive Directors. The termination provisions of Non-Executive Director letters
of appointment are described in section (3). The Executive Directors’ service agreements and letters of appointment are kept for inspection by
shareholders at the Group’s registered office.

Notice periods
At the date of this Annual Report, Mr Gilauri is the sole Executive Director of the Group. Mr Gilauri has a service contract effective 29 May 2018
with Georgia Capital PLC for an indefinite term which is terminable by either party on not less than four months’ notice unless for cause where
notice 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 from 29 May 2018
which is terminable by the Executive Director on not less than three months’ notice.

Both documents with their amendments are available for inspection by shareholders at the Group’s registered office.

(1) Termination of Georgia Capital PLC service agreement
In the event that an Executive Director’s service agreement is terminated on notice, Georgia Capital PLC may put Mr Gilauri on garden leave for some
or all of the notice period during or after which period he will receive a pro-rata portion of the deferred salary.

Georgia Capital PLC may terminate Mr Gilauri’s employment early with immediate effect without notice or pay in lieu of notice in the case of, among
other circumstances, his dishonesty, gross misconduct, conviction of an offence (other than traffic-related where a non-custodial penalty is imposed)
or becoming of unsound mind.

The Company may also terminate the service agreement with immediate effect by payment in lieu of notice, in which case the payment in lieu of
notice shall be solely in respect of deferred share salary payable for the unworked portion of the notice period.

The vesting and lapse provisions of the deferred share salary under the service agreement with the Company follow the provisions in the service
agreement with JSC Georgia Capital mutatis mutandis (which are set out in the third column of the table below).

(2) Termination of JSC Georgia Capital (the “JSC”) service agreement
This table sets out the default vesting and lapse provisions, but the Remuneration Committee retains the discretion to determine different treatment
upon agreement with the Executive Director.

Termination reason

Separation payments

Vesting and lapse of awards

• Termination by the JSC for cause (e.g. gross

• Vested deferred share salary (including

• Any unvested awarded deferred share salary

misconduct, substantial and repeated failure to
perform duties, fraud or conviction of a felony).

dividend equivalents) to termination date
and holiday pay, unpaid business expenses
and benefits.

and discretionary deferred share compensation
as at the date when the Executive Director
ceases to be an Executive Director shall lapse.

• Termination by the JSC without cause.

• Six month’s deferred share salary plus

deferred share salary to termination date
and any awarded but unpaid discretionary
deferred shares (all awards including dividend
equivalents), holiday pay, unpaid business
expenses and benefits.

• Any unvested awarded deferred share
salary and discretionary deferred share
compensation shall vest immediately.

• Termination by the Chief Executive Officer

• As above for Termination by the JSC

for Good Reason.

without cause.

• Termination by the Chief Executive Officer

• Vested deferred share salary (including

• Any unvested awarded deferred share salary

without Good Reason.

dividend equivalents) to termination date and
any holiday pay, unpaid business expenses
and benefits.

and discretionary deferred share compensation
as at the date when the Executive Director
ceases to be an Executive Director shall lapse.

In the event of termination for cause, in accordance with the Malus and Clawback section above the Group may also look
to clawback vested discretionary deferred shares.

In addition to the vesting and lapse provisions above, in certain other circumstances including if the Executive Director terminates by reason of
death, disability, redundancy or retirement, there is a change of control or, at the end of the term of the service agreement, the Executive Director
is not offered a new service contract upon substantially similar terms or continued Board membership, unvested awarded deferred share salary
and discretionary deferred shares will vest immediately.

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The service contracts also permit the Group to put the Executive Director on garden leave for a period of up to four months from the intended date
of termination, and during such time the Executive Director will receive a pro-rata portion of deferred share salary. The Executive Director is also
subject to non-compete provisions for up to six months after the termination of his/her employment, which might be extended to two years in
certain circumstances.

(3) Termination 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 material 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 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.

Consideration of employment conditions elsewhere in the Group
The Remuneration Committee does not formally consult employees when drawing up Directors’ Remuneration Policy but in determining an
Executive Director’s remuneration, the Remuneration Committee considers:
(i) the pay and employment conditions of senior management including executive management;
(ii) any changes in pay and employment conditions across the Group as a whole;
(iii) whether employees across the Group are personally satisfied with the way they are remunerated; and
(iv) any feedback received during the year from the Human Resources department, executive management and other employees on the executive

remuneration structure.

Differences in the remuneration policy for executives relative to the broader employee population
For a FTSE All-Share company of our size and depth making a meaningful impact on the Georgian economy, our Executive Directors must have the
skills, experience, work ethic and attitude required to successfully execute our strategy, manage evolving public policy demands, meet our objectives
and create value for shareholders over the long term. In order to recruit and retain this talent, we assess the value of remuneration against other FTSE
companies of similar size and sector listed in the UK. Executive Directors are not currently paid cash, and therefore remuneration in the form
of deferred shares forms all their compensation and totally aligns them to the shareholder experience.

The principles of remuneration for the Executive Directors and executive management are aligned; remuneration is designed to align remuneration with
the performance of the Group and shareholder experience. In particular, the remuneration structure of the highest executive manager is close to that
of the Executive Directors’ (although among other matters, the vesting pattern may vary and a modest cash salary is included for some).
Further, the majority of compensation delivered to executive management is also in shares or phantom shares; however, most are also entitled
to a modest cash salary.

The compensation of employees in the Group, other than Executive Directors and executive management is benchmarked against the Georgian
labour market, as this is the most relevant comparator. Our employees are offered competitive remuneration packages, which include benefits and
the opportunity to participate in the pension scheme on the same terms as applicable to Executive Directors and executive management. Bonuses
are usually paid in cash. The Remuneration Committee are regularly updated by the Human Resources department in respect to pay and conditions
of the wider workforce.

Non-Executive Directors’ remuneration policy
The table below sets out our Policy for the operation of Non-Executive Directors’ fees and benefits of Georgia Capital PLC. Each Non-Executive
Director also serves as a member of the Supervisory Board of JSC Georgia Capital. The fees for Non-Executive Directors are currently the same as
those disclosed in the prospectus of the Group. It is proposed that, if the Policy is approved, the Non-Executive Director fees stated below will apply
in each year that the Policy operates from the date of approval of the Policy.

Component

Purpose and link to strategy

Operation

Opportunity

Base cash fee

• Attract and retain high-performing
Non-Executive Directors with the
requisite skills, knowledge, experience,
independence and other attributes to
add value to the Group.

• Cash payment on a quarterly basis.

• The maximum aggregate Georgia

Capital PLC fees for all Non-Executive
Directors which can be paid under
Georgia Capital 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.

• The fees paid to each Non-Executive

Director will be disclosed in
the relevant reporting year’s
Annual Report.

• The fee for the Chairman will be

determined by the Remuneration
Committee. Fees for Non-Executive
Directors will be determined by
the Board.

• The amount of remuneration may

be reviewed from time to time by the
above, which may take 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

• Compensate for additional time spent

• Cash payment on a quarterly basis.

• The Chairman does not receive

discharging Committee duties.

• The amount of remuneration for

Committee membership is reviewed
as above.

Committee fees.

Consideration of shareholder views
A shareholder consultation process was undertaken to gather investor feedback on the renewed Remuneration Policy,
which also took into account investor support of the current Policy and support for the implementation of the Policy
described in the Remuneration Reports. For the 2019 Policy (from which there are no substantial changes), a formal
shareholder consultation process was undertaken in early 2019 to gauge investor feedback on the proposed policy
and the Remuneration Committee members and the Senior Independent Director further engaged extensively with our
investors through letters to shareholders, as well as where possible calls and face-to-face meetings with them on the
renewed Policy in the United Kingdom, Europe and the US. Shareholders were generally supportive of the proposals and
their feedback was taken into account during the development of the 2019 Policy and the 2022 Policy set out here as
well as implementation of the Policy. Shareholder feedback was taken on board regarding disclosure of more detail on
the KPIs and weightings, with Committee discretion retained.

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155

DIRECTORS’ REMUNERATION REPORT CONTINUED

ANNUAL REPORT ON REMUNERATION
How the Remuneration Committee addressed the factors in provision 40 of the Code
The Remuneration Committee considered the requirements of the Code in determining the remuneration structure and Policy, taking each of the
factors of provision 40 of the Code in turn:

Principle

Clarity

Simplicity

Risk

Predictability

Proportionality

Approach

Remuneration arrangements are transparent and competitive. The remuneration policy describes the purpose, operation and
maximum potential of each remuneration element and illustrates a range of potential outcomes for the Executive Director.

The rationale is simple – this structure focuses the Executive Director and senior management on sustainable, long-term
performance of the Company by remunerating them wholly (in the case of the current Executive Director) or predominantly
(with respect to senior management) 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. It also helps to avoid
conflicts of interest. 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.

The range of possible values is 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 pages 159 to 160.

Alignment to culture The current Executive Director’s entire remuneration, which is comprised of deferred shares rather than cash, promotes
alignment with culture and the long-term success of the Company. This is supported by the inclusion of mentoring and
developing, as well as personal development, within the CEO’s performance KPIs.

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 Directors’ 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 2020 (including the Annual Statement of the Chairman of the
Remuneration Committee) presented at our 2021 AGM.

Resolution

Votes for

Votes against

% Total votes cast

Votes withheld

Approval of the Directors’ Remuneration Report

32,359,101

98.28

565,661

1.72

32,359,101

58,422

Cash1
salary
(US$)

Deferred share2
salary
(US$)

Taxable3
benefits
(US$)

Pension3
benefits
(US$)

Total
fixed
pay
(US$)

Discretionary
deferred4
shares
(US$)

Total Variable
pay
(US$)

Single
total
figure
(US$)

2021

2020

–

2,730,000

–

2,730,000

1,684,000

4,414,000

2,730,000

1,168,000

3,898,000

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 2021 and for the work year 2020. 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 8,068 deferred salary shares
with respect to work year 2021 and 7,953 deferred salary shares with respect to work year 2020. The value of US$ 2,730,000 for the work years 2021 and 2020 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 per 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. Mr Gilauri does not receive any remuneration with respect to his role as Chairman of the Group.
3 There are no taxable benefits or pension benefits for 2021 and 2020. 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 in line with the approved Policy. 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 2021, awards were granted over 200,000 shares. The value is calculated by reference to the share price on 24 January 2022, which is the date of the Remuneration
Committee meeting which determined the discretionary deferred share award, being US$ 8.42 per share (the official share price of GBP 6.25 converted into US dollars using an
exchange rate of 1.3464 being the official exchange rate published by the Bank of England on the same date). 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 per 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). 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 2021 is attributable to share price remuneration. No amounts were recovered or withheld in 2021. No dividend equivalents have been received.

As noted in the single total figure of remuneration table above, deferred share salary is calculated on the basis of US$ 13.65 per 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, being the date of the Committee meeting at which the deferred share salary was determined.

However, the share price as at the last practicable date before the publishing of this Annual Report, 18 March 2022, was US$ 7.89 per share (the
official share price of GBP 5.99 converted into US dollars using an exchange rate of 1.3173, 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$ 3,156,000.

Alternative remuneration table showing the Executive Director’s 2021 and 2020 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 2021 and 2020 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.

Deferred share
salary (US$)

Discretionary
Deferred shares
(US$)

Total salary and
discretionary
deferred shares
remuneration
(US$)

1,590,845

1,044,998

2,635,843

1,590,845

724,583

2,315,428

The Remuneration Committee and its Advisors
The Remuneration 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 Remuneration Committee ensures that performance-related elements of Executive Directors’
remuneration are transparent, stretching and rigorously applied. The Remuneration Committee’s full Terms of Reference are available on our website:
https://georgiacapital.ge/governance/cgf/terms.

2021

2020

The Remuneration Committee is comprised of three Independent Non-Executive Directors: Jyrki Talvitie who serves as Chairman, Kim Bradley
(designated Non-Executive Director for workforce engagement) and Maria Chatti-Gautier. The members’ attendance during 2021 is shown in the
Board and Committee meetings attendance table on page 129. No changes to the composition of the Remuneration Committee were made in 2021.

In addition to the formal meetings held during the year, the Remuneration Committee participated in various discussions by videoconference outside
of these meetings. Other attendees at the Remuneration Committee meetings who provided advice or assistance to the Remuneration Committee
on remuneration matters from time to time included the CEO, the other Board members and the UK General Counsel. Attendees at the Remuneration
Committee meetings do not participate in discussions or decisions related to their own remuneration, which helps avoid conflict of interest.

The Remuneration Committee did not use remuneration consultants in 2021 (or 2022 to date). The Remuneration Committee received additional
advice on compliance from Baker & McKenzie LLP, the Company’s legal advisors. The Remuneration Committee is of the view that the advice
received from Baker & McKenzie LLP is objective and independent.

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 2021 and 31 December 2020. 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 and holding 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 150.

The following table sets out details of total remuneration for the Chairman and Chief Executive Officer, Mr Gilauri, for the years ended 31 December
2018 to 31 December 2021 and his discretionary compensation as a percentage of maximum opportunity.

Single total figure of remuneration (US$)

4,066,962

3,790,000

3,898,000

4,414,000

Discretionary compensation as a percentage of maximum opportunity (%)

85%

50%

80%

100%

Note: Maximum opportunity is 100% of total number of salary shares as set out in the section above and in accordance with the approved Policy.

2018

2019

2020

2021

Basis for determining Mr Gilauri’s discretionary deferred share compensation in respect of 2021
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 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 wider 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.

In accordance with the extended disclosure in last year’s Annual Report and subsequent complementary feedback from shareholders, this year
we continue to provide full information to better explain how the KPIs link to strategic targets and to explain the weightings.

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DIRECTORS’ REMUNERATION REPORT CONTINUED

We also specifically link each KPI to the relevant Group priority and disclose 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 Group is young and
non-financial strategic targets are also key. In response to investor feedback, we have increased the weightings on the key strategic priorities.

The individual KPI weightings are shown in the table below, which sets out the targets for Mr Gilauri’s 2021 KPIs as well as a summary of the
Committee’s assessment of his performance against them. In line with the Policy, 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:
Key new strategic priorities (as announced on Investor Day on 12 November 2020)
1. Realise the value of one of the large scale portfolio companies, through a trade sale, over 18-24 months from November 2020.
2. Divest subscale portfolio companies which do not have the potential to reach GEL 500 million equity value, over the next 2-3 years

from November 2020.

3. Re-introduce the Group’s share buyback and cancellation programme as soon as possible after the pandemic impact.

KPI

Strategic targets

Broaden access
to capital including
active seeking of
price discovery of
assets held (including
progress on the new
strategic priorities)

Refers
to Group
priority
above

Weighting

2021 target and range

Performance and evaluation

Threshold Target Outperformance

1, 2, 6, 8 20%

Continued secondary strategic priorities
4. Discipline when investing by buying at reasonable prices.
5. Institutionalising and developing portfolio.
6. Establishment of structured exit processes, engage in the active price discovery of portfolio assets held.
7. NAV per share growth (key metric for the Group).
8. Further diversifying access to capital.
9. Decrease share of listed assets in total portfolio to 20%.
10. Portfolio companies’ strategic priorities.

Cultural and foundation for the future
11. Developing management talent in GCAP and its portfolio companies.
12. Strong corporate governance, efficient management structure.
13. Culture core values: being entrepreneurial, having a learning mindset, maintaining the highest standard of ethics.

Refers
to Group
priority
above

KPI

Financial targets

NAV per share growth

Weighting

2021 target and range

Performance and evaluation

35%;
10% for overall

25% for private
portfolio

Threshold Target Outperformance

11%

16%

21%

Overall NAV per share growth: 31% – far
exceeded outperformance.

10%

14%

20%

Private portfolio share growth: 24% –
exceeded outperformance.

Weighted
result

10%

25%

NAV per share is the key metric for the Group.

Financial targets continued

Threshold Target Outperformance

Achieving budget of
GCAP and portfolio
companies, including
cash flow generation

5, 10

15%

GEL mln
250

GEL mln
368

GEL mln
400

GCAP standalone net income: GEL 6811 million
– far exceeded outperformance budget.

15%

GEL mln
-200

GEL mln
-1042

GEL mln
0

GCAP standalone new flow of cash and liquid
funds of GEL 97 million inflows, while spending
US$ 7 million on share buybacks (not included in
budget) and still managing to decrease GCAP’s
Market Value Leverage to 24% from 34% a year
ago – far exceeded outperformance.

GEL mln
1,600

GEL mln
1,860

GEL mln
2,000

Portfolio companies aggregate revenue:
GEL 1,964 million (up 24% vs FY20 and up 34%
vs FY19) – approaching outperformance.

GEL mln
300

GEL mln
329

GEL mln
360

Total aggregated net operating cash flow: GEL
365 million - exceeded outperformance.

Expense ratio

7.5%

2.3%

1.7%

Achieved outperformance at 1.7%

7.5%

1. Adjusted IFRS/APM. A full reconciliation of the adjusted income statement to the IFRS income statement is provided on page 101.
2. Budgeted numbers, derived from the management accounts.

1, 2

7.5%

Disciplined pursuit
of investment
opportunities (including
progress on the new
strategic priorities)

9, 10

7.5%

Progress towards
achieving mid-to-long-
term strategic priorities
in portfolio companies

11, 13

7.5%

Active mentoring
and development of
management including
successor(s)

Maintain up-to-date
succession planning
process across the
GCAP and portfolio
companies

Continued personal
development

157

Weighted
result

20%

7.5%

Water Utility sale achieved, at a very
impressive 30% premium over 30 June
2021 portfolio value (48% premium over
31 December 2020 portfolio value).

Divestment of subscale portfolio companies
– commercial real estate assets sold at 37%
premium to NAV.

US$ 65 million Eurobond tap issue raised
funding at 6.125% yield, demonstrated investor
confidence and strengthened balance sheet.

Successful launch of US$ 10 million fixed
income fund.

Disciplined funding in: education
(GEL 13.7 million), renewable energy
(GEL 3.7 million) and auto services business
(GEL 2.7 million). Commercial real estate
portfolio sales worth US$ 45 million
(GEL 140 million) with an 11.3% premium
to book value. Buy-out of retail (pharmacy)
business minority shareholders
at renegotiated/lower multiple resulting in
c.GEL 40 million additional value creation
for GCAP. No missed opportunities.

6.25%

Excellent results in the healthcare services,
retail (pharmacy), water utility, beverages and
auto services businesses demonstrating strong
growth and performance against budget. FY21
aggregated portfolio company EBITDA up 35%
vs FY20 (up 39% vs FY19) leading to value
creation (excluding multiple change and FX)
in private portfolio companies outperforming
budget by 69% and reaching an all-time high
annual amount of GEL 736 million.

5.5%

Clear succession planning for top levels
of management at GCAP and portfolio
companies. This plan was effectively deployed
during the management change at the
real estate business, where the executive
management was replaced in 2021 with the
Group internal talent. The two most senior
women in GCAP mentored further (and
ultimately achieved promotion to the top levels).

Rising to the challenges of the pandemic and
continued successful mentoring of portfolio
companies’ top management in overcoming
the challenging periods and taking advantage
of emerging market opportunities.

Voluntary working from home/office election
policy throughout 2021 for all GCAP employees
despite no government lockdowns.

Continued prioritisation of self-development
through feedback received from the Board
and co-workers, as well as continued coaching
of direct reports.

TOTAL KPI PERFORMANCE ASSESSMENT

96.75%

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DIRECTORS’ REMUNERATION REPORT CONTINUED

As shown in the above KPI table, all financial metrics were outperformed, several greatly so. All strategic metrics were outperformed or between
target and outperformance. The Remuneration Committee agreed that 2021 was a significant year for Georgia Capital, in which under Mr Gilauri’s
leadership the Group exceeded all targets. In addition to the Water Utility disposal, the following notable events took place in 2021:
1) demonstrated continued progress towards the Group priority 2 above, to divest, over 2-3 years, the subscale portfolio companies which do not
have the potential to reach GEL 500 million equity by the sale of US$ 45.0 million commercial real estate properties with an 11.3% premium to
their book value as of 31 March 2021, translating into 2.1x MOIC in US$ terms;

2) buyout of the minority shareholders in the retail (pharmacy) business as per the KPI above, agreed at renegotiated terms, which provides the path

to GCAP’s 100% ownership and stretching over six-years/tranches at 5.25x EV/EBITDA multiple;

3) expansion of the education business in the affordable segment through several investments, in line with the capital allocation programme;
4) resumption of the Group’s share buyback and cancellation programme in August 2021, Group priority 3 above, in line with the capital

allocation framework;

5) US$ 65 million Eurobond tap issuance in March 2021 enhanced liquidity and demonstrated the Group’s superior access to international capital

markets; and

6) as the portfolio companies continued to deliver on their individual strategic objectives, NAV per share increased by 31.0% y-o-y in FY21 – the
Committee notes that this is a key metric for shareholders and that this has more than doubled since the start of the COVID-19 pandemic.

The Group’s key short-term strategic priority 1, as announced at the November 2020 Investor Day and which had received positive feedback from
investors, was to dispose of one of its large portfolio companies. This was achieved successfully and within a challenging global environment. The
disposal of the 80% stake in the water utility business was delivered ahead of time and at a 30% premium to its independent valuation. The value
achieved of US$ 180 million, for 80% of the water utility business represents a 30% premium to its independent investment value at 30 June 2021
and translates into 2.7x MOIC in US$ (3.6x MOIC in GEL) and 20% IRR in US$ (27% IRR in GEL). The disposal also has a very significant positive
impact on the Group’s leverage profile, reducing the market value leverage from 24.2% as at 31 December 2021 to 19.2%.

The sale represents the Group’s most significant monetisation event to date and marks the completion of the full investment cycle for one of the
Group’s large businesses, from acquisition and development to cash exit. The Committee noted that the partnership with FCC Aqualia, the fourth
largest water management company in Europe, brings international expertise to the Group and value creation upside on our minority interest in the
business, whilst also benefiting Georgia’s sustainable development.

Shareholders gave the resolution transaction 100% approval at the General Meeting in January 2022. The Committee also noted the following other
stakeholder matters:
•
• none of the Group companies required support from the Georgian or UK Governments; and
•

the Group did not seek additional capital from its shareholders, and reinstated the buyback programme in line with the capital allocation framework;

the furlough scheme was not utilised and no holding companies’ employees were made redundant.

The Remuneration Committee retains discretion to avoid formulaic outcomes and to assess the overall reasonableness of the rewards. Given
the achievement of the number one strategic priority with great success as described above, and also taking into account above considerations
and the outperformance against KPIs, the Remuneration Committee decided to exercise their discretion and award a further 3.25% of maximum
discretionary deferred shares opportunity (6,500 shares). Taking this into account alongside achievement against KPIs as detailed in the KPI table
and explanation above, the Remuneration Committee awarded the CEO in total 100% of the maximum number of discretionary deferred shares
(200,000 deferred shares). The Committee is satisfied that the overall number of deferred discretionary shares awarded to for Mr Gilauri for FY21
was fair and appropriate in the circumstances.

Alignment with shareholders is built into the structure (by maximum bonus award being comprised of deferred shares only and the maximum awards
being calculated based on a fixed number of shares, rather than by cash value). There is no cash bonus and no LTIP.

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, 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, 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 is less than five and the Company’s status as an investment entity
under IFRS 10, we considered comparison against the holding companies’ employees. See the single total figure of remuneration table on pages
154 to 155 for an explanation of deferred share salary, taxable benefits and discretionary deferred remuneration of Mr Gilauri. The year-on-year
movements in Non-Executive Director fees are attributable to a number of factors including the different Committee roles undertaken by each
Non-Executive Director over the period.

Year-on-year change in pay for Directors compared to the employees
at the holding companies level as a whole

2021

Total cash salary

Total deferred share salary

Taxable benefits

Total bonus

Executive
Director

Average
employees

Irakli
Gilauri

David
Morrison

Kim
Bradley

3.9%

Non-Executive Directors

Jyrki
Talvitie

4.7%

Caroline
Brown

Massimo
Gesua’ sive
Salvadori

Maria
Chatti-
Gautier

5.0%

36.2%

6.5%

-26.0%

22.7%

–

23.1%

44.2%

–

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 companies level as a whole

Executive
Director

Average
employees

Irakli
Gilauri

David
Morrison

Kim
Bradley

11.0%

7.3%

–

20.0%

10.2%

-3.7%

7.2%

–

Non-Executive Directors

Jyrki
Talvitie

-3.6%

Caroline
Brown

Massimo
Gesua’ sive
Salvadori

Maria
Chatti-
Gautier

-4.8%

N/A

–

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 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 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, to show solidarity with the impact of COVID 19.

4 As reported in the Annual Report and Accounts for 2019, the fees of the Chair 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.

5 Jyrki Talvitie stepped up from being a member of the Remuneration Committees of the Company and the Supervisory Board, to Chair of the respective Committees on 16 January 2019.
6 The Audit and Valuation Committee’s responsibilities were increased from 31 December 2019; to show solidarity with the impact of COVID-19 the Committee did not receive an

increase for year 2020, but the fees of the Chair and members were instead increased from 1 January 2021.

7 The Company has less than five UK employees and the percentage changes could be considered to be distortive. Year-on-year change for UK employees from 2019 to 2020 for
cash salary is 1.8%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is 30.1%. Year-on-year change for UK employees from 2020 to 2021 for
cash salary is -2.7%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is -1.8%.

Details of fixed and discretionary deferred share remuneration granted during 2021
The table below sets out details of the nil-cost options over GCAP shares which have been granted to Mr Gilauri in 2021 in respect of the 2020 work
year as reflected on a combined basis in accounts of Georgia Capital PLC and Georgia Capital JSC. Please note that the information presented in
this section relates to the 2020 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

160,000 (with respect to his FY20 bonus) 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$ 1,168,0002

US$ 2,730,0001
Cash payments equal to the dividends paid on
the underlying shares will be made upon vesting
(if applicable).

US$ 1,168,0002
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 2020 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 2020 performance (and is not 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 2022, 2023, 2024 and 2025. Holding
period of a further one year on each tranche.

Vesting period

20% in each of 2022, 2023, 2024, 2025 and 2026

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.

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 employees’ pay (and
indeed given it has less than five UK employees, to do so would be distortionary). 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
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 during the pandemic (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.

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Georgia Capital PLC Annual Report 2021

161

DIRECTORS’ REMUNERATION REPORT CONTINUED

The Committee had also considered the fact that the CEO’s salary was 35% less than the CEO salary in our predecessor company, BGEO Group PLC.

Moreover for the renewed Policy retains the same number of shares for salary and for the maximum opportunity as was presented to shareholders
for their approval three years ago - there is no increase in salary nor incentive.

Relative importance of spend on pay
The following table shows Georgia Capital’s actual spend on pay at the holding companies level only (c.40 employees in total) between 2020
and 2021. We considered comparison against these employees to be the most appropriate given the Company’s status as an investment entity
under IFRS 10.

Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out the remuneration received by each Non-Executive Director in 2020 and 2021. 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 normal fees were reinstated on 1 January 2021.
The Audit and Valuation Committee’s responsibilities were increased from 31 December 2019 when the Audit Committee became the Audit and
Valuation Committee. To show solidarity with the impact of COVID-19 the Committee did not receive an increase for year 2020, and instead the fees
of the Chair and members were increased from 1 January 2021.

The Non-Executive Directors do not receive any variable remuneration or pension contributions.

David Morrison

Massimo Gesua’ sive Salvadori

Kim Bradley

Caroline Brown

Jyrki Talvitie

Maria Chatti-Gautier

Total

Georgia Capital PLC fees (US$)

JSC Georgia Capital fees (US$)

Total fees (US$)

2021

67,890

52,341

72,341

52,341

65,481

58,911

2020

69,989

54,439

65,114

54,439

58,254

38,856

2021

133,736

104,609

122,125

104,609

94,973

90,885

2020

124,100

94,973

122,125

94,973

71,096

2021

201,626

156,950

194,466

156,950

160,454

149,796

369,305

341,090

650,937

602,240

1,020,242

2020

194,089

149,412

187,239

149,412

153,227

109,952

943,330

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.

between the level of fees for the Chair against the member’s fees was retained, as further explained above the table.

4 The Audit and Valuation Committee’s responsibilities were increased from 1 January 2021 to reflect the increase in responsibilities of the Committee, as further explained above the table.

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 2021.

Total Shareholder Return
Georgia Capital PLC has been a member of the FTSE All Share Index since its premium listing in 29 May 2018. 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 2021.

150

130

110

Jun-18

Sep-18

Dec-18

Mar-19

Jun-19

Sep-19

Dec-19

Mar-20

Jun-20

Sep-20

Dec-20

Mar-21

Jun-21

Sep-21

Dec-21

Georgia Capital

FTSE All Share

FTSE Small Cap

Year ended 31 December 2020 (US$ thousands)

Year ended 31 December 2021 (US$ thousands)

Percentage change

Remuneration paid to all
employees of the Group

Distribution to shareholders
by way of buy-back

9,200

10,136

10.2%

–

6,988

N/A

Notes:
1 The Company did not make any significant distributions during 2020 and did not make any other significant distributions during 2021. The dollar amount is calculated using

a 2021 average GEL/US$ exchange rate.
In August 2021 the Group commenced a US$ 10 million buyback programme in line with its capital allocation framework.

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 2021 – 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 2020 and 2021.

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

Number of
GCAP shares
held directly

686,821

1,600,959

1,112,395

–

N/A

66,368

35,383

12,585

–

66,368

35,383

12,585

–

13,739

As at 31 December 2021

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

823,192

1,935,587

N/A

66,368

35,383

12,585

–

13,739

–

6,860

N/A

6,860

Number of
GCAP shares
held directly

914,138

66,368

35,383

12,585

–

13,739

–

Irakli Gilauri

David Morrison

Kim Bradley

Jyrki Talvitie

Caroline Brown

Massimo
Gesua’ sive
Salvadori

Marie Chatti-
Gautier

Notes:
1 As at 31 December 2021, Mr Gilauri’s vested and unvested shareholding was 1,935,587 GCAP shares, representing approximately 4.1% of the Company’s share capital. In 2022,
Mr Gilauri received awards of 200,000 salary deferred shares for the 2021 work year, out of which 8,068 shares were waived by Mr Gilauri to discharge the UK tax and employee
National Insurance contributions. This will be reported in the 2022 Annual Report and Accounts and is not included in the table above, which is at 31 December 2021. The
200,000 discretionary deferred shares awarded to Mr Gilauri with respect to the FY21 performance year are also not included in the table above, as these were determined in
2022. None of Mr Gilauri’s connected persons have any interest in the shares of the Company.
In March 2021, Mr Gilauri exercised options in respect of 215,676 GCAP shares, of which 42,417 were withheld to satisfy tax liabilities. The net gain of these options was
US$ 1,336,133. As of 31 December 2021, all vested nil-cost options of the CEO were exercised.

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 2021,
Mr Gilauri met the shareholding requirement.

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 the last practicable date
of 18 March 2022, with exception of Irakli Gilauri who as at 18 March 2022 holds total of 2,076,538 vested and unvested shares.

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Georgia Capital PLC Annual Report 2021

163

Non-Executive Director remuneration
The table below shows the fee structure for Non-Executive Directors for 2022. 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.

Signed on behalf of the Remuneration Committee and the Board of Directors

Jyrki Talvitie
Chairman of the Remuneration Committee
24 March 2022

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.

DIRECTORS’ REMUNERATION REPORT CONTINUED

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 AGM 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 AGM.

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 2022
Details of how the 2022 Policy will be implemented for the 2022 financial year are set out below.

For Irakli Gilauri

2022 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 147.

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 2022 Policy.

2022 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 2022 work year, the award will vest 25% in January
of each of 2024, 2025, 2026 and 2027. 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 2022, the Remuneration Committee has determined that the performance measures will be based on KPIs
(see below). The Remuneration Committee has considered the detail of each KPI and ensured that measurable
targets are included. The KPIs will be reviewed by the Remuneration Committee throughout the year and by the
Board as appropriate.

See notes to the 2022 Policy for malus and clawback provisions.

2022 CEO KPIs
The 2022 KPIs were selected based on our strategy and ongoing key metrics. Consequently, the 2022 KPIs are as follows:
• NAV per share growth
• Achieving budget of GCAP and portfolio companies, including cash flow generation
• Expense ratio
• Broaden access to capital including seeking of price discovery of assets held (including strategic priority of divestment of subscale

portfolio companies)

• Disciplined pursuit of investment opportunities and capital and asset allocation (including strategic priority of divestment of subscale

portfolio companies)

• 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 2022 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.

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NOMINATION COMMITTEE REPORT

Georgia Capital PLC Annual Report 2021

165

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 delighted to present the Committee’s report for the year
ended 31 December 2021.

The Committee’s principal responsibility is to lead the process for
appointing Directors to the Board and senior management positions.
The Committee has maintained its focus on ensuring that the
composition of the Board and its Committees remained appropriate for
the Company. The Committee is satisfied, having taken into account the
results of the Board evaluation, that the composition of the Board and
Committees overall remain appropriate for the successful delivery of
the Company’s strategic and financial objectives. The Committee also
concluded that the composition of the Audit and Valuation Committee
continues to be appropriate notwithstanding the ever increasing
responsibilities of the Audit and Valuation Committee.

The Committee continues to review rigorously the ongoing combination
of the roles of Chairman and CEO and the Committee is satisfied that
this remains the best structure for the Company. Mr Gilauri does not
participate in these discussions.

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 remains satisfied that we have in place strong leaders
across our portfolio companies. Succession planning will, however,
continue to, be an important focus for the Committee in 2022 at both
Board and senior management level.

I invite you to read more on the activities we have undertaken during
2021 in the following report.

Jyrki Talvitie
Chairman of the Nomination Committee
24 March 2022

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, 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.

The Committee undertook a review of its Terms of Reference as a
result of which some minor 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 2021 are set out in the Board and Committee meeting
attendance table on page 129, and the skills and experience each member
contributes can be found on pages 124-125. Until 19 March 2020, the
Nomination Committee consisted of all members of the Board. The
Committee, having taken into account the results of the Committee’s
effectiveness evaluation in 2019, decided it would be more efficient to
reduce 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 meetings 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 2022 AGM.

As reported elsewhere, Caroline Brown will not be seeking re-election
to the Board at the forthcoming AGM and will therefore cease to be
a Director of the Company from the conclusion of the AGM on 20 May
2022. Caroline joined the Board on the demerger of BGEO Group in
2018 and her advice and counsel has been highly valued. In particular,
Caroline’s experience and expertise have been of enormous help to
the Audit and Valuation Committee. As a consequence of Caroline’s

departure, the Committee will prioritise a review of the Board’s
composition. The review will take into account the results of the
recent Board evaluation.

The Committee recommended to the Board that Kim Bradley join the
Audit and Valuation Committee with effect from 20 May 2022. Kim
previously served as chairman of the BGEO Group PLC Risk Committee
and as a member of its Audit and Nomination Committees. Kim spent
15 years at Goldman Sachs during which he participated on valuation
committees covering all asset types. He also led Goldman Sachs’
asset management affiliates in France, Italy and Germany, where
his responsibilities included working closely with the Management
and Control Division (internal audit) on both the scope and response
to annual audits. The Committee considered that this very relevant
experience, together with Kim’s position as chairman of the Investment
Committee will be of significant benefit generally to the Audit and
Valuation Committee and in particular enhance its oversight of
valuation processes.

The Nomination Committee notes that financial expertise of the Audit
and Valuation Committee’s continuing members. David Morrison is a
finance and securities lawyer whose practice for more than 25 years
included a focus on financial reporting and who has both chaired and
sat on audit committees over the last ten years. Massimo Gesua’ sive
Salvadori’s extensive experience of valuations is particularly valuable to
the Committee since the private portfolio companies’ valuation is the
key area of focus in Georgia Capital’s financial accounting and reporting.
Dr Gesua’ sive Salvadori’s expertise and understanding of value drivers
is highly beneficial for the Committee in discharging its responsibilities
and will continue to be important going forward.

The tenure for each of the Directors is four years at the date of this
report (appointment February 2018), except for Maria Chatti-Gautier
who has served two years (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 126.

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 three 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 123.

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,

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167

NOMINATION COMMITTEE REPORT CONTINUED

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and
the 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 financial
statements in accordance with UK-adopted international accounting
standards (“IFRS”).

Under the Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules, company financial statements are required to be
prepared in accordance with UK-adopted international accounting
standards (“IFRS”).

We must not approve the financial statements unless we are satisfied
that they give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period.

In preparing the accompanying financial statements, we are required to:
• select suitable accounting policies in accordance with IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors
and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;
• 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;
in respect of the Company financial statements, state whether
international accounting standards in conformity with the
requirements of the Companies Act 2006 and UK-adopted
international accounting standards (“IFRS”) have been followed,
subject to any material departures disclosed and explained in the
financial statements; and

• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

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 based on merit.

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;

• 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 UK premium listed company.

As part of the induction programme, each Director meets members of
executive management and 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 129 shareholders can find out more about the latest Board
evaluation exercise. Having carried out internal evaluations in the
previous two years, this year the Board engaged Lintstock Ltd to
conduct an independent evaluation of the Board, the Board Committees,
the Chairman and Directors.

The review of the Committee 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 2022.

Given his role as Chairman and CEO, Irakli Gilauri’s performance was
also reviewed by the Remuneration Committee. In addition, the full Board
met to consider the Remuneration Committee’s recommendations.

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. The Board
is currently in line with recommendations for UK boards, with Board
member Maria Chatti-Gautier of Syrian heritage (Middle Eastern)
and so representing an ethnically diverse background.

We are also supportive FTSE Leaders Women’s Review regarding
gender diversity, the latter being aimed primarily at FTSE 350
companies. The Committee will continue to examine ways in which
we can become an increasingly diverse Board. The Committee
will also be working to improve the gender balance of those in the
senior management positions and their direct reports, as described
in the Resources and Responsibilities section on page 84 and the
Sustainability Report. The Committee will continue to explore what
additional steps need to be taken to improve the ethnic diversity
of the Board.

On 31 December 2021, Georgia Capital, as an investment holding
company, had a total of 43 employees, of which 26 are females, and 17
are males. You can view our further gender diversity statistics on page
89 in the Resources and Responsibilities section and the Sustainability
Report. In terms of diversity in nationality, the Board is currently
composed of Directors from Georgia, the US, the UK, Italy, 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 2022. You can read more
about the established diverse culture and related activities during 2021
in the Resources and Responsibilities section on pages 87-89 and the
Sustainability Report.

Succession planning and talent development
Succession planning at the Board and senior management level was
an area of focus for the Committee during the year. Last year I reported
on the creation of appropriate opportunities to develop high-performing
individuals and to build diversity in senior roles across the business.
We have continued to build on this initiative resulting in a talented pool
of employees within Georgia Capital. We believe that focusing on their
development is the best way to ensure a healthy and diverse pipeline
of future leaders of the Company.

In addition, the Company pursues initiatives aimed at developing the
entrepreneurial business leaders that Georgia Capital will require as
it grows.

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 the ongoing restrictions
on travel this year, site visits were very limited and were mainly 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.

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. 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 financial statements, prepared in accordance with UK-adopted
international accounting standards (“IFRS”) 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, 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
24 March 2022

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessFinancial StatementsGovernance168

DIRECTORS’ REPORT

The Directors present their Annual Report and the audited financial
statements for the year ended 31 December 2021.

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 121 was approved by the Board of
Directors on 24 March 2022 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 121 form the Management Report for the basis of DTR 4.1.5 R.

Directors
The names and biographies of the current Directors of the Company
are shown on pages 124 to 125 and include their relevant experience.
In accordance with the UK Corporate Governance Code, all the Directors
will retire by rotation at the AGM and offer themselves for re-election.

The Directors’ beneficial interests in ordinary shares of Georgia Capital
as at 31 December 2021 are shown on page 161 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.

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.

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

Investment Committee report

Audit and Valuation Committee report

Remuneration Committee report

Remuneration Policy

Nomination Committee report

Related party disclosures

Greenhouse gas emissions

Employee matters

Environmental matters

Share capital

Engagement with suppliers, customers and others
in a business relationship with the Company

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 121

page 73

pages 73 to 74

pages 70 to 74

pages 75 to 82

pages 122 to 123

pages 124 to 125

pages 135 to 136

pages 137 to 142

pages 143 to 163

page 146

pages 164 to 166

page 210

page 91

pages 87 to 89

pages 89 to 91

page 199

page 126

pages 201 to 204

Georgia Capital PLC Annual Report 2021

169

Information to be disclosed in accordance with
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.

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 the Company’s 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 financial statements on page 199 of this Annual Report. As
of 18 March 2022, there was a single class of 46,401,178 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 the AGM of the Company on 25 May 2021
for the Company to purchase up to 7,180,777 (approximately 14.99%)
of Georgia Capital’s issued ordinary share capital excluding treasury
shares as at 25 March 2021. This authority will expire at the conclusion
of the Company’s AGM in 2022 or, if earlier, the close of business on
25 June 2022.

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 the AGM of the Company on 25 May 2021, the Directors were given
the power a) to allot shares up to a maximum nominal amount of GBP
159,679.28 (representing 15,967,928 ordinary shares), approximately
one-third of the Company’s issued share capital as at 25 March 2021,
and b) to allot equity securities up to an aggregate nominal amount of
GBP 159,679.28 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 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 2022
AGM (or, if earlier, at the close of business on 25 August 2022) and
approval will be sought at that meeting to renew a similar authority
for a further year.

In August 2021, the Board approved a buyback programme whereby
the Company would purchase up to 7,180,777 (approximately 14.99%)
of Georgia Capital’s issued ordinary share capital with the intention of all
shares purchased pursuant to this programme were cancelled. Under
this programme, the Company has repurchased 823,582 of its own
shares during the financial year ended 31 December 2021 and from that
date until 18 March 2022 being the latest practicable date prior to the
publication of this Annual Report, a further 679,025 shares have been
purchased. During the year ended 31 December 2021, 823,582 shares
have been cancelled. In the period from 1 January 2022 until 18 March
2022 a further 548,748 shares have been cancelled. The Company will
continue to cancel purchased shares under the buyback programme
referred to above.

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.

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.

Results and dividends
The Company made a profit before taxation of GEL 693 million. The
Company’s profit after taxation for the year was GEL 693 million.

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.

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.

AGM
The arrangements for the Company’s next Annual General Meeting
and details of the resolutions to be proposed, together with explanatory
notes, will be set out in the Notice of AGM to be published on the
Company’s website (https://georgiacapital.ge/).

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
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.

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 2021. 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. A remuneration policy will be
put to a binding vote at the 2022 AGM, in accordance with section 439A
of the Companies Act 2006.

The fees paid to the Non-Executive Directors in 2021 pursuant to their
letters of appointment are shown on page 160. The fees paid to our
sole Executive Director in 2021 pursuant to his service agreements
with Georgia Capital are shown on pages 154-155.

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’ liability insurance.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessFinancial StatementsGovernance170

DIRECTORS’ REPORT CONTINUED

Related party disclosures
Details of related party disclosures are set out in Note 14 to the financial
statements on page 210 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 215.

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 89.

Political donations
The Company did not make any political donations or expenditure during
2021. Authority to make political donations and incur political expenditure
will be put to shareholder vote at the 2022 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 appoint PricewaterhouseCoopers 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 2021.

Number of voting rights

% of voting rights

Shareholder

Allan Gray Ltd

Schroder Investment
Management Ltd

M&G Investment
Management Ltd

Lazard Asset
Management LLC

Coeli Frontier Markets AB

Source: Georgeson, Computershare

2,596,224

1,879,638

1,860,314

1,814,903

1,813,120

5.51%

3.99%

3.95%

3.85%

From the period 1 January 2022 up to and including 18 March 2022,
there have been further notifications from JPMorgan Chase & Co to
the Company in respect of interest in voting rights. As per the latest
notification from JPMorgan Chase & Co, the investor holds 8.29% voting
rights in the Company (of which, 2.14% of voting rights are attached to
shares and 6.15% of voting rights are held through financial instruments).
In addition, Allan Gray Ltd increased its holding to 6.20% of voting rights
since 31 December 2021. 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

Georgia Capital PLC Annual Report 2021

171

INDEPENDENT AUDITOR’S REPORT

Post balance sheet events
The first stage of the disposal of the water utility business, which
considered the initial sale of a 65% equity interest in GGU (representing
an 80% economic interest in the water utility business) was successfully
completed on 3 February 2022 with the receipt of full sales proceeds
and transfer of respective shares of GGU to Aqualia. See page 8
for details.

In addition, in January 2022, the Board approved an increase in
the ongoing buyback and cancellation programme of an additional
US$ 5 million, which was further increased by US$ 5 million in
March 2022. See page 13 for details.

Following a significant Russian military build-up near the Russia-Ukraine
border and months of rising tensions, on February 24 Russian troops
crossed the border and the situation escalated into a war. It is expected
that the war may lead to a negative impact on the Georgian economic
growth in 2022. Details are set out in the Strategic Review section
of this report.

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.

The Directors’ Report on pages 168 to 170 was approved by the Board
of Directors on 24 March 2022 and signed on its behalf:

Link Company Matters Limited
Company Secretary
24 March 2022

Opinion
We have audited the financial statements of Georgia Capital PLC (‘the Company’) for the year ended 31 December 2021 which comprise the
Statement of Financial Position, Statement of Profit or Loss and Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows
and the related notes 1 to 15, including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international accounting standards.

In our opinion, the financial statements:
• give a true and fair view of the Company’s affairs as at 31 December 2021 and of its profit for the year then ended;
• have been properly prepared in accordance with UK adopted international accounting standards; and
• have been prepared in accordance with the requirements 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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence
We are independent of the company 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.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company and we remain independent of the company in
conducting the audit.

Conclusions relating to going concern
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 company’s ability to continue to adopt the going concern basis
of accounting included:
•

In conjunction with our walkthrough of the Company’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 and the severe but plausible scenario covering the going concern
period until 31 March 2023.

• We compared Management’s going concern assessment with that prepared for the prior year to identify any significant changes in assumptions.

We assessed Management’s forecasting accuracy by comparing actual cashflows in 2021 with the prior year going concern assessment.

• Management’s assessment is based upon the combined cash and liquid assets of Georgia Capital PLC and Georgia Capita JSC which reflects
Georgia Capital PLC’s control of Georgia Capital JSC. We obtained bank confirmations for Georgia Capital PLC and Georgia Capital JSC. We
made inquiries of management, the Directors and the local EY statutory audit teams of the portfolio companies to identify whether the Company
and Georgia Capital JSC have provided any material guarantees or loan commitments to its portfolio investments. We confirmed the existence
of a financial guarantee of EUR 15.8m to the Beer business, and an obligation to extend loan of US$ 95.4m issued to the Renewable Energy
business arising as a consequence of the proposed disposal of Water Utility Business announced on 31 December 2021.

• We challenged whether there are restrictions inhibiting Georgia Capital JSC’s ability to provide liquidity support to Georgia Capital PLC through

cash remittances required by considering both applicable law and the terms of the Eurobonds.

• We tested the inputs and key assumptions included in the base case and severe but plausible going concern forecasts and assessed the

potential impact of COVID-19 and climate risk included in these scenarios. We applied additional downside sensitivities to the Company’s base
case cash flow forecast key assumptions including dividend income, interest income and loan repayments anticipated from portfolio companies.
We performed procedures to ensure the completeness of cash outflows including operating costs, Eurobond coupon payments and planned
debt and equity allocations to portfolio companies.

• We confirmed the subsequent receipt of the proceeds from the disposal of the Water Utility business of US$ 180m and challenged management
to confirm the intended use of these proceeds, including an obligation to extend the US$ 95.4m loan commitment provided in connection with
the disposal of the Water Utility portfolio company.

• We considered the maturity of the US$ 365 million Eurobond issued by Georgia Capital JSC which is due in 2024 and the covenants attached

to it and confirmed that no early repayment is required during the going concern assessment period.

• We considered the financial position of Bank of Georgia presented in its Preliminary Announcement for the year ended 31 December 2021

given both the materiality of the Company’s investment in Bank of Georgia and that this is the only liquid quoted investment held. We considered
subsequent movements in the Market Capitalisation of Bank of Georgia in light of the war in Ukraine and concluded that the decrease in
the share’s price of Bank of Georgia does not result in deterioration of the liquidity position to an extent where the disposal proceeds of any
investment would not provide mitigation to fund any liquidity shortfall during the going concern assessment period.

• We obtained and challenged Management’s assessment of the implications of the War in Ukraine on the activities of the Company,

including the impact on its cash and liquid assets forecast over the going concern period.

• We reviewed the Company’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 have observed that:
• The going concern scenarios modelled by management, including stress-testing, are consistent with our understanding of the financial position

of the Company and its financial commitments to portfolio company investments.

• Management’s stress testing does not indicate any shortfall in available liquidity in either scenario below the US$ 50 million liquid asset buffer

established by the Board for risk management purposes.

• Subsequent to the year end, cash proceeds of US$180 million were received in connection with the disposal of the Water Utility business.

At present these funds have not been allocated by the Board albeit US$ 95.4m million has been ringfenced for settlement of the GGU Eurobonds,
and the Board have indicated to Investors that any surplus funds will be utilised for investment, deleveraging and capital return policies in the light
of the prevailing economic outlook.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements
172

Georgia Capital PLC Annual Report 2021

173

INDEPENDENT AUDITOR’S REPORT CONTINUED

• The impact of the war in Ukraine is not expected to have a material impact on the going concern assessment or the liquidity outlook of the
Company given none of the portfolio companies are materially exposed to Russian, Belorussian or Ukrainian markets, except for the Wine
business, which due to the size is not expected to be material overall for GCAP.

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 company’s ability to continue as a going concern for a period to 31 March 2023.

Climate change
There has been increasing interest from stakeholders as to how climate change will impact Georgia Capital PLC. The Company has determined
that the most significant future impacts from climate change on its operations will be from the following:
• carbon price increases which could have a negative impact on fuel intensive businesses such as the Healthcare business.
•

the risk of disruption of distribution and supply chains as a result of physical events arising as a consequence of climate changes such as an
increasing frequency of heatwaves or more intense rainfall run-off.

In relation to the 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 company’s ability to continue
as a going concern.

Overview of our audit approach
Key audit matters

Valuation of unquoted investments.

Materiality

Overall materiality of GEL 14.4 million which represents 0.5% of the Net Asset Value (2020: GEL 11.1 million which
represents 0.5% of the Net Asset Value)

An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our determination of performance materiality determines our audit scope for the
Company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Company
and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed.

The annual report and accounts are prepared as an Investment Entity as defined by IFRS 10. We have audited the fair value of 100% of the
investment portfolio indirectly held by Georgia Capital PLC through Georgia Capital JSC. All audit work, including the valuation of underlying portfolio
investments, was performed directly by the Integrated audit engagement team. The scope and approach are consistent with our 2020 annual audit
of the Company.

Integrated audit team
In establishing our overall approach to the audit, we considered that all significant elements of the Company’s finance and accounting function are
situated and managed centrally in Georgia, and operate under one common internal control environment, and all operations of the Company are also
managed from this location.

The Senior Statutory Auditor is based in the UK, but since the Company management and operations reside in Georgia, the engagement audit team
operates as an integrated audit team including members from the UK, Georgia and Russia. All audit work performed for the purposes of the audit
was undertaken by the integrated audit team.

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 audit procedures in relation to the
significant risk area, namely valuation of unquoted investments was planned and directed by the UK audit team, including UK valuation specialists.
The Prospective Financial Information (‘PFI’) included within valuation models relating to unquoted investments was audited by the integrated team
including EY Georgia audit team members with appropriate knowledge of the underlying portfolio companies.

Under normal circumstances, the Senior Statutory Auditor and other UK audit team members would visit Tbilisi, Georgia several times during the
course of the audit. The purpose of these visits would be to discuss the audit approach with the integrated audit team members based in Tbilisi,
Georgia and any issues arising from their work. In addition, the Senior Statutory Auditor would meet with Company management to challenge key
assumptions in relation to fair valuation including appropriateness of methodology, the impact of climate risk, the assumptions underlying the going
concern forecast and the disposal of Water Utility business.

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 engagement team to fulfil its responsibilities under auditing
standards to evaluate, review and oversee the work of members of our integrated audit team in Tbilisi, Georgia on a remote basis.

Although initial plans were made to travel during the year end audit period in February, these were disrupted by Covid-19 travel restrictions which
meant that the planned visit was unable to take place. In the absence of being able to travel to Tbilisi, Georgia, we undertook regular video calls
with the Company’s management. We maintained an open dialogue with the Head of Internal Audit, management’s internal and external valuation
specialists and environmental, social and governance specialists. The Senior Statutory Auditor and integrated audit team held virtual meetings
with management of the largest portfolio companies. The purpose of these meetings was to ensure a comprehensive understanding of business
performance in 2021, and to understand and challenge the key assumptions in relation to the prospective financial information in the context of the
valuation of unquoted investments.

We held frequent video calls with the Georgia based members of our audit team during the key phases of the audit to discuss our audit approach,
results and any issues arising from our work. We performed a remote review of working papers through the use of our audit software which facilities
the sharing of audit files across the Integrated audit team. The UK members of the Integrated audit team maintained an open communication with
the Georgian members where appropriate during various stages of the audit and were responsible for the direction, review and oversight of the audit
process on a remote basis.

These are explained on pages 92-97 in the required Task Force for Climate related Financial Disclosures and on pages 75 to 82 in the principal risks
and uncertainties, which form part of the “Other information,” rather than the audited financial statements. Our procedures on these disclosures
therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appear to be materially misstated.

As explained in note 12 governmental and societal responses to climate change risks are still developing, and are interdependent upon each
other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. The degree of certainty of
these changes may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash
flows under the requirements of UK-adopted International Accounting Standards. In note 12 to the financial statements supplementary sensitivity
disclosures and narrative explanation of the impact of reasonably possible changes in key assumptions have been provided and significant
judgements and estimates relating to climate change have been described in that same note.

Our audit effort in considering climate change was focused on ensuring that the effects of material climate risks disclosed on pages 94 and 95 have
been appropriately reflected in relation to the valuation of unquoted investments and associated disclosures. Details of our procedures and findings
on the valuation of unquoted investments are included in our key audit matters below. We also challenged the Directors’ considerations of climate
change in their assessment of going concern and viability and associated disclosures.

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

Valuation of unquoted investments
(GEL 2.935m, 2020: GEL 2.376m)

Refer to the Audit and Valuation Committee
Report (pages 137-142); Accounting policies
(pages 189-193); and Note 12 of the Financial
Statements (pages 204-209).

The fair value of the investment portfolio is
included within the valuation of the single direct
subsidiary presented under the account ‘Equity
investments at fair value’ in the statement of
financial position. The investment portfolio
includes a number of unquoted businesses.

•

The discount which exists in relation to Georgia
Capital PLC’s Market Capitalisation to Net
Asset Value has remained significant (51%)
at 31 December 2021 (2020: 48%). The size
of this discount could be indicative of material
overstatement of the unquoted portfolio
companies’ fair value.

Our procedures were performed by the Integrated audit
team. 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 UK valuation specialists, we:

• compared management’s valuation methodology to

IFRS and the IPEV guidelines. We sought explanations
from management where there were judgments used
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
using our comparative discount rate assumption in
relevant 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, confirmed with integrated team
responsible for the audit of these entities and performed
analytical review procedures to make sure the input data
was reasonable;

Key observations communicated
to the Audit Committee

Our work included assistance
from EY Valuation experts
combined with a further review by
EY audit team of the PFI including
the application of sensitivities.

Major judgments relate to
determination of an appropriate
valuation method, peer group
and applicable earnings
multiples, discount rates
and cashflow projections.

The transaction in relation to the
Water Utility business provides
corroborative evidence to support
the fair values attributed to this
business as at 31 December 2021.

We consider the valuation
methodologies selected to
cross-check the values attributed
to certain assets to be more
appropriate as primary valuation
methodologies than those adopted
by management and
management’s specialist.

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Georgia Capital PLC Annual Report 2021

175

Key observations communicated
to the Audit Committee

Based upon our audit procedures
performed we have identified
judgmental unadjusted audit
differences relating to investment
portfolio valuation which
individually and in aggregate are
immaterial in relation to the financial
statements taken as a whole.

We are satisfied that the disclosures
in the financial statements are
sufficient and appropriate.

INDEPENDENT AUDITOR’S REPORT CONTINUED

Risk

Our response to the risk

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
judgments to be made by management,
including in relation to the impact of climate risk.

These judgments 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 judgments in order to meet
market expectations of the overall net asset
value of the Company and also influence
their compensation.

• we checked the mathematical accuracy of the

valuation models;

• We performed the following procedures on key judgments
made by management in the calculation of fair value:
– evaluated the appropriateness of discount rates by
performing independent calculation which provided
corroborative evidence;

– discussed with management of large portfolio

investments the key assumptions applied to calculate
future cash flows and terminal value and corroborated
this to supporting documentation. We applied
sensitivities to certain assumptions informed by
our independent benchmarking of these assumptions.
In determining those sensitivities, we considered,
among other matters, historical accuracy of
management’s forecasting;

– evaluated the COVID-19 and climate risk impact on
the valuations including challenge from climate and
valuation specialists; and

– evaluated whether the buyout of the minority

shareholders in Pharmacy business provides contrary
evidence in relation to the fair value of the Pharmacy
business as at 31 December 2021.

• We considered the difference between the Company’s

market capitalisation and its Net Asset Value and
challenged management’s considerations as to the
reasons for that difference by performing an independent
market analysis of peer companies trading metrics and
reviewing the Edison Research analysts’ report dated
5 January 2022.
In respect of the agreement to sell 80% of the Water Utility
business for US$ 180 million, we inspected the terms
and conditions of the SPA in relation to the disposal of
the Water Utility business the context of the valuation
attributed. We agreed the price per the signed SPA to
valuation assigned for the Water Utility business;

•

• We engaged our real estate valuation specialists to assist
us testing 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 read the property valuation
report which covered a sample of properties, prepared
by Management’s 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.

Risk

Our response to the risk

Key observations communicated
to the Audit Committee

• We evaluated the experience and objectivity of

management’s independent valuation 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 our range at both individual and
the total portfolio level.

• We assessed the disclosures against the requirements

of IFRS 10 and IFRS 13.

There are no changes in our key audit matters from the prior year.

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 Company to be GEL 14.4 million (2020: GEL 11.1 million), which is 0.5% (2020: 0.5%) of Net Asset Value. We believe
that Net Asset Value provides us with an appropriate basis for audit materiality as Net Asset Value is a key published performance measure and is
the key metric used by investors, analysts and management in assessing and reporting on the overall performance of the Company. The materiality
basis and percentage applied is consistent with our 2020 annual audit.

During the course of our audit, we reassessed initial materiality and increased the final materiality from our original assessment at planning
of GEL 12.7 million. No additional testing was required due to an amendment in final materiality. This increase reflects our assessment based
on the actual results for the current year.

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 Company’s overall control environment, our judgement was that
performance materiality was 50% (2020: 50%) of our planning materiality, namely GEL 7.2 million (2020: GEL 5.5 million). We have set performance
materiality at this percentage due to the estimation uncertainty of the valuation of unquoted investments in the statement of financial position.

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 0.72 million
(2020: GEL 0.56 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,

Portfolio Overview, S172 Statement, Risk Management, Risk Overview and Resources and Responsibilities, set out on pages 2 to 121;

• 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 122 to 170; and

• Additional information, including Abbreviations, Glossary and Shareholder information, set out on pages 212 to 216.

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Georgia Capital PLC Annual Report 2021

177

INDEPENDENT AUDITOR’S REPORT CONTINUED

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 this gives rise to 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 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 Company and its environment obtained in the course of the audit, we have not identified
material misstatements in the strategic report or directors’ report.

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, or returns adequate for our audit have not been received from branches not visited by us; or
•

the 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
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement
relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.

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 73 and 182-183;

• Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate

set out on pages 73 and 182-183;

• Director’s statement on whether it has a reasonable expectation that the Company will be able to continue in operation and meets its liabilities

set out on pages 73 and 182-183;

• Directors’ statement on fair, balanced and understandable set out on page 167;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 75-82;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages

70-74; and

• The section describing the work of the audit and valuation committee set out on pages 137-142.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 167, 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.

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 Company and determined that the most

significant are those that relate to the reporting framework (UK adopted Internal Accounting Standards, Companies Act 2006, the UK Corporate
Governance Code and the Listing Rules of the UK Listing Authority requirements) together the corporate tax regime in both the UK and Georgia.

• We understood how Georgia Capital PLC 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 also reviewed correspondence between the Company and its regulators;
reviewed minutes of the Board and its committees; and gained an understanding of the Company’s approach to governance, demonstrated
by the Board’s approval of the Company’s governance framework and the Board’s review of the Company’s risk management framework and
internal processes.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved making enquiry of those charged with governance and senior management for their awareness of any non-compliance of laws or
regulations, inquiring about the policies that have been established to prevent non-compliance with laws and regulations by officers and
employees, inquiring about the Company’s methods of enforcing and monitoring compliance with such policies, inspecting significant
correspondence with the regulators.

• We assessed the susceptibility of the Company’s financial statements to material misstatement, including how fraud might occur by considering
the controls that the Company has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud.
We also considered areas of significant judgement, complex transactions, performance targets, economic or external pressures and the impact
these have on the control environment. Where this risk was considered to be higher, we performed audit procedures to address each identified
fraud risk which included management, internal audit and legal enquiries, journal entry testing, analytical procedures, tests of detail and focused
testing. 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. These
procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error.

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.

Other matters we are required to address
• Following the recommendation from the audit committee, we were appointed by the Company in 2018, following a competitive tender process,
and re-appointed by shareholders at the 2021 AGM to audit the financial statements for the year ending 31 December 2021 and subsequent
financial periods. We were appointed as auditors by the Company and signed an engagement letter on 20 July 2021 and addendum dated
14 February 2022.

• The period of total uninterrupted engagement including previous renewals and reappointments is four years, covering the years ending

31 December 2018 to 31 December 2021.

• The audit opinion is consistent with the additional report to the audit and valuation committee.

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.

In preparing the financial statements, the directors are responsible for assessing the 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
Company or to cease operations, or have no realistic alternative but to do so.

Alistair Denton (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor Leeds
24 March 2022

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.

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Georgia Capital PLC Annual Report 2021

STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021 (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

Total equity

Total liabilities and equity

Notes

31 December
2021

31 December
2020

7,200
406
2,881,373

855
426
2,213,290

2,888,979

2,214,571

5,357
5,357

2,279
2,279

1,547
238,311
2,643,764

1,574
238,311
1,972,407

2,883,622

2,212,292

2,888,979

2,214,571

* As at 31 December 2021 and 31 December 2020 cash and cash equivalents consist of current accounts with credit institutions.

The Company’s distributable reserves as at 31 December 2021 were GEL 1,293,084 (31 December 2020: 1,311,489).

The financial statements on page 178 to 181 were approved by the Board of Directors on 24 March 2022 and signed on its behalf by:

Irakli Gilauri
Chief Executive Officer

Georgia Capital PLC
Registered No. 1085240

The accompanying notes on pages 182 to 211 are an integral part of these financial statements.

Gains on investments at fair value
Dividend income
Transaction costs

Gross investment profit

Administrative expenses
Salaries and other employee benefits

Profit before foreign exchange and non-recurring items

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

The accompanying notes on pages 182 to 211 are an integral part of these financial statements.

6
6
12

9
9

179

2020

339,174
–
–

339,174

(5,430)
(2,519)

Notes

2021

689,762
14,481
(2,937)

701,306

(5,512)
(2,691)

693,103

331,225

(222)

(891)

692,881

330,334

–

692,881

330,334

–

692,881

330,334

15.6533
15.2932

8.2302
8.1966

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Georgia Capital PLC Annual Report 2021

181

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

31 December 2019

Profit for the year
Total comprehensive profit for the year
Increase in equity arising from share-based payments (Note 10)
Issue of share capital (Note 8)
Transaction costs recognised directly in equity (Note 8)
Purchase of treasury shares

Additional
paid-in capital
and merger
reserve*

Retained
earnings

Total

108,863

1,641,838

1,752,021

–
–
–
138,011
(8,563)
–

330,334
330,334
552
–
–
(317)

330,334
330,334
552
138,265
(8,563)
(317)

Share
capital

1,320

–
–
–
254
–
–

31 December 2020

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.

31 December 2020

Profit for the year
Total comprehensive profit for the year
Increase in equity arising from share-based payments (Note 10)
Cancellation of shares (Note 8)
Purchase of treasury shares (Note 8)

Additional
paid-in capital
and merger
reserve

238,311

Share
capital

1,574

–
–
–
(27)
–

–
–
–
–
–

31 December 2021

1,547

238,311

The accompanying notes on pages 182 to 211 are an integral part of these financial statements.

Treasury
Shares

Retained
earnings

Total

–

–
–
–
27
(27)

–

1,972,407

2,212,292

692,881
692,881
534
–
(22,058)

692,881
692,881
534
–
(22,085)

2,643,764

2,883,622

Cash flows from operating activities

Salaries and other employee benefits paid
General, administrative and operating expenses paid

Net cash flows used in operating activities before income tax

Income tax paid

Net cash flow used in operating activities

Cash flows from investing activities
Capital redemption from subsidiary
Dividends received

Cash flows from investing activities

Cash flows from financing activities
Other purchases of treasury shares
Contributions under share-based payment plan
Transaction costs incurred in relation to share issuance

Net cash used in financing activities

Effect of exchange rates changes on cash and cash equivalents

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year

The accompanying notes on pages 182 to 211 are an integral part of these financial statements.

Notes

31 December
2021

31 December
2020

2
6

8
8
8

(2,173)
(5,442)

(7,615)
–

(7,615)

21,679
14,481

36,160

(21,891)
(194)
–

(22,085)

(115)

6,345

855
7,200

(2,109)
(4,966)

(7,075)
–

(7,075)

21,180
–

21,180

–
(317)
(14,215)

(14,532)

(388)

1,243
855

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements182

Georgia Capital PLC Annual Report 2021

183

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

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 JSC Georgia Capital (“JSC GCAP”), which together make up a
group (the “Group”), focused on buying, building and developing businesses in Georgia. The Group currently holds investments in 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. 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 42 Brook Street, London W1K 5DB, England, United Kingdom.

As at 31 December 2021 and 31 December 2020, 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

Allan Gray Ltd
M&G Investment Management Ltd
Eaton Vance
Others

Total

31 December
2021

31 December
2020

6%
4%
1%
89%

100%

1%
6%
6%
87%

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.

References to the Group are applied in these financial statements in the context of going concern assessment, segment, fair valuation and risk
management disclosures.

2. Basis of Preparation
General
The financial statements have been prepared in accordance with UK-adopted international accounting standards (“IFRS”).

These financial statements are prepared under the historical cost convention except for investments in subsidiaries held at fair value through
profit or loss (FVPL).

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.

As of 31 December 2021, the Company continues to meet the definition of investment entity. Further details on the investment entity status and
underlying significant judgments are provided in notes 3, 4, 6 and 12 respectively.

Going concern
The Board of Directors of Georgia Capital has made an assessment of the 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 2023. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the
Company’s ability to continue as a going concern for the foreseeable future. Therefore, the financial statements continue to be prepared on a going
concern basis.

2. Basis of Preparation continued
Going concern continued
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 2023. As a response to the COVID-19 uncertainties, during 2020, Georgia Capital was focused on limiting
capital allocations, optimising operating expenses and accumulating and preserving cash. In 2021, portfolio companies delivered strong operating
performance, which was reflected in dividend receipts and interest inflows from the portfolio companies towards Georgia Capital. On 16 March 2021
the 100% subsidiary of Georgia Capital PLC, JSC Georgia Capital, placed a US$ 65 million (GEL 215.8 million) Eurobond tap issue, which was
consolidated and forms a single series with the existing US$ 300 million 6.125% senior notes due in March 2024.

The main source of cash inflow for GCAP PLC is capital redemption from JSC GCAP, which holds the liquid assets to support the liquidity needs
of the Company as well. As at 31 December 2021, JSC GCAP holds cash in the amount of GEL 89,714, amounts due from credit institutions in the
amount of GEL 35,667 and marketable debt securities and redeemable securities in the amount of GEL 79,716 and GEL 17,849 respectively (refer to
note 12). Securities are considered to be highly liquid, as they are debt instruments listed on international and local markets. On 2 February 2022 the
Group received US$ 180 million (GEL 548 million) cash consideration for disposal of its controlling interest in the water utility business. The Group has
a policy to maintain a US$ 50 million liquid assets buffer at all times (note 11).

The liquidity needs of the Group during the going concern review period mainly consist of the coupon payments on JSC GCAP Eurobonds and the
operating costs of running the holding companies, capital allocations to its portfolio companies, the buyback programme and loan commitment to
the renewable energy business as part of the completion of the Water Utility sale transaction (described below). The liquidity outlook also assumes
dividend income from the defensive businesses of the Group (healthcare, pharmacy, renewable energy, and insurance) and Bank of Georgia PLC.
Capital allocations are assumed in relation to investment stage companies (Renewable Energy and Education).

On 2 February 2022 the JSC GCAP completed first stage in the proposed two-stage transaction, disposal of controlling interest in Georgia Global
Utilities JSC ("GGU") to FCC Aqualia for US$ 180 million. Sale proceeds have been received on 2 February 2022. US$ 6.7 million transaction related
costs will be paid out of the proceeds in first quarter 2022. At the second stage of the transaction, which is anticipated to occur in the third quarter
of 2022, GCAP will be issuing a US$ 95.4 million loan to the renewable energy business in order to fund the redemption of Green Eurobonds held
by GGU. This funding amount represents the pro-rata share of the Green Eurobonds which the Group is required to fund in accordance with the
requirements of the Sale and Purchase Agreement. Initially, upon receipt, the USD 180 million (GEL 548 million) proceeds will be held as cash and
liquid assets and will be invested in high yielding deposits of Georgian Banks and in debt securities, pending a review by Board to determine the
appropriate investment, deleveraging and capital return policies in the light of the prevailing economic outlook, the share price and discount to net
asset value. The results of Board review will be announced in May 2022, at Investor Day to be held by the Company.

War in Ukraine started on 24 February 2022, which lead to a severe sanction imposed to Russia and significant deterioration of Russian Ruble. It is
expected that the war may lead to a negative impact on the Georgian economic growth in 2022. As the war is still waging, it is impossible to reliably
assess the impact this may have on the Company's business as there is uncertainty over the magnitude of the impact on the economy in general.
None of the portfolio companies are materially exposed to Russian, Belorussian or Ukrainian markets, except for Wine business, however due to the
size of the wine business it is not expected to be material overall for GCAP and its liquidity outlook. GCAP’s exposure on liquid funds such as debt
securities issued by affected countries, are not material.

A large part of Georgia Capital’s portfolio is concentrated across defensive countercyclical sectors: healthcare, pharmacy distribution and insurance
businesses. Georgia Capital has an adequate liquidity position as at 31 December 2021. Management is also satisfied that Georgia Capital’s
liquidity forecast is comprehensive considering the continuing coronavirus risk. GCAP’s liquidity levels remain robust, aided by a strong dividend
income outlook from the private portfolio companies and also from Bank of Georgia Group PLC. As a result, in August 2021 the Board approved
a US$ 10 million share buyback and cancellation programme. In January 2022, the Board approved an increase in the ongoing buyback and
cancellation programme of an additional US$ 5 million in January 2022 and US$ 5 million in March 2022. The programme continues for the
12-month period beginning 10 August 2021; respective cash flows are incorporated in the going concern assessment of the Company.

The Company has been increasingly assessing climate-related risk and opportunities that may be present to the Group. During the going concern
period no significant risk has been associated to the Group and portfolio companies that would materially impact their ability to generate sufficient
cash and continue as going concern.

In addition to the base case scenario described above, a further downside assessment has been prepared, which demonstrates that, even in
a stressed scenario, which assumes no dividend inflows and only partial loan repayments from the portfolio businesses that have been most
negatively affected by the COVID-19 whilst retaining forecast capital allocations, the existing cash and highly liquid debt investment securities,
including US$ 180 million (GEL 548 million) cash proceeds of GGU sale received on 2 February 2022, will be sufficient to cover the expected cash
outflows of the holding companies for the going concern review period. Further to the loan commitment to the renewable energy business described
above, Georgia Capital does not have any formal capital or debt commitments to its portfolio companies, with the exception of an EUR 16 million
(31 December 2020: EUR 18 million) financial guarantee issued to a portfolio company owned by JSC GCAP. Management has assessed the
probability of this guarantee being exercised as remote and has excluded it in the overall assessment accordingly. Georgia Capital does not
have a primary mandate to deploy funds or divest assets within a specific time frame.

Based on the considerations outlined above, management of Georgia Capital concluded that going concern basis of preparation remains
appropriate for these financial statements.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements184

Georgia Capital PLC Annual Report 2021

185

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

2. Basis of Preparation continued
Subsidiaries and associates
The total amount of investment in subsidiaries in the Company’s statement of financial position as at 31 December 2021 was GEL 2,881,373
(as at 31 December 2020: 2,213,290) represented by direct investment in JSC Georgia Capital. As at 31 December 2021 and 31 December 2020
investment in JSC Georgia Capital (Note 12) is measured at fair value. As at 31 December 2021 and 31 December 2020 equity investments
of JSC Georgia Capital include the following subsidiaries and associates:

2. Basis of Preparation continued
Subsidiaries and associates continued

Subsidiaries

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

Address

Industry

Vere Real Estate, LLC

100.00%

Georgia

10 Givi Kartozia st., Tbilisi

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

Address

Industry

Date of
incorporation

Date of
acquisition

Subsidiaries

JSC Georgia Capital
JSC Georgia Real Estate

m2 Group, LLC

m2 Development, LLC
Optima ISANI, LLC*
Tamarashvili 13, LLC*
m2 Skyline, LLC*
m2 at Kazbegi, LLC*
m2 at Tamarashvili, LLC*
m2 at Nutsubidze, LLC*

M Square Park, LLC
Optima Saburtalo, LLC
m2 at Chavchavadze,
LLC*
Land, LLC

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%
100.00%
100.00%
100.00%
100.00%
100.00%

100.00%
100.00%
100.00%

Kazbegi street 3-5, Tbilisi
Georgia
Kazbegi street 15, Tbilisi
Georgia
Kazbegi street 15, Tbilisi
Georgia
Kazbegi street 15, Tbilisi
Georgia
Georgia
14 a Moscow ave., Tbilisi
Georgia 13 Tamarashvili Str., Tbilisi, 0179
Georgia
3 Maro Makashvili st., Tbilisi
25 Kazbegi Ave., Tbilisi, 0160
Georgia
6 Tamarashvili Str., Tbilisi, 0177
Georgia
82 Shalva Nutsubidze Str.,
Georgia
Tbilisi
Georgia
1 Marshal Gelovani ave., Tbilisi
2 Mikheil Shavishvili st, Tbilisi
Georgia
Georgia 50 I. Chavchavadze Ave., Tbilisi

Investment
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
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
24/7/2015
21/5/2013
21/5/2013
21/5/2013

15/9/2015
15/9/2015
5/9/2016

100.00%

Georgia

100.00%

Georgia

Between university and
Kavtaradze st., Tbilisi
Kazbegi street 15, Tbilisi

Real estate

3/10/2014

Real estate

24/1/2020

–

m2 at Nutsubidze 2,
LLC (formerly m2 New
District, LLC)
JSC New Development
–
m2 at Hippodrome, LLC 100.00%
100.00%
100.00%
100.00%
100.00%
100.00%

Optima ISANI, LLC*
Tamarashvili 13, LLC*
m2 Skyline, LLC*
m2 at Kazbegi, LLC*
m2 at Tamarashvili,
LLC*
m2 at Nutsubidze,
LLC*
m2 at Chavchavadze,
LLC*
Optima, LLC
BK Construction, LLC
BK Production, LLC

100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%

Georgia
Kazbegi street 15, Tbilisi
Georgia
10 Givi Kartozia st., Tbilisi
14 a Moscow ave., Tbilisi
Georgia
Georgia 13 Tamarashvili Str., Tbilisi, 0179
Georgia
3 Maro Makashvili st., Tbilisi
25 Kazbegi Ave., Tbilisi, 0160
Georgia
6 Tamarashvili Str., Tbilisi, 0177
Georgia

Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate

27/1/2020
6/7/2015
25/7/2014
3/11/2011
24/7/2015
21/5/2013
21/5/2013

100.00%

Georgia

82 Shalva Nutsubidze Str.,
Tbilisi
Georgia 50 I. Chavchavadze Ave., Tbilisi

Real estate

21/5/2013

Real estate

5/9/2016

100.00%
–
–

100.00%
100.00%

100.00%
50.00%
50.00%

–
–

Kazbegi street 15, Tbilisi
Georgia
Georgia
Kazbegi street 15, Tbilisi
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
Kazbegi street 15, Tbilisi
10 Givi Kartozia st., Tbilisi

Georgia
Georgia

Real estate
Construction
Construction

3/8/2016
18/5/2017
27/6/2019

–
2/6/2017
–

Real estate
Real estate

20/7/2021
31/12/2021

100.00%

Georgia

Kazbegi street 15, Tbilisi

Hospitality

17/8/2015

m2 Maintenance, LLC
m2 at Mtatsminda Park,
LLC

Georgia Real Estate
Management Group, LLC

Amber Group, LLC

Kakheti Wine and Spa,
LLC
Gudauri Lodge, LLC

100.00%
100.00%

100.00%

m2 Svaneti, LLC

100.00%

m2 Hatsvali, LLC

100.00%

m2 Resort, LLC

100.00%

m2 Mtatsminda, LLC
Georgia Property
Management Group, LLC

100.00%
100.00%

Georgia
Kazbegi street 15, Tbilisi
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
Georgia 80 Aghmashenebeli ave., Tbilisi,
0102
22 Zaal Dumbadze st., Tbilisi
Kazbegi street 15, Tbilisi

Georgia
Georgia

Hospitality
Hospitality

10/12/2019
23/04/2018

Hospitality

24/04/2018

Hospitality

14/11/2018

Hospitality

17/4/2019

Hospitality

11/2/2019

Hospitality
Commercial
assets

16/10/2014 26/12/2017
–
4/10/2018

–
–
–
–
–
–
–
–
–
–

–
–
–

–

–
–
–
–
–
–
–

–

–
–

–

–
–

–

m2 Kutaisi, LLC
m2 at Melikishvili, LLC
Melikishvili Hotel
Property, LLC
m2 Zugdidi, LLC

Georgia Commercial
Assets, LLC
Georgia Hospitality
Management Group, LLC
Georgia Real Estate
Management Group
Gudauri, LLC

JSC Georgian Renewable
Power Company
JSC Geohydro

JSC Caucasus Wind
Company (formerly JSC
Caucasian Wind Company)
JSC Caucasus Solar
Company (formerly JSC
Caucasian Solar Company)
Bakhvi 2, LLC

Racha Hydro, LLC

Caucasus Autohouse,
LLC

Georgia Hotels
Management Group, LLC

100.00%

Georgia

100.00%

Georgia

m2, LLC

100.00%

Georgia

100.00%
100.00%
100.00%

100.00%
100.00%
–

Georgia
Georgia
Georgia

Date of
incorporation

Date of
acquisition

4/3/2010

6/8/2018

29 Ilia chavchavadze Ave.,
Tbilisi, 0105
Kazbegi street 15, Tbilisi

29 Ilia chavchavadze Ave.,
Tbilisi, 0105
10 Melikishvili ave., Tbilisi
10 Melikishvili ave., Tbilisi
10 Melikishvili ave., Tbilisi

Commercial
assets
Commercial
assets
Hospitality

Hospitality/
Real estate
Hospitality
Hospitality
Hospitality

29/3/2011

16/12/2019

12/2/2014

17/5/2017
17/5/2017
3/2/2021

100.00%

Georgia

80 Aghmashenebeli ave.,

Hospitality

7/11/2018

100.00%

Georgia

Tbilisi, 0102
Kazbegi street 15, Tbilisi

100.00%

Georgia

Kazbegi street 3-5, Tbilisi

100.00%

Georgia Georgia, Dusheti region, village
Seturebi

Commercial
assets
Hospitality

23/12/2020

22/8/2018

Hospitality

12/5/2019

100.00%

Georgia

–

85.00%

Georgia

JSC Zoti Hydro

100.00%

Georgia

100.00%

Georgia

10 Medea (Mzia) Jugheli st,
Tbilisi, 0179
79 D.Agmashenebeli Ave,
Tbilisi, 0102
10 Medea (Mzia) Jugheli st,
Tbilisi, 0179
10 Medea (Mzia) Jugheli st,
Tbilisi, 0179

Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy

15/9/2015

11/10/2013

20/8/2015

14/9/2016

100.00%

Georgia

10 Medea (Mzia) Jugheli st,
Tbilisi, 0179

Renewable
Energy

27/10/2016

–

95.00%

Hydro S, LLC

100.00%

Georgia Geothermal
Company, LLC

JSC A Group

JSC Insurance Company
Aldagi

JSC Insurance Company
Tao
Aliance, LLC

100.00%

100.00% 100.00%

Auto Way LLC

100.00% 100.00%

JSC Carfest

75.00%

Georgia

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
Georgia 1, Berbuki str., Saburatlo, Tbilisi

Georgia

66A, David Aghmashenebeli
Alley, Tbilisi
66A, David Aghmashenebeli
Alley, Tbilisi
Georgia 20, Chavchavadze ave., floor 2,
Vake-Saburtalo, Tbilisi
20, Chavchavadze ave., Vake,
Tbilisi
20, Chavchavadze ave., Vake,
Tbilisi

Georgia

JSC Greenway Georgia

100.00% 100.00%

Georgia

6, University str., Vake,

JSC GreenWash (formerly
GreenWash, LLC)

Georgia Healthcare Group
Limited (formerly GHG PLC)
JSC Georgia Healthcare
Group

JSC Insurance Company
Imedi L

75.00%

Georgia

142, Akaki Beliashvili str,

Tbilisi

100.00%

United
Kingdom
Georgia

84 Brook Street,
London, W1K 5EH
142, A. Beliashvili str, Tbilisi

100.00%

Georgia

9, Anna Politkovskaias Str.
Vake-Saburtalo District, Tbilisi

22/10/2015 8/23/2019

31/10/2019

–

18/1/2019 10/28/2019

Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Various

16/12/2019

20/9/2018

Insurance

11/8/1998

Insurance

22/8/2007

1/5/2015

Various

1/8/1998 30/4/2012

Various

27/12/2010 30/4/2012

Leasing

17/11/2017

–

Vehicle
Inspection
Car Wash

9/7/2010

1/5/2012

31/8/2018

–

Healthcare

27/8/2015 28/8/2015

Healthcare

29/4/2015

Insurance

22/6/2007

–

–
–
–

–

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements186

Georgia Capital PLC Annual Report 2021

187

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

2. Basis of Preparation continued
Subsidiaries and associates continued

Subsidiaries

JSC GEPHA

JSC ABC Pharamcia
(Armenia)
ABC Pharmalogistics,
LLC
JSC Iverta

AKG AVELIN QAN
DEGHATUN, LLC
(Armenia)
JSC Georgian Logistics
AZPHA, LLC (Azerbaijan)

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

67.00%

Georgia

100.00%

Armenia

100.00%

Georgia

100.00%

100.00%
100.00%

–

–
–

Armenia

Georgia
Azerbaijan

Georgia

A. Beliashvili str. 142,

Address

Industry

142, A. Beliashvili str,

Tbilisi
Kievyan Str. 2/8, Erevan,
Armenia

Peikrebi str. 14a,

Tbilisi

Tbilisi
26/1 Vazgen Sargsyan Street,
/Office 412/Yerevan 0010,
Armenia
A. Beliashvili str. 142, Tbilisi
Azerbaijan, Baku, Sabunchu
District, Bakikhanovi area,
131, A. Ahgaievi Street,
Apartment 43
Stanislavski str. 5, Tbilisi
142, A. Beliashvili str, Tbilisi
142, A. Beliashvili str, Tbilisi
142, A. Beliashvili str, Tbilisi
23, P. Kavtaradze Str., Tbilisi

Date of
incorporation

Date of
acquisition

19/10/1995

4/5/2016

28/12/2013

6/1/2017

24/2/2004

6/1/2017

17/2/2021

28/6/2019

8/10/2021
17/9/2021

–

–
–

1/8/2014
13/2/2015

24/11/2021 14/12/2015
1/8/2014
–
3/1/2017 20/7/2017
11/6/2015

12/1/2012

Pharmacy and
Distribution
Pharmacy and
Distribution
Pharmacy and
Distribution
Pharmacy and
Distribution
Pharmacy and
Distribution

Other
Pharmacy and
Distribution

Other
Healthcare
Healthcare
Healthcare
Healthcare

U. Chkeidze str. 10, Tbilisi
Djavakhishvili str. 85, Kutaisi

Healthcare
Healthcare

5/9/2003
6/7/2016
5/5/2003 29/11/2011

100.00%
100.00%
100.00%
100.00%
99.80%

–
100.00%
100.00%
100.00%
99.80%

100.00%
67.00%

Georgia
Georgia
Georgia
Georgia
Georgia

Georgia
Georgia

2. Basis of Preparation continued
Subsidiaries and associates continued

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

100.00%

Georgia

100.00%

Georgia

Subsidiaries

JSC Georgian Global
Utilities (formerly Georgian
Global Utilities, LLC)

Georgian Water and
Power, LLC

Rustavi Water, LLC

100.00%

Georgia

100.00%

Georgia

Gardabani Sewage
Treatment, LLC

Georgian Engineering and
Management Company
(GEMC), LLC

JSC Saguramo Energy

100.00%

Georgia

JSC Svaneti Hydro

100.00%

Georgia

Qartli Wind Farm, LLC

100.00%

Georgia

Georgian Energy Trading
Company (GETC), LLC

100.00%

Georgia

Hydrolea, LLC

100.00%

Georgia

Geoenergy, LLC

100.00%

Georgia

Hydro Georgia, LLC

100.00%

Georgia

Darchi, LLC

100.00%

Georgia

Kasleti 2, LLC

100.00%

Georgia

Address

Industry

Date of
incorporation

Date of
acquisition

10 Medea (Mzia) Jugheli st,
Tbilisi, 0179

Utilities

22/01/2020 31/12/2014

Utilities

25/06/1997 31/12/2014

5, St. Nino St., Rustavi

Utilities

31/08/1999 31/12/2014

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
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
75 Chavchavadze Ave., Tbilisi

Utilities

20/12/1999 31/12/2014

Utilities

20/03/2011 31/12/2014

Utilities

11/12/2008 31/12/2014

Renewable
Energy
Renewable
Energy
Renewable
Energy Sales

Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Renewable
Energy
Beer
Production
and
Distribution
Investment

6/12/2013

–

10/9/2012 30/12/2019

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

14/11/2016

7/2/2018

17/12/2019

–

Euroline LLC

JSC Evex Hospitals

EVEX-Logistics, LLC
New Clinic, LLC
Caucasus Medical Center,
LLC
JSC Pediatry
JSC Kutaisi Regional
Mother and Infant
Treatment-Diagnostic
Centre (formerly JSC
Kutaisi County Treatment
and Diagnostic Center for
Mothers and Children)
West Georgia Medical
Center, LLC (formerly LL
Academician Z. Tskhakaia
National Centre of
Intervention Medicine of
Western Georgia)
NCLE Evex Learning
Centre
Emergency Service, LLC

JSC Polyclinic Vere

New Dent, LLC

JSC Mega-Lab

LLC Patgeo-Union of
Pathologists (formerly
JSC Patgeo)

Scientific-Research
Center – Mega-Lab
N(N)LE

JSC Vabaco

JSC Ekimo

Dart, LLC

67.00%

Georgia

A Djavakhishvili str. 83A,

Healthcare

9/12/2011 29/11/2011

Kutaisi

JSC Georgian Beverages

100.00%

Georgia

100.00%

Georgia

83A, Javakhishvili street,

Other

20/12/2013 20/12/2013

85.00%

Georgia

N(NL)E Blood Center

100.00%

–

Georgia

JSC Evex Clinics

100.00%

Georgia

Tbilisi
6 Building, 13/6 Lubliana str.
Tbilisi
Javakhishvili str. N85/
Javakhishvili str. N83A, Kutaisi
142, A. Beliashvili str, Tbilisi

Healthcare

18/6/2013

8/5/2015

Healthcare

23/12/2021

Healthcare

1/4/2019

–

Tskaltubo Regional
Hospital, LLC

67.00%

Georgia

16 Eristavi street, Tskhaltubo

Healthcare

29/9/1999

9/12/2011

LLC Aliance Med

100.00%

98.35%

75.00%

92.00%

97.80%

75.00%

92.00%

Georgia

142, A. Beliashvili str, Tbilisi

Healthcare

7/7/2015 20/7/2017

142, A. Beliashvili str, Tbilisi

Healthcare

22/11/2015 25/12/2017

142, A. Beliashvili str, Tbilisi

Healthcare

24/12/2018

Georgia

Petre Kavtaradze str. 23, Tbilisi

Healthcare

6/6/2017

JSC Georgian Beverages
Holding

JSC Teliani Valley

Teliani Trading (Ukraine),
LLC

87.39%

Georgia

8a Petre Melikishvili Ave, Tbilisi,
0179

100.00%
100.00%

Georgia
Ukraine

3 Tbilisi highway, Telavi.
18/14 Khvoiki St. Kiev

Winery
Distribution

30/6/2000 28/2/2007
3/10/2006 31/12/2007

Teliani Europe GmbH

100.00%

–

Germany

Georgia Logistics and
Distribution, LLC

100.00%

Georgia

Kurfürstendamm 195 10707
Berlin
2 Marshal Gelovani St, Tbilisi

Distribution

15/6/2021

–

Distribution

10/1/2006 27/3/2007

Le Caucase, LLC

100.00%

Georgia

2 Marshal Gelovani St, Tbilisi

Kupa, LLC

70.00%

Georgia

3 Tbilisi highway, Telavi

Global Beer Georgia, LLC

100.00%

Georgia

Tsilkani, Mtskheta Region

100.00%

Georgia

Mukhiani, II mcr. District,
Building 22, 1a, Tbilisi

Healthcare

13/1/2010 27/9/2016

100.00%

–

Georgia

Petre Kavtaradze str. 23, Tbilisi

Healthcare

25/5/2021

–

Kindzmarauli Marani, LLC

100.00%

67.00%

Georgia

Bochorishvili str. 37, Tbilisi

9/9/2013 28/9/2018

67.00%

100.00%

–

Georgia

A. Tsereteli ave. 123, Tbilisi

14/12/2021

A. Beliashvili str. 142, Tbilisi

Other

14/6/2021

Software
Development
Other

Alaverdi, LLC

Global Coffee Georgia,
LLC

New Coffee Company,
LLC

100.00%

Georgia

56 A. Tsereteli Ave., Tbilisi

29a Gagarini street, Tbilisi

Chumlaki, Gurjaani Region

Winery

8/4/2008 19/8/2019

100.00%

Georgia Tskneti Highway, 16/18, app. 36

Cognac
Production
Oak Barrel
Production
Production
and
distribution of
alcohol and
non-alcohol
beverages
Winery

23/9/2006 20/3/2007

12/10/2006 20/3/2007

24/12/2014

–

18/12/2001 25/4/2018

Coffee
Distribution

26/12/2016

–

23/9/2009 15/2/2017

–

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements188

Georgia Capital PLC Annual Report 2021

189

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

2. Basis of Preparation continued
Subsidiaries and associates continued

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

Address

Industry

100.00%

Georgia

7 Kotetishvili st, Tbilisi, 0108

Subsidiaries

Genuine Brewing
Company, LLC

JSC Artisan Wine and
Drinks

Amboli, LLC

Redberry, LLC

Redberry International,
LLC

Craft and Draft, LLC

100.00%

Georgia

Tsilkani, Mtskheta Region

100.00%

Georgia

8a Petre Melikishvili Ave, Tbilisi,
0179

90.00%

60.00%

90.00%

60.00%

Georgia

24, Leonidze st, Rustavi

Car Services

13/8/2004 25/6/2019

9, Tashkenti st, Tbilisi

29/8/2014

1/5/2019

100.00%

–

Georgia

Mtskheta str, 13a, Tbilisi

Lunchoba, LLC

60.00%

Georgia

22 Nutsubidze IV Micro-district

Shabatoba, LLC

100.00%

Georgia

8 Zurab Sakandelidze st, Tbilisi

JSC Carfest

GCMF, LLC

25.00%

Georgia

3, Pushkini str., Krtsanisi, Tbilisi

100.00%

Georgia

8a Petre Melikishvili Ave, Tbilisi,
0179

Date of
incorporation

Date of
acquisition

7/6/2011

7/2/2018

20/2/2019

26/8/2019

–

Beer
Production
and
Distribution
Beer
Production
Wine
distribution

Digital
Services
Digital
Services

Catering
Services
Delivery
Services
Leasing

Excess
liquidity
management
company
Education

13/5/2021

8/10/2018

2/6/2020

17/11/2017

2/5/2019

16/7/2019

Georgia Education Group,
LLC

100.00%

Georgia

Green School, LLC

90.00%

Georgia

JSC Green School Real
Estate

100.00%

–

Georgia

Tbilisi Green School, LLC

80.00%

Georgia

Modern Schoool, LLC

Georgian-Austrian
School Pesvebi, LLC

Buckswood International
School – Tbilisi, LLC

90.00%

–

Georgia

8a Petre Melikishvili Ave, Tbilisi,
0179

8a Petre Melikishvili Ave, Tbilisi,
0179
8a Petre Melikishvili Ave, Tbilisi,
0179

Didube-Chughureti/Dighomi
massive IV, Building 5A,
Apartment 35
N, Khudadovi str. 1b, Tbilisi

Education

21/10/2019

Education

5/1/2019

Education

7/6/2011 22/8/2019

Education

18/8/2021

–

D. Tavdadebuli str. 6,

Education

27/9/1995 20/8/2021

Tbilisi

80.00%

Georgia

2, Dolidze str,

Education

24/8/2005 29/7/2019

Tbilisi

Sakhli Tsknetshi, LLC

100.00% 100.00%

British Georgian
Academy, LLC

70.00%

Georgia

Tskneti, Vake region, Tbilisi

Education

1/5/2005

–

17, Leo Kvachadze str,

Education

3/2/2006 23/7/2019

Tbilisi

NNLE British
International School
of Tbilisi

British International
School of Tbilisi, LLC

British Georgian
Academy – Okrokana,
LLC

100.00% 100.00%

Georgia

17, Leo Kvachadze str,

Education

3/2/2015

Tbilisi

100.00% 100.00%

Georgia

17, Leo Kvachadze str,

Education

5/9/2019

Tbilisi

100.00%

–

Georgia

17, Leo Kvachadze str,

Education

16/9/2021

Tbilisi

JSC Liberty Consumer

77.23%

JSC Intertour

99.94%

JSC Oncloud

100.00%

Georgia

74a Chavchavadze Ave, Tbilisi,
0162
Georgia 49a, Chavchavadze Ave, Tbilisi,
0162
8a Petre Melikishvili Ave, Tbilisi,
0179

Georgia

Investments

24/5/2006

Travel agency

29/3/1996 25/4/2006

Digital Services

28/2/2020

–

2. Basis of Preparation continued
Subsidiaries and associates continued

Associates

Ytong Capital, LLC

JSC Isani Parki
Squadro, LLC

Proportion of voting rights and
ordinary share capital held

31 December
2021

31 December
2020

Country of
incorporation

–

28.90%

Georgia

–
12.00%

6.00%
–

Georgia
Georgia

N(NL)E Georgian Medical

28.60%

Georgia

Tourism Council

JSC Diflex

40.00%

–

Georgia

NPO Healthcare Association

25.00%

Georgia

Complex-Med-Service, LLC

20.00%

–

Georgia

Insurance Informational

22.50%

Georgia

Bureau, LLC

Address

Industry

Date of
incorporation

Date of
acquisition

15, Kipshidze str, Tbilisi,
Georgia
Kakheti Highway, Isani, Tbilisi
Kostava street #74, Tbilisi,
Georgia
I-II floor, house N10, N 13, b.
N1 almond
Gardens Street, tskneti, Vake
district, Tbilisi
Shalikashvili str. 8, Tbilisi,
Georgia
Vazha-Pshavela Ave. 27b,
Tbilisi, Georgia
Tsinandali sts. 9, Tbilisi,
Georgia
Baratashvili bridge
underground crossing,
Mtkvari Left Bank, Old Tbilisi,
Tbilisi

Production

6/3/2015 30/10/2019

Real estate
Software
Service
Healthcare

18/12/2017
2/3/2021

–
27/8/2021

16/5/2019

–

Software
Development
Healthcare

11/12/2021 29/12/2016

25/3/2016

–

Healthcare

30/7/2021 18/11/2008

Insurance

23/7/2008

–

* As of 31 December 2021 subsidiary of m2 at Hippodrome, LLC (31 December 2020: subsidiary of m2 Development, LLC)

During 2021 JSC Georgia Capital made a capital reduction to its 100% shareholder with total cash consideration of GEL 21,679 (2020: GEL 21,180).

3. Summary of Significant Accounting Policies
The following are the significant accounting policies applied by the Company in preparing its financial statements.

Fair value measurement
The Company measures investments in subsidiaries and other financial instruments, such as debt securities owned, equity investments and
derivatives, if any, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed
in Note 12.

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 Company. 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 Company 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 financial statements are categorised 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 financial statements on a recurring basis, the Company determines whether transfers have
occurred between Levels in the hierarchy by reassessing categorisation (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 90 days of the date of contract
origination and are free from contractual encumbrances and readily convertible to a 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 FVPL.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements190

Georgia Capital PLC Annual Report 2021

191

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

3. Summary of Significant Accounting Policies continued
Financial assets continued
Initial recognition continued
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s
business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the
Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset
not at FVPL, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company 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 Company’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 Company 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.

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, the Company 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, the Company does not have instruments classified under this category).

• Financial assets at FVPL (investments in subsidiaries).

Financial assets at amortised cost
The Company 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 Company’s financial assets at amortised cost includes cash and cash equivalents.

Financial assets at fair value through profit or loss
Financial assets at FVPL include financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured
at fair value. Investments in subsidiaries are classified at FVPL. Derivatives and financial assets with cash flows that are not solely payments of
principal and interest are classified and measured at FVPL, 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 FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at FVPL 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 investments in subsidiaries.

Impairment of financial assets
The Company recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at FVPL. ECLs are based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows that the Company 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).

3. Summary of Significant Accounting Policies continued
Impairment of financial assets continued
The Company considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Company may
also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements held by the Company. 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.

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 Company’s statement of financial position) when:
• The rights to receive cash flows from the asset have expired
Or
• The Company 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 Company has transferred substantially all the risks
and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.

When the Company 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 Company continues to recognise the transferred asset to the extent of its continuing
involvement. In that case, the Company 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 Company 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 Company 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 income statement.

Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, 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 Company’s financial liabilities include accounts payable.

Offsetting
Financial assets and liabilities are offset and the net amount is reported in the 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.

Provisions
Provisions are recognised when the Company 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 Company’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for
the period represents the movement in cumulative expense recognised as at the beginning and end of that period.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements192

Georgia Capital PLC Annual Report 2021

193

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

3. Summary of Significant Accounting Policies continued
Share-based payment transactions continued
Equity-settled transactions continued
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.

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.

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 Company 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 retained earnings.

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 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 Company’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 Company operates.

According to the UK tax legislation, UK companies pay corporation tax on all its profits. UK corporate tax rate is 19%.

Functional, presentation currencies and foreign currency translation
The 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 the 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 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 2021 and 31 December 2020 were as
follows:

31 December 2021
31 December 2020

Lari to GBP

Lari to USD

Lari to EUR

4.1737
4.4529

3.0976
3.2766

3.5040
4.0233

3. Summary of Significant Accounting Policies continued
Adoption of new or revised standards and interpretations
The following interpretations and amendments that became effective for the annual reporting period ending on 31 December 2021 did not have any
impact on the financial statements of the Company or the Company:
• Amendments IFRS 4, IFRS 7, IFRS 9, IFRS 16, IAS 39: Interest Rate Benchmark Reform
• Amendments to IFRS 16 Covid-19 Related Rent Concessions

Standards issued but not yet effective
Up to the date of approval of the financial statements, certain new standards, interpretations and amendments to existing standards have been
published by IASB but not yet adopted in the UK, that are not yet effective for the current reporting period and which the Company has not early
adopted. Such standards that are expected to have an impact on the Company, or the impacts of which are currently being assessed, are as follows:

Amendments to IFRS 3: Reference to the Conceptual Framework
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Amendments to IAS 1: Disclosure of Accounting Policies
Amendments to IAS 8: Definition of Accounting Estimates
Amendments to IAS 12: Deferred tax on leases and decommissioning obligations
Amendments to IAS 16: Proceeds before Intended Use
Amendments to IAS 37: Onerous Contracts – Costs of Fulfilling a Contract
IFRS 17: Insurance Contracts

Annual Improvements 2018-2020 Cycle (issued in May 2020)
•
•
•
•

IFRS 1 First-time adoption of International Financial Reporting Standards
IFRS 9 Financial instruments
IFRS 16 Leases
IAS 41 Agriculture

4. Significant Accounting Judgements and Estimates
In the process of applying the Company’s accounting policies, the Management Board use their judgement and make estimates in determining the
amounts recognised in the 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 (versus entry multiple) to monetise on capital appreciation
gains. The Company reports to its investors on a fair value basis. All investments are reported at fair value in the Company’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 Company meets the definition of an investment entity.
These conclusions will be reassessed on a continuous basis, if any of these criteria or characteristics change.

Georgia Capital met the investment entity definition on 31 December 2019. As of 31 December 2021, the Company continues to meet the definition
of investment entity. In making this assessment, the Company considered each criteria and characteristic described above as well as developments
during the year, such as the disposal of the water utility and commercial businesses.

Fair valuation of the investment portfolio
The investment portfolio, a material asset of the Company, is held at fair value. Details of valuation methodologies used and the associated
sensitivities are disclosed in Note 12. Given the importance of this area, the Board has formed a separate Audit and Valuation 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 12.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements194

Georgia Capital PLC Annual Report 2021

195

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

5. Segment Information
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.

5. Segment Information continued
The following table presents the net asset value (NAV) of the Group’s operating segments at 31 December 2021 and the roll-forward
from 31 December 2020:

Listed portfolio companies segment
BoG – the Company has a significant investment in London Stock Exchange premium listed Bank of Georgia Group PLC.

Private portfolio companies segment
Large portfolio companies segment:
The large portfolio companies segment includes investments in healthcare services, pharmacy and distribution, water utility and insurance
businesses.

The healthcare services business owned through Georgia Healthcare Group (GHG), is the largest healthcare market participant in Georgia. The
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; and Diagnostics, operating the largest
laboratory in the Caucasus region.

The retail (pharmacy) 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.

The water utility business is a regulated monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services. Water Utility
also operates hydro power plants.

The insurance business comprises a property and casualty (P&C) insurance business owned through Aldagi and medical insurance business owned
through GHG. The business provides insurance services – mainly property and casualty and medical insurance to corporate and retail clients.

Investment stage portfolio companies segment:
The investment stage portfolio companies segment includes investments in renewable energy and education businesses.

The renewable energy business principally operates three wholly-owned commissioned renewable assets. In addition, a pipeline of renewable energy
projects is in an advanced stage of development.

The education business combines majority stakes in four leading private schools in Tbilisi. It principally provides education for 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.

31 December
2020

1. Value
Creation

2a.

2b.

2c.

Investments

Buybacks

Dividends

3.
Operating
Expenses

4. Liquidity
Management/
FX/Other

31 December
2021

NAV Statement

Listed portfolio companies
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, Medical Insurance
Investment stage portfolio

companies

Renewable Energy
Education
Other portfolio companies

531,558
531,558
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

164,109
164,109
592,327
583,852
171,708
169,100
221,179
21,865
28,157
(6,292)

1,632
(21,463)
23,095
6,843

Total portfolio value

2,907,688

756,436

Net debt

of which, Cash and liquid funds
of which, Loans issued
of which, Gross debt
Net other assets/(liabilities)

(697,999)
175,289
108,983
(982,271)
2,603

–
–
–
–
–

–
–
18,296
–
–
–
–
–
–
–

17,415
3,724
13,691
881

18,296

(18,296)
(18,296)
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
–
–

–

(25,089)
(25,089)
–
–
–

(14,481)
(14,481)
(59,881)
(39,881)
(11,545)
(11,460)
–
(16,876)
(14,881)
(1,995)

(20,000)
(20,000)
–
–

(74,362)

74,362
74,362
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
–
–

–

–
–
8,173
5,056
–
–
4,633
423
423
–

1,125
1,125
–
1,992

8,173

(21,852)
(21,852)
–
–
(14,633)

(22,200)
87,903
45,231
(155,334)
(9,505)

681,186
681,186
2,935,045
2,407,264
731,819
710,385
696,960
268,100
211,505
56,595

303,136
173,288
129,848
224,645

3,616,231

(711,074)
272,317
154,214
(1,137,605)
(21,535)

Net Asset Value

2,212,292

756,436

–

(25,089)

–

(36,485)

(23,532)

2,883,622

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements196

Georgia Capital PLC Annual Report 2021

197

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

5. Segment Information continued
The following table presents the NAV of the Group’s operating segments at 31 December 2020 and the roll-forward from 31 December 2019:

5. Segment Information continued
Reconciliation to IFRS financial statements:

31 December
2019

1. Value
Creation

2a.

2b.

2c.

Investments

Buybacks

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, Medical Insurance
Investment stage portfolio

companies

Renewable Energy
Education
Other portfolio companies

1,027,814
430,079
597,735
1,225,269
648,893
–
–
483,970
164,923
164,923
–

163,150
106,800
56,350
413,226

(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)

138,265
138,265
–
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)

–

–
–
–
–

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

–
–
–
–

–

–
–
–
–

–

–
–
–
–
–
–
–
–
–
–
–

–
–
–
–

–

–
–
–
10,325
1,745
–
–
1,745
–
–
–

1,510
1,510
–
7,070

531,558
–
531,558
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

(57,684)

(6,033)

29,870

(57,684)
–
–
1,284

(6,033)
–
–
–

(6,033)

29,870
–
–
–

–

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, and 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 in 2020, which was further contributed to the equity of JSC GCAP. Refer to Notes 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
the buyback programme announced by GCAP PLC; 2c. Dividends – represents dividends received from portfolio companies by JSC GCAP;
2d. GHG Delisting – delisting and transfer of GHG to the private portfolio sub-segment in 2020; 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.

Cash and cash equivalents
Amounts due from credit institutions
Marketable securities
Investment in redeemable securities
Prepayments
Loans issued
Other assets, net
Equity investments at fair value

Aggregation
with JSC
Georgia
Capital*

89,714
35,667
79,716
17,849
–
154,214
8,475
3,616,231

31 December 2021

Elimination of
double effect on
investments

Aggregated
Holding
Company

–
–
–
–
–
–
–
(2,881,373)

96,914
35,667
79,716
17,849
406
154,214
8,475
3,616,231

Georgia Capital
PLC

7,200
–
–
–
406
–
–
2,881,373

Reclassifications** NAV Statement

(96,914)
(35,667)
(79,716)
(17,849)
(406)
(154,214)
(8,475)
–

–
–
–
–
–
–
–
3,616,231

Total assets

2,888,979

4,001,866

(2,881,373)

4,009,472

(393,241)

3,616,231

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)

–
5,357

5,357

1,095,433
25,060

1,120,493

–
–
–
–
–

–
–

–

–
–
–
–
–

1,095,433
30,417

1,125,850

–
–
–
–
–

(1,095,433)
(30,417)

(1,125,850)

(711,074)
272,317
154,214
(1,137,605)
(21,535)

–
–

–

(711,074)
272,317
154,214
(1,137,605)
(21,535)

Total equity/NAV

2,883,622

2,881,373

(2,881,373)

2,883,622

–

2,883,622

Cash and cash equivalents
Amounts due from credit institutions
Marketable securities
Prepayments
Loans issued
Other assets, net
Equity investments at fair value

Aggregation
with JSC
Georgia
Capital*

117,026
42,655
13,416
–
108,983
7,276
2,907,688

31 December 2020

Elimination of
double effect on
investments

Aggregated
Holding
Company

–
–
–
–
–
–
(2,213,290)

117,881
42,655
13,416
426
108,983
7,276
2,907,688

Georgia Capital
PLC

855
–
–
426
–
–
2,213,290

Reclassifications** NAV Statement

(117,881)
(42,655)
(13,416)
(426)
(108,983)
(7,276)
–

–
–
–
–
–
–
2,907,688

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)

–
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

Total equity/NAV

2,212,292

2,213,290

(2,213,290)

2,212,292

–

2,212,292

For detailed breakdown of JSC Georgia Capital refer to Note 12.

*
** Reclassification to aggregated balances to arrive at the NAV specific presentation, such as: aggregating cash, marketable securities, investment in redeemable shares,

repurchased GCAP bonds as cash and liquid funds, debt securities issued as gross debt and netting of other assets and liabilities.

Strategic ReviewOverviewStrategic ReviewDiscussion of ResultsAdditional InformationStrategic ReviewOur BusinessGovernanceFinancial Statements198

Georgia Capital PLC Annual Report 2021

199

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

5. Segment Information continued
The following table presents income statement information of the Group’s operating segments for the year ended 31 December 2021:

6. Equity Investments at Fair Value

Gains on investments at fair value

Listed equity investments
Private investments

Dividend income
Interest income
Transaction costs
Loss on liquid funds

Listed
Portfolio
Companies

149,628
149,628
–
14,481
–
–
–

Large

543,971
–
543,971
39,881
–
–
–

Investment
Stage

(18,368)
–
(18,368)
20,000
–
–
–

Gross investment profit/(loss)

164,109

583,852

1,632

Private portfolio companies

Corporate

Center

–
–
–
–
23,140
(21,995)
(1,142)

Total

682,074
149,628
532,446
74,362
23,140
(21,995)
(1,142)

Intragroup
Investment
Reversal and
Adjustments

Equity
Changes in
JSC GCAP

Investment
Entity
Total

10,681
(149,628)
160,309
(74,362)
(23,140)
19,058
1,142

(2,993)
–
(2,993)
14,481
–
–
–

689,762
–
689,762
14,481
–
(2,937)
–

756,439

(66,621)

11,488

701,306

Other

6,843
–
6,843
–
–
–
–

6,843

Administrative expenses
Salaries and other employee benefits
Interest expense

–
–
–

(11,380)
(25,104)
(77,392)

5,868
22,413
77,392

–
–
–

(5,512)
(2,691)
–

Profit/(loss) before provisions,
foreign exchange and non-
recurring items

Expected credit loss
Net foreign currency gain
Non-recurring expense

164,109

583,852

1,632

6,843

(113,873)

642,563

39,052

11,488

693,103

–
–
–

(96)
39,711
(785)

96
(39,933)
785

–
–
–

–
(222)
–

Profit/(loss) before income taxes

164,109

583,852

1,632

6,843

(75,043)

681,393

Income tax

–

Profit/(loss) for the year

164,109

583,852

1,632

6,843

(75,043)

681,393

–

11,488

692,881

–

11,488

692,881

The following table presents income statement information of the Group’s operating segments for the year ended 31 December 2020:

Listed
Portfolio
Companies

Large

Investment
Stage

Corporate

Other

Center

Total

Intragroup
Investment
Reversal and
Adjustments

Equity
Changes
in JSC
GCAP

Private portfolio companies

Losses/(gains) on investments

at fair value
Listed equity investments
Private investments

Dividend income
Interest income
Loss on liquid funds

Gross investment (loss)/

(261,524) 834,602
–
(261,524)
– 834,602
24,943
–
–
–
–
–

–

93,803 (217,266)
–
93,803 (217,266)
–
–
–

4,927
–
–

–
–
–
–
20,957
(2,984)

449,615
(261,524)
711,139
29,870
20,957
(2,984)

(132,009)
261,524
(393,533)
(29,870)
(20,957)
2,984

19,983
–
19,983
–
–
–

Investment
Entity
Total

339,174
–
339,174
–
–
–

Other*

1,585
–
1,585
–
–
–

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

Interest expense

–

–
–

–

–
–

–

–
–

–

–
–

(10,477)

5,047

(21,659)
(62,478)

19,140
62,478

–

–
–

–

–
–

(5,430)

(2,519)
–

(Loss)/profit before
provisions, foreign
exchange and non-
recurring items

Provision
Net foreign currency loss
Non-recurring expense

(Loss)/profit before income

taxes

Income tax

(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
89,938
3,389

–
–
–

–
(891)
–

(261,524) 859,545

98,730 (217,266)

(170,973)

308,512

254

19,983

1,585

330,334

–

(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 capitalised project development related expenses.

Subsidiaries (Note 12)

Equity investments at fair value

At 1 January
Fair value gain and dividend income
Increase of investment in subsidiary*
Capital redemption (Note 2)**
Dividend income***

At 31 December

31 December
2021

31 December
2020

2,881,373

2,213,290

2,881,373

2,213,290

2021

2020

2,213,290
704,243
–
(21,679)
(14,481)

1,758,197
339,174
138,265
(22,346)
–

2,881,373

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.
** During 2021 JSC Georgia Capital made a capital reduction to its 100% shareholder with total consideration of GEL 21,679 (2020: GEL 22,346), of which cash consideration

was GEL 21,679 (2020: GEL 21,180).

*** In 2021 JSC Georgia Capital paid a dividend to its 100% shareholder in the amount of GEL 14,481.

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 an investment entity. Georgia Capital PLC measures its investment in JSC Georgia Capital at FVPL. For the breakdown and
detailed information regarding the equity investments at fair value, refer to Note 12.

7. Taxation
As at 31 December 2021 GCAP PLC has unrecognised tax asset (tax loss carried forward) in the amount of GEL 4,982 (31 December 2020:
GEL 3,235). The Company does not recognise the deferred tax asset since it is not expected to be utilised in the foreseeable future, as the
Company’s income sources, fair value gains on equity investments and dividend income are not taxable in the UK.

The aggregate amount of temporary differences associated with investments in subsidiaries is GEL 1,350,681 (2020: GEL 660,920). The deferred tax
liability has not been recognised 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.

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 Company 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.

8. Equity
Share capital
As at 31 December 2021 issued share capital comprised of 47,080,203 authorised common shares (31 December 2020: 47,903,785), of which
47,080,203 were fully paid (31 December 2020: 47,903,785). Each share has a nominal value of 1 pence. Shares issued and outstanding as at
31 December 2021 are described below:

31 December 2019

Issue of share capital

31 December 2020

Cancellation of shares

31 December 2021

Number
of shares
Ordinary

40,169,775

7,734,010

47,903,785

(823,582)

47,080,203

Amount

1,320

254

1,574

(27)

1,547

Share issue
On 19 May 2020 the Board of Directors of Georgia Capital PLC and the Independent Directors of Georgia Healthcare Group PLC 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 recognised 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 Company incurred transaction costs of GEL 8,563 in relation to this transaction, which were
recognised in the statement of changes in equity.

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201

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

8. Equity continued
Treasury shares
In 2021, the Company paid cash consideration of GEL 22,085 (2020: GEL 317) for acquisition of treasury shares, of which GEL 194 (2020: GEL 317)
was related to shares acquired for settlement of employee share-based payments and GEL 21,891 (2020: GEL nil) were other acquisitions made by
the Company, including those under the share buyback programme in 2021.

During 2021, 823,582 treasury shares bought back under the buyback programme were cancelled. As at 31 December 2021 the number of treasury
shares held in the Company’s Management Equity Compensation Trust was 26,980 (2020: 30,572).

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 parent
Weighted average number of diluted ordinary shares outstanding during the year
Diluted earnings per share

* Dilution effect arises from the Group’s share-based compensation arrangements.

9. 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

2021

2020

692,881
44,264,151
15.6533

330,334
40,136,937
8.2302

692,881
45,306,358
15.2932

330,334
40,301,238
8.1966

2021

(2,098)
(534)
(59)

(2,691)

2020

(1,873)
(552)
(94)

(2,519)

Refer also to the Resources and Responsibilities section on pages 84-97 and the Directors’ Remuneration Report on pages 143-163 in the Group’s
Annual Report 2021. For total number of employees of Georgia Capital, refer to page 89 of the Resources and Responsibilities section in the
Group’s Annual Report 2021. For Directors’ remuneration refer to page 160 of the Directors’ Remuneration Report in the Group’s Annual Report
2021. The Annual Report figures comprise of both holding company entities: Georgia Capital PLC and JSC Georgia Capital. The figures in the table
above are for standalone Georgia Capital PLC.

General and administrative expenses

Legal and other professional services
Occupancy and rent
Communication
Other

General and administrative expenses

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

Total audit fees

Audit related assurance services
Review of the Company’s interim accounts

Total audit related fees

Non-audit services
Corporate finance services

Total other services fees

Total fees

The figures shown in the above table relate to fees paid by the Company to Ernst & Young LLP and its associates.

2021

(5,193)
(140)
(19)
(160)

(5,512)

2021

1,414

–

626

2020

(5,158)
(123)
(32)
(117)

(5,430)

2020

1,200

156

474

2,040

1,830

10. Share-based Payments
Executives’ Equity Compensation Plan
In 2018, Georgia Capital introduced the Group’s Executives’ Equity Compensation Plan (EECP). Under the EECP, shares of the parent are granted
to senior executives of the Company. 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 are being awarded in five equal instalments
during the five consecutive years starting January 2019, of which each award is 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.

The following table illustrates the number and weighted average prices of, and movements in, shares awards granted to the CEO of Georgia Capital
PLC during the year:

Shares outstanding at 1 January

Vested during the year

Shares outstanding at 31 December

2021

97,633

(6,367)

91,266

2020

100,000

(2,367)

97,633

The weighted average remaining contractual life for the share awards outstanding as at 31 December 2021 was 2.8 years (2020: 3.5 years).

The weighted average fair value of shares vested was GEL 24 (2020: GEL 34.2).

Expense recognition
The expense recognised for employee services received during 2021 and the respective increase in equity arising from equity-settled share-based
payments was GEL 534 (2020: GEL 552).

11. Risk Management
Introduction
Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk
limits and other controls. This process of risk management is critical to the Group’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 Georgia Capital 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 Group’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 Group’s asset, liability and risk management activities, policies and
procedures. The Management Board is 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 Group’s portfolio entities.

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203

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

11. Risk Management continued
Introduction continued
Risk management structure continued
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 may 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 will incur a loss because its customers, clients or counterparties fail to discharge their contractual obligations.
The Group 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.

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 2021

31 December 2020

BB+ to BB-

B+ to B-

Not graded

BB+ to BB-

B+ to B-

Not graded

7,200

–

855

–

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, the 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 entity 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.

11. Risk Management continued
Liquidity risk continued
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 2021

Other financial liabilities

Total undiscounted financial liabilities

Financial liabilities

31 December 2020

Other financial liabilities

Total undiscounted financial liabilities

Less than
3 months

3 to 12
months

5,357

–

Less than
3 months

3 to 12
months

2,279

–

1 to 5
years

–

1 to 5
years

–

Over
5 years

–

Over
5 years

–

Total

5,357

Total

2,279

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 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 12.

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 US Dollar.

The Company is not directly exposed to material currency risk.

Operational risk
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events at portfolio companies’ level, which might affect
their valuations recognised in the Company’s statement of financial position. 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 Group’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.

Georgia has elaborated climate change strategy. Georgia’s 2030 Climate Change Strategy and Action Plan (Climate Change Strategy and Action
Plan – CSAP, Climate Action Plan – CAP) are a planning and implementation mechanism for coordinated effort and planning towards meeting the
nationally determined targets for climate change mitigation.

Capital management
Management monitors the Group’s capital on a regular basis based on the statement of Net Asset Value (NAV) prepared on a fair value basis,
which corresponds to equity attributable to shareholders of Georgia Capital PLC as at 31 December 2021 in the amount of GEL 2,883,622 (2020:
GEL 2,212,292). The 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.

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205

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

11. Risk Management continued
Capital Management continued
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.

12. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Company 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 2021

Assets measured at fair value
Equity investments at fair value
Assets for which fair values are disclosed
Cash and cash equivalents

31 December 2020

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

–

2,881,373

7,200

–

7,200

Level 1

Level 2

Level 3

Total

–

2,213,290

855

–

855

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 Company’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.

12. Fair Value Measurements continued
Valuation techniques continued
Investment in subsidiaries
Equity investments at fair value include investment in subsidiary at FVPL representing 100% interest of JSC Georgia Capital. Georgia Capital PLC
holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments; both meet the definition
of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at FVPL. Investments in investment entity subsidiaries
and loans issued are accounted for as financial instruments at FVPL in accordance with IFRS 9. Debt securities owned are measured at fair value.
We determine that, in the ordinary course of business, the net asset value of investment entity subsidiaries is considered to be the most appropriate
to determine fair value. JSC Georgia Capital’s NAV as of 31 December 2021 and 31 December 2020 is determined as follows:

Assets
Cash and cash equivalents
Amounts due from credit institutions
Marketable securities
Investment in redeemable securities
Equity investments at fair value

Of which listed investments:

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

31 December
2021

31 December
2020

89,714
35,667
79,716
17,849
3,616,231
681,186

681,186
2,935,045

2,407,264
731,819
710,385
696,960
211,505
56,595
303,136
173,288
129,848
224,645
154,214
8,475

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
214,929
108,983
7,276

4,001,866

3,197,044

1,095,433
25,060

1,120,493

980,932
2,822

983,754

2,881,373

2,213,290

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

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 31 December 2020. 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 what is considered to be the most
appropriate point in the provided fair value range at the reporting date.

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Georgia Capital PLC Annual Report 2021

207

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

12. Fair Value Measurements continued
Valuation techniques continued
Equity investments in private portfolio companies continued
Investment stage and other portfolio companies – fair value assessment is performed internally as described below.

12. Fair Value Measurements continued
Valuation techniques continued
Equity investments in private portfolio companies continued
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.

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.

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 – the DCF 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 the primary valuation method. If fair value estimated using
DCF 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.
In line with our strategy, from time to time, we may receive offers from interested buyers for our private portfolio companies, which would be
considered in the overall valuation assessment, where appropriate.

•

Valuation process for Level 3 valuations
As noted above, 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 31 December 2020 and internally in accordance with Georgia Capital’s valuation methodology
by the Valuation Workgroup for investment stage and other portfolio companies.

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.

Description of significant unobservable inputs to Level 3 valuations
The approach to valuations as of 31 December 2021 was consistent with the Company’s valuation process and policy. Management continues
to monitor the impact that the COVID-19 pandemic has on the valuation of portfolio companies.

In addition, management analyses the impact of climate change on the valuations, such as by incorporation of known effects of climate risks to
the future cash flow forecasts or through adjusting peer multiples the known differences in the climate risk exposure as compared to the investment
being fair valued. As at 31 December 2021, management concluded that the effects of the climate risks are reflected in the peer multiples and
discount rates used in the valuations as well as in the disclosed fair valuation sensitivities to changes in peer multiples and discount rates and that
no specific adjustments are required in relation of the Group’s investment portfolio measurement and respective fair value sensitivity disclosures.

The fair value of equity investments is determined using one of the valuation methods described below:

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 Company 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.

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 any.
• 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).

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.

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209

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

12. Fair Value Measurements continued
Description of significant unobservable inputs to Level 3 valuations continued
The following tables show descriptions of significant unobservable inputs to Level 3 valuations of investments in subsidiaries:

31 December 2021

Description

Loans issued

Equity investments at fair value

Large portfolio

Valuation technique

Unobservable input

Range (selected input)

Fair value

DCF

Discount rate

5.5%–16%

154,214

Healthcare Services

DCF, EV/EBITDA

EV/EBITDA multiple

Retail (pharmacy)

DCF, EV/EBITDA

EV/EBITDA multiple

Water Utility

P&C Insurance

Medical Insurance

Investment stage

Exit price

DCF, P/E

N/A

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
Cash flow probability
NAV multiple

31 December 2020

Description

Loans issued

Equity investments at fair value

Large portfolio

Healthcare Services

DCF, EV/EBITDA

EV/EBITDA multiple

Retail (pharmacy)

DCF, EV/EBITDA

EV/EBITDA multiple

Water Utility

DCF, EV/EBITDA

EV/EBITDA multiple

P&C Insurance

Medical Insurance

Investment stage

DCF, P/E

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

Cash flow probability
NAV multiple

12. Fair Value Measurements continued
Description of significant unobservable inputs to Level 3 valuations continued
Georgia Capital hired third-party valuation professionals to assess fair value of the large private portfolio companies as at 31 December 2020 and
31 December 2021 including Water Utility, P&C Insurance, Healthcare Services, Retail (pharmacy) and Medical Insurance. 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 the most appropriate point in the provided fair value range at the reporting date. On 31 December 2021,
Georgia Capital signed a SPA to dispose of 80% interest in the water utility business. Costs related to the transaction were GEL 2,937. At
31 December 2021 Georgia Capital measures its 100% share of the water utility business at the exit price, adjusted for shareholding percentage
(2020: measured at a combination of income and market approach by the third party valuation professional). Further details on the transaction are
provided in Note 15.

Sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy
In order to determine reasonably possible alternative assumptions the Company adjusted key unobservable model inputs. The Company adjusted
the inputs used in valuation by increasing and decreasing them within a range which is considered by the Company to be reasonable.

If the interest rate for each individual loan issued to subsidiaries as at 31 December 2021 decreased by 20% (2020: 20%), the amount of loans issued
would have increased by GEL 3,174 or 2.1% (2020: decreased by GEL 1,494 or 1.4%). If the interest rates increased by 20% then loans issued would
have decreased by GEL 2,938 or 1.9% (2020: increased by GEL 1,502 or 1.4%).

If the listed peer multiples used in the market approach to value unquoted investments as at 31 December 2021 decreased by 10% (2020: 10%),
value of equity investments at fair value would decrease by GEL 110 million or 3% (2020: GEL 117 million or 4%). If the multiple increased by 10%
(2020: 10%) then the equity investments at fair value would increase by GEL 121 million or 3% (2020: GEL 117 million or 4%).

If the discount rates used in the income approach to value unquoted investments decreased by 50 basis points (2020: 50 basis points), the value
of equity investments at fair value would increase by GEL 90 million or 2% (2020: GEL 91 million or 3%). If the discount rates increased by 50 basis
points (2020: 50 basis points) then the equity investments at fair value would decrease by GEL 80 million or 2% (2020: GEL 87 million or 3%). If the
discount rate decreased by 100 basis points, the value of equity investments at fair value would increase by GEL 189 million or 5% (31 December
2020: 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 156 million or 4% (31 December 2020: GEL 166 million or 6%).

If the multiple used to value unquoted investments valued on NAV and recent transaction price basis as at 31 December 2021 decreased
by 10% (2020: 10%), value of equity investments at fair value would decrease by GEL 7 million or 0.2% (2020: GEL 12 million or 0.4%). If the
multiple increased by 10% then the equity investments at fair value would increase by GEL 7 million or 0.2% (2020: GEL 12 million or 0.4%).

2,407,264

731,819

710,385

696,960

211,505

56,595

303,136

173,288

129,848

224,645

6.9x–22.6x
(10.3x)
6.8x–19.9x
(9.3x)

n/a
8.0x–28.7x
(12.0x)
9.7x–16.6x
(15.0x)

10.1x–19.6x
(9.2x–12.5x)
7.3x–21.7x
(12.5x)

1.1x–17.1x
(4.8x–9.8x)
1.1x–2.7x
(1.9x)
(90%–100%)
(0.9x)

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
2020

Fair Value
gain

Capital
redemption

Capital
increase

December
2020

Fair Value
gain

Capital
redemption

Dividend
Income

December
2021

At 31

Level 3 financial assets
Equity investments at fair

value (Note 6)

1,758,197

339,174

(22,346)

138,265

2,213,290

704,243

(21,679)

(14,481) 2,881,373

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)

Valuation technique

Unobservable input

Range (selected input)

Fair value

DCF

Discount rate

9%–16%

108,983

As set out in the description of significant unobservable inputs to Level 3 valuations the valuations have been prepared on the basis that climate
change risks are reflected in the peer multiples and discount rates. Therefore, the sensitivities noted above in respect of peer multiples and discount
rates include the risk arising from climate change.

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Georgia Capital PLC Annual Report 2021

211

NOTES TO FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2021 (THOUSANDS OF GEORGIAN LARI)

13. 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

Less than
1 Year

7,200
–
406

7,606

5,357

31 December 2021

More than
1 Year

–
2,881,373
–

Total

7,200
2,881,373
406

2,881,373

2,888,979

–

5,357

2,249

2,881,373

2,883,622

31 December 2020

Less than
1 Year

855
–
426

More than
1 Year

–
2,213,290
–

Total

855
2,213,290
426

1,281

2,213,290

2,214,571

2,279

–

2,279

(998)

2,213,290

2,212,292

14. 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.

There were no related party transactions as of 31 December 2021, other than capital redemption of GEL 21,679 (31 December 2020: 22,346) and
dividend income of GEL 14,481 from JSC GCAP (31 December 2020: nil) increase of investment in subsidiary in 2020 in the amount of GEL 138,265
(Notes 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

2021

(1,307)
(534)

(1,841)

2020

(1,232)
(552)

(1,784)

Key management personnel do not receive cash-settled compensation, except for fixed salaries. The number of key management personnel at
31 December 2021 was seven (2020: seven).

15. Events after the Reporting Period
Completion of first stage of disposal of the water utility business
On 2 February 2022 JSC GCAP, a wholly-owned subsidiary of the Company, completed the first stage in the proposed two-stage transaction; the
disposal of its controlling interest in Georgia Global Utilities JSC to FCC Aqualia for US$ 180 million (GEL 548 million). The full sale proceeds have
been received on 2 February 2022.

This first stage represents the initial disposal of a 65% equity interest in GGU to Aqualia for US$ 180 million (GEL 548 million), representing an
80% economic interest in the water utility business. JSC GCAP now holds a 35% equity interest in GGU, representing a 20% economic interest
in the water utility business and a 100% economic interest in the renewable energy business. The completion of this stage follows (a) the approval
obtained from the GCAP shareholders at the general meeting on 31 January 2022, (b) entry into the shareholders’ agreement between FCC Aqualia,
JSC GCAP and GGU to regulate their respective rights and obligations as joint owners of GGU and (c) the satisfaction of the other conditions
precedent to First Completion, as outlined in the circular to GCAP shareholders published on 6 January 2022.

The second stage of the transaction, the demerger of the renewable energy business, is expected to occur in July/August 2022 and will
be conditional on receiving antitrust clearance and the redemption of GGU’s existing Eurobond. Upon completion of this second stage of the
transaction, JSC GCAP will own 100% of GGU’s renewable energy assets and a 20% interest in GGU.

US$ 10 million increase to the existing buyback programme
In January 2022, Company announced that its Board of Directors had approved an increase in the US$ 10 million share buyback and cancellation
programme of an additional US$ 5 million. In March 2022, the buyback program was further increased by US$ 5 million. Since the commencement
of the buyback programme in August 2021, 1,502,607 shares with the total value of US$ 12.8 million (GEL 39.8 million) have been repurchased, of
which 1,372,330 shares have been cancelled. The programme continues for the 12-month period beginning 10 August 2021 and the shares continue
to be purchased in the open market. The purpose of buyback is to reduce the share capital and the cancellation of the treasury shares is executed
on a monthly basis.

War in Ukraine
As a result of the war in Ukraine, which started on 24 February 2022, many leading countries and economic unions have announced severe
economic sanctions on Russia, including Russian banks, Russian entities and Russian individuals. Since the start of the war, there has been a
significant depreciation of the Russian Ruble against foreign currencies, as well as a significant loss of value on the securities markets in Russia and
of Russian companies listed in other markets. The situation is still unfolding, but it has already resulted in a humanitarian crisis and material economic
losses for Ukraine, Russia and the rest of the world. Ukraine and Russia are important trade partners of Georgia. It is expected that the war may
lead to a negative impact on Georgian economic growth in 2022, which might affect the future valuations of the private portfolio companies. As at
18 March 2022, fair value of listed investment in Bank of Georgia Group plc declined by 28%. As the war is still waging, it is impossible to reliably
assess the impact this may have on the Company's business and value of its equity investment in JSC Georgia Capital as there is uncertainty over
the magnitude of the impact on the economy in general. None of our private portfolio companies is materially exposed to Russian, Belorussian or
Ukrainian markets, except for the Wine business. The magnitude of the impact cannot be reliably measured at this stage, however, due to the size of
the wine business, it is not expected to be material overall for GCAP. The value of the wine business represented less than 2% of the total portfolio
value as at 31 December 2021. GCAP’s exposure to liquid funds such as debt securities issued by affected countries is not material. The Company's
management is closely monitoring the economic situation in the current environment. The Company considers the war in Ukraine, and related
movements in the fair value of its equity investment in JSC Georgia Capital to be a non-adjusting post balance sheet event.

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Georgia Capital PLC Annual Report 2021

213

ADDITIONAL INFORMATION
REFERENCES

Memorandum of Understanding

BGEO Group PLC Former parent company of Georgia Capital PLC

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

We/Our/Us

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).

Deep and Comprehensive Free Trade Agreement

NIM

Net Interest Margin

212

ADDITIONAL INFORMATION
ABBREVIATIONS

AGM

APM

Annual General Meeting

Alternative performance measure

BoG or BoGG

Bank of Georgia Group PLC

CAGR

Compounded annual growth rate

COVID-19

The novel coronavirus

Discounted cash flow

DCF

DCFTA

EBITDA

EECP

EFTA

EPS

ESMS

EUR

FCF

FDI

FRC

FTA

GBP

GDP

GEL

GGU

GHG

HPP

IAS

IASB

IFC

IMF

IPO

LTIP

LTM

LTV

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

MOIC

Multiple of invested capital

MoU

MTPL

NAV

NBG

NGO

Mandatory third-party liability insurance

Megawatt

Net asset value

National Bank of Georgia

Non-governmental organisation

NMF

NPLs

NTM

OECD

Not meaningful to present

Non-performing loans

Next twelve months

Organisation for Economic Co-operation
and Development

OPEX

Operating expenses

P&C

PLC

PPA

RAB

ROA

ROAE

ROE

ROIC

SDGs

SMEs

SOTP

TBD

TPP

TPL

TSR

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

US$/USD

United States dollar, national currency of the
United States

WACC

WPP

WSS

WWTP

y-o-y

YTD

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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Georgia Capital PLC Annual Report 2021

215

214

ADDITIONAL INFORMATION
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.

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 2021.

Net investment

Gross investments less capital returns.

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.

ADDITIONAL INFORMATION
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
42 Brook Street
London W1K 5DB
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 20 May 2022 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) 370 873 5866.

Computershare Investor Services PLC
The Pavilions, Bridgwater Road
Bristol BS13 8AE
United Kingdom
+44 (0) 370 873 5866

Contact information
Georgia Capital PLC Investor Relations
E-mail: ir@gcap.ge

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
75 to 82.

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.

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NOTES

Georgia Capital PLC Annual Report 2021