Final Results

RNS Number : 1025F
Bgeo Group PLC
16 February 2018
 

 

 

BGEO Group PLC

4th quarter and full year 2017

preliminary results

 

 

 

 

 

 

 

 

Name of authorised official of issuer responsible for making notification: Giorgi Alpaidze, Group CFO

 

www.bgeo.com



 

About BGEO Group  

The Group: BGEO Group PLC ("BGEO"- LSE: BGEO LN) is a UK incorporated holding company of a Georgia-focused investment platform. BGEO invests, via its subsidiaries, in the banking and non-banking sectors in Georgia (BGEO and its subsidiaries, together the "Group"). BGEO aims to deliver on its strategy: (1) at least 20% ROAE from its Banking Business; (2) 15%-20% growth of its Banking Business loan book; (3) at least 25% IRR; and (4) up to 20% of the Group's profit from its Investment Business. On 3 July 2017 BGEO announced its intention to demerge BGEO Group PLC into a London-listed banking business (the "Banking Business"), Bank of Georgia Group PLC, and a London-listed investment business (the "Investment Business"), Georgia Capital PLC, by the end of the first half of 2018.

 

The Banking Business comprises: a) retail banking and payment services, b) corporate investment banking and wealth management operations and c) banking operations in Belarus ("BNB"). JSC Bank of Georgia ("BOG" or the "Bank") is the core entity of the Group's Banking Business. The Banking Business will continue to target to benefit from the underpenetrated banking sector in Georgia primarily through its retail banking services.

                        

The Investment Business, comprises the Group's stakes in Georgia Healthcare Group PLC ("Healthcare Business" or "GHG") - an LSE (a London Stock Exchange) premium-listed company, Georgia Global Utilities ("Utility and Energy Business" or "GGU"), m2 Real Estate ("Real Estate Business" or "m2"),  Teliani Valley ("Beverage Business" or "Teliani") and Aldagi ("Property and Casualty Insurance Business" or "Aldagi"). Georgia's fast-growing economy provides opportunities in a number of underdeveloped local markets and Georgia Capital PLC will target to capture growth opportunities in the Georgian corporate sector.   

 

 

 

About this Announcement

BGEO Group PLC announces the Group's fourth quarter 2017 and full year 2017 preliminary consolidated results. Unless otherwise noted, numbers are for 4Q17 and comparisons are with 4Q16. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the European Union, are unaudited and derived from management accounts.

The information in this Announcement in respect of full year 2017 preliminary results, which was approved by the Board of Directors on 15 February 2018, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The financial statements for the year ended 31 December 2016 were filed with the Registrar of Companies, and the audit report was unqualified and contained no statements in respect of Sections 498 (s) and 495 (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2017 will be included in the Annual Report and Accounts to be published in March 2018 and filed with the Registrar of Companies in due course.

 

 

 



 

CONTENT

 

 

4

4Q17 and FY17 Results Highlights



7

Chief Executive Officer's Statement



10

Financial Summary



12

Discussion of Results



12

Discussion of Banking Business Results

17

Retail Banking

21

Corporate Investment Banking



24

Discussion of Investment Business Results

26

Utility and Energy Business

30

Real Estate Business

33

Property and Casualty Insurance Business

36

Healthcare Business



38

Selected Financial and Operating Information



43

Annex



44

4Q17 and FY17 Results Conference Call Details



45

Company Information

 

 

 

 

 

 

 

 

 

 

 

 

 



 

The Group has renamed its Investment Business as Georgia Capital. The two terms are used interchangeably in this report. In line with IFRS requirements, the Group reviewed the classification of its operating segments at 31 December 2017. Given the expectation, in line with Georgia Capital's strategy, that it is highly probable the Group will own less than a 50% stake in its healthcare business GHG at the end 20181. As a result, and in line with IFRS, the Group classified GHG as "disposal group held for sale" and its results of operations are reported under "discontinued operations" line as a single amount in the consolidated income statement. Comparative periods have been restated accordingly to reflect reclassification of GHG from "continuing operations" into "discontinued operations." Assets and liabilities held by GHG are also presented separately in the consolidated balance sheet as of 31 December 2017 under "assets of disposal group held for sale" and "liabilities of disposal group held for sale."

 

BGEO HIGHLIGHTS

Record annual results driven by strong performance across all businesses

GEL thousands, except per share information

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y

BGEO










Profit

118,809

88,743

33.9%

112,841

5.3%


463,449

428,576

8.1%

Basic earnings per share

3.05

2.29

33.2%

2.82

8.2%


11.61

10.41

11.5%

Book value per share

65.22

56.61

15.2%

62.06

5.1%


65.22

56.61

15.2%

Equity attributable to shareholders of the Group

2,420,602

2,131,867

13.5%

2,328,572

4.0%


2,420,602

2,131,867

13.5%

Total assets

15,168,669

12,954,176

17.1%

13,927,773

8.9%


15,168,669

12,954,176

17.1%











Banking Business










Revenue

260,312

224,225

16.1%

223,196

16.6%


909,335

773,907

17.5%

Cost of credit risk

42,428

70,608

-39.9%

36,832

15.2%


167,296

167,752

-0.3%

Profit

107,134

71,504

49.8%

91,931

16.5%


369,522

295,696

25.0%

Loans to customers and finance lease receivables

7,741,420

6,681,672

15.9%2

6,951,493

11.4%2


7,741,420

6,681,672

15.9%2

Client deposits and notes

7,078,058

5,755,767

23.0%3

6,549,904

8.1%3


7,078,058

5,755,767

23.0%3











ROAE

27.8%

20.0%


25.1%



25.2%

22.2%


Net interest margin

7.3%

7.6%


7.3%



7.3%

7.4%


Loan yields

14.3%

14.4%


14.3%



14.2%

14.2%


Cost of funds

4.8%

4.6%


4.8%



4.7%

4.7%


Cost / Income

38.3%

37.4%


38.2%



37.7%

37.7%


Cost of risk

2.1%

4.2%


2.0%



2.2%

2.7%


Leverage (times)

7.3

7.2


6.9



7.3

7.2


NBG (Basel II) Tier I Capital Adequacy Ratio

10.3%

9.1%


11.1%



10.3%

9.1%


NBG (Basel III) Tier I Capital Adequacy Ratio4

12.4%

n/a


n/a



12.4%

n/a












Investment Business










Revenue

44,558

39,244

13.5%

48,759

-8.6%


181,369

104,336

73.8%

EBITDA

21,882

26,432

-17.2%

28,624

-23.6%


106,577

68,443

55.7%

Profit before non-recurring items and income tax5

14,626

25,821

-43.4%

24,184

-39.5%


105,463

86,837

21.4%

Profit from discontinued operations

12,270

5,898

108.0%

10,335

18.7%


47,352

60,100

-21.2%

Strong economic activity in Georgia has continued                                                                                  

§ Georgian economic growth has accelerated to 4.7% in 4Q17, from 4.4% in 3Q17. For the full year 2017, GDP growth strengthened to 4.8% from 2.8% in 2016

Bank of Georgia has delivered very strong franchise growth, particularly in the fourth quarter, with further improved returns

§ The Bank's loan book demonstrated 17.4% growth, on a constant currency basis, during 2017 (30.6% growth in Retail Banking); In 4Q17, the loan book growth amounted to 8.3% on a constant currency basis (8.7% growth in Retail and 9.2% growth in Corporate Investment Banking). The Bank's Return on average equity was 25.2% in 2017 and 27.8% in 4Q17

Strong strategic execution in the Investment Business

§ Each business within Georgia Capital continued to deliver on their strategic priorities ahead of the forthcoming demerger

Solid distributions to shareholders continue

§ $18.3mln was returned to shareholders during 4Q17 ($39.1mln returned in 2017)

 

 

1 The Group held 57% of GHG's equity stake as of 31 December 2017 (65% as of 31 December 2016).

2 As of 31 December 2017, loans and finance lease receivables growth on a constant currency basis was 17.4% and 8.3% on y-o-y and q-o-q basis, respectively.

3 As of 31 December 2017, client deposits and notes growth on a constant currency basis was 24.8% and 4.7% on y-o-y and q-o-q basis, respectively.

4 Refer to the Discussion of the Banking Business Results section for the background on NBG (Basel III) Tier I Capital Adequacy Ratio.

5 Includes profit before non-recurring items and income tax of discontinued operations, GHG.

BANKING BUSINESS HIGHLIGHTS

Outstanding profitability and balance sheet growth momentum

§ The Banking Business generated a record quarterly profit of GEL 107.1mln in 4Q17 (up 49.8% y-o-y and up 16.5% q-o-q) and GEL 369.5mln in 2017 (up 25.0% y-o-y), while quarterly ROAE reached 27.8% in 4Q17 (up 780bps y-o-y and up 270bps q-o-q) and 25.2% in 2017 (up 300bps y-o-y)

§ Asset quality improved during 4Q17 and FY17. NPLs to gross loans ratio decreased to 3.8% at 31 December 2017 (4.2% at 31 December 2016 and 4.1% 30 September 2017). NPL coverage ratio was strong at 92.7% at 31 December 2017 (86.7% a year ago and 93.6% at 30 September 2017), while the NPL coverage ratio adjusted for discounted value of collateral stood at 130.6% at 31 December 2017 (132.1% at 31 December 2016 and 132.8% at 30 September 2017). The asset quality improvement positively impacted the cost of risk ratio, which stood at 2.1% in 4Q17 (4.2% in 4Q16 and 2.0% in 3Q17) and 2.2% in 2017 (2.7% in 2016)

§ Retail Banking ("RB") continued to deliver strong growth across all its business lines. Retail Banking revenue reached GEL 176.0mln in 4Q17, up 19.1% y-o-y and up 13.0% q-o-q, with full year 2017 revenue totalling GEL 614.7mln, up 24.4% y-o-y. The number of Retail Banking clients reached 2.3mln at the end of 4Q17, up 8.1% from 2.1mln at the end of 4Q16 and up 2.7% from 3Q17

§ Our Retail Banking product to client ratio increased to 2.2 in 4Q17 from 2.0 in 4Q16 and 2.1 in 3Q17. In 4Q17 we have completed the transformation of our retail banking operations from a product-based model into a client-centric model, as well as the implementation of the client-centric model in our branches. As of 31 December 2017, we had 86 transformed branches. We continue to see outstanding growth in sales volumes and the number of products sold to our clients in these branches, contributing to 29.3% y-o-y growth in the retail loan book

§ The loan book growth on a constant-currency basis reached 17.4% at 31 December 2017. As a result, Retail Banking's loan book share in the total loan portfolio was 68.0% at 31 December 2017 (60.9% at 31 December 2016 and 68.4% at 30 September 2017). The Retail Banking net loan book reached GEL 5,044mln at 31 December 2017, up 29.3% y-o-y and up 11.1% q-o-q. The growth on a constant-currency basis was 30.6% y-o-y and 8.7% q-o-q

§ Retail Banking client deposits increased to GEL 3,267.3mln at 31 December 2017, up 35.4% y-o-y and up 13.8% q-o-q. Growth on a constant-currency basis was 37.4% y-o-y and 10.2% q-o-q

§ Corporate Investment Banking ("CIB") resumed growth in 4Q17 after delivering on its risk de-concentration and loan portfolio repositioning targets in 3Q17. CIB's net loan book amounted to GEL 2,260.1mln at 31 December 2017, down 5.6% y-o-y, but up 13.4% q-o-q. The top 10 CIB client exposure was 10.7% at the end of 4Q17, down from 11.8% at 31 December 2016. Consequently, CIB's profit increased to GEL 27.7mln in 4Q17 (up 175.3% y-o-y and up 42.3% q-o-q) and GEL 105.9mln in 2017 (up 19.9% y-o-y) and CIB ROAE reached 18.1% in 4Q17 (6.2% a year ago and 13.3% in 3Q17) and 17.6% in 2017 (up from 14.7% in 2016)

§ Investment Management's Assets Under Management ("AUM") increased to GEL 1,857.5mln, up 17.9% y-o-y and up 2.2% q-o-q, reflecting higher bond issuance activity by our brokerage arm Galt & Taggart

§ IFRS 9 implementation delivered - no impact on capital adequacy ratios. The Group has completed its IFRS 9 implementation programme and adopted IFRS 9, Financial Instruments from 1 January 2018. The Banking Business will recognise the estimated impact from IFRS 9 adoption of approximately GEL 31.5mln, gross of income tax, as a reduction to shareholders' equity at the transition date on 1 January 2018. As allowed by IFRS 9, the Group will not be restating prior-period data. IFRS 9 does not have any impact on regulatory capital and capital adequacy ratios. Through-the-cycle cost of risk is expected to remain unchanged. NPL coverage ratio, adjusted for additional IFRS 9 allowance, was 102.9% as at 31 December 2017

§ Amendments to Capital Adequacy requirements. In order to transition to Basel III, the National Bank of Georgia ("NBG") introduced new capital adequacy requirements in December 2017. As a result of the changes, Bank of Georgia became subject to the following minimum capital requirements at 31 December 2017:

§ Common Equity Tier 1 ratio 8.1%, expected to increase to 9.5% on 31 December 2018

§ Tier 1 ratio 9.9%, expected to increase to 11.4% on 31 December 2018

§ Total Capital ratio 12.4%, expected to increase to 15.6% on 31 December 2018

At 31 December 2017, Bank of Georgia's both Common Equity Tier 1 and Tier 1 ratios were 12.4%, while Total Capital ratio was 17.9%. Transition to Basel III is not expected to affect the Bank's growth prospects or its ability to maintain dividend distributions within the existing dividend policy payout range

INVESTMENT BUSINESS HIGHLIGHTS

§ Our utility and energy business, GGU, delivered a stable performance in 2017. In 4Q17, GGU continued its investments in water pipeline infrastructure, leading to continued growth in the regulated asset base and reduction of the respective water losses. Due to successfully implemented efficiency projects, GGU was able to significantly reduce its own electricity consumption in 2017. GGU also continued the construction works on the 50MW Mestiachala HPPs in north-western Georgia, while the 44.3MW Zoti HPPs entered their construction phase in 4Q17

§ In December 2017, the Georgian National Energy and Water Supply Regulatory Commission ("GNERC") approved new tariffs for water and waste-water services, which have been updated according to the new Regulatory Asset Base based methodology adopted by GNERC in August 2017. The new tariffs have been set for a three year regulatory period, effective from 1 January 2018. As a result, tariffs in Tbilisi have increased by 23.8% for residential customers and decreased by 0.4% for legal entities

§ Our real estate business, m2, achieved the best sales performance in its history during 2017. 2017 was record-breaking for m2 in terms of square meters sold, number of apartments sold and sales revenue. m2 sold a total of 165 apartments with a total sales value of US$ 14.5mln during 4Q17, compared to 112 apartments sold with total sales value of US$ 8.3mln in 4Q16 and 231 apartments with a total sales value of US$ 16.9mln in 3Q17. m2 successfully completed the construction of its first luxury residential project - Skyline in 4Q17

§ In 4Q17, m2 signed its largest ever franchise agreement as part of its "asset light" strategy and will construct and develop a residential complex under the m2 brand name on a third-party land plot to generate construction fees, sales commissions and a share from the project's overall profit

§ In 4Q17, m2 acquired a controlling stake in an upcoming lifestyle boutique hotel in a prime location of Tbilisi, which is expected to add at least 100 rooms to m2's portfolio and is expected to complete in the first quarter of 2019. The acquisition is in line with m2's strategy to increase its presence in the hospitality sector and capitalise on growing tourist activities in the country

§ In 4Q17, m2's construction arm was awarded its first major third-party construction agreement to construct the shell and core of a new shopping mall and business centre located in Tbilisi. The total amount of the contract is US$ 11.6mln and completion is planned for the first half of 2019

§ Aldagi delivered its best ever year as it continued organic growth primarily in the motor insurance, property insurance and credit life lines, as Aldagi shifted its focus more to the retail market. New product development initiatives and enhancements of existing products resulted in more than 19,000 livestock insurance policies and 3,334 travel and trip insurance policies sold across the country in 2017

§ In 4Q17 Aldagi signed major third-party partnership agreements with two Georgian banks, JSC Liberty Bank and JSC Credo Bank to successfully diversify its multi-channel distribution network, which will enable Aldagi to successfully tap Georgia's underpenetrated retail insurance segment

§ Our beverage business, Teliani, achieved significant milestones during 2017 and launched its mainstream beer and lemonade production in June 2017 and August 2017, respectively. Teliani is on track to brew Heineken and Krusovice beers in 2018 under a ten-year exclusive license agreement to produce Heineken brands in Georgia, and to sell into the Caucasus region countries. Teliani also continued to diversify its distribution portfolio, with the addition of the exclusive right to import and distribute Lavazza coffee in Georgia, and winning other non-alcoholic beverage distribution contracts in 2017

§ In February 2018, we acquired a 100% equity stake in a leading Georgian craft beer producer, Black Lion LLC (Black Lion). Black Lion is the largest producer of a premium class craft beer in Georgia that launched sales in the beginning of 2016 and sold approximately 300,000 litres of craft beer in 2017, primarily targeting restaurants and bars in Tbilisi 

§ Our healthcare business, GHG, continued to deliver on its strategic priorities across its healthcare services and pharmacy businesses, while medical insurance business maintained positive EBITDA in 4Q17. Healthcare services EBITDA margin was 26.8% in 4Q17, compared to 31.9% in 4Q16 and 26.0% in 3Q17 reflecting the planned significant investment in new hospitals and polyclinics during 2017. Pharmacy business generated a record EBITDA margin of 10.2% in 4Q17, compared to 6.0% in 4Q16 and 8.3% in 3Q17

§ In January 2018, GHG's medical insurance arm signed new medical insurance agreement with the Georgian Ministry of Internal Affairs, the country's largest insurance client by number of insured customers of c.65,000. As a result, the number of GHG's insured individuals reached approximately 155,000

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

In the fourth quarter of 2017, the Group delivered another extremely strong performance that resulted in record profit for the year of GEL 463 million and earnings per share of GEL 11.61, an increase of 11.5% year-on-year. This strength reflects an excellent performance from our Banking Business as well as growth momentum and strategic delivery from our Investment Businesses, which were supported by Georgia's strong macroeconomic performance and business outlook.

Group revenue in 2017 increased by 23.7% year-on-year to GEL 1.1 billion, which supported a 23.5% year-on-year increase in profit before tax from continuing operations to GEL 435.8 million.  Book value per share at the end of 2017 was GEL 65.22, up 15.2% year-on-year. The Return on Average Equity in the Banking Business increased from 22.2% in 2016 to 25.2% in 2017. During the fourth quarter, the Group delivered revenue of GEL 305.1 million, up 14.8% year-on-year and up 11.9% quarter-on-quarter, and profit of GEL 118.8 million, up 33.9% year-on-year and 5.3% quarter-on-quarter.

In the Banking Business, 2017 was characterised by strong franchise growth in the Retail Banking operations, particularly in the fourth quarter, reflecting the continued strong performance of our business in all segments, and an increase in retail lending during the year of 29.3%, or 30.6% on a constant currency basis. In addition, in 3Q17 we completed our three year progamme to reduce concentration risk in our Corporate Investment Banking and consequently, started to deliver corporate lending growth in the last quarter of the year. Loan yields have continued to remain stable, and net interest margins have therefore remained robust at 7.3%. Costs have remained well-controlled, whilst ensuring continued investment in building an increasingly strong customer franchise. The Banking Business cost to income ratio remained very efficient at 37.7% for the year. The Banking Business cost of risk ratio in 2017 was 2.2%, in line with our medium term cost of risk expectations, and a significant reduction from 2.7% in 2016. In addition, we have continued to improve our asset quality and provisions coverage ratios. The Return on Average Equity in the Banking Business continued to improve on a quarterly basis, and stood at 25.2% for the year, and 27.8% in the fourth quarter.

The Group's Investment Business continued to deliver strong growth and performance, with EBITDA growing 55.7% year-on-year, and profit before non-recurring items and income tax, including discontinued operations increasing by 21.4% over the same period. Overall, the impact of a number of non-recurring items in 2016 affected year-on-year comparisons resulting in a reduction of 29.3% in net profit, to GEL 93.9 million in 2017.

From a macroeconomic perspective Georgia continues to deliver strong GDP growth, estimated at 4.8% in 2017. Annual inflation was at 6.7%, reflecting the one-off effect of an excise tax increase, while core inflation remained well-contained at 4.7% in 2017. Foreign Direct Investment continues to flow into a wide variety of sectors, and tourist numbers - the most significant driver of US$ inflows for the country - continue to rise strongly, with tourism revenues totaling US$2.8 billion during the year, up 27.0% year-on-year. Despite Lari exchange rate volatility in the fourth quarter, the local currency regained value at the end of the year, as the external environment strengthened. The National Bank of Georgia (NBG) purchased approximately US$130 million in 2017, boosting reserves up 10.3% year-on year, to US$3.0 billion.

In the Banking Business, we have continued to deliver on all of our key strategic priorities. 2017 revenue growth of 17.5% was particularly supported by the strong Retail Banking franchise growth, where revenue increased by 24.4% and customer lending on a constant currency basis continues to grow at more than 20% per annum. This offsets the anticipated decline in the Corporate Investment Banking loan portfolio, as we wound down the banking relationship with a small number of significant corporate borrowers, earlier in 2017. More importantly, we have made strong progress in reducing concentration risk in the Corporate Investment Banking, and have reduced the concentration of our top 10 corporate borrowers to only 10.7% of our lending portfolio. We have now exceeded our targeted rebalancing of the retail/corporate portfolio mix to further improve the return profile of the Banking Business. Retail Banking now represents 68% of our customer lending and Corporate Investment Banking represents 32%.

In addition to the strong retail lending growth, the Retail Banking made strong progress in implementing its customer centric approach with the launch of its new loyalty reward program, Plus+ in July 2017 and continued investment in digital penetration growth. Our Retail Banking product to client ratio also improved from 2.0 to 2.2 products per client during the second half of 2017. In July 2017, we won the exclusive right to modernise the public transportation payment system in Tbilisi and continue as the sole provider of the Tbilisi Metro's payment support systems for the next ten years.  In addition, Solo, our premium banking brand, has continued to deliver strong growth momentum, with customer numbers increasing to 32,104, up 12.7% during the fourth quarter and up 66.6% over the last twelve months. Solo is strongly on track to achieving its target of 40,000 Solo clients by the end of 2018.

The improving growth and strength of the Georgian economy continues to support asset quality. The annualised cost of risk ratio in 4Q17 was 2.1%, compared to 4.2% in 4Q16. In addition, we were able to reduce the ratio of NPLs to Gross Loans, which fell from 4.2% in December 2016, to 3.8% in December 2017. Our NPL coverage ratio also improved - from 86.7% at the end of December 2016, to 92.7% at the end of 2017.

In January 2018, the Bank adopted IFRS 9, which introduces a new three stage expected loss model, compared to the existing two-stage incurred loss model under the current International Accounting Standard 39. The introduction of IFRS 9 has not had an impact on the Banking Business financial position and capital ratios, which are calculated using local regulatory accounting standards. This change in accounting standards resulted in a one-off GEL 31.5 million reduction of the Banking Business shareholders equity. There is no change to the Banking Business expected 2.0% through-the-cycle cost of risk ratio.

The Group's capital and funding position continues to remain strong, with capital being held both in the regulated Banking Business and at the holding company level. At the end of 2017, liquid assets totaling GEL 310 million were held at the holding company level. Within the Banking Business, the NBG (Basel II) Tier 1 Capital Adequacy ratio increased by 120 basis points to 10.3% during the year, reflecting both the continued de-dollarisation of the Banking Business lending portfolio and the Banking Business' high return on average equity and internal capital generation.

The National Bank of Georgia is currently in the process of transitioning to Basel III standards, and introduced new capital adequacy requirements in December 2017. Further details of the new requirements are mentioned on Page 16 of this release. On the basis of new regulation, the NBG (Basel III) Tier 1 capital adequacy ratio was 12.4% at 31 December 2017, compared to a new minimum Tier 1 capital requirement of 9.9%, which is expected to increase to 11.4% at 31 December 2018. Bank of Georgia has strong capital ratios and high levels of internal capital generation. As a result, the transition to Basel III is not expected to affect the Bank's growth expectations or existing dividend payout policy.

Within our Investment Business, we now expect that, in line with our planned exit strategy for the business, it is highly probable that the Group will own less than a 50% stake in Georgia Healthcare Group ("GHG") at the end of 2018. As a result, GHG is now reported under "discontinued operations" in the Group's consolidated income statement. Within the business, GHG delivered a year of strong progress towards its planned investment and business roll-out in all the key areas in the Georgian healthcare system. GHG delivered net revenues of GEL 745.7 million during the year, an increase of 76.0%, reflecting a combination of solid organic growth and the impact of acquisitions. The healthcare services EBITDA margin continues to be strong at 26.4%, notwithstanding the dilutive effect of the significant roll-out of the two major hospital renovations - Tbilisi Referral Hospital and Deka - and the ongoing roll-out of a nationwide chain of polyclinics (outpatient clinics). In the pharmacy business, we have made significant progress towards the integration of our two recently acquired businesses, whilst avoiding any significant business disruption. As a result, the EBITDA margin of 8.6% for the year has already successfully exceeded our target of "more than 8%" margin.

Our water utility and energy business, GGU, continued to focus on improving efficiencies in the water utility business and delivered a 6.1% year-on-year growth in revenues, reaching GEL 135.0 million in 2017, compared to GEL 127.2 million last year, whilst achieving a 52% EBITDA margin. GGU has also continued to achieve efficiencies in its own energy consumption, to free up electricity for third-party sales, and has started a number of investments in additional capacity for electricity generation with the goal to establish a renewable energy platform. During 2017, GGU commenced construction of three hydro power plants, targeting c.100MW of planned additional capacity over the next few years.

Our real estate business, m2 Real Estate, continues to demonstrate its strong execution skills to unlock considerable value in the real estate development business. During 2017, m2 sold a total of 629 apartments with a total sales value of $49.1 million, in addition to further increasing its portfolio of yielding assets. As a result, m2 recorded a profit of GEL 23.7 million in 2017, up from GEL 10.9 million in the previous year. In addition, during the fourth quarter of 2017, the real estate business acquired a controlling stake in an upcoming lifestyle boutique hotel in a prime location in Tbilisi, signed its largest ever franchise agreement as part of its "asset light" strategy to construct and develop a residential complex under the m2 brand name on a third-party land plot in a densely populated Tbilisi suburb, and m2's construction arm gained its first major third-party construction agreement to construct the shell and core of a new shopping mall and business centre in Tbilisi's Saburtalo district. These developments underpinned an extremely successful year for the real estate business, and provide significant growth potential over the next few years.

Our property and casualty insurance business, Aldagi, continues development of a strong portfolio of new products, supporting 24.6% year-on-year growth in net earned premiums during 2017 and Aldagi's position as the clear market leader in the fast-developing Georgian P&C insurance market. Over the last few months, Aldagi has also enhanced its distribution capabilities by signing major third-party partnership agreements with two Georgian banks - Liberty Bank and Credo Bank - and this will support the further diversification of Aldagi's multi-channel distribution network.

Our beverage business, Teliani, increased its revenues by 102.5% year-on-year, excluding IFRS 15 impact, continued to diversify its distribution portfolio and launched its mainstream beer and lemonade production during 2017. 

The Group Board expects to recommend a regular annual dividend for 2017 totaling c.GEL 120 million.  This is in the range of our regular dividend payout ratio target of 25-40% paid from the Banking Business profits. Since 2010, the Group has grown its annual dividend per share by 40% CAGR on a GEL basis, and by 32% CAGR on a US Dollar basis. If the expected demerger is successfully implemented as planned, it is intended that Bank of Georgia PLC (the then new parent company of the Banking Business), will instead, shortly after the demerger is completed, declare and pay a dividend in a similar aggregate amount to shareholders then on the record. In the event that the demerger is for any reason not completed it is intended, subject to shareholder approval, that the Board would implement the payment of this dividend, which would represent a payment of GEL 3.1 per share, payable in British Pounds Sterling at the prevailing rate, a 19.2% increase over the 2016 dividend.

In addition to the regular annual dividend paid to shareholders, US$5.0 million was returned to shareholders by way of the buyback and cancellation of 115,608 shares during 2017, as part of the existing Board approved US$50 million buyback and cancellation programme. During 2017, the Group Employee Benefits Trust also purchased shares in the market totaling US$34.1 million.

In July 2017, the Group announced its intention to demerge BGEO Group PLC into two separately London-listed businesses: a banking business, Bank of Georgia Group PLC, and an investment business, Georgia Capital PLC. On 12 February, the Group announced that the Board has approved the implementation of the demerger, which is subject to shareholder approval at a General Meeting expected to be held in April 2018.  The demerger is expected to complete before the end of June 2018. In its final year before the forthcoming demerger, supported by the continued macroeconomic performance of Georgia, BGEO Group has delivered another year of strong earnings momentum. Growth and returns in both the Banking Business and the Investment Businesses, now renamed Georgia Capital, continue to be high. Following the completion of the proposed demerger, I expect both companies independently to be extremely well positioned to continue their excellent recent track record for many years to come.

 

 

Irakli Gilauri, 

Group CEO of BGEO Group PLC


FINANCIAL SUMMARY

 

INCOME STATEMENT (QUARTERLY)

BGEO Consolidated


Banking Business6


Investment Business6

GEL thousands unless otherwise noted 

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q



















Net banking interest income 

183,498

155,052

18.3%

168,603

8.8%


183,124

157,611

16.2%

167,788

9.1%


-

-

-

-

-

Net fee and commission income 

36,483

35,196

3.7%

32,754

11.4%


36,738

36,769

-0.1%

33,141

10.9%


-

-

-

-

-

Net banking foreign currency gain

28,139

34,956

-19.5%

20,436

37.7%


27,464

27,707

-0.9%

19,614

40.0%


-

-

-

-

-

Net other banking income

12,708

1,704

NMF

2,375

NMF


12,986

2,138

NMF

2,653

NMF


-

-

-

-

-

Gross insurance profit 

6,328

6,223

1.7%

6,862

-7.8%


-

-

-

-

-


6,306

6,255

0.8%

6,846

-7.9%

Gross real estate profit 

5,544

979

NMF

3,922

41.4%


-

-

-

-

-


5,773

1,560

NMF

4,179

38.1%

Gross utility and energy profit

22,777

21,600

5.4%

25,853

-11.9%


-

-

-

-

-


22,868

21,671

5.5%

25,942

-11.8%

Gross other investment profit 

9,621

9,974

-3.5%

11,800

-18.5%


-

-

-

-

-


9,611

9,758

-1.5%

11,792

-18.5%

Revenue 

305,098

265,684

14.8%

272,605

11.9%


260,312

224,225

16.1%

223,196

16.6%


44,558

39,244

13.5%

48,759

-8.6%

Operating expenses 

(121,146)

(95,035)

27.5%

(104,197)

16.3%


(99,742)

(83,840)

19.0%

(85,354)

16.9%


(22,676)

(12,812)

77.0%

(20,135)

12.6%

Operating income before cost of credit risk / EBITDA

183,952

170,649

7.8%

168,408

9.2%


160,570

140,385

14.6%

137,842

16.5%


21,882

26,432

-17.2%

28,624

-23.6%

Profit from associates

255

-

NMF

147

73.5%


255

-

NMF

147

73.5%


-

-

-

-

-

Depreciation and amortisation of investment business

(9,056)

(4,501)

101.2%

(7,275)

24.5%


-

-

-

-

-


(9,056)

(4,501)

101.2%

(7,275)

24.5%

Net foreign currency loss from investment business

(5,797)

(1,905)

NMF

(3,941)

47.1%


-

-

-

-

-


(5,797)

(1,905)

NMF

(3,941)

47.1%

Interest income from investment business 

1,691

1,830

-7.6%

959

76.3%


-

-

-

-

-


4,088

1,175

NMF

3,595

13.7%

Interest expense from investment business

(8,862)

(4,654)

90.4%

(6,961)

27.3%


-

-

-

-

-


(8,969)

(6,523)

37.5%

(7,049)

27.2%

Operating income before cost of credit risk 

162,183

161,419

0.5%

151,337

7.2%


160,825

140,385

14.6%

137,989

16.5%


2,148

14,678

-85.4%

13,954

-84.6%

Cost of credit risk 

(43,045)

(70,023)

-38.5%

(37,900)

13.6%


(42,428)

(70,608)

-39.9%

(36,832)

15.2%


(617)

585

NMF

(1,068)

-42.2%

Profit before non-recurring items and income tax

119,138

91,396

30.4%

113,437

5.0%


118,397

69,777

69.7%

101,157

17.0%


1,531

15,263

-90.0%

12,886

-88.1%

Net non-recurring items

(673)

(1,324)

-49.2%

(1,441)

-53.3%


(213)

(1,055)

-79.8%

(1,376)

-84.5%


(460)

(269)

71.0%

(65)

NMF

Profit before income tax (expense)/benefit

118,465

90,072

31.5%

111,996

5.8%


118,184

68,722

72.0%

99,781

18.4%


1,071

14,994

-92.9%

12,821

-91.6%

Income tax (expense)/benefit

(12,716)

(871)

NMF

(10,096)

26.0%


(11,050)

2,782

NMF

(7,850)

40.8%


(1,666)

(3,653)

-54.4%

(2,246)

-25.8%

Profit from continuing operations

105,749

89,201

18.6%

101,900

3.8%


107,134

71,504

49.8%

91,931

16.5%


(595)

11,341

NMF

10,575

NMF

Profit from discontinued operations

13,060

(458)

NMF

10,941

19.4%


-

-

-

-

-


12,270

5,898

108.0%

10,335

18.7%

Profit

118,809

88,743

33.9%

112,841

5.3%


107,134

71,504

49.8%

91,931

16.5%


11,675

17,239

-32.3%

20,910

-44.2%

Earnings per share (basic)

3.05

2.29

33.2%

2.82

8.2%


2.86

1.89

51.1%

2.43

17.8%


0.19

0.40

-52.3%

0.39

-51.7%

Earnings per share (diluted)

2.90

2.21

31.2%

2.70

7.4%


2.72

1.83

48.9%

2.33

17.0%


0.18

0.38

-53.0%

0.37

-52.0%

 

 

INCOME STATEMENT (FULL YEAR)

BGEO Consolidated


Banking Business6


Investment Business6

GEL thousands unless otherwise noted 

2017

2016

Change

y-o-y


2017

2016

Change

y-o-y


2017

2016

Change

y-o-y













Net banking interest income 

672,535

548,121

22.7%


672,100

553,611

21.4%


-

-

-

Net fee and commission income 

130,050

122,477

6.2%


131,474

124,910

5.3%


-

-

-

Net banking foreign currency gain

79,106

89,480

-11.6%


86,060

83,203

3.4%


-

-

-

Net other banking income

18,645

10,667

74.8%


19,701

12,183

61.7%


-

-

-

Gross insurance profit 

27,265

24,569

11.0%


-

-

-


27,049

25,256

7.1%

Gross real estate profit 

34,390

18,485

86.0%


-

-

-


35,367

19,066

85.5%

Gross utility and energy profit

88,010

38,541

128.4%


-

-

-


88,370

38,680

128.5%

Gross other investment profit 

30,630

21,288

43.9%


-

-

-


30,583

21,334

43.4%

Revenue 

1,080,631

873,628

23.7%


909,335

773,907

17.5%


181,369

104,336

73.8%

Operating expenses 

(413,045)

(322,806)

28.0%


(342,936)

(291,548)

17.6%


(74,792)

(35,893)

108.4%

Operating income before cost of credit risk / EBITDA

667,586

550,822

21.2%


566,399

482,359

17.7%


106,577

68,443

55.7%

Profit from associates

1,311

4,074

-67.8%


1,311

-

NMF


-

4,074

NMF

Depreciation and amortisation of investment business

(28,235)

(10,062)

NMF


-

-

-


(28,235)

(10,062)

NMF

Net foreign currency loss from investment business

(4,937)

(3,134)

57.5%


-

-

-


(4,937)

(3,134)

57.5%

Interest income from investment business 

5,415

3,745

44.6%


-

-

-


12,970

4,144

NMF

Interest expense from investment business

(29,660)

(11,220)

NMF


-

-

-


(30,014)

(13,410)

123.8%

Operating income before cost of credit risk 

611,480

534,225

14.5%


567,710

482,359

17.7%


56,361

50,055

12.6%

Cost of credit risk 

(170,711)

(168,756)

1.2%


(167,296)

(167,752)

-0.3%


(3,415)

(1,004)

NMF

Profit before non-recurring items and income tax

440,769

365,469

20.6%


400,414

314,607

27.3%


52,946

49,051

7.9%

Net non-recurring items

(4,923)

(12,682)

-61.2%


(4,300)

(45,355)

-90.5%


(623)

32,673

NMF

Profit before income tax (expense)/benefit

435,846

352,787

23.5%


396,114

269,252

47.1%


52,323

81,724

-36.0%

Income tax (expense)/benefit

(32,340)

17,500

NMF


(26,592)

26,444

NMF


(5,748)

(8,944)

-35.7%

Profit from continuing operations

403,506

370,287

9.0%


369,522

295,696

25.0%


46,575

72,780

-36.0%

Profit from discontinued operations

59,943

58,289

2.8%


-

-

-


47,352

60,100

-21.2%

Profit

463,449

428,576

8.1%


369,522

295,696

25.0%


93,927

132,880

-29.3%

Earnings per share (basic)

11.61

10.41

11.5%


9.76

7.66

27.4%


1.85

2.75

-32.7%

Earnings per share (diluted)

11.07

10.09

9.7%


9.30

7.42

25.4%


1.77

2.67

-33.8%

 

 

 

6 Banking Business and Investment Business financials do not include inter-business eliminations. Detailed financials, including inter-business eliminations are provided on pages 38, 39 and 40.

 

 

BALANCE SHEET

BGEO Consolidated


Banking Business


Investment Business

GEL thousands unless otherwise noted

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q


Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q


Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q



















Liquid assets

4,373,251

3,914,596

11.7%

4,128,332

5.9%


4,346,509

3,705,171

17.3%

4,068,147

6.8%


445,501

584,066

-23.7%

439,616

1.3%

     Cash and cash equivalents

1,582,435

1,573,610

0.6%

1,721,811

-8.1%


1,516,401

1,480,783

2.4%

1,648,098

-8.0%


374,301

401,969

-6.9%

345,137

8.4%

     Amounts due from credit institutions

1,225,947

1,054,983

16.2%

985,120

24.4%


1,216,349

940,485

29.3%

950,775

27.9%


38,141

178,425

-78.6%

60,565

-37.0%

     Investment securities

1,564,869

1,286,003

21.7%

1,421,401

10.1%


1,613,759

1,283,903

25.7%

1,469,274

9.8%


33,059

3,672

NMF

33,914

-2.5%

Loans to customers and finance lease receivables

7,690,450

6,648,482

15.7%

6,917,211

11.2%


7,741,420

6,681,672

15.9%

6,951,493

11.4%


-

-

-

-

-

Property and equipment

988,436

1,288,594

-23.3%

1,501,735

-34.2%


322,925

296,791

8.8%

309,769

4.2%


661,176

991,803

-33.3%

1,187,631

-44.3%

Assets of disposal group held for sale

1,136,417

-

NMF

-

NMF


-

-

-

-

-


1,165,182

-

NMF

-

NMF

Total assets

15,168,669

12,954,176

17.1%

13,927,773

8.9%


12,907,678

11,123,358

16.0%

11,779,718

9.6%


2,763,913

2,307,069

19.8%

2,573,427

7.4%

Client deposits and notes

6,712,482

5,382,698

24.7%

6,252,228

7.4%


7,078,058

5,755,767

23.0%

6,549,904

8.1%


-

-

-

-

-

Amounts due to credit institutions

3,155,839

3,470,091

-9.1%

2,774,525

13.7%


2,778,338

3,067,651

-9.4%

2,350,438

18.2%


377,501

435,630

-13.3%

459,158

-17.8%

     Borrowings from DFI

1,624,347

1,403,120

15.8%

1,435,236

13.2%


1,297,749

1,281,798

1.2%

1,172,530

10.7%


326,598

121,323

NMF

262,707

24.3%

     Short-term loans from NBG

793,528

1,085,640

-26.9%

590,014

34.5%


793,528

1,085,640

-26.9%

590,014

34.5%


-

-

-

-

-

     Loans and deposits from commercial banks

737,964

981,331

-24.8%

749,275

-1.5%


687,061

700,213

-1.9%

587,894

16.9%


50,903

314,307

-83.8%

196,451

-74.1%

Debt securities issued

1,709,152

1,255,643

36.1%

1,691,260

1.1%


1,386,412

858,036

61.6%

1,298,641

6.8%


357,442

404,450

-11.6%

479,142

-25.4%

Liabilities of disposal group held for sale

516,663

-

NMF

-

NMF


-

-

-

-

-


619,026

-

NMF

-

NMF

Total liabilities

12,436,299

10,565,963

17.7%

11,299,090

10.1%


11,354,976

9,770,856

16.2%

10,292,672

10.3%


1,584,245

1,271,358

24.6%

1,431,790

10.6%

Total equity

2,732,370

2,388,213

14.4%

2,628,683

3.9%


1,552,702

1,352,502

14.8%

1,487,046

4.4%


1,179,668

1,035,711

13.9%

1,141,637

3.3%

 

 

 

 

 

 

BANKING BUSINESS RATIOS

4Q17

4Q16

3Q17


2017

2016








ROAA

3.4%

2.8%

3.2%


3.2%

3.1%

ROAE

27.8%

20.0%

25.1%


25.2%

22.2%

Net Interest Margin

7.3%

7.6%

7.3%


7.3%

7.4%

Loan Yield

14.3%

14.4%

14.3%


14.2%

14.2%

Liquid assets yield

3.4%

3.3%

3.5%


3.4%

3.2%

Cost of Funds

4.8%

4.6%

4.8%


4.7%

4.7%

Cost of Client Deposits and Notes

3.5%

3.6%

3.5%


3.5%

3.8%

Cost of Amounts Due to Credit Institutions

6.5%

6.4%

6.5%


6.4%

6.2%

Cost of Debt Securities Issued                        

7.8%

6.1%

7.9%


7.4%

6.8%

Cost / Income

38.3%

37.4%

38.2%


37.7%

37.7%

NPLs to Gross Loans to Clients

3.8%

4.2%

4.1%


3.8%

4.2%

NPL Coverage Ratio7

92.7%

86.7%

93.6%


92.7%

86.7%

NPL Coverage Ratio, Adjusted for discounted value of collateral

130.6%

132.1%

132.8%


130.6%

132.1%

Cost of Risk

2.1%

4.2%

2.0%


2.2%

2.7%

NBG (Basel II) Tier I Capital Adequacy Ratio

10.3%

9.1%

11.1%


10.3%

9.1%

NBG (Basel II) Total Capital Adequacy Ratio

14.8%

14.4%

16.2%


14.8%

14.4%

NBG (Basel III) Tier I Capital Adequacy Ratio

12.4%

n/a

n/a


12.4%

n/a

NBG (Basel III) Total Capital Adequacy Ratio

17.9%

n/a

n/a


17.9%

n/a

 

 

 

 

 

 

 

7 NPL Coverage Ratio adjusted for IFRS 9 was 102.9% at 31 December 2017.


 

DISCUSSION OF RESULTS

Discussion of Banking Business Results

 

The Group's Banking Business is primarily comprised of three segments. (1) Retail Banking operations in Georgia principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. Retail Banking targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. (2) Corporate Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. (3) BNB, comprising JSC Belarusky Narodny Bank, principally provides retail and corporate banking services to clients in Belarus.

 

REVENUE

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Banking interest income 

312,950

258,010

21.3%

287,274

8.9%


1,140,292

932,063

22.3%

Banking interest expense 

(129,826)

(100,399)

29.3%

(119,486)

8.7%


(468,192)

(378,452)

23.7%

Net banking interest income 

183,124

157,611

16.2%

167,788

9.1%


672,100

553,611

21.4%

Fee and commission income 

53,739

50,248

6.9%

49,155

9.3%


192,499

172,630

11.5%

Fee and commission expense 

(17,001)

(13,479)

26.1%

(16,014)

6.2%


(61,025)

(47,720)

27.9%

Net fee and commission income 

36,738

36,769

-0.1%

33,141

10.9%


131,474

124,910

5.3%

Net banking foreign currency gain

27,464

27,707

-0.9%

19,614

40.0%


86,060

83,203

3.4%

Net other banking income

12,986

2,138

NMF

2,653

NMF


19,701

12,183

61.7%

Revenue 

260,312

224,225

16.1%

223,196

16.6%


909,335

773,907

17.5%











Net Interest Margin

7.3%

7.6%


7.3%



7.3%

7.4%


Average interest earning assets

10,008,954

8,234,098

21.6%

9,092,457

10.1%


9,234,600

7,441,186

24.1%

Average interest bearing liabilities

10,824,561

8,633,475

25.4%

9,841,785

10.0%


9,922,414

7,984,426

24.3%

Average net loans and finance lease receivables, currency blended

7,390,896

6,134,296

20.5%

6,727,963

9.9%


6,856,802

5,640,611

21.6%

     Average net loans and finance lease receivables, GEL

2,818,150

1,780,650

58.3%

2,528,946

11.4%


2,414,121

1,592,987

51.5%

     Average net loans and finance lease receivables, FC

4,572,746

4,353,646

5.0%

4,199,017

8.9%


4,442,681

4,047,624

9.8%

Average client deposits and notes, currency blended

6,891,147

5,260,121

31.0%

6,096,686

13.0%


6,146,052

5,040,486

21.9%

    Average client deposits and notes, GEL

2,065,806

1,244,743

66.0%

1,811,206

14.1%


1,706,726

1,243,028

37.3%

    Average client deposits and notes, FC

4,825,341

4,015,378

20.2%

4,285,480

12.6%


4,439,326

3,797,458

16.9%

Average liquid assets, currency blended

4,279,369

3,300,588

29.7%

3,920,876

9.1%


3,854,019

3,099,731

24.3%

    Average liquid assets, GEL

1,660,337

1,320,304

25.8%

1,599,459

3.8%


1,527,420

1,205,982

26.7%

    Average liquid assets, FC

2,619,032

1,980,284

32.3%

2,321,417

12.8%


2,326,599

1,893,749

22.9%

Excess liquidity (NBG)

289,942

418,016

-30.6%

843,299

-65.6%


289,942

418,016

-30.6%

Liquid assets yield, currency blended

3.4%

3.3%


3.5%



3.4%

3.2%


    Liquid assets yield, GEL

7.1%

7.2%


7.1%



7.1%

7.3%


    Liquid assets yield, FC

1.0%

0.6%


0.9%



0.9%

0.5%


Loan yield, currency blended

14.3%

14.4%


14.3%



14.2%

14.2%


    Loan yield, GEL

21.3%

22.9%


21.6%



21.9%

23.3%


    Loan yield, FC

10.0%

10.9%


9.9%



10.0%

10.6%


Cost of Funds, currency blended

4.8%

4.6%


4.8%



4.7%

4.7%


    Cost of Funds, GEL

7.0%

6.0%


6.8%



6.9%

6.5%


    Cost of Funds, FC

3.7%

4.1%


3.8%



3.7%

4.2%


Cost / Income

38.3%

37.4%


38.2%



37.7%

37.7%


 

Performance highlights

§ Strong Banking Business revenue. We recorded quarterly revenue of GEL 260.3mln in 4Q17 (up 16.1% y-o-y and up 16.6% q-o-q), ending the 2017 with revenue of GEL 909.3mln (up 17.5% y-o-y). Y-o-y revenue growth both in 4Q17 and 2017 was primarily driven by a strong increase in net banking interest income, which resulted from strong loan book growth, and increase in net other banking income. Additionally, net fee and commission income contributed to increase of Banking Business revenues in 4Q17 q-o-q and in 2017 y-o-y  

§ Net banking interest income. Our net banking interest income was up 16.2% y-o-y and up 9.1% q-o-q in 4Q17 and up 21.4% y-o-y in 2017. The q-o-q and y-o-y increases were primarily driven by the strong growth of our Retail Banking loan book, which experienced 30.6% constant currency growth during 2017

§ Our NIM was 7.3% in both 4Q17 and 2017. 4Q17 NIM was down 30bps y-o-y reflecting the 10bps y-o-y decrease in loan yield and 20bps y-o-y increase in cost of funds. Loan yield and cost of funds remained flat q-o-q in 4Q17, resulting in a stable NIM. For the full year 2017, while both loan yield and cost of funds stayed flat and liquid assets yield was up 20bps compared to 2016, NIM was down 10bps y-o-y as a result of the NBG's decision in 2Q16 mandating an increase in minimum reserve requirements

§ Loan yield. Currency blended loan yield was stable at 14.3% in 4Q17 (down 10bps y-o-y and flat q-o-q) and 14.2% in 2017 (flat y-o-y). While local and foreign currency loan yields decreased y-o-y and q-o-q, the overall stable trend in the loan yield primarily reflected a continued shift towards high-yielding local currency denominated loans in the total loan portfolio mix

§ Liquid assets yield. Our liquid assets yield was 3.4% (up 10bps y-o-y and down 10bps q-o-q) in 4Q17 and in 2017 (up 20bps y-o-y). The foreign currency denominated liquid assets yield increased by 40pbs y-o-y in 4Q17 and in 2017 as a result of the US Federal Reserve's decisions in December 2016, March 2017 and June 2017 to raise interest rates by 75bps in aggregate, which triggered similar increases on interest rates paid by a) The National Bank of Georgia (the "NBG") on the Bank's obligatory reserves (foreign currency only) and b) correspondent banks on deposits placed by the Bank. On the other hand, local currency denominated liquid assets yield decreased 10bps y-o-y in 4Q17 and decreased by 20bps y-o-y in 2017. The currency blended liquid assets yield increased only 10bps y-o-y in 4Q17 and 20bps y-o-y in 2017 on the back of decreasing yields on higher return local currency denominated liquid assets, while the total liquid assets portfolio composition remained largely the same during the periods

§ Cost of funds. Cost of funds stood at 4.8% in 4Q17 (up 20bps y-o-y and flat q-o-q) and at 4.7% (flat y-o-y) in 2017. Despite the significant increase in cost of debt securities issued in 4Q17 and 2017 following the issuance of GEL 500mln 11.0% Lari denominated notes in 2Q17 (up 170bps y-o-y in 4Q17 and up 60bps y-o-y in 2017), cost of funds remained largely flat as a result of a decrease in the cost of client deposits and notes (down 10bps y-o-y and q-o-q in 4Q17 and down 30bps y-o-y in 2017)

§ Continued shift to the GEL denominated loan book, which increased to 38.3% of the total book at 31 December 2017, compared to 28.7% a year ago. The dollarisation of our loan book has decreased since last year as the demand for local currency denominated loans outpaced the demand for foreign currency denominated loans. The trend was supported by the Georgian government's de-dollarisation initiatives: a) a one-off programme, effective from 15 January 2017 until 25 March 2017, allowing qualified borrowers to convert eligible US dollar denominated loans into GEL, at a discount compensated by the government, at the client's election and b) a new regulation, effective from 15 January 2017, restricting issuance of new loans in foreign currency with amounts less than GEL 100,000 (equivalent)

§ Net Loans to Customer Funds and DFI ratio. Customer funds (client deposits and notes) increased by 23.0% y-o-y and 8.1% q-o-q to GEL 7,078.1mln driven by strong deposit generation in both the Retail and Corporate Investment Banking operations. Retail banking client deposits and notes grew by 35.4% y-o-y and 13.8% q-o-q to GEL 3,267.3mln, while CIB client deposits grew by 13.0% y-o-y and 4.5% q-o-q to GEL 3,457.3mln. We also increased our borrowings from DFIs by 10.7% q-o-q to GEL 1,297.7mln. As a result, our Net Loans to Customer Funds and DFI ratio, which is closely monitored by management, remained strong at 92.4% (94.9% at 31 December 2016 and 90.0% at 30 September 2017) despite the strong growth of the loan book

§ Net fee and commission income. Net fee and commission income performance is mainly driven by the strong performance in our settlement operations supported by the success of our Express banking franchise. This was partially offset by a decline in CIB's fees from guarantees and letters of credit reflecting the de-concentration of our corporate risk

§ Net banking foreign currency gain. In line with the volatility of the GEL exchange rate, the net banking foreign currency gain was down 0.9% y-o-y and up 40.0% q-o-q in 4Q17 and up 3.4% y-o-y in 2017. RB and CIB businesses together contributed 87.4% to both the total 4Q17 and 2017 net banking foreign currency gain

§ Net other banking income. Net other banking income increased y-o-y and q-o-q to GEL 13.0mln in 4Q17 and to GEL 19.7mln in 2017 (up 61.7% y-o-y). The y-o-y and q-o-q increases in 4Q17 and y-o-y increase in 2017 was largely driven by a) GEL 4.5mln and GEL 1.5mln net gains on derivative financial instruments recorded in 4Q17 and 2017, respectively, and b) GEL 7.3mln revaluation gain from investment properties recorded in 4Q17



 

OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF CREDIT RISK; PROFIT FOR THE PERIOD

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Salaries and other employee benefits

(55,789)

(47,883)

16.5%

(50,638)

10.2%


(198,213)

(168,374)

17.7%

Administrative expenses

(32,245)

(25,096)

28.5%

(23,240)

38.7%


(100,291)

(82,113)

22.1%

Banking depreciation and amortisation

(10,514)

(9,639)

9.1%

(10,738)

-2.1%


(40,974)

(37,207)

10.1%

Other operating expenses 

(1,194)

(1,222)

-2.3%

(738)

61.8%


(3,458)

(3,854)

-10.3%

Operating expenses 

(99,742)

(83,840)

19.0%

(85,354)

16.9%


(342,936)

(291,548)

17.6%

Profit from associate

255

-

NMF

147

73.5%


1,311

-

NMF

Operating income before cost of credit risk 

160,825

140,385

14.6%

137,989

16.5%


567,710

482,359

17.7%

Impairment charge on loans to customers 

(41,911)

(69,920)

-40.1%

(34,202)

22.5%


(155,210)

(158,892)

-2.3%

Impairment charge on finance lease receivables

492

3,124

-84.3%

(781)

NMF


(496)

(777)

-36.2%

Impairment charge on other assets and provisions

(1,009)

(3,812)

-73.5%

(1,849)

-45.4%


(11,590)

(8,083)

43.4%

Cost of credit risk 

(42,428)

(70,608)

-39.9%

(36,832)

15.2%


(167,296)

(167,752)

-0.3%

Profit before non-recurring items and income tax

118,397

69,777

69.7%

101,157

17.0%


400,414

314,607

27.3%

Net non-recurring items 

(213)

(1,055)

-79.8%

(1,376)

-84.5%


(4,300)

(45,355)

-90.5%

Profit before income tax 

118,184

68,722

72.0%

99,781

18.4%


396,114

269,252

47.1%

Income tax (expense) benefit

(11,050)

2,782

NMF

(7,850)

40.8%


(26,592)

26,444

NMF

Profit

107,134

71,504

49.8%

91,931

16.5%


369,522

295,696

25.0%

 

§ Operating expenses increased to GEL 99.7mln in 4Q17 (up 19.0% y-o-y and up 16.9% q-o-q) and GEL 342.9mln in 2017 (up 17.6% y-o-y). The growth in operating expenses outpaced growth in revenues, and consequently y-o-y operating leverage was negative both in 4Q17 and 2017 at 2.9 percentage points and at 0.1 percentage points, respectively. 4Q17 y-o-y and q-o-q and 2017 y-o-y changes in operating expenses were driven by:

-       an increase in salaries and employee benefits by 16.5% y-o-y and 10.2% q-o-q in 4Q17 and by 17.7% y-o-y in 2017, which mainly reflects the strong organic growth of Retail Banking operations

-       an increase in administrative expenses by 28.5% y-o-y and 38.7% q-o-q in 4Q17 and by 22.1% y-o-y in 2017, primarily driven by increased marketing, personnel training, rent and repair and maintenance costs. The increase was attributable to the combined effect of the larger branch network and the higher average quarterly and annual exchange rate during 4Q17 and 2017 as the vast majority of branch rental agreements are denominated in US dollars

§ Cost of risk ratio. The Banking Business cost of risk ratio was 2.1% in 4Q17, down 210bps y-o-y and up 10bps q-o-q. RB 4Q17 cost of risk ratio was down 20bps both y-o-y and q-o-q, while CIB cost of risk ratio was down 340bps y-o-y and up 90bps q-o-q. On an annual basis, the Banking Business cost of risk ratio was 2.2%, down 50bps y-o-y, primarily driven by 160bps decrease in CIB cost of risk ratio driven by overall improvement in the CIB loan portfolio quality, offset by 20bps increase in the RB cost of risk ratio

§ Quality of the Banking Business loan book remains strong in 4Q17 as evidenced by following closely monitored metrics:

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Non-performing loans










NPLs

301,268

294,787

2.2%

297,134

1.4%


301,268

294,787

2.2%

NPLs to gross loans

3.8%

4.2%


4.1%



3.8%

4.2%


NPLs to gross loans, RB

1.3%

1.4%


1.5%



1.3%

1.4%


NPLs to gross loans, CIB

7.5%

8.0%


8.3%



7.5%

8.0%


NPL coverage ratio

92.7%

86.7%


93.6%



92.7%

86.7%


NPL coverage ratio adjusted for the discounted value of collateral

130.6%

132.1%


132.8%



130.6%

132.1%












Past due dates










Retail loans - 15 days past due rate

0.9%

1.2%


1.5%



0.9%

1.2%


Mortgage loans - 15 days past due rate

0.6%

0.6%


1.0%



0.6%

0.6%


§ Income tax (expense) benefit. The 4Q17 and 2017 y-o-y movement in income taxes mostly reflects the impacts of changes in corporate taxation model, approved by the Parliament of Georgia in May 2016, which resulted in the write-off of Banking Business net deferred tax liabilities in 2016

§ BNB - the Group's banking subsidiary in Belarus - generated a profit of GEL 3.6mln in 4Q17 (up from GEL 4.1mln loss in 4Q16 and down 3.3% q-o-q) and GEL 10.3mln in 2017 (up from GEL 2.7mln in 2016); BNB's earnings were positively impacted by decreased levels of cost of risk in 4Q17. While Belarus experienced weak macro-economic conditions in 2016 and 1Q17, starting from 2Q17 the Belarus economy started to show early signs of stabilisation. As a result, BNB's cost of credit risk significantly improved in 2017

§ BNB's loan book reached GEL 399.5mln at 31 December 2017, up 10.3% y-o-y and up 5.0% q-o-q, mostly reflecting an increase in corporate and consumer loans. Client deposits were GEL 310.1mln at 31 December 2017, up 32.8% y-o-y and largely flat q-o-q. The y-o-y increase in client deposits was primarily attributable to the agreement signed with BelSwissBank in June 2017, which allowed BNB to manage and service current and term deposit accounts and card operations of BelSwissBank's customers

§ BNB continues to remain strongly capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. At 31 December 2017, total CAR was 13.9%, well above the 10% minimum requirement of the National Bank of the Republic of Belarus ("NBRB"), while Tier I CAR was 8.1%, above NBRB's 6% minimum requirement. Return on Average Equity ("ROAE") was 18.5% in 4Q17 (negative 23.6% in 4Q16 and 21.1% in 3Q17) and 14.6% in 2017 (2.8% in 2016). Strong capitalisation and improved profitability allowed BNB to make a dividend payment in the amount of GEL 1.2mln in 3Q17, the first capital return to the Bank since the BNB acquisition in 2008

§ As a result, the Banking Business profit reached GEL 107.1mln in 4Q17 (up 49.8% y-o-y and up 16.5% q-o-q) and GEL 369.5mln in 2017 (up 25.0% y-o-y), while ROAE increased to 27.8% in 4Q17 (up 780bps y-o-y and 270bps q-o-q) and to 25.2% in 2017 (up 300bps y-o-y)

BANKING BUSINESS BALANCE SHEET HIGHLIGHTS

GEL thousands, unless otherwise noted 

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q







Liquid assets

4,346,509

3,705,171

17.3%

4,068,147

6.8%

Liquid assets, GEL

1,791,708

1,450,269

23.5%

1,569,161

14.2%

Liquid assets, FC

2,554,801

2,254,902

13.3%

2,498,986

2.2%

Net loans and finance lease receivables

7,741,420

6,681,672

15.9%

6,951,493

11.4%

Net loans and finance lease receivables, GEL

2,968,832

1,920,422

54.6%

2,689,778

10.4%

Net loans and finance lease receivables, FC

4,772,588

4,761,250

0.2%

4,261,715

12.0%

Client deposits and notes

7,078,058

5,755,767

23.0%

6,549,904

8.1%

Amounts due to credit institutions

2,778,338

3,067,651

-9.4%

2,350,438

18.2%

Borrowings from DFIs

1,297,749

1,281,798

1.2%

1,172,530

10.7%

Short-term loans from central banks

793,528

1,085,640

-26.9%

590,014

34.5%

        Loans and deposits from commercial banks

687,061

700,213

-1.9%

587,894

16.9%

Debt securities issued

1,386,412

858,036

61.6%

1,298,641

6.8%

Liquidity and CAR ratios






Net loans / client deposits and notes

109.4%

116.1%


106.1%


Net loans / client deposits and notes + DFIs

92.4%

94.9%


90.0%


Liquid assets as percent of total assets

33.7%

33.3%


34.5%


Liquid assets as percent of total liabilities

38.3%

37.9%


39.5%


NBG liquidity ratio

34.4%

37.7%


44.4%


Excess liquidity (NBG)

289,942

418,016

-30.6%

843,299

-65.6%

NBG (Basel II) Tier I Capital Adequacy Ratio

10.3%

9.1%


11.1%


NBG (Basel II) Total Capital Adequacy Ratio

14.8%

14.4%


16.2%


NBG (Basel III) Tier I Capital Adequacy Ratio

12.4%

-


-


NBG (Basel III) Total Capital Adequacy Ratio

17.9%

-


-


Our Banking Business balance sheet remains highly liquid (NBG Liquidity ratio of 34.4%) and strongly capitalised (Tier I ratio, NBG Basel II of 10.3% and NBG Basel III of 12.4%) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 62.3%).

§ Liquidity. Liquid assets increased to GEL 4,346.5mln at 31 December 2017, up 17.3% y-o-y and up 6.8% q-o-q, largely driven by proceeds from the GEL 500mln Lari denominated bonds in June 2017 and increase in local currency bonds, which are used by the Bank as collateral for short-term borrowings from the NBG. Management successfully continued to deploy excess liquidity, accumulated as a result of proceeds from issuance of local currency Eurobond during the second half of the year. As a result, the NBG liquidity ratio stood at 34.4% at 31 December 2017, compared to 37.7% at 31 December 2016 and 44.4% at 30 September 2017, and above the regulatory minimum requirement of 30.0%

§ In addition, in May 2017, NBG introduced a Liquidity Coverage Ratio requirement for commercial banks, which became effective from 1 September 2017. Banks are required to maintain a liquidity coverage ratio, which is defined as the ratio of high quality liquid assets to net cash outflow over the next 30 days. The ratio should be in excess of 100% for assets denominated in all currencies, cumulatively, at all times. In addition, liquidity coverage ratio is applicable to local and foreign currency denominated assets, separately, and should be in excess of 75% and 100%, respectively, at all times. NBG liquidity coverage ratio was 112.4% at 31 December 2017 (129.8% at 30 September 2017)

§ Diversified funding base. Debt securities issued grew by 61.6% y-o-y and by 6.8% q-o-q primarily due to the issuance of GEL 500mln Lari denominated bonds in June 2017, which positively contributed to GEL liquidity, allowing the Banking Business to significantly reduce short-term borrowings from the NBG (down 26.9% y-o-y)

§ Loan book. Our net loan book and finance lease receivables reached GEL 7,741.4mln at 31 December 2017, up 15.9% y-o-y and up 11.4% q-o-q. As of 31 December 2017, retail book represented 68.0% of the total loan portfolio (60.9% at 31 December 2016 and 68.4% at 30 September 2017). While both local and foreign currency portfolios experienced y-o-y growth, the local currency loan portfolio demonstrated an outstanding increase of 54.6% y-o-y and 10.4% q-o-q, partially driven by the Georgian government's de-dollarisation initiatives and our goal to increase the share of local currency loans in our portfolio  



 

In 4Q17, we changed the Group accounting policy in relation to subsequent measurement for office buildings and service centres. Effective 31 December 2017, we switched to the cost model, whereby office buildings and service centres are carried at cost less accumulated depreciation and accumulated impairment. Prior to this change, we applied the revaluation model, where office buildings and service centres were carried at their fair value less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Valuations were performed once every three years. We believe that cost model provides more reliable and more meaningful presentation to our investors as it (1) enhances comparability for the investors since the application of cost model is a market practice and global standard across the banking industry (2) more closely aligns the accounting with the business model around these asset categories. The switch to cost model resulted in GEL 33.3mln decrease to Banking Business equity attributable to shareholders. We have accordingly restated the balance sheet accounts for affected periods, while the change did not have any material impact on the income statement. Banking Business ratios have been updated for the prior periods.

On 13 September 2017, Moody's upgraded JSC Bank of Georgia's local-currency deposit rating to Ba2 from Ba3, and the Bank's foreign-currency deposit rating to Ba3 from B1. The Bank's senior unsecured foreign-currency rating was also upgraded to Ba2 from Ba3 with a stable outlook. The Bank's credit rating action followed Moody's upgrade of Georgia's sovereign local and foreign currency issuer ratings to Ba2 from Ba3 on 11 September 2017.

Amendments to Capital Adequacy requirements. To transition to Basel III, National Bank of Georgia ("NBG") introduced new capital adequacy requirements in December 2017. Bank of Georgia is required to maintain the following minimum capital requirements:

§ Common Equity Tier 1 ("CET1") ratio 4.5%

§ Tier 1 ratio 6%

§ Total Capital ratio at 8%

The combined buffer requirement has also been introduced and Bank of Georgia is required to hold the following:

§ Capital Conservation Buffer set at 2.5%

§ Countercyclical Buffer set at 0%

§ Systemic Capital Buffer of 0% for 2018, which will increase to 1% on 31 December 2018 and by additional 0.5% annually until it reaches 2.5% on 31 December 2021

NBG also introduced Pillar 2 requirements. The new regulation applicable to Bank of Georgia includes:

§ Currency Induced Credit Risk ("CICR") buffer, which substitutes current additional 75% weighting of FX denominated exposure. 56% of CICR buffer should be held on CET1 level, 75% on Tier 1 level and 100% on total capital

§ Net GRAPE buffer expected to be set at 2.2% according to NBG's annual General Risk Assessment Program ("GRAPE"). GRAPE buffer, which includes Credit Portfolio Concentration buffer and Net Stress Test buffer, will be reviewed annually and phased-in on different levels of capital according to the below schedule:

 


Feb-18

31-Dec-18

31-Dec-19

31-Dec-20

31-Dec-21

CET 1

0%

15%

30%

45%

56%

Tier 1

0%

20%

40%

60%

75%

Total Capital

100%

100%

100%

100%

100%

In the view of the above, the following overall capital requirements apply to Bank of Georgia at 31 December 2017:

§ CET 1 ratio 8.1%, expected to increase to 9.5%8 on 31 December 2018

§ Tier 1 ratio 9.9%, expected to increase to 11.4%8 on 31 December 2018

§ Total Capital ratio 12.4%, expected to increase to 15.6%8 on 31 December 2018

Bank of Georgia's capital ratios calculated as of 31 December 2017 were at 12.4% CET1 and Tier 1 and 17.9% Total capital.

Transition to Basel III is not expected to affect Bank's growth prospects or its ability to maintain dividends distributions within the existing dividend policy payout range.

 

 

 

 

 

 

 

 

8 Indicated minimum capital adequacy ratio contains CICR buffer estimate for 31 December 2018.

Discussion of Banking Business Segment Results

 

Retail Banking (RB)

 

Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities (SME and micro businesses only). RB is itself represented by the following four sub-segments: (1) the emerging retail segment (through our Express brand), (2) retail mass market segment; (3) SME and micro businesses - "MSME" (through our Bank of Georgia brand), and (4) the mass affluent segment (through our Solo brand).

 

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











INCOME STATEMENT HIGHLIGHTS










Net banking interest income 

134,517

111,109

21.1%

122,352

9.9%


480,955

374,022

28.6%

Net fee and commission income 

28,511

26,810

6.3%

25,064

13.8%


99,790

90,193

10.6%

Net banking foreign currency gain

8,407

8,825

-4.7%

7,979

5.4%


28,937

26,086

10.9%

Net other banking income

4,531

989

NMF

366

NMF


5,029

3,833

31.2%

Revenue 

175,966

147,733

19.1%

155,761

13.0%


614,711

494,134

24.4%

Salaries and other employee benefits

(35,778)

(31,149)

14.9%

(32,262)

10.9%


(125,668)

(106,396)

18.1%

Administrative expenses

(22,461)

(17,287)

29.9%

(17,084)

31.5%


(72,464)

(57,743)

25.5%

Banking depreciation and amortisation

(9,020)

(8,052)

12.0%

(9,087)

-0.7%


(34,741)

(30,943)

12.3%

Other operating expenses 

(843)

(818)

3.1%

(448)

88.2%


(2,279)

(2,545)

-10.5%

Operating expenses 

(68,102)

(57,306)

18.8%

(58,881)

15.7%


(235,152)

(197,627)

19.0%

Profit from associate

255

-

NMF

147

73.5%


1,311

-

NMF

Operating income before cost of credit risk

108,119

90,427

19.6%

97,027

11.4%


380,870

296,507

28.5%

Cost of credit risk

(23,122)

(19,272)

20.0%

(22,246)

3.9%


(110,800)

(75,690)

46.4%

Profit before non-recurring items and income tax 

84,997

71,155

19.5%

74,781

13.7%


270,070

220,817

22.3%

Net non-recurring items 

(74)

(1,921)

-96.1%

(1,041)

-92.9%


(2,358)

(32,002)

-92.6%

Profit before income tax 

84,923

69,234

22.7%

73,740

15.2%


267,712

188,815

41.8%

Income tax (expense)/benefit

(7,335)

(1,235)

NMF

(5,342)

37.3%


(18,046)

20,475

NMF

Profit

77,588

67,999

14.1%

68,398

13.4%


249,666

209,290

19.3%











BALANCE SHEET HIGHLIGHTS










Net loans, Currency Blended

5,044,372

3,902,306

29.3%

4,541,302

11.1%


5,044,372

3,902,306

29.3%

Net loans, GEL

2,582,677

1,530,661

68.7%

2,307,391

11.9%


2,582,677

1,530,661

68.7%

Net loans, FC

2,461,695

2,371,645

3.8%

2,233,911

10.2%


2,461,695

2,371,645

3.8%

Client deposits, Currency Blended

3,267,276

2,413,569

35.4%

2,869,921

13.8%


3,267,276

2,413,569

35.4%

Client deposits, GEL

910,878

603,149

51.0%

815,611

11.7%


910,878

603,149

51.0%

Client deposits, FC

2,356,398

1,810,420

30.2%

2,054,310

14.7%


2,356,398

1,810,420

30.2%

of which:










Time deposits, Currency Blended

1,829,433

1,437,644

27.3%

1,629,593

12.3%


1,829,433

1,437,644

27.3%

Time deposits, GEL

361,775

228,047

58.6%

314,753

14.9%


361,775

228,047

58.6%

Time deposits, FC

1,467,658

1,209,597

21.3%

1,314,840

11.6%


1,467,658

1,209,597

21.3%

Current accounts and demand deposits, Currency Blended

1,437,843

975,925

47.3%

1,240,328

15.9%


1,437,843

975,925

47.3%

Current accounts and demand deposits, GEL

549,103

375,102

46.4%

500,858

9.6%


549,103

375,102

46.4%

Current accounts and demand deposits, FC

888,740

600,823

47.9%

739,470

20.2%


888,740

600,823

47.9%











KEY RATIOS




















ROAE Retail Banking

36.6%

36.5%


34.1%



31.6%

31.2%


Net interest margin, currency blended

8.4%

9.3%


8.5%



8.5%

9.2%


Cost of risk

1.8%

2.0%


2.0%



2.5%

2.3%


Cost of funds, currency blended

5.7%

5.1%


6.0%



5.7%

5.7%


Loan yield, currency blended

15.9%

16.4%


16.3%



16.1%

16.8%


Loan yield, GEL

22.7%

25.4%


23.1%



23.6%

25.4%


Loan yield, FC

8.8%

10.1%


9.2%



9.1%

10.2%


Cost of deposits, currency blended

2.8%

3.1%


2.9%



2.9%

3.3%


Cost of deposits, GEL

4.5%

4.0%


4.4%



4.5%

4.5%


Cost of deposits, FC

2.2%

2.7%


2.2%



2.3%

2.9%


Cost of time deposits, currency blended

4.2%

4.5%


4.3%



4.3%

4.9%


Cost of time deposits, GEL

8.9%

8.6%


8.8%



8.8%

9.3%


Cost of time deposits, FC

3.1%

3.7%


3.2%



3.3%

4.0%


Current accounts and demand deposits, currency blended

0.9%

0.8%


1.0%



1.0%

0.9%


Current accounts and demand deposits, GEL

1.5%

1.1%


1.7%



1.6%

1.2%


Current accounts and demand deposits, FC

0.5%

0.6%


0.5%



0.6%

0.6%


Cost / income ratio

 

 

38.7%

38.8%


37.8%



38.3%

40.0%


                                                                                                               



 

Performance highlights

§ Retail Banking delivered another outstanding quarterly result across all of its segments and generated total revenues of GEL 176.0mln in 4Q17 (up 19.1% y-o-y and up 13.0% q-o-q) and revenue of GEL 614.7mln in 2017 (up 24.4% y-o-y)

§ RB's net banking interest income experienced 21.1% y-o-y and 9.9% q-o-q growth in 4Q17 and 28.6% y-o-y growth in 2017 as a result of the strong growth in the Retail Banking loan portfolio. Record quarterly net banking interest income also reflects the benefits from the increase in the local currency loan portfolio, which generated 13.9ppts and 14.5ppts higher yield than the foreign currency loan portfolio during 4Q17 and 2017, respectively

§ The Retail Banking net loan book reached GEL 5,044.4mln, up 29.3% y-o-y and up 11.1% q-o-q. Our local currency denominated loan book grew at a faster pace (up 68.7% y-o-y and up 11.9% q-o-q) than the foreign currency denominated loan book (up 3.8% y-o-y and up 10.2% q-o-q). As a result, the loan book dollarisation decreased to 48.8% at 31 December 2017 from 60.8% at 31 December 2016 and 49.2% at 30 September 2017

§ The loan book growth was a product of continued strong loan origination levels delivered across all major Retail Banking segments:

Retail Banking loan book by products

GEL million, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Loan Originations










Consumer loans

383

313

22.5%

349

9.6%


1,384

1,019

35.8%

Mortgage loans

359

239

50.3%

264

35.9%


1,062

718

48.0%

Micro loans

309

272

13.6%

236

31.4%


1,018

800

27.2%

SME loans

190

166

14.2%

152

25.0%


594

509

16.6%

POS loans

80

69

15.5%

65

21.7%


244

221

10.4%











Outstanding Balance










Consumer loans

1,242

887

40.1%

1,148

8.2%


1,242

887

40.1%

Mortgage loans

1,706

1,228

39.0%

1,459

16.9%


1,706

1,228

39.0%

Micro loans

1,031

857

20.3%

966

6.7%


1,031

857

20.3%

SME loans

607

490

23.9%

535

13.4%


607

490

23.9%

POS loans

131

121

7.9%

114

14.6%


131

121

7.9%

§ Retail Banking client deposits increased to GEL 3,267.3mln, up 35.4% y-o-y and up 13.8% q-o-q, despite a decrease in the cost of deposits of 30bps y-o-y and 10bps q-o-q in 4Q17 and decrease of 40bps y-o-y in 2017. The dollarisation level of our deposits decreased to 72.1% at 31 December 2017 from 75.0% at 31 December 2016 and remained largely flat compared to 30 September 2017. This is in line with the current decreasing trend of cost on foreign currency denominated deposits (down 50 bps y-o-y and flat q-o-q in 4Q17 and down 60bps y-o-y in 2017). The spread between the cost of RB's client deposits in GEL and foreign currency widened to 2.3ppts during 4Q17 (GEL: 4.5%; FC: 2.2%) compared to 1.3ppts in 4Q16 (GEL: 4.0%; FC: 2.7%) and 2.2ppts in 3Q17 (GEL: 4.4%; FC: 2.2%). For 2017, the spread was 2.2ppts (GEL: 4.5%; FC: 2.3%) compared to 1.6ppts in 2016 (GEL: 4.5%; FC: 2.9%). Local currency denominated deposits increased at a faster pace to GEL 910.9mln (up 51.0% y-o-y), as compared to foreign currency denominated deposits that grew to GEL 2,356.4mln (up 30.2% y-o-y)

§ Retail Banking NIM was 8.4% in 4Q17, down 90bps y-o-y and down 10bps q-o-q. The lower NIM y-o-y in 4Q17 was attributable to a 50bps decrease in loan yield, while the cost of funds increased by 60bps. On a q-o-q basis, loan yield was down by 40bps and cost of funds was down only by 30bps. For 2017, the Retail Banking NIM was 8.5%, down 70bps y-o-y. The lower NIM was a result of a 70bps decrease in loan yield, as cost of funds remained flat in 2017

§ Strong growth in Retail Banking net fee and commission income. The 6.3% y-o-y and 13.8% q-o-q increase in 4Q17 and 10.6% y-o-y growth in 2017 was driven by an organic increase in our fee and commission income and the strong underlying growth in both our Express Banking and Solo platforms

§ RB cost to income ratio remained well-controlled at 38.7% in 4Q17 (down 10bps y-o-y and up 90bps q-o-q) and at 38.3% in 2017 (down 170bps y-o-y). The significant y-o-y improvement resulted from the increasing utilisation of our Solo lounges coupled with the growth of the Express Banking franchise, which has the most cost-efficient model among our four Retail Banking segments

§ RB cost of risk improved in 4Q17. RB cost of credit risk was GEL 23.1mln in 4Q17 (up 20.0% y-o-y and up 3.9% q-o-q) and GEL 110.8mln in 2017 (up 46.4% y-o-y). The cost of risk ratio was 1.8% in 4Q17, down from 2.0% in 4Q16 and 3Q17. 2017 cost of risk ratio was 2.5%, up from 2.3% in 2016 due to higher cost of risk levels in 1H17

§ The number of Retail Banking clients reached 2.3mln, up 8.1% y-o-y and up 2.7% q-o-q, while the number of total cards outstanding amounted to 2,227,000, up 8.3% y-o-y and up 2.3% q-o-q



 

§ Our Retail Banking business continues to deliver strong growth as we further develop our strategy, as demonstrated by the following performance indicators

Retail Banking performance indicators

Volume information in GEL thousands

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y

Retail Banking Customers










Number of new customers

65,712

69,091

-4.9%

42,028

56.4%


198,488

141,360

40.4%

Number of customers

2,315,038

2,141,229

8.1%

2,254,584

2.7%


2,315,038

2,141,229

8.1%

Cards










Number of Cards issued

324,974

419,714

-22.6%

247,594

31.3%


1,022,283

955,549

7.0%

Number of Cards outstanding

2,227,000

2,056,258

8.3%

2,176,761

2.3%


2,227,000

2,056,258

8.3%

Express Pay terminals










Number of Express Pay terminals

2,842

2,729

4.1%

2,823

0.7%


2,842

2,729

4.1%

Number of transactions via Express Pay terminals

27,211,578

27,180,023

0.1%

25,264,823

7.7%


104,021,767

117,518,668

-11.5%

Volume of transactions via Express Pay terminals

1,478,216

935,952

57.9%

1,292,582

14.4%


4,748,036

3,167,369

49.9%

POS terminals










Number of Desks

9,934

8,516

16.7%

9,609

3.4%


9,934

8,516

16.7%

Number of Contracted Merchants

5,341

4,514

18.3%

5,334

0.1%


5,341

4,514

18.3%

Number of POS terminals

13,291

10,357

28.3%

11,997

10.8%


13,291

10,357

28.3%

Number of transactions via POS terminals

12,874,756

9,524,900

35.2%

12,143,991

6.0%


46,177,412

30,897,709

49.5%

Volume of transactions via POS terminals

423,565

290,142

46.0%

392,229

8.0%


1,405,800

926,318

51.8%

Internet Banking










Number of Active Users

219,496

122,456

79.2%

188,087

16.7%


219,496

122,456

79.2%

Number of transactions via Internet Bank

1,513,437

1,668,037

-9.3%

1,430,048

5.8%


6,415,427

5,797,851

10.7%

Volume of transactions via Internet Bank

425,930

330,530

28.9%

321,297

32.6%


1,402,969

1,094,260

28.2%

Mobile Banking










Number of Active Users

177,243

74,796

137.0%

146,785

20.8%


177,243

74,796

137.0%

Number of transactions via Mobile Bank

2,323,573

855,025

171.8%

1,812,353

28.2%


6,348,533

2,648,779

139.7%

Volume of transactions via Mobile Bank

278,856

89,598

211.2%

190,020

46.8%


685,470

246,300

178.3%

-     Growth in the client base was due to the increased offering of cost-effective remote channels. The strong increase to 2,315,038 customers in 4Q17 (up 8.1% y-o-y and up 2.7% q-o-q) reflects the sustained growth in our client base over recent periods and was the main driver of the increase in our Retail Banking net fee and commission income

-     The number of outstanding cards increased in both 4Q17 and on a full year basis. The increase reflects the launch of new loyalty programme Plus+ in July 2017 (see details below). Since the programme launch the Bank customers who sign up for the programme, are issued Plus+ cards. We had 250,307 active Plus+ cards outstanding as at 31 December 2017

-     The utilisation of Express Pay terminals continued to grow in 4Q17. The 4Q17 volume of transactions increased to GEL 1,478.2mln (up 57.9% y-o-y and up 14.4% q-o-q) and to GEL 4,748.0mln in 2017 (up 49.9% y-o-y), while the number of transactions was flat y-o-y in 4Q17 and down y-o-y in 2017. This trend was largely driven by the management's decision to introduce transaction fees on non-banking transactions processed through Express Pay terminals in 4Q16. However, while this introduction negatively affected the number of transactions, the decrease was more than offset by the fees charged to clients leading to a 31.2% y-o-y increase in 2017 in fee income from express pay terminals

-     Digital penetration growth. For mobile banking application, the number of transactions and the volume of transactions continue to show outstanding growth, primarily due to the introduction of our new mobile banking application in May 2017. The new fully-transformed, user-friendly, multi-feature mobile banking application continues to gain popularity. Since its launch on 29 May 2017, and over the course of the following seven months, approximately 261,000 downloads were made by the Bank's customers, while the previous application had less than 120,000 downloads since its launch. During the same period c.3.88 million online transactions were performed using the new application

-     Significant growth in loans issued and deposits opened through Internet Bank. During 2017, we started actively offering loans and deposit products to our customers through Internet Bank. As a result, 5,798 loans were issued with total value of GEL 15.1mln and 7,458 deposits were opened with total value of GEL 19.1mln through Internet Bank in 2017 (445 loans with total value of GEL 1.9mln and 3,546 deposits with total value of GEL 7.3mln in 2016)

§ On 15 September 2017, Bank of Georgia signed an agreement with Tbilisi City Hall for the exclusive right to operate the public transportation payment system in Tbilisi. In accordance with the agreement, Bank of Georgia will continue as the sole provider of payment support services to the public transportation network, and operate retail branches in Tbilisi metro stations for the next ten years. Bank of Georgia will implement a modern payments system for the public transportation network in Tbilisi, including payment processing using Visa and MasterCard cards, and create a digital platform for ticket reservations and purchases through mobile applications. This further strengthens the Bank's leading position in the express segment by maintaining branch network presence in Tbilisi's public transportation network

§ We launched new loyalty programme Plus+ on 5 July 2017. Plus+ is part of RB's customer-centric approach and offers different status levels to customers and reward points that accumulate based on the client's business with the Bank and can be redeemed into partner companies' products and/or services. We launched the programme as part of our efforts to increase the Mass Retail segment's product to client ratio from current 1.8 to 3.0

§ Solo, our premium banking brand, continues its strong growth momentum and investment in its lifestyle brand. The number of Solo clients reached 32,104 at 31 December 2017 (19,267 at 31 December 2016 and 28,492 at 30 September 2017), up 287.6% since its re-launch in April 2015. We are on track to achieving our target of 40,000 Solo clients by the end of 2018. We have now launched 12 Solo lounges, of which 9 are located in Tbilisi, the capital of Georgia, and 3 in major regional cities of Georgia. In 4Q17, annualised profit per Solo client was GEL 1,865 compared to a profit of GEL 101 and GEL 82 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 6.1, compared to 3.4 and 1.8 for Express and mass retail clients, respectively. While Solo clients currently represent 1.4% of our total retail client base, they contributed 24.3% to our retail loan book, 37.4% to our retail deposits, 14.9% and 19.0% to our net interest income and to our net fee and commission income, respectively, in 4Q17. The fee and commission income from Solo segment increased from GEL 8.3mln in 2016 to GEL 14.4mln in 2017. Solo Club, launched in 2Q17, a membership group within Solo, which offers exclusive access to Solo products and offers ahead of other Solo clients at a higher fee, continues to gain popularity. At 31 December 2017, Solo Club had 1,882 members, up 23.2% q-o-q

§ MSME banking delivered solid growth. The number of MSME segment clients reached 165,781 at 31 December 2017, up 30.7% y-o-y and up 5.1% q-o-q. MSME's loan portfolio was GEL 1,739.2mln at 31 December 2017 (up 29.2% y-o-y and up 9.7% q-o-q). MSME segment generated revenue of GEL 36.9mln in 4Q17 (up 51.0% y-o-y and up 12.8% q-o-q)

§ As a result, Retail Banking profit reached GEL 77.6mln in 4Q17 (up 14.1% y-o-y and up 13.4% q-o-q) and GEL 249.7mln in 2017 (up 19.3% y-o-y). Retail Banking continued to deliver an outstanding ROAE, which reached 36.6% in 4Q17 (36.5% in 4Q16 and 34.1% in 3Q17) and 31.6% in 2017 (31.2% in 2016)



 

Corporate Investment Banking (CIB)

 

CIB provides (1) loans and other credit facilities to Georgia's large corporate clients and other legal entities, excluding SME and micro businesses; (2) services such as fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits; (3) finance lease facilities through the Bank's leasing operations arm, the Georgian Leasing Company; (4) brokerage services through Galt & Taggart; and (5) Wealth Management private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul and Tel Aviv.

 

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y

INCOME STATEMENT HIGHLIGHTS










Net banking interest income 

42,539

39,168

8.6%

38,550

10.3%


156,171

147,108

6.2%

Net fee and commission income 

5,859

8,133

-28.0%

5,891

-0.5%


22,717

27,963

-18.8%

Net banking foreign currency gain

15,585

16,158

-3.5%

8,852

76.1%


46,276

48,643

-4.9%

Net other banking income

7,710

2,518

NMF

2,359

NMF


14,256

10,170

40.2%

Revenue 

71,693

65,977

8.7%

55,652

28.8%


239,420

233,884

2.4%

Salaries and other employee benefits

(15,271)

(12,368)

23.5%

(13,982)

9.2%


(54,573)

(47,731)

14.3%

Administrative expenses

(5,439)

(4,943)

10.0%

(3,699)

47.0%


(16,190)

(15,214)

6.4%

Banking depreciation and amortisation

(1,316)

(1,262)

4.3%

(1,339)

-1.7%


(5,134)

(5,124)

0.2%

Other operating expenses 

(228)

(330)

-30.9%

(187)

21.9%


(761)

(1,031)

-26.2%

Operating expenses 

(22,254)

(18,903)

17.7%

(19,207)

15.9%


(76,658)

(69,100)

10.9%

Operating income before cost of credit risk

49,439

47,074

5.0%

36,445

35.7%


162,762

164,784

-1.2%

Cost of credit risk 

(18,788)

(42,172)

-55.4%

(14,887)

26.2%


(47,403)

(76,266)

-37.8%

Profit before non-recurring items and income tax 

30,651

4,902

NMF

21,558

42.2%


115,359

88,518

30.3%

Net non-recurring items 

(134)

2,267

NMF

(334)

-59.9%


(1,882)

(11,934)

-84.2%

Profit before income tax 

30,517

7,169

NMF

21,224

43.8%


113,477

76,584

48.2%

Income tax (expense)/benefit

(2,840)

2,885

NMF

(1,780)

59.6%


(7,584)

11,698

NMF

Profit

27,677

10,054

175.3%

19,444

42.3%


105,893

88,282

19.9%











BALANCE SHEET HIGHLIGHTS










Net loans and finance lease receivables, Currency Blended

2,260,107

2,394,876

-5.6%

1,993,582

13.4%


2,260,107

2,394,876

-5.6%

Net loans and finance lease receivables, GEL

383,058

400,395

-4.3%

381,479

0.4%


383,058

400,395

-4.3%

Net loans and finance lease receivables, FC

1,877,049

1,994,481

-5.9%

1,612,103

16.4%


1,877,049

1,994,481

-5.9%

Client deposits, Currency Blended

3,457,331

3,059,150

13.0%

3,308,347

4.5%


3,457,331

3,059,150

13.0%

Client deposits, GEL

1,276,401

772,253

65.3%

1,242,933

2.7%


1,276,401

772,253

65.3%

Client deposits, FC

2,180,930

2,286,897

-4.6%

2,065,414

5.6%


2,180,930

2,286,897

-4.6%

Time deposits, Currency Blended

1,297,984

1,230,627

5.5%

1,316,612

-1.4%


1,297,984

1,230,627

5.5%

Time deposits, GEL

470,288

135,002

NMF

515,770

-8.8%


470,288

135,002

NMF

Time deposits, FC

827,696

1,095,625

-24.5%

800,842

3.4%


827,696

1,095,625

-24.5%

Current accounts and demand deposits, Currency Blended

2,159,347

1,828,523

18.1%

1,991,735

8.4%


2,159,347

1,828,523

18.1%

Current accounts and demand deposits, GEL

806,113

637,251

26.5%

727,163

10.9%


806,113

637,251

26.5%

Current accounts and demand deposits, FC

1,353,234

1,191,272

13.6%

1,264,572

7.0%


1,353,234

1,191,272

13.6%

Letters of credit and guarantees, standalone*

644,750

511,615

26.0%

634,414

1.6%


644,750

511,615

26.0%

Assets under management

1,857,495

1,575,521

17.9%

1,817,843

2.2%


1,857,495

1,575,521

17.9%











RATIOS










ROAE, Corporate Investment Banking

18.1%

6.2%


13.3%



17.6%

14.7%


Net interest margin, currency blended

3.5%

3.6%


3.5%



3.4%

3.6%


Cost of risk

3.2%

6.6%


2.3%



1.5%

3.1%


Cost of funds, currency blended

4.3%

5.1%


4.5%



4.6%

4.7%


Loan yield, currency blended

11.2%

11.1%


10.6%



10.7%

10.4%


Loan yield, GEL

12.3%

13.0%


14.3%



12.8%

13.2%


Loan yield, FC

11.0%

10.8%


9.9%



10.3%

10.1%


Cost of deposits, currency blended

4.0%

3.6%


3.9%



4.0%

3.9%


Cost of deposits, GEL

6.6%

5.0%


6.2%



6.6%

6.3%


Cost of deposits, FC

2.5%

3.2%


2.6%



2.7%

3.1%


Cost of time deposits, currency blended

6.0%

5.8%


5.9%



5.8%

5.9%


Cost of time deposits, GEL

8.0%

9.2%


8.3%



8.4%

9.5%


Cost of time deposits, FC

4.8%

5.4%


4.9%



5.0%

5.3%


Current accounts and demand deposits, currency blended

2.8%

2.0%


2.6%



2.8%

2.6%


Current accounts and demand deposits, GEL

5.7%

3.9%


5.2%



5.9%

5.4%


Current accounts and demand deposits, FC

1.2%

1.0%


1.1%



1.0%

0.9%


Cost / income ratio

31.0%

28.7%


34.5%



32.0%

29.5%


Concentration of top ten clients

10.7%

11.8%


10.4%



10.7%

11.8%


 

*Off-balance sheet item

 

 

 

 

 

Performance highlights

 

§ CIB resumes growth after achieving targets on loan portfolio risk de-concentration initiatives. During 4Q17 CIB started to rebound and resume growth after delivering on its risk de-concentration and loan portfolio repositioning targets in 3Q17

-       Net loan book amounted to GEL 2,260.1mln at 31 December 2017, down 5.6% y-o-y and up 13.4% q-o-q. The y-o-y decrease was largely driven by winding down lending relationships with several large borrowers in 2017 as a result of risk de-concentration and loan portfolio repositioning targets. Starting from 4Q17 the CIB gradually resumed growth, resulting in a q-o-q increase in loan portfolio. The concentration of top 10 CIB clients stood at 10.7% at 31 December 2017, down from 11.8% at 31 December 2016

-       CIB's net banking interest income increased by 8.6% y-o-y and by 10.3% q-o-q in 4Q17 and increased by 6.2% y-o-y in 2017. The y-o-y growth in both 4Q17 and 2017 net banking interest income reflects increases in the currency blended loan yields, as well as significant decline in cost of funds over the same periods. The q-o-q growth in CIB's 4Q17 net banking interest income was largely driven by the increase in CIB's loan portfolio size, coupled with increased currency blended loan yields and decreased cost of funds

-       CIB's net fee and commission income was GEL 5.9mln in 4Q17, compared to GEL 8.1mln in 4Q16 and GEL 5.9mln in 3Q17. On a full year basis, CIB net fee and commission income was GEL 22.7mln in 2017, compared to GEL 28.0mln in 2016. The y-o-y decline in 4Q17 and 2017 was driven by decrease in net fee and commission income from guarantees and letters of credit. The 26.0% y-o-y increase in guarantees and letters of credit in 2017 was offset by decline in yields on these products during the same periods as a result of increased competition on the market and increased exposure to lower yielding cross guarantees of highly rated institutions to manage the risk, driving the y-o-y decline in the net fees and commission income from guarantees and letters of credit in 4Q17 and 2017

§ In 4Q17, dollarisation of our CIB deposits decreased to 63.1% as at 31 December 2017 from 74.8% a year ago, which was partially due to the State Treasury of Georgia's decision to place part of their GEL funds on deposits with local commercial banks in 3Q17. Another driver of GEL denominated deposits increase was the significant decrease in interest rates on foreign currency deposits (2.5% in 4Q17, down from 3.2% in 4Q16 and 2.7% in 2017, down from 3.1% in 2016). In contrast, the cost of deposits in local currency in 4Q17 reached 6.6%, up from 5.0% in 4Q16 and up from 6.2% in 3Q17, and remained well above foreign currency deposit yields. Consequently, total deposits amounted to GEL 3,457.3, up 13.0% y-o-y and up 4.5% q-o-q. On a constant currency basis, total deposits were up 14.5% y-o-y and up 1.6% q-o-q

§ CIB recorded a NIM of 3.5% in 4Q17 (down 10bps y-o-y and flat q-o-q) and 3.4% in 2017 (down 20bps y-o-y). Loan yield was up 10bps y-o-y and up 60bps q-o-q in 4Q17 and cost of funds was down 80bps y-o-y and 20bps q-o-q. On a full year basis, the loan yield was up 30bps y-o-y and cost of funds was down 10bps y-o-y. The flat q-o-q NIM in 4Q17 and y-o-y decrease in NIM in 4Q17 and 2017 were primarily driven by the increased share of liquid assets in the total interest earning assets portfolio during the same periods

§ Net banking foreign currency gain. In line with the volatility of the GEL exchange rate, CIB net banking foreign currency gain was GEL 15.6mln in 4Q17 (down 3.5% y-o-y and up 76.1% q-o-q) and amounted to GEL 46.3mln in 2017 (down 4.9% y-o-y)

§ Net other banking income. Net other banking income increased significantly y-o-y and q-o-q to GEL 7.7mln in 4Q17 and to GEL 14.3mln in 2017 (up 40.2% y-o-y). The y-o-y and q-o-q increases in 4Q17 and y-o-y increase in 2017 was largely driven by revaluation gain of investment properties recorded in 4Q17

§ Cost of credit risk. Cost of credit risk decreased significantly in 2017 (down 37.8% y-o-y), primarily driven by overall improvement in the CIB loan portfolio quality, as a result of successful risk de-concentration and loan portfolio repositioning initiatives

§ CIB's cost to income ratio increased to 31.0% in 4Q17 from 28.7% in 4Q16 but improved from 34.5% in 3Q17. 2017 cost to income ratio reached 32.0%, up from 29.5% in 2016. CIB's operating expenses were up 17.7% y-o-y and 15.9% q-o-q in 4Q17 and up 10.9% y-o-y in 2017. The increase in all periods was primarily driven by 23.5% y-o-y and 9.2% q-o-q increases in 4Q17 and 14.3% y-o-y increase in 2017 in staff costs, as a result of CIB's efforts to restructure its corporate recovery and sales teams. The benefits of these undertakings are positively reflected in CIB's lower cost of risk ratio of 3.2% in 4Q17 (down from 6.6% in 4Q16) and 1.5% in 2017 (down from 3.1% in 2016). Although the CIB cost of risk ratio in 4Q17 was up from 2.3% in 3Q17,  the NPLs to gross loan decreased to 7.5% in 4Q17 from 8.3% in 3Q17

§ As a result, Corporate Investment Banking profit reached GEL 27.7mln in 4Q17 (up 175.3% y-o-y and up 42.3% q-o-q) and GEL 105.9mln in 2017 (up 19.9% y-o-y) and CIB ROAE reached 18.1% in 4Q17 compared to 6.2% a year ago and 13.3% in 3Q17. In 2017, CIB ROAE increased to 17.6% from 14.7% in 2016

 



 

Performance highlights of wealth management operations

 

§ The AUM of the Investment Management segment increased to GEL 1,857.5mln in 4Q17, up 17.9% y-o-y and up 2.2% q-o-q. This includes a) deposits of Wealth Management franchise clients, b) assets held at Bank of Georgia Custody, c) Galt & Taggart brokerage client assets, and d) Global certificates of deposit held by Wealth Management clients

§ Wealth Management deposits were GEL 1,111.0mln in 4Q17, up 0.8% y-o-y and up 1.8% q-o-q, growing at a compound annual growth rate (CAGR) of 12.9% over the last five-year period. The cost of deposits stood at 3.5% in 4Q17, down 100bps y-o-y and down 10bps q-o-q and at 3.8% in 2017, down 70bps y-o-y. Wealth Management deposit balances were negatively impacted by clients switching from deposits to local bonds, as Galt & Taggart has offered a number of local bond issuances, yielding higher rates than deposits

§ We served 1,434 wealth management clients from 75 countries as of 31 December 2017 as compared to 1,383 clients from 68 countries as of 31 December 2016 and 1,416 clients from 74 countries as of 30 September 2017

§ Galt & Taggart, which brings under one brand corporate advisory, debt and equity capital markets  research and brokerage services, continues to develop local capital markets in Georgia

§ During 2017 Galt & Taggart acted as:

-       a co-manager of the Bank's inaugural GEL 500mln Lari denominated international bond issuance in June 2017

-       a lead manager of GEL 108mln local bonds due 2020 of International Finance Corporation in June 2017

-       a lead manager for Evex Medical Corporation, a subsidiary of Georgia Healthcare Group, facilitating a private placement of GEL 90mln local bonds due 2022, in July 2017

-       a lead manager for Georgian Water and Power, a subsidiary of Georgia Global Utilities, facilitating a private placement of GEL 40mln local bonds with a maturity of six months, in August 2017

-       a lead manager for Georgian Leasing Company, a subsidiary of JSC Bank of Georgia, facilitating a public placement of USD 10mln bonds due 2020, in September 2017

-       a lead manager of GEL 135mln local bonds due 2022 of European Bank for Reconstruction and Development in December 2017

-       a lead manager for JSC MFO Crystal, facilitating a public placement of GEL 10mln unsubordinated unsecured notes due 2019, in December 2017

§ During 2Q17 Galt & Taggart was mandated through a competitive tender process to actively manage the private pension fund of a corporate client. This is the first private pension fund ever established in Georgia by a non-financial institution. The fund is expected to accumulate approximately GEL 3mln contributions annually

§ Galt & Taggart was mandated by a blue chip corporate to restructure its liabilities and the project was successfully completed in 4Q17

§ Quarterly update on recent developments in Georgian economy. In August 2017, Galt & Taggart launched new research report covering the quarterly macro-economic developments in Georgian economy. The report was followed by a conference call hosted by Galt & Taggart for interested stakeholders to discuss the developments. 2Q17 and 3Q17 reports are available on Galt and Taggart website at www.galtandtaggart.com. Additionally, Galt & Taggart continues to provide full coverage of various sectors of the Georgian economy and developments taking place in regional economies through Regional Fixed Income Market Watch and Galt & Taggart macro portal, available on its website



 

Discussion of Investment Business Results

The Group's Investment Business is primarily comprised of five segments: Utility & Energy Business (GGU), Real Estate Business (m2), Property and Casualty Insurance Business (Aldagi), Beverage Business (Teliani) and Healthcare Business (GHG). The Group has renamed its Investment Business as Georgia Capital.

In line with IFRS requirements, the Group reviewed the classification of its operating segments at 31 December 2017. Given the expectation, in line with Georgia Capital's strategy, that it is highly probable the Group will own less than a 50% stake in its healthcare business GHG at the end 20189. As a result, and in line with IFRS, the Group classified GHG as "disposal group held for sale" and its results of operations are reported under "discontinued operations" line as a single amount in the consolidated income statement. Comparative periods have been restated accordingly to reflect reclassification of GHG from "continuing operations" into "discontinued operations." Assets and liabilities held by GHG are also presented separately in the consolidated balance sheet as of 31 December 2017 under "assets of disposal group held for sale" and "liabilities of disposal group held for sale."

INCOME STATEMENT

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Gross insurance profit 

6,306

6,255

0.8%

6,846

-7.9%


27,049

25,256

7.1%

Gross real estate profit10

5,773

1,560

NMF

4,179

38.1%


35,367

19,066

NMF

Gross utility and energy profit

22,868

21,671

5.5%

25,942

-11.8%


88,370

38,680

128.5%

Gross other investment profit 

9,611

9,758

-1.5%

11,792

-18.5%


30,583

21,334

43.4%

Revenue 

44,558

39,244

13.5%

48,759

-8.6%


181,369

104,336

73.8%

Operating expenses 

(22,676)

(12,812)

77.0%

(20,135)

12.6%


(74,792)

(35,893)

108.4%

EBITDA

21,882

26,432

-17.2%

28,624

-23.6%


106,577

68,443

55.7%

Profit from associates

-

-

-

-

-


-

4,074

NMF

Depreciation and amortisation

(9,056)

(4,501)

101.2%

(7,275)

24.5%


(28,235)

(10,062)

180.6%

Net foreign currency loss

(5,797)

(1,905)

NMF

(3,941)

47.1%


(4,937)

(3,134)

57.5%

Interest income

4,088

1,175

NMF

3,595

13.7%


12,970

4,144

NMF

Interest expense

(8,969)

(6,523)

37.5%

(7,049)

27.2%


(30,014)

(13,410)

123.8%

Operating income before cost of credit risk 

2,148

14,678

-85.4%

13,954

-84.6%


56,361

50,055

12.6%

Cost of credit risk 

(617)

585

NMF

(1,068)

-42.2%


(3,415)

(1,004)

NMF

Profit before non-recurring items and income tax

1,531

15,263

-90.0%

12,886

-88.1%


52,946

49,051

7.9%

Net non-recurring items

(460)

(269)

71.0%

(65)

NMF


(623)

32,673

NMF

Profit before income tax

1,071

14,994

-92.9%

12,821

-91.6%


52,323

81,724

-36.0%

Income tax expense

(1,666)

(3,653)

-54.4%

(2,246)

-25.8%


(5,748)

(8,944)

-35.7%

(Loss) / profit from continuing operations

(595)

11,341

NMF

10,575

NMF


46,575

72,780

-36.0%

Profit from discontinued operations

12,270

5,898

108.0%

10,335

18.7%


47,352

60,100

-21.2%

Profit

11,675

17,239

-32.3%

20,910

-44.2%


93,927

132,880

-29.3%

Earnings per share (basic)

0.19

0.40

-52.3%

0.39

-51.7%


1.85

2.75

-32.7%

Earnings per share (diluted)

0.18

0.38

-53.0%

0.37

-52.0%


1.77

2.67

-33.8%

 

Performance highlights

§ As a result of strong performance across all segments, Investment Business recorded EBITDA from continuing operations of GEL 106.6mln in 2017 (up GEL 55.7% y-o-y). Investment Business EBITDA, adjusted to include EBITDA of the discontinued operations, was GEL 54.2mln in 4Q17 (up 7.6% y-o-y and down 4.0% q-o-q) and GEL 220.0mln in 2017 (up 48.2% y-o-y)

§ Aldagi recorded gross insurance profit of GEL 6.3mln in 4Q17 (flat y-o-y and down 7.9% q-o-q) and GEL 27.0mln in 2017 (up 7.1% y-o-y). 4Q17 results were negatively affected by insurance claims expenses resulting from bad weather conditions, which triggered a number of accidents in Georgia. However, on a full year basis, growth in revenues from introduction of new products, enhancements of the existing products and strong growth in the retail segment more than outpaced the increased levels of insurance claims expense, driving gross profit up 7.1% y-o-y    

§ Gross real estate profit increased significantly as a result of m2's strong sales record and revaluation gains from commercial properties during 2017. 165 apartments were sold with a total sales value of US$ 14.5mln in 4Q17 compared to 112 apartments sold with a total sales value of US$ 8.3mln in 4Q16 and 231 apartments with a total sales value of US$ 16.9mln in 3Q17. In 2017, gross real estate profit was GEL 35.4mln, which was attributable to record sales of apartments on a full year basis and GEL 22.6mln gain from revaluation of investment properties, of which, GEL 21.4mln was the revaluation of three under construction investment properties (high street retail)

§ GGU delivered stable organic growth with a 52% EBITDA margin in 2017 (54% in 2016). The y-o-y increase in gross utility and energy profit in 2017 was driven by higher water supply revenues across both commercial and residential customers, which was slightly offset by decreased revenues from electric power generation and sales as a result of exceptionally low levels of water inflow during the year. The q-o-q decline in 4Q17 was largely attributable to water consumption seasonality factors. In addition, 2016 results include consolidation of GGU's gross utility and energy profit since 21 July 2016, while 2017 results include a full year of operations

§ Gross other investment profit increased by 43.4% y-o-y on a full year basis. The growth was largely attributable to significant growth in Teliani's gross profit due to the launch of mainstream beer and lemonade production in 2017, as well as outstanding performance of wine business, where revenues reached GEL 60.3mln in 2017 (up 102.5% y-o-y), excluding the IFRS 15 impact. Additionally, Teliani's 2017 gross profit was positively impacted by continued diversification of its distribution portfolio, whereby Teliani tapped the exclusive right to import and distribute Lavazza coffee in Georgia and won other non-alcoholic beverage distribution contracts in 2017. We expect to begin reporting separately the results of our beverage business operations in 2018

§ Increases in operating expenses during all periods presented were significantly impacted by Teliani's launch of beer operations and consolidation of GGU's results for a full year

§ Net non-recurring items in 2016 primarily relates to GEL 31.8mln gain from the purchase of GGU, while no such material non-recurring items were noted in 2017

§ 4Q17 profit from discontinued operations, which relates to results of GHG's operations, more than doubled on a y-o-y basis and increased by 18.7% on a quarterly basis. The strong performance was driven by a seasonally strong quarter in Pharmacy and Healthcare Services businesses. As a result GHG achieved a record full year EBITDA of GEL 108.1mln (up 38.6% y-o-y), while full year net profit was GEL 45.9mln, down 25.1% y-o-y, due to the absence of GEL 24.0mln one-off income tax gains recorded in 2016 from the change in Georgian corporate tax legislation

9 The Group held 57% of GHG's equity stake as of 31 December 2017 (65% as of 31 December 2016).

10 The gross real estate profit trend between the fourth quarter and full year 2017 and 2016 is not comparable given the early adoption of IFRS 15 from 1 January 2017. Prior to 1 January 2017, m2 recognised revenues from sales of residential units upon completion and handover of the units to customers in line with IAS 18, while under IFRS 15 revenue is recognised according to the percentage of completion method. Accordingly, we will not comment on y-o-y comparisons.

Investment Business Segment Result Discussion

The segment results discussion is presented for Utility & Energy Business (GGU), Real Estate Business (m2), Property and Casualty Insurance Business (Aldagi) and Healthcare Business (GHG11).

 

Utility & Energy Business (Georgia Global Utilities - GGU)12

Natural monopoly in the water business, with upside in electricity generation. Our utility and energy business is operated through the Group's wholly-owned subsidiary Georgia Global Utilities (GGU). GGU has two main business lines - water utility and electric power generation. In its water utility business, GGU is a natural monopoly that supplies water and provides a wastewater service to 1.4mln people (more than one-third of Georgia's population) in three cities: Tbilisi, Mtskheta and Rustavi.

Portfolio of 3 hydropower generation facilities (an additional facility under management) with a total capacity of 149.3MW. Average annual production is c.400GWh, depending on the level of rainfall during the year. GGU's average annual electricity self-consumption is up to 300GWh with a decreasing trend, which provides GGU with sufficient internally generated power for water transportation purposes and additional revenue from third-party electricity sales. Over the course of the last three years, GGU has managed to achieve efficiencies in its own energy consumption, thus freeing up electricity for third-party sales. The involvement in hydro power production also provides revenue diversification.

Invests in additional capacity for electricity generation with the goal to establish a renewable energy platform. GGU is developing hydro power plants (HPP) as well as solar and wind power sources in Georgia. During 2Q17, GGU commenced construction of 50MW Mestiachala HPPs in the north-western part of Georgia (Svaneti region) with a target to have the HPPs operational in December 2018. In 4Q17, GGU commenced construction of a 2.5MW Bodorna HPP on its own infrastructure near Tbilisi, which is expected to become fully operational from September 2018. Additionally, a 44.3MW Zoti HPPs, located in the western part of Georgia (Guria region), officially entered its construction phase based on the construction agreement signed with the Government of Georgia during 4Q17. GGU targets completion of Zoti HPP construction in 4Q20. 100MW wind projects are currently at the feasibility stage and once complete, GGU expects to commence construction works. 

Room for efficiencies in water business from improving the worn-out infrastructure. The poor condition of pipeline infrastructure is the main reason for leaks and accidents, causing on average 70% water loss annually, out of which 50% is attributable to technical losses and 20% to commercial losses. The current level of water losses is higher than the international peer average and represents a strong potential efficiency upside for the business. GGU owns and operates a water supply network of around 3,150km and about 2,000km of wastewater pipelines. It also has 55 pumping stations, 101 service reservoirs with a total capacity of 305,000 m3 and a water treatment plant. Around 560 million m3 of potable water is supplied from water production/treatment facilities annually. By investing in the pipeline infrastructure, the depreciated asset base is replaced over time leading to continuous growth in the regulated asset base. Moreover, through the reduction of the water supplied to its customers and respective water losses, GGU expects to reduce its own electricity consumption, which can be sold to third parties.

Water tariff & regulation. In December 2017, GNERC (Georgian National Energy and Water Supply Regulatory Commission), the independent body that regulates GGU's water and wastewater tariffs, has approved new tariffs for GGU for a three year regulatory period, effective from 1 January 2018. This is the first time the tariff has been set based on the new water and wastewater services tariff methodology adopted by GNERC in August 2017, which is based on international best practice and represents a hybrid method of "cost plus" and "incentive based" methodologies. Revenue is determined based on a company's Regulatory Asset Base (RAB) and compensates for investment and maintenance of new and existing regulatory assets, stimulates efficiency in the network through incentivising reduction in controllable operating expenses and delivers fair returns to investors in the utility business. The return on investment, referred to as WACC in the methodology, for the first regulatory period is set at 15.99% (up from 13.54% in 2017). As a result, new water and wastewater tariffs for residential customers in Tbilisi, the largest contributor to water utility revenue, increased by 23.8% to GEL 3.89 (per month, per capita) for non-metered customers and to GEL 0.33 (per m3) for metered customers. New tariffs for GGU's commercial customers, all of which are metered, decreased by 0.4% to GEL 4.40 (per m3).

Strong and stable cash flow generation has enabled GGU to distribute dividends of GEL 28.0mln (US$ 11.0mln) from its water utility business to the Investment Business during 4Q17. This was the first dividend distribution since the acquisition of a controlling stake in GGU in July 2016, which has decreased the Group's net investment in GGU, excluding the renewable energy business, to US$ 84.0mln.

GWP, a wholly owned subsidiary of GGU, which operates the water business in Tbilisi, has a credit rating of BB- with stable outlook from Fitch.

11 Healthcare Business (GHG) is classified as discontinued operations.

12 Prior to 2Q17, GGU's standalone results excluded the Group's renewable energy business results due to its absence from GGU's legal structure and insignificant size. Effective from 2Q17, we are reporting GGU results on a pro-forma basis together with renewable energy business and have retrospectively revised the comparable information accordingly. The Group owns 65% of renewable energy business.

 

Standalone results

The Investment Business acquired the 75% of GGU's equity interests it did not own on 21 July 2016 and has consolidated its results since then. Prior to this, the net income from the Group's 25% stake in GGU was reported under "profit from associates". The results below refer to GGU's standalone numbers. GGU's stand-alone results, including the related comparative information, reflect the energy & utility business performance. 

INCOME STATEMENT










 GEL thousands; unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Revenue from water supply to legal entities

22,215

19,598

13.4%

24,840

-10.6%


85,983

78,140

10.0%

Revenue from water supply to individuals

8,529

8,636

-1.2%

8,340

2.3%


32,921

31,263

5.3%

Revenue from electric power sales

2,873

3,641

-21.1%

3,788

-24.2%


9,755

10,112

-3.5%

Revenue from technical support

396

2,056

-80.7%

796

-50.3%


2,604

4,571

-43.0%

Other income

1,887

2,312

-18.4%

757

149.3%


3,738

3,161

18.3%

Revenue

35,900

36,243

-0.9%

38,521

-6.8%


135,001

127,247

6.1%

Provisions for doubtful trade receivables

338

687

-50.8%

(888)

-138.1%


(1,675)

(2,198)

-23.8%

Salaries and benefits

(5,386)

(3,673)

46.6%

(3,880)

38.8%


(19,125)

(16,760)

14.1%

Electricity and transmission costs

(4,319)

(3,748)

15.2%

(5,099)

-15.3%


(18,303)

(17,746)

3.1%

Raw materials, fuel and other consumables 

(910)

85

NMF

(940)

-3.2%


(3,077)

(2,856)

7.7%

Infrastructure assets maintenance expenditure 

(803)

(402)

99.8%

(793)

1.3%


(2,254)

(2,402)

-6.2%

General and administrative expenses

(1,155)

(387)

NMF

(971)

18.9%


(3,881)

(3,125)

24.2%

Operating taxes

(1,312)

(1,168)

12.3%

(1,308)

0.3%


(4,457)

(3,312)

34.6%

Professional fees

(998)

(967)

3.2%

(641)

55.7%


(2,698)

(2,502)

7.8%

Insurance expense

(323)

(269)

20.1%

(252)

28.2%


(1,104)

(793)

39.2%

Other operating expenses

(2,043)

(2,119)

-3.6%

(1,989)

2.7%


(7,586)

(7,400)

2.5%

Operating expenses

(16,911)

(11,961)

41.4%

(16,761)

0.9%


(64,160)

(59,094)

8.6%

EBITDA

18,989

24,282

-21.8%

21,760

-12.7%


70,841

68,153

3.9%

EBITDA Margin

53%

67%


56%



52%

54%


Depreciation and amortisation

(5,229)

(3,771)

38.7%

(5,299)

-1.3%


(20,419)

(17,911)

14.0%

EBIT

13,760

20,511

-32.9%

16,461

-16.4%


50,422

50,242

0.4%

EBIT Margin

38%

57%


43%



37%

39%


Net interest expense

(3,718)

(2,616)

42.1%

(3,299)

12.7%


(12,354)

(10,201)

21.1%

Net non-recurring expenses

(579)

-

NMF

(501)

15.6%


(1,332)

-

NMF

Foreign exchange (loss) gain

(386)

(424)

-9.0%

276

NMF


(580)

(1,076)

-46.1%

EBT

9,077

17,471

-48.0%

12,937

-29.8%


36,156

38,965

-7.2%

Income tax expense

(210)

(1,565)

-86.6%

(334)

-37.1%


(934)

(3,671)

-74.6%

Profit

8,867

15,906

-44.3%

12,603

-29.6%


35,222

35,294

-0.2%

Attributable to:










- Shareholders of the Group

8,484

15,705

-46.0%

12,701

-33.2%


35,306

35,275

0.1%

- Non-controlling interests

383

199

92.5%

(101)

NMF


(84)

18

NMF

Performance highlights

§ GGU recorded total revenue of GEL 35.9mln in 4Q17 (largely flat y-o-y and down 6.8% q-o-q) and GEL 135.0mln in 2017 (up 6.1% y-o-y) 

-       Revenue from the water supply to legal entities and individuals reached GEL 30.7mln in 4Q17 (up 8.9% y-o-y and down 7.3% q-o-q) and GEL 118.9mln in 2017 (up 8.7% y-o-y). Water supply revenue represented 85.6% of the total revenue in 4Q17 (77.9% in 4Q16 and 86.1% in 3Q17) and 88.1% of the total revenue in 2017 (86.0% in 2016). The q-o-q decrease in 4Q17 revenue from the water supply services is attributable to water consumption seasonality, whereby sales in the third quarter are normally the highest throughout the year. Revenue from legal entities is generally the largest element of GGU's total revenue and their water consumption pattern is reflected in GGU's quarterly revenues. The y-o-y increase in revenue from water supply to both legal entities and individuals in 2017 reflects enhanced measurement results based on efficient new metering programme (the new metering programme entails replacement of amortised or obsolete meters for legal entities, metering of residential customers and detection of illegal connections)

-       Revenue from electricity power sales amounted GEL 2.9mln in 4Q17 (down 21.1% y-o-y and down 24.2% q-o-q) and GEL 9.8mln in 2017 (down 3.5% y-o-y). 2017 was characterised with exceptionally low levels of water inflows in Zhinvali reservoir (the lowest over the past 5 years), resulting in low electricity generation and respective decline in revenue from electricity power sales, compared to 2016. The q-o-q decrease in 4Q17 in revenue from electricity power sales was driven by the seasonality of electricity production

-       The significant y-o-y decrease in the technical support revenue in 4Q17 and 2017 was due to the early adoption of IFRS 15 from 1 January 2017 which led to deferral of revenues from technical support services. The accounting change was applied prospectively from 1 January 2017 in line with IFRS

§ GGU's operating expenses continued to be well-contained. Operating expenses amounted GEL 16.9mln in 4Q17 (up 41.4% y-o-y and largely flat q-o-q) and GEL 64.2mln in 2017 (up 8.6% y-o-y):

-       Salaries and employee benefits were up 46.6% y-o-y and up 38.8% q-o-q in 4Q17, and up 14.1% y-o-y in 2017. The increase was primarily driven by recruitment of additional and more qualified personnel in technical support department as well as increased performance related compensation in water utility segment as a result of successfully delivering on all key operational and financial targets for 2017

-       Starting from 1Q17, as part of an ongoing process of reviewing receivable provisioning methodology, GGU revisited certain estimates to enhance the method of provision estimation. Under the enhanced method GGU was able to identify the customers who were able to pay all their monthly bills on time, i.e. who tended to have no overdue bill balance. This change in accounting estimate had a positive impact on the provision of doubtful receivables in 1Q17, resulting in lower receivables provision expenses in 2017. The q-o-q decline in provisions for doubtful trade receivables in 4Q17 was primarily driven by seasonally higher collection rates before the end of the year

-       Electricity and transmission costs were down 15.3% q-o-q in 4Q17, as a result of the seasonal decrease in water consumption, while due to increased electricity transmission fee (guaranteed capacity fee) effective from 1 January 2017, the costs were up 15.2% y-o-y in 4Q17 and up 3.1% y-o-y in 2017. The lower y-o-y growth rate on a full year basis is attributable to the savings from electricity consumption throughout the year

-       The y-o-y and q-o-q increase in 4Q17 and y-o-y increase in 2017 in general and administrative expenses is primarily driven by the expenditures on new marketing campaign targeted at raising the awareness of the importance of potable water resources in the population

-       Operating taxes were up 12.3% y-o-y and up 0.3% q-o-q in 4Q17, and up 34.6% y-o-y in 2017, reflecting an increase in GGU's property tax base due to the company's continued investments in its own infrastructure

-       Professional fees increased in all reporting periods in 2017 primarily due to the advisory services received from independent subject matter experts in relation to the assessment of certain operational parameters

-       The y-o-y decline in income taxes in 2017 reflects the impact of changes in corporate income tax model

§ As a result of the developments described above, GGU reported a) EBITDA of GEL 19.0mln in 4Q17 (down 21.8% y-o-y and down 12.7% q-o-q) and GEL 70.8mln in 2017 (up 3.9% y-o-y) and b) a profit of GEL 8.9mln in 4Q17 (down 44.3% y-o-y and down 29.6% q-o-q) and GEL 35.2mln in 2017 (flat y-o-y)

STATEMENT OF CASH FLOW










GEL thousands; unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Cash received from customers

44,768

41,042

9.1%

42,950

4.2%


153,937

139,886

10.0%

Cash paid to suppliers

(11,387)

(7,882)

44.5%

(12,901)

-11.7%


(46,069)

(46,106)

-0.1%

Cash paid to employees

(3,265)

(6,241)

-47.7%

(4,565)

-28.5%


(16,737)

(18,608)

-10.1%

Interest received

800

30

NMF

223

NMF


1,593

216

NMF

Interest paid

(4,486)

(2,653)

69.1%

(3,078)

45.7%


(12,831)

(10,388)

23.5%

Taxes paid

2,256

(2,072)

NMF

(2,944)

NMF


(6,272)

(11,087)

-43.4%

Restricted cash in Bank

(1,362)

(2,729)

-50.1%

-

NMF


-

(2,355)

NMF

Cash flow from operating activities

27,324

19,495

40.2%

19,685

38.8%


73,621

51,558

42.8%











Maintenance capex

(3,068)

(8,803)

-65.1%

(5,934)

-48.3%


(23,203)

(22,432)

3.4%

Operating cash flow after maintenance capex

24,256

10,692

126.9%

13,751

76.4%


50,418

29,126

73.1%











Purchase of PPE and intangible assets

(86,947)

(12,349)

NMF

(56,777)

53.1%


(190,169)

(35,552)

NMF

Restricted cash in Bank

5,876

-

NMF

3,974

47.9%


(2,399)

-

NMF

Total cash used in investing activities

(81,071)

(12,349)

NMF

(52,803)

53.5%


(192,568)

(35,552)

NMF











Proceeds from borrowings

226,572

27,341

NMF

19,462

NMF


314,284

45,226

NMF

Repayment of borrowings

(107,616)

(6,565)

NMF

(6,227)

NMF


(122,837)

(14,032)

NMF

Contributions under share-based payment plan

(2,596)

-

NMF

(2,345)

10.7%


(4,941)

-

NMF

Dividends paid

(28,244)

151

NMF

-

NMF


(28,244)

(13,008)

117.1%

Capital increase

2,653

2,394

10.8%

4,315

-38.5%


16,801

7,331

129.2%

Total cash flow from financing activities

90,769

23,321

NMF

15,205

NMF


175,063

25,517

NMF











Effect of exchange rates changes on cash

5,650

1,004

NMF

295

NMF


4,969

(69)

NMF

Total cash inflow/(outflow)

39,604

22,668

74.7%

(23,552)

NMF


37,882

19,022

99.1%











Cash balance










Cash, beginning balance

30,657

9,711

NMF

54,209

-43.4%


32,379

13,357

142.4%

Cash, ending balance

70,261

32,379

117.0%

30,657

129.2%


70,261

32,379

117.0%

§ GGU has an outstanding receivables collection rate within the 95-98% range from water supply. During 2017, the collection rate for legal entities and households was 98% and 95%, respectively. As a result, GGU had only GEL 6.9mln overdue receivables outstanding at 31 December 2017. While the Georgian water utility sector has historically had low receivables collection rates, as a result of GGU's arrangement with electricity suppliers since 2011, which allows disconnection of non-paying water customers from the electricity network, GGU's collection rates remain very strong at around 96% level. In return, electricity suppliers receive flat monetary compensation from GGU

§ In 4Q17, GGU drew-down less expensive funding from international financial institutions in order to finance capital expenditures and refinance more expensive funding from local financial institutions totaling GEL 101.8mln

 

 

 

 

 

 

BALANCE SHEET

 

GEL thousands; unless otherwise noted

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q







Cash and cash equivalents

70,261

32,379

117.0%

30,657

129.2%

Trade and other receivables

23,754

26,402

-10.0%

25,176

-5.6%

Prepaid taxes other than income tax

4,053

3,115

30.1%

6,740

-39.9%

Prepayments

3,305

288

NMF

9,414

-64.9%

Inventories

3,787

3,048

24.2%

3,780

0.2%

Other current assets

4,339

240

NMF

1,694

156.1%

Current income tax prepayments

62

735

-91.6%

1,256

-95.1%

Total current assets

109,561

66,207

65.5%

78,717

39.2%

Property, plant and equipment

489,509

335,877

45.7%

410,835

19.1%

Investment Property

11,286

18,728

-39.7%

18,371

-38.6%

Intangible assets

2,222

1,383

60.7%

1,170

89.9%

Restructured trade receivables

133

307

-56.7%

141

-5.7%

Restricted Cash

7,657

5,094

50.3%

11,449

-33.1%

Other non-current assets

44,118

1,757

NMF

25,127

75.6%

Total non-current assets

554,925

363,146

52.8%

467,093

18.8%

Total assets

664,486

429,353

54.8%

545,810

21.7%







Current borrowings

3,832

22,617

-83.1%

62,498

-93.9%

Trade and other payables

33,618

25,625

31.2%

22,887

46.9%

Provisions for liabilities and charges

3,102

706

NMF

803

NMF

Other taxes payable

391

7,101

-94.5%

4,119

-90.5%

Total current liabilities

40,943

56,049

-27.0%

90,307

-54.7%

Long term borrowings

308,373

83,651

NMF

122,624

151.5%

Deferred income

20,753

-

NMF

18,290

13.5%

Total non-current liabilities

329,126

83,651

NMF

140,914

133.6%

Total liabilities

370,069

139,700

NMF

231,221

60.0%







Share capital

17,561

8,070

117.6%

15,873

10.6%

Additional paid-in-capital

(2,837)

(588)

NMF

1,623

NMF

Retained earnings

87,229

96,564

-9.7%

106,968

-18.5%

Other reserve

182,338

182,417

0.0%

181,735

0.3%

Total equity attributable to shareholders of the Group

284,291

286,463

-0.8%

306,199

-7.2%

Non-controlling interest

10,126

3,190

NMF

8,390

20.7%

Total equity

294,417

289,653

1.6%

314,589

-6.4%

Total liabilities and equity

664,486

429,353

54.8%

545,810

21.7%

§ The increase in property, plant and equipment is primarily due to the additional investments into the company's infrastructure carried out during 2016 and 2017 in order to upgrade the network, further reduce water losses and achieve cost efficiencies. Additionally, c.GEL 40.0mln increase is attributable to the development and construction of renewable energy projects

§ c.GEL 7.4mln y-o-y and q-o-q decrease in investment property in 4Q17 is related to reclassification of investment properties into property, plant and equipment, as well as the sale of a land plot

§ The significant q-o-q increase in other non-current assets in 4Q17 is driven by additional prepayments to suppliers in relation to the development and construction of 50MW Mestiachala HPPs

§ The increase in borrowings and cash and cash equivalents at 31 December 2017 is due to additional funding obtained from international financial institutions and local banks in order to support the capital expenditures for developments of water supply network and renewable energy projects

§ During 2017, GGU secured long-term financing from international financial institutions (IFIs) for efficiency-related capital expenditures purposes. In 3Q17, GWP signed long-term loan facility agreements with European Investment Bank (EIB), The Netherlands Development Finance Company (FMO) and German Investment Corporation (DEG) and attracted c.EUR 81.5mln in total, of which, c.40% is denominated in local currency. This was the first IFI financing for GGU's water utility arm and a significant milestone for GGU, as it enables the company to develop and modernise the water infrastructure by tapping efficiencies in the network. GGU utilized the IFI funding starting from October 2017

§ In 4Q17, GGU distributed dividends totaling GEL 28.0mln (US$ 11.0mln) from its water utility business to the Investment Business

 

 



 

Real estate business (m2 Real Estate or m2)

Standalone results13

Our Real Estate business is operated through the Group's wholly-owned subsidiary m2, which develops residential and commercial properties and hotel properties in Georgia. m2 Real Estate has historically outsourced the construction and architecture works, whilst itself focusing on project management and sales. In June 2017, m2 acquired BK Construction LLC, a local real estate construction company, with the aim to bring the construction works in-house to achieve cost and project development efficiencies. m2 targets to meet the unsatisfied demand in Tbilisi for housing through its well-established branch network and sales force. Additionally, in line with its "assets light" strategy, m2 targets to transition into the franchise platform for developing third-party land plots and generate fee income.

INCOME STATEMENT14










GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











 Revenue from sale of apartments

30,788

9,356

NMF

27,530

11.8%


92,643

96,347

NMF

 Cost of sold apartments

(26,890)

(7,811)

NMF

(25,532)

5.3%


(84,607)

(82,403)

NMF

 Gross profit from sale of apartments

3,898

1,545

NMF

1,998

95.1%


8,036

13,944

NMF

 Revenue from operating leases

986

859

14.8%

833

18.4%


3,599

2,778

29.6%

 Cost of operating leases

(135)

(44)

NMF

(142)

-4.9%


(557)

(224)

148.7%

 Gross profit from operating leases

851

815

4.4%

691

23.2%


3,042

2,554

19.1%

 Revaluation of commercial property

(519)

1,430

-136.3%

1,297

-140.0%


22,563

2,381

NMF

 Gross real estate profit 

4,230

3,790

11.6%

3,986

6.1%


33,641

18,879

78.2%

 Gross other profit 

56

48

16.7%

163

-65.6%


277

29

NMF

Gross profit 

4,286

3,838

11.7%

4,149

3.3%


33,918

18,908

79.4%

 Salaries and other employee benefits

(1,195)

(374)

NMF

(712)

67.8%


(2,818)

(1,498)

88.1%

 Administrative expenses

(1,500)

(1,202)

24.8%

(1,784)

-15.9%


(5,761)

(4,364)

32.0%

 Operating expenses 

(2,695)

(1,576)

71.0%

(2,496)

8.0%


(8,579)

(5,862)

46.3%

 EBITDA

1,591

2,262

-29.7%

1,653

-3.8%


25,339

13,046

94.2%

 Depreciation and amortisation

(315)

(65)

NMF

(64)

NMF


(508)

(243)

109.1%

 Net foreign currency gain / (loss)

94

(58)

NMF

73

28.8%


(117)

1,143

-110.2%

 Interest income

145

410

-64.6%

192

-24.5%


816

715

14.1%

 Interest expense

(47)

(30)

56.7%

(44)

6.8%


(186)

(210)

-11.4%

 Net operating income before non-recurring items 

1,468

2,519

-41.7%

1,810

-18.9%


25,344

14,451

75.4%

 Net non-recurring items 

(197)

(96)

105.2%

(48)

NMF


(128)

(73)

75.3%

 Profit before income tax 

1,271

2,423

-47.5%

1,762

-27.9%


25,216

14,378

75.4%

 Income tax expense

(481)

(2,949)

-83.7%

(1,073)

-55.2%


(1,554)

(3,474)

-55.3%

 Profit 

790

(526)

NMF

689

14.7%


23,662

10,904

117.0%

Performance highlights

§ During 4Q17 m2 continued to unlock value through real estate development and recorded net revenue from sales of apartments of GEL 3.9mln, up 152.3% y-o-y and up 95.1% q-o-q

§ Gross profit from the sale of apartments is by its nature variable and depends on the number of projects underway at a given time. We also adopted a new accounting treatment in 2017, which applies a completely different basis for recognising revenue. Accordingly, y-o-y comparisons are not meaningful and will not be commented upon

§ During 2017, m2 sold a total of 629 apartments with total sales value of US$ 49.1mln, compared to 407 apartments sold with total sales value of US$ 34.4mln during 2016.  During 4Q17, m2 sold a total of 165 apartments with total sales value of US$ 14.5mln, compared to 112 apartments sold with total sales value of US$ 8.3mln during 4Q16 and 231 apartments with total sales value of US$ 16.9mln in 3Q17

§ Net revenue from operating leases increased by 4.4% y-o-y and 23.2% q-o-q in 4Q17 and by 19.1% y-o-y in 2017, supported by the growth in the commercial real estate portfolio. Consequently, the portfolio of yielding assets represented 22.0% of m2 Real Estate's total assets at 31 December 2017, compared to 11.2% a year ago and 20.3% at 30 September 2017

§ During 2017, m2 recorded a gain from the revaluation of investment property under construction of GEL 21.4mln. As a result, its portfolio of yielding assets, including the revaluation gain, increased by 85.8% y-o-y and 6.8% q-o-q to GEL 77.2mln at 31 December 2017. Revaluation of commercial property increased materially in 2Q17 primarily due to the GEL 21.4mln revaluation of three under construction investment properties (high street retail). m2 previously measured investment property under construction at cost, as allowed by IFRS, on the basis that fair value determination was difficult due to lack of comparable data and reliability of alternative fair value measurements. During 2Q17, management reassessed the approach and concluded that given a) the recent transactions of under construction properties on the local market, b) management's track record in building and renting out commercial properties and c) availability of increased statistical information, reliable measurement of fair value was warranted. Accordingly, management hired an independent, internationally recognised, valuation company to determine the fair values of under construction properties as of 31 December 2017 and recorded a total revaluation gain of GEL 22.6mln on investment properties during 2017

§ As a result, m2 recognised total gross profit of GEL 4.3mln and net profit of GEL 0.8mln in 4Q17. Total gross profit reached GEL 33.9mln in 2017, while profit totalled GEL 23.7mln

§ The y-o-y and q-o-q movements in income tax expense relate to previous period tax return adjustment as a result of submission of final 2016 tax returns during 3Q17

 

13 Prior to 1Q17, m2 Real Estate results presented were segment results, i.e. including Group elimination and consolidation adjustments. Effective 1Q17, and similar to other investment business entities, we are reporting stand-alone results for m2 Real Estate.

14 The gross profit trend between the fourth quarter and full year 2017 and 2016 is not comparable given the early adoption of IFRS 15 from 1 January 2017. Prior to 1 January 2017, m2 recognised revenues from sales of residential units upon completion and handover of the units to customers in line with IAS 18, while under IFRS 15 revenue is recognised according to the percentage of completion method. Accordingly, we will not comment on y-o-y comparisons.

BALANCE SHEET

 

GEL thousands, unless otherwise noted

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q







Cash and cash equivalents

34,751

93,210

-62.7%

51,434

-32.4%

Amounts due from credit institutions

114

-

NMF

50

128.0%

Investment securities

3,329

2,842

17.1%

2,974

11.9%

Accounts receivable

1,338

703

90.3%

13,749

-90.3%

Prepayments

34,932

20,746

68.4%

35,265

-0.9%

Inventories

59,683

113,009

-47.2%

68,967

-13.5%

Investment property, of which:

150,143

113,829

31.9%

137,197

9.4%

       Land bank

72,902

72,251

0.9%

64,868

12.4%

       Commercial real estate

77,241

41,578

85.8%

72,329

6.8%

Property and equipment

49,641

7,050

NMF

22,429

121.3%

Other assets

16,898

20,839

-18.9%

23,683

-28.6%

Total assets

350,829

372,228

-5.7%

355,748

-1.4%







Amounts due to credit institutions

58,992

42,818

37.8%

59,643

-1.1%

Debt securities issued

65,122

103,077

-36.8%

63,288

2.9%

Deferred income

46,660

77,925

-40.1%

72,249

-35.4%

Other liabilities

15,425

14,725

4.8%

11,957

29.0%

Total liabilities

186,199

238,545

-21.9%

207,137

-10.1%







Share Capital

4,180

4,180

-

4,180

-

Additional paid-in capital

82,793

85,467

-3.1%

84,788

-2.4%

Other reserves

14,460

15,538

-6.9%

7,251

99.4%

Retained earnings

52,779

28,498

85.2%

52,392

0.7%

Total equity attributable to shareholders of the Group

154,212

133,683

15.4%

148,611

3.8%

Non-controlling interest

10,418

-

NMF

-

NMF

Total equity

164,630

133,683

23.1%

148,611

10.8%

Total liabilities and equity

350,829

372,228

-5.7%

355,748

-1.4%

§ m2 continued to have a strong, diversified and well managed balance sheet. At 31 December 2017, total assets were GEL 350.8mln (down 5.7% y-o-y and down 1.4% q-o-q), comprised of 9.9% cash, 10.0% prepayments, 17.0% inventories (apartments in development), 42.8% investment property (land bank and commercial real estate), 14.1% property, plant and equipment (including hotel) and 6.2% all other assets. Borrowings, which consist of debt raised from Development Financial Institutions ("DFIs") and debt securities issued on the local market, represent 35.4% of the total balance sheet

§ m2 currently has a land bank with a total value of GEL 72.9mln on its balance sheet. We do not expect the land bank to grow, as the company's strategy is to utilise its existing land plots within three to four years and, in parallel, start development of third party land plots under franchise agreements

§ In December 2017, m2 acquired a 60% stake from a third-party in an upcoming lifestyle boutique hotel in Tbilisi for a total cash consideration of US$ 6.0 million, of which US$ 4.1 million was paid to acquire a 50% stake from a third-party and US$ 1.9 million was injected into the Hotel's capital in exchange for an additional 10% stake

 

Operating highlights

2017 was record breaking for m2 with regard to the number of apartments sold, square meters sold and sales revenue. In 4Q17, all remaining apartments of the Optima line project on Moscow Avenue were sold. Moreover, m2 continued to build up its portfolio of yielding assets, including hotels, to match the growing demand for accommodation generated by the robust growth of the tourism sector. In 3Q17 m2 commenced construction works on a mixed-use development on Melikishvili Avenue, where it plans to open a four-star Ramada hotel, which is expected to be the first construction project undertaken in-house by m2 subsidiary, BK Construction LLC. Existing income-generating properties are successfully leased at an 88% occupancy rate with an average yield of 9.1%. m2 continued its outstanding performance in construction with more than 180,000 square meters (more than 95,700 square meters of net sellable area) currently under construction across four ongoing projects, all of which are on schedule.

As noted above, in 4Q17 m2 acquired a controlling stake in an upcoming lifestyle boutique hotel in a prime location of Tbilisi. The hotel is expected to add at least 100 rooms to m2's portfolio and the construction works are being carried out by m2's construction arm. The skeleton of the building is already finished and the full construction completion is expected in the first quarter of 2019.

In December 2017, m2 signed its largest ever franchise agreement as part of its "asset light" strategy to construct and develop a residential complex under the m2 brand name on a third-party land plot in a densely populated Tbilisi suburb. m2 plans to build a residential complex, with a total of 190,000 square meters and 3,600 residential units, in ten phases over the course of four to five years and generate construction fees, sales commissions and share profits from the project's overall economics.

Finally, in December 2017, m2's construction arm was awarded its first major third-party construction agreement to construct the shell and core of a new shopping mall and business centre located in Tbilisi's Saburtalo district. Total amount of the contract is US$ 11.6mln and is planned to be carried out over the sixteen months following the planned project commencement in January 2018.

§ m2 has started eleven projects since its establishment in 2010, of which, seven projects have already been completed, while the construction of four projects is ongoing. m2 has completed all of its projects on or ahead of scheduled time and within budget. The four on-going projects have the following characteristics:

-       Kartozia Street project: the largest ever project carried out by m2, with a total of 801 apartments in a central location in Tbilisi, of which, 703 units are sold

-       Kazbegi Avenue II project - a mixed-use development with 303 residential apartments and a hotel (m2 has the exclusive right to develop Wyndham Ramada Encore hotels in Georgia) with a capacity of 152 rooms. The construction started in June 2016, with 217 apartments sold to date

-       50 Chavchavadze Avenue project - the project is located in the central part of Tbilisi with a total of 82 apartments, of which, 69 are sold

-       Melikishvili Avenue project - a mixed-use four-star development with a capacity of 125 hotel rooms and 16 residential apartments, of which, 11 are already sold 

§ m2 has a very good track record of selling apartments. Out of the 1,691 apartments completed to date since inception, only 15 or 0.9% remain in stock as available for sale. m2 retains ownership of some of the apartments leased out to high quality strategic tenants, such as the US Embassy in Georgia. The four ongoing projects have a total capacity of 1,202 apartments, of which, 1,000 apartments or 83.2% are sold as of 31 December 2017. A total of 217 units remain available for sale, out of the total of 2,893 apartments either already developed or under development phase

OPERATING DATA

for completed and on-going projects, as of 31 December 2017

#

Project name

Number of apartments

Number of apartments sold

Number of apartments sold as % of total

Number of apartments available for sale

Start date (construction)

Actual / Planned Completion date (construction)

Construction completed %

 

Completed projects

1,691

1,676

99.1%

15




 

1

Chubinashvili Street

123

123

100.0%

-

Sep-10

Aug-12

100%

 

2

Tamarashvili Street

525

523

99.6%

2

May-12

Jun-14

100%

 

3

Kazbegi Street

295

295

100.0%

-

Dec-13

Feb-16

100%

 

4

Nutsubidze Street

221

221

100.0%

-

Dec-13

Sep-15

100%

 

5

Tamarashvili Street II

270

266

98.5%

4

Jul-14

Jun-16

100%

 

6

Moscow Avenue

238

238

100.0%

-

Sep-14

Jun-16

100%

 

7

Skyline

19

10

52.6%

9

Dec-15

Dec-17

100%

 

On-going projects

1,202

1,000

83.2%

202




 

8

Kartozia Street

801

703

87.8%

98

Nov-15

Oct-18

78%

 

9

Kazbegi Street II

303

217

71.6%

86

Jun-16

Nov-18

43%

 

10

50 Chavchavadze Ave.

82

69

84.1%

13

Oct-16

Oct-18

61%

 

11

Melikishvili ave.

16

11

68.8%

5

Sep-17

May-19

6%

 


Total

2,893

2,676

92.5%

217




 

§ Since its inception, m2 Real Estate unlocked US$ 19.5mln in total land value from the seven completed projects, while an additional US$ 14.2mln in land value is expected to be unlocked from the four ongoing projects

FINANCIAL DATA

for completed and on-going projects, as of 31 December 2017

#

Project name

Total Sales

 (US$ mln)

Recognised as revenue (US$ mln)

Deferred revenue (US$ mln)

Deferred revenue  expected to be recognised as revenue in 2017

Land value unlocked

(US$)

Realised & Expected IRR

Completed projects

144.3

144.3

0.0

0.0

19.5


1

Chubinashvili street

9.9

9.9

-

-

0.9

47%

2

Tamarashvili street

48.6

48.6

-

-

5.4

46%

3

Kazbegi Street

27.2

27.2

-

-

3.6

165%

4

Nutsubidze Street

17.4

17.4

-

-

2.2

58%

5

Tamarashvili Street II

24.3

24.3

-

-

2.7

71%

6

Moscow avenue

12.3

12.3

-

-

1.6

31%

7

Skyline

4.6

4.6

-

-

3.1

329%

On-going projects

78.0

50.2

27.9

21.5

14.2


8

Kartozia Street

48.8

33.4

15.3

13.0

5.8

60%

9

Kazbegi Street II

18.6

10.7

8.0

5.5

4.3

51%

10

50 Chavchavadze ave.

8.1

5.1

3.0

2.8

3.3

75%

11

Melikishvili ave.

2.5

1.0

1.5

0.2

0.8

101%


Total

222.3

194.5

27.9

21.5

33.7


§ The number of apartments financed with BOG mortgages in all m2 projects reached 1,181 or GEL 148.6mln at 31 December 2017



 

Property and Casualty Business (Aldagi or P&C)

Standalone results

Our Property and Casualty (P&C) insurance business is operated through the Group's wholly-owned subsidiary Aldagi, which is a leading player in the local P&C insurance market with a market share of 38.6% based on gross premiums earned at 30 September 2017. The company offers a wide range of insurance products in Georgia to corporate and retail clients, covering more than 47,000 customers through five business lines: motor, property, credit life, liability and other insurance services. Aldagi's insurance products15 are offered through its offices in Tbilisi and large cities across Georgia, a network of insurance agents, partner local banks and non-financial institutions (such as major car dealerships), insurance brokers and online portals.

INCOME STATEMENT










GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Gross premiums written

17,962

16,664

7.8%

21,322

-15.8%


88,474

75,379

17.4%

Earned premiums, gross

21,891

18,638

17.5%

24,610

-11.0%


85,922

70,937

21.1%

Earned premiums, net

16,578

13,811

20.0%

16,707

-0.8%


62,770

50,390

24.6%

Insurance claims expenses, gross

(13,452)

(6,848)

96.4%

(8,088)

66.3%


(40,652)

(25,227)

61.1%

Insurance claims expenses, net

(7,207)

(5,113)

41.0%

(6,348)

13.5%


(25,098)

(17,858)

40.5%

Acquisition costs, net

(2,662)

(2,221)

19.9%

(2,845)

-6.4%


(9,100)

(6,744)

34.9%

Net underwriting profit

6,709

6,477

3.6%

7,514

-10.7%


28,572

25,788

10.8%

Investment income

814

761

7.0%

786

3.6%


2,965

3,118

-4.9%

Net Fee and commission income

142

128

10.9%

171

-17.0%


525

436

20.4%

Net investment profit

956

889

7.5%

957

-0.1%


3,490

3,554

-1.8%

Salaries and other employee benefits

(2,258)

(2,170)

4.1%

(2,304)

-2.0%


(8,701)

(7,907)

10.0%

Selling, general and administrative expenses

(830)

(1,007)

-17.6%

(876)

-5.3%


(3,263)

(3,201)

1.9%

Depreciation & Amortisation

(135)

(202)

-33.2%

(245)

-44.9%


(855)

(774)

10.5%

Impairment charges

(82)

(265)

-69.1%

(157)

-47.8%


(671)

(808)

-17.0%

Net other operating income

163

225

-27.6%

144

13.2%


495

698

-29.1%

Operating profit

4,523

3,947

14.6%

5,033

-10.1%


19,067

17,350

9.9%

Foreign exchange gain / (loss)

452

809

-44.1%

327

38.2%


208

(294)

NMF

Pre-tax profit

4,975

4,756

4.6%

5,360

-7.2%


19,275

17,056

13.0%

Income tax expense

(806)

(952)

-15.3%

(819)

-1.6%


(2,975)

(3,318)

-10.3%

Net profit

4,169

3,804

9.6%

4,541

-8.2%


16,300

13,738

18.6%

Performance highlights

§ Aldagi recorded net underwriting profit of GEL 6.7mln in 4Q17 (up 3.6% y-o-y and down 10.7% q-o-q) and GEL 28.6mln in 2017 (up 10.8% y-o-y) as a result of the following: 

§ Net earned premiums. Net premiums earned reached GEL 16.6mln in 4Q17 (up 20.0% y-o-y and down 0.8% q-o-q) and GEL 62.8mln in 2017 (up 24.6% y-o-y). The y-o-y increase in 2017 was supported by organic growth of the motor insurance, property insurance and credit life insurance businesses lines (representing approximately 35.0%, 24.0% and 10.0% of Aldagi's total insurance portfolio, respectively), which contributed to approximately 23.0%, 21.0% and 15.0% y-o-y increase in net premiums earned in 2017, respectively. New product introductions and enhancements of existing products described under Operating Highlights below resulted in a further 4.0% y-o-y increase to net premiums earned in 2017. The slight q-o-q decrease in net earned premiums was primarily driven by seasonality of the agricultural insurance programme that ran from the mid 2Q17 to the mid of 4Q17. Net premiums earned from agricultural insurance increased by approximately 44.0% on a y-o-y basis in 2017, leading to a 54.0% market share in this product (37.0% market share in 2016)

§ Net insurance claims. The net insurance claims amounted to GEL 7.2mln in 4Q17 (up 41.0% y-o-y and up 13.5% q-o-q) and GEL 25.1mln in 2017 (up 40.5% y-o-y). The y-o-y increase in net insurance claims expenses in 2017 were primarily driven by property insurance claims following a major fire incident in 1H17 and number of accidents from flooding and bad weather conditions in 4Q17. Additionally, the motor insurance business also experienced an overall increase in loss severity and frequency in 2017. These increases were partially compensated by improved loss ratios in liability insurance, life insurance and other insurance products in 2017. Finally, the increase in insurance claims expenses was also driven by the business shift towards the retail segment, which is historically characterised by a higher loss ratio than the corporate segment

§ Net acquisition costs were GEL 2.7mln in 4Q17 (up 19.9% y-o-y and down 6.4% q-o-q) and GEL 9.1mln in 2017 (up 34.9% y-o-y). The y-o-y increase was attributable to introduction of new insurance product lines and enhancements of the existing ones in 2017, which led to higher average commission rates. Overall, commission ratio was up by 1ppts y-o-y in 2017. Q-o-q decrease of 6.4% in net acquisition costs was attributable to decrease in net premiums earned

15 Aldagi's P&C products principally include the following: a) motor insurance covering vehicle damage and third-party liability with 23,646 active clients and a 41% market share, b) property insurance including commercial property coverage, contractor's performance and damage risks coverage with 12,317 active clients and a 37% market share, c) credit life insurance covering loan-linked life insurance services with a group of three active clients and a 30% market share, d) liability insurance covering financial risks, employer's liability, professional indemnity, general third party liability, etc. with 1,026 active clients and a 44% market share. Aldagi's other products include agro insurance, cargo insurance, livestock insurance, bankers blanket bond insurance, and directors' and officers' liability insurance services with 13,314 active clients and a 38% market share.

§ Aldagi's key ratios remain healthy despite increased number of accidents during 2017 as evidenced by the following closely monitored metrics:

Key Ratios

4Q17

4Q16

3Q17


2017

2016








Combined ratio

78.5%

77.9%

75.6%


75.2%

72.6%

Expense ratio

35.0%

40.8%

37.6%


35.2%

37.2%

Loss ratio

43.5%

37.0%

38.0%


40.0%

35.4%

§ Net investment profit. Investment income amounted to GEL 0.8mln in 4Q17 (up 7.0% y-o-y and up 3.6% q-o-q) and GEL 3.0mln in 2017 (down 4.9% y-o-y). Y-o-y decrease in investment income in 2017 was primarily driven by the dividend payouts of GEL 7.1mln in 3Q16 and GEL 7.0mln in 2Q17, which were partially compensated by 20.4% y-o-y increase in AUM fees in 2017. Investment yield remained high at 10.0% in 2017

§ Salaries and employee benefits reached GEL 2.3mln in 4Q17 (up 4.1% y-o-y and down 2.0% q-o-q) and GEL 8.7mln in 2017 (up 10.0% y-o-y) primarily as a result of establishment of new Strategic Development department as described under Operating Highlights below, as well as the organic growth of the property and casualty insurance business and the related increase in headcount

§ Corporate income tax expense. The y-o-y decrease in income taxes in 2017 reflects the absence of one-off impact from changes in the corporate taxation model, which were recorded in 2016 (GEL 0.8mln write off in 2016)

§ Aldagi's operating profit reached GEL 4.5mln in 4Q17, up 14.6% y-o-y and down 10.1% q-o-q, and GEL 19.1mln in 2017, up 9.9% y-o-y. Aldagi's net profit was GEL 4.2mln in 4Q17 (up 9.6% y-o-y and down 8.2% q-o-q) and GEL 16.3mln in 2017 (up 18.6% y-o-y)

BALANCE SHEET

GEL thousands, unless otherwise noted

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q







Cash and cash equivalents

 4,186

 4,349

-3.7%

 4,200

-0.3%

Amounts due from credit institutions

 25,968

 24,928

4.2%

 24,989

3.9%

Investment securities: available-for-sale

 4,180

 3,389

23.3%

 4,344

-3.8%

Insurance premiums receivable, net

 28,491

 22,997

23.9%

 27,500

3.6%

Ceded share of technical provisions

 20,671

 13,161

57.1%

 21,219

-2.6%

Premises and equipment, net

 10,627

 8,717

21.9%

 9,309

14.2%

Intangible assets, net

 1,272

 1,409

-9.7%

 1,363

-6.7%

Goodwill

 13,051

 13,051

0.0%

 13,051

0.0%

Deferred acquisition costs

 3,047

 1,611

89.1%

 1,906

59.9%

Pension fund assets

 18,536

 16,441

12.7%

 17,808

4.1%

Other assets

 5,129

 4,867

5.4%

 5,521

-7.1%

Total assets

 135,158

 114,920

17.6%

 131,210

3.0%







Gross technical provisions

 50,272

 41,542

21.0%

 52,567

-4.4%

Other insurance liabilities

 11,147

 8,612

29.4%

 10,751

3.7%

Current income tax liabilities

 30

 1,273

-97.6%

 110

-72.7%

Pension benefit obligations

 18,536

 16,441

12.7%

 17,808

4.1%

Other Liabilities

 6,426

 7,611

-15.6%

 5,395

19.1%

Total liabilities

 86,411

 75,479

14.5%

 86,631

-0.3%







Share Capital

 1,889

 1,889

0.0%

 1,889

0.0%

Additional paid-in capital

 5,405

 5,405

0.0%

 5,405

0.0%

Retained earnings

 25,153

 18,409

36.6%

 25,153

0.0%

Net profit

 16,300

 13,738

18.6%

 12,132

34.4%

Total equity

 48,747

 39,441

23.6%

 44,579

9.3%

Total liabilities and equity

 135,158

 114,920

17.6%

 131,210

3.0%

§ Aldagi continued to have a very strong balance sheet. As of 31 December 2017, total assets reached GEL 135.2mln. The y-o-y growth in assets was largely driven by 23.9% y-o-y increase in net insurance premiums receivable and 57.1% y-o-y increase in ceded share of technical provisions. The 14.5% y-o-y increase in total liabilities was driven by two large claims incurred as a result of a) major fire incident in 1Q17 and b) floods in 4Q17, both of which contributed to 21.0% y-o-y increase in gross technical provisions as of 31 December 2017

§ Aldagi has demonstrated outstanding dividend payment track record. Aldagi has distributed dividends totaling GEL 14.1mln since 1H16, of which, GEL 7.1mln was paid in 3Q16 and GEL 7.0mln in 2Q17

§ Insurance companies in Georgia are subject to regulatory requirements. Since 31 December 2016, Aldagi is required to maintain a solvency ratio in excess of 100%. At 31 December 2017, Aldagi's solvency ratio was 180% as compared to 195% at 30 September 2017 and 160% at 31 December 2016

Operating Highlights

Aldagi achieved significant milestones in 2017 as the company managed to exceed its annual targets for new product developments. Along with tapping regional markets through launching livestock insurance, Aldagi introduced online Travel insurance with a unique combination coverage and competitive pricing. Aldagi's product development initiatives resulted in more than 19,000 livestock insurance and 3,334 travel and trip insurance policies sold across the country.

Aldagi established the Strategic Development department in 2017 in order to focus on improving market intelligence through more direct communication and targeting of the Georgian insurance market's emerging trends and demands. These efforts led to a major milestone, whereby Aldagi signed an exclusive memorandum with Public Service Hall in 3Q17, which allows customers of the Public Service Hall to electronically acquire affordable insurance products for any type of property registered in the public registry.

Aldagi targets solidifying its market leadership position in digital insurance over the next 5 years by aiming to have all its processes and procedures, including issuance of e-policies, remote claims regulation and building web/mobile customer profiles, executed principally through digital channels. As at 31 December 2017, Aldagi had 11,044 online agents, who sell and promote retail insurance products through unique web-portal onjob.ge, a digital platform that helps Aldagi attract new customers.

Through extensive cooperation with the Insurance State Supervision Service of Georgia (ISSSG), the insurance market regulator in Georgia, the Parliament of Georgia approved Border Motor Third Party Liability Insurance (MTPL insurance for vehicles visiting Georgia either on a temporary or on transit basis) in December 2017. Compulsory MTPL insurance will become mandatory from 1 March 2018. Aldagi expects that MTPL insurance will increase the size of the existing property and casualty market by approximately GEL 30-50mln (15-25% of the existing P&C insurance market). Aldagi is working closely with ISSSG to support drafting of the new law requiring mandatory local MTPL for all vehicles registered in Georgia. The new law is expected to be launched in 2019 and will be a major boost to retail market penetration. The current low level of insurance market penetration of 1.1% in Georgia (of which, 0.6% relates to P&C insurance market penetration and 0.5% to medical insurance market) provides highly untapped retail growth potential.

§ Based on the latest available market data as of 30 September 2017, Aldagi continues to be the most profitable insurance company in the local market with 89.4% share of the insurance industry profit

§ Aldagi continues to lead the market with a powerful distribution network of 284 points of sale and 547 sales agents as of 31 December 2017

§ At 31 December 2017, Aldagi had 47,702 insured customers (up 36.5% y-o-y and down 7.4% q-o-q). The y-o-y increase in number of insured customers was mainly driven by organic growth of motor insurance business line and introduction of new product lines in 2017. The number of new insurance policies written reached 36,983 in 4Q17 (27,013 and 46,768 new policies written in 4Q16 and 3Q17, respectively) and 155,332 in 2017 (112,430 policies written in 2016). The 7.4% q-o-q decrease in number of insured customers was primarily due to seasonality of the agricultural insurance program that ran from the mid 2Q17 to the mid of 4Q17. Excluding the agricultural program effect, the number of customers were up 6.7% q-o-q in 4Q17

Aldagi signed major third-party partnership agreements with two Georgian banks, JSC Liberty Bank and JSC Credo Bank to successfully diversify its multi-channel distribution network. The partnership agreement between Aldagi and JSC Liberty Bank, the third largest bank in Georgia by total assets and with the largest branch and service outlet network in the country, will enable Aldagi to enhance its distribution capabilities of its motor third party liability insurance business. The three-year partnership agreement with JSC Credo Bank marks a continuation of an already established successful relationship between the companies. Aldagi will have rights to offer its retail insurance products to the bank's retail and small and medium-sized business clients through its wide network of branches, which will enable Aldagi to successfully tap Georgia's underpenetrated retail insurance segment.

 

 



 

Healthcare business (Georgia Healthcare Group or GHG)16

Standalone results

GHG is the largest integrated player in the fast-growing predominantly privately-owned Georgia Healthcare ecosystem with an aggregated value of GEL 3.5 billion. GHG is comprised of three different business lines: healthcare services business (consisting of a hospital business and polyclinics (ambulatory clinics)), pharmacy business and medical insurance business. BGEO Group owns 57.0% of GHG at 31 December 2017, with the remaining shares being held by the public (largely institutional investors). GHG's shares are listed on the London Stock Exchange. The results below refer to GHG standalone numbers and are based on GHG's reported results, which are published independently of the Group and available on GHG's web-site: ghg.com.ge

INCOME STATEMENT










GEL thousands; unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y











Revenue, gross

197,637

136,031

45.3%

179,065

10.4%


747,750

426,439

75.3%

Corrections & rebates

(349)

(790)

-55.8%

(407)

-14.3%


(2,039)

(2,686)

-24.1%

Revenue, net

197,288

135,241

45.9%

178,658

10.4%


745,711

423,753

76.0%

Revenue from healthcare services

68,094

66,814

1.9%

63,598

7.1%


263,357

243,453

8.2%

Revenue from pharmacy

121,367

56,586

114.5%

106,607

13.8%


450,315

133,002

NMF

Net insurance premiums earned

12,376

16,312

-24.1%

13,959

-11.3%


53,710

61,494

-12.7%

Eliminations

(4,549)

(4,471)

1.7%

(5,506)

-17.4%


(21,671)

(14,196)

52.7%

Costs of services

(134,252)

(89,626)

49.8%

(123,467)

8.7%


(517,712)

(277,735)

86.4%

Cost of healthcare services

(38,227)

(34,802)

9.8%

(36,916)

3.6%


(150,572)

(130,369)

15.5%

Cost of pharmacy

(90,743)

(44,498)

103.9%

(80,237)

13.1%


(340,210)

(105,472)

NMF

Cost of insurance services

(11,163)

(14,997)

-25.6%

(11,968)

-6.7%


(48,583)

(55,772)

-12.9%

Eliminations

5,882

4,671

25.9%

5,653

4.1%


21,653

13,878

56.0%

Gross profit

63,036

45,615

38.2%

55,191

14.2%


227,999

146,018

56.1%

Salaries and other employee benefits

(20,519)

(12,757)

60.8%

(18,759)

9.4%


(75,430)

(39,750)

89.8%

General and administrative expenses

(12,266)

(8,340)

47.1%

(11,600)

5.7%


(48,618)

(26,149)

85.9%

Impairment of receivables

(1,133)

56

NMF

(918)

23.4%


(4,175)

(2,332)

79.0%

Other operating income

1,761

(285)

NMF

2,200

-20.0%


8,372

240

NMF

EBITDA

30,879

24,289

27.1%

26,114

18.2%


108,148

78,027

38.6%

Depreciation and amortisation

(6,967)

(5,316)

31.1%

(6,384)

9.1%


(25,704)

(19,577)

31.3%

Net interest expense

(8,303)

(4,773)

74.0%

(7,691)

8.0%


(30,941)

(13,736)

125.3%

Net (losses) from foreign currencies

(2,825)

(3,170)

-10.9%

(1,336)

NMF


(397)

(5,657)

NMF

Net non-recurring (expense)/ income

(638)

1,982

NMF

(872)

-26.8%


(4,780)

1,118

NMF

Profit before income tax expense

12,146

13,012

-6.7%

9,831

23.5%


46,326

40,175

15.3%

Income tax (expense)/ benefit

(187)

(6,682)

-97.2%

(92)

103.3%


(386)

21,156

NMF

   of which: Deferred tax adjustments

-

(5,319)

NMF

-

-


-

23,992

NMF

Profit for the period

11,959

6,330

88.9%

9,739

22.8%


45,940

61,331

-25.1%











Attributable to:










  - shareholders of GHG

7,785

5,401

44.1%

6,261

24.3%


29,050

50,203

-42.1%

  - non-controlling interests

4,174

929

349.3%

3,478

20.0%


16,890

11,128

51.8%

       of which: Deferred tax adjustments

-

(516)

NMF

-

-


-

4,541

NMF

Performance highlights

§ GHG delivered gross revenue of GEL 197.6mln in 4Q17 (up 45.3% y-o-y and up 10.4% q-o-q) and GEL 747.8mln in 2017 (up 75.3% y-o-y). The q-o-q revenue increase was driven by strong growth in both healthcare services and pharmacy business as a result of the seasonally strong quarter. The y-o-y revenue growth in 4Q17 and in 2017 was mainly attributable to the pharmacy business (GPC and Pharmadepot were acquired in and consolidated from May 2016 and January 2017, respectively)

§ GHG achieved a well-diversified revenue mix, spread across all three segments of the Georgian healthcare ecosystem. In 2017, 34% of the GHG's revenue came from the healthcare services business, 59% from pharmacy business and the remaining 7% from medical insurance business. The high level of diversification was achieved through GHG's entrance and further expansion into the pharmacy business, which is funded almost entirely out-of-pocket and therefore, helped GHG to further diversify its revenue by payment sources. As a result, 54% of total revenue was received from out-of-pocket payments, 24% from Georgia's Universal Health Programme and 22% from other sources in 2017

§ In 4Q17, GHG continued to focus on extracting operating efficiencies and synergies across the business lines. The gross margin in the pharmacy business continued to improve q-o-q as well as y-o-y on a full year basis, mainly as a result of realising previously announced procurement synergies as the largest purchaser of pharmaceuticals in Georgia. Due to a seasonally busy quarter in terms of claims, the loss ratio in GHG's medical insurance business was up q-o-q in 4Q17, although it had significantly improved on a y-o-y basis. The y-o-y improvement in loss ratio in 4Q17 primarily reflected the successful implementation of new initiatives to refocus on more profitable clients starting from 2Q17. The loss ratio of medical insurance business remained largely flat y-o-y in 2017. As anticipated, healthcare services business margins are temporarily reduced due to launches of new healthcare facilities and services, which are currently in their rapid build-out phase. In 2018, main goal will be the continued successful roll-out of newly launched hospitals and services, while, at the same time, focusing on implementing efficiency measures across healthcare facilities, as well as GHG-wide

16 GHG is classified as a disposal group held for sale and as a discontinued operation within BGEO's 4Q17 and full year 2017 results. Refer to page 4 for additional background.

§ GHG reported strong EBITDA of GEL 30.9mln in 4Q17 (up 27.1% y-o-y and up 18.2% q-o-q) and GEL 108.1mln in 2017 (up 38.6% y-o-y). The EBITDA margin for healthcare services business was 26.8% in 4Q17 (31.9% in 4Q16 and 26.0% in 3Q17) and 26.4% in 2017 (30.2% in 2016). The temporary y-o-y reduction in the EBITDA margin in 4Q17 and 2017 was due to the launch of new healthcare facilities and services, which are currently in their initial roll-out phase. Excluding the dilutive effects of roll-outs, the healthcare services business EBITDA margin was 29.3% in 4Q17 and 29.2% in 2017. GHG expects further margin improvement gradually. The healthcare services business was the main contributor to GHG's EBITDA, contributing 60% in total EBITDA in 4Q17, followed by pharmacy business, contributing 40% in total EBITDA during 4Q17. Pharmacy business EBITDA margin was 10.2% in 4Q17, well ahead of its target of 8%. Medical insurance business also reported positive EBITDA in 4Q17, despite the seasonally weak quarter

§ GHG's profit amounted to GEL 12.0mln in 4Q17 (up 2.7% y-o-y on a normalized basis17 and up 22.8% q-o-q) and GEL 45.9mln in 2017 (up 16.1% y-o-y on a normalised17 basis). The healthcare services business was the main driver of 4Q17 and 2017 profit by contributing GEL 6.4mln and GEL 27.4mln, followed by pharmacy business with GEL 5.8mln and GEL 21.2mln contribution, respectively

§ GHG's balance sheet increased substantially over the last twelve months, reaching GEL 1,167.8mln as at 31 December 2017 (up 27.6% y-o-y and up 3.9% q-o-q). The 27.6% y-o-y growth in total assets was largely driven by the increase in property and equipment, reflecting investments in the renovation of hospitals, roll-out of polyclinics and the consolidation of the pharmacy business, Pharmadepot. The pharmacy businesses consolidation primarily affected inventories and goodwill. Out of the GEL 118.8mln inventory balance at 31 December 2017, GEL 98.9mln was attributable to the pharmacy business, while the balance of goodwill from the acquisitions of the pharmacy businesses amounted to GEL 77.8mln at 31 December 2017.. Borrowed funds increased y-o-y and q-o-q in 4Q17 and 2017 as a result of following factors: 1) From the first quarter of 2017, GHG sourced longer-term and less expensive funding from both local commercial banks and Development Financial Institutions ("DFIs") and used the proceeds for the development of healthcare facilities; 2) At the beginning of 2017, GHG raised GEL 33.0mln from a local commercial bank to pay the first tranche of consideration payable for the Pharmadepot acquisition; 3) In 4Q17 GHG raised additional funds from local commercial banks to finance ongoing capital expenditures, as well as to pay the second tranche of consideration payable for the Pharmadepot acquisition in the beginning of January 2018. The y-o-y increase in accounts payable is also attributable to the pharmacy business. Out of the GEL 92.9mln accounts payable balance, GEL 63.4mln relates to the pharmacy business. The y-o-y increase in other liabilities related to recognition of put option liability (GEL 55.0 million present value liability) to purchase the remaining 33% shares of Pharmadepot

§ During 4Q17, GHG continued to invest in the development of its healthcare facilities. Healthcare services business spent a total of GEL 17.8mln in 4Q17 and GEL 89.3mln in 2017 on capital expenditures, primarily on the extensive renovations of Deka and Tbilisi Referral (formerly Sunstone) hospitals, as well as enhancing the service mix and introducing new services to cater for previously unmet patient needs. Of this, maintenance capex was GEL 2.1mln in 4Q17 and GEL 9.6mln in 2017

§ In July 2017, healthcare service business acquired referral and community hospitals in the Khashuri and Qareli regions (together the "Hospitals"), respectively. The acquisition is in line with the healthcare services business strategy to expand its presence across the country, especially in underrepresented regions of Georgia. Following the acquisition of the Hospitals, the number of referral and community hospitals increased to 16 and 21, respectively. The Hospitals are located in the Khashuri and Kareli regions, which have a combined population of c.100,000 people, and operate with 65 and 25 beds, respectively. These acquisitions further enable GHG to direct patients to its referral hospitals, primarily in Kutaisi and Tbilisi, thus providing potential for revenue synergies. The integration of both hospitals is already completed

§ In 4Q17 GHG launched a district polyclinic in Marneuli and acquired two district polyclinics in Tbilisi, with total of c.50,000 registered patients. Polyclinics acquisitions and launches are consistent with the Group's strategy to grow its healthcare services business through rolling-out a network of polyclinics across Tbilisi and in other major cities in Georgia. As a result, GHG currently operates a total of 12 polyclinic clusters, of which, eight are located in Tbilisi and four in the regions

§ GHG's healthcare services market share based on the number of beds was 24.5% at 31 December 2017

 

 

 

 

 

17 Comparison on a normalised basis - 4Q16 and 2016 net profit was normalised and adjusted for one-off non-recurring gain/loss due to deferred tax adjustments (in the amount of GEL 5.3mln loss in 4Q16 and GEL 24.0mln gain in 2016). The full year 2016 profit is also adjusted for one-off currency translation loss in June (in the amount of GEL 2.1mln), which resulted from settlement of the US dollar denominated payable for the acquisition of GPC, GHG's pharmacy business.


SELECTED FINANCIAL INFORMATION

 

INCOME STATEMENT (QUARTERLY)

BGEO Consolidated


Banking Business


Investment Business


Eliminations

GEL thousands, unless otherwise noted

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


4Q17

4Q16

3Q17























Banking interest income 

310,589

256,106

21.3%

284,988

9.0%


312,950

258,010

21.3%

287,274

8.9%


-

-

-

-

-


(2,361)

(1,904)

(2,286)

Banking interest expense 

(127,091)

(101,054)

25.8%

(116,385)

9.2%


(129,826)

(100,399)

29.3%

(119,486)

8.7%


-

-

-

-

-


2,735

(655)

3,101

Net banking interest income 

183,498

155,052

18.3%

168,603

8.8%


183,124

157,611

16.2%

167,788

9.1%


-

-

-

-

-


374

(2,559)

815

Fee and commission income 

53,290

48,447

10.0%

48,594

9.7%


53,739

50,248

6.9%

49,155

9.3%


-

-

-

-

-


(449)

(1,801)

(561)

Fee and commission expense 

(16,807)

(13,251)

26.8%

(15,840)

6.1%


(17,001)

(13,479)

26.1%

(16,014)

6.2%


-

-

-

-

-


194

228

174

Net fee and commission income 

36,483

35,196

3.7%

32,754

11.4%


36,738

36,769

-0.1%

33,141

10.9%


-

-

-

-

-


(255)

(1,573)

(387)

Net banking foreign currency gain

28,139

34,956

-19.5%

20,436

37.7%


27,464

27,707

-0.9%

19,614

40.0%


-

-

-

-

-


675

7,249

822

Net other banking income

12,708

1,704

NMF

2,375

NMF


12,986

2,138

NMF

2,653

NMF


-

-

-

-

-


(279)

(433)

(278)

Net insurance premiums earned

13,535

11,316

19.6%

13,210

2.5%


-

-

-

-

-


13,513

11,348

19.1%

13,194

2.4%


22

(32)

16

Net insurance claims incurred

(7,207)

(5,093)

41.5%

(6,348)

13.5%


-

-

-

-

-


(7,207)

(5,093)

41.5%

(6,348)

13.5%


-

-

-

Gross insurance profit 

6,328

6,223

1.7%

6,862

-7.8%


-

-

-

-

-


6,306

6,255

0.8%

6,846

-7.9%


22

(32)

16

Real estate revenue

32,753

9,453

NMF

29,710

10.2%


-

-

-

-

-


32,982

10,034

NMF

29,967

10.1%


(229)

(581)

(257)

Cost of real estate

(27,209)

(8,474)

NMF

(25,788)

5.5%


-

-

-

-

-


(27,209)

(8,474)

NMF

(25,788)

5.5%


-

-

-

Gross real estate profit 

5,544

979

NMF

3,922

41.4%


-

-

-

-

-


5,773

1,560

NMF

4,179

38.1%


(229)

(581)

(257)

Utility revenue

33,195

31,608

5.0%

36,526

-9.1%


-

-

-

-

-


33,286

31,679

5.1%

36,615

-9.1%


(91)

(71)

(89)

Cost of utility

(10,418)

(10,008)

4.1%

(10,673)

-2.4%


-

-

-

-

-


(10,418)

(10,008)

4.1%

(10,673)

-2.4%


-

-

-

Gross utility profit

22,777

21,600

5.4%

25,853

-11.9%


-

-

-

-

-


22,868

21,671

5.5%

25,942

-11.8%


(91)

(71)

(89)

Gross other investment profit 

9,621

9,974

-3.5%

11,800

-18.5%


-

-

-

-

-


9,611

9,758

-1.5%

11,792

-18.5%


11

215

8

Revenue 

305,098

265,684

14.8%

272,605

11.9%


260,312

224,225

16.1%

223,196

16.6%


44,558

39,244

13.5%

48,759

-8.6%


228

2,215

650

Salaries and other employee benefits

(65,570)

(52,213)

25.6%

(59,051)

11.0%


(55,789)

(47,883)

16.5%

(50,638)

10.2%


(10,426)

(4,827)

116.0%

(8,997)

15.9%


645

497

584

Administrative expenses

(43,443)

(31,383)

38.4%

(33,227)

30.7%


(32,245)

(25,096)

28.5%

(23,240)

38.7%


(11,824)

(7,407)

59.6%

(10,695)

10.6%


626

1,120

708

Banking depreciation and amortisation

(10,514)

(9,639)

9.1%

(10,738)

-2.1%


(10,514)

(9,639)

9.1%

(10,738)

-2.1%


-

-

-

-

-


-

-

-

Other operating expenses 

(1,619)

(1,800)

-10.1%

(1,181)

37.1%


(1,194)

(1,222)

-2.3%

(738)

61.8%


(426)

(578)

-26.3%

(443)

-3.8%


1

-

-

Operating expenses 

(121,146)

(95,035)

27.5%

(104,197)

16.3%


(99,742)

(83,840)

19.0%

(85,354)

16.9%


(22,676)

(12,812)

77.0%

(20,135)

12.6%


1,272

1,617

1,292

Operating income before cost of credit risk / EBITDA         

183,952

170,649

7.8%

168,408

9.2%


160,570

140,385

14.4%

137,842

16.5%


21,882

26,432

-17.2%

28,624

-23.6%


1,500

3,832

1,942

Profit from associates

255

-

NMF

147

73.5%


255

-

NMF

147

73.5%


-

-

-

-

-


-

-

-

Depreciation and amortisation of investment business

(9,056)

(4,501)

101.2%

(7,275)

24.5%


-

-

-

-

-


(9,056)

(4,501)

101.2%

(7,275)

24.5%


-

-

-

Net foreign currency loss from investment business

(5,797)

(1,905)

NMF

(3,941)

47.1%


-

-

-

-

-


(5,797)

(1,905)

NMF

(3,941)

47.1%


-

-

-

Interest income from investment business 

1,691

1,830

-7.6%

959

76.3%


-

-

-

-

-


4,088

1,175

NMF

3,595

13.7%


(2,397)

655

(2,636)

Interest expense from investment business

(8,862)

(4,654)

90.4%

(6,961)

27.3%


-

-

-

-

-


(8,969)

(6,523)

37.5%

(7,049)

27.2%


107

1,869

88

Operating income before cost of credit risk 

162,183

161,419

0.5%

151,337

7.2%


160,825

140,385

14.6%

137,989

16.5%


2,148

14,678

-85.4%

13,954

-84.6%


(790)

6,356

(606)

Impairment charge on loans to customers 

(41,911)

(69,920)

-40.1%

(34,202)

22.5%


(41,911)

(69,920)

-40.1%

(34,202)

22.5%


-

-

-

-

-


-

-

-

Impairment charge on finance lease receivables

492

3,124

-84.3%

(781)

NMF


492

3,124

-84.3%

(781)

NMF


-

-

-

-

-


-

-

-

Impairment charge on other assets and provisions

(1,626)

(3,227)

-49.6%

(2,917)

-44.3%


(1,009)

(3,812)

-73.5%

(1,849)

-45.4%


(617)

585

NMF

(1,068)

-42.2%


-

-

-

Cost of credit risk 

(43,045)

(70,023)

-38.5%

(37,900)

13.6%


(42,428)

(70,608)

-39.9%

(36,832)

15.2%


(617)

585

NMF

(1,068)

-42.2%


-

-

-

Profit before non-recurring items and income tax

119,138

91,396

30.4%

113,437

5.0%


118,397

69,777

69.7%

101,157

17.0%


1,531

15,263

-90.0%

12,886

-88.1%


(790)

6,356

(606)

Net non-recurring items 

(673)

(1,324)

-49.2%

(1,441)

-53.3%


(213)

(1,055)

-79.8%

(1,376)

-84.5%


(460)

(269)

71.0%

(65)

NMF


-

-

-

Profit before income tax 

118,465

90,072

31.5%

111,996

5.8%


118,184

68,722

72.0%

99,781

18.4%


1,071

14,994

-92.9%

12,821

-91.6%


(790)

6,356

(606)

Income tax (expense) benefit

(12,716)

(871)

NMF

(10,096)

26.0%


(11,050)

2,782

NMF

(7,850)

40.8%


(1,666)

(3,653)

-54.4%

(2,246)

-25.8%


-

-

-

Profit from continuing operations

105,749

89,201

18.6%

101,900

3.8%


107,134

71,504

49.8%

91,931

16.5%


(595)

11,341

NMF

10,575

NMF


(790)

6,356

(606)

Profit from discontinued operations

13,060

(458)

NMF

10,941

19.4%


-

-

-

-

-


12,270

5,898

108.0%

10,335

18.7%


790

(6,356)

606

Profit

118,809

88,743

33.9%

112,841

5.3%


107,134

71,504

49.8%

91,931

16.5%


11,675

17,239

-32.3%

20,910

-44.2%


-

-

-























Attributable to:






















- shareholders of BGEO

113,729

87,136

30.5%

106,278

7.0%


106,687

72,060

48.1%

91,545

16.5%


7,042

15,076

-53.3%

14,733

-52.2%


-

-

-

- non-controlling interests

5,080

1,607

NMF

6,563

-22.6%


447

(556)

NMF

386

15.8%


4,633

2,163

114.2%

6,177

-25.0%


-

-

-























Profit from continuing operations attributable to:






















- shareholders of BGEO

108,042

90,166

19.8%

101,327

6.6%


106,687

72,060

48.1%

91,545

16.5%


2,145

11,750

-81.7%

10,388

-79.4%


(790)

6,356

(606)

- non-controlling interests

(2,293)

(965)

137.6%

573

NMF


447

(556)

NMF

386

15.8%


(2,740)

(409)

NMF

187

NMF


-

-

-























Profit from discontinued operations attributable to:






















- shareholders of BGEO

5,687

(3,030)

NMF

4,951

14.9%


-

-

-

-

-


4,897

3,326

47.2%

4,345

12.7%


790

(6,356)

606

- non-controlling interests

7,373

2,572

NMF

5,990

23.1%


-

-

-

-

-


7,373

2,572

NMF

5,990

23.1%


-

-

-























Earnings per share (basic)

3.05

2.29

33.2%

2.82

8.2%

















- earnings per share from continuing operations

2.90

2.37

22.4%

2.69

7.8%

















- earnings per share from discontinued operations

0.15

(0.08)

NMF

0.13

15.4%







































Earnings per share (diluted)

2.90

2.21

31.2%

2.70

7.4%

















- earnings per share from continuing operations

2.76

2.28

21.1%

2.58

7.0%

















- earnings per share from discontinued operations

0.14

(0.07)

NMF

0.12

16.7%

















 

INCOME STATEMENT

BGEO Consolidated


Banking Business


Investment Business


Eliminations

GEL thousands, unless otherwise noted

2017

2016

Change

y-o-y


2017

2016

Change

y-o-y


2017

2016

Change

y-o-y


2017

2016

Change

y-o-y

















Banking interest income 

1,131,914

926,029

22.2%


1,140,292

932,063

22.30%


-

-

-


(8,378)

(6,034)

38.8%

Banking interest expense 

(459,379)

(377,908)

21.6%


(468,192)

(378,452)

23.70%


-

-

-


8,813

544

NMF

Net banking interest income 

672,535

548,121

22.7%


672,100

553,611

21.4%


-

-

-


435

(5,490)

NMF

Fee and commission income 

190,392

169,581

12.3%


192,499

172,630

11.5%


-

-

-


(2,107)

(3,049)

-30.9%

Fee and commission expense 

(60,342)

(47,104)

28.1%


(61,025)

(47,720)

27.9%


-

-

-


683

616

10.9%

Net fee and commission income 

130,050

122,477

6.2%


131,474

124,910

5.3%


-

-

-


(1,424)

(2,433)

-41.5%

Net banking foreign currency gain

79,106

89,480

-11.6%


86,060

83,203

3.4%


-

-

-


(6,954)

6,277

NMF

Net other banking income

18,645

10,667

74.8%


19,701

12,183

61.7%


-

-

-


(1,056)

(1,516)

-30.3%

Net insurance premiums earned

52,363

42,407

23.5%


-

-

-


52,147

43,094

21.0%


216

(687)

NMF

Net insurance claims incurred

(25,098)

(17,838)

40.7%


-

-

-


(25,098)

(17,838)

40.7%


-

-

-

Gross insurance profit 

27,265

24,569

11.0%


-

-

-


27,049

25,256

7.1%


216

(687)

NMF

Real estate revenue

120,155

99,583

20.7%


-

-

-


121,132

100,164

20.9%


(977)

(581)

68.2%

Cost of real estate

(85,765)

(81,098)

5.8%


-

-

-


(85,765)

(81,098)

5.8%


-

-

-

Gross real estate profit 

34,390

18,485

86.0%


-

-

-


35,367

19,066

85.5%


(977)

(581)

68.2%

Utility revenue

127,208

56,347

125.8%


-

-

-


127,568

56,486

125.8%


(360)

(139)

159.0%

Cost of utility

(39,198)

(17,806)

120.1%


-

-

-


(39,198)

(17,806)

120.1%


-

-

-

Gross utility profit

88,010

38,541

128.4%


-

-

-


88,370

38,680

128.5%


(360)

(139)

159.0%

Gross other investment profit 

30,630

21,288

43.9%


-

-

-


30,583

21,334

43.4%


47

(46)

NMF

Revenue 

1,080,631

873,628

23.7%


909,335

773,907

17.5%


181,369

104,336

73.8%


(10,073)

(4,615)

118.3%

Salaries and other employee benefits

(230,542)

(182,853)

26.1%


(198,213)

(168,374)

17.7%


(34,548)

(16,279)

112.2%


2,219

1,800

23.3%

Administrative expenses

(136,177)

(97,029)

40.3%


(100,291)

(82,113)

22.1%


(38,350)

(17,751)

116.0%


2,464

2,835

-13.1%

Banking depreciation and amortisation

(40,974)

(37,207)

10.1%


(40,974)

(37,207)

10.1%


-

-

-


-

-

-

Other operating expenses 

(5,352)

(5,717)

-6.4%


(3,458)

(3,854)

-10.3%


(1,894)

(1,863)

1.7%


-

-

-

Operating expenses 

(413,045)

(322,806)

28.0%


(342,936)

(291,548)

17.6%


(74,792)

(35,893)

108.4%


4,683

4,635

1.0%

Operating income before cost of credit risk / EBITDA         

667,586

550,822

21.2%


566,399

482,359

17.4%


106,577

68,443

55.7%


(5,390)

20

NMF

Profit from associates

1,311

4,074

-67.8%


1,311

-

NMF


-

4,074

NMF


-

-

-

Depreciation and amortisation of investment business

(28,235)

(10,062)

NMF


-

-

-


(28,235)

(10,062)

NMF


-

-

-

Net foreign currency loss from investment business

(4,937)

(3,134)

57.5%


-

-

-


(4,937)

(3,134)

57.5%


-

-

-

Interest income from investment business 

5,415

3,745

44.6%


-

-

-


12,970

4,144

NMF


(7,555)

(399)

NMF

Interest expense from investment business

(29,660)

(11,220)

NMF


-

-

-


(30,014)

(13,410)

123.8%


354

2,190

-83.8%

Operating income before cost of credit risk 

611,480

534,225

14.5%


567,710

482,359

17.7%


56,361

50,055

12.6%


(12,591)

1,811

NMF

Impairment charge on loans to customers 

(155,210)

(158,892)

-2.3%


(155,210)

(158,892)

-2.3%


-

-

-


-

-

-

Impairment charge on finance lease receivables

(496)

(777)

-36.2%


(496)

(777)

-36.2%


-

-

-


-

-

-

Impairment charge on other assets and provisions

(15,005)

(9,087)

65.1%


(11,590)

(8,083)

43.4%


(3,415)

(1,004)

NMF


-

-

-

Cost of credit risk 

(170,711)

(168,756)

1.2%


(167,296)

(167,752)

-0.3%


(3,415)

(1,004)

NMF


-

-

-

Profit before non-recurring items and income tax

440,769

365,469

20.6%


400,414

314,607

27.3%


52,946

49,051

7.9%


(12,591)

1,811

NMF

Net non-recurring items 

(4,923)

(12,682)

-61.2%


(4,300)

(45,355)

-90.5%


(623)

32,673

NMF


-

-

-

Profit before income tax 

435,846

352,787

23.5%


396,114

269,252

47.1%


52,323

81,724

-36.0%


(12,591)

1,811

NMF

Income tax (expense) benefit

(32,340)

17,500

NMF


(26,592)

26,444

NMF


(5,748)

(8,944)

-35.7%


-

-

-

Profit from continuing operations

403,506

370,287

9.0%


369,522

295,696

25.0%


46,575

72,780

-36.0%


(12,591)

1,811

NMF

Profit from discontinued operations

59,943

58,289

2.8%


-

-

-


47,352

60,100

-21.2%


12,591

(1,811)

NMF

Profit

463,449

428,576

8.1%


369,522

295,696

25.0%


93,927

132,880

-29.3%


-

-

-

















Attributable to:
















- shareholders of BGEO

437,615

398,538

9.8%


367,832

293,173

25.5%


69,783

105,365

-33.8%


-

-

-

- non-controlling interests

25,834

30,038

-14.0%


1,690

2,523

-33.0%


24,144

27,515

-12.3%


-

-

-

















Profit from continuing operations attributable to:
















- shareholders of BGEO

405,626

367,625

10.3%


367,832

293,173

25.5%


50,385

72,641

-30.6%


(12,591)

1,811

NMF

- non-controlling interests

(2,120)

2,662

NMF


1,690

2,523

-33.0%


(3,810)

139

NMF


-

-

-

















Profit from discontinued operations attributable to:
















- shareholders of BGEO

31,989

30,913

3.5%


-

-

-


19,398

32,724

-40.7%


12,591

(1,811)

NMF

- non-controlling interests

27,954

27,376

2.1%


-

-

-


27,954

27,376

2.1%


-

-

-

















Earnings per share (basic)

11.61

10.41

11.5%













- earnings per share from continuing operations

10.76

9.61

12.0%













- earnings per share from discontinued operations

0.85

0.80

6.2%





























Earnings per share (diluted)

11.07

10.09

9.7%













- earnings per share from continuing operations

10.26

9.31

10.2%













- earnings per share from discontinued operations

0.81

0.78

3.8%













 

BALANCE SHEET

BGEO Consolidated


Banking Business


Investment Business


Eliminations

GEL thousands, unless otherwise noted

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q


Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q


Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q


Dec-17

Dec-16

Sep-17























Cash and cash equivalents

1,582,435

1,573,610

0.6%

1,721,811

-8.1%


1,516,401

1,480,783

2.4%

1,648,098

-8.0%


374,301

401,969

-6.9%

345,137

8.4%


(308,267)

(309,142)

(271,424)

Amounts due from credit institutions

1,225,947

1,054,983

16.2%

985,120

24.4%


1,216,349

940,485

29.3%

950,775

27.9%


38,141

178,425

-78.6%

60,565

-37.0%


(28,543)

(63,927)

(26,220)

Investment securities

1,564,869

1,286,003

21.7%

1,421,401

10.1%


1,613,759

1,283,903

25.7%

1,469,274

9.8%


33,059

3,672

NMF

33,914

-2.5%


(81,949)

(1,572)

(81,787)

Loans to customers and finance lease receivables

7,690,450

6,648,482

15.7%

6,917,211

11.2%


7,741,420

6,681,672

15.9%

6,951,493

11.4%


-

-

-

-

-


(50,970)

(33,190)

(34,282)

Accounts receivable and other loans

38,944

128,506

-69.7%

177,658

-78.1%


3,572

55,377

-93.5%

7,681

-53.5%


35,446

125,962

-71.9%

174,493

-79.7%


(74)

(52,833)

(4,516)

Insurance premiums receivable

30,573

46,423

-34.1%

53,998

-43.4%


-

-

-

-

-


30,854

48,390

-36.2%

54,326

-43.2%


(281)

(1,967)

(328)

Prepayments

149,558

76,277

96.1%

164,911

-9.3%


61,501

18,716

NMF

54,808

12.2%


88,057

58,161

51.4%

110,135

-20.0%


-

(600)

(32)

Inventories

100,194

188,344

-46.8%

230,661

-56.6%


20,086

8,809

128.0%

20,893

-3.9%


80,108

179,535

-55.4%

209,768

-61.8%


-

-

-

Investment property

353,565

288,227

22.7%

319,059

10.8%


202,533

152,597

32.7%

175,071

15.7%


155,367

135,630

14.6%

148,323

4.7%


(4,335)

-

(4,335)

Property and equipment

988,436

1,288,594

-23.3%

1,501,735

-34.2%


322,925

296,791

8.8%

309,769

4.2%


661,176

991,803

-33.3%

1,187,631

-44.3%


4,335

-

4,335

Goodwill

55,276

106,986

-48.3%

159,570

-65.4%


33,351

33,453

-0.3%

33,351

0.0%


21,925

73,533

-70.2%

126,219

-82.6%


-

-

-

Intangible assets

60,980

58,907

3.5%

79,573

-23.4%


55,525

39,941

39.0%

53,939

2.9%


5,455

18,966

-71.2%

25,634

-78.7%


-

-

-

Income tax assets

2,293

24,043

-90.5%

6,826

-66.4%


919

19,325

-95.2%

1,582

-41.9%


1,374

4,718

-70.9%

5,244

-73.8%


-

-

-

Other assets

188,732

184,791

2.1%

188,239

0.3%


119,337

111,506

7.0%

102,984

15.9%


73,468

86,305

-14.9%

92,038

-20.2%


(4,073)

(13,020)

(6,783)

Assets of disposal group held for sale

1,136,417

-

NMF

-

NMF


-

-

-

-

-


1,165,182

-

NMF

-

NMF


(28,765)

-

-

Total assets

15,168,669

12,954,176

17.1%

13,927,773

8.9%


12,907,678

11,123,358

16.0%

11,779,718

9.6%


2,763,913

2,307,069

19.8%

2,573,427

7.4%


(502,922)

(476,251)

(425,372)

Client deposits and notes

6,712,482

5,382,698

24.7%

6,252,228

7.4%


7,078,058

5,755,767

23.0%

6,549,904

8.1%


-

-

-

-

-


(365,576)

(373,069)

(297,676)

Amounts due to credit institutions

3,155,839

3,470,091

-9.1%

2,774,525

13.7%


2,778,338

3,067,651

-9.4%

2,350,438

18.2%


377,501

435,630

-13.3%

459,158

-17.8%


-

(33,190)

(35,071)

Debt securities issued

1,709,152

1,255,643

36.1%

1,691,260

1.1%


1,386,412

858,036

61.6%

1,298,641

6.8%


357,442

404,450

-11.6%

479,142

-25.4%


(34,702)

(6,843)

(86,523)

Accruals and deferred income

132,669

130,319

1.8%

160,530

-17.4%


42,207

21,778

93.8%

31,332

34.7%


90,462

161,893

-44.1%

132,783

-31.9%


-

(53,352)

(3,585)

Insurance contracts liabilities

46,402

67,871

-31.6%

77,695

-40.3%


-

-

-

-

-


46,402

67,871

-31.6%

77,695

-40.3%


-

-

-

Income tax liabilities

20,959

27,718

-24.4%

16,166

29.6%


20,100

22,528

-10.8%

14,697

36.8%


859

5,190

-83.4%

1,469

-41.5%


-

-

-

Other liabilities

142,133

231,623

-38.6%

326,686

-56.5%


49,861

45,096

10.6%

47,660

4.6%


92,553

196,324

-52.9%

281,543

-67.1%


(281)

(9,797)

(2,517)

Liabilities of disposal group held for sale

516,663

-

NMF

-

NMF


-

-

-

-

-


619,026

-

NMF

-

NMF


(102,363)

-

-

Total liabilities

12,436,299

10,565,963

17.7%

11,299,090

10.1%


11,354,976

9,770,856

16.2%

10,292,672

10.3%


1,584,245

1,271,358

24.6%

1,431,790

10.6%


(502,922)

(476,251)

(425,372)

Share capital

1,151

1,154

-0.3%

1,151

0.0%


1,151

1,154

-0.3%

1,151

0.0%


-

-

-

-

-


-

-

-

Additional paid-in capital

106,086

183,872

-42.3%

138,144

-23.2%


-

45,072

NMF

-

-


106,086

138,800

-23.6%

138,144

-23.2%


-

-

-

Treasury shares

(66)

(54)

22.2%

(54)

22.2%


(66)

(54)

22.2%

(54)

22.2%


-

-

-

-

-


-

-

-

Other reserves

122,082

74,399

64.1%

124,092

-1.6%


(74,046)

(57,485)

28.8%

(49,407)

49.9%


196,128

131,884

48.7%

173,499

13.0%


-

-

-

Retained earnings

2,180,415

1,872,496

16.4%

2,065,239

5.6%


1,618,775

1,344,144

20.4%

1,528,751

5.9%


561,640

528,352

6.3%

536,488

4.7%


-

-

-

Reserves  of disposal group held for sale 

10,934

-

NMF

-

NMF


-

-

-

-

-


10,934

-

NMF

-

NMF


-

-

-

Total equity attributable to shareholders of the Group

2,420,602

2,131,867

13.5%

2,328,572

4.0%


1,545,814

1,332,831

16.0%

1,480,441

4.4%


874,788

799,036

9.5%

848,131

3.1%


-

-

-

Non-controlling interests

311,768

256,346

21.6%

300,111

3.9%


6,888

19,671

-65.0%

6,605

4.3%


304,880

236,675

28.8%

293,506

3.9%


-

-

-

Total equity

2,732,370

2,388,213

14.4%

2,628,683

3.9%


1,552,702

1,352,502

14.8%

1,487,046

4.4%


1,179,668

1,035,711

13.9%

1,141,637

3.3%


-

-

-

Total liabilities and equity

15,168,669

12,954,176

17.1%

13,927,773

8.9%


12,907,678

11,123,358

16.0%

11,779,718

9.6%


2,763,913

2,307,069

19.8%

2,573,427

7.4%


(502,922)

(476,251)

(425,372)

Book value per share

65.22

56.61

15.2%

62.06

5.1%

















 

 

 

 

 

 


 

BELARUSKY NARODNY BANK (BNB)

 

INCOME STATEMENT, HIGHLIGHTS

 

4Q17

4Q16

Change

y-o-y

3Q17

Change

q-o-q


2017

2016

Change

y-o-y

GEL thousands, unless otherwise stated




















 Net banking interest income 

6,021

8,043

-25.1%

6,729

-10.5%


29,397

30,773

-4.5%

 Net fee and commission income 

2,421

1,993

21.5%

2,287

5.9%


9,336

7,462

25.1%

 Net banking foreign currency gain

3,457

2,696

28.2%

2,780

24.4%


10,852

8,452

28.4%

 Net other banking income

1,295

(1,064)

NMF

212

NMF


1,773

(738)

NMF

 Revenue 

13,194

11,668

13.1%

12,008

9.9%


51,358

45,949

11.8%

 Operating expenses 

(8,185)

(6,483)

26.3%

(7,845)

4.3%


(29,664)

(20,905)

41.9%

 Operating income before cost of credit risk

5,009

5,185

-3.4%

4,163

20.3%


21,694

25,044

-13.4%

 Cost of credit risk 

(518)

(9,163)

-94.3%

299

NMF


(9,093)

(15,797)

-42.4%

 Net non-recurring items 

(4)

(1,402)

-99.7%

-

NMF


(60)

(1,418)

-95.8%

 Profit before income tax 

4,487

(5,380)

NMF

4,462

0.6%


12,541

7,829

60.2%

 Income tax (expense)/benefit

(876)

1,289

NMF

(728)

20.3%


(2,256)

(5,141)

-56.1%

 Profit

3,611

(4,091)

NMF

3,734

-3.3%


10,285

2,688

NMF

 

 

BALANCE SHEET, HIGHLIGHTS

Dec-17

Dec-16

Change

y-o-y

Sep-17

Change

q-o-q

GEL thousands, unless otherwise stated












Cash and cash equivalents

104,309

70,211

48.6%

105,475

-1.1%

Amounts due from credit institutions

10,499

3,560

NMF

10,146

3.5%

Investment securities

73,415

84,725

-13.3%

120,521

-39.1%

Loans to customers and finance lease receivables

399,516

362,100

10.3%

380,326

5.0%

Other assets

37,096

24,131

53.7%

28,468

30.3%

Total assets

624,835

544,727

14.7%

644,936

-3.1%

Client deposits and notes

310,050

233,501

32.8%

316,413

-2.0%

Amounts due to credit institutions

202,492

212,495

-4.7%

221,712

-8.7%

Debt securities issued

28,512

24,126

18.2%

29,685

-4.0%

Other liabilities

4,261

5,134

-17.0%

4,828

-11.7%

Total liabilities

545,315

475,256

14.7%

572,638

-4.8%

Total equity attributable to shareholders of the Group

79,520

55,736

42.7%

72,298

10.0%

Non-controlling interests

-

13,735

NMF

-

-

Total equity

79,520

69,471

14.5%

72,298

10.0%

Total liabilities and equity

624,835

544,727

14.7%

644,936

-3.1%

 

 


 

BANKING BUSINESS KEY RATIOS

4Q17

4Q16

3Q17


Dec-17

Dec-16

Profitability







ROAA, Annualised

3.4%

2.8%

3.2%


3.2%

3.1%

ROAE, Annualised

27.8%

20.0%

25.1%


25.2%

22.2%

RB ROAE

36.6%

36.5%

34.1%


31.6%

31.2%

CIB ROAE

18.1%

6.2%

13.3%


17.6%

14.7%

Net Interest Margin, Annualised

7.3%

7.6%

7.3%


7.3%

7.4%

RB NIM

8.4%

9.3%

8.5%


8.5%

9.2%

CIB NIM

3.5%

3.6%

3.5%


3.4%

3.6%

Loan Yield, Annualised

14.3%

14.4%

14.3%


14.2%

14.2%

RB Loan Yield

15.9%

16.4%

16.3%


16.1%

16.8%

CIB Loan Yield

11.2%

11.1%

10.6%


10.7%

10.4%

Liquid Assets Yield, Annualised

3.4%

3.3%

3.5%


3.4%

3.2%

Cost of Funds, Annualised

4.8%

4.6%

4.8%


4.7%

4.7%

Cost of Client Deposits and Notes, Annualised

3.5%

3.6%

3.5%


3.5%

3.8%

RB Cost of Client Deposits and Notes

2.8%

3.1%

2.9%


2.9%

3.3%

CIB Cost of Client Deposits and Notes

4.0%

3.6%

3.9%


4.0%

3.9%

Cost of Amounts Due to Credit Institutions, Annualised

6.5%

6.4%

6.5%


6.4%

6.2%

Cost of Debt Securities Issued

7.8%

6.1%

7.9%


7.4%

6.8%

Operating Leverage, Y-O-Y

-2.9%

-7.3%

-2.6%


-0.1%

-6.4%

Operating Leverage, Q-O-Q

-0.2%

0.0%

-0.4%


0.0%

0.0%

Efficiency







Cost / Income

38.3%

37.4%

38.2%


37.7%

37.7%

RB Cost / Income

38.7%

38.8%

37.8%


38.3%

40.0%

CIB Cost / Income

31.0%

28.7%

34.5%


32.0%

29.5%

Liquidity







NBG Liquidity Ratio

34.4%

37.7%

44.4%


34.4%

37.7%

Liquid Assets To Total Liabilities

38.3%

37.9%

39.5%


38.3%

37.9%

Net Loans To Client Deposits and Notes

109.4%

116.1%

106.1%


109.4%

116.1%

Net Loans To Client Deposits and Notes + DFIs

92.4%

94.9%

90.0%


92.4%

94.9%

Leverage (Times)

7.3

7.2

6.9


7.3

7.2

Asset Quality:







NPLs (in GEL)

301,268

294,787

297,134


301,268

294,787

NPLs To Gross Loans To Clients

3.8%

4.2%

4.1%


3.8%

4.2%

NPL Coverage Ratio

92.7%

86.7%

93.6%


92.7%

86.7%

NPL Coverage Ratio, Adjusted for discounted value of collateral

130.6%

132.1%

132.8%


130.6%

132.1%

Cost of Risk, Annualised

2.1%

4.2%

2.0%


2.2%

2.7%

RB Cost of Risk

1.8%

2.0%

2.0%


2.5%

2.3%

CIB Cost of Risk

3.2%

6.6%

2.3%


1.5%

3.1%

Capital Adequacy:







NBG (Basel II) Tier I Capital Adequacy Ratio

10.3%

9.1%

11.1%


10.3%

9.1%

NBG (Basel II) Total Capital Adequacy Ratio

14.8%

14.4%

16.2%


14.8%

14.4%

NBG (Basel III) Tier I Capital Adequacy Ratio

12.4%

n/a

n/a


12.4%

n/a

NBG (Basel III) Total Capital Adequacy Ratio

17.9%

n/a

n/a


17.9%

n/a

Selected Operating Data:







Total Assets Per FTE, BOG Standalone

1,832

1,730

1,732


1,832

1,730

Number Of Active Branches, Of Which:

286

278

283


286

278

 - Express Branches (including Metro)

156

128

153


156

128

 - Bank of Georgia Branches

118

139

119


118

139

 - Solo Lounges

12

11

11


12

11

Number Of ATMs

850

801

829


850

801

Number Of Cards Outstanding, Of Which:

2,227,000

2,056,258

2,176,761


2,227,000

2,056,258

 - Debit cards

1,553,427

1,255,637

1,431,859


1,553,427

1,255,637

 - Credit cards

673,573

800,621

744,902


673,573

800,621

Number Of POS Terminals

13,216

10,357

11,997


13,216

10,357

 

FX Rates:







GEL/US$ exchange rate (period-end)

2.5922

2.6468

2.4767




GEL/GBP exchange rate (period-end)

3.5005

3.2579

3.3158




 


Dec-17

Dec-16

Sep-17

Full Time Employees, Group, Of Which:

25,795

22,080

25,425

Total Banking Business Companies, of which:

7,045

6,431

6,801

 - Full Time Employees, BOG Standalone

5,501

5,016

5,293

 - Full Time Employees, BNB

702

611

679

 - Full Time Employees, BB other

842

804

829

Total Investment Business Companies, of which:

18,750

15,649

18,624

 - Full Time Employees, Georgia Healthcare Group

15,070

12,720

15,075

 - Full Time Employees, Aldagi

328

289

319

 - Full Time Employees, GGU

2,631

2,379

2,501

 - Full Time Employees, m2

156

80

115

 - Full Time Employees, IB Other

565

181

614

 

 

Shares Outstanding

Dec-17

Dec-16

Sep-17

Ordinary Shares Outstanding

37,116,399

37,657,229

37,520,410

Treasury Shares Outstanding

2,268,313

1,843,091

1,864,302

Total Shares Outstanding

39,384,712

39,500,320

39,384,712

 

 

 

 



 

Annex:

In this announcement the Management uses various alternative performance measures ("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. We believe 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. 

 

Glossary

 

1.     Return on average total assets (ROAA) equals Banking Business Profit for the period divided by monthly average total assets for the same period;

2.     Return on average total equity (ROAE) equals Banking Business Profit for the period attributable to shareholders of BGEO divided by monthly average equity attributable to shareholders of BGEO for the same period;

3.     Net Interest Margin (NIM) equals Net Banking Interest Income of the period divided by monthly Average Interest Earning Assets Excluding Cash for the same period; Interest Earning Assets Excluding Cash comprise: Amounts Due From Credit Institutions, Investment Securities (but excluding corporate shares) and net Loans To Customers And Finance Lease Receivables;

4.     Loan Yield equals Banking Interest Income From Loans To Customers And Finance Lease Receivables divided by monthly Average Gross Loans To Customers And Finance Lease Receivables;

5.     Cost of Funds equals banking interest expense of the period divided by monthly average interest bearing liabilities; interest bearing liabilities include: amounts due to credit institutions, client deposits and notes, and debt securities issued;

6.     Operating Leverage equals percentage change in revenue less percentage change in operating expenses;

7.     Cost / Income Ratio equals operating expenses divided by revenue;

8.     NBG Liquidity Ratio equals daily average liquid assets (as defined by NBG) during the month divided by daily average liabilities (as defined by NBG) during the month;

9.     Liquid assets include: cash and cash equivalents, amounts due from credit institutions and investment securities;

10.   Liquidity Coverage Ratio equals high quality liquid assets (as defined by NBG) divided by net cash outflow over the next 30 days (as defined by NBG)

11.   Leverage (Times) equals total liabilities divided by total equity;

12.   NPL Coverage Ratio equals allowance for impairment of loans and finance lease receivables divided by NPLs;

13.   NPL Coverage Ratio adjusted for discounted value of collateral equals allowance for impairment of loans and finance lease receivables divided by NPLs (discounted value of collateral is added back to allowance for impairment)

14.   Cost of Risk equals impairment charge for loans to customers and finance lease receivables for the period divided by monthly average gross loans to customers and finance lease receivables over the same period;

15.   NBG (Basel II) Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;

16.   NBG (Basel II) Total Capital Adequacy ratio equals total capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

17.   NBG (Basel III) Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;

18.   NBG (Basel III) Total Capital Adequacy ratio equals total capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

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

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

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

22.   NMF - Not meaningful

 

BGEO Group PLC 4Q17 and FY17 Results Conference Call Details

 

BGEO Group PLC ("BGEO" or the "Group") will publish its financial results for the 4th quarter 2017 and the full year 2017 at 07:00 London time on Friday, 16 February 2018. The results announcement will be available on the Group's website at www.bgeo.com. An investor/analyst conference call, organised by BGEO, will be held on, 16 February 2018, at 13:00 UK / 14:00 CET / 08:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.

 

Dial-in numbers:

Pass code for replays/Conference ID: 8755969

International Dial-in: +44 (0) 2071 928000

UK: 08445718892

US: 16315107495

Austria: 019286559

Belgium: 024009874

Czech Republic: 228881424

Denmark: 32728042

Finland: 0942450806

France: 0176700794

Germany: 06924437351

Hungary: 0614088064

Ireland: 014319615

Italy: 0687502026

Luxembourg: 27860515

Netherlands: 0207143545

Norway: 23960264

Spain: 914146280

Sweden: 0850692180

Switzerland: 0315800059

30-Day replay:

Pass code for replays / Conference ID: 8755969

International Dial in: +44 (0)1452550000

UK National Dial In: 08717000145

UK Local Dial In: 08443386600

USA Free Call Dial In: 1 (866) 247-4222

 

 

 

 

FORWARD LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although BGEO Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; corporate loan portfolio exposure risk; regional tensions; regulatory risk; cyber security, information systems and financial crime risk; investment business strategy risk; and other key factors that we have indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports, including the 'Principal Risks and Uncertainties' included in BGEO Group PLC's Annual Report and Accounts 2016 and in its Half Year 2017 Results announcement. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in BGEO Group PLC or any other entity, including any future entity such as Georgia Capital PLC or Bank of Georgia Group PLC, and must not be relied upon in any way in connection with any investment decision. BGEO Group PLC undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

 

 

 

COMPANY INFORMATION

 

BGEO Group PLC

 

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.BGEO.com

Registered under number 7811410 in England and Wales

Incorporation date: 14 October 2011

 

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "BGEO.LN"

 

Contact Information

BGEO Group PLC Investor Relations

Telephone: +44(0)2031784052; +995322444190

E-mail: ir@BGEO.com

 

Auditors

Ernst & Young LLP

25 Churchill Place

Canary Wharf

London E14 5EY

United Kingdom

 

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS13 8AE

United Kingdom

 

Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare, giving you convenient access to information on your shareholdings. 

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

Investor Centre Shareholder Helpline - +44 (0)370 873 5866

 

Share price information

BGEO shareholders can access both the latest and historical prices via our website, www.BGEO.com


This information is provided by RNS
The company news service from the London Stock Exchange
 
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