Half-year Report

RNS Number : 1100J

Georgia Capital PLC

15 August 2019

 

 

Georgia Capital PLC

Half-year 2019 results

Name of authorised official of issuer responsible for making notification:

Nino Rekhviashvili, Head of Investor Relations and Funding

www.georgiacapital.ge

For an user-friendly copy of this announcement, please click on the link below to open a PDF version:

http://www.rns-pdf.londonstockexchange.com/rns/1100J_1-2019-8-14.pdf

About Georgia Capital PLC

Georgia Capital PLC ("Georgia Capital" or "the Group" - LSE: CGEO LN) is a platform for buying, building and developing businesses in Georgia. The Group's primary business is to develop or buy businesses, help them institutionalize their management and grow them into mature businesses that can further develop largely on their own, either with continued oversight or independently. The Group's focus is typically on smaller or early stage businesses in sectors capable of rapid development and consolidation, but we also consider more developed sectors, where a strong market position can be achieved through an acquisition or larger greenfield project. Once we have successfully developed a business, we actively manage our portfolio to determine each company's optimal owner. Georgia Capital will normally seek to monetise its investment either through initial public offering, trade sale, fund structure or promoting interest over a 5-10 year period from initial investment. 

Georgia Capital currently has six private company holdings: (i) a water utility business (GGU), (ii) a renewable energy business (GGU); (iii) a housing development business (m²) (iv) a hospitality and commercial real estate business (m²); (v) a property and casualty insurance business (Aldagi) and (vi) a beverages business (Georgia Beverages). We also have two public company holdings (London Stock Exchange premium-listed Georgian companies): (i) Georgia Healthcare Group PLC ("GHG"), (57% equity stake), a UK incorporated holding company of the largest healthcare services provider in Georgia, which is also the largest pharmaceuticals retailer and wholesaler in the country; and (ii) Bank of Georgia Group PLC ("BoG"), (19.9% equity stake), a leading universal bank in Georgia. Additionally, Georgia Capital has three businesses in the pipeline: Education, Auto Service and Digital Services.

Georgia Capital aspires to deliver total shareholder returns of 10-times over 10-years[1]

10x = 10y

Content

4	1H19 results conference call details
5	Financial highlights
6	Chairman and CEO statement
8	Discussion of results
8	Net Asset Value statement (management accounts)
12	Income statement (management accounts)
13	Consolidated statement of cash flows (IFRS)
14	Discussion of portfolio company results
14	Water utility business
15	Housing development business
16	Property & casualty insurance business
17	Renewable energy business
18	Hospitality & commercial real estate business
19	Beverages business
20	Pipeline businesses
21	Reconciliation of adjusted IFRS measures to IFRS figures
22	Detailed financial information
33	Appendices
35	Principal risks and uncertainties
40	Statement of Directors' responsibilities
41	Interim condensed IFRS consolidated financial statements
42	Independent review report
43	Interim condensed IFRS consolidated financial statements
50	Selected explanatory notes to IFRS consolidated financial statements
81	Company information

Georgia Capital PLC announces the Group's first half 2019 financial results. Throughout this document, "Georgia Capital" and the "Group" refer to Georgia Capital PLC and its portfolio companies as a whole, while "GCAP" refers to the aggregation of stand-alone Georgia Capital PLC and stand-alone JSC Georgia Capital accounts[2]. This announcement contains financial results presented on two different bases: under International Financial Reporting Standards ("IFRS") as adopted by the European Union and under an adjusted IFRS methodology[3]. The financial results are unaudited and derived from management accounts.

An investor/analyst conference call, organised by the Group, will be held on 15 August 2019, at 15:00 UK / 16:00 CET / 10:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 20-minute update and a 40-minute Q&A session.

Dial-in numbers:	30-Day replay:
Pass code for replays/Conference ID: 8084145	Pass code for replays / Conference ID: 8084145
International Dial In: [phone]	UK Freephone Dial In: 08082380667
UK Freephone Dial In: 08003767922	UK Local Dial In: 08445718951
UK Local Dial In: 08445718892	International Dial In: [phone]
US: 18669661396	US: 1 [phone]

FORWARD LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Georgia Capital PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; regional instability; regulatory risk across a wide range of industries; portfolio company strategic and execution risks; investment risk and liquidity risk and other key factors that could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports and also the 'Principal Risks and Uncertainties' included in this document and in Georgia Capital PLC's Annual Report and Accounts 2018. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Georgia Capital PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. Georgia Capital PLC and other entities undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

 GEORGIA CAPITAL HIGHLIGHTS - MANAGEMENT ACCOUNTS[4] (GEL'000) (except per share information)

Georgia Capital NAV overview	Jun-19	Dec-18	Change
NAV per share, GEL[5]	53.90	44.32	21.6%
NAV per share, GBP5	14.81	13.05	13.5%
Net Asset Value (NAV)	1,938,365	1,688,221	14.8%
Total portfolio value	2,237,523	1,883,374	18.8%
Liquid assets & loans issued	556,248	605,130	-8.1%
Net debt	(304,519)	(196,915)	54.6%
Georgia Capital performance 1H19[6] Total portfolio value creation 346,585    of which, listed businesses 245,817    of which, private businesses 100,768 Gross capital allocations 44,496 Share buybacks 59,935 Cash flow generation at GCAP level 52,063 Expense ratio[7] 2.0% Net income 305,627

KEY POINTS 

Ø NAV per share up 21.6% to GEL 53.9 on the back of GEL 347 million value creation and decrease in number of shares outstanding by 2.1 million shares

o Listed assets contributed GEL 246 million to value creation, while private assets contributed GEL 101 million

o GEL 60 million share buybacks, while 2 million were cancelled and 0.7 million transferred to management trust in 1H19

Ø GEL 44 million capital allocated across early stage and pipeline portfolio businesses in 1H19

o Acquired an 80% stake in the second largest auto service industry player, Amboli

o Entered the high growth digital services industry by acquiring a 60% stake in the leading digital marketing agency, Redberry

o The beer business acquired the fifth largest Georgian beverages brand, Kazbegi, with 5% market share

Ø Since 30 June 2019, invested GEL 41 million to secure high quality partnerships with three top schools across premium, mid-level and affordable private education segments with an aim to grow the existing capacity from 2,530 to 11,750 learners by 2024

Ø GEL 556 million firepower available for deployment at 30 June 2019 subject to rigorous 360-degree analysis

PERFORMANCE HIGHLIGHTS - IFRS (GEL'000)

Group consolidated	1H19	1H18	Change
Revenue[8]	672,372	616,395	9.1%
Gross profit8	257,085	229,719	11.9%
Cash flow from operating activities8	109,422	71,587	52.9%
Private, late stage
Revenue, Water Utility	74,541	69,833	6.7%
EBITDA[9], Water Utility	40,366	37,231	8.4%
Gross real estate profit, Housing Development	4,746	11,183	-57.6%
EBITDA, Housing Development	(2,101)	8,752	NMF
Earned premiums, net, P&C Insurance	36,288	31,449	15.4%
Adjusted net income, P&C Insurance	8,308	8,304	-
Private, early stage
Revenue, Renewable Energy	2,395	-	NMF
Revenue, Hospitality & Commercial Real Estate	15,060	3,842	NMF
Revenue, Beverages	46,226	30,466	51.7%
Of which, wine	17,254	9,857	75.0%
Of which, beer	18,241	13,251	37.7%
Private, pipeline
Revenue, Periodic Technical Inspection (PTI)[10]	5,304	-	NMF

 

KEY POINTS 

Ø Consolidated cash flow from operating activities up 52.9% y-o-y in 1H19 due to strong performance across all businesses

Ø The beer business reached a significant milestone and successfully launched five new brands, including Amstel and Heineken. As a result, EBITDA was at break-even level in June 2019, while EBITDA was positive at GEL 0.6 million in July 2019

Ø 50MW Mestiachala hydro power plant, launched towards the end of 1H19, generated GEL 2 million EBITDA in 1H19

Ø Construction permit obtained and works commenced on the largest ever affordable housing project, Digomi, in July 2019

Ø GEL 8 million revaluation gain was recorded in the hospitality business on Kempinski hotel

Ø Fulfilled all privatisation conditions and subsequently obtained clean title over Water Utility shares

Ø Periodic technical inspection business, fully launched in March 2019, serviced 140,338 cars in 1H19

o PTI generated GEL 0.5 million and GEL 0.6 million monthly EBITDA in June and July 2019, respectively

CHAIRMAN AND CEO'S STATEMENT

Georgia Capital has delivered an excellent performance in the first half of 2019, as our NAV per share increased by 21.6% to GEL 54 at 30 June 2019. This strong growth was a result of a 14.8% increase in NAV to GEL 1.9 billion and a 5.6% reduction in outstanding shares during 1H19. The NAV growth reflects GEL 347 million value creation across the portfolio businesses, where GEL 246 million value was generated by the listed portfolio businesses and GEL 101 million value was provided by our private portfolio businesses. The decrease in share count was driven by our share buyback programme and the subsequent cancellation of 2 million Georgia Capital shares and transfer of 0.7 million shares to the management trust. At 30 June 2019, our firepower available for deployment remained high at GEL 556 million.

During 1H19, we recorded GEL 37 million dividend inflows from our portfolio businesses, while interest income and gains on liquid funds exceeded interest expense for the first time at the GCAP level. Operating expenses were contained at our targeted 2% level of market capitalisation at 30 June 2019, while the 7.2% devaluation in the Georgian Lari during the half was the driver of the GEL 26 million foreign currency loss. As a result, our net income was GEL 306 million during the first six months of 2019.

Listed businesses

Our listed businesses performed well in 1H19 and generated GEL 246 million value. GHG led the value creation with GEL 145 million contribution on the back of its share price recovery, driven by a strong operating performance and declaration of first-time ever dividends. At the same time, we recorded GEL 101 million value creation from our 19.9% investment in Bank of Georgia, where GEL 76 million came from share price appreciation and GEL 25 million from dividend inflows. Bank of Georgia strengthened its executive management team during 1H19 and improved its already strong capital position with the issuance of the first-ever US$100 million Additional Tier 1 capital bonds from Georgia.

Private businesses

Our private businesses delivered a strong GEL 101 million value creation in 1H19 driven by continued growth in operating performance, enhancement of multiples and the first-time valuation of greenfield projects.

Across our late stage portfolio, Water Utility and P&C Insurance were major drivers of value creation. Together they generated GEL 68 million value in 1H19, as Water Utility benefited from a remarkable 75% y-o-y increase in electricity sales revenues during the first six months, while a significant multiple enhancement across P&C Insurance peers resulted in GEL 31 million valuation uplift for our P&C insurance business.

The past six months have been busy within our early stage portfolio, with the businesses progressing well towards their established goals. Renewable Energy commissioned its first 50MW hydro power plant, although we are sad to report that the plant was damaged during flooding in July, which will take us some time to repair (we expect insurance recoveries to substantially compensate our loss). The hospitality business partnered with Kempinski to manage the only luxury hotel in its portfolio following the buyout of a minority shareholder. As a result, the hotel was revalued, creating GEL 5 million value for the Group. The beer business launched four new brands in 1H19 while integrating the production and sales of the prominent beverages brand, Kazbegi, following its acquisition in March. This has been followed by the launch of Heineken in July 2019. Due to the launch of new products and strong sales, the brewery has been operating at full capacity in the months of June and July. It was pleasing to see all early stage portfolio businesses demonstrating high double-digit revenue growth in 1H19, led by the wine business with outstanding 75% topline growth.

Within the pipeline portfolio, we launched the periodic vehicle inspection (PTI) business in March 2019. PTI demonstrated outstanding performance in line with the budget, which led to GEL 15 million value creation at 30 June 2019. In June the PTI business reached 35% market share and generated monthly EBITDA of GEL 0.5 million with a 36% EBITDA margin.  

Capital allocations

We allocated GEL 44 million capital to existing and new portfolio businesses in 1H19, of which GEL 20 million was used for bolt-on acquisitions, GEL 23 million was invested in pipeline businesses across Education, Auto Service and Digital Services and GEL 1 million was allocated to the evaluation of new investment opportunities. Since 30 June 2019 we have earmarked a further GEL 41 million capital to the education business. In line with our 360-degree analysis, we took advantage of Georgia Capital's attractive share price and spent GEL 60 million on buybacks in 1H19. Following the completion of the US$ 45 million share buyback programme, where we have already spent US$ 43.8 million, we will be cancelling all remaining shares in treasury (currently 553,375 shares). In addition, we have announced a US$ 20 million share purchase programme for the management trust.

We allocated GEL 10 million to the auto service business in 1H19, where we acquired an 80% equity stake in the second largest auto service industry player, Amboli, for GEL 3.4 million. Auto services represents an attractive GEL 1.8 billion market dominated by one large player, where we target to be present throughout the full ecosystem: auto service & parts, PTI, auto trading and auto insurance.

We expanded into the high growth digital services business in 1H19 by allocating GEL 9 million capital to acquire a 60% equity stake in Redberry. Redberry works with Georgian corporates to help them build digital sales platforms and also plans to make small bets to launch its own digital businesses.

We have been very active in the high-margin, large and growing, but fragmented private education market, where we have acquired majority equity stakes at three leading schools in the country across the premium, mid-level and affordable education segments for GEL 41 million. We will be providing equity capital totaling GEL 73 million spread over these three segments to support their expansions and learner capacity growth. Through  these carefully selected three partnerships, we now have a clear pathway to 11,750 learners and to more than 50% of our targeted GEL 70 million EBITDA by 2025.

Macroeconomic environment

Estimated GDP growth was 4.9% in 1H19, which demonstrates that Georgia' economic fundamentals remain strong, backed by improved net export and fiscal stimulus. Declining pressure on imported goods resulted in the current account deficit shrinking significantly from 11.9% of GDP in 1Q18 to 6.2% of GDP in 1Q19. Tourism inflows are expected to remain strong despite a ban on direct flights from Russia, however, negative sentiment led to the Georgian Lari's recent depreciation, which in our view is not driven by fundamental macro factors. The Lari started to rebound after it recorded an all-time low against US$ at 2.95. NBG, a buyer of US$ during 1H19, accumulated record high reserves of US$ 3.7 billion as of 30 June 2019. Based on the preliminary data in the first seven months of 2019 trade deficit narrowed by 14% y-o-y to US$ (2.9) billion from US$ (3.3) billion, further alleviating the pressure on Lari.

Outlook

Our outlook for 2H19 performance and beyond remains robust. Over the last few quarters we have laid strong foundations for significant value creation across all our private businesses, which we expect to be reflected within our NAV over the next 12 to 24 months. We believe that organic growth and operating performance improvements in our late stage portfolio businesses will continue to deliver value for the Group. At the same time, we expect our investments across our early stage and pipeline businesses to start bearing fruit as we complete construction of pipeline hotels, hydro power plants and wind power plants, expand our wine business, benefit from our beer business' turnaround path, scale up and expand recently acquired top class schools, auto service business and high-growth digital services.

Georgia has progressed enormously well over the last two decades and we believe that the rapid development of its democratic institutions and economy achieved so far are irreversible and that progress will continue. This is expected to have positive impact on Georgia Capital's businesses and support its business model and growth for the years to come. This was very clear at our recent investor day that we hosted in Tbilisi, where many of you had a chance to see the depth of our management talent and see a number of our businesses in person. We were pleased to see strong engagement from participants as we continue to build out top class institutions in Georgia. Reshaping part of our investor base, inherited from our former parent company, continues well and we look forward to working with our existing loyal and new long-term shareholders on our journey to our 10x =10y aspiration.

Irakli Gilauri

Chairman and CEO

14 August 2019

DISCUSSION OF RESULTS

          Management Accounts

Management monitors the Group's performance on a regular basis based on developments in a management Net Asset Value (NAV) statement and a management income statement, both prepared under the adjusted IFRS methodologies. The management accounts are an alternative performance measure ("APM"); they have not been audited or reviewed. A reconciliation of our management accounts to the IFRS statements is provided on page 21.

Net Asset Value (NAV) Statement

NAV statement breaks down NAV into its components and provides roll forward of the related changes between the reporting periods, including a snapshot of the Group's financial position at any given time. For detailed valuation methodology of the investments and the methodology underling the presentation of the NAV statement please refer to the Georgia Capital PLC's 2018 Annual Report and Accounts on pages 82-90.  

NAV STATEMENT

GEL '000, unless otherwise noted	Dec-18	1. Value creation11	2a. Capital allocations	2b. Buybacks	3.Operating expenses	4a. Net interest income	4b. Liquidity mgmt./FX/Other	Jun-19	Change %
Listed Portfolio Companies	977,827	245,817	(28,932)	-	-	-	-	1,194,712	22.2%
GHG	520,332	145,062	(3,981)	-	-	-	-	661,413	27.1%
BoG	457,495	100,755	(24,951)	-	-	-	-	533,299	16.6%
Private Portfolio Companies	905,547	100,768	36,496	-	-	-	-	1,042,811	15.2%
Late Stage	628,326	79,683	(26,036)	-	-	-	-	681,973	8.5%
Water Utility	431,017	28,689	-	-	-	-	-	459,706	6.7%
Housing Development	66,785	12,109	(18,036)	-	-	-	-	60,858	-8.9%
P&C Insurance	130,524	38,885	(8,000)	-	-	-	-	161,409	23.7%
Early Stage	271,288	5,423	38,190	-	-	-	-	314,901	16.1%
Renewable Energy	61,182	-	1,555	-	-	-	-	62,737	2.5%
Hospitality & Commercial RE	149,079	7,086	26,266	-	-	-	-	182,431	22.4%
Beverages	61,027	(1,663)	10,369	-	-	-	-	69,733	14.3%
Of which,  wine	56,771	2,593	269	-	-	-	-	59,633	5.0%
Of which, beer	4,256	(4,256)	10,100	-	-	-	-	10,100	NMF
Pipeline	5,933	15,662	24,342	-	-	-	-	45,937	NMF
Education	7,071	-	4,138	-	-	-	-	11,209	58.5%
Auto Service	(1,326)	15,662	10,027	-	-	-	-	24,363	NMF
Digital Services	-	-	8,790	-	-	-	-	8,790	NMF
Other	188	-	1,387	-	-	-	-	1,575	NMF
Total Portfolio Value (1)	1,883,374	346,585	7,564	-	-	-	-	2,237,523	18.8%
Net Debt (2)	(196,915)	-	(10,202)	(58,735)	(9,568)	1,273	(30,372)	(304,519)	54.6%
of which, Cash and liquid funds	299,650	-	(10,202)	(58,735)	(9,568)	14,050	88,764	323,959	8.1%
of which, Loans issued	305,480	-	-	-	-	13,115	(86,306)	232,289	-24.0%
of which, Gross Debt	(802,045)	-	-	-	-	(25,892)	(32,830)	(860,767)	7.3%
Net other assets/ (liabilities) (3)	1,762	-	2,638	(1,200)	(7,041)	-	9,202	5,361	NMF
Net Asset Value (1)+(2)+(3)	1,688,221	346,585	-	(59,935)	(16,609)	1,273	(21,170)	1,938,365	14.8%
NAV growth %		20.5%	0%	-3.6%	-1.0%	0.1%	-1.3%	14.8%
Shares outstanding	38,089,558	-	-	(2,784,181)	656,026	-	-	35,961,403	-5.6%
Net Asset Value per share[11]	44.32	-	-	-	-	-	-	53.90	21.6%
Net Asset Value per share (GBP)11	13.05	-	-	-	-	-	-	14.81	13.5%

NAV per share increased by 21.6% from 31 December 2018 to 30 June 2019 on the back of 14.8% growth in NAV and a 5.6% decrease in the number of shares outstanding. NAV increased due to a GEL 347 million value creation[12], which led to 20.5% growth of NAV. Listed assets contributed 14.5% to NAV growth with GEL 246 million value creation from a recovery in the share prices of our investments in GHG and BoG. The private portfolio businesses generated GEL 101 million value for the Group in 1H19, thereby contributing 6.0% to NAV growth, as a result of their strong operating performances together with valuations that were overall positively affected by favourable movements across the peer group multiples.

The 20.5% positive NAV impact from value creation was partially offset by the GEL 108 million increase in Net Debt, which reduced the NAV growth by 5.7%. The Net Debt increase was driven primarily by GEL 60 million share buybacks. As of 30 June 2019, 2,890,643 shares were bought back for US$ 39.4 million since the launch of the share buyback programme. Net Debt was further affected by net GEL 10 million capital allocations, as GEL 44 million was invested across private early stage and pipeline businesses, while GEL 33 million dividends were collected from BoG and P&C Insurance (GHG dividends were recorded as income in 1H19, but were collected in July 2019). GCAP cash operating expenses of GEL 9.6 million and foreign exchange loss of GEL 26 million also contributed to the widening of Net Debt and, as a result, drove 2.3% decrease in NAV during 1H19.

The number of outstanding shares decreased during 1H19, as Georgia Capital cancelled 2,000,000 shares bought back under the on-going US$ 45 million share buyback programme and transferred 686,468 shares from treasury to the management trust in June 2019. The number of outstanding shares were further impacted by 656,026 million share compensation awards in respect of FY18 annual performance. The cancellation and transfer together with the awards, resulted in 6.8% increase in NAV per share on top of the 14.8% NAV growth.

1)    Listed businesses

The listed assets contributed 14.5% to NAV growth with GEL 246 million value creation in 1H19. This reflects GEL 217 million market value increase in BoG and GHG share prices, while the GEL 29 million represents dividend accruals on our BoG and GHG investments.

GHG continued to deliver a strong operating performance in 1H19 with EBITDA increasing 19.4%[13] y-o-y in 1H19. Strong cash flow generation during 2018 enabled GHG to declare dividends in respect of 2018 year, which had a record date of 28 June 2019. The Group received a GEL 4.0 million dividend payment from GHG on 12 July 2019. GHG's share price increased by 19% to GBP 2.42 during 1H19 resulting in a GEL 141 million return for the Group. As a result, the Group recorded total GEL 145 million value creation from its 57% holding in GHG in 1H19. GHG's public announcement on 1H19 performance is available at http://ghg.com.ge/financial-results.

BOG's share price recovered during 1H19 by 9% to GBP 14.98 at 30 June 2019 leading to GEL 76 million increase in the market value of the Group's equity stake in BOG. In June 2019, we received GEL 25.0 million dividend payment from BoG. As a result, aggregate value creation from BoG investment was GEL 101 million in 1H19. BoG's public announcement on 1H19 performance is available at https://bankofgeorgiagroup.com/results/earnings.

2)    Private businesses

The table below summarizes valuation of our holdings in private portfolio companies as at 30 June 2019:

Amounts in GEL '000	Valuation method	Fair value 30-Jun-19	Fair value 31-Dec-18	Change %	Multiple 30-Jun-19	Multiple 31-Dec-18
Late stage portfolio		681,973	628,326	8.5%
Water Utility	EV/EBITDA LTM[14]	459,706	431,017	6.7%	9.0	8.8
Housing Development	Discounted Cash Flows	60,858	66,785	-8.9%	n/a	n/a
P&C Insurance	P/E (LTM)	161,409	130,524	23.7%	9.1	7.4
Early stage portfolio		314,901	271,288	16.1%
Renewable Energy	At cost or EV/ EBITDA (LTM)	62,737	61,182	2.5%	n/a	n/a
Hospitality & Commercial RE	NAV	182,431	149,079	22.4%	n/a	n/a
Beverages - wine	EV/EBITDA (LTM)	59,633	56,771	5.0%	9.9	9.1
Beverages - beer	EV/Sales (LTM)	10,100	4,256	NMF	2.1	2.2
Pipeline		45,937	5,933	NMF
Education	At cost	11,209	7,071	58.5%	n/a	n/a
Auto Service	EV/EBITDA (NTM14) [15]	24,363	(1,326)	NMF	10.1	n/a
Digital Services	At cost	8,790	-	NMF	n/a	n/a
Other	At cost	1,575	188	NMF	n/a	n/a
Total		1,042,811	905,547	15.2%

The value of private portfolio companies increased by 15.2% in 1H19 to GEL 1 billion at 30 June 2019. The increase reflects GEL 36 million net capital allocation from Georgia Capital, while the businesses delivered GEL 101 million value creation in 1H19, adding 6.0% to NAV growth. Value creation was driven by strong operating performance across the late stage portfolio (GEL 25 million); first-time valuation of the greenfield projects (GEL 20 million) and enhancement of multiples across the peer companies (GEL 46 million). The table below summarises value creation drivers in private businesses in 1H19:

Private Portfolio Businesses	Dividends	Operating Performance	Greenfields	Multiple Change	Value Creation
GEL '000	(1)	(2)	(3)	(4)	(1)+(2)+(3)+(4)
Late Stage	8,000	25,108	-	46,576	79,683
Water Utility	-	12,976	-	15,713	28,689
Housing Development	-	12,109	-	-	12,109
P&C Insurance	8,000	22	-	30,863	38,885
Early Stage	-	1,713	4,780	(1,070)	5,423
Renewable Energy	-	-	-	-	-
Hospitality & Commercial Real Estate	-	2,306	4,780	-	7,086
Beverages	-	(593)	-	(1,070)	(1,663)
of which, wine	-	1,838	-	755	2,593
of which, beer	-	(2,431)	-	(1,825)	(4,256)
Pipeline	-	-	15,662	-	15,662
Education	-	-	-	-	-
Auto Service	-	-	15,662	-	15,662
Digital Services	-	-	-	-	-
Total private businesses	8,000	26,820	20,442	45,506	100,768

Late stage businesses

The 3.8% increase in Water Utility's LTM EBITDA created approximately GEL 28 million value, which was partially offset by GEL 15 million net debt widening. The resulting GEL 13 million value creation from operating performance was further supported by GEL 16 million uplift due to multiple enhancement from 8.8 to 9.0. As a result, the water utility business generated GEL 29 million value for the Group in 1H19.

Housing Development is valued at GEL 61 million using discounted cash flow method. Following the receipt of a construction permit for its largest residential project, Digomi, together with higher than projected sales prices, expected cash inflows were increased leading to a GEL 12 million value creation. Digomi project construction works commenced on 1 July 2019. During the first half of 2019, the business distributed GEL 18 million in-kind dividend, representing commercial spaces (ground floors) in the completed residential projects, which was then allocated to the hospitality & commercial real estate business. As a result, Housing Development's valuation decreased by GEL 6 million to GEL 61 million at 30 June 2019.

P&C Insurance's LTM net income adjusted for non-recurring items remained flat at GEL 17.7 million, while the multiple increase from 7.4 to 9.1 generated GEL 31 million in value. Multiples improved significantly across all peer group companies. P&C Insurance paid a dividend of GEL 8 million in 1H19 on the back of strong cash flow generation and stable operating performance. As a result, GEL 39 million value was created in 1H19, leading to a GEL 31 million net increase in valuation after dividends to GEL 161 million as of 30 June 2019.

Early stage businesses

The renewable energy business has successfully commissioned its first hydro power plant in 1H19, which is still carried at cost in the NAV statement. The business has already generated GEL 2.0 million EBITDA from its 50MW Mestiachala HPPs since the launch in April 2019. Value creation is expected to be reflected in the NAV statement over the coming quarters, as the hydro demonstrates stabilised performance following recovery from the flood damage discussed on page 17. The increase of GEL 1.6 million in Renewable Energy value reflects capital allocations from Georgia Capital in 1H19 for the development of wind power plants.

The NAV valuation of Hospitality & Commercial Real Estate increased through a GEL 26 million capital allocation and GEL 7 million value creation during 1H19. The business received an in-kind dividend of GEL 18 million in finished commercial properties from Housing Development, while GEL 8 million of cash capital was allocated from Georgia Capital for development of existing and pipeline hotels. The business also created GEL 7.1 million value on the back of operating performance (GEL 2.3 million) and a hotel project revaluation (GEL 4.8 million). In February 2019 the business bought for US$ 5.2 million the 40% equity stake it did not own in a luxury hotel project in Tbilisi. The hotel, which is currently under construction, is located on a hill near the center with views of the city. In May 2019, the business signed a management agreement with the luxury hotels management group Kempinski Hotels S.A. pursuant to which Kempinski will manage the  hotel. The management agreement led to the revaluation. Kempinski will be the only luxury hotel in the hospitality business's hotel portfolio.

The 7.6% increase in the wine business's LTM EBITDA created approximately GEL 1.8 million value, which was further supported by GEL 0.8 million uplift due to a multiple increase from 9.1 to 9.9. As a result, GEL 2.6 million value was created in 1H19 in the legacy Teliani wine business. The Kindzmarauli business is still carried at cost in line with our valuation policy to keep new equity investments at cost during the first 12-24 months following acquisition. We expect to revalue Kindzmarauli in 2H19.

The beer business valuation increased by GEL 6.7 million as a result of the GEL 10 million capital allocation for the acquisition of prominent beverages brand Kazbegi, the fifth largest beer company in Georgia. Beer business performance, however, was negatively affected by delays in launching Heineken brands, and had a negative GEL 2.4 million impact on value creation, which was further affected by a negative GEL 1.8 effect from the multiples change. Operating performance began to improve significantly in June and July, while all Heineken brands have been launched as of today, and the Group expects a positive impact from beer business operating performance in 2H19.

Pipeline businesses

The education business value increased by the GEL 4.1 million capital allocation in 1H19. GEL 1.3 million was allocated for the existing land development and GEL 2.8 million was used to acquire new land for a premium school development;

The auto service business combines vehicle technical inspection business valued at GEL 19 million and the recently acquired second largest auto service industry player Amboli valued at acquisition cost of GEL 5 million, i.e. the auto service business was valued at GEL 24 million at 30 June 2019. Periodic technical inspection became mandatory in Georgia in 2H18 and the business successfully launched 26 PTI centers in March 2019, while managing to generate GEL 0.6 million EBITDA in 1H19. At 30 June 2019, the periodic technical inspection business was valued using next twelve months (NTM) EBITDA earnings of GEL 6.7 million and an EV/EBITDA multiple of 10.1, resulting in a valuation of GEL 19.4 million. As the greenfield business has demonstrated strong performance in line with the budget, a GEL 15.6 million value was created from the revaluation in 1H19. In addition, GEL 3.4 million was used to acquire an 80% equity stake in Amboli in 1H19 and GEL 1.6 million was an additional pro-rata equity capital injection into Amboli to fund the growth of the business.  

The digital services business is carried at GEL 8.8 million cost at 30 June 2019. We allocated GEL 1.2 million to the acquisition of Redberry, the leading Georgian digital marketing agency, while GEL 7.6 million was an additional equity capital injection to fund the business growth.

We allocated GEL 1.4 million capital to the research and evaluation of new investment opportunities during 1H19, driving the total cost of other pipeline projects to GEL 1.6 million at 30 June 2019.

3)    Net Debt

Cash and liquid funds. In line with its risk management practices, the Group actively monitors the allocation of its liquid resources and its commitment to maintain at least US$ 50 million liquid funds. At 30 June 2019, cash and liquid funds were allocated as follows:

	30-Jun-19	31-Dec-18	Change
Cash at bank	113,629	142,284	-20.1%
Internationally listed debt securities	182,822	129,295	41.4%
Locally listed debt securities	27,508	28,071	-2.0%
Total Cash and liquid funds	323,959	299,650	8.1%

Internationally listed debt securities include Eurobonds issued by Georgian corporates (GEL 144 million) and sovereign Georgian Eurobonds (GEL 34 million). Locally listed debt securities are local bonds issued by Georgian corporates, which are listed and traded on the Georgian Stock Exchange.

Loans issued. At 30 June 2019, loans issued primarily refer to three facilities: (i) a GEL 49.5 million (US$ 17.3 million) to the housing development business (ii) a GEL 30.1 million (US$ 10.5 million) loan to the hospitality & commercial real estate business for on-going development, construction and growth of the hotel pipeline and (iii) a GEL 143.4 million (US$ 50 million) loan issued to the BoG holding company as part of the demerger, maturing in March 2020. During the 1H19 loans issued to portfolio companies in amount of GEL 91 million were repaid, of which, GEL 75 million (US$ 28 million) was repaid by the hospitality & commercial business. The loans are issued at market terms.

Gross debt. At 30 June 2019 the outstanding balance of US$ 300 million six-year Eurobonds due in March 2024 was GEL 861 million, reflecting foreign exchange loss of GEL 58 million during 1H19. Gross debt balance was further impacted by GEL 25 million coupon accrual (included under Net Interest Income column), which was offset by GEL 26 million coupon payment (included in Liquidity Management column) in March 2019.  

Capital allocations and buybacks. The table below summarises capital allocations and buybacks during 1H19:

GEL  millions		Dividends	Investments	Capital reallocation	Buybacks	Total
Listed portfolio	BOG	(25.0)	-	-	-	(25.0)
	GHG	(4.0)	-	-	-	(4.0)
Private late stage portfolio	Water Utility	-	-		-	-
	Housing Development	-	-	(18.0)	-	(18.0)
	P&C Insurance	(8.0)	-	-	-	(8.0)
Private early stage portfolio	Renewable Energy	-	1.6	-	-	1.6
	Hospitality & Commercial RE	-	8.3	18.0	-	26.3
	Beverages	-	10.4	-	-	10.4
	Of which, wine	-	0.3	-	-	0.3
	O which, beer	-	10.1	-	-	10.1
Pipeline portfolio	Education	-	4.1	-	-	4.1
	Auto Service	-	10.0	-	-	10.0
	Digital Services	-	8.8	-	-	8.8
	Other	-	1.4	-	-	1.4
Buybacks	GCAP	-	-	-	59.9	59.9
	Total	(37.0)	44.6	-	59.9	67.5

Georgia Capital recorded GEL 37 million dividends in 1H19, of which, GEL 25.0 million were from BoG, GEL 4 million from GHG[16] and GEL 8 million from P&C insurance. During 1H19, we invested GEL 44.6 million across our portfolio, of which, GEL 20.3 million was invested in early stage portfolio companies and GEL 24.3 million in the pipeline businesses. We also allocated GEL 60 million capital to share buybacks during 1H19. During the first half of 2019, the housing development business re-allocated GEL 18 million capital, which represents commercial spaces (ground floors) in the completed residential projects, to the hospitality & commercial real estate business.

INCOME STATEMENT (MANAGEMENT ACCOUNTS)

In line with the change to disclose private businesses at fair values instead of book values in the NAV statement from FY18 results announcement, Georgia Capital is now, therefore, presenting the performance of each portfolio company in its management income statement on fair value basis. The management P&L is an aggregation of: a) GCAP's stand-alone P&L and b) fair value change in the value of portfolio companies during the reporting period. A comparative period is not presented, as management believes that 1H18 is not directly comparable and its presentation is not useful for users. For details on the methodology underling the preparation of management account income statement, please refer to page 33 in this report.

INCOME STATEMENT

GEL '000, unless otherwise noted	1H19
Dividend income	36,932
Interest income	21,868
Realised / unrealised gain on liquid funds	5,297
Interest expense	(25,892)
Gross operating income	38,205
Operating expenses	(16,609)
GCAP net operating income	21,596
Fair value changes of portfolio companies
Listed portfolio companies	216,885
Of which, Georgia Healthcare Group PLC	141,081
Of which, Bank of Georgia Group PLC	75,804
Private portfolio companies	92,770
Late Stage	71,684
Of which, Water Utility	28,689
Of which, Housing Development	12,109
Of which, P&C Insurance	30,886
Early Stage	5,424
Of which, Renewable energy	-
Of which, Hospitality & Commercial Real Estate	7,087
Of which, Beverages	(1,663)
Pipeline businesses	15,662
Of which, Auto Service	15,662
Total investment return	309,655
Income before foreign exchange movements	331,251
Net foreign currency loss	(25,624)
Net Income	305,627

Georgia Capital generated Gross operating income of GEL 38.2 million in 1H19 on the back of strong dividend inflows, as discussed earlier on page 11 in this report. As part of its comprehensive liquidity management, Georgia Capital earned an average yield of 7.6% on the liquid assets and issued loans in 1H19, of which 9.7% was earned on the loans issued and 5.1% on the liquid funds. As a result, GEL 1.3 million of net interest income was generated during 1H19 at GCAP level. The table below summarizes net interest income components for 1H19:

GEL '000, unless otherwise noted	1H19
Interest income	27,165
Of which, interest income on loans issued	13,115
Of which, interest income on liquid funds	8,753
Realised / Unrealised gains on liquid funds	5,297
Interest expense	(25,892)
Net interest income	1,273

GCAP operating expenses have a targeted cap of 2% of Georgia Capital's market capitalisation. LTM expense ratio was 2% at 30 June 2019. The components of GCAP's operating expenses are presented in the table below:

GEL '000, unless otherwise noted	1H19
Administrative expenses[17]	(5,477)
Management expenses - cash-based[18]	(4,091)
Management expenses - share-based[19]	(7,041)
Total operating expenses	(16,609)

Total investment return represents increase in the fair value of our portfolio. Total investment return of GEL 310 million and dividend income of GEL 37 million together led to GEL 347 million value creation as presented in the NAV statement. We discuss valuation drivers for each business on pages 9-11 and the performance of private assets is discussed on pages 14-20.

The Group's net income is then driven by net foreign currency loss during 1H19. GCAP incurred a net foreign currency loss of GEL 25.6 million in 1H19 from GEL devaluation against US dollar due to its net foreign currency liability balance amounting to c. US$ 149 million (GEL 428 million) at 30 June 2019, i.e. difference between foreign currency denominated financial assets and financial liabilities. As a result of the movements described above, net income was GEL 306 million in 1H19.

CONSOLIDATED STATEMENT OF CASH FLOWS (IFRS)

GEL '000, unless otherwise noted	1H19	1H18	Change %
Net Cash flow from operating activities	109,422	71,587	52.9%
Net cash flows used in investing activities	(194,909)	(508,051)	-61.6%
Net cash from financing activities	25,347	254,697	-90.0%
Effect of exchange rates changes on cash and cash equivalents	5,768	(9,340)	NMF
Net (decrease) in cash and cash equivalents	(54,372)	(191,107)	-71.5%
Cash and cash equivalents, beginning of the period	256,930	395,081	-35.0%
Cash and cash equivalents, end of the period	202,558	203,974	-0.7%

Cash flows from operating activities. As a result of strong operating performance across all businesses, the Group's consolidated cash flows from operating activities increased significantly by 52.9% y-o-y in 1H19. The increase was mainly driven by a) double-digit growth in the healthcare and pharmacy business operating cash flows, contributing GEL 21 million to the overall growth, b) the water utility business cash flow from operating activities was up 85% y-o-y in 1H19 and drove GEL 14 million growth for the Group, c) on the back of organic business growth and efficient liquidity management, P&C Insurance contributed GEL 5 million to the increased operating cash flows, d) recently launched PTI business added GEL 2 million to operating cash flows within its first three months of operations from March 2019. The increase was slightly offset by GEL 5 million decrease in GCAP operating cashflow, mainly due to y-o-y growth in cash operating expenses. As a result, the Group's consolidated net cash flow from operating activities was GEL 109 million in 1H19.

Cash flows from investing activities. Net cash used in investing activities decreased as GHG has completed its major investment programme in 2018, while following the completion of privatisation obligations investment Water Utility decreased its capital expenditures in 1H19. Further, in 2018, a US$ 50 million loan maturing in March 2020 was issued to JSC BGEO Group as part of the demerger. As a result, net cash used in investing activities decreased by 61.6% to GEL 195 million in 1H19.

Cash flows from financing activities. Decrease in net outflows from financing activities was due to the issuance of the inaugural US$300 million bonds by GCAP in March 2018.

IFRS Results/Business Development - Individual Business Units/Segments

The following sections present the IFRS results and business development derived from our IFRS accounts for each of the late stage and early stage portfolio companies. For the pipeline companies we present information on the investments and where available business development. For a discussion of value creation by the business units please refer to 1H19 results presentation. For a discussion of investment rationale, value creation potential and value realization outlook, please see the Annual Report.            

1. Water Utility

(100% ownership)

Business description

Our Water Utility is a natural monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services to 1.4 million residents representing more than one-third of Georgia's population and c. 34,000 legal entities. Water Utility also operates hydro power plants with total installed capacity of 152 MW.

Water Utility is 100% owned through GGU.

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS4	1H19	1H18	Change
Revenue	74,541	69,833	6.7%
Water supply	62,844	61,753	1.8%
Energy	8,240	4,722	74.5%
Other	3,457	3,358	2.9%
Operating expenses	(29,667)	(29,580)	0.3%
Provision for doubtful trade receivables	(4,508)	(3,022)	49.2%
EBITDA	40,366	37,231	8.4%
EBITDA margin	54.2%	53.3%
Depreciation and amortization	(16,018)	(12,085)	32.5%
Net interest expense	(10,498)	(7,253)	44.7%
Net non-recurring expenses	(2,389)	(5,484)	-56.4%
Foreign exchange (loss) gain	(9,497)	4,391	NMF
Net profit	1,964	16,800	-88.3%
CASH FLOW HIGHLIGHTS4	1H19	1H18	Change
Cash flow from operating activities before maintenance capex	44,722	30,592	46.2%
Maintenance capex	(11,093)	(12,444)	-10.9%
Cash flow from operating activities	33,629	18,148	85.3%
Cash flow used in investing activities	(23,826)	(63,910)	-62.7%
Development capex	(27,883)	(77,070)	-63.8%
Cash flow from financing activities	7,099	16,728	-57.6%
Net Proceeds from borrowings	20,661	27,225	-24.1%
Cash ending balance	30,695	30,475	0.7%
BALANCE SHEET HIGHLIGHTS4	Jun-19	Dec-18	Change
Total assets	690,442	639,267	8.0%
Property, plant and equipment	614,714	586,207	4.9%
Trades and other receivables	23,436	19,657	19.2%
Cash balance	30,695	13,713	NMF
Total liabilities	415,558	368,781	12.7%
Total equity	274,884	270,486	1.6%

KEY POINTS

Ø 6.7% growth in revenues primarily driven by increased electricity sales

o Energy revenue up 74.5%, reflecting 55% increase in electricity price on the back of electricity market deregulation

Ø Positive operating leverage of 6.4 ppts drove 8.4% growth in EBITDA

Ø Outstanding collection rates and positive operating leverage drive operating cash flow up 85%

Ø Development capex down significantly by 64%

Ø In May 2019 privatisation conditions confirmed and GGU obtained clean title on Water Utility assets

INCOME STATEMENT HIGHLIGHTS

The Water Utility's 1H19 revenues up 6.7% y-o-y on the back of solid growth in electricity sales. Significant improvements in average electricity sales price (up from 5.6 Tetri/KWh to 8.7 Tetri/KWh), together with continued savings in Water Utility's self-produced electricity consumption (down 13.1% y-o-y to 86.3 million KWh in 1H19) resulted in almost doubling of energy revenues to GEL 8.2 million in 1H19. Electricity market deregulation, effective from May 2019, had an immediate impact on electricity sales prices and is anticipated to positively affect revenue streams from electricity sales going forward. Growth in top-line was also supported by increased water supply revenues (up 1.8% y-o-y) mainly on the back of strong business activity across various industries. Continued efficiency improvements were reflected in positive operating leverage of 6.4 percentage points, as operating expenses were flat at GEL 29.7 million in 1H19. The result was 8.4% y-o-y growth of Water Utility's 1H19 EBITDA.  

Net interest expense was up 44.7% y-o-y in 1H19 in line with increased leverage during 2H18 to finance capital expenditures. Foreign exchange losses of GEL 9.5 million in 1H19 reflect the accounting impact of GEL depreciation against the Euro. GGU recorded losses on its unhedged position of GEL 151.8 million in Euros at 30 June 2019. As a result, Water Utility profit was GEL 2.0 million in 1H19 (down by 88.3% y-o-y).

BALANCE SHEET HIGHLIGHTS

The 4.9% increase in property, plant and equipment in 1H19, was primarily due to development works on water utility infrastructure carried out during the year in order to upgrade the network. Such efficiency programmes have a dual effect of reducing own electricity consumption and increasing third party electricity sales. Additionally, regulated CAPEX is included in Regulated Asset Base, used by the regulator to calculate fair return on investment. Capital expenditure level is expected to decrease in 2019 and gradually reach long-term run-rate level in the range of c. GEL 70-90 million by 2023. The increase in total liabilities is due to increased borrowings obtained from local banks to support capital expenditures for development of water supply network.

CASH FLOW HIGHLIGHTS

GGU has an outstanding water supply receivable collection rates. During 1H19, the collection rates for legal entities and households were 99% and 94%, respectively. Operating cash flow was up 85.3% y-o-y in 1H19 as a result of the growth in revenues and positive operating leverage. Development capex substantially decreased y-o-y by 64% to GEL 28 million in 1H19. Last year's elevated capex was mainly due to privatisation obligations.

GEL millions, unless otherwise noted
Key Highlights	1H19	1H18	change
LTM revenue	153.8	144.3	6.6%
LTM EBITDA	86.5	78.7	9.9%
LTM development capex2	99.3	154.9	-35.9%
LTM maintenance capex2	21.2	21.4	-1.2%
LTM FCF	(10.5)	(88.2)	-88.1%
LTM Cash from operations	95.7	71.6	33.6%
Net debt	320.8	234.9	36.6%

   Key performance metrics

Net investment	153.5
2018 dividend	28.8
LTM ROIC1	9.7%
MOIC1	2.4
IRR1	32.0%

Capital Outlook through 2H19 -2023

Capital needs3	137.0
of which, equity	-
of which, debt	137.0

(1)       Please see definitions on page 34.

(2)       Capex figures are stated including VAT.

(3)     Gross capital needs, excluding dividend distribution.

(4)     Please refer to detailed IFRS financial statements of Water Utility on page 26.

2. Housing Development

(100% ownership)

Business description

Our housing development business is a leading real estate developer on the US$ 1.6 billion Georgian real estate market with three business lines: (a) a residential development arm targeting mainly mass market customers by offering affordable, high quality and comfortable housing; (b) a construction arm, engaging in construction contracts for other businesses as well as third-parties; and (c) franchise platform for development of third-party land plots with fee sharing arrangements.  

Housing Development is 100% owned through m².

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS3	1H19	1H184	Change
Gross profit from apartments sale	1,998	9,993	-80.0%
Gross profit from construction services	2,459	1,080	NMF
Gross Real Estate Profit	4,746	11,183	-57.6%
Revaluation of commercial property	-	2,311	NMF
Operating expenses	(6,847)	(4,742)	44.4%
EBITDA	(2,101)	8,752	NMF
Profit (loss)	(7,848)	388	NMF
CASH FLOW HIGHLIGHTS3	1H19	1H18	Change
Cash flow from operating activities	(16,702)	(18,123)	-7.8%
Cash flow used in investing activities	(4,269)	(7,161)	-40.4%
Cash flow from financing activities	14,988	22,240	-32.6%
Cash, ending balance	3,758	13,844	-72.9%
BALANCE SHEET HIGHLIGHTS3	Jun-19	Dec-184	Change
Total assets	228,416	248,609	-8.1%
Land bank	9,359	8,722	7.3%
Inventories	93,730	102,923	-8.9%
Total liabilities	193,802	183,236	5.8%
Total equity	34,614	65,373	-47.1%

KEY POINTS

Ø Construction permit received on the largest ever in-house project at the end of June 2019 expected to drive cash flow generation in 2H19

Ø Digomi project construction works commenced on 1 July 2019

Ø Revenue recognition from Digomi project to start from 1 July 2019. No revenue recognized in 1H19

Ø GEL 18 million in-kind dividend was distributed in 1H19

INCOME STATEMENT HIGHLIGHTS

The Housing Development gross profit from apartment sales fluctuates with the cycle of projects and strength of demand in the market for affordable housing. Despite healthy market conditions, the sales momentum was negatively affected by delayed construction permit for the largest ever in-house residential Digomi project. The permit was finally approved at the end of June 2019 by Tbilisi City Municipality. The construction works commenced in July 2019 and will drive the growth in gross profit from apartment sales as well as cash flow generation in 2H19.

Digomi is the only in-house project in the pipeline of Housing Development in line with its asset-light strategy to develop third-party land plots under franchise agreements going forward. The project will be developed in three stages and the construction and development of 168,000 sq.m. residential and 84,000 sq.m. commercial spaces will continue for approximately four years. Housing Development started pre-sales for the first stage of Digomi residential project from February 2019 and has pre-sold 6,430 sq.m. with US$ 6.5 million sales value to date, representing approximately 29% of the total available space. Revenue from pre-sales has not been recognised yet as construction works commenced in July 2019. Revenue recognition will start in 3Q19 and will be reflected in financials as construction works progress. An additional 1,405 sq.m. with US$ 1.5 million value has also been booked (i.e. reservations were made).

1H19 gross real estate profit was supported by robust performance of the construction arm, which generated gross profit of GEL 2.5 and more than doubled y-o-y. Construction fees were mainly driven by the following two third-party projects: i) the shell and core construction of a new shopping mall located in Tbilisi's Saburtalo district and (ii) fit-out works for Radisson Tsinandali in Kakheti region.

1H19 operating expenses increased by 44.4% y-o-y to GEL 6.8 million and resulted in negative 1H19 EBITDA of GEL 2.1 million. The y-o-y increase reflects increased administrative expenses within the construction arm in line with the business ramp up. The incremental expenses are fully covered by gross profit generated from the construction segment.

BALANCE SHEET HIGHLIGHTS

Housing Development currently has a land bank with a value of GEL 9.4 million. Land bank is expected to decrease further over the coming years, in line with its asset light strategy. During the first half of the year, the business distributed GEL 18 million in-kind dividend to Hospitality & Commercial Real Estate, representing commercial spaces (ground floors) in the completed residential projects.

CASH FLOW HIGHLIGHTS

The housing development business continued to deploy cash for on-going project developments, while most of the apartments sold are on pre-sales stage with cash collection expected to rise in line with the construction progress in 2H19. Operating cash flow, therefore, was negative GEL 16.7 million in 1H19. As the business has received the construction permit at the end of June 2019, cash collection is expected to recover significantly in 2H19.

Gel millions, unless otherwise noted
Key highlights	1H19	1H18	change
LTM revenue	114.4	120.5	-5.1%
LTM Gross real estate profit	14.9	23.4	-36.2%
LTM EBITDA	4.5	16.1	-72.3%
LTM Development Capex	9.5	11.3	-15.9%
LTM Maintenance Capex	-	-	NMF
LTM FCF	(19.5)	(11.1)	76.7%
LTM Cash from operations	(8.7)	0.3	NMF
Net debt	139.2	92.5	50.6%

  Key performance metrics

Net investment	(18.9)
2018 dividend	10.0
MOIC1	1.9
IRR1	14.6%

  Capital Outlook through 2H19 - 2023

Capital needs2	-
of which, equity	-
of which, debt	-

 
(1) Please see definition on page 34.

(2) Gross capital needs, excluding dividend distribution.

(3) Please refer to detailed IFRS financial statements of Housing Development on page 27.

(4) In line with IFRS requirements, starting from 2019 year the Group ceased capitalization of borrowing costs to cost of inventory property represented by residential apartments from the moment when such properties become ready for sale. Comparative periods were respectively restated.

3. Property & Casualty Insurance

(100% ownership)

Business description

Our property and casualty Insurance (P&C Insurance) business is a leading player in the local P&C insurance market with a 29% market share based on gross premiums. P&C Insurance offers a wide range of insurance products to Georgian corporates and retail through five business lines: motor, property, credit life, liability and other insurance services.

P&C Insurance is 100% owned through Aldagi.

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS4	1H19	1H18	Change
Earned premiums, net	36,288	31,449	15.4%
Insurance claims expenses, net	(15,111)	(12,503)	20.9%
Acquisition costs, net	(5,736)	(3,807)	50.7%
Net underwriting profit	15,441	15,139	2.0%
Net investment profit	2,339	2,015	16.1%
Operating profit	9,518	9,999	-4.8%
Net non-recurring items	-	(628)	NMF
Pre-tax profit	9,787	9,025	8.4%
Income tax expense	(1,479)	(1,349)	9.6%
Net profit	8,308	7,676	8.2%
CASH FLOW HIGHLIGHTS4	1H19	1H18	Change
Cash flow from operating activities	14,667	9,506	54.3%
Cash flow used in investing activities	(11,507)	(830)	NMF
Cash flow from financing activities	(9,881)	(10,000)	-1.2%
Cash, ending balance	4,368	2,740	59.4%
BALANCE SHEET HIGHLIGHTS4	Jun-19	Dec-18	Change
Cash and liquid funds	45,234	38,967	16.1%
Insurance premiums receivable, net	42,821	31,442	36.2%
Pension fund assets	6,334	18,931	-66.5%
Total assets	161,689	145,710	11.0%
Gross technical provision	59,449	45,664	30.2%
Pension benefit obligations	6,335	18,932	-66.5%
Total liabilities	105,724	89,572	18.0%
Total equity	55,965	56,138	-0.3%

KEY POINTS

Ø Border third-party liability insurance and organic business growth drive revenue up 15.4%

Ø GEL 8 million dividend was paid out on the back of strong operating cash flow generation, with remaining GEL 4 million dividend expected to be paid in 2H19

INCOME STATEMENT HIGHLIGHTS

The property & casualty insurance business revenue increased as a result of growth in earned premiums from: (i) compulsory border third-party liability insurance, introduced in March 2018 (up GEL 0.8 million y-o-y); (ii) organic growth in credit life insurance (up 28.0% y-o-y); (iii) credit unemployment and property insurance (up GEL 2.4 million y-o-y). P&C Insurance's key performance ratios remained healthy during 1H19 as noted below:

Key Ratios	1H19	1H18
Combined ratio	80.2%	74.7%
Expense ratio	38.6%	34.9%
Loss ratio	41.6%	39.8%

The 5.6 percentage point increase in the combined ratio in 1H19 was mostly due to higher commission rates on credit life, property and compulsory insurance. The 1.8 percentage point increase in the loss ratio was due to increased net claim expenses, predominantly in the credit life insurance portfolio.  As a result, Aldagi's net income was up 8.2% y-o-y, resulting in 28.3% ROAE in 1H19 (32.7% in 1H18).

BALANCE SHEET HIGHLIGHTS

At 30 June 2019, total assets stood at GEL 161.7 million, up 11.0% from 31 December 2018. The growth was driven by 16.1% increase in cash and liquid funds. Insurance receivables are up 36.2% from 31 December 2018 mainly due to seasonality of agricultural insurance and prolongation of fidelity bond and commercial property insurance contracts near the period-end. The decrease in pension assets and pension liabilities resulted fully from new state pension regulation that came into effect from 1 January 2019. P&C Insurance's solvency ratio stood at 116% at 30 June 2019, above the required minimum of 100%, however down from 136% at 31 December 2018 due to payment of a dividend of GEL 8 million near the period-end. P&C Insurance is expected to pay an additional GEL 4 million dividend by the end of 3Q19.

CASH FLOW HIGHLIGHTS

Operating cash flow was up 54.3 % y-o-y in 1H19 on the back of efficient asset management and increased interest inflows in line with the growth in liquid assets.

Gel millions, unless otherwise noted
Key highlights	1H19	1H18	Change
LTM earned premiums, net	72.3	64.7	11.7%
LTM Net income1	17.7	17.0	4.2%
LTM Development Capex	-	-	NMF
LTM Maintenance Capex	-	-	NMF
LTM FCF	11.5	9.0	28.1%
LTM Cash from operations	26.1	12.9	102.2%
Net debt	-	-	NMF

  Key performance metrics

Net investment	(21.9)
2018 Dividend	10.0
LTM ROAE1,2	32.1%
MOIC2	18.9

  Capital Outlook through 2H19 - 2023 

Capital needs3	-
of which, equity	-
of which, debt	-

(1)             Adjusted for non-recurring items.

(2)             Please see definition on page 34.

(3)             Gross capital needs, excluding dividend distribution.

(4)             Please refer to detailed IFRS financial statements of P&C Insurance on page 28.

4. Renewable Energy

(65% ownership)

Business description

Our renewable energy business is a platform for developing hydro and wind power plants across Georgia.

Georgia Capital owns 65% in the energy business, with the remaining 35% owned by the Austrian company RP Global - an independent power producer with 30 years of experience of developing, building, owning and operating renewable power plants globally.

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS3	1H19	1H18	Change
Revenue	2,395	-	NMF
Operating expenses	(910)	(403)	NMF
EBITDA	1,485	(403)	NMF
Net loss	(1,046)	(416)	NMF
Attributable to:
- shareholders of GCAP	(680)	(270)	NMF
- non-controlling interests	(366)	(146)	NMF
CASH FLOW HIGHLIGHTS3	1H19	1H18	Change
Cash flow from operating activities	(589)	(369)	NMF
Cash flow used in investing activities	(19,121)	(19,602)	-2.5%
Development capex	(21,754)	(20,565)	5.8%
Cash flow from financing activities	30,591	23,717	29.0%
Proceeds from borrowings	28,176	18,276	54.2%
Cash ending balance	20,892	11,351	84.1%
BALANCE SHEET HIGHLIGHTS3	Jun-19	Dec-18	Change
Total assets	213,113	169,304	25.9%
Property, plant and equipment	141,708	114,645	23.6%
Cash balance	20,892	8,388	NMF
Total liabilities	111,129	75,145	47.9%
Total debt	107,040	70,711	51.4%
Total equity	101,984	94,159	8.3%
Total equity attributable to GCAP	66,290	61,203	8.3%

KEY POINTS

Ø The first hydro power plants successfully launched in 1H19 on time and within budget

Ø Mestiachala HPPs recorded GEL 2 million EBITDA with 28 GWh generation since the launch in 2Q19

Ø Mestiachala HPPs were damaged during flooding in July 2019. Repair works are currently in progress and we estimate that insurance will compensate substantially all of our losses

Renewable Energy financials reflect the Mestiachala HPPs being in its active construction stage throughout the first five months of 2019 and other renewable energy projects being at different stages of development. The increase in property, plant and equipment and in debt is in line with spending on Mestiachala HPPs construction works. Overall the energy business is financing the projects with up to 30% equity contribution. The Mestiachala HPPs successful commissioning and launch in 2Q19 resulted in EBITDA of GEL 2.0 million in 1H19. 28.2 GWh were generated since launch.

The Mestiachala HPPs project was delivered on time and within budget. Its first phase (30MW) was launched on 8 April 2019, followed by the second phase (20MW) on 4 June 2019. Total project cost was US$ 61.2 million, in line with budgeted US$ 1.2 million per MW. Unfortunately, in late July 2019, the HPPs were damaged by flooding resulting from a natural disaster, which has interrupted operations of the cascade of HPPs. The business is currently estimating the losses, working with the insurance company to file a claim and developing a plan to repair the damage and restore operations, which is expected to take several months.

The annual net generation capacity of Mestiachala HPPs is projected at approximately 171GWh on stabilized basis, with peak generation in July-August, when the market prices are higher compared to May-June period, when most of the HPPs in Georgia have peak generation. Mestiachala HPPs has a 15-year fixed price purchase power agreement (PPA) with the Georgian Government, guaranteeing recurring revenue streams for eight months (from September through April) each year at 5.5 cents per kilowatt-hour.  Electricity market deregulation has  created significant upside for electricity sales also during May-Aug period, when government PPA is not effective.  

Renewable Energy continues to develop its pipeline hydro and wind projects with total 330MW installed capacity. The business also seeks acquisition possibilities among existing projects, which are either commissioned or under feasibility stage. Currently, preparation works are underway to commence construction works on 46 MW Zoti HPPs in 2H19, located in Western part of Georgia, with expected net generation of 170 GWh, where c. 53% of generation is covered by a 15-year Government PPA (weighted average 5.1 cents per KWh during Sep-Apr period). The management is currently negotiating with the Government on MoU and PPA terms and conditions of wind power plants near Tbilisi and Kaspi. Due to the changes in the regulatory framework on issuance of PPAs, management is expecting to finalize the process in 2H19.

The table below summarises the indicative pipeline of upcoming energy projects:

Project	MWs	Target Commissioning	Target ROIC	Generation capacity (GWh)
Zoti HPPs	46	2H21	12.1%	170
Bakhvi 2 HPP	36	1H22	11.1%	127
Racha HPPs	38	1H23	11.7%	165
Wind Tbilisi	57	2H21	12.6%	172
Wind Kaspi	54	2H21	14.3%	211
Wind (other)	99	1H23	12.4%	341
Total	330			1,186

GEL millions, unless otherwise noted
Key highlights	1H19	1H18	change
LTM revenue	2.4	n/a	NMF
LTM EBITDA	1.1	(1.1)	NMF
LTM Capex	69.4	86.5	-19.7%
LTM FCF	(62.7)	(65.8)	-4.7%
LTM Cash from operations	(0.9)	(0.9)	NMF
Net debt	86.1	71.4	20.6%

   Key performance metrics

Net investment	58.1
2018 dividend	-
LTM ROIC1	-0.1%
MOIC1	1.1
IRR1	3.7%

   Capital Outlook through 2H19 - 2023

Capital needs2	1,240
of which, our equity (65% stake)	177
of which, equity from minority	95
of which, debt	968

 (1) Please see definition on page 34.

 (2) Gross capital needs, excluding dividend distribution.

 (3) Please refer to detailed IFRS financial statements of Renewable Energy on page 29.

5. Hospitality & Commercial Real Estate

(100% ownership)

Business description

Our hospitality & commercial real estate business renamed as Amber Group is comprised of: (a) rent-earning commercial assets with targeted 10% yield and (b) hotel development business across Georgia with targeted 1,000 rooms.

The hotel development business has already confirmed 1,222 rooms, of which, 152 are operational and 1,070 are in pipeline.

Hospitality & Commercial Real Estate is 100% owned through m².

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS3	1H19	1H18	Change
Gross profit from operating leases	2,791	1,900	46.9%
Gross profit from hospitality services	697	457	52.5%
Gross Real Estate Profit	3,488	2,407	44.9%
Revaluation of investment property4	7,892	-	NMF
Operating expenses	(1,860)	(556)	NMF
Net operating income (NOI)	9,521	1,851	NMF
Profit (loss)	5,880	(410)	NMF
CASH FLOW HIGHLIGHTS3	1H19	1H18	Change
Cash flow from operating activities	324	1,607	-79.8%
Cash flow used in investing activities	(53,034)	(51,672)	2.6%
Cash flow from financing activities	31,567	44,669	-29.3%
Net Proceeds from borrowings	52,224	73,840	-29.3%
Cash, ending balance	7,347	9,210	-20.2%
BALANCE SHEET HIGHLIGHTS3	Jun-19	Dec-18	Change
Cash and cash equivalents	7,347	28,615	-74.3%
Investment property	294,758	225,343	30.8%
Land bank	55,606	37,459	48.4%
Commercial real estate	239,152	187,884	27.3%
Total assets	374,639	294,833	27.1%
Borrowings & debt securities issued	188,460	124,166	51.8%
Total equity	184,199	159,839	15.2%

(4) Value created on commercial property.

KEY POINTS

Ø GEL 8 million revaluation gain recorded on the upcoming Kempinski hotel

Ø Progressing against the targeted 1,000 operational hotel rooms:

o Kutaisi hotel construction commenced in 1Q19

o Acquired land in Zugdidi to develop a midscale internationally branded hotel with c. 130 rooms by 2021

o Acquired land in Shovi to develop a 92-room hotel under Amber group brand by 2021

Ø Expansion of the commercial real estate portfolio drives gross profit from operating leases up 47%

INCOME STATEMENT HIGHLIGHTS

Gross profit from operating leases increased by 46.9% y-o-y to GEL 2.8 million in 1H19 primarily due to the expansion of the commercial real estate portfolio (which resulted mainly from the re-allocation of finished properties from Housing Development), supported by high occupancy levels. The commercial portfolio increased by 34% to US$ 32.4 million in 1H19 (US$ 24.2 million in 1H18), while the occupancy level and gross income yield stood at 86.7% (89.5% in 1H18) and 8.6% (10.2% in 1H18), respectively. New additions to the portfolio will reach stabilized occupancy and income yield by year-end. Nearly 80% of the total commercial assets represent office and retail areas and another 20% residential and industrial spaces.

Our first hotel, Ramada Encore on Kazbegi ave., launched in March 2018, generated gross profit of GEL 0.7 million in 1H19 with US$ 63.5 ADR and 48.8% occupancy rate. Revenue was supported by a pick-up in occupancy levels, averaging 69.6% in 2Q19 vs. 28.3% in 1Q19. Overall, Ramada Encore hotel RevPAR¹ increased by 12.5% y-o-y to US$ 31.0 in 1H19, which led to improved net operating profit margin of 32.2% (up 3.4 ppt) respectively.

In 1H19 Amber group recognised revaluation gain of GEL 7.9 million on under construction Kempinski hotel, which is expected to open in fall 2020 in Tbilisi. Amber group signed a management agreement with Kempinski to manage the upcoming only luxury hotel in its portfolio. Following initial acquisition in December 2017 Amber group held a 60% stake in Kempinski hotel and the business announced the buyout of the remaining 40% equity stake in February 2019 for US$ 5.2 million. US$ 0.3 million was paid in cash and US$ 4.9 million was settled through bonds issued by the commercial real estate business.

BALANCE SHEET HIGHLIGHTS

At 30 June 2019, total assets of Amber group amounted to GEL 374.6 million (up 27.1% from 31 December 18) and was largely concentrated in investment property. Commercial real estate increased by 27.3% in 1H19 mainly due to the commercial portfolio expansion re-allocation of finished properties from Housing Development and construction works performed for hotels under construction. Amber group continued to build ground for its targeted 1,000 hotel rooms portfolio by acquiring: an 8,694 sq.m. land plot for a total cash consideration of GEL 7.3 million in Zugdidi, a historical region in western Georgia and 7,500 sq.m. land plot for a total cash consideration of US$ 0.9 million located in Shovi, Racha - a climatic and health resort in the greater Caucasus mountain region.

CASH FLOW HIGHLIGHTS

The first operational Ramada Encore hotel added GEL 0.8 million to operating cash flow in 1H19, while contribution from rent-generating assets was GEL 1.9 million. In 1H19 the business spent GEL 43.2 million on capital expenditures and acquisitions of land plots for further hotel development. Amber group targets 70%:30% debt to equity leverage ratio at hotels after hotel opening and 50%:50% during construction stage. During 1H19 business refinanced US$ 28 million debt outstanding from Georgia Capital with borrowings from local financial institutions.

GEL millions, unless otherwise noted
Key highlights	1H19	1H18	change
LTM revenue	49.7	6.6	NMF
LTM NOI	39.2	3.9	NMF
LTM Development Capex	73.2	75.2	-2.6%
LTM Maintenance Capex	-	-	NMF
LTM FCF	(70.1)	(72.2)	-3.0%
LTM Cash from operations	4.4	3.0	48.4%
Net debt	161.6	78.2	106.6%

  Key performance metrics

Net investment	133.3
2018 Dividend	-
LTM ROIC1	14.1%
MOIC1	1.4
IRR1	14.7%

  Capital Outlook through 2H19 - 2023

Capital needs2	211
of which, GCAP equity	31
of which, debt	180

(1)  Please see definition on page 34.

(2)  Gross capital needs, excluding dividend distribution.

(3)  Please refer to detailed IFRS financial statements of Hospitality & Commercial real estate on page 30.

6. Beverages

(86% ownership)

Business description

Our Beverages combines three business lines: a wine business, a beer business and a distribution business. We produce and sell wine locally and export to 17 countries, while in our beer we have a 10-year exclusive license to produce Heineken brands in Georgia and sell them in the South Caucasus.

Georgia Capital owns 86% of Beverages.

1H19 performance (GEL '000, unless otherwise noted)

INCOME STATEMENT HIGHLIGHTS3	1H19	1H18	change
Consolidated
Revenue	46,226	30,466	51.7%
Gross profit	16,664	11,257	48.0%
EBITDA	(4,731)	(6,088)	-22.3%
Net loss	(24,759)	(9,967)	NMF
Wine Business
Revenue	17,254	9,857	75.0%
Gross profit	7,818	4,683	66.9%
Gross profit Margin	45.3%	47.5%
Operating expenses	(4,772)	(3,056)	56.2%
EBITDA	3,046	1,627	87.2%
Net (loss)/profit	(1,992)	3	NMF
Beer Business
Revenue	18,241	13,251	37.7%
Gross profit	4,867	4,448	9.4%
Gross profit Margin	26.7%	33.6%
Operating expenses	(11,331)	(12,032)	-5.8%
EBITDA	(6,464)	(7,584)	-14.8%
Net loss	(20,619)	(9,464)	NMF
Distribution Business
Revenue	27,225	9,639	NMF
Gross profit	4,498	2,084	NMF
Gross profit Margin	16.5%	21.6%
Operating expenses	(5,483)	(1,808)	NMF
EBITDA	(985)	276	NMF
Net loss	(1,795)	(167)	NMF

KEY POINTS

Ø Wine export sales outperforming the strong market growth in 1H19 and driving wine revenues up 75%

Ø Outstanding topline growth coupled with positive operating leverage led to 87% growth in wine EBITDA

Ø Beer business launched four new brands in 1H19, followed by the launch of Heineken in July 2019

Ø Strong beer sales volumes in June and July of 2019 leading to 100% utilization brewing capacity (c. 31,000 hectolitres in June and c. 33,505 hectolitres in July)

Ø GEL 0.6 million positive EBITDA in July 2019 in the beer business

WINE BUSINESS

The wine business demonstrated a robust performance in 1H19, which was supported by growth in exports. The country's strong export markets increased by 6% y-o-y in 1H19 reaching record high 40.4 million wine bottle export sales over the last six years. Increase in our wine bottle sales exceeded market growth and was up by 49% from c. 1.7 million bottles in 1H18 to c. 2.5 million in 1H19. As a result, wine revenues increased remarkably by 75.0% y-o-y, reaching GEL 17.3 million in 1H19.

The wine business maintained a solid gross profit margin of 45% in 1H19 (48% in 1H18) despite discontinuation of the Government subsidy on grapes, adversely affecting grape purchase price and therefore cost of goods sold. Management expects to minimize reliance on purchased grapes and manage gross margin levels, as the business benefits from last year's vineyard acquisitions and further progresses towards its targeted 1,000 hectares of vineyards. Outstanding growth in the top-line, coupled with positive operating leverage, led to 87.2% y-o-y growth in EBITDA to GEL 3.0 million.

Wine business is progressing against its strategic priorities to increase production capacity, enter untapped strategic markets and diversify its product mix by portfolio premiumization.

BEER BUSINESS

During the first five months of 2019 beer business was focused on launching new brands: in March the business acquired a prominent Georgian beverages brand - Kazbegi, followed by launch of Kazbegi beer and lemonade in April; Krusovice, Amstel and local light beer, Kayak, three upper-mainstream segment beer brands, were also fully launched during May. As a result, beer sales in June 2019 was close to 100% brewing capacity (c. 31,000 hectolitres out of annual 360,000 hectolitres capacity), resulting in an 88.8% y-o-y increase in month of Jun-19 revenues and improved EBITDA by 72.6% y-o-y.  

After successful consecutive trial brews for Heineken, the business received the license to produce Heineken end of June 2019 and launched locally brewed Heineken cans in July 2019. Successful diversification of beer business portfolio is not yet fully reflected in financial results and we expect to see the full effect of new launches from July 2019. EBITDA is expected to break even during the second half of 2019. The beer business expects to achieve 20%+ local market share in beer by the end of 2019 on the back of new brand launches. Meanwhile the business also started to tap the international markets, by exporting its mainstream beer and lemonade brands to Azerbaijan and China.

GEL millions, unless otherwise noted
Key highlights	1H19	1H18	Change
LTM revenue	92.0	68.6	34.0%
LTM EBITDA	(5.1)	(4.3)	17.6%
LTM Development Capex	31.5	32.0	-1.8%
LTM Maintenance Capex	-	0.9	NMF
LTM FCF	(44.3)	(33.1)	34.1%
LTM Cash from operations	(15.0)	(2.8)	NMF
Net debt	113.8	81.8	39.0%

  Key performance metrics

Net investment	126.4
2018 dividend	-
LTM ROIC, wine business1	10.0%
LTM ROIC, beer business1	-21.3%
MOIC, wine business1	1.3
MOIC, beer business1	0.1
IRR, wine business1	7.0%
IRR, beer business1	-

  Capital Outlook through 2023

Capital needs2	77.0
of which, equity	37.0
of which, debt	40.0

(1) Please see definition on page 34.

(2) Gross capital needs, excluding dividend distribution.

(3) Please refer to detailed IFRS financial statements of Beverages on page 31-32.

Pipeline businesses

Attractive service business - Auto Service

Georgia Capital sees strong value creation opportunity in the auto services industry, which is currently a very fragmented market with approximately GEL 1.8 billion annual revenues. The leading player controls c. 16% of the market, while the rest of the market is dominated by small, owner-operated lower-end service shops. The number of vehicles has grown at 8% CAGR over the last six years, while vast majority of vehicles in the country remains largely outdated. The attractive growth rates combined with the expected increase in customer spending due to the stricter regulatory environment make the auto service business an attractive strategic opportunity. Georgia Capital aims to build a diversified business model with digital platform combining many different auto-related services: car services and parts, secondary car trading, car insurance and periodic technical inspection (PTI).

The Group began opening PTI centers in 1H18 and launched the PTI business from March 2019 under the name of Greenway Georgia (GWG), as described in more detail below. Additionally, the Group acquired an 80% interest in Amboli, at the end of June 2019. Amboli, the second largest player on the market with approximately 1% market share, was valued at 0.7x EV/Sales. The Group paid GEL 3.4 million for the acquisition and also contributed GEL 2 million pro-rata capital into equity to fund the business growth. Amboli, an importer, distributor, wholesaler and retailer of car consumables and spare parts, is expected to have break-even EBITDA in 2019.

PTI business 1H19 performance (GEL '000, unless otherwise noted)

Income statement highlights	1H19				Cash flow highlights	1H19
Revenue	5,304				Net cash flows from operating activities	1,803
Gross profit	3,023				Net cash flows used in investing activities	(15,492)
Operating expenses	(2,410)				Net cash flows from financing activities	13,649
EBITDA	613				Cash, ending balance	174
Net loss	(3,321)
Balance sheet highlights	Jun-18	Dec-18		Change
PPE, net & Intangible assets	49,553	37,840		31%
Total assets	53,314	41,395		29%
Borrowings	46,726	38,095		29%
Total liabilities	52,961	42,721		24%
Total equity	353	(1,326)		NMF

As part of the Georgia-EU Association Agreement, Georgia started implementation of mandatory vehicle inspection programme in several phases starting from January 2018. In July 2018, GWG won state tender to launch and operate 51 periodic technical inspection lines across Georgia with a 10-year licence. Technical inspection prices are set at GEL 60 and GEL 100 for light vehicles and heavy vehicles, respectively. GWG is the only player on the market with support from an international partner, Applus+, a Spain-headquartered worldwide leader in testing, inspection and certification services with a market presence in more than 70 countries. 

GWG finalized construction of 26 centres (10 locations in the capital city and 16 locations in the regions) and became fully operational from March 2019. Gross profit margin was 57% and EBITDA margin stood at 12% in 1H19, both expected to substantially increase on a stabilised basis in 2020. In the third month of operations, June 2019, gross margin reached 67%, while GEL 0.5 million monthly EBITDA was generated with 36% EBITDA margin. GWG serviced 140,338 cars (of which, 101,513 were primary checks) in 1H19, capturing 35%[20] of total market share. GWG Invested GEL 48 million to commence its operations, of which, GEL 5 million was equity capital provided by Georgia Capital and the rest was financed by borrowings from a local financial institution.

Education - Fragmented education market offers attractive opportunity for a scaled player 

There are  currently  c. 60,000 learners in private schools in Georgia, representing 10% of total school education market. Georgia Capital expects that the private school market in Georgia will double in size over the next five years. The market is currently very fragmented, with no single player having more than 2% market share. Georgia Capital intends to create a diversified business model combining premium, mid-level and affordable school segments. The Group aims to implement a partnership model across all schools with the Group holding majority stakes. By 2025 the Group aims to generate GEL 70,000 million EBITDA with up to 30,000 learners and GEL 185 million gross capital allocation.

In July 2019 Georgia Capital agreed deals to acquire majority stakes in three leading schools in the attractive private education business, two of which have closed in July 2019 and the third of which is expected to close over the coming weeks. The first, British-Georgian Academy (70% stake) is the leading school in the premium segment of the market. The second, Buckswood International School (80% stake) is well-positioned in the mid-level segment. Both schools were acquired at a 6.4x EV/EBITDA 2020. The third school is Green School (80%-90% ownership[21]), a leading player in the affordable education segment, which is being acquired at 5.6x EV/EBITDA multiple. We plan to increase maximum capacity of existing learners at all three schools by expanding the existing campuses and adding new ones in Tbilisi and surrounding areas.

The table below summarises the recent investments in the education business:

School	Segment	Total existing & future capital allocation from GCAP	Debt/Equity	GCAP ownership	Current capacity of learners	Targeted capacity of learners	Targeted cost per learner
BGA	Premium	GEL 75 million	25%	70%	750	3,350	GEL 35,000 -40,000
Buckswood	Mid-level	GEL 17 million	40%	80%	730	2,700	GEL 13,000 -16,000
Green School	Affordable	GEL 21 million	50%	80% - 90%21	1,050	5,700	GEL 6,500 -8,500
Total		GEL 113 million			2,530	11,750

Redberry - a leading platform for investments in the digital services business

On 8 May 2019 Georgia Capital acquired a 60% equity stake in Redberry, a leading Georgian digital marketing agency. Redberry was fully owned and managed by two young Georgian entrepreneurs who will remain with the business. The total cash consideration for the acquisition was US$ 3.2 million, of which, US$ 0.4 million was used to acquire the equity stake from the existing shareholders and US$ 2.8 million capital was injected to fund business growth. To capitalise on the high growth digital sector, the Group plans to further focus on digital start-up developments through the recent acquisition by: 1) creating digital start-ups focused on Georgia, with small investment sizes of c.US$ 100 thousand per each start-up 2) developing digital sales channels/business lines for Georgian corporates through joint venture partnerships models.

Reconciliation of adjusted IFRS measures to consolidated IFRS figures

Income statement reconciliation, 1H19
Gel '000, unless otherwise noted	GHG	BOG	Water Utility	Housing Development	P&C Insurance	Renewable Energy	Hospitality & Commercial Real Estate	Beverages	Auto Service	Digital Services	Corporate Centre	Elimination/ Consolidations	Group Total
Total investment return	141,081	75,804	28,689	12,109	30,885	-	7,087	(1,663)	15,662	-	21,597	-	331,251
Net foreign currency loss	-	-	-	-	-	-	-	-			(25,625)	-	(25,625)
Net Income (Management accounts)	141,081	75,804	28,689	12,109	30,885	-	7,087	(1,663)	15,662	-	(4,028)	-	305,626
Difference between Shareholder return* and IFRS profit of portfolio companies	(132,022)	(75,804)	(26,725)	(19,957)	(22,577)	(680)	(1,179)	(19,224)	(18,983)	42	-	-	(317,109)
Profit attributable to non-controlling shareholders	16,060	-	-	-	-	(366)	(28)	(3,877)		15	-	-	11,804
Reversal of intragroup dividend income	-	-	-	-	-	-	-	-	-	-	-	(11,981)	(11,981)
Reversal of hotels' revaluation gains for Group** consolidation purposes	-	-	-	-	-	-	-	-	-	-	-	(8,376)	(8,376)
Reversal of Fair valuation of Debt securities measured at FVOCI	-	-	-	-	-	-	-	-	-	-	-	(4,286)	(4,286)
Reversal of gain on intragroup sale of assets	-	-	-	-	-	-	-	-	-	-	-	(2,956)	(2,956)
Other	-	-	-	-	-	-	-	-			-	(1,924)	(1,924)
Profit for the period (IFRS Consolidated)	25,119	-	1,964	(7,848)	8,308	(1,046)	5,880	(24,764)	(3,321)	57	(4,028)	(29,523)	(29,202)

* Calculated based on fair value estimates.

Balance sheet reconciliation, 30 June 2019
Gel '000, unless otherwise noted	GHG	BOG	Water Utility	Housing Development	P&C Insurance	Renewable Energy	Hospitality & Commercial Real Estate	Beverages	Auto Service	Digital Services	Other	Corporate Centre	Eliminations/ Consolidations	Group Total
Management accounts:	661,413	533,299	459,706	60,858	161,409	62,737	182,431	69,733	24,363	8,790	12,784	(299,158)	-	1,938,365
Difference between Fair Value and Book value of portfolio companies	(361,366)		(184,821)	(26,922)	(105,348)	3,531	1,771	(7,592)	(22,975)	(3,977)	-	-	-	(707,700)
Transfer of Market value of 19.9% in BoG to Corporate Center	-	(533,299)	-	-	-	-	-	-	-	-	-	533,299	-	-
Reversal of hotels' revaluation gains for group consolidation purposes**	-	-	-	-	-	-	-	-	-	-	-	-	(35,437)	(35,437)
Reversal of irrevocable instructions on buyback programme	-	-	-	-	-	-	-	-	-	-	-	-	(14,396)	(14,396)
GHG Hospitals and clinics accounted at cost for GCAP consolidation purposes	-	-	-	-	-	-	-	-	-	-	-	-	(9,199)	(9,199)
M2 long-term share based Compensation adjustment for consolidation purposes	-	-	-	-	-	-	-	-	-	-	-	-	(4,499)	(4,499)
Goodwill recognised at Corporate centre	-	-	-	-	-	-	-	-			-	-	13,653	13,653
Other	-	-	-	-	-	-	-	-	-	-	-	2	(3,658)	(3,656)
Total equity attributable to shareholders of Georgia Capital (IFRS)	300,047	-	274,885	33,936	56,061	66,268	184,202	62,141	1,388	4,813	12,784	234,143	(53,536)	1,176,532

** Hotels are accounted at cost for IFRS Group consolidation purposes.

Detailed financial information

CONSOLIDATED IFRS INCOME STATEMENT
GEL '000, unless otherwise noted	1H19		1H18		change
Revenue	672,372		616,395		9.1%
Cost of sales	(415,287)		(386,676)		7.4%
Gross profit	257,085		229,719		11.9%
Operating expenses	(147,975)		(122,815)		20.5%
EBITDA	109,110		106,904		2.1%
Share in profit of associates	317		-		NMF
Dividend income	24,951		-		NMF
Depreciation and amortisation	(54,712)		(34,920)		56.7%
Net foreign currency (loss)/ gain	(53,621)		4,787		NMF
Net realized gains from investment securities measured at FVPL	1,011		-		NMF
Interest income	14,908		10,703		39.3%
Interest expense	(65,571)		(46,475)		41.1%
Net operating income before non-recurring items	(23,607)		40,999		NMF
Net non-recurring items	(3,383)		(36,829)		-90.8%
Profit before income tax expense	(26,990)		4,170		NMF
Income tax expense	(2,212)		(1,467)		50.8%
Profit for the period	(29,202)		2,703		NMF
Total profit / (loss) attributable to:
- shareholders of Georgia Capital PLC	(41,008)		(12,798)		NMF
- non-controlling interests	11,806		15,501		-23.8%
- basic and diluted earnings per share	(1.1597)		(0.3383)		NMF

CONSOLIDATED IFRS STATEMENT OF CASH FLOW
GEL '000, unless otherwise noted	1H19	1H18		Change
Net Cash flow from operating activities	109,422	71,587		52.9%
Net cash flows used in investing activities	(194,909)	(508,051)		-61.6%
Net cash from financing activities	25,347	254,697		-90.0%
Effect of exchange rates changes on cash and cash equivalents	5,768	(9,340)		NMF
Net (decrease) increase in cash and cash equivalents	(54,372)	(191,107)		-71.5%
Cash and cash equivalents, beginning of the year	256,930	346,241		-25.8%
Cash and cash equivalents of disposal group held for sale beginning of the period	-	48,840		NMF
Cash and cash equivalents of disposal group held for sale, end of the period	-	16,528		NMF
Cash and cash equivalents, end of the period	202,558	187,446		8.1%

CONSOLIDATED BALANCE SHEET
GEL '000, unless otherwise noted	30-Jun-19	31-Dec-18	Change
Cash and cash equivalents	202,558	256,930	-21.2%
Amounts due from credit institutions	58,166	40,299	44.3%
Debt securities owned	120,304	71,824	67.5%
Equity investments at fair value	533,299	457,495	16.6%
Accounts receivable	194,540	170,228	14.3%
Insurance premiums receivable	87,593	57,801	51.5%
Inventories	290,532	276,230	5.2%
Investment properties	178,094	151,232	17.8%
Prepayments	133,347	117,909	13.1%
Income tax assets	1,503	2,405	-37.5%
Property and equipment	1,853,904	1,671,917	10.9%
Goodwill	150,150	142,095	5.7%
Intangible assets	67,703	51,634	31.1%
Other assets	272,473	251,462	8.4%
Total assets	4,144,166	3,719,461	11.4%
Accounts payable	170,968	143,114	19.5%
Insurance contracts liabilities	99,405	68,207	45.7%
Income tax liabilities	1,183	1,119	5.7%
Deferred income	55,261	62,345	-11.4%
Finance lease liabilities	97,025	-	NMF
Borrowings	934,604	764,355	22.3%
Debt securities issued	1,040,329	916,401	13.5%
Other liabilities	241,563	235,771	2.5%
Total liabilities	2,640,338	2,191,312	20.5%
Total equity attributable to shareholders of Georgia Capital PLC	1,177,132	1,199,144	-1.8%
Non-controlling interests	326,696	329,005	-0.7%
Total equity	1,503,828	1,528,149	-1.6%
Total liabilities and equity	4,144,166	3,719,461	11.4%

GEL '000, unless otherwise noted	%	Valuation Method	Multiples		Fair Values		Change%	MOIC	IRR	Realized MOIC
			Jun-19	Dec-18	Jun-19	Dec-18		Jun-19
Listed Equity Investments					1,194,712	977,827	22.2%	6.5x	33.0%	2.1x
Georgia Healthcare Group PLC	57.0%	LSE			661,413	520,332	27.1%	5.7x	43.9%	1.0x
Bank of Georgia Group PLC	19.9%	LSE			533,299	457,495	16.6%	7.4x	21.4%	3.3x
Private Investments					1,042,811	905,547	15.2%
Late Stage (at fair value)					681,973	628,326	8.5%	2.8x		0.6x
Water Utility	100.0%	EV/EBITDA	9.0	8.8	459,706	431,017	6.7%	2.4x	32.0%	0.3x
Housing Development	100.0%	DCF			60,858	66,785	-8.9%	1.9x	14.6%	1.2x
P&C Insurance	100.0%	P/E	9.1	7.4	161,409	130,524	23.7%	18.9x	32.9%	3.1x
Early stage (at fair value)					314,901	271,288	16.1%	1.0x
Renewable Energy	65.0%	Cost			62,737	61,182	2.5%	1.1x	3.7%
Hospitality & Commercial RE	100.0%	NAV			182,431	149,079	22.4%	1.4x	14.7%
Beverages	86.0%				69,733	61,027	14.3%	0.6x	0.0%
Of which, wine Business		EV/EBITDA	9.9	9.1	59,633	56,771	5.0%	1.3x	7.0%
Of which, beer Business		EV/Sales	2.1	2.2	10,100	4,256	NMF	0.1x	0.0%
Pipeline					45,937	5,933	NMF
Education	100.0%	Cost			11,209	7,071	58.5%
Auto Service	100.0%	EV/EBITDA	10.1		24,363	(1,326)	NMF
Digital	60.0%	Cost			8,790	-	NMF
Other	100.0%	Cost			1,575	188	NMF
Total Portfolio Value (1)					2,237,523	1,883,374	18.8%
Net Debt (2)					(304,519)	(196,915)	54.6%
Of which, Cash and liquid funds					323,959	299,650	8.1%
Of which, Loans issued					232,289	305,480	-24.0%
Of which, Gross Debt					(860,767)	(802,045)	7.3%
Net other assets/ (liabilities) (3)					5,361	1,762	NMF
Net Asset Value (1)+(2)+(3)					1,938,365	1,688,221	14.8%
Shares outstanding					35,961,403	38,089,558	-5.6%
Net Asset Value per share (GEL)					53.90	44.32	21.6%
Net Asset Value per share (GBP)					14.81	13.05	13.5%

Cash flow	1H19	1H18	Change
GEL '000, unless otherwise noted
Dividends received	32,951	10,000	NMF
Interest received	19,110	10,426	83.3%
Interest paid	(24,694)	(21,785)	13.4%
Cash inflow from Operations before Opex	27,367	(1,359)	NMF
GCAP Operating expenses	(9,820)	(2,787)	NMF
Cash inflow from operations	17,547	(4,147)	NMF
Capital allocations	(43,152)	(38,729)	11.4%
Loans (Issued)/Repaid	90,788	(249,635)	NMF
of which, Loans to portfolio companies	90,788	(127,720)	NMF
of which, Loans to third parties	-	(121,915)	NMF
Cash outflow on buybacks	(61,322)	(49,580)	22.8%
of which, Mgmt Trust	(3,444)	(26,478)	-87.0%
of which, Buyback programme	(57,878)	(23,102)	NMF
Cash outflow/inflow from financing activities	-	467,434	NMF
Proceeds from debt securities issued	-	715,729	NMF
Repayment of borrowings from former Parent company	-	(248,295)	NMF
Demerger related outflows	(587)	(24,245)	-97.6%
FX Effect & Fair valuation	21,035	(13,642)	NMF
Net cash flow	24,309	87,456	-72.2%
Beginning cash and liquid funds	299,650	264,546	13.3%
Ending cash and liquid funds	323,959	352,002	-8.0%

Private portfolio companies - IFRS Accounts

Income statement (Water Utility)				Statement of cash flow (Water Utility)				Balance sheet (Water Utility)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	Jun-19	Dec-18	Change
Revenue from water supply to legal entities	43,337	42,151	2.8%	Cash received from customers	74,034	66,031	12.1%	Inventories	4,010	3,913	2.5%
Revenue from water supply to individuals	19,507	19,602	-0.5%	Cash paid to suppliers	(16,745)	(18,096)	-7.5%	Trade and other receivables	23,436	19,657	19.2%
Revenue from electric power sales	8,240	4,722	74.5%	Cash paid to employees	(9,103)	(9,246)	-1.5%	Prepaid taxes other than income tax	565	1,465	-61.4%
Revenue from technical support	1,607	1,303	23.3%	Interest received	592	235	NMF	Prepayments	2,350	1,647	42.7%
Other income	1,850	2,055	-10.0%	Taxes paid	(4,056)	(8,332)	-51.3%	Other current assets	565	436	29.6%
Revenue	74,541	69,833	6.7%	Cash flow from operating activities before maintenance capex	44,722	30,592	46.2%	Cash and cash equivalents	30,695	13,713	NMF
Salaries and benefits	(9,937)	(9,477)	4.9%	Maintenance capex	(11,093)	(12,444)	-10.9%	Total current assets	61,621	40,831	50.9%
Electricity and transmission costs	(8,380)	(9,361)	-10.5%	Operating cash flow	33,629	18,148	85.3%	Property, plant and equipment	614,714	586,207	4.9%
Other operating expenses	(11,350)	(10,742)	5.7%	Purchase of PPE and intangible assets	(27,883)	(77,070)	-63.8%	Investment Property	11,032	9,865	11.8%
Operating expenses	(29,667)	(29,580)	0.3%	Proceeds from PPE and investment property sale	75	1,458	-94.9%	Intangible assets	1,741	1,299	34.0%
Provisions for doubtful trade receivables	(4,508)	(3,022)	49.2%	CAPEX VAT	3,653	8,193	-55.4%	Other non-current assets	1,334	1,065	25.3%
EBITDA	40,366	37,231	8.4%	Restricted cash in Bank	329	3,509	-90.6%	Total non-current assets	628,821	598,436	5.1%
EBITDA Margin	54%	53%		Total cash used in investing activities	(23,826)	(63,910)	-62.7%	Total assets	690,442	639,267	8.0%
Depreciation and amortization	(16,018)	(12,085)	32.5%	Proceeds from borrowings	29,830	27,522	8.4%	Current borrowings	28,411	20,170	40.9%
EBIT	24,348	25,146	-3.2%	Repayment of borrowings	(9,169)	(297)	NMF	Trade and other payables	36,439	24,310	49.9%
EBIT Margin	33%	36%		Interest paid	(11,785)	(9,718)	21.3%	Other current liabilities	1,374	1,353	1.6%
Net interest expense	(10,498)	(7,253)	44.7%	Contributions under share-based payment plan	(1,777)	(779)	NMF	Total current liabilities	66,224	45,833	44.5%
Net non-recurring expenses	(2,389)	(5,484)	-56.4%	Total cash flow from financing activities	7,099	16,728	-57.6%	Long term borrowings	323,114	300,076	7.7%
Foreign exchange (loss) gain	(9,497)	4,391	NMF	Effect of exchange rates changes on cash	80	(2,454)	NMF	Deferred income	26,198	22,872	14.5%
EBT	1,964	16,800	-88.3%	Total cash (outflow)/inflow	16,982	(31,488)	NMF	Total non-current liabilities	349,334	322,948	8.2%
Profit	1,964	16,800	-88.3%	Cash, beginning balance	13,713	61,963	-77.9%	Total liabilities	415,558	368,781	12.7%
				Cash, ending balance	30,695	30,475	0.7%	Total equity	274,884	270,486	1.6%
								Total liabilities and equity	690,442	639,267	8.0%

Private portfolio companies - IFRS Accounts (cont'd)

Income statement (Housing Development)				Statement of cash flow (Housing Development)				Balance sheet (Housing Development)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	Jun-19	Dec-18	change
Gross profit from apartments sale	1,998	9,993	-80.0%	Proceeds from sales of apartments	14,902	37,138	-59.9%	Cash and cash equivalents	3,335	8,833	-62.2%
Gross profit from construction management	2,459	1,080	NMF	Outflows for development	(15,213)	(45,293)	-66.4%	Amounts due from credit institutions	422	1,634	-74.2%
Other income	289	110	NMF	Net proceeds from construction services	4,074	(2,619)	NMF	Investment securities	1,305	512	NMF
Gross Real Estate Profit	4,746	11,183	-57.6%	Cash paid for operating expenses	(13,385)	(7,349)	82.1%	Accounts receivable and other loans	13,114	6,063	NMF
Revaluation of commercial property	-	2,311	NMF	Income tax paid	(7,080)	-	NMF	Prepayments	34,480	33,976	1.5%
Operating expenses	(6,847)	(4,742)	44.4%	Net cash flows from operating activities	(16,703)	(18,124)	-7.8%	Inventories	93,730	102,923	-8.9%
EBITDA	(2,101)	8,752	NMF	Capital expenditure on investment property and PPE	(2,980)	(7,136)	-58.2%	Investment property	38,346	52,603	-27.1%
Net operating income before non-recurring items	(7,472)	4,831	NMF	Loans issued	(1,289)	(25)	NMF	Land bank	9,359	8,722	7.3%
Net non-recurring items	-	(4,443)	NMF	Net cash flows used in investing activities	(4,269)	(7,161)	-40.4%	Commercial real estate	28,987	43,881	-33.9%
Income tax expense	(376)	-	NMF	Net Intersegment loans received	19,526	28,925	-32.5%	Property and equipment	11,027	8,232	34.0%
Profit	(7,848)	388	NMF	Contributions under share-based payment plan	(988)	(1,281)	-22.9%	Other assets	32,657	33,833	-3.5%
				Proceeds from borrowings	-	41,614	NMF	Total assets	228,416	248,609	-8.1%
				Repayment of borrowings	-	(42,464)	NMF	Amounts due to credit institutions	50,647	46,069	9.9%
				Interest paid	(3,550)	(4,554)	-22.0%	Debt securities issued	72,797	67,697	7.5%
				Net cash flows from financing activities	14,988	22,240	-32.6%	Deferred income	21,249	23,295	-8.8%
				Exchange (losses)/gains on cash equivalents	(726)	(3,171)	-77.1%	Other liabilities	49,109	46,175	6.4%
				Total cash outflow	(6,710)	(6,215)	7.9%	Total liabilities	193,802	183,236	5.8%
				Cash, beginning balance	10,467	20,059	-47.8%	Total equity	34,614	65,373	-47.1%
				Cash, ending balance	3,757	13,844	-72.9%	Total liabilities and equity	228,416	248,609	-8.1%

Private portfolio companies - IFRS Accounts (cont'd)

Income Statement (P&C Insurance)				Statement of cash flow (P&C Insurance)						Balance sheet (P&C Insurance)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	1H19	1H18	Change		GEL '000, unless otherwise noted		Jun-19			Dec-18			change
Gross premiums written	52,739	45,885	14.9%	Insurance premium received	39,225	38,128	-2.1%		Cash and cash equivalents		4,365			11,104			-60.7%
Earned premiums, gross	46,512	42,551	9.3%	Reinsurance premium paid	(4,044)	(7,327)	-44.8%		Amounts due from credit institutions		33,644			23,456			43.4%
Earned premiums, net	36,288	31,451	15.4%	Insurance benefits and claims paid	(13,682)	(17,279)	-20.8%		Investment securities		7,225			4,408			63.9%
Insurance claims expenses, gross	(21,353)	(13,982)	52.7%	Reinsurance claims received	5,096	7,351	-30.7%		Insurance premiums receivable, net		42,821			31,442			36.2%
Insurance claims expenses, net	(15,111)	(12,503)	20.9%	Acquisition costs paid	(4,355)	(3,089)	41.0%		Ceded share of technical provisions		25,083			16,928			48.2%
Acquisition costs, net	(5,736)	(3,807)	50.7%	Salaries and benefits paid	(6,775)	(7,328)	-7.5%		PPE and intangible assets, net		13,147			9,594			37.0%
Net underwriting profit	15,440	15,141	2.0%	Interest received	1,888	1,373	37.5%		Goodwill		13,062			13,062			0.0%
Investment income	2,282	1,725	32.3%	Net other operating expenses paid	(1,342)	(1,617)	-17.0%		Deferred acquisition costs		3,572			3,324			7.5%
Net fee and commission income	57	290	-80.3%	Net cash flows from operating activities before income tax	16,011	10,212	56.8%		Pension fund assets		6,334			18,931			-66.5%
Net investment profit	2,339	2,015	16.1%	Income tax paid	(1,343)	(706)	90.2%		Other assets		12,436			13,462			-7.6%
Salaries and employee benefits	(5,391)	(4,618)	16.7%	Net cash flows from operating activities	14,667	9,506	54.3%		Total assets		161,689			145,710			11.0%
Selling, general and administrative expenses	(1,965)	(1,836)	7.0%	Purchase of property and equipment	(637)	(605)	5.3%		Gross technical provisions		59,450			45,663			30.2%
Depreciation & Amortisation	(994)	(475)	NMF	Purchase of intangible assets	(838)	(863)	-2.9%		Other insurance liabilities		27,103			16,101			68.3%
Impairment charges	(289)	(658)	-56.1%	Loan Issued	(19,902)	-	NMF		Current income tax liabilities		720			588			22.5%
Net other operating income	377	432	-12.7%	Proceeds from repayment of issued loans	21,166	3	NMF		Pension benefit obligations		6,335			18,932			-66.5%
Operating profit	9,518	10,001	-4.8%	Proceeds from / (Placement of) bank deposits	(9,512)	872	NMF		Other Liabilities		12,117			8,287			46.2%
Foreign exchange loss	339	(346)	NMF	Purchase of available-for-sale assets/ Deposits	(1,784)	(237)	NMF		Total liabilities		105,724			89,572			18.0%
Interest expense	(70)	-	NMF	Net cash flows from used in investing activities	(11,507)	(830)	NMF		Total equity		55,965			56,138			-0.3%
Non-recurring costs	-	(628)	NMF	Dividend Paid	(8,000)	(10,000)	-20.0%		Total liabilities and equity		161,689			145,710			11.0%
Pre-tax profit	9,787	9,027	8.4%	Purchase of treasury shares	(927)	-	NMF
Income tax expense	(1,479)	(1,349)	9.6%	Repayment of lease liability	(915)	-	NMF
Net profit	8,308	7,678	8.2%	Interest paid on lease liabilities	(39)	-	NMF
				Net cash flows from financing activities	(9,881)	(10,000)	-1.2%
				Effect of exchange rates changes on cash and cash equivalents	(14)	(121)	-88.4%
				Total cash outflow	(6,735)	(1,445)	NMF
				Cash and cash equivalents, beginning	11,103	4,185	NMF
				Cash and cash equivalents, ending	4,368	2,740	59.4%

Private portfolio companies - IFRS Accounts (cont'd)

Income statement (Renewable Energy)							Statement of cash flow (Renewable Energy)						Balance sheet (Renewable Energy)
GEL '000, unless otherwise noted		1H19		1H18		Change	GEL '000, unless otherwise noted		1H19		1H18	Change	GEL '000, unless otherwise noted		Jun-19		Dec-18		Change
Total Revenue		2,395		-		NMF	Cash received from customers		639		-	NMF	Total current assets		27,007		11,895		NMF
Salaries and benefits		(219)		(134)		63.4%	Cash paid to suppliers		(349)		(171)	NMF	Property, plant and equipment		141,708		114,645		23.6%
Electricity and transmission costs		(20)		-		NMF	Cash paid to employees		(237)		(244)	-2.9%	Other non-current assets		44,398		42,764		3.8%
Other operating expenses		(671)		(269)		NMF	Interest received		111		46	NMF	Total non-current assets		186,106		157,409		18.2%
Total Operating Expenses		(910)		(403)		NMF	Taxes paid		(753)		-	NMF	Total assets		213,113		169,304		25.9%
EBITDA		1,485		(404)		NMF	Cash flow from operating activities		(589)		(369)	59.3%	Total current liabilities		7,573		6,658		13.7%
EBIT		587		(564)		NMF	Purchase of PPE and intangible assets		(21,754)		(20,565)	5.8%	Long term borrowings		101,803		66,458		53.2%
Net interest expense		(1,498)		46		NMF	VAT return		3,210		963	NMF	Other non-current liabilities		1,753		2,029		-13.6%
Non-recurring expenses		(151)		338		NMF	Restricted cash in Bank		(577)		-	NMF	Total non-current liabilities		103,556		68,487		51.2%
Foreign exchange (losses) gains		16		(236)		NMF	Total cash flow used in investing activities		(19,121)		(19,602)	-2.5%	Total liabilities		111,129		75,145		47.9%
Profit before income tax		(1,046)		(416)		NMF	Proceeds from borrowings		28,176		18,276	54.2%	Total equity attributable to GCAP		66,290		61,203		8.3%
Net Profit		(1,046)		(416)		NMF	Capital increase		2,415		5,441	-55.6%	Non-controlling interest		35,694		32,956		8.3%
Attributable to:							Total cash flow used in financing activities		30,591		23,717	29.0%	Total equity		101,984		94,159		8.3%
- shareholders of the Group		(680)		(270)		NMF	Exchange (losses)/gains on cash equivalents		1,623		(693)	NMF	Total liabilities and equity		213,113		169,304		25.9%
- non-controlling interests		(366)		(146)		NMF	Total cash inflow		12,504		3,053	NMF
							Cash, beginning balance		8,388		8,298	1.1%
							Cash, ending balance		20,892		11,351	84.1%

Private portfolio companies - IFRS Accounts (cont'd)

Income statement (Hospitality & Commercial Real Estate)				Statement of cash flow (Hospitality & Commercial Real Estate)				Balance sheet (Hospitality & Commercial Real Estate)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	Jun-19	Dec-18	change
Gross profit from operating leases	2,791	1,901	46.8%	Net proceeds from rent generating assets	1,925	2,124	-9.4%	Cash and cash equivalents*	7,347	28,614	-74.3%
Gross profit from hospitality services	697	457	52.5%	Net proceeds from hospitality services	822	539	52.5%	Prepayments	29,903	15,713	90.3%
Other income	-	50	NMF	Other operating expenses paid	(2,423)	(1,056)	NMF	Investment property	294,758	225,343	30.8%
Gross Real Estate Profit	3,488	2,408	44.9%	Net cash flows from operating activities	324	1,607	-79.8%	Land bank	55,606	37,459	48.4%
Revaluation on commercial property	7,892	-	NMF	Acquisition of investment property	(10,574)	(36,760)	-71.2%	Commercial real estate	239,152	187,884	27.3%
Operating expenses	(1,860)	(557)	NMF	Capital expenditure on investment property	(18,741)	(14,197)	32.0%	Property and equipment	401	172	NMF
NOI	9,521	1,851	NMF	VAT return	(9,787)	-	NMF	Other assets	42,230	24,991	69.0%
Net interest expense	(3,440)	(949)	NMF	Loans issued	(58)	(715)	-91.9%	Total assets	374,639	294,833	27.1%
Net operating income before non-recurring items	5,880	777	NMF	Acquisition of subsidiaries	(13,874)	-	NMF	Borrowings	102,203	104,557	-2.3%
Net non-recurring items	-	(1,187)	NMF	Net cash flows used in investing activities	(53,034)	(51,672)	2.6%	Debt securities issued	86,257	19,609	NMF
Profit before income tax	5,880	(410)	NMF	Proceeds from preferred stock issued	6,833	-	NMF	Other liabilities	1,980	10,829	-81.7%
Profit	5,880	(410)	NMF	Proceeds from debt securities issued	59,964	-	NMF	Total liabilities	190,440	134,995	41.1%
				Contributions under share-based payment plan	(172)	(81)	NMF	Total equity attributable to shareholders of the Group	184,199	149,077	23.6%
				Proceeds from borrowings	67,941	91,031	-25.4%	Non-controlling interest	-	10,761	NMF
				Repayment of borrowings	(75,681)	(17,191)	NMF	Total equity	184,199	159,838	15.2%
				Net intragroup loans (repaid) / received	(19,526)	(27,465)	-28.9%	Total liabilities and equity	374,639	294,833	27.1%
				Interest paid	(7,792)	(1,625)	NMF	*Includes amounts due from CI
				Net cash flows from financing activities	31,567	44,669	-29.3%
				Effect of exchange rate changes on cash and cash equivalents	(126)	(200)	-37.0%
				Total cash inflow/(outflow)	(21,269)	(5,596)	NMF
				Cash, beginning balance	28,616	14,806	93.3%
				Cash, ending balance	7,347	9,210	-20.2%

Private portfolio companies - IFRS Accounts (cont'd)

Income statement (Beverages)				Balance sheet (Wine)				Balance sheet (Beer)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	Jun-19	Dec-18	change	GEL '000, unless otherwise noted	Jun-19	Dec-18	change
Wine Business	17,967	10,757	67.0%	Cash and cash equivalents	5,845	8,380	-30.3%	Cash and cash equivalents	3,055	1,249	NMF
Beer Business	20,425	13,251	54.1%	Amounts due from financial institutions	975	930	4.8%	Amounts due from financial institutions	-	8	NMF
Distribution Business	7,834	6,458	21.3%	Accounts Receivable	12,998	12,409	4.7%	Accounts Receivable	8,693	2,156	NMF
Revenue	46,226	30,466	51.7%	Prepayments & Other Assets	1,594	985	61.8%	Prepayments & Other Assets	5,976	4,998	19.6%
Wine Business	(9,306)	(5,361)	73.6%	Inventory	17,934	18,979	-5.5%	Inventory	9,817	6,618	48.3%
Beer Business	(14,223)	(8,803)	61.6%	Intangible Assets, Net	291	333	-12.6%	Intangible Assets, Net	8,696	631	NMF
Distribution Business	(6,033)	(5,045)	19.6%	Goodwill	3,136	3,136	0.0%	Goodwill	2,226	2,226	0.0%
COGS	(29,562)	(19,209)	53.9%	Property and Equipment, Net	34,702	32,233	7.7%	Property and Equipment, Net	99,589	98,267	1.3%
Gross Profit	16,664	11,257	48.0%	Total Assets	77,475	77,385	0.1%	Total Assets	138,052	116,153	18.9%
Gross Profit Margin	36.0%	36.9%		Accounts Payable	4,687	5,894	-20.5%	Accounts Payable	15,160	9,530	59.1%
Salaries and other employee benefits	(9,907)	(6,352)	56.0%	Borrowings	31,745	49,857	-36.3%	Borrowings	92,302	68,096	35.5%
Sales and marketing expenses	(2,697)	(3,794)	-28.9%	Other Current Liabilities	2,491	3,658	-31.9%	Other Current Liabilities	4,850	2,310	NMF
General and administrative expenses	(4,205)	(3,557)	18.2%	Total Liabilities	38,923	59,409	-34.5%	Total Liabilities	112,312	79,936	40.5%
Distribution expenses	(3,112)	(2,012)	54.7%	Total equity	38,552	17,976	NMF	Total equity	25,740	36,217	-28.9%
Other operating expenses	(1,474)	(1,630)	-9.6%	TOTAL LIABILITIES AND EQUITY	77,475	77,385	0.1%	TOTAL LIABILITIES AND EQUITY	138,052	116,153	18.9%
EBITDA	(4,731)	(6,088)	-22.3%
wine EBITDA	3,046	1,627	87.2%
beer EBITDA	(6,464)	(7,584)	-14.8%
distribution EBITDA	(985)	276	NMF
Net foreign currency (loss)/gain	(6,525)	4,501	NMF
Depreciation and amortization	(7,232)	(5,245)	37.9%
Net interest income/expense	(6,271)	(2,939)	NMF
Net non-recurring items	-	(196)	NMF
(Loss) profit before income tax	(24,759)	(9,967)	NMF
(Loss) Profit	(24,759)	(9,967)	NMF

Private portfolio companies - IFRS Accounts (cont'd)

Statement of cash flow (Wine)				Statement of cash flow (Beer)
GEL '000, unless otherwise noted	1H19	1H18	Change	GEL '000, unless otherwise noted	1H19	1H18	Change
Cash received from customers	19,921	11,697	70.3%	Proceeds from sales	21,802	18,189	19.9%
Cash paid to suppliers	(8,505)	(4,451)	91.1%	Cash outflows for inventory	(11,775)	(8,302)	41.8%
Cash paid to employees	(2,608)	(1,121)	NMF	Transportation Cost	(982)	(807)	21.7%
Cash paid for operating expenses	(4,770)	(3,071)	55.3%	Sales and Marketing Expenses	(4,432)	(3,556)	24.6%
Taxes paid	(2,242)	(1,493)	50.2%	Operating Expenses	(13,396)	(12,847)	4.3%
Net cash flows from operating activities	1,797	1,564	14.9%	Net cash flows from operating activities	(8,783)	(7,323)	19.9%
Investments in Subsidiaries	-	(16,604)	NMF	Cash outflows for purchase of Property, plant and equipment	(15,810)	(3,850)	NMF
Purchase of Property, Plant & Equipment	(3,844)	(98)	NMF	Net cash flows used in investing activities	(15,810)	(3,850)	NMF
Cash inflow from restricted cash account	-	1,872	NMF	Proceeds from borrowings	88,719	1,200	NMF
Net cash flows from used in investing activities	(3,844)	(14,830)	-74.1%	Repayment of borrowings	(68,658)	(16)	NMF
Proceeds from borrowings	18,545	18,918	-2.0%	Interest paid	(3,522)	(1,035)	NMF
Repayments of borrowings	(18,115)	(4,547)	NMF	Issue of share capital	10,143	1,358	NMF
Interest paid	(1,527)	(882)	73.1%	Net cash flows from financing activities	26,682	1,507	NMF
Capital increase	226	432	-47.7%	Effect of exchange rate difference from cash and cash equivalents	(278)	(883)	-68.5%
Net cash flows from financing activities	(871)	13,921	NMF	Total cash inflow/(outflow)	1,811	(10,549)	NMF
Effect of exchange rates changes on cash and cash equivalents	380	(485)	NMF	Cash and cash equivalents at beginning of period	1,244	13,002	-90.4%
Total cash inflow/(outflow)	(2,538)	170	NMF	Cash and cash equivalents at end of period	3,055	2,453	24.5%
Cash and cash equivalents, beginning	8,380	3,485	NMF
Cash and cash equivalents, ending	5,842	3,655	59.8%

Appendices

Management income statement preparation methodology

The management P&L is an aggregation of GCAP's stand-alone P&L and fair value change of portfolio companies during the reporting period. 

·      The top part of the income statement (GCAP Net Operating Income) represents the aggregation of the two stand-alone holding company accounts, which we call GCAP (i.e. the UK holding company Georgia Capital PLC and the Georgian holding company JSC Georgia Capital ), the performance of which reflects the net result of a) dividend income accrual based on paid or declared annual dividend proceeds from portfolio companies during the reporting period, b) interest income on liquid funds and loans issued, c) interest expenses on debt incurred at GCAP level (which consists of the bonds issued) and d) expenses incurred at GCAP level. These amounts are derived from IFRS consolidated financial statements, note 6 on segment reporting under segment name of Corporate Center.

·      Fair value change of portfolio companies (Total Investment Return) represents fair value changes in the value of portfolio companies during the reporting period, as valued in the period-end NAV statement. Holdings in listed and private portfolio companies are valued for the purposes of NAV as follows: i) listed portfolio companies are carried at the period-end market values based on closing share prices on respective reputable stock exchanges and ii) private businesses are carried at management's estimated fair values based on valuation technique believed to be most appropriate to the investment. A detailed valuation methodology is described in the Group's Annual report and accounts 2018 on pages 82-90. We view fair value changes of portfolio companies as a metric to measure the total investment return of Georgia Capital's holdings, which itself reflects value creation for a shareholder.

·      Following the aggregation of GCAP Net Operating Income and Total Investment Return, we arrive at management income before foreign exchange movements for the period.

·      Below the income before foreign exchange movements line, to arrive at management net income, we present GCAP gains or losses from foreign exchange movements.

In line with the change to disclose private businesses at fair value instead of book value in the NAV statement from FY18 results announcement, Georgia Capital is presenting the performance of each portfolio company in its management income statement on fair value basis starting from 1H19. Comparative period has not been presented, as management believes that 1H18 is not directly comparable and its presentation is not useful for users.

Appendices (cont'd)

Glossary

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

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

3.     NMF - Not meaningful

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

5.     LTM - last twelve months

6.     MTD - Month to date

7.     NTM - next twelve months

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

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

10.  IRR - for portfolio companies is calculated based on a) historical contributions to the portfolio company less b) dividends received and c) market / fair value of the portfolio company at 30 June 2019. 

11.  MOIC - Multiple of Capital Invested is calculated as follows: i) the numerator is the cash and non-cash inflows from dividends and sell-downs plus fair value of investment at reporting date ii) the denominator is the gross investment amount.

12.  Realised MOIC - Realised Multiple of Capital Invested is calculated as follows: i) the numerator is the cash and non-cash inflows from dividends and sell-downs ii) the denominator is the gross investment amount.

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

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

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

16.  ROAE - Return on average total equity (ROAE) equals profit for the period attributable to shareholders divided by monthly average equity attributable to shareholders of the business for the same period for BoG and P&C Insurance;

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

18.  EV - enterprise value

19.  NOI - net operating income

20.  Liquid assets & loans issued include cash, marketable debt securities and issued short-term loans

21.  RevPAR - Revenue per available room

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

Principal risks and uncertainties

Understanding our risks

In the Group's 2018 Annual Report and Accounts we disclosed the principal risks and uncertainties and their potential impact, as well as the trends and outlook associated with these risks and the actions we take to mitigate these risks. We have updated this disclosure to reflect recent developments and this is set out in full below. If any of the following risks were to occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The risks and uncertainties described below may not be the only ones the Group faces. The order in which the principal risks and uncertainties appear does not denote their order of priority. Additional risks and uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred expenses or other events that could result in a decline in the value of the Group's securities.

REGIONAL INSTABILITY
PRINCIPAL RISK / UNCERTAINTY	The Georgian economy and our business may be adversely affected by regional tensions. Georgia shares borders with Russia, Azerbaijan, Armenia and Turkey and has two breakaway territories, Abkhazia and the Tskhinvali Region/South Ossetia. Countries within the region, including Azerbaijan, Armenia, Russia and Turkey are key trading partners of Georgia. There has been ongoing geopolitical tension, political instability, economic instability and military conflict in  the region, which may have an adverse effect on our business and financial position. The continuation or escalation of political instability, geopolitical conflict, economic decline of Georgia's trading partners and any future deterioration of Georgia's relationship with Russia, including in relation to border and territorial disputes, may have a negative effect on the political or economic stability of Georgia, which in turn may have an adverse effect on our business including putting adverse pressure on our business model, our revenues and our financial position.
KEY DRIVERS / TRENDS	Russia imposed economic sanctions on Georgia in 2006, and conflict between the countries escalated in 2008 when Russian forces crossed Georgian borders and recognised the independence of Abkhazia and the Tskhinvali/South Ossetia regions. Russian troops continue to occupy the regions and tensions between Russia and Georgia persist. The introduction of a preferential trade regime between Georgia and the EU in 2016 and the European Parliament's approval of a proposal on visa liberalisation for Georgia in 2017 can potentially intensify tensions between the countries. Russia banned direct flights on July 8, 2019 and recommended to stop selling holiday packages to Georgia. The decision was made in response to anti-Putin protests in Tbilisi, which started after a member of the Russian parliament addressed the Georgian parliament in Russian from the speaker's chair. Protests continue and the risk of further economic sanctions have increased. The ongoing conflict between Russia and Ukraine, and Russia's and Turkey's worsening relations with the US, also increase uncertainties in the region. There is an ongoing conflict between Azerbaijan and Armenia which impacts the region.
MITIGATION	The Group actively monitors significant developments in the region and risks related to political instability and the Georgian government's response thereto.  It also develops responsive strategies and action plans of its own. The Georgian export market shifted significantly away from the Russian market after Russia's 2006 embargo, and the Group participated in that shift. The government's ongoing action plan to further diversify tourism revenues will serve well to reduce exposure on Russia - and again the Group is playing a role in this. While financial market turbulences and geopolitical tensions affect regional trading partners, Georgia's preferential trading regimes, including FTAs with both the EU and China, support the country to enhance resilience to regional external shocks.
REGULATORY RISK
PRINCIPAL RISK / UNCERTAINTY	The Group operates across a wide range of industries: healthcare services, pharmacy and distribution, property and casualty insurance, real estate, water utility and electric power generation, hydro power, wine and beverages, education, auto service and digital services. Many of these industries are highly regulated. The regulatory environment continues to evolve and we cannot predict what additional regulatory changes will be introduced in the future or the impact they may have on our operations.
KEY DRIVERS / TRENDS	Each of our businesses is subject to different regulators and regulation. Legislation in certain industries, such as healthcare, energy, insurance and utilities is continuously evolving. Different changes, including but not limited to, Governmental funding, licensing and accreditation requirements and tariff structures may adversely affect our businesses.
MITIGATION	Continued investment in our people and processes is enabling us to meet our current regulatory requirements and means that we are well placed to respond to any future changes in regulation. Further, our investment portfolio is well diversified, limiting exposure to particular industry specific regulatory risks. In line with our integrated control framework, we carefully evaluate the impact of legislative and regulatory changes as part of our formal risk identification and assessment processes and, to the extent possible, proactively participate in the drafting of relevant legislation. As part of this process, we engage where possible in constructive dialogue with regulatory bodies and seek external advice on potential changes to legislation. We then develop appropriate policies, procedures and controls as required to fulfill our compliance obligations. Our compliance framework, at all levels, is subject to regular review by Internal Audit and external assurance providers.
INVESTMENT RISK
PRINCIPAL RISK / UNCERTAINTY	The Group may be adversely affected by risks in respect of specific investment decisions.
KEY DRIVERS / TRENDS	An inappropriate investment decision might lead to poor performance. Investment risks include inadequate research and due diligence of new acquisitions and bad timing of the execution of both acquisition and divestment decisions.
MITIGATION	The Group manages investment risk with established procedures for thorough evaluation of target acquisitions. Investment opportunities are subject to rigorous appraisal and a multi-stage approval process. Target entry and exit event prices are monitored and updated regularly, in relation to market conditions and strategic aims. The Group performs due diligence on each target acquisition including financial and legal matters. Subject to an evaluation of the due diligence results an acceptable price and funding structure is determined and, the pricing, funding and future integration plan is presented to the Investment Committee (consisting of the full Board) for approval. The Committee reviews and approves or rejects proposals for development, acquisition and sale of investments and decides on all major new business initiatives, especially those requiring a significant capital allocation.
LIQUIDITY
PRINCIPAL RISK / UNCERTAINTY	Risk that liabilities cannot be met or new investments made due to a lack of liquidity. Such risk can arise from not being able to sell an investment due to lack of demand from the market or from not holding cash or being able to raise debt.
KEY DRIVERS / TRENDS	The Group predominantly invests in private portfolio businesses, potentially making the investments difficult to realise at any one point in time. There is a risk that the Group will not be able to meet its financial obligations and liabilities on time due to lack of cash or liquid assets. The risk involves the inability to generate sufficient cash and cash equivalents to meet all payment obligations; this may be caused by numerous factors, such as inability to refinance its long-term liabilities, or excessive investments in long-term assets and a resulting mismatch in the availability of funding to meet liabilities or failure to comply with the creditor covenants causing Event of Default or Default.
MITIGATION	Liquidity Management process is a regular process, where the framework is approved by the Board, monitored by senior management and the Chief Financial Officer. The framework models the ability of the Group to fund under both normal conditions (Base Case) and during stressed situations. This approach is designed to ensure that the funding framework is sufficiently flexible to ensure liquidity under a wide range of market conditions. The finance department is actively involved in the liquidity management on a weekly basis and monitors, on a daily basis, the liquidity measures that are analysed by senior management at least once a month. Such monitoring involves review of the composition of the cash buffer, potential cash outflows and management's readiness to meet such commitments. It also serves as a tool to revisit the portfolio composition and take necessary measures, if required. JSC Georgia Capital successfully issued holding company US$300 million bonds in March 2018. The debt is actively managed so that Georgia Capital maintains a maximum loan to value (LTV) ratio of 30%. The Group has adopted the following measures to manage its standalone credit profile: ·      the Group depends on its ability to realise its listed securities on the public markets, which are highly liquid. To limit this risk, the Group has adopted a policy to maintain a cash buffer of at least US$50 million in highly-liquid assets in order to always have sufficient capacity for potential downside scenarios as well as for potential acquisition opportunities. Additionally, the Group will maintain at least US$50 million in marketable securities which can be converted into cash within three to four weeks (this would include BOG and GHG shares); ·      the cash expense coverage ratio (defined as the sum of annual cash inflows from dividends and interest income from on-lent loans divided by sum of annual cash outflows in bond interest payments and cash operating expenses) should be in excess of 1.25 at all times; ·      the ratio of extra cash (defined as cash in excess of liquid assets of US$50 million) divided by expected cash outflows over the next 180 days should be in excess of 1.0 at all times; and ·      the Net Debt to Asset Portfolio should be no more than 30% at all times, where ''Net Debt'' is defined as borrowings plus guarantees issued and commitments from financial institutions minus liquid assets and ''Asset Portfolio'' is defined as the sum of fair values of portfolio company investments and loans issued.
PORTFOLIO COMPANY STRATEGIC AND EXECUTION RISKS
PRINCIPAL RISK / UNCERTAINTY	Market conditions may adversely impact our strategy and all our businesses have their own risks specific to their industry. Our businesses have growth and expansion strategies and we face execution risk in implementing these strategies. The Group will normally seek to monetise its investments, including through initial public offering, strategic sale or other appropriate exit, typically within five to ten years of acquisition and we face market and execution risk in connection with exits.
KEY DRIVERS / TRENDS	Each of our private portfolio investments (Water Utility; Renewable Energy; Housing Development; Hospitality and Commercial Real Estate; Property & Casualty Insurance; Beverages; Education; Auto Service; Digital Services;) and our public portfolio investments (Georgia Healthcare Group and Bank of Georgia) face their own risks. These include risks inherent to their industry, or to their industry particularly in Georgia, and each face significant competition. They also face the principal risks and uncertainties referred to in this table. Macroeconomic conditions, the financial and economic environment and other market conditions in international capital markets may limit the Group's ability to achieve a partial or full exit from its existing or future businesses. It may not be possible or desirable to divest, including because suitable buyers cannot be found at the appropriate times or because of difficulties in obtaining favourable terms or prices or because the Group has failed to act at the appropriate time.
MITIGATION	For each business, we focus on building a strong management team and have successfully been able to do so thus far. Management succession planning is regularly on the agenda for the Nomination Committee which reports to the Board on this matter. The Board closely monitors the implementation of strategy, financial and operational performance, risk management and internal control framework and corporate governance of our businesses. We hold management accountable for meeting targets. For each industry in which we operate, we closely monitor industry trends, market conditions and the regulatory environment. We have also sought and continue to seek advice from professionals with global experience in relevant industries. The Group has a strong track record of growth and has accessed the capital markets on multiple occasions as part of the BGEO Group PLC prior to the demerger in May 2018. Our acquisition history has also been successful and we have been able to integrate businesses due to our strong management with integration experience.
CURRENCY AND MACROECONOMIC ENVIRONMENT
PRINCIPAL RISK / UNCERTAINTY	Unfavourable dynamics of macroeconomic variables, including depreciation of the Lari against the US dollar may have a material impact on the Group's performance.
KEY DRIVERS / TRENDS	The Group's operations are primarily located in, and most of its revenue is sourced from, Georgia. Factors such as gross domestic product (GDP), inflation, interest and currency exchange rates, as well as unemployment, personal income, tourist numbers and the financial situation of companies, can have a material impact on customer demand for its products and services. The Lari floats freely against major currencies. Lari depreciation against the US dollar was 9.3% at the end of July as compared to 31 December 2018. The Lari depreciation was likely mainly driven by negative expectations caused by air travel ban, political tensions and protests. NBG intervened in the FX market in August and offered US$ 40 million on the FX auction, from which US$ 32.8 million was sold. In addition, the Real Effective Exchange Rate is below to its long-term trend and Federal Reserve has started to ease monetary policy.  These factors strengthen our expectation about the likelihood of currency appreciation in the medium term. On the macro level, the free floating exchange rate works well as a shock absorber, but on the micro level, the currency fluctuation has affected and may continue to adversely affect the Group's results. There is a risk that the Group incurs material losses or loses material amounts of revenue and, consequently, deteriorates its operating solvency in a specific currency or group of currencies due to the fluctuation of exchange rates. The risk is mainly caused by significant open foreign currency positions in the balance sheets. In April 2017, the IMF approved a new three-year US$285 million economic programme, aimed at preserving macroeconomic and financial stability and addressing structural weaknesses in the Georgian economy to support higher and more inclusive growth. Despite the regional turbulences and global slow down, Georgian economic growth remains robust, inflation is managed and resilience to external shocks improves. A shrinking trade deficit supported a 4.9% rise in GDP in the first five months of 2019, whilst average inflation was 3.6% in 1H19. One-off factors like increase in excise tax contributed by 1.4% in the annual inflation. The current account deficit narrowed significantly to 6.2% in 1Q19. Monetary policy stance is appropriate to the current macroeconomic environment. Official reserve assets reached a historically high level at US$3.7 billion in 1H19.
MITIGATION	The Group continually monitors market conditions, reviews market changes and also performs stress and scenario testing to test its position under adverse economic conditions, including adverse currency movements. Currency risk management process is an integral part of the Group's activities; currency risk is managed through regular and frequent monitoring of the Group's currency positions and through timely and efficient elaboration of responsive actions and measures. Senior management reviews overall currency positions of the Group several times during the year and elaborates respective overall currency strategies; the Finance department monitors the daily currency position for stand-alone Georgia Capital, weekly currency positions on portfolio company level and manages short-term liquidity of the Group across different currencies. Control procedures involve regular monitoring and control of the currency gap and currency positions, running currency sensitivity tests and elaborating response actions/steps based on the results of the tests.

Statement of Directors' Responsibilities

We, the Directors, confirm that to the best of our knowledge:

§ The interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

§ This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

§ This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related parties' transactions and changes therein)

After making enquiries, the Directors considered it appropriate to adopt the going concern basis in preparing this Results Report.

The Directors of the Group are as follows:

Irakli Gilauri

Caroline Brown

Jyrki Talvitie

David Morrison

Kim Bradley

Massimo Gesua' sive Salvadori

By order of the Board

Irakli Gilauri                                                                                         

Chairman & Chief Executive Officer                                                                                 

14 August 2019

Georgia Capital PLC and Subsidiaries Unaudited Interim Condensed Consolidated Financial Statements

CONTENTS

Interim Review Report

Interim Consolidated statement of financial position.................................................................................................................... 43

Interim Consolidated income statement.......................................................................................................................................... 44

Interim Consolidated statement of comprehensive income........................................................................................................... 45

Interim Consolidated statement of changes in equity .................................................................................................................... 46

Interim Consolidated statement of cash flows ............................................................................................................................... 48

SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       Principal Activities

2.       Basis of Preparation

3.       Summary of significant accounting policies

4.       Business Combinations

5.       Changes in Presentation and Restatements

6.       Segment Information

7.       Cash and Cash Equivalents

8.       Amounts Due from Credit Institutions

9.       Debt Securities Owned and Equity Investments at Fair Value

10.     Investment Properties

11.     Property and Equipment

12.     Borrowings

13.     Debt Securities Issued

14.     Commitments and Contingencies

15.     Equity

16.     Gross Profit

17.     Impairment of insurance premiums receivable, accounts receivable, other assets and provisions

18.     Net Non-recurring Items

19.     Fair Value Measurements

20.     Maturity Analysis

21.     Related Party Disclosures

22.     Events after the Reporting Period

INDEPENDENT AUDITOR'S REPORT

INDEPENDENT REVIEW REPORT TO GEORGIA CAPITAL Plc (the "Company")

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2019, which comprises the Interim Consolidated Statement of Financial Position, the Interim Consolidated Income Statement, the Interim Consolidated Statement of Comprehensive Income, the Interim Consolidated Statement of Changes in Equity, the Interim Consolidated Statement of Cash Flows and related notes 1 to 22. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

14 August 2019

Notes:

1. The maintenance and integrity of the Georgia Capital PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Georgia Capital PLC and Subsidiaries                                              Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2019

(Thousands of Georgian Lari)

			As at
	Notes		30 June 2019 (unaudited)		31 December 2018*
Assets
Cash and cash equivalents	7		202,558		256,930
Amounts due from credit institutions	8		58,166		40,299
Debt securities owned	9		120,304		71,824
Equity investments at fair value	9		533,299		457,495
Accounts receivable			194,540		170,228
Insurance premiums receivable			87,593		57,801
Inventories			290,532		276,230
Investment properties	10		178,094		151,232
Prepayments			133,347		117,909
Income tax assets			1,503		2,405
Property and equipment	11		1,853,904		1,671,917
Goodwill			150,150		142,095
Intangible assets			67,703		51,634
Other assets			272,473		251,462
Total assets			4,144,166		3,719,461
Liabilities
Accounts payable			170,968		143,114
Insurance contracts liabilities			99,405		68,207
Income tax liabilities			1,183		1,119
Deferred income			55,261		62,345
Lease liabilities			97,025		-
Borrowings	12		934,604		764,355
Debt securities issued	13		1,040,329		916,401
Other liabilities			241,563		235,771
Total liabilities			2,640,338		2,191,312
Equity	15
Share capital			1,229		1,293
Additional paid-in capital			2,008		-
Treasury shares			(102)		(118)
Other reserves			432,200		415,164
Retained earnings			741,797		782,805
Total equity attributable to shareholders    of Georgia Capital PLC			1,177,132		1,199,144
Non-controlling interests			326,696		329,005
Total equity			1,503,828		1,528,149
Total liabilities and equity			4,144,166		3,719,461

* Certain amounts do not correspond to the 2018 consolidated financial statement as they reflect the adjustments made for change in accounting policy as described in Note 3.

The financial statements on page 43 to 80 were approved by the Board of Directors on 14 August 2019 and signed on its behalf by:

Irakli Gilauri                                                                                                                                           Chief Executive Officer

14 August 2019

Georgia Capital PLC

Registered No. 10852406

Georgia Capital PLC and Subsidiaries                                               Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2019

(Thousands of Georgian Lari)

			For the six months ended
	Notes		30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)*
Revenue			672,372		616,395
Cost of sales			(415,287)		(386,676)
Gross profit	16		257,085		229,719
Salaries and other employee benefits			(81,446)		(63,264)
Administrative expenses			(53,659)		(47,572)
Other operating expenses			(4,819)		(4,286)
Expected credit loss on financial assets	17		(7,525)		(6,795)
Impairment charge on insurance premium receivables,   other assets and provisions	17		(526)		(898)
			(147,975)		(122,815)
EBITDA			109,110		106,904
Share in profit of associates			317		-
Dividend income	9		24,951		-
Depreciation and amortization			(54,712)		(34,920)
Net foreign currency (loss) / gain			(53,621)		4,787
Net realised gains from investment securities measured at   FVOCI			1,011		-
Interest income			14,908		10,703
Interest expense			(65,571)		(46,475)
Net operating (loss) /income before non-recurring items			(23,607)		40,999
Net non-recurring items	18		(3,383)		(36,829)
(Loss)/ Profit before income tax expense			(26,990)		4,170
Income tax expense			(2,212)		(1,467)
(Loss) / profit for the period			(29,202)		2,703
Total (loss) / profit attributable to:
- shareholders of Georgia Capital PLC			(41,008)		(12,798)
- non-controlling interests			11,806		15,501
			(29,202)		2,703
Loss per share:	15
- basic and diluted			(1.1597)		(0.3383)

* Certain amounts do not correspond to the 2018 interim consolidated financial statement as they reflect the adjustments made for change in accounting policy described in Note 3 and discontinued operations described in Note 5.

Georgia Capital PLC and Subsidiaries                                               Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2019

(Thousands of Georgian Lari)

			For the six months ended
	Notes		30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)*
(Loss) profit for the period			(29,202)		2,703
Other comprehensive income / (loss)
Other comprehensive income / (loss) to be reclassified to profit or loss      in subsequent periods:
Income / (Loss) from currency translation differences			9,388		(11,692)
Changes in the fair value of debt instruments at FVOCI			939		(698)
Realised gain on financial assets measured at FVOCI    reclassified to the consolidated income statement			1,011		-
Change in allowance for expected credit losses on   investments in debt instruments measured at FVOCI			352		224
Net other comprehensive income / (loss) to be   reclassified to profit or loss in subsequent periods			11,690		(12,166)
Revaluation of property and equipment (Note 11)			3,492		-
Changes in fair value of equity instruments designated at   FVOCI (note 15)			75,804		(111,931)
Net other comprehensive income / (loss) not to be   reclassified to profit or loss in subsequent periods			79,296		(111,931)
Other comprehensive income / (loss) for the period,   net of tax			90,986		(124,097)
Total comprehensive income / (loss) for the period			61,784		(121,394)
Total comprehensive income / (loss) attributable to:
- shareholders of Georgia Capital PLC			47,589		(135,842)
- non-controlling interests			14,195		14,448
			61,784		(121,394)

* Certain amounts do not correspond to the 2018 interim consolidated financial statement as they reflect the adjustments made for change in accounting policy as described in Note 3 and discontinued operations described in Note 5.

Georgia Capital PLC and Subsidiaries                                                                                                                                                            Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2018

(Thousands of Georgian Lari)

	Attributable to shareholders of Georgia Capital
	Share capital		Additional paid-in capital		Treasury Shares		Other reserves		Retained earnings		Total		Non-controlling interests		Total Equity
31 December 2017	10,000		466,187		-		171,254		197,222		844,663		297,565		1,142,228
Effect of adoption of IFRS 9	-		-		-		192		(10,808)		(10,616)		(3,216)		(13,832)
Effect of change in accounting policy (Note 3)*	-		-		-		(370)		(3,450)		(3,820)		-		(3,820)
1 January 2018	10,000		466,187		-		171,076		182,964		830,227		294,349		1,124,576
(Loss) Profit for the six months ended 30 June 2018 (unaudited, represented) (Note 5)*	-		-		-		-		(12,798)		(12,798)		15,501		2,703
Other comprehensive (loss) income for the six months ended 30 June 2018 (unaudited)	-		-		-		(123,092)		48		(123,044)		(1,053)		(124,097)
Total comprehensive loss for the six months ended 30 June 2018 (unaudited)	-		-		-		(123,092)		(12,750)		(135,842)		14,448		(121,394)
Issue of share capital (Note 15)	1,526		127,844		-		577,913		-		707,283		-		707,283
Increase in equity arising from share-based payments	-		23,443		-		-		-		23,443		2,860		26,303
Dilution of interests in subsidiaries	-		-		-		2,760		-		2,760		(2,758)		2
Increase in share capital of subsidiaries	-		-		-		-		-		-		1,871		1,871
Acquisition of non-controlling interests in existing subsidiaries	-		-		-		(3,778)		-		(3,778)		(11,209)		(14,987)
Non-controlling interests arising on acquisition of subsidiary	-		-		-		-		-		-		(472)		(472)
Formation of new parent company (Note 15)	1,644,011		-		-		(1,644,011)		-		-		-		-
Capital Reduction and demerger transactions (Note 15)	(1,654,244)		(598,416)		-		1,644,011		608,444		(205)		-		(205)
Purchase of treasury shares	-		(19,058)		(81)		(65,327)		-		(84,466)		-		(84,466)
30 June 2018 (unaudited)	1,293		-		(81)		559,552		778,658		1,339,422		299,089		1,638,511

* Certain amounts do not correspond to the 2018 interim consolidated financial statement as they reflect the adjustments made for change in accounting policy described in Note 3 and discontinued operations described in Note 5.

Georgia Capital PLC and Subsidiaries                                                                                                                                                            Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

For the six months ended 30 June 2019

(Thousands of Georgian Lari)

	Attributable to shareholders of Georgia Capital
	Share capital		Additional paid-in capital		Treasury Shares		Other reserves		Retained earnings		Total		Non-controlling interests		Total Equity
31 December 2018	1,293		-		(118)		415,473		785,167		1,201,815		329,005		1,530,820
Effect of change in accounting policy*	-		-		-		(309)		(2,362)		(2,671)		-		(2,671)
1 January 2019	1,293		-		(118)		415,164		782,805		1,199,144		329,005		1,528,149
(Loss) Profit for the six months ended 30 June 2019 (unaudited)	-		-		-		-		(41,008)		(41,008)		11,806		(29,202)
Other comprehensive income for the six months ended 30 June 2019 (unaudited)	-		-		-		88,597		-		88,597		2,389		90,986
Total comprehensive income for the six months ended 30 June 2019 (unaudited)	-		-		-		88,597		(41,008)		47,589		14,195		61,784
Increase in equity arising from share-based payments	-		-		-		13,141		-		13,141		3,455		16,596
Dilution of interests in subsidiaries	-		-		-		5,008		-		5,008		(3,973)		1,035
Increase in share capital of subsidiaries	-		-		-		-		-		-		1,237		1,237
Acquisition of non-controlling interests in existing subsidiaries	-		-		-		(6,106)		-		(6,106)		(12,776)		(18,882)
Non-controlling interests arising on acquisition of subsidiary (Note 4)	-		-		-		-		-		-		3,046		3,046
Dividends paid by subsidiaries to non-controlling shareholders	-		-		-		-		-		-		(7,493)		(7,493)
Cancellation of own shares (Note 15)	(64)		-		64		-		-		-		-		-
Purchase of treasury shares	-		2,008		(48)		(83,604)		-		(81,644)		-		(81,644)
30 June 2019 (unaudited)	1,229		2,008		(102)		432,200		741,797		1,177,132		326,696		1,503,828

* Certain amounts do not correspond to the 2018 consolidated financial statement as they reflect the adjustments made for change in accounting policy described in Note 3.

**Acquisition of non-controlling interest in existing subsidiaries is mostly attributable to buy-out of 40% stake in Kass 1 LLC (subsidiary of Group's hospitality and commercial business engaged in a construction of a hotel in Tbilisi), for consideration of GEL 13,850. GEL 850 was paid in cash and GEL 13,000 was settled through bonds issued by the Commercial Real Estate Business.

***During six months ended 30 June 2019 Georgia Healthcare Group PLC, Group's 57% owned subsidiary, announced dividend out of which GEL 2,873 was paid dividends to it minority shareholders. In addition, JSC GEPHA, a subsidiary of the Group's healthcare business, paid dividend to its minority shareholders in the amount of 4,620 GEL.

Georgia Capital PLC and Subsidiaries                                                   Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2019

(Thousands of Georgian Lari)

	Notes	30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)*
Cash flows from operating activities
Revenue received		629,688		567,175
Cost of goods sold paid		(403,547)		(398,317)
Net other (expense paid) / income received		5,738		793
Salaries and other employee benefits paid		(73,248)		(51,751)
General, administrative and operating expenses paid		(63,246)		(54,854)
Interest received		13,915		10,054
Net change in operating assets and liabilities		1,368		(227)
Net cash flows (used in) from operating activities before income tax		110,668		72,873
Income tax paid		(1,246)		(1,286)
Net Cash flow from operating activities		109,422		71,587
Cash flows used in investing activities
Net placement of amounts due from      credit institutions		(17,161)		(42,670)
Loans repaid		(2,388)		(129,414)
Acquisition of subsidiaries, net of cash acquired	4	(3,786)		(38,875)
Repayment of remaining holdback amounts from      previous year acquisitions		(5,224)		-
Purchase of debt securities		(73,570)		(81,857)
Proceeds from sale and redemption of debt securities		34,967		-
Proceeds from sale of investment properties		-		2,456
Purchase and construction of investment properties		(1,093)		(18,935)
Proceeds from sale of property and equipment and      intangible assets		724		800
Purchase of property and equipment		(136,982)		(193,387)
Purchase of intangible assets		(15,347)		(6,169)
Dividends received		24,951		-
Net cash flows used in investing activities		(194,909)		(508,051)

Georgia Capital PLC and Subsidiaries                                                   Interim Condensed Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the six months ended 30 June 2019

(Thousands of Georgian Lari)

	Notes	30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)*
Cash flows from financing activities
Proceeds from borrowings		277,246		83,355
Repayment of borrowings		(140,453)		(353,869)
Proceeds from debt securities issued		57,625		717,560
Redemption and buyback of debt securities issued		(10,319)		(62,251)
Other purchases of treasury shares	15	(57,870)		(23,101)
Dividends paid		(4,950)		(6,270)
Interest paid		(73,091)		(54,840)
Contributions under share-based payment plan		(9,762)		(47,758)
Increase in share capital of subsidiaries		1,237		1,871
Purchase of additional interest in existing subsidiaries		(1,726)		-
Cash payments for principal portion of lease liability		(9,578)		-
Cash payments for interest portion of the lease liability		(3,012)		-
Net cash from financing activities		25,347		254,697
Effect of exchange rates changes on cash and cash equivalents		5,769		(9,339)
Effect of change in expected credit losses for cash and cash   equivalents		(1)		(1)
Net (decrease) increase in cash and cash equivalents		(54,372)		(191,107)
Cash and cash equivalents, beginning of the period	7	256,930		346,241
Cash and cash equivalents of disposal group held for sale, beginning of the period	5	-		48,840
Cash and cash equivalents of disposal group held for sale, end of the period	5	-		16,528
Cash and cash equivalents, end of the period	7	202,558		187,446

* Interim consolidated statement of cash flows for the six months ended 30 June 2018 has been re-presented to include the figures of Georgia Healthcare Group PLC, a subsidiary of the Group previously presented as disposal group held for sale and discontinued operation. For details, please refer to Note 5.

Georgia Capital PLC and Subsidiaries 

Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements

(Thousands of Georgian Lari)

1.     Principal Activities

Georgia Capital PLC ("Georgia Capital") is a public limited liability company incorporated in England and Wales with registered number 10852406. Georgia Capital PLC holds 100% of the share capital of the JSC Georgia Capital, which makes up a group of companies (the "Group"), focused on investing in and developing businesses in Georgia. Group principally operates in utility and renewable energy, property and casualty insurance, housing development, commercial and hospitality property construction and development, wine and beer production, auto service businesses through privately held subsidiaries and healthcare, pharmaceutical and medical insurance businesses through London Stock Exchange premium-listed Georgia Healthcare Group PLC. In addition to its operating subsidiaries, the Group has significant investments in London Stock Exchange premium-listed Bank of Georgia Group PLC. The shares of Georgia Capital are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities, effective 29 May 2018.

Georgia Capital's registered legal address is 84 Brook Street, London W1K 5EH, United Kingdom.

As at 30 June 2019 and 31 December 2018, the following shareholders owned more than 5% of the total outstanding shares* of Georgia Capital. Other shareholders individually owned less than 5% of the outstanding shares.

		As at		As at
Shareholder		30 June 2019 (unaudited)		31 December 2018
M&G Investment Management Ltd		8%		8%
Others		92%		92%
Total		100%		100%

*For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares which includes shares held in the trust for share-based compensation purposes of the Group and treasury shares bought as part of buyback programme announced on 14 June 2018.

 

2.     Basis of Preparation

General

These interim condensed consolidated financial statements for the six months ended 30 June 2019 were prepared in accordance with International Accounting Standard (IAS 34) "Interim Financial Reporting", as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct authority. 

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgment at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.

Assumptions and significant estimates in these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2018.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2018, signed and authorized for release on 3 April 2019.

These interim condensed consolidated financial statements are presented in thousands of Georgian Lari ("GEL"), except per share amounts, which are presented in Georgian Lari, and unless otherwise noted.

The interim condensed consolidated financial statements are unaudited, reviewed by the auditors and their review conclusion is included in this report.

Going concern

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

3.     Summary of significant accounting policies

Accounting policies

The accounting policies and methods of computation applied in the preparation of these interim condensed consolidated financial statements are consistent with those disclosed in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2018, except for the adoption of new standards effective as of 1 January 2019, change in accounting policy for capitalisation of borrowing costs and addition of two new segments in segment reporting. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The Group applies, for the first time IFRS 16 Leases. As required by IAS 34, the nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim condensed consolidated financial statements of the Group.

 

3.     Summary of Significant Accounting Policies (continued)

Accounting policies (continued)

IFRS 16 Leases

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Group is the lessor.

The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application.

The effect of adoption IFRS 16 as at 1 January 2019 (increase/decrease) is as follows:

		30 June 2019
Property and equipment		84,254
Prepayment		(261)
Total Assets		83,993
Lease liabilities		83,993
Total Liabilities		83,993
Weighted average incremental borrowing rate		6.74%

The adoption had no impact on shareholder equity.

Impact on the income statement (increase/decrease) for the six months ended 30 June 2019:

		30 June 2019
Occupancy and rent (included in administrative expenses)		12,590
EBITDA		12,590
Depreciation and amortization		(10,861)
Interest expense		(3,012)
Net losses from foreign currencies		(4,751)
Net operating income before non-recurring items		(18,624)
Total (loss)/profit attributable to:		(6,034)
- shareholders		(2,669)
- non-controlling interests		(3,351)

 

3.     Summary of Significant Accounting Policies (continued)

Accounting policies (continued)

Nature of the effect of adoption of IFRS 16                                                                                                                

The Group has lease contracts for various items of land, building, vehicles and other equipment. Before the adoption of IFRS 16, when a lease was determined to be economically similar to purchasing the underlying asset, the lease was classified as a finance lease and reported on a company's balance sheet. All other leases were classified as operating leases and not reported on a company's balance sheet (they were 'off balance sheet leases'). Off balance sheet leases were accounted for similarly to service contracts, with the company reporting a rental expense in the income statement. Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets as described below. The standard provides specific transition requirements and practical expedients, which has been applied by the Group.

(a) Leases previously classified as finance leases           

The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the right-of-use assets and lease liabilities equal the lease assets and liabilities recognised under IAS 17). The requirements of IFRS 16 were applied to these leases from 1 January 2019.

(b) Leases previously accounted for as operating leases

The group recognised a lease liability for leases previously classified as operating leases applying IAS 17 at January 1 2019. The lease liability was measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate at the date of initial application. A right-of-use asset was recognised at the date of initial application for leases previously classified as an operating lease applying IAS 17 at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application.

The Group also applied the available practical expedients wherein it:

• Used a single discount rate to a portfolio of leases with reasonably similar characteristics

• Relied on its assessment of whether leases are onerous immediately before the date of initial application

• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application

Set out below are the new accounting policies of the Group upon adoption of IFRS 16, which have been applied from the date of initial application:

(c) Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Right-of-use assets are presented within property, plant and equipment.

 

3.     Summary of Significant Accounting Policies (continued)

Accounting policies (continued)

Nature of the effect of adoption of IFRS 16 (continued)               

(d) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

(e) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its the lease of vehicles and equipment across the Group, but the exemption will not be applied to the lease of real estate. The Group will apply the low value lease exemption to its low value leases such as computers and furniture (assets with a value, when new, of US$5,000 or less). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

(f) Significant judgement in determining the lease term of contracts with renewal and termination options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew or terminate. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew or terminate (e.g., a change in business strategy).

IAS 23 Borrowing costs

Up until reporting period ended 31 December 2018, the Group's accounting policy was to capitalize borrowing costs to cost of inventory represented by residential apartments from the moment when such properties become ready for sale. In March 2019, IFRS Interpretations Committee adopted the final agenda decision in relation to recognition of borrowing costs in arrangements to sell properties (units in a building) where the property is transferred to customer over time under IFRS 15. According to the agenda decision, capitalization of borrowing costs to cost of sold or unsold units would not be appropriate under IAS 23. As the result of new interpretation arising from the IFRS Interpretations Committee decision, starting from interim reporting period ended 30 June 2019, the Group changed its existing accounting policy and ceased capitalization of borrowing costs to cost of inventory property represented by residential apartments.

The change in accounting policy has been applied retrospectively by restating each of the affected consolidated financial statement line items for the prior periods, as follows:

3.     Summary of Significant Accounting Policies (continued)

Accounting policies (continued)

IAS 23 Borrowing costs (continued)

Consolidated statement of financial position as at 31 December 2018	As previously reported	Change in accounting policy	As restated
Inventory	278,615	(2,385)	276,230
Deferred revenue	62,059	286	62,345
Equity	1,201,815	(2,671)	1,199,144

Consolidated statement of financial position as at 1 January 2018	As previously reported	Change in accounting policy	As restated
Inventory	80,110	(3,397)	76,713
Deferred revenue	73,066	423	73,489
Equity	844,663	(3,820)	840,843

Interim consolidated income statement for the six months 30 June 2018	As previously reported	Change in accounting policy	As restated
Revenue	616,165	230	616,395
Cost of sales	(390,034)	3,358	(386,676)
Gross profit	226,131	3,588	229,719
EBITDA	103,316	3,588	106,904
Interest expense	(43,237)	(3,238)	(46,475)
Net profit	2,353	350	2,703
Loss per share, basic and diluted	(0.3476)	0.009	(0.3383)

Interim consolidated statement of other comprehensive income for the six months ended 30 June 2018	As previously reported	Change in accounting policy	As restated
Income from currency translation differences	(11,690)	(2)	(11,692)
Net other comprehensive income to be reclassified to profit or loss in subsequent periods	(12,164)	(2)	(12,166)
Other comprehensive income for the period, net of tax	(124,095)	(2)	(124,097)
Total comprehensive income for the period	(121,742)	348	(121,394)

 

3.     Summary of Significant Accounting Policies (continued)

Accounting policies (continued)

The following amendments had no impact on the Group's condensed interim consolidated financial statements:

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

Amendments to IFRS 9: Prepayment Features with Negative Compensation

Amendments to IAS 19: Plan Amendment, Curtailment or Settlement

Amendments to IAS 28: Long-term interests in associates and joint ventures

Annual Improvements 2015-2017 Cycle
 

4.     Business Combinations

Acquisitions during the six months ended 30 June 2019

Acquisition of Redberry

On 7^th of May 2019 the Group acquired 60% of the share capital in digital services company, Redberry LLC.

Provisionally estimated unaudited net assets of Redberry LLC at acquisition date comprised GEL 399. Consideration comprised of GEL 1,222. Simultaneously with the acquisition, the Group contributed additional GEL 7,568 to the acquiree to finance digital start-up development, without change in Group's ownership share.

The fair value of aggregate identifiable assets and liabilities of the companies as at the date of acquisition were:

	Fair value recognised on acquisition
Cash and cash equivalents	134
Accounts receivable1	290
Property and equipment	389
Intangible assets	39
Other assets	12
	864
Lease liability	447
Accounts payable	7
Other liabilities	11
	465
Total identifiable net assets	399
Non-controlling interests	3,187
Goodwill arising on business combination	4,010
Purchase consideration	1,222

The net cash outflow on acquisition was as follows:

	30 June 2019
Cash paid	(1,222)
Cash acquired with the subsidiary	134
Net cash outflow	(1,088)

The acquisition enables the Group to have a platform for investments in the digital business. Management considers that the purchases will have a positive impact on the value of the Group's businesses.

Since the acquisition, company has recorded total of GEL 446 and GEL 59 of revenue and profit, respectively. The acquisition would not have material effect on Group's profit if the combination had taken place at the beginning of the period.

The net assets presented above are estimated provisionally as at the acquisition date. The Group continues a thorough examination of these net assets and if identified, adjustments will be made to the net assets and amount of the goodwill during the 12-month period from the acquisition date, as allowed by IFRS 3 'Business Combinations'. The amount of tax-deductible goodwill is 4,010 GEL.

The primary factor that contributed to the cost of the business combination that resulted in the recognition of goodwill on acquisition is the assembled workforce that is expected to generate future economic benefits.

The Group elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquiree's identifiable net assets.  

¹ The fair value of the receivables amounted to GEL 290. The gross amount of receivables is GEL 290.

 

4.   Business Combination (continued)

Acquisitions during the six months ended 30 June 2019 (continued)

Acquisition of Amboli

In June 2019, Georgia Capital acquired an 80% equity interest in Amboli LLC, a car service provider.

Provisionally estimated unaudited net assets of Amboli LLC at acquisition date comprised negative GEL 708. Consideration comprised of GEL 3,434.

The fair value of aggregate identifiable assets and liabilities of the companies as at the date of acquisition were:

	Fair value recognised on acquisition
Cash and cash equivalents	102
Accounts receivable1	117
Inventories	1,436
Property and equipment	2,110
Intangible assets	91
Prepayments	640
	4,496
Borrowings	3,315
Accounts payable	721
Deferred income	-
Other liabilities	1,168
	5,204
Total identifiable net assets	(708)
Non-controlling interests	(141)
Goodwill arising on business combination	4,001
Purchase consideration 2	3,434

The net cash outflow on acquisition was as follows:

	30 June 2019
Cash paid	(2,800)
Cash acquired with the subsidiary	102
Net cash outflow	(2,698)

The Group decided to increase its presence in the auto services markets by acquiring the company. Management considers that the purchases will have a positive impact on the value of the Group's businesses.

Since the acquisition, company has not recorded any revenue or profit. The acquisition would not have material effect on Group's profit if the combination had taken place at the beginning of the period.

The net assets presented above are estimated provisionally as at the acquisition date. The Group continues a thorough examination of these net assets and if identified, adjustments will be made to the net assets and amount of the goodwill during the 12-month period from the acquisition date, as allowed by IFRS 3 'Business Combinations'. The amount of tax-deductible goodwill is 4,001 GEL.

The primary factor that contributed to the cost of the business combination that resulted in the recognition of goodwill on acquisition is the positive synergy that is expected to be brought into the Group's operations.

The Group elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquiree's identifiable net assets.  

¹ The fair value of the receivables amounted to GEL 219. The gross amount of receivables is GEL 117.

² Purchase consideration comprises of GEL 3,434, which consists of cash payment of GEL 2,800 and holdback amount with a fair value of GEL 634.

 

5.     Changes in Presentation and Restatements

At 30 June 2018, the expectation, in line with Georgia Capital's strategy, was that the Group would reduce its Georgia Healthcare Group ("GHG") stake to below 50% by the end of the year 2018.  Consequently, in line with IFRS 5 requirements, Georgia Capital classified GHG as a disposal group held for sale/discontinued operations for the six months ended 30 June 2018 in its condensed consolidated financial statements. The Group classified GHG's results of operations under a "discontinued operations" line as a single amount in the interim consolidated income statement.

On 23 August 2018 Georgia Capital announced that it no longer expected to own less than 50% stake in GHG at the end of 2018. The Group concluded that the prevailing share price of GHG significantly undervalued its performance and it would not have been in the best interests of the Group's shareholders to reduce ownership interest in GHG to below 50% during 2018 and consequently, that Georgia Capital PLC shall continue to hold over 50% of GHG until such time as the Group considers it to be in the best interests of shareholders to do otherwise.

As the sell down of GHG shares to below 50% within one year from classification as held for sale is no longer probable (i.e. the Board withdrew the plan to sell at current share price), the investment in GHG stopped meeting the IFRS 5 criteria for classification on 23 August 2018, and therefore Georgia Capital ceased to classify GHG as a disposal group held for sale in 2018 annual consolidated financial statements.

IFRS 5 requires that financial statements for the periods since classification as held for sale shall be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale is a subsidiary.

The results of operations and cash flows of GHG have been included in results from continuing operations for all periods presented. The comparative interim consolidated income statement and interim consolidated statement of cash flows for the six months ended 2018 have been re-presented accordingly.

Below are re-presented income statement line items of the Group attributable to GHG for the six months ended 30 June 2018: 

	As previously							As
	reported		Reclassification		Restatement **			Reclassified
Revenue	192,922		423,243			230		616,395
Cost of sales	(103,124)		(286,910)			3,358		(386,676)
Gross profit	89,798		136,333			3,588		229,719
Salaries and other employee benefits	(22,032)		(41,232)			-		(63,264)
Administrative expenses	(21,764)		(25,808)			-		(47,572)
Other operating expenses	(954)		(3,332)			-		(4,286)
Expected credit loss on financial assets	(4,536)		(2,259)			-		(6,795)
Impairment charge on insurance premium receivables, other assets and provisions	(739)		(159)			-		(898)
	(50,025)		(72,790)			-		(122,815)
EBITDA	39,773		63,543			3,588		106,904
Depreciation and amortisation	(18,357)		(16,563)			-		(34,920)
Net foreign currency loss	2,276		2,511			-		4,787
Interest income	10,134		569			-		10,703
Interest expense	(25,169)		(18,068)			(3,238)		(46,475)
Net operating (loss) /income before non-recurring items	8,657		31,992		350			40,999
								-
Net non-recurring items	(35,167)		(1,662)		-			(36,829)
(Loss)/profit before income tax expense from continuing    operations	(26,510)		30,330		350			4,170
Income tax expense	(1,349)		(118)		-			(1,467)
(Loss)/profit for the period from continuing operations	(27,859)		30,212		350			2,703
Profit from discontinued operations*	46,777		(46,777)		-			-
Profit for the period	18,918		(16,565)		350			2,703

* The difference with profit from discontinued operations as previously reported is attributable to intra-group eliminations in the net gain amount of GEL 1,823 for the year six months ended 30 June 2018 and cessation of depreciation and amortisation expense of disposal group according to IFRS 5 of GEL 16,565.

** Restatement effects are related to change in accounting policy, refer to Note 3

6.     Segment Information

At 30 June 2019 two new segments were added to the Group's reportable segments: Auto Service and Digital Service.   

For management purposes, the Group is organised into the following operating segments based on the industries as follows:

Healthcare              - Georgia Healthcare Group - principally providing wide-scale healthcare, health insurance and

                                              pharmaceutical services to clients and insured individuals; 

Housing Development   - Principally developing, constructing and selling residential apartments and providing land   

                                     development services to third parties;     

Hospitality and Commercial   - Developing and leasing rent-earning commercial assets and developing hotels across Georgia;

Water Utility                - Principally supplying water and providing a wastewater service;

Renewable Energy           - Principally developing renewable energy power plants and supplying electricity;

P&C Insurance            - Principally providing wide-scale property and casualty insurance services to corporate and

                                    individual clients;

Beverage                    - Principally producing and distributing wine, beer and soft beverages;

Auto Services           - Principally providing auto and technical inspection services to corporate and individual clients;

Digital                      - Principally providing tech-based marketing solutions to large Georgian corporate and government agencies;

Other                        - Comprises of early stage business and feasibility costs incurred in pipeline projects;

Corporate Centre             -Comprising of Georgia Capital PLC and JSC Georgia Capital

Management monitors the operating results of its segments separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured in the same manner as profit or loss in the interim condensed consolidated financial statements.

Transactions between segments are accounted for at actual transaction prices.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue in 6 months period ended 30 June 2019 and 2018.

 

6.     Segment Information (continued)

The following tables present income statement and certain asset and liability information regarding the Group's operating segments as at and for the 6 months ended 30 June 2019:

	Healthcare	Water Utility	Housing development	P&C insurance	Renewable energy	Hospitality and Commercial	Beverage	Auto Services	Digital	Other	Corporate Center	Inter- Business Eliminations / Consolidations	Group Total
Revenue	479,106	74,541	39,218	31,040	2,396	15,060	46,033	5,304	446	-	-	(20,772)	672,372
Cost of sales	(320,245)	(18,136)	(34,472)	(15,111)	(20)	(3,680)	(29,564)	(2,281)	(347)	-	-	8,569	(415,287)
Gross profit	158,861	56,405	4,746	15,929	2,376	11,380	16,469	3,023	98	-	-	(12,202)	257,085
Operating expenses and impairment	(74,016)	(16,109)	(6,847)	(7,699)	(891)	(1,860)	(21,202)	(2,410)	(95)	-	(15,622)	(1,224)	(147,975)
EBITDA	84,845	40,296	(2,101)	8,230	1,485	9,520	(4,733)	613	3	-	(15,622)	(13,426)	109,110
Profit from associates	317	-	-	-	-	-	-	-	-	-	-	-	317
Dividend income	-	-	-	-	-	-	-	-	-	-	36,932	(11,981)	24,951
Depreciation and amortisation	(26,810)	(16,018)	(1,350)	(994)	(898)	(20)	(7,232)	(1,000)	(23)	-	(256)	(111)	(54,712)
Net foreign currency (loss) / gain	(10,576)	(9,497)	(202)	339	16	(181)	(6,528)	(210)	81	-	(26,355)	(508)	(53,621)
Net gains / (losses) from investment securities   measured at FVOCI	-	-	-	-	-	-	-	-	-	-	5,297	(4,286)	1,011
Interest income	661	536	208	2,282	111	378	12	-	1	-	21,868	(11,149)	14,908
Interest expense	(22,433)	(10,964)	(4,027)	(70)	(1,609)	(3,817)	(6,283)	(2,409)	(5)	-	(25,892)	11,938	(65,571)
Net operating income / (loss) before    non-recurring items	26,004	4,353	(7,472)	9,787	(895)	5,880	(24,764)	(3,006)	57	-	(4,028)	(29,523)	(23,607)
Net non-recurring items	(528)	(2,389)	-	-	(151)	-	-	(315)	-		-	-	(3,383)
Profit / (loss) before income tax	25,476	1,964	(7,472)	9,787	(1,046)	5,880	(24,764)	(3,321)	57	-	(4,028)	(29,523)	(26,990)
Income tax expense	(357)	-	(376)	(1,479)	-	-	-	-	-		-	-	(2,212)
Profit / (loss) for the period	25,119	1,964	(7,848)	8,308	(1,046)	5,880	(24,764)	(3,321)	57	-	(4,028)	(29,523)	(29,202)
Assets and liabilities
Cash and cash equivalents	15,510	30,695	3,335	4,365	20,892	1,446	9,325	1,408	7,749	-	107,833	-	202,558
Amounts due from credit institutions	11,697	565	422	33,644	-	5,901	141	-	-	-	5,796	-	58,166
Debt investment securities	2,697	-	-	6,320	-	-	-	-	-	-	210,328	(99,041)	120,304
Equity investments at fair value	-	-	1,305	905	-	293	-	-	-	-	533,300	(2,504)	533,299
Total assets	1,344,396	699,382	227,739	161,845	213,113	374,643	230,607	59,149	8,468	12,784	1,100,112	(288,072)	4,144,166
Borrowings	276,055	321,561	70,173	-	107,040	102,203	123,235	49,379	-	-	-	(115,042)	934,604
Debt securities issued	92,840	29,964	72,798	-	-	86,257	-	-	-	-	860,767	(102,297)	1,040,329
Total liabilities	757,704	424,497	193,803	105,784	111,129	190,441	158,308	57,503	444	-	865,969	(225,244)	2,640,338
Total equity attributable to shareholders of the Group	300,047	274,885	33,936	56,061	66,268	184,202	62,141	1,388	4,813	12,784	234,143	(53,536)	1,177,132

 

6.     Segment Information (continued)

The following tables present income statement and certain asset and liability information regarding the Group's operating segments as at and for the 6 months ended 30 June 2018:

	Healthcare	Water Utility	Housing development	P&C insurance	Renewable energy	Hospitality and Commercial	Beverage	Other	Corporate Center	Inter- Business Eliminations / Consolidations	Group Total
Revenue	423,366	69,833	62,680	28,425	-	3,965	30,765	-	-	(2,639)	616,395
Cost of sales	(287,568)	(18,246)	(49,187)	(12,503)	-	(1,434)	(19,321)	-	-	1,583	(386,676)
Gross profit	135,798	51,587	13,493	15,922	-	2,531	11,444	-	-	(1,056)	229,719
Operating expenses and impairment	(73,167)	(14,642)	(4,741)	(7,172)	(403)	(694)	(17,298)	-	(7,398)	2,700	(122,815)
EBITDA	62,631	36,945	8,752	8,750	(403)	1,837	(5,854)	-	(7,398)	1,644	106,904
Dividend income	-	-	-	-	-	-	-	-	10,000	(10,000)	-
Depreciation and amortisation	(16,563)	(12,084)	(332)	(475)	(161)	(105)	(5,200)	-	-	-	(34,920)
Net foreign currency gain / (loss)	2,121	4,391	(524)	(346)	(245)	(24)	4,518	-	(4,896)	(208)	4,787
Net gains (losses) / gains from investment securities measured at FVOCI	-	-	-	-	-	-	-	-	(2,915)	2,915	-
Interest income	592	222	255	1,725	55	44	63	-	14,497	(6,750)	10,703
Interest expense	(18,612)	(7,190)	(3,426)	-	-	(993)	(3,041)	-	(19,079)	5,866	(46,475)
Net operating income / (loss) before    non-recurring items	30,169	22,284	4,725	9,654	(754)	759	(9,514)	-	(9,791)	(6,533)	40,999
Net non-recurring items	(1,662)	(5,484)	(4,443)	(628)	338	(1,187)	(196)	-	(23,567)	-	(36,829)
Profit (loss) before income tax	28,507	16,800	282	9,026	(416)	(428)	(9,710)	-	(33,358)	(6,533)	4,170
Income tax expense	(118)	-	-	(1,349)	-	-	-	-	-	-	(1,467)
Profit / (loss) for the period	28,389	16,800	282	7,677	(416)	(428)	(9,710)	-	(33,358)	(6,533)	2,703
Assets and liabilities
Cash and cash equivalents	36,154	13,713	8,830	11,104	8,388	26,275	9,953	229	142,284	-	256,930
Amounts due from credit institutions	11,808	936	1,633	23,456	-	2,341	125	-	-	-	40,299
Debt investment securities	1,285	-	-	4,408	-	-	-	-	157,364	(91,233)	71,824
Equity investments at fair value	-	-	512	-	-	45	-	-	457,495	(557)	457,495
Total assets	1,239,104	646,974	247,352	145,866	169,304	294,834	205,277	48,654	1,088,079	(365,983)	3,719,461
Borrowings	296,817	290,266	59,312	-	70,711	113,933	118,147	38,095	-	(222,926)	764,355
Debt securities issued	93,573	29,980	67,697	-	-	19,609	-	-	802,045	(96,503)	916,401
Total liabilities	665,490	376,488	183,238	89,632	75,144	134,994	149,107	42,721	804,960	(330,462)	2,191,312
Total equity attributable to shareholders of the Group	295,689	270,486	64,114	56,234	61,181	149,079	44,082	5,933	283,119	(30,773)	1,199,144

Certain amounts do not correspond to those presented in 2018 interim condensed consolidated financial statement as they reflect the adjustments made for change in accounting policy described in Note 3 and discontinued operations described in Note 5, as well as remeasurement of presentation of corporate centre to align with Managements' revised operating view.

7.     Cash and Cash Equivalents

	As at
	30 June 2019 (unaudited)		31 December 2018
Cash on hand	3,857		2,577
Current accounts with financial institutions	198,702		227,541
Time deposits with financial institutions with maturities of up to 90 days	-		26,813
Cash and cash equivalents, Gross	202,559		256,931
Allowance (Note 17)	(1)		(1)
Cash and cash equivalents, Net	202,558		256,930

8.     Amounts Due from Credit Institutions

	As at
	30 June 2019 (unaudited)		31 December 2018
Time deposits with maturities of more than 90 days	52,019		35,924
Deposits pledged as security for open commitments	6,147		4,375
Amounts due from credit institutions, Gross	58,166		40,299
Allowance (Note 17)	-		-
Amounts due from credit institutions, Net	58,166		40,299

9.     Debt Securities Owned and Equity Investments at Fair Value

	As at
	30 June 2019 (unaudited)		31 December 2018
Internationally listed debt securities	114,898		67,933
Locally listed debt securities	5,406		3,891
Debt securities owned	120,304		71,824

	As at
	30 June 2019 (unaudited)		31 December 2018
Bank of Georgia Group PLC*	533,299		457,495
Equity investments at fair value	533,299		457,495

*During the six months ended 30 June 2019 JSC Georgia Capital received dividend from Bank of Georgia Group PLC in the amount of GEL 24,951 (30 June 2018: nil).
 

10.   Investment Properties

	As at
	30 June 2019 (unaudited)		30 June 2018 (unaudited)
At 1 January	151,232		159,989
Additions	2,065		18,935
Disposals	-		(2,456)
Net gains from revaluation of investment property	-		2,311
Transfers from property and equipment and other assets*	11,562		10,102
Currency translation differences	13,235		(7,866)
At 30 June	178,094		181,015

* Comprised of GEL 11,562  transfer from property and equipment (2018: transfers from property and equipment GEL 2,119), GEL nil transfer from other assets - inventories (2018: transfer from other assets - inventories GEL 7,983).

Investment properties are stated at fair value. Fair value represents the price that would be received in exchange for an asset in an arm's length transaction between market participants at the measurement date.  The date of latest revaluation is 31 December 2018 and was carried out by accredited independent valuers. The Group concluded that otherwise no significant change in fair values of its investment properties occurred during 6 months ended 30 June 2019.

11.    Property and Equipment

The movements in property and equipment during the 6 months ended 30 June 2019 were as follows:

	Office buildings		Hotels		Hospitals & clinics		Assets under construction		Infrastructure Assets		Factory and equipment		Computers &  equipment		Right of Use assets		Other		Total
Cost or revalued amount
31 December 2018	195,653		24,360		433,159		248,770		429,895		101,116		278,838		-		114,639		1,826,430
IFRS 16 transition effect	-		-		-		-		-		-				84,254		-		84,254
Additions	15,396		1,785		4,856		73,953		9,687		4,761		14,298		9,118		7,854		141,708
Business combinations, Note 4	713		-		-		-		-		-		194		1,393		199		2,499
Disposals	(751)		-		-		-		(289)		(13)		(630)		(2,988)		(1,542)		(6,213)
Transfers	28,795		-		-		(166,243)		136,798		-		(847)		-		1,497		-
Transfers to investment properties	(13,449)		-		-		1,887		-		-		-		-		-		(11,562)
Revaluation at transfer to investment properties	3,492		-		-		-		-		-		-		-		-		3,492
Currency translation differences	402		1,636		-		5,188		8,690		-		218		-		632		16,766
At 30 June 2019 (Unaudited)	230,251		27,781		438,015		163,555		584,781		105,864		292,071		91,777		123,279		2,057,374
Accumulated impairment
31 December 2018	105		-		(4)		-		-		-		23		-		(7)		117
Disposals	-		-		-		-		-		-		-		-		7		7
At 30 June 2019 (Unaudited)	105		-		(4)		-		-		-		23		-		-		124
Accumulated depreciation
31 December 2018	6,463		162		10,753		-		43,496		10,805		60,124		-		22,593		154,396
Depreciation charge	959		420		2,190		-		14,241		4,269		12,555		10,861		5,515		51,010
Currency translation differences	7		-		-		-		-		-		120		-		227		354
Transfers	5		-		-		-		(5)		-		(18)		-		18		-
Disposals	(48)		-		-		-		(266)		(36)		(339)		(548)		(1,177)		(2,414)
At 30 June 2019 (Unaudited)	7,386		582		12,943		-		57,466		15,038		72,442		10,313		27,176		203,346
Net book value:
31 December 2018	189,085		24,198		422,410		248,770		386,399		90,311		218,691		-		92,053		1,671,917
At 30 June 2019 (Unaudited)	222,760		27,199		425,076		163,555		527,315		90,826		219,606		81,464		96,103		1,853,904

 

11.    Property and Equipment (continued)

The movements in property and equipment during the 6 months ended 30 June 2018 were as follows:

	Office buildings		Hotels		Hospitals & Clinics		Assets under construction		Infrastructure Assets		Factory and equipment		Computers &  equipment		Other		Total
Cost or revalued amount
31 December 2017	136,784		-		-		142,801		275,669		91,023		13,949		41,614		701,840
Additions	400		4,670		-		140,460		5,427		5,160		1,087		3,856		161,060
Business combinations	6,639		-		-		-		-		7,892		5,632		11,433		31,596
Disposals	(53)		-		-		-		(55)		(31)		(1)		(891)		(1,031)
Transfers	(130)		23,194		-		(54,783)		30,007		-		1,163		549		-
Transfers from / (to) investment properties	(2,487)		-		-		-		-		-		-		8		(2,479)
Currency translation differences	(491)		(261)		-		(4,994)		-		-		(64)		(267)		(6,077)
At 30 June 2018 (Unaudited)	140,662		27,603		-		223,484		311,048		104,044		21,766		56,302		884,909
Accumulated impairment
31 December 2017	390		-		-		-		-		-		23		1		414
Reversal	(16)		-		-		-		-		-		-		-		(16)
Transfers to investment properties	(270)		-		-		-		-		-		-		-		(270)
At 30 June 2018 (Unaudited)	104		-		-		-		-		-		23		1		128
Accumulated depreciation
31 December 2017	5,249		-		-		-		23,084		3,887		6,314		5,257		43,791
Depreciation charge	537		89		52		-		9,706		3,583		12,996		5,571		32,534
Currency translation differences	(181)		-		-		-		-		-		247		(157)		(91)
Transfers	(59)		-		-		-		-		-		540		(481)		-
Transfers to investment properties	(90)		-		-		-		-		-		-		-		(90)
Transfer to assets of disposal group held for sale	(46)		-		(52)		-		-		-		(11,804)		(2,970)		(14,872)
Disposals	-		-		-		-		(11)		(1)		(4)		(20)		(36)
At 30 June 2018 (Unaudited)	5,410		89		-		-		32,779		7,469		8,289		7,200		61,236
Net book value:
31 December 2017	131,145		-		-		142,801		252,585		87,136		7,612		36,356		657,635
At 30 June 2018 (Unaudited)	135,148		27,514		-		223,484		278,269		96,575		13,454		49,101		823,545

12.   Borrowings

Borrowings comprise:

	As at
	30 June 2019 (unaudited)		31 December 2018
Borrowings from local financial institutions	537,889		306,340
Borrowings from international financial institutions	390,128		451,984
Other borrowings	6,587		6,031
Borrowings	934,604		764,355

Some borrowings from international credit institutions are received upon certain conditions (the "Lender Covenants"). At 30 June 2019 and 31 December 2018 the Group complied with all the Lender Covenants of the borrowings from international credit institutions.

13.   Debt Securities Issued

Debt securities issued comprise:

	As at
	30 June 2019 (unaudited)		31 December 2018
USD denominated Eurobonds issued by Georgia Capital	786,133		732,519
USD denominated local bonds issued by m2	149,153		85,663
GEL denominated local bonds issued by GHG	91,687		84,858
GEL denominated local bonds issued by GGU	13,356		13,361
Debt securities issued	1,040,329		916,401

In March 2018 JSC Georgia Capital issued a USD 300 million (GEL 734 million) 6.125% notes due in March 2024 denominated in US Dollars which were admitted to the official list of the Irish Stock Exchange and to trading on the Global Exchange Market (the "Notes"). Notes were sold at the price of 98.770% of par value at the initial offering.

On 31 December 2018 m2 Commercial Assets LLC, 100% subsidiary of the Group's Hospitality and Commercial segment, issued USD 30 million (GEL  80 million) 7.5% notes due in December 2021. Part of the bond were placed in 2019. Notes were admitted to trade on the Georgian Stock Exchange.

14.   Commitments and Contingencies

Legal

In the ordinary course of business, the Group and its subsidiaries are subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group.

As at 30 June 2019, the Group had litigation with the Social Service Agency ("SSA") in relation to an aggregate amount of GEL 7,868 (2018: GEL 7,233). The litigation with SSA was mainly related to procedural violations in medical documentation as well as the billing and invoicing process.

 

15.   Equity

Share capital

As at 30 June 2019 issued share capital comprised 37,384,712 authorised common shares (31 December 2018: 39,384,712), of which 37,384,712 were fully paid (2018: 39,384,712). Each share has a nominal value of one British penny. Shares issued and outstanding as at 30 June 2019 are described below:

			Number of shares Ordinary		Amount
31 December 2017			10,000,000		10,000
Issue of share capital			1,526,000		1,526
Transfer of JSC Georgia Capital shares to new parent company			(11,526,000)		(11,526)
Incorporation of New Parent Company (Georgia Capital PLC)			39,384,712		1,644,011
Capital Reduction (change in Nominal Value)			-		(1,642,718)
30 June 2018 (unaudited)			39,384,712		1,293

			Number of shares Ordinary		Amount
31 December 2018			39,384,712		1,293
Cancellation of shares			(2,000,000)		(64)
30 June 2019 (unaudited)			37,384,712		1,229

Treasury Shares

The number of treasury shares held by the Company as at 30 June 2019 was 3,071,619 (31 December 2018: 3,567,765). From which 2,890,643 (31 December 2018: 1,251,829) shares were bought back within the Buyback Programme announced on 14 June 2018. On June 12, 2019 2,000,000 treasury shares bought back under the Buyback Programme were cancelled and 686,468 shares were transferred to JSC Georgia Capital Executive Equity Compensation Trust. The rest of the shares are kept by the Company for the purposes of its future employee share-based compensations.

Incorporation of New Parent company

On 29 May 2018, Georgia Capital PLC issued and listed 39,384,712 ordinary shares on London stock exchange, premium listing segment. 11,526,000 shares of JSC Georgia Capital were transferred to New Parent company (Georgia Capital PLC) as part of Demerger process of BGEO Group PLC (Note 1).

Nominal Value of shares issued by Georgia Capital PLC were GBP 12.7. The incorporation of the new parent company did not result in changes in the Group's net assets.

Capital Reduction

On 12 June 2018 the Georgia Capital PLC undertook a planned reduction of capital to create distributable reserves for the Company. Following the reduction of capital, the nominal value of the Company's shares was reduced to GBP 0.01. Reduction of the capital created a new reserve on the statement of financial position (comprising the reduction of the original nominal value of ordinary shares from GBP 12.70 to GBP 0.01 per share), which became distributable to the shareholders and was fully reclassified to retained earnings.

 

15.   Equity (continued)

Buyback Programme

On 14 June 2018 the Group announced commencement of a share buyback programme of up to USD 45 million (GEL 110.3 million) (the "Programme"). The Company has entered into an agreement with its brokers Numis Securities Limited ("Numis") and Investec Bank PLC ("Investec") to enable Numis and Investec to use the maximum consideration of USD 45 million (GEL 110.3 million) to purchase the Group's shares ("Shares") in accordance with the terms of the general authority to make market purchases of up to 3,938,471 of its Shares. As of 30 June 2019 the total consideration for shares bought back under the buyback programme was GEL 103,804.

Nature and purpose of Other Reserves

Unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries

This reserve records unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of subsidiaries with functional currency other than GEL.

Movements in other reserves during the 6 months ended 30 June 2019 and 30 June 2018 are presented in the statements of other comprehensive income.

On 16 February 2018, 19.9% stakes in JSC Bank of Georgia and JSC Bank of Georgia Financial Group were transferred to Georgia Capital as an equity contribution from JSC BGEO Group in exchange for 1,516,000 (GEL 1,516) shares issued. In line with IFRS 9 requirements, Georgia Capital initially recognized financial asset (investment in equity instruments) at fair value of GEL 706,000 with corresponding increase in equity. On 29 May 2018, as a part of BGEO Group's demerger, 19.9% interest in Banking Business was exchanged for 19.9% stake in Bank of Georgia Group PLC at fair value of GEL 599,406 (calculated using LSE share price).

Transaction costs directly attributable to the contribution of 19.9% stake in the amount of GEL 2,299 were deducted from the equity.

Upon initial recognition, management irrevocably designated 19.9% equity interest in Banking Business and Bank of Georgia Group PLC at fair value through other comprehensive income (FVOCI). As a result, fair value difference in the amount of GEL 75,804 (2018: GEL 111,931) has been recognized in other comprehensive income Subsequently, all changes in fair value of 19.9% equity stake will be recorded through other comprehensive income (OCI) and never reclassified to PL, not even upon disposal of the stake.

 

15.   Equity (continued)

Georgia Healthcare Group PLC ("GHG") is the only significant subsidiary of the Group that has a material non-controlling interest of 43% as of 30 June 2019 (31 December 2018 43%). The following table summarises key information before intragroup eliminations relevant to Georgia Healthcare Group PLC.

Non-controlling interest

	2019		2018
Total assets	1,344,394		1,222,503
Total Liabilities	757,704		665,487
Non-controlling interest	276,845		272,677
Revenue	479,107		423,367
Profit for the year	25,119		28,389
Total comprehensive income for the year	25,079		28,389
Net decrease in cash and cash equivalents	(20,643)		(32,312)
Profit attributable to non-controlling interest	16,060		17,777

Earnings per share

		For the six months ended
		30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)
Basic and diluted loss per share
Loss for the period attributable to ordinary shareholders of the parent		(41,008)		(12,798)
Weighted average number of ordinary shares outstanding during the period		35,362,204		37,830,420
Loss per share		(1.1597)		(0.3383)

16.   Gross Profit

	For the six months ended
	30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)
Pharma revenue	274,775		247,695
Healthcare revenue	160,843		143,591
Utility and energy revenue	72,598		65,769
Net insurance premiums earned	63,795		51,670
Beverage revenue	46,226		30,809
Real estate revenue	39,431		66,413
Auto service revenue	5,304		-
Digital services revenue	362		-
Other income	9,038		10,448
Revenue	672,372		616,395
Cost of pharma services	(206,145)		(191,413)
Cost of healthcare	(89,889)		(77,832)
Cost of utility and energy	(17,796)		(17,967)
Net insurance claims incurred	(38,282)		(30,168)
Cost of beverage	(29,529)		(19,322)
Cost of real estate	(31,018)		(49,974)
Cost of auto service	(2,281)		-
Cost of digital services	(347)		-
Cost of sales	(415,287)		(386,676)
Gross profit	257,085		229,719

 

16.   Gross Profit (continued)

Total revenue above includes the following revenue streams that are not in scope of IFRS 15 Revenue from Contracts with customers:

	For the six months ended
	30 June 2019 (unaudited)		30 June 2018 (unaudited, represented)
Real estate revenue:
Revaluation of m2 investment property	-		2,311
Income from operating leases	4,341		2,190
	4,341		4,501
Net insurance premiums earned	63,795		51,670
Other income
Gain from call option	1,501		2,342
Payables derecognised	-		1,212
Revenue from penalties	-		758
Other	(59)		2,621
	69,578		63,104

Operating lease commitments - Group as a lessor:

The Group's future minimum lease payments receivable under non-cancellable operating leases amounted to:

	30 June 2019 (unaudited)		31 December 2018
Not later than 1 year	9,810		5,243
Later than 1 year but not later than 5 years	17,804		11,531
Later than 5 years	13,372		9,090
Total	40,986		25,864

Most of the Company's leases are prices in USD and have lease term varying from 3 moths to 10 years (average term: 4 years).

17.   Impairment of insurance premiums receivable, accounts receivable, other assets and provisions

The movements in the allowance for insurance premiums receivables and other receivables are as follows:

	Insurance premiums receivable		Other assets		Provisions		Total
	2019		2019		2019		2019
At 1 January	8,285		414		525		9,224
Charge (reversal)	505		64		(43)		526
Recoveries	85		-		-		85
Currency translation differences	217		-		-		217
At 30 June 2019 (Unaudited)	9,092		478		482		10,052

	Insurance premiums receivable		Other assets		Provisions		Total
	2018		2018		2018		2018
At 1 January	4,243		22		3,103		7,368
Charge	817		-		81		898
Reversal	-		-		(1,045)		(1,045)
Recoveries	(162)		-		(1,070)		(1,232)
Write-offs	(45)		-		(141)		(186)
Transfer to assets of disposal group held for sale	4		-		-		4
Currency translation differences	(129)		(22)		-		(151)
At 30 June 2018 (Unaudited)	4,728		-		928		5,656

17.   Impairment of insurance premiums receivable, accounts receivable, other assets and provisions (continued)

The movements in the allowance for financial assets according to IFRS 9 are as follows:

	Cash and cash equivalents		Amounts due from credit institutions		Debt securities owned		Accounts receivable		Total
	2019		2019		2019		2019		2019
At 31 December	1		-		309		21,713		22,023
Charge	-		-		352		7,173		7,525
Recoveries	-		-		-		84		84
Write-offs	-		-		-		(1,115)		(1,115)
At 30 June 2019 (Unaudited)	1		-		661		27,855		28,517

	Cash and cash equivalents		Amounts due from credit institutions		Debt securities owned		Accounts receivable		Total
	2018		2018		2018		2018		2018
At 31 December	-		-		-		4,003		4,003
IFRS 9 Effect	2		-		192		6,803		6,997
At 1 January	2		-		192		10,806		11,000
(Reversal) Charge	(1)		89		224		6,483		6,795
Recoveries	-		-		-		(650)		(650)
Write-offs	-		-		-		(2,275)		(2,275)
Transfer from assets of disposal group held for sale	-		-		-		(1,610)		(1,610)
Currency translation difference	-		-		-		(160)		(160)
At 30 June 2018 (Unaudited)	1		89		416		12,594		13,100

For contract assets and accounts receivable, the Group has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses.  For other debt financial assets, the ECL is based on the 12-month ECL since there has not been a significant increase in credit risk since origination.

 

18.   Net Non-recurring Items

Net non-recurring expense for the year ended 30 June 2019 comprised:

	For the six months ended
	30 June 2019 (unaudited)
Termination benefits	(3,295)
Other	(88)
Net non-recurring items	(3,383)

During the reporting period one of the Group's senior executives resigned and remained entitled to previously awarded unvested shares of Georgia Capital PLC, that will continue to vest according to the original schedule. The related share-based payment expense that has not been recognized in income statement as of the termination date (that otherwise would have been recognized for services received over the remainder of the vesting period) was accelerated and immediately expensed.

Net non-recurring expense for the year ended 30 June 2018 comprised:

	For the six months ended
	30 June 2018 (unaudited, represented)
Demerger fees	(13,077)
Share based payment acceleration effect	(20,303)
Loan prepayment fee	(1,325)
One-off charity expense	(783)
Loss from employee dismissal compensation	(184)
Other	(1,157)
	(36,829)

 

19.   Fair Value Measurements

Fair value hierarchy

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy:

30 June 2019	Level 1		Level 2		Level 3		Total
Assets measured at fair value
Total investment properties	-		-		178,094		178,094
Land	-		-		58,743		58,743
Residential properties	-		-		19,078		19,078
Non-residential properties	-		-		100,273		100,273
Debt securities owned	33,694		86,610		-		120,304
Equity investments at fair value	533,299		-		-		533,299
Total revalued property	-		-		527,315		527,315
Infrastructure assets	-		-		527,315		527,315
Other assets	-		-		19,761		19,761
Loans issued	-		-		1,292		1,292
Call option	-		-		18,469		18,469
Assets for which fair values are disclosed
Cash and cash equivalents	-		202,558		-		202,558
Amounts due from credit institutions	-		58,166		-		58,166
Accounts receivable	-		-		191,878		191,878
Other assets	-		-		161,695		161,695
Loans issued	-		-		161,695		161,695
Liabilities measured at fair value
Other liabilities	-		-		89,916		89,916
Payable for share acquisitions	-		-		89,916		89,916
Liabilities for which fair values are disclosed
Borrowings	-		777,858		165,639		943,497
Debt securities issued	-		754,543		255,574		1,010,117
Lease liabilities	-		97,611		-		97,611

31 December 2018	Level 1		Level 2		Level 3		Total
Assets measured at fair value
Total investment properties	-		-		151,232		151,232
Land	-		-		49,128		49,128
Residential properties	-		-		14,196		14,196
Non-residential properties	-		-		87,908		87,908
Debt securities owned	27,010		44,814		-		71,824
Equity investments at fair value	457,495		-		-		457,495
Total revalued property	-		-		386,399		386,399
Infrastructure assets	-		-		386,399		386,399
Other assets	-		-		18,668		18,668
Loans issued	-		-		1,038		1,038
Other derivative financial assets	-		-		661		661
Call option	-		-		16,969		16,969
Assets for which fair values are disclosed
Cash and cash equivalents	-		256,930		-		256,930
Amounts due from credit institutions	-		40,299		-		40,299
Accounts receivable	-		-		170,228		170,228
Other assets	-		-		162,862		162,862
Loans issued	-		-		162,862		162,862
Liabilities measured at fair value
Other liabilities	-		-		92,189		92,189
Derivative financial liabilities	-		-		715		715
Payable for share acquisitions	-		-		91,474		91,474
Liabilities for which fair values are disclosed
Borrowings	-		506,711		254,056		760,767
Debt securities issued	-		678,973		184,551		863,524

 

19.   Fair Value Measurements (continued)

Fair value hierarchy (continued)

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

Derivative financial instruments

Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

Derivative financial instruments include call option representing an option on acquisition of remaining 33% equity interest in JSC GEPHA from non-controlling interests in 2022 based on pre-determined EBITDA multiple (6.0 times EBITDA) of JSC GEPHA. The Group has applied binomial model for option valuation. Major unobservable input for call option valuation represents volatility of price of the underlying 33% minority share of equity, which was estimated based on actual volatility of parent company's market capitalisation from 1 July 2016 till 30 June 2019 period, which equalled 40.8%. If the volatility was 10% higher, fair value of call option would increase by GEL 2,774 (2018: GEL 2,012) if volatility was 10% lower call option value would decrease by GEL 2,692 (2018: GEL 2,035). The Group recognised GEL 1,501 (2018: GEL 1,212) unrealised gains on the call option during the six months ended 30 June 2019 within other income, included in revenue in consolidated income statement.

Put option represents option owned by non-controlling shareholders on sale of remaining 33% equity interest in JSC GEPHA to the Group in 2022 based on pre-determined EBITDA multiple (4.5 times EBITDA) of JSC GEPHA. The Group has estimated put option value based on number of unobservable inputs. The Group has not changed any of its input estimates (EBITDA or discount rate) as compared to valuation as at 31 December 2018. The redemption liability increased by GEL 3,772 in the six months period ended 30 June 2019 solely due to the unwinding of discount. Major unobservable input for put option valuation represents estimated EBITDA of JSC GEPHA as well as discount rate used to value the option. The Group has applied 11% discount rate to value the option. If the discount rate was 1% higher, fair value of put option redemption liability would decrease by GEL 2,336 (2018: GEL 2,528) if discount rate was 1% lower put option redemption liability value would increase by GEL 2,433 (2018: GEL 2,644).

Investment securities

Fair value of quoted debt and equity investments measured at fair value through other comprehensive income is derived from quoted market prices in active markets at the reporting date. The fair value of unquoted instruments is estimated by discounting future cash flows using rates currently available for debt with similar terms, credit risk and remaining maturities.

Movements in level 3 financial instruments measured at fair value

The following tables show a reconciliation of the opening and closing amounts of level 3 financial assets which are recorded at fair value:

	1 January 2018	Reclassification of securities	Transfer from AHS	Gain (loss) on revaluation	Payment	Business combination	At 31 December	Gain on revaluation	Payment	At 30 June
							2018			2019
Level 3 financial assets
Equity securities at FVOCI	1,153	(1,153)	-	-	-	-	-	-	-	-
Call option	-	-	10,106	6,863	-	-	16,969	1,501	-	18,470
Payables for share acquisitions: put option	61,512	-	-	10,156	-	-	71,668	3,772	-	75,440
Payables for share acquisitions: holdback for business acquisitions	36,746	-	-	(1,340)	(16,626)	1,026	19,806	771	(6,101)	14,476

All investment properties and revalued properties of property and equipment are level 3. Reconciliations of their opening and closing amounts are provided in Notes 10 and 11 respectively.

19.   Fair Value Measurements (continued)

Impact on fair value of level 3 financial instruments measured at fair value of changes to key assumptions

The following table shows the impact on the fair value of level 3 instruments of using reasonably possible alternative assumptions:

	Carrying Amount	Effect of reasonably possible alternative assumptions	Carrying Amount	Effect of reasonably possible alternative assumptions
	30 June 2019		30 June 2018
Level 3 financial assets
Equity securities at FVOCI	-	+/- 0	-	+/- 0
Other derivative, call option	18,470	+2,774 / -2,692	16,969	+2,012/- 2,035
Payables for share acquisitions: put option	75,440	+2,433 / -2,336	71,668	+2,644/-2,528

In order to determine reasonably possible alternative assumptions the Group adjusted key unobservable model inputs as follows:

For equities, the Group adjusted the price-over-book-value multiple by increasing and decreasing the ratio by 10%, which is considered by the Group to be within a range of reasonably possible alternatives based on the price-over-book-value multiples used across peers within the same geographic area of the same industry.

Fair value of financial assets and liabilities not carried at fair value

Set out below is a comparison by class of the carrying amounts and fair values of the Group's financial instruments that are carried in the interim condensed consolidated financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities, or fair values of other smaller financials assets and financial liabilities, fair values of which are materially close to their carrying values.

	Carrying value 30 June 2019	Fair value 30 June 2019	Unrecognised gain (loss)  30 June 2019		Carrying value 31 December 2018	Fair value 31 December 2018	Unrecognised gain (loss)  31 December 2018
Financial assets
Cash and cash equivalents	202,558	202,558	-		256,930	256,930	-
Amounts due from credit institutions	58,166	58,166	-		40,299	40,299	-
Loans Issued	154,267	162,986	8,719		150,300	163,900	13,600
Financial liabilities
Lease liabilities	97,025	97,611	(586)		-	-	-
Borrowings	934,604	943,497	(8,893)		764,355	760,767	3,588
Debt securities issued	1,040,329	1,010,117	30,212		916,401	863,524	52,877
Total unrecognised change in      unrealised fair value			29,452				70,065

The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the interim consolidated financial statements.

Assets for which fair value approximates carrying value

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

 

19.   Fair Value Measurements (continued)

Fixed rate financial instruments

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

20.   Maturity Analysis

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:

					30 June 2019
					Less than 1 Year	More than 1 Year	Total
Cash and cash equivalents					202,558	-	202,558
Amounts due from credit institutions					38,618	19,548	58,166
Debt securities owned*					120,304	-	120,304
Equity investments at fair value*					533,299	-	533,299
Accounts receivable					178,477	16,063	194,540
Insurance premiums receivable					87,593	-	87,593
Inventories					218,852	71,680	290,532
Investment properties					-	178,094	178,094
Prepayments					115,356	17,991	133,347
Income tax assets					119	1,384	1,503
Property and equipment					-	1,853,904	1,853,904
Goodwill					-	150,150	150,150
Intangible assets					-	67,703	67,703
Other assets					239,845	32,628	272,473
Total assets					1,735,021	2,409,145	4,144,166
Accounts Payable					170,868	100	170,968
Insurance contracts liabilities					95,085	4,320	99,405
Income tax liabilities					1,114	69	1,183
Deferred income					30,862	24,399	55,261
Lease liabilities					21,499	75,526	97,025
Borrowings					264,391	670,213	934,604
Debt securities issued					86,876	953,453	1,040,329
Other liabilities					131,747	109,816	241,563
Total liabilities					802,442	1,837,896	2,640,338
Net					932,579	571,249	1,503,828

*Internationally listed debt and equity investments are allocated to "less than 1 year" rather than based on contractual maturity.

 

20.   Maturity Analysis (continued)

					31 December 2018
					Less than 1 Year	More than 1 Year	Total
Cash and cash equivalents					256,930	-	256,930
Amounts due from credit institutions					29,884	10,415	40,299
Debt securities owned*					71,824	-	71,824
Equity investments at fair value*					457,495	-	457,495
Accounts receivable					153,106	17,122	170,228
Insurance premiums receivable					57,801	-	57,801
Inventories					211,868	64,362	276,230
Investment properties					-	151,232	151,232
Prepayments					62,424	55,485	117,909
Income tax assets					1,021	1,384	2,405
Property and equipment					-	1,671,917	1,671,917
Goodwill					-	142,095	142,095
Intangible assets					-	51,634	51,634
Other assets					80,507	170,955	251,462
Total assets					1,382,860	2,336,601	3,719,461
Accounts Payable					135,826	7,288	143,114
Insurance contracts liabilities					60,555	7,652	68,207
Income tax liabilities					1,119	-	1,119
Deferred income					35,163	27,182	62,345
Borrowings					157,629	606,726	764,355
Debt securities issued					86,089	830,312	916,401
Other liabilities					128,635	107,136	235,771
Total liabilities					605,016	1,586,296	2,191,312
Net					777,844	750,305	1,528,149

 

21.   Related Party Disclosures

In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been conducted on an arm's length basis.

The volumes of related party transactions, outstanding balances at period/year end, and related expenses and income for the period are as follows:

	30 June 2019 (unaudited)				31 December 2018
	Management***		Entities under common control **		Management***		Entities under common control **
Liabilities
Debt securities issued	1,477		-		2,596		-
	1,477		-		2,596		-

	30 June 2019 (unaudited)				30 June 2018 (unaudited) *
	Management***		Entities under common control **		Management***		Entities under common control **
Income and expenses
Gross profit	-		-		3,990		1,998
Salaries and other employee   benefits	-		-		-		(428)
Administrative expenses	-		-		-		(527)
Net foreign currency (loss)	-		-		-		(675)
Interest income	-		-		-		4,409
Interest expense	-		-		-		(5,038)
	-		-		3,990		(261)

During 2018, prior to demerger JSC Georgia Capital issued a loan to the former parent JSC BGEO Group GEL 143,435 (31 December 2018: GEL 133,830), presented in other assets in consolidated statement of financial position. Since as at 31 December 2018 (post demerger) JSC BGEO Group does not represent a related party, this loan is not disclosed in the above table. As at 30 June 2019, one of the Group's subsidiaries, JSC m2 Real Estate has a loan issued to a joint venture JSC Isani Park in the amount of GEL 1,292 (31 December 2018: 1,038). Interest income on loan issued to JSC Isani Park is GEL 76 as of 30 June 2019 (30 June 2018: 8).

*    Including Discontinued operations. i.e. GHG

**  Entities under common control comprise of BGEO Group PLC's Banking Business subsidiaries

*** Management of Georgia Capital PLC consist of 5 executives and 6 members of board of directors

Compensation of key management personnel comprised the following:

	30 June 2019 (unaudited)		30 June 2018 (unaudited)
Salaries and other benefits	1,830		648
Share-based payments compensation	6,401		-
Total key management compensation	8,231		648

Key management personnel do not receive cash settled compensation, except for fixed salaries. The major part of the total compensation is share-based. The number of key management personnel at 30 June 2019 was 11 (30 June 2018: 11).

 

22.   Events after the Reporting Period

Acquisition in education business

In June 2019 Georgia Capital signed SPA with a private school, British Georgian Academy ("BGA") to acquire 70% equity stake. BGA provides a premium quality education to approximately 750 learners from Preschool to 12th grade. Georgia Capital obtained control over BGA in July 2019 and will therefore consolidate it from the second half of 2019.

On July 18, 2019 Georgia Capital PLC signed SPA to acquire a 80% equity in Buckswood International School - Tbilisi LLC. The acquisition of Buckswood is in line with Georgia Capital's strategy to secure a leading private school education platform for its mid-level segment. 

The total consideration for the above acquisitions amounted to GEL 35.1 million.

Update on legal cases of the Group's healthcare business

Subsequent to 30 June 2019, the SSA completed its scheduled inspection of several major hospitals and clinics of Georgia Healthcare Group PLC, the Group's healthcare subsidiary. As a result of the procedures, SSA provided preliminary acts of inspection and proposed penalties due to some procedural violations, similar to the ones disclosed in Note 14. The management conducted preliminary assessment of the inspection acts and concluded that around GEL 3 million penalty was possible (but not probable) to be incurred with regard to the above inspection. The Group continues to assess the identified cases in details and will come up with the updated assessment in the 2019 year-end financial statements.

COMPANY INFORMATION

Georgia Capital PLC

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.georgiacapital.ge 

Registered under number 10852406 in England and Wales

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "CGEO.LN"

Contact Information

Georgia Capital PLC Investor Relations

Telephone: [phone]

E-mail: [e-mail]

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) 370 702 0176

Share price information

Shareholders can access both the latest and historical prices via the website 

www.georgiacapital.ge

 

---

[1] 29 May 2018, Georgia Capital's listing date on the London Stock Exchange is the starting point for 10-year return calculation.

[2] Georgia Capital PLC is our UK holding company whose principal subsidiary is JSC Georgia Capital, Georgian holding company for our operating businesses.   

[3]The Group operates as a holding company of a diversified group of companies focused on acquiring and developing businesses in Georgia, and its strategy is to exit portfolio companies over a five to ten year time horizon - it is not in the business of managing or owning portfolio companies indefinitely. As such, and in order to present our results in the most relevant and useful way for our investors, we have elected to also provide a set of management accounts that adjust the IFRS results to present Georgia Capital on a holding company basis ("management accounts"). Our Group level discussion therefore focuses more on the management accounts, whereas, at the portfolio company level we present IFRS financial statements for each company and our discussion focuses on IFRS results. To provide full transparency and appropriate balance between our management account and IFRS discussion, a full reconciliation of our holding company basis management accounts to the IFRS statements is provided on page 21. The management accounts are an alternative performance measure ("APM"); the basis for their preparation is described on pages 8-13; they have not been audited or reviewed.

[4] Please see the pages 8-13 where we describe the methodology for management accounts, where we define each highlight presented in the table above.

[5] We calculate NAV per share as total NAV divided by the number of issued shares at the end of the period less unawarded shares in management trust. This represents a change from previously adopted approach, when shares bought under the buyback programme and unvested management shares were also deducted for calculation.

[6] A comparative period is not presented, as management believes that 1H18 is not directly comparable and its presentation is not useful for users. 

[7] Last twelve months (LTM) GCAP operating expenses expressed as a percentage of average market capitalization during the last twelve months. 

[8] Consolidated IFRS numbers include GHG results. Please refer to GHG's public announcement on 1H19 performance, available at http://ghg.com.ge/financial-results.

[9] EBITDA is an alternative performance measure (APM) and is defined on page 34 in the glossary.

[10] The PTI business is presented within Auto Service segments results.

[11] Please see note 5 on page 5.

[12] Please see definition in glossary on page 34.

[13] Excluding IFRS 16 impact, EBITDA including IFRS 16 impact was up 36.0% y-o-y in 1H19.

[14] LTM refers to Last Twelve Months, NTM refers to Next Twelve Months.

[15] In line with our valuation policy, Amboli, recently acquired auto service industry player, is stated at cost.

[16] GHG dividends were received on 12 July 2019, however, the dividend record date fell in June 2019 and therefore, GHG dividends were recorded in 1H19.    

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

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

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

[20] Internal estimate of running market share based on number of vehicles registered.

[21] 80% equity stake in the current campus and 90% equity stake in three new schools that will be developed under Green School brand.

 

END

 

 

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