Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

Hello, everybody. Welcome to GCAP first half results presentation. Let me start the presentation with the introductions we were going to talk about. I will update you on COVID situation, macro, on the recent developments. We'll talk about Q1 -- sorry, first half and Q2 results, we'll talk about the NAV development. And Giorgi, our CFO, will join me to talk about the valuations. And then we'll do a wrap up. So let me start with the COVID situation in Georgia. Vaccination has accelerated recently. So we have around 640,000 vaccinations done. We have a big Pfizer import, just imported, and we have a big demand for the vaccination. Good news is that we have around 25,000 vaccinations daily done on average now. And the outlook is even more encouraging. At the same time, we have cases increasing, number of infections, COVID infections increasing. And now we are averaging around 3,700 cases per day on average. So the health care facilities are pretty busy. And we think that we have another 1 month to go before we get our vaccination in order and we get to our desired 60% vaccination done by adults before the year end, but within months, given the infection, number of infected and plus vaccinated, we'll be well over 50% in a month's time. So we hope that we will turn the corner within a month. In terms of the macro situation, we have a very strong GDP growth. We have Q2 growth was around 30% year-over-year. But what is most important, that GDP growth in Q2 against the Q2 2019 was also very strong, around 13%, 13%, which is a very encouraging. And that's what we are really looking at growth over 2019 because the base of 2020 is very low. The first half GDP growth also -- was also very strong. We had that nearly 13% growth. And combined growth for first half versus 2019 was around 6%. So growth is strong comparing 2020 and 2019 as well. So what caused that growth? So we had a very high inflow of remittances. We have around, if we look at 2019 numbers, growth in June, May was around 40%, and even 145% in April. Remittances also grew against 2020 numbers. So overall remittance was very strong. Now tourism is recovering. We have a good recovery in tourists -- tourism recovering around 36% of 2019 numbers in June we have. And we think that this number is even higher in July and August. May was around 27% of 2019 numbers. Overall growth rate is pretty impressive of 990%. But again, the base was low, but that's why we are ending up with 13% growth in Q2 basically in GDP. Also trade is growing very strongly, both import and exports are growing compared to 2019 and 2020. We have on -- if we look country by country, recovery of tourists essentially is doing pretty well. We have nearly 36% recovered on Ukrainian tourists and Israeli tourists. So in that regard we are moving fast in terms of -- with this country we are moving fast in terms of recovery. But I think that there is a lot to go in terms of the neighboring countries where the penetration of tourists compared to 2019 is pretty low, around 13%. Now the lari was also getting pretty strong. We had -- I mean the Georgia lari is best-performing currency in the region by far. And the reason is, again, the strong tourists, strong exports, inflow of remittances. So overall, a rebound in the economy. Also there were some smart poses by National Bank in terms of the reserve requirement for lari deposits. So National Bank requires less reserves for minimum reserves, basically to put aside if share of lari deposits grows in the bank, so which was a very good policy. We are happy, extremely happy with that. We think that is one of the most sensible policies the National Bank has done recently in terms of the larization. And that's how it should be done on the liability side, not on asset side. So that -- it reverse this lari weakness which was due to the asset side policy on larization what National Bank had. So even though we had a big rebound in lari in the area from GEL 3.5 to -- back to GEL 3.1, there is still lot to go because it is well below the long-term trend. So we expect further lari strengthen in coming months. And as tourists recovers, I mean, now -- the measure of the recovery is only 35% what was in 2019 on full recovery, or even at 70% recovery lari would definitely go back to where it was on prepandemic level -- prepandemic, even maybe little bit stronger due to a reversal or right policy on larization National Bank is doing now. Now recent developments. We did say that we will be selling some of our other assets which are small in scale, subscale. And I want to update you on that one. We sold the real estate assets, both office space retail and actually land plots as well, nonyielding land plots we sold worth $35 million. This is of $58 million of real estate paid assets we are selling. So $35 million is sold. And we sold it at 47% to net asset value. I mean the amount wise it's not very big in terms of net asset value, but still the number tells you that discount, 50% discount versus 47% premium is -- there's -- it says something, where the market is marking GCAP versus the assets people are paying for. Now regarding the discount, since we were talking about this subject. As you know, we have a capital allocation policy which basically is the GCAP share price in the center of that so since we have a 53% discount to our NAV, we basically, we want to step up the buyback and we are starting with $10 million ticket size. It starts as of today. And we hope that the market will stay as low as it is right now to -- for us to buy GCAP cheaply. So why we are doing now? We have ample of liquidity. Dividend income outlook is very strong for our portfolio companies. Loan to value is -- has improved to 26%. So all of these arguments give us the green light to start buying. And plus, we think that the pandemic, the way the government is managing the pandemic, we don't see a big risk of hard lockdown. We may have some restrictions. But we believe there will be no hard lockdown. And our portfolio companies' operating performance, as you see, is extremely good. So we are [indiscernible] is that our portfolio companies will be delivering the growth which we have in first half. So what kind of growth we have in terms of operating performance for our portfolio companies? In Q2 we have a 42% growth over Q2 2019 in terms of the revenue and 45% against Q2 2020. And in terms of the first half, the revenue growth is around 26.5% against 2020 first half and 37% against first half 2019. What is most favorable is very -- we are happy that our growth is very robust against 2019. So Q2 42% revenue growth we think is outstanding performance by our portfolio company. It once again underlines that GCAP has a defensive portfolio of assets, which has high growth prospects in this environment. And all of our portfolio companies are its own market leaders and have extremely strong management teams. And they have extremely strong prospects in terms of the market positioning and the outlook. So we think that the growth will continue in this high GDP growth environment. The EBITDA obviously grew faster than the revenue. We had nearly 90% growth in Q2 EBITDA over last year. And we have 84% growth of -- against Q2 2019. In terms of the first half, the EBITDA grew 64% against 2019, and nearly 58% against last year. So very strong growth. If we go company by company, you will see that revenue in health care services in Q2 grew 82% against 2020 and it grew 38% against 2019. EBITDA growth was also very strong 253% to GEL 26 million, and 43% against Q2 2019. So, I mean, the -- again, I want to underline the strong performance against 2019 numbers. And if we look at the first half EBITDA, it's also triple digit growth for our health care company. So in terms also retail pharmacy we see a Q2 number pretty strong, again 35%-plus growth in terms of the revenue in Q2 and EBITDA growth in Q2 is around 34% and 30% against 2020 and 30%-plus against 2019. And growth in first half is minimal at 7.5%. Last year actually it was very good year for pharmacy retail as people were buying a lot of drugs due to the -- when the pandemic kick-started. So the EBITDA is flat in first half in pharmacies against 2020. Water utility, another stellar performer in our portfolio, 82% growth against 2020 and 30% growth of revenue against 2019. First half growth, again impressive, 50%-plus, and 23% against 2019. EBITDA growth in Q2 152% only and 55% in Q2 2019 -- against Q2 2019. And first half growth around 90% in water utility and 39% growth against 2019. Again stellar performance for water utility. As you know, we had increase in tariff which was a driver, as well as water inflows into Zhinvali reservoir is pretty strong. So we had around 4x growth in revenue from the energy generation. And also the -- as economy reopened, we have a very strong inflow from our commercial customers' revenue growth. Insurance, to be honest is not as stellar performance as others because it had a good year in Q2 last year, but you see gross premium written is still up 24% against Q2 2019. And basically the profits are actually down a little bit. And this is due to the medical services as we are getting more claims in health care insurance. So we are doing pretty well on the P&C side. But we need to fix some medical insurance claims basically. Our renewable energy, again stable, strong performance. Last year was good for the renewable energy. It has a 13%, 13.5% growth in revenue in Q2 and 8.2% in first half. In EBITDA, we had 17% growth in Q2 and 5.5% growth in first half. Education, again education is doing extremely well. We had 40% growth in lari terms. This is due to the increased number of students and utilization is going up as well as some increasing prices, which we have done for the -- for this education year basically. First half also 16% growth. We have a good EBITDA growth in Q2, around 74% growth in EBITDA in education, and we have 26% in the first half growth in EBITDA in education. So aggregate cash balance is what we have. It is up around 74% in our portfolio companies from GEL 183 million, but it's down against March last -- this year and beginning of the year. And the reason is that we are investing in growth in working capital to grow our top line and we are investing more. So our cash preservation strategy which we had last year is sort of reversed. It's all focused on revenue growth and EBITDA growth. And we are capturing the market shares, and we are capturing the growth opportunities what we have across our portfolio companies. So aggregate -- so net operating cash flow is not as strong as it was during the pandemic time, again as I said that about the funding, the working capital to grow our top line. We have ample of liquidity, a GCAP of GEL 442 million. And we are eager to grab the opportunities which may arise. So the -- in terms of the NAV development, we had a pretty good quarter. Our NAV per share is 16.4% up. If you adjust for last Friday, adjustment is Bank of Georgia share price and the FX is actually up 22% to GEL 57. So controllable NAV is up nearly 16%. In controllable NAV, we don't include the Bank of Georgia, and that's also strong at 16% growth at… Now how this growth is translated. GEL 4.73 was attributable to portfolio valuation which was externally valued. Bank of Georgia was GEL 1.52. Investment stage portfolio company was GEL 0.81. And then we have small, different things, including small buybacks, operating expenses. Liquidity and FX was positive, GEL 0.66. That's how we arrive to GEL 54. And NAV per share is 16% up. And then we have further GEL 2.6 up for Bank of Georgia share price increase since the end of the quarter till the -- till last Friday basically. So 22% up our NAV per share in the quarter. Now NAV per share in first half, you see same picture here. Biggest contribution is basically the externally valued large portfolio companies, GEL 5 per share was up here. Now I will let Giorgi to talk about the valuation of our portfolio companies. Giorgi, do you want to use my presentation or you have yours?

Yes. I'll use mine if that's okay.

Yes, sure.

Thank you, Irakli. Hello, everyone. I will now walk you through the portfolio valuations that we had adopted during the first half and then the second quarter reporting. To start with, I will start with overall overview of our portfolio and the evolution during the second quarter. As you see on this slide, our portfolio grew by 11% in the second quarter. And it is currently at GEL 3.250 billion in terms of the value as of the end of June. To remind everyone, we -- the valuation was performed by the external valuator, which is a third party, Duff & Phelps, again this time. And the methodology and the framework adopted by the Duff & Phelps was similar to the ones that has been previously used. So there was no change. DCF and peer multiple or the market approaches were consistently used from the previous periods. On this slide you see that the value growth, which was GEL 325 million was attributable across different portfolios of our entire portfolio. GEL 70 million was attributable to Bank of Georgia. Large portfolio companies contributed GEL 214 million. Investment stage portfolio companies GEL 35 million and other portfolio was GEL 6 million. If we break this down by each individual businesses, the highest portfolio value growth in the second quarter came from water utility. That was GEL 91 million. And it was 28% of the entire value growth of GEL 325 million. Next we had health care services with GEL 81 million. Bank of Georgia with GEL 70 million, which is the change in the listed prices during the quarter. And then we had retail pharmacy with GEL 45 million; education, GEL 20 million; and renewable energy, GEL 15 million; followed by the other business at GEL 6 million. In the next few slides I will walk you through the drivers of these valuation gains that were recorded in the second quarter. But first let's talk about the first half. Within the first half, our portfolio growth was GEL 300 million, GEL 340 million. And it was attributable, the largest growth in the first half was in fact in the health care services that made up 34% of the overall value growth and was GEL 114 million, followed by water utility at GEL 77 million, Bank of Georgia at GEL 44 million, education and GEL 31 million and et cetera. On the next few slides you will see the drivers of these valuations. On this slide, we present how our portfolio is now broken down between the different parts. Our listed investment Bank of Georgia makes up about 18% of the overall portfolio. Then we have the large portfolio companies at 64% with slightly above GEL 2 billion value. Investment stage companies are 11%. And other portfolio continues to be around 7%, which was the case again this quarter. In terms of the valuation multiples, you know, this slide summarizes detailed valuations of all portfolio companies including implied multiples and share of their values in our full and entire portfolio. Similar to the previous quarter, we are presenting these implied multiples. Few things that I will highlight that in terms of the changes you will see that, for example, in the health care services, the EBITDA multiple that was used in the valuations -- that was implied in the valuations in the past has decreased from 12.5x to 10.6x. We also had multiple decreases in retail pharmacy and water utility, which are now both a 9.3x EBITDA multiples. In terms of the insurance, we had an increase in the multiples there, which I will walk you through later in the slides. And in the renewable energy and the education, slight change in renewable energy multiples. That increased slightly. Education multiple remain the same. And in terms of the other portfolio, which remained consistent and flat at 7% of the total portfolio, its value increased by GEL 6 million. That was supported by valuation gains within beverage and other services business during the second quarter. Now in terms of the individual businesses. In the health care services business, we continued to value this business together with Duff & Phelps at EV/EBITDA multiples. And on this slide you will see that enterprise value increased by GEL 65 million or about 7.3% to GEL 964 million based on EBITDA multiple decreasing to 10.6x versus 12.5x 3 months ago. And also because of the replacement of the second quarter '20 earnings in the LTM EBITDA with the second quarter '21 earnings EBITDA, which removed significant negative impact from the first lockdown on the LTM numbers that are used within the devaluations. And you can see this also in the outstanding performance in the operating numbers. So LTM EBITDA was in fact up by 26% during a single quarter, and then net debt also improved by GEL 17 million. The other impact was on the minority interest which increased by only 3%. So as a result of this, the equity value of the health care services business that is attributable to Georgia Capital during the quarter was up by GEL 81 million to GEL 686 million. In the retail pharmacy, the -- in terms of the valuation. In the second quarter the enterprise value increased due to the increase in the LTM earnings, which was up by 8% during the second quarter. We also had the net debt that was largely flat during the quarter while there was a small increase in the minority interest value which was up by 1.5%. And accordingly, the equity value that was attributable to Georgia Capital increased by GEL 45 million to GEL 580 million in the second quarter. In the water utility business, the implied multiple, enterprise value multiple decreased slightly from 9.6x to 9.3x. However enterprise value still increased to -- by GEL 64 million. And it is now above GEL 1 billion. And on the back of strong top line and bottom line performance that you saw earlier in the slides, this stellar performance in the second quarter also resulted in the LTM EBITDA increasing by 10% during the quarter. Net debt decreased by GEL 28 million, which was a product of lari's appreciation against U.S. dollar, and also the strong operating performance and the operating cash flow generation by the business. So as a result, the equity value of the water utility business increased by GEL 91 million during the quarter and was GEL 548 million in the second quarter '21. In the P&C business, equity value here had an immaterial change. During the quarter, the LTM income remained largely flat. It was slightly down on an LTM basis. However, the multiple increased to 12x P/E, which translated into GEL 2 million higher equity value during the quarter. However, we should highlight that this business paid GEL 5 million to Georgia Capital in the second quarter. Medical insurance business equity value here decreased by almost 7% as a result of the decrease in the LTM net income due to the increased loss ratio during the quarter, and then the increase of the P/E multiple to 12.3 reversed some of the impact from the decrease. So overall this business had a negative GEL 4.5 million impact on the valuations. And it was a decrease to the overall portfolio value. In the renewable energy, this business similar to the previous quarters was valued as the sum of the parts approach where individual assets were valued at EV/EBITDA multiples or carried at investment costs. We carry the pipeline projects at the investment cost mostly. So the multiples used for valuation range from 9.2 to 11.5x, and the average multiple was 10.3. This business enterprise value is measured in U.S. dollars. So as the lari appreciated during the quarter, it had a negative impact. And in lari terms, it decreased the enterprise value. However, because the performance, the EBITDA performance was strong in dollar terms, that reversed that -- some of the decrease. And as a result, the enterprise value was largely flattish, only down by GEL 1 million in lari terms in the second quarter. The net debt decreased as a result of the lari's appreciation versus dollar and the strong operating cash flow performance. And it was down by GEL 15 million. At the same time, this business paid us GEL 5 million dividends during the quarter. The total value of this business was GEL 221 million where about GEL 180 million is operational assets and GEL 41 million, as you see on the slide, is the pipeline projects. Next we have the education business. No change in the multiple here. But the GEL 21 million growth in the enterprise value was supported by the LTM EBITDA growth during the quarter. That was almost 20%. So the LTM EBITDA in this business in the single quarter increased by 20%. Also there were small investments. We invested GEL 1 million in this business. And about GEL 2 million was reinvested by the schools themselves for the development of the new campus. When we include the total cost of some of the lanes that are allocated to this business, which you see as investments carried at cost of GEL 28 million, the overall value of this business is GEL 124 million. And that is about GEL 21 million increase from the valuations in the first quarter. So at the end of my slides. Let me quickly touch the Georgia Capital's leverage and the liquidity profile. You will see on the chart that our market value leverage continued to improve in 2021. And it is now well below the targeted level of less than 30% threshold. It was 27.4% at the end of June. And following the Bank of Georgia share price increase since the end of June and lari's appreciation since then, the current LTV ratio stands at 26.4%. We have about $140 million of liquid funds as of June 30, of which about $90 million is pure cash and liquid marketable securities. Lastly, our guidance for 2021 dividend inflows from private portfolio companies remains unchanged. We continue to expect between GEL 60 million to GEL 70 million during the 2021 dividend inflows and about GEL 15 million, GEL 14.5 million was received already in the first half with the rest coming into the second half. Again, this is the only -- this is only private portfolio company dividend outlook and excludes dividends from our publicly listed investments. With that, back to you, Irakli.

Thank you, Giorgi. So to wrap up, we have a strong NAV per share growth, 22%. We have a stellar performance by our portfolio companies and our aggregate revenue for the quarter reached -- surpassed GEL 500 million and was up 45%. And EBITDA is up by 89%, to GEL 114 million for the quarter. We had a very strong -- we have very good news on divestment side. We sold $35 million worth of commercial real estate assets at 47% premium to our net asset value. And we also announced the -- renewed our buyback program as we see a stronger dividend outlook inflow for our portfolio companies due to the very strong operating performance. And we see outlook for the economy even stronger. So we are happy to renew our buyback program. So basically we are -- we continue to -- our portfolio companies continue to perform well in July and August, and we hope to stay that way. Now we are happy to answer your questions. It would be best if you ask the question and not write to us.

So we have a question from Jonathan. What is the benefit of making small changes to valuation multiples each quarter? Would it not be better and easier for comparatives to stick to the multiple until events require a substantial re-rate? That is the question. I think Giorgi can cover this.

Yes, sure. So in terms of our valuations, 80% of the valuation is actually coming from the DCFs. So when the DCFs gets updated, and as you saw in the second quarter, the performance was very strong against the last year and the LTM numbers increased, but it was also stronger than management had expected. So that impacted the future cash flows that are being used in the DCFs that resulted in implied multiples being changing, and sometimes being higher or lower depending on the businesses. So in our case, we don't keep the multiples same. We look at the cash flows and the projections in that business. And that's how they get updated. I hope that answers your question.

We just do DCF valuation, so it just changes it's -- what we see mark to market basically.

Thank you. There is another question. Which business do you think would be most attractive to potential acquirers? Where might such an acquirer come from, Europe or Asia and so on?

So actually since we said that we want to dispose our -- some of our large investment portfolio company, we have the inquiries all over the world for different assets. Even we were surprised. So I think that it can come from anywhere from the world for the quality assets like we hold. I think there's an interest for multiple different assets. And that's why we are actually are pinning down which assets we want to sell or we are selling because it could be -- the competition is not on -- for the asset, competition is across the assets.

There are no questions for now. Please, you can press the raise hand button below if you want to ask a question.

There is another question, Shako.

Yes, there is a question. What are the key risks to the fund?

I mean, I think that, first of all, it's not the fund. So it doesn't have a risk of withdrawals basically as a fund would have. So it is evergreen investment company, we can call that way. So therefore, maybe the biggest risk could be the leverage what GCAP has at holdco level. And that's something we need to think about for the future. But I think it's a risk right now, but potentially if you are asking theoretical risk, that's what it could be because as funds have a risk of redemptions, we don't have that redemption risk, but we have a debt risk.

Thank you. There is another one. Any update for the planned asset management business? And then we can answer [indiscernible] question. Any updates for the planned asset management business? That is the question.

Yes. So basically on the asset management business, so far, as you saw, as we have announced that we have put that on hold due to the COVID situation. But we hope to resume that as things will stabilize. Right now, as we see, the LPs are more focused on -- are not focused on the new business. So we will update you as soon as we have a news.

We have a question from [indiscernible].

I just have a general question. If you could talk me through your view on the net debt levels across your large portfolio companies and whether you see any need for deleveraging and how you look at your debt maturity profile across those larger companies. That will be very helpful.

Giorgi, do you want to -- I think that's a big subject. Maybe you want to take it off-line basically. We have 8 companies, but anyway.

Yes, sure, of course. So maybe you can just comment on the health care services business. That will be helpful.

Which business did you say?

Health care services.

Health care services business? Yes. I think -- I mean, if you look at health care services business separately or together with, let's say, retail, pharmacy and the medical insurance, I think the leverage level there is quite low. I think it's less than 1.5x if you look at on an LTM basis, the LTM EBITDA. And that business right now is generating free cash flow because the investments that have been made in the -- in CapEx in the future have decreased. And now this business is benefiting from the growth in the revenues. Nick, unless you want to add anything from your perspective?

Nick, do you want to add something? [Foreign Language]

Hi, yes, I can add. So basically, if you look separately on these businesses, health care services business is levered a little bit more than 2x, and pharma is almost unlevered and the insurance is also in -- has a negative net debt. So I mean -- and these leverages will be decreasing further this year though, so the leverage at the former GHG portfolio companies is pretty low right now.

Thank you. There is another question. "Do you have a target discount to NAV pertain to start share comebacks?"

Share buybacks probably. We would not want to talk about it. I guess we don't have it right now, but I think that 52% discount is comfortable level to start the buyback, but no. It does depend on the outlook as well. As we see so far, we think that our marks are pretty conservative. And as we are -- we'll see how the disposal of other assets will happen at what levels, and the real discount could be bigger than our -- what we are showing right now on our NAV discount.

Thank you. We have a comment from Jonathan. Not a question, but I do think as a shareholder that management will deserve congratulations for what they are achieving, particularly in what has not been the easiest of circumstances. That's from Jonathan.

Thank you, Jonathan. I appreciate your words very, very much.

Here is a question from Krish. Currency benefited performance during the period. Do we expect this to continue?

Basically, we don't think that currency performed well. It just went -- it's not even back to where it was at prepandemic levels. So as we mentioned that with our outlook for the currency appreciation, it's even greater, especially taking in account 2 factors. Factor number one, that tourism recovered just 36% of 2019 levels. And second one, which is most important one, National Bank did reverse, which we thought was very unwise larization policy on the asset side and they reversed that policy, and now they are aiming for deposits which creates a pressure for the lari to appreciate as it was creating the artificial pressure for lari to depreciate during the asset-side larization policy. Now it's actually reversed. So we think it will go to -- it would be below, well below GBP 3 levels if that continues like we have -- we are seeing right now, so -- and you saw that on the real effective exchange rate basis lari is still undervalued. So we think there is a way to go there.

Thank you, Irakli.

Rick has a comment that why you are -- why we are so modest on buyback given the discount. Because we want to buy it cheaply.

There is another question. Being a major shareholder in Bank of Georgia, how do you see the recent announcement from the bank regarding new financial targets and reinstatements of dividends?

We like the -- what the management is doing. We like this. As I said, the management's -- quality of management in our portfolio companies and in Bank of Georgia is the best one. And we think that they have done a great job in managing the bank in the turbulent times. I mean, one comment which I can make is that Tier 1 ratio of the Bank of Georgia is greater now than it was prepandemic levels, which is -- which tells you the quality of the portfolio of the Bank of Georgia as well as the management, and we are looking forward to hearing from them on the dividend levels they want to announce. And as I said, it's -- we have top-class assets in our portfolio. And Bank of Georgia is obviously one of our star-performing companies in our portfolio.

Thank you. There is another question from [ Shahin ]. Could you talk about any political risks you see on the horizon? If political volatility continues, which of your businesses, if any, would be most affected?

We don't see a political volatility, to be honest. But I think that we're going to have local elections on 2nd of October. And basically, I think that's pretty much it. I think till 2024, we won't have elections as we see right now. So there is -- in Georgia there is some political turbulence. But overall, I think that country is moving in the right direction, so -- and to be honest, if there is a political turbulence, I don't see any risk to our portfolio companies.

Thank you. There is a question from [ Graham ]. Between now and the first divestment, what are the main factors that will drive additional buyback commitments? And how much could be available for buyback in second half '21?

I think that let's live one day at a time. So we are -- we will update you as we go. As I said that for us it would be better to have buybacks when share price was at GBP 3.5 or GBP 3 level. But back then, there was a lot of turbulence in terms of the COVID situation and operating companies. We are performing well but not as well as we wanted. Right now, we see a big rebound in performance of operating companies are performing extremely well, and they continue to perform well the second half, first half next year et cetera, we won't shy away. Our business is buying businesses cheaply, buying assets cheaply. And GCAP is one of the assets we are -- it's in the center of our investment decision-making. So we are happy to be given opportunity to commence this buyback, and we'll see how things will go. Shako, I think there was another question as well.

I think -- no, I think that was it. That was the last question.

Okay.

There is another one coming. Could you give us an update on the Mega Lab performance, please? That is a question from Jonathan.

I think that's very short. I think Nick will give you a more detailed one. I'll give you just a big picture one. The return on invested capital is 47%. Nick, maybe you talk about the…

Yes. So we are expanding further. So we accelerated our retail footprint growth for our lab business. So we are already operating with close to 20 branches. And it's picking up very well. Some of them from pharmacy branches, some of them not pharmacy, I mean, separate stand-alone branches. And as Irakli has mentioned, business is performing pretty well. And -- but not only because of the COVID. So COVID is only one part of the business. On back of the COVID growth, and COVID test growth, pure retail is accelerating pretty fast. So we are very much looking forward for further expansion in this business.

What works very well on the Mega Lab side, the drive-throughs, which management has introduced. And there is big queues there. And we are expanding the number of drive-through points. And we'll be expanding going forward. As well as we are introducing the tests in pharmacies, which is picking up pretty well. So I think that what Nick was mentioning that the COVID -- kind of COVID drove the more culture towards more testing, blood testing, et cetera, in the society. So it's basically we are seeing a big upside in Mega Lab in general. And we are seeing that small labs are decelerating in their performance as Mega Lab is performing -- is offering the highest quality and the best price basically. So we are very happy with the Mega Lab performance.

There is a follow-up question from Jonathan. How much is COVID-related business?

COVID-related business is around 40% of the Mega Lab's performance right now. The rest is B2B business, which Mega Lab is doing with hospitals and pure retail others than COVID business.

Thank you. For now, there are no more open questions.

Let's wait for a couple of minutes.

Yes.

I think we are done here. Thanks, Shako. We have another one?

Yes. How many other opportunities are there to grow the retail pharmacy business, such as is being done through body shop?

Nick, do you want to…

So body shop was a kind of door-opener for us. We opened a first shop in Armenia as well. And our pharmacy chain in Armenia is expanding further. So another thing is that we are going -- as it was announced in our strategy back in 2019, we are going into the opticians business. So we got a franchise of Afflelou. It's the second largest retailer in France. So we are -- we have opened our first shop now in Tbilisi, in the capital, in the largest shopping mall, and we will be expanding further there with shop-in-shop models of optics within our pharmacies. So that's a start. And we are looking forward for other these kind of franchises, mainly now in the perfume, and that will be a next. That's what we are working on right now.

Thank you. No open questions for now.

I guess that's it. Thanks, everybody, for joining. We appreciate your time and commitment, and stay tuned. We have a very good Q3 also coming up, it feels like. And hope to see you soon in person. Bye-bye.