Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

[Audio Gap] Let me go through the, first of all, the key highlights and then, Shako can you go back so that we just -- yes, we'll go back to key highlights, strategic developments, what we had. Then Nino will talk about the macro and COVID update. And then Giorgi will talk about the Q4 results overview, NAV development and valuation, as well as in the end, I will do the hard job to wrap up everything. And then we will have a Q&A session. So let's start the presentation against our key highlights of the year 2021 is the sale of the 80% equity interest in the water utility company for highly $180 million. As you remember, in November 2020, we updated our shareholders with our strategic priorities. And the key priority was to sell one of our strategic assets in order to validate our NAV. We did validate that it was 30% premium to the recent valuation of third-party recent valuation. So we have the 100% of the water utility was valued as $225 million equity value, which was a 30% premium. Also the good news is that we have brought very important investors in the country who are -- who know this business very well, and we remain in 20% with the Aqualia, which is one of the largest water utility companies in Europe and in the world. And we are -- we feel very comfortable in developing this business even further and creating more value for our 20% stake. And by interacting with Aqualia and working together, we very much believe that more value will be created with strategic investor who has a vision and view how to bring this company forward. Here we have a strategy -- the key highlights in USD terms, MOIC was 2.7x, and IRR was 20% plus, Lari, MOIC and ROIC was greater at 3.6% and 27% IRR, which was absolutely critical for us to demonstrate to our shareholders that we create the value with our investments, and we have done so with -- this is a kind of a second exit. One was the Healthcare Group, which we IPOed in 2015. Back then, IRR was 102%. Unfortunately, it has shrunk the IRR to 20-plus, but we continue to deliver value to our shareholders by growing and developing businesses in Georgia. So just the timeline as you know, we had a water utility business under the renewable energy and water utility was under the one umbrella, and there is a bond outstanding on holdco, and we will be repaying this bond in August 2022, and we'll be separating water utility and renewable energy. So we will have a 100% ownership of renewable energy going forward, and we will have a 20% ownership in the water utility business. On next slide, our credit achievements, which was in 2021, disposal water utility business. So we also restarted our buyback program. We did a $10 million buyback in 2021 and $5 million we had in 2022. We also disposed the commercial real estate, which is qualified under our subscale businesses and we will continue to sell this subscale business. As you know, we want to focus on the large opportunities and not to spend management time and resources on the smaller ones, which are not scalable and cannot move the needle in our NAV. So that's why we are selling these subscale businesses. In pharmacy business, we have struck a deal we think a very good deal to buy out our minority is 5.25x in EBITDA. I will remind you that the call was at 6.5x EBITDA. And it was sizable in 2023, but we will be buying out -- we will start to buy out earlier. But most importantly, our partners at pharmacy business will remain with us for the next 6 years, which is very important. The management helped us to grow this business pretty rapidly and they've done a great job being our partners, and we like to be partners with our minorities in the pharmacy business, who are also helping us to manage this business. And it's instead of cutting off the relationship in 2023, we are actually -- we are extending for another 6 years, which is a great news for us to have a partnership with this minorities. We also did small acquisitions in education business. As you know, this is a kind of important business line for us. That's why we think that the next growth is going to be, and we think that we're going to grow this business rapidly. And we are betting in next by 2025 to achieve GEL 50 million EBITDA through organic growth as well as acquisitions. And lastly in 2021, we did the cap of the $65 million Eurobond, which is done mainly for liquidity purposes to manage our liquidity. As you know, leverage has increased on our balance sheet. And to be honest, we're not very big class of leverage at this stage and we want to decrease it significantly. Right now, the gross leverage is at $365 million, but since we have received the proceeds from the water utility sale, our net -- I think our net debt, Gill, you'll correct me, won't allow me to lie probably it's around $150 million right now. But anyway, the bond tap which we have last year was purely for liquidity purposes. We do not want to increase our leverages vice versa. We want to decrease it more rapidly as we think that one of the reasons of declining the share price of the Georgia Capital during the COVID times was due to an excessive leverage -- to the holdco head on its balance sheet. So next slide is -- next we have -- I'll let Nino to talk about the macro developers in Georgia and then Giorgi will take on. Thank you.

Hello everyone. Thank you, Irakli. Today, I will give you brief macroeconomic outlook and the macroeconomic update of country. So first of all, let me start with COVID-19 statistics. On a global level, uncertainties remain high as with Omicron variant, like there is no guarantee this Omicron variant to end the pandemic. And we had nicely passed the peak of Omicron wave and government can impose any significant restrictions during this Omicron wave as the vaccines were widely available to prevent ourselves and economic recovery was kind of priority. And so now average sale cases is almost halved compared to the peak of Omicron wave. And the positive is that, positive news is that the hospitalization and death rates are significantly lower compared to the previous peak in August and November. So in terms of vaccination, so 37% of total adult population have at least one dose and 43% are fully vaccinated. And so we have kind of Georgia was one of the top -- in top countries where total confirmed cases per million was kind of accelerated. So in the next slide, we have a continuation of the economic part of the story. We have economic part of the story. So real GDP growth posted amazing double-digit recovery and hitting 14 years high. Preliminary growth is at 10.6%, which is 2x higher compared to IMF forecasted average number for emerging markets and developing economies. So despite the rate effect, GDP growth exceeding well more than 3% compared to 2019 level. And so behind this nice numbers, we have both external and domestic drivers. From the domestic side, we had pent-up demand and expansionary fiscal policy, which played a significant role, especially in the first half of 2021. And then later on increased FX lending helped and contributed through recovery significantly. Like in all we are bank loan book increased by more than 80% if you exclude the exchange rate. And from the external side, we have record high remittances also record high export in an annual term exceeding GEL 4 billion. And Also we have tourism revenues which is recovering despite these restrictions and despite the several waves of COVID-19. Then so in the next slide, we have exchange rate movement. So GEL is a top performer, one of the top performer in the region. And it's started depreciation in the second quarter and continued the trend and the stability throughout the year. So Georgian GEL appreciated more than 10% compared to the beginning of 2021 and by more than 16% compared to 2021 low. So it was quite kind of a stable trend and resilience of Georgian GEL was driven by several factors, including external factors. And so we have some domestic factors which helped stability. From the external side again, we should mention the historical higher inflows so remittance is exceeding like year growth was growth was 25%, while compared to 2019 remittance is increased by 36%. We had merchandise exports and tourism revenue, which started to rebound. So in the second half, tourism revenue was more than 50% of 2019 levels. And in January, tourism revenue is close to 70% of 2019 level. So this solid FX inflows were kind of a significant driver of appreciation. And also from the external side, we should mention dollar index itself, which appreciated but not more than the last level was observed in 2019 and '18 year, and this appreciation was lower compared to previous tapering excess. So these factors -- this less like the dollar movement kind of leave some room for emerging market currencies to remain resilient. And there are some domestic development which helped the currency to remain stability and increased confidence in GEL. First of all, we should mention tight monetary policy National Bank of Georgia increased the rate by 4x to 10.5% and despite the supply tight nature of inflation. So NBG hike was -- NBG hiked the rate in order to curb the inflation expectations. And also from the domestic side, we should mention a wide interest rate differential between the GEL and foreign currency interest rates so in loans and deposits, which are helping FX loans and GEL deposits both positive for GEL stability. So, and all of these factors we are important for GEL trend and increasing confidence in our currency. Then in the next slide, we have inflation, which is another kind of hot topic on a global level and is expected to remain hot topic in the coming year. So annual inflation increased to 13.9% in December and remained at level -- elevated level in January. So there was some utility subsidies, which kind of affected statistically affected the inflation from December, and this effect will remain in play until March 2022. After that this effect should be eliminated from the inflation calculation. So all of the components kind of, if we decompose inflation all of these components, we are kind of contributing to the elevated inflation, mainly the side effect that GEL prices have strengthened. So the imported inflation was a key driver for these elevated prices. As in the international market, food prices increased and energy prices increased, and there was a lot of challenges related to the supply side bottlenecks and the shipping cost. So all of these were reflected in inflation. And so what is expected, so again, National Bank of Georgia started to increase rates from spring. And so it's tightened monetary policy by 250 basis points and now it expects and less additional shocks so, it expects inflation to decline below 4% at the end of 2022. And for the last slide, we have some chart for you from the fiscal policies. So our debt level, which increased last year is now projected not projected it is kind of a preliminary estimate that it will decline to by almost 9 percentage points to 51.1%. So in 2020 so the pandemic with -- public debt and fiscal deficit widened, which was kind of natural and so it was not unexpected because government increased current expenditure in order to protect most vulnerable and on the other hand, revenues were contracted due to the recession and due to the tax waivers and the difference. And now the fiscal policy and recovery significant fiscal policy is now like unwinding the cost -- I mean, the price measures, the price support measures and so expected to end the year drawing the fiscal deficit within the fiscal bond. And in the chart, you can see that this public debt significantly declined this year and is expected to decline gradually. And as for the fiscal deficit, it is expected to return to 3% saving in 2023. So this was a very quick update. And so we will appreciate your questions during our Q&A session. And now I will hand over to Giorgi for our results overview. Giorgi, thank you.

Thank you, Nino. Hello, everyone. I will be over the next few slides discussing the fourth quarter results, including the performance of the portfolio companies and our valuations and the changes in NAV during the fourth quarter. So starting with the aggregated revenue numbers, we finished the year very strong. In the fourth quarter the aggregated revenue growth was more than 18% when we look at in the fourth quarter '21 compared to fourth quarter '20. And that growth was even stronger when we compare it against 2019, the growth was almost 30%. On a full year basis in 2021, the growth was almost 24% versus 2020 and about 34% versus 2019. The vast majority of this growth, both in the quarter and for the full year actually came in from the performance of our large portfolio companies. In terms of the EBITDA, the growth in the fourth quarter was 8% for overall. However, the growth when we look at the large portfolio companies, it was approximately 35% where the EBITDA grew from 60% to 81%. The offset to this was some negative EBITDA that was recorded in the real estate that had an opposite impact. When we look at the full year, in the full year, the EBITDAs growth was 35% for full 2021, and that growth was higher about 38% in the half when compared to 2019. This also reflects the strong performance that our portfolio companies had in 2021 despite the challenges related to the pandemic. This growth in revenues and the EBITDAs has also translated in a very strong cash flow, operating cash flow performance. And in the fourth quarter, our operating cash flow growth was, in fact, more than 38% and it reached GEL 116 million in the fourth quarter. For the full year, we were largely flat over last year. However, this was -- the reason was that in the first 2 quarters as we were if we moved into the growth stage from the cash preservation stage, there was the investment that was made in the working capital. So that affected that part however you've seen in the fourth quarter, in the third quarter, we had a very strong operating cash flow growth. This brings that the aggregated cash that sits at the portfolio companies, so excluding all the cash that sits at the GCAP level, the portfolio company aggregated cash was GEL 377 million at the end of 2021, which is more than double of where the cash was at the end of 2019 before the pandemic started. When we couple this with Georgia Capital, at the Georgia Capital level, we had a cash of GEL 427 million vast majority of which 85% plus is in foreign currency, which is predominantly U.S. dollars and some in British pounds. If we count in the settlement that happened on the sale of 80% in water utility subsequent to year-end in February, the liquid cash and our liquidity at the GCAP level more than doubled to almost GEL 1 billion, in fact, GEL 961 million. And later on the slides, we will see how that impacts our market value leverage within the Georgia Capital level. As we now dive into the individual portfolio companies, starting with the healthcare, which had a very strong year and very strong fourth quarter, you see that -- you will see on this slide that the bed occupancy in the healthcare was -- now we approached almost 70% in the fourth quarter, which is a very strong performance for this business. And then for full 2021 bed occupancy was more than 65%. This translated into almost 31% growth in the revenues in the fourth quarter. And for the full year, the growth in the revenues was 43%. On the EBITDA wise, the growth in the fourth quarter was almost 8%, but the growth for the full year in 2021 was 54%. When we compare that to 2019, even that growth was 28%. So this business had a very strong performance during the year and including the fourth quarter. In the retail pharmacy business, another business where we also had a very strong performance and now the number of pharmacies which we opened about 36 pharmacies during 2021, the overall number has now reached almost 350 pharmacies. And that has resulted, combined with the same-store revenue growth in the fourth quarter was more than 10%, and then it was more than 10% for the full year as well. That resulted in the revenue growth of 7.6% in the fourth quarter, and the EBITDA growth was even stronger at 10.5%. For the full year, the revenue growth was 15% versus 2020 and 27% versus 2019. And the EBITDA growth for the full year was more than 8% versus 2020 and almost 17% versus 2019. Next we have the water utility business where we sold the 80% stake as it was discussed earlier. This business also had a very strong performance that was supported by the energy revenues, where we saw that the energy revenues in the fourth quarter of 2020, that was only GEL 1 million in what was -- increased by 6x in the fourth quarter '21 was $6 million. This, coupled with the increase in the water utility sales to the corporates, which coupled with the increase in the tariff resulted in the overall revenue growth of 62% in the fourth quarter. And for the full year, the growth was 56%. That also meant that the EBITDA in the fourth quarter increased from $12 million to $31 million, so almost tripled in the fourth quarter. And for the full year, EBITDA more than doubled. It went from GEL 63 million in 2020 to GEL 128 million in 2021, and then GEL 128 million is also actually 35% higher than the pre-pandemic EBITDA of GEL 95 million. So again, another business, water utility business also had a very strong performance in 2021. And then next we have the insurance business, which combines both P&C and the renewable -- sorry, P&C and the medical insurance businesses. Within the insurance businesses, we also had a strong year. The gross premiums written increased double-digits in the fourth quarter when we compare it versus 2020 and 2019. Similar growth was observed for the full year as well. But in terms of the profitability, P&C business had a strong quarter. However, on the medical side because of the increase in the loss ratio related to the claims that resulted in the lower net income. So in terms of the net income, we had about 6% decrease on a full year basis and about 3% decrease when we compare to 2019. This is all businesses. If we go to the next section, we will look at the NAV development. So our fourth quarter NAV increased by 5.5%, and that means that our NAV per share at the end of December was in excess of GEL 63, which is a record high NAV per share ever since our demerger from the BGO Group. The growth for the full year in lari terms was 31%. When we look at the controllable now, which is the NAV per share growth, but excluding the listed investment Bank of Georgia, the growth was also very strong, 5% growth in the fourth quarter and then 30% growth for the full year. We also look at as one of the metrics of our performance, the overall Georgia Capital net income based on our fair value accounting, which was around GEL 681 million for the full year 2021. We're taking into account all the valuation gains. And that -- when we look at that number and when we look at current market cap where we're trading, that means that on an LTM basis, Georgia Capital is trade around 1.8x P multiple when looking at the fair value net income. We wanted to share this observation with you as well. On the next slide, we now show given the discount -- we are trading and where we were trading. We launched $10 million buyback, as you know, in August. We added another $5 million in mid-January. So right now, we have a $15 million buyback program running. And of that $15 million, we spent about $4 million in the fourth quarter '21, and we bought back around 470,000 shares, all of which were canceled during the fourth quarter. For the full year '21, that means that we bought shares were $7 million and that was around 823,000. And to-date, since the buyback program began, we have bought 1.3 million shares, slightly more than that, which is about 3% of our outstanding shares when we started the buyback program in mid-August. And that takes -- on the next slides, we will talk about how that impacted the NAV per share for the full year and given that we were buying back at a significant discount, this was accretive for the shareholders. And the value, for example, that was created in the fourth quarter, but these buybacks was around GEL 16 million when we look at the NAV per share level. Next slide. Here this is the breakdown of our -- the 5.5% growth that I mentioned earlier, how that breaks down into the various contributors. The growth came from Bank of Georgia, where the share price increased quite significantly during the fourth quarter. It added about 2% to our NAV per share. Then we have a large portfolio of companies where the growth came from a water utility uplift even the sale, a very strong performance of the retail pharmacy and the gain that we recorded on the buyout and then also the other portfolio companies. All this growth was about a 6.1% impact on the NAV per share and 99% of this actually came from the operating performance. So multiple change-related performance was -- or the impact was very minimal on the 6.1% growth. We have 1.1% reduction to NAV per share from the investment stage portfolio companies, which relates to the write-down of the flooded hydro power plant. We wrote it down and that was around GEL 35 million reduction to our NAV or 1.1% to NAV per share. In other portfolio companies, this was largely the performance within the real estate with the remeasurement of the remaining construction costs impacted the valuation. That was a decrease of 0.8%. The buybacks that we did in the fourth quarter, it added about 0.6% to our NAV per share growth. The rest operating expenses relates to the OpEx that spent at the Georgia Capital Holding company level, and we did liquidity management and FX and other -- this 1% reduction relates to various net interest income, expense accrual and also the fees related to the water utility business sale. So at the end of the day, we finished the fourth quarter with 5.5% growth in lari terms and 6.6% growth in pound terms. On the next slide, we have a similar breakdown, but this is for the full year. I would highlight that the full year growth in lari terms were 31% but in pound terms, it was almost 40%. So in pound terms, we grew by 40%. The contributors were along Bank of Georgia contributing more than 7% to our NAV per share growth. And then private portfolio companies contributed 26%. I'd also highlight that the buybacks for the full year contributed almost 1% growth to NAV per share. On the next slide, we will now dive into the individual portfolio company valuations where we have the material movements. So in the fourth quarter, the most material uplift in valuations came from retail pharmacy business. That was GEL 93 million, followed by the uplift in water utility business when we mark this business to the sale price in the fourth quarter, and that was also followed by Bank of Georgia GEL 40 million. So overall, our portfolio increased to GEL 3.6 billion, which is about $1.2 billion. For the full year, our portfolio grew very strongly, more than 24% during the year where the most growth actually came from the water utility business. It was GEL 226 million, which was -- which translates into about 48% uplift to where this business was marked at the end of 2020. The next highest contributor was Healthcare Services business, which, as you saw earlier, had a very strong year, and it had GEL 116 million value creation. Retail pharmacy business was another one with GEL 158 million, our value creation, which was also -- which also had a very strong performance. And then the next one was Bank of Georgia with GEL 150 million. So when we look at our large portfolio companies and Bank of Georgia overall, their share in the portfolio value growth was 98% in 2021. Next slide, we have an overall overview of where these different businesses are marked in terms of the valuations. At year-end, because this was year-end valuations, we had the independent valuation company the same firmed up and health performed valuation for all our large portfolio companies. So that will be retail pharmacy, Healthcare business, insurance and the water utility and Bank of Georgia, as you know, is listed, and we use the listed price. So that brings that 85% of our portfolio was externally valued, the remaining 15% was internally valued. As a result of this, we have the multiples have not changed much. We will look at it on the individual slides. But on the Healthcare Services, we have 10.3x EBITDA multiple, then the second largest private portfolio business that we have right now is retail pharmacy that's marked at 9.3% and the water utility at 8.3x, which is our exit multiple in that business given the sale of 80%. Next we have the breakdown of the healthcare services business valuation. Given the strong results that we had in this business, we have a value creation for the full year that was very strong the value for the full year in this business increased by GEL 170 million. For the quarter, the growth was almost GEL 15 million and then even though the multiple reduction was from 10.5 to 10.3x. Next we have the retail pharmacy business. Here the value-creation pillars came from 2 sources. One was the growth in the LTM EBITDA and then the very strong cash flow generation resulted in the equity value growth by GEL 52 million, but we also had a gain of approximately GEL 40 million on the buyout of the minority shareholders because we are valuing this business at 6x. We were valuing the call option at 6x now that we have signed the agreement at 5.25 EV/EBITDA multiple, we re-measure it and that re-measure resulted in $40 million gain. So overall, for this business, we had about GEL 93 million value creation. Next we have a water business where this has been valued at the exit price, which is for the 100%, $225 million, of which we sold 80% for $180 million. They had a very strong year, and this translates into about 8.9x EV/EBITDA multiple. I will not go into the technical details of the valuation because we marked this at the exit price. In the insurance business, and we present here the P&C insurance, they had a strong year overall. However, in the fourth quarter, there was a slight decrease in the operating performance in the net income number about GEL 400,000 that impacted the valuation. So we have about GEL 4 million decrease to the equity value, and there has been no change to the multiple. Next we have our leverage and the liquidity profile. You will see on this slide that for our targeted 30% market value leverage, which is the net debt divided by portfolio value. We have come down to 24.2% based on the year-end valuations. If we adjust that for the completion of the 80% selling water utility business, which will be completed, as you saw earlier in August, September time line, we would be coming down even inside 20% at 19.2%. So which will be a very strong growth given that we were at 29% at the beginning of 2021. As a result of this strong performance, you may have seen about 2 weeks ago, S&P upgraded our credit rating from B2B+ stable, which is now public. We also look at our liquidity. Our liquidity was $138 million when we look at as of year-end. Of $138 million there were $15 million that was loans issued to our portfolio companies, and then the remaining about $88 million was held in cash at bank, and the highly liquid marketable securities. When we adjust this for the cash receipt of $880 million that we received at the beginning of February, and also taking into account that $95.4 million that we have to -- online to renewable energy, in July-August timeframe to redeem the GGU bonds. Our overall liquidity more than doubles to $310 million, where about $145 million will be loans issued to portfolio companies, and then the rest will be cash and the highly liquid marketable securities. Last slide from my perspective is the dividend income. So in 2021, our overall dividend income was more than GEL 74 million, and we collected dividends from Bank of Georgia, GHG, our P&C insurance business and the renewable energy. I would highlight that the GEL 74 million exceeds the dividends, the cash dividends that we collected in 2019 year. So we are now ahead of 2019 by around GEL 1.5 million. Our outlook for 2022 is that we expect the dividend inflows in 2022 to be between GEL 90 billion to GEL 100 million. This takes into account both private and then public portfolio company, which is Bank of Georgia. We only received interim dividends last year. So this year, we expect both interim and then the full year dividends to be received. This concludes my section, and I will hand it over to Irakli for the wrap-up section.

Thank you, Giorgi. I think you are doing very well. So you can do the wrap up as well.

No, I leave it for you, Irakli.

So we had the -- to wrap up, we had a successful sale of the water utility business, and we are very comfortable with our partners there to create further value together. And we also did sell the commercial real estate business at considerable high multiple of 2.7x MOIC. Similar MOIC we had in motor utility business. Both of them were sold at NAV premium. 30% plus premium was sold both. So, I don't know what else can validate our NAV. And our NAV growth was very strong at 30% plus. And this is basically our profit in a way, the growth between the NAVs. And we had one question how Giorgi calculates 1.85x PE that we are trading. The way we look at the Georgia Capital that -- the value which is created per year, it's our profit basically. And if you apply that profit which we generated last year, that will work out to be 1.85x our earnings. So that's where basically we are trading. Okay. Maybe last year, it was extraordinarily high because of the water utility sale, but [indiscernible] probably trades at a recurring value creation, or recurring to net profit would stand-alone. Georgia Capital is doing -- is around to 2.5x marks. That's where we are in. We had a very robust operating performance in our portfolio companies, year-over-year growth of EBITDA, and the revenue was 24% and 35%, respectively. So we have -- the operating companies continue to deliver excellent results. Dividend in force was also very strong, nearly GEL 75 million. And as Giorgi mentioned, we are ahead of the 2019 numbers. The market value leverage has decreased considerably, and we are around -- below 20% now. But going forward, we want to decrease the demand further. And we will talk about at our Investor Day, which we expect to be holding mid-April most likely, and we will announce the exact date for this. So it's -- in terms of outlook, we had a very strong GDP growth last year. This year, we expect 5% to 7% GDP growth. We expect robust dividend inflow. We have -- we think that our portfolio companies will continue to deliver the value, and to grow in terms of the EBITDA and -- high growth in terms of EBITDA and revenue. And as I said, that we -- most likely after report review, we are going to have a number of rounds are going to held, and first one will be actually next week. In London, basically, we will continue to review, and we expect around -- in April to come up with the new strategic priorities. I should mention, the expectation for the large buybacks is high. And I must say that don't have that high expectation because we are -- we'll be more focusing on deleveraging and making the balance sheet of Georgia Capital even more stronger than one of buybacks. Yes, it's a good opportunity to buyback at a lower price, at a big discount now. We will have some buyback obviously. But I would not bet -- if I would be you, I would not betting on the large buyback. I would rather be focusing on the deleveraging which would make our balance sheet even stronger. Anyway, I think I have answered some of the questions we have been receiving, but I think it will be good to go through the questions. And we are happy also if you -- we are receiving some questions by the chat here. But in case you would like to just say a couple of words, we'll be very happy to hear your voice. Please raise your hand and ask the question.

[Operator Instructions] Panel, we have a question from [ Al ].

This is [ Al Bridge ]. Irakli, congratulations on wonderful results. I mean -- and the sale is super-duper. I just want to explore with you, if I may -- excuse me, I'm just moving. I'll make sure my kids don't hear or you don't hear the kids. But like -- so you talk about the capital that you get from the sale. Fantastic. You want to pay down the debt, et cetera. Can you talk about what you think about debt levels, buybacks and the strategy in terms of capital for the coming years?

So basically, I mean, I think that the big picture what we have here that, GCAP had a quite large debt at the holdco level, and our operating companies also, they were levered at nearly 4x EBITDA. And I think that we need to bring this level down, and we have brought the operating company level to be down pretty significantly. In the next 2 years, probably will go down even at 2x EBITDA -- sorry, 2x EBITDA, the debt will go down. And I think that more prudent way of debt would be probably 3x of EBITDA of our portfolio companies and the GCAP that -- altogether. And that's where kind of I think that the company will be even greater sustainable and will have very strong balance sheet. In terms of the buyback, I think that we should entertain and we should balance these 2, deleveraging and the buyback. But I think for us, what we saw is, especially in pandemic, when pandemic hit, GCAP share price slashed pretty dramatically, nearly 70%. The leverage at holdco level was the key driver. So we don't want that to happen again. We want the GCAP to be strong and sustainable over the years.

Fantastic. That's super.

Thank you. We have the next question from [ Brett ], please.

Congrats on the sale of the water utility business. I just have -- just a couple of questions. One is on your net debt level. So I'm just -- I didn't understand how you get to the number that you're at. So at year-end, you were at a net debt of GEL 710 million, give or take. And then you sell the water utility for GEL 697 million, and you get 80% of that. And so that's like GEL 550 million. And so, the net debt there is more like GEL 150 million. Like, if I subtract those 2...

So that will be $50 million, yes.

So is that right?

Yes, that's right.

Okay. I thought I had heard Irakli say it was $150 million, not lari.

Yes. Sorry, my mistake. My bad.

Okay. So, good. That was the first thing. And then in terms of your debt at the holdco, it comes due about, I guess, 2 years from now, and I know you're going to sort of reevaluate this shortly. But is there a way to sort of push out the term of that debt?

Actually, we want to reduce it and not push out basically. I mean, we want to reduce significantly. I think that we feel uncomfortable with this level of debt, especially the flow of the cash to GCAP, and subsequently from GCAP to the -- to our shareholders is constrained by this cash. So why is that? Right now, we are paying around $22 million of interest on the debt. Obviously, we need to have some debt to have a good balanced capital structure. We are not denying with that, but I think it's kind of excessive. So instead of pushing out, we would be reducing and pushing our problem, yes.

Okay. And the last question is just on the buybacks again. I know you've been talking about it, but, like you have so much liquidity and your leverage at $50 million is a pretty small fraction of the value. Why don't you just get a little bit more aggressive on buying back shares, given how sort of huge your discount is? It's just -- it seems -- it doesn't make sense to me why you're not trying to buyback a little bit more. Like 1% just feels like not even worth talking about almost.

No. Basically, I think that we will come out with our decision. I don't want to rush through. I just -- for us, on top of our mind is our leverage, taking care of the leverage, and the second one is the discount. And actually, we are letting you to take advantage of that. How else could we demonstrate what is our NAV than selling a 30% premium, one of our largest assets. How else can we demonstrate. We sold the small assets at 35% to NAV. What else shall we do so you go and buy this. You take your -- you take advantage of that. You are telling us, and we are saying that for the company, it's good to delever. And if you want to make money, go and buy.

Yes, that's fine. But as the capital allocator of the company, your job is to direct the -- invest the cash flows in sort of the highest return properties in combination with having a prudent leverage, and you now have a prudent leverage and your job is really to...

So I don't think you understand what [indiscernible] it means.

Invest the cash flow most profitably.

So I mean, we will talk about that in greater detail when we come out with the strategy. So it's not a static deal, the cash and the leverage. It has changed with your plans, right? So how would you know -- how do you know what is the footed deleverage if you don't know what are the plans? So anyway. So what we are saying that we will be balancing it, but it will not be aggressive as you would want to hear, because we want to be more aggressive on deleveraging. And that's what we think is the capital allocators, that is prudent for the company. You may think otherwise, but we think that way.

So we have another question from [ Gokul ].

Hi. Am I audible?

Yes.

So one of the things that I wanted to know is, what's the -- when you say you want to delever, what's the ideal leverage that you would like to run the business with? Or do you like to run it with no debt at all?

We may turn this call to the strategic discussion and the investor call, but basically, we want to decrease significantly. So -- but we will come up with that when it comes in April.

Okay. As investors, I think reducing the leverage...

Basically, I wanted to flag about these large buybacks because we were getting these enquiries that we should do a very large buybacks. But I don't want to have a market to be in a very wrong position, a very wrong situation than we are thinking. So we want to -- our thinking and the market thinking to align. That's why we want to flag it that current -- It won't be large. So that's all we can do. We can flag at this stage.

Okay. That's understandable. I think -- at least for us, I think it's okay that you use the cash to deleverage. That anyway adds back to the equity value. But what I would be concerned is, you're using that cash to go again and do other investments when your stock is so cheap. So that is...

So I agree with that. We cannot do the investments with this -- our -- if you look at our investor philosophy, it's very simple. We want to buy things which is cheaper than our stock. Now right now, our stock is so cheap, we cannot really buy much. So our investment activity is very much healthy. So we are there with you, absolutely.

Yes. Basically, when I look at it, it looks like adding the banks taken whatever the water utility stake. The private portfolio is essentially just valued at 0 or it's free at this...

Yes, it is.

Right? So there is no point in you going and doing further. That's the only thing. Okay. Deleveraging is fine because that reduces the risk. We also benefit. We can buy from our side. So as you said -- so all that is fine, yes.

Yes. I agree on the investments fully.

We have several questions in the Q&A. The first one is from [ Brandon ]. Given the large discount to the share price, what share price to NAV -- what are your milestones for assessing the success or otherwise of your actions to reduce the discount, and what other actions do you consider deploying?

I think we have addressed that with this discussion. Let's go for the...

Yes, I think we also addressed the question on 1.8x PE multiple. So I'm going to keep that. The next question is from [ Giorgidodo ]. He's asking. I was wondering why did you guys write down [ HPP ] now given that the funding in 2019?

Yes, good point. So basically, we were -- we wanted to rebuild this hydro as our Plan A, and we have done research, a lot of results what we would do with this hydro. And after -- out of the studies -- we've done a number of studies, we have decided not to rebuild this hydro. And that's why we've written down because, if we would have decided to build it, we would not have written down. And that is the kind of the result of the decision of not to pursue of the rebuilding the -- or renovating the hydro. That's -- that write-down was linked to a decision of not rebuilding.

Thank you. The next question is, how much LTV room do we have in order to keep B+ rating?

So the current level is sufficient as long as we stay below 30% for a prolonged period of time. Our understanding is that's how S&P looks at the rating. So it should be sufficient as long as we are around 20% for us to keep the B+ rating.

Thanks. The next question is from [ Krish ]. Congratulations on an outstanding year, including the transformative deal. I'm interested to hear about where you see the next phase of growth being generated? You mentioned education being key. How much further do medical services and retail pharmacy have to run?

I think that's a question also for our strategy session in April, what we're going to held. But basically, education is our one of the big growth what we think we have. And in healthcare, we have a lot of pockets to grow further, and we may have some suggestions going forward, what kind of growth opportunities we have. And there are -- what I can say that, right now, we are looking at a lot of different growth opportunities. I think that we have plenty of those, and there we will be more -- I think it will be more further comprehensive to talk about those at the Investor Day.

Thank you. Our next question is from Avi Prince. He has 2 questions. Have you made any progress on the disposal of your top scale asset portfolio? And are you still committed to the timeline and also on your Investor Day? And the next question is, could you give some maybe details on the write-down in the renewables business, which we already have driven?

Yes. So basically, we are progressing on subscale businesses. we have progressed on the sale. The hotels, which we want to sell, obviously, they are -- we are not selling as fast as we want, but we would rather wait to -- for the tourist to resume, and we think we're going to get a better value out of the -- our auto business once the tourist regions even stronger. In the rest, we are online -- we are on time, on scale of selling our subscale businesses. In terms of the beverages, we are actually scaling up very nicely, and we think that it will be very attractive in a couple of years' time -- to be very attractive venture for the strategies -- we are in beverage business -- to buy that from us. We are happy with the progress we are making. As we said, in commercial real estate, we sold it at nearly 40% premium to NAV, with 2.7x week and 20-plus IRR on the commercial real estate of $45 million worth. So that was in our subscriber business.

The next question is, what is your outlook about the recent regulations in the pharma sector and the impact on your portfolio company?

Nick, do you want to talk about that?

Yes. So in terms of the pharma regulations, there was nothing significant by the way. So only thing what has happened is, competition agency has reviewed the pharma sector, which we're being kind of cooperating within kind of what they have reviewed. The kind of report was very positive. So it was -- the major part of the report is that the local market is not making excessive margins, which was always kind of a very populist approach. Those major kind of anti-trust agency puts this in the report that the margins are average 18% to 26% gross margin, which is normal, which is very good for us. What the government has done in terms of regulation was kind of a pre-agree with the sector. So they added Turkey as a country of the parallel import regime. So this low on parallel imports was introduced in Georgia back in 2009, which has helped a lot to bring some medicines from the subsidized market or semi-subsidized market, which are authorized, and the medicines which are either approved by EMA or FDA or Japanese or Israeli drug agencies. So they added to this list Turkey. And Turkey -- in Turkey the medicines are way cheaper than in Georgia because Turkey is a large purchaser, plus they're finding lira for many years. So fix the prices in local currency and after devalue of the lira, so the prices are pretty attractive. So when -- we were not able to import from Turkey with all this amendment in law. So this amendment have been made now, and we will be -- by the way, we've already done a first import, so -- and everybody is happy. So population, government and us. So that was the only change. So it will not have much of the impact on us. We don't anticipate any significant impact out of there. So that's pretty much it. And other than what we are working together with the Ministry of Health is the introduction of electronic prescriptions, which GAG companies, our clinics are doing from 2016. So there will be no change in our practice here as well. That's it.

Thanks, Nick. I think we have a couple of additional questions. Can you elaborate on the different loans issued to subsidiaries? I believe, GEL 154 million in total. And what are the repayment timelines? How is leverage going to change at subsidiaries level? If you want me to share the slide?

Yes, sure. This is predominantly with 3 of our portfolio companies. So that will be real estate, housing and the hospitality businesses, plus that will be auto services business, and also the beverage businesses. That's where this is broken out. And we generally expect that the repayment of these loans falls before our Eurobond maturity EUR 365 million maturity that matures in March 2024.

There is another question from [ Gokul ].

I just wanted to check, for the sale of the water utility business, do we incur any capital gains tax, or even if we use the capital for deleveraging, there is no capital gains tax?

So there is no capital gains tax in Georgia at all, Gokul. So we will be keeping all the proceeds, and there will be no taxes paid in relation to the...

Okay. Because I thought that, that role was basically that, there's no capital gain tax if you reinvest the assets in Georgia or something like that, right? So that's deleveraging and share buybacks, all constitute under the broad scheme?

Yes, your understanding is correct. So what I meant is, if you outstream that cash to, let's say, U.K. entity because we saw this from the Georgia entity, and if you have this in excess of what your tax reserves are there, then it could be taxed, but we have sufficient reserves that even if we outstream all cash, we wouldn't be taxed anyway. But at the moment, we are keeping the cash in -- at the JSE level right now, right. So what happens next, I think will be announced at the Strategy Day. But with that, we won't be incurring any capital gains tax or any tax at the moment.

Okay. And is there a lot of inorganic opportunities within the existing platforms, for example, on the hospitals business and the education business? Leave aside the greenfield developments, but acquisition opportunities?

I think probably Nick is better placed for the hospitals. But in education space, yes -- and we bought 1 school, as you know, in August. So there are opportunities that we look at. I don't know if Irakli, you want to add to that point. But there are opportunities that we look at in the education space.

So we see a lot of opportunities. And in a way, our share price discount is prohibitive for us to be more active and aggressive with that regards. We did buy -- the recent acquisition we did, that we did buy it 5x EBITDA, a little bit less than 5x EBITDA, which we are looking at the education business trading at 12x to 14x, and that was, for us, a higher, bigger discount than the GCAP discount, and that's why we allowed ourselves to invest. However, we reinvested a small amount of money, and we want to -- in the education business, we don't think that we're going to be investing much. It will be a small investments here and there into the acquisitions and the expansions. We like the education business because it's not capital heavy, and it is -- its EBITDA margin is quite attractive. It goes to 35% to 45% depending on the segment we are targeting. And if you compare the healthcare business, which we have -- which we know pretty well, and we have done a lot of growth in acquisitions and organic and -- through M&A, we see a lot of CapEx being for the -- not only development of the buildings, but the equipment, MRIs, CTs, et cetera, and you don't have that in the education business. So the EBITDA margin in healthcare, you have around 25%, and the heavy CapEx --education is a very CapEx-light and higher margins. So that's kind of where we are coming from, and that's why we like this -- the education business a lot, and that's why we are focusing on the course of this business.

Irakli, I can understand the fact that the share price stops you from doing this fresh investment, but can there be a way around -- instead of diluting at the holdco level, can you raise equity at these company levels to fund some of these acquisitions, or as you've said before, start at the asset management business and then use that capital to do these investment activities?

We do not want to do a capital light ones, to be honest, but more capital heavy, why not? Capital light one, basically -- we are still managing to buy at a healthy discount to the market comps. But on the cover -- and this ticket size is not that large. But if you look at the capital heavy ones investing like $30 million to $40 million in one goal, it's prohibitive basically for us with this share price discount. And therefore...

Yes, I understand that the…

Third party makes more sense there.

Yes. But is there any progress on that? Would you be raising third-party capital as a separate asset management?

Let us update that one on the Investor Day as well because we want to give you a kind of more comprehensive picture on that.

There is another question with this on the subsidiaries as well. On Slide -- it says on slide that GEL 420 million goes to repayment refunding this year. When will it be clear that it has been successfully refinanced -- repaid? That is the question from [indiscernible].

Giorgi, I think that's...

Yes, sure. So that GEL 420 million -- about GEL 200 million of that relates to the large portfolio businesses, and that's -- majority of that goes to the healthcare business where we have a maturity of the local bonds of around GEL 60 million, that matures in mid-summer, and we expect to roll those forward. There is also a maturity of one IFI loan that will also be repaid. The rest -- another GEL 200 million is split by about GEL 35 million worth of bonds that mature at the housing business in October 2022, and then the rest relates to the loans for -- that the hospitality business has borrowed from the local banks. We expect that these loans will either be repaid during the year, or they will be refinanced and prolonged. We don't expect any allocation from Georgia Capital to pay down these loans.

Plus I will -- so a big chunk of this IFI -- I mean, fully the IFI loan, we have not utilized. We took this as a funding during the COVID time. So it's sitting on our balance sheet right now. So it is in a net debt. So we don't need to raise anything for refunding of it. And there is a small bond outstanding on the GAG levels, which we will be rolling over.

Thank you. I think we don't have any open questions for now.

Thank you. Thank you, everybody. Thanks for joining the call. That's very interesting, and we are really looking forward to talking to you again in April, and we will be sending hopefully soon the exact date for our Investor Day. We are very much looking forward. Thanks again. Thanks Giorgi, Nick, Shako, for your participation. Nino, thank you for great presentations. I guess, we will end here, and stay tuned.