Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

[Audio Gap] Vis-a-vis our results as well as the standard listing announcement we have recently made. Let me introduce you to our agenda. So we are -- we have 7 topics to discuss today. I will do this 2022 look back. We'll talk about the key milestones we achieved last year. Then I will talk about the proposed transaction to standard listing. Nino Vakhvakhishvili, our Chief Economist, will talk about macroeconomic update, very impressive numbers. I think it's a big strategic shift the country is making and it will be interesting to hear Nino's take on that. We will talk about the Q4 overview. Giorgi will talk about Q4 overview, then the valuation of our portfolio companies. Giorgi will also talk about the liquidity and dividend, income outlook and I will do the wrap up. So let me start with a look back. So 5 key milestone, I think we have [ set ] in 2022. One was updating the strategy. I'll talk a little bit on that later on to more capital-light investment strategy with the new framework of NCC and 360-degree kind of analysis what we call. So next slide, I will talk about it in greater detail. Second one, we completed the divestment of Water Utility, and we received the funds in 2022 in February actually, it's been 1 year since the transaction was closed. The third one -- third milestone, I would say that the issuance of the bonds at the local market, both our Renewable Energy and our Real Estate companies issued pretty large-sized bonds in local market, $80 million and $35 million, and we are very happy to develop the local capital markets, and that could be an option for the Georgia Capital as well with a refinancing of our bonds in local market basically. Buyback of GCAP bonds, we have bought quite substantial amount in total. I think we have more than $100 million of bonds bought back and we are buying [indiscernible] as well. And [indiscernible] importantly, we did our buyback program last year, we bought 3.1 million shares, which is around 7% of our market capital -- share capital. In total, since the inception of Georgia Capital 5 years ago, we bought nearly 6 million shares, which is in line with our strategy of tapping up to buying shares cheaply. And as NAV is widening, this opportunity is even greater, which we like on the other side. So just recap our strategy, there's 2 pointers. We are -- we said that we want to focus on capitalizing [indiscernible] opportunities in Georgia, but to grow in equity value of at least GEL 300 million and monetize it is we are buying local multiples. We are institutionalizing our portfolio companies and so that they are attractive for a strategic investor and the size of GEL 300 million where we think that large strategic, midsize -- small or midsized strategic investors will be interested to tap in to acquire high quality assets. And as you know, our #1 priority is to wish to institutionalize with the great management teams, what we have across our portfolio companies. And in a way, the strategic investors are looking to buy the local management team. And that's what we are -- what Georgia Capital is all about, is consolidating, growing [ putting ] the team's -- local management teams, which are Western kind of standard [ energy ] companies, and these are obviously attractive for the strategic investors. And that's how we can achieve the international [ multiples ]. Our capital management for a framework, which we introduced is the net capital commitment ratio, where we said that we want to be at 15%. This net capital content ratio consists of 3 main pillars. One is the net debt and other is net investment commitment, which we are committing to invest, it's in a way is our liability. And then we have a liquidity buffer for our portfolio companies as well as for GCAP. So these are the 3 kind of pillars on which this ratio is based, and we are dividing that one by the portfolio one. And we want to be at 15%. Right now, we are at 21% and as the ratio decreases or goes below 15%, we will be able to do meaningful buybacks and investments. If basically, this ratio is between 15% to 40%, it's a more kind of tactical buybacks and tactical investments what we are doing. And that's where we -- territory where we are. Okay, now we are closer to 15%, at around 20% level. Around 2 years ago, we were at 40%. So the big deleveraging we have done. Another important kind of measurement into this, our investment activity is the discount to NAV of Georgia Capital shares. Right now, it's -- we cannot do any meaningful investments not because we are at an NCC ratio of 15-plus, but also because this discount is so wide that the only option we have is buybacks and that's what we are looking in a medium to longer term to step up the buybacks. That's another reason of the standard listing, which I will talk later on. So this is kind of our aspiration -- longer term aspiration to become permanent capital vehicle, meaning that we would recycle, we will not raise the new money from the shareholders. We will recycle our -- the money which Georgia Capital generates. And hopefully, we will get into the permanent capital return policy territory. Here, we have a list of assets where we have a capital-light or they are capital-light or not. The capital-light or not which indicates basically whether we have appetite to invest more in our own portfolio companies, where it's capital heavy, our appetite is obviously very lower. It's capital-light, our appetite to invest like Retail (Pharmacy), in Education, in Clinics, it's higher. So now let's talk about the standard listing proposition, why we are doing it, why we want to do it. First of all, we are not touching the corporate governance. We will [ transfer ] to what our corporate governance [indiscernible] are under the premium listing. I think we say that Chairman and CEO will stay -- will keep that institution alive. The main reason for us to move to standard listing is that class test. Because due to the class test, we don't have a flexibility to execute on our strategy of divestment and the meaningful buybacks and this prevents us from making these moves. For instance, because of the class test, we need to test 4 different things whether they are large enough, whether they are more than 25% or not when we are transacting. For instance, if the value of asset is more than 25% of our market cap, we need shareholder approval or if the profit of the company when we are buying or selling is more than 25% of our net profit, we need the shareholder approval. Same on asset size and equity side. So basically, there is with this hefty discount of 70%, even 5% NAV contributor companies have to go through this process. Basically, which gives us that -- we may end up only working for our advisors to come up with the proposal to the shareholders to bring for the approvals if we start executing this -- when we start executing this strategy. Therefore, it makes no sense for us to execute the strategy under the premium listing. It's almost [ unexecutable ] basically. It's very difficult to execute. And it's obviously costly because each time we come to you, we are paying -- $1 million to $1.2 million goes to the accountants, legal and all the checks and all -- all the approvals we need to get from our advisors in terms of making this transaction to happen. Also, it's very difficult to look in the potential buyers when we have this [indiscernible] way close in a way. So because of these factors, we think the standard listing is the most appropriate fit for a purpose basically, listing for us to execute on our strategy of deleveraging and divesting and the meaningful buybacks. Now I will turn -- sorry, here is our timeline. Just to flag the [indiscernible] just recently advised to vote for the standard listing in the coming AGM. So we have these 4 milestones. On 30th of February, we have announced the intention to do -- to go to standard listing. Giorgi, you are...

Yes. So March 10 is when you can submit your proxies that's the latest date and on 14th of March, there will be a formal general meeting where this issue will be voted for and the final results will be announced, which we will announce to our shareholders as well. And then there is a period of about 4 weeks for the transition to the standard listing and effective April 13, we will become the standard listing -- standard listed company when this is completed. So these are the key dates for the voting purposes. It's March 10. Please vote before March 10.

Very good. And now we have Nino covering our macro [indiscernible]. Nino, please.

Hello, everyone. So I will do a quick macroeconomic update, as usual, and we will cover the trends, which we think might be interesting for you. And of course, we will be more than glad to answer your questions during our Q&A session. So let me start with the global growth, which slowed down from 6.2% in 2021 to preliminary 3.4% in 2022. And this 3.4% is below the historic average of 3.8% and global growth is expected to slow down further in the coming years, in 2023 to 2.9%, mainly on the back of 1 of the fastest rate hike cycles from the leading central banks as well as ongoing Russia's invasion of Ukraine, which continue to weigh on the global economic activity. On the contrary, we had quite exceptional year in Georgia. We had the second consecutive year of double-digit growth with preliminary estimate of 10.1% from 10.5% last year. The key drivers for this growth were mostly from the external side, but domestic factors also contributed positively to the growth. From the external side, we had certain remittances like -- which starts by 86% compared to last year. Export, which is growing 32% compared to last year and tourism revenues, which recovered quite nicely and exceed 2019 levels by 8%, including like 168% recovery in December 2022 compared to 2019. From the domestic side, we have continued credit expansion despite the tight monetary policy and increasing cost of funds in all of currencies like in local and foreign currencies. We see credit growth to be quite active, and we see both retail and business lending to be active, and we also saw the trends that both local currency and foreign currency lendings are quite active. So in total loan book increased by 12.1% excluding exchange rate effect as of December 2022. Another factor from the domestic side was fiscal policy, which has moderated on the back of their commitment to return fiscal deficit under the fiscal [indiscernible] bonds. But still, it was positive as current expenditure increased by 9% and capital expenditure by 22% compared to last year on the back of surge in fiscal revenues standing at 28%. Overall, the consumer and business sentiment was quite strong in the sectoral level. I like to see the sectoral breakdowns. In nominal terms, all of the sectors expanded in 3 quarters excluding healthcare sector. And in terms of components, we are quite glad to say that investment component will be contributed positively to the growth, and it will be the first year since 2018 when investment components will contribute positively. Like overall in nominal terms in 2 years nominal to be expanded by [ GEL 20 billion ]. In dollar terms, it expanded by USD 9 billion and the strong macro as well as significant improvement on our external balance sheet where we are very nicely reflected in Fitch rating, which revised our outlook from stable to positive just recently. On the next slide, we have the exchange rate dynamic. So next slide, please. Yes. Thank you. So the exchange rate appreciated significantly by 15% against the U.S. dollar and the real effective exchange rate also appreciated by 15% despite the strong dollar, which was -- as you know, last year, dollar appreciated against its peer counter currencies like the appreciation of U.S. dollar was mainly driven by [ hawkish FED ] as well as lower appetite for the risky assets and relative performance of US economy. Despite the strong dollar, GEL appreciated on the back of surging inflows, partially related to the Russian migrants. But excluding Russia from our FX inflows, we saw significant growth in all of our flows, like remittance is, excluding Russia, increased by 19%, included 12% growth from EU and 15% growth from the United States. Export was also very robust and tourism revenues, which recovered quite nicely. From the domestic factors, we should mention tight monetary policy. National Bank of Georgia was quite quick to start the -- hike the rate in March 2021. In cumulative terms, it increased the rate by 300 basis points. And as you know, this tight monetary policy serves well for stronger GEL and curbs negative expectations. And in addition, we have significant FX liquidity in our banking sector, partially attributable to the [ certain ] nonresident deposit in foreign currency and this FX liquidity is also quite helpful for FX lending, which is supporting for the local currency. This -- on the next slide, we are showing current accounts, which posted like the significant period. In the third quarter, we had a historic high surplus at 6% of gross domestic product despite the fact that our imports surged significantly on the back of global inflation as well as significant domestic economic activity. The surge in import was quite nicely covered by remittances and the export of goods and services. As a result, we had 6% of GDP surplus in third quarter, and we expect 2022 number, the full year number to be historic low, which reflects the surging FX flows and improving external balance sheet. So we have here the chart to show the FX flows, excluding Russia. There are lots of questions related to the Russian migrants. So in this chart, you can see that FX inflows like tourism revenues, exports and remittances increased by 48% if we exclude good Russian flows, which means that recovery was significant, even excluding this war-related flows. And on the next slide, I want to tell you about monetary policy and inflation. As you know, inflation is kind of a headache for the policy makers around the [ globe ]. Headline inflation reached peak 13.9% in January 2022, and we saw a gradual deceleration of inflation throughout the year. So the current inflation is resistant. So it printed at 7.7% as of January. The drivers for the inflation was quite similar to what you are observing in other countries like the food and energy prices. And saw this -- later this year, we saw the prices to stabilize and positive -- which positively affected inflation in Georgia and in other countries. So despite the GEL strengthening, imported inflation was the most significant driver for our headline number. And National Bank of Georgia appropriately tightened the monetary policy, again, increased the rate by 300 basis points and NBG is committed to maintain tight monetary policy unless they see inflation is firmly coming down. Rather than a rate hike, they use some macro prudential tools to slow down the credit activity. As a result, credit growth, excluding exchange rate effect, declined from 18.6% peak in June to 12.1% as of December 2022. On the other hand, this favorable trends, were appropriately used by National Bank of Georgia and to rebuild the external buffers and gross international reserves increased to historic GEL 4.9 billion as of December 2022. And for the last slide we have -- we want to share several [ words ] about the fiscal policy. As I have mentioned, fiscal policies moderated on the back of their commitment to return the fiscal deficit below 3%. The overall -- they had 28% growth in fiscal revenues, but expenditure side was quite moderated. As a result, fiscal deficit in nominal terms fell by 53% compared to last year. And if you look at the operating balance, it improved from minus GEL 227 million to plus GEL 2.6 billion surplus in 2022. So 2 years of double-digit growth as well as significant appreciation was quite supportive for our public debt, which reduced slightly below to the pre-pandemic level. And so the trend is quite favorable, and they are committed to improve this trend, especially, they want to improve the structure. It's currently 75% of the debt is denominated in foreign currency. But structure is favorable with most of the debt coming from the multilateral agreements with concessional debt; and in terms of interest rates, more than half of the debt is denominated in fixed rate, which is quite favorable, especially in this time when we are seeing 1 of the fastest rate hike cycles in our recent history. Just to sum up, like we have a second year of double-digit growth. Inflation is still high, but we see the deceleration trend. We have the significant break in our current account with third quarter current accounts posted surplus 6% of gross domestic product and monetary policy is appropriately tightened and we see moderation in our fiscal policy. They significantly reduced the deficit and they are committed to reduce the deficit further below 3%. And lastly, we see the debt level to return to the pre-pandemic level. So this was a quick update from my side. And now I will hand the presentation over to Giorgi to present Q4 and full year performance. And I would be glad to answer your questions if any, during our Q&A session.

Thank you, Nino, very much. Hello, everyone. I will now walk you through our fourth quarter performance. We'll start with the aggregated portfolio company results. We'll talk about our leverage ratio, the NCC and then we'll then go through some of the valuations that we have done at the end of the fourth quarter. So starting with the aggregated performances. And as a background here, all our portfolio companies continue to have a strong performance in the fourth quarter with the exception of the healthcare businesses where as we have previously highlighted, the transition from COVID services to non-COVID services has continued, and this has impacted our Hospitals, Clinics and the Diagnostics businesses. However, we are now seeing the trends where the return to the normal continues. And the numbers that we saw in 2021, we should be looking similar numbers in 2023 as the [ 2023 goes ]. Now about the overall numbers in the fourth quarter, the aggregated revenue growth of our portfolio companies was 2%. When we strip out the healthcare businesses, the 3 that I mentioned, this growth is actually, in fact, 8%. On a full year basis, the growth was 7.6%. And when we strip out again here, the growth is double-digit [ 13 point ]. And then this growth actually came from all businesses across investment stage, large portfolio companies and the other business. In terms of the bottom line, this meant that on a quarterly basis in the fourth quarter, while the EBITDA was flat on an overall level, and we strip out the businesses that were impacted with the COVID transition, in fact, the growth was very strong at [ 22.2% ] in the fourth quarter. For the full year, while we had about 5% decrease in the full year EBITDA in 2022, when we strip out the effect, it had an increase of almost 12%. In terms of the operating cash, the EBITDA performance also had an impact on the operating cash generation. However, when we look at the ending balance of aggregated cash of all portfolio companies, they still continue to have a very strong balance of more than GEL 300 million, which when we look at versus 2021, for example, it's down 2%. However, in dollar terms, given that the exchange rate for the reasons Nino highlighted, has been very strong in dollar terms, it's about 20% higher than where it was in 2021. With that, let's talk a little bit about our NAV per share development. So in the fourth quarter, given the strong results, including the strong performance of the Bank of Georgia share price, we had a 15% -- 14.9% NAV per share growth in lari terms. We reached a record high NAV per share in excess of GEL 65. And in pound terms, for the first time ever, our NAV per share was above GBP 20, and it was GBP 20.12, in fact, at the end of December. When we do the attribution analysis, about 10% came from listed and observable investments, which is largely Bank of Georgia's share price rally during the fourth quarter. Private portfolio companies delivered about 3% overall growth where because of the operating results, the numbers that we looked at, there was a decrease of about 4%. However, given the strong cash generation, the net debt decreases and also multiple expansions and a strong outlook, the growth there was about 7%. We continue to do the buybacks, mostly for the management trust. That was about 0.8% growth to NAV per share. Operating expenses was usual 0.4%. And because of the strong currency, as you know, we have a net debt in dollar terms. We continued to have gains in that terms, and therefore, NAV per share increased by 1.3% because of that. But overall, here, the message is that our NAV per share grew by 15% in the fourth quarter. For the full year, the growth was 4%, and that's on the back of -- in the first quarter as the Russia, Ukraine war started, as the interest rates went up. You may recall, we were proactive in decreasing the valuations of our current portfolio companies. And back then, the drop in NAV per share was about 16%. So in the second half of the year with the fourth quarter performance, our NAV per share actually grew by 4% notwithstanding the decrease in the first quarter. In terms of the deleveraging, strong cash flow generation continued in the fourth quarter. We collected dividends from our portfolio companies, Bank of Georgia, Renewable Energy, [indiscernible], and that meant that our [ tax ] and liquid funds balance increased by 14% to more than $152 million. We also -- in the fourth quarter, the Renewable Energy business issued $80 million worth of green bonds in the local market, which they fully used to refinance the debt they had from us. And so our loans issued balance decreased respectively. And in the fourth quarter, we completed the Modified Dutch Auction, whereby we bought back around $30 million worth of Georgia Capital bonds at $0.88 per dollar. We canceled $65 million worth of debt in the fourth quarter, and our gross debt is now down to $300 million. In aggregate, this meant that the net debt and the guarantees issued stood at $148 million at the end of December. Not much change in terms of the planned investments. They continue to be similar as what they were before. And because of the growth in the portfolio value, the 1 that we saw because of Bank of Georgia and the private portfolio companies, our NCC ratio decreased substantially from over 24%, close to 21%. When we're counting the rally in Bank of Georgia share price post the end of last year, we come down close to inside 20% as of now in terms of the NCC. And as we look back at the peak time, which was towards the end of December 2019, we had about 42% NCC ratio. And since then, we have managed to half the ratio and we have now come down to 21%. On an annual basis, the NCC decreased by more than 10% from close to 32%, down to 21%, and we are going in the right direction in terms of our target, which is as Irakli mentioned earlier, 15% over the cycle for this ratio. Now a little bit about the valuations. So this is the breakdown of our portfolio. Our portfolio continued to be diversified across different businesses. And actually, at the end of December, about 31% was across listed and observable businesses, 45% in large portfolio companies, 16% in investment stage and then the rest as it has always been for the last few quarters, 8% in the other assets. Our largest portfolio investment at the end of December was Bank of Georgia given its share price rally, it was 26% of our overall portfolio. While the Retail (Pharmacy) was around 23% and was the second largest investment. We completed the valuations at the end of the year. We engaged Kroll again, who did the independent valuations of all large and investment stage portfolio businesses. They were reviewed as part of -- and audited as part of the fourth quarter review by our independent accountants as well. And the valuations that you see on this slide are the final outcomes for the fourth quarter. We had minor movements in the multiples, mostly where we saw that the run rate EBITDA, for example, in Hospitals and the healthcare businesses, were not reflected in the 2022 numbers. So the multiples there are a little bit higher than what they were before. But elsewhere across the board, they remained similar. Now the portfolio value grew to almost GEL 3.2 billion, where about GEL 232 million came from the Bank of Georgia valuations; about GEL 74 million came from large portfolio companies, and we'll look at this later, it's mostly Retail (Pharmacy) and the P&C Insurance business; GEL 47 million from the investment stage portfolio companies, which are primarily in the Education and the Renewable Energy space; and the other portfolio companies has a minor decrease of GEL 13 million. Over the next few slides, I will walk through the performances of the large portfolio companies. Only in the interest of time for the questions, I will not be discussing the other businesses. But if you have any questions, you can follow-up later. In the Retail (Pharmacy) business, we -- the business continued to recalibrate the prices given the strong lari. In 2022, lari had a strong appreciation, which has impacted on a beneficial side, the business was paying less to buy the drugs that they sell. And at the same time, the prices in lari also were lower. However, the margin remained the same. They continue to grow, especially across the board in Georgia, but also outside of Georgia, we finished the year with 10 pharmacies in Armenia. And in addition, we had also franchise stores in Armenia as well. And then we have 2 franchise stores now in Azerbaijan, which are our franchise [indiscernible] that we opened in Armenia -- sorry, in Azerbaijan. The business revenue performance was down by 3% in lari terms. And then the EBITDA was down by 9%. However, on a full year basis, both revenue and the EBITDA were flat. In terms of the valuation, the enterprise value was largely similar to where it was at the end of 2021, although during the quarter, it increased by GEL 34 million. And similarly, the equity value that's attributable to GCAP was up by GEL 47 million, but on a full year basis, the growth was largely similar valuation to what we had in 2021. What happened was the fourth quarter was very strong in terms of the cash generation, so the net debt balance in the fourth quarter was, in fact, down by 8% because we had a very strong operating cash generation in this business. And then the multiple was slightly higher to 9.1x, but historically, we have always valued this business or it has always been valued at around 9x EBITDA multiple. In terms of the Hospitals, and so despite of the COVID transition, we also had 2 other events that I will highlight, which explains the 15% drop in the revenues. One was the renovation of the Iashvili Paediatric Hospital where this hospital was closed since the end of October through now for the renovations and that has impacted the like-for-like revenues; plus the Traumatology Hospital, which we sold earlier in the year. So the revenues are accounted in the fourth quarter and that impacts the comparison. When we strip out these 2 revenues and make it like-for-like comparison, the drop is actually much smaller. It's about 7.7%. And when we look at the EBITDA instead of the 17% drop, it's actually up by 3.5%. As I mentioned earlier, we continue to see this business going -- starting to go back to where it was in 2021. We have this new DRG system that was introduced in the Hospitals business, and we are seeing the impact of DRG as we go and looking at the way DRG is impacting or in some cases, benefiting our business. In terms of valuations, enterprise value was largely flat, no material change. Net debt was slightly impacted because the cash flow generation was not similar in the fourth quarter than it was before. And on an equity value basis, the valuation was similar to where it was at the end of the third quarter. In the insurance business, we had a strong performance in the P&C Insurance and the Medical Insurance business also had a good performance. It was the first time that the P&C Insurance business delivered a record high net income in excess of the GEL 21 million, and that was on the back of a very strong and sustainable combined ratio inside 80%, both in the fourth quarter and in the full year. The growth came in from diversified revenue sources across the year, and the business paid us overall about GEL 15 million in 2022. The valuation-wise, because of this strong performance, the value of our insurance business increased during the quarter by about GEL 16 million to close to GEL 230 million and the valuation market will remain the same. Now a little bit about our liquidity and the dividend income outlook, and then I'll hand it over back to Irakli for the wrap-up. So in terms of the liquidity, we have a very strong liquidity. At the end of the year, we had more than $150 million, of which 90% is in dollar terms in fact. And while the liquidity was lower than, let's say, at the end of June, that's because we canceled $65 million worth of debt. So we came from $365 million down to $300 million in the gross debt and our cash balance liquidity was still $152 million. In terms of the dividend income and what we collected in 2022 and what we expect going forward. In 2022, we collected GEL 94 million dividends. And here, you can see the breakdown across the different portfolio companies. This was another -- the second year in a row when we continued to have a higher dividend than the year before. Here, you see on this chart how the dividend inflows compared to pre-COVID times. And back then, we had GEL 73 million. Now we looked at GEL 94 million. And when we look at the next year, we project around GEL 120 million to GEL 130 million regular dividends that we expect from portfolio companies and about GEL 30 million dividends, which is what we call buyback dividends or our portion of the Bank of Georgia buybacks where they announced about $55 million worth of buybacks and we look at 20% of that at GEL 30 million. So in that case, when we sum these 2, we expect between GEL 150 million, GEL 160 million dividends in 2023. And then when we look at the lower end of the range, this brings estimated CAGR of around 20% since 2019, notwithstanding the fact that we sold the Water Utility business, which used to pay us the dividends back in 2019. So the message here is that even though the Water Utility is not part of the portfolio or the dividend inflow this year, the dividend income still has continued to grow quite substantially. With that, over to you, Irakli.

Thanks, Giorgi. Impressive numbers, especially on the dividend inflows. The -- what we have is just to recap, NAV per share is record high. In pound terms, it's GBP 22 -- close to GBP 22 now. The growth was in Q4 nearly 15% growth. We have bought back -- we continue to buy back our debt, our bonds and this is in line with our strategy of deleveraging, ideally probably GCAP should not have any debt on the holdco level to make sure that the capital flow from our portfolio company to shareholders is seamless. And that's what we will be working in next 2 to 3 years to basically bring it down to closer 0. NCC ratio is coming down, which means that we are approaching the meaningful buyback [ meaningful ] investment territory. With this discount, there is no investment, there is only 1 option. The regular dividends are growing and will continue to grow. The inflows, the Bank of Georgia is doing a very outstanding job. Its management is doing outstanding job, growing the earnings and showing the extraordinary good performance. We are very happy with Bank of Georgia [ holding ] performance. In terms of the outlook, I mean, for us, important is to shift to the standard listing to execute on our strategy of divestments and buybacks and that is kind of a significant portion for us to enable us to deliver on the promise. We are -- economy, as you see, is growing fast. Nino showed you the high growth what we have. But I think the important part is the actual change what the economy is undergoing. Labor market is shooting, account deficit is going closer to 0. In run rate, maybe we are even at the positive territory of current account -- [indiscernible] current accounts is not balanced basically. And while the FDI is record high at the same time. And that combination gives you the lari appreciation pressures. Were the lari is a fair price to be, who knows. If Georgia continues to deliver on this corridor as we are delivering right now, logistic corridor, on energy exports, on bringing in the labor force, exporting the IT services, shifting the -- exporting the education as we are starting to shift in medical education. Now we are exporting because the people from India would go to the Russia and Ukraine to study medical in medical universities, now they're coming to us. The [ enhance ] of opportunity for Georgia is tapping and so our shift of the economy is changing, our structure of the economy is changing. Potential growth rate, which [ IMF ] estimated was 5%, take note where it is, maybe it's 8%, maybe it's 10%, I don't know in this new environment. So we are very bullish about the Georgian economy and investments continue. So with this one, I will wrap up and move to the Q&A session. If we have questions, please raise your hand. We have a number of questions on -- in our chat, but probably maybe there are some questions.

Thanks, Irakli, for the presentation. [Operator Instructions] We have a couple of questions from [indiscernible], maybe I'll read them out. The first 1 is, would you seek to adjust the capital structure of [ non-capital-light ] businesses such as selling the real estate of the Hospitals business.

We have considered many times, it's a little bit difficult in Georgia to do that. And if it's doable, why not. We would -- so far, we couldn't find the appropriate structure, which would allow in Georgia to do this sale leaseback of the Hospitals business.

The next question is, can you elaborate on the impact of the Diagnosis Related Group financing system is expected to have on the P&L of the Hospitals business?

Yes. Now DRG is pretty new. We would expect some tweaks and changes. We are in close talks with the Ministry of Health, but overall, what we have like-for-like, we have a growth of the revenue for our hospitals. We think that some of the hospitals will need less growth, some of them need more growth. But basically, overall, as we speak, we are collecting more revenue on a consolidated basis than we would have collected under the old system. That's where we are. DRG has 1 very big relief for us. It has inflation built into that. In old system, inflation was not built into that, into this pricing model, which basically with the high inflation, we had a cost growth, huge cost growth, while the prices of the services was not increasing, and we were getting the margins [indiscernible] there. Now with DRG system, we are -- we see that the inflation will be affected -- will be reflected in the pricing. So we are happy with the new system, and we are working to make it even better with the Ministry of Health.

The next question is, how are you minimizing the impact of the external reference pricing on pharmacies? Is there a risk price should -- could come down further?

Actually, the government introduced all the drugs, which they finance, which is very limited. It's a very small number. So it won't be impacted on a consolidated basis. It will have a very limited impact, if any. We still need to see it, but what we are calculating, it's not going to be a big shift, especially it's a small portfolio of our drugs, what we have in our portfolio. So that kind of impact will be minimal.

Another question from [indiscernible]. Given the sizable market share in insurance and pharmacy, what are the threats of competition?

Insurance and pharmacy, I mean there is a competition there. We are large players, and there are other players, but we don't see the new competition coming in, because market -- this structure of the market is pretty consolidated. So we don't see a threat of new competition emerging or some -- I don't know, some irrational competition. [ It's business as usual ], I would say.

Thanks. The next 1 is from [ Robert Godfrey ]. Over the short to medium term, Georgia seems to be very undercapitalized. But over the long term, investment and competition are likely to eventually push down to ROE in most industries. To what extent has potential for future competition and the possibility or lack of careers to entry for potential competitors affect your preference and strategy for investing in different industries?

So basically, now -- our appetite now in the Western new industries is very limited because of the discount that we have. But in general, wherever we are present, you see that we have a large market shares. We have a top-of-the-mind brands. Actually, we need to show kind of our strength of our franchise and strength of our brands, what we have. So if somebody wants to come into the market and start competition with us, it will be cheaper or better for them to buy. And that's where kind of where we are in general. So we have a top class management teams. We have a high-quality asset -- very high-quality assets. In the private world, these kind of assets, people are dreaming of. It's not very often, you get the 25% of the hospital bed of the country. It's not that often you get a 35% market share of the insurance company. Now it's not that often you're going to get a 30% plus of the pharmacy. So these are the high-quality, well-run Western governed with proper checks and balances, risk management, proper decision-making. so these are the -- you buy a big market share, which actually -- best thing about the small market is that it's too small. But good thing about the small market if you have a strong market share, you are pretty protected. So that's kind of our philosophy, we've been always to take closer to 1/3 market share, build impeccable franchise with a great management team, and that's your barriers to entry. We cannot have better barriers to entry than what we have.

Question from [indiscernible]. Can you explain why there is a material difference in the margins of the P&C and Medical Insurance businesses? Is this COVID-related?

There is COVID-related, of course. But fundamentally, they are 2 very different business lines. So there will be always -- the Medical Insurance is a very -- it's more administrative business rather than the insurance to be honest. So basically, you administer and you take the margins, where the P&C is a real insurance.

The next comment is from [ Jonathan Kerry ]. Not a question, but that's a long-term shareholder. I just wanted to say congratulations to the management team. Clearly, not everything has gone as well as might be hoped and there are still ongoing challenges, but I think over time, management have done an excellent job, and the eventual -- the [indiscernible] market will wake up to this. Either that or we got to the point through buybacks where the shareholders -- shareholder base is as positive on the company as I am, the price rises on no willing sellers.

Thanks, [ Jonathan ]. I mean we are big believers that in the end, the performance going to get us through, and we just keep delivering what we are happy -- no, happy is a very loud word, but we are pleased that our NAV per share growth last 5 years is shy of 20%, is around 18%. We obviously, are targeting higher 25% plus. That's our target. Hopefully, we'll move to the target.

The next question is from [ Milosz ]. Do you have any other low ROIC assets within your large businesses, Hospitals, in particular, which you consider divesting?

I mean I don't want to name divestment, what we consider divestment. But basically, usually, we like high ROIC businesses. We aren't very keen of the low ROIC businesses. I don't want to go into the details of divesting what we are divesting or not. But basically, our strategy is very clear. We are -- we believe that we can sell some of the businesses way above the NAV. NAV is not a question for us. And we hope to -- we hope that this discount stays where it is, so we can buy cheaper in our shares.

The next question is from [ Steve Gorlick ]. It seems that NCC calculations take into account capital commitments over the next 2 to 3 years. But does it take into account expected capital inflows from the dividends and non-divestments, such as the sale of the remaining [ 20% ] of the Water Utility business.

No, it doesn't take. We need to be conservative, so we don't take the inflows, but it also doesn't take into account in case we make some sudden decision on the buybacks or investments. It also doesn't take so, both ways. It's not 1 way.

Another question from [ Steven ], the trend in net operating cash flows has been negative over the last 2 years. What is the outlook for this metric over the next couple of years? And what are the biggest risks to this outlook?

The cash flow has been negative because from the -- when we are coming out on the COVID, the base was low working capital. Actually, during the COVID time, you saw a lot of operating cash accumulation, because the working capital needs was coming down and sales weren't strong. So as sales are strong. It's a good thing to have to this kind of operating cash flow. We are funding more of the working capital, and we are growing the revenue, that's the main reason this year. But outlook, if we continue to grow our revenue, operating cash flow will not be as strong as the revenue growth because of funding the working capital. But if we stop growing, then it will be positive operating cash flow, which I don't think is a good idea.

The next question from [indiscernible]. Is there a change in the view in regards to the property development business?

No. We -- our view is very much similar to what we had before. We have this -- we are developing. We've got to develop, but it's not a scalable business for us, and eventually, we'll see it grow. But at this moment, we are -- management is delivering on these results.

The next question is from [ Jonathan Kerry ]. Can you give us some clarity on the timetable for the move to the standard listing?

Yes. Basically, we will -- what Giorgi was talking about, we have -- we called the AGM. Before tenth of March, you need to submit your vote. And on the 14th of March, we'll know the results of the AGM, and we are -- we will [indiscernible] April 13, we are standard listing.

Another question from [ Steve Gorlick ]. Current OpEx of approximately GEL 40 million as a percentage of NAV seems to be around 1.4% versus the goal of 0.75%. Aside from the proposed move to the standard listing, what other cost saving measures are you envisioning?

I mean along this other -- growing the NAV is also an option, not only the cost savings, but basically that's our target. We hope we're going to get this target.

Next question from [ Jonathan Kerry ]. Once you have completed the move to a standard listing, do you have any projected time scales for a potential acquisition?

Basically not -- no, we don't. It's more like a divestment-driven exercise at this stage, but also, obviously, we are positioned very well, including the buyback.

The next question from [ Milosz ]. Can you comment on the progress in ramping up sales in the pharmacies and franchise stores in Armenia and Azerbaijan and how this compare with average sales per store in Georgia?

I mean we are increasing our footprint right now. But right now, for Armenia, we have around 20 stores, if I'm not mistaken. And basically, average sales is around 40% more than in Georgia. However, it may be unfair because we are taking the best locations in Armenia in the beginning. So basically, as we expand the footprint, it may not be the similar result in terms of the sales per store. And what was another question? Azerbaijan is similar. Basically -- Azerbaijan is actually a little bit more. Azerbaijan is -- 2.5x more we sell in Azerbaijan than we sell in Georgia, because ticket size, it's more expensive. Rent is more expensive, product is more expensive, margin is greater. So it's basically -- in Azerbaijan, this is sustainable. We have a very bigger sales per store than in Georgia, basically. In Armenia, probably not. It could be, because basically, in Armenia, our, what we call the goods type stores, what we have in Georgia is, in Armenia, it's not that competition is limited. So we are attracting a lot of foot traffic because of this innovative format what we have.

The next question is from [ Alex Holt ]. Why there is such a big gap between the [ interest ] value and the market value and how to make these gaps smaller?

I think that the gaps, why it's there. It's always difficult to comment against the market in 1 -- [indiscernible] can comment on that better, but they [ aren't ] commenting, but what we are trying to do basically on the divestments and the large buybacks. And hopefully, that will take -- and deleveraging first of all, the Georgia Capital, which we [indiscernible], providing regular capital returns in longer term. And that's what we would -- hopefully would decrease the discount.

The next question is from [indiscernible]. Is there any plan to divest the stake in [ BGO ]?

No. [ BGO ] is basically -- it trades at 4x GE. It's laughable, basically, a very high-quality asset, and we don't [indiscernible].

The next question -- and the final 1 for now is from [indiscernible]. Is there any plan to resume any buybacks before the NCC ratio, which is 15%?

As I said, in our guidebook, basically, we are -- we would be willing to engage in tactical buybacks. But because the financing of our bond is a project, is maturing in the next 12 months. We are more geared towards that. And as we take care of the refinancing, you should expect tactical buybacks or smaller buybacks to come in. So we are basically -- our Georgian team are working very hard to issue the new bonds way small size, probably will end up issuing at local market because the small bond size of $150 million to $200 million is too small for the international -- for international markets.

I think we do not have any [ outstanding questions ].

Do you want to remind how they can ask live questions?

[Operator Instructions]

It seems like there are no further questions. Thanks for attending our call. Please stay tuned. We will give you an update on the results of the AGM as well. But so far, we've been meeting shareholders, and we saw the advisor groups like [indiscernible] have been positive on this move. Because the standard listing, it's our purpose that will execute on our strategy. Thanks again, and hopefully to see you soon.

Thanks, everyone.