Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

Let me start with today's agenda. So I'll talk about the recent developments. Then our Chief Economist, Nino Vakhvakhishvili, will talk about macroeconomic development in Georgia, which is pretty strong, and Nino will explain why. I'll talk about Q1 performance. Giorgi Alpaidze, our CFO, will talk about the valuation and our liquidity position, including dividend income outlook, current income and also outlook going forward. In the end, I will do the wrap-up. So let me start with the recent developments. Five major points maybe you need to know about the Q1. We had a very strong NAV growth. In lari terms, it was 3.3%. In pound terms, it was 6.4%. The growth is even greater if you mark-to-market our Bank of Georgia Holdings, would grow more than 10% in growth of NAV in terms of the sterling. Another key point, which you need to know is that NCC continued to decline, nearly 1.5 percentage point decline we had in Q1, and it's now first time below 20%, it is 19.7%. We are delivering on this on our deleveraging strategy. Good thing was not only the portfolio value growth was there, it was recorded, but also the currently what Georgia Capital had issued in the favor of our [ roll ] it has declined significantly. It's now a little more than $1 million left there. The beer business continues to show the very strong performance. And next quarter, we expect this guarantee level to go to 0, which we are very pleased with that performance. Another 4 points, what you need to know is that we have completed the move to the standard listing, and I will talk about this in a great detail later in slides, why we did that. The sale of hospitality business continued to deliver on its promise on divestment of these hotels. So we already announced the divestment of 2 hotels and 1 land plot for the -- in Tbilisi for the hotel business, which were $28 million. We actually signed in April SPA for another hotel, which was under construction for $8.4 million to be -- closing to happen towards the end of the Q2. With that sales, we had -- we basically are left with a very small number of assets in the hospitality business, actually. So then we had an expansion of the -- in education business, we grew in terms of the learner capacity and also, we have launched what we call a tactical buyback program or share buyback program for $10 million. So let me talk about some of these points in greater detail. So on the move to standard listing is critical for our business model. We have a flexibility to dispose the assets to meaningful buybacks and obviously reduce the cost -- running cost will also reduce. We are very grateful with our shareholders for a very strong support. We had 99.99% support for this move. And we are obviously keeping all the points about the corporate governance and transparency. Our biggest obstacle was the class test and this class test now in a standard listing will not apply. The sale of hospitality business, as I mentioned, in total, $36 million, the leverage of that business has decreased significantly from $40 million to $11 million. Actually, one hotel which led this in a ski resort in Gudauri, which is actually operational and is performing well. So it is servicing, it's that. So we are not in a rush to dispose it, but we see that disposal of the operational hotel in Gudauri will be a completion of our exit from the hospitality business. Good thing also is that our overall debt to EBITDA decreased by -- from 3.3x to 3x EBITDA in the end of Q1, which is moving in the right direction. As you know, we are not only striving to deliver at the GCAP level, but also we have a leverage target for our portfolio companies, and we continue to delever at the portfolio company level as well. Now expansion of education business, basically, we had -- we grew the learner capacity by more than 20% and we are now at nearly 7,000 learner capacity. We also added another land plot to our existing -- not only we bought the school, which was -- which is totally underutilized. We also bought the length of next to our school, and we are doing the expansion there, which also helps us to increase our pipeline. Let's put it this way. Pipeline capacity from 2,400 to 2,760, which is basically another kind of measurement we are looking at. We are targeting to have a pipeline for existing school expansions. So we are moving in the right direction in the education business. And you will see that education business has performed extremely well and continues to do well. On the $10 million buyback program, $6.5 million have been overutilized and our share count went to 44.2 million. After completion of buyback program, the tactical buyback program, we will be somewhere 43.7 million, 43.8 million shares. We are surely but steadily moving towards the share count, which was during the demerger that is -- would be very nice to hit the target sooner than later. So on the macro, I will let Nino to update you and talk about the key growth drivers. Nino?

Yes. So hello, everyone. As usual, I will do the quick macroeconomic update of the country. Sorry -- yes. So I will share the key trends that we think might be interesting for you. And of course, we are more than happy to answer your questions during the Q&A session. So despite the global slowdown of the economic activity, Georgia continues to increase robustly. And after two consecutive years of double-digit growth, according to the preliminary estimate, real GDP growth was 7.2% in the first quarter. The driver for this growth were quite similar. We were observing last year, like the surging FX inflows from the external side and the credit expansion on the domestic side and the moderating, but still support fiscal policy. So we had remittances, which increased more than 130% and then exports increasing 25% and tourism revenues, which doubled compared to the first quarter of last year and reached 138% of the pre-pandemic levels. So credit continues to expand, like we had significant surge in our lending. So we see activity both in retail business sector, and we see activity in local currency and foreign currency. So last year, we were happy to tell that nominal GDP increase by GEL 20 billion in 2 years. Now we expect nominal GDP to continue growth, like we expect nominal GDP to reach GEL 80 billion this year and to exceed 30 billion in USD terms. So this strong growth was reflected in Georgia to be a top performer in the world. Like looking at the various variables for growth indicators. We were top performing last year. I guess the most important one is that looking at the countries, which experienced recession in 2020, Georgia was third place among all those countries in terms of recovery. And International Monetary Fund expects Georgia's growth to be robust and to outperform the most of the countries as they expect like the GDP growth in per capita terms, in terms of GDP growth in per capita terms, to be in top -- Georgia be top 10 countries in 2028. So Georgian Lari performed quite well, as you know. So GEL started to appreciate since 2021. At first, it was related to the recovery, mostly recovery in our service sector. And then last year, despite the strong dollar around the world, Georgian GEL continued to appreciate on the back of surging FX inflows from the external side like we had record high remittances, the robust export growth and the tourism revenue recovery. On the domestic factors, we should highlight the tight monetary policy and FX liquidity, ample FX liquidity in the banking sector, which supports the FX lending. So this year also, GEL continued to appreciate like against the U.S. dollar appreciation is more than 8% year-to-date on the back of FX inflows as well as the factors we have mentioned like the FX liquidity type policy and the rebounding economic activity. So we had some multiple record highs last year. And so last year was quite exceptional year for Georgia. And one of the most important, I guess, was the current account deficit, which reduced to record low 4.1% on the back 5.7% surplus in the third quarter. And in nominal terms, the current account deficit was GEL 1 billion. Last year, it was almost half of what we observed in 2021. So despite the surging imports, which imports surge significantly due to the economic activity and inflation around the world, this surging import was nicely partially covered by the export of goods and services as well as secondary income. So what we see in the first quarter, we see that FX inflows to continue the robust trends like we have remittances, which increasing by almost 130%. And we have exports, which increase by 25% and one important thing about export, I guess, is that after Russia's invasion of Ukraine and sanctions on Russia, we were expecting this middle corridor trade -- middle trade routes corridor to kind of -- prospects for this route to enhance, and we see some of this in the numbers like looking at the REX exports. REX exports surged by 143% in the first quarter and mostly the partners for the REX exports are our neighboring countries like Armenia and Azerbaijan as well as Central Asian countries. And so we expect these routes to enhance further due to the strategic location of the country. Also, it should be noted that despite the significant contribution of Russian immigrants and Russian flows, total FX flows continue to increase, excluding Russia. Like the inflows to sum up all the remittances, export and tourism revenues increased by 28% and in remittance, only like despite the fact that Russia contributed the most EU, the remittances from EU increased more than 20% in the first quarter and remittances from the United States increased more than 40%. On the next -- sorry, Yes. So on the next slide, so we have inflation. As you know, inflation is decelerating globally and our inflation printed at 2.7%, which is below the 3% target. So on the global level, like the key driver for the decelerating prices is the lower energy prices as well as food prices and also base effect. And for us, this inflation is mostly attributed to the imported inflation and appreciation of the currency. Domestic inflation is still high, more than 10% at 10.6%, but we see also core inflation, which is more sticky compared to headline number to reduce significantly to 4.7%. So National Bank of Georgia started to hike the rate in March 2021 and increased the rate by 300 basis points and then kept the rate almost 1 year unchanged and today, they started to exit from tight inventory policy and reduced the rate by 50 basis points to 10.5% on the back of declining -- still high but declining domestic inflation and below target headline number. So despite -- so NBG stated that they will be quite carefully and the exit path will be slow due to the still high uncertainties related to the geopolitical conditions as well as high domestic prices. So rather than rate hike, National Bank of Georgia used some macro prudential measures last year in order to slowdown credit activity, and it was quite successful. And also, they used this appropriate timing to rebuild the buffer. And due to this record high flows, FX inflows, they managed to build the reserves to record high level. They bought more than GEL 1 billion since second quarter of last year and like GEL 461 million was bought in the first quarter this year. And so this was quite appropriate timing for the National Bank of Georgia to rebuild the reserves. As far as the fiscal policy, there are several words about the fiscal policy, like -- so this double-digit growth and exchange rate appreciation was nicely reflected in our debt level, which is expected to fall below pre-pandemic level, according to the preliminary estimate for 2022, and the debt level is expected -- projected by the Ministry of Finance to reduce further. Also, fiscal deficit, which like widened significantly during the COVID times, it was projected to reduce below 3% cap for 2023, but according to the preliminary estimates, they are already below this 3% cap, which is quite nice trend and so we see fiscal policy to moderate as they are operating balance and the fiscal balance was in surplus in the first quarter. And so the -- despite the fact that they are under 3% cap, they still project to reduce the fiscal deficit in the coming years. Just to sum up like the key messages for you for today will be that after 2 years of double-digit growth, Georgia continued to increase robustly more than 7% in the first quarter. Our inflation is below 3% target, and we expect below target inflation throughout the year. We might see some deflation during the summer period. National Bank of Georgia started to exit from tightened monetary policy and they will be slow, but continue to exit from the tightened policy. And we have the debt level, which is below the pre-pandemic level and fiscal deficit below the 3% cap. So this is the key messages from me -- from my side. I will be more than glad to answer your questions during the Q&A session. And now I will hand over to Irakli to continue the presentation. Thank you.

Thank you Nino. Let me continue with the revenue development so aggregate revenue in Q1 reached GEL 479 million, which is up 10% year-over-year. Two years ago, that growth rate was around 26.5%. In terms of last 12 months, we are nearly GEL 2 billion in revenue, and that's up by 2.3%. On the EBITDA level, growth was -- in the quarter was 0.9%, moderate growth rate, but we expect this growth to rebound as the hospitals and clinics business are rebounding in Q2, especially on the back of the lower base last year. As you know, when the COVID program stopped basically, we had to rebuild the utilization of the hospitals and clinics from 0, and that took some time. And Q2 last year was a very low base. And now we are moving in the right direction. So we expect stronger rest of the year compared to last year in hospitals and the polyclinics business. The last 12 months also is up by 0.2% EBITDA at GEL 244 million. On the cash generation, strong cash flow generation of GEL 33 million up nearly 100% a year ago and 5.3% last year. As with regards to the cash balance is also up to GEL 400 million. This is a cash balance of our private businesses in aggregate. So it was significantly up by 26% and 29% compared to last year and the year before. Now let's talk about NAV per share development. As I mentioned, it's -- in Lari terms, the NAV per share was up 3.3%. As you can see, in terms of the pounds, it is 6.4% up NAV per share. Quarter end was GEL 67.7. However, if you mark our Bank of Georgia holdings, these NAV per share is up significantly more. So not only NAV per share, but also exchange rate movement. So the NAV per share will be up to GEL 70.6, which is basically further 4.3% growth in NAV. And in pound terms, sterling terms also, significant growth to 22.6 pound per share. So the -- even though share price has moved up a little bit, the discount actually widened -- discount to NAV. Now update on deleveraging. Our -- one of the most important ratio, which we follow as an investment company is newly invented net capital commitment ratio, which was down by 1.4 percentage points to 90.7%. As you see, this was [Technical Difficulty] developments and net debt movements, especially in guarantees, which decreased by 76%. So that's kind of a positive development that we have in NCC. As you see, this NCC level is all-time low, and we are moving to our target of 15% steadily and surely, we are going to get there I hope sooner than later. Now let me move, let me ask Giorgi to take over the presentation and talk about the portfolio valuation.

Thank you, Irakli. Hello, everyone. So I will walk you through now the portfolio valuations and individual performance of each portfolio company, and then we'll talk about our liquidity and the outlook for the dividend income. So starting with the portfolio value, the composition as of the end of the first quarter about our portfolio value was close to GEL 3.3 billion, where 30% was concentrated in the listed and observable portfolio, that's Bank of Georgia in our water utility business, about 45% was in our large and portfolio companies being retail pharmacy, hospitals and the insurance businesses, and 16% was in the investment stage portfolio companies while the other businesses remained largely unchanged, less than 10%. And this time, it was above 9%. In terms of the individual portfolio companies and the valuations. So this quarter, we continued to apply consistently the approaches that we have before. The Bank of Georgia was valued at the closing share price as of the end of March, which was GBP 27.5. Since then, the share price has rallied by about 12%, and now it's around GBP 31, but our NAV only reflects this as of the end of March. Water Utility valuation was kept unchanged versus the year-end. So there is no material change in its valuation. The other businesses, we updated our projections based on their performance in the first quarter and based on the outlook for each individual businesses, which led to revisions to the implied multiples, and we will walk through each and every large portfolio company in the investment stage portfolio company on the later slides. Our largest private portfolio company continues to be retail pharmacy, which makes up about 23% of our overall portfolio and the second largest is hospitals followed by insurance businesses. Now we dive into the development in our portfolio. So the portfolio value increased by GEL 68 million during the quarter, GEL 21 million of that came from the Bank of Georgia value growth despite our participation in the buybacks -- Bank of Georgia buybacks. We will talk about that later. And you can see here the GEL 21 million reduction as well. Total overall was flat. But however, the [Technical Difficulty] that was created. Water Utility, as I said, it was flat. And then from the rest of the businesses from the private portfolio, GEL 30 million was the gross in the large portal companies, GEL 26 million in the investment stage and the other portfolio companies delivered about GEL 13 million value creation. Now in the individual businesses, starting from the retail pharmacy. The retail pharmacy, both the revenues and the EBITDA, were flat during the quarter. However, this was a very positive result for this business given that Lari continued to appreciate during the quarter, as you heard from Nino earlier. And so the business was able to offset that appreciation with the growth in the sales during the quarter. And also, they have managed to balance the negative impact of the reference pricing model that the government introduced earlier this year. and that became effective from February with again, with the business growth. So despite those two headwinds, they managed to have very strong performance and flat EBITDA and flat revenues in this quarter. On top, they also had a very strong cash collection during the quarter, which led to the decrease in the net debt by GEL 11 million and that led to the overall valuation of this business increasing by GEL 26 million during the quarter to GEL 750 million. Multiple was slightly up from 9.1 to 9.3, which has been quite multiple. And the adjusted net debt because of the strong cash collection in this business actually went down from 1.6 to 1.4. On the next slide, we see the hospitals business where the operating performance when we look at these charts, it is down. However, if we look at on a like-for-like basis, and we have to normalize this for 2 reasons. One, that we sold 1 hospital, as you know, last year, the Traumatology Hospital. And then the second one is the [indiscernible] clinic that was only reopened in March, and it was closed for renovations last year in the fourth quarter. We normalized for those 2, actually, the performance was good. The revenues were up by 3% and EBITDA was up by 13%. This is the last quarter where the effect of the termination of the COVID contracts that happened last year in March is reflected in the prior year numbers. From the next quarter, the rebasing will start, and you will see that the performance and the growth of this business will be strong both in the revenue and the EBITDA terms. The valuations here in this business were largely neutral. We had the slight growth in the enterprise value of this business by GEL 10 million, but it was offset by the growth in the net debt balance during the [Technical Difficulty] to the later quarters. And then the market value was up here slightly from 12.2% to 12.8% because we're not looking at the run rate EBITDA [Technical Difficulty]. Net debt was slightly -- net debt to EBITDA was slightly up during the quarter, again, because of the late collection of accounts receivables that didn't fall in the first quarter. Insurance businesses, both insurance businesses demonstrated very strong performance. The P&C insurance and the medical insurance, the growth in each business was double digits in the revenue terms and the similar thing in the net income. In fact, the medical insurance net income has actually tripled in the first quarter as compared to the last year and the P&C net income increased by 20% in the first quarter on a year-over-year basis. This had a very positive impact on the valuations as well. Here we present the P&C valuations, where the overall value was up by close to 2% during the quarter. The operating performance brought about GEL 9 million uplift, which was slightly offset by the decrease in the multiple that went from 10.6 to 10.4. So overall, the equity value for us grew by GEL 4 million. Now we go into the investment-stage businesses, starting from the renewable energy business where we had a quarter where 1 hydropower plant was stopped due to the rehabilitation work that was previously planned. We expect this work will be completed in June, and this hydropower plant will restart operations from there onwards. This actually affected the numbers here that we've see in the revenues and the EBITDA, and they were both down by 13% and 25%. However, other assets actually had a very good performance for example, the wind farm, where we had a good wind during the first quarter. On a like-for-like basis, it's production -- electricity generation was up by 9%. This business paid us also slightly more than GEL 5 million dividends in the first quarter. In terms of the valuations, we had an uplift in valuations in this business because Georgia is now switching to the open market trading of the electricity effective from 1st of July 2023, and our future cash flows now reflect the anticipated switch as we update our future projections that has led to an increase in the enterprise value. And when we take into account enterprise value changes and the net debt changes, the overall uplift was about $12 million, which has also led to a slight increase in the multiple from 11.4 to 12.6. Leverage here was slightly up in terms of the ratio, again, because of the 1 hydro power plant being stopped during the quarter. In the education business, we can see that the number of learners on a 1-year basis has increased significantly. We have now 4,500 learners, which is 40% higher than the last year, and that had a very positive impact on the revenues by 24%, and we expect the strong growth in this business to continue in the coming quarters as well. In terms of the valuation, there was not much change in terms of the actual valuation gains. However, as we bought one school and as we invested in the land that has added to the investments at cost. And therefore, the total value of the business was up by GEL 11 million, which was broken out by enterprise value increasing by GEL 3 million. Net debt being negative by GEL 1.6 million and the rest being attributable to our investments. Multiple was down here from 16.9 to 16.2. And in fact, when you look at one year forward or forecasted EBITDA for this business, it's actually closer to 11x. Net debt-to-EBITDA continued to be flat in this business at 1.2%. Lastly, we have the clinics and diagnostics business, which was again also affected by the termination of the COVID contracts last year, but the business continued to recover. We had good performance within the polyclinics, which is part of the clinics business. And overall, the revenues were down by 22%, while the EBITDA was down by 45%. But from the next quarter, we expect that the rebasing effect here, similar to the hospitals, will have a positive impact on the growth. Valuation-wise here, valuation was negative GEL 2.7 million impact on our NAV as the net debt was down by GEL 3.7 million. It actually increased by GEL 3.7 million, and that had the negative impact. Now switching to the liquidity and the dividend income outlook. Here, you will see that in the first quarter, our liquidity remained strong. It was $135 million and we -- during the quarter, we continued to buyback our bonds, and we managed to buy back around $28 million worth of Georgia Capital Eurobonds, which means that we now hold around $80 million of Eurobonds out of $300 million Eurobonds, and we continue to work on the refinancing of our Eurobonds, which is expected to come in the following quarters. In terms of the dividend income outlook. During the first quarter, we collected around GEL 26 million where GEL 5 million was from the renewable energy and GEL 21 million was from the participation in the Bank of Georgia dividends. We continued the participation since the end of the quarter. And here, we also show you where that number stands now. So if we aggregate that first quarter and the second quarter participations, we now have about GEL 53 million worth of dividends that we collected, which is more than half of all dividends that we collected last year. And we expect to receive dividends from Bank of Georgia and other portfolio companies during the second quarter, third and the fourth quarter. And our estimate for the current year is that this number will be around GEL 150 million to GEL 160 million. With that, I will hand it back over to Irakli for the wrap up.

Thanks, Giorgi. Thank you. Let me say a couple of words as we had a nice NAV per share growth in Q1, both in lari Terms and the sterling terms. And after the course of the quarter, it continued to grow. And in pound terms, we are nearly up about 11% year-to-date. On NCC ratio, it's down and we continue to delever. Dividends, as Giorgi mentioned, are flowing in, and it continues to flow, especially in Q2 and Q3. That's where kind of a dividend season is. Hospitality sale has happened in Q1 and continued in Q2 with the sign of the new agreement to sell the one under construction hotel. And importantly, we have moved to the standard listing, which is more appropriate for our business model being an investment company. And we have commenced also the buyback program and cancellation, which further reduced the share count. We expect the value creation to be much greater in Q2 than in Q1 on the back of the good portfolio company performance as well as hospitals and clinics performance, which last year, Q2 was a very low base. Actually, in Q1, if you look at our performance, except hospitals and clinics, EBITDA was up 12% in Q1. And actually in Q2, it is expected to contribute positively in EBITDA growth, which we expect to be pretty robust, and that's where we record a higher value creation and higher, hopefully, NAV per share growth. We are working on the refinancing of our Eurobond. As you know, we are significantly reducing the leverage. Originally, we had this Eurobond $365 million, and we expect to issue $150 million of debt, formal bond or the debt. It's not clear yet, which way we're going to go, but we are successfully working on that project. We are working on the project and, hopefully, we will successfully close that one soon. And we expect the strong macro growth in the country, and it has been delivering good growth. As Nino mentioned, the interest rate has come down significantly and National Bank started to ease the interest rates and is decreasing interest rates. We expect further lari interest rate to go down. And I think that the macro will be performing very strongly in 2023. Here, I will finish our presentation, and we'll move to the Q&A session. Please raise your hand to ask the question.

Thank you, Irakli. [Operator Instructions]

It seems like we don't have questions.

Yes, there are no incoming questions as of now.

Which is unusual, but we hear that you have no questions. So thank you, everyone, for your attendance. Is the system working, Shako?

Yes, it is working. I see Milosz has a question.

I just want to -- maybe can you comment on what's your view on the contribution of the Russian immigrants to the economic activity. I mean beyond the remittances, do you have any underlying data, which would provide us with an indication of what's the degree of contribution to economic activity in Georgia?

Sorry, you mean the remittance contribution to economic growth?

No. I mean the contribution of Russian immigrants to economic activity.

Nino, maybe you want to.

Sure. Thanks for your question. So last year, as you know, like GDP growth was more than 10%. So we did some analysis to kind of estimate what was the impact in relation to these Russian flows. Like what we estimate like the direct impact coming from the Russia was like 2% to 3%, and there was some indirect impact like due to this strengthened corridor and stuff like that, which might end up kind of up to 2%. So what we are looking despite the fact that, for example, in the remittances, Russia's share is surging. We see the growth is exceptional from other countries also, like, for example, remittances from U.S. increased by more than 40%, and remittances from European Union increased by 20%. Also, in the first quarter, we see that European Union recovered in terms of tourism revenues, and we are expecting further growth from there. So also, this growth was partially attributed to the Russian inflows. So we still see that there are significant inflows coming from other countries. And yes, so for the last year, the direct impact, which we estimate was like 2% to 3%, and indirect impact up to 2%.

Okay. Perfect. And one more question, if I may. When I look at -- well, at the performance of the other -- I mean, the subscale businesses, right? There seems to be an increase in net operating cash flow. So I just wonder -- just wanted to feel that at any stage in the coming quarters, you'll have to provide any support to some of those subscale businesses? Or do you feel that at this stage they operate like operational pharmacists, not self-sustained. They can all service, they can debt, et cetera.

Giorgi, do you want to?

Yes, we do provide the data, Milosz, already. If you look at the Excel file that we upload on our website, together with the results for each other portfolio company, we present their P&L, their balance sheet, and even their cash flow. So you should be able to assess their data. And yes, as you saw from the overall number, as we disposed of the two hotels and one land, our overall net debt to EBITDA leverage on the aggregated group level, so for all portfolio companies actually came down from 3.3 to 3. So across the board, we are seeing that improvement in the leverage not just in the investment stage and the large portfolio companies, but in other portfolio companies. As Irakli mentioned earlier too, beer is -- other portfolio companies, and so is the water services.

Thanks, Milosz. We have a couple of questions in the Q&A. The first question is from [indiscernible]. It looks like we will achieve our target of 50% NCC level within the next 3 to 4 quarters. Then what would be the incremental capital allocation for share buybacks.

As we mentioned, that moving below 15% would allow us to do more meaningful. So basically, we would want to be in a cycle around 15%, in a business cycle, in the economy cycle to be around 15% in NCC. So basically, where we are below 15%, you can assume some -- we can go above 15%, probably, let's say, we are at 13%. We can go above NCC towards the 17% or 18%, basically. So you can assume where 5 percentage points would be a buyback, more meaningful buyback basically.

The next question is from Simon Jacobs. I think shareholders would like to see a further decrease in NAV to share price. Yes.

NAV discount was your problem?

Yes, and what are you proposing? And he is also asking also the idea of starting regular or special dividend?

I mean, basically, what we are targeting, we, as an investment company, basically, we want to delever to let the cash flow from the portfolio companies to reach our shareholders. The leverage at the GCAP level obviously presents that flow to happen. And that's why we have this NCC target to decrease and to let this cash flow. And we think that our preference would be to do a buyback because of the hefty discount that will allow us to further increase our NAV and decrease the -- hopefully, by doing the buybacks, decrease the NAV discount. And basically, that's kind of our declared strategy what we've been doing, and that's why we've been reducing the NCC ratio to allow us to do more meaningful buybacks.

Thank you. There is a similar question from Harvey as well. Not introducing a modest dividend show confidence in the underlying businesses and help reduce the stock discount. The size of the discount suggests that the market is satisfied with something the company is doing.

I mean, I highly doubt that modest dividend would allow because we have a modest buyback, which is a dividend basically. If you want to collect the dividend, you can reduce sell down proportionally to keep your percentage of the company and you can collect your dividends that way modestly. So we are -- we actually are doing the modest dividends by doing this buyback, what we call tactical buybacks.

Thank you. There are no income questions. [Operator Instructions] There is a question from David Shapiro regarding Eurobond refinancing, do you want to refi local or Eurodollar?

Probably more likely we will do the Eurodollar again. We actually -- if you look back, we actually made some money on that because we borrowed that the dollar rate and the exchange rate has not changed since when we borrowed in Eurobond 5 years ago and what we have now -- or 6 years ago and what we have now the exchange rate. So most likely, we'll do the same one in foreign currency.

Thank you. Okay. There is another question. Is there any more asset divestments on the horizon like the deleveraging hospitality segment?

Sure. We did say that other businesses, we would be divesting over time, and we have been divesting the other businesses successfully, and we'll continue to do so. But we don't want to be in a hurry of or urgent divestment as we think that significant value has been created in the other businesses, and we want to fully utilize it and tap it.

Thanks, Irakli. No questions for now.

Very good. It seems there are no further questions or do we have?

Sorry, [indiscernible] wants to ask the question.

With respect to the potential refinancing in foreign currency, would you consider hedging the lari rate? Or like what's your view on the exchange rate? How does that play into potential FX issuance?

I mean basically, we have some dollar businesses, which will hold our portfolio. The $150 million is no longer a big leverage. So we think that playing on the foreign currency, it's kind of our bet also as an international company, and we are happy to bet on lari strengths. So that's why we are kind of -- we take the view with that regard. So now our view is lari to have a further potential to strengthen.

There are no incoming questions. [Operator Instructions] There is a question from [ Jeremy Stevens. ] If tourism is up, why exit the hotel industry.

I mean we did say from the very beginning that this was a subscale business and it here could not contribute to our NAV growth much. So we do not want to spend our time and energy and management resources on this sector, which will not be contributing to NAV growth substantially. So tourism is up, but the business itself, what we had was not scalable. We had to invest a lot of capital. And at the same time, we have a capital-light strategy. So we are investing in a capital-light industries and the hotels are not particularly capital-light, so that's why with our updated strategy, which we did last year in May, that's where we declared capital-light and exit from the subscale businesses. So that's kind of in line with our strategy, basically -- the sale of the hotels.

Thanks, Irakli. There is a question from Martin Alonso. In your estimation of dividends for this year, what Bank of Georgia payout ratio do you assume for the GEL 150 million, GEL 160 million dividend income spent.

Giorgi?

So Martin, we assume the similar payout that the bank had last year, so that will be 25% of the net income in terms of the cash dividends and another 12% to 13% in buybacks. So similar payout as before.

Thanks, Giorgi. The question from Harvey. Can you drill down in the post-COVID development of hospitals? Do you see more elective surgeries? Tourism, what is happening with the competing emergency hospitals that the government wanted to go away?

So basically, at the -- what has happened is actually, and we are late to realize that on the hospital side that as we have -- we decided to help our -- the government to step up -- the hospital to step up the fight against the COVID. Basically, our hospitals went off from this business, elective business, or we have reduced -- these hospitals reduced the activity of elective or in emergencies, et cetera. So during these 2 years, people changed their kind of behavior. So it took us some time to [Technical Difficulty] recover this revenue. Now in this past, we had also because of low activity, we closed some of the hospitals for the renovations that also reflected on the decrease of the revenue of the hospitals. In Q2 -- actually in Q1, end of Q1 and the beginning of Q2, we saw big growth again on the elective side. And so we are moving in the right direction in terms of the capacity utilization. So we had a low capacity utilization in the hospitals, which were in the COVID program. So now that we are moving into this direction, basically, we are more confident that we'll deliver nice growth.

Thanks Irakli. There is a follow-up question from Harvey. Will you continue to grow polyclinics, reduce, or keep the same? Do they perform according to expectations? Is getting doctors and nurses still a challenge?

So basically, the polyclinics business consists of the 2 parts. One is a small hospitals in the regions, which were in the COVID program and another one is a pure polyclinics, what you see in Tbilisi when you come and basically they walk in outpatient clinics, basically. Our patient clinics are performing extremely well, and we are expanding and we will expand. What we don't like is the small hospitals, which are subscale hospitals and where we are making very little of EBITDA. So basically, if you look down into this kind of the business line, you would want to invest, and we are investing in polyclinics because it is a capital-light and nice business. And on the other hand, this subscale hospitals, which are like 10 hospital beds to 20 hospital beds are not performing well, especially when you have -- you need to deliver some services, which is costly, and you don't -- in the regions, you don't really have a flow of people. So basically, that's -- our preference would be to sell off the subscale hospitals one by one or in one go over time and basically invest money in expanding the outpatient clinics.

Okay. There is another question from Harvey. What about further international expansion of pharmacies? Is that going well?

We are looking at the international markets, for sure. And we are -- we have a structure in the pharmacy business, which basically looks at it. And we are engaged with a couple of parties, and this is kind of our strategically important point to expand internationally with the capital-light businesses and pharmacy is indeed a capital-light for us, and we want to be more present in the region than we are now. We are -- you may know that we are in Armenia with pharmacies, and we are in Azerbaijan with boots -- sorry, with the body shop stores, and we are looking at the different markets, expansion in Caucasus as well as the Central Asia.

Thank you. There is a question from David Shapiro. Any thoughts to selling small portions of bank to accelerate buybacks given the huge NAV discount cap and bank finally selling at a little better valuation. If not, how do you judge paying fair value?

So basically, I mean, I think that I'll move to the fair value of the bank and then probably you will answer the first part of your question. Basically, the bank is trading below 3x PE in our opinion, right? So I think it's -- discount to its fair value could be greater than the GCAP's discount to the NAV.

Thank you, Irakli. There are no open questions for now.

Very good. Thanks for participating in our Q1 results. Stay tuned. I think it will be Q2, we expect to be very stronger than the Q1.