Georgia Capital PLC (CGEO) Earnings Call Transcript & Summary

Thanks for joining our Q4 2023 Results Call. I'll -- let me give you some overview what we will be discussing today. So I'll start with the key developments in which Georgia Capital in 2023 and in Q4 in particular. We have Nino Vakhvakhishvili, our Chief Economist, talking about macro developments, really exciting macro picture we have in Georgia, and it's been doing well. And then I will talk about performance in Q4 and 2023. And then Giorgi, our CFO, will talk about the portfolio valuation and liquidity and dividend income outlook. In the end, I'll do the wrap up, and we will have a Q&A session. We are encouraged, obviously, with Q&A session to give us both messages, as well as raising your hand and asking the question. So let me give you some key highlights. So in Q4, our NAV grew nearly 8%, at 7.7% growth we had. And we had a second -- as a result, we had the second highest growth in the GCAP history of producing 26.5% NAV per share growth in 2023. Therefore, our NAV per share stood at nearly GEL 83, which translates into the GBP 24.23, also a record high. NCC ratio improved our key metrics to watch when we are allocating the capital. It has improved, even though we had the buyback program in place in Q4, and we've been buying back shares pretty actively. Despite of that, we had an improvement due to the strong dividend inflows and EBIT growth in Q4, and it stood at 15.6% as end of the year. We received big chunk of dividends in Q4 from our portfolio companies at GEL 34.2 million we received in dividends. Full year, we had GEL 236 million in dividends, which is also record high. What we call the recurring dividend was GEL 180 million. We did continue our buyback program in Q4. We bought back $8.3 million worth of the GCAP shares. So in total, we bought 665,000 shares in Q4. One notable divestment, which we had, even though it's small, but I think it's an important one, and we have sold low-ROIC producing hospital and in Batumi. This is in line with our capital allocation strategy, where we are where we are selling the low-ROIC businesses. The -- we sold a 43% premium to our valuation. So a pretty big premium to the valuation, which we are giving our hospital business. That also gives you idea our conservative way of valuing the businesses in our portfolio companies. The one -- we also did the acquisition in Q4. We acquired the health insurance company. This gave us the good momentum to grow our franchise. So we doubled our market share to nearly 35%. And we think that the private health insurance will pick up in lieu of the government has not been increasing the prices on the health care services. I think the quality people will be demanding and people will be paying for the quality of the health care services. Therefore, we will think that the demand for health insurance will increase. And that was, hence, the acquisition we made. It is a GEL 23 million acquisition. It's not a big one, and we think that, that contributes positively. The -- if you look back in 2023, 6 things I would like to highlight. One is that, we completely transfer to the standard listing, which is critical for us to have a flexibility to conduct our investment business. And that was a very important milestone, and we had an overwhelming support by our shareholders to do so. We also did a very big deleveraging. In 2023, we brought down our $300 million gross debt to $150 million gross debt. We issued a local bond in Georgia, where we had the IFIs and local Georgia and retail participating overwhelmingly to our surprise, more than 60% of the issued bond was subscribed by the local retail investors and we had the remaining IFI subscribing to that. That gives us another kind of flexibility for our funding. But as you know, our appetite to borrow at the GCAP level is very low. We will be reducing our debt at holding company level in coming years. Share buyback program in 2023 was pretty significant. We did a $25 million in buybacks, and that was the kind of a big program. And as we saw $86 million buybacks we've done in our history, basically. So that was $25 million were pretty significant. We also bought out our pharmacy retail, our pharmacy minority shareholder, which when we brought our shareholders 97.6%. The -- we owned -- also on hospital business -- sorry, our hospitality business, we did a divestment. So we sold our hotels and real estate worth $38.6 million. That was also a significant milestone to achieve as we are divesting from our small subscale businesses, what we call the other businesses. So that was pretty successful divestment. We also expand in Education business. We brought our learner capacity to 7,200 learners, and we are in a good trajectory of growing the franchise in Education business. I think we have significant announcement, our portfolio company, our -- Bank of Georgia, which is in our portfolio company, where we own the 20% equity interest. Recently, they made the announcement on the acquisition of the Ameriabank. Ameriabank is a very strong banking franchise in Caucasus Republic. So if you measure it probably is a second strongest brand in the Caucasus Republic after the Bank of Georgia and I think this is a significant milestone by the Bank of Georgia to acquire such a strong franchise. The valuation is at 0.65x book and 2.6x P/E, which we are glad to see such an attractive valuation of this attractive franchise to be bought. And we believe that the prospects of acquisition of the Ameriabank is even greater as the Bank of Georgia has a superior digital experience for their retail customers and putting the Ameriabank's franchise in Armenia and the Bank of Georgia's superior digital experience, that would -- will create a substantial shareholder value going forward. The even greater story in this acquisition is that, the Bank of Georgia is not changing its capital return policy and they don't need to issue the new shares or raise cash for the acquisition. So Bank of Georgia will be buying from its excess capital. So that's kind of a significant event probably we have noticed as well in the share price of Bank of Georgia being reflected as we speak. So the -- now, let me give the floor to Nino to talk about the macro.

Thank you, Irakli. Hello, everyone. So, as usual, I will be giving very quick macroeconomic update of our country. So I will highlight the key fact and, of course, I will be more than glad to answer your questions, if any, during our Q&A session. I want to start with the revisions done by the Geostat, they just revised Georgia's national account due to methodological updates, classification changes and source improvements in line with the 5-year international revision cycle. After this revision, our GDP revised upwards compared to the previous estimates and adjustments done in the GDP deflator-led real GDP growth also to revised upwards. As a result, so 2022 growth revised upward to 11% and 2023 preliminary growth revised upward to 7.5% from an initial 7%. So the key drivers for the growth, so the drivers are quite close to the drivers we had in 2022. So in 2023, we had historic high FX inflows despite the moderating remittances due to the fading out impact of the Russian immigration. So we had FX inflows was at historic high again due to tourism revenues and surging exports. Also, from the domestic side, banks were quite active to promote growth as loan growth was 17.1%, excluding exchange rate effect. And if you look at the loan growth, so we saw that business loan growth exceeded household loan growth after the second half of 2023. And within the business loans, the trade, construction, real estate and financial intermediation was the key sectors contributed positively. From the second half, even tourist-related sectors and manufacturing contributed positively to the business loan growth. Another factor from domestic side is fiscal policy. Despite the discipline to put the fiscal deficit under 3% cap mandated by the Liberty Act, government was able to increase their current and capital expenditure, which led our GDP growth to increase even further. So as a result, looking at the previous 3 years, due to this very high-growth rate and, as well as exchange rate appreciation, our GDP in U.S. dollars almost doubled in the 3 years. So looking in the future, so we are expecting GDP growth to be up to 6% next year and we expect this to continue growth which will be higher than our previous 10-year average. On the inflation side, inflation peaked in January 2022 and then we had some gradual disinflation throughout 2022 and we had sharp disinflation in 2023. And as a result, National Bank of Georgia start to ease rate, reduced refinancing rate to 9%. So the disinflation factors was quite similar. So what you can see in another country. So the disinflation was the common story for almost worldwide. So it was mostly the correction in international prices. And then also we had this exchange rate stability, which impacted our imported inflation to be on a negative side. And mostly it was the good inflation, good inflation which led our inflation to be -- to fall below 3%. And according to the latest number, January number inflation is at 0%. And despite the fact that National Bank of Georgia targets headline inflation rather than core, core inflation is also below the target. So we expect inflation to start picking up to increase slightly. We might see some overshooting in the next -- in the second half of the next year, but overall average inflation for the average inflation, we think that average inflation will be below the target in 2024 also. On the next slide, we have more details about the FX flows. As I have mentioned, we are still getting historic high FX inflows. Remittances moderated mostly from Russia. So this immigration impact faded out and we had significant reduction in remittances from Russia. But we had the increasing remittances from other remitting countries. Like, for example, from U.S., remittances increased by 40%, from Germany 39%, from Italy by 20%. Overall, from EU, we saw some 17% surge in remittances and from other countries, excluding EU and CIS, we saw some 20% increase in remittances. For the tourism revenues, so our tourism revenues increased by 17% compared to last year and it was 26% higher compared to pre-COVID levels. Tourism revenues, despite the fact that we have the historic high tourism revenues, number of international trips are still below pre-COVID level. And so, there is still significant room for growth. So we are -- 18% of the level we had before COVID in terms of international traveler trips. And so, mostly it is our neighboring countries from where we see recovery to be lagging behind. So, as for the exports, despite the fact that in 2023 global trade turnover was down, but despite the slowdown in global trade, we saw exports of Georgia to increase by 9%. And despite the fact that our domestic -- like traditional domestic export slowed down in 2023 due to the surging export, we had a significant growth in our export. And this export -- sorry, it was driven by the Russia's invasion of Ukraine and sanctions on Russia. After that, the importance of middle corridor increased, and the importance of middle corridor led our export to increase. We are mostly exporting motor cars and we see trade ties to be tightened with the Central Asian countries, which is a good opportunity for us to leverage further with our strategic location -- from our strategic location. So as a result of historic higher FX inflows, our current account deficit continues to narrow. In 9 months, we had 2.6% of GDP current account deficits down from 3.2% from the 9 months of last year. And due to the historic high FX inflows, economic activity tightened monetary policy, as well as kind of weaker USD compared to, for example, 2022 highs -- so the weaker dollar compared to 2022 highs, we see exchange rates to be below pre-pandemic levels and we see that exchange rate is kind of flattish without significant fluctuations. On the next slide, we have kind of summary slide for the monetary and fiscal policy. As I have mentioned, monetary policy started to ease but at a gradual phase. There is still room for further ease and we expect National Bank of Georgia to continue easing, but at a very gradual phase due to the fact that the rates in advanced economies are still at their peaks and advanced economies have not really started to ease the rates. So these 2 years was favorable for our fiscal and monetary policy to build the buffers. National Bank of Georgia was quite active during these 2 years to build the reserves. And as a result, reserves were at GEL 5 billion at the end of last year. As for the fiscal policy, the fiscal discipline led our fiscal deficit to fall below 3% cap and our debt level reduced significantly even below pre-COVID level due to the fact that we had the very strong growth, as well as exchange rate appreciation. So according to the Ministry of Finance projections, they don't project debt level to decrease sharply, but what they project, they project the structure to change significantly. So they want GEL-denominated debt share to be higher compared to USD-denominated debt share, which will even increase government balance sheet resilience toward the external shock. So on the next slide, we have some new opportunities which we think emerges for Georgia. The first of all, again, it is the middle corridor. And as I have mentioned, after these sanctions on Russia, the middle corridor gained its importance because it emerges as one of the important routes to connect Europe to Asia. And according to the recent studies by the EBRD and the World bank, so they saw significant surge in trade turnover in the route after the Russia's invasion of Ukraine. And if the right investment will be there, so World bank, for example, expects the trade turnover to triple through these routes, which, of course, will be very beneficial for our country, not only economically, but also geopolitically. The Georgia's role will further strengthen. And so, as you may know, in 2023, European Council granted candidate status to Georgia. And we've done some research what might be the benefit for the country. There is a significant differences among the countries, enlargement countries in terms of economic benefits they are getting after the EU integration. But on average, we saw that GDP growth was higher and government cost of debt was lower and institutional strength was higher compared to non-EU integration scenario. And we do expect the same for Georgia. Especially, we think that our strategic location would be important for us to capitalize on this EU integration because we will be positioning ourselves as a bridge between the European Union and Asia. And so, we think that this EU candidacy can bring significant economic benefits, as well as significant enhancement of our geopolitical role. To sum up, so we have very strong GDP growth and we expect GDP growth to be higher compared to the previous 10-year averages in the medium-term. Our inflation is below target and we -- also, we think that there might be reversal in the trend. We expect average inflation to be below target in the next year or so. Our external balance sheet improves with GEL 5 billion reserves, narrowed current account deficit and debt level, which is below the pre-pandemic levels. Exchange rate is quite stable and remains at below pre-pandemic level on the back of historic high FX inflows, prudent policies, as well as dollar strength. We have sound macroeconomic framework. And so, we've seen new opportunities for the country due to the increasing importance of middle corridors, as well as EU candidacy status. So thanks a lot, I'm looking forward to your questions. And now, I will hand over to Irakli to continue the presentation.

[Audio Gap] Sorry, I had a problem with this technology. So let me start with this Q4 performance and the full year performance of our portfolio companies. We see close to 10% revenue growth in the full year for our -- all of our portfolio companies and we had nearly 8% growth in Q4. In terms of the EBITDA, with full year, it grew by nearly 2%. However, we had a decline in Q4 by 6%. This decline was mainly driven by 2 factors. One is our hospital business did not perform well due to the regulatory issues. One was that we had to close down some of our hospitals for renovations to meet the regulatory requirements on the new standards. So that contributed negatively. Secondly, the new DRG system has been changed and fine-tuned a couple of times. So basically, we've been struggling with this new pricing system and now it seems like it's up and running. We think that we hit the low point in the Q4 in terms of the revenue and the EBITDA and we hope that we're going to turn the corner next year. So, similarly, in operating cash flow, the hospital business did not contribute well here. However, our pharmacy business actually grew its retail footprint by 30 retail outlets, which contributed negatively for the EBITDA, as well as the cash flow generation. But, however, our pharmacy business, as Giorgi will show you very good revenue growth. So we are investing in pharmacy business to grow our franchise even farther, unlike in hospital business. So in terms of the NAV per share development in Q4, you see that listed portfolio like Bank of Georgia's share price growth contributed positively 5 percentage points. Private portfolio contributed positively, also nearly 2 percentage points. Buyback was 1% around positive contribution to our NAV per share growth. Operating expense declined by 0.3 percentage points contributed negatively in our NAV per share and that's why -- how we ended up to nearly 8% NAV per share growth in Q4. So if we look at the NAV per share growth over the life of GCAP, which dates back to 2018, we have a CAGR of 13.4% NAV per share growth and in 2023, we had more than 26% NAV per share growth. Similar growth rates are in USD terms. So we had a 13.2% growth in USD and pound sterling over the past 6 years, past 5 years. So pretty strong cap. I wish we are targeting higher, obviously, not happy with this cap. And as we grow, hopefully, more faster going forward, we will improve overall our cap for the -- NAV per share growth. In terms of the buyback and cancellations, as I mentioned, we had $86 million worth of buybacks in past 6 years or so. Nearly 8 million shares we bought back, which is 16.5% of our issued share capital. Whatever we had in peak. In peak we had around 48 million shares. So I must say it's a very strong track record of returning capital to our shareholders and we've been doing it consistently, including in 2023. Going forward, we obviously will do more of the buybacks and especially, we are keen to see more buybacks where we are in such a big NAV discount -- share price NAV discount, as well as when our leverage has been decreasing, that's also encouraged us to do more buybacks. In terms of the net capital commitment, our key metrics, what we look is, it's at 15.6% in end of the 2023. So it's significant decrease from 21.1% year ago. And that is a result of the NAV growth, strong dividend inflows and that's kind of gave us a good momentum. As you see, our guarantees issued went to 0 and as our beer business performed well, we had the guarantees issued for our beer business. And this has been doing extremely well. And that as a result, we have -- there is no guarantees issued by the GCAP. So that's deleveraging continues. Our net debt is $110 million. We will attack more to our net debt going forward. So here is the development of our NCC ratio. You see that in the peak we were at 42.5%, pretty aggressive. We should not do it again for sure. And now we are at close to our 15% over the cycle target. Free cash flow development. You see that in terms of free cash flow development, which is dividends received minus interest expense, minus OpEx, we recorded $31 million in 2023, which is a significant growth year before or anytime in a past history of the GCAP. We believe that this number will grow farther in 2024. Here, I will let Giorgi Alpaidze, our CFO, to talk about the portfolio valuation.

Thank you, Irakli. Hello, everyone. Let's start the review of fourth quarter valuations by getting through the slide that summarizes where we valued our portfolios during -- at the end of December last year. First of all, let me highlight that these -- the valuations were done externally by Kroll, our independent valuation company that valued all the large and investment-stage portfolio companies. This was then audited by our auditors as well. So, as you can see on this slide, about 38% of our portfolio was within the listed and observable companies. Bank of Georgia was about 1/3 of our portfolio, 33% and 4% was water utility. Bank of Georgia, this is the spot price that we use for valuations from the London Stock Exchange at the end of last year. For water utility, we apply the option valuation methodology, which assumes the put call option structure that we currently have to realize the value of our 20% stake within the water utility company. At the end of last year, we saw that the regulator of the water utility business revised the tariffs for the commercial customers in Georgia and the tariffs increased by close to 40% for the commercial customers in Georgia. We have considered this in the valuation and the value of the water utility business is currently close to GEL 160 million or about $60 million. As we see the impact of the new times comes through the EBITDA, which is the key metric used within the put and call valuations. We will continue to revise these valuations going forward every quarter. In the large portfolio companies, Retail (Pharmacy) continued to be our largest business in the private portfolio, followed by insurance business and the hospitals, all of which were valued by Kroll at the end of last year. And similarly, investment-stage portfolio companies that made up about 15% of the portfolio were also externally valued, and other portfolio was relatively unchanged at 8% of the overall portfolio. On the next slide, you will see how the portfolio value developed during the quarter, and we saw that the amount reached about GEL 3.7 billion, which in dollar terms is about $1.4 billion. The most value creation came from the increase in the Bank of Georgia share price, which was about GEL 134 million on a net basis. So this is after they paid the dividends. And in the large portfolios contributed about GEL 33 million, while the investment-stage was GEL 39 million, and we had a value reduction of GEL 30 million in other businesses. In terms of the each portfolio, I would highlight that the insurance business are generated for us, both P&C and medical, about GEL 42 million valuation gains followed by Retail (Pharmacy) of GEL 34 million, and Education was GEL 16 million, while clinics was GEL 12 million allied. We had about GEL 35 million valuation losses within the hospital business due to the reasons that we'll discuss later. Now, as we go through each and every portfolio company individually, you will see starting from the Retail (Pharmacy), that, as Irakli mentioned earlier, we continue to grow the pharmacy chain and the franchise within Georgia and Armenia and, in fact, we added close to 30 pharmacies and the franchise stores across the 2 countries in the fourth quarter, which was the reason largely because when we continue to see that small mom-and-pop pharmacies were closing down, and we took advantage to take over the spaces that were previously rented by them, that allowed us to open close to 30 pharmacies. On a full year basis, in fact, we opened about 51 pharmacies and the franchise stores across Georgia and Armenia. Additionally, because of this high-growth, we had to invest in the OpEx that included rent and the salary costs of the new franchise stores that impacted the bottom line. In this case, the EBITDA, which was down by 21%. But these are the investments in the longer term, and we will see in the coming quarters that will get reflected in the numbers, and we will see the bottom line improving. One thing I would highlight here is, even though we had the strong growth in the pharmacy chain, we had also a very stable gross profit margin that was about 30% when we look at it on a full year basis. On the next slide, you will see the valuation changes. So because of the positive outlook that we have for this business and the continued growth we are seeing, for example, in January and February that the retail sales growth in Retail (Pharmacy) business is in double digits with the positive momentum and also with the growth of the channels. We had an increase in the enterprise value of about 3.7% or GEL 38 million. Last quarter was also very strong in the cash conversion. So therefore, we had a business, a net equity value increased by GEL 35 million. The implied LTM EBITDA multiple is temporarily increased to 9.7% because the fourth quarter does not reflect the full scope application and the inclusion of the expected profits from the new franchise stores and the pharmacies. Next, we have the hospitals business. So here, you might recall, we flagged during the previous call that we had certain hospitals that were closed down because of the renovations in October and early November, which meant that we had an impact on the bottom line. So here, you will see that, even though revenues were largely flat versus previous fourth quarter of 2022, we had an impact on the EBITDA, and it was down by 49%. We are starting to see in 2024 that this business is starting to improve, even though we have the headwinds from the regulatory changes. And we will see that this reduction in the EBITDA in the upcoming quarters will decrease, and it will fade away in the future. Valuation-wise, here, we had -- we did the restructuring, as you know, in the fourth quarter. We now moved the community clinics, which was previously part of the clinics business into the hospitals business, which now combines large and specialty and regional hospitals, plus community clinics. Therefore, you don't see the changes from the previous quarter on this slide because of the comparability matters. But in general, this business was valued at 13.8x in the EBITDA multiple, which is lower than the 1 hospital that we sold at the end of the year that was in excess of 15x in EBITDA. On the next slide, you will see the insurance business. In the insurance business, we continue to have a very strong double-digit revenue growth in both P&C and medical insurances. That has led to a very strong performance here. But because of the increase in the combined ratio, largely driven by the loss ratio and the expense ratio, we had a relatively smaller increase in the net profit of about 4%. However, we see that these losses will normalize as we go into the -- into 2024, and we would expect this growth in the revenues will translate into a similar growth in the bottom line or the net profit. We had the gains in valuations in the insurance business because of the strong outlook. And as you can see on the next slide, the equity value creation we had was about GEL 18 million in the P&C insurance business. Going forward, we will be presenting all the insurance businesses together now that we own and operate 3 different brands, which is Aldagi, Ardi and Imedi L. Now, into the investment-stage businesses, starting with the renewable energy here, straightforward story. We had all our HPPs and the wind power plants operating during the quarter, which was not the case in the fourth quarter of 2022. Therefore, the revenue and the generation grew by single digits, 5% and 8%, and that led to the higher revenues and higher EBITDA in the fourth quarter. And the value creation that we had in the renewable energy was driven purely by the net debt reduction, which was reduced by GEL 1.2 million. One key fact here is that, this business has a borrowing of -- had the borrowing of $80 million from the local market because of the cash generation that they experienced over the last 12 months, in January of this year, they bought back and canceled about $5.1 million worth of bonds, which means that, even the gross debt has now reduced from $80 million to close to $75 million. And we continue to see that the net debt-to-EBITDA is also decreasing. Next, we have the Education business, which has continued to grow here as we had received a record number of new learners in the fourth -- in the third quarter of 2023. We saw that the P&L impact come through in the fourth quarter. So revenues grew by 41%. EBITDA was -- growth was at 27%, even though that we invested in the operating expenses for the enlarged group for us to finance the new campuses and the growth of the existing campuses. And all these positive momentum led to the capacity utilization, which is now at 80%, about 7% higher than where it was before. We had the impact of this growth come through in the valuations as well. And as you can see on this slide, the valuation of the Education business was up by GEL 18 million. The multiple here was 16.7x. However, here, we are looking on a backward-looking basis on the LTM EBITDA. If you look at the forward-looking EBITDA, then the multiple comes down to 10.5x. The clinics business is the next, which is -- so this business now excludes the community clinics from its performance and had a very strong performance in the fourth quarter. Both clinics and diagnostics delivered double-digit growth. EBITDA was also up significantly to GEL 3 million. And on a full year basis, you can see that the EBITDA more than doubled, which is then reflected in the next slide on the valuations. And the valuation-wise, we had about GEL 14 million growth in the clinics business. We have the net debt-to-EBITDA reducing significantly from 4.5x to 3.6x. That's because we paid down that before when we sold the head office of this business in the third quarter, but also because of the growth in the EBITDA contributing to the decrease of this ratio. That's all about the valuations, and now we have about -- update about the liquidity. We continue to have strong liquidity. So given the smaller size of our bonds, we -- our liquidity was about $40 million, up 7%, even though we did the about $10 million buybacks in the fourth quarter. This was helped by the dividends that we received from Bank of Georgia and Aldagi in the fourth quarter. And the next slide, you will see the dividend income track record and the outlook. So in the last year, the total dividend increased by 2.5x from where they were in 2022, of which about GEL 180 million is recurring and these recurring dividends are about still 2x what we collected in 2022. As we look forward into 2024, we currently estimate that we should be receiving dividends of at least GEL 180 million between GEL 180 million to GEL 190 million, which is about $70 million to $75 million in dollar terms. With that, I will go back to you Irakli for the wrap up. Irakli?

Thanks, Giorgi. So to wrap up, we see a strong NAV growth in 2023 in Q4. We see the NCC ratio decreasing significantly by 5.5 percentage points in '23. We see big dividend inflows of around GEL 236 million, of which is GEL 180 million is regular dividend inflow, it's also the record high. You saw big buybacks done in the past 6 years of the GCAP's life. We did $86 million, which represents 16.5% of the share capital. And we did a $25 million worth buybacks in 2023. We will continue the buybacks, obviously, which is attractive from valuation what GCAP has. We have -- in Q4, we sold one of our hospitals, while it's a pretty large hospital actually at a significant premium to our mark. And that's also assurance to us that we are conservative in marking our portfolio companies. You saw also the small investment in the health insurance business, which enabled us to double our market share to nearly 35% in health insurance. So that was also a significant move for us. In terms of the outlook, we expect the strong economic growth to continue in Georgia. We expect further value creation within our portfolio companies, and we expect our leverage to decrease even further. So with on this bright note, I'd like to move on the Q&A session. Please raise your hand. But before you do so, we have a couple of questions here in the chart.

Maybe I can read through the questions that came through the Q&A. So the first question is from Bram Buring. With regard to the 15% over the cycle target for NCC, could you please elaborate where we are in the cycle and the implications for the larger capital returns? Will the current phase in the cycle suggest we see larger returns when NCC hits a low-teen high single-digit level?

Bram, to be very short, probably that's high single-digit, that's where we will be able to see the bigger buyback in terms of the auction-type buyback. In terms of the tactical buybacks is what we've been doing. We will continue to do so. Mainly, we have not announced the tactical buyback, smaller ticket size, what we've been announcing for a number of reasons, but one of is that, Bank of Georgia, which is a main dividend provider to GCAP have not announced their dividend for 2023 due to the acquisition they had to postpone as I understand their annual results announcement. And once we know it, we will be more -- better positioned announce our tactical buyback program.

The next question also from Bram. Any update on disposal of larger portfolio companies would be appreciated?

Unfortunately, we cannot talk about this publicly at this stage. We will give you an update once we feel more comfortable doing so.

The next question from [ Bernard Griesel ]. Will you look to extend beyond Georgia, like Bank of Georgia did either through acquisition or via one of your current business is expanding to additional markets?

On our last strategy update, we talked about that and our position is that, we -- number thing, we want to be in the capital-light businesses and our more mature capital-light businesses will be expanding outside Georgia. The GCAP itself will not be making the new bets outside Georgia, but we will be -- we might make bets outside Georgia basically the -- through our portfolio companies. In fact, our pharmacy business has been investing in the expansion in Armenia for quite some time. And actually in Q4, expansion of the retail stores, Armenia is a big contributor to that. So we are expanding pretty aggressively, and we'll continue to expand in Armenia through our pharmacy chain. If you look at the other business, for instance, Education business, which is also the capital-light business, we are not expanding that because we have still ground to cover in Georgia. So once we feel that we have reached the maturity in terms of the footprint, we'll also venture outside Georgia. Similarly, for instance, now our polyclinics business, we have a ground to cover in Georgia, so we won't be expanding. So, in fact, the probably most mature company who can expand outside Georgia is our pharmacy business, which we are doing so pretty carefully. But if the expansion opportunity -- acquisition opportunity arises, we may do so. It all depends to our capital return or investment policy, which basically envisages the discount of the GCAP stock higher the discount, the price-wise, we are more -- it's more difficult for us to pay good price, let's put that way. So as GCAP shares are very attractive now, we are not really investing anywhere. We had this small investment in insurance because it was in line with our investment policy of buying, if investing cheaper in private companies than buying back GCAP stock, that's basically our thing. Very simple. Okay, Shako. Can you...

Yes, moving on to the next one. Are you expecting to continue your buyback program? Do you still see your share price as the most attractive investment out there? I think we touched on this one.

Yes, I think that we talked to you. Yes, we will continue buybacks for sure. The GCAP stock is very attractive for us to buy. So we will buy. And please stop buying GCAP stock so that it is cheap for us to buy.

The next question from Max. Great results. After the deleveraging, are you planning to pay out dividends to us shareholders?

We've been paying the dividends. In terms of the buybacks, that's our kind of dividend equivalent. We've been returning the capital. However, if you mean the regular capital return policy, we are considering that all the time. That's part of our job, obviously. And as deleverage decreases and as our private portfolio companies reach more maturity, we will be introducing the regular capital return policy. Right now, as you see, we are doing the -- opportunistically, we are announcing the capital returns and in total, we returned $85 million of capital to our shareholders in past 5.5 years.

The next one, can we expect you to sell more of your hospitals and clinics in the near term?

It all depends on the price. So basically, the -- everything, as you know, our strategy is not to have a strategic asset. We are in the investment business. In case, we see opportunity to sell or buy, et cetera, we do accordingly. So we saw the opportunity to divest this hospital, and we divest it at attractive valuation. So...

The next question is from Milosz. Do you see scope for an increase in the share of parapharmacy products in the Retail (Pharmacy) sales beyond the current 40%?

Absolutely. I think that we are -- that's our model. We are -- we -- the -- Basically, we sell the Rx drugs through our pharmacies with a lower margin, and we sell parapharmacy products on non-med, at the same time, with a higher margin. And that's where we make money. We don't make money on the drugs. Basically, we make money on the parapharmacy. And that's one of the reason our working capital grew in Q4 and the cash flow declined. The cash -- operating cash declined because we've been aggressively pushing our non-med products, and we've been -- we see a healthy gross momentum. Actually, in January and February, we saw a double-digit plus growth in revenue in the retail pharmacies. And that's what we are geared for, to grow the footprint more, to grow the non-med share. And we think we can grow about 50%. Actually, in Armenia, our non-med share is nearly 55%. So we like that market.

The next question is from Tarang Patel. Can you please expand on what restructuring was needed in the clinics to meet new regulations? I think he's referring to the hospitals business.

Hospitals, yes. So in hospitals, we had to redo our emergency rooms because there were new standards have been introduced, and there are a lot of small details, basically, which were needed -- mainly was the emergency rooms had to be redone. And that caused the closure of our hospitals and investment, basically to renovate some of the hospitals to more modern standards. And that is the main one. But there are a lot of small things, like some equipment had to be changed, et cetera, but mainly it was renovations, basically.

The next question from Milosz. How quickly do you expect bed occupancy in our hospitals business to recover after the completion of the renovations?

We hope that second half of the year we will be on the right trajectory. We already see an improvement in occupancies in this year, but we have long way to go. We think that our run rate occupancy rates and the EBITDA, probably we will see towards the end of this year to recover, too.

Then next question is from Brad. Do you have a target for how many pharmacies you plan to add this year? Also, you mentioned that forward valuation multiple for the Education business. Could you share what are your forward EV/EBITDA valuation multiples for hospitals and pharmacies?

So on the pharmacy expansion, last year was pretty aggressive. We grew by 10%-plus the footprint. I don't think we're going to do the similar this year. It will be way less. We want to make sure that the expansion, which we have done, is working well, that it is bringing the increased EBITDA, not only revenue, obviously, but increased EBITDA. So basically, we want to digest it. And there was an opportunity because of the regulation, that small pharmacies were closing down. And we basically made a decision to go and grab that opportunity and basically convert some of our small pharmacies or merge the pharmacies which were side by side. And basically, it was kind of an grow -- opportunity to grow a modern pharmacy chain as the more legacy pharmacies are -- were closing down because of regulation. So it was kind of a one-time opportunity. And then we used that opportunity basically. The next one was the forward-looking. Giorgi, maybe you talk about this.

Yes, I can take that one. So, on the forward-looking valuation, Brad, think of it in Retail (Pharmacy), it's about 9x. And generally that's where we would see that business valuing, if it's operating at the run rate EBITDA. And for the hospitals it's about 12x. So 12x will be where the -- on the run rate EBITDA that business would be valued.

I think we don't have any open questions as of now. [Operator Instructions]

It seems like there are no further questions. Anyway, we are available. Here's another one.

Yes from Brad. Would you give an update on your capital spending plans for renewables?

Yes, basically they have not changed much whatever we had. Giorgi, maybe you talk about that a little bit.

Yes. Within our NCC, we continue to include about $35 million worth of capital that we expect to allocate to renewable energy when the construction of the hydropower plants and the wind power plants commences. But that has not been the case just yet. So the number has not changed and we continue to show that as a committed capital within NCC, Brad.

Probably most likely the half of that might be spent this year basically.

The next question is from Max. Are there any possibilities to do a deal with a big company like TAV Batumi Airport, Borjomi Water, EFES bottling business in Georgia?

You may know that our capital allocation strategy includes the asset-light businesses. So basically, we don't see how airport is asset-light basically. But anyway, the -- if there are opportunities which is cheaper than buying the GCAP stock, we will entertain, which is not -- if we don't see that it is cheaper than GCAP stock, we will be buying the GCAP. We want to really be disciplined on that. So we don't want to get carried away with potentially good deals when we have a GCAP deal in front of us.

There are no open questions as of now. The one just came through. Congrats on the results. Do you plan to exercise put option for the water business? Can you give breakdown of dividend income expectation for 2024?

I mean, we cannot provide on the exercise of put option for sure. The breakdown of dividends, Giorgi, do you want to...

Yes, I mean, so if you looked at the slide that we had before, it would be a similar breakdown. We expect the dividends to grow from insurance business, from Aldagi, for example, and from renewable energy as well. However, we expect that in other businesses, for example, in hospitals, given the performance, that the dividends will be reduced so they balance each other out and therefore, we expect about GEL 180 million. In fact, we expect that our beer business that had a very strong year last year and continues to have a very strong performance that they will be also paying the dividends as well.

Thanks.

Seems like no further questions. Thanks, everybody, for joining the call. We are online anyway. If you have any questions, please email to our IR, Giorgi and me, and we are happy to address those. Thanks a lot, and stay tuned.