Georgia Capital PLC Annual Report 2023 ### AnnuAl RepoRt 2023 ## CAPTURING SUSTAINABLE ## INVESTMENT OPPORTUNITIES ## TO CREATE VALUE Georgia Capital PLC GEORGIA CAPITAL Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government # A PLATFORM FOR INVESTING IN, UPSCALING AND MONETISING LARGE OPPORTUNITY BUSINESSES IN GEORGIA Georgia Capital PLC ("Georgia Capital" or "GCAP" or "the Company" – LSE: CGEO LN) is a platform for buying, building and developing businesses in Georgia and monetising investments, as they mature. Georgia Capital PLC holds 100% of the share capital of JSC Georgia Capital ("JSC GCAP"), which together are referred to as the "Group" or "GCAP HoldCo". The Group's primary business is to develop or buy businesses, help them develop their management and institutionalise their businesses so they can further develop mainly on their own, either with continued oversight or independently. The Group's focus is typically on larger-scale investment opportunities in Georgia, which have the potential to reach at least GEL 300 million equity value over three to five years from the initial investment. As investments mature, the focus shifts to monetising them through exits. Georgia Capital manages its portfolio companies individually and does not focus on achieving intergroup synergies. The Group does not have capital commitments or a primary mandate to deploy funds or divest assets within a specific time frame. As such, it focuses on shareholder returns and on opportunities which meet its investment return and growth criteria. ## CHAIRMAN AND CEO STATEMENT Read our Chairman and CEO Statement on pages 14 to 16 ## STRATEGY Read about Georgia Capital Strategy on pages 18 to 19 ## PORTFOLIO Read about our portfolio companies on pages 34 to 80 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## PERFORMANCE HIGHLIGHTS Georgia Capital PLC Annual Report 2023 ### GEORGIA CAPITAL NAV OVERVIEW PERFORMANCE OVERVIEW (GEL MILLION) 1 ### NAV per share (GEL) NAV per share (GBP) Net Asset Value (NAV) (GEL million) TOTAL PORTFOLIO VALUE CREATION ## 82.94 +26.5% y-o-y 24.23 +20.4% y-o-y 3,379 +19.9% y-o-y ## 681 +646 y-o-y 1 Georgia Capital PLC Annual Report 2023 Total portfolio value (GEL million) Liquid assets and loans issued (GEL million) NCC ratio ### LISTED AND OBSERVABLE PRIVATE PORTFOLIO ### PORTFOLIO ## 3,672 +14.8% y-o-y 117 -73.3% y-o-y 15.6% -5.5 ppts y-o-y ## 553 +347 y-o-y 127 +299 y-o-y ### PORTFOLIO BREAKDOWN (GEL MILLION) | LISTED AND OBSERVABLE | PRIVATE | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | PORTFOLIO | PORTFOLIO | | | | | | | | | | | | | 549 | 4 | | 75 | | 47 | | | 5 | | Value: 1,385 | Value: 2,287 | BANK OF | WATER | LARGE PORTFOLIO | | INVESTMENT STAGE | | OTHER PORTFOLIO | | | | | | GEORGIA | UTILITY | | COMPANIES | PORTFOLIO COMPANIES | | | COMPANIES | | | 37.7% of the total portfolio value | 62.3% of the total portfolio value | | | | | | | | | | | | | +359 y-o-y | -12 y-o-y | | +146 y-o-y | | +34 y-o-y | | +119 y-o-y | | ### LARGE PORTFOLIO COMPANIES Value: 1,436; 39.1% of the total portfolio value 2 Investments Buybacks Net income 2 ### BANK OF GEORGIA RETAIL (PHARMACY) HOSPITALS INSURANCE ## 23 -173 y-o-y 76 -7 y-o-y 616 +614 y-o-y ### (P&C AND MEDICAL) ### Value: 1,226 Value: 714 Value: 344 Value: 378 33.4% of the total 19.4% of the total 9.4% of the total 10.3% of the total Dividend income ### INVESTMENT STAGE PORTFOLIO COMPANIES ## 236 +142 y-o-y Value: 567, 15.5% of the total portfolio value | | | 3 | | | 4 | | --- | --- | --- | --- | --- | --- | | OF WHICH, RECURRING DIVIDEND INCOME | | | OF WHICH, ONE-OFF DIVIDEND INCOME | | | | | 180 +86 y-o-y | | | 56 NMF | | ### RENEWABLE EDUCATION CLINICS AND OTHER ### WATER UTILITY 2 ### ENERGY DIAGNOSTICS BUSINESSES ### Value: 267 Value: 189 Value: 111 Value: 284 ### Value: 159 ## 5.2% of the total OUR STRATEGY 7.3% of the total 3.0% of the total 7.7% of the total 4.3% of the total Read about our Strategy on page 18 1 The detailed value creation drivers for each business are described on pages 101-119 in the results section of this report. 2 Includes both the buybacks under the share buyback and cancellation programme and for the management trust. 3 Includes regular cash and buyback dividends. 4 One-off dividend income includes a non-recurring GEL 27 million dividends collected from the retail (pharmacy) business and GEL 29 million buyback dividend attributable to participation in BoG’s 2022 buybacks in FY23. 1 Net Capital Commitment – please see definition in glossary on page 206. 2 As presented elsewhere in this report, in December 2023, our healthcare business underwent a strategic restructuring. This restructuring resulted in the split of the hospitals Certain financial measures presented in the Strategic Review are taken from unaudited management accounts. The figures from the management accounts are Alternative business into two distinct segments: “Large and Specialty Hospitals” and “Regional and Community Hospitals”. The Regional and Community Hospitals now include the Performance Measures (APMs) and are described on page 94, and the differences from, and the reconciliation to, the IFRS audited accounts are presented on pages 97-98. community clinics that were previously managed under the clinics and diagnostics business. See page 42 for more background. 2 3 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## PERFORMANCE HIGHLIGHTS CONTINUED Georgia Capital PLC Annual Report 2023 1 Listed and observable portfolio companies Private large portfolio companies ### PRIVATE PORTFOLIO COMPANIES’ PERFORMANCE HIGHLIGHTS (UNAUDITED) Our 2023 performance reflects the high level of resilience of our portfolio companies, bolstered by the outstanding growth of the Georgian economy, which has enabled Georgia Capital to deliver substantial progress and value creation in 2023. Aggregated revenue (GEL million) Aggregated EBITDA (GEL million) Bank of Georgia Water utility Retail (pharmacy) Hospitals Bank of Georgia Group PLC (“Bank The water utility business is a regulated The retail (pharmacy) business is the The hospitals business, where GCAP +9.1% | | | of Georgia” or “BoG” or “BoGG” – | monopoly in Tbilisi and the surrounding | largest pharmaceuticals retailer and | owns 100% equity, is the largest | | --- | --- | --- | --- | --- | --- | | Georgia Capital PLC Annual Report 2023 | | LSE: BGEO LN) is a UK incorporated | area, where it provides water and | wholesaler in Georgia, with a 32% | healthcare market participant in | | | | holding company, comprising a) retail | wastewater services to 1.4 million | market share by 2022 revenue. The | Georgia, comprised of seven Large | | | | banking and payment services (Retail | residents representing more than | business consists of a retail pharmacy | and Specialty Hospitals, providing | | | | Banking), b) banking services for | one-third of Georgia’s population and | chain and a wholesale business that | secondary and tertiary level healthcare | | | +1.8% | small and medium-sized businesses | c.42,000 legal entities. The water utility | sells pharmaceuticals and medical | services across Georgia and 27 | 2,074 (SME Banking) and c) corporate business also operates hydro power supplies to hospitals and pharmacies. Regional and Community Hospitals, 1,901 | | 573 | and investment banking operations | plants (HPPs) with a total installed | The business operates a total of | providing outpatient and basic | | --- | --- | --- | --- | --- | --- | | 484 | | (Corporate and Investment Banking) | capacity of 149MW. In 2022, Georgia | 412 pharmacies (of which 397 are in | inpatient services. | | | | in Georgia. BoG expects to benefit | Capital completed the sale of an | Georgia and 15 are in Armenia) and 23 | | | | | from superior growth of the Georgian | 80% equity interest in the business | franchise stores. In 2023, the business | | 155 | 141 | | 243 | 248 | economy through both its retail | to FCC Aqualia (“Aqualia”) for a cash | signed an agreement with its minority | | --- | --- | --- | --- | --- | --- | --- | | | 1,346 | | | banking and corporate and investment | consideration of US$ 180 million. | shareholders to acquire a further | | 1,275 | | 35 | 44 | | | | | | | | | banking services and aims to deliver | As a consequence, GCAP owns a | 20.6% equity interest in the business. | | | | 52 | 55 | | | | | | | | | on its strategy and key medium-term | 20% interest in the business as of | As a result of this transaction, GCAP’s | | | | | | objectives – at least 20% return on | 31 December 2023, which remains | ownership stake in the business | 157 149 average equity (ROAE) and c.10% subject to the ongoing put/call increased to 97.6% as of 31 December growth of its loan book. BoG targets to option structure. 2023 (31 December 2022: 77.0%). maintain a 30%-50% dividend/share | | | buyback payout ratio through regular | • The P&C insurance business is a | | --- | --- | --- | --- | | | | and progressive semi-annual capital | leading player in the local insurance | | 2022 2023 | 2022 2023 | | market with a 30% market share | distributions. BoG’s Annual Report | | | 2023, when published, will be available | in P&C insurance based on gross | | --- | --- | --- | --- | | Large portfolio companies | Large portfolio companies | | | | | | at https://bankofgeorgiagroup.com. As | premiums as of 30 September 2023. | | Investment stage portfolio companies | Investment stage portfolio companies | | The P&C insurance business also | of 31 December 2023, Georgia Capital Other portfolio companies Other portfolio companies owns a 19.71% non-voting equity stake offers a variety of non-P&C products in BoG (31 December 2022: 20.6%). such as life insurance. • Our medical insurance business Insurance is one of the country’s largest The insurance business comprises a) private medical insurers, with a 19% Aggregated net operating cash flow (GEL million) Aggregated cash balances of private businesses (GEL million) | | property and casualty (P&C) insurance | market share based on 9M23 net | | --- | --- | --- | | | business, and b) a medical insurance | insurance premiums. The business | | | business. GCAP owns a 100% stake in | offers a variety of medical insurance | | | the business as of 31 December 2023 | products primarily to Georgian | | -11.5% | (31 December 2022: 100%). | corporate and retail clients and | (selectively) to state entities. -34.3% Private investment stage portfolio companies 310 275 206 135 | | | Renewable energy | Education | Clinics and diagnostics | | | --- | --- | --- | --- | --- | --- | | | | The renewable energy business | Our education business currently | The clinics and diagnostics business, | 2) Diagnostics, operating the | | | | operates three wholly-owned | combines majority stakes in four private | where GCAP owns a 100% equity | largest laboratory in the entire | | | | commissioned renewable assets: | school brands operating across seven | interest, is the second largest | Caucasus region – “Mega Lab”. | | 2022 2023 | 2022 2023 | | | | | | | | 30MW Mestiachala HPP, 20MW | campuses, acquired in 2019-2023: | healthcare market participant in | As of 31 December 2023, the | | | | Hydrolea HPPs and 21MW Qartli wind | British-Georgian Academy and British | Georgia after our hospitals business. | clinics and diagnostics business | | | | farm. In addition, the business has a | International School of Tbilisi (70% | Following the strategic restructuring the | is 100% owned by Georgia Capital | | | | pipeline of renewable energy projects | stake), the leading schools in the | business comprises of two segments: | (31 December 2022: 100%). | | | | in varying stages of development. | premium and international segments; | 1) 19 polyclinics (providing outpatient | | | | | The renewable energy business is | Buckswood International School (80% | diagnostic and treatment services) and | | | | | 100% owned by Georgia Capital as | stake), well-positioned in the midscale | 14 lab retail points at GPC pharmacies; | | | | | of 31 December 2023 (31 December | segment and Green School (80%-90% | | | | | | 2022: 100%). | ownership), well-positioned in the | | | ### Organic transition to revenue growth strategy affordable segment. 1 The portfolio companies’ performance highlights include aggregated stand-alone unaudited IFRS results for our portfolio companies, which can be viewed as APMs for Georgia Capital, since Georgia Capital does not consolidate its subsidiaries, but instead measures them at fair value under IFRS. In the Strategic Review, various stand-alone figures other PORTFOLIO COMPANIES than those derived from our NAV statement for the individual portfolio companies and the discussion of their business developments are derived from their separate, individual Read more about our portfolio companies on pages 34-60 unaudited IFRS accounts. Private portfolio companies’ performance highlights are presented excluding the water utility business. 4 5 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## VALUE CREATION Georgia Capital PLC Annual Report 2023 ### DEFENSIVE, NON-CYCLICAL, HIGH-QUALITY ASSETS WITH STRONG AND GROWING CASH FLOW STREAMS ### c.92% OF THE TOTAL PORTFOLIO IS VALUED EXTERNALLY AT 31-DEC-23 ## MULTIPLE OF ## PORTFOLIO VALUE CREATION INVESTED CAPITAL 1 ## VALUE IN 2023 (MOIC) UNREALISED AT 31-DEC-23 OWNERSHIP VALUATION METHODOLOGY HIGHLIGHTS ### BANK OF GEL million GEL million ### Georgia Capital PLC Annual Report 2023 GEORGIA Bank of Georgia 19.71% London Stock Exchange (“LSE”) ## 1,226 549 13.8x ### WATER UTILITY GEL million GEL million ## 2 Water utility 20% Pre-agreed put option multiple ### PORTFOLIO COMPANIES ### LISTED AND OBSERVABLE ## 159 4 3.7x ### LARGE GEL million GEL million Retail (pharmacy) 97.6% ### PORTFOLIO Hospitals 100% Valued externally (combination of DCF and market approaches) ### COMPANIES ## 1,436 75 4.6x Insurance 100% CLOSE TO GEL 300MLN+ IN VALUE | INVESTMENT | GEL million | GEL million | Renewable energy 100% | | | --- | --- | --- | --- | --- | | STAGE | | | Education 70%-90% | Valued externally (combination of DCF and market approaches) | | PORTFOLIO | | | Clinics and diagnostics 100% | | | | 5 67 | 47 1.9x | | | ### COMPANIES WITH POTENTIAL TO BECOME GEL 300MLN+ IN VALUE ### PRIVATE PORTFOLIO COMPANIES ### OTHER GEL million GEL million ### PORTFOLIO ### COMPANIES ## 284 5 LIMITED POTENTIAL TO BECOME GEL 300MLN+ IN VALUE 1 The detailed Valuation Methodology is described on pages 99-100 ### TOTAL GEL million GEL million of this report. ### PORTFOLIO 2 In 2022, Georgia Capital completed the sale of an 80% equity interest in the water utility business for a cash consideration of US$ 180 million. The sale valuation translates into 2.7x MOIC in US$, of ## 3,672 681 which 2.2x is realised (3.6x MOIC in GEL, of which 3.0x is realised). 76 Photo Road to Motsameta Monastery in Kutaisi, Georgia Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## 2023 IN BRIEF Georgia Capital PLC Annual Report 2023 ### KEY TERMS ## ISSUANCE OF US$ 150 MILLION SUSTAINABILITY-LINKED BOND On 3 August 2023, JSC GCAP successfully issued a US$ 150 million sustainability-linked bond (SLB) on the Georgian Annual coupon rate Issue currency Maturity Bond rating market. The issuance of the bonds represents the largest-ever corporate bond offering in Georgia, and the first of its magnitude and kind in our region. The proceeds from the issuance, together with our existing liquid funds, were used ## 8.50% (FIXED) US-DOLLAR 5 YEARS BB- FROM S&P to fully redeem US$ 300 million Eurobonds. The issuance of the SLB represents a significant strategic milestone for Semi-annual payments Callable after two years A one-notch upgrade compared to the the Group, as it delivers on the following key objectives: Eurobond 01. CONTRIBUTING TO THE DEVELOPMENT OF THE LOCAL CAPITAL MARKET 02. SUPPORTING CLIMATE-CHANGE MITIGATION 03. SUPPORTING GCAP’S DELEVERAGING STRATEGY Georgia Capital PLC Annual Report 2023 ### 01. CONTRIBUTING TO THE DEVELOPMENT OF THE LOCAL CAPITAL MARKET 02. SUPPORTING CLIMATE-CHANGE MITIGATION The issuance attracted an unprecedented level of interest in Georgia, with total demand reaching US$ 200 million and spreading across a diverse Georgia Capital has established a SLB Framework, under which GCAP intends to decrease its greenhouse gas (GHG) emissions by 20% by 2027 range of 275+ retail, corporate and institutional investors. The transaction was supported by Georgia Capital’s longstanding partner international compared to a 2022 baseline. Through this target, GCAP will support climate change mitigation, natural resources conservation and pollution financial institutions (IFIs), who acquired US$ 67 million of the total issue, while the remaining US$ 83 million was allocated to local investors. Existing prevention, thereby contributing to the transition towards a more sustainable and lower carbon economy in Georgia. Eurobond investors also participated in the local bond issuance, with holders of US$ 23 million of the Eurobond transitioning their holdings into the local bonds. • The SLB target is in line with GCAP’s overarching commitment to 1 GCAP’s sustainability performance target Investor base reaching Net-Zero across the Group by 2050. Greenhouse gas emissions (tCO e) 2 • GCAP’s sustainability performance target contributes to the United Nation’s (“UN”) Sustainable Development Goals (SDGs) 7 (Affordable -20% and Clean Energy) and 9 (Industry, Innovation and Infrastructure). • GCAP has obtained a second-party opinion from Sustainalytics on its SLB Framework, affirming the alignment with the five core components of the SLB Principles. 23,776 TOTAL ISSUE Local • Georgia Capital is committed to having external limited assurance investors conducted against the SLB target on an annual basis until bond 19,021 US$ 83mln ## 150 55% maturity. The first limited assurance report is available in the Group’s 2023 Sustainability Report: US$ MILLION https://georgiacapital.ge/ir/sustainability-reports Baseline Target 2022 for 2027 Georgia Capital’s partner IFIs ### 03. SUPPORTING GCAP’S DELEVERAGING STRATEGY In 2023, we made significant progress on our key strategic priority of Gross debt development overview (US$ million) deleveraging GCAP’s balance sheet, reducing the gross debt balance from US$ 300 million to US$ 150 million. Alongside the SLB issuance, GCAP initiated a Eurobond tender offer. This resulted in the repurchase of US$ 176.5 million in Eurobonds, which, combined with the US$ 106.9 300.0 million in Eurobonds already held in GCAP’s treasury, have been fully 16.6 cancelled. Regarding the remaining US$ 16.6 million in Eurobonds, 176.5 | European Bank for | | Asian Infrastructure | International | | Asian | we exercised the right of optional redemption at a “make-whole” price, | | --- | --- | --- | --- | --- | --- | --- | | Reconstruction and | | Investment Bank | Finance | Development | | which was completed in September 2023. | | | Development | | Corporation | | Bank | | 150.0 106.9 IFIs US$ 67mln 45% Eurobond New local bond Fully repurchased 1 Represents GCAP’s absolute Scope 1, 2 and 3 emissions (the latter representing and cancelled the aggregated Scope 1 and 2 emissions of the portfolio companies). The 2022 GHG emissions have been retrospectively adjusted, incorporating the calculation Held in GCAP treasury before cancellation methodology agreed upon with our external verification provider. Specifically, GHG Repurchased through Tender Offer emissions under the SLB framework, following the retrospective application of the relevant methodology, amount to 23,776 tCO e, as opposed to the previously Redeemed through “make-whole call” 2 disclosed 22,829 tCO 2 e, representing an updated baseline for GHG emission reduction targets/SPTs. 8 9 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## 2023 IN BRIEF CONTINUED Georgia Capital PLC Annual Report 2023 ## SIGNIFICANT IMPROVEMENT IN THE NET CAPITAL STRONG DIVIDEND INCOME IN 2023 ## COMMITMENT RATIO In 2023, the Group recorded GEL 235.9 million dividend income from its portfolio companies (up by 2.5x compared to the dividend income recorded in 2022). Robust dividend inflows, In 2023, the NCC ratio improved by 5.5 ppts y-o-y to 15.6% driven by a) a significant reduced interest expenses in line with our deleveraging progress, and well-managed decrease in gross debt, b) GEL 235.9 million dividend income from the portfolio companies operating expenses significantly increased the Group’s free cash flow in 2023. (up 2.5x y-o-y), c) a 14.8% growth in the total portfolio value, d) a GEL 17.6 million decrease in loans issued mainly due to the loan repayments from our hospitality and auto services businesses, and e) GEL 18.5 million decrease in GCAP’s bank guarantee on the borrowings of the beer business, following which the guarantees issued balance was reduced to zero. Georgia Capital PLC Annual Report 2023 1 ### NCC AND NCC RATIO DEVELOPMENT OVERVIEW SOLID RECURRING DIVIDEND INCOME OF GEL 180 MILLION IN 2023, UP 92% Y-O-Y 385. 8 ### 365.9 NCC represents an 345.7 ### aggregated view of 1 | 42.5% | | 250.1 | | | | all confirmed, agreed | | --- | --- | --- | --- | --- | --- | --- | | | 39.8% | | | | 2 | | | | | | 213.6 | 204.8 | | | ### and expected capital 31.9% ### outflows at the GCAP ### 21.1% HoldCo level DIVIDEND INCOME 15.6 % 15.0% ## 236 31-Dec-19 31-Dec-20 31-Dec-21 31-Dec-22 31-Dec-23 Over the cycle target GEL MILLION NCC ratio NCC (US$ million) 2 Recurring GEL 180 mln ### NCC OVERVIEW GCAP’S FREE CASH FLOW DEVELOPMENT (US$ MILLION) Change | US$ million 31-Dec-22 | (y-o-y) 31-Dec-23 | | 31 | | --- | --- | --- | --- | | Cash and liquid funds 152.4 -73.7% 40.1 | | Strong progress | | | Loans issued 9.9 -65.5% 3.4 | | on deleveraging | | Gross debt (303.3) -49.3% (153.9) ### also resulted in Net debt (1) (141.0) -21.7% (110.4) ### an upgrade in our Guarantees issued (2) (6.8) NMF – 17 ### Net debt and guarantees corporate credit 14 ### issued (3) = (1) + (2) (147.8) -25.3% (110.4) rating from “B+” 11 ### Planned investments (4) (52.3) -11.1% (46.5) to “BB-” by S&P of which, planned investments in renewable energy (30.1) -3.9% (28.9) ### on 26 October 2023 of which, planned investments in education (22.3) -20.7% (17.7 ) 1 Announced buybacks (5) – NMF (6.7) Contingency/liquidity buffer (6) (50.0) NMF (50.0) Total planned investments, announced buybacks and contingency/liquidity buffer ### We are targeting to (7) = (4) + (5) +(6) (102.3) 0.9% (103.3) (10) ### One off reduce the balance NCC (3) + (7) (250.1) -14.6% (213.6) GEL 56 mln ### of “net debt and Portfolio value 1,183.8 15.3% 1,365.3 ### guarantees issued” NCC ratio 21.1% -5.5 ppts 15.6% 2023 free cash flow is determined by subtracting interest and operating expenses from dividend and interest income. ### close to zero over the ### The 2023 free cash flow excludes US$ 22 million one-off dividends and US$ 17 million buyback dividend from the ### short to medium term ### participation in BoG’s 2023 buybacks. 1 One-off dividend income includes non-recurring GEL 27 million dividends collected from the retail (pharmacy) business and GEL 29 million buyback dividend attributable to 1 Reflects the retrospective conversion of the loans issued to our real estate and beverages businesses into equity. participation in BoG’s 2022 buybacks. | | 2 Assuming the application of the 15% NCC ratio target to the total portfolio value as at 31 December 2023. | | 2 Includes regular cash and buyback dividends. | | | --- | --- | --- | --- | --- | | 10 | | | | 11 | | 2018 2019 2021 2022 2023 | | 2020 | | | 2023 IN BRIEF CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview ## THE SHARE BUYBACK AND CANCELLATION PROGRAMME IN 2023 In April 2023, Georgia Capital commenced a US$ 10 million share buyback and cancellation programme, over a three-month period. Under the programme, 1 million shares were repurchased and cancelled. While our share price has continued to recover, the strong growth in our NAV has meant that the discount to our NAV per share has remained elevated, at approximately 60%. This provided an attractive opportunity to create significant value for our shareholders through accretive tactical share buybacks. As a result, we launched an additional US$ 15 million share buyback and cancellation programme in October 2023, effective over a six-month period. Overall, throughout 2023, a total of 1,665,222 shares were repurchased under the buyback programmes, amounting to a total value of US$ 18.3 million. An additional 488,642 shares with the value of US$ 6.7 million were repurchased in 1Q24 to date. ### PROGRESS ON THE SHARE BUYBACK AND CANCELLATION PROGRAMMES ANNOUNCED IN 2023 ![img-0.jpeg](img-0.jpeg) ### DEVELOPMENT OF GCAP'S SHARE BUYBACK PROGRAMMES SINCE DEMERGER IN 2018 ![img-1.jpeg](img-1.jpeg) 7.9 million shares (US$ 87 million in value) repurchased and cancelled since demerger in 2018, representing 16.5%² of the issued share capital at its peak 1 Represents shares issued during Georgia Healthcare Group ("GHG") share exchange facility. 2 Determined by taking into account the peak number of 47.8 million shares issued as of 31-Dec-20. ## STRONG NAV PER SHARE GROWTH NAV per share (GEL) increased by 26.5% in 2023, reflecting a) GEL 680.5 million or 2.5 million shares in the creation across our portfolio companies with a positive 24.2 ppts impact, b) GEL 1.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or 1.5 million shares in the year (p) of GEL 6.5 million or ### NAV PER SHARE (GEL) DEVELOPMENT OVERVIEW ![img-2.jpeg](img-2.jpeg) Since December 2018, NAV per share (GEL) grew at 13.4% CAGR, at 13.2% Georges Capital PLC Annual Report 2023 12 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## CHAIRMAN AND CEO STATEMENT Georgia Capital PLC Annual Report 2023 | | | Dear Fellow Shareholders, | Our macroeconomic environment | The Government projects the fiscal deficit to | 4) Our retail (pharmacy) business completed | | Value creation | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Georgia is in great shape economically. From | have shrunk to around 2.8% of GDP in 2023, | | the buyout of the minority shareholders to | Our portfolio value increased by GEL 473.3 | | | | In this, my sixth annual letter to Georgia | a macroeconomic perspective, Georgia | as a result of the higher-than-expected growth, | | increase GCAP’s stake to 97.6%. | million, or 14.8%, to GEL 3.7 billion during the | | | | Capital shareholders, I want to focus on the | has maintained its recent track record on | and expects it to reduce further to 2.5% of | 5) Our hospitality business successfully | | year, particularly reflecting strong growth in the | | | | fundamental drivers that have led to what, in | expanding in 2023, proving yet again that the | GDP in 2024, while general government debt is | | completed the sale of two operational | value of our investment in Bank of Georgia. | | | | many aspects, has been an unexpectedly strong | macroeconomic environment remains flexible | projected to have fallen to 38.2% of GDP, way | | hotels, two under-construction properties, | | | | | year against the backdrop of the ongoing global | and resilient against exogenous shocks. | below pre-pandemic levels, by the end of 2023. | | and a vacant land plot for a total | Our listed investment – Bank of Georgia – | | | | geopolitical challenges. These fundamental | Real GDP expanded by an estimated 7.5% | Inflation, like elsewhere around the world, was | | consideration of US$ 38.6 million. The | continued to deliver strong growth and high | | | | drivers – strong corporate governance; access | in 2023, after 11.0% growth in 2022, driven | elevated during 2021-2022, however, it sharply | | proceeds from these sales were utilised | profitability, with an annualised ROAE of 29.9%, | | | | to management; and access to capital – have | by strong foreign currency inflows building | reduced in 2023 falling below the 3% target | | for deleveraging the hospitality business’s | underpinned by its continued focus on digital | | | | stood us in good stead since the Company | upon strong aggregate demand. Despite | since April 2023, with annual average inflation | | balance sheet. These transactions marked | transformation, and delivering strong growth | | Georgia Capital PLC Annual Report 2023 | | started in 2018, and they remain the foundations | tightening financial conditions and the ongoing | standing at 2.5% in 2023. Considering this | | further substantial progress towards two | in the payments business. The Bank is clearly | | | | on which our NAV increased by 26.5% to GEL | substantial uncertainty in the global economy, | lower inflation, the NBG started to exit from its | | of our core strategic priorities: to divest, | making significant progress, which has led to | | | | 82.94 (GBP 24.23) per share during 2023, and | the medium-term outlook for Georgia remains | tightened monetary policy in 2023 and reduced | | over the next few years, subscale portfolio | sustainable customer franchise and revenue | | | | by a compound 13.4% per annum over the | strong. Economic activity and macroeconomic | the refinancing rate by 275 bps between May | | companies, and to significantly reduce | generation growth. Reflecting the strong | | | | last five years. I am particularly pleased that | environment have enabled effective | 2023 and March 2024, to 8.25%. | | leverage in the Group’s balance sheet. | performance, BoG’s share price increased by | | | | we achieved this level of NAV growth, as a | adjustments in fiscal and monetary policies. | | | | 52.6% in 2023, strongly supporting our NAV | | | | number of our portfolio businesses had to cope | The Government balance sheet has returned | As the length and the outcome of the war | Capital allocation, share buybacks | | growth with GEL 549.3 million value creation. | | | | with, and respond to, significant changes in | to pre-COVID levels, while the National Bank | in Ukraine remain uncertain, and the new | and dividends | | In addition, the Bank has a robust capital | | | | their specific market dynamics. I am delighted | of Georgia (“NBG”) has started to gradually | conflict in the Middle East creates additional | During 2023, we allocated capital in a number | | distribution policy, including share buybacks | | | | with the resilience of Georgia Capital and | exit from its tightened monetary policy. In | uncertainty, the medium to long-term effects | of key capital-light areas, with an investment | | and regular dividends and, on 15 March 2024, | | | | our businesses – a resilience underpinned | December 2023, the European Council granted | on global and regional macroeconomic | of GEL 22.6 million in our private portfolio | | the Bank announced its board’s intention to | | | “OUR AIM HAS ALWAYS BEEN | by our high-quality investments in a portfolio | candidate status to Georgia, further improving | developments remain unclear. Despite | companies. This included: | | recommend a final dividend for 2023 of GEL | | | | of conservative businesses in relatively | Georgia’s economic outlook and prospects. | substantial uncertainty enduring, Georgia’s | • GEL 12.2 million allocated to the education | | 4.94 per ordinary share at the Bank’s 2024 | ### TO INVEST IN HIGH-QUALITY | | defensive sectors. | | medium-term growth is projected to remain | business, mainly for the acquisition of a new | Annual General Meeting. This will make a total | | --- | --- | --- | --- | --- | --- | | BUSINESSES WITH GREAT | | Surging foreign currency inflows resulted in a | close to its potential level of 5%, according | campus in the affordable segment and the | dividend paid in respect of the Bank’s 2023 | | | Our aim has always been to invest in high- | significantly improved current account deficit | to the International Monetary Fund (“IMF”), | development of a new campus in the mid- | earnings of GEL 8.00 per share. In addition, in | ### MARKET POSITIONS, HIGH | | quality businesses with great market positions, | which narrowed to 2.6% of GDP in 9M23, | positioning the country as one of the top | | scale segment; and | March 2024, the Bank announced an extension | | --- | --- | --- | --- | --- | --- | --- | | RETURNS AND THE ABILITY | high returns and the ability to deliver sustainable | Georgia’s lowest on record. This positive shift | performers in the region. In the short run, | • GEL 6.2 million allocated to the renewable | | of the buyback and cancellation programme | | | earnings growth through the cycle. This aim | was supported by strong growth in the services | Georgia’s external position is strong, as foreign | | energy business for the ongoing | by an additional GEL 100 million. Overall, the | ### TO DELIVER SUSTAINABLE | | continued to guide us in 2023 and will continue | balance, mainly in tourism and ICT services. | currency inflows have been surging from | | development of pipeline projects. | Bank’s dividend and share buyback pay-out | | --- | --- | --- | --- | --- | --- | --- | | EARNINGS GROWTH THROUGH | to do so in the future. As Georgia Capital has | The tourism sector continues to recover and | multiple sources, resulting in a record-low | | | ratio for 2023 was 37% of total earnings. | | | evolved as an investment business during | income from international travel reached US$ | current account deficit, and official reserve | In addition, to these investments in our private | | | ### THE CYCLE. THIS AIM | | the last few years of significant geopolitical | 4.1 billion in 2023, representing 126% of 2019 | assets reached record-high levels in 2023, | portfolio companies, we also continued to invest | On 19 February 2024, Bank of Georgia | | --- | --- | --- | --- | --- | --- | | CONTINUED TO GUIDE US IN | challenge, the Board has kept a vigilant | levels. However, the number of international | amounting to US$ 5.0 billion by the end of | in Georgia Capital shares to take advantage | announced the proposed acquisition of 100% | | | watch on ensuring that we maintain strong | visitors showed only a partial recovery in 2023, | December 2023, providing ample cover. | of the discount to NAV at which the shares | of Ameriabank CJSC a leading universal bank | ### 2023 AND WILL CONTINUE TO | | conservative management of our portfolio | standing at 80% of 2019 number, indicating | In the long run, Georgia’s EU candidacy is | currently trade. During 2023, 1,665,222 shares | in Armenia with an attractive franchise. The | | --- | --- | --- | --- | --- | --- | | DO SO IN THE FUTURE.” | companies, and a very strong balance sheet. | that significant further growth potential remains. | expected to bring additional economic benefits. | with a total value of GEL 47.9 million were bought | transaction price is approximately US$ 303.6 | | | | The good news is that Georgia’s tourist | Furthermore, the candidacy significantly | back under our buyback and cancellation | million, which will be fully financed by the | | | The discount of our share price to our NAV per | infrastructure (hotels, roads, etc.) continue | enhances Georgia’s geopolitical standing in | programmes, and a further 1,151,848 shares, | Bank’s surplus capital at an attractive valuation | Irakli Gilauri share has remained too wide, despite our share to be developed throughout the country. On the region, positioning it as an important bridge with a total value of GEL 28.6 million, were of 0.65x NAV as at 31 October 2023 and 2.6x Chairman and price increasing by 40% during 2023, and we the domestic side, credit expansion has also between Europe and Asia. repurchased for the management trust, fully price to earnings (P/E) 2023. The acquisition is Chief Executive Officer | responded to this by buying back more of our | been robust despite rising interest rates, as | | | securing the shares required for the expected | expected to be EPS and ROE accretive, and | | --- | --- | --- | --- | --- | --- | | shares (perhaps the best investment we can be | the commercial bank loan portfolio grew | Delivering on our strategic priorities | | management trust requirements for the next | represents a significant catalyst for the Bank | | making at the current levels of NAV discount), | by 17.1% y-o-y as of December 2023 (on a | This Annual Report will go into greater detail | | three years. In addition, we have continued | and its shareholders. The Bank has confirmed | | and reducing leverage in the business. I will talk | constant currency basis). Additionally, while | later, but let me highlight here how we delivered | | our buyback and cancellation programme into | that it intends to keep the targeted pay-out ratio | | more about this later. | fiscal support has moderated, Georgia’s fiscal | on our key strategic priorities in 2023. | | 2024 and, in the first quarter of 2024 to date, an | unchanged in the range of 30%-50% of annual | | | stance remains expansionary, with current | | | additional 488,642 shares, at a cost of GEL 18.0 | profits, potentially enabling increased capital | | Our strategy during 2024 is to reduce leverage | expenditures growing by 10.7% and capital | Looking back, 2023 was an eventful year for | | million, have been repurchased for cancellation. | distributions for the Bank’s shareholders, from | | faster than our originally planned NCC ratio | expenditures expanding by 22.3% y-o-y in | the Group. | | | the enlarged group. We like the transaction | | target of 15% by 2025, deliver our targeted | 2023. The Georgian Lari (GEL) has appreciated | 1) At the beginning of the year, our | | During 2023, Georgia Capital collected | as Armenia’s leading banking franchise has | | reduction in the management expense ratio, | since mid-2021, strengthening above pre- | | shareholders overwhelmingly approved | a record amount of GEL 235.9 million in | been acquired at attractive valuation with | | ensure we focus on the opportunities to | pandemic levels against the US Dollar (US$), | | a proposal to transfer GCAP to an LSE | dividends (2022: GEL 93.9 million), of which | immediate EPS enhancement expected. In | | sell businesses in our “Other” portfolio, and | and remained broadly stable in 2023. | | Standard listing, a move we believe is | GEL 56.1 million reflected one-off dividends | addition, Bank of Georgia is well-positioned to | | maintain our policy of opportunistic share | | | more suited to the Company’s size and | during the year from Bank of Georgia and the | export its superior digital banking capabilities | | buybacks. Over time, we aim to develop into a | | | strategy and will help create greater value | retail (pharmacy) business. Excluding the one- | in the underpenetrated and growing Armenian | | sustainable permanent capital vehicle, investing | | | for shareholders. | off dividends, GEL 124.5 million was received | economy. We expect this acquisition will further | | mainly in capital efficient/capital-light sectors | | 2) We achieved significant deleveraging | | from Bank of Georgia, reflecting a combination | enhance shareholder value, and it has been | | and opportunities, in association with the | | | progress through the successful issuance | of regular cash dividends and our participation | encouraging to see the positive stock market | | regular return of capital to shareholders. Our | | | of a US$ 150 million SLB on the Georgian | in their share buybacks, GEL 24.2 million from | reaction to the acquisition. | | ongoing development will also be supported | | | market. This issuance, combined with | retail (pharmacy), GEL 19.9 million from our | | | by Georgia’s EU candidacy status being | | | GCAP’s existing liquid funds, was utilised to | insurance businesses (P&C insurance GEL | The value creation of the water utility business | | confirmed in December 2023. This is important | | | fully redeem our US$ 300 million Eurobond. | 14.9 million; medical insurance GEL 5.0 million), | amounted to GEL 4.0 million in 2023, reflecting | | for Georgia, both politically and economically, | | 3) We launched two share buyback | | GEL 6.0 million from hospitals, and GEL 5.2 | the application of the put option valuation to | | and significantly underpins the country’s | | | programmes totalling US$ 25 million, | million from renewable energy businesses. | GCAP’s 20% holding in the business. | | macroeconomic growth prospects and | | | under which 2,153,864 shares (4.8% of the | Looking forward to 2024, we currently expect | | | attractiveness for foreign investment. | | | issued capital) have been repurchased from | approximately GEL 180-190 million in dividends | | | | | | January 2023 to date. | from our portfolio companies. | | 14 15 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## CHAIRMAN AND CEO STATEMENT CONTINUED Georgia Capital PLC Annual Report 2023 | | The operating performance of our various | Outlook | | --- | --- | --- | | | private portfolio investments was robust | I mentioned earlier that Georgia is in great | | | against the backdrop of significant regulatory | shape. So is Georgia Capital. At the holding | | | changes and pricing dynamics in a number of | company level, we are delivering on our key | | | markets, and this created overall value creation | priorities and expect to further enhance our | | | in these businesses of GEL 127.3 million. | performance in 2024 by continuing to improve | | | Strong performances in the non-healthcare | our balance sheet strength by reducing | | | portfolio companies offset the temporary | leverage in the business, focusing on reducing | | | negative impact of recent regulatory changes | our management expense ratio, and investing | | | in the management of hospitals facilities | in our capital-light business opportunities and | | | throughout Georgia. | in Georgia Capital shares via our ongoing share | | Georgia Capital PLC Annual Report 2023 | | buyback and cancellation programme. Bank | | | The individual performances of our private | of Georgia is delivering sustainable strong | | | businesses are described in greater detail later | growth with high profitability, and a progressive | | | in this report. | dividend and capital return policy. In addition, | we expect the Bank’s acquisition of Ameriabank | Environmental, social and governance | in Armenia to significantly enhance earnings for | | --- | --- | | We have continued to focus on reducing our | the Bank. Our private portfolio businesses are | | impact on the environment, with environmental, | all well-positioned to either continue developing | | social and governance (ESG) issues remaining | profitably, or to respond to the significant | | at the forefront of our thinking and business | changes in their markets during 2023, to deliver | | operations. Our progress in this regard | a recovery in their 2024 performance. | during 2023 was excellent and, while there is | significantly more detail in this report and in | | Geopolitically, the world continues to have | | --- | --- | --- | | our Sustainability Report, I want to draw out | | significant challenges, and we very much | | a few particularly noteworthy aspects of our | | focus on managing and investing with a | | ESG commitment. | | conservative approach and a strong balance | | • In August 2023, we successfully issued | | sheet as a result. This focus will not change. | | | a US$ 150 SLB on the Georgian market. | The Georgian economy has grown particularly | | | This is the first of its magnitude and kind | strongly over the last few years, and we expect | | | in Georgia supporting our deleveraging | to see further robust levels of economic growth | | | strategic priority, whilst also assisting both | over the next few years, which can only be | | | our climate-change mitigation efforts and | enhanced following Georgia’s achievement | | | the development of the local capital market. | of EU candidacy status in December 2023. | | • Under the SLB Framework, we committed | | Against this background, I am confident that | | | to decrease our GHG emissions by 20% by | Georgia Capital is extremely well-positioned | | | 2027, in line with our commitment to reach | to deliver consistent and sustainable NAV per | | | Net-Zero by 2050. | share growth. | • We invest in capital-light businesses and industries that have a positive impact on | | people and our planet. | The Strategic Report as set out on pages | | --- | --- | --- | | • We have a strong track record on | | 2 to 119 was approved by the Board of | | | governance issues and this track record | Directors on 21 March 2024 and signed | | | has continued with our move to the LSE | on behalf by Irakli Gilauri, Chairman and | | | Standard listing, which was supported by | Chief Executive Officer. | 99.9% of our voting shareholders. The strength of our people | Our people remain critical to our ongoing | Irakli Gilauri | | --- | --- | | success and we have excellent people | Chairman and CEO | | throughout the business, at both the holding | 21 March 2024 | company level and in all of our portfolio businesses. This is evident in the progress we continue to make both building our businesses to deliver sustainable profitability and growth, and adapting to challenges and changes in the various external environments in which our businesses operate. The majority of my time continues to be focused on mentoring our talented team, and developing new managers to ensure we have the appropriate succession plans in place when change is required. This has continued to be the case over the last 12 months and, as always, I deeply appreciate the considerable efforts that our management teams and employees bring to the continuing success of Georgia Capital. 16 17 Photo Zhinvali Water Reservoir, Georgia Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## GEORGIA CAPITAL STRATEGY Georgia Capital PLC Annual Report 2023 ## GEORGIA CAPITAL – A PLATFORM FOR STRATEGIC PRIORITIES ANNOUNCED IN 2022 ## INVESTINGIN,UPSCALING ANDMONETISING ## LARGEOPPORTUNITY BUSINESSES IN GEORGIA ### DELEVERAGING GCAP HOLDCO BY BRINGING DOWN THE ### NCC RATIO BELOW 15%. • Developing and growing businesses to the equity value of GEL 300 million to realise proceeds through an exit, as investments mature. ### REDUCE AND MAINTAIN PORTFOLIO COMPANIES’ Georgia Capital PLC Annual Report 2023 • LSE listed, with more than 90% institutional shareholder base. ### LEVERAGE TO RESPECTIVE TARGETED LEVELS. • Running an efficient cost structure with no management or success fees. ### GEORGIA CAPITAL STRATEGY IS BASED ON THREE ### FUNDAMENTALENABLERS: ### ACHIEVE ESG TARGETS AT BOTH GCAP HOLDCO AND 1 ### SUPERIOR ACCESS TO CAPITAL PORTFOLIO COMPANY LEVELS. ## 1 • Only Group of its size and scale focused on investing in and developing businesses in Georgia. • Uniquely positioned given access to capital in a small ### frontier economy: CONTINUED PROGRESS ON THE DIVESTMENT ### – c.US$ 500 million raised in equity at LSE. OF “OTHER” PORTFOLIO COMPANIES. – Issued seven bonds totalling c.US$ 2.0 billion. – US$ 3 billion+ raised from IFIs (EBRD, IFC, ADB, AIIB, etc.). • “Other” portfolio companies comprise 7.7% of the total portfolio value and include four subscale private businesses, being the auto service, 1 Figures and statements in this section include the track record of our beverages, housing development and hospitality businesses. predecessor company BGEO, prior to the 2018 demerger. • While a number ofthese businesses have interesting potential, the Group currently believes that most will not offer the scalable growth ### ACCESS TO GOOD MANAGEMENT potential we seek. Absent a change in that assessment, the Group ## 2 istargeting to exit “Other” assets in atwo to three-year period. • Highly experienced senior management team, which grew BGEO Group (predecessor company) by c.33 times in asset size between 2005 and 2017. • In 2023, the hospitality business successfully concluded the sale of • Reputation among talented managers as the “best group to work for”. two operational hotels, a vacant land plot, and two under-construction • Attracted talents have demonstrated a solid track record of successful delivery. hotels for a total consideration of US$ 39 million. These transactions • Proven track record in turning around companies and growing demonstrate steady progress on our strategic priorities. them efficiently. • Proven track record in monetising investments through cash exits. • A platform for entrepreneurs to build institutions (entrepreneurship culture): ## – If we do not have the right people, then we do not invest, OUR LONG-TERM ASPIRATION no matter the attractiveness of the opportunity. ### ACHIEVEMENT OF OUR STRATEGIC PRIORITIES WILL ### COMMITMENT TO ACHIEVING THE ENABLE GCAP TO GRADUALLY TRANSFORM INTO A ## 3 ### HIGHEST LEVEL OF CORPORATE GOVERNANCE SUSTAINABLE PERMANENT CAPITAL VEHICLE. • Strong Board comprised mainly of independent Directors with extensive • Significantly reduced leverage at the GCAP HoldCo level. international experience. • Outstanding track record in institutionalising businesses • Capacity to redeploy our existing capital without the and creating independently run/managed institutions. need for new equity share issuance/raise. • Approximately 45 employees at the holding company level. • Highly experienced management team in each portfolio company with a strong • Consistent NAV per share growth on the back of resilient, measure of independence. capital-light investments. • Aligned shareholders’ and management’s interests by share compensation: – The Executive Director is solely remunerated by way of long-term • Opportunity to return a significant portion of deferred shares (six-year vesting) and receives no cash compensation. GCAP’s cash inflows to our shareholders. – Salaries of the Company’s senior managers are heavily weighted towards deferred share remuneration, and bonuses for senior managers are paid in deferred shares rather than cash. • High level of transparent reporting. • Strong ESG practices. 18 19 Photo Shaori Reservoir, Georgia Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## MARKET AND INDUSTRY OVERVIEW Georgia Capital PLC Annual Report 2023 pandemic levels and stood at 54.3% in 4Q23. ## GEORGIA’S ECONOMY CONTINUES ITS Real GDP growth It is noteworthy that a significant increase was ## EXPANSION, GROWING BY 7.5% IN 2023 observed in wages in the first nine months of 2023, average monthly nominal earnings | | 80 | | | 18 | | | --- | --- | --- | --- | --- | --- | | | | | 80 | | increased by 17% annually and amounted to GEL | | Preliminary estimates of economic growth show the real economy expanding by 7.5% | | | | 16 | | | | 70 | 73 | | | | | y-o-y in 2023, following up on two consecutive years of double-digit growth. Growth has | | | | | 1,792 on average in 9M23. Particularly, with the | 14 60 been supported by macroeconomic developments on both the external and domestic 61 highest salaries in ICT and financial sector with 12 | | | 50 | | | | | | | | | | | 10.6% | 11.0% | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | sides, with strong foreign currency inflows building upon strong aggregate demand. | | | | | | | | | | | | | | | | GEL 3,796 and GEL 3,250, respectively. | | | | | | | | | | | | | | 5050 | | | | 10 | | | | Despite tightening financial conditions and enduring substantial uncertainty in the global | 40 | 7.9% | | | | | | | 45 | | | | | | | | | | | | | 6.6% | | | | | 41 | | | | | | | 8 | | | | economy, the medium-term outlook for Georgia remains strong. Economic activity and | | | | | | | 37 | | 6.1% | | | | | | | The consolidated budget overall deficit was | | | | 30 | | | | | 35 | | | | | | | | | | | | | | | | | | 32 | | | 5.2% | | 5.4% | | | | | 6 | | | | | | | | 29 | | | | | | | | | | 7.5% | | GEL (1.9) million in 2023, with the annual | | | macroeconomic environment have enabled effective adjustments in fiscal and monetary | | 26 | 28 | | 4.1% | | | | | | | | | | | | | | | 20 | | | | | 3.4% | 3.4% | | | | | | | | 4 | | | Georgia Capital PLC Annual Report 2023 | | | | | | | | | | | | | | | | | deficit (IMF modified) planned at -2.8% of | | | policies. Government balance sheet has improved to pre-COVID levels, while the NBG has | | | | 5.1% | | | | | | | | | | | | | | | | 10 | | | | | | | | | | | | | | 2 | | | | started to gradually exit from the tightened monetary policy. | | | | | | | | | | | | | | | | GDP, down from -3.0% in 2022. The operating | | | | 0 | | | | | | | | | | | | | | 0 | | balance also improved substantially with 36% -2 growth y-o-y, growing from GEL 2.6 billion in -4 2022 to GEL 3.6 billion in 2023. Consolidated Georgia is favourably placed among peers -6 budget revenues grew by 14% y-o-y, including -6.3% -8 a 13.5% y-o-y growth in tax revenues. The Country Country rating Fitch rating outlook 1 general Government gross debt decreased 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Armenia BB- Stable to pre-COVID levels from 49.7% to 39.5% Nominal GDP, GEL billion Real GDP growth rate, y-o-y % of GDP by the end of 2022 and is expected Azerbaijan BB+ Positive to be standing at 38.2% of GDP by the end 1 Preliminary estimate. Czech Republic AA- Stable of 2023 as GEL has strengthened and the Georgia BB Positive economy keeps its expanding trend. The Current account balance (% of nominal GDP) improvement in the Government balance sheet Kazakhstan BBB Stable 30 has thus appropriately aided disinflation on the Türkiye B Stable domestic side and reduced vulnerabilities on Uzbekistan BB- Stable the external side. The external debt service to 20 budget revenues ratio fell to 6.3% in 2022 from 19.4% in 2021 and a pre-crisis level of 9.6% | | | | | | | | | | 11.4% | | 12.1% | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Macroeconomic overview and outlook | Georgia’s potential to become a logistic hub | (+29.2% y-o-y) and ICT services (+95.7% y-o-y), | | | | | | | | 10.7% | | | | | | | | | | | | | | | | | | | 10.1% | | | | | | | | | 10.1% | | in 2019. In line with the Economic Liberty Act | | In 2023, Georgia continued to expand, proving | has strengthened since sanctions on Russia, | as well as a 6.4% y-o-y increase in the current | | | | | | | | | | 7.5% | 7.7% | | | 8.4% | | | | | | | | 10 | 6.8% | 7.3% | | | | | | | | | | 6.6% | | | | of Georgia, which sets ceilings of 3% for the | | | | | | | | 6.1% | 5.8% | | | | | | | | | | | 6.2% | | | yet again that the macroeconomic environment | with robust demand observed from Kyrgyzstan, | transfer’s balance. Net FDI reached US$ 1.2 | | | | | | | | | | | | 3.7% | | | | | | fiscal deficit and 60% for debt while allowing remains flexible and resilient against exogenous Kazakhstan, Azerbaijan and Armenia. The billion (5.2% of GDP), and fully financed current for a three-year grace period, the fiscal deficit shocks. In 2022, growth was predominantly tourism sector continues to recover and account deficit in 9M23. FDI reached US$ 1.6 0 and debt, based on Government’s preliminary fueled by the positive impact of net exports income from international travel reached US$ billion in 2023, down by 24% y-o-y following data, are within these ceilings as of 2023. The | | | | | | | | | | | | | | | | | | -3.2% | -2.6% | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and investments, with investments continuing | 4.1 billion in 2023, representing 126% of 2019 | a record high FDI number in 2022 (US$ 2.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -4.5% | | | Ministry of Finance projects 2024 fiscal deficit | | | | | | | | | -5.5% | | | | | -6.7% | -5.8% | | | | | | | | to contribute mostly to the growth in 9M23. As | levels, reflecting the global resumption of | billion, 67% y-o-y). Strong external inflows and | -10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -8.0% | | | | | | | | and Government debt to be 2.5% and 38.0% | | | | | | -9.6% | | | | -10.0% | | | | | | | -10.3% | | | | | | for the production side, the information and | travel. However, the number of international | the reduced current account deficit supported | | | | -11.2% | | | | | | | | | | | | | | | | | | | | -11.9% | | | | -11.6% | -12.2% | | | | -12.4% | | | | | of GDP, respectively. | | communication (ICT) sector emerged as a | visitors shows only a partial recovery in 2023, | growth in reserves. NBG used this time to | | | | | | | | | | | | | | | | | | | leading force for growth in both years. The ICT | standing at 80% against 2019, highlighting that | rebuild the buffers and bought net US$ 1.3 | | | | | | | | | | | | | | | | | | As an established tourism destination, tourism sector witnessed substantial growth of 58% in significant further growth potential remains. billion throughout 2023. As a result, official has been an increasingly important sector of 2022 (1.8% contribution in total GDP growth), reserve assets reached record-high levels in the Georgian economy and a major source with 28% growth y-o-y in 9M23, despite the On the domestic side, growth was aided by 2023 (recorded high of US$ 5.4 billion in July of FX inflows during the past few years, high base of the previous year. Preliminary continued credit expansion in local and foreign 2023) and amounted to US$ 5.0 billion at the 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 9M23 9M22 significantly contributing to improving the estimates show annual GDP growth reaching currencies across both retail and business end of December 2023, up 2.2% y-o-y. current account balance and driving rising 7.5% in 2023 after 11.0% growth in 2022, driven sectors, as the commercial bank loan portfolio Goods, net Investment income, net Current account service exports. In 2023, tourism has continued Services, net Current transfers, net FDI, inflows by macroeconomic developments on both the grew by 17.1% y-o-y as of December 2023 Throughout 2022 and 2023 years “middle its revival trend, witnessing a 31% y-o-y external and domestic sides. (without the exchange rate effect), despite the corridor” has gained significant importance, increase in the number of international visitors, still tight monetary stance and globally rising enhancing Georgia’s role to become a regional reaching 6.2 million in 2023 with recovery level foreign currency interest rates. Additionally, while hub. Revenue generated from the road usage 80% of 2019 level. Total tourism revenues in Public finances (% of GDP) fiscal support has moderated, the fiscal stance charge (RUC) reached US$ 188 million in 2023, 2023 are reported at US$ 4.1 billion, reflecting ### High economic growth in 2023 of remains expansionary with current expenditures increased by 42% y-o-y and by 174% compared a 17% y-o-y growth that surpasses pre- 0% 60.2% 65% 7.5% following a 11.0% growth in growing by 10.7% y-o-y and capital expenditures to 2021. The number of freight vehicles paying pandemic figures, making up 126% of 2019 | | increasing by 22.3% y-o-y in 2023, facilitated by | RUC amounted to 520 thousand in 2023, 78 | | | | | | 6 0% | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2022. | | | | | | | | | level. It should be noted that, in comparison | | | a 16.1% surge in fiscal revenues. | thousand more compared to the last year (188 | -2% | | | | | | | | | | | | -2 . 1% | -2.3% | -2.2% | -2.2% | 55% | to 2022, around 38% Russian visitors were | -2.3% | | | -2.7% | | -2.7% | | | | -2.5% | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | thousand more than in 2021). | -2.8% | | | | 47.6% | -3.0% | -2.8% | | | | | | | -3.0% | | | | | | categorised as residents in the estimation of | 50% As aggregate demand strengthened, imports -4% tourism revenues in 2023. Their expenses 45% On the external side, recent monthly data also accelerated in 2023, growing by 14.5% were no longer accounted for as tourism 38.2% | | | | 37.1% | 40% | | | --- | --- | --- | --- | --- | --- | | shows that remittances are normalising, | y-o-y with investment and consumer goods | | | | | | | | -6% | | | revenues. Tourism revenues from Türkiye, Iran, | ### Strong rebound in tourism mainly due to the remittances from Russia contributing most. Trade deficit reached - 6.1% 35% Russia, Israel and the EU surpassed 2019 ### declining relatively and the migration effect US$ 9.4 billion in 2023, up by 18.3% y-o-y. revenues in 2023 30% levels in 2023. Particularly notable was the -8% | fading out gradually. However, remittances | Importantly, re-exports reached a record | | | | | | --- | --- | --- | --- | --- | --- | | | | 126% compared to 2019. | | | substantial increase in revenues from Türkiye, | | | | | 27. 5% | 25% | | | from EU countries and the US continue to | high of US$ 3.3 billion in 2023, accounting for | | | | | 1.6 times more compared to the previous -10% -9.3% 23.4% 20% show an increasing trend with 21% and 54.2% of total exports and growing by 74.5% year. Additionally, there was a noteworthy | 40% y-o-y growth, respectively, in 2023. | y-o-y, the first time ever exceeding domestic | | | | | --- | --- | --- | --- | --- | | | | | 2014 2015 2016 2017 2018 2019 2020 2021 2022 2024F2023F 2025F 2027F2026F | and significant increase in visitor numbers | | As for foreign trade, export experienced | exports since March 2023. Current account | The unemployment rate reached 16.4% in 2023, | | | from Central Asian countries. Travel receipts a moderate 9.1% annual growth in 2023, deficit improved significantly to 2.6% of GDP, the lowest since at least 2010 (most up-to- rebounding to over 100% of 2019 level despite driven by substantial increase in the export/ from 3.2% in 9M22. This positive shift was date data begins from 2010 due to switching Overall Balance (% of GDP) Total Public Debt (% of GDP) External Public Debt (% of GDP) the number of travellers only recovering -20 re-export of motor cars, surging to more than supported by strong growth in the services to a new methodology). Moreover, the labour to 80% suggests that significant growth 2.1 billion dollars with 135% growth y-o-y. balance (+36.9% y-o-y), mainly in tourism force participation rate increased above pre- potential remains. 20 21 -30 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## MARKET AND INDUSTRY OVERVIEW CONTINUED Georgia Capital PLC Annual Report 2023 of the highest in the region. The IMF expects structural reforms ensures constant effort for through Georgia. In December 2022, leaders has strengthened since sanctions on Russia, Inflation vs inflation target | headline inflation, which has fallen sharply in | improving the business environment, the latest | of Azerbaijan, Georgia, Hungary and Romania | with robust demand observed from Kyrgyzstan, | | --- | --- | --- | --- | | 2023, to be below the 3% target in 2024. | examples being the VAT reform (adopted in | signed an agreement to build an underwater | Kazakhstan, Azerbaijan and Armenia in 2023. | | | July 2020) and the new insolvency framework | electric cable in the Black Sea, further | Importantly, re-exports reached a record high | | | (adopted in September 2020 and into force | positioning Georgia as an important player in | of US$ 3.3 billion in 2023, accounting for 54.2% | | | since April 2021). | the EU energy policy. | of total exports and growing by 74.5% y-o-y, | ### Medium-term (2024-2028) first time ever exceeding domestic exports 8% ### economic growth rate 5.1%, Following the Russia-Ukraine conflict, and the since March 2023. subsequent Western sanctions imposed on ### one of the highest in the region ### 4% Public debt down to 39% of GDP Russia, the Government of Georgia has revived Together with established destinations, ### (IMF, October 2023). | | | by the end of 2023, below | plans to build a deep-sea port at Anaklia, | improved access to large new markets, such | | --- | --- | --- | --- | --- | | Georgia Capital PLC Annual Report 2023 | 0% | | | | | | | | which would be located in the so-called Middle | as the EU, China and Hong Kong, could | ### pre-COVID levels. | | | | | | | | | | | | | | | | | | | | | | Corridor, which connects China and the | increase market penetration. There is also | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Jan 17 | Jul 17 | Jan 18 | Jul 18 | Jan 19 | Jul 19 | Jan 20 | Jul 20 | Jan 21 | Jul 21 | | | Jul 22 | | | Jul 23 | | | | | | | | Sep 16 | Nov 16 Mar 17 | May 17 Sep 17 | Nov 17 Mar 18 | May 18 Sep 18 | Nov 18 Mar 19 | May 19 Sep 19 | Nov 19 Mar 20 | May 20 Sep 20 | Nov 20 Mar 21 | May 21 Sep 21 | Nov 21 | Jan 22 Mar 22 | May 22 | Nov 22 | Jan 23 Mar 23 | May 23 | Nov 23 | | | | | | | | | | | | | | | | | | | | | | | | | Reform-driven success | | countries of Central Asia to Europe through | scope for diversifying agricultural exports. | | | | | | | | | | | | | | | | | | | | | Georgia has carried out genuine economic | | Georgia and Azerbaijan. The port is expected | Georgia’s existing FTAs (with the EU, CIS, | | | | | | | Headline inflation | | | Core inflation Target | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | and structural improvements over the past | Despite challenges arising from the pandemic, | to be built with the co-participation of the state | EFTA, Türkiye, China and Hong Kong) and | | | | | | | | | | | | | | | | | | | | | two decades. As a result, corruption has | structural reforms and large infrastructure | and international investors. | the prospective FTA with India, as well as an | | The GEL has appreciated since mid-2021, | | | | | | | | | | | | | | | | | | | decreased, productivity has been enhanced | projects to promote Georgia as a transit and | | agreement with Israel and talks with South | | strengthening above pre-pandemic levels | | | | | | | | | | | | | | | | | | | and the economy has become more diversified, | tourism hub and enhance long-term growth | Georgia’s business-friendly environment, | Korea, offer significant upside potential for | | against the US Dollar (US$) and remained | | | | | | | | | Inflation reduced sharply during | | | | | | | | | | supporting resilience against exogenous | are still underway. A new pension law was | coupled with its sustainable growth prospects, | Georgia’s exports. | | stable in 2023. Compared to the beginning of | | | | | | | | | 2023, standing at 0.3% in | | | | | | | | | | shocks such as the global financial crisis and | adopted in 2018, enhancing long-term fiscal | attracted FDI on average 8.4% of GDP over | | | 2023, GEL has appreciated by 1.0% against | | | | | | | | | | | | | | | | | | | the COVID-19 pandemic. | sustainability, supporting capital market | the past decade. These capital flows boosted | The EU-Georgia Association Agreement, which | ### February 2024. | the US Dollar as of 15 March 2024. The | | | development, increasing the replacement | productivity and accelerated growth. Public | came into force in July 2016, and the related | | --- | --- | --- | --- | --- | --- | | Georgian Lari remains above the pre-pandemic | | Georgia is ranked as a top performer in | rate, narrowing the current account deficit | infrastructure projects were also instrumental | DCFTA, effective since September 2014, have | | levels on the back of strong external inflows, | | governance and doing business indicators. | and boosting potential output. A new bill on | in driving growth, as well as better realising the | laid the solid groundwork to improve governance, | | ample FX liquidity, a tight monetary policy | As a result of the improved macroeconomic | With a ranking of 7th in Ease of Doing | investment funds was adopted in 2020, in line | country’s potential in logistics, transport and | strengthen the rule of law and provide more | | stance, increased lending in foreign currency | environment, Fitch Ratings revised Georgia’s | Business according to the latest report (World | with international practice and harmonisation | tourism. Faced with low domestic savings, FDI | economic opportunities by expanding the EU | | and the overall positive economic growth. | sovereign credit rating outlook to positive | Bank, Doing Business – 2020), Georgia | obligations with EU law, providing an up-to- | is an important source of financing growth in | market to Georgian goods and services. Closer | | Additionally, the Georgian Lari also appreciated | from stable in January 2023 and reaffirmed | has implemented an array of reforms and is | date regulatory framework for investment | Georgia, as well as a reliable source of current | economic ties with the EU and trust in prudent | | against the entire basket of trading partner | the positive outlook in July 2023 and In | characterised as a top-performing economy | activity. The Government focuses on | account deficit funding. Total FDI amounted | policymaking are also expected to attract foreign | | countries’ currencies, with the nominal effective | January 2024, citing “solid economic growth | in the region in which to start a business. | addressing the shortcomings in employee | to US$ 1.6 billion, down 24% y-o-y in 2023, | investments to Georgia. Visa-free travel to the | | exchange rate up by 15% y-o-y and the real | prospects, credible macroeconomic and fiscal | Furthermore, Georgia is ranked 1st out of | benefit schemes, further cutting non-essential | following a record high FDI number in 2022 | EU, granted to Georgian passport holders in | | effective exchange rate up 2.1% y-o-y by the | policy framework and sound banking sector”. | 120 countries in the International Budget | expenditures, consolidating public sector | (US$ 2.1 billion, 67% y-o-y). Major sectors | March 2017, is another major success of the | | end of 2023. | In May 2023, a staff-level agreement was | Partnership’s 2021 Open Budget Index, as well | institutions, making social and healthcare | attracting FDI were: financial and insurance | Georgian foreign policy. | | | reached on the second review for Georgia’s | as 35th out of 184 countries by the Index of | spending more targeted, privatisation schemes | activities (40% of the total), manufacturing (18% | | | | three-year stand-by arrangement with the | Economic Freedom measured by the Heritage | and increasing capital expenditure efficiency. | of the total) and trade (7% of the total). The | Following Ukraine’s plea to join the EU as it | | | IMF. The arrangement, worth US$ 280 million | Foundation in 2023 and 35th out of 194 | Within the responsible lending framework, NBG | share of reinvestment by foreign companies in | battles Russia’s invasion, Georgia and Moldova | ### GEL stabilised above | | | was approved with the IMF in June 2022, | countries in Trace International’s 2023 Matrix | took macroprudential measures to decrease | total FDI was 80% in 2023, more than 2019’s | on 3 March 2022 submitted their applications to | | --- | --- | --- | --- | --- | --- | --- | | | pre-pandemic levels. | focusing on structural reforms and anchoring | of Business Bribery Risk. Georgia is on a par | household indebtedness, enhance financial | 47%. The increasing share of reinvestment | join the EU. Georgia previously planned to apply | | | | macroeconomic policy. Since May 2023, | with the European Union (EU) member states | stability and strengthen regulation, supporting | indicates investors trust in Georgia’s growth | to join the EU in 2024. The European Council | | | | the review remains on hold as IMF staff are | and top in the Eastern Europe and Central Asia | the financial system’s resilience to currency | model and the success of the profit tax reform | granted a conditional European perspective to | | | | examining the implications recent amendments | Region in the 2023 Corruption Perception Index | fluctuations and FX-induced credit risks. A new | introduced in 2017. Planned investment and | all three countries, with Ukraine and Moldova | | Inflation, like elsewhere around the world, was | | to NBG law will have on achieving the objectives | by Transparency International. | important reform adopting the framework for | infrastructure programmes, a rising number of | receiving the candidate status pre-emptively. For | | elevated during 2021-2022, however, it has | | of the programme. They discussed these | | issuing mortgage covered bonds was adopted | free trade agreements (FTAs) and a business- | Georgia, however, candidate status was made | | sharply reduced in 2023, falling below the 3% | | with the authorities and acknowledged their | The Economic Liberty Act, effective since | by the parliament in 2022, aiming to provide | supportive environment will support further FDI | subject to meeting a list of 12 conditions. | | target since April 2023, with annual average | | commitment to upholding the independence | January 2014, ensures the continuation | an additional source for a relatively cheap and | inflows in the medium term. | | | inflation standing at 2.5% in 2023. In February | | and credibility of NBG and to continued | of a credible fiscal framework for Georgia | stable source of financing for credit institutions. | | On 8 November 2023, the European | | 2024, headline inflation printed at 0.3%. All | | strong programme engagement with the | by capping the fiscal deficit at 3% of GDP | | Free trade agreements | Commission adopted the 2023 Enlargement | | major components contributed to falling | | Fund. The programme is designed to maintain | and public debt at 60% of GDP. However, | A business-friendly environment, renowned | There have been significant changes in | Package – a set of documents explaining its | | inflation in 2023, with food and transport prices | | macroeconomic stability and anchor policy | the emergency escape clause allowed the | in the region for best-in-class governance, | Georgia’s export structure and destination | policy on EU enlargement. The final decision | | the largest contributors. Imported inflation, | | decisions by addressing fiscal and external | Government to surpass the thresholds | well-developed infrastructure, stable energy | markets in recent years; however, Georgia has | was made on 14 December 2023 and the | | which was by far the most significant driver of | | deficits, achieving the target inflation rate. | temporarily in order to manage the pandemic, | supply, flexible labour legislation, a stable and | not yet fully tapped into international markets. | European Council granted the status to | | increasing prices in 2022, has turned negative | | Additionally, it aims to strengthen the resilience | with the law requiring a return to the bounds | profitable banking sector, strategic geography | One of the biggest changes in destination | Georgia and called on Georgia to demonstrate | | in 2023, whilst inflation on locally produced | | of the financial sector and promote agreed- | within three years. The fiscal deficit and debt, | connecting European, landlocked Central Asian | markets has been a reorientation from the | a clear commitment to EU values, continue | | goods has begun decelerating as well. Strong | | upon reforms in the governance of state-owned | based on Government’s preliminary data, | and Middle East countries, and preferential | Russian market after the 2005 embargo, as | progress on its reform agenda and fulfil the | | foreign currency inflow that supported the | | enterprises, public financial management, | have now returned within these ceilings as | trading agreements, support Georgia to | the embargo forced Georgian producers to | conditions specified in the Commission’s | | appreciation of the Georgian Lari, has been an | | as well as tax and customs administrations. | of 2023. The Economic Liberty Act also | become a regional hub economy. | redirect exports to other Commonwealth of | report meaningfully and irreversibly. Granting | | important factor in the slowdown of inflation. | | Although the Government doesn’t intend to | requires electorates’ approval through a | | Independent States (CIS) countries, the EU and | candidate status to Georgia is a significant | | Continued fiscal consolidation, and a tight | | use the allocated US$ 280 million as part of | nationwide referendum for imposing new | The Government’s ongoing infrastructure | the Middle East. Exports to Russia picked up | acknowledgment by the EU of the progress | | monetary policy have also contributed to the | | the new arrangement (according to the IMF’s | taxes and raising existing taxes, subject | investments and increased spending on roads, | again in 2013 as Russia reopened its borders | made in recent years. | | disinflation. Considering the latest inflation | | reviews under the SBAs), the purpose of the | to certain exceptions. Furthermore, as of | energy, tourism and municipal infrastructure | to Georgian products. Another significant | | | trend NBG has begun a gradual exit from | | programme is to strengthen the agenda for | January 2017, corporate income tax for | will also reinforce the potential. To enhance | change concerns the growing importance of | Although the specific advantages of EU | | tight monetary policy and reduced the policy | | structural reforms and underscore confidence | non-banking and non-insurance corporations | Georgia’s competitiveness, the Government | China as a Georgian export market, as the | candidacy status for Georgia would depend | 16% rate by 275 bps during May 2023 to March in macroeconomic policymaking. is now only applicable to distributed profits; continues to strengthen integration in existing FTA effective from January 2018 has brought on the country’s specific circumstances, in 2024 to 8.25%. NBG remains committed to undistributed profits, which are reinvested or international systems as well as new transit a major acceleration of exports to China. general, the attainment of EU candidacy status, 12% | | adjusting the policy rate depending on the | The IMF revised upward Georgia’s GDP growth | retained, are exempted. Georgia has one of | routes. Georgia is a regional energy corridor. In | Since 2013, Georgia’s developed logistics and | based on the other countries’ experiences | | | --- | --- | --- | --- | --- | --- | --- | --- | | | macroeconomic developments. | forecast from 4.0% (World Economic Outlook | the friendliest tax regimes according to World | November 2019, the Georgian PM, alongside | transport infrastructure has helped shore up | will have a positive impact in multiple ways, | | | | | (“WEO” – April 2023) to 6.2% in 2023 (WEO – | Bank’s Doing Business 2020 report, having | the Turkish and Azerbaijani presidents, opened | opportunities for new re-export commodities, | specifically on economic growth, foreign | | | | | October 2023), while the medium-term growth | slashed the number of taxes from 21 in 2004 | the Trans-Anatolian Pipeline, allowing natural | including copper and pharmaceuticals. | investment, and trade. | | | | | (2024-2028) projection stands at 5.1%, one | to just six currently. Commitment towards | gas from Azerbaijan to be exported to Europe | Georgia’s potential to become a logistic hub | | | | 22 | | | | | | | 23 | Feb 24 Sept 22 Sept 23 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## MARKET AND INDUSTRY OVERVIEW CONTINUED Georgia Capital PLC Annual Report 2023 | | | | | an individual bank’s deposit concentration | The loan portfolio proved extremely resilient in | total imports), while export of medicines was | expected to grow at 4% in 2023. Outlook for | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | exceeds specified norms. | 2023, despite a tightened monetary stance and | the eleventh largest export commodity group, | the healthcare sector is positive as increasing | | | | | | | rising foreign currency rates, as credit to the | amounting to US$ 88 million (1.2% of total | GDP and disposable income help domestic | | | | | | In 2021, during the joint Financial Sector | economy increased by 17.1% y-o-y (excluding | exports) in nine months of 2023, including US$ | consumption to increase, especially in elective | | | | | | Assessment Program conducted by the | the exchange rate effect) by the end of 2023, | 71 million of re-exports (0.8% of total re-exports). | care, diagnostics and outpatient services. | | | | | | IMF and the World Bank, recommendations | including a 17.0% growth in GEL loans and | | | | | | | | were provided to NBG. Among these | a 17.3% growth in foreign currency loans. | Also, effective from 15 January 2023, the | To streamline the state funding financing in | | | | | | recommendations is the establishment of the | Mortgage loans increased by 9.9% by the end | Ministry of Health, Labour and Social Affairs | healthcare and improve the reimbursement | | | | | | minimum requirement for own funds and eligible | of the year, while business loans increased | of Georgia (the “Ministry”) implemented an | process, the Georgian Government introduced | | | | | | liabilities (MREL) for domestic systemically | by 18.1%. As for deposits, commercial bank | External Reference Pricing (ERP) model on | an initiative to implement a Diagnosis Related | | | | | | important banks (D-SIBs) within the resolution | deposits increased by 14.5% by the end of 2023 | the pharmaceuticals market, related to both | Group (DRG) financing system. The DRG | | Georgia Capital PLC Annual Report 2023 | | | | framework of NBG. The regulation, developed | (without the exchange rate effect), including | prescription and non-prescription medicine. | system categorises inpatient case types | | | | | | based on the framework of the European Bank | a 31.4% growth in GEL deposits and a 3.1% | Reference Pricing is an approach where prices | that are clinically similar and expected to | | | | | | Recovery and Resolution Directive (BRRD), | growth in foreign currency deposits (without | are set according to the benchmark prices for | use the same or similar resources into | | | | | | sets percentages derived from the ratio of | Government deposits). | the same or similar medicines in comparable | groups by applying various criteria (age, | | | | | | eligible liabilities and capital instruments to total | | countries. According to the new initiative, the | sex, intervention needed, comorbidity, etc.). | | | | | | liabilities and regulatory capital. The MREL for | Deposit dollarisation was 50.7% at the end | Ministry introduced the maximum retail price | The new system became effective from the | | | | | | systemic commercial banks is determined with | of 2023, down from 56% at the end of 2022. | on targeted pharmaceutical products, in two | beginning of 2023. The way the DRG system | | | | | | the following amount and terms: from 1 January | Loan dollarisation followed a similar trend, | directions: Generic and Original drugs. The | was initially implemented had a positive | | | | | | 2024 – 10%, from 31 December 2025 – 15% | falling below 50% for the first time in 2022 and | price caps are set based on the average of | impact on the business EBITDA, however | | | | | | and from 31 December 2027 – 20%. | reaching 45.2% by the end of 2023. | such medicine prices in the following countries: | the system was modified several months into | | | | | | | | Bulgaria, Latvia, Macedonia and Montenegro. | its implementation, decreasing tariffs on a | | | | | | Amendments to the Organic Law of Georgia on | Retail (pharmacy) | | number of services, and making the changes | | | | | | The National Bank of Georgia have already been | The pharmaceutical market in Georgia is highly | Currently, approximately 207 Generic drugs are | profit neutral. | | | | | | initiated, addressing an additional mechanism | concentrated, with three major players holding | subject to the new regulation. | | | | | | | to mobilise funds in advance into the resolution | approximately 83% of the market share. The | | Property and casualty (P&C) insurance | | | | Photo The view from Mountain Shkhara, Georgia | | fund. The creation of a fund is a part of the | Georgian pharmaceutical market is highly | Hospitals and clinics and diagnostics | From 2010 to 2023, the Georgian property | | | | | | resolution funding framework developed based | dependent on imports. The share of number of | The Georgian healthcare industry experienced | and casualty insurance sector grew by 387%, | | | | | | on the recommendations of the IMF and World | locally produced drugs on the market is c.14% | important transformations during the last | with insurance revenue increasing to GEL | | | | | | Bank, for the early identification of the bank’s | as opposed to only 5% in the early 2000s. | decade. The key components of the national | 487 million. According to the Insurance State | | | | | | financial vulnerabilities. The accumulation in | There are over 100 importers of pharmaceutical | healthcare reform were massive privatisation, | Supervision Service of Georgia (“ISSSG”), | | | Georgia’s FTA with China, effective from | | paving way for a potential outlook upgrade for | | | | | | | | | | the resolution fund, according to the legislative | products in Georgia, but approximately | infrastructure upgrade, sector liberalisation, | the total value of gross written premiums | | | January 2018, and its FTA with Hong Kong, | | the banking sector. | | | | | | | | | | project, should reach an amount pre-determined | 70% of all imports are performed by three | introduction of Universal Health Care (UHC) and | increased from GEL 113 million in 2010 to | effective from February 2019, have increased | | | by the law, representing 3% of bank’s insured | companies: GEPHA (approximately 25%), PSP | wider accessibility to healthcare services as the | GEL 502 million in 2022; an increase of 344%. | | --- | --- | --- | --- | --- | --- | | opportunities to further accelerate exporting | In December 2022, the parliament adopted | | | | | | | | deposits. The fund will be filled with these | (approximately 21%) and Aversi (approximately | major outcome. | The largest six insurance providers in Georgia | | markets and attract investors by offering | changes in the corporate tax model for banks | | | | | | | | contributions between 2025 and 2033. | 23%). Domestic production is represented by | | account for approximately 82% of the market. | | a business-friendly environment, strong | (as well as credit unions and microfinance | | | | | | | | | over 50 companies and is dominated by two | To address high private healthcare costs | The level of insurance market penetration in | | corporate governance standards and access | organisations), setting the corporate tax rate | | | | | | | | Dollarisation decrease is one of the priorities of | players, with approximately 84% of the country’s | and basic healthcare coverage for the entire | Georgia amounts to 1.27% (of which 0.7% | | to a market of 2.8 billion customers. China | at 20%, combining the previous 15% rate | | | | | | | | the NBG and the Government. The Financial | total production volume. Pharmaceuticals | population, UHC was introduced in 2013 | is attributable to the property and casualty | | was the single largest destination country for | with the 5% dividend tax rate and abolishing | | | | | | | | Stability Committee of NBG made a number | market reforms have made it possible to create a | and replaced previous state-funded medical | insurance market) as at 31 December 2022. | | Georgian exports for 2020-2022 years. | the latter. Moreover, commercial banks | | | | | | | | of decisions at the meeting held in October | competitive marketplace in Georgia. These have | insurance plans. New initiatives regarding the | This was lower than insurance penetration in | adopted International Financial Reporting | | | 2023 regarding to the responsible lending and | included the introduction of parallel imports and | reimbursement and differentiating coverage of | more developed countries such as the UK, | | --- | --- | --- | --- | --- | --- | | Individual sector overview | Standards (IFRS) from January 2023, as | | | | | | | | de-dollarisation policy. Starting from 1 January, | automatic registration of medicines recognised | Universal Health Insurance were adopted in 2017. | France, Switzerland and Belgium, which had | | Banking | laid out in NBG’s 2020-2022 supervisory | | | | | | | | 2024, individual loans below GEL 300,000 can | by international control bodies, such as the U.S. | | penetration rates of 10.50%, 8.70%, 6.90%, | | The banking sector has been one of the most | strategy, aiming to increase harmonisation | | | | | | | | only be issued in foreign currency if hedging | Food and Drug Administration and the European | In terms of health expenditure as a percentage | and 5.50%, respectively, and was also lower | | developed and fastest-growing sectors of the | with developed countries. | | | | | | | | requirements are met. Restrictions on taking | Medicines Agency, as well as favourable | of GDP, Georgia achieved a level consistent | than penetration in neighbouring countries | Georgian economy. The banking sector’s asset | | | loans in foreign currency have been in place | regimes for setting up pharmacies (0% VAT on | with that of major developed economies, at | such as Slovenia, Poland, Bulgaria and Türkiye, | | --- | --- | --- | --- | --- | --- | | growth rate of 16.6% (ten-year CAGR) has far | In 2022, NBG began working on operationalising | | | | | | | | since January 2017 in Georgia. The limit was | medicines, absence of customs duties and no | approximately 8%, which is above most of its | which had penetration rates of 4.70%, 2.20%, | | outstripped the nominal GDP growth rate for the | a new bank recovery and resolution framework, | | | | | | | | initially set at GEL 100,000, but increased to | price controls). | peer emerging economies. However, there | 2.20% and 1.50%, respectively. The Georgian | | same period. However, despite robust progress, | assisted by technical missions from the IMF. | | | | | | | | GEL 200,000 from January 2019. Additionally, | | still remains vast potential for further increase | retail insurance market offers ample room for | | there are plenty of opportunities to further tap | The mission noted that Georgia has made | | | | | | | | the maximum maturity for the unsecured | According to management’s estimates based | since Georgia has one of the lowest per | growth, as most of its potential is yet to be | | into growth potential, as the financial market | “considerable progress” in developing the | | | | | | | | consumer loans increased from three years to | on third-party data, generics account for | capita expenditures on healthcare among the | unlocked. Motor insurance accounts for 55% of | | remains at an early stage of development. The | infrastructure necessary for an effective bank | | | | | | | | four years starting from 1 November of 2023. | around three quarters of the total market | benchmark countries. Healthcare spending | the total retail insurance market in Georgia, of | | sector has remained resilient in the face of | recovery and resolution regime and identified | | | | | | | | | revenues, which is somewhat higher than the | per capita is currently at a very low base | which 16% represents border Mandatory Third | | challenges such as COVID-19 and the war in | several priorities in cooperation with authorities. | | | | | | | | The banking sector ended 2023 with record | EU average (c.50%). However, there is still | of only c.US$ 300, with annual outpatient | Party Liability (MTPL) insurance, effective from | | Ukraine, underscoring the robustness of the | NBG also applied for membership in the Single | | | | | | | | net profits of GEL 2.7 billion, 29.9% higher than | market opportunity for generics – in the leading | encounters of 3.7 per capita, significantly | March 2018. | | banking system. | Euro Payment Area (SEPA), noting that SEPA | | | | | | | | 2022 profits. Interest income reached GEL 7.2 | economies like Germany and the UK, generics | lower than many comparable countries. On | | membership will increase the credibility of | | | billion in 2023, up 26.8% y-o-y, while interest | hold a dominant share of more than 80% (in | average, c.65% of healthcare spending is | Moreover, the motor insurance segment has | | --- | --- | --- | --- | --- | --- | | Fitch Ratings, which downgraded the outlook | the financial sector and simplify services for | | | | | | | | expenses reached GEL 3.3 billion, up 17.7% | the reimbursed segment). The over-the-counter | funded by the private sector. Notwithstanding a | great potential to increase, as only 7% of | | on Georgian banks to negative in April 2020, | Georgian citizens. | | | | | | | | y-o-y. Non-performing loans (IMF methodology) | (OTC) segment in Georgia prevailed over the | significant improvement in the bed occupancy | registered cars are insured on the local market. | revised the outlook to stable in March 2021, | | | | reached 1.48% of total loans by the end of | last decade until 2014 when a prescription | rate, from c.30% in 2003 to c.50% currently, | The new law requiring local MTPL for all vehicles | | | --- | --- | --- | --- | --- | --- | --- | --- | | | citing reduced pressure on the banks’ credit | In January 2023, a new methodology was | | | | | | | | | | 2023, compared to 1.51% at the end of 2022. | requirement was introduced for over 6,000 | there is still potential for even higher efficiency | registered in Georgia is expected to kick in and | | | | profiles and the banks’ “intrinsic strength”. | published for defining systemically important | | | | | | | | | | At the end of 2023, return on assets was 4.2% | medicines. Currently, there is a nearly equal | in order to align Georgia with best practices. | significantly boost retail market penetration. | | | | The agency most recently affirmed the stable | commercial banks and establishing a systemic | | | | | | | | | | (3.8% at the end of 2022) and ROE was 26.5% | split between OTC and prescription drugs. | The occupancy rate in Georgia is far below | | | | | outlook in September 2023, pointing that the | buffer for them, aiming to further increase the | | | | | | | | | | (24.8% at the end of 2022), while the average | Medicines and pharmaceutical products have a | EU (77%) and CIS average (83.4%) indicators. | Medical insurance | | | | “Georgian banks had solid credit metrics” and | system resilience. The updated methodology | | | | | | | | | | capital adequacy ratio was 22.1% (20.3% at | significant contribution to trade turnover. Trade | The Georgian healthcare market has shown | Over the past decade, the private medical | | | | “expects bank performance to remain healthy | defined three banks – Bank of Georgia, TBC | | | | | | | | | | the end of 2022) and the liquid asset ratio was | of medicines packaged in measured doses is | solid growth in recent years. According to | insurance market expanded significantly | | | | in 2023-2024”. Subsequently, Fitch Ratings | Bank and Liberty Bank – as systemically | | | | | | | | | | 20.9% (22.8% at the end of 2022). | a considerable source of income. Imports of | management’s estimates based on third-party | compared with the 2006 figure, when only | | | | revised the sovereign credit rating outlook | important, setting a 2.5% buffer for the former | | | | | | | | | | | medicines were the third largest commodity | data, the total healthcare market grew by a | 40,000 Georgian citizens (or c.1% of the total | | | | for Georgia to positive in January 2023 and | two and 1% for the latter. The decree contains | | | | | | | | | | | group, amounting to US$ 402 million (3.6% of | CAGR of 9% over 2011-2023 years and was | population) had a voluntary medical insurance | | | | reaffirmed the positive outlook in January 2024, | provisions for increasing the buffers in case | | | | | | | 24 | | | | | | | 25 | Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## MARKET AND INDUSTRY OVERVIEW CONTINUED | | | | | | Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 | | --- | --- | --- | --- | --- | --- | | | package, mostly provided as part of a corporate | At the end of December 2019, the parliament | Data provided in this section was collated from | | | | | benefits programme. There were 722,000 | of Georgia has adopted the new Law on | the following sources unless stated otherwise: | | | | | private health insurance (PHI) policies in force by | Energy and Water Supply and the Law on | • Geostat | | | | | the end of June 2023. The corporate segment | Renewable Energy Sources. These pieces | • National Bank of Georgia | | | | | accounts for the major portion of the PHI | of energy legislation were prepared by the | • Ministry of Finance of Georgia | | | | | market – 71.3% of all policies are acquired by | Energy Community Secretariat, taking into | • Georgian National Tourism Administration | | | | | employers, and the rest (51,500) are purchased | account the specifics of the Georgian energy | • Insurance State Supervision Service | | | | | by self-paying individuals. In Georgia, PHI is | market. In 2020 and 2021 several important | | of Georgia | | | | primarily intended to provide value-added | regulations were adopted to prepare Georgia’s | • World Bank | | | | | services in the form of more extensive coverage | energy market for the reforms in coming | • International Monetary Fund | | | | | or more convenience for the patient. | years. The establishment of the new energy | • Fitch Ratings | | | | Georgia Capital PLC Annual Report 2023 | | exchange was a step forward to the reform of | | | | | | Renewable energy | the Georgian energy sector. In December 2019, | | | | | | In Georgia, electricity consumption has been | the Georgian Energy Exchange was founded | | | | | | growing significantly for the last decade, in | with 50%-50% co-participation of Georgian | | | | | | line with GDP growth. Electricity demand | State Electrosystem and Electricity System | | | | | | for the last decade has been growing on | Commercial Operator. Once the new electricity | | | | | | average by 4.1%. The country was historically | market enters into force, the Georgian Energy | | | | | | a net exporter of electricity; however, due to | Exchange will be responsible for organising | | | | | | sustained consumption growth, the trend | day-ahead and intraday markets through the | | | | | | changed and Georgia became a more | software services of consulting company “Nord | | | | | | import-dependent country with ten months | Pool Consulting”. | | | | of electricity deficit throughout the year. To | support the consumption growth, which is | Education | | --- | --- | | forecasted at a minimum of 4.5% for the next | The private K-12 education industry in Georgia | | decade, the Government is promoting the | has been growing at a 15% CAGR over the last | | development and construction of domestic | decade. Based on the business’ estimation, | | renewable capacities through different support | the market size reached GEL 375 million in | | mechanisms, as well as implementing reforms in | 2023, driven by both increasing enrolments | | the Georgian energy market. Back in 2008, the | and rising tuition fees. Currently, there are | | power generation market witnessed significant | c.66,000 learners in private schools in Georgia, | | changes to facilitate market liberalisation. All | representing 10.5% of the total general | | HPPs constructed after August 2008 have | education market. | been deregulated, which served as a first step | towards the establishment of a free electricity | There is a consolidation trend that represents | | --- | --- | | market. In 2014, the EU and Georgia signed an | an opportunity in a fragmented market. Over | | Association Agreement and Georgia became | the last decade, average school size has | | a full contracting party member of the Energy | increased by 42% and the number of schools | | Community. Further, the electricity legislation | has decreased by 15%. Private learners are | | was amended in June 2017, deregulating all | consolidating in the four largest cities with | | HPPs below 40MW and gradually moving the | populations over 100,000, namely Tbilisi, | | large industrial consumers out of the regulated | Batumi, Kutaisi and Rustavi. Based on our | | pricing scheme to the free market. In the next | estimation, the market share of the ten largest | | phase of deregulation, effective from May 2019, | players has increased by 4%. Tbilisi is the | | big industrial customers with monthly electricity | largest city in Georgia with the majority share | | consumption of at least 5GWh were required | of private learners (64% of the Georgian private | | to register as direct customers. Deregulation | market) and Georgia Capital is the largest | | continued in 2021 – all entities with monthly | player on the market with a 9% market share | | consumption of more than 0.4GWh and with | in terms of learners, while the second largest | | 35-110kV access lines were registered as | player holds 2.3%. | direct consumers. Also, since May 2022, HPPs | with a capacity of less than 65MW have been | Management believes that the key growth | | --- | --- | | deregulated. This process will continue in the | drivers will be the large gap in the quality of | | following years as well, further increasing the | public schools as compared to private schools | | share of the deregulated market. | as well as increasing household income and | decreasing unemployment rates. Photo Snowy Borjomi forest, Georgia 26 27 27 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES Georgia Capital PLC Annual Report 2023 Georgia Capital does not have capital commitments or a primary Businesses operating in a frontier economy such as Georgia have limited In 2022, the Group introduced an NCC Navigation Tool, which is an Entering a new industry with a small ticket size mandate to deploy funds or divest assets within a specific time frame. access to capital and management personnel. Consequently, those with integral part of GCAP’s existing 360-degree framework and drives the Another core principle of the Group’s investment philosophy is to be It focuses on shareholder returns and on opportunities that meet its access to these limited resources can make investments in companies Group’s share buyback and investment decisions. NCC represents an mindful about the size of potential investments in new industries. Georgia investment return and growth criteria. In line with its capital allocation which then provide an attractive risk return profile. The Directors seek aggregated view of all confirmed, agreed and expected capital outflows Capital typically starts with a small ticket size and tests and develops a strategy, the Group emphasises capital-light, larger-scale investment to generate value for its shareholders by: investing in opportunities in at the GCAP holding company level. An NCC ratio (NCC as a percentage management track record before stepping up the investment. opportunities in Georgia, which have the potential to reach at least GEL Georgia that are currently not directly accessible to its shareholders; of the total portfolio value) between 15%-40% guides us to tactical share 300 million equity value over three to five years and to be monetised changing management and governance structures; institutionalising and buybacks/ investments, an NCC ratio below 15% would be expected Liquidity is important through exits as they mature. The Group believes that the superior scaling up the Company operations, often to benefit from consolidating to lead to more meaningful share buybacks/investments, whilst a ratio In order for the strategy to succeed, GCAP must be disciplined in exit opportunities and improved liquidity associated with larger sized fragmented and underdeveloped markets; and unlocking value by exiting above 40% would lead us to implement a cash preservation strategy as unlocking the value of companies in which it invests and that it manages. investments will support the Group’s desire to reduce the current these companies over time. The Group’s approach to investing and we did during the active phases of the COVID-19 pandemic. In particular, it is crucial to set an exit strategy prior to making an discount to reported NAV per share. managing companies entails the following principles: investment. A low investment entry point becomes even more important Georgia Capital PLC Annual Report 2023 Since its inception, GCAP has bought back 7.9 million shares with the in a small frontier economy, with limited exit opportunities. The Group Highly disciplined entry approach total value of US$ 87 million under its buyback programmes to date. aims to have two potential liquidity events for each of its assets: Monetise The Georgian economy entered into a period of significant development The US$ 45 million share buyback programme, which commenced • The first exit: when entering a new industry Georgia Capital intends and growth approximately 15 years ago and different sectors and in June 2018, was completed in August 2019. Under the programme to develop and grow portfolio companies. GCAP’s key focus areas businesses are therefore at early stages of formation. we bought back 3,336,843 shares, of which 2,650,375 shares were at portfolio company level are the ability to grow operating cash cancelled and 686,468 shares were transferred to the management and to make efficient capital expenditure investments by targeting Access to capital and management personnel is limited and as a result, trust. In August 2019, Georgia Capital initiated a US$ 20 million share an appropriate level of return on invested capital (ROIC). Once the Invest in Georgia Capital can pursue attractive investment opportunities and purchase programme for the management trust. The management trust business reaches its late stage of development, GCAP expects to capital-light large opportunities acquire assets on relatively attractive terms with a view to consolidating programme has repurchased 1,550,084 shares. There was no buyback pursue its first exit route, which envisages dividend flows for the in Georgia fragmented and underdeveloped sectors of the economy, particularly programme in 2020 in light of the cash preservation strategy due to Group; and targeting high-multiple service industries, not requiring significant capital COVID-19. In August 2021, Georgia Capital commenced a US$ 10 • The second exit: as businesses mature, Georgia Capital normally commitments. The Group believes that in the long run Georgia will million share buyback and cancellation programme, which was extended seeks to monetise its investment through appropriate exit options, become a service hub of the region. Since the Group is under no time by an additional US$ 15 million in 2022. Under the US$ 25 million share typically within five to ten years from initial investment. pressure to invest, it takes a selective and opportunistic approach to buyback programme, 3,075,923 shares have been repurchased and Grow businesses to equity new investments. The Group’s key principle is to buy assets at affordable cancelled, corresponding to GEL 76.2 million (US$ 25.0 million) in value. The Chief Strategy Officer is responsible for overseeing the establishment value of GEL 300mln+ prices and to remain very disciplined in this regard. To evaluate new In 2023, GCAP launched two buyback programmes: a US$ 10 million of structured exit processes for the portfolio companies, as Georgia acquisition opportunities Georgia Capital has developed a 360-degree programme in April 2023, under which it repurchased and cancelled Capital is actively engaged in the price discovery of portfolio assets held. analysis framework. 1,000,000 shares with a total value of GEL 25.4 million (US$ 10.0 million), • Georgia Capital invests in Georgia in sectors not requiring intensive and a US$ 15 million buyback programme launched in October 2023, Focus on cash generation capital commitments. 360-degree analysis – a strong foundation for value creation during which 665,222 shares with a total value of GEL 22.5 million (US$ Cash generation at both Georgia Capital and portfolio company level is a • GCAP enables its large and capital-light portfolio companies to GCAP share price is at the core of decision-making when it comes to 8.3 million) were repurchased in 2023. key success factor for Georgia Capital. explore regional growth opportunities, such as the recent expansion new investments. The Group performs a 360-degree analysis each time of the retail (pharmacy) business into Armenia and Azerbaijan. it makes a capital allocation decision and compares: a) the investment The table below summarises GCAP’s share buybacks in 2023. Focus on management development • In capital heavy industries, Georgia Capital seeks to manage third- opportunity versus buyback opportunity; and b) the sale opportunity By developing top talent in Georgia Capital, the Group can add Value of Number party money and/or establish partnerships. versus buyback opportunity. The Group intends to buy assets/companies shares of shares value for the Company’s shareholders. Investing time in growing and at a higher discount to their listed peers than GCAP’s fair value discount. repurchased repurchased developing management continues to be critical for the success of the (US$ million) (million) Georgia Capital is targeting to invest in opportunities which produce Group’s strategy. greater returns than returns created by buying back GCAP shares. Georgia Capital share buybacks 29.2 2, 817,070 of which, programme 18.3 1,665,222 Good corporate governance of which, management trust 10.9 1,151,848 The Company believes that robust corporate governance is a source Number of Georgia Capital shares cancelled 17.6 1,612,022 of value creation for its shareholders. The Company believes that alignment of the interests of shareholders and management by awarding 360-DEGREE FRAMEWORK – A STRONG FOUNDATION FOR VALUE CREATION long-term deferred share awards to the Group’s senior executives enhances value creation. ROIC IS AT THE CORE OF DECISION-MAKING WHEN GCAP share price is at the core of our investment IRR AND MOIC ARE THE KEY DRIVERS FOR GCAP TO OUR PORTFOLIO COMPANIES ARE INVESTING OR decision-making INVEST IN NEWOPPORTUNITIES DIVESTING ASSETS/BUSINESSES | | | | i t y | | | | | NCC RATIO NAVIGATION TOOL | | | | KEY MONEY MULTIPLES AT GCAP LEVEL | | KEY METRIC FOR REINVESTMENT DECISION-MAKING | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | n | I n | | | | | | | | | | | | | | | | t u | | v | e | | | | | | | | | | | | | | | r | | | s | | | | | | | | | AT PORTFOLIO COMPANIES’ LEVEL | | | | | | o | | | t | | | | | | | | | | | | | | p | | | | m | | | | | | | | | | | | | | p | | | | | e | | | | | | | | | | | | | o | | | | | n | | | | | | | | | | | | k | | | | | | t | | | 15% 40% | | | | | | | | | c | | | | | | o | | | | | | | | | | | | a | | | | | | p | | | | | | | IRR | | | ROIC | | b | | | | | | p | | | | | | | | | | | | y | | | | | | o | | | | | | | | | | | | u | | | 360° | | | r | | | | | | | | | | | | B | | | | | | t | | | | | | | | | | | | | | | | | | u | MEANINGFUL | | | TACTICAL | CASH | | | • ROIC should exceed weighted average cost of capital (WACC) | | | | | | | analysis | | | n | | | | | | | | | | | | | | | | | | i t | BUYBACKS AND | | | BUYBACKS AND | PRESERVATION | | MOIC | | | | | | | | | | | y | | | | | | | | | for new investments. | | | | | | | | | | INVESTMENTS | | | INVESTMENTS | STRATEGY | | | | | | • Portfolio companies to continue divestment of low ROICand/or non-core assets and businesses to enhance ROIC. S a l e o p i t y p o r t u n ## GCAP ROLE – VIS-À-VIS PORTFOLIO COMPANIES We perform 360-degree analysis each time we make • Approval of all capital allocation decisions: equity, debt, profit reinvestment, divestment, etc. a capital allocation decision and compare: • Strategy setting, business plan approval and monitoring. ### • Investment opportunity vs. buyback opportunity CAPITAL • Human capital (CEO and CFO) allocation and KPI setting. • Sale opportunity vs. buyback opportunity ### ALLOCATIONS • Approval and monitoring of the ESG strategy. 28 29 CAPITAL ALLOCATION AND MANAGING PORTFOLIO COMPANIES CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Governance # CAPITAL ALLOCATION OUTLOOK Georgia Capital expects to allocate US$ 46.5 million net equity capital in the renewable energy and education businesses over the next three to five years. Other than already identified greenfield projects in the renewable energy and education businesses, the Group expects to focus on acquisitions. By driving the development of these two businesses, the Group expects to realise at least 2.5x MOIC at each investment level. # PLANNED INVESTMENTS FROM GCAP IN OUR INVESTMENT STAGE PORTFOLIO COMPANIES: US$ 46.5 MILLION IN 2023 TOTAL NET INVESTMENT IDENTIFIED FROM GCAP OVER THE NEXT 3-5 YEARS. ![img-3.jpeg](img-3.jpeg) No investments are expected in the clinics and diagnostics business from GCAP. Detailed information on the investments in these businesses are set out on pages 34-60 of this report. # STRONG BALANCE SHEET AND CASH MANAGEMENT AT GEORGIA CAPITAL Cash and liquid funds balance down 73.7% y-o-y to US$ 40 million at 31 December 2023, reflecting the redemption of GCAP's Eurobonds in the third quarter of 2023, which was partially financed by GCAP's existing liquid funds balance. The decrease was slightly offset by strong dividend inflows. # TOTAL CASH AND LIQUID FUNDS ![img-4.jpeg](img-4.jpeg) # STRONG BALANCE SHEET AND CASH MANAGEMENT # STRONG DIVIDEND INCOME FROM PORTFOLIO COMPANIES ![img-5.jpeg](img-5.jpeg) # IN ADDITION TO THE RECURRING DIVIDENDS, GCAP RECEIVED GEL 56 MILLION IN 2023: - GEL 29 million from the participation in BoG's 2022 share buybacks; - One-off additional dividend of GEL 27 million from the retail (pharmacy) business. GCAP MANAGEMENT FEE EXPENSE HAVE A SELF-TARGETED CAP OF 0.75% THE LAST 12-MONTH (LTM) MANAGEMENT FEE EXPENSE RATIO 30 # OUR MANAGEMENT TEAM George's District/PLP, August 2008 ![img-6.jpeg](img-6.jpeg) ![img-7.jpeg](img-7.jpeg) # Irakli Glauri, Chairman and CEO Irakli Glauri formerly served as the CEO of BGED Group from 2011 to May 2018. He joined as CFO of Bank of Georgia in 2004 and was appointed as Chairman of the Bank in September 2015, having previously served as CEO of the Bank since May 2005. Prior, he was an BBFC (European Bank for Reconstruction and Development) banker. Mr Glauri has almost 20 years of experience in banking, investment and finance. Over the last decade, Irakli's leadership has been instrumental in creating major players in a number of Georgian industries, including banking, healthcare, utilities and energy, real estate, insurance and wine. Holds an MSc in banking from Case Business School and a certificate in e-licensing from the University of California, Davis. # Anto Namichaisheli, Deputy CEO In addition to his Deputy CEO role at Georgia Capital, Anto also serves as a chairman of the Group's renewable energy, beverages, housing development and hospitality businesses. Formerly he was BGED Group General Counsel. He was General Counsel of the Bank of Georgia from 2007 to 2018 and has played a key role in all of the Group's equity and debt values on the capital markets, and over 25 mergers and acquisitions. Prior, he was a Partner at a leading Georgian law firm. Holds LLM in an international business law from Central European University, Hungary. # Irakli Gopla, Portfolio Manager CEO at the hospitals business and a chairman of the Group's retail (pharmacy) and clinics and diagnostics businesses. Formerly Deputy CEO, Finance at GHO. Prior to that Irakli was a deputy chairman of the supervisory board of Evex Medical Corporation and Insurance Company Imezi L. He has ten years of experience in the financial industry. Previously, served as CFO of Insurance Company Ablagi and Liberty Consumer, prior to which he was a senior auditor at Ernst & Young and DeSette. Holds a Bachelor of Business Administration degree from the European School of Management in Tbilisi. # Giorgi Alpaidze, Deputy CEO, Chief Financial Officer Formerly BGED Group CFO, Joined BGED as Head of Group's Finance, Funding and Investor Relations in 2016. He has extensive international experience in banking, accounting and finance. Previously, he was a senior manager in Ernst & Young LLP's Grader New York City's assurance practice. Holds a BBA from the European School of Management in Georgia, US Certified Public Accountant. # Io Gabania, Chief Strategy Officer Formerly Investment Director at Georgia Capital, Joined BGED as an Investment Director in 2017. It has over ten years of experience in banking and investment management. Prior to joining BGED he served as Head of Corporate Banking at Bank Republic, Société Générale Group. Previously, she held numerous executive positions in leading Georgian companies. Io holds a BSc degree from London School of Economics and Political Science, UK. # Giorgi Kotiladze, Managing Director, Head of Investments Formerly Investment Officer at BGED Group, Joined BGED in 2017. Previously, worked at Deutsche Bank in Corporate Finance department and at KPMG consulting in Germany. Giorgi holds a master's degree from London Business School. # Nino Vakhvakhtishvili, Chief Economist Joined Georgia Capital in 2018. Nino is an IMF Short-term Expert and is visiting lecturer at the University of Georgia. Before joining the company, she spent over five years at the National Bank of Georgia. Holds a master's degree in economics from ISET. # Levan Dadiuni, General Counsel Formerly Senior Group Lawyer at BGED Group, Joined BGED in 2012. Levan has extensive experience in commercial law, equity investments, corporate and project financing and energy projects. Previously, he was a Partner at a leading Georgian law firm. Holds an LLM degree in International Business Law from University of Texas at Austin, USA. # Eka Dachidze, Executive Director Formerly served as CEO of Amber Group, a hospitality business of Georgia Capital. Previously, she was a corporate secretary and investor relations coordinator at BGED Group. Joined Bank of Georgia as Corporate Secretary in 2005. During the past years, she has carried out a number of crucial roles, including Executive Assistant to CEO and Head of Internal Branding, Recently, Eka oversaw the development of SOLO Banking and SOLO Lifestyle at Bank of Georgia. Prior, she served for eight years at the World Bank Group of which for two years she was at the World Bank HQ in Washington DC as a Programme Assistant in the OBC Department. 32 ![img-8.jpeg](img-8.jpeg) # OUR PORTFOLIO OVERVIEW LISTED AND OBSERVABLE PORTFOLIO Strategy Review Overview Strategy Review Our Business Strategy Review Discussion of Results Governance # Overview Bank of Georgia Group is a banking business with an impressive track record of delivering superior returns and maximising shareholder value. Diversified revenue sources, a growing loan book, robust asset quality, efficient cost performance and fee income growth are the main drivers of Bank of Georgia Group's profitability. JSC Bank of Georgia, a systemically important and leading universal Georgian bank, is the core entity of the Bank of Georgia Group. It offers a) retail banking and payment services (Retail Banking), b) banking services for small and medium-sized businesses (SME Banking) and c) corporate and investment banking operations (Corporate and Investment Banking) in Georgia. BoG is well-positioned to benefit from the growth of the Georgian economy through its business segments and aims to deliver on its growth strategy with strong capital and liquidity positions. In Retail Banking, a prominent component of the banking business, BoG runs a client-centric digital multi-brand offering with the aim of reaching the entire spectrum of retail customers, encompassing both the mass retail segment (Mass Retail) and affluent high-risk worth individuals (Premium Banking). Bank of Georgia is a digital banking and payments leader, with a strong retail and corporate banking franchise in Georgia. Focusing on customer satisfaction and enhancing its digital and advanced analytics capabilities, BoG aims to increase customer engagement and maintain its relevance in customers' daily lives. The SME Banking segment, through which BoG develops value propositions for small and medium-sized enterprises, has shown remarkable growth in recent years. In Corporate and Investment Banking, given the scale, the rich portfolio of banking products and services, and the industry and product expertise that it possesses, BoG is a universal bank of choice and top-of-mind advisor for Georgian corporates. In the brokerage business, under the Corporate and Investment Banking business, BoG is focused on profitable growth, through unlocking retail brokerage potential and fully digitalising brokerage services. # INVESTMENT RATIONALE The first entity from Georgia to be listed on the Premium Listing segment of the Main Market of the LSE (LSE: BGED), since February 2012. High standards of transparency and governance. Leading market position in Georgia by assets (37.8%), loans (36.8%), client deposits (39.0%) and equity (36.2%) as at 31 December 2023. Strongest retail banking franchise: 45.3% market share in deposits of individuals, 39.5% market share in loans to individuals as at 31 December 2023. Digital leader in Georgian banking sector with a strong retail banking franchise: 72.6% share of monthly active digital users in total active individuals. Growing market: The banking sector's assets growth rate at 22.7% (CAGR over 2002-2023). Sustainable growth combined with strong capital, liquidity and robust profitability. Outstanding ROAE performance. # Performance and strategy Bank of Georgia Group delivered strong results in FY23. Excellent top and bottom-line growth and outstanding ROAE were supported by the strong macroeconomic environment in Georgia. All sectors including Retail Banking, SME Banking and Corporate and Investment Banking exhibited excellent performance. Lending activity was robust, loan book quality remained strong and operating income increased in FY23. The latter driven by strong income generation across key revenue lines and supported by the significant gains from the sale of repossessed assets. BoG continued its focus on customer satisfaction, employee empowerment and improving its digital banking and payments business franchise, while maintaining a healthy cost to income structure. As a result, Bank of Georgia Group delivered a ROAE of 29.0% (adjusted for one-offs) in FY23, while maintaining robust liquidity and capital positions. On 19 February 2024, Bank of Georgia Group PLC announced that it has reached an agreement for the proposed acquisition of 100% of Ameriabank CJSC a leading universal bank in Armenia with an attractive franchise. The transaction price is US$ 0.305.6 million, which will be fully financed by the Bank's surplus capital at an attractive valuation of 0.65x net asset value as at 31 October 2023 and 2.6x P/E 2023. The transaction – expected to be EPS and ROAE accretive – represents a significant catalyst for the Bank and its shareholders. The Bank intends to keep the targeted pay-out ratio unchanged in the range of 30-50% of annual profits, potentially enabling increased capital distributions for the Bank's shareholders. In addition, Bank of Georgia is well positioned to export its superior digital banking capabilities in the underpenerated and growing Armenian economy. On 15 March 2024, the Bank announced its board's intention to recommend a final dividend for 2023 of GEL 4.94 per ordinary share at the Bank's 2024 Annual General Meeting. This will make a total dividend paid in respect of the Bank's 2023 earnings of GEL 8.00 per share. In addition, in March 2024, the Bank announced an extension of the buyback and cancellation programme by an additional GEL 100 million. Overall, the Bank's dividend and share buyback pay-out ratio for 2023 was 37% of total earnings. # OWNERSHIP Georgia Capital owns 19.71% of Bank of Georgia Group PLC, as of 31 December 2023. As long as Georgia Capital's stake in BoG is greater than 9.9%, it will exercise its voting rights in Bank of Georgia Group in accordance with the votes cast by all other shareholders on all shareholder votes at any general meeting. # VALUE CREATION POTENTIAL 20%+ ROAE Loan book growth 0.10% Regular progressive semi-annual capital distribution with 30%-50% dividend/share buyback payout ratio. Significant additional growth potential of Ameriabank within Bank of Georgia Group by using its experience and know-how in retail products, digitalisation and payment business. # PERFORMANCE TRACK RECORD¹ Dividend record GEL million ![img-9.jpeg](img-9.jpeg) Profits and ROAE² GEL million ![img-10.jpeg](img-10.jpeg) ![img-11.jpeg](img-11.jpeg) 1 Numbers are derived from the business's unqualified EPS accounts. 2 For the purpose of payout ratio calculation, total buyback amount is divided by outstanding stock. 3 2019, 2022 and 2023 numbers are adjusted for one-offs. 1 Market data based on standalone JSC Bank of Georgia accounts as of 31 December 2023 published by the NBG, www.nbg.gov.ge. 34 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## LISTED AND OBSERVABLE PORTFOLIO CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 | MARKET OPPORTUNITY | FINANCIAL METRICS AS AT 31-DEC-23 | | | | | | --- | --- | --- | --- | --- | --- | | Banking sector assets, loans and deposits | | | | 2 | | | | Banking business loan book | Deposit portfolio | ROAE | | Net Interest Margin | GEL billion (GEL million) (GEL million) ## 20,233 +20.0% y-o-y 20,523 +12.4% y-o-y 29.9% -2.5 ppts y-o-y 6.5% +1.1 ppts y-o-y 80.0 2 70.0 Cost/Income NPL coverage adjusted Tier 1 capital adequacy ratio Liquidity coverage ratio for discounted value of collateral 60.6 56.9 Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 50.6 29.8% -2.2 ppts y-o-y 117.6% -11.3 ppts y-o-y 20.0% 125.2% -7.2 ppts y-o-y 47.2 44.3 44.7 43.0 39.7 38.2 37. 2 34.6 34.6 31.9 30.1 | | 25.2 | | 26.6 | 26.2 | | --- | --- | --- | --- | --- | | | | 22.3 | 23.0 | | | 20.6 | | 19.8 | | | 18.9 | | | | | | | | | | | 17.3 | | | 16.0 | 17.0 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | 14.4 | | | 13.0 | 14.3 | | | | | | | | | | | 12.7 | | | | 11.6 | | | | | | | | | | | 10.6 | | | | 9.7 10.5 | | | | | | | | | | 8.9 | 8.3 | | | 7.7 7.6 | 8.7 | | | | | | | | | | 7.2 | | 6.0 | | 6.3 6.7 | | | | | | | | | | | 4.2 | | 4.6 | 4.0 | 5.2 5.5 | | | | | | | | | | | 2.5 | 2.1 | 2.7 3.2 | 3.6 | | | | | | | | | | | 0.7 0.8 | 1.7 1.0 | 0.9 1.3 | 1.7 | | | | | | | | | | | | ### OPERATING METRICS AS AT 31-DEC-23 Number of monthly active retail Number of monthly active digital % of monthly active users in total Number of mobile and internet Assets Deposits Loans customers (thousands) users (thousands) active retail individuals banking transactions (millions) Source: NBG ## 1,809 +10.8% y-o-y 1,357 +21.0% y-o-y 75.0% +6.3 ppts y-o-y 250.9 +45.7% y-o-y One of the lowest levels of non-performing loans (NPLs) worldwide, latest 2023 (NPLs to total gross loans) 6.7 5.3 4.1 3.8 3.4 ### 2.5 2.6 VALUATION HIGHLIGHTS 2.0 0.5 1.51.5 1.6 1.4 1.2 Stock price performance 1.0 GBP | | | | | | | Latvia | | | | | | | | | 40 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Estonia | | Türkiye | | | | | Poland | | | Croatia | Belarus | | | | | | | | | Slovenia | | Georgia | Slovakia | | | Hungary | | | Moldova | | | | Lithuania | | | | | | | | | Romania | | | | | | | | | | Czech Rep. | | | | | | | | | | | | 35 | | Source: IMF | | | | | | | | | | | | | | | 30 | 25 GBP 39.75 20 as at 31-Dec-23 15 10 5 Jun-18 Jul-18 Oct-18 Jan-19 Apr-19 Jun-19 Jul-19 Oct-19 Apr-20 Jul-20 Apr-21 Jul-21 Apr-22 Jul-22 Apr-23 Jul-23 May-18 Aug-18 Sep-18 Nov-18 Dec-18 Feb-19 Mar-19 May-19 Aug-19 Sep-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 May-20 Jun-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 May-21 Jun-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 May-22 Jun-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 May-23 Jun-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Implied multiple highlights at 31-Dec-23 LTM P/E Price to book (P/B) ## 4.3x 1.19x +1.5x Y TD +0.29x y-o-y CAGR 22.7% 53.7 1 Numbers are derived from the business’s unaudited IFRS accounts. 2 ROAE and Cost/Income ratios are adjusted for one-offs. 36 37 3736 1.3 2003 20052004 20072006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 202320222021 Bosnia & Herz. OUR PORTFOLIO OVERVIEW CONTINUED LISTED AND OBSERVABLE PORTFOLIO CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview 2023 WATER UTILITY # Overview The water utility business is a regulated natural monopoly in Tbilisi and the surrounding area, providing water and wastewater supply services to approximately 1.4 million residents and approximately 42,000 legal entities. The business also operates HPPs with a total installed capacity of 149MW. The water utility business uses a portion of the power generated by its HPPs associated with the water infrastructure to internal consumer and residential electricity tariffs to power its water distribution network, while the remaining electricity is sold on the market. Revenues come from two main streams (water and electricity sales), where the business benefits from both earning fair regulatory returns on invested capital made in upgrading the water utility network and average electricity sales price growth due to electricity market deregulation in 2019. In 2022, GCAP completed the sale of an 80% interest in the water utility business for a total consideration of US$ 180 million. In 2023, the valuation assessment of the remaining 20% equity stake in the business, where GCAP has a clear exit path through a pull and call structure at pre-agreed EBITDA multiples, reflects the application of the put option valuation while taking into account the revised tariffs for the 2024-2026 regulatory period, which received approval in December 2023 by an independent regulatory body, Georgian National Energy and Water Supply Regulatory Commission ("GNERC"). The water supply and sanitation (WSS) tariffs for legal entities in Tbilisi increased from GEL 6.5 to GEL 8.6 per cubic metre compared to the previous regulatory period of 2021-2023, while WSS tariffs for residential customers remained unchanged. The return on investment (WACC) is set at 15.44% (14.98% in the previous regulatory period). The tariff increase in 2023 will contribute to the healthy growth of the business revenue generation in the coming years, as well as demonstrating the transparency of the Georgian regulatory framework and its alignment with the EU principles. The regulatory WACC formula is based on publicly available market variables such as the risk-free rate, cost of debt, country risk premium and other factors. Value development overview¹ GEL million ![img-12.jpeg](img-12.jpeg) ![img-13.jpeg](img-13.jpeg) GCAP and the majority shareholder have put and call options for the minority 20% equity interest in the water utility business. GCAP'S PUT OPTION 8.25x EVERITIA Exercisable in 2025-2026. MAJORITY SHAREHOLDERS CALL OPTION 8.90x EVERITIA Exercisable on the date of expiry of the put option in 2026 and expiring six months thereafter. PRIVATE LARGE PORTFOLIO COMPANIES # Overview The retail (pharmacy) business is the largest pharmaceuticals retailer and wholesaler in the country, with 32% market share based on 2022 revenues. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The business operates two brands, Pharmadepot and GPC, with a total of 412 pharmacies (of which 367 are in Georgia, and 15 in Armenia) and 23 franchise stores (of which, two are in Armenia and four in Azerbaijan). The business's franchisee include brands like The Body Shop, a British company specializing in cosmetics, skincare and perfumes, Alan Afflecku SA, a top optical retailer in France, and Carter's, a leading American brand for baby and kids clothing. # Performance and strategy The retail (pharmacy) business successfully continued the growth of its retail segment. The ongoing expansion of the pharmacy chain and franchise stores, along with an increased share of para-pharmacy in total revenues, significantly contributed to the business's robust performance in 2023. The business strategy aims to achieve its targeted double-digit CAGR in EBITDA over the next five years. This will be accomplished by concentrating on several key areas: optimisation of its local pharmacy chains, which have seen the addition of over 100 pharmacies in the last five years; increasing sales through e-commerce channels; and pursuing international expansion. In accordance with its international expansion strategy, the business expanded its GPC pharmacy chain in Armenia in 2023, adding five new pharmacies, bringing the total to 15. Additionally, the company increased its presence in the Azerbaijan market by opening two new Body Shop stores, reaching a total of four in the country. Additionally, the business aims to explore international investment opportunities in other countries within the region. Due to continuous expansion and growth in recent years, the retail (pharmacy) business had reached the full capacity of its two warehouses. To accommodate its expansion, in 2023, the business located a new, larger and more efficient warehouse. This resulted in securing a ten-year lease contract with favourable terms at the beginning of the year. The new warehouse spans a total of 16.5 thousand square meters and replaces one of the existing two warehouses, which had a space of 5.5 thousand square meters. The new facility will be designated for handling para-pharmacy and non-medical inventories. In 2023, several regulatory changes in the healthcare market had a dampening impact on the performance of the retail (pharmacy) business. Starting in January 2023, the Ministry of Health, Labour, and Social Affairs of Georgia introduced an ERP model for prescription medicines funded by the state. ERP model is an approach where prices are set according to the benchmark prices for the same or similar medicines in comparable countries. According to the new initiative, the Ministry introduced the maximum retail price on targeted pharmaceutical products, in two directions: Generic and Original drugs. The price caps are set based on the average of such medicine prices in the following countries: Bulgaria, Latvia, Macedonia and Montenegro. In August 2023, a second wave of price regulations was introduced, extending beyond prescribed medicines to include portions of non-prescription medicines. Subsequently, in November 2023, the state announced a third wave of price regulations affecting both prescription and non-prescription medicines. The new prices, aligned with these latest regulations, took effect from January 2024. Overall, the anticipated impact of these price regulations on the 2024-year EBITDA is estimated at GEL 8 million. ![img-14.jpeg](img-14.jpeg) In response to the strategic focus, the para-pharmacy state regulations total revenue in 2023. The business supported by over the current # INVESTMENTS Largest retail and franchise per month. Retail business Supported by # OWNERSHIP In 2023 the industry's minority equity share of GCAP's own as at 31 December. The transaction management value created consistently growth opportunities # VALUE COVER The largest pharmaceuticals Georgian market operations in of distribution. High-growth environment and adding 38 ¹ The detailed valuation overview and related drivers are described on pages 101-119 of this report. Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 ### VALUATION HIGHLIGHTS ### FIVE-YEAR FINANCIAL TARGETSKEY FOCUS AREAS IN MEDIUM AND LONG TERM 2 Value development overview at 31-Dec-23 Adjusted net debt to EBITDA GEL million Continued growth of para-pharmacy share in total revenues, which carry considerably higher Expanding retail footprint in Georgia 1,044 2.2x ## 1 profit margins and are not subject to state ### Double-digit revenue CAGR regulation (8)(322) 1. 6x 714 <1.5x Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 Explore international investment opportunities International expansion | 2 | within the region | Double-digit EBITDA CAGR | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Enterprise | Net debt including | Minority | Equity | 31-Dec-22 31-Dec-23 Target | | | | | value | lease liabilities | interest | value | | Operate e-commerce in Armenia and Increase sales from e-commerce ## 3 Azerbaijan ### 9%+ EBITDA margin Implied multiple highlights at 31-Dec-23 Peer companies Supporting the core Expand highly synergetic product and service • NEUCA S.A. | Poland LTM EV/EBITDA Expanding the mix of synergetic products ## 4 mix in new format GPC drugstore • Sopharma Trading AD | Bulgaria and services • S.C. Ropharma S.A. | Romania • SALUS, Ljubljana, d. d. | Slovenia ## 9.7x • Great Tree Pharmacy Co., Ltd. | Taiwan • Dis-Chem Pharmacies Limited | South Africa 1 • Clicks Group Limited | South Africa ### PERFORMANCE TRACK RECORD Revenue and EBITDA Operating cash flow (excl. IFRS 16) GEL million GEL million 80 255 271 302 316 355 384 435 77.1 823.7 782.4 789.9 66.1 679.4 614.7 53.1 52.4 518.6 450.3 32.8 65.3 70.4 76.2 76.9 77.3 16.2 38.9 52.2 Revenue EBITDA, excluding IFRS 16 1 ### FINANCIAL METRICS | Revenue | EBITDA excluding IFRS 16 | Operating cash flow excluding | Free cash flow excluding IFRS 16 | | --- | --- | --- | --- | | (GEL million) | (GEL million) | IFRS 16 (GEL million) | (GEL million) | | 823.7 +4.3% y-o-y | 77.3 +0.5% y-o-y | 52.4 -32.1% y-o-y | (56.1) NMF | | Gross profit margin | EBITDA margin excluding | EBITDA to cash conversion | Dividend paid to GCAP | | --- | --- | --- | --- | | | IFRS 16 | excluding IFRS 16 | (GEL million) | | 29.7% +0.4 ppts y-o-y | 9.4% -0.3 ppts y-o-y | 67.7% -32.5 ppts y-o-y | 50.9 NMF | ### OPERATING METRICS | Number of pharmacies and franchise stores | Number of pharmacies and | Number of bills issued | Average bill size | Same store revenue growth | | --- | --- | --- | --- | --- | | | franchise stores | (million) | (GEL million) | | | | 435 +51 over 2022 | 31.3 +0.8% y-o-y | 19.8 +4.5% y-o-y | 0.4% +1.2 ppts y-o-y | 1 The detailed valuation overview and related drivers are described on pages 101-119 of this report. | | | 1 Numbers are derived from the business’s unaudited IFRS accounts. | | 2 Includes the application of the minority buyout agreement. | | | --- | --- | --- | --- | --- | --- | | | 40 41 | | | | 4140 | | 31-Dec-23 2017 | 2017 | 2018 2019 2020 2021 20232022 2018 2019 2020 2021 20232022 | 31-Dec-23 | | | Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 Overview Our hospitals business is the single largest healthcare market FIVE-YEAR FINANCIAL TARGETSKEY FOCUS AREAS IN MEDIUM AND LONG TERM participant in Georgia accounting for around 14% of the country’s total hospital bed capacity as of 31 December 2023. The business • Elective care services, outpatient services, operates 34 healthcare facilities in Tbilisi and major regional cities Adding new services and strategic oncology centre, transplantology centre and ## and provides secondary or tertiary-level outpatient and inpatient 1 projects clinical trials diagnostic, surgical and treatment services. In order to improve ### EBITDA CAGR 10%+ efficiency and seize emerging opportunities stemming from new Government regulations introduced in 2023 as detailed below, our healthcare business underwent a strategic restructuring • Nursing reform Quality projects ## in December 2023. This restructuring resulted in the split of 2 • Quality education programmes Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 the hospitals business into two distinct segments: “Large and ### EBITDA to operating cash c.85%+ Specialty Hospitals” (comprising 7 healthcare facilities) and “Regional and Community Hospitals” (comprising 27 healthcare • Automation of clinical processes facilities). The Regional and Community Hospitals now include Digitalisation of clinical processes • Digitalisation of clinical KPIs ## the community clinics that were previously managed under the 3 • Use of statistical methods clinics and diagnostics business. The transition for our patients From an operational performance perspective, the business ### is focusing on improving the capacity utilisation of hospitals, ROIC c.13%+ was seamless, and business operations remained uninterrupted. The existing hospitals’ management team has continued to increasing patient and employee satisfaction across the chain, • Inpatient manage the Large and Specialty Hospitals business and focus and driving efficiency through digitalisation of clinical processes. • Outpatient Improve key operational data ## on their continued growth, while enhancing profitability margins. 4 • Clinical A new CEO from a local competitor has joined the Regional and These, together with the improved cash flow generation and • Employee and customer satisfaction ## HOSPITALS BUSINESS allocating resources to high ROIC-generating investments, will Community Hospitals business to lead the team to focus on the service and efficiency from this group of hospitals. Large and help the business to achieve its goal to generate mid-teens CAGR | Specialty Hospitals and Regional and Community Hospitals | in EBITDA over the coming five years that is expected to support a | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 13%+ ROIC in the medium to long term. | | | | | 1 | | | | | | | represent approximately 75% and 25%, respectively, of the | | PERFORMANCE TRACK RECORD | | | | | | | | | | | consolidated hospitals business’s EBITDA. | | | 2 | | | | | | | | | | | | Net revenue | | | | | | | EBITDA (excl. IFRS 16) | | | | | In December 2023, the business signed an agreement to sell one | GEL million | | | | | | | GEL million | | | | Performance and strategy | of its regional and community hospitals for a total consideration | | | | | | | | | | | | | of GEL 34.6 million at 15.2x EV/EBITDA multiple, representing a | | | | | | 314.7 | 315.2 | | | 80.7 | | The performance of our hospitals businesses in 2023 has | | | | | 150 | | | | | | | | | | 285.5 | | | | | | | 73.3 | | | | | 43% premium to its pre-disposal valuation. The proceeds from this | | | 267.3 | | | | | | 70.3 | | | been impacted by a number of regulatory changes in the | | | | | | | 115.8 | 110.6 | | | 37 | 251.6 | | transaction were collected in January 2024 and were utilised for | 112 .4 | | | 31.3 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | healthcare sector. | | | | | | 30 | | 56.8 | | | | | | 117.8 | | | | 54.9 | | | | | deleveraging hospitals business’s balance sheet. The sale is in line | | | 108.7 | | | | | | | | | | | | | | | 20.8 | 46.1 | 23.3 To address the oversupply of beds and enhance the quality of with the business’s strategy to divest low-ROIC generating assets. 201.6 198.9 204.7 173.1 11. 8 42 43.7 the healthcare industry in Georgia, the Government introduced 149.5 40.3 142.9 35.9 34.3 a new facility regulation, effective from September 2023. This From a clinical perspective, the business continues to grow a new 31.6 regulation established upgraded standards for healthcare facilities generation of doctors and nurses, while building robust clinical and imposed minimum requirements for space allotted per quality management processes. The medium-term goals remain hospital bed. In order to adapt to the new standards, our hospitals knowledge and expertise advancement through education and business initiated a number of renovation projects in all of its professional development of our physicians and nurses. Quality assurance through the introduction and improvement of various Large and Specialty Hospitals Regional and Community Hospitals Large and Specialty Hospitals Regional and Community Hospitals facilities. This resulted in certain sections of our healthcare facilities being temporarily closed and unable to accept patients. The activities and processes at hospitals remains a top priority for us so that the business delivers better care to its patients. Operating cash flow (excl. IFRS 16) capex investment for the renovation projects amounted to GEL GEL million 11.3 million in 2023. The negative annualised impact of increased expenses that will result from additional requirements is estimated Going forward, the business strategy and key focus will be on 72.8 at GEL c.4.0 million. increasing revenues from elective care and outpatient services, 62.3 63.4 57.6 which are not subject to the state funding. These services have Although these new regulations have slowed the previously higher margins and considerably faster cash collection periods. projected pace of post-COVID recovery, we anticipate that they Considering that Large and Specialty Hospitals are located in 31.7 will enhance the quality of healthcare services in Georgia which, Tbilisi and major regional cities, they are strategically placed for and have positive prospects of increasing the flow of out-of-pocket 10.6 we believe will offer an opportunity to build on the competitive advantage of our high-quality healthcare businesses in the as well as privately insured patients. Elective care and outpatient medium to long term. services tend to have a considerably higher share of such patients. | INVESTMENT RATIONALE | OWNERSHIP | | --- | --- | | Very low base: healthcare services spending per capita only | Georgia Capital owns 100% of the hospitals business as at | | c.US$ 300 (EU average is c.US$ 3,300). | 31 December 2023 (31 December 2022: 100%). | Growing market: healthcare spending growth estimated at 8% CAGR 2018-2023. ### VALUE CREATION POTENTIAL In-depth knowledge of the local market: strong business 351.6 management team with proven track record. Increase in revenue from elective care and outpatient services, which have higher margins and faster cash collection periods. Extracting efficiencies and enhancing operational flexibility through a more concentrated strategy post-restructuring. 1 Numbers are derived from the business’s unaudited IFRS accounts. 2 Total revenue excludes eliminations between the large and specialty and regional and community hospitals. 42 43 4342 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 202 2 2023 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 ### MARKET OPPORTUNITY VALUATION HIGHLIGHTS 2 | State healthcare spending dynamics | Market share by number of beds | | | | Value development overview at 31-Dec-23 | | Net debt to EBITDA | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | GEL million | GEL million | | | | GEL million | | | | | | | GCAP hospitals | 2,225 | 14% | | | | | | | | | | | | 619 | | 3 | 5.3x 11% 839 5% State 10% 10%10% 9% 9% 9% 813 5% Aversi | 800 | | | | | | | 3.4x | | --- | --- | --- | --- | --- | --- | --- | --- | | | | 779 | 5% | (241) | | | | | | Geo Hospitals | | | | (33) | 344 | | <2.5x | | | | | | | 946 980 | | | 497 | 3% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 964 | | | Ghudushauri-Chachava | | | | | Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 | | | | | 1,680 | | | | | | | | | | | | | | | | 308 | 2% | | | | | 829 | | | | | | | 2% | | | 681 | 760 | | | | | | Gormedi | 286 | | 710 917 883 Enterprise Net debt including Minority Equity 841 | | | | | Archimede | 221 | 1% | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | value | lease liabilities | interest | value | | 343 | 305 | 329 | 349 | | | | | | | | | | | | | | 222 | 1% | | | | | PSP 193 1% Vivo Group | | | 9,620 | 60% | Implied multiple highlights at 31-Dec-23 | Peer companies | | --- | --- | --- | --- | --- | --- | | State healthcare spending – Other | Other | | | | | | State healthcare spending – UHC | | | | | • Medicover AB \| Sweden | LTM EV/EBITDA Healthcare spending as a % of total state spending Source: based on internal estimates. • EMC Instytut Medyczny SAEMC SA | Poland • Med Life S.A. | Romania Source: Ministry of Finance of Georgia. • Netcare Limited | South Africa ## 13.8x • MLP Saglik Hizmetleri A.S. | Türkiye • Life Healthcare Group Holdings Limited | South Africa • Country’s expenditure on healthcare as a % of GDP reached 4.0%. • The largest healthcare service provider in Georgia: 14%market • Government spending on healthcare accounts to c.10% of total share by number of hospital beds. budget in 2023. • Covering three-quarters of Georgia’s population. 1 ### FINANCIAL METRICS | Net revenue | EBITDA excluding IFRS 16 | EBITDA margin excluding | Net debt | | --- | --- | --- | --- | | (GEL million) | (GEL million) | IFRS 16 | (GEL million) | | 313.7 +0.1% y-o-y | 46.1 -18.7% y-o-y | 14.5% -3.3 ppts y-o-y | 262.0 +37.7% y-o-y | | Operating cash flow excluding | EBITDA to cash conversion | Free cash flow excluding IFRS 16 | Dividend paid to GCAP | | --- | --- | --- | --- | | IFRS 16 (GEL million) | excluding IFRS 16 | (GEL million) | (GEL million) | | 10.6 -66.5% y-o-y | 23.0% -32.9 ppts y-o-y | (35.1) NMF | 6.0 -53.8% y-o-y | ### OPERATING METRICS Large and Specialty Hospitals Number of facilities Number of beds Revenue per bed Occupancy rate ## 7 1,190 172.0 53.5% -2.0 ppts y-o-y ### OPERATING METRICS Regional and Community Hospitals Number of facilities Number of beds Number of registered patients Occupancy rate (community hospitals) (regional hospitals) 13% ## 27 1,035 229,943 -2.9% y-o-y 49.4% +3.0 ppts y-o-y Ingorokva & Tbilisi Medical Institute 1 The detailed valuation overview and related drivers are described on pages 101-119 of this report. 2 Restructuring of the healthcare businesses are applied retrospectively. 1 Numbers are derived from the business’s unaudited IFRS accounts. 3 LTM EBITDA excludes the recently divested Batumi hospital, and net debt includes cash proceeds from the transaction. 44 45 4544 31-Dec-22 31-Dec-23 Target 31-Dec-23 2 016 2017 2018 2019 2020 2021 2022 2023B 31-Dec-23 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 ## INSURANCE ### INVESTMENT RATIONALE VALUE CREATION POTENTIAL The insurance business comprises a) property and casualty (P&C) insurance business and b) medical insurance business. As of the beginning of 2024, the Georgian insurance sector adopted the Estonian Taxation Model. Prior to this change, the pre-tax profit of the Significantly underpenetrated insurance market in Georgia (0.7% Compulsory border MTPL effective from 1 March 2018. insurance businesses was levied by a 15% corporate income tax. Following the enforcement of the Estonian Taxation Model, a 15% penetration in property and casualty insurance market). Local MTPL is expected to kick in and provide access to untapped retail corporate income tax will be applied to earnings distributed to individuals or non-resident legal entities. Consequently, GCAP’s insurance Market leader with a powerful distribution network of point of sale and CASCO insurance market with only 5% existing penetration. businesses will no longer be subject to the corporate income tax payment, freeing up the resources for both business development and sales agents. enhanced dividend payments to GCAP. Increasing footprint in untapped MSME sector, where Aldagi’s gross revenues have grown by 61% in 2023 (from GEL 3.5 million to GEL 5.6 million). ### OWNERSHIP Digitalisation. Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 ## P&C INSURANCE The P&C insurance business is 100% owned by Georgia Capital. Undisputed leader in providing insurance solutions to corporate clients. Overview Over nearly three decades in the Georgian property and casualty insurance market, Aldagi has achieved almost universal brand awareness, leading positions in retail insurance services, with 1 ## P&C INSURANCE PERFORMANCE TRACK RECORD the largest product portfolio and exceptional financial strength. 2,3 The company has almost doubled its retail portfolio over the last Earned premiums, gross Profit and dividend payout ratio four years, outperformed market growth, delivered an average GEL million GEL million annual ROAE of c.31% in 2014-2023 and consistently distributed dividends within a 50%-90% payout ratio each year since 2014. 37%28% 37% 38% 34% 30% 25% 24%25% 30% Based on the latest available market data as at 30 September 160 2023, Aldagi continues to be the most profitable insurance CAGR +14% company in the local market with a 29% share of the insurance CAGR +11% 21 134 | industry profit and a market share of 30% based on gross | | • Large corporates. Although the level of insurance penetration | | 123 | | | | | 19 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | 18 18 | | 18 | | | | 1 | | within the corporate segment is relatively high compared to | | | | 17 | | | | premiums written. | | | | | 16 | | | | | 102 98 retail and SME segments, a combination of favourable Georgian 90 14 | | | | | | 64% | | | | 88% | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 86 | | | | | | 82% | | | The current low level of insurance market penetration in Georgia | macroeconomic conditions, a good investment climate, stable | | | | | | | | | | | | | | | | | 11 | | | | | | 71% | | | | 68 | 71 | | | | 68% | | | | | | | economic growth and an increase in infrastructure projects will | | | | | 61% | | | | | | | (1.3%, of which 0.7% relates to property and casualty insurance | | | | | | | | 55% | | | | 51% further increase customer demand for insurance products. 51 and 0.6% to medical insurance) provides enormous potential 7 for growth and Aldagi is well-equipped to capture these • International reinsurance. The P&C insurance business opportunities. The company plans to increase the P&C insurance entered regional reinsurance markets of Armenia and business profitability by strategically focusing on each of its four Azerbaijan. Aldagi became the first insurance company on the main business lines set out below: local market to obtain an international credit rating of bb+ from • Retail customers. The Georgian retail insurance market AM Best. The credit rating is expected to further support the Profit ROAE Dividend payout ratio offers ample room for growth, as most of its potential is yet to regional expansion of the business’s reinsurance operations. be unlocked. Motor insurance accounts for 59% of the total retail insurance market in Georgia, of which 17% third party Performance and strategy liability insurance (TPL) purchased at the border by foreign- 2023 was a robust year in terms of revenue growth for the P&C MARKET OPPORTUNITY registered vehicles entering Georgia, which became mandatory insurance business, up by 21.0%, mainly reflecting the growth in 4 from March 2018. Moreover, the motor insurance segment has the motor and credit insurance lines. However, loss and combined Market share, YTD Sep-23 Insurance penetration and density great potential to increase, as only 7% of registered cars are ratios were up by 6.5 ppts and 10.3 ppts, respectively, reflecting Gross premiums written | insured on the local market. A new law making TPL insurance | increased agricultural insurance claims due to an abnormal | | 10.5% | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 30% | | | | Georgian P&C | | | number of hailstorms as well as increased property insurance | | | 8.7% | | | | mandatory for all vehicles registered in Georgia is expected to | | | | | 6,364 | | Penetration – 0.7% be passed in the next few years which will significantly boost claims, resulting from an unprecedented landslide in one of the Density – US$ 49 22% | retail market penetration. Overall, Aldagi’s market share in | regions of Georgia. This translated into an 11.0% y-o-y decrease in | | 4,781 | | | 5.5% | 5.9% | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 18% | | | 6.9% | | | 4.7% | | | | voluntary retail insurance stands at 38% and Aldagi expects | the net income of the business in 2023. | | | 3,578 | | | | | | | | | | | | | | | 2,881 | | 2.2% | | | to grow its retail segment concentration by developing simple | | | | | | 2,756 | | | | 2.2% | 11% | | | | | | | | | | | | | | | | | | | | | 1.5% | | | | 1.3% | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | products for mass retail as well as developing a unique | Aldagi’s medium-term strategic focus remains unchanged. | | | | | | 8% | | | | | | | | | | | | | | 0.9% | | | | | | | | | | | | | | | | | | | | | 1,396 | | 409 | | | | | | | | | | | The business targets to gain a strategic edge by focusing on | | | | 4% | 5% | | | | | | | | | | | | 281 | 154 | | 134 | | | | | | customer experience through exclusive premium line services. | | | | 0% | | | | | | | | | | | | | | | | | | | 85 | | | | Aldagi aims to further strengthen customer retention and its | underwriting excellence and portfolio profitability backed by five | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Irao | | | | | UK | | | | | | | | | | | | | | | | market leadership position by continued development of its | key pillars: 1. Strengthening customer retention; 2. Introducing | | | | | | | GPIH | TBC | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | Aldagi | | | | | | | | | | | | | | | | | | | | | Hualing | | | Unison | | | | | France | | | | | Poland | | | Türkiye | | Russia | | | | | digital insurance platform. | new digital insurance products; 3. Improving customer experience; | | | | | | | | | | | | Belgium | | | Slovenia | | Bulgaria | | | | | | Georgia | | | | | | | | | | | | Insurance | | | | | Germany | | | | | | | | | | | | • SME segment. Georgia’s insurance market for SMEs is | | 4. Advancing employee recognition; and 5. Getting ready for local | | | | | | | | | | | | | | | | | | | | | | | | | | currently in its infancy. Aldagi sees significant potential to | MTPL insurance launch. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Source: ISSSG. | | | | | | | | | Insurance density, US$ Insurance penetration | | | | | | | | | | | | | | grow this segment of the portfolio by developing tailor-made products and providing them with established multi-channel As part of the strategy, Aldagi has the following financial targets Source: Swiss Re Institute. distribution networks and digital portals, created especially for through 2024-2026: SME clients. A separate SME sales division was established at • Market share of 25%-30%. | the end of 2019 as a part of this strategy. As a result, Aldagi’s | • ROAE of 25%-30%. | | --- | --- | | SME gross revenues have grown by 61% in 2023 (from GEL | • Dividend payout of 50%-80%. | | 3.5 million to GEL 5.6 million). | • Combined ratio of 80%-85%. | • Solvency ratio of 180%+. • Retail concentration of 60%+. 1 Numbers are derived from the business’s unaudited IFRS accounts. 2 2018, 2020 and 2021 numbers are adjusted for non-recurring items. 3 Calculated based on net income, adjusted for non-recurring items and average equity, adjusted for preferred shares where applicable. | | | | | 1 Source: ISSSG. | 4 Penetration and density are stated including healthcare insurance (as of latest available data). | | | --- | --- | --- | --- | --- | --- | --- | | | 46 47 | | | | | 4746 | | 2014 2015 2016 2017 2018 2019 2020 2021 20232022 2014 2015 2 016 2017 2018 2019 2020 2021 20232022 | | Switzerland | New Vision | | | | Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 Market and Aldagi gross written premiums GEL million ## MEDICAL INSURANCE | | 38% | 39% | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 36% | | | | | | | | | MEDICAL INSURANCE | | | | | 29% | | 29% 29% | | 30% | Overview | | | | | | | 28% | | 27% | | | | Our medical insurance business is one of Georgia’s largest | | | | | 502 | | | | providers of private medical insurance. The business has a wide | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 502 | | | YTD Sep-23 | | | | | | 442 | | 438 | | | distribution network and offers a variety of medical insurance | | | | | 442 | | 438 | market gross premiums | | | | | 370 | 380 | | | | | GEL 438 million | products primarily to Georgian corporate and state entities and | | | 370 | 380 | | | | | | | | 308 | | | | | | Aldagi share 30% | | also to retail clients. | 308 228 | | | 202 | 228 | | | --- | --- | --- | --- | --- | | | 195 | 202 | | | | Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 | 195 | | | CAGR 2015-2022 | In January 2024, our medical insurance business signed a | | | | | | | 127 | 138 | 129 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 110 | 127 | 138 | 129 | Market – 15% | | | | | | 90 | 105 | 110 | | | | | Memorandum of Understanding (MoU) to acquire a GEL 73 million | | | 77 | 88 | 90 | 105 | | | | | | | | 70 | 77 | 88 | | | | | | | Aldagi – 11% | | 70 portfolio of medical insurance contracts and brand name from 2015 2016 2017 2018 2019 2020 2021 2022 9M23 “Ardi”, the third-largest player in the Georgian health insurance Market Aldagi Market share Source: ISSSG market with a 17% market share based on 9M23 net insurance premiums. Upon the successful completion of this transaction, the combined market share of our medical insurance business will make it the largest health insurer in the country. 2 ### FINANCIAL METRICS Ardi’s portfolio is concentrated in the upscale segment category, Performance and strategy presenting an opportunity to further diversify our medical The significant growth in 2023 in earned premiums, reflects the Earned premiums, gross Net income Combined ratio insurance portfolio and achieve significant financial and strategic combined effect of an increase in the price of insurance policies (GEL million) (GEL million) synergies. The total cash outflow for this transaction is GEL 27 and increase in the number of insured clients within the same million, which will be fully financed by funds already available in period. The increase in insurance policy prices was a prevalent ## 160.4 +19.8% y-o-y 19.1 -11.0% y-o-y 89.5% +10.3 ppts y-o-y the medical insurance business, with no cash investment required trend in the Georgian insurance market, driven by increased loss f ro m G CA P. ratios following the shift in insurance policy utilisation patterns 3 Dividend paid to GCAP ROAE post COVID-19 pandemic. Notably, the figures for 2023 do not (GEL million) include the impact of the potential acquisition of the portfolio of Following this acquisition, the insurance business will operate under three brand names: Aldagi, Imedi L, and Ardi, all of which insurance contracts, which, subject to successful completion, ## 14.9 +0.9% y-o-y 24.4% -5.3 ppts y-o-y will be managed under GCAP. will be consolidated starting from 2024. Following the acquisition, the primary focus for the medical insurance business in 2024 will centre on deriving substantial synergies between the existing ### OPERATING METRICS and acquired insurance portfolios, leveraging increased scale efficiencies and aiming to deliver profitable growth. | Number of policies written | Number of policies written | Number of claims | | | | --- | --- | --- | --- | --- | | (corporate) | (retail) | reported | | | | | | | INVESTMENT RATIONALE | OWNERSHIP | | 114,378 +34.2% y-o-y | 210,984 +27.3% y-o-y | 25,920 +56.9% y-o-y | | | | | | | Being present in the whole healthcare ecosystem for any further | The medical insurance business is 100% owned by Georgia Capital. | potential market structural changes. 3 High ROAE-generating business with ample room for market ### VALUATION HIGHLIGHTS ## INSURANCE share growth. VALUE CREATION POTENTIAL Value and LTM P/E multiple development overview Net debt to EBITDA The potential to leverage the significantly increased scale to deliver GEL million growth and extract synergies. No No No 10.6x Leverage Leverage Leverage 286 1 228 Competitive landscape, market share by net premium revenue Key focus areas in medium and long term GEL million 19% 33% 17% 6% 2% 2% 21% Enhance gross Increase profit through 97 Leveraging scale “managed distribution 0 31-Dec-22 31-Dec-23 Target 2 to deliver profitable flow” through of non-PMI growth customer-centric products to the Equity value LTM P/E multiple process book – developing 65 57 “fee business” 50 Peer companies GEL million, unless otherwise noted 31-Dec-23 31-Dec-22 Change • Dhipaya Insurance | Thailand 4 LTM net income 22.0 21.5 0.5 • Zavarovalnica Triglav | Slovenia 18 5 6 4 Implied P/E multiple 13.0x 13.0x 10.6x 2.4x • Pozavarovalnica Sava | Slovenia • Aksigorta | Türkiye Vienna AlphaIC GroupPSPArdi OtherGCAP’s Equity fair value 285.6 228.0 57.6 medical Insurance • Anadolu Sigorta | Türkiye 5 insurance Group LTM ROAE 24.4% 29.7% (5.3 ppts) • Bao Minh Insurance | Vietnam • Turkiye Sigorta | Türkiye 1 Calculated in line with the market approach. 2 Numbers are derived from the business’s unaudited IFRS accounts. 3 The detailed valuation overview and related drivers are described on pages 101-119 of this report. 1 ISSSG as of 30-Sep-23. 4 LTM net income as at 31-Dec-23 and respective implied multiple are on a pre-tax basis, due to the business valuation incorporating impact of the Estonian Taxation Model. 2 PMI – private medical insurance. 48 49 5 Calculated based on average equity, adjusted for preferred shares. 4948 0 0 0 31-Dec-22 31-Dec-23 0 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE LARGE PORTFOLIO COMPANIES CONTINUED PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 Overview ### PERFORMANCE TRACK RECORD Our renewable energy business represents a leading platform for | Revenue and net profit | Combined ratio | | | | developing and operating HPPs and wind power plants (WPPs) | | | --- | --- | --- | --- | --- | --- | --- | | GEL million | | | | | across the country. The business operates commissioned | RENEWABLE ENERGY | | | | 96.1% | 97.4% | 94.8% | | | 94.1% 90.6% renewable assets with 71MW installed capacity in aggregate | | | | | 91.3 | | | | 18.1% | 18.5% | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 16.8% | 14.7% | | | | 16.6% | | | | | | | | | | 17.6% | | | | and with average capacity factors of more than 40%: 30MW | | 75.4 | | | 74.9 | | | 81.4% | | | 81.0% | | | | | | 72.4 | | | 77.3% | | | 79.3% | | 78.2% | Mestiachala HPP, 20MW Hydrolea HPPs and 21MW Qartli WPP. | | | 69.5 | | | | | | 73.0% | | | | | 30MW Mestiachala HPP was developed and constructed by the 55.1 renewable energy business, while the latter two assets represent successful acquisitions made by the business at the end of 2019. An 83% of the installed capacity of our power plants (all | | | 4.4 | 6.4 | | | 6.5 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2.9 | | | 3.8 | 3.4 | | | | Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 | | | | | | | but 12.3MW of our Hydrolea HPP) benefit from long-term power | purchase agreements (PPAs) formed with the Government-backed entity, resulting in predictable dollar-linked cash flows, as PPAs, Revenue Net profit Loss ratio Expense ratio as well as market sales, are denominated in US dollars. The renewable energy business is wholly-owned by Georgia Capital. works and b) a 4.6% increase in the average selling price, driven The renewable energy business aims to capitalise on favourable by the export of 32.3 GWh of electricity to the Republic of 1 Türkiye in 2023. Operating expenses were up by 19.4% y-o-y in ### FINANCIAL METRICS electricity market conditions in Georgia, on the back of the ongoing gradual harmonisation of the current energy market FY23, reflecting electricity and transmission costs incurred due structure with EU directives, leading to a more liquid, competitive to electricity export in the Republic of Türkiye. Consequently, Net premiums earned Combined ratio Dividend paid to GCAP and transparent market. Following the electricity market EBITDA was down by 7.1% y-o-y to US$ 10.4 million. During the (GEL million) (GEL million) deregulation in 2019, the Government of Georgia adopted a year, the business made US$ 2.0 million dividend distribution to new electricity market model concept in 2020, creating the path Georgia Capital. ## 91.3 +22.0% y-o-y 94.8% -4.7 ppts y-o-y 5.0 NMF towards launching day-ahead and intraday trading markets in the coming years. Overall, the renewable energy business expects The renewable energy business plans to develop 194MW installed Loss ratio Net profit (GEL million) planned reforms in the Georgian electricity market to have a capacity power plants in the medium term: Zoti HPP (46MW), further positive impact on electricity sales prices. Tbilisi and Kaspi WPPs (130MW) and Darchi HPP (18MW). The ## 78.2% -2.8 ppts y-o-y 6.5 +91.8% y-o-y business aims to establish a renewable energy platform with Performance and strategy growing dollar-linked cash flows and solid profitability, expected Revenue from electricity sales remained flat (down 0.9% y-o-y) to enable it to sponsor steadily increasing dividend payouts while and stood at US$ 14.4 million, reflecting the combination of a) the progressing against its medium-term strategic priorities: OPERATING METRICS scheduled rehabilitation works on two power-generating units at • Robust profitability with ~80% EBITDA margin. Hydrolea HPPs (which were taken offline during November 2022- • ~100% EBITDA to cash-conversion rate. Number of insured Renewal rate June 2023 periods due to previously planned phased rehabilitation ## 169,106 +3.3% y-o-y 81.8% +4.4 ppts y-o-y ### INVESTMENT RATIONALE VALUE CREATION POTENTIAL Favourable supply-demand dynamics pushing the power prices up. Opportunity to establish a renewable energy platform with up to 2 ### VALUATION HIGHLIGHTS ~270MW installed capacity over the medium term and capitalise on Georgia is on track for the harmonisation of current energy market favourable electricity market conditions. structure with EU directives leading to a liquid, competitive and Value development overview at 31-Dec-23 Net debt to EBITDA transparent market. Diversified portfolio of HPPs and WPPs with c.40%+ capacity GEL million factors, benefiting from long-term fixed price PPAs formed with the 19 Favourable mix of merchant sales and Government PPAs, providing Government-backed entity. high visibility and significant upsides in cash flows. 73 Availability of competitive green funding from both international and Natural cash flow hedge with fully dollarised revenues. local financial markets. Inherently green projects aligned with the international best practices High margins and dollar-linked cash flows. of environmental and social standards. Stable dividend provider capacity in the medium term. ### OWNERSHIP | | | Excess cash | | Equity value | | | The renewable energy business is 100% owned by Georgia Capital. | | --- | --- | --- | --- | --- | --- | --- | --- | | 31-Dec-23 | | | | 31-Dec-23 | | | | | Implied multiple highlights at 31-Dec-23 | | | | | Peer companies | | | | | 3 | | | | • Powszechny Zakład Ubezpieczen SA \| Poland | ´ | | | IMPLIED LTM P/E | | | LTM ROAE (adjusted for non-recurring items) | | | | | • Allianz SE | Germany • UNIQA Insurance Group AG | Austria 92 • Ageas SA/NV | Belgium No Leverage No Leverage No Leverage ## 11.0x 99.5% 17.2% -4.0x y-o-y +7.0 ppts y-o-y 1 Numbers are derived from the business’s unaudited IFRS accounts. 2 The detailed valuation overview and related drivers are described on pages 101-119 of this report. 3 LTM net income as at 31-Dec-23 and respective implied multiple are on a pre-tax basis, due to the business valuation incorporating impact of the Estonian Taxation Model. 50 51 5150 ### 0 Enterprise value 31-Dec-22 31-Dec-23 Target 2018 2018 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 ### RENEWABLE ENERGY PROJECTS OVERVIEW FINANCIAL METRICS Revenue (US$ million) EBITDA margin Dividend paid to GCAP (US$ million) Installed capacity, Capacity PPA PPA tariff, ## Commissioned/acquired projects MW factor expiration US¢/kWh 14.4 -0.9% y-o-y 71.8% -4.8 ppts y-o-y 2.0 -28.6% y-o-y Mestiachala HPP 30.0 40% 1H34 5.5 EBITDA (US$ million) Operating cash flow (US$ million) Hydrolea HPPs 20.4 70% 2H28 5.6 ## Qartli Wind Farm 20.7 47% 2H29 6.5 10.4 -7.1% y-o-y 9.9 -12.9% y-o-y Total operating 71.1 Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 Pipeline projects Zoti HPP 46.0 43% TBD 5.1 ### OPERATING METRICS Darchi HPP 18.0 60% TBD 5.7 Tbilisi Wind Farm 50.0 39% TBD TBD Electricity generation Average electricity sales (kWh million) (price per US¢/mWh) Kaspi Wind Farm 80.0 38% TBD TBD ## Total pipeline 194.0 254.0 -5.3% y-o-y 56.8 +4.6% y-o-y Total 265.1 Note 1: Mestiachala HPP was commissioned in 1H19; Qartli Wind Farm and Hydrolea HPPs were acquired in 2H19 by GCAP. 2 ### VALUATION HIGHLIGHTS Note 2: PPA terms for Tbilisi and Kaspi WPPs are under the discussion with the Government of Georgia. Note 3: Only one out of three Hydrolea HPPs has an active PPA contract. Value development overview at 31-Dec-23 Equity fair value composition at 31-Dec-23 US$ million ### MARKET OPPORTUNITY Electricity consumption (TWh) 99 (71) TOTAL VALUE 4.1% average consumption growth rate • 22.7% of total consumption 14.2 13.8 | | | | 13.1 | produced by gas-fired | | | --- | --- | --- | --- | --- | --- | | 12.6 | 12.8 | | | | 99 | | | | 12.2 | | thermal power plants | | 11.9 11.0 (TPPs), 5.2% – imported. US$ MILLION 10.4 Operational 10.2 | | | | 9.7 | • In 2023 weighted average | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 9.3 | 9.4 | | | | | | | assets | | | | | | | | Net debtEnterprise value | Equity value | | | | 8.4 | | | | | ESCO balancing price | | | US$ 78 mln | | reached 53.0 US$/MWh. 5 Net debt to EBITDA US$ million, unless otherwise noted 31-Dec-23 31-Dec-22 Change Enterprise value (EV) 169.6 154.7 14.9 6.8x EBITDA 12.0 12.2 (0.2) 6.4x <6.0x Electricity import and export dynamics (TWh) 3 Implied EV/EBITDA multiple 12.6x 11.4x 1.2x 4 Investments at cost (EV) 19.5 15.1 4.4 • 2023 net electricity deficit Net debt (70.5) (71.4) 0.9 stood at 2.8 TWh, whereas Equity fair value 99.1 83.3 15.8 in 2010, electricity surplus was at 0.6 TWh. 31-Dec-22 31-Dec-23 Target 1.5 1.5 • 2023 was an exceptional 1.5 0.9 0.7 0.7 year in terms of electricity 0.6 0.6 0.5 0.5 0.5 0.6 0.4 exports, with a record-high 0.2 0.2 | | | | | | | | export revenue of | Peer companies | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | $95.4 million. | • BCPG Public Company Limited \| Thailand | | 15 | Pipeline (0.2) | | | | | | | | | 20.0 | | 170 | | | | • Renewable energy business | | • ERG S.p.A \| Italy | | | projects | | (0.5) | (0.5) | (0.5) | | | | (0.6) | | | (0.7) | | | • Polenergia S.A. \| Poland | | --- | --- | --- | --- | --- | --- | | | (0.8) | | (0.8) | managed to capitalise on | | | US$ 21 mln (0.7) | | | | | | | | | | | the opportunity and | • Terna Energy Societe Anonyme \| Greece | 16.0 | (1.8) | (1.8) | | (1.5) (1.5) | | | (1.5) | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | (1.6) (1.6) | | | directly exported 32 GWh | | | | (2.2) | | | (2.0) | | | (2. 3) | | | | | | (2.4) | | | | of electricity to Türkiye. | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (2.6) | (1.8) | | | | | | | | | 12.0 | | | | | | | | (2.8) | | | | | (2.2) | | | | | (2.2) | (3.0) (3.0) | | | | | | | | | (2.0) | | | | | | 1 Numbers are derived from the business’s unaudited IFRS accounts. | | | | (2.5) | | | (2. 4) | | | | | | 2 The detailed valuation overview and related drivers are described on pages 101-119 of this report. 8.0 (2.1) (3.9) 3 Implied EV/EBITDA is calculated based on normalised LTM EBITDA. (2.2) (4.0) Electricity exports Electricity imports TPP generation Deficit (4.2) 4 Investments at cost include the pipeline projects. (4.3) (3.4) (2.8) (2.8) (2.4) 5 Ratio is calculated in US$ terms. 4.0 52 53 5352 (3.4) ### 0 ### 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20232022 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20222021 2023 31-Dec-23 31-Dec-23 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 Overview Targets for 2025 Currently Georgia Capital’s education business is the largest player in EBITDA (GEL million) 50 14 the private K-12 market in Georgia with 9% market share. Our business is managed with a partnership model and combines EBITDA margin 40%+ 26% majority stakes in four private school brands operating across Equity value GEL 500 million GEL 189 million seven campuses, acquired in 2019-2023: British-Georgian Academy (the leading school in the premium segment), British ROIC 20%+ 15%+ International School of Tbilisi (the leading school in the international Built learner capacity 22,000 7, 2 70 segment), Buckswood International School (well-positioned in the mid-scale segment) and Green School (the leading school brand in the affordable segment). The schools have a comprehensive Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 offering of academic programmes, including the Georgian National ### PERFORMANCE TRACK RECORD Curriculum, the International Baccalaureate and Cambridge ## EDUCATION International programmes. The annual tuition fees for these Our business, as the leading private K-12 education institution Number of learners and utilisation rate Total revenue generated by GCAP’s education business and market share programmes range from US$ 2,200 to US$ 19,300 across all four in Georgia, is ideally positioned to leverage the expanding and by revenue | segments and grades. | consolidating private education market. | 92% | 90% | | | | --- | --- | --- | --- | --- | --- | | | | | | 80% | 15%12%10%9%9% | | Our education business has expanded from the capacity in 2019 | Performance and strategy | | | | | 73% of 2,810 learners to 7,270 learners in 2023 through 1) expansion The business has expanded in 2023 through 1) the launch of the 62% of existing campuses (1,060 learner capacity), 2) acquisition of new campus in the mid-scale segment with 400 learner capacity 5,827 55 operating schools and real estate (3,000 learner capacity) and (the campus has an eventual capacity of 1,300) and 2) the 3) greenfield projects (400 learner capacity). Currently, there are acquisition of a new campus in the affordable segment with 1,200 43 4,162 | 5,827 learners at all seven campuses. | learner capacity (the campus has an eventual capacity of 1,600). | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 3,148 | | | 31 | | | All seven campuses have a combined utilisation rate of 80% | 2,582 | 2,516 | | 25 | 26 | | The private education market’s revenues across kindergarten th compared to 73% last year, taking into account the new capacity to 12 grade in Georgia have grown at 13% CAGR over 2013- 2023. Currently, there are c.66,000 learners in private schools in addition of 1,600 learners in mid-scale and affordable segments Georgia, representing 10.5% of the total general education market. in 2023. We expect the utilisation rate to stabilise at 85%+ in the 2020 2021 20222019 2023 2020 2021 20222019 2023 2020 2021 20222019 2023 The private general education market enjoys growth in enrolments following years. with a CAGR of 3% over 2013-2023 and rising average tuition fees Revenue, GEL million Market share by revenue Number of learners Utilisation rate with a CAGR of 9% over the same period. The business saw significant growth in 1st grader enrolments in the 2023-2024 academic year with 59% growth y-o-y from 551 to Management expects that the private general education market 873 translating into a 96% utilisation rate. MARKET OPPORTUNITY will increase by 1.5x in value in short to medium-term, driven Strong intakes and ramp-up of utilisation in existing campuses, Number of learners in private K-12 market Turnover of private K-12 market by factors such as the large gap in quality in public schools as | compared to private schools, growing household income and | facilitated 30% growth in revenue. However, expansion of the | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | a decreasing unemployment rate. Georgia has a relatively low | business through greenfield project in midscale segment and | | | | | | | | | | | | | | | | | | | | | | | | | | | CAGR 2014-2019 | CAGR 2020-2023 | | | average annual spending per K-12 learner, creating further room | acquisition of new campus in affordable segment, that are in early | | | | | | | | | | | | | | | | | | | | | 10.4% | 10.7% | 10.2% | | | 10.5% | | | | | | | 9.7% | 10.0% | 9.9% | 10.1% | | | | 9.7% | 10.0% | | | | | | for growth together with globally trending demand for private K-12 | ramp-up period translated in lower EBITDA margin. On the other | | | | | | | | | | | | | 4.7 | 4.5 education. The private education sector, previously impacted hand, EBITDA saw growth by generating GEL 14.4 million in FY23. 4.2 66 | | | | | | | | 63 | | | 64 | | | | | 3.8 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | 61 | | 62 | | | | | 3.6 | 3.7 | | | | | by reduced demand during the COVID-19 pandemic, is now | | | | | | | | | 60 | | | | | | | | | | | | | | | 58 | | | | | | | | | | | | 375 | | | | | 55 | 56 | | | | | | | | 3.2 | | | | | | | | Average cash collection rates remained at last year’s levels | 54 | | | | | | | | | | | | | | 343 | | | experiencing a notable rebound, offering an additional boost to | | | | | | | | | | | 2.9 | | | | | | | 2.7 and were in line with the schools’ cash collection policies. This 2.6 298 market growth. 280 281 257 combined with enhanced revenue streams, resulted in operating 217 cash flow generation in the business being up 5.5% y-o-y in 2023. 192 The private general education market in Georgia is currently very 177 158 fragmented with an increasing average school size and 15% fewer schools over the last decade. Currently, Georgia Capital is the The business has a strong platform to facilitate growth, strengthen largest player on the market with a 9% market share in terms of its position as the leading integrated education player and scale up 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2014 2015 2016 2017 20 18 2019 2020 2021 2022 2023E learners, while the second largest player holds 2.3%. Only 5% of the capacity to 22,000 learners by 2025. To achieve this objective, private schools have 1,000+ learners, while 61% have less than GCAP plans to make a new equity investment of US$ 18 million 250 learners. over the next few years. Number of private learners, thousands % of total number of learners Total revenue, GEL million Revenue per learner, GEL thousands ### INVESTMENT RATIONALE OWNERSHIP Highly fragmented general education market with Majority stakes (70%-90%) across different schools. consolidation opportunity. Market with strong growth potential. ### VALUE CREATION POTENTIAL Low dependency on the Government. ### 8000 High resilience to crisis. Scaling up to the capacity of 22,000 learners through expansion 12% 10% plans in existing schools, greenfield projects and M&As by 2025. Predictable and sticky revenue. Strong organic growth at existing schools is expected to drive solid ### 6000 60 75 Strong profitability. 450.00 growth in run-rate EBITDA, on top of expansion plans and M&As. 393.75 Capex efficient business. Stable dividend provider capacity in the medium term. 337.50 ### 4000 40 High trading multiples. 281.25 Positive ESG impact. 225.00 168.75 ### 2000 20 112.50 56.25 54 55 5554 ### 0.00 0 0 0 # OUR PORTFOLIO OVERVIEW CONTINUED PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED # FINANCIAL METRICS¹ Revenue (GEL million) 55.5 +30.3% y-o-y EBITDA (GEL million) 14.4 +6.0% y-o-y EBITDA margin 26.0% -6.0 ppts y-o-y Operating cash flow (GEL million) 17.4 +3.5% y-o-y # OPERATING METRICS Capacity utilization 80.2% +6.8 ppts y-o-y Number of learners 5,827 +40.0% y-o-y Learner to teacher ratio 7.9x -0.8x y-o-y # VALUATION HIGHLIGHTS² Value development overview 31-Dec-23 GEL million ![img-15.jpeg](img-15.jpeg) Net debt to EBITDA ![img-16.jpeg](img-16.jpeg) | GEL million, unless otherwise noted | 31-Dec-23 | 31-Dec-22 | Change | | --- | --- | --- | --- | | Enterprise value (EV) | 226.8 | 216.3 | 10.5 | | EBITDA (LTM)³ | 13.7 | 12.9 | 0.8 | | Implied EV/EBITDA multiple | 16.7x | 16.9x | (0.2x) | | Net debt | (15.5) | (15.3) | (0.2) | | Investments at cost | 30.5 | 15.3 | 14.2 | | Total equity value of GCAP's share | 189.2 | 164.2 | 25.0 | # Peer companies - SISE Public Company Limited | Thailand - Curro Holdings Limited | South Africa - Overseas Education Limited | Singapore - Cairo For Investment & Real Estate Development S.A.E | Egypt - Cogna Educação S.A. | Brazil - Colegios Peruanos S.A. | Peru - ADVTECH Limited | South Africa 1 Numbers are derived from the business's unaudited IFRS accounts. 2 The detailed valuation overview and related drivers are described on pages 101-109 of this report. 3 GCAP has different ownership status across schools (70%-90%). 4 LTM EBITDA is used for valuation purposes includes functional currency adjustment in schools, where applicable. # Overview Following the strategic restructuring of our healthcare businesses, as detailed in hospitals business overview on page 42, our clinics business currently comprises two segments: 19 polyclinics and one diagnostic centre. Polyclinics are located in Talisi and major regional cities and provide basic and full-scale outpatient diagnostic and treatment services. The business is the leader in the outpatient market with a 22% market share by number of registered patients. The diagnostics business was launched in 2018 by opening the largest laboratory in the entire Caucasus region – “Mega Lab”. The multi-disciplinary laboratory, equipped with the latest infrastructure and state-of-the-art technology, covers 7,500 square metres. In addition to basic laboratory tests, Mega Lab offers complex tests for oncology and molecular lab, some of which have never been available in Georgia and for which blood samples used to be sent abroad. In July 2022, Mega Lab received the Joint Commission International (JCI) accreditation. JCI, the highest healthcare accreditation body in the US, ensures the correct management of clinical processes. Its goal is to continuously improve the quality and safety of patient care. Mega Lab is the first laboratory in the Caucasus region with JCI accreditation and 38° worldwide. # Performance and strategy The clinics business has been growing rapidly with 15%+ revenue CAGR and 20%+ EBITDA CAGR over 2019-2023, despite a growth slowdown during the COVID-19 pandemic in 2020. The business has a solid track record of scaling its operations and gaining market share through profitable growth and margin increase. Our diagnostics business has also been growing rapidly, with 35%+ revenue CAGR over 2019-2023. The business added two new blood collection points in 2023 and invested in marketing and brand image to capitalize on significantly increased brand awareness during the COVID-19 pandemic. # INVESTMENT RATIONALE Very low base: Georgia stillings behind most of the developed countries in terms of the number of outpatient visits per capita – at 3.7 (USD in Europe). Low healthcare expenditure by the population on primary healthcare: GDP growth will result in higher expenditure on primary healthcare. ![img-17.jpeg](img-17.jpeg) The share of business structure is the utilization space for access. The new clinics are now new times to continue to availability of remote characteristics. The app to offer user experience. The diagnostic currently at more B2B c such as new perspective standards on a platform to residency pro The business and combination five years. # OWNERS Georgia Cap as at 31 Dec # VALUE C The single la patients (new advantage d High-growth of the import High-growth expansion, a Financial 15 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## OUR PORTFOLIO OVERVIEW CONTINUED ## PRIVATE INVESTMENT STAGE PORTFOLIO COMPANIES CONTINUED Georgia Capital PLC Annual Report 2023 Georgia Capital PLC Annual Report 2023 1 ### FINANCIAL METRICS ### FIVE-YEAR FINANCIAL TARGETSKEY FOCUS AREAS IN THE MEDIUM AND LONG TERM Net revenue EBITDA excluding IFRS 16 EBITDA margin excluding Net debt (GEL million) (GEL million) IFRS 16 (GEL million) Adding new services ## 61.7 +8.9% y-o-y 12.9 +129.9% y-o-y 20.8% +11.0 ppts y-o-y 35.8 -7.4% y-o-y ## 1 Expansion of medical and personal care service presence ### Double-digit revenue ### CAGR | | | Operating cash flow excluding | EBITDA to cash conversion | Free cash flow excluding IFRS 16 | | --- | --- | --- | --- | --- | | | Geographic expansion | IFRS 16 (GEL million) | excluding IFRS 16 | (GEL million) | | 2 | Adding new polyclinics and lab retail points | | | | | | | 6.9 +78.0% y-o-y | 53.5% -15.6 ppts y-o-y | 10.5 NMF | Georgia Capital PLC Annual Report 2023Georgia Capital PLC Annual Report 2023 ### EBITDA ### c.GEL 30+ million ### ClinicsDiagnostics Developing distance channels ## 3 Best user experience ### Double-digit revenue ### CAGR OPERATING METRICS – CLINICS ### Adding customer base ROIC c.13.0%+ 2 Number of facilities Number of registered patients Increased convenience and quality, increasing number of registered ## 4 patients; increasing provider insurance companies and corporate client base ## EBITDA 19 +2 over 2022 405,892 +7.1% y-o-y ### c.GEL 35-40+ million Expansion of retail Number of retail branches: c.15 in Georgia; tapping neighbouring ## 1 Double-digit revenue countries ### and EBITDA CAGR ### OPERATING METRICS – DIAGNOSTICS Attract B2B contracts | | | Number of patients | Number of tests | Average revenue | Average number of tests | | --- | --- | --- | --- | --- | --- | | 2 | Total number of tests performed: c.5 million annually | | | | | | | | served (’000) | performed (’000) | per test (GEL) | per patient | ### ROIC c.20.0%+ ## 779 -20.6% y-o-y 2,470 +1.8% y-o-y 7.5 -11.6% y-o-y 3.2 +28.2% y-o-y Digitalisation ## 3 3 ### VALUATION HIGHLIGHTS 1 4 Value development overview at 31-Dec-23 Net debt to EBITDA ### PERFORMANCE TRACK RECORD GEL million Net revenue and EBITDA (excl. IFRS 16) – clinics Net revenue and EBITDA (excl. IFRS 16) – diagnostics GEL million GEL million 172 6.9x 49.2 30.4 111 41.1 (58) (3) 37.2 3.6x 20.5 18.4 <2.5x 24.9 23.4 14.5 17.5 5 11.7 Enterprise value Net debt incl. Minority Equity value 31-Dec-22 31-Dec-23 Target 7.3 | | | | | | 7.6 | | 5.1 | | 1.8 | | 1.2 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 5.2 | | | | 0.2 | | 0.7 | | | | 2.6 | | 4.2 | | | 4.9 | | | | | | | 2018 | | 2019 2020 2021 2022 2023 | | | | | | | | | | Peer companies Revenue EBITDA, excluding IFRS 16 Revenue EBITDA, excluding IFRS 16 IMPLIED LTM EV/EBITDA • EMC Instytut Medyczny SA | Poland • Med Life S.A. | Romania Operating cash flow (excl. IFRS 16) – clinics and diagnostics • Medicover AB | Sweden ## GEL million 11.7x • Fleury S.A. | Brazil 15 8.2 6.9 3.9 2.5 2 0 0 0 0 0 0 1 Numbers are derived from the business’s unaudited IFRS accounts. 2 Prior to the strategic restructuring of the healthcare businesses, the number of registered patients was 635,835. 3 The detailed valuation overview and related drivers are described on pages 101-119 of this report. 4 Restructuring of the healthcare businesses are applied retrospectively. 1 Numbers are derived from the business’s unaudited IFRS accounts. 5 LTM EBITDA excludes the gain of GEL 2.9 million from the sale of one of the polyclinics buildings in 3Q23. 58 59 5958 ### 0 2018 31-Dec-23 2019 2019 2020 2021 2022 2023 2020 2021 2022 2023 lease liabilities interest 31-Dec-23 0 OUR PORTFOLIO OVERVIEW CONTINUED © Copyright Capital's Full Press, August 2023 OTHER PORTFOLIO COMPANIES # Overview Georgia Capital's other portfolio companies (7.7% of total portfolio value at 31 December 2023) consist of its auto service, beverages, housing development, and hospitality businesses. # AUTO SERVICE The Group's auto service business includes a car services and parts business under the Amboli brand and a periodic technical inspection (PTI) business. Georgia Capital acquired an 80% interest in Amboli at the end of June 2019, increasing its shareholding to 90% in February 2020. Amboli is an importer, distributor, wholesaler and retailer of car consumables and spare parts with a c.11% share in the target market, making it the second largest player in a highly fragmented market. The PTI business commenced the construction of PTI centres in the first half of 2018 and launched the PTI business in March 2019 under the name Greenway Georgia ("GWG"). As part of the Georgia EU Association Agreement, Georgia commenced the implementation of a mandatory vehicle inspection programme in several phases, starting from January 2019. In July 2018, GWG won a state tender to launch and operate 51 PTI lines across Georgia with a ten-year licence. GWG is the only player on the market with support from an international partner. Applux+, a Spanish headquarters and worldwide leader in testing, inspection and certification services with a market presence in more than 70 countries. GWG serviced 401,806 cars (of which, 349,832 were primary checks) in 2023, giving it a market share of 38%. # BEVERAGES The beverages business combines three business lines: a beer business, a distribution business and a wine business. The beer business produces beer and lemonade and holds a ten-year exclusive license from Heineken to produce and sell Heineken beer brands in Georgia. The beer business had c.25% market share in 2023. The business's brands include Heineken, Black Lion (the leading Georgian craft beer producer which the Group acquired in 2018), ICIY (its flagship mainstream beer brand), Kazibagi, which was acquired in 2019, Amstel and Krusovice beer, for which the business acquired a licence in 2019, and Kayaki (the Group's light beer brand). In 2019, the business received a licence to brew commercial batches of Heineken, and locally brewed Heineken beer has been available in stores since August 2019. Starting from the second half of 2019, the beer business relaunched its brands and improved its product mix, which helped it to increase its share in the beer market and allowed the business to achieve break-even EBITDA in the second half of 2019 and positive EBITDA in 2022 and 2023. The business also started to export its beer and lemonade brands to the international markets. The wine business produces and sells wine locally and exports it to 26 countries. The wine business owns three top-class wineries across Kashmir's three wine-making regions and is in the top five wine producers by vineyard base in Georgia. The vast majority of the vineyards grow Georgia's flagship red wine grape, Saperevi. The wine business sold 11.6 million bottles of wine in 2022, with approximately 65% of sales coming from exports. The business has a market share of 8.3% in the Georgian wine export market. # HOUSING DEVELOPMENT The Group's housing development business is a leading real estate developer in the Georgian real estate market, targeting mainly mass-market customers by offering affordable, high-quality and comfortable housing. The business is wholly owned through Georgia Real Estate, previously known as m². The housing development business has five ongoing projects: m² Saburtalo, m² Mitataminda Park, Nutsubaba, Mitrashulava and Chiovedalai (Sveti projects). In connection with the m² Saburtalo project, the business has sold 147,425 square metres with US$ 151 million sales value as of 31 December 2023. m² Mitataminda Park is a new project that commenced in 2023. As of 31 December 2023, a total area of 5,601 square metres with a sales value of US$ 10.2 million has been sold. Regarding the three other projects, the business took on the responsibility to support the completion of three suspended projects of the Sveti construction company, adding 178,486 square metres of the sellable area to its inventory. The projects are ongoing in three locations in Tbilisi and the construction and development will continue for approximately two years. The business started construction and sales for the Sveti project in April 2020 and has sold 154,454 square metres with a US$ 121.3 million sales value as of 31 December 2023. # HOSPITALITY In 2023, the hospitality business successfully completed the sale of two operational hotels, vacant land plots and three under-construction hotels located in Tbilisi and Kutaisi, leaving one operation hotel, Gudsuri Lodge, with 121 rooms. The total consideration from these transactions amounted to US$ 38.6 million. The proceeds from these sales were utilized for deleveraging the hospitality business's balance sheet. The business is wholly-owned through Georgia Real Estate. 80 National | United Overseas Strategic Review Our Business Strategic Review Dissociation of Results View Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## S172 STATEMENT Georgia Capital PLC Annual Report 2023 Statement by the Directors on of their duties under Section 172 of the UK Companies Act 2006 (the “Act”) | | In accordance with the requirements of section 172 of the Act, the Directors consider that, during the financial year ended 31 December 2023, they | Expansion of the education business | | | from the 2023-2024 academic year, it will | | densely populated urban areas in central | | --- | --- | --- | --- | --- | --- | --- | --- | | | have acted in good faith and in a manner most likely to promote the success of the Company for the benefit of its shareholders, having regard to the | | | | operate under the existing affordable brand | | Tbilisi where demand for the quality | | | likely consequences of any decision in the long term and the broader interests of other stakeholders, as required by the Act. Some examples of the | In line with GCAP’s capital allocation strategy, | | | in the Group’s portfolio – Green School. | | education offered by our Green School is | | | Board’s engagement with stakeholders during 2023 are set out below. | in March 2023, the Company announced a | | (b) The land plot is located adjacent to the | | | expected to be high. With this investment, | | | | further expansion of its K-12 education business | | | operational campus of our premium and | | the education business has significantly | | | The Directors have identified the following key stakeholders as essential to the success of the Company: investors; employees; the wider community; | through two investment projects: (a) the | | | international school. | | expanded from the previous built capacity | | | government and regulators; and the environment. The key stakeholders and the primary ways which the Board engages with them are set out on | acquisition of a new campus in the affordable | | | | | of 5,650 learners to 6,850 learners. | | | pages 128 to 130. Stakeholder issues are an integral part of the Board’s decision-making process and, therefore, the Board embeds these as part of | segment, and (b) acquisition of a land plot for | | Key stakeholder interests considered: | | | Additionally, the current management | | | overseeing the management of the Company and the portfolio companies. The Company endeavours to balance any conflicting shareholder needs | the expansion of an operational campus in the | | • Investors: the projects are in line with | | | teams of our education business are | | | to ensure all are treated consistently and fairly. | premium and international segment. | | | Georgia Capital’s capital allocation strategy, | | working to make top-class educational | | Georgia Capital PLC Annual Report 2023 | | (a) The new campus in the affordable | | | targeting the expansion of the affordable | | services accessible on a larger scale. | | | Other steps the Board has taken to meet its Section 172 responsibilities can be seen in this report: | | segment has a capacity of 1,200 learners | | segment in the education business. | • Employees: the projects will bring | | | | | | and provides education to 310 learners. | • Local communities: the new campus is | | | employment to Tbilisi. | Section 172 factor Examples Page Following the planned rebranding, starting located in the Saburtalo district, one of the The likely consequences of any decision in the long term Corporate Governance Framework 124 Interests of employees Corporate Governance Framework 124 | Fostering the Group’s business relationships with suppliers, | Corporate Governance Framework 124 | | Transfer from LSE Premium Listing to | | factor in determining class tests related | • Customers, employees, national | | | --- | --- | --- | --- | --- | --- | --- | --- | | customers and others | | | LSE Standard Listing | | transaction execution paths. | | community and other stakeholders: | | Impact of operations on the community and the environment Resources and Responsibilities | | 80 | | • Provide greater flexibility to execute | | | by facilitating exits, the transfer brings | | | | | In February 2023, the Company proposed a | | meaningful share buybacks, including | | greater flexibility for international | | | Sustainability Report 2023 | (see separate document) | transfer from the Premium to the Standard | | the ability to repurchase more than 15% | | investment and industry expertise | | | | | Listing segment. Following the approval | | of our issued equity capital without the | | into Georgia. | | Maintaining a reputation for high standards of business conduct Resources and Responsibilities | | 80 | | | | | | | | | | of 99.99% of the voting shareholders, the | | requirement to make a tender offer. | | | transfer to the LSE Standard Listing segment | | Sustainability Report 2023 | (see separate document) | | | | --- | --- | --- | --- | --- | | | | | became effective on 13 April 2023. | In light of the above, the Board considered | | Acting fairly between members of the company Georgia Capital Strategy 18 | | | | that the additional flexibility described above | | | | | The Board considered that a Standard listing | will assist in the successful execution of the | | | | | was more suited to the Company’s size and | Group’s strategy, that the likely cost savings | The framework detailing the authority for decision-making, where the Board delegates to management, is discussed in the Company’s Corporate strategy and would help the Company better are material, and that therefore a Standard Governance Framework on pages 124-132. It mandates consideration of these stakeholder responsibility factors as a critical part of delegated authorities. achieve its strategic goals and produce listing was more suited to the Company’s size greater value for shareholders. In particular, and strategy. The Board engages with the relevant stakeholders directly on certain issues, and their feedback is considered when the Board discusses and makes the Board expects that the transfer will: decisions relating to those reserved for it, such as financial and operational performance, investment and exit decisions and strategic matters. This • Assist in the elimination of transaction Key stakeholder interests considered: information is usually fed back through presentations and reports to the Board, within Committee or Board meetings. This process is described in delays and costs associated with • Investors: The transfer is in line with the the Directors’ Governance Statement on pages 120 to 121. regulatory class tests and ensure a Company’s overarching strategy and more seamless execution of significant purpose, aimed at delivering long-term, Principal decisions transactions, such as disposals sustainable and profitable growth. There are processes in place to capture and consider stakeholders’ views (including the matters contained in section 172 of the Act) and feed them of portfolio companies. This will • Governments and regulators: the into Board decision-making. enable the Company to minimise its Company devoted time and resources dependency on market capitalisation to ensure regulatory compliance with Material business decisions considered by the Board include an analysis of stakeholder considerations, anticipated impact and the risk controls. fluctuations, especially during periods of the transaction. This is a rigorous process, which helps the Board to perform the duties outlined in section 172 of the Act and provides assurance to the Board that challenging market conditions, as market potential impacts on stakeholders have been considered in the development of the proposal. capitalisation will no longer be the main Set out below are some case studies of principal decisions that have been taken by the Board: | | | | | | Georgia Capital share buyback and | Key stakeholder interests considered: | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | cancellation programme | • Investors: offering immediate returns | | | Issuance of US$ 150 million | Key stakeholder interests were considered: | | | conservation and pollution prevention, | | | to shareholders seeking them and | | sustainability-linked bond | • Equity investors: Georgia Capital | | | thereby contributing to the transition | In line with the Company’s capital allocation | | an increased share in the business to | | | | has continued to make significant | | towards a more sustainable and lower | strategy, in April 2023, the Company | | shareholders who do not participate, | | In August 2023, JSC Georgia Capital issued | | progress on its core strategic priority of | | carbon economy in Georgia. | launched a US$ 10 million share buyback | | all the while balancing the Company’s | | a US$ 150 million SLB on the Georgian | | deleveraging the balance sheet. | • Governments and regulators: the | | and cancellation programme under which | | need to preserve liquidity and ensure the | | market. The proceeds from the transaction, | • Debt investors: The bonds created an | | | Company devoted time and resources | it bought back 1,000,000 shares (US$ 10 | | sustainability of the business. | | together with the existing liquid funds of | | attractive new opportunity for debt | | to ensure regulatory compliance with | million (GEL 25.4 million)). | | | | GCAP were fully used to redeem GCAP’s | | investors, including some Eurobond | | the transaction. | | In total, since the commencement of the | | | Eurobonds. Following these transactions, | | investors who reinvested in the new | • Local communities: the transaction | | Due to the Company’s robust liquidity | buyback programmes in April and October | | | GCAP’s gross debt balance decreased from | | offering, as well as local investors. | | represents the largest-ever corporate | levels and elevated discount to NAV per | 2023, 1,665,222 shares (3.7% of issued | | | US$ 300 million to US$ 150 million. | • Environment: Georgia Capital has | | | bond offering in Georgia, and the first | share, in October 2023, the Company | capital) was repurchased in 2023. The total | | | | | established a SLB Framework, under | | of its magnitude and kind in our region, | announced an additional buyback | value of shares amounted to GEL 47.9 million | | | | | which GCAP intends to decrease | | making a valuable contribution to the | programme of US$ 15 million. | (US$ 18.3 million). | | | | | its GHG Emissions by 20% by 2027 | | development of the local capital markets. | | | | | | | compared to a 2022 baseline. Through | | | For more details on the share buyback and | | | | | | this target, GCAP will support climate | | | cancellation programmes, please see page | | | | | | change mitigation, natural resources | | | 12 of this report. | | | 62 63 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## S172 STATEMENT CONTINUED Georgia Capital PLC Annual Report 2023 Divestments from Key stakeholder interests considered: subscale businesses • Investors: the net debt of the business decreased significantly. | In 2023, the hospitality business | • Employees: ensuring that the | | | --- | --- | --- | | successfully completed the sale of | | new management continued to | | two operational hotels, vacant land | | provide high-quality employment | | plots and three under-construction | | standards and job security to the | | hotels located in Tbilisi and Kutaisi. The | | existing employees. | aggregate consideration received from the transactions amounted to US$ 38.6 Georgia Capital PLC Annual Report 2023 million and was utilised to deleverage the hospitality business’s balance sheet. The Board and its Committees monitor the Strategic reorganisation across the Key stakeholder interests considered: effectiveness of engagement with stakeholders healthcare businesses • Investors: restructuring of the businesses through various methods. captures emerging opportunities and | Following a strategic review in 2023, | | enhances operational efficiencies. | The Board continues to believe that the | | --- | --- | --- | --- | | the hospitals business was split into two | • Customers and local communities: for | | operation of the designated Non-Executive | | distinct segments: “Large and Specialty | | patients, the transition was seamless, | Director for workforce engagement has been, | | Hospitals” and “Regional and Community | | and business operations continued | and continues to be, an effective means of | | Hospitals”. The Regional and Community | | uninterrupted, with an enhanced focus | engaging with the workforce, to help the Board | | Hospitals incorporate the community clinics | | on both groups of hospitals formed | understand the matters that concern the | | that were managed and presented as part of | | following the strategic restructuring. | workforce and their specific interests, whilst | | the clinics and diagnostics business. | • Employees: the existing hospitals’ | | having regard to these in the decisions that are | | The Large and Specialty Hospitals and | | management team will continue to | made at Board level. | | Regional and Community Hospitals | | manage the Large and Specialty | | | segments represent approximately 75% | | Hospitals business and focus on their | Similarly, the informal and formal channels | | and 25%, respectively of the consolidated | | continued growth, while enhancing | in which the Group has adopted to engage | | hospitals business’s EBITDA. | | profitability margins. | with its investors, the local communities | | | • Governments and regulators: the | | and the environment, through a variety of | | | | Company devoted time and resources | media platforms, have performed well and | | | | to ensure regulatory compliance with | flexibly. The Board’s Responsible Investment | | | | the transaction. | Policy ensures the Group’s commitment to | conducting business in an environmentally, socially responsible and sustainable manner, in order to reduce the environmental harm of the Group’s operations, while improving social impact to enhance long-term returns to shareholders. The Board and Committees’ annual evaluation process gives Directors the opportunity to comment on the engagement mechanisms in place with our different stakeholder groups and invites them to make recommendations for improvement. Through the adoption of our Code of Conduct and Ethics we ensure high standards of business conduct for all our stakeholders and seek to promote a culture where transparency and fairness are the norm. For the coming year, the Board will continue to ensure effective stakeholder engagement, ensuring the frequency of interaction is maintained and reviewed (where appropriate) over matters that are considered material to the Group. Photo Dusheti forest, Georgia 64 65 # RISK MANAGEMENT We believe that effective risk management underpins the successful delivery of our strategy. We identify, evaluate, manage and monitor the risks that we face through an integrated control framework supported by formal policies and procedures, clearly delegated authority levels and comprehensive reporting. The Board confirms that our framework has been in place throughout the year under review and to the date of approval of this Annual Report and is integrated into both our business planning and viability assessment processes. ## Overview Our Board, supported by our Audit and Valuation Committee and executive management, is ultimately responsible for the Group's risk management and internal controls with a view to maintaining ongoing sustainability. As an investor, Georgia Capital is in the business of taking risks in order to achieve its targeted returns for investors and shareholders. The Board approves the strategic objectives that determine the level and types of risk that Georgia Capital is prepared to accept and reviews the Group's strategic objectives and risk appetite at least annually. We believe that, in order to have an effective risk management framework, there needs to be a strong risk management culture within the Group. We have worked to ensure that managing risk is ingrained in our everyday business activities. We seek to create an environment where there is openness and transparency in how we make decisions and manage risks and where business managers are accountable for the risk management and internal control processes associated with their activities. Our culture also aims to ensure that risk management is responsive, forward-looking and consistent. Georgia Capital's risk culture is built on rigorous and comprehensive investment procedures and disciplined capital management. ## Risk appetite Our risk appetite is defined by our strategic objectives. We invest capital and develop businesses that will have strong capital returns. Georgia Capital applies the following investment criteria: - Geographic focus: investing in and developing businesses in Georgia, the country we know – a diversified, resilient, fast-growing economy across the last decade. - Focus on liquidity: the Group predominantly invests in capital-light, larger-scale investment opportunities in Georgia, which have the potential to reach at least GEL 300 million equity value over the next three to five years. The Group believes a larger size will provide improved liquidity and superior self opportunities, to support the Group's desire to reduce the current discount to reported NAV per share. - Sector focus: investing mostly in fragmented and underdeveloped markets, particularly targeting high-multiple service industries. - Return target: combination of the ROIC, MOIC, IRR and GCAP share price value versus investments return is the key decision-making matrix used in the investment decision-making process. - MOIC and IRR are determined at the Group level, as we evaluate achievable money multiples with all acquisitions and analyse them in combination with the expected IRR. - ROIC is evaluated for financing projects and reinvestment at each portfolio company level. Different yields are appropriate for different industries. ROIC is at the core of decision-making when the portfolio companies are investing or devoting assets or businesses. ROIC should be more than WACC for new investments. As part of ROIC enhancement initiatives across our portfolio, our businesses are aiming to continue divestment of low ROIC and/or non-core assets and businesses. - GCAP share price is at the core of decision-making when it comes to new investments. The Group performs 300-degree analysis each time GCAP makes a capital allocation decision and compares, at the investment opportunity versus buyback opportunity, and to the sale opportunity versus buyback opportunity. The Group intends to buy assets/companies at a higher discount to their listed peers than GCAP's fair value discount. Georgia Capital is targeting to invest in opportunities which produce greater returns than returns offered by buying back GCAP shares. ## Capital management Georgia Capital adopts a highly disciplined approach to managing its capital resources as follows: - 360-degree analysis, when evaluating capital returns, new investment opportunities or divestments. - Georgia Capital allocates capital such that it does not depend on premature sales of listed portfolio investments. Georgia Capital does not have capital commitments or a primary mandate to deploy funds or divest assets within a specific time frame. As such, it focuses on shareholder returns and on opportunities which meet its investment return and growth criteria. - The Board regularly reviews any major investment and divestment opportunities. ## Our framework and approach to risk governance The Board is responsible for setting the right tone and encouraging characteristics and behaviours which support a strong risk culture and effective risk management process across the Group. The Board's mandate includes determining the Group's risk appetite and risk tolerance as well as monitoring risk exposures to ensure that the nature and extent of the main risks we face are consistent with our overall goals and strategic objectives. Non-executive oversight is also exercised through the Audit and Valuation Committee which focuses on upholding standards of integrity, financial reporting and valuation framework, risk management systems, going concern, internal control and assurance frameworks. The Audit and Valuation Committee's activities are discussed further on pages 133 to 138. The Board ensures a centralized process led approach to investment and the overriding priority is to protect the Group's long-term viability and reputation and produce sustainable, medium to long-term cash-to-cash returns. The Board's activities are discussed further on pages 124 to 128. At the Board, Committee and executive management levels, we develop formal policies and procedures which set out the way in which risks are systematically identified, assessed, quantified, managed and monitored. The Board, which has oversight of the investment pipeline development and approves new investments, significant portfolio changes and divestments, is integral to embedding our institutional approach across the business. It ensures consistency and compliance with Georgia Capital's financial and strategic requirements, cultural values and appropriate investment behaviours. Each business participates in the risk management process by identifying the key risks applicable to its business. The principal risks and uncertainties faced by the Group are identified through this process, as are the emerging risks. On a day-to-day basis, management is responsible for the implementation of the Group's risk management and other internal control policies and procedures. Based on our risk culture, managers "own" the risks relevant to their respective function. For each risk identified at any level of the business, the risk is measured and mitigated (if possible) in accordance with our policies and procedures. Middle level managers, both at each portfolio company and Georgia Capital level, are required to report on identified risks and responses to such risks on a consistent and frequent basis. Executive and senior management regularly review the output from the bottom-up process by providing independent, challenge and assessing the implementation of the risk management and internal control policies and procedures. Our reporting process enables key risks and emerging risks to be escalated to the appropriate level of authority and provides assurance to the Committees and the Board. Key developments affecting our principal risks are often process A direct recent page ## Risk governance structure ### BOARD - Determines the Group's risk appetite as part of strategy setting. - Overall responsibility for maintaining a system of internal controls that ensure the Group. - Assisted by the Board Committees with specific responsibility for key risk management. - Following the Annual General Meeting (AGM) held on 17 May, 2023, the Investmen were merged into those of the Board. Consequently, the Board adopted a central plan for priority of safeguarding the Group's long-term viability and reputation, and generally – Board evaluates risks in relation to the entire investment entity portfolio, management and divestment decisions, monitors investments against the Group's policy and risk appetite. For the private portfolio companies, it oversees management. ### Audit and Valuation Committee - Responsible for managing financial reporting risk and internal control and the relationship with the external auditor. - Reviews and challenges risk management reports from Group Finance and Internal Audit. - Specific and primary responsibility for the Valuation Policy and valuation of the investment entity subsidiaries. - Provides oversight and challenge of underlying assumptions on the valuation of the private portfolio companies (62.3% of portfolio value at 31 December 2023). All private large and investment stage portfolio companies (54.8% of the total portfolio) are valued externally by an independent valuation company on a semi-annual basis. - Direct engagement with the external auditors, who involve their specialist valuations team. ### Remuneration Committee - Reviews and recommends the Directors' Remuneration Committee ensure that remuneration is to promote the long-term success of Capital (and see that management is appropriately rewarded for contribution to the Group's growth, the context of wider market shareholder views). - Approves variable compensation for our investment professional in line with market practice in Group to attract and retain. - Ensures that remuneration is a shareholder returns. ### MANAGEMENT BOARD The Management Board is led by the Chief Executive Officer and has: - Delegated responsibility for management of the Group. - Delegated responsibility for investment decisions. - Delegated responsibility for risk management. 66 RISK MANAGEMENT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview # Bodies implementing the risk management system As mentioned in page 67, our Board is responsible for reviewing and approving the Group's system of internal control and its adequacy and effectiveness. Controls are reviewed to ensure effective management of strategic, financial, market and operational risks, amongst others. Certain matters, including but not limited to the approval of major capital expenditure, significant acquisitions or disposals and major contracts, are reserved exclusively for the Board. The full schedule of matters specifically reserved for the Board can be found on our website at: https://georgiacapital.ge/governance/cgi?module. With respect to other matters, the Board is often assisted by the Audit and Valuation Committee. The Management Board has overall responsibility for the Group's assets, liabilities, risk management activities, respective policies and procedures. In order to effectively implement the risk management system, the Management Board delegates individual risk management functions to each of the various decision-making and execution bodies within the Group, as described below. # Internal Audit department The Group has an established Internal Audit department, which is responsible for the regular review/audit of the Group's operations, activities, systems and processes. In order to evaluate and provide reasonable, independent and objective assurance and consulting services designed to add value and improve the Group's operations. The Group's Internal Audit department is independent of the Management Board. The Head of the Group's Internal Audit department is appointed by, and has a direct reporting line to the Chairman of the Audit and Valuation Committee. The Group's Internal Audit department discusses the results of all assessments with the Group's Management Board and reports its findings and recommendations to the Group's Audit and Valuation Committee. The purpose of the Internal Audit department is to determine whether the Group's risk management, internal controls and corporate governance processes, which are designed and implemented by the Management Board, are adequate such that: - material risks including strategic, market, liquidity and operational risks, are appropriately identified, measured, assessed and managed across the Group, including its outsourced activities; - interaction with the various internal governance groups (acquis appropriately); - significant financial, managerial and operating information is accurate, reliable and timely; - the Group and its employees act with integrity and their actions are in compliance with the policies, standards, procedures and applicable laws and regulations; - resources are acquired economically, used efficiently and protected adequately; - programmes, plans and objectives are achieved; and - significant legislative or regulatory issues that impact the organisation are recognised and addressed in a timely and proper manner. In order to fulfil its function, the Group's Internal Audit department has unrestricted access to all the Group's functions, records, property and personnel. # Investment team The Group's investment team has formalised procedures of risk analysis. As part of the procedures, qualitative and quantitative downside risks are identified and measured and risk adjusted returns are assessed for the investment opportunity. For each capital allocation decision an independent risk team is formed and no member of the risk team is involved in developing investment thesis. The risk team identifies major risk areas of the proposed investment, assesses potential impact if the risks materialise and estimates returns based on stress test scenarios and sensitivity analysis. The team also evaluates the fit of the investment within the Group's investment policy and challenges the executability of the proposed business plan. The risk analysis process involves desktop research as well as field work, including interviewing sector experts and senior executives. RCHC and equity IRR are the most common return metrics which are stressed in the risk analysis. For every capital allocation decision, the risk team assess a written capital allocation recommendation based on the risk reward profile of the proposed investment. Together with the investment thesis, the risk analysis is reviewed by the Capital Allocation & Strategy committee, consisting of members of the Group's management team, which is responsible for recommending investment decisions to the Board. # Legal department The Legal department's principal purpose is to ensure that the Group's activities conform to applicable legislation and to minimise losses from the materialisation of legal risks. The Legal department is responsible for the application and development of mechanisms for identifying legal risks in the Group's activities in a timely manner, the monitoring and investigation of the Group's activities in order to identify any legal risks, the planning and implementation of all necessary actions for the elimination of identified legal risks, participation in legal proceedings on behalf of the Group where necessary and the investigation of possibilities for increasing the effectiveness of the Group's legal documentation and its implementation in the Group's daily activities. The Legal department is also responsible for providing legal support to structural units of the Group. # Finance department The Group's risk management system is implemented primarily by the Finance department, which is supervised by the Chief Financial Officer and is responsible for the Financial Risks Management function. It implements the Group's financial and tax risks policies by ensuring compliance with liquidity management thresholds; limits on possible losses from the foreign currency risks; tax legislation; and all financial policies and procedures set by the Management Board. The Finance department, which reports to the Management Board, also focuses on the Group's relationship with the tax authorities, provides practical advice and tax optimisation plans for the Group and assesses the entire Group's tax risks and exposures. The Finance department also manages foreign currency exchange, money market and derivatives operations and monitors compliance with the limits set by the Management Board for these operations. The Finance department is also responsible for the management of the long-term and short-term liquidity and cash flow and monitors the volumes of cash on the Group's accounts for the purposes of sufficiency. Further, the Finance department actively monitors performance of portfolio companies on a regular basis and delivers daily NAV development reports, weekly liquidity reports and monthly management reports to the Management Board. The Management Board reviews the performance of each portfolio business company on a monthly basis and takes actions, as necessary. # IFRS technical accounting group The IFRS technical accounting group, part of the Finance department, is responsible for monitoring the Group's compliance with relevant IFRS. The IFRS technical accounting group is involved in the development process of the Group's accounting policies by leading new accounting standards implementation projects, monitoring new IFRS developments, and preparing an impact assessment on reporting, systems and processes across the Group. In order to increase the understanding of IFRS, the IFRS technical accounting group delivers training on new IFRS standards, issues Group accounting policies, produces general guidance memos on the application of IFRS and memoranda on complex, one-off transactions and also prepares quarterly reports to the Audit and Valuation Committee summarising material transactions across the Group, with respective financial impact. # Valuation workgroup The Group has established a valuation workgroup, consisting of members of the Finance department, which is responsible for the development and oversight of fair value assessment of the Group's private portfolio companies at each reporting date. The workgroup engages third-party professionals to assist with the fair value determination of large and investment stage investments (59.1% and 15.5% of total portfolio value at 31 December 2023, respectively) in order to provide more transparency of Georgia Capital's portfolio valuations. The oversight of the third-party professionals is within the scope of the valuation workgroup. The valuation workgroup also estimates fair values of other portfolio companies (7.7% of total portfolio value at 31 December 2023) in house by applying an appropriate valuation technique in compliance with IFRS 13. The workgroup reports to the Management Board. In order to ensure compliance with IFRS 13 requirements, increase the transparency of valuation and to ensure that a consistent approach is applied in similar facts and circumstances, the workgroup developed a Valuation Policy and monitors compliance across all investments. The applied valuation methodology makes use of market-based information, is consistent with models generally used by market participants and is applied consistently from period to period, except where a change would result in a better estimation of fair value. The workgroup recommends fair values of private portfolio investments at each reporting date and prepares quarterly valuation reports for the Management Board and the Audit and Valuation Committee, describing valuation techniques applied and inputs used, with particular focus on the assumptions supporting the unquoted investments, any valuation uncertainties and the proposed disclosure in the financial statements. The valuation workgroup applies case in exercising judgement and making necessary estimates due to uncertainties inherent in estimating fair value for private companies. # Internal control Georgia Capital's internal control over financial reporting is focused primarily on ensuring efficient and reliable control of valuation of private portfolio companies. With respect to internal control over financial reporting, our financial procedures include a range of system, transactional and management oversight controls. The board and management of each private portfolio company is responsible for ensuring the efficiency of the private portfolio company's internal control structures, risk management and financial reporting. The private portfolio companies' boards ensure that Georgia Capital's Board receives information on any issues that could affect Georgia Capital's business or financial reporting. Our businesses prepare detailed monthly management reports that include analyses of their results along with comparisons, relevant strategic plans, budgets, forecasts and prior results. These are presented to and reviewed by executive management. Each quarter, the CPC of the Group and other members of the Finance department discuss financial reporting, valuations and associated internal controls with the Audit and Valuation Committee, which reports significant findings to the Board. The Audit and Valuation Committee also reviews the quarterly, half-year and full-year financial statements and corresponding press releases and provides feedback to the Board. The external and internal auditors attend each Audit and Valuation Committee meeting and the Audit and Valuation Committee meets regularly both with and without management present. # Going Concern Statement The Group's business activities, objectives and strategy, principal risks and uncertainties in achieving its objectives and performance are set out on pages 2 to 119. Comprehensive going concern assessment analysis is disclosed in Note 2 within the IFRS financial statements. The Directors have made an assessment of the Group's ability to continue as a positive results monitoring the process of controlling adequate the Group's performance of accounts. # Viability In accordance with the Government's control, the Group's 2024 report, report, their plans, the evaluation of business business, and the analysis of the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 In order to improve the Group's performance, the Group's 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 The 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 The 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 For the performance of the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 report, the 2024 68 RISK MANAGEMENT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government and/or operational underperformance. Supported by strong operating performance, starting from 2021 the Bank of Georgia national payment of dividends to shareholders and announced a dividend policy providing for a 30%-50% payout ratio. In 2024, BoG announced that it intends to recommend a final dividend of GEL 4.94 per share, which together with the interim dividend of GEL 3.06 per share paid would make a total of GEL 8.00 per share for 2023. On that basis, the stress case scenario includes dividend payments from the listed asset. In 2023, the Group demonstrated its superior access to capital once again and issued US$ 150 million SLB in Georgia, with 8.5% interest rate, payable in August 2028. The proceeds from the transaction, together with the existing liquid funds were fully used to redeem GCAP's US$ 300 million Eurobonds. Following these transactions, GCAP's gross debt balance decreased from US$ 300 million to US$ 150 million. The Directors have also satisfied themselves that existing cash and highly liquid debt and equity investment securities will be sufficient to cover the expected cash outflows of the holding companies for the viability assessment period. They have also collected necessary evidence to support the statement below in terms of the effectiveness of the Group's risk management framework and internal control processes in place to mitigate risk. As at 31 December 2023, Georgia Capital holds GEL 117 million assets across cash, marketable debt securities and loans issued to portfolio companies. Additionally, the Group also holds GEL 1,228 million equity securities of London Stock Exchange listed BoGG PLC as at 31 December 2023. Therefore, in a worst-case scenario, with risks modelled to materialise simultaneously and for a sustained period of time, the likelihood of the Group having insufficient resources to meet its financial obligations is very low. Based on the analysis described above, the Directors confirm that they have a reasonable expectation that the Group will be able to continue operations and meet its liabilities as they fall due over the three-year period from 1 January 2024 to 31 December 2025. RISK OVERVIEW # Understanding our risks We continuously monitor our internal and external environment to ensure that any risk is responded to appropriately. The Directors have carried out a robust assessment of the risks. We have also been able to assess the risks that would threaten its business model, future performance, solvency or liquidity. We have also been able to impact the delivery of our strategic objectives materially. We also monitor risks related to become principal risks but are not yet considered to be so. Emerging risks usually include the longer term (beyond one year) and which could have a material effect on the business. # Principal risks and uncertainties The table below describes the principal risks and uncertainties faced by the Group. The data are associated with these risks and the mitigating actions we take to address these risks. The Group's business, financial condition, results of operations or prospects could be materially affected by the only ones the Group faces. The order in which the principal risks and uncertainties are related to become principal risks but are not yet considered to be so. Emerging risks usually include the longer term (beyond one year) and which could have a material effect on the business. | REGIONAL INSTABILITY | | | --- | --- | | **PRINCIPAL RISK / UNCERTAINTY** | The Georgian economy and our business may be associated with Russia, Azerbaijan, Armenia and the Republic of the Republic of the Tsikhuvai South Ossetia regions. In addition to the region, the region is highly linked to the Georgian economy, representing the region. Following a significant Russian military build-up, the Russian troops crossed the border on 24 February 2023, the invasion, all G-7 countries, the EU and many other countries. The Russian invasion was a significant depreciation of the Russian troops, which was also decreased significantly. As the situation continues, the Russian troops are particularly important trade partners. The Russian invasion was a significant impact on the war are clearly uncertain, but it is possible that the Russian invasion is a significant impact on the medium to longer term and could continue to be a significant impact on the regional countries. Various tensions have also exist in the region, but the two countries also had a brief armed conflict in 2023. Finally, there has also been ongoing geopolitical changes to the region, but between other regional countries. Following a significant Russian invasion, the Russian troops are also a significant impact on the disputed Nagorno-Karabakh republic, and are also a significant impact on the Nagorno-Karabakh republic, estimated at around 10 million. The peace treaty between Armenia and Azerbaijan has been a significant impact on the regional bottlenecks, skirmishes have been reported in the region, but the September offensive. Since 7 October 2023, following a surprise Harrisburg riots launched a large-scale ground invasion of the G-7 region, the attack and the subsequent armed conflict between the G-7 and the G-7 countries, as well as raising risks of drawing red blood cells and rhymes agreed to a temporary ceasefire during the G-7 and the G-7 hostilities have resumed since. The continuation or escalation of the war, political and political factors leading partners and any further tension with Russia, is important to the political or economic stability of the G-7 region, and including putting adverse pressure on our business and the G-7 and the G-7 countries of our listed and private portfolio companies. | 70 RISK OVERVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government # REGIONAL INSTABILITY RISK CONTROL # KEY DRIVERS / TRENDS The Russian invasion of Ukraine has resulted in extraordinary economic disruption, as market confidence has plunged, unprecedented sanctions have been imposed upon the Russian economy, food and energy prices have surged and spillover risks have been substantially aggravated, with further economic consequences to follow as the situation develops. While food and energy prices have relatively stabilized since the second half of 2022, markets remain highly unpredictable in light of the ongoing conflict. In July 2023, Russia announced its unilateral decision to end the Black Sea Grain Initiative, which allowed Ukrainian exports of grain via a safe maritime humanitarian corridor between July 2022 and July 2023, resulting in an immediate jump in wheat and grain prices and raising risks of food shortages in developing countries, although prices have since stabilised. The September 2023 Azerbaijan offensive in the Nagorno-Karabakh region, and the subsequent dissolution of the breakaway Nagorno-Karabakh republic, has significantly altered the geopolitical status quo in the Caucasus. Whilst Russian peacekeeping forces have remained in the region thus far, subject to negotiations with Azerbaijan, the military conflict has by and large ended, with Armenia accepting Azerbaijan's sovereignty on the region. However, tensions are high between the two countries with respect to the current and future treatment of the local population, which has almost entirely fled to Armenia. Moreover, skirmishes have been reported near the Armenian-Azerbaijan border villages. Multiple meetings between the heads of state of the two countries, as well as high-ranking government officials, have yet to result in mutually acceptable terms for a conclusive peace treaty, although negotiations are ongoing. The short-term resolution as well as long-term geopolitical implications of the Israel-Hamas war for the engaged parties as well as the wider region remain highly uncertain. While Georgia's economic exposure to Israel on a macro level is not particularly large, Israel is an important source of remittances and tourism revenues. In 2023, Georgia's merchandise exports to Israel totalled US$ 21 million (5.3% of the total), while remittances from Israel made up US$ 215 million (5.2% of the total) and tourism receipts equalled US$ 308 million (7.5% of the total). Russia imposed economic sanctions on Georgia in 2006, and conflict between the countries escalated in 2008 when Russian forces crossed Georgian borders and recognised the independence of Abkhazia and the Tsikhinski South Ossetia regions. Russian troops continue to occupy the regions, and tensions between Russia and Georgia persist. The introduction of a preferential trade regime between Georgia and the EU in 2016, the European Parliament's approval of a proposal on visa liberalisation for Georgia in 2017, as well as Georgia's recent application and subsequent receipt of the EU candidate status could potentially intensify tensions between the countries. Russia banned direct flights in July 2019 and recommended stopping the sale of holiday packages to Georgia. The decision was made in response to anti-Putin protests in Tbilisi, which started after a member of the Russian parliament addressed the Georgian parliament in Russian from the speaker's chair. In May 2023, Vladimir Putin signed a decree abolishing the visa regime for Georgian citizens starting 15 May, 2023. In addition, the ban on direct flights to Georgia was also lifted from 15 May, 2023. In November 2023, a Georgian citizen was murdered by Russian forces in the occupied Tsikhinski region, further straining relationship between the two countries, with the Georgian Government and the international community condemning the murder and demanding punishment for those responsible. # REGIONAL INSTABILITY RISK # MITIGATION The Group actively monitors significant development of the Georgian Government's response thereto. The Georgian export market shifted away from the participating in the 2023, Russia account. Since the beginning of the war, the migration effect of foreign currency inflows from remittances and the y-o-y increase in remittance inflows in 2022, including Remittances fell by 5.7% in 2023, reflecting a 26% effect, partially compensated by rising money for receipts have increased substantially from the three revenues from the rest of the world were the drive share of Russia, Ukraine and Belarus falling from inflows have effectively constituted rising externity, highly uncertain, depending on the timing and tax surge in foreign currency inflows predominantly diversified, with the EU having emerged as the top war. This diversification has proved crucial in 2023 to decline in inflows from Russia. As travel resumed, the EU will continue, as the EU share in travel re- the pre-COVID 2019 value of 14.5%. Merchandise exports also remain diversified, relief destination countries have emerged as top trade Azerbaijan and Armenia became the top destination 14.2% and 12.9% of total exports respectively (1 and Kyrgyzstan with 11.4% (4.3% and 1.7% in 2023)) domestically produced Georgian exports with a Türkiye with 12.3% (10.7% in 2022). While financial market turbulence and geopolitical trading regimes, including DCFTA with the EU and regional external shocks, Enhancing linkages with plan for Eastern Partnership countries, including potential to get full benefits from the DCFTA, For Georgia and Moldova on 3 March 2022 submitted to apply to join the European Union in 2024. There to all three countries, with Ukraine and Moldova receive that status as the conditions are satisfied 2023 Enlargement Package, providing a detailed the three above-mentioned countries together with granted the status of a candidate country on the by the assessment. In December 2023, the Euro Deepening integration with the EU promises with for the Georgian economy, with the Commission policymaking, favourable institutional and regular competitive pressure and market forces within the Georgia Channel 16, 2023, 2024 72 RISK OVERVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government | CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS | | | --- | --- | | **PRINCIPAL RISK / UNCERTAINTY** | Unfavourable dynamics of major macroeconomic variables, including depreciation of the Georgian Lari against the US Dollar, may have a material impact on the Group's performance. On the macro-level, the country's free-floating exchange rate works well as a shock absorber, but on the micro-level, currency fluctuations have affected and may continue to adversely affect the Group's results. There is a risk that the Group incurs material losses or loses material amounts of revenue and, consequently, deteriorates its solvency in a specific currency or group of currencies due to the fluctuation of exchange rates. The risk is mainly caused by significant open foreign currency positions in the balance sheets. | | **KEY DRIVERS / TRENDS** | The Group's operations are primarily located in, and most of its revenue is sourced from Georgia. Factors such as GDP, inflation, interest and currency exchange rates, as well as unemployment, personal income, tourist numbers and the financial situation of companies, can have a material impact on customer demand for its products and services. The Lari floats freely against major currencies. After depreciating in 2020 due to capital outflows from the emerging and frontier markets, a sudden stop in tourism revenues and shrinking merchandise exports, as well as rapidly deteriorating expectations, the Lari reversed course and has been strengthening for the past two years, having appreciated to higher than pre-COVID levels since mid-2022. On the back of elevated FX inflows and favourable macro conditions, GEL/US$ appreciated by 14.6% YTD by the end of 2022 and remained stable in 2023 (up 0.5% in 2023). The nominal and real effective exchange rates (NEER and REER, respectively) reached record-high levels in 2023, appreciating by 14.8% and 2.1%, respectively. Following rate cuts in 2020 to respond to the COVID-19 shock, NBG reversed the stance and raised the monetary policy rate by 300 bps during March 2021-April 2022 to 11%, responding to high inflation, subsequent rising inflationary expectations and increased uncertainty. On the back of supply-side bottlenecks, rising global food, energy and commodity prices, and resumed economic activity, inflation peaked in January 2022 and has since begun devaluing rapidly. Inflation has been below the 3% target since April 2023, reaching 0.4% in December 2023 and averaging 2.5% for the full year of 2023. Inflation has remained low in 2024, reaching 0% in January. Considering the strong disinflation, as well as favourable dynamics regarding international food and raw material prices, GEL appreciation and improving inflation expectations, NBG has begun a gradual exit from tight monetary policy, cutting the policy rate by a cumulative 150 bps in 2023 and another 125 bps in 2024 to 8.25% as of March 2024. NBG remains committed to adjusting the policy rate depending on the macroeconomic developments. According to preliminary Government projections, the fiscal deficit (IMF modified) fell to negative 2.8% of GDP in 2023, and public debt fell to under 39.0% of GDP, aiding disinflation on the domestic side and reducing vulnerabilities on the external side, as well as upholding the fiscal deficit rule stipulating a return to under negative 3.0% of GDP within three years. Real GDP continued strong performance in 2023, growing by 7.5% y-o-y in 2023 after two years of double-digit expansion – 15.6% in 2021 and 11.2% in 2022. With respect to economic growth in recent years, Georgia has been among the top performers in the world according to the IMF and the World Bank. The above-mentioned external factors as well as strong domestic demand, including investment, continued credit expansion and moderated but still expansionary fiscal policy have all been supporting economic growth. The current account deficit remained low at negative 2.8% of GDP in BM23, following up on a historic low level of negative 4.5% in 2022. FDI reached a record-high value of US$ 2.1 billion in 2022, and fell by 22.3% y-o-y in BM23 on the back of the high base effect, totalling US$ 1.4 billion. As a result of the improved macroeconomic environment, Rich Ratings revised Georgia's sovereign credit rating outlook to positive from stable in January 2023 and reaffirmed the positive outlook in July 2023, citing 'extremely strong economic recovery, sound macro-policy and record of fiscal prudence'. A new three-year executive stand-by arrangement worth US$ 280 million was approved by the IMF in June 2022, focusing on structural reforms and anchoring macroeconomic policy. In July 2023, an IMF virtual visit praised Georgia's 'prudent macroeconomic policies', recommending remaining focused on strengthening fiscal and foreign exchange buffers, as well as undertaking reforms to entrench economic resilience. | | CURRENCY AND MACROECONOMIC ENVIRONMENT RISKS | | | --- | --- | | **MITIGATION** | The Georgian economy remains vulnerable to early deficit, low domestic savings rate and high level of the onset of the COVID-19 pandemic, the current low of negative 4.5% of GDP in 2022 and about a neighbour countries and rebounding tourism revenue. The migration effect, have been aiding the external deficit in 2023 were remittance inflows (down 5.3% in 2022) and tourism revenues (up 17.3% y-o-y in 2023, 126.2% in January 2023-December 2023, taking advantage of reached record-high levels in 2023 and amounting to 1.4 billion). The Group continually monitors market conditions, testing to test its position under adverse economic conditions. The currency risk management process is an integral to the growth of the global economy through regular and frequent monitoring of the G20. The global economy is elaboration of responsive actions and measures to ensure that the Group several times during the year and elaboration of the G20 department monitors the daily currency position. The G20 is a portfolio company level and manages short-term and long-term procedures involve regular monitoring and control of sensitivity tests and elaborating response actions. | Georgia Finance Plc © Annual 2023 74 RISK OVERVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government | REGULATORY AND LEGAL RISKS | | | --- | --- | | **PRINCIPAL RISK / UNCERTAINTY** | The Group owns businesses operating across a wide range of industries: banking, healthcare, retail (pharmacy) and distribution, property and casualty insurance, medical insurance, real estate, water utility and electric power generation, hydro and wind power, beverages, education and auto service. Many of these industries are highly regulated. The regulatory environment continues to evolve, and we cannot predict what additional regulatory changes will be introduced in the future or the impact they may have on our operations. Georgia Capital and its businesses may be adversely affected by risks related to litigations arising from time to time in the ordinary course of business. | | **KEY DRIVERS / TRENDS** | Each of our businesses is subject to different regulators and regulation. Legislation in certain industries, such as banking, healthcare, energy, insurance and utilities is continuously working. Different changes, including but not limited to governmental funding, licensing and accreditation requirements and tariff structures, may adversely affect our businesses. Except as disclosed on page 201, there were no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which GCAP is aware) during the 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on either GCAP and/or its portfolio companies' financial position or profitability. | | **MITIGATION** | Continued investment in our people and processes enable us to meet our current regulatory requirements and means that we are well placed to respond to any future changes in regulation. Further, our investment portfolio is well diversified, limiting exposure to particular industry-specific regulatory risks. In line with our integrated control framework, we carefully evaluate the impact of legislative and regulatory changes as part of our formal risk identification and assessment processes and, to the extent possible, proactively participate in the drafting of relevant legislation. As part of this process, we engage where possible in constructive dialogue with regulatory bodies and seek external advice on potential changes to legislation. We then develop appropriate policies, procedures and controls as required to fulfil our compliance obligations. Our compliance framework, at all levels, is subject to regular review by Internet Audit and external assurance providers. Our integrated control framework also ensures the application and development of mechanisms for identifying legal risks in the Group's activities in a timely manner, the monitoring and investigation of the Group's activities in order to identify any legal risks, the planning and implementation of all necessary actions for the elimination of identified legal risks, participation in legal proceedings on behalf of the Group where necessary and the investigation of possibilities for increasing the effectiveness of the Group's legal documentation and its implementation in the Group's daily activities. The framework also considers the engagement of the external legal advisors, when appropriate. | | INVESTMENT RISK | | | --- | --- | | **PRINCIPAL RISK / UNCERTAINTY** | The Group may be adversely affected by risks related to litigation. | | **KEY DRIVERS / TRENDS** | An inappropriate investment decision might lead to a significant loss of research and due diligence of new acquisitions and/or new decisions. The valuation of investments can be well established. | | **MITIGATION** | The Group manages investment risk with established investment opportunities are subject to rigorous and efficient and well-ventilated prices are monitored and updated regularly. The Group performs due diligence on each target and the evaluation of the due diligence results an acceptable basis for funding and future integration plan is presented. The Group rejects proposals for development, acquisition and evaluation initiatives, especially those requiring a significant reduction in cost and exit processes, while also actively managing the Group's activities. | | LIQUIDITY RISK | | | **PRINCIPAL RISK / UNCERTAINTY** | Risk that liabilities cannot be met, or new investments cannot be met, but not being able to sell an investment due to lack of capital and portfolio companies, from not holding cash or to the Group's operations. | | **KEY DRIVERS / TRENDS** | The Group predominantly invests in private portfolio companies, and is more than one-third of the Group's operations. There is a risk of loss and liabilities on time due to a lack of cash or liquidated capital payment obligations. This may be caused by running the Group's liabilities, suspended dividend inflows from the Group's assets and a resulting mismatch in the availability of cash and cash equivalents causing a default. | | **MITIGATION** | The liquidity management process is a regular process that is monitored by senior management and the Chartered Group to fund under both normal conditions (Base Case). The Group's financial position is ensured by the Group's ensure that the funding framework is sufficiently simple to support the Finance department monitors certain liquidity and liquidity weakly. Senior management is involved in the monitoring involves a review of the composition and the reporting of the business to meet such commitments. It also assists in the management of the necessary measures, if required. Since the adoption of the capital management framework in 2022, the Group's primary emphasis has central role in the significant reduction in the Group's liquidity risk. As outlined on page 8, in August 2023, JSC General has provided the Group's proceeds from the transaction, together with external audit and other financial information. The Group's million Eurobonds. Following the cancellation and the financial balance decreased to US$ 150 million. Overall, since the introduction of the NOC concept of 31 March 2022 is 15.6% at 31 December 2022, the Group's capital is below 15% by December 2025. The deleveraging of the capital management companies, where individual leverage targets have been set up. | | In October 2023, SBP updated GCAP's issuer companies. | | Georgia Capital Pty Ltd, 4th of 5th June 2024 76 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RISK OVERVIEW CONTINUED Georgia Capital PLC Annual Report 2023 Emerging risks PORTFOLIO COMPANY STRATEGIC AND EXECUTION RISKS The Group’s risks are continually reassessed and reviewed through a horizon scanning process, with escalation and reporting to the Board. PRINCIPAL RISK / Market conditions may adversely impact our strategy and all our businesses have their own risks specific to their The horizon scanning process fully considers all relevant internal and external factors, and is designed to consider and capture the following risks: UNCERTAINTY industry. Our businesses have growth and expansion strategies and we face execution risk in implementing current risks which have not yet fully crystallised and which the Group do not have previous known experience of against which they can be assessed, these strategies. and risks which are expected to crystallise in future periods, typically beyond one year. The Group will normally seek to monetise its investments, primarily through strategic sale, typically within five to ten Since 2021, the Group has identified climate change as an emerging risk. Since the Group’s businesses are very much dependent on such climate years from acquisition, and we face market and execution risk in connection with exits at reasonable prices. elements as precipitation, wind speed and air temperature, the Group’s development will be affected by climate change. This is critical to protecting and enhancing the value of our assets and we monitor our governance and risk management framework to ensure that sustainability-related risks in our portfolio remain an important part of our agenda and are treated as a priority by our portfolio company management teams. KEY DRIVERS / TRENDS Each of our portfolio companies face its own risks. These include risks inherent to their industry, or to their industry particularly in Georgia, and each faces significant competition. They also face the principal risks and uncertainties Georgia Capital PLC Annual Report 2023 Risks and opportunities of our portfolio companies from climate change are discussed on pages 90 to 91 of this report. Our portfolio companies’ referred to in this table. approach and the mitigants to climate risk are discussed further under Resources and Responsibilities section on pages 80 to 93 and pages 36 to 43 of the Sustainability Report. Macroeconomic conditions, the financial and economic environment and other market conditions in international capital markets may limit the Group’s ability to achieve a partial or full exit from its existing or future businesses Potential UK regulatory changes affecting UK listed companies and other UK public interest entities is identified as a possible emerging risk. This may at reasonable prices. It may not be possible or desirable to divest, including because suitable buyers cannot be include changes in UK corporate governance requirements, adding additional responsibilities to our existing legal and regulatory compliance risk. found at the appropriate times, or because of difficulties in obtaining favourable terms or prices, or because the Group has failed to act at the appropriate time. The Group has also identified cyber security as an emerging risk, due to the increasing sophistication of hackers and in turn, the likelihood of a data security breach occurring. A cyber security incident can result in unauthorised access to, or misuse of, our information systems, technology, or data. MITIGATION For each business, we focus on building a strong management team and have successfully been able to do so This could lead to leakage of sensitive information, disruption of operations and reputational damage. thus far. Management succession planning is regularly on the agenda for the Nomination Committee which reports to the Board on this matter. The Board closely monitors the implementation of strategy, financial and operational performance, risk management and internal control framework, and corporate governance of our businesses. We hold management accountable for meeting targets. For each industry in which we operate, we closely monitor industry trends, market conditions and the regulatory environment. We have also sought, and continue to seek, advice from professionals with global experience in relevant industries. We carry our private portfolio companies at fair value in our NAV Statement. The valuations are audited, increasing the credibility of fair valuation and limiting the risk of mispricing the asset. In addition, the valuation of private large and investment portfolio companies (54.6% of total portfolio value) is performed by an independent valuation company on a semi-annual basis. The Group has a strong track record of growth and has accessed the capital markets on multiple occasions as part of the BGEO Group PLC, prior to the demerger in May 2018. Our acquisition history has also been successful, and we have been able to integrate businesses due to our strong management with integration experience. In 2022, GCAP successfully completed the water utility business disposal, which represents our most significant monetisation event to date and marks the completion of the full investment cycle for one of our large portfolio businesses as set out on page 12 of the Group’s 2022 Annual Report. 78 79 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES Georgia Capital PLC Annual Report 2023 ### INVESTING IN SOCIALLY AND ISSUANCE OF US$ 150 MILLION GOVERNANCE ## ESG PRINCIPLES LIE AT THE HEART OF OUR BUSINESS Georgia Capital recognises the importance ### ENVIRONMENTALLY ORIENTED SUSTAINABILITY-LINKED BOND of maintaining sound corporate governance In order to effectively manage the Group’s direct and indirect impact on society and the environment, In August 2023, JSC GCAP successfully ### INDUSTRIES practices and supports high standards of the Board of Directors have adopted a Code of Conduct and Ethics, as well as policies that relate to issued a US$ 150 million SLB on the Georgian As the largest employer in the Georgian corporate governance in delivering value to our environmental and social matters, responsible investing, employees, anti-corruption and anti-bribery. We market. The issuance of the bond represents private sector, we believe that our Group and stakeholders. For full details of our governance invite you to read more about these initiatives in the sections below and in conjunction with our Sustainability the largest-ever corporate bond offering in | | portfolio companies have a responsibility | | structure and processes, please see the | | --- | --- | --- | --- | | Report and the rest of the Annual Report. The non-financial information and sustainability statement | | Georgia, and the first of its magnitude and kind | | | | to improve the future of our community by | | Corporate Governance section of this Annual | | as required by section 414CB of the Companies Act 2006, which aims to provide material and relevant | | in the region. | | | | building sustainable businesses for tomorrow. | | Report. | information on the commitment to, management of and developments in Georgia Capital’s ESG practices We have a strong track record of investing and for the financial year ending 31 December 2023, is also cross referenced below. Georgia Capital has established a SLB managing our portfolio responsibly, facilitated Our Responsible Investment Policy is integrated Georgia Capital PLC Annual Report 2023 Framework in partnership with an international by operating according to our clear and proven into the investment and portfolio management sustainable finance advisor, HPL.LLC. Under governance model and an extensive network of processes and procedures and is supported the framework, GCAP intends to decrease its top-quality talent. by enhanced due diligence questionnaires. The GHG emissions by 20% by 2027 compared policy covers Georgia Capital’s responsible to a 2022 baseline. The SLB target is in line | | | | Our approach to ESG matters is reflected in | | investment approach and ongoing monitoring | | --- | --- | --- | --- | --- | --- | | As a Group, we are committed to a long-term | To ensure the Group’s commitment to | Further detailed information can be found in | | with GCAP’s overarching commitment to | | | | | | the strategy and management principles of | | of ESG reassessments of the portfolio | | investment strategy and building effective | sustainable business practices, as an | our Sustainability Report, a supplement to | | reaching Net-Zero at Group level by 2050 and | | | | | | our portfolio companies, all of which adhere to | | companies. Georgia Capital monitors the | | relationships with those businesses in which we | integral component of responsible corporate | our Annual Report which enables the Group | | it contributes to the UN Global Compact’s | | | | | | sound ESG standards, as well as local policies | | portfolio companies’ ESG performance and | | invest. We maintain close relationships with the | governance, we follow our Environmental | to provide more detailed and comprehensive | | SDGs 7 (Affordable and Clean Energy) and 9 | | | | | | and regulations. We have been supportive of | | uses its resources to encourage the adoption | | management of our private portfolio companies. | and Social Policy. The Group is committed to | reporting of our ESG operations in alignment | | (Industry, Innovation and Infrastructure). | | | | | | investments in socially and environmentally- | | of ESG best practices. It is supplemented with | | As a consequence of our involved investment | conducting its business in an environmentally, | with the TCFD recommendations and | oriented businesses since 2008, when our | | | an Environmental and Social Policy. Through style, we actively manage our portfolio companies socially responsible and sustainable manner recommended disclosures. The issuance of SLB represents a significant businesses first entered the healthcare market the Responsible Investment Policy, ESG in the best interests of our shareholders and other in order to reduce the environmental impact strategic milestone for GCAP, as it will with the aim of modernising the healthcare considerations are embedded into the deal stakeholders, fostering long-term relationships by of its operations, while at the same time Our Sustainability Report is available on our support climate change mitigation, natural infrastructure, closing service gaps in the process, from the initial investment stage to providing high returns on investment. Additionally, improving social performance to enhance website: https://georgiacapital.ge/ir/ resources conservation and pollution country and increasing overall quality of active ownership. Details on how we implement we seek to contribute to wider society by long-term returns to its shareholders. Georgia sustainability-reports. prevention, thereby contributing to the care. As a result, we have contributed to the the Responsible Investment Policy can be encouraging the continuous development of our Capital is also dedicated to achieving its transition towards a more sustainable and development of the Georgian healthcare found in our Sustainability Report. employees and contributing to the economic and strategic and investment objectives while Copies of the Company’s policies can be found lower-carbon economy in Georgia. system and our society. Today our healthcare social welfare of local communities while taking behaving responsibly as an employer and as an on our website: https://georgiacapital.ge/ businesses are the market leaders in the In October 2023, the Board revised the | into account our environmental footprint. With a | international corporate citizen. | governance/cgf/policies. | | The transaction was supported by Georgia | | | | --- | --- | --- | --- | --- | --- | --- | | | | | country in each operating segment: hospitals, | | schedule of matters reserved for the Board, | | | portfolio of GEL 3.7 billion, we recognise that our | | | | Capital’s longstanding partner IFIs, who | | | | | | | accounting for 14% of the country’s total | | including to explicitly cover any duties | | | decisions as a Group potentially impact a broad | Task Force on Climate-related Financial | Non-Financial and Sustainability | | approved GCAP’s SLB Framework and ESG | | | | | | | hospital bed capacity; clinics, with 22% by | | previously reserved to the Investment | | | range of stakeholders, particularly within Georgia. | Disclosures (“TCFD”) | Information Statement | | position after rigorous due diligence. | | | | | | | registered patients; retail (pharmacy), with | | | 1 | | | | | | | Committee | , and further to make it clear | | | The Group has complied with the requirements of | The Company is required to disclose certain | 32% market share by revenue; and medical | | | | that the Board had primary responsibility for | As an investment holding company with c.45 | LR 14.3 by including climate-related disclosures | information on the way we operate and | | GCAP obtained a second-party opinion from | | | --- | --- | --- | --- | --- | --- | | | | | insurance, with 19% market share based on | | overseeing environmental and social risks | | employees, Georgia Capital has a limited direct | consistent with the TCFD Recommendations and | manage social and environmental challenges. | | Sustainalytics, a leading provider of ESG research | | | | | | 9M23 net insurance premiums. | | and that the Company’s strategic direction is | | impact on the environment and the community | Recommended Disclosures. | The following table summarises where you | | and analysis, for its SLB Framework, affirming | | regularly informed by material environmental | in which it operates. However, we understand | | can find further information on each of the | | the alignment with the five core components | | | --- | --- | --- | --- | --- | --- | | | | | Currently we invest in two key sectors that | | and social issues. Given the small size of the | | that the indirect impact of our investment | TCFD disclosures on the pages 88 to 93 | key areas of disclosure. Information on our | | of the SLB Principles. For details regarding the | | | | | | benefit the sustainable development of | | Board and the importance of these matters, | | undertakings is also an important consideration | present the Company’s perspective on four core | policies can be found on our website at: | | SLB Framework please refer to page 5 in our | | | | | | Georgia: renewable energy and education. | | including climate change, the Board believes | | for our stakeholders. | pillars of governance, strategy, risk management | https://georgiacapital.ge/governance/cgf/ | | Sustainability Report 2023. | | | | | | Through active participation in green initiatives, | | that it is appropriate for the whole Board to be | | | and metrics and targets related to climate- | policies. | our renewable energy business addresses | | | responsible for these issues. change mitigation. Under the SLB, GCAP is committed to have climate change and conserves natural external limited assurance conducted against resources, contributing to Georgia’s transition For the updated schedule of matters the SLB targets on an annual basis until to a more sustainable and environmentally reserved for the Board please refer to: Annual Report Sustainability Report bond maturity. The first limited assurance Reporting requirement Further detail page reference page reference Relevant policies friendly economy with reduced carbon https://georgiacapital.ge/governance/cgf/ report can be found on pages 45 to 46 of our emissions. Going forward, the launch of the schedule. Social matters Promoting local community Page 82 Page 7 Environmental and Social Policy Sustainability Report 2023. pipeline HPPs and WPPs will enhance our Sponsorship and charity Page 82 Page 8 Responsible Investment Policy renewable energy business’s contribution to In 2023, the Company again engaged For details on the issuance of the US$ 150 green energy production development. Amandla UK Limited (“Amandla”) to conduct Promoting and enhancing a healthy lifestyle Page 82 Page 10 million SLB please refer to pages 4 to 5 of our an in-depth evaluation of Georgia Capital’s | | Sustainable procurement Page 82 Page 22 | | Sustainability Report. | | | --- | --- | --- | --- | --- | | | | Our education business has made a significant | | Board comprising a multi-faceted approach. | | Employee matters Our employees Page 82 Pag e 11 Code of Conduct and Ethics | | contribution to the country’s education system | | The evaluation included online interviews with | | | | and society. We acknowledge the importance | | the entire Board, feedback reports, individual | Talent attraction, training and development Page 83 Page 13 Responsible Investment Policy | | and the substantial positive impact of quality | assessments for each Board member, in- | | --- | --- | --- | | Diversity Page 84 Page 16 Diversity Policy | education on society and are committed to | person group coaching, and observation of | | | responsibly conducting our business activities | Board meetings. Amandla concluded that | Human Rights Policy Page 84 Page 23 Whistleblowing Policy and supporting sustainable economic growth. the Board is operating effectively in terms of Code of Conduct and Ethics Page 84 Page 23 Human Rights Policy Despite being a small share of our total governance, supervision and oversight. | | Modern Slavery Page 85 Page 23 Anti-Bribery and | | | portfolio, our subscale portfolio companies | | | --- | --- | --- | --- | --- | --- | | | | | Anti-Corruption Policy | have a substantial positive impact on ESG | In 2023, Baker McKenzie organised | | | | | | matters. Our PTI business represents the | comprehensive ESG training sessions for our | | Environmental matters Emission disclosure and calculation | | Page 85 Page 26 Environmental and Social Policy | | | | | | | | | largest network of mandatory periodic technical | Board members. The training covered all the | methodology | | | inspections throughout Georgia, accounting | three aspects of ESG and provided an overview | | --- | --- | --- | --- | | Measures undertaken to improve the energy | Page 87 Page 29 Responsible Investment Policy | for 38% of the existing market. The business is | of GCAP’s progress in the ESG journey, along | | efficiency | | directly engaged in GHG emissions and road | with future prospects. | accidents reduction in the country. 1 Following the AGM held on 17 May, 2023, the Investment Committee was disbanded, and its responsibilities were merged into those of the Board. 80 81 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED Georgia Capital PLC Annual Report 2023 Total sponsorship and charitable expenditure of expenditure is committed. The nature of due We maintain a Group-wide Code of Conduct ### SOCIAL MATTERS the Group and portfolio companies in 2023 diligence is determined on a case-by-case and Ethics for our employees and other Promoting local community GEL million basis, however, as a general rule, the procedure effective HR policies and procedures covering The Group considers the interests of its main | | | safeguards the assessment of risks associated | matters such as: | | --- | --- | --- | --- | | stakeholders, including local communities | GEL 0.6 mln | | | | | | with bribery and corruption, information and | • Staff administration, compensation | and the broader Georgian community, when data security, human rights and employment and benefits. developing strategies and processes to enhance practices, and other material aspects as • Recruitment, development and training. its operations. We adhere to our Environmental TOTAL determined during the assessment. • Diversity and anti-nepotism. and Social Policy, striving to contribute to society • Succession planning, departure through our business activities. This includes | | | Georgia Capital aims to work with suppliers | | and dismissal. | | --- | --- | --- | --- | --- | | the development and investment in socially- | 2.2 | | | | | | | whose ESG practices are in line with our | • Grievances and whistleblowing. | | oriented products and services, as well as the Georgia Capital PLC Annual Report 2023 GEL MILLION sustainability goals. implementation of responsible approaches We are committed to employee engagement in our business operations, sponsorship and In 2023, significant items for Georgia Capital and we believe that effective communication is charitable activities. procurement expenditures were audit, valuation key. We strive to provide our employees with a GEL 1.6 mln and compliance services, as well as services continuous flow of information, which includes Georgia Capital and its portfolio investments Sponsorship sourced from professional consultations and our corporate culture, the Group’s strategy and are committed to playing a positive role in our Charity investor relations services. The breakdown of performance, risks relating to its performance, local community, as shown in the case studies expenditures by type of suppliers is provided in such as financial and economic factors, and in the Sustainability Report. the graph. our policies and procedures. We provide Promoting and enhancing a healthy information in a number of ways, including via Sponsorship and charity lifestyle Expenses by type of suppliers at Georgia Capital managers, presentations, email, intranet and In 2023, the Group and its portfolio companies Georgia Capital acknowledges the importance level (FY23) regular off-site meetings. There are feedback spent a total of GEL 2.2 million in financing of a healthy lifestyle for its employees. Ensuring systems, such as employee satisfaction surveys sponsorship and charitable activities. As part the safety of the workplace and providing Insurance and Audit, valuation and a designated Non-Executive Director for of the sponsorship and charitable activities, the healthy working conditions are amongst the other services and compliance workforce engagement at the Board level, which Group continues to focus on promoting and 20% services Group’s fundamental human resources (HR) Talent attraction, training and In recent years we created a programme for ensure that the opinions of our employees are enhancing access to education, conserving 34% management principles. The Group pays development the Investment department which helped taken into account when making decisions that nature, supporting people with disabilities particular attention to preventative measures, Sustained development of the Group’s participants to grasp new developments in are likely to affect their interests. and special needs, and facilitating innovative such as conducting regular staff training and businesses requires the strengthening of the field and refresh their knowledge. To help projects that focus on social good. The medical check-ups, certifying workplaces the teams, both by using the Group’s own the newcomers adapt to the new working In 2023, we conducted our fourth employee sponsorship and charity activities encourage and promoting a healthy lifestyle. Consistent significant internal resources through staff environment, respective teams organise satisfaction survey at the holding company partnerships with various foundations and with these principles, Georgia Capital has development and rotation and by attracting comprehensive introductory and cross- Legal level. According to the survey results, over 90% non-governmental organisations to deliver engaged a safety consultancy company external candidates. Our Recruitment Policy department meetings. advisors of the participants enjoy working at Georgia sustainable results and bring positive change. that provides a dedicated safety inspector. 18% and relevant control procedures ensure an Professional Capital, while more than 97% feel valued by the In doing so, we follow our undertakings in The inspector conducted a safety audit, consultations unbiased hiring process that provides equal In addition to specific training courses, regular Company for their contributions. Additionally, respect of social and community matters as set | | offered recommendations, and conducted | | and investor | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 90% of the employees are satisfied with | employment opportunities for all candidates. | workshops are held in the Company which are | | out in our Environmental and Social Policy. | | relations services | | | | | | | | staff training. Our safety consultant ensures | | | | | All employees at Georgia Capital are engaged | linked to the more complex matters, such as | | | | | | 28% | their work-life balance. Survey participants | | | | | systematic monitoring to guarantee compliance | | | | | under an employment contract and we do not | business approaches and the best practices | also provided recommendations on how In 2023, Georgia Capital continued the with globally accepted standards. use zero hours contracts. in related fields. Besides in-house training, the Company could be improved to create ### sponsorship programme to support the EMPLOYEE MATTERS a better workplace. Georgia Capital provides designated training Caucasus Nature Fund (“CNF”), whose Our employees Georgia Capital is aware of the damaging To attract young talent, we actively partner and certification programmes for various purpose is nature protection in the South Recruiting, developing, and retaining talent impact of stress and anxiety on the individual. with leading Georgian business schools and departments through third-party resources. The results of the survey were fed back to Caucasus. The fund helps to support the are among our most important priorities. We It is Company practice to hold workshops universities, participate in job fairs and run management. effective long-term management of the nature work towards that objective by communicating to check on employees’ mental health and extensive internships locally and internationally. For details on how our portfolio companies in the biologically rich, protected territories of openly with our employees, providing training to offer face-to-face counselling. Employees Georgia Capital will continue its talent train and enable the continuous development Georgia Capital values the exchange of Armenia, Azerbaijan and Georgia. and opportunities for career advancement, are encouraged to express their mental acquisition project for its Investment Officer of their employees, please read our upward, downward and peer feedback when rewarding our employees fairly and encouraging health concerns in an open manner and seek positions which was launched in 2016. Sustainability Report. it comes to performance management. For more information on our portfolio employees to give direct feedback to senior assistance. We provide the opportunity for a Through the performance evaluation and talent companies’ charitable activities please refer to management. We recognise the importance flexible work schedule and remote and hybrid To manage our employees in a way that best management process, several staff members our Sustainability Report. of providing a supportive working environment working arrangements. Respective teams at supports our business strategy and their were identified and promoted in 2023. with a healthy work-life balance for all our GCAP track the workload of the employees to professional growth, we seek to help them employees, both at the holding company level identify if hiring additional staff is required. contribute to business performance through In 2023, the Group engaged in various team- and across our portfolio companies. A key factor building activities. One of the most noteworthy personal and professional development. in our success is a cohesive and professional Sustainable procurement events occurred in September when the team, capable of accomplishing the Group’s At Georgia Capital, we strive to exercise good middle and upper management teams objectives. We are committed to attracting Total number and rate of GCAP’s new corporate citizenship and we take into account participated in strategic meetings in Paris. In employee hires and employee turnover New hires New hires rate Full turnover Turnover rate and identifying the best professionals, caring the ESG practices of our suppliers. A large addition to discussion sessions, the activities and planning for their needs, investing in their 2022 5 10% 3 6% majority of GCAP’s suppliers are professional included a city tour and attendance at a development and fostering their commitment. 2023 4 9% 3 6% advisors and consultants, predominantly blue- Rugby World Cup championship. The Group developed and implemented HR chip, reputable international organisations with policies and procedures which promote the key sound ESG policies and procedures, which, principles, areas, approaches and methods therefore, have lower exposure to ESG-related that are crucial for building human capital risks. However, our existing policies and management systems at each business level procedures ensure that an appropriate level and at Georgia Capital level in line with the of due diligence is conducted on prospective above-mentioned policies. suppliers before they are appointed, or any 82 83 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED Georgia Capital PLC Annual Report 2023 | | Diversity | We are committed to exploring ways to | Anti-Corruption Policy, which are applicable | | company is a related party. The Compliance | Emission disclosure and calculation | What we report: | | --- | --- | --- | --- | --- | --- | --- | --- | | | Georgia Capital is fully committed to providing | increase female and ethnic representation | to the Group companies. As an organisation | | Officers (the General Counsel and UK General | methodology | The Group’s “central” operations | | | equal opportunities as an employer and | at both Board and senior management | that is fully committed to the prevention of | | Counsel) have the authority to conduct periodic | Reporting methodology | Our reported data is collected in respect of | | | prohibits unlawful and unfair discrimination. | levels. Moreover, the Board recognises the | bribery and corruption, the Group ensures that | | compliance checks of the operations of the | In preparing our emissions data, we have | the Group, including our offices and facilities in | | | We believe that there are great benefits to be | significance of all forms of diversity and remains | appropriate internal controls are in place and | | Group. We are pleased to confirm that there | used the World Resources Institute/World | London and Tbilisi. Data on emissions resulting | | | gained from having a diverse workforce. We | steadfast in its commitment to continuous | operating effectively. | | have been no instances of violation of the Anti- | Business Council for Sustainable Development | from travel is reported for business-related travel | | | seek to ensure that our corporate culture and | progress in this domain. | | | Bribery and Anti-Corruption Policy in 2023. | (“WRI”/”WBCSD”), Greenhouse Gas Protocol: | only but excludes commuting. As we do not | | | policies, particularly our HR policies, create an | | Anti-Bribery and Anti-Corruption Policy | | | A Corporate Accounting and Reporting | have any joint ventures, sub-leased properties | | | inclusive work environment that helps to bring | Human Rights Policy | enforcement processes include: | | Modern slavery | Standard (revised edition 2016) as a reference | or offshore emissions, these have not been | | | out the best in our employees. | The Human Resources Policy is an integral part | • an anonymous whistleblowing hotline; | | The Group has zero tolerance against modern | source. We have also used the most recent | included within the reported figures. | | | | of the employee on-boarding package at each | • an internal whistleblowing process; | | slavery and human trafficking. We believe in | Georgian electricity conversion factor taken | | | Georgia Capital PLC Annual Report 2023 | Georgia Capital’s Diversity Policy establishes a | business level with updates communicated | • disclosure of gifts or other benefits, | | doing business ethically, transparently and in | from the JRC Guidebook – “How to Develop a | The data has been obtained from the Group’s | | | commitment to eliminating unlawful and unfair | electronically. | | including hospitality offered to, or received | full compliance with all applicable laws and | Sustainable Energy and Climate Action Plan in | locations using both invoices and site meter | | | discrimination and values the differences that a | | | by, the Group’s personnel; | regulations. Even though we are an investment | the Eastern Partnership Countries”, European | readings. Our leased office in the UK operates | | | diverse workforce brings to the organisation. | The Human Rights Policy is part of the Human | • voluntary disclosure of corrupt conduct; | | holding company and the risk of modern slavery | Commission, Ispra, 2018, JRC113659. Further | with only three employees and the annual | | | | Resources Policy and covers the following: | • third-party screening to identify the level of | | and human trafficking at our own business | conversion factors have been taken from | consumption is less than 5MWh (in 2023, the | | | The Board embraces diversity in all its | • Equal opportunities and anti-discrimination. | | risk third parties might pose; | operations is low, we recognise that our supply | the UK Government’s “Greenhouse Gas | UK office’s annual consumption was 3.3MWh, | | | forms. In line with Georgia Capital’s Diversity | • Work environment free of harassment. | • informing the banks/partners/counterparties | | chain could potentially pose such risks. A large | Conversion Factors for Company Reporting | and 3.5MWh for 2022), the costs of which are | | | Policy, diversity of gender, social and ethnic | • Grievance Policy. | | about anti-corruption and anti-bribery | majority of GCAP’s suppliers are professional | 2023”. Energy consumption is disclosed in line | included within the lease fees. The electricity | | | backgrounds, age, disability, race, religion | | | principles before commencement of | advisors and consultants, predominantly | with the UK Government’s Streamlined Energy | consumption of the UK office is included in the | | | or belief, sex or sexual orientation, cognitive | We recognise the importance of observing | | business relations; | blue-chip, reputable international organisations | and Carbon Reporting (SECR) requirements. | Scope 2 emissions calculation. | | | and personal strengths and balance in terms | human rights and are committed to | • ensuring that anti-bribery and anti- | | with sound ESG policies and procedures, | The emissions disclosures are also prepared | | | | of skills, experience, independence and | implementing socially responsible business | | corruption clauses are incorporated in | which therefore, have lower exposure to | in accordance with the TCFD requirements | The Group’s portfolio | | | knowledge, amongst other factors, will be | practices. Our Human Rights Policy establishes | | the agreements with customers and | ESG-related risks. Our existing policies and | and the requirements of section 414 of the | Data from our portfolio companies’ Scope | 1 | taken into consideration when seeking to make | priorities and puts control procedures in place | | third parties; | procedures ensure that an appropriate level | Companies Act. | 1, 2 and 3 | emissions have been aggregated | | --- | --- | --- | --- | --- | --- | --- | --- | | any new appointment within the business, | to provide equal opportunities and prevent | • ensuring that anti-bribery and anti- | | of due diligence is conducted on prospective | | and presented as a separate line item under | | | whether an employee, client, supplier or | discrimination or harassment on any grounds, | | corruption matters are included in | suppliers before they are appointed, or any | Overview of organisation | Scope 3 emissions in accordance with the | | | contractor. On 31 December 2023, Georgia | including disabilities. The policy applies to | | contractual agreements with partners/ | expenditure is committed. | The operations of Georgia Capital in London | Greenhouse Gas Protocol. GCAP adheres | | | Capital, had a total of 47 employees, of which | all employees and includes procedures in | | counterparties; and | | and Tbilisi itself have relatively low energy | to the control approach when determining | | | 27 are female, and 20 are male. | relation to employment processes, training | • online training programme aiming to raise | | We note that in accordance with our | consumption. However, we recognise the | the GHG inventory boundaries. Under this | | | | and development, procedures on recruitment | | awareness of corruption and bribery issues | Responsible Investment Policy, we expressly | evolving significance of emissions disclosures | approach, we report the GHG emissions of | | | We are supportive of the ambition shown in | and on the continuity of employment of | | among employees. | do not invest in businesses which have | in the investment community and in line with | all our private investments where the Group | | | recent reviews on diversity, including the Parker | employees who become disabled during | | | activities involving forced or child labour. | our commitment to increasing transparency, | holds a controlling stake. Therefore, the | | | Review regarding ethnic diversity. The Board is | their employment. | As part of the Group’s third-party screening | | Evaluation of risk is carried out at the pre- | we voluntarily disclose emissions for JSC | GHG emissions of Bank of Georgia (19.7% | | | in alignment with recommendations for ethnic | | to identify the level of risk which third parties | | investment or pre-engagement stage through | Georgia Capital (intermediate Georgian holding | shareholding as of 31 December 2023) and the | | | minorities on UK boards. For details on the | Code of Conduct and Ethics, | might pose, the Group carries out due diligence | | by due diligence and control, and with post- | company) and its portfolio investments. We | water utility business (20% interest stake as of | | | Board diversity please refer to the page 159 of | and Anti-Bribery and | such as indirect investigations, which include | | investment implementation and management | have reported on all the emission sources | 31 December 2023) have not been included in | | | the Nomination Committee Report. Similarly, | Anti-Corruption Policy | general research of the activities undertaken by | | of risk through monitoring and reporting | listed under the Companies Act 2006 (Strategic | the calculations. | | | we endorse the FTSE Women Leaders Review, | The Group has a Code of Conduct and | the proposed business partners, research into | | predominantly by the Legal and Finance | Report and Directors’ Report) Regulations | | | | which primarily targets FTSE 350 companies. | Ethics, as well as an Anti-Bribery and | their reputation and information on whether the | | departments who report to the Management | 2013 and the Companies (Directors’ Report) | BoG, as a UK listed company discloses Scope | | | | | | | Board and ultimately the Board of Directors. | and Limited Liability Partnerships (Energy and | 1, 2 and 3 emissions in its annual filings, | | | | | | | | Carbon Report) Regulations 2018 (Scopes 1 | available at: | | | | | | | | and 2). | https://bankofgeorgiagroup.com/reports/ | | ### ENVIRONMENTAL MATTERS annual Committing to the Principles of the UN ### GENDER DIVERSITY Additionally, we have reported on those Global Compact emissions under Scope 3 that are applicable 1 Since 2022, we have become a signatory of Board of Directors at Georgia Capital PLC Management at Georgia Capital to our businesses’ direct operations. All the UN Global Compact and have officially reported sources fall within our financial expressed our commitment to its ten ## 5 9 statements. We do not have responsibility for Principles, which are then sub-divided into 17 any emission sources that are not included in SDGs. Georgia Capital introduced an initiative 2023 1 4 2023 3 6 our financial statements. to align the portfolio companies’ performance 2022 1 6 2022 2 6 with the UN SDGs, which required our portfolio companies to determine relevant SDGs and Fem ale Male Fem ale Male implement respective procedures to track their progress towards the identified goals. For the individual SDGs of our portfolio 2 3 companies please refer to page 25 in our All employees at Georgia Capital All employees at the Group and portfolio levels Sustainability Report. ## 47 19,815 | 2023 | | 27 | 20 | 2023 | | 14,674 | | 5,141 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | | 28 | 20 | 2022 | | 14,376 | 4,738 | | | | Fem ale Male | | | | Fem ale Male | | | | 1 The Chairman and CEO is included in both categories: “Board of Directors at Georgia Capital PLC” and “Management at Georgia Capital”. 2 Employee numbers are presented at Georgia Capital JSC and Georgia Capital PLC levels. The monthly average number of employees is 47. 3 Excluding temporary employees. 1 Portfolio company Scope 3 emissions reported for business travel and employee commuting. 84 85 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED Georgia Capital PLC Annual Report 2023 Summary of GHG disclosure SECR Report The table below summarises the various elements of our disclosure and details the particular GHG emissions and whether they are included or excluded. This report has been produced in accordance with the UK Government’s policy on SECR. As determined by the Greenhouse Gas Protocol, the scope and boundary of the GHG emissions herein relate to those where we have operational control, i.e. those relating to our corporate offices in Element Description Included / Excluded both London and Tbilisi. Scope 1 – Static fossil fuel Combustion of fossil fuels, e.g. natural Excluded – No such processes/equipment owned or operated by the gas, fuel oils, diesel and petrol in stationary Group. GHG emissions and energy data equipment at owned and controlled sites The following table reports upon GHG and energy data for the period December 2022 to December 2023. The prior reporting year has been included for comparative purposes. | | Scope 1 – Mobile fossil | Combustion of petrol, diesel and aviation fuel | Business travel has been included. | | | --- | --- | --- | --- | --- | | | fuel | in owned/operated vehicles | | Energy consumption (in kilowatt hours, kWh) Prior reporting year (2022) Current reporting year (2023) | | | Scope 1 – Other | Process emissions and refrigerant leakage Excluded – No such processes/equipment owned or operated by the | | Purchased electricity 34,272 41,053 | | Georgia Capital PLC Annual Report 2023 | emissions | | Group. | | Gas combustion – – Scope 2 – Consumption Consumption of electricity Included – Used electricity at owned and controlled sites using the Transpor t fuel 219,355 237,0 31 of electricity most recent Georgia electricity conversion factor taken from the JRC Guidebook – How to Develop a Sustainable Energy and Climate Action Refrigerants – – Plan in the Eastern Partnership Countries, European Commission, Ispra, 1 Total energy consumption (kWh) 253,627 278,084 2018, JRC113659. Also included are emissions of the UK office. | Scope 2 – Consumption | Direct consumption of heat, steam or cooling | Excluded – No such thermal energy supplies are consumed by the | | | | Total | Total | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Emissions (per metric tonne of CO | 2 equivalent, tCO | 2 e) | (2022) Scope | (2023) Scope | | of thermal energy | generated by others | Group. | | | | | | Purchased electricity 3.6 2 4.3 2 Scope 3 Combustion of petrol, diesel and aviation fuel Included – Air business travel (short-haul and long-haul); information on Gas combustion – 1 – 1 in vehicles owned and operated by others the class of travel is unavailable, hence, we used an “average passenger” 2 Transpor t 75.9 3 32.5 3 conversion factor, with radiative forcing. Refrigerant emissions – 2 – 2 Included – Ground transportation, including taxis, coaches, trains, etc., owned and operated by others. Total gross emissions 79.5 – 36.7 – Excluded – Emissions from staff commuting at GCAP HoldCo level. Total Total 1 Investments Included – Scope 1, 2 and 3 of our portfolio companies where we have a Intensity ratio (2022) (2023) majority stake. (tCO e per FTE) 3.08 2.39 2 Emissions Quantification and reporting methodology Total greenhouse gas emissions (tonnes CO e) 2 The GHG and energy data presented above has been collated, calculated and presented using methodology following the Greenhouse Gas Data for the period beginning 1 January 2022 and ending 31 December 2023 2022 2 2023 Reporting Protocol, and uses the 2023 Government Emission Conversion Factors for Company Reporting. Scope 1 66 73 Intensity ratio Static fossil fuel (emissions fuel combustion and facility operations) – – The intensity ratio used in the table above displays total gross emissions (tCO e) per FTE. Mobile fossil fuel 66 73 2 Scope 2 4 4 Our environmental activities emissions from electricity, heat, steam and cooling purchased for own use 4 4 Measures undertaken to improve energy efficiency Scope 3 29,057 26,723 Over the last periods, Georgia Capital has introduced and implemented energy-efficient solutions to further reduce energy consumption by air travel and ground transportation provided by third parties plus electricity, heat/steam, cooling provided within lease conducting various activities across the Group and portfolio companies. Our portfolio companies continue to implement energy-saving solutions, and service agreements 78 35 such as LED lights and other energy-efficient equipment, such as boilers and heating ventilation and air conditioning systems. Our housing 3 development business pioneered the introduction of energy-efficient construction materials. In our education business, four of our school campuses investment portfolio emissions 28,979 26,688 of which, Scope 1 18,643 17,46 0 successfully introduced solar panels and our other educational infrastructures will follow in due course. Our beverages business reduced energy of which, Scope 2 5,064 4,993 consumption and carbon footprint through its CO recovery plant, alongside the wastewater treatment plant. In addition, the company also 2 of which, Scope 3 (voluntary disclosure) 5,272 4,234 introduced the Green Fridge Policy which reduces the carbon footprint of cooling bottled and canned products. Additionally, our PTI business adheres to green standards, exemplified by the planting of trees in every Tbilisi branch, contributing to a green space that encompasses 20% of the TOTAL GREENHOUSE GAS EMISSIONS 29,127 26,800 total territory. FTEs at GCAP HoldCo level 48 47 4 Details of environmental activities of our portfolio companies are reported in our Sustainability Report at Total greenhouse gas emissions per FTE (GCAP HoldCo) 606.8 570.2 https://georgiacapital.ge/ir/sustainability-reports. FTEs at GCAP HoldCo and portfolio company levels 19,114 19,815 4 TOTAL GREENHOUSE GAS EMISSIONS PER FTE (GCAP HOLDCO AND PORTFOLIO COMPANY LEVELS) 1.52 1.35 1 Portfolio company Scope 3 emissions reported for business travel and employee commuting. 2 The 2022 GHG emissions have been retrospectively adjusted, incorporating the calculation methodology agreed upon with our external verification provider. The total GHG emissions for 2022 were assessed at 29,127 tCO 2 e, compared to the previously disclosed 28,179 tCO 2 e. Specifically, GHG emissions under the SLB framework, following the retrospective application of the relevant methodology, amount to 23,776 tCO 2 e, as opposed to the previously disclosed 22,829 tCO 2 e, representing an updated baseline for GHG emission reduction targets/SPTs. 3 Investment portfolio companies’ total Scope 1 and 2 emissions are: 23,706 tCO 2 e in 2022 and 22,454 tCO 2 e in 2023. 1 Scope 1 and Scope 2 consumption data is converted in kWh. For the distance (km) conversion into kWh, we used a conversion factor for an average size car. 4 FTE (“full time employee”) is stated excluding temporary employees. 2 Transport emissions represent 1) business travel in employee-owned vehicles where the firm is responsible for purchasing the fuel, and 2) business travel in company owned vehicles. 86 87 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED ## TCFD Georgia Capital PLC Annual Report 2023 • Delayed Transition 1.8°C where Table 1: Modelled carbon price for Georgia (US$/tonne) ## TASK FORCE ON CLIMATE-RELATED the temperature rise is around 2°C by 2050. Physical risks as described under Projected carbon price ## FINANCIAL DISCLOSURES the Current Policies scenario are still NGFS modelled scenario Year 2025 Year 2030 Year 2035 Year 2050 The following section reflects Georgia Capital’s response to the TCFD recommendations. likely. Delayed transition implies that Current Policies 3 3 3 4 The disclosures have been prepared in line with the all-sector guidance and, where society remains slow to act but there is Delayed Transition 1.8°C <1 <1 224 497 applicable, reflect the supplementary recommendations for the asset managers. In this a more urgent response in the 2030s. Net Zero 1.5°C 148 204 272 603 section, we present the Company’s perspective on four core pillars of governance, strategy, Consequently, transition risks, especially risk management, and metrics and targets related to climate-change mitigation. those relating to regulation, occur mid- 2030s and are swiftly implemented (not | | | | | | gradually or phased), for example, fuel | In addition, potential financial impacts under | | It is noted that under the plausible scenarios | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Georgia Capital PLC Annual Report 2023 | | | | | use and carbon pricing. Technology will | this scenario may also arise associated with: | | analysis, there will be little difference in the | | | GOVERNANCE | | | | continue to evolve because R&D generally | • acute physical events, for example, from | | physical outcomes between Current Policies | | | | | | | occurs over 10-15 year horizons, while | | increased flooding or land instability | and Delayed Transition 1.8°C before 2050. But | | | | | | | consumer preferences and reputation may | | due to intense rainfall on operations or | under the Delayed Transition 1.8°C scenario, | | | Board oversight | the climate change questionnaire to the CDP | Management oversight | | | | | | | | | | | | have more of an influence. | | physical assets; | there is significant potential for variation in near- | | | The Board is entrusted with providing oversight | annually for additional transparency. | Within the management team, the Chief | | | | | | | | | | | • Net Zero 1.5°C consistent with a | | • chronic physical changes to climate, such as | | term policy action which will introduce great | | | of climate-related risks and opportunities, aided | | Financial Officer, supported by the finance | | | | | | | | | | | | temperature rise of 1.5°C, reflecting early, | | increased average temperatures affecting the | uncertainty for businesses. | | | by the Audit and Valuation Committee. The | The Board is responsible for the approval of | team, is responsible for identifying risks, | | | | | | | | | | | | planned policy action. Transition risks | | condition or habitability of real estate assets, | | | | Audit and Valuation Committee and the Board | the climate-related metrics and targets that | including climate change risks, in relation to the | | | | | | | | | | | | will dominate this scenario in relation to | | the physical condition of distribution networks, | A narrative summary of qualitatively identified | | | have responsibility for assessing and managing | have been established by GCAP in 2022. It is | investment portfolio and including these in the | | | | | | | | | | | | regulation, technology and products. There | | and/or community health; and | macro-level risks and opportunities under the | | | climate-related risks and opportunities in | also responsible for ensuring progress against | valuation process. The Director of Investments, | | | | | | | | | | | | is an expectation of rapid obsolescence | • adaptation of operations or assets to | | Delayed Transition 1.8°C scenario and the | | | relation to GCAP’s direct operations and to our | agreed metrics and targets. | supported by the Investment Officers, is | | | | | | | | | | | | of fossil fuel technologies and technology | | mitigate the effect of physical or transition | potential impact of these risks is provided in | | | portfolio companies, as they affect matters | | responsible for identifying specific risks and | | | | | | | | | | | | advancements that will contribute to the | | risks. In this example, transition risks | Table 2. For each portfolio company, examples | | | within their remit. | In October 2023, the Board revised the | opportunities at the initial investment stage. | | | | | | | | | | | | transition. Consumer preferences towards | | and, in particular, opportunities for the | are given which are considered to have a | schedule of matters reserved for the Board, | | | | | sustainable choices and reputation will drive | | GCAP investment strategy and portfolio | potential impact on the portfolio company, if | | --- | --- | --- | --- | --- | --- | --- | --- | | Current, future and emerging risks are included | including explicitly stating that it now covered | The Chief Financial Officer and Director of | | | | | | | | | | | changes in market demand. While physical | | may be driven by the Georgian Nationally | not to the portfolio as a whole. The percentage | | within the standing item, “Discussion of | any duties previously reserved to the | Investments report on monitoring of identified | | | | | | | | | | | risk profiles remain broadly similar up to | | Determined Contributions and the Georgian | value of the portfolio company within the | | risks”, of the Audit and Valuation Committee | Investment Committee, and further to make it | financial and climate-related risks and significant | | | | | | | | | | | 2030 they are lower than in other scenarios | | 2030 Climate Change Strategy and Action | portfolio is provided as a broad indicator of | | and Board agendas. Risks, including those | clear that the Board had primary responsibility | changes through their regular reports to the | | | | | | | | | | | after this date. | | Plan (CCSAP). | likely weighting. | | relating to climate change, are discussed, and | for overseeing environmental and social risks | Management Board. Risks are escalated to the | | | | | | | implications for future strategy are considered, | and that the Company’s strategic direction is | Audit and Valuation Committee. | | | | | | | semi-annually, in line with the annual and semi- | regularly informed by material environmental | | Carbon prices (including taxation measures) are | | | | | | annual reports. | and social issues. Given the small size of the | The Board and management work together | a key policy instrument for incentivising carbon | | | | | | | Board and the importance of these matters, | to develop and review the GCAP investment | emissions reduction. There is a direct relationship | | | | | | In 2022, the Board supported the initiative of | including climate change, the Board believes | strategy and consider, among other aspects, | between the ambition (and stringency) of policies | | | | | | incorporating ESG as one of the core pillars of | that it is appropriate for the whole Board to be | climate-related issues. They are also responsible | and the cost of emissions. The cost of emissions | | | | | | GCAP’s strategy. The Board also reviewed the | responsible for these issues. | for setting a wide range of corporate policies | is also sensitive to the timing and implementation | | | | | | alignment of GCAP’s portfolio operations with | | and objectives, among them environmental and | of the policies, the distribution of policies across | | | | | | the UN SDGs and supported the enhancement | | social policies, and for monitoring performance | all industrial sectors and the available technology, | | | | | | of ESG transparency. Georgia Capital submits | | against objectives and targets. | for example for CO | | removal. | | | 2 The carbon price in Georgia is a key variable in determining the future climate-related financial ### STRATEGY risk for GCAP. The projected carbon price over the short, medium and long term under the In support of the evaluation of climate- renewable energy, 7.3% share of the portfolio a different set of assumptions for how climate three plausible scenarios is shown in Table 1. related risks and opportunities that may be at 31 December 2023, the issuance of the SLB policy, emissions and temperatures evolve. Under Current Policies, there is little change present, a review of GCAP’s direct operations in 2023, and increased focus on sustainability The scenario descriptions using the REMIND- in the carbon price. However, there is a sharp and a macro-level review of the portfolio both at GCAP and portfolio company levels). MAgPIE 2.1-4.2 model are as follows: increase in the carbon price occurring in about companies’ operations were completed. The • Current Policies (or BAU) where the 2030-2035 under the Delayed Transition 1.8°C process was followed by a comprehensive Scenario analysis of plausible futures modelled temperature in 2050 exceeds 3°C. scenario. Under the Net Zero 1.5°C scenario, a quantitative assessment, specifically on Network for Greening the Financial System This scenario is dominated by physical risks carbon price in Georgia of US$ 204/tonne by 1 GHG inventory management. (“NGFS” ) climate scenarios were chosen due to the resulting climate and weather 2030 is projected. for their relevance to the finance sector and pattern changes. Transition risks are muted It is considered that indirect climate-related to allow for comparability. Climate change as regulators and technology are not being Based on the early-stage scenario modelling risks within the portfolio companies will be scenarios for the Republic of Georgia were driven to change beyond current plans. initial tables of potential climate-related more significant than those present within the explored as follows: Georgia will experience a reduction in the financial risks and opportunities for each Group’s operations. An early-stage scenario • Current Policies/(Business as Usual (BAU)) overall volume of precipitation across the scenario were prepared. analysis was completed as part of the process (policy ambition of >3°C by 2025). country, including a reduction in the volume towards understanding how the climate • Delayed transition to net-zero (policy of snowfall. Gradual snow melt will be An example, a summary table of the Delayed impacts identified in the qualitative assessment ambition of 1.8°C by 2050). replaced by more intense rainfall run-off. Transition 1.8°C scenario is presented as could present as financial risks to GCAP under • Orderly transition to net-zero (1.5°C by 2050). This will result in landscape instability and Table 2. In this example scenario, the increasing different plausible future scenarios. The findings heightened flood risk with the potential carbon price is likely to be relevant to each and potential risk implications of such findings GCAP invests over a five-to-ten-year horizon. for infrastructure to be overwhelmed. of the portfolio companies either directly or are provided below in the section “Scenario With this in mind, scenario outputs were In addition, there is an expectation of through their supply chains. | analysis of plausible futures”. GCAP’s strategy | considered by GCAP in the short term (year | an increasing frequency of heat waves. | | --- | --- | --- | | incorporates strong consideration of climate | 2027), medium term (year 2030) and long term | | | change aspects (e.g. GCAP’s focus upon | (year 2050). Each NGFS scenario explores | | 1 www.ngfs.net. Network for Greening the Financial System (“NGFS”) Climate Scenarios for Central Banks and Supervisors, June 2021. 88 89 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED ## TCFD CONTINUED Georgia Capital PLC Annual Report 2023 | Table 2: Portfolio 2023: Qualitative presence of potential climate-related physical or transition risks under Delayed Transition 1.8°C | | | | | | | | | | Medical insurance | | Renewable energy | | Housing development and hospitality | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | (2.5% of total portfolio) | | (7.3% of total portfolio) | | • Risks – Physical risks to property will | | | | | Physical risks | 1 | | | Transition risks | 2 | | | | | | | | | | | | | | | | | | | | • Risks – An increase in medical insurance | | • Risks – In the short to medium term, the | | | occur. These include deterioration of asset | | | | | | Legal/ | | | | Technology/ | | | | | | | | | | | | | | | | | | | | claims may arise from both acute short- | | infrastructure and transmission lines are | | integrity due to flooding or extreme heat. | | | Acute Chronic | | | regulation | Market Reputation | | | | digital | | | | | | | | | | | | | | | | | | | term weather conditions (flooding and, in | | clearly at risk from physical risks such as | | In the medium term (post-2030) assets | Portfolio company (% value of total portfolio) Risk Opp. Risk Opp. Risk Opp. Risk Opp. Risk Opp. Risk Opp. some regions, landslides and heatwaves) landslides, or extreme heat impacting the that are not energy efficient will be hit by Bank of Georgia and long-term chronic changes in weather integrity of lines or pipes. However, for each energy efficiency regulation for retrofitting Water utility such as increased average temperatures, of the HPPs and WPPs, the business has and increased energy costs due to impacting health. Failure of infrastructure taken steps to improve the resilience of carbon pricing. Renewable energy | | | may cause longer-term ill health from | | infrastructure to changes in climate. | • Opportunities – Early adoption of fuel | | | --- | --- | --- | --- | --- | --- | --- | | | Healthcare businesses: | waterborne diseases. There is also a risk | • Opportunities – The renewable energy | | | efficiency standards, emissions-reducing | | Georgia Capital PLC Annual Report 2023 | Hospitals and clinics and diagnostics | that the Government introduces a policy | | business generates electricity using | | regulations and building efficiency | | | | for insurers to maintain policy cover for the | | renewable sources, and there are a number | | compliance will reduce longer-term costs | Retail (pharmacy) “uninsurable”, the costs of which may not be of policy and Government incentives for relating to regulations including a reduction Medical insurance | | | possible to pass on to the insured. | solar wind and hydropower generation | | in potential declines. | | --- | --- | --- | --- | --- | --- | | P&C insurance | • Opportunities – Encouraging customers | | in Georgia as part of the Georgian 2030 | | | | | | to prepare to be resilient with respect to | CCSAP. Renewable energy sources are | The Group’s strategy is to focus predominantly | | Education climate risks, for example through premium considered to be the future of energy and on capital-light, larger-scale investment Auto service incentives to have healthy lifestyles, may are valued higher than traditional electricity opportunities in Georgia and it normally contribute positively to the business generation companies. seeks to monetise its investment through Beverages (beer and wine) | | | | reputation and customer base. | | | appropriate exit options, typically within five to | | --- | --- | --- | --- | --- | --- | --- | | Housing development and hospitality | | | | Education (5.2% of total portfolio) | | ten years from initial investment. Considering | | | | P&C insurance (7.8% of total portfolio) | | • Risks – The potential risks relate to | | this strategic focus, the holding periods of our | | Key: The orange blocks indicate potentially material risk areas and the green blocks indicate potentially material opportunities for each of the portfolio companies. | | • Risks – Carbon pricing is a fundamental | | | transition type risks, in particular energy | investments fall in much shorter time horizons | | | White areas indicate that neither material risks nor material opportunities are anticipated. | | component of the EU’s climate change | | and air quality regulations, that may be | (short to medium term) than the timeframe in | | | | | agenda. Under the Delayed Transition | | introduced under this scenario at short | which the impacts of climate change, especially | 1 Physical risks and opportunities are those that occur due to the physical manifestation of climate change – as chronic long-term climate changes or as acute episodic weather events. 1.8°C scenario, carbon pricing is expected notice in the medium term. Schools may of physical risks, may manifest themselves in 2 Transition risks and opportunities are those related to the transition to a low carbon economy including legal/regulatory risks such as carbon prices, market supply and demand, | | reputation and technology (e.g. disrupters, improvements and replacement of technology that support the transition to a low-carbon economy). | | | | | | to rise sharply after 2030 (medium term). | | be expected to retrofit heating and cooling | Georgia. The exposure of GCAP’s portfolio on | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | This will see a progressive rise in the | | measures/equipment to meet regulations. | certain industries (presented as a percentage | | | | | | | | | cost of carbon-intensive products and | | In addition, energy requirements may arise | of the investment in the total portfolio value) | | Bank of Georgia (33.4 % of total | | Water utility (4.3% of total portfolio) | | • Opportunities – There is a regulation | | | | | | | | | | | | | | | services, logistics, distribution and any | | in response to air conditioner use during | as well as the investment holding period are | | portfolio) | | • Risks – Acute physical risks may impact | | | opportunity for the retail (pharmacy) | | | | | | | | | | | | | | other operations within the supply chain | | prolonged heatwaves for example. These | essential when defining the different time | | • Risks – Within the medium term, the | | | utility assets. For example, in the short | | business. Being an early adopter of fuel | | | | | | | | | | | | | | associated with high-carbon emissions. | | risks are expected for all real estate. | horizons for the analysis and when assessing | | | rapid implementation of climate policy and | | to medium term, extreme rain events | | efficiency standards, emissions-reducing | | | | | | | | | | | | | | This will have implications for the cost of | | | the materiality of climate-related risks for | | | regulation may result in sharply increasing | | may overwhelm infrastructure, causing | | regulations and building efficiency | | | | | | | | | | | | | | insurance, which may be passed on to | Auto service | | different investments. | | | direct regulatory expenses in relation to fixed | | damaged water treatment and sewage | | compliance will reduce overall running | | | | | | | | | | | | | | the customer. Beginning with transition | • Risks – Currently, vehicles on the market | | | | | assets such as the Bank’s retail outlets. | | treatment plants. Pipelines are also at risk | | costs in the medium term. Good energy | | | | | | | | | | | | | | risks, some lines of business may see | | and in use in Georgia are mainly diesel | Management takes climate change risk into | | • Opportunities – In the short term, and | | | from such events, as the overall integrity is | | management and the use of renewable | | | | | | | | | | | | | | changes in claims patterns as Government | | and petrol-fuelled. Initially, in the short | consideration when determining its investment | | | in mitigation, the Bank is already in the | | placed under pressure. These will require | | energy will not only lower energy | | | | | | | | | | | | | | policy and regulation relating to carbon | | term, there will be a gradual switch to | strategy. This is described further in the Risk | | | advanced stages of implementing energy | | increased maintenance and repair costs. | | expenditure and generate a financial benefit | | | | | | | | | | | | | | emissions evolve. This might result in | | electric vehicles. After 2030, there will | Management section on page 92. Climate | | | efficiency programmes within its real | | Landslides in more remote locations could | | but will also reduce the carbon footprint of | | | | | | | | | | | | | | fluctuating loss ratios and profitability. The | | likely be a significant increase in the use | change is also reflected in the valuation | | | estate (retail, office and data centres). By | | cause further damage and may block | | the operations. | | | | | | | | | | | | | | steep rise in carbon prices can lead to | | of electric vehicles, abruptly reducing the | assessments of the portfolio companies, as | | | anticipating compliance with regulations | | access in some areas. | | | | | | | | | | | | | | | | reduced profitability, obsolete assets and | | need for emissions checks. Additionally, | described in the Risk Management section on | | | relating to fuel efficiency standards, | • Opportunities – In the medium term, | | Healthcare businesses – hospitals | | | | | | | | | | | | | | | impairments in sectors that are difficult | | the anticipated rise of carbon pricing and | page 92. Going forward we will be exploring | | | emissions-reducing regulations and | | decarbonisation of operations will enable | and clinics and diagnostics | | | | | | | | | | | | | | | to decarbonise and where additional | | adoption of border adjustment mechanisms | how to further incorporate climate change risk | | | building efficiency compliance, the Bank | | the water utility operations to limit the | (12.4% of total portfolio) | | | | | | | | | | | | | | | costs cannot be passed on to customers. | | after 2030 will affect Amboli’s (the auto | into our portfolio valuations. This may include | | | will minimise costs in relation to regulations. | | cost consequences of carbon pricing and | • Risks – under the delayed transition, it is | | | | | | | | | | | | | | | The transition will shift demand toward | | service business’ car services and parts | an assessment of the influence of the projected | | | In addition, it will lower energy expenditure | | provide an advantage over more carbon- | | anticipated that in the medium-term carbon | | | | | | | | | | | | | | low-carbon technologies and create new | | business) supply chain and trade of car | carbon price under different scenarios, on the | | | and generate a financial benefit, especially | | intensive competition. | | prices will remain low. After 2030, carbon | | | | | | | | | | | | | | opportunities for companies that provide | | consumables and parts. There will likely be | valuation of the portfolio. In addition, the use of | | | where renewable energy is utilised. | | | | prices may rise quickly y-o-y towards 2050. | | | | | | | | | | | | | | innovative solutions and are able to reduce | | an abrupt rise in distribution and retail costs | shadow carbon pricing might be reviewed. | | | Additionally, the Bank has adopted digital | Retail (pharmacy) | | | The implications of this will be financially | | | | | | | | | | | | | | their emissions more efficiently than | | as a result of increases in carbon pricing. | | | | technology to enable all forms of digital | (19.4% of total portfolio) | | | more severe for carbon-intensive products, | | | | | | | | | | | | | | competitors. Failure to manage potentially | • Opportunities – In the short to medium | | Other identified potential risks and | | | banking, potentially further reducing the | • Risks – The principal risks arise from | | | services and operations. This will result | | | | | | | | | | | | | | detrimental impacts will result in damage to | | term, it may be that there will be stricter | opportunities are evaluated by the Investment | | | need for fixed assets. | | physical aspects of climate change and may | | in increased costs of purchase relating | | | | | | | | | | | | | | a company’s reputation. | | emissions requirements. This may | and Finance teams in discussion with the | | | | | impact the physical assets. Transition risks | | to medical equipment and supplies, | | | | | | | | | | | | | • Opportunities – Opportunities will likely | | | mean that more vehicles will need to be | portfolio companies to determine their financial | | Since 2021, Bank of Georgia Group PLC | | | are considered to mainly relate to carbon | | particularly those originating out-of-country. | | | | | | | | | | | | | | arise from energy efficiency regulation | | emissions-checked more regularly or be | materiality (impact on financial performance | | completes its own TCFD assessment. The | | | pricing and the effect this will have on the | • Opportunities – In the short to medium | | | | | | | | | | | | | | | which will force customers to upgrade their | | modified, causing demand at PTI centres. | including revenues and expenditures, and | | results are available publicly in Bank of Georgia | | | supply chain, for example, the purchase | | term, commitment to a low-carbon portfolio | | | | | | | | | | | | | | homes and vehicles and may require new | | | impact on the financial position, assets and | | Group PLC’s Annual Report and Accounts | | | of drugs and medicines. As the carbon | | (for example, low-carbon hospitals) could | | | | | | | | | | | | | | product offerings. Commercial opportunities | Beverages | | liabilities, capital and financing). | | which can be viewed or downloaded at: https:// | | | price rapidly increases post-2030 (medium | | have certain benefits. A reduction in the | | | | | | | | | | | | | | are also likely to arise by creating targeted | • Risks – In addition to physical risks | | | | bankofgeorgiagroup.com/reports/annual | | | term) the prices of goods will increase. | | portfolio’s carbon intensity will mitigate | | | | | | | | | | | | | | products that address climate change and | | (reduced rain, high intensity events, | | | | | | While this will be felt across the market | | future costs associated with increasing | | | | | | | | | | | | | | energy transition. | | prolonged heatwaves) affecting hops | | | | | | and will not be unique to the portfolio, | | carbon prices. | | | | | | and grape production, the main identified given the leading market share, this could risk relates to regulatory transition risk. In result in reputational risk arising from particular, carbon prices and border taxes consumer perception. such as the EU Carbon Border Adjustment Mechanism will adversely affect the prices of both incoming goods and exported products in medium term (post-2030). 90 91 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## RESOURCES AND RESPONSIBILITIES CONTINUED ## TCFD CONTINUED Georgia Capital PLC Annual Report 2023 | RISK MANAGEMENT | | | | METRICS AND TARGETS | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Climate change risk has been recognised | similar characteristics. GCAP identifies the | • further discussion with the portfolio | | In 2022, Georgia Capital committed to the | GHG inventory | 2022 has been chosen as a base year for two | | | by GCAP as an emerging risk. The risk | peer group for each equity investment taking | | companies on how carbon price may be | Net-Zero Initiative and expressed its willingness | Measuring GHGs is the initial step in preventing | major reasons: | | | management approaches for the initial | into consideration points of similarity with the | | used to influence their strategy and impact | to reach Net-Zero across Scope 1 and 2 | global warming. GCAP has collated Scope 1, | • In 2022, the disposal of the majority equity | | | investment stage and the existing portfolio | investment such as industry, business model, | | on their business plans going forward – | emissions at both GCAP HoldCo and portfolio | 2 and limited Scope 3 GHG emissions over the | | stake in the water utility business was | | | | | | company levels by 2050. | past few years. | | completed, which significantly changed the | | companies are provided below. | size of the company, economic and regulatory | | including the cost of supplied materials, | | | | | GHG emission composition. | | | factors, growth prospects (higher growth rate) | | ability to pass through costs and potential | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | In May 2022, GCAP commenced the ESG | In 2020 we focused on emissions derived from | • The 2022 year reflects the normalisation | | | | Investment stage | and risk profiles (including the climate change | | capex among other aspects. | | | | | | | | | | | target-setting initiative with the goal of | GCAP operations (Scope 1, 2 and limited 3). We | | of economic activities compared to the | | | The investment risk management process | risk). Valuation assessments of the large and | | | | | | | | Georgia Capital PLC Annual Report 2023 | | | | | setting GHG emission reduction targets. | reported on the emission sources listed under | | abnormal environment in 2020-2021 years | | | includes consideration of climate-related | investment stage portfolio companies are | The NGFS modelling scenarios will be re-run | | | | | | | | | | | | Over a four-month period, GCAP conducted | the Companies Act 2006 (Strategic Report | | due to COVID-19-related implications. | | | risks, in line with the implementation of the | performed by an independent valuation firm | annually to assess changes if any, that may | | | | | | | | | | | | comprehensive research on relevant ESG | and Directors’ Report) Regulations 2013 and | | | | | Responsible Investment Policy. Procedures | on a semi-annual basis. Climate change risk is | occur in response to global or Republic of | | | | | | | | | | | | standards, frameworks and guidelines, and | the Companies (Directors’ Report) and Limited | In 2022, the full GHG inventory analysis | | | | for identifying, describing and managing | factored in the valuation assessments. Climate | Georgia commitments and policies towards | | | | | | | | | | | | engaged in discussions with global experts on | Liability Partnerships (Energy and Carbon | revealed that the portfolio companies’ GHG | | | | environmental and social risks and impacts | change risk is also embedded in the valuation | climate change. | | | | | | | | | | | | different environmental platforms. | Report) Regulations 2018 (Scopes 1 and 2). | emissions accounted for 99.5% of the | | | | (including those associated with climate | of the other portfolio companies as set out in | | | | | | | Group and portfolio companies’ aggregated change) have been incorporated into the the Valuation Methodology on page 99 of this Monitoring and reporting: In September 2022, GCAP, with its portfolio emissions, which were derived from the All sources reported in 2020 fell within our | investment process from the initial investment, | Annual Report. | | Environment (including climate) and social risks | companies, engaged in comprehensive | consolidated financial statements. | following sources: | | | --- | --- | --- | --- | --- | --- | --- | --- | | through to the holding period. | | | and opportunities are managed through regular | individual and group workshops where the ESG | | • Combustion of natural gas (Scope 1) – 33% | | | | Understanding the relationship and potential | | semi-annual engagements with the portfolio | frameworks were discussed and participants | Since 2021, in accordance with the | | of the total GHG emissions. | | GCAP has a staged approach to investment | impact of climate change and its associated | | companies. Topics cover a range of aspects | shared their progress towards setting individual | Greenhouse Gas Protocol and aligning with | • Combustion of petrol and diesel (Scope 1) – | | | appraisal which becomes progressively more | risks across different risk categories was a | | under the headings of Governance, Policies, | environmental targets. Some of the portfolio | TCFD recommendations, we have taken the | | 25% of the total GHG emissions. | | detailed. At the early stages of appraisal, | priority for GCAP risk management during | | Social, Environment, Carbon and Energy | companies also engaged local third-party | opportunity to present elements of the emissions | • Consumption of electricity (Scope 2) – 23% | | | the potential investment is screened against | 2023 as climate risk continued to be integrated | | Management, and Suppliers. | experts in the target-setting initiative to ensure | derived from our portfolio companies (outside our | | of the total GHG emissions. | | the GCAP Exclusion List. This list excludes | into the risk management framework. | | | the effectiveness of the process. | consolidated financial statements). We aggregate | • Other emissions (Scope 3) – 19% of the | | | | | | | | and present portfolio companies’ Scope 1, 2 and | | total GHG emissions. | | businesses that generate more than 10% of | | | Capacity building: | | | | | | | | | | In 2023, in parallel with the SLB issuance the | 3 emissions under our Scope 3 emissions. | | | | their revenues from fossil fuels. Subsequent | Evaluating macro-level risks: | | Where appropriate, GCAP will support portfolio | | | | | | | | | | targets were revisited. | | GHG emissions reduction roadmaps were | | | appraisal stages include evaluation of the | For each of the portfolio companies, a macro- | | companies in training and upskilling Investment | | | | | | | | | | | GCAP considers that all material categories of | developed at both the GCAP HoldCo and | | | carbon and energy emissions, as well as | level review has been completed within the | | Managers with respect to climate change | | | | | | | | | | The primary driver for GCAP’s commitment | Scope 3 have been included in our emissions | portfolio businesses’ levels to support GCAP | | | business strategy and plan elements in relation | scenarios and time horizons (short, medium | | terminology, risks and opportunities during | | | | | | | | | | to achieving Net-Zero emissions by 2050 is | calculation. For further details, please refer | in transferring to a low-carbon economy, and | | | to carbon and energy management. These | and long). The process included among | | 2024 and beyond. | | | | | | | | | | the recognition that the majority of its GHG | to the emission disclosure and calculation | consequently lowering its environmental footprint. | | | plan elements will consider alignment with | other activities: | | | | | | | | | | | | emissions originate from portfolio companies | methodology on page 85. | | | | the Georgian Government Climate Goals and | • review of the scenarios selection and | | | | | | | | | | | | and through this target, the Group can | | The roadmap captures the fundamental | | | incorporate the shadow carbon price. | | identified risks and opportunities with the | | | | | | | | | | | actively promote climate change mitigation, | GHG reduction targets | activities to minimise any adverse impact | | portfolio companies; natural resource conservation, and pollution Georgia Capital commits to reducing total on the environment, whilst simultaneously Current portfolio • application of the carbon prices to investee prevention. This commitment reflects GCAP’s highlighting benefits for the Group and its Scope 1 and Scope 2 emissions by 30% by | Climate change, and the risks relating to | emission profiles to establish the impact; | dedication to fostering a transition toward a | 2030 compared to the base year, 2022, and by | portfolio companies: | | | --- | --- | --- | --- | --- | --- | | climate change, is reflected in the valuation | and | more sustainable and lower-carbon economy | 95% by 2050, ultimately becoming Net-Zero. | • c.80% of Georgian electricity is sourced from | | | assessments of the portfolio companies. Equity | | in Georgia. The progress toward this target | | | renewable energy power, having a relatively | | investments in Georgia Capital’s portfolio | | is rigorously monitored on an annual basis. | In 2023, JSC GCAP issued a US$ 150 million | | modest adverse impact on the environment. | | companies are measured at fair values at | | Furthermore, following the successful issuance | SLB and established a SLB Framework, under | • GCAP’s updated strategy of having | | | each reporting date in accordance with IFRS | | of a US$ 150 million SLB, the verification of | which GCAP committed to decrease its GHG | | | considerable exposure to capital-light portfolio | | GHG emissions will be conducted regularly at | | 1 | | | --- | --- | --- | --- | --- | | 13, Fair Value Measurement. Private large and | | emissions | by 20% by 2027 compared to a | companies provides a chance to progressively | | investment stage portfolio companies are | least while the bond remains outstanding. | 2022 baseline. The SLB target is in line with | | | transition to a low-carbon economy. valued by applying a combination of an income GCAP’s overarching commitment to reaching approach (DCF) and a market approach (listed Net-Zero across the Group by 2050. peer multiples and, in some cases, precedent Base year Target by Target by transactions) in line with International Private Target 2 KPIs 2022 2030 2050 Equity and Venture Capital Valuation (IPEV) GHG emissions reduction targets guidelines and methodology. Under the DCF 3 | | Reduce GCAP HoldCo Scope 1 and 2 emissions | 70 tCO | e 30% 95% | | --- | --- | --- | --- | | valuation method, fair value is estimated by | | | 2 | | deriving the present value of the business using | Reduce GCAP’s Scope 3 emissions: | | | reasonable assumptions of expected future cash 3 * Reduce portfolio companies’ Scope 1 and 2 emissions 23,706 tCO e 30% 95% flows and the terminal value, and the appropriate 2 Reach Net-Zero across 4 | risk-adjusted discount rate that quantifies the | | * Offset GCAP HoldCo’s direct Scope 3 emissions | that cannot | 78 tCO | e Yes Yes | | --- | --- | --- | --- | --- | --- | | | Scope 1 and 2 emissions | | | | 2 | | risk inherent to the business. The discount | | be avoided or reduced further, starting from 2030. | | | | at both GCAP HoldCo and rate is estimated with reference to the market portfolio companies’ level Georgia Capital plans to reduce its direct GHG emissions by: risk-free rate, a risk-adjusted premium and by 2050 • implementing Net-Zero awareness campaigns across the Group and its portfolio companies; information specific to the business or market • organising annual ESG workshops with the portfolio companies; sector, which consequently reflects the climate • replacing the natural gas heating systems with efficient electric heating solutions; change-related considerations of the business. • promoting electric vehicle deployment in order to reduce the consumption of petrol and diesel; and Market approach valuation methodology • gradually transferring electricity consumption to 100% renewable energy, either by installing renewable energy involves the application of a listed peer group solutions at our facilities or purchasing electricity from renewable energy providers. earnings multiple to the earnings of the business and is appropriate for investments in established 1 Represents GCAP’s absolute Scope 1, 2 and 3 emissions (the latter reflecting the aggregated Scope 1 and 2 emissions of the portfolio companies). businesses and for which the Company can 2 Since GCAP’s portfolio is subject to regular asset rotation, the targets may be recalibrated in the future. determine a group of listed companies with 3 The 2022 GHG emissions have been retrospectively adjusted, incorporating the calculation methodology agreed upon with our external verification provider. Specifically, GHG emissions under the SLB framework, following the retrospective application of the relevant methodology, amount to 23,776 tCO 2 e, as opposed to the previously disclosed 22,829 tCO 2 e, representing an updated baseline for GHG emission reduction targets/SPTs. 4 Emissions related to air travel and ground transportation provided by third parties and electricity, heat/steam, cooling provided within lease and service agreements. 92 93 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## ALTERNATIVE PERFORMANCE MEASURES Georgia Capital PLC Annual Report 2023 | | APMs overview | the appropriate risk-adjusted discount rate that | | – Private portfolio companies are carried | APM summary | The table below lists all the APMs used within | | --- | --- | --- | --- | --- | --- | --- | | | Management assesses the Group’s | quantifies the risk inherent to the business. | | at fair value based on a valuation | In October 2015, ESMA published guidelines | the Annual Report. | | | performance using a variety of measures that | As such, the stand-alone IFRS results and | | technique believed to be most | about the use of APMs. These are financial | | | | are not specifically defined under IFRS and | developments behind IFRS earnings of our | | appropriate to that investment as | measures such as key performance indicators | Read more on financial performance in the | | | are, therefore, referred to as APMs internally | portfolio companies are key drivers in their | | described in the Valuation Methodology | (KPIs) that are not defined under IFRS. In the | Strategic Review on pages 101 to 119. | | | and throughout this document. Management | valuations. Following the Group discussion, we | | on page 99. | Strategic Review section of the Annual Report | | | | monitors the Group’s performance on a regular | therefore also present unaudited IFRS financial | | – NAV per share represents total NAV | on pages 2 to 119, Georgia Capital describes | Read more on about the use of APMs in the | | | basis based on developments in the Income | statements for each portfolio company and a | | divided by the number of outstanding | its financial performance under the adjusted | Discussion of Results on pages 94 to 96. | | | Statement and NAV Statement prepared | related brief results discussion. | | shares at the end of the period, i.e. the | IFRS 10 Income Statement and also discloses | | | | under the methodologies described below. | | | number of issued shares at the end of | the stand-alone IFRS results for the portfolio | | | | Management believes that such statements | Our adjusted IFRS 10 Income Statement and | | the period less unawarded shares in | companies, which themselves can be viewed | | | Georgia Capital PLC Annual Report 2023 | provide an important view on Georgia Capital’s | the stand-alone IFRS results for our portfolio | | GCAP’s management trust. | as APMs. A number of other measures are | | | | strategy and helpful insights into management’s | companies may be viewed as APMs. | | | used which are also APMs, since they are | | | | decision-making. Management dedicates | | Management Income Statement | | derived from the management accounts. The | | | | time to ensuring that the Group’s APMs are | NAV Statement | The Income Statement is an aggregation of | | applicable reconciliations to the IFRS equivalent | | | | reported in a consistent and transparent | The Group makes indirect investments in | GCAP’s stand-alone Profit and Loss Statement | | where appropriate, is provided below and | | | | way in accordance with the European | portfolio companies, held through intermediate | and fair value change of portfolio companies | | should be read alongside the adjusted IFRS 10 | | | | Securities and Markets Authority (“ESMA”) | Georgian holding company, JSC Georgia | during the reporting period. The following | | Income Statement to IFRS reconciliation. | | | | published guidelines. | Capital, which is the principal subsidiary of | methodology underlies the preparation of the | | | | | | | Georgia Capital PLC. The application of IFRS | Income Statement: | | | | | | Under IFRS 10, Georgia Capital PLC meets | 10 requires us to fair value the intermediate | • The top part of the Income Statement | | | | APM Purpose Calculation Reconciliation to IFRS | the “investment entity” definition and does not | holding company JSC Georgia Capital. This | (GCAP net operating income) represents | | | | | | --- | --- | --- | --- | --- | --- | --- | | consolidate its portfolio companies, instead the | fair value approach, applied at the intermediate | the aggregation of the two stand-alone | NAV per share The measure of per-share value of | | NAV per share is calculated as | N/A | | investments are measured at fair value. | holding company level, effectively obscures the | holding company accounts, which we | | Georgia Capital. | NAV divided by the number of | | | | performance of our equity capital investments | call GCAP (i.e. the UK holding company | | | outstanding shares at the end of | | | Our Group level discussion is, therefore, based | and associated transactions occurring in the | Georgia Capital PLC and the Georgian | | | the period, i.e. issued shares at the | | | on the IFRS 10 investment entity accounts. | intermediate holding company. The financial | holding company JSC Georgia Capital), | | | end of the period less unawarded | | | | effect from the valuation of the underlying | the performance of which reflects the net | | | shares in management trust. | | | The NAV Statement, as included in the notes | portfolio companies are aggregated into a | result of a) dividend income accrual based | | | | | | | | | GCAP net operating income A measure to reflect performance | | GCAP net operating income | The equivalent balance under IFRS | | to the IFRS financial statements, summarises | single value. The breakdown of the value of | on distributed or declared annual dividend | | | | | | | | | | of the stand-alone GCAP and | reflects the net result of: a) | and respective reconciliation are | | the Group’s equity value and drivers of related | JSC Georgia Capital is presented in Note | proceeds from portfolio companies during | | | | | | | | | | evaluate cash generating capacity | dividend income accrual based | shown in the reconciliation of the | | changes between the reporting periods. Georgia | 12 within the IFRS financial statements. To | the reporting period, b) interest income on | | | | | | | | | | on a holding company level. | on paid or declared annual | Income Statement. | | Capital holds a single investment – in JSC | maintain transparency in our report and aid | liquid funds and loans issued, c) interest | | | | | dividend proceeds from portfolio Georgia Capital (an investment entity on its own) understanding we present a NAV Statement expenses on debt incurred at GCAP level companies to be collected during – which in turn owns a portfolio of investments, and respective reconciliation to the IFRS (which consists of the bonds issued), d) the year; b) interest income on each measured at fair value. Georgia Capital Balance Sheet in Note 5 (Segment information) realised/unrealised gains or losses on liquid funds and senior loans measures its investment in JSC Georgia Capital of the IFRS financial statements. NAV disclosed liquid assets and e) expenses incurred issued; c) interest expenses on at fair value through profit and loss, estimated under the NAV Statement is the same as IFRS at GCAP level. debt incurred at GCAP level; d) with reference to JSC Georgia Capital’s own equity value as at 31 December 2023. The • Fair value change of portfolio companies realised/unrealised gains or losses portfolio value as offset against its net debt. NAV Statement is simply a “look through” of (total investment return) represents fair value on liquid assets; and e) operating the IFRS 10 Balance Sheet to present the changes in the value of portfolio companies expenses incurred at GCAP level. | The Income Statement presents the Group’s | underlying performance. | | during the reporting period, as valued in | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | results of operations for the reporting period. | | | the period-end NAV Statement. A detailed | Total investment return A metric to measure the value | | Fair value change of portfolio | The equivalent balance under IFRS | | As we conduct most of our operations through | The NAV Statement breaks down NAV into | | Valuation Methodology is described on | | creation power of Georgia Capital | companies (total investment return) | and respective reconciliation are | | JSC Georgia Capital, through which we hold | its components and provides roll-forward of | | page 99. We view fair value changes of | | from its investments. | represents fair value changes in | shown in the reconciliation of the | | our portfolio companies, the IFRS results | the related changes between the reporting | | portfolio companies as a metric to measure | | | the value of portfolio companies | Income Statement. | | provide little transparency on the underlying | periods, including a snapshot of the Group’s | | the total investment return of Georgia | | | during the reporting period, as | | | trends. To enable a comprehensive view of | financial position at the opening and closing | | Capital’s holdings, which itself reflects value | | | valued in the period-end NAV | | | the combined operations of Georgia Capital | dates. The NAV Statement provides a value of | | creation for shareholders. | | | Statement. | | | PLC and JSC Georgia Capital (together | Georgia Capital that management uses as a | • Following the aggregation of GCAP net | | | | | | | | | | | Net income A performance metric to measure | | Aggregation of GCAP net | The equivalent balance under IFRS | | referred to herein as “GCAP”) as if it were one | tool for measuring its investment performance. | | operating income and total investment | | | | | | | | | | | the value creation power of | operating income and total | and respective reconciliation are | | holding company, we adjust the accounts | Management closely monitors NAV in | | return, we arrive at management income | | | | | | | | | | | Georgia Capital during the period. | investment return less GCAP gains | shown in the reconciliation of the | | (“adjusted IFRS 10 Income Statement”). A full | connection with capital allocation decisions. | | before foreign exchange movements for | | | | | | | | | | | | or losses from foreign exchange | Income Statement. | | reconciliation of the adjusted Income Statement | The following methodology underlies the | | the period. | | | | | movements. | to the IFRS Income Statement is provided on | presentation of the NAV for period-end dates: | | • Below the income before foreign exchange | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | EBITDA Management uses EBITDA as | | Earnings before interest, taxes, | N/A | | p a g e 97. | • NAV is calculated at stand-alone GCAP | | | movements line, to arrive at management | | | | | | | | | | | | a tool to measure the portfolio | non-recurring items, FX gain/ | | | | | level, which represents the aggregation | | net income, we present GCAP gains or | | | | | | | | | | | | companies’ operational | losses, depreciation and | | | Additionally, for the majority of our portfolio | | of the stand-alone assets and liabilities | | losses from foreign exchange movements | | | | | | | | | | | | performance and the profitability | amortisation. | | | companies the fair value of our equity | | of Georgia Capital PLC and JSC | | and other costs such as non-recurring | | | | | of those companies’ operations. investment is determined by the application Georgia Capital. or transactions costs if there are any in a The Company considers EBITDA of a market approach (listed peer multiples • Holdings in listed and private portfolio reportable period. to be an important indicator and precedent transactions) and an income companies are carried based on the of representative recurring approach (DCF). Under the market approach, following methodology: operations. | listed peer group earnings multiples are applied | – Listed portfolio companies are carried | | --- | --- | | to the trailing 12-month (LTM) stand-alone IFRS | at the period-end market values based | | earnings of the relevant business. Under the | on closing share prices on respective | | DCF valuation method, fair value is estimated | stock exchanges. | by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and 94 95 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## ALTERNATIVE PERFORMANCE MEASURES CONTINUED RECONCILIATION OF ADJUSTED IFRS MEASURES TO IFRS FIGURES Georgia Capital PLC Annual Report 2023 APM Purpose Calculation Reconciliation to IFRS Reconciliation of adjusted Income Statement to IFRS Income Statement The table below reconciles the adjusted Income Statement to the IFRS Income Statement. Adjustments to reconcile adjusted Income Statement GCAP net debt A measure of the available cash Net debt is calculated at GCAP N/A with IFRS Income Statement mainly relate to eliminations of income, expense and certain equity movement items recognised at JSC Georgia Capital, to invest in the business and an level as follows: cash and liquid which are subsumed within gross investment (loss)/income in IFRS Income Statement of Georgia Capital PLC. indicator of the financial risk at funds plus loans issued less GCAP level. gross debt; loans issued does not Adjusted include investment type mezzanine IFRS income IFRS income GEL thousands, unless otherwise noted (Unaudited) statement Adjustment statement loans (if any). Dividend income 235,883 (188,224) 47,6 5 9 Net capital commitment (NCC) A metric to measure Georgia NCC ratio is calculated at the N/A ratio Capital’s balance sheet leverage. GCAP HoldCo level by dividing Interest income 16,642 (16,642) – NCC by total portfolio value. NCC Realised/unrealised gain/(loss) on liquid funds / Loss on Eurobond buybacks (1,574) 1,574 – Georgia Capital PLC Annual Report 2023 represents an aggregated view of all confirmed, agreed, and Interest expense (47,808) 47,808 – expected capital outflows at the Gross operating income/(loss) 203,143 (155,484) 47,659 GCAP holding company level. Operating expenses (administrative, salaries and other employee benefits) (36,779) 36,779 – Internal rate of return (IRR) A metric to evaluate the historical IRR for investments is calculated N/A GCAP net operating income/(loss) 166,364 (118,705) 47,659 track record of investments. based on: a) historical contributions to the investment; Total investment return/gain on investments at fair value 444,632 123,719 568,351 less b) dividends received; and c) Administrative expenses, salaries and other employee benefits – (6,563) (6,563) market value of the investment. Income/(loss) before foreign exchange movements and non-recurring expenses 610,996 (1,549) 609,447 | Multiple of invested capital (MOIC) A measure to evaluate Georgia | | MOIC is calculated as follows: | N/A | | | --- | --- | --- | --- | --- | | | Capital’s efficiency in allocating | a) the numerator is the cash and | | Net foreign currency gain/(loss) 6,491 ( 7,4 4 6 ) (955) | | | capital. | non-cash inflows from dividends | | | Non-recurring expenses (1,898) 1,898 – and sell-downs plus fair value of Net gains from investments measured at fair value through profit or loss – 125 125 investment at reporting date; and b) the denominator is the gross Net income/(loss) 615,589 (6,972) 608,617 investment amount. Return on invested capital (ROIC) To evaluate a company’s efficiency ROIC is calculated as EBITDA N/A Subtotals in the “Adjustment” columns may not add up as they provide a reconciliation to the statements with different structures and subtotals. at allocating the capital under its less depreciation, divided by control to profitable investments. aggregate amount of total equity Retail (pharmacy) – Reconciliation to IFRS (2023) and borrowed funds. GEL thousands, unless otherwise noted (Unaudited) Before IFRS 16 IFRS 16 effects After IFRS 16 Return on average total equity To measure the performance of a ROAE equals profit for the period N/A Income Statement (ROAE) company based on its average attributable to shareholders shareholders’ equity outstanding. divided by monthly average equity Gross profit 244,322 – 244,322 attributable to shareholders for the Operating expenses (166,979) 30,286 (136,693) same period. EBITDA 77,343 30,286 107,62 9 Value creation/investment return To measure the annual Aggregation of: a) change in N/A Depreciation and amortisation (8,468) (26,620) (35,088) | shareholder return on each | beginning and ending fair values; | | | --- | --- | --- | | portfolio company for Georgia | b) gains from realised sales (if | Net interest (expense)/income (13,545) (8,543) (22,088) | | Capital. | any); and c) dividend income | | Net (losses)/gains from foreign currencies (5,342) 16 (5,326) during period. The net result is then adjusted to remove capital Net non-recurring (expense)/income (3,567) – (3,567) injections (if any) to arrive at the Profit before income tax expense 46,421 (4,861) 41,560 total value creation/investment Income tax (expense)/benefit (807) – (807) return. Profit for the year 45,614 (4,861) 40,753 GCAP’s liquid funds A measure to evaluate the Includes marketable debt N/A Company’s liquidity. securities and issued loans. Cash flow statement Net cash flow from operating activities 52,361 30,500 82,861 Net cash flow used in investing activities (84,130) – (84,130) Net cash flow from financing activities 17,686 (30,500) (12,814) Exchange (losses)/gains on cash equivalents (813) – (813) Total cash inflow (14,896) – (14,896) Cash balance Cash, beginning balance 75,279 – 75,279 Cash, ending balance 60,383 – 60,383 96 97 # RECONCILIATION OF ADJUSTED IFRS MEASURES TO IFRS FIGURES CONTINUED | Strategy Review Overview | Strategy Review Our Business | Strategy Review Discussion of Results | Governance | | --- | --- | --- | --- | # VALUATION METHODOLOGY Hospitals – Reconciliation to IFRS (2023) | GEL thousands, unless otherwise noted (Unaudited) | Before IFRS 16 | IFRS 16 effects | After IFRS 16 | | --- | --- | --- | --- | | Income Statement | | | | | Gross profit | 104,616 | – | 104,616 | | Operating expenses | (58,487) | 966 | (57,521) | | EBITDA | 46,129 | 966 | 47,095 | | Depreciation and amortization | (31,899) | (2,893) | (34,745) | | Net interest (expense)/income | (30,345) | (385) | (30,730) | | Net (losses)/gains from foreign currencies | (1,144) | (52) | (1,195) | | Net non-recurring (expense)/income | (12,369) | – | (12,369) | | Profit before income tax expense | (36,615) | (2,331) | (38,946) | | Income tax benefit/(expense) | – | – | – | | Profit for the year | (36,615) | (2,331) | (38,946) | Cash flow statement | Net cash flow from operating activities | 10,621 | 966 | 11,587 | | --- | --- | --- | --- | | Net cash flow used in investing activities | (44,746) | – | (44,746) | | Net cash flow from financing activities | 22,382 | (906) | 21,296 | | Exchange (losses)/gains on cash equivalents | (2,041) | – | (2,041) | | Total cash (outflow)/inflow from continuing operations | (13,804) | – | (13,804) | Cash balance | Cash, beginning balance | 23,557 | – | 23,557 | | --- | --- | --- | --- | | Cash, ending balance | 9,753 | – | 9,753 | Clinics – Reconciliation to IFRS (2023) | GEL thousands, unless otherwise noted (Unaudited) | Before IFRS 16 | IFRS 16 effects | After IFRS 16 | | --- | --- | --- | --- | | Income Statement | | | | | Gross profit | 24,550 | – | 24,550 | | Operating expenses | (12,845) | 1,841 | (11,004) | | EBITDA | 11,705 | 1,841 | 13,546 | | Depreciation and amortization | (5,147) | (1,117) | (6,264) | | Net interest (expense)/income | (3,095) | (804) | (3,899) | | Net (losses)/gains from foreign currencies | (170) | (42) | (212) | | Net non-recurring (expense)/income | (266) | – | (266) | | Profit before income tax expense | 3,027 | (122) | 2,905 | | Income tax benefit/(expense) | – | – | – | | Profit for the year | 3,027 | (122) | 2,905 | Cash flow statement | Net cash flow from operating activities | 8,314 | 1,841 | 10,055 | | --- | --- | --- | --- | | Net cash flow used in investing activities | (194) | – | (194) | | Net cash flow used in financing activities | (7,049) | (1,841) | (9,490) | | Exchange (losses)/gains on cash equivalents | (3) | – | (3) | | Total cash inflow/(outflow) from continuing operations | 369 | – | 369 | Cash balance | Cash, beginning balance | 3,892 | – | 3,892 | | --- | --- | --- | --- | | Cash, ending balance | 4,261 | – | 4,261 | Equity investments in Georgia Capital's portfolio companies are measured at fair value. Measurement. Fair value, as defined in IFRS, is the price that would be received to be at the measurement date. ## Equity investments in listed and observable portfolio companies Equity instruments listed on an active market are valued at the price within the balance date, which usually represents the closing bid price. The instruments are included in the listed and observable portfolio also includes instruments for which there is a clear value at pre-agreed multiples. In such cases, pre-agreed terms are used for valuing the ## Equity investments in private portfolio companies Large private portfolio companies – An independent third-party valuation firm – companies at the reporting date starting from 2020. The independent valuation companies are experienced. Valuation is performed by applying several valuation methods including approach based mainly on listed peer multiples (the DCF and listed peer multiples companies). The different valuation approaches are weighted to derive a fair value than the market approach. Management selects the most appropriate point in the Investment stage portfolio companies – An independent third-party valuation firm – private portfolio companies at the reporting date starting from 30 June 2022. The management and emerging markets experience. Valuation is performed by applying several valuation methods. DCF and a market approach based mainly on listed peer multiples (the DCF and listed peer multiples companies). The different valuation approaches are weighted to derive a fair value than the market approach. Management selects the most appropriate point in the Other portfolio companies – Fair value assessment is performed internally using Equity investments in private portfolio companies are valued by applying an appropriate based public information, is consistent with valuation methods generally used by the company. In the period, unless a change in valuation technique would result in a more reliable estimate of the generality crystallised through the sale or flotation of the entire business. Therefore, the entire enterprise at the reporting date. Recognition is given to the uncertainties of the appropriate caution is applied in exercising judgements and in making the necessary ## Listed peer group multiples This methodology involves the application of a listed peer group earnings multiples in established businesses and for which the Company can determine a group of listed peer group multiples (EV/EBITDA) for the appropriate period. The measures of EBITDA for the last 12 months (LTM EBITDA). In exceptional cases, where EBITDA is not to be applied to last 12-month recurring/adjusted sales revenue of the business (LTM ## a. Valuation based on enterprise value Fair value of equity investments in private companies can be determined as their value (e.g. less cash) appearing in the most recent financial statements. Enterprise value is calculated as the total value of shareholders' equity remains at zero assuming the debt is without a fair value. The resulting fair value of equity is apportioned between Georgia Capital and the company. Valuation based on enterprise value using peer multiples is used for businesses Once the enterprise value is estimated, the following steps are taken: - Net financial debt appearing in the most recent financial statements is subtracted from the value of shareholders' equity remains at zero assuming the debt is without a fair value. - The resulting fair value of equity is apportioned between Georgia Capital and the company. - Valuation based on enterprise value using peer multiples is used for businesses ## b. Equity fair value valuation Fair value of equity investment in companies can also be determined using the prior year's average fair value. The measure of earnings used in the calculation is recurring/adjusted net income (net income) from the last 12 months (LTM net income). The resulting fair value of equity is allocated to the company, if any. Fair valuation of equity using peer multiples can be used for business ## Discounted cash flow Under the DCF valuation method, fair value is estimated by deriving the present value of the future cash flows and the terminal value, and the appropriate risk-adjusted discount rate is estimated with reference to the market risk-free rate, a risk adjustment factor. Under the DCF analysis unobservable inputs are used, such as estimates of the discounting rate of return. 98 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## VALUATION METHODOLOGY CONTINUED FINANCIAL REVIEW Georgia Capital PLC Annual Report 2023 1 Net asset value Financial Performance Highlights (IFRS) The net assets (NAV) methodology involves estimating the fair value of equity investment in a private portfolio company based on its book value at the GEL thousands, unless otherwise noted (Unaudited) reporting date. This method is appropriate for businesses (such as real estate) whose value derives mainly from the underlying value of its assets and where such assets are already carried at their fair values (fair values determined by professional third-party valuation companies) on the balance sheet. Georgia Capital NAV overview Dec-23 Dec-22 Change NAV per share, GEL 82.94 65.56 26.5% Price of recent investment NAV per share, GBP 24.23 20.12 20.4% The price of a recent investment resulting from an orderly transaction, generally represents fair value as of the transaction date. At subsequent 2 | | NAV | | 3,378,512 2,817,391 19.9% | | --- | --- | --- | --- | | measurement dates, the price of a recent investment may be an appropriate starting point for estimating fair value. However, adequate consideration | | 3 | | | | Shares outstanding | | 40,736,528 42,973,462 -5.2% | is given to the current facts and circumstances to assess at each measurement date whether changes or events subsequent to the relevant Liquid assets and loans issued 117,122 438,674 -73.3% | | transaction imply a change in the investment’s fair value. | | 3 | | | --- | --- | --- | --- | --- | | | | NCC ratio | | 15.6% 21.1% -5.5 ppts | | Georgia Capital PLC Annual Report 2023 | | Georgia Capital performance | | FY23 FY22 Change | Exit price Fair value of a private portfolio company in a sales process, where the price has been agreed but the transaction has not yet settled, is measured at Total portfolio value creation 680,515 34,073 NMF the best estimate of expected proceeds from the transaction, adjusted pro-rata to the proportion of shareholding sold. of which, listed and observable portfolio 553,255 205,783 NMF of which, private portfolio 127,26 0 (171,710) NMF | Validation | | | 4 | | | | --- | --- | --- | --- | --- | --- | | | | Investments | | | 22,588 195,949 -88.5% | | Fair value of investments estimated using the valuation methods described above is cross-checked using several other valuation methods as follows: | | | 5 | | | | | | Buybacks | | | 76,477 83,108 -8.0% | | • Listed peer group multiples – peer multiples such as P/E, P/B and dividend yield are applied to respective metrics of the investment being valued | | Dividend income 235,883 93,875 NMF | | | | | | depending on the industry of the company. The Company develops fair value range based on these techniques and analyses whether the fair | | | 6 | | | | | of which, recurring dividend income | | | 179,822 93,875 91.6% | | | value estimated above falls within this range. | | | 7 | | | | | of which, one-off dividend income | | | 56,061 – NMF | | • DCF – DCF valuation method is used to determine fair value of equity investment. Based on DCF, the Company might make the upward or | | Net income 615,589 1,464 NMF | | | | downward adjustment to the value of the valuation target as derived from the primary valuation method. If fair value estimated using DCF analysis 1,8 Private portfolio companies’ performance FY23 FY22 Change significantly differs from the fair value estimate derived using the primary valuation method, the difference is examined thoroughly, and judgement is applied in estimating fair value at the measurement date. Large portfolio companies • In line with our strategy, from time to time, we may receive offers from interested buyers for our private portfolio companies, which would be Revenue 1,345,682 1, 274,794 5.6% considered in the overall valuation assessment, where appropriate. EBITDA 149,177 156,816 -4.9% Net operating cash flow 92,381 148,082 -37.6% Valuation of equity investments in private portfolio companies | The table below summarises fair valuation of equity investments in our private portfolio companies as at 31 December 2023. | | Investment stage portfolio companies | | --- | --- | --- | | | Valuation performed externally | Revenue 155,280 141,488 9.7% | | GEL thousands | or internally Valuation method Multiple applied Fair value | EBITDA 54,666 51,699 5.7% | Net operating cash flow 50,609 53,132 -4.7% Large portfolio companies Externally 1,436,231 9 Total portfolio Retail (pharmacy) Externally DCF and EV/EBITDA 9.7x 714,001 Hospitals Externally DCF and EV/EBITDA 13.8x 344,356 Revenue 2,073,903 1,900,700 9.1% Insurance Externally DCF and P/E 13.0x-11.0x 377,874 EBITDA 247, 55 6 243,293 1.8% Net operating cash flow 135,466 206,047 -34.3% Investment stage portfolio companies Externally 566,614 Renewable energy Externally DCF and EV/EBITDA 12.6x ¹ 266,627 Key Points Education Externally DCF and EV/EBITDA 16.7x 189,226 2 • NAV per share (GEL) up 26.5% y-o-y in FY23 to GEL 82.94 (up 20.4% y-o-y to GBP 24.23 in GBP terms), reflecting strong value creation across Clinics and diagnostics Externally DCF and EV/EBITDA 11.7x 110,761 our portfolio companies. Other portfolio companies Internally EV/EBITDA, NAV and DCF 284,253 • Significant improvement of 5.5 ppts y-o-y in NCC ratio (15.6% as at 31 December 2023), resulting from a substantial decrease in net debt, strong cash generation and continued growth in portfolio value. 1 12.6x is the blended multiple for Hydrolea HPPs, Mestiachala HPP and Qartli WPP. • GEL 235.9 million dividend income from the portfolio companies in FY23, of which recurring dividend income was GEL 179.8 million. This 2 11.7x is the blended multiple for clinics and diagnostics businesses. represents a significant increase compared to total dividend income of GEL 93.9 million in FY22. • 1,665,000 shares repurchased in FY23 (total bought back and cancelled now at c.4.8% of issued capital since January 2023). 1 Please read more about APMs on pages 94-96. Private portfolio companies’ performance includes aggregated stand-alone IFRS results for our portfolio companies, which can be viewed as APMs for Georgia Capital, since Georgia Capital does not consolidate its subsidiaries and instead measures them at fair value under IFRS. 2 See page 190 for the reconciliation of NAV to IFRS financial statements as at 31 December 2023. 3 Please see definition in glossary on page 206. 4 FY22 number includes the non-cash conversion of GEL 169.9 million loans issued to our private portfolio businesses into equity. 5 Includes both the buybacks under the share buyback and cancellation programme and for the management trust. 6 Includes regular cash and buyback dividends. 7 One-off dividend income in FY23 includes a non-recurring GEL 26.7 million dividend collected from the retail (pharmacy) business and GEL 29.4 million buyback dividend attributable to participation in BoG’s 2022 share buybacks. 8 Private portfolio companies’ performance highlights are presented excluding the water utility business. Aggregated numbers are presented on a like-for-like basis. 9 The results of our four smaller businesses included in other portfolio companies (described on page 119) are not broken out separately. Performance totals, however, include the other portfolio companies’ results (and are therefore not the sum of large and investment stage portfolio results). 100 101 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## FINANCIAL REVIEW CONTINUED Georgia Capital PLC Annual Report 2023 Discussion of Group results Portfolio overview The NAV Statement summarises the Group’s IFRS equity value (which we refer to as net asset value or NAV in the NAV Statement below) at the Total portfolio value increased by GEL 473.3 million (14.8%) in FY23: opening and closing dates for the full year (31 December 2022 and 31 December 2023). The NAV Statement below breaks down NAV into its • The value of GCAP’s holding in BoG was up by GEL 395.4 million, reflecting a robust GEL 549.3 million value creation, partially offset by components and provides a roll-forward of the related changes between the reporting periods. GEL 153.9 million dividend income from the Bank in FY23. • The value of the water utility business increased by GEL 4.0 million, reflecting an increase in the put option valuation to GCAP’s 20% holding in the 2a. | | | 1. | Investment | | | | | | | 3. | | 4. | | business which was attributed in 2Q23. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | GEL thousands, unless otherwise noted | Value | | | and | | 2b. | | 2c. | Operating | | Liquidity/ | | • The value of the private portfolio increased by GEL 73.9 million in FY23, mainly reflecting the net impact of a) GEL 127.3 million value creation, | | | (Unaudited) Dec-22 | creation | | divestments | | Buyback | | Dividend | | expenses | | FX/Other Dec-23 Change % | | | | b) investments of GEL 22.6 million predominantly in the investment stage businesses and c) a decrease of GEL 82.0 million due to dividends paid Listed and observable portfolio to G CA P. companies Bank of Georgia 830,463 549,255 – – (153,871) – – 1,225,847 47.6 % 1) Value creation Georgia Capital PLC Annual Report 2023 Total portfolio value creation amounted to GEL 680.5 million in FY23. Water utility 155,000 4,000 – – – – – 159,000 2.6% • A 52.6% increase in BoG’s share price, supported by a 5.1% appreciation of GBP against GEL in FY23, led to a GEL 549.3 million value creation. Total listed and observable • GEL 4.0 million value was created in our water utility business in FY23, as described above. portfolio value 985,463 553,255 – – (153,871) – – 1,384,847 40.5% • The value creation in the private portfolio amounted to GEL 127.3 million in FY23, reflecting: Listed and observable portfolio – GEL 87.6 million operating performance-related increase in the value of our private assets, resulting from the continued strong performance value change % 56.1% 0.0% 0.0% -15.6% 0.0% 0.0% 40.5% of our private portfolio companies, partially subdued by the performance of the hospitals business, which has been impacted by the recently introduced government regulations as described elsewhere in this report. Private portfolio companies 1 – GEL 39.7 million net impact from changes in implied valuation multiples and foreign currency exchange rates. Large companies 1,437,610 74,786 – – (76,825) – 660 1,436,231 -0.1% Retail (pharmacy) 724,517 39,397 – – (50,904) – 991 714,001 -1.5% The table below summarises value creation drivers in our businesses in FY23: Hospitals 433,193 (81,526) – – (6,018) – (1,293) 344,356 -20.5% Insurance (P&C and medical) 279,900 116,915 – – (19,903) – 962 37 7,874 35.0% Greenfields/ Multiple Operating buy-outs/ change of which, P&C insurance 228,045 71,447 – – (14,888) – 962 285,566 25.2% Portfolio businesses performance 2 exits 3 and FX 4 Value creation of which, medical insurance 51,855 45,468 – – (5,015) – – 92,308 78.0% Investment stage companies 501,407 47,044 18,388 – (5,187) – 4,962 566,614 13.0% GEL thousands, unless otherwise noted (Unaudited) (1) (2) (3) (1)+(2)+(3) Renewable energy 224,987 38,684 6,218 – (5,187) – 1,925 266,627 18.5% Listed and observable portfolio 553,255 Education 164,242 12,282 12,170 – – – 532 189,226 15.2% BoG 549,255 Clinics and diagnostics 112,178 (3,922) – – – – 2,505 110 ,761 -1.3% Water Utility 4,000 Other companies 274,147 5,430 32 – – – 4,644 284,253 3.7% Private portfolio 87,558 – 39,702 127,260 Total private portfolio value 2,213,164 127,260 18,420 – (82,012) – 10,266 2,287,098 3.3% Large portfolio companies (52,946) – 127,732 74,786 Retail (pharmacy) 2,267 – 37,13 0 39,397 Private portfolio value change % 5.8% 0.8% 0.0% -3.7% 0.0% 0.5% 3.3% Hospitals (154,041) – 72,515 (81,526) Total portfolio value (1) 3,198,627 680,515 18,420 – (235,883) – 10,266 3,671,945 14.8% Insurance (P&C and Medical) 98,828 – 18,087 116,915 of which, P&C insurance 19,503 – 51,944 71,447 Total portfolio value change % 21.3% 0.6% 0.0% -7.4% 0.0% 0.3% 14.8% of which, medical insurance 79,325 – (33,857) 45,468 Net debt (2) (380,905) – (20,887) (76,190) 235,883 (21,786) (32,923) (296,808) -22.1% Investment stage portfolio companies 54,471 – (7,427) 47,044 of which, cash and liquid funds 411,84 4 – (20,887) ( 76,190) 235,883 (21,786) (420,954) 107,910 -73.8% Renewable energy 6,754 – 31,930 38,684 of which, loans issued 26,830 – – – – – (17,618 ) 9,212 -65.7% Education 15,165 – (2,883) 12,282 of which, gross debt (819,579) – – – – – 405,649 (413,930) -49.5% Clinics and diagnostics 32,552 – (36 ,474) (3,922) Net other assets/(liabilities) (3) (331) – 2,467 (287) – (14,993) 16,519 3,375 NMF Other portfolio companies 86,033 – (80,603) 5,430 of which, share-based comp. – – – – – (14,993) 14,993 – – Total portfolio 87,558 – 39,702 680,515 Net asset value (1)+(2)+(3) 2,817,391 680,515 – (76,477) – (36,779) (6,138) 3,378,512 19.9% NAV change % 24.2% 0.0% -2.7% 0.0% -1.3% -0.2% 19.9% 1 Shares outstanding 42,973,462 – – (2,817,070) – – 5 80,136 40,736,528 -5.2% NAV per share, GEL 65.56 15.84 0.00 2.70 0.00 (0.85) (0.30) 82.94 26.5% NAV per share, GEL change % 24.2% 0.0% 4.1% 0.0% -1.3% -0.5% 26.5% NAV per share (GEL) increased by 26.5% in FY23, reflecting a) GEL 680.5 million value creation across our portfolio companies with a positive 24.2 ppts impact, b) share buybacks (+4.1 ppts impact) and c) GEL’s appreciation against US$, resulting in a foreign currency gain of GEL 6.5 million on GCAP net debt (+0.2 ppts impact). The NAV per share growth was slightly offset by management platform-related costs and net interest expense with a negative 2.4 ppts impact in total. 1 Valuation multiples implied by dividing the final valuations of the business assigned as described under “Valuation overview” by the respective trailing 12-month EBITDA or net income, as applicable. 2 Change in the fair value attributable to the change in actual or expected earnings of the business, as well as the change in net debt. 3 Greenfields and buy-outs represent the difference between fair value and acquisition price in the first reporting period in which the business/greenfield project is no longer valued at acquisition price/cost. Exits represent the difference between the latest reported fair value and the value of the disposed asset (or assets in the process of disposal) assessed at a transaction price. 1 Please see definition in glossary on page 206. 4 Change in the fair value attributable to the change in valuation multiples and the effect of exchange rate movement on net debt. 102 103 FINANCIAL REVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Cover The enterprise value and equity value development of our businesses in FY23 is summarised in the following table | GEL thousands, unless otherwise noted (unaudited) | Enterprise value | | | Equity value | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 31-Dec-23 | 31-Dec-22 | Change % | 31-Dec-23 | 31-Dec-22 | Change % | % share in total portfolio | | Listed and observable portfolio | | | | 1,084,847 | 985,453 | 40.5% | 37.7% | | BoG | | | | 1,225,847 | 830,453 | 4.05% | 33.4% | | Water utility | | | | 158,000 | 155,000 | 2.6% | 4.3% | | Private portfolio | 3,463,259 | 3,310,981 | 4.6% | 2,287,098 | 2,213,164 | 3.3% | 62.3% | | Large portfolio companies | 2,021,278 | 1,875,688 | 7.8% | 1,436,231 | 1,437,610 | -0.1% | 39.1% | | Retail (pharmacy) | 1,043,800 | 907,666 | 9.0% | 714,001 | 724,017 | -1.5% | 19.4% | | Hospitals | 618,912 | 653,335 | -5.3% | 344,206 | 433,193 | -23.5% | 9.4% | | Insurance (P&C and medical) | 338,568 | 284,867 | 35.5% | 377,874 | 279,900 | 35.0% | 10.3% | | of which, P&C insurance | 285,356 | 226,040 | 25.2% | 285,356 | 226,040 | 25.2% | 7.8% | | of which, medical insurance | 72,000 | 36,022 | 89.3% | 92,356 | 91,855 | 78.0% | 2.5% | | Investment stage portfolio companies | 898,787 | 816,023 | 5.0% | 566,814 | 501,407 | 13.0% | 15.3% | | Renewable energy | 456,236 | 412,903 | 9.2% | 265,627 | 224,987 | 16.5% | 7.3% | | Education* | 228,799 | 218,354 | 4.8% | 188,226 | 164,242 | 15.2% | 5.2% | | Clinics and diagnostics | 171,752 | 178,856 | -4.5% | 110,761 | 112,178 | -1.3% | 3.0% | | Other portfolio companies | 589,194 | 619,270 | -5.5% | 284,253 | 274,147 | 3.7% | 7.7% | | Total portfolio | | | | 3,671,945 | 3,198,627 | 14.8% | 100.0% | # Private large portfolio companies (39.1% of total portfolio value) Retail (pharmacy) (19.4% of total portfolio value) – the EV of retail (pharmacy) was up by 9.0% to GEL 1.0 billion in FY23, reflecting the continued strong outlook of the business, driven by a significant expansion and ongoing optimisation of the retail chain (the business added 40 pharmacies and 11 franchise stores in FY23), as well as the resilience of the Georgian economy. FY23 revenue was up 4.3%, reflecting a) increased sales of higher-margin para-pharmacy products and b) the chain expansion which had a positive impact on the revenue growth. The expansion also led to an increase in operating expenses (up 6.2% y-o-y in FY23) due to increased rent and salary costs. The translated into a 0.5% y-o-y increase in EBITDA (excl. IFRS 16) in FY23. See page 109 for details. Consequently, LTM EBITDA (incl. IFRS 16) was up by 2.0% to GEL 107.6 million in FY23. Net debt (incl. IFRS 16) increased by GEL 176.3 million to GEL 322.2 million as at 31 December 2023, mostly reflecting increased borrowings that partially financed the minority buyout transaction in June 2023. As a result, tar value of GCAP's 97.6% holding decreased by 1.5% to GEL 714.0 million in FY23. The implied LTM EV/EBITDA valuation multiple (incl. IFRS 16) increased to 9.7x as at 31 December 2023 (up from 9.1x as of 31 December 2022). Hospitals (9.4% of total portfolio value) – The EV of the hospitals business, which now also incorporates the community clinics that were previously managed and presented as part of the clinics and diagnostics business, stood at GEL 618.9 million in FY23. The revenue of Large and Specialty Hospitals was up by 2.8% y-o-y in FY23, reflecting resilient underlying performance at the seven hospitals comprising the business on the back of the diversified range of services they offer, which enabled them to partially offset the impact of the new regulations, as detailed on page 111 of this report. These new regulations had a more pronounced impact on our Regional and Community Hospitals (FY23 revenue was down 4.5% y-o-y), as the 27 smaller facilities in this business offer services that are relatively more limited in scope than those of our Large and Specialty Hospitals. Consequently, the combined revenue and EBITDA (excl. IFRS 16) of the hospitals business were up by 0.1% and down 18.7% y-o-y, respectively, in FY23. In December 2023, the business signed an agreement to sell one of its regional and community hospitals for a total consideration of GEL 34.6 million at 15.2x EV/EBITDA multiple. The proceeds from this transaction were collected in the beginning of 2024 and were utilised for determining the balance sheet of the business. The sale is in line with our strategy to direct low-RCIC generating assets. Taking into account the disposal, LTM EBITDA (incl. IFRS 16) stood at GEL 44.8 million in FY23, and the net debt amounted to GEL 241.1 million. As a result, the equity value of Hospitals stood at GEL 344.4 million in FY23, translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 12.8x at 31 December 2023. Insurance (P&C and medical) (10.3% of total portfolio value) – The insurance business combines: a) P&C insurance valued at GEL 285.6 million and b) medical insurance valued at GEL 92.3 million. P&C insurance – revenue was up by 21.0% y-o-y to GEL 116.9 million in FY23, mainly reflecting the growth in the motor and credit life insurance lines. The combined ratio increased by 10.3 ppts y-o-y in FY23, attributable to the following factors: a) a 0.5 ppts y-o-y increase in the loss ratio mainly due to the combined effect of an unprecedented landslide in one of the regions of Georgia and increased agricultural insurance claims due to abnormal number of halstorms during the year, b) a 1.7 ppts increase in expense ratio driven by increased salary expenses in line with business growth and c) a 2.1 ppts y-o-y increase in FX ratio, reflecting the impact of FX movements on the business operations. Consequently, FY23 net income decreased by 11.5% y-o-y to GEL 151 million. See page 115 for details. Pre-tax LTM net income was up by 3.5% to GEL 22.0 million in FY23. The equity value of the P&C insurance business, which also reflects the application of the recently enforced Estonian Taxation Model, was assessed at GEL 285.6 million at 31 December 2023 (up 25.2% y-o-y), translating into an implied LTM P/E valuation multiple of 13.0x at 31 December 2023 (up from 10.6x at 31 December 2022). Medical insurance – revenue increased by 22.0% y-o-y to GEL 91.3 million in FY23, reflecting the increase in the price of insurance policies and the number of insured clients primarily in the corporate client segment. The combined ratio was at 94.8% in FY23 (down 4.7 ppts y-o-y), mainly resulting from the well-managed loss and expense ratios (down 2.8 ppts and 1.9 ppts y-o-y, respectively), reflecting the robust revenue growth. Consequently, the net income of the medical insurance business was up 91.8% y-o-y to GEL 6.5 million in FY23. See page 114 for details. Pre-tax LTM net income was up 2.4 times y-o-y to GEL 5.4 million in FY23. As a result, the equity value of the business, which also reflects the application of the Estonian Taxation Model, was assessed at GEL 92.3 million at 31 December 2023 (up 78.0% y-o-y), translating into the implied LTM P/E valuation multiple of 11.0x at 31 December 2023. Private investment stage portfolio companies (15.5% of total portfolio value) Renewable energy (7.3% of total portfolio value) – The EV of the business was within in GEL terms, reflecting stable prospects of the business. In US Dollar terms respectively, reflecting the net impact of a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be a) a 5.3% y-o-y decrease in electricity generation, which would be Education (5.2% of total portfolio value) – EV of the education business was operating performance of the business. Revenue in FY23 increased by 30.3% y-o-y, with a range of the utilisation and is expansion of the business, which coupled with the experience. See page 116 for details. Consequently, LTM EBITDA was up by 6.3% to GEL 16.5 million in FY23, reflecting the copex investments for the expansion project valued at GEL 188.2 million at 31 December 2023 (up 15.2% y-o-y). This translated into 2023. The forward-looking implied multiple is estimated at 10.3x for the 2024-2025. Clinics and diagnostics (3.0% of total portfolio value) – In FY23, the EV of the revenue and EBITDA of the combined clinics and diagnostics business were up by 1.5% to GEL 3.0 million in FY23, reflecting the growth in the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. In FY23, the EV of the business was the equivalent of the business. Other businesses (7.7% of total portfolio value) – Of the “other” private portfolio are valued based on LTM EV/EBITDA. Wine and housing development are valued performance highlights of other businesses on page 119. The portfolio value of other driven by the strong operating performance and improved prospects of our be Listed and observable portfolio companies (37.7% of total portfolio value) BoG (33.4% of total portfolio value) – In 2023, BoG delivered an annualized RIF (on a constant currency basis, the loan portfolio increased by 19.6% y-o-y). In FY23, 31 December 2023, reflecting the strong growth in BoG's earnings. In FY23, GCA is a dividend of GEL 29.4 million from the participation in the Bank's 2022 buybacks. As of GCAP's equity share in BoG increased by 47.6% to GEL 1,225.8 million. The LTM 31 December 2023, BoG's public announcement of its FY23 results is available a Water utility (4.3% of total portfolio value) – In FY23, the fair value of GCAP's clear and path through a put and call structure at pre-agreed EBITDA multiples) into the application of the put option valuation to GCAP's holding in the business. In De Regulatory Commission ("DMERC"), the independent body that regulates the GCAP and sanitation (MSS) for the 2024-2026 regulatory period. The MSS tariffs for legal were compared to the previous regulatory period of 2021-2023. MSS tariffs for re # 2) Investments¹ In FY23, GCAP invested GEL 22.6 million in private portfolio companies. - GEL 12.2 million was allocated to the education business, mainly for the acquisition development of a new campus in the mid-scale segment. - GEL 6.2 million was invested in the renewable energy business for the development of a new campus in the mid-scale segment. - GEL 4.2 million was invested in the auto service business. # 3) Share buybacks During FY23, a 910,078 shares were bought back for a total consideration of GEL 1,065,222 shares with a total value of US$ 18.3 million (GEL 47.9 million) were the programmes during 2023. - 1,151,848 shares were repurchased for the management trust for a total consideration of the form of unawarded shares for the next three years. ¹ Excluding the seventy launched schools and non-operational assets, added to the equity value of the education business at cost. ² Investments are medical, AEC Georgia Capital level, the Georgian holding company. 104 # FINANCIAL REVIEW CONTINUED ## 4) Dividends$^{1}$ In FY23, Georgia Capital recorded GEL 295.9 million dividend income from its portfolio companies: | Dividend income GEL million (Unaudited) | Recurring | One-off | Total | | --- | --- | --- | --- | | **BoG** | **124.5** | **29.4** | **153.9** | | of which, cash dividends | 80.5 | – | 80.5 | | of which, buyback dividends | 44.0 | 29.4 | 73.4 | | **Retail (pharmacy)** | **24.2** | **26.7** | **50.9** | | **Insurance** | **19.9** | – | **19.9** | | of which, PBC insurance | 14.9 | – | 14.9 | | of which, medical insurance | 5.0 | – | 5.0 | | **Hospitals** | **6.0** | – | **6.0** | | **Renewable energy** | **5.2** | – | **5.2** | | **Total** | **179.8** | **56.1** | **235.9** | A one-off dividend of GEL 29.4 million from BoG, represents the participation in the Bank's 2022 buybacks in FY23. GEL 26.7 million one-off dividend was collected from the retail (pharmacy) business, following the minority buyout transaction in 2023. ## Net Capital Commitment overview Below we describe the components of NCC as of 31 December 2023. NCC represents an aggregated view of all confirmed, agreed and expected capital outflows at GCAP HoldCo level. ### Components of NCC | GEL thousands, unless otherwise noted (Unaudited) | 31-Dec-23 | 31-Dec-22 | Change | | --- | --- | --- | --- | | Cash at banks | 72,122 | 235,255 | -69.3% | | Liquid funds | 35,788 | 176,589 | -79.7% | | of which, internationally listed debt securities | 18,254 | 173,395 | -89.5% | | of which, locally listed debt securities | 17,534 | 3,194 | NMF | | **Total cash and liquid funds** | **107,910** | **411,844** | **-73.8%** | | Loans issued | 9,212 | 25,830 | -65.7% | | Gross debt | (413,830) | (819,579) | -49.5% | | **Net debt (1)** | **(296,808)** | **(380,905)** | **-22.1%** | | **Guarantees issued (2)** | – | (18,460) | NMF | | **Net debt and guarantees issued (3)=(1)+(2)** | **(296,808)** | **(396,365)** | **-25.7%** | | **Planned investments (4)** | **(125,143)** | **(141,396)** | **-11.5%** | | of which, planned investments in renewable energy | (77,637) | (81,205) | -4.4% | | of which, planned investments in education | (47,500) | (50,191) | -21.1% | | **Announced buybacks (5)** | **(18,087)** | – | NMF | | **Contingency/liquidity buffer (6)** | **(134,470)** | **(135,100)** | **-0.5%** | | **Total planned investments, announced buybacks and contingency/liquidity buffer (7)=(4)+(5)+(6)** | **(277,700)** | **(276,496)** | **0.4%** | | **Net capital commitment (3)+(7)** | **(574,508)** | **(675,861)** | **-15.0%** | | **Portfolio value** | **3,871,945** | **3,198,827** | **14.8%** | | **NCC ratio** | **15.6%** | **21.1%** | **-5.5 ppts** | **Cash and liquid funds.** The total cash and liquid funds' balance in FY23 decreased by 73.8%, which mostly reflects the use of funds for redemption of GCAP's Eurobonds in 2023. **Loans issued.** Issued loans' balance primarily refers to loans issued to our private portfolio companies and are lent at market terms. The FY23 balance was down by GEL 17.6 million, mainly reflecting the loan repayments from the hospitality and auto service businesses. **Gross debt.** In US Dollar terms, the FY23 gross debt balance was down by 49.3%, representing the full redemption of US$ 350 million GCAP Eurobonds and the issuance of US$ 150 million SLB in 2023. **Guarantees issued.** The balance reflected GCAP's guarantee on the borrowing of the bear business, which was reduced to zero in 2023, leaving no outstanding guarantees. **Planned investments.** Planned investments' balance represents expected investments in the renewable energy and education businesses over the next two to three years. The balance in US Dollar terms decreased by 11.1% in FY23, due to the investments made in these businesses, as described above (the balance in GEL terms was down 11.5% in FY23). $^{1}$ Dividends are received at JSC Georgia Capital level, the Georgian holding company. **Announced buybacks.** The balance of the announced buybacks at 31 December 2023 is 15 million share buyback and cancellation programme. **Contingency/liquidity buffer.** The balance reflects the cash and liquid assets in the contingency/liquidity purposes. The balance remained unchanged in US$ terms and As a result of the movements described above, NCC was down by 15.0% y-o-y to 14.8% increase in the portfolio value translated into a 15.6% NCC ratio as at 31 December 2023. ## Income Statement (adjusted IFRS / APM) Net income under IFRS was GEL 606.6 million in FY23 (GEL 12.2 million net loss in FY23) and the capital PLC level and the results of all operations of the Georgian holding company are not included in the financial statement. The financial statement is not included in the financial statement. The financial statement is not included in the financial statement. Accordingly, to enable a more granular analysis of those trends, the following adjusted income statement is provided for the period ending 31 December 2023 as an aggregation of (i) the results of GCAP, (ii) the results of the year ended December 31, 2023, and (iii) the fair value change in the value of portfolio value. The results of the year ended December 31, 2023 are not included in the financial statement. The financial statement is not included in the financial statement. ## GEL thousands, unless otherwise noted (Unaudited) | Dividend income | | --- | | of which, regular dividend income | | of which, buyback dividend income | | Interest income | | Realised/unrealised gain/(loss) on liquid funds / Gain/(Loss) on GCAP Eurobond/buyback | | Interest expense | | **Gross operating income** | | Operating expenses | | **GCAP net operating income** | | **Fair value changes of portfolio companies** | | **Listed and observable portfolio companies** | | of which, Bank of Georgia | | of which, water utility | | **Private portfolio companies** | | **Large portfolio companies** | | of which, retail (pharmacy) | | of which, hospitals | | of which, insurance (PBC and medical) | | **Investment stage portfolio companies** | | of which, renewable energy | | of which, education | | of which, clinics and diagnostics | | **Other businesses** | | **Total investment return** | | **Income/(loss) before foreign exchange movements and non-recurring expenses** | | Net foreign currency gain | | Non-recurring expenses | | **Net income** | ## Income/(loss) before foreign exchange movements and non-recurring expenses | Net foreign currency gain | | --- | | Non-recurring expenses | | **Net income** | 106 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## FINANCIAL REVIEW CONTINUED Georgia Capital PLC Annual Report 2023 The gross operating income stood at GEL 203.1 million in FY23, reflecting robust dividend income, further supported by a decrease in interest Discussion of portfolio companies’ results (stand-alone IFRS) expenses due to significant deleveraging progress in 2023. The following sections present the IFRS results and business development extracted from the individual portfolio company’s IFRS accounts for large and investment stage entities, where the 2023 portfolio company’s accounts and respective IFRS numbers are unaudited. We present key IFRS The components of GCAP’s operating expenses are shown in the table below. financial highlights, operating metrics and ratios along with commentary explaining the developments behind the numbers. For the majority of our portfolio companies, the fair value of our equity investment is determined by the application of an income approach (DCF) and a market approach GCAP operating expenses components (listed peer multiples and precedent transactions). Under the DCF valuation method, fair value is estimated by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that GEL thousands, unless otherwise noted (Unaudited) FY23 FY22 Change quantifies the risk inherent to the business. Under the market approach, listed peer group earnings multiples are applied to the LTM stand-alone IFRS 1 Administrative expenses (10,909) (11,779) -7.4% earnings of the relevant business. As such, the stand-alone IFRS results and developments driving the IFRS earnings of our portfolio companies are 2 Management expenses – cash-based (10,877) (9,741) 11.7% key drivers of their valuations within GCAP’s financial statements. See pages 94-100 for more background. 3 Management expenses – share-based (14,993) (18,476) -18.9% Georgia Capital PLC Annual Report 2023 Large portfolio companies Total operating expenses (36,779) (39,996) -8.0% | | 4 | | | Discussion of retail (pharmacy) business results | | --- | --- | --- | --- | --- | | of which, fund type expense | | | (9,667) (11,33 4) -14.7% | | | | | 5 | | The retail (pharmacy) business, where GCAP owns a 97.6% equity interest, is the largest pharmaceuticals retailer and wholesaler in Georgia, | | of which, management fee type expenses | | | (27,112) (28,662) -5.4% | | with a 32% market share based on the 2022 revenues. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The business operates a total of 412 pharmacies (of which 397 are in GCAP management fee expenses starting from 2024 have a self-targeted cap of 0.75% of Georgia Capital’s NAV. The LTM management fee Georgia and 15 in Armenia) and 23 franchise stores (of which, two are in Armenia and four in Azerbaijan). expense ratio was 0.80% at 31 December 2023 (1.02% as of 31 December 2022). 1 FY23 performance (GEL thousands), retail (pharmacy) Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 444.6 million in FY23, mostly (Unaudited) reflecting the changes in the value of our portfolio companies, as described earlier in this report. We discuss valuation drivers for our businesses on Income Statement highlights FY23 FY22 Change pages 104-105. The performance of each of our private large and investment stage portfolio companies is discussed on pages 109-119. Revenue, net 823,692 789,893 4.3% GCAP’s net foreign currency liability balance amounted to US$ 130 million (GEL 350 million) at 31 December 2023. As a result of the movements of which, retail 653,960 620,936 5.3% described above, GCAP’s adjusted IFRS net income was GEL 615.6 million in FY23. of which, wholesale 169,732 168,957 0.5% Gross profit 244,322 231,270 5.6% Discussion of the Statement of Cash Flows Gross profit margin 29.7% 29.3% 0.4 ppts The 2023 IFRS Statement of Cash Flows is prepared at the Georgia Capital PLC level and does not include JSC Georgia Capital’s cash flows, since Operating expenses (ex. IFRS 16) (166,979) (154,343) 8.2% JSC Georgia Capital is measured at fair value under IFRS 10. Net cash flow used in operating activities was GEL 6.2 million in 2023 (GEL 9.8 million EBITDA (ex. IFRS 16) 77,343 76,927 0.5% in 2022), reflecting salaries and general and administrative expenses paid at the Georgia Capital PLC level. Net cash flow from investing activities was EBITDA margin (ex. IFRS 16) 9.4% 9.7% -0.3 ppts GEL 44.3 million in 2023 (GEL 87.2 million in 2022), reflecting the net impact of purchase of redeemable securities and dividends received. Net cash Net loss/profit (ex. IFRS 16) 45,614 58,605 -22.9% flow used in financing activities was GEL 48.0 million in 2023 (GEL 54.6 million in 2022), mainly reflecting the purchases of treasury shares. The IFRS Cash flow highlights Statement of Cash Flows is included on page 175 of this report. Cash flow from operating activities (ex. IFRS 16) 52,361 77,099 -32.1% EBITDA to cash conversion 67.7 % 100.2% -32.5 ppts 2 Cash flow used in investing activities (84,130) (58,367) 44.1% 3 Free cash flow, (ex. IFRS 16) (56,130) 15,016 NMF Cash flow from financing activities (ex. IFRS 16) 17,686 3,392 NMF Balance sheet highlights 31-Dec-23 31-Dec-22 Change Total assets 631,218 576,060 9.6% of which, cash and bank deposits 60,383 75,279 -19.8% of which, securities and loans issued 2,623 22,857 -88.5% Total liabilities 597,611 515,081 16.0% of which, borrowings 228,261 131,547 73.5% of which, lease liabilities 151,916 107,4 5 5 41.4% Total equity 33,607 60,979 -44.9% Income Statement highlights • The y-o-y increase in retail revenues in FY23 was driven by a combination of factors: – The expansion of the pharmacy chain and franchise stores – the business added 40 pharmacies and 11 franchise stores over the last 12 months. – Increased focus on higher margin para-pharmacy product sales – the para-pharmacy revenue as a percentage of retail revenue increased from 36.5% in FY22 to 39.7% in FY23. – Overall economic growth in Georgia. – The revenue growth was partially subdued by a) implementation of the ERP model, which sets a maximum retail price for state-financed prescription medicines. The list of regulated products was further expanded in November 2023 (detailed in other valuation drivers and operating highlight section below) and b) a decrease in product prices due to the appreciation of GEL against foreign currencies (as approximately 70% of inventory purchases are denominated in foreign currencies). – The increase in operating expenses in FY23 reflects increased rent and salary expenses in line with the substantial expansion of the pharmacy chain and franchise stores during the year. In FY23 the business maintained the EBITDA margin (excluding IFRS 16) at 9.4%, above the targeted threshold of 9%, and we expect the investments in the recently opened stores to deliver a substantial increase in business revenues in the coming quarters as customer traffic gradually increases. • The significant y-o-y increase in interest expense (excluding IFRS 16) in FY23 is due to the higher average net debt balance, as explained below. • The developments described above translated into a 22.9% y-o-y decrease in FY23 net profit (excluding IFRS 16). 1 Includes expenses such as external audit fees, legal counsel, corporate secretary and other similar administrative costs. 1 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results. See reconciliation to IFRS 16 on 2 Cash-based management expenses are cash salary and cash bonuses paid/accrued for staff and management compensation. page 97. 3 Share-based management expenses are share salary and share bonus expenses of management and staff. 2 Of which – cash outflow on capex of GEL 34.0 million in FY23 (GEL 20.9 million in FY22); cash outflow on minority acquisition; proceeds from sale of personal protective 4 Fund type expenses include expenses such as audit and valuation fees, fees for legal advisors, Board compensation and corporate secretary costs. equipment (PPE) of GEL 14.6 million in FY23 (none in FY22). 5 Management fee is the sum of cash-based and share-based operating expenses (excluding fund-type costs). 3 Calculated by deducting capex and minority acquisition from operating cash flows and adding proceeds from sale of PPE. 108 109 FINANCIAL REVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview Georges Daphne/PLC Annual Report 2024 # Cash flow and balance sheet highlights - The net debt balance was up by GEL 131.8 million y-o-y to GEL 165.3 million as at 31 December 2023, mostly reflecting increased borrowings that partially financed the minority buyout transaction in June 2023. - The EBITDA-to-cash conversion ratio was at 67.7% in FY23, reflecting the business's strategy of making advance payments to key vendors to secure substantial supplier discounts for high-volume inventory purchases. - GEL 50.8 million dividends were paid to GCAP in FY23. # Other valuation drivers and operating highlights - Effective from 2023, the Government introduced two new quality regulations: i) Good Manufacturing Practice (GMP) and ii) Good Distribution Practice (GDP). These regulations establish the minimum standards that medicine distributors must meet to ensure the quality and integrity of medicines throughout the supply chain. Compliance with GMP and GDP ensures that medicines are consistently stored under the appropriate conditions, including during transportation, to prevent contamination. The implementation of the new standards resulted in the closure of several of our partner small pharmacies, leading to a reduction in revenues and gross profit. In FY23, the wholesale business revenue was affected by GEL 21.4 million, while the effect on gross profit was GEL 5.0 million in FY23. To meet the requirements the business incurred additional capex of GEL c.4.0 million in FY23. - In November 2023, the state announced the third wave of price regulations under the ERP model, affecting both prescription and non-prescription medicine. The new prices, aligned with these latest regulations, took effect from January 2024. Overall, the anticipated impact of these price regulations on the 2024-year EBITDA is estimated at negative GEL 8.0 million. In response to these regulatory challenges, the business's strategic focus lies in the optimization of the chain and increasing the share of para-pharmacy products in sales, which remain unaffected by regulations. - In December 2023, the Georgian National Competition Agency (the "Agency") imposed fines on four companies in the Georgian pharmaceutical retailers' sector, including GCAP's retail (pharmacy) business, for alleged anti-competitive actions related to price quotations on certain prescription medicines funded under the state programme. The penalty amount assessed by the Agency on our retail (pharmacy) business is GEL 20.0 million derived by utilising the single rate across all the alleged participants. We have since appealed the Agency's decision in court and plan to vigorously defend our position. - The number of pharmacies and franchise stores is provided below: | (Unaudited) | Dec-23 | Dec-22 | Change (y-o-y) | | --- | --- | --- | --- | | Number of pharmacies | 412 | 372 | 40 | | of which, Georgia | 397 | 392 | 35 | | of which, Armenia | 15 | 10 | 5 | | Number of franchise stores | 23 | 12 | 11 | | of which, Georgia | 17 | 8 | 9 | | of which, Armenia | 2 | 2 | - | | of which, Azerbaijan | 4 | 2 | 2 | - Retail (pharmacy)'s key operating performance highlights for FY23 are noted below: | Key metrics (Unaudited) | FY23 | FY22 | Change | | --- | --- | --- | --- | | Same store revenue growth | 0.4% | -0.8% | 1.2 ppts | | Number of bills issued (million) | 31.3 | 31.0 | 0.8% | | Average bill size (GEL) | 19.8 | 19.0 | 4.5% | # Discussion of hospitals business results¹ The hospitals business, where GCAP owns a 100% equity, is the largest healthcare specialty hospitals, providing secondary and tertiary level healthcare services across outpatient and basic inpatient services. # FY23 performance (GEL thousands), hospitals² (Unaudited) Income Statement highlights Revenue, net³ Gross profit Gross profit margin Operating expenses (ex. IFRS 16) EBITDA (ex. IFRS 16) EBITDA margin (ex. IFRS 16) Net (loss) (ex. IFRS 16)⁴ Cash flow highlights Cash flow used in operating activities (ex. IFRS 16) EBITDA to cash conversion (ex. IFRS 16) Cash flow used in investing activities⁵ Free cash flow (ex. IFRS 16)⁶ Cash flow from financing activities (ex. IFRS 16) Balance sheet highlights Total assets of which, cash balance and bank deposits of which, securities and loans issued Total liabilities of which, borrowings Total equity The FY23 performance of the hospitals business reflects the impact of the recently oversupply of beds and enhance the quality of the healthcare industry in the country established upgraded standards for healthcare facilities and imposed minimum results to the new standards, our hospitals business initiated a number of renovation programs, healthcare facilities being temporarily closed and unable to accept patients. Most of the work being completed by the end of November. The capex invested in 2023. The negative annualised impact of increased expenses that will result from the believe that this new regulation's mandate of higher quality healthcare facilities in the context of our high-quality healthcare businesses in the medium to long term. To capture emerging opportunities in the healthcare sector and enhance operational restructuring, The hospitals business was split into two distinct segments: "Large and Medium" The Regional and Community Hospitals now also incorporate the community clinics and diagnostics business. For our patients, the transition was seamless and business competitor joined the Regional and Community Hospitals business in December to # Income Statement highlights - In FY23, the Large and Specialty Hospitals and Regional and Community Hospitals consolidated hospitals business revenue. Total revenue breakdown (Unaudited) Total revenue, net of which, Large and Specialty Hospitals of which, Regional and Community Hospitals of which, inter-business eliminations 1 The numbers were adjusted retrospectively to account for the recent strategic reorganisation in 2023. 2 The detailed IFRS financial statements are included in a supplementary issue file, available at https://www.legislation.gov.uk. 3 Net revenue – Gross revenue less corrections and rebates. Margins are calculated from gross results. 4 FY23 figure is adjusted for a GEL 2.7 million loss from the sale of the Teaymalology Hospital. 5 Of which – capex of GEL 48.0 million in FY23 (GEL 37.8 million in FY23). 6 Operating cash flows less capex, plus net proceeds on sale of IFRS. 110 FINANCIAL REVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Government - The FY23 revenue of Large and Specialty Hospitals was up by 2.9% y-o-y. This growth reflects the following factors: - The resilient underlying performance of the hospitals and their ability to offer a diversified range of services, partially offsetting the impact of the new facility regulations. - The COVID-related inflation of 2022 revenue as the Government contracts continued through mid-March 2022. - The absence of revenues from the Traumatology Hospital, which was directed in April 2022. - Our Regional and Community Hospitals primarily concentrate on delivering outpatient and basic inpatient services, which are smaller and offer services relatively more limited in scope than the services provided by our Large and Specialty Hospitals. The works and related facilities closures mandated by the new regulations therefore had a more pronounced impact on this group of hospitals in terms of revenue growth (down 4.5% y-o-y in FY23). - The cost of services in the business consists mainly of salaries, materials and utilities. Trends in salary and materials costs are captured in the direct salary and materials rates. - The direct salary rates were up 3.2 ppts y-o-y to 39.6% in FY23, mainly attributable to increased minimum salary rates for medical staff. - The materials rate was down 0.5 ppts y-o-y to 17.2% in FY23. - Utilities and other costs were up 4.5% in FY23, resulting from overall inflation. - As a result of the developments described above, FY23 gross profit margin was down 3.2 ppts y-o-y. - Operating expenses, mainly comprising administrative salaries and other employee benefits and general and administrative expenses (excl. IFRS 16), were largely flat (up 1.4% y-o-y in FY23). - The developments described above translated into 18.7% y-o-y decrease in EBITDA (excluding IFRS 16) in FY23. | Total EBITDA (excl. IFRS 16), breakdown (Unqualified) | FY23 | FY22 | Change | | --- | --- | --- | --- | | Total EBITDA (excl. IFRS 16) | 46,129 | 56,756 | -18.7% | | of which, Large and Specialty Hospitals | 34,339 | 35,815 | -4.4% | | of which, Regional and Community Hospitals | 11,790 | 20,841 | -43.4% | - Net interest expense (excluding IFRS 16) was up 36.3% y-o-y in FY23, reflecting the increased net debt balance (as described below) and increased interest rates on the market. - The business posted a net loss (excluding IFRS 16) of GEL 36.6 million in FY23, which reflects a GEL 18.6 million one-off costs associated with the write-off of historic receivables due to their extremely low probability of recovery. # Cash flow and balance sheet highlights - Net debt balance was up 37.7% y-o-y as at 31 December 2023, mainly resulting from high capex investments associated with new facility regulation. The y-o-y increase in the net debt balance further reflects the delay in the collection of receivables from the State in 2023 due to one-off processing delays related to the introduction of the Diagnosis Related Group ("DRG") financing system. - Capex investment was GEL 48.5 million in FY23, reflecting maintenance and capex related to the new facility regulation at hospitals and renovation works in lashvil Hospital. - In December 2023, the business signed an agreement to sell one of its Regional and Community Hospitals for a total consideration of GEL 34.8 million at 15.2x EV/EBITDA multiple. The proceeds from this transaction were collected in January 2024 and were primarily utilised for deliveraging hospitals business's balance sheet. The sale is in line with the business's strategy to divest low-ROIC generating assets. # Other valuation drivers and operating highlights - The business key operating performance highlights for FY23 are noted below: | Key metrics (Unqualified) | FY23 | FY22 | Change | | --- | --- | --- | --- | | Number of admissions (thousands) | 1,468.1 | 1,643.2 | -10.5% | | of which, Large and Specialty Hospitals | 599.9 | 614.7 | -2.4% | | of which, Regional and Community Hospitals | 868.2 | 1,025.5 | -15.3% | | Occupancy rates: | | | | | Large and Specialty Hospitals | 53.5% | 55.5% | -2.0 ppts | | Regional and Community Hospitals | 49.4% | 46.4% | 3.0 ppts | The decrease in the number of admissions in FY23 reflects the renovation works in our hospitals as described above. 1 The respective costs divided by gross revenues. # Discussion of insurance (P&C and medical) business results The insurance business comprises a) property and casualty (P&C) insurance business is a leading player in the local insurance market with a 30% market share of 30 September 2023. P&C also offers a variety of non-property and casualty products, one of the country's largest private health insurers, with a 19% market share based on variety of health insurance products primarily to corporate and (selectively) to state equity stake in both insurance businesses. # FY23 performance (GEL thousands), insurance (P&C and medical) (Unqualified) Income Statement highlights Insurance revenue Net underwriting profit Net investment profit Net profit Cash flow highlights Net cash flows from operating activities Free cash flow Balance sheet highlights Total assets Total equity - In January 2024, our medical insurance business signed a MOU to acquire the from "And", the third-largest player in the health insurance market with a 17% market successful completion of this transaction, the combined market share of our m the country. And's portfolio is concentrated in the upscale segment category, p portfolio and achieve significant synergies from both financial and strategic per to GEL 27 million, which will be fully financed by the funds available in our med GCAF. Following this acquisition, the insurance business will operate under the managed under GCAF. - The Georgian insurance sector has adopted the Estonian Taxation Model, which 15% corporate income tax was applied to the pre-tax profit of insurance business tax is now applied only to earnings distributed to individuals or non-resident leg subject to corporate income tax payments, freeing up resources for both busi- also retrospectively restated. # Total insurance business highlights P&C and medical insurance had a broadly equal share in total revenues in FY23, with insurance (74.6% share in total net profit in FY23). The loss ratio was up by 2.5 ppts y-o-y in FY23, translating into 3.8 ppts y-o-y increase in the combined ratio in # Discussion of results, P&C insurance (Unqualified) Income Statement highlights Insurance revenue Net underwriting profit Net investment profit Net profit Cash flow highlights Net cash flows used in operating activities Free cash flow Balance sheet highlights Total assets Total equity 1 The detailed IFRS financial statements are included in a supplementary weight list, available at M 2 Calculated based on average equity, adjusted for preferred shares. 112 FINANCIAL REVIEW CONTINUED Strategy Review Overview Strategy Review Our Business Strategy Review Discussion of Results Govern # Income Statement highlights • The increase in FY23 insurance revenue reflects a combination of factors: - Motor insurance revenues were up by GEL 10.9 million in FY23, mainly attributable to the growth in the retail client portfolio. - Credit life insurance revenues were up by GEL 4.9 million in FY23, resulting from the growth of banks' portfolios in the mortgage, consumer loan, and other sectors. - Revenues from other insurance lines increased by GEL 4.5 million y-o-y in FY23. • P&C insurance's key performance ratios for FY23 are noted below: | Key ratios (Unaudited) | FY23 | FY23 | Change | | --- | --- | --- | --- | | Combined ratio | 89.5% | 79.2% | 10.3 ppts | | Expense ratio | 35.6% | 34.1% | 1.7 ppts | | Loss ratio | 53.8% | 47.3% | -6.5 ppts | | FX ratio | -0.1% | -2.2% | 2.1 ppts | | ROAD | 24.4% | 29.7% | -5.3 ppts | • The combined ratio increased by 10.3 ppts y-o-y in FY23. - The FY23 loss ratio was up 6.5 ppts y-o-y, reflecting the increased number of extraordinary events that occurred during 2023: - Increased agricultural insurance claims due to an abnormal number of halstorms during the year resulted in a 2.9 ppts y-o-y increase in the FY23 loss ratio. The increase additionally reflects the base effect of exceptionally low agricultural insurance claims in FY22. - Increased property insurance claims, resulting from a) an unprecedented landslide in one of the regions of Georgia with the estimated net loss of GEL 2.6 million (2.2 ppts impact on the FY23 loss ratio), and b) a large property insurance claim incurred in 1Q23, with an estimated net loss of GEL 1.2 million. - A 2.1 ppts y-o-y increase in the FX ratio in FY23 reflects the impact of foreign exchange rate movements on the business's insurance operations. - A 1.7 ppts y-o-y increase in FY23 expense ratio, driven by increased salary expenses in line with the business growth. • P&C insurance's net investment profit was up by 66.1% y-o-y in FY23, attributable to a) a higher average liquid funds balance, b) an increase in global interest rates, and c) a reversal of market-driven losses in FY23 on investments placed in publicly traded debt securities. # Cash flow and balance sheet highlights • P&C insurance's solvency ratio was 171% as of 31 December 2023, significantly above the required minimum of 100%. • A y-o-y decrease in the net cash flows from operating activities in FY23 reflects the cash outflows for the reimbursement of the abnormal amount of claims mentioned above and the timing difference of payment of some payable balances to reinsurers. • GEL 14.9 million dividends were paid to GCAP in FY23. # Other valuation drivers and operating highlights • In 2023, the business expanded its operations into the regional reinsurance markets of Armenia and Azerbaijan. The expansion has positively contributed to the operating performance of the business. • In 2023, Aldagi became the first insurance company on the local market to obtain an international credit rating of bb+ from AM Best. The credit rating is expected to further support the regional expansion of the business's reinsurance operations. Discussion of results, medical insurance (Unaudited) | Income Statement highlights | FY23 | FY22 | Change | | --- | --- | --- | --- | | Insurance revenue | 91,331 | 74,892 | 22.6% | | Net underwriting profit | 16,129 | 10,633 | 51.7% | | Net investment profit | 4,448 | 3,894 | 14.2% | | Net profit | 6,517 | 3,397 | 91.8% | | Cash flow highlights | | | | | Net cash flows from operating activities | 10,812 | 4,665 | 127.5% | | Free cash flow | 7,563 | 3,700 | 104.4% | | Balance sheet highlights | 31-Dec-23 | 31-Dec-22 | Change | | Total assets | 68,700 | 65,578 | 4.8% | | Total equity | 38,127 | 35,396 | 7.7% | # Income Statement highlights • The increase in FY23 insurance revenue is due to the increase in the price of insurance policies and a 3.3% y-o-y increase in the total number of insured clients (c100,000 as at December 2023) mainly in the corporate client segment. • FY23 net claims expenses stood at GEL 71.4 million (up 17.7% y-o-y), out of which: - GEL 28.0 million (39.3% of the total) was inpatient; - GEL 31.3 million (43.8% of the total) was outpatient; and - GEL 12.1 million (16.9% of the total) was related to pharmaceuticals. • FY23 combined ratio decreased by 4.7 ppts y-o-y to 94.8%, reflecting: - Improved loss ratio, down 2.8 ppts y-o-y to 76.2% in FY23, driven by robust revenue growth. - Improved expense ratio in FY23 (down 1.9 ppts y-o-y to 16.6%) reflecting the top-line growth of the business. • The developments described above translated into a 51.5% y-o-y increase in the FY23 net profit. 1 Calculated based on net income and average equity, adjusted for preferred shares. # Cash flow and balance sheet highlights • GEL 5.0 million dividends were paid to GCAP in FY23. • The solid operating performance of the business led to a 27.5% y-o-y increase # Investment stage portfolio companies # Discussion of renewable energy business results The renewable energy business operates three wholly-owned commissioned renewable energy business (EBITDA) 2MW Qartt wind farm. In addition, the business has a pipeline of renewable energy business is 100% owned by Georgia Capital. As electricity sales in Georgia is a clo # FY23 performance (US$ thousands), renewable energy¹ # (Unaudited) # Income Statement highlights # Revenue of which, FR4 of which, non-FR4 Operating expenses # EBITDA EBITDA margin Net (loss)/profit # Cash flow highlights # Cash flow from operating activities # Cash flow used in investing activities # Cash flow used in financing activities Dividends paid out # Balance sheet highlights # Total assets of which, cash balance # Total liabilities of which, borrowings # Total equity # Income Statement highlights (GEL) # Revenue # EBITDA # Income Statement highlights • The y-o-y decrease in FY23 revenue in US Dollar farms reflects the net impact - A 5.3% y-o-y decrease in electricity generation in FY23 due to the previously unfit of Hydroxia HPPs, which were taken offline during November 2022-July. - A 4.6% y-o-y increase in the average electricity selling price in FY23 (up to 1) to the Republic of Türkiye in May-July 2023, with an average export price of • Approximately 55% of electricity sales during FY23 were covered by long-term # US$ thousands, unless otherwise noted (Unaudited) 3DMW Mestachola HPP 2DMW Hydrides HPPs 2MW Qartt wind farm # Total • Operating expenses were up by 10.4% y-o-y in FY23, reflecting electricity and of Türkiye. • The developments described above led to a 7.1% y-o-y decrease in EBITDA in 1 The detailed IFRS financial statements (in both US$ and GEL) are included in a supplementary 114 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## FINANCIAL REVIEW CONTINUED Georgia Capital PLC Annual Report 2023 1 Cash flow and balance sheet highlights Discussion of clinics and diagnostics business results • A y-o-y decrease in the FY23 cash flow from investing activities reflects the high base effect of the following factors on 2022 numbers: a) The clinics and diagnostics business, where GCAP owns a 100% equity interest, is the second largest healthcare market participant in Georgia consideration received from the Mestiachala 1 HPP sale and b) the sale of financial securities, previously held for liquidity management purposes. after our hospitals business. Following the strategic restructuring, as outlined in the hospitals business discussion section on page 111, the business • A y-o-y decrease in the FY23 cash outflows from financing activities is attributable to the y-o-y decrease in the average gross debt balance. comprises two segments: 1) polyclinics, comprising 19 polyclinics (providing outpatient diagnostic and treatment services) and 14 lab retail points at • Subsequent to FY23, the business repurchased and cancelled US$ 5.1 million of its outstanding US$ 80.0 million green bonds. Consequently, the GPC pharmacies; and 2) diagnostics, operating the largest laboratory in the entire Caucasus region – “Mega Lab”. gross debt balance of the renewable energy business now stands at US$ 74.9 million. 2 FY23 performance (GEL thousands), clinics and diagnostics Discussion of education business results (Unaudited) Our education business currently combines majority stakes in four private school brands operating across seven campuses acquired over the period Income Statement highlights FY23 FY22 Change 2019-2023: British-Georgian Academy and British International School of Tbilisi (70% stake), the leading schools in the premium and international 3 segments; Buckswood International School (80% stake), well-positioned in the midscale segment and Green School (80%-90% ownership), well- Revenue, net 61,723 56,691 8.9% Georgia Capital PLC Annual Report 2023 positioned in the affordable segment. of which, clinics 49,170 41,133 19.5% of which, diagnostics 18,435 20,477 -10.0% 1 of which, inter-business eliminations (5,882) (4,919) 19.6% FY23 performance (GEL thousands), education (Unaudited) Gross profit 29,240 23,622 23.8% Gross profit margin 47.2% 41.6% 5.6 ppts Income Statement highlights FY23 FY22 Change Operating expenses (ex. IFRS 16) (16,345) (18,013) -9.3% | Revenue 55,491 42,577 30.3% | EBITDA (ex. IFRS 16) 12,895 5,609 129.9% | | --- | --- | | Operating expenses (41,053) (28,953) 41.8% | EBITDA margin (ex. IFRS 16) 20.8% 9.9% 10.9 ppts | | EBITDA 14,438 13,624 6.0% | Net profit/(loss) (ex. IFRS 16) 2,307 (5,187) NMF | EBITDA margin 26.0% 32.0% -6.0 ppts Cash flow highlights Net profit 13,263 11,338 17.0% Cash flow from operating activities (ex. IFRS 16) 6,901 3,878 78.0% Cash flow highlights EBITDA to cash conversion (ex. IFRS 16) 53.5% 69.1% -15.6 ppts Net cash flows used in operating activities 17,3 6 3 16,454 5.5% Cash flow used in investing activities (1,451) (8,460) -82.8% | Net cash flows used in investing activities (31,254) (24,079) 29.8% | | 4 | | | --- | --- | --- | --- | | | Free cash flow (ex. IFRS 16) | | 10,508 (3,985) NMF | | Net cash flows from financing activities 15,897 5,500 NMF | Cash flow used in financing activities (ex. IFRS 16) (5,982) 4,117 NMF | | | | Balance sheet highlights 31-Dec-23 31-Dec-22 Change | Balance sheet highlights 31-Dec-23 31-Dec-22 Change | | | | Total assets 191,723 156,320 22.6% | Total assets 135,848 125,598 8.2% | | | | of which, cash 7,535 5,709 32.0% | of which, cash balance and bank deposits 4,500 5,033 -10.6% | | | | Total liabilities 62,149 52 ,168 19.1% | of which, securities and loans issued 8,357 3,607 NMF | | | | of which, borrowings 27,750 21,740 27.6% | Total liabilities 83,901 71,908 16.7% | | | of which, borrowings 48,630 47,252 2.9% Total equity 129,574 104,152 24.4% Total equity 51,947 53,690 -3.2% Income statement highlights • The y-o-y increase in FY23 revenues was driven by a) organic growth through strong intakes and a ramp-up of the utilisation and b) expansion Discussion of results, clinics of the business, as described in other valuation drivers and operating highlights section below. The revenue growth was partially subdued by the (GEL thousands, Unaudited) Georgian Lari’s y-o-y appreciation against the US Dollar, as the tuition fees for our premium and international schools are denominated in US Dollar. Income Statement highlights FY23 FY22 Change • Operating expenses were up by 41.8% y-o-y in FY23, mainly reflecting increased salary, catering and utility expenses, in line with the expansion of | | the business and inflation. | Revenue, net 49,170 41,133 19.5% | | --- | --- | --- | | • Consequently, EBITDA was up by 6.0% y-o-y in FY23. | | Gross profit 24,550 18,990 29.3% | | • The business posted a net income of GEL 13.3 million in FY23. | | Gross profit margin 49.7% 46.0% 3.7 ppts | Operating expenses (ex. IFRS 16) (12,845) (14,043) -8.5% Cash flow and balance sheet highlights EBITDA (ex. IFRS 16) 11,705 4,947 136.6% • Strong cash collection rates (at 77.2% as of 31 December 2023, slightly below last year’s level of 79.5%), combined with enhanced revenue EBITDA margin (ex. IFRS 16) 23.7% 12.0% 11.7 p pt s streams, led to a 5.5% y-o-y increase in operating cash flow generation of the business in FY23. Net profit/(loss) (ex. IFRS 16) 3,027 (4,529) NMF • Investing cash flows of GEL 31.3 million in FY23 mainly reflect the cash outflows for the investment projects, in line with the business Cash flow highlights expansion strategy. Cash flow from operating activities (ex. IFRS 16) 8,214 3,832 NMF EBITDA to cash conversion (ex. IFRS 16) 70.2% 77.5% -7.3 p p t s Other valuation drivers and operating highlights 5 Cash flow used in investing activities (194) (7,748) -97.5% • In 2023, the total learner capacity of the education business increased by 1,600 learners to 7,270 learners, reflecting a) the launch of a new Free cash flow (ex. IFRS 16) 13,094 (3,256) NMF campus in the mid-scale segment and b) the acquisition of the new campus in the affordable segment during 2023. Cash flow used in financing activities (ex. IFRS 16) (7,649) 5,454 NMF • The total number of learners increased by 1,665 learners y-o-y to 5,827 learners at 31 December 2023. • The utilisation rate for the total 7,270 learner capacity was up by 6.8 ppts y-o-y to 80.2% as of 31 December 2023. Balance sheet highlights 31-Dec-23 31-Dec-22 Change – The utilisation rate for the pre-expansion 2,810 learner capacity was 100%. Total assets 105,789 95,250 11.1% – The utilisation of the newly added capacity of 4,460 learners was 67.6%. of which, cash balance and bank deposits 4,261 3,892 9.5% • The number of campuses across the different segments is noted below: of which, securities and loans issued 8,357 3,607 NMF (Unaudited) Dec-23 Dec-22 Change (y-o-y) Total liabilities 71,840 60,782 18.2% of which, borrowings 42,340 43,056 -1.7% Total number of campuses 7 5 2 of which, premium and international segment 1 1 – Total equity 33,949 34,468 -1.5% of which, mid-scale segment 2 1 1 of which, affordable segment 4 3 1 1 The numbers were adjusted retrospectively to account for the recent strategic reorganisation in the healthcare businesses. 2 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results. See reconciliation to IFRS 16 on page 98. 3 Net revenue – Gross revenue less corrections and rebates. Margins are calculated from gross revenue. 4 Operating cash flows less capex. 1 The detailed IFRS financial statements are included in a supplementary excel file, available at https://georgiacapital.ge/ir/financial-results. 5 Of which capex of GEL 11.2 million in FY23 (GEL 7.1 million in FY22). 116 117 FINANCIAL REVIEW CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Govern # Income Statement highlights - The increase in revenue is the result of higher demand for non-COVID regular ambulatory services and the expansion of the business, which added two new ambulatory centres in the second half of 2022 and two in 2023. - The cost of services in the clinics business consists mainly of salaries, cost of providers, materials and utilities - The trend in salary cost is captured in the direct salary rate. A significant portion of direct salaries is fixed, which on the back of increased revenue improved by 2.0 ppts to 31.5% in FY23. - The cost of providers mainly consists of outsourced laboratory services, which as a percentage of revenue also improved y-o-y, down 0.5 ppts to 11.6% in FY23, attributable to additional discounts from the laboratory services provider. - As a result of the developments described above, the gross profit margins improved substantially in FY23, up 3.7 ppts y-o-y. - Operating expenses (excl. IFRS 16) in FY23 were down by 8.5% y-o-y which mainly reflects a GEL 2.9 million gain recognised from the sale of one of the polyclinic buildings in 2023. - Business performance translated into a 23.7% EBITDA margin in FY23 (up 11.7 ppts y-o-y). Excluding the gain recognised from the disposal, the FY23 EBITDA margin was 17.8% (up 5.8 ppts y-o-y). - The net interest expense (excl. IFRS 16) was up 12.8% in FY23 y-o-y, reflecting a) an increased balance of net debt during the year due to investment made for the expansion of the business and b) increased interest rates on the market. # Cash flow and balance sheet highlights - The EBITDA to cash conversion ratio stood at 70.2% for FY23. - In FY23, the business spent GEL 11.2 million on capex, primarily related to the expansion of the services and the polyclinics chain. # Other valuation drivers and operating highlights - The number of admissions at our clinics is highlighted below: | (Unaudited) | FY23 | FY22 | Change | | --- | --- | --- | --- | | Number of admissions (thousands) | 1,640.0 | 1,707.5 | -4.0% | - The number of polyclinics operated by the business is provided below: | (Unaudited) | Dec-23 | Dec-22 | Change (y-o-y) | | --- | --- | --- | --- | | Number of polyclinics | 19 | 17 | 2 | - As at 31 December 2023, the total number of registered patients in our polyclinics reached c.201,000 (c.277,000 as at 31 December 2022) in Tbilisi and c.636,000 (c.616,000 as at 31 December 2022) in Georgia. # Discussion of results, diagnostics (GEL thousands, Unaudited) | Income Statement highlights | FY23 | FY22 | Change | | --- | --- | --- | --- | | Revenue, net | 18,435 | 20,477 | -10.0% | | of which, from regular lab tests | 17,250 | 14,477 | 24.2% | | of which, from COVID-19 tests | 525 | 6,050 | -91.3% | | Gross profit | 4,690 | 4,632 | 1.3% | | Gross profit margin | 25.4% | 22.6% | 2.8 ppts | | Operating expenses (ex. IFRS 16) | (3,500) | (3,364) | -11.7% | | EBITDA (ex. IFRS 16) | 1,190 | 668 | 78.1% | | EBITDA margin (ex. IFRS 16) | 6.5% | 3.3% | 3.2 ppts | | Net loss (ex. IFRS 16) | (1,172) | (652) | -79.8% | # Income Statement highlights - As part of the post-COVID transition, the business has been actively broadening its client base and diversifying its range of non-COVID services. This translated into a 24.2% y-o-y increase in revenues from regular lab tests in FY23. - Overall, the 10.0% y-o-y decrease in the net revenue of the diagnostics business in FY23 was driven by the suspension of Government contracts for COVID testing in March 2022 as infections slowed and became less severe. After having been the revenue driver in 2021 and the first quarter of 2022, revenues from COVID testing decreased dramatically and were down 91.3% y-o-y in FY23. - In FY23 gross profit was up 1.3% with 25.4% gross profit margin (up 2.8 ppts y-o-y), while in the same period, the EBITDA was up 78.1% with 6.5% EBITDA margin (up 3.2 ppts y-o-y), the latter reflecting a reduction in the operating expenses. # Other valuation drivers and operating highlights - The key operating performance highlights for FY23 are noted below: | (Unaudited) | FY23 | FY22 | Change | | --- | --- | --- | --- | | Number of non-COVID tests performed (thousands) | 2,449 | 2,174 | 12.7% | | Average revenue per non-COVID test (GEL) | 7.3 | 6.5 | 10.2% | 1 The respective costs divided by gross revenues. # Discussion of other portfolio results The four businesses in our "other" private portfolio are auto service, beverages, hotels, and GEL 284.3 million at 31 December 2023, which represented 7.7% of our total portfolio. # FY23 aggregated performance highlights (GEL thousands), other portfolio results (Unaudited) Revenue EBITDA Net cash flows used in operating activities - Auto service - The auto service business includes a car services and parts business. - Car services and parts business - In FY23, revenue was up by 25.7% y-o-y and wholesale segments. Similarly, the gross profit was up by 37.4% y-o-y in FY23, reflecting the business growth. As a result, the business was down by 4.5% y-o-y in FY23, reflecting the business growth. As a result, the business was down by 4.5% y-o-y in FY23, reflecting the business growth. As a result, the business was down by 4.5% y-o-y in FY23, reflecting the business growth. As a result, the business was down by 4.5% y-o-y in FY23, reflecting the business growth. - Beverages - The beverages business combines three business lines: a beer business. - Beer business - The gross revenue of the beer business increased by 18.4% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1. - Distribution business - Revenue of the distribution business increased by 4.2% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1. - Wine business - The net revenue of the wine business was up by 22.8% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1. - Real estate businesses - The combined revenue of the real estate business was up by 4.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1.1% by 1. 118 # DIRECTORS' GOVERNANCE STATEMENT Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results ![img-18.jpeg](img-18.jpeg) Irakli Glauri Chairman and Chief Executive Officer ![img-19.jpeg](img-19.jpeg) David Morrison Senior Independent Non-Executive Director ## Dear Shareholders We present this year's Governance Statement following a year of changes from a corporate governance perspective, with the main update being the transfer of the Company's listing from the Premium Listing segment to the Standard Listing segment of the London Stock Exchange ("LSE"). The Board reduced in size from seven to five Directors, with both Kim Beatty and Jyrki Talville choosing not to stand for re-election at the 2020 AOM. On behalf of the Board, we would like to thank Kim and Jyrki for their invaluable contribution since the demerger in 2018. As we stated in the Circular to shareholders proposing the transfer to the Standard Listing segment, the Board reaffirms its commitment to the highest standards of corporate governance. The Board does not intend for there to be any material reduction in the standards of reporting and corporate governance which GCAF maintained as a Premium-listed company. The Company continues to voluntarily comply with: - the UK Corporate Governance Code (except for the combined Chairman and CEO structure); - the provisions of the Listing Rules relating to pre-emption rights; and - the requirements of Listing Rule 11 relating to related party transactions. The provisions of the Takeover Code will also continue to apply to GCAF. The transfer of GCAF to the Standard Listing segment, which was approved by 99.8% of voting shareholders, will assist the Company in achieving its strategic goals and producing greater value for shareholders. In particular, the Company is not required to comply with the super-equivalent provisions of the Listing Rules that apply to companies with securities admitted to the Premium Listing segment. The Board considers that certain of these super-equivalent provisions imposed obligations on the Company that affected its ability to efficiently pursue its strategy. The reduction in the size of the Board has enabled us to absorb the Investment Committee and the responsibilities of that committee into matters reserved for the Board. All Directors continue to engage directly with our portfolio companies in much the same way as they did as members of the Investment Committee. The Board continues to develop its approach to ESG following the implementation of the Responsible Investment Policy. Further information is included in the Resources and Responsibilities section on page 80. Details of our ESG activities are set out in our Sustainability Report. The Board remains committed to the view that good ESG processes are fundamental to the Company's success. As mentioned previously, the Board voluntarily continues to apply the UK Corporate Governance Code (2018 ("the Code") in its entirety, except for the combined roles of Chairman and CEO. This has consistently been approved by shareholders, and the Nomination Committee and the Board continue to monitor the appropriateness of this structure as discussed below and in the Report of the Nomination Committee on pages 158 to 161, which shareholders are encouraged to read for further context. ### Irakli Glauri Chairman and Chief Executive Officer 21 March 2024 ### David Morrison Senior Independent Non-Executive Director 21 March 2024 ## Statement of Compliance with the UK Corporate Governance Code The Board continues to commit to high standards of corporate governance that enhance performance, reduce risks and promote the protection of our shareholders' interests. The Board has owned responsibility for governance and is accountable to its shareholders. This Governance Report describes how the Board has applied the Main Principles and complied with the relevant provisions of the Code during 2020. The Code is publicly available on the website of the Financial Reporting Council ("FRIC") at www.fric.org.uk. We also continue to monitor our governance framework and underlying governance structures to ensure that they meet the needs of the business. In addition to an annual review of these structures, the Board carefully considered the governance framework as part of the process of transferring to the Standard Listing segment of the LSE. Throughout 2020, the Board considers that the Company has compiled in full with the provisions of the Code with the exception of provision A, which states that the roles of Chair and Chief Executive should not be exercised by the same individual. The Company's Chairman, Irakli Glauri, also serves as the Company's Chief Executive Officer and is not considered by the Board to be independent. We will not believe why we regard the joint Chairman and Chief Executive Officer position to be appropriate for our Company and we also explain some of the measures necessary but in place to ensure that no one individual is able to dominate the Board's decision-making. For more information on CEO succession planning, please see the Nomination Committee report on pages 158 to 161. This statement, and the reports from the Board Committees, are out how we applied the Main Principles of the Code. The Directors' Report also contains information required to be disclosed under the Financial Conduct Authority ("FCA") Listing Rules (UK and Disclosure Guidance and Transparency Rules (574)). To the extent necessary, certain information is incorporated into this Governance Report by reference. ## Combined Chairman and CEO role We acknowledge that our decision for the roles of Chairman and CEO to be exercised by one individual is not compliant with provision 9 of the Code. This matter continues to be reviewed by the Nomination Committee and the Board at least annually as part of the Board effectiveness evaluation exercise and, as referred to above, was considered in some detail by the Board as part of the process relating to the transfer of the Company to the Standard Listing segment. On page 121 you will find the results of the Board evaluation conducted since the last Annual Report was published, which inherently considers how the current structure of the combined Chairman/CEO role contributes to the effectiveness of the operation of the Board and more widely to the Company. The Board continues to believe that, at present, this structure best serves the Company and its stakeholders. The basis for this conclusion is summarised below. First and foremost Georgia Capital is a holding company focused on investing in and developing businesses, with the result that we hold and operate a highly diversified group of companies. - Our central Group management structure is quite small, with around 45 employees in the head office. It is principally at the level of the central management team at which the Board provides challenge, most importantly, on investment/disseminent decisions. - The businesses of our more than ten portfolio companies are highly diverse. Each has its own CEO and must have an unusually strong measure of operational independence. - In these circumstances, at the small central office an independent chair would be a bureaucratic overlay; and at the level of the portfolio companies he or she would struggle to add value. The position would also come with an additional cost that given these circumstances and the additional considerations below the Board considers to be unwarranted. The Board is highly experienced and almost entirely independent. - All Board members other than the Chairman and CEO are Independent Non-Executive Directors. Each Non-Executive Director approaches the Company with true independence. Most of our decisions at the Board level and at the Nomination Committee join which the CEO still level are typically reached through consensus – meaning that ultimately all the Independent Directors and the Chairman and CEO agree on a final position. But ultimately it is a majority decision: the Chairman and CEO does not have a who and is outnumbered four to one by Independent Non-Executive Directors. - The Independent Non-Executive Directors are experienced businesspeople of particular high quality for a FTSE Small/MidCap company and we would invite shareholders to consider their biographies and note the degree of real expertise and experience they bring to the Board. They have a diverse range of backgrounds and nationalities, and each brings a fresh view and particular expertise to Board discussions. The Senior Independent Non-Executive Director, a former partner at a major LSI law firm, is highly experienced in the region and is the governance lead for the Board and the Non-Executive Directors. He also chairs the Audit and Valuation Committee. Previous roles for the other Non-Executive Directors (as detailed in the biographies later in this section) include – investment officer at a major investment fund; – experienced non-executive director of Georgian groups listed on the LSE; and – extensive management consulting and private equity experience. All the Non-Executive Directors engage directly with the team outside of the boardroom. - The Non-Executive Directors engage directly with senior management and the workforce in Georgia (central team), ensuring unfiltered channels of access. This typically occurs around the Board meetings and often includes informal contacts in various settings. While the Directors delegate regular monitoring of our portfolio companies and ongoing strategic advice to the Group Chairman and CEO and his central team, the entire Board scrutinises, challenges and ultimately approves or disapproves investment and divestment 120 pre ex of Ex par CE Du the pre par The D • The NA co Ch Given in it, t CEO c to tha major Comp with c appro to she share which BOARD OF DIRECTORS Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Cover George Capital PLC Annual Report 2008 ![img-20.jpeg](img-20.jpeg) ![img-21.jpeg](img-21.jpeg) ![img-22.jpeg](img-22.jpeg) # Chairman and Chief Executive Officer Isok Gilaur was appointed as Chairman and CEO on 24 February 2016. He also serves as a member of the Nomination Committee. He sits on the Supervisory Board of JSC George Capital. # Skills and experience: Isok Gilaur formerly served as the CEO of BOED Group from 2011 to May 2016. He joined as CFO of Bank of Georgia in 2004 and was appointed as Chairman of the Bank in September 2015, having previously served as CEO of the Bank since May 2006. Prior, he was an BBRD banker. Mr Gilaur has more than 20 years of experience in banking, investment and finance. He also served from 1976 as a Director of Georgia Healthcare Group PLC (which debited in 2020). Mr Gilaur is also Non-Executive Director and Chairman of the Audit Committee of Condition Acquisition Corp I, LTD (BRAC). # Education: Mr Gilaur received his undergraduate degree in Business Studies, Economics and Finance from the University of Limerick, Ireland, in 1998. He was later awarded the Chevening Scholarship, granted by the British Council, to study at the Case Business School of City University, London, where he obtained his MBA in Banking and International Finance. Mr Gilaur holds a Certificate in Winemaking from the University of California, Davis. # Reasons for appointment: Isok Gilaur brings significant insight of local and international strategic and commercial issues to the Board and has a distinguished career in corporate banking. Over the last decade, Mr Gilaur's leadership has been instrumental in creating major players in a number of Georgian industries, including banking, healthcare, utilities and energy, real estate, insurance and beverages. Mr Gilaur's local expertise and business experience, in working previously with both Georgia Healthcare Group PLC and BOED Group PLC, alongside his strong understanding of the Georgian political, economic and cultural context, is invaluable to the Board. # Senior Independent Non-Executive Director David Morrison was appointed as the Senior Independent Non-Executive Director of the Company on 29 February 2016. He also serves as the Chairman of the Company's Audit and Valuation Committee and as a member of the Remuneration Committee. He sits on the Supervisory Board of JSC George Capital. # Skills and experience: Mr Morrison spent most of his career (20 years) at Sullivan & Grynwald LLP where he served as Managing Partner of the British Continental European offices. His practice focused on advising public companies in a transactional context, including capital savings, IPOs, and mergers and acquisitions. The author of several publications on securities law-related topics. Mr Morrison was recognised as a leader of the profession in Germany and France. Since withdrawing from his law firm in 2008, Mr Morrison has focused on his roles as a non-executive director on corporate boards and his charitable work. Mr Morrison previously served as the Senior Independent Non-Executive Director of both BOED Group PLC (from October 2011 until May 2018) and Georgia Healthcare Group PLC (from September 2015 until then debiting in August 2020) and served as Chairman of the Audit Committee (amongst other Committee roles for both companies in his charitable work). Mr Morrison has focused on conservation finance. In 2008 he became the Founding CEO of the Caucasus Nature Fund ("CNF"), a charitable trust dedicated to wilderness protection in Georgia, America and Azerbaijan. He now sits as Chair of CNFs supervisory board, and serves on the board of or as an advisor to three other conservation trusts he helped to create. A principal focus of his role for all the of these members is the investment of a portfolio of over US$ 500 million in endowment capital. Mr Morrison also served as Georgetown Environmental Ombudsman in 2019 and 2020. # Education: Mr Morrison received his undergraduate degree from Yale College and his law degree from the University of California, Los Angeles. He was also a Rutlegist scholar at the University of Stanford. # Reasons for appointment: With his training and as a corporate finance and securities lawyer advising student of clients, including a large number of publicly held companies, David Morrison brings to the Board vast experience in corporate governance and compliance as well as a strong understanding of legal and regulatory issues. His work since 2008 has given him extensive regional experience, which includes in-depth knowledge of ESG matters in Georgia. As an experienced chairman of audit committees of Premium listed companies, Mr Morrison has significant direct experience of ensuring integrity in financial reporting and adequate risk management and internal control procedures. This has been enhanced by his primary responsibility as CEO or CFO of the four conservation trusts with which he is involved, where he was responsible for developing the accounting and controlling systems and being the principal management counterparty for the external auditors. With its significant focus on financial disclosure and reporting, his career has prepared him well for his Audit and Valuation Committee duties. ![img-23.jpeg](img-23.jpeg) ![img-24.jpeg](img-24.jpeg) # Independent Non-Executive Director Neil Janin was appointed as an Independent Non-Executive Director of the Company on 17 October 2022. He also serves as the Chairman of the Company's Nomination and Remuneration Committees and sits on the Supervisory Board of JSC George Capital. # Skills and experience: Mr Janin has extensive experience as a non-executive director of Georgian groups that are listed on the Premium Listing segment of the LSE. He was Chair and Non-Executive Director of BOED Group PLC from October 2011 until 21 May 2018 and of Bank of Georgia Group PLC from February 2018 until March 2022, and he served as Non-Executive Director of Georgia Capital PLC's (then listed) subsidiary Georgia Healthcare Group PLC from September 2016 until April 2018. He serves as counsel for CEOs of both for-profit and non-profit organisations and continues to provide consulting services to McKinsey & Company. Mr Janin was a Director of McKinsey & Company based in its Paris office, for over 27 years, from 1982 until his retirement. At McKinsey & Company, he conducted engagements in the retail, asset management and corporate banking sectors, and was actively involved in every aspect of organisational practice, including design, leadership, governance, performance enhancement and transformation. Before joining McKinsey & Company, Mr Janin worked for Chase Manhattan Bank (now J.P. Morgan Chase) in New York and Paris, and Procter & Gamble in Toronto. Mr Janin has practiced in Europe, Asia and North America. He is also a Director of Neil Janin Limited, a company through which he provides the ongoing consulting services. # Education: Mr Janin holds an MBA from York University, Toronto, and a joint honours degree in Economics and Accounting from McGill University, Montreal. # Reasons for appointment: Neil Janin has extensive experience of serving as a non-executive director of Georgian groups that are also listed on the LSE. He career spans Europe, Asia and North America, across the retail, asset management and corporate banking industries, and all areas of organisational practice, including governance, culture, design, leadership, performance enhancement, change and transformation. Mr Janin brings his considerable insight of international strategic and commercial practices, in addition to significant experience of governance and the Georgian investment climate, to the Group's future development. # Independent Non-Executive Director Massimo Gesual 'ave Salvador was an Independent Non-Executive Director on 24 February 2016. He also served as the Audit and Valuation and Nominations and is a member of the Supervisory Board of JSC George Capital. # Skills and experience: Dr Gesual 'ave Salvador is an analytical banking and other financial doctor of the works for Lancaster Asset Management based hedge fund, which he joined as responsible for generating investment and understanding investments. Dr Gesual worked as a management consultant of the of McKinsey & Company, held in 2011, specializing in financial services and clients across different geographies and emerging markets as part of the strategy practice. # Education: Dr Gesual 'ave Salvador, a native of the of M.Phil. and a Ph.D from Oxford University he attended St. Antony's College. He is B.Sc in Economics from Warwick, attended the United World College of the Duns. His postgraduate studies was a kind of solidarity to the Foreign and Civil Office, the Economic Research Council, a Fundacore Einaudi and the Erte Einaudi. # Reasons for appointment: Massimo Gesual 'ave Salvador's business investment and his experience as a non-executive and financial marketer, strategic valuation techniques (single contract) and makes him an important asset in the Nomination and Audit and Valuation of which he is a member. His extensive valuations and value drivers are part of the Audit and Valuation Committee (a portfolio corporate valuation to the Group in Georgia Capital's financial account). He background as a management consultant in Board discussions. 122 # CORPORATE GOVERNANCE FRAMEWORK Our Governance structure ![img-25.jpeg](img-25.jpeg) Our governance structure Board size, composition and independence The Board is comprised of five Directors, four of whom are Independent Non-Executive Directors, and one executive Chairman – Isaki Gikuni, who also acts as the Company CEO. The responsibilities of the Board are set out on page 125. Director biographies can also be found here https://georgiacapital.ge/governance/board. The Board of Directors considers the five-member Board well-suited to carrying out its duties of overseeing the Company's continuing obligations and leading the Company's success in an optimal and cost-effective way. The Board is satisfied that the reduction in the number of Directors, as reported elsewhere in this Annual Report, does not impact appropriate standards of reporting and the quality of GCAP's corporate governance. Both the Audit and Valuation and Remuneration Committees continue to have three Independent Non-Executive Directors who have the requisite level and breadth of expertise. The Nomination Committee comprises two Independent Non-Executive Directors (one of which is the Committee Chair) and Mr Gikuni. As reported earlier, the Investment Committee was disbanded during the year, and its responsibilities were passed back to the Board. Following the external evaluation of the Board's effectiveness undertaken by Amanda Liki Limited ("Amanda") in 2022, Amanda was engaged to conduct further work with the Board in 2023. Details of this can be found in the report of the Nomination Committee on page 156. The Board continues to be of the view that a diversity of skills, backgrounds, knowledge, experience, geographic location, nationalities, age and gender is important to effectively govern the business. The Board and its Nomination Committee work to ensure that the Board continues to have the right balance of skills, experience, independence and knowledge necessary to discharge its responsibilities in accordance with the highest standards of governance. Board appointments are made based on recommendations received from the Nomination Committee. In making these appointments, the Nomination Committee ensures that appointments and succession plans are made based on merit as well as other objective criteria, whilst ensuring the Board maintains the right balance of skills and knowledge needed to address its specific needs. Due consideration is also given to diversity in the wider sense, and the benefits that stem from having a diverse Board. Each of our Non-Executive Directors occupies, and/or has previously occupied, senior positions in a broad range of relevant associated industries, bringing valuable external perspective to the Board's deliberations through their experience and insight from other sectors enabling them to contribute significantly to decision making. Some of these skills include: - Banking, investment and finance sector experience. - Leadership knowledge. - Understanding of local and international strategic and commercial issues. - Investor market knowledge. - Experience of stakeholder engagement. - Understanding of governance practices and regulatory framework. - Familiarity with Georgian political, economic and cultural context. - Experience of investment execution, exit strategies and private equity. The relationship between Directors ensures that no individual, or group of individuals, is able to dominate the decision-making process, independence of thought is maintained, and no undue reliance is placed on any individual. At the time of this report, we have assessed the independence of each of the Non-Executive Directors and are of the opinion that each act in an independent and objective manner. We consider that, in line with the Code, all of our Non-Executive Directors are independent and free from any relationship that could impair their judgement. Our governance structure We understand our responsibility to shareholders and stakeholders. We are dedicated to delivering shareholder value over the long term and promoting the success of the Company for the benefit of all shareholders through the management of the Group's business. The Board is focused on shareholder returns and on opportunities which meet its investment return and growth criteria. The Georgia Capital Board is assisted in fulfilling its responsibilities by three Committees: Audit and Valuation, Remuneration, and Nomination. The Terms of Reference are reviewed annually, approved by each Committee and the Board, and can be found at: https://georgiacapital.ge/governance/cgf/terms. Following the Company's transfer to the LSE Standard Listing segment, the Investment Committee was integrated into the full Board following the 2023 AOM, and its responsibilities merged into those of the Board. The membership of each of the other Committees was also considered by the Nomination Committee, following which Neil Janin became Chair of the Nomination and Remuneration Committees. Massimo Gesusi (see Salvadori joined the Nomination Committee and Maria Chatti Gauder elapsed down as a member of that Committee and joined the Audit and Valuation Committee. David Morrison became a member of the Remuneration Committee. Furthermore, Maria Chatti Gauder was designated as the Non-Executive Director responsible for engagement with the workforce. For further information about the Committees, including membership, see the Audit and Valuation Committee report on page 133, the Remuneration Committee report on page 139 and the Nomination Committee report on page 158. The Board is responsible to shareholders for creating and delivering shareholder value over the long term through the oversight of the Group's operations. Our responsibilities include setting and overseeing the execution of the Group's strategy within a framework of effective risk management and internal controls, demonstrating ethical leadership and upholding best practice corporate governance. All decisions are made through Directors exercising independent objective judgement, and following open and rigorous challenge. While our ultimate focus is long-term growth, the Company also needs to deliver on short-term objectives, and we seek to ensure that management strikes the right balance between the two. Each Director also recognises their statutory duty to consider and represent the Company's various stakeholders in its deliberations and decision-making. You can read more about how Directors had regard to their duties under section 172 (1) of the Companies Act 2006 and how Directors performed these duties on page 62 of the Strategic Report. Matters reserved for the Board In order to ensure that we meet our responsibilities, specific key decisions have been reserved for approval by the Board. The Board conducts an annual review of these matters; amendments were made during the year to accommodate the disbandment of the Investment Committee and the Board's evolving focus on sustainability. The key matters reserved to the Board are: - The Group's long-term objectives and strategy. - Stakeholder engagement and general meetings. - Overall corporate governance arrangements including Board and Committee composition, Committee Terms of Reference, Directors' independence and conflicts of interest. - Internal controls, governance and risk management frameworks. - Changes to the corporate or capital structure of the Company. - Annual Report and Accounts, and financial and regulatory announcements. - Significant changes in accounting policies or practices. - Annual budgets and financial expenditure. - Oversight of risk management and performance, and of environmental and social risks. - Allocation of capital, including dividends and boursies, significant investments and divestments, consideration of material environmental and social issues in respect of potential investments. 124 A full Board https://www.legacapital.ge/governance/board. In October the Board's investment primary that the environment the investment believe these Outside to-day aspect government Open We make that means the ap The Chairman ahead have Sanic in his when of the Non-Executive Chair # CORPORATE GOVERNANCE FRAMEWORK CONTINUED ## Board activities during 2023 Details of the areas that the Board considered this year are set out below and comprise: | **Strategy** | - Ongoing consideration and monitoring of the Company's progress in meeting its strategic goals including transitioning to a capital-light investment business. - Transferring the Company's listing on the LSE to the Standard Listing segment. - Delivering the Group – issuance of a US$ 150 million SLB and reduction of the gross debt balance from US$ 300 million to US$ 150 million. - Approved capital allocations to and discussed the capital allocation outlook for portfolio companies. - Reviewed Group and portfolio company performance against strategy. - Regularly reviewed the Georgian, regional and global political and economic climate, particularly in light of the ongoing war between Russia and Ukraine. - Continued with share buyback and cancellation programmes totalling US$ 25 million (US$ 10 million buyback programme announced in April 2023 and US$ 15 million programme announced in October 2023). - Reviewed the ESG matters, TCFD reporting and ESG target-setting implementation processes. | | --- | --- | | **Governance, assurance and risk management** | - Focused on high-level governance issues and developments that may affect the Company strategy. - Received reports from different Committees. - Reviewed Board and governance structure following the transfer of the Company to the Standard Listing segment of the LSE. - Conducted an externally facilitated Board evaluation looking at Board effectiveness and process. - Considered the proxy voting agency approaches and the impact on the Company. - Reviewed and approved governance documents, including the schedule of matters reserved for the Board, Terms of Reference for the Audit and Valuation Committee, Remuneration Committee and Nomination Committee and Group-level policies. - Embedded ESG considerations into the governance framework. | | **Financial reporting** | - Received reports on the financial performance of the Group. - On the recommendation of the Audit and Valuation Committee, reviewed and approved financial reporting including approval of accounts, Notice of AGM, half-year and full-year announcements, and trading updates to the market. | | **ESG** | - See separate Sustainability Report. - External training on ESG. | | **Succession** | - Board and Committee succession planning. - CEO succession plan. | | **Stakeholders** | - Considered and implemented s172 duties: - Re-confirmed identity of key stakeholder groups. - Considered how Board decisions impact the interests and priorities of each group. - Actively engaged with different stakeholders. | | **Investment matters** | - Reviewed investment and exit strategy. | | **Standing items** | Each quarter the following topics are usually discussed in the Board meeting: - Financial update (with formal financial results announcements and trading updates to the market typically being approved in separate phone meetings). - Monitoring of financial performance against budget. - Macroeconomic developments, including a focus on both the Georgian and regional markets. - An assessment of current and potential future risks to the Company. - Regulatory and legislative updates, including corporate governance as appropriate. - Updates from the Committee meetings, typically including at least an Audit and Valuation Committee report on accounting issues and valuations and Internal Audit. - Business updates from selected portfolio companies. The Board reviews the capital allocation pipeline and takes action as necessary on new investments or divestments. | ## Board and Committee meeting attendance Details of Board and Committee meeting attendance in 2023 are as follows: | Members | Date | | --- | --- | | Irakli Gilauri | 4/4 Schedule 5/6 Ad | | David Morrison | 4/4 Schedule 5/6 Ad | | Kim Bradley | 3/3 Schedule 2/2 Ad | | Massimo Gesual 'ave Salvadori | 4/4 Schedule 5/6 Ad | | Neil Janin | 4/4 Schedule 5/6 Ad | | Jyrki Talvitie | 3/3 Schedule 2/2 Ad | | Maria Chatti-Gautier | 4/4 Schedule 5/6 Ad | Note 1: The Investment Committee was disbanded at the conclusion of the AGM of the Company. Note 2: Kim Bradley and Jyrki Talvitie disposed down as members of the Board and its Committee. Note 3: Following the conclusion of the AGM of the Company held on 17 May 2023, Neil Janin, the Nomination Committee, Neil Janin (Chair) and David Morrison were appointed as members of the Board and Committee. For Board and Committee meetings, Directors' attendance is expressed as the number of meetings that were eligible to attend. ## Purpose, culture and values The Board has responsibility for the overall purpose, culture, and values of the Company, and their pursuit and development are at the core of each Board meeting. The Board believes that there are three features in particular that will allow the Company to capitalise on the fast-growing Georgian economy: access to capital, access to management and strong corporate governance. Our culture and values are designed to strengthen all of these. ## Purpose Georgia Capital's purpose is to provide investors with an opportunity to invest in the historically fast-growing Georgian economy by giving them access to attractive investments with long-term growth potential. The Company then seeks to develop these into viable independent businesses on which value can be realised through sale or otherwise. By investing in Georgia to create multiple strong private companies/institutions, we will foster Georgia's development and help it succeed. ## Culture The Board continued to focus on developing, monitoring and assessing corporate culture and thinking about the ways in which our culture might serve as a long-term differentiator, both in terms of strategy and of recruitment and retention. We are proud of the culture that we built at Georgia Capital and recognise it is important to clearly articulate this culture, drive it and ensure that it permeates the entire business. Helping Georgia to succeed is at the heart of Georgia Capital. During the year the Board looked closely at our mission, vision and values and how we could reinforce through shaping the Company's long-term strategy. The Board is of the view that this will benefit all of the Company's stakeholders. In order to create strong private business institutions, we will continue with our plan to develop our leaders so that they become future entrepreneurs of Georgia, through personal and professional development. The Chairman and CEO met regularly with key management personnel at Georgia Capital to share this vision and coordinate the Group's actions and priorities. The Chairman and CEO and G ## Value **Being** Our c We we We we Great 126 # CORPORATE GOVERNANCE FRAMEWORK CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview # The process for evaluating the Chairman's performance: In light of the role as Chairman and CEO, Isiah Gilson's performance was evaluated. In addition, the full Board met to consider the Remuneration Committees's recommendations and Mr Gilson's performance as Board Chairman. David Morrison as the Senior Independent Non-Executive Director led the overall review. The CEO was not present during the full Board's discussions around his own performance. The Board also reached consensus on his performance as Chairman as reflected in the favourable Board self-evaluation and the decision to recommend the maintenance of the current combined role of Chairman/CEO as discussed above. # The Board's objectives for 2024 are: - monitoring the implementation of the updated strategy and continuing to adjust as necessary, with particular focus on capital allocation and divestments; - addressing the uncertainties created by the Russia-Ukraine war as regional tensions continue; - keeping ESG at the forefront of our decision-making, and monitoring and enhancing Key Performance Indicators relating to climate change risks and opportunities; - maintaining focus on succession planning; - monitoring and assessing culture and how this aligns with our purpose, values and strategy; and - ensuring continued active shareholder and stakeholder engagement. # Succession planning # Board appointments and senior management We continue to believe that effective succession planning mitigates the risks associated with the departure or absence of well-qualified and experienced individuals. Our aim is to ensure that the Board and management are always well resourced with the right people in terms of skills and experience, in order to effectively and successfully deliver our strategy. We also recognise that continued tenure brings a depth of Company-specific knowledge that is important to retain. The Board's Nomination Committee is responsible for both Director and senior management succession planning. There is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board, including a review of other significant commitments Directors may have and, typically, a period of service in a Board advisory role. More detail on the role and performance of the Nomination Committee is on pages 158 to 161. # Non-Executive Directors' terms of appointment On appointment, our Non-Executive Directors are provided with a letter, which sets out the terms and conditions of their directorship, including the fees payable and the expected time commitment. Each Non-Executive Director is expected to commit approximately 25-30 days per year to the role. An additional time commitment is required to fulfil their roles as Board Committee members and/or Board Committee Chairs, as applicable. Having reviewed all Directors' current time commitments, we are confident that all Non-Executive Directors are sufficiently able to dedicate the amount of time necessary to contribute effectively to the Board. The letters of appointment for our Non-Executive Directors are available for inspection at our Company's registered office address during normal business hours. Prior to accepting any external appointments, Directors are required to seek the Board's approval. The Board believes that the other external directorships/positions held provide the Directors with valuable expertise, which enhances their ability to act as a Non-Executive Director of the Company. Despite our Non-Executive Directors holding external directorships and other external positions, the Board believes they still have sufficient time to devote to their duties as a Director of the Company. In order to form a view of this, we conduct an annual review of individual Director's conflicts, which is recorded in the Conflicts of Interest Register, and as part of the review we consider other appointments held by each Director. # Stakeholder engagement The Code reinforces and expands the requirements of the UK Companies Act for directors to remain mindful of their duties to consider the interests of key stakeholders. The Board understands the importance of effective engagement with stakeholders to gain an understanding of the issues that relate to each stakeholder and those that impact the Company so that the Board can appropriately consider these views and their concerns when having Board discussions, when considering the long-term success of the Company. The Board has structured its meeting agendas to take account of each of the provisions in a 172 of the Companies Act 2006, and focused on long-term value generation opportunities, considering political and macroeconomic circumstances and stakeholder considerations. Shareholders' considerations are sought out and incorporated into our discussions and decisions. For example, members of the Board and management participated in more than 500 online and physical investor meetings. The Company was able to organise several investor roadshows this year. In 2023 to early 2024, the Company also wrote a new Stakeholder Engagement Plan, which describes, informs and guides the stakeholder engagement process of the Group. The Plan seeks to define a technically and culturally appropriate approach to consultation and disclosure. The goals are to ensure that adequate and timely information is provided to stakeholders, that these groups are given sufficient opportunity to voice their opinions and concerns, and that these concerns influence the Group and its various decision-making processes. The table on pages 129 to 130 sets out our key relationships with stakeholders and how we have engaged with them over the financial year. The table also shows examples of how we have considered our stakeholders when making key decisions and how this has influenced certain decisions. More information about how the Directors have discharged their duty under a 172 of the Companies Act 2006 is available in the Strategic Report, on pages 62 to 64. Key stakeholders Activities undertaken throughout year # Investors # Types of engagement: - Meetings with the Chairman and CEO - Meetings and calls with the Advisor to the CEO - Investor Relations team - LSE announcements - Investor Day - Investor roadshows - Corporate website with investor section - AGM and General Meeting - Quarterly results - Senior Independent Non-Executive Director as an intermediary - Meeting with Committee Chairs and other Non-Executive Directors - Annual Report - Sustainability Report # How the Board engages with investors: We will engage with shareholders through the Company's forthcoming AGM to be held in May 2024 but will also continue to communicate with shareholders on important developments throughout the year. Our quarterly results are supported by a combination of presentations and conference call briefings, as was the announcement of our annual result in February 2024. The Company has established a comprehensive shareholder engagement programme and encourages an open and transparent dialogue with existing and potential shareholders. For example, our UK General Counsel and our Company Secretary also have an ongoing dialogue with shareholder advisory groups and proxy voting agendas. The Company was able to organise several investor roadshow visits this year. 128 # CORPORATE GOVERNANCE FRAMEWORK CONTINUED | Strategic Review | Strategic Review | Strategic Review | | --- | --- | --- | | **Overview** | **Our Business** | **Discussion of Results** | Cover | **Employees** | **Types of engagement:** - Nominated Non-Executive Director - Regular town halls - Off-site and on-site meetings - Feedback systems, e.g. employee satisfaction surveys at our businesses**How the Board engages with employees:** The Board is encouraged to engage with employees outside of formal channels. Workforce engagement includes both formal and informal meetings, not only with the central staff but also, when important strategic or capital allocation questions arise in the portfolio companies, with the management of those companies. We believe that communicating with our employees is vital and we provide information in a number of ways, including via managers, presentations, email, intranet and regular off-site meetings. We communicate information about our corporate culture, the Company's strategy and performance, risks relating to its performance, such as financial and economic factors, and our policies and procedures. The Board has oversight of whistleblowing and routinely receives reports arising from its operation. | - Employee surveys are conducted across the portfolio companies, and this year we conducted an employee survey at the holding company level. Since the survey actions have been taken on some of the most important issues raised by employees. - Management has been instructed to ensure that proposals to the Board are made in line with stakeholders' interests. - The Nomination Committee continues to look at succession planning and are conscious of ensuring a diverse pipeline for the future. - Please refer to the Resources and Responsibilities section on page 80 of this report and the Sustainability Report for further details on workforce engagement activities carried out throughout the year, and the output of that engagement. | | --- | --- | --- | | **Water community and the environment** | **Types of engagement:** - Investments to support diversified economy - Engagement with local communities - Education - Corporate website - Volunteering**How the Board engages with employees:** The Group considers the interests of its main stakeholders when developing the strategy and the processes to improve its operations. Investing in local businesses helps us to diversify and modernise the Georgian economy, and this can be seen in the development of our different portfolio companies. Our hospitals and clinics and diagnostics businesses are driving the modernisation and improvement of healthcare in the country. Our renewable energy business is involved in infrastructure programmes and ongoing structural market reforms. Our auto service business contributes to overall diverse air and improved vehicle safety. The Company believes that educating young people is extremely important for the development of the community as a whole. Georgia Capital is investing in schools to give more learners access to high-quality education and facilities. As part of our sponsorship and charitable activities, the Group acts to conserve nature, promote and enhance access to education and supports people with disabilities and special needs. Our Senior Independent Non-Executive Director volunteers as Chairman of the CNF, a charitable foundation providing financial and technical support to Georgia's national parks. | - Board agendas from time to time consider governmental issues that influence the wider Georgian market, which can influence key investment decisions. - Investments are made in local businesses that will be beneficial to the Georgian economy. This is evidenced in the Company's Responsible Investment Policy. - Please refer to the Resources and Responsibilities section on page 80 of this report and the Sustainability Report for further details on community engagement activities carried out throughout the year, and the output of that engagement. | # Directors' responsibilities Statements explaining the responsibilities of the Directors for preparing the Annual Report and financial statements can be found on page 162 of this Annual Report. A further statement is provided confirming that the Board considers the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for stakeholders to assess the Company's position and performance, business model and strategy. # Division of responsibilities The Board has adopted written statements setting out the respective responsibilities of the Chairman. Senior Independent Non-Executive Director and Non-Executive Directors. Biographies for the Board members are set out on pages 122 and 123. A summary of the responsibilities of the Directors is set out below. # Chairman - Guardian of the Board's decision-making process. - Ensures the Board as a whole plays a full and constructive part in strategic decision-making. - Sets the Board agenda. - Ensures the Board receives accurate, timely and clear information. - Shapes the boardroom culture and sets clear expectations. - Ensures a formal and rigorous evaluation of the Board takes place each year. - Develops the Group's strategy and commercial objectives. - Leads communication with stakeholders. - As CEO, is responsible for the operational and strategic management of the Group and for running the Group's business. # Senior Independent Non-Executive Director - Provides a sounding board for the Chair and serves as a trusted intermediary for the other Directors. - Responsibility for an orderly succession process for the Chairman. - Available to Non-Executive Directors and shareholders if they have concerns which normal channels fail to resolve. - Meets with other Non-Executive Directors for an annual appraisal of the Chairman's performance. # Non-Executive Directors - Provide constructive challenge and specialist advice. - Provide strategic guidance. - Take into account the views of shareholders and other stakeholders. - Sourishes the performance of management. # Internal controls and risk management The Company has a comprehensive system of internal controls in place, designed to ensure that risks are mitigated and that the Company's objectives are attained. The Board is accountable for reviewing and approving the effectiveness of internal controls operated by the Company, including financial, operational and compliance controls, and risk management. The Board recognises its responsibility in respect of the Company's risk management process and system of internal control and oversees the activities of the Company's external auditors and the Group's risk management function (supported by the Audit and Valuation Committee), and accordingly the Board's reviews its internal controls and risk management framework on an annual basis (including once in the current year of reporting). A review of the Company's risk management approach is further discussed in the Strategic Report on pages 66 to 70. For details on the management and mitigation of each principal risk see pages 71 to 79. The Group's Viability Statement is detailed on pages 69 to 70. Please the As The Group pages **Board and** Board General a com of the indep matters training in the **Company** The B Company Limited **Re-e** At Dir share out in Direct **Workforce** As Go number of the engag share follow formal the po With a month the re In light determ The B comp we are GOAP and in Chatt employ coffe more between their concern moral next o In ab under Gaufe back part o Further conn Board 130 Georgia Capital PLC Annual Report 2024 CORPORATE GOVERNANCE FRAMEWORK CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview AUDIT AND VALUATION COMMITTEE REPORT These meetings are occasions for the Board to fast firsthand how well the Group's culture is being transmitted. Please refer to the Resources and Responsibilities section on page 80 of this report and the Sustainability Report for further details on workforce engagement activities carried out throughout the year, and the output of that engagement. Georgia Capital: As our people are our main asset, we invest significantly in engaging and motivating our staff. The Company has a small head office (0.45 people) and we encourage an open-door policy – staff can approach management at any time with any concern. In 2023, attendance at the office was voluntary. Distance and hybrid working environments facilitated staff engagement through online platforms. Regular meetings organised by the Chairman and CEO were held with senior and middle management. Messages from these meetings were cascaded down to all employees. At our regular Board and Committee meetings, interaction with a number of GCAF holding company personnel occurs naturally as part of the meeting where they present to the Board and/or participate in the discussion. The designated Non-Executive Director for workforce engagement, the Senior Independent Non-Executive Director and other Non-Executive Directors also "walk the halls" during their visits and engage informally with the team. # Annual General Meeting The Notice of Annual General Meeting is circulated to all shareholders at least 20 working days prior to such meeting. All shareholders are invited to attend the AGM, where there is an opportunity for individual shareholders to question the Chairman and the Chairs of the principal Board Committees. After the AGM, shareholders can talk informally with the Directors. As recommended by the Code, all resolutions proposed at the 2024 AGM will be voted on separately and the voting results will be announced to the LSE and made available on the Company's website as soon as practicable after the meeting. These will include all votes cast for and against and those withheld, together with all proxies lodged prior to the meeting. In the event that 20% or more of the votes are cast against a resolution, an explanation will be provided in the announcement to the LSE of the actions the Company will be taking to address shareholders' concerns. A follow-up announcement would then be made within six months of the AGM regarding feedback received from shareholders and the subsequent actions taken by the Company. See page 207 for further shareholder information and page 129 for further information on shareholder engagement. # Diversity Policy The Board and senior leadership's gender identity and ethnicity data presented in accordance with Listing Rule 14.3 can be found on page 160. For further information, please see the Company Diversity Policy, which incorporates the Board's Diversity Policy, at: https://georgiacapital.ge/governance/cgf/policies For a breakdown of the gender diversity figures for the Company, please refer to the Resources and Responsibilities section on page 84 of this report. ![img-26.jpeg](img-26.jpeg) # David Morrison Chairman of the Audit and Valuation Committee # COMMITMENT TO COMPREHENSIVE AND TRANSPARENT REPORTING | Committee membership | Meeting attendance* | | --- | --- | | David Morrison (Chairman) | 5/5 Scheduled 6/6 Ad hoc | | Maria Chatti-Gautier* | 2/2 Scheduled 3/3 Ad hoc | | Massimo Gesua* (sive Salvador) | 5/5 Scheduled 6/6 Ad hoc | Dear I am p ("the G During responsi effect and p proce One c in emp proce the 6 coran when invest mana value The C and a ("PwC and, t evtem audit recom audito This C lend in Comm verific the re the ap Throu mana portio contin Other incom the co Comp resite Kim B Chatt effect miniu cerate Davis Chair 21 Mar 1 The me 2 Mar 17 132 # AUDIT AND VALUATION COMMITTEE REPORT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Cover ## Introduction and key purposes and responsibilities This report outlines the functioning and activities of the Committee during the reporting period, including an overview of the key areas of activity and principal topics covered at each Committee meeting. The Committee's role is to recommend the financial statements to the Board and review the Group's financial reporting and accounting policies, including formal announcements and trading statements relating to the Company's financial performance, ensuring the integrity of the Company's published financial information, and reviewing the judgements made by management, along with the underlying assumptions and estimates on which they were based. In addition, the Committee oversees the role of the Internal Audit function (internal control environment), risk management and the relationship with the external auditor. The Committee also reviewed reports and held regular discussions regarding the ongoing viability of the Company and its liquidity status. The Committee continued to focus on the key issues relevant to the Group's financial reporting, and worked with management, and PwC, to review any changes required in response to the introduction of new accounting or regulatory guidance. On behalf of the Board, the Committee monitors the integrity of the valuation process. The Company is an investment entity as defined in IFRS 10 and, as a result, measures its investments in portfolio companies at fair value (through profit or loss) instead of consolidating them. The Chairman of the Committee reports to the Board on how it has discharged its responsibilities at a subsequent Board meeting and makes recommendations to the Board. Details of the Committee's roles and responsibilities are outlined in the Committee's Terms of Reference and can be found on the Company's website at https://georgiacapital.ge/governance/cgf/terms. ## Activities of the Committee in 2023 The table below summarizes the Committee's activity during 2023. | Area of focus | Core activities | | --- | --- | | **Financial reporting** | - Reviewed the appropriateness and disclosure of accounting policies and practices. - Reviewed the Annual Report and Accounts content and advised the Board on whether the Annual Report and Accounts was fair, balanced and understandable. - Reviewed the Company's annual and interim financial statements and quarterly accounts relating to the Company's financial performance, including the significant financial reporting policies and judgements contained in them and, in particular, the valuation of portfolio companies (see below). - Reviewed and recommended to the Board for its approval the Going Concern and Viability Statements. - Reviewed overall presentation of APMs, evaluated clarity of reconciliations and challenged the nature of adjusting items. - Reviewed the Company's Sustainability Report and TCFD disclosures and referred to the Board for approval. | | **Valuation** | - Ensured that the Valuation Policy is continuously and consistently applied and complies with IFRS 13, Fair Value Measurement, and with the obligations within any agreements in place, legislation, regulations, guidance and other policies of the Company. - Reviewed quarterly valuations of the Company's portfolio investments considering recent market developments and the future business plans of portfolio companies prepared and presented to it by management based in part on reports by an independent valuation firm. - Received updates and reports from the Group's IFRS technical accounting group and valuation workgroup. - Considered the extent of valuation disclosure in the Company's annual and interim reports. | | **Risk and control environment** | - Reviewed and assessed the effectiveness of the Company's internal controls and risk management processes. - Reviewed IFRS 10 requirements and ensured that the Company continues to meet the definition of investment entity. - Reviewed the results of risk identification and assessment work performed by management. - Reviewed the Board's approach to assessing the Company's long-term viability. - Reviewed reports from the external auditor where they have looked at internal controls as part of the annual audit process. - Reviewed the Company's principal risks and uncertainties statement included in the Annual Report and Accounts and supporting stress test scenarios. - Regularly monitored the internal and external environment to ensure that any new or emerging risk is identified in a timely manner and responded to appropriately. - Reviewed compliance with regulatory rules and monitoring findings. | ## Composition and operations of the Committee The Committee members – David Morrison (Chairman), Massimo Gasca' (see Salveaton, and Maria Chatti-Gaulier – see all Independent Non-Executive Directors. For the purposes of the Code and of DTR 7.1, the Board is satisfied that all members of the Committee have recent and relevant financial experience and the Committee as a whole has competence relevant to the sector in which the Company operates. Please refer to the detailed biographies of the Committee members on pages 122 to 123, which include their financial experience and reasons for appointment to the Board and the Committee. The meeting attendance of the Audit and Valuation Committee can be seen on page 127. The Company Secretary is Secretary to the Committee and attends all meetings. Meetings are also attended by the Chief Financial Officer, the Head of Technical Accounting and Valuation, the Head of Finance and the Head of Internal Audit. In addition, representatives of PwC, the Company's external auditor, are invited to attend several meetings of the Committee each year. On some occasions, invitations to attend are extended to other members of the Board and management where necessary, to provide a deeper level of insight into key issues and developments. The Committee also met with the external auditor, without management present, to allow discussion of any issues or concerns in greater detail. The external auditor confirmed it was satisfied with the communication between all the stakeholders. In addition, the Chair of the Committee has maintained regular dialogue with the lead partner of the external auditor during the period. | **Internal audit** | - Reviewed reports of internal audits, monitored action. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. | | --- | --- | | **External audit** | - Monitored the effectiveness and performance of the audit. - Oversaw the audit engagement, including the degree of internal audit. - Reviewed the annual audit plan including the approval of the audit. - Reviewed the audit results report, including the results of the audit. - Reviewed the audit results report, including the results of the audit. - Reviewed, approved and oversaw the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. - Reviewed, approved and oversaw the implementation of the audit. | | **Governance** | - Reviewed governance processes in place to oversee the audit. - Reviewed and approved the Committee's Terms of Reference. - Reviewed and recommended to the Board for approval the Annual Report and Accounts. - Reviewed and recommended to the Board for approval the Annual Report and Accounts. - Evaluated the effectiveness of the Committee. - Reviewed information and regulatory updates that could be made by the Board. - Reviewed information and regulatory updates that could be made by the Board. | | Significant accounting and financial judgement matters considered | How the Committee addressed the matter | | --- | --- | | **Portfolio company fair value estimation and disclosure** | Reviewed quarterly valuations of the Company's portfolio companies. The Company has challenged assumptions and judgements applied by management, including the quality of their scope of work. | | | The Committee considered and challenged whether management is responsible for the valuation Policy and used appropriate judgement. The Committee has a auditor the methods used to account for valuations. The Committee has a change and global macroeconomic trends in the valuation process. | | | Earnings and multiple assumptions: Earnings data, reviews, and estimates were presented at the Committee meetings. Subsequently, the Committee was prepared to proceed valuations. Any material adjustments were highlighted by management, including those that have been adjusted. | | | Assets valued using a DCF basis: For assets valued using a DCF basis, changes to these assumptions are reviewed by the Committee and are reviewed by the Committee and external advice is sought. The cash flow projections, terminal values and discount rates are reviewed by the WACC calculations and other public data. Any material changes are reported. | | | As a result, the Committee was satisfied with the appropriate assumptions and judgements applied in valuation. | | **Going concern and viability** | On an annual basis the Committee reviews and approves the Company's results. In the last year, the Board met the going concern basis for the preparation of the results. The Committee was based on the Group's three-year strategic plan, including the following: the Company's financial flow and dividends. The Committee considered management's performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability, taking into consideration the Company's financial performance and its long-term viability. | | **Investment entity status** | The Committee continued assessing the Company's company's operations. In making this assessment, the Committee considered each of the Company's operations. The Company's development during the year, and is satisfied that the Company's operations are completed in December 31 December 2023. | 134 # AUDIT AND VALUATION COMMITTEE REPORT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview ### Alternative performance measures (APMs) The Committee considers it important to take into account both the statutory measures and the APMs when reviewing the financial statements. In particular, items excluded from adjusted profit before tax were reviewed by the Committee. As part of that review, the Committee considered the prominence of APMs used by the Company in the reporting and challenged management where appropriate. The Committee is satisfied that the requirements of DTRs and the mandatory guidelines issued by the European Securities and Markets Authority on APMs were met and the reconciliation between the APMs and the IFRS and presentation of these items is clear, applied consistently across years and that the level of disclosure is appropriate. You can read more about APMs, including the applicable IFRS reconciliations, on pages 94-96 of the Annual Report and Accounts. ### Fair, balanced and understandable reporting Under the UK Corporate Governance Code, the Board should establish arrangements to ensure the Annual Report presents a fair, balanced and understandable assessment of the Group's position and prospects. It has asked the Committee to support it in coming to that conclusion. In making this assessment, the Committee: - satisfied itself that there was a robust process of review and challenge at different levels within the Group to ensure balance and consistency; - reviewed several drafts of the 2023 Annual Report and Accounts and directly reviewed the overall messages and tone of the Annual Report and Accounts with the Chairman and CEO, and the CFO; and - considered the reporting of the Group's performance, business model and strategy, the competitive landscape in which it operates, the significant risks it faces, the progress made against its strategic objectives and the progress made by, and changes in fair value of, its portfolio companies during the period, both from management and the external auditor. After consideration of all this information, we are satisfied that, when taken as a whole, the Annual Report and Accounts is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's performance, business model and strategy. ### Key activity highlights #### Financial reporting and valuation The valuation of investments remains the most material area of judgement in the financial statements and is a key audit risk for the Group. The principal responsibility of the Committee is to consider significant areas of complexity, judgement and estimation that have been applied in the preparation of the financial statements. The Committee assists in the formalisation and documentation of management's valuation judgements in line with the Group's accounting policies and industry valuation guidance from IPEV. This includes ensuring that the Annual Report and Accounts and half-year reporting, taken as a whole, are fair, balanced and understandable and comply with disclosure requirements as discussed in greater detail below. The Committee's responsibilities include monitoring the integrity of narrative and non-financial reporting, including sustainability and reporting on related significant issues (a concept that has gained greater emphasis in recent years due to additional ESG reporting through disclosure frameworks such as TCFD). During 2023, the Committee received detailed reports from the external auditor in respect of the main areas of audit focus and these were, in some instances, discussed without management present. In addition, regular reports were received from the CFO on the financials and internal controls and where appropriate. As the investment portfolio is comprised of private companies, the Committee and external auditors spent a significant amount of time reviewing and challenging management's valuations. The assessment of fair value is subjective and requires the consideration of significant and complex judgements to be made by management. In 2023, the Committee oversaw the independent valuations, performed by third-party valuation experts, establishing fair value ranges for all large and investment stage private portfolio companies. The appointment of third-party valuation experts increases the integrity of the process which includes consideration of how other market participants approach valuations for year-end reporting. The valuation methodology applied by the independent experts was reviewed in detail by the Committee, as well as key assumptions used and the most appropriate point in the established range was selected for each business. The Committee is responsible for the review and approval of the fair value of investments at the end of each reporting period proposed by Georgia Capital's Management Board. With the external auditors, the Committee reviewed in detail both (i) the auditors' assessment of the methodologies applied by the independent valuation company for the large and investment stage private portfolio companies and by management for 'other' assets, and (ii) the basis for their independent assessment of the valuations. The Group continued to apply its Valuation Policy consistently across investments at the year end and the Committee also ensured that the valuations reflected climate change, global and regional economic trends, as well as the future business plans of portfolio companies. Full details on our valuation policies and procedures which are overseen by the Committee can be found on page 89 (please see valuation workgroup and page 99 (please see valuation methodology). For the value drivers within the Group's portfolio in the year, please see pages 104-105. The Committee also considered whether the external valuation expert provides meaningful additional scrutiny and challenge to the valuation process. The Committee concluded that it was satisfied with the current level of scrutiny and challenge by the external valuation expert, this Committee, management and the external auditors. Management, under the supervision of the Committee, considers the suitability of the accounting policies which have been adopted, ensuring that key reporting estimates and judgements were appropriate, including the assessment of appropriateness of continuing the investment entity accounting, and ensuring that the external auditors were afforded timely and full access to relevant information. Using the Committee's own independent knowledge of the Company and its portfolio investments, but also considering the external auditor's assessment of risk, the Committee has, where necessary, challenged the actions, estimates and judgements of management in relation to the preparation of the financial statements. When considering financial reporting, the Committee assesses compliance with relevant accounting standards, regulations and governance codes. In particular, the Committee continues its robust review of going concern and viability assessments under a number of scenarios. ### Risk management and control environment The Committee assists the Board in fulfilling its responsibility to review the adequacy and effectiveness of the controls over reporting and risk. It reviews the effectiveness of the policies, procedures and systems in place related to operational risks, compliance, information technology (IT) and information systems (IS) and assesses the effectiveness of the risk management and internal control framework. Where areas for improvement are identified, the Committee ensures that there are the correct processes in place to effectively take action to address them. Key developments affecting our principal risks and associated mitigating actions are reviewed by the Committee. Further information on risk management and internal controls can be found on pages 68 to 70. Principal risks the Group faces are set out on pages 71 to 79. The Committee is supported by several sources of internal assurance within the Group to discharge its responsibilities. As part of the regular reporting from the Chief Financial Officer and the Finance team regarding the operating performance of the portfolio companies, the strength of the internal control environment is considered. Management also provides updates on how risks, for example, bribery and information security, are managed within business areas, and updates are presented to the Board or the Committee as appropriate. Further, during the year, the Internal Audit function continued to assist management to perform certain risk identification and assessment activities at the private portfolio companies, the results of which were presented and discussed at the Committee meetings. ### Internal Audit The Head of Internal Audit has direct access to the Committee and the opportunity to discuss matters with the Committee without other members of management present. The Committee also monitor the resources dedicated to Internal Audit as well as the relevant qualifications and experience of the team. Throughout the year, the Committee received regular reports from Internal Audit on the progress against the approved Internal Audit Plan and on the audits themselves, including significant findings as well as the corrective measures recommended to management. The Committee also reviewed and monitored management's responsiveness to the corrective measures and found that, in general, management agreed to the recommendations where control deficiencies were identified, and used them as a basis to improve processes. Implementation of the remedial actions was reviewed by Internal Audit and reported to the Committee. The Committee was pleased to review reports from Internal Audit outlining actions being taken by management in the portfolio businesses to maintain and enhance the control environment in the year post implementation of the Group's updated strategy last year and the new internal audit framework. The Committee also reviewed the Head of Internal Audit's proposals to enhance the effectiveness of the Internal Audit function and to raise its profile across the Group. The processes described above ensure that the effectiveness of the controls is reviewed on an ongoing basis, and the Committee are pleased to report that no significant weaknesses in our risk management processes or internal controls were identified this year. ### Internal Audit effectiveness The Committee fulfils its responsibility to review the effectiveness of the Internal Audit department by considering progress against the agreed plan, reviewing the outcomes of their reports and recommendations, management's implementation of recommendations and closure of the audits, access to experts, the annual strategy and a management assessment of quality in the year taking into account the need to respond to changes in the Group's business and the external environment. On the basis, the Committee concluded that the Internal Audit function is effective and respected by management, and that it conforms to the standards set by the Institute of Internal Auditors, the 'International Standards for the Professional Practice of Internal Auditing' ('Standards') contained in the International Professional Practice Financials Authority the Group Audit International of Internal Auditors function quality External Control is one of the Board process Audit The Group's effect: • control to • regulation • a (v) • a (w) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • a (z) • a (x) • a (y) • The Group's been risk and approach The Group's management each in-house the audit business The CFO Partnership Audit The Group's independent their internal control and of non-financial policy, not having the year within with the with the barriers, consents in the satisfied 136 AUDIT AND VALUATION COMMITTEE REPORT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Green # Non-Audit Services Policy The Group's Non-Audit Services Policy safeguards the external auditor's independence and objectivity. The provision of non-audit services by our external auditors aligns with the Revised Ethical Standard. Any work other than for audit or review of interim statements to be undertaken by the external auditor now requires authorization by the Committee except in very narrow circumstances. The Group's Non-Audit Services Policy is available on our website at: https://georgiacapital.ge/governance/cgf/policies. The ratio of non-audit fees to audit fees for 2023 is 0:1. As indicated in Note 9 to the financial statements, the total fees paid to the external auditor for the year ended 31 December 2023 was GEE, 1.5 million. In 2023, George Capital post-UBB 30 thousand to PwC for services related to the issuance of SLB. The Committee is of the view that engaging PwC on occasions for non-audit work is likely to be the most efficient method of having those particular services delivered to the Company and does not consider this work would compromise the independence of the external auditor. Where PwC has been chosen, they have demonstrated the relevant skills and experience, making them an appropriate supplier to undertake the work in a cost-effective and time-efficient manner, with appropriate safeguards in place. # Governance The Committee received regular updates from the Company Secretary and PwC on the progress of UK audit and governance reforms and specifically reviewed BBB's Response Statement following its consultation on reforms aimed at restoring trust in audit and corporate governance and a timetable on the key areas of significance to the Group arising from the Response Statement. Additionally, while the Group will not be required to comply with the FRC's Minimum Standard for Audit Committees which is mandatory for FTSE 350 entities, the Committee has considered the Standard (described elsewhere in this report), accepting that it forms part of good governance principles. # Compliance Ensuring regulatory compliance remains a priority from the perspective of the Committee. The Committee conducts an annual review of the Company's Whitefellowing and Non-Audit Services Policies and their impact in its remit, and it is the responsibility of the Committee to ensure that there is a robust governance framework and effective procedures are in place. PwC carried out fraud risk assessment and determined that there was a low risk of fraud occurring undetected. For the audit of the financial statements in this Annual Report, the Company complied with the Code and mandatory audit processes, including The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 ("CMA Order"), and the Committee complied with the responsibility provisions set out in the CMA Order relating to: (a) putting the audit services engagement on tender every ten years; and (b) strengthening the accountability of the external auditors to the Committee, including requiring that only the Committee is permitted to agree to the external auditors' fees and scope of services, influence the appointment of the audit engagement partner, make recommendations regarding the appointment of auditors, and authorise the auditors to carry out non-audit services. External audit services were last tendered in 2022, resulting in the appointment of PwC as the Group's statutory auditor for a three-year period spanning 2022, 2023 and 2024. Currently, the Company is considering the possibility of re-tendering for external audit services beginning with the review of financial statements for six months ending 30 June 2025. If initiated, the re-tender for the provision of external audit services will be launched in the second half of 2024, and will reflect an appropriate balance of factors such as the auditor knowledge of controls and risks, maintaining audit quality, independence and objectivity, and providing value for money. The Committee will ensure that the decision regarding re-tendering is in the best interest of our shareholders. # Committee effectiveness review An internal effectiveness review of the Committee was facilitated by the Company Secretary. The effectiveness evaluation concluded that the composition of the Committee was appropriate, there was the right level of stakeholder engagement and debate (advicwelaging the technical and detailed nature of the Committee's discussions). It provided an effective and appropriate level of challenge and oversight of the areas within its remit, and its Chair continued to perform effectively with no significant concerns, noting that sufficient time is allocated at Board meetings for the Chair to report to the Board on the work of the Committee. # Priorities for 2024 Our priorities for 2024 include continued focus on: - working with management to position the Group prudently in response to the changing macroeconomic conditions, remaining cognizant of, and ready to respond to, any new areas of emerging risk; - monitoring compliance with the Group's Valuation Policy; individual portfolio company valuations and the effectiveness of external valuations; - monitoring the financial reporting implications of strategic actions taken by the Group, including dispositions and acquisitions; - ensuring continued integrity and balance in the Group's financial reporting; - monitoring the control environment and its appropriate roll-out at the various portfolio companies; - continued development of the Internal Audit function around the Head of Internal Audit; - compliance with TCFD requirements and referred these matters to the Board and other sustainability-related reporting requirements; - following developments on the planned enactment of legislation in the UK around audit and corporate governance reform; and - continuing to build a good working relationship with PwC. # David Morrison Chairman of the Audit and Valuation Committee 21 March 2024 DIRECTORS' REMUNERATION REPORT ![img-27.jpeg](img-27.jpeg) Neil Janin Chairman of the Remuneration Committee # INNOVATIVE ALIGNMENT OF REMUNERATION WITH SHAREHOLDERS' INTERESTS AND EXPERIENCE # Committee meetings and attendance | Neil Janin (Chairman) | 2/2 | | --- | --- | | David Morrison | 2/2 | | Maria Chetti-Goulier | 3/3 | Dear I am and I be the M after prede I am the R listed and B At the appr share Over We exper at the remun Our E based the m silicon fixed salary ensure receiv When the sa capo their a in said The st • Ex sa wa • Sh de or ye • Bo an • Mo un th Our G in the to att shud share invest strong Our v mainb tone a antep basis to long or dec 138 DIRECTORS' REMUNERATION REPORT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Cover # **What's in this report** The Directors' Remuneration Report includes the Annual Statement by the Chair of the Remuneration Committee, the Annual Report on Remuneration and a Summary of the Director's Remuneration Policy approved at the 2023 AOM. The report complies with the provisions of the Companies Act 2006 and Schedule 6 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The report has been prepared in line with the recommendations of the UK Corporate Governance Code and the requirements of the FCA Listing Rules. The Committee retains discretion under the Policy, including to override formulae outcomes in accordance with the UK Corporate Governance Code. In response to stakeholder feedback, however, we note that in 2020, we began disclosing (i) threshold, target and outperformance targets alongside (ii) the weighting, for each key performance indicator (KPI), and we continue that practice this year. In line with increasing market practice, we also disclose our mechanisms of enforcement of malus and clawback. The malus and clawback triggers are set out in the Executive Director's contract. Furthermore, under the rules of the share plan, the trustee may clause shares to lapse (malus) or to be recovered (clawback) including in accordance with the provisions of the Executive Director's contract. Lastly, as part of each grant process, the Executive Director signs a confirmation that they agree to be bound by the terms and conditions set out in the rules of the share plan, including its malus and clawback provisions. Similarly, the Committee also confirms that the 200% shareholding requirement, to be built up and held for two years' post-employment, is included as an express provision in Iraki Gilouri's contract, and further that all unvested shares (his remuneration vests in tranches) are held in the employee benefit trust (EBT). At the most recent vote on the Directors' Remuneration Policy, which was the 2022 AOM, 94% of shareholders supported the Policy. # **2023 performance outcomes** The Committee considered the CEO's performance during 2023. Under Mr Gilouri's leadership, during 2023 there was deleveraging through the successful issuance of a US$ 100 million sustainability-linked bond (SLB) on the Georgian market. This issuance, combined with GCAP's existing liquid funds, was allotted to fully redeem our US$ 300 million functional. The Group's retail/pharmacy business completed the buyout of the minority shareholders to increase GCAP's stake to 0.18%. The hospitality business successfully completed the sale of two operational hotels, two under construction properties, and a vacant land plot for a total consideration of US$ 35.6 million and the proceeds from these sales were utilised for deleveraging the hospitality business's balance sheet. These transactions marked further substantial progress towards two of our core strategic priorities: to divest, over the next few years, subscale portfolio companies, and to significantly reduce leverage in the Group's balance sheet. We noted the excellent performance of the Company over 2023 reflected both in the results and the stakeholder experience. The share price increased from GBP 7.20 at FY22 to GBP 10.22 at FY23. The share buyback and cancellation programme benefitted shareholders, under which the Group repurchased shares for a total consideration of US$ 18.3 million during the year. The Committee was also pleased to note that average employees' cash salaries increased by 23%, share salaries increased by 20% y-o-y and employees' average bonus increased y-o-y by 33%. In accordance with his performance in financial year 2023, taking into account the 83% performance against HPS and the wider stakeholder experience, the Remuneration Committee determined to award Iraki Gilouri 165,000 deferred shares (80% of maximum opportunity) with waiting and holding periods of up to six years from the beginning of the work year. The Committee is satisfied that the overall number of deferred discretionary shares awarded to Mr Gilouri for FY23 was fair and appropriate in the circumstances. You can read the KPI calculations and disclosures in the section "Basis for determining Mr Gilouri's discretionary share compensation in respect of 2023" below. # **Non-Executive Directors' fees** The Board considered the appropriate level of fees following the changes to the composition of the Board Committees made on 17 May 2023 after Kim Bradley and Jynki Takida did not stand for re-election. The Investment Committee's work was absorbed into that of the Board as explained in the Corporate Governance Statement section of this Annual Report. The Board reformulated the Board Committees in May 2023 as well as the composition of the Committee, and it was noted that fees for membership and Chair of the Nomination Committee were significantly lower than the fees for other Committees. Under the Company's Remuneration Policy, the amount of remuneration for Board fees and Committee fees may be reviewed from time to time, which may take into account time commitment, responsibilities and technical skills. It was, however, determined that the current fees did not reflect the responsibilities of the Nomination Committee, particularly given the increased stakeholder and cultural focus on Committee matters. The Board therefore agreed a small increase of US$ 5,700 to each of the members and Chair of the Nomination Committee with effect from 17 May 2023. The fees payable for membership of the Nomination Committee nevertheless continue to remain lower than the total fees for the Audit and Valuation Committee and the Remuneration Committee. For each Non-Executive Director, their overall fees paid in 2023 took into account the changes in Board and Committee membership during the year as covered in the Governance section on page 150. Overall this reflects that total fees decreased. # **Remuneration Committee activities and workforce engagement** During 2023 the Committee received insights into topics which were the most pertinent to our investors and an overall view of remuneration practices and investor response for the FTSE Small Cap market. The UK General Counsel updated the Committee on guidelines of proxy agencies and on proxy agency reports on the Company. The Committee noted the 99% shareholder support of the 2023 Directors' Remuneration Report. The Committee considered benchmarking against the FTSE Small Cap and peers, alongside possible bonus projections. It was noted that Georgia Capital's structure remained unusual, with no cash salary or bonus for the Executive Director and long deferred periods for salary shares and discretionary deferred shares, and therefore comparison was made more difficult, especially as Georgia Capital itself is an unusual company. The most comparable peers were the other UK listed companies in Georgia, Bank of Georgia Group PLC and TBC Group PLC. The Committee determined the bonus post on aggregate level and rewards on individual level for senior management. The Committee considered each manager's performance and discussed the level of differentiation appropriate to distinguish between individual performance. While the portfolio companies do not form part of the workforce of the holding companies, the Committee considered the wider workforce policies in 2023 and employee compensation. This covered salaries (cash, share and phantom shares), pension contributions (which is set by Georgian legislation at 0%-2%), benefits, leave and working hours, training and development, and number of staff by salary band. This was covered at the holding company level and the Committee considered the same for the main portfolio businesses including real estate, renewables, beer, wine, distribution, healthcare, insurance and the largest schools. Average employees' cash salaries increased by 23% and share salaries increased by 20% y-o-y, and employees' average bonus increased by 33% y-o-y. Maria Chatti-Gautier is the Company's designated Non-Executive Director for workforce engagement, and a member of the Remuneration Committee. Employees were able to raise matters relating to the workforce (including remuneration) through Ms Chatti-Gautier. Further details on how the Board engages with its workforce can be found on page 151 in the Corporate Governance Framework section. There are only c.45 employees at the holding company level. An external evaluation of the effectiveness of the Board was again undertaken by Amanda UK Limited ("Amanda") in 2023 which encompassed the Remuneration Committee. The Board and its members also underwent in-depth evaluations. Further details are set out on page 161. # **Neil Janin** Chair of the Remuneration Committee 21 March 2024 140 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 How the Remuneration Committee addressed the factors in provision 40 of the Code Directors’ remuneration The Remuneration Committee considered the requirements of the Code in determining the remuneration structure and Policy, taking each of the Single total figure of remuneration for the Executive Director (audited) factors of provision 40 of the Code in turn: The table below sets out the remuneration earned by Georgia Capital PLC’s sole Executive Director, Irakli Gilauri, in respect of his employment for the years ended 31 December 2023 and 31 December 2022. Mr Gilauri’s compensation as set out in the table below is in the form of deferred shares Principle Approach that vest in tranches with a vesting and holding period of up to six years from the beginning of the work year. The values shown in the table are Clarity Remuneration arrangements are transparent and competitive. The Remuneration Policy describes the purpose, operation and calculated at a fixed share price as described in footnotes 2 and 4 to the table. The actual value of the compensation as it is received over time will maximum potential of each remuneration element and illustrates a range of potential outcomes for the Executive Director. There fluctuate with increases and decreases in the value of the share price as illustrated in the graph on page 150. are only two main components of remuneration for Irakli Gilauri; the deferred share salary and the discretionary deferred share incentive remuneration. There is no LTIP and salary is paid in a fixed number of shares The decrease in dollar equivalent for the deferred share salary between 2022 and 2023 reflects the decline in the share price between the award date under Mr Gilauri’s original Service Agreement and his prolonged agreement signed in October 2022 (which extended the contract beyond May Simplicity The rationale is simple – this structure focuses the Executive Director and senior management on sustainable, long-term 2023) as described in footnote 3 to the table. performance of the Company by remunerating them wholly (in the case of the current Executive Director) or predominantly Georgia Capital PLC Annual Report 2023 (with respect to senior management) in deferred shares. The increase in dollar equivalent for the discretionary deferred shares between 2022 and 2023 reflects both the higher percentage of the maximum Risk By its nature, setting all of the CEO’s remuneration in shares which are deferred for up to six years from the start of the work opportunity awarded for performance (60% in 2022 compared to 80% in 2023) but also the increase in share price between 2022 and 2023 year means the remuneration structure drives the CEO and senior management to mitigate reputational, behavioural and undue award decision dates as described in footnote 4 to the table, illustrating the rationale behind the Policy of alignment between Mr Gilauri’s and the strategic risks as the outcome of such would be likely to affect the share price over the years. It also helps to avoid conflicts of shareholders’ experiences. The maximum discretionary opportunity remains constant at 200,000 deferred shares. interest. Further, the Executive Director’s salary and bonus is calculated by reference to a fixed maximum number of shares. | | By setting a fixed number of shares (rather than a cash figure) the salary structure aligns our Executive Director’s salary with the | | | | | | | | | | | | | | Discretionary | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Deferred share | | | Taxable | | Pension | | | | | deferred | | | | Total | | Single | | | share price performance of the Company and ensures that the Executive Director will not (unlike in other companies) receive a | | | | 1 | | | 2 | | 3 | | 3 | | | | | | 4 | | | | | | | | | Cash salary | | | | salary | | benefits | | benefits | | Total fixed pay | | | shares | | | variable pay | | total figure | | | | windfall gain by receiving a higher number of shares when awarded at a lower share price. | | | (US$) | | | (US$) | | (US$) | | (US$) | | | (US$) | | | (US$) | | | (US$) | | (US$) | | Predictability The range of possible values is set out in the Policy voluntarily, including the impact of share price appreciation and depreciation, | | 2023 – 1,931,097 – – 1,931,097 2,038,400 2,038,400 3,969,497 | | | | | | | | | | | | | | | | | | | | | to aid predictability. Further, by calculating the maximum opportunity to a fixed number of shares, the Company and its 2022 – 2,730,000 – – 2,730,000 1,078,800 1,078,800 3,808,800 shareholders have certainty regarding the Executive Director’s and senior management’s remuneration. Proportionality Outcomes reward performance proportionately by reference to performance target ranges (threshold, target and Notes: outperformance) and weightings. Further, to allow appropriate adjustment, the Committee retains discretion over the bonus. 1 Mr Gilauri does not receive a cash salary. For further considerations on proportionality, see section “Chief Executive’s pay and comparators” on pages 150 to 151. 2 Deferred share salary. The figures show the Georgia Capital PLC shares underlying nil-cost options granted in respect of the relevant year. 200,000 deferred salary shares were awarded for the work year 2023 and for the work year 2022 for his role as CEO of Georgia Capital PLC (20,000 shares) and his role as CEO of JSC Georgia Capital and its Alignment The current Executive Director’s entire remuneration, which is comprised of deferred shares rather than cash, promotes subsidiaries (180,000 shares). Deferred share salary in respect of a work year will vest over six years (from the beginning of the work year) with 20% vesting in each of the second, to culture alignment with the long-term success of the Company. Alignment with culture is supported by the inclusion of mentorship and third, fourth, fifth and sixth years following the end of the work year. Mr Gilauri does not receive any remuneration with respect to his role as Chairman of the Group. To discharge development, as well as personal development, within the CEO’s performance KPIs. Further information on alignment with the the UK income tax and employee National Insurance contributions arising upon the grant of the salary shares, Georgia Capital PLC and the Executive Director agreed to waive his entitlement to such number of the salary shares as needed for the payment of the Executive Director’s UK income tax and employee National Insurance contributions by Company’s purpose and values is set out in the Annual Statement of the Chairman on page 139. the Company. Under this arrangement, the Executive Director waived his entitlement to 8,601 deferred salary shares with respect to work year 2023 and 8,166 deferred salary shares with respect to work year 2022. Shareholder context Calculation of dollar value: US$ 1,931,097 value of deferred share salary in 2023 consist of 81,644 shares granted under Service Agreement ended May 2023 year and 118,356 shares under the prolonged Service Agreement signed in October 2022. The value of 81,644 shares granted for the work year 2023 and 200,000 shares granted for 2022 The Directors’ Remuneration Policy applicable to this section of the Annual Report on Remuneration was approved by shareholders at our AGM on is calculated by reference to the share price on 12 July 2018, being the date of the Committee meeting at which the deferred share salary was determined. The share price 20 May 2022 (the “2022 Policy” or the “Policy”). The Policy received the following votes from shareholders. on 12 July 2018 was US$ 13.65 per share (the official share price of GBP 10.324 converted into US Dollars using an exchange rate of 1.322, being the official exchange rate published by the Bank of England on the same date). The value of 118,356 shares granted for the work year 2023 under the prolonged employment agreement is calculated by Resolution Votes for % Votes against % Total votes cast Votes withheld reference to the share price on the effective date of prolongation of service agreement. The share price on 24 October 2022 was US$ 6.90 (the official share price of GBP 6.10 Approval of the Directors’ Remuneration Policy 26,599,621 93.68 1,795,458 6.32 28,395,079 590 converted into US Dollars using an exchange rate of 1.131, being the official exchange rate published by the Bank of England on the same date). 3 There are no taxable benefits or pension benefits for 2023 and 2022. Mr Gilauri has agreed for all pension contributions to be waived. Mr Gilauri was reimbursed for reasonable business expenses, on the provision of valid receipts in line with the approved Policy. No money or other assets have been received or are receivable by Mr Gilauri in respect of a Set out below are the shareholder voting figures for the Directors’ Remuneration Report (including the Annual Statement of the Chairman of the period of more than one financial year. Remuneration Committee) presented at our 17 May 2023 AGM. 4 Discretionary deferred share remuneration. The figures show the value of Georgia Capital PLC shares underlying nil-cost options granted in respect of the bonus award for the year. For 2023, awards were granted over 160,000 shares. The value is calculated by reference to the share price on 19 December 2023, which is the last working day prior Resolution Votes for % Votes against % Total votes cast Votes withheld to the date of the Remuneration Committee meeting which determined the discretionary deferred share award on 20 December 2023, being US$ 12.74 per share (the official Approval of the Directors’ Remuneration Report 29,108,979 99.02% 286,694 0.98 29,395,673 50 share price of GBP 10.000 converted into US Dollars using an exchange rate of 1.2739 being the official exchange rate published by the Bank of England on the same date). For 2022, awards were granted over 120,000 shares. The value is calculated by reference to the share price on 16 December 2022, which is the last working day prior to the date of the Remuneration Committee meeting which determined the discretionary deferred share award on 19 December 2022, being US$ 8.99 per share (the official share price The Remuneration Committee and its advisers of GBP 7.40 converted into US Dollars using an exchange rate of 1.2153 being the official exchange rate published by the Bank of England on the same date). Discretionary The Remuneration Committee is principally responsible to the Board for establishing a remuneration policy for the Executive Directors, the Chairman deferred shares vest 25% in each of the second, third, fourth and fifth years following the end of the work year and are subject to a further holding period of a year. The basis for determining Mr Gilauri’s discretionary deferred share remuneration is set out below. and designated members of the executive management team that rewards fairly and responsibly, and is designed to support the Company’s strategy 5 The number of shares awarded pursuant to the deferred share salary and discretionary deferred share remuneration is fixed at grant. No discretion has been exercised as a and promote its long-term sustainable success. The Remuneration Committee ensures that performance-related elements of Executive Directors’ result of share price appreciation or depreciation. Discretionary deferred shares are subject to one-year targets which are satisfied pre-grant and the Company does not operate remuneration are transparent, stretching and rigorously applied. The Remuneration Committee’s full Terms of Reference are available on our website: an LTIP. No amount of the remuneration in 2023 is attributable to share price remuneration. No amounts were recovered or withheld in 2023. No dividend equivalents have been https://georgiacapital.ge/governance/cgf/terms. received. 6. The Executive Director received 80,000 fewer discretionary deferred shares (120,000) in 2022 compared to 2021 (200,000). From 17 May 2023, the Remuneration Committee has been comprised of three Independent Non-Executive Directors: Neil Janin, who serves as Chairman, Maria Chatti-Gautier (designated Non-Executive Director for workforce engagement) and David Morrison. Prior to 17 May 2023, the Remuneration Committee was comprised of Jyrki Talvitie as Chairman, Maria Chatti-Gautier and Neil Janin. The members’ attendance during Alternative remuneration table showing the Executive Director’s 2023 and 2022 remuneration discounted for time value of 2023 is shown in the Board and Committee meetings attendance table on page 127. No other changes to the composition of the Remuneration money (unaudited) Committee were made in 2023. For investor information, the alternative table below sets out the share remuneration earned by Irakli Gilauri in 2023 and 2022 as per the previous table (Single total figure of remuneration for the Executive Director) but taking into account the time value of money discounted at 15%, given that In addition to the formal meetings held during the year, the Remuneration Committee participated in various discussions by videoconference both the salary shares and discretionary deferred shares vest over a number of years. Further, the Executive Director may forfeit the shares on outside of these meetings. Other attendees at the Remuneration Committee meetings who provided advice or assistance to the Remuneration cessation of employment in certain circumstances. Committee on remuneration matters from time to time included the CEO, the other Board members and the UK General Counsel. Attendees at the Total salary and Remuneration Committee meetings do not participate in discussions or decisions related to their own remuneration, which helps avoid any conflicts discretionary of interest. Deferred Discretionary deferred shares share salary deferred shares remuneration (US$) (US$) (US$) The Remuneration Committee did not use remuneration consultants in 2023 (or 2024 to date). The Remuneration Committee received advice on 2023 1,125,303 1,264,643 2,389,946 compliance from Baker & McKenzie LLP, the Company’s legal advisers. The Remuneration Committee is of the view that the advice received from Baker & McKenzie LLP is objective and independent. 2022 1,590,845 669,376 2,260,221 142 143 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 The following table sets out details of total remuneration for the Chairman and Chief Executive Officer, Mr Gilauri, for the years ended 31 December Refers to Group 2018 to 31 December 2023 and his discretionary compensation as a percentage of maximum opportunity. priority, Weighted KPI above Weighting 2023 Target and range Performance and evaluation result 2018 2019 2020 2021 2022 2023 Financial targets Threshold Target Outperformance Single total figure of remuneration (US$) 4,066,962 3,790,000 3,898,000 4,414,000 3,808,800 3,969,497 NAV per share growth 1 25% 10% 14.5% 19% Overall NAV per share growth: 26.5% 5% Discretionary compensation as a percentage of 5% for overall maximum opportunity (%) 85% 50% 80% 100% 60% 80% 20% for private 10% 16.8% 21% Private portfolio share growth: 15.7% 12% Note: Maximum opportunity is 100% of total number of salary shares in accordance with the approved Policy. portfolio NAV per share grew by 26.5% overall (4% in Basis for determining Mr Gilauri’s discretionary deferred share compensation in respect of 2023 (audited) Georgia Capital PLC Annual Report 2023 2022) at an outperforming level for this key Mr Gilauri’s KPIs included financial targets, strategic targets and non-quantifiable components. The financial and strategic elements largely track figure for investors, and 15.7% for portfolio the Group’s KPIs as he is expected to deliver the Group’s strategy. The non-quantifiable targets take into account factors such as leadership share growth (-11.5% in 2022). and mentoring, corporate culture and personal development. The Committee’s practice is to set ambitious financial targets and would normally expect to award 70% of the maximum available for meeting the target, depending on the circumstances, including business and wider economic Achieving budget of 5, 8 15% GEL mln GEL mln GEL mln GCAP standalone net income: 9% developments during the year. For strategic and development targets, measurement is more difficult, but here again we have high expectations of GCAP (net income) and 160 379 570 GEL 616 million Mr Gilauri and would typically plan to award 70% of the maximum available for meeting these targets. portfolio companies (total revenue), including The individual KPI weightings are shown in the table below, which sets out the targets for Mr Gilauri’s 2023 KPIs as well as a summary of the cash flow generation GEL mln GEL mln GEL mln GCAP standalone cash flow: Committee’s assessment of his performance against them. In line with the Policy, the Committee retains the discretion to increase or decrease the (275) (225) (175) GEL (126) million amount awarded. More details on performance are provided in the table on the following pages. The maximum award of award is discretionary deferred share compensation is 200,000 deferred shares. GEL mln GEL mln GEL mln Portfolio aggregate revenue: We specifically link each KPI to the relevant Group priority and disclose ranges of targets for each KPI (threshold, target and maximum). We would 1,800 2,233 2,400 GEL 2,074 million typically expect to award 25% for threshold, 70% for target and 100% for outperformance for each KPI, with a sliding scale between categories. In accordance with feedback from shareholders, we continue to provide full information to better explain how the KPIs link to strategic targets and to | explain the weightings. The Group is young and non-financial strategic targets are also key. The Group priorities have been cross-referenced against | GEL mln GEL mln GEL mln | Aggregate net operating cash flow: | | --- | --- | --- | | each performance metric chosen in the below KPI table. | 180 230 270 | GEL 135 million | | Group priorities: | | GCAP standalone net income has grown from | | 1. NAV per share growth | | GEL 1.5 million in 2022 to GEL 616 million in | | 2. Diversifying access to capital | | 2023. This strong net profit was driven by: (a) | | 3. Efficient management structure | | high dividend inflow and value appreciation | | 4. The right people in management and strong corporate governance | | in Bank of Georgia share price and value | | 5. Deleveraging | | creation in private businesses; (b) deleveraging | | 6. Progress towards ESG targets | | of GCAP’s debt; and (c) savings in operating | | 7. Continued divestiture of subscale portfolio companies | | expenses, including from change from Premium | | 8. Institutionalising portfolio companies and meeting portfolio targets | | to Standard listing. | 9. Returning GCAP’s cash inflows to our shareholders In 2023 GCAP refinanced US$ 150 million Eurobonds and executed US$ 18 million share buybacks while target assumed refinancing of US$ 200 million Eurobonds and no share buybacks, and standalone cash flow was GEL (126) million adjusted for buybacks and paydown of net debt. Portfolio aggregate revenue increased 9% y-o-y. However, while above threshold it was below target, with regional and community clinics businesses being one of the main causes of this. Aggregate net operating cash flow was disappointing at GEL 135 million, as the hospitals business underperformed and required increased working capital. Expense ratio 3 7. 5% 1.3% 1.03% 0.8% Expense ratio: 0.8%, well below the target of 7.5% 1.03% and at outperformance level 144 145 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Refers The Committee noted the excellent performance of the Company over 2023 reflected both in the results and in the stakeholder experience. The share to Group price increased from GBP 7.30 at FY22 to GBP 10.22 at FY23. The share buyback and cancellation programme benefitted shareholders, under which priority, Weighted KPI above Weighting 2023 Target and range Performance and evaluation result the Group repurchased shares for a total consideration of US$ 18.3 million during the year. The Committee was also pleased to note that average employees’ cash salaries increased by 23%, share salaries increased by 20% y-o-y and employees’ average bonus increased y-o-y by 33%. Financial targets Threshold Target Outperformance Broaden access 2 20% Refinancing of the US $300 million Eurobond 20% Under Mr Gilauri’s leadership during 2023, there was deleveraging through the successful issuance of a US$ 150 million SLB on the Georgian to capital including ahead of schedule with local US$ 150 million market. This issuance, combined with GCAP’s existing liquid funds, was utilised to fully redeem our US$ 300 million Eurobond. The Group’s retail active seeking of price SLB, resulting in substantial de-risking of GCAP. (pharmacy) business completed the buyout of the minority shareholders to increase GCAP’s stake to 97.6%. The hospitality business successfully discovery of assets completed the sale of two operational hotels, two under-construction properties, and a vacant land plot for a total consideration of US$ 38.6 million | | held (including strategic | Divestment from the hospitality business led to | and the proceeds from these sales were utilised for deleveraging the hospitality business’s balance sheet. These transactions marked further | | --- | --- | --- | --- | | | priority of divestment | deleveraging and de-risking of the real estate | substantial progress towards two of our core strategic priorities: to divest, over the next few years, subscale portfolio companies, and to significantly | | Georgia Capital PLC Annual Report 2023 | of subscale portfolio | businesses and receipt of US$ 38.6 million. | reduce leverage in the Group’s balance sheet. | companies) In accordance with the strategy to divest In accordance with his performance in financial year 2023, taking into account the 83% performance against KPIs and the wider stakeholder subscale portfolio companies and in particular experience, the Remuneration Committee determined to award Irakli Gilauri 160,000 deferred shares (80% of maximum opportunity) with vesting low return on invested capital (ROIC) and holding period of up to six years from the beginning of the work year. The Committee is satisfied that the overall number of deferred discretionary businesses, sale of real estate assets (former shares awarded to Mr Gilauri for FY23 was fair and appropriate in the circumstances. headquarters of GHG) and Batumi hospital. The Committee notes that there has not been an increase in Irakli Gilauri’s salary since the Group listed in 2018 (including when the new Policy was Actively engaged in potential monetisation on approved in 2022) and that the 2018 salary reflected a decrease from the predecessor company. Similarly, the maximum bonus opportunity remains several other businesses. at 200,000 deferred shares. The Committee did not change its implementation of the Policy in 2023. The monetary value increases or decreases Strategic targets Threshold Target Outperformance with the share price and alignment with shareholders is built into the structure as described extensively in this report. There is no annual cash bonus and no LTIP. The above exercise of discretion (80% awarded compared to 83% against KPIs) represents a reduction of 6,000 shares. Disciplined pursuit of 7, 9 20% 18% 16.7% 16% NCC ratio decreased from 21.1% in 2022 to 20% investment 15.6% in 2023. This was a result of increased Percentage change in remuneration of Directors and employees opportunities, and asset dividend inflows combined with an increase in The following table sets out details of the percentage change in the remuneration awarded to the Directors, compared with the average percentage and capital allocation, value of our portfolio companies. Given that the change in the per capita remuneration awarded to the employees at the holding companies’ level only (c.45 employees) on a full-time equivalent basis including Net Capital medium to long-term target was 15% by 2025, as a whole, in line with the requirements in the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019. Commitment (NCC) this is well ahead of schedule. targets Given the small number of employees employed by the Georgia Capital PLC entity is less than five and the Company’s status as an investment Successful buyback of US$ 18 million equity entity under IFRS 10, we considered comparison against the holding companies’ employees. See note 8 to the table below for a comparison of the on-market in addition to decreasing full-time UK employees in compliance with the requirements of the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) leverage, leading to a 4.1% increase in NAV. Regulations 2019. See the single total figure of remuneration table on pages 142 to 143 for an explanation of deferred share salary, taxable benefits and discretionary deferred remuneration of Mr Gilauri. Investments made in businesses where GCAP’s strategy is to have a longer-term view, notably From 1 April 2020 to 31 December 2020, the members of the Nomination Committee waived their fees (and only the additional fee received by the in retail (pharmacy) (purchased the minority Chair of the Committee (as Chair) on top of the normal Committee fees was retained by the Chairman), to show solidarity with the impact of the stake) and education (underperforming school COVID-19 pandemic. The normal fees were reinstated in January 2021. After a review of the workload of the Nomination Committee, the fees were purchased and built one mid-level school), and increased slightly for the Nomination Committee members and Chair from May 2023. The Audit and Valuation Committee’s responsibilities were in insurance. increased from 31 December 2019 when the Audit Committee became the Audit and Valuation Committee. To show solidarity with the impact of | Progress towards | 8 7. 5% | Ahead or well on-track in insurance, renewable | 5.5% | the COVID-19 pandemic the Audit and Valuation Committee did not receive an increase for financial year 2020, and instead the fees of the Chair and | | --- | --- | --- | --- | --- | | achieving mid to long- | | energy, education, clinics and diagnostics, | | members were increased from January 2021. | | term strategic priorities in | | beverages, real estate and auto service | | | | portfolio companies | | businesses to achieve mid to long-term goals. | | Any further y-o-y movements in Non-Executive Director fees are attributable to a number of factors including the different Committee roles | undertaken by each Non-Executive Director over the period. Retail (pharmacy) is largely on-track given the ongoing regulatory pressures from cap prices For Irakli Gilauri, the change in dollar equivalent for the discretionary deferred shares between 2022 and 2023 is reflective of both the higher on prescription drugs. The hospitals business is percentage of the maximum opportunity awarded for performance (60% in 2022 compared to 80% in 2023) but also the increase in share price undergoing structural changes. between 2022 and 2023 resulting in a higher monetary equivalent at the decision date. The maximum discretionary opportunity remains constant at 200,000 deferred shares. Professional 4, 6 5% Major development in progress of senior 4% development management at GCAP, stepping up to Similarly, Irakli Gilauri’s salary remained 200,000 deferred shares but the basis of calculation changed, as explained in the notes to and in the and mentoring of increased roles. Strong group of individuals now paragraphs around the Single total figure of remuneration table earlier in this report. management including achieved, with senior management at HoldCo successor(s) and at portfolio companies ready to move into more senior positions in portfolio companies as Progress towards ESG needed for succession planning. targets Placed the largest SLB in the region, including all work and adjustments needed to put in place underlying ESG structures and processes and solidification of pathways to Net-Zero emissions. TOTAL KPI PERFORMANCE ASSESSMENT 83% 146 147 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Y-o-y change in pay for Directors compared to the employees Details of fixed and discretionary deferred share remuneration granted during 2023 at the holding companies level as a whole The table below sets out details of the nil-cost options over GCAP shares which have been granted to Mr Gilauri in 2023 in respect of the 2022 work Executive year as reflected on a combined basis in the accounts of Georgia Capital PLC and JSC Georgia Capital. Please note that the information presented Director Non-Executive Directors in this section relates to Mr Gilauri’s performance in the 2022 financial year. Massimo Maria Average Irakli David Kim Jyrki Gesua’ sive Chatti- Deferred share salary Discretionary deferred share remuneration 2023 employees Gilauri Morrison Bradley Talvitie Salvadori Gautier Neil Janin Number of underlying shares and 200,000 granted pursuant to the Policy available at 120,000 (with respect to his FY22 bonus) granted Total cash salary 23.3% – 0% -64.2% - 62.1% 0% 3% NMF | | | basis on which award was made | https://georgiacapital.ge/governance/cgf/policies | | pursuant to the Policy available at | | | --- | --- | --- | --- | --- | --- | --- | | | Total deferred share salary 19.7% -29.3% – – – – – – | | | | https://georgiacapital.ge/governance/cgf/policies | | | | Taxable benefits 16.6% – – – – – – – | Type of interest Nil-cost option Nil-cost option | | | | | | | Total bonus 33.2% 89.0% – – – – – – | | | 1 | | 2 | | Georgia Capital PLC Annual Report 2023 | | Cost to Group (as reflected | US$ 2,730,000 | | US$ 1,078,000 | | in accounts) Y-o-y change in pay for Directors compared to the employees | | | | | | | | | | | | | | | | 1 | | 2 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | at the holding companies level as a whole | | | | | | | | Face value US$ 2,730,000 | | | US$ 1,078,000 | | | | | Executive | | | | | | | | | | | | Cash payments equal to the dividends paid on the | | Cash payments equal to the dividends paid on the | | | | | Director | | | | | | | Non-Executive Directors | | | | | underlying shares will be made upon vesting (if | | underlying shares will be made upon vesting (if | | | | | | | | | | | | | | Massimo | Maria | | applicable). | | applicable). | | | | Average | | Irakli | | David | | Kim | | Jyrki | Caroline | Gesua’ sive | Chatti- | | | | | | | 2022 | employees | | Gilauri | Morrison | | Bradley | | Talvitie | | Brown | Salvadori | Gautier Neil Janin | Percentage of award achievable if | 100% of the award will be receivable, since the award | | 100% of the award will be receivable, since the award is | | | | | | | | | | | | | | | | minimum performance achieved | is part of the Executive Director’s salary for 2022 and | | based on 2022 performance (and is not an LTIP award) | | Total cash salary 4.1% – – 9.7% – -61.3% – – 100% accordingly is not subject to performance measures or and accordingly is not subject to performance measures Total deferred share salary 20.6% 0% – – – – – – – targets over the vesting period. or targets over the vesting period. Taxable benefits 3.5% – – – – – – – – Exercise price Nil. The options form part of the Executive Director’s Nil. The options make up the entirety of the Executive Total bonus -16.6% -35.9% – – – – – – – salary under the Policy and so no payment is required Director’s performance-based remuneration (with upon exercise. The exercise price has not changed. respect to his performance in the previous financial year) Y-o-y change in pay for Directors compared to the employees so no payment is required upon exercise. The exercise at the holding companies level as a whole price has not changed. Executive Director Non-Executive Directors Vesting period 20% in each of 2024, 2025, 2026, 2027 and 2028. 25% in each of 2024, 2025, 2026 and 2027. Holding period of a further one year on each tranche. | | | | | | | | | | Massimo | Maria | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Average | Irakli | | David | | Kim | Jyrki | Caroline | Gesua’ sive | Chatti- | | | | | | | | | | | | | | | | Performance measures None. See the 2022 Policy available at | | See the 2022 Policy available at | | 2021 | employees | Gilauri | Morrison | | Bradley | | Talvitie | Brown | Salvadori | Gautier | | | | | | | | | | | | | | | | | https://georgiacapital.ge/ir/annual-reports | https://georgiacapital.ge/ir/annual-reports | | Total cash salary | 6.5% – 3.9% 3.9% 4.7% 5.0% 5.0% 36.2% | | | | | | | | | | | | | | Total deferred share salary | -26.0% 0% – – – – – – | | | | | | | | | | 1 Deferred share salary. The value is calculated as described in footnote 2 to the table of Single total figure of remuneration for the Executive Director. | | | 2 Discretionary deferred share remuneration. The value is calculated as described in footnote 4 to the table of Single total figure of remuneration for the Executive Director. Taxable benefits 22.7% – – – – – – – Total bonus 23.1% 44.2% – – – – – – CEO pay and comparators The Group has less than 250 UK employees and therefore is not required to disclose ratios of the CEO pay against the UK employees’ pay (and Year-on-year change in pay for Directors compared to the employees indeed given it has less than five UK employees, to do so would be distortionary). at the holding companies level as a whole Executive The remuneration structure is very unusual with all salary and bonus being in deferred shares (no cash) to create very strong alignment with Director Non-Executive Directors shareholders. It is difficult to compare our overall remuneration to others in monetary value given the time value of money and the delayed receipt of | | | | | | | | | | Massimo | Maria | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Average | Irakli | | David | | Kim | Jyrki | Caroline | Gesua’ sive | Chatti- | the Executive Director’s remuneration (as the salary and bonus shares are released across several years). It is also difficult to quantify the risk of these | | 2020 | employees | Gilauri | Morrison | | Bradley | | Talvitie | Brown | Salvadori | Gautier | salary and bonus shares lapsing (due to malus but also in the event of early termination under certain circumstances). When formulating the Policy, | | | 11.0% – -3.7% 7. 2% -3.6% -4.8% -4.8% N/A | | | | | | | | | | we presented the overall package (without factoring in the time value of money or risk of lapse) to investors. | Total cash salary Total deferred share salary 0% 0% – – – – – – The Committee also considered the fact that the CEO’s salary was 35% less than the CEO salary in our predecessor company, BGEO Group PLC. Taxable benefits 7.3% – – – – – – – The most comparable peers are the two other UK listed companies in Georgia, Bank of Georgia Group PLC and TBC Group PLC. Total bonus 20.0% 10.2% – – – – – – Moreover, the renewed Policy in 2022 retained the same number of shares for salary and for the maximum opportunity as was presented to shareholders for their approval in 2019; there was no increase in salary nor incentive. Notes: 1 The Investment Committee was dissolved on 17 May 2023 and its duties were absorbed by the Board. Kim Bradley and Jyrki Talvitie did not seek re-election at the 2023 AGM and therefore ceased to be Directors on 17 May 2023. On 17 May 2023, David Morrison became a member of the Remuneration Committee, Maria Chatti-Gautier stepped down as member of the Nomination Committee and become a member of the Audit and Valuation Committee, Massimo Gesua’ sive Salvadori became a member of the Nomination Committee, and Neil Janin became Chair of the Remuneration Committee and Chair of the Nomination Committee. The Nomination Committee member and Chair fees were increased after consideration of their comparative workload. 2 Kim Bradley was appointed as a member of the Audit and Valuation Committee from 20 May 2022, and stepped down as a member of the Nomination Committee and the Remuneration Committee on 20 December 2022. Caroline Brown did not seek re-election at the 2022 AGM and therefore ceased to be a Director on 20 May 2022. 3 Neil Janin was appointed as a member of the Board of Directors of Georgia Capital PLC and to the Supervisory Board of JSC Georgia Capital, and the Nomination Committee and the Remuneration Committee on 17 October 2022, and as a member of the Investment Committee on 20 December 2022. 4 Maria Chatti-Gautier was appointed to the Board of Directors of Georgia Capital PLC and to the Supervisory Board of JSC Georgia Capital, and the Remuneration Committee and Nomination Committee on 19 March 2020. 5 On 19 March 2020, David Morrison, Caroline Brown and Massimo Gesua’ sive Salvadori stepped down as members of the Nomination Committee. 6 For the period of 1 April 2020 to 31 December 2020 the members of the Nomination Committee waived their fees, and for the Chairman of the Committee only the difference between the level of fees for the Chair against the member’s fees was retained, to show solidarity with the impact of COVID-19. 7 The Audit and Valuation Committee’s responsibilities were increased from 31 December 2019; to show solidarity with the impact of the COVID-19 pandemic the Committee did not receive an increased fee for their expanded role for year 2020, but the fees of the Chair and members were instead increased from 1 January 2021. 8 The Company has less than five UK employees and the percentage changes could be considered to be distortive. Y-o-y change on a full-time basis for UK employees from 2019 to 2020 for cash salary is 1.8%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is 30.1%. Y-o-y change on a full-time basis for UK employees from 2020 to 2021 for cash salary is -2.7%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is -1.8%. Y-o-y change on a full-time basis for UK employees from 2021 to 2022 for cash salary is 10.5%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is -5.3%. Y-o-y change on a full-time basis for UK employees from 2022 to 2023 for cash salary is 3.7%; deferred share salary is not applicable; taxable benefits is not applicable; and bonus is 15.3%. 148 149 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Single total figure of remuneration for Non-Executive Directors (audited) Share ownership requirement (audited) The table below sets out the remuneration received by each Non-Executive Director in 2023 and 2022. Executive Directors are required to build over five years and maintain a shareholding equivalent to 200% of base salary, which is 400,000 shares. Mr Gilauri already holds above this requirement as at 31 December 2023 – see table and table note 2 below. In accordance with the Policy, The Non-Executive Directors do not receive any variable remuneration or pension contributions. beneficially owned shares as well as unvested (net of tax) and vested deferred share salary and discretionary deferred shares count towards the requirement, noting that such unvested and vested shares are not subject to performance conditions after their grant. Georgia Capital PLC fees (US$) JSC Georgia Capital fees (US$) Total fees (US$) 2023 2022 2023 2022 2023 2022 Directors’ interests in shares (audited) Neil Janin 62,451 10,953 87,984 17,140 150,435 28,094 The following table sets forth the respective holdings of GCAP shares of each Director as at 31 December 2022 and 2023. David Morrison 67,89 0 67, 89 0 133,736 133,736 201,626 201,626 As at 31 December 2022 As at 31 December 2023 Massimo Gesua’ sive Salvadori 57,784 52,341 99,169 104,609 156,953 156,950 Number of Number of Number of Number of vested but unvested and vested but unvested and Georgia Capital PLC Annual Report 2023 | Kim Bradley 24,929 77,76 8 51,491 135,646 76,420 213,414 | unexercised | unexercised | unexercised | unexercised | | --- | --- | --- | --- | --- | | | GCAP shares | GCAP shares | GCAP shares | GCAP shares | | Jyrki Talvitie 24,819 65,481 35,998 94,973 60,817 160,454 | held under | held under | held under | held under | | | option through | option through | option through | option through | | Maria Chatti-Gautier 54,831 58,911 99,407 90,885 154,238 149,796 | deferred share | deferred share | deferred share | deferred share | | | salary and | salary and | salary and | salary and | Total 292,704 353,605 507,785 617,48 4 800,489 971,089 discretionary discretionary discretionary discretionary deferred share deferred share deferred share deferred share compensation compensation compensation compensation Notes: (all nil-cost (all nil-cost (all nil-cost (all nil-cost 1 The Investment Committee was dissolved on 17 May 2023 and its responsibilities were absorbed by the Board. | | Number of | options with no | | options with no | | Total number | Number of | options with no | | options with no | | Total number | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2 Kim Bradley and Jyrki Talvitie did not seek re-election at the 2023 AGM and therefore ceased to be Directors on 17 May 2023. | GCAP shares | performance | | | performance | of interests in | GCAP shares | | performance | | performance | of interests in | | 3 On 17 May 2023, David Morrison became a member of the Remuneration Committee, Maria Chatti-Gautier stepped down as member of the Nomination Committee and | held directly | | conditions) | | conditions) | GCAP shares | held directly | | conditions) | | conditions) | GCAP shares | became a member of the Audit and Valuation Committee, Massimo Gesua’ sive Salvadori became a member of the Nomination Committee, and Neil Janin became Chair of the Remuneration Committee and Chair of the Nomination Committee. Irakli Gilauri 1,322,320 – 954,221 2,276,541 1,589,028 – 934,766 2,523,794 4 Neil Janin was appointed as a member of the Board of Directors of Georgia Capital PLC and the Supervisory Board of JSC Georgia Capital, and of the Nomination Committee David Morrison 101,368 N/A N/A 101,368 101,368 N/A N/A 101,368 and Remuneration Committee, on 17 October 2022, and as a member of the Investment Committee on 20 December 2022. 5 Kim Bradley was appointed as a member of the Audit and Valuation Committee from 20 May 2022, and stepped down as a member of the Nomination Committee and the Kim Bradley 35,383 N/A N/A 35,383 35,383 N/A N/A 35,383 Remuneration Committee on 20 December 2022. Jyrki Talvitie 12,585 N/A N/A 12,585 12,585 N/A N/A 12,585 6 The Non-Executive Directors do not receive any taxable benefits, pension benefits or variable remuneration. Massimo 13,739 N/A N/A 13,739 13,739 N/A N/A 13,739 Payments to former Directors and for loss of office (audited) Gesua’ sive Salvadori No payments were made to former Directors or for loss of office during the year ended 31 December 2023. Marie Chatti-Gautier 6,860 N/A N/A 6,860 6,860 N/A N/A 6,860 Total Shareholder Return Neil Janin – N/A N/A – 7,000 N/A N/A 7,000 Georgia Capital PLC has been a member of the FTSE All Share Index since its listing on 29 May 2018. The following graph compares the Total Shareholder Return (TSR) of Georgia Capital PLC with the companies comprising the FTSE All Share Index and FTSE Small Cap Index for the period Notes: from 29 May 2018 until 31 December 2023. 1 As at 31 December 2023, Mr Gilauri’s vested and unvested shareholding was 2,523,794 GCAP shares, representing approximately 5.8% of the Company’s share capital. In January 2024, Mr Gilauri received awards of 200,000 nil-cost options over ordinary shares in respect of deferred salary shares for the 2023 work year, out of which 8,601 were waived by Mr Gilauri to discharge the UK income tax and employee National Insurance contributions. In January 2024, Mr Gilauri exercised 321,157 nil-cost options over ordinary shares, of which 62,080 shares were withheld to meet tax liabilities. These will be reported in the 2024 Annual Report and Accounts and are not included in the table above, which is at 31 December 2023. 140 2 On 6 January 2023, Mr Gilauri received awards of 200,000 nil-cost options over ordinary shares in respect of deferred salary shares for the 2022 work year, out of which 8,166 were waived by Mr Gilauri to discharge the UK income tax and employee National Insurance contributions. In January 2023 Mr Gilauri exercised 331,289 nil-cost options over 120 ordinary shares, out of which 64,581 shares were withheld to meet tax liabilities. In May 2023, Mr Gilauri received awards of 120,000 nil-cost options over ordinary shares in respect of discretionary deferred shares for the 2022 work year. As of 31 December 2023, all vested nil-cost options of the CEO were exercised. None of Mr Gilauri’s connected persons have any interest in the shares of the Company. 100 3 Kim Bradley and Jyrki Talvitie did not seek re-election at the 2023 AGM and therefore ceased to be Directors on 17 May 2023. 4 On 27 December 2023, Neilco EURL, a PCA of Neil Janin, sold 7,000 GCAP shares to Neil Janin at market price. 80 The Remuneration Policy focuses on base salary in deferred salary shares and discretionary compensation in discretionary deferred shares. 60 The long vesting periods naturally result in the Executive Director, Irakli Gilauri, building up large holdings of unvested nil-cost options. The Policy naturally results in Mr Gilauri and our executive management team holding a significant number of unvested shares and achieves a delay between 40 performance and vesting. We believe these results are consistent with the principles of the Investment Association. As at 31 December 2023, Mr Gilauri met the shareholding requirement. 20 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Jun-23Dec-22 Dec-23 Under the Directors’ Remuneration Policy, the Group does not require Non-Executive Directors to hold a specified number of shares in GCAP. Notwithstanding this, some Non-Executive Directors have chosen to become shareholders. The Non-Executive Directors are not awarded incentive FTSE All Share Index (rebased) FTSE Small Cap Index (rebased)Georgia Capital PLC shares and are not remunerated in shares. Non-Executive Directors are not subject to a shareholding requirement. Relative importance of spend on pay There have been no changes in the Directors’ interests in shares in the Company between the end of the financial year and the last practicable date 160 The following table shows Georgia Capital’s actual spend on pay at the holding company’s level only (c.45 employees in total) between 2022 and of 15 March 2024, with exception of Irakli Gilauri who as at 15 March 2024 holds total of 2,653,112 vested and unvested shares. 2023. We considered comparison against these employees to be the most appropriate given the Company’s status as an investment entity under IFRS 10. Remuneration paid to all Distribution to shareholders by employees of the Group way of buyback Year ended 31 December 2022 (US$ thousands) 10,004 18,071 Year ended 31 December 2023 (US$ thousands) 13,453 18,242 Percentage change 34.5% 0.9% Notes: 1 There were no dividends in 2022 or 2023. The US Dollar amount is calculated using an average GEL/US$ exchange rate for each of 2022 and 2023. 2 The buyback and cancellation programmes returned value to shareholders. 3 1,665,222 shares with a total value of US$ 18.3 million (GEL 47.9 million) were bought back under GCAP’s share buyback and cancellation programmes during 2023. 150 151 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Details of Non-Executive Directors’ letters of appointment 2024 CEO KPIs Georgia Capital has entered into letters of appointment with each Non-Executive Director. The letters of appointment require Non-Executive The 2024 KPIs were selected based on our strategy and ongoing key metrics. Consequently, the 2024 KPIs are as follows: Directors to provide one month’s notice prior to termination. The letters of appointment for the majority of current Non-Executive Directors are • NAV per share; effective from 24 February 2018, with Maria Chatti-Gautier’s effective from her appointment on 19 March 2020 and Neil Janin’s from his appointment • Achieving budget of GCAP and portfolio companies, including cash flow generation; on 17 October 2022. Each Non-Executive Director is put forward for election at each AGM following his or her appointment. Continuation of a Non- • Expense ratio; Executive Director’s employment is conditional on his or her continued satisfactory performance and re-election by shareholders at each AGM. • Broaden access to capital including active seeking of price discovery of assets (including strategic priority of divestment of subscale portfolio companies); A succession plan adopted by the Board provides for a tenure of six years on both the Georgia Capital PLC and JSC Georgia Capital Boards. Upon • Disciplined pursuit of investment opportunities and asset and capital allocation, including NCC targets; the expiry of such six-year tenure, the appointment of the relevant Non-Executive Director may cease at the next upcoming AGM. • Progress towards achieving mid to long-term strategic priorities in portfolio companies; • Professional development and mentoring of management; and Notwithstanding the foregoing, if the Board determines that, in order to maintain the balance of appropriate skills and experience required for the • Progress towards ESG targets. Georgia Capital PLC Annual Report 2023 Board, it is important to retain a Non-Executive Director on the Board beyond the relevant six-year period, the Board may offer the Non-Executive Director a letter of appointment for an additional one-year term. Such a one-year “re-appointment” may be renewed no more than two times, with the Due to the potential impact on our commercial interests, annual bonus targets are considered commercially sensitive and appropriate detail will effect that the usual six-year tenure may be extended to a maximum of nine years if circumstances were to warrant such extension. therefore be disclosed in the 2024 Remuneration Report following the completion of the financial year. KPIs and targets will be reviewed and may be revised by the Remuneration Committee and the Board as appropriate throughout the year, subject to the terms of the Policy. Implementation of Remuneration Policy for 2024 Details of how the Policy will be implemented for the 2024 financial year are set out below. There will be no significant change in the way that the Non-Executive Director remuneration 2022 Policy will be implemented in 2024 and no deviations from the procedure for the implementation of the Policy as set out in the Policy. The table below shows the fee structure for Non-Executive Directors for 2024. Non-Executive Directors’ fees are determined by the Board. Component Purpose and link to strategy Operation Opportunity For Irakli Gilauri Base cash fee The fee for the Board is competitive enough to Cash payment on The amount of remuneration may be reviewed 2024 fixed pay | | attract and retain individuals. | quarterly basis. | from time to time by the Board. The fees may | | --- | --- | --- | --- | | Total deferred share salary 200,000 Georgia Capital deferred shares underlying nil-cost options per annum pro rata. | | | be amended and varied if there are genuinely | | | The Chairman receives a fee which reflects the | | unforeseen and exceptional circumstances. | Pension benefits Mr Gilauri has agreed for all pension contributions to be waived. Details of the benefits received by extra time committed and responsibility. However, Any significant increase shall be the minimum Executive Directors are on page 150. no Chairman’s fee is received when Chairman and reasonably required. CEO roles are combined. | The circumstances in which unvested deferred shares may lapse, and the narrow circumstances in which such shares may vest immediately, are set | | The maximum aggregate for all Non-Executive | | --- | --- | --- | | out in detail in the 2022 Policy. | The Senior Independent Non-Executive Director | Directors which may be paid by Georgia Capital | | | receives a higher base fee which reflects the extra | PLC for the PLC fees is GBP 750,000 which | 2024 discretionary deferred share remuneration time and responsibility. is consistent with the current limit in the PLC’s Deferral terms The Committee will determine whether an award is merited based on an Executive Director’s Articles of Association. achievement of the KPIs set by the Committee for the work year and the performance of the Group Cash fee for each Additional fee to compensate for additional time Cash payment on The amount of remuneration for the membership during the work year. If Mr Gilauri is awarded discretionary deferred shares with respect to the 2024 Committee spent discharging Committee duties. quarterly basis. may be reviewed from time to time by the Board. work year, the award will vest 25% in January of each of 2026, 2027, 2028 and 2029. Each tranche membership The Chairman of the PLC does not receive any will be subject to a further holding period of one year. This decision will be set out in the 2024 Committee fee. Directors’ Report. Upon vesting, Mr Gilauri will receive (in addition to the vested shares) cash payments equal to the Summary of Directors’ Remuneration Policy dividends paid (if any) on the underlying shares between the beginning of the year immediately The Remuneration Policy was approved at the AGM on 20 May 2022 and took effect from that date. It is intended that approval of the Policy will be following the work year and the vesting date. sought at three-year intervals, unless amendments to the 2022 Policy are required, in which case further shareholder approval will be sought; no changes are proposed for 2024. The full 2022 Policy is available at https://georgiacapital.ge/governance/cgf/policies. The tables in this section Performance measures For 2024, the Remuneration Committee has determined that the performance measures will be provide a summary of the Policy. based on KPIs (see below). The Remuneration Committee has considered the details of each KPI and ensured that measurable targets are included. The KPIs will be reviewed by the Remuneration Remuneration Policy table for Executive Directors Committee throughout the year and by the Board as appropriate. See notes to the Policy for malus and clawback provisions. Deferred share salary Purpose and link to strategy Opportunity To reflect the role and required duties, skills, experience and individual The maximum number of deferred share salary shares is 200,000 per contribution to the Group whilst promoting long-term value creation and annum for Irakli Gilauri, of which 20,000 shares per annum are for his work share price growth. as the CEO of Georgia Capital PLC and 180,000 shares per annum are for his work as a CEO of JSC Georgia Capital and its subsidiaries. Operation Performance measures The level of base salary for an Executive Director is fixed in his or her N/A service agreement(s). Salary is comprised entirely of long-term deferred shares (“deferred share salary”) in the form of nil-cost options annually in respect of the work year with no cash salary. Deferred share salary is awarded annually in the form of nil-cost options in respect of the work year and vest over five years with 20% vesting in each of the second, third, fourth, fifth and sixth years following the end of the work year. At vesting the Executive Director also receives cash payments equal to the dividends paid on the underlying shares between the date the award was made and the vesting date. Lapse provisions (natural malus) are built into the deferred share salary. Extended malus and clawback provisions do not apply to the deferred share salary as the awards attach to salary already earned. 152 153 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Discretionary deferred shares Shareholding guidelines Purpose and link to strategy Opportunity Purpose and link to strategy Opportunity To motivate and reward an Executive Director that meets or exceeds the The maximum number of discretionary deferred shares that may be To ensure Executive Directors build and hold a significant shareholding in Executive Directors are required to build and then maintain a KPIs set for him or her by the Remuneration Committee for the relevant awarded in respect of the previous work year for Mr Gilauri is capped at the Group over the long term and to align Executive Directors’ interests shareholding equivalent to 200% of salary, such amount to be built up period. 200,000 shares (i.e. 100% of deferred share salary). with those of shareholders. within a five- year period from appointment as an Executive Director (the “Required Shareholding”). Performance-based remuneration is solely in the form of deferred shares For an Executive Director (other than Mr Gilauri), the maximum opportunity To ensure departing Executive Directors make long-term decisions (no cash), designed to closely align the interests of an Executive Director in respect of the previous work year is 100% of total salary. and maintain an interest in the ongoing success of the Group All beneficially owned shares, as well as unvested (net of tax) and vested with shareholders, avoid inappropriate risk taking for short-term gain and post- employment. deferred share salary and discretionary deferred shares count towards the encourage long-term commitment to the Group. Required Shareholding (as such awards are not subject to any performance conditions after grant). Georgia Capital PLC Annual Report 2023 Operation Performance measures Performance-based remuneration is awarded annually entirely in the form KPIs for the Executive Director are set towards the beginning of each work Executive Directors are to retain the lower of (i) the Required Shareholding, of nil-cost options over the Group shares subject to vesting (“discretionary year and reflect the Executive Director’s targeted contribution to the Group’s or (ii) the shareholding at the time employment ceases, for a period deferred shares”). The Group does not award cash bonuses. The overall key strategic and financial objectives for the coming work year. KPIs of two years from the date on which employment ceases unless the Remuneration Committee will determine annually the number of shares may also include non-tangible factors such as self-development, mentoring Remuneration Committee determines otherwise. to be awarded based on the Executive Director’s achievement of the KPIs and social responsibility. set for the work year and the performance of the Group during that year. In very exceptional circumstances, for example in the event of a serious If appropriate, where a strategic change or change in business conflict of interest, the Remuneration Committee has the discretion to Any discretionary deferred shares are expected to be granted following circumstances has made one or more of the KPIs an inaccurate gauge of vary or waive the Required Shareholding, but must explain any exercise the end of the work year and vest 25% in each of the second, third, the Executive Director’s performance, the Remuneration Committee may of its discretion in the Group’s next Remuneration Report. It should be fourth and fifth years following the end of the work year, although the decide to base its assessment on alternative measures. emphasised that there is no present intention to use this discretion. Remuneration Committee retains the discretion to determine the timing of the award. Each tranche of vested discretionary deferred shares must then be held for a further one year. Clawback and malus Discretionary deferred shares are subject to malus, and clawback for up to two years from vesting, in the following circumstances: At vesting, the Executive Director also receives cash payments equal to • misconduct in the performance or substantial failure to perform duties; the dividends paid on the underlying shares between the beginning of the • significant financial losses, serious failure of risk management or serious damage to the reputation of Georgia Capital PLC or JSC Georgia year immediately following the work year and the vesting date. Capital, caused by misconduct or gross negligence (including inaction in performance of his/her duties by the Executive Director); • material misstatement or material errors in the Financial Statements that relates to the area of responsibility of the Executive Director or can be There is no contractual right to discretionary deferred shares and the attributed to their action (or inaction in performance of his/her duties); Remuneration Committee reserves the right to award no discretionary • deliberately misleading Georgia Capital PLC or JSC Georgia Capital in relation to financial performance; and deferred share remuneration if the Group’s performance is unsatisfactory. • an award being made on the basis of erroneous or misleading data, provided that for payments based on erroneous or misleading data (other than where such error has been caused by fraud, wilful misconduct, deliberate action/inaction and/or gross negligence of the Executive Director), Extended malus and clawback, in addition to lapse provisions (natural malus and clawback applies to discretionary deferred remuneration awarded for the year in question. malus) apply. The above provisions form part of Mr Gilauri’s service contract. Further, the Group has also amended the Executive Equity Compensation plan to Pension allow shares to be lapsed, including to zero, or clawed back in accordance with the provisions in the Executive Director’s contract. Purpose and link to strategy Opportunity For the Group’s current Executive Director, Mr Gilauri, the Group also has unusually strong malus provisions where all unvested shares (deferred The Group complies with pension requirements set by the Georgian In line with current Georgian legislation, the Executive Director and Group share salary and discretionary deferred shares) lapse when the service contract is terminated under certain circumstances, including for cause such Government. The same arrangement applies to employees across the each contribute 0%-2% of total remuneration from the Group, and the as gross misconduct, substantial and repeated failure to perform duties, fraud or conviction of a felony. This may be several years of salary deferred Group in Georgia. Georgian Government may contribute a further small amount (0%-2% shares and discretionary deferred shares. Please see “Termination of the JSC Georgia Capital service agreement” in the Policy for more information. depending on income levels). Pension contributions will only increase above this level if mandated by Georgian legislation or if mandated by any other applicable legislation. Operation Performance measures Pension provision will be in line with Georgian pension legislation, which N/A may change from time to time. There is no provision for the recovery or withholding of pension payments. Benefits Purpose and link to strategy Opportunity Non-cash benefits are in line with Georgian market practice and are There is no prescribed maximum on the value of benefits payable to an designed to be sufficient to attract and retain high-calibre talent. Executive Director. The maximum amount payable depends on the cost of providing such benefits to an employee in the location at which the Executive Director is based. Other benefits may be provided from time to time if considered reasonable and appropriate. Operation Performance measures Benefits consist of: life insurance; health insurance; incapacity/ N/A disability insurance; Directors’ and Officers’ liability insurance; physical examinations; tax gross-ups and tax equalisation payments; company car and driver; mobile phone costs; personal security arrangements (if requested by the Executive Director); assistance with completing tax returns (where required); relocation costs for Executive Director and close family; and legal costs. 154 155 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## DIRECTORS’ REMUNERATION REPORT CONTINUED Georgia Capital PLC Annual Report 2023 Illustration of application of Remuneration Policy Remuneration Policy table for Non-Executive Directors The chart below shows an estimate of the remuneration that could be received by Mr Gilauri, the Group’s sole Executive Director and CEO, in Base fees respect of 2022 under the proposed Policy at five different performance levels. Purpose and link to strategy Opportunity The 50% share price appreciation disclosure is made voluntarily by the Group (as performance measures are limited to one year) for investor information. To attract and retain high-performing Non-Executive Directors with the The maximum aggregate Georgia Capital PLC fees for all Non-Executive requisite skills, knowledge, experience, independence and other attributes Directors which may be paid under Georgia Capital PLC’s Articles of Below is an extract from the 2022 Policy. to add value to the Group. Association is GBP 750,000. A specific maximum has not been set for the individual base cash fee. US$ 8,000,000 US$ 6,621,000 The Senior Independent Non-Executive Director receives a higher base fee US$ 6,000,000 34.0% which reflects the extra time commitment and responsibility. Georgia Capital PLC Annual Report 2023 US$ 4,414,000 US$ 3,908,000 | US$ 4,000,000 | | | | | | | The Chairman receives a fee which reflects the extra time commitment and | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 38.2% | 25.0% | | | | | | US$ 2,730,000 | | | | US$ 1,954,400 | | | | | | 30.2% | | | | | responsibility. However, no Chairman’s fee is received when the Chairman | | US$ 2,000,000 | | | | | | 30.2% | and CEO roles are combined. | 100% 69.8% 61.8% 41.0% Operation Performance measures 69.8% | 0 | | | | | | All fees are paid in cash on a quarterly basis. The fee of the Chairman will | N/A | | --- | --- | --- | --- | --- | --- | --- | --- | | | No share | No share | No share | 50% share price | 50% share | be determined by the Remuneration Committee. Fees for Non-Executive | | | | price growth | price growth | price growth | appreciation | price decline | | | Directors will be determined by the Board. Minimum Target Maximum Target Fixed share salary 50% share price appreciationDiscretionary deferred Fees may be reviewed from time to time by the above, taking into share compensation account the time commitment, responsibilities and the technical skills required to make a valuable contribution to the Board, and by reference Notes: to comparators, benchmarking, results of the annual review and 1 Salary is comprised of deferred share salary and benefits. Mr Gilauri does not receive a cash salary and has waived all pension contributions. For illustration purposes, the value other guidance. The Board also reserves the right, in their discretion, of the deferred share salary payable to Mr Gilauri is US$ 2,730,000, calculated by reference to the share price of US$ 13.65 on 12 July 2018, being the date of the Remuneration to amend and vary the fees if there are genuinely unforeseen and Committee meeting (the official share price of GBP 10.324 converted into US Dollars using an exchange rate of 1.3223, being the official exchange rate published by the Bank of exceptional circumstances which necessitate such review and, in such England on the same date) to approve the contract. 2 For the purpose of calculating the value of discretionary deferred shares for illustration in this chart a share price of US$ 8.42 per share was used which was the share price of circumstances, any significant increase shall be the minimum reasonably the most recent discretionary deferred remuneration award (ahead of the Policy implementation). The actual value of the discretionary deferred share award in respect of the required. The Board reserves the right to structure the Non-Executive performance of the 2022 work year is reported in the 2022 Annual Report and Accounts as at latest closing share price before the Remuneration Committee meeting at which Directors’ fees differently in its absolute discretion. the award is decided. 3 Minimum opportunity reflects a scenario whereby Mr Gilauri receives only fixed remuneration which is deferred share salary and benefits. No share price growth assumptions Non-Executive Directors are reimbursed for reasonable business have been made. expenses, including travel and accommodation, which are incurred in the 4 On-target opportunity reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and 140,000 discretionary deferred shares, being 70% of the maximum opportunity. No share price growth assumptions have been made. course of carrying out duties. 5 Maximum opportunity reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares compensation award of 100% being the number of shares granted under the deferred share salary. No share price growth assumptions have been made. Committee fees 6 Maximum plus 50% share price growth reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares Purpose and link to strategy Opportunity compensation award of 100% of the maximum opportunity and share price grows by 50%. 7 Target with 50% share price depreciation reflects a scenario whereby Mr Gilauri receives fixed remuneration (as described in 1 above) and discretionary deferred shares Compensate for additional time spent discharging Committee duties. The Chairman does not receive Committee fees. compensation award of 70% of the maximum opportunity and share price depreciates by 50%. Operation Performance measures 8 For long-term incentive awards, disclosure of the value of the award in the event of a 50% share price appreciation is required by the Companies (Miscellaneous Reporting) Cash payment on a quarterly basis. N/A Regulations 2018. Such disclosure is not required for short-term incentive awards, such as those made by the Group, where performance measures are limited to one year, nor is it required for salary compensation in the form of shares. The reason for this is that an increase in the value of the deferred shares resulting from share price appreciation in the period through to the vesting date is not considered to constitute remuneration for the purposes of the regulations. However, the Group has decided to voluntarily disclose The amount of remuneration for Committee membership is reviewed as information showing the value of a 50% share price appreciation. above. Service agreements and policy on payments for loss of office for our Directors Mr Gilauri is the sole Executive Director of the Group. Mr Gilauri has a service contract effective 29 May 2018 with Georgia Capital PLC for an indefinite term which is terminable by either party on not less than four months’ notice unless for cause where notice served by the Group shall have immediate effect. Mr Gilauri also has a service agreement with JSC Georgia Capital effective from 29 May 2018 until 31 December 2025 which is terminable by the Executive Director on not less than three months’ notice. For information on our policy on payments for loss of office, please see our full Policy at https://georgiacapital.ge/governance/cgf/policies. Letters of Non-Executive Directors’ appointments Each Non-Executive Director is required to submit himself or herself for annual re-election at the AGM. The letters of appointment for Non-Executive Directors provide for a one-month notice period although the Group may terminate the appointment with immediate effect without notice or pay in lieu of notice if the Non-Executive Director has committed any material breach or non-observance of his or her obligations to the Group, is guilty of fraud or dishonesty, brings the Group or him/herself into disrepute or is disqualified as acting as a Director, among other circumstances. Upon termination, the only remuneration a Non-Executive Director is entitled to is accrued fees as at the date of termination together with reimbursement of properly incurred expenses incurred prior to the termination date. The service agreements and letters of appointment are available for inspection at the Company’s registered office. Signed on behalf of the Remuneration Committee and the Board of Directors Neil Janin Chair of the Remuneration Committee 21 March 2024 156 157 NOMINATION COMMITTEE REPORT Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Overview ![img-28.jpeg](img-28.jpeg) Neil Janin Chairman of the Nomination Committee # DEVELOPING AND RECRUITING THE TALENT PIPELINE FOR A UNIQUE GROUP | Committee membership | Meeting attendance | | --- | --- | | Neil Janin (Chairman) | 2/3 | | Massimo Geaual 'ave Salvadori^{2} | 2/3 | | Irakli Gilauri | 2/3 | # Dear Shareholders I am delighted to present the Nomination Committee's ("the Committee") report for the year ended 31 December 2023, this being my first report to you having succeeded Jyrki Talvitie to the role of Committee Chair immediately following the AGM on 17 May 2023. I would like to thank both Jyrki and Kim Bradley for their outstanding contribution to the Company and as members of this Committee. The Committee's focus during the year was on ensuring that following the reduction in the size of the Board, the three Board Committees were properly and effectively constituted and that a replacement designated Non-Executive Director for employee-engagement was identified. The Committee's principal responsibility is to lead the process of appointing Directors to the Board and recruiting into other senior management positions. Having considered the results of the Board evaluation reported on later in this report, the Committee is satisfied that the composition of the Board and Committees overall remains appropriate with regards to the successful delivery of the Company's strategic and financial objectives. The Committee also concluded the same of the composition of the Audit and Valuation Committee continues to be appropriate. The Committee continues to monitor the ongoing combination of the roles of Chairman and CEO and is satisfied that this remains the best structure for the Company for the time being. Mr Gilauri recuses himself from any discussion on this subject. The Board has carried out a further evaluation, reported on later in this report and is satisfied that the size and composition of the Board is appropriate for the Group and that it comprises the right combination of skills, experience and knowledge. The Committee considers that there continues to be strong leaders across our portfolio companies. Succession planning, aligned to the Group's strategy, is an ongoing priority for the Committee at both Board and senior management level. More details on the matters above are set out later in this Report. # Neil Janin Chairman of the Nomination Committee 21 March 2024 1 The number of meetings of the Committee attended by each member during the year, together with the number of meetings they were entitled to attend. 2 Massimo Geaual 'ave Salvadori joined as a member of the Committee with effect from 17 May 2023. # The role of the Nomination Committee The role of the Nomination Committee is to ensure that the Board is comprised of individuals best able to discharge the responsibilities of Directors, having regard to the highest standards of governance, the strategic direction of the Company and the Board's Diversity Policy. We also help to ensure that the Company appoints excellent executive managers within our portfolio of companies, and who are capable of successfully executing our strategic objectives. In summary, the key responsibilities of the Nomination Committee include: - regular review of the composition of the Board and its Committees to ensure they are appropriately constituted and balanced in terms of diversity of gender, social and ethnic backgrounds, cognitive and personal strengths, and balance in terms of skills, experience, independence and knowledge; - responsibility for identifying and nominating candidates for the approval by the Board to fill Board vacancies as and when they arise; - giving full consideration to succession planning for Directors, including the Chairman and CEO and other senior management, taking into account the challenges and opportunities facing the Company, and the skills and expertise needed on the Board in the future; - keeping under review the Group's leadership needs, both executive and non-executive, and ensuring plans are in place for senior management succession, with a view to ensuring the continued ability of the Company to compete effectively in the marketplace; and - making recommendations to the Board concerning the re-election by shareholders of Directors under the annual re-election provisions of the UK Corporate Governance Code ("the Code"), having due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required and their independence, bearing in mind the need for progressive refreshing of the Board. The Committee undertook a review of its Terms of Reference, and the Committee is satisfied that these continue to be aligned to the Code and best practice, and appropriate for the Company. The full Terms of Reference of the Committee can be found on our website here: https://georgiacapital.ge/governance/cgf/terms. # Composition and meeting attendance The composition of the Committee and the members' meeting attendance for the year 2023 are set out in the Board and Committee meeting attendance table on page 127, and the skills and experience each member contributes can be found on pages 122 to 123. Up until 17 May 2023, the date of the Company's most recent AGM, the Committee was comprised of Jyrki Talvitie as Chair, Maria Chatti-Gautier, Irakli Gilauri and myself. I succeeded Jyrki Talvitie as Committee Chair following the 2023 AGM. At the same time Maria Chatti-Gautier stepped down from this Committee and Massimo Geaual 'ave Salvadori was appointed. From time-to-time members of management may be invited to meetings to provide a fuller picture and deeper level of insight into key issues and developments. The Committee also reviewed the time commitment of the Non-Executive Directors, and considered any external directorships, length of service as well as independence of character and integrity. Alongside these factors the Committee took into account the Company's strategic direction and the required skills and competencies required of the Board as a whole. The Committee concluded that it was happy to recommend that each Non-Executive Director and the Executive Director be re-elected at the 2024 AGM. With the Geaual pages against Audit sharing were The last years Chatti my in assess held Captain in Mass willing business Group regular this m previous know provide Comp also m meet consist indep You can size. Role The Ch Charm is not of the and re did no will key years share concl the Ch Inclu Our B the m mana The Ch promo strate appro taken Board Equal revolve effect review and th UK b of Syn The C given is Jew Canada 158 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOMINATION COMMITTEE REPORT CONTINUED Georgia Capital PLC Annual Report 2023 It is recognised that ethnic heritage draws upon a number of factors in We have made a concerted effort to reduce the number of non-executive The Committee is responsible for maintaining and assessing the Board and Committee evaluation tandem, and that the Group is primarily based in Georgia, where the directors on our Board and have succeeded in meaningfully reducing effectiveness of the Company’s Diversity Policy and reviews this on an The Company again engaged Amandla to conduct an in-depth Georgian majority ethnic group may not always fit neatly into UK-centric the cost of the Board without compromising on its quality. Given these ongoing basis. You can read more about the established diverse culture evaluation of Georgia Capital’s Board comprising a multi-faceted diversity metrics. Georgian (Kartuli) is the only prominent language of recent changes, we believe it to be in our shareholders’ best interests to and related activities during 2023 in the Resources and Responsibilities approach. This included online interviews with the entire Board, the Kartvelian language family, and has its own script, and the majority proceed on further Board changes with caution. We strongly believe that section on pages 80 to 93 and in the Sustainability Report. feedback reports, individual assessments for each Board member, religion in Georgia is the Orthodox Church of Georgia. Georgia sits diversity targets are not just an end goal, but a continuous journey. Our in-person group coaching and observation of Board meetings. Amandla geographically and culturally at the intersection of Europe, Asia and the long-term ambition is to increase diversity on our Board, in all its forms, Succession planning and talent development considers that the Board is functioning adeptly in terms of governance, Middle East, and Georgians tend to identify themselves as a distinct to ensure a wider representation of both gender and the society in which Board succession planning at the senior management level was, as supervision and oversight. Amandla observed that the Board is indigenous group of the Caucasus. we operate. With David Morrison’s and Massimo Gesua’ sive Salvadori’s mentioned previously, an area of focus for the Committee during the intrinsically tied to the commitment and longevity of its members, tenures as independent directors expiring in three years, the Committee year. We have previously reported on the creation of opportunities to reflecting a profound dedication to the Company’s mission. With the Diversity is a core feature of the Committee’s work and as such, is an will continue to ensure that diversity is always considered when drawing develop high-performing individuals and to build diversity in senior roles transformation into a more streamlined Board, Amandla reported the Georgia Capital PLC Annual Report 2023 integral part of the Board recruitment process as described in more up candidate shortlists, with the aim of increasing the representation of across the business. We continue to build on this initiative and have focus on maintenance of a rich diversity of experiences, a profound detail elsewhere in this report, and is part of the search specification women on the board, and in senior Board positions, and achieving the developed a talented pool of employees within Georgia Capital that we respect among members, and a commitment to progressive, assertive agreed with external agents. targets under the UK Listing Rules. believe is the best way to ensure a healthy and diverse pipeline of future debate. Amandla concluded that the Board is currently operating leaders of the Company in line with the Group’s strategy. effectively. Its potential could be maximised by affording Board members We remain committed to having a Board that is diverse in all respects On 31 December 2023, Georgia Capital, as an investment holding an uninterrupted period of collaboration and avoiding a revolving door and the Committee will continue to examine ways in which we can build company, had a total of 47 employees, of which 27 are females, and In addition, the Company pursues initiatives aimed at developing the of further changes. The Board’s members respect one another and are on its current diversity. We support the FTSE Women Leaders Review 20 are males. You can view our further gender diversity statistics on entrepreneurial business leaders that Georgia Capital will require as keen to steer the necessary transformations essential for creating value regarding gender diversity, and the Committee is working to improve the page 84 in the Resources and Responsibilities section and in the it grows. in a challenging region. gender balance of those in senior management positions and their direct Sustainability Report. reports, as described in the Resources and Responsibilities section on Training and Director induction The Chairmanship was described as commendable, and Amandla page 84 and in the Sustainability Report. Our gender identity and ethnicity data in accordance with LR 14.3.33R(2) We are committed to the continuing development of our Directors in commented that reduction in Board size augurs well for agile decision- at 31 December 2023 was as follows. The data was collected through order that they may build on their expertise and maintain a detailed making. The Board reflects diverse thoughts and experiences in line with Georgia Capital recognises that it does not currently satisfy the LR 14 self-reporting by the Directors and management: understanding of the business and the markets in which our investments industry standards. In terms of oversight, Amandla stated that the Board target, given that less than 40% of the individuals on our board are operate. All of our Directors participated in development sessions and is fit for purpose. Amandla had previously worked with the Chairman and women and no woman occupies the position of Chair, SID or CEO. presentations. The UK General Counsel and Group Corporate Secretary other senior executives within Georgia Capital. The assessment included provided briefings as appropriate on regulatory and governance a series of qualitative diagnostic interviews designed to ascertain from Number of senior | | | | | | | | | | developments, including on changes in the Listing Rules and on | each of the Board members several different components: | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | positions on the Board | | | | Number in | Percentage | | | | | Number of Board | | Percentage | | (CEO, CFO, SID | | | executive | of executive | stakeholder views on diversity. | 1. The individual strengths of each member. | | | | members | of the Board | | | and Chair) | management | | management | | 2. The areas which other Board members felt there could be a | | | | | | | | | | | | Each Director, upon appointment, receives a tailored induction to | | greater contribution. | Men 4 80% 3 6 66.66% the Company and its various investments over the first six months of 3. The dynamics in the team that allowed for healthy challenge Women 1 20% – 3 33.33% appointment, with the purpose of: and debate. Non-binary – – – – – • building an understanding of the nature of the Company, its business 4. The areas that might need attention. and its markets; Not specified/prefer not to say – – – – – • building a link with the Company’s people; Given his role as Chairman and CEO, Irakli Gilauri’s performance Notes: • building an understanding of the Company’s main relationships; and was also reviewed by the Remuneration Committee and the Senior • The CFO is a member of management team but not a member of the Board. • understanding the obligations and responsibilities of a Director of a Independent Director. In addition, the full Board met to consider the • The role of the Chair and CEO is combined. UK main market-listed company. Remuneration Committee’s recommendations. As part of the induction programme, each Director meets members of Table for reporting on ethnic background: executive management and receives information about the role of the Number of senior Board and individual Directors, each Board Committee and the powers positions on the Board Number in Percentage delegated to these Committees. The new Director is also advised of the Number of Board Percentage (CEO, CFO, SID executive of executive members of the Board and Chair) management management legal and other duties and obligations of a Director of a listed company. White British or other White (including minority-white groups) 3 60% 1 – – Mixed/Multiple Ethnic Groups – – – – – Asian/Asian British – – – – – Black/African/Caribbean/Black British – – – – – Other ethnic group, including Arab 2 40% 1 9 100% Not specified/prefer not to say – – – – – 160 161 ## STATEMENT OF DIRECTORS' RESPONSIBILITIES | Strategic Review Overview | Strategic Review Our Business | Strategic Review Discussion of Results | Google | | --- | --- | --- | --- | The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the financial statements in accordance with the applicable UK-accepted international accounting standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - state whether applicable UK-accepted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; - make judgements and accounting estimates that are reasonable and prudent; and - prepare the financial statements on a going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2000. The Directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ### We confirm that to the best of our knowledge: - the Company financial statements, which have been prepared in accordance with UK-accepted international accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and - the Annual Report, including the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. We consider the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. By order of the Board **Irakli Gilauri** Chairman and CEO 21 March 2024 ## DIRECTORS' REPORT The Directors present their Annual Report and the audited financial statements for the year ended 31 December 2023. Please refer to the Corporate Governance Statement for further information on how we applied the UK Corporate Governance Code. ### Strategic Report The Strategic Report on pages 2 to 119 was approved by the Board of Directors on 21 March 2024 and signed on its behalf by Irakli Gilauri, Chairman and Chief Executive Officer. ### Management Report This Directors' Report together with the Strategic Report on pages 2 to 119 form the Management Report for the basis of STR 4.1.5 R. ### Directors The names and biographies of the current Directors of the Company are shown on pages 122 to 123 and include their relevant experience. In accordance with the UK Corporate Governance Code, all Directors will retire and stand for re-election at the AGM. The Directors' beneficial interests in ordinary shares of Georgia Capital as at 31 December 2023 are shown on page 150 together with any changes in those interests between the financial year end and the date on which this Directors' Report was approved by the Board. ### Powers of Directors The Directors may exercise all powers of the Company subject to applicable legislation and regulations and Georgia Capital's Articles of Association. ### Information contained elsewhere in the Annual Report Information required to be included in this Directors' Report can be found elsewhere in the Annual Report as indicated in the table below and is incorporated into this report by reference:
InformationLocation
Future developmentsPage 1
Going Concern StatementPage 1
Viability StatementPage 1
Risk managementPage 1
Principal risks and uncertaintiesPage 1
Directors' Governance StatementPage 1
The Board of DirectorsPage 1
Audit and Valuation Committee reportPage 1
Remuneration Committee reportPage 1
Summary of Remuneration PolicyPage 1
Nomination Committee reportPage 1
Related party disclosuresPage 1
Greenhouse gas emissionsPage 1
Employee mattersPage 1
Environmental mattersPage 1
Share capitalPage 1
Engagement with suppliers, customers and others in a business relationship with the CompanyPage 1
Information on the Group's financial risk management objectives and policies, and its exposure to credit risk, foreign currency risk and financial instrumentsPage 1
Research and developmentAs an example, the company is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company that is not a company 162 # DIRECTORS' REPORT CONTINUED Strategic Review Overview Strategic Review Our Business Strategic Review Discussion of Results Green A renewal of the authority to make market purchases will be sought from shareholders at each AGM of the Company. Purchases of ordinary shares will be made within guidelines established from time to time by the Board. Any purchase of ordinary shares would be made only out of the available cash resources of the Company. Ordinary shares purchased by the Company may be held in treasury or cancelled. Authority was given at the AGM of the Company on 17 May 2023 for the Company to purchase up to 15,889,751 shares (approximately 35% of Georgia Capital's issued ordinary share capital excluding treasury shares as at 23 March 2023) off-market. This authority will expire at the conclusion of the Company's AGM in 2024 or, if earlier, the close of business on 17 June 2024. A renewal of the authority to make off-market purchases may be sought from shareholders at future AGMs of the Company. Purchases of ordinary shares will be made within guidelines established from time to time by the Board. Any purchase of ordinary shares would be made only out of the available cash resources of the Company. Ordinary shares purchased by the Company may be held in treasury or cancelled. At the AGM of the Company on 17 May 2023, the Directors were given the power up to allot shares up to a maximum nominal amount of GBP 145,426.20 (representing 14,942,650 ordinary shares, approximately one third of the Company's issued share capital as at 23 March 2023), and up to allot equity securities up to an aggregate nominal amount of GBP 148,426.20 in connection with an offer by way of a rights issue. It is not a holding of shares in proportion (as nearly as may be practicable) to their existing holdings; and it is not a holding of other equity securities as required by the rights of those securities or, if the Board consider it necessary, as permitted by the rights of those securities, such amount to be reduced by the aggregate nominal amount of shares allotted or rights to subscribe for or to convert any securities into shares granted under paragraph (a), and subject to the Board having the right to make such exclusions or other arrangements as they may deem necessary or expedient in relation to treasury shares, fractional entitlements, record-dates or legal, regulatory or practical problems in, or under the laws of, any territory. These authorities will expire at the conclusion of the 2024 AGM (or, if earlier, at the close of business on 17 August 2024) and approval will be sought at that meeting to renew a similar authority for a further year. The Directors did not allot any shares during 2023. In April 2023, the Board approved a buyback programme whereby the Company purchased 1,000,000 of Georgia Capital's issued ordinary share capital with a total nominal value of US$ 10.5 million. All shares purchased pursuant to this programme were cancelled on a monthly basis, consequently reducing the share capital. The last buyback under this programme occurred on the 20 June 2023. In October 2023, the Board approved a new US$ 15.0 million share buyback and cancellation programme with the intention of all shares purchased pursuant to this programme to be cancelled on a monthly basis, consequently reducing the share capital. Under the US$ 10 million share buyback and cancellation programme, the Company purchased 855,222 of Georgia Capital's issued ordinary share capital with a total nominal value of US$ 8.3 million in 2023. In the first quarter of 2024 to date 458,642 shares have been bought back and cancelled. The purpose of both buyback programmes was to reduce Georgia Capital PLC's number of outstanding ordinary shares. Under the above programmes, the Company has repurchased 1,085,222 of its own shares during the financial year ended 31 December 2023, representing a nominal value of US$ 18.3 million and an aggregate consideration paid by Georgia Capital PLC of GBP 14.6 million on the UK trading. The shares cancelled represent 3.7% of the shares in issue and 3.9% of the shares in issue, excluding treasury shares. None of the ordinary shares carry any special rights with regard to control of Georgia Capital. There are no restrictions on transfers of shares other than: - certain restrictions, which may from time to time be imposed by laws or regulations such as those relating to insider dealing or pursuant to the Group's Inside Information Disclosure Policy; - pursuant to the Company's Securities Dealing Policy and Code, whereby the Directors and designated employees may be apprised to deal in Georgia Capital's shares or cannot deal in certain periods; and - where a person with an interest in the Company's shares has been served with a disclosure notice and has failed to provide the Company with information concerning interests in those shares. There are no restrictions on exercising voting rights save in situations where Georgia Capital is legally entitled to impose such restriction (for example, under the Articles of Association where amounts remain unpaid in the shares after request, or the holder is otherwise in default of an obligation to Georgia Capital). Georgia Capital is not aware of any arrangements between shareholders that may result in restrictions on the transfer of securities or voting rights. In August 2023, JSC Georgia Capital issued a US$ 150 million SLB on the Georgian market. The bonds are US$ denominated with a five-year bullet maturity (callsible after two years), carry an 8.50% fixed coupon and were issued at par. The bonds are rated BB- by S&P, a one-notch upgrade compared to the Eurobonds. The proceeds from the transaction, together with the existing liquid funds of GCAP were fully used to redeem GCAP's Eurobonds. ## Results and dividends The Company made a profit before taxation of GEL 808.6 million. The Company's profit after taxation for the year was GEL 835.6 million. The Company may by ordinary resolution declare dividends provided that no such dividend shall exceed the amount recommended by the Company's Directors. The Directors may also pay such interim dividends as appear to be justified by the profits of the Company available for distribution. As the Company is a holding company, Georgia Capital relies primarily on dividends and other statutorily if any and contractually permissible payments from its subsidiaries to generate the funds necessary to meet its obligations and pay dividends to its shareholders. The Company expects to be a cash-generative business with the opportunity for attractive capital investment to enhance its growth prospects, both through organic investments and acquisitions. The Board intends to pursue a capital returns policy that reflects this strategy whilst also delivering shareholders high-quality, long-term dividend growth, through share buybacks or other potential exits. However, the Board may periodically reassess the Company's dividend policy and the payment of dividends (or quantum of the same) will depend on the Group's existing and future financial condition, results of operations, capital requirements, investment and investment cycles, liquidity needs and other matters the Board considers relevant from time to time. ## AGM The arrangements for the Company's next AGM and details of the resolutions to be proposed, together with explanatory notes will, be set out in the Notice of AGM to be published on the Company's website: https://georgiacapital.ge/ ## Equity Settled Option Plan (ESOP) The Company operates an EBT (the 'ESOP'), which holds ordinary shares in trust for the benefit of employees and former employees of the Group, and their dependents, and which is used in conjunction with the Group's employee share schemes. Whilst ordinary shares are held in the EBT, the voting rights in respect of these ordinary shares are exercised by the trustees of the EBT. In accordance with the ESOP documentation, Apex Group Fiduciary Services Limited has waived its right to review any dividends. This waiver will remain in place indefinitely, unless otherwise instructed by Georgia Capital. New shares issued in satisfaction of deferred share compensation from the time of the Company's listing on the LSE will not exceed 10% of the Company's ordinary share capital over any ten-year period. ## Conflicts of interest In accordance with the Companies Act 2006, the Directors have adopted a policy and procedure for disclosure and authorisation (if appropriate) of conflicts of interest, and these have been followed during 2023. The Company's Articles of Association also contain provisions to allow the Directors to authorise potential conflicts of interest so that a Director is not in breach of his or her duty under company law. ## Directors' remuneration Directors' fees are determined by the Remuneration Committee from time to time. The remuneration of Directors must be in accordance with the Directors' Remuneration Policy. A remuneration policy was put to the shareholders for approval at the 2023 AGM and remuneration is determined in accordance with that Policy. The fees paid to the Non-Executive Directors in 2023 pursuant to their letters of appointment are shown on page 150. The fees paid to our sole Executive Director in 2023 pursuant to his service agreements with Georgia Capital are shown on pages 142 to 143. ## Indemnity Subject to applicable legislation, every current and former Director or other officer of the Company (other than any person engaged by the Company as auditor) shall be indemnified by the Company against (broadly) any liability in relation to the Company, other than (broadly) any liability to the Company or a member of the Company, or any criminal or regulatory fine. In addition, the Company has put in place Directors' and Officers' liability insurance. Such indemnities were in force throughout the financial period and will remain in force as at the date of the Annual Report. ## Related party disclosures Details of related party disclosures are set out in Note 14 to the financial statements on page 203 of this Annual Report. ## Significant agreements The Company is not party to any significant agreements that take effect, alter or terminate upon a change of control of the Company. The Company is not aware of any agreements between holders of its ordinary shares that may result in restrictions on the transfer of its ordinary shares or on voting rights. ## Presence outside of Georgia The Company has an office in London: see page 267. ## Employee disclosures Our disclosures relating to the number of women in senior management, employee engagement and our policies on human rights, including employees with a disability, are included in the section 'Employee matters' on pages 82 to 85. ## Political donations The Company did not make any political donations or expenditure during 2023. Authority to make political donations and incur political expenditure will be put to shareholder vote at the 2024 AGM. ## Code of Conduct and Ethics The Board has adopted a Code of Conduct and Ethics relating to the lawful and ethical conduct of the business, supported by the Company's core values. The Code of Conduct and Ethics has been communicated 1. Combined several accounts managed by Lazard Asset Management LLC. 2. On the one person accounts managed by Lazard Asset Management LLC. Considering the units approximately 6.2% (based on the management estimate). 164 | Strategy Review Overview | Strategy Review Our Business | Strategy Review Discussion of Results | Overview | | --- | --- | --- | --- | # INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF GEORGIA CAPITAL PLC ## Report on the audit of the financial statements ### Opinion In our opinion, Georgia Capital PLC's financial statements: - give a true and fair view of the state of the company's affairs as at 31 December 2023 and of its profit and cash flows for the year then ended; - have been properly prepared in accordance with UK adopted international accounting standards; and - have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: Statement of Financial Position as at 31 December 2023; the Statement of Profit or Loss and Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended; and the notes to the financial statements, comprising material accounting policy information and other explanatory information. Our opinion is consistent with our reporting to the Audit and Valuation Committee. ### Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ### Independence We recognised independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. Other than those disclosed in note 9 – Auditors' remuneration, we have provided no non-audit services to the company or its controlled undertakings in the period under audit. ### Our audit approach #### Context Georgia Capital PLC is a company listed on the London Stock Exchange which invests in and develops businesses within Georgia. It holds 100% of the share capital of JSC Georgia Capital. Its primary operations are in Georgia. In planning for our audit, we met with the Audit and Valuation Committee and members of management to discuss and understand significant changes to the business during the year, and to understand their perspectives on associated business risks. We used this insight when forming our views regarding the business, as part of developing our audit plan and when scoping and performing our audit procedures. ### Overview #### Audit scope - The Annual Report and financial statements are prepared as an investment entity under IFRS 10. We have audited 100% of the investment portfolio held by Georgia Capital PLC through JSC Georgia Capital. This represents 99% of the equity investments at fair value balance. - We instructed PwC Georgia to perform audit procedures on inputs to the valuation models of the investment portfolio. We performed audit procedures over the assumptions and methodologies applied in developing the valuation of the investment portfolio. - We instructed PwC Georgia to perform audit procedures over valuation model inputs and other balances pertaining to the equity investments at fair value balance. #### Key audit matters - Valuation of equity investments at fair value. #### Materiality - Overall materiality: GEL 33,785,000 (2022: 28,174,000) based on 1% of net assets. - Performance materiality: 25,336,000 (2022: 14,086,965). ### The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. ### Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, of the current period and include the most significant assessed risks of material misstatement including those which had the greatest effect on the overall audit strategy, the ability to engage in the management team. These matters, and any comments we make on the results of the audit of the financial statements as a whole, and in forming our opinion thereon, are This is not a complete list of all risks identified by our audit. The key audit matters are #### Key audit matter ##### Valuation of equity investments at fair value The equity investments at fair value balance presented in the Statement of Financial Position is the Company's investment in its subsidiary, predominantly comprised of the fair value of the investment portfolio. The investment portfolio includes unquoted investments. The accounting policy for this balance is included in note 3 to the financial statements. The breakdown of the balance is disclosed in note 5 to the financial statements and the value of the unquoted investments is GEL 2,267m. In valuing the investment portfolio, key assumptions include discount rates, future growth projections, control premia, liquidity discounts and the application of weighted averages to different valuation approaches. The inputs in the earnings multiples models include observable data, such as earnings multiples of comparable companies to the relevant investment, and unobservable data, such as forecast earnings for the investments. In discounted cash flow models, unobservable inputs are the project cash flows of the relevant investments and the discount rates applied. The valuation of equity investments at fair value was identified as a key audit matter given the valuation is inherently subjective due to, among other factors, the individual nature of each investment and the expected future cash flows. The significance of the estimates and judgements involved, coupled with the fact that only a small percentage difference in individual investment valuations, when aggregated, could result in a material misstatement, warranted specific audit focus in this area. #### How a We of control under external valuati • • • We • We • We the ten • Based and c and c • • In test ch • Va to ac • Ta the • Re Ce • Fie ma • Su • Su of mo • Va sa • Va sa In ad of the know the te valuati perfor • Ob in • Dur • Re ap inc • Re rat an • Re an • Re an • Re an We co disco the ac of ma 166 # INDEPENDENT AUDITORS' REPORT CONTINUED | Strategic Review Overview | Strategic Review Our Business | Strategic Review Discussion of Results | Cover | | --- | --- | --- | --- | ## How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates. Georgia Capital PLC is an investment entity as defined by IFRS 10. It recognises its 100% holding in JSC Georgia Capital under the Equity Investments at fair value account. 97% of this balance is comprised of equity investments held at fair value through JSC Georgia Capital. The audit work over this balance was performed by the UK and Georgia engagement teams in conjunction with PwC UK valuation experts. The Senior Statutory Auditor is based in the UK, along with the UK engagement team. As the Company's management and operations are located in Georgia, the UK engagement team has instructed the Georgia engagement team for JSC Georgia Capital to report to the UK on special purpose financial information as it pertains to the equity investments at fair value balance. The Georgia engagement team have carried out audit procedures over certain balances included within equity investments at fair value along with testing of inputs into the investment valuation models. The UK engagement team, together with the UK valuations experts, performed audit procedures over the judgemental assumptions and methodologies employed in determining a fair value. The UK engagement team held regular calls with the Georgia engagement team to understand the audit approach, findings from the results of audit procedures and any issues arising from our work. The Senior Statutory Auditor traveled to Tbilisi, Georgia to meet with the Georgia engagement team face to face and perform an on-site review of work performed by the Georgia engagement team. The UK engagement team also performed a remote review of working papers through use of our audit software and were responsible for the direction, review and oversight of the audit process. ## The impact of climate risk on our audit In planning and executing our audit, we have considered the potential impacts of climate change on the Company's business and its financial statements, based on our knowledge of the Company's operations and its strategy in relation to climate change. In 2023, the Company has continued to develop its assessment of the potential impacts of climate change as outlined in the TCFD report on pages 88-91. As part of our audit, we have obtained management's and the Audit and Valuation Committee's climate-related risk assessment to understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on the Company's financial statements. We have performed our own qualitative risk assessment of the potential impact of climate change on the Company's key account balances and classes of transactions, namely the assumptions embedded in discounted cash flows models for growth rates, operating expenses and capital expenditure, and have not identified any additional risks of material misstatement. We also considered the consistency of the disclosures in relation to climate change in the financial statements with the disclosures in the Task Force on Climate-related Financial Disclosures (TCFD) section and more broadly within the Responsibility section of the Strategic Report. ## Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | **Overall company materiality** | QEL 33,785,000 (2022: 28,174,000). | | --- | --- | | **How we determined it** | 1% of net assets | | **Rationale for benchmark applied** | Based on the benchmarks used in the Annual Report, net assets is the primary measure used by shareholders in assessing the performance of the Company and is a generally accepted auditing benchmark. | We use performance materiality to reduce to an appropriately low level the profitability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020: 50%) of overall materiality, amounting to 26,938,000 (2022: 14,086,000) for the company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit and Valuation Committee that we would report to them misstatements identified during our audit above 1,089,000 (2022: QEL 1,409,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. ## Conclusions relating to going concern - Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included: - Reviewing management's going concern assessment memorandum which included a base case cash flow and severe but plausible scenario analysis covering the period to 31 March 2025. - Holding discussions with the CFO and Head of Finance to understand economic developments in Georgia in the face of ongoing global instability and performing independent research on expected economic impacts of such scenarios along with predicted future performance of the Georgian economy. - Assessing the liquidity of the portfolio and the Company's ability to realise any holdings if needed. - Understanding and assessing the appropriateness of the key assumptions used to consider the downside sensitivities to be appropriately severe, the availability of forecast period. - Combining key assumptions in the cash flow forecasts to other evidence including this was consistent with our audit work in these and other areas. - Reviewing the disclosures in the financial statements relating to the going concern explanation of the Directors' assessment that was consistent with the audit evaluation. - Reviewing Board meeting minutes, and met with members of the Audit and Valuation Committee under their view on the future of the Company and its ability to continue as a whole. Based on the work we have performed, we have not identified any material uncertainty or inefficiency, may cast significant doubt on the company's ability to continue as a whole, the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors' use of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is as a going concern. In relation to the directors' reporting on how they have applied the UK Corporate Governance Act, we are also at the attention to in relation to the directors' statement in the financial statements about the company's economic and economic basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are: ## Reporting on other information The other information comprises all of the information in the Annual Report other than the Directors are responsible for the other information. Our opinion on the financial statements is not to be construed as a matter of any kind, except to the extent otherwise explicitly stated. In connection with our audit of the financial statements, our responsibility is to respect the other information is materially inconsistent with the financial statements or our knowledge obtained by the directors. We are also interested in the information that we have provided. If we identify an apparent material inconsistency or material misstatement, we should be aware that there is a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements or a material misstatement of the financial statements. With respect to the Strategic report and Directors' Report, we also considered what we have been included. Based on our work undertaken in the course of the audit, the Companies Act 2000 was described below. ## Strategic report and Directors' Report In our opinion, based on the work undertaken in the course of the audit, the information we have provided was that we have been included. We are also interested in the information that we have provided. We are also interested in the information that we have provided. In light of the knowledge and understanding of the company and its environment of the financial statements in the Strategic report and Directors' Report. ## Directors' Remuneration In our opinion, the part of the Directors' Remuneration Report to be audited has been included. ## Corporate governance statement SRA (UK) requires to review the directors' statements in relation to going concern. The financial statement relating to the company's compliance with the provisions of the UK Corporate Governance Act, which is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be construed as a matter of any kind, and the information contained in the financial statements is not to be Based on the work undertaken as part of our audit, we have concluded that each of the financial statements is materially consistent with the financial statements and our knowledge obtained by the directors' statement in relation to in relation to: - The directors' confirmation that they have carried out a robust assessment of the company's financial statements; - The disclosures in the Annual Report that describe those principal risks, what are the risks of the financial statements and the explanation of how these are being managed or mitigated; - The directors' statement in the financial statements about whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider the financial statements and whether they consider Georgia Capital PLC Annual Report 2024 168 ## INDEPENDENT AUDITORS' REPORT CONTINUED - The directors' statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the directors' statement regarding the longer-term viability of the company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statement, checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the company and its environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: - The directors' statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the company's position, performance, business model and strategy; - The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and - The section of the Annual Report describing the work of the Audit and Valuation Committee. We have nothing to report in respect of our responsibility to report when the directors' statement relating to the company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. ### Responsibilities for the financial statements and the audit #### Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. #### Auditors' responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of the UK regulatory principles, such as the Listing Rules, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to potential management bias in accounting estimates, in particular in relation to the valuation of the investment portfolio. Audit procedures performed by the engagement team included: - Discussions with management, and review of relevant meeting minutes (including those of the Board of Directors and the Audit and Valuation Committee), including consideration of known or suspected instances of non-compliance with laws and regulations and fraud; - Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing; - Challenging assumptions made by management in their significant accounting estimates, in particular in relation to the valuation of equity investments at fair value; and - Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report. ### Use of this report This report, including the opinions, has been prepared for and only for the companies Act 2006 and for no other purpose. We do not, in giving these opinions, have any other person to whom this report is shown or into whose hands it may come to you. ### Other required reporting #### Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: - we have not obtained all the information and explanations we require for our audit; - adequate accounting records have not been kept by the company, or returns are not valid by us; or - certain disclosures of directors' remuneration specified by law are not made; or - the financial statements and the part of the Directors' Remuneration Report to be issued and returns. We have no exceptions to report arising from this responsibility. ### Appointment Following the recommendation of the Audit and Valuation Committee, we were appointed as the auditors' agent. The auditors' agent's statements for the year ended 31 December 2022 and subsequent financial performance covering the years ended 31 December 2022 to 31 December 2023. ### Other matter As required by the Financial Conduct Authority Disclosure Guidance and Transparency Act 2006, the ESEF-prepared annual financial report filed on the National Storage Mechanism of the United States of America (NSA) and the Regulatory Technical Standard (ESEF RTS). This auditors' report provides no assurance that the single electronic format specified in the ESEF RTS. ### Allan McGrath (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 21 March 2024 170 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## STATEMENT OF FINANCIAL POSITION STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME ## AS AT 31 DECEMBER 2023 (THOUSANDS OF GEORGIAN LARI) FOR THE YEAR ENDED 31 DECEMBER 2023 (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 | | | 31 December | | 31 December | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Note | | 2023 | | 2022 | | Note 2023 2022 | | Assets | | | | | | Gains on investments at fair value 6 568,351 925 | | | Cash and cash equivalents* 12,319 23,361 | | | | | | Dividend income 6 47,659 – | | Investment in redeemable securities 3,517 – Gross investment profit 616,010 925 Prepayments 976 363 Equity investments at fair value 6 3,363,411 2,795,060 Administrative expenses 9 (4,476) (4,389) Salaries and other employee benefits 9 (2,087) (2,374) Total assets 3,380,223 2,818,784 Profit/(loss) before foreign exchange and non-recurring items 609,447 (5,838) Liabilities Other liabilities 1,711 1,393 Net foreign currency loss (955) (6,075) Georgia Capital PLC Annual Report 2023 Non-recurring expense – (240) Total liabilities 1,711 1,393 Net gains from investment securities measured at fair value through profit or loss 125 – Equity Profit/(loss) before income taxes 608,617 (12,153) Share capital 8 1,420 1,473 Additional paid-in capital and merger reserve 238,311 238,311 Income tax 7 – – Treasury shares (2) – Profit/(loss) for the year 608,617 (12,153) Retained earnings 3,13 8,783 2, 5 77,6 07 Other comprehensive income – – Total equity 3,378,512 2,817,391 Total comprehensive income/(loss) for the year 608,617 (12,153) Total liabilities and equity 3,380,223 2,818,784 Earnings/(Loss) per share (GEL): 8 – basic 15.4102 (0.2887) * As at 31 December 2023 and 31 December 2022 cash and cash equivalents consist of current accounts with credit institutions. – diluted 14.9311 (0.2887) The accompanying notes on pages 176 to 203 are an integral part of these financial statements. The financial statements on page 172 to 175 were approved by the Board of Directors on 21 March 2024 and signed on its behalf by: Irakli Gilauri Chief Executive Officer Georgia Capital PLC Registered No. 10852406 The accompanying notes on pages 176 to 203 are an integral part of these financial statements. 172 173 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (THOUSANDS OF GEORGIAN LARI) FOR THE YEAR ENDED 31 DECEMBER 2023 (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 Additional paid- | | Share | in capital and | Retained | | | | --- | --- | --- | --- | --- | --- | | | capital | merger reserve Treasury shares | earnings Total | | Note 2023 2022 | | 1 January 2023 1,473 238,311 – 2,577,607 2,817,391 | | | | Cash flows from operating activities | | Salaries and other employee benefits paid (1,546) (1,877) Profit for the year – – – 608,617 608,617 General, administrative and operating expenses paid (4,685) (4,780) Total comprehensive income for the year – – – 608,617 608,617 Net other expense paid – (3,172) Increase in equity arising from share-based payments (Note 10) – – – 541 541 Cancellation of shares (Note 8) (53) – 53 – – Net cash flows used in operating activities before income tax (6,231) (9,829) Purchase of treasury shares (Note 8) – – (55) (47,982) (48,037) Income tax paid – – 31 December 2023 1,420 238,311 (2) 3,138,783 3,378,512 Net cash flow used in operating activities (6,231) (9,829) Georgia Capital PLC Annual Report 2023 Cash flows from investing activities Additional paid- Capital redemption from subsidiary 6 – 8 7,2 3 8 Share in capital and Retained capital merger reserve Treasury shares earnings Total Purchase of redeemable securities (3,382) – Dividends received 6 47,659 – 1 January 2022 1,547 238,311 – 2,643,764 2,883,622 Cash flows from investing activities 44,277 87, 23 8 Loss for the year – – – (12,153) (12,153) Total comprehensive loss for the year – – – (12,153) (12,153) Cash flows from financing activities Increase in equity arising from share-based payments (Note 10) – – – 495 495 Other purchases of treasury shares 8 (47,834) (54,326) Cancellation of shares (Note 8) (74) – 74 – – Acquisition of treasury shares under share-based payment plan 8 (203) (247) Purchase of treasury shares (Note 8) – – ( 74) (54,499) (54,573) Net cash used in financing activities (48,037) (54,573) 31 December 2022 1,473 238,311 – 2,57 7,6 07 2,817,391 Effect of exchange rates changes on cash and cash equivalents (1,051) (6,675) Net (decrease)/increase in cash and cash equivalents (11,042) 16,161 The accompanying notes on pages 176 to 203 are an integral part of these financial statements. Cash and cash equivalents, beginning of the year 23,361 7, 20 0 Cash and cash equivalents, end of the year 12,319 23,361 The accompanying notes on pages 176 to 203 are an integral part of these financial statements. 174 175 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 1. Principal Activities 2. Basis of Preparation continued Georgia Capital PLC (“Georgia Capital”, “GCAP” or the “Company”) is a public limited liability company incorporated and domiciled in United Going concern continued Kingdom with registered number 10852406. Georgia Capital PLC holds 100% of the share capital of the JSC Georgia Capital (“JSC GCAP”), which On August 3, 2023, JSC GCAP issued US$ 150 million sustainability-linked local bonds in Georgia, with an 8.5% coupon rate, payable in August makes up a group of companies (the “Group”), focused on buying, building and developing businesses in Georgia and monetising investments as 2028. The proceeds from the transaction, together with GCAP’s existing liquid funds, were fully used to redeem GCAP’s US$ 300 million Eurobonds. they mature. The Group currently has the following portfolio businesses: (i) a retail (pharmacy) business, (ii) a hospitals business (consisting of a) Following these transactions, GCAP’s gross debt balance decreased from US$ 300 million to US$ 150 million. In February 2024, GCAP made its first Large and Specialty Hospitals and b) Regional and Community Hospitals), (iii) an insurance business (P&C and medical insurance), (iv) a clinics and coupon payment on the bond in the amount of US$ 6.4 million. The Directors remain confident that, given the strong liquidity and the Group’s track diagnostics business, (v) a renewable energy business (hydro and wind assets) and (vi) an education business. Georgia Capital also holds other small record of proven access to capital, GCAP will successfully continue to service its existing bonds. private businesses across different industries in Georgia, a 20% equity stake in the water utility business and a 19.7% (2022: 20.6%) equity stake in LSE premium-listed Bank of Georgia Group PLC (“BoG”), a leading universal bank in Georgia. The shares of Georgia Capital are admitted to trading The Company has been increasingly assessing climate-related risk and opportunities that may be present to the Group. During the going concern on the London Stock Exchange PLC’s Main Market for listed securities under the ticker CGEO, effective 29 May 2018. period no significant risk has been associated to the Group and portfolio companies that would materially impact their ability to generate sufficient cash and continue as a going concern. Georgia Capital PLC Annual Report 2023 Georgia Capital’s registered legal address is 42 Brook Street, London W1K 5DB, England, United Kingdom. Based on the considerations outlined above, management of Georgia Capital concluded that the going concern basis of preparation remains As at 31 December 2023 and 31 December 2022, the following shareholders owned more than 5% of the total outstanding shares* of Georgia appropriate for these financial statements. Capital. Other shareholders individually owned less than 5% of the outstanding shares. The Group performed stress testing for the assessment period, which involved modelling the impact of a combination of severe and plausible risks. 31 December 31 December Shareholder 2023 2022 Based on the results of the stress tests, the directors concluded that the Group remains solvent with solid financial position and has sufficient cash and liquid investment securities to withstand the distressed scenario. Gemsstock Ltd 11% 11% Allan Gray Ltd 7% 7% Subsidiaries and associates Lazard Asset Management LLC** 6% 4% The total amount of investment in subsidiaries in the Company’s statement of financial position as at 31 December 2023 was GEL 3,363,411 (as Others 76% 78% at 31 December 2022: 2,795,060) represented by direct investment in JSC Georgia Capital. As at 31 December 2023 and 31 December 2022, Total 100% 100% investment in JSC Georgia Capital (Note 12) is measured at fair value. As at 31 December 2023 and 31 December 2022, equity investments of JSC Georgia Capital include the following subsidiaries and associates: | * For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares which includes shares held in the trust for share-based | | | Proportion of voting rights and | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | compensation purposes of the Group. | | ordinary share capital held* | | | | | | | | | | ** Combines several accounts managed by Lazard Asset Management LLC. | | | 31 December | | 31 December | | Country of | | Date of | | Date of | | | | Subsidiaries consolidated | | 2023 | | 2022 | incorporation Address Industry | incorporation | | acquisition | | References to the Group are applied in these financial statements in the context of going concern assessment, segment, fair valuation and risk GCMF, LLC 100.00% 100.00% Georgia 8a Petre Melikishvili Excess liquidity 2/5/2019 – management disclosures. avenue, Tbilisi, 0179 management company 2. Basis of Preparation General Proportion of voting rights and The financial statements have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the ordinary share capital held* | Companies Act 2006 as applicable to companies reporting under those standards. | | 31 December | | 31 December | | Country of | | | Date of | | Date of | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Subsidiaries at fair value | | 2023 | | 2022 | incorporation Address Industry | | incorporation | | acquisition | | | These financial statements are prepared under the historical cost convention except for equity investments held at fair value through profit or loss (FVPL). | JSC Georgia Real Estate 100.00% 100.00% Georgia 10 Givi Kartozia street, | | | | | | Real estate 27/9/20 06 – | | | | | Tbilisi The financial statements are presented in thousands of Georgian Lari (GEL), except per-share amounts and unless otherwise indicated. m2 group, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 17/8/2015 – Tbilisi Investment entity status M Square Park, LLC 100.00% 100.00% Georgia 1 Marshal Gelovani Real estate 15/9/2015 – On 31 December 2019 Georgia Capital concluded that it met the definition of investment entity as defined in IFRS 10 Consolidated Financial avenue, Tbilisi Statements. As per IFRS 10 an investment entity is an entity that: M square Park 3, LLC 100.00% 100.00% Georgia 1 Marshal Gelovani Real estate 25/5/2022 – a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; avenue, Tbilisi b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and M square Park 4, LLC 100.00% 100.00% Georgia 1 Marshal Gelovani Real estate 25/5/2022 – c) measures and evaluates the performance of substantially all of its investments on a fair value basis. avenue, Tbilisi M square Park X, LLC 100.00% 100.00% Georgia 1 Marshal Gelovani Real estate 23/6/2022 – As of 31 December 2023, the Company continues to meet the definition of investment entity. Further details on the investment entity status and avenue, Tbilisi underlying significant judgements are provided in Notes 3, 4, 6 and 12 respectively. Optima Saburtalo, LLC 100.00% 100.00% Georgia 10 Givi. Kartozia street, Real estate 15/9/2015 – Tbilisi Going concern Land, LLC 100.00% 100.00% Georgia 10 Givi. Kartozia street, Real estate 3/10/2014 – The Board of Directors of Georgia Capital has made an assessment of the Company’s ability to continue as a going concern and is satisfied that it Tbilisi has the resources to continue in business for a period of at least 12 months from the date of approval of the financial statements, i.e. the period ending m2 at Nutsubidze 2, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 24/1/2020 – 31 March 2025. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to Tbilisi continue as a going concern for the foreseeable future. Therefore, the financial statements continue to be prepared on a going concernbasis. m2 at Hippodrome, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 6/7/2015 – Tbilisi The Directors have made an assessment of the appropriateness of the going concern basis of preparation and reviewed Georgia Capital’s liquidity Optima, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 3/8/2016 – outlook for the period ending 31 March 2025. Tbilisi m2 Maintenance, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 20/7/2021 – The main source of cash inflow for GCAP PLC is capital redemption from JSC GCAP, which holds the liquid assets to support the liquidity needs Tbilisi of the Company as well. As at 31 December 2023, JSC GCAP holds cash in the amount of GEL 51,138, amounts due from credit institutions in the m2 at Mtatsminda Park, LLC 100.00% 100.00% Georgia 10 Givi Kartozia street, Real estate 31/12/2021 – amount of GEL 8,678 and marketable debt securities and redeemable securities in the amount of GEL 18,203 and GEL 14,068 (refer to Note 12). Tbilisi Securities are considered to be highly liquid, as they are debt instruments listed on international and local markets. m2 Care Fund N(N)LE 100.00% 0.00% Georgia 10 Givi Kartozia street, Real estate 16/1/2023 – Tbilisi The liquidity needs of the Group during the going concern review period mainly consist of the coupon payments on JSC GCAP sustainability-linked M square Park 5, LLC 100.00% 0.00% Georgia 10 Givi Kartozia street, Real estate 11/10/2023 – bonds and the operating costs of running the holding companies and capital allocations to its portfolio companies. The liquidity outlook also assumes Tbilisi dividend income from the private portfolio companies (healthcare, retail (pharmacy), renewable energy, and insurance businesses) and Bank of Georgia Real Estate 100.00% 100.00% Georgia 10 Givi Kartozia street, Hospitality 17/8/2015 – Georgia Group PLC. Capital allocations are assumed in relation to investment stage companies (renewable energy and education businesses). Management Group, LLC Tbilisi 176 177 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 | 2. Basis of Preparation continued | | | | | | | | | | | 2. Basis of Preparation continued | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Subsidiaries and associates continued | | | | | | | | | | | Subsidiaries and associates continued | | | | | | | | | | | | Proportion of voting rights and | | | | | | | | | | | Proportion of voting rights and | | | | | | | | | | | ordinary share capital held* | | | | | | | | | | | ordinary share capital held* | | | | | | | | | | | 31 December | | 31 December | | | Country of | | Date of | | Date of | | 31 December | | 31 December | | Country of | | Date of | | Date of | | Subsidiaries at fair value | | 2023 | | 2022 | incorporation Address Industry | | incorporation | | acquisition | | Subsidiaries at fair value | | 2023 | | 2022 | incorporation Address Industry | incorporation | | acquisition | | (5) | Kakheti Wine and Spa, LLC | 0.00% 100.00% Georgia 80 Aghmashenebeli | | Hospitality 23/4/2018 – | Hydro Georgia, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | Renewable | | 8/5/2012 28/10/2019 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | avenue, Tbilisi, 0102 | | | street, Tbilisi, 0179 | | Energy | | | Gudauri Lodge, LLC 100.00% 100.00% Georgia 80 Aghmashenebeli | | | Hospitality 24/4/2018 – | Darchi, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | Renewable | | 18/11/2013 28/10/2019 | | | | avenue, Tbilisi, 0102 | | | street, Tbilisi, 0179 | | Energy | | (6) m2 Svaneti, LLC 0.00% 100.00% Georgia 80 Aghmashenebeli Hospitality 14/11/2018 – Kasleti 2, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Renewable 18/11/2013 28/10/2019 Georgia Capital PLC Annual Report 2023 avenue, Tbilisi, 0102 street, Tbilisi, 0179 Energy (5) m2 Hatsvali, LLC 0.00% 100.00% Georgia 80 Aghmashenebeli Hospitality 17/4/2019 – GRPC Trade, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Renewable 13/5/2022 – avenue, Tbilisi, 0102 street, Tbilisi, 0179 Energy (5) | m2 Resort, LLC | 0.00% 100.00% Georgia 80 Aghmashenebeli | | | | Hospitality 11/2/2019 – | | | JSC A Group 100.00% 100.00% Georgia 1 Berbuki street, | | | | | | Various 20/9/2018 – | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | avenue, Tbilisi, 0102 | | | | | | | | | | Saburtalo, Tbilisi | | | | m2 Mtatsminda, LLC 0.00% 100.00% Georgia 22 Zaal Dumbadze | | | | | Hospitality 16/10/2014 26/12/2017 | | | | JSC Insurance Company | 100.00% 100.00% Georgia 66A David | | | | Insurance 11/8/1998 – | | | | | street, Tbilisi | | | | | | Aldagi | | Aghmashenebeli Alley, | | | | | Georgia Property Management | 100.00% 100.00% Georgia 10 Givi Kartozia street, | | | | Commercial | | 4/10/2018 – | | | | | | Tbilisi | | | Group, LLC | | | | Tbilisi | | assets | | | JSC Insurance Company | 100.00% 100.00% Georgia 66A David | | | | Insurance 22/8/2007 1/5/2015 | (5) | Vere Real Estate, LLC | 0.00% 100.00% Georgia 10 Givi Kartozia street, | | Commercial | | 4/3/2010 6/8/2018 | Tao | Aghmashenebeli Alley, | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Tbilisi | | assets | | | | Tbilisi | | | Caucasus Autohouse, | 0.00% 100.00% Georgia 29 Ilia Chavchavadze | | Commercial | | 29/3 /2011 – | Aliance, LLC 100.00% 100.00% Georgia 20 Chavchavadze | | | Various 1/8/1998 30/4/2012 | (5) | | LLC | avenue, Tbilisi, 0105 | | assets | | | avenue, floor 2, Vake- | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | m2, LLC 100.00% 100.00% Georgia 29 Ilia Chavchavadze | | | Hospitality/ | | 12/2/2014 – | | | Saburtalo, Tbilisi | | | | | avenue, Tbilisi, 0105 | Real estate | | | Auto Way LLC 100.00% 100.00% Georgia 20 Chavchavadze | | | Various 27/12/2010 30/4/2012 | (5) | | m2 Hotel Property, LLC | 0.00% 100.00% Georgia 10 Givi Kartozia street, | | Hospitality 15/12/2022 – | | avenue, Vake, Tbilisi | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Tbilisi | | JSC Carfest 75.00% 75.00% Georgia 20 Chavchavadze | | Leasing 17/11/2017 – | | | m2 Kutaisi, LLC 100.00% 100.00% Georgia 10 Melikishvili avenue, | | | | Hospitality 17/5/2017 – | | avenue, Vake, Tbilisi | | | | | | | Tbilisi | | JSC Greenway Georgia 100.00% 100.00% Georgia 6 University street, Vake, | | Vehicle | 9/ 7/2010 1/5/2012 | (5) | m2 at Melikishvili, LLC | | 0.00% 100.00% Georgia 10 Melikishvili avenue, | | Hospitality 17/5/2017 – | | Tbilisi | Inspection | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Tbilisi | | JSC GreenWash 75.00% 75.00% Georgia 6 University street, Vake, | | Car Wash 31/8/2018 – | | | Melikishvili Hotel Property, | 0.00% 100.00% Georgia 10 Melikishvili avenue, | | Hospitality 3/2/2021 – | | Tbilisi | | (5) LLC Tbilisi Georgia Healthcare Group 0.00% 100.00% United 84 Brook Street, Healthcare 27/8/2015 28/8/2015 (5) | m2 Zugdidi, LLC | 0.00% 100.00% Georgia 80 Aghmashenebeli | | Hospitality 7/11/2018 – | | Limited | Kingdom | London, W1K 5EH | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | avenue, Tbilisi, 0102 | | | JSC Georgia Healthcare Group 100.00% 100.00% Georgia 142 A. Beliashvili street, | | | | Healthcare 29/4/2015 – | | Georgia Commercial Assets, | 0.00% 100.00% Georgia 15 Kazbegi street, Tbilisi Commercial | | | 23/12/2020 – | | | | Tbilisi | | (5) | | LLC | | | | | assets | | JSC Insurance Company | | 100.00% 100.00% Georgia 9 Anna Politkovskaias | | | | | | Insurance 22/6/2007 – | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Georgia Hospitality Management | | 100.00% 100.00% Georgia 10 Givi Kartozia street, | | | Hospitality 22/8/2018 – | | | Imedi L | | | street, Vake-Saburtalo | | | | | | | | | Group, LLC | | | Saburtalo, Tbilisi | | | | | | | | | | District, Tbilisi | | | | | | | Georgia Hospitality Management | | 100.00% 100.00% Georgia Dusheti region, village | | | Hospitality 12/5/2019 – | | | | L Assistance LLC 100.00% 100.00% Georgia 44 Al. Kazbegi avenue, | | | | | | | Insurance 27/10/2022 | | | | | Group Gudauri, LLC | | | Seturebi | | | | | | | | | Vake, Tbilisi | | | | | | | Melikishvili Hotel Management, | | 100.00% 100.00% Georgia 10 Melikishvili avenue, | | | Hospitality 8/4/2022 – | | | JSC GEPHA 97.56% 76.98% Georgia 142 A. Beliashvili street, | | | | | | | Pharmacy and | | | 19/10/1995 4/5/2016 | | | LLC | | | Tbilisi | | | | | | | | | | Tbilisi | | Distribution | | | | JSC Georgian Renewable Power | | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 23/8/2022 – | | JSC ABC Pharamcia | 100.00% 100.00% Armenia Kievyan street. 2/8, | | | | | Pharmacy and | | | 28/12/2013 6/1/2017 | | Holding | | | street, Tbilisi, 0179 | | | Energy | | | (Armenia) | | | Erevan, Armenia | | | | Distribution | | | | JSC Georgian Renewable Power | | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 15/9/2015 – | | ABC Pharmalogistics, LLC 100.00% 100.00% Georgia Peikrebi street 14a, | | | | | | Pharmacy and | | | 24/2/2004 6/1/2017 | | | Company | | street, Tbilisi, 0179 | | | Energy | | | | | | | | Tbilisi | | Distribution | | | | | JSC Zoti Hydro 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | | Renewable | | 20/8/2015 – | | JSC Iverta 100.00% 100.00% Georgia 142 A. Beliashvili street, | | | | | | Pharmacy and | | | 17/2/2021 – | | | | | street, Tbilisi, 0179 | | | Energy | | | | | | | | Tbilisi | | Distribution | | | | | JSC Caucasus Wind | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 14/9/2016 – | | AKG AVELIN QAN | 100.00% 100.00% Armenia 26/1 Vazgen Sargsyan | | | | | Pharmacy and | | | 28/6/2019 – | | | Company | | street, Tbilisi, 0179 | | | Energy | | | DEGHATUN, LLC | | | Street, Office 412, | | | | Distribution | | | | | LLC Caucasus Solar | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 27/10/2016 – | | (Armenia) | | | | Yerevan 0010 | | | | | | | | Company | | street, Tbilisi, 0179 | | | Energy | | | JSC Georgian Logistics 100.00% 100.00% Georgia 142 A. Beliashvili street, | | | | | | | | Other 8/10/2021 – | | | | Hydro S, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | | Renewable | | 18/1/2019 10/28/2019 | | | | | | | Tbilisi | | | | | | | | | street, Tbilisi, 0179 | | | Energy | | | AZPHA LLC (Azerbaijan) 100.00% 100.00% Azerbaijan Apartment 43, 131 | | | | | | Pharmacy and | | | 17/9/2021 – | | | Georgia Geothermal | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 16/12/2019 – | | | | | A. Ahgaievi Street, | | | | Distribution | | | | | Company, LLC | | street, Tbilisi, 0179 | | | Energy | | | | | | Bakikhanovi area, | | | | | | | | | Qartli Solar Farm, LLC 100.00% 0.00% Georgia 10 Medea (Mzia) Jugheli | | | | Renewable | | 10/3/2023 – | | | | Sabunchu District, Baku | | | | | | | | | | | | street, Tbilisi, 0179 | | | Energy | | | Euroline LLC 100.00% 100.00% Georgia 5 Stanislavski street, | | | | | | | | Other 24/11/2021 14/12/2015 | | | JSC Georgian Renewable Power | | 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | Renewable | | 28/6/2022 – | | | | | | | Tbilisi | | | | | | | Operations | | street, Tbilisi, 0179 | | | Energy | | Vian JSC 100.00% 0.00% Georgia 142 A. Beliashvili street, | | | | | | | | Healthcare 30/11/2023 – | | | | | Svaneti Hydro, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | | | Renewable | | 6/12/2013 – | | | | | | | Tbilisi | | | | | (1) (2) | | street, Tbilisi, 0179 | | Energy | | Vian-Logistics LLC | 100.00% 100.00% Georgia 142 A. Beliashvili street, | | Healthcare 13/2/2015 – | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Qartli Wind Farm, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | Renewable | | 10/9/2012 30/12/2019 | | | Tbilisi | | | | street, Tbilisi, 0179 | | Energy | | Caucasus Medical Center, | 99.81% 99.80% Georgia 23 P. Kavtaradze street, | | Healthcare 12/1/2012 11/6/2015 | (2) | | Hydrolea, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | Renewable | | 6/7/2012 28/10/2019 | LLC | Tbilisi | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | street, Tbilisi, 0179 | | Energy | | | | | | | Geoenergy, LLC 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli | | Renewable | | 26/1/2012 28/10/2019 | | | | | | | street, Tbilisi, 0179 | | Energy | | | | | | 178 | | | | | | | | 179 | Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 | 2. Basis of Preparation continued | | | | | | | | | | | | | | | 2. Basis of Preparation continued | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Subsidiaries and associates continued | | | | | | | | | | | | | | | Subsidiaries and associates continued | | | | | | | | | | | | | | | | | | Proportion of voting rights and | | | | | | | | | | | | | | | | Proportion of voting rights and | | | | | | | | | | | | | | | ordinary share capital held* | | | | | | | | | | | | | | | | | ordinary share capital held* | | | | | | | | | | | | | | 31 December | | | 31 December | | | Country of | | | | Date of | | Date of | | | | 31 December | | | 31 December | | Country of | | | | Date of | | Date of | | Subsidiaries at fair value | | | | 2023 | | 2022 | incorporation Address Industry | | | | incorporation | | acquisition | | Subsidiaries at fair value | | | | | 2023 | | 2022 | incorporation Address Industry | | | incorporation | | acquisition | | | | JSC Kutaisi Regional | | 66.70% 67. 0 0% Georgia 85 Djavakhishvili street, | | | | | | | Healthcare 5/5/2003 29/11/2011 | | | | | | | Teliani Europe GmbH 100.00% 100.00% Germany Kurfürstendamm 195 | | | | | | | | Distribution 15/6/2021 – | | | | | | | Mother and Infant | | | | | | | | Kutaisi, Georgia | | | | | | | | | | | | | | | 10707 Berlin | | | | | | | | Treatment-Diagnostic | | | | | | | | | | | | | | | Georgia Logistics and | | | 100.00% 100.00% Georgia 2 Marshal Gelovani | | | | | | Distribution 10/1/2006 27/3/2007 | | | | | (2) Centre Distribution, LLC street, Tbilisi West Georgia Medical 66.70% 67. 0 0% Georgia 83A A Djavakhishvili Healthcare 9/12/2011 29/11/2011 Le Caucase, LLC 100.00% 100.00% Georgia 2 Marshal Gelovani Cognac 23/9/2006 20/3/2007 (2) Georgia Capital PLC Annual Report 2023 Center, LLC street, Kutais street, Tbilisi Production (2) | | N(NL)E Blood Center | 100.00% 100.00% Georgia N83A/N85 Javakhishvili | | | Healthcare 23/12/2021 – | Kupa, LLC 70.00% 70.00% Georgia 3 Tbilisi highway, Telavi Oak Barrel | | | | 12/10/2006 20/3/2007 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | street, Kutaisi, | | | | | Production | | | | | Vian LLC 100.00% 100.00% Georgia 142 A. Beliashvili street, | | | | Healthcare 5/9/2022 – | Global Beer Georgia, LLC 100.00% 100.00% Georgia Tsilkani, Mtskheta | | Production | | 24/12/2014 – | | | | | | Tbilisi | | | Region | | and | | | | BONO Healthcare LLC 100.00% 0.00% Georgia 142 A. Beliashvili street, | | | | Healthcare 15/6/2023 – | | | distribution of | | | | | | | | Tbilisi | | | | alcohol and | | | | JSC Georgian Clinics 100.00% 0.00% Georgia 142 A. Beliashvili street, | | | | | Healthcare 1/8/2014 1/8/2014 | | | non-alcohol | | | | | | | | Tbilisi | | | | beverages | | | (3) New Clinic, LLC 100.00% 100.00% Georgia 142 A. Beliashvili street, Healthcare 3/1/2017 20/7/2017 Kindzmarauli Marani, LLC 100.00% 100.00% Georgia Gavazi, Kvareli district Winery 18/12/2001 25/4/2018 Tbilisi Alaverdi, LLC 100.00% 100.00% Georgia Chumlaki, Gurjaani Winery 8/4/2008 19/8/2019 (3) | JSC Pediatry | 100.00% 100.00% Georgia 10 U. Chkeidze street, | | Healthcare 5/9/2003 6/7/2016 | | | Region | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Tbilisi, Georgia | | | Global Coffee Georgia, LLC 100.00% 100.00% Georgia 29a Gagarini street, | | | Coffee | 26/12/2016 – | | NCLE Evex Learning | 100.00% 100.00% Georgia 83A, Javakhishvili street, | | | Other 20/12/2013 20/12/2013 | | Tbilisi | Distribution | | | (3) Centre Tbilisi New Coffee Company, LLC 100.00% 100.00% Georgia Isakiani cul-de-sac 2, Coffee 23/9/2009 15/2/2017 (3) | | JSC Emergency Service | | 85.00% 85.00% Georgia #6 Building, 13/6 | | | | | Healthcare 18/6/2013 8/5/2015 | | | | | | | | Gldani-Nadzaladevi | | | | Distribution | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Lubliana street, Tbilisi | | | | | | | | | | | | | District, Tbilisi | | | | | | | | | Georgian Clinics LLC 100.00% 0.00% Georgia 142 A. Beliashvili street, | | | | | | | Healthcare 29/9/2023 – | | | | Genuine Brewing Company, | | 100.00% 100.00% Georgia Tsilkani, Mtskheta | | | | | | | | Beer | 7/6/2011 7/2/2018 | | | | | | | | | Tbilisi | | | | | | LLC | | | | | Region | | Production | | | | | JSC Evex Clinics 100.00% 100.00% Georgia 40 Vazha-Pshavela | | | | | | | | Healthcare 1/4/2019 – | | | | | | | | | | | | | | and | | | | | | | | avenue, Tbilisi | | | | | | | | | | | | | | | Distribution | | | | | | Tskaltubo Regional | | 66.70% 67. 0 0% Georgia 16 Eristavi street, | | | | | Healthcare 29/9/1999 9/12/2011 | | | | | Craft and Draft, LLC 100.00% 100.00% Georgia Tsilkani, Mtskheta | | | | | | | | | Beer | 20/2/2019 – | | | | Hospital, LLC | | | | Tskaltubo | | | | | | | | | | | | Region | | Production | | | | | | LLC Aliance Med 100.00% 100.00% Georgia 40 Vazha-Pshavela | | | | | | | Healthcare 7/ 7/2015 20/7/2017 | | | Artisan Wine and Drinks LLC 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | | | | | | Wine | 26/8/2019 – | | | | | | | avenue, Tbilisi | | | | | | | | | | | avenue, Tbilisi, 0179 | | | | distribution | | | | | | JSC Polyclinic Vere 98.35% 98.35% Georgia 40 Vazha-Pshavela | | | | | | | Healthcare 22/11/2015 25/12/2017 | | | Amboli, LLC 90.00% 90.00% Georgia 142 Beliashvili street, | | | | | | | | | Car Services 13/8/2004 25/6/2019 | | | | | | | | | | avenue, Tbilisi | | | | | | | | | | | Didube-Chughureti | | | | | | | | | | New Dent, LLC 75.00% 75.00% Georgia 40 Vazha-Pshavela | | | | | | | Healthcare 24/12/2018 – | | | | | | | | | District, Tbilisi | | | | | | | | | | | | | avenue, Tbilisi | | | | | | Redberry, LLC 0.00% 60.00% Georgia 9 Tashkenti Chughureti, | | | | | | | | | | | Digital | 29/8/2014 1/5/2019 | | | Mkurnali 2002, LLC 100.00% 0.00% Georgia 87 Ts. Dadiani street, | | | | | | | Healthcare 8/4/2004 1/12/2023 | | | | | | | | | | Tbilisi | | | Services | | | | | | | | | | | Tbilisi | | | | | Redberry International, LLC 0.00% 100.00% Georgia 13a Mtskheta | | | | | | | | | | Digital | 13/5/2021 – | | JSC Mega-Lab 91.98% 92.00% Georgia 23 Petre Kavtaradze | | | | | | | | Healthcare 6/6/2017 – | | | | | | | | Chughureti, Tbilisi | | | | | Services | | | | | | | | | street, Tbilisi | | | | | | | Lunchoba, LLC 0.00% 60.00% Georgia 22 Nutsubidze IV Micro- | | | | | | | | | Catering | | 8/10/2018 – | | | LLC Patgeo-Union of | | 100.00% 100.00% Georgia Mukhiani, II mcr. District, | | | | | Healthcare 13/1/2010 27/9/2016 | | | | | | | | | district, Tbilisi | | | | Services | | | | | | Pathologists | | Building 22, 1a, Tbilisi | | | | | | | | Shabatoba, LLC 0.00% 100.00% Georgia 8 Zurab Sakandelidze | | | | | | | | | Delivery | | 2/6/2020 – | | | Scientific- Research Center | | 100.00% 100.00% Georgia 23 Petre Kavtaradze | | | | | Healthcare 25/5/2021 – | | | | | | | | | street, Tbilisi | | | | Services | | | | | | – Mega-Lab N(N)LE | | | street, Tbilisi | | | | | | | JSC Carfest 0.00% 25.00% Georgia 3 Pushkini street, | | | | | | | | | Leasing 17/11/2017 – | | | | JSC Vabaco 67.00% 67. 0 0% Georgia 37 Bochorishvili street, | | | | | | | | Software | | 9/9/2013 28/9/2018 | | | | | | | Krtsanisi, Tbilisi | | | | | | | | | | | | | | | Tbilisi | Development | | | Georgia Education Group, LLC 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | | | | Education 16/7/2019 – | | | | | | | Vabaco International, LLC 100.00% 100.00% Georgia 123 A. Tsereteli avenue, | | | | | | Software | | 30/3/2022 – | | | | | | avenue, Tbilisi, 0179 | | | | | | | | | | | | | | | | Tbilisi | Development | | | | Contemporary School LLC 90.00% 90.00% Georgia 1b N. Khudadovi street, | | | | | | | | Education 18/8/2021 – | | | | | JSC Ekimo 100.00% 67. 0 0% Georgia 123 A. Tsereteli avenue, | | | | | | | | | Other 14/12/2021 – | | | | | | | | | Tbilisi | | | | | | | | | | | | | | Tbilisi | | | | | | Green School – Didi | 100.00% 100.00% Georgia 6 D. Tavdadebuli street, | | | | | | Education 27/9/1995 20/8/2021 | | | | | | | Ekimo App, LLC 100.00% 0.00% Georgia 24 University street, | | | | | | | Other 5/12/2023 – | | | | Dighomi, LLC | | | | | Tbilisi | | | | | | | | | | | | | Vake, Tbilisi | | | | | | | Green School, LLC 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | | Education 21/10/2019 – | | | | | Dart, LLC 0.00% 100.00% Georgia 142 A. Beliashvili street, | | | | | | | | | Other 14/6/2021 – | | | | | | | avenue, Tbilisi, 0179 | | | | | | | | | | | | | | | | Tbilisi | | | | | | JSC Green School Real | 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | Education 5/1/2019 – | | | | | ITFY LLC 100.00% 0.00% Georgia 142 A. Beliashvili street, | | | | | | | | | Other 1/2/2023 – | | | | Estate | | | avenue, Tbilisi, 0179 | | | | | | | | | | | | | | | | Tbilisi | | | | | | Green School – Saburtalo, | 100.00% 0.00% Georgia 37 B. Zhgenti street, | | | | | | Education 29/6/2023 – | | | | | Georgian Beverages LLC 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | | | | Beer | 14/11/2016 7/2/2018 | | | LLC | | | | Vake, Tbilisi | | | | | | | | | | | | avenue, Tbilisi, 0179 | | | | Production | | | | Green School Dighomi LLC 80.00% 80.00% Georgia Didube-Chughureti/ | | | | | | | | Education 7/6/2011 22/8/2019 | | | | | | | | | | | | | | and | | | | | | | Dighomi massive IV, | | | | | | | | | | | | | | | | | Distribution | | | | | | | Building 5A, Apartment | | | | | | | | | | JSC Georgian Beverages | | | 92.35% 92.35% Georgia 8a Petre Melikishvili | | | | | Investment 17/12/2019 – | | | | | | | | | | | 35 | | | | | | Holding | | | | avenue, Tbilisi, 0179 | | | | | | | | Buckswood International | | 80.00% 80.00% Georgia 152 Rustaveli street, | | | | | | Education 24/8/2005 29/ 7/2019 | | | | | | JSC Teliani Valley 100.00% 100.00% Georgia 43 Tbilisi highway, Telavi Winery 30/6/2000 28/2/2007 | | | | | | | | | | | | School – Tbilisi, LLC | | | | Tskneti, Tbilisi | | | | | | | | | | Teliani Trading (Ukraine), | 100.00% 100.00% Ukraine 18/14 Khvoiki street, Kiev Distribution 3/10/2006 31/12/2007 | | | | | | | | | | Sakhli Tsknetshi, LLC 100.00% 100.00% Georgia 152 Rustaveli street, | | | | | | | Education 1/5/2005 – | | | | | | | LLC | | | | | | | | | | | | | | | Tskneti, Tbilisi | | | | | | | 180 181 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 2. Basis of Preparation continued 3. Material Accounting Policies Subsidiaries and associates continued The following are the material accounting policies applied by the Company in preparing its financial statements. Proportion of voting rights and ordinary share capital held* Fair value measurement 31 December 31 December Country of Date of Date of The Company measures investments in subsidiaries and other financial instruments, such as debt securities owned, equity investments and Subsidiaries at fair value 2023 2022 incorporation Address Industry incorporation acquisition derivatives, if any, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in | | | British Georgian Academy, | | 70.00% 70.00% Georgia 17 Leo Kvachadze street, | | | Education 3/2/2006 23/7/2019 | | | Note12. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | LLC | | | | Tbilisi | | | | | | | | | NNLE British International | 100.00% 100.00% Georgia 17 Leo Kvachadze street, | | | Education 3/2/2015 – | | | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at | | | | | School of Tbilisi | | | Tbilisi | | | | the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes | | | | | British International | 100.00% 100.00% Georgia 17 Leo Kvachadze street, | | | Education 5/9/2019 – | | | placeeither: | | Georgia Capital PLC Annual Report 2023 | | | School of Tbilisi LLC | | | Tbilisi | | | | • in the principal market for the asset or liability; or | | | | | British Georgian Academy | 100.00% 100.00% Georgia 17 Leo Kvachadze street, | | | Education 16/9/2021 – | | | • in the absence of a principal market, in the most advantageous market for the asset or liability. | | | | | – Okrokana, LLC | | | Tbilisi | | | | | | | Oncloud LLC 100.00% 100.00% Georgia 8a Petre Melikishvili | | | | | | | Digital | 28/2/2020 – | The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the | | | | | | | avenue, Tbilisi, 0179 | | Services | | | assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best | interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Proportion of voting rights and ordinary share capital held* 31 December 31 December Country of Date of Date of The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, Associates 2023 2022 incorporation Address Industry incorporation acquisition maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Squadro, LLC 0.00% 12.00% Georgia 74 Kostava street, Tbilisi Software 2/3/2021 27/8/2021 Service All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, N(NL)E Georgian Medical Tourism 28.57% 28.60% Georgia I-II floor, house N10, N Healthcare 16/5/2019 – described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: (3) • Level 1 − Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Council 13, b. N1 almond Gardens Street, tskneti, • Level 2 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; Vake district, Tbilisi • Level 3 − Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. | JSC Diflex 40.00% 40.00% Georgia 8 Shalikashvili street, | | | | | Software | 29/12/2016 12/11/2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Tbilisi | Development | | | For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have | | | (2) | | | | | | occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value | | NPO Healthcare Association | | 25.00% 25.00% Georgia 27b Vazha-Pshavela | | | Healthcare 25/3/2016 – | | | measurement as a whole) at the end of each reporting period. avenue, Tbilisi (3) Complex-Med-Service, LLC 20.00% 20.00% Georgia 9 Tsinandali street, Tbilisi Healthcare 18/11/20 08 30/ 7/2021 Cash and cash equivalents Insurance Informational Bureau, 22.50% 22.50% Georgia Baratashvili bridge Insurance 23/7/20 08 – Cash and cash equivalents consist of cash on hand and amounts due from credit institutions that mature within ninety days of the date of contract LLC underground crossing, origination and are free from contractual encumbrances and readily convertible to known amount of cash. Mtkvari Left Bank, Old Tbilisi, Tbilisi Financial assets JSC Georgian Global Utilities 20.00% 20.00% Georgia 10 Medea (Mzia) Jugheli Utilities 22/1/2020 31/12/2014 Initial recognition street, Tbilisi, 0179 Financial assets in the scope of IFRS 9 are classified at initial recognition, as subsequently measured at amortised cost, fair value through other Georgian Water and Power, 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Utilities 25/6/1997 31/12/2014 comprehensive income (OCI), and fair value through profit or loss. LLC street, Tbilisi, 0179 (4) Rustavi Water, LLC 0.00% 100.00% Georgia 5 St. Nino street, Rustavi Utilities 31/8/1999 31/12/2014 The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s Gardabani Sewage 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Utilities 20/12/1999 31/12/2014 business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Treatment, LLC street, Tbilisi, 0179 Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset Georgian Engineering and 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Utilities 20/3/2011 31/12/2014 not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Management Company street, Tbilisi, 0179 Company has applied the practical expedient are measured at the transaction price determined under IFRS 15. (GEMC), LLC JSC Saguramo Energy 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Utilities 11/12/200 8 31/12/2014 In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that street, Tbilisi, 0179 are “solely payments of principal and interest” (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is Georgian Energy Trading 100.00% 100.00% Georgia 10 Medea (Mzia) Jugheli Renewable 23/4/2019 – performed at an instrument level. Company (GETC), LLC street, Tbilisi, 0179 Energy Sales * The table displays effective percentages of holding in the companies. The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 1 As of 31 December 2023 renamed: Vian-Logistics (As of 31 December 2022: EVEX-Logistics, LLC). 2 As of 31 December 2023 subsidiaries of JSC Vian (31 December 2022: subsidiaries of JSC Evex Hospitals). Date of recognition 3 As of 31 December 2023 subsidiaries of JSC Georgia Clinics (31 December 2022: subsidiaries of JSC Evex Hospitals). All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Company commits to purchase or 4 As of 31 December 2023 Rustavi Water, LLC merged with Georgian Water and Power, LLC. sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally 5 As of 31 December 2023 merged with Georgia Property Management Group, LLC. established by regulation or convention in the marketplace. 6 As of 31 December 2023 merged with Georgia Real Estate Management Group, LLC. Subsequent measurement For purposes of subsequent measurement, financial assets are classified in two categories under IFRS 9: • Financial assets at amortised cost (cash and cash equivalents). • Financial assets at fair value through profit or loss (equity investments at fair value). 182 183 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 3. Material Accounting Policies continued 3. Material Accounting Policies continued Financial assets continued Provisions Financial assets at amortised cost Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an The Company measures financial assets at amortised cost if both of the following conditions are met: outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of obligation can • the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and bemade. • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Contingencies Contingent liabilities are not recognised in the statement of financial position but are disclosed unless the possibility of any outflow in settlement is Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and remote. A contingent asset is not recognised in the Statement of Financial Position but disclosed when an inflow of economic benefits is probable. losses are recognised in profit or loss when the asset is derecognised, modified or impaired. Share-based payment transactions Georgia Capital PLC Annual Report 2023 The Company’s financial assets at amortised cost includes cash and cash equivalents. Equity-settled transactions The cost of equity-settled transactions with employees is measured by reference to the fair value of shares at the grant date. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets designated upon initial recognition at fair value through profit or loss, or The cost of equity-settled transactions is recognised together with the corresponding increase in equity, over the period in which the performance financial assets mandatorily required to be measured at fair value. Equity investments are classified at fair value through profit or loss. Derivatives and and/or service conditions are fulfilled, ending on the date when the relevant employee is fully entitled to the award (“the vesting date”). The cumulative financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has irrespective of the business model. expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge and credit entry to equity for the period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments recognised for the awards that do not ultimately vest. may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Where the terms of an equity-settled award are modified, the minimum expense is recognised as if the terms had not been modified. An additional Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to recognised in the Statement of Profit or Loss. This category includes equity investments. the employee as measured at the date of the modification. Derecognition of financial assets and liabilities Where an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognised for the award Financial assets is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as the replacement award on the date that it A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed is granted, the cancelled and the new awards are treated as if they were a modification of the original award, as described in the previous paragraph. from the Company’s Statement of Financial Position) when: • the rights to receive cash flows from the asset have expired; or Share capital • the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full Share capital without material delay to a third party under a “pass-through” arrangement, and either (a) the Company has transferred substantially all the risks Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has shown as a deduction from the proceeds in equity. Any excess of the fair value of consideration received over the par value of shares issued is transferred control of the asset. recognised as additional paid-in capital. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, Treasury shares and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and Where the Company purchases Georgia Capital’s shares, the consideration paid, including any attributable transaction costs, net of income taxes, rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of its continuing is deducted from total equity as treasury shares until they are cancelled or reissued. Where such shares are subsequently sold or reissued, any involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a consideration received is included in equity. Treasury shares are stated at par value, with adjustment of premiums against retained earnings. basis that reflects the rights and obligations that the Company has retained. Dividends Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the Dividends are recognised as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. asset and the maximum amount of consideration that the Company could be required to repay. Dividends are disclosed when they are proposed before the reporting date or proposed or declared after the reporting date but before the financial statements are authorised for issue. All expenses associated with dividend distribution are added to dividend amount and recorded directly Financial liabilities throughequity. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Dividend income Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability Dividend revenue is recognised when the Company’s right to receive the payment is established. Dividend revenue is presented gross of any are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, non-recoverable withholding taxes, which are disclosed separately in the Statement of Comprehensive Income. and the difference in the respective carrying amounts is recognised in the income statement. Modification is substantial if present value of cash flows under new terms discounted at original effective interest rate is at least 10% different from the liability’s carrying amount right before the modification, Net gain or loss on financial assets and liabilities at fair value through profit or loss or there is a substantial modification to the terms identified through a qualitative assessment. Net gains or losses on financial assets and liabilities at fair value through profit or loss (FVPL) are changes in the fair value of equity investment at fair value, financial assets and liabilities held for trading or designated upon initial recognition as at FVPL and exclude interest and dividend income and Financial liabilities expenses. Interest and dividend income and expense FVPL instruments are recognised in profit or loss at effective interest. Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Taxation The current income tax expense is calculated in accordance with the regulations in force in the respective territories in which the Company operates. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. According to UK tax legislation, UK companies pay corporation tax on all its profits. The UK corporate blended tax rate for 2023 is 23.5% (2022: 19%). The Company’s financial liabilities comprise accounts payable. 184 185 | Strategy Review Overview | Strategy Review Our Business | Strategy Review Discussion of Results | Governance | | --- | --- | --- | --- | # NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) ### 3. Material Accounting Policies (online) #### Functional, presentation currencies and foreign currency translation The financial statements are presented in Georgian Lari, which is the presentation and functional currency of GCAP PLC and JSC GCAP. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into functional currency at functional currency rate of exchange ruling at the reporting date. Gains and losses resulting from the translation of foreign currency transactions are recognised in the Income Statement as net foreign currency gain (loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss. Differences between the contractual exchange rate of a certain transaction and the National Bank of Georgia ('NBG') exchange rate on the date of the transaction are included in net foreign currency gain (loss). The official NBG exchange rates at 31 December 2023 and 31 December 2022 were as follows: | | GEL to GBP | GEL to US$ | GEL to EUR | | --- | --- | --- | --- | | 31 December 2023 | 3.4228 | 2.8894 | 2.9753 | | 31 December 2022 | 3.2581 | 2.7020 | 2.8844 | #### Adoption of new or revised standards and interpretations The following amendments became effective from 1 January 2023 and had no impact on the Company's financial statements: - IFRS 17 Insurance Contracts. - Amendments to IAS 8 Accounting Policies Changes in Accounting Estimates and Errors – Definition of Accounting Estimates. - Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies. - Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction. - Amendments to IAS 12 Income Taxes – Deferred Tax Assets and Liabilities related to Pillar Two Income Taxes. The following standards that are issued but not yet effective are also expected to have no material impact on the Company's financial statements: - Amendments to IFRS 16 Losses – Lease Liability in a Sale and Leaseback. - Amendments to IAS 1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-current. - IFRS 14 – Regulatory Deferral Accounts. - Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments – Disclosures: Supplier Finance Arrangements. - Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. ### 4. Critical Accounting Judgements and Estimates In the process of applying the Company's accounting policies, the Management Board use their judgement and make estimates in determining the amounts recognised in the financial statements. The most significant judgements and estimates are as follows: #### Assessment of investment entity status Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at fair value through profit or loss rather than considerable them. The criteria which define an investment entity are, as follows: - an entity that obtains funds from one or more investors for the purpose of providing those investors with investment management services; - an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and - an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis. The Group invests funds, originally obtained from its investors, in its private portfolio companies, obtains dividend inflows from its mature investments and once the businesses are developed, exits the investment ideally at a higher multiple (versus entry multiple) to monetise on capital appreciation gains. The Company reports to its investors on a fair value basis. All investments are reported at fair value in the Company's Annual Reports. Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments. Although JSC Georgia Capital is wholly capitalised by Georgia Capital PLC, Georgia Capital PLC is funded by many investors who are unrelated to the entity and ownership in Georgia Capital PLC is represented by units of equity interests acquired through a capital contribution. Thus the judgement above refers to both entities in aggregation. The Board has concluded that the Company meets the definition of an investment entity. These conclusions will be reassessed on a continuous basis, if any of these criteria or characteristics change. Georgia Capital met the investment entity definition on 31 December 2019. As of 31 December 2023, the Company continues to meet the definition of investment entity. In making this assessment, the Company considered each criteria and characteristic described above as well as developments during the year. #### Fair valuation of the investment portfolio The investment portfolio, a material asset of the Company held through 100%-owned subsidiary JSC Georgia Capital, is held at fair value. Details of valuation methodologies used and the associated sensitivities are disclosed in Note 12. Given the importance of this area, the Board has formed a separate Audit and Valuation Committee to review the valuations to be placed on portfolio companies, compliance with the valuation standards and usage of appropriate judgement. The detailed valuation process is disclosed in Note 12. ### 5. Segment Information For management purposes, the Group is organised into the following operating section: private large portfolio companies, private investment stage portfolio companies, private #### Listed and observable portfolio companies segment BoG – the Group has a significant investment in London Stock Exchange Premium rights in BoG. Water utility – the Group has a 20% equity stake in the water utility business, followed by regulated monopoly in Tbilisi and the surrounding area, where it provides water and #### Private portfolio companies ##### Large portfolio companies segment: The large portfolio companies are companies that are close to reaching more than investments in hospitals (Large and Specialty Hospitals and Regional and Community The retail (pharmacy) business consists of a retail pharmacy chain and a wholesale hospital and other pharmacies. The hospitals business comprises two segments: Large and Specialty Hospitals, secondary and tertiary healthcare services; and Regional and Community Hospitals, deliver outpatient and essential inpatient services. The insurance business comprises property and casualty (P&C) insurance and medical property and casualty and medical insurance services to corporate and retail clients. #### Investment stage portfolio companies segment: The investment stage portfolio companies have the potential to reach more than a million in clinical and diagnostic, renewable energy and education businesses. The clinical and diagnostic business consists of polyclinics providing outpatient and specialist operating the largest laboratory in the entire Caucasus region. The renewable energy business principally operates three wholly-owned commercial energy projects is in an advanced stage of development. The education business combines majority stakes in four leading private schools in #### Other portfolio companies segment: The other portfolio companies are companies which GCAP believes to have limited access to includes housing development, hospitality, beverages and auto service businesses. Corporate centre consists of Georgia Capital PLC and JSC Georgia Capital. Management monitors the fair values of its segments separately for the purpose of the assessment. Transactions between segments are accounted for at actual transaction Starting from 2023, the hospitals business is split into two distinct sub-segments: Hospitals. The Regional and Community Hospitals also incorporates the community of the clinical and diagnostic business. The clinical and diagnostic business, along with the investment stage portfolio. 186 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 5. Segment Information continued 5. Segment Information continued The following table presents the net asset value (NAV) of the Group’s operating segments at 31 December 2023 and the roll-forward from The following table presents the NAV of the Group’s operating segments at 31 December 2022 and the roll-forward from 31 December 2021: 31 December 2022: | | | | | | | | | | | | | | | | | | 31 | | | | | | | | 3. | | 4. Liquidity | | 31 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | December | | 1. Value | 2a. Investments | | 2b. | | 2c. | Operating | | management/ | | December | | | | | 31 | | | | | | | | 3. | | 4. Liquidity | | 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NAV Statement | | 2021 | creation | and divestments | Buybacks | | Dividends | | expenses | | | FX/Other | | 2022 | | | December | | 1. Value | 2a. Investments | | 2b. | | 2c. | Operating | | management/ | | December | | | | | | | | | | | | | | | | | | NAV Statement | | 2022 | creation | and divestments | Buybacks | | Dividends | | expenses | | | FX/Other | | 2023 | | | | | | | | | | | | | | | | Listed and observable portfolio Listed and observable portfolio companies 681,186 205,783 139,392 – (40,898) – – 985,463 companies 985,463 553,255 – – (153,871) – – 1,384,847 BoG 681,18 6 19 0,175 – – (40,898) – – 830,463 BoG 830,463 549,255 – – (153,871)* – – 1,225,847 Water utility – 15,608 139,392 – – – – 155,000 Water utility 155,000 4,000 – – – – – 159,000 Private portfolio companies 2,935,045 (171,710) (501,011) – (52,977) – 3,817 2,213,164 Private portfolio companies 2,213,164 127,260 18,420 – (82,012) – 10,266 2,287,098 Large portfolio companies 2,249,260 (70,728) (696,960) – (44,783) – 821 1,437,610 Georgia Capital PLC Annual Report 2023 Large portfolio companies 1,437,610 74,786 – – (76,825) – 660 1,436,231 Retail (pharmacy) 710,385 30,150 – – (16,018) – – 724,517 Retail (pharmacy) 724,517 39,397 – – (50,904) – 991 714,001 Hospitals 573,815 (127,607) – – (13,015) – – 433,193 Hospitals 4 3 3 ,193 (81,526) – – (6,018) – (1,293)** 344,356 Water utility 696,960 – (696,960) – – – – – Insurance (P&C and medical) 279,900 116,915 – – (19,903) – 962 377,874 Insurance (P&C and medical) 26 8,100 26,729 – – (15,750) – 821 279,900 of which, P&C insurance 228,045 71,447 – – (14,888) – 962 285,566 of which, P&C insurance 211,505 30,468 – – (14,749) – 821 228,045 of which, medical insurance 51,855 45,468 – – (5,015) – – 92,308 of which, medical insurance 56,595 (3,739) – – (1,001) – – 51,855 Investment stage portfolio Investment stage portfolio companies 501,407 47,044 18,388 – (5,187) – 4,962 566,614 companies 461,140 13,266 34,196 – (8,194) – 999 501,407 Clinics and diagnostics 112,178 (3,922) – – – – 2,505** 110,761 Clinics and diagnostics 158,004 (45,826) – – – – – 112,178 Renewable energy 224,987 38,684 6,218 – (5,187 ) – 1,925 266,627 Renewable energy 173,288 31,040 27,854 – (8 ,194) – 999 224,987 Education 164,242 12,282 12,170 – – – 532 189,226 Education 129,848 28,052 6,342 – – – – 164,242 Other portfolio companies 274,147 5,430 32 – – – 4,644 284,253 Other portfolio companies 224,645 (114,248) 161,753 – – – 1,997 274,147 Total portfolio value 3,198,627 680,515 18,420 – (235,883) – 10,266 3,671,945 Total portfolio value 3,616,231 34,073 (361,619) – (93,875) – 3,817 3,198,627 Net debt (380,905) – (20,887) (76,190) 235,883 (21,786) (32,923) (296,808) Net debt (711,074) – 394,986 (83,108) 93,875 (21,520) (54,064) (380,905) of which, cash and liquid funds 411,8 44 – (20,887) (76 ,19 0 ) 235,883 (21,786) (420,954) 107,910 of which, cash and liquid funds 272,317 – 531,562 (83,108) 93,875 (21,520) (381,282) 411,8 4 4 of which, loans issued 26,830 – – – – – (17,618) 9,212 of which, loans issued 154,214 – (136,576) – – – 9,192 26,830 of which, gross debt (819,579) – – – – – 405,649 (413,930) of which, gross debt (1,137,605) – – – – – 318,026 (819,579) Net other (liabilities)/assets (331) – 2,467 (287) – (14,993) 16,519 3,375 Net other (liabilities)/assets (21,535) – (33,367) – – (18,476) 73,047 (331) Net asset value 2,817,391 680,515 – (76,477) – (36,779) (6,138) 3,378,512 Net asset value 2,883,622 34,073 – (83,10 8) – (39,996) 22,800 2,817,391 * In segment information, dividend income includes consideration received as a result of participation in BoG buyback programme. 1 Value creation – measures the annual shareholder return on each portfolio company for Georgia Capital. It is the aggregation of a) the change in beginning and ending fair values, ** Includes the transfer of community clinics from the clinics and diagnostics sub-segment to hospitals. and b) dividend income during period. The net result is then adjusted to remove capital injections (if any) to arrive at the total value creation/investment return; 2a. Investments and divestments – represents capital injections and divestments in portfolio companies made by JSC GCAP; 2b. Buybacks – represent buybacks made by GCAP PLC and JSC GCAP in order to satisfy share compensation of executives and purchases under buyback programme announced by GCAP PLC; 2c. Dividends – represent dividends received from portfolio companies by JSC GCAP; 3. Operating expenses – holding company aggregated operating expenses of GCAP PLC and JSC GCAP; 4. Liquidity management/FX/ Other – holding company aggregated movements of GCAP PLC and JSC GCAP related to liquidity management, foreign exchange movement, non-recurring and other. 2 Net debt and Net other assets/(liabilities) represent corporate centre. 188 189 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 | 5. Segment Information continued | | | | | | | | | 5. Segment Information continued | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Reconciliation of IFRS financial statements to NAV: | | | | | | | | | The following table presents income statement information of the Group’s operating segments for the year ended 31 December 2023: | | | | | | | | | | | | | | | | | | 31 December 2023 | | | | | Private portfolio companies | | | | | | | | | | | | | Aggregation | | | | | | | Listed and | | | | | | Intragroup | Equity | | | | | | | | with JSC | Elimination of | | Aggregated | | | observable | | | | | | investment | changes | Investment | | | | Georgia Capital | | | Georgia | double effect on | | | Holding | | portfolio | | Investment | | Corporate | | reversal and | in JSC | | entity | | | | PLC | | Capital* | investments | | | Company Reclassifications** NAV Statement | | companies Large | | | stage Other | | centre Total | adjustments | GCAP | | total | | Cash and cash equivalents 12,319 51,138 – 63,457 (63,457) – | | | | | | | | | Gains/(losses) on investments at fairvalue 399,384 (2,039) 41,857 5,430 – 444,632 178,350 (54,631) 568,351 | | | | | | | | | | | | Amounts due from credit institutions – 8,678 – 8,678 (8,678) – | | | | | | | | | Listed and observable investments 399,384 – – – – 399,384 (399,384) – – | | | | | | | | | | | | Marketable securities – 18,203 – 18,203 (18,203) – | | | | | | | | | Private investments – (2,039) 41,857 5,430 – 45,248 577,73 4 (54,631) 568,351 | | | | | | | | | | | | Investment in redeemable securities 3,517 14,068 – 17,5 8 5 (17,5 8 5) – | | | | | | | | | Dividend income 153,871 76,825 5,187 – – 235,883 (235,883) 47,6 5 9 47,6 5 9 | | | | | | | | | | | Georgia Capital PLC Annual Report 2023 Prepayments 976 – – 976 (976) – Interest income – – – – 16,642 16,642 (16,642) – – Loans issued – 9,212 – 9,212 (9,212) – Loss on liquid funds – – – – (1,574) (1,574) 1,574 – – Other assets, net – 5,060 – 5,060 (5,060) – Gross investment profit/(loss) 553,255 74,786 47,0 4 4 5,430 15,068 695,583 (72,601) (6,972) 616,010 Equity investments at fair value 3,363,411 3,671,945 (3,363,411) 3,671,945 – 3,671,945 Administrative expenses – – – – (10,909) (10,909) 6,433 – (4,476) Total assets 3,380,223 3,778,304 (3,363,411) 3,795,116 (123,171) 3,671,945 Salaries and other employee benefits – – – – (25,870) (25,870) 23,783 – (2,087) Debt securities issued – 413,930 – 413,930 (413,930) – Interest expense – – – – (47,808) (47,808) 47,808 – – Other liabilities 1,711 963 – 2,674 (2,674) – Profit/(loss) before provisions, foreign Total liabilities 1,711 414,893 – 416,604 (416,604) – exchange and non-recurring items 553,255 74,786 47,044 5,430 (69,519) 610,996 5,423 (6,972) 609,447 Net debt – – – – (296,808) (296,808) Expected credit loss (charge)/reversal – – – – (75) (75) 75 – – of which, cash and liquid funds – – – – 107,910 107,910 Net foreign currency gain/(loss) – – – – 6,566 6,566 (7, 5 21) – (955) of which, loans issued – – – – 9,212 9,212 Non-recurring expense – – – – (1,898) (1,898) 1,898 – – of which, gross debt – – – – (413,930) (413,930) Net gains from investment securities Net other assets/(liabilities) – – – – 3,375 3,375 measured at fair value through profit or loss – – – – – – 125 – 125 Total equity/NAV 3,378,512 3,363,411 (3,363,411) 3,378,512 – 3,378,512 Profit/(loss) before income taxes 553,255 74,786 47,044 5,430 (64,926) 615,589 – (6,972) 608,617 Income tax – – – – – – – – – 31 December 2022 | | | | Aggregation | | | | | Profit/(loss) for the year 553,255 74,786 47,044 5,430 (64,926) 615,589 – (6,972) 608,617 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | with JSC | Elimination of | Aggregated | | | | | | | | | | | | | Georgia Capital | | | Georgia | double effect on | | Holding | | | | | | | | | | | | | PLC | | Capital* | investments | | Company Reclassifications** NAV Statement | The following table presents income statement information of the Group’s operating segments for the year ended 31 December 2022: | | | | | | | | | | Cash and cash equivalents 23,361 199,771 – 223,132 (223,132) – | | | | | | | | | | Private portfolio companies | | | | | | | | Amounts due from credit institutions – 16,278 – 16,278 (16,278) – | | | | | | | | | Listed and | | | | Intragroup | Equity | | | | Marketable securities – 25,445 – 25,445 (25,445) – | | | | | | | | | observable | | | | investment | changes | Investment | | | | | | | | | | | | portfolio | | Investment | Corporate | reversal and | in JSC | | entity | Investment in redeemable securities – 12,631 – 12,631 (12,631) – companies Large stage Other centre Total adjustments GCAP total Prepayments 363 – – 363 (363) – Gains/(losses) on investments at fairvalue 164,885 (115,511) 5,072 (114,248) – (59,802) 74,34 4 (13,617) 925 Loans issued – 26,830 – 26,830 (26,830) – Listed and observable investments 164,885 – – – – 164,885 (164,885) – – Other assets, net – 2,351 – 2,351 (2,351) – Private investments – (115,511) 5,072 (114,24 8 ) – (224,687) 239,229 (13,617) 925 Equity investments at fair value 2,795,060 3,198,627 (2,795,060) 3,198,627 – 3,198,627 Dividend income 40,898 44,783 8,194 – – 93,875 (93,875) – – Total assets 2,818,784 3,481,933 (2,795,060) 3,505,657 (307,030) 3,19 8 ,627 Interest income – – – – 32,955 32,955 (32,955) – – Debt securities issued – 681,067 – 681,067 (681,067) – Loss on liquid funds – – – – (2,717) (2,717) 2,717 – – Other liabilities 1,393 5,806 – 7,19 9 ( 7,199 ) – Gross investment profit/(loss) 205,783 (70,728) 13,266 (114,24 8 ) 30,238 6 4,311 (49,769) (13,617) 925 Total liabilities 1,393 686,873 – 688,266 (688,266) – Administrative expenses – – – – (11,779) (11,779) 7,3 9 0 – (4,389) Net debt – – – – (380,905) (380,905) Salaries and other employee benefits – – – – (28,217) (28,217) 25,843 – (2,374) of which, cash and liquid funds – – – – 411,844 411,8 44 Interest expense – – – – (69,774) (6 9,774) 69,774 – – of which, loans issued – – – – 26,830 26,830 Profit/(loss) before provisions, foreign of which, gross debt – – – – (819,579) (819,579) exchange and non-recurring items 205,783 (70,728) 13,266 (114, 248) (79,532) (45,459) 53,238 (13,617) (5,838) Net other assets/(liabilities) – – – – (331) (331) Expected credit loss reversal – – – – 380 380 (380) – – Total equity/NAV 2,817,391 2,795,060 (2,795,060) 2,817,391 – 2 , 817,391 Net foreign currency gain – – – – 47,170 47,170 (53,245) – (6,075) Non-recurring expense – – – – (627) (627) 387 – (240) * For detailed breakdown of JSC Georgia Capital refer to Note 12. Profit/(loss) before income taxes 205,783 (70,728) 13,266 (114,248) (32,609) 1,464 – (13,617) (12,153) ** Reclassification to aggregated balances to arrive at the NAV specific presentation, such as: aggregating cash, marketable securities, investment in redeemable shares, repurchased GCAP bonds as cash and liquid funds, debt securities issued as gross debt and netting of other assets and liabilities. Income tax – – – – – – – – – Profit/(loss) for the year 205,783 (70,728) 13,266 (114,24 8) (32,609) 1,464 – (13,617) (12,153) 190 191 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 6. Equity Investments at Fair Value 8. Equity continued Earnings/(loss) per share | | 31 December | | 31 December | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 2023 | | 2022 | | 2023 2022 | | Subsidiaries (Note 12) 3,363,411 2,795,060 | | | | | Basic earnings/(loss) per share | | Profit/(loss) for the year attributable to ordinary shareholders of the parent 608,617 (12,153) Equity investments at fair value 3,363,411 2,795,060 Weighted average number of ordinary shares outstanding during the year 39,494,431 42,090,389 Earnings/(loss) per share (GEL) 15.4102 (0.2887) 2023 2022 Diluted earnings/(loss) per share* At 1 January 2,795,060 2,881,373 Profit/(loss) for the year attributable to ordinary shareholders of the parent 608,617 (12,153) Fair Value gain and dividend income 616,010 925 Weighted average number of diluted ordinary shares outstanding during the year 40,761,789 42,090,389 Capital redemption* – (87, 23 8) Georgia Capital PLC Annual Report 2023 Diluted earnings/(loss) per share (GEL) 14.9311 (0.2887) Dividend income** (47,659) – At 31 December 3,363,411 2,795,060 * Dilution effect arises from the Group’s share-based compensation arrangements. * During 2022 JSC Georgia Capital made a capital reduction to its 100% shareholder Georgia Capital PLC with total consideration of GEL 87,238 of which cash consideration 9. Salaries and Other Employee Benefits, and General and Administrative Expenses GEL87,238. 2023 2022 ** In 2023 JSC Georgia Capital paid a dividend to its 100% shareholder in the amount of GEL 47,659 (2022: GEL nil). Salaries and bonuses (1,480) (1,798) Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments, both Equity compensation plan costs (541) (495) meet the definition of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit or loss. Pension costs (66) (81) For the breakdown and detailed information regarding the equity investments at fair value, refer to Note 12. Salaries and other employee benefits (2,087) (2,374) 7. Taxation As at 31 December 2023 GCAP PLC has an unrecognised tax asset (tax loss carried forward) in the amount of GEL 8,145 (31 December 2022: Refer also to the Resources and Responsibilities section on page 80-93 and the Directors’ Remuneration Report on page 139-157. For total number GEL6,621). The Company does not recognise the deferred tax asset since it is not expected to be utilised in the foreseeable future, as the of employees of Georgia Capital, refer to page 84 of the Resources and Responsibilities section. For Directors’ remuneration refer to page 150 of Company’s income sources, fair value gains on equity investments and dividend income, are not taxable in the UK, as fair value gains are unrealised the Directors’ Remuneration Report. The Annual Report figures comprise of both holding company entities: Georgia Capital PLC and JSC Georgia and dividend income from a controlled company is exempt from taxation under UK tax law. Capital. The figures in the table above are for standalone Georgia Capital PLC. The aggregate amount of temporary differences associated with investments in subsidiaries is GEL 1,919,957 (2022: GEL 1,351,606). The deferred General and administrative expenses tax liability has not been recognised as the Company controls the timing of reversal of these temporary differences and considers it probable that the 2023 2022 temporary differences will not be reversed in the foreseeable future. Legal and other professional services (4,205) (4,074) Applicable taxes in Georgia include corporate income tax (profit tax), individuals’ withholding taxes, property tax and value added tax, among others. Occupancy and rent (114) (113) Management believes that the Company is in compliance with the tax laws affecting its operations. However, the risk remains that relevant authorities Communication (14) (14) could take differing positions with regard to interpretative issues. Other (143) (188) General and administrative expenses (4,476) (4,389) 8. Equity Share capital Auditors’ remuneration As at 31 December 2023 issued share capital comprised of 43,215,840 authorised common shares (31 December 2022: 44,827,862), of which Auditors’ remuneration is included within legal and other professional services expenses above and comprises: 43,215,840 were fully paid (2022: 44,827,862). Each share has a nominal value of one British penny. Shares issued and outstanding as at 31 December 2023 and 31 December 2022 are described below: 2023 2022 Number Fees payable for the audit of the Company’s current year Annual Report 1,002 1,145 of ordinary | | shares Amount | Fees payable for other services: | | --- | --- | --- | | 1 January 2022 47,080,203 1,547 | | Audit of the Company’s subsidiaries 308 382 | | Cancellation of shares (2,252,341) (74) | | Total audit fees 1,310 1,527 | | 31 December 2022 44,827,862 1,473 | | Audit-related assurance services | | Cancellation of shares (1,612,022) (53) | | Other assurance services 103 101 | | 31 December 2023 43,215,840 1,420 | | Corporate finance services 79 – | Total audit-related fees 182 101 Treasury shares Non-audit services In 2023, the Company paid cash consideration of GEL 48,037 (2022: GEL 54,573) for acquisition of treasury shares, of which GEL 203 (2022: Total other services fees – – GEL247) was related to shares acquired for settlement of employee share-based payments and GEL 47,834 (2022: GEL 54,326) were other acquisitions made by the Company, including those under the share buyback programme in 2022. Total fees 1,492 1,628 During 2023, 1,665,222 (2022: 2,252,341) treasury shares bought back under the buyback programme, out of which 1,612,022 were cancelled and The figures shown in the above table include audit fees of JSC GCAP and GCAP PLC and do not include other remuneration paid by portfolio 53,200 are held at treasury. companies as it is not required by Companies Act 2006 Part 16. The presented amounts relate to fees paid to PricewaterhouseCoopers LLP and its associates. 192 193 | Strategy Review Overview | Strategy Review Our Business | Strategy Review Discussion of Results | Governance | | --- | --- | --- | --- | # NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) ### 10. Share-based Payments #### Executives' Equity Compensation Plan In 2018, Georgia Capital introduced Group's Executives' Equity Compensation Plan (EECP). Under the EECP, shares of the parent are granted to senior executives of the Company. In July 2018, the executives signed new five-year fixed contingent share-based compensation agreements with a total of 1,750,000 ordinary shares of Georgia Capital. The total amount of shares fixed to each executive are being awarded in five equal instalments during the five consecutive years starting January 2019, of which each award is subject to a six-year vesting period subject to continued employment within the Group during such vesting period. In October 2022 CEO contract maturity was extended until 31 December 2025 from May 2023, extending fixed contingent share-based compensation with additional $18,357 ordinary shares of Georgia capital. The fair value of the shares is determined at the grant date using available market quotations. After Georgia Capital met the definition of investment entity on 31 December 2018, only the small portion of the CEO's share-based compensation which Georgia Capital PLC retains the obligation to settle is within scope of IFRS 2 in Georgia Capital's financial statements. The following table illustrates the number and weighted average prices of, and movements in, shares awards granted to the CEO of Georgia Capital PLC during the year: | | 2023 | 2022 | | --- | --- | --- | | Shares outstanding at 1 January | 132,735 | 91,266 | | Vested during the year | (14,367) | (10,367) | | Granted during the year | - | 51,636 | | Shares outstanding at 31 December | 118,368 | 132,735 | The weighted average remaining contractual life for the share awards outstanding as at 31 December 2023 was 2.71 years (2022: 3.3 years). The weighted average fair value of shares vested was GEL 33.4 (2022: GEL 29.7). The weighted average fair value of shares granted was GEL nil (2022: GEL 18.68). #### Expense recognition The share-based payment expense recognized for employee services received during 2023 and the respective increase in equity arising from equity-settled share-based payments was GEL 541 (2022: GEL 495). ### 11. Risk Management #### Introduction Risk is inherent in the Group's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group's continuing profitability and each individual within the Group is accountable for the risk exposures relating to his or her responsibilities. The Group is exposed to investment risk, credit risk, liquidity risk and market risk. It is also subject to operational risks and insurance risk. The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Group's strategic planning process. #### Risk management structure ##### Audit and Valuation Committee The Audit and Valuation Committee of Georgia Capital PLC assists the Management Board of Georgia Capital in relation to the oversight of the Group's financial and reporting processes. It monitors the integrity of the financial statements and is responsible for governance around both the Internal Audit function and external auditor, reporting back to the Board. It reviews the effectiveness of the policies, procedures and systems in place related to, among other operational risks, compliance, IT and IS (including cyber-security) and assesses the effectiveness of the risk management and internal control framework. It is responsible for reviewing and approving half-yearly and annual valuations of the Group's portfolio investments prepared and presented to it by the Management Board. The Committee will ensure that the Valuation Policy complies with the obligations within any agreements in place, legislation, regulations, guidance and other policies of the Company. ### 11. Risk Management (critical) #### Introduction (critical) ##### Risk management structure (critical) ##### Management Board The Management Board of Georgia Capital has overall responsibility for the Group's procedures. The Management Board is comprised of senior managers of GCAP PLC management system, the Board of Directors delegates individual risk management specific functions to the various decision-making and execution bodies within the ##### Internal Audit The Internal Audit department of Georgia Capital PLC is responsible for the annual corporate governance processes, with the aim of reducing the levels of operational and detecting any infringements or errors on the part of the Group's departments compliance with those procedures. The Group's Internal Audit department discusses its findings and recommendations to the Audit and Valuation Committee. ##### Risk measurement and reporting systems The Group's risks are measured using a method which reflects both the expected losses, which are an estimate of the ultimate actual loss based on different forecast historical experience, adjusted to reflect the economic environment. Monitoring and controlling risks is primarily performed based on limits established market environment of the Group as well as the level of risk that the Group is willing to continue. In addition, the Group monitors and measures the overall risk bearing of types and activities. Information compiled from all the businesses is examined and processed in order to be presented and explained to the Management Board. ##### Risk mitigation As part of its overall risk management, GCAP PLC and JSC GCAP may use derivative changes in interest rates, foreign currencies, equity risks, credit risks, and exposure level are mitigated by instruments applicable to specific industries they operate in. ##### Credit risk Credit risk is the risk that the Company will incur a loss because its customers, clients, and the Group manages and controls credit risk by setting limits on the amount of risk monitoring exposures in relation to such limits. Credit harms by debtors for various industry specifics in which respective entities operate. ##### Liquid financial instruments Credit risk from balances with banks and financial institutions is managed by the Company with the Company's policy. Investments of surplus funds are made only with appropriate counterparty. The limits are set to minimise the concentration of risks and therefore make payments. The table below demonstrates the Company's financial assets credit risk profile by | | 31 December 2022 | | | --- | --- | --- | | | As to A: | BB+ to BB- | | Cash and cash equivalents | 11,826 | 493 | | Investment in redeemable securities | - | - | | Total | 11,826 | 493 | ##### Liquidity risk Liquidity risk is the risk that the Company or any of its portfolio entities will be unable to normal and stress circumstances. To limit this risk, management has arranged dividends with liquidity in mind, and monitors future cash flows and liquidity on a regular basis for liquidity needs. The Group manages the maturities of its assets and liabilities for better matching. Maturities of assets and liabilities of the Company and each portfolio entity are made are the daily calls on its available cash resources in respect of supplier contracts and 194 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 11. Risk Management continued 11. Risk Management continued Liquidity continued Capital management The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted repayment obligations. Management monitors the Group’s capital on a regular basis based on statement of net asset value prepared on fair value bases, which Repayments, which are subject to notice, are treated as if notice were to be given immediately. corresponds to equity attributable to shareholders of Georgia Capital PLC as at 31 December 2023 in the amount of GEL 3,378,512 (2022: GEL 2,817,391). The NAV Statement breaks down NAV into its components, including fair values for the private businesses and follows changes therein, | Financial liabilities | | | | | | providing management with a snapshot of the Group’s financial position at any given time. The NAV Statement provides a value of Georgia Capital | | --- | --- | --- | --- | --- | --- | --- | | | Less than 3 | | 3 to 12 | 1 to 5 | Over | | | 31 December 2023 | | months | months | years | 5 years Total | that management uses as a tool for measuring its investment performance. Management closely monitors NAV in connection with capital allocation | decisions. Refer to Note 5. Other financial liabilities 1,711 – – – 1,711 Total undiscounted financial liabilities 1,711 – – – 1,711 The capital management objectives are as follows: • to maintain the required level of stability of the Group thereby providing a degree of security to the shareholders; Georgia Capital PLC Annual Report 2023 • to manage capital needs such that Group does not depend on potentially premature liquidation of its listed investments; Financial liabilities Less than 3 3 to 12 1 to 5 Over • to allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its 31 December 2022 months months years 5 years Total capital providers and of its shareholders; and Other financial liabilities 1,393 – – – 1,393 • to maintain financial strength to support new business growth and to satisfy the shareholders’ requirements. Total undiscounted financial liabilities 1,393 – – – 1,393 The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the applicable financial covenants. To maintain or adjust the capital structure, the Group may adjust the amount of outstanding equity. Market risk Market risk is the risk that the value of financial instruments will fluctuate due to changes in market variables such as interest rates and foreign 12. Fair Value Measurements exchange rates. The Group has exposure to market risks. GCAP PLC and JSC GCAP structure the levels of market risk it accepts through a market Fair value hierarchy risk policy that determines what constitutes market risk. Risks associated with changes in fair value of equity investment and its implied fair value For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and components are disclosed in Note 12. risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy: Price risk 31 December 2023 Level 1 Level 2 Level 3 Total In GCAP PLC equity securities price risk arises from publicly traded investment (BoG, valued at GEL 1,225,847) held through JSC GCAP for which price in the future is uncertain). Where non-monetary financial instruments – for example, equity securities – are denominated in currencies other Assets measured at fair value than the Georgian Lari, the price initially expressed in foreign currency and then converted into Georgian Lari will also fluctuate because of changes Equity investments at fair value – – 3,363,411 3,363,411 in foreign exchange rates. For details on currency risk management, refer to respective paragraph below. If the price of our listed investment increased by 10% (2022: 10%) JSC GCAP’s profit for the year and NAV would have increased by GEL 122,584 31 December 2022 Level 1 Level 2 Level 3 Total (2022: GEL 83,046). If the price of our listed investment decreased by 10% (2022: 10%) JSC GCAP’s profit for the year and NAV would have Assets measured at fair value decreased by GEL 122,585 (2022: GEL 83,046). As a result, JSC GCAP’s NAV would have increased by 4% (2022: 3%) or decreased by 4% Equity investments at fair value – – 2,795,060 2,795,060 (2022:3%). Valuation techniques Sensitivity analysis of private portfolio companies are presented in Note 12. The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Company’s estimate of assumptions that a market participant would make when valuing the instruments. Currency risk GCAP PLC and JSC GCAP are exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and Assets for which fair value approximates carrying value cash flows. The Group’s principal transactions are carried out in Georgian Lari and its exposure to foreign exchange risk arises primarily with respect For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months), it is assumed that the carrying to US Dollar. amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments. The currency risk management process is an integral part of the Group’s activities; currency risk is managed through regular and frequent monitoring of the Group’s currency positions and through timely and efficient elaboration of responsive actions and measures. The Company is not directly Fixed rate financial instruments exposed to material currency risk. The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest-bearing deposits is based Operating environment on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity. Most of the Group’s portfolio investments are concentrated in Georgia. As an emerging market, Georgia’s business and regulatory infrastructure is less well-developed than that which would generally exist in a more mature market economy. Operations in Georgia may involve risks that are not typically associated with those in developed markets (including the risk that the Georgian Lari is not freely convertible outside the country, and undeveloped debt and equity markets). However, over the last few years the Georgian Government has taken a number of steps that positively affect the overall investment climate of the country, specifically implementing the reforms necessary to create banking, judicial, taxation and regulatory systems. This includes the adoption of a new body of legislation (including a new Tax Code and procedural laws). In the view of the Board, these steps contribute to mitigate the risks of doing business in Georgia. The existing tendency aimed at the overall improvement of the business environment is expected to persist. The future stability of the Georgian economy is, however, largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the Government. In addition, the Georgian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. Georgia has published its climate change strategy. Georgia’s 2030 Climate Change Strategy and Action Plan (Climate Change Strategy and Action Plan – CSAP, Climate Action Plan – CAP) are a planning and implementation mechanism for coordinated effort and planning towards meeting the nationally determined targets for climate change mitigation. 196 197 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) Georgia Capital PLC Annual Report 2023 12. Fair Value Measurements continued 12. Fair Value Measurements continued Valuation techniques continued Valuation techniques continued Investment in subsidiaries Equity investments in private portfolio companies continued Equity investments at fair value include investment in subsidiary at fair value through profit or loss representing 100% interest of JSC Georgia Capital. Other portfolio companies – fair value assessment is performed internally as described below. Georgia Capital PLC holds a single investment in JSC Georgia Capital (an investment entity on its own), which holds a portfolio of investments, both meet the definition of investment entity and Georgia Capital PLC measures its investment in JSC Georgia Capital at fair value through profit or Equity investments in private portfolio companies are valued by applying an appropriate valuation method, which makes maximum use of market- loss. Investments in investment entity subsidiaries and loans issued are accounted for as financial instruments at fair value through profit and loss in based public information, is consistent with valuation methods generally used by market participants and is applied consistently from period to accordance with IFRS 9. Debt securities owned are measured at fair value. We determine that, in the ordinary course of business, the net asset value period, unless a change in valuation technique would result in a more reliable estimation of fair value. of investment entity subsidiaries is considered to be the most appropriate to determine fair value. JSC Georgia Capital’s NAV as of 31 December 2023 and 31 December 2022 is determined as follows: The value of an unquoted equity investment is generally crystallised through the sale or flotation of the entire business. Therefore, the estimation of fair value is based on the assumed realisation of the entire enterprise at the reporting date. Recognition is given to the uncertainties inherent in | | 31 December | | 31 December | | | | --- | --- | --- | --- | --- | --- | | Georgia Capital PLC Annual Report 2023 | | | | | estimating the fair value of unquoted companies and appropriate caution is applied in exercising judgments and in making the necessary estimates. | | | | 2023 | | 2022 | | Assets The fair value of equity investments is determined using one of the valuation methods described below: Cash and cash equivalents 51,138 199,771 Amounts due from credit institutions 8,678 16,278 Listed peer group multiples Marketable securities 18,203 25,445 This methodology involves the application of a listed peer group earnings multiple to the earnings of the business and is appropriate for investments Investment in redeemable securities 14,068 12,631 in established businesses and for which the Company can determine a group of listed companies with similar characteristics. Equity investments at fair value 3,671,945 3,198,627 of which listed and observable investments: 1,384,847 985,463 The earnings multiple used in valuation is determined by reference to listed peer group multiples appropriate for the period of earnings calculation BoG 1,225,847 830,463 for the investment being valued. The Company identifies a peer group for each equity investment taking into consideration points of similarity with Water utility 159,000 155,000 the investment such as industry, business model, size of the company, economic and regulatory factors, growth prospects (higher growth rate) and of which private investments: 2, 2 87,0 9 8 2,213,16 4 risk profiles. Some peer-group companies’ multiples may be more heavily weighted during valuation if their characteristics are closer to those of the company being valued than others. Large portfolio companies 1,436,231 1,4 37,610 Retail (pharmacy) 714,001 724,517 As a rule of thumb, last 12-month earnings will be used for the purposes of valuation as a generally accepted method. Earnings are adjusted where Hospitals 344,356 4 33 ,193 appropriate for exceptional, one-off or non-recurring items. P&C insurance 285,566 228,045 Medical insurance 92,308 51,855 a. Valuation based on enterprise value Investment stage portfolio companies 566,614 501,407 Fair value of equity investments in private companies can be determined as their enterprise value less net financial debt (gross face value of debt less Clinics and diagnostics 110 ,761 112,178 cash) appearing in the most recent Financial Statements. Renewable energy 266,627 224,987 Education 189,226 164,242 Enterprise value (EV) is obtained by multiplying measures of a company’s earnings by listed peer group multiple (EV/EBITDA) for the appropriate Other portfolio companies 284,253 274,147 period. The measures of earnings generally used in the calculation is recurring EBITDA for the last 12 months (LTM EBITDA). In exceptional cases, Loans issued 9,212 26,830 where EBITDA is negative, peer EV/Sales (enterprise value to sales) multiple can be applied to last 12-month recurring/adjusted sales revenue of the Other assets 5,060 2,351 business (LTM sales) to estimate enterprise value. Total assets 3,778,304 3,481,933 Once the enterprise value is estimated, the following steps are taken: Liabilities • Net financial debt appearing in the most recent financial statements is subtracted from the enterprise value. If net debt exceeds enterprise value, Debt securities issued 413,930 681,067 the value of shareholders’ equity remains at zero (assuming the debt is without recourse to Georgia Capital). Other liabilities 963 5,806 • The resulting fair value of equity is apportioned between Georgia Capital and other shareholders of the company being valued, if applicable. Total liabilities 414,893 686,873 • Valuation based on enterprise value using peer multiples is used for businesses within non-financial industries. Net asset value 3,363,411 2,795,060 b. Equity fair value valuation Fair value of equity investment in companies can also be determined as using price to earnings (P/E) multiple of similar listed companies. In measuring fair values of JSC Georgia Capital’s investments, following valuation methodology is applied: The measure of earnings used in the calculation is recurring adjusted net income (net income adjusted for non-recurring items and forex gains/ Equity investments in listed and observable portfolio companies losses) for the last 12 months (LTM net income). The resulting fair value of equity is allocated between Georgia Capital and other shareholders of the Equity instruments listed on an active market are valued at the price within the bid/ask spread, that is most representative of fair value at the reporting portfolio company, if any. Fair valuation of equity using peer multiples can be used for businesses within financial sector (e.g. insurance companies). date, which usually represents the closing bid price. The instruments are included within Level 1 of the hierarchy in JSC GCAP financial statements. Listed and observable portfolio also includes instruments for which there is a clear exit path from the business, e.g. through a put and/or call options Discounted cash flow at pre-agreed multiples. In such cases, pre-agreed terms are used for valuing the company. Under the discounted cash flow valuation method, fair value is estimated by deriving the present value of the business using reasonable assumptions of expected future cash flows and the terminal value, and the appropriate risk-adjusted discount rate that quantifies the risk inherent to the business. Equity investments in private portfolio companies The discount rate is estimated with reference to the market risk-free rate, a risk adjusted premium and information specific to the business or market Large portfolio companies – An independent third-party valuation firm is engaged to assess fair value ranges of large private portfolio companies sector. Under the discounted cash flow analysis unobservable inputs are used, such as estimates of probable future cash flows and an internally- at the reporting date starting from 31 December 2020. The independent valuation company has extensive relevant industry and emerging markets developed discounting rate of return. experience. Valuation is performed by applying several valuation methods including an income approach based mainly on discounted cash flow and a market approach based mainly on listed peer multiples (the DCF and listed peer multiples approaches applied are described below for the other Net asset value portfolio companies). The different valuation approaches are weighted to derive a fair value range, with the income approach being more heavily The net assets methodology involves estimating fair value of an equity investment in a private portfolio company based on its book value at reporting weighted than the market approach. Management selects what is considered to be the most appropriate point in the provided fair value range at the date. This method is appropriate for businesses (such as real estate) whose value derives mainly from the underlying value of its assets and where reporting date. such assets are already carried at their fair values (fair values determined by professional third-party valuation companies) on the balance sheet. Investment stage portfolio companies – An independent third-party valuation firm is engaged to assess fair value ranges of investment stage Price of recent investment private portfolio companies at the reporting date starting from 30 June 2022. The independent valuation company has extensive relevant industry The price of a recent investment resulting from an orderly transaction, generally represents fair value as of the transaction date. At subsequent and emerging markets experience. Valuation is performed by applying several valuation methods including an income approach based mainly on measurement dates, the price of a recent investment may be an appropriate starting point for estimating fair value. However, adequate consideration discounted cash flow and a market approach based mainly on listed peer multiples (the DCF and listed peer multiples approaches applied are is given to the current facts and circumstances to assess at each measurement date whether changes or events subsequent to the relevant substantially identical to those described below for the other portfolio companies). The different valuation approaches are weighted to derive a fair transaction imply a change in the investment’s fair value. value range, with the income approach being more heavily weighted than the market approach. Management selects what is considered to be the most appropriate point in the provided fair value range at the reporting date. 198 199 | Strategy Review Overview | Strategy Review Our Business | Strategy Review Discussion of Results | Government | | --- | --- | --- | --- | # NOTES TO FINANCIAL STATEMENTS CONTINUED ## GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) ### 12. Fair Value Measurements (continued) #### Valuation techniques (continued) ##### Equity investments in private portfolio companies (continued) ###### End price Fair value of a private portfolio company in a sales process, where the price has been agreed but the transaction has not yet settled, is measured at the best estimate of expected proceeds from the transaction, adjusted pro-rata to the proportion of shareholding sold. ###### Valuation Fair value of investments estimated using one of the valuation methods described above is cross-checked using several other valuation methods as follows: - Listed peer group multiples – peer multiples such as P/E, P/E (price to book) and dividend yield are applied to the respective metrics of the investment being valued depending on the industry of the company. The Company develops fair value range based on these techniques and analyses whether fair value estimated above falls within this range. - Discounted cash flow (DCF) – The DCF valuation method is used to determine fair value of equity investment. Based on DCF, the Company might make upward or downward adjustment to the value of valuation target as derived from primary valuation method. If fair value estimated using discounted cash flow analysis significantly differs from the fair value estimate derived using primary valuation method, the difference is examined thoroughly, and judgement is applied in estimating fair value at the measurement date. - In line with our strategy, from time to time, we may receive offers from interested buyers for our private portfolio companies, which would be considered in the overall valuation assessment, where appropriate. #### Valuation process for Level 3 valuations Georgia Capital hired third-party valuation professionals to assess fair value of the large private portfolio companies as at 31 December 2021. Starting from 2022 third-party valuation professionals are hired to assess fair value of the investment stage private portfolio companies as well. As of 31 December 2020, such businesses include hospitals (Large and Specialty Hospitals and Regional and Community Hospitals), P&C insurance, retail (pharmacy), medical insurance, clinics and diagnostics, renewable energy and education. The valuation is performed by applying several valuation methods that are weighted to derive fair value range, with the income approach being more heavily weighted than market approach. Management selects most appropriate point in the provided fair value range at the reporting date. Fair values of investments in other private portfolio companies are assessed internally in accordance with Georgia Capital's valuation methodology by the Valuation Workgroup. Georgia Capital's Management Board proposes fair value to be placed at each reporting date to the Audit and Valuation Committee. Audit and Valuation Committee is responsible for the review and approval of fair values of investments at the end of each reporting period. #### Description of significant unobservable inputs to level 3 valuations The approach to valuations as of 31 December 2023 was consistent with the Company's valuation process and policy. Management analyzes the impact of climate change on the valuations, such as by incorporation of known effects of climate risks to the future cash flow forecasts or through adjusting peer multiples the known differences in the climate risk exposure as compared to the investment being fair valued. As at 31 December 2023, the management concluded that the effects of the climate risks are reflected in the peer multiples and discount rates used in the valuations and that no specific adjustments are required in relation of the Group's investment portfolio measurement and respective fair value sensitivity disclosures. The following tables show descriptions of significant unobservable inputs to level 3 valuations of equity investments: #### 31 December 2023 | Description | Valuation technique | Unobservable input | Range* (Implied multiple**) | Fair value | | --- | --- | --- | --- | --- | | **Loans issued** | DCF | Discount rate | 15.0%-16.0% | 9,212 | | **Equity investments at fair value** | | | | | | *Large portfolio* | | | | 1,436,231 | | *Retail (pharmacy)* | DCF, EV/EBITDA | EV/EBITDA-multiple | 6.3x-28.2x [9.7x] | 714,001 | | *Hospitals* | DCF, EV/EBITDA | EV/EBITDA-multiple | 7.2x-12.8x [10.8x] | 344,366 | | *P&C insurance* | DCF, P/E | P/E multiple | 4.6x-12.6x [10.0x] | 285,566 | | *Medical insurance* | DCF, P/E | P/E multiple | 9.7x-11.6x [11.0x] | 92,358 | | *Investment stage* | | | | 565,614 | | *Clinics and diagnostics* | DCF, EV/EBITDA | EV/EBITDA-multiple | 9.4x-12.8x [11.7x] | 110,761 | | *Renewable energy* | DCF, EV/EBITDA | EV/EBITDA-multiple | 2.8x-17.0x [12.6x] | 266,627 | | *Education* | DCF, EV/EBITDA | EV/EBITDA-multiple | 6.1x-42.7x [16.7x] | 189,235 | | *Other* | Sum of the parts | EV/EBITDA-multiple | 2.5x-19.0x [5.7x-14.6x] [90%-100%] [1.0x] | 264,253 | | | | Cashflow probability | | | | | | NAV multiple | | | ### 12. Fair Value Measurements (continued) #### Description of significant unobservable inputs to level 3 valuations (continued) #### 31 December 2022 | Description | Valuation technique | Unobse | | --- | --- | --- | | **Loans issued** | DCF | Discount rate | | **Equity investments at fair value** | | | | *Large portfolio* | | | | *Retail (pharmacy)* | DCF, EV/EBITDA | EV/EBITDA | | *Hospitals* | DCF, EV/EBITDA | EV/EBITDA | | *P&C insurance* | DCF, P/E | P/E multiple | | *Medical insurance* | DCF, P/E | P/E multiple | | *Investment stage* | | | | *Clinics and diagnostics* | DCF, EV/EBITDA | EV/EBITDA | | *Renewable energy* | DCF, EV/EBITDA | EV/EBITDA | | *Education* | DCF, EV/EBITDA | EV/EBITDA | | *Other* | Sum of the parts | EV/EBITDA Cash flow NAV multiple | * For equity investments at fair value the range refers to LTM multiples of listed peer group companies. ** Implied multiples are derived by dividing selected value of the company by respective LTM earnings. Georgia Capital hired third-party valuation professionals to assess fair value of the 31 December 2023 and 31 December 2022 including P&C insurance, hospitals (L, Hospitals), retail (pharmacy), medical insurance and clinics and diagnostics. Starting and education businesses are performed by third-party valuation professionals as methods that are weighted to derive fair value range, with the income approach be selects most appropriate point in the provided fair value range at the reporting date. On 31 December 2021, Georgia Capital signed SPA to dispose 80% interest in the large private portfolio companies. As at 31 December 2023 the remaining 20% agreed but option multiple in reference to the agreed contract with the buyer as Q4 structure at pre-agreed EBITDA multiples. As at 31 December 2020, several portfolio companies (hospitals, clinics and P&C) with the former shareholders of Insurance Company (mea), who allege that the th duress at a price below market value in 2012, Since the outset, the Defendants has without merit. The initial judgment of the First Instance Court in 2018 which was in 2020 and the case was returned for reconsideration to the First Instance Court, satisfied the claim and ruled that US$ 12.7 million principal amount plus an annual be paid by the Defendants. The Defendants appealed the decision of the First Inst of consideration at the Appellate Court. No hearing date has been set. The Defendants are confident that they will prevail and there have not been made. Management shares the Defendants' assessment of the merits of the case and co accordingly, fair values of portfolio companies do not take into account a potential In December 2023, the Georgian National Competition Agency (the "Agency") imp retailers' sector, including GCAP's retail (pharmacy) business, for alleged anti-corrn medicines funded under the state programme. The penalty amount assessed by the derived by utilizing the single-rate across all the alleged participants. The company vigorously defend its position. 200 # NOTES TO FINANCIAL STATEMENTS CONTINUED GEORGIA CAPITAL PLC (THOUSANDS OF GEORGIAN LARI) # 12. Fair Value Measurements (continued) Sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy In order to determine reasonably possible alternative assumptions the Company adjusted key unobservable model inputs. The Company adjusted the inputs used in valuation by increasing and decreasing them within a range which is considered by the Company to be reasonable. If the interest rate for each individual loan issued to equity investments as at 31 December 2023 decreased by 3.0-3.3 ppts (2022: 1.1-3.3 ppts), the amount of loans issued would have decreased by GEL 257 or 2.8% (2022: GEL 150 or 0.6%). If the interest rates increased by 3.0-3.3 ppts (2022: 1.1-3.3 ppts) then loans issued would have increased by GEL 255 or 2.8% (2022: GEL 148 or 0.6%). If the listed peer multiples used in the market approach to value unquoted investments as at 31 December 2023 decreased by 10% (2022: 10%), value of equity investments at fair value would decrease by GEL 59 million or 2% (2022: GEL 71 million or 2%). If the multiple increased by 16% (2022: 10%) then the equity investments at fair value would increase by GEL 59 million or 2% (2022: GEL 71 million or 2%). If the discount rates used in the income approach to value unquoted investments decreased by 50 bps (2022: 50 bps), the value of equity investments at fair value would increase by GEL 82 million or 2% (2022: GEL 75 million or 2%). If the discount rates increased by 50 bps (2022: 50 bps) then the equity investments at fair value would decrease by GEL 87 million or 2% (2022: GEL 71 million or 2%). If the discount rate decreased by 100 bps, the value of equity investments at fair value would increase by GEL 177 million or 5% (31 December 2022: GEL 155 million or 5%). If the discount rate increased by 100 bps then the equity investments at fair value would decrease by GEL 164 million or 4% (31 December 2022: GEL 138 million or 4%). If the multiple used to value unquoted investments valued on NAV and recent transaction price basis as at 31 December 2023 decreased by 10% (2022: 10%), value of equity investments at fair value would decrease by GEL 10 million or 0.3% (2022: GEL 11 million or 0.3%). If the multiple increased by 10% then the equity investments at fair value would increase by GEL 10 million or 0.3% (2022: GEL 11 million or 0.3%). As set out in the description of significant unobservable inputs to level 3 valuations the valuations have been prepared on the basis that climate change rates are reflected in the peer multiples and discount rates. Therefore, the sensitivities noted above in respect of peer multiples and discount rates include the risk arising from climate change. # Movements in level 3 financial instruments measured at fair value The following tables show a reconciliation of the opening and closing amounts of level 3 financial assets which are recorded at fair value: | | At 1 January 2022 | Fair value gain | Capital redemption | Capital increase | At 31 December 2023 | Fair value gain | Capital redemption | Dividend income | At 31 December 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Level 3 financial assets | | | | | | | | | | | Equity investments at fair value (Note 6) | 2,881,373 | 925 | (87,238) | - | 2,795,060 | 616,010 | - | (47,658) | 3,363,411 | # 13. Maturity Analysis The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled: | | 31 December 2023 | | | | --- | --- | --- | --- | | | Less than 1 year | More than 1 year | Total | | Cash and cash equivalents | 12,319 | - | 12,319 | | Investment in redeemable securities | 3,517 | - | 3,517 | | Equity investments at fair value | - | 3,363,411 | 3,363,411 | | Prepayments | 976 | - | 976 | | Total assets | 16,812 | 3,363,411 | 3,380,223 | | Other liabilities | 1,711 | - | 1,711 | | Total liabilities | 1,711 | - | 1,711 | | Net | 15,101 | 3,363,411 | 3,378,512 | | | 31 December 2023 | | | | --- | --- | --- | --- | | | Less than 1 year | More than 1 year | Total | | Cash and cash equivalents | 23,361 | - | 23,361 | | Equity investments at fair value | - | 2,795,060 | 2,795,060 | | Prepayments | 353 | - | 353 | | Total assets | 23,724 | 2,795,060 | 2,818,784 | | Other liabilities | 1,393 | - | 1,393 | | Total liabilities | 1,393 | - | 1,393 | | Net | 22,331 | 2,795,060 | 2,817,391 | # 14. Related Party Disclosures In accordance with IAS 24 Related Party Disclosures, parties are considered to be exercise significant influence over the other party in making financial or operational attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions which unrelated parties might not, and same terms, conditions and amounts as transactions between unrelated parties. A conducted on an arm's length basis. There were no related party transactions as of 31 December 2023 and as of 31 December 2022 (31 December 2022: nil), capital redemption of GEL 87,238 in 2023 below. The compensation of key management personnel for the Company and its 100%- Balance and other benefits Share-based payments compensation # Total key management compensation Key management personnel do not receive cash-settled compensation, except for 31 December 2023 was 5 (31 December 2022: 7). For more information regarding Groups Directors' remuneration refer to the Director Report 2023. For the details of related party balances comprising of equity investments at fair value # 15. Events after the Reporting Period Acquisition of medical insurance contracts and brand name from "Ardi". In January 2024, the medical insurance business signed a Memorandum of Under-19 contracts and brand name from "Ardi". Upon the successful completion of this transaction, business will make it the largest health insurer in the country. The total cash sufficiency by funds already available in the medical insurance business, with no cash investment business will operate under three brand names: Aldrig, Imedi L and Ardi, all of which Proposed acquisition of Ameriabank CJSC by Bank of Georgia Group PLC On 19 February 2024, Bank of Georgia Group PLC announced that it has reached Ameriabank CJSC a leading universal bank in Armenia with an attractive franchise 303.6 million, which will be fully financed by the Bank's surplus capital. The Trans- significant catalyst for the Bank and its shareholders. The Bank intends to keep the annual profits, potentially enabling increased capital distributions for the Bank's share As of 15 March 2024, the share price of Bank of Georgia Group PLC has seen a s to the end of 2023. This translates to a total value increase by 22% in GEL. 202 Strategic Review Strategic Review Strategic Review Overview Our Business Discussion of Results Governance Financial Statements Additional Information ## ADDITIONAL INFORMATION ADDITIONAL INFORMATION ## ABBREVIATIONS REFERENCES Georgia Capital PLC Annual Report 2023 AGM Annual General Meeting MTPL Mandatory third-party liability insurance BGEO Group PLC Former parent company of Georgia Capital PLC prior to demerger APM Alternative performance measure MW Megawatt The Board The Board of Directors of Georgia Capital PLC BoG or BoGG Bank of Georgia Group PLC NAV Net asset value The Code The UK Corporate Governance Code published CAGR Compounded annual growth rate NBG National Bank of Georgia in 2018 COVID-19 The novel coronavirus NCC Net Capital Commitment The Directors Members of Georgia Capital PLC Board of Directors DCF Discounted cash flow NGO Non-governmental organisation We/Our/Us References to “we”, “our” or “us” are primarily | | DCFTA Deep and Comprehensive Free Trade Agreement | | NIM Net Interest Margin | | | --- | --- | --- | --- | --- | | Georgia Capital PLC Annual Report 2023 | | | | references to the Group throughout this Report. | | | EBITDA Earnings before interest, taxes, non-recurring | | NMF Not meaningful to present | However, the Group comprises of and operates | | | | items, FX gain/losses and depreciation | | through its subsidiaries which are legal entities | | | | | NPLs Non-performing loans | with their own relevant management and | and amortisation governance structure (as set out in relevant parts NTM Next twelve months EECP Executives’ Equity Compensation Plan of this Report). OECD Organisation for Economic Co-operation EFTA European Free Trade Association and Development EPS Earnings per share OPEX Operating expenses ESMS Environmental and Social Risk Management P&C Property and Casualty Procedures PLC Public limited company EUR Euro PPA Power Purchase Agreement EV Enterprise value PwC PricewaterhouseCoopers LLP EY Ernst & Young RAB Regulatory Asset Base FCF Free cash flow ROA Return on assets FDI Foreign direct investment ROAE Return on average equity FRC Financial Reporting Council ROE Return on equity FTA Free Trade Agreement ROIC Return on invested capital GBP Great British Pound, national currency of the UK SDGs United Nations’ Sustainable Development Goals GDP Gross domestic product SMEs Small and medium-size enterprises GEL Georgian Lari or Lari, national currency of Georgia SOTP Sum-of-the-parts valuation GGU Georgia Global Utilities TBD To be determined GHG Georgia Healthcare Group TPP Thermal power plant HPP Hydro power plant TPL Third-party liability insurance IAS International Accounting Standards TSR Total Shareholder Return IASB International Accounting Standards Board UK United Kingdom IFC International Finance Corporation US$/USD United States dollar, national currency of the IMF International Monetary Fund United States IPO Initial Public Offering WACC Weighted average cost of capital LTIP Long-Term Incentive Plan WPP Wind power plant LTM Last 12 months WSS Water supply and sanitation LTV Loan to value ratio WWTP Wastewater treatment plant MDA Modified Dutch Auction y-o-y Year-on-year MOIC Multiple of invested capital YTD Year to date MoU Memorandum of Understanding 204 205 | Strategic Review Overview | Strategic Review Our Business | Strategic Review Discussion of Results | Government | | --- | --- | --- | --- | ## ADDITIONAL INFORMATION GLOSSARY | **Alternative performance measures (APMs)** | In this Annual Report management uses various APMs, which they believe provide additional useful information for understanding the financial performance of the Group. These APMs are not defined by International Financial Reporting Standards, and also may not be directly comparable with other companies who use similar measures. Management believes that these APMs provide the best representation of our financial performance as these measures are used by management to evaluate our operating performance and make day-to-day operating decisions. | | --- | --- | | **Combined ratio** | Equals sum of the loss ratio and the expense ratio in the insurance business. | | **Demerger** | Georgia Capital PLC emerged as a separately listed company after demerger from its former Parent Company BGED Group on 29 May 2018 (the demerger). | | **EBITDA** | Earnings before interest, taxes, non-recurring items, FX gain/losses and depreciation and amortisation; the Group has presented these figures in this document because management uses EBITDA as a tool to measure the portfolio companies' operational performance and the profitability of these companies' operations. The Company considers EBITDA to be an important indicator of representative recurring operations. | | **Expense ratio** | Equals sum of acquisition costs and operating expenses divided by net earned premiums in the insurance business. | | **IRR** | IRR for investments is calculated based on: a) historical contributions to the investment; b) dividends received; and c) fair value of the investment as at 31 December 2023. | | **LTV** | Loan to value ratio: net debt divided by the portfolio value. | | **Liquid assets and Loans issued** | Liquid asset and loans issued in Georgia Capital include cash, marketable debt securities and issued short-term loans. | | **Loss ratio** | Equals net insurance claims expense divided by net earned premiums. | | **NAV** | Net asset value, represents the net value of an entity and is calculated as the total value of the entity's assets minus the total value of its liabilities. | | --- | --- | | **NCC** | Net Capital Commitment represents an aggregated view of all confirmed, agreed and expected capital outflows at the GCAP holding company level. | | **NCC ratio** | Equals Net Capital Commitment divided by portfolio value. | | **Net investment** | Gross investments less capital returns. | | **Number of shares outstanding** | Number of shares in issue less total unawarded shares in JSC GCAP's management trust. | | **MOIC** | Multiple of invested capital is calculated as follows: i) the numerator is the cash and non-cash inflows from dividends and sell-downs plus fair value of investment at reporting date, and ii) the denominator is the gross investment amount. | | **P/B multiple** | The price-to-book multiple, determined by dividing the current market price of a company's share by its book value per share. | | **P/E multiple** | The price-to-earnings multiple, calculated by dividing the current market price of a company's share by its earnings per share. | | **Realised MOIC** | Realised multiple of invested capital is calculated as follows: i) the numerator is the cash and non-cash inflows from dividends and sell-downs, ii) the denominator is the gross investment amount. | | **ROAE** | Return on average total equity equals profit for the period attributable to shareholders divided by monthly average equity attributable to shareholders for the same period. | | **ROIC** | Return on invested capital is calculated as EBITDA less depreciation, divided by aggregate amount of total equity and borrowed funds. | | **Value creation** | Value creation of each portfolio investment is calculated as follows: i) the aggregate (i) change in beginning and ending fair values, (ii) gains from realised sales (if any) and (iii) dividend income during period. We then adjust the net result to remove capital injections (if any) to arrive at the total value creation/investment return. | ## ADDITIONAL INFORMATION SHAREHOLDER INFORMATION | **Our website** | **Forwards** | | --- | --- | | All shareholders and potential shareholders can gain access to the Annual Report, presentations to investors, key financial information, regulatory news, share and dividend data, AGM documentation and other significant information about Georgia Capital at: https://georgiacapital.ge/ | Certain booklet, especially events, needs and expenses that the statement expects these unknowable events reflect results, results, and results, and are included in the report. | | **Our registered address** | No part of an investment entity, investment no ob a result, extent as a part of | | Georgia Capital PLC 42 Brook Street London W1X 5DB United Kingdom | | | **Annual General Meeting** | No part of an investment entity, investment no ob a result, extent as a part of | | The Annual General Meeting of Georgia Capital PLC (the AGM) will be held at the offices of Baker & McKenzie LLP, 280 Bishopsgate, London EC2M 4RB. Details of the date, time and business to be conducted at the AGM is contained in the Notice of AGM, which will be mailed to shareholders who have elected to receive hard copies of shareholder information and will be available on the Company's website: https://georgiacapital.ge/ | | | **Shareholder enquiries** | | | Georgia Capital PLC's share register is maintained by Computershare Investor Services PLC. Any queries about the administration of holdings of ordinary shares, such as change of address or change of ownership, should be directed to the address or telephone number immediately below. Holders of ordinary shares may also check details of their shareholding, subject to passing an identity check, by visiting the Registrar's website: www.investorcentre.co.uk or by calling the Shareholder Helpline on: +44 (0) 370 873 5866. | | | Computershare Investor Services PLC The Pavilions, Bridgwater Road Bristol BS13 8AE United Kingdom +44 (0) 370 873 5866 | | | **Contact information** | | | Georgia Capital PLC Investor Relations E-mail: info@gcap.ge | | 206 ## NOTES Georgia Capital PLC Annual Report 2023 Printed by a Carbon Neutral Operation (certified: CarbonQuota) under the PAS2060 standard. Printed on material from well-managed, FSC ™ certified forests and other controlled sources. This publication was printed by an FSC ™ certified printer that holds an ISO 14001 certification. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. 208 CBP024060 www.georgiacapital.ge