Georgia Capital Regulatory News (CGEO)

 FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS)[1]

KEY POINTS

Ø Sale of an 80% interest in the water utility business to FCC Aqualia for US$ 180 million via a two-staged process

o Successful completion of the first stage of disposal and receipt of full cash proceeds in February 2022

Ø NAV per share (GEL) up 5.5% in 4Q21, mainly reflecting:

o GEL 117.3 million value creation across our private portfolio (+4.2 ppts impact)

o BoG share price increase by 7.3% leading to GEL 54.0 million (+2.0 ppts impact) value creation in listed portfolio

Ø NAV per share (GEL) up 31.0% and up 39.7% in GBP terms in FY21, reflecting outstanding performance across our portfolio companies and GEL's appreciation against foreign currencies during 2021

Ø Record aggregated quarterly revenues of GEL 541.2 million, up 18.6% y-o-y in 4Q21

Ø Aggregated quarterly EBITDA and net operating cash flow up 8.2% and 38.5% y-o-y, respectively, in 4Q21

Ø Aggregated revenues and EBITDA up 23.8% and 34.9% y-o-y respectively in FY21

Ø GEL 29.9 million dividends collected from the portfolio companies in 4Q21 (GEL 74.4 million in FY21)

Ø c. 470 thousand shares (c. 1% of issued capital) repurchased and cancelled in 4Q21 (c. 824 thousand shares for FY21)

o An additional US$ 5 million earmarked for buybacks in January 2022

Ø Market Value Leverage ("MVL") down 1.2 ppts to 24.2% in 4Q21 (down 4.7 ppts in FY21)

o MVL Down to 19.2% when assuming full completion[4] of the Water Utility sale as of 31 December 2021

Conference call: An investor/analyst conference call will be held on 23 February 2022, at 16:00 UK / 17:00 CET / 11:00 US Eastern Time. Please click the link to join the webinar: WEBINAR LINK, webinar ID: 824 1626 2804, passcode: 495645. Further details about the webinar are available on the Company's webpage: https://georgiacapital.ge/ir/news.

CHAIRMAN AND CEO'S STATEMENT

2021 was a significant year of strategic, operational and financial progress for Georgia Capital.

We continued to deliver on our strategic priorities. Our key strategic priority, announced a year ago, was to dispose of one of our large portfolio companies and I am delighted that, in what continues to be a challenging global environment, we have successfully completed the sale of the Group's water utility business to a high-quality international strategic investor, FCC Aqualia. The value achieved of US$ 180 million, for 80% of the water utility business represents a 30% premium to its independent investment value at 30 June 2021 and translates into 2.7x MOIC in US$ (3.6x MOIC in GEL) and 20% IRR in US$ (27% IRR in GEL). The disposal also has a very significant positive impact on the Group's leverage profile, reducing the market value leverage from 24.2% as at 31 December 2021 to 19.2%. The sale represents our most significant monetisation event to date and marks the completion of the full investment cycle for one of our large businesses, from acquisition and development to cash exit. Our announcement of the sale of the water utility business during the pandemic once again underlines the resilience of our portfolio and marks the delivery of our key strategic priority for 2021. In addition, the partnership with FCC Aqualia, the fourth largest water management company in Europe, brings international expertise to the Group and value creation upside on our minority interest in the business, whilst also benefiting the country's sustainable development.

The disposal creates both substantial value for GCAP shareholders and brings in significant cash proceeds, received in February 2022. In the short-term, the net cash proceeds will be held in cash and cash equivalents, and yield-bearing marketable debt securities, pending a review by our Board to determine the appropriate investment, deleveraging and capital return policies in the light of the prevailing economic outlook, our share price and discount to net asset value, and any available investment opportunities. This Board review will be completed over the next few months, at which point a further announcement will be made. For more details on the transaction, including timing and conditions to its completion, see page 5.

In addition to the Water Utility disposal, the following notable events took place in 2021: 1) The sale of US$ 45.0 million commercial real estate properties with an 11.3% premium to their book value as of 31 March 2021, translating into 2.1x MOIC in US$ terms and demonstrating continued progress towards our previously announced strategic priority to divest, over the next few years, subscale portfolio companies which do not have the potential to reach GEL 500 million equity value;  2) The buyout of the minority shareholders in our retail (pharmacy) business, agreed at renegotiated terms, providing the path to GCAP's 100% ownership and stretching over six-year/tranches at 5.25x EV/EBITDA multiple; 3) The expansion of the education business in the affordable segment through several investments, in line with our capital allocation programme; 4) The resumption of the Group's share buyback and cancellation programme with an initial US$ 10 million, which was further increased with an additional US$ 5 million in January 2022. Under the programme, c. 1.3 million shares (c. 3% of issued capital) have been repurchased and cancelled to date; 5) US$ 65 million Eurobond tap issuance in March 2021, which enhanced our liquidity and once again demonstrated our superior access to international capital markets; 6) Lastly, as our portfolio companies continued to deliver on their individual strategic objectives, our NAV per share increased by 31.0% y-o-y in FY21 and more than doubled since the start of the COVID-19 pandemic.

In 4Q21, NAV per share (GEL) increased 5.5% to GEL 63.03 (up 31.0% in FY21). The NAV per share growth in 4Q21 was primarily driven by GEL 171.4 million in value creation across our portfolio, with a 6.2 ppts impact on the NAV per share. The value creation across our private portfolio amounted to GEL 117.3 with a 4.2 ppts impact on the NAV per share. BoG's share price during 4Q21 increased by 7.3%, strongly supporting NAV per share growth with GEL 54.0 million value creation (+2.0 ppts impact). The value creation in our private portfolio in 4Q21 mainly reflects the following factors: a) GEL 92.8 million value creation in our retail (pharmacy) business led by its strong operating performance and the revaluation of the minority interest value following the renegotiated buyout terms (+3.4 ppts impact), b) a GEL 73.8 million (+2.7 ppts impact) uplift to Water Utility's equity value, resulting from marking of the business value to the agreed sale price and c) GEL 34.8 million negative impact from the mark down of investment in the 20MW power generating unit of Mestiachala HPP, which was flooded and taken offline in late July 2019.

Similarly, the 31.0% NAV per share growth in FY21 reflects GEL 756.4 million value creation across our portfolio, where GEL 164.1 million (+7.4 ppts impact) and GEL 592.3 million (+26.8 ppts impact) value was created in our listed and private portfolio companies, respectively, of which GEL 221.2 million (+10.0 ppts impact) in value creation was attributable to the water utility business. NAV per share growth was even stronger in GBP terms, up by 6.6% in 4Q21 (up 39.7% in FY21), partly reflecting the appreciation of GEL against GBP during the year.

Outstanding operating performance across our private portfolio. During 4Q21, the aggregated revenues of our private portfolio companies totalled GEL 541.2 million, an 18.6% year-on-year growth and a 29.8% growth over the equivalent, pre-pandemic, 2019 period, while aggregated EBITDA in 4Q21 was up 8.2% y-o-y and up 8.5% compared to the pre-pandemic 2019 period. The growth mainly reflects the robust performance across our large portfolio companies (revenues up 18.8% and EBITDA up 35.0% y-o-y in 4Q21). The strong business growth across our portfolio companies also led to robust aggregate quarterly net operating cash flows of GEL 115.9 million, up 38.5% y-o-y in 4Q21. For FY21, the aggregated revenues of our private portfolio companies increased by 23.8% y-o-y (and were up 33.9% over the equivalent, pre-pandemic, 2019 period), while the aggregated FY21 y-o-y EBITDA growth was 34.9% (up 38.5% compared to FY19).

COVID-19 update. Notwithstanding the spread of the new Omicron variant and the resulting surge in the number of positive cases, with the majority of our capital allocated to defensive industries and sectors, Georgia Capital continued demonstrating great operational and financial resilience. Despite the record number of infections and hospitalisations caused by Omicron, the percentage of hospitalised patients with severe illness has been lower compared with those in earlier pandemic waves, partly due to the apparently lower virulence of the Omicron variant and better immune protection from Georgia's improving vaccination coverage. 43.2% of the adult population have now been fully vaccinated. Going forward, however uncertain the evolution of the virus could be, we believe that the Georgian healthcare system, government and society as a whole, are better prepared and mobilised to manage any potential further pandemic impact.

From a macroeconomic perspective, Georgia's economic recovery continued to deliver a strong performance into the tail end of the year, with real GDP posting a double-digit growth at an estimated 10.6% y-o-y in 2021. On the domestic side, the recovery has been supported by expansionary fiscal policy (current and capital expenditures grew by 12.5% y-o-y in FY21) and robust lending in both national and foreign currencies (total loans up 16.4% y-o-y by the end of December in constant currency terms). On the external side, strong remittance inflows (up 25% y-o-y in 2021) were supported by merchandise exports (up 27% y-o-y in 2021) and tourism revenues rebounding to 58% of the pre-pandemic 2019 level in December 2021 (52% of 2019 level in 2H21). The Georgian Lari (GEL) began strengthening in mid-May 2021, appreciating against the US Dollar by 10.1% compared to the beginning of 2021. The real effective exchange rate (REER) has also followed a similar trend for seven consecutive months since May and is now approaching its long-run trend. Currency appreciation, which has continued into 2022 has been driven by strong foreign demand for Georgian exports (including a partial recovery in service exports), robust remittance inflows, tight monetary policy and accelerated foreign currency lending, as well as improving market sentiment, underscored by the absence of pass-through from recent regional currency depreciation stemming from geopolitical tensions and idiosyncratic shocks. Supported by higher-than-expected growth and GEL strengthening, the government has lowered the public debt-to-GDP ratio projection to 51% by the end of 2021, down from 60% at the end of 2020, and the overall budget deficit projection has also been narrowed to 6.8% of GDP. Fiscal support has already begun moderating, as fiscal expenditures grew by only 6.5% y-o-y in 2H21 (compared to 21% in 1H21), which, coupled with strong revenue performance (up 22% y-o-y in FY21), has lowered the overall fiscal deficit to GEL 3.8 billion in FY21, down 18% y-o-y. The deficit is planned to be cut to 2.8% of GDP by 2023, returning below the 3% ceiling within the mandated 3-year period. The National Bank of Georgia further tightened the refinancing rate by 50 basis points (bps) to 10.5% in December 2021, by a cumulative 250 bps during 2021, responding to higher-than-expected inflation and the potential risk of entrenched inflationary expectations. Rising prices have mostly been caused by the global food and commodity price surges, although supply-side pressures are no longer abated by weak domestic demand. Inflation reached 13.9% in December (9.6% on average in 2021), temporarily boosted due to the last year's government utility subsidy base effect that will remain in play in the first two months of 2022 and is expected to decline gradually from this spring after the transitory effects subside and global supply-side pressures ease. The National Bank of Georgia expects the rate of inflation to reduce to below 4% during 2022.

Outlook. The strong management teams in our portfolio companies have clearly demonstrated their focus on navigating the challenges and opportunities created by the pandemic, and at group level Georgia Capital has continued to deliver on its key strategic priorities. Looking ahead, based on our sound governance, capital discipline, and proven capabilities to invest, grow and monetise businesses, I believe Georgia Capital is in a very good place to take advantage of emerging opportunities in Georgia and deliver consistent NAV per share growth. 

Irakli Gilauri, Chairman and CEO

DISCUSSION OF GROUP RESULTS

The discussion below analyses the Group's unaudited net asset value at 31-Dec-21 and its income for the fourth quarter and full year period then ended on an IFRS basis (see "Basis of Presentation" on page 37 below).

Net Asset Value (NAV) Statement

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 opening and closing dates for the fourth quarter (30-Sep-21 and 31-Dec-21). The NAV Statement below breaks down NAV into its components and provides a roll forward of the related changes between the reporting periods. For the NAV Statement for the full year of 2021 see page 36.

NAV STATEMENT 4Q21

NAV per share (GEL) increased by 5.5% in 4Q21, reflecting both value creation across our private portfolio companies and increased valuation of BoG with a positive 4.2 ppts and 2.0 ppts impact on the NAV per share, respectively. NAV per share growth was further supported by share buybacks - in line with the ongoing share buyback and cancellation programme (+0.6 ppts impact), and GEL's appreciation against US$, resulting in a foreign currency gain of GEL 5.1 million on GCAP net debt (+0.2 ppts impact). The NAV per share growth was slightly offset by a) GEL 22.0 million (US$ 7.1 million) one-off fees related to the disposal of an 80% interest in water utility business (-0.8 ppts impact), and b) management platform related costs and net interest expense with negative 0.3 ppts and 0.5 ppts impact, respectively.

Portfolio overview

Our portfolio value increased by 4.2% to GEL 3.62 billion in 4Q21, reflecting 3.8% and 6.2% growth in the values of our private and listed businesses, respectively. As of 31-Dec-21, the private portfolio value totalled GEL 2.94 billion (81.2% of total portfolio value), and the listed portfolio value totalled GEL 681.2 million (18.8% of total). The total portfolio value growth of GEL 146.7 million in 4Q21 mainly reflects the net impact of a) GEL 117.3 million and GEL 54.0 million value creation across the private and listed businesses, respectively, b) investments of GEL 1.2 million predominantly in the education business, and c) a decrease of GEL 29.9 million due to dividends paid to GCAP.

Sale of an 80% equity Interest in the Water Utility Business

In December 2021, we agreed to sell 80% of our equity interest in the water utility business to FCC Aqualia ("Aqualia") for a cash consideration of USD 180 million. The disposal is being implemented via a two-staged process that, after completion, will lead to Aqualia, acquiring an 80% equity interest in the water utility business.

Ø Stage 1. The first stage of the transaction, which was the initial sale of a 65% equity interest in Georgia Global Utilities JSC ("GGU"), a holding company for the GCAP's water utility business and the operational renewable energy assets, (representing an 80% economic interest in the water utility business) was successfully completed on 3 February 2022 with the receipt of full sale proceeds and transfer of the respective shares of GGU to Aqualia.

Ø Stage 2. The second stage of the transaction will follow the planned redemption in July 2022 of an existing bond issued by GGU that will be jointly financed by Aqualia and GCAP (the financing to be provided by GCAP, by way of a shareholder loan, being US$ 95.4 million). Following the bond redemption and subsequent demerger of the operational renewable energy assets via a spin-off, GCAP will recover full 100% ownership of GGU's renewable energy assets, and Aqualia's ownership in the water utility business will increase to 80%. The second stage of the transaction is expected to be completed during 3Q22.

GCAP and Aqualia have granted each other a put option and call option, respectively, over GCAP's remaining 20% equity interest in the water utility business. GCAP's put option will be exercisable in 2025-2026 while Aqualia's call option will be exercisable on the date of expiry of the put option in 2026 and expiring six months thereafter. The exercise price of the put and call options are set at 8.25x and 8.90x EV/EBITDA multiple, respectively, based on the normalized EBITDA and net debt of the business.

More details on the transaction are available on our website: https://georgiacapital.ge/ir/water-utility-disposal.

Value creation

The BoG share price increased by 7.3% during 4Q21, strongly supporting our NAV per share growth with GEL 54.0 million value creation. The value creation of GEL 117.3 million on the private portfolio mainly reflects a) a GEL 34.2 million operating performance-related increase in the value of our private assets, which delivered substantially increased y-o-y aggregated revenues (up 18.6% in 4Q21 and 23.8% in FY21, y-o-y) and EBITDA (up 8.2% in 4Q21 and 34.9% in FY21, y-o-y), b) a GEL 73.8 million uplift to Water Utility's equity value, resulting from marking of business value to the agreed sale price, c) a GEL 40.5 million uplift to the Retail (Pharmacy's) equity value reflecting the revaluation of the minority interest value following the renegotiated minority buyout terms, and d) a GEL 3.8 million positive net impact from changes in valuation multiples and foreign currency exchange rates. The value creation was partially offset by GEL 34.8 million negative impact from the mark down of investment in the 20MW power generating unit of Mestiachala HPP, which was flooded and taken offline in late July 2019. In line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the HPP has been suspended indefinitely.

The table below summarises value creation drivers in our businesses in 4Q21:

Enterprise value and equity value development of our businesses in 4Q21 are summarised in the following table:

Listed businesses (18.8% of total portfolio value)

BOG (18.8% of total portfolio value) - In 4Q21, BoG delivered an annualised ROAE of 26.4% and strong 13.9% loan book growth y-o-y. The loan book growth was largely driven by continued strong loan origination levels in all segments, but predominantly in the consumer, micro and SME portfolios. Reflecting the strong economic recovery, in 4Q21, BoG's share price increased by 7.3% to GBP 16.68 at 31-Dec-21. In addition, GEL 14.5 million dividends were collected from the Bank in 4Q21 and, as a result, the market value of our equity stake in BoG increased by GEL 39.5 million to GEL 681.2 million. On 22 February 2022, the Bank announced its Board intention to recommend a final dividend for 2021 of GEL 2.33 per ordinary share at the Bank's 2022 Annual General Meeting. This will make a total dividend paid in respect of the Bank's 2021 earnings of GEL 3.81 per share. BoG's public announcement of their 4Q21 and FY21 results is available at:

https://www.bankofgeorgiagroup.com/results/earnings.

Private large portfolio companies (66.6% of total portfolio value)[10]

In 4Q21, valuation assessments of our large portfolio companies were performed by a third-party independent valuation firm, Kroll (formerly known as Duff & Phelps), in line with International Private Equity Valuation ("IPEV") guidelines. The independent valuation assessments, which serve as the basis for Georgia Capital's estimate of fair value, were performed by applying a combination of an income approach (DCF) and a market approach (listed peer multiples and, in some cases, precedent transactions). The independent valuations of the large portfolio companies are intended to provide additional transparency to our private portfolio valuation and are performed on a semi-annual basis. The water utility business was valued at the sale price in line with the terms of the disposal.

Healthcare Services (20.2% of total portfolio value) - Healthcare Services Enterprise Value (EV) remained largely flat at GEL 1,003.4 million in 4Q21 (down by 0.4% q-o-q). The rebounding trend of regular elective care and outpatient services continued in 4Q21 which translated into a 90.1% and 72.9% y-o-y increase in the number of admissions at hospitals and clinics, respectively, in 4Q21. This, coupled with the strong performance of the diagnostics business, led to 30.8% y-o-y growth in 4Q21 revenues. EBITDA (ex. IFRS 16) increased by 7.6% y-o-y in 4Q21. The y-o-y EBITDA growth reflects negative impact from the absence of state income tax subsidy for low salary range employees, effective from May 2020 till June 2021, and one-off gains recorded in other operating income in 4Q20. See page 14 for details. LTM EBITDA (incl. IFRS 16)[11] increased by 1.6% to GEL 97.4 million in 4Q21. Net debt (incl. financial lease liabilities) also improved in 4Q21 (down 7.6% q-o-q to GEL 226.9 million), reflecting the robust operating cash flow developments, partially utilised to reduce the gross debt (including financial lease liabilities) balance. As a result, the equity value of the business was assessed at GEL 731.8 million, up 1.1% q-o-q in 4Q21, translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 10.3x at 31-Dec-21 (10.5x at 30-Sep-21).

Retail (Pharmacy) (19.6% of total portfolio value) - Retail (Pharmacy) EV increased by 3.9% to GEL 952.3 million in 4Q21. Revenues were up by 7.6% y-o-y in 4Q21, reflecting a launch of new pharmacies and organic sales growth, resulting from an overall improvement in the Georgian macroeconomic environment. EBITDA (excl. IFRS 16) was up 10.5% y-o-y in 4Q21. See page 16 for details. LTM EBITDA (incl. IFRS 16) was up 3.3% to GEL 102.9 million in 4Q21. Net debt (incl. financial lease liabilities) was down by 12.2% q-o-q to GEL 118.4 million, reflecting an increased cash balance supported by the strong revenue growth of the business and improved collection of receivables during the quarter. The result was GEL 92.8 million value creation in 4Q21, which also included a GEL 40.5 million positive impact from the revaluation of the minority interest value following the renegotiated buyout terms. Consequently, the equity value of GCAP's 67% holding as of 31-Dec-21 increased by 15.0% to GEL 710.4 million in 4Q21. The implied LTM EV/EBITDA (incl. IFRS16) valuation multiple was 9.3x (up from 9.2x as of 30-Sep-21).

Water Utility (19.3% of total portfolio value) - In 4Q21, Water Utility was valued at the sale price agreed with Aqualia. The consideration of US$ 180 million for an 80% interest in the Water Utility translates into a US$ 225 million (GEL 697.0 million) valuation for a 100% stake of the business. The implied LTM EV/EBITDA valuation multiple was 8.9x as at 31-Dec-21 (down from 9.0x as at 30-Sep-21). The operational performance of the business during the quarter was robust. Revenue increased by 62.1% y-o-y in 4Q21, leading to a 158.5% y-o-y increase in EBITDA. See page 18 for details. LTM EBITDA, previously used in Water Utility's multiple-based and DCF valuation, amounted to GEL 128.1 million as at 31-Dec-21 (up 9.1% q-o-q). Net debt decreased by 1.0% to GEL 432.9 million and EV was up by 6.9% to GEL 1,129.9 million, q-o-q in 4Q21.

Insurance (P&C and Medical) (7.4% of total portfolio value) - The insurance business combines: a) P&C Insurance valued at GEL 211.5 million and b) Medical Insurance valued at GEL 56.6 million.

P&C Insurance - Net premiums earned increased by 27.2% y-o-y to GEL 24.4 million in 4Q21, mainly reflecting the growth in the motor insurance line on the back of a boost in the retail client portfolio. The expense ratio was down by 5.8 ppts y-o-y in 4Q21, reflecting revenue growth and the well-controlled operating cost base of the business. The combined ratio stood at 79.5% in 4Q21, an improvement of 0.4 ppts y-o-y. Consequently, net income was up 4.1% y-o-y to GEL 5.2 million in 4Q21. See page 19 for details. LTM net income[12] was down by 2.3% to GEL 17.6 million in 4Q21. The business paid GEL 9.9 million dividends in 4Q21. Consequently, the equity value of the P&C insurance business was assessed at GEL 211.5 million at 31-Dec-21 (down 2.3% q-o-q). The implied LTM P/E valuation multiple remained unchanged at 12.0x in 4Q21.

Medical Insurance - Net premiums earned increased by 1.5% y-o-y to GEL 18.3 million in 4Q21, predominantly driven by an increase in the prices of insurance policies. The net claims expenses were also up by 16.7% y-o-y in 4Q21, in line with the rebounding trend of elective healthcare services. As a result, the net income of the medical insurance business was down 74.3% y-o-y in 4Q21. See page 19 for details. LTM net income was down by 31.3% to GEL 3.8 million in 4Q21, and the equity value of the business was assessed at GEL 56.6 million at 31-Dec-21 (down 16.2% q-o-q). The implied LTM P/E valuation multiple was at 15.0x in 4Q21 (up from 12.3x in 3Q21).

Private investment stage businesses (8.4% of total portfolio value)

Renewable Energy (4.8% of total portfolio value) - The business is valued internally, based on a sum of the parts (EV/EBITDA and replacement cost). Enterprise value was down 12.3% to GEL 428.2 million in 4Q21. Revenues and EBITDA were up 29.8% and 65.8% y-o-y in 4Q21, respectively, reflecting a 38.4% y-o-y increase of the generation levels at the power assets. See page 22 for details. 4Q21 valuation of the business reflects GEL 34.8 million negative impact from the mark down of investment in the 20MW power generating unit of Mestiachala HPP, which was flooded and taken offline in late July 2019. In line with the outcome of the comprehensive cost and feasibility assessment, the restoration process of the HPP has been suspended indefinitely. 30MW Mestiachala HPP, previously valued at cost, was valued based on LTM EV/EBITDA for the first time in 4Q21. The pipeline renewable energy projects continued to be measured at an equity investment cost of GEL 43.6 million in aggregate. Net debt decreased by GEL 24.2 million to GEL 255.0 million in 4Q21. The business paid GEL 5.5 million dividends in 4Q21 and as a result, the equity value of the business was assessed at GEL 173.3 million in 4Q21 (down by 17.1% q-o-q).

Education (3.6% of total portfolio value) - The business is valued internally, based on LTM EV/EBITDA. Education EV increased by 0.6% to GEL 139.9[13] million in 4Q21. Revenues and EBITDA were up by 33.6% and 16.8% y-o-y in 4Q21, respectively, reflecting an expansion into the affordable education segment and an increase in average tuition revenue per learner and total enrollments during the quarter. In 4Q21, GCAP invested GEL 0.9 million in the education business, predominantly for the capacity expansion of the existing campus of Buckswood (mid-scale segment). See page 23 for details. Revenues in the premium schools are denominated in foreign currency. The currency-adjusted LTM EBITDA was up by 0.6% to GEL 11.2 million and net debt was down by 5.2% to GEL 8.4 million in 4Q21. As a result, the education business was valued at GEL 129.8 million in 4Q21 (up 1.9% q-o-q). The valuation multiple remained unchanged at 12.5x in 4Q21.

Other businesses (6.2% of total portfolio value) - The "other" private portfolio (Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services) is valued internally, based on LTM EV/EBITDA in most cases other than the real estate development (DCF) and hospitality and commercial real estate businesses (NAV). See performance highlights of other businesses on page 25-26. The portfolio had a combined value of GEL 224.6 million at 31-Dec-21, down by 8.7% in 4Q21. The value reduction of GEL 22.1 million reflects the net impact of a) GEL 15.6 million aggregated value reduction of the housing development, hospitality and commercial real estate businesses, the latter reflecting decreased revenue streams, associated with the divestment of a significant portion of commercial real estate assets, where proceeds were used to fully repay the outstanding $30 million bonds in 4Q21 and b) GEL 9.6 million value reduction in the beverages business, predominantly resulting from the operating performance-related decrease in the value of the wine business, which was impacted by changes in product mix and unfavourable seasonal conditions on the crop production. The value reduction across the other portfolio was partially offset by a GEL 5.2 million value creation in the auto services business in 4Q21.

2) Investments[14]

In 4Q21, GCAP's investments amounted to GEL 1.2 million, of which GEL 0.9 million was allocated to our education business, predominantly for the capacity expansion of the existing campus of Buckswood (mid-scale segment).

3) Share buybacks

Under the US$ 10 million share buyback and cancellation programme, commenced in August 2021, 469,582 shares with the total value of GEL 12.6 million (US$ 4.0 million) were repurchased and cancelled in 4Q21. In January 2022, the Board approved an increase in the ongoing buyback and cancellation programme of an additional US$ 5 million. The programme continues for the 12-month period beginning 10 August 2021.

4) Dividends14

In 4Q21, Georgia Capital received GEL 29.9 million dividends in aggregate from the portfolio companies, of which:

Ø GEL 14.5 million was collected from the Bank of Georgia,

Ø GEL 9.9 million was collected from P&C Insurance,

Ø GEL 5.5 million was collected from Renewable Energy.

Net debt overview

Below we describe the components of net debt as of 31 December 2021 and as of 30 September 2021:

Cash and liquid funds. Total cash and liquid funds were up 2.8% q-o-q to GEL 426.5 million in 4Q21. A 2.5% decrease in the cash balance mainly reflects the net impact of a) dividend and interest receipt of GEL 29.9 million and GEL 7.9 million, respectively, b) GEL 12.6 million buybacks in line with the ongoing share buyback and cancellation programme, c) increased investments in internationally listed debt securities (up by 21.3% q-o-q in 4Q21), mainly attributable to the repurchase of GCAP's Eurobonds. Internationally listed debt securities mostly include dollar-denominated Eurobonds issued by Georgian corporates. The issued loan balance primarily refers to loans issued to our private portfolio companies, which are on-lent at market terms. GCAP's liquidity, inclusive of issued loans, remained high at GEL 426.5 million (US$ 137.7 million).

Gross debt. At 31-Dec-21, the outstanding balance of US$ 365 million six-year Eurobonds due in March 2024 was GEL 1,137.6 million (up 0.9% q-o-q). Gross debt increase was driven by a GEL 20.4[15] million coupon accrual, partly offset by foreign exchange gain of GEL 9.814 million from GEL appreciation against US$.

Net debt. Net debt remained largely flat at GEL 711.1 million in 4Q21 (down 0.1% q-o-q), reflecting a) investments of GEL 1.2 million, b) share buybacks of GEL 12.6 million, c) GCAP cash operating expenses of GEL 5.9 million, and d) net interest expense and fair value losses on liquid funds, in aggregate, of GEL 16.2 million. The impact was almost fully offset by GEL 29.9 million dividends received from the portfolio companies and a foreign exchange gain of GEL 5.1 million in 4Q21.

FY21 NAV STATEMENT HIGHLIGHTS[16]

In FY21, NAV per share (GEL) increased by 31.0%, reflecting a) GEL 164.1 million value creation in our listed asset, BoG, with a positive 7.4 ppts impact, b) GEL 592.3 million value creation across our private portfolio companies with a positive 26.8 ppts impact, c) share buybacks - in line with the ongoing share buyback and cancellation programme (+0.9 ppts impact), and d) GEL's appreciation against US$ by 5.8%, resulting in a foreign currency gain of GEL 39.6 million on GCAP net debt (+1.8 ppts impact). These positive NAV per share growth contributors were partially offset by a number of items, including management platform related costs (-1.7 ppts impact), net interest expense (-2.5 ppts impact) and one-off fees related to the disposal of an 80% interest in water utility business (-1.0 ppts impact).

The value creation in our private portfolio was the largest contributor to the NAV per share growth in FY21:

§ The outstanding performance of our large portfolio companies translated into GEL 583.9 million value creation and 26.4 ppts NAV per share growth, where water utility, healthcare services, and retail (pharmacy) businesses contributed to the growth by 10.0 ppts, 7.8 ppts and 7.6 ppts, respectively (+25.4 ppts impact in aggregate).

§ Value creation in the investment stage and other portfolio companies amounted to GEL 8.5 million in aggregate (+0.4 ppts impact).

Portfolio overview

Our portfolio value increased by 24.4% to GEL 3.62 billion in FY21, reflecting 23.5% and 28.1% growth in the value of our private and listed businesses, respectively. The private portfolio value growth of GEL 558.9 million mainly reflects the net impact of a) GEL 592.3 million value creation, b) investments of GEL 18.3 million predominantly in Education and Renewable Energy, and c) a decrease of GEL 59.9 million due to dividends received from the private portfolio companies at the GCAP level.

1) Value creation

BoG share price during 2021 increased by 36.7%, strongly supporting NAV growth with GEL 164.1 million value creation. The value creation of GEL 592.3 million on the private portfolio mainly reflects a) a GEL 654.7 million operating performance-related increase in the value of our private assets, partly supported by the strength of the Georgian economy throughout the year, and b) valuation of Water Utility business at the sale price and revaluation of the minority interest in Retail (Pharmacy) with GEL 114.3 million positive impact in aggregate. The value creation was partially offset by the markdown of investment in the 20MW power generating unit of Mestiachala HPP and a GEL 143.8 value decrease due to changes in valuation multiples and foreign currency exchange rates.

The table below summarises value creation drivers in our businesses in FY21:

Enterprise value and equity value development of our businesses in FY21 are summarised in the following table:

2) Investments[22]

In FY21, GCAP invested GEL 18.3 million predominantly in the investment stage businesses, in line with our announced capital allocation programme.

Ø GEL 3.7 million was allocated to Renewable Energy for the development of pipeline HPPs (Darchi and Zoti) and wind farm projects.

Ø GEL 13.7 million was allocated to the education business for the capacity expansion of the existing campus of Buckswood (mid-scale segment, GEL 4.0 million), the acquisition of the land and building of a new campus location, and capacity expansion of the existing campus of Green School (affordable segment, GEL 5.8 million), and the acquisition of an 81%[23] equity interest in Georgian-Austrian School Pesvebi (GEL 3.9 million).

3) Buybacks

During 2021, 942,744 shares were bought back for a total consideration of GEL 25.1 million. 823,582 shares were repurchased under the ongoing share buyback and cancellation programme and 119,162 shares for the management trust. The total value of shares repurchased through the buyback and cancellation programme amounted to GEL 21.8 million (US$ 7.0 million) in FY21. As of 21-Feb-22, a total of 1,312,330 shares with the value of GEL 35.5 million (US$ 11.4 million) have been repurchased under the buyback programme, beginning 10 August 2021.

4) Dividends[24]

In FY21, Georgia Capital collected GEL 74.4 million dividends, of which GEL 14.5 million was received from BoG, GEL 11.5 million from healthcare services, GEL 11.5 million from retail (pharmacy), GEL 14.9 million from P&C insurance, GEL 2.0 million from medical insurance, and GEL 20.0 million from the renewable energy businesses.

Net debt overview

In March 2021, JSC Georgia Capital priced a US$ 65 million tap issue that was consolidated to form a single series with the existing US$300 million 6.125% Eurobonds. Approximately US$ 35 million from the proceeds is earmarked to fund capital allocations to the portfolio companies and the balance for general corporate purposes. Gross debt was up 15.8% to GEL 1,137.6 million in FY21. The tap issuance also translated into improved liquidity, which coupled with robust dividend income, led to an increase in total cash and liquid funds balance up 50.0% to GEL 426.5 million at 31 December 2021. Overall, the net debt remained largely flat in FY21 (up 1.9% from 31 December 2020) and was impacted by a) investments of GEL 18.3 million, b) share buybacks of GEL 25.1 million, c) GCAP cash operating expenses of GEL 21.9 million, and d) net interest expense and fair value losses on liquid funds, in aggregate, of GEL 55.4 million. The impact was largely offset by GEL 74.4 million dividends received from the portfolio companies and foreign exchange gain of GEL 39.6 million in FY21.

The table below summarises components of net debt as of 31 December 2021 and as of 31 December 2020:

INCOME STATEMENT (ADJUSTED IFRS / APM)

Net income under IFRS was GEL 133.2 million in 4Q21 (GEL 692.9 million in FY21). The IFRS income statement is prepared on the Georgia Capital PLC level and the results of all operations of the Georgian holding company JSC Georgia Capital are presented as one line item. As we conduct most of our operations through JSC Georgia Capital, through which we hold our portfolio companies, the IFRS results provide little transparency on the underlying trends.

Accordingly, to enable a more granular analysis of those trends, the following adjusted income statement presents the Group's results of operations for the period ending December 31 as an aggregation of (i) the results of GCAP (the two holding companies Georgia Capital PLC and JSC Georgia Capital, taken together) and (ii) the fair value change in the value of portfolio companies during the reporting period. For details on the methodology underlying the preparation of the adjusted income statement, please refer to page 97 in Georgia Capital PLC 2020 Annual report. A full reconciliation of the adjusted income statement to the IFRS income statement is provided on page 27.

INCOME STATEMENT (Adjusted IFRS/APM)

GCAP's results reflect its gross operating income (loss) and its operating expenses and show modest GEL 4.2 million in net operating income in 4Q21 and a reduced loss in FY21 compared to the prior year.

The gross operating income was GEL 13.7 million in 4Q21 (up from GEL 3.9 million in 4Q20) and up by GEL 33.6 million y-o-y to GEL 19.0 million in FY21. The improvement was mainly driven by increased dividend inflows from the portfolio companies. The dividend income by business is presented in the table below:

Dividends Received by Portfolio Company

 The increase in net interest expense to GEL 14.1 million and GEL 54.3 million in 4Q21 and FY21 at the GCAP level, respectively (GEL 12.2 million in 4Q20 and GEL 41.5 million in FY20) partially offset the increased dividend inflows. The Eurobond tap issuance of $65 million on 16-Mar-21 led to an increase in interest expense, up 23.1% and 23.9% y-o-y in 4Q21 and FY21, respectively, which was not offset by the increase in interest income. GCAP earned an average yield of 5.4% on the average balance of liquid assets and issued loans of GEL 384.1 million in FY21 (6.7% on GEL 277.3 million in FY20).

The components of GCAP's operating expenses are shown in the table below.

GCAP Operating Expenses Components

GCAP management fee expenses have a self-targeted cap of 2% of Georgia Capital's market capitalisation. The LTM management fee expense ratio was 1.7% at 31-Dec-21 (1.8%[30] as of 31-Dec-20). The total LTM operating expense ratio (which includes fund type expenses) was 2.6% at 31-Dec-21 (2.8%30 at 31-Dec-20).

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 141.4 million in 4Q21 and GEL 682.1 million in FY21, reflecting the growth in the value of listed and private businesses, as described earlier in this report. We discuss valuation drivers for our businesses on pages 6-8. The performance of each of our private, large and investment stage portfolio companies is discussed on pages 14-24.

The Group's net income (adjusted IFRS) also reflects the impact of GEL's appreciation against the US dollar on GCAP's net foreign currency liability balance amounting to c. US$ 252 million (GEL 781 million) at 31-Dec-21. Net foreign currency gain was GEL 5.1 million and 39.6 million, respectively, in 4Q21 and FY21. As a result of the movements described above, GCAP's adjusted IFRS net income was GEL 128.2 million in 4Q21 and GEL 681.4 million in FY21.

DISCUSSION OF PORTFOLIO COMPANIES' RESULTS (STAND-ALONE IFRS)

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 2021 portfolio company's accounts and respective IFRS numbers are unaudited. We present key IFRS financial highlights, operating metrics and ratios along with the 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 (listed peer multiples and precedent transactions). Under the discounted cash flow (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 quantifies the risk inherent to the business. Under the market approach, listed peer group earnings multiples are applied to the trailing twelve months (LTM) stand-alone IFRS earnings of the relevant business. As such, the stand-alone IFRS results and developments driving the IFRS earnings of our portfolio companies are key drivers of their valuations within GCAP's financial statements. See "Basis of Presentation" on page 37 for more background.

LARGE PORTFOLIO COMPANIES

Discussion of Healthcare Services Business Results

Healthcare Services business, where GCAP owns 100% equity interests through GHG, is the largest healthcare market participant in Georgia, accounting for 20% of the country's total hospital bed capacity as of 31-Dec-21. Healthcare services business comprises three segments: 1) Hospitals (17 referral hospitals with a total of 2,596 beds) providing secondary and tertiary level healthcare services; 2) Clinics: 19 community clinics with 353 beds (providing outpatient and basic inpatient services) and 15 polyclinics (providing outpatient diagnostic and treatment services); 3) Diagnostics, operating the largest laboratory in the entire Caucasus region - "Mega Lab".

4Q21 & FY21 performance (GEL '000), Healthcare Services[31],[32]

(Unaudited)

KEY POINTS / VALUATION DRIVERS

Ø Revenues up 30.8% y-o-y in 4Q21 and up 43.3% y-o-y in FY21, reflecting rebounding demand for regular elective care and outpatient services

Ø Strong revenue trend combined with a well-controlled direct cost base translated into the gross profit growth, up 34.8% in 4Q21 and up 48.9% in FY21 y-o-y, respectively

Ø EBITDA margin (excl. IFRS 16) was down 4.5 ppts y-o-y in 4Q21 (up 1.7 ppts y-o-y in FY21), reflecting a base effect of a state income tax subsidy for low salary range employees and one-off gains recorded in other operating income in 4Q20

Ø Excluding the impact of state income tax subsidy and other operating income, EBITDA margin (excl. IFRS 16) was up by 4.2 ppts y-o-y in 4Q21 and up 6.3 ppts y-o-y in FY21

Ø Increased working capital investments in 1H21 due to the robust revenue growth of the business led to a rebound in operating cash (excl. IFRS 16) in 2H21. Consequently, operating cash was up 211.7% y-o-y in 4Q21, translating into 111.2% EBITDA to cash conversion rate (excl. IFRS 16)

Ø Net debt was down 8.0% in 4Q21 (down 2.2% in FY21) to GEL 206.5 million as of 31-Dec-21, reflecting strong cash flow generation of the business

Ø As announced in October 2021, GHG signed a contract to gradually acquire 33% interest in its retail (pharmacy) business. The goodwill arising on the acquisition comprises GEL 50.4 million, however, since International Financial Reporting Standards ("IFRS") does not allow recognition of goodwill on minority acquisitions, the transaction resulted in a respective decrease of equity (as instructed per IFRS)

Ø GEL 11.5 million dividends[36] paid to GCAP in FY21

INCOME STATEMENT HIGHLIGHTS

The healthcare services business continues to be actively engaged in supporting the COVID-19 pandemic response in Georgia. 7 of our hospitals and 12 of our clinics continue receiving COVID patients, with a total aggregate number of c.1,040 beds across the country. The Government of Georgia fully reimburses costs associated with COVID-19 treatments and pays a fixed fee amount per bed designated for COVID patients. A growing number of admissions for regular elective care and outpatient services, along with COVID-19 treatments, contributed to robust revenue growth in 4Q21 and FY21, outpacing even 2019 numbers.

₋ At our hospitals, the occupancy rate was up by 9.5 ppts to 69.6% in 4Q21 and up by 12.2 ppts to 65.3% in FY21 y-o-y. Increased demand for elective and outpatient services also increased the number of admissions (including outpatient and COVID patients' admissions) to hospitals by 90.1% in 4Q21 and by 82.9% in FY21 y-o-y. These trends translated into hospitals y-o-y net revenue growth of 29.8% for the quarter and 38.3% for the year. Revenue was up 35.8% in 4Q21 compared to 4Q19 and up 29.1% in FY21 compared to FY19.

₋ At our clinics, similarly, the number of admissions was up by 72.9% in 4Q21 and up by 71.8% in FY21 y-o-y. The number of registered patients in Tbilisi increased by c.35,000 y-o-y to c.257,000 and by c.71,000 y-o-y to c.589,000 in FY21 across the country. This translated into clinics' y-o-y net revenue growth of 51.9% in 4Q21 and 52.2% in FY21. Clinics also significantly outperformed against 2019 performance, with revenues being up 73.2% in 4Q21 compared to 4Q19 and up 59.9% in FY21 compared to FY19.

₋ The diagnostics segment, which, apart from regular diagnostics services, is also engaged in COVID-19 testing, increased its revenue by 8.5% y-o-y in 4Q21 to GEL 8.4 million and by 109.6% y-o-y in FY21, reaching GEL 30.4 million. Approximately half of diagnostics revenue relates to COVID-19 testing and another half to regular lab tests. Revenue from COVID-19 testing was down by 9.0% in 4Q21 and up 2.4x in FY21 y-o-y, while the revenue from the regular lab tests was up by 45.7% and up 79.9% y-o-y, in 4Q21 and FY21, respectively.

The developments described above translated into strong y-o-y net revenue growth of 30.8% in 4Q21 and 43.3% in FY21 from healthcare services (up 48.2% in 4Q21 compared to 4Q19; up 39.7% in FY21 compared to FY19).

The cost of services in the business consists mainly of materials, salaries and utilities. Trends in materials and salary costs are captured in the materials and direct salary rates[37].  The materials rate increased by 1.6 ppts y-o-y in FY21, reflecting increased consumption and prices of medical disposables and personal protective equipment at healthcare facilities due to the COVID-19 driven supply shortage. However, after implementing the new initiatives the materials direct rate started to stabilise in 4Q21, down by 4.1 ppts y-o-y.

COVID-19 related bonuses granted to our medical personnel as well as the expiration of a 6-months state income tax subsidy, the latter effective from May 2020 till June 2021, slightly increased the direct salary rate for the quarter (up 1.1 ppts at hospitals and up 2.8 ppts at clinics, y-o-y). Overall, for the FY21, the direct salary rate showed a positive trend, being down by 3.1 ppts at hospitals and 1.8 ppts at clinics, y-o-y. The cost of utilities was up 49.0% in 4Q21 and 48.3% in FY21 y-o-y, resulting from increased tariffs on water, gas and electricity, effective since January 2021. As a result, the healthcare services business posted a 37.5% gross margin in 4Q21 and 40.6% in FY21, up 0.7 ppts and 1.4 ppts y-o-y, respectively. Adjusted for the impact of state income tax subsidy, the gross profit margin was up 3.4 ppts in 4Q21 and up by 3.5 ppts in FY21, y-o-y.

Despite the expiration of a state income tax subsidy and increased cost of materials and utilities, the business managed to post positive operating leverage of 8.5 ppts in 4Q21, which is adjusted to exclude other operating income (close to zero in 4Q21 compared to GEL 5.2 million in 4Q20, mainly reflecting one-off gains).

Overall, the strong revenue trend combined with a well-controlled operating cost base for the year translated into positive operating leverage of 6.9 ppts in FY21 (adjusted to exclude other operating income, operating leverage stood at 24.4 ppts in FY21). These led to 7.6% and 54.5% y-o-y growth in 4Q21 and FY21 EBITDA (excl. IFRS 16), respectively. EBITDA margin (excl. IFRS 16) was down 4.5 ppts and up 1.7 ppts y-o-y in 4Q21 and FY21, respectively. Adjusted for the state subsidy impact and excluding other operating income, EBITDA margin (excl. IFRS 16) was up by 4.2 ppts y-o-y in 4Q21 and up 6.3 ppts y-o-y in FY21. In FY21 the EBITDA margin (excl. IFRS 16) at hospitals was 23.0% (up 1.2 ppts y-o-y), at clinics 19.9% (down 0.2 ppts y-o-y) and at diagnostics 23.8% (up 11.5 ppts y-o-y).

To curb the inflation pressure, the National Bank of Georgia continues tightening the monetary policy, with the refinancing rate being up 2.0 ppts in the last twelve months. This, together with increased net debt position by the end of 3Q21, led to an increase in net interest expense (excl. IFRS 16) in 4Q21 (up 21.2% y-o-y to GEL 6.2 million). The full-year net interest expense was down 17.1% y-o-y, to GEL 22.7 million, reflecting the low level of net debt position of the business throughout the year.

Overall, the business posted GEL 5.9 million net profit excluding IFRS 16 in 4Q21, up by 59.9% y-o-y. In 2021 net profit (excl. IFRS 16) reached GEL 35.2 million, compared to GEL 11.2 million net loss reported in FY20.

CASH FLOW HIGHLIGHTS

The first half of 2021 was relatively slow in terms of operating cash flow. It was affected by increased working capital needs due to the significant revenue growth posted by the business, as well as by the collection of receivables from the state due to the delay in the processing of bills during the preceding period, led by the high number of COVID cases in the country. In the second half, the business demonstrated a full turnaround in terms of cash flow generation. As a result, cash flow from operating activities (excl. IFRS 16) was up 211.7% y-o-y in 4Q21, translated into a 111.2% EBITDA to cash conversion rate. Operating cash flow (excl. IFRS 16) was down 3.2% y-o-y in FY21, and the cash conversion rate stood at 82.0%. Capex investment was GEL 10.2 million in 4Q21, mainly reflecting maintenance capex. Total capex amounted to GEL 33.4 million in 2021. The business paid GEL 11.5 million dividends in FY21 to GCAP.

Discussion of Retail (pharmacy) Business Results

The retail (pharmacy) business, where GCAP owns 67% equity interests through GHG, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a 35% market share by revenue. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The pharmacy chain has a total of 349 pharmacies, of which 344 are in Georgia, and 5 are in Armenia.

4Q21 & FY21 performance (GEL '000), Retail (pharmacy)[38]

(Unaudited)

KEY POINTS / VALUATION DRIVERS

Ø Strong y-o-y growth in 4Q21 revenues (up 7.6%) and EBITDA (excl. IFRS 16) (up 10.5%). Revenue and EBITDA were also up 15.2% and 8.3% y-o-y in FY21, respectively, reflecting overall improvement in economic activity and continuing expansion of the pharmacy chain

Ø Robust gross profit margin of 27.7% in 4Q21, reaching 26.0% for the year, resulting from new high-margin contracts in the wholesale business

Ø EBITDA margin at 10.4% in 4Q21 and 9.7% in 2021, exceeding the targeted 9%+

Ø Rebounding trend in cash flow from operating activities, in line with the enhanced revenue streams - up 128.4% in 4Q21 y-o-y, with 179.3% EBITDA to cash conversion ratio. EBITDA to cash conversion ratio at 105.0% in FY21

Ø Strong operating cash translated into net debt[41] reduction, down 61.3% q-o-q to GEL 14.3 million as of 31-Dec-21

Ø The business paid GEL 11.5 million dividends[42] to GCAP in FY21

Ø Added 36 pharmacies over the last 12 months, expanding from 313 to 349 stores

INCOME STATEMENT HIGHLIGHTS

The retail (pharmacy) business delivered 7.6% y-o-y revenue growth in 4Q21 and 15.2% in FY21, reflecting expansion (adding 36 pharmacies over 12 months), organic sales growth (same-store revenue up 10.6% in 4Q21 and FY21) as well as increased revenue from wholesale during the year. The retail revenue share in total revenue was 77.6% in 4Q21 (70.8% in 4Q20) and 74.6% in FY21 (72.8% in FY20). The revenue from para-pharmacy as a percentage of retail revenue from the pharmacy was 36.4% in 4Q21 (34.6% in 4Q20) and 35.3% in FY21 (34.7% in FY20).

Retail (Pharmacy)'s key operating performance highlights for 4Q21 and FY21 are noted below:

Benefitting from the strong economic recovery since 2Q21, the margins continued to rebound, and the business posted 27.7% (up 3.5 ppts y-o-y) and 26.0% (up 0.6 ppts y-o-y) gross profit margins in 4Q21 and FY21, respectively.

The business posted negative operating leverage (excl. IFRS 16) of 8.8ppts in 4Q21 and 6.7 ppts in FY21, mainly reflecting 1) increased rent expense of pharmacies due to exchange rate developments (about 85% of rental contracts are denominated in US$) as well as the expiration of six to twelve months discounts obtained from lessors for pharmacy leases at the initial stage of the pandemic; and 2) high marketing costs in 2021 associated to new projects and store openings. Along with increased salary expense mainly associated with the cancellation of the state tax subsidy, effective during May 2020 - June 2021, this translated into a y-o-y increase in the operating expenses (excluding IFRS 16) of 31.6% in 4Q21 and 24.5% in FY21. The result was a 10.5% and 8.3% y-o-y increase in EBITDA excluding IFRS 16 with an EBITDA margin of 10.4% for the quarter and 9.7% for the year.

Interest expense, excluding IFRS 16, was down 34.1% y-o-y in 4Q21 and down 22.1% in FY21, due to the 63.6% decrease in net debt position y-o-y as of Dec-21 (down 61.3% q-o-q). GEL 1.4 million foreign currency gain, excluding IFRS 16, reflects the decrease in the GEL value of US$ and EUR denominated payables to suppliers due to the appreciation of GEL in 4Q21. Overall, the business posted a GEL 7.5 million foreign currency gain in FY21 compared to GEL 13.2 million loss posted in the same period last year.

As a result, the business posted a GEL 20.6 million profit in 4Q21 (up 70.4% y-o-y) and GEL 67.9 million in FY21 (up 108.6% y-o-y) excluding IFRS 16.

Due to the expansion of local business as well as opening new pharmacies internationally (currently in Armenia), the business is upgrading its core IT system which enables the company to implement a more efficient operating system for the warehouse, decrease the major operational risks and improve the day-to-day inventory management process. The implementation process will last approximately a year and a half, ending in June 2023, with the total estimated cost at around USD 3.2 million.

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

Cash flow from operating activities was up 128.4% y-o-y in 4Q21, led by increased retail revenues and increased collection of accounts receivables' balances, translating into a 179.3% EBITDA to cash conversion ratio for the same period. Operating cash flow was up 21.1% y-o-y in FY21, and the cash conversion rate stood at 105.0%. Increased cash outflows from investing activities reflect increased capex investments attributable to new projects such as opticians and new format pharmacies, as well as regular expansion of the chain. The business paid GEL 11.5 million dividends to GCAP in FY21.

Discussion of Water Utility Business Results

Our Water Utility is a regulated monopoly in Tbilisi and the surrounding area, where it provides water and wastewater services to c. 1.4 million residents, representing more than one-third of Georgia's population and c. 38,000 legal entities. Water Utility also operates hydro power plants with a total installed capacity of 149 MW. As of 31-Dec-21 GCAP owned 100% of the business. In line with the disposal discussed on page 5, GCAP now holds a 20% economic interest in Water Utility through its 35% stake in JSC Georgia Global Utilities (GGU), the holding company of GCAP's water utility business and operational renewable energy assets.

4Q21 & FY21 performance (GEL '000), Water Utility[43]

KEY POINTS / VALUATION DRIVERS

Ø EBITDA up 2.6x and 2.0x y-o-y in 4Q21 and FY21, respectively, reflecting increased revenues from both water and electricity sales

Ø 4Q21 water sales up by 47.5% y-o-y to GEL 45.1 million, led by revised tariffs and increased demand from legal entities (up by 47.1% y-o-y to GEL 183.3 million in FY21)

Ø Significant increase in revenue from electricity sales, up 5.3x y-o-y in 4Q21 (up 3.4x y-o-y in FY21), supported by more favourable hydrological conditions and higher water levels in Zhinvali HPP reservoir, compared to last year

Ø 4Q21 cash flow from operating activities up by 22.5% y-o-y to GEL 26.7 million, in line with increased revenue streams from both water and electricity sales

INCOME STATEMENT HIGHLIGHTS

The business delivered a strong performance in 4Q21 and FY21. Revenues increased by 62.1% y-o-y in 4Q21 (up 56.0% y-o-y in FY21), reflecting a) an increased water sales revenues on the back of the tariff revision by the regulator for the 2021-2023 regulatory period, as well as the improved economic activities leading to higher water consumption and b) increased electricity sales, supported by improved water inflows at Zhinvali HPP reservoir due to better hydrological conditions compared to last year.

4Q21 and FY21 revenue from water sales were up by 47.5% and 47.1% y-o-y, respectively. According to the revised water tariff levels set by the regulatory body for 2021-2023 years, per cubic meter tariffs in Tbilisi increased from GEL 0.3 to GEL 0.5 for the residential customers and from GEL 4.4 to GEL 6.5 for legal entities compared to the previous 3-year regulatory period (2018-2020). The tariff increase translates into an annual growth of 36.3%[44] in allowed water revenue for the entire water utility business over the 2021-2023 period. Higher y-o-y water sales revenue in 4Q21 and FY21 was further driven by increased demand from legal entities on the back of improved economic activities. 4Q21 and FY21 water sales volumes to commercial customers were 6.5 and 27.8 million cubic meters, up by 8.7% and 5.9% y-o-y, respectively, approaching the pre-pandemic consumption levels.

4Q21 and FY21 revenue from electricity sales increased significantly, up by 5.3x and 3.4x y-o-y, respectively. The increase continued to be driven by improved water inflows and generation levels at Zhinvali HPP reservoir. Water utility business produced 87.8 GWh of electricity in 4Q21, up by 76.2% y-o-y and 8.3% q-o-q, which coupled with slightly higher y-o-y levels of self-produced electricity consumption of 47.2 GWh, led to 4.6x growth in electricity sales volumes of 40.6 GWh. Average selling prices of the electricity during 4Q21 amounted to 0.168 GEL/KWh, up by 13.5% y-o-y.