Georgia Capital Regulatory News (CGEO)

FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS)[1]

KEY POINTS

Ø Record 2Q23 NAV per share of GEL 73.28, up 8.2% q-o-q, driven by continued growth in BoG's value and the robust operating performance of the private portfolio companies

Ø Net Capital Commitment (NCC) ratio down 2.3 ppts to 17.4% in 2Q23, resulting from the continued growth in portfolio value, and a significant increase in cash and liquid funds balances (up 16.5% in 2Q23)

Ø GEL 121.7 million dividend income from the portfolio companies in 2Q23

Ø Issuance of US$ 150 million bonds on the Georgian market, enhancing the financial flexibility of GCAP and securing the refinancing of the existing US$ 300 million Eurobonds, while continuing the strategically important deleveraging programme

Ø From the US$ 300 million outstanding GCAP Eurobonds, US$ 283.4 million has been repurchased and cancelled to date, with the remaining US$ 16.6 million to be bought back and cancelled during 3Q23

Ø Completed the buyout of the minority shareholders in Retail (Pharmacy) to increase our stake to 97.6%

Conference call: An investor/analyst conference call will be held on 15 August 2023, at 14:00 UK / 15:00 CET / 9:00 US Eastern Time. Please register at the Registration Link to attend the event. Further details are available on the Group's webpage.

CHAIRMAN AND CEO'S STATEMENT

I am pleased to present another remarkably strong performance for the second quarter of 2023, which demonstrates the significant strategic, financial, and operational progress of Georgia Capital.

Record-high NAV per share of GEL 73.28 in 2Q23. In 2Q23 NAV per share (GEL) increased robustly by 8.2%, mainly resulting from positive value creation across our portfolio companies. Value creation across our listed and observable portfolio amounted to GEL 150.0 million (5.2 ppts positive impact on the NAV per share). This reflects the robust performance of BoG's share price (up 6.4% in 2Q23) and strong value creation in the water utility business, the latter reflecting the application of the put option valuation to GCAP's 20% holding in the business. Value creation across our private portfolio businesses amounted to GEL 55.6 million (1.9 ppts impact), reflecting the continued strong performance of our non-healthcare businesses and a rebound in the earnings growth of our healthcare businesses, as they continue a gradual return to a pre-pandemic operating environment. In 2Q23, we launched a US$ 10 million share buyback and cancellation programme under which we bought back 1,000,000 shares (US$ 10 million). This together with the share buybacks for the management trust had a 2.1 ppts positive impact on the NAV per share in 2Q23. The NAV per share growth was partially offset by management platform related costs and net interest expense (-0.6 ppts impact). In GBP terms, the NAV per share growth in 2Q23 was 3.3%, reflecting GEL's slight depreciation against GBP by 4.6% in 2Q23.

We accomplished important milestones on our key strategic priority of deleveraging GCAP. In 2023, we devoted significant resources to address the upcoming maturity of JSC Georgia Capital's US$ 300 million Eurobonds. We took a proactive stance and explored various alternatives for refinancing, aiming to secure the best possible outcome for GCAP and its stakeholders. As a result of these efforts, we identified an opportunity to effect a landmark transaction by issuing sustainability-linked bonds in the local capital markets in Georgia. In August, we successfully completed that transaction by issuing US$ 150 million sustainability-linked bonds (the "Notes"). The issuance of the Notes represents the largest-ever corporate bond offering in the country, and the first of its magnitude and kind in our region. The new Notes are US$-denominated with 5-year bullet maturity (callable after two years), carry an 8.50% fixed coupon and were issued at par. The Notes are rated BB- by S&P, a one-notch upgrade compared to the existing Eurobonds. A key feature of the sustainability-linked bond is GCAP's commitment to reduce its greenhouse gas emissions by 20% by 2027 compared to a 2022 baseline. Through this target, GCAP will support climate change mitigation, natural resources conservation and pollution prevention, thereby contributing to the transition towards a more sustainable and lower carbon economy in Georgia.

The issuance attracted an unprecedented level of interest in Georgia, with total demand reaching US$ 200 million and spreading across a diverse range of 275+ retail, corporate, and institutional investors. I was particularly impressed by the remarkable level of retail investor participation, who have demonstrated strong confidence in GCAP by subscribing to the highest retail volume of corporate bonds in the history of Georgia's capital markets. This retail investor universe is an exciting discovery for us and represents a new source of funding for Georgia Capital and its portfolio companies. The issuance of the Notes was supported by Georgia Capital's longstanding partner international financial institutions, who acquired US$ 67 million of the total issue, while the remaining US$ 83 million was allocated to local investors. Despite the challenging global credit markets, the transaction was concluded on attractive terms for GCAP, which yet again demonstrates our superior access to capital, whether on the international or Georgian capital markets. The proceeds from the Notes, together with existing liquid funds, are to be used to fully redeem the existing US$ 300 million Eurobonds.

In conjunction with the new issuance, we have successfully executed a tender offer. This resulted in the repurchase of US$ 176.5 million existing Eurobonds, which together with the US$ 106.9 million Eurobonds already held in GCAP treasury, have been fully cancelled. As for the remaining US$ 16.6 million Eurobonds, we have exercised the right of the optional redemption at a "make whole" price, with the settlement expected in early September. Following the planned cancellation and repayment of the outstanding Eurobonds, GCAP's gross debt balance will decrease to US$ 150 million.

Buyout of minority shareholders in retail (pharmacy) business. In 2Q23 our retail (pharmacy) business signed an agreement with its minority shareholders to accelerate the acquisition of a 20.6% equity interest in the business. As a result of this transaction, GCAP's ownership stake in Retail (Pharmacy) increased to 97.6% in 2Q23 from 77.0% in 1Q23. The transaction is in line with our 360-degree capital management framework and reconfirms our confidence in the value creation potential of the retail (pharmacy) business, which has consistently delivered outstanding results and captured significant growth opportunities.

NCC ratio decreased by 2.3 ppts to 17.4% in 2Q23. The decrease in the NCC ratio in 2Q23 was mainly driven by a) a 2.8% growth in total portfolio value, and b) a 16.5% increase in cash and liquid funds balances due to strong dividend inflows during the quarter. Dividend income from BoG was substantial, totalling GEL 93.1 million, of which GEL 40.3 million is attributable to our participation in BoG's on-market share buybacks during 2Q23, while GEL 52.8 million represents the regular annual dividend from BoG, which was received in July 2023. Dividend inflows from the private portfolio companies in 2Q23 amounted to GEL 28.5 million (GEL 8.4 million dividend was received from the P&C Insurance business and a GEL 20.1 million one-off dividend was collected from Retail (Pharmacy), following the minority buyout transaction).

Macroeconomic update. Following two consecutive years of double-digit growth, real GDP expanded by 7.4% in 1H23. Growth was supported by strong external inflows with trade, remittances and tourism revenues showing strong year-over-year performances. On the domestic side, credit expansion, continued fiscal outlays and strong business sentiment were key contributors to the economic activity. Despite some stabilisation in 2Q23, the Georgian Lari (GEL) has maintained its recent upward trend and (as of 14 August 2023) has appreciated by 3.1% against the US$ compared to the beginning of the year. This appreciation was supported by strong external inflows, ample FX liquidity, a strict monetary policy stance, increased lending in foreign currency and the overall positive economic growth. The annual inflation rate eased sharply in 2023, with the June headline number standing at 0.6%, below the 3% target. Considering the downward trend in inflation, the National Bank of Georgia (NBG) has reduced the policy rate by 75 bps to 10.25% since May 2023. The current account deficit remained low at 3.2% of GDP in 1Q23, following a historic low level of 4.0% in 2022. Fiscal and monetary authorities used favourable macro conditions appropriately to rebuild Georgia's external buffers, with government debt decreasing below pre-pandemic levels and reserves reaching historic highs.

Outlook. Our robust balance sheet and capital allocation management, coupled with the overall impressive performance of our portfolio companies about which you can read more in the pages that follow, led to outstanding results in 2Q23. The successful issuance of our local sustainability-linked bonds has further bolstered our financial flexibility, enabling us to continue our substantial de-leveraging progress towards our targeted NCC ratio of 15%. Moreover, this achievement has contributed significantly to the development of the local capital market and supported the transition towards a more sustainable economy in Georgia. Looking ahead, I believe that Georgia Capital is extremely well-positioned for consistent NAV per share growth in the medium to long term, while also continuing to make significant progress on our key strategic priorities.

Irakli Gilauri, Chairman and CEO

DISCUSSION OF GROUP RESULTS

The discussion below analyses the Group's unaudited net asset value at 30-Jun-23 and its income for the second quarter and first half period then ended on an IFRS basis (see "Basis of Presentation" on page 27 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 second quarter (31-Mar-23 and 30-Jun-23). 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 first half of 2023 see page 27.

NAV STATEMENT 2Q23

NAV per share (GEL) was up by 8.2% q-o-q in 2Q23, reflecting a) GEL 205.6 million value creation across our portfolio companies with a positive 7.1 ppts impact and b) share buybacks (+2.1 ppts impact). The NAV per share growth was slightly offset by a) management platform-related costs and net interest expense (-0.6 ppts impact in total) and b) GEL's depreciation against US$, resulting in a foreign currency loss of GEL 9.4 million on GCAP net debt (-0.3 ppts impact).

Portfolio overview

Total portfolio value increased by GEL 93.1 million (2.8%) to GEL 3.4 billion in 2Q23:

· The value of the listed and observable portfolio increased by GEL 56.8 million (up 5.8%), resulting from GEL 150.0 million value creation, partially offset by GEL 93.2 million dividend income from BoG.

· The value of the private portfolio increased by GEL 36.3 million (up 1.6%), mainly reflecting the net impact of a) GEL 55.6 million value creation, b) investments of GEL 3.4 million and c) a decrease of GEL 28.5 million due to dividends paid to GCAP.

Consequently, as of 30-Jun-23, the listed and observable portfolio value totalled GEL 1.0 billion (31.0% of the total portfolio value), and the private portfolio value amounted to GEL 2.3 billion (69.0% of the total).

1) Value creation

Total portfolio value creation amounted to GEL 205.6 million in 2Q23.

· A GEL 150.0 million value creation across the listed and observable portfolio strongly supported the NAV per share growth in 2Q23. This reflects:

o  A GEL 146.0 million value creation from BoG, resulting from a 6.4% increase in BoG's share price, partially subdued by GEL's depreciation against GBP by 4.6% in 2Q23.

o  GEL 4.0 million value creation in Water Utility, reflecting the application of the put option valuation to GCAP's 20% holding in the business (where GCAP has a clear exit path through a put and call structure at pre-agreed EBITDA multiples).

· The value creation in the private portfolio amounted to GEL 55.6 million in 2Q23, reflecting the net impact of:

o  GEL 135.6 million operating performance-related increase in the value of our private assets, resulting from the continued strong performance of our non-healthcare businesses and the rebound in earnings growth momentum of our healthcare businesses, as they continue the gradual organic return to a pre-pandemic operating environment.

o  GEL 80.0 million negative net impact from changes in implied valuation multiples[9] and foreign currency exchange rates.

The table below summarises value creation drivers in our businesses in 2Q23:

Valuation overview[13]

In 2Q23, valuation assessments of our large and investment stage 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 an input 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 large and investment stage businesses are performed on a semi-annual basis. 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.

The enterprise value and equity value development of our businesses in 2Q23 is summarised in the following table:

Private large portfolio companies (44.5% of total portfolio value)

Retail (Pharmacy) (21.5% of total portfolio value) - the Enterprise Value (EV) of Retail (Pharmacy) was up by 0.6% to GEL 980.7 million in 2Q23, resulting from the strong performance of the business, supported by the expansion of the retail chain and resilience of Georgian economy. 2Q23 revenues and EBITDA were up by 5.3% and 11.7% y-o-y, respectively, notwithstanding a) the decrease in product prices due to GEL's appreciation against foreign currencies (the FX effect is directly transmitted into the pricing as c.70% of the inventory purchases are denominated in foreign currencies) and b) the negative impact of the External Reference Pricing model, which introduces a maximum retail price on targeted prescription medicines that are financed by the Government of Georgia. See page 14 for details. Consequently, LTM EBITDA (incl. IFRS 16) was up by 1.7% to GEL 106.9 million in 2Q23. Net debt increased by 84.2% to GEL 249.2 million in 2Q23, reflecting a one-off GEL 20.1 million dividend distribution to GCAP. The increase in net debt also reflects the buyout of the minority shareholders, which was executed at previously disclosed/agreed valuation multiples. As a result, the fair value of GCAP's 97.6% holding decreased by 3.6% to GEL 723.5 million in 2Q23. The implied LTM EV/EBITDA valuation multiple (incl. IFRS 16) decreased to 9.2x as at 30-Jun-23 (down from 9.3x as of 31-Mar-23).

Hospitals (12.7% of total portfolio value) - Hospitals' EV increased by 2.7% to GEL 680.8 million in 2Q23, reflecting the rebound in top-line growth as the business is completing its gradual organic return to pre-pandemic levels of activity. In 2Q23, revenue and EBITDA (excl. IFRS 16) were up by 8.3% and 9.2% y-o-y, respectively. Consequently, LTM EBITDA (incl. IFRS 16) increased by 2.0% q-o-q to GEL 52.9 million in 2Q23. Net debt was up by 9.1% q-o-q to GEL 222.2 million, mainly reflecting the delay in the collection of receivables from the State in 2Q23 due to one-off processing delays associated with the introduction of Diagnosis Related Group ("DRG") financing system. See page 16 for details. As a result, the equity value of Hospitals decreased by 0.2% q-o-q to GEL 426.1 million in 2Q23, translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 12.9x at 30-Jun-23 (12.8x at 31-Mar-23).

Insurance (P&C and Medical) (10.3% of total portfolio value) - The insurance business combines: a) P&C Insurance valued at GEL 277.0 million and b) Medical Insurance valued at GEL 69.7 million. In addition to the robust operating performance of the businesses as outlined below, the 2Q23 valuation assessments are positively impacted by Georgia's adoption of the Estonian Taxation Model, which will be implemented starting from January 2024. The pre-tax profit of the insurance businesses is currently subject to a 15% corporate income tax. With the introduction of the new regime in January 2024, a 15% corporate income tax will be applied only to earnings distributed to individuals or non-resident legal entities. As GCAP (a domestic legal entity) owns 100% of both insurance businesses, they will no longer be subject to paying corporate income tax as of 2024, freeing up future cash flows for both business development and increased dividend payments to GCAP.

P&C Insurance - Insurance revenue was up by 19.8% y-o-y to GEL 28.5 million in 2Q23, mainly reflecting the growth in the Motor, credit life, agricultural and border MTPL insurance lines. The combined ratio increased by 4.5 ppts y-o-y in 2Q23, mainly attributable to a) a well-managed expense ratio, down 0.5 ppts y-o-y, b) a 1.6 ppts y-o-y increase in loss ratio due the increased Agro insurance claims during the quarter and c) a 3.4 ppts y-o-y increase in FX ratio, reflecting the impact of FX movements on the business operations. Consequently, 2Q23 net income was up 13.2% y-o-y to GEL 6.0 million. See page 17 for details. These strong 2Q23 results coupled with the forthcoming implementation of the Estonian Taxation Model led to a 19.2% increase in the equity value of the P&C insurance business in 2Q23 (up q-o-q to GEL 277.0 million), translating into an implied LTM P/E valuation multiple of 10.1x at 30-Jun-23, with the earnings calculated on a pre-tax basis due to the business valuation incorporating the impact of forthcoming implementation of the Estonian Taxation Model.

Medical Insurance - Insurance revenue increased by 26.3% y-o-y to GEL 23.6 million in 2Q23, reflecting the increase in the number of insured clients, mainly in the corporate client segment. The combined ratio was at 96.2% in 2Q23 (down 6.6 ppts y-o-y), resulting from a) a well-managed loss ratio, down 3.3 ppts y-o-y, and b) a 3.3 ppts improvement in the expense ratio, the latter reflecting the strong top-line growth of the business, while operating expenses remained flat. Consequently, the net income of the medical insurance business was up by 2.8x y-o-y to GEL 1.4 million in 2Q23. See page 17 for details. As a result of the developments described above, the equity value of the business was assessed at GEL 69.7 million at 30-Jun-23 (up 21.8% q-o-q), translating into the implied LTM P/E valuation multiple of 10.4x in 2Q23, with the earnings calculated on a pre-tax basis due to the business valuation incorporating the impact of forthcoming implementation of the Estonian Taxation Model.

Private investment stage portfolio companies (16.0% of total portfolio value) 

Renewable Energy (7.4% of total portfolio value) - EV of the business decreased by 0.6% to US$ 168.6 million in 2Q23 (up 1.7% to GEL 441.3 million in GEL terms, reflecting the local currency depreciation against US$ during the quarter). In US$ terms, 2Q23 revenue and EBITDA were down by 3.6% and 14.2% y-o-y, respectively, reflecting the net impact of a) a 13.2% y-o-y decrease in electricity generation in 2Q23, as one of the power-generating units of Hydrolea HPPs was temporarily taken offline due to planned rehabilitation works (the works were completed in June 2023 and the operations resumed in their normal course), and b) an 11.0% y-o-y increase in the average electricity selling price in 2Q23, reflecting the electricity exports to the Republic of Türkiye. Revenue and EBITDA in GEL terms were down by 16.5% and 25.5% y-o-y in 2Q23, respectively. See page 20 for details. The pipeline renewable energy projects continued to be measured at an equity investment cost (GEL 55.4 million in aggregate as at 30-Jun-23). Net debt remained largely flat, down by 0.9% to US$ 74.0 million in 2Q23 (in GEL terms, up by 1.3% to GEL 193.7 million). As a result, the equity value of Renewable Energy was assessed at GEL 247.7 million in 2Q23 (up by 1.9% q-o-q), (down 0.3% q-o-q to US$ 94.6 in US$ terms). The blended EV/EBITDA implied valuation multiple of the operational assets stood at 12.4x in 2Q23, down from 12.6x in 1Q23.

Education (5.5% of total portfolio value) - EV of Education was up by 1.6% to GEL 224.5 million in 2Q23, reflecting the strong operating performance of the business. Revenue of the business increased by 27.5% y-o-y in 2Q23, reflecting strong intakes and ramp-up of utilization in line with both the organic growth and expansion of the business. EBITDA was up by 1.5% y-o-y in 2Q23, further reflecting the negative impact of the shift in academic days in midscale school and the increased operating expenses (up by 44.4% y-o-y) in line with the expansion of the business and inflation. In 2Q23, GCAP's investments in the business amounted to GEL 0.9 million and were mainly deployed for the development of a new campus in the mid-scale segment. See page 21 for details. Consequently, LTM EBITDA was up by 0.8% to GEL 13.8 million in 2Q23. Net debt was down by 25.3% q-o-q to GEL 13.4 million in 2Q23, reflecting the enhanced cash flow generation of the business. As a result, GCAP's stake in the education business was valued at GEL 184.2 million in 2Q23 (up 5.1% q-o-q). This translated into the implied valuation multiple of 16.3x in 2Q23. The forward-looking implied valuation multiple is estimated at 12.2x for the 2023-2024 academic year.

Clinics and Diagnostics (3.1% of total portfolio value) - The EV of the business increased by 1.2% to GEL 183.0 million in 2Q23, reflecting the rebound in earnings growth momentum, as the business is completing the gradual organic return to pre-pandemic levels of activity. The combined 2Q23 revenue of the clinics and diagnostics business was up by 18.0% y-o-y leading to a 38.1% y-o-y increase in 2Q23 EBITDA (excl. IFRS 16). See page 22 for details. LTM EBITDA (incl. IFRS 16) of the business was up by 13.2% to GEL 9.7 million in 2Q23. Net debt was up by 10.6% q-o-q to GEL 74.7 million, mainly reflecting the investments made for the expansion of the business. As a result, the equity value of the business was assessed at GEL 104.5 million, down 4.5% q-o-q in 2Q23, translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 18.8x at 30-Jun-23, down from 21.0x at 31-Mar-23. The forward-looking implied valuation multiple is estimated at 10.5x.

Other businesses (8.5% of total portfolio value) - The "other" private portfolio (Auto Service, Beverages, Housing Development and Hospitality businesses) is valued based on LTM EV/EBITDA except for the housing development (DCF), wine business (DCF) and hospitality businesses (NAV). See performance highlights of other businesses on page 24. The portfolio value of other businesses remained largely flat, down by 0.5% to GEL 286.1 in 2Q23.

Listed and observable portfolio companies (31.0% of total portfolio value)

BOG (26.3% of total portfolio value) - In 1Q23, BoG delivered an annualised ROAE of 27.9% and a 4.3% loan book growth y-o-y (on a constant currency basis, the loan portfolio increased by 18.3% y-o-y). In 2Q23, BoG's share price continued its positive trajectory and was up by 6.4% q-o-q to GBP 29.25 at 30-Jun-23. This reflects the strong growth in BoG's earnings, supported by the accretive impact of the Bank's share buybacks. In 2Q23, GCAP received GEL 40.3 million buyback dividends from participation in the Bank's buyback programme, corresponding to c.435,000 shares sold. In 2Q23, the Bank also declared a final dividend for 2022 of GEL 5.80 per ordinary share. Consequently, the accrued dividend income for GCAP amounted to GEL 52.8 million as of 30-Jun-23. The final dividends were received on 14-Jul-23. As a result of the developments described above, the market value of GCAP's 19.8% equity stake in BoG increased by 6.4% to GEL 882.8 million. The LTM P/E valuation multiple was at 3.3x at 31-Mar-22 (up from 2.8x at 31-Dec-22). BoG's public announcement of their 2Q23 and 1H23 results when published will be available on BoG's website.

Water Utility (4.7% of total portfolio value) - In 2Q23, the fair value of GCAP's 20% holding in the water utility business (where GCAP has a clear exit path through a put and call structure at pre-agreed EBITDA multiples) increased by GEL 4.0 million to GEL 159.0 million. This reflects the application of the put option valuation to GCAP's holding in the business.

2) Investments[15]

In 2Q23, GCAP invested GEL 3.4 million in private portfolio companies.

· GEL 2.5 million was invested in Renewable Energy for the development of the pipeline projects.

· GEL 0.9 million was allocated to the education business for the development of a new campus in the mid-scale segment.

3) Share buybacks

During 2Q23, 1,372,127 shares were bought back for a total consideration of GEL 34.5 million.

· 372,127 shares were repurchased for the management trust for a total consideration of GEL 9.1 million.

· 1,000,000 shares with a total value of US$ 10.0 million (GEL 25.4 million) were bought back and cancelled under GCAP's US$ 10 million share buyback and cancellation programme announced in April 2023.

4) Dividends15

In 2Q23, Georgia Capital recorded GEL 121.7 million dividend income from portfolio companies, of which:

· GEL 52.8 million representing the final dividends from BoG, collected on 14-Jul-23;

· GEL 40.3 million buyback dividend was received from participation in BoG's buyback programme, of which GEL 8.1 million one-off dividend was attributable to participation in BoG's 2022 buybacks in 2Q23.

· GEL 20.1 million one-off dividend from Retail (pharmacy).

· GEL 8.4 million regular dividend from P&C Insurance.

1H23 NAV STATEMENT HIGHLIGHTS

NAV per share (GEL) increased by 11.8% in 1H23, reflecting a) robust GEL 282.5 million value creation across our portfolio companies with a positive 10.0 ppts impact, b) share buybacks (+3.2 ppts impact) and c) GEL's appreciation against US$, resulting in a foreign currency gain of GEL 12.6 million on GCAP net debt (+0.5 ppts impact). The NAV per share growth was slightly offset by management platform-related costs and net interest expense with a negative 1.3 ppts impact in total.

Portfolio overview

Total portfolio value increased by GEL 161.9 million (5.1%) to GEL 3.4 billion in 1H23:

· The value of GCAP's holding in BoG was up by GEL 52.4 million, reflecting robust GEL 166.8 million value creation, partially offset by GEL 114.4 million dividend income from the Bank in 1H23.

· The value of the water utility business increased by GEL 4.0 million, reflecting the application of the put option valuation to GCAP's 20% holding in the business.

· The value of the private portfolio increased by GEL 105.6 million in 1H23.

1) Value creation

Total portfolio value creation amounted to GEL 282.5 million in 1H23.

· A 12.3% increase in BoG's share price in 1H23 led to a GEL 166.8 million value creation.

· GEL 4.0 million value was created at our water utility business in 1H23, reflecting the developments described above.

· The value creation in the private portfolio amounted to GEL 111.7 million in 1H23, reflecting the net impact of:

o  GEL 173.6 million operating performance-related increase in the value of our private assets, resulting from the continued strong performance of our non-healthcare businesses and the rebound in the earnings growth momentum of our healthcare businesses, as they continue the gradual organic return to a pre-pandemic operating environment.

o  GEL 62.0 million negative net impact from changes in implied valuation multiples[17] and foreign currency exchange rates.

The table below summarises value creation drivers in our businesses in 1H23:

The enterprise value and equity value development of our businesses in 1H23 is summarised in the following table:

2) Investments[22]

In 1H23, GCAP invested GEL 20.4 million in private portfolio companies.

· GEL 10.5 million was allocated to the education business, mainly for the acquisition of the new campus in the affordable segment and the development of a new campus in the mid-scale segment.

· GEL 5.7 million was invested in Renewable Energy for the development of the pipeline projects.

· GEL 4.2 million was invested in the auto service business.

3) Share buybacks

During 1H23, 2,142,418 shares were bought back for a total consideration of GEL 53.7 million.

· 1,142,418 shares were repurchased for the management trust for a total consideration of GEL 28.4 million.

· 1,000,000 shares with a total value of US$ 10.0 million (GEL 25.4 million) were bought back and cancelled under GCAP's US$ 10 million share buyback and cancellation programme announced in April 2023.

4) Dividends22

In 1H23, Georgia Capital recorded GEL 148.1 million dividend income from portfolio companies:

· GEL 61.6 million buyback dividend represents the participation in BoG's buyback programme, of which GEL 29.0 million one-off dividend was attributable to participation in BoG's 2022 buybacks in 1H23.

· GEL 52.8 million represents the final dividends from BoG, collected on 14-Jul-23.

· GEL 20.1 million one-off dividend from Retail (pharmacy).

· GEL 8.4 million regular dividend from P&C Insurance.

· GEL 5.2 million regular dividend from Renewable Energy.

Net Capital Commitment (NCC) overview

Below we describe the components of Net Capital Commitment (NCC) as of 30 June 2023 and as of 31 March 2023. NCC represents an aggregated view of all confirmed, agreed and expected capital outflows at the GCAP HoldCo level.

Cash and liquid funds. Total cash and liquid funds' balance was up by 16.5% q-o-q to GEL 401.1 million (up 13.9% q-o-q to US$ 153.2 million) in 2Q23, mainly reflecting the strong dividend inflows as described above. The increase was slightly offset by a) GEL 34.5 million GCAP share buybacks, b) GEL 4.9 million cash operating expenses and d) GEL 3.4 million capital allocations. Internationally listed debt securities balance includes dollar-denominated Eurobonds issued by Georgian corporates to generate yield on GCAP's liquid funds. As at 30-June-23, the balance amounted to GEL 235.2 million, of which GEL 221.3 million (US$ 84.5 million (at amortised cost)) was allocated to GCAP's Eurobonds. In 1H23, the total cash and liquid funds' balance remained largely flat (down 2.6%).

Loans issued. Issued loans' balance primarily refers to loans issued to our private portfolio companies and are lent at market terms. The balance was down by GEL 18.1 million in 2Q23 (down by GEL 9.4 million in 1H23), mainly reflecting loan repayments from the hospitality and auto service businesses. Subsequent to 2Q23, the loans issued balance decreased to GEL 8.7 million, reflecting the full repayment of the loan by our auto service business.

Gross debt. In US$ terms, the outstanding balance of GCAP's US$ 300 million Eurobonds remained unchanged in both reporting periods. In GEL terms, the balance was up by 3.9% in 2Q23 and down by 2.8% in 1H23, mainly reflecting the foreign exchange rate movements. Net of US$ 84.5 million GCAP Eurobonds held in treasury, the debt balance stood at US$ 219.6 million (at amortised cost) at 30-Jun-23.

Guarantees issued. The balance reflects GCAP's guarantee on the borrowing of the beer business. Due to the recent developments in the business's operating performance, in 1H23 GCAP's guarantee decreased by EUR 4.9 million to EUR 1.5 million.

Planned investments. Planned investments' balance represents expected investments in renewable energy and education businesses over the next 2-3 years. The balance in US$ terms was down 2.8% and 9.5% in 2Q23 and 1H23, respectively, due to the investments in these businesses, as described above (the balance in GEL terms was down 0.6% and 12.4% in 2Q23 and 1H23, respectively).

Contingency/liquidity buffer. The balance reflects the cash and liquid assets in the amount of US$ 50 million, held by GCAP at all times, for contingency/liquidity purposes. The balance remained unchanged in US$ terms as at 30-Jun-23.

As a result of the movements described above, NCC was down by 9.2% to GEL 584.0 million (US$ 223.1 million), translating into a 17.4% NCC ratio as at 30-Jun-23 (down by 2.3 ppts q-o-q).

INCOME STATEMENT (ADJUSTED IFRS / APM)

Net income under IFRS was GEL 179.4 million in 2Q23 (GEL 19.6 million net loss in 2Q22) and GEL 242.5 million in 1H23 (GEL 509.1 million net loss in 1H22). 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 almost all of our operations through JSC Georgia Capital, through which we hold all of 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 June 30 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 96 in Georgia Capital PLC 2022 Annual report.

INCOME STATEMENT (Adjusted IFRS/APM)

Gross operating income of GEL 114.3 million in 2Q23 reflects a significant increase in dividend income, which was further supported by a y-o-y decrease in interest expenses due to the buyback and cancellation of Eurobonds in 2022 and GEL's y-o-y appreciation against US$. Gross operating income in 1H23 amounted to GEL 132.4 million.

GCAP earned an average yield of 2.3% on the average balance of liquid assets of GEL 195.0 million in 1H23 (3.9% on GEL 471.7 million in 1H22).

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

GCAP Operating Expenses Components

GCAP management fee expenses starting from 2024 will have a self-targeted cap of 0.75% of Georgia Capital's NAV. The LTM management fee expense ratio was 0.97% at 30-Jun-23 (1.11% as of 30-Jun-22).

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 83.9 million in 2Q23 and GEL 134.4 million in 1H23, reflecting the growth in the value of our listed and observable and private portfolio businesses. We discuss valuation drivers for our businesses on pages 5-8. The performance of each of our private large and investment stage portfolio companies is discussed on pages 14-24.

GCAP's net foreign currency liability balance amounted to c.US$ 142 million (GEL 371 million) at 30-Jun-23. Net foreign currency loss was GEL 9.4 million in 2Q23, and net foreign currency gain was GEL 12.6 million in 1H23. The non-recurring expenses amounted to GEL 1.3 million in both reporting periods, which includes the impact of the modification of share-based payment award for one executive. Modification removed the service condition required for the vesting of previously awarded shares, thus resulting in accelerated expense recognition for such awards. As a result of the movements described above, GCAP's adjusted IFRS net income was GEL 178.3 million in 2Q23 and GEL 258.9 million in 1H23.

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 the 2Q23, 1H23, 2Q22 and 1H22 portfolio company's accounts and respective IFRS numbers are unaudited. We present key IFRS 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 (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 27 for more background.

LARGE PORTFOLIO COMPANIES

Discussion of Retail (pharmacy) Business Results

The retail (pharmacy) business, where GCAP owns a 97.6% equity interest, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a 33% 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 business operates a total of 383 pharmacies (of which 371 are in Georgia and 12 are in Armenia) and 11 franchise stores (of which, four are in Armenia and Azerbaijan).

2Q23 & 1H23 performance (GEL '000), Retail (pharmacy)[28]