Georgia Capital Regulatory News (CGEO)

FINANCIAL PERFORMANCE HIGHLIGHTS (IFRS)[1]

KEY POINTS

Ø NAV per share (GEL) up 16.4% in 2Q21 (up 13.2% in 1H21), reflecting robust underlying operating performance across our private portfolio, a 22.2% increase in the BoG share price and GEL's appreciation against the US Dollar

Ø NAV per share (GBP) up 24.9% in 2Q21 (up 15.2% in 1H21), benefiting from GEL's appreciation against GBP during the first half of 2021

Ø Our private portfolio companies delivered outstanding quarterly results in 2Q21:

o Aggregated quarterly revenues exceeded GEL 500 million level for the first time (up 45.3% y-o-y in 2Q21 and up 42.2% compared to 2Q19; up 26.5% y-o-y in 1H21 and up 37.1% compared to 1H19)

o Record aggregated quarterly EBITDA of GEL 114 million (up 89.1% y-o-y in 2Q21 and up 84.1% compared to 2Q19; up 58.4% y-o-y in 1H21 and up 63.8% compared to 1H19)

Ø Aggregated y-o-y net operating cash flow down 11.2% in 2Q21 and down 37.3% in 1H21 (up 47.2% and up 22.7%, respectively, compared to pre-pandemic, 2019 levels) reflecting a continued organic transition to revenue growth strategy from the previously adopted cash preservation strategy

Ø GEL 9.7 million dividends collected from the private portfolio companies in 2Q21 (GEL 14.4 million in 1H21)

Ø Divestment of US$35 million commercial real estate properties at 15.4% premium (US$ 4.7 million) to 31 March 2021 book values completed during June-August 2021, demonstrating steady progress on our strategic priorities

Ø Commencement of US$ 10 million share buyback and cancellation program, in line with our capital allocation framework

Conference call: An investor/analyst conference call will be held on 10 August 2021, at 14:00 UK / 15:00 CET / 9:00 US Eastern Time. Please click the link to join the webinar: WEBINAR LINK, webinar ID: 876 0503 3792, passcode: 569778. Further details about the webinar are available on the Group's webpage: https://georgiacapital.ge/ir/news.

CHAIRMAN AND CEO'S STATEMENT

Over the past few months, there have been a number of positive developments in the economic and business environment in Georgia. Pandemic-related lockdown restrictions have been lifted, and the challenges from the emergence of the new variants are being addressed with the accelerated vaccination process. With more than 25,000 daily vaccinations currently taking place (up 6x from the June daily average), the government is now on track to meet its target of vaccinating 60% of the adult population before the end of 2021, while the healthcare system continues to cope well with the increased number of cases. International borders, including land borders, have been fully reopened, supporting a gradual and consistent economic recovery. This has allowed many different businesses to resume operations either at full or near-full capacity for the first time since the start of the pandemic. The economic recovery has supported the excellent operating performances across our high-quality and defensive portfolio companies, which has enabled Georgia Capital to deliver substantial progress and value creation.

NAV per share increased by 16.4% to GEL 54.48 in 2Q21 (up 13.2% in 1H21). A number of factors drove the strong 2Q21 NAV per share growth: robust value creation across the private portfolio (+12.1 ppts impact); BoG's share price increase (+3.3 ppts impact); Georgian Lari's 8.0% appreciation against the US Dollar (+2.7 ppts impact); slightly offset by management platform-related costs and net interest expense (-1.1 ppts impact). The 13.2% increase in NAV per share (GEL) in 1H21 similarly reflects strong value creation across our portfolio, partially supported by local currency appreciation. NAV per share growth was even stronger in GBP terms, up by 24.9% in 2Q21 (up 15.2% in 1H21).

Our private portfolio companies continued to deliver superior operating performance. The aggregated revenues of our private portfolio companies during 2Q21 totalled GEL 502 million, a 45% year-over-year growth and a 42% growth over the equivalent, pre-pandemic, 2019 period. The aggregated EBITDA growth was even higher during 2Q21, up 89% y-o-y and up 84% compared to the pre-pandemic 2019 period. On a half-yearly basis, 1H21 aggregated revenues of our private portfolio companies increased 27% y-o-y (and were up 37% over the equivalent, pre-pandemic, 2019 period), while the aggregated y-o-y EBITDA growth was 58% in 1H21 (up 64% compared to 1H19).

1) Within our large portfolio companies (64% of portfolio value), Healthcare services and Water Utility both reported triple-digit EBITDA growth in 2Q21, up by 253% and 153% y-o-y, respectively (a 43% and 55% growth over the comparable 2019 period). Increased demand for elective services following the removal of pandemic-related restrictions has translated into a more than doubling of admissions in the hospitals and clinics of our healthcare services business. The growth in the water utility business reflects a combination of revised tariffs, increased water consumption levels, and higher electricity sales volumes (the latter supported by strong water inflows into the Zhinvali reservoir). In our retail (pharmacy) business, the overall improvement in economic activity also positively impacted performance and, together with the continuing expansion of the pharmacy chain, delivered 2Q21 revenues that were up 38% y-o-y (up 33% compared to 2Q19) and a 34% y-o-y increase in EBITDA (up 31% compared to 2Q19). The Insurance business, benefiting from rebounding demand, also delivered double-digit revenue growth in 2Q21, up by 15% y-o-y (up 3% compared to 2Q19), however higher mobility led to increased motor and life insurance claims and, as a result, the net profit of the business decreased by 37% y-o-y (down 13% compared to 2Q19).

2) Our investment stage portfolio companies (11% of portfolio value) also demonstrated strong performances in 2Q21. Revenue and EBITDA in our education business increased by 41% and 74% respectively, y-o-y in 2Q21, reflecting an 18.4% y-o-y growth in average tuition revenue per learner and higher capacity utilisation, further aided by fewer distance learning days during the quarter. Higher generation levels led to Renewable Energy posting a 14% y-o-y increase in revenues and a 17% y-o-y increase in EBITDA in 2Q21.

3) Other businesses (7% of portfolio value) also demonstrated solid performance and delivered a 34% y-o-y increase in revenues and a three-fold y-o-y increase in EBITDA in 2Q21.

Aggregated net operating cash flow was down 11.2% and 37.3% y-o-y in 2Q21 and 1H21, respectively, reflecting increased working capital investments as our businesses are in transition from the cash accumulation and preservation strategy, implemented in 2020 as our response to the pandemic, to the current growth-focused phase. Compared to the pre-pandemic 2019 period, aggregated net operating cash flow was up 47.2% and 22.7% in 2Q21 and 1H21, respectively.

Sale of US$ 35 million commercial real estate assets. During June-August 2021 period, we successfully completed the sale to a combination of local and regional investors of selected commercial real estate assets for US$ 35 million with a 15.4% premium (US$ 4.7 million) to their book value as of 31-Mar-21. While the cash proceeds from the sales will appear within 3Q21 results, the realised premium is already reflected in our 2Q21 NAV. The transaction marks 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. The proceeds from the sale will be used to repay the existing US$ 30 million bonds issued by the commercial real estate business and maturing on 31 December 2021.

From the macroeconomic perspective, Fitch Ratings revised Georgia's outlook to stable from negative and affirmed the Issuer Default Rating (IDR) at BB. Credible policy framework, strong international support, increased external buffers despite the higher financing needs and surprising post-COVID recovery were the major drivers behind the revision. The Georgian economy's recovery has significantly accelerated in recent months. Preliminary economic growth was 12.7% y-o-y in the first half of 2021 and 29.8% y-o-y during 2Q21 (12.6% compared to 2Q19). The recovery was aided by supportive Government policy, improved levels of international trade, strong remittance inflows and a pick-up in tourist arrivals. The International Monetary Fund (IMF) has more than doubled its previous 2021 growth forecast from 3.5% to 7.7%. The medium-run (2022-2026) growth forecast was left unchanged by IMF at 5.4%, which represents one of the highest growth rates in the region. Government debt is expected to decline to 54% of GDP by the end of 2021, from 60% of GDP in 2020, aided by the strong economic recovery and GEL's strengthening. The Georgian Lari began strengthening in mid-May 2021, appreciating by 5.5% compared to the beginning of the year. Recovering FX inflows, tight monetary policy, the increasing interest rate differential between Lari and hard currency loans and deposits, and improving business sentiment all worked well for Lari's performance. The real effective exchange rate (REER) appreciated 7.3% q-o-q and 10.3% YTD as of June 2021. Despite this impressive performance, REER remains below its long-run trend, indicating room for further appreciation potential. Currency appreciation and economic recovery continue to be supported by remittance inflows (up 40.8% y-o-y in 1H21) and merchandise exports (up 25.5% y-o-y in 1H21), while improving tourism revenues reached 36% of the 2019 level in June 2021 (19% in April and 27% in May). Fiscal support remains substantial, although higher than expected growth has allowed the deficit projection to be cut from 7.6% to 6.9% of GDP in 2021. The National Bank of Georgia tightened the refinancing rate by 200 bps to 10.0% in 2021, responding to elevated inflationary expectations. Inflation has been relatively well controlled against the backdrop of global food and commodity price increases and averaged 8.3% in 2Q21 (6.6% in 2Q20), further increasing to 11.9% in July. The inflation rate is expected to remain above target in 2021 and to decline sharply to 2.8% in 2022, according to the IMF.

Resumption of Share Buybacks. Our liquidity levels remain robust, aided by a strong dividend income outlook from our private portfolio companies and also from BoG, which has recently informed the market that there is no longer any regulatory restriction for BoG on making any capital distributions. Meanwhile, the strong growth of our portfolio value has resulted in Loan To Value (LTV) ratio falling below the targeted threshold of 30% and reducing to 27% at 30 June 2021. At the same time, while our share price has continued to recover, the discount to our reported 30 June 2021 NAV per share remains high at c. 50%, which opens up an opportunity to create more significant value through share buybacks compared to new investments. As a result, and in line with our capital allocation philosophy, the Board has approved a $10 million share buyback and cancellation programme, over a twelve-month period, which will be put in place immediately. The shares will be purchased in the open market.

As the pandemic continues to provide new challenges across the globe, I continue to be extremely impressed by the leadership teams of our portfolio companies and how successfully they have handled the ongoing impact of the worldwide crisis. The strong performance of our portfolio companies, on the back of the positive recent economic developments, has allowed continued progress towards capturing business growth opportunities across all our portfolio companies, which were instrumental to our outstanding 2Q21 and 1H21 results. Looking ahead, based on our proven governance, capital discipline, strong management capabilities and our portfolio of high-quality and defensive companies, I believe that Georgia Capital is well positioned to deliver consistent NAV per share growth, while we will also continue to make progress on our two clear strategic priorities over the next few years: realising the value of one large private portfolio investment and divesting our sub-scale "other" portfolio companies.

Irakli Gilauri, Chairman and CEO

DISCUSSION OF GROUP RESULTS

The discussion below analyses the Group's net asset value at 30-Jun-21 and its income for the second quarter and first half period then ended on an IFRS basis (see "Basis of Presentation" on page 26 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 (31-Mar-21 and 30-Jun-21). The NAV Statement below breaks down NAV into its components and provides a roll forward of the related changes between the reporting periods.

NAV STATEMENT 2Q21

NAV per share (GEL) increased by 16.4% in 2Q21, reflecting a) value creation across our private portfolio companies with a positive 12.1% impact on the NAV per share, b) increased valuation of BoG (+3.3% impact), c) GEL's appreciation against USD by 8.0%, resulting in a foreign currency gain of GEL 58.0 million on GCAP net debt (+2.7% impact). The NAV per share growth was slightly offset by management platform related costs and net interest expense with negative 0.4% and 0.7% impact, respectively.

Portfolio overview

Our portfolio value increased by 11.1% to GEL 3.25 billion in 2Q21, reflecting a 10.6% and 13.9% growth in the value of private and listed businesses, respectively. As at 30-Jun-21, the private portfolio value was GEL 2.67 billion (82.3% of total portfolio value), and the listed portfolio value was GEL 575.4 million (17.7% of total). The private portfolio value growth of GEL 325.6 million reflects the net impact of a) GEL 331.9 million value creation, b) investments of GEL 2.4 million predominantly in Education and Renewable Energy, and c) a decrease of GEL 9.7 million due to dividends paid out to GCAP.

1) Value creation

BoG share price during 2Q21 increased by 22.2%, strongly supporting NAV per share growth with GEL 70.3 million value creation. The value creation of GEL 261.6 million on the private portfolio mainly reflects a) a GEL 382.2 million operating performance-related increase in the value of our private assets, which delivered substantially higher aggregated revenues (up 45.3% in 2Q21 and 26.5% in 1H21, y-o-y) and EBITDA (up 89.1% in 2Q21 and 58.4% in 1H21, y-o-y), offset by b) a GEL 120.4 million negative impact from changes in valuation multiples and foreign currency exchange rates.

Enterprise value and equity value development of our businesses in 2Q21 are summarised in the following table

The table below summarises value creation drivers in our businesses in 2Q21:

Listed businesses (17.7% of total portfolio value)

BOG (17.7% of total portfolio value) - Despite the ongoing pandemic and restrictions containing local economic activities, BoG managed to deliver an annualised ROAE of 21.5% and 11.1% loan book growth y-o-y in 1Q21. The y-o-y loan book growth largely reflected strong loan origination levels in the corporate, MSME and mortgage segments. Reflecting the accelerated trend of economic recovery in 2Q21, BOG's share price increased by 22.2% to GBP 13.44 at 30-Jun-21 and, as a result, the market value of our equity stake in BOG increased by GEL 70.3 million to GEL 575.4 million. Aided by strong operating performance, robust asset quality and capital adequacy ratios comfortably above the minimum regulatory requirements, the Bank no longer utilises any regulatory capital buffers and there are no further regulatory restrictions on capital distributions. The Bank announced on 8 July 2021 that its Board's current intention is to change its dividend declaration policy to a semi-annual one, with the first interim dividend payment to be considered in the second half of 2021.

BOG's public announcement of their 2Q21 results, when published, will be available at: https://www.bankofgeorgiagroup.com/results/earnings.

Private large portfolio companies (64.2% of total portfolio value)[8]

In 2Q21, valuation assessments of our large portfolio companies were performed by a third-party independent valuation firm, 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.

Healthcare Services (21.1 % of total portfolio value) - Healthcare Services Enterprise Value (EV) increased by GEL 65.2 million to GEL 964.0 million in 2Q21, reflecting an outstanding operating performance of the business. The improved epidemiological environment during the quarter and lifting of the pandemic related lockdown restrictions increased demand for regular elective care and outpatient services. Consequently, admissions at hospitals and clinics more than doubled y-o-y in 2Q21 which, along with the solid performance of the diagnostics business, led to an 82.0% y-o-y growth in revenues. EBITDA (excl. IFRS 16) increased by 3.5x y-o-y in 2Q21. See page 13 for details. LTM EBITDA (incl. IFRS 16)[9] increased by 26.1% to GEL 90.7 million in 2Q21. Net debt (incl. financial lease liabilities) has also improved in 2Q21 (down 6.4% q-o-q to GEL 240.6 million). As a result, the equity value of the business was assessed at GEL 685.8 million, up 13.3% in 2Q21, translating into an implied LTM EV/EBITDA multiple (incl. IFRS 16) of 10.6x at 30-Jun-21 (12.5x at 31-Mar-21).

Retail (pharmacy) (17.9% of total portfolio value) - Retail (pharmacy) EV increased by GEL 45.1 million to GEL 878.0 million in 2Q21. Rebounding demand for retail products and an overall improvement of economic activities have also positively impacted revenue and EBITDA (excl. IFRS 16), up 38.4% and 33.9% y-o-y in 2Q21, respectively. See page 15 for details. Consequently, LTM EBITDA (incl. IFRS 16) was up 7.7% to GEL 94.4 million in 2Q21. Net debt (incl. financial lease liabilities) was down by 1.4% q-o-q to GEL 138.9 million. The result was GEL 44.8 million value creation, and the equity value of GCAP's 67% holding increased by 8.4% to GEL 580.4 million in 2Q21. The implied LTM EV/EBITDA valuation multiple was 9.3x, including the impact of IFRS 16 (down from 9.5x as of 31-Mar-21).

Water Utility (16.9% of total portfolio value) - Water Utility EV increased by GEL 63.8 million to GEL 1,011.5 million in 2Q21. Revised water utility tariffs effective from January 2021 and increased water consumption levels by corporate clients led to a 63.7% y-o-y increase in water supply revenue. Similarly, revenue from electricity sales increased in 2Q21, up 4.5x y-o-y, reflecting high water volume in Zhinvali reservoir due to favourable hydrological conditions throughout the year. As a result, the total revenue of the water utility business increased by 82.0% y-o-y in 2Q21, leading to a 152.7% increase in EBITDA. See page 17 for details. LTM Adjusted EBITDA, used in Water Utility's multiple-based and DCF valuation, amounted to GEL 108.2 million as at 30-Jun-21 (up 9.6% q-o-q). LTM Adjusted EBITDA combines Water Utility's actual performance in 1H21 and the retrospective application of new tariffs on the 2H20 numbers. Net debt decreased by 5.6% to GEL 463.3 million in 2Q21, mainly due to the GEL appreciation against USD. As a result, the equity value of the business was assessed at GEL 548.2 million at 30-Jun-21, up by 20.0% in 2Q21, translating into the implied LTM EV/EBITDA multiple of 9.3x at 30-Jun-21 (down from 9.6x at 31-Mar-21).

Insurance (P&C and Medical) (8.3% of total portfolio value) - The insurance business combines: a) P&C Insurance valued at GEL 206.4 million and b) Medical Insurance valued at GEL 64.0 million.

P&C Insurance - Net premiums earned increased by 20.9% y-o-y to GEL 20.8 million in 2Q21, mainly reflecting the growth of a retail client portfolio. However, lifting of the lockdown restrictions triggered higher passenger mobility and increased the volume of motor claims in 2Q21. Life insurance claims also increased during the quarter and, as a result, the net income of the business decreased by 14.4% to GEL 4.2 million in 2Q21. See page 18 for details. Consequently, LTM net income[10] was down by 4.2% to GEL 17.2 million in 2Q21. The business paid GEL 5.0 million dividends in 2Q21. The equity value was assessed at GEL 206.4 million at 30-Jun-21 (up 0.8%) and value creation amounted to GEL 6.7 million in 2Q21. The implied LTM P/E valuation multiple at 30-Jun-21 was 12.0x (up from 11.4x at 31-Mar-21).

Medical Insurance - Medical insurance net income decreased by 91.4% y-o-y to GEL 0.2 million in 2Q21, reflecting an 8.7% y-o-y increase in revenues, offset by a 37.4% y-o-y increase in net claims expenses. See page 18 for details. LTM net income was down by 25.6% to GEL 5.2 million in 2Q21. The equity value was assessed at GEL 64.0 million as of 30-Jun-21 (down 6.7% in 2Q21), resulting in a GEL 4.6 million value reduction. The implied LTM P/E valuation multiple as at 30-Jun-21 was 12.3x (up from 9.8x as of 31-Mar-21).

Private investment stage businesses (10.6% of total portfolio value)

Renewable Energy (6.8% of total portfolio value) - The business is valued internally, based on a sum of the parts (EV/EBITDA and acquisition price). Enterprise value remained largely flat in 2Q21, down GEL 0.8 million to GEL 506.9 million. The value creation was GEL 17.8 million in 2Q21, mainly resulting from operating performance related growth with increased LTM EBITDA earnings. See page 20 for details. The business paid GEL 4.7 million dividends in 2Q21. In addition, GCAP invested GEL 1.3 million in pipeline renewable energy projects, which along with Mestiachala HPPs, continued to be measured at an equity investment cost of GEL 106.7 million in aggregate. Net debt decreased by GEL 15.4 million to GEL 285.8 million in 2Q21. As a result, the equity value of the business was assessed at GEL 221.1 million in 2Q21 (up by 7.1%).

Education (3.8% of total portfolio value) - The business is valued internally, based on LTM EV/EBITDA. Education EV increased by GEL 20.8 million to GEL 143.8[11] million in 2Q21. Revenues and EBITDA were up 40.6% and 73.8% y-o-y in 2Q21, respectively, reflecting fewer distance learning days and higher revenue recognition during 2Q21. See page 21 for details. Revenues in the premium schools are denominated in foreign currency. On the basis of the FX movement, the currency adjusted LTM EBITDA increased by 16.9% to GEL 11.5 million. GCAP invested GEL 1.0 million for the development of the mid-level education segment in 2Q21. Net debt was down by GEL 2.6 million to GEL 11.5 million in 2Q21. As a result, GEL 19.4 million value was created in 2Q21, driving the 19.8% increase in the equity value of the education business to GEL 123.7 million. The valuation multiple remained unchanged at 12.5x in 2Q21.

Other businesses (7.5% 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 our real estate development (DCF) and hospitality and commercial real estate businesses (NAV). See page 23 for details. The portfolio had a combined value of GEL 242.4 million at 30-Jun-21, up by 2.6% in 2Q21. The value creation was GEL 5.6 million in 2Q21, mainly reflecting GEL 22.6 million operating performance-related net increase in the value of other portfolio companies, of which GEL 29.4 million value creation is attributable to the strong operating performance of our beverages and auto services businesses. The increase was offset by GEL 16.9 million net impact from movements in valuation multiples and foreign currency exchange rates, where GEL 10.2 million value reduction was led by the impact of GEL's appreciation on our housing development and hospitality and commercial real estate businesses, as their fair values are assessed in US Dollar terms.

2) Investments[12]

In 2Q21, GCAP invested GEL 2.4 million predominantly in the investment stage businesses, in line with our announced capital

allocation programme.

§ GEL 1.3 million was allocated to Renewable Energy for the development of the pipeline HPPs (Darchi and Zoti) and Tbilisi wind farm projects.

§ GEL 1.0 million was allocated to the education business for the capacity expansion of the existing campus of Buckswood (mid-scale segment).

3) Dividends12

In 2Q21, Georgia Capital collected GEL 9.7 million dividends in aggregate from Renewable Energy and P&C Insurance, GEL 4.7 million and GEL 5.0 million, respectively.

Net debt overview

Below we describe the components of net debt as of 30 June 2021 and as of 31 March 2021:

Cash and liquid funds. Total cash and liquid funds remained largely flat in 2Q21, down 5.4% to GEL 442.1 million. A 35.5% decrease in cash mainly reflects increased investments in international debt securities (up by 2.1x) and loans issued to our private portfolio companies (up by 1.2x), which are on-lent at market terms. GEL appreciation against the USD had a negative impact on the total balance of the cash and liquid funds, as their large portion is denominated in US Dollars. Internationally listed debt securities mostly include dollar-denominated Eurobonds issued by Georgian corporates. During 2Q21, loans issued to our private portfolio companies amounted to GEL 38.6 million.

Gross debt. At 30-Jun-21, the outstanding balance of US$ 365 million six-year Eurobonds due in March 2024 was GEL 1,156 million (down 5.8% q-o-q). Gross debt reduction was driven by foreign exchange gain of GEL 91.6[13] million from GEL appreciation against USD during the second quarter, which was partially offset by a GEL 20.313 million coupon accrual.

Net debt. Net debt decreased by 6.1% to GEL 714.1 million in 2Q21, with the decrease being driven primarily by a foreign exchange gain of GEL 58.0 million. Net debt was further impacted by a) Investments of GEL 2.4 million, b) share buybacks for the management trust of GEL 1.5 million, c) GCAP cash operating expenses of GEL 5.4 million and d) net interest expense and fair value gains on liquid funds, in aggregate, of GEL 12.5 million. The impact was partially offset by GEL 9.7 million dividends received from private portfolio companies.

1H21 NAV STATEMENT HIGHLIGHTS[14]

In 1H21, NAV per share (GEL) increased by 13.2%, reflecting a) GEL 296.6 million value creation across our private portfolio companies with a positive 13.4% impact, b) GEL 43.8 million value creation in our listed asset, BoG, with a positive 2.0% impact, and c) GEL's appreciation against USD by 3.7%, resulting in a foreign currency gain of GEL 26.6 million on GCAP net debt (+1.2% impact). The NAV per share growth was slightly offset by management platform related costs (-0.8% impact) and net interest expense (-1.2% impact).

With a positive 13.4% impact, the value creation in our private portfolio was the largest contributor to the NAV per share growth in 1H21:

§ The outstanding performance of our large portfolio companies led to a 10.4% NAV per share growth, where healthcare services, retail (pharmacy) and water utility businesses contributed to the growth by 5.2%, 1.3% and 3.4%, respectively, during 1H21 (+9.9% impact in aggregate).

§ Value creation in the investment stage portfolio companies contributed 1.8% to the NAV per share growth with 0.8% and 1.0% positive impact from the renewable energy and education businesses, respectively.

§ Value creation in other businesses added 1.2% to the NAV per share growth, where the solid performance of our beverages and auto services businesses was partially offset by the negative impact of GEL's appreciation on our real estate businesses, as their fair values are assessed in US dollar terms.

Portfolio overview

Our portfolio value increased by 11.7% to GEL 3.25 billion in 1H21, reflecting a 12.4% and 8.2% growth in the value of private and listed businesses, respectively. The private portfolio value growth of GEL 295.8 million mainly reflects the net impact of a) GEL 296.6 million value creation, b) investments of GEL 10.6 million predominantly in Education and Renewable Energy, and c) a decrease of GEL 14.4 million due to dividends received from the private portfolio companies at the GCAP level.

1) Value creation

The increased valuation of BoG was led by a 10.2% growth of the share price during 1H21. The value creation of GEL 296.6 million on the private portfolio mainly reflects a) a GEL 399.8 million operating performance-related increase in the value of our private assets, partly supported by the strength of the Georgian economy over the last few months and b) a GEL 103.9 million negative impact from changes in valuation multiples and foreign currency exchange rates.

Enterprise value and equity value development of our businesses in 1H21 are summarised in the following table:

The table below summarises value creation drivers in our businesses in 1H21:

2) Investments[20]

In 1H21, GCAP invested GEL 10.6 million predominantly in the investment stage businesses, in line with our capital allocation programme as announced at our virtual investor day in November 2020.

Ø GEL 3.0 million was allocated to Renewable Energy for the development of pipeline HPPs (Darchi and Zoti) and Tbilisi wind farm projects.

Ø GEL 7.4 million was allocated to the education business for the capacity expansion of the existing campus of Buckswood (mid-scale segment) and acquisition of land and building for the new campus location of Green School (affordable segment).

3) Dividends20

In 1H21, Georgia Capital collected GEL 14.4 million dividends, of which: GEL 9.5 million was received from Renewable Energy and GEL 5.0 million from P&C Insurance.

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. The tap issuance led to a GEL 212.721 million increase in gross debt balance, which was further increased by a GEL 37.5[21] million due to the coupon accrual in 1H21. Gross debt widening was partially offset by the interest payment of GEL 30.521 million and a foreign exchange gain of GEL 45.921 million from the GEL appreciation against USD during 1H21. As a result, gross debt was up 17.7% to GEL 1,156 million in 1H21. The tap issuance also translated into improved liquidity, leading to the total cash and liquid funds being up by 55.5% to GEL 442.1 million at 30 June 2021. Overall, the net debt remained largely flat in 1H21 (up by 2.3% q-o-q) and was impacted by, a) investments of GEL 10.6 million, b) share buybacks for the management trust of GEL 3.2 million, c) GCAP cash operating expenses of GEL 10.8 million, and d) net interest expense and fair value gains on liquid funds, in aggregate, of GEL 25.4 million. The impact was partially offset by GEL 14.4 million dividends received from private portfolio companies and foreign exchange gain of GEL 26.5 million.

The table below summarises components of net debt as of 30 June 2021 and as of 31 December 2020:

INCOME STATEMENT (ADJUSTED IFRS / APM)

Net income under IFRS was GEL 371.3 million in 2Q21 (GEL 325.2 million in 1H21). 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 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 97 in Georgia Capital PLC 2020 Annual report.

INCOME STATEMENT (Adjusted IFRS)

The gross operating loss was down by GEL 7.7 million y-o-y to negative GEL 2.8 million in 2Q21 and down by GEL 7.1 million y-o-y to negative GEL 11.0 million in 1H21. The improvement was mainly driven by increased dividend inflows from the portfolio companies. The dividend income by businesses is presented in the table below:

Interest income was up 8.1% y-o-y to GEL 6.1 million in 2Q21 and down 10.1% y-o-y in 1H21 to GEL 10.6 million. GCAP earned an average yield of 5.5% on the average balance of liquid assets and issued loans of GEL 324.7 million in 1H21 (7.5% on GEL 312.8 million in 1H20). The Eurobond tap issuance of $65 million on 16-Mar-21 led to an increase in interest expense, up 30.7% and 24.3% y-o-y in 2Q21 and 1H21, respectively. As a result, net interest expense was GEL 14.2 million and GEL 26.9 million in 2Q21 and 1H21 at the GCAP level, respectively (GEL 9.9 million in 2Q20 and GEL 18.4 million in 1H20).

GCAP management fee expenses have a self-targeted cap of 2% of Georgia Capital's market capitalisation. The LTM management fee expense ratio was 1.5% at 30-Jun-21 (2.1%[22] as of 30-Jun-20). The total LTM operating expense ratio (which includes fund type expenses) was 2.4% at 30-Jun-21 (2.9%22 at 30-Jun-20). The components of GCAP's operating expenses are presented in the table below:

Total investment return represents the increase (decrease) in the fair value of our portfolio. Total investment return was GEL 322.2 million in 2Q21 and GEL 326.0 million in 1H21, 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 5-7. The performance of each of our private, large and investment stage portfolio companies is discussed on pages 13-22.

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$ 235 million (GEL 742 million) at 30-Jun-21. Net foreign currency gain was GEL 58.0 million and GEL 26.6 million, respectively, in 2Q21 and 1H21. As a result of the movements described above, GCAP's adjusted IFRS net income was GEL 368.1 million in 2Q21 and GEL 323.3 million in 1H21. See page 25 for a reconciliation to the IFRS figures presented above.

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

The following sections present the IFRS results and business development derived from the individual portfolio company's IFRS accounts for large and investment stage entities, where 2Q21, 1H21 and 2Q20 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 26 for more background.

LARGE PORTFOLIO COMPANIES

Discussion of Healthcare Services Business Results

Healthcare Services business, owned through GHG, is the largest healthcare market participant in Georgia, accounting for 20% of the country's total hospital bed capacity as of 30-Jun-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". Following GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, the healthcare services business is 100% owned by Georgia Capital.

2Q21 & 1H21 performance (GEL '000), Healthcare Services[28],[29]

KEY POINTS / VALUATION DRIVERS

Ø Revenue trend continued to demonstrate robust growth, up 82.0% in 2Q21 y-o-y (up 37.8% over 2Q19); up 48.9% in 1H21, y-o-y (up 29.2% over 1H19)

Ø Strong revenue growth translated into even stronger EBITDA growth (excl. IFRS 16) up 253.3% in 2Q21 and up 120.5% in 1H21 y-o-y, with an EBITDA margin of 25.5% and 25.6%, respectively

Ø Business posted GEL 13.7 million net profit in 2Q21 and GEL 21.5 million in 1H21, compared to net losses posted during the corresponding 2020 periods

Ø EBITDA to cash conversion rate decrease mainly relates to the robust revenue growth, which translated into significantly increased working capital needs as well as delays by the state in processing bills due to the high volume of COVID cases in the country. These resulted in a 12.6% y-o-y decline in cash flow from operating activities (excl. IFRS 16) for the quarter and a 55.8% y-o-y decline for the half-year

Ø Net debt[33] reduced 6.0% q-o-q to GEL 215.1 million as of 30-Jun-21

INCOME STATEMENT HIGHLIGHTS

The healthcare services business continues to be actively engaged in supporting the COVID-19 pandemic response in the country and receiving COVID patients at its hospitals and clinics. The Government of Georgia fully reimburses costs associated with COVID-19 treatments and pays a fixed fee amount per bed designated for COVID patients. After a reduced number of admissions at healthcare facilities in 2Q20 due to the pandemic and associated lockdowns, the trend for regular elective care and outpatient services has started to rebound in 2021 which, along with COVID-19 treatments, contributed to robust revenue growth in 2Q21 and 1H21, outpacing even 2019 numbers.

₋ At our hospitals, the occupancy rate was up by 23.9 ppts to 66.2% in 2Q21 and up by 10.8 ppts to 62.0% in 1H21 y-o-y. Increased demand for elective and outpatient services also increased the number of admissions to hospitals by 122.0% in 2Q21 and by 65.1% in 1H21 y-o-y. These translated into hospitals y-o-y net revenue growth of 74.3% for the quarter and 42.4% for the half-year. Revenue was up 28.9% in 2Q21 compared to 2Q19 and up 20.8% in 1H21 compared to 1H19.

₋ At our clinics, similarly, the number of admissions was up by 121.4% in 2Q21 and up by 65.5% in 1H21 y-o-y, and the number of registered patients in Tbilisi also increased by c.42,000, from c.202,000 in 2Q20 to c.244,000 in 2Q21. This translated into clinics' y-o-y net revenue growth of 80.5% in 2Q21 and 50.3% in 1H21. Clinics also significantly outperformed 2019, with revenues being up 53.8% in 2Q21 compared to 2Q19 and up 46.3% in 1H21 compared to 1H19.

₋ The diagnostics segment which, apart from regular diagnostics services, is also engaged in COVID-19 testing, increased its revenue by 329.3% y-o-y in 2Q21 to GEL 7.6 million and by 282.7% y-o-y in 1H21, reaching GEL 13.2 million. About half of diagnostics revenue is coming from COVID-19 testing and half from regular lab tests.

The developments described above translated into strong y-o-y net revenue growth of 82.0% in 2Q21 and 48.9% in 1H21 from healthcare services (up 37.8% in 2Q21 compared to 2Q19; up 29.2% in 1H21 compared to 1H19).

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[34]. The materials rate increased in 2021 (up 2.2 ppts and 2.0 ppts at hospitals and up 1.8 ppts and 3.1 ppts at clinics, y-o-y in 2Q21 and 1H21, respectively), reflecting local currency exchange rate depreciation in previous consecutive quarters, when inventory was purchased, as well as increased prices and consumption of medical disposables and personal protective equipment at healthcare facilities due to COVID-19. In 2Q21 and 1H21, the direct salary rate remained well-controlled at hospitals (down 7.0 ppts and 6.3 ppts y-o-y, respectively) and clinics (down 5.3 ppts and 5.7 ppts y-o-y, respectively). The direct salary rate partially benefited from 6-months state income tax subsidy for low salary range employees (salary up to GEL 750). The subsidy was effective from May 2020 till June 2021. The cost of utilities was up 67.1% in 2Q21 and 41.5% in 1H21, y-o-y as a result of increased tariffs on water, gas and electricity, effective since January 2021. As a result, the healthcare services gross margin rebounded, and the business posted a strong margin of 42.9% in 2Q21 and 1H21, up 5.7 ppts and 5.0 ppts y-o-y, respectively.

The strong revenue trend combined with a well-controlled operating cost base translated into robust operating leverage of 78.3 ppts in 2Q21 and 43.9 ppts in 1H21. This led to 253.3% and 120.5% y-o-y growth in 2Q21 and 1H21 EBITDA excluding IFRS 16, respectively. In 2Q21 the EBITDA margin (excl. IFRS 16) at hospitals reached 24.6% (up 11.5 ppts y-o-y), at clinics 21.3% (up 8.2 ppts y-o-y) and at diagnostics 32.6% (up 31.1% ppts y-o-y).

A 16.8% y-o-y decrease in the net debt position to GEL 215.1 million as of 30-Jun-21, translated into a net interest expense (excl. IFRS 16) reduction, down 33.5% in 1H21 y-o-y to GEL 10.7 million and down 27.6% y-o-y in 2Q21 to GEL 5.6 million. The GEL appreciation during 2Q21 led to a foreign currency gain (excl. IFRS 16) of GEL 3.2 million on the relatively small portion of the borrowings denominated in foreign currency, translating into GEL 1.4 million FX gain (excl. IFRS 16) for the 1H21.

Overall, in 2Q21, the business posted GEL 13.7 million net profit excluding IFRS 16, compared to 7.3 million net loss posted in 2Q20. 1H21 net profit (excl. IFRS 16) reached GEL 21.5 million, compared to GEL 11.6 million net loss reported in 1H20.

CASH FLOW HIGHLIGHTS

After the weak first quarter in terms of operating cash flow generation (EBITDA to cash conversion 18.6%), as expected, we saw a rebound in 2Q21 (EBITDA to cash conversion 70.8%). The EBITDA to cash conversion ratio remains reduced, however, due to the significant revenue growth posted by the business in 2021 that translates into considerably increased working capital needs. In 2021, and mainly in 1Q21, operating cash flow was also affected by the collection of receivables from the state due to the delay in the processing of bills in previous months, led by the high number of COVID cases in the country in 4Q20. We expect the EBITDA to cash conversion rate to continue rebounding to a normal level in the coming quarters. Capex investments of GEL 8.6 million in 2Q21 mainly reflects maintenance capex.

Discussion of Retail (pharmacy) Business Results

Retail (pharmacy) business, owned 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 333 pharmacies, of which, 329 are in Georgia and 4 are in Armenia. Following GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, GCAP owns 67% in the retail (pharmacy) business.

2Q21 & 1H21 performance (GEL '000), Retail (pharmacy)[35]

KEY POINTS / VALUATION DRIVERS

Ø Strong y-o-y growth in 2Q21 revenues (up 38.4%) and EBITDA (up 33.9%). Revenue was also up 16.9% y-o-y in 1H21, with a slight decline in respective EBITDA (excl. IFRS 16) - down 1.2%.

Ø Gross margin was solid, while the EBITDA margin demonstrated a rebounding trend in 2Q21 - at 10.1%, exceeding the targeted 9%+

Ø Cash flow from operating activities was down 33.9% in 2Q21 y-o-y, but, as expected, it improved q-o-q (GEL 16.1 million operating cash in 2Q21 compared to negative GEL 2.5 million in 1Q21)

Ø Net debt[37] down 7.9% y-o-y to GEL 47.6 million as of 30-Jun-21 (down 8.4% q-o-q)

Ø Added 30 pharmacies over the last 12 months, expanding from 303 to 333 stores

Ø New projects:

₋ In July 2021, the business opened its first new format retail pharma drugstore in Georgia. Covering more than 300 sq.m, the store offers an extensive range of health, perfume and other beauty products as well as services through an integrated health hub incorporating lab retail point, ophthalmology and dermatology cabinets. Opening four more such flagship pharma stores is in the 2021 pipeline of which three stores will be located in Tbilisi and one in the region.

₋ The business signed a franchise agreement with Alain Afflelou SA, one of the leading optical retailers in France, with a network of more than 500 largely franchised stores owned by more than 220 franchisees. The business opened its first Afflelou Paris opticians in August in Tbilisi and is planning to develop and operate a shop in shop model in its GPC pharmacies

₋ In July, under a franchise agreement with Body Shop, the business opened its first Body Shop store in Armenia

INCOME STATEMENT HIGHLIGHTS

The retail (pharmacy) business delivered 38.4% y-o-y revenue growth in 2Q21, reflecting both expansion and increased revenue from wholesale distribution as discussed below, but also higher than usual organic sales growth of the business, with same-store revenue up 26.3%. Higher than usual y-o-y same-store revenue growth rate reflects the lower revenue base in 2Q20 when pharma sales started to slow down after strong 1Q20 results, as customers started to stock up on pharmaceuticals in March ahead of the economic lockdown. In 1H21, the business posted same store revenue growth of 8.6% (more normal given the offsetting the quarterly revenue fluctuations in 1Q and 2Q last year). Top line revenue growth in 1H21 of 16.9% reflects the organic growth, but also the 30 new pharmacies in the last 12 months as well as increased revenue from wholesale distribution (up 53.3% in 2Q21 and 23.5% in 1H21). Due to the increased wholesale revenue, the retail revenue share in total revenue was slightly down to 71.8% in 2Q21 (74.6% in 2Q20) and to 72.5% in 1H21 (74.0% in 1H20). The revenue from para-pharmacy as a percentage of retail revenue from the pharma was 34.3% in 1H21 (34.0% in 1H20). The business issued 13.7 million bills in 1H21 (13.4 million in 1H20), with average customer interactions of 2.3 million per month. The average bill size increased to GEL 18.5 in 2Q21 from GEL 17.6 in 2Q20 and to GEL 18.8 in 1H21 from GEL 16.5.

At the beginning of the year (Jan-Feb 2021), a high number of COVID cases in the country, associated lockdowns and general economic slowdown decreased demand and the consumption of goods in the country. To be in line with the market, the business started active promotions of its products that subdued its margins. By the end of the 1Q21, the epidemiological environment started to stabilise. Benefitting from the strong economic recovery in 2Q21, the margins also started to rebound, and the business posted a 25.1% and 24.2% gross profit margins in 2Q21 and 1H21, respectively. The rebounding trend is expected to continue in line with the country's general macro trajectory.

The business posted positive operating leverage (excl. IFRS 16) of 2.6 ppts in 2Q21 compared to negative leverage of 6.0 ppts posted in 1H21 mainly reflecting 1) increased rent expense of pharmacies in 1Q21 compared to 1Q20 due to GEL devaluation (about 85% of rental contracts are denominated in US$) as well as six to twelve months discounts obtained from lessors for pharmacies leases at the initial stage of pandemic; and 2) high marketing costs in 2021 associated to new projects and store openings mentioned above. All these translated into a y-o-y increase in the operating expenses (excluding IFRS 16) of 27.3% in 2Q21 and 13.7% in 1H21. The result was a 33.9% y-o-y increase in 2Q21 EBITDA excluding IFRS 16 and a 1.2% decline in 1H21. The business EBITDA margin rebounded from 7.5% in 1Q21 to 10.1% in 2Q21 and was 8.9% for 1H21.

Depreciation expense increased mainly due to the launch of 30 new pharmacies in the last 12 months. Interest expense, excluding IFRS 16, was down 16.8% y-o-y in 2Q21 and down 20.2% in 1H21, due to the 7.9% decrease in net debt position y-o-y as of June-21. GEL 5.3 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 2Q21. Overall, the business posted GEL 4.4 million foreign currency gain in 1H21 compared to GEL 4.6 million loss posted in the same period last year.  

As a result, the business posted a GEL 21.2 million profit in 2Q21 (up 30.8% y-o-y) and GEL 29.6 million in 1H21 (up 44.0% y-o-y) excluding IFRS 16.

CASH FLOW AND BALANCE SHEET HIGHLIGHTS

After the 1Q21 weak performance in operating cash, which was affected by the payment of some payable balances to suppliers, the terms of which were temporarily prolonged during the pandemic period, the EBITDA to cash conversion ratio started to improve from 2Q21 and stood at 79.8%. We expect the operating cash flow trend to continue to improve in the coming quarters.

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.

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. GCAP owns 100% in Water Utility through JSC Georgia Global Utilities, the holding company of GCAP's water utility business and operational renewable energy assets.

2Q21 & 1H21 performance (GEL '000), Water Utility[38]

KEY POINTS / VALUATION DRIVERS

Ø 2Q21 EBITDA more than doubled y-o-y (up 90.0% y-o-y in 1H21), driven by a 63.7% y-o-y increase in water sales (up 42.1% y-o-y in 1H21), and a fivefold increase in revenues from electricity sales (up 3.8x y-o-y in 1H21)

Ø Water sales volume to legal entities demonstrated fast recovery in 2Q21, following the lifting of pandemic-related lockdown restrictions, up 24.6% y-o-y in 2Q21 (up 4.7% y-o-y in 1H21)

Ø Water inflows (m3) were up 40.7% y-o-y in 2Q21 (up 33.7% y-o-y in 1H21), leading to a y-o-y reservoir level increase by 38.1% (m3) as at 30-Jun-21, approaching the maximum possible level

Ø 2Q21 cash flow from operating activities up to GEL 18.6 million from negative GEL 0.5 million as of 2Q20, in line with enhanced revenue streams from both water and electricity sales

INCOME STATEMENT HIGHLIGHTS

The significant increases (82.0% and 51.3%, respectively) in 2Q21 and 1H21 revenues were driven by both a) increased water sales on the back of tariff revision by the regulator for the 2021-2023 regulatory period, as well as recovery in business activities after lifting of the COVID-19 related restrictions and b) increased electricity sales, supported by improved water inflows at Zhinvali HPP reservoir (up by 40.7% y-o-y) due to favourable hydrological conditions compared to last year.

2Q21 and 1H21 revenue from water sales increased y-o-y by 63.7% and 42.1%, 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%[39] in allowed water revenue for the entire water utility business over the 2021-2023 period. Higher water sales revenue in 2Q21 was also supported by a 24.6% y-o-y increase in water sales volume to legal entities, reflecting growth of economic activities after the gradual removal of various pandemic-related restrictive measures from February 2021.

2Q21 and 1H21 revenue from electricity sales increased y-o-y by 4.5x and 3.8x, respectively. The increase was primarily driven by improved water inflows at Zhinvali HPP reservoir. 2Q21 water inflows to Zhinvali HPP reservoir increased by 40.7% y-o-y (up by 33.7% y-o-y in 1H21) and water level in the reservoir reached 807 m.a.s.l. (meters above sea level), almost reaching the maximum possible level of 810 m.a.s.l. Increased water inflows translated into a 38.1% y-o-y increase of water volume (m3) in the reservoir as of 30-Jun-21, allowing for smooth and flexible electricity generation for the rest of the year.

Operating expenses in 2Q21 and 1H21 were up y-o-y by 14.1% and 14.8%, respectively, mainly reflecting higher electricity and transmission tariffs, which were fully embedded in the new water tariffs set by the regulator. As a result of the developments described above, EBITDA for 2Q21 more than doubled y-o-y and was up by 90.0% y-o-y in 1H21.

Net interest expense was up by 21.2% y-o-y to GEL 9.3 million in 2Q21 (up by 18.1% y-o-y to GEL 18.7 million in 1H21). The increase mainly reflects an increased balance of debt on the back of USD 250 million green bond issuance in July 2020. 2Q21 foreign exchange gain amounted to GEL 34.8 million (GEL 16.6 million in 1H21), reflecting GEL appreciation against foreign currencies, and as a result, the 2Q21 net profit amounted to GEL 51.3 million (GEL 34.9 million in 1H21).

CASH FLOW HIGHLIGHTS

The improvement in operating cash flow was in line with the enhanced revenue streams from water and electricity sales. 2Q21 development capex amounted to GEL 20.6 million, up by 40.1% y-o-y (up by 14.9% y-o-y to GEL 32.2 million in 1H21). 2Q21 cash inflow from financing activities amounted to GEL 3.5 million, down by 88.6% y-o-y. As a result, Water Utility's cash balance stood at GEL 38.7 million as of 30-Jun-21, up by 4.5% q-o-q.

Discussion of Insurance (P&C and Medical) Business Results

Insurance business comprises a) Property and Casualty (P&C) insurance business, owned through Aldagi and b) medical insurance business, owned through GHG. P&C insurance business is a leading player in the local insurance market with a 26% market share (up by 4ppts y-o-y) in property and casualty insurance based on gross premiums as of 31-Mar-21 (due to the seasonality impact, 1Q market share is usually the lowest compared to the other quarters). P&C also offers a variety of non-property and casualty products, such as life insurance. GHG is the country's largest private medical insurer, with a 23.1% market share based on 1Q21 net insurance premiums. GHG offers a variety of medical insurance products primarily to Georgian corporate and state entities and also to retail clients. The medical insurance business plays a significant feeder role for GHG's polyclinics, pharmacies and hospitals. Following the GHG de-listing and the buy-out of the 29.4% minority stake in 3Q20, GCAP owns 100% in the insurance business.

2Q21 & 1H21 performance (GEL '000), Insurance (P&C and Medical)[40]