Shareholder Letters


Extract from 2023 Annual Report

Dear Fellow Shareholders,

In this, my sixth annual letter to Georgia Capital shareholders, I want to focus on the fundamental drivers that have led to what, in many aspects, has been an unexpectedly strong year against the backdrop of the ongoing global geopolitical challenges. These fundamental drivers – strong corporate governance; access to management; and access to capital – have stood us in good stead since the Company started in 2018, and they remain the foundations on which our NAV increased by 26.5% to GEL 82.94 (GBP 24.23) per share during 2023, and by a compound 13.4% per annum over the last five years. I am particularly pleased that we achieved this level of NAV growth, as a number of our portfolio businesses had to cope with, and respond to, significant changes in their specific market dynamics. I am delighted with the resilience of Georgia Capital and our businesses – a resilience underpinned by our high-quality investments in a portfolio of conservative businesses in relatively defensive sectors.

Our aim has always been to invest in high- quality businesses with great market positions, high returns and the ability to deliver sustainable earnings growth through the cycle. This aim continued to guide us in 2023 and will continue to do so in the future. As Georgia Capital has evolved as an investment business during the last few years of significant geopolitical challenge, the Board has kept a vigilant watch on ensuring that we maintain strong conservative management of our portfolio companies, and a very strong balance sheet.

The discount of our share price to our NAV per share has remained too wide, despite our share price increasing by 40% during 2023, and we responded to this by buying back more of our shares (perhaps the best investment we can be making at the current levels of NAV discount), and reducing leverage in the business. I will talk more about this later.

Our strategy during 2024 is to reduce leverage faster than our originally planned NCC ratio target of 15% by 2025, deliver our targeted reduction in the management expense ratio, ensure we focus on the opportunities to sell businesses in our “Other” portfolio, and maintain our policy of opportunistic share buybacks. Over time, we aim to develop into a sustainable permanent capital vehicle, investing mainly in capital efficient/capital-light sectors and opportunities, in association with the regular return of capital to shareholders. Our ongoing development will also be supported by Georgia’s EU candidacy status being confirmed in December 2023. This is important for Georgia, both politically and economically, and significantly underpins the country’s macroeconomic growth prospects and attractiveness for foreign investment.

Our macroeconomic environment

Georgia is in great shape economically. From a macroeconomic perspective, Georgia has maintained its recent track record on expanding in 2023, proving yet again that the macroeconomic environment remains flexible and resilient against exogenous shocks. Real GDP expanded by an estimated 7.5% in 2023, after 11.0% growth in 2022, driven by strong foreign currency inflows building upon strong aggregate demand. Despite tightening financial conditions and the ongoing substantial uncertainty in the global economy, the medium-term outlook for Georgia remains strong. Economic activity and macroeconomic environment have enabled effective adjustments in fiscal and monetary policies. The Government balance sheet has returned to pre-COVID levels, while the National Bank of Georgia (“NBG”) has started to gradually exit from its tightened monetary policy. In December 2023, the European Council granted candidate status to Georgia, further improving Georgia’s economic outlook and prospects.

Surging foreign currency inflows resulted in a significantly improved current account deficit which narrowed to 2.6% of GDP in 9M23, Georgia’s lowest on record. This positive shift was supported by strong growth in the services balance, mainly in tourism and ICT services. The tourism sector continues to recover and income from international travel reached US$ 4.1 billion in 2023, representing 126% of 2019 levels. However, the number of international visitors showed only a partial recovery in 2023, standing at 80% of 2019 number, indicating that significant further growth potential remains. The good news is that Georgia’s tourist infrastructure (hotels, roads, etc.) continue to be developed throughout the country. On the domestic side, credit expansion has also been robust despite rising interest rates, as the commercial bank loan portfolio grew by 17.1% y-o-y as of December 2023 (on a constant currency basis). Additionally, while fiscal support has moderated, Georgia’s fiscal stance remains expansionary, with current expenditures growing by 10.7% and capital expenditures expanding by 22.3% y-o-y in 2023. The Georgian Lari (GEL) has appreciated since mid-2021, strengthening above pre- pandemic levels against the US Dollar (US$), and remained broadly stable in 2023.

The Government projects the fiscal deficit to have shrunk to around 2.8% of GDP in 2023, as a result of the higher-than-expected growth, and expects it to reduce further to 2.5% of GDP in 2024, while general government debt is projected to have fallen to 38.2% of GDP, way below pre-pandemic levels, by the end of 2023. Inflation, like elsewhere around the world, was elevated during 2021-2022, however, it sharply reduced in 2023 falling below the 3% target since April 2023, with annual average inflation standing at 2.5% in 2023. Considering this lower inflation, the NBG started to exit from its tightened monetary policy in 2023 and reduced the refinancing rate by 275 bps between May 2023 and March 2024, to 8.25%.

As the length and the outcome of the war in Ukraine remain uncertain, and the new conflict in the Middle East creates additional uncertainty, the medium to long-term effects on global and regional macroeconomic developments remain unclear. Despite substantial uncertainty enduring, Georgia’s medium-term growth is projected to remain close to its potential level of 5%, according to the International Monetary Fund (“IMF”), positioning the country as one of the top performers in the region. In the short run, Georgia’s external position is strong, as foreign currency inflows have been surging from multiple sources, resulting in a record-low current account deficit, and official reserve assets reached record-high levels in 2023, amounting to US$ 5.0 billion by the end of December 2023, providing ample cover. In the long run, Georgia’s EU candidacy is expected to bring additional economic benefits. Furthermore, the candidacy significantly enhances Georgia’s geopolitical standing in the region, positioning it as an important bridge between Europe and Asia.

Delivering on our strategic priorities

This Annual Report will go into greater detail later, but let me highlight here how we delivered on our key strategic priorities in 2023.

Looking back, 2023 was an eventful year for the Group.

  1. ​​​​​​​At the beginning of the year, our shareholders overwhelmingly approved a proposal to transfer GCAP to an LSE Standard listing, a move we believe is more suited to the Company’s size and strategy and will help create greater value for shareholders.
  2. We achieved significant deleveraging progress through the successful issuance of a US$ 150 million SLB on the Georgian market. This issuance, combined with GCAP’s existing liquid funds, was utilised to fully redeem our US$ 300 million Eurobond.
  3. We launched two share buyback programmes totalling US$ 25 million, under which 2,153,864 shares (4.8% of the issued capital) have been repurchased from January 2023 to date.
  4. Our retail (pharmacy) business completed the buyout of the minority shareholders to increase GCAP’s stake to 97.6%.
  5. Our hospitality business successfully completed the sale of two operational hotels, two under-construction properties, and a vacant land plot for a total consideration of US$ 38.6 million. The proceeds from these sales were utilised for deleveraging the hospitality business’s balance sheet. These transactions marked further substantial progress towards two of our core strategic priorities: to divest, over the next few years, subscale portfolio companies, and to significantly reduce leverage in the Group’s balance sheet.

Capital allocation, share buybacks and dividends

During 2023, we allocated capital in a number of key capital-light areas, with an investment of GEL 22.6 million in our private portfolio companies. This included:

  • GEL 12.2 million allocated to the education business, mainly for the acquisition of a new campus in the affordable segment and the development of a new campus in the mid- scale segment; and
  • GEL 6.2 million allocated to the renewable energy business for the ongoing development of pipeline projects.

In addition, to these investments in our private portfolio companies, we also continued to invest in Georgia Capital shares to take advantage of the discount to NAV at which the shares currently trade. During 2023, 1,665,222 shares with a total value of GEL 47.9 million were bought back under our buyback and cancellation programmes, and a further 1,151,848 shares, with a total value of GEL 28.6 million, were repurchased for the management trust, fully securing the shares required for the expected management trust requirements for the next three years. In addition, we have continued our buyback and cancellation programme into 2024 and, in the first quarter of 2024 to date, an additional 488,642 shares, at a cost of GEL 18.0 million, have been repurchased for cancellation.

During 2023, Georgia Capital collected a record amount of GEL 235.9 million in dividends (2022: GEL 93.9 million), of which GEL 56.1 million reflected one-off dividends during the year from Bank of Georgia and the retail (pharmacy) business. Excluding the one- off dividends, GEL 124.5 million was received from Bank of Georgia, reflecting a combination of regular cash dividends and our participation in their share buybacks, GEL 24.2 million from retail (pharmacy), GEL 19.9 million from our insurance businesses (P&C insurance GEL 14.9 million; medical insurance GEL 5.0 million), GEL 6.0 million from hospitals, and GEL 5.2 million from renewable energy businesses. Looking forward to 2024, we currently expect approximately GEL 180-190 million in dividends from our portfolio companies.

Value creation

Our portfolio value increased by GEL 473.3 million, or 14.8%, to GEL 3.7 billion during the year, particularly reflecting strong growth in the value of our investment in Bank of Georgia.

Our listed investment – Bank of Georgia – continued to deliver strong growth and high profitability, with an annualised ROAE of 29.9%, underpinned by its continued focus on digital transformation, and delivering strong growth in the payments business. The Bank is clearly making significant progress, which has led to sustainable customer franchise and revenue generation growth. Reflecting the strong performance, BoG’s share price increased by 52.6% in 2023, strongly supporting our NAV growth with GEL 549.3 million value creation. In addition, the Bank has a robust capital distribution policy, including share buybacks and regular dividends and, on 15 March 2024, the Bank announced its board’s intention to recommend a final dividend for 2023 of GEL 4.94 per ordinary share at the Bank’s 2024 Annual General Meeting. This will make a total dividend paid in respect of the Bank’s 2023 earnings of GEL 8.00 per share. In addition, in March 2024, the Bank announced an extension of the buyback and cancellation programme by an additional GEL 100 million. Overall, the Bank’s dividend and share buyback pay-out ratio for 2023 was 37% of total earnings.

On 19 February 2024, Bank of Georgia announced the proposed acquisition of 100% of Ameriabank CJSC a leading universal bank in Armenia with an attractive franchise. The transaction price is approximately US$ 303.6 million, which will be fully financed by the Bank’s surplus capital at an attractive valuation of 0.65x NAV as at 31 October 2023 and 2.6x price to earnings (P/E) 2023. The acquisition is expected to be EPS and ROE accretive, and represents a significant catalyst for the Bank and its shareholders. The Bank has confirmed that it intends to keep the targeted pay-out ratio unchanged in the range of 30%-50% of annual profits, potentially enabling increased capital distributions for the Bank’s shareholders, from the enlarged group. We like the transaction as Armenia’s leading banking franchise has been acquired at attractive valuation with immediate EPS enhancement expected. In addition, Bank of Georgia is well-positioned to export its superior digital banking capabilities in the underpenetrated and growing Armenian economy. We expect this acquisition will further enhance shareholder value, and it has been encouraging to see the positive stock market reaction to the acquisition.

The value creation of the water utility business amounted to GEL 4.0 million in 2023, reflecting the application of the put option valuation to GCAP’s 20% holding in the business.

The operating performance of our various private portfolio investments was robust against the backdrop of significant regulatory changes and pricing dynamics in a number of markets, and this created overall value creation in these businesses of GEL 127.3 million. Strong performances in the non-healthcare portfolio companies offset the temporary negative impact of recent regulatory changes in the management of hospitals facilities throughout Georgia.

The individual performances of our private businesses are described in greater detail later in this report.

Environmental, social and governance

We have continued to focus on reducing our impact on the environment, with environmental, social and governance (ESG) issues remaining at the forefront of our thinking and business operations. Our progress in this regard during 2023 was excellent and, while there is significantly more detail in this report and in our Sustainability Report, I want to draw out a few particularly noteworthy aspects of our ESG commitment.

  • In August 2023, we successfully issued a US$ 150 SLB on the Georgian market. This is the first of its magnitude and kind in Georgia supporting our deleveraging strategic priority, whilst also assisting both our climate-change mitigation efforts and the development of the local capital market.
  • Under the SLB Framework, we committed to decrease our GHG emissions by 20% by 2027, in line with our commitment to reach Net-Zero by 2050.
  • We invest in capital-light businesses and industries that have a positive impact on people and our planet.
  • We have a strong track record on governance issues and this track record has continued with our move to the LSE Standard listing, which was supported by 99.9% of our voting shareholders.

The strength of our people

Our people remain critical to our ongoing success and we have excellent people throughout the business, at both the holding company level and in all of our portfolio businesses. This is evident in the progress we continue to make both building our businesses to deliver sustainable profitability and growth, and adapting to challenges and changes in the various external environments in which our businesses operate.

The majority of my time continues to be focused on mentoring our talented team, and developing new managers to ensure we have the appropriate succession plans in place when change is required. This has continued to be the case over the last 12 months and, as always, I deeply appreciate the considerable efforts that our management teams and employees bring to the continuing success of Georgia Capital.


I mentioned earlier that Georgia is in great shape. So is Georgia Capital. At the holding company level, we are delivering on our key priorities and expect to further enhance our performance in 2024 by continuing to improve our balance sheet strength by reducing leverage in the business, focusing on reducing our management expense ratio, and investing in our capital-light business opportunities and in Georgia Capital shares via our ongoing share buyback and cancellation programme. Bank of Georgia is delivering sustainable strong growth with high profitability, and a progressive dividend and capital return policy. In addition, we expect the Bank’s acquisition of Ameriabank in Armenia to significantly enhance earnings for the Bank. Our private portfolio businesses are all well-positioned to either continue developing profitably, or to respond to the significant changes in their markets during 2023, to deliver a recovery in their 2024 performance.

Geopolitically, the world continues to have significant challenges, and we very much focus on managing and investing with a conservative approach and a strong balance sheet as a result. This focus will not change. The Georgian economy has grown particularly strongly over the last few years, and we expect to see further robust levels of economic growth over the next few years, which can only be enhanced following Georgia’s achievement of EU candidacy status in December 2023. Against this background, I am confident that Georgia Capital is extremely well-positioned to deliver consistent and sustainable NAV per share growth.

Irakli Gilauri
Chairman and CEO

22 March 2024