Shareholder Letters


Extract from 2022 Annual Report

Dear Fellow Shareholders,

This is my fifth annual letter to Georgia Capital shareholders, and I am writing it against the backdrop of the continued devastating impact of the Russia-Ukraine war. It was unimaginable to me, when I wrote last year’s annual letter, that 12 months later I would still be writing about an ongoing conflict, and a time of such significant continued regional and geopolitical uncertainty. Our thoughts and prayers continue to focus on a swift resolution to the hostilities.

In February 2022, at the beginning of the war in Ukraine, we expected to see a significant and negative impact on all the regional economies, with resilience being the watch word for all countries and company managers and policy makers. We always believed that Georgia Capital, with its strong mix of business investments in defensive sectors, and very well managed and conservatively positioned operating companies, was well positioned to withstand the potential pressures of slower regional economic growth, and this proved to be the case as the events of 2022 unfolded. Our portfolio has demonstrated strong resilience and robustness.

From the start, our aim has been to invest in high quality businesses with great market positions, high returns and the ability to deliver sustainable earnings growth. This aim continued to guide us in 2022 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 and Investment Committee have kept a vigilant watch on ensuring that we maintain our core focus on the conservative management of our portfolio companies. In doing so, we have deleveraged the business from the high debt levels we had prior to the global pandemic-related slowdown and the recent escalation of regional tensions. In addition, our investment strategy has been to continue investing in capital light and capital efficient businesses, whilst considering the disposal of more capital intense, or low ROIC, businesses.

The discount of our share price to our NAV per share has widened over the last 12 months, however, the increase in our NAV per share, particularly in GBP terms, has exceeded the growth in our share price, and this has made the attractiveness for us to invest in Georgian businesses more challenging when compared to buying back our own shares. Notwithstanding the recent significant impacts of the global COVID pandemic and the Russia-Ukraine war, our NAV per share in GBP terms increased by 33.2% to GBP 20.12 over the last twelve months, and in the four year period from the end of 2018 by 54.2%, an 11.4% compound annual growth rate.

Our strategy during 2023 is to continue reducing leverage, de-risking the business by refinancing our Eurobond, due to mature in 2024, and then over time develop your Company into a sustainable permanent capital vehicle, seeking to invest mainly in capital efficient/capital light sectors and opportunities. In doing so, the Board believes that reducing our net capital commitment (NCC) ratio to below 15% will enable meaningful share buybacks/capital repatriations to take place.

I speak every year of Georgia Capital’s three fundamental enablers on which our strategic thinking remains focused – our commitment to achieving the highest standards of corporate governance, which is a foundation of superior access to capital, and attracting and developing of highly talented management teams.

During 2022, your Company saw the benefit of these fundamental enablers as, despite the challenging external environment, we were able to continue achieving our key strategic priorities and increase our NAV per share by 4% year-on-year, whilst ensuring that we manage our businesses conservatively, prioritise the deleveraging of the business and maintain high levels of liquidity. This ensures that the business is fully prepared to withstand any potential sidewinds from the external environment.

Our macroeconomic environment

From a macroeconomic perspective, 2022 delivered a second consecutive year of double-digit growth, with real GDP expanding by an estimated 10.1% y-o-y in 2022, following a 10.5% growth in 2021. On the external side, strong foreign demand throughout the year was supplemented by substantial remittance inflows, with money transfers up by 86% y-o-y in 2022. Merchandise exports grew by 32% y-o-y, and tourism revenues reached 108% of 2019 levels in 2022, including 135% in 2H22, reflecting the global resumption of travel as well as significant inward migration, especially from neighbouring countries.

Surging foreign currency inflows resulted in a record high current account surplus of 6% of GDP in 3Q22, and an overall deficit of 2.7% of GDP in 9M22, Georgia’s lowest on record. Foreign Direct Investment (FDI) inflows totalled US$ 1.7 billion, or 9.6% of GDP, in 9M22, up 100% y-o-y. On the domestic side, credit expansion has also been robust despite rising interest rates, as the commercial bank loan portfolio grew by 12.1% y-o-y as of December 2022 (on a constant currency basis). Additionally, while fiscal support has moderated, Georgia’s fiscal stance remains expansionary, with current expenditures growing by 9% and capital expenditures expanding by 22% y-o-y in 2022. As the economy strengthened, the unemployment rate reached a historic low of 17.3% in 2022.

Despite the US dollar (US$) strengthening globally, the GEL has sustained its appreciation trend since mid-2021 and, compared to the beginning of 2022, has appreciated by 19.6% against the US$ as of 17 March 2023. This appreciation is driven by growing demand for Georgian exports, substantially increased remittance and migration inflows, robust economic activity, tight monetary policy and the strong tourism recovery. Moreover, GEL has appreciated not only against US$ but against a basket of all major trading partners, with the real effective exchange rate (REER) reaching a historic high in December 2022, up 15% y-o-y.

The fiscal deficit is projected to have shrunk to around 3.1% of GDP in 2022, as a result of the higher-than-expected growth, and is expected to return to under 3% of GDP in 2023, while public debt is projected to have fallen to under 40% of GDP, below pre-pandemic levels, by the end of 2022. The National Bank of Georgia (NBG) has maintained a tight monetary stance with the refinancing rate set at 11% since March 2022, reaffirming its commitment to pursue tight monetary policy until the current inflationary pressures subside. Inflation was 9.8% in December 2022 (11.9% on average in 2022) and 9.4% in January 2023, back to single digits following a peak of 13.9% in January 2022, and is expected to continue decelerating gradually in 2023.

As the length and the outcome of the war in Ukraine remain uncertain, the medium-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-high current account surplus, FDI has risen and official reserve assets have reached a record high of US$ 4.9 billion by the end of 2022, providing ample cover.

Delivering on our strategic priorities

This Annual Report will go into greater detail later, but let me highlight here how we delivered on our strategic priorities in 2022.

Looking back, 2022 was an eventful year for the Group.

  1. In what was a challenging global environment, we successfully completed the sale of an 80% interest in the water utility business to a high-quality international strategic investor for US$ 180 million. The disposal marked the completion of the full investment cycle for one of our large portfolio businesses and created substantial value for our shareholders.
  2. Our renewable energy and housing development businesses closed milestone transactions on the Georgian capital market, and once again validated our superior access to capital. The US$ 80 million green secured bond offering by our renewable energy business represented the largest ever corporate bond placement in Georgia.
  3. Buybacks and cancellation of GCAP Eurobonds demonstrated strong progress on our key strategic priority of deleveraging GCAP. Through the end of 2022, we repurchased US$ 116 million GCAP Eurobonds, of which US$ 65 million were cancelled following a Modified Dutch Auction (MDA) in 4Q22. These positive developments in our leverage profile, coupled with our robust balance sheet and capital allocation processes, led to a 10.8 ppts decrease in the NCC ratio in 2022. This also resulted in an upgrade in our corporate credit ratings to “B1” by Moody’s and “B+” by S&P (from “B2” and “B”, respectively).
  4. During 2022, under the US$ 25 million share buyback and cancellation programme, we repurchased 2,252,341 shares for a total consideration of GEL 54.3 million (US$ 18.1 million). This brings the total number of shares bought back and cancelled to 6.4% of issued capital since we launched the programme in August 2021.

Proposed transfer from LSE premium to LSE standard listing

In February 2022, we put forward to our shareholders a proposal to transfer Georgia Capital to a London Stock Exchange standard listing, which we consider is more suited to the Company’s size and strategy and will help GCAP better achieve its strategic goals and produce greater value for shareholders. In particular, the transfer is expected to eliminate transaction delays and costs associated with regulatory class tests and ensure a more seamless execution of significant transactions, such as disposals/exits from portfolio companies. This will also enable your Company to minimise its dependency on market capitalisation fluctuations, especially in the current challenging market conditions, as our market capitalisation will no longer be the main factor in determining class test related transaction execution paths. The proposed transfer will also provide greater flexibility to execute meaningful share buybacks, including the ability to repurchase more than 15% of our issued equity capital without the requirement to make a tender offer. At a General Meeting on 14 March 2023, shareholders overwhelmingly approved this transaction, and we expect the transfer to a standard listing to become effective on 13 April 2023.

Capital allocation and dividends

During 2022, we allocated capital in three areas of business investment, and this translated into investment of GEL 53.4 million predominantly in our investment stage businesses:

  • GEL 6.3 million was allocated to the education business;
  • GEL 27.4 million was allocated to the renewable energy business for the conversion of a US$ 10 million shareholder loan into equity; and
  • GEL 19.2 million was allocated to the housing development business for bridge financing purposes.

During 2022, Georgia Capital collected GEL 93.9 million in dividends (2021: GEL 74.4 million), of which GEL 40.9 million was received from Bank of Georgia, GEL 16.0 million from retail (pharmacy), GEL 13.0 million from hospitals, GEL 14.7 million from P&C insurance, GEL 1.0 million from medical insurance, and GEL 8.2 million from the renewable energy businesses. Looking forward to 2023, we currently expect a significant uplift to approximately GEL 150-160 million in dividends from our portfolio companies.

Value creation

Our portfolio value decreased by 11.5% to GEL 3.2 billion during the year, mainly reflecting the disposal of an 80% interest in the water utility business, partially offset by strong growth in BoG’s value.

Our listed investment – Bank of Georgia – continued to deliver its recent track record of exceptional performance, with an annualised ROAE of 32.4%, even excluding some net one-off gains, and particularly strong 43.2% deposit growth and 12.9% loan book growth, on a constant-currency basis, during 2022. The Bank is clearly making significant progress in its digital transformation, which is leading to strong customer franchise and revenue generation growth. Reflecting the strong performance alongside the economic recovery, BoG’s share price increased by 56.2% in 2022, strongly supporting our NAV growth with GEL 190 million value creation. In addition, the Bank has a strong capital repatriation policy, including share buybacks and regular dividends and, on 15 February 2023, the Bank announced its board’s intention to recommend a final dividend for 2022 of GEL 5.80 per ordinary share at the Bank’s 2022 Annual General Meeting. This will make a total dividend paid in respect of the Bank’s 2022 earnings of GEL 7.65 per share. In addition, in 2022 the Bank completed a GEL 112.7 million share buyback and cancellation programme and has announced, in February 2023, a further buyback programme totalling up to GEL 148 million.

The operating performance of our various private portfolio investments was solid, as evidenced by the aggregated revenue growth across the private portfolio of 7.6%, despite the impact of some external factors during 2022, particularly in the hospitals business which resulted in a reduction in EBITDA in 2022 of 5.5%.

This reflects the net impact of the healthy performance in our non-healthcare businesses and the dampening effect of the gradual organic return to a pre-pandemic environment for our hospitals and clinics and diagnostics businesses. Substantially lower COVID cases in Georgia led to the suspension of COVID contracts by the Government in March 2022 which, together with the sale of one of our hospitals in April 2022 and the temporary closure of another hospital towards the end of the year due to mandatory renovation works, impacted the y-o-y revenue and EBITDA growth of our hospitals business.

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

Environmental, social and governance

We have put environmental, social and governance (ESG) issues at the forefront of our strategy and our commitment to the increasing importance of the ESG issues that we all face remains undimmed. There is significantly more detail later in this report and in our Sustainability Report with regard to the good progress we are making and we remain committed to providing more information to highlight our good work on ESG matters. We have a strong track record on governance issues and this track record will continue as we move to the LSE standard listing.

We invest in businesses and industries that have a positive impact on people and our planet:

  • Our healthcare businesses contribute significantly to the development of the Georgian healthcare system, and the general well-being of Georgian society.
  • Our education business significantly supports Georgia’s education system and the development of the country’s younger generation.
  • Our renewable energy business, through a number of green projects, supports Georgia’s climate change mitigation, natural resources conservation and pollution prevention.
  • Our auto services business is directly engaged in the reduction of greenhouse gas emissions.

Our measurable ESG targets, which are being successfully achieved, are set out later in this report and in our Sustainability Report.

The strength of our people

I spend a great deal of my time mentoring and working with what is already an extremely talented group of business managers. Our management and people continue to be the core foundation of Georgia Capital’s business performance.

I have written in many previous Annual Letters that we will never invest in businesses unless we have certainty that we have the very highest calibre of people to run them. That commitment remains as steadfast as ever, and I am delighted that the quality of people throughout the organisation continues to exceed my expectations. My thanks to each and every one of our employees for their continuing focus and commitment to Georgia Capital.


Against the backdrop of a volatile environment, the strong performance of our portfolio companies coupled with our focus on improving the strength of our balance sheet and capital allocation management were instrumental to our robust 2022 results. We have made strong progress in deleveraging the business towards our targeted NCC ratio of 15%, while consistently growing NAV per share on the back of capital light and sustainable investments. Looking ahead, with greater flexibility and the more cost-effective structure that transferring to a standard listing is expected to bring, I believe that Georgia Capital is extremely well-positioned to deliver consistent NAV per share growth over the medium to long term, while also continuing to make significant progress on our key strategic priorities.

Irakli Gilauri
Chairman and CEO

23 March 2023