Half-year Report

Released : 16 Aug 2016 07:00

RNS Number : 2348H
Bgeo Group PLC
16 August 2016
 

                                 

 

BGEO Group PLC

2nd quarter and half-year 2016 results

 

 

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/2348H_-2016-8-15.pdf

 

 

 

 

 

www.BGEO.com

Name of authorised official of issuer responsible for making notification:

Ekaterina Shavgulidze, Head of Investor Relations and Funding

 

2Q and 1H 2016 Financial Results Earnings call       

 

An investor/analyst conference call, organized by BGEO Group, will be held on, 16 August 2016, at 14:00 UK / 15:00 CET / 09:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.

Dial-in numbers:

Pass code for replays / Conference ID: 62522925

30-Day replay:

Pass code for replays / Conference ID: 62522925

International Dial in: +44 (0) 1452 555566

International Dial in: +44 (0)1452550000

UK: 08444933800

UK National Dial In: 08717000145

US: 16315107498

UK Local Dial In: 08443386600

Austria: 019286568

USA Free Call Dial In: 1866 247 4222

Belgium: 081700061

Czech Republic: 228880460

Denmark: 32727625

Finland: 0923195187

France: 0176742428

Germany: 06922224918

Hungary: 0618088303

Ireland: 014319648

Italy: 0236008146

Luxembourg: 20880695

Netherlands: 0207176886

Norway: 21563013

Spain: 914143669

Sweden: 0850336434

Switzerland: 0565800007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

2Q16 and 1H16 Results Highlights                                                                                      4

 

Chief Executive Officer's Statement                                                                                   7

 

Financial Summary of BGEO                                                                                             9  

 

Discussion of Banking Business Results                                                                             11

 

Discussion of Segment Results                                                                                          15

 

Selected Financial Information                                                                                           27

 

Principal Risks & Uncertainties                                                                                          34

 

Responsibility Statements                                                                                                   37

 

Interim Condensed Consolidated Financial Statements                                                          38 

 

Independent Review Report on Review of Interim Condensed Consolidated Financial Statements of BGEO Group PLC                                                                            39

 

Unaudited Interim Condensed Consolidated Financial Statements                                41

 

Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements  49

 

Annex                                                                                                                                 73

 

Company Information                                                                                                           74

 

 

 

 

 

 

 

 

 

FORWARD LOOKING STATEMENTS

This document contains statements that constitute "forward-looking statements", including, but not limited to, statements concerning expectations, projections , objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development.

While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other factors could cause actual developments and results to differ materially from our expectations.

These factors include, but are not limited to the following: (1) general market, macroeconomic, governmental, legislative and regulatory trends; (2) movements in local and international currency exchange rates; interest rates and securities markets; (3) competitive pressures; (4) technological developments; (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties and developments in the market in which they operate; (6) management changes and changes to our group structure; and (7) other key factors that we have indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports, including those filed with the respective authorities.

When relying on forward-looking statements, investors should carefully consider the foregoing factors and other uncertainties and events. Accordingly, we are under no obligations (and expressly disclaim such obligations) to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise.

 

 

BGEO Group PLC ("BGEO" or the "Group" - LSE: BGEO LN), the holding company of JSC Bank of Georgia ("BOG" or the "Bank") announces the Group's second quarter 2016 and first half 2016 consolidated results. Unless otherwise mentioned, figures are for the second quarter 2016 and comparisons are with the second quarter 2015. The results are based on IFRS as adopted by EU, are unaudited and are derived from management accounts.

 

 

BGEO highlights

 

§ 2Q16 profit was GEL 111.2mln (US$ 47.5mln/GBP 35.4mln), up 54.4% y-o-y. 

§ 2Q16 earnings per share ("EPS") were GEL 2.46 (US$ 1.05 per share/GBP 0.78 per share), up 33.7% y-o-y

§ 1H16 profit was GEL 198.3mln (US$ 84.7mln/GBP 63.2mln), up 47.6% y-o-y     

§ 1H16 EPS was GEL 4.57 (US$ 1.94 per share/GBP 1.46 per share), up 31.7% y-o-y

§ Book value per share was GEL 51.46, up 23.3% y-o-y, with total equity attributable to shareholders of GEL 1,970.9mln, up 23.4% y-o-y

§ Total assets increased to GEL 10.323.2mln, up 10.1% y-o-y and up 2.4% q-o-q

§ As of 12 August 2016, GEL 253.1mln cash and cash equivalents was held at the holding company level

§ Above profit figures were positively affected by one-off items recorded during the reporting period, including the two partially offsetting one-off items highlighted in italics below. The combined effect of the deferred tax adjustments and the "net non-recurring items" is a net benefit in the first half of 2016 totalling GEL 26.7mln (GEL 1.2mln in 1Q16 and GEL 25.5mln in 2Q16)

 

§ In May 2016, the parliament of Georgia approved a change in the current corporate taxation model, with changes applicable from 1 January 2017 for all entities apart from certain financial institutions, including insurance businesses (changes are applicable to financial institutions, including banks and insurance businesses from 1 January 2019). The changed model implies zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings, compared to the previous model of 15% tax rate charged to the company's profit before tax, regardless of the retention or distribution status. The change has had an immediate impact on deferred tax asset and deferred tax liability balances ("deferred taxes") attributable to previously recognized temporary differences arising from prior periods. The Group considers the new regime as substantively enacted effective June 2016 and thus has re-measured its deferred tax assets and liabilities as at 30 June 2016. The Group has calculated the portion of deferred taxes that it expects to utilise before 1 January 2017 for our non-financial businesses and the portion of deferred taxes it expects to utilise before 1 January 2019 for financial businesses and has fully released the unutilisable portion of deferred tax assets and liabilities ("Deferred tax adjustments"). The deferred tax liabilities that were reversed significantly exceeded the deferred tax assets written off1. The net amount was recognized as an income tax benefit for the Group and amounted to GEL 66.9mln, of which GEL 39.4mln and GEL 27.5mln impacts the Group's banking business and investment business profit after tax, respectively. The amounts are reflected in the "income tax expense" line of the income statement
 

[1] Gross deferred income tax liability was GEL 76.2mln while the gross income tax asset was GEL 9.3mln. Net income tax benefit recognized in the income statement represents the net of these two amounts. Significant deferred tax liabilities that were reversed arose from the timing differences between the IFRS balance sheet and the tax balance sheet relating to accumulated depreciation, allowance for impairment of loans, property and equipment, investment properties, intangible assets, accruals of certain provisions, and various other items. 

 

§ The Group has also taken a GEL 42.5mln provision for expected accounting losses arising from the buyback of the Bank's Eurobond, which took place in July 2016. This provision is reflected in the "net non-recurring items" line of the income statement

 

 

Banking Business highlights

 

2Q16 performance

§ Revenue was GEL 184.0mln (up 0.7% y-o-y and down 0.1% q-o-q)

§ Net Interest Margin ("NIM") was 7.5% (-10 bps y-o-y and flat q-o-q)

§ Pro-forma NIM, adjusted for excess liquidity level was 8.2%2

§ Loan Yield stood at 14.1% (down 50 bps y-o-y and down 30 bps q-o-q)

§ Cost of Funds stood at 4.8% (down 20 bps y-o-y and down 20 bps q-o-q)

§ Cost to Income ratio was 38.0% (35.7% in 2Q15 and 37.9% in 1Q16)

§ Cost of credit risk stood at GEL 28.2mln (down 30.9% y-o-y and down 19.6% q-o-q)

§ Cost of Risk ratio was 2.0% (2.7% in 2Q15 and 2.3% in 1Q16)

§ Profit increased to GEL 74.7mln (up 21.6% y-o-y and up 7.2% q-o-q)

§ Return on Average Assets ("ROAA") was 3.4% (2.9% in 2Q15 and 3.0% in 1Q16)

§ Return on Average Equity ("ROAE") was 22.5% (19.3% in 2Q15 and 21.2% in 1Q16)

 

[1] ProForma NIM is a hypothetical Net Interest Margin that would have been achieved, had liquidity amounts of GEL and FC balances in excess of 35% minimum been used to repay respective funding sources at respective costs and giving up respective liquid asset yields in the process

 

1H16 performance

§ Revenue was GEL 368.1mln (up 2.2% y-o-y)

§ NIM was 7.5% (down 30 bps y-o-y)

§ Loan Yield was 14.3% (down 30 bps y-o-y)

§ Cost of Funds was 4.9% (down 10 bps y-o-y)

§ Cost to Income ratio stood at 38.0% (36.2% in 1H15)

§ Cost of credit risk stood at GEL 63.2mln (down 22.5% y-o-y)

§ Cost of Risk ratio stood at 2.1% (2.9% in 1H15)

§ Profit increased to GEL 144.4mln (up 20.0% y-o-y)

§ ROAA was 3.2% (2.9% in 1H15)

§ ROAE was 21.7% (19.3% in 1H15)

 

Balance sheet strength supported by solid capital and liquidity positions

§ The net loan book reached a record GEL 5,507.4mln, up 7.1% y-o-y and up 2.1% q-o-q; growth on constant currency basis was 4.0% y-o-y, and 2.9% q-o-q

§ Customer funds increased to GEL 4,792.0mln, up 13.7% y-o-y and down 3.4% q-o-q 

§ Net Loans to Customer Funds and DFI ratio stood at 95.8% (102.4% at 30 June 2015 and 91.6% at 31 march 2016)

§ Leverage stood at 5.6-times in 2Q16 compared to 6.0-times a year ago 

§ NBG (Basel 2/3) Tier I and Total CAR stood at 10.2% and 15.5%, respectively as at 30 June 2016

§ NBG Liquidity Ratio was 43.5% as at 30 June 2016, compared to 35.1% for last year

 

Resilient growth momentum sustained across all major business lines

§ Retail Banking ("RB") continues to deliver strong franchise growth, primarily supported by the Express Banking strategy, along with the Solo, which continues to expand its client base. Retail Banking revenue reached GEL 112.8mln in 2Q16, up 9.2% y-o-y with half year revenue totalling GEL 219.2mln, up 8.5% y-o-y

§ Retail Banking net loan book reached GEL 3,098.3mln, up 18.1% y-o-y; growth on constant currency basis was 15.3% y-o-y, and 7.5% q-o-q

§ Retail Banking client deposits increased to GEL 1,977.0mln, up 13.8% y-o-y

§ The number of Retail Banking clients reached 2.04 mln by the end of 2Q16, up 5.5% from 1.93mln a year ago

§ Solo - our premium banking - successfully continues to grow. Solo is a fundamentally different approach to premium banking, targeting the mass affluent client segment. As of 30 June 2016, the number of Solo clients reached 14,896, up 61.1% from 9,244 a year ago and our goal for the next three to four years is to significantly increase our market share in this segment, which stood below 13% at the beginning of 2015 when we launched Solo in its current format

§ Corporate Investment Banking ("CIB") net loan book totalled GEL 2,065.6mln, down 5.6% y-o-y. Since we announced the combination of our Corporate Banking and Investment Management businesses into a CIB, we expect to grow our fee income, further improve the Bank's ROAE in this segment and reduce concentration risk in the corporate lending portfolio. The concentration of top 10 clients is down to 11.3% at the end of 2Q16, compared to 13.3% a year ago, CIB ROAE has reached 17.4% for 1H16, up from 16.7% in 1H15 and half year CIB net fee and commission income was GEL 6.8mln, down 14.5% y-o-y (excluding guarantees, which was down by GEL 2.2mln or 25.6% y-o-y as a result of CIB de-concentration efforts)

§ Investment Management's Assets Under Management ("AUM") increased to GEL 1,301.4mln1, up 5.7% y-o-y, reflecting increased bond issuance activity as our clients increasingly access these new products

[1] Wealth Management client deposits, Galt & Taggart client assets, Aldagi Pension Fund and Wealth Management client assets at Bank of Georgia Custody

 

 

Investment Business Highlights

 

§ Excluding deferred tax adjustments, the provision for expected accounting losses arising from the buyback of the Bank's Eurobond and other net non-recurring items, our Investment Business contributed GEL 11.0mln or 12.8% to the Group's profit in 2Q162, up from GEL 8.0mln and GEL 15.0mln in 2Q15 and 1Q16, respectively. For the half-year, the contribution was GEL 26.0mln or 15.2% to the Group's profits, up from GEL 11.8mln in 1H15

§ Our healthcare business, Georgia Healthcare Group PLC ("GHG") delivered record quarterly revenue of GEL 101.7mln in 2Q16, up 76.9% y-o-y and up 40.1% q-o-q. Healthcare services business revenue accounted for more than 55%, pharma business revenue accounted for c.30% and medical insurance business revenue accounted for c.15%. GHG delivered quarterly EBITDA of GEL 16.9mln, up 25.3% y-o-y. This growth was primarily driven by the healthcare services business EBITDA growth of 35.4%. Subsequently, for the half-year, revenue was GEL 174.2mln (up 55.5% y-o-y), EBITDA was GEL 34.0mln (up 44.2% y-o-y) and profit was GEL 45.2mln (up 239.6% y-o-y) (including a tax benefit of 27.1mln relating to the deferred tax adjustments)

§ Our real estate business, m2 Real Estate ("m2") continued its strong project execution and sales performance in 2Q16. In 2Q16, m2 achieved sales of US$ 8.8mln, selling a total of 104 apartments, compared with US$ 2.8mln sales and 30 apartments sold in 2Q15. In 2Q16, m2 recognised revenue of GEL 2.2mln (negative GEL 0.2mln for 2Q15) and recorded net profit of GEL 0.7mln (loss of GEL 0.8mln for 2Q15). In 1H16, m2 recognised revenue of GEL 9.9mln (GEL 1.1mln for 1H15) and net profit of GEL 6.1mln (loss of GEL 2.0mln for 1H15). m2 Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of projects. As a result of this, it has accumulated US$ 50.8mln sales, which will be recognised as revenue during 2016-2018 period (of which c.US$ 27.0mln is expected to be recognised in 2016)

§ Our water and utilities business, Georgian Global Utilities ("GGU"), achieved a 1H16 profit of GEL 15.3mln, up 471.6% y-o-y. As BGEO owned 25% of GGU in 2Q16, we have reported our share of GGU's profits as profit from associates, which amounted to GEL 3.8mln in 1H16, up 471.6% y-o-y. In July 2016, we completed the acquisition of the remaining 75% equity stake in GGU. As a result, we will start consolidating GGU financial results from 21 July 2016 as part of our investment business and will include it in the segment discussion as a separate business

 

 

2 Including the deferred tax adjustments, the provision for expected accounting losses arising from the buyback of the Bank's Eurobond and other net non-recurring items, the investment Business contributed GEL 36.5mln or 32.8% to the Group's profit in 2Q16, up from GEL 10.6mln and GEL 17.4mln in 2Q15 and 1Q16, respectively. For the half-year, the contribution was GEL 53.9mln or 27.2% to the Group's profits, up from GEL 14.1mln in 1H15

 

 

 

 

 

 

 

 

 

 

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

I am pleased with the Group's core earnings momentum in the first half of 2016, following another period of good business performance throughout the Group. Our profit of GEL 198.3mln in the first half of the year increased by 47.6% compared to the first half of 2015. Earnings per share increased by 31.7% to GEL 4.57. In the Banking business profits grew by 20.0% year-on-year supported, in particular by excellent franchise growth in the retail bank, where we now have over 2mln customers and grew retail lending during the quarter by 7.5% on a constant currency basis. Margins have remained stable despite the impact of high levels of excess liquidity, and the banking business has delivered a further reduction in the cost of risk. The Return on Average Equity in the banking business was 21.7% for the first half of the year, and 22.5% in the second quarter of 2016. There was an even stronger performance in the Group's investment businesses where both EBITDA and profit before tax increased by more than 75% in the first half.

 

I mentioned in my statement with the first quarter results that a change in the Georgian Government's tax policy was going through Parliament and was expected to significantly benefit Georgian companies. This change has now been ratified by Parliament and, as a result, a tax code amendment is in the process of being implemented that will apply the profits tax (currently 15%) only to distributed profits. Undistributed profits will no longer be subject to the profits tax. This amendment is expected to take effect for most companies on 1 January 2017, and for certain financial companies (including banks and insurance companies) from 1 January 2019. This will reduce the effective tax rate of the Group's non-banking businesses in 2017, and the entire Group in 2019. The impact of these changes has led to a number of deferred tax adjustments that have increased profits in the first half of 2016 by GEL 66.8mln.

 

In July 2016, the Group undertook a liability management exercise with regard to its existing US$ 400mln Eurobond with a 2017 maturity, replacing it with a US$ 350mln Eurobond with a seven year (2023) maturity issued at the Georgian Holding Company level. The exercise enables a significant further improvement in the Group's funding maturity profile whilst, at the same time, reduce funding costs and some of the excess liquidity within the Bank. As a result of this exercise the Group expects to see a positive impact on the banking net interest margin going forward whilst, at the same time, the Group has recognised a one-off provision of GEL 42.5mln in the first half of 2016 relating to the accounting charge arising from the above par buyback of the Eurobond.  

 

Turning to the business, at the BGEO Group level, revenue growth was 10.4% year-on-year. Retail banking net interest income grew by 8.4%, offsetting the expected decline in corporate banking net interest income as we continue to rebalance the retail/corporate business mix to further improve the return profile of the Bank and reduce concentration risk in the corporate lending portfolio. Revenues from the investment businesses increased by 59.5% as a result of the outstanding first half performances of the healthcare and real estate businesses. Operating expenses continue to be well controlled, with the 12.5% growth year-on-year being largely driven by the significant impact of a number of acquisitions in the healthcare business.

 

In addition to the strong earnings performance, the Group's already high returns have further improved. In the banking business, despite carrying over GEL 625mln of excess liquidity, the return on average equity increased from 21.2% in the first quarter, to 22.5% in the second quarter, compared to 19.3% in the first half of 2015. In the healthcare services business, the EBITDA margin was 29.3%, compared to 25.3% in the first half of last year. The Group continues to demonstrate its high growth and high return characteristics.

 

The Georgian economy has remained resilient throughout the first half of 2016, with improving expectations for short and medium term GDP growth continuing to rise. As a result, asset quality during the first half of the year has improved in line with our expectations for the cost of risk ratio to reduce to c2.0% in 2016, compared to 2.7% in 2015. The annualised cost of risk ratio in 2Q16 was 2.0%, compared to 2.3% in 1Q16. This is a strong performance against the backdrop of last year's Lari devaluation against the US dollar, and continues to reflect our conservative lending policy that always takes into account, at the time of the initial lending decision, any potential currency mismatch. In addition, we have also started to achieve a small reduction in the ratio of NPL's to Gross Loans, and we continue to expect the NPL ratio to improve.

 

Within our Investment Businesses, Georgia Healthcare Group (GHG) delivered record half-yearly revenues of GEL 174.2mln, which continue to reflect both good levels of organic growth ([13.0]% year-on-year) and the impact of the benefits of last year's acquisitions starting to be captured. The healthcare services EBITDA margin continues to improve, and at 29.3% in the first half is now in line with GHG's medium-term target of 30%. GHG has also recently completed the acquisition of the third largest retail and wholesale pharmacy chain in Georgia making GHG the largest purchaser of pharmaceutical products on Georgia, and creating significant cost and revenue synergy opportunities to be captured. GHG remains clearly on track to continue to deliver strong earnings progress, together with its target to more than double 2015 healthcare services revenues by 2018. Our real estate business, m2 Real Estate, continues to develop its apartment projects very successfully, with its strong project execution and sales performance delivering a net profit of GEL 6.1mln in the first half. In our water and utilities business, GGU, the new management team is focused on improving efficiency and delivered a net profit of GEL 15.3mln in the first half, compared to GEL 2.7mln profit in the first half of 2015. During the first half of the year, BGEO Group owned 25% of GGU and, as a result, recognised GEL 3.8mln profit in the half.

 

In June 2016, the Group announced that it was to acquire the remaining 75% equity stake in GGU for a cash consideration of $70mln, this acquisition was completed in July 2016, and GGU will now be fully consolidated into BGEO with effect from 21 July 2016. This is a significant transaction for the Group, and is expected to be earnings enhancing from day one. The transaction valued GGU's enterprise value at GEL 287.5mln, or 4.2x EV/EBITDA 2016E. The Group has a significant opportunity to increase GGU's operational cash flow over the next few years from a combination of improving cash collection rates, increasing energy efficiency and reducing water loss rates, and by the development of additional revenue streams. Our strategy is to grow the business, with the aim to crystallise value within 3-5 years. 

 

The Group's capital and funding position continues to remain strong, with capital being held both in the regulated banking business and at the holding company level. Within the bank, the NBG (Basel 2/3) Tier 1 Capital Adequacy ratio was 10.2%, comfortably ahead of the Bank's minimum capital requirement. In addition, as of 12 August 2016, GEL 253.1mln was held at the Group level. From a funding perspective, the Bank's NBG Liquidity ratio was 43.5%, and the Liquidity Coverage Ratio was 190.1%, reflecting the significant excess liquidity held by the Bank.

 

From a macroeconomic perspective Georgia has delivered a strong performance during the first half of 2016. GDP growth expectations for Georgia are now starting to increase and in June 2016 real GDP growth was 2.9% year-on-year, with inflation remaining well contained at 1.5% in July. In addition, during the first half of the year, the Lari has strengthened against the US Dollar by 2%, Foreign Direct Investment continues to be very strong, and tourist numbers - a significant driver of US$ inflows for the country - continue to rise significantly, by over 10% in 2016H1, compared to 2015H1. The National Bank of Georgia has continued to buy US Dollars on a regular basis, to mitigate the further appreciation of the Lari, and we now expect the country's US Dollar reserves to increase by as much as $500mln in 2016.

 

With Georgia continuing to achieve improvements in its macroeconomic performance and improving levels of business confidence, the Group has delivered another half-year of strong business performance with over 30% earnings per share growth, and constantly improving returns in both the banking business and the investment businesses. A number of recent strategic initiatives and acquisitions are expected to continue to deliver this excellent performance in the second half of 2016 and beyond.

 

Irakli Gilauri,

Group CEO of BGEO Group PLC

 

 

FINANCIAL SUMMARY

 

 

BGEO Consolidated

 

Banking Business*

 

Investment Business*

Income statement - quarterly

2Q 2016

2Q 2015

Change

1Q 2016

Change

 

2Q 2016

2Q 2015

Change

1Q 2016

Change

 

2Q 2016

2Q 2015

Change

1Q 2016

Change

 

GEL thousands unless otherwise noted

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net banking interest income 

128,527

122,789

4.7%

128,852

-0.3%

 

129,522

126,403

2.5%

130,219

-0.5%

 

-

-

-

-

-

 

 Net fee and commission income 

29,343

29,121

0.8%

27,814

5.5%

 

29,639

30,172

-1.8%

28,015

5.8%

 

-

-

-

-

-

 

 Net banking foreign currency gain

15,506

19,765

-21.5%

17,390

-10.8%

 

15,506

19,765

-21.5%

17,390

-10.8%

 

-

-

-

-

-

 

 Net other banking income

2,630

2,481

6.0%

2,867

-8.3%

 

2,824

2,810

0.5%

3,168

-10.9%

 

-

-

-

-

-

 

 Gross insurance profit 

8,409

5,817

44.6%

6,416

31.1%

 

6,496

3,473

87.0%

5,343

21.6%

 

2,565

2,799

-8.4%

1,723

48.9%

 

 Gross healthcare profit 

25,199

18,099

39.2%

26,291

-4.2%

 

-

-

-

-

-

 

25,199

18,099

39.2%

26,291

-4.2%

 

 Gross real estate profit 

2,466

(41)

NMF

6,024

-59.1%

 

-

-

-

-

-

 

2,466

(41)

NMF

6,024

-59.7%

 

 Gross other investment profit 

8,437

4,734

78.2%

3,606

134.0%

 

-

-

-

-

-

 

8,443

4,709

79.3%

3,675

129.7%

 

 Revenue 

220,517

202,765

8.8%

219,260

0.6%

 

183,987

182,623

0.7%

184,135

-0.1%

 

38,673

25,566

51.3%

37,713

2.5%

 

 Operating expenses 

(88,684)

(76,848)

15.4%

(83,288)

6.5%

 

(69,919)

(65,244)

7.2%

(69,863)

0.1%

 

(19,777)

(12,381)

59.7%

(14,456)

36.8%

 

 Operating income before cost of credit risk / EBITDA

131,833

125,917

4.7%

135,972

-3.0%

 

114,068

117,379

-2.8%

114,272

-0.2%

 

18,896

13,185

43.3%

23,257

-18.8%

 

 Profit (loss) from associates

1,952

1,979

-1.4%

1,866

4.6%

 

-

-

-

-

-

 

1,952

1,979

-1.4%

1,866

4.6%

 

 Depreciation and amortization of investment business

(4,775)

(2,579)

85.1%

(4,910)

-2.7%

 

-

-

-

-

-

 

(4,775)

(2,579)

85.1%

(4,910)

-2.7%

 

 Net foreign currency gain (loss) from investment business

(1,597)

2,689

NMF

(766)

108.5%

 

-

-

-

-

-

 

(1,595)

2,689

NMF

(766)

108.5%

 

 Interest income from investment business 

(283)

622

NMF

956

NMF

 

-

-

-

-

-

 

60

844

-92.9%

964

-93.8%

 

 Interest expense from investment business

(2,497)

(2,632)

-5.1%

(1,382)

80.7%

 

-

-

-

-

-

 

(3,971)

(7,501)

-47.1%

(2,947)

34.7%

 

 Operating income before cost of credit risk 

124,633

125,996

-1.1%

131,736

-5.4%

 

-

-

-

-

-

 

10,565

8,617

22.6%

17,464

-39.5%

 

 Cost of credit risk 

(29,387)

(41,867)

-29.8%

(36,143)

-18.7%

 

(28,151)

(40,764)

-30.9%

(35,012)

-19.6%

 

(1,236)

(1,103)

12.1%

(1,131)

9.3%

 

 Net non-recurring items

(48,744)

(413)

NMF

1,366

NMF

 

(46,350)

(3,409)

NMF

(1,419)

NMF

 

(2,394)

2,996

NMF

2,785

NMF

 

 Income tax expense

64,735

(11,686)

NMF

(9,912)

NMF

 

35,139

(11,753)

NMF

(8,178)

NMF

 

29,596

67

NMF

(1,734)

NMF

 

Profit

111,237

72,030

54.4%

87,047

27.8%

 

74,706

61,453

21.6%

69,663

7.2%

 

36,533

10,577

245.4%

17,384

110.2%

 

Earnings per share (basic)

2.46

1.84

33.7%

2.10

17.1%

 

1.91

1.59

20.4%

1.78

7.3%

 

0.55

0.25

117.7%

0.32

72.3%

 

 

 

Income statement - half-year

BGEO Consolidated

 

Banking Business*

 

Investment Business*

 

 

 

Change

 

 

 

Change

 

 

 

Change

GEL thousands unless otherwise noted

1H16

1H15

Y-O-Y

 

1H16

1H15

Y-O-Y

 

1H16

1H15

Y-O-Y

 

 

 

 

 

 

 

 

 

 

 

 

 Net banking interest income 

257,380

243,778

5.6%

 

259,742

249,461

4.1%

 

-

-

-

 Net fee and commission income 

57,157

55,975

2.1%

 

57,654

58,262

-1.0%

 

-

-

-

 Net banking foreign currency gain

32,896

38,727

-15.1%

 

32,896

38,727

-15.1%

 

-

-

-

 Net other banking income

5,497

4,272

28.7%

 

5,992

4,906

22.1%

 

-

-

-

 Gross insurance profit 

14,825

13,391

10.7%

 

11,838

8,777

34.9%

 

4,289

5,492

-21.9%

 Gross healthcare profit 

51,490

34,975

47.2%

 

-

-

-

 

51,490

34,975

47.2%

 Gross real estate profit 

8,489

1,168

626.8%

 

-

-

-

 

8,489

1,168

626.8%

 Gross other investment profit 

12,043

6,133

96.4%

 

-

-

-

 

12,118

6,253

93.8%

 Revenue 

439,777

398,419

10.4%

 

368,122

360,133

2.2%

 

76,386

47,888

59.5%

 Operating expenses 

(171,971)

(152,908)

12.5%

 

(139,782)

(130,520)

7.1%

 

(34,232)

(24,038)

42.4%

 Operating income before cost of credit risk / EBITDA

267,806

245,511

9.1%

 

228,340

229,613

-0.6%

 

42,154

23,850

76.7%

 Profit from associates

3,818

668

NMF

 

-

-

-

 

3,818

668

NMF

 Depreciation and amortization of investment business

(9,685)

(5,266)

83.9%

 

-

-

-

 

(9,685)

(5,266)

83.9%

 Net foreign currency gain (loss) from investment business

(2,363)

6,379

NMF

 

-

-

-

 

(2,363)

6,379

NMF

 Interest income from investment business 

673

1,239

-45.7%

 

-

-

-

 

1,024

1,662

-38.4%

 Interest expense from investment business

(3,880)

(5,094)

-23.8%

 

-

-

-

 

(6,919)

(13,469)

-48.6%

 Cost of credit risk 

(65,529)

(83,708)

-21.7%

 

(63,162)

(81,536)

-22.5%

 

(2,367)

(2,172)

9.0%

 Net non-recurring items

(47,380)

(2,860)

NMF

 

(47,770)

(5,575)

NMF

 

390

2,715

-85.6%

 Income tax expense

54,824

(22,500)

NMF

 

26,961

(22,238)

NMF

 

27,863

(262)

NMF

Profit

198,284

134,369

47.6%

 

144,369

120,264

20.0%

 

53,915

14,105

282.2%

Earnings per share (basic)

4.57

3.47

31.7%

 

3.70

3.10

19.3%

 

0.87

0.37

137.1%

 

 

* Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on pages 27 & 28.

 

 

 

 

BGEO Consolidated

 

Banking Business*

 

Investment Business*

Balance sheet

 

Jun-16

Jun-15

Change

Mar-16

Change

 

Jun-16

Jun-15

Change

Mar-16

Change

 

Jun-16

Jun-15

Change

Mar-16

Change

GEL thousands unless otherwise noted

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquid assets

 

2,925,345

2,741,533

6.7%

2,948,699

-0.8%

 

2,887,978

2,726,749

5.9%

2,876,357

0.4%

 

277,116

127,508

117.3%

337,602

-17.9%

Loans to customers and finance lease receivables

 

5,469,120

5,052,752

8.2%

5,359,718

2.0%

 

5,507,414

5,142,221

7.1%

5,394,565

2.1%

 

-

-

0.0%

-

0.0%

Total assets

 

10,323,223

9,375,059

10.1%

10,077,589

2.4%

 

9,171,034

8,712,710

5.3%

9,030,055

1.6%

 

1,437,232

883,373

62.7%

1,353,961

6.2%

Client deposits and notes

 

4,554,012

4,104,417

11.0%

4,698,558

-3.1%

 

4,791,979

4,212,822

13.7%

4,962,432

-3.4%

 

-

-

0.0%

-

0.0%

Amounts due to credit institutions

 

1,892,437

2,139,517

-11.5%

1,719,920

10.0%

 

1,766,999

2,045,093

-13.6%

1,630,299

8.4%

 

163,730

189,124

-13.4%

124,468

31.5%

Debt securities issued

 

1,065,516

1,063,123

0.2%

1,033,758

3.1%

 

990,370

990,257

0.0%

957,474

3.4%

 

81,088

79,894

1.5%

81,116

0.0%

Total liabilities

 

8,113,842

7,719,116

5.1%

7,926,740

2.4%

 

7,773,056

7,463,969

4.1%

7,751,805

0.3%

 

625,829

476,171

31.4%

481,362

30.0%

Total equity

 

2,209,381

1,655,943

33.4%

2,150,849

2.7%

 

1,397,978

1,248,741

12.0%

1,278,250

9.4%

 

811,403

407,202

99.3%

872,599

-7.0%

 

 

 

 

Banking Business Ratios

2Q16

2Q15

1Q16

 

1H16

1H15

 

 

 

 

 

 

 

ROAA

3.4%

2.9%

3.0%

 

3.2%

2.9%

ROAE

22.5%

19.3%

21.2%

 

21.7%

19.3%

Net Interest Margin

7.5%

7.6%

7.5%

 

7.5%

7.8%

Loan Yield

14.1%

14.6%

14.4%

 

14.3%

14.6%

Liquid assets yield

3.3%

3.1%

3.1%

 

3.2%

3.2%

Cost of Funds

4.8%

5.0%

5.0%

 

4.9%

5.0%

Cost of Client Deposits and Notes

4.0%

4.4%

4.3%

 

4.2%

4.4%

Cost of Amounts Due to Credit Institutions

5.9%

5.3%

6.0%

 

5.9%

5.3%

Cost of Debt Securities Issued

7.0%

7.2%

7.2%

 

7.1%

7.2%

Cost / Income

38.0%

35.7%

37.9%

 

38.0%

36.2%

NPLs To Gross Loans To Clients

4.4%

4.1%

4.5%

 

4.4%

4.1%

NPL Coverage Ratio

85.8%

82.2%

86.0%

 

85.8%

82.2%

NPL Coverage Ratio, Adjusted for discounted value of collateral

129.7%

115.1%

122.6%

 

129.7%

115.1%

Cost of Risk

2.0%

2.7%

2.3%

 

2.1%

2.9%

Tier I capital adequacy ratio (New NBG, Basel 2/3)

10.2%

10.4%

10.1%

 

10.2%

10.4%

Total capital adequacy ratio (New NBG, Basel 2/3)

15.5%

15.9%

15.8%

 

15.5%

15.9%

 

 

 

 

 

 

 

 

 

 

 

* Note: Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on page 29.

 

DISCUSSION OF RESULTS

Discussion of Banking Business Results

 

The Group's Banking Business comprises Retail Banking operations in Georgia. It principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. The business targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. Corporate Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. Property and Casualty ("P&C") principally provides property and casualty insurance services to corporate clients and insured individuals in Georgia. BNB, comprising JSC Belarusky Narodny Bank principally provides retail and corporate banking services in Belarus. The following discussion refers to the Banking Business only.

 

 

Revenue

GEL thousands, unless otherwise noted

2Q16

2Q15

Change,

Y-o-Y

1Q16

Change,

Q-o-Q

 

1H16

1H15

Change,

Y-o-Y

 

 

 

 

 

 

 

 

 

 

 Banking interest income 

217,234

215,313

0.9%

226,217

-4.0%

 

443,451

417,666

6.2%

 Banking interest expense 

(87,712)

(88,910)

-1.3%

(95,998)

-8.6%

 

(183,709)

(168,205)

9.2%

 Net banking interest income 

129,522

126,403

2.5%

130,219

-0.5%

 

259,742

249,461

4.1%

 Fee and commission income 

40,675

40,160

1.3%

38,484

5.7%

 

79,159

77,503

2.1%

 Fee and commission expense 

(11,036)

(9,988)

10.5%

(10,469)

5.4%

 

(21,505)

(19,241)

11.8%

 Net fee and commission income 

29,639

30,172

-1.8%

28,015

5.8%

 

57,654

58,262

-1.0%

 Net banking foreign currency gain

15,506

19,765

-21.5%

17,390

-10.8%

 

32,896

38,727

-15.1%

 Net other banking income

2,824

2,810

0.5%

3,168

-10.9%

 

5,992

4,906

22.1%

     Net insurance premiums earned

10,235

9,777

4.7%

9,550

7.2%

 

19,785

19,019

4.0%

     Net insurance claims incurred

(3,739)

(6,304)

-40.7%

(4,207)

-11.1%

 

(7,947)

(10,242)

-22.4%

 Gross insurance profit 

6,496

3,473

87.0%

5,343

21.6%

 

11,838

8,777

34.9%

 Revenue 

183,987

182,623

0.7%

184,135

-0.1%

 

368,122

360,133

2.2%

 

 

 

 

 

 

 

 

 

 

Net Interest Margin

7.5%

7.6%

 

7.5%

 

 

7.5%

7.8%

 

Average interest earning assets

6,916,969

6,638,429

4.2%

7,013,413

-1.4%

 

6,968,714

6,482,145

7.5%

Average interest bearing liabilities

7,344,385

7,128,014

3.0%

7,681,953

-4.4%

 

7,507,878

6,767,958

10.9%

Average net loans, currency blended

5,297,175

5,225,895

1.4%

5,458,637

-3.0%

 

5,375,526

5,120,872

5.0%

   Average net loans, GEL

1,495,886

1,564,867

-4.4%

1,489,518

0.4%

 

1,493,367

1,551,550

-3.7%

   Average net loans, FC

3,801,289

3,661,028

3.8%

3,969,119

-4.2%

 

3,882,159

3,569,322

8.8%

Average client deposits, currency blended

4,818,865

4,313,076

11.7%

5,018,669

-4.0%

 

4,912,529

4,165,386

17.9%

  Average client deposits, GEL

1,262,461

1,216,653

3.8%

1,195,744

5.6%

 

1,245,576

1,213,267

2.7%

  Average client deposits, FC

3,556,404

3,096,423

14.9%

3,822,925

-7.0%

 

3,666,953

2,952,119

24.2%

Average liquid assets, currency blended

2,816,533

2,588,219

8.8%

2,950,858

-4.6%

 

2,884,744

2,349,573

22.8%

  Average liquid assets, GEL

1,127,479

1,173,577

-3.9%

1,127,353

0.0%

 

1,138,243

1,122,092

1.4%

  Average liquid assets, FC

1,689,054

1,414,642

19.4%

1,823,505

-7.4%

 

1,746,501

1,227,481

42.3%

Excess liquidity (NBG)

625,340

219,562

184.8%

836,569

-25.2%

 

625,340

219,562

184.8%

Liquid assets yield, currency blended

3.3%

3.1%

 

3.1%

 

 

3.2%

3.2%

 

  Liquid assets yield, GEL

7.5%

6.1%

 

7.7%

 

 

7.6%

5.9%

 

  Liquid assets yield, FC

0.5%

0.5%

 

0.3%

 

 

0.4%

0.6%

 

Loan yield, total

14.1%

14.6%

 

14.4%

 

 

14.3%

14.6%

 

  Loan yield, GEL

23.8%

21.6%

 

22.5%

 

 

23.1%

21.5%

 

  Loan yield, FC

10.3%

11.4%

 

11.0%

 

 

10.6%

11.5%

 

Cost of funding, total

4.8%

5.0%

 

5.0%

 

 

4.9%

5.0%

 

  Cost of funding, GEL

7.0%

4.8%

 

6.8%

 

 

6.8%

4.8%

 

  Cost of funding, FC

4.2%

5.0%

 

4.4%

 

 

4.3%

5.0%

 

 

 

 

 

 

 

 

 

§ Our Banking Business recorded quarterly revenue of GEL 184.0mln (up 0.7% y-o-y and down 0.1% q-o-q), ending the half year 2016 with revenue of GEL 368.1mln (up 2.2% y-o-y). Quarterly revenue was primarily driven by an increase in net banking interest income which was offset by a decline in net banking foreign currency gain.

§ Our net banking interest income increased to GEL 129.5mln in 2Q16, up 2.5% y-o-y and down 0.5% q-o-q, with the half year result reaching GEL 259.7mln, up 4.1% y-o-y. The quarterly y-o-y performance was a result of two-fold effect from the increase in banking interest income and the decrease in banking interest expense

-       Our Retail Banking operations, which grew the loan book by 18.1% y-o-y, were the primary driver of our results in banking interest income. This was partially offset by a y-o-y decline in our Corporate Investment Banking loan book (down 5.6% y-o-y) and a decline in both retail and corporate Loan Yields

-       The decrease in our banking interest expense was mainly driven by a lower Cost of Funding for this quarter, offset by an increase in interest bearing liabilities and particularly higher excess liquidity. The Cost of Funding decreased 20bps y-o-y as a result of 40bps and 20bps y-o-y decreases in the Cost of Client Deposits and Cost of Debt Securities Issued, respectively. The lower Cost of Funding effect on our interest expense was partially offset by 3.0% y-o-y growth in our average interest bearing liabilities, mostly as a result of the increased average client deposits and notes (up 11.7% y-o-y), driven primarily by the growth in foreign  currency deposits (up 14.9% y-o-y)

§ Net fee and commission income was down 1.8% y-o-y in 2Q16, to GEL 29.6mln. The decrease was primarily driven by GEL 2.3mln or 44.2% decrease in net commission income from guarantees as a result of the de-concentration efforts of our CIB operations, which decreased large guarantee exposures in the Bank. Excluding the impact of guarantees, net fee and commission income was GEL 26.8mln in 2Q16, up 6.9% y-o-y

§ Net banking foreign currency gain decreased for both reporting periods, reaching GEL 15.5mln in 2Q16 (down 21.5% y-o-y) and GEL 32.9mln in 1H16 (down 15.1% y-o-y). We held our dividend payable in British Pounds and were affected by the devaluation of the Pound. Excluding the effect of this holding, net banking foreign currency gain would have been flat y-o-y

§ Our P&C insurance business, Aldagi, posted strong results. It recorded a gross insurance profit of GEL 6.5mln in 2Q16 (up 87.0% y-o-y and up 21.6% q-o-q). The half year result was GEL 11.8mln (up 34.9% y-o-y). This increase was mainly driven by 4.7% y-o-y growth in net insurance premiums earned, while net insurance claims incurred decreased by 40.7% y-o-y in 2Q16. Aldagi experienced high claims during the same period last year, because of last year's increase in flood related claims in Tbilisi. For P&C insurance segment financials please see page 32

§ Our NIM stood comfortably within our target range of 7.25% - 7.75%. Very high excess liquidity levels (GEL 625.3mln at the end of the second quarter 2016) affected the NIM. During 2015, we purposefully built up excess liquidity for the planned liability management exercise of the Bank's US$ 400.0mln Eurobonds maturing in 2017. We successfully completed the exercise in July 2016 and consequently we intend to reduce the excess liquidity levels at the Bank. Pro-forma NIM1, adjusted for excess liquidity levels, was 8.2% in 2Q16. We expect NIM to improve as a result of our  initiatives:

-       Completion of the liability management exercise at the Bank in July 2016

-       We have focused on sourcing local currency funding and since the start of 2016, we successfully closed two Lari denominated funding transactions with aggregate value of GEL 280mln and maturity of five years. These facilities enable the Bank to provide long term loans in local currency, meeting existing strong demand for such funding

-       We prudently manage our margin, despite pressure on loan yields. We reduced our cost of funding from both institutional sources as well as client deposits (the interest rates on our one-year dollar deposits stand at 3.5%, down from 5% a year ago)

[1] ProForma NIM is a hypothetical Net Interest Margin that would have been achieved, had liquidity amounts of GEL and FC balances in excess of 35% minimum been used to repay respective funding sources at respective costs and giving up respective liquid asset yields in the process

 

 

Operating income before non-recurring items; cost of credit risk; profit for the period

 

 

 

Change

 

Change

 

 

Change

GEL thousands, unless otherwise noted

2Q16

2Q15

y-o-y

1Q16

q-o-q

1H16

1H15

y-o-y

 

 

 

 

 

 

 

 

 

 

 

Salaries and other employee benefits

(40,847)

(38,066)

7.3%

(39,806)

2.6%

(80,653)

(76,672)

5.2%

 

Administrative expenses

(19,051)

(17,899)

6.4%

(20,058)

-5.0%

(39,109)

(35,404)

10.5%

 

Banking depreciation and amortisation

(9,337)

(8,338)

12.0%

(9,138)

2.2%

(18,475)

(16,711)

10.6%

 

 Other operating expenses 

(684)

(941)

-27.3%

(861)

-20.6%

(1,545)

(1,733)

-10.8%

 

 Operating expenses 

(69,919)

(65,244)

7.2%

(69,863)

0.1%

(139,782)

(130,520)

7.1%

 

 Operating income before cost of credit risk 

114,068

117,379

-2.8%

114,272

-0.2%

228,340

229,613

-0.6%

 

 Impairment charge on loans to customers 

(26,819)

(35,105)

-23.6%

(32,218)

-16.8%

(59,036)

(74,033)

-20.3%

 

 Impairment charge on finance lease receivables

(130)

(1,779)

-92.7%

(513)

-74.7%

(643)

(1,899)

-66.1%

 

 Impairment charge on other assets and provisions

(1,202)

(3,880)

-69.0%

(2,281)

-47.3%

(3,483)

(5,604)

-37.8%

 

 Cost of credit risk 

(28,151)

(40,764)

-30.9%

(35,012)

-19.6%

(63,162)

(81,536)

-22.5%

 

 Net operating income before non-recurring items 

85,917

76,615

12.1%

79,260

8.4%

165,178

148,077

11.5%

 

 Net non-recurring items 

(46,350)

(3,409)

NMF

(1,419)

NMF

(47,770)

(5,575)

NMF

 

 Profit before income tax 

39,567

73,206

-46.0%

77,841

-49.2%

117,408

142,502

-17.6%

 

 Income tax expense

35,139

(11,753)

NMF

(8,178)

NMF

26,961

(22,238)

NMF

 

 Profit

74,706

61,453

21.6%

69,663

7.2%

144,369

120,264

20.0%

                   

 

§ Operating expenses increased to GEL 69.9mln in 2Q16 (up 7.2% y-o-y and up 0.1% q-o-q) and to GEL 139.8mln in 1H16 (up 7.1% y-o-y). As a result, operating leverage was negative at 6.4% y-o-y in 2Q16 and 4.9% y-o-y in 1H16, while Cost/Income ratio stood at 38.0% in 2Q16 compared to 35.7% in 2Q15 and 38.0% in 1H16 compared to 36.2% in 1H15. Both 2Q16 and half-year 2016 operating expenses were driven by:

-       Salaries and employee benefits that increased by GEL 2.8mln or 7.3% y-o-y and GEL 1.0mln or 2.6% q-o-q, while for the half year 2016 salaries and employee benefits increased by GEL 4.0mln or 5.2% y-o-y. The increase mainly reflects the organic growth of our Banking Business

-       Quarterly administrative expenses increased to GEL 19.1mln, up GEL 1.2mln or 6.4% y-o-y, mainly reflecting larger scale marketing expenses on Solo, compared with the same period last year. On q-o-q basis, administrative expenses have decreased by GEL 1.0mln or 5.0%. Depreciation and amortisation expenses have also increased to GEL 9.3mln, up 12.0% y-o-y, mainly reflecting investments in Solo Lounges

§ For 2Q16, the Banking Business Cost of Risk ratio stood at 2.0%, down 70bps y-o-y and down 30bps q-o-q. The cost of credit risk was GEL 28.2mln, down 30.9% y-o-y and down 19.6% q-o-q. The significant improvement compared to last year is driven by an improved performance in both, Corporate Investment Banking and Retail Banking Cost of Risk on y-o-y as well as q-o-q basis. For the half year 2016, the Banking Business Cost of Risk ratio stood at 2.1% (2.9% in 1H15) and the cost of credit risk was GEL 63.2mln (GEL 81.5mln in 1H15)

§ NPLs to gross loans were 4.4% as of 30 June 2016, up 30 bps y-o-y and down 10 bps q-o-q. Our retail banking NPLs to gross loans improved to 1.5%, compared to 1.6% as of 31 March 2016 and 1.8% a year ago. CIB NPLs to gross loans were 7.6%, compared to 7.4% as of 31 March 2016 and 6.4% a year ago. In CIB, the increasing trend of NPLs stabilised and NPLs were flat q-o-q, while the loan book decreased, thus leading to the q-o-q increase in NPLs to gross loans

§ NPLs were GEL 251.4mln, up 14.7% y-o-y and down 0.2% q-o-q. The y-o-y increase reflects the growth in net loan book together with the local currency volatility against the US Dollar which affected some of our clients

§ The NPL coverage ratio stood at 85.8% as of 30 June 2016, an improvement compared to 82.2% as of 30 June 2015 and relatively stable compared to 86.0% as of 31 March 2016. Our NPL coverage ratio adjusted for the discounted value of collateral also improved to 129.7% as of 30 June 2016, compared to 115.1% as of 30 June 2015 and 122.6% as of 31 March 2016

§ Our 15 days past due rate for retail loans stood at 1.2% as of 30 June 2016 compared to 1.4% as of 30 June 2015 and 1.1% as of 31 March 2016. 15 days past due rate for our mortgage loans stood at 0.6% as of 30 June 2016 compared to 0.8% as of 30 June 2015 and 0.6% as of 31 March 2016

§ As a result of the foregoing, the Banking Business reported profit of GEL 74.7mln in 2Q16 (up 21.6% y-o-y and up 7.2% q-o-q) and GEL 144.4mln in 1H16 (up 20.0% y-o-y). This resulted in outstanding ROAE of 22.5% in 2Q16 (up 320bps y-o-y and up 130bps q-o-q) and of 21.7% in 1H16 (up 240bps y-o-y) 

§ The Banking Business profit was supported by its banking subsidiary in Belarus - BNB, which contributed GEL 3.7mln profit1 in 2Q16 (up 120.3% y-o-y) and GEL 7.9mln in 1H16 (up 58.5% y-o-y); The BNB loan book reached GEL 310.5mln, up 1.5% y-o-y, mostly consisting of an increase in SME loans. BNB client deposits were to GEL 202.4mln, down 16.5% y-o-y. BNB is well capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. For 2Q16, Total CAR was 16.4%, above 10% minimum requirement by the National Bank of the Republic of Belarus ("NBRB") and Tier I CAR was 10.4%, above the 6% minimum requirement by NBRB. Return on Average Equity ("ROAE") for BNB was 19.6% (22.9% in 1Q16), ending the half year with ROAE of 21.4% compared to 13.5% for the same period last year. For BNB standalone financial highlights, please see page 32

[1] BNB profit is adjusted for the deferred tax adjustment attributable to BNB. Before this adjustment, BNB profit was GEL 0.2mln and GEL 4.4mln in 2Q16 and 1H16, respectively.

Banking Business Balance Sheet highlights

 

 

 

 

Change

 

Change

GEL thousands, unless otherwise noted 

30-Jun-16

30-Jun-16

y-o-y

31-Mar-16

q-o-q

 

 

 

 

 

 

Liquid assets

2,887,978

2,726,749

5.9%

2,876,357

0.4%

Liquid assets, GEL

1,182,105

1,257,220

-6.0%

1,050,741

12.5%

Liquid assets, FC

1,705,873

1,469,529

16.1%

1,825,616

-6.6%

Net loans

5,507,414

5,142,221

7.1%

5,394,565

2.1%

Net loans, GEL

1,523,671

1,546,104

-1.5%

1,488,050

2.4%

Net loans, FC

3,983,743

3,596,117

10.8%

3,906,515

2.0%

Client deposits and notes

4,791,979

4,212,822

13.7%

4,962,432

-3.4%

Amounts due to credit institutions, of which:

1,766,999

2,045,093

-13.6%

1,630,299

8.4%

 Borrowings from DFIs

957,227

807,809

18.5%

926,210

3.3%

 Short-term loans from central banks

278,500

674,701

-58.7%

368,000

-24.3%

 Loans and deposits from commercial banks

531,272

562,583

-5.6%

336,089

58.1%

 Debt securities issued 

990,370

990,257

0.0%

957,474

3.4%

Liquidity and CAR Ratios

 

 

 

 

 

Net Loans / Customer Funds

114.9%

122.1%

 

108.7%

 

Net Loans / Customer Funds + DFIs

95.8%

102.4%

 

91.6%

 

Liquid assets as percent of total assets

31.5%

31.3%

 

31.9%

 

Liquid assets as percent of total liabilities

37.2%

36.5%

 

37.1%

 

NBG liquidity ratio

43.5%

35.1%

 

47.3%

 

Excess liquidity (NBG)

625,340

219,562

184.8%

836,569

-25.2%

Tier I Capital Adequacy Ratio (NBG Basel 2/3)

10.2%

10.4%

 

10.1%

 

Total Capital Adequacy Ratio (NBG Basel 2/3)

15.5%

15.9%

 

15.8%

 

 

Our Banking Business balance sheet remained very liquid (NBG Liquidity ratio of 43.5%) and well-capitalised (Tier I Capital Adequacy Ratio, NBG Basel 2/3 of 10.2%) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 61.6%)

§ The NBG liquidity ratio stood at 43.5% as of 30 June 2016 compared to 47.3% as of 31 March 2016, against a regulatory minimum requirement of 30.0%

§ Liquid assets increased to GEL 2,888.0mln, up 5.9% y-o-y

§ Additionally, liquid assets as a percentage of total assets increased to 31.5%, up from 31.3% a year ago and liquid assets as a percentage of total liabilities also increased to 37.2%, up from 36.5% a year ago

§ Our share of amounts due to credit institutions to total liabilities decreased y-o-y from 27.4% to 22.7%, with the share of client deposits and notes to total liabilities increasing y-o-y from 56.4% to 61.6%

§ Net Loans to Customer Funds and DFIs ratio, a ratio closely observed by management, stood at 95.8%, up from 91.6% as of 31 March 2016 and down from 102.4% as of 30 June 2015

§ Effective 17 May, 2016, the National Bank of Georgia has changed its minimum reserve requirements, with the goal to incentivise local currency lending. The minimum reserve requirement for local currency has reduced from 10% to 7% and the minimum reserve requirement for foreign currency has increased from 15% to 20%. The impact of this change is not expected to have a material impact on the Group's earnings. Our estimate is that there will be less than 10bps reduction in the banking net interest margin as a result of this change

 

 

Discussion of Segment Results

 

The segment results discussion is presented for Retail Banking (RB), Corporate Investment Banking (CIB), Healthcare Business (GHG) and Real Estate Business (m2 Real Estate)

 

Banking Business Segment Result Discussion

 

Retail Banking (RB)

Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities, encompassing the emerging mass retail segment (through our Express brand), retail mass market segment and SME and micro businesses (through our Bank of Georgia brand), and the mass affluent segment (through our Solo brand).

GEL thousands, unless otherwise noted

2Q16

2Q15

Change

y-o-y

1Q16

Change

q-o-q

 

1H16

1H15

Change

y-o-y

 

 

 

 

 

 

 

 

 

 

Income statement highlights

 

 

 

 

 

 

 

 

 

Net banking interest income 

84,574

79,269

6.7%

82,832

2.1%

 

167,406

154,420

8.4%

Net fee and commission income 

21,742

18,406

18.1%

19,239

13.0%

 

40,981

36,972

10.8%

Net banking foreign currency gain

5,473

4,305

27.1%

3,590

52.5%

 

9,063

8,210

10.4%

Net other banking income

1,035

1,384

-25.2%

711

45.6%

 

1,746

2,347

-25.6%

Revenue 

112,824

103,364

9.2%

106,372

6.1%

 

219,196

201,949

8.5%

Salaries and other employee benefits

(24,325)

(22,416)

8.5%

(23,607)

3.0%

 

(47,932)

(46,012)

4.2%

Administrative expenses

(12,756)

(11,632)

9.7%

(14,521)

-12.2%

 

(27,277)

(23,872)

14.3%

Banking depreciation and amortisation

(7,597)

(6,818)

11.4%

(7,383)

2.9%

 

(14,981)

(13,649)

9.8%

Other operating expenses 

(393)

(496)

-20.8%

(496)

-20.8%

 

(888)

(959)

-7.4%

Operating expenses 

(45,071)

(41,362)

9.0%

(46,007)

-2.0%

 

(91,078)

(84,492)

7.8%

Operating income before cost of credit risk

67,753

62,002

9.3%

60,365

12.2%

 

128,118

117,457

9.1%

Cost of credit risk

(17,543)

(20,662)

-15.1%

(18,184)

-3.5%

 

(35,727)

(37,322)

-4.3%

Net non-recurring items 

(31,819)

(2,875)

NMF

(561)

NMF

 

(32,379)

(3,323)

NMF

Profit before income tax 

18,391

38,465

-52.2%

41,620

-55.8%

 

60,012

76,812

-21.9%

Income tax expense

28,702

(5,900)

NMF

(3,844)

NMF

 

24,858

(11,639)

NMF

Profit

47,093

32,565

44.6%

37,776

24.7%

 

84,870

65,173

30.2%

 

 

 

 

 

 

 

 

 

 

Balance sheet highlights

 

 

 

 

 

 

 

 

 

Net loans, standalone, Currency Blended

3,098,341

2,623,615

18.1%

2,901,189

6.8%

 

3,098,341

2,623,615

18.1%

Net loans, standalone, GEL

1,303,077

1,285,013

1.4%

1,266,966

2.9%

 

1,303,077

1,285,013

1.4%

Net loans, standalone, FC

1,795,264

1,338,602

34.1%

1,634,223

9.9%

 

1,795,264

1,338,602

34.1%

Client deposits, standalone, Currency Blended

1,976,985

1,736,508

13.8%

1,902,042

3.9%

 

1,976,985

1,736,508

13.8%

Client deposits, standalone, GEL

521,986

491,104

6.3%

447,620

16.6%

 

521,986

491,104

6.3%

Client deposits, standalone, FC

1,454,999

1,245,404

16.8%

1,454,422

0.0%

 

1,454,999

1,245,404

16.8%

of which:

 

 

 

 

 

 

 

 

 

Time deposits, standalone, Currency Blended

1,216,762

1,067,316

14.0%

1,205,935

0.9%

 

1,216,762

1,067,316

14.0%

Time deposits, standalone, GEL

211,463

209,735

0.8%

196,668

7.5%

 

211,463

209,735

0.8%

Time deposits, standalone, FC

1,005,299

857,581

17.2%

1,009,267

-0.4%

 

1,005,299

857,581

17.2%

Current accounts and demand deposits, standalone, Currency Blended

760,223

669,192

13.6%

696,107

9.2%

 

760,223

669,192

13.6%

Current accounts and demand deposits, standalone, GEL

310,523

281,369

10.4%

250,952

23.7%

 

310,523

281,369

10.4%

Current accounts and demand deposits, standalone, FC

449,700

387,823

16.0%

445,155

1.0%

 

449,700

387,823

16.0%

 

 

 

 

 

 

 

 

 

 

Key ratios

 

 

 

 

 

 

 

 

 

ROAE Retail Banking

29.2%

21.2%

 

24.3%

 

 

26.6%

21.6%

 

Net interest margin, currency blended

9.1%

9.5%

 

9.2%

 

 

9.2%

9.6%

 

Cost of risk

2.3%

2.8%

 

2.5%

 

 

2.4%

2.6%

 

Cost of funds, currency blended

6.1%

6.1%

 

6.5%

 

 

6.3%

6.0%

 

Loan yield, currency blended

16.9%

17.3%

 

17.4%

 

 

17.2%

17.3%

 

Loan yield, GEL

25.5%

23.6%

 

25.4%

 

 

25.4%

23.3%

 

Loan yield, FC

10.2%

11.2%

 

10.9%

 

 

10.5%

10.0%

 

Cost of deposits, currency blended

3.4%

3.9%

 

3.5%

 

 

3.5%

4.2%

 

Cost of deposits, GEL

4.9%

4.6%

 

4.8%

 

 

4.8%

5.1%

 

Cost of deposits, FC

2.9%

3.6%

 

3.2%

 

 

3.1%

3.7%

 

Cost of time deposits, currency blended

5.0%

5.7%

 

5.1%

 

 

5.1%

5.8%

 

Cost of time deposits, GEL

9.8%

7.9%

 

9.7%

 

 

9.8%

8.7%

 

Cost of time deposits, FC

4.0%

5.0%

 

4.3%

 

 

4.2%

4.9%

 

Current accounts and demand deposits, currency blended

0.9%

1.2%

 

0.9%

 

 

0.9%

1.4%

 

Current accounts and demand deposits, GEL

1.3%

1.4%

 

1.1%

 

 

1.2%

2.0%

 

Current accounts and demand deposits, FC

0.6%

1.1%

 

0.7%

 

 

0.7%

1.0%

 

Cost / income ratio

 

 

39.9%

40.0%

 

43.3%

 

 

41.6%

41.8%

 

                             

 

 

 

 

Performance highlights

 

§ Retail Banking revenue increased to GEL 112.8mln in 2Q16, up 9.2% y-o-y, ending the half year 2016 with revenue of GEL 219.2mln, up 8.5% y-o-y. For both reporting periods, Retail Banking achieved strong revenue growth across all major business lines: growth in net banking interest income (up 6.7% y-o-y in 2Q16 and up 8.4% y-o-y in 1H16), growth in net fee and commission income (up 18.1% y-o-y in 2Q16 and up 10.8% y-o-y in 1H16) and growth in net banking foreign currency gain (up 27.1% y-o-y in 2Q16 and up 10.4% y-o-y in 1H16). 

§ The Retail Banking net loan book reached a record level of GEL 3,098.3mln, up 18.1% y-o-y. We continue to observe a shift in the currency mix in our Retail Banking loan book, with foreign currency denominated loans increasing to 58% of the total retail banking portfolio, from 51% a year ago. Foreign currency denominated loans grew at 34.1% y-o-y to GEL 1,795.3mln compared to local currency loans that grew slightly at 1.4% y-o-y to GEL 1,303.1mln. The trend was also aligned to the changes in our quarterly loan yields, which stood at 10.2% for foreign currency loans (down 100bps y-o-y) and 25.5% for local currency loans (up 190bps y-o-y)

§ The growth was a result of accelerated loan origination delivered across all Retail Banking segments:

-       Consumer loan originations of GEL 244.6mln in 2Q16 and GEL 446.5mln in 1H16 resulted in consumer loans outstanding totaling GEL 709.4mln as of 30 June 2016, up 18.8% y-o-y

-       Micro loan originations of GEL 180.4mln in 2Q16 and GEL 329.8mln in 1H16 resulted in micro loans outstanding totaling GEL 603.7mln as of 30 June 2016, up 14.9% y-o-y

-       SME loan originations of GEL 128.1mln in 2Q16 and GEL 229.6mln in 1H16 resulted in SME loans outstanding totaling GEL 388.8mln as of 30 June 2016, up 28.8% y-o-y

-       Mortgage loans originations of GEL 159.9mln in 2Q16 and GEL 321.7mln in 1H16 resulted in mortgage loans outstanding of GEL 956.5mln as of 30 June 2016, up 30.7% y-o-y

-       Originations of loans disbursed at merchant locations of GEL 52.4mln in 2Q16 and GEL 95.6mln in 1H16 resulted in loans disbursed at merchant locations outstanding of GEL 108.3mln as of 30 June 2016, up 3.1% y-o-y

§ Retail Banking client deposits increased to GEL 1,977.0mln, up 13.8% y-o-y, notwithstanding a 50bps decrease in the cost of deposits. The share of foreign currency denominated deposits increased to 73.6% up from 71.7% a year ago with foreign currency denominated deposits growing at 16.8% y-o-y to GEL 1,455.0mln compared to local currency deposits that grew slightly slower at 6.3% y-o-y to GEL 522.0mln. Cost of deposits in 2Q16 decreased 70bps y-o-y for foreign currency denominated deposits while for local currency denominated deposits it grew by 30bps y-o-y

§ Our express banking franchise, the major driver of fee and commission income, posted 10.8% y-o-y growth in new client acquisition, adding 7,709 Express Banking customers during the second quarter of 2016 and 19,768 clients during first six months of 2016. The growth in client base has triggered a significant increase in the volume of banking transactions, up 28.6% y-o-y. The growth of transactions was achieved largely through more cost-effective remote channels. The strong client growth has supported an organic increase in our Retail Banking net fee and commission income to GEL 21.7mln, up 18.1% y-o-y for 2Q16 with the half year result reaching GEL 41.0mln, up 10.8% y-o-y

§ Our Express Banking continues to deliver strong growth as we continue to develop our mass market Retail Banking strategy:

-       Express Banking franchise has attracted 445,118 previously unbanked emerging mass market customers since its launch over 3 years ago. Express banking added 7,709 clients compared to the previous quarter and 43,365 clients during the twelve month period

-       In order to better serve the different needs of our Express Banking customers, we have expanded our payment services through various distance channels including ATMs, Express Pay Terminals, internet and mobile banking and the provision of simple and clear products and services to our existing customers as well as the emerging bankable population

-       1,431,557 Express Cards have been issued since their launch in September 2012, in essence replacing the pre-paid metro cards which were previously used. Of this, 126,823 Express Cards were issued in 2Q16, up 30.4% y-o-y. As of 30 June 2016, 1,195,380 Express Cards were outstanding, compared to 861,914 cards outstanding as of the same date last year

-       We have increased number of Express Pay terminals to 2,681, from 2,284 a year ago. Express Pay terminals are an alternative to tellers, placed at bank branches as well as various other venues (groceries, shopping malls, bus stops, etc.), and are used for bank transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups

-       In 2Q16, the utilisation of Express Pay terminals increased significantly, with the number of transactions growing to 31.0mln, up 9.6% y-o-y and volume of transactions reaching GEL 742.2mln, up 48.5% y-o-y. For the half year, number of transactions reached 59.8mln, up 10.4% y-o-y and volume of transactions reached GEL 1,405.0mln, up 53.0% y-o-y

-       Increased Point of Sales ("POS") footprint to 7,447 desks and 3,848 contracted merchants as of 30 June 2016, up from 6,539 desks and 3,565 contracted  merchants as of 30 June 2015

-       The number of POS terminals reached 9,044, up 17.9% from 7,668 a year ago

-       The volume of transactions through the Bank's POS terminals grew to GEL 199.0mln in 2Q16, up 12.8% y-o-y. For the half year, volume of transactions reached GEL 375.7mln, up 17.9% y-o-y

-       The number of transactions via Internet banking has increased to 1.4mln in 2Q16, up from 1.1mln a year ago, with volume reaching GEL 327.7mln, up 77.6% y-o-y. For the half year, number of transactions reached 2.7mln, up from 2.2mln a year ago, with volume of transaction reaching GEL 544.6mln, up 59.2% y-o-y

-       The number of transactions via mobile banking almost doubled to 0.6mln in 2Q16, up from 0.4mln a year ago, with volume more than doubling to GEL 57.5mln, up 134.4% y-o-y. For the half year,  number of transactions reached 1.1mln, up from 0.7mln a year ago, with volume reaching GEL 93.4mln, up 96.1% y-o-y

§ Retail Banking NIM was 9.1% in 2Q16, down 40bps y-o-y and down 10bps q-o-q, ending a half year with 9.2%, down 40bps y-o-y

§ Quarterly NIM on a y-o-y basis, was affected by decrease in loan yields, while cost of funds remained flat. Pressure on currency blended loan yields was due to increase in foreign currency lending (The share of foreign currency denominated loans increased to 57.9% of retail loan book, up from 51.0% a year ago), which has lower loan yields compared to local currency loans. On a quarter-over-quarter basis, NIM was nearly flat as a  decrease in the cost of funds largely compensated for the lower loan yields

§ Our focus going forward is to increase lending in local currency, which will be supported by the new lines of longer term local currency funding that we sourced since the beginning of 2016

§ For 2Q16, operating expenses increased to GEL 45.1mln, up 9.0% y-o-y, resulting in a Cost to Income ratio of 39.9% and positive y-o-y operating leverage of 0.2%, which reflects:

-       Salaries and other employee benefits, which increased GEL 1.9mln or 8.5% y-o-y and GEL 0.7mln or 3.0% q-o-q

-       The increase in administrative expenses by GEL 1.1mln or 9.7% y-o-y to GEL 12.8mln but decrease by 12.2% q-o-q from GEL 14.5mln. The y-o-y increase was largely driven by marketing and advertising expenses, which increased by GEL 0.8mln or 65.8%, whilst we had GEL 0.3mln or 279.8% y-o-y increase in personnel training and recruitment

§ For 1H16, operating expenses increased to GEL 91.1mln, up 7.8% y-o-y, resulting in a Cost to Income ratio of 41.6% and positive operating leverage of 0.7 percentage points, which reflects increases in each of Salaries and other employee benefits, Administrative expenses and Depreciation and amortization reflecting the same underlying trends outlined above for 2Q16

§ Since we launched Solo Lifestyle in April 2015, the number of Solo clients has reached 14,896, up 61.1% y-o-y from 9,244 a year ago. We have now launched 10 Solo lounges, of which 7 are located in Tbilisi, the capital city and 3 in major regional cities in Georgia. In 1H16, profit per Solo client was GEL 817, compared to a profit of GEL 46 and GEL 38 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 7.1, compared to 3.6 and 1.5 for Express and mass retail clients. While Solo clients currently represented c.1% of our total retail client base, they contributed 20.1% to our retail loan book, 33.6% to our retail deposits, 9.5% to our net interest income and 10.5% to our net fee and commission income

§ With Solo we target the mass affluent retail segment and aim to build brand loyalty through exclusive experiences offered through the new Solo Lifestyle. In our Solo lounges, Solo clients are offered, at cost, a selection of luxury products and accessories that are currently not available in the country. Solo clients enjoy tailor-made solutions including new financial products such as bonds, which pay a significantly higher yield compared to deposits, and other securities developed by Galt & Taggart, the Group's Investment Banking arm. Through Solo Lifestyle, our Solo clients are given access to exclusive products and the finest lounge-style environment at our Solo lounges and are provided with new lifestyle opportunities, such as exclusive events, offering live concerts with the world known artists and other entertainments exclusively for just solo clientele, as well as handpicked lifestyle products. In 1Q16, two Sting concerts organised by Solo in Tbilisi were the highlight of our exclusive events, where over 4,500 Solo clients had exclusive access to the event, at cost. The event was met with strong demand and was regarded highly by Solo clients - essentially differentiating Solo from other premium banking brands offered on the market and further building brand loyalty

§ The cost of credit risk was GEL 17.5mln (down 15.1% y-o-y) and GEL 35.7mln (down 4.3% y-o-y) for 1Q16 and 1H16, respectively. Cost of Risk ratio was 2.3% in 2Q16 down from 2.8% in 2Q15 and 2.5% in 1Q16, ending the half year with Cost of Risk of 2.4%, down from 2.6% a year ago

§ As a result, Retail Banking profit reached GEL 47.1mln (up 44.6% y-o-y) and GEL 84.9mln (up 30.2% y-o-y) for 2Q16 and 1H16, respectively. Retail Banking continued to deliver an outstanding ROAE of 29.2% in 2Q16 compared to 21.2% in 2Q15 and 24.3% in 1Q16, whilst ROAE for first half of 2016 was 26.6% compared to 21.6% a year ago

§ The number of Retail Banking clients totalled 2.04mln, up 5.5% y-o-y

§ The number of cards totalled 1,946,828, down 0.9% y-o-y

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Investment Banking (CIB)

 

CIB comprises 1) loans and other credit facilities to the country's large corporate clients as well as other legal entities, excluding SME and micro businesses. The services include fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits for corporate and institutional customers. The Corporate Banking Business also includes finance lease facilities provided by the Bank's leasing operations (the Georgian Leasing Company). 2). Wealth Management and the brokerage arm of the Bank, Galt & Taggart. Bank of Georgia Wealth Management provides private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul and Tel Aviv. Galt & Taggart brings under one brand corporate advisory, private equity and brokerage services. In its brokerage business, Galt & Taggart serves regional and international markets, including hard-to-reach frontier economies.

 

GEL thousands, unless otherwise noted

 

2Q16

 

2Q15

Change y-o-y

 

1Q16

Change q-o-q

 

1H16

1H15

Change y-o-y

Income statement highlights

 

 

 

 

 

 

 

 

 

 Net banking interest income 

35,233

39,266

-10.3%

38,250

-7.9%

 

73,483

78,858

-6.8%

 Net fee and commission income 

6,129

9,150

-33.0%

7,020

-12.7%

 

13,150

16,492

-20.3%

 Net banking foreign currency gain

8,921

10,104

-11.7%

11,368

-21.5%

 

20,289

19,606

3.5%

 Net other banking income

1,822

1,827

-0.3%

2,587

-29.6%

 

4,408

3,335

32.2%

 Revenue 

52,105

60,347

-13.7%

59,225

-12.0%

 

111,330

118,291

-5.9%

 Salaries and other employee benefits

(11,357)

(11,148)

1.9%

(11,155)

1.8%

 

(22,512)

(21,209)

6.1%

 Administrative expenses

(3,692)

(4,357)

-15.3%

(3,355)

10.0%

 

(7,047)

(7,243)

-2.7%

 Banking depreciation and amortisation

(1,304)

(1,069)

22.0%

(1,272)

2.5%

 

(2,576)

(2,176)

18.4%

 Other operating expenses 

(226)

(228)

-0.9%

(231)

-2.2%

 

(457)

(474)

-3.6%

 Operating expenses 

(16,579)

(16,802)

-1.3%

(16,013)

3.5%

 

(32,592)

(31,102)

4.8%

 Operating income before cost of credit risk

35,526

43,545

-18.4%

43,212

-17.8%

 

78,738

87,189

-9.7%

 Cost of credit risk 

(9,347)

(14,247)

-34.4%

(14,138)

-33.9%

 

(23,486)

(33,618)

-30.1%

 Net non-recurring items 

(14,538)

(216)

NMF

(856)

NMF

 

(15,393)

(837)

NMF

 Profit before income tax 

11,641

29,082

-60.0%

28,218

-58.7%

 

39,859

52,734

-24.4%

 Income tax expense

12,809

(4,485)

NMF

(2,687)

NMF

 

10,121

(8,678)

NMF

Profit

24,450

24,597

-0.6%

25,531

-4.2%

 

49,980

44,056

13.4%

 

 

 

 

 

 

 

 

 

 

Balance sheet highlights

 

 

 

 

 

 

 

 

 

Letters of credit and guarantees, standalone1

560,029

542,463

3.2%

541,567

3.4%

 

560,029

542,463

3.2%

Net loans, standalone, currency blended

2,065,566

2,188,331

-5.6%

2,144,299

-3.7%

 

2,065,566

2,188,331

-5.6%

Net loans, standalone, GEL

219,465

255,241

-14.0%

220,295

-0.4%

 

219,465

255,241

-14.0%

Net loans, standalone, FC

1,846,101

1,933,090

-4.5%

1,924,004

-4.0%

 

1,846,101

1,933,090

-4.5%

Client deposits, standalone, currency blended

2,602,018

2,276,702

14.3%

2,868,846

-9.3%

 

2,602,018

2,276,702

14.3%

Client deposits, standalone, GEL

754,096

721,966

4.5%

797,875

-5.5%

 

754,096

721,966

4.5%

Client deposits, standalone, FC

1,847,922

1,554,736

18.9%

2,070,971

-10.8%

 

1,847,922

1,554,736

18.9%

of which:

 

 

 

 

 

 

 

 

 

Time deposits, standalone, currency blended

1,041,041

1,144,384

-9.0%

1,200,565

-13.3%

 

1,041,041

1,144,384

-9.0%

Time deposits, standalone, GEL

161,612

321,937

-49.8%

165,311

-2.2%

 

161,612

321,937

-49.8%

Time deposits, standalone, FC

879,429

822,447

6.9%

1,035,254

-15.1%

 

879,429

822,447

6.9%

Current accounts and demand deposits, standalone, currency blended

1,560,977

1,132,318

37.9%

1,668,281

-6.4%

 

1,560,977

1,132,318

37.9%

Current accounts and demand deposits, standalone, GEL

592,484

400,029

48.1%

632,564

-6.3%

 

592,484

400,029

48.1%

Current accounts and demand deposits, standalone, FC

968,493

732,289

32.3%

1,035,717

-6.5%

 

968,493

732,289

32.3%

Assets under management

1,301,353

1,231,406

5.7%

1,343,821

-3.2%

 

1,301,353

1,231,406

5.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios

 

 

 

 

 

 

 

 

 

ROAE, Corporate Investment Banking

17.2%

18.4%

 

17.6%

 

 

17.4%

16.7%

 

Net interest margin, currency blended

3.7%

3.9%

 

3.7%

 

 

3.7%

4.1%

 

Cost of risk

1.5%

1.8%

 

2.1%

 

 

1.8%

2.6%

 

Cost of funds, currency blended

4.6%

4.6%

 

4.4%

 

 

4.5%

4.6%

 

Loan yield, currency blended

10.0%

12.1%

 

10.3%

 

 

10.2%

12.0%

 

Loan yield, GEL

14.3%

12.9%

 

13.1%

 

 

13.7%

12.2%

 

Loan yield, FC

9.6%

10.4%

 

10.2%

 

 

9.9%

10.6%

 

Cost of deposits, currency blended

4.2%

3.9%

 

4.5%

 

 

4.4%

3.9%

 

Cost of deposits, GEL

7.1%

4.4%

 

8.0%

 

 

7.5%

4.1%

 

Cost of deposits, FC

3.0%

3.7%

 

3.1%

 

 

3.1%

3.8%

 

Cost of time deposits, currency blended

5.9%

6.2%

 

6.0%

 

 

6.0%

6.3%

 

Cost of time deposits, GEL

9.8%

8.0%

 

9.6%

 

 

9.7%

7.3%

 

Cost of time deposits, FC

5.2%

5.7%

 

5.3%

 

 

5.3%

6.0%

 

Current accounts and demand deposits, currency blended

3.1%

1.5%

 

3.4%

 

 

3.2%

1.4%

 

Current accounts and demand deposits, GEL

6.4%

2.4%

 

7.5%

 

 

6.9%

2.0%

 

Current accounts and demand deposits, FC

0.8%

1.1%

 

0.8%

 

 

0.8%

1.1%

 

Cost / income ratio

31.8%

27.8%

 

27.0%

 

 

29.3%

26.3%

 

Concentration of top ten clients

11.3%

12.1%

 

12.7%

 

 

13.3%

13.4%

 

 

1Off-balance sheet item

 

Performance highlights

 

§ A key focus of Corporate Investment Banking business is to increase ROAE and we plan to do this by de-concentrating our loan book and decreasing the cost of risk, while focusing on further building our fee business through the investment management and the trade finance franchise, which we believe is the strongest in the region

-       CIB is successfully following a de-concentration strategy, reducing the concentration of our top 10 Corporate Investment Banking clients to 11.3% by the end of 2Q16, down from 13.3% a year ago

-       Cost of credit risk decreased to GEL 9.3mln (down 34.4% y-o-y) and GEL 23.5mln (down 30.1% y-o-y) for 2Q16 and 1H16, respectively

-       Cost of Risk also decreased to 1.5%, down 30 bps y-o-y and down 60 bps q-o-q, ending the half year 2016 with Cost of Risk of 1.8%, down 80 bps y-o-y

-       CIB net fee and commission income represented GEL 13.2mln or 11.8% of total CIB revenue in 1H16 compared to GEL 16.5mln or 13.9% a year ago. The decline was mainly driven by the decrease in commission fee income from guarantees (income from guarantees was GEL 6.4mln in 1H16, down by GEL 2.2mln or 25.6% y-o-y), which is a result of our de-concentration efforts as we reduced our large guarantee exposures (as mentioned in Banking business discussion above). Excluding guarantees, our CIB fee and commission income was GEL 6.8mln in 1H16 (down 14.5% y-o-y) and GEL 3.3mln in 2Q16 (down 5.9% q-o-q and down 19.0% y-o-y)

-       As a result of the foregoing, CIB ROAE has improved, reaching 17.4% for the half year 2016, a significant increase compared to 16.7% a year ago

§ Corporate Investment Banking revenue was GEL 52.1mln in 2Q16, down 13.7% y-o-y and down 12.0% q-o-q, resulting in a half year 2016 revenue of GEL 111.3mln, down 5.9% y-o-y. The decline in revenue was affected by all major revenue lines

§ The decline in net banking interest income was due to the reduction in the CIB net loan book to GEL 2,065.6mln, down 5.6% y-o-y and down 3.7% q-o-q, coupled with the decline in CIB Loan Yields driven primarily by the competition

§ The strong increase in CIB client deposit and notes to GEL 2,602.0, up 14.3% y-o-y, coupled with the increase in cost of deposits further affected CIB net banking interest income. Both local and foreign currency denominated deposits increased y-o-y. Growth in foreign currency denominated deposits was notably stronger, at 18.9% y-o-y in spite of a decrease in deposit rates to 3.5% during first half of the 2016 from 5% before. Local currency denominated deposits increased 4.5% y-o-y on the back of an increase in local currency deposit rates to 9.0%. The increase was done intentionally to source local currency funding from our CIB clients to support local currency lending. However, the q-o-q trend was reversed in client deposits as well as the cost of deposits, reflecting the alternative source of local currency funding through the Development Financial Institutions. Local currency deposit rates are expected to decline in the coming months along with the reduction in the NBG policy rate

§ Our current account balances have increased significantly y-o-y during 2Q16 and 1H16, reflecting our focused efforts on maintaining high liquidity levels, particularly in local currency, increasing the share of current accounts and demand deposits in total CIB client deposits to 60.0% in 2Q16, up from 49.7% a year ago. This is also reflected in an increased cost of current accounts and demand deposits to 3.1% in 2Q16, up from 1.5% a year ago. The increase was predominantly driven by the increase in cost of local currency denominated current accounts and demand deposits to 6.4% in 2Q16, up from 2.4% a year ago, while cost on foreign currency denominated current accounts and demand deposits decreased somewhat by 30bps y-o-y. As a result, at the end of first half of 2016, total current accounts and demand deposits reached GEL 1,561.0mln, up 37.9% y-o-y, of which local currency denominated current accounts and demand deposits were GEL 592.5mln, up 48.1% y-o-y and foreign currency denominated, mostly US$, current accounts and demand deposits were GEL 968.5mln, up 32.3% y-o-y

§ Corporate Investment banking recorded a NIM of 3.7% in 2Q16, down 20bps y-o-y and flat q-o-q, ending a half year with NIM of 3.7%, down 40 bps y-o-y. The NIM reflected: 1) decreasing Loan Yield, which was down 210bps y-o-y to 10.0% in 2Q16 and down 180 bps y-o-y to 10.2% in 1H16 2) Cost of Funding, which was flat y-o-y at 4.6% in 2Q16, and slightly lower at 4.5% in 1H16, down 10bps y-o-y 3) the higher local currency policy rate of the National Bank of Georgia that increased gradually to 8.0% at the year end 2015, up from 4.0% at the end of 2014, and which in August 2016 stands at 6.75%. On q-o-q basis, NIM was flat, on the back of the broadly stable Loan Yield (10.0% in 2Q16 compared to 10.3% in 1Q16) and a slightly higher cost of funding, which stood at 4.6% in 2Q16 compared to 4.4% in 1Q16

§ Our net banking foreign currency gain was affected by the abovementioned holdings in British Pound for dividends payable, which were settled in July 2016. Underlying performance of foreign currency operations was strong, with volume of transactions at GEL 3.1bln in 1H16, down 3.8% y-o-y. As a result, we recorded a net banking foreign currency gain of GEL 8.9mln in 2Q16, down 11.7% y-o-y and GEL 20.3mln for 1H16, up 3.5% y-o-y

§ Net other banking income was GEL 1.8mln, flat y-o-y in 2Q15, with the half yearly result of GEL 4.4mln, up 32.2% y-o-y from GEL 3.3mln a year ago

§ In 2Q16, Corporate Investment Banking operating expenses were GEL 16.6mln, down 1.3% y-o-y, but not enough to prevent an increase in the Cost to Income ratio of 31.8% and negative y-o-y operating leverage of 12.4 percentage points. For the first half, the Cost to Income ratio was 29.3% and negative operating leverage was 10.7 percentage points. Administrative expenses declined by 15.3% y-o-y in 2Q16 and by 2.7% y-o-y in 1H16. Salaries and other employee benefits in 2Q16 are up  1.9% y-o-y and in 1H16 are up 6.1% y-o-y

§ As a result, Corporate Investment Banking profit reached GEL 24.5mln in 2Q16, down 0.6% y-o-y from GEL 24.6mln in 2Q15 with half year result of GEL 50.0mln, up 13.4% y-o-y from GEL 44.1mln a year ago

Performance highlights of wealth management operations

§ The AUM of the Investment Management segment increased to GEL 1,301.4mln, up 5.7% y-o-y. This includes Wealth Management clients' deposits and assets held at Bank of Georgia Custody, Galt & Taggart brokerage client assets and Aldagi pension scheme assets

§ Wealth Management deposits increased to GEL 964.6mln, up 6.6% y-o-y, growing at a compound annual growth rate (CAGR) of 25.9% over the last five year period. The growth was achieved despite a 90 bps decline in the Cost of Client deposits to 4.4% in 2Q16 and impact of Wealth Management clients switching from deposits to bonds, as a number of bond issuances, yielding higher rates than deposits by Galt & Taggart were offered to Wealth Management clients

§ We served 1,377 wealth management clients from 68 countries as of 30 June 2016

§ Galt & Taggart is successfully developing local capital markets:

-       Galt & Taggart served as the sole book runner and the placement agent for the US$5mln bond offering, for Nikora Trade LLC, a leading Georgian FMCG (Fast Moving Consumer Goods) company, which successfully completed its first ever bond offering on March 18, 2016. It is planned that the bonds will be listed on the Georgian Stock Exchange in the near future

-     In February 2016, Galt & Taggart Research issued a comprehensive report on the Georgian healthcare sector and continues to provide weekly economic (including economies of Georgia and Azerbaijan) and sectoral coverage. Galt & Taggart reports are available at  www.galtandtaggart.comOther research since Galt & Taggart's launch in 2012 included coverage of/notes on the Georgian retail and office real estate market; the Georgian wine, agricultural, electricity and tourism sectors; fixed income issuances, including Georgian Oil and Gas Corporation, Georgian Railway; and the Georgian State Budget

§ Galt & Taggart was named the best regional securities brokerage - Georgia 2016 by Capital Finance International. This serves as recognition of Galt & Taggart as the leading brokerage house in the region, whilst it strives to provide broker-dealer services not only for international markets, but also for hard-to-reach frontier economies.

 

 

 

 

 

Investment Business Segment Result Discussion

 

Healthcare business (Georgia Healthcare Group - GHG)

 

Standalone results

For the purposes of the results discussion below, healthcare business refers to the Group's pure-play healthcare businesses, Georgia Healthcare Group (GHG), which includes healthcare services, pharma business and medical insurance. BGEO Group owns 65% of GHG, with the balance of the shares being held by the public (largely institutional investors). GHG's results are fully consolidated in BGEO Group's results. GHG's shares are listed on the London Stock Exchange. The results below refer to GHG standalone numbers and are based on GHG's reported results, which are published independently and available on GHG's web-site: www.ghg.com.ge

 

 

 

Income Statement

 

GEL thousands; unless otherwise noted

2Q16

2Q15

Change,

Y-o-Y

1Q16

Change, Q-o-Q

1H16

1H15

Change, Y-o-Y

 

 

 

 

 

 

 

 

 

Revenue, gross

101,673

57,472

76.9%

72,576

40.1%

174,249

112,046

55.5%

Corrections & rebates

(724)

(885)

-18.2%

(410)

76.6%

(1,134)

(1,842)

-38.4%

Revenue, net

100,949

56,587

78.4%

72,166

39.9%

173,115

110,204

57.1%

Revenue from healthcare services

58,056

44,789

29.6%

60,041

-3.3%

118,097

86,577

36.4%

Revenue from pharma

30,691

-

-

-

-

30,691

-

-

Net insurance premiums earned

15,298

14,123

8.3%

13,830

10.6%

29,128

27,514

5.9%

Eliminations

(3,095)

(2,325)

33.1%

(1,705)

81.5%

(4,800)

(4,187)

14.6%

Costs of services

(67,395)

(33,721)

99.9%

(44,151)

52.6%

(111,546)

(67,759)

64.6%

Cost of healthcare services

(31,399)

(24,189)

29.8%

(32,998)

-4.8%

(64,397)

(48,462)

32.9%

Cost of pharma

(25,059)

-

-

-

-

(25,059)

-

-

Cost of insurance services

(13,989)

(11,785)

18.7%

(12,847)

8.9%

(26,836)

(23,021)

16.6%

Eliminations

3,052

2,253

35.5%

1,694

80.2%

4,746

4,024

17.9%

Gross profit

33,554

22,866

46.7%

28,015

19.8%

61,569

42,445

45.1%

Salaries and other employee benefits

(9,229)

(6,343)

45.5%

(6,923)

33.3%

(16,152)

(12,602)

28.2%

General and administrative expenses

(6,758)

(2,551)

164.9%

(3,202)

111.1%

(9,960)

(4,950)

101.2%

Impairment of healthcare services, insurance premiums and other receivables

(1,236)

(912)

35.5%

(980)

26.1%

(2,216)

(1,846)

20.0%

Other operating income

551

416

32.5%

219

151.6%

770

541

42.3%

EBITDA

16,882

13,476

25.3%

17,129

-1.4%

34,011

23,588

44.2%

Depreciation and amortization

(4,581)

(2,567)

78.5%

(4,465)

2.6%

(9,046)

(4,889)

85.0%

Net interest income (expense)

(3,469)

(6,017)

-42.3%

(1,656)

109.5%

(5,125)

(10,118)

-49.3%

Net gains/(losses) from foreign currencies

(1,964)

2,045

NMF

(260)

655.4%

(2,224)

5,449

NMF

Net non-recurring income/(expense)

(586)

(556)

NMF

(230)

154.8%

(816)

(767)

NMF

Profit before income tax expense

6,282

6,381

-1.6%

10,518

-40.3%

16,800

13,263

26.7%

Income tax benefit/(expense)

26,920

660

NMF

1,505

1688.7%

28,425

53

NMF

of which: Deferred tax adjustments

27,113

-

-

2,198

-

29,311

-

-

Profit for the period

33,202

7,041

371.6%

12,023

176.2%

45,225

13,316

239.6%

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

  - shareholders of the Company

27,755

6,122

353.4%

9,921

179.8%

37,676

11,854

217.8%

  - non-controlling interests

5,447

919

492.7%

2,102

159.1%

7,549

1,462

416.3%

of which: Deferred tax adjustments

4,705

-

-

352

-

5,057

-

-

 

For detailed income statement by healthcare services and medical insurance business, please see page 30 and 32

 

 

§ GHG delivered record quarterly revenue of GEL 101.7mln, up 76.9% y-o-y and up 40.1% q-o-q. Growth was driven by healthcare services revenue, up 29.6% y-o-y (with strong organic growth of 13.0% y-o-y for the half year) and pharma business consolidation since its acquisition in May 2016. In 2Q16, GHG revenue breakdown is as follows: healthcare services business revenue accounted for more than 55%, pharma business revenue accounted for c.30% and medical insurance business revenue accounted for c.15%. GHG started consolidation of the newly acquired pharma business in May 2016

§ GHG entered the pharma business as a result of the GPC acquisition in May 2016 and its results of operations include GPC results since May 2016. Since the completion of the acquisition, GHG has rolled out a number of initiatives, as announced during the acquisition, which are having a positive effect on the pharma business and are partially reflected in July 2016 results, with retail gross margin climbing to 22.0% for July, up from 19.6% in the consolidated two months results. GHG management expects that the effects of integration will be reflected in the results of second half of 2016

§ Cost of services reached GEL 67.4mln, up 99.9% y-o-y and 52.6% q-o-q. The cost of healthcare services grew in line with revenues (up 29.8% y-o-y and down 4.8% q-o-q, compared with the change in revenues of up 29.6% y-o-y and down 3.3% q-o-q). The 18.7% growth in cost of insurance services, outpaced the 8.3% growth in respective revenue y-o-y; nevertheless, the q-o-q trend was favourable, with the cost of insurance services growing at 8.9% compared to 10.6% growth in respective revenue

§ As a result, we reported quarterly EBITDA of GEL 16.9mln, up 25.3% y-o-y and down 1.4% q-o-q. The y-o-y growth was primarily driven by the healthcare services business which grew its EBITDA by 35.4%

§ Subsequently, GHG's profit for the period amounted to GEL 33.2mln, up 371.6% y-o-y and up 176.2% q-o-q. The healthcare services business was the sole driver of the 2Q16 Group profit, with GEL 35.3mln profit for 2Q16 (up 414.6% y-o-y and up 190.8% q-o-q), which was partially offset by loss of GEL 0.4mln and GEL 1.7mln, recorded by the pharma and medical insurance businesses, respectively. Group profit, adjusted for the impact of deferred tax (see the explanation in the bullet point preceding "Banking Business highlights " on page 4) and one-off foreign currency translation loss adjustments, was GEL 8.1mln in 2Q16 (up 61.2% y-o-y and down 20.1% q-o-q) and GEL 18.1mln for 1H16 (up 130.6% y-o-y)

§ GHG's revenue cash conversion ratio, on a consolidated basis, equalled 91.6% in 1H16 compared to 88.9% in 1H15. This translated into an EBITDA cash conversion ratio of 72.9% on a consolidated adjusted basis, in 1H16.

§ The Ministry of Labor, Health and Social Affairs ("MOLHSA") has recently conducted a review of the effectiveness of the existing model of the healthcare financing by the state, which was introduced in 2014 with the current scope. As a result of the review, the government is undertaking several initiatives to improve the effectiveness and efficiency of the existing system. The initiatives that have been announced include: streamlining the licensing requirements for hospitals, particularly around intensive care (the initiative is approved with effect from the beginning of 2017); introducing levelling of hospitals based on the capabilities of each hospital measured by a number of factors, including number of beds, specialised beds to total beds, relevant equipment and personnel, etc. (the initiative is at an advanced stageand expected to become effective also in the beginning of 2017); streamlining pricing and scope of the urgent care services under UHC (enforced). GHG believes that certain of its competitors will struggle to comply with the changes anticipated by these initiatives. GHG, however, is largely already in compliance, primarily as a result of our diversified business model, as well as existing hierarchy of our healthcare facilities. We expect that their net effect will be positive for GHG

§ Renovation of two major hospitals, Sunstone (c.332 beds, scheduled launch in May, 2017) and Deka (c.310 beds, scheduled launch in May, 2017) is ongoing, within schedule and budget

§ GHG is in the process of launching around 50 new services at nine of its referral hospitals. This includes some basic services (like pediatrics, neonatology, diagnostics, ophthalmology, mammography and breast surgery, gynecology, cardio-surgery, traumatology, angio-surgery, intensive care, reproductive services, etc.) as well as sophisticated services (like oncology, transplantation of bone marrow, kidney and liver for children, etc.).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate business (m2 Real Estate)

 

Our Real Estate business is operated through the Group's wholly-owned subsidiary m2 Real Estate, which develops residential property in Georgia. m2 Real Estate outsources the construction and architecture works whilst itself focusing on project management and sales. The Bank's Real Estate business serves to meet the unsatisfied demand in Tbilisi for housing through its well-established branch network and sales force, while stimulating the Bank's mortgage lending business. The business is also planning to begin hotel development in the under-developed mid-price sector in the coming months

 

Income statement

 

GEL thousands, unless otherwise noted

 

2Q16

 

2Q15

Change y-o-y

 

1Q16

Change q-o-q

 

1H16

1H15

Change y-o-y

 

 

 

 

 

 

 

 

 

 

Real estate revenue, of which:

5,964

1,595

273.9%

28,592

-79.1%

 

34,556

5,533

524.5%

     Revenue from sale of apartments

5,323

1,155

NMF

27,992

-81.0%

 

33,315

4,713

NMF

     Income from operating lease

641

440

45.7%

600

6.8%

 

1,241

820

51.3%

Cost of real estate

(3,858)

(1,757)

119.6%

(22,740)

-83.0%

 

(26,598)

(4,622)

NMF

Gross real estate profit 

2,106

(162)

NMF

5,852

-64.0%

 

7,958

911

773.5%

Gross other investment profit 

121

(57)

NMF

1,816

-93.3%

 

1,937

162

NMF

Revenue 

2,227

(219)

NMF

7,668

-71.0%

 

9,895

1,073

822.2%

Salaries and other employee benefits

(433)

(269)

61.0%

(320)

35.3%

 

(753)

(590)

27.6%

Administrative expenses

(1,519)

(1,275)

19.1%

(1,135)

33.8%

 

(2,654)

(2,316)

14.6%

Operating expenses 

(1,952)

(1,544)

26.4%

(1,455)

34.2%

 

(3,407)

(2,906)

17.2%

EBITDA

275

(1,763)

NMF

6,213

-95.6%

 

6,488

(1,833)

NMF

Depreciation and amortization of investment business

(61)

(43)

41.9%

(53)

15.1%

 

(114)

(85)

34.1%

Net foreign currency loss from investment business

697

903

-22.8%

386

80.6%

 

1,083

532

103.6%

Interest income from investment business 

-

221

-100.0%

-

-

 

-

392

-100.0%

Interest expense from investment business

(103)

(227)

-54.6%

(125)

-17.6%

 

(228)

(1,238)

-81.6%

Net operating income before non-recurring items 

808

(909)

NMF

6,421

-87.4%

 

7,229

(2,232)

NMF

Net non-recurring items 

(135)

(67)

101.5%

(23)

NMF

 

(158)

(140)

12.9%

Profit before income tax 

673

(976)

NMF

6,398

-89.5%

 

7,071

(2,372)

NMF

Income tax (expense) benefit

23

147

-84.4%

(960)

NMF

 

(937)

356

NMF

Profit 

696

(829)

NMF

5,438

-87.2%

 

6,134

(2,016)

NMF

 

 

Performance highlights

§ m2 Real Estate continued strong sales and project completion performance in 2Q16, which was reflected in revenue of GEL 2.2mln for 2Q16 and GEL 9.9mln for 1H16. Gross real estate profit, which reflects residential property development and sales operations of m2 Real Estate, increased to GEL 2.1mln in 2Q16, with GEL 8.0mln recorded for half year 2016. m2 Real Estate recorded 2Q16 and 1H16 profit of GEL 0.7mln and GEL 6.1mln, respectively, up from losses a year ago

§  m2 Real Estate gross real estate profit, revenue and profit are by their nature choppy, given both uneven real estate project cycles and the revenue recognition method under current accounting rules (IAS 18) pursuant to which apartment sale revenues are recognized upon handover of the apartment to its clients, following the completion of the projects. m2 Real Estate has accumulated US$ 50.8mln sales, which will be recognised as revenue upon completion of the on-going three projects discussed below in 2016-2018 (of which c. US$ 27.0mln is expected to be recognised in 2016)

§ m2 Real Estate sold a total of 104 apartments with a sales value of US$ 8.8mln in 2Q16, compared to 30 apartments sold with a sales value of US$ 2.8mln in 2Q15. Overall, during the first half of 2016, m2 Real Estate sold a total of 157 apartments with the sales value of US$ 14.3mln, compared to 79 apartments sold with sales value of US$ 7.6mln during the same period last year. At its six projects which have already been completed with a total of 1,672 apartments, m2 Real Estate currently has a stock of only 155 apartments unsold. At its three on-going  projects  with a total capacity of 1,140 apartments, 281 apartments or 25% are already sold

§ m2 Real Estate has started nine projects since its establishment in 2010, of which six have already been completed, and construction of three is on-going. m2 Real Estate has completed all of its projects on or ahead of time and within budget. One of the on-going projects is expected to be completed in 2016 and the other two in 2018. Currently, total of 1,014 units are available for sale out of total of 2,812 apartments developed or under development. m2 Real Estate has unlocked total land value of US$ 16.4mln from the six completed projects and an additional US$ 13.2mln in land value is expected to be unlocked from the three on-going projects.

§ Of the three m2 Real Estate projects, one is the largest ever carried out by m2 Real Estate, with a total of 819 apartments in a central location in Tbilisi. The second is a new type of project for m2 Real Estate, representing a luxury residential building in Old Tbilisi neighbourhood with few apartments (19 in total) and a relatively high price. The third is the latest project by m2 Real Estate, which is a mixed-use development, with 302 residential apartments and a hotel with a capacity of 152 rooms. This mixed-use development started in June 2016, with sales of 24 apartments to date.

 

Operating data for completed and on-going projects, as of 30 June 2016

#

Project name

Total number of apartments

Number of apartments sold

Number of apartments sold as % of total

Number of apartments available for sale

Construction start date

Actual / planned construction completion date

Construction completed %

 

 

 

 

 

 

 

 

 

Completed projects

1,672

1,517

91%

155

 

 

 

 

1

Chubinashvili street

123

123

100%

0

Sep-10

Aug-12

100%

2

Tamarashvili street

525

523

100%

2

May-12

Jun-14

100%

3

Kazbegi Street

295

285

97%

10

Dec-13

Feb-16

100%

4

Nutsubidze Street

221

216

98%

5

Dec-13

Sep-15

100%

5

Tamarashvili Street II

270

205

76%

65

Jul-14

Jun-16

100%

6

Moscow avenue

238

165

69%

73

Sep-14

Jun-16

100%

On-going projects

1,140

281

25%

859

 

 

 

 

7

Kartozia Street

819

247

30%

572

Nov-15

Sep-18

12%

8

Skyline

19

10

53%

9

Dec-15

Dec-16

20%

9

Kazbegi Street II

302

24

8%

278

Jun-16

Nov-18

1%

 Total

2,812

1,798

64%

1,014

 

 

 

 

 

 

Financial data for completed and on-going projects, as of 30 June 2016

#

Project name

Total Sales (US$ mln)

Sales already recognised as revenue

(US$ mln)

Sales to be recognised as revenue

(US$ mln)1

Sales expected to be recognised as revenue during year

Land value unlocked (US$)

Realised & Expected IRR

 

 

 

 

 

 

 

Completed projects

       128.5

        101.5

        27.0

 

         16.4

 

1

Chubinashvili street

  9.9

     9.9

                     -  

 

                0.9

47%

2

Tamarashvili street

             48.4

           48.4

                     -  

 

         5.4

46%

3

Kazbegi Street

       26.2

             25.2

                   1.0

2H 2016

              3.6

165%

4

Nutsubidze Street

             17.1

      16.8

                  0.3

2H 2016

              2.2

58%

5

Tamarashvili Street II

             19.0

               -  

                 19.0

2H 2016

         2.7

71%

6

Moscow avenue

          7.9

               1.2

                  6.7

2H 2016

               1.6

31%

On-going projects

        23.7

            -  

        23.7

 

         13.2

 

7

Kartozia Street

            17.7

                 -  

                 17.7

2018/2019

          5.8

60%

8

Skyline

            4.1

                 -  

                   4.1

2017

               3.1

329%

9

Kazbegi Street II

               1.9

               -  

                   1.9

2018

           4.3

51%

 Total

152.2

101.5

50.7

 

29.6

 

 

 

§ The number of apartments financed with BOG mortgages in all m2 Real Estate projects as of the date of this announcement totalled 880, with an aggregate amount of GEL 100.0mln

§ Additionally, since the beginning of 2016, m2 Real Estate has enhanced the access to funding for its clients, by signing memorandums with TBC Bank and Bank Republic Societe Generale. As a result, these two banks, in addition to BOG, offer mortgages at favourable terms to m2 Real Estate clients

 

 

[1] m2 Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of the project

 

 

 

 

Balance Sheet

 

30-Jun-16

30-Jun-15

Change

31-Mar-16

Change

GEL thousands, unless otherwise noted

 

 

Y-O-Y

 

Q-O-Q

 

 

 

 

 

 

Cash and cash equivalents

42,549

29,314

45.1%

49,059

-13.3%

Investment securities

1,145

1,145

0.0%

1,145

0.0%

Accounts receivable

824

3,378

-75.6%

1,007

-18.2%

Prepayments

18,741

10,896

72.0%

23,551

-20.4%

Inventories

116,891

98,830

18.3%

95,139

22.9%

Investment property, of which:

107,303

74,300

44.4%

117,722

-8.9%

       Land bank

71,489

52,584

36.0%

81,888

-12.7%

       Commercial real estate

35,814

21,716

64.9%

35,834

-0.1%

Property and equipment

1,633

1,830

-10.8%

1,569

4.1%

Other assets

19,751

14,373

37.4%

12,678

55.8%

Total assets

308,837

234,066

31.9%

301,870

2.3%

 

 

 

 

 

 

Amounts due to credit institutions

36,039

4,338

730.8%

37,118

-2.9%

Debt securities issued

47,857

45,879

4.3%

47,380

1.0%

Accruals and deferred income

105,498

102,417

3.0%

96,538

9.3%

Other liabilities

6,677

2,709

168.1%

7,383

-9.6%

Total liabilities

196,658

155,343

26.6%

190,492

3.2%

 

 

 

 

 

 

Additional paid-in capital

6,008

2,990

100.9%

5,077

18.3%

Other reserves

(4,206)

(3,575)

17.7%

(3,575)

17.7%

Retained earnings

110,377

79,308

39.2%

109,876

0.5%

Total equity attributable to shareholders of the Group

112,179

78,723

42.5%

111,378

0.7%

Total equity

112,179

78,723

42.5%

111,378

0.7%

Total liabilities and equity

308,837

234,066

31.9%

301,870

2.3%

 

 

§ m2 Real Estate has a solid and well managed balance sheet. As of 30 June 2016, total assets were GEL 308.8mln (up 31.9% y-o-y), constituting 14% cash, 6% prepayments, 38% inventories (which is apartments in development), 35% investment property (which consists of land bank and commercial real estate) and 7% other assets. Borrowings, which consist of debt raised from Development Financial Institutions ("DFIs") and debt securities issued at the local market, constitute 27% of the total balance sheet. Accruals and deferred income, constituting 34% of the balance sheet, represents prepayments for the presold apartments.

§ m2 Real Estate currently has a land stock on its balance sheet with a total value of GEL 71.5mln. We don't expect the land bank to grow, as m2 Real Estate strategy is to utilise its existing land plots within 3-4 years' time and in parallel, start developing third party lands

 

 

 

 

 

SELECTED FINANCIAL INFORMATION

 

 

BGEO Consolidated

 

Banking Business

 

 

Investment Business

 

Eliminations

INCOME STATEMENT QUARTERLY

2Q16

2Q15

Change

1Q16

Change

 

2Q16

2Q15

Change

1Q16

Change

 

2Q16

2Q15

Change

1Q16

Change

 

2Q16

2Q15

1Q16

GEL thousands, unless otherwise noted

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

Y-O-Y

 

Q-O-Q

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Banking interest income 

215,895

211,869

1.9%

224,810

-4.0%

 

217,234

215,313

0.9%

226,217

-4.0%

 

-

-

-

-

-

 

(1,339)

(3,444)

(1,407)

 Banking interest expense 

(87,368)

(89,080)

-1.9%

(95,958)

-9.0%

 

(87,712)

(88,910)

-1.3%

(95,998)

-8.6%

 

-

-

-

-

-

 

344

(170)

40

 Net banking interest income 

128,527

122,789

4.7%

128,852

-0.3%

 

129,522

126,403

2.5%

130,219

-0.5%

 

-

-

-

-

-

 

(995)

(3,614)

(1,367)

 Fee and commission income 

40,250

38,944

3.4%

38,149

5.5%

 

40,675

40,160

1.3%

38,484

5.7%

 

-

-

-

-

-

 

(425)

(1,216)

(335)

 Fee and commission expense 

(10,907)

(9,823)

11.0%

(10,335)

5.5%

 

(11,036)

(9,988)

10.5%

(10,469)

5.4%

 

-

-

-

-

-

 

129

165

134

 Net fee and commission income 

29,343

29,121

0.8%

27,814

5.5%

 

29,639

30,172

-1.8%

28,015

5.8%

 

-

-

-

-

-

 

(296)

(1,051)

(201)

 Net banking foreign currency gain

15,506

19,765

-21.5%

17,390

-10.8%

 

15,506

19,765

-21.5%

17,390

-10.8%

 

-

-

-

-

-

 

-

-

-

 Net other banking income

2,630

2,481

6.0%

2,867

-8.3%

 

2,824

2,810

0.5%

3,168

-10.9%

 

-

-

-

-

-

 

(194)

(329)

(301)

 Net insurance premiums earned

23,854

22,566

5.7%

21,824

9.3%

 

10,235

9,777

4.7%

9,550

7.2%

 

14,271

13,244

7.8%

12,924

10.4%

 

(652)

(455)

(650)

 Net insurance claims incurred

(15,445)

(16,749)

-7.8%

(15,408)

0.2%

 

(3,739)

(6,304)

-40.7%

(4,207)

-11.1%

 

(11,706)

(10,445)

12.1%

(11,201)

4.5%

 

-

-

-

 Gross insurance profit 

8,409

5,817

44.6%

6,416

31.1%

 

6,496

3,473

87.0%

5,343

21.6%

 

2,565

2,799

-8.4%

1,723

48.9%

 

(652)

(455)

(650)

 Healthcare revenue

55,003

41,217

33.4%

58,348

-5.7%

 

-

-

-

-

-

 

55,003

41,217

33.4%

58,348

-5.7%

 

-

-

-

 Cost of healthcare services

(29,804)

(23,118)

28.9%

(32,057)

-7.0%

 

-

-

-

-

-

 

(29,804)

(23,118)

28.9%

(32,057)

-7.0%

 

-

-

-

 Gross healthcare profit 

25,199

18,099

39.2%

26,291

-4.2%

 

-

-

-

-

-

 

25,199

18,099

39.2%

26,291

-4.2%

 

-

-

-

 Real estate revenue

6,324

1,716

268.5%

28,764

-78.0%

 

-

-

-

-

-

 

6,324

1,716

268.5%

28,764

-78.0%

 

-

-

-

 Cost of real estate

(3,858)

(1,757)

119.6%

(22,740)

-83.0%

 

-

-

-

-

-

 

(3,858)

(1,757)

119.6%

(22,740)

-83.0%

 

-

-

-

 Gross real estate profit 

2,466

(41)

NMF

6,024

-59.1%

 

-

-

-

-

-

 

2,466

(41)

NMF

6,024

-59.1%

 

-

-

-

 Gross other investment profit 

8,437

4,734

78.2%

3,606

134.0%

 

-

-

-

-

-

 

8,443

4,709

79.3%

3,675

129.7%

 

(6)

25

(69)

 Revenue 

220,517

202,765

8.8%

219,260

0.6%

 

183,987

182,623

0.7%

184,135

-0.1%

 

38,673

25,566

51.3%

37,713

2.5%

 

(2,143)

(5,424)

(2,588)

 Salaries and other employee benefits

(50,875)

(45,044)

12.9%

(47,413)

7.3%

 

(40,847)

(38,066)

7.3%

(39,806)

2.6%

 

(10,685)

(7,460)

43.2%

(8,250)

29.5%

 

657

482

643

 Administrative expenses

(27,912)

(22,102)

26.3%

(25,062)

11.4%

 

(19,051)

(17,899)

6.4%

(20,058)

-5.0%

 

(9,216)

(4,498)

104.9%

(5,392)

70.9%

 

355

295

388

 Banking depreciation and amortisation

(9,337)

(8,338)

12.0%

(9,138)

2.2%

 

(9,337)

(8,338)

12.0%

(9,138)

2.2%

 

-

-

-

-

-

 

-

-

-

 Other operating expenses 

(560)

(1,364)

-58.9%

(1,675)

-66.6%

 

(684)

(941)

-27.3%

(861)

-20.6%

 

124

(423)

NMF

(814)

NMF

 

-

-

-

 Operating expenses 

(88,684)

(76,848)

15.4%

(83,288)

6.5%

 

(69,919)

(65,244)

7.2%

(69,863)

0.1%

 

(19,777)

(12,381)

59.7%

(14,456)

36.8%

 

1,012

777

1,031

Operating income before cost of credit risk /              EBITDA

131,833

125,917

4.7%

135,972

-3.0%

 

114,068

117,379

-2.8%

114,272

-0.2%

 

18,896

13,185

43.3%

23,257

-18.8%

 

(1,131)

(4,647)

(1,557)

 Profit from associates

1,952

1,979

-1.4%

1,866

4.6%

 

-

-

-

-

-

 

1,952

1,979

-1.4%

1,866

4.6%

 

-

-

-

Depreciation and amortization of investment business

(4,775)

(2,579)

85.1%

(4,910)

-2.7%

 

-

-

-

-

-

 

(4,775)

(2,579)

85.1%

(4,910)

-2.7%

 

-

-

-

 Net foreign currency gain from investment business

(1,597)

2,689

NMF

(766)

108.5%

 

-

-

-

-

-

 

(1,597)

2,689

NMF

(766)

108.5%

 

-

-

-

 Interest income from investment business 

(283)

622

NMF

956

NMF

 

-

-

-

-

-

 

60

844

-92.9%

964

-93.8%

 

(343)

(222)

(8)

 Interest expense from investment business

(2,497)

(2,632)

-5.1%

(1,382)

80.7%

 

-

-

-

-

-

 

(3,971)

(7,501)

-47.1%

(2,947)

34.7%

 

1,474

4,869

1,565

 Operating income before cost of credit risk 

124,633

125,996

-1.1%

131,736

-5.4%

 

114,068

117,379

-2.8%

114,272

-0.2%

 

10,565

8,617

22.6%

17,464

-39.5%

 

-

-

-

Impairment charge on loans to customers 

(26,819)

(35,105)

-23.6%

(32,218)

-16.8%

 

(26,819)

(35,105)

-23.6%

(32,218)

-16.8%

 

-

-

-

-

-

 

-

-

-

Impairment charge on finance lease receivables

(130)

(1,779)

-92.7%

(513)

-74.7%

 

(130)

(1,779)

-92.7%

(513)

-74.7%

 

-

-

-

-

-

 

-

-

-

Impairment charge on other assets and provisions

(2,438)

(4,983)

-51.1%

(3,412)

-28.5%

 

(1,202)

(3,880)

-69.0%

(2,281)

-47.3%

 

(1,236)

(1,103)

12.1%

(1,131)

9.3%

 

-

-

-

 Cost of credit risk 

(29,387)

(41,867)

-29.8%

(36,143)

-18.7%

 

(28,151)

(40,764)

-30.9%

(35,012)

-19.6%

 

(1,236)

(1,103)

12.1%

(1,131)

9.3%

 

-

-

-

 Net operating income before non-recurring items 

95,246

84,129

13.2%

95,593

-0.4%

 

85,917

76,615

12.1%

79,260

8.4%

 

9,329

7,514

24.2%

16,333

-42.9%

 

-

-

-

 Net non-recurring items 

(48,744)

(413)

NMF

1,366

NMF

 

(46,350)

(3,409)

NMF

(1,419)

NMF

 

(2,394)

2,996

NMF

2,785

NMF

 

-

-

-

 Profit before income tax 

46,502

83,716

-44.5%

96,959

-52.0%

 

39,567

73,206

-46.0%

77,841

-49.2%

 

6,935

10,510

-34.0%

19,118

-63.7%

 

-

-

-

 Income tax expense

64,735

(11,686)

NMF

(9,912)

NMF

 

35,139

(11,753)

NMF

(8,178)

NMF

 

29,596

67

44073.1%

(1,734)

NMF

 

-

-

-

 Profit

111,237

72,030

54.4%

87,047

27.8%

 

74,706

61,453

21.6%

69,663

7.2%

 

36,531

10,577

245.4%

17,384

110.1%

 

-

-

-

 Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of BGEO

94,642

70,601

34.1%

80,836

17.1%

 

73,600

60,963

20.7%

68,620

7.3%

 

21,042

9,638

118.3%

12,216

72.2%

 

-

-

-

- non-controlling interests

16,595

1,429

1061.3%

6,211

167.2%

 

1,106

490

125.7%

1,043

6.0%

 

15,489

939

1549.5%

5,168

199.7%

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share basic and diluted

2.46

1.84

33.7%

2.10

17.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT HALF YEAR

BGEO Consolidated

 

Banking Business

 

Investment Business

 

           Eliminations

 

GEL thousands, unless otherwise noted

Jun-16

Jun-15

Change

 

Jun-16

Jun-15

Change

 

Jun-16

Jun-15

Change

 

Jun-16

Jun-15

Change

 

 

 

Y-O-Y

 

 

 

Y-O-Y

 

 

 

Y-O-Y

 

 

 

Y-O-Y

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Banking interest income 

440,705

411,567

7.1%

 

443,451

417,666

6.2%

 

-

-

-

 

(2,746)

(6,099)

-55.0%

Banking interest expense 

(183,325)

(167,789)

9.3%

 

(183,709)

(168,205)

9.2%

 

-

-

-

 

384

416

-7.7%

 Net banking interest income 

257,380

243,778

5.6%

 

259,742

249,461

4.1%

 

-

-

-

 

(2,362)

(5,683)

-58.4%

Fee and commission income 

78,398

74,935

4.6%

 

79,159

77,503

2.1%

 

-

-

-

 

(761)

(2,568)

-70.4%

Fee and commission expense 

(21,241)

(18,960)

12.0%

 

(21,505)

(19,241)

11.8%

 

-

-

-

 

264

281

-6.0%

 Net fee and commission income 

57,157

55,975

2.1%

 

57,654

58,262

-1.0%

 

-

-

-

 

(497)

(2,287)

-78.3%

Net banking foreign currency gain

32,896

38,727

-15.1%

 

32,896

38,727

-15.1%

 

-

-

-

 

-

-

-

Net other banking income

5,497

4,272

28.7%

 

5,992

4,906

22.1%

 

-

-

-

 

(495)

(634)

-21.9%

Net insurance premiums earned

45,678

44,275

3.2%

 

19,785

19,019

4.0%

 

27,195

26,134

4.1%

 

(1,302)

(878)

48.3%

Net insurance claims incurred

(30,853)

(30,884)

-0.1%

 

(7,947)

(10,242)

-22.4%

 

(22,906)

(20,642)

11.0%

 

-

-

-

 Gross insurance profit 

14,825

13,391

10.7%

 

11,838

8,777

34.9%

 

4,289

5,492

-21.9%

 

(1,302)

(878)

48.3%

 Healthcare revenue

113,351

81,234

39.5%

 

-

-

-

 

113,351

81,234

39.5%

 

-

-

-

 Cost of healthcare services

(61,861)

(46,259)

33.7%

 

-

-

-

 

(61,861)

(46,259)

33.7%

 

-

-

-

 Gross healthcare profit 

51,490

34,975

47.2%

 

-

-

-

 

51,490

34,975

47.2%

 

-

-

-

 Real estate revenue

35,087

5,790

506.0%

 

-

-

-

 

35,087

5,790

506.0%

 

-

-

-

 Cost of real estate

(26,598)

(4,622)

NMF

 

-

-

-

 

(26,598)

(4,622)

NMF

 

-

-

-

 Gross real estate profit 

8,489

1,168

626.8%

 

-

-

-

 

8,489

1,168

626.8%

 

-

-

-

 Gross other investment profit 

12,043

6,133

96.4%

 

-

-

-

 

12,118

6,253

93.8%

 

(75)

(120)

-37.5%

 Revenue 

439,777

398,419

10.4%

 

368,122

360,133

2.2%

 

76,386

47,888

59.5%

 

(4,731)

(9,602)

-50.7%

 Salaries and other employee benefits

(98,288)

(90,786)

8.3%

 

(80,653)

(76,672)

5.2%

 

(18,935)

(14,991)

26.3%

 

1,300

877

48.2%

 Administrative expe