Final Results

Released : 20 Feb 2017 07:00

RNS Number : 2754X
Bgeo Group PLC
20 February 2017
 

 

 

BGEO Group PLC

4th quarter and full year 2016

preliminary results

 

 

 

 

 

 

 

 

 

www.BGEO.com

 

 

Name of authorised official of issuer responsible for making notification:

Ekaterina Shavgulidze, Head of Investor Relations and Funding

 

 

 

 

BGEO Group PLC 4Q 2016 and full year 2016 Results Earnings call

BGEO Group PLC ("BGEO" or the "Group") will publish its financial results for the 4th quarter and full year 2016 at 07:00 London time on Monday, 20 February 2017. The results announcement will be available on BGEO Group's website at www.bgeo.com. An investor/analyst conference call, organised by BGEO Group, will be held on, 20 February 2017, 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: 71520584

International Dial-in: +44 (0) 2071 928000

UK: 08445718892

US: 16315107495

Austria: 019286559

Belgium: 024009874

Czech Republic: 228881424

Denmark: 32728042

Finland: 0942450806

France: 0176700794

Germany: 030221531802

Hungary: 0614088064

Ireland: 014319615

Italy: 0687502026

Luxembourg: 27860515

Netherlands: 0207143545

Norway: 23960264

Spain: 914146280

Sweden: 0850692180

Switzerland: 0315800059

30-Day replay:

Pass code for replays / Conference ID: 71520584

International Dial in: +44 (0)1452550000

UK National Dial In: 08717000145

UK Local Dial In: 08443386600

USA Free Call Dial In: 1 (866) 247-4222

 

 

TABLE OF CONTENTS

 

 

4Q16 and full year 2016 Results Highlights                                                                  4


Chief Executive Officer's Statement                                                                           9


Financial Summary of BGEO                                                                                    11


Discussion of Banking Business Results                                                                     13


Discussion of Segment Results                                                                                  17


Selected Financial and Operating Information                                                              34


Company Information                                                                                                42


 

 

FORWARD LOOKING STATEMENTS

This Announcement contains 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. Although BGEO Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: weakening of global and regional economic conditions; exchange rate fluctuations, including depreciation of the Georgian Lari; deterioration in the quality of our loan book; adverse changes in the financial position or credit worthiness of our customers, obligors and counterparties and developments in the market in which they operate; increase in interest rates; governmental, legislative and regulatory risk; regional tensions; changes in US foreign policy affecting the region; failure to achieve strategic priorities or to meet targets or expectations; competitive pressures;  operational risk; risk of failure of information technology and cybercrime; and other key factors that we have indicated could adversely affect our business and financial performance, which are contained elsewhere in this Announcement and in our past and future filings and reports, including the 'Principal Risks and Uncertainties' included in BGEO Group PLC's 2Q 2016  and 1H16 Results and in BGEO Group PLC's 2015 Annual Report and Accounts. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in BGEO Group PLC or any other entity, and must not be relied upon in any way in connection with any investment decision. BGEO Group PLC undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

 

About BGEO Group

 

The Group: BGEO Group PLC ("BGEO"- LSE: BGEO LN) is a UK incorporated holding company of a Georgia-focused investment platform. BGEO invests, via its subsidiaries, in the banking and non-banking sectors in Georgia (BGEO and its subsidiaries, the "Group"). BGEO aims to deliver on a 4x20 strategy: (1) at least 20% ROAE; (2) at least 20% growth of our Banking Business retail loan book; (3) at least 20% IRR;  and (4) up to 20% of the Group's profit from its Investment Business.

Banking Business: Our Banking Business comprises at least 80% of the Group's profit. JSC Bank of Georgia ("BOG" or the "Bank") is the main entity in the Group's Banking Business. The Banking Business consists of Retail Banking, Corporate Banking and Investment Management businesses at its core and other banking businesses such as P&C Insurance ("Aldagi"), leasing, payment services and banking operations in Belarus ("BNB"). The Group strives to benefit from the underpenetrated banking sector in Georgia especially through its Retail Banking services.

Investment Business: Our Investment Business comprises up to 20% of the Group's profit and consists of Georgia Healthcare Group ("Healthcare Business" or "GHG") - an LSE (London Stock Exchange PLC) premium listed company, m2 Real Estate ("Real Estate Business" or "m2"), Georgia Global Utilities ("Utility Business" or "GGU") and Teliani Valley ("Beverage Business" or "Teliani"). Georgia's fast-growing economy provides opportunities in a number of underdeveloped markets and the Group is well positioned to capture growth opportunities in the Georgian corporate sector.

_________________________________________________________________________________________________

The information in this Announcement in respect of full year 2016 preliminary results, which was approved by the Board of Directors on 19 February 2017, does not constitute statutory accounts as defined in Section 435 of the UK Companies Act 2006. The financial statements for the year ended 31 December 2015 were filed with the Registrar of Companies, and the audit report was unqualified and contained no statements in respect of Sections 498 (s) and 495 (3) of the UK Companies Act 2006. The financial statements for the year ended 31 December 2016 will be included in the Annual Report and Accounts to be published in April 2017 and filed with the Registrar of Companies in due course.

_________________________________________________________________________________________________

 

BGEO Group PLC announces the Group's fourth quarter 2016 and full year 2016 preliminary consolidated results. Unless otherwise mentioned, figures are for the fourth quarter 2016 and comparisons are with the fourth quarter 2015. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the European Union, are unaudited and derived from management accounts.

 

BGEO highlights

§ 4Q16 profit was GEL 88.7mln (US$ 33.5mln/GBP 27.2mln), down 7.2% y-o-y

§ 4Q16 earnings per share ("EPS") was GEL 2.29 (US$ 0.87 per share/GBP 0.70 per share), down 5.4% y-o-y

§ 2016 profit was GEL 428.6mln (US$ 161.9mln/GBP 131.6mln), up 37.8% y-o-y  

§ 2016 EPS was GEL 10.41 (US$ 3.93 per share/GBP 3.20 per share), up 31.3% y-o-y

-       The Group's annual figures have been positively affected by one-off items recorded during the reporting period, including partially offsetting one-off items highlighted in italics below on this page. The combined effect of the deferred tax adjustments and "net non-recurring items" (net of applicable taxes) results in a net benefit of GEL 60.5mln in 2016, of which a loss of GEL 0.8mln, a gain of  GEL 34.6mln and a gain of GEL 25.5mln were reported in 4Q16, 3Q16 and 2Q16, respectively

-       Profit excluding the effect of these deferred tax adjustments and "net non-recurring items" was GEL 89.5mln in 4Q16 (down 11.3% y-o-y) and GEL 368.0mln in 2016 (up 13.8% y-o-y)

§ Book value per share was GEL 57.52, up 18.0% y-o-y

§ Total equity attributable to shareholders was GEL 2,166.2mln, up 17.0% y-o-y

§ Total assets increased to GEL 12,989.5mln, up 28.4% y-o-y

§ As of 17 February 2017, GEL 325.2mln liquid assets were held at the holding company level

 

§ 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 banks and insurance businesses (changes are applicable to financial institutions, including banks and insurance businesses from 1 January 2019). The changed model implies a zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings, compared to the previous model of a 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 recognised temporary differences arising from prior periods. The Group considered 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. Subsequently, deferred tax assets and liabilities were re-measured again at 31 December 2016. The Group has calculated the portion of deferred taxes that it utilised 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 un-utilisable portion of deferred tax assets and liabilities ("Deferred tax adjustments") as of 31 December 2016. The deferred tax liabilities that were reversed significantly exceeded the deferred tax assets written off1. The net amount was recognised as an income tax benefit for the Group and amounted to GEL 63.8mln for full year 2016, of which GEL 39.4mln and GEL 24.4mln impacts the Group's Banking Business and Investment Business profit after tax, respectively. The net amount includes 4Q16 impact of deferred tax expense of GEL 3.1mln resulting from 31 December 2016 re-measurement. The amounts are reflected in the "income tax (expense) benefit" line of the income statement

§ The Group has also incurred a GEL 43.9mln charge for accounting losses arising from the buyback of the Bank's Eurobond, which took place in July 2016. The Group provisioned GEL 42.5mln for expected buyback losses in 1H16 and the related charge in 3Q16 was GEL 1.4mln, no charges were added in 4Q16. This expense is reflected in the "net non-recurring items" line of the income statement

§ During July 2016, the Group completed the acquisition of the remaining equity interests in Georgia Global Utilities Limited ("GGU"), its utility and energy business, and gained full control of GGU. As a result of this acquisition, the Group recorded a GEL 31.8mln gain from negative goodwill. The gain resulted from the fair value of the net identifiable assets acquired (totalling GEL 255.9mln) which exceeded the fair value of the total consideration paid by the Group (totalling GEL 224.1mln). This gain is reflected in the "net non-recurring items" line of the income statement. The Group started consolidating GGU results on 21 July 2016. Prior to this, the Group reported the results of GGU's operations under "profit from associates"

§ Full year 2016 profit was also positively affected by a GEL 16.4mln one-off gain from the sale of Class C shares and Class B shares of Visa Inc. and MasterCard, respectively. This gain was recorded in 3Q16. This gain recorded in 3Q16 was partially offset by one-off employee costs related to termination benefits, inclusive of the Bank's former CEO incurred in the same quarter. These items are also reflected in the "net non-recurring items" line of the income statement

1Significant deferred tax liabilities that were reversed arose from the recognition timing differences between the IFRS and the tax accounting rules and were related to accumulated depreciation, allowance for impairment of loans, property and equipment, investment properties, intangible assets, accruals of certain provisions, and various other items

Banking Business highlights

4Q16 performance

§ Revenue was GEL 232.5mln (up 15.6% y-o-y and up 15.2% q-o-q)

§ Net Interest Margin ("NIM") was 7.6% (flat y-o-y and up 30 bps q-o-q)

§ Loan Yield stood at 14.4% (down 40 bps y-o-y and up 30 bps q-o-q)

§ Cost of Funds stood at 4.6% (down 50 bps y-o-y and down 10 bps q-o-q)

§ Cost to Income ratio was 37.5% (35.4% in 4Q15 and 37.3% in 3Q16)

§ Cost of credit risk stood at GEL 70.9mln (up 101.2% y-o-y and up 105.3% q-o-q)

§ Cost of Risk ratio was 4.2% (2.4% in 4Q15 and 2.3% in 3Q16)

§ Profit was GEL 75.3mln (down 6.5% y-o-y and down 16.1% q-o-q)

-   Profit excluding the effect of above mentioned "net non-recurring items" (net of applicable taxes) was GEL 74.8mln in 4Q16 (down 9.6% y-o-y)

§ Return on Average Assets ("ROAA") was 2.9% (3.5% in 4Q15 and 3.7% in 3Q16)

§ Return on Average Equity ("ROAE") was 20.1% (25.1% in 4Q15 and 24.7% in 3Q16)  

Full-year 2016 performance

§ Revenue was GEL 802.5mln (up 6.8% y-o-y)

§ NIM was 7.5% (down 20 bps y-o-y)

§ Loan Yield was 14.2% (down 60 bps y-o-y)

§ Cost of Funds was 4.7% (down 40 bps y-o-y)

§ Cost to Income ratio stood at 37.7% (35.7% for 2015)

§ Cost of credit risk stood at GEL 168.6mln (up 11.2% y-o-y)

§ Cost of Risk ratio stood at 2.7% (flat y-o-y)

§ Profit increased to GEL 309.4mln (up 12.8% y-o-y)

-       Profit excluding the effect of the above-mentioned deferred tax adjustments and "net non-recurring" items was GEL 307.2mln in 2016 (up 7.7% y-o-y)

§ ROAA was 3.2% (3.2% in 2015)

§ ROAE was 22.1% (21.7% in 2015)

 

Balance sheet strength supported by solid capital and liquidity positions

§ The net loan book reached a record GEL 6,681.7mln, up 24.5% y-o-y and up 16.9% q-o-q. The growth on a constant-currency basis was 16.1% y-o-y

§ Customer funds increased to GEL 5,730.4mln, up 14.8% y-o-y and up 17.5% q-o-q. The growth on a constant-currency basis was 6.4% y-o-y

§ Net Loans to Customer Funds and DFI ratio stood at 95.3% (90.8% at 31 December 2015 and 94.2% at 30 September 2016)

§ Leverage stood at 6.9-times as at 31 December 2016 compared to 6.0-times at the same time last year

§ NBG (Basel 2/3) Tier I and Total CAR stood at 10.1%2 and 15.4%, respectively as at 31 December 2016

§ NBG Liquidity Ratio was 37.7% as at 31 December 2016, compared to 46.2% at the same time last year

 

Resilient growth momentum sustained across major business lines

§ Retail Banking ("RB") continues to deliver strong franchise growth. Retail Banking revenue reached GEL 147.7mln in 4Q16, up 29.3% y-o-y and up 16.1% q-o-q, with full year 2016 revenue totalling GEL 494.1mln, up 15.6% y-o-y

§ The Retail Banking net loan book reached GEL 3,902.3mln as at 31 December 2016, up 39.5% y-o-y and up 18.7% q-o-q. The growth on a constant-currency basis was 31.5% y-o-y, well above our strategic target of 20%+. Consequently, our share of retail loan book  accounted for 60.9% of our total loan book at the end of 2016, 5.9ppts up compared to last year

§ Retail Banking client deposits increased to GEL 2,413.6mln as at 31 December 2016, up 28.4% y-o-y and up 15.8% q-o-q. The growth on a constant-currency basis was 19.2% y-o-y

§ The number of Retail Banking clients reached 2.1mln at the end of 4Q16, up 7.1% from 2.0mln a year ago

§ Solo - our premium banking brand - continues its strong growth. Solo, which offers a fundamentally different approach to premium banking and targets the mass affluent client segment, more than doubled its client base since April 2015, when we launched Solo in its current format. As of 31 December 2016, the number of Solo clients reached 19,267. Our goal is to significantly increase our market share in the mass affluent segment, which stood below 13% at the beginning of 2015

§ Our Retail Banking product to client ratio reached 2.0 in 4Q16, up from 1.9 at the end of 2015. The start of the transformation of our retail banking operations from product-based into a client-centric one is expected to positively affect the Retail Banking product to client ratio in the future. We completed the change in 15 branches in 2016 and are currently in process of converting nine additional branches into the new client-centric model. We have seen outstanding sales growth in transformed branches, with the number of products sold to our clients increasing by over 100% compared to the base-line figures

§ Corporate Investment Banking ("CIB") is successfully delivering its risk deconcentration strategy, having reduced the concentration of our top 10 CIB clients to 11.8% by the end of 4Q16, down from 12.7% a year ago. The CIB net loan book totalled GEL 2,394.9mln, up 8.3% y-o-y, and up 15.0% in the fourth quarter. On a constant-currency basis, the loan portfolio was largely flat y-o-y. CIB net fee and commission income was GEL 28.0mln or 12.0% of total CIB revenue in 2016 compared to GEL 34.3mln or 14.2% a year ago. The decline was mainly driven by the decrease in commission fee income from guarantees (net income from guarantees was GEL 12.6mln in 2016, down by GEL 6.2mln or 33.0% y-o-y) as we reduced our large guarantee exposures (more detailed review on this is presented in the Banking business discussion below). CIB ROAE was 14.5% in 2016, down from 18.5% in 2015, which was primarily a result of 1) negative operating leverage and 2) higher cost of risk, largely related to the impact of the recent GEL devaluation.  We expect to further reduce concentration risk in the corporate loan portfolio, grow our fee income, and improve the Bank's ROAE in this segment

§ Investment Management's Assets Under Management ("AUM") increased to GEL 1,592.0mln3, up 15.9% y-o-y, reflecting higher bond issuance activity by our brokerage arm Galt & Taggart, as our clients increasingly access these new products

2Capital adequacy ratios include GEL 99.5mln distributed as dividend from the Bank to the holding level on 29 December 2016. These funds are earmarked for regular dividends to be paid from BGEO Group in respect of the 2016 financial year and will be payable in 2017, subject to shareholder approval. Including this payment, NBG (Basel 2/3) Tier I and Total CAR is 9.1% and 14.4%, respectively.

 

3Wealth Management client deposits, Galt & Taggart client assets, Aldagi Pension Fund and Wealth Management client assets at Bank of Georgia Custody

 

 

Investment Business Highlights

 

§ Our Investment Business contributed GEL 119.1mln, or 27.8% to the Group's profit in 2016, up from GEL 36.7mln a year ago. Of this, GEL 91.6mln is attributed to shareholders of BGEO and the rest mainly belongs to the non-controlling shareholders of GHG.

§ 2016 profit includes material one-offs from deferred tax adjustments, gain from the purchase of GGU and other net non-recurring items. Excluding these one-offs, profit from our Investment Business was GEL 60.8mln, or 16.5% of the Group's profit. Furthermore, if we exclude our publicly listed subsidiary, GHG, from this figure, then our Investment Business profit was GEL 26.0mln or 7.8% of the Group's profit

§ For 4Q16, our Investment Business contributed GEL 13.4mln or 15.1% to the Group's profits, down from GEL 15.1mln in 4Q15. Of this, GEL 11.3mln was attributed to shareholders of BGEO and the rest mainly to the non-controlling shareholders of GHG

§ Our healthcare business, Georgia Healthcare Group PLC ("GHG") continued to deliver strong revenue performance across all business lines. GHG recorded revenue of GEL 136.0mln (up 95.1% y-o-y and up 17.1% q-o-q) and GEL 426.4mln (up 73.4% y-o-y) in 4Q16 and 2016, respectively. During 2016, GHG achieved further diversification of the revenues. The healthcare services business revenue accounted for around 55%, the pharmacy business revenue accounted for c.31% and the medical insurance business revenue accounted for c.14% of its gross revenues in 4Q16. GHG delivered quarterly EBITDA of GEL 24.3mln, up 47.0% y-o-y. This growth was primarily driven by the healthcare services business EBITDA growth of 30.2% y-o-y. Consequently, for 2016 EBITDA was GEL 78.0mln (up 39.0% y-o-y) and profit was GEL 61.3mln (up 159.7% y-o-y) (including a tax benefit of GEL 24.0mln relating to the deferred tax adjustments)

§ In January 2017, GHG received final approval for and completed the acquisition of JSC ABC Pharmacia ("ABC"), owner of the Pharmadepot chain of pharmacies. This acquisition has resulted in GHG becoming the number one player in the pharmacy market, as it is in the healthcare services and medical insurance markets. Details of this acquisition are in GHG's separate press release, which is available at www.ghg.com.ge. GHG will be consolidating this pharmacy business from 1 January 2017

§ Our real estate business, m2 Real Estate ("m2") continued its strong project execution and sales performance in 4Q16. In 4Q16, m2 achieved sales of US$ 8.3mln, selling a total of 112 apartments, compared to US$ 10.8mln sales and 106 apartments sold in 4Q15. In 4Q16, m2 recognised revenue of GEL1.6mln and recorded net loss of GEL 1.1mln. In 2016, m2 achieved sales of US$ 34.4mln, selling a total of 407 apartments, compared to US$ 30.0mln sales and 346 apartments sold in 2015. Subsequently, m2 recognised revenue of GEL 20.9mln (down 3.2% y-o-y) and net profit of GEL 12.5mln (up 16.1% y-o-y)

§ Prior to 1 January 2017, m2 Real Estate followed revenue recognition guidance under International Accounting Standard (IAS) 18 and recognised revenues from sales of residential units upon completion and handover of the units to customers. Effective 1 January 2017, the Group, inclusive of m2 Real Estate, is early adopting the new revenue recognition standard, IFRS 15, which allows revenue recognition according to the percentage of completion method. As a result, m2 Real Estate expects that out of its total deferred revenue of US$ 30.6mln (net of US$5.5mln VAT) at 31 December 2016, US$ 17.1mln will be recognised as revenue gradually in the upcoming years, while US$ 13.5mln will be recognised through equity on 1 January 2017

§ Our utility and energy business, Georgia Global Utilities ("GGU"), delivered strong revenue and cost-efficiency performance in 2016 and achieved revenue of GEL 127.4mln (up 7.7% y-o-y), EBITDA of GEL 68.1mln (up 10.3% y-o-y) and profit of GEL 35.7mln (up 134.5% y-o-y) for 2016. As BGEO owned 25% of GGU until July 2016, we have reported our share of GGU's profits in the line item "profit from associates". In July 2016, we completed the acquisition of the remaining 75% equity stake in GGU and we started consolidating GGU financial results from 21 July 2016 as part of our Investment Business and included it in the segment results discussion as a separate business

§ Our beverages business, Teliani, reached a major milestone in 2016 and finished the construction of beer brewery. Teliani will brew Heineken under the ten-year exclusive licence agreement to sell Heineken in Georgia, Armenia and Azerbaijan

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

 

During 2016, BGEO Group delivered a strong earnings performance against a challenging macroeconomic backdrop in a number of Georgia's regional trading partner countries which resulted in a year of lower economic growth than expected and a 10.5% devaluation of the Georgian Lari compared to the US Dollar. The Lari was particularly weak in the last quarter of the year when it devalued by over 13% against the US Dollar. Despite these challenges, Group revenue in 2016 increased by 17.8% to GEL 1.01 billion, profit increased by 37.8% to GEL 428.6 million, and earnings per share increased by 31.3% to GEL 10.41. The Group's figures were affected by a number of "one-off" items during the year, which are described in detail on page 5 of this announcement. Book value per share at the end of 2016 was GEL 57.52, up 18.0% year-on-year. The Return on Average Equity in the banking business increased from 21.7% in 2015, to 22.1% in 2016.

During the fourth quarter, the Group delivered revenue of GEL 305.5 million, up 13.3% quarter-on-quarter, and profit of GEL 88.7 million, down 37.3% quarter-on-quarter, reflecting the absence of some net positive one-off benefits in the third quarter and a higher cost of credit risk as a result of additional impairment provisioning following the Lari devaluation.

In the Banking Business, 2016 was characterised by the expected strong growth in the retail bank, and a repositioning of the corporate bank to reduce concentration risk. The devaluation of the Lari during the year, and in particular the fourth quarter, led to increased nominal growth in the Bank's balance sheet, with higher net interest income being offset by a higher cost of credit risk. Customer lending increased by 24.5% during the year, with 39.5% growth in the retail bank and 8.3% growth in the corporate bank. The net interest margin remained in our targeted range despite the continuing impact of high levels of excess liquidity, with a 30 basis point quarter-on-quarter increase in the fourth quarter to 7.6%.

Overall, asset quality during the year remained robust with the NPL to Gross Loans ratio improving slightly to 4.2%, from 4.3% a year ago, whilst the NPL coverage ratio improved to 86.7% at 31 December 2016, compared to 83.4% as at 31 December 2015. The NPL coverage ratio, adjusted for the discounted value of collateral, also improved, to 132.1%, from 120.6% over the same period. The cost of risk ratio in 2016 was unchanged at 2.7%, compared to 2015. Any Lari devaluation against the US dollar creates an automatic increase in provisioning since Lari denominated provisions against US dollar lending increase mathematically. In addition, as a result of the further deterioration of the Lari' value in the fourth quarter, the Group reviewed both its performing and non-performing US dollar denominated portfolios and decided to increase its impairment provisions in the quarter by c.GEL 32 million. 

The Group's Investment Businesses continue to deliver very strong earnings performances, with strong organic growth supported by the impact of recent acquisitions - specifically (1) the inclusion in our healthcare business Georgia Healthcare Group (GHG) of our pharmacy business GPC following its acquisition during the second quarter, and (2) the second half consolidation of our utility and energy business Georgia Global Utilities. EBITDA from the investment businesses increased by 71.1% to GEL 132.6 million in 2016.

GHG again delivered strong revenues of GEL 136.0 million in the fourth quarter, up 95.1% year-on-year, and 17.1% quarter-on-quarter. This continues to reflect a combination of good levels of organic growth of the healthcare services operations (16.3% year-on-year) and the impact of pharmacy acquisitions. The healthcare services EBITDA margin continues to improve, and at 31.9% in the fourth quarter and 30.2% for the full year is now above GHG's medium-term target of 30%. The acquisition of a second pharmacy chain, ABC, in January 2017 has made GHG the number one player in the Georgian pharmacy market, and provides additional synergies for GHG's healthcare services and medical insurance businesses. GHG remains clearly on track to reach its target to more than double 2015 healthcare services revenues by 2018.

In July 2016, the Group acquired the remaining 75% equity stake in Georgia Global Utilities (GGU), our utility and energy business, and GGU was therefore fully consolidated into BGEO with effect from 21 July 2016. The Group has a significant opportunity to increase GGU's operational cash flow over the next few years from a combination of increasing energy efficiency and reducing water loss rates, and by the development of additional revenue streams. The new management team is focused on improving efficiency and, on a stand-alone basis, GGU delivered a net profit of GEL 35.7 million in 2016, compared to GEL 15.2 million in 2015.

Rounding out our investment business story is our real estate business, m2 Real Estate, which continues to develop its apartment projects very successfully. Its strong project execution and sales performance delivered a net profit of GEL 12.5 million in 2016, an increase of 16.1% over last year.

The Group's capital and funding position continues to be very strong, with capital being held both in the regulated banking business and at the holding company level. The Bank's year-end capital ratios were 10.1%4 and 15.4% for NBG (Basel2/3) Tier 1 and total capital respectively. In addition, at year-end, GEL 405.2 million liquid assets were held at the Group level. From a funding perspective, the Bank's NBG Liquidity ratio was 37.7%, and the Liquidity Coverage Ratio was 151.5%, reflecting the significant excess liquidity held by the Bank.

As a result of the Group's very strong capital position, excess levels of liquidity and high level of internal capital generation, in November 2016 the Board approved a $50 million share buyback and cancellation programme, to be completed over a two year period, in addition to the regular annual dividend to be paid to shareholders. In addition, over the last few months, the Group Employee Benefits Trust has purchased shares in the market totaling approximately US$20 million.

Since the introduction of dividends in 2010, the Group has managed to grow its annual dividend per share by 51.6% CAGR. At the 2017 Annual General Meeting the Board intends to recommend an annual regular dividend for 2016 of GEL 2.6 per share payable in British Pounds Sterling at the prevailing rate. This is in the range of our regular dividend payout ratio target of 25-40% paid from the Banking Business profits and represents an 8.3% increase over the 2015 dividend.

Despite the headwinds, the Georgian economy remained resilient during 2016, with estimated GDP growth of 2.2% for the year. Foreign Direct Investments were stable in 9M16 and tourist numbers - a significant driver of US Dollar inflows for the country - continued to rise throughout the year. Inflation remained well controlled at 1.8% at the end of 2016.

The Group has delivered another strong year of strategic progress and excellent earnings growth, in what remains a challenging and uncertain macroeconomic backdrop, both globally and in the Caucasus region. We are confident however in our ability to continue to deliver high returns and strong performances in both the Banking Business and the Investment Businesses during 2017 and beyond.

 

Irakli Gilauri,

Group CEO of BGEO Group PLC

 

4 See the footnote 2 in Banking Business Highlights section on page 6


FINANCIAL SUMMARY

INCOME STATEMENT (quarterly)

BGEO Consolidated


Banking Business5


Investment Business

GEL thousands unless otherwise noted 

4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q



















 Net banking interest income 

155,403

131,434

18.2%

136,624

13.7%


158,371

134,217

18.0%

138,615

14.3%


-

-

-

-

-

 Net fee and commission income 

35,325

31,639

11.7%

30,431

16.1%


36,645

32,266

13.6%

30,651

19.6%


-

-

-

-

-

 Net banking foreign currency gain

28,516

19,525

46.0%

21,497

32.7%


28,516

19,525

46.0%

21,497

32.7%


-

-

-

-

-

 Net other banking income

2,199

9,318

-76.4%

4,077

-46.1%


2,506

9,699

-74.2%

4,269

-41.3%


-

-

-

-

-

 Gross insurance profit 

9,171

6,733

36.2%

9,687

-5.3%


6,445

5,441

18.5%

6,816

-5.4%


3,557

2,126

67.3%

3,610

-1.5%

 Gross healthcare and pharmacy profit 

42,221

23,845

77.1%

35,517

18.9%


-

-

-

-

-


42,221

23,845

77.1%

35,517

18.9%

 Gross real estate profit 

1,339

12,769

-89.5%

10,032

-86.7%


-

-

-

-

-


2,033

12,769

-84.1%

10,032

-79.7%

 Gross utility profit

21,600

-

-

16,942

27.5%


-

-

-

-

-


21,671

-

-

17,011

27.4%

 Gross other investment profit 

9,697

11,271

-14.0%

4,821

101.1%


-

-

-

-

-


9,391

11,157

-15.8%

4,927

90.6%

 Revenue 

305,471

246,534

23.9%

269,628

13.3%


232,483

201,148

15.6%

201,848

15.2%


78,873

49,897

58.1%

71,097

10.9%

 Operating expenses 

(117,358)

(84,262)

39.3%

(101,553)

15.6%


(87,069)

(71,172)

22.3%

(75,375)

15.5%


(32,163)

(14,580)

120.6%

(27,349)

17.6%

 Operating income before cost of credit risk / EBITDA

188,113

162,272

15.9%

168,075

11.9%


145,414

129,976

11.9%

126,473

15.0%


46,710

35,317

32.3%

43,748

6.8%

 Profit (loss) from associates

254

1,938

-86.9%

256

-0.8%


-

-

-

-

-


254

1,938

-86.9%

256

-0.8%

 Depreciation and amortisation of investment business

(9,615)

(4,731)

103.2%

(9,566)

0.5%


-

-

-

-

-


(9,615)

(4,731)

103.2%

(9,566)

0.5%

 Net foreign currency gain (loss) from investment    business

(6,065)

(3,416)

77.5%

(1,221)

NMF


-

-

-

-

-


(6,065)

(3,416)

77.5%

(1,221)

NMF

 Interest income from investment business 

1,551

602

157.6%

1,930

-19.6%


-

-

-

-

-


540

957

-43.6%

1,667

-67.6%

 Interest expense from investment business

(8,673)

(3,166)

173.9%

(8,876)

-2.3%


-

-

-

-

-


(11,673)

(6,542)

78.4%

(10,759)

8.5%

 Operating income before cost of credit risk 

165,565

153,499

7.9%

150,598

9.9%


-

-

-

-

-


20,151

23,523

-14.3%

24,125

-16.5%

 Cost of credit risk 

(69,967)

(36,022)

94.2%

(35,591)

96.6%


(70,873)

(35,230)

101.2%

(34,525)

105.3%


906

(792)

NMF

(1,066)

NMF

Net non-recurring items

698

(6,227)

NMF

35,156

-98.0%


(1,056)

(2,502)

-57.8%

3,474

NMF


1,754

(3,725)

NMF

31,682

-94.5%

Income tax (expense) benefit

(7,553)

(15,578)

-51.5%

(8,614)

-12.3%


1,830

(11,653)

NMF

(5,665)

NMF


(9,383)

(3,925)

139.1%

(2,949)

NMF

Profit

88,743

95,672

-7.2%

141,549

-37.3%


75,315

80,591

-6.5%

89,757

-16.1%


13,428

15,081

-11.0%

51,792

-74.1%

Earnings per share (basic)

2.29

2.42

-5.4%

3.55

-35.5%


1.99

2.08

-4.3%

2.32

-14.1%


0.30

0.34

-12.2%

1.23

-75.9%

Earnings per share (diluted)

2.21

2.42

-8.7%

3.55

-37.7%


1.92

2.08

-7.6%

2.32

-17.1%


0.29

0.34

-15.3%

1.23

-76.8%

 

INCOME STATEMENT

BGEO Consolidated


Banking Business


Investment Business

GEL thousands unless otherwise noted

2016

2015

Change

y-o-y


2016

2015

Change

y-o-y


2016

2015

Change

y-o-y













 Net banking interest income 

549,407

501,390

9.6%


556,728

512,927

8.5%


-

-

-

 Net fee and commission income 

122,913

118,406

3.8%


124,949

121,589

2.8%


-

-

-

 Net banking foreign currency gain

82,909

76,926

7.8%


82,909

76,926

7.8%


-

-

-

 Net other banking income

11,773

18,528

-36.5%


12,767

19,837

-35.6%


-

-

-

 Gross insurance profit 

33,683

29,907

12.6%


25,101

20,047

25.2%


11,454

12,116

-5.5%

 Gross healthcare and pharmacy profit 

134,862

80,938

66.6%


-

-

-


134,862

80,938

66.6%

 Gross real estate profit 

19,768

14,688

34.6%


-

-

-


20,462

14,688

39.3%

 Gross utility profit

38,541

-

-


-

-

-


38,680

-

-

 Gross other investment profit 

20,926

20,777

0.7%


-

-

-


20,802

20,639

0.8%

 Revenue 

1,014,782

861,560

17.8%


802,454

751,326

6.8%


226,260

128,381

76.2%

 Operating expenses 

(390,788)

(314,732)

24.2%


(302,227)

(267,859)

12.8%


(93,648)

(50,862)

84.1%

 Operating income before cost of credit risk / EBITDA

623,994

546,828

14.1%


500,227

483,467

3.5%


132,612

77,519

71.1%

 Profit from associates

4,328

4,050

6.9%


-

-

-


4,328

4,050

6.9%

 Depreciation and amortisation of investment business

(28,865)

(14,225)

102.9%


-

-

-


(28,865)

(14,225)

102.9%

 Net foreign currency gain (loss) from investment business

(9,650)

651

NMF


-

-

-


(9,650)

651

NMF

 Interest income from investment business 

4,155

2,340

77.6%


-

-

-


3,232

3,338

-3.2%

 Interest expense from investment business

(21,429)

(10,337)

107.3%


-

-

-


(29,351)

(25,493)

15.1%

Operating income before cost of credit risk 

572,533

529,307

8.2%


500,227

483,467

3.5%


72,306

45,840

57.7%

 Cost of credit risk 

(171,089)

(155,377)

10.1%


(168,561)

(151,517)

11.2%


(2,528)

(3,860)

-34.5%

Net non-recurring items

(11,524)

(14,577)

-20.9%


(45,351)

(13,046)

NMF


33,827

(1,531)

NMF

Income tax (expense) benefit

38,656

(48,408)

NMF


23,126

(44,647)

NMF


15,530

(3,761)

NMF

Profit

428,576

310,945

37.8%


309,441

274,257

12.8%


119,135

36,688

224.7%

Earnings per share (basic)

10.41

7.93

31.3%


8.02

7.06

13.5%


2.39

0.87

175.8%

Earnings per share (diluted)

10.09

7.93

27.2%


7.77

7.06

10.0%


2.32

0.87

167.3%

 

5 Banking Business and Investment Business financials do not include inter-business eliminations. Detailed financials, including inter-business eliminations are provided on pages 34, 35 and 36

 

           

BALANCE SHEET


BGEO Consolidated


Banking Business


Investment Business

GEL thousands unless otherwise noted


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q




















Liquid assets


3,914,596

3,068,166

27.6%

3,313,188

18.2%


3,712,489

3,006,991

23.5%

3,111,521

19.3%


554,192

307,459

80.2%

380,568

45.6%

     Cash and cash equivalents


1,573,610

1,432,934

9.8%

1,197,687

31.4%


1,482,106

1,378,459

7.5%

1,090,511

35.9%


397,620

290,576

36.8%

237,426

67.5%

     Amounts due from credit institutions


1,054,983

731,365

44.2%

944,061

11.7%


943,091

721,802

30.7%

848,185

11.2%


153,497

15,730

875.8%

140,635

9.1%

     Investment securities


1,286,003

903,867

42.3%

1,171,440

9.8%


1,287,292

906,730

42.0%

1,172,825

9.8%


3,075

1,153

166.7%

2,507

22.7%

Loans to customers and finance lease receivables


6,648,482

5,322,117

24.9%

5,676,225

17.1%


6,681,672

5,366,764

24.5%

5,715,737

16.9%


-

-

-

-

-

Property and equipment


1,323,870

794,682

66.6%

1,224,620

8.1%


339,442

337,064

0.7%

338,455

0.3%


984,428

457,618

115.1%

886,165

11.1%

Total assets


12,989,453

10,115,739

28.4%

11,286,088

15.1%


11,248,226

9,171,437

22.6%

9,654,646

16.5%


2,194,926

1,247,960

75.9%

1,875,062

17.1%

Client deposits and notes


5,382,698

4,751,387

13.3%

4,700,324

14.5%


5,730,419

4,993,681

14.8%

4,878,171

17.5%


-

-

0.0%

-

0.0%

Amounts due to credit institutions


3,470,091

1,789,062

94.0%

2,740,926

26.6%


3,067,651

1,692,557

81.2%

2,396,969

28.0%


435,630

144,534

201.4%

380,745

14.4%

     Borrowings from DFI


1,403,120

917,087

53.0%

1,280,795

9.6%


1,281,798

917,087

39.8%

1,188,544

7.8%


121,323

-

-

92,251

31.5%

     Short-term loans from NBG


1,085,640

307,200

253.4%

604,608

79.6%


1,085,640

307,200

253.4%

604,608

79.6%


-

-

-

-

-

     Loans and deposits from commercial banks


981,331

564,775

73.8%

855,523

14.7%


700,213

468,270

49.5%

603,817

16.0%


314,307

144,534

117.5%

288,494

8.9%

Debt securities issued


1,255,643

1,039,804

20.8%

1,036,086

21.2%


858,037

961,944

-10.8%

722,088

18.8%


407,242

84,474

382.1%

320,128

27.2%

Total liabilities


10,566,035

8,042,101

31.4%

8,897,339

18.8%


9,819,375

7,856,146

25.0%

8,138,685

20.7%


1,200,359

489,613

145.2%

1,002,274

19.8%

Total equity


2,423,418

2,073,638

16.9%

2,388,749

1.5%


1,428,851

1,315,291

8.6%

1,515,961

-5.7%


994,567

758,347

31.1%

872,788

14.0%

 

 

BANKING BUSINESS RATIOS

4Q16

4Q15

3Q16


2016

2015








ROAA

2.9%

3.5%

3.7%


3.2%

3.2%

ROAE

20.1%

25.1%

24.7%


22.1%

21.7%

Net Interest Margin

7.6%

7.6%

7.3%


7.5%

7.7%

Loan Yield

14.4%

14.8%

14.1%


14.2%

14.8%

Liquid assets yield

3.3%

3.3%

3.2%


3.2%

3.2%

Cost of Funds

4.6%

5.1%

4.7%


4.7%

5.1%

Cost of Client Deposits and Notes

3.5%

4.4%

3.6%


3.8%

4.3%

Cost of Amounts Due to Credit Institutions

6.4%

5.9%

6.5%


6.2%

5.8%

Cost of Debt Securities Issued

6.1%

6.8%

6.6%


6.8%

7.1%

Cost / Income

37.5%

35.4%

37.3%


37.7%

35.7%

NPLs To Gross Loans To Clients

4.2%

4.3%

4.4%


4.2%

4.3%

NPL Coverage Ratio

86.7%

83.4%

86.5%


86.7%

83.4%

NPL Coverage Ratio, Adjusted for discounted value of collateral

132.1%

120.6%

131.1%


132.1%

120.6%

Cost of Risk

4.2%

2.4%

2.3%


2.7%

2.7%

Tier I capital adequacy ratio (New NBG, Basel 2/3)6

10.1%

10.9%

11.0%


10.1%

10.9%

Total capital adequacy ratio (New NBG, Basel 2/3)6

15.4%

16.7%

16.2%


15.4%

16.7%

 

 

 

6See the footnote 2 in Banking Business Highlights section on page 6


 

DISCUSSION OF RESULTS

Discussion of Banking Business Results

 

The Group's Banking Business is comprised of several components. Retail Banking operations in Georgia 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

4Q16

4Q15

Change,

y-o-y

3Q16

Change,

q-o-q


2016

2015

Change,

y-o-y











 Banking interest income 

258,414

230,833

11.9%

231,849

11.5%


933,715

872,299

7.0%

 Banking interest expense 

(100,043)

(96,616)

3.5%

(93,234)

7.3%


(376,987)

(359,372)

4.9%

 Net banking interest income 

158,371

134,217

18.0%

138,615

14.3%


556,728

512,927

8.5%

 Fee and commission income 

50,135

42,856

17.0%

43,421

15.5%


172,715

161,891

6.7%

 Fee and commission expense 

(13,490)

(10,590)

27.4%

(12,770)

5.6%


(47,766)

(40,302)

18.5%

 Net fee and commission income 

36,645

32,266

13.6%

30,651

19.6%


124,949

121,589

2.8%

 Net banking foreign currency gain

28,516

19,525

46.0%

21,497

32.7%


82,909

76,926

7.8%

 Net other banking income

2,506

9,699

-74.2%

4,269

-41.3%


12,767

19,837

-35.6%

 Net insurance premiums earned

11,559

10,810

6.9%

11,616

-0.5%


42,959

40,161

7.0%

 Net insurance claims incurred

(5,114)

(5,369)

-4.7%

(4,800)

6.5%


(17,858)

(20,114)

-11.2%

 Gross insurance profit 

6,445

5,441

18.5%

6,816

-5.4%


25,101

20,047

25.2%

 Revenue 

232,483

201,148

15.6%

201,848

15.2%


802,454

751,326

6.8%











Net Interest Margin

7.6%

7.6%


7.3%



7.5%

7.7%


Average interest earning assets

8,240,676

7,014,711

17.5%

7,543,357

9.2%


7,447,665

6,667,220

11.7%

Average interest bearing liabilities

8,609,618

7,575,074

13.7%

7,864,440

9.5%


7,961,933

7,069,269

12.6%

Average net loans and finance lease receivables, currency blended

6,134,296

5,401,904

13.6%

5,596,305

9.6%


5,640,611

5,200,650

8.5%

     Average net loans and finance lease receivables, GEL

1,780,650

1,536,973

15.9%

1,588,995

12.1%


1,592,987

1,527,852

4.3%

     Average net loans and finance lease receivables, FC

4,353,646

3,864,931

12.6%

4,007,310

8.6%


4,047,624

3,672,798

10.2%

Average client deposits and notes, currency blended

5,236,265

4,807,651

8.9%

4,892,822

7.0%


5,017,993

4,379,707

14.6%

    Average client deposits and notes, GEL

1,221,435

1,258,566

-3.0%

1,166,397

4.7%


1,221,469

1,203,167

1.5%

    Average client deposits and notes, FC

4,014,830

3,549,085

13.1%

3,726,425

7.7%


3,796,524

3,176,540

19.5%

Average liquid assets, currency blended

3,307,646

2,842,715

16.4%

3,240,623

2.1%


3,106,676

2,540,310

22.3%

    Average liquid assets, GEL

1,325,275

1,194,534

10.9%

1,227,967

7.9%


1,210,935

1,153,425

5.0%

    Average liquid assets, FC

1,982,371

1,648,181

20.3%

2,012,656

-1.5%


1,895,741

1,386,885

36.7%

Excess liquidity (NBG)

418,016

789,311

-47.0%

545,556

-23.4%


418,016

789,311

-47.0%

Liquid assets yield, currency blended

3.3%

3.3%


3.2%



3.2%

3.2%


    Liquid assets yield, GEL

7.3%

7.2%


7.4%



7.4%

6.5%


    Liquid assets yield, FC

0.6%

0.5%


0.6%



0.5%

0.5%


Loan yield, currency blended

14.4%

14.8%


14.1%



14.2%

14.8%


    Loan yield, GEL

22.9%

23.4%


23.4%



23.3%

22.6%


    Loan yield, FC

10.9%

11.3%


10.3%



10.6%

11.4%


Cost of Funds, currency blended

4.6%

5.1%


4.7%



4.7%

5.1%


    Cost of Funds, GEL

6.0%

6.8%


6.1%



6.4%

5.5%


    Cost of Funds, FC

4.1%

4.6%


4.2%



4.2%

4.9%


 

 

 

 

§ Banking Business revenue: We recorded quarterly revenue of GEL 232.5mln (up 15.6% y-o-y and up 15.2% q-o-q), ending 2016 with revenue of GEL 802.5mln (up 6.8% y-o-y). Quarterly revenue growth, compared to last year, was primarily driven by an increase in net banking interest income and net banking foreign currency gain. For 2016 overall, our revenue was primarily driven by net interest income resulting from the growth in our loan book, together with a smaller increase in net fee and commission income, gain on foreign currency and strong performance of our P&C insurance business

§ Net banking interest income. Our net banking interest income was up 18.0% in 4Q16 y-o-y and up 8.5% for 2016 y-o-y. Net banking interest income was primarily driven by a strong performance in our Retail Banking operations, offset by a slight decline in CIB net interest income

§ Our NIM stood comfortably within our target range of 7.25% - 7.75%. Excess liquidity, which was a drag to NIM in previous quarters, started to be deployed in our loan portfolio in 4Q16 and consequently decreased by 47.0% y-o-y and 23.4% q-o-q. Reflecting this, NIM rebounded in 4Q16 compared to 3Q16. At the same time, cost of funds improved, reflecting lower cost on deposits compared to the previous year as well as the lower cost of our Eurobond funding. These factors influenced NIM's increase by 30bps in 4Q16 to 7.6%. On a full year basis, NIM stood at 7.5%, 20bps lower compared to 2015 primarily due to high levels of excess liquidity held during the first half of 2016

§ Loan yields. Loan yield grew by 30 bps in 4Q16 compared to 3Q16, which partially reflected a shift in our loan book toward higher yielding local currency denominated loans. Average local currency denominated loans grew faster than foreign currency denominated loans compared to previous quarter. Similarly, our liquid asset yield also increased reflecting growth in average liquid assets in local currency compared to reduction in foreign currency denominated liquid assets

§ Dollarisation. Dollarisation of our loan book decreased since last year as local currency denominated loans increased faster than foreign currency denominated loans during the year. On the other hand, the dollarisation of our average liquid assets increased slightly to 60% in 2016, up from 58% in 2015 - this is primarily due to a higher level of US Dollar liquidity mobilised at the beginning of the 2016 in connection with the liability management exercise of the Bank's outstanding Eurobonds, which was completed during the 3rd quarter. In addition, a change in the minimum reserve requirement for foreign currency deposits resulted in a further increase of dollarisation of liquid assets7

§ Net Loans to Customer Funds and DFI ratio. At year-end 2016, customer funds (client deposits and notes) increased 14.8% y-o-y to GEL 5,730.4mln primarily driven by strong deposit generation in our Retail Banking operations where client deposits grew by 28.4% y-o-y to GEL 2,413.6mln. We also increased our borrowings from DFIs by 39.8% y-o-y to GEL 1,281.8mln, particularly to support local currency lending. Consequently, our Net Loans to Customer Funds and DFI ratio, which is closely monitored by management, stood at 95.3% (90.8% at 31 December 2015 and 94.2% at 30 September 2016)

§ Net fee and commission income. Net fee and commission income performance is mainly driven by the strong performance in our settlement operations supported by the success of our Express banking franchise. This was partially offset by a decline in our fees from guarantees, driven by the deconcentration efforts in CIB segment which resulted in decreased large guarantee exposures in the Bank. Excluding the impact of guarantees, net fee and commission income was GEL 33.6mln for 4Q16, up 19.4% y-o-y, and GEL 112.3mln for 2016, up 9.3% y-o-y

§ Net banking foreign currency gain. On the back of continued volatility in the GEL exchange rate, banking foreign exchange gain was up 46.0% y-o-y for 4Q16 and 7.8% y-o-y for the year. Both Retail Banking and CIB contributed to the foreign currency gain

§ Net other banking income. The decrease in net other banking income by 74.2% y-o-y was caused by the difference between insignificant loss from revaluation of investment property in 4Q16 compared to the substantial gain of GEL 6.4mln recorded in 4Q15. On an annual basis, the decrease was affected by similar factors as in 4Q16

§ Gross insurance profit. Gross insurance profit continued its strong growth throughout 2016. This is reflected in year-to-date performance, as net insurance premiums earned increased by 7.0% y-o-y and net insurance claims incurred decreased by 11.2% y-o-y, driving y-o-y growth in gross insurance profit of 25.2%. This strong performance is mainly driven by the improved quality of the insurance portfolio that resulted from the termination of relationships with loss making clients. The improvement in 2016 also results from a base effect, as claims in 2015 year were high with GEL 1.3mln of expense recognised related to floods in Tbilisi. For P&C insurance segment financials please see page 39

 

7 Effective 17 May 2016, the National Bank of Georgia changed its minimum reserve requirements, with the goal to incentivise local currency lending. The minimum reserve requirement for local currency was reduced from 10% to 7% and the minimum reserve requirement for foreign currency has increased from 15% to 20%

 

OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF CREDIT RISK; PROFIT FOR THE PERIOD



Change


Change



Change

GEL thousands, unless otherwise noted

4Q16

4Q15

y-o-y

3Q16

q-o-q

2016

2015

y-o-y










Salaries and other employee benefits

(50,052)

(39,304)

27.3%

(45,575)

9.8%

(176,280)

(155,744)

13.2%

Administrative expenses

(25,714)

(21,657)

18.7%

(18,970)

35.6%

(83,792)

(74,381)

12.7%

Banking depreciation and amortisation

(9,841)

(8,982)

9.6%

(9,665)

1.8%

(37,981)

(34,199)

11.1%

 Other operating expenses 

(1,462)

(1,229)

19.0%

(1,165)

25.5%

(4,174)

(3,535)

18.1%

 Operating expenses 

(87,069)

(71,172)

22.3%

(75,375)

15.5%

(302,227)

(267,859)

12.8%

 Operating income before cost of credit risk 

145,414

129,976

11.9%

126,473

15.0%

500,227

483,467

3.5%

 Impairment charge on loans to customers 

(69,920)

(33,929)

106.1%

(29,936)

133.6%

(158,892)

(142,819)

11.3%

 Impairment charge on finance lease receivables

3,124

(215)

NMF

(3,258)

NMF

(777)

(1,958)

-60.3%

 Impairment charge on other assets and provisions

(4,077)

(1,086)

NMF

(1,331)

NMF

(8,892)

(6,740)

31.9%

 Cost of credit risk 

(70,873)

(35,230)

101.2%

(34,525)

105.3%

(168,561)

(151,517)

11.2%

 Net operating income before non-recurring items 

74,541

94,746

-21.3%

91,948

-18.9%

331,666

331,950

-0.1%

 Net non-recurring items 

(1,056)

(2,502)

-57.8%

3,474

NMF

(45,351)

(13,046)

NMF

 Profit before income tax 

73,485

92,244

-20.3%

95,422

-23.0%

286,315

318,904

-10.2%

 Income tax (expense) benefit

1,830

(11,653)

NMF

(5,665)

NMF

23,126

(44,647)

NMF

 Profit

75,315

80,591

-6.5%

89,757

-16.1%

309,441

274,257

12.8%

 

 

§ Operating expenses increased to GEL 87.1mln in 4Q16 (up 22.3% y-o-y and up 15.5% q-o-q) and to GEL 302.2mln in 2016 (up 12.8% y-o-y). Growth in operating expenses outpaced growth in revenue, and consequently operating leverage was negative in 4Q16 at 6.8 percentage points and also negative in 2016 at 6.0 percentage points, both on y-o-y basis. Both 4Q16 and full year 2016 operating expenses were driven by:

-       An increase in salaries and employee benefits, which mainly reflects the organic growth of our Retail Banking Business

-       Growth in year-to-date administrative expenses which was driven by the rent, marketing expenses and operating taxes compared with the same period last year. The increase in operating taxes is due to change in Georgian Tax code from January 2016 as a result of which the Group pays property taxes on investment properties owned

§ Cost of Risk and Cost of Risk ratio. For 4Q16, the y-o-y increase in Banking Business cost of credit risk is mainly attributable to the GEL devaluation, and the Group's subsequent review of its performing and non-performing US dollar denominated portfolios, which resulted in an increase in impairment of c.GEL 32 million. As a result, we recorded cost of credit risk of GEL 168.6mln in 2016, up 11.2% y-o-y (compared to 24.5% growth in loan book), and Cost of Risk ratio of 2.7%, flat y-o-y. Despite more than 13% GEL devaluation during the 4Q16, the quality of the Bank's loan book remains solid:

-       NPLs. NPLs were GEL 294.8mln, up 22.2% y-o-y and up 13.0% q-o-q. The increase reflects the growth in net loan book and the effect of the local currency devaluation

-       NPLs to gross loans. NPLs to gross loans were 4.2% as of 31 December 2016, down 10 bps y-o-y and down 20 bps q-o-q. Our Retail Banking NPLs to gross loans stood at 1.4%, down from 1.6% as of 30 September 2016 and 1.5% a year ago. CIB NPLs to gross loans were 8.0%, compared to 7.6% as of 30 September 2016 and 7.3% a year ago

-       The NPL coverage ratio. The NPL coverage ratio stood at 86.7% as of 31 December 2016, compared to 83.4% as of 30 December 2015 and 86.5% as of 30 September 2016. Our NPL coverage ratio adjusted for the discounted value of collateral was 132.1% as of 31 December 2016, compared to 120.6% as of 31 December 2015 and compared to 131.1% as of 30 September 2016

-       Past due rates. Our 15 days past due rate for retail loans stood at 1.2% as of 31 December 2016 compared to 0.9% as of 31 December 2015 and 1.3% as of 30 September 2016. 15 days past due rate for our mortgage loans stood at 0.6% as of 31 December 2016 compared to 0.4% as of 31 December 2015 and 0.6% as of 30 September 2016

§ Net non-recurring items and Income tax expense (benefit). For a discussion of the factors affecting these two items and their impact, see page 5 above

§ As a result of the foregoing, the Banking Business profit was GEL 75.3mln in 4Q16 (down 6.5% y-o-y and down 16.1% q-o-q) and GEL 309.4mln in 2016 (up 12.8% y-o-y). This resulted in an ROAE of 20.1% in 4Q16 (down 500bps y-o-y and down 460bps q-o-q) and of 22.1% in 2016 (up 40bps y-o-y)

 

 

§ BNB - the banking subsidiary in Belarus - incurred a loss of GEL 4.1mln in 4Q16 and a profit of GEL 2.7mln in 2016 (down 84.6% y-o-y)8; The earnings were negatively impacted by higher cost of risk due to the difficult economic environment in Belarus, a GEL 1.4 mln impairment charge on PPE, and a GEL 1.2mln loss from revaluation of investment property. The BNB loan book reached GEL 362.1mln, up 13.1% y-o-y, mostly consisting of an increase in SME loans. BNB client deposits were to GEL 233.5mln, down 15.9% y-o-y. BNB remains well capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. As at 31 December 2016, Total CAR was 15.5%, above 10% minimum requirement by the National Bank of the Republic of Belarus ("NBRB") and Tier I CAR was 9.5%, above the 6% minimum requirement by NBRB. Return on Average Equity ("ROAE") for BNB was negative 21.9% in 4Q16 (23.5% in 4Q15 and 13.0% in 3Q16), ending 2016 with ROAE of 2.6% compared to 22.3% for the same period last year. For BNB standalone financial highlights, please see page 39

 

BANKING BUSINESS BALANCE SHEET HIGHLIGHTS




Change


Change

GEL thousands, unless otherwise noted 

Dec-16

Dec-15

y-o-y

Sep-16

q-o-q







Liquid assets

3,712,489

3,006,991

23.5%

3,111,521

19.3%

Liquid assets, GEL

1,455,296

1,191,353

22.2%

1,257,008

15.8%

Liquid assets, FC

2,257,193

1,815,638

24.3%

1,854,513

21.7%

Net loans and finance lease receivables

6,681,672

5,366,764

24.5%

5,715,737

16.9%

Net loans and finance lease receivables, GEL

1,920,422

1,502,888

27.8%

1,699,647

13.0%

Net loans and finance lease receivables, FC

4,761,250

3,863,876

23.2%

4,016,090

18.6%

Client deposits and notes

5,730,419

4,993,681

14.8%

4,878,171

17.5%

Amounts due to credit institutions

3,067,651

1,692,557

81.2%

2,396,969

28.0%

Borrowings from DFIs

1,281,798

917,087

39.8%

1,188,544

7.8%

Short-term loans from central banks

1,085,640

307,200

253.4%

604,608

79.6%

        Loans and deposits from commercial banks

700,213

468,270

49.5%

603,817

16.0%

Debt securities issued

858,037

961,944

-10.8%

722,088

18.8%

Liquidity and CAR ratios






Net loans / client deposits and notes

116.6%

107.5%


117.2%


Net loans / client deposits and notes + DFIs

95.3%

90.8%


94.2%


Liquid assets as percent of total assets

33.0%

32.8%


32.2%


Liquid assets as percent of total liabilities

37.8%

38.3%


38.2%


NBG liquidity ratio

37.7%

46.2%


41.4%


Excess liquidity (NBG)

418,016

789,311

-47.0%

545,556

-23.4%

New NBG (Basel II) Tier I Capital Adequacy Ratio9

10.1%

10.9%


11.0%


New NBG (Basel II) Total Capital Adequacy Ratio9

15.4%

16.7%


16.2%


 

Our Banking Business balance sheet remained highly liquid (NBG Liquidity ratio of 37.7%) and well-capitalised (Tier I Capital Adequacy Ratio, NBG Basel 2/3 of 10.1%9) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 58.4%).

§ Liquidity: The NBG liquidity ratio stood at 37.7% as of 31 December 2016 compared to 46.2% a year ago, and against a regulatory minimum requirement of 30.0%. Liquid assets increased to GEL 3,712.5mln, up 23.5% y-o-y which was primarily due to increase in obligatory reserves mandated by the change in NBG regulation. Increase in local currency corporate bonds, which the Bank uses as collateral for short-term borrowing from NBG, was another contributor to growth in liquid assets

§ Diversified funding base. Short-term borrowings from NBG grew 253.4% y-o-y due to increase in local currency sourcing from International Financial Institutions whose GEL-denominated bonds were used as collateral for NBG loans. The increase in loans and deposits from commercial banks was partially a result of the GEL devaluation as these loans and deposits are primarily US dollar denominated. Net Loans to Customer Funds and DFIs ratio, a ratio closely observed by management, stood at 95.3%, up from 94.2% as of 30 September 2016 and from 90.8% as of 31 December 2015

§ Loan book. Our net loan book and financial lease receivables reached a record GEL 6,681.7mln, up 24.5% y-o-y and up 16.9% q-o-q. Both, local and foreign currency portfolios recorded strong growth with our focus to increase share of local currency loans in our portfolio

8 BNB 2016 profit reflects the deferred tax adjustment attributable to BNB. Before this adjustment, BNB profit was GEL 6.2mln in 2016

9 See the footnote 2 in Banking Business Highlights section on page 6

 

 

Discussion of Segment Results

 

The segment results discussion is presented for Retail Banking (RB), Corporate Investment Banking (CIB), Utility & Energy Business (GGU), 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

4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


2016

2015

Change

y-o-y











INCOME STATEMENT HIGHLIGHTS










Net banking interest income 

111,109

85,318

30.2%

95,507

16.3%


374,022

322,879

15.8%

Net fee and commission income 

26,810

21,264

26.1%

22,402

19.7%


90,193

78,218

15.3%

Net banking foreign currency gain

8,825

3,697

138.7%

8,198

7.6%


26,086

17,108

52.5%

Net other banking income

989

3,950

-75.0%

1,097

-9.8%


3,833

9,159

-58.2%

Revenue 

147,733

114,229

29.3%

127,204

16.1%


494,134

427,364

15.6%

Salaries and other employee benefits

(31,149)

(23,613)

31.9%

(27,315)

14.0%


(106,396)

(92,091)

15.5%

Administrative expenses

(17,287)

(14,445)

19.7%

(13,179)

31.2%


(57,743)

(50,398)

14.6%

Banking depreciation and amortisation

(8,052)

(7,259)

10.9%

(7,910)

1.8%


(30,943)

(27,714)

11.7%

Other operating expenses 

(818)

(782)

4.6%

(837)

-2.3%


(2,545)

(2,093)

21.6%

Operating expenses 

(57,306)

(46,099)

24.3%

(49,241)

16.4%


(197,627)

(172,296)

14.7%

Operating income before cost of credit risk

90,427

68,130

32.7%

77,963

16.0%


296,507

255,068

16.2%

Cost of credit risk

(19,272)

(15,371)

25.4%

(20,691)

-6.9%


(75,690)

(75,407)

0.4%

Net non-recurring items 

(1,921)

(2,494)

-23.0%

2,297

NMF


(32,002)

(8,945)

NMF

Profit before income tax 

69,234

50,265

37.7%

59,569

16.2%


188,815

170,716

10.6%

Income tax (expense) benefit

(1,235)

(7,608)

-83.8%

(3,147)

-60.8%


20,475

(23,994)

NMF

 Profit

67,999

42,657

59.4%

56,422

20.5%


209,290

146,722

42.6%










 

BALANCE SHEET HIGHLIGHTS









 

Net loans, Currency Blended

3,902,306

2,796,479

39.5%

3,286,958

18.7%


3,902,306

2,796,479

39.5%

Net loans, GEL

1,530,661

1,279,286

19.6%

1,374,161

11.4%


1,530,661

1,279,286

19.6%

Net loans, FC

2,371,645

1,517,193

56.3%

1,912,797

24.0%


2,371,645

1,517,193

56.3%

Client deposits, Currency Blended

2,413,569

1,880,018

28.4%

2,084,371

15.8%


2,413,569

1,880,018

28.4%

Client deposits, GEL

603,149

486,806

23.9%

565,240

6.7%


603,149

486,806

23.9%

Client deposits, FC

1,810,420

1,393,212

29.9%

1,519,131

19.2%


1,810,420

1,393,212

29.9%

of which:










Time deposits, Currency Blended

1,437,644

1,156,382

24.3%

1,261,273

14.0%


1,437,644

1,156,382

24.3%

Time deposits, GEL

228,047

192,178

18.7%

219,117

4.1%


228,047

192,178

18.7%

Time deposits, FC

1,209,597

964,204

25.5%

1,042,156

16.1%


1,209,597

964,204

25.5%

Current accounts and demand deposits, Currency Blended

975,925

723,636

34.9%

823,098

18.6%


975,925

723,636

34.9%

Current accounts and demand deposits, GEL

375,102

294,628

27.3%

346,123

8.4%


375,102

294,628

27.3%

Current accounts and demand deposits, FC

600,823

429,008

40.0%

476,975

26.0%


600,823

429,008

40.0%










 

KEY RATIOS









 

ROAE Retail Banking

35.8%

28.6%


31.6%



30.5%

24.6%

 

Net interest margin, currency blended

9.3%

9.6%


9.0%



9.2%

9.6%

 

Cost of risk

2.0%

2.1%


2.4%



2.3%

2.6%

 

Cost of funds, currency blended

5.1%

6.9%


5.4%



5.7%

6.4%

 

Loan yield, currency blended

16.4%

17.9%


16.6%



16.8%

17.6%

 

Loan yield, GEL

25.4%

25.4%


25.5%



25.4%

24.2%

 

Loan yield, FC

10.1%

11.2%


10.0%



10.2%

10.6%

 

Cost of deposits, currency blended

3.1%

3.5%


3.3%



3.3%

3.9%

 

Cost of deposits, GEL

4.0%

4.4%


4.5%



4.5%

4.7%

 

Cost of deposits, FC

2.7%

3.2%


2.9%



2.9%

3.5%

 

Cost of time deposits, currency blended

4.5%

5.2%


4.8%



4.9%

5.5%

 

Cost of time deposits, GEL

8.6%

9.3%


9.3%



9.3%

8.7%

 

Cost of time deposits, FC

3.7%

4.4%


3.9%



4.0%

4.7%

 

Current accounts and demand deposits, currency blended

0.8%

0.9%


0.9%



0.9%

1.2%

 

Current accounts and demand deposits, GEL

1.1%

1.0%


1.4%



1.2%

1.5%

 

Current accounts and demand deposits, FC

0.6%

0.8%


0.6%



0.6%

0.9%

 

Cost / income ratio

 

 

38.8%

40.4%


38.7%



40.0%

40.3%

 

 

Performance highlights

 

§ Retail Banking has continued its strong performance across all major business lines and recorded revenue of GEL 147.7mln in 4Q16 (up 29.3% y-o-y) and GEL 494.1mln (up 15.6% y-o-y) in 2016

§ Net banking interest income is growing on the back of the strong growth in the loan book and also reflects growth in the local currency loan portfolio which picked up in 4Q16. However, our foreign currency denominated loan book growth still outpaced the growth of local currency denominated loan book. Dollarisation of the loan book increased y-o-y from 54.3% as at 31 December 2015 to 60.8% as at 31 December 2016, with net loans in foreign currency increasing 56.3% y-o-y

§ The Retail Banking net loan book reached a record level of GEL 3,902.3mln, up 39.5% y-o-y. Foreign currency denominated loans grew to GEL 2,371.6 mln (up 56.3% y-o-y) compared to local currency loans that increased to GEL 1,530.7mln (up 19.6% y-o-y)

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

-       Consumer loan originations totalled GEL 312.8mln in 4Q16 and GEL 1019.0mln in 2016, resulting in consumer loans outstanding of GEL 886.6mln as of 31 December 2016, up 41.4% y-o-y

-       Micro loan originations totalled GEL 272.4mln in 4Q16 and GEL 800.3mln in 2016, resulting in micro loans outstanding of GEL 856.7mln as of 31 December 2016, up 56.7% y-o-y

-       SME loan originations totalled GEL 166.3mln in 4Q16 and GEL 509.4mln in 2016, resulting in SME loans outstanding of GEL 489.6mln as of 31 December 2016, up 37.1% y-o-y

-       Mortgage loan originations totalled GEL 239.0mln in 4Q16 and GEL 717.7mln in 2016, resulting in mortgage loans outstanding of GEL 1,227.6mln as of 31 December 2016, up 51.7% y-o-y

-       Originations of loans disbursed at merchant locations totalled GEL 69.0mln in 4Q16 and GEL 220.9mln in 2016, resulting in loans disbursed at merchant locations outstanding of GEL 121.2mln as of 31 December 2016, up 1.5% y-o-y

§ Retail Banking client deposits increased to GEL 2,413.6mln, up 28.4% y-o-y, notwithstanding a decrease of 60bps y-o-y in the cost of deposits. The dollarisation of our deposits has increased slightly to 75.0% from 74.1% a year ago. Foreign currency denominated deposits grew to GEL 1,810.4 mln (up 29.9% y-o-y) compared to local currency denominated deposits that grew to GEL 603.1mln (up 23.9% y-o-y)

§ Retail Banking NIM was 9.3% in 4Q16, down 30bps y-o-y and up 30bps q-o-q, ending 2016 with 9.2%, down 40bps y-o-y. The increasing dollarisation of our loan book had an important impact on the retail NIM. Our focus going forward continues to be the growth in local currency lending, which will be supported by the new lines of longer term local currency funding that we have been sourcing since the beginning of 2016

§ The number of Retail Banking clients totalled 2.1mln, up 7.1% y-o-y and the number of cards totalled 2,056,258 , up 5.0% y-o-y

§ Our express banking franchise, the major driver of fee and commission income, added 25,757 Express Banking customers during the fourth quarter of 2016 and 46,617 clients during 2016, accumulating a total of 471,967 clients by the end of 2016. The growth in client base has triggered a significant increase in the volume of banking transactions, up 55% 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 26.8mln, up 26.1% y-o-y for 4Q16 with the 2016 result reaching GEL 90.2mln, up 15.3% y-o-y. See below for more information on the development of our express banking franchise

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

-       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

-       As of 31 December 2016, 1,279,113 Express Cards were outstanding, compared to 1,045,433 cards outstanding on the same date last year185,227 Express Cards were issued in 4Q16, up 34.0% y-o-y, leading to total of 566,394 Express Cards issued in 2016, up 20.5% on 2015.

-       We have increased number of Express Pay terminals to 2,729, from 2,589 a year ago. Express Pay terminals are an alternative to tellers, placed at bank branches as well as various other venues (groceries, shopping centres, 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

-       The utilisation of Express Pay terminals continued to grow in 2016. The volume of transactions reached GEL 936.0mln, up 38.6% y-o-y and the number of transactions was 27.2mln, down 9.8% y-o-y for the first time. This decrease was a result of a management decision to introduce transaction fees on non-banking transactions processed through Express Pay terminals, however, this introduction had a positive impact on the Bank's fees and commission income. In 2016, the number of transactions increased to 117.5mln, up 3.9% y-o-y and volume of transactions reached GEL 3,167.4mln, up 45.4% y-o-y

-       Increased Point of Sales ("POS") footprint to  8,516 desks and 4,514 contracted merchants as of 31 December 2016, up from  6,632 desks and 3,335 contracted  merchants as of 31 December 2015

-       The number of POS terminals reached 10,357, up 27.8% from  8,103 a year ago

-       The volume of transactions through the Bank's POS terminals grew to GEL 290.1mln in 4Q16, up 43.1% y-o-y. For 2016, the volume of transactions reached GEL926.3mln, up 30.4% y-o-y

-       The number of transactions via Internet banking has increased to 1.7mln in 4Q16, up from 1.2mln a year ago, with volume reaching GEL 434.4mln, up 94.9% y-o-y. In 2016, the number of transactions reached 5.8mln, up from 4.4mln a year ago, with volume of transaction reaching GEL 1,290.6mln, up 68.7% y-o-y

-     The number of transactions via mobile banking reached 0.86mln in 4Q16, up from 0.5mln a year ago, with volume reaching GEL 89.6mln, up 144.6% y-o-y. For 2016, number of transactions reached 2.6mln, up from 1.7mln a year ago, with volume reaching GEL 246.3mln, up 90.5% y-o-y

§ The number of Solo clients reached 19,267 at the end of 2016, up 132.6% since its re-launch in April 2015. We have now launched 11 Solo lounges, of which 8 are located in Tbilisi, the capital city and 3 in major regional cities in Georgia. In 2016, profit per Solo client was GEL 1,692 compared to a profit of GEL 77 and GEL 65 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 6.9, compared to 3.1 and 1.7 for Express and mass retail clients. While Solo clients currently represent c.0.9% of our total retail client base, they contributed 21.7% to our retail loan book, 36.5% to our retail deposits, 9.5% to our net interest income and 10.9% to our net fee and commission income. Our goal 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. See below for more information on Solo

§ 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 financial products 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 world famous artists and other entertainments for solo clientele exclusively, as well as handpicked lifestyle products. Solo organised two Sting concerts in February 2016, where over 4,500 Solo clients had exclusive access to the event, at cost. In September 2016, Solo clientele enjoyed the concerts of world famous Eric Benét and in January 2017, Boyz II Man performed for Solo clients in Tbilisi. The events were met with strong demand and were regarded highly by Solo clients. All these events were held in Tbilisi

§ RB cost to income ratio remained well-controlled and improved to 40.0% down by 30 bps y-o-y. Retail Banking Cost to Income ratio continued the improving trend of 2016 into the 4Q16 and stood at 38.8% in 4Q16, compared to 38.7% in 3Q16, 39.9% in 2Q16 and 43.3% in 1Q16. This is a result of increasing utilisation of our newly launched Solo lounges combined with the increasing number of clients and growth of Express Banking which is the most cost efficient among the three Retail Banking segments

§ The cost of credit risk was GEL 19.3mln (up 25.4% y-o-y) and GEL 75.7mln (up 0.4% y-o-y) for 4Q16 and 2016, respectively. Cost of Risk ratio was 2.0% in 4Q16 down from 2.1% in 4Q15 and down from 2.4% in 3Q16, ending 2016 with Cost of Risk of 2.3%, down from 2.6% a year ago

§ As a result, Retail Banking profit reached GEL 68.0mln (up 59.4% y-o-y) and GEL 209.3mln (up 42.6% y-o-y) for 4Q16 and 2016, respectively. Retail Banking continued to deliver an outstanding ROAE, which stood at 35.8% in 4Q16 compared to 28.6% in 4Q15 and 31.6% in 3Q16, whilst ROAE for 2016 was 30.5% compared to 24.6% a year ago

 

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) and (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

4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


2016

2015

Change

y-o-y

INCOME STATEMENT HIGHLIGHTS










 Net banking interest income 

39,168

39,381

-0.5%

34,457

13.7%


147,108

156,068

-5.7%

 Net fee and commission income 

8,133

8,781

-7.4%

6,680

21.8%


27,963

34,335

-18.6%

 Net banking foreign currency gain

16,158

13,942

15.9%

12,196

32.5%


48,643

41,763

16.5%

 Net other banking income

2,518

4,328

-41.8%

3,244

-22.4%


10,170

10,112

0.6%

 Revenue 

65,977

66,432

-0.7%

56,577

16.6%


233,884

242,278

-3.5%

 Salaries and other employee benefits

(12,368)

(9,982)

23.9%

(12,851)

-3.8%


(47,731)

(43,333)

10.1%

 Administrative expenses

(4,943)

(4,231)

16.8%

(3,223)

53.4%


(15,214)

(14,574)

4.4%

 Banking depreciation and amortisation

(1,262)

(1,242)

1.6%

(1,285)

-1.8%


(5,124)

(4,612)

11.1%

 Other operating expenses 

(330)

(242)

36.4%

(246)

34.1%


(1,031)

(839)

22.9%

 Operating expenses 

(18,903)

(15,697)

20.4%

(17,605)

7.4%


(69,100)

(63,358)

9.1%

 Operating income before cost of credit risk

47,074

50,735

-7.2%

38,972

20.8%


164,784

178,920

-7.9%

 Cost of credit risk 

(42,172)

(11,991)

NMF

(10,608)

NMF


(76,266)

(56,158)

35.8%

 Net non-recurring items 

2,267

(2,524)

NMF

1,191

90.3%


(11,934)

(4,877)

144.7%

 Profit before income tax 

7,169

36,220

-80.2%

29,555

-75.7%


76,584

117,885

-35.0%

 Income tax (expense) benefit

2,885

(5,416)

NMF

(1,308)

NMF


11,698

(17,255)

NMF

 Profit

10,054

30,804

-67.4%

28,247

-64.4%


88,282

100,630

-12.3%











BALANCE SHEET HIGHLIGHTS










Letters of credit and guarantees, standalone*

511,615

511,399

0.0%

427,287

19.7%


511,615

511,399

0.0%

Net loans and finance lease receivables, Currency Blended

2,394,876

2,210,964

8.3%

2,083,381

15.0%


2,394,876

2,210,964

8.3%

Net loans and finance lease receivables, GEL

400,395

220,306

81.7%

335,533

19.3%


400,395

220,306

81.7%

Net loans and finance lease receivables, FC

1,994,481

1,990,658

0.2%

1,747,848

14.1%


1,994,481

1,990,658

0.2%

Client deposits, Currency Blended

3,059,150

2,871,323

6.5%

2,580,099

18.6%


3,059,150

2,871,323

6.5%

Client deposits, GEL

772,253

797,238

-3.1%

617,313

25.1%


772,253

797,238

-3.1%

Client deposits, FC

2,286,897

2,074,085

10.3%

1,962,786

16.5%


2,286,897

2,074,085

10.3%

Time deposits, Currency Blended

1,230,627

1,248,720

-1.4%

1,119,716

9.9%


1,230,627

1,248,720

-1.4%

Time deposits, GEL

135,002

187,437

-28.0%

141,074

-4.3%


135,002

187,437

-28.0%

Time deposits, FC

1,095,625

1,061,283

3.2%

978,642

12.0%


1,095,625

1,061,283

3.2%

Current accounts and demand deposits, Currency Blended

1,828,523

1,622,603

12.7%

1,460,383

25.2%


1,828,523

1,622,603

12.7%

Current accounts and demand deposits, GEL

637,251

609,801

4.5%

476,239

33.8%


637,251

609,801

4.5%

Current accounts and demand deposits, FC

1,191,272

1,012,802

17.6%

984,144

21.0%


1,191,272

1,012,802

17.6%

Assets under management

1,591,963

1,373,112

15.9%

1,407,981

13.1%


1,591,963

1,373,112

15.9%











RATIOS










ROAE, Corporate Investment Banking

6.1%

21.7%


17.9%



14.5%

18.5%


Net interest margin, currency blended

3.6%

3.8%


3.4%



3.6%

3.9%


Cost of risk

6.6%

1.8%


1.9%



3.1%

2.2%


Cost of funds, currency blended

5.1%

4.3%


4.7%



4.7%

4.6%


Loan yield, currency blended

11.1%

10.8%


10.1%



10.4%

10.7%


Loan yield, GEL

13.0%

13.3%


12.6%



13.2%

12.6%


Loan yield, FC

10.8%

10.6%


9.8%



10.1%

10.4%


Cost of deposits, currency blended

3.6%

4.6%


3.5%



3.9%

4.1%


Cost of deposits, GEL

5.0%

7.5%


4.9%



6.3%

5.2%


Cost of deposits, FC

3.2%

3.3%


3.1%



3.1%

3.6%


Cost of time deposits, currency blended

5.8%

6.1%


6.0%



5.9%

6.3%


Cost of time deposits, GEL

9.2%

9.1%


9.5%



9.5%

8.0%


Cost of time deposits, FC

5.4%

5.5%


5.4%



5.3%

5.8%


Current accounts and demand deposits, currency blended

2.0%

3.4%


1.8%



2.6%

2.1%


Current accounts and demand deposits, GEL

3.9%

7.3%


3.5%



5.4%

4.0%


Current accounts and demand deposits, FC

1.0%

0.9%


1.0%



0.9%

1.1%


Cost / income ratio

28.7%

23.6%


31.1%



29.5%

26.2%


Concentration of top ten clients

11.8%

12.7%


11.9%



11.8%

12.7%


 

*Off-balance sheet item

 

 

 

Performance highlights

 

§ A key focus of Corporate Investment Banking business is to increase ROAE and we are doing this by deconcentrating our loan book and decreasing the credit losses, 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 deconcentration strategy, reducing the concentration of our top 10 Corporate Investment Banking clients to 11.8% by the end of 4Q16, down from 12.7% a year ago

-       CIB net banking interest income reflects our continuous efforts towards CIB loan portfolio de-concentration. 4Q16 showed a healthy 13.7% rebound from 3Q16 as a result of (1) the higher GEL interest income from FX denominated loans and (2) increase of local currency denominated loans, which bear higher interest rates than FX denominated loans, in the total CIB portfolio

-       CIB net fee and commission income represented GEL 28.0mln or 12.0% of total CIB revenue in 2016 compared to GEL 34.3mln or 14.2% a year ago. The decline was mainly driven by the decrease in commission fee income from guarantees (income from guarantees was GEL 12.6mln in 2016, down by GEL 6.2mln or 33.0% y-o-y), which is a result of our de-concentration efforts as we reduced our large guarantee exposures (as mentioned in the Banking business discussion above)

-       Cost of credit risk was GEL 42.2mln for 4Q16 (more than tripled y-o-y) and GEL 76.3mln for 2016 (up 35.8% y-o-y). For 4Q16, the y-o-y increase in CIB cost of credit risk is mainly attributable to the GEL devaluation, and the Group's subsequent portfolio review, which led to an increase in impairment provisioning of c. GEL 31 million in the fourth quarter of 2016. As a result, we recorded Cost of Risk at 6.6% in 4Q16, ending 2016 at 3.1%, up 90 bps y-o-y

-       As a result of the foregoing, CIB ROAE has declined to 14.5% in 2016, compared to 18.5% a year ago

§ The loan book dedollarisation continued in 4Q16 with the share of US Dollar denominated loans reaching 83.3%, compared to 90.0% a year ago. This trend also reflects the increased volatility and depreciation of the local currency against the US Dollar during 2016, as Georgian corporates chose to increasingly borrow or convert existing borrowings into the local currency. This trend stood notwithstanding increasing loan yields for local currency denominated loans (13.2% for 2016, up 60bps y-o-y) on the back of decreasing loan yields for foreign currency denominated loans (10.1% for 2016, down 30bps y-o-y)

§ On the other hand, dollarisation of our CIB deposits increased to 74.8% from 72.2% a year ago, which reflects similar driver as for the dedollarisation of the loan book. Dollarisation of our deposits increased notwithstanding increase in local currency deposit rates and decrease in foreign currency deposit rates. During 2016, we continued to decrease our cost of deposits in local currency from 8.0% in 1Q16 to 5.0% in 4Q16, alongside the reduction in the NBG policy rate. Cost of deposits in foreign currency remained in the range of 3.0-3.2% throughout the whole year. In 2016, cost of deposits in local currency stood at 6.3%, up 110 bps y-o-y, while cost of deposits in foreign currency decreased by 50 bps y-o-y reaching 3.1%. Subsequently, total deposits reached GEL 3,059.2, up 6.5% y-o-y at the end of 2016

§ Corporate Investment Banking recorded NIM of 3.6% in 4Q16, down 20bps y-o-y and up 20bps q-o-q, ending 2016 with NIM of 3.6%, down 30 bps y-o-y

§ Our foreign currency operations were strong and as a result, our net banking foreign currency gain increased to GEL 16.2mln in 4Q16 (up 15.9% y-o-y) and increased to GEL 48.6mln in 2016 (up 16.5% y-o-y)

§ CIB cost to income ratio increased as a result of the deconcentration efforts, which led to higher reduction in revenues with less impact on the operating costs

§ As a result, Corporate Investment Banking profit reached GEL 10.1mln in 4Q16, down 67.4% y-o-y from GEL 30.8mln in 4Q15 with 2016 result of GEL 88.3mln, down 12.3% y-o-y from GEL 100.6mln a year ago

Performance highlights of wealth management operations

§ The AUM of the Investment Management segment increased to GEL 1,592.0mln at the end of 2016, up 15.9% y-o-y. This includes deposits of Wealth Management clients  and assets held at Bank of Georgia Custody, Galt & Taggart brokerage client assets and Aldagi pension scheme assets

§ Wealth Management deposits were GEL 1,101.9mln, up 7.7% y-o-y, growing at a compound annual growth rate (CAGR) of 19.4% over the last five-year period. Growth continued in the face of a 30 bps decline in the Cost of Client deposits to 4.5% in 4Q16 and the impact of Wealth Management clients switching from deposits to bonds, as a number of bond issuances, yielding higher rates than deposits were offered by  Galt & Taggart to Wealth Management clients

§ We served 1,383 wealth management clients from 68 countries as of 31 December 2016

§ Galt & Taggart continued to develop local capital markets in 2016. Galt & Taggart acted as:

-       a sole placement agent for Black Sea Trade and Development Bank (BSTDB) offering of the five-year, GEL denominated bond in the amount of GEL 60mln (August)

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

-       an agent for the Group's wholly owned real estate subsidiary m2 Real Estate facilitating a US$ 25mln 3-year bonds placement into the local market (October)

-       a joint placement agent for the Group's wholly owned utility and energy subsidiary Georgia Global Utilities and placed a GEL 30mln 5-year local currency bond for its water utility business unit into the local market (December)

-       Galt & Taggart launched Regional Fixed Income Market Watch on 19 September 2016. The report is released monthly and covers the debt markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, and Ukraine. Regional Fixed Income Market Watch provides market data for both locally and internationally listed debt issuances from these countries. Furthermore, the report includes country-level macro indicators, such as sovereign ratings, monetary policy rates, economic growth, fiscal and current account balances

-     Galt & Taggart Research 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, healthcare and tourism sectors; fixed income issuances, including Georgian Oil and Gas Corporation and Georgian Railway; and the Georgian State Budget

 

 

Investment Business Segment Result Discussion

 

Utility & Energy Business (Georgia Global Utilities - GGU)

 

About GGU

Natural monopoly in the water business, with upside in electricity generation and sales. Our utility and energy business is operated through the Group's wholly-owned subsidiary Georgia Global Utilities (GGU). GGU has two main business lines - a water utility and electric power generation - and it is a major player on both markets. In its water utility business, GGU is a natural monopoly that supplies water and provides a wastewater service to 1.4mln people (more than one-third of Georgia's population) in three cities: Tbilisi, Mtskheta and Rustavi

GGU is self-sufficient in power for water transportation and it benefits from additional revenue from third-party electricity sales. GGU owns and operates three hydropower generation facilities (and manages an additional facility) with a total capacity of 149.1MW. It is also investing in additional capacity for electricity generation through the development of hydro power plants, as well as solar and wind power sources. Average annual production varies between 380GWh and 560GWh, depending on rainfall during the year. Its average annual electricity consumption for its own account varies between 270GWh and 300GWh, which means GGU is self-sufficient in power for water transportation and it benefits from additional revenue from third-party electricity sales. During the last few years the company has achieved certain efficiencies in terms of its own energy consumption. The involvement in hydro power also provides revenue diversification

Room for efficiencies in water business from improving the worn-out infrastructure. The Georgian water pipeline infrastructure is dilapidated due to legacy underinvestment. The poor condition of the infrastructure is the main reason for leaks and accidents, causing on average 50% water loss annually. An additional 20% loss of water is caused by unregistered customers. The current high level of water losses is significantly worse than the peer average and represents a strong efficiency upside for the business. GGU owns and operates a water supply network of around 2,700km and about 1,700km of wastewater pipelines. It also has 45 pumping stations, 84 service reservoirs with a total capacity of 320,000 m3 and one water treatment plant. Around 510,000,000 m3 of potable water is supplied from water production/treatment facilities annually. By improving the pipeline infrastructure and as a result reducing the water supplied to its utility customers, GGU expects to free-up water supply for additional electricity generation, which in turn can be sold to third parties

Water tariff & regulation. The current water tariff for residential customers stands at GEL 3.15 (per month, per capita) for non-metered customers and at GEL 0.27 per m3 for metered customers. All of GGU's commercial customers are metered and the tariff stands at GEL 4.40 per m3. The tariff is set per cubic meter of water supplied to customers. GNERC (Georgian National Energy and Water Supply Regulatory Commission) regulates GGU's water tariffs. GNERC is an independent regulatory body, not subject to direct supervision from any other state authority, but accountable to parliament. It is funded predominantly from the fees paid by market participants (0.3% of total revenues)

Strong cash flow generation is expected to enable GGU to sponsor stable dividend payouts to shareholders starting from 2018. GWP, a wholly owned subsidiary of GGU, which operates the water business, has a credit rating of BB- with stable outlook from Fitch

 

Standalone results

BGEO Group owns 100% of GGU, which it acquired in two transactions. In December 2014, BGEO acquired a 25% shareholding in GGU for c.GEL 49.4mln (US$ 26.25mln). In July 2016, BGEO announced the acquisition of the remaining 75% equity stake for the cash consideration of c.GEL 164.2mln (US$ 70.0mln). The Group started consolidating GGU results on 21 July 2016. Prior to this, the Group reported results of GGU's operations under "profit from associates". The results below refer to GGU's standalone numbers. GGU's stand-alone results, including the related comparative information, reflect the energy & utility business performance as a separate legal entity. The Group started consolidating GGU's results since 21 July 2016, which is when the Group obtained control over the company

 

INCOME STATEMENT

 GEL thousands; unless otherwise noted

4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


2016

2015

Change

y-o-y











Revenue from water supply to legal entities

 19,598

 17,493

12.0%

 22,203

-11.7%


 78,187

 74,587

4.8%

Revenue from water supply to individuals

 8,636

 8,220

5.1%

 7,735

11.6%


 31,503

 30,170

4.4%

Revenue from electric power sales

 3,641

 359

NMF

 2,309

57.7%


 10,112

 9,182

10.1%

Revenue from technical support

 2,056

 1,028

100.0%

 1,319

55.9%


 4,166

 3,683

13.1%

Other income

 2,312

 (192)

NMF

 648

NMF


 3,458

 647

NMF

Revenue

 36,243

 26,908

34.7%

 34,214

5.9%


 127,426

 118,269

7.7%

Provisions for doubtful trade receivables

 687

 (119)

NMF

 (1,412)

NMF


 (2,198)

 (432)

NMF

Salaries and benefits

 (4,010)

 (4,376)

-8.4%

 (4,566)

-12.2%


 (17,181)

 (20,920)

-17.9%

Electricity and transmission costs

 (3,748)

 (3,261)

14.9%

 (4,575)

-18.1%


 (17,383)

 (11,554)

50.5%

Raw materials, fuel and other consumables 

 85

 (1,451)

NMF

 (958)

NMF


 (2,845)

 (5,253)

-45.8%

Infrastructure assets maintenance expenditure 

 (402)

 (1,573)

-74.4%

 (788)

-49.0%


 (2,402)

 (4,251)

-43.5%

General and administrative expenses

 (751)

 (917)

-18.1%

 (700)

7.3%


 (3,036)

 (2,950)

2.9%

Taxes other than income tax

 (1,155)

 (975)

18.5%

 (806)

43.3%


 (3,518)

 (3,398)

3.5%

Professional fees

 (819)

 (1,317)

-37.8%

 (523)

56.6%


 (2,350)

 (2,475)

-5.1%

Insurance expense

 (269)

 (69)

NMF

 (258)

4.3%


 (793)

 (317)

150.2%

Other operating expenses

 (2,085)

 (1,527)

36.5%

 (1,869)

11.6%


 (7,632)

 (5,001)

52.6%

Operating expenses

 (12,467)

 (15,585)

-20.0%

 (16,455)

-24.2%


 (59,338)

 (56,551)

4.9%

EBITDA

 23,776

 11,323

110.0%

 17,759

33.9%


 68,088

 61,718

10.3%

EBITDA Margin

66%

42%


52%



53%

52%


Depreciation and amortisation

 (3,753)

 (4,735)

-20.7%

 (4,457)

-15.8%


 (16,595)

 (17,919)

-7.4%

EBIT

 20,023

 6,588

203.9%

 13,302

50.5%


 51,493

 43,799

17.6%

EBIT Margin

55%

24%


39%



40%

37%


Net interest expense

 (3,049)

 (2,446)

24.7%

 (2,822)

8.0%


 (10,764)

 (7,480)

43.9%

Foreign exchange gains(losses)

 190

 (185)

NMF

 (131)

NMF


 (476)

 (14,158)

-96.6%

EBT

 17,164

 3,957

333.8%

 10,349

65.9%


 40,253

 22,161

81.6%

Income tax (expense)/benefit

 (1,659)

 (1,755)

-5.5%

 (1,168)

42.0%


 (4,579)

 (6,948)

-34.1%

Profit

 15,505

 2,202

604.1%

 9,181

68.9%


 35,674

 15,213

134.5%

 

Performance highlights

§ GGU recorded revenue of GEL 36.2mln (up 34.7% y-o-y) and GEL 127.4mln (up 7.7% y-o-y) in 4Q16 and in 2016, respectively. For the full year of 2016, revenue grew across all business lines, particularly in electricity sales which is a major focus area for the company, as well as technical support, which includes new connections performed on behalf of our clients and indicates an increased revenue stream in future. Revenue from water sales represented c.77.9% of total revenue in 4Q16 and 86.1% in 2016

§ Water consumption is characterised by seasonality as GGU generally expects sales in the 2nd half of the year to exceed sales in the 1st half of the year, with the sales in 3rd quarter being the highest

§ During the fourth quarter of 2016, GGU increased the number of individual customers billed, as a result of the verification completed through a number of methodologies, including reconciliation of the customer database with that of the civil registry. This one off effect was the primary driver of the increase in revenue from water supply to individuals in 4Q16, compared to 3Q16

-       Unregistered customers are one of the major reasons for the unrecovered revenue. GGU regularly under-recovers its water revenue from residential consumers due to discrepancies between customers formally registered with the provider and actual customers. Currently there are 1.17mln people living in Tbilisi while GGU only has 1.04mln registered people. Some water is also being supplied, but is not billed for, resulting from the challenges associated with accurate accounting for water consumption. GGU is dealing with these issues by aligning its own customer databases with the state registry to identify the unregistered customers and improving metering. The company also expects to recover some of its past due revenues

 

§ Revenue from electricity sales grew significantly in 4Q16 and reached GEL 3.6mln. This is a result of the higher selling price (49% up compared to last year) and higher volume sold (up 81%) in 4Q16 compared to the same period last year. The fourth quarter was thus the major driver of the 10.1% increase in electricity sales for the full year 2016

§ GGU continues to deliver a good performance on cost efficiencies. Salaries and benefits have been further reduced by 8.4% y-o-y in 4Q16 and by 17.9% in 2016 compared to last year's results. GGU invests in the rehabilitation of its infrastructure with a focus on improving efficiency in the medium to long term. More prudent rehabilitation works enabled GGU to reduce infrastructure asset maintenance expenditure - which was down 43.5% y-o-y while at the same time reducing the number of accidents on the infrastructure

§ Professional fees have overall decreased y-o-y as GGU spent 37.8% less in 4Q16, compared to last year result. This expense was related to a research on its existing infrastructure to identify further efficiency opportunities as well as areas for additional hydro power station development

§ However, overall operating expenses are up for 2016 by 4.9% y-o-y, primarily due to the increase in the electricity and transmission cost due to the tariff increase (GGU pays transmission cost with regard to its own electricity consumption, no transmission cost is paid for electricity sold to third-parties). The main other items that contributed to the increase in operating expenses were the y-o-y increase in provisions for doubtful trade receivables (which partially reversed in 4Q16), resulting from the clean-up of legacy accounts, and the increase in other operating expenses due to small one-off items. Excluding the electricity and transmission costs, which was an unusual change, operating expenses decreased by 6.8% y-o-y

§ Consequently, GGU reported EBITDA of GEL 23.8mln in 4Q16 and GEL 68.1mln in 2016

§ With the goal to eliminate foreign currency exchange rate risk exposure, GGU focused on converting its foreign currency denominated loans into local currency during 2016. This strategy significantly reduced GGU's exposure to foreign exchange rate volatility risk. Therefore, in aggregate net interest expense and foreign exchange losses were almost halved, as the reduction in foreign exchange losses outweighed the increase in the cost of funding as local currency borrowings are more expensive compared to foreign currency borrowings

§ GGU will benefit from the change in the corporate income tax legislation in Georgia, which is effective for the company from 1 January 2017. As a result, GGU adjusted its deferred income tax assets and liabilities and recorded a gain of GEL 29.4mln in 2016, of which, GEL 27.5mln was recorded directly in equity as an increase in the revaluation reserve balance and GEL 1.9mln was recognised in the income statement as reduction to the income tax expense

§ As a result, GGU more than doubled last year's profit in 2016 to GEL 35.7mln

 

STATEMENT OF CASH FLOW

GEL thousands; unless otherwise noted

4Q16

4Q15

Change y-o-y

3Q16

Change

q-o-q


2016

2015

Change y-o-y











Cash receipt from customers

 41,042

 36,231

13.3%

36,653

12.0%


 139,886

 137,952

1.4%

Cash paid to suppliers

 (8,066)

 (9,388)

-14.1%

(13,230)

-39.0%


 (45,858)

 (35,002)

31.0%

Cash paid to employees

 (6,640)

 (6,126)

8.4%

(4,454)

49.1%


 (18,520)

 (21,317)

-13.1%

Interest received

 30

 (666)

NMF

19

57.9%


 216

 (541)

NMF

Interest paid

 (2,653)

 (2,061)

28.7%

(2,776)

-4.4%


 (10,388)

 (7,391)

40.5%

Taxes paid

 (2,202)

 (5,580)

-60.5%

(2,539)

-13.3%


 (11,087)

 (21,334)

-48.0%

     Restricted cash in Bank

 (2,729)

 -  

-

234

NMF


 (2,355)

 -  

-

Cash flow from operating activities

 18,783

 12,410

51.3%

13,907

35.1%


 51,895

 52,367

-0.9%











Maintenance Capex

 (8,803)

 (4,208)

109.2%

(4,549)

93.5%


 (22,432)

 (13,428)

67.1%

Operating cash flow after maintenance capex

 9,980

 8,202

21.7%

9,358

6.6%


 29,463

 38,939

-24.3%











Purchase of PPE and intangible assets

 (9,572)

 (6,870)

39.3%

(7,266)

31.7%


 (31,341)

 (21,921)

43.0%

Proceeds from PPE sale

 -  

 (4)

NMF

0

-


 -  

 -  

NMF

Total cash flow used in investing activities

 (9,572)

 (6,874)

39.2%

(7,266)

31.7%


 (31,341)

 (21,921)

43.0%











Proceeds from borrowings

 27,562

 970

NMF

14,922

84.7%


 45,447

 2,090

2074.5%

Repayment of borrowings

 (6,565)

 (1,883)

NMF

(2,175)

NMF


 (14,032)

 (20,152)

-30.4%

Dividends paid out

 151

 (54)

NMF

(13,055)

NMF


 (13,008)

 (241)

NMF

Total cash flow used in financing activities

 21,148

 (967)

NMF

(308)

NMF


 18,407

 (18,303)

NMF











Exchange gains/(losses) on cash equivalents

 556

 (94)

NMF

(144)

NMF


 (652)

 (320)

103.9%

Total cash inflow/(outflow)

 22,112

 267

NMF

1,640

NMF


 15,876

 (1,605)

NMF











Cash balance










Cash, beginning balance

 5,399

 11,367

-52.5%

3,759

43.6%


 11,634

 13,239

-12.1%

Cash, ending balance

 27,511

 11,634

136.5%

5,399

409.6%


 27,511

 11,634

136.5%

 

§ GGU has good receivables collection rates within the 95-98% range. During 2016, the collection rate for legal entities was 95%, while for households it stood at 94%. As a result, GGU had GEL 6.7mln of overdue receivables. The Georgian water utility sector has historically had a low receivables collection rates. The latest available countrywide data relate to 2005 and indicate an average collection rate of 65% in major cities. This is because water utility companies are not allowed to cut water supply to residential customers for missed payments. GGU's collection rate has improved significantly from 2011, when a new arrangement with electricity suppliers was set up based on the amendment to Georgian Law on Electricity and Natural Gas. Consequently, Tbilisi's electricity suppliers assist in improving GGU's receivables collection rates through disconnecting non-paying water customers from the electricity network. In return, electricity suppliers receive flat monetary compensation from GGU (c. GEL1.3mln both in 2015 and 2016). As a result, GGU's collection rates improved very quickly and have remained at around 96% since then

§ The increase of amounts paid to suppliers in 2016 is due to the increase in the cost of electricity transmission and professional fees

§ GGU spent GEL 22.4mln on maintenance capex during 2016, which is 67.1% higher than what it spent for the same period last year reflecting the acceleration of the infrastructure maintenance program to improve the operational efficiencies. Consequently, the operating cash flow, after deducting maintenance capex, was GEL 29.5mln

§ A GEL 13.1mln dividend was paid in 2016 to GGU's shareholders (including BGEO Group PLC) before BGEO completed its acquisition of the remaining 75% shareholding in GGU. This dividend was distributed on a pro rata basis to the then existing shareholders of the company

§ Proceeds from the borrowings include the loans obtained for (a) dividend payout of GEL 13.0mn (from Bank Republic Société Générale); (b) Saguramo HPP (4.4 MW capacity) construction of GEL 4.8mn (from TBC Bank) (c) investment in various efficiency and development projects of GEL 30mln (local currency denominated bonds issued in Georgia)

BALANCE SHEET

GEL thousands; unless otherwise noted


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q








Cash and cash equivalents


 27,511

 11,634

136.5%

 5,399

409.6%

Trade and other receivables


 29,499

 23,452

25.8%

 27,125

8.8%

Inventories


 3,048

 3,249

-6.2%

 3,727

-18.2%

Current income tax prepayments


 735

 1,340

-45.1%

 591

24.4%

Total current assets


 60,793

 39,675

53.2%

 36,842

65.0%

Property, plant and equipment


 329,997

 287,638

14.7%

 312,295

5.7%

Investment Property


 18,728

 19,436

-3.6%

 19,417

-3.5%

Intangible assets


 1,186

 1,466

-19.1%

 979

21.1%

Restructured trade receivables


 307

 307

0.0%

 23

NMF

Restricted Cash


 5,094

 2,545

100.2%

 2,667

91.0%

Other non-current assets


 1,246

 1,354

-7.9%

 1,020

22.2%

Total non-current assets


 356,558

 312,745

14.0%

 336,401

6.0%

Total assets


 417,351

 352,420

18.4%

 373,243

11.8%








Current borrowings


 22,617

 28,354

-20.2%

 19,855

13.9%

Trade and other payables


         24,997

         19,204

30.2%

         20,363

22.8%

Provisions for liabilities and charges


              706

           1,318

-46.4%

              848

-16.7%

Other taxes payable


           7,135

              689

935.5%

           4,338

64.5%

Total current liabilities


        55,455

        49,565

11.9%

        45,404

22.1%

Long term borrowings


         83,651

         45,689

83.1%

         64,388

29.9%

Deferred income tax liability


                  1

         28,434

-100.0%

              260

-99.6%

Total non-current liabilities


        83,652

        74,123

12.9%

        64,648

-100.0%

Total liabilities


     139,106

     123,688

12.5%

     110,052

26.4%








Share capital


 2

 2

0.0%

 2

0.0%

Retained earnings


 96,782

 74,774

29.4%

 83,149

16.4%

Revaluation reserve


 181,461

 153,956

17.9%

 180,040

0.8%

Total equity


     278,245

     228,732

21.6%

     263,191

5.7%

Total liabilities and equity


     417,351

     352,420

18.4%

     373,243

11.8%

 

§ The GGU balance sheet is characterised by low leverage and modest foreign exchange risk exposure

§ During 2015 and 2016, GGU made significant progress towards reducing its foreign-exchange exposure. In particular, the company refinanced a large part of its US dollar-denominated debt with Lari-denominated debt. Currently 99.7% of GGU's borrowings are denominated in local currency. The plan is to further reduce foreign-currency-denominated borrowings

§ The increase in property, plant and equipment is primarily due to additional investments into the company's infrastructure carried out during 2016

§ The revaluation reserve balance increased y-o-y primarily due to the deferred tax adjustment, discussed above

 

Healthcare business (Georgia Healthcare Group - GHG)

 

Standalone results

The business of Georgia Healthcare Group PLC (GHG) includes three different business lines: healthcare services, pharmacy 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

4Q16

4Q15

Change

y-o-y

3Q16

Change

 q-o-q

2016

2015

Change

y-o-y










Revenue, gross

136,031

69,730

95.1%

116,159

17.1%

426,439

245,969

73.4%

Corrections & rebates

(790)

(1,086)

-27.3%

(762)

3.7%

(2,686)

(3,608)

-25.6%

Revenue, net

135,241

68,644

97.0%

115,397

17.2%

423,753

242,361

74.8%

Revenue from healthcare services

66,814

54,395

22.8%

58,542

14.1%

243,453

191,424

27.2%

Revenue from pharma

56,586

-

-

45,725

23.8%

133,002

-

-

Net insurance premiums earned

16,312

15,542

5.0%

16,054

1.6%

61,494

58,552

5.0%

Eliminations

(4,473)

(1,293)

245.8%

(4,925)

-9.2%

(14,196)

(7,615)

86.4%

Costs of services

(89,626)

(42,629)

110.2%

(76,563)

17.1%

(277,735)

(149,232)

86.1%

Cost of healthcare services

(34,802)

(30,008)

16.0%

(31,170)

11.7%

(130,369)

(107,291)

21.5%

Cost of pharma

(44,498)

-

-

(35,915)

23.9%

(105,472)

-

-

Cost of insurance services

(14,997)

(13,928)

7.7%

(13,939)

7.6%

(55,772)

(49,372)

13.0%

Eliminations

4,671

1,306

257.6%

4,461

4.7%

13,878

7,431

86.8%

Gross profit

45,615

26,015

75.3%

38,834

17.5%

146,018

93,129

56.8%

Salaries and other employee benefits

(12,757)

(6,810)

87.3%

(10,841)

17.7%

(39,750)

(26,515)

49.9%

General and administrative expenses

(9,470)

(3,058)

209.7%

(8,423)

12.4%

(27,853)

(10,517)

164.8%

Impairment of healthcare services, insurance premiums and other receivables

56

(612)

NMF

(172)

NMF

(2,332)

(3,448)

-32.4%

Other operating income

845

986

-14.3%

329

156.8%

1,944

3,490

-44.3%

EBITDA

24,289

16,522

47.0%

19,727

23.1%

78,027

56,139

39.0%

Depreciation and amortisation

(5,316)

(4,295)

23.8%

(5,215)

1.9%

(19,577)

(12,666)

54.6%

Net interest expense

(4,773)

(5,377)

-11.2%

(3,838)

24.4%

(13,736)

(20,282)

-32.3%

Net gains/(losses) from foreign currencies

(3,170)

(1,592)

99.1%

(263)

NMF

(5,657)

2,098

NMF

Net non-recurring income/(expense)

1,982

(192)

NMF

(48)

NMF

1,118

(1,682)

NMF

Profit before income tax expense

13,012

5,066

156.9%

10,363

25.6%

40,175

23,608

70.2%

Income tax benefit

(6,682)

(14)

NMF

(587)

NMF

21,156

9

NMF

of which: Deferred tax adjustments

(5,319)

-


-


23,992



Profit for the period

6,330

5,052

25.3%

9,776

-35.2%

61,331

23,617

159.7%










Attributable to:









  - shareholders of the Company

5,401

3,823

41.3%

7,125

-24.2%

50,202

19,651

155.5%

  - non-controlling interests

929

1,229

-24.4%

2,651

-65.0%

11,129

3,966

180.6%

of which: Deferred tax adjustments

(516)

-


-


4,541

-


 

For detailed income statement by healthcare services and medical insurance business, please see pages 37 and 38

 

Performance highlights

§ GHG delivered record quarterly and full year 2016 revenue of GEL 136.0mln (up 95.1% y-o-y and up 17.1% q-o-q) and of GEL 426.4mln (up 73.4% y-o-y), respectively. This growth was driven by all business lines. Revenue growth was primarily affected by the consolidation of the pharmacy business since the acquisition of GPC in May 2016. The healthcare services business was the next biggest contributor to the revenue growth, with strong organic growth (16.3% in 2016) as a result of investments in new services to close the service gaps primarily in hospitals, further strengthening the leading market position, as well as the roll-out of the ambulatory clinics to tap a highly fragmented outpatient services segment (no single competitor has more than 1% market share by revenues). Growth of net insurance premiums earned contributed slightly to GHG's revenue growth, while achieving higher referrals within GHG's healthcare facilities, which is reflected in the increase in the retention of medical insurance claims within GHG by 7.2% y-o-y in 2016

§ In 2016, GHG achieved a well-diversified revenue mix, taping all three segments of the Georgian healthcare ecosystem. 55% of its revenues came from healthcare services business, 31% from pharmacy business (GPC was consolidated in May 2016 and ABC, the second pharmacy acquisition will be consolidated starting on 1 January 2017) and the remaining 14% from medical insurance business

§ In 2016, GHG continued to focus on extracting operating efficiencies and synergies, achieving stronger gross profit margins in its healthcare and pharmacy businesses, while the medical insurance business continued implementing the initiatives to achieve the targeted levels of loss ratio. The stronger gross profit in the healthcare services business is primarily a result of the increases in both the scale of GHG's business and utilisation of its healthcare facilities, each of which drives more revenue while fixed costs grow at a slower pace. GHG expects this trend to be supported next year by some of the healthcare facilities that were launched in 2016 and which are still in the ramp-up phase. On the other hand, some pressure on margins may result from the launch in 2017 of the two large hospitals in Tbilisi which GHG is currently renovating. Another factor favourably affecting gross profit in healthcare services is that GHG has started to realise the synergies in its medical disposables procurement as a result of entering into the pharmacy business. This process will be ongoing and the results of the cost savings are expected to be reflected in the coming year as well. As to gross profit in the pharmacy business itself, since the acquisition of GPC, GHG has been focused on implementing initiatives, such as renegotiating pricing with manufacturers and engaging in more profitable sales initiatives and at the same time cancelling some other initiatives which were not bringing additional business or which diluted margins. The acquisition of the ABC chain will allow us to continue these efforts in 2017

 

§ GHG reported record EBITDA of GEL 24.3mln (up 47.0% y-o-y and up 23.1% q-o-q) and of GEL 78.0mln (up 39.0% y-o-y) for 4Q16 and 2016, respectively. EBITDA margin for the healthcare services was 30.2% in 2016, compared to 27.4% in 2015 (4Q16 was 31.9%, compared to 29.8% in 4Q15). Healthcare services was the main contributor to this increase, with strong gross margin and low single digit growth in administrative payroll for healthcare services resulting in strong positive operating leverage in the healthcare business at 10.0 percentage points in 4Q16 and 17.5 percentage points in 2016.   The addition of the GPC pharmacy business from May 2016 brought GEL 5.7mln EBITDA to the Group in 2016

§ GHG's profit was GEL 6.3mln and GEL 61.3mln for 4Q16 and 2016, respectively. The healthcare services business was the main driver of GHG's profit in 2016, and contributed GEL 64.5mln, up 195.1% y-o-y, followed by the GPC pharmacy business which contributed GEL 1.9mln to GHG's profit. The Group's profit was partially offset by the loss of GEL 4.9mln reported by the medical insurance business. Due to the changes in the corporate tax legislation in Georgia, GHG recognised one-off gains during the year. GHG's profit, adjusted for the impact of deferred tax and adjusted for the one-off foreign currency translation loss, was GEL 11.6mln for 4Q16 (up 130.6% y-o-y and up 19.2% q-o-q) and GEL 39.6mln for 2016 (up 117.8% y-o-y)

§ GHG continued sizeable development projects throughout the year and actively invested in healthcare facilities, which is reflected in the y-o-y growth of the depreciation and amortisation expenses for quarter as well as for  2016 (up 23.8% and 54.6% y-o-y respectively)

§ GHG reduced its borrowings in line with our strategy of deleveraging following the IPO. Additionally, GHG repaid a large part of the borrowings from local commercial banks and instead sourced longer-term and less expensive funding from DFIs. Subsequently, these efforts resulted in net interest expense decrease by 32.3% y-o-y in 2016

§ GHG's foreign currency exposure is a result of a US Dollar short position in, arising from foreign currency denominated borrowings from DFIs and the trades accounts payable of the pharmacy business. GHG hedges its major open currency positions through typical foreign currency forwards (swaps) bought from local commercial banks. During 3Q16 and 4Q16 respectively, GHG hedged US$ 27.0mln and US$ 4.0 mln of its short position. This helped to significantly reduce the open currency position, however, during 4Q16, GHG still had a short currency position of US$ 9.0mln, which resulted in increased foreign currency losses at the end of 4Q16, as the Georgian Lari continued to devalue. By the end of December 2016, GHG's entire foreign currency position, other than foreign suppliers to the pharmacy business had been closed fully. The cost of the foreign currency hedging is included in net interest expense in the income statement

§ GHG's balance sheet increased substantially over the last twelve months, as a result of the recent acquisitions (mostly GPC), reaching GEL 912.6 mln as of 31 December 2016. The growth of total assets by 20.3% y-o-y was largely driven by the 29.3% (GEL 130.3mln) increase in property and equipment reflecting investments in the renovation of hospitals, roll-out of ambulatory clinics and the acquisition of the pharmacy business in 2016. The high level of cash and bank deposits at the end of 2015 reflected the receipt of IPO proceeds, and during 2016 a large part of those proceeds were deployed for the development capex as well as for the acquisition of GPC. The increase in accounts receivable is primarily due to the growth in revenues of healthcare services by 26.2% y-o-y. The pharmacy business consolidation primarily affected inventories and goodwill. Out of the GEL 54.9mln inventory balance at the year end, GEL 40.0mln was attributable to the pharmacy business. Borrowed funds have increased y-o-y as a result of obtaining new cheaper funding from DFIs, replacing part the local funding previously repaid through IPO proceeds. GHG has simultaneously introduced the practice of hedging the foreign currency risk associated with these borrowings from DFIs that are denominated in foreign currency. We describe the swap agreements with local commercial bank above. A currency swap asset of GEL 6.3mln as of 31 December 2016 is recognised on the balance sheet, included in other assets. It is accounted at fair value and its carrying amount decreased GHG's net debt as insofar as the instrument is attached to these borrowings

§ GHG's revenue cash conversion ratio, on a consolidated basis, reached 91.2% in 2016 compared to 89.6% in 2015. This translated into an EBITDA cash conversion ratio of 68% on a consolidated adjusted basis for the same period

§ During 2016, GHG spent a total of GEL 111.0mln on capital expenditure, an increase of 56.0% y-o-y. Of this, maintenance capex was GEL 9.4mln. Capital expenditure included the following:

-       renovation of Sunstone (c.334 beds, initially scheduled to be launched in May 2017) which is two months ahead of the schedule and the full and complete opening is currently planned for March 2017

-       The renovation of Deka (c.320 beds) is largely in line with the initial schedule. In August 2016, GHG opened Deka's diagnostic centre, which is one of the largest in Tbilisi. The opening of the diagnostic centre was the first step toward developing Deka into a flagship multi-profile hospital in Georgia. GHG expects the full launch of Deka to be delayed by up to two months compared to the initial expectation. The delay was caused by a required State authorisation to remove a few trees in the hospital yard. GHG is in the final stage of obtaining this permission

§ GHG acquired the fourth largest retail and wholesale pharmacy chains in Georgia (ABC). Following the receipt of the respective regulatory approval and completion in January 2017, GHG is currently merging ABC with its existing pharmacy business, GPC. GHG now owns a 67% equity stake in the combined pharmaceutical business and the remaining 33% minority stake is owned by ABC's former principal shareholders, Mr. Enriko Beridze and Mr. Mikheil Abramidze. This transaction underpins GHG's expansion strategy and further consolidates GHG's position as the leading integrated player in the Georgian healthcare ecosystem of GEL 3.4 billion aggregate value. It strengthens GHG's position as the major purchaser of pharmaceutical products in Georgia, and provides a platform which offers significant cost and revenue synergy potential. The combined pharmacy business will be the largest retailer in the country, with over two mln customer interactions per month through over 240 pharmacies. Details on this acquisition are in GHG's separate press release, which is available at www.ghg.com.ge

§ GHG has completed implementation of Exact, a new enterprise resource planning system ("ERP") sourced from a Dutch supplier. It fully covers all finance functions (integrated internet banking, general ledger, receivables, payables, fixed assets, intangibles, shareholder's equity, etc.) as well as all key operating functions (requesting, ordering, procurement, warehouse management, sale and resale, cost accounting, stock item management, rents, depreciations, etc.). The ERP enhances our capabilities to identify and extract further efficiencies in our operations. The system has 150 advanced users and over 1,000 basic users and it covers all entities within GHG. Following this implementation, GHG now uses one platform companywide, excluding pharmacy business

§ GHG has also completed implementation of Vabaco, a software package that includes a full and complete billing system, fully integrated HRMS (human resource management software) and fully integrated payroll module for the healthcare services business. Vabaco has been further fully integrated with Exact in real time. This way GHG currently runs fully integrated ERP, Billing, HRMS and payroll systems. Vabaco is fully integrated with all external payment channels. It covers Universal Healthcare Programme services as well as private services for the insured individuals and out-of-pocket coverage. The system has more than 2,000 advanced users. Vabaco is up and successfully running in all healthcare facilities except for three, where implementation is ongoing. As a result of implementing Vabaco, GHG has replaced all different billing systems, which were outdated, with limited capabilities and integration capacities, and currently the healthcare services business runs on one unified platform with substantially increased functionality, capacity and speed

§ As of 31 December 2016, GHG's healthcare services business operated 15 referral hospitals, 20 community hospitals and 10 ambulatory clusters (consisting of 13 district ambulatory clinics and 28 express ambulatory clinics)

§ As of 31 December 2016, total beds operated were 2,557 (down from 2,670 from 31 December 2015), of which 2,092 beds were at referral hospitals (down from 2,209 since YE15) and 465 beds (almost flat, at 461 at YE15) were at community hospitals. The change in total number of beds is primarily due to: 1). disposal of the 82-bed Tbilisi Maternity Hospital "New Life", in exchange for the 33.3% minority shareholding in Iashvili Referral Hospital that GHG acquired in February 2016; and  2) the temporary reduction in the number of operating beds, which is due to the renovations at the Deka and Sunstone Hospitals

§ GHG's healthcare services market share by number of beds was 23.4% as of 31 December 2016. The change in market share by number of beds, from 26.7% a year ago to 23.4% at year-end 2016 is due to the reduced number of referral hospital beds as explained above and increase in total number of beds in the market throughout the year

§ GHG's hospital bed occupancy rate was 57.6% in 4Q16 (51.9% in 4Q15, 56.8% in 3Q16) and 55.7% in 2016 (51.7% in FY15)

-       GHG's referral hospital bed occupancy rate was 65.3% in 4Q16 (59.9% in 4Q15, 63.7% in 3Q16) and 63.0% in 2016 (59.3% in FY 15)

§ The average length of stay was 5.0 days in 4Q16 (4.7 days in 4Q15, 4.9 days in 3Q16) and 5.0 days in 2016 (4.6 days in FY15)

-       The average length of stay at referral hospitals was 5.2 days in 4Q16 (5.0 days in 4Q15, 5.1 days in 3Q16) and 5.2 days in 2016 (4.9 in FY15)

§ GHG expanded the number of specialties offered in our residency programme in line with our strategy to develop a new generation of doctors. We obtained accreditation in an additional seven specialties bringing the total number of specialties to 20. This increased the number of slots for admission to the programme up to 65, and the total number of slots for admission to 231 residents. GHG is currently expecting accreditation in four additional specialties. Since the launch of residency programs at the end of 2015, we have 58 residents involved in 12 specialties

§ For the period of May-December 2016, GHG's pharmacy business had (does not include ABC figures, which will be consolidated from 1 January 2017):

-       c.1mln retail customer interactions per month

-       c.0.5mln loyalty card members

-       Average transaction size of GEL 13.7 in GHG's retail pharmacies

-       c.15% market share measured by sales (expected to be c.29.0% after the consolidation of ABC)

-       Total number of bills issued was 7.9mln

§ In GHG's medical insurance business:

-       The number of insured clients was 211,000 as of 31 December 2016

-       Our medical insurance market share was 35.1% based on net insurance premium revenue, as of 30 September 2016

-     Our insurance renewal rate was 73.4% in 2016

 

Real estate business (m2 Real Estate)

 

Standalone results

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 has also recently begun hotel development in the under-developed mid-price sector. The results below refer to m2 Real Estate segment, which are m2 Real Estate standalone results adjusted for Group consolidation purposes 

 

 

 

 

INCOME STATEMENT

GEL thousands, unless otherwise noted

 

4Q16

 

4Q15

Change

y-o-y

 

3Q16

Change q-o-q


2016

2015

Change y-o-y











 Revenue from sale of apartments

9,241

39,769

-76.8%

53,817

-82.8%


96,373

44,917

114.6%

 Cost of sale of apartments

(8,398)

(34,869)

-75.9%

(45,874)

-81.7%


(80,870)

(39,721)

103.6%

 Net revenue from sale of apartments

843

4,900

-82.8%

7,943

-89.4%


15,503

5,196

198.4%

 Revenue from operating leases

897

613

46.3%

774

15.9%


2,912

1,852

57.2%

 Cost of operating leases

(76)

-

-

(59)

28.8%


(228)

-

-86.5%

 Net revenue from operating leases

821

613

33.9%

715

14.8%


2,684

1,852

44.9%

 Revaluation of commercial property

-

7,083

-100.0%

959

-100.0%


959

7,083

-86.5%

 Gross real estate profit 

1,664

12,596

-86.8%

9,617

-82.7%


19,146

14,131

35.5%

 Gross other investment profit 

(34)

7,277

NMF

(105)

-67.6%


1,798

7,502

-76.0%

 Revenue 

1,630

19,873

-91.8%

9,512

-82.9%


20,944

21,633

-3.2%

 Salaries and other employee benefits

(41)

(356)

-88.5%

(275)

-85.1%


(1,069)

(1,150)

-7.0%

 Administrative expenses

(1,305)

(1,515)

-13.9%

(889)

46.8%


(4,755)

(4,710)

1.0%

 Operating expenses 

(1,346)

(1,871)

-28.1%

(1,164)

15.6%


(5,824)

(5,860)

-0.6%

 EBITDA

284

18,002

-98.4%

8,348

-96.6%


15,120

15,773

-4.1%

 Depreciation and amortisation

(65)

(55)

18.2%

(64)

1.6%


(243)

(191)

27.2%

 Net foreign currency gain (loss)

(496)

(836)

-40.7%

205

NMF


792

(1,534)

NMF

 Interest income

393

-

-

305

28.9%


698

386

80.8%

 Interest expense

(1,312)

(173)

NMF

(93)

NMF


(1,633)

(1,566)

4.3%

 Net operating (loss) income before non-recurring items 

(1,196)

16,938

NMF

8,701

NMF


14,734

12,868

14.5%

 Net non-recurring items 

(284)

(7)

NMF

(91)

NMF


(533)

(137)

NMF

 (Loss)/profit before income tax 

(1,480)

16,931

NMF

8,610

NMF


14,201

12,731

11.5%

 Income tax benefit (expense)

424

(2,604)

NMF

(1,204)

NMF


(1,717)

(1,974)

-13.0%

 (Loss)/profit 

(1,056)

14,327

NMF

7,406

NMF


12,484

10,757

16.1%

 

Performance highlights

§ m2 Real Estate revenue performance throughout 2016 reflects the success of m2 Real Estate's strategy of developing residential properties on its existing land plots, and increasing its portfolio of yielding assets. As a result, m2 Real Estate recorded very strong revenue across all business lines

§ Net revenue from the sale of apartments in 2016 almost tripled and reflects the strong sales and project completion performance of the business. During 4Q16, revenue was lower as m2 finalised and handed over fewer apartments than in 4Q16 compared to 4Q15

§ Net revenue from operating leases increased by 44.9%, reflecting m2's increasing commercial real estate portfolio which reached GEL 44.8mln at the end of 2016 (up 39.3% y-o-y) and which now represents 12.1% of the total assets of m2 Real Estate, compared to 11.7% last year

§ Gross other investment profit is down in 2016 reflecting the large gain from the revaluation of an investment property recorded in 4Q15

§ Consequently, m2 recognised revenue of GEL 20.9mln (down 3.2% y-o-y) and net profit of GEL 12.5mln (up 16.1% y-o-y)

§ m2 Real Estate's quarterly gross real estate revenue and profit are by their nature choppy, given both uneven real estate project cycles and the revenue recognition method under accounting rules (IAS 18) that company followed until 2017. Pursuant to IAS 18 apartment sale revenues were recognised upon handover of the apartment to its clients, following the completion of the projects. IFRS 15, adopted by m2 Real Estate and the Group from 2017 onwards, requires revenue recognition according to the percentage of completion method. As a result, it is expected that out of the currently accrued deferred revenue, which at the end of 2016 stood at US$ 30.6 (net of US$5.5mln VAT), of which, US$ 17.1mln will be recognised into revenues gradually during 2017-2019 in line with the project completion progress, while US$ 13.5mln will be recorded through equity on 1 January 2017

§ Effective 1 October 2016, m2 Real Estate switched its selection of functional currency from GEL to USD. The change was warranted by m2 Real Estate's increased dollarisation levels of its balance sheet, revenues and expenses. As a result of the change, foreign exchange gains or losses arising from long or short USD positions are now recorded through equity rather than through the income statement. The change did not have a material impact on the company's financial statements

§ In 2016, m2 Real Estate sold a total of 407 apartments with the sales value of US$ 34.4mln, compared to 346 apartments sold with sales value of US$ 30.0mln during the same period last year. m2 sold a total of 112 apartments with a sales value of US$ 8.3mln in 4Q16, compared to 106 apartments sold with a sales value of US$ 10.8mln in 4Q15

§ m2 Real Estate has started ten projects since its establishment in 2010, of which six have already been completed, and construction of four is ongoing. m2 Real Estate has completed all of its projects on or ahead of time and within the budget. Two of the ongoing projects are expected to be completed in 2017 and the other two in 2018. Currently, a total of 827 units are available for sale out of total of 2,874 apartments developed or under development. Of the four ongoing 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, out of which 289 have already been sold

-       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 with almost double the price charged at other m2 Real Estate buildings

-       The third 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 96 apartments to date

-       The fourth is the latest project by m2 Real Estate, located in a central location of Tbilisi with a total of 62 apartments, out of which 28 have already been sold

§ 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 47 unsold apartments. At its four on-going  projects with a total capacity of 1,202 apartments, 422 apartments or 35% are already sold

§ m2 Real Estate has unlocked total land value of US$ 16.4mln from the six completed projects and an additional US$ 16.5mln in land value is expected to be unlocked from the four on-going projects

§ The number of apartments financed with BOG mortgages in all m2 Real Estate projects was 946, with an aggregate amount of GEL 110.7mln

 

 

OPERATING DATA

for completed and on-going projects, as of 31 December 2016

 

#

Project name

Number of apartments

Number of apartments sold

Number of apartments sold as % of total

Number of apartments available for sale

Start date (construction)

Planned Completion date (construction)

Actual Completion date (construction)

Construction completed %

Completed projects

1,672

1,625

97%

47




100%

 

1

Chubinashvili Street

123

123

100%

0

Sep-10

Aug-12

Aug-12

100%

2

Tamarashvili Street

525

523

99%

2

May-12

Sep-14

Jun-14

100%

3

Kazbegi Street

295

295

100%

0

Dec-13

Feb-16

Feb-16

100%

4

Nutsubidze Street

221

221

100%

0

Dec-13

Nov-15

Sep-15

100%

5

Tamarashvili Street II

270

262

97%

8

Jul-14

Sep-16

Jun-16

100%

6

Moscow Avenue

238

201

85%

37

Sep-14

Jul-16

Jun-16

100%

On-going projects

1,202

422

35%

780




30%

 

7

Kartozia Street

819

289

35%

530

Nov-15

Sep-18

Sep-18

29%

 

8

Skyline

19

9

47%

10

Dec-15

Mar-17

Mar-17

69%

 

9

Kazbegi Street II

302

96

32%

206

Jun-16

Nov-18

Nov-18

18%

 

10

50 Chavchavadze Ave.

62

28

45%

34

Oct-16

Dec-17

Dec-17

3%

 


Total

2,874

2,047

71%

827





 

 

 

FINANCIAL DATA

for completed and on-going projects, as of 31 December 2016

#

Project name

Total Sales (US$ mln)

Recognised as revenue (US$ mln)

Deferred revenue (US$ mln)

Deferred revenue  expected to be recognised as revenue in 2017

Land value unlocked (US$)

Realised & Expected IRR

 

                   Completed projects

136.9

136.7

0.2

0.2

16.4


 

1

Chubinashvili street

9.9

9.9

-


0.9

47%

 

2

Tamarashvili street

48.5

48.5

-


5.4

46%

 

3

Kazbegi Street

27.2

27.2

-


3.6

165%

 

4

Nutsubidze Street

17.4

17.4

-


2.2

58%

 

5

Tamarashvili Street II

23.9

23.7

0.1

0.1

2.7

71%

 

6

Moscow avenue

10.0

9.9

0.1

0.1

1.6

31%

 

                   On-going projects

35.9

-

35.9

30.4

16.5


 

7

Kartozia Street

21.0

-

21.0

18.3

5.8

60%

 

8

Skyline

4.1

-

4.1

4.1

3.1

329%

 

9

Kazbegi Street II

7.8

-

7.8

5.1

4.3

51%

 

10

50 Chavchavadze ave.

3.0

-

3.0

3.0

3.3

75%

 


Total

172.8

136.7

36.1

30.6

32.9


 

 

 

BALANCE SHEET

GEL thousands, unless otherwise noted

Dec-16

Dec-15

Change

Sep-16

Change




y-o-y


q-o-q







Cash and cash equivalents

93,278

28,015

233.0%

39,890

133.8%

Amounts due from credit institutions

-

-

-

305

-100.0%

Investment securities

1,145

1,145

0.0%

1,145

0.0%

Accounts receivable

1,016

757

34.2%

1,186

-14.3%

Prepayments

20,823

26,581

-21.7%

20,828

0.0%

Inventories

112,669

95,314

18.2%

92,790

21.4%

Investment property, of which:

116,058

108,753

6.7%

103,268

12.4%

       Land bank

71,214

76,558

-7.0%

64,071

11.1%

       Commercial real estate

44,844

32,195

39.3%

39,197

14.4%

Property and equipment

5,368

1,259

326.4%

1,667

222.0%

Other assets

20,975

13,852

51.4%

15,311

37.0%

Total assets

371,332

275,676

34.7%

276,390

34.4%







Amounts due to credit institutions

42,342

3,282

1190.1%

38,463

10.1%

Debt securities issued

104,410

48,937

113.4%

46,603

124.0%

Accruals and deferred income

82,398

109,024

-24.4%

62,824

31.2%

Other liabilities

5,232

6,646

-21.3%

7,388

-29.2%

Total liabilities

234,382

167,889

39.6%

155,278

50.9%







Additional paid-in capital

4,382

4,382

0.0%

5,606

-21.8%

Other reserves

12,880

(3,575)

NMF

(4,206)

NMF

Retained earnings

119,688

106,980

11.9%

119,712

0.0%

Total equity attributable to shareholders of the Group

136,950

107,787

27.1%

121,112

13.1%

Total equity

136,950

107,787

27.1%

121,112

13.1%

Total liabilities and equity

371,332

275,676

34.7%

276,390

34.4%

 

§ m2 Real Estate has a solid and well managed balance sheet. As of 31 December 2016, total assets were GEL 371.3mln (up 34.7% y-o-y), constituting 25% cash, 6% prepayments, 30% inventories (apartments in development), 31% investment property (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 in the local market, constitute 40% of the total balance sheet. Accruals and deferred income, constituting 22% of the balance sheet, represents prepayments for the presold apartments

§ m2 Real Estate currently has a land bank on its balance sheet with a total value of GEL 71.2mln. We do not expect the land bank to grow, as m2 Real Estate strategy is to utilise its existing land plots within 3-4 years and, in parallel, start developing third party land

 


SELECTED FINANCIAL INFORMATION

 

INCOME STATEMENT (quarterly)

BGEO Consolidated


Banking Business



Investment Business


Eliminations

GEL thousands, unless otherwise noted

4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


4Q16

4Q15

Change

y-o-y

3Q16

Change

q-o-q


4Q16

4Q15

3Q16























 Banking interest income 

256,457

228,212

12.4%

230,154

11.4%


258,414

230,833

11.9%

231,849

11.5%


-

-

-

-

-


(1,957)

(2,621)

(1,695)

 Banking interest expense 

(101,054)

(96,778)

4.4%

(93,530)

8.0%


(100,043)

(96,616)

3.5%

(93,234)

7.3%


-

-

-

-

-


(1,011)

(162)

(296)

 Net banking interest income 

155,403

131,434

18.2%

136,624

13.7%


158,371

134,217

18.0%

138,615

14.3%


-

-

-

-

-


(2,968)

(2,783)

(1,991)

 Fee and commission income 

48,588

42,110

15.4%

43,077

12.8%


50,135

42,856

17.0%

43,421

15.5%


-

-

-

-

-


(1,547)

(746)

(344)

 Fee and commission expense 

(13,263)

(10,471)

26.7%

(12,646)

4.9%


(13,490)

(10,590)

27.4%

(12,770)

5.6%


-

-

-

-

-


227

119

124

 Net fee and commission income 

35,325

31,639

11.7%

30,431

16.1%


36,645

32,266

13.6%

30,651

19.6%


-

-

-

-

-


(1,320)

(627)

(220)

 Net banking foreign currency gain

28,516

19,525

46.0%

21,497

32.7%


28,516

19,525

46.0%

21,497

32.7%


-

-

-

-

-


-

-

-

 Net other banking income

2,199

9,318

-76.4%

4,077

-46.1%


2,506

9,699

-74.2%

4,269

-41.3%


-

-

-

-

-


(307)

(381)

(192)

 Net insurance premiums earned

26,046

24,476

6.4%

25,360

2.7%


11,559

10,810

6.9%

11,616

-0.5%


15,318

14,500

5.6%

14,483

5.8%


(831)

(834)

(739)

 Net insurance claims incurred

(16,875)

(17,743)

-4.9%

(15,673)

7.7%


(5,114)

(5,369)

-4.7%

(4,800)

6.5%


(11,761)

(12,374)

-5.0%

(10,873)

8.2%


-

-

-

 Gross insurance profit 

9,171

6,733

36.2%

9,687

-5.3%


6,445

5,441

18.5%

6,816

-5.4%


3,557

2,126

67.3%

3,610

-1.5%


(831)

(834)

(739)

 Healthcare and pharmacy revenue

118,799

53,089

123.8%

99,745

19.1%


-

-

-

-

-


118,799

53,089

123.8%

99,745

19.1%


-

-

-

 Cost of healthcare and pharmacy services

(76,578)

(29,244)

161.9%

(64,228)

19.2%


-

-

-

-

-


(76,578)

(29,244)

161.9%

(64,228)

19.2%


-

-

-

 Gross healthcare and pharmacy profit 

42,221

23,845

77.1%

35,517

18.9%


-

-

-

-

-


42,221

23,845

77.1%

35,517

18.9%


-

-

-

 Real estate revenue

9,813

47,638

-79.4%

55,965

-82.5%


-

-

-

-

-


10,507

47,638

-77.9%

55,965

-81.2%


(694)

-

-

 Cost of real estate

(8,474)

(34,869)

-75.7%

(45,933)

-81.6%


-

-

-

-

-


(8,474)

(34,869)

-75.7%

(45,933)

-81.6%


-

-

-

 Gross real estate profit 

1,339

12,769

-89.5%

10,032

-86.7%


-

-

-

-

-


2,033

12,769

-84.1%

10,032

-79.7%


(694)

-

-

Utility revenue

31,608

-

-

24,738

27.8%


-

-

-

-

-


31,679

-

-

24,807

27.7%


(71)

-

(69)

Cost of utility

(10,008)

-

-

(7,796)

28.4%


-

-

-

-

-


(10,008)

-

-

(7,796)

28.4%


-

-

-

Gross utility profit

21,600

-

-

16,942

27.5%


-

-

-

-

-


21,671

-

-

17,011

27.4%


(71)

-

(69)

 Gross other investment profit 

9,697

11,271

-14.0%

4,821

101.1%


-

-

-

-

-


9,391

11,157

-15.8%

4,927

90.6%


306

114

(106)

 Revenue 

305,471

246,534

23.9%

269,628

13.3%


232,483

201,148

15.6%

201,848

15.2%


78,873

49,897

58.1%

71,097

10.9%


(5,885)

(4,511)

(3,317)

 Salaries and other employee benefits

(64,754)

(47,158)

37.3%

(58,773)

10.2%


(50,052)

(39,304)

27.3%

(45,575)

9.8%


(15,459)

(8,487)

82.1%

(13,892)

11.3%


757

633

694

 Administrative expenses

(40,729)

(26,716)

52.5%

(30,701)

32.7%


(25,714)

(21,657)

18.7%

(18,970)

35.6%


(16,132)

(5,916)

172.7%

(12,207)

32.2%


1,117

857

476

 Banking depreciation and amortisation

(9,841)

(8,982)

9.6%

(9,665)

1.8%


(9,841)

(8,982)

9.6%

(9,665)

1.8%


-

-

-

-

-


-

-

-

 Other operating expenses 

(2,034)

(1,406)

44.7%

(2,414)

-15.7%


(1,462)

(1,229)

19.0%

(1,165)

25.5%


(572)

(177)

NMF

(1,250)

-54.2%


-

-

1

 Operating expenses 

(117,358)

(84,262)

39.3%

(101,553)

15.6%


(87,069)

(71,172)

22.3%

(75,375)

15.5%


(32,163)

(14,580)

120.6%

(27,349)

17.6%


1,874

1,490

1,171

Operating income before cost of credit risk /              EBITDA

188,113

162,272

15.9%

168,075

11.9%


145,414

129,976

11.9%

126,473

15.0%


46,710

35,317

32.3%

43,748

6.8%


(4,011)

(3,021)

(2,146)

 Profit from associates

254

1,938

-86.9%

256

-0.8%


-

-

-

-

-


254

1,938

-86.9%

256

-0.8%


-

-

-

Depreciation and amortisation of investment business

(9,615)

(4,731)

103.2%

(9,566)

0.5%


-

-

-

-

-


(9,615)

(4,731)

103.2%

(9,566)

0.5%


-

-

-

 Net foreign currency gain from investment business

(6,065)

(3,416)

77.5%

(1,221)

NMF


-

-

-

-

-


(6,065)

(3,416)

77.5%

(1,221)

NMF


-

-

-

 Interest income from investment business 

1,551

602

157.6%

1,930

-19.6%


-

-

-

-

-


540

957

-43.6%

1,667

-67.6%


1,011

(355)

263

 Interest expense from investment business

(8,673)

(3,166)

173.9%

(8,876)

-2.3%


-

-

-

-

-


(11,673)

(6,542)

78.4%

(10,759)

8.5%


3,000

3,376

1,883

 Operating income before cost of credit risk 

165,565

153,499

7.9%

150,598

9.9%


145,414

129,976

11.9%

126,473

15.0%


20,151

23,523

-14.3%

24,125

-16.5%


-

-

-

Impairment charge on loans to customers 

(69,920)

(33,929)

106.1%

(29,936)

133.6%


(69,920)

(33,929)

106.1%

(29,936)

133.6%


-

-

-

-

-


-

-

-

Impairment charge on finance lease receivables

3,124

(215)

NMF

(3,258)

NMF


3,124

(215)

NMF

(3,258)

NMF


-

-

-

-

-


-

-

-

Impairment charge on other assets and provisions

(3,171)

(1,878)

68.8%

(2,397)

32.3%


(4,077)

(1,086)

NMF

(1,331)

NMF


906

(792)

NMF

(1,066)

NMF


-

-

-

 Cost of credit risk 

(69,967)

(36,022)

94.2%

(35,591)

96.6%


(70,873)

(35,230)

101.2%

(34,525)

105.3%


906

(792)

NMF

(1,066)

NMF


-

-

-

 Net operating income before non-recurring items 

95,598

117,477

-18.6%

115,007

-16.9%


74,541

94,746

-21.3%

91,948

-18.9%


21,057

22,731

-7.4%

23,059

-8.7%


-

-

-

 Net non-recurring items 

698

(6,227)

NMF

35,156

-98.0%


(1,056)

(2,502)

-57.8%

3,474

NMF


1,754

(3,725)

NMF

31,682

-94.5%


-

-

-

 Profit before income tax 

96,296

111,250

-13.4%

150,163

-35.9%


73,485

92,244

-20.3%

95,422

-23.0%


22,811

19,006

20.0%

54,741

-58.3%


-

-

-

 Income tax (expense) benefit

(7,553)

(15,578)

-51.5%

(8,614)

-12.3%


1,830

(11,653)

NMF

(5,665)

NMF


(9,383)

(3,925)

139.1%

(2,949)

NMF


-

-

-

 Profit

88,743

95,672

-7.2%

141,549

-37.3%


75,315

80,591

-6.5%

89,757

-16.1%


13,428

15,081

-11.0%

51,792

-74.1%


-

-

-

 Attributable to:






















- shareholders of BGEO

87,136

92,287

-5.6%

135,924

-35.9%


75,871

79,425

-4.5%

88,827

-14.6%


11,265

12,862

-12.4%

47,097

-76.1%


-

-

-

- non-controlling interests

1,607

3,385

-52.5%

5,625

-71.4%


(556)

1,166

NMF

930

NMF


2,163

2,219

-2.5%

4,695

-53.9%


-

-

-























Earnings per share basic

2.29

2.42

-5.4%

3.55

-35.5%

















Earnings per share diluted

2.21

2.42

-8.7%

3.55

-37.7%

















 

 

 

 

INCOME STATEMENT

BGEO Consolidated


Banking Business


Investment Business


           Eliminations


GEL thousands, unless otherwise noted

2016

2015

Change

y-o-y


2016

2015

Change

y-o-y


2016

2015

Change

y-o-y


2016

2015

Change

y-o-y

 

















 

 Banking interest income 

927,316

859,778

7.9%


933,715

872,299

7.00%


-

-

-


(6,399)

(12,521)

-48.9%

 

Banking interest expense 

(377,909)

(358,388)

5.4%


(376,987)

(359,372)

4.90%


-

-

-


(922)

984

NMF

 

 Net banking interest income 

549,407

501,390

9.6%


556,728

512,927

8.5%


-

-

-


(7,321)

(11,537)

-36.5%

 

Fee and commission income 

170,063

158,158

7.5%


172,715

161,891

6.7%


-

-

-


(2,652)

(3,733)

-29.0%

 

Fee and commission expense 

(47,150)

(39,752)

18.6%


(47,766)

(40,302)

18.5%


-

-

-


616

550

12.0%

 

 Net fee and commission income 

122,913

118,406

3.8%


124,949

121,589

2.8%


-

-

-


(2,036)

(3,183)

-36.0%

 

Net banking foreign currency gain

82,909

76,926

7.8%


82,909

76,926

7.8%


-

-

-


-

-

-

 

Net other banking income

11,773

18,528

-36.5%


12,767

19,837

-35.6%


-

-

-


(994)

(1,309)

-24.1%

 

Net insurance premiums earned

97,085

92,901

4.5%


42,959

40,161

7.0%


56,998

54,996

3.6%


(2,872)

(2,256)

27.3%

 

Net insurance claims incurred

(63,402)

(62,994)

0.6%


(17,858)

(20,114)

-11.2%


(45,544)

(42,880)

6.2%


-

-

-

 

 Gross insurance profit 

33,683

29,907

12.6%


25,101

20,047

25.2%


11,454

12,116

-5.5%


(2,872)

(2,256)

27.3%

 

 Healthcare and pharmacy revenue

362,586

183,993

97.1%


-

-

-


362,586

183,993

97.1%


-

-

-

 

 Cost of healthcare and pharmacy services

(227,724)

(103,055)

121.0%


-

-

-


(227,724)

(103,055)

121.0%


-

-

-

 

 Gross healthcare and pharmacy profit 

134,862

80,938

66.6%


-

-

-


134,862

80,938

66.6%


-

-

-

 

 Real estate revenue

100,866

54,409

85.4%


-

-

-


101,560

54,409

86.7%


(694)

-

-

 

 Cost of real estate

(81,098)

(39,721)

104.2%


-

-

-


(81,098)

(39,721)

104.2%


-

-

-

 

 Gross real estate profit 

19,768

14,688

34.6%


-

-

-


20,462

14,688

39.3%


(694)

-

-

 

     Utility revenue

56,347

-

-


-

-

-


56,486

-

-


(139)

-

-

 

     Cost of utility

(17,806)

-

-


-

-

-


(17,806)

-

-


-

-

-

 

Gross utility profit

38,541

-

-


-

-

-


38,680

-

-


(139)

-

-

 

 Gross other investment profit 

20,926

20,777

0.7%


-

-

-


20,802

20,639

0.8%


124

138

-10.1%

 

 Revenue 

1,014,782

861,560

17.8%


802,454

751,326

6.8%


226,260

128,381

76.2%


(13,932)

(18,147)

-23.2%

 

 Salaries and other employee benefits

(221,815)

(185,329)

19.7%


(176,280)

(155,744)

13.2%


(48,286)

(31,621)

52.7%


2,751

2,036

35.1%

 

 Administrative expenses

(124,312)

(90,919)

36.7%


(83,792)

(74,381)

12.7%


(42,856)

(18,491)

131.8%


2,336

1,953

19.6%

 

 Banking depreciation and amortisation

(37,981)

(34,199)

11.1%


(37,981)

(34,199)

11.1%


-

-

-


-

-

-

 

 Other operating expenses 

(6,680)

(4,285)

55.9%


(4,174)

(3,535)

18.1%


(2,506)

(750)

NMF


-

-

-

 

 Operating expenses 

(390,788)

(314,732)

24.2%


(302,227)

(267,859)

12.8%


(93,648)

(50,862)

84.1%


5,087

3,989

27.5%

 

 Operating income before cost of credit risk / EBITDA

623,994

546,828

14.1%


500,227

483,467

3.5%


132,612

77,519

71.1%


(8,845)

(14,158)

-37.5%

 

 Profit from associates

4,328

4,050

6.9%


-

-

-


4,328

4,050

6.9%


-

-

-

 

 Depreciation and amortisation of investment business

(28,865)

(14,225)

102.9%


-

-

-


(28,865)

(14,225)

102.9%


-

-

-

 

 Net foreign currency gain from investment business

(9,650)

651

NMF


-

-

-


(9,650)

651

NMF


-

-

-

 

 Interest income from investment business 

4,155

2,340

77.6%


-

-

-


3,232

3,338

-3.2%


923

(998)

NMF

 

 Interest expense from investment business

(21,429)

(10,337)

107.3%


-

-

-


(29,351)

(25,493)

15.1%


7,922

15,156

-47.7%

 

 Operating income before cost of credit risk 

572,533

529,307

8.2%


500,227

483,467

3.5%


72,306

45,840

57.7%


-

-

-

 

 Impairment charge on loans to customers 

(158,892)

(142,819)

11.3%


(158,892)

(142,819)

11.3%


-

-

-


-

-

-

 

 Impairment charge on finance lease receivables

(777)

(1,958)

-60.3%


(777)

(1,958)

-60.3%


-

-

-


-

-

-

 

 Impairment charge on other assets and provisions

(11,420)

(10,600)

7.7%


(8,892)

(6,740)

31.9%


(2,528)

(3,860)

-34.5%


-

-

-

 

 Cost of credit risk 

(171,089)

(155,377)

10.1%


(168,561)

(151,517)

11.2%


(2,528)

(3,860)

-34.5%


-

-

-

 

 Net operating income before non-recurring items 

401,444

373,930

7.4%


331,666

331,950

-0.1%


69,778

41,980

66.2%


-

-

-

 

 Net non-recurring items 

(11,524)

(14,577)

-20.9%


(45,351)

(13,046)

NMF


33,827

(1,531)

NMF


-

-

-

 

 Profit before income tax 

389,920

359,353

8.5%


286,315

318,904

-10.2%


103,605

40,449

156.1%


-

-

-

 

 Income tax (expense) benefit

38,656

(48,408)

NMF


23,126

(44,647)

NMF


15,530

(3,761)

NMF


-

-

-

 

 Profit

428,576

310,945

37.8%


309,441

274,257

12.8%


119,135

36,688

224.7%


-

-

-

 

Attributable to:
















 

- shareholders of BGEO

398,538

303,694

31.2%


306,918

270,466

13.5%


91,620

33,228

175.7%


-

-

-

 

- non-controlling interests

30,038

7,251

314.3%


2,523

3,791

-33.4%


27,515

3,460

695.2%


-

-

-

 

















 

Earnings per share basic

10.41

7.93

31.3%













 

Earnings per share diluted

10.09

7.93

27.2%













 

 

 

 

BALANCE SHEET

BGEO Consolidated


Banking Business


Investment Business


            Eliminations

 

GEL thousands, unless otherwise noted

Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q


Dec-16

Dec-15

Change

y-o-y

Sep-16

Change

q-o-q


Dec-16

Dec-15

Sep-16























Cash and cash equivalents

1,573,610

1,432,934

9.8%

1,197,687

31.4%


1,482,106

1,378,459

7.5%

1,090,511

35.9%

397,620

290,576

36.8%

237,426

67.5%


(306,116)

(236,101)

(130,250)

Amounts due from credit institutions

1,054,983

731,365

44.2%

944,061

11.7%


943,091

721,802

30.7%

848,185

11.2%

153,497

15,730

875.8%

140,635

9.1%


(41,605)

(6,167)

(44,759)

Investment securities

1,286,003

903,867

42.3%

1,171,440

9.8%


1,287,292

906,730

42.0%

1,172,825

9.8%

3,075

1,153

166.7%

2,507

22.7%


(4,364)

(4,016)

(3,892)

Loans to customers and finance lease receivables

6,648,482

5,322,117

24.9%

5,676,225

17.1%


6,681,672

5,366,764

24.5%

5,715,737

16.9%

-

-

-

-

-


(33,190)

(44,647)

(39,512)

Accounts receivable and other loans

128,506

87,972

46.1%

119,381

7.6%


56,495

10,376

444.5%

25,004

125.9%

125,964

82,354

53.0%

116,123

8.5%


(53,953)

(4,758)

(21,746)

Insurance premiums receivable

46,423

39,226

18.3%

52,842

-12.1%


24,152

19,829

21.8%

22,493

7.4%

24,284

20,929

16.0%

31,224

-22.2%


(2,013)

(1,532)

(875)

Prepayments

76,277

58,328

30.8%

91,578

-16.7%


19,607

21,033

-6.8%

22,420

-12.5%

57,270

37,295

53.6%

69,158

-17.2%


(600)

-

-

Inventories

188,344

127,027

48.3%

164,567

14.4%


9,009

9,439

-4.6%

9,635

-6.5%

179,335

117,588

52.5%

154,932

15.8%


-

-

-

Investment property

288,227

246,398

17.0%

264,790

8.9%


153,442

135,453

13.3%

142,105

8.0%

134,785

110,945

21.5%

122,685

9.9%


-

-

-

Property and equipment

1,323,870

794,682

66.6%

1,224,620

8.1%


339,442

337,064

0.7%

338,455

0.3%

984,428

457,618

115.1%

886,165

11.1%


-

-

-

Goodwill

106,986

72,984

46.6%

107,298

-0.3%


49,592

49,592

0.0%

49,592

0.0%

57,394

23,392

145.4%

57,706

-0.5%


-

-

-

Intangible assets

58,907

40,516

45.4%

50,745

16.1%


41,350

35,162

17.6%

39,311

5.2%

17,557

5,354

227.9%

11,434

53.6%


-

-

-

Income tax assets

24,043

21,550

11.6%

22,874

5.1%


20,638

16,003

29.0%

13,840

49.1%

3,405

5,547

-38.6%

9,034

-62.3%


-

-

-

Other assets

184,792

236,773

-22.0%

197,980

-6.7%


140,338

163,731

-14.3%

164,533

-14.7%

56,312

79,479

-29.1%

36,033

56.3%


(11,858)

(6,437)

(2,586)

Total assets

12,989,453

10,115,739

28.4%

11,286,088

15.1%


11,248,226

9,171,437

22.6%

9,654,646

16.5%

2,194,926

1,247,960

75.9%

1,875,062

17.1%


(453,699)

(303,658)

(243,620)

Client deposits and notes

5,382,698

4,751,387

13.3%

4,700,324

14.5%


5,730,419

4,993,681

14.8%

4,878,171

17.5%

-

-

-

-

-


(347,721)

(242,294)

(177,847)

Amounts due to credit institutions

3,470,091

1,789,062

94.0%

2,740,926

26.6%


3,067,651

1,692,557

81.2%

2,396,969

28.0%

435,630

144,534

201.4%

380,745

14.4%


(33,190)

(48,029)

(36,788)

Debt securities issued

1,255,643

1,039,804

20.8%

1,036,086

21.2%


858,037

961,944

-10.8%

722,088

18.8%

407,242

84,474

382.1%

320,128

27.2%


(9,636)

(6,614)

(6,130)

Accruals and deferred income

130,319

146,852

-11.3%

107,974

20.7%


25,242

20,364

24.0%

17,824

41.6%

158,387

126,488

25.2%

110,627

43.2%


(53,310)

-

(20,477)

Insurance contracts liabilities

67,871

55,845

21.5%

70,840

-4.2%


41,542

34,547

20.2%

43,665

-4.9%

26,329

21,298

23.6%

27,175

-3.1%


-

-

-

Income tax liabilities

27,791

124,395

-77.7%

28,678

-3.1%


23,937

89,980

-73.4%

26,044

-8.1%

3,854

34,415

-88.8%

2,634

46.3%


-

-

-

Other liabilities

231,622

134,756

71.9%

212,511

9.0%


72,547

63,073

15.0%

53,924

34.5%

168,917

78,404

115.4%

160,965

4.9%


(9,842)

(6,721)

(2,378)

Total liabilities

10,566,035

8,042,101

31.4%

8,897,339

18.8%


9,819,375

7,856,146

25.0%

8,138,685

20.7%

1,200,359

489,613

145.2%

1,002,274

19.8%


(453,699)

(303,658)

(243,620)

Share capital

1,154

1,154

0.0%

1,154

0.0%


1,154

1,154

0.0%

1,154

0.0%

-

-

-

-

-


-

-

-

Additional paid-in capital

183,872

240,593

-23.6%

245,317

-25.0%


45,072

101,793

-55.7%

105,293

-57.2%

138,800

138,800

0.0%

140,024

-0.9%


-

-

-

Treasury shares

(54)

(44)

22.7%

(37)

45.9%


(54)

(44)

22.7%

(37)

45.9%

-

-

-

-

-


-

-

-

Other reserves

102,269

32,844

211.4%

108,442

-5.7%


(31,116)

(63,958)

-51.3%

6,159

NMF

133,385

96,802

37.8%

102,283

30.4%


-

-

-

Retained earnings

1,878,945

1,577,050

19.1%

1,787,743

5.1%


1,393,117

1,257,415

10.8%

1,382,256

0.8%

485,828

319,635

52.0%

405,487

19.8%


-

-

-

Total equity attributable to shareholders of the Group

2,166,186

1,851,597

17.0%

2,142,619

1.1%


1,408,173

1,296,360

8.6%

1,494,825

-5.8%

758,013

555,237

36.5%

647,794

17.0%


-

-

-

Non-controlling interests

257,232

222,041

15.8%

246,130

4.5%


20,678

18,931

9.2%

21,136

-2.2%

236,554

203,110

16.5%

224,994

5.1%


-

-

-

Total equity

2,423,418

2,073,638

16.9%

2,388,749

1.5%


1,428,851

1,315,291

8.6%

1,515,961

-5.7%

994,567

758,347

31.1%

872,788

14.0%


-

-

-

Total liabilities and equity

12,989,453

10,115,739

28.4%

11,286,088

15.1%


11,248,226

9,171,437

22.6%

9,654,646

16.5%

2,194,926

1,247,960

75.9%

1,875,062

17.1%


(453,699)

(303,658)

(243,620)

Book value per share

57.52

48.75

18.0%

56.03

2.7%


21.73

20.36

6.7%

24.05

-9.6%

17.66

13.74

28.5%

18.50

-4.5%





 

 

 

    

      GEORGIA HEALTHCARE GROUP

 

 

INCOME STATEMENT (quarterly)

Healthcare services

Medical insurance

Pharmacy


Eliminations

GHG























GEL thousands; unless otherwise noted

4Q16

4Q15

Change,

y-o-y

3Q16

Change,

q-o-q

4Q16

4Q15

Change,

y-o-y

3Q16

Change,

q-o-q

4Q16

3Q16

Change,

q-o-q

4Q16

4Q15

3Q16

4Q16

4Q15

Change,

y-o-y

3Q16

Change,

q-o-q























Revenue, gross

67,604

55,481

21.9%

59,305

14.0%

16,312

15,542

5.0%

16,054

1.6%

56,586

45,725

23.8%

(4,471)

(1,293)

(4,925)

136,031

69,730

95.1%

116,159

17.1%

Corrections & rebates

(790)

(1,086)

-27.3%

(762)

3.7%

-

-

-

-

-

-

-


-

-

-

(790)

(1,086)

-27.3%

(762)

3.7%

Revenue, net

66,814

54,395

22.8%

58,543

14.1%

16,312

15,542

5.0%

16,054

1.6%

56,586

45,725

23.8%

(4,471)

(1,293)

(4,925)

135,241

68,644

97.0%

115,397

17.2%

Costs of services

(34,802)

(30,007)

16.0%

(31,170)

11.7%

(14,997)

(13,928)

7.7%

(13,939)

7.6%

(44,498)

(35,915)

23.9%

4,671

1,306

4,461

(89,626)

(42,629)

110.2%

(76,563)

17.1%

Cost of salaries and other employee benefits

(21,042)

(18,256)

15.3%

(19,746)

6.6%

-

-

-

-

-

-

-

-

1,534

449

1,569

(19,508)

(17,807)