BGEO Group PLC
2nd quarter and half-year 2016 results
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www.BGEO.com
Name of authorised official of issuer responsible for making notification:
Ekaterina Shavgulidze, Head of Investor Relations and Funding
2Q and 1H 2016 Financial Results Earnings call
An investor/analyst conference call, organized by BGEO Group, will be held on, 16 August 2016, at 14:00 UK / 15:00 CET / 09:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.
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TABLE OF CONTENTS
2Q16 and 1H16 Results Highlights 4
Chief Executive Officer's Statement 7
Financial Summary of BGEO 9
Discussion of Banking Business Results 11
Discussion of Segment Results 15
Selected Financial Information 27
Principal Risks & Uncertainties 34
Responsibility Statements 37
Interim Condensed Consolidated Financial Statements 38
Independent Review Report on Review of Interim Condensed Consolidated Financial Statements of BGEO Group PLC 39
Unaudited Interim Condensed Consolidated Financial Statements 41
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements 49
Annex 73
Company Information 74
FORWARD LOOKING STATEMENTS
This document contains statements that constitute "forward-looking statements", including, but not limited to, statements concerning expectations, projections , objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development.
While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other factors could cause actual developments and results to differ materially from our expectations.
These factors include, but are not limited to the following: (1) general market, macroeconomic, governmental, legislative and regulatory trends; (2) movements in local and international currency exchange rates; interest rates and securities markets; (3) competitive pressures; (4) technological developments; (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties and developments in the market in which they operate; (6) management changes and changes to our group structure; and (7) other key factors that we have indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports, including those filed with the respective authorities.
When relying on forward-looking statements, investors should carefully consider the foregoing factors and other uncertainties and events. Accordingly, we are under no obligations (and expressly disclaim such obligations) to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise.
BGEO Group PLC ("BGEO" or the "Group" - LSE: BGEO LN), the holding company of JSC Bank of Georgia ("BOG" or the "Bank") announces the Group's second quarter 2016 and first half 2016 consolidated results. Unless otherwise mentioned, figures are for the second quarter 2016 and comparisons are with the second quarter 2015. The results are based on IFRS as adopted by EU, are unaudited and are derived from management accounts.
BGEO highlights
§ 2Q16 profit was GEL 111.2mln (US$ 47.5mln/GBP 35.4mln), up 54.4% y-o-y.
§ 2Q16 earnings per share ("EPS") were GEL 2.46 (US$ 1.05 per share/GBP 0.78 per share), up 33.7% y-o-y
§ 1H16 profit was GEL 198.3mln (US$ 84.7mln/GBP 63.2mln), up 47.6% y-o-y
§ 1H16 EPS was GEL 4.57 (US$ 1.94 per share/GBP 1.46 per share), up 31.7% y-o-y
§ Book value per share was GEL 51.46, up 23.3% y-o-y, with total equity attributable to shareholders of GEL 1,970.9mln, up 23.4% y-o-y
§ Total assets increased to GEL 10.323.2mln, up 10.1% y-o-y and up 2.4% q-o-q
§ As of 12 August 2016, GEL 253.1mln cash and cash equivalents was held at the holding company level
§ Above profit figures were positively affected by one-off items recorded during the reporting period, including the two partially offsetting one-off items highlighted in italics below. The combined effect of the deferred tax adjustments and the "net non-recurring items" is a net benefit in the first half of 2016 totalling GEL 26.7mln (GEL 1.2mln in 1Q16 and GEL 25.5mln in 2Q16)
§ In May 2016, the parliament of Georgia approved a change in the current corporate taxation model, with changes applicable from 1 January 2017 for all entities apart from certain financial institutions, including insurance businesses (changes are applicable to financial institutions, including banks and insurance businesses from 1 January 2019). The changed model implies zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings, compared to the previous model of 15% tax rate charged to the company's profit before tax, regardless of the retention or distribution status. The change has had an immediate impact on deferred tax asset and deferred tax liability balances ("deferred taxes") attributable to previously recognized temporary differences arising from prior periods. The Group considers the new regime as substantively enacted effective June 2016 and thus has re-measured its deferred tax assets and liabilities as at 30 June 2016. The Group has calculated the portion of deferred taxes that it expects to utilise before 1 January 2017 for our non-financial businesses and the portion of deferred taxes it expects to utilise before 1 January 2019 for financial businesses and has fully released the unutilisable portion of deferred tax assets and liabilities ("Deferred tax adjustments"). The deferred tax liabilities that were reversed significantly exceeded the deferred tax assets written off1. The net amount was recognized as an income tax benefit for the Group and amounted to GEL 66.9mln, of which GEL 39.4mln and GEL 27.5mln impacts the Group's banking business and investment business profit after tax, respectively. The amounts are reflected in the "income tax expense" line of the income statement
[1] Gross deferred income tax liability was GEL 76.2mln while the gross income tax asset was GEL 9.3mln. Net income tax benefit recognized in the income statement represents the net of these two amounts. Significant deferred tax liabilities that were reversed arose from the timing differences between the IFRS balance sheet and the tax balance sheet relating to accumulated depreciation, allowance for impairment of loans, property and equipment, investment properties, intangible assets, accruals of certain provisions, and various other items.
§ The Group has also taken a GEL 42.5mln provision for expected accounting losses arising from the buyback of the Bank's Eurobond, which took place in July 2016. This provision is reflected in the "net non-recurring items" line of the income statement
Banking Business highlights
2Q16 performance
§ Revenue was GEL 184.0mln (up 0.7% y-o-y and down 0.1% q-o-q)
§ Net Interest Margin ("NIM") was 7.5% (-10 bps y-o-y and flat q-o-q)
§ Pro-forma NIM, adjusted for excess liquidity level was 8.2%2
§ Loan Yield stood at 14.1% (down 50 bps y-o-y and down 30 bps q-o-q)
§ Cost of Funds stood at 4.8% (down 20 bps y-o-y and down 20 bps q-o-q)
§ Cost to Income ratio was 38.0% (35.7% in 2Q15 and 37.9% in 1Q16)
§ Cost of credit risk stood at GEL 28.2mln (down 30.9% y-o-y and down 19.6% q-o-q)
§ Cost of Risk ratio was 2.0% (2.7% in 2Q15 and 2.3% in 1Q16)
§ Profit increased to GEL 74.7mln (up 21.6% y-o-y and up 7.2% q-o-q)
§ Return on Average Assets ("ROAA") was 3.4% (2.9% in 2Q15 and 3.0% in 1Q16)
§ Return on Average Equity ("ROAE") was 22.5% (19.3% in 2Q15 and 21.2% in 1Q16)
[1] ProForma NIM is a hypothetical Net Interest Margin that would have been achieved, had liquidity amounts of GEL and FC balances in excess of 35% minimum been used to repay respective funding sources at respective costs and giving up respective liquid asset yields in the process
1H16 performance
§ Revenue was GEL 368.1mln (up 2.2% y-o-y)
§ NIM was 7.5% (down 30 bps y-o-y)
§ Loan Yield was 14.3% (down 30 bps y-o-y)
§ Cost of Funds was 4.9% (down 10 bps y-o-y)
§ Cost to Income ratio stood at 38.0% (36.2% in 1H15)
§ Cost of credit risk stood at GEL 63.2mln (down 22.5% y-o-y)
§ Cost of Risk ratio stood at 2.1% (2.9% in 1H15)
§ Profit increased to GEL 144.4mln (up 20.0% y-o-y)
§ ROAA was 3.2% (2.9% in 1H15)
§ ROAE was 21.7% (19.3% in 1H15)
Balance sheet strength supported by solid capital and liquidity positions
§ The net loan book reached a record GEL 5,507.4mln, up 7.1% y-o-y and up 2.1% q-o-q; growth on constant currency basis was 4.0% y-o-y, and 2.9% q-o-q
§ Customer funds increased to GEL 4,792.0mln, up 13.7% y-o-y and down 3.4% q-o-q
§ Net Loans to Customer Funds and DFI ratio stood at 95.8% (102.4% at 30 June 2015 and 91.6% at 31 march 2016)
§ Leverage stood at 5.6-times in 2Q16 compared to 6.0-times a year ago
§ NBG (Basel 2/3) Tier I and Total CAR stood at 10.2% and 15.5%, respectively as at 30 June 2016
§ NBG Liquidity Ratio was 43.5% as at 30 June 2016, compared to 35.1% for last year
Resilient growth momentum sustained across all major business lines
§ Retail Banking ("RB") continues to deliver strong franchise growth, primarily supported by the Express Banking strategy, along with the Solo, which continues to expand its client base. Retail Banking revenue reached GEL 112.8mln in 2Q16, up 9.2% y-o-y with half year revenue totalling GEL 219.2mln, up 8.5% y-o-y
§ Retail Banking net loan book reached GEL 3,098.3mln, up 18.1% y-o-y; growth on constant currency basis was 15.3% y-o-y, and 7.5% q-o-q
§ Retail Banking client deposits increased to GEL 1,977.0mln, up 13.8% y-o-y
§ The number of Retail Banking clients reached 2.04 mln by the end of 2Q16, up 5.5% from 1.93mln a year ago
§ Solo - our premium banking - successfully continues to grow. Solo is a fundamentally different approach to premium banking, targeting the mass affluent client segment. As of 30 June 2016, the number of Solo clients reached 14,896, up 61.1% from 9,244 a year ago and our goal for the next three to four years is to significantly increase our market share in this segment, which stood below 13% at the beginning of 2015 when we launched Solo in its current format
§ Corporate Investment Banking ("CIB") net loan book totalled GEL 2,065.6mln, down 5.6% y-o-y. Since we announced the combination of our Corporate Banking and Investment Management businesses into a CIB, we expect to grow our fee income, further improve the Bank's ROAE in this segment and reduce concentration risk in the corporate lending portfolio. The concentration of top 10 clients is down to 11.3% at the end of 2Q16, compared to 13.3% a year ago, CIB ROAE has reached 17.4% for 1H16, up from 16.7% in 1H15 and half year CIB net fee and commission income was GEL 6.8mln, down 14.5% y-o-y (excluding guarantees, which was down by GEL 2.2mln or 25.6% y-o-y as a result of CIB de-concentration efforts)
§ Investment Management's Assets Under Management ("AUM") increased to GEL 1,301.4mln1, up 5.7% y-o-y, reflecting increased bond issuance activity as our clients increasingly access these new products
[1] Wealth Management client deposits, Galt & Taggart client assets, Aldagi Pension Fund and Wealth Management client assets at Bank of Georgia Custody
Investment Business Highlights
§ Excluding deferred tax adjustments, the provision for expected accounting losses arising from the buyback of the Bank's Eurobond and other net non-recurring items, our Investment Business contributed GEL 11.0mln or 12.8% to the Group's profit in 2Q162, up from GEL 8.0mln and GEL 15.0mln in 2Q15 and 1Q16, respectively. For the half-year, the contribution was GEL 26.0mln or 15.2% to the Group's profits, up from GEL 11.8mln in 1H15
§ Our healthcare business, Georgia Healthcare Group PLC ("GHG") delivered record quarterly revenue of GEL 101.7mln in 2Q16, up 76.9% y-o-y and up 40.1% q-o-q. Healthcare services business revenue accounted for more than 55%, pharma business revenue accounted for c.30% and medical insurance business revenue accounted for c.15%. GHG delivered quarterly EBITDA of GEL 16.9mln, up 25.3% y-o-y. This growth was primarily driven by the healthcare services business EBITDA growth of 35.4%. Subsequently, for the half-year, revenue was GEL 174.2mln (up 55.5% y-o-y), EBITDA was GEL 34.0mln (up 44.2% y-o-y) and profit was GEL 45.2mln (up 239.6% y-o-y) (including a tax benefit of 27.1mln relating to the deferred tax adjustments)
§ Our real estate business, m2 Real Estate ("m2") continued its strong project execution and sales performance in 2Q16. In 2Q16, m2 achieved sales of US$ 8.8mln, selling a total of 104 apartments, compared with US$ 2.8mln sales and 30 apartments sold in 2Q15. In 2Q16, m2 recognised revenue of GEL 2.2mln (negative GEL 0.2mln for 2Q15) and recorded net profit of GEL 0.7mln (loss of GEL 0.8mln for 2Q15). In 1H16, m2 recognised revenue of GEL 9.9mln (GEL 1.1mln for 1H15) and net profit of GEL 6.1mln (loss of GEL 2.0mln for 1H15). m2 Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of projects. As a result of this, it has accumulated US$ 50.8mln sales, which will be recognised as revenue during 2016-2018 period (of which c.US$ 27.0mln is expected to be recognised in 2016)
§ Our water and utilities business, Georgian Global Utilities ("GGU"), achieved a 1H16 profit of GEL 15.3mln, up 471.6% y-o-y. As BGEO owned 25% of GGU in 2Q16, we have reported our share of GGU's profits as profit from associates, which amounted to GEL 3.8mln in 1H16, up 471.6% y-o-y. In July 2016, we completed the acquisition of the remaining 75% equity stake in GGU. As a result, we will start consolidating GGU financial results from 21 July 2016 as part of our investment business and will include it in the segment discussion as a separate business
2 Including the deferred tax adjustments, the provision for expected accounting losses arising from the buyback of the Bank's Eurobond and other net non-recurring items, the investment Business contributed GEL 36.5mln or 32.8% to the Group's profit in 2Q16, up from GEL 10.6mln and GEL 17.4mln in 2Q15 and 1Q16, respectively. For the half-year, the contribution was GEL 53.9mln or 27.2% to the Group's profits, up from GEL 14.1mln in 1H15
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased with the Group's core earnings momentum in the first half of 2016, following another period of good business performance throughout the Group. Our profit of GEL 198.3mln in the first half of the year increased by 47.6% compared to the first half of 2015. Earnings per share increased by 31.7% to GEL 4.57. In the Banking business profits grew by 20.0% year-on-year supported, in particular by excellent franchise growth in the retail bank, where we now have over 2mln customers and grew retail lending during the quarter by 7.5% on a constant currency basis. Margins have remained stable despite the impact of high levels of excess liquidity, and the banking business has delivered a further reduction in the cost of risk. The Return on Average Equity in the banking business was 21.7% for the first half of the year, and 22.5% in the second quarter of 2016. There was an even stronger performance in the Group's investment businesses where both EBITDA and profit before tax increased by more than 75% in the first half.
I mentioned in my statement with the first quarter results that a change in the Georgian Government's tax policy was going through Parliament and was expected to significantly benefit Georgian companies. This change has now been ratified by Parliament and, as a result, a tax code amendment is in the process of being implemented that will apply the profits tax (currently 15%) only to distributed profits. Undistributed profits will no longer be subject to the profits tax. This amendment is expected to take effect for most companies on 1 January 2017, and for certain financial companies (including banks and insurance companies) from 1 January 2019. This will reduce the effective tax rate of the Group's non-banking businesses in 2017, and the entire Group in 2019. The impact of these changes has led to a number of deferred tax adjustments that have increased profits in the first half of 2016 by GEL 66.8mln.
In July 2016, the Group undertook a liability management exercise with regard to its existing US$ 400mln Eurobond with a 2017 maturity, replacing it with a US$ 350mln Eurobond with a seven year (2023) maturity issued at the Georgian Holding Company level. The exercise enables a significant further improvement in the Group's funding maturity profile whilst, at the same time, reduce funding costs and some of the excess liquidity within the Bank. As a result of this exercise the Group expects to see a positive impact on the banking net interest margin going forward whilst, at the same time, the Group has recognised a one-off provision of GEL 42.5mln in the first half of 2016 relating to the accounting charge arising from the above par buyback of the Eurobond.
Turning to the business, at the BGEO Group level, revenue growth was 10.4% year-on-year. Retail banking net interest income grew by 8.4%, offsetting the expected decline in corporate banking net interest income as we continue to rebalance the retail/corporate business mix to further improve the return profile of the Bank and reduce concentration risk in the corporate lending portfolio. Revenues from the investment businesses increased by 59.5% as a result of the outstanding first half performances of the healthcare and real estate businesses. Operating expenses continue to be well controlled, with the 12.5% growth year-on-year being largely driven by the significant impact of a number of acquisitions in the healthcare business.
In addition to the strong earnings performance, the Group's already high returns have further improved. In the banking business, despite carrying over GEL 625mln of excess liquidity, the return on average equity increased from 21.2% in the first quarter, to 22.5% in the second quarter, compared to 19.3% in the first half of 2015. In the healthcare services business, the EBITDA margin was 29.3%, compared to 25.3% in the first half of last year. The Group continues to demonstrate its high growth and high return characteristics.
The Georgian economy has remained resilient throughout the first half of 2016, with improving expectations for short and medium term GDP growth continuing to rise. As a result, asset quality during the first half of the year has improved in line with our expectations for the cost of risk ratio to reduce to c2.0% in 2016, compared to 2.7% in 2015. The annualised cost of risk ratio in 2Q16 was 2.0%, compared to 2.3% in 1Q16. This is a strong performance against the backdrop of last year's Lari devaluation against the US dollar, and continues to reflect our conservative lending policy that always takes into account, at the time of the initial lending decision, any potential currency mismatch. In addition, we have also started to achieve a small reduction in the ratio of NPL's to Gross Loans, and we continue to expect the NPL ratio to improve.
Within our Investment Businesses, Georgia Healthcare Group (GHG) delivered record half-yearly revenues of GEL 174.2mln, which continue to reflect both good levels of organic growth ([13.0]% year-on-year) and the impact of the benefits of last year's acquisitions starting to be captured. The healthcare services EBITDA margin continues to improve, and at 29.3% in the first half is now in line with GHG's medium-term target of 30%. GHG has also recently completed the acquisition of the third largest retail and wholesale pharmacy chain in Georgia making GHG the largest purchaser of pharmaceutical products on Georgia, and creating significant cost and revenue synergy opportunities to be captured. GHG remains clearly on track to continue to deliver strong earnings progress, together with its target to more than double 2015 healthcare services revenues by 2018. Our real estate business, m2 Real Estate, continues to develop its apartment projects very successfully, with its strong project execution and sales performance delivering a net profit of GEL 6.1mln in the first half. In our water and utilities business, GGU, the new management team is focused on improving efficiency and delivered a net profit of GEL 15.3mln in the first half, compared to GEL 2.7mln profit in the first half of 2015. During the first half of the year, BGEO Group owned 25% of GGU and, as a result, recognised GEL 3.8mln profit in the half.
In June 2016, the Group announced that it was to acquire the remaining 75% equity stake in GGU for a cash consideration of $70mln, this acquisition was completed in July 2016, and GGU will now be fully consolidated into BGEO with effect from 21 July 2016. This is a significant transaction for the Group, and is expected to be earnings enhancing from day one. The transaction valued GGU's enterprise value at GEL 287.5mln, or 4.2x EV/EBITDA 2016E. The Group has a significant opportunity to increase GGU's operational cash flow over the next few years from a combination of improving cash collection rates, increasing energy efficiency and reducing water loss rates, and by the development of additional revenue streams. Our strategy is to grow the business, with the aim to crystallise value within 3-5 years.
The Group's capital and funding position continues to remain strong, with capital being held both in the regulated banking business and at the holding company level. Within the bank, the NBG (Basel 2/3) Tier 1 Capital Adequacy ratio was 10.2%, comfortably ahead of the Bank's minimum capital requirement. In addition, as of 12 August 2016, GEL 253.1mln was held at the Group level. From a funding perspective, the Bank's NBG Liquidity ratio was 43.5%, and the Liquidity Coverage Ratio was 190.1%, reflecting the significant excess liquidity held by the Bank.
From a macroeconomic perspective Georgia has delivered a strong performance during the first half of 2016. GDP growth expectations for Georgia are now starting to increase and in June 2016 real GDP growth was 2.9% year-on-year, with inflation remaining well contained at 1.5% in July. In addition, during the first half of the year, the Lari has strengthened against the US Dollar by 2%, Foreign Direct Investment continues to be very strong, and tourist numbers - a significant driver of US$ inflows for the country - continue to rise significantly, by over 10% in 2016H1, compared to 2015H1. The National Bank of Georgia has continued to buy US Dollars on a regular basis, to mitigate the further appreciation of the Lari, and we now expect the country's US Dollar reserves to increase by as much as $500mln in 2016.
With Georgia continuing to achieve improvements in its macroeconomic performance and improving levels of business confidence, the Group has delivered another half-year of strong business performance with over 30% earnings per share growth, and constantly improving returns in both the banking business and the investment businesses. A number of recent strategic initiatives and acquisitions are expected to continue to deliver this excellent performance in the second half of 2016 and beyond.
Irakli Gilauri,
Group CEO of BGEO Group PLC
FINANCIAL SUMMARY
BGEO Consolidated
Banking Business*
Investment Business*
Income statement - quarterly
2Q 2016
2Q 2015
Change
1Q 2016
GEL thousands unless otherwise noted
Y-O-Y
Q-O-Q
Net banking interest income
128,527
122,789
4.7%
128,852
-0.3%
129,522
126,403
2.5%
130,219
-0.5%
-
Net fee and commission income
29,343
29,121
0.8%
27,814
5.5%
29,639
30,172
-1.8%
28,015
5.8%
Net banking foreign currency gain
15,506
19,765
-21.5%
17,390
-10.8%
Net other banking income
2,630
2,481
6.0%
2,867
-8.3%
2,824
2,810
0.5%
3,168
-10.9%
Gross insurance profit
8,409
5,817
44.6%
6,416
31.1%
6,496
3,473
87.0%
5,343
21.6%
2,565
2,799
-8.4%
1,723
48.9%
Gross healthcare profit
25,199
18,099
39.2%
26,291
-4.2%
Gross real estate profit
2,466
(41)
NMF
6,024
-59.1%
-59.7%
Gross other investment profit
8,437
4,734
78.2%
3,606
134.0%
8,443
4,709
79.3%
3,675
129.7%
Revenue
220,517
202,765
8.8%
219,260
0.6%
183,987
182,623
0.7%
184,135
-0.1%
38,673
25,566
51.3%
37,713
Operating expenses
(88,684)
(76,848)
15.4%
(83,288)
6.5%
(69,919)
(65,244)
7.2%
(69,863)
0.1%
(19,777)
(12,381)
59.7%
(14,456)
36.8%
Operating income before cost of credit risk / EBITDA
131,833
125,917
135,972
-3.0%
114,068
117,379
-2.8%
114,272
-0.2%
18,896
13,185
43.3%
23,257
-18.8%
Profit (loss) from associates
1,952
1,979
-1.4%
1,866
4.6%
Depreciation and amortization of investment business
(4,775)
(2,579)
85.1%
(4,910)
-2.7%
Net foreign currency gain (loss) from investment business
(1,597)
2,689
(766)
108.5%
(1,595)
Interest income from investment business
(283)
622
956
60
844
-92.9%
964
-93.8%
Interest expense from investment business
(2,497)
(2,632)
-5.1%
(1,382)
80.7%
(3,971)
(7,501)
-47.1%
(2,947)
34.7%
Operating income before cost of credit risk
124,633
125,996
-1.1%
131,736
-5.4%
10,565
8,617
22.6%
17,464
-39.5%
Cost of credit risk
(29,387)
(41,867)
-29.8%
(36,143)
-18.7%
(28,151)
(40,764)
-30.9%
(35,012)
-19.6%
(1,236)
(1,103)
12.1%
(1,131)
9.3%
Net non-recurring items
(48,744)
(413)
1,366
(46,350)
(3,409)
(1,419)
(2,394)
2,996
2,785
Income tax expense
64,735
(11,686)
(9,912)
35,139
(11,753)
(8,178)
29,596
67
(1,734)
Profit
111,237
72,030
54.4%
87,047
27.8%
74,706
61,453
69,663
36,533
10,577
245.4%
17,384
110.2%
Earnings per share (basic)
2.46
1.84
33.7%
2.10
17.1%
1.91
1.59
20.4%
1.78
7.3%
0.55
0.25
117.7%
0.32
72.3%
Income statement - half-year
1H16
1H15
257,380
243,778
5.6%
259,742
249,461
4.1%
57,157
55,975
2.1%
57,654
58,262
-1.0%
32,896
38,727
-15.1%
5,497
4,272
28.7%
5,992
4,906
22.1%
14,825
13,391
10.7%
11,838
8,777
34.9%
4,289
5,492
-21.9%
51,490
34,975
47.2%
8,489
1,168
626.8%
12,043
6,133
96.4%
12,118
6,253
93.8%
439,777
398,419
10.4%
368,122
360,133
2.2%
76,386
47,888
59.5%
(171,971)
(152,908)
12.5%
(139,782)
(130,520)
7.1%
(34,232)
(24,038)
42.4%
267,806
245,511
9.1%
228,340
229,613
-0.6%
42,154
23,850
76.7%
Profit from associates
3,818
668
(9,685)
(5,266)
83.9%
(2,363)
6,379
673
1,239
-45.7%
1,024
1,662
-38.4%
(3,880)
(5,094)
-23.8%
(6,919)
(13,469)
-48.6%
(65,529)
(83,708)
-21.7%
(63,162)
(81,536)
-22.5%
(2,367)
(2,172)
9.0%
(47,380)
(2,860)
(47,770)
(5,575)
390
2,715
-85.6%
54,824
(22,500)
26,961
(22,238)
27,863
(262)
198,284
134,369
47.6%
144,369
120,264
20.0%
53,915
14,105
282.2%
4.57
3.47
31.7%
3.70
3.10
19.3%
0.87
0.37
137.1%
* Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on pages 27 & 28.
Balance sheet
Jun-16
Jun-15
Mar-16
Liquid assets
2,925,345
2,741,533
6.7%
2,948,699
-0.8%
2,887,978
2,726,749
5.9%
2,876,357
0.4%
277,116
127,508
117.3%
337,602
-17.9%
Loans to customers and finance lease receivables
5,469,120
5,052,752
8.2%
5,359,718
2.0%
5,507,414
5,142,221
5,394,565
0.0%
Total assets
10,323,223
9,375,059
10.1%
10,077,589
2.4%
9,171,034
8,712,710
5.3%
9,030,055
1.6%
1,437,232
883,373
62.7%
1,353,961
6.2%
Client deposits and notes
4,554,012
4,104,417
11.0%
4,698,558
-3.1%
4,791,979
4,212,822
13.7%
4,962,432
-3.4%
Amounts due to credit institutions
1,892,437
2,139,517
-11.5%
1,719,920
10.0%
1,766,999
2,045,093
-13.6%
1,630,299
8.4%
163,730
189,124
-13.4%
124,468
31.5%
Debt securities issued
1,065,516
1,063,123
0.2%
1,033,758
3.1%
990,370
990,257
957,474
3.4%
81,088
79,894
1.5%
81,116
Total liabilities
8,113,842
7,719,116
5.1%
7,926,740
7,773,056
7,463,969
7,751,805
0.3%
625,829
476,171
31.4%
481,362
30.0%
Total equity
2,209,381
1,655,943
33.4%
2,150,849
2.7%
1,397,978
1,248,741
12.0%
1,278,250
9.4%
811,403
407,202
99.3%
872,599
-7.0%
Banking Business Ratios
2Q16
2Q15
1Q16
ROAA
2.9%
3.0%
3.2%
ROAE
22.5%
21.2%
21.7%
Net Interest Margin
7.5%
7.6%
7.8%
Loan Yield
14.1%
14.6%
14.4%
14.3%
Liquid assets yield
3.3%
Cost of Funds
4.8%
5.0%
4.9%
Cost of Client Deposits and Notes
4.0%
4.4%
4.3%
4.2%
Cost of Amounts Due to Credit Institutions
Cost of Debt Securities Issued
7.0%
Cost / Income
38.0%
35.7%
37.9%
36.2%
NPLs To Gross Loans To Clients
4.5%
NPL Coverage Ratio
85.8%
82.2%
86.0%
NPL Coverage Ratio, Adjusted for discounted value of collateral
115.1%
122.6%
Cost of Risk
2.3%
Tier I capital adequacy ratio (New NBG, Basel 2/3)
10.2%
Total capital adequacy ratio (New NBG, Basel 2/3)
15.5%
15.9%
15.8%
* Note: Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on page 29.
DISCUSSION OF RESULTS
Discussion of Banking Business Results
The Group's Banking Business comprises Retail Banking operations in Georgia. It principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. The business targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. Corporate Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. Property and Casualty ("P&C") principally provides property and casualty insurance services to corporate clients and insured individuals in Georgia. BNB, comprising JSC Belarusky Narodny Bank principally provides retail and corporate banking services in Belarus. The following discussion refers to the Banking Business only.
GEL thousands, unless otherwise noted
Change,
Y-o-Y
Q-o-Q
Banking interest income
217,234
215,313
0.9%
226,217
-4.0%
443,451
417,666
Banking interest expense
(87,712)
(88,910)
-1.3%
(95,998)
-8.6%
(183,709)
(168,205)
9.2%
Fee and commission income
40,675
40,160
1.3%
38,484
5.7%
79,159
77,503
Fee and commission expense
(11,036)
(9,988)
10.5%
(10,469)
5.4%
(21,505)
(19,241)
11.8%
Net insurance premiums earned
10,235
9,777
9,550
19,785
19,019
Net insurance claims incurred
(3,739)
(6,304)
-40.7%
(4,207)
-11.1%
(7,947)
(10,242)
-22.4%
Average interest earning assets
6,916,969
6,638,429
7,013,413
6,968,714
6,482,145
Average interest bearing liabilities
7,344,385
7,128,014
7,681,953
-4.4%
7,507,878
6,767,958
10.9%
Average net loans, currency blended
5,297,175
5,225,895
1.4%
5,458,637
5,375,526
5,120,872
Average net loans, GEL
1,495,886
1,564,867
1,489,518
1,493,367
1,551,550
-3.7%
Average net loans, FC
3,801,289
3,661,028
3.8%
3,969,119
3,882,159
3,569,322
Average client deposits, currency blended
4,818,865
4,313,076
11.7%
5,018,669
4,912,529
4,165,386
17.9%
Average client deposits, GEL
1,262,461
1,216,653
1,195,744
1,245,576
1,213,267
Average client deposits, FC
3,556,404
3,096,423
14.9%
3,822,925
3,666,953
2,952,119
24.2%
Average liquid assets, currency blended
2,816,533
2,588,219
2,950,858
-4.6%
2,884,744
2,349,573
22.8%
Average liquid assets, GEL
1,127,479
1,173,577
-3.9%
1,127,353
1,138,243
1,122,092
Average liquid assets, FC
1,689,054
1,414,642
19.4%
1,823,505
-7.4%
1,746,501
1,227,481
42.3%
Excess liquidity (NBG)
625,340
219,562
184.8%
836,569
-25.2%
Liquid assets yield, currency blended
Liquid assets yield, GEL
6.1%
7.7%
Liquid assets yield, FC
Loan yield, total
Loan yield, GEL
23.8%
23.1%
21.5%
Loan yield, FC
10.3%
11.4%
10.6%
11.5%
Cost of funding, total
Cost of funding, GEL
6.8%
Cost of funding, FC
§ Our Banking Business recorded quarterly revenue of GEL 184.0mln (up 0.7% y-o-y and down 0.1% q-o-q), ending the half year 2016 with revenue of GEL 368.1mln (up 2.2% y-o-y). Quarterly revenue was primarily driven by an increase in net banking interest income which was offset by a decline in net banking foreign currency gain.
§ Our net banking interest income increased to GEL 129.5mln in 2Q16, up 2.5% y-o-y and down 0.5% q-o-q, with the half year result reaching GEL 259.7mln, up 4.1% y-o-y. The quarterly y-o-y performance was a result of two-fold effect from the increase in banking interest income and the decrease in banking interest expense
- Our Retail Banking operations, which grew the loan book by 18.1% y-o-y, were the primary driver of our results in banking interest income. This was partially offset by a y-o-y decline in our Corporate Investment Banking loan book (down 5.6% y-o-y) and a decline in both retail and corporate Loan Yields
- The decrease in our banking interest expense was mainly driven by a lower Cost of Funding for this quarter, offset by an increase in interest bearing liabilities and particularly higher excess liquidity. The Cost of Funding decreased 20bps y-o-y as a result of 40bps and 20bps y-o-y decreases in the Cost of Client Deposits and Cost of Debt Securities Issued, respectively. The lower Cost of Funding effect on our interest expense was partially offset by 3.0% y-o-y growth in our average interest bearing liabilities, mostly as a result of the increased average client deposits and notes (up 11.7% y-o-y), driven primarily by the growth in foreign currency deposits (up 14.9% y-o-y)
§ Net fee and commission income was down 1.8% y-o-y in 2Q16, to GEL 29.6mln. The decrease was primarily driven by GEL 2.3mln or 44.2% decrease in net commission income from guarantees as a result of the de-concentration efforts of our CIB operations, which decreased large guarantee exposures in the Bank. Excluding the impact of guarantees, net fee and commission income was GEL 26.8mln in 2Q16, up 6.9% y-o-y
§ Net banking foreign currency gain decreased for both reporting periods, reaching GEL 15.5mln in 2Q16 (down 21.5% y-o-y) and GEL 32.9mln in 1H16 (down 15.1% y-o-y). We held our dividend payable in British Pounds and were affected by the devaluation of the Pound. Excluding the effect of this holding, net banking foreign currency gain would have been flat y-o-y
§ Our P&C insurance business, Aldagi, posted strong results. It recorded a gross insurance profit of GEL 6.5mln in 2Q16 (up 87.0% y-o-y and up 21.6% q-o-q). The half year result was GEL 11.8mln (up 34.9% y-o-y). This increase was mainly driven by 4.7% y-o-y growth in net insurance premiums earned, while net insurance claims incurred decreased by 40.7% y-o-y in 2Q16. Aldagi experienced high claims during the same period last year, because of last year's increase in flood related claims in Tbilisi. For P&C insurance segment financials please see page 32
§ Our NIM stood comfortably within our target range of 7.25% - 7.75%. Very high excess liquidity levels (GEL 625.3mln at the end of the second quarter 2016) affected the NIM. During 2015, we purposefully built up excess liquidity for the planned liability management exercise of the Bank's US$ 400.0mln Eurobonds maturing in 2017. We successfully completed the exercise in July 2016 and consequently we intend to reduce the excess liquidity levels at the Bank. Pro-forma NIM1, adjusted for excess liquidity levels, was 8.2% in 2Q16. We expect NIM to improve as a result of our initiatives:
- Completion of the liability management exercise at the Bank in July 2016
- We have focused on sourcing local currency funding and since the start of 2016, we successfully closed two Lari denominated funding transactions with aggregate value of GEL 280mln and maturity of five years. These facilities enable the Bank to provide long term loans in local currency, meeting existing strong demand for such funding
- We prudently manage our margin, despite pressure on loan yields. We reduced our cost of funding from both institutional sources as well as client deposits (the interest rates on our one-year dollar deposits stand at 3.5%, down from 5% a year ago)
Operating income before non-recurring items; cost of credit risk; profit for the period
y-o-y
q-o-q
Salaries and other employee benefits
(40,847)
(38,066)
(39,806)
2.6%
(80,653)
(76,672)
5.2%
Administrative expenses
(19,051)
(17,899)
6.4%
(20,058)
-5.0%
(39,109)
(35,404)
Banking depreciation and amortisation
(9,337)
(8,338)
(9,138)
(18,475)
(16,711)
Other operating expenses
(684)
(941)
-27.3%
(861)
-20.6%
(1,545)
(1,733)
Impairment charge on loans to customers
(26,819)
(35,105)
-23.6%
(32,218)
-16.8%
(59,036)
(74,033)
-20.3%
Impairment charge on finance lease receivables
(130)
(1,779)
-92.7%
(513)
-74.7%
(643)
(1,899)
-66.1%
Impairment charge on other assets and provisions
(1,202)
-69.0%
(2,281)
-47.3%
(3,483)
(5,604)
-37.8%
Net operating income before non-recurring items
85,917
76,615
79,260
165,178
148,077
Profit before income tax
39,567
73,206
-46.0%
77,841
-49.2%
117,408
142,502
-17.6%
§ Operating expenses increased to GEL 69.9mln in 2Q16 (up 7.2% y-o-y and up 0.1% q-o-q) and to GEL 139.8mln in 1H16 (up 7.1% y-o-y). As a result, operating leverage was negative at 6.4% y-o-y in 2Q16 and 4.9% y-o-y in 1H16, while Cost/Income ratio stood at 38.0% in 2Q16 compared to 35.7% in 2Q15 and 38.0% in 1H16 compared to 36.2% in 1H15. Both 2Q16 and half-year 2016 operating expenses were driven by:
- Salaries and employee benefits that increased by GEL 2.8mln or 7.3% y-o-y and GEL 1.0mln or 2.6% q-o-q, while for the half year 2016 salaries and employee benefits increased by GEL 4.0mln or 5.2% y-o-y. The increase mainly reflects the organic growth of our Banking Business
- Quarterly administrative expenses increased to GEL 19.1mln, up GEL 1.2mln or 6.4% y-o-y, mainly reflecting larger scale marketing expenses on Solo, compared with the same period last year. On q-o-q basis, administrative expenses have decreased by GEL 1.0mln or 5.0%. Depreciation and amortisation expenses have also increased to GEL 9.3mln, up 12.0% y-o-y, mainly reflecting investments in Solo Lounges
§ For 2Q16, the Banking Business Cost of Risk ratio stood at 2.0%, down 70bps y-o-y and down 30bps q-o-q. The cost of credit risk was GEL 28.2mln, down 30.9% y-o-y and down 19.6% q-o-q. The significant improvement compared to last year is driven by an improved performance in both, Corporate Investment Banking and Retail Banking Cost of Risk on y-o-y as well as q-o-q basis. For the half year 2016, the Banking Business Cost of Risk ratio stood at 2.1% (2.9% in 1H15) and the cost of credit risk was GEL 63.2mln (GEL 81.5mln in 1H15)
§ NPLs to gross loans were 4.4% as of 30 June 2016, up 30 bps y-o-y and down 10 bps q-o-q. Our retail banking NPLs to gross loans improved to 1.5%, compared to 1.6% as of 31 March 2016 and 1.8% a year ago. CIB NPLs to gross loans were 7.6%, compared to 7.4% as of 31 March 2016 and 6.4% a year ago. In CIB, the increasing trend of NPLs stabilised and NPLs were flat q-o-q, while the loan book decreased, thus leading to the q-o-q increase in NPLs to gross loans
§ NPLs were GEL 251.4mln, up 14.7% y-o-y and down 0.2% q-o-q. The y-o-y increase reflects the growth in net loan book together with the local currency volatility against the US Dollar which affected some of our clients
§ The NPL coverage ratio stood at 85.8% as of 30 June 2016, an improvement compared to 82.2% as of 30 June 2015 and relatively stable compared to 86.0% as of 31 March 2016. Our NPL coverage ratio adjusted for the discounted value of collateral also improved to 129.7% as of 30 June 2016, compared to 115.1% as of 30 June 2015 and 122.6% as of 31 March 2016
§ Our 15 days past due rate for retail loans stood at 1.2% as of 30 June 2016 compared to 1.4% as of 30 June 2015 and 1.1% as of 31 March 2016. 15 days past due rate for our mortgage loans stood at 0.6% as of 30 June 2016 compared to 0.8% as of 30 June 2015 and 0.6% as of 31 March 2016
§ As a result of the foregoing, the Banking Business reported profit of GEL 74.7mln in 2Q16 (up 21.6% y-o-y and up 7.2% q-o-q) and GEL 144.4mln in 1H16 (up 20.0% y-o-y). This resulted in outstanding ROAE of 22.5% in 2Q16 (up 320bps y-o-y and up 130bps q-o-q) and of 21.7% in 1H16 (up 240bps y-o-y)
§ The Banking Business profit was supported by its banking subsidiary in Belarus - BNB, which contributed GEL 3.7mln profit1 in 2Q16 (up 120.3% y-o-y) and GEL 7.9mln in 1H16 (up 58.5% y-o-y); The BNB loan book reached GEL 310.5mln, up 1.5% y-o-y, mostly consisting of an increase in SME loans. BNB client deposits were to GEL 202.4mln, down 16.5% y-o-y. BNB is well capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. For 2Q16, Total CAR was 16.4%, above 10% minimum requirement by the National Bank of the Republic of Belarus ("NBRB") and Tier I CAR was 10.4%, above the 6% minimum requirement by NBRB. Return on Average Equity ("ROAE") for BNB was 19.6% (22.9% in 1Q16), ending the half year with ROAE of 21.4% compared to 13.5% for the same period last year. For BNB standalone financial highlights, please see page 32
[1] BNB profit is adjusted for the deferred tax adjustment attributable to BNB. Before this adjustment, BNB profit was GEL 0.2mln and GEL 4.4mln in 2Q16 and 1H16, respectively.
Banking Business Balance Sheet highlights
30-Jun-16
31-Mar-16
Liquid assets, GEL
1,182,105
1,257,220
-6.0%
1,050,741
Liquid assets, FC
1,705,873
1,469,529
16.1%
1,825,616
-6.6%
Net loans
Net loans, GEL
1,523,671
1,546,104
-1.5%
1,488,050
Net loans, FC
3,983,743
3,596,117
10.8%
3,906,515
Amounts due to credit institutions, of which:
Borrowings from DFIs
957,227
807,809
18.5%
926,210
Short-term loans from central banks
278,500
674,701
-58.7%
368,000
-24.3%
Loans and deposits from commercial banks
531,272
562,583
-5.6%
336,089
58.1%
Liquidity and CAR Ratios
Net Loans / Customer Funds
114.9%
122.1%
108.7%
Net Loans / Customer Funds + DFIs
95.8%
102.4%
91.6%
Liquid assets as percent of total assets
31.3%
31.9%
Liquid assets as percent of total liabilities
37.2%
36.5%
37.1%
NBG liquidity ratio
43.5%
35.1%
47.3%
Tier I Capital Adequacy Ratio (NBG Basel 2/3)
Total Capital Adequacy Ratio (NBG Basel 2/3)
Our Banking Business balance sheet remained very liquid (NBG Liquidity ratio of 43.5%) and well-capitalised (Tier I Capital Adequacy Ratio, NBG Basel 2/3 of 10.2%) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 61.6%)
§ The NBG liquidity ratio stood at 43.5% as of 30 June 2016 compared to 47.3% as of 31 March 2016, against a regulatory minimum requirement of 30.0%
§ Liquid assets increased to GEL 2,888.0mln, up 5.9% y-o-y
§ Additionally, liquid assets as a percentage of total assets increased to 31.5%, up from 31.3% a year ago and liquid assets as a percentage of total liabilities also increased to 37.2%, up from 36.5% a year ago
§ Our share of amounts due to credit institutions to total liabilities decreased y-o-y from 27.4% to 22.7%, with the share of client deposits and notes to total liabilities increasing y-o-y from 56.4% to 61.6%
§ Net Loans to Customer Funds and DFIs ratio, a ratio closely observed by management, stood at 95.8%, up from 91.6% as of 31 March 2016 and down from 102.4% as of 30 June 2015
§ Effective 17 May, 2016, the National Bank of Georgia has changed its minimum reserve requirements, with the goal to incentivise local currency lending. The minimum reserve requirement for local currency has reduced from 10% to 7% and the minimum reserve requirement for foreign currency has increased from 15% to 20%. The impact of this change is not expected to have a material impact on the Group's earnings. Our estimate is that there will be less than 10bps reduction in the banking net interest margin as a result of this change
Discussion of Segment Results
The segment results discussion is presented for Retail Banking (RB), Corporate Investment Banking (CIB), Healthcare Business (GHG) and Real Estate Business (m2 Real Estate)
Banking Business Segment Result Discussion
Retail Banking (RB)
Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities, encompassing the emerging mass retail segment (through our Express brand), retail mass market segment and SME and micro businesses (through our Bank of Georgia brand), and the mass affluent segment (through our Solo brand).
Income statement highlights
84,574
79,269
82,832
167,406
154,420
21,742
18,406
18.1%
19,239
13.0%
40,981
36,972
5,473
4,305
27.1%
3,590
52.5%
9,063
8,210
1,035
1,384
711
45.6%
1,746
2,347
-25.6%
112,824
103,364
106,372
219,196
201,949
8.5%
(24,325)
(22,416)
(23,607)
(47,932)
(46,012)
(12,756)
(11,632)
9.7%
(14,521)
-12.2%
(27,277)
(23,872)
(7,597)
(6,818)
(7,383)
(14,981)
(13,649)
9.8%
(393)
(496)
-20.8%
(888)
(959)
(45,071)
(41,362)
(46,007)
-2.0%
(91,078)
(84,492)
67,753
62,002
60,365
12.2%
128,118
117,457
(17,543)
(20,662)
(18,184)
-3.5%
(35,727)
(37,322)
-4.3%
(31,819)
(2,875)
(561)
(32,379)
(3,323)
18,391
38,465
-52.2%
41,620
-55.8%
60,012
76,812
28,702
(5,900)
(3,844)
24,858
(11,639)
47,093
32,565
37,776
24.7%
84,870
65,173
30.2%
Balance sheet highlights
Net loans, standalone, Currency Blended
3,098,341
2,623,615
2,901,189
Net loans, standalone, GEL
1,303,077
1,285,013
1,266,966
Net loans, standalone, FC
1,795,264
1,338,602
34.1%
1,634,223
9.9%
Client deposits, standalone, Currency Blended
1,976,985
1,736,508
13.8%
1,902,042
3.9%
Client deposits, standalone, GEL
521,986
491,104
6.3%
447,620
16.6%
Client deposits, standalone, FC
1,454,999
1,245,404
16.8%
1,454,422
of which:
Time deposits, standalone, Currency Blended
1,216,762
1,067,316
14.0%
1,205,935
Time deposits, standalone, GEL
211,463
209,735
196,668
Time deposits, standalone, FC
1,005,299
857,581
17.2%
1,009,267
-0.4%
Current accounts and demand deposits, standalone, Currency Blended
760,223
669,192
13.6%
696,107
Current accounts and demand deposits, standalone, GEL
310,523
281,369
250,952
23.7%
Current accounts and demand deposits, standalone, FC
449,700
387,823
16.0%
445,155
1.0%
Key ratios
ROAE Retail Banking
29.2%
24.3%
26.6%
Net interest margin, currency blended
9.5%
9.6%
Cost of risk
2.8%
Cost of funds, currency blended
Loan yield, currency blended
16.9%
17.3%
17.4%
25.5%
23.6%
25.4%
23.3%
11.2%
Cost of deposits, currency blended
3.5%
Cost of deposits, GEL
Cost of deposits, FC
3.6%
3.7%
Cost of time deposits, currency blended
Cost of time deposits, GEL
7.9%
8.7%
Cost of time deposits, FC
Current accounts and demand deposits, currency blended
1.2%
Current accounts and demand deposits, GEL
1.1%
Current accounts and demand deposits, FC
Cost / income ratio
39.9%
40.0%
41.6%
41.8%
Performance highlights
§ Retail Banking revenue increased to GEL 112.8mln in 2Q16, up 9.2% y-o-y, ending the half year 2016 with revenue of GEL 219.2mln, up 8.5% y-o-y. For both reporting periods, Retail Banking achieved strong revenue growth across all major business lines: growth in net banking interest income (up 6.7% y-o-y in 2Q16 and up 8.4% y-o-y in 1H16), growth in net fee and commission income (up 18.1% y-o-y in 2Q16 and up 10.8% y-o-y in 1H16) and growth in net banking foreign currency gain (up 27.1% y-o-y in 2Q16 and up 10.4% y-o-y in 1H16).
§ The Retail Banking net loan book reached a record level of GEL 3,098.3mln, up 18.1% y-o-y. We continue to observe a shift in the currency mix in our Retail Banking loan book, with foreign currency denominated loans increasing to 58% of the total retail banking portfolio, from 51% a year ago. Foreign currency denominated loans grew at 34.1% y-o-y to GEL 1,795.3mln compared to local currency loans that grew slightly at 1.4% y-o-y to GEL 1,303.1mln. The trend was also aligned to the changes in our quarterly loan yields, which stood at 10.2% for foreign currency loans (down 100bps y-o-y) and 25.5% for local currency loans (up 190bps y-o-y)
§ The growth was a result of accelerated loan origination delivered across all Retail Banking segments:
- Consumer loan originations of GEL 244.6mln in 2Q16 and GEL 446.5mln in 1H16 resulted in consumer loans outstanding totaling GEL 709.4mln as of 30 June 2016, up 18.8% y-o-y
- Micro loan originations of GEL 180.4mln in 2Q16 and GEL 329.8mln in 1H16 resulted in micro loans outstanding totaling GEL 603.7mln as of 30 June 2016, up 14.9% y-o-y
- SME loan originations of GEL 128.1mln in 2Q16 and GEL 229.6mln in 1H16 resulted in SME loans outstanding totaling GEL 388.8mln as of 30 June 2016, up 28.8% y-o-y
- Mortgage loans originations of GEL 159.9mln in 2Q16 and GEL 321.7mln in 1H16 resulted in mortgage loans outstanding of GEL 956.5mln as of 30 June 2016, up 30.7% y-o-y
- Originations of loans disbursed at merchant locations of GEL 52.4mln in 2Q16 and GEL 95.6mln in 1H16 resulted in loans disbursed at merchant locations outstanding of GEL 108.3mln as of 30 June 2016, up 3.1% y-o-y
§ Retail Banking client deposits increased to GEL 1,977.0mln, up 13.8% y-o-y, notwithstanding a 50bps decrease in the cost of deposits. The share of foreign currency denominated deposits increased to 73.6% up from 71.7% a year ago with foreign currency denominated deposits growing at 16.8% y-o-y to GEL 1,455.0mln compared to local currency deposits that grew slightly slower at 6.3% y-o-y to GEL 522.0mln. Cost of deposits in 2Q16 decreased 70bps y-o-y for foreign currency denominated deposits while for local currency denominated deposits it grew by 30bps y-o-y
§ Our express banking franchise, the major driver of fee and commission income, posted 10.8% y-o-y growth in new client acquisition, adding 7,709 Express Banking customers during the second quarter of 2016 and 19,768 clients during first six months of 2016. The growth in client base has triggered a significant increase in the volume of banking transactions, up 28.6% y-o-y. The growth of transactions was achieved largely through more cost-effective remote channels. The strong client growth has supported an organic increase in our Retail Banking net fee and commission income to GEL 21.7mln, up 18.1% y-o-y for 2Q16 with the half year result reaching GEL 41.0mln, up 10.8% y-o-y
§ Our Express Banking continues to deliver strong growth as we continue to develop our mass market Retail Banking strategy:
- Express Banking franchise has attracted 445,118 previously unbanked emerging mass market customers since its launch over 3 years ago. Express banking added 7,709 clients compared to the previous quarter and 43,365 clients during the twelve month period
- In order to better serve the different needs of our Express Banking customers, we have expanded our payment services through various distance channels including ATMs, Express Pay Terminals, internet and mobile banking and the provision of simple and clear products and services to our existing customers as well as the emerging bankable population
- 1,431,557 Express Cards have been issued since their launch in September 2012, in essence replacing the pre-paid metro cards which were previously used. Of this, 126,823 Express Cards were issued in 2Q16, up 30.4% y-o-y. As of 30 June 2016, 1,195,380 Express Cards were outstanding, compared to 861,914 cards outstanding as of the same date last year
- We have increased number of Express Pay terminals to 2,681, from 2,284 a year ago. Express Pay terminals are an alternative to tellers, placed at bank branches as well as various other venues (groceries, shopping malls, bus stops, etc.), and are used for bank transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups
- In 2Q16, the utilisation of Express Pay terminals increased significantly, with the number of transactions growing to 31.0mln, up 9.6% y-o-y and volume of transactions reaching GEL 742.2mln, up 48.5% y-o-y. For the half year, number of transactions reached 59.8mln, up 10.4% y-o-y and volume of transactions reached GEL 1,405.0mln, up 53.0% y-o-y
- Increased Point of Sales ("POS") footprint to 7,447 desks and 3,848 contracted merchants as of 30 June 2016, up from 6,539 desks and 3,565 contracted merchants as of 30 June 2015
- The number of POS terminals reached 9,044, up 17.9% from 7,668 a year ago
- The volume of transactions through the Bank's POS terminals grew to GEL 199.0mln in 2Q16, up 12.8% y-o-y. For the half year, volume of transactions reached GEL 375.7mln, up 17.9% y-o-y
- The number of transactions via Internet banking has increased to 1.4mln in 2Q16, up from 1.1mln a year ago, with volume reaching GEL 327.7mln, up 77.6% y-o-y. For the half year, number of transactions reached 2.7mln, up from 2.2mln a year ago, with volume of transaction reaching GEL 544.6mln, up 59.2% y-o-y
- The number of transactions via mobile banking almost doubled to 0.6mln in 2Q16, up from 0.4mln a year ago, with volume more than doubling to GEL 57.5mln, up 134.4% y-o-y. For the half year, number of transactions reached 1.1mln, up from 0.7mln a year ago, with volume reaching GEL 93.4mln, up 96.1% y-o-y
§ Retail Banking NIM was 9.1% in 2Q16, down 40bps y-o-y and down 10bps q-o-q, ending a half year with 9.2%, down 40bps y-o-y
§ Quarterly NIM on a y-o-y basis, was affected by decrease in loan yields, while cost of funds remained flat. Pressure on currency blended loan yields was due to increase in foreign currency lending (The share of foreign currency denominated loans increased to 57.9% of retail loan book, up from 51.0% a year ago), which has lower loan yields compared to local currency loans. On a quarter-over-quarter basis, NIM was nearly flat as a decrease in the cost of funds largely compensated for the lower loan yields
§ Our focus going forward is to increase lending in local currency, which will be supported by the new lines of longer term local currency funding that we sourced since the beginning of 2016
§ For 2Q16, operating expenses increased to GEL 45.1mln, up 9.0% y-o-y, resulting in a Cost to Income ratio of 39.9% and positive y-o-y operating leverage of 0.2%, which reflects:
- Salaries and other employee benefits, which increased GEL 1.9mln or 8.5% y-o-y and GEL 0.7mln or 3.0% q-o-q
- The increase in administrative expenses by GEL 1.1mln or 9.7% y-o-y to GEL 12.8mln but decrease by 12.2% q-o-q from GEL 14.5mln. The y-o-y increase was largely driven by marketing and advertising expenses, which increased by GEL 0.8mln or 65.8%, whilst we had GEL 0.3mln or 279.8% y-o-y increase in personnel training and recruitment
§ For 1H16, operating expenses increased to GEL 91.1mln, up 7.8% y-o-y, resulting in a Cost to Income ratio of 41.6% and positive operating leverage of 0.7 percentage points, which reflects increases in each of Salaries and other employee benefits, Administrative expenses and Depreciation and amortization reflecting the same underlying trends outlined above for 2Q16
§ Since we launched Solo Lifestyle in April 2015, the number of Solo clients has reached 14,896, up 61.1% y-o-y from 9,244 a year ago. We have now launched 10 Solo lounges, of which 7 are located in Tbilisi, the capital city and 3 in major regional cities in Georgia. In 1H16, profit per Solo client was GEL 817, compared to a profit of GEL 46 and GEL 38 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 7.1, compared to 3.6 and 1.5 for Express and mass retail clients. While Solo clients currently represented c.1% of our total retail client base, they contributed 20.1% to our retail loan book, 33.6% to our retail deposits, 9.5% to our net interest income and 10.5% to our net fee and commission income
§ With Solo we target the mass affluent retail segment and aim to build brand loyalty through exclusive experiences offered through the new Solo Lifestyle. In our Solo lounges, Solo clients are offered, at cost, a selection of luxury products and accessories that are currently not available in the country. Solo clients enjoy tailor-made solutions including new financial products such as bonds, which pay a significantly higher yield compared to deposits, and other securities developed by Galt & Taggart, the Group's Investment Banking arm. Through Solo Lifestyle, our Solo clients are given access to exclusive products and the finest lounge-style environment at our Solo lounges and are provided with new lifestyle opportunities, such as exclusive events, offering live concerts with the world known artists and other entertainments exclusively for just solo clientele, as well as handpicked lifestyle products. In 1Q16, two Sting concerts organised by Solo in Tbilisi were the highlight of our exclusive events, where over 4,500 Solo clients had exclusive access to the event, at cost. The event was met with strong demand and was regarded highly by Solo clients - essentially differentiating Solo from other premium banking brands offered on the market and further building brand loyalty
§ The cost of credit risk was GEL 17.5mln (down 15.1% y-o-y) and GEL 35.7mln (down 4.3% y-o-y) for 1Q16 and 1H16, respectively. Cost of Risk ratio was 2.3% in 2Q16 down from 2.8% in 2Q15 and 2.5% in 1Q16, ending the half year with Cost of Risk of 2.4%, down from 2.6% a year ago
§ As a result, Retail Banking profit reached GEL 47.1mln (up 44.6% y-o-y) and GEL 84.9mln (up 30.2% y-o-y) for 2Q16 and 1H16, respectively. Retail Banking continued to deliver an outstanding ROAE of 29.2% in 2Q16 compared to 21.2% in 2Q15 and 24.3% in 1Q16, whilst ROAE for first half of 2016 was 26.6% compared to 21.6% a year ago
§ The number of Retail Banking clients totalled 2.04mln, up 5.5% y-o-y
§ The number of cards totalled 1,946,828, down 0.9% y-o-y
Corporate Investment Banking (CIB)
CIB comprises 1) loans and other credit facilities to the country's large corporate clients as well as other legal entities, excluding SME and micro businesses. The services include fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits for corporate and institutional customers. The Corporate Banking Business also includes finance lease facilities provided by the Bank's leasing operations (the Georgian Leasing Company). 2). Wealth Management and the brokerage arm of the Bank, Galt & Taggart. Bank of Georgia Wealth Management provides private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul and Tel Aviv. Galt & Taggart brings under one brand corporate advisory, private equity and brokerage services. In its brokerage business, Galt & Taggart serves regional and international markets, including hard-to-reach frontier economies.
Change y-o-y
Change q-o-q
35,233
39,266
-10.3%
38,250
-7.9%
73,483
78,858
-6.8%
6,129
9,150
-33.0%
7,020
-12.7%
13,150
16,492
8,921
10,104
-11.7%
11,368
20,289
19,606
1,822
1,827
2,587
-29.6%
4,408
3,335
32.2%
52,105
60,347
-13.7%
59,225
-12.0%
111,330
118,291
-5.9%
(11,357)
(11,148)
1.9%
(11,155)
1.8%
(22,512)
(21,209)
(3,692)
(4,357)
-15.3%
(3,355)
(7,047)
(7,243)
(1,304)
(1,069)
22.0%
(1,272)
(2,576)
(2,176)
18.4%
(226)
(228)
-0.9%
(231)
-2.2%
(457)
(474)
-3.6%
(16,579)
(16,802)
(16,013)
(32,592)
(31,102)
35,526
43,545
-18.4%
43,212
-17.8%
78,738
87,189
-9.7%
(9,347)
(14,247)
-34.4%
(14,138)
-33.9%
(23,486)
(33,618)
-30.1%
(14,538)
(216)
(856)
(15,393)
(837)
11,641
29,082
-60.0%
28,218
39,859
52,734
-24.4%
12,809
(4,485)
(2,687)
10,121
(8,678)
24,450
24,597
25,531
49,980
44,056
13.4%
Letters of credit and guarantees, standalone1
560,029
542,463
541,567
Net loans, standalone, currency blended
2,065,566
2,188,331
2,144,299
219,465
255,241
-14.0%
220,295
1,846,101
1,933,090
-4.5%
1,924,004
Client deposits, standalone, currency blended
2,602,018
2,276,702
2,868,846
-9.3%
754,096
721,966
797,875
-5.5%
1,847,922
1,554,736
18.9%
2,070,971
Time deposits, standalone, currency blended
1,041,041
1,144,384
-9.0%
1,200,565
-13.3%
161,612
321,937
-49.8%
165,311
879,429
822,447
6.9%
1,035,254
Current accounts and demand deposits, standalone, currency blended
1,560,977
1,132,318
1,668,281
-6.4%
592,484
400,029
48.1%
632,564
-6.3%
968,493
732,289
32.3%
1,035,717
-6.5%
Assets under management
1,301,353
1,231,406
1,343,821
-3.2%
Ratios
ROAE, Corporate Investment Banking
17.6%
16.7%
12.9%
13.1%
8.0%
31.8%
27.0%
29.3%
26.3%
Concentration of top ten clients
11.3%
12.7%
13.3%
1Off-balance sheet item
§ A key focus of Corporate Investment Banking business is to increase ROAE and we plan to do this by de-concentrating our loan book and decreasing the cost of risk, while focusing on further building our fee business through the investment management and the trade finance franchise, which we believe is the strongest in the region
- CIB is successfully following a de-concentration strategy, reducing the concentration of our top 10 Corporate Investment Banking clients to 11.3% by the end of 2Q16, down from 13.3% a year ago
- Cost of credit risk decreased to GEL 9.3mln (down 34.4% y-o-y) and GEL 23.5mln (down 30.1% y-o-y) for 2Q16 and 1H16, respectively
- Cost of Risk also decreased to 1.5%, down 30 bps y-o-y and down 60 bps q-o-q, ending the half year 2016 with Cost of Risk of 1.8%, down 80 bps y-o-y
- CIB net fee and commission income represented GEL 13.2mln or 11.8% of total CIB revenue in 1H16 compared to GEL 16.5mln or 13.9% a year ago. The decline was mainly driven by the decrease in commission fee income from guarantees (income from guarantees was GEL 6.4mln in 1H16, down by GEL 2.2mln or 25.6% y-o-y), which is a result of our de-concentration efforts as we reduced our large guarantee exposures (as mentioned in Banking business discussion above). Excluding guarantees, our CIB fee and commission income was GEL 6.8mln in 1H16 (down 14.5% y-o-y) and GEL 3.3mln in 2Q16 (down 5.9% q-o-q and down 19.0% y-o-y)
- As a result of the foregoing, CIB ROAE has improved, reaching 17.4% for the half year 2016, a significant increase compared to 16.7% a year ago
§ Corporate Investment Banking revenue was GEL 52.1mln in 2Q16, down 13.7% y-o-y and down 12.0% q-o-q, resulting in a half year 2016 revenue of GEL 111.3mln, down 5.9% y-o-y. The decline in revenue was affected by all major revenue lines
§ The decline in net banking interest income was due to the reduction in the CIB net loan book to GEL 2,065.6mln, down 5.6% y-o-y and down 3.7% q-o-q, coupled with the decline in CIB Loan Yields driven primarily by the competition
§ The strong increase in CIB client deposit and notes to GEL 2,602.0, up 14.3% y-o-y, coupled with the increase in cost of deposits further affected CIB net banking interest income. Both local and foreign currency denominated deposits increased y-o-y. Growth in foreign currency denominated deposits was notably stronger, at 18.9% y-o-y in spite of a decrease in deposit rates to 3.5% during first half of the 2016 from 5% before. Local currency denominated deposits increased 4.5% y-o-y on the back of an increase in local currency deposit rates to 9.0%. The increase was done intentionally to source local currency funding from our CIB clients to support local currency lending. However, the q-o-q trend was reversed in client deposits as well as the cost of deposits, reflecting the alternative source of local currency funding through the Development Financial Institutions. Local currency deposit rates are expected to decline in the coming months along with the reduction in the NBG policy rate
§ Our current account balances have increased significantly y-o-y during 2Q16 and 1H16, reflecting our focused efforts on maintaining high liquidity levels, particularly in local currency, increasing the share of current accounts and demand deposits in total CIB client deposits to 60.0% in 2Q16, up from 49.7% a year ago. This is also reflected in an increased cost of current accounts and demand deposits to 3.1% in 2Q16, up from 1.5% a year ago. The increase was predominantly driven by the increase in cost of local currency denominated current accounts and demand deposits to 6.4% in 2Q16, up from 2.4% a year ago, while cost on foreign currency denominated current accounts and demand deposits decreased somewhat by 30bps y-o-y. As a result, at the end of first half of 2016, total current accounts and demand deposits reached GEL 1,561.0mln, up 37.9% y-o-y, of which local currency denominated current accounts and demand deposits were GEL 592.5mln, up 48.1% y-o-y and foreign currency denominated, mostly US$, current accounts and demand deposits were GEL 968.5mln, up 32.3% y-o-y
§ Corporate Investment banking recorded a NIM of 3.7% in 2Q16, down 20bps y-o-y and flat q-o-q, ending a half year with NIM of 3.7%, down 40 bps y-o-y. The NIM reflected: 1) decreasing Loan Yield, which was down 210bps y-o-y to 10.0% in 2Q16 and down 180 bps y-o-y to 10.2% in 1H16 2) Cost of Funding, which was flat y-o-y at 4.6% in 2Q16, and slightly lower at 4.5% in 1H16, down 10bps y-o-y 3) the higher local currency policy rate of the National Bank of Georgia that increased gradually to 8.0% at the year end 2015, up from 4.0% at the end of 2014, and which in August 2016 stands at 6.75%. On q-o-q basis, NIM was flat, on the back of the broadly stable Loan Yield (10.0% in 2Q16 compared to 10.3% in 1Q16) and a slightly higher cost of funding, which stood at 4.6% in 2Q16 compared to 4.4% in 1Q16
§ Our net banking foreign currency gain was affected by the abovementioned holdings in British Pound for dividends payable, which were settled in July 2016. Underlying performance of foreign currency operations was strong, with volume of transactions at GEL 3.1bln in 1H16, down 3.8% y-o-y. As a result, we recorded a net banking foreign currency gain of GEL 8.9mln in 2Q16, down 11.7% y-o-y and GEL 20.3mln for 1H16, up 3.5% y-o-y
§ Net other banking income was GEL 1.8mln, flat y-o-y in 2Q15, with the half yearly result of GEL 4.4mln, up 32.2% y-o-y from GEL 3.3mln a year ago
§ In 2Q16, Corporate Investment Banking operating expenses were GEL 16.6mln, down 1.3% y-o-y, but not enough to prevent an increase in the Cost to Income ratio of 31.8% and negative y-o-y operating leverage of 12.4 percentage points. For the first half, the Cost to Income ratio was 29.3% and negative operating leverage was 10.7 percentage points. Administrative expenses declined by 15.3% y-o-y in 2Q16 and by 2.7% y-o-y in 1H16. Salaries and other employee benefits in 2Q16 are up 1.9% y-o-y and in 1H16 are up 6.1% y-o-y
§ As a result, Corporate Investment Banking profit reached GEL 24.5mln in 2Q16, down 0.6% y-o-y from GEL 24.6mln in 2Q15 with half year result of GEL 50.0mln, up 13.4% y-o-y from GEL 44.1mln a year ago
Performance highlights of wealth management operations
§ The AUM of the Investment Management segment increased to GEL 1,301.4mln, up 5.7% y-o-y. This includes Wealth Management clients' deposits and assets held at Bank of Georgia Custody, Galt & Taggart brokerage client assets and Aldagi pension scheme assets
§ Wealth Management deposits increased to GEL 964.6mln, up 6.6% y-o-y, growing at a compound annual growth rate (CAGR) of 25.9% over the last five year period. The growth was achieved despite a 90 bps decline in the Cost of Client deposits to 4.4% in 2Q16 and impact of Wealth Management clients switching from deposits to bonds, as a number of bond issuances, yielding higher rates than deposits by Galt & Taggart were offered to Wealth Management clients
§ We served 1,377 wealth management clients from 68 countries as of 30 June 2016
§ Galt & Taggart is successfully developing local capital markets:
- Galt & Taggart served as the sole book runner and the placement agent for the US$5mln bond offering, for Nikora Trade LLC, a leading Georgian FMCG (Fast Moving Consumer Goods) company, which successfully completed its first ever bond offering on March 18, 2016. It is planned that the bonds will be listed on the Georgian Stock Exchange in the near future
- In February 2016, Galt & Taggart Research issued a comprehensive report on the Georgian healthcare sector and continues to provide weekly economic (including economies of Georgia and Azerbaijan) and sectoral coverage. Galt & Taggart reports are available at www.galtandtaggart.com. Other research since Galt & Taggart's launch in 2012 included coverage of/notes on the Georgian retail and office real estate market; the Georgian wine, agricultural, electricity and tourism sectors; fixed income issuances, including Georgian Oil and Gas Corporation, Georgian Railway; and the Georgian State Budget
§ Galt & Taggart was named the best regional securities brokerage - Georgia 2016 by Capital Finance International. This serves as recognition of Galt & Taggart as the leading brokerage house in the region, whilst it strives to provide broker-dealer services not only for international markets, but also for hard-to-reach frontier economies.
Investment Business Segment Result Discussion
Healthcare business (Georgia Healthcare Group - GHG)
Standalone results
For the purposes of the results discussion below, healthcare business refers to the Group's pure-play healthcare businesses, Georgia Healthcare Group (GHG), which includes healthcare services, pharma business and medical insurance. BGEO Group owns 65% of GHG, with the balance of the shares being held by the public (largely institutional investors). GHG's results are fully consolidated in BGEO Group's results. GHG's shares are listed on the London Stock Exchange. The results below refer to GHG standalone numbers and are based on GHG's reported results, which are published independently and available on GHG's web-site: www.ghg.com.ge
Income Statement
GEL thousands; unless otherwise noted
Change, Q-o-Q
Change, Y-o-Y
Revenue, gross
101,673
57,472
76.9%
72,576
40.1%
174,249
112,046
55.5%
Corrections & rebates
(724)
(885)
-18.2%
(410)
76.6%
(1,134)
(1,842)
Revenue, net
100,949
56,587
78.4%
72,166
173,115
110,204
57.1%
Revenue from healthcare services
58,056
44,789
29.6%
60,041
-3.3%
118,097
86,577
36.4%
Revenue from pharma
30,691
15,298
14,123
8.3%
13,830
29,128
27,514
Eliminations
(3,095)
(2,325)
33.1%
(1,705)
81.5%
(4,800)
(4,187)
Costs of services
(67,395)
(33,721)
99.9%
(44,151)
52.6%
(111,546)
(67,759)
64.6%
Cost of healthcare services
(31,399)
(24,189)
29.8%
(32,998)
-4.8%
(64,397)
(48,462)
32.9%
Cost of pharma
(25,059)
Cost of insurance services
(13,989)
(11,785)
18.7%
(12,847)
8.9%
(26,836)
(23,021)
3,052
2,253
35.5%
1,694
80.2%
4,746
4,024
Gross profit
33,554
22,866
46.7%
19.8%
61,569
42,445
45.1%
(9,229)
(6,343)
45.5%
(6,923)
33.3%
(16,152)
(12,602)
28.2%
General and administrative expenses
(6,758)
(2,551)
164.9%
(3,202)
111.1%
(9,960)
(4,950)
101.2%
Impairment of healthcare services, insurance premiums and other receivables
(912)
(980)
26.1%
(2,216)
(1,846)
Other operating income
551
416
32.5%
219
151.6%
770
541
EBITDA
16,882
13,476
25.3%
17,129
34,011
23,588
44.2%
Depreciation and amortization
(4,581)
(2,567)
78.5%
(4,465)
(9,046)
(4,889)
85.0%
Net interest income (expense)
(3,469)
(6,017)
-42.3%
(1,656)
109.5%
(5,125)
(10,118)
-49.3%
Net gains/(losses) from foreign currencies
(1,964)
2,045
(260)
655.4%
(2,224)
5,449
Net non-recurring income/(expense)
(586)
(556)
(230)
154.8%
(816)
(767)
Profit before income tax expense
6,282
6,381
-1.6%
10,518
-40.3%
16,800
13,263
26.7%
Income tax benefit/(expense)
26,920
660
1,505
1688.7%
28,425
53
of which: Deferred tax adjustments
27,113
2,198
29,311
Profit for the period
33,202
7,041
371.6%
12,023
176.2%
45,225
13,316
239.6%
Attributable to:
- shareholders of the Company
27,755
6,122
353.4%
9,921
179.8%
37,676
11,854
217.8%
- non-controlling interests
5,447
919
492.7%
2,102
159.1%
7,549
1,462
416.3%
4,705
352
5,057
For detailed income statement by healthcare services and medical insurance business, please see page 30 and 32
§ GHG delivered record quarterly revenue of GEL 101.7mln, up 76.9% y-o-y and up 40.1% q-o-q. Growth was driven by healthcare services revenue, up 29.6% y-o-y (with strong organic growth of 13.0% y-o-y for the half year) and pharma business consolidation since its acquisition in May 2016. In 2Q16, GHG revenue breakdown is as follows: healthcare services business revenue accounted for more than 55%, pharma business revenue accounted for c.30% and medical insurance business revenue accounted for c.15%. GHG started consolidation of the newly acquired pharma business in May 2016
§ GHG entered the pharma business as a result of the GPC acquisition in May 2016 and its results of operations include GPC results since May 2016. Since the completion of the acquisition, GHG has rolled out a number of initiatives, as announced during the acquisition, which are having a positive effect on the pharma business and are partially reflected in July 2016 results, with retail gross margin climbing to 22.0% for July, up from 19.6% in the consolidated two months results. GHG management expects that the effects of integration will be reflected in the results of second half of 2016
§ Cost of services reached GEL 67.4mln, up 99.9% y-o-y and 52.6% q-o-q. The cost of healthcare services grew in line with revenues (up 29.8% y-o-y and down 4.8% q-o-q, compared with the change in revenues of up 29.6% y-o-y and down 3.3% q-o-q). The 18.7% growth in cost of insurance services, outpaced the 8.3% growth in respective revenue y-o-y; nevertheless, the q-o-q trend was favourable, with the cost of insurance services growing at 8.9% compared to 10.6% growth in respective revenue
§ As a result, we reported quarterly EBITDA of GEL 16.9mln, up 25.3% y-o-y and down 1.4% q-o-q. The y-o-y growth was primarily driven by the healthcare services business which grew its EBITDA by 35.4%
§ Subsequently, GHG's profit for the period amounted to GEL 33.2mln, up 371.6% y-o-y and up 176.2% q-o-q. The healthcare services business was the sole driver of the 2Q16 Group profit, with GEL 35.3mln profit for 2Q16 (up 414.6% y-o-y and up 190.8% q-o-q), which was partially offset by loss of GEL 0.4mln and GEL 1.7mln, recorded by the pharma and medical insurance businesses, respectively. Group profit, adjusted for the impact of deferred tax (see the explanation in the bullet point preceding "Banking Business highlights " on page 4) and one-off foreign currency translation loss adjustments, was GEL 8.1mln in 2Q16 (up 61.2% y-o-y and down 20.1% q-o-q) and GEL 18.1mln for 1H16 (up 130.6% y-o-y)
§ GHG's revenue cash conversion ratio, on a consolidated basis, equalled 91.6% in 1H16 compared to 88.9% in 1H15. This translated into an EBITDA cash conversion ratio of 72.9% on a consolidated adjusted basis, in 1H16.
§ The Ministry of Labor, Health and Social Affairs ("MOLHSA") has recently conducted a review of the effectiveness of the existing model of the healthcare financing by the state, which was introduced in 2014 with the current scope. As a result of the review, the government is undertaking several initiatives to improve the effectiveness and efficiency of the existing system. The initiatives that have been announced include: streamlining the licensing requirements for hospitals, particularly around intensive care (the initiative is approved with effect from the beginning of 2017); introducing levelling of hospitals based on the capabilities of each hospital measured by a number of factors, including number of beds, specialised beds to total beds, relevant equipment and personnel, etc. (the initiative is at an advanced stageand expected to become effective also in the beginning of 2017); streamlining pricing and scope of the urgent care services under UHC (enforced). GHG believes that certain of its competitors will struggle to comply with the changes anticipated by these initiatives. GHG, however, is largely already in compliance, primarily as a result of our diversified business model, as well as existing hierarchy of our healthcare facilities. We expect that their net effect will be positive for GHG
§ Renovation of two major hospitals, Sunstone (c.332 beds, scheduled launch in May, 2017) and Deka (c.310 beds, scheduled launch in May, 2017) is ongoing, within schedule and budget
§ GHG is in the process of launching around 50 new services at nine of its referral hospitals. This includes some basic services (like pediatrics, neonatology, diagnostics, ophthalmology, mammography and breast surgery, gynecology, cardio-surgery, traumatology, angio-surgery, intensive care, reproductive services, etc.) as well as sophisticated services (like oncology, transplantation of bone marrow, kidney and liver for children, etc.).
Real estate business (m2 Real Estate)
Our Real Estate business is operated through the Group's wholly-owned subsidiary m2 Real Estate, which develops residential property in Georgia. m2 Real Estate outsources the construction and architecture works whilst itself focusing on project management and sales. The Bank's Real Estate business serves to meet the unsatisfied demand in Tbilisi for housing through its well-established branch network and sales force, while stimulating the Bank's mortgage lending business. The business is also planning to begin hotel development in the under-developed mid-price sector in the coming months
Income statement
Real estate revenue, of which:
5,964
1,595
273.9%
28,592
-79.1%
34,556
5,533
524.5%
Revenue from sale of apartments
5,323
1,155
27,992
-81.0%
33,315
4,713
Income from operating lease
641
440
45.7%
600
1,241
820
Cost of real estate
(3,858)
(1,757)
119.6%
(22,740)
-83.0%
(26,598)
(4,622)
2,106
(162)
5,852
-64.0%
7,958
911
773.5%
121
(57)
1,816
-93.3%
1,937
162
2,227
(219)
7,668
-71.0%
9,895
1,073
822.2%
(433)
(269)
61.0%
(320)
35.3%
(753)
(590)
27.6%
(1,519)
(1,275)
19.1%
(1,135)
33.8%
(2,654)
(2,316)
(1,952)
(1,544)
26.4%
(1,455)
34.2%
(3,407)
(2,906)
275
(1,763)
6,213
-95.6%
6,488
(1,833)
(61)
(43)
41.9%
(53)
15.1%
(114)
(85)
Net foreign currency loss from investment business
697
903
-22.8%
386
80.6%
1,083
532
103.6%
221
-100.0%
392
(103)
(227)
-54.6%
(125)
(1,238)
-81.6%
808
(909)
6,421
-87.4%
7,229
(2,232)
(135)
(67)
101.5%
(23)
(158)
(140)
(976)
6,398
-89.5%
7,071
(2,372)
Income tax (expense) benefit
23
147
-84.4%
(960)
(937)
356
696
(829)
5,438
-87.2%
6,134
(2,016)
§ m2 Real Estate continued strong sales and project completion performance in 2Q16, which was reflected in revenue of GEL 2.2mln for 2Q16 and GEL 9.9mln for 1H16. Gross real estate profit, which reflects residential property development and sales operations of m2 Real Estate, increased to GEL 2.1mln in 2Q16, with GEL 8.0mln recorded for half year 2016. m2 Real Estate recorded 2Q16 and 1H16 profit of GEL 0.7mln and GEL 6.1mln, respectively, up from losses a year ago
§ m2 Real Estate gross real estate profit, revenue and profit are by their nature choppy, given both uneven real estate project cycles and the revenue recognition method under current accounting rules (IAS 18) pursuant to which apartment sale revenues are recognized upon handover of the apartment to its clients, following the completion of the projects. m2 Real Estate has accumulated US$ 50.8mln sales, which will be recognised as revenue upon completion of the on-going three projects discussed below in 2016-2018 (of which c. US$ 27.0mln is expected to be recognised in 2016)
§ m2 Real Estate sold a total of 104 apartments with a sales value of US$ 8.8mln in 2Q16, compared to 30 apartments sold with a sales value of US$ 2.8mln in 2Q15. Overall, during the first half of 2016, m2 Real Estate sold a total of 157 apartments with the sales value of US$ 14.3mln, compared to 79 apartments sold with sales value of US$ 7.6mln during the same period last year. At its six projects which have already been completed with a total of 1,672 apartments, m2 Real Estate currently has a stock of only 155 apartments unsold. At its three on-going projects with a total capacity of 1,140 apartments, 281 apartments or 25% are already sold
§ m2 Real Estate has started nine projects since its establishment in 2010, of which six have already been completed, and construction of three is on-going. m2 Real Estate has completed all of its projects on or ahead of time and within budget. One of the on-going projects is expected to be completed in 2016 and the other two in 2018. Currently, total of 1,014 units are available for sale out of total of 2,812 apartments developed or under development. m2 Real Estate has unlocked total land value of US$ 16.4mln from the six completed projects and an additional US$ 13.2mln in land value is expected to be unlocked from the three on-going projects.
§ Of the three m2 Real Estate projects, one is the largest ever carried out by m2 Real Estate, with a total of 819 apartments in a central location in Tbilisi. The second is a new type of project for m2 Real Estate, representing a luxury residential building in Old Tbilisi neighbourhood with few apartments (19 in total) and a relatively high price. The third is the latest project by m2 Real Estate, which is a mixed-use development, with 302 residential apartments and a hotel with a capacity of 152 rooms. This mixed-use development started in June 2016, with sales of 24 apartments to date.
Operating data for completed and on-going projects, as of 30 June 2016
#
Project name
Total number of apartments
Number of apartments sold
Number of apartments sold as % of total
Number of apartments available for sale
Construction start date
Actual / planned construction completion date
Construction completed %
Completed projects
1,672
1,517
91%
155
1
Chubinashvili street
123
100%
0
Sep-10
Aug-12
2
Tamarashvili street
525
523
May-12
Jun-14
3
Kazbegi Street
295
285
97%
10
Dec-13
Feb-16
4
Nutsubidze Street
216
98%
5
Sep-15
Tamarashvili Street II
270
205
76%
65
Jul-14
6
Moscow avenue
238
165
69%
73
Sep-14
On-going projects
1,140
281
25%
859
7
Kartozia Street
819
247
30%
572
Nov-15
Sep-18
12%
8
Skyline
19
53%
9
Dec-15
Dec-16
20%
Kazbegi Street II
302
24
8%
278
Nov-18
1%
Total
2,812
1,798
64%
1,014
Financial data for completed and on-going projects, as of 30 June 2016
Total Sales (US$ mln)
Sales already recognised as revenue
(US$ mln)
Sales to be recognised as revenue
(US$ mln)1
Sales expected to be recognised as revenue during year
Land value unlocked (US$)
Realised & Expected IRR
128.5
101.5
27.0
16.4
9.9
0.9
47%
48.4
5.4
46%
26.2
25.2
1.0
2H 2016
3.6
165%
17.1
16.8
0.3
2.2
58%
19.0
2.7
71%
7.9
1.2
6.7
1.6
31%
23.7
13.2
17.7
2018/2019
5.8
60%
4.1
2017
3.1
329%
1.9
2018
4.3
51%
152.2
50.7
29.6
§ The number of apartments financed with BOG mortgages in all m2 Real Estate projects as of the date of this announcement totalled 880, with an aggregate amount of GEL 100.0mln
§ Additionally, since the beginning of 2016, m2 Real Estate has enhanced the access to funding for its clients, by signing memorandums with TBC Bank and Bank Republic Societe Generale. As a result, these two banks, in addition to BOG, offer mortgages at favourable terms to m2 Real Estate clients
[1] m2 Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of the project
Balance Sheet
30-Jun-15
Cash and cash equivalents
42,549
29,314
49,059
Investment securities
1,145
Accounts receivable
824
3,378
-75.6%
1,007
Prepayments
18,741
10,896
72.0%
23,551
-20.4%
Inventories
116,891
98,830
18.3%
95,139
22.9%
Investment property, of which:
107,303
74,300
44.4%
117,722
-8.9%
Land bank
71,489
52,584
36.0%
81,888
Commercial real estate
35,814
21,716
64.9%
35,834
Property and equipment
1,633
1,830
1,569
Other assets
19,751
14,373
37.4%
12,678
55.8%
308,837
234,066
301,870
36,039
4,338
730.8%
37,118
-2.9%
47,857
45,879
47,380
Accruals and deferred income
105,498
102,417
96,538
Other liabilities
6,677
2,709
168.1%
7,383
-9.6%
196,658
155,343
190,492
Additional paid-in capital
6,008
2,990
100.9%
5,077
Other reserves
(4,206)
(3,575)
17.7%
Retained earnings
110,377
79,308
109,876
Total equity attributable to shareholders of the Group
112,179
78,723
42.5%
111,378
Total liabilities and equity
§ m2 Real Estate has a solid and well managed balance sheet. As of 30 June 2016, total assets were GEL 308.8mln (up 31.9% y-o-y), constituting 14% cash, 6% prepayments, 38% inventories (which is apartments in development), 35% investment property (which consists of land bank and commercial real estate) and 7% other assets. Borrowings, which consist of debt raised from Development Financial Institutions ("DFIs") and debt securities issued at the local market, constitute 27% of the total balance sheet. Accruals and deferred income, constituting 34% of the balance sheet, represents prepayments for the presold apartments.
§ m2 Real Estate currently has a land stock on its balance sheet with a total value of GEL 71.5mln. We don't expect the land bank to grow, as m2 Real Estate strategy is to utilise its existing land plots within 3-4 years' time and in parallel, start developing third party lands
SELECTED FINANCIAL INFORMATION
Banking Business
Investment Business
INCOME STATEMENT QUARTERLY
215,895
211,869
224,810
(1,339)
(3,444)
(1,407)
(87,368)
(89,080)
-1.9%
(95,958)
344
(170)
40
(995)
(3,614)
(1,367)
40,250
38,944
38,149
(425)
(1,216)
(335)
(10,907)
(9,823)
(10,335)
129
134
(296)
(1,051)
(201)
(194)
(329)
(301)
23,854
22,566
21,824
14,271
13,244
12,924
(652)
(455)
(650)
(15,445)
(16,749)
-7.8%
(15,408)
(11,706)
(10,445)
(11,201)
Healthcare revenue
55,003
41,217
58,348
-5.7%
(29,804)
(23,118)
28.9%
(32,057)
Real estate revenue
6,324
1,716
268.5%
28,764
-78.0%
(6)
25
(69)
(2,143)
(5,424)
(2,588)
(50,875)
(45,044)
(47,413)
(10,685)
(7,460)
43.2%
(8,250)
29.5%
657
482
643
(27,912)
(22,102)
(25,062)
(9,216)
(4,498)
104.9%
(5,392)
70.9%
355
388
(560)
(1,364)
-58.9%
(1,675)
-66.6%
124
(423)
(814)
1,012
777
1,031
(4,647)
(1,557)
Net foreign currency gain from investment business
(343)
(222)
(8)
1,474
4,869
1,565
(2,438)
(4,983)
-51.1%
(3,412)
-28.5%
95,246
84,129
13.2%
95,593
9,329
7,514
16,333
-42.9%
46,502
83,716
-44.5%
96,959
-52.0%
6,935
10,510
-34.0%
19,118
-63.7%
44073.1%
36,531
110.1%
- shareholders of BGEO
94,642
70,601
80,836
73,600
60,963
20.7%
68,620
21,042
9,638
118.3%
12,216
72.2%
16,595
1,429
1061.3%
6,211
167.2%
1,106
490
125.7%
1,043
15,489
939
1549.5%
5,168
199.7%
Earnings per share basic and diluted
INCOME STATEMENT HALF YEAR
440,705
411,567
(2,746)
(6,099)
-55.0%
(183,325)
(167,789)
384
-7.7%
(2,362)
(5,683)
-58.4%
78,398
74,935
(761)
(2,568)
-70.4%
(21,241)
(18,960)
264
(497)
(2,287)
-78.3%
(495)
(634)
45,678
44,275
27,195
26,134
(1,302)
(878)
48.3%
(30,853)
(30,884)
(22,906)
(20,642)
113,351
81,234
39.5%
(61,861)
(46,259)
35,087
5,790
506.0%
(75)
(120)
-37.5%
(4,731)
(9,602)
-50.7%
(98,288)
(90,786)
(18,935)
(14,991)
1,300
877
48.2%
(52,975)
(43,158)
22.7%
(14,609)
(8,527)
71.3%
743
773
(2,233)
(2,253)
(688)
(520)
2,043
1,650
(2,688)
(7,952)
-66.2%
(351)
-17.0%
3,039
8,375
256,369
243,437
28,029
13,824
102.8%
(5,850)
(7,776)
-24.8%
190,840
159,729
19.5%
25,662
11,652
120.2%
143,460
156,869
-8.5%
26,052
14,367
81.3%
175,478
133,241
142,220
119,211
33,258
14,030
137.0%
22,806
1,128
1921.8%
2,149
1,053
104.1%
20,657
75
BALANCE SHEET
1,059,359
1,261,805
-16.0%
1,359,219
-22.1%
1,034,062
1,252,758
-17.5%
1,330,094
-22.3%
245,595
107,511
128.4%
288,512
-14.9%
(220,298)
(98,464)
(259,387)
Amounts due from credit institutions
876,655
583,888
50.1%
764,435
14.7%
863,791
575,534
720,442
19.9%
28,949
18,844
53.6%
47,936
-39.6%
(16,085)
(10,490)
(3,943)
989,331
895,840
825,045
990,125
898,457
825,821
2,572
1,153
123.1%
1,154
122.9%
(3,366)
(3,770)
(1,930)
(38,294)
(89,469)
(34,847)
Accounts receivable and other loans
89,162
77,866
14.5%
84,715
5,262
15,474
-66.0%
5,144
86,748
70,343
81,955
(2,848)
(7,951)
(2,384)
Insurance premiums receivable
58,667
58,142
54,879
24,013
26,519
-9.4%
16,567
44.9%
35,993
32,023
12.4%
39,347
(400)
(1,035)
103,842
52,145
99.1%
67,633
53.5%
22,461
30,779
-27.0%
24,649
81,381
21,366
280.9%
42,984
89.3%
178,534
131,534
125,466
9,559
10,379
9,686
168,975
121,155
115,780
45.9%
Investment property
245,849
221,506
254,224
138,546
143,873
134,310
77,633
38.2%
119,914
-10.5%
852,680
669,153
27.4%
835,651
336,013
338,858
333,243
516,667
330,295
56.4%
502,408
Goodwill
106,134
60,056
73,192
45.0%
49,592
48,092
56,542
11,964
372.6%
23,600
139.6%
Intangible assets
49,617
36,894
34.5%
43,074
15.2%
38,314
33,260
37,609
11,303
3,634
211.0%
5,465
106.8%
Income tax assets
26,585
29,080
36,712
-27.6%
19,614
21,686
27,321
-28.2%
6,971
7,394
9,391
-25.8%
217,688
244,398
193,626
132,268
174,820
121,012
88,233
80,058
75,515
(2,813)
(10,480)
(2,901)
(285,043)
(221,024)
(306,427)
(237,967)
(108,405)
(263,874)
(38,292)
(94,700)
(5,942)
(7,028)
(4,832)
137,967
132,832
142,766
13,084
14,369
25,685
-49.1%
124,883
118,463
117,081
Insurance contracts liabilities
80,643
73,001
71,565
47,701
42,910
34,630
37.7%
32,942
30,091
36,935
Income tax liabilities
44,510
111,387
128,667
-65.4%
42,916
87,392
-50.9%
93,765
-54.2%
1,594
23,995
-93.4%
34,902
-95.4%
338,757
94,839
257.2%
131,506
157.6%
120,007
71,126
68.7%
47,520
152.5%
221,592
34,604
540.4%
86,860
155.1%
(2,842)
(10,891)
(2,874)
Share capital
228,679
243,482
-6.1%
240,962
88,253
32,277
173.4%
101,467
-13.0%
140,426
211,205
-33.5%
139,495
Treasury shares
(35)
(36)
(29)
88,226
(61,509)
42,101
109.6%
(9,549)
(51,917)
(55,166)
-82.7%
97,775
(9,592)
97,267
1,652,868
1,413,870
1,650,094
1,298,592
1,247,508
1,212,492
354,276
166,362
113.0%
437,602
-19.0%
1,970,892
1,596,961
23.4%
1,934,282
1,378,415
1,228,986
1,259,918
592,477
367,975
674,364
-12.1%
Non-controlling interests
238,489
58,982
304.3%
216,567
19,563
19,755
18,332
218,926
39,227
458.1%
198,235
Book value per share
51.46
41.74
50.21
Georgia Healthcare Group
Income Statement, Quarterly
Healthcare services
Medical insurance
Pharma
GHG
58,779
45,674
60,451
58,055
Cost of salaries and other employee benefits
(19,857)
(15,919)
(19,752)
1,094
767
565
(18,763)
(15,152)
(19,187)
Cost of materials and supplies
(9,228)
(6,258)
47.5%
(9,613)
514
(8,714)
(5,956)
46.3%
(9,338)
-6.7%
Cost of medical service providers
(401)
(510)
-21.4%
(428)
12
(378)
(486)
-22.2%
(416)
-9.1%
Cost of utilities and other
(1,913)
(1,502)
(3,205)
122
74
92
(1,791)
(1,428)
(3,113)
-42.5%
(13,003)
(11,035)
17.8%
(11,953)
1,299
1,086
750
(11,704)
(9,949)
(11,203)
Agents, brokers and employee commissions
(986)
(750)
(894)
Cost of pharma - wholesale
(6,545)
Cost of pharma - retail
(18,514)
26,656
20,600
29.4%
27,043
1,309
2,338
-44.0%
983
33.2%
5,632
(72)
(11)
(5,254)
(5,523)
-4.9%
(6,115)
-14.1%
(1,328)
(892)
(819)
62.1%
(2,690)
43
72
11
(3,517)
(1,909)
84.2%
(2,483)
(708)
(642)
(719)
(2,533)
(1,120)
(906)
(858)
30.5%
(116)
1833.3%
(122)
395
413
241
63.9%
233.3%
(21)
-147.6%
145
550
151.1%
17,160
12,675
35.4%
17,828
(832)
801
-203.9%
(699)
19.0%
554
EBITDA margin
Depreciation and amortisation
(4,121)
(2,414)
70.7%
(4,261)
(202)
(153)
32.0%
(204)
(258)
(2,999)
(6,011)
-50.1%
(2,259)
32.8%
616.7%
603
(427)
(1,711)
1,973
(411)
316.3%
-73.6%
151
(272)
387
-268.3%
(973)
8,716
5,667
53.8%
10,667
-18.3%
(2,031)
714
(149)
1,263.1%
(403)
26,619
1,199
1,486
1691.3%
301
(539)
1,484.2%
1,688.7%
35,335
6,866
414.6%
12,153
190.8%
(1,730)
175
1,230.8%
29,888
5,947
402.6%
10,051
197.4%
Income Statement, Half-Year
119,230
88,419
34.8%
118,096
(23,321)
(39,609)
(31,011)
27.7%
1,659
1,442
(37,950)
(29,569)
28.3%
(18,841)
(12,740)
47.9%
789
592
(18,052)
(12,148)
48.6%
(978)
-15.2%
35
45
(794)
(933)
(5,118)
(3,733)
214
174
(4,904)
(3,559)
37.8%
(24,956)
(21,872)
2,049
1,771
(22,907)
(20,101)
(1,880)
(1,449)
29.7%
53,699
38,115
40.9%
2,292
4,493
-49.0%
(54)
(163)
(11,369)
(10,837)
(2,147)
(1,928)
54
163
(6,000)
(3,687)
(1,427)
(1,263)
(1,978)
(1,737)
13.9%
(238)
(109)
636
491
50
34,988
22,345
56.6%
(1,531)
1,243
-5.3%
21.1%
(8,382)
(4,600)
(406)
(289)
40.5%
(5,258)
(10,084)
-47.9%
560
(34)
(2,122)
4,880
170
569
-70.1%
157
19,383
11,774
(2,180)
1,489
28,105
708
320
(655)
47,488
12,482
280.5%
(1,860)
834
39,939
11,020
262.4%
P&C Insurance (Aldagi)
INCOME STATEMENT HIGHLIGHTS
GEL thousands, unless otherwise stated
567
35.8%
725
1,495
1,113
34.3%
104
100
203
143
42.0%
1,687
(47)
(1,033)
2,215
223
90
147.8%
131
70.2%
-8.0%
6,811
3,853
76.8%
5,665
20.2%
12,475
9,460
6,922
6,269
6,574
13,496
13,318
(2,774)
(2,524)
(2,767)
(5,542)
(5,494)
Operating income before cost of credit risk and non-recurring items
4,148
3,745
3,807
7,954
7,824
1.7%
(186)
(172)
8.1%
(173)
(358)
(267)
3,962
3,573
7,596
7,557
(1,009)
(150)
(545)
(1,553)
2,953
3,423
3,089
6,043
7,795
Belarusky Narodny Bank (BNB)
INCOME STATEMENT, HIGHLIGHTS
6,997
6,638
7,903
14,900
14,067
1,868
2,699
-30.8%
1,862
3,730
4,916
-24.1%
2,100
3,668
-42.7%
-15.4%
4,581
8,685
80
137
-41.6%
167
-52.1%
234
11,045
13,142
12,413
-11.0%
23,458
27,902
-15.9%
(4,687)
(4,490)
(9,440)
(8,941)
6,095
8,455
-27.9%
7,923
-23.1%
14,018
18,961
-26.1%
(1,075)
-81.1%
(2,516)
-57.3%
(3,592)
(10,328)
-65.2%
(318)
-97.5%
(3)
166.7%
(10)
(1,416)
-99.3%
5,012
2,454
104.2%
5,404
-7.3%
10,416
7,217
44.3%
(4,845)
(785)
(1,144)
(5,990)
(2,212)
170.8%
1,669
-90.0%
4,260
-96.1%
4,426
5,005
-11.6%
BALANCE SHEET, HIGHLIGHTS
Change Y-O-Y
Change Q-O-Q
75,561
67,632
93,904
-19.5%
3,366
3,636
3,986
-15.6%
310,546
305,816
319,740
43,036
67,293
-36.0%
49,825
432,509
444,377
467,455
-7.5%
202,382
242,249
-16.5%
230,848
-12.3%
141,577
114,161
24.0%
139,801
15,416
15,906
6,070
7,372
-17.7%
5,409
365,445
363,782
391,964
53,810
66,953
62,908
-14.5%
13,254
13,642
12,583
67,064
80,595
75,491
-11.2%
Banking Business Key Ratios
Profitability
ROAA, Annualised
ROAE, Annualised
RB ROAE
CIB ROAE
Net Interest Margin, Annualised
RB NIM
CIB NIM
Loan Yield, Annualised
RB Loan Yield
CIB Loan Yield
Liquid assets yield, Annualised
Cost of Funds, Annualised
Cost of Client Deposits and Notes, annualised
RB Cost of Client Deposits and Notes
CIB Cost of Client Deposits and Notes
Cost of Amounts Due to Credit Institutions, annualised
Operating Leverage, Y-O-Y
Operating Leverage, Q-O-Q
Efficiency
RB Cost / Income
CIB Cost / Income
Liquidity
NBG Liquidity Ratio
Liquid Assets To Total Liabilities
Net Loans To Client Deposits and Notes
Net Loans To Client Deposits and Notes + DFIs
Leverage (Times)
5.6
6.0
6.1
Asset Quality:
NPLs (in GEL)
251,383
219,230
251,959
Cost of Risk, Annualised
RB Cost of Risk
CIB Cost of Risk
Capital Adequacy:
New NBG (Basel 2/3) Tier I Capital Adequacy Ratio
New NBG (Basel 2/3) Total Capital Adequacy Ratio
Old NBG Tier I Capital Adequacy Ratio
Old NBG Total Capital Adequacy Ratio
16.4%
16.3%
Selected Operating Data:
Total Assets Per FTE, BOG Standalone
1,954
1,995
1,972
Number Of Active Branches, Of Which:
273
246
266
- Express Branches (including Metro)
119
97
114
- Bank of Georgia Branches
144
- Solo Lounges
Number Of ATMs
763
685
753
Number Of Cards Outstanding, Of Which:
1,946,828
1,964,374
1,943,175
- Debit cards
1,152,319
1,207,573
1,171,454
- Credit cards
794,509
756,801
771,721
Number Of POS Terminals
9,044
8,175
Group Employee Data
Full Time Employees, Group, of which:
18,045
14,583
16,086
- Full Time Employees, BOG Standalone
4,693
4,368
4,580
- Full Time Employees, Georgia Healthcare Group
11,481
8,496
9,675
- Full Time Employees, m2
58
59
- Full Time Employees, Aldagi
276
253
259
- Full Time Employees, BNB
574
505
562
- Full Time Employees, Other
961
951
Operating Data, GEL mln
Q2 2016
% of clients
2015
2014
2013
Number of total Retail clients, of which:
2,039,843
1,999,869
1,451,777
1,245,048
Number of Solo clients ("Premier Banking")
14,896
11,869
7,971
6,810
Consumer loans & other outstanding, volume
908.4
835.6
691.8
560.2
Consumer loans & other outstanding, number
631,990
31.0%
625,458
526,683
455,557
Mortgage loans outstanding, volume
956.5
809.0
600.9
441.4
Mortgage loans outstanding, number
14,451
12,857
11,902
10,212
Micro & SME loans outstanding, volume
992.5
903.9
666.0
497.0
Micro & SME loans outstanding, number
24,020
19,045
16,246
13,317
Credit cards and overdrafts outstanding, volume
301.8
305.7
135.0
142.4
Credit cards and overdrafts outstanding, number
437,942
435,010
199,543
174,570
Credit cards outstanding, number, of which:
38.9%
754,274
116,615
117,913
American Express cards
85,743
100,515
110,362
108,608
Shares Outstanding
Ordinary Shares Outstanding
38,299,053
38,257,793
38,523,409
Treasury Shares Outstanding
1,201,267
1,242,527
976,911
Principal risks and uncertainties
Understanding our risks
The table below describes the principal risks and uncertainties relating to the Group's operations and their potential impact, as well the trend and outlook associated with these risks and the mitigating actions we take to address these risks. If any of the following risks actually occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The risks and uncertainties described below may not be the only ones the Group faces. Additional risks and uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred expenses or other events that could result in a decline in the value of the Group's securities.
Risks and uncertainties
Trend and outlook
Mitigation
Currency fluctuations have affected, and may continue to affect the Group in addition to general deterioration of global and regional economic conditions.
In 2015, the Lari depreciated against the US Dollar by 22.2%, while in the first half of 2016, it appreciated by 2.3% year to date. Volatility of Lari against the US Dollar has affected and may continue to adversely affect Group's performance. Our Banking Business NPLs to gross loans increased to 4.4% as of 30 June 2016, compared to 3.4% as of 31 December 2014, and our cost of risk ratio increased to 2.1% in the first half of 2016, compared to 1.2% in 2014. There is a risk that any future depreciation of the Georgian Lari against the US Dollar may adversely affect the quality of our loan portfolio and increase impairment provisions, as our corporate loan book and mortgage portfolio is heavily US Dollar-denominated and many of our customers earn Georgian Lari.
We are also affected by other macroeconomic and market conditions globally, regionally and in Georgia. Global markets conditions remain volatile and growth has recently slowed in many emerging economies, including Georgia. In addition to currency exchange rates, other macroeconomic factors relating to Georgia, such as GDP, inflation and interest rates, may have a material impact on loan losses, our margins and customer demand for our products and services.
In the last quarter of 2015, the GEL/ US$ exchange rate stabilised. Since 1 January 2016, the Georgian Lari has appreciated against the US Dollar. We are, however, unable to predict future changes in the GEL/US$ exchange rate.
Global and regional economic conditions remain volatile and there is significant economic uncertainty.
Real GDP growth in Georgia decreased to 2.8% in 2015 and 2.9% in the first half of 2016, from 4.6% in 2014, according to Geostat. This decrease was due to a weaker external economic environment, which was reflected in weaker remittances, lower net exports from Georgia and lower FDI. Despite the lower current GDP growth in Georgia, we believe that Georgia was particularly resilient in the context of the economic turbulences in the region.
The IMF has projected the decline in GDP growth in the region is at 0.6% in 2016, and growth to recover to 1.5% in 2017 (July 2016 WEO update). With respect to Georgia, the IMF has projected the GDP growth at 2.5% in 2016 and to average 4.9% in 2017-2021. We believe that real GDP growth in Georgia will be in the range of 3.0% to 3.5% in 2016 as a result of healthy market fundamentals, new investment opportunities, growth in tourism, fiscal stimulus and monetary normalization. Average annual inflation was 4.0% in 2015 and price pressures remain eased in 2016.
We continuously monitor market conditions and review market changes. We also perform stress and scenario testing to test our financial position in adverse economic conditions, which includes a GEL/US$ exchange rate of 2.7/1.
We also establish limits on possible losses for each type of operation and monitor compliance with such limits.
Given our strong liquidity position, we believe that we will be able to manage risk related to our US Dollar-denominated loan book.
In addition, the NBG requires banks to hold additional capital to mitigate potential risk associated with foreign currency loans to customers that earn Georgian Lari.
Our loan book is heavily US Dollar- denominated, the quality of which may deteriorate as a result of slower economic growth and Georgian Lari depreciation.
As at 30 June 2016, approximately 89% and 58% of our corporate loan book and retail loan book, respectively, was denominated in foreign currency (predominantly US Dollars), while US Dollar income covered approximately 50% of the total loan book.
The quality of our loan book is affected by changes in the creditworthiness of our customers, the ability of our customers
to repay their loans on time, the statutory priority of claims against customers, our ability to enforce our security interests on customers' collateral and the value of such collateral should such customers fail to repay their loans, as well as factors beyond our control such as economic instability. Depreciation of the Georgian Lari against the US Dollar may result in customers having difficulty repaying their loans.
Our impairment charges and, in turn, our cost of credit risk, may increase if a single large borrower defaults or a material concentration of smaller borrowers default.
In 2015, we saw significant retail loan growth of 35.3%, which continued further in the first half of 2016 with retail loan book growing at 18.1% y-o-y, as a result of the success of our Express Banking strategy, the acquisition of PrivatBank and launch of Solo. The acquisition of PrivatBank increased the number of retail banking NPLs, but we do not view this as significant when compared to loan book growth. Retail banking default rates remain relatively low as our retail banking clients prefer to save in US Dollars and also receive remittances in US Dollars, which constitute a principal source of income for our clients.
In the first half of 2016, we also significantly increased our NPL coverage ratio (85.8% as of 30 June 2016 compared to 83.4% as of 31 December 2015 and 67.5% as of 31 December 2014). The quality of our loan book and our future cost of risk is dependent on macroeconomic conditions and may deteriorate if conditions worsen. Depreciation of the Georgian Lari against the US Dollar may cause our customers to face difficulty in meeting their payment obligations.
We have credit policies and procedures in place which incorporate prudent lending criteria aligned with our risk appetite to effectively manage risk. These policies and procedures are reviewed frequently and amended as necessary to account for changes in the economic environment or other factors.
Our Credit Committees set counterparty limits by the use of a credit risk classification and scoring system and approve individual transactions. The credit quality review process is continuous and provides early identification of possible changes in the creditworthiness of customers, potential losses and corrective actions needed to reduce risk.
We also stress test our loan book to estimate the size of the portfolio that may be impaired. In light of the Georgian Lari to US Dollar devaluation, we will continue to stress test using a GEL/US$ exchange rate of 2.7/1. We allocate 75% more capital to the foreign currency loans of clients who earn income in Georgian Lari and discount real estate collateral values by 20%.
Given our strong liquidity position, we believe that we will be able to manage risk related to our US Dollar-denominated loan book by reprofiling such loans. Potential reprofiling may include extending maturities and/or converting US Dollar-denominated loans into Euro-denominated loans.
We will also continue to expand our Georgian Lari and Euro-denominated loan book in order to offset risk associated with our US Dollar-denominated loan book. In particular, we actively work with IFIs to raise long-term Georgian Lari funding to increase our Georgian Lari-denominated loans.
The local economy and our business may be adversely affected by regional tensions.
Georgia shares borders with Russia, Azerbaijan, Armenia and Turkey and has had ongoing disputes in the breakaway regions of Abkhazia and the Tskhinvali Region/South Ossetia, and with Russia. These disputes have led to sporadic violence and breaches of peacekeeping operations. Regional tensions could have an adverse effect on the local economy and our business.
Despite tensions in the breakaway territories, Russia has opened its market to Georgian exports. Russia and Ukraine's relationship has continued to deteriorate. As a result, there is significant uncertainty as to how and when the conflict between Russia and Ukraine will be resolved. During the first half of 2016, Georgia delivered real GDP growth of 2.9%, whilst inflation was maintained well below the 5% target range. Foreign Direct Investment continued to be strong, tourist numbers - a significant driver of US Dollar inflows for the country - continue to rise. Tax revenues were above the budgeted figure in 1H16 (101.9% of planned amount), and, as a result, the Georgian Government's fiscal position continues to be strong.
One of the most significant changes in exports was a shift away from the Russian market after Russia's 2006 embargo.
In 2014, Georgia and the EU signed an association agreement introducing the deep and comprehensive free trade agreement (DCFTA), effective since 1 September 2014, which is intended to simplify Georgia's access to the EU market. The Government continues to maintain strong relationships with international development partners.
An on-going IMF programme, introduced in July 2014, is intended to help implement the government's economic reform programme and aims to reduce macroeconomic vulnerabilities, increase policy buffers and support growth, while making the economy more resilient to external shocks.
We face regulatory risk.
Our businesses are highly regulated. Our banking operations must comply with capital adequacy and other regulatory ratios set by our regulator, the NBG, including reserve requirements and mandatory financial ratios.
Our ability to comply with these regulations may be affected by a number of factors, including but not limited to increases in minimum capital adequacy ratios imposed by the NBG, our ability to raise capital, losses resulting from deterioration in our asset quality, an increase in expenses and a decline in the values of our securities portfolio.
We also provide other regulated financial services and offer financing products, including brokerage and pension fund operations, insurance and services such as asset management, all of which are subject to governmental supervision and regulation.
With respect to our healthcare operations, there have been a number of reforms in the Georgian healthcare services market, including but not limited to the introduction of a Universal Healthcare Programme (UHC). It is possible that the Government may amend the UHC to enhance coverage and it may introduce new licensing or accreditation requirements, which may adversely affect our healthcare services and health insurance businesses.
Our businesses are currently in compliance with all applicable laws and regulations.
Compliance with changes in capital adequacy requirements and other regulatory ratios may be affected by factors outside of our control, including but not limited to a weakening of the global and Georgian economies.
In October 2014, an anti-monopoly agency was established and anti-monopoly legislation was implemented in respect of certain non-banking operations. We expect that such legislation may have an impact on our non-banking operations acquisitions as we will be required to seek permission to proceed with certain future acquisitions.
As healthcare legislation is continuously evolving, we expect that additional regulations will be adopted. We, however, cannot predict what additional regulatory changes will be introduced in the future or their effect.
Continued investment in our people and processes is enabling us to meet our regulatory requirements and places us well to respond to changes in regulation.
In line with our integrated control
framework, we carefully evaluate the impact of legislative and regulatory changes
as part of our formal risk identification and assessment processes and, to the extent possible, proactively participate in the drafting of relevant legislation. As part of this process, we engage in constructive dialogue with regulatory bodies, where possible, and seek external advice on potential changes to legislation. We then develop appropriate policies, procedures and controls as required to fulfil our compliance obligations.
Our compliance framework, at all levels, is subject to regular review by internal audit and external assurance providers.
We are subject to operational risk.
The proper functioning of our systems, risk management, internal controls, accounting, customer service and other information technology systems, are critical to our operations. We are highly dependent on our information technology systems. Cyber threats show an increasing trend. We are also subject to the risk of incurring losses or undue costs due to human error, criminal activities (including fraud and electronic crimes), unauthorised transactions, robbery and damage to assets.
Over the past few years, as our operations have expanded, we have seen an increase in external fraud, although losses from such frauds have not increased significantly.
Cyber-security threats have also increased year on year, but have not affected our operations. It is expected that such threats will continue to increase, which will require us to closely monitor such threats.
Money laundering has also increased globally and will be continuously monitored by our AML compliance department.
We have an integrated control framework encompassing operational risk management and control, information technology and information security,
AML compliance and physical security, each of which is managed by a separate department.
We identify and assess operational risk categories within our risk management framework and internal control processes, identifying critical risk areas or groups of operations with an increased risk level. In response to these risks, we develop and implement policies and security procedures.
We carry out regular IT and IS checks internally and with the assistance
of external consultants. We have sophisticated anti-virus and firewalls, regularly conduct penetration testing and have back-up disaster recovery and business continuity plans in place across the Group. Access control and password protections are also in place.
Our internal audit function provides assurance on the adequacy and effectiveness of our risk management internal controls. Operational risk is a regular agenda for the Audit Committee.
We face risks related to investment businesses.
Over the past year, we have significantly expanded our investments in non-banking businesses. Our investment businesses operate in various industries, including healthcare services, pharma, medical insurance, real estate, water utility (where we recently acquired remaining 75% stake), hydro, wine and beverages. Therefore, we face risks associated with companies operating in respective industries. Number of our businesses also operate in a regulated environment.
Our investment businesses have growth and expansion strategies and we face execution risk.
We have stated that as part of our strategy we intend to divest our investment businesses (in full or partially) within six years. We have successfully completed IPO of our healthcare business through a stock market listing in 2015. With respect to future divestments by way of a stock market listing or trade sale, exit risks may be present, as it may not be possible, or desirable, to IPO our other investment businesses due to a number of factors, including supportive equity issuance markets, the ability to achieve favourable terms for the IPO and/or the political and economic environment.
We have a solid track record of growth:
The Group's market capitalisation grew from c.US$ 20mln in 2004, to over USD 1.3bln in June 2016.
GHG, our healthcare subsidiary, grew its revenue from GEL 119.4mln in 2012 to GEL 242.7mln in 2015 and GEL 174.2mln in the first half of 2016. And it also grew its market capitalisation from US$ 330mln at the IPO, to over US$ 0.5bln as of the date of this report.
m2 Real Estate, our real estate subsidiary and currently the major real estate developer in the country, started its first residential development in 2010. Since, m2 has recorded total sales of US$ 152.2mln at the completed six residential projects with 91% of apartments sold and three ongoing projects, with 25% apartments pre-sold.
Our investment businesses are aiming to deliver solid further growth through organic growth as well as potential acquisitions.
Businesses within the Group have successfully accessed the international capital markets since 2006. However, the success of an IPO, trade sale or any other capital markets transaction is very much linked to global and regional macroeconomic and political events, among other factors.
GHG has a solid track record of acquisitions.
Led by a highly experienced management team, GHG has successfully acquired and integrated more than 20 companies in the hospital and insurance sectors over the past decade. GHG has a dedicated integration team comprising of highly experienced professionals with extensive integration project experience. The integration team meets at least weekly to discuss all aspects of the integration process, including but not limited to financial, commercial, clinical, human resources and legal matters.
With respect to our recent acquisition of the remaining 75% in GGU, we have been able to select strong Group executives to join the GGU management team allowing us to learn the business from the inside since we acquired 25% in the end of 2014. GGU's existing management team delivered a strong improvement in the performance of GGU during 2015. This track record was important to our decision to step-up our investment and become the 100% shareholder of the business. We have also sought and continue to seek advice from experienced global professionals in the industry.
Responsibility Statements
We confirm that to the best of our knowledge:
§ The interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union;
§ This Results Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
§ This Results Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related parties' transactions and changes therein)
By order of the board
Neil Janin Irakli Gilauri
Chairman Chief Executive
16 August 2016
Consolidated Financial Statements
CONTENTS
INDEPENDENT REVIEW REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated statement of financial position 41
Condensed Consolidated income statement 43
Condensed Consolidated statement of comprehensive income 45
Condensed Consolidated statement of changes in equity 46
Condensed Consolidated statement of cash flows 48
SELECTED EXPLANATORY NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principal Activities
2. Basis of Preparation
3. Summary of Significant Accounting Policies
4. Business Combinations
5. Segment Information
6. Cash and Cash Equivalents
7. Amounts Due from Credit Institutions
8. Investment Securities
9. Loans to Customers and Finance Lease Receivables
10. Investment Properties
11. Client Deposits and Notes
12. Amounts Owed to Credit Institutions
13. Debt Securities Issued
14. Equity
15. Commitments and Contingencies
16. Net Interest Income
17. Net Fee and Commission Income
18. Net Non-recurring Expenses
19. Fair Value Measurements
20. Maturity Analysis of Financial Assets and Liabilities
21. Related Party Disclosures
22. Capital Adequacy
23. Events after the Reporting Period
INDEPENDENT REVIEW REPORT TO BGEO GROUP PLC (the "Company")
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2016, which comprises the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and related notes 1 to 23. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
Notes:
1. The maintenance and integrity of the BGEO Group PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
As at 30 June 2016
(Thousands of Georgian Lari)
As at
Notes
30 June 2016 (unaudited)
31 December 2015
BankingBusiness
InvestmentBusiness
Elimi-nation
Assets
1,378,459
290,576
(236,101)
1,432,934
721,802
15,730
(6,167)
731,365
906,730
(4,016)
903,867
5,366,764
(44,647)
5,322,117
10,376
82,354
(4,758)
87,972
19,829
20,929
(1,532)
39,226
21,033
37,295
58,328
9,439
117,588
127,027
Investment properties
135,453
110,945
246,398
337,064
457,618
794,682
23,392
72,984
35,162
5,354
40,516
16,003
5,547
21,550
163,731
79,479
(6,437)
236,773
9,171,437
1,247,960
(303,658)
10,115,739
Liabilities
4,993,681
(242,294)
4,751,387
Amounts owed to credit institutions
1,692,557
144,534
(48,029)
1,789,062
13
961,944
84,474
(6,614)
1,039,804
20,364
126,488
146,852
34,547
21,298
55,845
89,980
34,415
124,395
63,073
78,404
(6,721)
134,756
7,856,146
489,613
8,042,101
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
Equity
14
101,793
138,800
240,593
(44)
(63,958)
96,802
32,844
1,257,415
319,635
1,577,050
Total equity attributable to shareholders of BGEO
1,296,360
555,237
1,851,597
18,931
203,110
222,041
1,315,291
758,347
2,073,638
The interim condensed consolidated financial statements on pages 41 to 72 were approved by the Board of Directors of BGEO Group PLC on 16 August 2016 and signed on its behalf by:
Irakli Gilauri
Chief Executive Officer
Registered No. 07811410
For the six months ended 30 June 2016
For the six months ended
30 June 2015 (unaudited)
16
17
Net foreign currency (loss) gain from investment business
18
Profit before income tax gain (expense)
Income tax benefit (expense)
Earnings per share:
- basic and diluted earnings per share
4.5685
3.4679
Other comprehensive income (loss)
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:
- Unrealized revaluation of available-for-sale securities
56,935
(33,200)
- Realised (loss) gain on available-for-sale securities reclassified to the consolidated income statement
(205)
81
- (Loss) gain from currency translation differences
(4,487)
5,633
Income tax effect
(7,394)
(1,487)
Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods
44,849
(28,973)
Other comprehensive income not to be reclassified to profit or loss in subsequent periods:
Income tax effect related to revaluation of property and equipment
4,323
Net other comprehensive income not to be reclassified to profit or loss in subsequent periods
Other comprehensive income (loss) for the period, net of tax
49,172
Total comprehensive income for the period
247,456
105,396
225,491
105,190
21,965
206
Attributable to shareholders of BGEO
31 December 2014
1,143
245,305
(46)
(22,574)
1,350,258
1,574,086
60,007
1,634,093
Profit for the six months ended 30 June 2015 (unaudited)
Other comprehensive loss for the for the six months ended 30 June 2015 (unaudited)
(29,601)
1,550
(28,051)
(922)
Total comprehensive income for the six months ended 30 June 2015 (unaudited)
134,791
Depreciation of property and equipment revaluation reserve, net of tax
(512)
512
Increase in equity arising from share-based payments
5,748
15
5,763
112
5,875
GBP-GEL translation effect
1,736
(10,467)
8,720
Dividends to shareholders of BGEO (Note 14)
(80,411)
Dilution of interests in existing subsidiaries
434
Acquisition of non-controlling interests in existing subsidiaries
1,645
(3,265)
(1,620)
Non-controlling interests arising on acquisition of subsidiary
1,488
Purchase of treasury shares
(9,307)
(5)
(9,312)
Profit for the six months ended 30 June 2016 (unaudited)
Other comprehensive loss for the for the six months ended 30 June 2016 (unaudited)
54,864
(4,851)
50,013
(841)
Total comprehensive income for the six months ended 30 June 2016 (unaudited)
170,627
226
10,164
10,183
992
11,175
(95,035)
Dividends of subsidiaries to non-controlling shareholders
(461)
Dilution of interests in subsidiaries
(1,764)
(310)
(2,074)
Acquisition and sale of non-controlling interests in existing subsidiaries
2,508
(5,738)
(3,230)
(22,078)
(22,088)
Cash flows from (used in) operating activities
Interest received
430,282
416,521
Interest paid
(188,327)
(160,439)
Fees and commissions received
78,438
76,084
Fees and commissions paid
(21,279)
(19,134)
Insurance premiums received
40,559
36,760
Insurance claims paid
(26,467)
(23,039)
Healthcare revenue received
100,893
72,982
Cost of healthcare services paid
(80,613)
(38,020)
Net cash (outflow) inflow from real estate
(16,151)
5,104
Net realised gain from trading securities
812
887
Net realised gain (loss) from investment securities available-for-sale
(81)
Net realised gain from foreign currencies
29,918
30,605
Recoveries of loans to customers previously written off
17,892
14,722
Other income received (expenses paid)
2,101
(8,692)
Salaries and other employee benefits paid
(92,233)
(73,773)
General and administrative and operating expenses paid
(45,666)
(43,405)
Cash flows from operating activities before changes in operating assets and liabilities
230,364
287,082
Net (increase) decrease in operating assets
(145,291)
(139,356)
Loans to customers
(208,839)
(527,825)
Finance lease receivables
(3,796)
242
Prepayments and other assets
52,543
(37,905)
Net increase (decrease) in operating liabilities
82,624
688,510
30,692
201,052
Amounts due to customers
(195,816)
421,460
1,730
(27,890)
Net cash flows (used in) from operating activities before income tax
(155,789)
865,370
Income tax paid
(21,520)
(15,196)
Net cash flows (used in) from operating activities
(177,309)
850,174
Cash flows used in investing activities
Acquisition of subsidiaries, net of cash acquired
(24,714)
7,861
Repayment of remaining holdback amounts from previous year acquisitions
(38,006)
Purchase of investment securities available-for-sale
(23,480)
(158,505)
Proceeds from sale of investment properties
4,745
5,785
Purchase of investment properties
(12,116)
(10,160)
Proceeds from sale of property and equipment and intangible assets
3,200
4,137
Purchase of property and equipment and intangible assets
(78,467)
(69,018)
Net cash flows used in investing activities
(168,838)
(219,900)
Cash flows used in financing activities
Dividends paid
(2,726)
(82,182)
Purchase of additional interests in existing subsidiaries
Net cash used in financing activities
(28,044)
(93,114)
Effect of exchange rates changes on cash and cash equivalents
616
14,501
Net (decrease) increase in cash and cash equivalents
(373,575)
551,661
Cash and cash equivalents, beginning of period
710,144
Cash and cash equivalents, end of period
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
BGEO Group PLC ("BGEO") is a public limited liability company incorporated in England and Wales with registered number 07811410. The shares of BGEO are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities, effective 28 February 2012.
BGEO holds a group of companies (the "Group") providing banking, healthcare, pharmaceutical, insurance, real estate, leasing, brokerage and investment management services to corporate and individual customers. BGEO's registered legal address is 84 Brook Street, London, W1K 5EH, United Kingdom.
Joint stock company ("JSC") Bank of Georgia (the "Bank") is the Group's main operating unit and accounts for most of the Group's activities. BGEO holds 99.52% of the share capital of the Bank as at 30 June 2016. The Bank was established on 21 October 1994 as a JSC under the laws of Georgia. The Bank operates under a general banking license issued by the National Bank of Georgia ("NBG"; the Central Bank of Georgia) on 15 December 1994.
The Bank accepts deposits from the public and extends credit, transfers payments in Georgia and internationally and exchanges currencies. Its main office is in Tbilisi, Georgia. At 30 June 2016, the Bank has 273 operating outlets in all major cities of Georgia (31 December 2015: 266). The Bank's registered legal address is 29a Gagarini Street, Tbilisi 0160, Georgia.
As at 30 June 2016 and 31 December 2015, the following shareholders owned more than 5% of the total outstanding shares of BGEO. Other shareholders individually owned less than 5% of the outstanding shares.
Shareholder
30 June
31 December
2016 (unaudited)
Harding Loevner Management LP
9.68%
9.09%
Schroders Investment Management
6.52%
10.30%
Others
83.80%
80.61%
Total*
100.00%
* For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares, which includes shares held in the trust for the share-based compensation purposes of the Group.
As at 30 June 2016, the members of the Supervisory Board and Management Board of the Bank owned 689,396 shares or 1.7% (31 December 2015: 646,959 shares or 1.6%) of BGEO. Interests of the members of the Supervisory Board and Management Board of the Bank were as follows:
30 June 2016, shares held (unaudited)
31 December 2015, shares held
250,319
Giorgi Chiladze
123,796
116,596
Archil Gachechiladze
97,500
50,750
Avto Namicheishvili
94,939
58,139
Neil Janin
34,647
35,729
David Morrison
26,357
Kaha Kiknavelidze
26,337
Mikheil Gomarteli
17,451
27,851
Al Breach
16,400
Kim Bradley
1,250
Murtaz Kikoria
400
200
Sulkhan Gvalia*
37,022
Levan Kulijanishvili
689,396
646,959
* Left the Management Board in February 2016;
General
The financial information set out in these interim condensed consolidated financial statements does not constitute the Group's statutory financial statements within the meaning of section 434 of the Companies Act 2006. Those financial statements were prepared for the year ended 31 December 2015 under IFRS, as adopted by the European Union and have been reported on by BGEO's auditors and delivered to the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.
The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgment at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2015, signed and authorized for release on 7 April 2016.
These interim condensed consolidated financial statements are presented in thousands of Georgian Lari ("GEL"), except per share amounts and unless otherwise indicated.
The interim condensed consolidated financial statements is unaudited but has been reviewed by the auditors and their review opinion in included in this report.
Going concern
The Board of Directors of BGEO has made an assessment of the Group's ability to continue as a going concern and is satisfied that it has the resources to continue in business for a period of at least twelve months from the date of approval of the interim condensed consolidated financial statements. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern for the foreseeable future. Therefore, the interim condensed consolidated financial statements continue to be prepared on the going concern basis.
Accounting policies
The accounting policies and methods of computation applied in the preparation of these condensed interim condensed consolidated financial statements are consistent with those disclosed in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2015.
No new or revised IFRS during the six months ended 30 June 2016 had an impact on the Group's financial position or performance.
Functional, reporting currencies and foreign currency translation
The interim condensed consolidated financial statements are presented in GEL, which is the Group's presentation currency. Each entity in the Group determines its own functional currency and items included in the interim condensed financial statements of each entity are measured using that functional currency. BGEO's and the Bank's functional currency is GEL.
Differences between the contractual exchange rate of a certain transaction and the NBG exchange rate on the date of the transaction are included in gains less losses from foreign currencies (dealing). The official NBG exchange rates at30 June 2016 and 31 December 2015 were:
Lari to GBP
Lari to USD
Lari to EUR
Lari to BYR(10,000)
30 June 2016
3.1394
2.3423
2.5976
1.1670
3.5492
2.3949
2.6169
1.2904
3. Summary of Significant Accounting Policies (continued)
Changes in Georgian Corporate Tax Law
In June 2016, new amendments were introduced to the Georgian tax legislation in relation to the Corporate Income Tax ("CIT"). The changes in the CIT taxation rules were legally enforced effective 1 June 2016. According to the new rules, CIT rate remains at the same 15% level, however:
a) The tax base for measuring CIT was amended to the amount of dividends distributed to shareholders;
b) Reinvested profits are no longer subject to CIT; and
c) Taxable periods for CIT are determined based on a calendar month, instead of a calendar year.
New taxation regime is applicable to the Georgian companies from 1 January 2017, with the exception of Banks, Insurance Companies, Credit Unions and Pawnbrokers, that are required to comply with the new regime starting 1 January 2019.
The Group considers the new regime as substantively enacted, effective June 2016 and thus has re-measured its deferred tax assets and liabilities of its Georgian operations. The balances of deferred tax assets and liabilities remaining as of 30 June 2016 are attributable to only those temporary differences that are expected to be realized or reversed before the new CIT code becomes effective for the respective operations. The remaining deferred tax assets and liabilities were written off, through income statement, through other comprehensive income or directly in equity, depending on their original recognition source.
Acquisitions in period ended 30 June 2016 (unaudited)
JSC GPC
On 4 May 2016 JSC Georgian Healthcare Group ("GHG"), a 67.7% owned subsidiary of the Group acquired 100% of the shares of JSC GPC ("GPC"), a pharmaceuticals company operating in Georgia from individual investors.
The provisional fair values of aggregate identifiable assets and liabilities of the acquirees as at the date of acquisition were:
Provisional fair value recognized on acquisition
1,455
Accounts receivable 1
7,885
31,282
8,105
861
552
56,135
15,198
Accounts payable
33,366
1,331
4,729
54,624
Total identifiable net assets
1,511
Goodwill arising on business combination
29,622
Consideration given 2
31,133
4. Business Combinations (continued)
Acquisitions in period ended 30 June 2016 (unaudited) (unaudited)
JSC GPC (continued)
The net cash outflow on acquisition was as follows:
Cash paid
(26,686)
Cash acquired with the subsidiary
Net cash outflow
(25,231)
1 The fair value of the receivables from sales of pharmaceuticals amounted to GEL 7,885. The gross amount of receivables is GEL 10,884. GEL 2,999 of the receivables has been impaired.
2 Consideration comprised GEL 31,133, which consists of cash payment of GEL 26,686 and a holdback amount with a fair value of GEL 4,685.
The Group decided to increase its presence and investment in the Tbilisi healthcare market by entering the pharmaceuticals segment through the acquisition of GPC. Management considers that the deal will have a positive impact on the value of the Group.
Since acquisition, GPC has recorded GEL 30,691 and GEL 402 of revenue and loss respectively. If the combination had taken place at the beginning of the period, the Group would have recorded GEL 506,691 and GEL 198,503 of revenue and profit respectively.
The net assets presented above are estimated provisionally as at the acquisition date. The Group continues a thorough examination of these net assets and if identified, adjustments will be made to the net assets and amount of the goodwill during the 12-month period from the acquisition date, as allowed by IFRS 3 'Business Combinations'.
LLC Emergency Service
On 1 June 2016 JSC Medical Corporation EVEX ("Acquirer"), a 67.7% owned subsidiary of the Group, obtained de-facto control on LLC Emergency Service ("ES"), a healthcare company operating in Georgia from individual investors.
418
Inventory
637
1,062
198
679
383
2,467
2,850
(500)
(494)
1 The fair value of the receivables from healthcare services amounted to GEL 418. The gross amount of receivables is GEL 555. GEL 137 of the receivables has been impaired.
2 Consideration comprised GEL 2,850, which is due within 2.5 years.
LLC Emergency Service (continued)
The Group decided to increase its presence and investment in the Tbilisi healthcare market by acquiring ES. Management considers that the deal will have a positive impact on the value of the Group.
Since acquisition, ES has recorded GEL 307 and GEL 39 of revenue and loss respectively. If the combination had taken place at the beginning of the period, the Group would have recorded GEL 441,266 and GEL 198,457 of revenue and profit respectively.
JSC Poti Central Clinical Hospital
On 1 January 2016 JSC Medical Corporation EVEX ("Acquirer"), a 67.7% owned subsidiary of the Group, obtained de-facto control on JSC Poti Central Clinical Hospital ("Poti"), a healthcare company operating in Georgia from individual investors.
595
14,539
168
15,313
4,348
1,381
187
5,916
9,397
208
9,605
Net cash inflow
1 The fair value of the receivables from healthcare services amounted to GEL 595. The gross amount of receivables is GEL 647. GEL 52 of the receivables has been impaired.
2 Consideration given comprises of pre-existing loans to Poti.
The Group decided to increase its presence and investment in the regional healthcare market by acquiring Poti. Management considers that the deal will have a positive impact on the value of the Group.
Since acquisition, Poti has recorded GEL 1,320 and GEL 1,854 of revenue and loss respectively. The profit includes a non-recurring gain of GEL 1,618 resulting from a change in Georgian tax code.
In February 2016, the Group announced the combination of Corporate Banking and Investment Management businesses into Corporate Investment Banking business. The comparative amounts as at 31 December 2015 and for the six months ended 30 June 2015 are regrouped accordingly to reflect this change.
For management purposes, the Group is organised into the following operating segments based on products and services as follows:
Banking Business - The Group's Banking Business segments, dedicated to delivery and enhancement of banking and related financial services:
RB - Retail Banking (excluding Retail Banking of BNB) - principally providing consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services, and handling customers' deposits for both, individuals as well as legal entities, encompassing mass affluent segment, retail mass markets, small & medium enterprises and micro businesses;
CIB - Corporate Investment Banking - principally providing loans and other credit facilities to large legal entities, larger than SME and Micro, finance lease facilities provided by Georgian Leasing Company LLC, providing funds transfers and settlement services, trade finance services and documentary operations support, handling saving and term deposits for corporate and institutional customers; as well as providing private banking services to resident and non-resident wealthy individuals and their direct family members by ensuring individually tailored approach and exclusivity in rendering common banking services such as fund transfers, currency exchange or settlement operations, or holding their savings and term deposits; Investment Management involves providing wealth and asset management services to the same individuals through differing investment opportunities and specifically designed investment products. It also encompasses corporate advisory, private equity and brokerage services;
P&C - Property and Casualty Insurance - principally providing wide-scale property and casualty insurance services to corporate clients and insured individuals;
BNB - Comprising JSC Belarusky Narodny Bank, principally providing retail and corporate banking services in Belarus.
Investment Business - the Group's investment arm segments, with disciplined development paths and exit strategies:
GHG - Georgia Healthcare Group - principally providing wide-scale healthcare and health insurance services to clients and insured individuals;
m2 - Comprising the Group's real estate subsidiaries, principally developing and selling affordable residential apartments and also, holding investment properties repossessed by the Bank from defaulted borrowers and managing those properties.
Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured in the same manner as profit or loss in the condensed consolidated financial statements.
Transactions between operating segments are on an arm's length basis in a manner as with transactions with third parties.
The Group's operations are primarily concentrated in Georgia, except for BNB, which operates in Belarus.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue during the six months ended 30 June 2016 and 30 June 2015.
5. Segment Information (continued)
The following tables present income statement and certain asset and liability information regarding the Group's operating segments as at and for the six months ended 30 June 2016 (unaudited):
GroupTotal
Retail banking
CIB
BNB
P&C
OtherBankingBusiness
BankingBusinessEliminations
M2
OtherInvestmentBusiness
InvestmentBusinesEliminations
Inter-Business Eliminations
2,458
(287)
(123)
Net banking foreign currency gain (loss)
(4)
357
12,474
(636)
531
6,309
3,872
2,167
(1,525)
62,619
(2,655)
1,525
(26,469)
(4,356)
Operating income (expense) before cost of credit risk/EBITDA
(488)
36,150
(484)
Investment Business related income statement items
(16,395)
741
1,529
(14,125)
2,688
(11,437)
1,045
(35,726)
(151)
Net operating income (loss) before non-recurring items
92,392
55,252
10,426
17,539
894
Net non-recurring (expense/loss) income/gain
(32,380)
1,364
(475)
16,723
2,258
375
Profit for the year
(950)
45,148
2,633
Assets and liabilities
4,840,334
3,843,368
123,867
1,640
(70,684)
809,210
321,459
(2,274)
4,146,788
3,249,718
81,769
20
305,211
126,234
Other segment information
13,818
2,366
540
361
71
17,156
47,528
517
48,568
65,724
6,265
842
66
7,343
5,315
88
95
5,498
12,841
Capital expenditure
20,083
3,208
606
24,499
52,843
611
612
54,066
78,565
Depreciation & amortization
(535)
(383)
(8,724)
(847)
(28,160)
The following tables present income statement and certain asset and liability information regarding the Group's operating segments for the six months ended 30 June 2015 and as at 31 December 2015:
154,419
1,004
36,971
(293)
33
8,209
2,349
(1,410)
9,459
(682)
5,506
(14)
257
1,903
4,188
201,948
733
(2,059)
42,641
(84,490)
(2,552)
2,059
(18,102)
(3,044)
117,458
(1,819)
24,539
1,144
(9,609)
(399)
(18)
(10,026)
7,952
14,930
1,126
(37,323)
(1,940)
(232)
80,135
53,571
8,633
12,990
(3,322)
3,258
76,813
12,587
4,152
(11,640)
(252)
(366)
(1,765)
12,335
3,786
4,612,774
4,044,732
475,483
102,886
2,011
(66,449)
758,966
275,676
213,638
3,117,808
4,340,041
397,970
66,630
146
286,941
167,889
35,103
19,835
2,840
475
296
150
23,596
26,889
422
1,291
28,602
52,198
2,999
452
166
621
4,249
1,237
1,249
22,834
3,292
917
161
27,845
28,126
1,303
29,851
57,696
(532)
(352)
(2)
(4,528)
(653)
(21,977)
30 June 2016(unaudited)
Cash on hand
472,157
442,293
Current accounts with central banks, excluding obligatory reserves
191,871
152,455
Current accounts with other credit institutions
228,933
475,779
Time deposits with credit institutions with maturity of up to 90 days
166,398
362,407
As at 30 June 2016, GEL 411,582 (31 December 2015: GEL 662,296) was placed on current and time deposit accounts with internationally recognised Organization from Economic Cooperation and Development ("OECD") banks and central banks that are the counterparties of the Group in performing international settlements. The Group earned up to 0.38% interest per annum on these deposits (31 December 2015: up to 0.59%). Management does not expect any losses from non-performance by the counterparties holding cash and cash equivalents, and there are no material differences between their book and fair values.
Obligatory reserves with central banks
851,936
620,287
Time deposits with maturity of more than 90 days
14,982
12,717
Deposits pledged as security for open commitments
96,405
Inter-bank loan receivables
9,737
1,956
Obligatory reserves with central banks represent amounts deposited with the NBG and National Bank of the Republic of Belarus (the "NBRB"). Credit institutions are required to maintain cash deposit (obligatory reserve) with the NBG and with the NBRB, the amount of which depends on the level of funds attracted by the credit institution. The Group's ability to withdraw these deposits is restricted by the statutory legislature. The Group earned nil interest on obligatory reserves with NBG and NBRB for the years ended 30 June 2016 and 31 December 2015.
As at 30 June 2016, inter-bank loan receivables include GEL 1,910 (31 December 2015: GEL 1,956) placed with non-OECD banks.
Georgian ministry of Finance treasury bonds*
658,754
575,591
Georgian ministry of Finance treasury bills**
76,866
165,545
Certificates of deposit of central banks***
76,807
Other debt instruments****
252,263
84,476
Corporate shares
1,448
* GEL 137,333 was pledged for short-term loans from the NBG (31 December 2015: GEL 229,800).
** GEL 54,604 was pledged for short-term loans from the NBG (31 December 2015: GEL 3,805).
*** GEL nil was pledged for short-term loans from the NBG (31 December 2015: GEL 2,966).
**** GEL 161,582 was pledged for short-term loans from the NBG (31 December 2015: GEL 79,187).
Other debt instruments as at 30 June 2016 mainly comprises GEL denominated bonds issued by European Bank for Reconstruction and Development ("EBRD") of GEL 133,136 (31 December 2015: GEL 50,666), and GEL denominated bonds issued by the International Finance Corporation ("IFC") of GEL 28,446 (31 December 2015: 28,460).
Commercial loans
2,317,443
2,397,781
Consumer loans
1,170,949
1,165,107
Micro and SME loans
1,124,643
1,041,929
Residential mortgage loans
961,359
814,344
Gold - pawn loans
62,390
61,140
Loans to customers, gross
5,636,784
5,480,301
Less - Allowance for loan impairment
(212,990)
(198,894)
Loans to customers, net
5,423,794
5,281,407
Finance Lease Receivables, gross
47,981
42,912
Less - Allowance for finance lease receivables impairment
(2,202)
Finance Lease Receivables , net
45,326
40,710
Loans to customers and finance lease receivables, net
Allowance for loan impairment
Movements of the allowance for impairment of loans to customers by class are as follows:
2016
At 1 January
125,312
51,017
6,061
16,504
198,894
Charge
21,120
30,320
2,252
5,344
59,036
Recoveries
2,272
10,536
1,940
3,144
Write-offs
(12,368)
(32,733)
(3,588)
(4,256)
(52,945)
Accrued interest on written-off loans
(2,165)
(5,640)
(9,143)
Currency translation differences
(195)
(144)
(405)
(744)
At 30 June (Unaudited)
133,976
53,356
5,679
19,979
212,990
72,885
23,648
2,993
4,254
103,780
33,261
32,564
1,405
6,803
74,033
1,818
9,448
1,425
2,031
(1,217)
(7,636)
(485)
(2,339)
(11,677)
(1,476)
(346)
(446)
(2,669)
(58)
(472)
106,184
56,490
4,992
177,717
9. Loans to Customers and Finance Lease Receivables (continued)
Allowance for loan impairment (continued)
Interest income accrued on loans, for which individual impairment allowances have been recognised as at 30 June 2016 comprised GEL 24,184 (31 December 2015: GEL 22,234).
Concentration of loans to customers
As at 30 June 2016, the concentration of loans granted by the Group to the ten largest third party borrowers comprised GEL 648,195 accounting for 11% of the gross loan portfolio of the Group (31 December 2015: GEL 708,839 and 13% respectively). An allowance of GEL 7,995 (31 December 2015: GEL 2,484) was established against these loans.
As at 30 June 2016, the concentration of loans granted by the Group to the ten largest third party group of borrowers comprised GEL 1,089,907 accounting for 19% of the gross loan portfolio of the Group (31 December 2015: GEL 1,094,979 and 20% respectively). An allowance of GEL 46,380 (31 December 2015: GEL 41,413) was established against these loans.
As at 30 June 2016 and 31 December 2015, loans were principally issued within Georgia, and their distribution by industry sector was as follows:
Individuals
2,718,862
2,482,389
Trade
689,541
727,214
Manufacturing
668,725
711,677
Real estate
329,447
354,331
Construction
215,822
178,642
Service
200,863
223,088
Hospitality
183,276
168,011
Transport & communication
155,637
165,330
Mining and quarrying
126,045
127,706
Financial intermediation
80,038
77,662
Electricity, gas and water supply
70,647
Other
197,881
186,618
Less - allowance for loan impairment
Loans have been extended to the following types of customers:
Private companies
2,888,332
2,958,145
State-owned entities
29,590
39,767
190,860
Additions*
19,144
30,459
Disposals
(4,745)
(5,785)
Net gains from revaluation of investment property
1,726
Hyperinflation effect
240
Acquisition through business combination (Note 4)
705
Transfers (to) from property and equipment and other assets
(16,137)
5,266
(537)
(239)
* GEL 12,116 paid in six months ended 30 June 2016 for acquisition of properties by the Group's Real Estate business for development (six months ended 30 June 2015: GEL 11,200). The remaining additions comprise foreclosed properties, no cash transactions were involved.
Investment properties are stated at fair value. The fair value represents the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The date of latest revaluation is 31 December 2015 and was carried out by professional valuators. As at 30 June 2016 the Group concluded that the market price of investment properties was not materially different from their carrying value.
The Group has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
The client deposits and notes include the following:
Time deposits
2,392,232
2,597,244
Current accounts
2,110,950
2,153,275
Promissory notes issued
50,830
868
Held as security against letters of credit and guarantees (Note15)
192,843
64,534
As at 30 June 2016 and 31 December 2015 promissory notes issued by the Group comprise the notes privately held by financial institutions being effectively equivalents of certificates of deposits with fixed maturity and fixed interest rate. The average effective maturity of the notes was 23 months (31 December 2015: 9 months).
At 30 June 2016, client deposits and notes of GEL 736,188 (16%) were due to the 10 largest customers (31 December 2015: GEL 782,146 (16%)).
Client deposits and notes include accounts with the following types of customers:
2,598,380
2,615,774
Private enterprises
1,807,686
1,945,233
State and state-owned entities
147,946
190,380
11. Client Deposits and Notes (continued)
The breakdown of client deposits and notes by industry sector is as follows:
315,358
374,291
246,619
289,485
215,408
292,771
212,896
317,161
212,019
236,238
204,202
224,477
Government services
122,701
141,007
100,314
74,125
51,661
64,990
18,003
18,818
256,451
102,250
Amounts due to credit institutions comprise:
Borrowings from international credit institutions
814,738
640,517
Short-term loans from the National Bank of Georgia
307,200
Time deposits and inter-bank loans
322,710
353,638
Correspondent accounts
90,548
92,617
1,506,496
1,393,972
Non-convertible subordinated debt
385,941
395,090
During the six months ended 30 June 2016, the Group paid up to 5.60% on USD borrowings from international credit institutions (six months ended 30 June 2015: up to 4.00%). During the six months ended 30 June 2016, the Group paid up to 8.25% on USD subordinated debt (six months ended 30 June 2015: up to 7.75%).
In May 2016, the Group signed a GEL 220 million senior loan agreement with the European Bank for reconstruction and Development. The loan facility bears a maturity of five years.
Some long-term borrowings from international credit institutions are received upon certain conditions (the "Lender Covenants") that the Group maintains different limits for capital adequacy, liquidity, currency positions, credit exposures, leverage and others. At 30 June 2016 and 31 December 2015 the Group complied with all the Lender Covenants of the significant borrowings from international credit institutions.
Debt securities issued comprise:
Eurobonds
884,198
908,183
Georgian local bonds
97,728
98,859
Certificates of deposit
83,590
32,762
As at 30 June 2016, issued share capital comprised 39,500,320 common shares, of which 39,500,320 were fully paid (31 December 2015: 39,500,320 issued share capital, of which 39,500,320 were fully paid). Each share has a nominal value of one (1) British Penny (31 December 2015: one (1) British Penny). Shares issued and outstanding as at 30 June 2016 are described below:
Numberof sharesOrdinary
Amountof sharesOrdinary
39,500,320
Effect of translation of equity components to presentation currency
Treasury shares are held by the Group solely for the employee's future share-based compensation purposes.
The number of treasury shares held by the Group as at 30 June 2016 comprised 1,201,267 (31 December 2015: 1,521,752).
Nominal amount of treasury shares of GEL 35 as at 30 June 2016 comprise the Group's shares owned by the Group (31 December 2015: GEL 44).
Dividends
Shareholders are entitled to dividends in British Pounds Sterling.
On 26 May 2016, the Directors of BGEO declared an interim dividend for 2015 of Georgian Lari 2.4 per share. The currency conversion date was set at 11 July 2016, with the official GEL - GBP exchange rate of 3.0376, resulting in a GBP denominated interim dividend of 0.7901 per share. Payment of the interim dividends was received by shareholders on 22 July 2016.
On 21 May 2015, the Directors of BGEO declared an interim dividend for 2014 of Georgian Lari 2.1 per share. The currency conversion date was set at 8 June 2015, with the official GEL - GBP exchange rate of 3.5110, resulting in a GBP denominated interim dividend of 0.5981 per share. Payment of the total GEL 80,411 interim dividends was received by shareholders on 16 June 2015.
Nature and purpose of Other Reserves
Revaluation reserve for property and equipment
The revaluation reserve for property and equipment is used to record increases in the fair value of office buildings and service centers and decreases to the extent that such decrease relates to an increase on the same asset previously recognised in equity.
Unrealised gains (losses) on investment securities
This reserve records fair value changes on investment securities.
14. Equity (continued)
Unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries
This reserve records unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Movements in other reserves during the six months ended 30 June 2016 and 31 December 2015 are presented in the statements of other comprehensive income.
Earnings per share
30 June 2015(unaudited)
Basic and diluted earnings per share
Profit for the period attributable to ordinary shareholders of the Group
Weighted average number of ordinary shares outstanding during the period
38,410,753
38,419,705
Legal
In the ordinary course of business, the Group and BGEO are subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group or BGEO.
Financial commitments and contingencies
As at 30 June 2016 and 31 December 2015 the Group's financial commitments and contingencies comprised the following:
Credit-related commitments
Guarantees issued
403,743
473,839
Undrawn loan facilities
266,713
273,851
Letters of credit
163,191
43,126
Commitments for early redemption of Eurobonds
42,484
876,131
790,816
Operating lease commitments
Not later than 1 year
16,194
17,056
Later than 1 year but not later than 5 years
29,113
31,216
Later than 5 years
6,543
5,553
51,850
53,825
Capital expenditure commitments
27,128
27,624
Less - Cash held as security against letters of credit and guarantees (Note 11)
(192,843)
(64,534)
Less - Provisions
(45,892)
(2,240)
Financial commitments and contingencies, net
716,374
805,491
15. Commitments and Contingencies (continued)
As at 30 June 2016, capital expenditure represented the commitment for purchase of property and capital repairs of GEL 25,516 and software and other intangible assets of GEL 1,612. As at 31 December 2015, capital expenditure represented the commitment for purchase of property and capital repairs of GEL 25,915 and software and other intangible assets of GEL 1,709.
As at 30 June 2016, GEL 42,484 of provisions represented provision for constructive obligation in relation to the early redemption premium that was expected to be paid on the Eurobonds outstanding as at 30 June 2016 (note 13) and is presented within other liabilities in the statement of financial position.
From loans to customers
391,801
(2,605)
389,196
376,974
585
(6,033)
371,526
From investment securities: available-for-sale
40,943
40,834
30,561
30,503
From finance lease receivable
4,776
4,827
From amounts due from credit institutions
5,931
6,572
5,304
1,063
(417)
5,950
Interest Income
(3,097)
441,378
(6,522)
412,806
On client deposits and notes
(101,596)
2,807
(98,789)
(91,185)
932
(90,253)
On amounts owed to credit institutions
(48,467)
(5,106)
391
(53,182)
(43,341)
(11,557)
6,138
(48,760)
On debt securities issued
(33,646)
(1,813)
225
(35,234)
(33,679)
(1,912)
1,721
(33,870)
Interest Expense
(187,205)
8,791
(172,883)
Net Interest Income
(5,895)
326
254,173
(11,807)
2,269
239,923
Settlements operations
59,093
52,566
Guarantees and letters of credit
9,946
12,293
Cash operations
5,656
6,806
Currency conversion operations
1,325
Brokerage service fees
619
412
Advisory
639
2,170
1,518
(14,979)
(13,902)
(2,647)
(2,247)
(1,647)
(1,890)
Insurance brokerage service fees
(1,197)
(359)
(757)
(521)
Provision for early redemption of Eurobonds (Note 15)
(42,484)
Write-off of miscellaneous healthcare related assets
(2,972)
Impairment of prepayments
(2,205)
Management termination / sign-up compensation expenses
(1,308)
Gain from revaluation of call option on purchase of 24.9% share of GGU
3,249
JSC PrivatBank integration costs
(3,731)
Loss from Belarus hyperinflation
(1,415)
1,589
.
Fair value hierarchy
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy:
Level 1
Level 2
Level 3
Assets measured at fair value
986,700
2,631
Other assets - derivative financial assets
1,200
Other assets - trading securities owned
1,330
Revalued property
232,892
Assets for which fair values are disclosed
5,505,425
Liabilities measured at fair value:
Other liabilities - derivative financial liabilities
7,796
Liabilities for which fair values are disclosed
2,476,089
4,587,039
413,258
1,479,179
910,768
181,318
1,092,086
19. Fair Value Measurements (continued)
Fair value hierarchy (continued)
Total investment properties
902,419
42,212
1,977
Total revalued property
228,365
5,284,299
3,243
2,623,818
4,777,093
446,255
1,342,807
938,894
131,621
1,070,515
The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency options and swaps, and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.
Trading securities and investment securities
Trading securities and a certain part of investment securities are quoted equity and debt securities. Investment securities valued using a valuation technique or pricing models consist of unquoted equity and debt securities. These securities are valued using models which sometimes only incorporate data observable in the market and at other times use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.
Fair value of financial assets and liabilities not carried at fair value
Set out below is a comparison by class of the carrying amounts and fair values of the Group's financial instruments that are carried in the condensed financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities, or fair values of other smaller financials assets and financial liabilities, fair values of which are materially close to their carrying values.
Fair value of financial assets and liabilities not carried at fair value (continued)
Carryingvalue 30 June 2016(unaudited)
Fair value30 June 2016(unaudited)
Unrecognisedgain (loss) 30 June 2016(unaudited)
Carryingvalue 31 December 2015
Fair value31 December 2015
Unrecognisedloss 31 December 2015
Financial assets
36,305
(37,818)
Financial liabilities
(33,027)
(25,706)
(26,570)
(30,711)
Total unrecognised change in unrealised fair value
(23,292)
(94,235)
The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the condensed consolidated financial statements.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid or have a short term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.
The table below shows an analysis of financial assets and liabilities according to when they are expected to be recovered or settled.
OnDemand
Up to3 Months
Up to6 Months
Up to1 Year
Up to3 Years
Up to5 Years
Over5 Years
893,003
166,356
853,048
4,891
6,218
9,349
1,693
1,456
513,274
345,328
1,308
38,902
15,300
38,687
36,532
773,201
514,278
1,013,098
1,658,814
741,246
768,483
2,259,325
1,289,776
521,804
1,061,349
1,675,807
779,933
806,471
8,394,465
732,977
714,759
476,923
2,130,649
410,124
66,518
22,062
90,606
587,766
139,084
163,454
468,468
192,183
250,876
902,476
120,859
41,337
823,583
2,205,001
616,851
2,414,962
919,929
258,701
272,938
7,511,965
Net
1,435,742
(915,225)
(95,047)
(1,353,613)
755,878
521,232
533,533
882,500
Accumulated gap
520,517
425,470
(928,143)
(172,265)
348,967
20. Maturity Analysis of Financial Assets and Liabilities (continued)
1,072,361
360,573
617,673
702
28,338
82,393
309
1,950
560,120
241,481
31,247
6,531
60,244
3,057
1,187
796,765
537,690
1,024,619
1,586,728
705,152
671,163
2,250,154
1,399,521
597,275
1,113,543
1,647,281
708,209
674,300
8,390,283
847,003
810,072
541,142
2,008,160
444,591
80,012
20,407
528,644
108,023
247,414
403,528
139,573
269,263
51,457
53,703
934,644
939,620
1,390,173
649,165
2,309,277
1,782,763
219,585
289,670
7,580,253
1,310,534
9,348
(51,890)
(1,195,734)
(135,482)
488,624
384,630
810,030
1,319,882
1,267,992
72,258
(63,224)
425,400
The Group's capability to discharge its liabilities relies on its ability to realise equivalent assets within the same period of time. In the Georgian marketplace, where most of the Group's business is concentrated, many short-term credits are granted with the expectation of renewing the loans at maturity. As such, the ultimate maturity of assets may be different from the analysis presented above. To reflect the historical stability of current accounts, the Group calculates the minimal daily balance of current accounts over the past two years and includes the amount in the less than 1 year category in the table above. The remaining current accounts are included in the on demand category.
The Group's principal sources of liquidity are as follows:
· deposits;
· borrowings from international credit institutions;
· inter-bank deposit agreement;
· debt issues;
· proceeds from sale of securities;
· principal repayments on loans;
· interest income; and
· fees and commissions income.
As at 30 June 2016 amounts due to customers amounted to GEL 4,554,012 (31 December 2015: GEL 4,751,387) and represented 56% (31 December 2015: 59%) of the Group's total liabilities. These funds continue to provide a majority of the Group's funding and represent a diversified and stable source of funds. As at 30 June 2016 amounts owed to credit institutions amounted to GEL 1,892,437 (31 December 2015: GEL 1,789,062) and represented 23% (31 December 2015: 22%) of total liabilities. As at 30 June 2016 debt securities issued amounted to GEL 1,065,516 (31 December 2015: GEL 1,039,804) and represented 13% (31 December 2015: 13%) of total liabilities.
The Bank was in compliance with regulatory liquidity requirements as at 30 June 2016 and 31 December 2015. In the Board's opinion, liquidity is sufficient to meet the Group's present requirements.
The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:
Less than1 Year
More than1 Year
873,506
3,149
729,106
2,259
898,812
90,519
839,379
64,488
2,300,577
3,168,543
2,359,074
2,963,043
87,955
55,709
2,958
39,177
49
69,995
33,847
25,371
32,957
128,157
50,377
98,387
28,640
21,906
4,679
3,654
17,896
57,304
160,384
106,129
130,644
5,554,487
4,768,736
5,721,166
4,394,573
4,055,308
498,704
4,206,377
545,010
980,910
911,527
976,698
812,364
1,024,179
105,160
Accruals and deffered income
81,587
56,380
113,134
33,718
74,074
6,569
51,273
4,572
1,748
42,762
104,312
320,496
18,261
120,082
14,674
6,538,302
1,575,540
5,592,807
2,449,294
(983,815)
3,193,196
128,359
1,945,279
In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been conducted on an arm's length basis.
21. Related Party Disclosures (continued)
The volumes of related party transactions, outstanding balances at the six month end, and related expenses and income for the period are as follows:
2015 (unaudited)
Asso-ciates
Keymanagementpersonnel*
Loans outstanding at 1 January, gross
13,541
1,258
78,592
2,048
Loans issued during the period
5,035
4,000
4,511
Loan repayments during the period
(374)
(6,346)
(84,033)
(6,188)
Other movements **
13,794
2,675
Loans outstanding at 30 June, gross
27,169
2,622
Less: allowance for impairment at 31 December
(254)
(15)
Loans outstanding at 30 June, net
26,915
2,607
13,425
Interest income on loans
1,444
127
173
Loan impairment charge
(138)
(12)
Deposits at 1 January
1,419
20,129
4,975
17,500
Deposits received during the period
14,743
195,316
40,774
Deposits repaid during the period
(16,502)
(199,048)
(41,548)
Other movements
2,942
176
3,403
Deposits at 30 June
1,156
21,312
Interest expense on deposits
(50)
(426)
(33)
(477)
Other income
77
* Key management personnel include members of BGEO's Board of Directors and Chief Executive Officer and Deputies of the Bank.
** Primarily loans to LLC Clinic Hospital #5 - associate of newly acquired GPC.
Compensation of key management personnel comprised the following:
Salaries and other benefits
4,083
2,599
Share-based payments compensation
11,525
7,546
Social security costs
30
Total key management compensation
15,638
10,169
Key management personnel do not receive cash settled compensation, except for fixed salaries. The major part of the total compensation is share-based. The number of key management personnel at 30 June 2016 was 20 (31 December 2015: 16).
The Group maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Group's capital is monitored using, among other measures, the ratios established by the NBG in supervising the Bank.
Approved and published on 28 October 2013 by NBG, new capital adequacy regulation became effective in 2014, based on Basel II/III requirements, adjusted for NBG's discretionary items. A transition period is to continue through 1 January 2017, during which the Bank will be required to comply with both the new, and the current, capital regulations of the NBG.
During six months ended 30 June 2016, the Bank and the Group complied in full with all its externally imposed capital requirements.
The primary objectives of the Group's capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholders' value.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years.
NBG capital adequacy ratio
The NBG requires banks to maintain a minimum capital adequacy ratio of 10.8% of risk-weighted assets, computed based on the Bank's standalone special purpose financial statements prepared in accordance with NBG regulations and pronouncements. As at 30 June 2016 and 31 December 2015, the Bank's capital adequacy ratio on this basis was as follows:
Core capital
793,600
728,139
Supplementary capital
581,602
649,607
Less: Deductions from capital
(72,050)
(60,311)
Total regulatory capital
1,303,152
1,317,435
Risk-weighted assets
7,929,837
7,811,398
Total capital adequacy ratio
Core capital comprises share capital, additional paid-in capital and retained earnings (without current period profits), less intangible assets and goodwill. Supplementary capital includes subordinated long-term debt, current period profits and general loss provisions. Deductions from the capital include investments in subsidiaries. Certain adjustments are made to IFRS-based results and reserves, as prescribed by the NBG.
22. Capital Adequacy (continued)
New NBG (Basel II/III) capital adequacy ratio
Effective 30 June 2014, the NBG requires banks to maintain a minimum total capital adequacy ratio of 10.5% of risk-weighted assets, computed based on the bank's stand-alone special purpose financial statements prepared in accordance with NBG regulations and pronouncements, based on Basel II/III requirements. As at 30 June 2016 the Bank's capital adequacy ratio on this basis was as follows:
Tier 1 capital
907,257
914,784
Tier 2 capital
468,507
479,176
Total capital
1,375,764
1,393,960
8,899,177
8,363,369
Total capital ratio
Tier 1 capital comprises share capital, additional paid-in capital and retained earnings, less investments in subsidiaries, intangible assets and goodwill. Tier 2 capital includes subordinated long-term debt and general loss provisions. Certain adjustments are made to IFRS-based results and reserves, as prescribed by the NBG.
On 26 July 2016, the Group completed the issuance of its USD 350,000,000 6.00% notes due 2023 (the "Notes"). The Regulation S / Rule 144A senior unsecured Notes were issued and sold at an issue price of 99.297% of their principal amount. The Notes are rated BB- (Fitch) and B1 (Moody's). The new notes are listed on the Irish Stock Exchange. Following the issuance of the new Notes, the Bank fully redeemed the old 7.75% Eurobonds due 2017 (Note 13).
On 21 July 2016, the Group announced the completion of the acquisition of the remaining 75% equity stake in Georgian Global Utilities Limited ("GGU"), its utilities business, for a cash consideration of USD 70 million (GEL 164 million). As a result of this buy-out, BGEO owns 100% of GGU. Initial purchase accounting is currently in progress and not all of the asset valuations and accounting estimates are formally finalised. Therefore, management considers a more detailed disclosure impracticable. A full and complete IFRS 3 disclosure will be presented in the Group's 2016 annual financial statements.
Annex:
Glossary
1. Return on average total assets (ROAA) equals Profit for the period divided by monthly average total assets for the same period;
2. Return on average total equity (ROAE) equals Profit for the period attributable to shareholders of BGEO divided by monthly average equity attributable to shareholders of BGEO for the same period;
3. Net Interest Margin equals Net Banking Interest Income of the period divided by monthly Average Interest Earning Assets Excluding Cash for the same period; Interest Earning Assets Excluding Cash comprise: Amounts Due From Credit Institutions, Investment Securities (but excluding corporate shares) and net Loans To Customers And Finance Lease Receivables;
4. Loan Yield equals Banking Interest Income From Loans To Customers And Finance Lease Receivables divided by monthly Average Gross Loans To Customers And Finance Lease Receivables;
5. Cost of Funds equals banking interest expense of the period divided by monthly average interest bearing liabilities; interest bearing liabilities include: amounts due to credit institutions, client deposits and notes, and debt securities issued;
6. Operating Leverage equals percentage change in revenue less percentage change in operating expenses;
7. Cost / Income Ratio equals operating expenses divided by revenue;
8. Daily average liquid assets (as defined by NBG) during the month divided by daily average liabilities (as defined by NBG) during the month;
9. Liquid assets include: cash and cash equivalents, amounts due from credit institutions and investment securities;
10. Leverage (Times) equals total liabilities divided by total equity;
11. NPL Coverage Ratio equals allowance for impairment of loans and finance lease receivables divided by NPLs;
12. NPL Coverage Ratio adjusted for discounted value of collateral equals allowance for impairment of loans and finance lease receivables divided by NPLs (discounted value of collateral is added back to allowance for impairment)
13. Cost of Risk equals impairment charge for loans to customers and finance lease receivables for the period divided by monthly average gross loans to customers and finance lease receivables over the same period;
14. New NBG (Basel 2/3) Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;
15. New NBG (Basel 2/3) Total Capital Adequacy ratio equals total capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;
16. Old NBG Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;
17. Old NBG Total Capital Adequacy ratio equals total capital divided by total risk weighted Assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;
18. NMF - Not meaningful
COMPANY INFORMATION
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
Registered under number 7811410 in England and Wales
Incorporation date: 14 October 2011
Stock Listing
London Stock Exchange PLC's Main Market for listed securities
Ticker: "BGEO.LN"
Contact Information
BGEO Group PLC Investor Relations
Telephone: +44 (0) 20 3178 4052; +995 322 444 205
E-mail: ir@bog.ge
Auditors
25 Churchill Place
Canary Wharf
London E14 5EY
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS13 8AE
Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare, giving you convenient access to information on your shareholdings.
Investor Centre Web Address - www.investorcentre.co.uk
Investor Centre Shareholder Helpline - +44 (0)370 873 5866
Share price information
BGEO shareholders can access both the latest and historical prices via our website, www.BGEO.com