Georgia Capital H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: Our NAV per share rose 17.7% in Q2—one of the largest quarterly gains in GC’s history—and is up 22.4% mark-to-market as of early August.
  • Positive Sentiment: Private portfolio companies delivered robust operational results, with revenue up 14% and EBITDA up 29% in Q2, and management expects strong momentum into Q3.
  • Positive Sentiment: We completed our ₾300 million share buyback ahead of schedule and launched a new ₾700 million capital return program through 2027, including an initial ₾50 million share repurchase and ₾50 million bond prepayment.
  • Positive Sentiment: As part of our deleveraging strategy, we cut our SCC ratio target from 50% to 10% of NAV and plan to maintain net debt within a 0–10% range, advancing toward a zero-debt structure at the GC level.
  • Positive Sentiment: We executed a put option on our 20% water utility stake, collecting $17.4 million and realizing a 3.8× MOIC with a 25% IRR, underscoring strong value creation in one of GC’s largest exits.
AI Generated. May Contain Errors.
Earnings Conference Call
Georgia Capital H1 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

me start by introducing the format today's format, actually. We have a lot of news, but we have news in the format as well. I will be presenting our quarterly statements. So as usual, I will present on the key developments and the high level performance of our portfolio companies. However, our large portfolio company CEOs will be presenting their respective businesses.

Operator

This is to increase the prominence of our three large portfolio companies, that's a pharmacy. So Terren Conigolais Schindler, the CEO, will present the pharmacy results and the key operating data. Gurag Nikogi, our CEO for our Healthcare Services, will report also on the performance of his division and CEO of insurance, Georgi Varatechu, he will report about results of insurance companies. So we will not have a we will have a very short overview of macro, and so we have reduced the portion of the macro in our presentation, and we increased the more we we talk more about the details of the large performance of large portfolio companies. So then Georgi, our Georgi Galpaisi, our CFO, will talk about the valuation and the liquidity.

Operator

And in the end, I will do a wrap up, and this will be followed by the by the Q and A session. And you can obviously ask the Q and A not only to me and Diorgi, but also CEOs of our portfolio companies regarding the performance of their respective businesses. So let's start with the highlights. A lot of good news. We have the NAV per share increased by 17.7% in Q2.

Operator

That's one of the largest quarterly increases in NAV per share recorded in the G Cap history. The EBITDA and revenue of our private portfolio companies also grew very strongly, 14 revenue and nearly 29% EBITDA in Q2. So the strong performance of our portfolio companies continue and their strong operating performance is basically is one of the key targets for us and key milestones to achieve. Another good news we have is that we have completed our put option, and we have collected the $17,400,000 cash in July 2025 from the sale of the water utility, 20% of water utility company. So that's kind of moving in the right direction.

Operator

I want to thank our partners, Aqualia, for a great partnership. We enjoyed being partners with Aqualia a lot, and we expect to continue as an adviser for the Aqualia going forward in Georgia capital. The SCC ratio target, are decreasing from 50% to 10%. This is in line with our deleveraging strategy. As you know, that at G Cap level, we want to, in the medium to long run, to have a zero debt.

Operator

We don't like to have a debt on on G cap level. So therefore, we are reducing the SCC ratio target. And most likely, next move will be moving towards 5%, or we may have a hard cap on the 10% NCC level that we will we will be between zero to 10% level. But right now, throughout the cycle, it's a 10%, so we can overshoot a little bit 10% and undershoot depending where we are in the cycle, basically. Another good news is that we are completing the $300,000,000 program, which we have announced in a year and three months ago.

Operator

According to this program, we should have been done. We we had another year and a half to go, you know, to fulfill this target. But we are we are actually completing the the buyback of this 300,000,000 lari actually probably this month or maybe next this month. Next this month is is probably the latest. That's another good news from us.

Operator

And obviously, as we are completing this 300,000,000 LARI buyback, we are introducing new $700,000,000 LARI capital return program, which will end in 2027. That's our target. Hopefully, we will do earlier than 2027, like we did with $300,000,000 Larry. But let's see. And will talk about this later on in greater detail.

Operator

And in total, we are nearly 30% of the GCABs on bought back shares, which is around more than 14,000,000 shares we bought back in our history of seven years. I think that's a big track record from the young investment company, how committed we are in investing in ourselves. We've been lucky and unlucky at the same time that we are lucky that we are buying it cheaply at a big discount. Unlucky that we have is because we have a big discount. But anyway, so we've been taking the opportunity of the big discount, and we've been buying back shares and we continue to buy back shares.

Operator

And as you know, that we will be announcing this capital return policy and other buyback program, which I will talk about later. So to highlight some key highlights on the water utility, we have when we disposed 2021 stake in water utility company, the value of 20% was $40,000,000 according to valuation back then. So basically, the value increased by 56% over this period of time. So we collected $70,400,000 So in total, our investment looks like that we made 3.8 times money in large terms and IRR of 25% on this investment. So a lot of bad track record on the on this investment so far.

Operator

So actually, we complete one of the big exits in G Cap history with with, I think, suitable track record. Regarding the just briefly on this 300,000,000 lari capital return program, only 20,000,000 lari is left, which we have committed already. And it's in the market, and we are doing the daily buybacks basically here, and we are expecting to complete soon. Regarding this $700,000,000 capital return program, which we are launching until 2027. PLN 300,000,000 consists of the three pillars.

Operator

One is that share buybacks would count into account in this PLN 700,000,000 buyback program, also dividends and also repaying the leverage. So regarding the dividends, we will not be introducing dividends as long as we have a high discount on the NAV. And therefore, it will be only focused right now for the share buybacks. But we expect that till 2027, we will the discount will be fixed. So we may move into dividend.

Operator

So that's why we have dividends also included in this program. So we are starting with the $50,000,000 buyback program, which we are announcing, which is under this 700,000,000 capital return program. And another $50,000,000 we will be at least $50,000,000 we will be repaying in September, actually prepaying our bond because we have a call option on our bond and we can exercise partial release call option, and we will be exercising at least $50,000,000 of bond buyback risk. So $100,000,000 out of 700,000,000 lari capital return program is already clear for our investors, and we will be announcing the further capital returns, which we will announce going forward. Now regarding the passive for investment company situation, before I talk about this in in details, basically, I want to give you just high level background what it means.

Operator

So basically, the under the US revenue service, if the investor is invested in passive investment fund, then they need to pay a tax on unrealized capital gains. So it's not a so we do not want to become passive foreign investment company by no ways. There's no chance we want to beat that passive investment company. And therefore, we are we'll be undertaking some corrections in our on our balance sheet not to become one. So what how it calculates, basically?

Operator

So we we take the balance sheet value of our assets of our private companies. We add the passive investments like the Bank of Georgia stake we have and the cash what we have. On this cash and the Bank of I'm talking about high level, I'm not going into details here. So basically, if this passive cash and the it counts also the it counted also water utility company and the Bank of Georgia together, if they are more than 50% of these total assets, then we are qualified as PIFIC. So we were into a back in 2021.

Operator

We were it was only 26% of passive investments in our assets, and now that increased to 45%. This is mainly due to the rally in Bank of Georgia share price, but also the reason is that we undertook the capital investment approach. Also, sold the capital heavy assets like companies like water utilities, for instance, or brewery also capital heavy. So that reduced the asset base of our private companies. But at the same time, of Georgia share price rallied heavily and that's contributed to the increase.

Operator

So we are going we are managing this process of keeping it under 50%. So we made a correction in our shareholding in Bank of Georgia recently, and we decreased it to 18.1%. That's where we are right now. We will target probably just below 18%. That's where we feel comfortable.

Operator

The calculation is done every year or year end, that's because of December each year. So basically, we are positioning for that date. Right now, we feel pretty comfortable to be under 18% that we will not become a PFIC. So therefore, that's where we are, and that's a correction that we made in our Bank of Georgia shareholding to keep us away from the from becoming the passive foreign investment company. On the next slide, on Slide eight, we have a highlight on the economic developments in Georgia.

Operator

First half twenty twenty five, 8.3%. GDP growth, The economy is doing extremely well. We are also in a very good position in foreign currency inflows. It's at $6,900,000,000 in the first half versus 6.4 last year. This resulted in a big buying of the dollars by the National Bank of Georgia.

Operator

In the first half, in total, more than $900,000,000 of foreign currency have been bought by the National Bank of Georgia. So it's a 100,000,000 in q one and $780,000,000 in in in q two. So nearly $900,000,000 of foreign currency have been bought by the National Bank of Georgia. So the total reserves are at $4,700,000,000 So very good developments recent developments. And this is happening on the back of the tourists, strong tourists, remittances, etcetera.

Operator

So a good position to be a country regarding the foreign currency inflows. On the inflation, we had a little bit uptick, 4.3%. We don't expect interest rates to increase on the back of that because of a small uptick. And I think that this foreign currency buying is also one of the reason of this inflation uptick, but it's I think it's smaller. So that's kind of a we are not worried too much about this.

Operator

NAV per share overview, let me talk about the contributors of the NAV per share growth. The largest one is obviously the listed and observable and water utility passive investment side of growth of the NAV, 15.3%. Private was nearly 3%. Multiple changes, we are decreasing multiples overall on all our private investments. And it was 0.5 negative.

Operator

The emerging and other portfolio companies, it was 0.3 negative. Buyers contributed positive 1.1%. Operating expenses was minus 0.2%. And liquidity and other kind of assets is minus 0.6%. So 17.7% growth in the quarter in NAV per share.

Operator

But if we do a mark to market now for August 5, it's actually the growth is 22.4%. So very high growth in NAV per share. Now in terms of track record, we have a think a very good track record in three and five years. So 30% plus NAV per share growth next last three years and last five years. Since inception in December 2018, we are up seven categories of NAV per share growth is 17.4%.

Operator

The slide, which I love the most is the share buybacks. At the demerger, our number of share was 39,400,000.0 shares. And now we are first time we are below this level at 36,500,000.0 shares. We picked nearly 48,000,000 shares in 2020. And now we are fully bought better and even more.

Operator

And so basically, I'm very happy that we are our number of shares is below the demerger level demerger times, which is in 2018, May 2018, basically, when there was 39,400,000.0 shares. Now let's talk about the aggregate portfolio results. So if we talk about the aggregate portfolio results, we have a situation like that. Revenue up 14.4% in Q2, first half 17.6%, great performance by the team, and they'll talk about this in their prospective presentations and the great performance across all large businesses, basically. Our EBITDA went up 20% or 29% in Q2.

Operator

Overall, in the first half, 36.5%. Another stellar performance, as I understand, and CEOs will talk about that. As I understand, we this gross strong gross continues in July and August. So we should expect strong Q3 as well. Regarding cash flow, that's one of the metrics we watch closely.

Operator

Cash is up 45% year over year in Q2, 35.5% year over year for ourselves. We as an investment company for us is very important, what kind of cash what is a cash generation for our portfolio companies. EBITDA is good, good target in general, but it's not good enough target. For us, it's cash is the key target and cash is the key as we say. Cash balance also at good levels in our portfolio companies.

Operator

Now let me give you some update on deleveraging. The NCC ratio, which is one of the key metrics we watch closely, has been decreased significantly over the years. You may know that the peak was 42% of our NCC ratio at the time of the demerger basically. But now it's at 7%, and we are very mindful of keeping this ratio down. And as we said that we have a new target of 10% throughout the cycle.

Operator

So on Page 19, you the you see this development, and you see the the 7% level against the 10% of new target what we have. And 10%, as I mentioned, is throughout the cycle. So in bad times, we may be over the 10%. In good times, below 10%. So that's where we are right now.

Operator

And that's actually this level why it allows us to step up the the buybacks the way we are stepping up. Now let me, hand over, the presentation to Tony Guillaciu, who is the CEO of our, retail pharmacy business, and he will talk about the great performance of his business line.

Speaker 1

Thank you, Rachlan. Good day, everyone. I am pleased to share a brief business overview and update on the performance of our retail pharmacy business for the second quarter and the 2025. Our business consists of three main directions, retail, wholesale business, and international operations. Retail business is our core, generating around 75% of our revenue.

Speaker 1

Wholesale business is our biggest focus for growth in, in international, honestly saying we are at the start up mode, believing to expand further in the region. So we have a unique and positive category structure in retail pharmacy, having around 50% share of nonmedication versus med category. Why it's positive? Because parapharma's category characterized, by higher margins and no price regulation risks. We continue to be, the largest player in the retail pharmacy market in Georgia with around 36% market share in organized, trade, operating under two well positioned brands, GPC, which targets the high end segment, and Pharma Depot serving the mass market.

Speaker 1

We also operate two franchise brands, The Body Shop and Alana Fluid Optics, and are active in Armenia and Azerbaijan. As of June 2025, we operate 430 pharmacies, including 15 in Armenia. We expanded our network by 14 pharmacies added in quarter two, and most of them in, cost efficient formats that require limited, capital, injection. On the next slide, let me, discuss more business, operating, performance of the business. So in terms of performance, our retail revenue grew by 5.46.4% in the first half and the second quarter respectively, supported by same store growth of 4.76.6% in quarter two.

Speaker 1

This was despite the exit from our textile retail business, which, slightly affected headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in store, execution. On the wholesale side, revenue grew by almost 26% as we extended distribution of our strategic brands beyond our own retail chain. This has helped diversify and strengthen our overall performance. We also saw an increase in average build size.

Speaker 1

It's up by 10% year over year. It's mainly due to mix. And finally, gross profit margins improved to 2.7% in quarter two driven by, again, sales mix and improved supplier, terms. On the next slide, I'll more concentrate on financial, performance. So EBITDA grew by 38.3% in the first half, and we reached record high 48,500,000.0, while EBITDA margin improved to 10.8.

Speaker 1

And in quarter two alone, EBITDA grew by 24.6%. Cash conversion from EBITDA was slightly lower at 63.8%, in quarter two mainly due to growth acceleration and changing mix toward wholesale business. Also, we have a, time shift time difference in the collection of, receivables. So we believe, at the end of the year, we will reach 90% plus, which is our target. So, from a financial balance sheet position, standpoint, we remain cautious and disciplined.

Speaker 1

Our adjusted net debt to LTM EBITDA stands at 1.4 times, which is below our target of 1.5. We expect to improve it further. We also distributed, gel 10,000,000 in dividends during the quarter, reflecting confidence in our, cash flow and overall financial health. So, let me summarize on the next slide. So we have maintained revenue momentum, especially with same store sales growth and strong wholesale results.

Speaker 1

Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, so giving us flexibility for future investments and shareholder returns. Let me mention that, we also have a strong performance in July and August so far. So let me thank you again for your time. I am happy to take your questions during q and a session, and let me hand over to Georgi Berta Shillim.

Speaker 1

Thank you.

Speaker 2

Thank you, Tony. Okay? Ladies and gentlemen, today, I'm going to present, the insurance business, and I will, let you deep dive into the details of our business. A short overview, we run insurance business, and we divide it into two main, directions as we call two main business lines. The first is the PNC property and casualty that is run under the name of Aldagi and medical insurance that is run under the brands of in Medial and the RDMAD.

Speaker 2

I would say that we had an outperformance, record high performance in q two through both lines. And in the coming slides, I will deep dive into both lines separately. But talking in total, our insurance revenues grew by 27%, and the pretax profits grew by 24%. In terms of the first half, we had an amazing 42% increase in insurance revenues and 24% increase in pretax profit. With also an output outstanding performance in terms of the operating data and in terms of the net premiums written, the total premiums grew by 19%.

Speaker 2

Nine 17% was due was, from PNC line, and the and 22% came from the medical insurance. On the next slide, I will, I'll overview the, PNC business separately, and we had a really major development in p and c line, world's leading rating agency and best upgraded our p and c business by one notch. And by this upgrade, Altagi became the first company in Georgia with an investment grading that I'm really proud of, and I want to really congratulate our team. Just to make a few comments from, b, fear, we were our financial strength was up to date upgraded to b plus good, and the long term credit issuer rating has been upgraded to w fear to triple b b triple b minus. By this upgrade, as I have mentioned, we became the company with an investment grading in Georgia.

Speaker 2

The rating agency has underlined that we have we keep the strongest balance sheet on their scale that is supported by the prudent capital and a very disciplined underwriting, leading to the healthy portfolios that are translated then into the in in into the that is translated into the high ROEs in them, respectively. Insurance revenues, as I mentioned, are really are really remarkable. They grew by 22% in q one. The in q two, the main increase was coming came from the from the expansion of our retail mot motor portfolio that is in line with our strategy to increase our retail retail presence in the market and the life insurance that that also increased in '2 to 2025. Our profit pretax profit increased even more, leading to 27% increase that was translated into record high ROE of 3036%.

Speaker 2

In total, we paid a 5,300,000.0 dividends to Jacob, in, q two. That makes an in total of, q one in the first half, that comprised 11,100,000.0. As I said, we had also on the other hand, we had an amazing outdoor amazing in operating performance, and I would lie I like to touch few of them. Key as I said, the key key key metrics in the insurance are the net premiums written where we are up by 17%. We had a really, really good improvement in our combined ratio that were that went down by four points reflecting revised tail of segmentation made in corporate segment and eliminating few big loss making client that led to 84.5 combined ratio for PNC, and this is this is really unique.

Speaker 2

And in that's in line with our with our strategy to keep it in line of 85%. Our individual insurers grew by 13% and the number of policies even more by 15%, and we recorded the record high renewal rate for our retail business, 76.3. Now moving to the moving to the health insurance, the health insurance business is has recorded also record high q '2 that we have never seen before. We had a 32% increase in the revenues in our health insurance, and we are we are envisaging really good performance in both business units, r d as well as in med deal. The main increase came from the organic growth.

Speaker 2

The second big factor was the was the increase of the ticket size of the policies, and the third was the acquisition of party that we acquired in last year, second half of the q two last year that also contributed to the revenue increase. Our pretext pretext profits are growing also. That is eventually translated to the record high ROEs. And to touch the to touch the numbers, we had an 18% increase in, in revenues, in in profits that this translated to also record high ROEs of 30 32.6%. We paid 1,500,000.0 dividends to GCAB from our medical insurance direction that made almost 3,000,000 in the first half twenty twenty five.

Speaker 2

Few words about the key operating metrics. Net premiums written grew by 22%. We had a slight increase in a comb combined ratio that was due to, as I as I as I mentioned, we acquired Ardene in the '2, and the full period was not reflected. That is due to the low base, but adjusted for this, the normalized combined ratio is mainly broadly is the same year over year. So it's in line with the with the with our with our expectations.

Speaker 2

Going to the number of individuals, we are also in line with the with the with our strategy. We want to decrease their the presence in the state tenders, and we and to increase the direct insurance quantity. So that's that reflects that reflects the the figures reflect the above mentioned. And we decreased our presence in the state tenders by 30% in terms of the number of insurers that was grew, and that was partially offset by the direct insurers of the corporate and the retail by 12, 8%. Key operating per key operating highlights for RD and Immedeal, as I have mentioned, we are running two two brands there.

Speaker 2

The, the Immedial has recorded a 17% increase, and we are we are really paying attention to our operational excellence and the service. So what we did in q two was that we launched the new regulation that all claims that are submitted via online are are settled within twenty four hours, and that I will say are 95% of our claims. So 95% of our claims that are submitted online via portal or via portal or or they are settled within twenty four hours. We are in line with our our strategy of digitalization. And in q two, email has launched a new application that gave the opportunity to decrease the occupancy of our call center from 70% to 30%.

Speaker 2

And we'll have so we'll have some more initiatives coming in terms of the digitalization in q three. So the main focus will be also in coming quarters will be, will be service, excellence and service, and diversified provider medical provider database. On the other hand, Ardi continues to be the shining star in terms of the class. Yeah. They have also recorded a 10% increase and managed to increase their premiums by 10%, offering the highest ticket size on their health insurance services and making them the market leader in their in in the best in class in their provide in in their, in their, peer, providers of the of the of the medical insurance service.

Speaker 2

Constant, quality and diversification and different offerings, premium offerings of, health insurance gives the gives the status of Ardi be the best in class. As I said, few as I said, we will we have a really good June and July I mean, July and August, and we are expecting even better figures in q three. And, few considerations to remember and few important developments in insurance business. The first and, the one that I'm really proud of, Aldagi became our PNC company. Aldagi Aldagi became the first company in Georgia with the investment grading and the reputable in investment either reputable rating agency has underlined the strengths of the balance sheet and the healthy portfolios that are managed through the, prudent underwriting practices and the disciplined underwriting that is translated to highest ROEs that we produce, constantly and have have a track record of it.

Speaker 2

Both of our health insurance providers, managed to increase their, rates and tariffs, and that's on the back of the improved services and the back office efficiency. And we have the highest rates in in both insurance lines in PNC and business respectively, 7685%. That that that's a record high renewal rate for the insurance business, and that underlines the resilience and the customer loyalty of, of of our customers. So that's it, and I will, take questions in the end. Thank you very much, and I will pass the floor to, the CEO of our health care business.

Speaker 2

Thank you.

Speaker 3

Hello, everyone. I'm, CEO of the health care services business. And today, I will walk you through our latest results. We delivered double digit revenue growth in the second quarter. Our EBITDA grew by 36% with EBITDA margin reaching 20%.

Speaker 3

Notably, combined EBITDA growth over the past four consecutive quarters comprised 51%. Besides, over the past twelve months, net debt to EBITDA decreased from 5.1% to 3.9 times. Next. In the beginning of next slide, please. In the in the beginning of 2024, we identified five strategic pillars to concentrate our efforts on, which are outpatient development, clinical quality improvement, nursing competence improvement, utilization and efficiency improvement, and the location.

Speaker 3

Outpatient direction is a major focus area for us due to its strategic advantages such as negative working capital need, ability to apply inflation, less dependency on state funding, higher profit margins and higher ROICs. Our efforts have delivered notable results. The share of outpatient services in total revenues of large and specialty hospitals increased from 33% to 37% in second quarter only. We plan to apply AI capabilities in radiology diagnostics and consultations to further enhance our position as a leader in outpatient services. Our flagship hospital and diagnostics business are both JCI accredited, while all other hospitals within our network hold internationally recognized accreditations.

Speaker 3

We reorganized clinical quality boards, which resulted in substantial improvement in clinical quality. As a result, demand for our hospital services has increased significantly. Some of our hospitals has had negative reputation among patients. We flipped the trends to notable improvements in clinical quality and safety. Now one of these hospitals has the least infections in the country, and others are very preferred destinations for our clients.

Speaker 3

Over the past quarter, we have attracted 11 doctors contributing circa 10,000,000 GEL annual revenues. On the nursing campuses, the competence side, we opened six training centers financed through external donations across Georgia that enabled us to increase our group's nursing capabilities and quality as well. We will continue to invest in in this direction going forward. In terms of utilization and efficiency improvements, we increased the bed occupancy rate by more than 6% percentage points compared to second quarter twenty twenty four while simultaneously increasing the number of beds by 94. Our revenues increased by 18% during the second quarter, while our expenses increased by 14%, translating to 3.8% positive operating leverage, resulting in EBITDA margin increased by two fifty basis points to circa 20%.

Speaker 3

On the asset reallocation, we are constantly identifying alternative opportunities for efficient usage of our properties, pets, and hospitals. Based on this, we have downsized several departments in order to enlarge the outpatient direction. In addition, we dispose of some unused and low ROC generating assets. Next slide, please. In our hospital business in the second quarter twenty twenty four, we delivered the revenue growth of 17% and EBITDA growth of 34%.

Speaker 3

Generally, operating cash flows are much stronger in the second half of the year. This is caused by considerably lower working capital need during that period. In second Q 'twenty five, we had an EBITDA to cash conversion of 88%, which is historically the highest for this period. It was a result of the improvement in the working capital to revenue ratio from 25% to 21.5% in second Q twenty twenty five. Next slide, please.

Speaker 3

In our polyclinics business, number of admissions increased by 11%. And in Diagnostics business, number of tests performed increased by 15%, which resulted in revenue growth of 27% and EBITDA growth of 47%. In diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. That concludes my presentation, and, let me hand over to Georgi Alpajse.

Speaker 4

Thank you, Rakhli. Hello, everyone. Let me quickly walk you through the, valuations of the excellent portfolio performances, that were just presented by the CEOs. So starting, with the overall view, at the, you know, semiannually, do, the independent valuation, reviews of our portfolio valuation. So, again, in June, this was done by Kroll, the independent third party who does this, every six months.

Speaker 4

And so based on based on these valuations, to summarize, about 50% of our portfolio was the Lion Finance Group, and then the rest was within our private, portfolio company where companies where the largest business continue to be retail pharmacy followed by health care services and insurance. Emerging and other, businesses continued to be, you know, in the low, teen range. And in this case, it was 12%, slightly down from 14% in the previous quarter. Moving on to the next slide, you will see we wanted to show you how the multiples have evolved over the past twelve months. And here you can see that in terms of the retail pharmacy, the multiple has now stabilized at around 8.2 times EBITDA.

Speaker 4

In the insurance, we're looking at, you know, slightly less than 10 times, and that's where the multiples have stabilized. In the health care services, we saw the multiples come down, slightly again this time to 9.9 time, but we think this is more or less the area where it will continue to, to stabilize. Now key thing has been, in this quarter that and now for the first time over the last eighteen months, we actually saw that discount rates, have come down, as part of the independent valuation report, and that was largely driven by the tighter credit spreads that will that were observed, in the second quarter. So from business to business, they differ, but we saw about 50 to 100 bps improvements within our WACs. Now as we go through individually, actually, on the next slide, we will see the portfolio value development.

Speaker 4

The one change here has been that as we exercised our put option in the water utility for a 20% stake, we moved that away from the portfolio. It was classified as receivable at the end of the second quarter, and we received all the cash, on July 29 last month. So in terms of the portfolio movements, the largest, gain was from, Lion Finance Group that contributed, you know, more than half a billion, Larry, to our portfolio. And then the private portfolio companies increased by 76,000,000, Larry, where the largest valuation gains came from retail pharmacy of 42,000,000 lari, insurance close to 30, and health care services about 20,000,000 lari. Our portfolio finished the quarter at, you know, record high, 4,500,000,000.0, lari.

Speaker 4

Now in terms of very quickly of the each individual business and, you know, the where the values came from, the biggest drivers of the value creations continue to be EBITDA growth that we observed in, across all our large portfolio companies. In retail pharmacy, we had, 42,000,000 value creation, the increase in the enterprise value. There was about 9,000,000 decrease in net debt, but largely because of the, the dividends that were paid by this by this business. As, Tonika presented earlier, the adjusted net debt to EBITDA continued to improve here, and now it's less than, 1.5, targeted level at 1.4. In the insurance, here also the growth in the operating performance delivered about 28,000,000, operating performance growth, which when combined, with the dividends received was the total valuation, gains, for for G Cap of around 35,000,000 lari.

Speaker 4

Leverage share also continued to come down, which is now at point four times, and this is the leverage that we that we took, for the acquisition of IT. Next and last business is the health care services, which also delivered 40,000,000, Larry, growth in the enterprise value that was, you know, slightly offset by the growth in the net debt. But overall, you know, 20,000,000 plus value creation from this business on the back of the continued improvements in net debt to EBITDA, which is now at 3.9 times, you know, way down at 5.4 times that we had there last year. This is all about valuations now briefly about the the liquidity. We continue to have a strong liquidity.

Speaker 4

So when we count in the $70,000,000 that we received in July as part of the 20%, water utility sale, we now have, more than $125,000,000, worth of liquidity. And that's, you know, significant improvement, from previous periods. And, you know, our gross debt is $150,000,000. So with net debt as of today, it's less than $25,000,000. Now briefly about the outlook for the dividend flows.

Speaker 4

So in terms of the dividends, we continue to expect, again, 180,000,000, Larry, but you can see that all but 75,000,000 lari dividends have been received up until now. This also includes the dividends from, Bank of Georgia, Lion Finance Group that were received in in July as well. So the 75,000,000 lari, we now expect to be comprised of, you know, Bank of Georgia interim dividends plus, the dividends from private portfolio businesses spread across pharmacy insurance, auto services, and the renewable energy. One key thing to highlight before I finish is even though the outlook for the dividend income is similar to the last year, on a per share basis, given our continued, you know, buybacks, of our shares, it has, you know, grown approximately 14, percent. So this, you know, combined buybacks with the the strong operating performance, which is, you know, our value growth story, as you know, has been contributing to this, very strong dividend flows.

Speaker 4

So with that, I'll, hand it over to Irakli for the wrap up and conclusion of today's presentation.

Operator

Thank you, Georgi. Let me wrap up. Strong NAV growth, NCC ratio improvements, a very strong operating performance, big cash pile after the sale of the 20% of photo utility. Buyback program is $300,000,000 Valaris buyback program is ending one years point or one point four months before the deadline, which I'm extremely, extremely happy about this development. And then we have overall more than 14,000,000 shares bought back in GCAP's lifetime, nearly 30% of the our share issuance.

Operator

Launch of the in terms of the outlook, 700,000,000 lari capital return program, including the deleveraging share buybacks and dividends, delivering our value growth and continue through the NAV per share growth and EBITDA growth, obviously. And our new NCC ratio is 10% and throughout the cycle. So we have a very strong economic outlook. So we are pretty bullish on future of the GCAT and Georgian economy. So let's move to the q and a session.

Operator

And, Shafu, can you

Speaker 5

Yes. Thank you, Raghvi. Let's start with taking live questions. We have Dimitri who wants to ask ask a question. Dimitri, please go ahead.

Speaker 5

You can unmute yourself.

Speaker 6

Hi. Thank you for the opportunity to ask a question. Congrats on strong second quarter results. I have three questions, please. So the first one is on the performance of your major private assets.

Speaker 6

So it was very strong in the 2025, and I was wondering if you see any upcoming risks for the your major private assets in the 2025, which we should be aware of? The second question is whether you expect any m and a in the 2025 for your major private assets, maybe something similar what you did with insurance last year? And the last question is a general one. Like, your discount to NAV comes down and you will look into the new investment opportunities, do you have an industry in mind which you would like to invest in? Thank you very much.

Operator

Thanks for the questions. Let me start from the from the end. In terms of the the the industries, we don't like to talk about it openly what we are targeting, what we have some industry select. But overall, we like asset light because G Cap, in our experience, asset heavy industries consume cash and we may need cash for the buybacks if the share price is weak. So therefore, we think that the asset heavy industries is not appropriate for the G Cap being basically the listed investment, closed end investment funds.

Operator

So for that structure, the way the GCAP is organized, I think that asset heavy industries are not good for us. We as discount shrinks, obviously, investment opportunities will come, and we will we will realize them. One thing which we are very open about investment into the industry is education. So we are increasing in education our presence. We are investing organically as well as through M and A, and you should expect that's happening over time.

Operator

The to move the other question about the outlook for our operating companies, overall operating performance in the first half was great. Second half, we expect also good operating performance. Macro is strong. Foreign currency is very strong. So basically, I don't see a reason why second half should not be strong operating performance for our portfolio companies.

Operator

And then there was a third question. Sorry. Can you remind me?

Speaker 5

Yeah. It was about M and As, I guess.

Operator

Potential M and A. Yeah. I mean, we we don't we right now, I mean, we cannot we we usually don't talk about it. You know, we cannot talk about it, but your guidance is our your guidance is basically is our share price. Less discount we have on the NAV per share percentage wise or NAV discount, more appetite we have for the investment in terms of the M and A.

Operator

And also, we are looking at we are always looking opportunities to divest some of our asset heavy businesses.

Speaker 5

Thanks, Thank

Speaker 7

you so much.

Operator

Yeah. Thank you.

Speaker 5

I'll take a question from Harvey, and then I'll read out the questions that came through the q and a. Harvey, please go ahead.

Speaker 7

Yes. Congratulations on a really good quarter, and I wanna thank you for getting ahead of the PIFIC issue. Like, it shows real investor caring, which a lot of I've seen holding companies that ignore it completely and create real problems. So thank you. I have a question about the wholesale and the pharmacies.

Speaker 7

Can you describe a little bit more what is that business? What is the expected scope of it? It mentions in the presentation that it may affect your actual retail. I wasn't quite clear on how it can affect your own retail sales. So if you could explain that a little more.

Operator

Sure. Sure. Just Harry, just to comment on PIFIC, as I said, we are very much committed to not become PIFIC. So we will we are we are actually it's part of our kind of main target. So will keep an eye on it, and we'll update you as we go.

Operator

Regarding the the wholesale, I think Tornica is in better position to talk about it. It's it's Tornica's strategy to expand in wholesale in the region, especially. So, Tornica, maybe you talk about this. Thank you. But

Speaker 5

We can hear you, Tornica.

Speaker 1

Please go ahead. Thank you for the question. Let me say a few words about the structure of our wholesale business. That was the first part of the question, I believe. That's we are selling for to the pharma key account, so called, which are the big players, our competitors, in fact.

Speaker 1

Second part is that we are selling to the independent, small pharmacies, traditional trade pharmacies, let's say. And the third part is the special projects, which are the government, tenders and hospital channel and so on and so forth. So this is a three part. What I have mentioned is that we had the brands which were which we were selling exclusively into our own pharmacies. But for our strategic brands, we opened the, gate, in fact, and we started selling them into other key accounts and other outlets in order to develop that brands, develop that brand availability, and also grow sales.

Speaker 1

And you can see in the the wholesale growth is really huge. It was something like 27%. And that that so that strategy gave us results. And, also, there is there is no sense to close the brands into your own retail because anyhow, world is global, and our competitors were also getting products and different products via parallel parallel import. That's the another part.

Speaker 1

Do I answer your question?

Speaker 7

What What are are the how broad do you expect this business? Do you you said it's regional. Can you can you become a distributor? And and how many other countries? How many what is the potential size of the distribution business?

Speaker 1

Okay. I I got the point. So that's an international part. We put it in in a pie chart in the international part. For the international, let me, first of all, underline the region, what we believe it's a region for us.

Speaker 1

This is South Caucasus and the Central Asian post Soviet Central Asian countries, so called Stan Stan markets. So total population for them is 96,000,000. And now we have already contracts for new new territories, commercial contracts for the new territories for the med and also in the parapharmacy, and some negotiations are ongoing. I I can't for the moment, I can't underline the exact number and the exact figures where we're going to reach, but this, we believe, is a big potential, and we are working on that direction.

Speaker 7

Okay. Thank you.

Speaker 1

Thank you.

Speaker 5

Thank you, Harvey.

Operator

I I I think here important part for us is that basically the we take the some of the brands, which we cover them for the region. And basically, in a way, we act as interpreters between the foreign multinational companies and the locals. And the foreign international companies would rather give us the ownership of the brand of their brand for the region and they enter the regions through us then enter directly. And I think that we want to realize that also the trading comes to us, logistics comes to us. So basically, there is no extra cost by selling their products to us in wholesale to this stance and the Cocoa business.

Operator

So we are focusing on that to expand the international wholesale business in both the parapharmacy and the pharmacy and basically learn better the international markets for us to have a foothold for future expansion when we when our discount narrows and we will be able to invest.

Speaker 5

Thanks, Yigal. I'll take a question from John and then move to the q and a questions. John, please go ahead.

Speaker 8

Hi. Thank you very much for the presentation, and congrats on the results. Quite impressive. So I have question, one for the pharmacy business. A 100 for 15 pharmacies in Georgia, I mean, looks quite crowded.

Speaker 8

I mean, do you do you have any idea of what's the white space, how much you can grow here if that store expansion is potential is limited. What's the next leg leg of growth for this business? Is it Armenia? Is it the wholesale international as you mentioned just recently? And the second one is on the health care business.

Speaker 8

Quite an impressive occupancy rate improvement. And and the business has been on an upward trend in the past three quarters, if I recall correctly, or four quarters. So maybe you can help us understand how you did improve this occupancy rate that much in the first half and and talk about a bit on the going forward, how do you see the business in terms of deleveraging and and the margin recovery? Where where do you see its margin leveling off in the next quarters or years? Yeah.

Speaker 8

Thank you very much.

Operator

John, let me let me address the pharmacy one again. I think that, basically we grow you're right, as a pretty overcrowded the Georgian market. And that's therefore, we will not be expanding much of the pharmacies. We may be closing down some bed pharmacies, opening new ones. So there will be no major growth.

Operator

But our growth, as I mentioned, is through wholesale business, Caucasus and Central Asian countries, which we have significant growth opportunity for us. And we act as a counterparty for international multinationals with our excellent management team to be their counterparties for the distribution in that region. So we have been picking up the some contracts where we becoming a distributor for the region, wider region. This is a big growth opportunity. Also, in terms of M and A, we can grow into the neighboring countries.

Operator

Armenia especially is interesting countries to grow pharmacy chains. We are actually organically, we are growing the pharmacy chains in Armenia, very, very interesting country for us for the growth. And we see if there is a will be M and A opportunity. So in terms of the growth for the pharmacy business is locally, we continue to improve. And internationally, I think the sky is the limit there.

Operator

In terms of the healthcare question, I will ask Hirag Nikovia to jump in and talk about his and his team's achievement for the excellent growth over the past three quarters.

Speaker 3

Thank you, Hirakum. So, in terms of occupancy rates, how how we manage to, increase that, it's primarily driven by, quality improvements in the hospitals that is closely connected to the creation of a very effective boards at the head office level. But they are managed that they they they are managed by the doctors who work in in the hospitals. And we also attracted some good, very, star doctors that also increased our occupancy levels in the hospitals. And we believe that, we are having a significant market gain on the because of those factors and, that results in the, occupancy rate increases.

Speaker 3

On the margin side, we think that the margin is, mainly, EBITDA margin is getting better because of the, increased share of outpatient services in our revenues plus the additional services that we are launching and providing for the customers are marginally accretive. That means we are adding, more, let's say, good services for the business that have high margins. And we expect that, the margin should, be at least 25% in the medium term. And on the deleveraging side, we target to decrease the EBITDA to net debt for under three. That's that's answers your questions, I believe.

Speaker 8

Yeah. Thank you very much, Raj. Maybe a follow-up. I remember there has been some couple of regulations in the past regarding emergency room or something, yeah, around around that. Is there any other regulation that is upcoming in the health care business, or it's more stable now operating environment from legal point of view?

Speaker 3

It's now more safe environment. The regulations are always, always ongoing. We expect one to come, next year, but, it's not a negative. It doesn't have a negative impact. We don't anticipate negative impact, at least for the medium term for those changes.

Speaker 3

But, yeah, generally, we we try to stop soften these regulations to not hit us much. So we we are not afraid as of now on the regulation side, etcetera.

Speaker 8

Yeah. Good to hear. Thank you very much, and congrats on the results.

Speaker 5

Thank you, Jung. Maybe I'll read out the questions that came through the q and a. The question is from Neil O'Connor. Congratulations on another great quarter at getting your market cap to over US dollar 1,000,000,000. Now you are effectively delevered.

Speaker 5

Will you be looking to make acquisitions? If so, which business area, countries look interesting?

Operator

I mean, investment same mix, it's not only deleveraging, it's also the NAV discount. So the NAV discount is pretty high. So right now, we cannot really make big investments. We are committed to the buybacks, and we will hunt down discount as much as we can. And once the discount improves, I think we will be our hands will be untied more to invest.

Operator

I mean, with this presentation and with large companies' presentation, I want to show you also opportunity for them to grow and invest locally, also internationally, that we have investment opportunities within our portfolio companies. We like bolt ons. We like we are looking internationally. We want to get more comfortable. And we are moving in are moving in we are cautious.

Operator

At the same time, we want to learn more of the operating environments there. For instance, in Armenia, we've been operating our pharmacies for a while now. It's a small portion, but actually, we know the ability of operating in Armenia as well as pharmacies. So that's kind of a, you know, maybe there's opportunity in the future, basically, for us. I guess that's pretty much on the investment side.

Operator

And as a second part of the question, I think

Speaker 5

Yes. Is the MBGF expiring intended to weaken, Larry?

Operator

So, basically, actually, actually, the Larry is not intended to weaken. It just it would get it would appreciate even further if the MBG would not have bought it. So it was 2.75 exchange rate before the quarter, before the major buying of $700 plus million in the quarter. And basically, the capriciate of 2.7%, even the National Bank was fine. So I think that the FX intervenors is more focused towards growing the reserves, while LARI appreciates slowly.

Operator

I mean, if not this big acquisition of the LARI, the FX exchange rate would have gone to 2.5 basis. On the other hand, you have more lari coming into the market and that may cause the pickup in inflation. That's what we saw. We saw the small pickup in inflation, but we are not afraid of that. We don't think that it's going to be my major problem going forward inflation in this country as countries also growing pretty fast.

Speaker 5

Thank you. The next question is from Hongbo Yan. Can you comment on the insurance company businesses development plan coming with the improvement in the credit rating?

Operator

Let's can we have a, please, to talk about? He's our CEO,

Speaker 2

Sure. So, basically, there are three main aspects that will that are how Aldagi will benefit. Firstly, it's the it's the corporate clients. So by upgrade, we are we are more the clients are more the clients more trust Al Duggy. I mean, the big corporate clients on the local market, and we are our corporate sales are more brave in terms of the cooperation and acquiring the clients.

Speaker 2

So this gives us, they really advantage in terms of the competition. The next one and the bigger one, I would say, is the is the reinsurance business that we entered few years ago, and we announced that we allow our internal internal internal direction will be capturing the opportunity in two directions. The first direction is the local reinsurance that reinsures the risks from the local small companies because there are 19 insurance companies. And as you know, recently, the markets have been quite harsh for the reinsurance, so we found an opportunity there. So we provide them the, I mean, the internal direction so that the other company's internal division, but we have a Chinese wall between insurance and the reinsurance.

Speaker 2

Internally, it provides the local reinsurance. So for the for for the local insurance for the local insurance companies, and that's that gives the local companies even more transparency by this upgrade because besides the credit rating, we've been upgraded by a financial rating, and we became b plus. B plus is a quite high rating for the insurance companies all over the world. And mainly, all mostly all in the in the region, mostly all regulators accept the reinsurance. And the third part, again, is, again, the reinsurance, but the regional part.

Speaker 2

So we said that we'll be entering the regional reinsurance market. By the regional, I mean, Armenia, Azerbaijan, firstly, Turkey partly, and Kazakhstan where we see the opportunity. And before the upgrade, we were not quite eligible in in their local regulations. By this by this regulation, we are accepted by the regulators of those respective countries, mainly the supervision agencies or the national banks of those companies. And Aldagi will be on their list as their insurer.

Speaker 2

So mainly, there's a big opportunity for Aldagi on the local market on the on the regional market. But to underline that we take it quite cautiously, of course, we are we we love to taste, but we really we filter the risks. So we are not we are not jumping into it. But this opens a hands to us to be more active in this additional revenue stream that we see an opportunity big opportunity there.

Operator

Thank you, Georgi. Yeah. I think that Georgi and his team delivered excellent results. And being a first Georgian company to be investment grade, that's a big achievement. This is ahead even before the country became the investment grade.

Operator

So I think that our management team has done excellent job. And we are really looking forward to actually understand the regional market better by doing the reinsurance. And as Georgi said, we are not going to do a big business in the beginning. We will slowly step up and learn the international business and that we better be positioned to understand whether in the future there are M and A opportunities by doing the reinsurance from this country. So we want to step up the reinsurance business and the investment grade is a key milestone for that.

Speaker 3

Thank you.

Speaker 5

Thank you both. The next question is from Brett Wiebetski. What margin do we target in the pharma wholesale business?

Operator

Tonica, can you please address this one?

Speaker 1

Thank you for the question. So, margin now, we have 20% plus in wholesale business, but the direction we are developing is around 25%, which is the big players like pharma key accounts and other pharma retail. What I want to underline, in order to compare with the retail margins, we need to take retail direct EBITDA margin, which is 15%. So if you compare direct margin of retail business to the wholesale business, wholesale business, margin, which translates into later into EBITDA, is higher. And the second, what is attractive in the wholesale business, that is it is less capital it needs.

Speaker 1

So it less capital expenses it needs. So that's why we as for the growth, we have more potential in wholesale. And for the business and financials, it's much better what we believe. I believe I answered.

Speaker 5

Thank you. The next question is from Hongbo Yan. It's about the education business. New school year is about to start. Can you comment on the outlook of the enrollment prospect, campus occupancy expectations?

Operator

I mean, the overall expectations are the similar, more or less, maybe a little bit weaker in in BGA based occupancies due to the disputes we have with minority shareholders. Rest of the businesses are performing very well. The business also performs, but not as well as as we want to, but we hope that we will turn this around.

Speaker 5

Thank you. I guess we don't have open questions for now. We're slightly over.

Operator

Thanks a lot for for your questions and for your time, and please continue. We are we are on a very good path to to grow the G Cup on next the level as a investor in in the invest in as an investor in the region. Thank you very much.

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