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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bank Of Georgia Group Plc | LSE:BGEO | London | Ordinary Share | GB00BF4HYT85 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 10.00 | 0.19% | 5,210.00 | 5,210.00 | 5,230.00 | 5,300.00 | 5,150.00 | 5,170.00 | 21,596 | 14:44:15 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBGEO
RNS Number : 2348H
Bgeo Group PLC
16 August 2016
BGEO Group PLC
2(nd) quarter and half-year 2016 results
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/2348H_-2016-8-15.pdf
www.BGEO.com
Name of authorised official of issuer responsible for making notification:
Ekaterina Shavgulidze, Head of Investor Relations and Funding
2Q and 1H 2016 Financial Results Earnings call
An investor/analyst conference call, organized by BGEO Group, will be held on, 16 August 2016, at 14:00 UK / 15:00 CET / 09:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.
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TABLE OF CONTENTS
2Q16 and 1H16 Results Highlights 4
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Chief Executive Officer's Statement 7
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Financial Summary of BGEO 9
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Discussion of Banking Business Results 11
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Discussion of Segment Results 15
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Selected Financial Information 27
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Principal Risks & Uncertainties 34
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Responsibility Statements 37
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Interim Condensed Consolidated Financial Statements 38
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Independent Review Report on Review of Interim Condensed
Consolidated Financial Statements of BGEO Group PLC 39
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Unaudited Interim Condensed Consolidated Financial Statements
41
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Selected Explanatory Notes to Interim Condensed Consolidated
Financial Statements 49
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Annex 73
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Company Information 74
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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 off(1) . 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 1,301.4mln(1) , 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 2Q16(2) , 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, m(2) Real Estate ("m(2) ") continued its strong project execution and sales performance in 2Q16. In 2Q16, m(2) 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, m(2) 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, m(2) 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). m(2) Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of projects. As a result of this, it has accumulated US$ 50.8mln sales, which will be recognised as revenue during 2016-2018 period (of which c.US$ 27.0mln is expected to be recognised in 2016)
-- Our water and utilities business, Georgian Global Utilities ("GGU"), achieved a 1H16 profit of GEL 15.3mln, up 471.6% y-o-y. As BGEO owned 25% of GGU in 2Q16, we have reported our share of GGU's profits as profit from associates, which amounted to GEL 3.8mln in 1H16, up 471.6% y-o-y. In July 2016, we completed the acquisition of the remaining 75% equity stake in GGU. As a result, we will start consolidating GGU financial results from 21 July 2016 as part of our investment business and will include it in the segment discussion as a separate business
2 Including the deferred tax adjustments, the provision for expected accounting losses arising from the buyback of the Bank's Eurobond and other net non-recurring items, the investment Business contributed GEL 36.5mln or 32.8% to the Group's profit in 2Q16, up from GEL 10.6mln and GEL 17.4mln in 2Q15 and 1Q16, respectively. For the half-year, the contribution was GEL 53.9mln or 27.2% to the Group's profits, up from GEL 14.1mln in 1H15
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased with the Group's core earnings momentum in the first half of 2016, following another period of good business performance throughout the Group. Our profit of GEL 198.3mln in the first half of the year increased by 47.6% compared to the first half of 2015. Earnings per share increased by 31.7% to GEL 4.57. In the Banking business profits grew by 20.0% year-on-year supported, in particular by excellent franchise growth in the retail bank, where we now have over 2mln customers and grew retail lending during the quarter by 7.5% on a constant currency basis. Margins have remained stable despite the impact of high levels of excess liquidity, and the banking business has delivered a further reduction in the cost of risk. The Return on Average Equity in the banking business was 21.7% for the first half of the year, and 22.5% in the second quarter of 2016. There was an even stronger performance in the Group's investment businesses where both EBITDA and profit before tax increased by more than 75% in the first half.
I mentioned in my statement with the first quarter results that a change in the Georgian Government's tax policy was going through Parliament and was expected to significantly benefit Georgian companies. This change has now been ratified by Parliament and, as a result, a tax code amendment is in the process of being implemented that will apply the profits tax (currently 15%) only to distributed profits. Undistributed profits will no longer be subject to the profits tax. This amendment is expected to take effect for most companies on 1 January 2017, and for certain financial companies (including banks and insurance companies) from 1 January 2019. This will reduce the effective tax rate of the Group's non-banking businesses in 2017, and the entire Group in 2019. The impact of these changes has led to a number of deferred tax adjustments that have increased profits in the first half of 2016 by GEL 66.8mln.
In July 2016, the Group undertook a liability management exercise with regard to its existing US$ 400mln Eurobond with a 2017 maturity, replacing it with a US$ 350mln Eurobond with a seven year (2023) maturity issued at the Georgian Holding Company level. The exercise enables a significant further improvement in the Group's funding maturity profile whilst, at the same time, reduce funding costs and some of the excess liquidity within the Bank. As a result of this exercise the Group expects to see a positive impact on the banking net interest margin going forward whilst, at the same time, the Group has recognised a one-off provision of GEL 42.5mln in the first half of 2016 relating to the accounting charge arising from the above par buyback of the Eurobond.
Turning to the business, at the BGEO Group level, revenue growth was 10.4% year-on-year. Retail banking net interest income grew by 8.4%, offsetting the expected decline in corporate banking net interest income as we continue to rebalance the retail/corporate business mix to further improve the return profile of the Bank and reduce concentration risk in the corporate lending portfolio. Revenues from the investment businesses increased by 59.5% as a result of the outstanding first half performances of the healthcare and real estate businesses. Operating expenses continue to be well controlled, with the 12.5% growth year-on-year being largely driven by the significant impact of a number of acquisitions in the healthcare business.
In addition to the strong earnings performance, the Group's already high returns have further improved. In the banking business, despite carrying over GEL 625mln of excess liquidity, the return on average equity increased from 21.2% in the first quarter, to 22.5% in the second quarter, compared to 19.3% in the first half of 2015. In the healthcare services business, the EBITDA margin was 29.3%, compared to 25.3% in the first half of last year. The Group continues to demonstrate its high growth and high return characteristics.
The Georgian economy has remained resilient throughout the first half of 2016, with improving expectations for short and medium term GDP growth continuing to rise. As a result, asset quality during the first half of the year has improved in line with our expectations for the cost of risk ratio to reduce to c2.0% in 2016, compared to 2.7% in 2015. The annualised cost of risk ratio in 2Q16 was 2.0%, compared to 2.3% in 1Q16. This is a strong performance against the backdrop of last year's Lari devaluation against the US dollar, and continues to reflect our conservative lending policy that always takes into account, at the time of the initial lending decision, any potential currency mismatch. In addition, we have also started to achieve a small reduction in the ratio of NPL's to Gross Loans, and we continue to expect the NPL ratio to improve.
Within our Investment Businesses, Georgia Healthcare Group (GHG) delivered record half-yearly revenues of GEL 174.2mln, which continue to reflect both good levels of organic growth ([13.0]% year-on-year) and the impact of the benefits of last year's acquisitions starting to be captured. The healthcare services EBITDA margin continues to improve, and at 29.3% in the first half is now in line with GHG's medium-term target of 30%. GHG has also recently completed the acquisition of the third largest retail and wholesale pharmacy chain in Georgia making GHG the largest purchaser of pharmaceutical products on Georgia, and creating significant cost and revenue synergy opportunities to be captured. GHG remains clearly on track to continue to deliver strong earnings progress, together with its target to more than double 2015 healthcare services revenues by 2018. Our real estate business, m2 Real Estate, continues to develop its apartment projects very successfully, with its strong project execution and sales performance delivering a net profit of GEL 6.1mln in the first half. In our water and utilities business, GGU, the new management team is focused on improving efficiency and delivered a net profit of GEL 15.3mln in the first half, compared to GEL 2.7mln profit in the first half of 2015. During the first half of the year, BGEO Group owned 25% of GGU and, as a result, recognised GEL 3.8mln profit in the half.
In June 2016, the Group announced that it was to acquire the remaining 75% equity stake in GGU for a cash consideration of $70mln, this acquisition was completed in July 2016, and GGU will now be fully consolidated into BGEO with effect from 21 July 2016. This is a significant transaction for the Group, and is expected to be earnings enhancing from day one. The transaction valued GGU's enterprise value at GEL 287.5mln, or 4.2x EV/EBITDA 2016E. The Group has a significant opportunity to increase GGU's operational cash flow over the next few years from a combination of improving cash collection rates, increasing energy efficiency and reducing water loss rates, and by the development of additional revenue streams. Our strategy is to grow the business, with the aim to crystallise value within 3-5 years.
The Group's capital and funding position continues to remain strong, with capital being held both in the regulated banking business and at the holding company level. Within the bank, the NBG (Basel 2/3) Tier 1 Capital Adequacy ratio was 10.2%, comfortably ahead of the Bank's minimum capital requirement. In addition, as of 12 August 2016, GEL 253.1mln was held at the Group level. From a funding perspective, the Bank's NBG Liquidity ratio was 43.5%, and the Liquidity Coverage Ratio was 190.1%, reflecting the significant excess liquidity held by the Bank.
From a macroeconomic perspective Georgia has delivered a strong performance during the first half of 2016. GDP growth expectations for Georgia are now starting to increase and in June 2016 real GDP growth was 2.9% year-on-year, with inflation remaining well contained at 1.5% in July. In addition, during the first half of the year, the Lari has strengthened against the US Dollar by 2%, Foreign Direct Investment continues to be very strong, and tourist numbers - a significant driver of US$ inflows for the country - continue to rise significantly, by over 10% in 2016H1, compared to 2015H1. The National Bank of Georgia has continued to buy US Dollars on a regular basis, to mitigate the further appreciation of the Lari, and we now expect the country's US Dollar reserves to increase by as much as $500mln in 2016.
With Georgia continuing to achieve improvements in its macroeconomic performance and improving levels of business confidence, the Group has delivered another half-year of strong business performance with over 30% earnings per share growth, and constantly improving returns in both the banking business and the investment businesses. A number of recent strategic initiatives and acquisitions are expected to continue to deliver this excellent performance in the second half of 2016 and beyond.
Irakli Gilauri,
Group CEO of BGEO Group PLC
FINANCIAL SUMMARY
BGEO Consolidated Banking Business* Investment Business*
Income
statement -
quarterly 2Q 2016 2Q 2015 Change 1Q 2016 Change 2Q 2016 2Q 2015 Change 1Q 2016 Change 2Q 2016 2Q 2015 Change 1Q 2016 Change
GEL thousands
unless
otherwise noted Y-O-Y Q-O-Q Y-O-Y Q-O-Q Y-O-Y Q-O-Q
Net banking
interest
income 128,527 122,789 4.7% 128,852 -0.3% 129,522 126,403 2.5% 130,219 -0.5% - - - - -
Net fee and
commission
income 29,343 29,121 0.8% 27,814 5.5% 29,639 30,172 -1.8% 28,015 5.8% - - - - -
Net banking
foreign
currency gain 15,506 19,765 -21.5% 17,390 -10.8% 15,506 19,765 -21.5% 17,390 -10.8% - - - - -
Net other
banking
income 2,630 2,481 6.0% 2,867 -8.3% 2,824 2,810 0.5% 3,168 -10.9% - - - - -
Gross
insurance
profit 8,409 5,817 44.6% 6,416 31.1% 6,496 3,473 87.0% 5,343 21.6% 2,565 2,799 -8.4% 1,723 48.9%
Gross
healthcare
profit 25,199 18,099 39.2% 26,291 -4.2% - - - - - 25,199 18,099 39.2% 26,291 -4.2%
Gross real
estate profit 2,466 (41) NMF 6,024 -59.1% - - - - - 2,466 (41) NMF 6,024 -59.7%
Gross other
investment
profit 8,437 4,734 78.2% 3,606 134.0% - - - - - 8,443 4,709 79.3% 3,675 129.7%
Revenue 220,517 202,765 8.8% 219,260 0.6% 183,987 182,623 0.7% 184,135 -0.1% 38,673 25,566 51.3% 37,713 2.5%
Operating
expenses (88,684) (76,848) 15.4% (83,288) 6.5% (69,919) (65,244) 7.2% (69,863) 0.1% (19,777) (12,381) 59.7% (14,456) 36.8%
Operating
income before
cost of
credit risk /
EBITDA 131,833 125,917 4.7% 135,972 -3.0% 114,068 117,379 -2.8% 114,272 -0.2% 18,896 13,185 43.3% 23,257 -18.8%
Profit (loss)
from
associates 1,952 1,979 -1.4% 1,866 4.6% - - - - - 1,952 1,979 -1.4% 1,866 4.6%
Depreciation
and
amortization
of investment
business (4,775) (2,579) 85.1% (4,910) -2.7% - - - - - (4,775) (2,579) 85.1% (4,910) -2.7%
Net foreign
currency gain
(loss) from
investment
business (1,597) 2,689 NMF (766) 108.5% - - - - - (1,595) 2,689 NMF (766) 108.5%
Interest
income from
investment
business (283) 622 NMF 956 NMF - - - - - 60 844 -92.9% 964 -93.8%
Interest
expense from
investment
business (2,497) (2,632) -5.1% (1,382) 80.7% - - - - - (3,971) (7,501) -47.1% (2,947) 34.7%
Operating
income before
cost of
credit risk 124,633 125,996 -1.1% 131,736 -5.4% - - - - - 10,565 8,617 22.6% 17,464 -39.5%
Cost of credit
risk (29,387) (41,867) -29.8% (36,143) -18.7% (28,151) (40,764) -30.9% (35,012) -19.6% (1,236) (1,103) 12.1% (1,131) 9.3%
Net
non-recurring
items (48,744) (413) NMF 1,366 NMF (46,350) (3,409) NMF (1,419) NMF (2,394) 2,996 NMF 2,785 NMF
Income tax
expense 64,735 (11,686) NMF (9,912) NMF 35,139 (11,753) NMF (8,178) NMF 29,596 67 NMF (1,734) NMF
Profit 111,237 72,030 54.4% 87,047 27.8% 74,706 61,453 21.6% 69,663 7.2% 36,533 10,577 245.4% 17,384 110.2%
Earnings per
share (basic) 2.46 1.84 33.7% 2.10 17.1% 1.91 1.59 20.4% 1.78 7.3% 0.55 0.25 117.7% 0.32 72.3%
Income statement
- half-year BGEO Consolidated Banking Business* Investment Business*
Change Change Change
GEL thousands
unless
otherwise
noted 1H16 1H15 Y-O-Y 1H16 1H15 Y-O-Y 1H16 1H15 Y-O-Y
Net banking
interest
income 257,380 243,778 5.6% 259,742 249,461 4.1% - - -
Net fee and
commission
income 57,157 55,975 2.1% 57,654 58,262 -1.0% - - -
Net banking
foreign
currency
gain 32,896 38,727 -15.1% 32,896 38,727 -15.1% - - -
Net other
banking income 5,497 4,272 28.7% 5,992 4,906 22.1% - - -
Gross insurance
profit 14,825 13,391 10.7% 11,838 8,777 34.9% 4,289 5,492 -21.9%
Gross
healthcare
profit 51,490 34,975 47.2% - - - 51,490 34,975 47.2%
Gross real
estate profit 8,489 1,168 626.8% - - - 8,489 1,168 626.8%
Gross other
investment
profit 12,043 6,133 96.4% - - - 12,118 6,253 93.8%
Revenue 439,777 398,419 10.4% 368,122 360,133 2.2% 76,386 47,888 59.5%
Operating
expenses (171,971) (152,908) 12.5% (139,782) (130,520) 7.1% (34,232) (24,038) 42.4%
Operating
income before
cost of credit
risk / EBITDA 267,806 245,511 9.1% 228,340 229,613 -0.6% 42,154 23,850 76.7%
Profit from
associates 3,818 668 NMF - - - 3,818 668 NMF
Depreciation
and
amortization
of investment
business (9,685) (5,266) 83.9% - - - (9,685) (5,266) 83.9%
Net foreign
currency gain
(loss) from
investment
business (2,363) 6,379 NMF - - - (2,363) 6,379 NMF
Interest income
from
investment
business 673 1,239 -45.7% - - - 1,024 1,662 -38.4%
Interest
expense from
investment
business (3,880) (5,094) -23.8% - - - (6,919) (13,469) -48.6%
Cost of credit
risk (65,529) (83,708) -21.7% (63,162) (81,536) -22.5% (2,367) (2,172) 9.0%
Net
non-recurring
items (47,380) (2,860) NMF (47,770) (5,575) NMF 390 2,715 -85.6%
Income tax
expense 54,824 (22,500) NMF 26,961 (22,238) NMF 27,863 (262) NMF
Profit 198,284 134,369 47.6% 144,369 120,264 20.0% 53,915 14,105 282.2%
Earnings per
share (basic) 4.57 3.47 31.7% 3.70 3.10 19.3% 0.87 0.37 137.1%
* Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on pages 27 & 28.
BGEO Consolidated Banking Business* Investment Business*
Balance sheet Jun-16 Jun-15 Change Mar-16 Change Jun-16 Jun-15 Change Mar-16 Change Jun-16 Jun-15 Change Mar-16 Change
GEL thousands
unless
otherwise
noted Y-O-Y Q-O-Q Y-O-Y Q-O-Q Y-O-Y Q-O-Q
Liquid assets 2,925,345 2,741,533 6.7% 2,948,699 -0.8% 2,887,978 2,726,749 5.9% 2,876,357 0.4% 277,116 127,508 117.3% 337,602 -17.9%
Loans to
customers
and finance
lease
receivables 5,469,120 5,052,752 8.2% 5,359,718 2.0% 5,507,414 5,142,221 7.1% 5,394,565 2.1% - - 0.0% - 0.0%
Total assets 10,323,223 9,375,059 10.1% 10,077,589 2.4% 9,171,034 8,712,710 5.3% 9,030,055 1.6% 1,437,232 883,373 62.7% 1,353,961 6.2%
Client
deposits and
notes 4,554,012 4,104,417 11.0% 4,698,558 -3.1% 4,791,979 4,212,822 13.7% 4,962,432 -3.4% - - 0.0% - 0.0%
Amounts due to
credit
institutions 1,892,437 2,139,517 -11.5% 1,719,920 10.0% 1,766,999 2,045,093 -13.6% 1,630,299 8.4% 163,730 189,124 -13.4% 124,468 31.5%
Debt
securities
issued 1,065,516 1,063,123 0.2% 1,033,758 3.1% 990,370 990,257 0.0% 957,474 3.4% 81,088 79,894 1.5% 81,116 0.0%
Total
liabilities 8,113,842 7,719,116 5.1% 7,926,740 2.4% 7,773,056 7,463,969 4.1% 7,751,805 0.3% 625,829 476,171 31.4% 481,362 30.0%
Total equity 2,209,381 1,655,943 33.4% 2,150,849 2.7% 1,397,978 1,248,741 12.0% 1,278,250 9.4% 811,403 407,202 99.3% 872,599 -7.0%
Banking Business Ratios 2Q16 2Q15 1Q16 1H16 1H15
ROAA 3.4% 2.9% 3.0% 3.2% 2.9%
ROAE 22.5% 19.3% 21.2% 21.7% 19.3%
Net Interest Margin 7.5% 7.6% 7.5% 7.5% 7.8%
Loan Yield 14.1% 14.6% 14.4% 14.3% 14.6%
Liquid assets yield 3.3% 3.1% 3.1% 3.2% 3.2%
Cost of Funds 4.8% 5.0% 5.0% 4.9% 5.0%
Cost of Client Deposits
and Notes 4.0% 4.4% 4.3% 4.2% 4.4%
Cost of Amounts Due to Credit
Institutions 5.9% 5.3% 6.0% 5.9% 5.3%
Cost of Debt Securities
Issued 7.0% 7.2% 7.2% 7.1% 7.2%
Cost / Income 38.0% 35.7% 37.9% 38.0% 36.2%
NPLs To Gross Loans To Clients 4.4% 4.1% 4.5% 4.4% 4.1%
NPL Coverage Ratio 85.8% 82.2% 86.0% 85.8% 82.2%
NPL Coverage Ratio, Adjusted
for discounted value of
collateral 129.7% 115.1% 122.6% 129.7% 115.1%
Cost of Risk 2.0% 2.7% 2.3% 2.1% 2.9%
Tier I capital adequacy
ratio (New NBG, Basel 2/3) 10.2% 10.4% 10.1% 10.2% 10.4%
Total capital adequacy ratio
(New NBG, Basel 2/3) 15.5% 15.9% 15.8% 15.5% 15.9%
* Note: Banking Business and Investment Business financials do not include interbusiness eliminations. Detailed financials, including interbusiness eliminations are provided on page 29.
DISCUSSION OF RESULTS
Discussion of Banking Business Results
The Group's Banking Business comprises Retail Banking operations in Georgia. It principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. The business targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. Corporate Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. Property and Casualty ("P&C") principally provides property and casualty insurance services to corporate clients and insured individuals in Georgia. BNB, comprising JSC Belarusky Narodny Bank principally provides retail and corporate banking services in Belarus. The following discussion refers to the Banking Business only.
Revenue
GEL thousands, unless Change, Change, Change,
otherwise noted 2Q16 2Q15 Y-o-Y 1Q16 Q-o-Q 1H16 1H15 Y-o-Y
Banking interest
income 217,234 215,313 0.9% 226,217 -4.0% 443,451 417,666 6.2%
Banking interest
expense (87,712) (88,910) -1.3% (95,998) -8.6% (183,709) (168,205) 9.2%
Net banking interest
income 129,522 126,403 2.5% 130,219 -0.5% 259,742 249,461 4.1%
Fee and commission
income 40,675 40,160 1.3% 38,484 5.7% 79,159 77,503 2.1%
Fee and commission
expense (11,036) (9,988) 10.5% (10,469) 5.4% (21,505) (19,241) 11.8%
Net fee and commission
income 29,639 30,172 -1.8% 28,015 5.8% 57,654 58,262 -1.0%
Net banking foreign
currency gain 15,506 19,765 -21.5% 17,390 -10.8% 32,896 38,727 -15.1%
Net other banking
income 2,824 2,810 0.5% 3,168 -10.9% 5,992 4,906 22.1%
Net insurance premiums
earned 10,235 9,777 4.7% 9,550 7.2% 19,785 19,019 4.0%
Net insurance claims
incurred (3,739) (6,304) -40.7% (4,207) -11.1% (7,947) (10,242) -22.4%
Gross insurance profit 6,496 3,473 87.0% 5,343 21.6% 11,838 8,777 34.9%
Revenue 183,987 182,623 0.7% 184,135 -0.1% 368,122 360,133 2.2%
Net Interest Margin 7.5% 7.6% 7.5% 7.5% 7.8%
Average interest earning
assets 6,916,969 6,638,429 4.2% 7,013,413 -1.4% 6,968,714 6,482,145 7.5%
Average interest bearing
liabilities 7,344,385 7,128,014 3.0% 7,681,953 -4.4% 7,507,878 6,767,958 10.9%
Average net loans,
currency blended 5,297,175 5,225,895 1.4% 5,458,637 -3.0% 5,375,526 5,120,872 5.0%
Average net loans,
GEL 1,495,886 1,564,867 -4.4% 1,489,518 0.4% 1,493,367 1,551,550 -3.7%
Average net loans,
FC 3,801,289 3,661,028 3.8% 3,969,119 -4.2% 3,882,159 3,569,322 8.8%
Average client deposits,
currency blended 4,818,865 4,313,076 11.7% 5,018,669 -4.0% 4,912,529 4,165,386 17.9%
Average client deposits,
GEL 1,262,461 1,216,653 3.8% 1,195,744 5.6% 1,245,576 1,213,267 2.7%
Average client deposits,
FC 3,556,404 3,096,423 14.9% 3,822,925 -7.0% 3,666,953 2,952,119 24.2%
Average liquid assets,
currency blended 2,816,533 2,588,219 8.8% 2,950,858 -4.6% 2,884,744 2,349,573 22.8%
Average liquid assets,
GEL 1,127,479 1,173,577 -3.9% 1,127,353 0.0% 1,138,243 1,122,092 1.4%
Average liquid assets,
FC 1,689,054 1,414,642 19.4% 1,823,505 -7.4% 1,746,501 1,227,481 42.3%
Excess liquidity (NBG) 625,340 219,562 184.8% 836,569 -25.2% 625,340 219,562 184.8%
Liquid assets yield,
currency blended 3.3% 3.1% 3.1% 3.2% 3.2%
Liquid assets yield,
GEL 7.5% 6.1% 7.7% 7.6% 5.9%
Liquid assets yield,
FC 0.5% 0.5% 0.3% 0.4% 0.6%
Loan yield, total 14.1% 14.6% 14.4% 14.3% 14.6%
Loan yield, GEL 23.8% 21.6% 22.5% 23.1% 21.5%
Loan yield, FC 10.3% 11.4% 11.0% 10.6% 11.5%
Cost of funding, total 4.8% 5.0% 5.0% 4.9% 5.0%
Cost of funding,
GEL 7.0% 4.8% 6.8% 6.8% 4.8%
Cost of funding,
FC 4.2% 5.0% 4.4% 4.3% 5.0%
-- Our Banking Business recorded quarterly revenue of GEL 184.0mln (up 0.7% y-o-y and down 0.1% q-o-q), ending the half year 2016 with revenue of GEL 368.1mln (up 2.2% y-o-y). Quarterly revenue was primarily driven by an increase in net banking interest income which was offset by a decline in net banking foreign currency gain.
-- Our net banking interest income increased to GEL 129.5mln in 2Q16, up 2.5% y-o-y and down 0.5% q-o-q, with the half year result reaching GEL 259.7mln, up 4.1% y-o-y. The quarterly y-o-y performance was a result of two-fold effect from the increase in banking interest income and the decrease in banking interest expense
- Our Retail Banking operations, which grew the loan book by 18.1% y-o-y, were the primary driver of our results in banking interest income. This was partially offset by a y-o-y decline in our Corporate Investment Banking loan book (down 5.6% y-o-y) and a decline in both retail and corporate Loan Yields
- The decrease in our banking interest expense was mainly driven by a lower Cost of Funding for this quarter, offset by an increase in interest bearing liabilities and particularly higher excess liquidity. The Cost of Funding decreased 20bps y-o-y as a result of 40bps and 20bps y-o-y decreases in the Cost of Client Deposits and Cost of Debt Securities Issued, respectively. The lower Cost of Funding effect on our interest expense was partially offset by 3.0% y-o-y growth in our average interest bearing liabilities, mostly as a result of the increased average client deposits and notes (up 11.7% y-o-y), driven primarily by the growth in foreign currency deposits (up 14.9% y-o-y)
-- Net fee and commission income was down 1.8% y-o-y in 2Q16, to GEL 29.6mln. The decrease was primarily driven by GEL 2.3mln or 44.2% decrease in net commission income from guarantees as a result of the de-concentration efforts of our CIB operations, which decreased large guarantee exposures in the Bank. Excluding the impact of guarantees, net fee and commission income was GEL 26.8mln in 2Q16, up 6.9% y-o-y
-- Net banking foreign currency gain decreased for both reporting periods, reaching GEL 15.5mln in 2Q16 (down 21.5% y-o-y) and GEL 32.9mln in 1H16 (down 15.1% y-o-y). We held our dividend payable in British Pounds and were affected by the devaluation of the Pound. Excluding the effect of this holding, net banking foreign currency gain would have been flat y-o-y
-- Our P&C insurance business, Aldagi, posted strong results. It recorded a gross insurance profit of GEL 6.5mln in 2Q16 (up 87.0% y-o-y and up 21.6% q-o-q). The half year result was GEL 11.8mln (up 34.9% y-o-y). This increase was mainly driven by 4.7% y-o-y growth in net insurance premiums earned, while net insurance claims incurred decreased by 40.7% y-o-y in 2Q16. Aldagi experienced high claims during the same period last year, because of last year's increase in flood related claims in Tbilisi. For P&C insurance segment financials please see page 32
-- Our NIM stood comfortably within our target range of 7.25% - 7.75%. Very high excess liquidity levels (GEL 625.3mln at the end of the second quarter 2016) affected the NIM. During 2015, we purposefully built up excess liquidity for the planned liability management exercise of the Bank's US$ 400.0mln Eurobonds maturing in 2017. We successfully completed the exercise in July 2016 and consequently we intend to reduce the excess liquidity levels at the Bank. Pro-forma NIM(1) , adjusted for excess liquidity levels, was 8.2% in 2Q16. We expect NIM to improve as a result of our initiatives:
- Completion of the liability management exercise at the Bank in July 2016
- We have focused on sourcing local currency funding and since the start of 2016, we successfully closed two Lari denominated funding transactions with aggregate value of GEL 280mln and maturity of five years. These facilities enable the Bank to provide long term loans in local currency, meeting existing strong demand for such funding
- We prudently manage our margin, despite pressure on loan yields. We reduced our cost of funding from both institutional sources as well as client deposits (the interest rates on our one-year dollar deposits stand at 3.5%, down from 5% a year ago)
[1] ProForma NIM is a hypothetical Net Interest Margin that would have been achieved, had liquidity amounts of GEL and FC balances in excess of 35% minimum been used to repay respective funding sources at respective costs and giving up respective liquid asset yields in the process
Operating income before non-recurring items; cost of credit risk; profit for the period
Change Change Change
GEL thousands, unless
otherwise noted 2Q16 2Q15 y-o-y 1Q16 q-o-q 1H16 1H15 y-o-y
Salaries and other employee
benefits (40,847) (38,066) 7.3% (39,806) 2.6% (80,653) (76,672) 5.2%
Administrative expenses (19,051) (17,899) 6.4% (20,058) -5.0% (39,109) (35,404) 10.5%
Banking depreciation
and amortisation (9,337) (8,338) 12.0% (9,138) 2.2% (18,475) (16,711) 10.6%
Other operating expenses (684) (941) -27.3% (861) -20.6% (1,545) (1,733) -10.8%
Operating expenses (69,919) (65,244) 7.2% (69,863) 0.1% (139,782) (130,520) 7.1%
Operating income before
cost of credit risk 114,068 117,379 -2.8% 114,272 -0.2% 228,340 229,613 -0.6%
Impairment charge on
loans to customers (26,819) (35,105) -23.6% (32,218) -16.8% (59,036) (74,033) -20.3%
Impairment charge on
finance lease receivables (130) (1,779) -92.7% (513) -74.7% (643) (1,899) -66.1%
Impairment charge on
other assets and provisions (1,202) (3,880) -69.0% (2,281) -47.3% (3,483) (5,604) -37.8%
Cost of credit risk (28,151) (40,764) -30.9% (35,012) -19.6% (63,162) (81,536) -22.5%
Net operating income
before non-recurring
items 85,917 76,615 12.1% 79,260 8.4% 165,178 148,077 11.5%
Net non-recurring items (46,350) (3,409) NMF (1,419) NMF (47,770) (5,575) NMF
Profit before income
tax 39,567 73,206 -46.0% 77,841 -49.2% 117,408 142,502 -17.6%
Income tax expense 35,139 (11,753) NMF (8,178) NMF 26,961 (22,238) NMF
Profit 74,706 61,453 21.6% 69,663 7.2% 144,369 120,264 20.0%
-- Operating expenses increased to GEL 69.9mln in 2Q16 (up 7.2% y-o-y and up 0.1% q-o-q) and to GEL 139.8mln in 1H16 (up 7.1% y-o-y). As a result, operating leverage was negative at 6.4% y-o-y in 2Q16 and 4.9% y-o-y in 1H16, while Cost/Income ratio stood at 38.0% in 2Q16 compared to 35.7% in 2Q15 and 38.0% in 1H16 compared to 36.2% in 1H15. Both 2Q16 and half-year 2016 operating expenses were driven by:
- Salaries and employee benefits that increased by GEL 2.8mln or 7.3% y-o-y and GEL 1.0mln or 2.6% q-o-q, while for the half year 2016 salaries and employee benefits increased by GEL 4.0mln or 5.2% y-o-y. The increase mainly reflects the organic growth of our Banking Business
- Quarterly administrative expenses increased to GEL 19.1mln, up GEL 1.2mln or 6.4% y-o-y, mainly reflecting larger scale marketing expenses on Solo, compared with the same period last year. On q-o-q basis, administrative expenses have decreased by GEL 1.0mln or 5.0%. Depreciation and amortisation expenses have also increased to GEL 9.3mln, up 12.0% y-o-y, mainly reflecting investments in Solo Lounges
-- For 2Q16, the Banking Business Cost of Risk ratio stood at 2.0%, down 70bps y-o-y and down 30bps q-o-q. The cost of credit risk was GEL 28.2mln, down 30.9% y-o-y and down 19.6% q-o-q. The significant improvement compared to last year is driven by an improved performance in both, Corporate Investment Banking and Retail Banking Cost of Risk on y-o-y as well as q-o-q basis. For the half year 2016, the Banking Business Cost of Risk ratio stood at 2.1% (2.9% in 1H15) and the cost of credit risk was GEL 63.2mln (GEL 81.5mln in 1H15)
-- NPLs to gross loans were 4.4% as of 30 June 2016, up 30 bps y-o-y and down 10 bps q-o-q. Our retail banking NPLs to gross loans improved to 1.5%, compared to 1.6% as of 31 March 2016 and 1.8% a year ago. CIB NPLs to gross loans were 7.6%, compared to 7.4% as of 31 March 2016 and 6.4% a year ago. In CIB, the increasing trend of NPLs stabilised and NPLs were flat q-o-q, while the loan book decreased, thus leading to the q-o-q increase in NPLs to gross loans
-- NPLs were GEL 251.4mln, up 14.7% y-o-y and down 0.2% q-o-q. The y-o-y increase reflects the growth in net loan book together with the local currency volatility against the US Dollar which affected some of our clients
-- The NPL coverage ratio stood at 85.8% as of 30 June 2016, an improvement compared to 82.2% as of 30 June 2015 and relatively stable compared to 86.0% as of 31 March 2016. Our NPL coverage ratio adjusted for the discounted value of collateral also improved to 129.7% as of 30 June 2016, compared to 115.1% as of 30 June 2015 and 122.6% as of 31 March 2016
-- Our 15 days past due rate for retail loans stood at 1.2% as of 30 June 2016 compared to 1.4% as of 30 June 2015 and 1.1% as of 31 March 2016. 15 days past due rate for our mortgage loans stood at 0.6% as of 30 June 2016 compared to 0.8% as of 30 June 2015 and 0.6% as of 31 March 2016
-- As a result of the foregoing, the Banking Business reported profit of GEL 74.7mln in 2Q16 (up 21.6% y-o-y and up 7.2% q-o-q) and GEL 144.4mln in 1H16 (up 20.0% y-o-y). This resulted in outstanding ROAE of 22.5% in 2Q16 (up 320bps y-o-y and up 130bps q-o-q) and of 21.7% in 1H16 (up 240bps y-o-y)
-- The Banking Business profit was supported by its banking subsidiary in Belarus - BNB, which contributed GEL 3.7mln profit(1) in 2Q16 (up 120.3% y-o-y) and GEL 7.9mln in 1H16 (up 58.5% y-o-y); The BNB loan book reached GEL 310.5mln, up 1.5% y-o-y, mostly consisting of an increase in SME loans. BNB client deposits were to GEL 202.4mln, down 16.5% y-o-y. BNB is well capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. For 2Q16, Total CAR was 16.4%, above 10% minimum requirement by the National Bank of the Republic of Belarus ("NBRB") and Tier I CAR was 10.4%, above the 6% minimum requirement by NBRB. Return on Average Equity ("ROAE") for BNB was 19.6% (22.9% in 1Q16), ending the half year with ROAE of 21.4% compared to 13.5% for the same period last year. For BNB standalone financial highlights, please see page 32
[1] BNB profit is adjusted for the deferred tax adjustment attributable to BNB. Before this adjustment, BNB profit was GEL 0.2mln and GEL 4.4mln in 2Q16 and 1H16, respectively.
Banking Business Balance Sheet highlights
Change Change
GEL thousands, unless 31-Mar-16 q-o-q
otherwise noted 30-Jun-16 30-Jun-16 y-o-y
Liquid assets 2,887,978 2,726,749 5.9% 2,876,357 0.4%
Liquid assets, GEL 1,182,105 1,257,220 -6.0% 1,050,741 12.5%
Liquid assets, FC 1,705,873 1,469,529 16.1% 1,825,616 -6.6%
Net loans 5,507,414 5,142,221 7.1% 5,394,565 2.1%
Net loans, GEL 1,523,671 1,546,104 -1.5% 1,488,050 2.4%
Net loans, FC 3,983,743 3,596,117 10.8% 3,906,515 2.0%
Client deposits and
notes 4,791,979 4,212,822 13.7% 4,962,432 -3.4%
Amounts due to credit
institutions, of which: 1,766,999 2,045,093 -13.6% 1,630,299 8.4%
Borrowings from DFIs 957,227 807,809 18.5% 926,210 3.3%
Short-term loans from
central banks 278,500 674,701 -58.7% 368,000 -24.3%
Loans and deposits
from commercial banks 531,272 562,583 -5.6% 336,089 58.1%
Debt securities issued 990,370 990,257 0.0% 957,474 3.4%
Liquidity and CAR Ratios
Net Loans / Customer
Funds 114.9% 122.1% 108.7%
Net Loans / Customer
Funds + DFIs 95.8% 102.4% 91.6%
Liquid assets as percent
of total assets 31.5% 31.3% 31.9%
Liquid assets as percent
of total liabilities 37.2% 36.5% 37.1%
NBG liquidity ratio 43.5% 35.1% 47.3%
Excess liquidity (NBG) 625,340 219,562 184.8% 836,569 -25.2%
Tier I Capital Adequacy
Ratio (NBG Basel 2/3) 10.2% 10.4% 10.1%
Total Capital Adequacy
Ratio (NBG Basel 2/3) 15.5% 15.9% 15.8%
Our Banking Business balance sheet remained very liquid (NBG Liquidity ratio of 43.5%) and well-capitalised (Tier I Capital Adequacy Ratio, NBG Basel 2/3 of 10.2%) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 61.6%)
-- The NBG liquidity ratio stood at 43.5% as of 30 June 2016 compared to 47.3% as of 31 March 2016, against a regulatory minimum requirement of 30.0%
-- Liquid assets increased to GEL 2,888.0mln, up 5.9% y-o-y
-- Additionally, liquid assets as a percentage of total assets increased to 31.5%, up from 31.3% a year ago and liquid assets as a percentage of total liabilities also increased to 37.2%, up from 36.5% a year ago
-- Our share of amounts due to credit institutions to total liabilities decreased y-o-y from 27.4% to 22.7%, with the share of client deposits and notes to total liabilities increasing y-o-y from 56.4% to 61.6%
-- Net Loans to Customer Funds and DFIs ratio, a ratio closely observed by management, stood at 95.8%, up from 91.6% as of 31 March 2016 and down from 102.4% as of 30 June 2015
-- Effective 17 May, 2016, the National Bank of Georgia has changed its minimum reserve requirements, with the goal to incentivise local currency lending. The minimum reserve requirement for local currency has reduced from 10% to 7% and the minimum reserve requirement for foreign currency has increased from 15% to 20%. The impact of this change is not expected to have a material impact on the Group's earnings. Our estimate is that there will be less than 10bps reduction in the banking net interest margin as a result of this change
Discussion of Segment Results
The segment results discussion is presented for Retail Banking (RB), Corporate Investment Banking (CIB), Healthcare Business (GHG) and Real Estate Business (m(2) Real Estate)
Banking Business Segment Result Discussion
Retail Banking (RB)
Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities, encompassing the emerging mass retail segment (through our Express brand), retail mass market segment and SME and micro businesses (through our Bank of Georgia brand), and the mass affluent segment (through our Solo brand).
GEL thousands, unless otherwise Change Change Change noted 2Q16 2Q15 y-o-y 1Q16 q-o-q 1H16 1H15 y-o-y Income statement highlights Net banking interest income 84,574 79,269 6.7% 82,832 2.1% 167,406 154,420 8.4% Net fee and commission income 21,742 18,406 18.1% 19,239 13.0% 40,981 36,972 10.8% Net banking foreign currency gain 5,473 4,305 27.1% 3,590 52.5% 9,063 8,210 10.4% Net other banking income 1,035 1,384 -25.2% 711 45.6% 1,746 2,347 -25.6% Revenue 112,824 103,364 9.2% 106,372 6.1% 219,196 201,949 8.5% Salaries and other employee benefits (24,325) (22,416) 8.5% (23,607) 3.0% (47,932) (46,012) 4.2% Administrative expenses (12,756) (11,632) 9.7% (14,521) -12.2% (27,277) (23,872) 14.3% Banking depreciation and amortisation (7,597) (6,818) 11.4% (7,383) 2.9% (14,981) (13,649) 9.8% Other operating expenses (393) (496) -20.8% (496) -20.8% (888) (959) -7.4% Operating expenses (45,071) (41,362) 9.0% (46,007) -2.0% (91,078) (84,492) 7.8% Operating income before cost of credit risk 67,753 62,002 9.3% 60,365 12.2% 128,118 117,457 9.1% Cost of credit risk (17,543) (20,662) -15.1% (18,184) -3.5% (35,727) (37,322) -4.3% Net non-recurring items (31,819) (2,875) NMF (561) NMF (32,379) (3,323) NMF Profit before income tax 18,391 38,465 -52.2% 41,620 -55.8% 60,012 76,812 -21.9% Income tax expense 28,702 (5,900) NMF (3,844) NMF 24,858 (11,639) NMF Profit 47,093 32,565 44.6% 37,776 24.7% 84,870 65,173 30.2% Balance sheet highlights Net loans, standalone, Currency Blended 3,098,341 2,623,615 18.1% 2,901,189 6.8% 3,098,341 2,623,615 18.1% Net loans, standalone, GEL 1,303,077 1,285,013 1.4% 1,266,966 2.9% 1,303,077 1,285,013 1.4% Net loans, standalone, FC 1,795,264 1,338,602 34.1% 1,634,223 9.9% 1,795,264 1,338,602 34.1% Client deposits, standalone, Currency Blended 1,976,985 1,736,508 13.8% 1,902,042 3.9% 1,976,985 1,736,508 13.8% Client deposits, standalone, GEL 521,986 491,104 6.3% 447,620 16.6% 521,986 491,104 6.3% Client deposits, standalone, FC 1,454,999 1,245,404 16.8% 1,454,422 0.0% 1,454,999 1,245,404 16.8% of which: Time deposits, standalone, Currency Blended 1,216,762 1,067,316 14.0% 1,205,935 0.9% 1,216,762 1,067,316 14.0% Time deposits, standalone, GEL 211,463 209,735 0.8% 196,668 7.5% 211,463 209,735 0.8% Time deposits, standalone, FC 1,005,299 857,581 17.2% 1,009,267 -0.4% 1,005,299 857,581 17.2% Current accounts and demand deposits, standalone, Currency Blended 760,223 669,192 13.6% 696,107 9.2% 760,223 669,192 13.6% Current accounts and demand deposits, standalone, GEL 310,523 281,369 10.4% 250,952 23.7% 310,523 281,369 10.4% Current accounts and demand deposits, standalone, FC 449,700 387,823 16.0% 445,155 1.0% 449,700 387,823 16.0% Key ratios ROAE Retail Banking 29.2% 21.2% 24.3% 26.6% 21.6% Net interest margin, currency blended 9.1% 9.5% 9.2% 9.2% 9.6% Cost of risk 2.3% 2.8% 2.5% 2.4% 2.6% Cost of funds, currency blended 6.1% 6.1% 6.5% 6.3% 6.0% Loan yield, currency blended 16.9% 17.3% 17.4% 17.2% 17.3% Loan yield, GEL 25.5% 23.6% 25.4% 25.4% 23.3% Loan yield, FC 10.2% 11.2% 10.9% 10.5% 10.0% Cost of deposits, currency blended 3.4% 3.9% 3.5% 3.5% 4.2% Cost of deposits, GEL 4.9% 4.6% 4.8% 4.8% 5.1% Cost of deposits, FC 2.9% 3.6% 3.2% 3.1% 3.7% Cost of time deposits, currency blended 5.0% 5.7% 5.1% 5.1% 5.8% Cost of time deposits, GEL 9.8% 7.9% 9.7% 9.8% 8.7% Cost of time deposits, FC 4.0% 5.0% 4.3% 4.2% 4.9% Current accounts and demand deposits, currency blended 0.9% 1.2% 0.9% 0.9% 1.4% Current accounts and demand deposits, GEL 1.3% 1.4% 1.1% 1.2% 2.0% Current accounts and demand deposits, FC 0.6% 1.1% 0.7% 0.7% 1.0% Cost / income ratio 39.9% 40.0% 43.3% 41.6% 41.8%
Performance highlights
-- Retail Banking revenue increased to GEL 112.8mln in 2Q16, up 9.2% y-o-y, ending the half year 2016 with revenue of GEL 219.2mln, up 8.5% y-o-y. For both reporting periods, Retail Banking achieved strong revenue growth across all major business lines: growth in net banking interest income (up 6.7% y-o-y in 2Q16 and up 8.4% y-o-y in 1H16), growth in net fee and commission income (up 18.1% y-o-y in 2Q16 and up 10.8% y-o-y in 1H16) and growth in net banking foreign currency gain (up 27.1% y-o-y in 2Q16 and up 10.4% y-o-y in 1H16).
-- The Retail Banking net loan book reached a record level of GEL 3,098.3mln, up 18.1% y-o-y. We continue to observe a shift in the currency mix in our Retail Banking loan book, with foreign currency denominated loans increasing to 58% of the total retail banking portfolio, from 51% a year ago. Foreign currency denominated loans grew at 34.1% y-o-y to GEL 1,795.3mln compared to local currency loans that grew slightly at 1.4% y-o-y to GEL 1,303.1mln. The trend was also aligned to the changes in our quarterly loan yields, which stood at 10.2% for foreign currency loans (down 100bps y-o-y) and 25.5% for local currency loans (up 190bps y-o-y)
-- The growth was a result of accelerated loan origination delivered across all Retail Banking segments:
- Consumer loan originations of GEL 244.6mln in 2Q16 and GEL 446.5mln in 1H16 resulted in consumer loans outstanding totaling GEL 709.4mln as of 30 June 2016, up 18.8% y-o-y
- Micro loan originations of GEL 180.4mln in 2Q16 and GEL 329.8mln in 1H16 resulted in micro loans outstanding totaling GEL 603.7mln as of 30 June 2016, up 14.9% y-o-y
- SME loan originations of GEL 128.1mln in 2Q16 and GEL 229.6mln in 1H16 resulted in SME loans outstanding totaling GEL 388.8mln as of 30 June 2016, up 28.8% y-o-y
- Mortgage loans originations of GEL 159.9mln in 2Q16 and GEL 321.7mln in 1H16 resulted in mortgage loans outstanding of GEL 956.5mln as of 30 June 2016, up 30.7% y-o-y
- Originations of loans disbursed at merchant locations of GEL 52.4mln in 2Q16 and GEL 95.6mln in 1H16 resulted in loans disbursed at merchant locations outstanding of GEL 108.3mln as of 30 June 2016, up 3.1% y-o-y
-- Retail Banking client deposits increased to GEL 1,977.0mln, up 13.8% y-o-y, notwithstanding a 50bps decrease in the cost of deposits. The share of foreign currency denominated deposits increased to 73.6% up from 71.7% a year ago with foreign currency denominated deposits growing at 16.8% y-o-y to GEL 1,455.0mln compared to local currency deposits that grew slightly slower at 6.3% y-o-y to GEL 522.0mln. Cost of deposits in 2Q16 decreased 70bps y-o-y for foreign currency denominated deposits while for local currency denominated deposits it grew by 30bps y-o-y
-- Our express banking franchise, the major driver of fee and commission income, posted 10.8% y-o-y growth in new client acquisition, adding 7,709 Express Banking customers during the second quarter of 2016 and 19,768 clients during first six months of 2016. The growth in client base has triggered a significant increase in the volume of banking transactions, up 28.6% y-o-y. The growth of transactions was achieved largely through more cost-effective remote channels. The strong client growth has supported an organic increase in our Retail Banking net fee and commission income to GEL 21.7mln, up 18.1% y-o-y for 2Q16 with the half year result reaching GEL 41.0mln, up 10.8% y-o-y
-- Our Express Banking continues to deliver strong growth as we continue to develop our mass market Retail Banking strategy:
- Express Banking franchise has attracted 445,118 previously unbanked emerging mass market customers since its launch over 3 years ago. Express banking added 7,709 clients compared to the previous quarter and 43,365 clients during the twelve month period
- In order to better serve the different needs of our Express Banking customers, we have expanded our payment services through various distance channels including ATMs, Express Pay Terminals, internet and mobile banking and the provision of simple and clear products and services to our existing customers as well as the emerging bankable population
- 1,431,557 Express Cards have been issued since their launch in September 2012, in essence replacing the pre-paid metro cards which were previously used. Of this, 126,823 Express Cards were issued in 2Q16, up 30.4% y-o-y. As of 30 June 2016, 1,195,380 Express Cards were outstanding, compared to 861,914 cards outstanding as of the same date last year
- We have increased number of Express Pay terminals to 2,681, from 2,284 a year ago. Express Pay terminals are an alternative to tellers, placed at bank branches as well as various other venues (groceries, shopping malls, bus stops, etc.), and are used for bank transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups
- In 2Q16, the utilisation of Express Pay terminals increased significantly, with the number of transactions growing to 31.0mln, up 9.6% y-o-y and volume of transactions reaching GEL 742.2mln, up 48.5% y-o-y. For the half year, number of transactions reached 59.8mln, up 10.4% y-o-y and volume of transactions reached GEL 1,405.0mln, up 53.0% y-o-y
- Increased Point of Sales ("POS") footprint to 7,447 desks and 3,848 contracted merchants as of 30 June 2016, up from 6,539 desks and 3,565 contracted merchants as of 30 June 2015
- The number of POS terminals reached 9,044, up 17.9% from 7,668 a year ago
- The volume of transactions through the Bank's POS terminals grew to GEL 199.0mln in 2Q16, up 12.8% y-o-y. For the half year, volume of transactions reached GEL 375.7mln, up 17.9% y-o-y
- The number of transactions via Internet banking has increased to 1.4mln in 2Q16, up from 1.1mln a year ago, with volume reaching GEL 327.7mln, up 77.6% y-o-y. For the half year, number of transactions reached 2.7mln, up from 2.2mln a year ago, with volume of transaction reaching GEL 544.6mln, up 59.2% y-o-y
- The number of transactions via mobile banking almost doubled to 0.6mln in 2Q16, up from 0.4mln a year ago, with volume more than doubling to GEL 57.5mln, up 134.4% y-o-y. For the half year, number of transactions reached 1.1mln, up from 0.7mln a year ago, with volume reaching GEL 93.4mln, up 96.1% y-o-y
-- Retail Banking NIM was 9.1% in 2Q16, down 40bps y-o-y and down 10bps q-o-q, ending a half year with 9.2%, down 40bps y-o-y
-- Quarterly NIM on a y-o-y basis, was affected by decrease in loan yields, while cost of funds remained flat. Pressure on currency blended loan yields was due to increase in foreign currency lending (The share of foreign currency denominated loans increased to 57.9% of retail loan book, up from 51.0% a year ago), which has lower loan yields compared to local currency loans. On a quarter-over-quarter basis, NIM was nearly flat as a decrease in the cost of funds largely compensated for the lower loan yields
-- Our focus going forward is to increase lending in local currency, which will be supported by the new lines of longer term local currency funding that we sourced since the beginning of 2016
-- For 2Q16, operating expenses increased to GEL 45.1mln, up 9.0% y-o-y, resulting in a Cost to Income ratio of 39.9% and positive y-o-y operating leverage of 0.2%, which reflects:
- Salaries and other employee benefits, which increased GEL 1.9mln or 8.5% y-o-y and GEL 0.7mln or 3.0% q-o-q
- The increase in administrative expenses by GEL 1.1mln or 9.7% y-o-y to GEL 12.8mln but decrease by 12.2% q-o-q from GEL 14.5mln. The y-o-y increase was largely driven by marketing and advertising expenses, which increased by GEL 0.8mln or 65.8%, whilst we had GEL 0.3mln or 279.8% y-o-y increase in personnel training and recruitment
-- For 1H16, operating expenses increased to GEL 91.1mln, up 7.8% y-o-y, resulting in a Cost to Income ratio of 41.6% and positive operating leverage of 0.7 percentage points, which reflects increases in each of Salaries and other employee benefits, Administrative expenses and Depreciation and amortization reflecting the same underlying trends outlined above for 2Q16
-- Since we launched Solo Lifestyle in April 2015, the number of Solo clients has reached 14,896, up 61.1% y-o-y from 9,244 a year ago. We have now launched 10 Solo lounges, of which 7 are located in Tbilisi, the capital city and 3 in major regional cities in Georgia. In 1H16, profit per Solo client was GEL 817, compared to a profit of GEL 46 and GEL 38 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 7.1, compared to 3.6 and 1.5 for Express and mass retail clients. While Solo clients currently represented c.1% of our total retail client base, they contributed 20.1% to our retail loan book, 33.6% to our retail deposits, 9.5% to our net interest income and 10.5% to our net fee and commission income
-- With Solo we target the mass affluent retail segment and aim to build brand loyalty through exclusive experiences offered through the new Solo Lifestyle. In our Solo lounges, Solo clients are offered, at cost, a selection of luxury products and accessories that are currently not available in the country. Solo clients enjoy tailor-made solutions including new financial products such as bonds, which pay a significantly higher yield compared to deposits, and other securities developed by Galt & Taggart, the Group's Investment Banking arm. Through Solo Lifestyle, our Solo clients are given access to exclusive products and the finest lounge-style environment at our Solo lounges and are provided with new lifestyle opportunities, such as exclusive events, offering live concerts with the world known artists and other entertainments exclusively for just solo clientele, as well as handpicked lifestyle products. In 1Q16, two Sting concerts organised by Solo in Tbilisi were the highlight of our exclusive events, where over 4,500 Solo clients had exclusive access to the event, at cost. The event was met with strong demand and was regarded highly by Solo clients - essentially differentiating Solo from other premium banking brands offered on the market and further building brand loyalty
-- The cost of credit risk was GEL 17.5mln (down 15.1% y-o-y) and GEL 35.7mln (down 4.3% y-o-y) for 1Q16 and 1H16, respectively. Cost of Risk ratio was 2.3% in 2Q16 down from 2.8% in 2Q15 and 2.5% in 1Q16, ending the half year with Cost of Risk of 2.4%, down from 2.6% a year ago
-- As a result, Retail Banking profit reached GEL 47.1mln (up 44.6% y-o-y) and GEL 84.9mln (up 30.2% y-o-y) for 2Q16 and 1H16, respectively. Retail Banking continued to deliver an outstanding ROAE of 29.2% in 2Q16 compared to 21.2% in 2Q15 and 24.3% in 1Q16, whilst ROAE for first half of 2016 was 26.6% compared to 21.6% a year ago
-- The number of Retail Banking clients totalled 2.04mln, up 5.5% y-o-y
-- The number of cards totalled 1,946,828, down 0.9% y-o-y
Corporate Investment Banking (CIB)
CIB comprises 1) loans and other credit facilities to the country's large corporate clients as well as other legal entities, excluding SME and micro businesses. The services include fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits for corporate and institutional customers. The Corporate Banking Business also includes finance lease facilities provided by the Bank's leasing operations (the Georgian Leasing Company). 2). Wealth Management and the brokerage arm of the Bank, Galt & Taggart. Bank of Georgia Wealth Management provides private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul and Tel Aviv. Galt & Taggart brings under one brand corporate advisory, private equity and brokerage services. In its brokerage business, Galt & Taggart serves regional and international markets, including hard-to-reach frontier economies.
GEL thousands, unless
otherwise Change Change Change
noted 2Q16 2Q15 y-o-y 1Q16 q-o-q 1H16 1H15 y-o-y
---------- ---------- ------- ---------- ------- ---------- ---------- -------
Income statement highlights
Net banking interest income 35,233 39,266 -10.3% 38,250 -7.9% 73,483 78,858 -6.8%
Net fee and commission
income 6,129 9,150 -33.0% 7,020 -12.7% 13,150 16,492 -20.3%
Net banking foreign
currency
gain 8,921 10,104 -11.7% 11,368 -21.5% 20,289 19,606 3.5%
Net other banking income 1,822 1,827 -0.3% 2,587 -29.6% 4,408 3,335 32.2%
Revenue 52,105 60,347 -13.7% 59,225 -12.0% 111,330 118,291 -5.9%
Salaries and other employee
benefits (11,357) (11,148) 1.9% (11,155) 1.8% (22,512) (21,209) 6.1%
Administrative expenses (3,692) (4,357) -15.3% (3,355) 10.0% (7,047) (7,243) -2.7%
Banking depreciation and
amortisation (1,304) (1,069) 22.0% (1,272) 2.5% (2,576) (2,176) 18.4%
Other operating expenses (226) (228) -0.9% (231) -2.2% (457) (474) -3.6%
Operating expenses (16,579) (16,802) -1.3% (16,013) 3.5% (32,592) (31,102) 4.8%
Operating income before
cost
of credit risk 35,526 43,545 -18.4% 43,212 -17.8% 78,738 87,189 -9.7%
Cost of credit risk (9,347) (14,247) -34.4% (14,138) -33.9% (23,486) (33,618) -30.1%
Net non-recurring items (14,538) (216) NMF (856) NMF (15,393) (837) NMF
Profit before income tax 11,641 29,082 -60.0% 28,218 -58.7% 39,859 52,734 -24.4%
Income tax expense 12,809 (4,485) NMF (2,687) NMF 10,121 (8,678) NMF
Profit 24,450 24,597 -0.6% 25,531 -4.2% 49,980 44,056 13.4%
Balance sheet highlights
Letters of credit and
guarantees,
standalone(1) 560,029 542,463 3.2% 541,567 3.4% 560,029 542,463 3.2%
Net loans, standalone,
currency
blended 2,065,566 2,188,331 -5.6% 2,144,299 -3.7% 2,065,566 2,188,331 -5.6%
Net loans, standalone,
GEL 219,465 255,241 -14.0% 220,295 -0.4% 219,465 255,241 -14.0%
Net loans, standalone, FC 1,846,101 1,933,090 -4.5% 1,924,004 -4.0% 1,846,101 1,933,090 -4.5%
Client deposits, standalone,
currency blended 2,602,018 2,276,702 14.3% 2,868,846 -9.3% 2,602,018 2,276,702 14.3%
Client deposits,
standalone,
GEL 754,096 721,966 4.5% 797,875 -5.5% 754,096 721,966 4.5%
Client deposits,
standalone,
FC 1,847,922 1,554,736 18.9% 2,070,971 -10.8% 1,847,922 1,554,736 18.9%
of which:
Time deposits, standalone,
currency blended 1,041,041 1,144,384 -9.0% 1,200,565 -13.3% 1,041,041 1,144,384 -9.0%
Time deposits,
standalone,
GEL 161,612 321,937 -49.8% 165,311 -2.2% 161,612 321,937 -49.8%
Time deposits,
standalone,
FC 879,429 822,447 6.9% 1,035,254 -15.1% 879,429 822,447 6.9%
Current accounts and demand
deposits, standalone,
currency
blended 1,560,977 1,132,318 37.9% 1,668,281 -6.4% 1,560,977 1,132,318 37.9%
Current accounts and
demand
deposits, standalone,
GEL 592,484 400,029 48.1% 632,564 -6.3% 592,484 400,029 48.1%
Current accounts and
demand
deposits, standalone, FC 968,493 732,289 32.3% 1,035,717 -6.5% 968,493 732,289 32.3%
Assets under management 1,301,353 1,231,406 5.7% 1,343,821 -3.2% 1,301,353 1,231,406 5.7%
Ratios
ROAE, Corporate Investment
Banking 17.2% 18.4% 17.6% 17.4% 16.7%
Net interest margin,
currency
blended 3.7% 3.9% 3.7% 3.7% 4.1%
Cost of risk 1.5% 1.8% 2.1% 1.8% 2.6%
Cost of funds, currency
blended 4.6% 4.6% 4.4% 4.5% 4.6%
Loan yield, currency blended 10.0% 12.1% 10.3% 10.2% 12.0%
Loan yield, GEL 14.3% 12.9% 13.1% 13.7% 12.2%
Loan yield, FC 9.6% 10.4% 10.2% 9.9% 10.6%
Cost of deposits, currency
blended 4.2% 3.9% 4.5% 4.4% 3.9%
Cost of deposits, GEL 7.1% 4.4% 8.0% 7.5% 4.1%
Cost of deposits, FC 3.0% 3.7% 3.1% 3.1% 3.8%
Cost of time deposits,
currency
blended 5.9% 6.2% 6.0% 6.0% 6.3%
Cost of time deposits,
GEL 9.8% 8.0% 9.6% 9.7% 7.3%
Cost of time deposits, FC 5.2% 5.7% 5.3% 5.3% 6.0%
Current accounts and demand
deposits, currency blended 3.1% 1.5% 3.4% 3.2% 1.4%
Current accounts and
demand
deposits, GEL 6.4% 2.4% 7.5% 6.9% 2.0%
Current accounts and
demand
deposits, FC 0.8% 1.1% 0.8% 0.8% 1.1%
Cost / income ratio 31.8% 27.8% 27.0% 29.3% 26.3%
Concentration of top ten
clients 11.3% 12.1% 12.7% 13.3% 13.4%
(1) Off-balance sheet item
Performance highlights
-- A key focus of Corporate Investment Banking business is to increase ROAE and we plan to do this by de-concentrating our loan book and decreasing the cost of risk, while focusing on further building our fee business through the investment management and the trade finance franchise, which we believe is the strongest in the region
- CIB is successfully following a de-concentration strategy, reducing the concentration of our top 10 Corporate Investment Banking clients to 11.3% by the end of 2Q16, down from 13.3% a year ago
- Cost of credit risk decreased to GEL 9.3mln (down 34.4% y-o-y) and GEL 23.5mln (down 30.1% y-o-y) for 2Q16 and 1H16, respectively
- Cost of Risk also decreased to 1.5%, down 30 bps y-o-y and down 60 bps q-o-q, ending the half year 2016 with Cost of Risk of 1.8%, down 80 bps y-o-y
- CIB net fee and commission income represented GEL 13.2mln or 11.8% of total CIB revenue in 1H16 compared to GEL 16.5mln or 13.9% a year ago. The decline was mainly driven by the decrease in commission fee income from guarantees (income from guarantees was GEL 6.4mln in 1H16, down by GEL 2.2mln or 25.6% y-o-y), which is a result of our de-concentration efforts as we reduced our large guarantee exposures (as mentioned in Banking business discussion above). Excluding guarantees, our CIB fee and commission income was GEL 6.8mln in 1H16 (down 14.5% y-o-y) and GEL 3.3mln in 2Q16 (down 5.9% q-o-q and down 19.0% y-o-y)
- As a result of the foregoing, CIB ROAE has improved, reaching 17.4% for the half year 2016, a significant increase compared to 16.7% a year ago
-- Corporate Investment Banking revenue was GEL 52.1mln in 2Q16, down 13.7% y-o-y and down 12.0% q-o-q, resulting in a half year 2016 revenue of GEL 111.3mln, down 5.9% y-o-y. The decline in revenue was affected by all major revenue lines
-- The decline in net banking interest income was due to the reduction in the CIB net loan book to GEL 2,065.6mln, down 5.6% y-o-y and down 3.7% q-o-q, coupled with the decline in CIB Loan Yields driven primarily by the competition
-- The strong increase in CIB client deposit and notes to GEL 2,602.0, up 14.3% y-o-y, coupled with the increase in cost of deposits further affected CIB net banking interest income. Both local and foreign currency denominated deposits increased y-o-y. Growth in foreign currency denominated deposits was notably stronger, at 18.9% y-o-y in spite of a decrease in deposit rates to 3.5% during first half of the 2016 from 5% before. Local currency denominated deposits increased 4.5% y-o-y on the back of an increase in local currency deposit rates to 9.0%. The increase was done intentionally to source local currency funding from our CIB clients to support local currency lending. However, the q-o-q trend was reversed in client deposits as well as the cost of deposits, reflecting the alternative source of local currency funding through the Development Financial Institutions. Local currency deposit rates are expected to decline in the coming months along with the reduction in the NBG policy rate
-- Our current account balances have increased significantly y-o-y during 2Q16 and 1H16, reflecting our focused efforts on maintaining high liquidity levels, particularly in local currency, increasing the share of current accounts and demand deposits in total CIB client deposits to 60.0% in 2Q16, up from 49.7% a year ago. This is also reflected in an increased cost of current accounts and demand deposits to 3.1% in 2Q16, up from 1.5% a year ago. The increase was predominantly driven by the increase in cost of local currency denominated current accounts and demand deposits to 6.4% in 2Q16, up from 2.4% a year ago, while cost on foreign currency denominated current accounts and demand deposits decreased somewhat by 30bps y-o-y. As a result, at the end of first half of 2016, total current accounts and demand deposits reached GEL 1,561.0mln, up 37.9% y-o-y, of which local currency denominated current accounts and demand deposits were GEL 592.5mln, up 48.1% y-o-y and foreign currency denominated, mostly US$, current accounts and demand deposits were GEL 968.5mln, up 32.3% y-o-y
-- Corporate Investment banking recorded a NIM of 3.7% in 2Q16, down 20bps y-o-y and flat q-o-q, ending a half year with NIM of 3.7%, down 40 bps y-o-y. The NIM reflected: 1) decreasing Loan Yield, which was down 210bps y-o-y to 10.0% in 2Q16 and down 180 bps y-o-y to 10.2% in 1H16 2) Cost of Funding, which was flat y-o-y at 4.6% in 2Q16, and slightly lower at 4.5% in 1H16, down 10bps y-o-y 3) the higher local currency policy rate of the National Bank of Georgia that increased gradually to 8.0% at the year end 2015, up from 4.0% at the end of 2014, and which in August 2016 stands at 6.75%. On q-o-q basis, NIM was flat, on the back of the broadly stable Loan Yield (10.0% in 2Q16 compared to 10.3% in 1Q16) and a slightly higher cost of funding, which stood at 4.6% in 2Q16 compared to 4.4% in 1Q16
-- Our net banking foreign currency gain was affected by the abovementioned holdings in British Pound for dividends payable, which were settled in July 2016. Underlying performance of foreign currency operations was strong, with volume of transactions at GEL 3.1bln in 1H16, down 3.8% y-o-y. As a result, we recorded a net banking foreign currency gain of GEL 8.9mln in 2Q16, down 11.7% y-o-y and GEL 20.3mln for 1H16, up 3.5% y-o-y
-- Net other banking income was GEL 1.8mln, flat y-o-y in 2Q15, with the half yearly result of GEL 4.4mln, up 32.2% y-o-y from GEL 3.3mln a year ago
-- In 2Q16, Corporate Investment Banking operating expenses were GEL 16.6mln, down 1.3% y-o-y, but not enough to prevent an increase in the Cost to Income ratio of 31.8% and negative y-o-y operating leverage of 12.4 percentage points. For the first half, the Cost to Income ratio was 29.3% and negative operating leverage was 10.7 percentage points. Administrative expenses declined by 15.3% y-o-y in 2Q16 and by 2.7% y-o-y in 1H16. Salaries and other employee benefits in 2Q16 are up 1.9% y-o-y and in 1H16 are up 6.1% y-o-y
-- As a result, Corporate Investment Banking profit reached GEL 24.5mln in 2Q16, down 0.6% y-o-y from GEL 24.6mln in 2Q15 with half year result of GEL 50.0mln, up 13.4% y-o-y from GEL 44.1mln a year ago
Performance highlights of wealth management operations
-- The AUM of the Investment Management segment increased to GEL 1,301.4mln, up 5.7% y-o-y. This includes Wealth Management clients' deposits and assets held at Bank of Georgia Custody, Galt & Taggart brokerage client assets and Aldagi pension scheme assets
-- Wealth Management deposits increased to GEL 964.6mln, up 6.6% y-o-y, growing at a compound annual growth rate (CAGR) of 25.9% over the last five year period. The growth was achieved despite a 90 bps decline in the Cost of Client deposits to 4.4% in 2Q16 and impact of Wealth Management clients switching from deposits to bonds, as a number of bond issuances, yielding higher rates than deposits by Galt & Taggart were offered to Wealth Management clients
-- We served 1,377 wealth management clients from 68 countries as of 30 June 2016
-- Galt & Taggart is successfully developing local capital markets:
- Galt & Taggart served as the sole book runner and the placement agent for the US$5mln bond offering, for Nikora Trade LLC, a leading Georgian FMCG (Fast Moving Consumer Goods) company, which successfully completed its first ever bond offering on March 18, 2016. It is planned that the bonds will be listed on the Georgian Stock Exchange in the near future
- In February 2016, Galt & Taggart Research issued a comprehensive report on the Georgian healthcare sector and continues to provide weekly economic (including economies of Georgia and Azerbaijan) and sectoral coverage. Galt & Taggart reports are available at www.galtandtaggart.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 Change, Change, Change,
otherwise noted 2Q16 2Q15 Y-o-Y 1Q16 Q-o-Q 1H16 1H15 Y-o-Y
Revenue, gross 101,673 57,472 76.9% 72,576 40.1% 174,249 112,046 55.5%
Corrections & rebates (724) (885) -18.2% (410) 76.6% (1,134) (1,842) -38.4%
Revenue, net 100,949 56,587 78.4% 72,166 39.9% 173,115 110,204 57.1%
Revenue from healthcare
services 58,056 44,789 29.6% 60,041 -3.3% 118,097 86,577 36.4%
Revenue from pharma 30,691 - - - - 30,691 - -
Net insurance premiums
earned 15,298 14,123 8.3% 13,830 10.6% 29,128 27,514 5.9%
Eliminations (3,095) (2,325) 33.1% (1,705) 81.5% (4,800) (4,187) 14.6%
Costs of services (67,395) (33,721) 99.9% (44,151) 52.6% (111,546) (67,759) 64.6%
Cost of healthcare services (31,399) (24,189) 29.8% (32,998) -4.8% (64,397) (48,462) 32.9%
Cost of pharma (25,059) - - - - (25,059) - -
Cost of insurance services (13,989) (11,785) 18.7% (12,847) 8.9% (26,836) (23,021) 16.6%
Eliminations 3,052 2,253 35.5% 1,694 80.2% 4,746 4,024 17.9%
Gross profit 33,554 22,866 46.7% 28,015 19.8% 61,569 42,445 45.1%
Salaries and other employee
benefits (9,229) (6,343) 45.5% (6,923) 33.3% (16,152) (12,602) 28.2%
General and administrative
expenses (6,758) (2,551) 164.9% (3,202) 111.1% (9,960) (4,950) 101.2%
Impairment of healthcare
services, insurance premiums
and other receivables (1,236) (912) 35.5% (980) 26.1% (2,216) (1,846) 20.0%
Other operating income 551 416 32.5% 219 151.6% 770 541 42.3%
EBITDA 16,882 13,476 25.3% 17,129 -1.4% 34,011 23,588 44.2%
Depreciation and amortization (4,581) (2,567) 78.5% (4,465) 2.6% (9,046) (4,889) 85.0%
Net interest income (expense) (3,469) (6,017) -42.3% (1,656) 109.5% (5,125) (10,118) -49.3%
Net gains/(losses) from
foreign currencies (1,964) 2,045 NMF (260) 655.4% (2,224) 5,449 NMF
Net non-recurring
income/(expense) (586) (556) NMF (230) 154.8% (816) (767) NMF
Profit before income
tax expense 6,282 6,381 -1.6% 10,518 -40.3% 16,800 13,263 26.7%
Income tax benefit/(expense) 26,920 660 NMF 1,505 1688.7% 28,425 53 NMF
of which: Deferred
tax
adjustments 27,113 - - 2,198 - 29,311 - -
Profit for the period 33,202 7,041 371.6% 12,023 176.2% 45,225 13,316 239.6%
Attributable to:
- shareholders of the
Company 27,755 6,122 353.4% 9,921 179.8% 37,676 11,854 217.8%
- non-controlling interests 5,447 919 492.7% 2,102 159.1% 7,549 1,462 416.3%
of which: Deferred
tax
adjustments 4,705 - - 352 - 5,057 - -
For detailed income statement by healthcare services and medical insurance business, please see page 30 and 32
-- GHG delivered record quarterly revenue of GEL 101.7mln, up 76.9% y-o-y and up 40.1% q-o-q. Growth was driven by healthcare services revenue, up 29.6% y-o-y (with strong organic growth of 13.0% y-o-y for the half year) and pharma business consolidation since its acquisition in May 2016. In 2Q16, GHG revenue breakdown is as follows: healthcare services business revenue accounted for more than 55%, pharma business revenue accounted for c.30% and medical insurance business revenue accounted for c.15%. GHG started consolidation of the newly acquired pharma business in May 2016
-- GHG entered the pharma business as a result of the GPC acquisition in May 2016 and its results of operations include GPC results since May 2016. Since the completion of the acquisition, GHG has rolled out a number of initiatives, as announced during the acquisition, which are having a positive effect on the pharma business and are partially reflected in July 2016 results, with retail gross margin climbing to 22.0% for July, up from 19.6% in the consolidated two months results. GHG management expects that the effects of integration will be reflected in the results of second half of 2016
-- Cost of services reached GEL 67.4mln, up 99.9% y-o-y and 52.6% q-o-q. The cost of healthcare services grew in line with revenues (up 29.8% y-o-y and down 4.8% q-o-q, compared with the change in revenues of up 29.6% y-o-y and down 3.3% q-o-q). The 18.7% growth in cost of insurance services, outpaced the 8.3% growth in respective revenue y-o-y; nevertheless, the q-o-q trend was favourable, with the cost of insurance services growing at 8.9% compared to 10.6% growth in respective revenue
-- As a result, we reported quarterly EBITDA of GEL 16.9mln, up 25.3% y-o-y and down 1.4% q-o-q. The y-o-y growth was primarily driven by the healthcare services business which grew its EBITDA by 35.4%
-- Subsequently, GHG's profit for the period amounted to GEL 33.2mln, up 371.6% y-o-y and up 176.2% q-o-q. The healthcare services business was the sole driver of the 2Q16 Group profit, with GEL 35.3mln profit for 2Q16 (up 414.6% y-o-y and up 190.8% q-o-q), which was partially offset by loss of GEL 0.4mln and GEL 1.7mln, recorded by the pharma and medical insurance businesses, respectively. Group profit, adjusted for the impact of deferred tax (see the explanation in the bullet point preceding "Banking Business highlights " on page 4) and one-off foreign currency translation loss adjustments, was GEL 8.1mln in 2Q16 (up 61.2% y-o-y and down 20.1% q-o-q) and GEL 18.1mln for 1H16 (up 130.6% y-o-y)
-- GHG's revenue cash conversion ratio, on a consolidated basis, equalled 91.6% in 1H16 compared to 88.9% in 1H15. This translated into an EBITDA cash conversion ratio of 72.9% on a consolidated adjusted basis, in 1H16.
-- The Ministry of Labor, Health and Social Affairs ("MOLHSA") has recently conducted a review of the effectiveness of the existing model of the healthcare financing by the state, which was introduced in 2014 with the current scope. As a result of the review, the government is undertaking several initiatives to improve the effectiveness and efficiency of the existing system. The initiatives that have been announced include: streamlining the licensing requirements for hospitals, particularly around intensive care (the initiative is approved with effect from the beginning of 2017); introducing levelling of hospitals based on the capabilities of each hospital measured by a number of factors, including number of beds, specialised beds to total beds, relevant equipment and personnel, etc. (the initiative is at an advanced stageand expected to become effective also in the beginning of 2017); streamlining pricing and scope of the urgent care services under UHC (enforced). GHG believes that certain of its competitors will struggle to comply with the changes anticipated by these initiatives. GHG, however, is largely already in compliance, primarily as a result of our diversified business model, as well as existing hierarchy of our healthcare facilities. We expect that their net effect will be positive for GHG
-- Renovation of two major hospitals, Sunstone (c.332 beds, scheduled launch in May, 2017) and Deka (c.310 beds, scheduled launch in May, 2017) is ongoing, within schedule and budget
-- GHG is in the process of launching around 50 new services at nine of its referral hospitals. This includes some basic services (like pediatrics, neonatology, diagnostics, ophthalmology, mammography and breast surgery, gynecology, cardio-surgery, traumatology, angio-surgery, intensive care, reproductive services, etc.) as well as sophisticated services (like oncology, transplantation of bone marrow, kidney and liver for children, etc.).
Real estate business (m2 Real Estate)
Our Real Estate business is operated through the Group's wholly-owned subsidiary m(2) Real Estate, which develops residential property in Georgia. m(2) Real Estate outsources the construction and architecture works whilst itself focusing on project management and sales. The Bank's Real Estate business serves to meet the unsatisfied demand in Tbilisi for housing through its well-established branch network and sales force, while stimulating the Bank's mortgage lending business. The business is also planning to begin hotel development in the under-developed mid-price sector in the coming months
Income statement
GEL thousands, unless Change Change Change
otherwise noted 2Q16 2Q15 y-o-y 1Q16 q-o-q 1H16 1H15 y-o-y
Real estate revenue,
of which: 5,964 1,595 273.9% 28,592 -79.1% 34,556 5,533 524.5%
Revenue from sale of
apartments 5,323 1,155 NMF 27,992 -81.0% 33,315 4,713 NMF
Income from operating
lease 641 440 45.7% 600 6.8% 1,241 820 51.3%
Cost of real estate (3,858) (1,757) 119.6% (22,740) -83.0% (26,598) (4,622) NMF
Gross real estate profit 2,106 (162) NMF 5,852 -64.0% 7,958 911 773.5%
Gross other investment
profit 121 (57) NMF 1,816 -93.3% 1,937 162 NMF
Revenue 2,227 (219) NMF 7,668 -71.0% 9,895 1,073 822.2%
Salaries and other employee
benefits (433) (269) 61.0% (320) 35.3% (753) (590) 27.6%
Administrative expenses (1,519) (1,275) 19.1% (1,135) 33.8% (2,654) (2,316) 14.6%
Operating expenses (1,952) (1,544) 26.4% (1,455) 34.2% (3,407) (2,906) 17.2%
EBITDA 275 (1,763) NMF 6,213 -95.6% 6,488 (1,833) NMF
Depreciation and amortization
of investment business (61) (43) 41.9% (53) 15.1% (114) (85) 34.1%
Net foreign currency
loss from investment
business 697 903 -22.8% 386 80.6% 1,083 532 103.6%
Interest income from
investment business - 221 -100.0% - - - 392 -100.0%
Interest expense from
investment business (103) (227) -54.6% (125) -17.6% (228) (1,238) -81.6%
Net operating income
before non-recurring
items 808 (909) NMF 6,421 -87.4% 7,229 (2,232) NMF
Net non-recurring items (135) (67) 101.5% (23) NMF (158) (140) 12.9%
Profit before income
tax 673 (976) NMF 6,398 -89.5% 7,071 (2,372) NMF
Income tax (expense)
benefit 23 147 -84.4% (960) NMF (937) 356 NMF
Profit 696 (829) NMF 5,438 -87.2% 6,134 (2,016) NMF
Performance highlights
-- m(2) 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 m(2) 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
-- m(2) 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. m(2) 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)
-- m(2) 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, m(2) 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, m(2) 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
-- m(2) 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. m(2) 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. m(2) 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 m(2) Real Estate projects, one is the largest ever carried out by m(2) Real Estate, with a total of 819 apartments in a central location in Tbilisi. The second is a new type of project for m(2) 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 m(2) 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
Number
of Number Actual
Total Number apartments of / planned
number of sold apartments Construction construction Construction
of apartments as % available start completion completed
# Project name apartments sold of total for sale date date %
--- -------------- ----------- ----------- ----------- ----------- ------------- ------------- ---------------
Completed projects 1,672 1,517 91% 155
Chubinashvili
1 street 123 123 100% 0 Sep-10 Aug-12 100%
Tamarashvili
2 street 525 523 100% 2 May-12 Jun-14 100%
Kazbegi
3 Street 295 285 97% 10 Dec-13 Feb-16 100%
Nutsubidze
4 Street 221 216 98% 5 Dec-13 Sep-15 100%
Tamarashvili
5 Street II 270 205 76% 65 Jul-14 Jun-16 100%
6 Moscow avenue 238 165 69% 73 Sep-14 Jun-16 100%
On-going projects 1,140 281 25% 859
Kartozia
7 Street 819 247 30% 572 Nov-15 Sep-18 12%
8 Skyline 19 10 53% 9 Dec-15 Dec-16 20%
Kazbegi
Street
9 II 302 24 8% 278 Jun-16 Nov-18 1%
Total 2,812 1,798 64% 1,014
Financial data for completed and on-going projects, as of 30 June 2016
Sales
Sales Sales expected
already to be to be
Total recognised recognised recognised Land Realised
Sales as revenue as revenue as revenue value &
(US$ (US$ (US$ during unlocked Expected
# Project name mln) mln) mln)(1) year (US$) IRR
-------------- ------------------ ------------------ ---------------------- ----------- ------------------- ---------
Completed
projects 128.5 101.5 27.0 16.4
Chubinashvili
1 street 9.9 9.9 - 0.9 47%
Tamarashvili
2 street 48.4 48.4 - 5.4 46%
Kazbegi
3 Street 26.2 25.2 1.0 2H 2016 3.6 165%
Nutsubidze
4 Street 17.1 16.8 0.3 2H 2016 2.2 58%
Tamarashvili
5 Street II 19.0 - 19.0 2H 2016 2.7 71%
6 Moscow avenue 7.9 1.2 6.7 2H 2016 1.6 31%
On-going projects 23.7 - 23.7 13.2
Kartozia
7 Street 17.7 - 17.7 2018/2019 5.8 60%
8 Skyline 4.1 - 4.1 2017 3.1 329%
Kazbegi
Street
9 II 1.9 - 1.9 2018 4.3 51%
Total 152.2 101.5 50.7 29.6
-- The number of apartments financed with BOG mortgages in all m(2) 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, m(2) 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 m(2) Real Estate clients
[1] m2 Real Estate recognises revenue upon handover of the apartment to its clients, following the completion of the project
Balance Sheet
30-Jun-16 30-Jun-15 Change 31-Mar-16 Change
GEL thousands, unless
otherwise noted Y-O-Y Q-O-Q
Cash and cash equivalents 42,549 29,314 45.1% 49,059 -13.3%
Investment securities 1,145 1,145 0.0% 1,145 0.0%
Accounts receivable 824 3,378 -75.6% 1,007 -18.2%
Prepayments 18,741 10,896 72.0% 23,551 -20.4%
Inventories 116,891 98,830 18.3% 95,139 22.9%
Investment property, of
which: 107,303 74,300 44.4% 117,722 -8.9%
Land bank 71,489 52,584 36.0% 81,888 -12.7%
Commercial real estate 35,814 21,716 64.9% 35,834 -0.1%
Property and equipment 1,633 1,830 -10.8% 1,569 4.1%
Other assets 19,751 14,373 37.4% 12,678 55.8%
Total assets 308,837 234,066 31.9% 301,870 2.3%
Amounts due to credit
institutions 36,039 4,338 730.8% 37,118 -2.9%
Debt securities issued 47,857 45,879 4.3% 47,380 1.0%
Accruals and deferred
income 105,498 102,417 3.0% 96,538 9.3%
Other liabilities 6,677 2,709 168.1% 7,383 -9.6%
Total liabilities 196,658 155,343 26.6% 190,492 3.2%
Additional paid-in capital 6,008 2,990 100.9% 5,077 18.3%
Other reserves (4,206) (3,575) 17.7% (3,575) 17.7%
Retained earnings 110,377 79,308 39.2% 109,876 0.5%
Total equity attributable
to shareholders of the
Group 112,179 78,723 42.5% 111,378 0.7%
Total equity 112,179 78,723 42.5% 111,378 0.7%
Total liabilities and
equity 308,837 234,066 31.9% 301,870 2.3%
-- m(2) 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.
-- m(2) 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 m(2) Real Estate strategy is to utilise its existing land plots within 3-4 years' time and in parallel, start developing third party lands
SELECTED FINANCIAL INFORMATION
BGEO Consolidated Banking Business Investment Business Eliminations
INCOME STATEMENT
QUARTERLY 2Q16 2Q15 Change 1Q16 Change 2Q16 2Q15 Change 1Q16 Change 2Q16 2Q15 Change 1Q16 Change 2Q16 2Q15 1Q16
GEL thousands,
unless
otherwise noted Y-O-Y Q-O-Q Y-O-Y Q-O-Q Y-O-Y Q-O-Q
Banking interest
income 215,895 211,869 1.9% 224,810 -4.0% 217,234 215,313 0.9% 226,217 -4.0% - - - - - (1,339) (3,444) (1,407)
Banking interest
expense (87,368) (89,080) -1.9% (95,958) -9.0% (87,712) (88,910) -1.3% (95,998) -8.6% - - - - - 344 (170) 40
Net banking
interest
income 128,527 122,789 4.7% 128,852 -0.3% 129,522 126,403 2.5% 130,219 -0.5% - - - - - (995) (3,614) (1,367)
Fee and
commission
income 40,250 38,944 3.4% 38,149 5.5% 40,675 40,160 1.3% 38,484 5.7% - - - - - (425) (1,216) (335)
Fee and
commission
expense (10,907) (9,823) 11.0% (10,335) 5.5% (11,036) (9,988) 10.5% (10,469) 5.4% - - - - - 129 165 134
Net fee and
commission
income 29,343 29,121 0.8% 27,814 5.5% 29,639 30,172 -1.8% 28,015 5.8% - - - - - (296) (1,051) (201)
Net banking
foreign
currency gain 15,506 19,765 -21.5% 17,390 -10.8% 15,506 19,765 -21.5% 17,390 -10.8% - - - - - - - -
Net other
banking
income 2,630 2,481 6.0% 2,867 -8.3% 2,824 2,810 0.5% 3,168 -10.9% - - - - - (194) (329) (301)
Net insurance
premiums
earned 23,854 22,566 5.7% 21,824 9.3% 10,235 9,777 4.7% 9,550 7.2% 14,271 13,244 7.8% 12,924 10.4% (652) (455) (650)
Net insurance
claims
incurred (15,445) (16,749) -7.8% (15,408) 0.2% (3,739) (6,304) -40.7% (4,207) -11.1% (11,706) (10,445) 12.1% (11,201) 4.5% - - -
Gross insurance
profit 8,409 5,817 44.6% 6,416 31.1% 6,496 3,473 87.0% 5,343 21.6% 2,565 2,799 -8.4% 1,723 48.9% (652) (455) (650)
Healthcare
revenue 55,003 41,217 33.4% 58,348 -5.7% - - - - - 55,003 41,217 33.4% 58,348 -5.7% - - -
Cost of
healthcare
services (29,804) (23,118) 28.9% (32,057) -7.0% - - - - - (29,804) (23,118) 28.9% (32,057) -7.0% - - -
Gross healthcare
profit 25,199 18,099 39.2% 26,291 -4.2% - - - - - 25,199 18,099 39.2% 26,291 -4.2% - - -
Real estate
revenue 6,324 1,716 268.5% 28,764 -78.0% - - - - - 6,324 1,716 268.5% 28,764 -78.0% - - -
Cost of real
estate (3,858) (1,757) 119.6% (22,740) -83.0% - - - - - (3,858) (1,757) 119.6% (22,740) -83.0% - - -
Gross real
estate
profit 2,466 (41) NMF 6,024 -59.1% - - - - - 2,466 (41) NMF 6,024 -59.1% - - -
Gross other
investment
profit 8,437 4,734 78.2% 3,606 134.0% - - - - - 8,443 4,709 79.3% 3,675 129.7% (6) 25 (69)
Revenue 220,517 202,765 8.8% 219,260 0.6% 183,987 182,623 0.7% 184,135 -0.1% 38,673 25,566 51.3% 37,713 2.5% (2,143) (5,424) (2,588)
Salaries and
other
employee
benefits (50,875) (45,044) 12.9% (47,413) 7.3% (40,847) (38,066) 7.3% (39,806) 2.6% (10,685) (7,460) 43.2% (8,250) 29.5% 657 482 643
Administrative
expenses (27,912) (22,102) 26.3% (25,062) 11.4% (19,051) (17,899) 6.4% (20,058) -5.0% (9,216) (4,498) 104.9% (5,392) 70.9% 355 295 388
Banking
depreciation
and
amortisation (9,337) (8,338) 12.0% (9,138) 2.2% (9,337) (8,338) 12.0% (9,138) 2.2% - - - - - - - -
Other operating
expenses (560) (1,364) -58.9% (1,675) -66.6% (684) (941) -27.3% (861) -20.6% 124 (423) NMF (814) NMF - - -
Operating
expenses (88,684) (76,848) 15.4% (83,288) 6.5% (69,919) (65,244) 7.2% (69,863) 0.1% (19,777) (12,381) 59.7% (14,456) 36.8% 1,012 777 1,031
Operating income
before cost of
credit
risk / EBITDA 131,833 125,917 4.7% 135,972 -3.0% 114,068 117,379 -2.8% 114,272 -0.2% 18,896 13,185 43.3% 23,257 -18.8% (1,131) (4,647) (1,557)
Profit from
associates 1,952 1,979 -1.4% 1,866 4.6% - - - - - 1,952 1,979 -1.4% 1,866 4.6% - - -
Depreciation and
amortization of
investment
business (4,775) (2,579) 85.1% (4,910) -2.7% - - - - - (4,775) (2,579) 85.1% (4,910) -2.7% - - -
Net foreign
currency
gain from
investment
business (1,597) 2,689 NMF (766) 108.5% - - - - - (1,597) 2,689 NMF (766) 108.5% - - -
Interest income
from investment
business (283) 622 NMF 956 NMF - - - - - 60 844 -92.9% 964 -93.8% (343) (222) (8)
Interest expense
from investment
business (2,497) (2,632) -5.1% (1,382) 80.7% - - - - - (3,971) (7,501) -47.1% (2,947) 34.7% 1,474 4,869 1,565
Operating income
before cost of
credit
risk 124,633 125,996 -1.1% 131,736 -5.4% 114,068 117,379 -2.8% 114,272 -0.2% 10,565 8,617 22.6% 17,464 -39.5% - - -
Impairment charge
on loans to
customers (26,819) (35,105) -23.6% (32,218) -16.8% (26,819) (35,105) -23.6% (32,218) -16.8% - - - - - - - -
Impairment charge
on finance lease
receivables (130) (1,779) -92.7% (513) -74.7% (130) (1,779) -92.7% (513) -74.7% - - - - - - - -
Impairment charge
on other assets
and
provisions (2,438) (4,983) -51.1% (3,412) -28.5% (1,202) (3,880) -69.0% (2,281) -47.3% (1,236) (1,103) 12.1% (1,131) 9.3% - - -
Cost of credit
risk (29,387) (41,867) -29.8% (36,143) -18.7% (28,151) (40,764) -30.9% (35,012) -19.6% (1,236) (1,103) 12.1% (1,131) 9.3% - - -
Net operating
income
before
non-recurring
items 95,246 84,129 13.2% 95,593 -0.4% 85,917 76,615 12.1% 79,260 8.4% 9,329 7,514 24.2% 16,333 -42.9% - - -
Net
non-recurring
items (48,744) (413) NMF 1,366 NMF (46,350) (3,409) NMF (1,419) NMF (2,394) 2,996 NMF 2,785 NMF - - -
Profit before
income
tax 46,502 83,716 -44.5% 96,959 -52.0% 39,567 73,206 -46.0% 77,841 -49.2% 6,935 10,510 -34.0% 19,118 -63.7% - - -
Income tax
expense 64,735 (11,686) NMF (9,912) NMF 35,139 (11,753) NMF (8,178) NMF 29,596 67 44073.1% (1,734) NMF - - -
Profit 111,237 72,030 54.4% 87,047 27.8% 74,706 61,453 21.6% 69,663 7.2% 36,531 10,577 245.4% 17,384 110.1% - - -
Attributable to:
- shareholders
of
BGEO 94,642 70,601 34.1% 80,836 17.1% 73,600 60,963 20.7% 68,620 7.3% 21,042 9,638 118.3% 12,216 72.2% - - -
-
non-controlling
interests 16,595 1,429 1061.3% 6,211 167.2% 1,106 490 125.7% 1,043 6.0% 15,489 939 1549.5% 5,168 199.7% - - -
Earnings per
share
basic and
diluted 2.46 1.84 33.7% 2.10 17.1%
INCOME STATEMENT
HALF
YEAR BGEO Consolidated Banking Business Investment Business Eliminations
GEL thousands, Change Change Change Change
unless
otherwise noted Jun-16 Jun-15 Jun-16 Jun-15 Jun-16 Jun-15 Jun-16 Jun-15
Y-O-Y Y-O-Y Y-O-Y Y-O-Y
Banking interest
income 440,705 411,567 7.1% 443,451 417,666 6.2% - - - (2,746) (6,099) -55.0%
Banking interest
expense (183,325) (167,789) 9.3% (183,709) (168,205) 9.2% - - - 384 416 -7.7%
Net banking
interest
income 257,380 243,778 5.6% 259,742 249,461 4.1% - - - (2,362) (5,683) -58.4%
Fee and
commission
income 78,398 74,935 4.6% 79,159 77,503 2.1% - - - (761) (2,568) -70.4%
Fee and
commission
expense (21,241) (18,960) 12.0% (21,505) (19,241) 11.8% - - - 264 281 -6.0%
Net fee and
commission
income 57,157 55,975 2.1% 57,654 58,262 -1.0% - - - (497) (2,287) -78.3%
Net banking
foreign currency
gain 32,896 38,727 -15.1% 32,896 38,727 -15.1% - - - - - -
Net other banking
income 5,497 4,272 28.7% 5,992 4,906 22.1% - - - (495) (634) -21.9%
Net insurance
premiums
earned 45,678 44,275 3.2% 19,785 19,019 4.0% 27,195 26,134 4.1% (1,302) (878) 48.3%
Net insurance
claims
incurred (30,853) (30,884) -0.1% (7,947) (10,242) -22.4% (22,906) (20,642) 11.0% - - -
Gross insurance
profit 14,825 13,391 10.7% 11,838 8,777 34.9% 4,289 5,492 -21.9% (1,302) (878) 48.3%
Healthcare
revenue 113,351 81,234 39.5% - - - 113,351 81,234 39.5% - - -
Cost of
healthcare
services (61,861) (46,259) 33.7% - - - (61,861) (46,259) 33.7% - - -
Gross healthcare
profit 51,490 34,975 47.2% - - - 51,490 34,975 47.2% - - -
Real estate
revenue 35,087 5,790 506.0% - - - 35,087 5,790 506.0% - - -
Cost of real
estate (26,598) (4,622) NMF - - - (26,598) (4,622) NMF - - -
Gross real
estate profit 8,489 1,168 626.8% - - - 8,489 1,168 626.8% - - -
Gross other
investment
profit 12,043 6,133 96.4% - - - 12,118 6,253 93.8% (75) (120) -37.5%
Revenue 439,777 398,419 10.4% 368,122 360,133 2.2% 76,386 47,888 59.5% (4,731) (9,602) -50.7%
Salaries and
other employee
benefits (98,288) (90,786) 8.3% (80,653) (76,672) 5.2% (18,935) (14,991) 26.3% 1,300 877 48.2%
Administrative
expenses (52,975) (43,158) 22.7% (39,109) (35,404) 10.5% (14,609) (8,527) 71.3% 743 773 -3.9%
Banking
depreciation
and
amortisation (18,475) (16,711) 10.6% (18,475) (16,711) 10.6% - - - - - -
Other operating
expenses (2,233) (2,253) -0.9% (1,545) (1,733) -10.8% (688) (520) 32.3% - - -
Operating
expenses (171,971) (152,908) 12.5% (139,782) (130,520) 7.1% (34,232) (24,038) 42.4% 2,043 1,650 23.8%
Operating income
before
cost of credit
risk /
EBITDA 267,806 245,511 9.1% 228,340 229,613 -0.6% 42,154 23,850 76.7% (2,688) (7,952) -66.2%
Profit from
associates 3,818 668 NMF - - - 3,818 668 NMF - - -
Depreciation and
amortization
of investment
business (9,685) (5,266) 83.9% - - - (9,685) (5,266) 83.9% - - -
Net foreign
currency
gain from
investment
business (2,363) 6,379 NMF - - - (2,363) 6,379 NMF - - -
Interest income
from
investment
business 673 1,239 -45.7% - - - 1,024 1,662 -38.4% (351) (423) -17.0%
Interest expense
from
investment
business (3,880) (5,094) -23.8% - - - (6,919) (13,469) -48.6% 3,039 8,375 -63.7%
Operating income
before
cost of credit
risk 256,369 243,437 5.3% 228,340 229,613 -0.6% 28,029 13,824 102.8% - - -
Impairment
charge on
loans to
customers (59,036) (74,033) -20.3% (59,036) (74,033) -20.3% - - - - - -
Impairment
charge on
finance lease
receivables (643) (1,899) -66.1% (643) (1,899) -66.1% - - - - - -
Impairment
charge on
other assets
and provisions (5,850) (7,776) -24.8% (3,483) (5,604) -37.8% (2,367) (2,172) 9.0% - - -
Cost of credit
risk (65,529) (83,708) -21.7% (63,162) (81,536) -22.5% (2,367) (2,172) 9.0% - - -
Net operating
income
before
non-recurring
items 190,840 159,729 19.5% 165,178 148,077 11.5% 25,662 11,652 120.2% - - -
Net
non-recurring
items (47,380) (2,860) NMF (47,770) (5,575) NMF 390 2,715 -85.6% - - -
Profit before
income
tax 143,460 156,869 -8.5% 117,408 142,502 -17.6% 26,052 14,367 81.3% - - -
Income tax
expense 54,824 (22,500) NMF 26,961 (22,238) NMF 27,863 (262) NMF - - -
Profit 198,284 134,369 47.6% 144,369 120,264 20.0% 53,915 14,105 282.2% - - -
Attributable to:
- shareholders
of BGEO 175,478 133,241 31.7% 142,220 119,211 19.3% 33,258 14,030 137.0% - - -
-
non-controlling
interests 22,806 1,128 1921.8% 2,149 1,053 104.1% 20,657 75 NMF - - -
Earnings per
share basic
and diluted 4.57 3.47 31.7%
BALANCE SHEET BGEO Consolidated Banking Business Investment Business Eliminations
GEL thousands,
unless
otherwise noted Jun-16 Jun-15 Change Mar-16 Change Jun-16 Jun-15 Change Mar-16 Change Jun-16 Jun-15 Change Mar-16 Change Jun-16 Jun-15 Mar-16
Y-O-Y Q-O-Q Y-O-Y Q-O-Q Y-O-Y Q-O-Q
Cash and cash
equivalents 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 50.1% 720,442 19.9% 28,949 18,844 53.6% 47,936 -39.6% (16,085) (10,490) (3,943)
Investment
securities 989,331 895,840 10.4% 825,045 19.9% 990,125 898,457 10.2% 825,821 19.9% 2,572 1,153 123.1% 1,154 122.9% (3,366) (3,770) (1,930)
Loans to
customers
and finance
lease
receivables 5,469,120 5,052,752 8.2% 5,359,718 2.0% 5,507,414 5,142,221 7.1% 5,394,565 2.1% - - - - - (38,294) (89,469) (34,847)
Accounts
receivable
and other loans 89,162 77,866 14.5% 84,715 5.2% 5,262 15,474 -66.0% 5,144 2.3% 86,748 70,343 23.3% 81,955 5.8% (2,848) (7,951) (2,384)
Insurance
premiums
receivable 58,667 58,142 0.9% 54,879 6.9% 24,013 26,519 -9.4% 16,567 44.9% 35,993 32,023 12.4% 39,347 -8.5% (1,339) (400) (1,035)
Prepayments 103,842 52,145 99.1% 67,633 53.5% 22,461 30,779 -27.0% 24,649 -8.9% 81,381 21,366 280.9% 42,984 89.3% - - -
Inventories 178,534 131,534 35.7% 125,466 42.3% 9,559 10,379 -7.9% 9,686 -1.3% 168,975 121,155 39.5% 115,780 45.9% - - -
Investment
property 245,849 221,506 11.0% 254,224 -3.3% 138,546 143,873 -3.7% 134,310 3.2% 107,303 77,633 38.2% 119,914 -10.5% - - -
Property and
equipment 852,680 669,153 27.4% 835,651 2.0% 336,013 338,858 -0.8% 333,243 0.8% 516,667 330,295 56.4% 502,408 2.8% - - -
Goodwill 106,134 60,056 76.7% 73,192 45.0% 49,592 48,092 3.1% 49,592 0.0% 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 15.2% 37,609 1.9% 11,303 3,634 211.0% 5,465 106.8% - - -
Income tax assets 26,585 29,080 -8.6% 36,712 -27.6% 19,614 21,686 -9.6% 27,321 -28.2% 6,971 7,394 -5.7% 9,391 -25.8% - - -
Other assets 217,688 244,398 -10.9% 193,626 12.4% 132,268 174,820 -24.3% 121,012 9.3% 88,233 80,058 10.2% 75,515 16.8% (2,813) (10,480) (2,901)
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% (285,043) (221,024) (306,427)
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% - - - - - (237,967) (108,405) (263,874)
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% (38,292) (94,700) (34,847)
Debt securities
issued 1,065,516 1,063,123 0.2% 1,033,758 3.1% 990,370 990,257 0.0% 957,474 3.4% 81,088 79,894 1.5% 81,116 0.0% (5,942) (7,028) (4,832)
Accruals and
deferred
income 137,967 132,832 3.9% 142,766 -3.4% 13,084 14,369 -8.9% 25,685 -49.1% 124,883 118,463 5.4% 117,081 6.7% - - -
Insurance
contracts
liabilities 80,643 73,001 10.5% 71,565 12.7% 47,701 42,910 11.2% 34,630 37.7% 32,942 30,091 9.5% 36,935 -10.8% - - -
Income tax
liabilities 44,510 111,387 -60.0% 128,667 -65.4% 42,916 87,392 -50.9% 93,765 -54.2% 1,594 23,995 -93.4% 34,902 -95.4% - - -
Other liabilities 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)
Total liabilities 8,113,842 7,719,116 5.1% 7,926,740 2.4% 7,773,056 7,463,969 4.1% 7,751,805 0.3% 625,829 476,171 31.4% 481,362 30.0% (285,043) (221,024) (306,427)
Share capital 1,154 1,154 0.0% 1,154 0.0% 1,154 1,154 0.0% 1,154 0.0% - - - - - - - -
Additional
paid-in
capital 228,679 243,482 -6.1% 240,962 -5.1% 88,253 32,277 173.4% 101,467 -13.0% 140,426 211,205 -33.5% 139,495 0.7% - - -
Treasury shares (35) (36) -2.8% (29) 20.7% (35) (36) -2.8% (29) 20.7% - - - - - - - -
Other reserves 88,226 (61,509) NMF 42,101 109.6% (9,549) (51,917) -81.6% (55,166) -82.7% 97,775 (9,592) NMF 97,267 0.5% - - -
Retained earnings 1,652,868 1,413,870 16.9% 1,650,094 0.2% 1,298,592 1,247,508 4.1% 1,212,492 7.1% 354,276 166,362 113.0% 437,602 -19.0% - - -
Total equity
attributable
to shareholders
of the Group 1,970,892 1,596,961 23.4% 1,934,282 1.9% 1,378,415 1,228,986 12.2% 1,259,918 9.4% 592,477 367,975 61.0% 674,364 -12.1% - - -
Non-controlling
interests 238,489 58,982 304.3% 216,567 10.1% 19,563 19,755 -1.0% 18,332 6.7% 218,926 39,227 458.1% 198,235 10.4% - - -
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% - - -
Total liabilities
and equity 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% (285,043) (221,024) (306,427)
Book value per
share 51.46 41.74 23.3% 50.21 2.5%
Georgia Healthcare Group
Income Statement, Quarterly Healthcare services Medical insurance Pharma Eliminations GHG GEL thousands; unless otherwise Change, Change, Change, Change, Change, Change, noted 2Q16 2Q15 Y-o-Y 1Q16 Q-o-Q 2Q16 2Q15 Y-o-Y 1Q16 Q-o-Q 2Q16 2Q16 2Q15 1Q16 2Q16 2Q15 Y-o-Y 1Q16 Q-o-Q Revenue, gross 58,779 45,674 28.7% 60,451 -2.8% 15,298 14,123 8.3% 13,830 10.6% 30,691 (3,095) (2,325) (1,705) 101,673 57,472 76.9% 72,576 40.1% Corrections & rebates (724) (885) -18.2% (410) 76.6% - - - - - - - - - (724) (885) -18.2% (410) 76.6% Revenue, net 58,055 44,789 29.6% 60,041 -3.3% 15,298 14,123 8.3% 13,830 10.6% 30,691 (3,095) (2,325) (1,705) 100,949 56,587 78.4% 72,166 39.9% Costs of services (31,399) (24,189) 29.8% (32,998) -4.8% (13,989) (11,785) 18.7% (12,847) 8.9% (25,059) 3,052 2,253 1,694 (67,395) (33,721) 99.9% (44,151) 52.6% Cost of salaries and other employee benefits (19,857) (15,919) 24.7% (19,752) 0.5% - - - - - - 1,094 767 565 (18,763) (15,152) 23.8% (19,187) -2.2% Cost of materials
and supplies (9,228) (6,258) 47.5% (9,613) -4.0% - - - - - - 514 302 275 (8,714) (5,956) 46.3% (9,338) -6.7% Cost of medical service providers (401) (510) -21.4% (428) -6.3% - - - - - - 23 24 12 (378) (486) -22.2% (416) -9.1% Cost of utilities and other (1,913) (1,502) 27.4% (3,205) -40.3% - - - - - - 122 74 92 (1,791) (1,428) 25.4% (3,113) -42.5% Net insurance claims incurred - - - - - (13,003) (11,035) 17.8% (11,953) 8.8% - 1,299 1,086 750 (11,704) (9,949) 17.6% (11,203) 4.5% Agents, brokers and employee commissions - - - - - (986) (750) 31.5% (894) 10.3% - - - (986) (750) 31.5% (894) 10.3% Cost of pharma - wholesale - - - - - - - - - - (6,545) - - - (6,545) - - - - Cost of pharma - retail - - - - - - - - - - (18,514) - - - (18,514) - - - - Gross profit 26,656 20,600 29.4% 27,043 -1.4% 1,309 2,338 -44.0% 983 33.2% 5,632 (43) (72) (11) 33,554 22,866 46.7% 28,015 19.8% Salaries and other employee benefits (5,254) (5,523) -4.9% (6,115) -14.1% (1,328) (892) 48.9% (819) 62.1% (2,690) 43 72 11 (9,229) (6,343) 45.5% (6,923) 33.3% General and administrative expenses (3,517) (1,909) 84.2% (2,483) 41.6% (708) (642) 10.3% (719) -1.5% (2,533) - - - (6,758) (2,551) 164.9% (3,202) 111.1% Impairment of healthcare services, insurance premiums and other receivables (1,120) (906) 23.6% (858) 30.5% (116) (6) 1833.3% (122) -4.9% - - - - (1,236) (912) 35.5% (980) 26.1% Other operating income 395 413 -4.4% 241 63.9% 10 3 233.3% (21) -147.6% 145 - - - 550 416 32.2% 219 151.1% EBITDA 17,160 12,675 35.4% 17,828 -3.7% (832) 801 -203.9% (699) 19.0% 554 - - - 16,882 13,476 25.3% 17,129 -1.4% EBITDA margin 29.2% 27.8% 29.5% -5.4% 5.7% -5.1% 1.8% - - 16.6% 23.4% 23.6% Depreciation and amortisation (4,121) (2,414) 70.7% (4,261) -3.3% (202) (153) 32.0% (204) -1.0% (258) - - - (4,581) (2,567) 78.5% (4,465) 2.6% Net interest income (expense) (2,999) (6,011) -50.1% (2,259) 32.8% (43) (6) 616.7% 603 NMF (427) - - - (3,469) (6,017) -42.3% (1,656) 109.5% Net gains/(losses) from foreign currencies (1,711) 1,973 NMF (411) 316.3% 19 72 -73.6% 151 -87.4% (272) - - - (1,964) 2,045 NMF (260) 655.4% Net non-recurring income/(expense) 387 (556) NMF (230) -268.3% (973) - - - - - - - - (586) (556) NMF (230) 154.8% Profit before income tax expense 8,716 5,667 53.8% 10,667 -18.3% (2,031) 714 NMF (149) 1,263.1% (403) - - - 6,282 6,381 -1.6% 10,518 -40.3% Income tax benefit/(expense) 26,619 1,199 NMF 1,486 1691.3% 301 (539) NMF 19 1,484.2% - - - - 26,920 660 NMF 1,505 1,688.7% of which: Deferred tax adjustments 27,113 - - 2,198 - - - - - - - - - - 27,113 - - 2,198 - Profit for the period 35,335 6,866 414.6% 12,153 190.8% (1,730) 175 NMF (130) 1,230.8% (403) - - - 33,202 7,041 371.6% 12,023 176.2% Attributable to: - shareholders of the Company 29,888 5,947 402.6% 10,051 197.4% (1,730) 175 NMF (130) 1,230.8% (403) - - - 27,755 6,122 353.4% 9,921 179.8% - non-controlling interests 5,447 919 492.7% 2,102 159.1% - - - - - - - - - 5,447 919 492.7% 2,102 159.1% of which: Deferred tax adjustments 4,705 - - 352 - - - - - - - - - - 4,705 - - 352 -
Georgia Healthcare Group
Income Statement, Half-Year Healthcare services Medical insurance Pharma Eliminations GHG GEL thousands; unless Change, Change, Change, otherwise noted 1H16 1H15 Y-o-Y 1H16 1H15 Y-o-Y 1H16 1H16 1H15 1H16 1H15 Y-o-Y Revenue, gross 119,230 88,419 34.8% 29,128 27,814 4.7% 30,691 (4,800) (4,187) 174,249 112,046 55.5% Corrections & rebates (1,134) (1,842) -38.4% - - - - - - (1,134) (1,842) -38.4% Revenue, net 118,096 86,577 36.4% 29,128 27,814 4.7% 30,691 (4,800) (4,187) 173,115 110,204 57.1% Costs of services (64,397) (48,462) 32.9% (26,836) (23,321) 15.1% (25,059) 4,746 4,024 (111,546) (67,759) 64.6% Cost of salaries and other employee benefits (39,609) (31,011) 27.7% - - - - 1,659 1,442 (37,950) (29,569) 28.3% Cost of materials and supplies (18,841) (12,740) 47.9% - - - - 789 592 (18,052) (12,148) 48.6% Cost of medical service providers (829) (978) -15.2% - - - - 35 45 (794) (933) -14.9% Cost of utilities and other (5,118) (3,733) 37.1% - - - - 214 174 (4,904) (3,559) 37.8% Net insurance claims incurred - - - (24,956) (21,872) 14.1% - 2,049 1,771 (22,907) (20,101) 14.0% Agents, brokers and employee commissions - - - (1,880) (1,449) 29.7% - (1,880) (1,449) 29.7% Cost of pharma - wholesale - - - - - - (6,545) - - (6,545) - - Cost of pharma - retail - - - - - - (18,514) - - (18,514) - - Gross profit 53,699 38,115 40.9% 2,292 4,493 -49.0% 5,632 (54) (163) 61,569 42,445 45.1% Salaries and other employee benefits (11,369) (10,837) 4.9% (2,147) (1,928) 11.4% (2,690) 54 163 (16,152) (12,602) 28.2% General and administrative expenses (6,000) (3,687) 62.7% (1,427) (1,263) 13.0% (2,533) - - (9,960) (4,950) 101.2% Impairment of healthcare services, insurance premiums and other receivables (1,978) (1,737) 13.9% (238) (109) 118.3% - - - (2,216) (1,846) 20.0% Other operating income 636 491 29.5% (11) 50 NMF 145 - - 770 541 42.3% EBITDA 34,988 22,345 56.6% (1,531) 1,243 NMF 554 - - 34,011 23,588 44.2% EBITDA margin 29.3% 25.3% -5.3% 4.5% 1.8% - - 19.5% 21.1% Depreciation and amortisation (8,382) (4,600) 82.2% (406) (289) 40.5% (258) - - (9,046) (4,889) 85.0% Net interest income (expense) (5,258) (10,084) -47.9% 560 (34) NMF (427) - - (5,125) (10,118) -49.3%
Net gains/(losses)
from foreign
currencies (2,122) 4,880 NMF 170 569 -70.1% (272) - - (2,224) 5,449 NMF
Net non-recurring
income/(expense) 157 (767) NMF (973) - - - - - (816) (767) NMF
Profit before income
tax expense 19,383 11,774 64.6% (2,180) 1,489 NMF (403) - - 16,800 13,263 26.7%
Income tax
benefit/(expense) 28,105 708 NMF 320 (655) NMF - - - 28,425 53 NMF
of which:
Deferred
tax
adjustments 29,311 - - - - - - - - 29,311 - -
Profit for the period 47,488 12,482 280.5% (1,860) 834 NMF (403) - - 45,225 13,316 239.6%
-
Attributable to: -
- shareholders of
the Company 39,939 11,020 262.4% (1,860) 834 NMF (403) - - 37,676 11,854 217.8%
- non-controlling
interests 7,549 1,462 416.3% - - - - - - 7,549 1,462 416.3%
of which:
Deferred
tax
adjustments 5,057 - - - - - - - - 5,057 - -
P&C Insurance (Aldagi)
INCOME STATEMENT HIGHLIGHTS
GEL thousands, unless
otherwise stated 2Q16 2Q15 Change 1Q16 Change 1H16 1H15 Change
Y-O-Y Q-O-Q Y-O-Y
Net banking interest
income 770 567 35.8% 725 6.2% 1,495 1,113 34.3%
Net fee and commission
income 104 72 44.4% 100 4.0% 203 143 42.0%
Net banking foreign
currency gain (986) 1,687 NMF (47) NMF (1,033) 2,215 NMF
Net other banking income 223 90 147.8% 131 70.2% 356 387 -8.0%
Gross insurance profit 6,811 3,853 76.8% 5,665 20.2% 12,475 9,460 31.9%
Revenue 6,922 6,269 10.4% 6,574 5.3% 13,496 13,318 1.3%
Operating expenses (2,774) (2,524) 9.9% (2,767) 0.3% (5,542) (5,494) 0.9%
Operating income before
cost of credit risk and
non-recurring items 4,148 3,745 10.8% 3,807 9.0% 7,954 7,824 1.7%
Cost of credit risk (186) (172) 8.1% (173) 7.5% (358) (267) 34.1%
Net non-recurring items - - - - - - - -
Profit before income
tax 3,962 3,573 10.9% 3,634 9.0% 7,596 7,557 0.5%
Income tax (expense)
benefit (1,009) (150) NMF (545) 85.1% (1,553) 238 NMF
Profit 2,953 3,423 -13.7% 3,089 -4.4% 6,043 7,795 -22.5%
Belarusky Narodny Bank (BNB)
INCOME STATEMENT, HIGHLIGHTS
GEL thousands, unless
otherwise stated 2Q16 2Q15 Change 1Q16 Change 1H16 1H15 Change
Y-O-Y Q-O-Q Y-O-Y
Net banking interest
income 6,997 6,638 5.4% 7,903 -11.5% 14,900 14,067 5.9%
Net fee and commission
income 1,868 2,699 -30.8% 1,862 0.3% 3,730 4,916 -24.1%
Net banking foreign
currency gain 2,100 3,668 -42.7% 2,481 -15.4% 4,581 8,685 -47.3%
Net other banking income 80 137 -41.6% 167 -52.1% 247 234 5.6%
Revenue 11,045 13,142 -16.0% 12,413 -11.0% 23,458 27,902 -15.9%
Operating expenses (4,950) (4,687) 5.6% (4,490) 10.2% (9,440) (8,941) 5.6%
Operating income before
cost of credit risk 6,095 8,455 -27.9% 7,923 -23.1% 14,018 18,961 -26.1%
Cost of credit risk (1,075) (5,683) -81.1% (2,516) -57.3% (3,592) (10,328) -65.2%
Net non-recurring items (8) (318) -97.5% (3) 166.7% (10) (1,416) -99.3%
Profit before income
tax 5,012 2,454 104.2% 5,404 -7.3% 10,416 7,217 44.3%
Income tax (expense)
benefit (4,845) (785) NMF (1,144) NMF (5,990) (2,212) 170.8%
Profit 167 1,669 -90.0% 4,260 -96.1% 4,426 5,005 -11.6%
BALANCE SHEET, HIGHLIGHTS 30-Jun-16 30-Jun-15 Change 31-Mar-16 Change
GEL thousands, unless Y-O-Y Q-O-Q
otherwise stated
Cash and cash equivalents 75,561 67,632 11.7% 93,904 -19.5%
Amounts due from credit
institutions 3,366 3,636 -7.4% 3,986 -15.6%
Loans to customers and
finance lease receivables 310,546 305,816 1.5% 319,740 -2.9%
Other assets 43,036 67,293 -36.0% 49,825 -13.6%
Total assets 432,509 444,377 -2.7% 467,455 -7.5%
Client deposits and notes 202,382 242,249 -16.5% 230,848 -12.3%
Amounts due to credit
institutions 141,577 114,161 24.0% 139,801 1.3%
Debt securities issued 15,416 - - 15,906 -3.1%
Other liabilities 6,070 7,372 -17.7% 5,409 12.2%
Total liabilities 365,445 363,782 0.5% 391,964 -6.8%
Total equity attributable
to shareholders of the
Group 53,810 66,953 -19.6% 62,908 -14.5%
Non-controlling interests 13,254 13,642 -2.8% 12,583 5.3%
Total equity 67,064 80,595 -16.8% 75,491 -11.2%
Total liabilities and
equity 432,509 444,377 -2.7% 467,455 -7.5%
Banking Business Key Ratios
2Q16 2Q15 1Q16 Jun-16 Jun-15
Profitability
ROAA, Annualised 3.4% 2.9% 3.0% 3.2% 2.9%
ROAE, Annualised 22.5% 19.3% 21.2% 21.7% 19.3%
RB ROAE 29.2% 21.2% 24.3% 26.6% 21.6%
CIB ROAE 17.2% 18.4% 17.6% 17.4% 16.7%
Net Interest Margin, Annualised 7.5% 7.6% 7.5% 7.5% 7.8%
RB NIM 9.1% 9.5% 9.2% 9.2% 9.6%
CIB NIM 3.7% 3.9% 3.7% 3.7% 4.1%
Loan Yield, Annualised 14.1% 14.6% 14.4% 14.3% 14.6%
RB Loan Yield 16.9% 17.3% 17.4% 17.2% 17.3%
CIB Loan Yield 10.0% 12.1% 10.3% 10.2% 12.0%
Liquid assets yield, Annualised 3.3% 3.1% 3.1% 3.2% 3.2%
Cost of Funds, Annualised 4.8% 5.0% 5.0% 4.9% 5.0%
Cost of Client Deposits and
Notes, annualised 4.0% 4.4% 4.3% 4.2% 4.4%
RB Cost of Client Deposits
and Notes 3.4% 3.9% 3.5% 3.5% 4.2%
CIB Cost of Client Deposits
and Notes 4.2% 3.9% 4.5% 4.4% 3.9%
Cost of Amounts Due to Credit
Institutions, annualised 5.9% 5.3% 6.0% 5.9% 5.3%
Cost of Debt Securities Issued 7.0% 7.2% 7.2% 7.1% 7.2%
Operating Leverage, Y-O-Y -6.4% 21.7% -3.3% -4.9% 19.5%
Operating Leverage, Q-O-Q -0.2% 2.9% -6.6% 0.0% 0.0%
Efficiency
Cost / Income 38.0% 35.7% 37.9% 38.0% 36.2%
RB Cost / Income 39.9% 40.0% 43.3% 41.6% 41.8%
CIB Cost / Income 31.8% 27.8% 27.0% 29.3% 26.3%
Liquidity
NBG Liquidity Ratio 43.5% 35.1% 47.3% 43.5% 35.1%
Liquid Assets To Total Liabilities 37.2% 36.5% 37.1% 37.4% 36.5%
Net Loans To Client Deposits
and Notes 114.9% 122.1% 108.7% 114.9% 122.1%
Net Loans To Client Deposits
and Notes + DFIs 95.8% 102.4% 91.6% 95.8% 102.4%
Leverage (Times) 5.6 6.0 6.1 5.6 6.0
Asset Quality:
NPLs (in GEL) 251,383 219,230 251,959 251,383 219,230
NPLs To Gross Loans To Clients 4.4% 4.1% 4.5% 4.4% 4.1%
NPL Coverage Ratio 85.8% 82.2% 86.0% 85.8% 82.2%
NPL Coverage Ratio, Adjusted
for discounted value of collateral 129.7% 115.1% 122.6% 129.7% 115.1%
Cost of Risk, Annualised 2.0% 2.7% 2.3% 2.1% 2.9%
RB Cost of Risk 2.3% 2.8% 2.5% 2.4% 2.6%
CIB Cost of Risk 1.5% 1.8% 2.1% 1.8% 2.6%
Capital Adequacy:
New NBG (Basel 2/3) Tier I
Capital Adequacy Ratio 10.2% 10.4% 10.1% 10.2% 10.4%
New NBG (Basel 2/3) Total
Capital Adequacy Ratio 15.5% 15.9% 15.8% 15.5% 15.9%
Old NBG Tier I Capital Adequacy
Ratio 10.0% 13.9% 10.7% 10.0% 13.9%
Old NBG Total Capital Adequacy
Ratio 16.4% 15.8% 16.3% 16.4% 15.8%
Selected Operating Data:
Total Assets Per FTE, BOG
Standalone 1,954 1,995 1,972 1,954 1,995
Number Of Active Branches,
Of Which: 273 246 266 273 246
- Express Branches (including
Metro) 119 97 114 119 97
- Bank of Georgia Branches 144 147 144 144 147
- Solo Lounges 10 2 8 10 2
Number Of ATMs 763 685 753 763 685
Number Of Cards Outstanding,
Of Which: 1,946,828 1,964,374 1,943,175 1,946,828 1,964,374
- Debit cards 1,152,319 1,207,573 1,171,454 1,152,319 1,207,573
- Credit cards 794,509 756,801 771,721 794,509 756,801
Number Of POS Terminals 9,044 7,668 8,175 9,044 7,668
Group Employee Data 2Q16 2Q15 1Q16
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 60 58 59
- Full Time Employees,
Aldagi 276 253 259
- Full Time Employees,
BNB 574 505 562
- Full Time Employees,
Other 961 903 951
% of
Operating Data, GEL mln Q2 2016 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 0.7% 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 0.7% 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 1.2% 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 21.5% 435,010 199,543 174,570
Credit cards outstanding,
number, of which: 794,509 38.9% 754,274 116,615 117,913
American Express cards 85,743 4.2% 100,515 110,362 108,608
Shares Outstanding Jun-16 Jun-15 Mar-16
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 In the last quarter We continuously monitor
have affected, and of 2015, the GEL/ US$ market conditions and
may continue to affect exchange rate stabilised. review market changes.
the Group in addition Since 1 January 2016, We also perform stress
to general deterioration the Georgian Lari has and scenario testing
of global and regional appreciated against to test our financial
economic conditions. the US Dollar. We are, position in adverse
however, unable to economic conditions,
In 2015, the Lari depreciated predict future changes which includes a GEL/US$
against the US Dollar in the GEL/US$ exchange exchange rate of 2.7/1.
by 22.2%, while in rate.
the first half of 2016, We also establish limits
it appreciated by 2.3% Global and regional on possible losses for
year to date. Volatility economic conditions each type of operation
of Lari against the remain volatile and and monitor compliance
US Dollar has affected there is significant with such limits.
and may continue to economic uncertainty.
adversely affect Group's Given our strong liquidity
performance. Our Banking Real GDP growth in position, we believe
Business NPLs to gross Georgia decreased to that we will be able
loans increased to 2.8% in 2015 and 2.9% to manage risk related
4.4% as of 30 June in the first half of to our US Dollar-denominated
2016, compared to 3.4% 2016, from 4.6% in loan book.
as of 31 December 2014, 2014, according to
and our cost of risk Geostat. This decrease In addition, the NBG
ratio increased to was due to a weaker requires banks to hold
2.1% in the first half external economic environment, additional capital to
of 2016, compared to which was reflected mitigate potential risk
1.2% in 2014. There in weaker remittances, associated with foreign
is a risk that any lower net exports from currency loans to customers
future depreciation Georgia and lower FDI. that earn Georgian Lari.
of the Georgian Lari Despite the lower current
against the US Dollar GDP growth in Georgia,
may adversely affect we believe that Georgia
the quality of our was particularly resilient
loan portfolio and in the context of the
increase impairment economic turbulences
provisions, as our in the region.
corporate loan book
and mortgage portfolio The IMF has projected
is heavily US Dollar-denominated the decline in GDP
and many of our customers growth in the region
earn Georgian Lari. is at 0.6% in 2016,
and growth to recover
We are also affected to 1.5% in 2017 (July
by other macroeconomic 2016 WEO update). With
and market conditions respect to Georgia,
globally, regionally the IMF has projected
and in Georgia. Global the GDP growth at 2.5%
markets conditions in 2016 and to average
remain volatile and 4.9% in 2017-2021.
growth has recently We believe that real
slowed in many emerging GDP growth in Georgia
economies, including will be in the range
Georgia. In addition of 3.0% to 3.5% in
to currency exchange 2016 as a result of
rates, other macroeconomic healthy market fundamentals,
factors relating to new investment opportunities,
Georgia, such as GDP, growth in tourism,
inflation and interest fiscal stimulus and
rates, may have a material monetary normalization.
impact on loan losses, Average annual inflation
our margins and customer was 4.0% in 2015 and
demand for our products price pressures remain
and services. eased in 2016.
------------------------------------- --------------------------------- -----------------------------------
We have credit policies
Our loan book is heavily In 2015, we saw significant and procedures in place
US Dollar- denominated, retail loan growth which incorporate prudent
the quality of which of 35.3%, which continued lending criteria aligned
may deteriorate as further in the first with our risk appetite
a result of slower half of 2016 with retail to effectively manage
economic growth and loan book growing at risk. These policies
Georgian Lari depreciation. 18.1% y-o-y, as a result and procedures are reviewed
of the success of our frequently and amended
As at 30 June 2016, Express Banking strategy, as necessary to account
approximately 89% and the acquisition of for changes in the economic
58% of our corporate PrivatBank and launch environment or other
loan book and retail of Solo. The acquisition factors.
loan book, respectively, of PrivatBank increased
was denominated in the number of retail Our Credit Committees
foreign currency (predominantly banking NPLs, but we set counterparty limits
US Dollars), while do not view this as by the use of a credit
US Dollar income covered significant when compared risk classification
approximately 50% of to loan book growth. and scoring system and
the total loan book. Retail banking default approve individual transactions.
rates remain relatively The credit quality review
The quality of our low as our retail banking process is continuous
loan book is affected clients prefer to save and provides early identification
by changes in the creditworthiness in US Dollars and also of possible changes
of our customers, the receive remittances in the creditworthiness
ability of our customers in US Dollars, which of customers, potential
to repay their loans constitute a principal losses and corrective
on time, the statutory source of income for actions needed to reduce
priority of claims our clients. risk.
against customers,
our ability to enforce In the first half of We also stress test
our security interests 2016, we also significantly our loan book to estimate
on customers' collateral increased our NPL coverage the size of the portfolio
and the value of such ratio (85.8% as of that may be impaired.
collateral should such 30 June 2016 compared In light of the Georgian
customers fail to repay to 83.4% as of 31 December Lari to US Dollar devaluation,
their loans, as well 2015 and 67.5% as of we will continue to
as factors beyond our 31 December 2014). stress test using a
control such as economic The quality of our GEL/US$ exchange rate
instability. Depreciation loan book and our future of 2.7/1. We allocate
of the Georgian Lari cost of risk is dependent 75% more capital to
against the US Dollar on macroeconomic conditions the foreign currency
may result in customers and may deteriorate loans of clients who
having difficulty repaying if conditions worsen. earn income in Georgian
their loans. Depreciation of the Lari and discount real
Georgian Lari against estate collateral values
Our impairment charges the US Dollar may cause by 20%.
and, in turn, our cost our customers to face
of credit risk, may difficulty in meeting Given our strong liquidity
increase if a single their payment obligations. position, we believe
large borrower defaults that we will be able
or a material concentration to manage risk related
of smaller borrowers to our US Dollar-denominated
default. 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 Despite tensions in One of the most significant
our business may be the breakaway territories, changes in exports was
adversely affected Russia has opened its a shift away from the
by regional tensions. market to Georgian Russian market after
exports. Russia and Russia's 2006 embargo.
Georgia shares borders Ukraine's relationship In 2014, Georgia and
with Russia, Azerbaijan, has continued to deteriorate. the EU signed an association
Armenia and Turkey As a result, there agreement introducing
and has had ongoing is significant uncertainty the deep and comprehensive
disputes in the breakaway as to how and when free trade agreement
regions of Abkhazia the conflict between (DCFTA), effective since
and the Tskhinvali Russia and Ukraine 1 September 2014, which
Region/South Ossetia, will be resolved. During is intended to simplify
and with Russia. These the first half of 2016, Georgia's access to
disputes have led to Georgia delivered real the EU market. The Government
sporadic violence and GDP growth of 2.9%, continues to maintain
breaches of peacekeeping whilst inflation was strong relationships
operations. Regional maintained well below with international development
tensions could have the 5% target range. partners.
an adverse effect on Foreign Direct Investment An on-going IMF programme,
the local economy and continued to be strong, introduced in July 2014,
our business. tourist numbers - a is intended to help
significant driver implement the government's
of US Dollar inflows economic reform programme
for the country - continue and aims to reduce macroeconomic
to rise. Tax revenues vulnerabilities, increase
were above the budgeted policy buffers and support
figure in 1H16 (101.9% growth, while making
of planned amount), the economy more resilient
and, as a result, the to external shocks.
Georgian Government's
fiscal position continues
to be strong.
------------------------------------- --------------------------------- -----------------------------------
We face regulatory Our businesses are Continued investment
risk. currently in compliance in our people and processes
with all applicable is enabling us to meet
Our businesses are laws and regulations. our regulatory requirements
highly regulated. Our and places us well to
banking operations Compliance with changes respond to changes in
must comply with capital in capital adequacy regulation.
adequacy and other requirements and other
regulatory ratios set regulatory ratios may In line with our integrated
by our regulator, the be affected by factors control
NBG, including reserve outside of our control, framework, we carefully
requirements and mandatory including but not limited evaluate the impact
financial ratios. to a weakening of the of legislative and regulatory
global and Georgian changes
Our ability to comply economies. as part of our formal
with these regulations risk identification
may be affected by In October 2014, an and assessment processes
a number of factors, anti-monopoly agency and, to the extent possible,
including but not limited was established and proactively participate
to increases in minimum anti-monopoly legislation in the drafting of relevant
capital adequacy ratios was implemented in legislation. As part
imposed by the NBG, respect of certain of this process, we
our ability to raise non-banking operations. engage in constructive
capital, losses resulting We expect that such dialogue with regulatory
from deterioration legislation may have bodies, where possible,
in our asset quality, an impact on our non-banking and seek external advice
an increase in expenses operations acquisitions on potential changes
and a decline in the as we will be required to legislation. We then
values of our securities to seek permission develop appropriate
portfolio. to proceed with certain policies, procedures
future acquisitions. and controls as required
We also provide other to fulfil our compliance
regulated financial As healthcare legislation obligations.
services and offer is continuously evolving,
financing products, we expect that additional Our compliance framework,
including brokerage regulations will be at all levels, is subject
and pension fund operations, adopted. We, however, to regular review by
insurance and services cannot predict what internal audit and external
such as asset management, additional regulatory assurance providers.
all of which are subject changes will be introduced
to governmental supervision in the future or their
and regulation. effect.
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.
------------------------------------- --------------------------------- -----------------------------------
We are subject to operational Over the past few years, We have an integrated
risk. as our operations have control framework encompassing
expanded, we have seen operational risk management
The proper functioning an increase in external and control, information
of our systems, risk fraud, although losses technology and information
management, internal from such frauds have security,
controls, accounting, not increased significantly. AML compliance and physical
customer service and Cyber-security threats security, each of which
other information technology have also increased is managed by a separate
systems, are critical year on year, but have department.
to our operations. not affected our operations.
We are highly dependent It is expected that We identify and assess
on our information such threats will continue operational risk categories
technology systems. to increase, which within our risk management
Cyber threats show will require us to framework and internal
an increasing trend. closely monitor such control processes, identifying
We are also subject threats. critical risk areas
to the risk of incurring or groups of operations
losses or undue costs Money laundering has with an increased risk
due to human error, also increased globally level. In response to
criminal activities and will be continuously these risks, we develop
(including fraud and monitored by our AML and implement policies
electronic crimes), compliance department. and security procedures.
unauthorised transactions,
robbery and damage We carry out regular
to assets. 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 We have a solid track GHG has a solid track
to investment businesses. record of growth: record of acquisitions.
Led by a highly experienced
Over the past year, The Group's market management team, GHG
we have significantly capitalisation grew has successfully acquired
expanded our investments from c.US$ 20mln in and integrated more
in non-banking businesses. 2004, to over USD 1.3bln than 20 companies in
Our investment businesses in June 2016. the hospital and insurance
operate in various sectors over the past
industries, including GHG, our healthcare decade. GHG has a dedicated
healthcare services, subsidiary, grew its integration team comprising
pharma, medical insurance, revenue from GEL 119.4mln of highly experienced
real estate, water in 2012 to GEL 242.7mln professionals with extensive
utility (where we recently in 2015 and GEL 174.2mln integration project
acquired remaining in the first half of experience. The integration
75% stake), hydro, 2016. And it also grew team meets at least
wine and beverages. its market capitalisation weekly to discuss all
Therefore, we face from US$ 330mln at aspects of the integration
risks associated with the IPO, to over US$ process, including but
companies operating 0.5bln as of the date not limited to financial,
in respective industries. of this report. commercial, clinical,
Number of our businesses human resources and
also operate in a regulated m(2) Real Estate, our legal matters.
environment. real estate subsidiary
Our investment businesses and currently the major With respect to our
have growth and expansion real estate developer recent acquisition of
strategies and we face in the country, started the remaining 75% in
execution risk. its first residential GGU, we have been able
We have stated that development in 2010. to select strong Group
as part of our strategy Since, m(2) has recorded executives to join the
we intend to divest total sales of US$ GGU management team
our investment businesses 152.2mln at the completed allowing us to learn
(in full or partially) six residential projects the business from the
within six years. We with 91% of apartments inside since we acquired
have successfully completed sold and three ongoing 25% in the end of 2014.
IPO of our healthcare projects, with 25% GGU's existing management
business through a apartments pre-sold. team delivered a strong
stock market listing improvement in the performance
in 2015. With respect Our investment businesses of GGU during 2015.
to future divestments are aiming to deliver This track record was
by way of a stock market solid further growth important to our decision
listing or trade sale, through organic growth to step-up our investment
exit risks may be present, as well as potential and become the 100%
as it may not be possible, acquisitions. shareholder of the business.
or desirable, to IPO We have also sought
our other investment Businesses within the and continue to seek
businesses due to a Group have successfully advice from experienced
number of factors, accessed the international global professionals
including supportive capital markets since in the industry.
equity issuance markets, 2006. However, the
the ability to achieve success of an IPO,
favourable terms for trade sale or any other
the IPO and/or the capital markets transaction
political and economic is very much linked
environment. to global and regional
macroeconomic and political
events, among other
factors.
------------------------------------- --------------------------------- -----------------------------------
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
INDEPENT 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
INDEPENT 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
16 August 2016
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
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2016
(Thousands of Georgian Lari)
As at
--------------------------------------------------------------------------------------------------
Notes 30 June 2016 (unaudited) 31 December 2015
------ ------------------------------------------------ ------------------------------------------------
Banking Investment Elimi- Banking Investment Elimi-
Business Business nation Total Business Business nation Total
Assets
Cash and cash
equivalents 6 1,034,062 245,595 (220,298) 1,059,359 1,378,459 290,576 (236,101) 1,432,934
Amounts due
from credit
institutions 7 863,791 28,949 (16,085) 876,655 721,802 15,730 (6,167) 731,365
Investment
securities 8 990,125 2,572 (3,366) 989,331 906,730 1,153 (4,016) 903,867
Loans to
customers
and
finance
lease
receivables 9 5,507,414 - (38,294) 5,469,120 5,366,764 - (44,647) 5,322,117
Accounts
receivable
and
other loans 5,262 86,748 (2,848) 89,162 10,376 82,354 (4,758) 87,972
Insurance
premiums
receivable 24,013 35,993 (1,339) 58,667 19,829 20,929 (1,532) 39,226
Prepayments 22,461 81,381 - 103,842 21,033 37,295 - 58,328
Inventories 9,559 168,975 - 178,534 9,439 117,588 - 127,027
Investment
properties 10 138,546 107,303 - 245,849 135,453 110,945 - 246,398
Property and
equipment 336,013 516,667 - 852,680 337,064 457,618 - 794,682
Goodwill 49,592 56,542 - 106,134 49,592 23,392 - 72,984
Intangible
assets 38,314 11,303 - 49,617 35,162 5,354 - 40,516
Income tax
assets 19,614 6,971 - 26,585 16,003 5,547 - 21,550
Other assets 132,268 88,233 (2,813) 217,688 163,731 79,479 (6,437) 236,773
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
Total assets 9,171,034 1,437,232 (285,043) 10,323,223 9,171,437 1,247,960 (303,658) 10,115,739
========== =========== ========== =========== ========== =========== ========== ===========
Liabilities
Client
deposits and
notes 11 4,791,979 - (237,967) 4,554,012 4,993,681 - (242,294) 4,751,387
Amounts owed
to credit
institutions 12 1,766,999 163,730 (38,292) 1,892,437 1,692,557 144,534 (48,029) 1,789,062
Debt
securities
issued 13 990,370 81,088 (5,942) 1,065,516 961,944 84,474 (6,614) 1,039,804
Accruals and
deferred
income 13,084 124,883 - 137,967 20,364 126,488 - 146,852
Insurance
contracts
liabilities 47,701 32,942 - 80,643 34,547 21,298 - 55,845
Income tax
liabilities 42,916 1,594 - 44,510 89,980 34,415 - 124,395
Other
liabilities 120,007 221,592 (2,842) 338,757 63,073 78,404 (6,721) 134,756
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
Total
liabilities 7,773,056 625,829 (285,043) 8,113,842 7,856,146 489,613 (303,658) 8,042,101
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
As at 30 June 2016
(Thousands of Georgian Lari)
As at
--------------------------------------------------------------------------------------------------
Notes 30 June 2016 (unaudited) 31 December 2015
------ ------------------------------------------------ ------------------------------------------------
Banking Investment Elimi- Total Banking Investment Elimi- Total
Business Business nation Business Business nation
Equity 14
Share capital 1,154 - - 1,154 1,154 - - 1,154
Additional
paid-in capital 88,253 140,426 - 228,679 101,793 138,800 - 240,593
Treasury shares (35) - - (35) (44) - - (44)
Other reserves (9,549) 97,775 - 88,226 (63,958) 96,802 - 32,844
Retained
earnings 1,298,592 354,276 - 1,652,868 1,257,415 319,635 - 1,577,050
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
Total equity
attributable
to shareholders
of BGEO 1,378,415 592,477 - 1,970,892 1,296,360 555,237 - 1,851,597
Non-controlling
interests 19,563 218,926 - 238,489 18,931 203,110 - 222,041
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
Total equity 1,397,978 811,403 - 2,209,381 1,315,291 758,347 - 2,073,638
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
Total
liabilities and
equity 9,171,034 1,437,232 (285,043) 10,323,223 9,171,437 1,247,960 (303,658) 10,115,739
========== =========== ========== =========== ========== =========== ========== ===========
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
16 August 2016
BGEO Group PLC
Registered No. 07811410
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
For the six months ended
----------------------------------------------------------------------------------------------
Notes 30 June 2016 (unaudited) 30 June 2015 (unaudited)
------ ---------------------------------------------- ----------------------------------------------
Banking Investment Elimi- Total Banking Investment Elimi- Total
Business Business nation Business Business nation
Banking
interest
income 443,451 - (2,746) 440,705 417,666 - (6,099) 411,567
Banking
interest
expense (183,709) - 384 (183,325) (168,205) - 416 (167,789)
Net banking
interest income 16 259,742 - (2,362) 257,380 249,461 - (5,683) 243,778
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Fee and
commission
income 79,159 - (761) 78,398 77,503 - (2,568) 74,935
Fee and
commission
expense (21,505) - 264 (21,241) (19,241) - 281 (18,960)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Net fee and
commission
income 17 57,654 - (497) 57,157 58,262 - (2,287) 55,975
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Net banking
foreign
currency gain 32,896 - - 32,896 38,727 - - 38,727
Net other
banking income 5,992 - (495) 5,497 4,906 - (634) 4,272
Net insurance
premiums
earned 19,785 27,195 (1,302) 45,678 19,019 26,134 (878) 44,275
Net insurance
claims
incurred (7,947) (22,906) - (30,853) (10,242) (20,642) - (30,884)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Gross insurance
profit 11,838 4,289 (1,302) 14,825 8,777 5,492 (878) 13,391
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Healthcare
revenue - 113,351 - 113,351 - 81,234 - 81,234
Cost of
healthcare
services - (61,861) - (61,861) - (46,259) - (46,259)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Gross healthcare
profit - 51,490 - 51,490 - 34,975 - 34,975
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Real estate
revenue - 35,087 - 35,087 - 5,790 - 5,790
Cost of real
estate - (26,598) - (26,598) - (4,622) - (4,622)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Gross real
estate profit - 8,489 - 8,489 - 1,168 - 1,168
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Gross other
investment
profit - 12,118 (75) 12,043 - 6,253 (120) 6,133
Revenue 368,122 76,386 (4,731) 439,777 360,133 47,888 (9,602) 398,419
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Salaries and
other employee
benefits (80,653) (18,935) 1,300 (98,288) (76,672) (14,991) 877 (90,786)
Administrative
expenses (39,109) (14,609) 743 (52,975) (35,404) (8,527) 773 (43,158)
Banking
depreciation
and
amortisation (18,475) - - (18,475) (16,711) - - (16,711)
Other operating
expenses (1,545) (688) - (2,233) (1,733) (520) - (2,253)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Operating
expenses (139,782) (34,232) 2,043 (171,971) (130,520) (24,038) 1,650 (152,908)
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
Operating income
before cost of
credit risk /
EBITDA 228,340 42,154 (2,688) 267,806 229,613 23,850 (7,952) 245,511
---------- ------------ -------- ---------- ---------- ------------ -------- ----------
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
For the six months ended
----------------------------------------------------------------------------------------------------------
Notes 30 June 2016 (unaudited) 30 June 2015 (unaudited)
------ --------------------------------------------------- -----------------------------------------------------
Banking Investment Elimi- Total Banking Investment Elimi- Total
Business Business nation Business Business nation
Operating income
before cost of
credit risk /
EBITDA 228,340 42,154 (2,688) 267,806 229,613 23,850 (7,952) 245,511
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Profit from
associates - 3,818 - 3,818 - 668 - 668
Depreciation and
amortization
of investment
business - (9,685) - (9,685) - (5,266) - (5,266)
Net foreign currency
(loss) gain
from investment
business - (2,363) - (2,363) - 6,379 - 6,379
Interest income from
investment
business 16 - 1,024 (351) 673 - 1,662 (423) 1,239
Interest expense
from investment
business 16 - (6,919) 3,039 (3,880) - (13,469) 8,375 (5,094)
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Operating income
before cost of
credit risk 228,340 28,029 - 256,369 229,613 13,824 - 243,437
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Impairment charge
on loans to
customers 9 (59,036) - - (59,036) (74,033) - - (74,033)
Impairment charge
on finance lease
receivables (643) - - (643) (1,899) - - (1,899)
Impairment charge
on other assets
and provisions (3,483) (2,367) - (5,850) (5,604) (2,172) - (7,776)
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Cost of credit risk (63,162) (2,367) - (65,529) (81,536) (2,172) - (83,708)
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Net operating income
before
non-recurring
items 165,178 25,662 - 190,840 148,077 11,652 - 159,729
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Net non-recurring
items 18 (47,770) 390 - (47,380) (5,575) 2,715 - (2,860)
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
Profit before income
tax gain
(expense) 117,408 26,052 - 143,460 142,502 14,367 - 156,869
Income tax benefit
(expense) 26,961 27,863 - 54,824 (22,238) (262) - (22,500)
Profit for the
period 144,369 53,915 - 198,284 120,264 14,105 - 134,369
========== =============== ========== ========== =========== =============== ========== ===========
Attributable to:
- shareholders
of BGEO 142,220 33,258 - 175,478 119,211 14,030 - 133,241
-
non-controlling
interests 2,149 20,657 - 22,806 1,053 75 - 1,128
---------- --------------- ---------- ---------- ----------- --------------- ---------- -----------
144,369 53,915 - 198,284 120,264 14,105 - 134,369
========== =============== ========== ========== =========== =============== ========== ===========
Earnings per share: 14
- basic and
diluted
earnings per
share 4.5685 3.4679
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
For the six months
ended
--------------------------------------
30 June 30 June
2016 (unaudited) 2015 (unaudited)
------------------ ------------------
Profit for the period 198,284 134,369
------------------ ------------------
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 4,323 -
of property and equipment
------------------ ------------------
Net other comprehensive income not to be 4,323 -
reclassified to profit or loss in subsequent
periods
------------------ ------------------
Other comprehensive income (loss) for the
period, net of tax 49,172 (28,973)
------------------ ------------------
Total comprehensive income for the period 247,456 105,396
================== ==================
Attributable to:
- shareholders of BGEO 225,491 105,190
- non-controlling interests 21,965 206
------------------ ------------------
247,456 105,396
================== ==================
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
Attributable to shareholders of BGEO
------------------------------------------------------------------- ---------------- ------------------
Additional
Share paid-in Treasury Other Retained Non-controlling Total
capital capital shares reserves earnings Total interests equity
-------- ----------- --------- --------- ---------- ---------- ---------------- ------------------
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) - - - - 133,241 133,241 1,128 134,369
Other
comprehensive
loss for the
for
the six
months ended 30
June 2015
(unaudited) - - - (29,601) 1,550 (28,051) (922) (28,973)
-------- ----------- --------- --------- ---------- ---------- ---------------- ------------------
Total
comprehensive
income for the
six
months ended 30
June 2015
(unaudited) - - - (29,601) 134,791 105,190 206 105,396
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 11 1,736 - (10,467) 8,720 - - -
Dividends to
shareholders
of BGEO (Note
14) - - - - (80,411) (80,411) - (80,411)
Dilution of
interests
in existing
subsidiaries - - - - - - 434 434
Acquisition of
non-controlling
interests in
existing
subsidiaries - - - 1,645 - 1,645 (3,265) (1,620)
Non-controlling
interests
arising
on acquisition
of subsidiary - - - - - - 1,488 1,488
Purchase of
treasury
shares - (9,307) (5) - - (9,312) - (9,312)
-------- ----------- --------- ---------- ---------- ----------------
30 June 2015
(unaudited) 1,154 243,482 (36) (61,509) 1,413,870 1,596,961 58,982 1,655,943
======== =========== ========= ========= ========== ========== ================ ==================
31 December 2015 1,154 240,593 (44) 32,844 1,577,050 1,851,597 222,041 2,073,638
========= ==================
Profit for the
six
months ended
30 June 2016
(unaudited) - - - - 175,478 175,478 22,806 198,284
Other
comprehensive
loss for the
for
the six
months ended 30
June 2016
(unaudited) - - - 54,864 (4,851) 50,013 (841) 49,172
-------- ----------- --------- ---------- ---------- ----------------
Total
comprehensive
income for the
six
months ended 30
June 2016
(unaudited) - - - 54,864 170,627 225,491 21,965 247,456
Depreciation of
property and
equipment
revaluation
reserve,
net of tax - - - (226) 226 - - -
Increase in
equity
arising from
share-based
payments - 10,164 19 - - 10,183 992 11,175
Dividends to
shareholders
of BGEO (Note
14) - - - - (95,035) (95,035) - (95,035)
Dividends of
subsidiaries
to
non-controlling
shareholders - - - - - - (461) (461)
Dilution of
interests
in subsidiaries - - - (1,764) - (1,764) (310) (2,074)
Acquisition and
sale of
non-controlling
interests in
existing
subsidiaries - - - 2,508 - 2,508 (5,738) (3,230)
Purchase of
treasury
shares - (22,078) (10) - - (22,088) - (22,088)
-------- ----------- --------- ---------- ---------- ----------------
30 June 2016
(unaudited) 1,154 228,679 (35) 88,226 1,652,868 1,970,892 238,489 2,209,381
======== =========== ========= ========= ========== ========== ================ ==================
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
For the six months
ended
--------------------------------------
30 June 30 June
Notes 2016 (unaudited) 2015 (unaudited)
------------------ ------------------
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 205 (81)
Net realised gain from foreign
currencies 29,918 30,605
Recoveries of loans to customers
previously written off 9 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
Amounts due from credit institutions (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
Amounts due to credit institutions 82,624 688,510
Debt securities issued 30,692 201,052
Amounts due to customers (195,816) 421,460
Other liabilities 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 4 (24,714) 7,861
Repayment of remaining holdback (38,006) -
amounts from
previous year acquisitions
Purchase of investment securities
available-for-sale (23,480) (158,505)
Proceeds from sale of investment
properties 10 4,745 5,785
Purchase of investment properties 10 (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)
------------------ ------------------
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries Interim Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the six months ended 30 June 2016
(Thousands of Georgian Lari)
For the six months
ended
--------------------------------------
30 June 30 June
Notes 2016 (unaudited) 2015 (unaudited)
------------------ ------------------
Cash flows used in financing activities
Dividends paid (2,726) (82,182)
Purchase of treasury shares (22,088) (9,312)
Purchase of additional interests
in existing subsidiaries (3,230) (1,620)
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 6 1,432,934 710,144
Cash and cash equivalents, end
of period 6 1,059,359 1,261,805
The accompanying selected explanatory notes on pages 49 to 72 are an integral part of these interim condensed consolidated financial statements.
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
1. Principal Activities
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.
As at
30 June 31 December
Shareholder 2016 (unaudited) 2015
Harding Loevner Management LP 9.68% 9.09%
Schroders Investment Management 6.52% 10.30%
Others 83.80% 80.61%
Total* 100.00% 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:
As at
Shareholder 30 June 31 December
2016, shares 2015, shares
held (unaudited) held
Irakli Gilauri 250,319 250,319
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 26,357
Kaha Kiknavelidze 26,337 26,337
Mikheil Gomarteli 17,451 27,851
Al Breach 16,400 16,400
Kim Bradley 1,250 1,250
Murtaz Kikoria 400 200
Sulkhan Gvalia* - 37,022
Levan Kulijanishvili - 9
Total 689,396 646,959
* Left the Management Board in February 2016;
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
2. Basis of Preparation
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.
3. Summary of Significant Accounting Policies
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 Lari to Lari to Lari to
GBP USD EUR BYR
(10,000)
30 June 2016 3.1394 2.3423 2.5976 1.1670
31 December 2015 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.
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
4. Business Combinations
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
Cash and cash equivalents 1,455
Accounts receivable (1) 7,885
Prepayments 1,723
Inventories 31,282
Property and equipment 8,105
Intangible assets 861
Income tax assets 552
Other assets 4,272
56,135
Amounts due to credit institutions 15,198
Accounts payable 33,366
Accruals and deferred income 1,331
Other liabilities 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:
30 June 2016
Cash paid (26,686)
Cash acquired with the subsidiary 1,455
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.
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
Cash and cash equivalents 6
Accounts receivable (1) 418
Inventory 1
Property and equipment 637
1,062
Amounts due to credit institutions 137
Accounts payable 344
Accruals and deferred income 198
679
Total identifiable net assets 383
Goodwill arising on business
combination 2,467
Consideration given (2) 2,850
The net cash outflow on acquisition was as follows:
30 June 2016
Cash paid (500)
Cash acquired with the subsidiary 6
Net cash outflow (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.
4. Business Combinations (continued)
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.
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'.
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.
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
Cash and cash equivalents 11
Accounts receivable (1) 595
Property and equipment 14,539
Other assets 168
15,313
Accounts payable 4,348
Income tax liabilities 1,381
Accruals and deferred income 187
5,916
Total identifiable net assets 9,397
Goodwill arising on business
combination 208
Consideration given (2) 9,605
The net cash outflow on acquisition was as follows:
30 June 2016
Cash paid -
Cash acquired with the subsidiary 11
Net cash inflow 11
(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.
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'.
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
5. Segment Information
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):
Banking Business Investment Business Group
Total
Retail CIB BNB P&C Other Banking Banking GHG M2 Other Investment Investment Inter-
banking Banking Business Business Investment Busines Business Business
Business Eliminations Business Eliminations Eliminations
Net banking
interest
income 167,406 73,483 14,900 1,495 2,458 - 259,742 - - - - - (2,362) 257,380
Net fee and
commission
income 40,981 13,150 3,730 203 (287) (123) 57,654 - - - - - (497) 57,157
Net banking
foreign
currency gain
(loss) 9,063 20,289 4,581 (1,033) (4) - 32,896 - - - - - - 32,896
Net other
banking
income 1,746 4,408 247 357 - (766) 5,992 - - - - - (495) 5,497
Gross insurance
profit - - - 12,474 - (636) 11,838 4,289 - - - 4,289 (1,302) 14,825
Gross
healthcare
profit - - - - - - - 51,490 - - - 51,490 - 51,490
Gross real
estate
profit - - - - - - - 531 7,958 - - 8,489 - 8,489
Gross other
investment
profit - - - - - - - 6,309 1,937 3,872 - 12,118 (75) 12,043
Revenue 219,196 111,330 23,458 13,496 2,167 (1,525) 368,122 62,619 9,895 3,872 - 76,386 (4,731) 439,777
Operating
expenses (91,078) (32,592) (9,440) (5,542) (2,655) 1,525 (139,782) (26,469) (3,407) (4,356) - (34,232) 2,043 (171,971)
Operating
income
(expense)
before
cost of credit
risk/EBITDA 128,118 78,738 14,018 7,954 (488) - 228,340 36,150 6,488 (484) - 42,154 (2,688) 267,806
Investment
Business
related income
statement
items - - - - - - - (16,395) 741 1,529 - (14,125) 2,688 (11,437)
Operating
income
before cost of
credit risk 128,118 78,738 14,018 7,954 (488) - 228,340 19,755 7,229 1,045 - 28,029 - 256,369
Cost of credit
risk (35,726) (23,486) (3,592) (358) - - (63,162) (2,216) - (151) - (2,367) - (65,529)
Net operating
income
(loss) before
non-recurring
items 92,392 55,252 10,426 7,596 (488) - 165,178 17,539 7,229 894 - 25,662 - 190,840
Net
non-recurring
(expense/loss)
income/gain (32,380) (15,393) (10) - 13 - (47,770) (816) (158) 1,364 - 390 - (47,380)
Profit before
income
tax 60,012 39,859 10,416 7,596 (475) - 117,408 16,723 7,071 2,258 - 26,052 - 143,460
Income tax
(expense)
benefit 24,858 10,121 (5,990) (1,553) (475) - 26,961 28,425 (937) 375 - 27,863 - 54,824
Profit for the
year 84,870 49,980 4,426 6,043 (950) - 144,369 45,148 6,134 2,633 - 53,915 - 198,284
Assets and
liabilities
Total assets 4,840,334 3,843,368 432,509 123,867 1,640 (70,684) 9,171,034 809,210 308,837 321,459 (2,274) 1,437,232 (285,043) 10,323,223
Total
liabilities 4,146,788 3,249,718 365,445 81,769 20 (70,684) 7,773,056 305,211 196,658 126,234 (2,274) 625,829 (285,043) 8,113,842
Other segment
information
Property and
equipment 13,818 2,366 540 361 71 - 17,156 47,528 523 517 - 48,568 - 65,724
Intangible
assets 6,265 842 66 170 - - 7,343 5,315 88 95 - 5,498 - 12,841
Capital
expenditure 20,083 3,208 606 531 71 - 24,499 52,843 611 612 - 54,066 - 78,565
Depreciation &
amortization (14,981) (2,576) (535) (383) - - (18,475) (8,724) (114) (847) - (9,685) - (28,160)
-
5. Segment Information (continued)
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:
Banking Business Investment Business Group
Total
Retail CIB BNB P&C Other Banking Banking GHG M2 Other Investment Investment Inter-
banking Banking Business Business Investment Busines Business Business
Business Eliminations Business Eliminations Eliminations
Net banking
interest
income 154,419 78,858 14,067 1,113 1,004 - 249,461 - - - - - (5,683) 243,778
Net fee and
commission
income 36,971 16,492 4,916 143 (293) 33 58,262 - - - - - (2,287) 55,975
Net banking
foreign
currency gain
(loss) 8,209 19,606 8,685 2,215 12 - 38,727 - - - - - - 38,727
Net other
banking
income 2,349 3,335 234 388 10 (1,410) 4,906 - - - - - (634) 4,272
Gross insurance
profit - - - 9,459 - (682) 8,777 5,506 - - (14) 5,492 (878) 13,391
Gross
healthcare
profit - - - - - - - 34,975 - - - 34,975 - 34,975
Gross real
estate
profit - - - - - - - 257 911 - - 1,168 - 1,168
Gross other
investment
profit - - - - - - - 1,903 162 4,188 - 6,253 (120) 6,133
Revenue 201,948 118,291 27,902 13,318 733 (2,059) 360,133 42,641 1,073 4,188 (14) 47,888 (9,602) 398,419
Operating
expenses (84,490) (31,102) (8,941) (5,494) (2,552) 2,059 (130,520) (18,102) (2,906) (3,044) 14 (24,038) 1,650 (152,908)
Operating
income
(expense)
before
cost of credit
risk/EBITDA 117,458 87,189 18,961 7,824 (1,819) - 229,613 24,539 (1,833) 1,144 - 23,850 (7,952) 245,511
Investment
Business
related income
statement
items - - - - - - - (9,609) (399) (18) - (10,026) 7,952 (2,074)
Operating
income
before cost of
credit risk 117,458 87,189 18,961 7,824 (1,819) - 229,613 14,930 (2,232) 1,126 - 13,824 - 243,437
Cost of credit
risk (37,323) (33,618) (10,328) (267) - - (81,536) (1,940) - (232) - (2,172) - (83,708)
Net operating
income
(loss) before
non-recurring
items 80,135 53,571 8,633 7,557 (1,819) - 148,077 12,990 (2,232) 894 - 11,652 - 159,729
Net
non-recurring
(expense/loss)
income/gain (3,322) (837) (1,416) - - - (5,575) (403) (140) 3,258 - 2,715 - (2,860)
Profit before
income
tax 76,813 52,734 7,217 7,557 (1,819) - 142,502 12,587 (2,372) 4,152 - 14,367 - 156,869
Income tax
(expense)
benefit (11,640) (8,678) (2,212) 238 54 - (22,238) (252) 356 (366) - (262) - (22,500)
Profit for the
year 65,173 44,056 5,005 7,795 (1,765) - 120,264 12,335 (2,016) 3,786 - 14,105 - 134,369
Assets and
liabilities
Total assets 4,612,774 4,044,732 475,483 102,886 2,011 (66,449) 9,171,437 758,966 275,676 213,638 (320) 1,247,960 (303,658) 10,115,739
Total
liabilities 3,117,808 4,340,041 397,970 66,630 146 (66,449) 7,856,146 286,941 167,889 35,103 (320) 489,613 (303,658) 8,042,101
Other segment
information
Property and
equipment 19,835 2,840 475 296 150 - 23,596 26,889 422 1,291 - 28,602 - 52,198
Intangible
assets 2,999 452 166 621 11 - 4,249 1,237 - 12 - 1,249 - 5,498
Capital
expenditure 22,834 3,292 641 917 161 - 27,845 28,126 422 1,303 - 29,851 - 57,696
Depreciation &
amortization (13,649) (2,176) (532) (352) (2) - (16,711) (4,528) (85) (653) - (5,266) - (21,977)
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
6. Cash and Cash Equivalents
As at
30 June
2016
31 December
(unaudited) 2015
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
Cash and cash equivalents 1,059,359 1,432,934
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.
7. Amounts Due from Credit Institutions
As at
30 June
2016
31 December
(unaudited) 2015
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
Amounts due from credit institutions 876,655 731,365
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.
8. Investment Securities
As at
30 June
2016
31 December
(unaudited) 2015
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 1,448
Investment securities 989,331 903,867
============= ===========
* 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).
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
9. Loans to Customers and Finance Lease Receivables
As at
30 June
2016
31 December
(unaudited) 2015
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 (2,655) (2,202)
Finance Lease Receivables , net 45,326 40,710
============= ===========
Loans to customers and finance lease receivables,
net 5,469,120 5,322,117
Allowance for loan impairment
Movements of the allowance for impairment of loans to customers by class are as follows:
Micro
Residential and
Commercial Consumer mortgage SME
loans loans loans loans Total
2016 2016 2016 2016 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 17,892
Write-offs (12,368) (32,733) (3,588) (4,256) (52,945)
Accrued interest on written-off
loans (2,165) (5,640) (986) (352) (9,143)
Currency translation differences (195) (144) - (405) (744)
At 30 June (Unaudited) 133,976 53,356 5,679 19,979 212,990
Micro
Residential and
Commercial Consumer mortgage SME
loans loans loans loans Total
2015 2015 2015 2015 2015
At 1 January 72,885 23,648 2,993 4,254 103,780
Charge 33,261 32,564 1,405 6,803 74,033
Recoveries 1,818 9,448 1,425 2,031 14,722
Write-offs (1,217) (7,636) (485) (2,339) (11,677)
Accrued interest on written-off
loans (401) (1,476) (346) (446) (2,669)
Currency translation differences (162) (58) - (252) (472)
At 30 June (Unaudited) 106,184 56,490 4,992 10,051 177,717
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:
As at
30 June
2016
31 December
(unaudited) 2015
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 77,633
Other 197,881 186,618 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
Loans have been extended to the following types of customers:
As at
30 June
2016
31 December
(unaudited) 2015
Private companies 2,888,332 2,958,145
Individuals 2,718,862 2,482,389
State-owned entities 29,590 39,767
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
10. Investment Properties
2016 2015
At 1 January 246,398 190,860
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
Currency translation differences (537) (239)
At 30 June (Unaudited) 245,849 221,506
========= ========
* 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.
11. Client Deposits and Notes
The client deposits and notes include the following:
As at
30 June
2016
31 December
(unaudited) 2015
Time deposits 2,392,232 2,597,244
Current accounts 2,110,950 2,153,275
Promissory notes issued 50,830 868
Client deposits and notes 4,554,012 4,751,387
============= ===========
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:
As at
30 June
2016
31 December
(unaudited) 2015
Individuals 2,598,380 2,615,774
Private enterprises 1,807,686 1,945,233
State and state-owned entities 147,946 190,380
Client deposits and notes 4,554,012 4,751,387
============= ===========
11. Client Deposits and Notes (continued)
The breakdown of client deposits and notes by industry sector is as follows:
As at
30 June
2016
31 December
(unaudited) 2015
Individuals 2,598,380 2,615,774
Trade 315,358 374,291
Service 246,619 289,485
Financial intermediation 215,408 292,771
Transport & communication 212,896 317,161
Manufacturing 212,019 236,238
Construction 204,202 224,477
Government services 122,701 141,007
Electricity, gas and water supply 100,314 74,125
Real estate 51,661 64,990
Hospitality 18,003 18,818
Other 256,451 102,250
Client deposits and notes 4,554,012 4,751,387
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
12. Amounts Owed to Credit Institutions
Amounts due to credit institutions comprise:
As at
30 June
2016
31 December
(unaudited) 2015
Borrowings from international credit institutions 814,738 640,517
Short-term loans from the National Bank
of Georgia 278,500 307,200
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
Amounts due to credit institutions 1,892,437 1,789,062
============= ===========
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.
13. Debt Securities Issued
Debt securities issued comprise:
As at
30 June
2016
31 December
(unaudited) 2015
Eurobonds 884,198 908,183
Georgian local bonds 97,728 98,859
Certificates of deposit 83,590 32,762
Debt securities issued 1,065,516 1,039,804
14. Equity
Share capital
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:
Number Amount
of shares of shares
Ordinary Ordinary
31 December 2014 39,500,320 1,143
Effect of translation of equity components
to presentation currency - 11
30 June 2015 (unaudited) 39,500,320 1,154
31 December 2015 39,500,320 1,154
30 June 2016 (unaudited) 39,500,320 1,154
Treasury shares
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)
Nature and purpose of Other Reserves
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
For the six months
ended
30 June 30 June
2016 2015
(unaudited) (unaudited)
Basic and diluted earnings per share
Profit for the period attributable to ordinary
shareholders of the Group 175,478 133,241
Weighted average number of ordinary shares
outstanding during the period 38,410,753 38,419,705
Basic and diluted earnings per share 4.5685 3.4679
15. Commitments and Contingencies
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:
As at
30 June
2016
31 December
(unaudited) 2015
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.
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
16. Net Interest Income
For the six months ended
30 June 2016 (unaudited) 30 June 2015 (unaudited)
Banking Investment Elimi- Total Banking Investment Elimi- Total
Business Business nation Business Business nation
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 - (109) 40,834 30,561 14 (72) 30,503
From finance lease
receivable 4,776 - - 4,776 4,827 - - 4,827
From amounts due from
credit institutions 5,931 1,024 (383) 6,572 5,304 1,063 (417) 5,950
Interest Income 443,451 1,024 (3,097) 441,378 417,666 1,662 (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 (183,709) (6,919) 3,423 (187,205) (168,205) (13,469) 8,791 (172,883)
Net Interest Income 259,742 (5,895) 326 254,173 249,461 (11,807) 2,269 239,923
17. Net Fee and Commission Income
For the six months
ended
30 June 30 June
2016 2015
(unaudited) (unaudited)
Settlements operations 59,093 52,566
Guarantees and letters of credit 9,946 12,293
Cash operations 5,656 6,806
Currency conversion operations 275 1,325
Brokerage service fees 619 412
Advisory 639 15
Other 2,170 1,518
Fee and commission income 78,398 74,935
Settlements operations (14,979) (13,902)
Cash operations (2,647) (2,247)
Guarantees and letters of credit (1,647) (1,890)
Insurance brokerage service fees (1,197) (359)
Currency conversion operations (14) (41)
Other (757) (521)
Fee and commission expense (21,241) (18,960)
Net fee and commission income 57,157 55,975
18. Net Non-recurring Items
For the six months
ended
30 June 30 June
2016 2015
(unaudited) (unaudited)
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) (1,035) 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) Other 1,589 72 Net non-recurring items (47,380) (2,860)
.
19. Fair Value Measurements
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:
30 June 2016 (unaudited) Level Level Level Total
1 2 3
Assets measured at fair value
Investment properties - - 245,849 245,849
Investment securities - 986,700 2,631 989,331
Other assets - derivative
financial assets - 1,200 - 1,200
Other assets - trading securities
owned 1,330 - - 1,330
Revalued property - - 232,892 232,892
Assets for which fair values
are disclosed
Cash and cash equivalents - 1,059,359 - 1,059,359
Amounts due from credit institutions - 876,655 - 876,655
Loans to customers and finance
lease receivables - - 5,505,425 5,505,425
Liabilities measured at fair
value:
Other liabilities - derivative
financial liabilities - 7,796 - 7,796
Liabilities for which fair
values are disclosed
Client deposits and notes - 2,110,950 2,476,089 4,587,039
Amounts owed to credit institutions - 413,258 1,479,179 1,892,437
Debt securities issued - 910,768 181,318 1,092,086
19. Fair Value Measurements (continued)
Fair value hierarchy (continued)
31 December 2015 Level Level Level Total
1 2 3
Assets measured at fair value
Total investment properties - - 246,398 246,398
Investment securities - 902,419 1,448 903,867
Other assets - derivative
financial assets - 42,212 - 42,212
Other assets - trading securities
owned 1,977 - - 1,977
Total revalued property - - 228,365 228,365
Assets for which fair values
are disclosed
Cash and cash equivalents - 1,432,934 - 1,432,934
Amounts due from credit institutions - 731,365 - 731,365
Loans to customers and finance
lease receivables - - 5,284,299 5,284,299
Liabilities measured at fair
value:
Other liabilities - derivative
financial liabilities - 3,243 - 3,243
Liabilities for which fair
values are disclosed
Client deposits and notes - 2,153,275 2,623,818 4,777,093
Amounts owed to credit institutions - 446,255 1,342,807 1,789,062
Debt securities issued - 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.
19. Fair Value Measurements (continued)
Fair value of financial assets and liabilities not carried at fair value (continued)
Carrying Fair Unrecognised Carrying Fair Unrecognised
value value
value 30 June gain value 31 December loss
30 June 2016 (loss) 31 December 2015 31 December
2016 30 June 2015 2015
2016
(unaudited) (unaudited) (unaudited)
Financial assets
Cash and cash
equivalents 1,059,359 1,059,359 - 1,432,934 1,432,934 -
Amounts due from
credit institutions 876,655 876,655 - 731,365 731,365 -
Loans to customers
and finance lease
receivables 5,469,120 5,505,425 36,305 5,322,117 5,284,299 (37,818)
Financial liabilities
Client deposits
and notes 4,554,012 4,587,039 (33,027) 4,751,387 4,777,093 (25,706)
Amounts owed to
credit institutions 1,892,437 1,892,437 - 1,789,062 1,789,062 -
Debt securities
issued 1,065,516 1,092,086 (26,570) 1,039,804 1,070,515 (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.
BGEO Group PLC and Subsidiaries
Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements
(Thousands of Georgian Lari)
20. Maturity Analysis of Financial Assets and Liabilities
The table below shows an analysis of financial assets and liabilities according to when they are expected to be recovered or settled.
30 June 2016 (unaudited)
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash equivalents 893,003 166,356 - - - - - 1,059,359
Amounts due from
credit institutions 853,048 4,891 6,218 9,349 1,693 - 1,456 876,655
Investment securities 513,274 345,328 1,308 38,902 15,300 38,687 36,532 989,331
Loans to customers
and finance lease
receivables - 773,201 514,278 1,013,098 1,658,814 741,246 768,483 5,469,120
Total 2,259,325 1,289,776 521,804 1,061,349 1,675,807 779,933 806,471 8,394,465
Financial liabilities
Client deposits and
notes 732,977 714,759 476,923 2,130,649 410,124 66,518 22,062 4,554,012
Amounts owed to credit
institutions 90,606 587,766 139,084 163,454 468,468 192,183 250,876 1,892,437
Debt securities issued - 902,476 844 120,859 41,337 - - 1,065,516
Total 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 1,435,742 520,517 425,470 (928,143) (172,265) 348,967 882,500
20. Maturity Analysis of Financial Assets and Liabilities (continued)
31 December 2015
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash equivalents 1,072,361 360,573 - - - - - 1,432,934
Amounts due from
credit institutions 617,673 702 28,338 82,393 309 - 1,950 731,365
Investment securities 560,120 241,481 31,247 6,531 60,244 3,057 1,187 903,867
Loans to customers
and finance lease
receivables - 796,765 537,690 1,024,619 1,586,728 705,152 671,163 5,322,117
Total 2,250,154 1,399,521 597,275 1,113,543 1,647,281 708,209 674,300 8,390,283
Financial liabilities
Client deposits
and notes 847,003 810,072 541,142 2,008,160 444,591 80,012 20,407 4,751,387
Amounts owed to
credit institutions 92,617 528,644 108,023 247,414 403,528 139,573 269,263 1,789,062
Debt securities
issued - 51,457 - 53,703 934,644 - - 1,039,804
Total 939,620 1,390,173 649,165 2,309,277 1,782,763 219,585 289,670 7,580,253
Net 1,310,534 9,348 (51,890) (1,195,734) (135,482) 488,624 384,630 810,030
Accumulated gap 1,310,534 1,319,882 1,267,992 72,258 (63,224) 425,400 810,030
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.
20. Maturity Analysis of Financial Assets and Liabilities (continued)
The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:
30 June 2016 (unaudited) 31 December 2015
Less than More than Total Less than More than Total
1 Year 1 Year 1 Year 1 Year
Cash and cash equivalents 1,059,359 - 1,059,359 1,432,934 - 1,432,934
Amounts due from credit
institutions 873,506 3,149 876,655 729,106 2,259 731,365
Investment securities 898,812 90,519 989,331 839,379 64,488 903,867
Loans to customers
and finance lease receivables 2,300,577 3,168,543 5,469,120 2,359,074 2,963,043 5,322,117
Accounts receivable
and other loans 89,162 - 89,162 87,955 17 87,972
Insurance premiums
receivable 55,709 2,958 58,667 39,177 49 39,226
Prepayments 69,995 33,847 103,842 25,371 32,957 58,328
Inventories 128,157 50,377 178,534 98,387 28,640 127,027
Investment properties - 245,849 245,849 - 246,398 246,398
Property and equipment - 852,680 852,680 - 794,682 794,682
Goodwill - 106,134 106,134 - 72,984 72,984
Intangible assets - 49,617 49,617 - 40,516 40,516
Income tax assets 21,906 4,679 26,585 3,654 17,896 21,550
Other assets 57,304 160,384 217,688 106,129 130,644 236,773
Total assets 5,554,487 4,768,736 10,323,223 5,721,166 4,394,573 10,115,739
Client deposits and
notes 4,055,308 498,704 4,554,012 4,206,377 545,010 4,751,387
Amounts owed to credit
institutions 980,910 911,527 1,892,437 976,698 812,364 1,789,062
Debt securities issued 1,024,179 41,337 1,065,516 105,160 934,644 1,039,804
Accruals and deffered
income 81,587 56,380 137,967 113,134 33,718 146,852
Insurance contracts
liabilities 74,074 6,569 80,643 51,273 4,572 55,845
Income tax liabilities 1,748 42,762 44,510 20,083 104,312 124,395
Other liabilities 320,496 18,261 338,757 120,082 14,674 134,756
Total liabilities 6,538,302 1,575,540 8,113,842 5,592,807 2,449,294 8,042,101
Net (983,815) 3,193,196 2,209,381 128,359 1,945,279 2,073,638
21. Related Party Disclosures
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:
2016 (unaudited) 2015 (unaudited)
Key Key
management management
Asso-ciates personnel* Asso-ciates personnel*
Loans outstanding at 1
January, gross 13,541 1,258 78,592 2,048
Loans issued during the
period 208 5,035 4,000 4,511
Loan repayments during
the period (374) (6,346) (84,033) (6,188)
Other movements ** 13,794 2,675 14,982 887
Loans outstanding at 30
June, gross 27,169 2,622 13,541 1,258
Less: allowance for impairment
at 31 December (254) (15) (116) -
Loans outstanding at 30
June, net 26,915 2,607 13,425 1,258
Interest income on loans 1,444 127 3,986 173
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 (258) (16,502) (199,048) (41,548) Other movements (5) 2,942 176 3,403 Deposits at 30 June 1,156 21,312 1,419 20,129 Interest expense on deposits (50) (426) (33) (477) Other income - 77 15 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:
For the six months
ended
30 June 30 June
2016 2015
(unaudited) (unaudited)
Salaries and other benefits 4,083 2,599
Share-based payments compensation 11,525 7,546
Social security costs 30 24
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).
22. Capital Adequacy
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:
As at
30 June
2016
31 December
(unaudited) 2015
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 16.4% 16.9%
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:
As at
30 June
2016
31 December
(unaudited) 2015
Tier 1 capital 907,257 914,784
Tier 2 capital 468,507 479,176
Total capital 1,375,764 1,393,960
Risk-weighted assets 8,899,177 8,363,369
Total capital ratio 15.5% 16.7%
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.
23. Events after the Reporting Period
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
BGEO Group PLC
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
www.BGEO.com
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
www.BGEO.com
Auditors
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS13 8AE
United Kingdom
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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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