Georgia Capital PLC

LSE:CGEO

Earnings Call Transcript

[Irakli Gilauri, executive]

[Audio Gap]

Q2 and first half; then Nino, our Chief Economist, will talk about macro update, very strong macro we have; and then Giorgi, our CFO, will talk about the portfolio results and valuations, liquidity and dividend outlook; and then I will do a wrap up, which will follow by the Q&A and we'll do a Q&A session in the end.

So let me start with the highlights. In Q2 NAV, we have -- our NAV is down by 12.8% in Q2. This is due to the multiple changes we did, mostly we increased the cost of equity. However, we had a very strong performance of our portfolio companies operating-wise. We had EBITDA increase by 17.5%, revenue increased by 7.3% and our operating cash flow of our portfolio companies more than doubled in first half. So very strong operating performance. Unfortunately, we had to mark down our NAV due to the cost of equity increase in view of the political volatility in Georgia. Also because we have a very strong liquidity at the GCAP level, we increased our buyback program by $15 million and now total recently which we did stands at $40 million and I'll talk about this later on in greater details our plans to achieve our $110 million buyback program. As a result of this increase in the buybacks, in total we bought back 1.3 million shares in recent buybacks.

But total buybacks we did more than $100 million, which represents more than 19% of the share capital issued. So we have a very strong track record of buybacks. Let's move to the next slide and now let's talk about the NAV developments in greater detail. So basically NAV per share stood at GEL 90 in the beginning of Q2. So it decreased by 7.1% due to the Bank of Georgia share price decline. That was the main effect of the listed and observable portfolio decrease in value. Operating performance of our portfolio companies contributed positively plus 2.3%. However, due to the markdown of the -- due to increase on the cost of equity we applied to our valuations, multiple change resulted into the 7.5% decline in NAV. Another positive contribution was the buyback plus 1.3%, which contributed positively. Negative was mainly the FX lari decline, which contributed to the negative 1.5%. So net-net, our NAV declined less than 13%, 12.8%.

However, we are very happy with the performance of our portfolio companies, which had a very strong operating performance as well as we have a very strong macro, which Nino will talk about later on. Let's move to the next slide. So here is our NAV development over the life of the Georgia Capital. It went from GEL 44 end of December 2018 to GEL 78.55 and we're at GEL 90 per share. So let's talk about the buyback program, which we extended to $40 million basically. So in May this year when we announced $110 million buyback, actually it was GEL 300 million buyback program till the end of 2026. We announced $25 million the first tranche. So within that program, we are increasing by $15 million so now we have $40 million ongoing buyback program, of which $16.6 million has been already repurchased and canceled. Basically that's 1.3 million shares.

And now we have remaining $23.4 million buyback program and this is due to the fact that we are standing with a strong liquidity at GCAP level as well as operating company is printing the cash. So we are very confident that we can reach and maybe hopefully do more capital return than GEL 300 million what we have earmarked till end of 2026. One thing which I would like to flag. When we announced in May the GEL 300 million buyback program, we said only buybacks; but however, we may introduce dividends in the future. So I would include future dividends as well in the GEL 300 million program, which is buyback and dividends and does depend on the discount level where dividends will be introduced. So this is over the life of Georgia Capital with the $100 million buyback that we have done and our number of shares. As you see when GCAP was demerged, 39.4 million shares we had; in the peak we had nearly GEL 48 million shares.

So as you remember, we did buy with the shares the remaining minority shares for the Georgia Healthcare Group. Since then, we've been buying back shares pretty aggressively. We came down to 41.4 million shares. So hopefully, we kind of go back into the 39.4 million shares soon with this buyback program which we have in place. In terms of free cash flow generation, that's kind of a main reason why we are increasing our buyback program. Last year we did $48 million of free cash flow compared to the previous years, which was pretty low. Free cash flow what we had in 2022 was only $11 million and in 2018, we had like $17 million of free cash flow generation. We expect in '24 at least the same as 2023 free cash flow, maybe a little bit more than '23. So fairly good free cash flow generation we are generating.

Now let's talk about the aggregate numbers for our portfolio companies. So in Q2 the revenue increased by 6%. In first half revenue increase was plus 7.3% to more than GEL 1 billion, nearly GEL 1.1 billion. So strong performance across the board from large portfolio companies to other portfolio companies and the investment stage portfolio company. So we had a stronger performance in revenue across the board. In terms of the EBITDA, we had a 17.7% increase in Q2 and 17.5% increase in first half. So it's pretty strong growth underpinning the strong macro as well as our trading performance in July was also very strong of our portfolio companies. So we expect the second half to be as strong as the first half, maybe more in terms of the EBITDA growth. So hopefully, the macro will continue to be as strong as it is now.

In terms of the operating cash flow, you see a pretty strong generation of cash, which is nearly 4x increase in Q2 and first half increased by 2x to GEL 111 million as well as the strong cash flow balances of our portfolio companies. On the deleveraging, NCC has increased at end of the first half to nearly 19%. However, we received the dividends after the first half so this number has been significantly decreased and hence it was decreased. As of close of August, we have 15.5% NCC and hence why we are stepping up the buyback by $15 million.

So if we move to the next slide, I will let Nino talk about our strong macro.

[Nino Vakhvakhishvili, executive]

Thank you, Irakli. Hello, everyone. So as usual, I will give you a brief macroeconomic update about our economy. In the first half, according to the preliminary estimates, real GDP growth came at 9% so which is higher compared to the first half of 2023 when the real growth came at 8.2% and higher than the 2023 numbers. A nominal GDP in U.S. dollar as well as GDP per capita in U.S. dollar is expected to more than double this year compared to 2020 levels. And according to the latest projection done by the International Monetary Fund, Georgia is expected to be 1 of the fastest growing economy in the short and medium term in our region. So alongside with the high growth numbers, we see inflation to be low. So inflation is below target since April 2023. And these high growth numbers and low inflation together is kind of suggesting increasing level of potential for our economy.

In the next slide we are showing some factors driving the high economic growth. Like one of them is the loan growth, which is quite strong and according to the June, it came out at 17.8% excluding exchange rate impact. And both household and legal entities contributed positively to this growth and we see demand was high for GEL and USD loans also. So another factor which drive, the consumption because we see consumption to be the major contributor to the GDP growth. Like since the second half of the last year, we see domestic factors to be the key driver for the real GDP growth while before in 2022 and the first half of 2023, mostly external demand drove the high numbers. Another important factor for the domestic consumption is fiscal spending. So government expenditure is increased compared to last year and on the other hand, they saw some tax revenue collections to be significantly higher compared to the projected levels.

And if you look at the labor market so that is another very significant driver for the domestic consumption. So despite the fact that the wage growth are flattening during the last quarters, we see wage growth to be at double digits in both nominal and real terms supporting domestic consumption. And number of employees are at historic high level and unemployment is historical level. So this strong labor market, strong credit activity and fiscal support supporting the domestic consumption and drive the economic growth. As for the external sector, in the next slide we are showing some developments in our external sector. We see external demands to be weak. And like the FX inflows, which we are usually showing like remittances, tourism revenues and export of goods. If you sum up all together, in the first half we received $6.4 billion compared to $7.2 billion in the first half of last year.

So mainly the export of goods declined a bit while money transfers declined significantly on the back of a significant decline from Russia, which was expected because the last year surge in remittances from Russia was mostly attributable to the capital reallocation. If we exclude Russia in our remittances, we see growth at 6.8% mainly driven by United States from where remittances increased by 28% and increase from U.K. and EU from where remittances increased by 10%. So despite like the weak external demand, we see current account deficit to improve on the back of emerging new FX inflow sources. Like if you look at our export services, we see significant diversification in repair. Like before the Russia's invasion of Ukraine, tourism revenues were 70% of our service export. We see now like IT sector and the transport services to starting to contribute positively.

In terms of tourism revenues so in the second quarter, we had more than 8% growth in the tourism revenues and mostly we see significant surge from the Middle East countries while tourism revenues from Russia is declining. And overall, the Russia share in our FX inflows is returning to the pre-war and pre-COVID level, which is resilient for our economy. On the next slide, we are showing some sovereign spread and exchange rate development. After this adoption of so-called Russia low and political uncertainty, we saw sovereign spread to surge significantly by 100 basis points and it remained at an elevated level compared to the previous period. And this is of course adjusting the increased uncertainty related to the domestic political upcoming elections and this widening spread is also reflected in our WACC.

As for the exchange rate, so exchange rate depreciated sharply during this political uncertainty and National Bank of Georgia entering in the market selling more than [ GEL 200 million ] to carve the negative expectations. And after a short period of market turmoil, we saw exchange rate stabilizing and returning to the level suggested by the current FX inflows, local FX liquidity and dollar position in the international market. Overall, the macroeconomic framework. In the next slide, we are showing the monetary policy and some indicators of monetary policy and fiscal policy. National Bank of Georgia started to exit from tightened monetary policy with cumulative 300 basis point cuts. So they did 150 basis point cuts this year on the back of low inflation and lower pressure on inflation. We don't expect the further -- like we expect monetary policy rate to remain at close to the level we see now.

National Bank of Georgia entered into the market during the turmoil and so the reserve level remains at appropriately $4.6 billion. As for the fiscal policy, the fiscal policy within the fiscal rule bonds with less than 3% fiscal deficit and with debt level below the pre-COVID levels. And we see significant surge in operating balance mainly driven by more than expected tax collection. Like if you compare the first half planned versus actual performance, we can see that the actual collective tax revenues was more than $0.5 billion more compared to the planned level, which caused the operating balance to surge significantly. To sum up our very short macro presentation. GDP remains strong despite the uncertainties and we expect more than 7% growth this year. Inflation is below the target and this together, low inflation and high GDP growth, should suggest higher potential level for our economy.

External balance sheet remain robust, current account deficit narrows and we see deleveraging in both government and private sector. The GEL depreciation proves to be temporary and the current U.S.-GEL performance is close to the level suggested by the FX inflows and the loans and deposit performance in our economy as well as the international position of U.S. dollar. And in general, macroeconomic policy framework remains appropriate, which is also supported by a view from the IFRS and some rating agencies. This was very short macro presentation.

I will hand over to Giorgi to continue our presentation. And we will be more glad to answer your questions during our Q&A session. Thank you.

[Giorgi Alpaidze, executive]

Thank you, Nino. Hello, everyone. I will quickly walk you through our final valuations and the operating results of each individual portfolio company for the second quarter. So starting with the portfolio valuations. We had the independent revaluation company, Kroll, who did the valuations of all our portfolio companies within the large portfolio segment and the investment portfolio company segment. As you can see from the slides, generally all the multiples came down by about 10% versus what we were reporting in the previous quarter besides the insurance where the multiple remained the same. The reason for this decrease in the multiples is driven by the increased discount rates that we have applied within the DCF and the valuation company did the similar thing as well. The reason behind that is obviously the volatility within the geopolitical situation driving the yields of the local bonds higher during the quarter.

For example the Georgia sovereign bonds were trading -- the dollar bonds which are listed in London, they were trading by roughly around 150 bps higher during the second quarter as compared to the beginning of the second quarter. What we're seeing at the moment though is if we look at the sovereign yields right now, they are reversing this trend. So the 150 bps that we saw increase in the second quarter is now reversing and at the moment in August, we're seeing that the yields in the Georgia sovereign bond have now decreased by 75 bps or so. So as we will do another valuations in the third quarter and at year-end, we'll obviously look again where the sovereign yields are and take that into account when we update the valuations. At the moment in the second quarter, you see that we as before applied Bank of Georgia share price directly from the London Stock Exchange. That was around GBP 40 at the end of the quarter.

And we also applied the increased WACC within the DCF for the Water Utility business when we measured the current value of the put option that we have within the Water Utility. So about 40% continues to be the share of the listed and observable portfolio within our overall portfolio, 36% it's our large portfolio companies and about 16% comes from the investment stage. Other portfolio continues to be around 8%. On the next slide, you see the biggest contributors of the valuation changes within the gross portfolio value. So here you see Bank of Georgia value decreased by GEL 273 million, Water Utility had small GEL 7 million impact. And then across the board within the private portfolio companies; we had Hospitals, Retail (Pharmacy); driving around GEL 130 million in decrease and we had other portfolio companies with a smaller decrease.

That meant that the overall value of the portfolio went from close to GEL 4 billion to GEL 3.5 billion so about roughly about GEL 500 million decrease in the portfolio value. Now if we go through individual each businesses, which you can see from here. They are doing extremely well. So we start with the Retail (Pharmacy) business and we look at revenue growth of 3.5%, EBITDA was down by about 2%. These numbers are generally strong and positive when we take into account the new regulations that the government announced over last 1.5 years. So even these regulations kept the prices on certain drugs. This has meant that the business has been able to absorb those decreases in prices and still manage to grow, increase their revenues and at the same time, find ways to balance out the decrease in the EBITDA, which we can say was roughly around GEL 8 million on an annualized basis, and find ways to balance out the decrease in the EBITDA.

Key thing here is that the management has been able to consistently grow the gross profit margin, which now stands at about 30%, it's 30.5% and that's up by close to 200 bps when we look at year-over-year basis. And this trend continues to be tracking towards the right direction as well. We haven't had much changes in terms of the pharmacy chains during the quarter. It continues to be the similar number that we had at the end of the last quarter. One thing that happened, which has no material financial impact, but helps a lot with the business efficiency is we divested the franchise brand that we operated, the Carters brand. The key thing that helps us with is the number of SKUs that we now have to process is decreasing by 25%. So it's easier now for the warehouse to process and for the operations business to process the request and deliver the right inventory materials within our pharmacy chains.

We're also seeing that this business continues to have a strong July month and we expect that in the third quarter we should be reporting a positive EBITDA change in this business on a year-over-year basis. And in the fourth quarter, we should be reporting also very strong growth in the EBITDA as well. Now in terms of the valuations. So largely driven by the increase in the WACC. We have a decrease in the enterprise value here, which meant about 7% decrease. Net debt was largely flattish despite the business paying us about GEL 10 million in dividends, which was negative obviously for the net debt. So overall, the value here decreased by GEL 75 million. But also as you can see the multiple, which was 9.7x before is now below 9x at 8.8x and there is not much change in terms of the net debt to EBITDA, it is around 2.4x as of the end of the quarter.

The next largest portfolio company that we have in the private businesses in the insurance. This is the first quarter within the Insurance business when we started to consolidate the results of the Ardi medical Insurance business that we acquired with the effective date of 1st of May and so we consolidated here the results from May and June. This medical Ardi insurance business is doing pretty well. It's exceeding currently the expectations that we had for this business and it has contributed already to the net income growth in the second quarter. The P&L or the pretax income that we consolidated here from Ardi was GEL 1.8 million for the 2 months of May and June in the second quarter. We have not revalued the value of Ardi. As you know, within our methodology, we usually keep the acquired businesses 1 year following the acquisition. So we will come back and do the valuation and revalue this business likely in the second quarter of the next year.

In terms of the operations, we had overall 46.5% growth in the Insurance business. Both medical insurance and P&C insurance did very strongly. We saw their top lines growing pretty well. We had little bit of growth within the P&C insurance loss ratio. That has resulted in net income remaining largely flat. However, we expect that third quarter and the P&C insurance will be strong absent the oneoff losses that we had last year from the negative large oneoff loss events. In the medical insurance business, we also had a very strong quarter within the Imedi L so outside of Ardi business. And as you can see here, overall, the net profit or the pretax profit for both businesses increased by 29%. Gross premiums written is growing in both businesses pretty strongly.

We are looking at controlling the combined ratio in both businesses and we think that the outlook for this business remains pretty strong. And this is one of the key reasons why the independent valuation company, Kroll, when they did the valuations. As you can see on the next slide, they actually kept the multiples same here in this business, 12.4x compared to the previous quarter and the valuation increase was largely driven by the increase in the operating performance. So what we had here is the WACC increased slightly, but the increase in the operating performance outweighed the increase in the WACC. So therefore, this business is now valued at close to GEL 400 million, GEL 391 million. We don't expect to carry leverage in this business. But as we acquired Ardi, we leveraged this business by up to 0.7x net debt to EBITDA at the end of second quarter.

We do expect that going forward the dividends that we will be generating from medical insurance business will be applied towards paying down these debts and bringing it down to 0 and carrying leverage again. But we think it will probably take another year or 2 as we move forward and consolidate Ardi. The next business we have is the Hospitals business. So here the numbers that I would use to present will be a little bit adjusted because you can see here that we have a drop of 2% within the revenues. However, the last year numbers include the Batumi Hospital revenues, which is the hospital that we divested in the fourth quarter. So when we adjust and make it like-for-like, our revenues actually were up excluding the Batumi Hospital. And when we look at the EBITDA instead of the 11% drop, the EBITDA was actually down by only 7%.

We have seen here that largely the market and our hospitals have digested the impact of the regulations, the changes that were made last year and we have done all the refurbishments within our hospitals. Only very small part remains and the hospitals are back to normal operations now. As a result, our occupancy rates are going up, number of admissions are also trending in the right direction. And we expect that when we report the third quarter results within the Hospitals business, we should be reporting double-digit growth within the EBITDA in the third quarter and the fourth quarter, we also expect a very strong operating performance to be more than 20% growth in the EBITDA. So here the valuation was largely driven by the changes to WACC, which decreased the enterprise value by about 11%. Net debt was up here because of the delays to receive the payments from the government for the health care services.

That were resolved actually subsequent to the end of June and in July we received most of the payables that we had from the government. So that evened out in July, but this is not reflected here as this represents the June numbers. As a result, net debt to EBITDA was slightly up to above 6x, but the implied EV/EBITDA multiple has come down here significantly from close to 14x to 12.5x. This was the last large portfolio company. Now jumping into the investment stage companies very briefly. Starting with the Renewable Energy, which is an excellent business that was operating all its hydros and all the wind farms throughout the quarter. They increased the revenues by 18% and the EBITDA by 22%. This was largely driven by the fact that last year we had 1 small hydro that was not operational. They continue to generate cash. And as we would expect them to, they deployed this cash to reduce debt.

So they had $80 million worth of bonds last year and this year they continued to buy back and cancel the bonds and they have now decreased the size of this $80 million bonds to $73 million. Electricity generation was up. Average sales price was largely flat. This helped us increase EBITDA by 22%. And as you see on the next slide, the main reason for the decrease in the valuation here was also increase in the WACC. The discount rate, which resulted in the enterprise value being down now by close to 8%. So the total value of this business is $88 million where $69 million is attributable to operating assets and $18 million to the pipeline. This business is continuing to generate cash. The fourth quarter is usually the highest revenue generating quarter and they are actually paying us the dividends. You will see in the later slide that they paid us dividends already in the third quarter.

We expect them to make more dividend payments this year and the next year as well as they continue to have the excellent results. Leverage here has come down now below the 6x target that we have so it's now about 5.8x. And the cash generation being used in decreasing the debt has helped to decrease this ratio as well. So here the equity value we saw was decreased by about $11 million within our P&L in the second quarter. Next we have the Education business. We continue to have a strong quarter in the Education business; 25% growth in revenues, 21% in the EBITDA. Our capacity utilization is about 81%. And as we prepare for the next school year, which kicks in next month in September in Georgia, we expect the growth in the capacity as well as in the number of learners. Right now we have close to 6,000 leaders, about 5,900, and we expect that about at least 10% growth in the number of learners.

When we report the third quarter results, we think the number of learners will be in excess of 6,500 learners in this business. One headwind that this business has faced is really the currency related. We had some revenues that we started to recognize a year-ago. So the decrease in the revenues is some of the revenues that we started to recognize 2 years ago were at a higher exchange rate. And because we collect revenues in dollar terms, usually the lari appreciating against dollar is a headwind for this business. But generally, very strong quarter. We also had a strong performance in collecting cash. And as you can see on the next slide, net debt actually was in fact down by 29% because of the cash collection that we precollect cash before the school year starts so that helps us with our cash position. The decrease of 8% in the Education business enterprise value was purely driven by the increase in WACC.

And therefore, the EBITDA multiple came down from 16.2x to 13x. But key metric that we actually look here instead of looking at the last 12 months multiple is the forward-looking multiple and the forward-looking multiple in this business is 11x when we measure it on a next school year basis so based on the EBITDA that we expect to generate within 2024-2025 school year in this business. Net debt-to-EBITDA also continues to be below the target, it's about 0.9x. And we had about a $9 million decrease within the value of this business as a result of the WACC changes in the second quarter. The next one is the Clinics & Diagnostics business, which is also trending in in a positive direction. We had 22% plus growth in the revenues across both businesses, 45% growth in the EBITDA. So very strong numbers both operationally and financially. We are seeing the number of admissions growing.

This business is doing pretty well. It has a very high cash conversion ratio, is generating cash and is using this cash to grow and also to decrease the leverage as well. So on the next slide, you see the impact on the valuation here. We have 6% decrease in the enterprise value because of the growth in the discount rate, but about 5% increase in the net debt in this business. So therefore, we had about $13 million decrease in the equity value, but you can see that EV/EBITDA multiple came down to 9.3x and net debt-to-EBITDA is also decreasing and trending towards the target of 2.5x. This was the last business that I wanted to discuss about valuations and the performance. Now briefly about liquidity, dividend income and the maturity profile of the portfolio companies. So our liquidity was $25 million as you saw within the financials that we published. Since the quarter end, we have collected dividends and that has resulted in a higher liquidity balance.

As of now, we now have about $56 million worth of liquid funds, which is 1 of the key reasons why we announced the increase in the buyback by $15 million. Next slide, you will see the dividend income. So we collected only GEL 50 million in the first half, but we still expect to generate GEL 180 million to GEL 190 million dividends. We received the Bank of Georgia full year dividends in July so that has been recorded in the third quarter. But for your information, so far we have collected around GEL 55 million dividends. That also includes dividends from the P&C insurance and the renewable energy that have been collected to-date from these businesses. So we think we're on track to deliver again GEL 180 million and GEL 190 million the range of dividends for the current year. And this is also supported, as you see on the next slide, with us being proactively working with the local lenders in Georgia.

We extended the maturity profile of our portfolio companies. We had about 43% of that maturing within 2024 and we spent second quarter working with the local lenders and we have managed to extend the leverage profile such that only 11% now remains in 2024 for maturing. The rest has been spread out and as you can see that most has been pushed out more than 2 years away from the end of this year. Few things were the extensions of the leverage profiles at the Hospitals and at the Retail (Pharmacy) business together with this 5-year loan that we took on to acquire Arbi. We also recently expanded the maturity of the [ m2 ] or the housing development bonds where we issued $25 million bonds to roll over the existing $35 million bonds. So we decreased the size from $35 million to $25 million. And those bonds were also very easily taken out by the market and by the existing bondholders and that has been completed.

Also our 20% portfolio company Water Utility business priced $300 million bonds, 5-year bonds that are listed in Dublin and they collect close to 9% -- they pay close to 9% coupon. And these bonds were also very strongly taken by the market. The demand was in excess of $500 million when these bonds were printed. So we had done a number of work around extending the maturity profiles of our portfolio companies, which we think as I said initially, would be very helpful to continue to receive the dividends that we expect from these businesses.

And with that, this is my last slide. So I will hand it back over to Irakli for the wrap-up.

[Irakli Gilauri, executive]

Thank you, Giorgi. To wrap up, basically the NAV decline is counterintuitive as basically we had an excellent operating performance of our portfolio companies, but we did reflect the increased spreads in sovereign in our valuations. Therefore, we think that we are conservative and we are prudent in doing so. Another key point we want to highlight that we continue our commitment to do more buybacks. And here I want to highlight once again that we also consider dividends in the future not only the buybacks. Right now we are adding $15 million buyback to our program. We have a very strong track record of doing the buybacks in general.

In outlook wise, we have a very strong economy with 7%-plus GDP growth this year. Last year we had also 7%-plus growth and 2 years before that we had 10% each year GDP growth. So very strong macro track record. Current account deficit declining. We have a strong foreign currency in the country. Our operating performance of all our portfolio companies, we expect second half to be as strong as the first half. So we will continue our deleveraging and continue our capital return policy. So in general, we are in a good position vis-a-vis our portfolio companies' operating performance and macro economy.

So now let's move into the Q&A session.

[Shako Bukia, executive]

We already have a number of questions in the Q&A. I'll take [ Anton Berg's ] question first. Firstly, on the GEL 300 million capital return program. Except dividends from VGO, what would be the main contributors financing this and how does this timing look like for the buybacks?

[Irakli Gilauri, executive]

Giorgi, do you want to talk about it?

[Giorgi Alpaidze, executive]

Yes, sure. So in terms of the inflow, so the free cash flow that you saw on the slides earlier is about $40 million to $50 million that we generate every year without assuming the growth in the dividends that we have been growing on average by about 10% every year. So if you look at 2024, '25 and '26; we should be generating roughly about $150 million of free cash flow. And what I call free cash flow is dividends minus coupon that we pay on our bonds and minus the cash operating expenses that we pay out of GCAP. So that's about $50 million roughly on average per year in GCAP. So that gives you $150 million through the end of 2026. The second component is the value of the Water Utility put option. We have 2 dates.

We have the first half of 2025 and first half of 2026 to cash out that put option within the Water Utility business and we assume that we will do that over the next 2 years and that is about $50 million to $55 million, which is where we carry that on our balance sheet right now. So in total, that gives us $200 million of free cash flow and from that, we announced $110 million at least will be spent on the buybacks through the end of 2026. The timing is, as we go every year, we will be looking at cash available in our hands and we'll be looking at the cash that we expect to collect and we'll be increasing the buybacks. What you saw so far is we have declared and announced $40 million out of $110 million. So over the next few quarters, we will be adding to reach $110 million at least.

[Shako Bukia, executive]

The second one is from Anton as well. Secondly, when do you expect the Retail (Pharma) and Hospitals to be cash flow positive for CapEx, leasing and the interest?

[Giorgi Alpaidze, executive]

So Pharma is cash flow positive right now as well and we are happy to work you through, Anton, how we see that being cash flow positive. The Pharma is so positive that they pay us the dividends at the moment already even and they still managed to decrease their net debt to EBITDA ratio. In terms of the Hospitals, so the recovery will continue through the end of this year and it is fair to expect that next year Hospitals will also become cash flow positive post maintenance CapEx and post interest payments. So pre development CapEx.

[Shako Bukia, executive]

The next question is from Tarang Patel. What conditions would need to be met for GCAP to pay a dividend?

[Irakli Gilauri, executive]

First of all, I think that its NAV discount should decrease. But at the same time, we are considering more and more dividend policy because we are pretty consistent in doing the buybacks and we don't see the NAV discount decreasing. So we may need to have both maybe, we have a dividend and have buybacks because some investors like to have a dividend. So we are considering. We have not decided to do the dividends yet, but we are considering of introducing dividends as well as having a buyback program.

[Shako Bukia, executive]

The next question is from Niall O'Connor. What metrics do you think would indicate the fear of Russian [ lows ] over FX bond yields?

[Irakli Gilauri, executive]

I think that the bond yield is one of the keys which we are looking at and we are looking at spread. As Nino mentioned in her presentation, spreads went to 150 bps on the Georgia sovereign. It came down back to 70 bps, but it's a 70 bps increase in spreads pre, let's say, with the Russian war. So basically that spread is probably 1 of the key drivers for us. FX obviously. On the FX side, what we are seeing that fundamentally the FX in Georgia Capital is very strong. Current account deficit declining. So if we see some volatility in FX, it's mainly expectations. What's going to happen this year? Some of the fears maybe of the corporates and investments basically. But I think that the spread over the sovereign bond yields are probably 1 we are watching very closely especially for our valuations.

[Shako Bukia, executive]

The next one is also from Niall. Can you confirm you're implying around 10% free cash flow yield on your equity, which means at least $50 million on $520 million market cap?

[Irakli Gilauri, executive]

Yes. I would say yes. Because basically end of May, we introduced $25 million, we added $15 million so we are at $40 million. Whether we do another $10 million probably by the end of May next year, it would be kind of a 10% yield on the market cap.

[Shako Bukia, executive]

The next 2 questions are from Milosz. The first one is you highlight that you expect double-digit EBITDA growth in Q3 and more than 20% growth in Q4 for Hospitals. Is this for the entire Hospitals business or only the larger specialty hospitals? Maybe we can take this one and I'll read out the next.

[Giorgi Alpaidze, executive]

Yes. I can take this one. So yes, Milosz, this is actually for both. So this is the growth for both large portfolio companies and the specialty and regional hospital chains as well. But even within the large portfolio chains, the growth will be higher than the overall growth because the large hospitals are growing at an increase at a higher speed than the other hospitals.

[Shako Bukia, executive]

Have there been any major factors behind the decline in same-store sales in Retail (Pharmacy) in Q2 beyond the price caps?

[Giorgi Alpaidze, executive]

No, it's primarily the price caps.

[Shako Bukia, executive]

Yes. The next one is from Tarang Patel. Any comments on what you're expecting from the upcoming elections?

[Irakli Gilauri, executive]

I think that we don't know what to expect. That's why there's a second guess. Now there are multiple outcomes. But to be honest there, when the polling is done, a proportion of undecided is so big that it's very difficult to predict. It's difficult to allocate and decide to any of the parties. So it's a tough call. I guess we will have some uncertainty in next 2 months before the elections.

[Shako Bukia, executive]

We don't have any open questions as of now. Maybe we'll wait for a couple of minutes. Education business, seems the company has focused more on middle scale and affordable tiers. Can you please comment on the plan for premium tier as well? This is the question from [ John Jan ]?

[Irakli Gilauri, executive]

On the premium, we don't have big growth plans. Mainly our growth plans are for the -- there is a growth is expected obviously and we will grow, but main growth driver will be for actually affordable not even middle. Middle is not going to grow as fast or nearly as fast as the affordable one. Actually middle and premium tier will grow in line with each other and we will have major growth will be more in the affordable segment.

[Shako Bukia, executive]

Thank you. There are no open questions.

[Irakli Gilauri, executive]

If there are no more questions, we will be closing down. And thanks a lot for the participation. Please stay tuned. Please ask questions if you have some. And I appreciate your focus and attendance. Thank you.