Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Financial measures Key Performance Indicator 2018 Target 2018 Performance Committee evaluation Return on average equity 20% 26.1% Exceeded expectations Total Banking Business loan book growth 20% 21.4% Exceeded expectations Net Interest Margin c. 7% 6.5% Close to target, noting the performance was largely affected by external factors Cost/Income 37% 36.7% On target (mid term target 35%) Dividend payout ratio 25-40% 30% On target Cost of risk 2.0% 1.6% On target NPL coverage ratio 92.7% 90.5% Performance was affected by IFRS 9 and other methodology changes The above are financial measures that were set pre-Demerger. In addition, the Remuneration Committee took into consideration Mr Kiknavelidze’s key non-financial accomplishments in 2018 which included: •successful launch of project Lean, which aims to transform and optimise the operations in service centres, processes and functions of the Bank; •significant contribution towards the Company’s digitalisation and enhancement of product delivery effectiveness and efficiency project; and •Bank of Georgia was named the Bank of the Year 2018 in Central and Eastern Europe by The Banker. 2018 business highlights included: •outstanding profitability and balance sheet growth momentum, supported by strong capital and liquidity postios; •continuous solid growth across business lines; and •delivery and further developments in digitalisation strategy. Mr Kiknavelidze’s performance met or exceeded all KPIs against most metrics. The only targets not met were in respect of net interest margin and NPL coverage ratio, which were largely attributable to external factors. In particular, it was noted that the halting of customer loans by the NBG affected the NIM, and the NPL coverage ratio was affected by IFRS 9 and other methodology changes. As noted above, the CEO’s maximum opportunity in relation to the award of discretionary deferred shares is calculated as a percentage of total salary, which is comprised of both cash salary and deferred salary shares. When calculating the maximum discretionary deferred share opportunity, the Remuneration Committee used its discretion by using the number of deferred salary shares for the share salary element (as opposed to the value of the deferred share salary at any particular time), then adding the cash salary element converted into shares as normal. In doing so, the Remuneration Committee also decided that such maximum opportunity with respect to the number of shares derived from to the cash salary be capped at the lower of the equivalent number of shares using as a reference date (i) the share price on the date of entry into or effective date, of an Executive Director’s service contract or in this case the date of the Demerger, 29 May 2018 and (ii) the most recent closing share price available at the time and date of the Remuneration Committee meeting at which the award is determined. The Remuneration Committee used this discretion as it was appropriate to avoid awarding excessive numbers of shares at a point when the Group’s share price may be low. For 2018, when the above external factors were excluded, the Remuneration Committee found that Mr Kiknavelidze’s performance was strong. As a result, the Remuneration Committee determined that Mr Kiknavelidze should be awarded discretionary deferred share remuneration at 90.8% of maximum opportunity (maximum opportunity in this case being calculated on the basis outlined above whereby the Remuneration Committee used the share price on the date of the Remuneration Committee’s meeting to calculate the number of shares awarded to reflect the cash salary component, plus the number of deferred share salary as listed in the table above, so as a total of 74,859 shares). The Remuneration Committee therefore agreed to award Mr Kiknavelidze 68,000 shares. Annual Report 2018Bank of Georgia Group PLC 143