Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Delivering on current strategy Successful track record of delivering strong results Banking Business key targets 1 2 25.2% 26.1% 24.5% 21.9% 22.2% 20.8% 21.4% Loan book 15.9% ROAE growth of 20%+ 2015 2016 2017 2018* 15-20% 2015 2016 2017 2018 3 Regular dividends • Capital position: We aim to maintain a +200bps buffer over Payout 30% 36% 33% 34% 32% 30%30% ratio: minimum regulatory requirements 4.0% 4.4% Robust capital • Maintain regular dividend payouts: 3.1%2.7% 3.1%3.2%2.4% Aiming 25-40% dividend payout ratio management • GEL 500mln+ cash dividend paid since 2013, with payout ratio 51 72 80 98 102 122 124 track record above30% over past six years 2013 2014 2015 2016 2017 2018 2019 • Management trust buybacks: GEL 52.0mln share buy-backs in 2018 Total dividend paid during the yearDividend yield** ROAE of 20%+ 2018 – 26.1% The Group’s Banking Business consistently delivers compelling returns in excess of 20%. Moreover, recent years have proved the Group’s impressive ability to deliver returns of around 25%. In 2018, the Banking Business delivered revenue of GEL 1,030.0 million, up 13.3% y-o-y, profit from continuing operations of GEL 378.6 million, up 2.5% y-o-y, and profit before non-recurring items and income tax of GEL 492.6 million, up 23.0% y-o-y. Individual product loan yields have continued to remain broadly stable. Our increasing focus on lending in the mortgage segment and to finer margin corporate and SME clients has however led to a negative mix effect on overall loan yields and on the net interest margin, which was reduced by 80 basis points in 2018. This shift in product mix improves our asset quality metrics and, particularly in the case of the mortgage portfolio, reduces the risk-asset and capital intensity of our lending growth, which has enabled us, and we expect will continue to enable us, to maintain the Group’s return on equity and superior profitability profile. In 2018, as part of our objective to increase operating efficiency, the Bank introduced a project “Lean”, which has already delivered strong results in process optimisation. Cost to income ratio improved from 37.7% in 2017 to 36.7% in 2018. With project “Lean” optimising and streamlining the procedures throughout the Bank, we expect the positive trend to continue in the coming years. Loan book growth 15-20% 2018 – 21.4% Up until the end of 2017, loan book growth was focused on Retail Banking, while in Corporate Investment Banking our target was to decrease our exposure to our top ten clients to 10% of the total loan portfolio. After successful de-concentration of risk in the Corporate Investment Banking portfolio, lending growth is now more balanced between Retail and Corporate Investment Banking and we expect this trend to continue. In 2018, customer lending in Retail and Corporate Investment Banking grew by 24.2% and 15.9%, respectively. On a constant currency basis, Retail and Corporate Investment Banking loan books grew by 22.3% and 12.9% respectively, while the total loan book increased by 21.4% on the annual basis. As a result of the recent policy changes, we anticipate growth rates in the unsecured consumer sector to moderate, although we continue to expect to deliver solid growth in mortgages and SME lending. Overall, with the strong rates of growth already delivered in 2018, we now expect customer lending growth for the medium to long term to be comfortably within our 15-20% expected growth range, with lending growth expectations over the next 12 months to be closer to 15%. Dividend payout 2018 – 30% At the 2019 Annual General Meeting, the Board intends to recommend an annual dividend for 2018 of GEL 2.55 per share payable in British Pounds Sterling at the prevailing rate. This represents a payout ratio of 30%, in the range of our dividend payout ratio target of 25-40%, and a 4.5% increase over last year’s dividend. *2018 results adjusted for GEL 30.3mln Demerger-related costs, GEL 8.0mln Demerger-related corporate income tax gain, and GEL 30.3mln one-off impact of remeasurement of deferred tax balances. **Dividend yield for 2013-2018 years is calculated based on the closing price of the shares immediately prior to ex-dividend date. Dividend yield for 2019 is calculated based on the closing price of the shares on 18 February 2019. Annual Report 2018Bank of Georgia Group PLC 23 snoillim LEG