Strategic ReportStrategic ReportStrategic Report Financial Additional Overview Strategy Performance Governance Statements Information Strong results driven by solid performance across all segments The Group’s KPIs for 2018 reflect a continuing strong performance in the Group’s Banking Business, demonstrating excellent customer franchise growth with stable margins, a strong balance sheet and strong profitability. The KPIs could be affected if any of the principal risks and uncertainties, set out on pages 60 to 67, materialise. For more information on our financial results, see pages 86 to 101. Profitability KPIs Diversified revenue sources, a growing loan book, improved asset quality, efficient cost performance and fee income growth were the main drivers of the exceptional results in terms of profitability. The substantial growth of the loan book and good cost management in both Retail and Corporate Investment Banking businesses, stable individual product loan yields, stable cost of funds, and higher asset quality translated into 23.0% y-o-y increase in profit before non-recurring items and income tax in 2018. The resulting strong growth in interest and non-interest income translated into 13.3% y-o-y growth in revenue. 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 y-o-y in 2018. In 2019 and beyond, we will continue to focus on profitable earnings growth, to be driven by sustainable levels of customer lending growth without compromising asset quality, to increase the share of income from fee-generating operations and to enhance cost efficiencies. Profit before non-recurring items and income tax Return on average (GEL million) Banking Business equity* Banking Business 492.6 2016 314.6 26.1% 2016 22.2% 2017 400.4 2017 25.2% +23.0% y-o-y 2018 492.6 +90 bps y-o-y 2018 26.1% Profit before non-recurring items and income tax is calculated in accordance with IFRS and representsProfit attributable to shareholders divided by monthly average total equity attributable to shareholders. revenue and profit from associates, less operating expenses and cost of risk.Total equity attributable to shareholders is made up of share capital, additional paid-in capital, treasury shares, retained earnings and other reserves. Basic earnings per share* Dividend per share (GEL) Banking Business (GEL) (BOGG) 9.92 2016 7.689.63 2.55 2016 2.602.44 2017 2017 +3.0% y-o-y 2018 9.92 +4.5% y-o-y 2018 2.55 Profit attributable to shareholders divided by weighted average number of outstanding shares lessIn 2018, Bank of Georgia Group PLC issued additional 9,784,716 Bank of Georgia Group shares (equivalent treasury shares. to 19.9% of Bank of Georgia Group’s issued ordinary share capital) to Georgia Capital as part of the Demerger of Investment Business to Georgia Capital PLC on 29 May 2018. *2018 results were 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. Annual Report 2018Bank of Georgia Group PLC 45