Both your shareholders and friends. I am happy to report another great quarter for Georgia Capital. We will be talking about Q3 and nine months results. Our timetable is as follows. I will talk about GCAP results overview and aggregate portfolio results. Then our CEO of our large portfolio companies will talk in greater detail on the performance of their respective portfolio company. Our CFO, Giorgi Alpaidze, will talk about valuation, liquidity, and dividend income outlook. Then, in the end, I will do a wrap-up and Q&A session as always. Very much looking forward to your questions. You can raise your hand or type in the chat. We prefer for interaction, that you raise your hand and we discuss. On Slide three, we have our highlights.
You see a great NAV performance, more than 13.6% Q-over-Q in lari terms, and in pound terms, it is even greater at 15%. This is due to the appreciation of lari. We have a lot of pressure on lari to appreciate as we have a huge FX inflows in the country. Then you see we will talk about the National Bank reserves growing. We have a very excellent growth in our private portfolio companies. We have revenue grew 18.5% and EBITDA grew 26.3% year-over-year. The operating cash flow also is growing nicely at 12.3% year-over-year. I am glad to report that we have fully delevered. The HoldCo has a zero leverage right now as we speak. We also announced the new share buyback program of $50 million. This will bring it to $100 million under the new program.
We still see undervaluation on the GCAP stock. We are trading at more than 25% NAV discount. We are happy to buy back more GCAP shares. We also announced the investment in our healthcare business. We want to capture the lucrative parts of the business where the ROICs are 20% +. Then we want to invest and grow and eventually, our long-term vision is to re-list this company. We think that we will diversify farther away from the state revenue and increase the share of the private revenue and generate a higher ROIC, especially on the back of the great performance by the management. We want to invest along with the high-performance management that we have and deliver superior return on invested capital. NCC ratio, you see we went negative. It is first time in our history or we were before negative.
I do not know how long ago, but basically, it is the lowest ever NCC ratio. We are also the buyback program what we are doing. In past four months, we bought 1 million shares. We are happy to continue these buybacks. Most pleasing is that nearly 37% of the GCAP share capital has been bought back in past years since inception. We are really disciplined in our capital allocation strategy, and I am really glad that we kept this discipline in all those years. Here is the movement in Q3 of our NAV per share. Lion Finance Group was obviously the biggest contributor, the share price rally there, 11.3%. 2.4%, we have private portfolio companies contributing. Buybacks contributing 0.6%. Operating expense, - 0.2% and liquidity management effects contributed - 0.2%. So we ended up with 13.6% Q-over-Q NAV per share growth.
Here on Slide five, we have the CAGR since inception, CAGR of the NAV per share, 21.4% over the inception, since the inception of more than eight years. We have past five years, 27%, past three years, 37%. I think it is a phenomenal track record of GCAP performance of NAV. You see that in the beginning, we were learning how to manage the investment company. We were fine-tuning our investment philosophy. I think that we are on the right track now, and we are very laser-focused on allocating the capital and how we allocate the capital, and how we want to allocate the capital in the future. In U.S. dollars and the GBP terms, the growth is even higher as lari has been appreciating over these years compared to the so-called strong currencies.
On the GEL 1 billion capital return program, you see that nearly GEL 260 million in total either is already committed or is already done. For instance, the repurchase and cancellation of the shares, or we are on its way of doing it. Therefore, we are out of GEL 1 billion, around a quarter is already either done or committed. I am happy that we are progressing nicely. Let me remind you that the GEL 1 billion program runs until the end of 2029. It is a long way to go. Hopefully, we will do this GEL 1 billion capital allocation program earlier, as always, than the deadline of the end of 2029. On the next slide, on Slide seven , you have a share buyback, how it was developing, and you see the strong growth in buybacks. We started at around GEL 36 million per annum.
Right now, we will be close to GEL 400 million this year in share buybacks. Here is NCC ratio. We also restructured the company fully and delevered. You see that at the peak, we were at 42.7% of NCC ratio. We are fully delevered. At HoldCo level now we are negative. So we have room for stepping up the capital allocations investments in general. Here is the macro, which is important, obviously, in this equation. As you see, the GDP growth is phenomenal. The eight months GDP growth was 7.6%. Last year was 7.7%.
Before it was nearly 10%. Year before, nearly 8%. Then 2022, 11%. So it is a huge growth of GDP per capita. What I am very really pleased that our current account deficit on the back of such a growth is shrinking. So our first half, our current account deficit shrunk from 5.8% last year to 2.5%. Is it sustainable or there are some one-offs? Overall, the current account deficit shrinkage is huge. You see in the FX reserves and interventions in Q3, $1.3 billion were bought back. In Q2, $1.6 billion. So right now, the National Bank reserves are more than $8 billion, which is an all-time high.
Some aggregate results are also encouraging. Q2, we named it that the growth is accelerating. In Q3, we thought what we are going to name this quarter, I think it is acceleration doubled or acceleration squared. So the growth is accelerating even in Q3. You see that nine months, EBITDA growth was under 25%. In Q3, EBITDA growth is 26%. Revenue is also growing. Q3 revenue growth rate is higher than the nine months growth. It is 18.5% versus 17.1%, so we are accelerating and accelerating. We are pleased with that, obviously.
Cash flow is also in a good shape. Q3 was not a big conversion. We had a net operating cash flow, only 12.3% growth. But over the nine months, cash flow growth is higher than the EBITDA growth number. So we had a 26.7% operating cash flow growth in nine months versus 24.7. So 2% point higher net operating cash flow growth in the nine months. That is also a very important metric for us that we watch. Giorgi will talk about the new slide, what we have right now, distributable capital, which is a very interesting slide, actually. We will show you how much cash our portfolio companies are generating, which can be earmarked for redistribution. So that is kind of a really important KPI for our management. Here is on Slide 13. We have leverage ratios for our portfolio companies.
The pharmacy is under its kind of a cap of 1.5 x. Debt is 0.8 x debt -to -EBITDA. Healthcare services have been decreasing rapidly, the leverage. Actually, it has been increasing the EBITDA, and that is why it was decreasing the leverage, basically. It is close to its 3 x target. It is 3.4 x. Insurance is obviously negative territory. It used some leverage to buy the RB, but it is retiring this debt pretty fast. Now, I will let our CEO of our Retail Pharmacy Business, Tornike Nikolaishvili, to talk about these great results. I will switch off my camera before Tornike talks. Okay, go ahead, Tornike.
Thank you, Irakli. Hello, everyone. I am pleased to walk you through a brief update on the performance of our retail pharmacy business for the third quarter and nine months of 2026. Another quarter of strong momentum with solid results across our key financial and operating metrics. Let me start with a few words about our business. In Georgia's retail pharmacy market, we hold around 34% market share in organized trade, based on 2024 figures. Retail continues to be our core business, generating around 85% of total revenue. We operate two well-positioned pharmacy brands, GPC, focused on the high-end segment, and Pharmadepot, serving the mass market. Alongside them, we run two franchise brands, The Body Shop and Alain Afflelou Optics, and have a presence in Armenia and Azerbaijan.
In Q3 2026, we opened 12 new pharmacies, 10 in Georgia and two in Armenia, in strategically selected locations using cost-efficient formats that require limited capital investment. As of September 2026, our network comprises of 476 pharmacies, 15 Body Shop, and six Optic stores. Turning to performance, retail revenue increased by 16% year-over-year in Q3, and 13% in nine months. The growth was driven by same-store revenue growth of 8.7% and 7.3% over the respective periods, which remained high even as we added 38 pharmacies over the past 12 months. The successful ramp-up of these new pharmacies also contributed to the strong performance of the retail business. The revenue growth was further supported by 5% increase in the number of bills issued and 10% increase in average bill size, both in Q3.
We see this as an encouraging trend as it reflects resilient consumer demand and solid execution at the store level. In line with our strategic priorities, the wholesale business continued to expand, delivering revenue growth of 10% year-over-year in Q3 and 11% in nine months. The growth was mainly driven by an expanded product portfolio across distribution channels in Georgia, with gross profit of the distribution business increasing by 23% year-over-year in Q3. In addition, we acquired a distributor of premium baby care brands for GEL 6 million in Q3 at an implied EBITDA multiple of 3.5 x, strengthening our position in the mother and baby category and further expanding the wholesale platform. We also continue to expand our presence in Armenia, where total revenue increased by 42% year-over-year, reaching GEL 10 million in Q3, and growth of 35% to GEL 26 million in nine months 2026.
This growth was driven by continued network expansion and the strengthening of the retail brand, alongside a broader wholesale product offering and higher revenue from state tenders. Turning to profitability of the overall business, alongside our revenue growth, we continue to deliver consistent gross profit margin improvement year-over-year, reaching 35.4% in Q3, up by 2 percentage points, and 34.5% in nine months, up by 1.7%, reflecting the initiatives we have undertaken to shift our sales mix towards higher margin products and to secure improved supplier terms. Moving to the next slide. Let's see how this translated into very strong financial results, marked by significant EBITDA growth and solid balance sheet position. Enhanced profitability translated into 34% year-over-year EBITDA growth in Q3 2026, alongside an EBITDA expansion by 1.8%, reaching to the 12.7% margin.
For nine months 2026, EBITDA amounted to GEL 93 million, up by 26% year-over-year. On the cash side, EBITDA to cash conversion stood at 63% in Q3 and 87% in nine months. This reflects the strong momentum in our revenue growth, which accelerated in the second half of the year, as well as our continued investment in building a higher margin portfolio through new product launches and growing share of directly imported products in total sales. Together, EBITDA growth and cash generation kept our leverage position comfortable with adjusted net debt -to -LTM EBITDA at 0.8 x as of September 2026, down from 1.3 x at the end of last year, and well below our target level of 1.5 x.
We also distributed GEL 16 million in dividends in the third quarter, bringing the nine-month total to GEL 27 million, up from GEL 20 million in the same period last year. Let me close with the key takeaways on the final slide. First, we are delivering sustained top-line growth supported by same-store revenue growth and solid wholesale performance. Second, we are steadily enhancing profitability and delivering significant gross profit and EBITDA growth through margin expansion and cost disciplined execution. And third, we are maintaining a prudent level of leverage supported by robust business performance and cash generation, which gives us flexibility for future investments and potential shareholder returns. Thank you all. I look forward to your questions during the Q&A, and now I will hand over to Irakli Gogia.
Thank you, Tornike, and good afternoon, everyone. I am pleased to share the results of another strong quarter. Revenue was up 16%, while EBITDA grew 22% to GEL 26 million. EBITDA margin improved by 1 percentage point to 19.4%. Cash generation was also strong. Operating cash flow more than doubled to GEL 25 million, with EBITDA -to -cash conversion of 95% in Q3. We continue to strengthen our clinical teams and service offerings across the network. Our outpatient care once again was a key growth driver this quarter. Net revenue from outpatient services grew 23%, supported by the fully renovated and expanded outpatient department at our largest hospital, which we opened in June. Outpatient services now account 48% of our net revenue, slightly up from 46% a year ago, actually.
We continue to strengthen our clinical teams, onboarding new doctors across the network with a particular focus on our in vitro fertilization direction, where we are building a strong team of reproductive medicine specialists. This quarter, we launched our nursing program, co-funded by EBRD, which is a key part of how we develop the next generation of medical staff for our network, supporting their professional growth while building a strong pipeline of clinical talent for the long term. Our polyclinics and diagnostic segment opened a new clinic in Tbilisi to meet growing demand, bringing the network to 17 clinics with further growth planned. To capture growth opportunities ahead, we plan to invest GEL 53 million in capital expenditures over the next three years.
This investment will be directed at further expanding our outpatient services and scaling up our IVF direction, which is one of the fastest-growing healthcare segments in the country, and we see strong long-term potential in this area. Let's turn to our hospitals business slide. Revenue grew by 15% and EBITDA by 22%, with the margin improving by 1.1 percentage points to 18.8%. Growth was supported by the expansion of outpatient services, which increased by 23%. Operating cash flow was particularly strong, up 157% to GEL 21 million, with an EBITDA -to -cash conversion ratio 103% as state collections started to catch up. Moving to the next slide. In our polyclinics business, admissions increased by 11%, an accelerate from the 6% growth we had in second quarter, while revenue and EBITDA grew by 16% and 18%, respectively.
In diagnostics business, revenue grew by 25% on the back of 6.5% increase in number of tests performed, while EBITDA grew by 36%. This was driven by our continued focus on retail, the main profitability driver of this division, where revenue rose by an impressive 86%. On a combined basis, polyclinics and diagnostics segment revenue rose 19% and EBITDA 23%, with the margin up by 0.7 percentage points to 20.5%. Moving on to our summary slide.
We delivered strong top-line growth across all segments. Cash generation was particularly strong as well. Looking ahead, our planned investment of GEL 53 million over the next three years will further strengthen our outpatient and IVF directions. Alongside the financial results, we continue to build the long-term strength of the network, adding new services, investing in advanced equipment, and attracting top specialists. That concludes the healthcare side. I will hand over to Giorgi, who will take you through the results of the insurance business. Thank you.
Hello, ladies and gentlemen. I will overview the insurance business today. Just a quick update that we divide our business in two main directions, as property and casualty and medical. We had an outstanding Q3, and we are increasing our revenues and profitabilities continuously in Q3 also. Our insurance revenues grew by 30% in Q3 and over nine months, it was the same growth for 30%. Our profits grew by 19% in Q3 and 29% over nine months. Just a quick reminder that we had a severe hailstorm in Q2 that affected our P&C ratio. Taking it out, the growth would be 36% nine months over nine months. Our key operating metrics remain very strong. Our net premium grew by 16% in Q3 and 15% year-over-year. In P&C, we had a renaissance, I would say, for the medical line.
We had a 30% increase in Q3 and 58% year-over-year in our medical insurance. Total net premium grew by 23% in Q3 and 14% year-over-year nine months. Let's deep dive in each business line, and moving to P&C. Our P&C line shows an amazing performance. We had a market share growth by one point, and it reached to 36%. Our insurance revenue grew by 12% in Q3, and nine months over nine months, it grew by 12%. Mainly, the increase was driven by a few factors. It's the expansion of our retail portfolio and the motor and the corporate motor portfolio alongside with the higher prices, and the updated pricing strategy, plus the increase of the property portfolio revenue. It went by expansion of our corporate segment, mainly in the corporate, plus the increase of the double-digit increase and segmentation in the motor.
Lastly, we had a really good effect in our credit life insurance in Q3. In terms of the profitability, we had a 12% growth in Q3, and 8% year-over-year. Again, excluding the hailstorm in Q2, the nine-month growth would have been 20%. We'll look at it as an abnormal event. We are showing you also the profitability good growth, and then the metric without the severe hailstorm. We paid more than GEL 6 million in dividends in Q3, and almost GEL 18 million in nine months to GCAP. Our key operating metrics remain very strong and healthy. In P&C our net premiums grew by 16% Q -over -Q, and 16% year-over-year for nine months. Our combined ratios remain still very strong and healthy at 83%. That's in line with our medium-term strategy. It's 8% year-over-year.
Just to exclude the hailstorm in here also, we have an improvement of 1.1% in the combined ratio, dragging it down only to 84%, 83.8% in nine months. We have a very good performance in terms of the insurance. We have 10% growth in number of insurance in Q3, and the same number for the nine months. Our number of written policies grew even more by 14% in Q3 and 15% year-over-year. We have a highest renewal ratio ever historically at 81.5% in Q3 and more than 80% in nine months. Going to medical insurance. As I said, we have a renaissance in medical insurance. We have a 13% market growth in medical insurance, and our market share in medical insurance reached 46%, with a 48% growth in Q3 in medical insurance and 45% in nine months. Mainly, there are a few components.
It was one of the components of the state tenders that we secured with the updated and the updates pricing and higher margins. Plus the growth in the retail health insurance that we launched lately, pushing in line with our retail strategy, and plus the policy pricing, double-digit policy growth in nine months. It's through all segments of the health insurance. Going down to the profitability, health medical insurance in Q3 showed amazing growth in profitability, +31% Q3 over Q3, and 68% year-over-year nine months. Key operating metrics remain very strong. In terms of the net premiums, in Q3, we had a 30% increase in Q3 and almost 60% in year-over-year. Combined ratios too are still very healthy at 91.7%, and it's the same for the whole year, for the nine months. We have a 2.3% improvement in combined ratio.
This is mainly driven by reflects a lower loss ratio due to the robust revenue. It means we do the same, almost same operating cost. We are serving more revenue, and this is where we pitch the momentum. A few points about the findings about the medical insurance. We have a very serious growth as I said, in retail, +40% in Q3 and 51% in nine months. A new mandatory line for the inward travel was launched that contributes and diversifies our profitability in the medical insurance with the low severity. We had a double-digit growth in terms of the pricing for the ticket size of the corporate health insurance policies. I said we had it with updated pricing and the underwriting, we have almost GEL 70 million revenue in terms of in our medical portfolio. Few things to remember about Q3 from our insurance business.
We had robust financial performance with 30% increase Q -over -Q and 90% growth in terms of the profit, supported by strong contributions from both insurance lines. Our P&C insurance business remains to be still very resilient and prudent. So in Q3 with the growth of 12% Q -over -Q, while disciplined underwriting and the strong pricing continue to support our strong profitability. As I said, we are envisaging enormous performance, gorgeous performance from our medical insurance line with 40% increase growth in the health retail insurance revenues, contributing to 31% year-over-year growth in Q3 in terms of the profitability. We paid GEL 1.8 million in dividends in Q3 to GCAP. That comprise almost GEL 20 million already paid dividends in nine months 2026. With this, I will end with the insurance overview and pass the floor to Giorgi to continue. Thank you very much.
Thank you, Giorgi. Hello, everyone. I will quickly take you through the portfolio valuations for the third quarter before we look at the new slide where we present the distributable capital generation by our portfolio companies towards the end. Starting with the breakdown of our portfolio values. In the third quarter, as you probably know, we do valuations in-house, based on the similar methodology and same principles applied as what our independent third party valuation company applies every six months. As we perform these valuations for the private portfolio companies, you can see the new values here. The multiples remain broadly stable. We will look at that later. But in general, Lion Finance Group had a very strong quarter, a remarkable close to 27% growth of the share price.
As our shares broadly remained unchanged in Lion Finance Group in the third quarter, this resulted in the share of the Lion Finance Group growing to 51% of our portfolio value, gross portfolio value at the end of the quarter, which was slightly up from the 47% that we had at the end of the second quarter. Private portfolio companies across the board, including in the emerging and the other businesses, performed strongly and they continue to be around 49% of our portfolio with the retail pharmacy being the largest private portfolio company within our portfolio. On the next slide, you see how the valuation multiples have changed during the quarter, and they have not materially changed. They remain broadly similar to where they were at the end of six months.
Most of the value creation that happened in the private businesses, which you see on the next slide, actually came from the growth in the EBITDA and the cash generation that resulted in lower net debt and the debt pay downs. On the next slide, you see how the portfolio value increased during the quarter. Lion Finance Group generated GEL 657 million valuation gains for us in the quarter, of which around 26% was realized in terms of the dividends or in terms of the participation in LFG's buybacks. On the private side, the value creation was GEL 153 million, which translates roughly to 5% + of the private portfolio value. So we generated 5% + in the single quarter within our private portfolio businesses.
Most of the value creation came from a very strong set of results that you saw from the retail pharmacy earlier, while healthcare services and the insurance also demonstrated strong performance and provided almost equal GEL 35 million -GEL 40 million value creation in the quarter. At the end, we had the portfolio value that was record high of GEL 6.2 billion at the end of the third quarter. This summarizes our portfolio changes and how our portfolio increased by close to GEL 800 million in the third quarter. Now as we move to the next slide, here you see for each individual business what were the valuation drivers, and as I said earlier, it was primarily the growth in the EBITDAs across retail, pharmacy, healthcare services, and the insurance businesses.
They were the key drivers of the value creation, and on top it was the dividend payment or improvements in the net debt. As you saw, retail pharmacy business paid us GEL 15 million dividends, and the insurance business paid us GEL 8 million. Across the board, this value creation was very tangible and realized. Now we can move to the liquidity and the debt profile of Georgia Capital, and this is the first quarter where we are reporting no debt at the HoldCo level. As we previously announced, we paid down our remaining $50 million debt at the end of August. At the end of the quarter, we had no debt. On this slide, you can see our journey from $365 million debt at the end of 2021, down to zero within a five-year period.
Actually, slightly less than a five-year period. We continue to have a strong liquidity, $111 million of liquid funds at the end of September. That follows the change from June, after we paid that $50 million debt, which in fact was closer to $52 million with the accrued coupon and the small premium that we had to pay on the call, and also the buybacks, close to $50 million buybacks that we did during the quarter. We continue to have a very strong liquidity. Now we can move into the dividend income outlook. This is an important slide as we go into the next slide. You see that dividends continue to come in and they continue to be very strong. For the nine months, we generated GEL 139 million, and we continue to expect that for the full year, dividends will be in the GEL 200 million area.
One key thing to note here is as our portfolio companies are paying us dividends, especially in the retail pharmacy and the insurance space on top, they are paying down the debt. To give you a full picture of what is their capacity to distribute capital, on the next slide, we present this new slide that provides a power that these businesses have to distribute capital to Georgia Capital in the future. For the first nine months in the retail pharmacy business, you see that from the annual cash flow generation, post-interest expense, post regular capex, how much cash there is left to pay dividends, to service debt and to complete M&A using their own free cash flow generation. In this case, that was GEL 58 million. That was an increase of 36.6% over the last year.
What this number also indicates is there is a very strong cash flow generation growth in the business, which in the future, I mean here with our approval, part of the cash was used to pay down the debt, the principal debt. In the future, as this business and the insurance business operate below the set leverage targets from our perspective, they will be able to pay these dividends to Georgia Capital. With that in mind, we wanted to show you the full picture where you can measure this distributable capital across the large portfolio businesses. In the insurance, we had a similar, slightly higher growth of 38%, because they continue to have very strong growth momentum that also translates into the cash generation and into the distributable capital generation.
And within the healthcare services space, in 2026, we do not expect them to have a distributable capital generation as this business is fully reinvesting for the growth. This is something that we had communicated in the past. But from the next year, we do expect that they will be able to generate small but distributable capital in 2027. Overall, you can see that even though we received the dividends from the private portfolio businesses and roughly GEL 53 million, their ability to pay us the dividends was in fact GEL 88 million. So, this is the new metric that we think will be useful for the investors to look at going forward. We look at this internally, but we wanted to share this and bring it to your attention as well. With that, I will hand it over back to Irakli, for the wrap up. Yep.
Thank you, Giorgi. To wrap up, basically, NAV is strong. We are growing strong, and the operating performance of the companies are accelerating. We fully delevered the HoldCo. We introduced another $50 million buyback program. Total buyback numbers look impressive. We see a deleveraging bringing the NCC ratio to negative territory. Economy is strong. So we expect the operating performance to be strong going forward in foreseeable future. So, let's move to Q&A session now. Please raise your hand or send Q&A through chat.
Thank you, Irakli. We have some incoming questions. First, we have some participants who have raised their hands. Dmitry Vlasov wants to have some questions. Dmitry, you can—
Thank you very much. Congrats on strong set of results. I have a few questions, please. So the first one is on the potential IPO of healthcare business. So, which operating and financial milestones would you like to achieve, before you believe the business will be ready for IPO? Particularly curious how much deleveraging is needed and which enterprise value you will be comfortable with, before doing an IPO. That's the first question.
The second one is, so beyond the potential healthcare IPO, which other private businesses are closest or to exit? And the final one about Armenian pharmacy business. So congrats on very strong growth there. My question is, how much of that growth came from existing operations versus network expansion? Also, what's the actual potential? In a way, how consolidated is the Armenian pharmacy market? How many players are there? How fast the market grows, in comparison to Georgia, would be very curious. Thank you very much.
Thank you, Dmitry. Last question. I'll let Tornike to answer on first two questions. Basically, on the IPO thing, it is too early to say, obviously, because we just wanted to flag the exit route, which we are considering for the healthcare business. Investing, kind of, contraction of the investments. Right now, our thinking is on the healthcare is to invest in highly ROIC- accretive business, because there are a lot of good opportunities in private healthcare sector, and diversify away from the government dependency. We see that we can grow it. The exit route, we consider that as an IPO in, we said that three to five years' time. We are looking at close to $100 million of EBITDA mark. Maybe $80 million-$100 million EBITDA mark. That is where we would consider the listing the company.
We think that we will achieve it between three to five years. There could be some M&As, not only in Georgia, but also Armenia and maybe other countries as well. We are looking the opportunities, basically. On exit for what exit we consider for the large portfolio companies. Trade exit is always a good opportunity. I think that we are not anywhere close on the exiting the insurance or retail business, and we are not considering, but if the good offer comes, we always consider, obviously, for trade sale.
That is a kind of a For us, exit is a usual, it is a bread and butter thing. We do not have a plan now to sell either of insurance or pharmacy or healthcare. Basically, we have an exit route for the healthcare, because we are investing now. We want to step up investment in high rate businesses in healthcare. That is why we showed you the exit route that we are considering. We shared our thoughts on the exit route. Tornike, maybe you will answer questions about the network expansion, in Armenia and opportunities, et c. Do not say everything.
Thank you. Thank you for the question. We say that if we split the growth with the existing infrastructure, including the existing outlets, including the developments in the wholesale business with the new brands, and also including the tenders we won, government tenders, it is 75% of the growth and 25% of the growth comes on the, it is for the new open outlets and new infrastructure, including the Afflelou, our new Afflelou Optics store in Armenia.
The question was also about the market structure and what your thoughts are on market.
I would say that the market is not mature. We believe that the market will grow. For us, it is important to scale up in Armenian market.
It goes through.
Thank you very much. Very clear. Maybe one quick follow-up on the Armenia pharmacy. How profitability compared to Georgian business in terms of gross margin, maybe?
The gross margin, in our case, it is close to the Georgia. I would say that it is around 32% in retail, while we have around 35% in Georgia. Our mix is towards the parapharmacy, so non-medication. But in general, on the Armenian market, margins are lower than in Georgian market.
Okay, thank you very much.
Maybe because the cost of goods sold is higher in, I mean—
Yes.
—more expensive, cost of goods sold in Armenia than in Georgia.
Yes, and the margin and the power of the brand owners are much stronger than in Georgia.
Thank you, Dmitry, for the interesting questions. Next up we have Ben Maher, who has questions. Ben, you can talk.
Hi. Can you hear me?
Hey, Ben.
Hi. I just got two questions. The first one's just on buybacks. Obviously, the strong share price performance, the ROI on buybacks must be declining. So the fact that you're extending, does this mean you're struggling to find M&A targets that offer better returns or you're just being patient? With the Armenian elections in and out behind us, you've got no more debt to the HoldCo, should we expect greater activity in this area going forward? Are there any sectors that you're particularly optimistic about?
Sounds like Armenian pharmacies is one obvious one. My second question is just on the dividend income outlook. I think Giorgi touched on it on Slide 36, obviously, with the net debt EBITDA of the private portfolio at record lows. It suggests that the dividend upstreaming potential of the private portfolio isn't going to increase from here. Maybe it's too early to give hard numbers for 2027 dividend income, but just any kind of color around potential outlook for that would be useful. Thank you.
Thanks, Ben. About buybacks, basically, I think that we look at buybacks not only on the discount, but also the growth outlook. So discount is 25%, but gross look is 35%, then we are buying still very cheaply. That's kind of our approach in buybacks. We are not buying back at 25% discount only. Another thing is that on the investments, I understand that everybody, it's exciting to make new investments. But for us, the discipline is very, very important. We can guide you where we are looking at in terms of the market, et c. But I don't want to create the pressure that we have to invest. We don't have to invest. The beauty of this Georgia Capital structure is we are not private equity fund, which has to invest in order to earn the fees for the managers.
We don't have to invest. I don't want to create this pressure of investment, and everybody is thinking that if we don't invest, we die. We don't die. We continue of buying back shares cheaply. Right now, what we are doing, we are buying very share cheaply. If the discount, if we go into the premium, we may not buy, and we may not invest either. But we are looking at good opportunities in Georgia, in Armenia. The team is working very hard to look at the opportunities, but we do not want to be under pressure of investing.
We don't. Analysts are creating this pressure, and my job is to disseminate the pressure. The dividend income, going forward, Giorgi, please show up on the screens. But for us, we see a lot of deleveraging of our portfolio companies is happening, and dividends will be increased. We showed you the dividend capacity, distributable capital. Maybe we need to show that slide again. But we cannot tell you the hard numbers right now. But we expect strong growth next year from our private portfolio companies in terms of dividend payments. Because of the deleveraging, plus because the healthcare group will be also in a position of paying the dividends, a small one, but it will step up. Giorgi, please add.
Yes. 100% agree. If you look at that distributable capital slide again, you will see that the large portfolio companies paid GEL 53 million dividends, and they paid down debt or made M&A acquisitions worth around GEL 35 million. So this GEL 35 million can easily become dividends paid to Georgia Capital next year or the year after. So we do expect the growth in the dividend inflows. This year, we expect GEL 200 million. Next year, we expect double-digit growth in terms of the percentage of the dividend incoming 2027. We will give you more accurate number when we publish the fourth quarter results because we're going through the next year budgets with the portfolio companies at the moment. But it will be in excess of GEL 220 million for the next year.
Great. Very helpful. Thank you.
Thanks, Ben.
Milosz has a question. Milosz, you can go ahead.
Yes. Hi. It's Milosz Papst from Edison Group. Congratulations on the strong set of results, and on taking my questions. Thank you for taking my questions. I would like to start with the cash conversion of the retail pharma and healthcare services business. Let's maybe start with—
Sorry, which one, sorry?
Healthcare services.
Healthcare services. Okay.
Yeah. Let's maybe start with retail pharma. Obviously, you've highlighted that the cash conversion was somewhat impacted by the overall expansion and the investments in higher-margin products. I think the cash conversion was closer to 60%. Sorry, what was it? Was it 63% or something around that?
Are you looking at quarter or you are looking nine months?
Yes. Just the quarter, 62.5%.
I do not think you could look at a quarter. I mean, it is a—
Exactly.
—cash conversion. How does nine months look for you?
Yeah. Nine months, of course, 87%. I just wanted to understand if it is a sensible annual run rate, let us say, you expect for the business. And a similar question for the healthcare services business, where, of course, Q3 cash conversion was too strong, but this was because of the collection of delayed payments, so there is still some outstanding. Again, what would be a sensible assumption in terms of the cash conversion on an annual effect basis? Is it already approaching your mid-term target of 85%, at least 80%?
Yeah, sure. Irakli, can you—
Hello. Thanks for the question. In healthcare business, the Q3 cash conversion was close to 100%. We are EBITDA to cash conversion, plus growth, it should be around 100%. If the growth is 15%, then the cash conversion should be 85%. It is a general assumption going forward.
Okay, perfect. Thank you.
Then Tornike , maybe you talk about the pharmacy cash conversion.
Thank you for the question. First of all, let me agree with Irakli's comment about the quarter, because it does not give us the picture for the whole year as we are having some shifts from quarter -to -quarter, mainly in the payments. It is the main reason for Q3. Still, let me say two things. It is acceleration of growth, together with the new launches, new brands, exclusive brands, which are driving mix to the higher gross profit margin. Both things, what I have described, needs extra additional investment in working capital. Let me give you an understanding for our expectations of the year 2026 year end. It will be around 90% cash conversion.
Okay, perfect. All clear. My final question will be on the expansion capex in the healthcare services business, right? You said that $10 million will be provided by the HoldCo and GEL 43 million by the company itself. I presume, based on your comment, that you expect some distributable income from healthcare services from the next year. I presume that most of this expansion capex will be funded by operating cash flow, but do you expect any moderate incremental debt, or should it be covered by?
Milosz, I think one thing you need to keep in mind is this is the investment that will happen over three years. This is not immediate.
Yeah.
This will be phased in over the next three years, and we do expect that they will have sufficient cash on the balance sheet to cover it. If they don't, then they might temporarily borrow from the lenders. But we think over the three years, they will have enough cash generation.
Excellent. Thank you.
Thank you.
Thanks.
Thanks, Milosz. And we have also a question coming from Melker Samuelsson. Melker, you can ask the question.
Hello. Good afternoon, and congratulations on another strong set of numbers. First, I wanted to ask quickly on the insurance businesses, how you think about maybe over the next few years, more stabilized or normalized loss and combined ratios in both of the businesses. Obviously, the medical side was partly impacted by the mix of state tenders. On the P&C side, there seems also to be a mixed effect with maybe more motor and property, and how you think that sort of mix effect is going to influence the loss and combined ratios on both business lines.
I will take the question. Thanks for the question. Historically and going forward, our appetite is from 80% to 85% in terms of the P&C, supported by the balanced reinsurance. We are in line with our announced medium-term combined ratios of 85%. Going down the road for a few years, we will be looking to be in the range of 85% in terms of the P&C. As far as for the health insurance, we are somewhere in the 90%-92%, even though in 2023 we had a little bit deterioration in medical for the combined. In terms of the nine months, we had 1.1% improvement. It is in line with our budget, and it is stabilized. I do not think there are big fluctuations going down the road or looking historically for the last five years.
Okay, perfect. Thank you very much. Maybe secondly, if I may quickly on the—
Sure.
You have now come to no leverage position. How do you think about this? Of course, you hinted that you do not want to be pressured to invest, but are you considering alternative investments or increasing buybacks further or potentially revisiting your leverage targets?
No, I think our leverage targets are good. We are comfortable with 10% NCC ratio. We will go along. We have this GEL 1 billion program, and in next couple of years, we will be fulfilling this GEL 1 billion program. We see we may need to raise some debt for the acquisitions. We may or may not, and we would need to retire this debt. We want to have flexibility in terms of the borrowing. We do not want to be fully delevered all the time.
We would want to, for the acquisition, we may borrow some, but to go towards the 10% area of NCC ratio, and then we retire debt. That is how we want to move there. As I said, we have a guidance for you, how much capital we will be returning over till the end of 2029. This includes the investments, this includes the buybacks. No more deleveraging now, but that is kind of a—
I think our investment philosophy or capital allocation philosophy is very clear. Our track record of allocating capital in our framework of buying something which is better than the GCAP is very important. If we cannot buy better than GCAP, we buy GCAP. So far we buy GCAP. That is where we are. Good to think. Alongside, we have a very strong operating performance of our private portfolio companies. Distributable capital is increasing, and will increase significantly over the next year and next years. We are in a good position, a comfortable position to be.
Great. Thank you.
Thanks.
Thanks, Melker . We have two more questions in the question and answer panel from Anton Berg. First one relates to the dividend outlook for 2027, which we covered. I am going to go to the second one. Can you please share the long-term opportunity for the retail pharma business in Armenia?
I think we covered that one a little bit. Tornike, you want to talk about it? Basically, for retail pharmacy, we are looking for acquisitions in Armenia, and that is how we want to expand. If not, we will be continuing expanding organically. We like that market. We think that the market is under-penetrated, and we want to do more business there for sure. Tornike, you want to add something?
I fully agree.
Yeah. Okay. I think that I do not know. Any more questions?
No, we do not have any incoming questions as of now.
Very good. Thanks, everybody. Stay tuned and very much looking forward to annual results to present you in February. Thank you.