Lion Finance Group PLC

Hello everyone, welcome to Line Finance Group PLC's first quarter results call. My name is Ninia Arshagoni, I'm Head of IR, and today I'll be moderating this call. I will be joined on this call by the Group Chief Executive Officer, Arshil Gachechiladze, who will provide a detailed overview of the Group's performance and financials across our key business divisions in Georgia and Armenia. But before that, I would like to invite our economist Akakeli Kokeli to discuss the macroeconomic developments affecting our core markets. I would also like to remind you that this call is being recorded. With that, I'll let Akake in. He will join in a second. Hayagaki, you're on the line and you can share the presentation.

Hello, everyone. Let me quickly share my screen. Okay, I hope you see it now. So I will be presenting the macroeconomic update for Georgia and Armenia, two main markets of the group. Let me start with growth highlights. So in quarter one, Georgian economy surpassed expectations, posting 9.3% year-on-year growth, on top of 9.4% real GDP expansion in 2024. This once again demonstrates the resilience of the Georgian economy amid uncertainty. So given the stronger than expected performance in quarter one, we have revised our full year real GDP growth forecast to 6.8%. We anticipate the Georgian economy activity will remain broad-based, primarily driven by consumption spending. Meanwhile, the Armenian economy continues to moderate, in line with expectations, amid weaker external demand. Quarter one, the Armenian growth was 4.1%, and we project 4.5% for the full year. This is after 5.9% growth in 2024. We also expect that the Armenian recent concentration, sectoral concentration of the Armenian economy will ease in the following periods, leading to more balanced and sustainable growth profile. Downside risks remain elevated for the whole region. However, Georgia and Armenia maintain their leading positions according to the latest IMF forecast for the next five-year growth, as you can see on the right-hand side chart. So external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia. However, in recent periods, we have seen these inflows normalizing. So on the left hand side, in the case of Georgia, the inflows remain more resilient, including export. proceeds, tourism revenues and remittances, and it registered modest year-on-year increase in Q1. However, in the case of Armenia, we see more larger adjustment. This is due to significantly higher base of the previous year. Overall, we expect this adjustment to be somehow partially offset by other inflows, non-traditional inflows for those two countries, particularly service export revenues, including IT and transportation services, which have shown more resilience and have become one of the main sources of hard currency inflows and productivity gains for Georgia and Armenia. Overall, this resilient external sector inflows also support local currency values in Armenia and Georgia. And as you can see on the left hand side, most of the regional currencies, including the JL and AMD, have appreciated versus the US dollar in the first four months of this year. This is due to the global weakening of USD. However, if we take a longer term perspective and also look at 2024, we see that currencies in the region that appreciated more this year, they had weaker starting points from 2024, while Georgian Lari and Armenian DRAM are relatively more stable. So in the medium term, we expect those two currencies will remain stable, supported by resilient external sector inflows and sound macroeconomic policies. This stable exchange rates and prudent monetary policy have been a key in maintaining low below the target inflation in both countries during 2023 and 2024. However, lately we have seen inflation picking up in both countries. This is mostly due to the low base of the previous year as well as some modest increases in global food prices as well as increasing some service costs, which reflect strength, continued strength of domestic demand conditions. So both central banks have maintained their interest rates unchanged over the recent months. They are carefully monitoring the recent inflation developments. We expect inflation will remain above the 3% target levels in both countries during this year, and then they will go back to the targets as inflation expectations remain well anchored and demand supply conditions appear broadly balanced. We don't anticipate any interest rate cuts this year, either in Georgia and Armenia, as the central banks are careful regarding the latest increased uncertainty in the global inflation environment. Apart from low and stable inflation, robust and sound policy buffers are essential for overall macroeconomic stability. And in this regard, we have positive developments in both countries. After some deterioration in international reserves in previous years, we have seen that the central banks have been replenishing the reserve levels. In Georgia, the National Bank of Georgia resumed purchasing the USD, while on the Armenian side, the recent issuance of sovereign Eurobond also helped in this regard. Another key policy buffer is the low and sustainable level of government debt. In the case of Georgia, government debt to GDP has been below 40%, which is a very comfortable level in international standards, and this is expected to decrease further in the coming years. In the case of Armenia, the government debt to GDP level is a little bit higher, around 50%, and it is set to increase additionally due to the ongoing spending needs of the government on public infrastructure and social welfare programs. However, we expect the Armenian authorities will maintain fiscal discipline supported by IMF's ongoing standby arrangements. So in addition to improvements in policy buffers, Georgia and Armenia have also enhanced their resilience against external shocks by significantly reducing their external debt to GDP ratios in recent years, as you can see on these charts. This was primarily driven by strong growth and local currency appreciation. Although the external debt to GDP ratios remain above peer median in both countries, this significant decrease compared to the historical levels provides policy flexibility and also enhances investor sentiment, which contributes to the broader macroeconomic stability. And lastly, let me briefly cover the recent developments in the banking sectors, which have remained strong, delivering strong results. So growth has remained quite elevated in both countries. Year-on-year loan book growth in Georgia was steady at 16.6% in Q1, while it accelerated further in Armenia to 30.2%. This is partially explained by the anticipated phase out of the state mortgage subsidy program. Dollarization, loan dollarization has remained broadly flat in quarter one after significant reductions in previous years. And lastly, the asset quality is also sound with Armenia and Georgia recording one of the lowest non-performing loans ratios compared to the regional peers. So this concludes my part of the presentation. Now I will hand it back to Nini.

Thank you very much, Akaki. With that, I'll hand over now to Archil, who will continue with the discussion of our results. Archil, you can start. You're on the line. Archul, we can't hear you, and also your slides are again showing these black boxes.