2020 turned out to be a challenging year for Silknet. On the one hand COVID-19 related lockdown and stay-at-home orders boosted mobile data revenues (+14.4% y/y), on the other hand more traditional revenue streams (mobile voice and SMS) came under pressure. Notably, mobile data traffic skyrocketed in Georgia in 2020, with Silknet achieving the highest growth in per user data usage, but still below the levels used by Magticom’s subscribers. In addition, absence of tourism negatively affected mobile segment, particularly roaming revenue. Lockdown measures also halted the growth pace of traditionally fast-growing fixed segment for Silknet (fixed broadband and pay-TV).
Overall, Silknet generated GEL 382.2mn in 2020 in revenue (-GEL 5.0mn y/y or -1.3% y/y), while commercial revenue (91% of total) posted a marginal 0.4% y/y growth in 2020. The competition in Georgia’s telecom industry remained intense in 2020. Silknet managed to increase market share in mobile segment by revenue (+0.65ppts to 36.5%) due to higher ARPUs, while Magticom maintained a solid 45.5% market share by mobile revenues (down 62ppts over 2019-20). Despite slowdown in customer acquisition in fixed broadband segment, Magticom managed to add c. 19,000 new subscribers due to its rural penetration strategy, bringing its market share up 0.5ppts to 48.9%, while Silknet added only c. 5,000 subscribers. In pay-TV segment, Silknet added c. 18,000 new subscribers, grabbing 1.9ppts in market share, while Magticom’s subscriber base remained mostly unchanged in 2020.
Silknet generated GEL 211.5mn in EBITDA in line with our projection in 2020, translating into an EBITDA margin of 55.3% (vs. 55.8% in 2019). Slight decline in profitability was due to higher operating expenses (software maintenance, pay-TV content).
We forecast a low single digit growth in Silknet’s revenue in 2021 in line with gradual rebound in economic activity and tourism. GEL weakness remains to be the main risk factor for Silknet as significant portion of liabilities are unhedged (74%). Due to GEL’s 14% depreciation in 2020, net Debt-to-EBITDA jumped to 2.99x in 2020 from 2.75x by end-2019. In December 2020, Fitch downgraded Silknet’s rating to ‘B’ on the back of increased net leverage.
