Challenging quarter for telcos As expected 2Q20 turned out to be a challenging quarter for Silknet. Strict stay-at-home orders were in place during April and early May, with countrywide state of emergency lifted on 23 May, 2020. Since then, major business entities have resumed operations, however Georgia’s borders remain closed for international tourists (with some exceptions), with limited number of flights taking place. For Silknet, mobile and fixed broadband services were hit hardest. Strong growth in mobile data revenues was not enough to offset the declines in mobile voice and other mobile service revenues. Introduction of new ‘unlimited data packages’ from the two largest operators lifted mobile data traffic in Georgia, which hit record high 15.7 terabytes in May 2020. Notably, Silknet’s subscribers used on average 6.5GB/month in 2Q20, which is significantly higher than last year levels. Country-wide lockdowns have affected Silknet’s business customers, which account for c. 25% of Silknet’s commercial revenue. Although exposure to hospitality and entertainment sectors is limited (3% of total revenue), temporary closure of hotels, restaurants and casinos as well as other business entities in Georgia negatively affected Silknet’s fixed revenues. In addition, new customer acquisitions have slowed. Silknet generated GEL 184.9mn in revenues (US$ 61.0mn) and GEL 95.2mn (US$ 31.4mn) in EBITDA in 1H20. Notably, on a quarterly basis 2Q20 revenue was down 6.8%, while 2Q20 EBITDA shrank 5.2% q/q. As GEL’s weakness against USD persisted during 2Q20, Silknet’s Net Debt-to-EBITDA remained elevated at 2.9x as of June 2020. • Silknet released audited 1H20 results. With GEL 184.9mn revenue and GEL 95.2mn EBITDA, Silknet maintained a second place in Georgia’s telecom industry. Commercial revenue, making up c. 90% of total, was up 2.8% y/y to GEL 168.6mn or US$ 55.6mn, however on a quarterly basis commercial revenue was down 6.6% in 2Q20. Mobile and fixed broadband were the hardest hit categories, as abscense of international tourists put pressure on mobile voice and other mobile service revenues, while closure of number of business entities lowered Silknet’s fixed broadband segment. Other revenue categories were also negatively affected, with pay TV revenue down 4.8% q/q, while carrier service revenue dropped by 8.6% q/q, mostly due to drastic drop in roaming revenue. • Silknet maintained strong market positions in 2Q20, remaining to be the largest fixed voice and second largest fixed broadband, Pay-TV and mobile operator in Georgia. Lower number of mobile subscribers (due to abscene of international tourists), along with lower ARPUs earned, has caused overall sector revenues to decline, with April being the toughest month (revenue down 15.6% m/m). From May, mobile revenues have picked up, mostly helped by higher ARPUs. Market positions of the three major mobile operators have remained mostly unchanged in 2Q20. • In fixed broadband, B2B revenues were under pressure. C. 27% of fixed broadband sector revenues stem from business customers. Fixed broadband market declined by 5.5% m/m in April 2020 (vs. 5.2% m/m decline for Silknet), while pay TV sector shrank by 4.6% m/m (Silknet’s revenue declined in line with the market) in the same period. Notably, Silknet has maintained strong market positions by revenue, grabbling c. 35% of fixed broadband and c. 37% of pay TV segments in 1H20. Please see the full report for detailed coverage of Silknet’s 1H20 performance.
