TBC Capital published an overview on Silknet. According to the report, Silknet’s revenue increased by GEL 31 MLN (+8.2% YoY; +4.45% in USD) in 2021.
The growth was largely driven by a 6.4% YoY growth in commercial revenue. The increased revenue in 2021 was primarily a result of improved mobile data revenue. Eased pandemic related restrictions and partial recovery of tourism positively affected the use of mobile services.
Silknet’s EBITDA was up by 7.6% YoY in 2021, while the EBITDA margin decreased by 0.3 pp in the same period. The improvement of EBITDA was mainly a result of revenue growth, while the slightly declined margin was affected by depreciation of the GEL against the USD (4% YoY) and the EUR (7% YoY) along with the increase of utility expenses.
The segmental breakdown of Silknet’s commercial revenue shows that mobile remains the largest part of the company’s business. At 54.2% of total
commercial revenues in 2021, revenue from mobile services increased by 9.3% YoY. A positive change was also recorded in the following two sizable categories of fixed internet and pay TV, having increased by 3.9% and 1.6% YoY, respectively, in the same period.
Negative trend continues for Silknet’s fixed telephone service revenues with a 13.8% YoY decrease in 2021. The gradual reduction of revenues in this service category is a result of increasing mobile phone penetration.
The revenue increase was a result of steadily growing number of subscribers for mobile services (+3.8% YoY by the end of 2021), as well as the growth of ARPU for the service segment, amounting to a sizeable +12.0% YoY over the same period.
The second largest service segment of fixed internet grew subscribers at a slower pace (+2.7% YoY), while the ARPU increased by +3.9% YoY.
Compared to 2020, the pay TV segment gained the most subscribers, exhibiting +5.8% YoY growth. This was partly offset by a decrease of the ARPU
(-13% YoY).
With the consumers’ preferences shifting towards mobile technology, the fixed telephone service segment continued the downward sloping trend.
GNCC’s recent abolition of price regulation for mobile network operators indicates possible raise of tariffs and ARPUs. However, this is unlikely to lead to changes in the market shares as all operators will adjust their pricing according to the new regulatory environment.
Market shares have been stable in 2021 and only a slight decrease has been observed in the mobile and fixed categories, while the pay TV share marginally increased. In terms of more detailed segments, Silknet worsened its share in terms of mobile internet traffic at -0.5 pp YoY. Share decrease has been recorded for mobile outgoing call traffic (minutes) as well at -0.3 pp. Silknet improved its market share in terms of mobile internet subscribers with +0.3 pp, while fixed telephone shares have stood still at 33.8%.
Silknet has high exposure to foreign exchange risks as most of its revenues are recognized in local currency, while its Capex is denominated in foreign currencies. To hedge the FX risk, company entered into an agreement for a FX currency swap in 2019, but it was partially terminated in 2022, leaving unhedged FX exposure high. FX losses adversely affect the company’s financial statements with total equity turning negative in 2020 after a significant FX loss.
In January 2022 Silknet successfully issued a 5-year USD 300 mln Eurobond mainly to refinance the existing indebtedness. In the Eurobonds from the communications sector with similar maturity, rating, and embedded call option, the refinanced as well as the new Silknet Eurobond is a rather high yielding, making it an attractive investment. With a decreased leverage of 2.6 in 2021, Silknet remains well below the 3.5 threshold set by the new Eurobond covenant.
