June 2019
June 2019 Disclaimer This investor presentation (the Presentation) - - PowerPoint PPT Presentation
June 2019 Disclaimer This investor presentation (the Presentation) - - PowerPoint PPT Presentation
June 2019 Disclaimer This investor presentation (the Presentation) has been prepared by Joint Stock Company Silknet (the Company). For the purposes of this disclaimer, Presentation shall mean this document, the oral presentation
Disclaimer
This investor presentation (the “Presentation”) has been prepared by Joint Stock Company Silknet (the “Company”). For the purposes of this disclaimer, “Presentation” shall mean this document, the oral presentation of the slides by the Company and the related question-and-answer session and any materials distributed at, or in connection with, that presentation. The information contained herein is subject to change without notice and past performance is not indicative of future results. No person shall have any right of action (except in case of fraud) against the Company or any other person in relation to the accuracy or completeness of the information contained herein. This Presentation contains projections and forward looking statements. The words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in this Presentation, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Further, certain forward-looking statements are based upon assumptions of future events which may not prove to be accurate. The forward-looking statements in this document speak only as at the date of this Presentation and the Company assumes no obligation to update or provide any additional information in relation to such forward-looking statements. The contents of this presentation have not been independently verified by or on behalf of the company or by any other independent third party. No representation, warranty or undertaking, express or implied, is made by any of the company, any of their respective affiliates or any of their or their affiliates’ respective members, directors, officers or employees as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the
- pinions contained herein. None of the company nor any of their respective members, directors, officers, employees, affiliates, advisers or representatives shall have any liability whatsoever (in negligence
- r otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. This presentation does not purport to contain all the
information that may be required by the recipient agency to make an evaluation. The information presented herein is provided as at the date of this presentation and will be deemed to be superseded by any subsequent versions of this presentation. Contacts:
LILI PSHAVLISHVILI
CFO +995-577-149700 bpshavliishvili@silknet.com
ILIA ENUKASHVILI
Head of Strategy +995-577-955540 ienukashvili@silknet.com
MARIAM JAVAKHIA
Deputy CFO, Head o fBudgeting and Reporting +995-598-553335 mjavakhia@silknet.com
3
Silknet at a Glance 2019 YTD Highlights Business Overview Appendix & 1H 2019 Financial Information 1 2 3 4 5 10 21 37
4
Overview
§
One of the leading convergent telcos in Georgia1
- #1 fixed line with 52% market share1
- #2 fixed broadband with 33% market share1
- #2 pay television with 34% market share1
- #2 mobile with 35% market share1
§
Commercial revenue is expected to increase following the tariff changes effective from May / June, 2019
§
Transformational acquisition by Silknet of Geocell completed in March 2018
§
Network of 4,000km+ fibre backbone across Georgia; FTTH network passing >40% of households; 83% 4G population coverage
§
Credit ratings: B1 (Moody’s) / B+ (Fitch)
Key financials pro forma acquisition Number of services/SIMs3
216 287 279 1,746 Pay television Fixed broadband Fixed line Mobile
GELm 2016 2017 2018 1H 2018 1H 2019 1H 2019 Commercial revenue 299 319 332 161 164 164 Carrier services 74 80 67 36 20 20 Total revenue2 373 399 399 197 184 184 Adjusted EBITDA 141 165 188 88 94 100 EBITDA margin 38% 41% 47% 45% 51% 54%
Source: Company information, GNCC, NBG Note: ¹ Based on the number of subscribers as of 30 June 2019; Pay TV market share does not include mobile streaming application subscribers;
2 Includes GEL4m inter-company eliminations in 2016, GEL9m in 2017 and GEL2m in 2018; 3 As of 30 June 2019.
Silknet at a glance
5
w/o IFRS 16
§ Increasing trend in commercial revenue mainly due to:
- Retail revenue growth in broadband and IPTV segments…
- …offsetting fixed voice shrinkage
- Reduction of excise tax on mobile services in 2017
- Tariff changes in May/June 2019 expected to further
support commercial revenue growth in 2H
§ Downtrend in carrier service revenue driven by reduction of
termination rates. Refer to slide 32
Note: 1 Assuming USD/GEL exchange rate of 2.7038 for 1H 2019, 2.5345 for 2018, 2.5086 for 2017 and 2.3667 for 2016; 2 Excluding licenses.
Capex1,2
EBITDA margin
38%
EBITDA1
GELm GELm
47% 41%
% revenue Commercial revenue Carrier services
§
Growing EBITDA and margin driven by:
- Operating synergies partially captured in 2018 and, to
almost the full extent, in 2019…
- …and operating efficiencies in 2017 compared to 2016…
- …despite the negative effect of the termination rate
- changes. Refer to slide 32
299 319 332
74 80 67
PF 2016 PF 2017 PF 2018 373 399 399 161 164 36 20 PF 1H 18 1H 19 197 184 141 165 188 PF 2016 PF 2017 PF 2018 88 94 PF 1H 18 1H 19
45%
6
51%*
GELm
46 1H 19 143 109 PF 2016 PF 2017
38% 27% 25%
Robust financial performance
6
Revenue1
*EBITDA margin without giving effect of IFRS 16 Impact of IFRS 16
IFRS 16
IFRS 16 was adopted from 1st January, 2019. Impact on EBITDA is positive GEL 6m in 1H 2019
14% 27% 5% 25% 11% 6% 1% 11%
Total Revenue
Mobile data Mobile Voice Other mobile services Fixed Services Pay TV Fixed line Other fixed services Carrier Services
Mobile 46% Fixed 43%
57% 43%
EBITDA split
Mobile services Fixed services
Carriers 11% Mobile EBITDA margin 56% Fixed EBITDA Margin 46%
7
Segment performance
Note: Figures are based on 1H 2019 management accounts and do not include the IFRS 16 impact.
Note: average exchange rate of GEL/USD has been 2.6531 for LTM ending 30 June, 2019.
GELm LTM* Revenue 386 EBITDA (w/o IFRS 16) 194 Cash CAPEX (w/o spectrum) 104 Debt Service (pro forma Eurobonds) 68
6% 30% 70% 94% 70% 30%
REVENUE OPEX CASH CAPEX
FX BREAKDOWN
USD/EUR GEL
* Last twelve month period ending 30 June, 2019
FX exposure
8
GELm (2) 3 6 6 GELm 2 (3) (6) (6)
sensitivity
- 10% GEL +10%
73% 10% 12% 5%
GROSS DEBT
USD USD hedged with swap instrument USD hedged with cash balance GEL * FX hedging netted
GEL/USD EXCHANGE RATE
2.41 2.45 2.62 2.68 2.69 2.87 31 Mar 18 30 Jun 18 30 Sep 18 31 Dec 18 31 Mar 19 30 Jun 19
Silknet at a Glance 2019 YTD Highlights Business Overview Appendix & 1H 2019 Financial Information 1 2 3 4 5 10 21 37
9
YTD 2019 highlights
Network & IT
- Approximately additional 44K new homes
(FTTH) passed YTD 2019, resulting in the total of >500K homes passed or >40% of households
- Continued rollout of very high capacity
mobile service with upgrading 15 sites in the centre of Tbilisi to up to 1 Gbps capacity with pioneering 1800 MHz and 2300 MHz carrier aggregation
- Gained access to the country-wide
electricity distribution network across Georgia, after gaining similar rights in Tbilisi in 2018, to cost-effectively reach new FTTH/IPTV subscribers
- Completed the mobile billing swap – the
first step in the IT transformation
- Accelerated the replacement of the legacy
DSL network with the FTTH technology
- 4G population coverage already at 83%
10
Corporate
Exclusive franchise granted from Euronews and establishment of Silk Media Ltd. Change in the ownership structure – direct parent is now a local entity Issuance of debut US$200m Eurobonds (Reg S) and repayment of the bank and other loans Silknet’s Eurobonds listed on the Georgian Stock Exchange (category A listing), resulting in a dual-listing
11
YTD 2019 highlights, cont’d
Products
§
Launch of new tariffs and changes to the existing offers. See slide 14 and 15
§
Launch of AMEDIATEKA in IPTV and on SilkTV.com – ~150 top-rated series and ~200 films
§
Silk Travel Insurance – 5, 10 and 15 day travel insurance policies bundled with international roaming data packs
§
SilkFest –daily campaigns promoting mobile data usage. See slide 16
§
SilkSat – a direct-to-home (DTH) pay TV for the areas under-served with the IPTV
§
CDMA service phase-out and migration to GSM
12 Silknet and Euronews signed a memorandum of understanding with respect to Euronews Georgia, a news channel which will be made available to pay TV subscribers across Georgia in the Georgian language. For this purpose, Silknet created Silk Media Ltd., a 100%-owned subsidiary. Euronews will be in charge of Euronews Georgia’s editorial policy and nominate its news director. Euronews will share its content with Euronews Georgia, while the latter will prepare certain local content which will be shared with Euronews.
Euronews Georgia
Fixed services are highly bundled
- 89% of B2C FTTH subscribers subscribe to IPTV
- Most of our fixed broadband subscribers have voice service
Mobile subscribers are increasingly using packages
- 40% of B2B subs purchase Meti packages (voice/data/SMS)
- 50 % data penetration
Convergence picking up
§ 16,000 Silk + subscribers (with >32,500 SIM cards), or
7.2% of the FTTH B2C subscribers, since the launch of the (essentially) inaugural fixed-mobile convergent offers in Georgia in Q4 2018
Attractive subscriber base…
Smartphone and Data Penetration in Silknet
13
Room for growth
Data penetration 50% Smartphone penetration 69%
§ New 8GEL “Meti S+” voice+data pack was introduced in May. Lowest “Meti 5”
pack was terminated in August
§ Internet pack prices were changed in May; the lowest 3GEL pack was
terminated in June
Mobile tariff changes
120 local mins 100 SMS 100 MB Price: 5 GEL 500 MB Price: 3 GEL 150 local mins 1000 SMS 300 MB Price: 8 GEL 750 MB Price: 4 GEL
Smallest Meti pack (voice+data) Smallest data pack
METI S+
14
Source: Company information Note: Tariff changes were announced on 18 April, 2019 and are effective from 20 May, 2019. Fixed Broadband and Pay TV Bundle Fixed Broadband
Tariffs on fixed broadband and pay TV packages were changed in May and June:
Start Start +
Stand-alone fixed broadband tariffs (Tbilisi/month) Regional convergent offers:
25/27 GEL 29 GEL 20 GEL 25 GEL 26 GEL* 35 GEL 30 GEL 30/32 GEL 34 GEL
Launch of new packages & tariff changes in fixed services
15
20 mbps 166 channels Movie/Sports Pachage free/2Months 20 mbps 166 channels Movie/Sports Pachage free/2Months 20 mbps 10 mbps 20 mbps 20 mbps 166 channels 2 METI M mobile Bundle
SILK +
16
SilkFest
SilkFest Offers Activations Date
25 GEL unlimited pack for 15 GEL! 8,484 25-Apr-19 50% discount on 15GB internet pack! 8,938 9-May-19 25 GEL unlimited pack for 15 GEL! 5,446 28-May-19 8 GEL Meti Pack + 1GB bonus! 7,198 12-Jun-19 Double 5GB internet pack! 5,695 20-Jun-19 50 GEL unlimited pack for 20 GEL! 7,556 25-Jun-19 Double 8 GEL Meti Pack! 5,043 29-Jun-19 5 GB internet for half price ! 32,068 9-Jul-19 25 GEL unlimited pack + 1GB for 15 GEL! 5,652 17-Jul-19 8 GB internet for 8 Gel ! 30,376 23-Jul-19 200 minutes for 4Gel; 3GB for 4 Gel ! 40,329 30-Jul-19 35 GEL Meti unlimited+ for 20 Gel ! 5,410 6-Aug-19 Unlimited data for 10 days for 10 GEL 8,084 14-Aug-19
We launched the SilkFest campaign in April to promote mobile data usage and increase engagement with our subscribers. Each month we randomly offer attractive one-day promotions (approximately 3-4 times per month). As the result, we already see substantially higher engagement in social media and significant increase in data usage
Key CSR activities & sponsorships
§ Strategic directions:
- Education
- Culture
- Sports
§ Key projects and affiliates:
- National Geographic Georgia: Silknet established N(N)LE NG Georgia which publishes the National Geographic
Magazine in the Georgian language and prepares Georgia-related materials for global use
- Tsinandali Estate projects for culture and education: in addition to the year-round activities, in September 2019 we
sponsor the inaugural Tsinandali Festival which puts Georgia on the world map of major classical music festivals
- Georgian Ski Federation, Silknet is the general sponsor
- “Lokomotiv” children’s football academy Silknet is the general sponsor
- In 2018 Silknet founded N(N)LE Wounded Warrior Support Foundation
17
Silknet for the society
18
SilkSat
- Satellite television catering to subscribers still under-served by the IPTV
technology:
- Free installation and affordable monthly fee (16GEL)
- Full coverage in Georgia
- More than 100 popular local and international channels
- Convergent offer for 18GEL
Video initiatives
Amediateka
- VOD service with ~150 top rated series and ~200 films
- Launched in IPTV Q219 as a 3-month free trial for
whole base; Currently – 3 GEL/month;
- Added to SilkGo.ge in Q3 19
- Expected to launch in the SilkGo app Q4 19
18
Convergence
Most of the synergies kicked in from Q4 2018
§ Human resources: § Expat management replaced by the existing experienced Silknet team § Parallel functions merged and the management structure stabilised § Remuneration harmonised §
Processes unified
§
Distribution network unification on track
§
Focus on Silknet as the main convergent bran
§
Network maintenance efficiency
§
Support services rationalised
19
Key integration initiatives and synergy drivers:
Silknet at a Glance 2019 YTD Highlights Business Overview Appendix & 1H 2019 Financial Information 1 2 3 4 5 10 21 37
20
Customer Satisfaction Technological Leadership Operating efficiency Ecosystem creation
Network
§
Increase FTTH penetration in small towns and rural areas
§
Improve coverage in commercially interesting areas
§
Achieve seamless user experience, including video viewing
§
Decrease number of faults and improve response time
§
Optimal utilisation of available frequencies, including usage of the unique 2.3 GHz band for high throughput
§
Expand LTE coverage
§
Backbone and FTTH rollout efficiency through smart utilisation of third-party infrastructure (MIA, Energo-pro, etc.)
§
Convert better network into increased mobile data usage and monetization
§
Optimise capital expenditures and maintenance costs through scale and better vendor management
§
Better subscriber analysis
§
Faster go-to-market
§
Provide market-leading content delivery platforms
§
Decrease costs through system and infrastructure optimisation
§
Harmonise various applications – fixed, mobile, financial and other services
§
One-stop shop for all services
§
Improve shopping experience
§
Increased reliance on digital channels
§
Optimisation of customer maintenance costs
§
Improve offering of devices and auxiliaries
§
Seamless digital experience
§
Convergent products
§
Leadership in innovative products
§
Decrease churn through convergent offers (Silk+)
§
Cross-selling of additional products and services
§
Provide the content subscribers want (Exclusive sports, entertainment, documentaries, etc.), increasingly in Georgian language
§
Make content available on all platforms
§
Leverage premium and exclusive content to drive data usage and monetisation
§
Create social media interaction related to content
§
Provide conveniently and fast financial and other services through digital platforms and the
- ffline distribution network
§
Increased reliance on digital channels
§
Advanced customer scoring model
§
Decrease churn through service bundling / offering
§
Expand ecosystem to financial and other services Information Technology Distribution Network and Customer Service Product Development Content Financial and Other Services
Silknet’s operating strategy
21
A note on the 1H revenue performance
Revenue evolution
GELm
Subscribers evolution2
‘000s
Source: GNCC Note: 1 As of 30 June 2019; 2 Number of subscribers (SIM cards) ot the end of the period.
Mobile
22
1,522 1,626 1,720 1,552 1,763 1,736 1,746 1,797 1,775 1,818 1,746 1,402 1,462 1,572 1,952 1,907 1,917 2,004 1,981 1,977 1,963 1,989 484 738 840 954 1,224 1,205 1,193 1,349 1,141 1,098 1,208 3,408 3,827 4,132 4,458 4,894 4,859 4,949 5,129 4,894 4,880 4,943
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Veon (Beeline)
245 198 198 171 176 155 155 166 177 85 83 228 173 171 189 190 175 189 207 225 108 110 59 70 91 95 89 77 71 74 79 37 42 533 441 460 455 455 407 416 448 481 229 234
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Veon (Beeline) § Headline performance in the mobile segment in 1H 2019 lagged the competition, with Silknet's retail revenue decreasing y/y while the competitors managed to grow:
- Following the feedback from the regulator, price
changes announced in January, 2019 were suspended by Silknet, while Magticom enjoyed the new pricing through the most of 1H. Veon may have also benefited from the latter, mostly as a second-SIM solution.
- In addition, our primary focus in 1H was on the
- ngoing IT transformation, including the mobile
billing swap, as well as the substantial network upgrade whereby we continued 4G rollout and launched the pioneering gigabit-LTE in the centre of
- Tbilisi. Our 4G population coverage reached
approximately 83%. § Mobile performance expected to improve in 2H 2019
- New pricing was gradually reinstated towards the
end of Q2 and in Q3
- The improved network and communication around it
allows us to establish competitive advantage with respect to mobile data experience, resulting in higher data usage
- Hand-in-band with the network upgrade, in Q2 we
launched SilkFest which primarily promotes mobile data usage
§ Substantial structural change over the past few years
- Number of mobile internet users grew from 0.6m in
2010 to 2.5m 1H 20191
- Internet usage increased from 173 terabytes in
2010 to 63,561 terabytes in 2018
- Internet usage growth significantly slowed down in
2018, mainly due to the B2B segment adjustments to the pricing changes by Silknet and MagtiCom in the course of the year
- Second-SIM data usage encouraged by the price
changes announcements in Q1 2019, with Veon as the main beneficiary
- According to the GNCC data, Veon’s data growth in
1H is mostly attributable to the B2B segment
Source: GNCC Note: 1 As of 30 June; 2 Number of subscribers (SIM cards) ot the end of the period.
Key takeaways
‘000s Evolution of mobile internet traffic
terabytes
Evolution of mobile internet subscribers2
Mobile SMS and data usage
23
185 366 441 523 615 717 820 911 937 936 951 265 292 281 400 511 615 751 804 792 780 802 110 224 239 238 258 282 352 513 680 611 762 560 882 960 1,161 1,383 1,614 1,929 2,228 2,410 2,328 2,515
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19
9,229 16,030 16,789 8,526 7,658 17,243 31,309 28,417 14,068 13,717 4,109 13,436 18,355 7,391 14,150 173 353 684 1,516 4,799 13,883 30,580 60,775 63,561 29,985 35,525
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Veon (Beeline)
GEL Evolution of Residential ARPU
11.2 9.0 9.4 8.8 7.3 5.9 6.0 5.9 5.9 5.6 5.7 12.2 9.2 8.7 8.3 8.0 7.3 7.8 8.3 8.9 8.5 8.6 14.0 10.0 9.3 9.4 9.3 8.1 8.1 8.4 8.6 8.3 8.3
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19
87 127 184 232 293 334 393 522 639 572 694 167 202 214 213 203 174 146 104 69 86 57 28 35 37 58 78 95 131 124 128 129 126 283 364 436 503 574 603 670 749 835 787 877
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 FTTH DSL Wireless
129 174 205 215 232 243 266 278 278 279 287 113 124 133 154 170 163 182 299 378 333 406 40 67 97 134 172 197 221 171 179 175 184 283 364 436 503 574 603 670 749 835 787 877
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 181H 19 Silknet MagtiCom Other
- c.75% household fixed broadband penetration in Georgia1
- Historically, fibre deployment followed the legacy copper infrastructure, however
from 2016 substantial parts of the new network deployment is outside of the legacy infrastructure
- Silknet has 33% subscriber market share1
- Silknet accelerated DSL replacement project with FTTH technology starting from
2019
- From 2019, Silknet has gained access to nationwide electricity grid for fibre
deployment, levelling the playing field with the key competition
- We gained further network deployment headway through the backbone contract
with the MIA
- However, our approach to the network deployment remains selective and we do
not target less densely-populated areas, not chasing headline market-share
- Approximately 44K new FTTH homes passed by Silknet YTD 2019, >500K homes
passed in total (>40% of households)
Subscribers evolution2
‘000s
Key takeaways Subscribers by technology
‘000s
Source: GNCC Note: 1 As of 30 June 2019; 2 Number of subscribers at the end of the period
Silknet’s subscribers by key technologies
‘000s
Fixed broadband
24
4 20 46 54 77 95 124 165 196 181 217 124 153 159 160 154 135 120 90 61 76 50
- 11
22 23 21 22 20 128 173 204 214 231 241 266 278 278 279 287
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 FTTH DSL LTE
30 46 52 58 62 74 80 84 83 40 45 34 38 41 46 57 59 60 85 102 49 60 12 16 22 30 42 52 60 47 42 21 22 75 99 115 134 160 185 200 215 227 110 127
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Other
Key takeaways
§ Residential ARPU decreased in 2016-2018 due to introductory offers to subscribers outside
Tbilisi
§ As some of these offers are being gradually phased out, the ARPU decline trend has been
stemmed and the trend reversed
§ However, significant pricing difference still remains between Tbilisi and other areas. Further
expansion in small towns and rural areas may lead to overall ARPU decline
§ B2B segment represents 31% of fixed broadband revenue1
Revenue evolution
GELm
Fixed broadband, cont’ d
25
Note: 1 Company information
Residential ARPU evolution
GEL
Phase-out
- f certain
- ffers
22.2 20.4 18.8 18.8 19.6 21.0 20.7 19.3 17.4 18.3 19.2 18.9 17.4 17.3 17.3 20.3 20.9 19.5 17.8 18.5
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 19 Market Silknet
14 51 89 88 107 147 184 212 213 216 216
- 4
46 136 154 170 169 255 309 276 317 67 121 124 122 132 133 102 104 100 102 99 81 175 260 346 393 450 455 570 622 594 632
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Other
Key takeaways
- c.57% household pay television penetration
- The DTH subscriber growth has stalled and the RF technology market share
has declined, partially due to the launch of a digital terrestrial television (DTT) platform with high-quality FTA offering
- ARPU increased in 2014-2017 due to the higher ratio of IPTV subscribers as a
result of the market growths, as well as the substitution of low quality / low value technologies
- ARPU growth in 2018 is mainly attributable to price increases related to
transmission fees for popular Georgian FTA channels, while the phase-out of introductory offers contributed to the increase in 1H 2019
- Silknet holds 34% subscriber market share1 thanks to its superior content
- ffering and successful service bundling
- Our flat subscriber growth in 1H 19 y/y masks increase in IPTV and decrease
in Global TV (RF-technology) subscribers
Revenue evolution
GELm
Subscribers evolution1
‘000s
Source: GNCC Note1: Number of subscribers at the end of the period; Excluding mobile streaming application subscribers
ARPU evolution Phase-out of certain
- ffers
Pay television
26
2 5 11 16 19 27 30 34 35 17 20
- 4
15 15 14 19 25 45 20 27 5 13 15 15 15 16 17 16 16 8 7 7 19 30 46 49 57 66 76 96 46 54
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 18 1H 19 Silknet MagtiCom Other
9.6 11.0 12.1 12.6 11.1 11.8 12.6 12.3 13.3 14.4 19.1 15.7 13.8 16.0 17.2 20.6 19.4 16.2 13.6 15.2
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H 19 Market Silknet
§
Approximately additional 44K new homes passed YTD 2019, more than 500K homes passed in total, or >40% of households
§
Gained access to the country-wide electricity distribution network across Georgia, after gaining similar rights in Tbilisi in 2018, to cost- effectively reach new FTTH/IPTV subscribers § The company has decided to accelerate the replacement of the legacy DSL network with FTTH technology, with the view of substantially phasing out the DSL service in the course of the coming 18-24 months § Stopped the fixed-wireless and mobile service on the obsolete CDMA
- technology. Offered to migrat the remaining subscribers to the GSM
technology
Unparalleled network coverage …
Over 4,000 km inter- and intra-city connectivity and sole operator with border- crossing network
Fixed network
27
Key takeaways
Population coverage1 Territory coverage1 Number of base sites1,2 2G (GSM) c.99% c.89% 1,406 3G (UMTS) c.98% c.72% 1,316 4G (LTE) c.83% c.36% 836
Mobile network
28
- LTE coverage, providing the highest data speed to c.83% population, substantially expanded with the
deployment of LTE on 800/900 MHz and 2.3 GHz in 2H 2018, after the Geocell acquisition
- The 2019 mobile network roll-out programme includes further upgrade of the existing sites, addition of
new sites across Georgia and a layer of micro sites in Tbilisi. This roll-out is expected to result in the 4G population coverage reaching well over 90% (based on initial simulations).
- Rollout of very high capacity mobile service with upgrading 15 sites in the centre of Tbilisi to up to 1
Gbps capacity with pioneering 1800 MHz and 2300 MHz carrier aggregation. As the result, monthly data traffic on these sites increased by approximately 50%. We plan to continue rolling out such upgrades to additional high-traffic sites
Key takeaways
Source: company information, GNCC Note: 1 company estimates , as of 30 June 2019,; 2 GSM/UMTS/LTE network coverage, excluding CDMA
Coverage and sites LTE coverage map today1 LTE coverage expected at year-end1
Unique content portfolio via exclusive contracts
§ Unrivalled sports proposition with exclusive rights to the Champions League,
Spanish La Liga, Europa League, NBA basketball, various tennis tournaments and
- ther sports content
§ A betting-related internet-only service gained rights to the English Premier
- League. We regard this as a one-off event
§ Exclusive rights to 25 Russian-language entertainment channels § Attractive VOD offering through Amediateka on an exclusive basis § We continue to evolve our content offering with Euronews Georgia, expected to
launch in 2020
§ Digital pioneer in the Georgian market and continuously developing streaming
applications for Android, iOS and PC
Source: Company information; 1 As of 30 June 2019
29
Objectives
§
Deeper subscriber analysis
§
Faster go-to-market
§
Better customer service
§
More efficient use of resources
Expected to be completed in 1H 2020
Systems deployed
§
Convergent business support system (billing, CRM, etc.)
§
Mediation
§
Provisioning
§
Interconnect billing
§
Network and services inventory
§
Workforce management
§
Order management
§
Whale Cloud, an Ali Baba affiliate, is the principal vendor
§
The project is supervised by Sofrecom, subsidiary of Orange
Key players
IT Transformation
30
National call termination rates, GEL 0.011
Source: company information, GNCC Note: 1 From 2018, no excise tax is levied on local call termination and only VAT applies. Excise tax on mobile call was decreased from 8% to 3% in 2017 and abolished from 2018
Spectrum auctions Spectrum auctions
§
In the next 3-5 years (before the 5G is standardised and spectrum is made available), Silknet does not expect to require more spectrum
§
2300 MHz may be harmonised and the licence modified
- 800: recently awarded 2x5 MHz
- 900: 2x11.8 MHz, of which 2x5 MHz currently used for 3G outside Tbilisi and Batumi; LTE launched in Batumi and Tbilisi; the
remainder is used for 2G
- 1800: 2x30 MHz, of which 2x20 MHz used for LTE and 2x10 MHz for 2G
- 2100: 2x15 MHz currently used for 3G
- 2300: 50 MHz, currently used for mobile 4G and fixed wireless broadband
Current (incl. taxes) From 1 July 2018 (excl. taxes) From 1 January 2019 (excl. taxes) Mobile 3.50 1.81 0.75 Fixed local (intra-city) 2.00 0.99 0.28 Fixed transit 2.00 1.01 0.32
§ Up to GEL 9 million decline from 2017 to 2018 § Up to GEL 23 million decline from 2018 to 2019
Estimated effect on carrier services revenue:
§ Negative GEL 1.5 million from 2017 to 2018 § Negative GEL 4.5 million from 2018 to 2019
Estimated effect on EBITDA:
Regulations and spectrum
31
Silk Road Group is one of the leading private investment groups active in the Caucasus and Central Asian regions with interest in different sectors of the Georgian economy and net tangible assets worth over USD400m(1)
Transportation Telecommunications & financial services Real estate, hospitality & Entertainment Energy §
Silk Road Group transportation business connects Georgia with Central Asia through access to infrastructure, terminals, rail tank cars and containers
§
Silk Road Group operates in the Telco industry through Silknet, the leading convergent operator
§
After Silknet’s acquisition of Geocell, Silk Road Bank is intended to power Silknet’s mobile financial services
§
Silk Road Group owns a real estate portfolio (developed and undeveloped properties and lands) valued more than USD220m
§
10 years of experience in hospitality & entertainment (hotels, restaurants, casinos, clubs, sport centers, etc.)
§
The group operates a run-of-the- river hydroelectricity plant with an installed capacity of 9.8MW Source: Company information Note: 1 As of 31 December 2016
Solid and supportive shareholder
32
Rhinestream Holdings Limited (Malta) JSC Silknet GEL188m PF EBITDA 2018
100%
Qarva Ltd. N(N)LE NG Georgia Novus Ltd. (currently inactive) WiMax Georgia Ltd. (currently inactive) “Qarva Limited” Malta LLC
Silknet and Geocell merged in Nov 2018
51% 49% 100%
Source: Company information
Aleksi Topuria George Ramishvili David Borger
100% 58.81% 9.04%
Ultimate beneficial shareholders
David Mamulaishvili
27.15% 5.00% 100%
Silknet Holding Ltd. (Georgia)
100%
Owned by the management of Qarva Ltd.
PF corporate structure
33
N(N)LE Wounded Warrior Support Fund
100%
Silk Media Ltd. (Euronews Georgia)
100%
§ Acquisition of WiMax Georgia (fixed wireless broadband) § Acquisition of a 85% stake in GMN (pay TV channels) § Acquisition of a 51% stake in Qarva (software, operation & maintenance support for IPTV) § Acquisition of remaining 15% stake in GMN § Established by JSC United Telecom, Adjara Telecom Ltd. and Wanex Ltd
2009
Source: Company information Note: 1 Following merger, the Group owned F48 and F54 spectrum licences § Silk Road Financial Group. acquired a 59% stake in the now. named Silk Road Bank.
2010 2011 2012 2015 2017
Acquisitions Other developments
§ Acquisition of Novus (TV broadcasting rights) § Launched IPTV services. § Agreement signed with Servicenet to
- utsource
maintenance of cable network, acquisition of new subscribers and new network rollout § Acquisition of Geocell (mobile) § Acquisition of Global TV group § Merged with Vtel Georgia1 (fixed wireless broadband) § Founded NG Georgia (National Geographic magazine) § Issuance of Silknet 2017 bond § Became public in Georgia § Launched FTTH services
- Issuance of Eurobonds and
refinancing all bank loans
- Shareholder loan partial
conversion to equity
2013 2014 2016 2018 2019
Silknet’s development
34
- Franchise for Euronews
Georgia and establishment
- f Silk Media Ltd.
Merger approved by the regulator, rebranding Launch of convergent offers Completion of acquisition Appointment of management team preparation of financial planning appointment
- f external advisor to assist in the integration
process Low-band LTE in Batumi 800 MHz licence awarded Low-band LTE in Tbilisi 800 MHz regional deployment Completion of legal merger
Source: Company information
Acquisition of Geocell
Other developments
20-March April May June July August September October November December
Acquisition and merger timeline
35
Silknet at a Glance 2019 YTD Highlights Business Overview Appendix & 1H 2019 Financial Information 1 2 3 4 5 10 21 37
36
GEL m` 31 Dec 2018 w/o IFRS 16 30 June 2019 w/o IFRS 16 30 June 2019 Inc IFRS 16 ASSETS Non-current assets Property and equipment 370.2 366.8 366.8 Intangible assets and contract costs 212.3 205.5 205.5 Other non-current assets 32.7 30.2 30.2 Rights-of-use assets
- 26.1
Prepayments related to IRU contracts 10.7 10.5 10.5 Total non-current assets 626.0 613.0 639.1 Current assets Inventories 22.3 21.9 21.9 Prepayments related to IRU contracts 2.2 2.2 2.2 Trade and other receivables 37.9 36.0 35.7 Cash and cash equivalents 9.3 106.0 106.0 Total current assets 71.6 166.0 165.6 TOTAL ASSETS 697.6 779.0 804.7 EQUITY AND LIABILITIES Equity Share capital 68.2 84.1 84.1 Additional paid-in capital 24.5 8.0 8.0 Accumulated losses (18.2) (72.0) (76.2) Equity attributable to owner of the Company 74.4 20.1 15.9 Non-controlling interests 0.1 0.1 0.1 TOTAL EQUITY 74.5 20.1 16.0 LIABILITIES Non-current liabilities Loans and borrowings 375.8 616.7 616.7 Subordinated loan 30.5
- Promissory notes
37.3
- Lease liabilities
- 20.2
Trade and other payables 18.2 17.2 17.2 Advances received related to IRU contracts and subscribers 14.5 14.0 14.0 Total non-current liabilities 476.3 647.9 668.1 Current liabilities Loans and borrowings 37.1 15.7 15.7 Trade and other payables 87.3 74.0 72.7 Advances received related to IRU contracts and subscribers 22.5 21.2 21.2 Lease liabilities
- 11.0
Total current liabilities 146.8 111.0 120.7 TOTAL LIABILITIES 623.1 758.8 788.8 TOTAL LIABILITIES AND EQUITY 697.6 779.0 804.7
a)
On 2nd April 2019 company issued US$200m Eurobonds and refinanced all
- utstanding bank loans and promissory
notes.
ü
Transaction costs of US$3.9m deferred over a 5-year period, which resulted in the carrying amount of US$196.1m
ü
In June , 2019 company repurchased it’s Eurobonds in amount of US$3 m
§
On 16th May 2019 part of the shareholder loan was converted into equity and the remainder repaid. Repayment of shareholder loan counts towards ‘restricted payments cap’ stipulated under US$200m Eurobond.
§
Equity impact of existing loan refinancing:
ü
Early payment penalty as a result
- f bank loan refinancing GEL
7.1m
ü
As a result of prepayment, difference between amortised cost and nominal amount of Geocell syndicated loan GEL6.8m booked as loss per IFRS
ü
As a result of prepayment, difference between amortized cost and nominal amount of promissory note GEL4.5m booked as loss per IFRS
Note: The Company has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application
1 2 1 2 3
Statement of financial position
37
3
Source: Company information Note: 1 Other than the debt disclosed above the company has unused credit facility (RCF) of US$20m with the sole purpose to serve coupon payments of US$200m Eurobond and letter of credits & guarantees with aggregate amount of GEL35.8m;.
2 EBITDA for the twelve months ended 31 June 2019 without giving effect of IFRS 16. 3
a)
On 2nd April 2019 company issued US$200m Eurobonds and refinanced all outstanding bank loans and promissory notes.
ü
Transaction costs of US$3.9m deferred over a 5- year period, which resulted in the carrying amount of US$196.1m
ü
In June, 2019 company repurchased it’s Eurobonds in the amount of US$3 m
ü
On 16th May 2019 part of the shareholder loan was converted into equity and the remainder repaid. Repayment of shareholder loan counts towards ‘restricted payments cap’ stipulated under US$200m Eurobond.
Capital structure
38
28.7 34.4 569.3 2020 2021 2022 2023 2024
Debt maturities
Silknet Private Placement Bond Silknet 2017 Bond Eurobond
Leverage 2.7X EBITDA2 (LTM) GEL194m Net Debt GEL527m
1 2
Facility (GEL m) 31 December 2018 30 June 2019 Eurobond
- 569.3
Silknet 2017 Bond 34.4 34.4 Silknet Private Placement Bond 26.8 28.7 Geocell Shareholder Subordinated Loan 30.5
- Geocell Syndicated Credit Agreement
261.5
- Geocell Subordinated Credit Agreement
26.9
- Geocell Loan
25.7
- Silknet Loan
37.6
- Promissory notes
37.3
- Gross debt
480.7 632.4 Cash and cash equivalents (9.3) (106.0) Net debt1 471.4 526.5
1 2
Note: The Company has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognized in retained earnings at the date of initial application.
Statement of profit or loss
39
GEL m 1H 2018* 1H 2019 1H 2019* PF w/o IFRS 16 w/o IFRS 16 incl IFRS 16 Revenues: Commercial revenue 160.9 164.1 164.1 Carrier services 36.5 19.9 19.9 197.4 184.0 184.0 Costs and expenses: Depreciation and amortisation (52.7) (52.2) (57.0) Salaries and benefits (32.7) (27.4) (27.4) Other expenses (19.0) (15.4) (15.4) Purchased services (32.6) (15.3) (15.3) Interconnect fees and roaming expense (22.6) (9.0) (9.0) Network management and maintenance costs (9.0) (6.9) (6.9) IPTV content costs (5.0) (5.3) (5.3) Rent expenses under operating leases (10.7) (11.0) (5.1) Advertising and marketing (1.2) (4.6) (4.6) Costs of SIM cards, scratch cards and other cost of sales (2.5) (1.0) (1.0) Bargain gain from acquisition 41.8
- Profit from operating activities
51.2 35.8 36.9 Finance income 1.4 3.4 3.4 Finance costs (24.8) (54.9) (56.5) Net foreign exchange loss 10.0 (36.9) (37.2) Net finance costs (13.4) (88.4) (90.3) (Loss)/profit before income tax 37.8 (52.7) (53.3) Income tax expense (0.7) (1.1) (1.1) (Loss)/profit and total comprehensive income for the period 37.1 (53.7) (54.4)
Statement of cash flow
40
GEL ‘000 1H 2019 Cash flows from operating activities Cash received from subscribers 187,833 Cash received from other telecom operators and for IRU contracts 15,628 Salaries and benefits paid to and on behalf of employees (25,141) Interconnection fees and expenses paid (6,523) Purchase of inventory (8,907) Taxes paid other than on income (26,723) Income tax paid (687) Network management and maintenance costs paid (4,675) Other operating expenses paid (43,493) Net cash from operating activities 87,312 Cash flows from investing activities Acquisition of property and equipment (31,334) Acquisition of intangible assets (17,528) Proceeds from disposals of property and equipment 838 Acquisition of subsidiaries, net of cash acquired
- Issue of loans
- Interest received
900 Net cash used in investing activities (47,124) Cash flows from financing activities Proceeds from borrowings 529,489 Repayment of borrowings (367,863) Bank commissions for early repayment of loans (7,149) Interest paid (14,125) Repayment of subordinated loan (30,326) Repayment of subordinated loan interest (4,989) Repayment of promissory notes (43,170) Lease payments (5,932) Dividends paid (5,441) Net cash from financing activities 50,494 Effect of exchange rate changes on cash and cash equivalents 6,006 Net increase in cash and cash equivalents 96,688 Cash and equivalents at the beginning of the period 9,262 Cash and cash equivalents at the end of the period 105,950
- 1H 2019 financial statements prepared by the company and reviewed by
KPMG
- 2018 pro forma financials prepared by the company based on audited
financial statements
- 2017 pro forma financials prepared based on audited financials and
reviewed by KPMG
- 2016 pro forma financials prepared by the company based on audited
financials
- Adjusted EBITDA – Profit/ (loss) for the year plus depreciation and
amortization plus finance costs less finance income plus income tax expense/(benefit) adjusted for net currency forward (gain)/loss, foreign currency gain/(loss), and net non-recurring, non-operating and other specific items. Example of other special items are : Geocell acquisition related fees and expenses, fees and expenses attributable to Eurobond issuance, one-time consulting expenses and professional fees, one-time impairments of fixed assets,etc.
Sources of financial information
Sources of financial information
41
Gross Domestic Product Attractive demographics with c.40% of population below 30
Age distribution, as of 1 Jan 2019 (%) FDI as % of GDP
Sources: Geostat Note: 1 Based on preliminary 2018 estimate
0-19 26% 26% 20-29 13% 13% 30-39 14%… 40-49 13% 13% 50-59 13% 13% 60+ 21% 21% 0-19 20-29 30-39 40-49 50-59 60+
5.8% 5.8% 10.7% 11.2% 10.9% 11.9% 10.9% 12.6% 10.3%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Comparative real GDP growth rates
% (2006–2016 average) GDP per capita
(0.5)% 1.8% 1.8% 2.1% 2.3% 2.6% 3.0% 3.7% 3.8% 4.0% 4.9% 5.0%
Ukraine Estonia Latvia Czech Republic Russia Lithuania Romania Moldova Poland Armenia Georgia Turkey
Nominal GDP (USDbn) and real GDP YoY growth (%)
11.6 14.4 15.8 16.1 16.5 14.0 14.4 15.1 16.2 6.2% 7.2% 6.4% 3.4% 4.6% 2.9% 2.8% 4.8% 4.7% (4)% 0% 4% 8% 12% 16% 2010 2011 2012 2013 2014 2015 2016 2017 2018
1 1
Sound and attractive macroeconomic environment
Foreign Direct Investments
42
Fiscal reform
- On 13 May 2016, Georgian Parliament passed a bill on corporate
income tax reform mainly shifting the moment of corporate taxation (15% corporate profit tax) from when taxable profits are earned to when they are distributed
- As a result, reinvested profit is not taxed, and distribution of dividends
is taxed at the source of payment
- The law is effective for tax periods starting on or after 1st January 2017
Source: GeoStat, GNTA, MOF Note: 1 Based on preliminary 2018 estimate; 2 Based on preliminary 2018 estimate; 3 Based on preliminary 2018 estimate; 4 Tourists, same-day and other
Key data (2018)
Georgia at a glance
43
Area 69,700 sq km Population 3.7m Nominal GDP (GELm) 41,0771 Nominal GDP (USDm) 16,2071 Real GDP growth 4.7%2 Inflation (average) 2.6% FDI as % of GDP 7.8%2 Unemployment rate 12.7% Public debt as % of GDP 33.5%3 Total international arrivals4 8.7m Country rating (S&P/Moody’s/Fitch) BB-/Ba2/BB
Global Corruption Barometer Business Bribery Risk Ease of Doing Business Economic Freedom Index
% admitting having paid a bribe last year (2016) 2018 ranking 2018 ranking 2017 ranking
1 2 6 8 9 12 20 27 30 35 36 47 57 60 76 100
New Zealand Singapore USA Norway Georgia Estonia Germany Poland Czech rep. Russia Kazakhstan Armenia Azerbaijan Turkey Ukraine India
3% 7% 7% 9% 12% 15% 16% 17% 18% 24% 24% 27% 29% 29% 34% 38% 38% 42%
Germany Georgia Poland Czech Rep. Slovak Republic Latvia Montenegro Bulgaria Turkey Lithuania Armenia Bosnia & Herz. Romania Kazakhstan Russia Ukraine Azerbaijan Moldova
7 8 16 18 28 37 47 55 58 67 71 79 107 150
Estonia UK Georgia USA Latvia Romania Bulgaria Hungary Turkey Azerbaijan France Italy Russia Ukraine
1 3 5 13 13 18 20 25 26 37 39 43 83 112 139 144 152
Sweden Norway UK Estonia Singapore Ireland France Georgia Japan Czech rep. Poland Italy Armenia Azerbaijan Turkey Russia Kazakhstan
Top 9 in Europe region out of 44 countries up from 16th in 2016 and 112th in 2006 Georgia is on a par with EU member states Sources: Transparency International, Heritage Foundation, World Bank, Trace International
Attractive environment for doing business
44