The FINANCIAL – “Post war period showed a significant reversal compared to the first half resulting from the effects of the war and the general global economic slowdown; Revenues in line or behind 2007 levels; Outlook for remainder of 2008 is expected to remain very challenging. Prospects for 2009 highly uncertain and any recovery will be dependant upon a broader recovery in the Georgian economy”, such analysis is published by Metromedia International Group, company that controls MagtiCom business in Georgia.
Company said Magticom Gross Revenue increased by 42.7 million (14.2%) to 342.9 million for the 10 months ended October 31, 2008 as compared to 300.3 million for the ten months ended October 31, 2007, due principally to the growth from subscriber revenue activity. MagtiCom generated gross revenue of GEL 413.96 million (USD 249.073 million), a 13.8% increase on the previous year, according to US online edition of BW(business Week). “Earnings before interest, tax, depreciation, and amortization rose 4.3% on the year, to GEL 242.988 million”
“Subscriber revenue growth due to expanded usage and subscription was offset by continued discounting of retail usage pricing during first quarter 2008 through various promotional programs aimed at gathering new subscribers and holding market share. Competition for subscribers, both new subscribers and subscribers of other operators, has remained very aggressive in 2008. Price competition in particular has reached new levels following the launch of Bee Line”.
“Magticom has retained market leadership although by a diminished margin following the launch of Bee Line. Total subscriber numbers have increased by 15.4% since October 2007. The rate of new subscriber acquisition is expected to decline as the market reaches saturation levels”, report says.
“The Georgian regulator has announced an intention to reduce these rates over time as a means of promoting new market entrants and reducing call rates. This is expected to have a significant effect on margins and pricing levels over time. Regulator reduced interconnection rates 0.188 Gel to 0.148 Gel per minute on 1st May 2008”.
The ten month results mask two important effects. During the first seven months of the year, the business delivered strong financial performance with good growth in revenue, control of costs and EBITDA growth. The war in August with Russia caused significant damage to the business both financially and to its prospects. The financial costs of the war can be attributed to three factors: loss of call revenues; loss of equipment and damage to equipment. The final costs of the war are being assessed but it are likely to be material. At this stage the company has made a provision of GEL 20 million to cover these costs which have been incorporated within operational expenditure. The provision will cover destroyed and damaged equipment; physical repairs and replacement towers.
Of greater concern has been the impact on the broader Georgian economy. This has come on top of the general economic slowdown that is being felt throughout the region and the CIS in particular. Year on year revenue growth has completely reversed such that in October 2008 revenues were comparable to 2007 levels in local currency terms. This is expected to continue resulting in significant cost pressures on the business.
Management expects 2009 to be an extremely challenging year. Competition is expected to continue to intensify with further downward pressure on prices.
Company said demand for services overall is also expected to decline in line with a significant slowdown in general economic activity in Georgia. “Unquestionably margins and profitability will come under significant pressure in 2009. Making sensible projections about outlook continues to be challenging in a macroeconomic environment of such rapid change”.
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