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SilknetJSCCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June2019SilknetJSCContentsIndependentAuditors'ReportonReviewofCondensedConsolidatedInterimFinancialInformation3CondensedConsolidatedInterimStatementofFinancialPosition4CondensedConsolidatedInterimStatementofProfitorLossandOtherComprehensiveIncome5CondensedConsolidatedInterimStatementofChangesinEquity6CondensedConsolidatedInterimStatementofCashFlows7NotestotheCondensedConsolidatedInterimFinancialStatements8SilknetJSCCondensedConsolidatedInterimStatementofStatementofFinancialPositionasat30June2019Thecondensedconsolidatedinterimstatementoffinancialpositionistobereadinconjunctionwiththenotesto,andformingpartof,thecondensedconsolidatedinterimfinancialstatementssetoutonpages8to23.
4'000GELNote30June201931December2018*ASSETSNon-currentassetsPropertyandequipment10366,774370,216Intangibleassetsandcontractcosts12205,531212,339Othernon-currentassets1130,18532,727Rights-of-useassets5c26,064-PrepaymentsrelatedtoIRU**contracts10,53210,745Totalnon-currentassets639,086626,027CurrentassetsInventories21,85122,283PrepaymentsrelatedtoIRU**contracts2,1732,173Tradeandotherreceivables35,65337,876Cashandcashequivalents13105,9509,262Totalcurrentassets165,62771,594TOTALASSETS804,713697,621EQUITYANDLIABILITIESEquitySharecapital14(a)84,05668,172Additionalpaid-incapital14(b)8,02624,471Accumulatedlosses(76,179)(18,198)EquityattributabletoowneroftheCompany15,90374,445Non-controllinginterests5359TOTALEQUITY15,95674,504LIABILITIESNon-currentliabilitiesLoansandborrowings15616,727375,791Subordinatedloan15-30,546Promissorynotes15(b)-37,286Leaseliabilities5c20,194-Tradeandotherpayables17,15418,165AdvancesreceivedrelatedtoIRU**contractsandsubscribers13,98814,483Totalnon-currentliabilities668,063476,271CurrentliabilitiesLoansandborrowings1515,72037,069Tradeandotherpayables72,74387,285AdvancesreceivedrelatedtoIRU**contractsandsubscribers21,23822,492Leaseliabilities5c10,993-Totalcurrentliabilities120,694146,846TOTALLIABILITIES788,757623,117TOTALLIABILITIESANDEQUITY804,713697,621*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
**IndefeasibleRightofUseSilknetJSCCondensedConsolidatedInterimStatementofChangesinEquityforthesixmonthsended30June2019Thecondensedconsolidatedinterimstatementofchangesinequityistobereadinconjunctionwiththenotesto,andformingpartof,thecondensedconsolidatedinterimfinancialstatementssetoutonpages8to23.
6AttributabletoowneroftheCompany'000GELSharecapitalAdditionalpaidincapital(Accumulatedlosses)/retainedearningsTotalNon-controllinginterestsTotalequityBalanceasat31December201868,17224,471(18,198)74,4455974,504AdjustmentduetoadoptionofIFRS16(seenote5)(3,573)(3,573)-(3,573)Adjustedbalanceat1January2019*68,17224,471(21,771)70,8725970,931TotalcomprehensiveincomefortheperiodLossandtotalcomprehensiveincomefortheperiod--(54,408)(54,408)(6)(54,414)Transactionswithowner,recordeddirectlyinequityEffectoftransactionswithentitiescontrolledbytheultimatecontrollingparty(seenote14(b))-(16,445)-(16,445)-(16,445)Sharesissued(seenote14(a))15,884--15,884-15,884Balanceasat30June201984,0568,026(76,179)15,9035315,956Balanceasat1January201868,172-31,20099,372800100,172TotalcomprehensiveincomefortheperiodProfitandtotalcomprehensiveincomefortheperiod--27,90627,906(692)27,214Transactionswithowner,recordeddirectlyinequityEffectoftransactionswithentitiescontrolledbytheultimatecontrollingparty(seenote14(b))-16,445-16,445-16,445Calloptiongranted(seenote14(b))-8,026-8,026-8,026Dividends(seenote14(c))--(48,000)(48,000)-(48,000)Balanceasat30June201868,17224,47111,106103,749108103,857*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
SilknetJSCCondensedConsolidatedInterimStatementofCashFlowsforthesixmonthsended30June2019Thecondensedconsolidatedinterimstatementofcashflowsistobereadinconjunctionwiththenotesto,andformingpartof,thecondensedconsolidatedinterimfinancialstatementssetoutonpages8to23.
7Forthesixmonthsended30June'000GEL20192018*CashflowsfromoperatingactivitiesCashreceivedfromsubscribers187,833139,124CashreceivedfromothertelecomoperatorsandforIRUcontracts15,62813,310Salariesandbenefitspaidtoandonbehalfofemployees(25,141)(23,346)Interconnectionfeesandexpensespaid(6,523)(4,467)Purchaseofinventory(8,907)(7,317)Taxespaidotherthanonincome(26,723)(21,266)Incometaxpaid(687)(675)Networkmanagementandmaintenancecostspaid(4,675)(5,316)Otheroperatingexpensespaid(43,493)(33,215)Netcashfromoperatingactivities87,31256,832CashflowsfrominvestingactivitiesAcquisitionofpropertyandequipment(31,334)(16,096)Acquisitionofintangibleassets(17,528)(7,869)Proceedsfromdisposalsofpropertyandequipment838806Acquisitionofsubsidiaries,netofcashacquired-(329,716)Issueofloans-(489)Interestreceived900315Netcashusedininvestingactivities(47,124)(353,049)CashflowsfromfinancingactivitiesProceedsfromborrowings529,489423,545Repaymentofborrowings(seenote15(d))(367,863)(63,519)Bankcommissionsforearlyrepaymentofloans(7,149)-Interestpaidonbankloans(14,125)(11,270)Repaymentofsubordinatedloan(30,326)-Repaymentofsubordinatedloaninterest(4,989)-Repaymentofpromissorynotes(43,170)-Repaymentofleaseliabilities(5,932)-Dividendspaid(5,441)(33,036)Netcashfromfinancingactivities50,494315,720Effectofexchangeratechangesoncashandcashequivalents6,006(385)Netincreaseincashandcashequivalents96,68819,118Cashandequivalentsatthebeginningoftheperiod9,2622,521Cashandcashequivalentsattheendoftheperiod13105,95021,639*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201981.
Reportingentity(a)GeorgianbusinessenvironmentTheGroup'soperationsarelocatedinGeorgia.
Consequently,theGroupisexposedtotheeconomicandfinancialmarketsofGeorgia,whichdisplaycharacteristicsofanemergingmarket.
Thelegal,taxandregulatoryframeworkscontinuedevelopment,butaresubjecttovaryinginterpretationsandfrequentchangeswhichtogetherwithotherlegalandfiscalimpedimentscontributetothechallengesfacedbyentitiesoperatinginGeorgia.
Thecondensedconsolidatedinterimfinancialstatementsreflectmanagement'sassessmentoftheimpactoftheGeorgianbusinessenvironmentontheoperationsandthefinancialpositionoftheGroup.
Thefuturebusinessenvironmentmaydifferfrommanagement'sassessment.
(b)OrganisationandoperationsThesecondensedconsolidatedinterimfinancialstatementsincludethefinancialstatementsofSilknetJSC(theCompany)withtheregistrationnumberof204566978anditssubsidiaries(theGroup).
TheCompanyanditssubsidiariesarelimitedliabilityandjointstockcompaniesasdefinedundertheLawofGeorgiaonEntrepreneursandareincorporatedanddomiciledinGeorgia.
TheCompany'slegaladdressis95TsinamdzgvrishviliStreet,Tbilisi,0112,Georgia.
TheprincipalactivityoftheGroupisprovisionoftelecommunicationservicestocorporateandindividualcustomersinGeorgia,includingfixedandmobiletelephoneservices,mobileinternet,fixedinternet,internettelevision(IPTV)services,SMS(messaging)andleasingtheundergroundcommunicationfacilities.
On20March2018,theGroupacquireda100%holdinginGeorgia'ssecond-largestmobileoperator,GeocellLLC,foratransactionpriceofUSD151.
7million,roughlycorrespondingtoanEV/EBITDAmultipleof4.
5.
GeocellLLChasmorethan1.
7millionmobilevoiceandalmost1millionmobiledatasubscribersrepresentingapproximately35%ofthelocalmarketandgeneratesrevenuefromitsmajorrevenuestreams,whichrepresentmobilevoice,mobiledata,interconnect,messaging,saleofmobileequipmentandothers.
GeocellLLChasceaseditslegalexistenceandwasmergedwiththeCompanyon1November2018.
FollowingtheacquisitionofGeocellLLCtheGroupdirectsitsactivitiesastwooperatingsegments,fixednetworkandmobilecommunicationssegments.
InformationabouttheGroup'sreportablesegmentsisdisclosedinnote6Operatingsegments.
InMarch,2019Moody'sInvestorsService(Moody's)hasassignedaB1corporatefamilyrating(CFR)andaB1-PDprobabilityofdefaultratingtotheCompany.
On19April2019,RhinestreamHoldingsLimited,shareholderoftheCompanyandanentityincorporatedinMalta,whichisultimatelycontrolledbyanindividual,GiorgiRamishvilihasmadeadecisiontotransfer100%ofownershipintheCompanytoitswhollyownedsubsidiarySilknetHoldingLLC("SilknetHolding",the"owner"),whichisincorporatedinGeorgia.
2.
BasisofaccountingStatementofcomplianceThesecondensedconsolidatedinterimfinancialstatementshavebeenpreparedinaccordancewithIAS34InterimFinancialReporting,andshouldbereadinconjunctionwiththeGroup'slastannualconsolidatedfinancialstatementsasatandfortheyearended31December2018("lastannualconsolidatedfinancialstatements").
ThesecondensedconsolidatedinterimfinancialstatementsdonotincludealloftheinformationrequiredforacompletesetofIFRSfinancialstatements.
However,selectedexplanatorynotesareincludedtoexplaineventsandtransactionsthataresignificanttoanunderstandingofthechangesintheGroup'sfinancialpositionandperformancesincethelastannualconsolidatedfinancialstatements.
ThisisthefirstsetoftheGroup'sfinancialstatementsinwhichIFRS16hasbeenapplied.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201993.
FunctionalandpresentationcurrencyThenationalcurrencyofGeorgiaistheGeorgianLari(GEL),whichisthefunctionalcurrencyoftheGroupentitiesandthecurrencyinwhichthesecondensedconsolidatedinterimfinancialstatementsarepresented.
AllfinancialinformationpresentedinGELhasbeenroundedtothenearestthousands,exceptwhenotherwiseindicated.
4.
UseofestimatesandjudgmentsInpreparingthesecondensedconsolidatedinterimfinancialstatements,managementhasmadejudgments,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.
Actualresultsmaydifferfromthoseestimates.
Estimatesandunderlyingassumptionsarereviewedonanon-goingbasis.
Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimatesarerevisedandinanyfutureperiodsaffected.
ThesignificantjudgementsmadebymanagementinapplyingtheGroup'saccountingpoliciesandthekeysourcesofestimationuncertaintywerethesameasthosethatappliedtothelastannualconsolidatedfinancialstatementsasatandfortheyearended31December2018exceptfornewsignificantjudgementsrelatedtousefullivesofpropertyandequipment(seenote10)andlesseeaccountingunderIFRS16,whicharedescribedinnote5.
5.
ChangesinsignificantaccountingpoliciesExceptforthechangesbelow,theaccountingpoliciesappliedbytheGroupwereconsistentwiththoseappliedinthelastannualconsolidatedfinancialstatements.
ThechangesinaccountingpoliciesarealsoexpectedtobereflectedintheGroup'sconsolidatedfinancialstatementsasatandfortheyearending31December2019.
IFRS16TheGrouphasinitiallyadoptedIFRS16Leasesfrom1January2019.
IFRS16introducedasingle,on-balancesheetaccountingmodelforlessees.
Asaresult,theGroup,asalessee,hasrecognisedright-of-useassetsrepresentingitsrightstousetheunderlyingassetsandleaseliabilitiesrepresentingitsobligationtomakeleasepayments.
Lessoraccountingremainssimilartopreviousaccountingpolicies.
TheGrouphasappliedIFRS16usingthemodifiedretrospectiveapproach,underwhichthecumulativeeffectofinitialapplicationisrecognisedinretainedearningsat1January2019.
Accordingly,thecomparativeinformationpresentedfor2018hasnotbeenrestated–i.
e.
itispresented,aspreviouslyreported,underIAS17andrelatedinterpretations.
Thedetailsofthechangesinaccountingpoliciesaredisclosedbelow.
A.
DefinitionofaleasePreviously,theGroupdeterminedatcontractinceptionwhetheranarrangementwasorcontainedaleaseunderIFRIC4DeterminingWhetheranArrangementcontainsaLease.
TheGroupnowassesseswhetheracontractisorcontainsaleasebasedonthenewdefinitionofalease.
UnderIFRS16,acontractis,orcontains,aleaseifthecontractconveysarighttocontroltheuseofanidentifiedassetforaperiodoftimeinexchangeforconsideration.
OntransitiontoIFRS16,theGroupelectedtoapplythepracticalexpedienttograndfathertheassessmentofwhichtransactionsareleases.
ItappliedIFRS16onlytocontractsthatwerepreviouslyidentifiedasleases.
ContractsthatwerenotidentifiedasleasesunderIAS17andIFRIC4werenotreassessed.
Therefore,thedefinitionofaleaseunderIFRS16hasbeenappliedonlytocontractsenteredintoorchangedonorafter1January2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201910B.
AsalesseeTheGroup'sleasecontractslargelyrelatetoleasesofvarioussites(i.
e.
land,rooftopsurfaceareas,spaceincellulartowersandspaceforfibrecables,etc.
)relatedtoplacementofGroup'stelecommunicationequipment.
Asalessee,theGrouppreviouslyclassifiedleasesasoperatingleasesbasedonitsassessmentofwhethertheleasetransferredsubstantiallyalloftherisksandrewardsofownership.
UnderIFRS16,theGrouprecognisesright-of-useassetsandleaseliabilitiesformostleases–i.
e.
theseleasesareon-balancesheet.
However,theGrouphaselectednottorecogniseright-of-useassetsandleaseliabilitiesforsomeshort-termleases.
TheGrouprecognisestheleasepaymentsassociatedwiththeseleasesasanexpenseonastraight-linebasisovertheleaseterm.
Both,theright-of-useassetsaswellasrespectiveleaseliabilitieshavebeenpresentedasaseparatelineitemsinthecondensedconsolidatedinterimstatementoffinancialposition.
Thecarryingamountsofright-of-useassetsandleaseliabilitiesasat1January2019and30June2019areasbelow:'000GELSiterentformobilecommunicationsSiterentforfixednetworkTotalGrossbalanceat1January201937,9583,01840,976Accumulateddepreciationat1January2019(18,004)(425)(18,429)Carryingamountat1January201919,9542,59322,547Grossbalanceat30June201940,4028,86049,262Accumulateddepreciationat30June2019(22,277)(921)(23,198)Carryingamountat30June201918,1257,93926,064Leaseliabilityat1January2019(23,819)(3,159)(26,978)Leaseliabilityat30June2019(21,470)(9,717)(31,187)SignificantaccountingpoliciesTheGrouprecognisesaright-of-useassetandaleaseliabilityattheleasecommencementdate.
Theright-of-useassetisinitiallymeasuredatcost,andsubsequentlyatcostlessanyaccumulateddepreciationandimpairmentlosses,andadjustedforcertainremeasurementsoftheleaseliability.
Theleaseliabilityisinitiallymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthecommencementdate,discountedusingtheinterestrateimplicitintheleaseor,ifthatratecannotbereadilydetermined,theGroup'sincrementalborrowingrate.
Generally,theGroupusesitsincrementalborrowingrateasthediscountrate.
Theleaseliabilityissubsequentlyincreasedbytheinterestcostontheleaseliabilityanddecreasedbyleasepaymentmade.
Itisremeasuredwhenthereisachangeinfutureleasepaymentsarisingfromachangeinanindexorrate,achangeintheestimateoftheamountexpectedtobepayableunderaresidualvalueguarantee,orasappropriate,changesintheassessmentofwhetherapurchaseorextensionoptionisreasonablycertaintobeexercisedoraterminationoptionisreasonablycertainnottobeexercised.
TheGrouphasappliedjudgementtodeterminetheleasetermforsomeleasecontractsinwhichitisalessee,basedontheperiodforwhichthecontractisenforceable.
TheGroupconsidersthatenforceabilityoftheleaseisestablishedbythewrittencontract(includingpenaltyclauses)incombinationwithapplicablelegislationrelatedtorenewalorterminationrights(specificallythelessee'spreferentialrightstorenewthelease).
However,theGroupdetermined,thatitspreferentialrighttorenewwouldnotonitsownbetreatedassubstantive,whenthelessorcanrefusetoagreetoarequestfromtheGrouptoextendthelease.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201911(i)TransitionPreviously,theGroupclassifiedleasesasoperatingleasesunderIAS17.
Mostoftheleasestypicallyrunforaperiodof5-10yearsandincludeanoptiontorenewtheleaseforanadditionalperiodoftime,aftertheendofthenon-cancellableperiod.
Attransition,forleasesclassifiedasoperatingleasesunderIAS17,leaseliabilitiesweremeasuredatthepresentvalueoftheremainingleasepayments,discountedattheGroup'sincrementalborrowingrateasat1January2019.
Right-of-useassetsweremeasuredat:–theircarryingamountasifIFRS16hadbeenappliedsincethecommencementdate,discountedusingthelessee'sincrementalborrowingrateatthedateofinitialapplicationTheGroupusedthefollowingpracticalexpedientswhenapplyingIFRS16toleasespreviouslyclassifiedasoperatingleasesunderIAS17.
–Appliedasinglediscountratetoaportfolioofleaseswithsimilarcharacteristics.
–Excludedinitialdirectcostsfrommeasuringtheright-of-useassetatthedateofinitialapplication.
–Usedminimumleasetermwhendeterminingtheleasetermifthecontractcontainsoptionstoextendorterminatethelease–Usedhindsightwhendeterminingtheleasetermifthecontractcontainsoptionstoextendorterminatethelease.
C.
Impactsonfinancialstatements(i)ImpactsontransitionOntransitiontoIFRS16,theGrouprecognisedadditionalright-of-useassetsandadditionalleaseliabilities,recognisingthedifferenceinretainedearnings.
Theimpactontransitionissummarisedbelow.
'000GEL1January2019Right-of-useassets,gross40,976Accumulateddepreciation(18,429)Carryingvalue22,547Leaseliabilities(26,978)Tradeandotherpayables858Retainedearnings3,573Whenmeasuringleaseliabilitiesforleasesthatwereclassifiedasoperatingleases,theGroupdiscountedleasepaymentsusingitsincrementalborrowingrateat1January2019.
Theweighted-averagerateappliedis12.
3%and11.
84%forGELandUSDdenominatedleasesaccordingly.
'000GEL1January2019Leasepayableasat31December2018asdisclosedintheGroup'sconsolidatedfinancialstatements858Discountedusingtheincrementalborrowingrateat1January2019(27,836)Leaseliabilitiesrecognisedat1January2019(26,978)(ii)ImpactsfortheperiodAsaresultofinitiallyapplyingIFRS16,inrelationtotheleasesthatwerepreviouslyclassifiedasoperatingleases,theGrouprecognisedGEL26,064thousandofright-of-useassetsandGEL31,187thousandofleaseliabilitiesasat30June2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201912AlsoinrelationtothoseleasesunderIFRS16,theGrouphasrecogniseddepreciationandinterestcosts,insteadofoperatingleaseexpense.
Duringthesixmonthsended30June2019,theGrouprecognisedGEL4,769thousandofdepreciationcharges,GEL1,636thousandofinterestcostsandGEL220thousandnetforeignexchangelossesfromtheseleases.
6.
OperatingsegmentsFollowingtheacquisitionofGeocellLLCon20March2018,theGroupdirectstwooperatingsegments,fixednetworkandmobilecommunications.
ThemajorityoftheGroup'srevenueisgeneratedinGeorgia,soinformationregardinggeographicalareasisnotprovided.
Informationrelatedtoeachreportablesegmentissetoutbelow.
Managementbelievesthatdisclosureofrevenues,operatingprofit,assetsandliabilitiesisthemostrelevantinevaluatingtheresultsoftheeachoperatingsegment.
Revenuesandoperatingprofitforthemobilecommunicationssegmentforthesixmonthsended30June2018reflectspost-acquisitionperformancefrom20March2018to30June2018.
Cashandcashequivalentsandloansandborrowingsaremanagedbythegrouponacentralizedbasis,asaresultmanagementshowstotalamountofdebt,cashandcashequivalentsaswellasfinancecostsandrespectiveforeignexchangegain/lossunderunallocatedamounts.
'000GEL30June201930June201930June201930June2019CondensedConsolidatedInterimStatementofFinancialPositionMobileCommunicationsFixedNetworkUnallocatedAmountsTotalASSETSNon-currentassetsPropertyandequipment161,903204,871-366,774Intangibleassetsandcontractcosts170,61633,3111,604205,531Othernon-currentassets12,06316,6881,43430,185Rights-of-useassets18,1267,938-26,064PrepaymentsrelatedtoIRUcontracts10,532--10,532Totalnon-currentassets373,240262,8083,038639,086CurrentassetsInventories7,62514,226-21,851PrepaymentsrelatedtoIRUcontracts2,173--2,173Tradeandotherreceivables11,38321,5982,67235,653Cashandcashequivalents--105,950105,950Totalcurrentassets21,18135,824108,622165,627TOTALASSETS394,421298,632111,660804,713LIABILITIESNon-currentliabilitiesLoansandborrowings--616,727616,727Tradeandotherpayables8,5937,1591,40217,154AdvancesreceivedrelatedtoIRUcontractsandsubscribers(1,967)15,955-13,988Leaseliabilities11,6948,500-20,194Totalnon-currentliabilities18,32031,614618,129668,063CurrentliabilitiesLoansandborrowings--15,72015,720Tradeandotherpayables33,24828,67110,82472,743AdvancesreceivedrelatedtoIRUcontractsandsubscribers14,8086,3735721,238Leaseliabilities9,7761,217-10,993Totalcurrentliabilities57,83236,26126,601120,694TOTALLIABILITIES76,15267,875644,730788,757NETASSETS318,269230,757(533,070)15,956SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201913*TradeandotherpayablesshownunderunallocatedamountsmainlyconsistofpayablesforconsultingandprofessionalservicesrelatedtotheacquisitionofGeocellLLC,issuanceofEurobondsandanITtransformationproject(replacementofmanyoftheCompany'scurrentITsystemstonewmoreadvancedsolutions).
'000GEL30June201830June201830June201830June2018CondensedConsolidatedInterimStatementofFinancialPositionMobilecommunicationsFixedUnallocatedTotalnetworkamountsASSETSNon-currentassetsPropertyandequipment174,554195,662-370,216Intangibleassetsandcontractcosts177,41034,929-212,339Othernon-currentassets16,97915,39934932,727PrepaymentsrelatedtoIRUcontracts10,745--10,745Totalnon-currentassets379,688245,990349626,027CurrentassetsInventories9,10613,177-22,283PrepaymentsrelatedtoIRUcontracts2,173--2,173Tradeandotherreceivables10,93124,4142,53137,876Cashandcashequivalents--9,2629,262Totalcurrentassets22,21037,59111,79371,594TOTALASSETS401,898283,58112,142697,621LIABILITIESNon-currentliabilitiesLoansandborrowings--375,791375,791Subordinatedloan--30,54630,546Promissorynotes--37,28637,286Tradeandotherpayables11,2486,917-18,165AdvancesreceivedrelatedtoIRUcontractsandsubscribers-14,483-14,483Totalnon-currentliabilities11,24821,400443,623476,271CurrentliabilitiesLoansandborrowings--37,06937,069Tradeandotherpayables44,26029,19213,83387,285AdvancesreceivedrelatedtoIRUcontractsandsubscribers14,4797,71929422,492Totalcurrentliabilities58,73936,91151,196146,846TOTALLIABILITIES69,98758,311494,819623,117NETASSETS331,911225,270(482,679)74,504CapitalexpendituresincurredbytheGroupinrelationtothemobilecommunicationsegmentwasapproximatelyGEL16,330thousandforthesixmonthsended30June2019(outofwhichGEL7,446thousandwasaddedtopropertyandequipmentandGEL8,884thousandwasaddedtointangibleassets).
Capitalexpendituresrelatedtothefixednetworkoperatingsegmentforthesixmonthsended30June2019wereapproximatelyGEL23,636thousandandGEL6,067thousandintermsofpropertyandequipmentandintangibleassets,respectively.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201914Therevenuesgeneratedfromeachsegmentforthesixmonthsended30June2019areasfollows:'000GELCondensedConsolidatedInterimStatementofProfitorLossandComprehensiveIncomeMobilecommuni-cationsFixednetworkEliminationmobilecommuni-cationsEliminationfixednetworkUnallocatedamountsTotalSegmentrevenue96,89889,163-(2,024)0184,037Depreciationandamortisation(34,234)(22,718)56,952)Othercostsandexpenses*(40,960)(48,148)2,024-(3,075)(90,159)Segmentoperatingprofit21,70418,2972,024(2,024)(3,075)36,926Financeincome2,279(80)(1,406)-2,6193,412Financecosts(2,502)(3,318)-1,406(52,117)(56,531)Netforeignexchangegain613(1,898)--(35,865)(37,150)Segmentprofit(loss)beforetax22,09413,001618(618)(88,438)(53,343)Incometaxexpense1,071)(1,071)(Loss)/profitfortheperiod22,09413,001618(618)(89,509)(54,414)*UnallocatedpartofothercostsandexpensesmainlyareattributableofITtransformation.
Therevenuesgeneratedfromeachsegmentforthesixmonthsended30June2018wereasfollows:'000GELCondensedConsolidatedInterimStatementofProfitorLossandComprehensiveIncomeMobilecommu-nicationsFixednetworkEliminationmobilecommunica-tionsEliminationfixednetworkUnallocatedamountsTotalSegmentrevenue60,51883,731(451)(1,291)-142,507Depreciationandamortisation(17,156)(22,327)39,483)Othercostsandexpenses(30,522)(52,306)1,291451(16,354)(97,441)Bargaininggainfromacquisition----41,84541,845Segmentoperatingprofit12,8409,098839(839)25,49147,429Financeincome1,4713,931(772)(3,369)-1,261Financecosts(3,4220)(4,589)3,369772(14,086)(17,962)Netforeignexchangegain(2,919)3222,587(2,587)(428)(3,026)Segmentprofit(loss)beforetax7,9638,7626,023(6,023)10,97727,702Incometaxexpense-(488)488)(Loss)/profitfortheperiod7,9638,2746,023(6,023)10,97727,2147.
RevenuesForthesixmonthsended30June'000GEL20192018Commercialrevenue164,091118,235Mobilecalloutservice50,58927,220Internetservice45,65740,204Mobiledataservice24,85712,424Internettelevision20,41417,417Fixedtelephoneservice10,02411,565RevenuefromSMS4,9213,235Revenuefromotherservices4,6473,019FacilityrentalservicerelatedtoIRUcontracts1,020844Wirelesstelephone("CDMA")*service9811,348Revenuefromphonesalesandaccessories981959Carrierandotherservices19,94624,273Interconnectservice**12,03616,860FacilityrentalservicerelatedtoIRUcontracts3,9534,541Roamingrevenue2,9541,982Internetservice1,003890Totalrevenuesfromcontractswithcustomers184,037142,508SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201915*CodeDivisionMultipleAccesstechnologysupportingtheGroup'swirelesstelephoneservices.
**InOctober2017,theGeorgianNationalCommunicationsCommission("GNCC")adoptednewlocalinterconnectiontariffs,whichbecameeffectivepartiallyfromJuly2018andhaveafullscopeeffectfromJanuary2019.
ThedeterminationofthetariffsaboveisbasedonLong-RunIncrementalCosting(LRIC)andaresignificantlylowerthanthosethatwereeffectiveduring2017andperiodsbefore.
Exceptforrevenuestreamsattributabletothemobilecommunicationssegment(mobilevoice,partofinterconnectservice,mobiledata,revenuefromothermobileservicesandroamingrevenue)thebusinessisnotsubjecttoanyseasonalityandremainsconstantthroughouttheyear.
RevenuestreamsattributabletothemobilecommunicationssegmentareusuallyapproximatelyGEL10-15millionhigherforthesecondhalfthanthefirstsixmonthsoftheyear.
Therehavebeennochangestothemajorrevenuestreamsfromtherevenuestreamsreportedintheconsolidatedfinancialstatementsfortheyearended31December2018.
8.
PurchasedservicesForthesixmonthsended30June'000GEL20192018Utilityexpenses4,9593,091Softwaremaintenanceservice4,7793,225Internetservicecost1,9171,700Professionalfees*1,87916,645Internetclearchannelcosts1,7522,575Other52157Totalpurchasedservices15,33827,393*Duringthesixmonthsended30June2019,theGroupincurredexpensesofGEL10,411thousandinconnectionwiththeissueofEurobonds(refertonote15(b))including,amongstotherthings,underwritingfees,legalcounselfees,ratingagencyexpenses,listingexpensesandetc.
Theseamountsareaccountedforastransactioncosts.
TheyareincludedinthecalculationofeffectiveinterestrateofEurobondsandaredeferredover5years(seenote15(b)).
*Duringthesixmonthsended30June2018,theGroupincurredadvisory,legalandotherprofessionalandconsultingfeesofapproximatelyGEL13,189thousand,inrespectoftheacquisitionofGeocellLLC.
9.
NetfinancecostsForthesixmonthsended30June'000GEL20192018RecognisedinprofitorlossInterestincomeonloansandreceivables997812FinancialassetsatFVTPL–netchangeinfairvalue(note11(a))1,542-InterestincomeonprepaymentsrelatedtoIRUcontracts873449Financeincome3,4121,261Interestexpenseonfinancialliabilitiesmeasuredatamortisedcost(54,099)(16,451)InterestexpenseaccruedunderIFRS16(1,636)-InterestexpenseonadvancesreceivedfromIRUcontracts(796)(1,511)Financecosts(56,531)(17,962)Netforeignexchangeloss(37,150)(3,026)(37,150)(3,026)Netfinancecostsrecognisedinprofitorloss(90,269)(19,727)SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191610.
Propertyandequipment'000GELLandBuildingsandfacilitiesMachineryandequipmentVehiclesFurnitureandfixturesConstructioninprogressTotalCostat1January201820,650111,095199,1884,53213,59476349,135Accumulateddepreciation-(31,581)(108,868)(3,975)(10,192)-(154,616)Carryingamountat1January201820,65079,51490,3205573,40276194,519Acquisitionthroughbusinesscombination7,84512,459157,1973,0403,834-184,375Additions2169,402-1,1505,92816,498Disposals(457)(2,445)(3,072)(107)(8)-(6,089)Transfersandothers53383,511688(5,565)(1,635)Disposalsofdepreciation-9261,9281036-2,963Depreciationcharge-(1,353)(24,025)(405)(795)-(26,578)Carryingamountat30June201828,04589,455235,2613,2567,597439364,053Costat30June201828,045121,463366,2267,53318,578439542,284Accumulateddepreciation-(32,008)(130,965)(4,277)(10,981)-(178,231)Carryingamountat30June201828,04589,455235,2613,2567,597439364,053Costat1January201926,422118,759394,0457,97831,0844,318582,606Accumulateddepreciation-(32,499)(161,414)(4,923)(13,554)-(212,390)Carryingamountat1January201926,42286,260232,6313,05517,5304,318370,216Additions-112,854-31017,91731,082Disposals(463)(798)(10,556)(756)(84)(1)(12,658)Transfersandothers-2,38213,14729527(16,604)(753)Disposalsofdepreciation-1548,83125175-9,311Depreciationcharge-(1,284)(26,566)(547)(2,027)-(30,424)Carryingamountat30June201925,95986,715230,3412,29815,8315,630366,774Costat30June201925,959120,344409,4907,51731,3375,630600,277Accumulateddepreciation-(33,629)(179,149)(5,219)(15,506)-(233,503)Carryingamountat30June201925,95986,715230,3412,29815,8315,630366,774(a)SecurityDuringthesixmonthsended30June2019,theGrouphasfullyrepaidsecuredbankloansthatwereoutstandingasat31December2018andthereforelargepartoftheGroup'spropertyandequipmenthasbeenreleasedfromthepledge.
Asat30June2019propertywithcarryingvalueofGEL125,241thousandremainscollateralizedandguaranteestheindebtednessofRCF(refertonote15)andletterofcreditsrelatedtooperatingactivitiesoftheGroup.
(b)ChangeinestimateDuringthesixmonthsended30June2019,theGroupconductedanoperationalefficiencyreviewovercertainitemswithinitsmachineryandequipmentgroup,whichresultedinincreaseofexpectedusefullives.
Theeffectofthechangesinusefullivesresultedindecreaseofdepreciationcharge,recordedinthecosts,inamountofGEL6,716thousandforthesixmonthsended30June2019(GEL13,432thousandperannum).
Thechangeofusefullivesbecameeffectivefrom1January2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191711.
Othernon-currentassetsAsat30June2019othernon-currentassetsincludeuninstalledequipmentofGEL25,340thousand,prepaymentsfornon-currentassetsofGEL5,089thousandandderivativefinancialassetsofGEL1,542thousand(30June2018:uninstalledequipmentofGEL22,911thousand,prepaymentsfornon-currentassetsofGEL858thousandandderivativefinancialassetsequaltozero).
(a)DerivativefinancialassetsInJune2019,theCompanyenteredintoafive-yearcross-currencyswapagreementwithJSCTBCBanktomanageitsUSDdenominatedcurrencyexposurerelatedtoEurobonds.
Theswapisstructuredasacashcoverloan,wherebytheCompanydepositedUSD25,000thousand(GEL71,718thousandasat30June2019)andtookoutloanwithequivalentGELamount(GEL70,419thousand).
Loanbearsaninterestrateof5.
12%plusrefinancingratedeterminedbyNationalBankofGeorgia,depositbearsaninterestrateof3.
1%plussix-monthLIBORrate.
Depositisrestrictedtowithdrawalandispledgedtosecurethebankloan.
TheCompanyhasanobligationfortheperiodicmark-to-marketsettlementsrelatedtothedeposit,iftheexchangeratedecreasesbelowarateusedatinitialconversion,sothatatanypointintimeamountofdepositexceedsorbeequaltoGELloanamount.
Asperagreementwiththebank,theCompanyisobligedtoincreaseamountunderthecross-currencyswaptototalamountofUSD35,000thousandby15September2019.
Derivativefinancialinstrumentsarerecordedattheirfairvalueateachreportingdate.
Asat30June2019,thefairvalueofthederivativefinancialinstrumentamountedtoGEL1,542thousand.
Changeinfairvalueoftheinstrumentisrecordedinprofitorloss.
FairvalueisestimatedinaccordancewithLevel2ofthefairvaluehierarchyasdisclosedintheannualconsolidatedfinancialstatements.
Asat30June2019,thefollowingsignificantassumptionswereusedinestimatingfairvalueofthederivativeinstrument:refinancingrateofNationalBankofGeorgiawasassumedtobestableatthelevelof6.
5%;costofborrowingoftheCompanywasassumedfromtobe11%TBCBank'scostoffinancingwasestimatedbasedontheyieldtomaturity(YTM)ofTBC'sEurobondanddataonfinancialinstitutionswithsimilarcreditrating.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191812.
Intangibleassetsandcapitalizedsubscribersacquisitioncost'000GELNetworkOperating&ComputersoftwarelicensesTelecomoperatinglicensesBroadcastingrightsGoodwillCSAC*TotalCostat1January201814,12419,60615,1302,8942,12853,882Accumulatedamortization(9,708)(16,812)(10,250)-(586)(37,356)Carryingamountat1January20184,4162,7944,8802,8941,54216,526Acquisitionthroughbusinesscombination34,864132,489-4,089428171,870Additions1,18389315,904-56318,543Amortizationcharge(4,210)(3,968)(4,100)-(628)(12,906)Carryingamountat30June201836,253132,20816,6846,9831,905194,033Costat30June201850,171152,98831,0346,9833,119244,295Accumulatedamortization(13,918)(20,780)(14,350)-(1,214)(50,262)Carryingamountat30June201836,253132,20816,6846,9831,905194,033Costat1January201957,978178,76736,7786,9833,439283,945Accumulatedamortization(22,163)(27,359)(20,147)-(1,937)(71,606)Carryingamountat1January201935,815151,40816,6316,9831,502212,339Additions8,9875274,663-77414,951Amortizationcharge(8,668)(7,489)(5,037)-(565)(21,759)Disposalsandderecognitions,gross-(4,191)4,191)Disposalsandderecognitions,amortization-4,191---4,191Carryingamountat30June201936,134144,44616,2576,9831,711205,531Costat30June201966,965175,10341,4416,9834,213294,705Accumulatedamortization(30,831)(30,657)(25,184)-(2,502)(89,174)Carryingamountat30June201936,134144,44616,2576,9831,711205,531*CSAC-CapitalizedSubscribersAcquisitionCost13.
Cashandcashequivalents'000GEL30June201931December2018Bankbalances104,9408,762Cashintransit982490Cashonhand2810Totalcashandcashequivalents105,9509,262ThecashandcashequivalentsaremainlyheldwithGeorgianbankswithashorttermissuerdefaultratingofB,basedonFitchRating.
TheGroupdoesnotexpectanycounterpartytofailtomeetitsobligations.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191914.
Equity(a)SharecapitalOn7May,2019theCompany'sshareholderSilknetHoldingresolvedtoconvertpartoftheCompany'ssubordinatedloanintoequityandtorepaytheremainingbalanceoftheloanwithcash.
Asdisclosedinnote1(b),duetothechangeinownershipstructure,therightstoallrepaymentsinrespecttothesubordinatedloanweretransferredfromRhinestreamHoldingstoSilknetHolding.
Asat7May2019thebalancesoftheoutstandingprincipalandinterestamountedtoGEL50,030thousand(USD18,832thousand).
TheshareholderoftheCompanymadeadecisiontorepaytheprincipalofGEL30,157thousand(USD11,135thousand)andinterest(includingaccrualofinterestexpenseuptofinalrepaymentdate15May2019)ofGEL4,989thousand(USD1,842thousand)andtoincreasetheCompany'ssharecapitalwiththeremainingloanbalanceofGEL15,884thousand(USD5,865thousand).
Asaresult,theCompanyissued15,884,198shareswithanominalvalueofGEL1pershare.
ThenewissuedshareswerefullypaidbyconversionoftheoutstandingloanbalanceofGEL15,884thousand(equivalentofUSD5,865thousand)duetotheCompany'sshareholder.
NumberofsharesOrdinaryshares20192018Inissueat1January68,171,90168,171,901Issuedduringtheperiod15,884,198-Inissueat30June,fullypaid84,056,09968,171,901Authorisedshares-parvalue11(b)Additionalpaid-incapitalInMarch2018,theCompany'sshareholderissuedaloanofUSD17milliononnon-marketconditionsduetowhichadditionalpaidincapitalofGEL16,445thousandwasrecorded.
Additionalpaid-incapitalwasderecognisedduringthesixmonthsended30June2019becauseofearlierrepaymentofthesubordinatedloan.
InJune2018theGroupissuedacalloptionfor4,795,000ordinaryshares,representingapproximately6.
6%ownershiponadilutedbasis,forthebenefitofJSCTBCBankasapartofthefinancingreceivedfortheacquisitionofGeocellLLC.
ExercisepriceoftheoptionissetasGEL5.
214pershareforthetotalamountofGEL25,000thousand.
Theoptionisexercisableatanytimeduringtheperiodoffiveyearsorconditionallyupontheoccurrenceofaliquidityevent,whichisdefinedasanInitialPublicOffering(IPO)orsaleof100%stakeofthecompany.
ThefairvalueofthecalloptionwasaccountedforasanequityinstrumentatthedateofacquisitionofGeocell/receiptoffundsfromTBC.
ThefairvalueofGEL8,026thousandwascreditedtoadditionalpaid-incapitalandwasfullychargedtoprofitorlosswhentherespectiveloanwasrepaid(refertonote15).
Astheoptionisanequityinstrument,nochangeinfairvalueisrecognisedinthestatementofprofitorlossandothercomprehensiveincome.
(c)DividendsDuringthesixmonthsended30June2019,theCompanydidnotdeclareanydividends.
In2018theCompanydeclareddividendsofGEL39,863thousandtoitsshareholder(GEL0.
59pershare).
DividendpaidamountedGEL5,441thousand(USD2,023thousand)andGEL33,036thousand(USD13,461thousand)forthesixmonthsended30June2019and30June2018,respectively.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192015.
LoansandborrowingsThisnoteprovidesinformationaboutthecontractualtermsoftheGroup'sinterest-bearingloansandborrowingswhicharemeasuredatamortisedcost.
'000GEL30June201931December2018Eurobonds-non-current554,040-Securedbankloans-non-current-315,025Unsecuredbonds-non-current62,68760,766616,727375,791Eurobonds-current15,284-Securedbankloans-current-36,642Unsecuredbonds-current401427Unsecuredbankloans-current35-15,72037,069Subordinatedloan-non-current-30,546-30,546632,447443,406(a)TermsanddebtrepaymentscheduleTermsandconditionsofoutstandingloanswereasfollows:30June2019'000GELCurrencyNominalinterestrateYearofmaturityFacevalueCarryingamountEurobondsUSD11.
0%2024580,762569,324UnsecuredbondsGEL3.
5%+Refinancingrate202234,40134,401UnsecuredbondsUSD8.
50%202128,68728,687Unecuredbankloan(RCF)USD7.
5%+6mLibor20243535Totalloansandborrowings643,885632,44731December2018'000GELCurrencyNominalinterestrateYearofmaturityFacevalueCarryingamountSecuredbankloansUSD7.
5%+6monthLiborrate2025268,738261,497SecuredbankloansUSD11%+6monthLiborrate202526,87626,876SecuredbankloansGEL12%202437,63037,630SecuredbankloansGEL11.
7%202425,66425,664UnsecuredbondsUSD8.
50%202126,77226,772UnsecuredbondsGEL3.
5%+Refinancingrate202234,42134,421Totalloansandborrowings420,101412,860(b)EurobondsOn2April2019,theCompanysuccessfullycompletedissuanceofUSD200millionofseniorunsecurednotes(the"Eurobonds")ontheEuronextDublinExchange.
NetproceedsfromissuanceofEurobondsamountedtoGEL529,489thousand.
TheEurobondsmaturein5years,April2024andbearfixedcouponrateof11%perannum.
Interestispayablesemi-annuallyon2Apriland2Octoberofeachyear,commencingon2October2019.
Theclosingmarketquotationasat30June2019wasquotedat105.
84%perbond.
TheCompanyhasanoptiontoredeemitsEurobondsinwholeorinpartataredemptionpriceandpriortothematuritydateinaccordancewithspecificprovisionsasdisclosedintheCompany'sprospectusforEurobonds.
Inaddition,theCompanymayredeemupto35percentoftheaggregateprincipalamountoftheEurobondsataredemptionpriceequalto101percentwiththenetproceedsfromoneormoreoftheCompany'sequityofferings.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201921TheEurobondsareaccountedforatamortisedcostusingtheeffectiveinterestratemethod.
TheGroupincurredexpensesofGEL10,411thousandinconnectionwiththeissueoftheEurobonds,including,amongstotherthings,underwritingfees,legalcounselfees,ratingagencyexpenses,listingexpenses,etc.
Theseexpensesareaccountedforastransactioncosts.
TheyareincludedinthecalculationofeffectiveinterestrateoftheEurobondsandaredeferredover5years.
ThenetproceedsfromissuanceofEurobondsofGEL529,490thousand(transactionscostsofGEL9,050werenettedagainsttheproceedsofEurobonds)wereusedbytheCompanytofullyrepayitsoutstandingdebtasat31December2018relatedtopromissorynotesandloanstothebanks.
TheCompanyalsorepaidsubordinatedloantorelatedparties,includingaccruedinterestoutstandingatthedateofrepayment.
TheremainingpartoftheproceedswaskeptontheCompany'scurrentinterestbearingaccountandusedforgeneralcorporatepurposes.
InMay2019,theCompanyhasrepurchaseditsEurobondswithanominalamountofUSD3,000thousandatapriceof103.
5%,withtheresultingdifferencebetweenthenominalandthemarketpriceofUSD105thousandrecordedasfinancecostsinthesecondensedconsolidatedinterimfinancialstatements.
(c)Securedbankloan("RCF")InMarch2019,theCompanyenteredintoafive-yearagreementwiththebanktosecureaUSD-denominatedrevolvingcreditfacility("RCF")withamaximumamountavailabletotheCompanyofUSD20millionwiththesolepurposetosecurecouponpaymentsontheGroup'sUSD-denominatedEurobonds.
Asat30June2019thecreditfacilitywasnotused.
(d)Changesinliabilitiesarisingfromfinancingactivities'000GELDividendspayableLeaseliabilitiesLoansandborrowingsTotalBalanceat1January20196,48426,978443,406476,868Proceedsfromborrowings--529,489529,489Repaymentofborrowings--(359,519)(359,519)Repaymentofsubordinatedloan--(30,326)(30,326)Bankcommissionsforearlyrepaymentofloans--(7,149)(7,149)Interestpaid--(14,125)(14,125)Repaymentofsubordinatedloaninterest--(4,989)(4,989)Eurobondsrepurchase--(8,344)(8,344)Leasepayments-(5,932)-(5,932)Dividendpaid(5,441)--(5,441)Totalchangesfromfinancingcashflows(5,441)(5,932)105,03793,664Theeffectofchangesinforeignexchangerates-21938,65838,877OtherchangesInterestexpense-1,63639,20740,843Bankcommissionsforearlyrepaymentofloans--7,1497,149Recognitionofleaseliabilitiesarisingfromleasecontractscameintoforceduringtheperiod-8,286-8,286Transactioncosts--(10,411)(10,411)TransactioncostsdeductedfromproceedsfromEurobonds--9,0509,050NettingofinterestreceivablewithinterestpayableunderEurobondrepurchase--(15,884)(15,884)Non-residentincometaxpaid--(199)(199)Incometaxpaidtoresidentindividuals--(11)(11)Totalliability-relatedotherchanges-9,92228,90138,823Totalequity-relatedotherchanges(seenote14(b))--16,44516,445Balanceat30June20191,04331,187632,447664,677SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192216.
FairvaluesandfinancialriskmanagementTheGrouphasdeterminedfairvaluesoffinancialassetsandliabilitiesusingvaluationtechniquesdisclosedinthelastannualconsolidatedfinancialstatements.
ManagementbelievesthatthefairvalueoftheGroup'sfinancialassetsandliabilitiesapproximatestheircarryingamounts.
TheGroup'sfinancialriskmanagementobjectivesandpoliciesareconsistentwiththosedisclosedinthelastannualconsolidatedfinancialstatements.
(i)MarketriskMarketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interestratesandequitypriceswillaffecttheGroup'sincomeorthevalueofitsholdingsoffinancialinstruments.
Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturn.
TheGroupdoesnotapplyhedgeaccountinginordertomanagevolatilityinprofitorloss.
CurrencyriskAsat30June2019,theGroup'sexposuretocurrencyriskismainlyattributabletoUSD-denominatedEurobondsissuedduringthesixmonthsended30June2019.
TheGroup'sexposuretoforeigncurrencyriskwasasfollows:'000GELUSD-denominatedUSD-denominated30June201931December2018Bankbalances89,518126Tradeandotherreceivables6,0766,965Tradeandotherpayables(53,350)(50,956)Loansandborrowings(598,046)(315,145)Subordinatedloan-(30,546)Netexposure(555,802)(389,556)'000GELEUR-denominatedEUR-denominated30June201931December2018Tradeandotherreceivables2,5251,592Tradeandotherpayables(15,126)(15,018)Netexposure(12,601)(13,426)Thefollowingsignificantexchangerateshavebeenappliedduringtheperiod:inGELAveragerateReportingdatespotrateSixmonthsended30June2019Sixmonthsended30June201830June201931December2018USD12.
70382.
53452.
86872.
6766EUR13.
05462.
99133.
26573.
0701SensitivityanalysisAreasonablypossiblestrengthening/(weakening)ofGEL,asindicatedbelow,againsttheUSDasat30June2019and31December2018wouldhaveaffectedthemeasurementoffinancialinstrumentsdenominatedinUSDandaffectedequityandprofitorlossbeforetaxesbytheamountsshownbelow.
Thecurrencymovementswouldhavenodirectimpactonothercomprehensiveincomeorequity.
Theanalysisassumesthatallothervariables,inparticularinterestrates,remainconstantandignoresanyimpactofforecastsalesandpurchases.
StrengtheningWeakening'000GELEquityProfitor(loss)EquityProfitor(loss)30June2019USD(10%movement)-55,580-(55,580)EUR(10%movement)-1,260-(1,260)SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192331December2018USD(10%movement)-38,956-(38,956)EUR(10%movement)-1,343-(1,343)ExposuretointerestrateriskAtthereportingdatetheinterestrateprofileoftheGroup'sinterest-bearingfinancialinstrumentswasasfollows:'000GELCarryingamount30June201931December2018FixedrateinstrumentsFinancialliabilities598,011120,612598,011120,612VariablerateinstrumentsFinancialliabilities34,436322,79434,436322,794FairvaluesensitivityanalysisforfixedrateinstrumentsTheGroupdoesnotaccountforanyfixed-ratefinancialinstrumentsasfairvaluethroughprofitfairvaluethroughothercomprehensiveincome.
Therefore,achangeininterestratesatthereportingdatewouldnothaveaneffectinprofitorlossorinequity.
CashflowsensitivityanalysisforvariablerateinstrumentsAreasonablypossiblechangeof100basispointsininterestratesatthereportingdatewouldhaveaffectedprofitorlossbyGEL1,049thousand.
Thisanalysisassumesthatallothervariables,inparticularforeigncurrencyrates,remainconstant.
17.
RelatedpartytransactionsKeymanagementreceivedthefollowingremunerationduringtheperiod:Forthesixmonthsended30June'000GEL20192018Salaries1,273735Bonuses732,0931,3462,828Theotherrelatedpartytransactionsaredisclosedinnote14(a)and15(b).
18.
SubsidiariesCountryofincorporation30June201931December2018SubsidiaryOwnership/votingOwnership/votingQarvaLLCGeorgia51%51%WiMaxGeorgiaLLCGeorgia100%100%NovusLLCGeorgia100%100%NGGeorgiaN(N)LEGeorgia100%100%WoundedWarriorSupportFundN(N)LEGeorgia100%100%19.
EventssubsequenttothereportingdateInJuly2019theCompanyandEuronewsSAsignedafranchiseagreementoflicenseandservicestoestablishtheEuronewsGeorgia.
Undertheagreement,EuronewsgrantstotheCompanyanexclusivelicensefortheuseoftheEuronewsbrandtooperatenewsmediaorganizationinGeorgia.
TheCompanyisauthorizedtobroadcastanddistributetheEuronewsserviceinthelocallanguage.
EuronewsispreventedfromowningoroperatingabusinesssimilartotheEuronewsGeorgia.
InJuly2019theCompanyhasestablishedthefullyownedsubsidiarySilkMediaLLCforthesolepurposeofoperatingEuronewsGeorgia.
4'000GELNote30June201931December2018*ASSETSNon-currentassetsPropertyandequipment10366,774370,216Intangibleassetsandcontractcosts12205,531212,339Othernon-currentassets1130,18532,727Rights-of-useassets5c26,064-PrepaymentsrelatedtoIRU**contracts10,53210,745Totalnon-currentassets639,086626,027CurrentassetsInventories21,85122,283PrepaymentsrelatedtoIRU**contracts2,1732,173Tradeandotherreceivables35,65337,876Cashandcashequivalents13105,9509,262Totalcurrentassets165,62771,594TOTALASSETS804,713697,621EQUITYANDLIABILITIESEquitySharecapital14(a)84,05668,172Additionalpaid-incapital14(b)8,02624,471Accumulatedlosses(76,179)(18,198)EquityattributabletoowneroftheCompany15,90374,445Non-controllinginterests5359TOTALEQUITY15,95674,504LIABILITIESNon-currentliabilitiesLoansandborrowings15616,727375,791Subordinatedloan15-30,546Promissorynotes15(b)-37,286Leaseliabilities5c20,194-Tradeandotherpayables17,15418,165AdvancesreceivedrelatedtoIRU**contractsandsubscribers13,98814,483Totalnon-currentliabilities668,063476,271CurrentliabilitiesLoansandborrowings1515,72037,069Tradeandotherpayables72,74387,285AdvancesreceivedrelatedtoIRU**contractsandsubscribers21,23822,492Leaseliabilities5c10,993-Totalcurrentliabilities120,694146,846TOTALLIABILITIES788,757623,117TOTALLIABILITIESANDEQUITY804,713697,621*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
**IndefeasibleRightofUseSilknetJSCCondensedConsolidatedInterimStatementofChangesinEquityforthesixmonthsended30June2019Thecondensedconsolidatedinterimstatementofchangesinequityistobereadinconjunctionwiththenotesto,andformingpartof,thecondensedconsolidatedinterimfinancialstatementssetoutonpages8to23.
6AttributabletoowneroftheCompany'000GELSharecapitalAdditionalpaidincapital(Accumulatedlosses)/retainedearningsTotalNon-controllinginterestsTotalequityBalanceasat31December201868,17224,471(18,198)74,4455974,504AdjustmentduetoadoptionofIFRS16(seenote5)(3,573)(3,573)-(3,573)Adjustedbalanceat1January2019*68,17224,471(21,771)70,8725970,931TotalcomprehensiveincomefortheperiodLossandtotalcomprehensiveincomefortheperiod--(54,408)(54,408)(6)(54,414)Transactionswithowner,recordeddirectlyinequityEffectoftransactionswithentitiescontrolledbytheultimatecontrollingparty(seenote14(b))-(16,445)-(16,445)-(16,445)Sharesissued(seenote14(a))15,884--15,884-15,884Balanceasat30June201984,0568,026(76,179)15,9035315,956Balanceasat1January201868,172-31,20099,372800100,172TotalcomprehensiveincomefortheperiodProfitandtotalcomprehensiveincomefortheperiod--27,90627,906(692)27,214Transactionswithowner,recordeddirectlyinequityEffectoftransactionswithentitiescontrolledbytheultimatecontrollingparty(seenote14(b))-16,445-16,445-16,445Calloptiongranted(seenote14(b))-8,026-8,026-8,026Dividends(seenote14(c))--(48,000)(48,000)-(48,000)Balanceasat30June201868,17224,47111,106103,749108103,857*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
SilknetJSCCondensedConsolidatedInterimStatementofCashFlowsforthesixmonthsended30June2019Thecondensedconsolidatedinterimstatementofcashflowsistobereadinconjunctionwiththenotesto,andformingpartof,thecondensedconsolidatedinterimfinancialstatementssetoutonpages8to23.
7Forthesixmonthsended30June'000GEL20192018*CashflowsfromoperatingactivitiesCashreceivedfromsubscribers187,833139,124CashreceivedfromothertelecomoperatorsandforIRUcontracts15,62813,310Salariesandbenefitspaidtoandonbehalfofemployees(25,141)(23,346)Interconnectionfeesandexpensespaid(6,523)(4,467)Purchaseofinventory(8,907)(7,317)Taxespaidotherthanonincome(26,723)(21,266)Incometaxpaid(687)(675)Networkmanagementandmaintenancecostspaid(4,675)(5,316)Otheroperatingexpensespaid(43,493)(33,215)Netcashfromoperatingactivities87,31256,832CashflowsfrominvestingactivitiesAcquisitionofpropertyandequipment(31,334)(16,096)Acquisitionofintangibleassets(17,528)(7,869)Proceedsfromdisposalsofpropertyandequipment838806Acquisitionofsubsidiaries,netofcashacquired-(329,716)Issueofloans-(489)Interestreceived900315Netcashusedininvestingactivities(47,124)(353,049)CashflowsfromfinancingactivitiesProceedsfromborrowings529,489423,545Repaymentofborrowings(seenote15(d))(367,863)(63,519)Bankcommissionsforearlyrepaymentofloans(7,149)-Interestpaidonbankloans(14,125)(11,270)Repaymentofsubordinatedloan(30,326)-Repaymentofsubordinatedloaninterest(4,989)-Repaymentofpromissorynotes(43,170)-Repaymentofleaseliabilities(5,932)-Dividendspaid(5,441)(33,036)Netcashfromfinancingactivities50,494315,720Effectofexchangeratechangesoncashandcashequivalents6,006(385)Netincreaseincashandcashequivalents96,68819,118Cashandequivalentsatthebeginningoftheperiod9,2622,521Cashandcashequivalentsattheendoftheperiod13105,95021,639*TheGrouphasinitiallyappliedIFRS16at1January2019,usingthemodifiedretrospectiveapproach.
Underthisapproach,comparativeinformationisnotrestatedandthecumulativeeffectofinitiallyapplyingIFRS16isrecognisedinretainedearningsatthedateofinitialapplication.
Seenote5.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201981.
Reportingentity(a)GeorgianbusinessenvironmentTheGroup'soperationsarelocatedinGeorgia.
Consequently,theGroupisexposedtotheeconomicandfinancialmarketsofGeorgia,whichdisplaycharacteristicsofanemergingmarket.
Thelegal,taxandregulatoryframeworkscontinuedevelopment,butaresubjecttovaryinginterpretationsandfrequentchangeswhichtogetherwithotherlegalandfiscalimpedimentscontributetothechallengesfacedbyentitiesoperatinginGeorgia.
Thecondensedconsolidatedinterimfinancialstatementsreflectmanagement'sassessmentoftheimpactoftheGeorgianbusinessenvironmentontheoperationsandthefinancialpositionoftheGroup.
Thefuturebusinessenvironmentmaydifferfrommanagement'sassessment.
(b)OrganisationandoperationsThesecondensedconsolidatedinterimfinancialstatementsincludethefinancialstatementsofSilknetJSC(theCompany)withtheregistrationnumberof204566978anditssubsidiaries(theGroup).
TheCompanyanditssubsidiariesarelimitedliabilityandjointstockcompaniesasdefinedundertheLawofGeorgiaonEntrepreneursandareincorporatedanddomiciledinGeorgia.
TheCompany'slegaladdressis95TsinamdzgvrishviliStreet,Tbilisi,0112,Georgia.
TheprincipalactivityoftheGroupisprovisionoftelecommunicationservicestocorporateandindividualcustomersinGeorgia,includingfixedandmobiletelephoneservices,mobileinternet,fixedinternet,internettelevision(IPTV)services,SMS(messaging)andleasingtheundergroundcommunicationfacilities.
On20March2018,theGroupacquireda100%holdinginGeorgia'ssecond-largestmobileoperator,GeocellLLC,foratransactionpriceofUSD151.
7million,roughlycorrespondingtoanEV/EBITDAmultipleof4.
5.
GeocellLLChasmorethan1.
7millionmobilevoiceandalmost1millionmobiledatasubscribersrepresentingapproximately35%ofthelocalmarketandgeneratesrevenuefromitsmajorrevenuestreams,whichrepresentmobilevoice,mobiledata,interconnect,messaging,saleofmobileequipmentandothers.
GeocellLLChasceaseditslegalexistenceandwasmergedwiththeCompanyon1November2018.
FollowingtheacquisitionofGeocellLLCtheGroupdirectsitsactivitiesastwooperatingsegments,fixednetworkandmobilecommunicationssegments.
InformationabouttheGroup'sreportablesegmentsisdisclosedinnote6Operatingsegments.
InMarch,2019Moody'sInvestorsService(Moody's)hasassignedaB1corporatefamilyrating(CFR)andaB1-PDprobabilityofdefaultratingtotheCompany.
On19April2019,RhinestreamHoldingsLimited,shareholderoftheCompanyandanentityincorporatedinMalta,whichisultimatelycontrolledbyanindividual,GiorgiRamishvilihasmadeadecisiontotransfer100%ofownershipintheCompanytoitswhollyownedsubsidiarySilknetHoldingLLC("SilknetHolding",the"owner"),whichisincorporatedinGeorgia.
2.
BasisofaccountingStatementofcomplianceThesecondensedconsolidatedinterimfinancialstatementshavebeenpreparedinaccordancewithIAS34InterimFinancialReporting,andshouldbereadinconjunctionwiththeGroup'slastannualconsolidatedfinancialstatementsasatandfortheyearended31December2018("lastannualconsolidatedfinancialstatements").
ThesecondensedconsolidatedinterimfinancialstatementsdonotincludealloftheinformationrequiredforacompletesetofIFRSfinancialstatements.
However,selectedexplanatorynotesareincludedtoexplaineventsandtransactionsthataresignificanttoanunderstandingofthechangesintheGroup'sfinancialpositionandperformancesincethelastannualconsolidatedfinancialstatements.
ThisisthefirstsetoftheGroup'sfinancialstatementsinwhichIFRS16hasbeenapplied.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201993.
FunctionalandpresentationcurrencyThenationalcurrencyofGeorgiaistheGeorgianLari(GEL),whichisthefunctionalcurrencyoftheGroupentitiesandthecurrencyinwhichthesecondensedconsolidatedinterimfinancialstatementsarepresented.
AllfinancialinformationpresentedinGELhasbeenroundedtothenearestthousands,exceptwhenotherwiseindicated.
4.
UseofestimatesandjudgmentsInpreparingthesecondensedconsolidatedinterimfinancialstatements,managementhasmadejudgments,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.
Actualresultsmaydifferfromthoseestimates.
Estimatesandunderlyingassumptionsarereviewedonanon-goingbasis.
Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimatesarerevisedandinanyfutureperiodsaffected.
ThesignificantjudgementsmadebymanagementinapplyingtheGroup'saccountingpoliciesandthekeysourcesofestimationuncertaintywerethesameasthosethatappliedtothelastannualconsolidatedfinancialstatementsasatandfortheyearended31December2018exceptfornewsignificantjudgementsrelatedtousefullivesofpropertyandequipment(seenote10)andlesseeaccountingunderIFRS16,whicharedescribedinnote5.
5.
ChangesinsignificantaccountingpoliciesExceptforthechangesbelow,theaccountingpoliciesappliedbytheGroupwereconsistentwiththoseappliedinthelastannualconsolidatedfinancialstatements.
ThechangesinaccountingpoliciesarealsoexpectedtobereflectedintheGroup'sconsolidatedfinancialstatementsasatandfortheyearending31December2019.
IFRS16TheGrouphasinitiallyadoptedIFRS16Leasesfrom1January2019.
IFRS16introducedasingle,on-balancesheetaccountingmodelforlessees.
Asaresult,theGroup,asalessee,hasrecognisedright-of-useassetsrepresentingitsrightstousetheunderlyingassetsandleaseliabilitiesrepresentingitsobligationtomakeleasepayments.
Lessoraccountingremainssimilartopreviousaccountingpolicies.
TheGrouphasappliedIFRS16usingthemodifiedretrospectiveapproach,underwhichthecumulativeeffectofinitialapplicationisrecognisedinretainedearningsat1January2019.
Accordingly,thecomparativeinformationpresentedfor2018hasnotbeenrestated–i.
e.
itispresented,aspreviouslyreported,underIAS17andrelatedinterpretations.
Thedetailsofthechangesinaccountingpoliciesaredisclosedbelow.
A.
DefinitionofaleasePreviously,theGroupdeterminedatcontractinceptionwhetheranarrangementwasorcontainedaleaseunderIFRIC4DeterminingWhetheranArrangementcontainsaLease.
TheGroupnowassesseswhetheracontractisorcontainsaleasebasedonthenewdefinitionofalease.
UnderIFRS16,acontractis,orcontains,aleaseifthecontractconveysarighttocontroltheuseofanidentifiedassetforaperiodoftimeinexchangeforconsideration.
OntransitiontoIFRS16,theGroupelectedtoapplythepracticalexpedienttograndfathertheassessmentofwhichtransactionsareleases.
ItappliedIFRS16onlytocontractsthatwerepreviouslyidentifiedasleases.
ContractsthatwerenotidentifiedasleasesunderIAS17andIFRIC4werenotreassessed.
Therefore,thedefinitionofaleaseunderIFRS16hasbeenappliedonlytocontractsenteredintoorchangedonorafter1January2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201910B.
AsalesseeTheGroup'sleasecontractslargelyrelatetoleasesofvarioussites(i.
e.
land,rooftopsurfaceareas,spaceincellulartowersandspaceforfibrecables,etc.
)relatedtoplacementofGroup'stelecommunicationequipment.
Asalessee,theGrouppreviouslyclassifiedleasesasoperatingleasesbasedonitsassessmentofwhethertheleasetransferredsubstantiallyalloftherisksandrewardsofownership.
UnderIFRS16,theGrouprecognisesright-of-useassetsandleaseliabilitiesformostleases–i.
e.
theseleasesareon-balancesheet.
However,theGrouphaselectednottorecogniseright-of-useassetsandleaseliabilitiesforsomeshort-termleases.
TheGrouprecognisestheleasepaymentsassociatedwiththeseleasesasanexpenseonastraight-linebasisovertheleaseterm.
Both,theright-of-useassetsaswellasrespectiveleaseliabilitieshavebeenpresentedasaseparatelineitemsinthecondensedconsolidatedinterimstatementoffinancialposition.
Thecarryingamountsofright-of-useassetsandleaseliabilitiesasat1January2019and30June2019areasbelow:'000GELSiterentformobilecommunicationsSiterentforfixednetworkTotalGrossbalanceat1January201937,9583,01840,976Accumulateddepreciationat1January2019(18,004)(425)(18,429)Carryingamountat1January201919,9542,59322,547Grossbalanceat30June201940,4028,86049,262Accumulateddepreciationat30June2019(22,277)(921)(23,198)Carryingamountat30June201918,1257,93926,064Leaseliabilityat1January2019(23,819)(3,159)(26,978)Leaseliabilityat30June2019(21,470)(9,717)(31,187)SignificantaccountingpoliciesTheGrouprecognisesaright-of-useassetandaleaseliabilityattheleasecommencementdate.
Theright-of-useassetisinitiallymeasuredatcost,andsubsequentlyatcostlessanyaccumulateddepreciationandimpairmentlosses,andadjustedforcertainremeasurementsoftheleaseliability.
Theleaseliabilityisinitiallymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthecommencementdate,discountedusingtheinterestrateimplicitintheleaseor,ifthatratecannotbereadilydetermined,theGroup'sincrementalborrowingrate.
Generally,theGroupusesitsincrementalborrowingrateasthediscountrate.
Theleaseliabilityissubsequentlyincreasedbytheinterestcostontheleaseliabilityanddecreasedbyleasepaymentmade.
Itisremeasuredwhenthereisachangeinfutureleasepaymentsarisingfromachangeinanindexorrate,achangeintheestimateoftheamountexpectedtobepayableunderaresidualvalueguarantee,orasappropriate,changesintheassessmentofwhetherapurchaseorextensionoptionisreasonablycertaintobeexercisedoraterminationoptionisreasonablycertainnottobeexercised.
TheGrouphasappliedjudgementtodeterminetheleasetermforsomeleasecontractsinwhichitisalessee,basedontheperiodforwhichthecontractisenforceable.
TheGroupconsidersthatenforceabilityoftheleaseisestablishedbythewrittencontract(includingpenaltyclauses)incombinationwithapplicablelegislationrelatedtorenewalorterminationrights(specificallythelessee'spreferentialrightstorenewthelease).
However,theGroupdetermined,thatitspreferentialrighttorenewwouldnotonitsownbetreatedassubstantive,whenthelessorcanrefusetoagreetoarequestfromtheGrouptoextendthelease.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201911(i)TransitionPreviously,theGroupclassifiedleasesasoperatingleasesunderIAS17.
Mostoftheleasestypicallyrunforaperiodof5-10yearsandincludeanoptiontorenewtheleaseforanadditionalperiodoftime,aftertheendofthenon-cancellableperiod.
Attransition,forleasesclassifiedasoperatingleasesunderIAS17,leaseliabilitiesweremeasuredatthepresentvalueoftheremainingleasepayments,discountedattheGroup'sincrementalborrowingrateasat1January2019.
Right-of-useassetsweremeasuredat:–theircarryingamountasifIFRS16hadbeenappliedsincethecommencementdate,discountedusingthelessee'sincrementalborrowingrateatthedateofinitialapplicationTheGroupusedthefollowingpracticalexpedientswhenapplyingIFRS16toleasespreviouslyclassifiedasoperatingleasesunderIAS17.
–Appliedasinglediscountratetoaportfolioofleaseswithsimilarcharacteristics.
–Excludedinitialdirectcostsfrommeasuringtheright-of-useassetatthedateofinitialapplication.
–Usedminimumleasetermwhendeterminingtheleasetermifthecontractcontainsoptionstoextendorterminatethelease–Usedhindsightwhendeterminingtheleasetermifthecontractcontainsoptionstoextendorterminatethelease.
C.
Impactsonfinancialstatements(i)ImpactsontransitionOntransitiontoIFRS16,theGrouprecognisedadditionalright-of-useassetsandadditionalleaseliabilities,recognisingthedifferenceinretainedearnings.
Theimpactontransitionissummarisedbelow.
'000GEL1January2019Right-of-useassets,gross40,976Accumulateddepreciation(18,429)Carryingvalue22,547Leaseliabilities(26,978)Tradeandotherpayables858Retainedearnings3,573Whenmeasuringleaseliabilitiesforleasesthatwereclassifiedasoperatingleases,theGroupdiscountedleasepaymentsusingitsincrementalborrowingrateat1January2019.
Theweighted-averagerateappliedis12.
3%and11.
84%forGELandUSDdenominatedleasesaccordingly.
'000GEL1January2019Leasepayableasat31December2018asdisclosedintheGroup'sconsolidatedfinancialstatements858Discountedusingtheincrementalborrowingrateat1January2019(27,836)Leaseliabilitiesrecognisedat1January2019(26,978)(ii)ImpactsfortheperiodAsaresultofinitiallyapplyingIFRS16,inrelationtotheleasesthatwerepreviouslyclassifiedasoperatingleases,theGrouprecognisedGEL26,064thousandofright-of-useassetsandGEL31,187thousandofleaseliabilitiesasat30June2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201912AlsoinrelationtothoseleasesunderIFRS16,theGrouphasrecogniseddepreciationandinterestcosts,insteadofoperatingleaseexpense.
Duringthesixmonthsended30June2019,theGrouprecognisedGEL4,769thousandofdepreciationcharges,GEL1,636thousandofinterestcostsandGEL220thousandnetforeignexchangelossesfromtheseleases.
6.
OperatingsegmentsFollowingtheacquisitionofGeocellLLCon20March2018,theGroupdirectstwooperatingsegments,fixednetworkandmobilecommunications.
ThemajorityoftheGroup'srevenueisgeneratedinGeorgia,soinformationregardinggeographicalareasisnotprovided.
Informationrelatedtoeachreportablesegmentissetoutbelow.
Managementbelievesthatdisclosureofrevenues,operatingprofit,assetsandliabilitiesisthemostrelevantinevaluatingtheresultsoftheeachoperatingsegment.
Revenuesandoperatingprofitforthemobilecommunicationssegmentforthesixmonthsended30June2018reflectspost-acquisitionperformancefrom20March2018to30June2018.
Cashandcashequivalentsandloansandborrowingsaremanagedbythegrouponacentralizedbasis,asaresultmanagementshowstotalamountofdebt,cashandcashequivalentsaswellasfinancecostsandrespectiveforeignexchangegain/lossunderunallocatedamounts.
'000GEL30June201930June201930June201930June2019CondensedConsolidatedInterimStatementofFinancialPositionMobileCommunicationsFixedNetworkUnallocatedAmountsTotalASSETSNon-currentassetsPropertyandequipment161,903204,871-366,774Intangibleassetsandcontractcosts170,61633,3111,604205,531Othernon-currentassets12,06316,6881,43430,185Rights-of-useassets18,1267,938-26,064PrepaymentsrelatedtoIRUcontracts10,532--10,532Totalnon-currentassets373,240262,8083,038639,086CurrentassetsInventories7,62514,226-21,851PrepaymentsrelatedtoIRUcontracts2,173--2,173Tradeandotherreceivables11,38321,5982,67235,653Cashandcashequivalents--105,950105,950Totalcurrentassets21,18135,824108,622165,627TOTALASSETS394,421298,632111,660804,713LIABILITIESNon-currentliabilitiesLoansandborrowings--616,727616,727Tradeandotherpayables8,5937,1591,40217,154AdvancesreceivedrelatedtoIRUcontractsandsubscribers(1,967)15,955-13,988Leaseliabilities11,6948,500-20,194Totalnon-currentliabilities18,32031,614618,129668,063CurrentliabilitiesLoansandborrowings--15,72015,720Tradeandotherpayables33,24828,67110,82472,743AdvancesreceivedrelatedtoIRUcontractsandsubscribers14,8086,3735721,238Leaseliabilities9,7761,217-10,993Totalcurrentliabilities57,83236,26126,601120,694TOTALLIABILITIES76,15267,875644,730788,757NETASSETS318,269230,757(533,070)15,956SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201913*TradeandotherpayablesshownunderunallocatedamountsmainlyconsistofpayablesforconsultingandprofessionalservicesrelatedtotheacquisitionofGeocellLLC,issuanceofEurobondsandanITtransformationproject(replacementofmanyoftheCompany'scurrentITsystemstonewmoreadvancedsolutions).
'000GEL30June201830June201830June201830June2018CondensedConsolidatedInterimStatementofFinancialPositionMobilecommunicationsFixedUnallocatedTotalnetworkamountsASSETSNon-currentassetsPropertyandequipment174,554195,662-370,216Intangibleassetsandcontractcosts177,41034,929-212,339Othernon-currentassets16,97915,39934932,727PrepaymentsrelatedtoIRUcontracts10,745--10,745Totalnon-currentassets379,688245,990349626,027CurrentassetsInventories9,10613,177-22,283PrepaymentsrelatedtoIRUcontracts2,173--2,173Tradeandotherreceivables10,93124,4142,53137,876Cashandcashequivalents--9,2629,262Totalcurrentassets22,21037,59111,79371,594TOTALASSETS401,898283,58112,142697,621LIABILITIESNon-currentliabilitiesLoansandborrowings--375,791375,791Subordinatedloan--30,54630,546Promissorynotes--37,28637,286Tradeandotherpayables11,2486,917-18,165AdvancesreceivedrelatedtoIRUcontractsandsubscribers-14,483-14,483Totalnon-currentliabilities11,24821,400443,623476,271CurrentliabilitiesLoansandborrowings--37,06937,069Tradeandotherpayables44,26029,19213,83387,285AdvancesreceivedrelatedtoIRUcontractsandsubscribers14,4797,71929422,492Totalcurrentliabilities58,73936,91151,196146,846TOTALLIABILITIES69,98758,311494,819623,117NETASSETS331,911225,270(482,679)74,504CapitalexpendituresincurredbytheGroupinrelationtothemobilecommunicationsegmentwasapproximatelyGEL16,330thousandforthesixmonthsended30June2019(outofwhichGEL7,446thousandwasaddedtopropertyandequipmentandGEL8,884thousandwasaddedtointangibleassets).
Capitalexpendituresrelatedtothefixednetworkoperatingsegmentforthesixmonthsended30June2019wereapproximatelyGEL23,636thousandandGEL6,067thousandintermsofpropertyandequipmentandintangibleassets,respectively.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201914Therevenuesgeneratedfromeachsegmentforthesixmonthsended30June2019areasfollows:'000GELCondensedConsolidatedInterimStatementofProfitorLossandComprehensiveIncomeMobilecommuni-cationsFixednetworkEliminationmobilecommuni-cationsEliminationfixednetworkUnallocatedamountsTotalSegmentrevenue96,89889,163-(2,024)0184,037Depreciationandamortisation(34,234)(22,718)56,952)Othercostsandexpenses*(40,960)(48,148)2,024-(3,075)(90,159)Segmentoperatingprofit21,70418,2972,024(2,024)(3,075)36,926Financeincome2,279(80)(1,406)-2,6193,412Financecosts(2,502)(3,318)-1,406(52,117)(56,531)Netforeignexchangegain613(1,898)--(35,865)(37,150)Segmentprofit(loss)beforetax22,09413,001618(618)(88,438)(53,343)Incometaxexpense1,071)(1,071)(Loss)/profitfortheperiod22,09413,001618(618)(89,509)(54,414)*UnallocatedpartofothercostsandexpensesmainlyareattributableofITtransformation.
Therevenuesgeneratedfromeachsegmentforthesixmonthsended30June2018wereasfollows:'000GELCondensedConsolidatedInterimStatementofProfitorLossandComprehensiveIncomeMobilecommu-nicationsFixednetworkEliminationmobilecommunica-tionsEliminationfixednetworkUnallocatedamountsTotalSegmentrevenue60,51883,731(451)(1,291)-142,507Depreciationandamortisation(17,156)(22,327)39,483)Othercostsandexpenses(30,522)(52,306)1,291451(16,354)(97,441)Bargaininggainfromacquisition----41,84541,845Segmentoperatingprofit12,8409,098839(839)25,49147,429Financeincome1,4713,931(772)(3,369)-1,261Financecosts(3,4220)(4,589)3,369772(14,086)(17,962)Netforeignexchangegain(2,919)3222,587(2,587)(428)(3,026)Segmentprofit(loss)beforetax7,9638,7626,023(6,023)10,97727,702Incometaxexpense-(488)488)(Loss)/profitfortheperiod7,9638,2746,023(6,023)10,97727,2147.
RevenuesForthesixmonthsended30June'000GEL20192018Commercialrevenue164,091118,235Mobilecalloutservice50,58927,220Internetservice45,65740,204Mobiledataservice24,85712,424Internettelevision20,41417,417Fixedtelephoneservice10,02411,565RevenuefromSMS4,9213,235Revenuefromotherservices4,6473,019FacilityrentalservicerelatedtoIRUcontracts1,020844Wirelesstelephone("CDMA")*service9811,348Revenuefromphonesalesandaccessories981959Carrierandotherservices19,94624,273Interconnectservice**12,03616,860FacilityrentalservicerelatedtoIRUcontracts3,9534,541Roamingrevenue2,9541,982Internetservice1,003890Totalrevenuesfromcontractswithcustomers184,037142,508SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201915*CodeDivisionMultipleAccesstechnologysupportingtheGroup'swirelesstelephoneservices.
**InOctober2017,theGeorgianNationalCommunicationsCommission("GNCC")adoptednewlocalinterconnectiontariffs,whichbecameeffectivepartiallyfromJuly2018andhaveafullscopeeffectfromJanuary2019.
ThedeterminationofthetariffsaboveisbasedonLong-RunIncrementalCosting(LRIC)andaresignificantlylowerthanthosethatwereeffectiveduring2017andperiodsbefore.
Exceptforrevenuestreamsattributabletothemobilecommunicationssegment(mobilevoice,partofinterconnectservice,mobiledata,revenuefromothermobileservicesandroamingrevenue)thebusinessisnotsubjecttoanyseasonalityandremainsconstantthroughouttheyear.
RevenuestreamsattributabletothemobilecommunicationssegmentareusuallyapproximatelyGEL10-15millionhigherforthesecondhalfthanthefirstsixmonthsoftheyear.
Therehavebeennochangestothemajorrevenuestreamsfromtherevenuestreamsreportedintheconsolidatedfinancialstatementsfortheyearended31December2018.
8.
PurchasedservicesForthesixmonthsended30June'000GEL20192018Utilityexpenses4,9593,091Softwaremaintenanceservice4,7793,225Internetservicecost1,9171,700Professionalfees*1,87916,645Internetclearchannelcosts1,7522,575Other52157Totalpurchasedservices15,33827,393*Duringthesixmonthsended30June2019,theGroupincurredexpensesofGEL10,411thousandinconnectionwiththeissueofEurobonds(refertonote15(b))including,amongstotherthings,underwritingfees,legalcounselfees,ratingagencyexpenses,listingexpensesandetc.
Theseamountsareaccountedforastransactioncosts.
TheyareincludedinthecalculationofeffectiveinterestrateofEurobondsandaredeferredover5years(seenote15(b)).
*Duringthesixmonthsended30June2018,theGroupincurredadvisory,legalandotherprofessionalandconsultingfeesofapproximatelyGEL13,189thousand,inrespectoftheacquisitionofGeocellLLC.
9.
NetfinancecostsForthesixmonthsended30June'000GEL20192018RecognisedinprofitorlossInterestincomeonloansandreceivables997812FinancialassetsatFVTPL–netchangeinfairvalue(note11(a))1,542-InterestincomeonprepaymentsrelatedtoIRUcontracts873449Financeincome3,4121,261Interestexpenseonfinancialliabilitiesmeasuredatamortisedcost(54,099)(16,451)InterestexpenseaccruedunderIFRS16(1,636)-InterestexpenseonadvancesreceivedfromIRUcontracts(796)(1,511)Financecosts(56,531)(17,962)Netforeignexchangeloss(37,150)(3,026)(37,150)(3,026)Netfinancecostsrecognisedinprofitorloss(90,269)(19,727)SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191610.
Propertyandequipment'000GELLandBuildingsandfacilitiesMachineryandequipmentVehiclesFurnitureandfixturesConstructioninprogressTotalCostat1January201820,650111,095199,1884,53213,59476349,135Accumulateddepreciation-(31,581)(108,868)(3,975)(10,192)-(154,616)Carryingamountat1January201820,65079,51490,3205573,40276194,519Acquisitionthroughbusinesscombination7,84512,459157,1973,0403,834-184,375Additions2169,402-1,1505,92816,498Disposals(457)(2,445)(3,072)(107)(8)-(6,089)Transfersandothers53383,511688(5,565)(1,635)Disposalsofdepreciation-9261,9281036-2,963Depreciationcharge-(1,353)(24,025)(405)(795)-(26,578)Carryingamountat30June201828,04589,455235,2613,2567,597439364,053Costat30June201828,045121,463366,2267,53318,578439542,284Accumulateddepreciation-(32,008)(130,965)(4,277)(10,981)-(178,231)Carryingamountat30June201828,04589,455235,2613,2567,597439364,053Costat1January201926,422118,759394,0457,97831,0844,318582,606Accumulateddepreciation-(32,499)(161,414)(4,923)(13,554)-(212,390)Carryingamountat1January201926,42286,260232,6313,05517,5304,318370,216Additions-112,854-31017,91731,082Disposals(463)(798)(10,556)(756)(84)(1)(12,658)Transfersandothers-2,38213,14729527(16,604)(753)Disposalsofdepreciation-1548,83125175-9,311Depreciationcharge-(1,284)(26,566)(547)(2,027)-(30,424)Carryingamountat30June201925,95986,715230,3412,29815,8315,630366,774Costat30June201925,959120,344409,4907,51731,3375,630600,277Accumulateddepreciation-(33,629)(179,149)(5,219)(15,506)-(233,503)Carryingamountat30June201925,95986,715230,3412,29815,8315,630366,774(a)SecurityDuringthesixmonthsended30June2019,theGrouphasfullyrepaidsecuredbankloansthatwereoutstandingasat31December2018andthereforelargepartoftheGroup'spropertyandequipmenthasbeenreleasedfromthepledge.
Asat30June2019propertywithcarryingvalueofGEL125,241thousandremainscollateralizedandguaranteestheindebtednessofRCF(refertonote15)andletterofcreditsrelatedtooperatingactivitiesoftheGroup.
(b)ChangeinestimateDuringthesixmonthsended30June2019,theGroupconductedanoperationalefficiencyreviewovercertainitemswithinitsmachineryandequipmentgroup,whichresultedinincreaseofexpectedusefullives.
Theeffectofthechangesinusefullivesresultedindecreaseofdepreciationcharge,recordedinthecosts,inamountofGEL6,716thousandforthesixmonthsended30June2019(GEL13,432thousandperannum).
Thechangeofusefullivesbecameeffectivefrom1January2019.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191711.
Othernon-currentassetsAsat30June2019othernon-currentassetsincludeuninstalledequipmentofGEL25,340thousand,prepaymentsfornon-currentassetsofGEL5,089thousandandderivativefinancialassetsofGEL1,542thousand(30June2018:uninstalledequipmentofGEL22,911thousand,prepaymentsfornon-currentassetsofGEL858thousandandderivativefinancialassetsequaltozero).
(a)DerivativefinancialassetsInJune2019,theCompanyenteredintoafive-yearcross-currencyswapagreementwithJSCTBCBanktomanageitsUSDdenominatedcurrencyexposurerelatedtoEurobonds.
Theswapisstructuredasacashcoverloan,wherebytheCompanydepositedUSD25,000thousand(GEL71,718thousandasat30June2019)andtookoutloanwithequivalentGELamount(GEL70,419thousand).
Loanbearsaninterestrateof5.
12%plusrefinancingratedeterminedbyNationalBankofGeorgia,depositbearsaninterestrateof3.
1%plussix-monthLIBORrate.
Depositisrestrictedtowithdrawalandispledgedtosecurethebankloan.
TheCompanyhasanobligationfortheperiodicmark-to-marketsettlementsrelatedtothedeposit,iftheexchangeratedecreasesbelowarateusedatinitialconversion,sothatatanypointintimeamountofdepositexceedsorbeequaltoGELloanamount.
Asperagreementwiththebank,theCompanyisobligedtoincreaseamountunderthecross-currencyswaptototalamountofUSD35,000thousandby15September2019.
Derivativefinancialinstrumentsarerecordedattheirfairvalueateachreportingdate.
Asat30June2019,thefairvalueofthederivativefinancialinstrumentamountedtoGEL1,542thousand.
Changeinfairvalueoftheinstrumentisrecordedinprofitorloss.
FairvalueisestimatedinaccordancewithLevel2ofthefairvaluehierarchyasdisclosedintheannualconsolidatedfinancialstatements.
Asat30June2019,thefollowingsignificantassumptionswereusedinestimatingfairvalueofthederivativeinstrument:refinancingrateofNationalBankofGeorgiawasassumedtobestableatthelevelof6.
5%;costofborrowingoftheCompanywasassumedfromtobe11%TBCBank'scostoffinancingwasestimatedbasedontheyieldtomaturity(YTM)ofTBC'sEurobondanddataonfinancialinstitutionswithsimilarcreditrating.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191812.
Intangibleassetsandcapitalizedsubscribersacquisitioncost'000GELNetworkOperating&ComputersoftwarelicensesTelecomoperatinglicensesBroadcastingrightsGoodwillCSAC*TotalCostat1January201814,12419,60615,1302,8942,12853,882Accumulatedamortization(9,708)(16,812)(10,250)-(586)(37,356)Carryingamountat1January20184,4162,7944,8802,8941,54216,526Acquisitionthroughbusinesscombination34,864132,489-4,089428171,870Additions1,18389315,904-56318,543Amortizationcharge(4,210)(3,968)(4,100)-(628)(12,906)Carryingamountat30June201836,253132,20816,6846,9831,905194,033Costat30June201850,171152,98831,0346,9833,119244,295Accumulatedamortization(13,918)(20,780)(14,350)-(1,214)(50,262)Carryingamountat30June201836,253132,20816,6846,9831,905194,033Costat1January201957,978178,76736,7786,9833,439283,945Accumulatedamortization(22,163)(27,359)(20,147)-(1,937)(71,606)Carryingamountat1January201935,815151,40816,6316,9831,502212,339Additions8,9875274,663-77414,951Amortizationcharge(8,668)(7,489)(5,037)-(565)(21,759)Disposalsandderecognitions,gross-(4,191)4,191)Disposalsandderecognitions,amortization-4,191---4,191Carryingamountat30June201936,134144,44616,2576,9831,711205,531Costat30June201966,965175,10341,4416,9834,213294,705Accumulatedamortization(30,831)(30,657)(25,184)-(2,502)(89,174)Carryingamountat30June201936,134144,44616,2576,9831,711205,531*CSAC-CapitalizedSubscribersAcquisitionCost13.
Cashandcashequivalents'000GEL30June201931December2018Bankbalances104,9408,762Cashintransit982490Cashonhand2810Totalcashandcashequivalents105,9509,262ThecashandcashequivalentsaremainlyheldwithGeorgianbankswithashorttermissuerdefaultratingofB,basedonFitchRating.
TheGroupdoesnotexpectanycounterpartytofailtomeetitsobligations.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20191914.
Equity(a)SharecapitalOn7May,2019theCompany'sshareholderSilknetHoldingresolvedtoconvertpartoftheCompany'ssubordinatedloanintoequityandtorepaytheremainingbalanceoftheloanwithcash.
Asdisclosedinnote1(b),duetothechangeinownershipstructure,therightstoallrepaymentsinrespecttothesubordinatedloanweretransferredfromRhinestreamHoldingstoSilknetHolding.
Asat7May2019thebalancesoftheoutstandingprincipalandinterestamountedtoGEL50,030thousand(USD18,832thousand).
TheshareholderoftheCompanymadeadecisiontorepaytheprincipalofGEL30,157thousand(USD11,135thousand)andinterest(includingaccrualofinterestexpenseuptofinalrepaymentdate15May2019)ofGEL4,989thousand(USD1,842thousand)andtoincreasetheCompany'ssharecapitalwiththeremainingloanbalanceofGEL15,884thousand(USD5,865thousand).
Asaresult,theCompanyissued15,884,198shareswithanominalvalueofGEL1pershare.
ThenewissuedshareswerefullypaidbyconversionoftheoutstandingloanbalanceofGEL15,884thousand(equivalentofUSD5,865thousand)duetotheCompany'sshareholder.
NumberofsharesOrdinaryshares20192018Inissueat1January68,171,90168,171,901Issuedduringtheperiod15,884,198-Inissueat30June,fullypaid84,056,09968,171,901Authorisedshares-parvalue11(b)Additionalpaid-incapitalInMarch2018,theCompany'sshareholderissuedaloanofUSD17milliononnon-marketconditionsduetowhichadditionalpaidincapitalofGEL16,445thousandwasrecorded.
Additionalpaid-incapitalwasderecognisedduringthesixmonthsended30June2019becauseofearlierrepaymentofthesubordinatedloan.
InJune2018theGroupissuedacalloptionfor4,795,000ordinaryshares,representingapproximately6.
6%ownershiponadilutedbasis,forthebenefitofJSCTBCBankasapartofthefinancingreceivedfortheacquisitionofGeocellLLC.
ExercisepriceoftheoptionissetasGEL5.
214pershareforthetotalamountofGEL25,000thousand.
Theoptionisexercisableatanytimeduringtheperiodoffiveyearsorconditionallyupontheoccurrenceofaliquidityevent,whichisdefinedasanInitialPublicOffering(IPO)orsaleof100%stakeofthecompany.
ThefairvalueofthecalloptionwasaccountedforasanequityinstrumentatthedateofacquisitionofGeocell/receiptoffundsfromTBC.
ThefairvalueofGEL8,026thousandwascreditedtoadditionalpaid-incapitalandwasfullychargedtoprofitorlosswhentherespectiveloanwasrepaid(refertonote15).
Astheoptionisanequityinstrument,nochangeinfairvalueisrecognisedinthestatementofprofitorlossandothercomprehensiveincome.
(c)DividendsDuringthesixmonthsended30June2019,theCompanydidnotdeclareanydividends.
In2018theCompanydeclareddividendsofGEL39,863thousandtoitsshareholder(GEL0.
59pershare).
DividendpaidamountedGEL5,441thousand(USD2,023thousand)andGEL33,036thousand(USD13,461thousand)forthesixmonthsended30June2019and30June2018,respectively.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192015.
LoansandborrowingsThisnoteprovidesinformationaboutthecontractualtermsoftheGroup'sinterest-bearingloansandborrowingswhicharemeasuredatamortisedcost.
'000GEL30June201931December2018Eurobonds-non-current554,040-Securedbankloans-non-current-315,025Unsecuredbonds-non-current62,68760,766616,727375,791Eurobonds-current15,284-Securedbankloans-current-36,642Unsecuredbonds-current401427Unsecuredbankloans-current35-15,72037,069Subordinatedloan-non-current-30,546-30,546632,447443,406(a)TermsanddebtrepaymentscheduleTermsandconditionsofoutstandingloanswereasfollows:30June2019'000GELCurrencyNominalinterestrateYearofmaturityFacevalueCarryingamountEurobondsUSD11.
0%2024580,762569,324UnsecuredbondsGEL3.
5%+Refinancingrate202234,40134,401UnsecuredbondsUSD8.
50%202128,68728,687Unecuredbankloan(RCF)USD7.
5%+6mLibor20243535Totalloansandborrowings643,885632,44731December2018'000GELCurrencyNominalinterestrateYearofmaturityFacevalueCarryingamountSecuredbankloansUSD7.
5%+6monthLiborrate2025268,738261,497SecuredbankloansUSD11%+6monthLiborrate202526,87626,876SecuredbankloansGEL12%202437,63037,630SecuredbankloansGEL11.
7%202425,66425,664UnsecuredbondsUSD8.
50%202126,77226,772UnsecuredbondsGEL3.
5%+Refinancingrate202234,42134,421Totalloansandborrowings420,101412,860(b)EurobondsOn2April2019,theCompanysuccessfullycompletedissuanceofUSD200millionofseniorunsecurednotes(the"Eurobonds")ontheEuronextDublinExchange.
NetproceedsfromissuanceofEurobondsamountedtoGEL529,489thousand.
TheEurobondsmaturein5years,April2024andbearfixedcouponrateof11%perannum.
Interestispayablesemi-annuallyon2Apriland2Octoberofeachyear,commencingon2October2019.
Theclosingmarketquotationasat30June2019wasquotedat105.
84%perbond.
TheCompanyhasanoptiontoredeemitsEurobondsinwholeorinpartataredemptionpriceandpriortothematuritydateinaccordancewithspecificprovisionsasdisclosedintheCompany'sprospectusforEurobonds.
Inaddition,theCompanymayredeemupto35percentoftheaggregateprincipalamountoftheEurobondsataredemptionpriceequalto101percentwiththenetproceedsfromoneormoreoftheCompany'sequityofferings.
SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June201921TheEurobondsareaccountedforatamortisedcostusingtheeffectiveinterestratemethod.
TheGroupincurredexpensesofGEL10,411thousandinconnectionwiththeissueoftheEurobonds,including,amongstotherthings,underwritingfees,legalcounselfees,ratingagencyexpenses,listingexpenses,etc.
Theseexpensesareaccountedforastransactioncosts.
TheyareincludedinthecalculationofeffectiveinterestrateoftheEurobondsandaredeferredover5years.
ThenetproceedsfromissuanceofEurobondsofGEL529,490thousand(transactionscostsofGEL9,050werenettedagainsttheproceedsofEurobonds)wereusedbytheCompanytofullyrepayitsoutstandingdebtasat31December2018relatedtopromissorynotesandloanstothebanks.
TheCompanyalsorepaidsubordinatedloantorelatedparties,includingaccruedinterestoutstandingatthedateofrepayment.
TheremainingpartoftheproceedswaskeptontheCompany'scurrentinterestbearingaccountandusedforgeneralcorporatepurposes.
InMay2019,theCompanyhasrepurchaseditsEurobondswithanominalamountofUSD3,000thousandatapriceof103.
5%,withtheresultingdifferencebetweenthenominalandthemarketpriceofUSD105thousandrecordedasfinancecostsinthesecondensedconsolidatedinterimfinancialstatements.
(c)Securedbankloan("RCF")InMarch2019,theCompanyenteredintoafive-yearagreementwiththebanktosecureaUSD-denominatedrevolvingcreditfacility("RCF")withamaximumamountavailabletotheCompanyofUSD20millionwiththesolepurposetosecurecouponpaymentsontheGroup'sUSD-denominatedEurobonds.
Asat30June2019thecreditfacilitywasnotused.
(d)Changesinliabilitiesarisingfromfinancingactivities'000GELDividendspayableLeaseliabilitiesLoansandborrowingsTotalBalanceat1January20196,48426,978443,406476,868Proceedsfromborrowings--529,489529,489Repaymentofborrowings--(359,519)(359,519)Repaymentofsubordinatedloan--(30,326)(30,326)Bankcommissionsforearlyrepaymentofloans--(7,149)(7,149)Interestpaid--(14,125)(14,125)Repaymentofsubordinatedloaninterest--(4,989)(4,989)Eurobondsrepurchase--(8,344)(8,344)Leasepayments-(5,932)-(5,932)Dividendpaid(5,441)--(5,441)Totalchangesfromfinancingcashflows(5,441)(5,932)105,03793,664Theeffectofchangesinforeignexchangerates-21938,65838,877OtherchangesInterestexpense-1,63639,20740,843Bankcommissionsforearlyrepaymentofloans--7,1497,149Recognitionofleaseliabilitiesarisingfromleasecontractscameintoforceduringtheperiod-8,286-8,286Transactioncosts--(10,411)(10,411)TransactioncostsdeductedfromproceedsfromEurobonds--9,0509,050NettingofinterestreceivablewithinterestpayableunderEurobondrepurchase--(15,884)(15,884)Non-residentincometaxpaid--(199)(199)Incometaxpaidtoresidentindividuals--(11)(11)Totalliability-relatedotherchanges-9,92228,90138,823Totalequity-relatedotherchanges(seenote14(b))--16,44516,445Balanceat30June20191,04331,187632,447664,677SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192216.
FairvaluesandfinancialriskmanagementTheGrouphasdeterminedfairvaluesoffinancialassetsandliabilitiesusingvaluationtechniquesdisclosedinthelastannualconsolidatedfinancialstatements.
ManagementbelievesthatthefairvalueoftheGroup'sfinancialassetsandliabilitiesapproximatestheircarryingamounts.
TheGroup'sfinancialriskmanagementobjectivesandpoliciesareconsistentwiththosedisclosedinthelastannualconsolidatedfinancialstatements.
(i)MarketriskMarketriskistheriskthatchangesinmarketprices,suchasforeignexchangerates,interestratesandequitypriceswillaffecttheGroup'sincomeorthevalueofitsholdingsoffinancialinstruments.
Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturn.
TheGroupdoesnotapplyhedgeaccountinginordertomanagevolatilityinprofitorloss.
CurrencyriskAsat30June2019,theGroup'sexposuretocurrencyriskismainlyattributabletoUSD-denominatedEurobondsissuedduringthesixmonthsended30June2019.
TheGroup'sexposuretoforeigncurrencyriskwasasfollows:'000GELUSD-denominatedUSD-denominated30June201931December2018Bankbalances89,518126Tradeandotherreceivables6,0766,965Tradeandotherpayables(53,350)(50,956)Loansandborrowings(598,046)(315,145)Subordinatedloan-(30,546)Netexposure(555,802)(389,556)'000GELEUR-denominatedEUR-denominated30June201931December2018Tradeandotherreceivables2,5251,592Tradeandotherpayables(15,126)(15,018)Netexposure(12,601)(13,426)Thefollowingsignificantexchangerateshavebeenappliedduringtheperiod:inGELAveragerateReportingdatespotrateSixmonthsended30June2019Sixmonthsended30June201830June201931December2018USD12.
70382.
53452.
86872.
6766EUR13.
05462.
99133.
26573.
0701SensitivityanalysisAreasonablypossiblestrengthening/(weakening)ofGEL,asindicatedbelow,againsttheUSDasat30June2019and31December2018wouldhaveaffectedthemeasurementoffinancialinstrumentsdenominatedinUSDandaffectedequityandprofitorlossbeforetaxesbytheamountsshownbelow.
Thecurrencymovementswouldhavenodirectimpactonothercomprehensiveincomeorequity.
Theanalysisassumesthatallothervariables,inparticularinterestrates,remainconstantandignoresanyimpactofforecastsalesandpurchases.
StrengtheningWeakening'000GELEquityProfitor(loss)EquityProfitor(loss)30June2019USD(10%movement)-55,580-(55,580)EUR(10%movement)-1,260-(1,260)SilknetJSCNotestotheCondensedConsolidatedInterimFinancialStatementsforthesixmonthsended30June20192331December2018USD(10%movement)-38,956-(38,956)EUR(10%movement)-1,343-(1,343)ExposuretointerestrateriskAtthereportingdatetheinterestrateprofileoftheGroup'sinterest-bearingfinancialinstrumentswasasfollows:'000GELCarryingamount30June201931December2018FixedrateinstrumentsFinancialliabilities598,011120,612598,011120,612VariablerateinstrumentsFinancialliabilities34,436322,79434,436322,794FairvaluesensitivityanalysisforfixedrateinstrumentsTheGroupdoesnotaccountforanyfixed-ratefinancialinstrumentsasfairvaluethroughprofitfairvaluethroughothercomprehensiveincome.
Therefore,achangeininterestratesatthereportingdatewouldnothaveaneffectinprofitorlossorinequity.
CashflowsensitivityanalysisforvariablerateinstrumentsAreasonablypossiblechangeof100basispointsininterestratesatthereportingdatewouldhaveaffectedprofitorlossbyGEL1,049thousand.
Thisanalysisassumesthatallothervariables,inparticularforeigncurrencyrates,remainconstant.
17.
RelatedpartytransactionsKeymanagementreceivedthefollowingremunerationduringtheperiod:Forthesixmonthsended30June'000GEL20192018Salaries1,273735Bonuses732,0931,3462,828Theotherrelatedpartytransactionsaredisclosedinnote14(a)and15(b).
18.
SubsidiariesCountryofincorporation30June201931December2018SubsidiaryOwnership/votingOwnership/votingQarvaLLCGeorgia51%51%WiMaxGeorgiaLLCGeorgia100%100%NovusLLCGeorgia100%100%NGGeorgiaN(N)LEGeorgia100%100%WoundedWarriorSupportFundN(N)LEGeorgia100%100%19.
EventssubsequenttothereportingdateInJuly2019theCompanyandEuronewsSAsignedafranchiseagreementoflicenseandservicestoestablishtheEuronewsGeorgia.
Undertheagreement,EuronewsgrantstotheCompanyanexclusivelicensefortheuseoftheEuronewsbrandtooperatenewsmediaorganizationinGeorgia.
TheCompanyisauthorizedtobroadcastanddistributetheEuronewsserviceinthelocallanguage.
EuronewsispreventedfromowningoroperatingabusinesssimilartotheEuronewsGeorgia.
InJuly2019theCompanyhasestablishedthefullyownedsubsidiarySilkMediaLLCforthesolepurposeofoperatingEuronewsGeorgia.
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