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OJSC MEGAFON (FRA:US58517T) EQS-News: PJSC MegaFon: In Q4 2019 MegaFon increased its revenue by 5.4%

Directive transparence : information réglementée

26/03/2020 08:00

EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Annual Results/Statement
PJSC MegaFon: In Q4 2019 MegaFon increased its revenue by 5.4%

26.03.2020 / 10:00 MSK
The issuer is solely responsible for the content of this announcement.


In Q4 2019 MegaFon increased its revenue by 5.4%

 

while at the same time achieving growth in all other key financial metrics.

 

Key results for Q4 2019[1]:

 

  • Revenue increased by 5.4% y-o-y to RUB 93.2 billion
  • Service revenue increased by 1.3% y-o-y to RUB 80.4 billion
  • Revenue from sales of equipment and accessories is up by 41.5% to RUB 12.8 billion
  • OIBDA increased by 39.8% y-o-y to RUB 38.5 billion, while OIBDA Margin was 41.3%[2]
  • Adjusted Net profit increased by 78.5% y-o-y to RUB 2.0 billion [3]
  • Net debt decreased by 8.5% to RUB 320.4 billion

 

Revenue growth

 

  • In Q4 2019 service revenue increased by 1.3% y-o-y to RUB 80.4 billion mainly driven by data revenue growth as a result of an upgrade of the tariff line "Vklyuchaisya!" ("Connect!") incorporating the latest technological solutions and partner services. The Company also introduced a cross-discount system for its subscribers, and was the first in the market to offer cash rebates on its services which can be used for purchasing the Company's products. Those and some other initiatives resulted in an increase in the number of data service users by 6.7% to 34.9 million; while the number of its mobile subscribers in Russia remained stable at 75.2 million.  An increase in revenue from information and communication technologies (ICT) services provided to B2G clients also had a positive impact on both wireless and wireline revenue. Total service revenue for the year reached RUB 310.8 billion, an increase of 1.2% y-o-y.

 

Stores of the future

 

  • In Q4 2019 MegaFon continued the development of its retail network by the introduction of a new generation of stores emphasising top quality client service and a unique customer experience. The average number of customers at such stores is up 20%, and the average daily revenue is up between 30% and 40%, in each case as compared with the corresponding figures for traditional format stores.
     
  • MegaFon is also developing new service concepts at its retail chain. In November 2019 the Company opened the first "experience store" in Russia focused on providing an enhanced digital experience for clients. This store has a new format, with a sales floor four times bigger than average and an open display of goods, digital price tags, interactive client service interfaces and self-service technologies. The experience store also consists of five theme zones: smartphones, smart home technologies, TV and gaming, travel and healthy lifestyle, and kids' entertainment.

 

The best mobile network in Russia and development of 5G networks
 

  • In Q4 2019 CAPEX was RUB 31.3 billion, down 18.2% y-o-y. It was possible to reduce CAPEX as a result of the significant investments in upgrading the billing platform which were made in 2018. In 2019 the Company's main focus was on the continued development and improvement of the reliability of its networks, raising the quality of its services, and enhancing the client experience. In Q4 2019 approximately 2,470 new LTE and LTE Advanced base stations were placed into service. The Company is actively preparing for implementation of the 5G technology and the development of 5G networks in Russia.

 

Healthy leverage

 

  • MegaFon continues to work on reducing its leverage, using part of its profits to pay down the debt. The Company's net debt for the reporting period decreased by RUB 29.9 billion to RUB 320.4 billion. This enabled MegaFon to reduce its Net debt/LTM OIBDA ratio from 2.49x in Q3 2019 to 2.11x in Q4 2019. Adjusted net profit in Q4 went up by 78.5% y-o-y. Net profit for the year was still significantly impacted by increased finance costs, especially earlier in the year, relating to the loans raised to finance the Tender Offer for shares and GDRs completed in September 2018, the Mandatory Offer completed in Q1 2019 and the buy-back of shares from the remaining non-affiliated shareholders completed in Q2 2019.

 

Gevork Vermishyan, the Group's Chief Executive Officer, commented on the quarter's results as follows:

«

 

MegaFon continues to satisfactorily develop its business, as evidenced by the foregoing improvement in its KPIs. The demand for mobile services remains high. And our focus on digital subscribers has remained very effective - the number of data service users has grown again, and so has the data service revenue. We continue to develop new services to meet the needs of modern subscribers. And the implementation of ICT projects for B2B clients enabled us to increase revenue from wireline services in Q4 2019.

Service revenue for the whole year also increased. This is particularly significant, because in 2018 our revenue was boosted on a one-off basis because of the World Cup.

Our main expectations with regard to the development of the digital environment in Russia are linked to introduction of 5G in the country. Key market players are synchronising their efforts in developing the technologies - in December telecom operators agreed to create a joint venture in order to get ready for the launch of 5G in the country. We hope that this joint development work and effective use of 5G networks will enable us to offer the market some dramatic new 5G opportunities.

MegaFon's offerings for its B2B clients are not confined to telecommunication services. We have developed products based on artificial intelligence which will simplify our clients' business processes. For example, in November a cloud-based smart call-processing solution was launched, which enables companies to receive and to make calls without involving operators, thereby reducing staff costs. In addition, the Company has developed an innovative virtual PBX service for small and medium-sized businesses.

MegaFon continues to create partnerships with large companies, which will strengthen the Company's position in the digital technologies arena. At the beginning of Q4 2019, the previously announced joint venture between MegaFon, the Russian Direct Investments Fund ('RDIF'), Alibaba Group and Mail.ru Group was completed. In November our subscribers benefited from the first step in our new relationship with AliExpress Russia - MegaFon became the first operator to launch an online store on the TMall platform.

These partnerships, and the development of own products and services to meet the current needs of the subscribers and businesses, have enabled MegaFon to continue to implement its digital transformation strategy. We are pleased with the Q4 results - as well as the results for the full year - and believe that they demonstrate that the Company is moving in the right direction.

The beginning of 2020 turned out to be an extraordinary time for the business. Both our subscribers and our business are currently going through very uncertain times as a result of the pandemic situation in the country.  We are taking all possible measures to ensure that our personnel and our clients get through these times with the least disruption possible. We have offered our clients a whole range of concessional products and services to help them cope with the forced changes in their lifestyle.

                                                                                                                                    »

 

 

Nikita Orlov, the Group's Chief Financial Officer, commented on the quarter's financial results as follows:

«

 

In Q4 2019 we achieved good results and demonstrated growth in all of our financial KPIs.

Revenue was up by 5.4% to RUB 93,202 million. Most of our revenue is still derived from Russia - over 98.4% of total revenue. The Company continues to develop new services, tariffs and innovative products in the implementation of its digital transformation strategy, and, as a result, digital revenue in Q4 2019 grew by 52.3% y-o-y.

In Q4 2019 revenue from sales of equipment and accessories increased by 41.5% to RUB 12,822 million, as a result of an increase in sales of smartphones, particularly those in the high-end price range such as the new models of Samsung and Apple smartphones, as well as Honor and Huawei smartphones, all of which were promoted via specifically dedicated marketing initiatives. Additionally, equipment sales were positively impacted by introduction of our upgraded "new generation stores".

In Q4 2019 OIBDA increased by 39.8% y-o-y to RUB 38,518[4] million, and OIBDA Margin increased by 10.1 p.p. y-o-y to 41.3%. The improved results were driven by the growth in revenue and a reduction of costs achieved through a number of initiatives we took aimed at increasing efficiency, as well as a decrease in radio frequency expenses as a result of a revision of government fees.

Adjusted Net profit in Q4 2019 amounted to RUB 2,022[5] million, up by 78.5% y-o-y, as a result of the increase in revenue and the decrease in operating expenses.

                                                                                                                                                  »

 

 

Financial results (in millions of RUB, except as indicated)

 

 

 

Excluding IFRS 16 impact

 

Q4 2019

Q4 2018

Q4 2019/
Q4 2018

 

Q4 2019

Q4 2019/
Q4 2018

Revenue

93,202

88,412

5.4%

 

93,202

5.4%

Service revenue

80,380

79,350

1.3%

 

80,380

1.3%

Wireless Services

70,759

71,073

(0.4%)

 

70,759

(0.4%)

Including data revenue

27,229

26,903

1.2%

 

27,229

1.2%

Wireline Services

9,621

8,277

16.2%

 

9,621

16.2%

Sales of equipment & accessories

12,822

9,062

41.5%

 

12,822

41.5%

OIBDA

38,518

27,561

39.8%

 

32,995

19.7%

OIBDA Margin

41.3%

31.2%

10.1 p.p.

 

35.4%

4.2 p.p.

Adjusted Net profit

2,022[6]

1,133

78.5%

 

2,8526

151.7%

CAPEX

31,307

38,260

(18.2%)

 

31,307

(18.2%)

 

 

 

 

Excluding IFRS 16 impact

 

2019

2018[7]

2019/
2018

 

2019

2019 /
2018

Revenue

348,961

335,549

4.0%

 

348,961

4.0%

Service revenue

310,806

307,017

1.2%

 

310,806

1.2%

Wireless Services

280,375

276,076

1.6%

 

280,375

1.6%

Including data revenue

107,624

100,936

6.6%

 

107,624

6.6%

Wireline Services

30,431

30,941

(1.6%)

 

30,431

(1.6%)

Sales of equipment & accessories

38,155

28,532

33.7%

 

38,155

33.7%

OIBDA

151,618

124,042

22.2%

 

130,628

5.3%

OIBDA Margin

43.4%

37.0%

6.4 p.p.

 

37.4%

0.4 p.p.

Adjusted Net profit

10,3486

21,068

(50.9%)

 

13,6306

(35.3%)

CAPEX

67,301

81,456

(17.4%)

 

67,301

(17.4%)

 

Financial results, Russia only[8] (in millions of RUB, except as indicated)

 

 

 

Excluding IFRS 16 impact

 

Q4 2019

Q4 2018

Q4 2019/
Q4 2018

 

Q4 2019

Q4 2019/
Q4 2018

Revenue

91,745

87,051

5.4%

 

91,745

5.4%

Service revenue

78,924

77,990

1.2%

 

78,924

1.2%

Wireless Services

69,314

69,723

(0.6%)

 

69,314

(0.6%)

Including data revenue

26,459

26,314

0.6%

 

26,459

0.6%

Wireline Services

9,610

8,267

16.2%

 

9,610

16.2%

Sales of equipment & accessories

12,821

9,061

41.5%

 

12,821

41.5%

OIBDA

37,821

27,158

39.3%

 

32,336

19.1%

OIBDA Margin

41.2%

31.2%

10.0 p.p.

 

35.2%

4.0 p.p.

Adjusted Net profit

1,7856

1,160

53.9%

 

2,6076

124.7%

 

 

 

 

Excluding IFRS 16 impact

 

2019

20187

2019/
2018

 

2019

2019/
2018

Revenue

343,393

330,485

3.9%

 

343,393

3.9%

Service revenue

305,242

301,956

1.1%

 

305,242

1.1%

Wireless Services

274,849

271,051

1.4%

 

274,849

1.4%

Including data revenue

105,024

98,884

6.2%

 

105,024

6.2%

Wireline Services

30,393

30,905

(1.7%)

 

30,393

(1.7%)

Sales of equipment & accessories

38,151

28,529

33.7%

 

38,151

33.7%

OIBDA

148,407

122,628

21.0%

 

127,582

4.0%

OIBDA Margin

43.2%

37.1%

6.1 p.p.

 

37.2%

0.1 p.p.

Adjusted Net profit

10,2426

22,422

(54.3%)

 

13,4986

(39.8%)


For more information

Media:

pr@megafon.ru +7 925 696-05-07

 

Investors:

ir@megafon.ru +7 495 926-20-12

 

Notes to editors

PJSC "MegaFon" is a pan-Russian operator of digital opportunities, operating in all segments of the telecommunications markets in Russia, and in the Republics of Abkhazia, South Ossetia and Tajikistan. MegaFon is a recognised market leader in the provision of mobile data services, was the first operator in Russia to launch commercial operation of a third generation (3G) network, the first operator in the world to launch commercial operation of an LTE Advanced (4G) data network and was the first operator in Russia to complete a 5G international videocall. Additional information about MegaFon and the products and services provided by the Group can be found at http://www.megafon.ru.


Disclaimers, statement regarding inside information and forward looking statements

The above discussion and analysis should be read in conjunction with the Group's consolidated financial statements which are available for download on the Group's website at: http://corp.megafon.com/investors/

Certain statements and/or other information included in this document may not be historical facts and may constitute "forward looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 2(1)(e) of the U.S. Securities Exchange Act of 1934, as amended. The words "believe", "expect", "anticipate", "intend", "estimate", "plans", "forecast", "project", "will", "may", "should" and similar expressions may identify forward looking statements but are not the exclusive means of identifying such statements. Forward looking statements include statements concerning our plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues, operations or performance, capital expenditures, financing needs, our plans or intentions relating to the expansion or contraction of our business as well as specific acquisitions and dispositions, our competitive strengths and weaknesses, the risks we face in our business and our response to them, our plans or goals relating to forecasted production, reserves, financial position and future operations and development, our business strategy and the trends we anticipate in the industry and the political, economic, social and legal environment in which we operate, and other information that is not historical information, together with the assumptions underlying these forward looking statements. By their very nature, forward looking statements involve inherent risks, uncertainties and other important factors that could cause our actual results, performance or achievements to be materially different from results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our present and future business strategies and the political, economic, social and legal environment in which we will operate in the future. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. We expressly disclaim any obligation or undertaking to update any forward-looking statements to reflect actual results, changes in assumptions or in any other factors affecting such statements.

 

Schedule 1: Definitions

Adjusted Net profit is profit for the period attributable to equity holders of the Group, excluding the impact of a revaluation of an investment in an associate company (a non-monetary item).

Adjusted organic Net profit is Adjusted Net profit, excluding the impact of IFRS 16 adoption. MegaFon adopted this new IFRS standard, effective 1 January 2019. For convenience of use, throughout the financial year 2019, MegaFon has been presenting its financial results "as reported", i.e. including the impact of IFRS 16, and "organically", i.e. excluding the impact of the adoption of IFRS 16.

Capital Expenditures (CAPEX) comprises the cost of purchases of new equipment, new construction, acquisition of new or upgrades to software, acquisition of spectrum and other intangible assets, and purchases of other long-term assets, together with related costs incurred prior to the intended use of the applicable assets, all accounted for as of the earliest time of payment or delivery. Long-term assets obtained through business combinations are not included in the calculation of capital expenditures.

Data service user is defined as a subscriber who has consumed any amount of data traffic within preceding month.

Digital revenue is revenue from digital services, which include various VAS-services, such as MegaFon TV, games, music and other content services, mobile finance, M2M-services, convergent and IT-services, and information and communication technology services such as services rendered under the State Digital Programme, known as 'Safe City' and 'Smart City' solutions.

Group means PJSC "MegaFon" together with its consolidated subsidiaries. Previously, the Group had consolidated the financial position and the results of operations of its subsidiary, Mail.Ru Group Limited ("Mail.Ru"), from the beginning of 2017. As of June 2018, the Group concluded that it no longer had the ability to direct relevant activities of Mail.Ru, and therefore no longer had control over that company. Accordingly, the Group ceased to consolidate the financial position and the results of operations of Mail.Ru, with effect from the end of Q2 2018.

Net debt means the difference between (a) cash, cash equivalents, and principal amount of deposits and (b) principal amount of loans and borrowings less unamortised debt issuance fees. It is a financial measure which should be considered as supplementary but not as an alternative to the information provided in the Group's financial statements.

OIBDA (Operating Income Before Depreciation and Amortisation) is a financial measure not defined by IFRS, should be considered as supplementary and not as an alternative to the information provided in the financial statements of the Group. OIBDA Margin means OIBDA as a percentage of revenue. OIBDA and OIBDA Margin are widely used by investors, analysts and rating agencies as a measure to evaluate and compare current and future operating performance and to determine the value of companies within the telecommunications industry. However, the Group's definition of OIBDA and OIBDA Margin may not be directly comparable to similarly named financial measures and disclosures by other companies.

Organic OIBDA is OIBDA, and organic OIBDA Margin is OIBDA Margin, in each case excluding the impact of IFRS 16 adoption.

LTM OIBDA means last twelve months OIBDA.

Wireless Subscriber is defined as each SIM card that is activated in our billing system or has had at least one chargeable traffic event (that is, use of voice, VAS or data transfer services) within the preceding three months, whether chargeable to the subscriber or to a third party (for example, interconnection charges payable by other operators). Where an individual person holds more than one SIM card, each SIM card is included as a separate subscriber.

 

 

[1]. Based on the IFRS consolidated financial statements audited by JSC "KPMG". Due to rounding actual numbers and calculations for financials and KPIs may differ from those set forth in this release. Year over year ("y-o-y") stands for the same periods in the current and previous year on either a quarterly or yearly basis.

[2]. OIBDA is shown including the positive impact of IFRS 16. Organic OIBDA was RUB 33.0 billion, and OIBDA Margin was 35.4%.

[3]. Adjusted Net Profit is also shown taking into account the impact of IFRS 16. Adjusted organic Net Profit was 2.9 billion.

[4]. OIBDA is shown including the positive impact of IFRS 16. Organic OIBDA was RUB 32,995 million, OIBDA Margin was 35.4%.

[5]. Adjusted Net profit is shown taking into account the impact of IFRS 16. Adjusted organic Net profit was RUB 2,852 million.

[6]. This is exclusive of the impact of a revaluation of an investment in an associate company (a non-monetary item).

[7]. The amounts reflect the reported results from continuing operations grossed up for the intragroup amounts between the Group and Mail.Ru Group.

[8]. Еxcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC and "OSTELEKOM" CJSC.



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