DJ EQS-News: PJSC MegaFon: MegaFon reports results for Q4 and the full year 2018
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EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Annual Results/Quarter Results PJSC MegaFon: MegaFon reports results for Q4 and the full year 2018 (news with additional features) 2019-03-21 / 10:00 MSK The issuer is solely responsible for the content of this announcement. *MegaFon reports results for Q4 and the full year 2018* *Moscow, Russia (21 March 2019) - PJSC "MegaFon" ("MegaFon" or the "Company" and, together with its consolidated subsidiaries, the "Group") (MOEX: MFON), a pan-Russian operator of digital opportunities, announces its financial[1] and operating results for Q4 and the full year 2018.* *Key financial and operating highlights for the full year 2018[2]* - Revenue increased by 4.3% y-o-y[3] to RUB 335,549 million - OIBDA[4] increased by 1.8% y-o-y to RUB 124,042 million - OIBDA Margin4 was 37.0% versus 37.9% in 2017 - Net Profit[5] increased by 2.7% y-o-y to RUB 21,068 million - CAPEX increased by 45.5% y-o-y to RUB 81,456 million - Free Cash Flow to Shareholders decreased by 86.2% y-o-y to RUB 4,869 million - Net Debt as of 31 December 2018 was RUB 294,318 million - The number of mobile subscribers as of 31 December 2018 decreased by 0.3% y-o-y to 76.9 million[6] *Key financial and operating highlights for Q4 2018* - Revenue increased by 4.5% y-o-y to RUB 88,412 million - OIBDA[7] decreased by 4.5% y-o-y to RUB 27,561 million - OIBDA Margin7 was 31.2% versus 34.1% in Q4 2017 - Net Profit decreased by 62.7% y-o-y to RUB 1,133 million - CAPEX increased by 72.9% y-o-y to RUB 38,260 million - Free Cash Flow to Shareholders decreased by 231.3% y-o-y to RUB (17,071) million Gevork Vermishyan, the Group's Chief Executive Officer, commented on the financial and operating results as follows: *«* *Financial results* 2018 has been a year of big changes and good results for MegaFon. Our digital leadership strategy has proved to be the right choice in the current economic conditions and has enabled us to move steadily forward towards meeting our long-term goals. We finished our year with good financial results and achieved our previously announced KPIs. Our consolidated service revenue for 2018 increased by 4.7% y-o-y to RUB 307 billion, in line with our forecast. Consolidated OIBDA (after taking into account the positive impact of the new revenue recognition standard IFRS 15) increased by 1.8% y-o-y to RUB 124 billion. Eliminating the positive impact of IFRS 15, full year 2018 Organic OIBDA still increased by 0.2% y-o-y to RUB 122 billion. Consolidated CAPEX for the year reached a record RUB 81.5 billion, and was used for further LTE network expansion, improving the reliability of our network and IT infrastructure, and compliance with the Yarovaya data storage law. *B2C* Our commitment to leadership in quality of service and to continued development of our product portfolio has enabled us to actively develop a digital ecosystem for all categories of clients. Using big data analysis we have been able to offer our clients the best innovations, such as: · Our clients were the first to be able to touch pay for services and goods from their mobile accounts via Apple Pay, Google Pay and Samsung Pay by using a Mastercard token. · We launched a smart service that enables each client to switch on by one click a personalised set of discounts, bonuses, additional minutes and internet packages, films, music, books and media. · Our tariff line "Vklyuchaisya!" ("Connect!") which we refreshed in Spring 2018 is now a bestseller. By the end of the year more than 20.7 million subscribers had opted for that tariff. · Our service "MegaFon.Travel" assists clients in planning trips and at the same time enables them to get cashback on a mobile account. · The userbase of "MegaFon.TV" exceeded 5.3 million people by the end of the year. *B2X* We strive to be the number one supporter for entrepreneurs, private businesses and state companies. Focusing on the development of IoT and big data services we now offer the most effective solutions for our clients' business development and improvement: · "Mobile Connect" verifies customers on a website by mobile numbers in just one click, which increases sales conversion for e-commerce. · "Business cloud" gives businesses easy access to virtual platforms, cloud storage, databases, graphic maps and big data services. · "Upravlyai!" ("Manage!") is the first flexible tariff for businesses in the market with a 7% cashback and an opportunity to customise telecom service for each employee. · Our Narrow Band IoT (NB/IoT) solutions meet all the requirements of businesses and form an important part of the future digital economy as they guarantee security, quality and safety of data, even if data gets transmitted via 2G and 3G networks. · "Digital managing company" is an integrated housing and utilities solution, both for business and tenants. · "MegaFon.Business" is a unique online service for small and medium-size businesses which permits easy on-click management of VAS-services using partner and MegaFon offers. *Strategic partnerships* In order to build up momentum on the development of new digital services, we are actively searching for and finding new partners. The last year has been marked by a number of transactions, mergers and new partnerships which will contribute significantly to the development of the national digital economy: · Together with the international e-commerce leader Alibaba Group, the Russian Direct Investment Fund (RDIF) and Mail.Ru Group, we signed a letter of intent aimed at creating an e-commerce joint venture in Russia. · We believe that our joint venture "MF Technologies" will combine the best expertise of MegaFon, Gazprombank, Rostec and USM Holdings, and will enable us to create new breakthroughs in cross-industry digital, telecom, finance and hi-tech industries solutions. · Our obtaining a 25% share in the Svyaznoy/Euroset combined company, the largest retail company in the world offering hi-tech tailored services - should enable us not only to earn profit in the future, but also to focus on developing our own omnichannel network. *New opportunities: development of digital infrastructure and an ecosystem for clients* Being a digital company, first of all, means "having a developed ecosystem of digital services for clients and the best technical solutions for using these services". We are proud that for the second year in a row MegaFon received 'The fastest mobile internet in Russia' title from Ookla as the operator with the highest speed of data transfer and downloads based on independent tests taken by data users on their devices in all mobile networks in Russia. The key to our success is having the largest LTE network in Russia with more than 49,600 base stations. As of the end of the year, our LTE network reached 79% of the population of Russia spanning the entire country. Our roaming networks also enabled our clients to use LTE services in 119 countries around the world. We believe that our continued efforts on improving our connection quality and increasing our network coverage, as well as our investments in our core network, at a time when internet traffic and revenues from digital services are growing, are important factors for future development of the company and our successful transformation into a digital operator of the future. In addition to demonstrating the technical excellence of MegaFon network during the FIFA World Cup last year, we were the first in Russia to reach a data transfer speed of 1 Gbit/sec on a smartphone and launched our Enhanced Voice Service technology for developing a high quality VoLTE (Voice over LTE) service. In Moscow more than 30% of voice traffic is already being transmitted via VoLTE technology. We continue expanding our international network. Last year, in partnership with Kazakhtelecom and Interoute, we connected Hong Kong and Frankfurt via a 8 Terabit/sec fiber-optic line and completed our project with China Mobile
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by launching a 100 Gbit/sec backbone line. Our backbone network exceeded 136,000 kilometers and we intend to continue to expand it. *5G: Towards the future* To prepare for the transition to 5G we have been testing our infrastructure and elements of the new generation networks. In 2018: · together with Nokia we successfully tested fiber-optic equipment intended for 5G implementation, which will enable us to implement and test services in areas such as artificial intelligence (AI), augmented reality (AR), virtual reality (VR), internet of things (IoT), and cloud solutions; · working with Qualcomm Technologies Inc. and Nokia, we showcased 5G equipment on our network in Moscow, St-Petersburg and Kazan; · in partnership with the Moscow City IT Department and Huawei, we presented an innovative cross-industry telecom and healthcare solution - providing remote scan and genetic sequencing on 5G networks; · we were the first in the country to live air a football match in VR format. *Digital economy and infrastructure for new generation State* Global digitalisation is the key factor for economic growth on which the government and businesses are now focusing. We have put together a unique pool of expertise, assets, partners and experience in completing large-scale high-tech projects to drive implementation of the best ideas and practices in respect of Digital Economy and Digital City strategies. To better manage processes in line with the State strategy, we, together with our partners, are developing new solutions and services for managing the infrastructure of digital cities, communal and utilities services, and municipal entities. Our solution "Digital region management" is among the best IT solutions for processing and structuring data. In 2018 we signed a number of important agreements: · with the Saratov, Pskov and Ulyanovsk regional authorities for pilot Digital Economy projects; · with the Moscow, St-Petersburg and Sochi city authorities, as well as the Novgorod, Ryazan, and Tula regional authorities and the Republic of Kalmykia, on implementing so-called Smart City solutions for state, healthcare, and tourism. We continue to implement Smart City projects in the Chelyabinsk and Bryansk regions as well as in Tatarstan's Innopolis. *Completion of Tender Offer* When the tender offer for our ordinary shares and GDRs was announced in July 2018, we noted that implementation of many of the bold strategies described above was not consistent with our remaining a public company, because of the uncertainties presented by our efforts to become a leader in the new digital economy. Our shareholders seem to have agreed with us, because the overwhelming number of public shareholders tendered their shares or GDRs into the tender offer. Following completion of the tender offer, in October 2018 we delisted our GDRs from the London Stock Exchange. As a result of the tender offer, our wholly-owned subsidiary MegaFon Finance became legally obligated to make a mandatory tender offer to all remaining shareholders. In January 2019, our Board of Directors approved the making of the mandatory tender offer and recommended that our shareholders accept the mandatory tender offer. The mandatory tender offer was directed to persons holding a total of 131,212,843 outstanding ordinary shares (all references to ordinary shares include ordinary shares then represented by GDRs), or 21.16% of the outstanding ordinary shares. As of 7 March 2019, the expiration date of the mandatory tender offer, a total of 126,246,094 ordinary shares, representing 20.36% of the outstanding ordinary shares of MegaFon, had been tendered by the Company's shareholders. Following completion of the settlements under the mandatory tender offer, MegaFon Finance is holding in the aggregate 265,862,631 ordinary shares, representing 42.88% of the outstanding ordinary shares, and which together with the ordinary shares held by its affiliates constitute 615,033,251 ordinary shares, or 99.2% of the outstanding ordinary shares of MegaFon. Accordingly, MegaFon Finance is entitled to require the remaining shareholders to sell their shares to it, and is considering whether or not to proceed with this step. If it chooses not to require the remaining shareholders to sell their shares to it, then each of the remaining shareholders has the right to require MegaFon Finance to purchase his or her shares. We expect the status of the remaining outstanding ordinary shares to be resolved by mid-to late-summer 2019. Whether or not the remaining shares are purchased, MegaFon will become effectively a wholly-owned subsidiary of LLC "AF Telecom Holding", which is currently the Company's majority shareholder. We look forward to a closer cooperation with the AF Telecom and its controlling shareholders going forward, because we believe that they share the same vision for MegaFon's future as we do, and are fully supportive of our efforts to achieve our goals. *»* *Financial results[8] (In millions of RUB, except as indicated)* *Three Months* *Full Year* *Q4 *Q4 *Q4 *2018* *2017* *2018/ 2018* 2017* 2018/ 2017* Q4 2017* Revenue 88,412 84,641 4.5% 335,549 321,810 4.3% Wireless 71,073 67,602 5.1% 276,076 264,352 4.4% Services Including 26,903 23,544 14.3% 100,936 89,748 12.5% data revenue Wireline 8,277 9,111 (9.2%) 30,941 28,759 7.6% Services Sales of 9,062 7,928 14.3% 28,532 28,699 (0.6%) equipment & accessori es OIBDA 27,561 28,865 (4.5%) 124,042 121,850 1.8% OIBDA 31.2% 34.1% (2.9 37.0% 37.9% (0.9 Margin p.p.) p.p.) Net 1,133 3,037 (62.7%) 21,068 20,519[9 2.7% Profit ] Net 1.3% 3.6% (2.3 6.3% 6.4% (0.1 Profit p.p.) p.p.) Margin CAPEX 38,260 22,133 72.9% 81,456 55,985 45.5% CAPEX / 43.3% 26.1% 17.2 24.3% 17.4% 6.9 p.p. Revenue p.p. *Financial results, Russia only[10] (In millions of RUB, except as indicated)* *Three Months* *Full Year* *Q4 *Q4 *Q4 *2018* *2017* *2018/ 2018* 2017* 2018/ 2017* Q4 2017* Revenue 87,051 83,490 4.3% 330,485 317,430 4.1% Wireless 69,723 66,461 4.9% 271,051 260,009 4.2% Services Including 26,314 23,101 13.9% 98,884 88,216 12.1% data revenue Wireline 8,267 9,102 (9.2%) 30,905 28,724 7.6% Services Sales of 9,061 7,927 14.3% 28,529 28,697 (0.6%) equipment & accessori es OIBDA 27,158 28,738 (5.5%) 122,628 121,806 0.7% OIBDA 31.2% 34.4% (3.2 37.1% 38.4% (1.3 Margin p.p.) p.p.) Net 1,160 3,389 (65.8%) 22,422 23,3529 (4.0%) Profit Net 1.3% 4.1% (2.8 6.8% 7.4% (0.6 Profit p.p.) p.p.) Margin *Revenue* Total revenue in Q4 2018 increased by 4.5% y-o-y to RUB 88,412 million. Total revenue for the full year 2018 increased by 4.3% y-o-y and reached RUB 335,549 million, while our service revenue for the full year grew by 4.7% to RUB 307,017 million, fully in line with our guidance. Revenue from Russia remained the major component in this segment, accounting for over 98.5% of total revenue for Q4 and the full year. In Q4 2018 our wireless revenue, including data revenue, increased by 5.1% y-o-y to RUB 71,073 million. For the full year 2018 wireless revenue grew by 4.4% to RUB 276,076 million, driven by continued growth in mobile data revenue which increased by 14.3% y-o-y to RUB 26,903 million in Q4 2018 and by 12.5% y-o-y to RUB 100,936 million for the full year 2018. The key driver behind the growth continued to be the success of the tariff line "Vklyuchaisya!" ("Connect!") which has been refined with certain modifications, such as introduction of a new tariff plan "Vklyuchaisya! Smotri+" ("Connect! Watch plus"), as well as the tariff line for B2X clients "Upravlyai!" ("Manage!"). In Q4 2018 a number of marketing initiatives called "Back to school", "Gigateka", and "Buy one Samsung smartphone get
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