DJ EQS-News: PJSC MegaFon: MegaFon reports results for Q4 and the full year 2018
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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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DJ EQS-News: PJSC MegaFon: MegaFon reports results -2-
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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another one free" pushed data consumption up as the number of subscriptions
to the "Vklyuchaisya!" ("Connect!") tariff increased. The one-time surge in
wireless services consumption during the FIFA World Cup also had a positive
impact on wireless revenue for the full year 2018.
VAS-revenue, including revenue from digital products and services such as
mobile finance services and MegaFon.TV, showed excellent results during the
year, also driving wireless revenue up. VAS revenue increased by 9.1% y-o-y
in 2018 as a result of revisions to our pricing policies following a
multiple-factor analysis of the market and our service portfolio values. The
FIFA World Cup also had a noticeable impact on MegaFon.TV revenue as traffic
was five times higher than usual during the period of the event.
In Q4 2018 wireline service revenue decreased by 9.2% y-o-y to RUB 8,277
million. This is mainly a result of revenue at the end of 2017 being boosted
by a one-off recognition of revenue on a long-term construction contract
with a B2X client and from additional services provided in 2017 during the
final draw for the 2018 FIFA World Cup. Full year 2018 wireline service
revenue increased by 7.6% y-o-y to RUB 30,941 million. The key contributors
to the growth were the increased revenue from the FIFA World Cup
infrastructure development, supplying goods and services under the "Safe
City" projects of the State's Digital Economy Programme, and other
information and communication technology (ICT) contracts with B2G clients.
Revenue from sales of equipment and accessories in Q4 2018 increased by
14.3% y-o-y to RUB 9,062 million resulting from equipment being bundled with
sales of services under the end-of-the-year marketing initiatives "Back to
school", "Gigateka", and "Buy one Samsung smartphone get another one free"
and a boost in revenue from sales of the new smartphone Honor as well as
newly launched models of Samsung, Xiaomi and Apple handsets. This surge in
sales, however, was insufficient to offset the impact of the reduction in
the number of our retail outlets in line with our strategy announced in
2017. Accordingly full year 2018 revenue from sales of equipment and
accessories decreased by 0.6% y-o-y to RUB 28,532 million.
*OIBDA and OIBDA Margin*
OIBDA in Q4 2018 decreased by 4.5% y-o-y to RUB 27,561 million. This takes
into account the positive impact from the adoption of the new accounting
standard, "IFRS 15 - Revenue from Contracts with Customers", in the amount
of RUB 370 million. Organic OIBDA in Q4 2018 decreased by 5.8% y-o-y to RUB
27,191 million.
The increase in total revenue of 4.5% was offset by an increase in
advertising expenses as we promoted new marketing initiatives, a significant
increase in spectrum expenses following the revision of charges by the
regulator, higher personnel expenses resulting from an increase in the
number of highly skilled professionals being engaged to work on implementing
our digital ecosystem strategy, and salaries indexation.
OIBDA Margin in Q4 2018 decreased by 2.9 p.p. y-o-y to 31.2%. Organic OIBDA
Margin decreased by 3.3 p.p. y-o-y to 30.8%, in both cases mainly due to the
increase in spectrum fees and personnel expenses mentioned above.
Full year 2018 OIBDA increased by 1.8% y-o-y to RUB 124,042 million, and
full year 2018 Organic OIBDA increased by 0.2% y-o-y to RUB 122,117 million
as the growth in revenue of 4.3% over last year only slightly exceeded the
growth in costs described above. OIBDA Margin in 2018 decreased by 0.9 p.p.
y-o-y to 37.0% and Organic OIBDA Margin decreased by 1.5 p.p. y-o-y to 36.4%
- all for the same reasons.
*Net Profit[11]*
Net Profit in Q4 2018 decreased by 62.7% y-o-y to RUB 1,133 million. After
eliminating the positive impact of IFRS 15 of RUB 296 million, Organic Net
Profit decreased by 72.4% y-o-y to RUB 837 million. The decreases in each
case were mainly the result of the decreases in OIBDA and Organic OIBDA,
offset in part by foreign exchange gains from deposits held in foreign
currencies.
Net profit for the full year 2018 increased by 2.7% to RUB 21,068 million
while Organic Net Profit decreased by 4.8% y-o-y to RUB 19,528 million. Both
Net Profit and Organic Net Profit were pushed up by foreign exchange gains
resulting from timely currency risks management.
*CAPEX*
CAPEX in Q4 2018 increased by 72.9% y-o-y to RUB 38,260 million and for the
full year 2018 by 45.5% to RUB 81,456 million, both driven by the continued
roll-out of our networks of all technologies, initiatives aimed at
improvement of the quality of services and customer experience, as well as
network resilience improvements, development of our billing platform and
investment in equipment required to comply with the Yarovaya (data storage)
law.
*Free Cash Flow to Shareholders*
Free cash flow to shareholders in Q4 2018 decreased by 231.3% y-o-y to RUB
(17,071) million, mainly due to the significant rise in CAPEX described
above which exceeded the increase in operating cash flows.
Free cash flow to shareholders for the full year 2018 decreased by 86.2%
y-o-y to RUB 4,869 million, for the same reasons.
*Net Debt*
Net debt increased by 6.5% from RUB 276,382 million as of 30 September 2018
to RUB 294,318 million as of 31 December 2018 as cash was used to make
payments of CAPEX and operating expenditures which had been deferred until
the end of the year. As of 31 December 2018 our Net debt/OIBDA ratio was
2.37x.
*EPS[12]*
Basic and diluted EPS for Q4 2018 decreased y-o-y from RUB 5 per share for
Q4 2017 to RUB 2 per share for Q4 2018 due to the reduction in Net Profit
described above.
Basic and diluted EPS increased from RUB 34 per share for 2017 to RUB 38 per
share for 2018 mainly because of the reduction in the weighted average
number of shares outstanding following the repurchase of ordinary shares and
GDRs pursuant to the tender offer made in July 2018.
*New accounting standards*
Starting from 1 January 2018 we adopted the new accounting standards IFRS 15
"Revenue from contracts with customers" and IFRS 9 "Financial Instruments".
The adoption of IFRS 9 did not have a material impact on our financial
statements. The key impact for us of the adoption of IFRS 15 was the
capitalisation of costs incurred to acquire new customer contracts, which
increased our Net Profit by RUB 296 million in Q4 2018, net of tax of RUB 74
million (the effect on Net Profit for the full year 2018 amounted to RUB
1,540 million, net of tax of RUB 385 million). We adopted IFRS 15 using the
modified retrospective method, and this increased our deferred costs assets
by RUB 1,707 million and our opening retained earnings by RUB 1,366 million,
net of tax effect.
*Wireless subscribers in Russia as of*
*31 December 2018* *31 December 2017* *Change*
Number of 75,205 75,445 (0.3%)
wireless
subscribers (K)
of which data 32,664 31,544 3.6%
service users (K)
Share of data 43.4% 41.8% 1.6 p.p.
service users
Our Russian wireless subscriber base slightly decreased by 0.3% y-o-y to
75.2 million as of 31 December 2018. Our data service user base in Russia
increased by 3.6% y-o-y to 32.7 million as of 31 December 2018 and reached
43.4% of the overall subscriber base in Russia. This increase is a direct
consequence of our continued focus on developing and promoting our data
services portfolio.
*Data operating indicators*
*Q4 *Q4 *Q4 2018/ *12m *12m *12m
2018* 2017* Q4 2017* 2018* 2017* 2018/ 12m
2017*
ARPDU 271 246 10.2% 260 237 9.7%
(RUB)
DSU (MB) 10,460 7,660 36.6% 9,256 6,524 41.9%
*ARPDU* increased in Q4 2018 by 10.2% y-o-y to RUB 271 and for the full year
2018 by 9.7% y-o-y to RUB 260 as we continued to introduce
data-service-centered products such as "Vklyuchaisya!" ("Connect!"),
"Upravlyai!" ("Manage!"), and roaming options for data users which encourage
data usage by our subscribers.
*DSU* increased in Q4 2018 by 36.6% y-o-y to 10.5 gigabytes and for the full
year 2018 by 41.9% y-o-y to 9.3 gigabytes, as a result of the initiatives
mentioned above, and ever growing smartphone penetration (currently, 70.3%
of the total number of devices registered on our network are smartphones),
while the overall number of high-end 4G-enabled devices registered on
MegaFon's network went up by 32.0% y-o-y to 28.2 million devices.
*For more information*
Investors: Dmitry Kononov, Director of Investor Relations and M&A +7 926 200
6490
dkononov@megafon.ru
Media: Artem Lebedev, Director for Corporate Communications +7 925 696 0677
artem.lebedev@megafon.ru
*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 and was the first operator in the world to launch commercial
operation of an LTE-Advanced (4G) data network. MegaFon is traded on the
Moscow Exchange under the symbol MFON. 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/ [1]
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
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