EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Annual
Results/Statement
PJSC MegaFon: In Q4 2019 MegaFon increased its revenue by 5.4%
2020-03-26 / 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 2019 Q4 2019/
Q4 2018 Q4 2018
Revenue 93,202 88,412 5.4% 93,202 5.4%
Service 80,380 79,350 1.3% 80,380 1.3%
revenue
Wireless 70,759 71,073 (0.4%) 70,759 (0.4%)
Services
Including 27,229 26,903 1.2% 27,229 1.2%
data
revenue
Wireline 9,621 8,277 16.2% 9,621 16.2%
Services
Sales of 12,822 9,062 41.5% 12,822 41.5%
equipment
&
accessori
es
OIBDA 38,518 27,561 39.8% 32,995 19.7%
OIBDA 41.3% 31.2% 10.1 p.p. 35.4% 4.2 p.p.
Margin
Adjusted 2,022[6] 1,133 78.5% 2,8526 151.7%
Net
profit
CAPEX 31,307 38,260 (18.2%) 31,307 (18.2%)
Excluding IFRS 16 impact
2019 2018[7] 2019/ 2019 2019 /
2018 2018
Revenue 348,961 335,549 4.0% 348,961 4.0%
Service 310,806 307,017 1.2% 310,806 1.2%
revenue
Wireless 280,375 276,076 1.6% 280,375 1.6%
Services
Including 107,624 100,936 6.6% 107,624 6.6%
data
revenue
Wireline 30,431 30,941 (1.6%) 30,431 (1.6%)
Services
Sales of 38,155 28,532 33.7% 38,155 33.7%
equipment
&
accessori
es
OIBDA 151,618 124,042 22.2% 130,628 5.3%
OIBDA 43.4% 37.0% 6.4 p.p. 37.4% 0.4 p.p.
Margin
Adjusted 10,3486 21,068 (50.9%) 13,6306 (35.3%)
Net
profit
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 2019 Q4 2019/
Q4 2018 Q4 2018
Revenue 91,745 87,051 5.4% 91,745 5.4%
Service 78,924 77,990 1.2% 78,924 1.2%
revenue
Wireless 69,314 69,723 (0.6%) 69,314 (0.6%)
Services
Including 26,459 26,314 0.6% 26,459 0.6%
data
revenue
Wireline 9,610 8,267 16.2% 9,610 16.2%
Services
Sales of 12,821 9,061 41.5% 12,821 41.5%
equipment
&
accessori
es
OIBDA 37,821 27,158 39.3% 32,336 19.1%
OIBDA 41.2% 31.2% 10.0 p.p. 35.2% 4.0 p.p.
Margin
Adjusted 1,7856 1,160 53.9% 2,6076 124.7%
Net
profit
Excluding IFRS 16 impact
2019 20187 2019/ 2019 2019/
2018 2018
Revenue 343,393 330,485 3.9% 343,393 3.9%
Service 305,242 301,956 1.1% 305,242 1.1%
revenue
Wireless 274,849 271,051 1.4% 274,849 1.4%
Services
Including 105,024 98,884 6.2% 105,024 6.2%
data
revenue
Wireline 30,393 30,905 (1.7%) 30,393 (1.7%)
Services
Sales of 38,151 28,529 33.7% 38,151 33.7%
equipment
&
accessori
es
OIBDA 148,407 122,628 21.0% 127,582 4.0%
OIBDA 43.2% 37.1% 6.1 p.p. 37.2% 0.1 p.p.
Margin
Adjusted 10,2426 22,422 (54.3%) 13,4986 (39.8%)
Net
profit
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.
*D**igital 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.
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[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]. ?xcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC
and "OSTELEKOM" CJSC.
2020-03-26 MSK Dissemination of a Corporate News, transmitted by
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