EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Quarter
Results/Quarterly / Interim Statement
PJSC MegaFon: Q1 2020 solid results amidst external challenges
2020-05-28 / 10:00 MSK
The issuer is solely responsible for the content of this announcement.
28 May 2020
Q1 2020 MegaFon: solid results amidst external challenges
The company increased its service revenue, OIBDA and net profit in spite of
plummeting roaming and retail revenues.
Key results for Q1 2020[1]:
· Total revenue decreased by 0.7% y-o-y to RUB 79.6 billion
· Service revenue increased by 0.9% y-o-y to RUB 73.4 billion
· Wireless revenue is up 0.8% y-o-y to RUB 66.9 billion
· Wireline revenue is up 1.6% y-o-y to RUB 6.5 billion
· Revenue from sales of equipment and accessories is down 16.3% y-o-y to
RUB 6.2 billion
· OIBDA is up 2.2% y-o-y to RUB 36.0 billion, OIBDA Margin is up 1.3 p.p.
y-o-y to 45.3%.
· Operational CAPEX[2] is up 44.4% y-o-y to RUB 11.5 billion
· Net profit increased by 136.5% y-o-y to RUB 5.2 billion
Revenue impact
In Q1 2020 our service revenue increased by 0.9% y-o-y to RUB 73.4 billion.
The growth was driven by positive dynamics in B2B wireline revenue, as well
as in wireless revenue which kept growing on the back of mobile data revenue
growth. Services provided through our tariff line "Vklyuchaisya!"
("Connect!") and our marketing campaigns aimed at promoting data
consumption, as well as our combining the company's products with partner
services, have all driven data revenue up by 9.9% y-o-y. A decrease in
roaming revenue caused by the gradual closure of borders in March 2020 put
some pressure on wireless revenue.
Q1 2020 total revenue was negatively impacted by the situation in retail.
Local authorities in a number of regions decided to completely close telecom
retail stores in response to the pandemic. As a result of the restrictions,
Q1 2020 revenue from sales of equipment and accessories decreased by 16.3%
y-o-y, as the average number of visitors to MegaFon retail stores decreased
by 23% in March.
Effective cost management
Despite the reduction in revenue the company increased OIBDA by 2.2% y-o-y
in Q1 2020. At the same time Net profit increased by 136.5% y-o-y. This was
as a result of decreases in costs, particularly sales and marketing costs,
as well as operational efficiencies.
The best mobile network in Russia
In Q1 2020 Operational CAPEX amounted to RUB 11.5 billion, which is 44.4%
more than in the same quarter last year. The growth rate in base station
construction was 14% compared to Q1 2019, and for LTE installations was 35%.
The company continues to develop and improve its telecommunication networks.
In Q1 2020 the company placed into service approximately 3,500 new LTE and
LTE Advanced base stations. The surge in network load in March, as a large
number of our subscribers switched to working from home during the lockdown,
required that the company increase its spending on infrastructure to
maintain its high quality of service. For example, in response to the peak
network demands the company upgraded its Unified billing cluster to increase
the reliability of our services for our subscribers.
Subscriber base
In Q1 2020 MegaFon's subscriber base in Russia remained fairly stable at
75.1 million people. On the back of the growing demand for digital services
the number of data users in Russia increased by 3.0% in the quarter to 34.8
million, making up 46.3% of our overall subscriber base. At the same time
the number of 4G-enabled devices registered in MegaFon's network has gone up
by 20% y-o-y to over 35 million devices.
Gevork Vermyshyan, the Group's Chief Executive Officer, commented on the
quarter's results as follows:
«
The key results of Q1 continue to show positive upward trends,
despite the impact on our industry of the events caused by the
pandemic situation in Russia and the world.
MegaFon has quickly adapted its internal processes to
accommodate its personnel working under very different
circumstances. It transferred more than 14,000 employees to a
work-from-home regime, and despite this all divisions of the
company managed to operate at increased capacity.
In March, we experienced increases in voice and mobile traffic
of between 10 to 15%, while usage of home Internet jumped by
50% in just a few days. The increased network load required
that we make significant investments to increase network
capacity and required significant efforts on the part of our
support and maintenance engineers to maintain uninterrupted
service.
To support its subscribers, MegaFon offered a number of free
services which enabled them to stay in touch with their
friends and family, as well as to work remotely. We increased
the speed of our home Internet to its maximum level, and we
allowed subscribers who have zero or negative account balances
to have access to our services. During the lockdown our
subscribers were given the opportunity to do any courses for
free on our educational platform. In addition, during that
period we waived subscription fees on popular Megafon.TV
packages including films, TV series and kids content. We
offered our mobile subscribers free access to the most popular
resources - messengers, emails, delivery services, and
pharmacies. We provided support to our roaming subscribers as
borders were being gradually closed. We made free calls for
them to the hotlines of Russian Foreign office and Russian
airlines. We offered a daily package of 30 outgoing texts to
Russian domestic numbers which in most countries could be sent
even though the account balance might be zero, and we tripled
the minutes allowance included in our "Roaming, goodbye!"
option. This enabled our subscribers to stay in touch with
their family and friends while resolving the issues related to
their returning home.
We continue to actively work to ensure that our subscribers
have maximum comfort and satisfaction dealing with our
products. Throughout the quarter our 'Factory of
microservices' assisted with launching new products for our
subscribers enabling the fastest integration with our partner
services and increasing the company's technological
reliability. In Q1 we launched a number of projects which will
improve the user experience for our subscribers. For example,
we launched services which personalize product offers in real
time (RTM), and improved the functionality both of the MegaFon
and Mail.Ru joint product called Combo and of our subscribers'
mobile personal accounts.
Our B2B segment in particular had to respond promptly to the
increased demand for work-from-home solutions. During the
early days of the lockdown regime we gave small businesses
free access to our video conferencing and webinars platforms,
which enabled companies to stay in touch effectively with
their employees and partners. In addition to the increased
demand for products providing employees with remote access to
corporate resources, we also noted an increased demand for
cloud solutions and smart telephony services, as well as IoT
solutions aimed at increasing staff efficiency and enabling
remote control of work processes.
However, changes caused by the pandemic situation negatively
impacted our retail business. To address the fact that most of
our subscribers had to severely curtail their movements, we
increased the capacity of our online store and, using new
channels, we launched online sales of SIM cards which can be
activated remotely via personal accounts. At the same time
customer traffic in our retail stores began to decrease
significantly, and in some regions, at the direction of the
local authorities, we had to close our stores completely. In
April we experienced a continued worsening of the negative
trends that started in March, and so we are anticipating
further worsening of the situation and a decline in
profitability for this part of our business.
We expect the situation in March to continue in the second
quarter, thereby continuing to put pressure on our business as
the workload on operators increases and roaming revenues go
down, while unfavourable changes in foreign currency exchange
rates will continue to significantly drive up the cost of
equipment purchases.
»
Nikita Orlov, the Group's Chief Financial Officer, commented on the
quarter's financial results:
«
In Q1 2020 we, together with our subscribers and the worldwide
community as a whole, found ourselves in the midst of the
unprecedented situation of a global pandemic. Although the
critical importance of reliable and high-quality
telecommunication service became crystal clear during this
period, and data and voice traffic actually increased in
March, revenue growth was negatively impacted by the
restrictions imposed on retail stores' operation and even more
so by the forced closure of many outlets. Also, starting in
March, we, like many other large businesses, went through the
process of adjusting to the new conditions and principally the
need to incur additional costs to ensure the safety and the
well-being of our employees and subscribers.
In Q1 2020 our service revenue increased by 0.9% y-o-y to RUB
73,393 million due to growth in both wireless and wireline
revenues. Data revenue in particular went up by 9.9% y-o-y to
RUB 27,615 million. The company continued to implement its
digital transformation strategy, and accordingly digital
revenue went up 33.2% in Q1 2020. This growth resulted from
further development and promotion of our tariff line
"Vklyuchaisya!" ("Connect!") in combination with partner
services, as well as the development of other popular
services.
In Q1 2020 revenue from sales of equipment and accessories
decreased by 16.3% y-o-y to RUB 6,159 million, mainly as a
result of the above mentioned restrictions on the retail
industry, and despite a surge in demand for expensive
smartphones in certain locations as consumers tried to
anticipate the pandemic.
In Q1 2020 OIBDA was up 2.2% y-o-y and reached RUB 36,013
million, OIBDA Margin increased by 1.3 p.p. to 45.3% y-o-y. An
increase in high-margin service revenue as well as the
streamlining of sales and marketing costs had a positive
effect on OIBDA.
In Q1 2020 Net profit increased by 136.5% y-o-y to RUB 5,172
million as a result of the increase in OIBDA, the effect of
certain operational efficiencies and successful foreign
exchange hedging.
»
Financial results (in millions of RUB, except as indicated)
*Q1 2020* *Q1 2019* *Q1 2020/
Q1 2019*
Revenue 79,552 80,128 (0.7%)
Service revenue 73,393 72,766 0.9%
Wireless Services 66,850 66,325 0.8%
Including data revenue 27,615 25,132 9.9%
Wireline Services 6,543 6,441 1.6%
Sales of equipment & accessories 6,159 7,362 (16.3%)
OIBDA 36,013 35,226 2.2%
OIBDA Margin 45.3% 44.0% 1.3 p.p.
Net profit 5,172 2,187 136.5%
Operational CAPEX 11,496 7,963 44.4%
Financial results[3], Russia only (in millions of RUB, except as indicated)
*Q1 2020* *Q1 2019* *Q1 2020/
Q1 2019*
Revenue 78,122 78,855 (0.9%)
Service revenue 71,964 71,494 0.7%
Wireless Services 65,431 65,062 0.6%
Including data revenue 26,843 24,560 9.3%
Wireline Services 6,533 6,432 1.6%
Sales of equipment & accessories 6,158 7,361 (16.3%)
OIBDA 35,262 34,536 2.1%
OIBDA Margin 45.1% 43.8% 1.3 p.p.
Net profit 5,089 2,375 114.3%
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. It focuses in
particular on quality of service and providing Internet at top speeds to its
subscribers. 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
*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.
*Operational CAPEX* is CAPEX excluding expenditures on additions of
right-of-use assets under leases.
*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.
*Net profit* is profit for the period attributable to equity holders of the
Group.
*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.
*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 interim condensed unaudited financial statements
reviwed 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, unless otherwise indicated.
[2].Operational CAPEX is CAPEX excluding expenditures on additions of
right-of-use assets under leases.
[3]. ?xcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC
and "OSTELEKOM" CJSC.
2020-05-28 MSK Dissemination of a Corporate News, transmitted by
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May 28, 2020 03:00 ET (07:00 GMT)
