EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Quarter Results/Half
Year Results
PJSC MegaFon: Financial and Operating Results for Q2 2020
2020-08-13 / 10:15 MSK
The issuer is solely responsible for the content of this announcement.
13 August 2020
MegaFon announces its financial and operating results for Q2 2020
The Company was able to maintain its OIBDA Margin, reduce its leverage and
increase net profit despite the continued impact of the pandemic
Key results for Q2 2020:[1]
- Revenue decreased by 8.3% y-o-y to RUB 78.5 billion
- Service revenue was down by 6.9% y-o-y to RUB 73.4 billion
- Revenue from sales of equipment and accessories declined by 24.7% to RUB
5.2 billion
- OIBDA dropped by 8.4% y-o-y to RUB 35.6 billion, with OIBDA Margin flat
at 45.4%
- Operational CAPEX[2] slipped 20.1% y-o-y to RUB 13.1 billion
- Net profit increased by 35.2% y-o-y to RUB 4.0 billion
- Total debt decreased by RUB 17.7 billion to RUB 357.4 billion
- The subscriber base in Russia remained stable at 75.4 million
- The data user base grew by 4.2% to 34.9 million
Revenue impact
Service revenue in Q2 was RUB 73.4 billion, down 6.9% y-o-y, as a result of
efforts to reduce communications spend undertaken by both retail and
business customers amidst the pandemic. A large number of retail stores were
closed, which significantly reduced both the number of new subscribers and
service revenue. Additionally, to support its subscribers in self-isolation,
MegaFon offered free access to a range of its most popular services over an
extended period, which also had an impact on its revenues. Service revenue
was also affected by a drop in roaming revenue due to border closures.
Despite the pandemic's negative impact on service consumption in the B2B
segment and the number of non-working days in April and May, fixed-line
revenue demonstrated a slight growth of 1.0% to RUB 6.8 billion, driven by
demand for residential broadband, information security services and cloud
solutions.
Store closures in some regions, travel restrictions in most large cities and
the general decline in consumer confidence in Q2 had a negative impact on
revenue from sales of equipment and accessories, driving it down by 24.7% to
RUB 5.2 billion.The number of visitors to MegaFon stores fell by 40% y-o-y.
Cost optimisation
Despite the pandemic's major negative impact on the Company's financial
performance, MegaFon was able to maintain its OIBDA Margin flat y-o-y at
45.4%, primarily by reducing low-margin sales of equipment, cutting selling
and marketing expenses and reducing general expenses. In the new challenging
environment, smart performance management has become even more important.
Net profit grew by 35.2% y-o-y, driven by operational efficiency gains and
in particular lower finance charges due to continued deleveraging.
The best mobile network in Russia
Operational CAPEX was RUB 13.1 billion in Q2, down 20.1% y-o-y. As a result
of the pandemic, several non-critical projects not related to network
operations were postponed.
At the same time, the increased network load has required renewed focus on
network development to maintain a high quality of service for subscribers.
In Q2 2020, the number of base stations grew by 2.3% to 189,000 including
more than 4,000 new base stations added in LTE and LTE Advanced standards
alone. These efforts have ensured the continued delivery of our high-quality
voice and mobile services. According to Ookla's Speedtest Intelligence
analysis for 1H 2020, MegaFon provides the fastest mobile internet in
Russia.
Subscriber base
MegaFon's subscriber base in Russia remained fairly stable in Q2 at 75.4
million.The data user base in Russia has continued to grow - up by 4.2% to
34.9 million, making up 46.3% of the total subscriber base. The number of 4G
devices registered in MegaFon's network was 35 million, up 14.5% y-o-y.
Gevork Vermishyan, the Group's Chief Executive Officer, commented:
"
We believe that the pandemic's impact on the
telecommunications industry peaked during the second quarter.
Retail and corporate customers, particularly SMEs, have been
cutting costs commensurate with reduced business activity,
including their communications costs.
We have also needed to invest further in network expansion to
maintain service quality in the face of increased network
load. We have adjusted our base station construction plans,
having already achieved 80% of our annual network expansion
target by the end of 1H 2020. With the increased and
redistributed load on our network, our specialists were
required to provide ongoing monitoring of and rapid responses
to all changes in network performance.
As a result, our subscribers continued to enjoy Russia's
fastest data services despite the challenges of
self-isolation: Ookla's Speedtest Intelligence analysis for 1H
2020 has confirmed MegaFon's leadership among Russian
operators.
Throughout the quarter, we supported our subscribers by
offering them free access to our most popular services: we
have waived access fees for our proprietary platforms such as
MegaFon TV, MegaFon Education and MegaFon Games, and have zero
rated traffic for popular messenger and food delivery
services, online pharmacies and educational portals. Over the
quarter, we offered special roaming terms to keep customers
connected, including free texting to Russia and free calls to
key helplines. These measures negatively affected our
year-on-year financial performance but helped maintain an
overall positive customer experience and high quality services
for subscribers.
We are focused on building solutions and services that deliver
value to digital subscribers. With Russia's total data user
base growing by 4.2% in Q2, we see strong growth potential in
this area, and the pandemic has only accelerated this trend.
During their self-isolation, our subscribers have started to
use online services more often, with MegaFon TV's traffic up
30% and MegaFon Books up 28%, while our gaming platform's
traffic increased by 2.5 times. We have launched our own
podcast service as this format is gaining traction on our
network. With restrictions imposed by some regions on retail
chains, our customers are tending to make more purchases
online. The number of orders via MegaFon's online store has
increased by 40%.
We have reflected the current needs of our subscribers in our
new tariff line, NoOvercharges. We were the first among
Russian operators to offer unlimited data rollover plans.
Additionally, we have resolved the issue of customers
accidentally signing up for unwanted subscriptions by
including free subscriber protection in all our tariff plans.
In B2B segment, we have also seen increased digital
penetration and higher interest in our innovative solutions
from various companies and industries. During the lockdown
period, demand for MegaFon's CDN solution increased by 50%,
for video conferencing, by 100%, DDoS protection, by 30%, and
for MegaFon Cloud, by 30-40%. We continue to offer new
services to our business partners. As an example, in July, we
launched a specialised IoT-solution enabling water utilities
to automate their processes and simplify water quality
monitoring, which is especially important in the current
pandemic situation. We are convinced that businesses have
renewed their focus on digitisation during the pandemic and
will continue to ramp up their shift to digital solutions.
Despite weaker performance on a number of metrics, our
effective focus on specific priorities has helped us to retain
our subscriber base and increase the number of digital
subscribers. We have also been able to post a positive net
profit by focusing on smart day-to-day management.
These results enabled us to focus, among other things, on
deleveraging. During the first half of 2020 we refinanced
ruble-denominated loans in the amount of RUB 122.2 billion,
extending the average life of the loan portfolio and improving
the commercial terms. Having adequate cash reserves on hand
through careful management of cash flow allowed us to early
repay obligations in the amount of RUB 16 billion.
Finally, in June 2020, MegaFon and Sberbank signed an
amendment to the revolving credit line framework agreement
entered into in 2018 to finance general corporate needs, which
increased the credit limit from RUB 80 billion to RUB 160
billion.
Looking back on the second quarter, we realise that despite
the undertaken steps future external challenges will continue
to require substantial efforts and some new initiatives from
us to streamline our business, such as a thorough analysis of
our investments in terms of both marketing and retail chain
costs.
"
Nikita Orlov, the Group's Chief Financial Officer, commented on the
quarter's financial results:
"
Our quarterly performance was definitely affected by the
COVID-19 crisis, particularly the lockdown measures taken and
the restrictions imposed by regional authorities to curb the
pandemic, as well as the continued lower social activity among
consumers following the phased release from lockdown in June
2020.
Revenue was down by 8.3% to RUB 78,543 million, including a
reduction in service revenue of 6.9% to RUB 73,357 million,
while revenue from equipment sales fell by 24.7% to RUB 5,186
million.
Service revenue was primarily affected by a drop in roaming
revenue due to border closures, closures of a significant
number of our retail stores and a decline in mobile ARPU
caused by changes in consumption in the regions during
quarantine measures.
Digital revenue, however, was up 37% in Q2, mainly due to
increased consumption of video and other content services by
self-isolating customers, as well as growth in remote access
services and big data services, and new contracts for mobile
PBXs and M2M services.
In Q2 2020, revenue from sales of equipment and accessories
was down 24.7% to RUB 5,186 million, driven primarily by
lockdown measures, outlet closures and lower customer demand.
Lower revenue and, accordingly, lower gross profit led to a
8.4% decrease in OIBDA to RUB 35,625 million in Q2 2020.
Nevertheless, the Company was able to maintain its OIBDA
Margin flat year-on-year at 45.4%, primarily by reducing
low-margin sales of equipment and cutting selling and
marketing expenses as well as by reducing general expenses,
including initiatives to enhance process performance in a
challenging business environment.
As a result of active loan portfolio management in Q2 2020 we
reduced our total debt by RUB 17.7 billion to RUB 357.4
billion, and financing costs decreased by RUB 1,994 million,
or 16.6% y-o-y.
These and other measures aimed at improving operational
efficiency in Q2 2020 had a positive impact on our net profit,
which increased by 35.2% y-o-y to RUB 3,972 million.
"
Financial results (in millions of RUB, except as indicated)
Three months Six months
Q2 2020 Q2 2019 Q2 2020/ 6m 6m 6m 2020/
Q2 2019 6m 2019
2020 2019
Revenue 78,543 85,640 (8.3%) 158,095 165,768 (4.6%)
Service 73,357 78,754 (6.9%) 146,750 151,520 (3.1%)
revenue
Wireless 66,593 72,055 (7.6%) 133,443 138,380 (3.6%)
Services
Including 27,539 28,021 (1.7%) 55,154 53,153 3.8%
data
revenue
Wireline 6,764 6,699 1.0% 13,307 13,140 1.3%
Services
Sales of 5,186 6,886 (24.7%) 11,345 14,248 (20.4%)
equipment &
accessories
OIBDA 35,625 38,904 (8.4%) 71,638 74,130 (3.4%)
OIBDA 45.4% 45.4% 0.0 ?.?. 45.3% 44.7% 0.6 ?.?.
Margin
Net profit 3,972 2,937 35.2% 9,144 5,124 78.5%
Operational 13,126 16,424 (20.1%) 24,622 24,387 1.0%
CAPEX
Financial results, Russia only[3] (in millions of RUB, except as indicated)
Three months Six months
Q2 2020 Q2 2019 Q2 2020/ 6m 6m 6m 2020/
Q2 2019 6m 2019
2020 2019
Revenue 77,029 84,294 (8.6%) 155,151 163,149 (4.9%)
Service 71,843 77,409 (7.2%) 143,807 148,903 (3.4%)
revenue
Wireless 65,092 70,719 (8.0%) 130,523 135,781 (3.9%)
Services
Including 26,658 27,427 (2.8%) 53,501 51,987 2.9%
data
revenue
Wireline 6,751 6,690 0.9% 13,284 13,122 1.2%
Services
Sales of 5,186 6,885 (24.7%) 11,344 14,246 (20.4%)
equipment
&
accessori
es
OIBDA 34,965 38,092 (8.2%) 70,227 72,628 (3.3%)
OIBDA 45.4% 45.2% 0.2 ?.?. 45.3% 44.5% 0.8 ?.?.
Margin
Net 4,046 2,900 39.5% 9,325 5,275 76.8%
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. 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.
=---------------------------------------------------------------------------
[1]. Based on the IFRS interim condensed unaudited consolidated financial
statements for 1H 2020 reviewed by JSC KPMG. Due to manual rounding,
financial and operating results may differ from those presented here. All
changes are shown for the same periods in the current and previous year on a
quarterly or annual basis, unless otherwise indicated.
[2]. Operational CAPEX is CAPEX excluding expenditures on right-of-use
assets under leases.
[3]. ?xcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC
and "OSTELEKOM" CJSC.
2020-08-13 MSK Dissemination of a Corporate News, transmitted by
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