EQS-News: PJSC MegaFon: In Q4 2019 MegaFon increased its revenue by 5.4%
EquityStory.RS, LLC-News: PJSC MegaFon
/ Key word(s): Annual Results/Statement
PJSC MegaFon: In Q4 2019 MegaFon increased its revenue by 5.4%
26.03.2020 / 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
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 2018
Q4 2019
Q4 2019/
Q4 2018
Revenue
93,202
88,412
5.4%
93,202
5.4%
Service revenue
80,380
79,350
1.3%
80,380
1.3%
Wireless Services
70,759
71,073
(0.4%)
70,759
(0.4%)
Including data revenue
27,229
26,903
1.2%
27,229
1.2%
Wireline Services
9,621
8,277
16.2%
9,621
16.2%
Sales of equipment & accessories
12,822
9,062
41.5%
12,822
41.5%
OIBDA
38,518
27,561
39.8%
32,995
19.7%
OIBDA Margin
41.3%
31.2%
10.1 p.p.
35.4%
4.2 p.p.
Adjusted Net profit
2,022[6]
1,133
78.5%
2,8526
151.7%
CAPEX
31,307
38,260
(18.2%)
31,307
(18.2%)
Excluding IFRS 16 impact
2019
2018[7]
2019/
2018
2019
2019 /
2018
Revenue
348,961
335,549
4.0%
348,961
4.0%
Service revenue
310,806
307,017
1.2%
310,806
1.2%
Wireless Services
280,375
276,076
1.6%
280,375
1.6%
Including data revenue
107,624
100,936
6.6%
107,624
6.6%
Wireline Services
30,431
30,941
(1.6%)
30,431
(1.6%)
Sales of equipment & accessories
38,155
28,532
33.7%
38,155
33.7%
OIBDA
151,618
124,042
22.2%
130,628
5.3%
OIBDA Margin
43.4%
37.0%
6.4 p.p.
37.4%
0.4 p.p.
Adjusted Net profit
10,3486
21,068
(50.9%)
13,6306
(35.3%)
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 2018
Q4 2019
Q4 2019/
Q4 2018
Revenue
91,745
87,051
5.4%
91,745
5.4%
Service revenue
78,924
77,990
1.2%
78,924
1.2%
Wireless Services
69,314
69,723
(0.6%)
69,314
(0.6%)
Including data revenue
26,459
26,314
0.6%
26,459
0.6%
Wireline Services
9,610
8,267
16.2%
9,610
16.2%
Sales of equipment & accessories
12,821
9,061
41.5%
12,821
41.5%
OIBDA
37,821
27,158
39.3%
32,336
19.1%
OIBDA Margin
41.2%
31.2%
10.0 p.p.
35.2%
4.0 p.p.
Adjusted Net profit
1,7856
1,160
53.9%
2,6076
124.7%
Excluding IFRS 16 impact
2019
20187
2019/
2018
2019
2019/
2018
Revenue
343,393
330,485
3.9%
343,393
3.9%
Service revenue
305,242
301,956
1.1%
305,242
1.1%
Wireless Services
274,849
271,051
1.4%
274,849
1.4%
Including data revenue
105,024
98,884
6.2%
105,024
6.2%
Wireline Services
30,393
30,905
(1.7%)
30,393
(1.7%)
Sales of equipment & accessories
38,151
28,529
33.7%
38,151
33.7%
OIBDA
148,407
122,628
21.0%
127,582
4.0%
OIBDA Margin
43.2%
37.1%
6.1 p.p.
37.2%
0.1 p.p.
Adjusted Net profit
10,2426
22,422
(54.3%)
13,4986
(39.8%)
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.
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. 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.
[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]. Еxcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC and "OSTELEKOM" CJSC.
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