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:

• 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 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:

 

Nikita Orlov, the Group's Chief Financial Officer, commented on the quarter's financial results:

 

Financial results (in millions of RUB, except as indicated)

 

 

Financial results, Russia only (in millions of RUB, except as indicated)

 

 

 

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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

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: /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.

 

.  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.

. Operational CAPEX is CAPEX excluding expenditures on right-of-use assets under leases.

.  Еxcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC and "OSTELEKOM" CJSC.