EQS-News: PJSC MegaFon: Q1 2020 solid results amidst external challenges

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:

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[3], Russia only  (in millions of RUB, except as indicated)

For more information

Media:

[email protected]      +7 925 696-05-07

Investors:

[email protected]      +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 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]. Еxcluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC and "OSTELEKOM" CJSC.