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DGAP-News News vom 28.05.2020

PJSC MegaFon: Q1 2020 solid results amidst external challenges

EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Quarter Results/Quarterly / Interim Statement
28.05.2020 / 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. yo-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% yoy. 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 4Genabled 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% yoy 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





Service revenue




Wireless Services




Including data revenue




Wireline Services




Sales of equipment & accessories








OIBDA Margin



1.3 p.p.

Net profit




Operational CAPEX







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



Q1 2020

Q1 2019

Q1 2020/
Q1 2019





Service revenue




Wireless Services




Including data revenue




Wireline Services




Sales of equipment & accessories








OIBDA Margin



1.3 p.p.

Net profit





For more information

Media:      +7 925 696-05-07


Investors:      +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

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:

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.

28.05.2020 MSK Dissemination of a Corporate News, transmitted by EquityStory.RS, LLC - a company of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

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