Post on 21-Apr-2020
Financial results for the fourth quarter and twelve months of 2015
Investor and Analyst Call, 17 March 2016
Mr. Ivan Tavrin, Chief Executive Officer
Mr. Evgeny Chermashentsev, Chief Operating Officer
Mr. Gevork Vermishyan, Chief Financial Officer
Mr. Dmitry Kononov, Director for IR and M&A
2
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.
Disclaimer
Agenda of Q4 and FY2015 conference call
1. Introduction Dmitry Kononov
2. Key Highlights Ivan Tavrin
3. Operating Highlights Evgeny Chermashentsev
4. Financial and Operating Results Gevork Vermishyan
5. Outlook for 2016 Gevork Vermishyan
Key Highlights of 2015
1
Results in 2015 in line with the full-year guidance
5
Note: All changes are shown on a year-on-year basis – FY 2015 vs FY 2014(1) — Revenue for FY2014 amounted to RUB 314.8bn(2) — Y-o-Y (or year over year) means the same periods in the current and previous year on either a quarterly or yearly basis. (3) — Organic CAPEX, excluding CAPEX on spectrum acquisition via purchase of SMARTS(4) — Gross CAPEX totaled RUB 70.2bn
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Actual Target
Revenue growth
OIBDA margin
CAPEX
Metric
Flat(1) RUB 313.4bn
Status
OIBDA margin 42.2 %≥ 41.5 %
RUB 64.0bn(3)≤ RUB 65.0bn
Revenue was flat y-o-y(2)
CAPEX net of SMARTS acquisition
totalled RUB 64.0bn(4)
OIBDA margin was 0.7 p.p. above
guidance
In line
In line
In line
Events in FY 2015 and post-closing events
6
STRATEGIC ACQUISITIONS
• Acquisition of additional spectrum in the Volga region through the purchase of a 100%
interest in four companies from the SMARTS Group to optimise network CAPEX
• Acquisition of a 100% interest in GARS Holding Ltd., a building local exchange carrier,
providing a full range of fixed-line telecommunication services to the tenants of business
centres in Moscow and St Petersburg to expand B2B footprint
• Acquisition of a 49.999% interest in Glanbury Investments, the owner of a class A office
building at 41 Oruzheyny Lane, Moscow, to be used by MegaFon as its new corporate
headquarters
• Acquisition of additional frequency spectrum at frequency distribution auctions:
– October 2015: 1,800 MHz spectrum band in the Republic of Dagestan and the Karachay-
Cherkess Republic
– February 2016: 2,570 - 2,595 MHz and 2,595-2,620 MHz spectrum bands in 40 regions of
Russia, including St Petersburg and Leningrad region
DIVIDENDS DISTRIBUTION IN 2015
• Total RUB 50bn, or RUB 80.64 per ordinary share (or GDR), distributed in dividends in 2015
– dividends in the amount of RUB 10bn approved by the Company’s AGM on 30 June 2015
– dividends in the amount of RUB 40bn approved by the Company’s EGM on 11 December 2015
BUSINESS AND CORPORATE DEVELOPMENTS
• New strategic partnership agreement with Svyaznoy, a national chain of mobile telecom
retail outlets, for wider distribution of MegaFon services and products, including free top-up
services and implementation of various joint e-commerce projects
• Active development of MegaFon TV content services as a way to monetise data, increase
customer loyalty and attract new customers. In 2015, MegaFon TV services (50 TV channels
and up to 4 films) were included in the bundled tariffs
• Launch of a project for the creation of a tower company to improve tower infrastructure
management
• Launch of the Unified billing system and start of the Unified service center project to improve
efficiency of operations
• Joint development and operation of 4G/LTE standard communication networks across 10
regions of Russia with VimpelCom to accelerate 4G/LTE rollout at lower costs
DEBT PORTFOLIO OPTIMISATION
• Early repayment of exchange bonds series BO-04 totaling RUB 15bn in May
• Successful placement of the RUB 15bn series BO-05 exchange bonds at a coupon rate of
11.4% p.a. for a 2-year period in October
• Signing of a new credit facility with CDB for USD 300 mln to finance Huawei procurement and
a credit facility for USD 300 mln aimed at refinancing part of the Company’s existing debt –
the Company’s first facility with CDB not linked with equipment purchases
• Signing of Finnvera-covered Facility Agreements with Unicredit Bank Austria AG for EUR 150
million and with Sberbank for EUR 70 million to finance the purchase of fixed and wireless
telecommunication equipment, software and related services from Nokia Solutions and
Networks
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STRENGTHENING OF THE MANAGEMENT TEAM
• Introduction of 2 new positions in the Company’s management:
– COO – to improve the efficiency of the management of the Company’s operations
– Director for New Businesses and Partnerships – to focus on development and
monetization of new products
Q4 2015 key financial and operational highlights
7
Key points
• In Q4 2015, consolidated revenue remained flat with servicerevenue up by 0.5% and revenue from sales of equipment andaccessories down by 8.2% y-o-y due to change in sales mixtowards more affordable devices
• OIBDA decreased by 14.4% y-o-y due to higher marketing andgeneral and administrative expenses. As a result, OIBDA margindeclined by 5.9 p.p. y-o-y to 36.0%
• Net profit increased by 89.1% y-o-y due to lower foreign exchangeloss and decreased income tax expenses
• Total CAPEX increased by 15.5% y-o-y to RUB 23.6bn
• MegaFon added 4.6 million new mobile subscribers in the past year(+6.4% compared to the end of Q4 2014) mainly due to activesubscriber acquisition efforts and a new distribution agreementwith Svyaznoy
All financial figures provided in this presentation are presented on consolidated IFRS basis unless otherwise stated Note:(1) — Profit attributable to equity holders of the Company.(2) — Data includes subscribers of the Company in Russia and its subsidiaries in Russia and outside: “TT mobile” CJSC in the Republic of Tajikistan, “AQUAFON-GSM” CJSC in the Republic of Abkhazia and “OSTELEKOM” CJSC in the Republic of South Ossetia
72.2Q4 2014
Q4 2015Mobile subscribers(2)
(million, as of 31 December)
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CAPEX (RUB bn)
Q4 2014
Q4 2015
20.5
Net Profit(1) (RUB bn)
Q4 2014
Q4 2015
2.8
OIBDA Margin (%)
Q4 2014
Q4 2015
41.9
29.5Consolidated OIBDA (RUB bn)
Q4 2014
Q4 2015
34.5
82.0Consolidated Revenue (RUB bn)
Q4 2014
Q4 2015
(down ▼ 0.3% y-o-y)82.2
(down ▼ 14.4% y-o-y)
36.0(down ▼ 5.9 p.p. y-o-y)
5.3(up ▲ 89.1% y-o-y)
23.6(up ▲ 15.5% y-o-y)
76.8(up ▲ 6.4% y-o-y)
8 Note: (1) — Russian population as of the latest census in October 2010
4G development in 2015 – focus on quality
Federal regions covered by MegaFon 4G / LTE network
Cities where LTE-Advanced available
4G/LTE network development
• MegaFon is focused on expansion of coverage inexisting areas of presence and service qualityimprovement
• More 4G availability:
–77 federal regions
–more than 780 cities and towns
–14 out of 15 cities with a population(1) over 1m people
4G/LTE services
• LTE-Advanced services providing speeds of 150-450
Mbit/sec were available in 9 cities as of the year-end
• 4G-enabled devices registered on MegaFon network -
7.85m units, or +34% y-o-y
• 4G traffic usage increased by 45% y-o-y
• Share of 4G traffic in total data traffic – c.40%
LTE-roaming
• MegaFon is one of the world’s leaders in LTE-roaming
coverage in terms of countries covered
• In 2015, LTE-roaming coverage extended to 66
countries with 80 operators
Saint-Petersburg
Chelyabinsk
Moscow
Rostov-on-Don
Chita
Nizhniy Novgorod
Samara
Khabarovsk
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2849
72 77
25%36%
51% 53%
2012A 2013A 2014A 2015A
Availability of MegaFon 4G services
Number of Russia’s regions, where MegaFon 4G is available
% of population covered
Vladivostok
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Network infrastructure development in 2015
Fiber opticsinfrastructure
Number of base stations
46,337 47,946
38,147 42,281
18,54723,003
2014 2015
Growth▲ 9.9%
2G BS, units 3G BS, units 4G BS, units
121,102 126,030
2014 2015
Growth▲ 42.7%
Share of BS interconnected via FOCL(1), %
Backbone, km
• In 2015, MegaFon remained focused on increasing the qualityof its services by continued roll-out and modernisation of4G/3G/2G networks in Russia
• By the year-end, the key indicators for the connection quality inMegaFon network improved:
• As of the end of 2015, MegaFon had the largest networkamong Russian mobile operators, which comprised more than113,000 base stations, +10% y-o-y
• MegaFon increased the length of its backbone infrastructureby 4% y-o-y, while its fiber optics infrastructure expanded to237.5K km. This enabled it to expand network footprint andcapacity to provide fixed-line business services
• In 2015, MegaFon completed integration of all branches intoits Global network operational center (GNOC). As of now, theGNOC enables centralised monitoring of, maintenance of andcontrol over the network quality across MegaFon’s country-wide operations
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Note: (1) FOCL – fiber-optic communication lines(2) CSSR – Call set-up success rate(3) DCR - Drop call rate
▲ 24%
▲ 11%
▲ 6%
64% 64%
Backhaul, km
237 497
166 453
Key points
▲ 4%
▲ 146%
4G 3G 2G
CSSR(2) 99.47% 99.27% 99.98%
DCR(3) 0.33% 0.39% 0.75%
10
Strong position in distribution in 2015
Structure of MegaFon distribution network
MegaFon Retail,incl. online store
> 2,000 stores
Franchised stores underMegaFon brand
~ 2,000 stores
Euroset(50% interest)
~ 4,000 stores
Controlled retail
Independent dealers:
Multi-brand electronic storesRussian Post outletsLocal dealersOther
Federal retail chain(dealer agreement)
~ 3,000 stores
72% gross additions(1)
• Through its controlled and non-controlled retail network,MegaFon holds the leading position in distribution in Russia
• The current structure of the distribution network enablesMegaFon to steadily increase its subscriber and data userbase in a cost-effective way and improve the quality of grossadditions
• MegaFon’s controlled retail accounted for 72% of total grossadds, while the owned retail stores accounted for c.40% oftotal gross adds in 2015
• Despite the shift to cheaper and more affordable devicesamid weaker consumer purchasing power, in 2015 we sold25% more smartphones in unit terms than a year ago in ourown retail stores. This helped us to deliver stronger mobiledata revenue
Note: (1) - Sales for the quarter, excluding Yota, as of end of Q4 2015(2) – Sales represented in unit terms(3) – Sales of data-enabled devices include sales of 4G smartphones, tablets, modems and routers
Non-controlled retail 28% gross additions(1)
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+25% y-o-y
Smartphones
+113% y-o-y
4G smartphones
Sales of data-enabled devices(2) in MegaFon Retail
in 2015
MegaFon TV – a key development for growth in data monetisation and increase of customer loyalty
11
Content
Devices supported
Uniqueness
• Unique terms of use for subscribers using “All inclusive” bundled tariff plans and options
• VOD and LiveTV tandem solution
• Premium HD content: Amedia, Discovery HD, HBO, Disney, Warner, Universal, Sport HD, etc.
• Individual recommendations based on ratings and perceptions by subscribers
• OTT solution available for all types of devices: smartphone, tablet, SMART TV, Web
• VOD: Large catalogue of movies, TV series and sequels of first-rate Russian and foreign studios
• Live TV: 130+ channels, including 1 and 2 multiplex
Company’s existing subscribers
3rd party clients
… aimed at both subscribers of MegaFon and those of other mobile operators
Clients Purposes
• Boosting of subscribers loyalty and lifetime
• Data usage enhancement
• Monetisation of subscriber base
• Monetisation of active users of MegaFon.TV app
• Acquisition of new subscribers
61% of app users rate the service as “good” and “excellent”4.0 average rate in Google Play and AppStore
Fully-fledged video and TV OTT solution launched in June 2015 MegaFon TV creates value for digital offering…
Customers’ dynamics satisfaction by the service
350K users registered at 31 December 2015c.40% average monthly growth of user base since launch
12
Key developments in B2X(1) segment in 2015
Note: (1) B2X includes B2B and B2G business segments(2) CDN – Content delivery network(3) Based on Company’s estimate of M2M market in terms of M2M subscribers
Key projects in 2015
• Development of new IT tariff products to reduce the time to market launch ofindividual offerings for corporate clients
• Launch of programme for improvement of indoor coverage in business andcommercial centers
• Launch of the mono-industry towns development programme
• Launch of new exclusive overland cross-border passages Russia-Georgia andRussia-Kazakhstan
• Contract with RT-Invest Transportation Systems signed for distribution of 2million sim-cards to be installed on board heavy vehicles to meter over thehighway tracking
B2X strong performance in FY2015
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New products and services
• Launch of M2M-Monitoring service on the basis of a new platform in all branchesof MegaFon
• Commercial launch of “Wi-Fi with authorisation” service on a federal level
• Launch of “Electronic document flow” service
• Upgrade of “Office zone” service, a cloud solution for SME business
• Launch of “Online conference” service in all branches of MegaFon
• Promotion of Geo-analytics service based on BigData analysis
• Upgrade of CDN(2) network: network capacity increased by more than 40%, scopeof services expanded by 60%
286 K
Number of B2X clients + 5% y-o-y
2.8 m
Number of B2X mobile data users
+23.1% y-o-y
8.2%
B2X total revenue
+ 8.2% y-o-y
6.6%
B2X mobile revenue
+ 6.6% y-o-y
30.9%
B2X mobiledata revenue +
30.9% y-o-y
• M2M subscribers exceeded 1.6 million as at 31 Dec 2015
• MegaFon’s M2M market share increased to 25%(3)
New B2B/B2G clients
Financial and Operating Results
2
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Key highlights: earnings trend
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Note: Due to rounding, manual calculations for financials and KPIs(2) may differ from those displayed(1) — Net profit attributable to equity holders of the Company(2) — Key performance indicators (“KPIs”)
Revenue
Revenue, OIBDA and Net profit82.2
74.0 76.1 81.3 82.0
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Lower▼ 0.3%
314.8 313.4
2014 2015
Lower▼ 0.4%
36.7 39.0
11.7%
12.5%
2014 2015
OIBDA
Net profit(1)
Quarterly data, RUB bn % of RevenueFull-year data, RUB bn
34.5 32.0 34.7 36.129.5
41.9% 43.2% 45.6% 44.5%36.0%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
2.8
7.4
13.0 13.3
5.3
3.4%10.0% 17.1% 16.4%
6.5%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Growth▲ 89.1%
Lower▼ 14.4%
Lower▼ 4.4%
Growth▲ 6.3%
138.5 132.4
44.0% 42.2%
2014 2015
• In 2015, total revenue was in line with the full-year
target with service revenue up by 0.6% y-o-y, but
impacted by lower revenue from sales of equipment and
accessories (-14.0% y-o-y) resulting from the change in
sales mix from expensive data-enabled devices towards
affordable smartphones
• OIBDA declined by 4.4% y-o-y due to higher marketing,
and general and administrative expenses
• As a result of the OIBDA decline, OIBDA margin
decreased by 1.8 p.p. y-o-y to 42.2%, which still
remained above the full-year target
• Net profit(1) increased by 6.3% y-o-y due to lower foreign
exchange loss compared to FY2014 and gain on
derivative financial instruments due to efficient foreign
exchange management
15
Key highlights: free cash flow and CAPEX
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Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed(1) – MegaFon CAPEX refers to actual CAPEX accrued for the year and may not match cash flow CAPEX.
CAPEX
CAPEX(1), OIBDA-CAPEX, Free Cash FlowGrowth▲ 15.5%
Growth▲ 24.2%
OIBDA-CAPEX
Free Cash Flow
Quarterly data, RUB bn % of RevenueFull-year data, RUB bn
Lower▼ 20.3%
Lower▼ 58,0%
Lower▼ 24.2%
Lower▼ 23.9%
• In 2015, MegaFon spent RUB 70.2bn, which is 24.2%
higher than in FY 2014 mainly due to:
– higher spending on 4G/LTE network roll-out and
modernisation of 2G/3G network
– RUB 6.1bn purchase of spectrum through the SMARTS
acquisition, which will enable network roll-out CAPEX
optimisation going forward
– Net of acquisition of SMARTS’ spectrum, FY 2015
CAPEX totaled RUB 64bn, which is in line with the full-
year target
• Due to the lower OIBDA and higher CAPEX spending,
OIBDA-CAPEX decreased by 24.2% y-o-y
• Free Cash Flow decreased by 23.9% y-o-y mostly due to
higher CAPEX and decreased cash flow from operating
activities
20.5
8.112.5
25.923.6
24.9%
10.9%16.5%
31.9% 28.8%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2014
56.570.2
17.9%
22.4%
2014 2015
14.0
23.922.2
10.25.917.0%
32.3% 29.1%12.6%
7.2%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2014
82.062.2
26.1% 19.8%
2014 2015
17.4
11.7
19.3
8.9
13.8
21.1%15.9%
25.4%
10.9%16.9%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2014
70.7
53.8
22.5%17.2%
2014 2015
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Mobile data revenue remains the key revenue growth driver
Key revenue components
Due to rounding, manual calculations for financials and KPIs may differ from those displayed.Note: (1) — Other wireless revenue includes revenues from VAS services; revenue from local subscribers which includes monthly fees, airtime revenues, own subscriber roaming and connection fees; wireless interconnection revenues; roaming charges to other wireless operators and other wireless revenues(2) — Include smartphones, tablets, dongles, routers, and other data-enabled devices
Wireless revenue increased in 2015 by 0.2% y-o-y. Growth inmobile data revenue and higher demand for MegaFon’scontent and mobile commerce value-added services (+4.5%y-o-y) fully compensated for a slowdown in revenue fromtraditional voice services
Mobile data continued to be the key growth driver andrepresented 25.5% of total revenue in FY2015 vs. 21.3% inFY2014, increasing by 19.0% y-o-y due to:
― expansion of data user base by 6.8% y-o-y to 29.9 millionusers as a result of our active data user acquisition effortsand higher adoption of data-enabled devices (more than50% of data-enabled devices(2) registered on MegaFonnetwork)
― higher data usage resulting from:
• active marketing efforts and intensive 4G networkdevelopment
• introduction of new tariff offerings to promote higherdata usage and promotion of affordable data-enableddevices in controlled retail stores
Wireline service revenues increased by 5.6% y-o-y due toexpansion of B2B and B2G client base, acquisition of GARSand attraction of new B2O projects due to DREAMdevelopment
Sales of handsets and accessories decreased by 14.0% y-o-yas a result of the change in sales mix towards more affordablesmartphones, including 3G and 4G smartphones, exclusivelyintroduced to the market by MegaFon
Wireless 83.6% 86.7% 87.8% 86.9% 83.5% 85.6% 86.2%
- Data 21.3% 24.1% 25.6% 26.6% 25.6% 21.3% 25.5%
Wireline 7.7% 7.4% 7.0% 7.0% 8.5% 7.0% 7.5%
Handsets and accessories
8.7% 5.9% 5.2% 6.1% 8.0% 7.4% 6.4%
17.5 17.9 19.5 21.6 21.0
51.2 46.2
47.4 49.0 47.5
6.3 5.5
5.3 5.7 6.9
7.2
4.4 4.0
5.0 6.6
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Lower▼ 0.3%
▲ 19.9%
Other wirelessrevenue(1)
Wireline
Handsets and
accessories
Data
82.2
74.0 76.181.3 82.0
▲ 9.6%
▼ 8.2%
▼ 0.3%
(RUB bn)
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67.2 79.9
202.3 190.1
22.2 23.4
23.1 19.9
2014 2015
Lower▼ 0.4%
314.8 313.4
▲ 19.0%
▲ 5.6%
▼ 14.0%
▲ 0.2%
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Total Russia wireless subscribersincluding data service users
(million)
27.4 26.9 27.928.5 29.3
69.7 69.571.4
73.9 74.8
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Data service user base (1) User base not using data service (2)
Drivers of Russia total wireless services revenues: Wireless subscribers
Results provided on this page cover only the Russian business
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed(1) — Data Service User is defined as a Subscriber who has consumed any amount of data traffic within preceding month(2) — Mobile subscribers that do not fall within the definition of Data Service User Base
• Overall subscriber base in Russia increased by 5.1
million new subscribers (+7.2% y-o-y) to 74.8 million
resulting from:
- active subscriber acquisition marketing efforts and
new marketing campaign
- upgrade of existing tariffs and introduction of new
services
- new dealer contract with Svyaznoy, which provides
access to an additional attractive customer base
• Data service user base expanded by 6.9% y-o-y to 29.3
million users accounting for more than 39% of the
overall subscriber base supported by growth in
smartphone users base (+23.8% y-o-y)
• Increase in data service users was achieved due to
organic growth through initiatives aimed at promoting
shift of “pure” voice users to data usage and increased
penetration of data-enabled devices on MegaFon
network, now totaling 53%
Share of data users in overall subscriber base, %
39.3% 38.7% 39.1% 38.6% 39.2%
▲ 6.9%y-o-y
▲ 7.2%y-o-y
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DSU(2) & APPMB(3)
DATA ARPU (ARPDU(4))
Drivers of Russia total wireless services revenues: DSU and APPMB
Results provided on this page cover only the Russian business
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed(1) Operating KPIs presented here vary from those reported earlier due to change of methodology for data service users calculation.
Please refer to our Q4 and FY 2015 Results press release for reconciliation details (2) Total number of megabytes transferred during a given period divided by average number of data subscribers during such period, divided by number of months in such period; (3) ARPDU for a given period divided by DSU in such period; (4) Total data revenues in a given period divided by average number of data service subscribers during such period, divided by number of months in such period
• Strong increase of DSU (+25.7% y-o-y) in 2015 resulted
from:
– upgrade of tariff and internet options with higher
mobile data allowances
– active marketing promotions
– intensive roll-out of the 4G/LTE network resulting in
a higher share of 4G traffic (almost 40% of total
traffic)
– growing penetration of data-enabled devices on
MegaFon network up to c.53% as of the end of 2015
– continued increase in 4G-enabled devices registered
on MegaFon network reaching 7.9 million
• APPMB decreased by RUB 0.01 y-o-y
• ARPDU increased by 10.4% y-o-y due to organic growth
in data traffic usage on the back of increasing customer
demand for larger data packs, which became more
affordable
214 219232
244 238
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
2,9813,195 3,113 3,185
3,638
0.07 0.07 0.07 0.08 0.07
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Growth▲22.0 %
Growth▲11.2%RUB per
month
DSU, Mb/month APPMb, RUB
Data revenue operating statistics
Quarterly data Full-year data
2,614
3,286
0.08 0.07
2014 2015
211
233
2014 2015
Growth▲ 25.7%
Growth▲10.4% F
inan
cial
and
Ope
rati
ng R
esul
tsO
utlo
ok fo
r 20
16K
ey H
ighl
ight
s
19Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed.
138.5
(1.4)
0.2
(1.7) (3.3)
132.4
OIBDA2014
Revenue Cost of revenue Sales &Marketing
General &Administrative
OIBDA2015
▼ (0.5%)
OIBDA (RUB bn)
(0.3%)(0.4%) +10.1% +4.4%
Key factors influencing OIBDA margin
• In 2015, OIBDA decreased by 4.4% y-o-y, while OIBDA
margin declined by 1.8 p.p. y-o-y to 42.2%, remaining
above the full-year target
• The following factors influenced OIBDA:
- Gross profit decreased by 0.5% y-o-y due to lower
total revenues (-0.4% y-o-y), while .gross profit
margin remained flat at 73.1%
- Sales & marketing expenses increased by 10.1% y-o-y
mainly due to rise of the advertising activity related to
a new company positioning campaign
- General & administrative expenses grew by 4.4% due
to:
– increased rent and utilities expenses resulting from
our network expansion;
– higher employee benefits expense mainly due to an
increase in social charges
y-o-y growth
Key drivers of OIBDA margin
Lower▼ 4.4 %
Gross profit
Key components
OIBDA margin
(%)
Gross profit margin44.0% 42.2% ▼1.8 p.p.= 0% ▼ 0.6 p.p ▼ 1.2 p.p.
S&M as % of revenue
G&A as % of revenue
y-o-y decrease
Fin
anci
al a
nd O
pera
ting
Res
ults
Out
look
for
2016
Key
Hig
hlig
hts
20
17%
83%
RUB USD
Liquidity(1) currency split
Net debt build-up, RUB bn As of 31 Dec 2014 As of 31 Dec 2015 Change
Cash and cash equivalents 22.2 17.5 (4.7)
Short-term investments 47.9 20.2 (27.7)
Total debt 206.3 218.5 12.2
Long-term debt 156.3 172.6 16.3
Short-term debt 50 45.9 (4.1)
Net debt 136.2 180.8 44.6
• Despite the dividend payment in December 2015 and
M&A activity in Q3-Q4 2015, MegaFon retained a
comfortable level of leverage:
– Net debt/LTM OIBDA at 1.37x level at the end of Q4
2015
– MegaFon fully paid dividend for 9m 2015 in the
amount of RUB 40bn in December 2015
– Purchase of interest in a building at Oruzheyny Lane,
Moscow, executed in Q4 2015
• Market volatility risks mitigated by keeping liquidity in
FX:
– Over 80% of cash held in hard currencies
• In December 2015, Moody’s changed its outlook on
MegaFon’s rating to “Stable” following an upgrade of
sovereign rating outlook
Net debt and liquidity development
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed(1) — Liquidity is calculated as the sum of Cash and cash equivalents and Short-term investments(2) — c. 0.25% in EUR for operating purposes
136.2 129.1 113.6 123.0
180.8
0.98x 0.94x0.82x
0.90x
1.37x
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
RUB bn / (x)
Net debt Net debt/LTM OIBDA
Growth▲ 0.39x
Net debt and Net debt/LTM OIBDA
(2)
Fin
anci
al a
nd O
pera
ting
Res
ults
Out
look
for
2016
Key
Hig
hlig
hts
21
21%
24%34%
10%
11%
61%9%
28%
2%
44%
39%
17%
46%
36%
18%
31-D
ec-2
014
Debt portfolio structure
By currency (1)By instrument By maturity
Bonds
Bank Loans
Equipment Financing 3 Years
1 Year
5 Years and Longer
4 Years
2 Years
Debt profile
• No short-term refinancing risk
- 55% of Company’s debt becomes due within 3Y tenor or later
• Continuing strategy to keep a predominant portion of the creditportfolio in RUB
– Changes in Q4 2015 were attributable to the ECA drawdownsand the repayment of the hedged portion of the debt
• Further optimization of the Company’s debt portfolio
– In October 2015, MegaFon successfully placed RUB 15bn ofexchange bonds at a coupon rate of 11.4% p.a. for a period of 2years
– In December 2015, MegaFon and Sberbank signed a newrevolving credit facility in the amount of up to RUB 30bn. Underthis credit facility, MegaFon has already drawn a tranche in theamount of RUB 15bn
– Proceeds from these borrowings were used to partially prepayshort-term ruble debt with higher interest rates and replenishRUB liquidity
• New credit facilities to further back-up MegaFon’s CAPEX and caterfor refinancing needs were signed in December:
– New credit facility with CDB for USD 300 mln to finance Huaweiprocurement
– Credit facility with CDB for USD 300 mln aimed at refinancing ofa part of the Company’s existing debt – the Company’s firstfacility with CDB not linked with equipment purchases
– Finnvera-covered facility agreement with Sberbank in theamount of EUR 70 mln – the first ever RUB-denominated ECA-type facility for the Company
62%15%
21%2%
24%
20%
12%
24%
20%
31-D
ec-2
015
% of total
EUR
RUB
USD Swapped(2)
USD
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed(1) — On nominal basis; (2 ) — Including structured and plain vanilla FX swaps
Fin
anci
al a
nd O
pera
ting
Res
ults
Out
look
for
2016
Key
Hig
hlig
hts
Outlook for 2016
3
23
Flat to low single digit y-o-y growth
RUB 120-126bn
Up to RUB 75bn
Revenue
OIBDA
CAPEX
Outlook for 2016
Fin
anci
al a
nd O
pera
ting
Res
ults
Out
look
for
2016
Key
Hig
hlig
hts
Contact Information
MegaFon Investor Relations30 Kadashevskaya embankmentMoscow, 115035, RussiaTel.: +7 495 926 2012Email: IR@megafon.ruWeb: ir.megafon.com