PJSC MegaFon: MegaFon reports results for Q4 and the full year 2018

EquityStory.RS, LLC-News: PJSC MegaFon / Key word(s): Annual Results/Quarter Results PJSC MegaFon: MegaFon reports results for Q4 and the full year 2018 (news with additional features) 21.03.2019 / 10:00 MSK The issuer is solely responsible for the content of this announcement. MegaFon reports results for Q4 and the full year 2018   Moscow, Russia (21 March 2019) - PJSC "MegaFon" ("MegaFon" or the "Company" and, together with its consolidated subsidiaries, the "Group") (MOEX: MFON), a pan-Russian operator of digital opportunities, announces its financial[1] and operating results for Q4 and the full year 2018. Key financial and operating highlights for the full year 2018[2] - Revenue increased by 4.3% y-o-y[3] to RUB 335,549 million - OIBDA[4] increased by 1.8% y-o-y to RUB 124,042 million - OIBDA Margin4 was 37.0% versus 37.9% in 2017 - Net Profit[5] increased by 2.7% y-o-y to RUB 21,068 million - CAPEX increased by 45.5% y-o-y to RUB 81,456 million - Free Cash Flow to Shareholders decreased by 86.2% y-o-y to RUB 4,869 million - Net Debt as of 31 December 2018 was RUB 294,318 million - The number of mobile subscribers as of 31 December 2018 decreased by 0.3% y-o-y to 76.9 million[6] Key financial and operating highlights for Q4 2018 - Revenue increased by 4.5% y-o-y to RUB 88,412 million - OIBDA[7] decreased by 4.5% y-o-y to RUB 27,561 million - OIBDA Margin7 was 31.2% versus 34.1% in Q4 2017 - Net Profit decreased by 62.7% y-o-y to RUB 1,133 million - CAPEX increased by 72.9% y-o-y to RUB 38,260 million - Free Cash Flow to Shareholders decreased by 231.3% y-o-y to RUB (17,071) million Gevork Vermishyan, the Group's Chief Executive Officer, commented on the financial and operating results as follows: « Financial results 2018 has been a year of big changes and good results for MegaFon. Our digital leadership strategy has proved to be the right choice in the current economic conditions and has enabled us to move steadily forward towards meeting our long-term goals. We finished our year with good financial results and achieved our previously announced KPIs. Our consolidated service revenue for 2018 increased by 4.7% y-o-y to RUB 307 billion, in line with our forecast. Consolidated OIBDA (after taking into account the positive impact of the new revenue recognition standard IFRS 15) increased by 1.8% y-o-y to RUB 124 billion. Eliminating the positive impact of IFRS 15, full year 2018 Organic OIBDA still increased by 0.2% y-o-y to RUB 122 billion. Consolidated CAPEX for the year reached a record RUB 81.5 billion, and was used for further LTE network expansion, improving the reliability of our network and IT infrastructure, and compliance with the Yarovaya data storage law. B2C Our commitment to leadership in quality of service and to continued development of our product portfolio has enabled us to actively develop a digital ecosystem for all categories of clients. Using big data analysis we have been able to offer our clients the best innovations, such as: Our clients were the first to be able to touch pay for services and goods from their mobile accounts via Apple Pay, Google Pay and Samsung Pay by using a Mastercard token. We launched a smart service that enables each client to switch on by one click a personalised set of discounts, bonuses, additional minutes and internet packages, films, music, books and media. Our tariff line "Vklyuchaisya!" ("Connect!") which we refreshed in Spring 2018 is now a bestseller. By the end of the year more than 20.7 million subscribers had opted for that tariff. Our service "MegaFon.Travel" assists clients in planning trips and at the same time enables them to get cashback on a mobile account. The userbase of "MegaFon.TV" exceeded 5.3 million people by the end of the year. B2X We strive to be the number one supporter for entrepreneurs, private businesses and state companies. Focusing on the development of IoT and big data services we now offer the most effective solutions for our clients' business development and improvement: "Mobile Connect" verifies customers on a website by mobile numbers in just one click, which increases sales conversion for e-commerce. "Business cloud" gives businesses easy access to virtual platforms, cloud storage, databases, graphic maps and big data services. "Upravlyai!" ("Manage!") is the first flexible tariff for businesses in the market with a 7% cashback and an opportunity to customise telecom service for each employee. Our Narrow Band IoT (NB/IoT) solutions meet all the requirements of businesses and form an important part of the future digital economy as they guarantee security, quality and safety of data, even if data gets transmitted via 2G and 3G networks. "Digital managing company" is an integrated housing and utilities solution, both for business and tenants. "MegaFon.Business" is a unique online service for small and medium-size businesses which permits easy on-click management of VAS-services using partner and MegaFon offers. Strategic partnerships In order to build up momentum on the development of new digital services, we are actively searching for and finding new partners. The last year has been marked by a number of transactions, mergers and new partnerships which will contribute significantly to the development of the national digital economy: Together with the international e-commerce leader Alibaba Group, the Russian Direct Investment Fund (RDIF) and Mail.Ru Group, we signed a letter of intent aimed at creating an e-commerce joint venture in Russia. We believe that our joint venture "MF Technologies" will combine the best expertise of MegaFon, Gazprombank, Rostec and USM Holdings, and will enable us to create new breakthroughs in cross-industry digital, telecom, finance and hi-tech industries solutions. Our obtaining a 25% share in the Svyaznoy/Euroset combined company, the largest retail company in the world offering hi-tech tailored services - should enable us not only to earn profit in the future, but also to focus on developing our own omnichannel network. New opportunities: development of digital infrastructure and an ecosystem for clients Being a digital company, first of all, means "having a developed ecosystem of digital services for clients and the best technical solutions for using these services". We are proud that for the second year in a row MegaFon received 'The fastest mobile internet in Russia' title from Ookla as the operator with the highest speed of data transfer and downloads based on independent tests taken by data users on their devices in all mobile networks in Russia. The key to our success is having the largest LTE network in Russia with more than 49,600 base stations. As of the end of the year, our LTE network reached 79% of the population of Russia spanning the entire country. Our roaming networks also enabled our clients to use LTE services in 119 countries around the world. We believe that our continued efforts on improving our connection quality and increasing our network coverage, as well as our investments in our core network, at a time when internet traffic and revenues from digital services are growing, are important factors for future development of the company and our successful transformation into a digital operator of the future. In addition to demonstrating the technical excellence of MegaFon network during the FIFA World Cup last year, we were the first in Russia to reach a data transfer speed of 1 Gbit/sec on a smartphone and launched our Enhanced Voice Service technology for developing a high quality VoLTE (Voice over LTE) service. In Moscow more than 30% of voice traffic is already being transmitted via VoLTE technology. We continue expanding our international network. Last year, in partnership with Kazakhtelecom and Interoute, we connected Hong Kong and Frankfurt via a 8 Terabit/sec fiber-optic line and completed our project with China Mobile by launching a 100 Gbit/sec backbone line. Our backbone network exceeded 136,000 kilometers and we intend to continue to expand it. 5G: Towards the future To prepare for the transition to 5G we have been testing our infrastructure and elements of the new generation networks. In 2018: together with Nokia we successfully tested fiber-optic equipment intended for 5G implementation, which will enable us to implement and test services in areas such as artificial intelligence (AI), augmented reality (AR), virtual reality (VR), internet of things (IoT), and cloud solutions; working with Qualcomm Technologies Inc. and Nokia, we showcased 5G equipment on our network in Moscow, St-Petersburg and Kazan; in partnership with the Moscow City IT Department and Huawei, we presented an innovative cross-industry telecom and healthcare solution - providing remote scan and genetic sequencing on 5G networks; we were the first in the country to live air a football match in VR format. Digital economy and infrastructure for new generation State Global digitalisation is the key factor for economic growth on which the government and businesses are now focusing. We have put together a unique pool of expertise, assets, partners and experience in completing large-scale high-tech projects to drive implementation of the best ideas and practices in respect of Digital Economy and Digital City strategies. To better manage processes in line with the State strategy, we, together with our partners, are developing new solutions and services for managing the infrastructure of digital cities, communal and utilities services, and municipal entities. Our solution "Digital region management" is among the best IT solutions for processing and structuring data. In 2018 we signed a number of important agreements: with the Saratov, Pskov and Ulyanovsk regional authorities for pilot Digital Economy projects; with the Moscow, St-Petersburg and Sochi city authorities, as well as the Novgorod, Ryazan, and Tula regional authorities and the Republic of Kalmykia, on implementing so-called Smart City solutions for state, healthcare, and tourism. We continue to implement Smart City projects in the Chelyabinsk and Bryansk regions as well as in Tatarstan's Innopolis. Completion of Tender Offer When the tender offer for our ordinary shares and GDRs was announced in July 2018, we noted that implementation of many of the bold strategies described above was not consistent with our remaining a public company, because of the uncertainties presented by our efforts to become a leader in the new digital economy. Our shareholders seem to have agreed with us, because the overwhelming number of public shareholders tendered their shares or GDRs into the tender offer. Following completion of the tender offer, in October 2018 we delisted our GDRs from the London Stock Exchange. As a result of the tender offer, our wholly-owned subsidiary MegaFon Finance became legally obligated to make a mandatory tender offer to all remaining shareholders. In January 2019, our Board of Directors approved the making of the mandatory tender offer and recommended that our shareholders accept the mandatory tender offer. The mandatory tender offer was directed to persons holding a total of 131,212,843 outstanding ordinary shares (all references to ordinary shares include ordinary shares then represented by GDRs), or 21.16% of the outstanding ordinary shares. As of 7 March 2019, the expiration date of the mandatory tender offer, a total of 126,246,094 ordinary shares, representing 20.36% of the outstanding ordinary shares of MegaFon, had been tendered by the Company's shareholders. Following completion of the settlements under the mandatory tender offer, MegaFon Finance is holding in the aggregate 265,862,631 ordinary shares, representing 42.88% of the outstanding ordinary shares, and which together with the ordinary shares held by its affiliates constitute 615,033,251 ordinary shares, or 99.2% of the outstanding ordinary shares of MegaFon. Accordingly, MegaFon Finance is entitled to require the remaining shareholders to sell their shares to it, and is considering whether or not to proceed with this step. If it chooses not to require the remaining shareholders to sell their shares to it, then each of the remaining shareholders has the right to require MegaFon Finance to purchase his or her shares. We expect the status of the remaining outstanding ordinary shares to be resolved by mid-to late-summer 2019. Whether or not the remaining shares are purchased, MegaFon will become effectively a wholly-owned subsidiary of LLC "AF Telecom Holding", which is currently the Company's majority shareholder. We look forward to a closer cooperation with the AF Telecom and its controlling shareholders going forward, because we believe that they share the same vision for MegaFon's future as we do, and are fully supportive of our efforts to achieve our goals. »   Financial results[8] (In millions of RUB, except as indicated)   Three Months   Full Year   Q4 2018 Q4 2017 Q4 2018/ Q4 2017   2018 2017 2018/ 2017 Revenue 88,412 84,641 4.5%   335,549 321,810 4.3% Wireless Services 71,073 67,602 5.1%   276,076 264,352 4.4% Including data revenue 26,903 23,544 14.3%   100,936 89,748 12.5% Wireline Services 8,277 9,111 (9.2%)   30,941 28,759 7.6% Sales of equipment & accessories 9,062 7,928 14.3%   28,532 28,699 (0.6%) OIBDA 27,561 28,865 (4.5%)   124,042 121,850 1.8% OIBDA Margin 31.2% 34.1% (2.9 p.p.)   37.0% 37.9% (0.9 p.p.) Net Profit 1,133 3,037 (62.7%)   21,068 20,519[9] 2.7% Net Profit Margin 1.3% 3.6% (2.3 p.p.)   6.3% 6.4% (0.1 p.p.) CAPEX 38,260 22,133 72.9%   81,456 55,985 45.5% CAPEX / Revenue 43.3% 26.1% 17.2 p.p.   24.3% 17.4% 6.9 p.p.   Financial results, Russia only[10] (In millions of RUB, except as indicated)   Three Months   Full Year   Q4 2018 Q4 2017 Q4 2018/ Q4 2017   2018 2017 2018/ 2017 Revenue 87,051 83,490 4.3%   330,485 317,430 4.1% Wireless Services 69,723 66,461 4.9%   271,051 260,009 4.2% Including data revenue 26,314 23,101 13.9%   98,884 88,216 12.1% Wireline Services 8,267 9,102 (9.2%)   30,905 28,724 7.6% Sales of equipment & accessories 9,061 7,927 14.3%   28,529 28,697 (0.6%) OIBDA 27,158 28,738 (5.5%)   122,628 121,806 0.7% OIBDA Margin 31.2% 34.4% (3.2 p.p.)   37.1% 38.4% (1.3 p.p.) Net Profit 1,160 3,389 (65.8%)   22,422 23,3529 (4.0%) Net Profit Margin 1.3% 4.1% (2.8 p.p.)   6.8% 7.4% (0.6 p.p.)   Revenue Total revenue in Q4 2018 increased by 4.5% y-o-y to RUB 88,412 million. Total revenue for the full year 2018 increased by 4.3% y-o-y and reached RUB 335,549 million, while our service revenue for the full year grew by 4.7% to RUB 307,017 million, fully in line with our guidance. Revenue from Russia remained the major component in this segment, accounting for over 98.5% of total revenue for Q4 and the full year. In Q4 2018 our wireless revenue, including data revenue, increased by 5.1% y-o-y to RUB 71,073 million. For the full year 2018 wireless revenue grew by 4.4% to RUB 276,076 million, driven by continued growth in mobile data revenue which increased by 14.3% y-o-y to RUB 26,903 million in Q4 2018 and by 12.5% y-o-y to RUB 100,936 million for the full year 2018. The key driver behind the growth continued to be the success of the tariff line "Vklyuchaisya!" ("Connect!") which has been refined with certain modifications, such as introduction of a new tariff plan "Vklyuchaisya! Smotri+" ("Connect! Watch plus"), as well as the tariff line for B2X clients "Upravlyai!" ("Manage!"). In Q4 2018 a number of marketing initiatives called "Back to school", "Gigateka", and "Buy one Samsung smartphone get another one free" pushed data consumption up as the number of subscriptions to the "Vklyuchaisya!" ("Connect!") tariff increased. The one-time surge in wireless services consumption during the FIFA World Cup also had a positive impact on wireless revenue for the full year 2018. VAS-revenue, including revenue from digital products and services such as mobile finance services and MegaFon.TV, showed excellent results during the year, also driving wireless revenue up. VAS revenue increased by 9.1% y-o-y in 2018 as a result of revisions to our pricing policies following a multiple-factor analysis of the market and our service portfolio values. The FIFA World Cup also had a noticeable impact on MegaFon.TV revenue as traffic was five times higher than usual during the period of the event. In Q4 2018 wireline service revenue decreased by 9.2% y-o-y to RUB 8,277 million. This is mainly a result of revenue at the end of 2017 being boosted by a one-off recognition of revenue on a long-term construction contract with a B2X client and from additional services provided in 2017 during the final draw for the 2018 FIFA World Cup. Full year 2018 wireline service revenue increased by 7.6% y-o-y to RUB 30,941 million. The key contributors to the growth were the increased revenue from the FIFA World Cup infrastructure development, supplying goods and services under the "Safe City" projects of the State's Digital Economy Programme, and other information and communication technology (ICT) contracts with B2G clients. Revenue from sales of equipment and accessories in Q4 2018 increased by 14.3% y-o-y to RUB 9,062 million resulting from equipment being bundled with sales of services under the end-of-the-year marketing initiatives "Back to school", "Gigateka", and "Buy one Samsung smartphone get another one free" and a boost in revenue from sales of the new smartphone Honor as well as newly launched models of Samsung, Xiaomi and Apple handsets. This surge in sales, however, was insufficient to offset the impact of the reduction in the number of our retail outlets in line with our strategy announced in 2017. Accordingly full year 2018 revenue from sales of equipment and accessories decreased by 0.6% y-o-y to RUB 28,532 million. OIBDA and OIBDA Margin OIBDA in Q4 2018 decreased by 4.5% y-o-y to RUB 27,561 million. This takes into account the positive impact from the adoption of the new accounting standard, "IFRS 15 - Revenue from Contracts with Customers", in the amount of RUB 370 million. Organic OIBDA in Q4 2018 decreased by 5.8% y-o-y to RUB 27,191 million. The increase in total revenue of 4.5% was offset by an increase in advertising expenses as we promoted new marketing initiatives, a significant increase in spectrum expenses following the revision of charges by the regulator, higher personnel expenses resulting from an increase in the number of highly skilled professionals being engaged to work on implementing our digital ecosystem strategy, and salaries indexation. OIBDA Margin in Q4 2018 decreased by 2.9 p.p. y-o-y to 31.2%. Organic OIBDA Margin decreased by 3.3 p.p. y-o-y to 30.8%, in both cases mainly due to the increase in spectrum fees and personnel expenses mentioned above. Full year 2018 OIBDA increased by 1.8% y-o-y to RUB 124,042 million, and full year 2018 Organic OIBDA increased by 0.2% y-o-y to RUB 122,117 million as the growth in revenue of 4.3% over last year only slightly exceeded the growth in costs described above. OIBDA Margin in 2018 decreased by 0.9 p.p. y-o-y to 37.0% and Organic OIBDA Margin decreased by 1.5 p.p. y-o-y to 36.4% - all for the same reasons. Net Profit[11] Net Profit in Q4 2018 decreased by 62.7% y-o-y to RUB 1,133 million. After eliminating the positive impact of IFRS 15 of RUB 296 million, Organic Net Profit decreased by 72.4% y-o-y to RUB 837 million. The decreases in each case were mainly the result of the decreases in OIBDA and Organic OIBDA, offset in part by foreign exchange gains from deposits held in foreign currencies. Net profit for the full year 2018 increased by 2.7% to RUB 21,068 million while Organic Net Profit decreased by 4.8% y-o-y to RUB 19,528 million. Both Net Profit and Organic Net Profit were pushed up by foreign exchange gains resulting from timely currency risks management. CAPEX CAPEX in Q4 2018 increased by 72.9% y-o-y to RUB 38,260 million and for the full year 2018 by 45.5% to RUB 81,456 million, both driven by the continued roll-out of our networks of all technologies, initiatives aimed at improvement of the quality of services and customer experience, as well as network resilience improvements, development of our billing platform and investment in equipment required to comply with the Yarovaya (data storage) law. Free Cash Flow to Shareholders Free cash flow to shareholders in Q4 2018 decreased by 231.3% y-o-y to RUB (17,071) million, mainly due to the significant rise in CAPEX described above which exceeded the increase in operating cash flows. Free cash flow to shareholders for the full year 2018 decreased by 86.2% y-o-y to RUB 4,869 million, for the same reasons. Net Debt Net debt increased by 6.5% from RUB 276,382 million as of 30 September 2018 to RUB 294,318 million as of 31 December 2018 as cash was used to make payments of CAPEX and operating expenditures which had been deferred until the end of the year. As of 31 December 2018 our Net debt/OIBDA ratio was 2.37x. EPS[12] Basic and diluted EPS for Q4 2018 decreased y-o-y from RUB 5 per share for Q4 2017 to RUB 2 per share for Q4 2018 due to the reduction in Net Profit described above. Basic and diluted EPS increased from RUB 34 per share for 2017 to RUB 38 per share for 2018 mainly because of the reduction in the weighted average number of shares outstanding following the repurchase of ordinary shares and GDRs pursuant to the tender offer made in July 2018. New accounting standards Starting from 1 January 2018 we adopted the new accounting standards IFRS 15 "Revenue from contracts with customers" and IFRS 9 "Financial Instruments". The adoption of IFRS 9 did not have a material impact on our financial statements. The key impact for us of the adoption of IFRS 15 was the capitalisation of costs incurred to acquire new customer contracts, which increased our Net Profit by RUB 296 million in Q4 2018, net of tax of RUB 74 million (the effect on Net Profit for the full year 2018 amounted to RUB 1,540 million, net of tax of RUB 385 million). We adopted IFRS 15 using the modified retrospective method, and this increased our deferred costs assets by RUB 1,707 million and our opening retained earnings by RUB 1,366 million, net of tax effect. Wireless subscribers in Russia as of   31 December 2018 31 December 2017 Change Number of wireless subscribers (K) 75,205 75,445 (0.3%) of which data service users (K) 32,664 31,544 3.6% Share of data service users 43.4% 41.8% 1.6 p.p.   Our Russian wireless subscriber base slightly decreased by 0.3% y-o-y to 75.2 million as of 31 December 2018. Our data service user base in Russia increased by 3.6% y-o-y to 32.7 million as of 31 December 2018 and reached 43.4% of the overall subscriber base in Russia. This increase is a direct consequence of our continued focus on developing and promoting our data services portfolio. Data operating indicators   Q4 2018 Q4 2017 Q4 2018/ Q4 2017 12m 2018 12m 2017 12m 2018/ 12m 2017 ARPDU (RUB) 271 246 10.2% 260 237 9.7% DSU (MB) 10,460 7,660 36.6% 9,256 6,524 41.9%   ARPDU increased in Q4 2018 by 10.2% y-o-y to RUB 271 and for the full year 2018 by 9.7% y-o-y to RUB 260 as we continued to introduce data-service-centered products such as "Vklyuchaisya!" ("Connect!"), "Upravlyai!" ("Manage!"), and roaming options for data users which encourage data usage by our subscribers. DSU increased in Q4 2018 by 36.6% y-o-y to 10.5 gigabytes and for the full year 2018 by 41.9% y-o-y to 9.3 gigabytes, as a result of the initiatives mentioned above, and ever growing smartphone penetration (currently, 70.3% of the total number of devices registered on our network are smartphones), while the overall number of high-end 4G-enabled devices registered on MegaFon's network went up by 32.0% y-o-y to 28.2 million devices.   For more information Investors: Dmitry Kononov, Director of Investor Relations and M&A [phone] [e-mail] Media: Artem Lebedev, Director for Corporate Communications [phone] [e-mail] 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 and was the first operator in the world to launch commercial operation of an LTE-Advanced (4G) data network. MegaFon is traded on the Moscow Exchange under the symbol MFON. 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 ARPDU (Average Monthly Revenue Per Data Services User) is calculated for a given period by dividing the Group's data services revenues for a given period by the average number of its data services users during that period, and further dividing the result by the number of months in that period. 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. Diluted EPS is calculated by adjusting both numerator and denominator in the EPS calculation so as to reflect the effect of including the additional shares that would have been outstanding if all options and other rights to acquire shares had been converted into actual shares. DSU (Monthly Average Data Services Usage per User) is calculated by dividing the total number of megabytes transferred by our network during a given period by the average number of data services users during such period and dividing the result by the number of months in such period. EPS (Earnings per Share) means an amount of the Group's profit allocated to one share of its stock, and is calculated by dividing Net Profit for a reporting period by the weighted average number of shares outstanding during the period. No earnings are allocated to treasury shares. Free Cash Flow to Shareholders means cash from operating activities, less cash paid for purchases of property, equipment and intangible assets and interest paid, increased by proceeds from sales of property and equipment and interest received. 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. A reconciliation of free cash flow and cash from operating activities is provided in Schedule 2. 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. Information relating solely to Mail.Ru can be found at https://corp.mail.ru/en/investors/. LTV means lifetime value of a subscriber, i.e. the present value of the future cash flows attributed to the subscriber during his/her entire relationship with the Group. Net debt position 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. A description of how the metric is calculated is provided in Schedule 2. Net Profit is profit for the period from continuing operations attributable to equity holders of the Group grossed up for intragroup amounts between MegaFon Group and Mail.Ru Group. Organic Net Profit is Net Profit excluding the impact of new IFRS standards. Starting from 1 January 2018, MegaFon has adopted new IFRS standards, namely: IFRS 9 "Financial instruments" and IFRS 15 "Revenue from Contracts with Customers". For convenience of comparison with prior periods, with respect to the financial year 2018, MegaFon shall be presenting its financial results as reported, i.e. including the impact of IFRS 9 and IFRS 15, and organically, i.e. excluding the impact of adoption of the mentioned standards. 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. A reconciliation of OIBDA to operating profit is provided in Schedule 2. Organic OIBDA is OIBDA, and organic OIBDA Margin is OIBDA Margin, in each case net of the impact of IFRS 15 adoption. The adoption of IFRS 9 did not have a material impact on our financial statements. 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. Schedule 2: Reconciliations of Non-IFRS financial measures[13] (In millions of RUB, except as indicated) OIBDA   Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Operating profit 12,517 14,790 15,973 16,988 10,584 Depreciation 14,086 12,227 12,229 12,473 12,325 Amortisation 2,020 3,658 3,914 4,017 4,527 Loss/(gain) on disposal of non-current assets 242 (109) 145 176 125 OIBDA 28,865 30,566 32,261 33,654 27,561 IFRS 15 effect - (562) (478) (515) (370) Organic OIBDA 28,865 30,004 31,783 33,139 27,191   OIBDA Margin as percentage of revenue   Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Operating profit 14.8% 19.3% 19.5% 19.1% 12.0% Depreciation 16.6% 16.0% 14.9% 14.1% 13.9% Amortisation 2.4% 4.8% 4.8% 4.5% 5.1% Loss/(gain) on disposal of non-current assets 0.3% (0.1%) 0.2% 0.2% 0.2% OIBDA Margin 34.1% 40.0% 39.4% 37.9% 31.2% IFRS 15 effect - (0.8%) (0.6%) (0.6%) (0.4%) Organic OIBDA Margin 34.1% 39.2% 38.8% 37.3% 30.8%   Net Profit and Net Profit Margin   Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Net Profit 3,037 6,037 6,154 7,744 1,133 IFRS 15 effect - (450) (382) (412) (296) Organic Net Profit 3,037 5,587 5,772 7,332 837 Net Profit Margin 3.6% 7.9% 7.5% 8.7% 1.3% IFRS 15 effect Margin - (0.6%) (0.5%) (0.5%) (0.3%) Organic Net Profit Margin 3.6% 7.3% 7.0% 8.2% 1.0%   Net debt as of   31 Dec 2017 31 Mar 2018 30 Jun 2018 30 Sep 2018 31 Dec 2018 Cash and cash equivalents 20,776 24,345 14,553 36,916 27,214 Bank deposits (principal amount) 7,553 4,125 21,912 4,119 4,352 Loans and borrowings (principal amount) less unamortised fees and discounts (262,846) (260,260) (251,208) (317,417) (325,884) Net debt (234,517) (231,790) (214,743) (276,382) (294,318)   Free cash flow to shareholders   Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Net cash flows from operating activities 31,403 24,213 25,363 34,842 20,785 Purchase of property, equipment and intangible assets (12,599) (19,426) (11,522) (15,187) (30,411) Proceeds from sale of property and equipment 250 373 341 7 6 Interest received 667 235 209 434 583 Interest paid (6,722) (5,548) (6,524) (5,870) (8,034) Free cash flow to shareholders 12,999 (153) 7,867 14,226 (17,071)   Schedule 3: Summarised financial information of the Group (In millions of RUB, except as indicated) Summarised income statement of the Group for the year ended 31 December   2018 2017 Revenue 335,541[14] 321,797 Operating expenses (277,091) 14 (263,728) Operating profit 58,45014 58,069 Non-Operating loss (29,357) (46,480) Profit before tax from continuing operations 29,09314 11,589 Income tax expense (7,823) (6,706) Profit from continuing operations, net of tax 21,27014 4,883 Profit from discontinued operations, net of tax 11,584 442 Profit for the year 32,854 5,325 Profit for the year attributable to equity holders of the Group 35,170 4,551 Basic and diluted, earnings per share for the year attributable to equity holders of the Group 63 8   Summarised financial position of the Group as of   31 Dec 2018 31 Dec 2017 Non-current assets 422,930 462,602 Current assets 87,079 99,125 Total assets 510,009 561,727 Total equity 70,403 165,309 Non-current liabilities 328,003 259,988 Current liabilities 111,603 136,430 Total liabilities 439,606 396,418 Total equity and liabilities 510,009 561,727   Summarised cash flow information of the Group for the year ended 31 December   2018 2017 Net cash flows from operating activities 110,028 133,862 Net cash flows used in investing activities (75,720) (103,221) Net cash flows used in financing activities (48,327) (24,781) Net change in cash and cash equivalents (14,019) 5,860   [1] . Based on the IFRS consolidated financial statements audited by JSC "KPMG". As a result of the completion on 9 June 2018 of the transaction to create a joint venture with JSC "Gazprombank", LLC "Financial Investments" and LLC "RT-Business Development" (a subsidiary of Rostec), the Group has ceased to consolidate the financial position and the results of operations of its subsidiary, Mail.Ru Group Limited. For all the periods presented in the consolidated income statement of the Group for 12m 2018 the results of Mail.Ru are presented net under "Discontinued operations" line. Accordingly, all financial data in this press release refers to the financial data of the Group exclusive of the Mail.Ru results. Such data was previously reported as the results of the "telecom segment" and now corresponds to results from continuing operations of the Group grossed up for the intragroup amounts between the Group and Mail.Ru Group. [2] . See Schedule 1 for definitions of the terms used and Schedule 2 for the reconciliation of Non-IFRS measures. Due to rounding actual numbers and calculations for financials and KPIs may differ from those set forth in this release. [3] . Year over year ("y-o-y") stands for the same periods in the current and previous year on either a quarterly or yearly basis. [4] . OIBDA and OIBDA Margin are presented as reported. Organic OIBDA and organic OIBDA Margin amounted to RUB 122,117 million and 36.4%, respectively. See Schedule 1 for the definition of organic OIBDA and organic OIBDA Margin and Schedule 2 for the reconciliation of organic OIBDA and organic OIBDA Margin. [5] . Net Profit is presented as reported Profit from continuing operations. Organic Net Profit amounted to RUB 19,528 million. See Schedule 1 for the definition of organic Net Profit and Schedule 2 for the reconciliation of organic Net Profit. Net Profit for 2017 is adjusted to exclude the non-cash impairment relating to the Euroset joint venture in the amount of RUB 15.9 billion. [6] . Subscriber data includes subscribers of the Company in Russia and the subscribers of its subsidiaries: "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. [7] . OIBDA and OIBDA Margin are presented as reported. Organic OIBDA and organic OIBDA Margin amounted to RUB 27,191 million and 30.8%, respectively. See Schedule 1 for the definition of organic OIBDA and organic OIBDA Margin and Schedule 2 for the reconciliation of organic OIBDA and organic OIBDA Margin. [8] . The amounts are presented as reported results from continuing operations grossed up for the intragroup amounts between the Group and Mail.Ru Group. [9] . Net Profit for 2017 is adjusted to exclude the non-cash impairment relating to the Euroset joint venture in the amount of RUB 15.9 billion. [10] . The amounts are presented as reported results from continuing operations grossed up for the intragroup amounts between the Group and Mail.Ru Group, and excluding mutual settlements with "TT mobile" CJSC, "AQUAFON-GSM" CJSC and "OSTELEKOM" CJSC. [11] . Net Profit for 2017 is adjusted to exclude the non-cash impairment relating to the Euroset joint venture in the amount of RUB 15.9 billion. [12] . Net Profit for 2017 is adjusted to exclude the non-cash impairment relating to the Euroset joint venture in the amount of RUB 15.9 billion. [13] . The amounts are presented as reported results from continuing operations grossed up for the intragroup amounts between the Group and Mail.Ru Group. [14] . Amounts in the financial statements of the Group are shown net of intragroup amounts between the Group and Mail.Ru Group, while financial results discussed in this press-release include intragroup amounts. Additional features: Document: http://n.eqs.com/c/fncls.ssp?u=UCESEAPLCG Document title: Consolidated financial statements for the year ended December 31, 2018 21.03.2019 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. The EquityStory.RS, LLC Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Archive at www.dgap.de

789989  21.03.2019 MSK