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DGAP-UK-Regulatory News vom 29.08.2019

Sistema PJSFC: Sistema announces financial results for the second quarter 2019

Sistema PJSFC (SSA)

29-Aug-2019 / 10:10 MSK
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


Sistema announces financial results for the second quarter 2019

 

Moscow, Russia - 29 August 2019 - Sistema PJSFC ("Sistema" or the "Company", together with its subsidiaries, "the Group") (LSE: SSA, MOEX: AFKS), a publicly-traded diversified Russian holding company, today announces its unaudited consolidated financial results in accordance with International Financial Reporting Standards (IFRS) for the second quarter ended 30 June 2019.

 

SUCCESSFUL REALIZATION AGAINST STRATEGIC AND OPERATIONAL GOALS

 

  • Sustained revenue growth1 due to strong results from the majority of portfolio companies.
  • OIBDA growth at MTS of +1.5% and at least double-digit OIBDA growth at Detsky Mir, Segezha Group and Medsi driven by excellent operating results and financial discipline.
  • Increased scale of pharmaceutical business: In August 2019 Sistema completed the acquisition of equity stakes in Sintez and Biocom. The acquired companies - together with Alium, a pharmaceutical company being created by Sistema through the merger of OBL Pharm and Binnopharm - will be a major market player, possessing the potential to become a top-3 Russian pharmaceutical company in the commercial segment. The combined product portfolio of Sintez, Biocom and Alium will include more than 500 products, and its manufacturing capacity will consist of six production facilities in Moscow, the Moscow region, Kurgan and Stavropol.
  • Creation of a residential real estate market leader in Moscow and St Petersburg: In August 2019 Sistema sold its remaining 49% of Leader Invest to Etalon Group for a consideration of RUB 14.6 billion. As a result of the transaction Etalon now owns 100% of the shares of Leader Invest.  The transaction will enable Etalon Group to streamline the ownership structure of its development assets and accelerate the integration of the two businesses with the aim of creating a leader in the Moscow and St Petersburg residential real estate markets. Sistema remains the largest shareholder of Etalon Group, with a 25% equity stake.
  • Strengthened position in the fast-growing e-commerce market: In April 2019, Sistema increased its direct equity stake in Ozon from 19.3% to 21.9% following the acquisition of shares from a number of Ozon minority shareholders. In addition, Sistema's venture fund Sistema_VC owns a 16.3% stake in Ozon. The decision to increase the stake is based on Sistema's strategic bet on the growth of e-commerce and market consolidation through investments in the market leader.

 

2Q 2019 FINANCIAL RESULTS

 

  • Consolidated revenue increased by 9.6%[1] year-on-year to RUB 194.1 billion.
  • Adjusted OIBDA[2] increased by 1.3% year-on-year to RUB 65.6 billion; the adjusted OIBDA margin was 33.8%.
  • Adjusted net profit attributable to Sistema[3] was RUB 7.5 billion.

 

Andrey Dubovskov, President and Chief Executive Officer of Sistema, said:

 

"Despite challenges related to softer global commodities prices and weaker consumer behaviour in Russia, the Group's portfolio companies reported high-quality growth in the second quarter, which is a clear sign that our investment strategy is delivering results.

 

"While operating in a highly competitive industry, MTS continues to increase revenue not only from traditional telecommunications services but also through increased sales of system integration services and software, as well as the successful integration of MTS Bank, which has been making excellent use of MTS's expertise in big data analytics. MTS has been expanding the boundaries of its industry and is already competing with banks, fintech firms and IT companies as it creates its own ecosystem.

 

"While growth has slowed down in the children's goods market, Detsky Mir has gone from strength to strength thanks to new store openings, growth in like-for-like sales and the rapid development of its online sales channel. All this, combined with large-scale plans for expansion outside Russia, has created significant potential for growth in shareholder value.

 

"Segezha Group's results are starting to feel the impact of cyclical price reductions in the forest products markets. Prices are under pressure from declining demand in key global markets like China, Egypt and Saudi Arabia, where the construction industry is slowing. We already saw a significant decrease in prices for sawn timber and plywood in the second quarter, and we expect a decline in the paper and paper sack markets starting in the third quarter. Segezha Group is entering this challenging period with significant capacity to adapt to these changes due to its low production costs, its ability to meet a significant portion of its own needs for wood, its diversified customer base, as well as measures introduced in recent quarters to improve business efficiency in production, logistics, and trading. 

 

"Agroholding Steppe achieved significant revenue growth in the second quarter thanks to the development of new business lines such as exporting cereal crops and domestic sales of sugar and groceries, as well as continued growth in the operating performance of its dairy farms. The results for the year will largely depend on the gross grain yield, the size of which has been affected by inclement weather in the first half of the year.

 

"Medsi has delivered growth across all of its operational metrics: patient visits, services provided, and average patient cheque. The company continues to expand its in-patient services and to increase its efficiency per square metre of medical space, while at the same time investing in new capacities. A multifunctional medical centre is under construction on Michurinsky Prospect, the opening of which is scheduled for 2020.

 

"In August we strengthened our footprint in the pharmaceuticals sector, an industry of strategic importance for Sistema, with the acquisition of a stake in Sintez, a top-10 Russian pharmaceuticals manufacturer. In total, our pharmaceuticals assets produce more than 500 products at six production facilities and possess the potential to become a top-3 Russian pharmaceuticals company in the commercial segment.

 

"Earlier this month we also closed a transaction to sell 49% of Leader Invest to Etalon Group for RUB 14.6 billion. Etalon's consolidation of 100% of Leader Invest will accelerate the integration of the two companies and create a leading player in the residential real estate markets of Moscow and St Petersburg, ensuring Sistema, as Etalon's largest shareholder, will achieve long-term growth in the value of our investment. In accordance with our deleveraging strategy, the proceeds from the transaction will be used to pay down our debt at the corporate centre level."

 

***

 

Conference call information

 

Sistema's management will host a conference call today at 10:00 am (New York time) / 3:00 pm (London time) / 4:00 pm (CEST) / 5:00 pm (Moscow time) to present and discuss the 2Q 2019 results.

 

To participate in the conference call, please dial:

 

Russia

+7 495 646 9190

8 10 8002 8675011 (toll-free)

 

UK

+44 330 336 9411

0800 279 7204 (toll-free)

 

US

+1 646 828 8143

800 263 0877 (toll-free)

 

Conference ID: 6975387

 

Link to webcast: https://webcasts.eqs.com/sistema20190829

 

Or quote the conference call title: "Sistema Second Quarter 2019 Financial Results".

 

A replay of the conference call will be available on Sistema's website www.sistema.com after the event.

 

For further information, please visit www.sistema.com or contact:

 

Investor Relations

Nikolai Minashin

Tel.: +7 (495) 730 66 00

n.minashin@sistema.ru

Public Relations

Sergei Kopytov

Tel.: +7 (495) 228 15 32

kopytov@sistema.ru

 

 

FINANCIAL SUMMARY AND GROUP OPERATING REVIEW

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

Revenue

194,101

177,160

9.6%

379,645

345,174

10.0%

Adj. OIBDA

65,578

64,718

1.3%

127,541

123,986

2.9%

Operating profit

30,418

31,820

(4.4%)

58,302

58,311

(0.0%)

Net profit / (loss) attributable to Sistema

6,540

(1,676)

-

23,181

(2,919)

-

Adj. net profit/(loss) attributable to Sistema

7,466

(1,328)

-

23,179

(1,542)

-

 

In 2Q 2019, Sistema's consolidated revenue increased by 9.6% year-on-year as a result of higher revenue from key assets: MTS, thanks to continued growth of mobile service revenue in Russia and Ukraine, increased software sales and the consolidation of MTS Bank; Detsky Mir, as a result of the ramp-up of stores opened in 2017-18, ongoing improvement in like-for-like sales in Russia and Kazakhstan and growing contributions from the e-commerce segment; Segezha Group, primarily as a result of strong sales in the paper and packaging segment; Agroholding Steppe, due to increased exports via the Agrotrading segment, higher sales volumes in the sugar and grocery product marketing division, and a gradual rise in production in the dairy segment; Medsi, as a result of an increase in in-patient volumes under the Mandatory Health Insurance programme as well as revenue growth in the Voluntary Health Insurance and individual patients segments.

Group adjusted OIBDA in 2Q 2019 increased by 1.3% year-on-year, reflecting strong OIBDA growth at MTS, driven by strong results across all geographies; Detsky Mir as a result of strong revenue dynamics, optimisation of purchasing prices, efficient management of the product assortment and a programme to increase operational efficiency; Segezha Group, due to revenue growth, a shift in the sales mix in favour of higher margin paper sacks and due to a decline in expenses related to oil and electricity used in the production of paper; Medsi, as in-patient volumes increased, revenue per square metre of medical facilities rose and provisions created in 2018 and 1Q 2019 were released. Group OIBDA was impacted by equity pick-up of the net loss of Ozon (treated as investment in associates) in the amount of RUB 2.7 bln, including the impact of the write-off of deferred tax assets in the amount of RUB 0.8 billion. Net of Ozon's impact, Group adjusted OIBDA increased by 5.2% year-on-year.

Group selling, general and administrative expenses (SG&A) increased by 5.8% year-on-year in 2Q 2019 to RUB 35.3 billion, driven by higher SG&A at MTS, Detsky Mir and Segezha Group as a result of continued business development. The SG&A/revenue ratio declined year-on-year from 18.8% to 18.2% due to sustained cost controls. SG&A at the Corporate Centre decreased by 14.0% year-on-year to RUB 1.1 billion as a result of optimisation of employee compensation expenses and reduced administrative expenses.

Group capital expenditures increased by 4.6% year-on-year to RUB 28.3 billion.

 

OVERVIEW OF PORTFOLIO COMPANIES[4]

 

MTS

Leading telecommunications operator and digital services provider in Russia

 

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6М 2018

Change

Revenue

125,148

114,346

9.4%

243,173

222,272

9.4%

OIBDA

54,189

53,391

1.5%

112,746

105,467

6.9%

OIBDA margin

43.3%

46.7%

(3.4 p.p.)

46.4%

47.4%

(1.1 p.p.)

Operating income

27,215

27,105

0.4%

59,354

53,859

10.2%

Adjusted profit attributable to Sistema

6,353

7,141

(11.0%)

13,429

14,852

(9.6%)

 

 

In 2Q 2019, revenue at MTS rose by 9.4% year-on-year, driven primarily by growth in mobile services revenue in Russia and Ukraine, as well as increased system integration and software sales and the consolidation of MTS Bank.

 

OIBDA grew by 1.5% year-on-year in 2Q 2019 largely due to the robust results across MTS Group in all geographical segments, among which the greatest contribution was made by Russia and Ukraine. The OIBDA margin decreased by 3.4 p.p. year-on-year as a result of the consolidation of MTS Bank, growth in retail sales where margins are lower than for the core business, increased personnel expenses as a result of salary indexation in July 2018, as well as VAT increases that took effect in January 2019.

 

Adjusted net profit decreased by 11.0% year-on-year in 2Q 2019, primarily as a result of higher interest rates and other expenses. This was partially mitigated by FX income. 

 

MTS continues to develop its ecosystem of digital products in fintech, cloud services, systems integration, Internet of Things, artificial intelligence, Big Data, as well as television and entertainment.

 

OUTLOOK FOR 2019

 

MTS forecasts revenue growth of 4-6% and low single-digit OIBDA growth.

 

DIVIDENDS

 

Under its dividend policy for 2019-2021 MTS will seek to pay at least RUB 28.0 per ordinary share per calendar year, distributed in two semi-annual payments. The Annual General Meeting of shareholders on 27 June 2019 approved dividends for FY 2018 in the amount of RUB 19.98 per share (RUB 39.96 per ADR). In July 2019, the Board of Directors of MTS recommended shareholders approve dividends for 6M 2019 in the amount of RUB 8.68 per share (RUB 17.36 per ADR).

 

KEY EVENTS AFTER THE REPORTING PERIOD

 

With the aim of enhancing its focus on digital services development, in July 2019 a revised management structure was approved. Among the new roles introduced are: Vice President for Financial Services, Vice President for Cloud and Digital Solutions, and Vice President for TV Services (MTS Media).

 

Detsky Mir

Largest children's goods retailer in Russia

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

Revenue

28,014

24,096

16.3%

55,899

48,116

16.2%

Adj. OIBDA

5,752

4,994

15.2%

9,918

8,483

16.9%

Adj. OIBDA margin

20.5%

20.7%

(0.2 p.p.)

17.7%

17.6%

0.1 p.p.

Operating income

3,227

2,414

33.7%

4,720

3,493

35.1%

Adj. profit attributable to Sistema

1,132

477

137.1%

1,142

660

73.1%

 

 

In 2Q 2019, Detsky Mir's revenue grew by 16.3% year-on-year. Growth was driven by the ramp-up of stores opened in 2017-2018 to full operating capacity, ongoing improvement of like-for-like (LFL[5]) sales in Russia and Kazakhstan and increased contributions from online sales[6], which rose by 70.8% year-on-year and accounted for 9.7% of total revenue in the period. In-store pickup accounted for 88% of online orders.

 

Adjusted OIBDA increased by 15.2% in 2Q 2019 due to robust revenue performance, optimisation of purchasing costs, effective management of the product assortment and a programme to increase operational efficiency. The adjusted OIBDA margin declined immaterially to 20.5% in 2Q 2019.

 

Adjusted profit attributable to Sistema increased by 137.1% year-on-year to RUB 1.1 billion.

 

Seventeen new Detsky Mir stores were opened in 2Q 2019, including three in the Moscow region and one in Belarus. As of 30 June 2019, the total number of stores[7] stood at 760. Detsky Mir plans to open no fewer than 90 stores in 2019, an increase over previously announced plans to open 70 new stores.

 

Detsky Mir plans to implement a number of projects in the second half of 2019 to strengthen the online store, including the launch of a new mobile app and the expansion and promotion of express delivery service (last mile delivery).

 

On 16 May 2019, the Annual General Meeting of shareholders approved a final dividend for FY 2018 in the amount of RUB 4.45 per share, for a total of RUB 3.3 billion.

 

Segezha Group

Leading Russian vertically integrated forestry holding

 

(RUB million)

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Revenue

15,505

13,231

17.2%

29,992

25,360

18.3%

Adj. OIBDA

3,782

2,613

44.8%

7,752

4,789

61.9%

Adj. OIBDA margin

24.4%

19.7%

4.6 p.p.

25.8%

18.9%

7.0 p.p.

Operating income

2,419

1,465

65.1%

5,128

2,524

103.2%

Adj. net profit / (loss) attributable to Sistema

1,325

(759)

-

4,055

(1,297)

-

 

Segezha Group's revenue grew by 17.2% year-on-year to RUB 15.5 billion in 2Q 2019, due in significant measure to positive Paper and Packaging sales dynamics, against a backdrop of high prices for most Segezha Group paper and packaging products. A decrease in sawn timber prices was offset by increased production volumes on the back of improved efficiency. Another factor that made a positive contribution to revenue was growth of plywood sales following the commissioning of new production capacity in the Kirov region in July 2018. Segezha's plywood revenue increased despite a significant decline in global plywood prices.

Adjusted OIBDA increased year-on-year by 44.8% to RUB 3.8 billion in the second quarter of 2019 on the back of higher revenue, changes in the sales mix in favour of higher-margin paper sack products and a decline in expenses related to oil and electricity used in the production of paper at the Segezha Pulp & Paper Mill, in part thanks to the commissioning of a hybrid fuel boiler. Segezha's OIBDA margin increased by 4.6 percentage points year-on-year to 24.4% due to increased efficiency against a backdrop of high paper and packaging prices.

Adjusted net profit was RUB 1.3 billion vs. a loss of RUB 0.8 billion in 2Q 2018. Net profit was impacted by higher operating profit and the lack of an FX-revaluation effect that contributed to the net loss in the same period a year earlier.

Paper output totalled 101,000 tonnes in Q2 2019, up 20.4% year-on-year. The production increase was mainly the result of reductions in time spent on equipment repairs. In 2Q 2019 Segezha's sack paper sales increased by 21.9% to 58,100 tonnes due to increased volumes shipped to existing customers and expansion of the client base in Europe, Asia and Latin America.

Paper sack sales totalled 366.5 million in 2Q 2019. Production volumes in the reporting quarter were in line with volumes in the same period a year earlier.

Birch plywood sales volumes increased by 64.0% year-on-year to 44,900 cu m in 2Q 2019. Output growth was driven by the launch of the new plywood production facility in the Kirov region in July 2018. Higher production volumes drove growth in shipments to existing clients as well as expansion of the client portfolio in the US, Canada, Asia and Northern Europe. Industrial clients accounted for a higher share of sales, in part as a result of new products such as film faced plywood.

Sawn timber output increased year-on-year by 20.4% to 245,300 cu m in 2Q 2019 primarily due to increased production efficiency at the Lesosibirsk facility. Sales volumes increased on the back of higher production volumes.

Segezha Group began construction of a new plant producing cross-laminated timber (CLT) with annual capacity of 35,000 cu m at the Sokol Wood Processing Plant. Construction of the CLT plant will support an increase in margins across the portfolio by introducing a next-generation product. Total investment in the new facility will be RUB 1.5 billion. The plant is expected to begin production in late 2020-early 2021. 

 

Agroholding Steppe

 

Major agriculture holding and one of Russia's largest land owners

 

(RUB million)

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Revenue

4,699

3,773

24.6%

10,981

6,309

74.1%

OIBDA

1,606

2,101

(23.6%)

2,434

2,790

(12.8%)

OIBDA margin

34.2%

55.7%

(21.5 p.p.)

22.2%

44.2%

(22.1 p.p.)

Operating income

1,145

1,782

(35.7%)

1,743

2,118

(17.7%)

Net profit attributable to Sistema

645

1,481

(56.4%)

762

1,417

(46.2%)

 

 

Agroholding Steppe's performance reflects the seasonal nature of the agricultural business, in which the majority of revenue and OIBDA are concentrated in the second half of the calendar year.

 

Revenue at Agroholding Steppe rose 24.6% year-on-year to RUB 4.7 billion in 2Q 2019 due to increased export volumes in the Agrotrading segment, sales growth in the Sugar and Grocery Product Trading segment, as well as the gradual ramp-up of production volumes in the Dairy segment.

 

OIBDA decreased due to the revaluation of biological assets, lower inventories carried over from the previous year's harvest and a higher share of sales in the second half of 2019.  

 

Steppe's net profit decreased to RUB 0.6 billion as a result of higher interest expenses.

 

Capex grew by 42.1% in the second quarter of 2019 year-on-year and amounted to RUB 0.6 billion. Key areas of investment were upgrades to Steppe's fleet of farm machinery, buyout of land shares and increasing the proportion of owned land in Steppe's overall landbank, as well as the construction of new dairy farms.

 

Wheat harvest in the first half of 2019 at Agroholding Steppe grew by 3% year-on-year despite challenging agroclimatic conditions, while grain quality levels remained high. Crop rotation schedules supported an increase in higher-margin crops, the harvest of which is planned for the second half of 2019. Steppe's average grain export price during the 2018/2019 season rose by 15% compared to the 2017/2018 season.

 

As a result of aggressive development in the Agrotrading segment, export volumes during the 2018/2019 season amounted to 1,220,000 tonnes, an increase of 168% year-on-year, which enabled Steppe to become Russia's seventh largest grain exporter as of the end of the grain season.

 

The Dairy segment demonstrated continued growth across its operational metrics: average milk yield in 2Q 2019 amounted to 13,500 tonnes, an increase of 17.6% year-on-year, while productivity per lactating cow rose 6.1% year-on-year and the herd consisted of over 5,000 lactating cows at the end of the reporting period.

 

The Vegetable segment has shown positive dynamics: gross vegetable harvest in 2Q 2019 grew to 20,400 tonnes, an increase of 5.0% year-on-year.

 

Sales volumes in the Sugar and Grocery Products Trading segment experienced twofold growth during the first half of 2019 and amounted to 139,000 tonnes.

 

KEY EVENTS AFTER THE REPORTING PERIOD

 

In August 2019, Steppe launched sales of its own branded sugar and cereals on the Ozon.ru e-commerce platform. Steppe is currently in discussions concerning cooperation with other marketplaces and delivery services. Steppe plans to increase the share of internet sales of its grocery products to 30% by 2024.

 

 

Medsi

Leading private healthcare operator in Russia

 

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

Revenue

5,511

4,111

34.1%

10,701

7,622

40.4%

Adj. OIBDA8

1,638

572

186.5%

2,520

1,035

143.5%

Adj. OIBDA margin8

29.7%

13.9%

15.8 p.p.

23.6%

13.6%

10.0 p.p.

Operating income / (loss)

923

(259)

-

1,083

(275)

-

Adj. profit / (loss) attributable to Sistema

927

(41)

-

 1,138

(144)

-

 

 

 

Medsi's revenue increased by 34.1% year-on-year in 2Q 2019 to RUB 5.5 billion due to a significant increase in in-patient treatments under the Mandatory Health Insurance programme (MHI), year-on-year revenue growth of 30% to RUB 2.2 billion in the Voluntary Health Insurance segment (VHI), and a year-on-year increase in revenue from individual patients of 21% to RUB 1.5 billion.

 

Adjusted OIBDA[8] increased by 186.5% in 2Q 2019 to RUB 1.6 billion due to the continued ramp-up of in-patient facilities and an increase in revenue per sq m of medical space. Adjusted OIBDA was also impacted by the reversal of provisions from 2018 and 1Q 2019 totalling RUB 0.3 billion as a result of changes in methodology of provisioning related to accounts receivable. The adjusted OIBDA margin grew by 15.8 p.p. to 29.7% in 2Q 2019, thanks to growth in capacity utilisation, an increase in efficiency per sq m and growth of treatment volumes at previously opened clinics as well as the one-off reversal of provisions.

 

Adjusted net profit was RUB 927 million in the quarter versus an adjusted net loss a year earlier, primarily on the back of OIBDA dynamics.

 

Revenue in 2Q 2019 at the Clinical-Diagnostic Centre (CDC) on Belorusskaya was RUB 686 million, OIBDA totalled RUB 272 million and the OIBDA margin came in at 39.7%. Revenue at the CDC on Krasnaya Presnya was RUB 605 million, OIBDA totalled RUB 173 million and the OIBDA margin came in at 28.6%.

 

The significant growth in capacity utilisation of in-patient treatment facilities - up 19.0 percentage points year-on-year - is a result of increased treatment volumes across all channels, with MHI acting as the main driver.

 

The average cheque in 2Q 2019 grew by 18.2% to approximately RUB 2,300 due to the increased proportion of complex procedures in the in-patient and diagnostic segments, and also due to the effect of price increases in line with market trends.

 

The company is continuing construction of a new Multifunctional Centre on Michurinsky Prospect with more than 34,000 sq m of space, with a planned opening in 2020. The facility will house a CDC for children and adults, a daytime in-patient clinic and a 24-hour in-patient clinic with a centre for high-tech surgery. Additionally, Medsi is expanding its network of clinics to three districts outside central Moscow.

 

Business Nedvizhimost and its subsidiary Mosdachtrest

Rental assets with a unique pool of properties

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6М 2018

Change

Revenue

1,738

1,151

51.0%

2,477

2,008

23.4%

OIBDA

1,623

614

164.2%

1,736

850

104.3%

OIBDA margin

93.4%

53.4%

40.0 p.p.

70.1%

42.3%

27.8 p.p.

Operating income

1,504

546

175.7%

1,517

713

112.9%

Net profit attributable to Sistema

1,098

329

234.1%

1,059

369

186.9%

 

 

In 2Q 2019 revenue from Sistema's rental assets rose by 51.0% to RUB 1.7 billion driven by a year-on-year increase in commercial real estate sales volumes and growth in the rental portfolio following Business Nedvizhimost's acquisition of 54 telephone exchanges from PJSC MGTS. The company sold 23,700 sq m of commercial real estate in 2Q 2019, compared to 4,000 sq m of commercial real estate sold in 2Q 2018. Sale of land plots was unchanged at 18,000 sq m in 2Q 2019.

 

OIBDA and the OIBDA margin grew by 164.2% and 40.0 p.p. year-on-year, respectively, in 2Q 2019 as a result of higher revenue, a greater share of higher-margin commercial real estate sales and the effect from the disposal of non-core assets.

 

Net profit in 2Q 2019 increased by 234.1% year-on-year to RUB 1.1 billion driven by OIBDA growth and the effect from the sale of non-core assets.

 

In the second quarter of 2019 Business Nedvizhimost signed an agreement with a self-storage operator to renovate telephone exchange buildings to be used for individual storage.

 

 

RTI

Leading developer of high-tech solutions[9]

 

(RUB million)

2Q 2019

2Q 2018

Change

6М 2019

6М 2018

Change

Revenue

4,639

4,595

1.0%

8,465

9,214

(8.1%)

Adjusted OIBDA

83

221

(62.6%)

246

278

(11.5%)

Adjusted OIBDA margin

1.8%

4.8%

(3.0 p.p.)

2.9%

3.0%

(0.1 p.p.)

Operating (loss)

(1,161)

(203)

-

(1,582)

(608)

-

Adjusted profit/(loss) attributable to Sistema

2,744

(898)

-

1,521

(2,247)

-

 

 

In 2Q 2019, revenue at RTI remained stable year-on-year. At the same time, the majority of the business's revenue is traditionally concentrated in the second half of the calendar year.

 

Adjusted OIBDA in the second quarter decreased year-on-year due to uneven allocation of expenses throughout the year related to work carried out under one specific contract.

Adjusted profit in the second quarter of 2019 compared to an adjusted loss in the same period of 2018 was due to the divestiture of assets in 2Q 2019.

 

 

Bashkirian Power Grid Company (BPGC)

One of Russia's biggest power grid companies

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

Revenue

4,574

4,280

6.9%

9,922

9,304

6.6%

OIBDA

1,331

1,257

5.9%

2,760

2,995

(7.8%)

OIBDA margin

29.1%

29.4%

(0.3 p.p.)

27.8%

32.2%

(4.4 p.p.)

Operating income

678

637

6.5%

1,449

1,752

(17.3%)

Net profit attributable to Sistema

504

513

(1.7%)

1,089

1,400

(22.2%)

 

In 2Q 2019 BPGC's revenue grew by 6.9% to RUB 4.6 billion due to higher tariffs for electricity and an increase in lease payments for deployment of communications equipment on electricity pylons by third-parties.

 

OIBDA increased by 5.9% year-on-year in 2Q 2019 due to higher revenue and a decline in electricity losses on the distribution grid. The OIBDA margin decreased insignificantly in 2Q 2019 to 29.1% as a result of other operating expenses related to the creation of reserves to cover unresolved disputes.

 

Net profit in 2Q 2019 remained unchanged versus 2Q 2018.

 

In 2Q 2019 BPGC actively continued to carry out its key project, Comprehensive Modernisation of the City of Ufa Distribution Grid: 27 distribution substations and six transformer substations were reconstructed and 3.77 kilometres of cable lines were laid. As of the end of the second quarter, the programme was 82% complete.

 

In May 2019 the Annual General Meeting of shareholders of BPGC approved a final dividend for 2018 of RUB 1.36 billion.

 

Binnopharm

One of Russia's largest full-cycle pharmaceutical companies

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6М 2018

Change

Revenue

707

327

116.2%

1,026

734

39.7%

OIBDA

202

53

281.2%

252

169

49.2%

OIBDA margin

28.6%

16.2%

12.4 p.p.

24.5%

23.0%

1.5 p.p.

Operating income

99

16

505.1%

90

99

(8.8%)

Net profit / (loss) attributable to Sistema

1

(42)

-

(47)

(42)

-

 

Revenue in 2Q 2019 rose by 116.2% year-on-year to RUB 707 million as a result of higher sales in the commercial segment.

 

OIBDA grew by 281.2% year-on-year to RUB 202 million on higher revenue. The OIBDA margin increased by 12.4 p.p. year-on-year to 28.6%.

 

Net profit in 2Q 2019 was RUB 1 million, compared to a net loss of RUB 42 million a year earlier.

 

KEY EVENTS AFTER THE REPORTING PERIOD

 

In July 2019 a consortium of investors that includes the Russian Direct Investment Fund (RDIF), the Russia-China Investment Fund (RCIF, which was established by RDIF and China Investment Corporation), as well as leading Middle Eastern investment funds, announced the acquisition of 28% of the shares in pharmaceuticals holding Alium. Alium brings together the assets of OBL Pharm and JSC Binnopharm. Following the merger of these assets, Alium will become a top-10 pharmaceuticals company in Russia's commercial segment. The holding's well-diversified product portfolio will include around 200 items. The merged company's production capacities include four pharmaceuticals production sites in Moscow and the Moscow region.

 

Cosmos Group

 

One of Russia's leading hotel management companies

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

Revenue

1,441

1,506

(4.4%)

2,524

2,466

2.3%

OIBDA

349

560

(37.6%)

354

636

(44.3%)

OIBDA margin

24.3%

37.2%

(12.9 p.p.)

14.1%

25.9%

(11.8 p.p.)

Operating profit / (loss) [10]

32

376

(91.6%)

(274)

261

-

Net (Loss) / profit attributable to Sistema

(308)

51

-

(929)

(289)

-

 

The year-on-year decline in revenue and OIBDA in 2Q 2019 was the result of a high base effect given a high average daily rate (ADR) in 2Q 2018 when Russia hosted the World Cup.

 

The share of revenue accounted for by hotels outside Russia increased by 7.5 p.p. to 22% in 2Q 2019 on the back of stronger operating results.

 

ADR across the hotel portfolio in 2Q 2019 declined to RUB 3,700 versus RUB 6,900 a year earlier.

 

The average occupancy rate in 2Q 2019 increased by 1.8 p.p. year-on-year to 69.9%. The leader in terms of growth was the Cosmos Hotel, where the average occupancy rate rose by 6.4 p.p. year-on-year to 79.5%.

 

In May 2019 a new 60-room hotel was opened at the Altai Resort complex.

 

 

 

CORPORATE

 

(RUB million)

2Q 2019

2Q 2018

Change

6M 2019

6M 2018

Change

OIBDA

(2,710)

(1,559)

-

(4,259)

(3,211)

-

Net loss

(6,729)

(8,814)

-

(9,203)

(14,085)

-

Corporate Centre's financial liabilities[11]

222,076

236,886

(6.3%)

222,076

236,886

(6.3%)

 

 

 

The Corporate segment comprises companies that control and manage Sistema's interests in its subsidiaries.

 

In 2Q 2019 SG&A at the Corporate Centre declined by 14.0% year-on-year to RUB 1.1 billion, due to optimisation of employee compensation expenses and cuts to administrative expenses at the Corporate Centre. The SG&A/Consolidated Revenue ratio at the Corporate Centre declined from 0.8% in 2Q 2018 to 0.6% in 2Q 2019.

 

The Corporate Centre's financial liabilities stood at RUB 222.1 billion as of 30 June 2019.

 

***

 

For further information, please visit www.sistema.com or contact:

 

Investor Relations

Nikolai Minashin

Tel: +7 (495) 730 66 00

n.minashin@sistema.ru

Public Relations

Sergey Kopytov

Tel.: +7 (495) 228 15 32

kopytov@sistema.ru

 

Sistema PJSFC is a publicly-traded diversified Russian holding company serving over 150 million customers in the sectors of telecommunications, high technology, financial services, retail, paper and packaging, agriculture, real estate, tourism and medical services. The company was founded in 1993. Revenue in 2018 was RUB 773.9 bn; total assets equalled RUB 1.5 trn as of 31 December 2018. Sistema's global depositary receipts are listed under the "SSA" ticker on the London Stock Exchange. Sistema's ordinary shares are listed under the "AFKS" ticker on the Moscow Exchange. Website: www.sistema.com.

 

The Company is not an investment company, and is not and will not be registered as such, under the U.S. Investment Company Act of 1940.

 

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Sistema. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. In addition, there is no assurance that the new contracts entered into by our subsidiaries referenced above will be completed on the terms contained therein or at all. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industries, as well as many other risks specifically related to Sistema and its operations.

 

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE SIX MONTHS ENDED MARCH 31, 2019 AND 2018

 (Amounts in millions of Russian roubles, except for per share amounts)

 

 

 

Six months ended
June 30,

 

Three months ended
June 30,

 

 

2019

 

2018

 

2019

 

2018

 

Revenue

 

   379 645

 

   345 174

 

   194 101

 

   177 160

 

Cost of sales

 

(181 684)

 

(155 545)

 

(92 686)

 

(80 005)

 

Selling, general and administrative expenses

 

(68 969)

 

(64 600)

 

(35 250)

 

(33 331)

 

Depreciation and amortisation 1

 

(67 187)

 

(64 127)

 

(34 059)

 

(32 463)

 

Impairment of long-lived assets

 

(146)

 

(379)

 

(99)

 

(14)

 

Impairment of financial assets

 

(1 613)

 

(2 372)

 

(638)

 

(996)

 

Taxes other than income tax

 

(2 415)

 

(3 018)

 

(1 232)

 

(1 495)

 

Share of the profit or loss of associates and joint ventures

 

(566)

 

   1 752

 

(1 102)

 

   930

 

Other income

 

   4 260

 

   4 160

 

   3 702

 

   3 369

 

Other expence

 

(3 024)

 

(2 734)

 

(2 321)

 

(1 335)

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

   58 302

 

   58 311

 

   30 417

 

   31 820

 

Finance income

 

   4 029

 

   3 622

 

   1 937

 

   2 016

 

Finance costs 2

 

(49 486)

 

(32 270)

 

(22 514)

 

(16 950)

 

Currency exchange gain/(loss)

 

   8 708

 

(7 259)

 

   1 467

 

(6 633)

 

 

 

 

 

 

 

 

 

 

 

PROFIT BEFORE  TAX

 

   21 553

 

   22 403

 

   11 307

 

   10 253

 

Income tax expense

 

(8 930)

 

(9 207)

 

(3 602)

 

(4 057)

 

 

 

 

 

 

 

 

 

 

 

PROFIT/LOSS FROM CONTINUING OPERATIONS

 

   12 623

 

   13 196

 

   7 705

 

   6 196

 

Results of discontinued operations

 

   27 195

 

(398)

 

   6 839

 

   47

 

 

 

 

 

 

 

 

 

 

 

PROFIT FOR THE PERIOD

 

   39 818

 

   12 797

 

   14 544

 

   6 243

 

Attributable to:

 

 

 

 

 

 

 

 

 

Shareholders of Sistema JSFC

 

   23 181

 

(2 919)

 

   6 540

 

(1 676)

 

Non-controlling interests

 

   16 638

 

   15 716

 

   8 005

 

   7 919

 

 

 

 

 

 

 

 

 

 

 

 

 

   39 818

 

   12 797

 

   14 544

 

   6 243

 

Earnings per share (basic and diluted), Russian Rubles:

 

 

 

 

 

 

 

 

 

From continuing operations

 

(0,19)

 

(0,26)

 

   0,20

 

(0,18)

 

From continuing  and discontinued operations

 

   2,44

 

(0,31)

 

0,69

 

(0,18)

 
                   

 

 

 Including RUB 14,277 mln of lease rights amortization for 6 months 2019 out of which RUB 13,795 mln relate to lease that would have been classified as operating under «old» standards

2 Including RUB 9,403 mln  of lease interest expense for 6 months 2019 out of which RUB 8,669 mln relate to lease that would have been classified as operating under «old» standards

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED statement of financial position

as of june 30, 2019 AND DECEMBER 31, 2018

 (Amounts in millions of Russian roubles)

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

ASSETS

 

 

 

 

NON-CURRENT ASSETS:

 

 

 

 

Property, plant and equipment

 

   424 981

 

   422 321

Investment property

 

   20 265

 

   23 310

Goodwill

 

   59 602

 

   59 488

Other intangible assets

 

   110 210

 

   112 125

Right-of-use asset

 

   193 777

 

   194 247

Investments in associates and joint ventures

 

   65 641

 

   34 507

Deferred tax assets

 

   35 105

 

   32 648

Loans receivable and other financial assets

 

   107 387

 

   95 557

Deposits in banks

 

   174

 

   186

Other assets

 

   14 973

 

   15 618

Total non-current assets

 

1 032 115

 

990 007

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Inventories

 

   86 346

 

   97 131

Contract asset

 

   5 994

 

   7 297

Accounts receivable

 

   61 606

 

   63 517

Advances paid and prepaid expenses

 

   14 792

 

   16 984

Current income tax assets

 

   6 724

 

   4 195

Other taxes receivable

 

   20 841

 

   18 641

Loans receivable and other financial assets

 

   81 963

 

   106 329

Deposits in banks

 

   2 907

 

   15 506

Restricted cash

 

   7 369

 

   8 614

Cash and cash equivalents

 

   76 578

 

   114 183

Other assets

 

   1 967

 

   3 090

 

 

   367 087

 

   455 487

Assets of disposed segment

 

   -

 

   19 911

Total current assets

 

   367 087

 

   475 398

TOTAL ASSETS

 

1 399 202

 

1 465 405

 

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED statement of financial position

as of JUNE 30, 2019 AND DECEMBER 31, 2018 (CONTINUED)

(Amounts in millions of Russian roubles)

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

LIABILITIES AND EQUITY

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

Share capital

 

   869

 

   869

Treasury shares

 

(4 329)

 

(4 759)

Additional paid-in capital

 

   75 421

 

   73 375

Retained earnings

 

(41 455)

 

(63 572)

Accumulated other comprehensive (loss)/income

 

   3 975

 

   11 204

Equity attributable to shareholders of Sistema JSFC

 

34 481

 

17 117

Non-controlling interests

 

   27 596

 

   45 911

TOTAL EQUITY

 

62 077

 

63 028

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

Borrowings

 

   540 047

 

   592 442

Lease liabilities

 

   182 493

 

   183 161

Bank deposits and liabilities

 

   4 952

 

   3 414

Deferred tax liabilities

 

   37 985

 

   40 161

Provisions

 

   6 194

 

   4 368

Liability to Rosimushchestvo

 

   7 351

 

   8 097

Other financial liabilities

 

   2 318

 

   1 473

Other liabilities

 

   6 295

 

   6 546

Total non-current liabilities

 

787 635

 

839 662

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Borrowings

 

   162 662

 

   105 893

Lease liabilities

 

   25 104

 

   24 206

Accounts payable

 

   107 814

 

   126 917

Bank deposits and liabilities

 

   136 003

 

   129 872

Income tax payable

 

   1 818

 

   2 775

Other taxes payable

 

   18 884

 

   20 409

Dividends payable

 

   24 344

 

   4 415

Provisions

 

   11 444

 

   73 244

Liability to Rosimushchestvo

 

   7 635

 

   8 113

Contract liabilities and other non-finacial liabilities

 

   50 215

 

   50 141

Other financial liabilities

 

   3 567

 

   9 904

 

 

   549 490

 

   555 889

Liabilities of disposed segment

 

   -

 

   6 826

Total current liabilities

 

549 490

 

562 715

TOTAL LIABILITIES

 

1 337 125

 

1 402 377

TOTAL LIABILITIES AND EQUITY

 

1 399 202

 

1 465 405

 

 

 

 

 

 

 

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 (Amounts in millions of Russian roubles)

 

 

 

 

Six months ended June 30,

 

 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

(Loss)/profit for the period

 

   39 818

 

   12 797

Adjustments to reconcile net income to net cash provided by operations (including discontinued operations):

 

 

 

 

Depreciation and amortization

 

   67 187

 

   64 759

Share of the profit or loss of associates and joint ventures, net

 

   566

 

(1 767)

Finance income

 

(4 029)

 

(3 695)

Finance costs

 

   49 487

 

   33 308

Income tax expense

 

   8 930

 

   9 254

Currency exchange loss/(gain)

 

(12 151)

 

   7 208

Gain from discontinued operations

 

(23 752)

 

   388

(Profit)/loss on disposal of property, plant and equipment

 

(1 102)

 

(1 247)

Impairment loss on loans receivable

 

   1 539

 

   1 728

Dividends received from associates and joint ventures

 

   1 990

 

   1 551

Non-cash compensation to employees

 

   541

 

   287

Impairment of long-lived assets

 

   146

 

   379

Impairment of financial assets

 

   1 614

 

   2 526

Other non-cash items

 

(193)

 

   2 300

 

 

   130 591

 

  129 776

Movements in working capital:

 

 

 

 

Bank loans to customers and interbank loans due from banks

 

(13 191)

 

   9 055

Bank deposits and liabilities

 

   9 953

 

   9 360

Restricted cash

 

   1 245

 

(4 351)

Financial assets/liabilities at fair value through profit or loss

 

   5 170

 

   2 561

Accounts receivable and contract assets

 

(3 557)

 

(4 997)

Advances paid and prepaid expenses

 

   47

 

(2 557)

Other taxes receivable

 

(2 667)

 

(3 083)

Inventories

 

(1 274)

 

(19 510)

Accounts payable

 

(14 826)

 

(6 142)

Subscriber prepayments

 

   791

 

   582

Other taxes payable

 

(207)

 

   3 255

Advances received and other liabilities

 

   3 749

 

   492

Payment in accordance with the Settlement agreement

 

 

 

(80 000)

Payment of fines and penalties related to SEC investigation into former operations in Uzbekistan

 

(55 607)

 

 

Interest paid 3

 

(41 784)

 

(31 460)

Income tax paid

 

(18 127)

 

(12 338)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

   306

 

(9 357)

 

 

3 Including RUB 9,477 mln of lease interest paid for 6 months 2019 out of which RUB 8,744 mln relate to lease that would have been classified as operating under «old» standards

 

 

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (CONTINUED)

(Amounts in millions of Russian roubles)

 

 

Six months ended June 30,

 

 

2019

 

2018

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Payments for purchases of property, plant and equipment and investment property

 

(36 774)

 

(36 576)

Proceeds from sale of subsidiaries net of cash disposed

 

   10 786

 

   -

Proceeds from sale of property, plant and equipment

 

   2 939

 

   2 678

Payments to obtain and fulfill contracts

 

(2 207)

 

(2 104)

Payments for purchases of intangible assets

 

(12 800)

 

(13 140)

Payments for businesses, net of cash acquired

 

(2 689)

 

(2 988)

Payments for investments in associates and joint ventures

 

(16 288)

 

(4 348)

Proceeds from disposal of investments in affiliated companies

 

   524

 

   114

Payments for purchases of financial assets, long-term

 

(9 848)

 

(10 809)

Proceeds from sale of  financial assets, long-term

 

   1 247

 

   1 895

Payments for financial assets, short-term

 

(3 877)

 

(28 111)

Proceeds from sale of financial assets, short-term

 

   28 019

 

   31 260

Interest received

 

   4 199

 

   6 905

Other

 

   1 105

 

(926)

NET CASH USED IN INVESTING ACTIVITIES

 

(35 664)

 

(56 150)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from borrowings

 

  110 706

 

   207 631

Principal payments on borrowings

 

(84 552)

 

(87 637)

Lease liabilities payments 4

 

(11 256)

 

(10 230)

Acquisition of non-controlling interests in existing subsidiaries

 

(14 156)

 

(5 572)

Proceeds from sale of treasury stock

 

   233

 

   -

Proceeds from capital transactions with non-controlling interests

 

   69

 

   -

Dividends paid

 

(1 753)

 

(1 496)

Debt issuance costs

 

(50)

 

(595)

Cash outflow under credit guarantee agreement related to foreign-currency hedge

 

   -

 

(981)

NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES

 

(759)

 

   101 120

Effect of foreign currency translation on cash and cash equivalents

 

(1 488)

 

   1 969

Net decrease in cash and cash equivalents

 

(37 605)

 

   37 582

Cash and cash equivalents at the beginning of the period

 

  114 183

 

   59 959

Cash and cash equivalents at the end of the period

 

   76 578

 

   97 541

 

4 Including RUB 10,865 mln of payments for 6 months 2019 under lease that would have been classified as operating in accordance with «old» standards

SISTEMA PJSFC AND SUBSIDIARIES

UNAUDITED SEGMENTAL BREAKDOWN FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

 (Amounts in millions of Russian roubles)

 

 

 

External revenues

 

Inter-segment revenue

 

Segment operating income/ (loss)

 

6m2019

 

6m2018

 

6m2019

 

6m2018

 

6m2019

 

6m2018

 

MTS

 241 284

 

 229 907

 

 1 890

 

 1 062

 

 58 679

 

 54 356

 

Detsky Mir

 55 898

 

 48 115

 

 1

 

 1

 

 4 720

 

 3 493

 

RTI

 8 438

 

 9 162

 

 27

 

 52

 

(1 582)

 

(608)

 

Corporate

 1 067

 

 996

 

 456

 

 408

 

(4 456)

 

(3 500)

 

Total reportable segments

 306 687

 

 288 180

 

 2 374

 

 1 523

 

 57 360

 

 53 740

 

Other

 72 958

 

 56 994

 

 849

 

 774

 

 6 811

 

 4 353

 

 

 379 645

 

 345 174

 

 3 223

 

 2 297

 

 64 171

 

 58 093

 

Inter-segment eliminations

 

 

 

 

 

 

 

 

(5 868)

 

 218

 

Operating income

 

 

 

 

 

 

 

 

 58 303

 

 58 311

 

Finance income

 

 

 

 

 

 

 

 

 4 029

 

 3 622

 

Finance costs

 

 

 

 

 

 

 

 

(49 486)

 

(32 270)

 

Foreign currency exchange loss

 

 

 

 

 

 

 

 

 8 708

 

(7 259)

 

Profit before tax

 

 

 

 

 

 

 

 

 21 553

 

 22 403

 
                         

 

 

 

 

Appendix A

Operating Income Before Depreciation and Amortisation (OIBDA) and OIBDA margin. OIBDA represents operating income before depreciation and amortisation. OIBDA margin is defined as OIBDA as a percentage of our net revenues. Our OIBDA may not be similar to OIBDA measures of other companies; is not a measurement under accounting principles generally accepted under IFRS and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of profit and loss. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of businesses and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under IFRS, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. OIBDA is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies.

 

Adjusted OIBDA, operating income and profit attributable to Sistema shareholders. The Company uses adjusted OIBDA, adjusted operating income and adjusted profit/(loss) attributable to Sistema shareholders to evaluate financial performance of the Group. These represent underlying financial measures adjusted for a number of one-off gains and losses. We believe that adjusted measures provide investors with additional useful information to measure our underlying financial performance, particularly from period to period, because these measures are exclusive of certain one-off gains and losses.

 

Adjusted operating income and adjusted OIBDA can be reconciled to our consolidated statements of profit and loss as follows:

 

 

 

 

 

RUB millions

2Q 2019

2Q 2018

6M 2019

6M 2018

Operating income

30,418

31,820

58,302

58,311

Accruals related to LTI program at portfolio companies

270 

479 

663 

626 

Other non-recurring (gains) / losses, net

-

(44)

382

923

Provisions for amounts due under contracts with clients at RTI

831

-

1,006

-

Adjusted operating income

31,519

32,255

60,353

59,860

Depreciation and amortisation

34,059

32,463

67,187

64,127

Adjusted OIBDA

65,578

64,718

127,541

123,986

           

 

Adjusted net profit / (loss) attributable to Sistema shareholders can be reconciled to our consolidated statements of profit and loss as follows:

 

 

 

 

 

RUB millions

2Q 2019

2Q 2018

6M 2019

6M 2018

Net profit / (loss) attributable to Sistema

6,540

(1,676)

23,181

(2,919)

Accruals related to LTI program at portfolio companies

203 

392 

462 

453

Other non-recurring (gains) / losses, net

-

(44) 

382

923

Provisions for amounts due under contracts with clients at RTI

723 

-

875 

-

Provision for liability with regards to the U.S. Department of Justice and the U.S. Securities and Exchange Commission investigation, including revaluation (MTS)

-

-

(1,722)

-

Adjusted net profit / (loss) attributable to Sistema

7,466

(1,328)

23,179

(1,542)

           

 

Consolidated net debt. We define consolidated net debt as consolidated total debt less cash, cash equivalents and deposits in banks. Consolidated total debt is defined as total borrowings plus finance lease. The total borrowings is defined as long-term borrowings, short-term borrowings and liability to Rosimushchestvo. We believe that the presentation of consolidated net debt provides useful information to investors because we use this measure in our management of consolidated liquidity, financial flexibility, capital structure and leverage.         

 

Consolidated net debt can be reconciled to the borrowings as follows:

 

RUB millions

As of June 30, 2019

As of March 31, 2019

Long-term borrowings

540,047

572,745

Short-term borrowings

162,662

153,654

Liability to Rosimushchestvo

14,703

15,090

Total borrowings

717,412

741,489

Consolidated finance lease[12]

17,944[13]

18,051[14]

Consolidated total debt

735,356

759,540

Cash and cash equivalents

(76,578)

(104,176)

Deposits in banks

(3,081)

(2,749)

Consolidated net debt

655,871

652,615

 

 

 

 

 

 

 

 


[1] Here and hereafter the financial results of Sistema and its portfolio companies are presented in accordance with IFRS 9, 15 and 16. RTI's results and Sistema's consolidated results for 2Q 2019 and the 6M 2019 are presented to reflect the reclassification of RTI's microelectronics business as discontinued operations; RTI's results and Sistema's consolidated results for 2Q 2018 and 6M 2018 were recalculated to reflect this reclassification. Here and hereafter Sistema's results for 2Q 2019 and 6M 2019 are presented to reflect the reclassification of Leader Invest as discontinued operations; Sistema's results for 2Q 2018 and 6M 2018 were recalculated to reflect this reclassification.

[2]  Here and hereafter see Appendix A for definitions and reconciliations of adjusted OIBDA, adjusted operating income, adjusted net profit attributable to Sistema, consolidated debt and consolidated net debt with IFRS financial performance.

[3] 2Q 2019 net profit reflects the revised valuation of the gain from sale of 51% of Leader Invest to Etalon Group in February 2019. Upon conclusion of an independent appraisal, the effect on net income in 2Q 2019 was RUB 2.8 billion.

[4] Here and from hereon, revenues are presented on an aggregated basis, excluding revenues from intra-segment (between entities in the same segment) transactions, but before inter-segment (between entities in different segments) eliminations, unless accompanied by the word "consolidated". Amounts attributable to individual companies, where appropriate, are shown prior to both intra-segment and inter-segment eliminations and may differ from respective standalone results due to certain reclassifications and adjustments.

[5] Like-for-like (LfL) growth in RUB terms. LfL growth includes only Detsky Mir stores in Russia and Kazakhstan that have been operational for at least 12 full calendar months

[6] This segment consists of online orders via www.detmir.ru, including with in-store pickup at Detsky Mir stores.

[7] The number of Detsky Mir stores including ELC, ABC and Zoozavr.

[8] Adjusted OIBDA, the adjusted OIBDA margin and adjusted net profit are adjusted for accruals related to the LTI programme.

[9] RTI's financial results for 2Q 2019 and 6M 2018 are presented to reflect reclassification of RTI's microelectronics business as discontinued operations, and financial results for 2Q 2018 and 6M 2018 have been revised to reflect the results of this reclassification. In February 2019, RTI Microelectronics, an RTI Group company, signed a legally binding agreement with State Corporation Rostec and JSC Roselectronica to create a combined microelectronics components company called Element LLC. In July 2019, Element LLC was created the parties contributed their controlling stakes in 19 microelectronics component development, production and design companies.

[10] Based on consolidating reporting combining management and operating companies

[11] Including liability to Rosimushchestvo and finance lease.

[12] In accordance with the standard IAS 17

[13] Including RUB 1,363 million of short-term finance lease.

[14] Including RUB 1,307 million of short-term finance lease.




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