Mobile TeleSystems PJSC (MBT) 2017 Q2 法說會逐字稿

Good day, and welcome to the Mobile TeleSystems Q2 2017 Financial and Operating Results Announcement Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Joshua Tulgan. Please go ahead, sir.

Thank you, and a warm welcome to everyone for today's discussion on the company's second quarter 2017 financial and operating results. As usual, I must remind everyone that except for historical information, comments made during this event -- during this call rather may constitute forward-looking statements. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These in turn imply certain risks, a more thorough of which discussion is available in the MTS annual report on Form 20-F and the materials we have circulated today.

MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements reflect changes in risks. Copies of the materials and presentations used in reference in this conference call are available on our company website.

I have to add today that as many of you know, our parent company, Sistema PJSFC, is currently involved in court proceedings in the Russian Federation. Given these circumstances, we are unable to take any questions on this call today. However, any analyst, investor or other stakeholder is welcome to address our Investor Relations department with any question they may have upon the completion of this call. Contact details are, of course, within the materials we've distributed today.

Now I have the pleasure of presenting Mr. Andrey Dubovskov, President and Chief Executive Officer of MTS.

Ladies and gentlemen, thank you for joining us on today's conference call to elaborate on the company's financial and operating results for the second quarter 2017. Joining me to discuss our results are Kirill Dmitriev, Vice President, Sales and Customer Services; and (inaudible) Alexey Kornya, Vice President, Finance and Investments and M&A.

Also joining us for the short time is Vyacheslav Nikolaev. In June, Vyacheslav assumed the role of Vice President, Marketing, and is the group's Chief Marketing Officer. While new to this call, Vyacheslav is not at all new to MTS or its investors. Vyacheslav begins his career at MTS 14 years ago as Investor Relations department. He then moved to the commercial side of the business, and for the past 6 years, he had directly overseen our B2C marketing efforts, among other things.

At MTS, we often discuss what is termed pre-emptiveness, which translates to continuity or succession. We pride ourselves from the experience of our management and our ability to develop our own talent, and Vyacheslav is really a testament to our organizational success and capabilities.

For the first period, group revenue increased 0.7% year-over-year to RUB 106.8 billion. Overall, we see a number factors that continue to give us more optimism about our key markets. First of all, the strong growth in mobile revenues in Russia due to increased usage of a variety of voice and data products, stable growth in Ukraine as more customer adapt 3G services, positive signs in our foreign subsidiaries, including Q-on-Q growth in Armenia and Turkmenistan.

As I mentioned in Q1, we have seen signs of improvement in customer sentiment in many of our markets. Overall, usage of both voice and data is a strong indicator of an improving business and consumer environment, and we see increased consumption of higher-margin products like roaming. In addition, the closure of 500 stores and additional improvements in our retail operations during the first half in 2017 also helped support our EBITDA growth. In sum, this helped us realize a vigorous 8.2% improvement in year-over-year OIBDA to RUB 44 billion.

Now I turn the call over to Vyacheslav, who will further elaborate on our revenue performance within our business units. Alexey and Kirill will then address group profitability in the retail market. Please, Vyacheslav.

Thank you, Andrey. I'd like to highlight a few points, which I believe underline some positive trends in our markets.

For the period, Russia revenue includes 1.6% to RUB 99 million. Primarily, the key driver for growth was an improvement in mobile service revenues, which rose 3.1% on higher overall consumption as well as stronger roaming usage of both voice and data services. We saw handset revenue fall by 3%, largely due to adjustments we made in our handset portfolio in anticipation of further changes in the retail environment. Fixed line revenue in Russia was slightly down year-over-year, but we continue to strengthen our position in the Moscow B2C markets.

In Ukraine, revenue grew 6.3% to UAH 2.9 billion. Data penetration continues to rise in the market, and we are now focusing more on profitable growth. Having for the most part completed our 3G network build, we are in a better position to improve our value proposition to enhance growth prospects in the market.

For the period, profitability was particularly strong in our key markets. In Russia, OIBDA grew a robust 6.0% to RUB 42.1 billion. Key drivers include growth in service revenue, namely through increased usage of a broad number of voice and data products and, of course, optimization in roaming and retail.

In Ukraine, we continue to see sustained growth in profitability as we realize OIBDA of UAH 1.3 billion for a margin of 43.5%. We continue to see scale benefits in our 3G rollout and benefits from our rebranding. We also witnessed a higher ruble contribution from Ukraine despite relative hryvnia weakness to the ruble due to increased profitability.

Group net profit for the period increased over 62% to RUB 14.7 billion. The key factor behind the growth was year-over-year increase of OIBDA. In addition to this, in second quarter 2016, we reported the accelerated realization of up to RUB 3.1 billion in interest expense due to our repurchase of USD 267 million of our 2020 Eurobond notes. It is premature to comment on CapEx or free cash flow trends except to reduce our guidance for the year of spending up to RUB 75 billion on capital expenditure. Quarterly trends are in line with our budgets and expectations, but the stronger-than-expected ruble in first half will translate into ruble savings for the year.

In June, the Annual General Meeting of Shareholders approved the payment of dividends in the amount of RUB 15.6 per ordinary MTS share, RUB 31.2 per ADR or a total of RUB 31.17 billion based on the full year 2016 financial results. In July, the MTS Board of Directors proposed the payment of semiannual dividends of RUB 10.4 per ordinary share, which translates to RUB 20.8 per ADR, for a total of RUB 20.78 billion based on the first half 2017 financial results. This was proposed to the extraordinary general meetings of shareholders to be held this September.

Now I turn over the call to Kirill.

Hello, everyone. On our past disclosure, we announced that we had closed roughly 500 stores in Q1. In Q2, we suspended additional closures, pending developments in the retail market, which would allow us to continue reducing our footprint.

In July, our peers announced changes to their distribution strategies, which we believe will ultimately benefit both operators and consumers. Reducing retail expenses will obviously enhance profitability, but we see other opportunities too to enhance our service offerings as well. As we have discussed previously, we already are invested into these services, both as a way to differentiate ourselves from our competitors and improve customer service. By the end of Q2, we saw over 9 million on average users of our My MTS application. The application is now firmly established as the market's leading self-care application and the platform for future development of our digital services.

Now I turn the call over to Mr. Andrey Dubovskov.

Thank you, Kirill. As we have reported on the halfway mark for 2017, we need to further revisit the guidance we gave at the beginning of the year.

Initially, we saw a great deal of uncertainty about both of our markets and our competitive environment. Recently, you saw how our strong performance and our general optimism in the market give us comfort in updating our group. In terms on of revenue, we do not see so much reason to adjust our group outlook to plus minus 2%. Reduced sim card sales may negatively impact revenue, while ongoing changes in retail may damp our outlook for handset sales. We also continue to see risk in markets of our foreign subsidiaries and the ruble contribution of these operations may swing dramatically due to currency volatility. Overall, our H1 sales fell within this range.

During the first half of the year, we saw strong OIBDA performance, and this allow us to rise our group OIBDA and guidance to greater than 4% growth for 2017. Many factors still may positively or negatively impact this growth rate, including competitive factors as well as macroeconomic factors in Russia, Ukraine and our foreign subsidiaries. But we have seen a step-up in consumer and business sentiment in our major markets, and the slightly strong ruble in Q2 was indicative of a relative macroeconomic calm during the period. And as Alexey stated, we are comfortable lowering our CapEx outlook to RUB 75 billion for the year.

Obviously, our markets are volatile and the environment can turn quickly. We expect usage of voice and data products to continue to be strong, but any number of macroeconomic factors could impair both business and consumer sentiment. But as both Alexey and Kirill discussed, changes to competitor distribution strategies may allow us to further use our retail footprint and find out areas to optimize costs. Unfortunately, we just have no expectation of how long it may take for the market to shift and allow us to begin to implementing changes to our retail network.

And with that, we'll have to finish the call. Naturally, we appreciate the opportunity to address the investment community. And as I stated, anyone is welcome to contact the Investor Relations department and ask further questions on our financial and operating results for the period or the information that we've disclosed.

A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate everyone's interest and thank those who took the time to dial in today. Thank you very much.

And this concludes today's call. Thank you for your participation. You may now disconnect.