29/08/2019

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 DELIVERY AGAINST STRATEGIC AND OPERATIONAL GOALS

  • Sustained revenue growth [1]  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 [1] increased by 9.6% 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 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.”

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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

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[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.

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Contact PR

Sergey Kopytov
Tel.: +7 (495) 228 15 27
kopytov@sistema.ru

Eleonora Veitsman
Tel.: +7 (495)  730-17-05
Veitsman@sistema.ru

Dmitry Kolchugin
Tel.: +7 (495)  692-10-88
kolchugin@sistema.ru