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Sistema JSFC

April 3, 2018

Sistema announces financial results for the fourth quarter and full year 2017

Moscow, Russia 3 April 2018 Sistema PJSFC (Sistema or the Company, together with its subsidiaries, the Group) (LSE: SSA, MOEX: AFKS), a publicly-traded diversified holding company operating primarily in Russia and the CIS, today announces its consolidated financial results in accordance with International Financial Reporting Standards (IFRS) for the fourth quarter and full year ended 31 December 2017.

OPERATIONAL AND STRATEGIC HIGHLIGHTS

  • Continued revenue growth driven by publicly-traded assets, Medsi and hospitality business
  • All key assets profitable on adjusted OIBDA level
  • Landmark IPO of Detsky Mir in the first quarter of 2017 with share price up 13% by end of March 2018
  • Completion of merger of SSTLs telecommunications business with Reliance Communications
  • Interim dividend of RUB 2.3 billion paid for 9M 2017. Dividends totalling RUB 4.2 billion were not paid to majority shareholder Vladimir Evtushenkov at his request
  • Andrey Dubovskov appointed as Sistema President in March 2018

FULL YEAR 2017 FINANCIAL RESULTS

  • Consolidated revenues up 3.5% YoY to RUB 704.6 billion
  • Adjusted OIBDA1 up 8.0% YoY to RUB 199.5 billion, with an adjusted OIBDA margin of 28.3%
  • Detsky Mir, Medsi and Steppe delivered 21.9%, 24.0% and 22.2% YoY revenue increases, respectively, with OIBDA margins of 11.0%, 16.9% and 39.4%, respectively
  • Adjusted profit attributable to Sistema1 of RUB 4.1 billion, up 178.1% YoY

FOURTH QUARTER FINANCIAL RESULTS

  • Group revenues up 8.4% YoY to RUB 198.6 billion.
  • Adjusted OIBDA[1]up 13.8% YoY to RUB 47.3 billion with an adjusted OIBDA margin of 23.8%
  • Adjusted loss attributable to Sistema1 of RUB 1.6 billion
  • Net financial liabilities at the Corporate Centre level[2] of RUB 213.4 billion as of 31 December 2017
  • Cash position[3] at the Corporate Centre level as of 31 December 2017 amounted to RUB 13.6 billion 

COURT CASE AND SETTLEMENT WITH ROSNEFT

  • A RUB 106.6 billion claim against Sistema and its subsidiary Sistema-Invest was filed in the Republic of Bashkortostan Arbitration Court (the Court) in May 2017 by Rosneft and Bashneft, and joined later by the Republic of Bashkortostan to recover damages allegedly incurred by Bashneft during its reorganisation in 2014. The size of the claim was subsequently increased to RUB 170.6 billion. In June 2017, the Court imposed an arrest on the following Sistema assets: 31.8% in the share capital of MTS, 100% in the share capital of Medsi and 90.47% in the share capital of Bashkirian Power Grid Company. In addition, the bailiffs service imposed restrictive measures limiting Sistemas right to receive income on the arrested shares.
  • A RUB 131.6 billion claim against Sistema and Sistema-Invest was filed in the Court in December 2017 by Rosneft and Bashneft to recover damages that allegedly were the result of dividend payments by Bashneft to its shareholders. In connection with the Claim, the Court ordered an arrest of a significant part of Sistemas assets and restricted Sistemas rights to receive income on the arrested securities and shareholdings.
  • On 22 December 2017, Sistema, Sistema-Invest, Rosneft, Bashneft and the Republic of Bashkortostan signed a Settlement Agreement which resolved all litigation between the parties related to the fact that Bashneft and its affiliates were owned and controlled by Sistema and Sistema-Invest. Under the agreement, all sides agreed to withdraw all lawsuits and abandon all claims against each other, and Sistema assumed an obligation to pay Bashneft RUB 100 billion.
  • By 5 March 2018, Sistema had fully performed its financial obligations under the Settlement Agreement, having made payments to Bashneft totalling RUB 100 billion.
  • By 21 March 2018, all unsettled claims previously filed by parties of the Settlement Agreement against each other were withdrawn and all respective injunctive measures introduced by the Court and bailiffs in respect of Sistemas and Sistema-Invests assets were lifted by the Court. The Settlement Agreement was thus fully and duly executed.
  • In 1Q 2018 Sistema obtained from creditors all previously requested waivers related to technical non-compliance by Sistema with certain provisions of its credit facilities, as announced in 3Q 2017. As of today, no creditor has the right to demand accelerated payments under Sistemas credit agreements.

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

In December 2017, Sistema, Rosneft, Bashneft and the Republic of Bashkortostan reached an agreement to settle all litigations related to Sistemas ownership of Bashneft. In the first quarter of this year, Sistema fulfilled all its obligations under this agreement by securing the necessary financing and completing payments to Bashneft totalling RUB 100 billion. All parties have now withdrawn their legal claims against each other, and all of Sistemas assets are free of the injunctions imposed as part of the previously filed claims.

Despite the challenges of 2017, Sistema managed to not only preserve its portfolio, but to grow its assets and generate efficiencies. These achievements are reflected in the solid financial results we are announcing today. MTS benefitted from an improved operating and competitive environment, and grew revenue by 1.7% while improving its OIBDA margin and delivering very strong free cash flow. Even more important for us as a shareholder is that MTS has made excellent progress in its digital transformation, leveraging synergies with MTS Bank and also expanding in e-commerce, the Internet of Things and e-sports.

Detsky Mir continued its robust expansion, posting the highest growth rate among Russian publicly traded retailers, opening 104 new stores and delivering impressive operational efficiency. The company is also prioritising e-commerce, leveraging its chain of more than 620 stores.

Our non-public assets also posted strong results. I would like to highlight the significantly improved performance of our healthcare operator, Medsi, which continued to ramp-up its flagship asset the ultra-modern clinical-diagnostic centre at Krasnaya Presnya in Moscow as well as strengthen vertical integration across its assets. Medsi increased revenue by 24% in 2017 and more than tripled adjusted OIBDA.

We also saw a turnaround at MTS Bank, as the bank returned to profitability for the full year thanks to lower provision charges and good strategic progress in its cooperation with MTS.

Segezha Group delivered moderate growth despite strong pressures from the appreciation of the rouble, and also maintained strong investment momentum. The company is now led by Mikhail Shamolin, my predecessor as President of Sistema and one of the most accomplished CEOs in Russia. Mikhails experience and expertise will elevate Segezha to a new level on the companys way to a potential IPO.

Today Sistema continues its transformation as an investment company and Im excited to arrive as CEO at such an important moment for our business. Our key priorities for 2018 are to diversify our investment resources and transform the investment process, optimise Sistemas structure and SG&A costs and deleverage in order to increase our NAV and market capitalisation. We have just created a new Digital vertical to capture exceptional growth opportunities in technology- and Internet-driven industries, and we will also continue to strengthen our fund franchise in order to invest in this and other promising sectors of the Russian economy and beyond.

Having spent more than 14 years working within Sistema Group, Im confident that Sistema has a bright future, and I look forward to continuing to contribute to value creation to the benefit of all the companys stakeholders.

***

Conference call information

Sistemas management will host a conference call today at 10:00 am (New York time) / 3:00 pm (London time) / 4:00 pm (CET) / 5:00 pm (Moscow time) to present and discuss the 2017 results.

The dial-in numbers for the conference call are:

Russia

+7 495 213 1767

8 800 500 9283 (toll free)

United Kingdom

+44 330 336 9105

0800 358 6377 (toll free)

United States

+1 929-477-0353

800-289-0438 (toll free)

Conference ID:6357159

Alternatively, you can quote the conference call title: Sistema Fourth Quarter and Full Year 2017 Financial Results.

A replay of the conference call will be available on Sistemas website www.sistema.comfor at least seven days after the event.

***

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

Investor Relations

Yuri Krebs

Tel: +7 (495) 730 66 00

y.krebs@sistema.ru

Public Relations

Sergey Kopytov

Tel.: +7 (495) 228 15 32

kopytov@sistema.ru

Download full version of press release


[1]See Attachment A for definitions and reconciliation of adjusted OIBDA and adjusted profit attributable to Sistema to IFRS financial measures.

[2]See Attachment A for definitions and reconciliation of net financial liabilities at the Corporate Centre level to the indebtedness of the Corporate segment

[3]Including highly liquid deposits and liquid financial investments, based on management accounts. See Attachment A for reconciliation to IFRS financial measures.

 

 

 

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