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Sistema JSFC

June 4, 2019

Sistema announces financial results for the first quarter 2019

Moscow, Russia 4 June 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 first quarter ended 31 March 2019.

SUCCESSFUL DELIVERY AGAINST STRATEGIC AND OPERATIONAL GOALS

                            Sustained revenue growth1 due to strong results from the majority of portfolio companies.

                            At least double-digit OIBDA growth at MTS, Detsky Mir, Segezha Group, Agroholding Steppe, and Medsi driven by excellent operating results and financial discipline.

                            Increased operational scale in real estate development: In February 2019, Sistema sold 51% of JSC Leader Invest to Etalon Group, while retaining a 49% stake in the company. Following this transaction, Sistema acquired 25% of Etalon Group for USD 226.6 million. The transactions create a top-three player in the Moscow and St Petersburg markets, bring together complementary development portfolios, and allow Leader Invest to leverage Etalons general contracting capacity and regional sales network to accelerate the construction and sales of its own projects, as well as generating significant synergies in construction and reducing administrative expenses.

                            Strengthened position in the fast-growing e-commerce market: In February 2019, Sistema acquired 18.7% of Russia's leading multi-category online retailer, Ozon Holdings, from MTS for RUB 7.9 billion. The Company has also acquired shares from a number of minority shareholders in Ozon. As a result, Sistemas direct ownership in Ozon stands at 21.9%. In addition, venture fund Sistema_VC holds a 16.3% stake in Ozon. The decision to increase the stake is based on Sistemas strategic bet on growth prospects for e-commerce and market consolidation through investments in the market leader.

                            Increased and crystalized value of pharmaceuticals business: In December 2018, Sistema acquired a stake in leading pharmaceutical company OBL Pharm for RUB 1.83 billion, as part of an investment consortium consisting of VTB and members of the OBL Pharm management team. The strategic aim of the transaction is to merge OBL Pharm with Sistemas pharmaceutical holding, Binnopharm, and to build the combined company, operating under the Alium brand, into a top-five pharmaceutical producer in the commercial segment, the fastest-growing segment of the Russian pharma market. In April 2019 the Russian Direct Investment Fund (RDIF), the Russia-China Investment Fund (RDIF) and major Middle Eastern investors joined the project, and will invest more than RUB 4 billion to acquire a stake in OBL Pharm.

                            Debt portfolio optimisation via an active presence on the public bond market: In February April 2019, Sistema successfully returned to the local capital market. The Corporation repurchased series 001P-07 bonds in the amount of RUB 482.2 million out of the total of RUB 10 billion via a tender offer, and completed a secondary placement of the same amount, issued two RUB 10 billion series 001P-009 and series 001P-10 bonds. The placements generated significant investor interest in Sistemas debt securities and demonstrated positive market perception of the Corporations investment case. Proceeds from these placements were used in May 2019 to redeem at maturity the Companys USD 500 million Eurobond.

                            Dividend payments: In March 2019, Sistemas Board of Directors resolved to recommend that the Annual General Meeting of Shareholders approve dividends for the full year 2018 of RUB 1,061.5 million (which corresponds to RUB 0.11 per ordinary share or RUB 2.2 per GDR). 

1Q 2019 FINANCIAL RESULTS

                            Consolidated revenue increased by 10.4%[1] year-on-year to RUB 185.5 billion.

                            Adjusted OIBDA[2] increased by 4.5% year-on-year to RUB 62.0 billion; the adjusted OIBDA margin was 33.4%.

                            Adjusted net profit attributable to Sistema[3] was RUB 15.7 billion.

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

Sistema continues to excel in our core competency: developing assets. Our portfolio companies go off to a strong start to the year, delivering excellent operational and financial results. Our portfolio companies continued to set the trend in their respective markets, expanded the range of products and services they offer customers, and increased their market shares.

Leveraging its core user base and advantages of scale, MTS is expanding in attractive complementary digital industries cloud services, e-sports and Internet of Things. Detsky Mir continues to open new stores in Kazakhstan and Belarus, transforming from a national to an international brand, while simultaneously strengthening its e-commerce presence in the rapidly developing Russian market. Segezha Group showcased historically strong efficiency by posting a record OIBDA margin, while growing sales. Agroholding Steppe continues to expand its business: revenue grew by triple digits primarily due to growth in the Agrotrading segment. Steppe is also continuing to build a port on the Azov Sea and two dairy farms in the Rostov and Krasnodar regions. Medsi extended its lead over its competitors in the private healthcare market, delivering high-quality growth in both the Mandatory and Voluntary Health Insurance segments, as well as the individual patients segment.

As our portfolio companies continue to deliver strong results and generate stable cash flow for the Corporation, work is underway at the Corporate Centre to further crystallise the value of our businesses. In the first quarter we focused on three areas: real estate, pharmaceuticals and e-commerce.

With the sale of a controlling stake in Leader Invest to Etalon Group and the subsequent acquisition of a stake in Etalon, we laid the groundwork for creation of a new residential real estate market leader in Moscow and St. Petersburg. Integration of the two businesses is underway and we expect to see benefits of synergies and scale in the near future. Another major project relates to our pharmaceuticals business. We acquired leading Russian pharmaceutical company OBL Pharm as part of a consortium of investors, and are currently working to merge it with our existing asset, Binnopharm, under the brand name Alium. In April, the RDIF, RCIF and major Middle Eastern sovereign wealth funds signed on as co-investors, confirming the strong investment case for this project.

We also increased our stake in leading multi-category online retailer Ozon through the consolidation of a stake owned by MTS and acquisition of shares of several minority shareholders. Ozon is well placed to emerge a market-leader from the fragmented e-commerce sector as the market leader, which will enhance the value of Sistemas stake in the company.  By increasing our stake, Sistema aims to focus more resources and energy toward this goal.

***

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 (CEST) / 5:00 pm (Moscow time) to present and discuss the 1Q 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

+1 929 477 0402

866 575 6539 (toll-free)

Conference ID: 7037035

Link to webcast: https://webcasts.eqs.com/sistema20190604

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

A replay of the conference call will be available on Sistemas website www.sistema.com for at least seven days 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 financial results of Sistema and its portfolio companies are presented in accordance with IFRS 9, 15 and 16. Sistemas results and RTIs results for 1Q 2019 and 1Q 2018 are presented to reflect reclassification of RTIs microelectronics business as discontinued operations. 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. The parties agreed to combine under the new company controlling stakes in 19 microelectronics component development, production and design companies. Sistemas results for 1Q 2019 and 1Q 2018 are presented to reflect reclassification of Leader Invest as discontinued operations. On 19 February 2019, Sistema divested 51% stake in Leader Invest to ETALON GROUP PLC.

[2] Here and hereinafter 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] Impact of Leader Invests operations prior to the date of the deconsolidation of this business, net income from divestiture of 51% stake in Leader Invest and subsequent revaluation of investments in associates (49% stake in Leader Invest) amounted to RUB 17.1 billion.

 

 

 

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