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SISTEMA PJSFC Sistema PJSFC: Sistema announces financial results for the second quarter 2020

Directive transparence : information réglementée

03/09/2020 09:00

Sistema PJSFC (SSA)
Sistema PJSFC: Sistema announces financial results for the second quarter 2020

03-Sep-2020 / 10:00 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 2020

 

Moscow, Russia -  03 September 2020 - Sistema PJSFC ("Sistema" or the "Company", together with its subsidiaries and associates, "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 2020 ended 30 June 2020.

 

KEY GROUP HIGHLIGHTS

 

  • Appointment of Sistema's new President. Vladimir Chirakhov was appointed President of Sistema in April 2020.
  • Successful placements of Detsky Mir shares. In June 2020 and September 2020, Sistema and the Russia-China Investment Fund (RCIF) held two successful offerings of Detsky Mir shares, resulting in an increase of Detsky Mir free float up to almost 100% and full exit of Sistema and  RCIF from the Detsky Mir shareholdings. In June 2020, procceds to Sistema amounted to RUB 8.9 billion, in September 2020 to RUB 16.9 billion.
  • New bonds issue. In May 2020, Sistema successfully placed series 001Р-13 bonds in the amount of RUB 15 billion at a 6.60% coupon rate with a 4-year put option
  • Dividends for 2019. In June 2020, the Annual General Meeting of Shareholders of the Company approved the distribution of RUB 1.25 billion in dividends for 2019.

 

CORPORATE EVENTS AFTER THE END OF THE REPORTING PERIOD

 

  • Full exit from the Detsky Mir shareholding.  In September 2020, Sistema and RCIF sold their remaining stakes in Detsky Mir through offering resilting 
  • Increased efficiency in managing pharmaceuticals business. In July 2020, in order to improve efficiency in the management of pharmaceutical assets, Sistema established ALIUM GROUP and transferred its equity stakes in Sintez and Alium to be managed by ALIUM GROUP[1]. 
  • New bonds issues. In July 2020, the Corporation placed RUB 10 billion series 001Р-14 exchange-traded bonds at a 6.35% coupon rate with a 2.75-year put option. Additionally, the Company repurchased its series 001P-06 bonds in the amount of RUB 4.4 billion and series 001P-09 bonds in the amount of RUB 6.2 billion. In September 2020, the Corporation placed RUB 10 billion  series 001P-15 exchange-traded bonds at a 6.70 coupon rate and with a 4-year put option.
  • Optimisation of the debt portfolio. In September 2020, Sistema and Sberbank signed an agreement whereby Sistema's stake in MTS has been fully released from pledge. A loan secured by a pledge of 16% MTS shares was raised by Sistema in February 2018.  The outstanding loan amount is RUB 37.9 billion with maturity in 2025.
  • MTS share buyback. As part of the MTS's share buyback programme of up RUB 15 billion, Sistema's wholly-owned subsidiary Sistema Finance S.A. in July 2020 sold 2,587,059 ordinary shares of PJSC MTS to a wholly-owned subsidiary of MTS LLC Bastion for RUB 834 million.

 

INITIATIVES TO COMBAT COVID-19

 

  • Production of COVID-19 vaccine. Pharmaceutical plant Binnopharm[2], part of Alium Group, became the only production facility in Russia to be engaged in the manufacturing of the world's first licensed vaccine against COVID-19 ("Sputnik V"), in partnership with the Gamaleya Scientific Research Institute of Epidemiology and Microbiology. Binnopharm's production capacity enables it to produce around 1.5 million doses of the vaccine per year. Mass production of the vaccine is scheduled to start at the end of 2020. 
  • Production of pharmaceutical products to fight COVID-19. Over 40 pharmaceutical products produced by Sintez and Alium were recommended by the Ministry of Health of the Russian Federation as medications for the treatment and prevention of COVID-19 and its co-morbidities.
  • Increasing capabilities for COVID-19 diagnostics. In April 2020, Sistema-Biotech obtained a registration certificate issued by the Russian healthcare regulator Roszdravnadzor for its highly accurate laboratory-based coronavirus detecting test system and, in May 2020, signed a contract with the healthcare department of the Moscow city government to supply 1 million test systems. Sistema-Biotech has also launched clinical and laboratory trials of a new rapid response system able to detect COVID-19 within 30 minutes and within the workplace and public places, obtaining a registration certificate issued by Roszdravnadzor in July 2020.  In August, the Company also registered two new test systems able to improve the efficiency and speed of laboratory operations.
  • Medical help against COVID-19. Medsi has provided a full range of diagnosis and treatment measures, including comprehensive out-patient examinations (computer tomography, PCR analyses and quality testing for coronavirus antibodies); at-home care for COVID-19 patients; repurposing its in-patient unit as a hospital where, since 1 April, more than 2,000 patients have been cured of COVID-19 and pneumonia; remote consulting and rehabilitation services for patients recovered from COVID-19 and pneumonia via the SmartMed telemedical service.
  • Creation of a Support Centre for medical personnel focused on providing organisational and financial support to healthcare workers during and in the aftermath of the pandemic. Over RUB 1.5 billion were raised to support the social media initiative #StranaBezVirusa; Sistema donated 25,000 COVID-19 diagnostic test systems to approximately ten Russia regions, alongside donations of pharmaceuticals, personal protective equipment, thermal cameras, lung ventilators, ambulance cars, and other new equipment; 200,000 protective suits were purchased from China and donated to frontline hospital staff in Moscow and the Moscow region. 

 

PROGRESSING IN ESG

 

  • In May 2020, Sistema's Board of Directors approved an amended version of the Corporate Governance Code consistent with international best practices in ESG (Environmental, Social and Governance) and reflecting the Corporation's commitment to best-in-class ESG performance.
  • In June 2020, Sistema's Board of Directors approved Sistema PJSFC's new Sustainability Policy, which codifies the Corporation's approach to sustainability and responsible investment management.
  • Sistema was confirmed as a constituent of the FTSE4Good Index Series for the fifth year in a row following the June 2020 index review. This attests to Sistema's commitment to responsible investing and portfolio management and to improvement of sustainability practices and reporting at the Group level and within portfolio companies.

 

2Q 2020 FINANCIAL HIGHLIGHTS

 

  • Consolidated revenue[3] remained largely unchanged year-on-year and stood at RUB 155.1 billion.
  • Adjusted OIBDA[4] amounted to RUB 54.8 billion, a slight decrease of 0.6% year-on-year.
  • Adjusted OIBDA margin was 35.4%.
  • Adjusted net profit attributable to Sistema amounted to RUB 1.9 billion.

 

 

Vladimir Chirakhov, President and Chief Executive Officer of Sistema, said:

 

"In the second quarter 2020, despite the very considerable impact felt by the Russian and the global economy as a result of the pandemic, Sistema's diversified portfolio proved resilient and delivered stable results. Year-on-year we posted only a minor reduction in consolidated revenues as weaker performance of Business Nedvizhimost, Cosmos Hotel Group and Medsi under the impact of the lockdown was offset by strong revenue dynamics at MTS and Segezha.

 

MTS delivered outstanding results despite the loss of international roaming revenue and reinforced its market leadership.  Segezha Group achieved a year-on-year increase in revenue on the back of further improvement in efficiencies both in production and marketing and despite softer global markets for its products. Medsi successfully adapted its operations to combat COVID-19 and while it saw revenue contracting year-on-year, the results far exceeded our initial expectations.  

 

We are now looking ahead with cautious optimism as we see some encouraging signs of recovery across our portfolio, particularly at the level of portfolio companies hit most severely during the second quarter - our hospitality, healthcare and rental businesses.

 

Despite market dislocations, Sistema continues to monetise assets in line with its strategy and value creation model. Sistema has now fully exited Detsky Mir via two market transactions in June and September. The history of Sistema's shareholding in Detsky Mir showcases the transformative value that Sistema can add to its portfolio companies and illustrates the investment proposition that the Group offers to its investors.

 

We are also proud that Detsky Mir has become the first Russian company that has achieved almost a 100% free float. This is a significant milestone in the development of the Russian capital markets and corporate governance.

 

I had the privilege of serving as the company's CEO for eight years, and being part of the team that made this transformation a reality.  I am confident that Detsky Mir will continue to go from strength to strength and I wish the management team every success for the future."

 

***

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 2020 results.

 

To participate in the conference call, please dial:

 

Russia

+7 495 213 1767 

8 800 500 9283 (toll free)

 

UK

+44 330 336 9125

0800 358 6377 (toll free)

 

US

+1 929-477-0324 

800-289-0571 (toll free)

 

Conference ID: 7127461

 

Link to webcast: https://webcasts.eqs.com/sistema20200903

 

Or quote the conference call title: "Sistema Second Quarter 2020 Financial Results".

 

A replay of the conference call will be available on Sistema's 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

 

SISTEMA RESULTS REVIEW

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

155,124

155,930

(0.5%)

313,370

304,774

2.8%

Adj. OIBDA

54,843

55,195

(0.6%)

108,497

108,184

0.3%

Operating profit

23,395

25,519

(8.3%)

46,289

49,996

(7.4%)

Net profit/ (loss) attributable to Sistema

581

6,540

(91.1%)

(9,633)

23,179

-

Adj. net profit / (loss) attributable to Sistema

1,935

7,466

(74.1%)

(7,475)

          23,179

-

 

In 2Q 2020, Sistema's consolidated revenue remained largely unchanged year-on-year and amounted to RUB 155.1 billion. This was primarily due to the strong performance of MTS, driven by growth in mobile service revenue and the revenue of MTS Bank and Segezha Group, as a result of revenue increases on the back of growth in the production and sales of paper, plywood and sawn timber, and the impact of rouble depreciation on export revenue.

 

Adjusted OIBDA[5] slightly decreased by 0.6% year-on-year, driven by the decreased OIBDA of the hospitality segment and the Group's rental business, compensated by the increased OIBDA of MTS, following revenue growth and reduced commercial and personnel expenses, and the significantly improved financial performance of Оzon.

 

Adjusted net profit amounted to RUB 1.9 billion in 2Q 2020. Year-on-year dynamics was primarily impacted by a high base effect in 2019 when Sistema recognised a RUB 4.1 billion gain from divestiture of high-tech assets and a RUB 2.8 billion gain from completion of the fair value appraisal of the remaining equity stake in Leader Invest upon its deconsolidation as a result of the sale of 51% stake to Etalon Group.

 

The Group's selling, general and administrative expenses (SG&A) declined by 4.1% year-on-year to RUB 28.1 billion in 2Q 2020 mainly driven by decreased SG&A at MTS, hospitality and healthcare assets. The SG&A/Group revenue ratio decreased slightly year-on-year by 0.7 p.p. and amounted to 18.1%.

 

CAPEX decreased by 5.1% year-on-year and amounted to RUB 26.8 billion in 2Q 2020, primarily due to CAPEX reduction at MTS as a result of delays with  equipment supply and the postponement of the MTS's ecosystem development projects against the backdrop of the pandemic.

 

OVERVIEW OF PORTFOLIO COMPANIES

 

MTS

LEADING TELECOMMUNICATIONS OPERATOR AND DIGITAL SERVICES PROVIDER IN RUSSIA

 

(RUB million)[6]

 2Q 2020

2Q 2019

Change

6M 2020

    6M 2019

Change

Revenue

117,730

116,165

1.3%

237,339

225,997

5.0%

Adj. OIBDA[7]

51,171

49,368

3.7%

103,007

103,394

  (0.4%)

Adj. OIBDA margin

43.5%

42.5%

1.0 p.p.

43.4%

45.8%

(2.3 p.p.)

Operating profit

25,592

25,213

1.5%

52,408

55,641

(5.8%)

Adj. net profit attributable to Sistema[8]

6,346

6,353

 (0.1%)

15,376

13,429            

 14.5 %

                     

 

MTS's revenue increased by 1.3% year-on-year to RUB 117.7 billion in 2Q 2020, driven by growth in mobile service revenue on the back of a tariff increase in 1Q 2020 and growth in the revenue of MTS Bank.

 

In 2Q 2020, adjusted OIBDA grew by 3.7% year-on-year and amounted to RUB 51.2 billion, backed by revenue increase and reduced commercial and personnel expenses. This was despite a fall in revenue from international roaming and the creation of additional reserves by MTS Bank.

 

Adjusted OIBDA margin increased by 1.0 p.p. year-on-year in 2Q 2020 and stood at 43.5%.

In 2Q 2020, adjusted net profit was flat in 2Q 2020 compared with 2Q 2019 primarily due to steady revenue flow from the core telecom business and lower net interest expenses. The indicator was negatively impacted by the creation of additional reserves by MTS Bank and the revaluation effect related to the use of derivative instruments for managing the FX position.

 

CAPEX. In 2Q 2020, capital expenditure decreased year-on-year mainly due to delays with equipment supply and the postponement of ecosystem development projects against the backdrop of the pandemic.

 

OUTLOOK FOR 2020

 

MTS forecasts slight revenue growth of 0-3% in 2020, a possible decline in OIBDA of up to -2%, and that capital expenditure will remain at RUB 90 billion.

 

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

 

Dividends for FY2019. In June 2020, the Annual General Meeting of Shareholders approved dividends for FY 2019 to the amount of RUB 20.57 per ordinary share.

 

Dividends for 6M 2020. In July 2020, the Board of Directors recommended that the Annual General Meeting of Shareholders distribute 6M 2020 dividends of RUB 8.93 per ordinary share. The Annual General Meeting of Shareholders will be held on 7 September 2020.

 

Russia's first 5G license. In July 2020, MTS was granted Russia's first license for 5G operations in the 24.25-24.65 GHz mmWave band under the 5G/IMT-2020 standard. The license covers 83 Russian regions.

 

COVID-19. The COVID-19 outbreak and subsequent border closures led to a fall in revenue from international roaming, increased reserves at MTS Bank due to increased credit risks, and a slowing down in retail sales at MTS stores. There was a positive impact from the reduction in operating expenses at offices closed during the lockdown period.

 

Forestry Holding Segezha Group

LEADING RUSSIAN VERTICALLY INTEGRATED FORESTRY HOLDING

 

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

16,879

15,505

8.9%

31,211

29,992

4.1%

Adj. OIBDA

3,578

3,782

(5.4%)

6,204

7,752

(20.0%)

Adj. OIBDA margin

21.2%

24.4%

(3.2 p.p.)

19.9%

25.8%

(5.9 p.p.)

Operating profit

2,012

2,419

(16.8%)

3,103

5,128

(39.5%)

Adj. net profit/(loss) attributable to Sistema

3,156

1,325

        138.2 %

(2,064)

4,055

        -

               

 

In 2Q 2020, Segezha Group's revenue increased by 8.9% year-on-year to RUB 16.9 billion primarily due to an increase in the volume and price of sawn timber sales, as well as growth in the sales of paper and plywood. Growth of the average FX rate year-on-year had a positive impact on export revenue dynamics.

 

Segezha Group's adjusted OIBDA amounted to RUB 3.6 billion in 2Q 2020. Adjusted OIBDA decreased by 5.4% year-on-year in 2Q 2020, mainly due to the decline in paper prices year-on-year as a result of a temporary drop in demand across international markets amid the COVID-19 pandemic. The decrease in adjusted OIBDA was also caused by an increase in logistics costs due to higher transport tariffs against the backdrop of the pandemic.

 

Adjusted OIBDA margin declined moderately by 3.2 p.p.  year-on-year to 21.2% in 2Q 2020.

 

Adjusted net profit increased more than twofold year-on-year to RUB 3.2 billion in 2Q 2020, driven by currency exchange differences from the revaluation of the company's FX-denominated debt.

 

Paper output increased by 3.8% year-on-year to 104,800 tonnes[9] in 2Q 2020 mainly driven by improved efficiencies. The volume of paper sales increased by 26.5% to 73,500 tonnes, primarily as a result of inventory reduction. Additional volume was sold to existing customers and new customers in Peru, Iran, Chile, Argentina, Azerbaijan, and Uzbekistan.

 

The output volume of paper sacks declined by 4.6% year-on-year to 337.8 million units[10] due to weaker demand in the product sales markets. This negative effect was partially offset by an increased share of higher margin products in the product portfolio.

 

In 2Q 2020, paper sacks sales volumes decreased by 5.9% year-on-year to 344.9 million units, mainly due to the suspension of operations in the construction industry and the temporary closure of retail businesses amid the COVID-19 pandemic.

 

Plywood output grew by 6.3% year-on-year to 49,500 cu m in 2Q 2020 due to the ahead of schedule completion of overhaul maintenance works at the Vyatka plywood plant, as well as the debottlenecking of production.

 

In 2Q 2020, plywood sales volume increased by 0.6% year-on-year to 45,100 cu m.

 

Sawn timber output increased by 22.0% year-on-year to  299,300 cu m due to the acquisition in early 2020 of the Karelian Wood Company LLC, a logging and wood processing enterprise in the Republic of Karelia. The repurposing of production capacities at the Sokol Wood Processing Plant from glulam to sawn timber in 2Q 2020 also had a significant impact. This was due to the commissioning of a new splicing line at the plant, which will help to increase the production capacity of glulam products at the Sokol Wood Processing Plant by 20%.

In 2Q 2020, sales of sawn timber rose by 32.1% year-on-year to 326,600 cu m following the increase in production volumes.

 

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

 

Boosting energy efficiency in plywood output. In order to increase the energy efficiency of production at the Vyatka plywood plant in the Kirov region, Segezha Group completed a two-year project to expand the output of fuel briquettes and switch to waste-free plywood production.

 

Expanding pellet production capacity. In April 2020, the second line of pellet production at Lesosibirsky LDK was launched. This increased Segezha Group's total pellet production capacity to 110,500 tonnes per year.

 

Segezha Group will invest RUB 500 million to introduce white sack paper production at its Segezha PPM (Pulp and Paper Mill) in Karelia. The launch of the equipment, which will have a capacity of 350 tonnes per day, is planned for 1Q 2021.

 

Agriculture Holding Steppe

ONE OF RUSSIA'S LARGEST AGRICULTURE HOLDINGS AND LAND OWNERS

 

(RUB million)[11]

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

2,743

3,526

(22.2%)

7,579

9,186

(17.5%)

OIBDA

1,970

1,764

11.7%

2,694

2,347

14.8%

OIBDA margin

71.8%

50.0%

21.8 p.p.

35.5%

25.6%

10.0 p.p.

Operating profit

1,758

1,444

21.7%

2,236

1,868

19.7%

Net profit attributable to Sistema

1,717

645

166.1 %

1,839

762

        141.4%

OIBDA incl. AGK Yuzhny [12]

1,954

1,606

21.7%

3,069

2,434

26.1%

 

Steppe's revenue decreased by 22.2% year-on-year to RUB 2.7 billion in 2Q 2020 as a result of reduced carry-over inventory. This was partially offset by increased sales in the Dairy Farming and Orchards segments.

 

Steppe's OIBDA increased by 11.7% year-on-year to RUB 2.0 billion in 2Q 2020, despite the decline in revenue, due to strategic measures to improve trading efficiency in the Agrotrading and Sugar and Grocery Product Trading segments, production increases in the Dairy Farming segment, the positive revaluation of biological assets, and growth in apple sales during high season in the Orchards segment.

 

OIBDA margin grew by 21.8 p.p. year-on-year and amounted to 71.8%.

 

Steppe's CAPEX amounted to RUB 0.5 billion in 2Q 2020, representing a -6.8% decrease year-on-year. The bulk of the investment was directed towards the renewal of the farm machinery fleet and preparation for the crop season, buyout of land shares, and the construction of dairy farms.

 

Steppe's net profit significantly grew year-on-year, amounting to RUB 1.7 billion in 2Q 2020.

 

Land bank of Steppe in 2Q 2020 expanded to 560,000 hectares as a result of the acquisition of land assets in the Stavropol region. The average export price of wheat sales in 2Q 2020 remained at the level of 2Q 2019.

The total area of orchards amounted to 780 hectares.

 

Export volumes in the Agrotrading segment slightly decreased year-on-year and amounted to 1,105,000 tonnes during the 2019/2020 season. At the same time, a more efficient trading strategy was applied in 1H 2020, which helped offset the effect of volume reduction and contribute to the increase in OIBDA.

 

The Dairy Farming segment demonstrated stable growth: gross milk yield rose by 27% year-on-year to 17,200 tonnes in 2Q 2020. Productivity per lactating cow increased by 1.6% year-on-year, and the lactating herd consisted of 6,361 cows at the end of the reporting period.

 

Sales volumes in the Sugar and Grocery Trading segment grew by 3% year-on-year to 142,000 tonnes in 1H 2020, and higher-margin transactions were carried out as part of  time arbitrage strategy.

 

 

 

 

Medsi

LEADING PRIVATE HEALTHCARE OPERATOR IN RUSSIA

 

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

4,593

5,511

(16.7%)

10,495

10,701

(1.9%)

Adj. OIBDA[13]

1,156

1,638

(29.4%)

2,273

2,520

(9.8%)

Adj. OIBDA margin

25.2%

29.7%

(4.5 p.p.)

21.7%

23.6%

(1.9 p.p.)

Operating profit

377

923

(59.2%)

1,001

1,083

(7.6%)

Adj. net profit attributable to Sistema

325

927

(64.9%)

659

1,138

         (42.1%)

 

Medsi's revenue decreased by 16.7% year-on-year to RUB 4.6 billion in 2Q 2020 due to a drop in patient flow as a result of restrictions related to COVID-19. The decline in revenue was partially offset by revenues generated from repurposing the hospital in Otradnoe as an in-patient infectious diseases unit, COVID-19 testing, and the development of out-patient treatment and telemedical support services. 

 

Adjusted OIBDA decreased by 29.4% year-on-year to RUB 1.2 billion following the fall in revenue and the high base effect in 2Q 2019. Provisions for 2018 and 1Q 2019 for a total of RUB 0.3 billion were released as a result of changes in methodology of provisioning related to accounts receivable. Medsi's adjusted OIBDA margin declined by 4.5 pp. year-on-year and amounted to 25.2%.

 

Adjusted net profit amounted to RUB 0.3 billion in 2Q 2020 on the back of adjusted OIBDA dynamics, an increase in depreciation, and a growth in interest expense. 

 

Revenue from the Clinical-Diagnostic Centre (CDC) in Belorusskaya amounted to RUB 420 million in 2Q 2020. OIBDA reached RUB 118 million at an OIBDA margin of 28%. 

 

Revenue from the CDC in Krasnaya Presnya reached RUB 541 million. OIBDA totalled RUB 113 million at an OIBDA margin of 21%.

 

Net debt increased year-on-year in 2Q 2020 due to the drawing down of credit lines to finance CAPEX programmes, including the construction of a medical centre on Michurinsky Prospekt in Moscow. Debt to OIBDA LTM remains at a comfortable level of 0.7x.

 

The average cheque in 2Q 2020 grew by 76.2% to approximately RUB 4,100 due to the rising share of cost-intensive services in the outpatient coronavirus diagnostics segment, as well as the high cost of an average COVID-19 treatment in the hospital in Otradnoe.

 

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

 

Continued network expansion. The construction of a new Multifunctional Centre on Michurinsky Prospekt, with more than 34,000 sq m of space, is nearing completion, with the opening planned for 1Q 2021. The medical centre will include 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.

 

In September 2020, Medsi plans to open three clinics in Moscow: a family clinic with advanced diagnostics in Maryino with a total area of 4,400 sq m, and two Smart 500 clinics on Poletayev Street and Aviatsionnaya Street with a total area of 498 sq m and 675 sq m respectively.

Medsi acquired a 12.5% stake in Third Opinion Platform LLC, a developer of artificial intelligence-based healthcare services. Third Opinion has developed a line of products for recognising pathological changes in medical images, including bone marrow smears, fundus images, chest radiographs, CT scans, and mammograms.

 

Medsi is one of the first private clinics to collect biomaterials for the diagnosis of SARS-CoV-2 coronavirus infection, the causative agent of the COVID-19, in six clinics in the Moscow region. The test is available for patients with signs of respiratory infection and healthy individuals who wish to be tested for COVID-19. All clinics have enhanced security measures for both patients and medical staff.

 

COVID-19. Since the second half of March, there has been a sharp drop in patient flow due to self-isolation and social distancing restrictions.

 

Medsi is at the forefront of the fight against COVID-19: the hospital in Otradnoe has been repurposed as an in-patient infectious diseases unit, and a comprehensive COVID-19 diagnostics programme  is being carried out in Moscow and the regions. COVID-19 testing is conducted in clinics and at patients' homes, and telemedical support for out-patient treatment is underway.

 

 

Business Nedvizhimost

RENTAL ASSETS WITH A UNIQUE POOL OF PROPERTIES

 

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

996

1,738

(42.7%)

1,984

2,477

(19.9%)

OIBDA

414

1,623

(74.5%)

686

1,736

(60.5%)

OIBDA margin

41.6%

93.4%

(51.8 p.p.)

34.6%

70.1%

(35.5 p.p.)

Operating profit

273

1,504

(81.9%)

427

1,517

(71.8%)

Net profit attributable to Sistema

88

1,098

(92.0%)

276

1,059

    (74.0%)

 

In 2Q 2020, revenue from Business Nedvizhimost's rental assets decreased by 42.7% year-on-year to RUB 996 million due to the completion of the commercial real estate sales programme. Revenue was also affected by the provision of rent payment holidays and discounts for tenants who have experienced financial difficulties as a result of the COVID-19 pandemic.

 

In 2Q 2020, OIBDA and OIBDA margin declined year-on-year and amounted to RUB 0.4 billion and 41.6% respectively.  The decrease was caused by the revenue dynamics and a change in revenue structure in favour of lower margin rental revenue.

 

Business Nedvizhimost's net profit decreased year-on-year to RUB 88 million in 2Q 2020 due to the decline in revenue and OIBDA. Furthermore, Business Nedvizhimost received additional income from the sale of a non-core asset in 2Q 2019.

 

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

 

In August 2020, the Company successfully placed the debut bond issue for RUB 4 billion at a 7.90 coupon rate with a 4-year put option. Funds from the placement will be used to refinance the current debt portfolio and implement investment projects. RAEX  rating agency assigned  Business Nedvizhimost a ruA- rating with a stable forecast.

 

RTI

LEADING DEVELOPER OF HIGH-TECH SOLUTIONS

 

(RUB million)

2Q 2020

2Q 2019

Change

 6M 2020

6M 2019

Change

Revenue

4,713

4,639

1.6%

8,421

8,465

(0.5%)

Adj. OIBDA[14]

43

83

(48.3%)

(122)

246

-

Adj. OIBDA margin

0.9%

1.8%

(0.9 p.p.)

-

2.9%

-

Operating loss

(1,206)

(1,161)

-

(1,499)

(1,582)

-

Adj. net (loss)/profit attributable to Sistema

(891)

2,744

-

(2,448)

1,521

-

 

In 2Q 2020, RTI's revenue increased by 1.6% year-on-year and amounted to RUB 4.7 billion. Historically, most of RTI's revenue falls in the second half of the year.

 

Adjusted OIBDA declined year-on-year in 2Q 2020, primarily due to the impact of the financial results of Element LLC, a joint venture with the Rostec State Corporation in microelectronics.

 

Adjusted OIBDA margin decreased by 0.9 p.p. year-on-year to 0.9% in 2Q 2020 following the dynamics of adjusted OIBDA.

 

In 2Q 2020, adjusted net loss compared to adjusted net profit in 2Q 2019 was due to the disposal of assets that took place in 2Q 2019.

Net debt remained largely unchanged year-on-year, amounting to RUB 20.0 billion. As of the end of 2Q 2020, RTI's accounts also include additional funds of RUB 4.0 billion earmarked for the execution of state defence contracts, which are not included in the calculation of net debt.
 

KEY EVENTS IN 2Q  2020 AND AFTER THE END OF THE REPORTING PERIOD

 

The Scientific and Research Institute for Long-Distance Radio Communications, part of RTI, is developing a terahertz hardware-software system for the remote, non-invasive diagnosis of oncological and autoimmune diseases. The software utilises a database of neural networks to detect cancerous cells and provide appropriate recommendations.

 

BPCG

ONE OF RUSSIA'S BIGGEST POWER GRID COMPANIES

 

(RUB million)

2Q 2020

2Q 2019

Change

 6M 2020

6M 2019

Change

Revenue

4,540

4,574

(0.7%)

10,381

9,922

4.6%

OIBDA

1,229

1,331

(7.7%)

3,139

2,760

13.8%

OIBDA margin

27.1%

29.1%

(2.0 p.p.)

30.2%

27.8%

2.4 p.p.

Operating profit

526

678

(22.5%)

1,735

1,449

19.8%

Net profit attributable to Sistema

373

504

         (26.1%)

1,259

1,089

         15.6%

 

Revenue of BPGC decreased by 0.7% year-on-year to RUB 4.5 billion in 2Q 2020 due to a reduction in capacity and net electricity supply. This was a result of lower energy consumption by small and medium-sized businesses amid the COVID-19 restrictions, as well as a decrease in energy consumption in the oil and gas sector due to the implementation of the OPEC+ program. 

In 2Q 2020, OIBDA declined by 7.7% to RUB 1.2 billion in line with the decrease in revenue and due to increasing costs, including wage indexation. The OIBDA margin stood at 27.1%, 2.0 p.p. lower year-on-year, on the back of rising costs, including labour costs.  

Net profit of BPGC decreased year-on-year in 2Q 2020 as a result of the OIBDA dynamics and a decline in financial income.

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

Dividends for 2019. In May 2020, BPGC's Annual General Meeting resolved to distribute RUB 1.3 billion in final dividends for 2019.  

Modernisation of distribution networks. BPGC continued its comprehensive reconstruction of distribution networks in the Ufa city district. During the reporting period, 33 distribution points and 18 transformer substations were upgraded, and 5.2 km of cable lines were laid.

Completion of large infrastructure construction projects. BPGC has recently completed several large infrastructure construction projects, including the 110 kV overhead lines Uizan-Baynazarovo in the Beloretsk region and the power substation "Romanovka" in Ufa. 

Cosmos Hotel Group[15]

ONE OF RUSSIA'S LEADING HOTEL MANAGEMENT COMPANIES

 

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

Revenue

192

1,441

(86.7%)

1,003

2,524

(60.3%)

Adj. OIBDA[16]

(193)

349

-

(169)

354

-

Adj. OIBDA margin

-

24.3%

-

-

14.1%

-

Operating profit/(loss)

(366)

32

-

(1,628)

(274)

-

Adj. net loss attributable to Sistema

(428)

(308)

-

(857)

(929)

-

 

In 2Q 2020, the revenue of Cosmos Hotel Group decreased year-on-year to RUB 192 million due to hotel closures and a sharp drop in occupancy caused by the COVID-19 pandemic. Hotels outside Russia were the earliest to close, at the end of 1Q 2020. Hotels in Russia closed or operated in "sleep mode" from April, and gradually resumed operation in late May - early June.

Adjusted OIBDA decreased year-on-year on the back of the decline in revenue. At the same time, Cosmos Hotel Group took steps to drastically reduce operating costs and minimise losses.

Adjusted net loss was due to the negative OIBDA dynamics.

In 2Q 2020, the share of revenue from hotels outside Russia fell to 6% compared to 22% in 2Q 2019. FX revenue from hotels abroad decreased by 16x in 2Q 2020, as three months of operations were lost during the high season.

In 2Q 2020, ADR[17] for the Group's hotel portfolio declined year-on-year from RUB 3,600 to RUB 2,300 due to a lack of revenue from international hotels.

RevPAR[18] of the hotel portfolio decreased from RUB 2,400 to RUB 500 as a result of a collapse in occupancy. In 2Q 2020, the average occupancy fell by 53 p.p. to 19% due to the lack of revenue from the international segment and a significant drop in demand in the Russian market.

KEY EVENTS IN 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

Modernisation of Cosmos hotel complex. Cosmos Hotel Group continued the modernisation and design refurbishment of the Cosmos hotel complex. The project is due to be completed in 2023.

 

Corporate

(RUB million)

2Q 2020

2Q 2019

Change

6M 2020

6M 2019

Change

OIBDA

(3,394)

(2,710)

-

(7,591)

(4,259)

-

Net profit / (loss)

(6,620)

(6,729)

-

(18,413)

(9,203)

-

Corporate Centre's financial liabilities[19]

198,281

222,076

(10.7%)

198,281

222,076

(10.7%)

 

 

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

Financial liabilities of the Corporate Centre declined significantly year-on-year by 10.7% to RUB 198.3 billion as a result of the repayment of rouble-denominated loans.

The share of SG&A[20] in Sistema's revenue in 2Q 2020 increased to 1.0% year-on-year due to redundancy payments following workforce optimisation.

As of 30 June 2020, the share of rouble-denominated financing accounted for 96% of the financial liabilities of the Corporate Centre.

In February 2020, the Group entered into an equity commitment agreement to provide financing in the amount of up to             EUR 263 million in connection with the acquisition by a group of purchasers managed by SCP Group SARL, related party of the Group, of the German hypermarket chain Real from Metro AG and its subsidiaries (hereinafter - the "Transaction"). The Transaction was completed in June 2020, whereas the aforementioned equity financing in the amount of                       EUR 263 million, was provided by a group of investors (hereinafter - the "Investors"). Based on the terms of agreements with the Investors, upon completion of the Transaction the Group does not have any outstanding material exposure associated with the financing of the Transaction including material obligations towards the Investors in relation to guaranteed return of their respective investments, and, therefore, is neither exposed to significant risks nor entitled to significant rewards associated with the financing of the Transaction. As a result, no significant financial assets and/or financial liabilities related to the Transaction have been recognized on the Group's balance sheet as of 30 June 2020. Upon completion of the Transaction, Group's commitments entered into in February 2020 were fully discharged.

***

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 2019 was RUB 656.9 billion; total assets equalled RUB 1.3 trn as of 31 December 2019. 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, impact of COVID-19 pandemic on macroeconomic situation on the markets of presence and financial results of Sistema and its subsidiaries and associates, as well as many other risks specifically related to Sistema and its operations.

 

 

Appendix A

 

Operating Income Before Depreciation and Amortisation (OIBDA) and OIBDA margin. OIBDA represents operating profit before depreciation and amortisation. OIBDA margin is defined as OIBDA as a percentage of our net revenues. Our OIBDA may not be similar to the 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 profit and profit attributable to Sistema shareholders. The Company uses adjusted OIBDA, adjusted operating profit 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 profit and adjusted OIBDA can be reconciled to our consolidated statements of profit and loss as follows:

 

RUB millions

              2Q 2020

               2Q 2019

               6M 2020

             6M 2019

Operating income

23 395

25 519

46 289

49 996

Accruals related to LTI program at portfolio companies

-

177

-

341

Impairment of hospitality assets

-

-

1 109

-

Impairment of non-current assets (MTS)

929

-

1 248

-

Other non-recurring (gains) / losses, net

276

-

120

382

Provisions for amounts due under contracts with clients at RTI

885

831

610

1 006

Adjusted operating income

25 484

26 527

49 376

51 724

Depreciation and amortisation

29 359

28 668

59 121

56 459

Adjusted OIBDA

54 843

 

55 195

 

108 497

 

108 184

 

 

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

 

RUB millions

                          2Q 2020

            2Q 2019

               6M 2020

               6M 2019

Net profit / (loss) attributable to Sistema

581 

6 540 

(9 633) 

23 179 

Accruals related to LTI program at portfolio companies

-

203

-

462

Impairment of hospitality assets

-

-

975

-

Impairment of non-current assets (MTS)

464

-

624

-

Other non-recurring (gains) / losses, net

274

-

122

385

Provisions for amounts due under contracts with clients at RTI

616

723

438

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

1 935 

7 466 

(7 475) 

23 179 

 

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

 30 June 2020

 31 March 2020

Long-term borrowings

607 701

631 549

Short-term borrowings

99 411

96 766

Liability to Rosimushchestvo

8 153

9 060

Total borrowings

715 265

737 375

Consolidated finance lease1

18 5112

20 0183

Consolidated total debt

733 776

757 393

Cash and cash equivalents

(128 418) 

(131 542) 

Deposits in banks

(1 363) 

(2 835) 

Consolidated net debt

603 995

623 016

 

1 In accordance with the standard IAS 17

2 Including RUB 1,481 million of short-term finance lease

3 Including RUB 1,438 million of short-term finance lease

 

****

Full press please including financial statements is available on Sistema's website http://www.sistema.com/investors-shareholders/financial-results/ and in the Attachment to the current release.

 

 

 


[1] ALIUM GROUP now manages stakes of the Corporation in the pharmaceutical companies Sintez (owns Biocom) and Alium (unites Obolenskoye and Binnopharm under the Alium brand).

[2] In addition to Russia's Gamaleya Scientific Research Institute of Epidemiology and Microbiology (Gamaleya Scientific Research Institute), where the vaccine was developed.

[3] Hereinafter results for 2Q 2019 are presented to reflect the reclassification of assets of Detsky Mir, Leader Invest, MTS's business in Ukraine and RTI's microelectronics business as part of discontinued operations.

[4] Hereinafter please see Appendix А of the press-release for 2Q 2020.

[5] The dynamics of the Group's adj. OIBDA in 2Q 2020 was also affected by the reflection of the Group's share in reduction of Ozon's net loss in the amount of RUB 1.2 bln (in 2Q 2020 the loss amounted to RUB 1.5 bln, in 2Q 2019 - RUB 2.7 bln).

[6] MTS's results reflect reclassification of the Ukrainian business as part of discontinued operations since 4Q 2019. The results for 2Q 2019 have been revised to reflect the results of this reclassification.

[7] Adjustment for a one-off asset impairment in the amount of RUB 0.9 bln in 2Q 2020.

[8] Here and hereafter net profit is presented in Sistema's share. Adjustments include revaluation of liabilities in connection with the SEC investigation in 1Q 2019 and the adjustment for the impairment of non-current assets in 2Q 2020.

[9] Circa 34% of paper produced was supplied to Seghezha Group's own converting facilities to produce paper packaging.

[10] Including 13.4 mln consumer paper bags.

[11] Steppe results are presented net of results of AGK Yuzhny due to its divestiture in May 2020. RZ Agro is accounted for as an investment in a joint venture in Agroholding Steppe's IFRS financial statements.

[12] The OIBDA of Steppe including OIBDA of AGK Yuzhny for the period of ownership by Steppe.

[13] Adjustments for accruals related to the LTI programme, the effect of clinic acquisitions in Izhevsk.

[14] In 6M 2019, the financial results of microelectronics assets transferred to Element LLC were recorded in the financial statements in discontinued operations. Adj. OIBDA in 2Q 2020 includes net loss of Element LLC which is accounted for using the equity method of accounting (classified as investments in associates). Excluding the results of Element LLC, the adjusted OIBDA of RTI in 2Q 2020 amounted to RUB 0.1 billion.

[15]Based on management accounts

[16] Adjusted in 1Q 2020 as a result of a one-time write-off due to the COVID-19 pandemic affecting the financial performance of the international hotels.  

[17] Average daily rate.

[18] Revenue per available room per day.

[19]Corporate Centre's financial liabilities here and thereafter are presented in accordance with management accounts and include, among others,  liability to Rosimushchestvo.

[20] Based on management accounts.


Attachment

File: Sistema 2Q 2020 Financial Results


ISIN: US48122U2042
Category Code: IR
TIDM: SSA
LEI Code: 213800JSZ2UUK4QQK694
Sequence No.: 83436
EQS News ID: 1126955

 
End of Announcement EQS News Service

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