30/08/2017

Sistema announces financial results for the second quarter 2017

Moscow, Russia – 30 August 2017 – 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 unaudited consolidated financial results in accordance with International Financial Reporting Standards (IFRS) for the quarter ended 30 June 2017.

COURT CASE

  • RUB 106.6 billion claim against the Company and its subsidiary Sistema-Invest filed in the Republic of Bashkortostan Arbitration Court in May 2017 by Rosneft and Bashneft, and joined later by the Republic of Bashkortostan (together – “the Claimants”) to recover damages allegedly incurred by Bashneft during its reorganisation in 2013-2014. The size of the claim was subsequently increased to RUB 170.6 billion
  • The Bashkortostan Arbitration Court partially satisfied the claim, determining the size of the damages allegedly incurred by Bashneft at RUB 136.3 billion
  • Sistema believes the claim and the court’s decision to be entirely baseless and unlawful and intends to appeal
  • Further information on the case and Sistema’s position is available on the Company’s website at www.sistema.com/investoram-i-akcioneram/informacija-ob-iske-k-afk-sistema/

OPERATIONAL AND STRATEGIC PROGRESS

  • Continued strong operating performance by portfolio companies
  • Robust revenue and OIBDA growth at Detsky Mir, Medsi, pharmaceutical and hospitality assets
  • Nearly all assets posted positive OIBDA in the reporting quarter, with particularly strong performance at public assets (MTS and Detsky Mir)
  • Good cost control across the portfolio and at the Corporate Centre, with consolidated SG&A flat YoY
  • Liabilities optimised and cash position strengthened by raising RUB 15 billion via a local bond issue in April and a total of RUB 25 billion from Russian state banks in April and June 2017
  • RUB 7.8 billion paid out to shareholders in FY 2016 dividends

SECOND QUARTER FINANCIAL RESULTS

  • Group revenues amounted to RUB 167.4 billion. Russian assets increased their consolidated revenues by 1% YoY
  • Adjusted OIBDA[1] up 8.1% YoY to RUB 48.6 billion with an adjusted OIBDA margin of 29.0%
  • Adjusted loss attributable to Sistema of RUB 799 million, mainly reflecting non-cash foreign exchange losses
  • Net debt[2] at the Corporate Centre level amounted to RUB 84.2 billion as of 30 June 2017
  • Cash position[3] at the Corporate Centre level amounted to RUB 36.2 billion as of 30 June 2017                                                                               

Mikhail Shamolin, President and Chief Executive Officer of Sistema, said:

“On 23 August 2017, the Republic of Bashkortostan Arbitration Court ordered Sistema and its subsidiary Sistema-Invest to pay damages of RUB 136.3 billion allegedly incurred by Bashneft due its reorganisation.

“We consider both the claim and the court’s decision to be baseless and unlawful. We are confident in our position, which has been affirmed by leading experts and legal practitioners, and will continue to vigorously defend our interests through the courts, in particular by filing an appeal. We are also appealing against the unfounded arrest of Sistema and Sistema-Invest assets that was ordered by the court as part of the case.

“Sistema maintains full transparency around the case and will do everything in its power to contribute to a fair court decision and minimise any negative consequences of the claim for the Company and all its stakeholders.

“At the same time, we continue to execute on our strategy. The operating performance of our assets has not been affected and they remain completely focused on delivering on their respective strategies. This is confirmed by Sistema’s strong results for the second quarter.

“Consolidated revenue across our Russian assets increased by 1% year-on-year, while their adjusted OIBDA grew by 9% on the back of strong performance by our largest holding, MTS, as well as our non-telecommunications assets. Most of Sistema’s assets posted positive OIBDA for the quarter.

“MTS returned to top-line growth, and significantly improved OIBDA amid a more favourable market environment. Detsky Mir, now also a publicly traded company, continued to expand through consolidation of the market for children’s goods in Russia, while at the same time improving margins by focusing on operational efficiency. Pulp and paper holding Segezha Group’s results began to improve, despite exchange rate pressure still seen during the second quarter. Agroholding Steppe continues to expand its land bank, and its growing business is now making a notable contribution to the Group’s results.”

Vsevolod Rozanov, Senior Vice President and Chief Financial Officer of Sistema, added:

“In the third quarter of 2017, the arrest of Sistema and Sistema-Invest’s stakes in MTS, Medsi and BPGC as part of the Rosneft case triggered a technical default on some of Sistema’s debt obligations. As previously announced, the non-compliance with certain conditions of credit facilities, which led to the technical default, is purely formal in nature. Sistema is servicing its credit and financial obligations on time and in full, and plans to continue doing so in the future.

“We are continuing discussions with our lenders and have requested waivers in connection with the breach of the conditions due to the asset arrest. At this stage we have no reason to believe that any creditor will demand accelerated payments under Sistema’s credit agreements.

“I would like to stress that Sistema’s financial position remains solid. During the second quarter, we successfully optimised our liabilities and strengthened our cash position at the Corporate Centre, in large measure by borrowing a total of RUB 40 billion in the public market and from state banks, which underscores Sistema’s creditworthiness and the high level of trust that financial institutions have in the Company.

“In the third quarter, our liquidity remained strong, as we continued to receive dividends from portfolio companies and to monetise our investments.”

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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 (CET)/ 5:00 pm (Moscow time) to present and discuss the second quarter 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

+1 719-457-1036 (toll)

+1 866 564 7439 (toll free)

Conference ID: 4392010

Alternatively, you can quote the conference call title: “Sistema Second Quarter 2017 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

Yuri Krebs

Tel: +7 (495) 730 66 00

y.krebs@sistema.ru

Public Relations

Sergey Kopytov

Tel.: +7 (495) 228 15 27

kopytov@sistema.ru

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

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

[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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Contact PR

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

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