Being Even
Closer
Being
Active
Being
efficient
Being
open
Being
responsible
Annual Report 2015

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Being Even
Closer

Key Highlights

In spite of negative trends in the economy and increasing competition in the telecoms, in 2015 we demonstrated solid financial and operational performance and achieved the goals we set for the year

313.4bn
RUB

Revenue

REVENUE, (RUB bn)

In 2015, MegaFon’s consolidated revenue declined marginally by 0.4% year-on-year to RUB 313.4bn. Russian revenue remained the major component, accounting for over 98.4% of the Company’s total consolidated revenue. Mobile revenue increased by 0.2% y-o-y

76.8m


mobile
subscribers

+6.4%
y-o-y
Subscribers, (m people)

MegaFon is currently the second-largest mobile operator in Russia in terms of revenue and subscriber base, with a 29.7% market share in total mobile subscribers

113,230
units


Base stations

+9.9%
y-o-y
Base stations, (units)

Our goal is to achieve the highest level of 4G services penetration, improve our 4G/LTE network quality and coverage, and continue to upgrade our existing 3G network. As of the end of 2015, MegaFon had the largest network among Russian mobile operators

Our Highlights

Chief
Executive’s
Review

Solid financial and operational performance was achieved in spite of negative trends in the economy and increasing competition in the telecoms industry. We have maintained our leadership position in communication quality, and further developed our pro-active customercentric approach. 

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11.2m
MegaFon
Caucasus region
5.2m
MegaFon
Central region
16.5m
MegaFon
Volga region
5.4m
MegaFon
Far East region
5.7m
MegaFon
Siberia region
13.5m
MegaFon
Moscow region
6.2m
MegaFon
Urals region
11.1m
MegaFon
North-West region
MegaFon's
base
stations
Total number of
subscribers
in Russia
Headquarters and Branches
you'll see info about the number of subscribers
when you hover over the dot
Big cities
Existing fibre-optic network
Fibre-optic network under construction

Driving continuous
development

Who We Are

MegaFon is one of Russia’s largest mobile operators in terms of revenue and subscribers. We provide services in all market segments, including voice, data and other mobile and fixed-line telecommunications services, digital TV and IP telephony. We also have subsidiaries in Tajikistan, Abkhazia and South Ossetia. As of the end of 2015, Megafon provided services to 76.8 million subscribers, including 74.8 million subscribers in Russia

Our extensive networks

Our advanced infrastructure enables us to deliver a wide range of high-quality mobile services throughout Russia. In 2015, we entered new regions and increased the total number of our base stations by 9.9% to 113,230 units. Our 2G and 3G networks cover 97.7% and 89.5% of the population respectively.

As of the end of 2015, MegaFon’s 4G services available to 59.2% of the Russian population, in 77 regions of Russia and in 14 of the 15 largest cities (with a population of over 1 million people). By continuously developing our infrastructure, we want to provide our customers with fast and stable connection, high quality of connections and high speed mobile Internet.

Broad service portfolio

Our high-quality services, all targeting real customer needs, extend far beyond voice, mobile and fixed-line data transfer. We also provide a range of value-added services to retail customers, business and government clients and other telecommunication service providers.

We work with corporate clients to develop and provide bespoke business solutions. We have a consumer hardware business, selling handsets and other devices. Our MegaLabs subsidiary, meanwhile, specialises in developing innovative solutions in M2M, financial services, media, content and the cloud.

Respected brand

In 2015, MegaFon updated its brand positioning. At the heart of the new positioning is the idea that MegaFon continuously improves quality of communication to make people across Russia feel that they are close to their loved ones, even when they are far apart.

According to a survey among the subscribers of the top four Russian mobile operators, at the end of 2015 the key unique attributes of the MegaFon brand were: ‘high communication quality’ and ’commitment to improving communication quality’ MegaFon intends to use its unique attributes to achieve its strategic objectives in 2016.

Retail network

MegaFon’s own controlled distribution network include 2,096 MegaFon Retail stores, 1,980 franchised stores and approx. 4,000 stores of the nationwide Euroset chain, which we own in partnership with VimpelCom. Together, these are the primary places in which

we come into face-to-face contact with customers, adding value and enhancing our brand through the friendly and speedy resolution of issues, the delivery of professional advice and high standards of service.

Exceptional people

The commitment and accountability of MegaFon’s employees are what makes our business so successful. Attracting and retaining the best possible talent is the mission-critical

driving force behind all our training and personal development activities. As of 31 December 2015, we employed 31,576 people.

Innovative, affordable hardware

We aim to improve our customers’ lives at a reasonable cost with every device we sell. Our affordable data-enabled smartphones and tablets are enabling customers to access innovative services that open up new opportunities for them right across Russia.

The wide range of 4G-enabled devices, routers, modems, dongles and other devices, which we offer in our controlled distribution channels, is making it easy to access the new world of 4G and enjoy such popular services as streaming audio, HD-video, online games, social networks and others.

How We Create Value

Detailed Business model

Our Strategy

Starting from 2012, MegaFon has successfully pursued a strategy of sustainable growth. The effective implementation of this strategy enabled us to build up free cash flow and increase the amount of paid dividends between 2012 and 2015

Continue growing faster than the market in core business areas

Strategic priorities

Best product offering

Maintain leadership in mobile data

Maintain revenue growth from value-added services

Progress in 2015

  • Revenue: RUB 313.4bn (virtually the same y-o-y, down 0.4%)
  • Mobile data revenue: RUB 79.9bn (up 19.0%)
  • Mobile data service user base: 29.9 million subscribers (up 6.8%)
  • VAS revenue: up 4.5%

Best distribution

Continue the “smart development” of the retail network with focus on active subscriber base growth

  • 8,070 stores within the retail network (flat y-o-y)
  • 71.5% of all new subscribers acquired through controlled distribution network (roughly flat y-o-y: +0.28 p.p.)
  • 4.3 million smartphones and tablets sold in 2015 (up 11.2%), with 4G smartphones and tablets sales up 110.6%

Best customer experience

Retain customers through excellence of end-to-end customer experience

  • 76.8 million active subscribers (up 6.4%)

Leverage secondary core businesses

Strategic priorities

Corporate business

Leverage potential in B2B, B2G and B2O business segments, increasing their “weight” within the Company

Progress in 2015

  • 16.4% (up 1.3 p.p.)

Fixed business

Leverage and realise synergies between fixed line, fixed broadband and mobile businesses

  • RUB 23.4bn (up 5.6%)
  • Launch of WireFire, a double-play FMC service (OTT TV and broadband), for the B2C segment

New businesses

Leverage opportunities in new businesses through development and delivery of innovative products synergetic to the core business

  • Launch of the updated version of the MegaFon TV content service and its inclusion in bundled tariff offerings (50 TV channels and up to 6 HD movies free of charge)

Deliver best-in-class efficiency in the management of the business

Strategic priorities

Best performance

Identify and deliver continuous operational improvements

Progress in 2015

  • 42.2% (0.7 p.p. above the Company’s outlook for 2015)
  • Launch of Unified Billing
  • Launch of a project to set up a shared services centre, a multifunctional service centre, to co-locate the following functions: accounting and reporting, treasury and financial control, procurement and logistics, HR management, B2O operations support, and receivables administration

Best network

Continue to actively develop network and service quality, combined with high efficiency

  • 22.4% (up 4.5 p.p.)
  • The Company’s CAPEX in 2013–2015 totalled RUB 173.8bn, in line with the guidance announced by the Company during the IPO at the end of 2012
  • Launch of 4G in 77 regions accounting for 59.2% of the population (up 8.2 p.p.)

Best management system

Develop management system focused on value creation

  • As part of efforts to develop the Company’s HR strategy, the Talent Pool programme was designed and launched to develop employees’ managerial skills to ensure that the Company’s needs for managers are met promptly and efficiently
  • The Company’s values were approved and cascaded across the Company down to the regional office level.
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