MegaFon earnings hit by ruble's fall

MegaFon blamed a near 30 per cent decline in net profit through 2014 on a significant drop in the value of the ruble, and predicted its earnings will remain weak through 2015 as a result of political tensions.

Russia's number two mobile operator said net profit fell 28.8 per cent year-on-year to RUB36.7 billion (€554 million/$603 million) in 2014, which it said was primarily caused by non-cash charges relating to the ruble's declining value through the final quarter of the year. Fourth-quarter net profit fell 72 per cent year-on-year to RUB82.1 billion as a result of the currency depreciation, the operator said.

Despite the drop in net profit, MegaFon CEO Ivan Tavrin said the company's revenue and operating income before depreciation and amortisation (OIBDA) were in line with the company's guidance for 2014.

The CEO added that the drop in the ruble's value in the fourth quarter was mitigated by the company's "long-term risk aversion strategy" and decisions including "early payments of our U.S. dollar obligations in respect of the Euroset and Scartel transactions in the summer of 2014, and a pro-active approach to capital management."

Tavrin said 2015 looks set to be a challenging year for the company. "We will continue our efforts to rationalise expenses and improve operating efficiencies," he noted, adding that MegaFon will "continue to invest to enhance the quality of our network".

The company increased capital expenditure (capex) by 19.8 per cent to RUB56.4 billion through 2014. The number of mobile subscribers rose by 3 per cent year-on-year to 72.2 million at end December.

Tavrin's confident outlook for 2015 was not shared by a UralSib Capital analyst, who told Bloomberg the guidance is "unimpressive" and expressed concern over a slowdown in MegaFon's mobile data revenue growth.

Total wireless service revenue grew 4 per cent year-on-year to RUB269 billion in 2014, with data revenue accounting for RUB67.1 billion, as the number of data subscribers increased 12.2 per cent to 28.3 million users.

Infrastructure vendor Nokia Networks also revealed on Wednesday that MegaFon is pressing ahead with plans to deploy LTE in its domestic market, signing a seven-year upgrade deal covering Nokia's single RAN technology.

Evgueny Chermashentsev, director for infrastructure at MegaFon, said the upgrade reaffirms the operator's "commitment to deliver best-in-class services and [the] fastest mobile Internet to our subscribers."

For more:
- see MegaFon's earnings statement [PDF]
- view this Bloomberg article
- see this Nokia Networks announcement

Related Articles:
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VimpelCom remains open to Wind Italy deal after failure of talks so far
MegaFon sets new precedent with 7-year Huawei contract
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