Chief Executive’s review

In 2021, we were able to improve our operational efficiency, deliver the strongest revenue growth in several years and demonstrate a manifold increase in net profit all while reducing our leverage and improving our financial health. Our key focus in 2021 was on rolling out our superservice for MegaFon customers and on driving continuous improvements across the Company. We also continued to enhance infrastructure and expand our portfolio of the most sought-after digital products and services, focusing on the needs of our subscribers, both independently and with our partners.

Improving
efficiency

KhachaturPOMBUKHCHANCEO

Improving
efficiency 

Tell us about the key trends in the Russian telecom market in 2021.

The telecommunications industry was recovering fast throughout 2021 as COVID-19 restrictions were lifted. In 2021, the Russian telecom market size was RUB 1.8 trillion, up 3.2%, which is one of the highest rates in several years. The growth was mainly driven by the recovery in the mobile market as subscribers activity went up, stores reopened, migrant workers returned and demand for roaming increased amid border reopening.

Could you tell us the highlights of MegaFon’s performance in 2021?
What had the greatest impact on your results?

MegaFon continued to grow its business and focused on improving operational efficiency in 2021. MegaFon’s revenue came in at RUB 354.2 billion, a record-high 6.6% growth since 2013. This strong momentum was visible across all core segments such as service revenue, including mobile and fixed-line services, as well as sales of equipment and accessories through our own retail network and franchised stores.

Growth in the mobile segment was mainly driven by mobile data and content revenue, M2M as well as big data analytics services. In fixed line, the growth was mainly attributable to an increase in international traffic and ICT projects.

OIBDA for 2021 remained flat year-on-year at RUB 147.7 billion, while the OIBDA margin was down 2.8 p.p. to 41.7%. Net profit grew by almost 148.9% to RUB 66.3 billion, driven by lower interest expenses amid considerable deleveraging and successful FX hedging, as well as the impact from the deal to contribute JSC First Tower Company (FTC) assets to an independent operator at the end of 2021.

The subscriber base in Russia increased 5.7% to 74.4 million at the end of the year.

MegaFon revenue for 2021
↑ 6.6%
RUB 354.2 billion

Tell us about the implementation of the Company’s strategy in 2021. Have there been any updates to the Company’s strategy and its key priorities?

In 2021, MegaFon’s key focus areas were improving the quality of customer service and delivering the best customer experience, driving focused growth beyond the telecommunications industry, improving operational efficiency, streamlining business processes, and transforming the corporate culture.

We have updated our 2023 development strategy, focusing even more on our customers’ needs and a culture of continuous improvement at the Company.

In the B2C segment, MegaFon continues its efforts to improve customer experience. We also plan to step up our efforts in Russian regions, develop our sales channels and strengthen infrastructure.

In the B2X segment, MegaFon will maintain its priorities and focus its efforts on strengthening its leadership in the core business, boosting revenues and developing high-tech projects. In the B2G segment, emphasis will be placed on enhancing new digital solutions for ICT clients.

We work hard to be the employer of choice for our employees, and to this end we are planning to focus on transforming our corporate culture and creating an environment that supports career growth and enables building longterm relationships that our employees will benefit from. MegaFon plans to foster a leadership and high performance culture and creating a continuous improvement environment.

MegaFon will continue working on growing its business and achieving the Company’s long-term financial goals, including boosting its cash flow and increasing operational efficiency across all lines of business.

In 2021, we delivered an increase in LTV, one of our key strategic performance metric.

We intend to consolidate our leadership, develop our superservice and satisfy our customers, employees and shareholders.

How does MegaFon deliver high levels of customer satisfaction?

We strive to keep a customer as satisfied and happy as possible, so that they stay with us as long as possible. To achieve this, we are enhancing our product and service portfolios, continuously improving network reliability, enhancing customer experience.

In 2021, taking into account the market situation, we made several updates and supplements to the tariff plans within the #NoOvercharges line. In particular, we offered permanent discounts to retirees and students, launched specific attractive offers with a large discount.

In 2021, MegaFon also launched several tariffs and options for different types of subscribers: My Family, a free service offering beneficial connectivity within groups of up to 11 members, the refreshed ‘Perekhodi na 0’ (‘Switch to Zero’) and ‘Teply Priem’ (‘Warm Welcome’) plans for people arriving from the CIS countries. We also launched the ‘Internet DreamTeamHouse’ plan for active users of social networks and streaming services.

In September, we launched MegaFon Plus, our unique multi-subscription platform, which includes the ivi and START video services, MyBook service and SberZvuk.

We develop our retail network opening next-generation stores offering increased levels of customer service and a special approach to customer experience. We opened our third Experience Store, a format focused on digital customer experience and delivering much stronger financial performance than conventional stores.

In 2021, MegaFon focused on new promising technology and business trends, such as cloud solutions, information security, big data, customer communications, and the Internet of Things in the B2X segment.

Our B2B product portfolio has been expanded to more than 75 services, which provide solutions for the majority of our customers’ business tasks. Eight new products were launched in 2021, including voice and smart services such as Chat-Bot, Videoconferencing for Business and Voice Bot; cybersecurity services such as Corporate E-mail Protection, Security Awareness and Threat Intelligence; MegaFon Hub advertising service; and Network-as-a-Service solution.

B2B product portfolio
>75
services

How does MegaFon maintain its industry leadership?

Providing high-speed, high-quality connectivity to our customers is our top priority. For five years running, we have delivered the fastest mobile data speeds in the country1, far outstripping the nearest competitors across all metrics.
MegaFon continuously introduces innovations to increase network quality. The 4G/LTE standard is available to 87% of the country’s population. In 2021, MegaFon became the first Russian operator to launch VoLTE at the federal level.

Our customers can see these improvements and trust our brand — MegaFon remains the sixth strongest brand among all Russian companies for the third year running.

Number of base stations
↑ 5.4%
>203
‘000 stations

How does MegaFon contribute to the sustainable development of society?

MegaFon pays close attention to sustainability, placing a particular emphasis on the ESG agenda. In everything we do, we try to balance commercial, social and economic interests rather than purely focusing on delivering business results. We are committed to making a positive contribution to society and embrace national and international initiatives, including the UN Sustainable Development Goals and the Social Charter of Russian Business. Creating value for stakeholders is a priority area for us.

We seek to maximise our positive impact by leveraging the Company’s existing technological capabilities. For example, in 2021, we enhanced our Universal Mobile Assistant programme to help blind and other visually impaired people and to empower them through smartphone solutions.

In 2021, we supported projects that provide access to additional training in artificial intelligence in Russian regions and promote relevant studies. We have also been actively developing our SkillCity infotainment service, a social initiative offering career guidance for the digital world and socialising online to children, teenagers and young people.

In 2021 we have been holding The Future Depends on You, an open national football cup for orphanage and boarding school teams. A career guidance programme was launched to complement the sports programme.

Over 130,000 people across 84 regions of Russia benefitted from 22 charitable initiatives held by MegaFon in 2021 and raising more than RUB 400 million.

Another area of corporate social responsibility we are focused on is improving people’s quality of life by creating high-skilled jobs with competitive pay and comfortable working conditions. In 2021, MegaFon became Russia’s Best Employer according to Forbes, ranked second in the Best Company Award by Changellenge and third among the most attractive telecom companies for students in the FutureToday ranking.

Despite the inherently marginal environmental footprint of our business, we seek to maximise our own contribution to environmental well-being. For example, we endeavour to employ alternative energy systems, such as wind turbines and solar panels, when constructing base stations.

We also strive to minimise the use of paper in our operations — back in 2020, we successfully completed our Paperless project to fully digitise the Company’s document flow, and in 2021, we put more emphasis on the paperless store concept and were able to offer value-added services to our customers as an alternative to paper in more than 50% of our own stores by the year-end.

What are MegaFon’s future plans?

Increased geopolitical tensions and tougher sanctions imposed against Russia since late February 2022 make any accurate forecasts impossible while causing uncertainty in the economy in general and in our segment in particular. At the same time, we see substantial support for the Russian telecom industry from the country’s government, including lower taxes, preferential loans, temporary suspension of certain obligations of operators, and many more.

In this context, MegaFon will continue to do its best to deliver on its strategy, consolidate its business leadership and develop its superservice.

To conclude, I would like to thank MegaFon shareholders and the Board of Directors for trusting me to lead the Company in 2021. I would also like to give my special thanks to my predecessor, Gevork Vermishyan, who was CEO for more than two years and greatly contributed to MegaFon’s growth. And I would like to thank every member of the MegaFon team for their professional approach and commitment, which allow us to grow further and look optimistically into the future.

  1. According to Ookla®.