Chairman’s Statement

In 2020, MegaFon completed its three-year strategic cycle to transform itself into a provider of digital opportunities and laid a solid foundation for reaching new heights in business and creating value for customers, partners, shareholders and other stakeholders.

Ivan Streshinsky
Chairman of the Board of Directors

Tell us about the trends in the Russian telecoms market in 2020. How was it affected by COVID-19?

The pandemic has certainly had an impact on the telecoms industry: the Russian market fell by 0.7% to RUB 1.73 trillion in 2020. Retail and corporate customers, particularly SMEs, have been cutting costs commensurate with reduced business activity, including their communications costs. Border closures also played a significant role, leading to a sharp drop in roaming revenues and a reduction in the number of guest workers.

At the same time, 2020’s lockdown saw a mass shift to working from home, which triggered a sharp increase in demand for video conferencing and entertainment services, such as streaming TV or music and gaming, which led to a significant increase in traffic over both fixed and mobile networks. There was also a surge in demand for certain digital services, including information security services and cloud solutions. All this allowed operators with a rich digital ecosystem to largely balance out the impact of reduced mobile service consumption.

What were MegaFon’s achievements in 2020?

MegaFon addressed the challenges of the pandemic in 2020 with swift response measures. In those trying times, we were able to demonstrate financial stability, and withstand the increased network load and redistribution of traffic. Despite a slight pullback in revenue, our OIBDA margin grew and higher operational efficiency drove a significant increase in net profit..

During the pandemic, we provided our customers, communities and the government with an array of much-needed opportunities and solutions, including those made available free of charge. Alongside this, we rapidly shifted the majority of our employees to remote work, without compromising on business process continuity.

We expanded our portfolio of digital products for our private and corporate customers in 2020, concentrating our efforts on the most promising opportunities. We also further enhanced our infrastructure, focusing primarily on improving the quality of communication, network resilience and expanding 4G coverage. We also pressed on with preparations for the launch of 5G, and worked with other operators to engage with regulatory authorities on securing frequency bands necessary for the fullscale rollout of 5G in Russia.

We were able to achieve our core ambition of boosting customer lifetime value (LTV), with this metric surging
34 %
over the year

Building constructive partnerships with market leaders remains an important factor in the success of the Company. To name just a few of these from 2020, we continued to develop joint projects with our strategic partner ICS Holding, acquired a stake in the online cinema Start and partnered with local internet service providers to launch the FVNO project.

In addition, USM Telecom and MegaFon with partners from Uzbekistan in 2021 established Digital Holding, a joint venture that is set to become the technology leader in Central Asia’s largest telecoms market. Finally, MegaFon, Mail.Ru Group, USM Group, Ant Group and RDIF signed documents to establish two joint ventures offering digital payment solutions and financial services.

MegaFon completed its three-year strategic cycle in 2020. How do you see the results, and what are the Company’s new priorities?

Indeed, 2020 saw MegaFon come to the end of the three-year implementation cycle for its ‘Driving the Digital World’ strategy, which was aimed at transforming the Company from a traditional telecoms operator to a provider of digital opportunities, and maintaining our industry leadership.

Over this period, we rolled out our planned initiatives and built our core, customer-centric capabilities: we introduced analytical services to enable the digital transformation of business and government; we introduced a toolkit to build out a single ecosystem of communication, service and sales that brings all communication channels, customers and partners under one roof; and we enabled personalised offers based on insights from customer preference analysis.

I would like to specifically draw your attention to the fact that we also launched the Company’s business transformation with a transition to Agile work, which has already proved highly effective. This flexible approach enables us to address tasks more efficiently: employees can grow faster while the business can offer services that are more customer-focused.

On the whole, despite the negative impact of the COVID-19 pandemic on KPIs in 2020, we were able to build a solid platform for driving future growth and achieving new heights – both in business and in creating stakeholder value. We strive, first and foremost, to satisfy our customers, employees and shareholders.

Tell us about the changes to MegaFon’s corporate governance system in 2020.

A well-structured corporate governance framework is vital for the successful development of our business, as it helps us set and achieve goals, and manage the Company’s risks effectively. MegaFon’s well-developed corporate governance framework also enables us to build and maintain trust-based relationships with the Company’s partners, counterparties, employees and other stakeholders.

At our AGM in June 2020, a new Board of Directors was elected, which included Emin Antonyan, Johan Dennelind, Khachatur Pombukhchan and Anton Cherepennikov. All of them are recognised industry professionals and have extensive experience and knowledge. Johan Dennelind is an independent director satisfying the applicable independence requirements, while all other directors serving on the Board in 2020 were non-executive directors, but were not independent.

Separately, I would like to note Khachatur Pombukhchan’s early 2021 appointment to the position of Executive Director of the Group, a position that had remained vacant for several years. I am sure that his solid track record in adjacent industries will help us drive even more value and be better at identifying new opportunities for further growth and transformation.

What does MegaFon expect from 2021? What are the Company’s future plans?

The ripples of the pandemic are likely to continue to be felt in the market as a whole in 2021, but signs of a recovery can be expected in most segments. In particular, a growth in the mobile subscriber base is likely and, combined with a partial recovery of roaming traffic, it will drive accelerated revenue growth in the industry.

In this context, we will continue to focus on meeting customer needs, developing infrastructure and rolling out new digital solutions. We will continue to develop projects dedicated to the IoT, 5G, and AI through joint efforts with our partners.

In conclusion, I would like to express my gratitude to our shareholders for placing their confidence in me and appointing me to the position of Chairman of the Board of Directors in 2020, a difficult year for the entire economy and the telecoms industry. I would also like to thank my predecessor, Evgeny Bystrykh, who made a great contribution to the development of MegaFon throughout this successfully completed strategic cycle.

I would also like to sincerely thank my colleagues on the Board of Directors, the members of the Management Board and all MegaFon employees for their commitment, loyalty and professionalism. Each MegaFon employee contributes something of their own towards our common goal: to reach new heights in business and keep our customers and shareholders as satisfied as they possibly can be. There is no doubt in my mind that many more exciting initiatives, achievements and successes lie ahead of us.

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