UPDATE: MegaFon board recommends paying 32.25 rbl/shr in final 2016 divs

(Adds comments on strategy in last five paragraphs)

MOSCOW, May 25 (PRIME) -- The board of directors of Russian mobile operator MegaFon has recommended paying 20 billion rubles, or 32.25 rubles per common share, or global depositary receipt (GDR), in final dividends for 2016, the company said on Thursday in a statement.

Shareholders will consider the matter at a meeting on June 30. If approved, the total amount of dividends distributed for 2016 will be 40 billion rubles, or 64.50 rubles per share/GDR.

Under MegaFon’s updated dividend policy, a minimum level of dividends will be at 70% of the company’s free cash flow to shareholders, excluding results of Internet giant Mail.Ru Group, in which the operator gained control earlier in 2017.

“The company will aim to ensure that dividend payments will not increase the (MegaFon) group’s leverage level above a 2.0x ratio, also not taking into account the results of Mail.Ru. However, we will retain the flexibility to increase the leverage level in certain instances, for example, when it would be reasonable to borrow for strategically important M&A transactions to increase shareholders’ value,” MegaFon CEO Sergei Soldatenkov said.

“We believe that the new dividend policy is in line with market practice, is simple to understand, and will allow shareholders to benefit from the implementation of our new business strategy on a long-term basis.”

MegaFon also unveiled its new business strategy until 2020. “In order to implement the new strategy effectively, at the end of last year we revised the company’s structure by dividing it into operational and commercial divisions. This year we are transitioning to a new cluster-based management model,” Soldatenkov said.

“We will form our regional units not by geographical location, as previously, but based on clusters with comparable potential and local market similarities. We will then apply different tactics to different clusters. The switch to the new management model will help us to speed up our decision-making processes, be more flexible, strengthen expertise within key functions, and increase the efficiency of our business processes.” 

MegaFon’s Chief Strategy Officer Alexander Sobolev said the company will focus on the creation of digital products for clients within its 2017–2020 strategy.

“In order to reverse a falling trend in the industry, we should work on the creation of additional value of services for the client and contribute to strengthening of penetration of the Internet and digital products…Our future is the formation of an eco-system of digital solutions, which will cover all spheres of a human being’s life,” Sobolev said at the Investor Day.

Soldatenkov said the telecom market has not been growing for several recent years. “It’s not just because of competition. There are no new subscribers. Penetration has reached 180%, and Russia is among the world leaders by this indicator. A rush for a share in subscriptions does not bring new revenue and stands behind a high outflow. Decreasing prices of services, limitless tariffs, bundle offers with a higher volume of services had brought no results in changing market shares of operators,” the company’s head said.

MegaFon’s Chief Commercial Officer Vlad Wolfson said the operator will create new products by the more-for-more principle, meaning more services for a higher price.

“We’ll work on the differentiation of brands: MegaFon for traditional users; Yota for active youth and Internet fans; VKMobile (a virtual operator to be launched in July jointly with Internet company Mail.Ru Group) for users of the social network,” Wolfson said.

(56.2743 rubles – U.S. $1)

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