Russia's Megafon to scrap dividends, raise spending in 2018

MOSCOW, March 15 (Reuters) - Megafon said on Thursday it would not pay dividends in 2018 as it plans to increase capital spending to comply with a data storage law and continue its high-speed network roll-out, sending its shares down 7 percent.

The company, Russia's second biggest mobile phone operator, also forecast its telecom service revenue would be flat or rise in the low single digits in percentage terms this year and core earnings would be broadly unchanged from 2017.

Megafon plans to raise capex to 75-80 billion roubles ($1.3-$1.4 billion) this year from 56 billion roubles in 2017 to improve service quality, continue its network rollout, and fund obligations to meet the data storage law, it said in a statement.

The law envisages that from July 1, 2018, mobile phone operators must store all user-generated data including voice calls and messages for six months, as part of regulations passed last year in response to security threats.

Megafon estimated in December it would need to spend up to 40 billion roubles in the next five years to comply.

Shares (Berlin: DI6.BE - news) in the company dropped almost 7 percent on the Moscow Exchange by 0745 GMT, while the broader market index was 0.14 percent higher.

The company also reported a 4 percent rise in its fourth-quarter telecoms revenue to 85 billion roubles but said earnings tumbled because of cost increases, including higher provision for employee bonuses.

Adjusted net profit fell 53 percent to 3 billion roubles due to an increase in foreign exchange losses and higher financing costs, while adjusted operating income before depreciation and amortisation was down 0.6 percent to 29 billion roubles.

In 2017 as a whole, Megafon's telecom business revenues rose 1.8 percent to 322 billion roubles and its adjusted OIBDA climbed 0.6 percent to 122 billion roubles.

"2017 was a turning point for our company and the telecom industry as a whole. We managed to reverse the downward trend in revenue which has been prevalent in the market for a long time," Sergei Soldatenkov, Megafon chief executive officer, said. ($1 = 57.0619 roubles) (Reporting by Anastasia Teterevleva; writing by Maria Kiselyova. Editing by Jane Merriman)