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Edited Transcript of AFKS.MZ earnings conference call or presentation 27-Nov-19 2:00pm GMT

Q3 2019 AFK Sistema PAO Earnings Call

Moscow Dec 1, 2019 (Thomson StreetEvents) -- Edited Transcript of AFK Sistema PAO earnings conference call or presentation Wednesday, November 27, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Alexandrovich Shulgin

Sistema Public Joint Stock Financial Corporation - CEO of Ozon

* Andrey Anatolyevich Dubovskov

Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director

* Nikolai Minashin

Sistema Public Joint Stock Financial Corporation - IR Director

* Vladimir Travkov

Sistema Public Joint Stock Financial Corporation - VP, Chief of Financial & Investment Department and Member of Management Board

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Conference Call Participants

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* Alexander Vengranovich

Renaissance Capital, Research Division - Analyst

* Anna Kurbatova

Joint Stock Company Alfa-Bank, Research Division - Senior Analyst

* Dilya Ibragimova

Citigroup Inc, Research Division - VP

* Igor Goncharov

Gazprombank (Joint Stock Company), Research Division - Senior Analyst

* Maria Sukhanova

BCS Financial Group, Research Division - Research Analyst

* Vyacheslav Degtyarev

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Sistema's Third Quarter 2019 Financial Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Nikolai Minashin, Managing Director, Investor Relations. Please go ahead, sir.

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Nikolai Minashin, Sistema Public Joint Stock Financial Corporation - IR Director [2]

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Thank you, operator. Before we start, we would like to draw your attention to the fact that some of the information during this call contains projections or other forward-looking statements regarding future events or the future financial performance of Sistema. You can identify forward-looking statements by terms such as expect, believe, anticipate, estimate, intend, will, could, may or might, the negative of such terms or similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially.

We do not intend to update the statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, future rating, economic conditions; competitive environment risks; risks associated with operating in Russia; rapid technological and market now in the industries; as well as many other risks specifically related to Sistema and its operations.

Dear ladies and gentlemen, thank you for your interest in Sistema. Today, Sistema's financial and operating results for the third quarter 2019 will be presented by Mr. Andrey Dubovskov, Sistema's President and Chief Executive Officer; and Mr. Vladimir Travkov, Sistema's Vice President and Chief Financial Officer.

With that, I will turn the call to Andrey Dubovskov.

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [3]

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Ladies and gentlemen, thank you for joining us today. Before we begin our discussion, I wanted to highlight that we have a special guest on today's call. As our nonpublic portfolio companies develop and grow in importance for Sistema's equity story, we want to shed more light on these businesses. To this end, from time to time, we will be inviting CEOs of our private assets as well as the Sistema management partners that oversee these businesses to join us for quarterly investor calls.

Today, we are delighted to be joined by Alexander Shulgin, the CEO of Ozon, who will introduce many of you to Ozon, its strategic goals and aspirations. Some of you may know Alexander from his time at Yandex, and during his tenure with the company, Alexander served as both CFO and COO and oversaw the company's IPO on NASDAQ. Alexander joined Ozon less than 2 years ago. During this time, he has dramatically accelerated the pace of growth at Ozon. The company is now expanding at a fastest rate over the last 15 years, executed major investments in fulfillment centers and launched a number of value-added services. It's a pleasure to have Alexander with us today.

Sistema's results for third quarter 2019 reflect the successful growth and operational sufficiency of the corporation's portfolio companies and our success in executing our strategy at the holding level. Dynamic growth at MTS, Detsky Mir, Medsi, Steppe and other key assets drove Sistema's revenue growth of 7% year-on-year. At the OIBDA level, we saw pressure from the softer global commodities prices, unfortunately. Group adjusted OIBDA was up 4% year-on-year with adjusted to OIBDA margin coming in at a strong 35%.

MTS posted high growth rate driven by revenue from mobile services as well as an increasing contribution from MTS Bank.

Detsky Mir continued to strengthen its market leadership. It has also substantially accelerated like-for-like sales compared with the first and second quarter this year. The company consistently demonstrates high levels of profitability while realizing a significant increase in dividend payments.

This quarter, we saw weaker results from Segezha, as global prices for pulp and paper products softened during the period. Weakness across segments is driven both by oversupply and softer demand as a result of slower growth in the construction industry in China and Middle East. However, in spite of the challenging environment, Segezha continues to grow its presence in the most lucrative export markets and expand its production facilities for paper sacks, plywood and bags.

Our agricultural holding, Steppe, reported top line growth of 26%. This growth was driven by strong operating performance in grain production, milk output and apple orchard segments and growing contribution from the grocery trading businesses. During the third quarter, lower global wheat price put pressure on Steppe's revenue and OIBDA dynamics, but starting from October, we noted an improvement in the global pricing environment.

Medsi delivered an 18% increase in revenue on the back of stronger demand for higher quality health care. Notably, revenue improvement came across all channels: Voluntary Health Insurance, Mandatory Health Insurance and private payers. Medsi continues construction of a new multifunctional center on Michurinsky Prospect, which will increase its capacity by roughly 15%. Medsi plans to open this facility next year. It will house a clinical diagnostic center for children and adults, a daytime inpatient clinic and a 24-hour inpatient clinic with a center for high-tech surgery. Additionally, Medsi is expanding its network of our patient -- outpatient clinics in 5 districts outside Central Moscow.

The key aspect of our corporate strategy has been a focus on rebalancing and monetizing our portfolio assets to both reduce our balance sheet commitment and create new investment resources. Over the past 6 months, we have made considerable progress in showcasing our capabilities in reducing risk at the corporate center level while simultaneously demonstrating our creative approach through existing transactions in this market.

In August, we completed the sale of our remaining 49% in Leader Invest to ETALON GROUP, thus bringing ETALON's share in the company to 100%. This will allow ETALON to fully unlock synergies between the 2 businesses and position ETALON as a leader in Russia's 2 largest residential real estate markets, Moscow and St. Petersburg. The deal generated roughly RUB 15 billion for Sistema, the bulk of which has been used to reduce our debt levels.

Last week, we also concluded the sale of shares in Detsky Mir through a secondary public offering. The offering represented 23.7% of Detsky Mir's shares capital as both Sistema and the Russia-China Investment Fund sold shares. In total, the offering raised close to RUB 16 billion, with RUB 12.5 billion of proceeds coming to Sistema. The book was well subscribed, and in the end, the price was RUB 91 per share and was 5.8% discounted to the price when the offer was launched and only 2.2% discounted to the price on the day that we closed. There are healthy metrics for a deal like this, and we are confident that strategically, a sale to the market was the best way to realize the true value of the stake in Detsky Mir.

As I stated when launching the transaction, the key aim of this deal was to enhance liquidity by Detsky by increasing the free float. We succeeded here. The investors who participated were global with a strong concentration in Russia and Central and Eastern Europe. Many were also existing Detsky shareholders. This supports our view that a higher free float, combined with the company's financial and operating excellence, driven by a top notch management team bodes well for market value of the company and, of course, for the value of our remaining 33% stake.

Lastly, MTS recently announced the sale of its business in Ukraine. Simultaneously, MTS announced a special dividend in relation to the sale, which should realize over RUB 10 billion for Sistema in the beginning of the next year. While personally, a bid sad to this business change, hence, given the fact that I spent around 3.5 years in charge of this asset, we support MTS' efforts to focus more on the Russian market and opportunities in the digital space.

In sum, we have executed over RUB 33 billion in monetization within a period of 6 months. To realize this, we have tapped the public market, completed the merger of one asset with the market leader in a publicly traded deal and one of the biggest assets has optimized its portfolio by monetizing an asset through its strategic rationale.

As Vladimir will detail, the bulk of these resources have been allocated to deleverage our balance sheet. But the breadth of the transactions showcases how Sistema can be creative and versatile in realizing success in our market.

Let me now hand the floor over to Vladimir Travkov, our CFO, who will discuss our financial performance in the third quarter in greater detail.

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Vladimir Travkov, Sistema Public Joint Stock Financial Corporation - VP, Chief of Financial & Investment Department and Member of Management Board [4]

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Thank you, Andrey, and thanks to all of you for joining our call today. I am pleased to report that during the third quarter, we managed to achieve significant improvements in Sistema's leverage profile and overall financial position. This progress was supported by the strong financial performance and cash returns delivered by our key assets as well as successful monetization of Leader Invest.

Once again, we delivered healthy growth and resilient operating profitability. Consolidated revenues for the quarter increased by 6.6% year-on-year to RUB 214 billion. Adjusted OIBDA was up 4.4%, reaching RUB 75.4 billion. The main contributors to the growth year-on-year were MTS, Business Nedvizhimost and Medsi. At MTS, robust OIBDA growth of 8.8% year-on-year was the result of an improvement in mobile service revenue and the lower share of smartphone sales in the revenue mix. MTS remains the most profitable name in the Russian telecom space. Its Russian OIBDA margin reached 47% this quarter.

Detsky Mir continues to raise the bar in terms of cost discipline. This allows the company to increase adjusted OIBDA by 9.3% year-on-year, with a strong adjusted OIBDA margin of 18.7% for the third quarter. This was achieved despite the company's ongoing focus on maintaining optimal prices that continues to consolidate the market for children's goods.

Among our nonpublic assets, Medsi, BPGC and Business Nedvizhimost posted strong year-on-year expansion in the adjusted OIBDA margins. This was partially offset by revenue and OIBDA pressures at Segezha Group resulting from global market challenges. Consolidated OIBDA was also negatively impacted by net loss of a loan, where we continue to invest in the infrastructure enhancement, expansion of market share and innovative product offerings.

Sistema group SG&A expenses increased by 10.1% year-on-year in the third quarter, reflecting higher SG&A at MTS, Detsky Mir and the Corporate Centre. The consolidated SG&A to revenue ratio increased slightly year-on-year due to the SG&A growth ahead of the increase of revenue at MTS and Detsky Mir, as they continue to expand their operations. The increase also was impacted by additional expenses related to the large asset monetizations at Corporate Centre. At Medsi, our rental assets in BPGC delivered an improved SG&A to revenue ratio year-on-year.

Now I would like to focus on our cash flows and debt profile. Sistema's portfolio company has delivered approximately RUB 17.6 billion in dividends and cash returns, including RUB 15.6 billion in dividends from MTS. In August, we also received RUB 14.6 billion from the sale of our remaining 49% stake in Leader Invest to ETALON. In line with our strategic priorities, we used a portion of this cash proceeds to deleverage our balance sheet, bringing total net debt repayment for the quarter to RUB 18.4 billion (sic) [RUB 18.6 billion]. Apart from repaying debt and making interest payments, we also used RUB 4.9 billion for investments in new and current projects, including RUB 1 billion deployed in the form of convertible loan to Ozon. Overall, we achieved very considerable progress in terms of deleveraging.

Sistema's net financial liabilities at the Corporate Centre level decreased by 8.7% during the quarter to RUB 199 billion by the end of the quarter, lowest since 2017. At the group level, our financial liabilities decreased by 3.2% to RUB 711.6 billion as of the end of the third quarter, primarily driven by the reduction at the Corporate Centre.

On the back of a robust demand for our debt, we maintained strong momentum in debt capital markets aiming to further diversify and optimize our liabilities. In July, we issued a local bond to raise RUB 10 billion with a put option in 4 years at interest rate of 9.4%. Three months later, in October, we placed another RUB 10 billion bond with a put option in 5 years, this time achieving a much lower coupon rate of 7.85%. Part from risk placements were used to refinance existing loans, one in rubles and one fully hedged in dollars.

In November, we significantly improved the terms of credit agreements with Sberbank, our largest creditor. We managed to reduce rates and extend the maturity of collateralized loans and unpledged loans till 2025 and 2024, respectively. As a result of our debt optimization efforts, we were able to further decrease our average cost of debt and increase the average duration of our portfolio to 3.7 years.

At the end of the third quarter, our cash position amounted to RUB 4.8 billion. In November, it was further strengthened by dividend payments from MTS as well as RUB 12.5 billion inflow from the successful public offering of Detsky Mir shares. As we commented previously, a significant portion of these funds will be used to further reduce our leverage.

We are pleased that enhancement of our financial profile have been recognized by both international and Russian rating agencies. In August, S&P raised our credit rating by one notch, bringing back to the category of BB-. And in September, the RAEX rating agency upgraded our domestic credit rating also by one notch to ruA. Upgrade by RAEX provides for inclusion of Sistema's bond in Lombard List of Central Bank.

In closing, I would like to reiterate that we remain fully committed to further growing the value of our portfolio and strengthen our financial profile.

Thank you, again, for your attention. I will now hand the floor to Alexander Shulgin.

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [5]

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Thank you, Andrey and Vladimir, for this opportunity to introduce us on to the investment community.

For almost 2 years, I have been privileged to run Ozon, the leading multi-category online retail platform in Russia. We operate in an industry that is both highly fragmented and fast growing. E-commerce is the fastest-growing segment in Russian retail. The market has expanded 26% year-on-year in the first half of 2019. It is still a relatively small segment of the market comprising just 6% of total retail turnover. So the opportunity for growth is huge. Ozon is uniquely placed to emerge as a clear leader in this space. In a market growing at 26% rate, Ozon demonstrates stellar GMV growth of almost 100%. Since the beginning of 2017, we increased GMV 3.5x, and we are committed to continue to deliver similar growth rates going forward.

So what are the key advantages of Ozon that have enabled us such fast expansion and will continue to fuel growth going forward? We think our strength includes the largest multicategory assortment of goods in the Russian e-commerce space, the most advanced logistics infrastructure and the most recognized brand. Also, the complex of customer products and services that we are launching currently, like fintech, which is complementary to e-commerce, and driving Russian customers to switch more and more from offline to online consumption. And every day, we continue to expand the assortment, invest in our infrastructure, improve last-mile delivery quality and strengthen the brand.

Ozon currently offers over 2 million SKUs and has unrivaled that service SKUs by category. From customer electronics, children's goods, home and decor, apparel to books, health and beauty products, in each category, we have more goods to offer than the competition. With the aim of still further expanding the assortment, about a year ago, we launched the marketplace platform. Today, after a year of operation, it accounts for more than 5,000 active sellers with about 15,000 more in the process of onboarding and accounts for over 40% of Ozon assortment and reached 23% of GMV in the end of Q3.

Expansion of assortment of goods requires the right development of logistics infrastructure and substantial investment in both state-of-the-art fulfillment facilities and last-mile delivery. Ozon currently operates 8 fulfillment centers across the country with total floor space of over 160,000 square meters and continues to build out its logistics infrastructure. In the first half of this year, we launched the first phase of Russia's largest fulfillment center in the Moscow region. The facility already reached productivity of processing 25,000 orders per day in Q3 with materially higher volumes as of today.

We also have a pipeline of new fulfillment centers opening in the region planned for next year with the -- including the recent start of construction of a new 20,000 square meters fulfillment center in the Republic of Tatarstan. Existing fulfillment infrastructure in combination with national delivery network comprising diversified set of delivery channels, including both own and partners' couriers, self and partners pickup points and lockers, allows us to offer next day delivery to 40% of Russian population.

We aim to be close to our customers, and today, our and our partners' self pickup point locations account approximately 10,000 offline points of presence. Two years ago, we started building our network of own parcel lockers. And as of today, Ozon already operates Russia's largest network of own parcel lockers, with more than 5,000 units installed and in combination with partners, who operate a network of 6,000 parcel lockers.

Within 2 years since start, parcel lockers have gained 20% share in total Ozon orders. We plan to continue to expand our delivery infrastructure rapidly, and we are constantly focused on improving the terms and quality of our delivery services to customers.

We are also experimenting with new products and formats. We were the first in Russia to launch a leave-at-the-doorstep delivery option, which doesn't require customers to wait for a courier at an indicated time slot. The trial phase in Moscow was a success, after which the service was expanded to cover more than 20 cities across the country.

Another major pillar of Ozon's success in the market have been strength of our brand. The company was founded 21 years ago, and over the years, we have established significant trust in brand loyalty. We are now building on this trust by developing the premium subscription service, which by the end of Q3 was already purchased by more than 140 loyal customers. Interestingly, after purchasing premium subscription, we typically see customers' order frequency rise 2 to 3 times. And we're using our relationship with the customers to build out an ecosystem of financial services around our core e-commerce offering. For customers, the value-added services include pay-later option as well as Ozon banking card with a cash back on all Ozon purchases. Holders of this card increased their spend at average spend and frequency 4 times per month. For sellers, we have introduced a peer to business lending platform called Ozon. Invest that enables our marketplace sellers to secure financing from Ozon customers.

In conclusion, I would like to reiterate that Ozon is ideally positioned to strengthen its leadership and has multiple avenues of growth in an underpenetrated market.

Thank you for your attention. I will now hand the call back to Nikolai.

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Nikolai Minashin, Sistema Public Joint Stock Financial Corporation - IR Director [6]

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Thank you, Alexander. Operator, we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Vyacheslav Degtyarev of Goldman Sachs.

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Vyacheslav Degtyarev, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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How do you think you're positioned with regard to your portfolio monetization further? This year was quite active on asset monetization. Do you envisage a similar scope of opportunities going into 2020 or you will mostly rely on the dividend upstream next year?

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [3]

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Yes. Thank you for the question. It's Andrey Dubovskov. Monetizations will be subject to interest from potential buyers and our portfolio strategy. And as you know, Sistema's portfolio consists of more than 15 businesses, leaders in their respective industries, and our portfolio companies hold some noncore assets that can be effectively monetized. And our liquidity position is comfortable, so we intend to have a balanced approach to monetization. But at the same time, as you know, during some loss periods, we are looking for the good possibility for monetization in some accepted industries. First of all, it's our Bashkirian subsidiary and, unfortunately for us, right now, we have finalized our SPO story with Detsky Mir and maybe some other enterprises will be monetizing in 2020. But what exact sure -- -- in what exact industries it will be, it's an open question right now.

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Operator [4]

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We will now move to our next question from Alexander Vengranovich of Renaissance Capital.

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Alexander Vengranovich, Renaissance Capital, Research Division - Analyst [5]

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Congratulations on a good quarter. Just a couple of questions on Ozon. So first one. It's probably a question for Alexander. Can you split the GMV growth between the growth in number of orders and average check? And how do you plan to grow in the remaining part of 2019 and next year? Do you feel that more growth -- more and more growth will be coming from just increasing the number of the orders due to the high penetration of the e-commerce? Or do you feel that the competition on the market might get a little bit easier, but you might also start to increase the prices on this market? And the second question is on the annualized size of the cash burn rate at Ozon currently. So of note is that in the third quarter, in the presentation, Sistema made another RUB 1 billion investment as a convertible loan to Ozon. So I just wanted to understand what's the sort of a scale of the potential investments needed to finance the operations this year and next year probably.

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [6]

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Alexander, thank you very much for the question. So the growth of GMV comes primarily from growth of number of customers and order frequency. So more orders generate more GMV growth. As we expand our delivery infrastructure and logistics and expand assortment, there are more opportunities for people to shop on Ozon and they make more orders. Average check does not change materially, but don't get confused with prices. So average check in e-commerce is very much driven by delivery terms and amounts of, say, the barrier of free delivery and so on. So our delivery terms are quite good for customers and every check stays flat irrespective of changes of the category mix. So we are committed to grow a number of customers and increase in frequency, and we already see subset of our customer base of several hundred thousand people who are making monthly and even weekly purchase on Ozon. So Russian customers, they enjoy e-commerce, and they want it to happen. On the cash burn, since we're still a private company, we do not disclose at the moment just on that.

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Operator [7]

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We will now move to our next question from Anna Kurbatova of Alfa Bank.

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Anna Kurbatova, Joint Stock Company Alfa-Bank, Research Division - Senior Analyst [8]

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I have a follow-up question on Ozon and a second question regarding the completion of the Sintez assets in August. So basically, on Ozon, it will be like kind of extension of Alexander's previous question. First of all, the third quarter investments were RUB 1 billion. So I wonder this investment was accompanied by equal or similar investment by your partner in Ozon, Baring, or it was just from Sistema's side. And how do you kind of scheme investments, Sistema and your partner?

And the second question, maybe rephrasing, if you do not -- can comment -- you can't comment on the cash burn, maybe you could give some guideline whether your pace of investments into infrastructure, logistics and other needs will be more or less the same or accelerate or decelerate in -- next year compared to 2019?

And finally, on Sintez, the completion of the deal was announced in early August and also there was announced intention that it might be mandatory offer to Sintez minority holders. So could you please comment on the status of this offer currently?

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [9]

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Let me say some statement about MTO and Sintez because it's a little bit short-layer question. As you know, Sinocom is preparing the launch of a mandatory tender offer. And when Sinocom launch the MTO, we will be able to provide to you with more details on this matter. And of course, I can assure you that this is one of the priorities of Sistema's team overseeing pharmacies, and we are engaged with the regulator and aim to resolve this issue as soon as possible. Believe us.

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [10]

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And to follow up on the Ozon-related questions, so we very much appreciate support of our shareholders, and both Sistema and Baring participated in the latest convertible loan in equal parts. Talking about investments next year, we see approximately same amount of capital investment that is required to expand infrastructure of the company. Major use of investment is build in the fulfillment and last-mile delivery infrastructure as well as developing the core IT products. The company currently employs approximately 800 engineers, which are built under the technology stack to enable growth of the company.

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Operator [11]

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We will now move to our next question from Igor Goncharov of Gazprombank.

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Igor Goncharov, Gazprombank (Joint Stock Company), Research Division - Senior Analyst [12]

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Three questions, please. One is on Bashkirian assets. If I understood you correctly, you mentioned that one of the assets -- one of the targets for monetizations. Some time ago, it was -- I understand there were some legal restrictions with regards to selling these assets. So I was wondering if those can -- if those restrictions are still in place or you envision if there are -- you envision some removal of those in the future, number one. Number two is on the dividends. Any update on kind of your dividend which you previously indicated that you wanted to kind of reduce the discrepancy between official dividend policy and the practical payments? And number three is relation to Ozon. If you -- in relation to convertible loan to Ozon, do you -- can you indicate how much -- by how much you -- if you -- if Ozon does not pay it back and you receive equity of Ozon in exchange of this money, which I assume is the best scenario, how much your stake in Ozon would increase on the back of this transaction?

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [13]

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Thank you for the question. It's Andrey Dubovskov. And talking about the dividends, of course, we continue internal deliberations to determine the best approach for achieving long-term increase in shareholders' value, and we need to find the right balance between developing our key portfolio companies, identifying and sizing new investment opportunities to support future growth, reducing debt, increasing shareholder returns by paying our dividends. And right now, we are not ready to talk about more deeply, but we'll get more clarity with regards to future dividend payments by the time we report our annual results in April based on our -- based on full year 2019. And of course, we understand that the #1 in our goal, which we aim at, is good growth of our assets and #2 is deleveraging. And talking about the dividend story, of course, it's a very important question, but currently, this question located behind of both question about good growth and deleveraging.

And the second question was Bashkirenergo. Yes, right now, we are not solving the legal story around Bashkirenergo, but we are sure that it can be on the table during 2020.

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [14]

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And this is Alexander speaking. So assuming -- first of all, on the convertible loans, we do not disclose the conversion rate because it depends on several factors. Having said this, assuming that this loans convert, Sistema and Baring actually will have slightly over 40% stake in Ozon.

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Operator [15]

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(Operator Instructions) We will now take our follow-up question from Alexander Vengranovich with Renaissance Capital.

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Alexander Vengranovich, Renaissance Capital, Research Division - Analyst [16]

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A question regarding Detsky Mir. So following your sale -- so following the partial sale of your stake, once the lock-up expires, do you feel that you might be pursuing the same type of the monetization transaction with Detsky Mir? Or do you feel that in this environment, when liquidity will be better, when the company will be probably more appealing for investors, you might be seeking for some big financial investor and are going to be easier for you to do it this way? So just like share, please, your thoughts on the future of your Detsky Mir stake and how opportunistic you are with this asset.

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [17]

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I think it's too early to talk about our potential steps. But let me remind you that our lock-up period in this deal will be the next 180 days, and after that, we will be ready to talk about more deeply. But in my opinion, it's -- it will be -- totally depends on the dividend yield in Detsky, totally depends on the growth of its business, totally depends on profitability in that period, not now. And so based on all these results, based on the market situations in the Russian and world economy next year, we will be ready to talk about it more deeply.

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Operator [18]

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Our next question comes from Dilya Ibragimova of Citi. Dilya, we can't hear you at this time, so please...

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Dilya Ibragimova, Citigroup Inc, Research Division - VP [19]

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Apologies for the technical issues. I had a couple of questions, please. One is to you on Segezha. First, if you maybe could give us a bit more color on what to look for as we go into Q4 and first half of the year, maybe what you see in terms of pricing for the key products. You did mention that some of the -- it seems like there are quite a few moving parts in some places. In the places, the trends are favorable; in the other, there is some -- like kraft paper, there might be pressure. So if you could give us a bit of color would be great.

And second, as -- on the future investment projects that Segezha has, especially the big ones like Segezha West, as you -- as the group delevers, would you -- would the holding be willing to support that project? I think in the past, the position was that those projects would be funded by Segezha itself and then maybe attracting some financial or strategic investors. But now as the health of the corporate looks -- especially with expected cash that will be coming in, in the next few months, as the health is improving, would you be willing to participate in some of the projects, especially considering that the environment right now may be less favorable to attract financial investor, for example?

And the last question is on Ozon, a question to Alexander. If -- do you have -- maybe if you could share your vision where you'd like the company to be -- or maybe your ideal size in terms of GMV or maybe what are your ambitions, where you'd like it to be in a few years. It seems like the company right now is in a very active investment phase. Maybe is there a target where you would reach and then you would say, okay, we are at the place we had enough of investments done, we reached the size that we're happy with and now we'll move on to more harvest or like, I don't know, be more of a yielding -- getting some yield on what we have invested into?

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [20]

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Yes. Thank you for the question. And so talking about the market for paper, you're absolutely right. In the first half of this year, we faced some kind of problems, and the market for the pulp and paper products has been booming for the last 2 years, but at the same time, in this year, we think that finally our results will be a little bit under the pressure of the market. But at the same time, Segezha use this time to expand its production capacities in paper and plywood and substantially reduce costs on oil and electricity. It's a good time to do it and have efficiencies in logistics and trading and launch new products and venture in new markets. That's a good time to spend our resources for some kind of improving our cost policy, improving our facilities.

And while, indeed, we might expect some pressure on the margins in a weaker pricing environment, this has given us an opportunity to strengthen presence in the markets using our competitive cost advantages, and we continue to evaluate major investment projects to build up our production capacities and our long-term strategy, and we remain engaged with potential partners and investors in various projects.

But talking about your second part of your question, we are looking for some kind of financial investors for Segezha like an equity partner. And at the same time, we are not looking for strategic partners. Currently, we have all possibilities to create in Segezha West our own facilities based on our potential collaboration with banks or other financial institutes. And all the questions which we have faced on currently, I can describe like process of choosing for the best scenario, how we can renovate our facilities, how we can do it more profitable and how we can do it faster, but no potential strategic partners.

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [21]

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This is Alexander speaking on Ozon question. First of all, we are committed to create -- build shareholder value. And as we discussed, we operate in a industry which is growing very fast from a low base, and the opportunity for growth is huge. So we think that the best way to create a shareholder value is to grow the company with a high double-digit growth rate for the several years ahead, maybe 5 years, so to say. Opportunity is infinite, and we are committed to build a multibillion-dollar company in, like, valuation terms.

Talking about cash flow, yes, I think the company -- we don't think that the company could break even from cash flow perspective in end of 2022, but then it will be up to shareholders to decide if they would like to continue with the high-growth strategy or to keep at a lower growth rate.

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Operator [22]

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(Operator Instructions) Our next question comes from Maria Sukhanova of BCS.

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Maria Sukhanova, BCS Financial Group, Research Division - Research Analyst [23]

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I have like a bunch of questions. So starting with Segezha. Could you please be more specific in terms of price. And I understand it's weak, but have the prices stabilized for pulp and paper or you saw further decline in prices in the first quarter? And second, in Segezha, you saw extra negative impact on your sales volumes as I understand from production capacities maintenance. So does it mean that in the fourth quarter, it would be fair to expect some better performance in this respect?

And a couple of questions on Ozon. So when you talk about -- when you look at your plans to expand on logistics, do you think about it as mostly a tool to drive GMV growth or there is also evidence that it allows you to cut logistics costs and improve unit economics? And second, if you could just, at least like roughly, comment on unit economics. Is it possible -- sorry, positive at this point? Or this is something you have to invest at this stage of market?

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Andrey Anatolyevich Dubovskov, Sistema Public Joint Stock Financial Corporation - Chairman of the Management Board, President, CEO & Director [24]

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Yes. Talking about the prices for pulp and paper, currently, the price is stable, but unfortunately, much more weaker than in previous year. And of course, we are looking for some kind of increasing of this price, but I think it will be not a significant jump. I think till the end of this year, the price will be stable.

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Nikolai Minashin, Sistema Public Joint Stock Financial Corporation - IR Director [25]

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And Maria, with regards to your question on the impact of maintenance shutdown at Segezha, it was around 15 days during this quarter. So there was some substantial impact on the amount of production.

And can you please repeat your question to Alexander? We did not fully grasp this.

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Maria Sukhanova, BCS Financial Group, Research Division - Research Analyst [26]

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Yes, sure. So first question, when you look at expansion for logistics, so what are your goals here? Is the key goal to like make it more convenient and make it more affordable for customers to buy from you so that it would increase GMV? Or you see that doing logistics on your own, this allows you to cut logistics costs and you have evidence in this respect? And second, about unit economics, that -- with current price in the market, with current cost of logistics, when you grow in your GMV, does it help you to like -- can you be breakeven, for instance, if you just stop investing in market?

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Alexander Alexandrovich Shulgin, Sistema Public Joint Stock Financial Corporation - CEO of Ozon [27]

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Maria, thank you for the questions. So on logistics expansion, our goal is actually to do both. First of all, we see that providing better delivery terms, I mean, fast delivery or placing more lockers or opening new pickup points creates new additional GMV in a particular geography. So better logistics improves sales. And second, as we expand to -- the goal is also to decrease CPOs, so cost per order for logistics as density increases and to place more automated machines like lockers, CPO goes down. So we follow both strategies, CPO goes down and better quality of delivery.

On unit economics, if the company scales down the growth rate and, actually, as the company used to have, say, in 2016, the company was very close to breakeven, so it's possible to do it once again, but in reality, I think the best approach to creating shareholder value is to grab market share as market grows very fast currently.

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Operator [28]

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And as there are no further questions at this time, that will conclude today's question-and-answer session. And now I would like to turn the call back to Nikolai Minashin for any additional or closing remarks. Over to you, Nikolai.

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Nikolai Minashin, Sistema Public Joint Stock Financial Corporation - IR Director [29]

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Thank you, operator. If you have any further questions, please don't hesitate to contact our Investor Relations team. With that, I would like to thank everyone for their participation. I conclude our call and wish everyone a very pleasant evening. Thank you.

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Operator [30]

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Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.