Rostelecom announces its IFRS financial and operating results for the first quarter of 2017

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THE DIGITAL SEGMENT’S CONTRIBUTION TO TOTAL REVENUE GROWS TO 47%

Moscow, Russia – May 17, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the first quarter of 2017 prepared in accordance with IFRS 1.

KEY ACHIEVEMENTS

  • The digital segment’s 2 contribution to total revenue reached 47%;
  • Rostelecom accounted for around 70% 3 of new connections in the pay-TV market, and for more than 50% 4 in the broadband market;
  • Total fibre optic network coverage reached 32.6 million households by the end of the first quarter of 2017;
  • Consistently high growth rates in FTTx Broadband connectivity (+14%) and in pay-TV subscribers (+20%).

FIRST QUARTER 2017 FINANCIAL HIGHLIGHTS

  • Revenue declined by 2.8% to RUB 70.4 billion compared to the first quarter of 2016;
  • OIBDA 5 decreased by 12.6% year-on-year to RUB 21.6 billion;
  • OIBDA margin of 30.6% compared to 34.0% in the first quarter of 2016;
  • Net profit increased by 5% to RUB 3.2 billion compared to the first quarter of 2016;
  • CAPEX 6 decreased by 7% year-on-year to RUB 17.7 billion (25.1% of revenue) from RUB 19.0 billion (26.2% of revenue) in the first quarter of 2016;
  • Consolidated Free Cash Flow 7 (FCF) improved by 5% to RUB -2.3 billion compared to the first quarter of 2016;
  • Net debt 8 increased by 1% since the beginning of the year and amounted to RUB 180.0 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 1Q 2017, RUB mln

RUB million

1Q 2017

1Q 2016

% change, y-o-y

Revenue

70,436

72,464

(2.8%)

OIBDA

21,569

24,670

(13%)

OIBDA margin %

30.6%

34.0%

Operating Income

8,093

8,502

(5%)

Operating margin %

11.5%

11.7%

Net Income

3,150

3,002

5%

% of revenue

4.5%

4.1%

Capital Expenditure

17,714

18,964

(7%)

% of revenue

25.1%

26.2%

Net debt

180,005

177,481

1%

Net debt/ annualised OIBDA

1.9

1.8

FCF

(2,309)

(2,427)

5%

Mikhail Oseevsky, President of Rostelecom, commented:

"The Company’s digital transformation continued to gain momentum, as evidenced by the digital segment’s growing contribution to total revenue, which increased by 5 p.p. and reached 47% by the end of the first quarter. We are also increasing our competitive positions in the key pay-TV and broadband segments, thanks to higher levels of positive client experience and the best fibre optical infrastructure in the country. We are happy to have recorded the highest level of revenue growth in our broadband segment during the first quarter than at any other period over the past six quarters at 7%.

“A great deal of attention is also being placed on the expansion of our product line, in both the public and private sectors, by growing our new offering to include among other solutions cyber security services and the development of "cloud" solutions for businesses.

In May, the BoD proposed to its AGM the dividend payment for 2016. We believe that the dividend pay-out for 2016 reflects the company’s actual performance in the reporting period. We intend to significantly increase the portion of free cash flow that is distributed to our shareholders. This reflects our commitment to the key principle of our policy which is to allocate more than three quarters of the free cash flow for dividends, and no less than RUB 45 billion within a period of three years, without increasing the Company’s debt burden. The proposed level of RUB 5.39 per share enables us to maintain a high dividend yield, generally in-line with our current dividend policy.

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added:

"The first quarter results reflect the mixed dynamics across our key segments. Our business is successfully transforming into a leading digital services provider, through units that are contributing significantly to our top-line. At the same time, we are experiencing a certain level of decline in our traditional business line. As a result, lower revenues from interconnect and traffic transit, mainly influenced by the strengthening of the rouble, prevented us from reporting revenue growth in the first quarter of 2017. Nevertheless, we have a positive outlook for the economy in 2017, particularly given the growing trend for digitalization across private and public sectors, which is opening up new growth prospects for our business. We therefore maintain our full year forecast of delivering revenue growth of approximately 1%, and an increase in OIBDA within 1%. We also expect a CAPEX to Revenue ratio of 18.5% excluding the implementation of the Bridging the Digital Divide project.”

KEY OPERATING HIGHLIGHTS

1. The number of broadband subscribers grew by 5% to 12.5 million in 1Q 2017 compared to the corresponding period of last year;

  • The B2C subscriber base grew by 5% to 11.7 million, whilst the number of subscribers connected by fibre optic increased by 13% year-on-year to 7.3 million (62% of the subscriber base).

2. The number of pay-TV subscribers grew by 6% year-on-year to 9.4 million households;

  • The number of IPTV subscribers increased by 20% year-on-year to 4.4 million.

3. The number of local telephony subscribers decreased by 7% year-on-year to 20.3 million.

Number of subscribers (million):

1Q 2017

1Q 2016

% change, y-o-y

4Q 2016

% change, y-o-y

Broadband

12.5

11.9

5%

12.4

1%

Residential

11.7

11.2

5%

11.6

1%

Corporate clients

0.8

0.7

4%

0.8

1%

Pay TV

9.4

8.9

6%

9.3

1%

Incl. IPTV

4.4

3.7

20%

4.2

4%

Local telephony services

20.3

21.8

(7%)

20.6

(2%)


Full press-release



1 International financial reporting standards.

2 The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services.

3 Company’s data, estimates from the analytical agency TMT Consulting

4 Company’s data, estimates from the analytical agency TMT Consulting

5 Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA.

6 Here and below, capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets.

7 Here and below free cash flow is FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets

8 Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).