Rostelecom announces its IFRS financial and operating results for the second quarter of 2018

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PAY-TV SUBSCRIBER BASE EXCEEDED 10 MILLION USERS

Moscow, Russia – August 2, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the second quarter of 2018 prepared in accordance with IFRS[1], [2].

KEY ACHIEVEMENTS

  • Revenue grew by 3% year-on-year in the second quarter of 2018 with average annual revenue growth of 5% over the last four quarters;
  • The digital segment’s[3] contribution to total revenue reached 53%;
  • Pay-TV subscriber base exceeded 10 million users;
  • 1 million clients use Rostelecom’s mobile communication services;
  • Consistently high growth rates in FTTx Broadband clients (+7%) and in IPTV subscribers (+11%), while ARPU continues to grow in our core broadband and IPTV segments;
  • Increase in revenues from VAS and cloud services amounted to 34% in the second quarter of 2018, as a result of “Smart City" projects, and the promotion of cloud services and data centre services.

SECOND QUARTER 2018 FINANCIAL HIGHLIGHTS

  • Revenue grew by 3% to RUB 77.4 billion compared to the second quarter of 2017;
  • OIBDA[4] of RUB 23.7 billion;
  • OIBDA margin of 30.6%;
  • Net profit increased by 9% to RUB 3.1 billion compared to the second quarter of 2017;
  • CAPEX[5] increased by 16% to RUB 14.4 billion (18.7% of revenue) from RUB 12.5 billion (16.6% of revenue) in the second quarter of 2017;
  • Consolidated Free Cash Flow (FCF) improved to RUB (0.8) billion[6] compared to RUB (1.6) billion in the second quarter of 2017;
  • Net debt[7] increased by 7% since the beginning of the year and amounted to RUB 193.5 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

Key figures for 2Q 2018, RUB mln

RUB million

2Q 2018

2Q 2017

% change, y-o-y

Revenue

77,365

75,166

3%

OIBDA

23,659

24,599

(4%)

OIBDA margin %

30.6%

32.7%

-

Operating Income

8,342

11,304

(26%)

Operating margin %

10.8%

15.0%

-

Net Income

3,094

2,826

9%

% of revenue

4.0%

3.8%

-

Capital Expenditure

14,442

12,451

16%

% of revenue

18.7%

16.6%

-

Net debt

193,497

185,463

4%

Net debt/ annualised OIBDA

2.0

1.9

-

FCF

(832)

(1,644)

+RUB 812 million

FIRST HALF YEAR 2018 FINANCIAL HIGHLIGHTS

  • Revenue increased by 5% to RUB 153.6 billion compared to the first half of 2017;
  • OIBDA increased by 1% year-on-year to RUB 46.9 billion compared to the first half of 2017;
  • OIBDA margin of 30.5% compared to 31.7% in the first half of 2017;
  • Net profit increased by 16% to RUB 7.0 billion compared to the first half of 2017;
  • CAPEX decreased by 2% year-on-year to RUB 29.6 billion (19.3% of revenue) from RUB 30.2 billion (20.7% of revenue) in the first half of 2017;
  • Free Cash Flow (FCF) of RUB (6.7) billion compared to RUB (4.0) billion in the first half of 2017;

Key figures for 1HY 2018, RUB mln

RUB million

1HY 2018

1HY 2017

% change, y-o-y

Revenue

153,568

145,602

5%

OIBDA

46,852

46,168

1%

OIBDA margin %

30.5%

31.7%

Operating Income

16,699

19,397

(14%)

Operating margin %

10.9%

13.3%

Net Income

6,958

5,976

16%

% of revenue

4.5%

4.1%

Capital Expenditure

29,567

30,165

(2%)

% of revenue

19.3%

20.7%

Net debt

193,497

185,463

4%

Net debt/ annualised OIBDA

2.0

1.9

FCF

(6,680)

(3,953)

-RUB 2,727 million

Mikhail Oseevsky, President of Rostelecom, commented:

“The Q2 2018 results came in line with our expectations. Rostelecom has gained momentum: revenue has been growing at a solid average annual rate of 5% in the last 12 months. Our digital segment, which currently accounts for 53% of our top-line, has contributed significantly to this growth. Our growth engine is delivering and we are also increasing our competitive positions in the key pay-TV and broadband segments, thanks to a growing subscriber base and higher ARPU. This was achieved by promoting new services such as “Smart Home” video surveillance, where we saw the subscriber base grow three-fold in the reporting period. Higher demand for cloud services, data centers and information security solutions is also contributing to our top-line and is coming from corporate and government clients. We are strengthening our competences in the key growing areas, including cyber security business stream, which is why we acquired Solar Security, a technological leader in target monitoring and information security operational management. Solar Security will make a substantial contribution to this strength and will allow us to boost our presence in the market thanks to its reputation for delivering a reliable and trustworthy suite of services and products. Solar Security will evolve into Russia’s national cybersecurity operator which will cover three key areas, including “Services”, “Brand new products” and “Full-scale cybersecurity solutions”.

We continue to successfully implement the Russian government’s state projects of high strategic importance. Public funding enabled us to further expand the number of high-speed connections in Russian healthcare centres and across remote areas during the second quarter. We also successfully delivered the video surveillance of the Unified State Exam, which contributed over RUB 1 billion of revenue.

Serving as regional sponsor to World Cup 2018 has had a significantly marketing contribution for Rostelecom. We were deploying Wi-Fi spots in the majority of sites, provided the Organisation Committee and FIFA with video conferencing services, arranged for steady Internet connection in the stadiums and launched a number of remarkable promotion campaigns during the World Cup. We did our best to ensure comfort and provide high quality services for fans from all over the world, to maintain our reputation of one of the leading digital providers.

In June this year the AGM approved that 100% of net income would be distributed across shareholders at RUB 5.05 per a preferred and ordinary share, which resulted in a high level of dividend yield. We strongly believe that consistent implementation of our robust business development strategy will pave the way for further attractive dividend payments.”

Sergei Anokhin, Senior Vice-President and Chief Financial Officer, added:

“Rostelecom’s results for the second quarter of 2018 reflect our confident outlook for future developments of the digital segment. We expect our performance to continue to improve across all key financial indicators. We therefore confirm our full year forecast for revenue growth, and anticipate an increase of more than 2%. OIBDA margin is expected to be above 31.5% in 2018 with CAPEX of RUB 60-65 billion, excluding the implementation of government programmes.”

KEY OPERATING HIGHLIGHTS

  1. The total number of Internet subscribers grew by 2% to 13.0 million in the second quarter of 2018 compared to the corresponding period of last year;
    • The B2C subscriber base grew by 1% to 12.0 million, whilst the number of subscribers connected by fibre optic increased by 6% year-on-year to 7.9 million (66% of the subscriber base);
  2. The number of pay-TV subscribers grew by 5% to 10.0 million households compared to the corresponding period of last year;
    • The number of IPTV subscribers increased by 11% to 5.1 million;
  3. The number of MVNO subscriber base reached 1 million users, a more than two-fold increase within 1 year;
  4. The number of local telephony subscribers decreased by 8% to 18.3 million.

Number of subscribers (million):

2Q 2018

2Q 2017

% change, y-o-y

1Q 2018

% change, y-o-y

Internet access

13.0

12.8

2%

12.9

0.1%

B2C: Broadband

12.0

11.8

1%

12.0

0.03%

B2B: Broadband + VPN

1.0

0.9

2%

1.0

2%

Pay TV

10.0

9.5

5%

9.9

1%

Incl. IPTV

5.1

4.6

11%

5.0

2%

MVNO subscribers

1.0

0.5

107%

0.9

10%

Local telephony services

18.3

19.9

(8%)

18.7

(2%)

Full press release



[1] International financial reporting standards.
[2] The Group initially adopted IFRS 9, 15 and 16 using the modified retrospective approach starting from the first quarter of 2018. Please refer to Attachment 2. The change evaluation is given in the financial report in accordance with IFRS standards for 2018.
[3] The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services.
[4] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA.
[5] Here and below, capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets.
[6] Here and below starting from 2018 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, plus interest received
[7] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).