Rostelecom announces its IFRS financial and operating results for the fourth quarter and full year of 2017

Print version 06.03.2018

Digital transformation delivers strong top line growth of 5% in the fourth quarter of 2017

Moscow, Russia – March 6, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the fourth quarter and the full year of 2017 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

• Revenue grew by 5% year-on-year in the fourth quarter of 2017, the revenue continues to grow by 4-5% for a third consecutive quarter;
• The digital segment’s[2] contribution to total revenue amounted to 47%;
• Consistently high growth rates in FTTx optic broadband clients (+9%) and in IPTV subscribers (+14%), ARPU keeps growing in our core broadband and IPTV segments;
• Free cash flow increased by 53% to RUB 20.4 billion for the twelve months of 2017;
• VAS and cloud services’ contributed to the revenue growth by almost 40% in the fourth quarter of 2017, due to the development of the "Smart City" projects, cloud services and data centre services promotion.

FOURTH QUARTER 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 5% year-on-year to RUB 84.1 billion compared to the fourth quarter of 2016;
• OIBDA[3] increased by 5% to RUB 25.7 billion;
• OIBDA margin grew to 30.5% compared to 30.3% in the fourth quarter of 2016;
• Net profit increased by 16% to RUB 4.2 billion compared to the fourth quarter of 2016;
• CAPEX[4] increased by 23% to RUB 18.5 billion (21.9% of revenue) from RUB 15.1 billion (18.7% of revenue) in the fourth quarter of 2016;
• Free Cash Flow (FCF)[5] increased by 11% to RUB 17.3 billion compared to the fourth quarter of 2016;
• Net debt[6] increased by 2% since the beginning of 2017 and amounted to RUB 181.6 billion, resulting in a Net Debt / Annualised OIBDA ratio of 1.9x.

Key figures for the fourth quarter of 2017

RUB million	4Q 2017	4Q 2016	% change, y-o-y
Revenue	84,113	80,407	5%
OIBDA	25,694	24,372	5%
OIBDA margin %	30.5%	30.3%
Operating Income	9,312	11,248	(17%)
Operating margin %	11.1%	14.0%
Net Income	4,169	3,586	16%
% of revenue	5.0%	4.5%
Capital Expenditure	18,462	15,060	23%
% of revenue	21.9%	18.7%
Net debt	181,594	177,481	2%
Net debt/ annualised OIBDA	1.9	1.8
FCF	17,283	15,618	11%

FULL YEAR 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 3% to RUB 305.3 billion compared to the full year of 2016;
• OIBDA[7] increased by RUB 0.085 billion to RUB 96.9 billion compared to the corresponding period of 2016;
• OIBDA margin of 31.7% compared to 32.5% in the full year of 2016;
• Net profit increased by 15% year-on-year to RUB 14.05 billion compared to the full year of 2016;
• CAPEX[8] decreased by 2% to RUB 60.8 billion (19.9% of revenue) from RUB 61.9 billion (20.8% of revenue) in 2016;
• FCF[9] increased by RUB 7.1 billion and 53% to RUB 20.4 billion compared to the full year of 2016.

Key figures for the full year of 2017

RUB million	FY 2017	FY 2016	% change, y-o-y
Revenue	305,329	297,446	3%
OIBDA	96,857	96,772	0.1%
OIBDA margin, %	31.7%	32.5%
Operating income	37,885	39,836	(5%)
Operating margin, %	12.4%	13.4%
Net income	14,050	12,249	15%
% of revenue	4.6%	4.1%
Capital Expenditure	60,752	61,857	(2%)
% of revenue	19.9%	20.8%
Net debt	181,594	177,481	2%
Net debt/ annualised OIBDA	1.9	1.8
FCF	20,385	13,298	53%

Mikhail Oseevskiy, President of Rostelecom:

«For the third consecutive quarter we have demonstrated high revenue growth rates and positive OIBDA dynamics. We are delivering on a successful digital transformation of our business model, as evidenced by a double-digit revenue growth in the digital business stream and the content segment that remains key engine for Rostelecom’s strategic reformation.

In the residential segment, in addition to core connectivity service, which continues to be in high demand, our new products with high added value, such as “Smart house”, “Interactive TV”, antivirus and other services, are gaining increasing prominence. Rostelecom remains a backbone company for the State and business through services in cyber-security space, data centre virtual capacity, offering cloud services and the biometric platform. We continue to implement large State projects in video surveillance and we are developing Smart Cities’ regional infrastructure. Thanks to solid financial support from the State we continue to drive the development of digital infrastructure in remote areas. We are optimising everyday business processes, improving the efficiency and usability for our clients. We are constantly seeking to make our services and customers’ experience simple and convenient.

Our deep market knowledge and expertise, valuable experience and significant resource potential have enabled us to secure a large number of state contracts and acquire one of the leading positions in the development of a key part of Russia’s national Digital Economy Programme. This will provide for a smarter and quicker strategic business transformation and will bring us closer to becoming a provider of digital services in the era of the new economic paradigm. We are delighted to be at the forefront of this global transformation leading to universal digitalisation, greater access to big data, operational excellence, faster and more efficient decision-making process. We believe all of this to contribute to better usage of resources and better quality of life.

Our achievements in 2017 have translated into strong financial results. In addition to the growth in revenue and operating income before amortisation, we have generated a one and a half times higher free cash flow, which is the basis for the dividend calculation.

Rostelecom’s primary strategic advantages allow us to fully realise the great potential of the digitalisation for the State, business and society. We are confident that the strong results we have generated over the past few quarters are of sustainable nature and this track record for delivery will continue to make a substantial contribution to our new strategic plan which we are about to unveil in the very near future.»

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

"The impressive results in revenue in the fourth quarter of 2017 underpin our positive outlook for Rostelecom’s strategic development in terms of digital transformation. We have delivered on our targets in the previous reporting period and have positive prospects for business growth down the road. We will be able to demonstrate a revenue growth by 2%, we expect OIBDA margin of more than 31.5%, and CAPEX in the range of RUB 60 to RUB 65 billion excluding the implementation of the state-related projects".

KEY OPERATING HIGHLIGHTS

1.  The number of broadband subscribers grew by 3% to 12.7 million in the fourth quarter of 2017, compared to the corresponding period of last year;
    · The B2C subscriber base grew by 3% to 12.0 million, whilst the number of subscribers connected by fibre optic increased by 8% year-on-year to 7.7 million (64% of the subscriber base).
2. The number of pay-TV subscribers grew by 5% to 9.8 million households, compared to the corresponding period of last year.
    · The number of IPTV subscribers increased by 14% to 4.8 million;
3. The number of MVNO subscribers reached 0.8 mln;
4. The number of local telephony subscribers decreased by 8% to 19.1 million.

Number of subscribers (million):	4Q 2017	4Q 2016	% change, y-o-y	3Q 2017	% change, y-o-y
Broadband	12.7	12.4	3%	12.7	0.5%
Residential	12.0	11.6	3%	11.9	0.4%
Corporate clients	0.8	0.8	1%	0.8	1%
Pay TV	9.8	9.3	5%	9.7	1%
Including IPTV	4.8	4.2	14%	4.7	3%
MVNO subscribers	0.8	-		0.7	23%
Local telephony services	19.1	20.6	(8%)	19.5	(2%)

Full press release