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

Digital segment contribution up to 55% of total revenue

Moscow, Russia – November 1, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the third quarter of 2018 prepared in accordance with IFRS^[1], ^[2].

Key achievements

• Revenue grew by 5% year-on-year in the third quarter of 2018 with average annual revenue growth of more than 5% over the last four quarters;
• The digital segment’s^[3] contribution to total revenue reached 55%;
• OIBDA^[4] grew by 9% in the third quarter of 2018;
• Net profit increased by 46% in the third quarter of 2018;
• Consistently high growth rates in FTTx Broadband clients (+6%) and in IPTV subscribers (+9%), while ARPU continues to grow in our core broadband and IPTV segments;
• Increase in revenues from VAS and cloud services of 37% in the third quarter of 2018, as a result of “Smart City" projects, the development of data centre services and the promotion of cloud services;
• Revenue growth guidance for 2018 increased to above 3%.

Third quarter 2018 financial highlights

• Revenue grew by 5% to RUB 79.4 billion compared to the third quarter of 2017;
• OIBDA grew by 9% to RUB 27.3 billion;
• OIBDA margin grew by 1.4 p.p. to 34.4%;
• Net profit increased by 46% to RUB 5.7 billion compared to the third quarter of 2017;
• CAPEX^[5] increased by 35% to RUB 16.3 billion (20.6% of revenue) from RUB 12.1 billion (16.0% of revenue) in the third quarter of 2017;
• Free Cash Flow (FCF) of RUB 3.4^[6] billion compared to RUB 7.1 billion in the third quarter of 2017;
• Net debt^[7] increased by 12% since the beginning of the year to RUB 203.3 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

Key figures for 3Q 2018, RUB mln

Nine months of 2018 financial highlights

• Revenue increased by 5% to RUB 233.0 billion compared to the nine months of 2017;
• OIBDA increased by 5% to RUB 74.9 billion compared to the nine months of 2017;
• OIBDA margin of 32.1%;
• Net profit increased by 28% to RUB 12.7 billion compared to the nine months of 2017;
• CAPEX increased by 9% year-on-year to RUB 45.9 billion (19.7% of revenue) from RUB 42.3 billion (19.1% of revenue) in the nine months of 2017;
• Free Cash Flow (FCF) of RUB (3.3) billion compared to RUB 3.1 billion in the nine months of 2017.

Key figures for the nine months of 2018, RUB mln

Mikhail Oseevsky, President of Rostelecom:

“The robust top line growth for the third quarter of 2018 was accompanied by very strong bottom line performance. Total revenue increased by 5%, OIBDA, by 9% and net income by almost 50%. These achievements were mainly driven by the expansion of the digital and content services segment, which showed remarkable progress, and now accounts to 55% of revenue.

We are committed to further developing our digital unit. We are focusing on introducing technologies that make a difference to our customers, in a way that improves daily life by maximising comfort and convenience. We are no longer fixated on achieving a set number of connections, our technologies now have the capability to touch entire areas of our customers’ lives. We are creating entire digital ecosystems, where every client will find solutions that meet their individual needs. This approach forms the basis of our new brand, which we presented in September this year. The new positioning incorporates our digital services and tariff lines in harmony with the transforming marketplace and the priorities we have set ourselves.

The multimedia platform Wink was added to our private client ecosystem, marking an evolutionary stage in the development of IPTV, which is today popular among millions of families across the entire country. Wink is a truly comprehensive platform, comprising of a mobile app, a website and a Smart TV app, with extremely user-friendly functionality, more than 200 TV channels and more than 12 thousand films and episodes already available to Rostelecom’s clients, as well as a set of value added services including NPVR and Parental control options.

Products in our new tariff line were developed and named around the need of the typical family: “For Internet”, “For Safety”, “For Fun”, “All together” and “Gaming”. We have also improved our product offering with exclusive tariff plans. One of the latest developments is the launch of the “Cloud” tariff, together with Yandex, which offers high speed internet access and massive cloud storage that grows monthly by 1tb. This is a service with unique features and storage capacities, available exclusively to Rostelecom’s clients.

Another area that we have been actively integrating into our ecosystem is online education. We launched Rostelecom Lyceum, a platform that will reframe supplementary school education in Russia, significantly enhancing its quality, safety and availability. For entrepreneurs, we also launched an updated platform “Plus Account” that ensures high speed Internet connectivity and mobile communication, with extra services also offered, such as a Hosted PBX, SMS advertising, Wi-Fi, video surveillance and TV for business.

We have further expanded our digital offering by launching a range of additional solutions. We launched the Unified Biometrics System which is one of the key elements of the remote identification mechanism that provides remote access to financial services for citizens. As part of this project we also introduced “Rostelecom Key”, a mobile app that identifies customers remotely using our Unified Biometrics System. The practical and secure nature of this solution led to the signing of a deal with Tinkoff Bank to integrate it with its own infrastructure and become the first vendor in Russia. The JV with Nokia marks another significant event this year and represents an important milestone when it comes to setting the backdrop for developing innovative technologies. It is also worth mentioning the 5G network-based testing infrastructure for unmanned vehicles that we launched in Skolkovo.

We continue to successfully implement highly strategic state projects for the Russian government. Public funding enabled us to further expand the number of high-speed connections in Russian healthcare centres and across remote areas. We also successfully provided video surveillance on the Single Voting Day at polling stations.

Our achievements reflect major commitment and delivery on our strategic objectives. This paves the way for the Company to propose the payment of an attractive interim dividend for the nine months of 2018, subject to approval at our next extraordinary general meetingat the end of December, thus distributing a part of the annual dividend sooner than planned”.

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

“Rostelecom’s results for the nine months of 2018 reflect our confident outlook for the future development of the digital segment. In addition to expanding our digital segment, we are introducing measures that are improving internal efficiency. This complements the efficiencies we are realising through in part the optimisation of our real estate portfolio. We expect our performance to continue to improve across all key financial indicators. We therefore raise our full year forecast for revenue growth and anticipate an increase in revenue of more than 3%. We expect an OIBDA margin of more than 31.5%, with CAPEX of RUB 60-65 billion, excluding the implementation of government programmes.”

Full press release