Rostelecom announces its IFRS financial and operating results for the fourth quarter and full year of 2018

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Digital segment contribution up to 57% of total revenue in 4Q 2018

Moscow, Russia – March 12, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the fourth quarter and the full year of 2018 prepared in accordance with IFRS[1], [2].

Key achievements

  • Meeting guidance on key financial indicators for 2018;
  • 2018 revenue growth of 5% year-on-year;
  • The digital segment’s[3] contribution to total revenue reached 57% in 4Q 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 42% in 2018, as a result of “Smart City" projects, Internet video broadcasting, the development of data centre services and the promotion of cloud services;
  • OIBDA[4] grew by 4% to RUB 100.9 billion in 2018;
  • Net profit increased by 7% to RUB 15.0 billion in 2018.

Fourth quarter 2018 key financial highlights

  • Revenue grew by 4% to RUB 87.3 billion compared to the fourth quarter of 2017;
  • OIBDA grew by 2% to RUB 26.0 billion;
  • OIBDA margin of 29.8% compared to 30.5% in the fourth quarter of 2017;
  • Net profit of RUB 2.4 billion compared to RUB 4.2 billion in the fourth quarter of 2017;
  • CAPEX[5] increased by 48% to RUB 27.3 billion (31.3% of revenue) from RUB 18.5 billion (21.9% of revenue) in the fourth quarter of 2017;
  • Free Cash Flow (FCF) of RUB 18.1 [6] billion compared to RUB 17.3 billion in the fourth quarter of 2017;
  • Net debt[7] increased by 3% since the beginning of the year to RUB 186.7 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 4Q 2018, RUB mln

RUB million

4Q 2018

4Q 2017

change, y-o-y

Revenue

87,257

84,113

4%

OIBDA

26,038

25,628

2%

OIBDA margin %

29.8%

30.5%

-

Operating Income

8,167

9,312

(12%)

Operating margin %

9.4%

11.1%

-

Net Income

2,351

4,169

(44%)

% of revenue

2.7%

5.0%

-

Capital Expenditure

27,287

18,462

48%

% of revenue

31.3%

21.9%

-

Net debt

186,712

181,594

3%

Net debt/ annualised OIBDA

1.9

1.9

-

FCF

18,063

17,283

780

Full year 2018 financial highlights

  • Revenue increased by 5% to RUB 320.2 billion compared to the full year of 2017;
  • OIBDA increased by 4% to RUB 100.9 billion compared to the full year of 2017;
  • OIBDA margin of 31.5% and at a comparable level to the full year of 2017;
  • Net profit increased by 7% to RUB 15.0 billion compared to the full year of 2017;
  • CAPEX increased by 20% year-on-year to RUB 73.2 billion (22.9% of revenue) from RUB 60.8 billion (19.9% of revenue) in 2017;
  • Free Cash Flow (FCF) of RUB 14.8 billion compared to RUB 20.4 billion for the full year 2017.

Key figures for the full year of 2018, RUB mln

RUB million

12M 2018

12M 2017

change, y-o-y

Revenue

320,239

305,329

5%

OIBDA

100,900

96,688

4%

OIBDA margin %

31.5%

31.7%

-

Operating Income

35,800

37,885

(6%)

Operating margin %

11.2%

12.4%

-

Net Income

15,012

14,050

7%

% of revenue

4.7%

4.6%

-

Capital Expenditure

73,179

60,752

20%

% of revenue

22.9%

19.9%

-

Net debt

186,712

181,594

3%

Net debt/ annualised OIBDA

1.9

1.9

-

FCF

14,751

20,385

(5,634)


Mikhail Oseevskiy, President of Rostelecom:

2018 was a milestone year for Rostelecom. We started to implement our 2022 strategy, with a strong focus on improving our products and services ecosystem, enhancing efficiency, the further modernisation of our technological platform, and of course, the development of our team.

Huge strides have been made in expanding and developing our digital products, entering new markets, launching the biometric platform, improving digital solutions for medicine and education sectors, and advancing our cybersecurity capabilities. Today, we dont just develop products and services, we stimulate emotions, create opportunities for education and healthcare, we cultivate a sense of security and we free up our clients time by helping them streamline business processes. We help clients of any scale to grow their business, and support the government in providing improved services to its citizens.

Together with our brand refresh, which was a milestone event for us last year, we introduced a range of new digital products and tariff lines, in response to market changes and Rostelecoms priorities.

Our brand-new service and multimedia platform Wink was recently 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, more than 200 TV channels and more than 12 thousand films and episodes already available to Rostelecoms 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 capacity on Yandex.Disk, that is growing monthly by 1tb.

For entrepreneurs, we launched an updated platform Plus Account that ensures high speed Internet connectivity and mobile communication, with extra services also available, including a Hosted PBX, SMS advertising, Wi-Fi, video surveillance and TV for business.

Last year, we carried out many successful projects. One of them was video surveillance at the presidential election in Russia, where thousands of Rostelecom engineers in mobile teams oversaw the seamless functioning of our systems, once again reinforcing our competence, excellence and professionalism, as well as Rostelecoms status as a credible partner. In 2018, we completed another large-scale project to connect healthcare centres to the Internet, demonstrating our capability to run complex infrastructure programmes across the entire country. Public funding enabled us to further expand the number of high-speed connections in remote areas, and we also completed construction of an underwater sector of the fibre-optic communication line in Kuril Islands. The JV with Nokia marks another significant event last year and represents an important milestone when it comes to setting the backdrop for developing innovative technologies, as does the launch of the 5G pilot sites for a new generation 5G network located in Skolkovo, the State Hermitage museum and Innopolis.

Our growing digital segment gained further momentum, which now contributes more than 55% to our total revenue. Growth in our subscriber base coupled with higher ARPU, led to a significant increase in revenues from our core pay-TV and broadband segments, where we are leaders in the market. Additional products and services that we actively promote are in growing demand, and we also registered a twofold growth in revenues from Corporate TV and national Wi-Fi services. The Information security segment grew fourfold, and the number of Smart Home ecosystem subscriber base grew by sixteen times, resulting in a 24-fold growth in revenues.

The achievements listed above represent only some of our recent achievements. Our digital transformation has transformed the business and contributed to a very solid financial performance in 2018. Our revenue grew by 5%, while OIBDA increased by 4%, and net income by 7%. Overall, we delivered a strong performance, and will continue to expand our digital business segments and improve efficiency.

I am delighted to reflect on a year that confirms Rostelecoms transformation into a dynamic and courageous digital player. We are maintaining our strong leadership in the market, our core objective of pursuing sustainable and accretive growth is enhancing shareholder value, which is reinforced by attractive dividend returns.


Sergey Anokhin, Senior Vice-President of Rostelecom and CFO of Rostelecom:
The results in 2018 underpin our positive outlook for Rostelecom and our potential to pursue further grow in our digital segment. In addition to expanding our digital footprint, we are introducing measures that are improving internal efficiency. We expect our performance to continue to improve across all key financial indicators and we are therefore setting ourselves the following targets for 2019: revenue and OIBDA growth of at least 2.5%, and CAPEX in the range of RUB 65 to RUB 70 billion, taking into account RUB 7 billion of regulatory CAPEX and excluding the implementation of government programmes.

Press release on 4q 2018 financial results



[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 2017 numbers are presented here without implementation of the given standards.

[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. Note that the company changed the methodology of OIBDA calculation since 3q 2018 by excluding expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 and relevant periods of 2017 were recalculated in line with the renewed methodology.

[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. FCF for Q4 & FY 2017 are presented as reported in a corresponding period.

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