Rostelecom announces its IFRS financial and operating results for the third quarter and nine months of 2019

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Q3 2019 DIGITAL SEGMENT[1] GROWTH OF 13% CONTRIBUTING 59% OF TOTAL REVENUE; NET PROFIT UP 12%; MORE THAN TWOFOLD INCREASE IN FCF[2]

Moscow, Russia – November 7, 2019 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the third quarter and nine months of 2019 prepared in accordance with IFRS[3].

Key achievements

  • Revenue grew by 5% year-on-year in the third quarter of 2019;
  • Digital segment increased by 13% in the third quarter, while its contribution to total revenue reached 59%;
  • OIBDA[4] grew by 2% in the third quarter of 2019;
  • Net profit increased by 12% and reached RUB 6.4 billion in the third quarter of 2019;
  • Free Cash Flow (FCF) increased by 116% to RUB 7.3 billion in the third quarter of 2019.

Third quarter 2019 financial highlights

  • Revenue grew by 5% to RUB 83.7 billion compared to the third quarter of 2018;
  • OIBDA up by 2% to RUB 27.9 billion;
  • OIBDA margin stood at 33.3% compared to 34.4% the third quarter of 2018;
  • Net profit increased by 12% to RUB 6.4 billion compared to the third quarter of 2018;
  • CAPEX[5] decreased by 1% to RUB 16.1 billion (19.2% of revenue) from RUB 16.3 billion (20.6% of revenue) in the third quarter of 2018;
  • FCF improved more than twofold to RUB 7.3 billion compared to the third quarter of 2018;
  • Net debt[6] increased by 10% since the beginning of the year to RUB 205.1 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 3Q 2019, RUB mln

RUB million

3Q 2019

3Q 2018

change, y-o-y

Revenue

83,727

79,414

5%

OIBDA

27,896

27,328

2%

OIBDA margin %

33.3%

34.4%

-

Operating Income

10,455

10,934

(4%)

Operating margin %

12.5%

13.8%

-

Net Income

6,412

5,703

12%

% of revenue

7.7%

7.2%

-

Capital Expenditure

16,081

16,325

(1%)

% of revenue

19.2%

20.6%

-

Net debt

205,053

203,347

1%

Net debt/ annualised OIBDA

1.9

2.0

-

FCF

7,261

3,368

3,893

Nine months of 2019 financial highlights

  • Revenue increased by 4% to RUB 242.6 billion compared to the nine months of 2018;
  • OIBDA increased by 9% year-on-year to RUB 81.4 billion compared to the nine months of 2018;
  • OIBDA margin grew by 1.4 p.p. to 33.6% compared to the nine months of 2018;
  • Net profit increased by 29% to RUB 16.4 billion compared to the nine months of 2018;
  • CAPEX[7] increased by 17% to RUB 53.7 billion (22.1% of revenue) from RUB 45.9 billion (19.7% of revenue) in the nine months of 2018;
  • FCF improved to RUB 4.1[8] billion compared to RUB (3.3) billion in the nine months of 2018.

Key figures for 9M 2019, RUB mln

RUB million

9M 2019

9M 2018

change, y-o-y

Revenue

242,554

232,982

4%

OIBDA

81,440

74,863

9%

OIBDA margin %

33.6%

32.1%

-

Operating Income

29,920

27,633

8%

Operating margin %

12.3%

11.9%

-

Net Income

16,362

12,661

29%

% of revenue

6.7%

5.4%

-

Capital Expenditure

53,667

45,892

17%

% of revenue

22.1%

19.7%

-

Net debt

205,053

203,347

1%

Net debt/ annualised OIBDA

1.9

2.0

-

FCF

4,066

(3,312)

7,378

Mikhail Oseevskiy, President of Rostelecom:

We delivered robust topline and operational growth in the third quarter of 2019. Our digital segment grew by 13% and is closing in on an almost 60% contribution to Group revenue. Total revenue across the Group grew by 5%, in-line with our strategic objective. Smart City projects, cloud services, data centers and cyber security contributed significantly to this strong performance, adding to our core business streams of broadband and Pay TV. The contribution from these new services is becoming more tangible and visible and provides solid evidence of the company's steady digital transformation.

Progress has also been made in increasing operational efficiency, including through the optimisation of our real estate portfolio. An important element of this process is the sale of excess real estate, as reflected in the third quarter agreement to sell the premises of the historic Central Telegraph building. The landmark property was sold for RUB 3.5 billion the effect of this major transaction will be reflected in the fourth quarter, and I would like to recognise terrific work done by the Rostelecom team to complete this process and deliver maximum value to our stakeholders in the current market conditions.

Our achievements, including the on-going success and outstanding results by Tele2 Russia enable us to record a two-digit growth in profits and a more than twofold increase in FCF, which forms the basis for our dividend calculations.

In terms of Rostelecom’s digital transformation, we are on track to delivering on the approved strategic plan, having gained good momentum on our key strategic initiatives and strengthening our leadership as a digital partner for the society, business and the State.”

Vladimir Kirienko, First Vice-President of Rostelecom:

We continue to develop our smart digital services ecosystem and are improving our product offering.

In the third quarter of 2019, Rostelecom launched ‘Game Market, a platform which brings together more than 2,200 games developed by 48 Russian and international developers. This launch increases our exposure to and participation in the gaming ecosystem and to the gamer community, with our key Game tariff plan at the heart of our offer. We have also made available to gamers the subscription to the cloud-based game platform GFN.RU which is able to turn any computer into a powerful gaming machine for the best gaming experience when it comes to popular online games. The GFN.RU cloud platform has emerged in Russia thanks to cooperation of SAFMAR group and NVIDIA (the US) the global leader of Graphics Processing Units and visual computing. Rostelecom became the only provider in Russia to offer its clients the GNF.RU subscription at the same price as the vendor.

For its corporate clients, Rostelecom launched an M2M Control service, which enables SIM cards on applications and sensors to be controlled remotely within the M2M[9] system to help optimize business processes when communicating with IoT[10] devices. Rostelecoms solution is essential when it comes to streamlining production and optimising internal processes to transition new digital technologies which helps optimize internal processes, provide access to new services and technologies, reduce costs and increase revenues for both large and SME businesses.

One successful example of realizing the potential of the Industrial Internet was the joint project of Rostelecom and Rusagro to launch a smart farming tool that facilitates control and management of harvesting processes. The platform is built based on IoT technology which collects agronomic data from sensors and RFID cards installed on agricultural equipment. The smart farming tool covers the entire cycle from real-time monitoring of harvesting processes to the transportation and transmission of agronomic data on to Rusagros automated information system via mobile networks.

Across the Russian regions, Smart City projects are becoming increasingly popular (including among local governments) as they help create a better living environment for citizens through the application of digital services in everyday life, assisting with utilities management, road infrastructure, education and healthcare. Some of these projects include the installation of 600 photo and video identification CCTV cameras across the city of Bashkortostan, the implementation of a number of smart solutions in Taganrog, making it the first Smart City in Southern Russia, and the integration of a smart system in Yamal to control and optimise the waste collection process through online monitoring of trash containers equipped with sensors. We have delivered a number of similar projects across the country, which has been accelerating our top-line due to its sustainable double-digit growth in sales.

Sergey Anokhin, Senior Vice-President and Chief Financial Officer:
“Our strong third quarter results are in line with our budget plan in terms of reaching targets around expanding the digital segment and improving internal efficiencies. Our results and achievements for the nine months provide us with sufficient visibility on year-end performance to confirm our guidance for revenue and OIBDA for 2019. We expect both KPIs to grow by no less than 3%. We also expect the CAPEX programme to be within the range of RUB 6570 billion, taking into account RUB 7 billion of regulatory CAPEX and excluding the implementation of state programs.

Key operating highlights

Number of subscribers (million):

3Q 2019

3Q 2018

change

2Q 2019

change

Internet access

13.1

13.0

0.5%

13.0

0.3%

B2C: Broadband

12.0

12.0

0.2%

12.0

0.1%

B2B: Broadband + VPN

1.0

1.0

4%

1.0

3%

Pay TV

10.3

10.1

2%

10.2

1%

Incl. IPTV

5.5

5.1

7%

5.4

1%

MVNO subscribers

1.5

1.1

37%

1.3

9%

Local telephony services

16.1

17.8

(10%)

16.6

(3%)

ARPU[11] (RUB):

3Q 2019

3Q 2018

change

2Q 2019

change

Internet access

B2C: Broadband

396

379

4%

398

(0.6%)

B2B: Broadband + VPN

3,475

3,180

9%

3,510

(1%)

Pay TV (B2C)

248

240

3%

248

(0.2%)

Incl. IPTV

311

310

0.3%

315

(1%)

Blended ARPU[12]

536

521

3%

544

(1%)

Total subscriber base and ARPU

  1. The total number of Internet subscribers among households grew by 0.2% to 12.0 million in the third quarter of 2019 compared to the corresponding period of last year; ARPU was up 4% year-on-year to RUB 396.
  2. The total number of B2B Internet and VPN subscribers increased by 4% year-on-year to 1.0 million; ARPU grew by 9% year-on-year to RUB 3,475.
  3. The number of pay-TV subscribers grew by 2% to 10.3 million households compared to the corresponding period of last year with average ARPU of RUB 248, up 3% year-on-year as well;
    • The number of IPTV subscribers increased by 7% to 5.5 million, and ARPU also reached RUB 311;
  4. The number of MVNO subscribers increased by 37% and reached 1.5 million users; MVNO sales have doubled thanks to the subscriber base growth;
  5. The number of local telephony subscribers decreased by 10% to 16.1 million.

Press release on 3q 2019 financial results



[1] Broadband + Pay TV + VAS and cloud services.

[2] Free Cash Flow. Here and below, starting from 2019, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[3] International financial reporting standards.

[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 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, Net Debt is calculated as short and long-term loans and borrowings less cash, cash equivalents and short-term investments (other financial assets).

[7] Here and below, capital expenditure (CAPEX) comprises cash spent on fixed assets and intangible assets.

[8] Here and below, starting from 2019, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[9] Machine-to-Machine

[10] Internet of Things

[11] Average revenue per user

[12] Blended ARPU includes revenue from broadband, IPTV and digital cable TV