Rostelecom announces its IFRS financial and operating results for the second quarter and half year 2020

Print version 05.08.2020

Q2, 2020 Revenue growth of 13%; 15% increase in OIBDA[1]; net revenue up 32%

Moscow, Russia – August 5, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital integrated service provider in Russia, today announces its consolidated financial results for the second quarter and first half year of 2020 prepared in accordance with IFRS[2].

In accordance with the accounting policy of the Group, the acquisition of Tele2 Russia has been recognized as a business combination under common control. According to this method the merger of businesses arising from a transfer of entity stakes under common control of the Group’s shareholders, is presented as if the merger took place in the earliest period of the statements, or, if later, effective from the date that common control was put into effect; for this purpose comparatives are revised. Rostelecom’s consolidated financial statements for 2019 have therefore been revised to incorporate Tele2 Russia’s performance as if the acquisition had been completed on 1 January 2019.

Q2 2020 key achievements

• Consolidated revenue grew by 13% year-on-year;
• Mobile services grew by 16% year-on-year;
• Sales in digital services increased by 68% year-on-year;
• OIBDA grew by 15%;
• Net profit increased by 32% year-on-year.

Q2 2020 financial highlights

• Revenue grew by 13% to RUB 127.3 billion compared to the second quarter of 2019
• OIBDA up by 15% to RUB 48.8 billion;
• OIBDA margin grew by 0.8 p.p. to 38.3%;
• Net profit increased by 32% to RUB 7.7 billion;
• CAPEX[3] excluding state programmes stood at RUB 24.7 billion (19.4% of revenue) from RUB 18.3 billion (16.2% of revenue) in the second quarter of 2019;
• FCF[4] stood at RUB (8.8) billion compared to RUB 14.6 billion in the second quarter of 2019;
• Net debt[5] increased by 22% since the beginning of the year to RUB 407.1 billion, resulting in a Net Debt/OIBDA ratio of 2.2x.

Key figures for 2Q 2020, RUB mln

RUB million	2Q 2020	2Q 2019	change, y-o-y
Revenue	127,279	113,012	13%
OIBDA	48,800	42,476	15%
OIBDA margin %	38.3%	37.6%	-
Operating Income	18,557	16,002	16%
Operating margin %	14.6%	14.2%	-
Net Income	7,731	5,863	32%
% of revenue	6.1%	5.2%	-
Capital Expenditure excluding state programmes	24,661	18,290	35%
% of revenue	19.4%	16.2%	-
Net debt	407,118	325,010	25%
Net debt/ annualised OIBDA	2.2	2.0	-
FCF	(8,832)	14,619	(23,451)

First half year 2020 financial highlights

• Revenue increased by 11% to RUB 248.9 billion compared to the first half of 2019;
• OIBDA increased by 14% year-on-year to RUB 95.9 billion compared to the first half of 2019;
• OIBDA margin grew by 0.7 p.p. to 38.5% compared to the first half of 2019;
• Net profit increased by 14% to RUB 15.4 billion compared to the first half of 2019;
• CAPEX excluding state programmes stood at RUB 46.7 billion (18.7% of revenue) compared to RUB 44.0 billion (19.7% of revenue) in the first half of 2019;
• FCF was at RUB (14.8) billion compared to RUB (0.9) billion in the first half of 2019;
• Net debt increased by 22% since the beginning of the year to RUB 407.1 billion, resulting in a Net Debt/OIBDA ratio of 2.2x

Key figures for 1HY 2020, RUB mln

RUB million	6M 2020	6M 2019	change, y-o-y
Revenue	248,892	223,237	11%
OIBDA	95,883	84,341	14%
OIBDA margin %	38.5%	37.8%	-
Operating Income	37,504	32,766	14%
Operating margin %	15.1%	14.7%	-
Net Income	15,443	13,530	14%
% of revenue	6.2%	6.1%	-
Capital Expenditure excluding state programmes	46,658	44,039	6%
% of revenue	18.7%	19.7%	-
Net debt	407,118	325,010	25%
Net debt/ annualised OIBDA	2.2	2.0	-
FCF	(14,778)	(899)	(13,879)

Mikhail Oseevskiy, President of Rostelecom:

“Our strong financial and operating results for the second quarter of this year evidence our resilience and successful passage through a difficult spring and early summer period, where the general population and business as a whole have faced unprecedented challenges relating to quarantine measures, the widespread transition to online and severe economic uncertainty.

The strategic direction provided by Rostelecom’s digital transformation has enabled us to embed digital services into our DNA. Our market offer is therefore sustainable and has significant potential based on the need to meet the demands of a new modern reality.

Completing the consolidation of Tele2 Russia's mobile business was timely. The transaction has made us a truly integrated digital provider, which is a unique position to be in both in terms of the breadth of services assembled under the Rostelecom brand and the opportunities open to Rostelecom to serve the needs of clients in the 21st Century with new digital services.

I therefore consider our second quarter achievements in terms of growth in revenue, OIBDA and net profit in the second quarter by 13%, 15% and 32% respectively, as a great achievement by the entire Rostelecom team. We are seeing the first signs of recovery in economic activity for our clients, many of whom are projecting a return to growth in the coming quarters. This will lead to an expansion of work being carried out to digitize various industries and aspects of people’s daily lives. By the year-end we plan to go to the board of directors and present to the market an updated strategy that will set more precise goals, taking into account the inclusion of Tele2 Russia as a fully consolidated member of the group, and illustrate new initiatives that can create additional value for shareholders. "

Vladimir Kirienko, First Vice-President of Rostelecom:

“In the second quarter, top-line growth accelerated to 13%. The double-digit growth rates were achieved thanks to the expansion of the mobile segment and the rapid growth of digital services. Some service categories, such as, information security services, continue to show exponential growth: in the reporting quarter, revenues in this area grew 2.5 times, in part due to the active development of mass cybersecurity services.

Our cloud services, data centre services, smart solutions in the field of urban infrastructure management and state electronic services remain in demand. The popularity of the Rostelecom Key solution and converged packages is also growing. Rostelecom’s solid growth trajectory is the fruit of hard work from a professional team that has built high levels of trust from our customers. Customers have appreciated how quickly Rostelecom has been able to adapt to changes and put customers first by offering convenient and useful services in a timely manner. We have managed to support our clients in recent months both by adapting the terms of service provided within the framework of current contracts and by creating new popular digital services. We have as an example developed a new product that remotely screens the temperature of employees using thermal imaging, our products typically integrate themselves seamlessly into clients’ existing corporate systems. This service has already been used by a number of companies such as ALROSA and LUKOIL. Another unique digital solution recently offered to the market is “Retail Hub”, a product that uses algorithms and AI to enable retail chains to update information on electronic displays and to help focus the attention of buyers on the right products online, thereby expanding the range of purchases and increasing the average ticket. Our Tele2 colleagues have also gone to great lengths to provide subscribers with a large range of convenient remote services and remote ways of connecting to them. Our main priority is to remain close to clients, surround them with important and useful services, while remaining reliable and trusted partners when it comes to meeting their digital needs both in the present and future."

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

“We have comfortably made it through the first half of this year in terms of our financial performance and we have continued to implement our strategy. However, despite the noticeable relaxation of quarantine restrictions and the first signs of recovery in economic activity, there remains significant uncertainty about the future development of the pandemic and macroeconomic indicators. Based on this, the management team maintains a conservative view when it comes to forecasting growth rates for 2020. We expect an increase in consolidated revenue of at least 5%, an increase in OIBDA of at least 5%; and we expect to keep СAPEX within 100-110 billion rubles excluding state programmes.”

Key operating highlights

Fixed-line business

Number of subscribers (million):	2Q 2020	2Q 2019	change, y-o-y	1Q 2020	change, y-o-y
Internet access	13.4	13.0	3%	13.2	1%
B2C: Broadband	12.3	12.0	2.5%	12.2	1%
B2B: Broadband + VPN	1.1	1.0	7%	1.1	2%
Pay TV	10.7	10.2	4%	10.5	2%
Incl. IPTV	5.8	5.4	7%	5.7	2%
Hosted PBX	0.139	0.084	66%-	0.128	9%
Local telephony services	14.9	16.5	(10%)	15.3	(3%)

ARPU[6] (RUB):	2Q 2020	2Q 2019	change, y-o-y	1Q 2020	change, y-o-y
Internet access
B2C: Broadband	395	398	(1%)	397	(1%)
B2B: Broadband + VPN	3,344	3,510	(5%)	3,368	(1%)
Pay TV (B2C)	248	248	(0%)	257	(4%)
Incl. IPTV	309	315	(2%)	319	(3%)
Hosted PBX	1,148	1,175	(2%)	1,118	3%
Blended ARPU[7]	545	544	0%	551	(1%)

Mobile business

	2Q 2020	2Q 2019	change, y-o-y	1Q 2020	change, y-o-y
Data Traffic, incl. MVNO,Pb	1,216	733	66%	1,087	12%
Churn, %	(9.0%)	(8.1%)	0.9 p.p.	(9.2%)	(0.2 p.p.)
Growth of active mobile data users, %	28.1%	52.0%	(23.9 p.p.)	36.1%	(8,0 p.p.)

1. The total number of Internet subscribers among households grew by 2.5% to 12.3 million in the second quarter of 2020 compared to the corresponding period of last year; ARPU was RUB 395.
2. The total number of B2B Internet and VPN subscribers increased by 7% year-on-year to 1.1 million; ARPU was RUB 3,344.
3. The number of pay-TV subscribers grew by 4% to 10.7 million households compared to the corresponding period of last year with average ARPU of RUB 248 across B2C;
   • The number of IPTV subscribers increased by 7% to 5.8 million, and ARPU across B2C reached RUB 309;
4. The number of active mobile users grew by 28.1% year-on-year while mobile data traffic jumped by 66%; at the same time churn of cellular customer base stood at 9.0%.
5. The number of local telephony subscribers decreased by 10% to 14.9 million.

Press release on 2q 2020 financial results