Rostelecom announces its IFRS financial and operating results for the third quarter and nine months of 2016

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Higher revenues driven by a substantial increase in the digital segment’s contribution to overall revenue

Moscow, Russia – November 10, 2016 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the third quarter and nine months of 2016 prepared in accordance with IFRS1.

KEY ACHIEVEMENTS

  • Revenue grew by 0.4% to RUB 72.8 billion compared to the third quarter of 2015;
  • Net income doubled to RUB 4.1 billion in the third quarter of 2016;
  • Solid OIBDA margin of 34.4% in the third quarter of 2016; 
  • Higher digital segment2 share of revenue of 44%;
  • Rostelecom accounted for around 40%3 of new subscriptions in the pay-TV market and over 50%4 in the broadband market;
  • Total fibre optic network coverage reached 31.8 million households by the end of the third quarter of 2016;
  • Maintained high level of subscriber growth rate (+7%) for broadband and IPTV (+28%).

THIRD QUARTER 2016 FINANCIAL HIGHLIGHTS

  • Revenue grew by 0.4% to RUB 72.8 billion compared to the third quarter of 2015;
  • OIBDA5 fell by 1% to RUB 25.0 billion compared to the third quarter of 2015;
  • OIBDA margin of 34.4% compared to 34.7% in the corresponding period of last year;
  • Net profit doubled to RUB 4.1 billion compared to the third quarter of 2015;
  • CAPEX6 decreased by 18% year-on-year to RUB 13.0 billion (17.9% of revenue) from RUB 16.0 billion (22.0% of revenue) in the third quarter of 2015;
  • Free Cash Flow (FCF)7  fell by 9% to RUB 5.9 billion compared to the third quarter 2015;
  • Net debt8 increased by 9% since the beginning of 2016, amounting to RUB 190.1 billion, resulting in a Net Debt / Annualised OIBDA ratio of 1.9x.

 

Key figures for 3Q 2016


RUB million

3Q 2016

3Q 2015

% change,  y-o-y

Revenue

72,781

72,496

0.4%

OIBDA

25,038

25,182

(1%)

OIBDA margin %

34.4%

34.7%

 

Operating Income

11,815

9,945

19%

Operating margin %

16.2%

13.7%

 

Net Income

4,060

2,046

98%

% of revenue

5.6%

2.8%

 

Capital Expenditure

13,029

15,978

(18%)

% of revenue

17.9%

22.0%

 

Net debt

190,071

174,899

9%

Net debt/ annualised OIBDA

1.9

1.7

 

FCF

5,851

6,420

(9%)

NINE MONTHS OF 2016 FINANCIAL HIGHLIGHTS

  • Revenue grew by 0.3% to RUB 217.0 billion, compared to the nine months of 2015;
  • OIBDA fell by 4% to RUB 72.4 billion compared to the nine months of 2015;
  • OIBDA margin of 33.4% compared to 34.7% in the nine months of 2015;
  • Net profit fell by 16% to RUB 8.7 billion compared to the nine months of 2015;
  • CAPEX increased by 8% year-on-year to RUB 46.8 billion (21.6% of revenue) from RUB 43.4 billion (20.1% of revenue) in the nine months of 2015;
  • Free Cash Flow (FCF) was RUB -2.3 billion compared to RUB 12.9 billion in the corresponding period of last year.

Key figures for the nine months of 2016


RUB million

9M 2016

9M 2015

% change,  y-o-y

Revenue

 217,039  

 216,336  

0.3%

OIBDA

 72,400  

 75,027  

(4%)

OIBDA margin %

33.4%

34.7%

 

Operating Income

28,588  

 29,328  

(3%)

Operating margin %

13.2%

13.6%

 

Net Income

8,663  

 10,274  

(16%)

% of revenue

4.0%

4.7%

 

Capital Expenditure

46,797  

43,383  

8%

% of revenue

 21.6%  

20.1%  

 

Net debt

190,071  

174,899  

9%

Net debt/ annualised OIBDA

1.9

1.7

 

FCF

(2,320)  

 12,888  

-

Sergei Kalugin, President of Rostelecom, commented:

"Our third quarter results were robust, both from a financial and operational perspective. We are delighted with the successful on-going transformation of the business, as well as the extent to which the digital segment is growing, driven by an increasing number of broadband and IPTV clients as well as sales in cloud services and other digital segments. This combination has led to an increase in revenue and profit, enabling Rostelecom to generate high margins and solid cash flow.

“We accomplished a number of important milestones during the quarter. Firstly, within the framework of an MVNO agreement, we commercially launched our own-brand mobile services based on the Tele2 network. This gives customers access to Rostelecom’s mobile proposition through the Tele2 network across the country, it will strengthen customer loyalty in the B2C segment and bolster our position in the corporate and state user segments.
“Furthermore, the Board of Directors has approved a new LTIP programme, which provides each employee with the opportunity to become a shareholder, and benefit from the Company's increasing success and shareholder value growth. This will provide employees with a real sense of ownership, which will contribute to increased productivity and a more rapid transformation into a digital service provider.

“Finally, the Board of Directors has approved another important initiative to enhance efficiency and profitability - the introduction of a new production system based on 6 SIGMA and Lean Production approach, which we expect to help us increase productivity by 20-30%, depending on the business area function, and realise a 5-10% reduction in operating costs"

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

“We are pleased with the third quarter results, particularly the underlying performance of the business, which demonstrate that management initiatives are delivering results: our consolidated revenue is growing, despite the fall in income from voice services. OIBDA is stable, despite tough competition and inflation. There are however grounds for being conservative, due to the difficult macroeconomic environment and there is significant risk that state reimbursement for the Bridging the Digital Divide project will be reduced.

In terms of guidance, we therefore expect up to 1% year-on-year revenue growth for the full year, and we expect a lower year-on-year OIBDA range of between 4-6% compared to 2015. The impact of the lower reimbursement for the BDD project is expected to be offset by success in optimising operating expenses and increase revenue from digital services. We expect full year CAPEX of less than 19% of revenues (excluding the Bridging the Digital Divide project “BDD”).”

KEY OPERATING HIGHLIGHTS

  1. The number of broadband subscribers grew by 7% year-on-year to 12.2 million in 3Q 2016;
    • The B2C subscriber base grew by 7% to 11.4 million, whilst the number of subscribers connected by fibre optic increased by 21% year-on-year to 7.1 million (59% of the subscriber base).
  2. The number of pay-TV subscribers grew by 9% year-on-year to 9.2 million households.
    • The number of IPTV subscribers increased by 28% to 4.0 million.
  3. The number of local telephony subscribers decreased by 8% to 20.9 million.

Number of subscribers (million):

3Q 2016

3Q 2015

% change, y-o-y

2Q 2016

 

% change, y-o-y

Broadband

 12.2  

 11.4  

7%

 12.0  

 

2%

     Residential

 11.4  

 10.7  

7%

 11.2  

 

2%

     Corporate clients

 0.7  

 0.7  

3%

 0.7  

 

1%

Pay TV

 9.2  

 8.4  

9%

9.0

 

2%

     Incl. IPTV

 4.0  

 3.1  

28%

3.9

 

5%

Local telephony services

 20.9  

 22.7  

(8%)

21.3  

 

(2%)

Full press release on 3q 2016 financial results

***

1 International financial reporting standards.
2 The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services
3 Company data, estimates from the analytical agency TMT-consulting
4 Company data, estimates from the analytical agency TMT-consulting
5 Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA
6 Here and below, capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets
7 Here and below, FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets
8 Here and below, net debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets)