Rostelecom announces its IFRS financial and operating results for the fourth quarter and full year of 2016

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Free Cash Flow rose to RUB 15.6 billion for the fourth quarter and revenue was RUB 297.4 billion for the full year

Moscow, Russia – March 6, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the fourth quarter and the full year of 2016 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

  • Revenue, OIBDA margin and CAPEX to revenue ratio are in-line with Management’s guidance for 2016;
  • Revenue grew by RUB 91 billion to RUB 297.4 billion in 2016;
  • FCF grew by 72% to RUB 15.6 billion for the fourth quarter 2016, which resulted in RUB 13.3 billion FCF for the full year 2016;
  • The digital segment’s[2] contribution to total revenue reached 44%;
  • Rostelecom accounted for around 50%[3] of new connections in pay-TV market, and for more than 50%[4] in the broadband market;
  • Total fibre optic network coverage reached 32.2 million households by the end of 2016;
  • Broadband of FTTx (+17%) and pay-TV subscribers (+24%) growth rates remain consistently high;
  • The B2B/G segment grew by 2.5% in 2016.

FOURTH QUARTER 2016 FINANCIAL HIGHLIGHTS

  • Revenue declined by 0.8% year-on-year to RUB 80.4 billion compared to the fourth quarter of 2015;
  • OIBDA[5] decreased by 5.6% to RUB 24.4 billion compared to the fourth quarter of 2015;
  • OIBDA margin of 30.3% compared to 31.9% in the fourth quarter of 2015;
  • Net profit decreased by 13% to RUB 3.6 billion compared to the fourth quarter of 2015;
  • CAPEX[6] decreased by 22% to RUB 15.1 billion (18.7% of revenue) from RUB 19.3 billion (23.9% of revenue) in the fourth quarter 2015;
  • Free Cash Flow (FCF)[7] increased by 72% to RUB 15.6 billion compared to the corresponding period of last year;
  • Net debt[8] increased by 2% since the beginning of 2016 and amounted to RUB 177.5 billion, resulting in a Net Debt / Annualised OIBDA ratio of 1.8x.

Key figures for the fourth quarter 2016

RUB million

4Q 2016

4Q 2015

% change, y-o-y

Revenue

80, 407

81, 019

(0.8%)

OIBDA

24, 372

25, 812

(6%)

OIBDA margin %

30.3%

31.9%

Operating Income

11, 248

9, 258

21%

Operating margin %

14.0%

11.4%

Net Income

3, 586

4,117

(13%)

% of revenue

4.5%

5.1%

Capital Expenditure

15, 060

19, 343

(22%)

% of revenue

18,7%

23.9%

Net debt

177, 481

173, 670

2%

Net debt/ annualised OIBDA

1.8

1.7

FCF

15, 618

9,074

72%

FULL YEAR 2016 FINANCIAL HIGHLIGHTS

  • Revenue increased by RUB 91 million to RUB 297.4 billion for the full year of 2016;
  • OIBDA decreased by 4% to RUB 96.8 billion compared to the corresponding period of last year;
  • OIBDA margin of 32.5% compared to 33.9% in 2015;
  • Net profit decreased by 15% year-on-year to RUB 12.2 billion;
  • CAPEX decreased by 1% to RUB 61.9 billion (20.8% of revenue) from RUB 62.7 billion (21.1% of revenue) in 2015;
  • FCF amounted to RUB 13.3 billion compared to RUB 22.0 billion in 2015.

Key figures for the full year of 2016

RUB million

FY 2016

FY 2015

% change, y-o-y

Revenue

297,446

297,355

0.03%

OIBDA

96,772

100,839

(4%)

OIBDA margin, %

32.5%

33.9%

Operating income

39,836

38,586

3%

Operating margin, %

13.4%

13.0%

Net income

12,249

14,391

(15%)

% of revenue

4,1%

4.8%

Capital Expenditure

61,857

62,726

(1%)

% of revenue

20.8%

21.1%

Net debt

177,481

173,670

2%

Net debt/ annualised OIBDA

1.8

1.7

FCF

13,298

21,962

(39%)

The President of Rostelecom, Mikhail Oseevsky commented:

“Rostelecom made good progress with the delivery of its strategy in 2016. We continue to successfully transform the business by growing the digital segment steadily. Revenue growth from our cloud and other digital services underpin this transformation, as does our ability to compete in the key broadband and pay TV markets. Our ARPU is growing and our share of new additions is 50%. It is mainly thanks to these achievements, which were delivered despite the on-going stagnation in traditional services, that Rostelecom’s revenues increased slightly in 2016.

Rostelecom remains a backbone company for the country’s entire telecoms industry, to the extent that it influences both the quality of people’s lives and it drives the development of Russia’s digital economy. Rostelecom has significantly restructured its business, transforming it into a provider of digital services, but there is still room for improvement.”

Vladimir Kirienko, Senior Vice-President and Chief Operational Officer added:

“We have expanded our market proposition in 2016, by introducing attractive new tariff options. In addition, based on the MVNO agreement with Tele2, we launched commercial mobile services under our own brand based on Tele2's vast network infrastructure. Rostelecom’s mobile service is now accessible on the Tele2 Russia network countrywide, which provides us with further opportunities to increase client loyalty in the mass market segment and strengthen our competitive positions in the corporate and state consumer markets, which breaks new ground for the further promotion of M2M/IIoT services.

I would also like to highlight our great success in the B2B space, following a breakthrough in our ability to enhance relations with large corporates as well as small and medium size businesses. This resulted in solid revenue growth of 2.5% year-on-year for the segment. Our success in this arena is due to our intensified efforts in delivering a number of tailored digital solutions to our clients, based on a modernized fibre optic infrastructure and an improving customer experience.”

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

“In 2016, we started to apply new technology to improve operational efficiency and we are seeing tangible results. This has led to greater cost reduction in certain areas, and the optimization of personnel costs in particular. The Company’s Management undertook the first practical step towards implementing a corporate real estate fund strategy late in 2016, through the creation of a sub-fund in a joint venture with Sberbank. This has been done as part of our initiative to monetize the Company`s real estate portfolio. Our business processes and operations are becoming more and more optimized, helping to improve internal efficiency. One such initiative includes the introduction of lean manufacturing principles and the development of an advanced production system. Another prominent example of the type of innovations we are introducing include new automated statistical reporting functions, which has yielded RUB 100 million savings, as well as the introduction of a credit scoring system, which has driven a reduction in accounts receivable through a more focused approach in dealing with client groups using big data solutions and artificial intelligence.

“These achievements led to rapid growth in free cash flow generation in the fourth quarter, and by the end of 2016 we managed to ensure considerable FCF generation, which is integral to maintaining our dividend pay-out in line with current dividend policy.

“We have also delivered on our 2016 guidance. In 2017 we expect to see some macro improvements, we will continue to transform our business and we are accelerating our transition towards being an exemplary model of what a digital services provider should look like. Therefore, in 2017, we expect to generate revenue growth of around 1%, with OIBDA margin growth of up to 1%, and CAPEX to revenue ratio of 18.5%, excluding the implementation of the BDD project.”

KEY OPERATING HIGHLIGHTS

  1.  The number of broadband subscribers grew by 6% to 12.3 million in the fourth quarter of 2016, compared to the corresponding period of last year;
    • The B2C subscriber base grew by 6% to 11.6 million, whilst the number of subscribers connected by fibre optic increased by 16% year-on-year to 7.1 million (61% of the subscriber base)
  2. The number of pay-TV subscribers grew by 8% to 9.3 million households in the fourth quarter of 2016, compared to the corresponding period of last year.
    • The number of IPTV subscribers increased by 24% to 4.2 million;
  3. The number of local telephony subscribers decreased by 7% to 20.5 million.

Number of subscribers (million):

4Q 2016

4Q 2015

% change, y-o-y

3Q 2016

% change, y-o-y

Broadband

12.3

11.6

6%

12.2

1%

Residential

11.6

10.9

6%

11.4

1%

Corporate clients

0.8

0.7

3%

0.7

1%

Pay TV

9.3

8.6

8%

9.2

2%

Including IPTV

4.2

3.4

24%

4.0

5%

Local telephony services

20.5

22.1

(7%)

20.9

(2%)


Full press release



[1] International financial reporting standards

[2] The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services

[3] Company’s data, estimates from the analytical agency TMT Consulting

[4] Company’s 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 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

[8] Here and below, net debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets)