Rostelecom announces its IFRS financial and operating results for the second quarter of 2017

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Successful on-going transformation results in a strong 5% topline growth

Moscow, Russia – August 3, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the second quarter of 2017 and first half of 2017 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

  • Record revenue growth of 5% year-on-year;
  • Steady growth across all business segments: b2c, b2b/g and b2o;
  • The digital segment’s[2] contribution to total revenue reached 47%;
  • Material OIBDA margin growth to 32.7% in the second quarter of 2017, and an almost doubling of net profit (+77% year-on-year);
  • Consistently high growth rates in FTTx optic broadband clients (+13%) and in IPTV subscribers (+18%)
  • Rostelecom accounted for more than 80%[3] of new connections in the IPTV market, and for around 50%[4] of total broadband market connections;
  • Total fibre optic network coverage reached 32.7 million households by the end of the second quarter of 2017.

SECOND QUARTER 2017 FINANCIAL HIGHLIGHTS

  • Revenue increased by 5% to RUB 75.2 billion compared to the second quarter of 2016;
  • OIBDA[5] increased by 8% year-on-year to RUB 24.6 billion;
  • OIBDA margin of 32.7% compared to 31.6% in the second quarter of 2016;
  • Net profit grew by 77% to RUB 2.8 billion compared to the second quarter of 2016;
  • CAPEX[6] decreased by 16% year-on-year to RUB 12.5 billion (16.6% of revenue) from RUB 14.8 billion (20.6% of revenue) in the second quarter of 2016;
  • Free Cash Flow[7] (FCF) improved by 71% to RUB -1.6 billion compared to the second quarter of 2016;
  • Net debt[8] increased by 4% since the beginning of the year and amounted to RUB 185.5 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 2Q 2017, RUB mln

RUB million

2Q 2017

2Q 2016

% change, y-o-y

Revenue

75,166

71,794

5%

OIBDA

24,599

22,692

8%

OIBDA margin %

32.7%

31.6%

Operating Income

11,304

8,271

37%

Operating margin %

15.0%

11.5%

Net Income

2,826

1,601

77%

% of revenue

3.8%

2.2%

Capital Expenditure

12,451

14,804

(17%)

% of revenue

16.6%

20.6%

Net debt

185,463

182,533

2%

Net debt/ annualised OIBDA

1.9

1.9

FCF

(1,650)

(5,744)

(71%)

FIRST HALF YEAR 2017 FINANCIAL HIGHLIGHTS

  • Revenue increased by 1% to RUB 145.6 billion compared to the first half of 2016;
  • OIBDA[9] decreased by 3% year-on-year to RUB 46.2 billion;
  • OIBDA margin of 31.7% compared to 32.8% in the first half of 2016;
  • Net profit increased by 30% to RUB 6.0 billion compared to the first half of 2016;
  • CAPEX[10] decreased by 11% year-on-year to RUB 30.2 billion (20.7% of revenue) from RUB 33.8 billion (23.4% of revenue) in the first half of 2016;
  • Free Cash Flow[11] (FCF) improved by 52% to RUB -3.9 billion compared to the first half of 2016;

Key figures for 1HY 2017, RUB mln

RUB million

1HY 2017

1HY 2016

% change, y-o-y

Revenue

145,602

144,258

1%

OIBDA

46,167

47,362

(3%)

OIBDA margin %

31.7%

32.8%

Operating Income

19,397

16,773

16%

Operating margin %

13.3%

11.6%

Net Income

5,976

4,603

30%

% of revenue

4.1%

3.2%

Capital Expenditure

30,165

33,768

(11%)

% of revenue

20.7%

23.4%

Net debt

185,463

182,533

2%

Net debt/ annualised OIBDA

1.9

1.9

FCF

(3,953)

(8,171)

(52%)

Mikhail Oseevskiy, President of Rostelecom:

«This strong set of results is a testament to Rostelecom’s successful on-going transformation.

All our business segments have grown starting from retail to operator business. As a result, our operating income before depreciation has returned to growth and we have managed to increase margins in the second quarter of 2017. We managed to almost double net income as well as significantly improve our free cash flow position.

The key driver to our success this quarter is the growing capabilities of our digital business segment, which is underpinned by the most extensive network infrastructure in Russia. We continue to take the lead with a lion's share of pay-TV and broadband market subscribers, actively promote cloud services, data centre and cyber security services, thrive on the synergies from interaction with Tele2 in the joint use of communication channels and offer our network capacity to other telecom operators.

In addition to the Company’s operational success during the quarter, a number of additional developments took place during the second quarter, including the approval of the Company’s 2016 dividend payment. We believe that the proposed level of RUB 5.39 per share maintains our high dividend yield and remains broadly in-line with our current dividend policy sticking to a key principle to allocate more than three quarters of the free cash flow for dividends, and not less than RUB 45 billion within a period of three years, without the need to increase the company’s debt burden.

On the whole we are delighted with the performance in the second half of 2017 and believe we have gained momentum for company’s further development. We continue to work hard on the digital transformation and the development of our digital services. We have identified the key growth areas of our digital strategy, which correspond to the priorities of business development. Those are big data and artificial intelligence, biometric technologies, Internet of things and industrial Internet of things, 5G networks, robotics and biotechnology, radio engineering and electronic component base, information security. Our main goal is to create an information space based on the knowledge, advanced, safe and technologically independent services needed for the transition to a qualitatively new level of business development.»

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

«The impressive results of the second quarter of 2017 prove that we are delivering on our digital transformation plan. This strategy, along with Russia’s economic stability and growth prospects, which are opening up thanks to the growing digitalization trends in the state and private sectors, enables us to confidently confirm our forecast for the year in general in terms of key financial indicators.

We therefore maintain our full year forecast of delivering revenue growth of approximately 1%, and an increase in OIBDA within 1%. We also expect a CAPEX to Revenue ratio of 18.5% excluding the implementation of the Bridging the Digital Divide project.»

KEY OPERATING HIGHLIGHTS

  1. The number of broadband subscribers grew by 5% to 12.6 million in 2Q 2017 compared to the corresponding period of last year;
    • The B2C subscriber base grew by 5% to 11.8 million, whilst the number of subscribers connected by fibre optic increased by 12% year-on-year to 7.5 million (63% of the subscriber base).
  2. The number of pay-TV subscribers grew by 6% year-on-year to 9.5 million households;
    • The number of IPTV subscribers increased by 18% year-on-year to 4.6 million.
  3. The number of MVNO subscribers reached 0.5 mln.
  4. The number of local telephony subscribers decreased by 7% year-on-year to 19.9 million.

Number of subscribers (million):

2Q 2017

2Q 2016

% change, y-o-y

1Q 2017

% change, y-o-y

Broadband

12.6

12.0

5%

12.5

1%

Residential

11.8

11.3

5%

11.7

1%

Corporate clients

0.8

0.7

4%

0.8

0,3%

Pay TV

9.5

9.0

6%

9.4

1%

Incl. IPTV

4.6

3.9

18%

4.4

3%

MVNO subscribers

0.5

-

-

0.2

107%

Local telephony services

19.9

21.4

(7%)

20.3

(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).

[9] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA.

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

[11] 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