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

Print version

DIGITAL TRANSFORMATION DELIVERS STRONG TOPLINE GROWTH OF 4%

Moscow, Russia – November 2, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the third quarter of 2017 and nine months of 2017 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

  • Revenue growth in the third quarter of 2017 of 4% year-on-year;
  • Revenue growth across all business segments: b2c, b2b/g and b2o;
  • The digital segment’s[2] contribution to total revenue accounted for 47%;
  • Consistently high growth rates in FTTx optic broadband clients (+10%) and in IPTV subscribers (+16%), ARPU keeps growing in our core broadband and IPTV segments;
  • Rostelecom accounted for more than 70%[3] of net additions in the IPTV market, and for around 50%[4] of broadband net additions;
  • Free cash flow increased by 21% to RUB 7.1 billion;
  • The Smart City project steady growth is contributing significantly to the top line.

THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS

  • Revenue increased by 4% to RUB 75.6 billion compared to the third quarter of 2016;
  • OIBDA[5] of RUB 25.0 billion remained almost flat;
  • OIBDA margin of 33.1% compared to 34.4% in the third quarter of 2016;
  • Net profit of RUB 3.9 billion compared to RUB 4.1 billion in the third quarter of 2016;
  • CAPEX[6] decreased by 7% year-on-year to RUB 12.1 billion (16.0% of revenue) from RUB 13.0 billion (17.9% of revenue) in the third quarter of 2016;
  • Free Cash Flow[7] (FCF) improved by 21% to RUB 7.1 billion compared to the third quarter of 2016;
  • Net debt[8] increased by 8% since the beginning of the year and amounted to RUB 191.2 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

Key figures for 3Q 2017, RUB mln

RUB million

3Q 2017

3Q 2016

% change, y-o-y

Revenue

75,614

72,781

4%

OIBDA

24,995

25,038

(0%)

OIBDA margin %

33,1%

34,4%

Operating Income

9,176

11,815

(22%)

Operating margin %

12,1%

16,2%

Net Income

3,905

4,060

(4%)

% of revenue

5,2%

5,6%

Capital Expenditure

12,125

13,029

(7%)

% of revenue

16,0%

17,9%

Net debt

191,152

190,071

0,6%

Net debt/ annualised OIBDA

2,0

1,9

FCF

7,055

5,851

21%

NINE MONTHS OF 2017 FINANCIAL HIGHLIGHTS

  • Revenue increased by 2% to RUB 221.2 billion compared to the nine months of 2016;
  • OIBDA[9] decreased by 2% year-on-year to RUB 71.2 billion compared to the nine months of 2016;
  • OIBDA margin of 32.2% compared to 33.4% in the nine months of 2016;
  • Net profit increased by 14% to RUB 9.9 billion compared to the nine months of 2016;
  • CAPEX10] decreased by 10% year-on-year to RUB 42.3 billion (19.1% of revenue) from RUB 46.8 billion (21.6% of revenue) in the nine months of 2016;
  • Free Cash Flow[11] (FCF) improved by RUB 5 billion and reached RUB 3.1 billion compared to RUB -2.3 billion the corresponding period of last year.

Key figures for the nine months of 2017, RUB mln

RUB million

9M 2017

9M 2016

% change, y-o-y

Revenue

221,216

217,039

2%

OIBDA

71,163

72,400

(2%)

OIBDA margin %

32,2%

33,4%

Operating Income

28,573

28,588

(0%)

Operating margin %

12,9%

13,2%

Net Income

9,881

8,663

14%

% of revenue

4,5%

4,0%

Capital Expenditure

42,290

46,797

(10%)

% of revenue

19,1%

21,6%

Net debt

191,152

190,071

0,6%

Net debt/ annualised OIBDA

2,0

1,9

FCF

3,102

(2,320)

-

Mikhail Oseevskiy, President of Rostelecom:

We are delighted to demonstrate robust topline growth the second consecutive quarter. The main driver for the 4% increase in revenues was the continuous increase in the subscriber base in our core broadband and IPTV markets, growing ARPU for these services and the rapid progress of our cloud services. The double-digit revenue growth of our large on-going regional Smart City projects has also played a significant role to replace traditional voice services and to grow our digital segment in general.

As far as the operating income before depreciation and amortization is concerned, we have reached stable results in the reporting quarter year-on-year.

The growing capabilities of our new business segments have had a major influence on our results. Underpinning this is a solid digital transformation strategy, which has been designed to clearly address the current challenges and priorities of both the telecom industry and the Russian economy in general. We are at the forefront of the shift to a digital economy which is opening up tremendous new opportunities during this fourth industrial revolution. We have entered a new economic environment, where success is underpinned by operational excellence and optimum use of resources and capacities. Rostelecom is securing a solid niche by helping its clients thrive in such an environment by providing a robust infrastructure base and service platforms for both the state and the private sector, which is providing improvements in life quality and conditions.

We are already moving in this direction and are putting a lot of our efforts to achieve this. In order to support technological start-ups, Rostelecom has launched a joint acceleration programme with the Internet Initiatives Development Fund (IIDF) and Skolkovo Foundation. The programme targets computer equipment and software development projects to develop virtual telecommunications networks and Data Processing Centers, as well as exciting ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars, drones.

The most important event in this business stream was the launch of a so-called “virtual digital sandbox” by Rostelecom – a platform for testing technological solutions within a real infrastructure. The biometric identification space has developed rapidly around the globe, and Russia is no exception. We are working on the development of a “National Biometric Platform” which will enable users to be identified simultaneously by their faces and voices, and we plan to introduce this service to the market by the end of 2018. Projects like this have enabled Rostelecom to make a quantum leap in the international scene as a technological leader which will underpin our sustainable growth.

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer:
The impressive results in revenue in the third quarter of 2017 prove that we are delivering on our digital transformation plan to become a leading digital services provider. This strategy along with Russia’s stable economic environment and positive prospects for business growth, stemming from growing digitalization trends across private and public segments enable us to confidently improve our future revenue forecast and maintain our outlook for the year in terms of OIBDA and CAPEX. We therefore expect to deliver revenue growth of up to 1.5%, and an increase in OIBDA within 1%. We also expect a CAPEX to Revenue ratio of approximately 18.5% excluding the implementation of the Bridging the Digital Divide project.

KEY OPERATING HIGHLIGHTS

  1. The number of broadband subscribers grew by 3% to 12.7 million in 3Q 2017 compared to the corresponding period of last year;
    • The B2C subscriber base grew by 4% to 11.9 million, whilst the number of subscribers connected by fibre optic increased by 10% year-on-year to 7.6 million (64% of the subscriber base).
  2. The number of pay-TV subscribers grew by 5% year-on-year to 9.7 million households;
    • The number of IPTV subscribers increased by 16% year-on-year to 4.7 million.
  3. The number of MVNO subscribers reached 0.7 mln.
  4. The number of local telephony subscribers decreased by 7% year-on-year to 19.5 million.

Number of subscribers (million):

3Q 2017

3Q 2016

% change, y-o-y

2Q 2017

% change, y-o-y

Broadband

12,7

12,3

3%

12,6

1%

Residential

11,9

11,5

4%

11,8

1%

Corporate clients

0,8

0,7

1%

0,8

(1%)

Pay TV

9,7

9,2

5%

9,5

1%

Incl. IPTV

4,7

4,0

16%

4,6

3%

MVNO subscribers

0,7

-

-

0,5

45%

Local telephony services

19,5

21,0

(7%)

19,9

(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).

[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