Rostelecom announces its IFRS financial and operating results for the first quarter of 2018

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THE DIGITAL TRANSFORMATION DELIVERS STRONG REVENUE GROWTH OF 8%

Moscow, Russia – May 15, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the first quarter of 2018 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

  • Revenue grew by 8% year-on-year in the first quarter of 2018 with average annual revenue growth of more than 5% over the last four quarters;
  • The digital segment’s[2] contribution to total revenue reached 53%;
  • Consistently high growth rates in FTTx Broadband clients (+7%) and in IPTV subscribers (+12%), while ARPU continues to grow in our core broadband and IPTV segments;
  • Increase in revenues from VAS and cloud services amounted to 86% in the first quarter of 2018, as a result of video surveillance projects, "Smart City", and the promotion of cloud services and data centre services.

FIRST QUARTER 2018 FINANCIAL HIGHLIGHTS

  • Revenue grew by 8% to RUB 76.2 billion compared to the first quarter of 2017 on a like for like basis[3];
  • OIBDA[4] increased to RUB 23.2 billion on a like for like basis;
  • OIBDA margin of 30.4%;
  • Net profit increased by 15% to RUB 3.9 billion compared to the first quarter of 2017 on a like for like basis;
  • CAPEX[5] decreased by 15% to RUB 15.1 billion (19.8% of revenue) from RUB 17.7 billion (25.2% of revenue) in the first quarter of 2017;
  • Consolidated Free Cash Flow (FCF) of RUB (5.8) billion[6] compared to RUB (2.3) billion in the first quarter of 2017;
  • Net debt[7] increased by 6% since the beginning of the year and amounted to RUB 191.8 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 1Q 2018, RUB mln

RUB million

1Q 2018

1Q 2017

(like for like)

% change, y-o-y

1Q 2017

(as reported)

Change (%)

Revenue

76,203

70,273

8%

70,436

8%

OIBDA

23,194

23,162

0.1%

21,569

8%

OIBDA margin %

30.4%

33.0%

-

30.6%

-

Operating Income

8,357

8,650

(3%)

8,093

3%

Operating margin %

11.0%

12.3%

-

11.5%

-

Net Income

3,864

3,358

15%

3,150

23%

% of revenue

5.1%

4.8%

-

4.5%

-

Capital Expenditure

15,125

17,714

(15%)

17,714

(15%)

% of revenue

19.8%

25.2%

-

25.1%

-

Net debt

191,788

180,005

7%

180,005

7%

Net debt/ annualised OIBDA

1.9

1.9

-

1.9

-

FCF

(5,849)

(2,309)

-

(2,309)

-

 

Mikhail Oseevsky, President of Rostelecom:

“The Q1 2018 results came in line with our expectations. Our revenue is growing at a solid average annual rate of more than 5 per cent, which is an outstanding performance for our industry. Our operating business keeps improving, demonstrating OIBDA and net income growth. This is driven by the expansion of our digital segment, which grew by more than 20% in the first quarter of 2018 and currently accounts for 53% of our top-line. We are also increasing our competitive positions in the key pay-TV and broadband segments, thanks to a growing subscriber base and higher ARPU. Furthermore, we are delighted to have recorded 65% of new user connections in the pay-TV market. This, in turn, was achieved by promoting new services such as video surveillance, where we saw the subscriber base doubling in the reporting period. Higher demand for cloud services, data centers and information security solutions is also contributing to our top-line. We continue to successfully implement the Russian government’s state projects of high strategic importance. Public funding enabled us to expand the number of high-speed connections in Russian healthcare centres and across remote areas during the first quarter. Rostelecom was also responsible for handling video surveillance for the presidential election in March 2018.

In March, we updated our strategy and dividend policy, which confirmed that the on-going digital transformation of the business a key part of the roadmap for 2018-2022 and a key component for a robust business development strategy. We are a trusted digital partner for families, business and the State, and a credible provider of a wide range of high quality products and services in telecommunication, IT and other areas.

To achieve this, Rostelecom is focusing on the creation of a solid ecosystem for its products and services, with a focus on higher quality customer care. We are also enhancing our technological platform, increasing the capability of our human resources function and improving operational efficiency across the business. Our strategy is fully aligned with the Russian State’s “Digital economy” programme, where Rostelecom plays one of the key roles.

The consistent implementation of our new strategic goals will contribute to higher dividend payments to our shareholders as we aim to deliver an industry leading dividend yield.”

Sergei Anokhin, Senior Vice-President and Chief Financial Officer:
“Rostelecom’s strong results for the first quarter of 2018 reflect our highly confident outlook for future developments of the digital segment. We expect our performance to continue to improve across all key financial indicators. We therefore revise our full year forecast for revenue growth, and anticipate an increase of more than 2 per cent. OIBDA margin is expected to be above 31.5% in 2018 with CAPEX of RUB 60-65 billion, excluding the implementation of government programmes.”

KEY OPERATING HIGHLIGHTS

  1. The number of broadband subscribers grew by 2% to 12.7 million in the first quarter of 2018 compared to the corresponding period of last year;
    • The B2C subscriber base grew by 2% to 12.0 million, whilst the number of subscribers connected by fibre optic increased by 7% year-on-year to 7.8 million (65% of the subscriber base);
  2. The number of pay-TV subscribers grew by 5% to 9.9 million households compared to the corresponding period of last year;
    • The number of IPTV subscribers increased by 12% to 5.0 million;
  3. The number of MVNO subscribers increased almost 4-fold over the year and reached 0.9 million;
  4. The number of local telephony subscribers decreased by 8% to 18.7 million.


Number of subscribers (million):

1Q 2018

1Q 2017

% change, y-o-y

4Q 2017

% change, y-o-y

Broadband

12.7

12.5

2%

12.7

0.01%

Residential clients

12.0

11.7

2%

12.0

0.2%

Corporate clients

0.7

0.8

(3%)

0.8

(3%)

Pay TV

9.9

9.4

5%

9.8

2%

Incl. IPTV

5.0

4.4

12%

4.8

2%

MVNO subscribers

0.9

0.2

292%

0.8

6%

Local telephony services

18.7

20.3

(8%)

19.1

(2%)


Full press-release


[1] International financial reporting standards.
[2] The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services.
[3] Here and below the like for like basis means that the IFRS standards 9, 15 and 16 were applied to the financial results of the first quarter of 2017. Details are reflected in Appendix 2.
[4] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA.
[5] Here and below, capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets.
[6] 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, plus interest received
[7] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).