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PJSC ROSTELECOM (FRA:US778529) ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER AND HALF YEAR 2019

Directive transparence : information réglementée

02/08/2019 08:00

ROSTELECOM PJSC (RKMD)
ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER AND HALF YEAR 2019

02-Aug-2019 / 09:00 MSK
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


 

rostelecom announces its ifrs financial and operating results

for the second quarter and half year 2019

 

Q2 2019 DIGITAL SEGMENT[1] GROWTH OF 11%; 13% INCREASE IN OIBDA[2]; NET PROFIT UP 40%

Moscow, Russia - August 2, 2019 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the second quarter and half year of 2019 prepared in accordance with IFRS[3].

KEY ACHIEVEMENTS

  • Revenue grew by 4% year-on-year in the second quarter of 2019;
  • Digital segment sales increased by 11% in the second quarter, while its contribution to total revenue reached 57%;
  • OIBDA grew by 13% in the second quarter of 2019 to RUB 27.2 billion;
  • Net profit increased by 40% and reached RUB 4.3 billion;
  • Free Cash Flow (FCF) [4] increased to RUB 11.4 billion in the second quarter of 2019.

 

SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

  • Revenue grew by 4% to RUB 80.2 billion compared to the second quarter of 2018
  • OIBDA up by 13% to RUB 27.2 billion;
  • OIBDA margin grew by 2.9 p.p. to 33.9% compared to the second quarter of 2018;
  • Net profit increased by 40% to RUB 4.3 billion compared to the second quarter of 2018;
  • CAPEX[5] increased by 6% to RUB 15.2 billion (19.0% of revenue) from RUB 14.4 billion (18.7% of revenue) in the second quarter of 2018;
  • FCF improved to RUB 11.4 billion compared to RUB (0.8) billion in the second quarter of 2018;
  • Net debt[6] increased by 8% since the beginning of the year to RUB 201.6 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 2Q 2019, RUB mln

RUB million

2Q 2019

2Q 2018

 change, y-o-y

Revenue

80,160

77,365

4%

OIBDA

27,162

23,983

13%

OIBDA margin %

33.9%

31.0%

-

Operating Income

9,756

8,342

17%

Operating margin %

12.2%

10.8%

-

Net Income

4,319

3,094

40%

% of revenue

5.4%

4.0%

-

Capital Expenditure

15,243

14,442

6%

% of revenue

19.0%

18.7%

-

Net debt

201,587

193,497

4%

Net debt/ annualised OIBDA

1.9

2.0

-

FCF

11,388

(832)

12,220

 

FIRST HALF YEAR 2019 FINANCIAL HIGHLIGHTS

  • Revenue increased by 3% to RUB 158.8 billion compared to the first half of 2018;
  • OIBDA increased by 13% year-on-year to RUB 53.5 billion compared to the first half of 2018;
  • OIBDA margin grew by 2.7 p.p. to 33.7% compared to the first half of 2018;
  • Net profit increased by 43% to RUB 10.0 billion compared to the first half of 2018;
  • CAPEX[7] increased by 27% to RUB 37.6 billion (23.7% of revenue) from RUB 29.6 billion (19.3% of revenue) in the first half of 2018;
  • FCF improved to RUB (3.2)[8] billion compared to RUB (6.7) billion in the first half of 2018.

 

Key figures for 1HY 2019, RUB mln

RUB million

6M 2019

6M 2018

 change, y-o-y

Revenue

158,827

153,568

3%

OIBDA

53,543

47,534

13%

OIBDA margin %

33.7%

31.0%

-

Operating Income

19,465

16,699

17%

Operating margin %

12.3%

10.9%

-

Net Income

9,950

6,958

43%

% of revenue

6.3%

4.5%

-

Capital Expenditure

37,586

29,567

27%

% of revenue

23.7%

19.3%

-

Net debt

201,587

193,497

4%

Net debt/ annualised OIBDA

1.9

2.0

-

FCF

(3,195)

(6,681)

3,486

 

Mikhail Oseevskiy, President of Rostelecom, commented:

"In keeping with our strategy priority, Rostelecom continues to develop its digital segment through the expansion of our customized digital services for different client segments.

During the second quarter, Rostelecom launched RTK Key, an outdoor video surveillance solution for residential properties. The platform's capabilities can be enhanced by additional services available to developers, management companies and residents. Home video surveillance and smart intercom, which can be controlled via a mobile application, were the first products available on the platform. In future, the platform will be supplemented by other solutions such as remote meter readings, a smart gate bar, a digital key, and others as part of Rostelecom's broader plan to introduce a comprehensive cross-vertical line up of products including "smart household", "smart apartment building" and "smart city".

We are seeing significant demand for virtual IT infrastructure from corporate and state companies. To ensure our cloud services offering remains competitive, we have expanded the bandwidth allocated to the virtual offering by 10 times to 10 Gb/s, we have significantly increased the availability and stability of services at all data centre sites, and we have also commenced commercial operation of an additional 800 rack spaces at the new "Udomlya" data centre.

A good example of our strategy in action is the recent introduction of Solar MSS to the market as an updated ecosystem of cybersecurity services, which includes nine mutually integrated managed services. The technological core of this ecosystem is a platform built on breakthrough technology consisting of SD-WAN software-defined networks. The mix of technologies selected as part of Solar MSS ensures protection against all major types of attacks, while providing the ability to focus our offering on the most critical segments for each individual client organization. As Russia's leading monitoring and response centre, Solar JSOC supplements all Solar MSS services by providing expert analytics, cyber threat alerts and proven methods to counter hacking. During the first half of 2019, our centre recorded and prevented over 400,000 suspected cyber-attacks, enabling us to protect our clients' business interests. Our leading competency in the cyber security space has led to Rostelecom being entrusted for several years with securing the back-end infrastructure behind public Q&A sessions with President of Russia, with all cyber-attacks successfully repelled to date.

As part of our active promotion of industrial Internet solutions, where our digital technologies and solutions enable corporate clients to realise efficiencies, a remote function has been launched to control SIM-cards on devices and sensors, operated in the M2M network. This has been designed to help businesses of all sizes to optimise their internal processes, provide new services, reduce costs and subsequently increase revenues. Together with LUKOIL we also launched the first smart wells in the Perm region fields, to help monitor and manage oil and gas equipment remotely.

Our many operational achievements in the digital business segment led to strong financial results in the second quarter of 2019. The company recorded growth across all key indicators: revenue increased by 4%, operating profit before depreciation grew 13%, leading to a 40% increase in net profit. In addition, our free cash flow, which services our ability to maintain our dividend payments to shareholders, has significantly improved.

The double-digit growth rate of our digital business points to the momentum the Company's transformation into a reliable digital partner for the citizens, businesses, and the State has achieved. We will continue to implement key strategic projects, develop digital ecosystems, invest in technological infrastructure and human capital, and we will strengthen our leadership in providing digital services to all types of clients."

Sergey Anokhin, Senior Vice-President and Chief Financial Officer, added:

"Rostelecom's results for the second quarter of 2019 drive our confident outlook for the future development of our digital segment and improvement of our internal efficiency. This enables us to enhance our guidance for the full year of 2019 on revenue and OIBDA, now we expect them to grow not less than 3%. As for the CAPEX programme, it remains unchanged within the range of RUB 65-70 billion, including the regulatory CAPEX amounting to RUB 7 billion, excluding the implementation of government programmes."

 

 

KEY OPERATING HIGHLIGHTS

Number of subscribers (million):

2Q 2019

2Q 2018

change, y-o-y

1Q 2019

 change, y-o-y

Internet access

 13.0  

 13.0  

0.4%

 13.0  

0.1%

B2C: Broadband

 12.0  

 12.0  

0.1%

 12.0  

0.01%

B2B: Broadband + VPN

1.0  

1.0  

4%

1.0  

1%

Pay TV

10.2  

10.0  

2%

10.2  

0.03%

Incl. IPTV

 5.4  

 5.1  

7%

 5.4  

1%

MVNO subscribers

1.3

1.0

39%

1.3

6%

Local telephony services

 16.6  

 18.3  

(9%)

 17.0  

(2%)

 

ARPU[9] (RUB):

2Q 2019

2Q 2018

change, y-o-y

1Q 2019

change, y-o-y

  Internet access

 

 

 

 

 

      B2C: Broadband 

398

380  

5%

397

0.4%

      B2B: Broadband + VPN

3,510

3,118  

13%

3,266

7%

Pay TV (B2C)

248

239  

4%

249

(0.5%)

      Incl. IPTV

315

310  

2%

317

(0.5%)

Blended ARPU[10]

544

 516  

6%

543

0.2%

 

 

 

 

 

Total subscriber base and ARPU

  1. The total number of Internet subscribers among households grew by 0.1% to 12.0 million in the second quarter of 2019 compared to the corresponding period of last year; ARPU was up 5% year-on-year to RUB 398.
  2. The total number of B2B Internet and VPN subscribers increased by 4% year-on-year to 1.0 million; ARPU grew by 13% year-on-year to RUB 3,510.
  3. The number of pay-TV subscribers grew by 2% to 10.2 million households compared to the corresponding period of last year with average ARPU of RUB 248, up 4% year-on-year as well;
  • The number of IPTV subscribers increased by 7% to 5.4 million, and ARPU also reached RUB 315;
  1. The number of MVNO subscribers increased by 39% and reached 1.3 million users;
  2. The number of local telephony subscribers decreased by 9% to 16.6 million.

 

KEY EVENTS RELATING TO 2Q 2019 AND AFTER THE END OF THE REPORTING PERIOD

Business news

  • Rostelecom continues to develop and expand its range of products and services:
  • A new offer "For friends" has been amended to include a new service - Internet connection with an OTT service provided by Wink. The offering is focused on the new "Internet for home" service subscribers, who prefer watching TV over a range of devices rather than through a TV set;
  • The Wink platform is now available via software provided to all new IPTV subscribers across the territory covered by Rostelecom's Volga branch. By the end of the third quarter of 2019 Rostelecom plans to provide access to the platform to all subscribers across the country, providing current with the option of migrating to this new offering;
  • As part of the "Smart Home" ecosystem:
    • A new federal platform "RTK Key" was launched; Rostelecom plans to add new digital services for developers, managing companies and residents; the first products to be made available on the platform will be video surveillance of outdoor spaces and a smart intercom;
    • Rostelecom has sold 100,000 cameras since the launch of the video surveillance service for households;
  • Rostelecom launched a remote control service for SIM cards used on M2M devices and sensors;
  • Within its MVNO project, the Company introduced a fully convergent offer across all offices within the Moscow regional network; the offer is to be launched country-wide by the end of 2019;
  • Rostelecom continues to grow its digital segment:
  • Rostelecom signed agreements with Nokia, Ericsson and Tele2 Russia to jointly develop 5G lab zones on 26.5-29.5 GHz and 3.3-3.8 GHz bands in Moscow and across a number of other cities in Russia;
  • Rostelecom, Megafon and Nokia made the  first international 5G video call within Russian networks;
  • Rostelecom and Lukoil launched the first smart wells in the fields of the Perm region; the wells are equipped with tools for oil & gas equipment remote monitoring and control;
  • As part of cybersecurity services:
    • the largest Russian centre for information security monitoring and response to incidents recorded over 400,000 cyber-attacks in the first half of 2019;
    • Rostelecom launched Solar MSS, Russia's largest ecosystem of cyber security services which supports Russian organisations on their path to digital transformation;
    • Rostelecom successfully repelled cyber-attacks during the President's public Q&A session;
    • Rostelecom expanded the functionality of its DDoS attacks service; it is now available to a wider range of organisations, thanks to the application of SD-WAN technologies;
  • Rostelecom continues to grow its cloud services segment:
    • As part of the Virtual PBX offering, Rostelecom:
      • increased revenues by 60% in the second quarter of 2019;
      • expanded global reach to 363 cities;
      • launched a call-back option;
      • finalised integration with the '1С Enterprise Management' infrastructure;
      • launched a pilot speech recognition project for the virtual PBX across the territory covered by its three cross-regional branches;
    • As part of the Virtual Data Centre offering, Rostelecom:
      • increased the number of virtual machines by 36% in the second quarter of 2019;
      • expanded the bandwidth between virtual machines by 10 times to 10 Gb/s,
      • started commercial operation of 800 rack spaces at the new Udomlya Data Centre;
      • launched sales of the service as a White Label product;
      • switched to the Vmware NSX platform at all data centres in order to improve the reliability and accessibility of its service.
  • Rostelecom signed a number of large contracts to provide communication services with Sberbank (for RUB 759 million), Rusagro (for RUB 155 million), Transneft (for RUB 150 million), Magnit (for over RUB 50 million) and others;
  • Rostelecom successfully provided video surveillance for the 2019 Unified State Exam, with more than 4.5 million hours of surveillance captured;
  • Rostelecom delivered a two-fold growth of revenues from its O2O[11] project in the first half of 2019; by the end of the reporting period the Company had serviced more than 146,000 km of fiber-optic communication line and 62,000 base stations of third-party operators;
  • More than 30% of Rostelecom's partner operators were given dedicated access to Rostelecom online accounts to help improve transparency and efficiency in their communication;

Other news

  • Rostelecom's shareholders approved the Company's dividends for 2018 at RUB 2.5 per share; taking into account interim dividends for the 9 months of 2018, the total dividend payout amounts to RUB 13.9 billion for the full year of 2018 or RUB 5.0 per share.
  • The Board of Directors of Rostelecom approved a revised dividend policy to amend the FCF methodology for dividends calculation. The amended FCF has been increased by subsidy from government;
  • Rostelecom and Mail.ru signed an agreement for a strategic partnership in the development of e-education in Russia;
  • Rostelecom and LSR Group signed an agreement to promote digital technologies in the construction industry in Russia;
  • Central Telegraph PJSC, Rostelecom's subsidiary, put up for sale its properties with an area of 35,198.7 square meters at 7, Tverskaya street, Moscow,;
  • Rostelecom acquired Prometey, an internet provider in St. Petersburg;
  • The Analytical Credit Rating Agency (ACRA) assigned an AA(RU) credit rating to Rostelecom.

 

OPERATING REVIEW

Revenue analysis

 

Revenue structure by services

RUB million

2Q 2019

2Q 2018

change

6M 2019

6M 2018

Change

Broadband

20,460

19,653

4%

41,398

38,836

7%

TV services

9,262

8,488

9%

18,555

16,663

11%

Fixed telephony

15,385

17,717

(13%)

31,473

36,000

(13%)

Wholesale services

21,059

19,395

9%

41,446

38,794

7%

Rent of channels

2,371

2,386

(1%)

4,758

4,682

2%

Interconnect and traffic transit services

7,944

7,913

0%

16,379

16,288

1%

VPN

7,244

5,723

27%

13,344

11,247

19%

Rent and maintenance of telecommunications infrastructure

3,500

3,374

4%

6,966

6,577

6%

VAS and cloud services

8,925

7,470

19%

16,578

14,707

13%

Other telecommunications services

3,247

2,836

14%

6,064

5,446

11%

Other non-telecommunications services

1,823

1,805

1%

3,314

3,122

6%

Total

80,160

77,365

4%

158,827

153,568

3%

 

 

 

 

 

 

 

Revenue structure by customer segments

RUB million

2Q 2019

2Q 2018

change

6M 2019

6M2018

change

Residential customers

34,802

34,361

1%

70,049

68,447

2%

B2B / State clients

30,246

28,179

7%

58,177

55,253

5%

Operators

14,040

13,704

2%

28,442

27,690

3%

Other

1,072

1,122

(4%)

2,159

2,179

(1%)

Total

80,160

77,365

4%

158,827

153,568

3%

In the second quarter of 2019, revenue increased by 4% to RUB 80.2 billion, compared to the second quarter of 2018, as a result of the following factors:

  • a 27% increase in revenue from VPN services, mainly due to higher demand from state and corporate clients;
  • a 19% increase in revenue from VAS and cloud services, mainly due to the proceeds from "Smart City" projects, the promotion of cloud services and data centres;
  • a 4% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
  • a 9% increase in revenue from pay-TV services due to growth in the IPTV subscriber base and higher ARPU;

 

During the first six months of 2019, revenue increased by 3% to RUB 158.8 billion, compared to the first six months of 2018, as a result of the following factors:

  • a 7% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
  • a 19% increase in revenue from VPN services, mainly due to higher demand from state and corporate clients;
  • an 11% increase in revenue from pay-TV services due to growth in the IPTV subscriber base and higher ARPU;
  • a 13% increase in revenue from VAS and cloud services, mainly due to the proceeds from "Smart City" projects, the promotion of cloud services and data centres;

 

 

 

 

 

 

 

 

 

 

Operating income analysis

Operating expenses structure

 

RUB million

2Q 2019

2Q 2018

 change

6M 2019

6M 2018

 change

Personnel costs

(24,761)

(24,130)

3%

(50,071)

(48,615)

3%

Depreciation, Amortization and impairment losses

(16,190)

(14,397)

12%

(31,696)

(28,475)

11%

Interconnection charges

(14,715)

(13,632)

8%

(28,948)

(27,776)

4%

Materials, repairs and maintenance, utilities

(5,829)

(6,057)

(4%)

(12,298)

(12,395)

(1%)

Gain on the disposal of PPE and intangible assets

767

976

(21%)

1,424

1,394

2%

Impairment loss of financial assets measured at amortized cost

(1,032)

(1,851)

(44%)

(2,153)

(3,126)

(31%)

Other operating income

4,425

3,429

29%

8,224

7,014

17%

Other operating expenses

(13,069)

(13,361)

(2%)

(23,844)

(24,889)

(4%)

Total operating expenses

(70,404)

(69,023)

2%

(139,362)

(136,869)

2%

In the second quarter of 2019, operating expenses increased by 2% compared to the corresponding period of 2018 and amounted to RUB 70.4 billion, largely due to the following factors:

  • a 12% increase (of RUB 1.8 bln) in depreciation, amortization and impairment losses, due to a reduced effect from revised terms of useful life and higher payments associated with new objects and intangible assets following the acquisition of additional software and content;
  • an 8% increase (of RUB 1.1 bln) in interconnection charges, mainly due to sub-contractual payments to other operators as part of the state contracts, contributing to the increase in corresponding revenues;
  • a 3% increase (of RUB 0.6 bln) in personnel costs, mainly due to an increase in the number of employees within the digital business segments;
  • a 29% increase (of RUB 0.9 bln) in other operating income, due partly to the increased proceeds as part of the "Bridging the digital divide" project;
  • a 44% decrease (by RUB 0.8 bln) in impairment loss of financial assets measured at amortized cost, due partly to the high base effect of 2018 driven by significant one-off accruals.

During the first six months of 2019, operating expenses increased by 2% compared to the corresponding period of 2018 and amounted to RUB 139.4 billion, largely due to the following factors:

  • an 11% increase (of RUB 3.2 bln) in depreciation, amortization and impairment losses, due to a reduced effect from revised terms of useful life and higher payments associated with new objects and intangible assets following the acquisition of additional software and content;
  • a 3% increase (of RUB 1.5 bln) in personnel costs, mainly due to an increase in the number of employees within the digital business segments, including through the acquisitions of subsidiary companies;
  • a 4% increase (of RUB 1.2 bln) in interconnection charges, partly due to sub-contractual payments to other operators as part of the state contracts, contributing to the increase in corresponding revenues;
  • a 17% increase (of RUB 1.2 bln) in other operating income, partly due to the increased proceeds as part of the "Bridging the digital divide";
  • a 4% decrease (by RUB 0.8 bln) in other operating expenses, namely due to the legislative amendments to corporate property tax, as well as high base of marketing and advertising costs in 2018;
  • a 31% decrease (by RUB 1.0 bln) in impairment loss of financial assets measured at amortized cost, partly due to the high base effect of 2018 driven by significant one-off accruals.

Operating profit in the second quarter and six months of 2019 increased by 17% year-on-year to RUB 9.8 billion and RUB 19.5 billion respectively, compared to the corresponding periods of 2018.

OIBDA for the second quarter and six months of 2019 increased by 13% year-on-year to RUB 27.2 billion and RUB 53.5 billion respectively. OIBDA dynamics were driven by revenue growth and the above-mentioned factors, affecting operating expenses. The OIBDA margin increased by 2.9 p.p. to 33.9% in the second quarter of 2019 compared to the corresponding period of 2018. The OIBDA margin increased by 2.7 p.p. to 33.7% during the first six months of 2019 compared to the corresponding period of 2018.

Net Income Analysis

In the second quarter of 2019, profit before tax increased by 28% to RUB 5.8 billion, compared to the corresponding period in 2018, and by 35% to RUB 12.7 billion in the six months of 2019.

These dynamics were influenced in the second quarter of 2019 by the following factors:

  • higher operating profit;
  • no foreign exchange losses in the reporting period;
  • improved associated companies' financial results, mainly from the joint venture with Tele2 Russia;
  • higher finance costs, partly due to an increase in interest payments.

These dynamics were influenced during the first six months of 2019 by the following factors:

  • higher operating profit;
  • improved associated companies' financial results, mainly from the joint venture with Tele2 Russia;
  • foreign exchange gains in the reporting period due to strengthened national currency;
  • higher finance costs, including due to an increase in interest payments;

Income tax in the second quarter of 2019 increased by 3% to RUB 1.5 billion, and by 11% in the six months of 2019 to RUB 2.7 billion.

The effective income tax rate was at 26% in the second quarter of 2019, and 21% in the six months of 2019, compared to the 20% rate set by the Tax Code.

Net profit increased by 40% in the second quarter of 2019 and totalled RUB 4.3 billion, compared to the corresponding period last year, and in the six months of 2019 - by 43% to RUB 10.0 billion.

Financial review

Net operating cash flow in the second quarter of 2019 almost doubled and amounted to RUB 23.1 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the second quarter of 2019 was mainly due to the increased operating flow due to the change in the working capital, which was mainly driven by a bigger decrease in accounts receivable due to the receipt of payments for the provision of high-speed Internet connection to healthcare centres in Russia. Net operating cash flow in the six months of 2019 increased by 48% and amounted to RUB 29.6 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the six months of 2019 was mainly due to the increased operating flow due to the changes in the working capital, which were mainly driven by the collection of receivables in the second quarter of 2019.

Cash outflow for investments in non-current assets increased by 6% to RUB 15.2 billion (19.0% of revenue) in the second quarter of 2019. Excluding state programmes, it decreased by 4% to RUB 11.5 billion (14.4% of revenue). Cash outflow for investments in non-current assets increased by 27% to RUB 37.6 billion (23.7% of revenue) in the six months of 2019. Excluding state programmes, it increased by 14% to RUB 27.9 billion (17.6% of revenue). These dynamics reflect an increase in capital expenditure on government-funded programmes during the reporting period, as well as the uneven distribution of expenditure during a calendar year according to the terms of the concluded contracts.

Free cash flow in the second quarter of 2019 increased by RUB 12.2 billion and totalled RUB 11.4 billion compared to RUB (0.8) billion in the second quarter of 2018. Free cash flow in the six months of 2019 increased by RUB 3.5 billion and totalled RUB (3.2) billion compared to RUB (6.7) billion in the six months of 2018.

 

Free Cash Flow (RUB, billion)

 

As at June 30, 2019, the Group's total debt increased by 5% compared to the beginning of the year and amounted to RUB 215.1 billion. Over 99% of the Group's total debt was rouble-denominated as at June 30, 2019.

As at June 30, 2019, the Group's net debt increased by 8% compared to the beginning of the year and amounted to RUB 201.6 billion. The net debt /OIBDA ratio over the last 12 months stood at 1.9x as at 30 June 2019.

 

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 3.00 PM (Moscow), 2.00 PM (CET), 1.00 PM (UK) and 8.00 AM (NYT). To participate in the conference call, please dial:

UK/ International:  +44 (0) 330 336 9411

USA:    +1 323-994-2082

Russia:    +7 495 646 9190

 

Confirmation Code (ENG):  8370399

Confirmation Code (RUS):  9812008

 

 

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/rostelecom20190802/en.

 

A replay of the conference call will be available on the Company's website  https://www.company.rt.ru/ir/results_and_presentations/financials/IFRS/2019/2

 

* * *

APPENDICES

  1. Reconciliation of OIBDA;
  2. IFRS 9, 15 and 16 standards application;
  3. Statement of Comprehensive Income for the six months of 2019;
  4. Statement of Cash Flows for the six months of 2019;
  5. Statement of Financial Position for the six months of 2019.

 

 

APPENDIX 1: RECONCILIATION OF OIBDA

OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation and amortisation as well as some certain expenses. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt.

The following indicators are not taken into account in the calculation of OIBDA:

  • Expenses related to the long-term management incentive programme, implying accruals in personnel costs line starting from Q2, 2014;
  • Expenses related to non-government pension insurance starting from Q3, 2018.

 

RUB million

2Q 2019

2Q 2018

change

6M 2019

6M 2018

change

Operating income

9,756

8,342

17%

19,465

16,699

17%

Plus amortisation

16,190

14,397

12%

31,696

28,475

11%

Plus expenses related to the long-term management incentive programme

946

920

3%

1,833

1,678

9%

Plus expenses related to non-government pension insurance

270

325 

(17%) 

549

682 

(20%) 

OIBDA

27,162

23,983

13%

53,543

47,534

13%

OIBDA margin, %

33.9%

31.0%

 

33.7%

31.0%

 

 

 

 

 

 

 

 

 

 

 

APPENDIX 2: IFRS 9, 15 and 16 STANDARDS APPLICATION

 

The Group initially adopted IFRS 9, 15 and 16 using the modified retrospective approach starting from the first quarter of 2018. The key changes related to the application of these standards are listed below:

 

  •     Expenses related to the operating leases have been capitalized and are reflected in the accounting balance sheet under the title "Right-of-use assets (RoU)". The RoU related liabilities are reflected in relative balance lines under same titles;
  •     The expenses related to the conclusion and implementation of contracts with customers have been capitalized and are reflected under "Revenue from Contracts with Customers";
  •     Assets for contracts with customers in arrears on payments for services rendered, but yet not invoiced, were excluded from the accounts receivable balance;
  •     Revenues from the sale of goods or provision of services of not sufficient individual value to customers, have been deferred;
  •     Recurring advances, containing the financing component, have been discounted;
  •     Impairment provisions of financial assets are recognised on the basis of expected credit losses.
 

APPENDIX 3: Statement of Comprehensive Income for the six months of 2019

 

 

Six-month period ended 30 June (unaudited)

 

2019

2018

(restated)

Revenue

158,827

153,568

 

 

 

Operating expenses

 

 

Wages, salaries, other benefits and payroll taxes

(50,071)

(48,615)

Depreciation, amortization and impairment losses

(31,696)

(28,475)

Interconnection charges

(28,948)

(27,776)

Materials, utilities, repairs and maintenance

(12,298)

(12,395)

Gain on disposal of property, plant and equipment and intangible assets

1,424

1,394

Impairment loss of financial assets measured at amortized cost

(2,153)

(3,126)

Other operating income

8,224

7,014

Other operating expenses

(23,844)

(24,889)

Total operating expenses, net

(139,362)

(136,868)

Operating profit

19,465

16,700

 

 

 

Gain/(loss) from associates and joint ventures

1,413

198

Finance costs

(9,549)

(8,355)

Other investing and financial gain, net

899

1,074

Foreign exchange gain/(loss), net

441

(219)

Profit before income tax

12,669

9,398

 

 

 

Income tax expense

(2,719)

(2,439)

Profit for the period

9,950

6,959

 

 

 

Other comprehensive (loss)/income

 

 

Items that may be reclassified subsequently to profit or loss

 

 

Exchange differences on translating foreign operations, net of tax

(244)

178

Other comprehensive (loss)/income for the period, net of tax

(244)

178

Total comprehensive income for the period

9,706

7,137

 

 

 

Profit attributable to:

 

 

Equity holders of the Group

9,582

6,706

Non-controlling interests

368

253

 

 

 

Total comprehensive income attributable to:

 

 

Equity holders of the Group

9,325

6,898

Non-controlling interests

381

239

 

 

 

Earnings per share attributable to equity holders of
the Group - basic (in roubles)

4.18

2.97

Earnings per share attributable to equity holders of
the Group - diluted (in roubles)

4.07

2.94

 

APPENDIX 4: Statement of Cash Flows for the six months of 2019

 

 

Six-month period ended 30 June

(unaudited)

 

2019

2018

(restated)

Cash flows from operating activities

 

 

Profit before tax

12,669

9,398

 

 

 

Adjustments to reconcile profit before tax to cash generated from operations

 

 

Depreciation, amortization and impairment losses

31,696

28,475

Gain on disposal of property, plant and equipment and intangible assets

(1,424)

(1,394)

Impairment loss of financial assets measured at amortized cost

2,153

3,126

(Gain)/loss from associates and joint ventures

(1,413)

(198)

Finance costs excluding finance costs on employee benefit obligations

9,516

8,291

Other investing and financial gain, net

(899)

(1,074)

Foreign exchange (gain)/loss, net

(441)

219

Share-based motivation program

1,796

1,645

 

 

 

Increase in accounts receivable and contract assets

(7,842)

(12,714)

Increase in employee benefits

450

520

Increase in inventories

(1,331)

(565)

Increase in accounts payable, provisions and accrued expenses

2,503

2,417

Increase in other assets

(2,381)

(2,677)

Decrease in other liabilities

(3,704)

(3,195)

Cash generated from operations

41,348

32,274

 

 

 

Interest paid

(9,367)

(8,905)

Income tax refund

72

-

Income tax paid

(2,473)

(3,407)

Net cash from operating activities

29,580

19,962

 

 

 

Cash flows from investing activities

 

 

Purchase of property, plant and equipment and intangible assets

(37,586)

(29,567)

Proceeds from sale of property, plant and equipment and intangible assets

2,289

2,634

Acquisition of financial assets

(3,670)

(3,370)

Proceeds from disposals of financial assets

3,262

3,518

Interest received

354

291

Subsidy from Government

2,168

-

Dividends received

206

-

Purchase of subsidiaries and business, net of cash acquired

(1,000)

(2,019)

Acquisition of equity accounted investees

(502)

(3,471)

Net cash used in investing activities

(34,479)

(31,984)

 

Cash flows from financing activities

 

 

Proceeds from bank and corporate loans

263,473

330,883

Repayment of bank and corporate loans

(267,820)

(316,172)

Proceeds from bonds

15,000

10,000

Repayment of bonds

(299)

(11,209)

Repayment of vendor financing payable

(6)

(11)

Repayment of other non-current financing liabilities

-

(1)

Repayment of leases liabilities

(2,348)

(1,128)

Acquisition of non-controlling interests

(905)

-

Dividends paid to shareholders of the Group

(5,739)

-

Dividends paid to non-controlling shareholders of subsidiaries

(431)

(35)

Net cash from financing activities

925

12,327

 

 

 

Effect of exchange rate changes on cash and cash equivalents

(74)

(4)

(Decrease)/increase in cash and cash equivalents

(4,048)

301

 

 

 

Cash and cash equivalents at beginning of the period

10,080

3,815

Cash and cash equivalents at the end of the period

6,032

4,116

 

 

 

APPENDIX 5: Statement of Financial Position for the six months of 2019

 

 

30 June
2019
(unaudited)

31 December
2018
(restated)

Assets

 

 

Non-current assets

 

 

Property, plant and equipment

371,486

373,839

Investment properties

169

172

Goodwill and other intangible assets

67,320

66,083

Right of use assets

22,105

21,205

Trade and other accounts receivable

5,087

7,346

Investments in associates and joint ventures

71,620

69,982

Other financial assets

1,369

1,950

Other non-current assets

7,289

4,667

Deferred tax assets

1,152

863

Contract assets

871

501

Contract costs

12,448

12,323

Total non-current assets

560,916

558,931

 

 

 

Current assets

 

 

Inventories

8,989

7,631

Contract assets

8,796

9,511

Trade and other accounts receivable

52,556

44,189

Prepayments

4,884

4,380

Prepaid income tax

2,668

984

Other financial assets

7,469

7,487

Other current assets

3,601

2,856

Cash and cash equivalents

6,032

10,080

Assets classified as held for sale

509

554

Total current assets

95,504

87,672

Total assets

656,420

646,603

 

 

 

Equity and liabilities

 

 

Equity attributable to equity holders of the Group

 

 

Share capital

93

93

Additional paid-in capital

115

115

Treasury shares

(57,741)

(60,419)

Retained earnings and other reserves

308,669

307,234

Total equity attributable to equity holders of the Group

251,136

247,023

 

 

 

Non-controlling interests

3,574

3,909

Total equity

254,710

250,932

 

 

 

Non-current liabilities

 

 

Loans and borrowings

194,671

174,371

Lease liabilities

18,716

16,855

Employee benefits

5,125

4,675

Deferred tax liabilities

41,229

38,269

Accounts payable, provisions and accrued expenses

3,396

3,090

Other non-current liabilities

20,994

21,142

Total non-current liabilities

284,131

258,402

 

 

 

Current liabilities

 

 

Loans and borrowings

20,417

29,908

Lease liabilities

4,295

4,791

Accounts payable, provisions and accrued expenses

81,041

88,530

Income tax payable

8

644

Other current liabilities

11,818

13,396

Total current liabilities

117,579

137,269

Total liabilities

401,710

395,671

Total equity and liabilities

656,420

646,603

 

 


PJSC Rostelecom is the largest digital service provider, operating in all segments of the telecommunications market in Russia, it serves millions of households, the state and private enterprises across the country.

Rostelecom is Russia's undisputed market leader, providing high-speed Internet access to over 13 million users and pay-TV services to more than 10.2 million families, over 5.4 million of which are subscribed to Rostelecom's IPTV services on a national level.

In the six months of 2019, the Group generated RUB 158.8 billion of revenues, RUB 53.5 billion of OIBDA (33.7% of revenue) and RUB 10.0 billion of net income.

The Group is the leading provider of telecommunications services to government bodies and corporates of all levels.

Rostelecom is a key strategic innovator that provides solutions in the following fields: E-Government, cybersecurity, data-centers and cloud computing, biometry, healthcare, education and housing & utility services.

The Group's stable financial position is confirmed by its credit ratings. Rostelecom has been assigned 'BBB-' and 'BB+' international credit ratings by Fitch Ratings and Standard&Poor's respectively, and AA(RU) by ACRA.

 

*   *   *

Certain statements in this press release are forward-looking statements within the meaning of the U.S. federal securities laws and intended to be covered by the safe harbours created thereby.

Those forward-looking statements include, but are not limited to:

  • Assessment of PAO Rostelecom's (the Company) future operating and financial results as well as forecasts of the present value of future cash flows and related factors;
  • The Company's plans to take ownership stakes in other organisations;
  • the Company's anticipated capital expenditures and plans to construct and modernize its network;
  • the Company's expectations as to the growth in demand for its services, plans relating to the expansion of the range of its services and their pricing;
  • the Company's plans with respect to improving its corporate governance practices;
  • the Company's expectations as to its position in the telecommunications market and forecasts on the development of the market segments within which the Company operates;
  • economic outlook and industry trends;
  • the Company's expectations as to the regulation of the Russian telecommunications industry and assessment of impact of regulatory initiatives on the Company's activity;
  • other statements regarding matters that are not historical facts.

Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include:

  • risks relating to changes in political, economic and social conditions in Russia as well as changes in global economic conditions;
  • risks relating to Russian legislation, regulation and taxation, including laws, regulations, decrees and decisions governing the Russian telecommunications industry, securities industry as well as currency and exchange controls relating to Russian entities and their official interpretation by regulatory bodies;
  • risks relating to the Company, including the achievement of the anticipated results, levels of profitability and growth, ability to create and meet demand for the Company's services including their promotions, and the ability of the Company to remain competitive in a liberalized telecommunications market;
  • technological risks associated with the functioning and development of the telecommunications infrastructure, technological innovations as well as the convergence of technologies;
  • other risks and uncertainties. For a more detailed discussion of these and other factors, see the Company's Annual Report and the Company's other public filings.

Many of these factors are beyond the Company's ability to control or predict. Given these and other uncertainties, readers are cautioned not to place undue reliance on any of the forward-looking statements contained herein or otherwise. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements (which are made as of the date hereof) to reflect events or circumstances upon the annual report publication or to reflect the occurrence of unanticipated events, except as may be required under applicable laws.

 


[1] Broadband + Pay TV + VAS and cloud services.

[2] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA. Note that the company changed the methodology of OIBDA calculation since 3q 2018 by excluding expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 were recalculated in line with the renewed methodology.

[3] International financial reporting standards.

[4] Free Cash Flow. Here and below, starting from 2019, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[5] Here and below, capital expenditure ("CAPEX") comprises cash spent on fixed assets and intangible assets.

[6] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).

[7] Here and below, capital expenditure ("CAPEX") comprises cash spent on fixed assets and intangible assets.

[8] Here and below, starting from 2019, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[9] Average revenue per user

[10] Blended ARPU includes revenue from broadband, IPTV and digital cable TV

[11] Operator to Operator



ISIN: US7785291078
Category Code: IR
TIDM: RKMD
LEI Code: 2534001D752JPNM0H170
Sequence No.: 15505
EQS News ID: 851009

 
End of Announcement EQS News Service

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