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PJSC ROSTELECOM (FRA:US778529) ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2019

Directive transparence : information réglementée

03/03/2020 07:30

ROSTELECOM PJSC (RKMD)
ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2019

03-March-2020 / 09:30 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 FOURTH quarter AND FULL YEAR of 2019

 

Digital segment[1] grew by 13% in 2019; OIBDA[2] up 6%; FCF[3] increased by 55%

Moscow, Russia - March 3, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the fourth quarter and the full year of 2019 prepared in accordance with IFRS[4].

FOURTH QUARTER 2019 KEY FINANCIAL HIGHLIGHTS

  • Revenue grew by 9% to RUB 94.9 billion compared to 4Q 2018;
  • OIBDA of RUB 25.1 billion compared to RUB 26.0 billion in 4Q 2018;
  • OIBDA margin of 26.4% compared to 29.8% in 4Q 2018;
  • Net profit of RUB 0.1 billion compared to RUB 2.4 billion in 4Q 2018;
  • CAPEX[5] excluding state programs increased by 51% to RUB 30.6 billion (32.3% of revenue) compared to 4Q 2018;
  • FCF increased by 4% to RUB 18.7 billion compared to 4Q 2018;
  • Net debt[6] increased by 14% since the beginning of the year to RUB 212.7 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

Key figures for 4Q 2019, RUB mln

RUB million

4Q 2019

4Q 2018

 change, y-o-y

Revenue

94,867

87,257

9%

OIBDA

25,086

26,037

(4%)

OIBDA margin %

26.4%

29.8%

-

Operating Income

3,932

8,167

(52%)

Operating margin %

4.1%

9.4%

-

Net Income

112

2,351

(95%)

% of revenue

0.1%

2.7%

-

Capital Expenditure excl. state programs

30,607

20,322

51%

% of revenue

32.3%

23.3%

-

Net debt

212,748

186,712

14%

Net debt/ annualised OIBDA

2.0

1.9

-

FCF

18,744

18,063

681

FULL YEAR 2019 FINANCIAL HIGHLIGHTS

  • Revenue increased by 5% to RUB 337.4 billion compared to 2018;
  • OIBDA grew by 6% to RUB 106.5 billion;
  • OIBDA margin increased to 31.6%;
  • Net profit increased by 10% to RUB 16.5 billion;
  • CAPEX excluding state programs increased by 22% year-on-year to RUB 71.8 billion (21.3% of revenue);
  • FCF grew by 55% to RUB 22.8 billion compared to 2018.


Key figures for the full year of 2019, RUB mln

RUB million

2019

2018

 change, y-o-y

Revenue

337,421

320,239

5%

OIBDA

106,526

100,900

6%

OIBDA margin %

31.6%

31.5%

-

Operating Income

33,852

35,800

(5%)

Operating margin %

10.0%

11.2%

-

Net Income

16,474

15,012

10%

% of revenue

4.9%

4.7%

-

Capital Expenditure excl. state programs

71,787

58,993

22%

% of revenue

21.3%

18.4%

-

Net debt

212,748

186,712

14%

Net debt/ annualised OIBDA

2.0

1.9

-

FCF

22,810

14,751

8,059

 

Mikhail Oseevskiy, President of Rostelecom, commented: "2019 was another successful year for Rostelecom with continued healthy operational and financial results. Our sustained competitive position in broadband and pay-TV markets allows us to concentrate our efforts on the further development of our digital solutions, including cloud and data centers, cyber-security, as well as smart products for households, business and State. The double-digit growth rate of our digital segment contributed to 2019 top line growth. As a result, revenue grew by 5%, OIBDA by 6% and net profit by 10%. Rostelecom's operational performance has generated one-and-a-half times higher FCF, which provides a comfortable financial platform for dividend payments in accordance with our current policy.

The consolidation of 100% of Tele2, the most dynamic and successful mobile company in Russia, was undoubtedly last year's key development for both Rostelecom and broader communications market. The deal is the largest telecom deal of recent years and will strengthen our leadership of the digital arena just as we enter a new era. The expanded ecosystem of new services and solutions will boost Rostelecom's financial results, solidify its competitive position, and improve revenues while retaining and expanding our customer base. Importantly, I am pleased to note that VTB and its partners will become our shareholders and will provide Rostelecom with supportive and long-term strategic motivation to help sustain and increase Rostelecom's capitalization. Our business strategy will soon be reviewed to set new ambitions and targets, focusing on the development of new products and technologies, including 5G networks."

Vladimir Kirienko, First Vice-President of Rostelecom, commented: "Rostelecom's solid performance over the last year was driven by encouraging digital transformation across all of our client groups and their growing interest in our developed digital offering. The B2B and B2G segments demonstrated the strongest results and sustainable double-digit growth of 13%. This success was mostly driven by Smart City projects, cloud services and data centers. These and other digital solutions have proved successful both among large state and business corporations and small and middle-sized enterprises.

We are seeing growing interest in our virtual IT infrastructure proposition from the business and State, and we are always seeking out new opportunities to strengthen our leadership position in this space alongside continuous technological improvement of cloud solutions and capabilities. The acquisition of DataLine made a major contribution to Rostelecom's strategic goal to increase its share of high margin cloud products as corporate and state clients are increasingly shifting to an IT-solutions service model. We have made significant progress in transitioning to digital, and Rostelecom is already ahead of the curve with its state-of-the-art products in cyber security, urban infrastructure management, medicine, education and other sectors. Innovation is at heart of our strategy and is a key sustainability driver for our business in the era of digital age."

Sergey Anokhin, Senior Vice-President and Chief Financial Officer, added: "Our solid 2019 results and our healthy cash position, underpins our ability to successfully invest in our digital segment. We therefore expect both our revenue and OIBDA in 2020 to grow by no less than 5% on a standalone basis (excluding the contribution of Tele2 Russia and DataLine). Capex is expected to be within the range of RUB 70-75 billion, excluding the implementation of state programs."

 

KEY OPERATING HIGHLIGHTS

Number of subscribers (million):

4Q 2019

4Q 2018

change, y-o-y

3Q 2019

 change, y-o-y

Internet access

 13.2

 13.0

2%

 13.1

1%

B2C: Broadband

 12.2

 12.0

1%

 12.0

1%

B2B: Broadband + VPN

1.1

1.0

6%

1.0

2%

Pay TV

10.4

10.2

3%

10.3

1%

Incl. IPTV

 5.6

 5.3

6%

 5.5

2%

MVNO subscribers

1.7

1.2

41%

1.5

15%

Local telephony services

 15.7

 17.4

(10%)

 16.1

(3%)

 

ARPU[7] (RUB):

4Q 2019

4Q 2018

change, y-o-y

3Q 2019

 change, y-o-y

Internet access

 

 

 

 

 

B2C: Broadband

402

392

2%

396

2%

B2B: Broadband + VPN

3,455

3,160

9%

3,475

(1%)

Pay TV

255

251

2%

248

3%

Incl. IPTV

320

328

(2%)

311

3%

Blended ARPU[8]

553

 549

1%

536

3%

 

Total subscriber base

  1. The total number of Internet subscribers among households grew by 1% to 12.2 million in the fourth quarter of 2019 compared to the corresponding period of last year; ARPU was up 2% to RUB 402.
  2. The total number of Internet and VPN subscribers in B2B increased by 6% year-on-year to 1.1 million; ARPU grew by 9% to RUB 3,455.
  3. The number of pay-TV subscribers grew by 3% to 10.4 million users compared to the corresponding period of last year, with average ARPU of RUB 255 for households, up 2% year-on-year;
  • The number of IPTV subscribers increased by 6% to 5.6 million, and ARPU reached RUB 320 for households.
  1. The number of MVNO subscribers increased by 41% and reached 1.7 million users.
  2. The number of local telephony subscribers decreased by 10% to 15.7 million.

 

KEY EVENTS RELATING TO FY2019 AND AFTER THE END OF THE REPORTING PERIOD

Business news

  • Rostelecom continues to develop and expand its range of products and services:
  • Wink platform is now available to all new IPTV subscribers across the country, providing current clients with the option of migrating to this new offering;
  • OTT & Wink video content consumption continued to grow thanks to the promotion of Smart TV, Android TV, Apple TV applications as well as video portal platform use;
  •  "Altogether" and "For friends" special offers were launched, providing new clients with attractive packages comprising of Internet access, Wink and mobile services, including options with no need to acquire a TV set-top box;
  • Jointly with Sberbank, Rostelecom launched a loyalty programme "Exchange "THANK YOU" on Wink";
  • As part of enhancing the "Gaming" tariff plan offering, Rostelecom added two new games by Mail.ru "MY.GAMES" - ArcheAge and CrossFire;
  • Rostelecom launched 'Game Market'; the 'Home Internet' users can now subscribe to the Nvidia Geforce Now (GFN.RU) online game platform which is able to turn any computer into a powerful gaming machine. Rostelecom also connected NVIDIA's servers to high-speed data transmission channels;
  • As part of the "Smart Home" ecosystem:
    • a new federal platform "Rostelecom. Key" was launched; Rostelecom aims at adding 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 175,000 cameras since the launch of the video surveillance service for households;
    • revenue contribution of "Smart Home" ecosystem in 2019 top line reached RUB 1 billion;
  • Rostelecom launched "Rostelecom Screens", a new product which allows B2B clients to centrally manage advertising and other media content across geographically distributed screens in real time;
  • Rostelecom launched an M2M Control service, which enables businesses to remotely control SIM cards on applications and sensors within the M2M system and helps optimize business processes when communicating with IoT devices;
  • Rostelecom launched a new end-to-end cyber-protection service which combines the managed information security service Solar MSS and Virtual Data Centre services;
  • A new "Content filtration" service was launched enabling clients to block inappropriate or illegal content within Wi-Fi services;
  • Within the MVNO project, Rostelecom introduced a fully convergent solution and a reliable platform to ensure seamless experience while using Internet, TV, content, game services and indoor and outdoor video surveillance; this had an impact on a twofold growth of MVNO sales over the year;
  • Rostelecom continues to grow its digital segment:
  • Revenues from "Smart City" projects grew by 50% in 2019;
  • The Public Services Portal active users base reached 64 million;
  • Revenues from optical tariff plans in 2019 surpassed the market twofold;
  • The share of optical networks has increased to 64% in B2B and B2G segments over 2019;
  • As part of Rostelecom's Bridging the Digital Divide project, more than 11,100 Internet access points have been installed;
  • Over 7,000 remoted and socially important facilities have been provided with high speed Internet access;
  • The "Antivirus" revenues grew more than two and half times through an increased penetration in the broadband user segment over 2019;
  • An agreement was signed with Rusagro, Russia's largest vertically integrated agricultural holding company, to launch a control system that uses IoT to manage the harvesting of grains;
  • Rostelecom and LUKOIL launched the first smart wells in Perm krai to remotely monitor and control oil and gas equipment in hard-to-reach production facilities;
  • A smart waste collection and optimisation system was installed in Yamal as part of Rostelecom's Smart Cities project;
  • Rostelecom became a universal data network carrier for Rosenergoatom JSC;
  • As part of its cybersecurity offering development:
  • revenues grew by 2.4 times in 2019;
  • a total of 1.1 million cyber-attacks were repelled in 2019;
  • Solar appScreener's share of exports was around 30% in 2019 total sales;
  • 233 Russian banks have been collectively connected to Rostelecom's secured Unified Biometric System;
  • Rostelecom became Russia's leading provider of cryptographic solutions to protect its state and corporate clients' communication channels[9];
  • Russia's first cybersecurity lab was constructed to drive large-scale analytics of technological security across the industrial networks infrastructure;
  • Cybersecurity product family was expanded through the launch of:
    • Solar MSS - Russia's biggest ecosystem of cybersecurity services to support Russian organisations in digital transformation;
    • the Solar Dozor 7 security solution which prevents leaks of sensitive information through its innovative user behaviour analytics feature;
    • the Solar webProxy web-security Gateway;
    • the commercial service to manage the vulnerabilities of the Qualys network infrastructure in the Russian cloud environment;
    • the Origin Event Inspection service which protects clients' web-based applications from DDoS attacks;
  • Rostelecom continues to grow its cloud services segment for B2B:
  • Sales of the Virtual PBX offering grew by 57%;
  • Video-surveillance sales to B2B up by 59%;
  • As part of the Virtual Data Centre offering:
    • revenues grew by 59% in 2019;
    • the total number of virtual machines spiked by 90% to 10,000 in 2019;
    • the service's functionality was complemented with an agent backup feature, premium technical support and file replication option;
    • a file storage has been launched in the second data centre in Moscow to improve reliability and facilitate complex projects to connect clients;
    • a new cloud data centre section was launched in Moscow, adding to the other four existing facilities in Moscow, Novosibirsk and Adler;
    • start of sales based on the White Label partnership programme which was enhanced in 2019 by further modifications to the cloud.rt.ru cloud platform, including through:
      • additional information security settings;
      • better flexibility of the orders' life span settings and tariff plans management;
      • further customisation of the portal interface;
    • Rostelecom started the commercial operation of 800 rack spaces at the new Udomlya Data Centre and the base data centre in Yekaterinburg (216 rack spaces);
    • Following the acquisition of Data Line, the total capacity increased to 11,500 rack spaces;
  • Rostelecom created an IT infrastructure for seven state ministries and government offices within IQ-Quarter, a central business district in Moscow-City. The project included setting up IT systems in workspaces, data centers and cybersecurity services;
  • Rostelecom signed a number of large contracts, including agreements with Rosatom, Roscosmos, Rosreestr (The Federal Service for State Registration, Cadastre and Cartography), Procurator-General's Office, Sberbank, LUKOIL, Rusagro, Transneft, MAGNIT and others;
  • The tariffs for landline and telegram postage services were increased, starting from 16 July 2019;
  • Rostelecom successfully delivered video surveillance of the Unified State Exam and on the Single Voting Day;
  • Revenues from Rostelecom's O2O[10] project reached RUB 2.0 billion in 2019; by the end of the reporting period the Company had serviced more than 161,000 km of fiber-optic communication line and 75,000 base stations of third-party operators;
  • Transit Europe-Asia (TEA) carrying capacity reached 3Tb/s following a 350 Gb/s upgrade.

Other news

  • Rostelecom consolidated 100% of Tele2 Russia to develop the largest end-to-end provider of digital services in Russia.
  • Rostelecom acquired a number of assets, including:
    • Data Line, the second largest datacentre provider in Russia;
    • Alliance Telecom Group, the leading provider of Internet access and pay-TV services across the Primorsky region;
    • Prometey, communications operator in St. Petersburg;
    • Infolink, one of the largest Internet providers in the Chuvash Republic.
  • Rostelecom started to co-invest in the Russian Internet Initiatives Development Fund's start-up portfolio.
  • Rostelecom announced the following bond placements:
    • a three-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.25% per annum;
    • a seven-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.65% per annum;
    • a six-year bond of total nominal value of RUB 10 billion, at a coupon rate of 6.85% per annum;
    • a ten-year bond of total nominal value of RUB 15 billion, at a coupon rate of 8.45% per annum.
  • Rostelecom's subsidiary, Central Telegraph PJSC, has sold properties at 7, Tverskaya street, Moscow, with a total area of 35,198.7 sqm for RUB 3.5 billion.
  • Rostelecom was included in the 2020 Bloomberg Gender-Equality Index.
 

OPERATING REVIEW

Revenue analysis

 

Revenue structure by services

RUB million

4Q 2019

4Q 2018

 change

2019

2018

 change

Broadband

21,727

21,335

2%

83,873

80,042

5%

TV services

9,408

9,145

3%

37,132

34,464

8%

Fixed telephony

15,105

16,948

(11%)

61,738

69,983

(12%)

Wholesale services

19,429

20,455

(5%)

81,391

79,593

2%

Rent of channels

2,452

2,505

(2%)

9,674

9,582

1%

Interconnect and traffic transit services

6,316

8,340

(24%)

30,295

33,256

(9%)

VPN

7,216

6,148

17%

27,558

23,433

18%

Rent and maintenance of telecommunications infrastructure

3,444

3,462

(0%)

13,864

13,322

4%

VAS and cloud services

20,908

13,204

58%

49,799

36,902

35%

Other telecommunications services

4,471

4,004

12%

14,274

12,076

18%

Other non-telecommunications services

3,820

2,165

76%

9,215

7,179

28%

Total

94,867

87,257

9%

337,421

320,239

5%

 

 

 

 

 

 

 

Revenue structure by customer segments

RUB million

4Q 2019

4Q 2018

 Change

2019

2018

 change

Residential customers

 35,780  

 35,315  

1%

 140,338  

 137,745  

2%

Corporate customers / Government customers

 45,397  

 36,427  

25%

 137,726  

 121,509  

13%

Operators

 12,854  

 14,366  

(11%)

 55,096  

 56,389  

(2%)

Other

 836  

 1,147  

(27%)

 4,261  

 4,596  

(7%)

Total

94,867

87,257

9%

337,421

320,239

5%

In the fourth quarter of 2019, revenue increased by 9% to RUB 94.9 billion, compared to the fourth quarter of 2018, as a result of the following factors:

  • a 58% increase in revenue from VAS and cloud services, mainly due to proceeds from the development of "Smart City" projects, e-government solutions, and the promotion of cloud services;
  • a 76% increase in revenue from other non-telecommunication services, mainly due to increased sales provided to large state clients;
  • a 17% increase in revenue from VPN services, driven by higher demand from state and B2B clients;
  • a 2% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
  • a 3% increase in revenue from pay-TV services due to growth in the IPTV subscriber base.

In full year of 2019, revenue increased by 5% to RUB 337.4 billion, compared to the twelve months of 2018, as a result of the following factors:

  • a 35% increase in revenue from VAS and cloud services, mainly due to the development of Smart City projects, the promotion of public e-government services, cloud services and data-centres;
  • an 18% increase in revenue from VPN services, driven by higher demand from state and B2B clients;
  • a 5% increase in revenue from broadband services due to subscriber base growth and higher ARPU;
  • an 8% increase in revenue from pay-TV services due to growth in the IPTV subscriber base;
  • an 18% increase in revenue from other telecommunication services driven by growth in sales of video-surveillance equipment and mobile services.
 

Operating income analysis

Operating expenses structure

 

RUB million

4Q 2019

4Q 2018

 change

2019

2018

change

 

Personnel costs

(30,971)

(26,120)

19%

(106,193)

(97,350)

9%

 

Depreciation, Amortization and impairment losses

(19,343)

(16,713)

16%

(67,313)

(60,329)

12%

 

Interconnection charges

(13,674)

(15,826)

(14%)

(57,151)

(58,293)

(2%)

 

Materials, repairs and maintenance, utilities

(7,871)

(7,778)

1%

(26,168)

(26,183)

(0%)

 

Gain on the disposal of PPE and intangible assets

5,626

4,843

16%

8,081

7,184

12%

 

Impairment loss of financial assets measured at amortized cost

(3,254)

(1,021)

219%

(6,190)

(4,925)

26%

 

Other operating income

4,661

2,973

57%

17,359

13,673

27%

 

Other operating expenses

(26,109)

(19,448)

34%

(65,994)

(58,216)

13%

 

Total operating expenses

(90,935)

(79,090)

15%

(303,569)

(284,439)

7%

 

In the fourth quarter of 2019, operating expenses increased by 15% compared to the corresponding period of 2018 and amounted to RUB 90.9 billion, largely due to the following factors:

  • a 19% increase (of RUB 4.9 billion) in personnel costs, mainly due to an increase in the share of employees within the digital business segments;
  • a 16% increase (of RUB 2.6 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and impairment of intangible assets;
  • a more than threefold increase (of RUB 2.2 bln) in impairment loss of financial assets, valued at amortized cost, mainly driven by one-off material accruals from a number of projects with state clients;
  • a 57% increase (of RUB 1.7 bln) in other operating income, due to higher sales within the Bridging the Digital Divide project.

In the twelve months of 2019, operating expenses increased by 7% compared to the corresponding period of 2018 and amounted to RUB 303.6 billion due to the following factors:

  • a 9% increase (of RUB 8.8 bln) in personnel costs, mainly due to an increase in the share of employees within the digital business segments;
  • a 13% increase (of RUB 7.8 bln) in other operating expenses, mainly driven by the implementation of Smart City projects and sales of equipment within B2B and B2G projects;
  • a 12% increase (of RUB 7.0 bln) in depreciation, amortization and impairment losses, due to a reduced effect from the revised terms of useful life and higher payments associated with new objects and intangible assets;
  • a 27% increase (of RUB 3.7 bln) in other operating income, due to higher sales within the Bridging the Digital Divide project.

Operating profit decreased by 52% year-on-year to RUB 3.9 billion in the fourth quarter of 2019, compared to the corresponding period of 2018. Operating profit decreased by 5% year-on-year to RUB 33.9 billion in the twelve months of 2019, compared to 2018.

OIBDA for the fourth quarter of 2019 decreased by 4% year-on-year to RUB 25.1 billion. OIBDA for the twelve months of 2019 increased by 6% to RUB 106.5 billion. The OIBDA dynamics was influenced by revenue growth, and the above-mentioned changes in operating costs. The OIBDA margin in the fourth quarter of 2019 stood at 26.4% compared to 29.8% in the fourth quarter of 2018. OIBDA margin increased by 0.1pp to 31.6% in the twelve months of 2019 compared to the corresponding period of 2018.

Net Income Analysis

In the fourth quarter of 2019, loss before tax stood at RUB 1.9 billion, compared to profit before tax of RUB 2.8 billion in the corresponding period of 2018. In the twelve months of 2019, profit before tax decreased by 5% to RUB 18.5 billion.

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

  • lower operating profit;
  • higher financial expenses due to costs associated with financial instruments.

These dynamics were influenced in the twelve months of 2019 by the following factors:

  • higher finance costs, partly due to an increase in leverage;
  • lower operating profit;
  • improved associated companies' financial results, mainly from the JV with Tele2 Russia;
  • foreign exchange gains in the reporting period due to strengthened national currency.

Income tax refunds in the fourth quarter of 2019 stood at RUB 2.0 billion versus income tax of RUB 0.4 billion in the corresponding period of 2018. In the twelve months of 2019, income tax decreased by 54% to RUB 2.0 billion.

Net profit stood in the fourth quarter of 2019 at RUB 0.1 billion versus RUB 2,4 billion in the corresponding period of 2018, and increased by 10% to RUB 16.5 billion in the twelve months of 2019.

Financial review

Net operating cash flow in the fourth quarter of 2019 increased by 25% and amounted to RUB 48.9 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the fourth quarter of 2019 was mainly due to changes in working capital, mostly driven by other liabilities, related to advance payments for certain state contracts.

Net operating cash flow in the twelve months of 2019 increased by 29% and amounted to RUB 99.4 billion, compared to the corresponding period of 2018. The increase in net operating cash flow was mainly due to changes in working capital, mostly driven by changes in accounts receivables in the second quarter of 2019 within the project to provide Internet access to healthcare centres, as well as advance payments for certain state contracts in the fourth quarter of 2019.

Cash outflow for investments in non-current assets excluding state programmes in the fourth quarter of 2019 increased by 51% to RUB 30.6 billion (32.3% of revenue). Cash outflow for investments in non-current assets excluding state programmes in the twelve months of 2019 increased by 22% to RUB 71.8 billion (21.3% of revenue). These trends were driven by increased capital expenditure on programmes, financed by the State.

FCF in the fourth quarter of 2019 increased by 4% and totalled RUB 18.7 billion compared to the corresponding period of 2018. Free cash flow in the twelve months of 2019 increased by 55% and totalled RUB 22.8 billion compared to the corresponding period of 2018.

  

 

Free Cash Flow (RUB, billion)

 

As at December 31, 2019, the Group's total debt increased by 18% compared to the beginning of the year and amounted to RUB 241.2 billion, partially driven by the raised financing for the acquisition of DataLine, the financial results of which will be reflected in Rostelecom's P&L starting from the first quarter of 2020. Over 99% of the Group's total debt remained rouble-denominated as at December 31, 2019.

As at December 31, 2019, the Group's net debt increased by 14% compared to the beginning of the year and amounted to RUB 212.7 billion. The net debt /OIBDA ratio stood at 2.0x for the twelve months of 2019.


OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4.00 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:    +1 323 794 2590

Russia:     +7 (495) 646 9190

 

Confirmation Code (ENG):  1178197

Confirmation Code (RUS):  8150844

 

 

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/register/rostelecom20200303/en.

 

A replay of the conference call will be available on the Company's website https://www.company.rt.ru/en/ir/results_and_presentations/financials/IFRS/2019/4.

 

* * *

APPENDICES

  1. Reconciliation of OIBDA;
  2. IFRS 9, 15 and 16 standards application;
  3. Statement of Comprehensive Income for the twelve months of 2019;
  4. Statement of Cash Flows for the twelve months of 2019;
  5. Statement of Financial Position for the twelve 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 2Q 2014;
  • Expenses related to non-government pension insurance starting from 3Q 2018.

 

RUB million

4Q 2019

4Q 2018

 change

2019

2018

 change

Operating income

3,932

8,167

(52%)

33,852

35,800

(5%)

Plus amortisation

19,343

16,713

16%

67,313

60,329

12%

Plus expenses related to the long-term management incentive programme

1,286

886

45%

4,007

3,638

10%

Plus expenses related to non-government pension insurance

525

272

93%

1,354

1,134

19%

OIBDA

25,086

26,038

(4%)

106,526

100,900

6%

OIBDA margin, %

26.4%

29.8%

 

31.6%

31.5%

 

 

 

 

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 twelve months of 2019

 

 

 

Year ended 31 December

 

 

2019

2018 (restated)

 

 

 

 

Revenue

 

337,421

320,239

 

 

 

 

Operating expenses

 

 

 

Wages, salaries, other benefits and payroll taxes

 

(106,193)

(97,350)

Depreciation, amortization and impairment losses

 

(67,313)

(60,329)

Interconnection charges

 

(57,151)

(58,293)

Materials, utilities, repairs and maintenance

 

(26,168)

(26,183)

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

 

8,081

7,184

Impairment loss of financial assets measured at amortized cost

 

(6,190)

(4,925)

Other operating income

 

17,359

13,673

Other operating expenses

 

(65,994)

(58,216)

Total operating expenses, net

 

(303,569)

(284,439)

Operating profit

 

33,852

35,800

 

 

 

 

Share of net profit/(loss) of associates and joint ventures

 

1,971

(91)

Finance costs

 

(19,519)

(17,275)

Other investing and financial gain, net

 

1,779

1,602

Foreign exchange (loss)/gain, net

 

438

(597)

Profit before income tax

 

18,521

19,439

Income tax expense

 

(2,047)

(4,427)

Profit for the year

 

16,474

15,012

Other comprehensive income/(loss)

 

 

 

Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods

 

 

 

Share of other comprehensive income of associates

 

-

22

Exchange differences on translation of foreign operations

 

(292)

428

Net other comprehensive (loss)/income to be reclassified to profit or income/(loss) in subsequent periods

 

(292)

450

 

 

 

 

Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods

 

 

 

Remeasurement of defined benefit pension plans

 

(2)

(180)

Income tax on remeasurement of defined benefit pension plans

 

-

36

Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods

 

(2)

(144)

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

 

(294)

306

Total comprehensive income for the year

 

16,180

15,318

 

 

 

 

Profit attributable to:

 

 

 

Equity holders of the Group

 

14,777

14,154

Non-controlling interests

 

1,697

858

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Equity holders of the Group

 

14,470

14,491

Non-controlling interests

 

1,710

827

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

 

6.38

6.23

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

 

6.23

6.09

 

 

 

 

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

 

 

 

Year ended 31 December

 

 

2019

2018 (restated)

Cash flows from operating activities

 

 

 

Profit before tax

 

18,521

19,439

Adjustments to reconcile profit before tax to cash generated from operations

 

 

 

Depreciation, amortization and impairment losses

 

67,313

60,329

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

 

(8,081)

(7,184)

Impairment loss of financial assets measured at amortized cost

 

6,190

4,925

Share of net profit/(loss) of associates and joint ventures

 

(1,971)

91

Finance costs excluding finance costs on employee benefit obligations

 

19,454

17,180

Other investing and financial gain, net

 

(1,779)

(1,602)

Foreign exchange loss/(gain), net

 

(438)

597

Share-based motivation program

 

4,028

3,500

Increase in accounts receivable and contract assets

 

(809)

(9,502)

Increase/(decrease) in employee benefits

 

858

(353)

Increase in inventories

 

(1,678)

(1,414)

Increase in accounts payable, provisions and accrued expenses

 

14,502

13,377

Increase in other assets

 

(6,950)

(4,245)

Increase in other liabilities

 

12,609

3,995

Cash generated from operations

 

121,769

99,133

Interest paid

 

(19,597)

(18,174)

Income tax refund

 

693

230

Income tax paid

 

(3,444)

(3,945)

Net cash from operating activities

 

99,421

77,244

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment and intangible assets

 

(100,513)

(73,179)

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

 

9,532

10,097

Acquisition of financial assets

 

(8,152)

(7,351)

Proceeds from disposals of financial assets

 

4,809

5,296

Interest received

 

798

589

Subsidy from Government

 

13,572

3,641

Dividends received

 

232

95

Purchase of subsidiaries and business, net of cash acquired

 

(23,009)

(4,064)

Proceeds from disposal of subsidiaries, net of cash disposed

 

-

80

Acquisition of equity accounted investees

 

(544)

(4,386)

Net cash used in investing activities

 

(103,275)

(69,182)

Cash flows from financing activities

 

 

 

Proceeds from bank and corporate loans

 

555,802

579,949

Repayment of bank and corporate loans

 

(540,306)

(564,785)

Proceeds from bonds

 

25,000

10,000

Repayment of bonds

 

(7,389)

(11,209)

Repayment of promissory notes

 

(51)

-

Repayment of vendor financing payable

 

(11)

(15)

Repayment of other non-current financing liabilities

 

-

(1)

Proceeds from non-controlling shareholders of subsidiaries

 

-

24

Repayment of lease liabilities

 

(5,674)

(4,034)

Acquisition of non-controlling interests

 

(1,397)

-

Dividends paid to shareholders of the Group

 

(11,731)

(11,547)

Dividends paid to non-controlling shareholders of subsidiaries

 

(824)

(226)

Net cash from/(used in) financing activities

 

13,419

(1,844)

Effect of exchange rate changes on cash and cash equivalents

 

(89)

47

Net increase in cash and cash equivalents

 

9,476

6,265

Cash and cash equivalents at beginning of the year

 

10,080

3,815

Cash and cash equivalents at the end of the year

 

19,556

10,080

 

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

 

 

31 December

31 December

2019

2018 (restated)

Assets

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

401,516

373,839

Investment properties

 

181

172

Goodwill and other intangible assets

 

91,318

66,083

Right of use assets

 

28,890

21,205

Trade and other accounts receivable

 

6,131

7,346

Investments in associates and joint ventures

 

72,850

69,982

Other financial assets

 

2,667

1,950

Other non-current assets

 

9,667

4,667

Deferred tax assets

 

1,133

863

Contract assets

 

866

501

Contract costs

 

12,774

12,323

Total non-current assets

 

627,993

558,931

 

 

 

 

Current assets

 

 

 

 

Inventories

 

9,413

7,631

 

Contract assets

 

4,610

9,511

 

Trade and other accounts receivable

 

45,988

44,189

 

Prepayments

 

5,618

4,380

 

Prepaid income tax

 

821

984

 

Other financial assets

 

8,888

7,487

 

Other current assets

 

4,640

2,856

 

Cash and cash equivalents

 

19,556

10,080

 

Asset classified as held for sale

 

749

554

 

Total current assets

 

100,283

87,672

 

Total assets

 

728,276

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

 

(53,391)

(60,419)

 

Retained earnings and other reserves

 

310,807

307,234

 

Total equity attributable to equity holders of the Group

 

257,624

247,023

 

Non-controlling interests

 

4,564

3,909

 

Total equity

 

262,188

250,932

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Loans and borrowings

 

219,319

174,371

 

Lease liabilities

 

24,349

16,855

 

Employee benefits

 

5,881

4,675

 

Deferred tax liabilities

 

37,067

38,269

 

Accounts payable, provisions and accrued expenses

 

4,671

3,090

 

Other non-current liabilities

 

32,990

21,142

 

Total non-current liabilities

 

324,277

258,402

 

Current liabilities

 

 

 

 

Loans and borrowings

 

21,873

29,908

 

Lease liabilities

 

5,593

4,791

 

Accounts payable, provisions and accrued expenses

 

86,504

88,530

 

Income tax payable

 

1,168

644

 

Other current liabilities

 

26,673

13,396

 

Total current liabilities

 

141,811

137,269

 

Total liabilities

 

466,088

395,671

 

Total equity and liabilities

 

728,276

646,603

 
         

 

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 13.2 million users and pay-TV services to more than 10.4 million clients, over 5.6 million of which are subscribed to Rostelecom's IPTV services.

In the twelve months of 2019, the Group generated RUB 337.4 billion of revenues, RUB 106.5 billion of OIBDA (31.6% of revenue) and RUB 16.5 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 for calculating OIBDA changed in 3q 2018 having excluded expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 and relevant periods of 2017 were recalculated in line with the renewed methodology.

[3] 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.

[4] International financial reporting standards.

[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] Average revenue per user.

[8] Blended ARPU includes revenue from one user subscribed to a number of services simultaneously, including broadband, IPTV and digital cable TV.

[9] Company data.

[10] Operator to operator.



ISIN: US7785291078
Category Code: FR
TIDM: RKMD
LEI Code: 2534001D752JPNM0H170
Sequence No.: 50037
EQS News ID: 988049

 
End of Announcement EQS News Service

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