DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER OF 2018
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ROSTELECOM PJSC (RKMD) ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER OF 2018 02-Aug-2018 / 13:10 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 of 2018 PAY-TV SUBSCRIBER BASE EXCEEDED 10 MILLION USERS Moscow, Russia - August 2, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia's national telecommunications operator, today announces its consolidated financial results for the second quarter of 2018 prepared in accordance with IFRS[1],[2]. KEY ACHIEVEMENTS - Revenue grew by 3% year-on-year in the second quarter of 2018 with average annual revenue growth of 5% over the last four quarters; - The digital segment's[3] contribution to total revenue reached 53%; - Pay-TV subscriber base exceeded 10 million users; - 1 million clients use Rostelecom's mobile communication services; - Consistently high growth rates in FTTx Broadband clients (+7%) and in IPTV subscribers (+11%), while ARPU continues to grow in our core broadband and IPTV segments; - Increase in revenues from VAS and cloud services amounted to 34% in the second quarter of 2018, as a result of "Smart City" projects, and the promotion of cloud services and data centre services. SECOND QUARTER 2018 FINANCIAL HIGHLIGHTS - Revenue grew by 3% to RUB 77.4 billion compared to the second quarter of 2017; - OIBDA[4] of RUB 23.7 billion; - OIBDA margin of 30.6%; - Net profit increased by 9% to RUB 3.1 billion compared to the second quarter of 2017; - CAPEX[5] increased by 16% to RUB 14.4 billion (18.7% of revenue) from RUB 12.5 billion (16.6% of revenue) in the second quarter of 2017; - Consolidated Free Cash Flow (FCF) improved to RUB (0.8) billion[6] compared to RUB (1.6) billion in the second quarter of 2017; - Net debt[7] increased by 7% since the beginning of the year and amounted to RUB 193.5 billion, resulting in a Net Debt/OIBDA ratio of 2.0x. Key figures for 2Q 2018, RUB mln RUB million 2Q 2018 2Q 2017 % change, y-o-y Revenue 77,365 75,166 3% OIBDA 23,659 24,599 (4%) OIBDA margin % 30.6% 32.7% - Operating Income 8,342 11,304 (26%) Operating margin % 10.8% 15.0% - Net Income 3,094 2,826 9% % of revenue 4.0% 3.8% - Capital Expenditure 14,442 12,451 16% % of revenue 18.7% 16.6% - Net debt 193,497 185,463 4% Net debt/ annualised OIBDA 2.0 1.9 - FCF (832) (1,644) +RUB 812 million FIRST HALF YEAR 2018 FINANCIAL HIGHLIGHTS ? Revenue increased by 5% to RUB 153.6 billion compared to the first half of 2017; ? OIBDA increased by 1% year-on-year to RUB 46.9 billion compared to the first half of 2017; ? OIBDA margin of 30.5% compared to 31.7% in the first half of 2017; ? Net profit increased by 16% to RUB 7.0 billion compared to the first half of 2017; ? CAPEX decreased by 2% year-on-year to RUB 29.6 billion (19.3% of revenue) from RUB 30.2 billion (20.7% of revenue) in the first half of 2017; ? Free Cash Flow (FCF) of RUB (6.7) billion compared to RUB (4.0) billion in the first half of 2017; Key figures for 1HY 2018, RUB mln RUB million 1HY 2018 1HY 2017 % change, y-o-y Revenue 153,568 145,602 5% OIBDA 46,852 46,168 1% OIBDA margin % 30.5% 31.7% Operating Income 16,699 19,397 (14%) Operating margin % 10.9% 13.3% Net Income 6,958 5,976 16% % of revenue 4.5% 4.1% Capital Expenditure 29,567 30,165 (2%) % of revenue 19.3% 20.7% Net debt 193,497 185,463 4% Net debt/ annualised OIBDA 2.0 1.9 FCF (6,680) (3,953) -RUB 2,727 million Mikhail Oseevsky, President of Rostelecom, commented: "The Q2 2018 results came in line with our expectations. Rostelecom has gained momentum: revenue has been growing at a solid average annual rate of 5% in the last 12 months. Our digital segment, which currently accounts for 53% of our top-line, has contributed significantly to this growth. Our growth engine is delivering and we are also increasing our competitive positions in the key pay-TV and broadband segments, thanks to a growing subscriber base and higher ARPU. This was achieved by promoting new services such as "Smart Home" video surveillance, where we saw the subscriber base grow three-fold in the reporting period. Higher demand for cloud services, data centers and information security solutions is also contributing to our top-line and is coming from corporate and government clients. We are strengthening our competences in the key growing areas, including cyber security business stream, which is why we acquired Solar Security, a technological leader in target monitoring and information security operational management. Solar Security will make a substantial contribution to this strength and will allow us to boost our presence in the market thanks to its reputation for delivering a reliable and trustworthy suite of services and products. Solar Security will evolve into Russia's national cybersecurity operator which will cover three key areas, including "Services", "Brand new products" and "Full-scale cybersecurity solutions". We continue to successfully implement the Russian government's state projects of high strategic importance. Public funding enabled us to further expand the number of high-speed connections in Russian healthcare centres and across remote areas during the second quarter. We also successfully delivered the video surveillance of the Unified State Exam, which contributed over RUB 1 billion of revenue. Serving as regional sponsor to World Cup 2018 has had a significantly marketing contribution for Rostelecom. We were deploying Wi-Fi spots in the majority of sites, provided the Organisation Committee and FIFA with video conferencing services, arranged for steady Internet connection in the stadiums and launched a number of remarkable promotion campaigns during the World Cup. We did our best to ensure comfort and provide high quality services for fans from all over the world, to maintain our reputation of one of the leading digital providers. In June this year the AGM approved that 100% of net income would be distributed across shareholders at RUB 5.05 per a preferred and ordinary share, which resulted in a high level of dividend yield. We strongly believe that consistent implementation of our robust business development strategy will pave the way for further attractive dividend payments." Sergei Anokhin, Senior Vice-President and Chief Financial Officer, added: "Rostelecom's results for the second quarter of 2018 reflect our confident outlook for future developments of the digital segment. We expect our performance to continue to improve across all key financial indicators. We therefore confirm our full year forecast for revenue growth, and anticipate an increase of more than 2%. 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 total number of Internet subscribers grew by 2% to 13.0 million in the second quarter of 2018 compared to the corresponding period of last year; ? The B2C subscriber base grew by 1% to 12.0 million, whilst the number of subscribers connected by fibre optic increased by 6% year-on-year to 7.9 million (66% of the subscriber base); 2) The number of pay-TV subscribers grew by 5% to 10.0 million households compared to the corresponding period of last year; ? The number of IPTV subscribers increased by 11% to 5.1 million; 3) The number of MVNO subscriber base reached 1 million users, a more than two-fold increase within 1 year; 4) The number of local telephony subscribers decreased by 8% to 18.3 million. Number of 2Q 2018 2Q 2017 % change, 1Q 2018 % change, subscribers y-o-y y-o-y (million): Internet access 13.0 12.8 2% 12.9 0.1% B2C: Broadband 12.0 11.8 1% 12.0 0.03% B2B: Broadband 1.0 0.9 2% 1.0 2% + VPN Pay TV 10.0 9.5 5% 9.9 1% Incl. IPTV 5.1 4.6 11% 5.0 2% MVNO 1.0 0.5 107% 0.9 10% subscribers Local telephony 18.3 19.9 (8%) 18.7 (2%) services KEY EVENTS RELATING TO 2Q 2018 AND AFTER THE END OF THE REPORTING PERIOD Business news ? Rostelecom continues to develop and expand its range of services: - Rostelecom's "Smart Home" video surveillance service was upgraded with 5 new detectors and safety actuators, and customers now also have the option to buy smart periphery online. Users now have access to smarter solutions to further automate their households to increase comfort and security;
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? The ability to archive video footage for 14 and 30 days is now included in the "Smart Home" video surveillance service; - Further enhancements were made to the functionality of Rostelecom's 4Game option of the "Gaming" tariff plan; ? In B2B/G segments, Rostelecom increased product functionality and expanded its product offering for "Hosted PBX", "Web conferencing", "Managed communication services", "National Wi-Fi", "Virtual Data Centre", and "Information security"; - Special offers within the MVNO project were launched, including: ? 2 successful promotional campaigns aimed at increasing demand for communication services (offered through the "Mobile gifts" and "Compliment" promotions); ? New clients are offered a special 20% discount when switching to Rostelecom and they can keep existing phone numbers (the "Welcoming" offer); ? The traffic in Interactive TV applications was reset; ? Brand-new convergent products were launched in Saint-Petersburg, Komi Republic and Chelyabinsk; ? A number of roaming options were introduced for clients using Rostelecom services when travelling. The initiatives listed above helped increase Rostelecom's subscriber base to 1 million users; ? Rostelecom continues to grow its digital segment: ? During the second quarter of 2018, the pay-TV subscriber base surpassed 10 million users; - The Company has gained around 70% of new subscriptions in the IPTV market in the second quarter of 2018[8]; - Rostelecom successfully delivered the video surveillance of the Unified State Exam, which contributed over RUB 1 billion of revenue; ? The "Smart Home" video surveillance client base tripled over the reporting period; - Sales of Rostelecom's Antivirus service doubled in the last 12 months, with the number of users growing at an equivalent rate; ? Rostelecom launched pilot sites for a new generation 5G network located in Innopolis in the Republic of Tatarstan and the State Hermitage museum in Saint-Petersburg; these launches were added to the 5G network in Skolkovo in Moscow in the first quarter of 2018; ? Rostelecom signed/renewed a number of large contracts, including agreements with Roseestr (The Federal Service for State Registration, Cadastre and Cartography), Federal Treasury, Moscow Center for Education Quality of the Education Department of the city of Moscow, Gazprombank, State Firefighter Service of the Tulskaya region and other; ? Rostelecom's loyalty programme was awarded two prizes at the 2018 Loyalty Awards Russia ceremony; ? As part of FIFA World Cup 2018: - Rostelecom provided videoconferencing services for the Russian Organising Committee office and FIFA headquarters in Zurich. The service was also delivered in hosting cities, including in the International Exhibition Centre, FIFA headquarters, and at stadiums and operational centres; - Rostelecom set up W-Fi networks for fans in 5 participating hosting cities; - The Company arranged a ticket lottery for "Bonus" programme users, and a "Football Mania" campaign for its clients; ? Rostelecom broadcasted the "Match! Ultra" TV channel within its TV package offering (the channel was 100% dedicated to World Cup); - Rostelecom's provided Internet access across 8 FIFA World Cup 2018 stadiums, including in Kaliningrad, Nizhny Novgorod, Samara, Saransk, Rostov-on-Don, Volgograd, Sochi, Ekaterinburg; ? Voice interconnects were upgraded so as to allow for 90% transmission of the Tele2 Russia DLD traffic through Rostelecom's network; ? The revenue from O2O project (the infrastructure operator) increased by 2.3 times; ? More than 20% of partnering operators were connected to the Operator's personal account; ? Rostelecom negotiated with the management of TIC (IRAN), OmanTel (Oman), Afgantelecom (Afghanistan), Gmobile (Mongolia) on further cooperation development and strengthening Rostelecom's positions as the key transit operator in the regions; Other News ? The AGM approved the Company's dividend payout, which amounted to RUB 14.050 bln, or 100% of 2017 net income in accordance with IFRS. This is to be paid in cash, and rewarded as follows: - RUB 5.05 per Class A preferred share[9]; - RUB 5.05 per ordinary share[10]. ? Rostelecom offered an electronic voting option to its investors at the AGM; ? Analytical Credit Rating Agency (ACRA) affirmed AA(RU) credit rating with a stable outlook; ? National Media Group and Rostelecom launched a JV to produce and acquire content, launch joint TV channels and promote owned and external TV channels; ? Rostelecom acquired 100% of the share capital of Solar Security, a technological leader in target monitoring and information security (IS) operational management. Solar Security will evolve into Russia's national cybersecurity operator which will cover three key areas, including "Services", "Brand new products" and "Full-scale cybersecurity solutions". OPERATING REVIEW Revenue analysis Revenue structure by services RUB million 2Q 2Q 2017 % change, 1HY 2018 1HY % change 2018 2017 y-o-y Broadband 19,65 17,589 12% 38,836 35,096 11% 3 TV services 8,488 6,809 25% 16,663 13,452 24% Fixed telephony 17,71 19,763 (10%) 36,000 40,162 (10%) 7 Wholesale 19,39 20,225 (4%) 38,794 37,536 3% services 5 Rent of 2,386 2,367 1% 4,682 4,770 (2%) channels Interconnect 7,913 8,958 (12%) 16,288 15,701 4% and traffic transit services VPN 5,723 5,627 2% 11,247 10,652 6% Rent and 3,374 3,273 3% 6,577 6,414 3% maintenance of telecommunicati ons infrastructure VAS and cloud 7,470 5,555 34% 14,707 9,449 56% services Other 2,836 3,538 (20%) 5,446 6,796 (20%) telecommunicati ons services Other 1,805 1,686 7% 3,122 3,111 0.4% non-telecommuni cations services Total 77,36 75,166 3% 153,568 145,60 5% 5 2 Revenue structure by customer segments RUB million 2Q 2Q % change, 1HY 1HY 2017 % change 2018 2017 2018 y-o-y Residential 34,36 33,756 2% 68,447 67,723 1% customers 1 Corporate 28,10 25,897 9% 55,121 49,249 12% customers / 9 Government customers Operators 13,70 14,343 (4%) 27,690 26,333 5% 4 Other 1,192 1,169 2% 2,310 2,297 1% Total 77,36 75,166 3% 153,568 145,602 5% 5 In the second quarter of 2018, revenue increased by 3% to RUB 77.4 billion, compared to the second quarter of 2017, as a result of the following factors: ? a 34% increase in revenue from VAS and cloud services, mainly due to proceeds from the development of "Smart City" projects, data-centres and the promotion of cloud services; ? a 25% increase in revenue from pay-TV services due to growth in the IPTV subscriber base, higher ARPU, as well as the application of new IFRS standards; ? a 12% rise in revenue from broadband services due to an increased number of subscribers, higher ARPU, as well as the application of new IFRS standards; In the first half of 2018, revenue increased by 5% to RUB 153.6 billion, compared to the first half of 2017, as a result of the following factors: ? a 56% increase in revenue from VAS and cloud services, mainly due to proceeds from the video surveillance services provided during the presidential election in Russia, as well as the development of "Smart City" projects, data-centres and the promotion of cloud services; ? a 11% rise in revenue from broadband services due to an increased number of subscribers, higher ARPU, as well as the application of new IFRS standards; ? an 24% increase in revenue from pay-TV services due to growth in the IPTV subscriber base, higher ARPU, as well as the application of new IFRS standards; ? a 3% rise in revenue from wholesale services, due to higher revenue from interconnect and traffic transit services and VPN in the first quarter of 2018; Operating income analysis Operating expenses structure RUB million 2Q 2Q % 1HY 1HY % 2018 2017 cha 2018 2017 change, nge y-o-y , y-o -y Personnel costs (23,21 (22,46 3% (46,937 (46,37 1% (excluding the 0) 2) ) 9) option programme) Option programme (920) 436 - (1,678) 430 - related expenses Depreciation, (14,39 (13,73 5% (28,475 (27,20 5% Amortization and 7) 1) ) 1) impairment losses Interconnection (13,63 (13,54 1% (27,776 (24,32 14% charges 2) 7) ) 2) Materials, (6,057 (5,682 7% (12,395 (11,86 4% repairs and ) ) ) 5) maintenance, utilities Gain on the 976 642 52% 1,394 796 75% disposal of PPE and intangible assets Impairment loss (1,629 (841) 94% (2,803) (1,497 87% of financial ) ) assets measured at amortized cost Other operating 3,415 3,233 6% 6,994 6,365 10% income
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