DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2018
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ROSTELECOM PJSC (RKMD)
ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING
RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2018
12-March-2019 / 10:02 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 2018
DIGITAL SEGMENT CONTRIBUTION UP TO 57% OF TOTAL REVENUE IN 4Q 2018
Moscow, Russia - March 12, 2018 - 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
2018 prepared in accordance with IFRS[1],[2].
KEY ACHIEVEMENTS
- Meeting guidance on key financial indicators for 2018;
- 2018 revenue growth of 5% year-on-year;
- The digital segment's[3] contribution to total revenue reached 57% in 4Q
2018;
- Consistently high growth rates in FTTx Broadband clients (+6%) and in
IPTV subscribers (+9%), while ARPU continues to grow in our core broadband
and IPTV segments;
- Increase in revenues from VAS and cloud services of 42% in 2018, as a
result of "Smart City" projects, Internet video broadcasting, the
development of data centre services and the promotion of cloud services;
- OIBDA[4] grew by 4% to RUB 100.9 billion in 2018;
- Net profit increased by 7% to RUB 15.0 billion in 2018.
FOURTH QUARTER 2018 KEY FINANCIAL HIGHLIGHTS
- Revenue grew by 4% to RUB 87.3 billion compared to the fourth quarter of
2017;
- OIBDA grew by 2% to RUB 26.0 billion;
- OIBDA margin of 29.8% compared to 30.5% in the fourth quarter of 2017;
- Net profit of RUB 2.4 billion compared to RUB 4.2 billion in the fourth
quarter of 2017;
- CAPEX[5] increased by 48% to RUB 27.3 billion (31.3% of revenue) from
RUB 18.5 billion (21.9% of revenue) in the fourth quarter of 2017;
- Free Cash Flow (FCF) of RUB 18.1 [6] billion compared to RUB 17.3
billion in the fourth quarter of 2017;
- Net debt[7] increased by 3% since the beginning of the year to RUB 186.7
billion, resulting in a Net Debt/OIBDA ratio of 1.9x.
Key figures for 4Q 2018, RUB mln
RUB million 4Q 2018 4Q 2017 change, y-o-y
Revenue 87,257 84,113 4%
OIBDA 26,038 25,628 2%
OIBDA margin % 29.8% 30.5% -
Operating Income 8,167 9,312 (12%)
Operating margin % 9.4% 11.1% -
Net Income 2,351 4,169 (44%)
% of revenue 2.7% 5.0% -
Capital Expenditure 27,287 18,462 48%
% of revenue 31.3% 21.9% -
Net debt 186,712 181,594 3%
Net debt/ annualised OIBDA 1.9 1.9 -
FCF 18,063 17,283 780
FULL YEAR 2018 FINANCIAL HIGHLIGHTS
? Revenue increased by 5% to RUB 320.2 billion compared to the full year
of 2017;
? OIBDA increased by 4% to RUB 100.9 billion compared to the full year of
2017;
? OIBDA margin of 31.5% and at a comparable level to the full year of
2017;
? Net profit increased by 7% to RUB 15.0 billion compared to the full year
of 2017;
? CAPEX increased by 20% year-on-year to RUB 73.2 billion (22.9% of
revenue) from RUB 60.8 billion (19.9% of revenue) in 2017;
? Free Cash Flow (FCF) of RUB 14.8 billion compared to RUB 20.4 billion
for the full year 2017.
Key figures for the full year of 2018, RUB mln
RUB million 12M 2018 12M 2017 change, y-o-y
Revenue 320,239 305,329 5%
OIBDA 100,900 96,688 4%
OIBDA margin % 31.5% 31.7% -
Operating Income 35,800 37,885 (6%)
Operating margin % 11.2% 12.4% -
Net Income 15,012 14,050 7%
% of revenue 4.7% 4.6% -
Capital Expenditure 73,179 60,752 20%
% of revenue 22.9% 19.9% -
Net debt 186,712 181,594 3%
Net debt/ annualised OIBDA 1.9 1.9 -
FCF 14,751 20,385 (5,634)
Mikhail Oseevskiy, President of Rostelecom, commented:
"2018 was a milestone year for Rostelecom. We started to implement our 2022
strategy, with a strong focus on improving our products and services
ecosystem, enhancing efficiency, the further modernisation of our
technological platform, and of course, the development of our team.
Huge strides have been made in expanding and developing our digital
products, entering new markets, launching the biometric platform, improving
digital solutions for medicine and education sectors, and advancing our
cybersecurity capabilities. Today, we don't just develop products and
services, we stimulate emotions, create opportunities for education and
healthcare, we cultivate a sense of security and we free up our clients'
time by helping them streamline business processes. We help clients of any
scale to grow their business, and support the government in providing
improved services to its citizens.
Together with our brand refresh, which was a milestone event for us last
year, we introduced a range of new digital products and tariff lines, in
response to market changes and Rostelecom's priorities.
Our brand-new service and multimedia platform Wink was recently added to our
private client ecosystem, marking an evolutionary stage in the development
of IPTV, which is today popular among millions of families across the entire
country. Wink is a truly comprehensive platform, comprising of a mobile app,
a website and a Smart TV app, more than 200 TV channels and more than 12
thousand films and episodes already available to Rostelecom's clients, as
well as a set of value added services including NPVR and Parental control
options.
Products in our new tariff line were developed and named around the need of
the typical family: "For Internet", "For Safety", "For Fun", "All together"
and "Gaming". We have also improved our product offering with exclusive
tariff plans. One of the latest developments is the launch of the "Cloud"
tariff, together with Yandex, which offers high speed internet access and
massive cloud storage capacity on Yandex.Disk, that is growing monthly by
1tb.
For entrepreneurs, we launched an updated platform "Plus Account" that
ensures high speed Internet connectivity and mobile communication, with
extra services also available, including a Hosted PBX, SMS advertising,
Wi-Fi, video surveillance and TV for business.
Last year, we carried out many successful projects. One of them was video
surveillance at the presidential election in Russia, where thousands of
Rostelecom engineers in mobile teams oversaw the seamless functioning of our
systems, once again reinforcing our competence, excellence and
professionalism, as well as Rostelecom's status as a credible partner. In
2018, we completed another large-scale project to connect healthcare centres
to the Internet, demonstrating our capability to run complex infrastructure
programmes across the entire country. Public funding enabled us to further
expand the number of high-speed connections in remote areas, and we also
completed construction of an underwater sector of the fibre-optic
communication line in Kuril Islands. The JV with Nokia marks another
significant event last year and represents an important milestone when it
comes to setting the backdrop for developing innovative technologies, as
does the launch of the 5G pilot sites for a new generation 5G network
located in Skolkovo, the State Hermitage museum and Innopolis.
Our growing digital segment gained further momentum, which now contributes
more than 55% to our total revenue. Growth in our subscriber base coupled
with higher ARPU, led to a significant increase in revenues from our core
pay-TV and broadband segments, where we are leaders in the market.
Additional products and services that we actively promote are in growing
demand, and we also registered a twofold growth in revenues from Corporate
TV and national Wi-Fi services. The Information security segment grew
fourfold, and the number of "Smart Home" ecosystem subscriber base grew by
sixteen times, resulting in a 24-fold growth in revenues.
The achievements listed above represent only some of our recent
achievements. Our digital transformation has transformed the business and
contributed to a very solid financial performance in 2018. Our revenue grew
by 5%, while OIBDA increased by 4%, and net income - by 7%. Overall, we
delivered a strong performance, and will continue to expand our digital
business segments and improve efficiency.
I am delighted to reflect on a year that confirms Rostelecom's
transformation into a dynamic and courageous digital player. We are
maintaining our strong leadership in the market, our core objective of
pursuing sustainable and accretive growth is enhancing shareholder value,
which is reinforced by attractive dividend returns."
Sergey Anokhin, Senior Vice-President of Rostelecom and CFO of Rostelecom,
added:
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March 12, 2019 03:02 ET (07:02 GMT)
DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS -2-
"The results in 2018 underpin our positive outlook for Rostelecom and our
potential to pursue further grow in our digital segment. In addition to
expanding our digital footprint, we are introducing measures that are
improving internal efficiency. We expect our performance to continue to
improve across all key financial indicators and we are therefore setting
ourselves the following targets for 2019: revenue and OIBDA growth of at
least 2.5%, and CAPEX in the range of RUB 65 to RUB 70 billion, taking into
account RUB 7 billion of regulatory CAPEX and excluding the implementation
of government programmes".
KEY OPERATING HIGHLIGHTS
Number of 4Q 2018 4Q 2017 change, y-o-y 3Q 2018 change,
subscribers y-o-y
(million):
Internet 13.0 12.9 1% 13.0 0.1%
access
B2C: Broadband 12.0 12.0 0.4% 12.0 0.02%
B2B: Broadband 1.0 0.9 6% 1.0 1%
+ VPN
Pay TV 10.2 9.8 4% 10.1 1%
Incl. IPTV 5.3 4.8 9% 5.1 3%
MVNO 1.2 0.8 43% 1.1 12%
subscribers
Local 17.4 19.1 (9%) 17.8 (3%)
telephony
services
Total subscriber base
1) The total number of Internet subscribers grew by 1% to 13.0 million in
the fourth quarter of 2018, compared to the corresponding period of last
year;
2) The number of pay-TV subscribers grew by 4% to 10.2 million households
compared to the corresponding period of last year;
? The number of IPTV subscribers increased by 9% to 5.3 million;
3) The MVNO subscriber base increased by 43% to reach 1.2 million users;
4) The number of local telephony subscribers decreased by 9% to 17.4
million.
Subscriber base in the household segment
KEY EVENTS RELATING TO FY2018 AND AFTER THE END OF THE REPORTING PERIOD
Business news
? Rostelecom continues to develop and expand its range of products and
services:
- In September 2018, Rostelecom announced its new positioning and brand;
? Rostelecom launched "Wink", an OTT multimedia platform: by the end of 2018
the application was downloaded by more than 1.2 million users on mobile and
SmartTV gadgets;
- The Company launched Rostelecom Lyceum, a platform that will enhance the
quality, safety and availability of supplementary education in Russia;
- As part of its information security offering:
? Rostelecom launched a single platform based on a high-tech Telco Cloud
solution;
? Rostelecom launched a commercial cyberattack monitoring and management
centre;
As a result, revenues from information security services grew by 4 times in
2018;
- In partnership with Yandex, Rostelecom launched a new "Cloud" tariff plan
with high speed Internet access (of up to 250 Mbps) and increased cloud
storage capacity on Yandex.Disk (with a +1Tb monthly addition);
- As part of the "Gaming" tariff plan development, Rostelecom improved
connectivity with game servers and Internet speed increased to 800 Mbps. A
number of gaming options were improved in some famous computer games,
including in World of Warplanes (a special fighter aircraft Yak-3T) by
Wargaming; Warface by Games.Mail.ru; Blade and Soul, Point Blank, Lineage2
and AION by 4Game;
- As part of the "Smart Home" ecosystem:
? Rostelecom extended its product line through the launch of 9 new types
of cameras and 6 new smart periphery devices;
? Rostelecom launched a mobile app with a new interface and a dashboard
functionality;
? Complementary services were introduced, including home security systems
(together with Golfstream), and installation;
? The fresh "Under control" package now includes a motion sensor, a door
sensor, an RGB lamp and a socket;
? Rostelecom introduced a package offer, comprised of Broadband and Video
Surveillance services.
As a result, Rostelecom's "Smart Home" client base grew by 16 times in 2018,
which translated to a 24 times increase in revenues;
? 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";
- Within the MVNO project:
? The IPTV traffic was reset;
? A number of convergent services were launched in Saint-Petersburg, Komi
and Chelyabinsk;
? Rostelecom introduced a number of attractive roaming options for
travelling clients;
? The Company introduced the possibility to purchase a landline number in
addition to a main mobile number in an additional 16 cities, which
increased total enrolment across 200 localities;
? Voice interconnect was upgraded in the Chuvash Republic, and voice
traffic routing plans were expanded in Kaluga, Vologda, Kaliningrad,
Petrozavodsk and Krasnodar. This led to fewer missed calls and increased
quality of voice communication;
? Rostelecom launched two new functions for its mobile users: "Call me
back" and "Recharge my account".
As a result, Rostelecom's MVNO client base increased to 1.2 million clients,
which has placed Rostelecom first in the virtual mobile operators sector,
with a market share of 56%[8];
? Rostelecom continues to grow its digital segment:
- The number of pay-TV clients exceeded 10.2 million clients (including 5.3
million of IPTV users), and the number of Broadband clients reached 13
million;
? The number of commercial racks in Rostelecom's data centres grew by 11% to
5,870. This translated in a more than 20% revenue increase in the data
centre segment in 2018;
- The Public Services Portal recorded 86 million users, twice as many as in
2017;
- Revenues from "Smart City" projects grew by 46% in 2018;
? More than two-fold increase in revenues from the "Corporate TV" service in
2018;
- The number of National Wi-Fi hotspots increased to 27,500. This generated
a two-fold growth in revenues from this service in 2018;
? Rostelecom became a leader in cloud video surveillance for businesses with
25,000 IP-cameras connected across more than 10,000 organizations in all
Russian regions, which resulted in a nearly 40% growth in revenues in this
segment in 2018;
- The "Antivirus" services revenues increased almost two and half times in
retail segment in the last 12 months;
- Rostelecom launched the Unified Biometric System, one of the key elements
of the remote identification mechanism, that provides remote access to
financial services for citizens;
? Rostelecom launched pilot sites for a new generation 5G network located in
Innopolis in the Republic of Tatarstan, the State Hermitage museum in
Saint-Petersburg and Skolkovo in Moscow;
- A 5G network-based test infrastructure for unmanned vehicles was launched
in Skolkovo;
- Rostelecom successfully provided video surveillance during the
presidential election in Russia on 18 March 2018;
- Rostelecom successfully delivered video surveillance of the Unified State
Exam;
- Rostelecom provided video surveillance on the Single Voting Day at 10,510
district electoral committees and 871 territorial committees, in 11,381
offices in total, under federal and regional contracts;
- The integrated spatial information platform ("Geodata Information System"
(GIS) "Zemlya" (the Earth), developed by Rostelecom, was launched in
Russia's Arkhangelsk region.
? Rostelecom signed or renewed a number of large contracts, including
agreements with Rosreestr (The Federal Service for State Registration,
Cadastre and Cartography), Russia's Pension Fund, the Federal Bailiffs
Service, Pochta Rossii (Russian Mail), the Moscow region Electoral
Committee, the Voronezh region Communications Department, Moscow City
Department for Competitive Policy, Mosenergosbyt, SAP, Huawei, VTB,
Rosselkhozbank (Russian Agricultural Bank), Rosneft, Transneft, X5 Retail
group and others;
? Rostelecom completed the setting up of a corporate data communication
network for Pochta Rossii (Russian Mail), encompassing 37,000 postal
service hubs, including more than 15,000 Pochta Bank's service points;
? Rostelecom secured almost 80% of Tele2's ILD traffic;
? Rostelecom substantially upgraded the voice interconnects which allowed
to transmit more than 90% of Tele2's DLD traffic pass through Rostelecom's
network;
? The underwater sector construction of the fibre-optic communication line
in Kuril Islands was successfully completed;
? Three transcontinental channels of 100Gbps were launched from Europe to
China through Mongolia;
? The capacity of the Transit Europe-Asia (TEA) was upgraded up by 1Tb/s
from Europe to China and to Japan;
? Three-fold growth in revenues from the O2O project (infrastructure
operator) in 2018;
? Sales to regional operators increased by 6% in 2018 as part of the
"Top-7 Interaction" programme.
Other news
? Rostelecom presented its 2022 Strategy and a new dividend policy for
2018-2020;
? Dividends for 2017 were paid at the rate of RUB 5.05 per ordinary share,
and for 9 months of 2018 dividends were paid at the rate of RUB 2.5 per
ordinary share;
? Rostelecom invested in mobile operating system developer Sailfish
(Aurora);
? Acquisition of 100% of shares in Solar Security, a technological leader
in information security (IS) target monitoring and operational management;
? Acquisition of Start2Com, one of the leading developers of settlements
and maintenance solutions;
? Launch of a joint venture (JV) with Nokia to develop innovation
technologies;
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DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS -3-
? Launch of a JV with the National Media Group, to be able to produce and
purchase content, jointly develop new channels and distribute proprietary
and third-party channels;
? Sberbank and Rostelecom increased the capital of the JV for management
of commercial property to RUB 10.4 billion;
? Completion of one of the Central Telegraph buildings sale on Nikitsky
lane for RUB 2 billion;
? The Analytical Credit Rating Agency (ACRA) confirmed an AA(RU) credit
rating with a stable outlook;
? Fitch Ratings confirmed a BBB- issuer default rating (IDR) with a stable
outlook;
? Rostelecom issued bonds in March 2018 for a total amount of RUB 10
billion at a coupon rate of 7.15% p.a.
OPERATING REVIEW
Revenue analysis
Revenue structure by services
RUB million 4Q 2018 4Q 2017 change 12M 2018 12M 2017 change
Broadband 21,335 18,139 18% 80,042 70,785 13%
TV services 9,145 7,069 29% 34,464 27,348 26%
Fixed 16,948 19,151 (12%) 69,983 78,445 (11%)
telephony
Wholesale 20,455 20,407 0% 79,593 77,525 3%
services
Rent of 2,505 2,365 6% 9,582 9,437 2%
channels
Interconnect 8,340 9,133 (9%) 33,256 33,253 0%
and traffic
transit
services
VPN 6,148 5,609 10% 23,433 21,981 7%
Rent and 3,462 3,299 5% 13,322 12,855 4%
maintenance of
telecommunicat
ions
infrastructure
VAS and cloud 13,204 10,023 32% 36,902 26,013 42%
services
Other 4,004 6,327 (37%) 12,076 16,854 (28%)
telecommunicat
ions services
Other 2,165 2,997 (28%) 7,179 8,359 (14%)
non-telecommun
ications
services
Total 87,257 84,113 4% 320,239 305,329 5%
Revenue structure by customer segments
RUB million 4Q 2018 4Q 2017 Change 12M 2018 12M 2017 change
Residential 35,315 35,193 0% 137,745 136,304 1%
customers
Corporate 36,427 32,989 10% 121,509 109,209 11%
customers /
Government
customers
Operators 14,366 14,781 (3%) 56,389 55,061 2%
Other 1,147 1,150 0% 4,595 4,756 (3%)
Total 87,257 84,113 4% 320,239 305,329 5%
In the fourth quarter of 2018, revenue increased by 4% to RUB 87.3 billion,
compared to the fourth quarter of 2017, as a result of the following
factors:
? an 18% increase in revenue from broadband services due to a higher
number of subscribers, higher ARPU, as well as the application of new IFRS
standards;
? a 32% increase in revenue from VAS and cloud services, mainly due to
proceeds from the development of "Smart City" projects, the promotion of
cloud services, and the development of data-centres;
? a 29% 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;
In full year of 2018, revenue increased by 5% to RUB 320.2 billion, compared
to the twelve months of 2017, as a result of the following factors:
? a 42% increase in revenue from VAS and cloud services, mainly due to the
development of "Smart City" projects, the promotion of cloud services, the
development of data-centres and video surveillance services;
? a 13% increase in revenue from broadband services due to subscriber base
growth, higher ARPU, projects to connect healthcare centres (by RUB 1.6
billion in 2018), as well as the application of new IFRS standards;
? a 26% 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% increase in revenue from wholesale services due to the growth of
all segment constituents, including additional proceeds from Tele2 Russia.
Operating income analysis
Operating expenses structure
RUB million 4Q 2018 4Q chang 12M 12M change
2017 e 2018 2017
Personnel costs (26,120 (24,92 5% (97,3 (93,3 4%
) 8) 50) 81)
Depreciation, (16,713 (15,44 8% (60,3 (56,6 7%
Amortization and ) 4) 29) 28)
impairment
losses
Interconnection (15,826 (14,76 7% (58,2 (52,7 10%
charges ) 9) 93) 62)
Materials, (7,778) (8,266 (6%) (26,1 (25,9 1%
repairs and ) 83) 26)
maintenance,
utilities
Gain on the 4,843 3,863 25% 7,184 5,344 34%
disposal of PPE
and intangible
assets
Impairment loss (655) (158) 315% (4,05 (2,77 46%
of financial 7) 6)
assets measured
at amortized
cost
Other operating 2,964 3,856 (23%) 13,57 13,44 1%
income 9 4
Other operating (19,805 (18,95 4% (58,9 (54,7 8%
expenses ) 5) 90) 59)
Total operating (79,090 (74,80 6% (284, (267, 6%
expenses ) 1) 439) 444)
In the fourth quarter of 2018, operating expenses increased by 6% compared
to the corresponding period of 2017 and amounted to RUB 79.1 billion,
largely due to the following factors:
? an 8% increase (of RUB 1.3 billion) in depreciation, amortization and
impairment losses, mainly due to the application of new IFRS standards;
? a 5% increase (of RUB 1.2 billion) in personnel costs, mainly due to an
increase in the number of employees within the digital business segments,
as well as due to additional accruals on non-state pension plan;
? a 7% increase (of RUB 1.1 billion) in interconnection charges, mainly
due to higher expenditure on channels and equipment lease, as a result of
higher income from corporate and state clients.
In the twelve months of 2018, operating expenses increased by 6% compared to
the corresponding period of 2017 and amounted to RUB 284.4 billion due to
the following factors:
? a 10% increase (of RUB 5.5 bln) in interconnection charges, mainly due
to higher expenditure on interconnect and traffic transit services,
accompanied by an increase in corresponding income, including from large
scale corporate and state clients, and synergies with Tele2 within the
network infrastructure;
? an 8% increase (of RUB 4.2 bln) in other operating expenses, mainly due
to video surveillance services provided during the presidential election
in Russia in the first quarter of 2018, equipment supplies within B2B/G
projects, as well as higher expenses on the promotion of services;
? a 7% increase (of RUB 3.7 bln) in depreciation, amortization and
impairment losses, mainly due to new IFRS standards application;
? a change in allowance for the share options programme (of RUB 1.3
billion) due to its expansion.
Operating profit decreased by 12% year-on-year to RUB 8.2 billion in the
fourth quarter of 2018, compared to the corresponding period of 2017.
Operating profit decreased by 6% year-on-year to RUB 35.8 billion in the
twelve months of 2018, compared to the twelve months of 2017.
OIBDA for the fourth quarter of 2018 increased by 2% year-on-year to RUB
26.0 billion. OIBDA for the twelve months of 2018 increased by 4% to RUB
100.9 billion. The OIBDA dynamics was influenced by revenue growth, gains
from real-estate disposal as well as the above-mentioned changes in
operating costs. The OIBDA margin in the fourth quarter of 2018 was 29.8%
compared to 30.5% in the fourth quarter of 2017. OIBDA margin reached 31.5%
in the twelve months of 2018 compared to 31.7% in the corresponding period
of 2017.
Net Income Analysis
In the fourth quarter of 2018, profit before tax decreased by 46% to RUB 2.8
billion, compared to the corresponding period in 2017. In the twelve months
of 2018, profit before tax increased by 3% to RUB 19.4 billion.
These dynamics were influenced in the fourth quarter of 2018 by the
following factors:
? lower operating profit;
? decline in associated companies' financial results, mainly due to the
write-off of goodwill relating to a previously acquired asset;
? higher financial expenses due to higher interest payments and the
application of new IFRS standards;
The increase in profit before tax for the twelve months of 2018 can be
attributed to improved financial results of the associated companies, namely
Tele2 Russia.
Income tax in the fourth quarter of 2018 decreased by 57% to RUB 0.4
billion. Income tax in the twelve months of 2018 decreased by 9% to RUB 4.4
billion.
The effective income tax rate stood at 16% in the fourth quarter of 2018,
and 23% in the twelve months of 2018 compared to the 20% rate set by the Tax
Code. A higher effective income tax rate in the twelve months of 2018 was
driven by the non-deductible expenses for taxation purposes.
Net profit decreased by 44% in the fourth quarter of 2018 and totalled RUB
2.4 billion, and increased by 7% to RUB 15.0 billion in the twelve months of
2018.
Financial review
Net operating cash flow in the fourth quarter of 2018 increased by 35% and
amounted to RUB 39.0 billion, compared to the corresponding period of 2017,
and increased by 8% to RUB 77.2 billion in the twelve months of 2018. The
increase in net operating cash flow in the fourth quarter and the twelve
months of 2018 was mainly due to changes in working capital. Improved
working capital in the fourth quarter in 2018 was partly driven by a
decrease in account receivables for the "Smart City" projects and
settlements with operators. Improved working capital in the twelve months of
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March 12, 2019 03:02 ET (07:02 GMT)
2018 was partly driven by changes in accounts payable and other liabilities,
related to the development of working capital management policy,
Cash outflow for investments in non-current assets increased by 48% to RUB
27.3 billion in the fourth quarter of 2018. Excluding state programmes, this
figure increased by 27% to RUB 20.3 billion (23.3% of revenue). Cash outflow
for investments in non-current assets increased by 20% to RUB 73.2 billion
in the twelve months of 2018. Excluding state programmes, this figure
increased by 6% to RUB 59.0 billion (18.4% of revenue). These trends were
driven by increased capital expenditure on programmes, financed by the
State. The increase in CAPEX excluding state programmes was influenced by
the development of video surveillance platform in Moscow city.
Free cash flow in the fourth quarter of 2018 totalled RUB 18.1 billion
compared to RUB 17.3 billion in the corresponding period of 2017. Free cash
flow in the twelve months of 2018 totalled RUB 14.8 billion compared to RUB
20.4 billion in the corresponding period of 2017.
Free Cash Flow (RUB, billion)
As at December 31, 2018, the Group's total debt increased by 7% compared to
the beginning of the year and amounted to RUB 204.3 billion. Over 99% of the
Group's total debt was rouble-denominated as at December 31, 2018.
As at December 31, 2018, the Group's net debt increased by 3% compared to
the beginning of the year and amounted to RUB 186.7 billion. The net debt
/OIBDA ratio stood at 1.9x for the 12 months 2018.
OTHER INFORMATION: CONFERENCE CALL
Rostelecom's management will hold a conference call and webcast today at
5.00 PM (Moscow), 3.00 PM (CET), 2.00 PM (UK) and 10.00 AM (NYT). To
participate in the conference call, please dial:
UK/ International: +44 (0) 330 336 9411
USA: +1 929-477-0402
Russia: +7(495) 646 9190
Confirmation Code (ENG): 2312815
Confirmation Code (RUS): 7295863
A webcast of the conference call will only be available in English. To
access the webcast please follow the link:
https://webcasts.eqs.com/rostelecom20190312 [1].
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/2018/
4/.
* * *
APPENDICES
1) Reconciliation of OIBDA;
2) IFRS 9, 15 and 16 standards application;
3) Statement of Comprehensive Income for the twelve months of 2018;
4) Statement of Cash Flows for the twelve months of 2018;
5) Statement of Financial Position for the twelve months of 2018.
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 the
third quarter of 2018.
Comparable indicators in 2017 and last period of 2018 were reviewed under
the applied methodology, starting from the third quarter of 2018.
RUB million 4Q 2018 4Q 2017 change 12M 2018 12M 2017 change
Operating 8,167 9,312 (12%) 35,800 37,885 (6%)
income
Plus 16,713 15,444 8% 60,329 56,628 7%
amortisation
Plus expenses 886 938 (6%) 3,638 2,344 55%
related to
the long-term
management
incentive
programme
Plus expenses 272 (66) - 1,133 (170) -
related to
non-governmen
t pension
insurance
OIBDA 26,038 25,628 2% 100,900 96,688 4%
OIBDA margin, 29.8% 30.5% 31.5% 31.7%
%
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 2018
Year ended 31 December
2018 2017*
Revenue 320,239 305,329
Operating expenses
Wages, salaries, other (97,350) (93,381)
benefits and payroll taxes
Depreciation, amortization (60,329) (56,628)
and impairment losses
Interconnection charges (58,293) (52,762)
Materials, utilities, (26,183) (25,926)
repairs and maintenance
Gain on disposal of 7,184 5,344
property, plant and
equipment and intangible
assets
Impairment loss of financial (4,057) (2,776)
assets measured at amortized
cost
Other operating income 13,579 13,444
Other operating expenses (58,990) (54,759)
Total operating expenses, (284,439) (267,444)
net
Operating profit 35,800 37,885
Share of net profit/(loss) (91) (2,692)
of associates and joint
ventures
Finance costs (17,275) (17,350)
Other investing and 1,602 941
financial gain, net
Foreign exchange (597) 122
(loss)/gain, net
Profit before income tax 19,439 18,906
Income tax expense (4,427) (4,856)
Profit for the year 15,012 14,050
Other comprehensive
income/(loss)
Other comprehensive
income/(loss) to be
reclassified to profit or
loss in subsequent periods
Share of other comprehensive 22 -
income of associates
Exchange differences on 428 (110)
translation of foreign
operations
Net other comprehensive loss 450 (110)
to be reclassified to profit
or income/(loss) in
subsequent periods
Other comprehensive
income/(loss) not to be
reclassified to profit or
loss in subsequent periods
Remeasurement of defined (180) 545
benefit pension plans
Income tax on remeasurement 36 (109)
of defined benefit pension
plans
Net other comprehensive (144) 436
income/(loss) not to be
reclassified to profit or
loss in subsequent periods
Other comprehensive income 306 326
for the year, net of tax
Total comprehensive income 15,318 14,376
for the year
Profit attributable to:
Equity holders of the Group 14,154 13,697
Non-controlling interests 858 353
Total comprehensive income
attributable to:
Equity holders of the Group 14,491 14,017
Non-controlling interests 827 359
Earnings per share 6.23 6.09
attributable to equity
holders of the Group - basic
(in roubles)
Earnings per share 6.09 5.99
attributable to equity
holders of the Group -
diluted (in roubles)
* The Group initially adopted IFRS 15 and IFRS 16 using the modified
retrospective approach. Under this approach, the comparative information is
not restated. The Group applied IFRS 9 from 1 January 2018 and has not
restated comparative information for 2017 for financial instruments under
the IFRS 9 standard.
APPENDIX 4: Statement of Cash Flows for the twelve months of 2018
Year ended 31 December
2018 2017
Cash flows from operating
activities
Profit before tax 19,439 18,906
Adjustments to reconcile
profit before tax to cash
generated from operations
Depreciation, amortization 60,329 56,628
and impairment losses
Gain on disposal of (7,184) (5,344)
property, plant and
equipment and intangible
assets
Impairment loss of financial 4,057 2,776
assets measured at amortized
cost
Loss from associates and 91 2,692
joint ventures
Finance costs excluding 17,180 17,026
finance costs on employee
benefit obligations
Other investing and (1,602) (941)
financial gain, net
Foreign exchange 597 (122)
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