DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2019
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 30,607 20,322 51%
programs
% 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 71,787 58,993 22%
programs
% 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 4Q 2019 4Q change, y-o-y 3Q 2019 change,
subscribers 2018 y-o-y
(million):
Internet access 13.2 13.0 2% 13.1 1%
B2C: Broadband 12.2 12.0 1% 12.0 1%
B2B: Broadband 1.1 1.0 6% 1.0 2%
+ VPN
Pay TV 10.4 10.2 3% 10.3 1%
Incl. IPTV 5.6 5.3 6% 5.5 2%
MVNO 1.7 1.2 41% 1.5 15%
subscribers
Local telephony 15.7 17.4 (10%) 16.1 (3%)
services
ARPU[7] (RUB): 4Q 2019 4Q change, y-o-y 3Q 2019 change,
2018 y-o-y
Internet access
B2C: Broadband 402 392 2% 396 2%
B2B: Broadband 3,455 3,160 9% 3,475 (1%)
+ VPN
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.
4) The number of MVNO subscribers increased by 41% and reached 1.7 million
users.
5) 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;
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? "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 [1]'; 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 [2]
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 [3] to develop the largest
end-to-end provider of digital services in Russia.
? Rostelecom acquired a number of assets, including:
? Data Line [4], the second largest datacentre provider in Russia;
? Alliance Telecom Group [5], the leading provider of Internet access
and pay-TV services across the Primorsky region;
? Prometey [6], communications operator in St. Petersburg;
? Infolink [7], 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 19,429 20,455 (5%) 81,391 79,593 2%
services
Rent of channels 2,452 2,505 (2%) 9,674 9,582 1%
Interconnect and 6,316 8,340 (24%) 30,295 33,256 (9%)
traffic transit
services
VPN 7,216 6,148 17% 27,558 23,433 18%
Rent and 3,444 3,462 (0%) 13,864 13,322 4%
maintenance of
telecommunicatio
ns
infrastructure
VAS and cloud 20,908 13,204 58% 49,799 36,902 35%
services
Other 4,471 4,004 12% 14,274 12,076 18%
telecommunicatio
ns services
Other 3,820 2,165 76% 9,215 7,179 28%
non-telecommunic
ations services
Total 94,867 87,257 9% 337,421 320,239 5%
Revenue structure by customer segments
RUB million 4Q 4Q Change 2019 2018 change
2019 2018
Residential 35,780 35,315 1% 140,338 137,745 2%
customers
Corporate 45,397 36,427 25% 137,726 121,509 13%
customers /
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Government
customers
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 4Q chang 2019 2018 change
2019 2018 e
Personnel costs (30,97 (26,1 19% (106,1 (97,3 9%
1) 20) 93) 50)
Depreciation, (19,34 (16,7 16% (67,31 (60,3 12%
Amortization and 3) 13) 3) 29)
impairment
losses
Interconnection (13,67 (15,8 (14%) (57,15 (58,2 (2%)
charges 4) 26) 1) 93)
Materials, (7,871 (7,77 1% (26,16 (26,1 (0%)
repairs and ) 8) 8) 83)
maintenance,
utilities
Gain on the 5,626 4,843 16% 8,081 7,184 12%
disposal of PPE
and intangible
assets
Impairment loss (3,254 (1,02 219% (6,190 (4,92 26%
of financial ) 1) ) 5)
assets measured
at amortized
cost
Other operating 4,661 2,973 57% 17,359 13,67 27%
income 3
Other operating (26,10 (19,4 34% (65,99 (58,2 13%
expenses 9) 48) 4) 16)
Total operating (90,93 (79,0 15% (303,5 (284, 7%
expenses 5) 90) 69) 439)
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:
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DJ ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS -4-
https://webcasts.eqs.com/register/rostelecom20200303/en [8].
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/20
19/4 [9].
* * *
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 3,932 8,167 (52%) 33,852 35,800 (5%)
income
Plus 19,343 16,713 16% 67,313 60,329 12%
amortisation
Plus expenses 1,286 886 45% 4,007 3,638 10%
related to the
long-term
management
incentive
programme
Plus expenses 525 272 93% 1,354 1,134 19%
related to
non-government
pension
insurance
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 (106,193) (97,350)
benefits and payroll taxes
Depreciation, amortization (67,313) (60,329)
and impairment losses
Interconnection charges (57,151) (58,293)
Materials, utilities, (26,168) (26,183)
repairs and maintenance
Gain on disposal of 8,081 7,184
property, plant and
equipment and intangible
assets
Impairment loss of financial (6,190) (4,925)
assets measured at amortized
cost
Other operating income 17,359 13,673
Other operating expenses (65,994) (58,216)
Total operating expenses, (303,569) (284,439)
net
Operating profit 33,852 35,800
Share of net profit/(loss) 1,971 (91)
of associates and joint
ventures
Finance costs (19,519) (17,275)
Other investing and 1,779 1,602
financial gain, net
Foreign exchange 438 (597)
(loss)/gain, net
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 - 22
income of associates
Exchange differences on (292) 428
translation of foreign
operations
Net other comprehensive (292) 450
(loss)/income 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 (2) (180)
benefit pension plans
Income tax on remeasurement - 36
of defined benefit pension
plans
Net other comprehensive (2) (144)
income/(loss) not to be
reclassified to profit or
loss in subsequent periods
Other comprehensive (loss)/ (294) 306
income for the year, net of
tax
Total comprehensive income 16,180 15,318
for the year
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 6.38 6.23
attributable to equity
holders of the Group - basic
(in roubles)
Earnings per share 6.23 6.09
attributable to equity
holders of the Group -
diluted (in roubles)
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 67,313 60,329
and impairment losses
Gain on disposal of (8,081) (7,184)
property, plant and
equipment and intangible
assets
Impairment loss of financial 6,190 4,925
assets measured at amortized
cost
Share of net profit/(loss) (1,971) 91
of associates and joint
ventures
Finance costs excluding 19,454 17,180
finance costs on employee
benefit obligations
Other investing and (1,779) (1,602)
financial gain, net
Foreign exchange (438) 597
loss/(gain), net
Share-based motivation 4,028 3,500
program
Increase in accounts (809) (9,502)
receivable and contract
assets
Increase/(decrease) in 858 (353)
employee benefits
Increase in inventories (1,678) (1,414)
Increase in accounts 14,502 13,377
payable, provisions and
accrued expenses
Increase in other assets (6,950) (4,245)
Increase in other 12,609 3,995
liabilities
Cash generated from 121,769 99,133
operations
Interest paid (19,597) (18,174)
Income tax refund 693 230
Income tax paid (3,444) (3,945)
Net cash from operating 99,421 77,244
activities
Cash flows from investing
activities
Purchase of property, plant (100,513) (73,179)
and equipment and intangible
assets
Proceeds from sale of 9,532 10,097
property, plant and
equipment, intangible assets
and assets held for sale
Acquisition of financial (8,152) (7,351)
assets
Proceeds from disposals of 4,809 5,296
financial assets
Interest received 798 589
Subsidy from Government 13,572 3,641
Dividends received 232 95
Purchase of subsidiaries and (23,009) (4,064)
business, net of cash
acquired
Proceeds from disposal of - 80
subsidiaries, net of cash
disposed
Acquisition of equity (544) (4,386)
accounted investees
Net cash used in investing (103,275) (69,182)
activities
Cash flows from financing
activities
Proceeds from bank and 555,802 579,949
corporate loans
Repayment of bank and (540,306) (564,785)
corporate loans
Proceeds from bonds 25,000 10,000
Repayment of bonds (7,389) (11,209)
Repayment of promissory (51) -
notes
Repayment of vendor (11) (15)
financing payable
Repayment of other - (1)
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non-current financing
liabilities
Proceeds from - 24
non-controlling shareholders
of subsidiaries
Repayment of lease (5,674) (4,034)
liabilities
Acquisition of (1,397) -
non-controlling interests
Dividends paid to (11,731) (11,547)
shareholders of the Group
Dividends paid to (824) (226)
non-controlling shareholders
of subsidiaries
Net cash from/(used in) 13,419 (1,844)
financing activities
Effect of exchange rate (89) 47
changes on cash and cash
equivalents
Net increase in cash and 9,476 6,265
cash equivalents
Cash and cash equivalents at 10,080 3,815
beginning of the year
Cash and cash equivalents at 19,556 10,080
the end of the year
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 401,516 373,839
equipment
Investment properties 181 172
Goodwill and other 91,318 66,083
intangible assets
Right of use assets 28,890 21,205
Trade and other 6,131 7,346
accounts receivable
Investments in 72,850 69,982
associates and joint
ventures
Other financial assets 2,667 1,950
Other non-current 9,667 4,667
assets
Deferred tax assets 1,133 863
Contract assets 866 501
Contract costs 12,774 12,323
Total non-current 627,993 558,931
assets
Current assets
Inventories 9,413 7,631
Contract assets 4,610 9,511
Trade and other 45,988 44,189
accounts receivable
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 19,556 10,080
equivalents
Asset classified as 749 554
held for sale
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 115 115
capital
Treasury shares (53,391) (60,419)
Retained earnings and 310,807 307,234
other reserves
Total equity 257,624 247,023
attributable to equity
holders of the Group
Non-controlling 4,564 3,909
interests
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 37,067 38,269
liabilities
Accounts payable, 4,671 3,090
provisions and accrued
expenses
Other non-current 32,990 21,142
liabilities
Total non-current 324,277 258,402
liabilities
Current liabilities
Loans and borrowings 21,873 29,908
Lease liabilities 5,593 4,791
Accounts payable, 86,504 88,530
provisions and accrued
expenses
Income tax payable 1,168 644
Other current 26,673 13,396
liabilities
Total current 141,811 137,269
liabilities
Total liabilities 466,088 395,671
Total equity and 728,276 646,603
liabilities
Rostelecom [10] 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.
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