DJ ROSTELECOM PJSC: Rostelecom announces its IFRS financial and operating results for the first quarter of 2020
ROSTELECOM PJSC (RKMD)
ROSTELECOM PJSC: Rostelecom announces its IFRS financial and operating
results for the first quarter of 2020
19-May-2020 / 09:32 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 first quarter of 2020[1]
Revenue growth of 10%; 12% increase in OIBDA[2]; mobile revenue up 16%
Moscow, Russia - May 19, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX:
ROSYY), the largest digital integrated service provider in Russia, today
announces its consolidated financial results for the first quarter of 2020
prepared in accordance with IFRS[3], with an overview also provided on how
on the Company has responded to the COVID-19 pandemic, and what impact it is
having on the business.
In accordance with the accounting policy of the Group, the acquisition of
Tele2 Russia has been recognized as a business combination under common
control. According to this method the merger of businesses arising from a
transfer of entity stakes under common control of the Group's shareholders,
is presented as if the merger took place in the earliest period of the
statements, or, if later, effective from the date that common control was
put into effect; for this purpose comparatives are revised. Rostelecom's
consolidated financial statements for 2019 have therefore been revised to
incorporate Tele2 Russia's performance as if the acquisition had been
completed on 1 January 2019.
COVID-19
The unprecedented situation caused by the COVID-19 (coronavirus) pandemic
has created a dynamic and intense environment for people and organizations
around the world, including Rostelecom's employees and clients. Amid
constraints around physical movement, the stability of ICT infrastructure
and the prevalence of digitalization are playing an increasingly important
role. As a company of strategic importance to the Russian Federation, it is
essential that Rostelecom continues to provide reliable services to support
the Russian economy, millions of Russian families that require our
infrastructure as well as a significant number of organizations across the
country.
To ensure business continuity and to enable Rostelecom to navigate the
impact of COVID-19, Rostelecom has taken the following actions.
Protecting employees
- Starting from March 16, 2020, a work from home policy has been
implemented to limit the majority of office employees' exposure to the
virus without compromising their ability to remain connected, productive
and to work securely. This has required adding extra capacity and
technology equipment to permit a large-scale transition. To date, around
60,000 employees have been working from home. All staff have been provided
with remote access to their workplaces, corporate mail, IT systems and
smart solutions for audio and video conferencing. IT infrastructure has
been re-organized, partially based on the Company's internal network and
owned programmes such as Tionix Virtual Desktop (VDI), located in
Rostelecom's data centers.
- On-site staff responsible for the continuity of business processes and
front-line employees have been provided with sets of personal protective
equipment, including masks, gloves and sanitizers.
- Continuous monitoring systems have been put in place to ensure
occupational safety and to protect the health protection of our people and
their families.
- A permanent remote working policy is under development for after the
Covid-19 pandemic. The initiative will generate more attractive working
conditions for staff and allow significant cost savings on office rent and
maintenance going forward.
Ensuring business resilience
- Complex organizational and technical measures have been developed to
ensure that national telecommunications infrastructure [1] remains
resilient. The investment programme has been recalibrated to support
priority projects, such as improving the strength and capacity of networks
and IT infrastructure in response to pent-up demand in consumer broadband
caused by self-isolation restrictions. Going forward, this will provide a
strong buffer for the increase in client base and traffic.
- Internal business processes have been transformed to accelerate the
digitalisation of operations, including the shift to electronic signatures
and paperless operations.
- Rostelecom's crisis action planning and response was formulated on the
basis of a set of COVID-19 scenarios that reflect economic developments
and impact on all client groups, including businesses, individual
customers and state clients. The forecasted reduction in economic activity
across a number of business streams, including SMEs, complimentary
services for people and certain state projects might have certain impact
on Rostelecom's business growth. At the same time, this potential negative
effect will be counterbalanced by the anticipated significant growth in
B2B and B2G demand for digital solutions for remote working, online
learning and other services.
- These forward-looking scenario planning models currently assume no job
cuts thanks to the optimization of OpEx and the deferral of other
non-critical investment projects.
- In the current environment, the management team has been focusing on the
Company's performance, ensuring that it maintains a reasonable level of
debt and ensuing that it is able to meet it dividend commitments as stated
in the Company's dividend policy.
- The Company will present revised guidance under the new perimeter of
consolidation over the coming reporting periods, as the industry is still
experiencing a high level of uncertainty regarding self-isolation, the
scope of government aid provided to households and industries hit by the
pandemic and the its macro-economic implications.
Supporting clients
Rostelecom has adapted its product line to respond to the pandemic, ensuring
that it remains a strategic and reliable digital partner to its key client
audiences.
- for SMEs Rostelecom:
- lifted the blocking of certain services [2] with zero account
- added 100 extra minutes of mobile connectivity and 10Gb of Internet
capacity [3] for existing clients
- introduced a 60-day test period for mobile and virtual telephony [4]
for new clients.
- Rostelecom also developed a set of services for remote working [5] for
large clients, including:
1) access to public and corporate resources based on broadband, VPN and
virtual data;
2) reliable and seamless connection based on Hosted PBX, 8-800 toll free
numbers and mobile services; and
3) remote control and information security services.
- A brand-new heat-detection solution [6] was introduced based on thermal
imaging cameras and software that can be integrated with any corporate
system. The service has been introduced by a number of companies,
including ALROSA [7];
- A new "Dedicated virtual conference room" product was developed that
provides companies with the possibility to roll out an owned virtual
server with all the software required for their needs;
- Audio and video conferencing capacity was more than doubled;
- The "Rostelecom Liceum" digital service was commissioned and developed
for primary school students. The service is available for RUB 1 across all
Russian regions providing access to two platforms "School" and
"Development";
- Rostelecom started to support the public COVID-19 information contact
centre ???????????????.??, which provides guidance to support people
during the coronavirus pandemic;
- Free access to five best culture and art TV channels was provided and a
collection of more than 5000 national and international movies, series,
kids, entertainment and educational content on the digital platform Wink
[8];
- maximum Internet speed capacity [8] was increased for those who work and
study from home;
- for Tele2 Russia mobile clients:
- Hotline traffic limits were reset and access was provided to the
public COVID-19 information contact centre ???????????????.??;
- provided free access to messengers to those stranded abroad;
- Extra data added to the data plans of those following guidelines
around self-isolation.
KEY ACHIEVEMENTS
- Revenue grew by 10% year-on-year;
- Mobile services grew by 16% year-on-year;
- Sales in digital services increased by 63% year-on-year;
- OIBDA grew by 12%;
- Free Cash Flow (FCF) [4] improved more than twofold.
FIRST QUARTER 2020 FINANCIAL HIGHLIGHTS
- Revenue grew by 10% to RUB 121.6 billion;
- OIBDA up by 12% to RUB 47.1 billion;
- OIBDA margin grew by 0.7 p.p. to 38.7%;
- Net profit increased by 1% to RUB 7.7 billion;
- CAPEX[5] excluding state programmes decreased by 15% to RUB 22.0 billion
(18.1% of revenue) compared to 1Q 2019;
- Free Cash Flow (FCF) improved more than twofold to RUB (5.9) billion;
and
- Net debt[6] increased by 18% since the beginning of the year to RUB
392.8 billion, resulting in a Net Debt/OIBDA ratio of 2.2x.
Key figures for 1Q 2020, RUB mln
RUB million 1Q 2020 1Q 2019 change, y-o-y
Revenue 121,613 110,225 10%
OIBDA 47,082 41,865 12%
OIBDA margin % 38.7% 38.0% -
Operating Income 18,947 16,764 13%
Operating margin % 15.6% 15.2% -
Net Income 7,712 7,667 1%
% of revenue 6.3% 7.0% -
Capital Expenditure 21,997 25,749 (15%)
(MORE TO FOLLOW) Dow Jones Newswires
May 19, 2020 02:33 ET (06:33 GMT)
DJ ROSTELECOM PJSC: Rostelecom announces its IFRS -2-
% of revenue 18.1% 23.4% -
Net debt 392,821 333,924 18%
Net debt/ annualised OIBDA 2.2 2.0 -
FCF (5,946) (15,518) 9,572
Mikhail Oseevskiy, President of Rostelecom, commented:
"Rostelecom Group's consolidated results for the first quarter of this year
reflect the first contribution from the full integration of Tele2 Russia.
Together, we have managed to increase revenue and OIBDA by 10% and 13%
respectively. We are also seeing continuous growth in net income and have
increased FCF more than twofold. The main goals of consolidating 100% of
Tele2 Russia into Rostelecom are already being realized and we are getting
closer to creating Russia's largest integrated provider of digital services,
capable of significantly improving financial performance, strengthening and
consolidating our leading position in the Russian telecommunications, IT and
other high-tech industries. The management greatly appreciates the
contribution of the most rapidly growing mobile operator in the world[7] to
the group's overall performance. Prospects for its continuing success and
development are also good.
Despite the strong results generated by the first months of our new
integrated business by the end of the first quarter, like the majority of
companies around the world, we are facing unprecedented challenges
associated with the Covid-19 pandemic. At the same time, as a modern
high-tech company, which has undergone a huge path of digital
transformation, the transition to remote working wasn't challenging for us.
We have invested heavily to ensure that employees whose tasks are unable to
be carried out remotely, such as ensuring that our network infrastructure
and vital facilities are running smoothly, are able to do so safely.
In addition to securing the safety of all employees, the Company's main goal
has been to help clients adapt to a new reality by providing them with
convenient digital solutions that enable them to quickly restructure their
operations. This has enabled the work of state and corporate clients to
continue operating on-line with minimal interruption. We have quickly
adjusted to the needs of all types of customers, offering them service
packages that meet the challenges of this new paradigm.
Today, humanity is going through perhaps one of the most difficult periods
in its new history, and a long period of recovery is ahead of us. Together,
we are capable of making it through the challenging times ahead. As a
provider of digital solutions, we will make this time for our customers less
painful. We will minimise the impact of the crisis and will help unleash
their potential, reframed against the context of the new realities of our
market. Together, we will come out of the crisis stronger with greater
efficiency and resilience.
Crisis is a time of great change and opportunity. My colleagues and I on the
Rostelecom management team see prospects for further long-term growth for
the Company. Changes in lifestyles and business approaches, associated with
the need for a rapid and mass transition of people to online communication
and offline remote work, will strengthen the role of telecommunications and
IT companies in the economy. This trend gives added impetus to the
development of technologies and communication networks. Data processing and
storage infrastructure also gains importance to help absorb an avalanche of
traffic while providing sufficient bandwidth, network stability, and most
importantly - to provide a wide range of popular digital services to the
population, business, the State."
Vladimir Kirienko, First Vice-President of Rostelecom, said:
"We had a good start to the year, supported by the expansion of the digital
segment and the success of Tele2 Russia's mobile business. The beginning of
spring was a time of serious testing and intensive work to support clients
during a period of reconfiguration of their daily lives and business
processes due to the spread of Covid-19. In response to the pandemic,
Rostelecom offered clients a special package of services to help them
operate without any interruption. These are proven and effective solutions
that enable business processes to continue in the new environment.
Rostelecom's range of remote access solutions and information resources
includes Internet access services, virtual private networks (VPNs) and
secure remote access solutions. These are accompanied by virtual data center
services, and DDoS attacks mitigation.
One of many initiatives to have been well received includes unique
intelligent systems that provide high-precision remote monitoring of
people's body temperature using thermal imaging. This service will be in
high demand after the pandemic is over. We are introducing this service
turnkey, and it has already been purchased by a number of large enterprises,
including Alrosa, one of the leaders in the world diamond mining industry.
We have also delivered digital services to retail customers, specifically to
citizens who face the challenges presented by self-isolation. These
customers require highly reliable Internet connectivity, dependable mobile
and fixed communications to enable them to pursue online learning,
self-development and obtain critical public services remotely. As a socially
responsible company, during the pandemic, Rostelecom has provided free
access to a large library of content, increased connection speeds as much as
possible, and granted deferrals of payments. Our digital solutions enable us
to help citizens, businesses and the State to function despite the
challenges presented by the spread of coronavirus infection.
The self-isolation regime is forcing people and business to function
digitally. As a conduit for such solutions, Rostelecom is ready to help
clients transition operations after the pandemic is over to ensure that
online activity is convenient, efficient and uninterrupted when it is needed
the most."
Sergey Anokhin, Senior Vice President and Chief Financial Officer added:
"The opening months of 2020 delivered strong financial results and a good
backlog of business for the rest of the year. In response to the pandemic,
the company has developed several scenarios when it comes to how we will
respond to the developing situation in the economy, how the corporate
economic activity may vary, and what the population and state institutions
will require. An action programme for each of the scenarios has been
adopted. We are expecting a decline in economic activity in a number of
areas, which may cause growth in Rostelecom's business to slow. At the same
time, we are also seeing a significant increase in the demand for digital
services and solutions relating to the digitalization of infrastructure from
large corporations, as well as the introduction of digital solutions for
remote working and learning. Demand is coming from both the public and
private sectors, opening up additional opportunities and growth triggers for
Rostelecom. But we also see a high level of uncertainty regarding on-going
self-isolation, the scope of government aid to the households and industries
hit by the crises and how macro indicators are going to develop. Taking
account of these factors, Rostelecom will update the market on the guidance
under the new perimeter of consolidation in the coming reporting periods. To
ensure business processes remain in continuity and financial stability,
Rostelecom has digitalized its interaction with financial partners. This has
enabled us to mitigate the impact of the outbreak on our plans to attract
financing, seal leasing deals, and use the full range of other financial
instruments available on the market. To ensure our resilience in the new
environment, we have adapted the ways we analyze and report on liquidity
monitoring and forecast, inventories and supply chains management and
financial controls across all business units. The above mentioned measures,
along with the promotion of paperless operations and introduction of digital
signature both internally within the Group and externally with clients and
counterparties, has ensured the seamless shift to the new reality without
losing pace and compromising our business development plans."
KEY OPERATING HIGHLIGHTS
Fixed-line business
Number of 1Q 2020 1Q change, y-o-y 4Q 2019 change,
subscribers 2019 y-o-y
(million):
Internet access 13.2 13.0 2% 13.2 0.2%
B2C: Broadband 12.2 12.0 1% 12.2 0.3%
B2B: Broadband 1.1 1.0 6% 1.1 0.1%
+ VPN
Pay TV 10.5 10.2 3% 10.4 1%
Incl. IPTV 5.7 5.4 6% 5.6 2%
Local telephony 15.3 17.0 (10%) 15.7 (2%)
services
ARPU[8] (RUB): 1Q 2020 1Q 2019 change, y-o-y 4Q 2019 change,
y-o-y
Internet
access
B2C: Broadband 397 397 0% 402 (1%)
B2B: Broadband 3,368 3,266 3% 3,455 (3%)
+ VPN
Pay TV (B2C) 257 249 3% 255 1%
Incl. IPTV 319 317 1% 320 0%
Blended 551 543 1% 553 0%
ARPU[9]
Mobile business
1Q 2020 1Q 2019 change, y-o-y 4Q 2019 change,
y-o-y
Data Traffic, 1,086.5 643.2 69% 988.7 10%
(MORE TO FOLLOW) Dow Jones Newswires
May 19, 2020 02:33 ET (06:33 GMT)
incl. MVNO,
Eb
Churn, % (8.6%) (9.3%) 0.7 p.p. (9.3%) 0.7 p.p.
Growth of 36.1% 37.7% (1.6 p.p.) 39.1% (3.? p.p.)
active mobile
data users ,
%
1) The total number of Internet subscribers among households grew by 1% to
12.2 million in the first quarter of 2020 compared to the corresponding
period of last year; ARPU was RUB 397.
2) The total number of B2B Internet and VPN subscribers increased by 6%
year-on-year to 1.1 million; ARPU grew by 3% year-on-year to RUB 3,368.
3) The number of pay-TV subscribers grew by 3% to 10.5 million households
compared to the corresponding period of last year with ARPU of RUB 257, up
3% year-on-year;
? The number of IPTV subscribers increased by 6% to 5.7 million with ARPU
of RUB 319.
4) The number of active mobile users grew by 36.1% year-on-year while
mobile data traffic jumped by 69%; at the same time churn of cellular
customer base decreased by 0.7pp to 8.6%.
5) The number of local telephony subscribers decreased by 10% to 15.3
million.
KEY EVENTS RELATING TO 1Q 2020 AND AFTER THE END OF THE REPORTING PERIOD
Business news
? Rostelecom continues to develop and expand its range of products and
services:
? A new product line of tariffs and packages, including Internet, IPTV and
mobile services has been introduced;
? New TV channels offer (Transformer, Maximum and Premium) and
subscription to Superhit videos have been introduced for the users of Wink
digital entertainment platform;
? As part of the Gaming tariff plan, Rostelecom has renewed the set of
options in Mail.ru MY.GAMES, and launched a new offer in World of Warships
with extra gaming bonuses available to the clients and users of Wargaming
games;
? As part of the "Smart Home" ecosystem:
? new option for intelligent video monitoring, including motion tracking
features available on all moving cameras from Rostelecom. Cameras with
audio now have a siren function;
? in the first three months of 2020 the sales of home CCTV cameras with
cloud storage jumped by 87% to total 51,000;
? launched a new "Smart control and access management" platform which
simplifies the resident organisation database by home & property
management firms. The platform enables individual accounts to be created
for tenants, who can be "electronically lodged" in the system using RFID
tags;
? Launched a "Smart metering" solution to facilitate measurements within
one household or one building.
? Rostelecom continues to grow its digital segment:
? The number of Wink digital platform users surpassed 1 million;
? Revenue from Smart Home ecosystem soared by 87%;
? Revenue from Data Centre jumped by 92%;
? Broadband revenue in the B2C fibre segment grew by 7%;
? Sales of antivirus products increased by 27%;
? As part of the development of its cybersecurity offering:
? revenues grew fivefold, partially driven by more active regional
sales;
? Rostelecom renewed a number of its services, including its DDoS attack
mitigation product, Solar appScreener code analyzer, IGA platform Solar
inRights and Solar webProxy firewall;
? Signed the largest international contract in IT security to supply
Solar appScreener to Singapore airlines.
? Rostelecom continues to grow its cloud services segment for B2B:
? Sales of the Virtual PBX offering grew by 46%;
? As part of the Virtual Data Centre offering:
? revenues grew threefold;
? commissioned infrastructure for the TrueConf cloud video conferencing
product;
? Data Centre Basic offering was launched for clients with minimal
functionality requirements and SLA;
? The first segment of virtual Data Centre was launched on the Russian
cloud platform Tionix;
? Tionix Virtual Security product was launched, with built-in means of
protection from unauthorized users for extra security of personal data
stored in the cloud;
? Clients can now migrate their systems on various physical sites into
one centralised infrastructure which will provide better reliability and
accessibility of the IT systems in the cloud;
? Signed contracts to assist the migration of Russian Ministries and
State Departments into one single cloud platform (Ministry of Labour,
Ministry of Justice, Rostekhnadzor (Federal Service for Ecological,
Technological and Nuclear Supervision), Rosimushchestvo (Federal Agency
for State Property Management), GFS Russia, Federal Archival Agency;
? New cloud data centre sections were commissioned in Moscow and
Yekaterinburg which now enables Rostelecom's clients to enjoy the
existing virtual storage facilities in seven different sites (four in
Moscow and two in Novosibirsk and Adler)
? Rostelecom was ranked first among data centre providers [9] in Russia
in 2019, according to IKS Consulting. Following the acquisition of
DataLine the Company's market share reached 26% by the number of racks
commissioned in Russia;
? The DataLine acquisition expanded Rostelecom's leadership in the
market by a total number of 11,500 thousand racks.
? Rostelecom signed a number of large contracts, including agreements with
Yandex, Promsvyazbank, Gazprombank, Roscosmos, Information centre of the
Judicial Department, the General Radio Frequency Centre, Russian Treasury,
Public Prosecution Service, Russian Pension Fund and other organizations;
? Rostelecom has been ranked at the top of the independent rating by J'son
& Partners Consulting [10] by the number of pay-TV subscribers in B2B in
2019;
? Rostelecom has been ranked first [11] in the b2b cloud
video-surveillance market, according to TelecomDaily;
? Rostelecom has been ranked first [12] by the number of users of virtual
telephony services, according to TMT consulting;
? Rostelecom has been ranked first [13] in the 8-800 toll-free services
according to TMT consulting;
? Rostelecom has been ranked first [14] in the b2b broadband market
according to TMT consulting;
? Revenues from Rostelecom's O2O[10] project increased by 40%;
? Transit Europe-Asia (TEA) route upsell with further contracts of
200Gb/s;
? Rostelecom's subsidiary mobile operator Tele2 has been expanding
rapidly, maintaining high standards of services and level of client
support. In the reporting period Tele2 has:
? launched of 5G cloud games [15] on the GFN.ru platform with access to;
? developed an anti-fraud platform for call number tracking;
? doubled the My Tele2 app user base;
? become the fastest growing mobile operator [16][11] in the world;
Other news
? Rostelecom consolidated 100% of Tele2 [17] to create the largest
integrated digital provider in Russia;
? Rostelecom completed the deal to acquire DataLine [18], the second
largest datacentre provider in Russia;
? Rostelecom became a co-investor in the start-up portfolio of the Russian
Internet Initiatives Development Fund (IIDF) [19];
? Rostelecom registered a joint venture with VTB [20] to work with Big
Data
? Rostelecom announced the following bond placements:
? a three-year bond of total nominal value of RUB 10 billion, at a coupon
rate of 6.75% per annum;
? 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.
? Rostelecom has been included in the 2020 Bloomberg Gender-Equality Index
[21].
OPERATING REVIEW
Revenue analysis
Revenue structure by services
RUB million 1Q 2020 1Q 2019 change
Mobile services 40,963 35,232 16%
Broadband 21,993 21,043 5%
Digital services 12,520 7,696 63%
TV services 9,489 9,331 2%
Wholesale services 17,771 17,009 4%
VPN 7,026 5,225 34%
Interconnect and traffic transit 4,247 5,904 (28%)
services
Infrastructure products and services 4,064 3,457 18%
Rent of channels 2,434 2,423 0%
Fixed telephony 14,189 15,851 (10%)
Other services 4,688 4,064 15%
Total 121 613 110 225 10%
Revenue structure by customer segments
RUB million 1Q 2020 1Q 2019 change
Residential customers 62,807 59,951 5%
B2B / State clients 39,001 30,991 26%
Operators 18,845 18,224 3%
Other 960 1,059 (9%)
Total 121,613 110,225 10%
In the first quarter of 2020, revenue increased by 10% to RUB 121.6 billion,
compared to the first quarter of 2019, as a result of the following factors:
? a 16% increase in revenue from mobile services due to a higher volume of
mobile data consumption and standard voice services;
? a 63% increase in revenue from digital services, mainly due to larger
sales of cyber security services, Smart City projects, e-government
solutions, promotion of cloud and data centre services;
? a 34% increase in revenue from VPN services, mainly due to higher demand
from state and corporate clients;
? a 5% increase in revenue from broadband services due to a higher number
of subscribers and higher ARPU in the b2b segment.
Operating income analysis
Operating expenses structure
RUB million 1Q 2020 1Q 2019 change
Personnel costs (32,190) (28,555) 13%
Depreciation, Amortization and (27,128) (23,935) 13%
impairment losses
Interconnection charges (21,289) (20,197) 5%
Materials, repairs and maintenance, (9,039) (8,395) 8%
utilities
Gain on the disposal of PPE and 1,359 655 107%
intangible assets
Impairment loss of financial assets (1,163) (1,236) (6%)
measured at amortized cost
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