DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2020
ROSTELECOM PJSC (RKMD) ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2020 09-March-2021 / 09:34 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 FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2020 Revenue increased by 15%; OIBDA[1] up 14%; net profit up 16%. Revenue and OIBDA exceed guidance for FY2020. Moscow, Russia - March 9, 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 2020 prepared in accordance with IFRS[2]. 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. Besides, the Group made a number of revisions to its 2019 statements following the IFRS Interpretations Committee decision on lease terms of contracts with renewal and termination options. Please find more details on the revisions in Note 6 of the consolidated financial statements for 2020.
FOURTH QUARTER 2020 KEY FINANCIAL HIGHLIGHTS - Revenue grew by 23% to RUB 163.0 billion compared to 4Q 2019:
- mobile services revenue grew 15% year-on-year;
- digital services revenue grew 53% year-on-year; - OIBDA up by 10% to RUB 44.5 billion; - OIBDA margin of 27.3% compared to 30.6%; - Net loss of up to RUB (2.1) billion compared to RUB (0.8) billion in 4Q 2019; - CAPEX[3] excluding state programs decreased by 16% to RUB 36.2 billion (22.2% of revenue) compared to 4Q 2019; - FCF[4] of RUB 17.9 billion compared RUB 15.7 billion in 4Q 2019; - Net Debt[5] increased by 9% since the beginning of the year to RUB 362.2 billion, resulting in a Net Debt/OIBDA
ratio of 1.9x. During 4Q 2020 Net Debt decreased by 13%, resulting in a Net Debt/OIBDA ratio decrease from 2.2x to
1.9x.
Key figures for 4Q 2020, RUB mln
RUB million 4Q 2020 4Q 2019 change, y-o-y Revenue 163,009 132,896 23% OIBDA 44,491 40,627 10% OIBDA margin % 27.3% 30.6% - Operating Income 8,374 9,792 (14%) Operating margin % 5.1% 7.4% - Net Income (2,083) (790) 164% % of revenue (1.3%) (0.6%) - Capital Expenditure excl. state programs 36,162 42,863 (16%) % of revenue 22.2% 32.3% - Net debt 362,244 333,007 9% Net debt/ annualised OIBDA 1.9 2.0 - FCF 17,925 15,697 2,228 FULL YEAR 2020 FINANCIAL HIGHLIGHTS - Revenue increased by 15% to RUB 546.9 billion compared to 2019; - OIBDA grew by 14% to RUB 194.1 billion; - OIBDA margin of 35.5% compared to 35.9% in 2019; - Net profit increased by 16% to RUB 25.3 billion; - CAPEX excluding state programs of RUB 107.1 billion (19.6% of revenue) compared to RUB 105.7 billion (22.2% of
revenue) in 2019; - FCF of RUB 22.7 billion compared to RUB 30.3 billion in 2019; - Net Debt increased by 9% since the beginning of the year to RUB 362.2 billion, resulting in a Net Debt/OIBDA ratio
of 1.9x. Key figures for the full year of 2020, RUB mln
RUB million 2020 2019 change, y-o-y Revenue 546,889 475,752 15% OIBDA 194,050 170,703 14% OIBDA margin % 35.5% 35.9% - Operating Income 68,965 61,280 13% Operating margin % 12.6% 12.9% - Net Income 25,348 21,878 16% % of revenue 4.6% 4.6% - Capital Expenditure excl. state programs 107,138 105,657 1% % of revenue 19.6% 22.2% - Net debt 362,244 333,007 9% Net debt/ annualised OIBDA 1.9 2.0 - FCF 22,659 30,253 (7,594)
Mikhail Oseevskiy, President of Rostelecom, commented: "Rostelecom evidenced its resilience to major global challenges in 2020. Despite the constantly changing backdrop, we remained nimble enough to take steps to maintain our leading position in the market and achieve excellent financial results. Our revenue grew by 15%, operating profit before depreciation increased by 14%, and we grew net profit by 16%. By consolidating 100% of Tele2 Russia, Rostelecom became the largest integrated digital provider in the country, with revenues of more than half a trillion roubles generated from a diverse range of cutting-edge services.
In April 2021, we plan to announce our renewed strategy outlining high-level strategic focus on digital business that will better position our company for changing markets and align with customer needs. Our focus will continue to be on new points of growth and expansion of Rostelecom's fast-growing portfolio.
At the end of 2020, we closed a landmark deal with VTB Bank, who came on board as a strategic partner to help support the development of our data centres and cloud services. Not only did we secure the financial resources and a reliable joint partner, but we also demonstrated a new significantly enhanced market value and potential that the business segment carries, and there is more to come from other digital divisions.
We expect that the IPO of the cloud segment, as well as further possible placements involving other promising digital clusters, will deliver significant shareholder value due to the higher multiples applicable to growing digital companies unlocking the fair value presented by Rostelecom as a group."
Vladimir Kirienko, First Vice-President of Rostelecom, commented: "The strong financial results for 2020 evidence how Rostelecom has become truly digital. Over a long period of time, Rostelecom has systematically expanded its range of advanced digital services, enabling the company to embark on a trajectory of sustainable double-digit growth, that exceeds rates of growth achieved by other market players.
We have invested a lot in enhancing our data centers and cloud services, cybersecurity solutions, regional digital projects, e-government, video surveillance and analytics, and smart services for households and businesses. The results of these efforts are coming into fruition: the digital segment is growing at an impressive rate, providing the company with tens of billions of roubles of additional revenue, with areas such as cybersecurity are multiplying in size every year.
Despite our achievements, we are never complacent and understand that we must continue to look at new areas of growth to preserve our leadership in the space. To that end, we continue to expand our digital offering to maintain exponential growth dynamics. We have done so by acquiring developers of proprietary software products in the field of housing and communal services (Forkam and Fastek companies), a leading developer in the field of digitalization of waste management and ecology, we have formed a partnership with Doctis to create telemedicine services and we have a joint venture with YADRO to expand the line of PaaS solutions as well as a number of similar partnerships and activities that will cement our leading position in the space.
Coupled with the phenomenal success of Tele2 Russia, which is the only player with double-digit growth in an already mature market and the fastest growing mobile operator in the world, our achievements in transforming Rostelecom into a digital giant enables us to be ambitious in shaping our strategic plans for digital services for years to come."
Sergey Anokhin, Senior Vice-President and Chief Financial Officer added: "The company demonstrated strong growth in key financial indicators and exceeded the forecast of its 2020 targets. Despite the continued uncertainty about the future dynamics of macroeconomic indicators, progress achieved in 2020 means we can reasonably expect the continued growth of our business in 2021. The company's management expects an increase both in consolidated revenue and OIBDA by at least 5%; ?APEX is planned within the range of 110 - 115 billion roubles (excluding the implementation of state programs)."
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DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND -2-
KEY OPERATING HIGHLIGHTS
Number of subscribers (million): 4Q 2020 4Q 2019 change, y-o-y 3Q 2020 change, y-o-y Internet access 13.5 13.2 2% 13.4 1% B2C: Broadband 12.4 12.2 2% 12.3 1% B2B: Broadband + VPN 1.1 1.1 5% 1.1 2% Pay TV 10.8 10.4 4% 10.7 1% Incl. IPTV 6.1 5.6 9% 5.9 3% Hosted PBX 0.160 0.097 65% 0.147 9% Local telephony services 14.0 15.6 (10%) 14.5 (3%) ARPU[6] (RUB): 4Q 2020 4Q 2019 change, y-o-y 3Q 2020 change, y-o-y Internet access B2C: Broadband 395 402 (2%) 390 1% B2B: Broadband + VPN 3,372 3,455 (2%) 3,231 4% Pay TV 250 255 (2%) 245 2% Incl. IPTV 302 320 (5%) 298 2% Hosted PBX 1,186 1,238 (4%) 1,119 6% Blended ARPU[7] 546 553 (1%) 537 2%
Mobile business
4Q 2020 4Q 2019 change, y-o-y 3Q 2020 change, y-o-y Data Traffic, incl. MVNO,Pb 1,442 977 48% 1,351 7% Churn, % (8.1%) (9.5%) (1.5 p. p.) (7.3%) 0.8 p. p. Growth of active mobile Internet users, % 20.0% 39.6% (19.6 p. p.) 25.5% (5.5 p. p.) Subscriber base at the end of period 46.6 46.0 1.5% - - 1. The total number of Internet subscribers among households grew by 2% to 12.4 million in the fourth quarter of 2020
compared to the corresponding period of last year; ARPU was RUB 395. 2. The total number of Internet and VPN subscribers in B2B increased by 5% year-on-year to 1.1 million; ARPU was RUB
3,372. 3. The number of pay-TV subscribers grew by 4% to 10.8 million users compared to the corresponding period of last
year, with average ARPU of RUB 250 across B2C; - the number of IPTV subscribers increased by 8% to 6.1 million, and ARPU was RUB 302 across B2C; 4. The mobile subscriber base grew to 46.6 million users in 2020, while the number of active mobile Internet users
increased by 20% in 4Q 2020 compared to the corresponding period of 2019. The mobile Internet data traffic growth
reached 38%; at the same time, cellular customer base churn decreased to 8.1%; 5. The number of local telephony subscribers decreased by 10% to 14.0 million.
KEY EVENTS RELATING TO FY 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 remote working product line "Technologies PRO" launched to expand services for Internet broadband customers
with a number of products including dedicated customer support, antivirus, cloud storage on Yandex Disk and other; - A unique comprehensive solution for high-precision remote body temperature measurement for offices. Based on
thermal imaging cameras, it offers a comprehensive software and hardware and can be easily integrated with clients'
owned control systems. A number of companies including ALROSA and LUKOIL have already tested the new product; - An innovative solution for monitoring of solid domestic waste was introduced to the market, enabling the inspection
of waste collection sites, their operation schedules and compliance with standards, using video surveillance
cameras and AI; - A new platform Wi-Fi 2.0 was launched for B2B clients, offering enhanced statistical and analytical tools for
tracking, analysing and measuring consumer behaviour while connected to public Wi-Fi networks; - As part of the gaming business expansion a series of promotions and offerings were introduced to gamers, including
extra bonuses for broadband users of MY.GAMES, a brand-new faster game-friendly router RT-X by Rostelecom and a new
game, "Lost Ark", within the 'Gaming' tariff plan. In addition, further expansion of cloud gaming products saw the
launch to users across the entire country; - Regular upgrades were made to the Wink digital platform, including:
- The launch of new TV packages - Transformer, Maximum, Premium and Super Hits subscription;
- Special terms for the "Watching together" shared viewing option introduced for multi-device watching,
connecting people from anywhere in the country;
- Payments for Wink subscription now made available via Tele2 Russia accounts;
- A new offer "Everywhere online" providing Tele2's clients with special subscription deals for the Wink video
entertainment platform.
The number of devices connected to Wink grew more than fourfold to 8 million gadgets. - Expanded functionality and added options within the Rostelecom Key solution for:
- clients to use smart access control systems for household facilities, enabling doors to be opened remotely,
create keys for gates, basements, lofts and other entrances;
- remote control data from home utility meters and video surveillance service online ordering are now available
on mobile devices, along with alarm codes that allow doors to open in emergencies; - As part of the further development of its convergent proposition:
- Sales of new tariff plans Premium History, Technologies of benefits PRO and new Internet options for devices
were launched;
- Mobile clients can now enjoy cloud gaming services (in partnership with GFN.RU); - Within the Smart Home video surveillance services, Rostelecom:
- launched Smart utility meters that display data for entire households and individual utility systems;
- launched a new "Smart control and access management" platform which enables individual accounts to be created
for tenants, who can be "electronically lodged" in the system using RFID tags, and a new option for intelligent
video monitoring, including motion tracking features available on all moving smart home cameras from
Rostelecom. Cameras with audio now have a siren function; - Rostelecom continues to grow its digital segment in 2020: - As part of cybersecurity services:
- cybersecurity revenues grew more than twofold;
- Rostelecom launched two new services, including Incident Response Plan (IPR) and a cyber-attack imitation
platform called Red Teaming, which analyses cyber threats and assesses the existing defence capabilities on
their owned IT infrastructure.
- Upgraded version of the Solar Dozor solution launched to prevent data leaks and ensure security of
employee communications;
- A set of DDos-attacks security solutions such as Solar appScreener, IGA-platform Solar inRights and
web-security gate Solar webProxy were enhanced;
- Sales of Solar appScreener started in five new countries;
- Signed the largest information security contract with Singapore airlines for Solar appScreener. - Rostelecom continues to grow its cloud services and data processing centres segments for B2B:
- Data Centers revenue grew more than twofold;
- Revenues from the Virtual PBX offering increased by 54%;
- Virtual Data Centre services revenues increased by 129%;
- The launch of a Virtual data center segment based on Tionix cloud platform;
- Rostelecom launched new data centers in Moscow (for 100, 600 and 200 racks), Saint-Peterburg for 800 racks and
Novosibirsk for 300 racks. The easternmost data centre was opened in Sakhalin (with an initial capacity of 25
racks and a potential for expansion to 180 racks); - B2C fiber broadband revenues grew by 9,5%; - Revenues from the Antivirus offering increased by 15%; - Rostelecom continued to sign substantial contracts, while also executing large-scale projects:
- Rostelecom successfully provided video surveillance for the single election day and the Unified State Exam
(core and additional) as well as webcast;
- Rostelecom has agreed to provide VTB with a Single Corporate Telecommunication Network and Wi-Fi in more than
1,500 branches;
- Rostelecom completed setting up a Wi-Fi network across 400 Gazprombank branches;
- Signed agreement with the Ministry of Digital Development, Communications and Mass Media to connect Central
Electoral Commission facilities to a Single Telecommunications Network and provide information security
services;
- Rostelecom rolled out a comprehensive cross-country digital infrastructure for the 2021 National Census. - Operator business segment highlights: - O2O[8] revenues grew by 30% in 2020 with an increase in maintained third-party fibre optic capacity by 26,000 km
and expansion of base transceiver stations (BTS) we serve by almost 10,000; - An uplift in segment margin by 14 p.p.; - A new 350 Gbit per sec capacity route via Kazakhstan launched as part of TEA extension. - Rostelecom's subsidiary Tele2 Russia continues steady and dynamic growth: - Within the regions of presence achieved 96% population coverage for 4G networks, 93% for 3G and 97% of 2G networks; - Key achievements in 5G rollout include the launch of international 5G roaming in Switzerland, a pilot 5G zone in
central Moscow together with Ericsson, and presentation of 5G capabilities in digital health at the CIPR (digital
industry of industrial Russia) conference; - Tele2 launched a Health & lifestyle website; - Digital cinema tariff options launched for clients as part of "Everywhere online" with full access to Wink video
library; - A brand-new digital offering "Home under new rules" for all mobile operators servicing clients during the
quarantine period; - The total client base of virtual operators with the Tele2 Russia network surpassed 2.8 million (excluding
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DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND -3-
Rostelecom MVNO clients); - Tele2 launched a mobile phone recycling function as part of the "Remelting" environmental project; - The high quality of Tele2's services have been recognised by the "Silver Mercury" award in six nominations as well
as by "Effie Awards Russia" in eight nominations for creative marketing communications; - Tele2 notched five years of operations in the Moscow region. Since the launch, the number of 4G base stations
increased by 23 times, while the rate of base station construction now exceeds 2015 indictors by 1.5 times.
Tele2 has reaffirmed its rating as the highest rated mobile operator for overall customer satisfaction (NPS of 40% with huge gap to close competitor) and the fastest growing operator globally[9].
M&A deals - Consolidation of a 100% share in Tele2 Russia to create the largest integrated digital services provider; - Completion of the deal to acquire a 100% share of DataLine, the second largest datacentre provider in Russia; - Strategic partnership to boost the development of its data centres and cloud business: VTB Bank invested RUB 35
billion for a 44.8% stake in RTK-DC; - Acquisition of LUKOIL's telecommunication business; - Acquisition of the national media operator Synterra Media; - Acquisition of a leading Internet provider in Yekaterinburg and the Sverdlovsk region; - Acquisitions of 51% in Fastech and 51% in Forkam - two digitization solutions providers for utility companies; - Business-partnership with the leading system integrator in IT security Elvis Plus; - Acquisition of interest in an e-signature provider Sign.Me as part of the expansion of its digital ecosystem; - Rostelecom became a co-investor with the Russian Internet Initiatives Development Fund.
Other news - Paid Dividends for 2019 of RUB 5 per share; - Rostelecom announced the following bond placements:
- a five-year bond of total nominal value of RUB 10 billion, at a coupon rate of 6.3% per annum;
- 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. - The Company's Virtual PBX service and "Remote body temperature measurement" was included in the list of the best
solutions by the International Telecommunication Union[10]; - Rostelecom was included in the Bloomberg Gender-Equality Index for 2020 and 2021.
OPERATING REVIEW
Revenue analysis
Revenue structure by services
RUB million 4Q 2020 4Q 2019 change 2020 2019 change Mobile 47,274 41,209 15% 176,958 153,760 15% Broadband 23,626 21,904 8% 90,376 84,493 7% Digital 30,443 19,915 53% 77,298 48,477 59% TV services 9,792 9,468 3% 38,004 37,360 2% Wholesale services 20,116 17,914 12% 74,762 69,703 7% VPN 8,216 6,417 28% 29,722 24,273 22% Interconnect and traffic transit services 4,593 4,418 4% 17,803 20,017 (11%) Rent and maintenance of telecommunications infrastructure 4,732 4,639 2% 17,142 15,689 9% Rent of channels 2,575 2,440 6% 10,095 9,724 4% Fixed telephony 13,356 14,885 (10%) 54,620 60,824 (10%) Other services 18,403 7,600 142% 34,871 21,135 65% Total 163,009 132,896 23% 546,889 475,752 15%
Revenue structure by customer segments
RUB million 4Q 2020 4Q 2019 change 2020 2019 change B2C 67,311 63,235 6% 259,782 245,791 6% Corporate customers / Government customers 73,345 49,460 48% 201,618 151,989 33% Operators 21,438 19,142 12% 81,030 73,811 10% Other 916 1,057 (17%) 4,459 4,161 7% Total 163,009 132,896 23% 546,889 475,752 15%
In the fourth quarter of 2020, revenue increased by 23% to RUB 163.0 billion, compared to the fourth quarter of 2019, as a result of the following factors: - a 53% increase in revenue from digital services, mainly due to the growth in regional digital projects, growing
demand for digital platforms in healthcare, public administration and elections, larger sales of cyber security
services, the promotion of cloud and data centre services, as well as the consolidation of DataLine; - revenue growth of 142%, generated by the delivery of a comprehensive software and hardware complex to the Federal
State Statistic Service ROSSTAT for the Population Census project; - a 15% increase in revenue from mobile services due to a higher volume of mobile Internet data consumption and
standard voice services; - a 12% increase in wholesale revenues, driven by a 28% increase in revenues from the growth of VPN B2B and state
customers; - an 8% increase in revenue from broadband services due to a higher number of subscribers, as well as revenues from
Internet connection contracts.
During the twelve months of 2020, revenue increased by 15% to RUB 546.9 billion, year-on-year, as a result of the following factors: - a 59% increase in revenue from digital services, mainly due to the growth in regional digital projects, growing
demand for digital platforms in healthcare, public administration and elections, larger sales of cyber security
services, the promotion of cloud and data centre services, as well as the consolidation of DataLine; - a 15% increase in revenue from mobile services due to a higher volume of mobile Internet data consumption and
standard voice services; - revenue growth of 65%, generated by the delivery of a comprehensive software and hardware complex to the Federal
State Statistic Service ROSSTAT for the Population Census project; - a 7% increase in revenue from broadband services due to a higher number of subscribers, as well as higher revenues
from Internet connection contracts.
Operating income analysis
Operating expenses structure
RUB million 4Q 2020 4Q 2019 change 2020 2019 change Personnel costs (40,303) (34,701) 16% (136,389) (119,822) 14% Depreciation, Amortization and impairment losses (34,166) (29,024) 18% (119,702) (104,062) 15% Interconnection charges (26,245) (22,449) 17% (94,860) (85,506) 11% Materials, repairs and maintenance, utilities (12,537) (10,131) 24% (41,003) (34,517) 19% Gain on the disposal of PPE and intangible assets 2,151 5,643 (62%) 5,992 8,127 (26%) Impairment loss of financial assets measured at amortized (4,030) (3,349) 20% (7,165) (6,588) 9% cost Other operating income 6,603 5,491 20% 21,883 20,434 7% Other operating expenses (46,108) (34,584) 33% (106,680) (92,538) 15% Total operating expenses (154,635) (123,104) 26% (477,924) (414,472) 15%
In the fourth quarter of 2020, operating expenses increased by 26% compared to the corresponding period of 2019 and amounted to RUB 154.6 billion, largely due to the following factors: - a 33% increase (of RUB 11.5 bln) in other operating expenses, due to B2B a?d B2G projects, including the expenses
incurred during the delivery of the Population Census project for ROSSTAT; - a 16% increase (of RUB 5.6 billion) in personnel costs, mainly due to an increase in the share of employees with
digital skills; - a 18% increase (of RUB 5.1 bln) in depreciation, amortization and impairment losses, due to higher payments
associated with new objects and impairment of intangible assets and leases; - a 17% increase (of RUB 3.8 bln) in interconnection charges, due to higher traffic caused by the pandemic and the
massive transition to remote working and learning; - a 24% increase (of RUB 2.4 billion) in materials, repairs and maintenance, utilities, mainly due to an increase in
expenditure on personal protective equipment amid the pandemic, and the consolidation of expenses on electricity
supplies for Rostelecom's recently acquired subsidiary DataLine, reflected in this line item; - a 62% decrease (of RUB 3.5 billion) in gain on the disposal of PPE and intangible assets due to a larger subscriber
base in 4Q 2019 at the time of the completion of the deal to sell the Central Telegraph building.
In the twelve months of 2020, operating expenses increased by 15% compared to the corresponding period of 2019 and amounted to RUB 477.9 billion due to the following factors: - a 14% increase (of RUB 16.6 billion) in personnel costs, mainly due to an increase in the share of employees with
digital skills; - a 15% increase (of RUB 15.6 bln) in depreciation, amortization and impairment losses, due to higher payments
associated with new objects and impairment of intangible assets and lease; - a 15% increase (of RUB 14.1 bln) in other operating expenses, due to B2B a?d B2G projects, including the expenses
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