DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST HALF OF 2021
ROSTELECOM PJSC (RKMD) ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST HALF OF 2021 05-Aug-2021 / 09:31 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 SECOND QUARTER AND FIRST HALF OF 2021
Second quarter revenue increased by 9%, OIBDA[1] up 15%, net profit up 46% and FCF[2] increased by RUB 10.7 billion
Moscow, Russia - August 5, 2021 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the second quarter and first half of 2021 prepared in accordance with IFRS.
SECOND QUARTER 2021 KEY FINANCIAL HIGHLIGHTS -- Revenue grew by 9% to RUB 138.6 billion compared to 2Q 2020; -- OIBDA up 15% to RUB 55.9 billion; -- OIBDA margin up 2.0 p.p. to 40.4%; -- Net profit up 46% to RUB 11.2 billion; -- CAPEX[3] excluding state programs decreased by 2% year-on-year to RUB 24.4 billion (17.6% of revenue); -- FCF of RUB 1.1 billion following a marked improvement of RUB 10.7 billion; -- Net Debt[4] (including lease liabilities[5]) increased by 6% YTD, amounting to RUB 493.8 billion, resulting in a
Net Debt/OIBDA ratio of 2.4x.
FIRST HALF YEAR 2021 FINANCIAL HIGHLIGHTS -- Revenue increased by 9% to RUB 270.5 billion compared to the first half of 2020; -- OIBDA increased by 16% year-on-year to RUB 111.4 billion compared to the first half of 2020; -- OIBDA margin grew by 2.6 p.p. to 41.2% compared to the first half of 2020; -- Net profit increased by 52% to RUB 23.0 billion compared to the first half of 2019; -- CAPEX excluding state programs increased by 11% year-on-year to RUB 51.6 billion (19.1% of revenue) in the first
half of the year; -- FCF of RUB 3.2 billion following a marked improvement of RUB 19.1 billion; -- Net Debt (including lease liabilities) increased by 6% YTD, amounting to RUB 493.8 billion, resulting in a Net Debt
/OIBDA ratio of 2.4x.
Key figures for 2Q 2020, RUB mln
RUB million 2Q 2021 2Q 2020 change, y-o-y
Revenue 138,589 127,279 9%
OIBDA 55,938 48,801 15%
OIBDA margin % 40.4% 38.3% -
Operating Income 21,798 18,939 15%
Operating margin % 15.7% 14.9% -
Net Income 11,174 7,649 46%
% of revenue 8.1% 6.0% -
Capital Expenditure excl. state programs 24,373 24,778 (2%)
% of revenue 17.6% 19.5% -
Net debt (incl. lease liabilities) 493,849 494,114 (-0.1%)
Net debt/ OIBDA 2.4 2.7 -
FCF 1,134 (9,566) 10,700 Key figures for 1HY 2020, RUB mln
RUB million 6M 2021 6M 2020 change, y-o-y
Revenue 270,547 248,892 9%
OIBDA 111,375 95,882 16%
OIBDA margin % 41.2% 38.5% -
Operating Income 44,470 38,248 16%
Operating margin % 16.4% 15.4% -
Net Income 22,984 15,102 52%
% of revenue 8.5% 6.1% -
Capital Expenditure excluding state programmes 51,554 46,651 11%
% of revenue 19.1% 18.7% -
Net debt (incl. lease liabilities) 493,849 494,114 (-0,1%)
Net debt/ annualised OIBDA 2.4 2.7 -
FCF 3,222 (15,924) 19,146
Mikhail Oseevskiy, President of Rostelecom, commented: "We continued to perform well across all financial and operational indicators during the second quarter of 2021, demonstrating solid double-digit growth in revenue from digital and mobile services, OIBDA and net income. For the second quarter in a row, we have significantly improved our free cash flow position, which helps create a base from which to grow future dividend payments. The most important development during the quarter was the adoption of our updated strategy. Our strategic priority for the next five years is to further evolve into an integrated provider of digital services solutions with an emphasis on smart growth in our traditional business and focused leadership in digital clusters such as data centres and cloud services, cybersecurity, online medicine, digital regions and government digital services. To this end, we plan to gradually embark on a new business model which will be organised by clusters and segments. Our quarterly reporting will reflect that new structure to help us track the execution of our strategy by clusters and segments. We have a strong team capable of meeting our strategic goals which encompass growth as well as the realisation of further material cost reductions. This will underpin our sustainable development while creating additional value for all shareholders and stakeholders."
Vladimir Kirienko, First Vice-President of Rostelecom, commented: "The growth objectives set in our new strategy are very ambitious, but the results we have achieved during our digital transformation in recent years instil in us a confidence that by 2025 Rostelecom will cross the RUB 700 billion mark in terms of revenue, increase OIBDA by 1.5x and at least doubling net profit. These are ambitious strategic goals, but the momentum we have built with a close-knit professional team and the support of our shareholders will enable us to achieve them. A priority is to focus on our fast-growing digital segments, where we can build a strong leadership position and deliver an attractive return on investment."
Sergey Anokhin, Senior Vice-President and Chief Financial Officer added: "The Company has demonstrated further sustainable growth as well as effective cost control which resulted in a solid set of positive financial results in the second quarter and the first half of 2021. Rostelecom has already started reaping benefits from the launch of transformation programmes stipulated in the renewed strategy, including those related to curbing cost increases at a time when we are actively growing the business. This will create additional shareholder value and attractive returns on capital. We exceeded our expectations for the first half of 2021 and the moderate macroeconomic risk outlook enables us to look more optimistically at our anticipated results for the second half of the year. As a result of this, we are improving our previously published forecast for 2021. We are raising our outlook on consolidated OIBDA and now expect it to grow by 8-10%, and can review it once more at the third quarter 2021 results; our revenue outlook remains intact at a minimum 5% growth and we expect ?APEX of approximately RUB 110-115 billion, excluding the implementation of state programs."
KEY OPERATING HIGHLIGHTS
Fixed business
Number of subscribers (million): 2Q 2021 2Q 2020 change, y-o-y
Internet access 13.5 13.4 1%
B2C: Broadband 12.4 12.3 0.4%
B2B: Broadband + VPN 1.1 1.1 4%
Pay TV 10.8 10.7 2%
Incl. IPTV 6.3 5.8 8%
Hosted PBX 0.185 0.139 33%
Local telephony services 13.3 14.9 (11%)
ARPU[6] (RUB): 2Q 2021 2Q 2020 change, y-o-y
Internet access
B2C: Broadband 396 395 0.5%
B2B: Broadband + VPN 3,623 3,344 8%
Pay TV 254 248 2%
Incl. IPTV 302 309 (2%)
Hosted PBX 969 1,148 (16%)
Blended ARPU[7] 553 545 2%
Mobile business
2Q 2021 2Q 2020 change, y-o-y
Data Traffic, incl. MVNO,Pb 1,597 1,216 31%
Churn, % (7.2%) (9.0%) (1.8 p.p.)
Growth of active mobile Internet users, % 19.7% 28.1% (8.4 p.p.) 1. The total number of Internet subscribers among households grew by 0.4% to 12.4 million in the second quarter of
2021 compared to the corresponding period of last year. ARPU also increased by 0.5% year-on-year to RUB 396; 2. The total number of Internet and VPN subscribers in B2B increased by 4% year-on-year to 1.1 million; ARPU increased
by 8% year-on-year to RUB 3,623; 3. The number of pay-TV subscribers grew by 2% to 10.8 million users compared to the corresponding period of last
year, with average ARPU of RUB 254 in B2C; -- the number of IPTV subscribers increased by 8% to 6.3 million, and ARPU was RUB 302 in B2C; 4. The number of active mobile Internet users increased by 19.7% year-on-year during 2Q 2020. Year-on-year growth in
mobile Internet data traffic reached 31% during the second quarter of 2021; while cellular customer base churn
decreased to 7.2%; 5. The number of local telephony subscribers decreased by 11% to 13.3 million.
KEY EVENTS RELATING TO Q2 2021 AND AFTER THE END OF THE REPORTING PERIOD
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Business news - Rostelecom continues to develop and expand its range of products and services: -- within the "Game" tariff plan:
- A large-scale federal advertising campaign "Join the Winners' team" was carried out in partnership with Igrovoy
brand ambassadors and professional gamers including RAMZES666, LeBwa, AlinaRinRin;
- "World of Tanks" tournaments were also held, with "Steel Hunter" and "Time for Tanks" versions held with
exclusive conditions for "Game" tariff plan subscribers.
Revenue generated by the "Game" tariff increased by 10% in the second quarter of 2021. -- Digital OTT platform Wink remains among the top 5 online cinemas in the country:
- A new "Film Exchange" service has been launched, which enables customers to exchange a purchased film for free,
on the condition that it has not been watched for longer than 20 minutes;
By the end of the first half of 2021, the number of Wink customers accessing videos on two or more devices increased to 2.3 million. -- Rostelecom's "Key solution" continues to expand its functionality:
- The Sputnik intercom panel has been integrated;
- Customers can now control their intercom facilities through their Key application, without the need for
additional calls and contacts with sellers.
By the end of the first half of 2021, the "Key solution" covered 165,000 apartments. -- Enhancements to "Smart Home" and home video surveillance services continue to be introduced, including:
- The implementation of an auto-payment option;
- a set of measures have been implemented to improve the service's resistance to DDoS / Brute Force attacks;
Revenue generated from the "Smart Home" service and home video surveillance increased by 36% during the second quarter. -- A Smart Office cloud service was launched to enable office premises to be controlled remotely from anywhere in the
world where on-line; -- A "Transport Monitoring" service was launched to help track fleets of vehicles; -- A "Speech Analytics" service was launched as part of the virtual telephony service. - Rostelecom continued to expand its digital segment during the second quarter of 2021: -- as part of the development of cybersecurity services: - additional services were introduced to the market:
- Solar addVisor - the first personnel productivity monitoring system in Russia;
- an updated version of flagship software product - Solar Dozor 7.4;
- an updated version of web security gateway, containing reverse proxy functionality Solar - webProxy 3.6;
- a new version of the Solar appScreener 3.9 source code security product;
- Rostelecom has signed an agreement with the football club FC Zenit to provide the club with access to the Solar
Dozor information leakage protection system;
- Rostelecom offered cyber ??training at Rostelecom's National Cyber ??Polygon, which was attended by the
Ministry of Energy as well as key players in the electric power industry; representatives of law enforcement
agencies as well as regulators and government agencies;
- Rostelecom has been commissioned to supply the Solar appScreener code analyzer to the Republic of Kazakhstan's
"Unified Pension Savings Fund" to help ensure customer services are provided in a secure manner in the digital
environment;
- The fintech hub of the Bank of Russia and Rostelecom-Solar offered an educational programme on cybersecurity in
the financial sector in Sirius. - Operator business segment highlights include: -- 4% year-on-year increase in ?2?[8] project revenues; -- The provision of 2x100 Gbps channel for China Telecom on a long-term lease; -- An IP-transit service has been implemented for Alfa Telecom (TM Megacom), the mobile communications leader in
Kyrgyzstan. - Large projects undertaken include: -- The provision of automated workstation infrastructure for RSHB-Intech; -- An agreement with Mosoblgaz JSC to provide call centre services; -- An agreement with LLC Carsharing Russia (Delimobil) to provide access to cloud resources. - Rostelecom's subsidiary, mobile operator Tele2, continues to strengthen its offering: -- Tele2 customers can now:
- Exchange minutes for movies;
- order a SIM card through Yandex.Lavka, as well as receive it at PickPoint terminals;
- buy SIM-cards on AliExpress. -- a service was launched that enables the movement of vehicles and employees to be monitored, as well as an
educational portal; -- Tele2 Russia becomes the first to connect eSIM with Russia's Unified Biometric System; -- Tele2 Russia won 8 awards at the prestigious ad and marketing Silver Mercury awards.
Other news -- The Rostelecom Board approved the Company's corporate strategy to 2025 and adopted its dividend policy for
2021-2023; -- Rostelecom shareholders approved dividends amounting to RUB 5 per share[9] and elected a new Board of Directors; -- Andrey Patoka became the CEO of Tele2 Russia; -- Rostelecom placed exchange-traded bonds amounting to RUB 15 billion with a coupon rate of 7.7% per annum; -- Rostelecom was ranked the number one provider of public Wi-Fi access points; -- the leading B2B broadband provider by number of subscribers and revenue; -- the leader in the Free Call service market; -- Rostelecom was ranked the top provider of virtual PBX clients; -- Rostelecom retains indisputable leadership in data centres market; -- The "Wink" video service won the Golden Ray and Big Digit awards in the best OTT service category; -- Rostelecom's contact centres received an ISO international quality certificate; -- Rostelecom built a digital infrastructure for the Marchenkovskaya wind farm; -- Rostelecom is an ESG-ranking leader according to the National Rating Agency.
OPERATING REVIEW
Revenue analysis
Revenue structure by services
RUB million 2Q 2021 2Q 2020 change, H1 2021 H2 2020 change,
y-o-y y-o-y
Mobile 47,907 42,906 12% 94,007 83,870 12%
Broadband 23,811 22,194 7% 44,187 8%
47,840
Digital 17,891 15,014 19% 32,040 27,534 16%
TV services 9,922 9,286 7% 19,871 18,775 6%
Wholesale services 19,199 18,222 5% 37,596 35,993 4%
Interconnect and traffic transit services 4,506 4,476 1% 8,928 8,723 2%
VPN 8,084 7,104 14% 15,638 14,130 11%
Rent of channels 2,439 2,487 (2%) 4,915 4,921 (0%)
Rent and maintenance of telecommunications 4,170 4,155 0% 8,115 8,219 (1%) infrastructure
Fixed telephony 12,260 13,674 (10%) 25,001 27,864 (10%)
Other services 7,599 5,983 27% 14,192 10,669 33%
Total 138,589 127,279 9% 270,547 248,892 9%
In the second quarter of 2021, revenue increased year-on-year by 9% to RUB 138.6 billion, as a result of the following factors: -- 12% increase in revenue from mobile services, mainly due to a higher volume of mobile Internet data consumption and
standard voice services; -- 19% increase in digital revenues mainly driven by with the development of platform solutions for the digital state
and Smart Digital Region projects, the promotion of information security solutions, cloud services and data centre
services; -- 7% growth in revenue from broadband services due to a higher number of subscribers, growth in ARPU as well as
revenues from Internet connection contracts.
In the first half of 2021, revenue increased by 9% year-on-year to RUB 270.5 billion, as a result of the following factors: -- 12% increase in revenue from mobile services, mainly due to a higher volume of mobile Internet data consumption and
standard voice services; -- 16% increase in digital revenues mainly driven by with the development of platform solutions for the digital state,
the promotion of information security solutions, cloud services and data centre services; -- 8% growth in revenue from broadband services due to a higher number of subscribers, growth in ARPU as well as
revenues from Internet connection contracts.
Operating income analysis
Breakdown of operating expenses
2Q 2Q H1
RUB million 2021 2020 Change, 2021 H2 2020 change, y-o-y
y-o-y
Personnel costs 0% 3%
(32,196) (32,067) (66,366) (64,257)
Depreciation, Amortization and impairment losses 16% 17% of non-current assets (32,990) (28,440) (64,646) (55,205)
Interconnection charges (0%) 5%
(23,463) (23,520) (47,090) (44,949)
Materials, repairs and maintenance, utilities 12% 10%
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(9,969) (8,900) (19,560) (17,740)
Gain on the disposal of PPE and intangible assets 2,633 946 178% 5,178 2,305 125%
Impairment loss of financial assets measured at 6% (87) (2,466) (96%) amortized cost (1,382) (1,303)
Other operating income 4,069 4,655 (13%) 9,271 10,312 (10%)
Other operating expenses 19% 11%
(23,493) (19,711) (42,777) (38,644)
Total operating expenses 8% 7%
(116,791) (108,340) (226,077) (210,644)
In the second quarter of 2021, operating expenses increased by 8% year-on-year, to amount to RUB 116.8 billion, largely due to the following factors: -- 16% increase (of RUB 4.5 bln) in depreciation, amortization and impairment losses for non-current assets, due to an
increase in depreciation charges associated with new objects, intangible assets and leases; -- 19% increase (of RUB 3.8 bln) in other operating expenses, due to the deployment of Digital Region projects and
expenses relating to the advertising and promotion of the company's services; -- 12% growth (of RUB 1.1 bln) in expenses for materials, repairs and maintenance, partly due to increases in utility
bills; -- 178% increase (of RUB 1.7 bln) in gains from the disposal of PPE and intangible assets, mainly due to improving
results associated with the disposal of Rostelecom's real estate portfolio.
Operating expenses for the first half of 2021 increased by 7% year-on-year to RUB 226.1 billion, largely due to the following factors: -- 17% increase (of 9.4 billion rubles) in depreciation charges and impairment losses of non-current assets, due to an
increase in depreciation charges for new items of fixed assets, intangible assets and leases; -- 11% increase (of RUB 4.1 billion) in other operating expenses, including due to the deployment of Digital Region
projects and expenses relating to the advertising and promotion of the company's services; -- 5% increase (of RUB 2.1 billion) in interconnection charges, due to an increase in direct costs, as well as higher
traffic caused by the pandemic and the widespread transition to remote communications; -- 10% increase (of 1.8 billion rubles) in expenses for materials, repairs and maintenance, partly due to an increase
in utility bills; -- 125% growth (of RUB 2.9bn) in profit from disposal of PPE and intangible assets, mainly due to improving results
associated with the disposal of Rostelecom's real estate portfolio; -- Dynamics of the impairment loss of financial assets measured at amortised cost item (RUB 2.4 billion) as a result
of the Company's introduction in Q1 2021 of new provisioning method based on projections of credit losses for
certain counterparts or its group.
Operating profit for the second quarter of 2021 increased by 15% year-on-year to RUB 21.8 billion and by 16% to RUB 44.5 billion year-on-year during the first half of 2021.
OIBDA for 2Q 2021 increased by 15% to RUB 55.9 billion, and by 16% to year-on-year during the first half of 2021 to RUB 111.4 billion. OIBDA dynamics were influenced by revenue growth and by the changes in operating expenses cited above. The OIBDA margin increased by 2.0 p.p. year-on-year to 40.4% during the second quarter of 2021 and was up 2.6 p.p. year-on-year to 41.2% during the first half of 2021.
Net Income Analysis
Profit before tax increased by 44% year-on-year during the second quarter of 2021 to RUB 14.2 billion, rising by 50% during the first half of the year to RUB 29.3 billion. This was mainly due to the increase in operating profit, a decrease in finance costs and the absence of foreign exchange losses during the reporting period.
Income tax in 2Q 2021 amounted to RUB 3.0 billion, compared to RUB 2.3 billion during the corresponding period of 2020. During 1H 2021, RUB 6.4 billion of income tax was paid, compared to RUB 4.5 billion during the first half of 2020, which is mainly due to changes reported in profit before tax.
Net profit increased by 46% year-on-year during the second quarter of 2021 to RUB 11.2 billion. During the first half of 2021, net profit increased by 52% year-on-year to RUB 23.0 billion.
Financial review
Net operating cash flow for 2Q 2021 increased by 67% year-on-year to RUB 25.4 billion, compared to the corresponding period of 2020. During the first half of 2021, net operating cash flow grew 71% year-on-year to RUB 31.7 billion.
At the end of the second quarter of 2021, cash outflow on investments in non-current assets, excluding state programmes, decreased by 2% to RUB 24.4 billion (17.6% of revenue). Taking into account state programmes, this figure increased by 11% to RUB 30.8 billion (22.2% of revenue). At the end of the first half of 2021, cash outflow on investments in non-current assets, excluding state programs, increased by 11% to RUB 51.6 billion (19.1% of revenue), taking into account state programs, this figure increased by 15% to RUB 61.5 billion (22.7% of revenue).
Free cash flow for 2Q 2021 amounted to RUB 1.1 billion, having improved year-on-year by RUB 10.7 billion. Free cash flow for the first half of 2021 improved by RUB 19.1 billion to reach RUB 3.2 billion. Factors that contributed to higher free cash flow during the second quarter of 2021 include growth in OIBDA, as well as uneven advance payments and work performed during a calendar year. Including the factors listed above, the improvement in free cash flow during the first half of 2021 was influenced by the lower volumes of accounts payable compared to the corresponding period of 2020
Free Cash Flow (RUB, billion)
As at June 30, 2021, the Group's total debt (including lease liabilities) amounted to RUB 531.0 billion, a slight change compared to the beginning of the year. 100% of the Group's total debt remains rouble-denominated as at June 30 th, 2021.
As at June 30, 2021, the Group's net debt (including lease liabilities) amounted to RUB 493.8 billion, an increase of 6% since the beginning of the year. The company's debt burden over the past 12 months has decreased from 2.7x to 2.4x net debt/OIBDA[10] (including lease liabilities). OTHER INFORMATION: CONFERENCE CALL
Rostelecom's management will hold a conference call and webcast today at 4:00 PM (Moscow), 3:00 PM (CET), 2:00 PM (UK) and 9:00 AM (NYT). To participate in the conference call, please dial:
UK/ International: +44 203 984 9844
USA: +1 718 866 4614
Russia: +7 (495) 283 98 58
Confirmation Code (ENG): 539980
Confirmation Code (RUS): 619022
A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://mm.closir.com/slides?id=539980.
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/2021/2/
* * *
APPENDICES 1. Reconciliation of OIBDA; 2. Statement of Comprehensive Income for H1 2021; 3. Statement of Cash Flows for H1 2021; 4. Statement of Financial Position for H1 2021.
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; -- Expenses related to non-government pension insurance.
RUB million 2Q 2Q Change, H1 H2 change,
2021 2020 y-o-y 2021 2020 y-o-y
Operating income 15% 16%
21,798 18,939 44,470 38,248
Plus amortisation 16% 17%
(32,990) (28,440) (64,646) (55,205)
Plus expenses related to the long-term management (833) (24%) (8%) incentive programme (1,096) (1,667) (1,810)
Plus expenses related to non-government pension (317) (325) (3%) (592) (619) (5%) insurance
OIBDA 15% 16%
55,938 48,802 111,375 95,882
OIBDA margin, % 40.4% 38.3% 41.2% 38.5%
APPENDIX 2: Statement of Comprehensive Income for H1 2021
Six-month period ended 30 June
(unaudited)
2021 2020
(restated)
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