DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER AND NINE MONTHS OF 2021
ROSTELECOM PJSC (RKMD) ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER AND NINE MONTHS OF 2021 09-Nov-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.
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Third quarter revenue increased by 5%, with OIBDA[1] up 9%
Moscow, Russia - November 9, 2021 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the third quarter and nine months of 2021 prepared in accordance with IFRS.
THIRD QUARTER 2021 KEY FINANCIAL HIGHLIGHTS
-- Revenue increased by 5% to RUB 141.2 billion compared to 3Q 2020;
-- OIBDA up 9% to RUB 58.3 billion;
-- OIBDA margin up 1.5 p.p. to 41.3%;
-- Net profit of RUB 8.4 billion, compared to RUB 11.8 billion reported in 3Q 2020;
-- CAPEX[2] excluding state programs increased by 1% year-on-year to RUB 24.6 billion (17.4% of revenue);
-- FCF[3] of RUB 13.3 billion, compared to RUB 18.9 billion for the same period of 2020;
-- Net Debt[4] (including lease liabilities) increased by 8% YTD, amounting to RUB 502.5 billion, resultingin a Net Debt (including lease liabilities)/OIBDA ratio of 2.3x.
KEY FINANCIAL HIGHLIGHTS FOR NINE MONTHS OF 2021
-- Revenue increased by 7% to RUB 411.8 billion compared to the nine months of 2020;
-- OIBDA increased by 13% year-on-year to RUB 169.7 billion compared to the nine months of 2020;
-- OIBDA margin increased by 2.3 p.p. to 41.2% compared to the nine months of 2020;
-- Net profit increased by 17% to RUB 31.4 billion compared to the nine months of 2020;
-- CAPEX excluding state programs increased by 7% year-on-year to RUB 76.2 billion (18.5% of revenue);
-- FCF improved by RUB 13.5 billion, to amount to RUB 16.6 billion.
Key figures for 3Q 2021, RUB mln
RUB million 3Q 2021 3Q 2020 change, y-o-y Revenue 141,213 134,988 5% OIBDA 58,323 53,678 9% OIBDA margin % 41.3% 39.8% - Operating Income 21,228 23,423 (9%) Operating margin % 15.0% 17.4% - Net Income 8,398 11,768 (29%) % of revenue 5.9% 8.7% - Capital Expenditure excl. state programs 24,638 24,326 1% % of revenue 17.4% 18.0% - Net debt (incl. lease liabilities) 502,487 501,593 0.2% Net debt (incl. lease liabilities)/ OIBDA 2.3 2.6 - FCF 13,339 18,939 (5,600) Key figures for 9M 2021, RUB mln RUB million 9M 2021 9M 2020 change, y-o-y Revenue 411,760 383,880 7% OIBDA 169,698 149,559 13% OIBDA margin % 41.2% 39.0% - Operating Income 65,698 61,670 7% Operating margin % 16.0% 16.1% - Net Income 31,382 26,870 17% % of revenue 7.6% 7.0% - Capital Expenditure excluding state programmes 76,192 70,977 7% % of revenue 18.5% 18.5% - Net debt (incl. lease liabilities) 502,487 501,593 0.2% Net debt (incl. lease liabilities)/ OIBDA 2.3 2.6 - FCF 16,561 3,015 13,546
Mikhail Oseevskiy, President of Rostelecom, commented: "In the third quarter of 2021, Rostelecom continued to grow steadily, having achieved its key financial and operational targets. Revenue grew by 5%, OIBDA increased by 9%, and the company continues to increase its free cash flow, which reached almost RUB 17 billion during the 9 months of 2021, which will support our plans to increase dividend payments for the current year (of RUB 6 per share) and beyond.
"A key strategic initiative for the period was the recent acquisition by Rostelecom of BFT, a leading public services digitisation provider. Our focus on identifying promising and fast-growing digital business segments is a significant part of our transformation."
Vladimir Kirienko, First Vice-President of Rostelecom, commented: "The development of our brand-new services and solutions helps us generate additional value through our segment & cluster management model.. Our main goal is to strengthen our digital leadership by providing innovative products that are rising in demand as well as to ensure stable growth and efficiency in our core business. This has enabled us to perform well across our key financial metrics in absolute terms as well as to post OIBDA margin increase by solid 1.5 p.p."
Sergey Anokhin, Senior Vice-President and Chief Financial Officer added: "The Company continued to demonstrate stable business growth and a high level of cost control during the third quarter, which ensured that we remain within our budget for 2021. The successful fulfilment of our plans during the 9 months of 2021, and the moderate macroeconomic risk outlook enables us to look more optimistically at our anticipated results for the whole Full Year. As a result of this, we are improving our previously published forecast for OIBDA growth in 2021 to 10-12% y-o-y. In terms of revenue, the Company continues to plan for growth of at least 5% and we expect CAPEX in the range of 110-115 billion rubles (excluding the implementation of state programs)."
KEY OPERATING HIGHLIGHTS
Fixed business
Number of subscribers (million): 3Q 2021 3Q 2020 change, y-o-y Internet access 13.5 13.4 0.4% B2C: Broadband 12.4 12.3 0.05% B2B: Broadband + VPN 1.1 1.1 4% Pay TV 10.9 10.7 2% Incl. IPTV 6.3 5.9 7% Hosted PBX 0.198 0.147 35% Local telephony services 12,9 14,5 (11%) ARPU[5] (RUB): 3Q 2021 3Q 2020 change, y-o-y Internet access B2C: Broadband 393 390 1% B2B: Broadband + VPN 3,584 3,566 1% Pay TV (B2C) 252 245 3% Incl. IPTV 299 298 1% Hosted PBX 945 1,119 (16%) Blended ARPU[6] 551 537 3%
Mobile business
3Q 2021 3Q 2020 change, y-o-y Data Traffic, incl. MVNO,Pb 1,750 1,351 30% Churn, % (8.0%) (7.3%) 0.6 p.p) Growth of active mobile Internet users, % 18.5% 25.5% (7.0 p.p.) 1. The total number of Internet subscribers among households grew to 12.4 million in the third quarter of2021 compared to the corresponding period of last year. ARPU increased by 1% year-on-year to RUB 393; 2. The total number of Internet and VPN subscribers in B2B increased by 4% year-on-year to 1.1 million; ARPUincreased by 1% year-on-year to RUB 3,584; 3. The number of pay-TV subscribers grew by 2% to 10.9 million users compared to the corresponding period oflast year, with average ARPU of RUB 252 in B2C;
-- the number of IPTV subscribers increased by 7% to 6.3 million, and ARPU was RUB 299 in B2C; 4. The number of active mobile Internet users increased by 18.5% year-on-year during 3Q 2021. Year-on-yeargrowth in mobile Internet data traffic reached 30% during the third quarter of 2021; while cellular customer basechurn amounted to 8.0%/
KEY EVENTS RELATING TO 3Q 2021 AND AFTER THE END OF THE REPORTING PERIOD
Business news - Rostelecom continues to develop and expand its range of products and services:
-- Digital OTT platform Wink: -- A new "Wink+more.tv" package has been introduced, with over 170 TV-channels, 35k movies and series;
-- As part of partner integration with the VK Group Internet Holding, Wink is now offered within the VKCombo subscription offer;
-- Further upgrades to the Wink+ OTT box, including a new Bluetooth remote with Marusya-powered voicecontrol (Marusya is Rostelecom's smart speaker)
-- By the end of the nine months of 2021, the number of Wink customers accessing videos on two or moredevices increased to 2.5 million.
-- Rostelecom's "Key solution": -- The mobile app now has a technical support omnichat; also alarm code functionality has been improved;
-- Rostelecom.Key now covers over 192k apartments, which contributes to the revenue growth by 45% by 3Q2021;
-- "Smart Home" and home video surveillance services: -- Added a Face Detection function as well as introduced a new scheduled recording function for cameras;
-- 3Q 2021 revenue grew by 35% compared to 2Q 2021.
-- Evolving B2B services: -- A new system was introduced for signing service contracts remotely for SMEs;
-- Predictive data science analytics to provide bespoke business solutions for SMEs was integrated intoRostelecom's products;
-- Rostelecom has developed and pilot tested in VTB and SovkomBank branches a new solution. The newproduct "Videoanalytics Retail PRO" integrates computer vision and image understanding into cameras across bankbranches for better analytics of customer experience, identification of gaps and shortfalls in businessprocesses which helps improve sales performance and optimise staff workload and efficiency;
-- A new automatic QR code reading function has been added to the Complex Perimeter Security system forbetter management of entry restrictions for clients' visitors and employees, in order to meet a wide range ofrequirements including safety management procedures related to the pandemics;
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DJ ROSTELECOM PJSC: ROSTELECOM FINANCIAL AND -2-
-- Rostelecom's Hosted PBX service is now available to customers who have been contracted with otheroperators and are keeping their telephone numbers; - Digital segment:
-- as part of the development of cloud and data center services: -- CloudLine services added to Rostelecom Data Center in Novosibirsk;
-- All Rostelecom data centers are now fully certified with the PCI DSS[7] standard;
-- Russian Baikal-T and Baikal-M processors have been recognised as technically compatible with theTIONIX VDI software for virtual desktop infrastructures that are essential for remote work environments;
-- A new National Cloud Platform facility was put into operation in Rostelecom's Kurchatov Data Centerin Moscow;
-- The Domain Coordination Center .RU/.?? - MSK-IX has included a back-up domain registration systemwhich enables an uninterrupted operation of domain areas;
-- Rostelecom launched a new Tier III certified Data Center in Moscow with a 207 racks capacity.
Rostelecom was ranked first by the number of data racks commissioned last year, according to CNews Analytics.
-- Digital Region project: -- Installation of 249 photo and video surveillance devices for better road traffic management, as wellas three systems for transport weight-and-dimensional control;
-- Installation of 387 smart cameras in communal hallways and connection of 1,250 cameras to the cityvideo surveillance platform;
-- External lighting systems modernised for four municipal entities.
-- Cyber security services: -- A new version of the DLP system Solar Dozor 7.5 has been introduced with an added function for macOSworkstations monitoring;
-- A competence center for Solar MSS cyber security services has been launched in Samara;
-- Successful delivery of a large-scale project for integration of the Solar Dozor DLP system forRostelecom's client Unipro;
-- Completed integration of the Solar appScreener code scanner for System Technologies, the largestbank, financial and industrial software provider in Belarus;
-- Solar appScreener was chosen by the Engineering Physics Institute to assess software compatibilitywith the IT security requirements of the Federal Service for Technical and Export Control (FSTEK), a federalexecutive body responsible for implementing the government policy for IT security.
-- Rostelecom built a digital infrastructure for the Marchenkovskaya wind farm in the Rostov region;
-- Rostelecom's federal platform for remote voting has been successfully deployed at the Single Voting Dayon 17-19 September 2021. - Operator business segment highlights include:
-- 8% year-on-year increase in ?2?[8] project revenues during the nine months of 2021;
-- Rostelecom leased optical fiber spectrum at 17 sections of the highway network to ER-Telecom;
-- Provision of a Vladivostok to Tokyo channel for VimpelCom with a 10 Gbps capacity. - Large projects undertaken include:
-- An agreement with Russian Post to provide communication services for Russia's largest corporate datanetwork;
-- An agreement with VTB to expand lease services for racks and process rooms;
-- An agreement with Danon for supply and installation of thermal camera stations and other devices foremployee and visitor management; - Rostelecom's subsidiary, mobile operator Tele2, continues to strengthen its offering:
-- New features and offers for Tele2 customers include: -- Yandex Pay express checkout;
-- Tele2 Disk information storage facility;
-- Access to Telegram and Viber messengers even on zero balance;
-- SIM-cards remote registration with non-qualified e-signature in the GosUslugi app (Russia's publicservices portal);
-- More attractive international roaming offers in Turkey;
-- SIM-cards are now sold in Moscow airports;
-- Tele2 Russia launched a new service "Kids Online" which offers access to thousands of movies and cartoonsas well as Wink's e-learning programmes.
-- Together with Mobile Solutions, Tele2 has launched "Smart Parking" the first smart device in Russia forparking payments;
-- Tele2 Russia released an online mini-series on customer service based on real customer enquiriesaddressed to Tele2 HelpDesk;
-- On the sustainability front, Tele2 has launched a national awareness campaign to raise awareness amongthe youth of the plight of older people and the digital challenges they are facing.
Other news
-- Rostelecom acquired a leading public services digitisation developer BFT Holding;
-- As part of the Bridging the Digital Divide Project 2.0, mobile coverage has been extended in 3Q 2021 to209 new villages across 26 regions of Russia;
-- Rostelecom has achieved Resg1 or the highest ESG reporting score by Russia's ESG rating agency AK&M.
OPERATING REVIEW
Revenue analysis
Revenue structure by services
RUB million 3Q 2021 3Q 2020 change, y-o-y 9M 2021 9M 2020 change, y-o-y Mobile 49,604 45,813 8% 143,611 129,683 11% Broadband 24,851 22,565 10% 72,691 66,752 9% Digital 18,418 19,322 (5%) 50,457 46,856 8% TV 9,870 9,437 5% 29,741 28,212 5% Wholesale services: 19,083 18,653 2% 56,679 54,646 4% Interconnect and traffic transit services 4,519 4,487 1% 13,447 13,210 2% VPN 8,105 7,376 10% 23,743 21,506 10% Rent of channels 2,444 2,599 (6%) 7,359 7,520 (2%) Infrastructure services 4,015 4,191 (4%) 12,130 12,410 (2%) Fixed telephony 12,030 13,400 (10%) 37,031 41,264 (10%) Other services 7,358 5,798 27% 21,550 16,467 31% Total 141,213 134,988 5% 411,760 383,880 7%
In the third quarter of 2021, revenue increased year-on-year by 5% to RUB 141.2 billion, the dynamics was driven by the following factors:
-- 8% increase in revenue from mobile, mainly due to a higher volume of mobile Internet data consumption andstandard voice services;
-- 10% growth in revenue from broadband due to a higher number of subscribers and higher ARPU for fibreoptic tariff plans, as well as revenues from Internet connection contracts reflected in books;
-- High base effect of 2020 related to certain digital services driven by few significant projects
In the nine months of 2021, revenue increased by 7% year-on-year to RUB 411.8 billion, as a result of the following factors:
-- 11% increase in revenue from mobile, mainly due to a higher volume of mobile Internet data consumptionand standard voice services;
-- 9% growth in revenue from broadband due to a higher number of subscribers, growth in ARPU as well asrevenues from Internet connection contracts;
-- 8% increase in digital revenues mainly driven by with the development of platform solutions fore-government, the promotion of information security solutions, cloud services and data centre services.
Operating income analysis
Breakdown of operating expenses
RUB million 3Q 2021 3Q 2020 change, 9M 2021 9M 2020 change,
y-o-y y-o-y
Personnel costs (31,482) (31,829) (1%) (97,848) (96,086) 2%
Depreciation, Amortization and impairment losses of (35,985) (29,252) 23% (100,631) (84,457) 19%
non-current assets
Interconnection charges (24,612) (24,204) 2% (71,702) (69,153) 4%
Materials, repairs and maintenance, utilities (10,865) (10,180) 7% (30,425) (27,920) 9%
Gain on the disposal of PPE and intangible assets 2,199 1,536 43% 7,377 3,841 92%
Impairment loss of financial assets measured at (1,701) (669) 154% (1,788) (3,135) (43%)
amortized cost
Other operating income 6,543 4,968 32% 15,814 15,280 3%
Other operating expenses (24,082) (21,936) 10% (66,859) (60,580) 10%
Total operating expenses (119,985) (111,566) 8% (346,062) (322,210) 7%
In the third quarter of 2021, operating expenses increased by 8% year-on-year, to amount to RUB 120.0 billion, largely due to the following factors:
-- 23% increase (of RUB 6.7 bln) in depreciation, amortization and impairment losses for non-current assets,partly due to a decrease of useful lives of items of a number of objects and intangible assets;
-- 10% increase (of RUB 2.1 bln) in other operating expenses, due to the formation of additional reserves aswell as the advertising and marketing expenses;
-- 154% growth (of RUB 1.0 bln) in impairment loss of financial assets measured at amortized cost, partlyattributable to the growth of reserves related to advance payments;
-- 43% increase (of RUB 0.7 bln) in gains from the disposal of PPE and intangible assets, mainly due toimproving results associated with the disposal of Rostelecom's real estate portfolio.
Operating expenses for the nine months of 2021 increased by 7% year-on-year to RUB 346.1 billion, largely due to the following factors:
-- 19% increase (of RUB 16.2 bln) in depreciation charges and impairment losses of non-current assets, dueto an increase in depreciation charges for new items of fixed assets, intangible assets and leases;
-- 10% increase (of RUB 6.3 bln) in other operating expenses, including due to the formation of additionalreserves, the deployment of Digital Region projects and expenses relating to the advertising and promotion of thecompany's services;
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