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 t o 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 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 thed igitalisation 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 s e t 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 tot he optimization of OpEx and the deferral of other non-critical investment projects. In t h e current environment, the management team has been focusing ont he 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 with zero account added 100 extra minutes of mobile connectivity and 10Gb of Internet capacity for existing clients introduced a 60-day test period for mobile and virtual telephony for new clients. Rostelecom also developed a set of services for remote working 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 was introduced based on thermal imaging cameras and software that can be integrated with any corporate system. The service has been introducedb y a number of companies, including ALROSA; 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 стопкоронавирус.рф, 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; maximum Internet speed capacity 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 стопкоронавирус.рф; 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%)
% of revenue 18.1% 23.4% - Net debt 392,821 333,924 18% Net debt/ annualised 2.2 2.0 - OIBDA 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 subscribers (million): 1Q 2020 1Q 2019 change, y-o-y 4Q 2019 change, y-o-y Internet access 13.2 13.0 2% 13.2 0.2% B2C: Broadband 12.2 12.0 1% 12.2 0.3% B2B: Broadband + VPN 1.1 1.0 6% 1.1 0.1% Pay TV 10.5 10.2 3% 10.4 1% Incl. IPTV 5.7 5.4 6% 5.6 2% Local telephony services 15.3 17.0 (10%) 15.7 (2%)
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 + VPN 3,368 3,266 3% 3,455 (3%) Pay TV (B2C) 257 249 3% 255 1% Incl. IPTV 319 317 1% 320 0% Blended ARPU [9] 551 543 1% 553 0%
Mobile business
1Q 2020 1Q 2019 change, y-o-y 4Q 2019 change, y-o-y Data Traffic, incl. MVNO, Eb 1,086.5 643.2 69% 988.7 10% Churn, % (8.6%) (9.3%) 0.7 p.p. (9.3%) 0.7 p.p. Growth of active mobile data users , % 36.1% 37.7% (1.6 p.p.) 39.1% (3.о p.p.)
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 toS uperhit 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 simplifiest he 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 n o w 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 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 withY andex, 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 by the number of pay-TV subscribers in B2B in 2019;
Rostelecom has been ranked first in the b 2 b cloud video-surveillance market, according to TelecomDaily;
Rostelecom has been ranked first by the number of users of virtual telephony services, according to TMT consulting;
Rostelecom has been ranked first in the 8-800 toll-free services according to TMT consulting;
Rostelecom has been ranked first 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 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[11] in the world; Other news Rostelecom consolidated 100% of Tele2 to create the largest integrated digital provider in Russia;
Rostelecom completed the deal to acquire DataLine, 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);
Rostelecom registered a joint venture with VTB 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.
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 services 4,247 5,904 (28%) 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 statea nd 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 impairment losses (27,128) (23,935) 13% Interconnection charges (21,289) (20,197) 5% Materials, repairs and maintenance, utilities (9,039) (8,395) 8% Gain on the disposal of PPE and intangible assets 1,359 655 107% Impairment loss of financial assets measured at amortized cost (1,163) (1,236) (6%) Other operating income 5,657 4,527 25% Other operating expenses (18,873) (16,325) 16% Total operating expenses (102,666) (93,461) 10%
In the first quarter of 2020, operating expenses increased by 10% compared to the corresponding period of 2019 and amounted to RUB 102.7 billion, largely due to the following factors:
a 13% increase (of RUB 3.6 billion) in personnel costs, mainly due to an increase in the number of employees within digital business segments; a 13% increase (of RUB 3.2 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and impairment of intangible assets; a 16% increase (of RUB 2.5 bln) in other operating expenses, due to implementation of Smart City projects, as well as provision of equipment within B2B and B2G projects, higher agent payments for financial services in mobile commerce, recalculation of quality bonus payments; a 25% increase (of RUB 1.1 billion) in other operating income, mainly due an increase in sales within the Bridging the Digital Divide project.
Operating profit increased by 13% year-on-year to RUB 18.9 billion in the first quarter of 2020, compared to the corresponding period of 2019.
OIBDA for the first quarter of 2020 increased by 12% year-on-year to RUB 47.1 billion. OIBDA was driven b y revenue growth and the above-mentioned factors, affecting operating expenses. The OIBDA margin increased by 0.7 p.p. to 38.7% in the first quarter of 2020 compared to the corresponding period of 2019.
Net Income Analysis
In the first quarter of 2020, profit before tax increased b y 6% to RUB 10.1 billion, compared to the corresponding period in 2019. These dynamics were influenced by the following factors: higher operating profit; higher revenue due to gains realised from the sale of a number of real estate assets; negative foreign exchange rates in 2020 due to weakened national currency. Income tax in the first quarter of 2020 was RUB 2.3 billion compared to RUB 1.9 in the corresponding period in 2019. Net profit increased by 1% in the first quarter of 2020 compared to the corresponding period in 2019 and totalled RUB 7.7 billion.
Financial review
Net operating cash flow in the first quarter of 2020 increased by 14% and amounted to RUB 17.0 billion, compared to the corresponding period of 2019. The increase in net operating cash flow in the first quarter of 2020 was mainly due to increase in OIBDA. Cash outflow for investments in non-current assets, excluding state programmes, decreased by 15% to RUB 22.0 billion (18.1% of revenue) in the first quarter of 2020. Free cash flow in the first quarter of 2020 more improved more than twofold and totalled RUB (5.9) billion compared to the first quarter of 2019.
Free Cash Flow (RUB, billion)
As at March 30, 2020, the Group's total debt increased by 19% compared to the beginning of the year and amounted to RUB 429.7 billion, partially driven by the fundraising achieved to help complete the consolidation Tele2. 100% of the Group's total debt remained rouble-denominated as at March 30, 2020.
As at March 30, 2020, the Group's net debt increased by 18% compared to the beginning of the year and amounted to RUB 392.8 billion. The net debt /OIBDA ratio over the last 12 months stood at 2.2x as at 30 March 2020.
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 (0)330 336 9411 USA: +1 323 794 2590 Russia: +7 495 646 9190
Confirmation Code (ENG): 4562217 Confirmation Code (RUS): 7728607
A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/register/rostelecom20200519/ru.
A replay of the conference call will be available on the Company's website www.company.rt.ru/ir/results_and_presentations/financials/IFRS/2020/1.
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APPENDICES
1. Reconciliation of OIBDA; 2. Statement of Comprehensive Income for 1Q 2020; 3. Statement of Cash Flows for 1Q 2020; 4. Statement of Financial Position for 1Q 2020.
APPENDIX 1: RECONCILIATION OF OIBDA
OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation and amortisation as well as some certain expenses. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt.
The following indicators are not taken into account in the calculation of OIBDA:
Expenses related to the long-term management incentive programme, implying accruals in personnel costs line starting from Q2, 2014;
Expenses related to non-government pension insurance starting from Q3, 2018.
RUB million 1Q 2020 1Q 2019 change Operating income 18,947 16,764 13% Plus amortisation 27,128 23,935 13% Plus expenses related to the long-term management incentive programme 714 887 (19%)
Plus expenses related to non-government pension insurance 293 279 5%
OIBDA 47,082 42,144 12% OIBDA margin, % 38.7% 38.0%
APPENDIX 2: Statement of Comprehensive Income for 1Q 2020
Three-month period ended 31 March (unaudited) 2020 2019 (restated)* Revenue 121,613 110,225
Operating expenses Wages, salaries, other benefits and payroll taxes (32,190) (28,555) Depreciation, amortization and impairment losses (27,128) (23,935) Interconnection charges (21,289) (20,197) Materials, utilities, repairs and maintenance (9,039) (8,395) Gain on disposal of property, plant and equipment and intangible assets 1,359 655 Impairment loss of financial assets measured at amortized cost (1,163) (1,236) Other operating income 5,657 4,527 Other operating expenses (18,873) (16,325) Total operating expenses, net (102,666) (93,461) Operating profit 18,947 16,764
Share of net profit/(loss) of associates and joint ventures 166 (29) Finance costs (8,272) (8,058) Other investing and financial gain, net 646 10 Foreign exchange (loss)/gain, net (1,433) 841 Profit before income tax 10,054 9,528 Income tax expense (2,342) (1,861) Profit for the period 7,712 7,667 Other comprehensive income/(loss) Other comprehensive income/(loss) to be reclassified to profit or loss in
subsequent periods Exchange differences on translation of foreign operations 419 (225) Other comprehensive income/(loss) for the period, net of tax 419 (225) Total comprehensive income for the period 8,131 7,442
Profit attributable to: Equity holders of the Group 7,509 7,496 Non-controlling interests 203 171
Total comprehensive income attributable to: Equity holders of the Group 7,928 7,258 Non-controlling interests 203 184 Earnings per share attributable to equity holders of the Group - basic (in roubles) 2.91 3.28
Earnings per share attributable to equity holders of the Group - diluted (in roubles) 2.85 3.18
* The amounts shown here do not correspond unaudited management interim condensed consolidated statement of profit or loss and comprehensive income for the three- month period ended 31 March 2019 and reflect application of pooling of interest method applied toT2 RTK Holding LLC acquisition till 100% share.
APPENDIX 3: Statement of Cash Flows for 1Q 2020 Three-month period ended 31 March (unaudited) 2020 2019 (restated)* Cash flows from operating activities
Profit before tax 10,054 9,528
Adjustments to reconcile profit before tax to cash generated from operations Depreciation, amortization and impairment losses 27,128 23,935 Gain on disposal of property, plant and equipment and intangible assets (1,359) (655) Impairment loss of financial assets measured at amortized cost 1,163 1,236 Share of net profit/(loss) of associates and joint ventures (166) 29 Finance costs excluding finance costs on employee benefit obligations 8,261 8,042 Other investing and financial gain, net (646) (10) Foreign exchange loss/(gain), net 1,433 (841) Share-based motivation program 772 856
Increase in accounts receivable and contract assets (9,378) (10,178) Increase in employee benefits 257 243 Decrease/(increase) in inventories 407 (44) Decrease in accounts payable, provisions and accrued expenses (10,909) (6,216) Increase in other assets (1,488) (5,586) Increase in other liabilities 1,425 3,661 Cash generated from operations 26,954 24,000
Interest paid (7,430) (7,824) Income tax refund 7 72 Income tax paid (2,497) (1,262) Net cash from operating activities 17,034 14,986 Cash flows from investing activities Purchase of property, plant and equipment and intangible assets (26,025) (31,719) Proceeds from sale of property, plant and equipment, intangible assets and assets 1,617 900 held for sale Acquisition of financial assets (2,347) (971) Proceeds from disposals of financial assets 1,109 1,399 Interest received 199 119 Subsidy from Government 1,229 196 Dividends received 52 188 Purchase of subsidiaries and business, net of cash acquired (113,366) (301) Acquisition of equity accounted investees (25) (346) Net cash used in investing activities (137,557) (30,535)
Three-month period ended 31 March
(unaudited) 2020 2019 (restated)* Cash flows from financing activities Issue of share capital 66,000 - Proceeds from bank and corporate loans 342,307 181,372 Repayment of bank and corporate loans (305,630) (161,568) Proceeds from bonds 30,000 - Repayment of bonds (4) - Repayment of vendor financing payable (2) (2) Proceeds from other non-current financing liabilities (7) - Repayment of lease liabilities (3,590) (2,197) Acquisition of non-controlling interests (20) (398) Dividends paid to shareholders of the Group - (5,688) Dividends paid to non-controlling shareholders of subsidiaries (233) - Net cash from financing activities 128,821 11,519
Effect of exchange rate changes on cash and cash equivalents (30) (57) Net increase/(decrease) in cash and cash equivalents 8,268 (4,087)
Cash and cash equivalents at beginning of the period 19,955 10,492
* The amounts shown here do not correspond unaudited management interim condensed consolidated statement of profit or loss and comprehensive income for the three-month period ended 31 March 2019 and reflect application of pooling of interest method applied toT2 RTK Holding LLC acquisition till 100% share.
APPENDIX 4: Statement of Financial Position for 1Q 2020 31 March 31 December 2020 2019 (unaudited) (restated)* Assets Non-current assets Property, plant and equipment 523,191 522,492 Goodwill and other intangible assets 132,720 127,122 Right of use assets 50,476 49,189 Trade and other accounts receivable 6,553 5,642 Investments in associates and joint ventures 9,096 8,892 Other financial assets 4,116 2,667 Other non-current assets 11,447 10,119 Deferred tax assets 10,666 10,255 Contract assets 1,001 866 Contract costs 15,108 14,647 Total non-current assets 764,374 751,891
Current assets Inventories 9,710 9,793 Contract assets 6,799 4,480 Contract costs 728 920 Trade and other accounts receivable 54,407 49,179 Prepayments 7,536 7,845 Prepaid income tax 3,395 868 Other financial assets 8,634 8,888 Other current assets 5,321 6,264 Cash and cash equivalents 28,223 19,955 Asset classified as held for sale 790 749 Total current assets 125,543 108,941 Total assets 889,917 860,832
Equity and liabilities Equity attributable to equity holders of the Group Share capital 95 93 Treasury shares (20,279) (53,391) Retained earnings and other reserves 196,781 264,231 Total equity attributable to equity holders of the Group 176,597 210,933 Non-controlling interests 4,766 4,564 Total equity 181,363 215,497
Non-current liabilities Loans and borrowings 374,903 280,570 Lease liabilities 43,653 42,355 Employee benefits 6,138 5,881 Deferred tax liabilities 41,699 38,245 Accounts payable and accrued expenses 1,509 1,486 Contract liabilities 16,308 17,472 Provisions 4,683 4,418 Other non-current liabilities 20,289 19,052 Total non-current liabilities 509,182 409,479
Current liabilities Loans and borrowings 54,775 81,277 Lease liabilities 10,671 9,971 Accounts payable and accrued expenses 73,800 86,513 Income tax payable 2,073 2,692 Contract liabilities 31,995 31,353 Provisions 7,496 7,283 Other financial liabilities 146 164 Other current liabilities 18,416 16,603
Total current liabilities 199,372 235,856 Total liabilities 708,554 645,335 Total equity and liabilities 889,917 860,832 * The amounts shown here do not correspond to the audited consolidated statement of financial position as of 31 December 2019 and reflect application of pooling of interest method applied toT2 RTK Holding LLC acquisition till 100% share
Rostelecom is the largest integrated digital services and products provider, operating in all segments of the telecommunications market in Russia. The Company serves millions of households, state and private enterprises across the country.
Rostelecom is Russia's undisputed market leader, providing high-speed Internet access and pay-TV. The total number of broadband users stands at over 13.2 mln users, it has more than 10.5 mln pay-TV customers, over 5.7 mln of which are subscribed to Rostelecom's IPTV services. Tele2 Russia, a Rostelecom subsidiary , is a major player in the mobile market with over 44 mln subscribers and the industry-leading NPS , a customer satisfaction benchmark. In the first quarter of 2020, the Group generated RUB 121.6 bln of revenues, RUB 47.1 bln of OIBDA (38.7% of revenue) and RUB 7.7 bln of net income. The Group is the leading provider of telecommunications services to government bodies and corporates of all levels. Rostelecom is a key strategic innovator that provides solutions in the following fields: E-Government, cybersecurity, data- centers and cloud computing, biometry, healthcare, education and housing & utility services. The Group's stable financial position is confirmed by its credit ratings. Rostelecom has been assigned 'BBB-' and 'BB+' international credit ratings by Fitch Ratings and Standard & Poor's respectively, and AA(RU) by ACRA.
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Certain statements in this press release are forward-looking statements within the meaning of the U.S. federal securities laws and intended to be covered by the safe harbours created thereby.
Those forward-looking statements include, but are not limited to:
Assessment of PAO Rostelecom's (the Company) future operating and financial results as well as forecasts of the present value of future cash flows and related factors; The Company's plans to take ownership stakes in other organisations; the Company's anticipated capital expenditures and plans to construct and modernize its network; the Company's expectations as to the growth in demand for its services, plans relating to the expansion of the range of its services and their pricing; the Company's plans with respect to improving its corporate governance practices; the Company's expectations as to its position in the telecommunications market and forecasts on the development of the market segments within which the Company operates; economic outlook and industry trends; the Company's expectations as to the regulation of the Russian telecommunications industry and assessment of impact of regulatory initiatives on the Company's activity; other statements regarding matters that are not historical facts.
Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include:
risks relating to changes in political, economic and social conditions in Russia as well as changes in global economic conditions; risks relating to Russian legislation, regulation and taxation, including laws, regulations, decrees and decisions governing the Russian telecommunications industry, securities industry as well as currency and exchange controls relating to Russian entities and their official interpretation by regulatory bodies; risks relating to the Company, including the achievement of the anticipated results, levels of profitability and growth, ability to create and meet demand for the Company's services including their promotions, and the ability of the Company to remain competitive in a liberalized telecommunications market; technological risks associated with the functioning and development of the telecommunications infrastructure, technological innovations as well as the convergence of technologies; other risks and uncertainties. For a more detailed discussion of these and other factors, see the Company's Annual Report and the Company's other public filings.
Many of these factors are beyond the Company's ability to control or predict. Given these and other uncertainties, readers are cautioned not to place undue reliance on any of the forward-looking statements contained herein or otherwise. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements (which are made as of the date hereof) to reflect events or circumstances upon the annual report publication or to reflect the occurrence of unanticipated events, except as may be required under applicable laws. [1] Tele2 results taken into account [2] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA. [3] International financial reporting standards [4] Here and below, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. [5] Here and below, capital expenditure ("CAPEX") comprises cash spent on fixed assets and intangible assets. [6] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets). [7] The conclusion made based on the Analysis Mason database - the international firm specialized in telecom and media consulting [8] Average revenue per user [9] Blended ARPU includes revenue from broadband, IPTV and digital cable TV [10] Operator to operator [11] Based on the data from Analysys Mason, global consulting and research firm specialising in telecoms, media and digital services
ISIN: US7785291078 Category Code:QRF TIDM: RKMD LEI Code: 2534001D752JPNM0H170 Sequence No.: 64553 EQS News ID: 1050277
End of AnnouncementEQS News Service