rostelecom announces its ifrs financial and operating results

for the THIRD quarter and NINE MONTHS OF 2019

 

Q3 2019 DIGITAL SEGMENT[1] GROWTH OF 13% CONTRIBUTING 59% OF TOTAL REVENUE; NET PROFIT UP 12%; MORE THAN TWOFOLD INCREASE IN FCF[2]

Moscow, Russia - November 7, 2019 - 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 2019 prepared in accordance with IFRS[3].

KEY ACHIEVEMENTS

• Revenue grew by 5% year-on-year in the third quarter of 2019;
• Digital segment increased by 13% in the third quarter, while its contribution to total revenue reached 59%;
• OIBDA[4] grew by 2% in the third quarter of 2019;
• Net profit increased by 12% and reached RUB 6.4 billion in the third quarter of 2019;
• Free Cash Flow (FCF) increased by 116% to RUB 7.3 billion in the third quarter of 2019.

 

THIRD QUARTER 2019 FINANCIAL HIGHLIGHTS

• Revenue grew by 5% to RUB 83.7 billion compared to the third quarter of 2018;
• OIBDA up by 2% to RUB 27.9 billion;
• OIBDA margin stood at 33.3% compared to 34.4% the third quarter of 2018;
• Net profit increased by 12% to RUB 6.4 billion compared to the third quarter of 2018;
• CAPEX[5] decreased by 1% to RUB 16.1 billion (19.2% of revenue) from RUB 16.3 billion (20.6% of revenue) in the third quarter of 2018;
• FCF improved more than twofold to RUB 7.3 billion compared to the third quarter of 2018;
• Net debt[6] increased by 10% since the beginning of the year to RUB 205.1 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

 

Key figures for 3Q 2019, RUB mln

RUB million	3Q 2019	3Q 2018	change, y-o-y
Revenue	83,727	79,414	5%
OIBDA	27,896	27,328	2%
OIBDA margin %	33.3%	34.4%	-
Operating Income	10,455	10,934	(4%)
Operating margin %	12.5%	13.8%	-
Net Income	6,412	5,703	12%
% of revenue	7.7%	7.2%	-
Capital Expenditure	16,081	16,325	(1%)
% of revenue	19.2%	20.6%	-
Net debt	205,053	203,347	1%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	7,261	3,368	3,893

 

NINE MONTHS OF 2019 FINANCIAL HIGHLIGHTS

• Revenue increased by 4% to RUB 242.6 billion compared to the nine months of 2018;
• OIBDA increased by 9% year-on-year to RUB 81.4 billion compared to the nine months of 2018;
• OIBDA margin grew by 1.4 p.p. to 33.6% compared to the nine months of 2018;
• Net profit increased by 29% to RUB 16.4 billion compared to the nine months of 2018;
• CAPEX[7] increased by 17% to RUB 53.7 billion (22.1% of revenue) from RUB 45.9 billion (19.7% of revenue) in the nine months of 2018;
• FCF improved to RUB 4.1[8] billion compared to RUB (3.3) billion in the nine months of 2018.

 

Key figures for 9M 2019, RUB mln

RUB million	9M 2019	9M 2018	change, y-o-y
Revenue	242,554	232,982	4%
OIBDA	81,440	74,863	9%
OIBDA margin %	33.6%	32.1%	-
Operating Income	29,920	27,633	8%
Operating margin %	12.3%	11.9%	-
Net Income	16,362	12,661	29%
% of revenue	6.7%	5.4%	-
Capital Expenditure	53,667	45,892	17%
% of revenue	22.1%	19.7%	-
Net debt	205,053	203,347	1%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	4,066	(3,312)	7,378

 

Mikhail Oseevskiy, President of Rostelecom, commented:

We delivered robust topline and operational growth in the third quarter of 2019. Our digital segment grew by 13% and is closing in on an almost 60% contribution to Group revenue. Total revenue across the Group grew by 5%, in-line with our strategic objective. Smart City projects, cloud services, data centers and cyber security contributed significantly to this strong performance, adding to our core business streams of broadband and Pay TV. The contribution from these new services is becoming more tangible and visible and provides solid evidence of the company's steady digital transformation.

Progress has also been made in increasing operational efficiency, including through the optimisation of our real estate portfolio. An important element of this process is the sale of excess real estate, as reflected in the third quarter agreement to sell the premises of the historic Central Telegraph building. The landmark property was sold for RUB 3.5 billion - the effect of this major transaction will be reflected in the fourth quarter, and I would like to recognise terrific work done by the Rostelecom team to complete this process and deliver maximum value to our stakeholders in the current market conditions.

Our achievements, including the on-going success and outstanding results by Tele2 Russia enable us to record a two-digit growth in profits and a more than twofold increase in FCF, which forms the basis for our dividend calculations.

In terms of Rostelecom's digital transformation, we are on track to delivering on the approved strategic plan, having gained good momentum on our key strategic initiatives and strengthening our leadership as a digital partner for the society, business and the State."

Vladimir Kirienko, First Vice-President of Rostelecom, commented:

We continue to develop our smart digital services ecosystem and are improving our product offering.

In the third quarter of 2019, Rostelecom launched 'Game Market', a platform which brings together more than 2,200 games developed by 48 Russian and international developers. This launch increases our exposure to and participation in the gaming ecosystem and to the gamer community, with our key 'Game' tariff plan at the heart of our offer. We have also made available to gamers the subscription to the cloud-based game platform GFN.RU which is able to turn any computer into a powerful gaming machine for the best gaming experience when it comes to popular online games. The GFN.RU cloud platform has emerged in Russia thanks to cooperation of SAFMAR group and NVIDIA (the US) - the global leader of Graphics Processing Units and visual computing. Rostelecom became the only provider in Russia to offer its clients the GNF.RU subscription at the same price as the vendor. 

For its corporate clients, Rostelecom launched an M2M Control service, which enables SIM cards on applications and sensors to be controlled remotely within the M2M[9] system to help optimize business processes when communicating with IoT[10] devices. Rostelecom's solution is essential when it comes to streamlining production and optimising internal processes to transition new digital technologies which helps optimize internal processes, provide access to new services and technologies, reduce costs and increase revenues for both large and SME businesses.

One successful example of realizing the potential of the Industrial Internet was the joint project of Rostelecom and Rusagro to launch a smart farming tool that facilitates control and management of harvesting processes. The platform is built based on IoT technology which collects agronomic data from sensors and RFID cards installed on agricultural equipment. The smart farming tool covers the entire cycle from real-time monitoring of harvesting processes to the transportation and transmission of agronomic data on to Rusagro's automated information system via mobile networks.

Across the Russian regions, Smart City projects are becoming increasingly popular (including among local governments) as they help create a better living environment for citizens through the application of digital services in everyday life, assisting with utilities management, road infrastructure, education and healthcare. Some of these projects include the installation of 600 photo and video identification CCTV cameras across the city of Bashkortostan, the implementation of a number of smart solutions in Taganrog, making it the first Smart City in Southern Russia, and the integration of a smart system in Yamal to control and optimise the waste collection process through online monitoring of trash containers equipped with sensors. We have delivered a number of similar projects across the country, which has been accelerating our top-line due to its sustainable double-digit growth in sales.

Sergey Anokhin, Senior Vice-President and Chief Financial Officer, added:

"Our strong third quarter results are in line with our budget plan in terms of reaching targets around expanding the digital segment and improving internal efficiencies. Our results and achievements for the nine months provide us with sufficient visibility on year-end performance to confirm our guidance for revenue and OIBDA for 2019. We expect both KPIs to grow by no less than 3%. We also expect the CAPEX programme to be within the range of RUB 65-70 billion, taking into account RUB 7 billion of regulatory CAPEX and excluding the implementation of state programs."

 

 

KEY OPERATING HIGHLIGHTS

Number of subscribers (million):	3Q 2019	3Q 2018	change	2Q 2019	change
Internet access	13.1	13.0	0.5%	13.0	0.3%
B2C: Broadband	12.0	12.0	0.2%	12.0	0.1%
B2B: Broadband + VPN	1.0	1.0	4%	1.0	3%
Pay TV	10.3	10.1	2%	10.2	1%
Incl. IPTV	5.5	5.1	7%	5.4	1%
MVNO subscribers	1.5	1.1	37%	1.3	9%
Local telephony services	16.1	17.8	(10%)	16.6	(3%)

 

ARPU[11] (RUB):	3Q 2019	3Q 2018	change	2Q 2019	change
Internet access
B2C: Broadband	396	379	4%	398	(0.6%)
B2B: Broadband + VPN	3,475	3,180	9%	3,510	(1%)
Pay TV (B2C)	248	240	3%	248	(0.2%)
Incl. IPTV	311	310	0.3%	315	(1%)
Blended ARPU[12]	536	521	3%	544	(1%)

 

 

 

 

 

Total subscriber base and ARPU

1. The total number of Internet subscribers among households grew by 0.2% to 12.0 million in the third quarter of 2019 compared to the corresponding period of last year; ARPU was up 4% year-on-year to RUB 396.
2. The total number of B2B Internet and VPN subscribers increased by 4% year-on-year to 1.0 million; ARPU grew by 9% year-on-year to RUB 3,475.
3. The number of pay-TV subscribers grew by 2% to 10.3 million households compared to the corresponding period of last year with average ARPU of RUB 248, up 3% year-on-year as well;

• The number of IPTV subscribers increased by 7% to 5.5 million, and ARPU also reached RUB 311;

4. The number of MVNO subscribers increased by 37% and reached 1.5 million users; MVNO sales have doubled thanks to the subscriber base growth;
5. The number of local telephony subscribers decreased by 10% to 16.1 million.

 

KEY EVENTS RELATING TO 3Q 2019 AND AFTER THE END OF THE REPORTING PERIOD

Business news

• Rostelecom continues to develop and expand its range of products and services:

• Rostelecom launched 'Game Market'; the 'Home Internet' users can now subscribe to the NVIDIA Geforce Now (GFN.RU) online game platform which is able to turn any computer into a powerful gaming machine. Rostelecom also connected NVIDIA's servers to high-speed data transmission channels;
• The Wink platform is now available to all IPTV subscribers across the country, providing current clients with the option of migrating to this new offering;
• Rostelecom signed an exclusive agreement with Russia's most famous English interpreter and voiceover artist Dmitry Puchkov (known by the pseudonym Goblin);
• Rostelecom launched an M2M Control service, which enables businesses to remotely control SIM cards on applications and sensors within the M2M system and helps optimize business processes when communicating with IoT devices;
• Rostelecom launched a new cyber-protection service package which combines the managed information security service Solar MSS and the Virtual Data Centre service;
• Rostelecom developed a web content filtering solution for Wi-Fi products that blocks inappropriate or illegal content;
• Within its MVNO project, the Company introduced a fully convergent offer which serves as a reliable platform to ensure seamless experience while using Internet, TV, content, game services and indoor and outdoor video surveillance; this resulted in a twofold growth of MVNO sales over the year.

• Rostelecom continues to grow its digital segment:

• Rostelecom signed agreements with Rusagro, Russia's largest vertically integrated agricultural holding company, to launch a control system to manage the harvesting of grains based on the IoT technologies;
• Bashinofrmsvyaz, a subsidiary of Rostelecom, signed an agreement to install 600 photo and video control CCTV system in Bashkortostan;
• As part of the development of Smart City projects, Rostelecom integrated a smart system in Yamal to control and optimise the waste collection process;
• Rostelecom became the only operator for Rosenergoatom's data transmission network;
• As part of the 'Smart Home' ecosystem, Rostelecom has sold 116,000 cameras since the launch of the video surveillance service for households;
• As part of cybersecurity services:
  • Sales grew almost two and half times in the third quarter of 2019;
  • The product line was expanded through the launch of:
    • the Solar Dozor 7 security solution which prevents leaks of sensitive information through its innovative user behaviour analysis feature;
    • the Solar webProxy web-security Gateway;
    • the commercial service to manage the vulnerabilities of the Qualys network infrastructure in the Russian cloud environment;
    • the Origin Event Inspection service which protects clients' web-based applications from DDoS attacks.
• Rostelecom continues to grow its cloud services segment:
  • As part of the Virtual PBX offering, Rostelecom expanded global reach to 400 cities;
  • As part of the Virtual Data Centre offering:
    • revenues grew by 75% in the third quarter of 2019;
    • the service functionality was improved with the new agent data backup option;
    • Rostelecom launched a second data storage facility in Moscow in order to increase reliability and facilitate complex client projects;
    • The White Label partnership programme was enhanced by further modifications to the cloud.rt.ru cloud platform, including through:
      • additional information security settings;
      • better flexibility of the orders life span settings and tariff plans management;
      • further customisation of the portal interface;
    • Rostelecom started the commercial operation of 800 rack spaces at the new Udomlya Data Centre;
    • Rostelecom has been ranked first among data centre providers in Russia by the number of its racks (6,686 units in total) according to IKS Consulting;
  • As part of the video surveillance service:
    • Sales grew almost twofold in the third quarter of 2019;
    • Rostelecom connected Gazprom Mezhregiongaz Stavropol to its video surveillance and video analysis services which allowed to ensure security and efficiency control across the company's 44 branches;
    • Together with the Kursk region local administration, Rostelecom launched a project to equip educational institutions with video surveillance and video analysis products;
    • Rostelecom implemented a pilot project to install the Yugorsky State University with more than 500 cameras to provide video analysis services, including facial recognition;

• Rostelecom successfully provided video surveillance for the single election day;
• Starting from July 16, 2019 Rostelecom indexed tariff rates for the regulated services of telephony and telegrams;

Other news

• Rostelecom and Dnevnik.ru launched a JV RTK-Dnevnik in order to implement digital technologies in Russian schools;
• Central Telegraph PJSC, Rostelecom's subsidiary, has sold its properties with an area of 35,198.7 square meters at 7, Tverskaya street, Moscow, for RUB 3.5 billion;
• Rostelecom acquired Alliance Telecom Group of Companies, one of the largest Internet access and TV services providers across the Primorsky region;
• Rostelecom acquired Prometey, a communications operator in St. Petersburg;
• Fitch affirms Rostelecom's investment grade rating of 'BBB-'.

 

 

OPERATING REVIEW

Revenue analysis

 

Revenue structure by services

RUB million	3Q 2019	3Q 2018	change	9M 2019	9M 2018	Change
Broadband	20,749	19,871	4%	62,146	58,707	6%
TV services	9,169	8,655	6%	27,724	25,318	10%
Fixed telephony	15,160	17,035	(11%)	46,632	53,035	(12%)
Wholesale services	20,516	20,344	1%	61,962	59,138	5%
Rent of channels	2,464	2,394	3%	7,222	7,077	2%
Interconnect and traffic transit services	7,600	8,627	(12%)	23,979	24,916	(4%)
VPN	6,998	6,038	16%	20,342	17,285	18%
Rent and maintenance of telecommunications infrastructure	3,454	3,284	5%	10,420	9,860	6%
VAS and cloud services	12,313	8,991	37%	28,891	23,698	22%
Other telecommunications services	3,739	2,626	42%	9,803	8,072	21%
Other non-telecommunications services	2,081	1,892	10%	5,395	5,014	8%
Total	83,727	79,414	5%	242,554	232,982	4%

Revenue structure by customer segments

RUB million	3Q 2019	3Q 2018	change	9M 2019	9M2018	change
Residential customers	34,509	33,983	2%	104,558	102,430	2%
B2B / State clients	34,152	29,829	14%	92,329	85,082	9%
Operators	13,800	14,333	(4%)	42,242	42,023	1%
Other	1,266	1,268	(0.2%)	3,425	3,448	(1%)
Total	83,727	79,414	5%	242,554	232,982	4%

In the third quarter of 2019, revenue increased by 5% to RUB 83.7 billion, compared to the third quarter of 2018, as a result of the following factors:

• a 37% increase in revenue from VAS and cloud services, mainly due to the proceeds from "Smart City" projects, the promotion of cloud services and data centres;
• a 42% increase in revenue from other telecommunication services, mainly due to growth in sales of video surveillance equipment and revenues for mobile communications services;
• a 16% increase in revenue from VPN services, mainly due to higher demand from state and corporate clients;
• a 4% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
• a 6% increase in revenue from pay-TV services due to growth in the IPTV subscriber base and higher ARPU;

 

During the nine months of 2019, revenue increased by 4% to RUB 242.6 billion, compared to the nine months of 2018, as a result of the following factors:

• a 22% increase in revenue from VAS and cloud services, mainly due to the proceeds from "Smart City" projects, the promotion of cloud services and data centres;
• a 6% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
• a 18% increase in revenue from VPN services, mainly due to higher demand from state and corporate clients;
• a 10% increase in revenue from pay-TV services due to growth in the IPTV subscriber base and higher ARPU;

 

Operating income analysis

Operating expenses structure

 

RUB million	3Q 2019	3Q 2018	change	9M 2019	9M 2018	change
Personnel costs	(25,151)	(22,615)	11%	(75,222)	(71,230)	6%
Depreciation, Amortization and impairment losses	(16,274)	(15,141)	7%	(47,970)	(43,616)	10%
Interconnection charges	(14,529)	(14,691)	(1%)	(43,477)	(42,467)	2%
Materials, repairs and maintenance, utilities	(5,999)	(6,010)	(0.2%)	(18,297)	(18,405)	(1%)
Gain on the disposal of PPE and intangible assets	1,031	947	9%	2,455	2,341	5%
Impairment loss of financial assets measured at amortized cost	(783)	(778)	1%	(2,936)	(3,905)	(25%)
Other operating income	4,474	3,686	21%	12,698	10,700	19%
Other operating expenses	(16,041)	(13 878)	16%	(39,885)	(38,767)	2%
Total operating expenses	(73,272)	(68,480)	7%	(212,634)	(205,349)	4%

In the third quarter of 2019, operating expenses increased by 7% compared to the corresponding period of 2018 and amounted to RUB 73.3 billion, largely due to the following factors:

• an 11% increase (of RUB 2.5 bln) in personnel costs, mainly due to a lower comparative base in the third quarter of 2018 driven by the write-off of certain liabilities and an increase in the number of employees within the digital business segments, including in the newly acquired companies;
• a 16% increase (of RUB 2.0 bln) in other operating expenses, mainly due to the implementation of Smart City projects, as well as the supply of equipment under the B2B/G projects;
• a 7% increase (of RUB 1.1 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and intangible assets following the acquisition of additional software and content;
• a 21% increase (of RUB 0.8 bln) in other operating income, mainly due to the increased volume of services within the "Bridging the digital divide" project;

During the nine months of 2019, operating expenses increased by 4% compared to the corresponding period of 2018 and amounted to RUB 212.6 billion, largely due to the following factors:

• a 10% increase (of RUB 4.3 bln) in depreciation, amortization and impairment losses, due to a reduced effect from revised terms of useful life and higher payments associated with new objects and intangible assets following the acquisition of additional software and content;
• a 6% increase (of RUB 4.0 bln) in personnel costs, mainly due to a lower comparative base in the third quarter of 2018 driven by a write off of certain liabilities and an increase in the number of employees within the digital business segments, including in the newly acquired companies;
• a 2% increase (of RUB 1.0 bln) in interconnection charges, partly due to additional  sub-contractual payments to other operators in the second quarter of 2019 as part of state contracts, contributing to the increase in corresponding revenues;
• a 19% increase (of RUB 2.0 bln) in other operating income, partly due to the increased volume of services as part of the "Bridging the digital divide";
• a 25% decrease (by RUB 1.0 bln) in impairment loss of financial assets measured at amortized cost, partly due to the high base effect of 2018 driven by significant one-off accruals.

Operating profit in the third quarter decreased by 4% year-on-year to RUB 10.5 billion and increased by 8% year-on-year to RUB 29.9 billion for the nine months of 2019.

OIBDA for the third quarter and nine months of 2019 increased by 2% year-on-year to RUB 27.9 billion and by 9% year-on-year to RUB 81.4 billion respectively. OIBDA dynamics were driven by revenue growth and the above-mentioned factors, affecting operating expenses. The OIBDA margin stood at 33.3% in the third quarter of 2019 compared to 34.4% in the corresponding period of 2018. The OIBDA margin increased by 1.4 p.p. to 33.6% during the nine months of 2019 compared to the corresponding period of 2018.

Net Income Analysis

In the third quarter of 2019, profit before tax increased by 7% to RUB 7.8 billion, compared to the corresponding period in 2018, and by 23% to RUB 20.5 billion in the nine months of 2019.

These dynamics were influenced in the third quarter of 2019 by the following factors:

• a more than threefold increase in the financial performance of associated companies, mainly thanks to the performance of the Tele2 Russia JV;
• higher finance costs, partly due to an increase in interest expenses.

These dynamics were influenced during the nine months of 2019 by the following factors:

• more than a fourfold increase in the financial performance of associated companies, mainly driven by the Tele2 Russia JV;
• higher operating profit;
• significant foreign exchange gains in the first quarter of 2019 due to strengthened national currency;
• higher finance costs, partly due to an increase in interest expenses.

Income tax in the third quarter of 2019 decreased by 11% to RUB 1.4 billion and increased by 3% in the nine months of 2019 to RUB 4.1 billion.

The effective income tax rate stood at 18% in the third quarter of 2019, and at 20% in the nine months of 2019, compared to the 20% rate set by the Tax Code.

Net profit totalled RUB 6.4 billion, an increase of 12% in the third quarter of 2019, compared to the corresponding period last year. Net profit grew by 29% to RUB 16.4 billion in the nine-month period of 2019.

Financial review

Net operating cash flow in the third quarter of 2019 increased by 15% to RUB 20.9 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the third quarter of 2019 was mainly due to the changes in working capital, which was mainly driven by:

• a decrease in accounts receivables, due to collections from Russian operators;
• a decrease in other assets, due to VAT payment adjustments.

Net operating cash flow in the nine months of 2019 increased by 32% and amounted to RUB 50.5 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the nine months of 2019 was due to the change in working capital, which was mainly driven by the collection of receivables for projects linked to the provision of high-speed connections in Russian in the second quarter of 2019.

Cash outflow for investments in non-current assets decreased by 1% to RUB 16.1 billion (19.2% of revenue) in the third quarter of 2019. Excluding state programmes, it decreased by 6% to RUB 13.3 billion (15.9% of revenue). Cash outflow for investments in non-current assets increased by 17% to RUB 53.7 billion (22.1% of revenue) in the nine months of 2019. Excluding state programmes, it increased by 6% to RUB 41.2 billion (17.0% of revenue). These dynamics reflect an increase in capital expenditure on government-funded programmes during the reporting period, as well as the uneven distribution of expenditure during the calendar year according to the terms of the concluded contracts.

Free cash flow in the third quarter of 2019 increased more than twofold to RUB 7.3 billion compared to RUB 3.4 billion in the third quarter of 2018. Free cash flow in the nine months of 2019 increased by RUB 7.4 billion and totalled RUB 4.1 billion compared to RUB (3.3) billion in the nine months of 2018.

 

Free Cash Flow (RUB, billion)

As at September 30, 2019, the Group's total debt increased by 8% compared to the beginning of the year and amounted to RUB 221.1 billion. Over 99% of the Group's total debt was rouble-denominated as at September 30, 2019.

As at September 30, 2019, the Group's net debt increased by 10% compared to the beginning of the year and amounted to RUB 205.1 billion. The net debt /OIBDA ratio over the last 12 months stood at 1.9x as at September 30, 2019.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4.00 PM (Moscow), 2.00 PM (CET), 1.00 PM (UK) and 8.00 AM (NYT). To participate in the conference call, please dial:

UK/ International:  +44 (0) 330 336 9126

USA:    +1 323-794-2590

Russia:     +7 495 213 1767

 

Confirmation Code (ENG):  9390671

Confirmation Code (RUS):  9070120

 

 

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/rostelecom20191107/ru.

 

A replay of the conference call will be available on the Company's website  https://www.company.rt.ru/ir/results_and_presentations/financials/IFRS/2019/3/.

 

* * *

APPENDICES

1. Reconciliation of OIBDA;
2. IFRS 9, 15 and 16 standards application;
3. Statement of Comprehensive Income for the nine months of 2019;
4. Statement of Cash Flows for the nine months of 2019;
5. Statement of Financial Position for the nine months of 2019.

 

 

 

 

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	3Q 2019	3Q 2018	change	9M 2019	9M 2018	change
Operating income	10,455	10,934	(4%)	29,920	27,633	8%
Plus amortisation	16,274	15,141	7%	47,970	43,616	10%
Plus expenses related to the long-term management incentive programme	887	1,074	17%	2,721	2,752	(1%)
Plus expenses related to non-government pension insurance	279	179	56%	829	862	(4%)
OIBDA	27,896	27,328	2%	81,440	74,863	9%
OIBDA margin, %	33.3%	34.4%		33.6%	32.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

APPENDIX 2: IFRS 9, 15 and 16 STANDARDS APPLICATION

 

The Group initially adopted IFRS 9, 15 and 16 using the modified retrospective approach starting from the first quarter of 2018. The key changes related to the application of these standards are listed below:

 

•     Expenses related to the operating leases have been capitalized and are reflected in the accounting balance sheet under the title "Right-of-use assets (RoU)". The RoU related liabilities are reflected in relative balance lines under same titles;
•     The expenses related to the conclusion and implementation of contracts with customers have been capitalized and are reflected under "Revenue from Contracts with Customers";
•     Assets for contracts with customers in arrears on payments for services rendered, but yet not invoiced, were excluded from the accounts receivable balance;
•     Revenues from the sale of goods or provision of services of not sufficient individual value to customers, have been deferred;
•     Recurring advances, containing the financing component, have been discounted;
•     Impairment provisions of financial assets are recognised on the basis of expected credit losses.

APPENDIX 3: Statement of Comprehensive Income for the nine months of 2019

 

 

APPENDIX 4: Statement of Cash Flows for the nine months of 2019

 

 

 

 

 

APPENDIX 5: Statement of Financial Position for the nine months of 2019

 

 

 

PJSC Rostelecom is the largest digital service provider, operating in all segments of the telecommunications market in Russia, it serves millions of households, the state and private enterprises across the country.

Rostelecom is Russia's undisputed market leader, providing high-speed Internet access to over 13.1 million users and pay-TV services to more than 10.3 million clients, over 5.5 million of which are subscribed to Rostelecom's IPTV services on a national level.

In the nine months of 2019, the Group generated RUB 242.6 billion of revenues, RUB 81.4 billion of OIBDA (33.6% of revenue) and RUB 16.4 billion 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] Broadband + Pay TV + VAS and cloud services.

[2] Free Cash Flow. Here and below, starting from 2019, 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. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[3] International financial reporting standards.

[4] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA. Note that the company changed the methodology of OIBDA calculation since 3q 2018 by excluding expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 were recalculated in line with the renewed methodology.

[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 short and long-term loans and borrowings less cash, cash equivalents and short-term investments (other financial assets).

[7] Here and below, capital expenditure ("CAPEX") comprises cash spent on fixed assets and intangible assets.

[8] Here and below, starting from 2019, 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. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[9] Machine-to-Machine

[10] Internet of Things

[11] Average revenue per user

[12] Blended ARPU includes revenue from broadband, IPTV and digital cable TV

[13] Certain amounts do not correspond to the unaudited management interim condensed consolidated statement of profit or loss and comprehensive income for the nine-month period ended 30 September 2018 and reflect cession operation reclassifications

[14] Certain amounts do not correspond to the unaudited management interim condensed consolidated statement of cash flow for the nine-month period ended 30 September 2018 and reflect cession operation reclassifications

[15] Certain amounts do not correspond to the audited consolidated statement of financial position as of 31 December 2018 and reflect measurement period adjustments made to the provisional amounts of the Netris acquisition as if the accounting for the business combination had been completed at the acquisition date.