Rostelecom announces its IFRS financial and operating results for the second quarter and half year 2019

Print version 02.08.2019

Q2 2019 digital segment^[1] growth of 11%; 13% increase in OIBDA^[2]; net profit up 40%

Moscow, Russia – August 2, 2019 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the second quarter and half year of 2019 prepared in accordance with IFRS^[3].

Key achievements

• Revenue grew by 4% year-on-year in the second quarter of 2019;
• Digital segment sales increased by 11% in the second quarter, while its contribution to total revenue reached 57%;
• OIBDA grew by 13% in the second quarter of 2019 to RUB 27.2 billion;
• Net profit increased by 40% and reached RUB 4.3 billion;
• Free Cash Flow (FCF) ^[4] increased to RUB 11.4 billion in the second quarter of 2019.

Second quarter 2019 financial highlights

• Revenue grew by 4% to RUB 80.2 billion compared to the second quarter of 2018
• OIBDA up by 13% to RUB 27.2 billion;
• OIBDA margin grew by 2.9 p.p. to 33.9% compared to the second quarter of 2018;
• Net profit increased by 40% to RUB 4.3 billion compared to the second quarter of 2018;
• CAPEX^[5] increased by 6% to RUB 15.2 billion (19.0% of revenue) from RUB 14.4 billion (18.7% of revenue) in the second quarter of 2018;
• FCF improved to RUB 11.4 billion compared to RUB (0.8) billion in the second quarter of 2018;
• Net debt^[6] increased by 8% since the beginning of the year to RUB 201.6 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for 2Q 2019, RUB mln

RUB million	2Q 2019	2Q 2018	change, y-o-y
Revenue	80,160	77,365	4%
OIBDA	27,162	23,983	13%
OIBDA margin %	33.9%	31.0%	-
Operating Income	9,756	8,342	17%
Operating margin %	12.2%	10.8%	-
Net Income	4,319	3,094	40%
% of revenue	5.4%	4.0%	-
Capital Expenditure	15,243	14,442	6%
% of revenue	19.0%	18.7%	-
Net debt	201,587	193,497	4%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	11,388	(832)	12,220

First half year 2019 financial highlights

• Revenue increased by 3% to RUB 158.8 billion compared to the first half of 2018;
• OIBDA increased by 13% year-on-year to RUB 53.5 billion compared to the first half of 2018;
• OIBDA margin grew by 2.7 p.p. to 33.7% compared to the first half of 2018;
• Net profit increased by 43% to RUB 10.0 billion compared to the first half of 2018;
• CAPEX^[7] increased by 27% to RUB 37.6 billion (23.7% of revenue) from RUB 29.6 billion (19.3% of revenue) in the first half of 2018;
• FCF improved to RUB (3.2)^[8] billion compared to RUB (6.7) billion in the first half of 2018.

Key figures for 1HY 2019, RUB mln

RUB million	6M 2019	6M 2018	change, y-o-y
Revenue	158,827	153,568	3%
OIBDA	53,543	47,534	13%
OIBDA margin %	33.7%	31.0%	-
Operating Income	19,465	16,699	17%
Operating margin %	12.3%	10.9%	-
Net Income	9,950	6,958	43%
% of revenue	6.3%	4.5%	-
Capital Expenditure	37,586	29,567	27%
% of revenue	23.7%	19.3%	-
Net debt	201,587	193,497	4%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	(3,195)	(6,681)	3,486

Mikhail Oseevskiy, President of Rostelecom:

“In keeping with our strategy priority, Rostelecom continues to develop its digital segment through the expansion of our customized digital services for different client segments.

During the second quarter, Rostelecom launched RTK Key, an outdoor video surveillance solution for residential properties. The platform’s capabilities can be enhanced by additional services available to developers, management companies and residents. Home video surveillance and smart intercom, which can be controlled via a mobile application, were the first products available on the platform. In future, the platform will be supplemented by other solutions such as remote meter readings, a smart gate bar, a digital key, and others as part of Rostelecom’s broader plan to introduce a comprehensive cross-vertical line up of products including “smart household”, “smart apartment building” and “smart city”.

We are seeing significant demand for virtual IT infrastructure from corporate and state companies. To ensure our cloud services offering remains competitive, we have expanded the bandwidth allocated to the virtual offering by 10 times to 10 Gb/s, we have significantly increased the availability and stability of services at all data centre sites, and we have also commenced commercial operation of an additional 800 rack spaces at the new “Udomlya” data centre.

A good example of our strategy in action is the recent introduction of Solar MSS to the market as an updated ecosystem of cybersecurity services, which includes nine mutually integrated managed services. The technological core of this ecosystem is a platform built on breakthrough technology consisting of SD-WAN software-defined networks. The mix of technologies selected as part of Solar MSS ensures protection against all major types of attacks, while providing the ability to focus our offering on the most critical segments for each individual client organization. As Russia’s leading monitoring and response centre, Solar JSOC supplements all Solar MSS services by providing expert analytics, cyber threat alerts and proven methods to counter hacking. During the first half of 2019, our centre recorded and prevented over 400,000 suspected cyber-attacks, enabling us to protect our clients' business interests. Our leading competency in the cyber security space has led to Rostelecom being entrusted for several years with securing the back-end infrastructure behind public Q&A sessions with President of Russia, with all cyber-attacks successfully repelled to date.

As part of our active promotion of industrial Internet solutions, where our digital technologies and solutions enable corporate clients to realise efficiencies, a remote function has been launched to control SIM-cards on devices and sensors, operated in the M2M network. This has been designed to help businesses of all sizes to optimise their internal processes, provide new services, reduce costs and subsequently increase revenues. Together with LUKOIL we also launched the first smart wells in the Perm region fields, to help monitor and manage oil and gas equipment remotely.

Our many operational achievements in the digital business segment led to strong financial results in the second quarter of 2019. The company recorded growth across all key indicators: revenue increased by 4%, operating profit before depreciation grew 13%, leading to a 40% increase in net profit. In addition, our free cash flow, which services our ability to maintain our dividend payments to shareholders, has significantly improved.

The double-digit growth rate of our digital business points to the momentum the Company’s transformation into a reliable digital partner for the citizens, businesses, and the State has achieved. We will continue to implement key strategic projects, develop digital ecosystems, invest in technological infrastructure and human capital, and we will strengthen our leadership in providing digital services to all types of clients.”

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

“Rostelecom’s results for the second quarter of 2019 drive our confident outlook for the future development of our digital segment and improvement of our internal efficiency. This enables us to enhance our guidance for the full year of 2019 on revenue and OIBDA, now we expect them to grow not less than 3%. As for the CAPEX programme, it remains unchanged within the range of RUB 65-70 billion, including the regulatory CAPEX amounting to RUB 7 billion, excluding the implementation of government programmes.”

Key operating highlights

Number of subscribers (million):	2Q 2019	2Q 2018	change, y-o-y	1Q 2019	change, y-o-y
Internet access	13.0	13.0	0.4%	13.0	0.1%
B2C: Broadband	12.0	12.0	0.1%	12.0	0.01%
B2B: Broadband + VPN	1.0	1.0	4%	1.0	1%
Pay TV	10.2	10.0	2%	10.2	0.03%
Incl. IPTV	5.4	5.1	7%	5.4	1%
MVNO subscribers	1.3	1.0	39%	1.3	6%
Local telephony services	16.6	18.3	(9%)	17.0	(2%)

ARPU[9] (RUB):	2Q 2019	2Q 2018	change, y-o-y	1Q 2019	change, y-o-y
Internet access
B2C: Broadband	398	380	5%	397	0.4%
B2B: Broadband + VPN	3,510	3,118	13%	3,266	7%
Pay TV (B2C)	248	239	4%	249	(0.5%)
Incl. IPTV	315	310	2%	317	(0.5%)
Blended ARPU[10]	544	516	6%	543	0.2%

Total subscriber base and ARPU

1. The total number of Internet subscribers among households grew by 0.1% to 12.0 million in the second quarter of 2019 compared to the corresponding period of last year; ARPU was up 5% year-on-year to RUB 398.
2. The total number of B2B Internet and VPN subscribers increased by 4% year-on-year to 1.0 million; ARPU grew by 13% year-on-year to RUB 3,510.
3. The number of pay-TV subscribers grew by 2% to 10.2 million households compared to the corresponding period of last year with average ARPU of RUB 248, up 4% year-on-year as well;
   • The number of IPTV subscribers increased by 7% to 5.4 million, and ARPU also reached RUB 315;
4. The number of MVNO subscribers increased by 39% and reached 1.3 million users;
5. The number of local telephony subscribers decreased by 9% to 16.6 million.

Press release on 2q 2019 financial results