Rostelecom announces its IFRS financial and operating results for the third quarter and nine months of 2020

Print version 11.11.2020

Q3 2020 Revenue growth of 13%; 17% increase in OIBDA[1]; FCF[2] up 26%
FY 2020 guidance upgraded to ≥9% Revenue & OIBDA growth

Moscow, Russia – November 11, 2020 - 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 2020 prepared in accordance with IFRS[3].

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.

Third quarter 2020 financial highlights

• Revenue grew by 13% to RUB 135 billion compared to the third quarter of 2019;
  • mobile services revenue grew 14% year-on-year;
  • digital services revenue grew 62% year-on-year;
• OIBDA up by 17% to RUB 53.7 billion;
• OIBDA margin grew by 1.5 p.p. to 39.8%;
• Net profit increased by 31% to RUB 12 billion;
• CAPEX[4] excluding state programmes stood at RUB 24.3 billion (18% of revenue) compared to RUB 18.8 billion (15.7% of revenue) in the third quarter of 2019;
• FCF increased by 26% to RUB 19.5 billion;
• Net debt[5] increased by 23% since the beginning of the year to RUB 410 billion, resulting in a Net Debt/OIBDA ratio of 2.2x.

Key figures for 3Q 2020

RUB million	3Q 2020	3Q 2019	change, y-o-y
Revenue	134,988	119,621	13%
OIBDA	53,677	45,736	17%
OIBDA margin %	39.8%	38.2%	-
Operating Income	23,087	18,724	23%
Operating margin %	17.1%	15.7%	-
Net Income	11,988	9,140	31%
% of revenue	8.9%	7.6%	-
Capital Expenditure	24,325	18,755	30%
% of revenue	18.0%	15.7%	-
Net debt	410,027	322,744	27%
Net debt/ OIBDA	2.2	1.9	-
FCF	19,512	15,455	4,057

Nine months of 2020 financial highlights

• Revenue increased by 12% to RUB 383.9 billion compared to the nine months of 2019;
• OIBDA increased by 15% year-on-year to RUB 149.6 billion;
• OIBDA margin grew by 1 p.p. to 39%;
• Net profit increased by 21% to RUB 27.4 billion;
• CAPEX stood at RUB 71 billion (18.5% of revenue) compared to RUB 62.8 billion (18.3% of revenue) in the nine months of 2019;
• FCF stood at RUB 4.7 billion compared to RUB 14.6 billion in the nine months of 2019;
• Net debt increased by 23% since the beginning of the year to RUB 410 billion, resulting in a Net Debt/OIBDA ratio of 2.2x.

Key figures for 9M 2020

RUB million	9M 2020	9M 2019	change, y-o-y
Revenue	383,880	342,858	12%
OIBDA	149,559	130,078	15%
OIBDA margin %	39.0%	37.9%	-
Operating Income	60,591	51,490	18%
Operating margin %	15.8%	15.0%	-
Net Income	27,431	22,670	21%
% of revenue	7.1%	6.6%	-
Capital Expenditure	70,976	62,794	13%
% of revenue	18.5%	18.3%	-
Net debt	410,027	322,744	27%
Net debt/ OIBDA	2.2	1.9	-
FCF	4,734	14,556	(9,822)

Mikhail Oseevskiy, President of Rostelecom:

“We delivered robust financial and operational growth in the third quarter of 2020. Growth across the Group remained on track with revenue up by 13%, OIBDA up 17% and FCF also up by 26%. Our key strategic business segments – mobile and digital services – continue to be successful as we remain focused on delivering Rostelecom’s digital transformation strategy, which sets out our ambition to be the largest integrated digital company in Russia. Our ambitious digital economy projects, spanning a large variety of promising sectors, reinforce this solid growth trajectory. We continue to expand the industries we serve by entering new high-potential markets, building strong management teams to drive our robust marketing strategy to deliver growth into new and adjacent market segments. Through targeted M&A deals and partnerships, we are creating high-performing teams with diverse competencies to build on our competitive advantage. The acquisition of utilities software developers Forkam and Fastech; the expansion of our product ecosystem with Elvis Plus, the leading security system integrator; the strengthening of our position in video content terrestrial delivery, all have significant potential to expand and diversify products and solutions that sit within the growing ecosystem of Rostelecom business clusters.

We continue to develop smart digital solutions for business, government, and private users, and we will soon announce a refreshed strategy which will slightly recalibrate our focus. Built on strong recent achievements, the Rostelecom brand today represents a solid portfolio of fast-growing and high-potential businesses, that are currently undervalued by the market. Our key effort builds on delivering commercial and operational success, within these new business clusters, in order to unlock their potential and ultimately, the true value of our company. In addition to this strong focus on new growth projects and strengthening our position on the digital frontier, we plan to maintain an attractive dividend yield, which, coupled with steady business growth, shapes a unique long-term investment opportunity.”

Vladimir Kirienko, First Vice-President of Rostelecom:

“The recent achievements in key markets and across our business segments continue to translate into strong and steady growth while strengthening the long-term digital leadership of Rostelecom. Our constantly evolving digital offering continues to yield impressive results. The demand for cyber security solutions has increased more than two and a half times, while data centers and cloud/IaaS both have both doubled. E-government, video-webcast, smart household products and cloud telephony are performing increasingly well too. The introduction of new timely options and offerings within our digital product family has been well received by customers. Our strategic nation-wide convergent approach is paying off with increased clients’ loyalty and growing sales. An example of this was the launch in cooperation with Tele2 of a new offer “Everywhere online” that provides our clients with special subscription deals for the Wink entertainment platform which is becoming increasingly popular. In October, we broke Wink’s own concurrent viewers record with 3 million users watching the live stream of Khabib Nurmagomedov’s fight with Justin Gaethje, final match in Khabib’s storied career..

For our corporate clients, we launched “Technologies PRO”, a new tariff offering for remote working with an expanded product line and added services such as personal manager, antivirus, cloud storage on Yandex. Disk and other, in addition to the core broadband service. I would also like to mention the launch of an innovative solution for monitoring solid domestic waste, which using video surveillance cameras and AI enables customers to assess the condition of waste collection sites, schedule and compliance with standards. The environmental protection services market is growing worldwide, and as the leading digital provider in the country, we realise the role we have to play, but also the significant opportunity in developing smart innovative products and solutions to help businesses, the government and households reduce their environmental impact.”

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

“Our strong third quarter financial results reflect our plan for 2020 and we continue to deliver on our business targets. Despite the increased restrictions caused by the second wave of the pandemic, coupled with uncertainty surrounding macroeconomic dynamics, the considerable achievements made during the first three quarters, allows us to increase the forecast for key 2020 indicators. The management team therefore expects an increase in consolidated revenue of at least 9%, an increase in OIBDA of at least 9%; and СAPEX to stay within the range of 100-110 billion rubles excluding state programmes.”

Key operating highlights

Fixed-line business

Number of subscribers (million):	3Q 2020	3Q 2019	change, y-o-y	2Q 2020	change, y-o-y
Internet access	13.4	13.1	3%	13.4	0,4%
B2C: Broadband	12.3	12.0	3%	12.3	0,3%
B2B: Broadband + VPN	1.1	1.0	6%	1.1	2%
Pay TV	10.7	10.3	4%	10.7	1%
Incl. IPTV	5.9	5.5	8%	5.8	2%
Hosted PBX	0.147	0.090	62%	0.139	5%
Local telephony services	14.5	16.0	(9%)	14.9	(3%)

ARPU[6] (RUB):	3Q 2020	3Q 2019	change, y-o-y	2Q 2020	change, y-o-y
Internet access
B2C: Broadband	390	396	(1%)	395	(1%)
B2B: Broadband + VPN	3,231	3,475	(7%)	3,344	(3%)
Pay TV (B2C)	245	248	(1%)	248	(1%)
Incl. IPTV	298	311	(4%)	309	(4%)
Hosted PBX	1,119	1,200	(7%)	1,148	(3%)
Blended ARPU[7]	537	536	0.1%	545	(1%)

Mobile business

	3Q 2020	3Q 2019	change, y-o-y	2Q 2020	change, y-o-y
Data Traffic, incl. MVNO,Pb	1,351	875	55%	1,216	11%
Churn, %	(7.3%)	(8.8%)	(1.5 p.p.)	(9.0%)	(1.7 p.p.)
Growth of active mobile data users, %	25.5%	47.4%	(21.9 p.p.)	28.1%	(2.6 p.p.)

1. The total number of Internet subscribers among households grew by 3% to 12.3 million in the third quarter of 2020 compared to the corresponding period of last year; ARPU was RUB 390.
2. The total number of B2B Internet and VPN subscribers increased by 6% year-on-year to 1.1 million; ARPU was RUB 3,231.
3. The number of pay-TV subscribers grew by 4% to 10.7 million households compared to the corresponding period of last year with average ARPU of RUB 245 across B2C;
   • The number of IPTV subscribers increased by 8% to 5.9 million, and ARPU across B2C was RUB 298;
4. The number of active mobile Internet users grew by 25.5% year-on-year while mobile data traffic growth reached 55%; at the same time, cellular customer base churn decreased to 7.3%.
5. The number of local telephony subscribers decreased by 9% to 14.5 million.

Press-release on 3q 2020 financial results