Rostelecom financial and operating results for the fourth quarter and full year of 2020

Print version 09.03.2021

Revenue increased by 15%; OIBDA ^[1] up 14%; net profit up 16%.
Revenue and OIBDA exceed guidance for FY2020.

Moscow, Russia – March 9, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the fourth quarter and the full year of 2020 prepared in accordance with IFRS^[2].

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. Besides, the Group made a number of revisions to its 2019 statements following the IFRS Interpretations Committee decision on lease terms of contracts with renewal and termination options. Please find more details on the revisions in Note 6 of the consolidated financial statements for 2020.

Fourth quarter 2020 key financial highlights

• Revenue grew by 23% to RUB 163.0 billion compared to 4Q 2019:
  • mobile services revenue grew 15% year-on-year;
  • digital services revenue grew 53% year-on-year;
• OIBDA up by 10% to RUB 44.5 billion;
• OIBDA margin of 27.3% compared to 30.6%;
• Net loss of up to RUB (2.1) billion compared to RUB (0.8) billion in 4Q 2019;
• CAPEX^[3] excluding state programs decreased by 16% to RUB 36.2 billion (22.2% of revenue) compared to 4Q 2019;
• FCF^[4] of RUB 17.9 billion compared RUB 15.7 billion in 4Q 2019;
• Net Debt^[5] increased by 9% since the beginning of the year to RUB 362.2 billion, resulting in a Net Debt/OIBDA ratio of 1.9x. During 4Q 2020 Net Debt decreased by 13%, resulting in a Net Debt/OIBDA ratio decrease from 2.2x to 1.9x.

Key figures for 4Q 2020, RUB mln

RUB million	4Q 2020	4Q 2019	change, y-o-y
Revenue	163,009	132,896	23%
OIBDA	44,491	40,627	10%
OIBDA margin %	27.3%	30.6%	-
Operating Income	8,374	9,792	(14%)
Operating margin %	5.1%	7.4%	-
Net Income	(2,083)	(790)	164%
% of revenue	(1.3%)	(0.6%)	-
Capital Expenditure excl. state programs	36,162	42,863	(16%)
% of revenue	22.2%	32.3%	-
Net debt	362,244	333,007	9%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	17,925	15,697	2,228

Full year 2020 financial highlights

• Revenue increased by 15% to RUB 546.9 billion compared to 2019;
• OIBDA grew by 14% to RUB 194.1 billion;
• OIBDA margin of 35.5% compared to 35.9% in 2019;
• Net profit increased by 16% to RUB 25.3 billion;
• CAPEX excluding state programs of RUB 107.1 billion (19.6% of revenue) compared to RUB 105.7 billion (22.2% of revenue) in 2019;
• FCF of RUB 22.7 billion compared to RUB 30.3 billion in 2019;
• Net Debt increased by 9% since the beginning of the year to RUB 362.2 billion, resulting in a Net Debt/OIBDA ratio of 1.9x.

Key figures for the full year of 2020, RUB mln

RUB million	2020	2019	change, y-o-y
Revenue	546,889	475,752	15%
OIBDA	194,050	170,703	14%
OIBDA margin %	35.5%	35.9%	-
Operating Income	68,965	61,280	13%
Operating margin %	12.6%	12.9%	-
Net Income	25,348	21,878	16%
% of revenue	4.6%	4.6%	-
Capital Expenditure excl. state programs	107,138	105,657	1%
% of revenue	19.6%	22.2%	-
Net debt	362,244	333,007	9%
Net debt/ annualised OIBDA	1.9	2.0	-
FCF	22,659	30,253	(7,594)

Mikhail Oseevskiy, President of Rostelecom:

"Rostelecom evidenced its resilience to major global challenges in 2020. Despite the constantly changing backdrop, we remained nimble enough to take steps to maintain our leading position in the market and achieve excellent financial results. Our revenue grew by 15%, operating profit before depreciation increased by 14%, and we grew net profit by 16%. By consolidating 100% of Tele2 Russia, Rostelecom became the largest integrated digital provider in the country, with revenues of more than half a trillion roubles generated from a diverse range of cutting-edge services.

In April 2021, we plan to announce our renewed strategy outlining high-level strategic focus on digital business that will better position our company for changing markets and align with customer needs. Our focus will continue to be on new points of growth and expansion of Rostelecom’s fast-growing portfolio.

At the end of 2020, we closed a landmark deal with VTB Bank, who came on board as a strategic partner to help support the development of our data centres and cloud services. Not only did we secure the financial resources and a reliable joint partner, but we also demonstrated a new significantly enhanced market value and potential that the business segment carries, and there is more to come from other digital divisions.

We expect that the IPO of the cloud segment, as well as further possible placements involving other promising digital clusters, will deliver significant shareholder value due to the higher multiples applicable to growing digital companies unlocking the fair value presented by Rostelecom as a group.”

Vladimir Kirienko, First Vice-President of Rostelecom:

“The strong financial results for 2020 evidence how Rostelecom has become truly digital. Over a long period of time, Rostelecom has systematically expanded its range of advanced digital services, enabling the company to embark on a trajectory of sustainable double-digit growth, that exceeds rates of growth achieved by other market players.

We have invested a lot in enhancing our data centers and cloud services, cybersecurity solutions, regional digital projects, e-government, video surveillance and analytics, and smart services for households and businesses. The results of these efforts are coming into fruition: the digital segment is growing at an impressive rate, providing the company with tens of billions of roubles of additional revenue, with areas such as cybersecurity are multiplying in size every year.

Despite our achievements, we are never complacent and understand that we must continue to look at new areas of growth to preserve our leadership in the space. To that end, we continue to expand our digital offering to maintain exponential growth dynamics. We have done so by acquiring developers of proprietary software products in the field of housing and communal services (Forkam and Fastek companies), a leading developer in the field of digitalization of waste management and ecology, we have formed a partnership with Doctis to create telemedicine services and we have a joint venture with YADRO to expand the line of PaaS solutions as well as a number of similar partnerships and activities that will cement our leading position in the space.

Coupled with the phenomenal success of Tele2 Russia, which is the only player with double-digit growth in an already mature market and the fastest growing mobile operator in the world, our achievements in transforming Rostelecom into a digital giant enables us to be ambitious in shaping our strategic plans for digital services for years to come.”

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

“The company demonstrated strong growth in key financial indicators and exceeded the forecast of its 2020 targets. Despite the continued uncertainty about the future dynamics of macroeconomic indicators, progress achieved in 2020 means we can reasonably expect the continued growth of our business in 2021. The company's management expects an increase both in consolidated revenue and OIBDA by at least 5%; СAPEX is planned within the range of 110 – 115 billion roubles (excluding the implementation of state programs).”

Key operating highlights

Number of subscribers (million):	4Q 2020	4Q 2019	change, y-o-y	3Q 2020	change, y-o-y
Internet access	13.5	13.2	2%	13.4	1%
B2C: Broadband	12.4	12.2	2%	12.3	1%
B2B: Broadband + VPN	1.1	1.1	5%	1.1	2%
Pay TV	10.8	10.4	4%	10.7	1%
Incl. IPTV	6.1	5.6	9%	5.9	3%
Hosted PBX	0.160	0.097	65%	0.147	9%
Local telephony services	14.0	15.6	(10%)	14.5	(3%)

ARPU[6] (RUB):	4Q 2020	4Q 2019	change, y-o-y	3Q 2020	change, y-o-y
Internet access
B2C: Broadband	395	402	(2%)	390	1%
B2B: Broadband + VPN	3,372	3,455	(2%)	3,231	4%
Pay TV	250	255	(2%)	245	2%
Incl. IPTV	302	320	(5%)	298	2%
Hosted PBX	1,186	1,238	(4%)	1,119	6%
Blended ARPU[7]	546	553	(1%)	537	2%

Mobile business

	4Q 2020	4Q 2019	change, y-o-y	3Q 2020	change, y-o-y
Data Traffic, incl. MVNO,Pb	1,442	977	48%	1,351	7%
Churn, %	(8.1%)	(9.5%)	(1.5 p. p.)	(7.3%)	0.8 p. p.
Growth of active mobile Internet users, %	20.0%	39.6%	(19.6 p. p.)	25.5%	(5.5 p. p.)
Subscriber base at the end of period	46.6	46.0	1.5%	-	-

1. The total number of Internet subscribers among households grew by 2% to 12.4 million in the fourth quarter of 2020 compared to the corresponding period of last year; ARPU was RUB 395.
2. The total number of Internet and VPN subscribers in B2B increased by 5% year-on-year to 1.1 million; ARPU was RUB 3,372.
3. The number of pay-TV subscribers grew by 4% to 10.8 million users compared to the corresponding period of last year, with average ARPU of RUB 250 across B2C;
   • the number of IPTV subscribers increased by 8% to 6.1 million, and ARPU was RUB 302 across B2C;
4. The mobile subscriber base grew to 46.6 million users in 2020, while the number of active mobile Internet users increased by 20% in 4Q 2020 compared to the corresponding period of 2019. The mobile Internet data traffic growth reached 38%; at the same time, cellular customer base churn decreased to 8.1%;
5. The number of local telephony subscribers decreased by 10% to 14.0 million.

Press-release on 4q 2020 financial results