Rostelecom financial and operating results for the first quarter 2021

Print version 13.05.2021

First quarter revenue increased by 9%; OIBDA[1] up 18%; net profit up 58% and FCF[2] increases by RUB 8.4 billion.

Moscow, Russia – May 13, 2021 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the first quarter of 2021 prepared in accordance with IFRS[3].

First quarter 2021 key financial highlights

• Revenue grew by 9% to RUB 132.0 billion compared to 1Q 2020:
• OIBDA up 18% to RUB 55.4 billion;
• OIBDA margin up 3.3 p.p. to 42.0%;
• Net profit up 58% to RUB 11.8 billion;
• CAPEX[4] excluding state programs increased by 24% year-on-year to RUB 27.2 billion (20.6% of revenue);
• FCF of RUB 2.1 billion following a marked improvement of RUB 8.4 billion;
• Net Debt[5] (including lease liabilities) increased by 1% YTD, amounting to RUB 470.7 billion, resulting in a Net Debt/OIBDA ratio of 2.3x.

Key figures for 1Q 2020, RUB mln

RUB million	1Q 2021	1Q 2020	change, y-o-y
Revenue	131,958	121,613	9%
OIBDA	55,437	47,082	18%
OIBDA margin %	42,0%	38,7%	-
Operating Income	22,672	19,309	17%
Operating margin %	17,2%	15,9%	-
Net Income	11,810	7,453	58%
% of revenue	8,9%	6,1%	-
Capital Expenditure excl. state programs	27,181	21,873	24%
% of revenue	20,6%	18,0%	-
Net debt (incl. lease liabilities)	470,665	471,166	(-0.1%)
Net debt/ OIBDA	2.3	2.7	-
FCF	2,088	(6,358)	8,446

Mikhail Oseevskiy, President of Rostelecom:

"2021 has started off well: the Company's revenue increased by 9%, OIBDA was up 18%, and net profit increased by 58% in the first quarter of 2021. We were also able to significantly improve our free cash flow position, which increased by RUB 8.4 billion over the reporting period.

The 2025 development strategy adopted by the Board of Directors this quarter puts us on a course to maintain our strong financial and operating results. The updated strategy sharpens our focus on digital transformation and the continuation of a sustainable development model of an integrated provider of digital services and solutions. The pursuit of smart growth in traditional businesses is central to our latest strategic cycle as we seek to maximize return on investment and cash flow. We are also intending to consolidate our leadership and further develop segments such as data centres and cloud services, cybersecurity, online medicine, digital regions and government digital services.

To meet these strategic ambitions, we will be looking closely at implementing radical cost reductions in traditional businesses, to significantly increase productivity and provide a meaningful uplift on our OIBDA margin as a group.

Our priority task is to grow OIBDA by one and a half times. A significant part of this goal will be met by our fast-growing businesses, which carry a higher growth multiple than our traditional telecom segments. Furthermore, our new dividend policy will guarantee shareholders an increase in dividend payments, which combined with our growth story, contributes to Rostelecom’s attractiveness as an investment."

Vladimir Kirienko, First Vice-President of Rostelecom:

“During the first three months of this year, growth in new digital services was accompanied by stable growth in our core services. Our retail segment saw a remarkable pace of growth despite market saturation. We have posted a threefold increase in revenue from the cloud video storage service, our Wink platform, which is gaining in popularity and is now among the top 5 online cinemas in the country. Our flagship product “Rostelecom Key” has passed the 100,000-user milestone, while the number of “Game” tariff subscribers continues to grow, helped by its promotion to the Tele2 Russia client base. We are developing partnerships with large corporations, small and medium-sized businesses and government agencies to offer them a wide range of digital services. Rostelecom experts have, as an example, used our Video Surveillance and Video Analytics platform to enhance the monitoring of solid municipal waste, they have developed a geographic information system for the agro-industrial complex of Udmurtia, we have developed a product to monitor the security of Solar appScreener applications for two international clients. Together with Mail.ru Group, we have also launched the educational platform Sferum, which in just a few weeks reached more than 100,000 school children across the country.

We are also focusing our efforts on the businesses that are becoming an increasingly significant part of our portfolio, which includes our contribution to the state’s Digital Economy program, which seeks to reduce the digital divide in Russia and ensure that businesses and households have equal access to digital infrastructure wherever they are in the country.

It is also important to highlight the strong results that Tele2 Russia continues demonstrate as it firmly consolidates its leadership in the mobile segment, particularly in terms of NPS and revenue growth rates. The successful transformation of Rostelecom into a digital giant is enabling us to formulate ambitious strategic plans for the coming years, based on our new set of growth objectives that set out to exceed market growth for our innovative clusters."

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

“The company continued to demonstrate consistently strong dynamics across all key financial indicators in 2021, thanks to on-going drive to increase efficiency and optimise costs. Free cash flow, one of our key target indicators, was strong during the quarter to remain positive at the end of the first quarter for the first time in recent years.

To increase transparency, we have taken steps to clarify the methodology used to calculate net debt, including lease liabilities, a significant part of which is accrued in accordance with IFRS 16. It is important to point out that the new methodology has changed Rostelecom’s Net debt/OIBDA ratio, which is purely technical and not due to an actual increase in Rostelecom’s debt burden beyond the previously established levels. Rostelecom anticipates that debt levels will remain below a Net debt/OIBDA ratio of 3x on an annualized basis. Corresponding clarifications have been made to the approved dividend policy by adjusting the principles around which the dividend is agreed and paid. The same clarifications will ensure that Rostelecom preserves its credit ratings by S&P, Moody`s, Fitch, ACRA and Expert RA.

While our performance in during the first quarter has exceeded our expectations, macroeconomic risk factors that could negatively impact our results remain and we prefer to be conservative when setting guidance for 2021. We therefore maintain our previously published forecast for 2021, where we expect to see a minimum 5% increase in consolidated revenues and OIBDA, with СAPEX of between RUB 110-115 billion, excluding the implementation of state programs. We may revisit these forecasts over the course of the coming reporting periods.”

Key operating highlights

Fixed business

Number of subscribers (million):	1Q 2021	1Q 2020	change, y-o-y	4Q 2020	change, y-o-y
Internet access	13.5	13.2	2%	13.5	0%
B2C: Broadband	12.4	12.2	2%	12.4	0%
B2B: Broadband + VPN	1.1	1.1	6%	1.1	1%
Pay TV	10.8	10.5	3%	10.8	0%
Incl. IPTV	6.2	5.7	9%	6.1	2%
Hosted PBX	0.170	0.128	33%	0.160	6%
Local telephony services	13.7	15.2	(10%)	14.0	(3%)

ARPU[6] (RUB):	1Q 2021	1Q 2020	change, y-o-y	4Q 2020	change, y-o-y
Internet access
B2C: Broadband	406	397	2%	395	3%
B2B: Broadband + VPN	3,477	3,368	3%	3,372	3%
Pay TV	254	257	(1%)	250	2%
Incl. IPTV	307	319	(4%)	302	2%
Hosted PBX	977	1,118	(13%)	1,186	(18%)
Blended ARPU[7]	563	551	2%	546	3%

Mobile business

	1Q 2020	1Q 2019	change, y-o-y	4Q 2020	change, y-o-y
Data Traffic, incl. MVNO,Pb	1,457	1,087	34%	1,442	1%
Churn, %	(8.2%)	(9.2%)	(1.0 p.p.)	(8.1%)	0.1 p.p.
Growth of active mobile Internet users, %	19.9%	36.1%	(16.2 p.p.)	20.0%	(0.1 p.p.)

1. The total number of Internet subscribers among households grew by 2% to 12.4 million in the first quarter of 2021 compared to the corresponding period of last year. ARPU also increased by 2% year-on-year to RUB 406.
2. The total number of Internet and VPN subscribers in B2B increased by 6% year-on-year to 1.1 million; ARPU increased by 3% year-on-year to RUB 3,477.
3. The number of pay-TV subscribers grew by 3% to 10.8 million users compared to the corresponding period of last year, with average ARPU of RUB 254 in B2C;
   
   - the number of IPTV subscribers increased by 9% to 6.2 million, and ARPU was RUB 307 in B2C;
4. The number of active mobile Internet users increased by 20% year-on-year during 1Q 2020. Year-on-year growth in mobile Internet data traffic reached 34% during the first quarter of 2021; while cellular customer base churn decreased to 8.2%;
5. The number of local telephony subscribers decreased by 10% to 13.7 million.

Press-release on 1q 2021 financial results