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ROSTELECOM PJSC: Rostelecom announces its IFRS financial and operating results for the second quarter and half year 2020

Source: EQS

ROSTELECOM PJSC (RKMD)
ROSTELECOM PJSC: Rostelecom announces its IFRS financial and operating results for the second quarter and half year 2020

05-Aug-2020 / 09:48 MSK
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


 

rostelecom announces its ifrs financial and operating results

for the second quarter and FIRST half year of 2020

 

Q2, 2020 Revenue growth of 13%; 15% increase in OIBDA[1]; net revenue up 32%

Moscow, Russia - August 5, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital integrated service provider in Russia, today announces its consolidated financial results for the second quarter and first half 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.

Q2 2020 KEY ACHIEVEMENTS

 

  • Consolidated revenue grew by 13% year-on-year;
  • Mobile services grew by 16% year-on-year;
  • Sales in digital services increased by 68% year-on-year;
  • OIBDA grew by 15%;
  • Net profit increased by 32% year-on-year.

 

Q2 2020 FINANCIAL HIGHLIGHTS

  • Revenue grew by 13% to RUB 127.3 billion compared to the second quarter of 2019
  • OIBDA up by 15% to RUB 48.8 billion;
  • OIBDA margin grew by 0.8 p.p. to 38.3%;
  • Net profit increased by 32% to RUB 7.7 billion;
  • CAPEX[3] stood at RUB 24.7 billion (19.4% of revenue) from RUB 18.3 billion (16.2% of revenue) in the second quarter of 2019;
  • FCF[4] stood at RUB (8.8) billion compared to RUB 14.6 billion in the second quarter of 2019;
  • Net debt[5] increased by 22% since the beginning of the year to RUB 407.1 billion, resulting in a Net Debt/OIBDA ratio of 2.2x.

 

Key figures for 2Q 2020, RUB mln

RUB million

2Q 2020

2Q 2019

 change, y-o-y

Revenue

127,279

113,012

13%

OIBDA

48,800

42,476

15%

OIBDA margin %

38.3%

37.6%

-

Operating Income

18,557

16,002

16%

Operating margin %

14.6%

14.2%

-

Net Income

7,731

5,863

32%

% of revenue

6.1%

5.2%

-

Capital Expenditure

24,661  

 18,290  

35%

% of revenue

19.4%

16.2%

-

Net debt

407,118

325,010

25%

Net debt/ annualised OIBDA

2.2

2.0

-

FCF

(8,832)

14,619

(23,451)

 

FIRST HALF YEAR 2020 FINANCIAL HIGHLIGHTS

  • Revenue increased by 11% to RUB 248.9 billion compared to the first half of 2019;
  • OIBDA increased by 14% year-on-year to RUB 95.9 billion compared to the first half of 2019;
  • OIBDA margin grew by 0.7 p.p. to 38.5% compared to the first half of 2019;
  • Net profit increased by 14% to RUB 15.4 billion compared to the first half of 2019;
  • CAPEX excluding state programmes stood at RUB 46.7 billion (18.7% of revenue) compared to RUB 44.0 billion (19.7% of revenue) in the first half of 2019;
  • FCF was at RUB (14.8) billion compared to RUB (0.9) billion in the first half of 2019;
  • Net debt increased by 22% since the beginning of the year to RUB 407.1 billion, resulting in a Net Debt/OIBDA ratio of 2.2x

 

Key figures for 1HY 2020, RUB mln

RUB million

6M 2020

6M 2019

 change, y-o-y

Revenue

248,892

223,237

11%

OIBDA

95,883

84,341

14%

OIBDA margin %

38.5%

37.8%

-

Operating Income

37,504

32,766

14%

Operating margin %

15.1%

14.7%

-

Net Income

15,443

13,530

14%

% of revenue

6.2%

6.1%

-

Capital Expenditure

46,658  

 44,039  

6%

% of revenue

18.7%

19.7%

-

Net debt

407,118

325,010

25%

Net debt/ annualised OIBDA

2.2

2.0

-

FCF

(14,778)

(899)

(13,879)

Mikhail Oseevskiy, President of Rostelecom, commented:

"Our strong financial and operating results for the second quarter of this year evidence our resilience and successful passage through a difficult spring and early summer period, where  the general population and business as a whole have faced unprecedented challenges relating to quarantine measures, the widespread transition to online and severe economic uncertainty.

"The strategic direction provided by Rostelecom's digital transformation has enabled us to embed digital services into our DNA. Our market offer is therefore sustainable and has significant potential based on the need to meet the demands of a new modern reality.

"Completing the consolidation of Tele2 Russia's mobile business was timely. The transaction has made us a truly integrated digital provider, which is a unique position to be in both in terms of the breadth of services assembled under the Rostelecom brand and the opportunities open to Rostelecom to serve the needs of clients in the 21st Century with new digital services.

"I therefore consider our second quarter achievements in terms of growth in revenue, OIBDA and net profit in the second quarter by 13%, 15% and 32% respectively, as a great achievement by the entire Rostelecom team. We are seeing the first signs of recovery in economic activity for our clients, many of whom are projecting a return to growth in the coming quarters. This will lead to an expansion of work being carried out to digitize various industries and aspects of people's daily lives. By the year-end we plan to go to the board of directors and present to the market an updated strategy that will set more precise goals, taking into account the inclusion of Tele2 Russia as a fully consolidated member of the group, and illustrate new initiatives that can create additional value for shareholders. "

 

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

"In the second quarter, top-line growth accelerated to 13%. The double-digit growth rates were achieved thanks to the expansion of the mobile segment and the rapid growth of digital services. Some service categories, such as, information security services, continue to show exponential growth: in the reporting quarter, revenues in this area grew 2.5 times, in part due to the active development of mass cybersecurity services.

"Our cloud services, data centre services, smart solutions in the field of urban infrastructure management and state electronic services remain in demand.  The popularity of the Rostelecom Key solution and converged packages is also growing. Rostelecom's solid growth trajectory is the fruit of hard work from a professional team that has built high levels of trust from our customers. Customers have appreciated how quickly Rostelecom has been able to adapt to changes and put customers first by offering convenient and useful services in a timely manner. We have managed to support our clients in recent months both by adapting the terms of service provided within the framework of current contracts and by creating new popular digital services. We have as an example developed a new product that remotely screens the temperature of employees using thermal imaging, our products typically integrate themselves seamlessly into clients' existing corporate systems.  This service has already been used by a number of companies such as ALROSA and LUKOIL.  Another unique digital solution recently offered to the market is "Retail Hub", a product that uses algorithms and AI to enable retail chains to update information on electronic displays and to help focus the attention of buyers on the right products online, thereby expanding the range of purchases and increasing the average ticket. Our Tele2 colleagues have also gone to great lengths to provide subscribers with a large range of convenient remote services and remote ways of connecting to them. Our main priority is to remain close to clients, surround them with important and useful services, while remaining reliable and trusted partners when it comes to meeting their digital needs both in the present and future.

 

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

"We have comfortably made it through the first half of this year in terms of our financial performance and we have continued to implement our strategy. However, despite the noticeable relaxation of quarantine restrictions and the first signs of recovery in economic activity, there remains significant uncertainty about the future development of the pandemic and macroeconomic indicators. Based on this, the management team maintains a conservative view when it comes to forecasting growth rates for 2020. We expect an increase in consolidated revenue of at least 5%, an increase in OIBDA of at least 5%; and we expect to keep СAPEX within 100-110 billion rubles excluding state programmes."

 

 

KEY OPERATING HIGHLIGHTS

Fixed-line business

Number of subscribers (million):

2Q 2020

2Q 2019

change, y-o-y

1Q 2020

 change, y-o-y

Internet access

13.4

13.0

3%

13.2

1%

B2C: Broadband

12.3

12.0

2.5%

12.2

1%

B2B: Broadband + VPN

1.1

1.0

7%

1.1

2%

Pay TV

10.7

10.2

4%

10.5

2%

Incl. IPTV

5.8

5.4

7%

5.7

2%

Hosted PBX

0.139

0.084

66%-

0.128

9%

Local telephony services

14.9

16.5

(10%)

15.3

(3%)

 

ARPU[6] (RUB):

2Q 2020

2Q 2019

change, y-o-y

1Q 2020

change, y-o-y

  Internet access

 

 

 

 

 

      B2C: Broadband 

395

398

(1%)

397

(1%)

      B2B: Broadband + VPN

3,344

3,510

(5%)

3,368

(1%)

Pay TV (B2C)

248

248

(0%)

257

(4%)

      Incl. IPTV

309

315

(2%)

319

(3%)

Hosted PBX

1,148

1,175

(2%)

1,118

3%

Blended ARPU[7]

545

 544

0%

551

(1%)

 

 

 

 

 

Mobile business

 

2Q 2020

2Q 2019

change, y-o-y

1Q 2020

 change, y-o-y

Data Traffic, incl. MVNO,Pb

1,216

733

66%

1,087

12%

Churn, %

(9.0%)

(8.1%)

0.9 p.p.

(9.2%)

(0.2 p.p.)

Growth of active mobile data users , %

28.1%

52.0%

(23.9 p.p.)

36.1%

(8,0 p.p.)

 

 

  1. The total number of Internet subscribers among households grew by 2.5% to 12.3 million in the second quarter of 2020 compared to the corresponding period of last year; ARPU was RUB 395.
  2. The total number of B2B Internet and VPN subscribers increased by 7% year-on-year to 1.1 million; ARPU was RUB 3,344.
  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 248 across B2C;
  • The number of IPTV subscribers increased by 7% to 5.8 million, and ARPU across B2C reached RUB 309;
  1. The number of active mobile users grew by 28.1% year-on-year while mobile data traffic jumped by 66%; at the same time churn of cellular customer base stood at 9.0%.
  2. The number of local telephony subscribers decreased by 10% to 14.9 million.

KEY EVENTS RELATING TO 2Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

Business news

  • Rostelecom continues to develop and expand its range of products and services:
  • A new unique AI algorithms and machine learning driven digital product "Retail Hub" was launched for customers operating in the retail space. The new solution allows retail chains to smartly control information on digital displays and analyse customer attention to effectively expand product lines and ultimately increase the average bill;
  • Rostelecom has launched a unique comprehensive solution for high-precision remote body temperature measurement for offices, which can be easily integrated with companies' access control systems. A number of companies including ALROSA and LUKOIL have already tested the new product;
  • As part of Rostelecom's measures to support corporate clients amid the COVID-19 pandemic, Rostelecom has developed a set of integrated offerings to support businesses' remote operations, including access to public and corporate resources, based on broadband, VPN and virtual data centre services. It also includes reliable and seamless communication based on Hosted PBX, 8-800 toll free numbers and mobile, as well as remote control and information security services;
  • The Wink platform regular upgrade included:
    • IPTV firmware update with an improved interface and TV display notifications;
    • Addition of "Audiobooks" to the platform (in partnership with Litres);
    • Launch of voice control functions in partnership Mail.ru Group (voice assistant Marusya and smart column Kapsula);
    • Integration with Tele2 Russia for Wink subscription and digital payments directly from Tele2 accounts;
    • Premiers of exclusive content, including online music streams within WinkLive featuring Russian signers, WWII short film "Short stay", new foreign movies and series by English interpreters and voiceover artists Dmitry Puchkov (known by the pseudonym Goblin), Kurazh Bambey and other.
    • Expanded functionality and added options with the Rostelecom Key solution, to enable:
      • integrated home video surveying subscription with the mobile app;
      • access to utility meter data management via the app;
      • the use of emergency access codes for entrance door control in case of entryphone or platform malfunctioning;
      • the use of the newly launched Key IOS app for entryphone and driveway access gate control using Apple Watch;
    • As part of the convergent solution development, Rostelecom has:
      • launched a pilot solution to enable contactless sim card sales via the ID.Abonent app;
      • introduced a Welcome promotion for new MNP users;
      • provided access to cloud games as part of mobile services to clients (in partnership with GFN.RU);
      • launched the PC Core platform which allows clients to efficiently manage traffic consumption;
    • Rostelecom signed exclusive agreement with MATCH TV to be able to provide its OTT clients with additional packages including MATCH, Super MATCH, KHL HD as part of its B2B TV services;
  • Rostelecom continues to grow its digital segment in Q2 2020:
  • As part of cybersecurity services:
    • Revenues grew by 2.5 times, mainly through the proactive development of cyber security services for wider customer groups;
    • Rostelecom upgraded a number of its cyber security products and launched a new Red Teaming platform. The platform imitates cyber attacks taking into account clients' owned IT infrastructure to provide a threat analysis and assess the efficiency of existing defence measures and mechanisms. This enables clients to better understand and identify the gaps in its preparedness for potential attacks;
  • Rostelecom continues to grow its cloud services and data processing centres segments for B2B:
    • Sales of the Virtual PBX offering increased by 62% in the second quarter of 2020;
    • Revenues from data centre services grew twofold;
    • As part of the Virtual Data Centre offering:
    • revenues grew by 169%;
    • improved efficiency and user functionality of service management on the portal, including the optimised generation of reports, access to reserve copies and a download function for orders;
    • launch of Technical Account Manager function for better usability;
    • introduction of special COVID-19 related functions, including StopCoronavirus entry access permits and remote learning and videoconferencing platforms TrueConf and Vinteo;
    • introduction of Customer Data Integration (CDI) on the digital government platfrom for contractor data synchronisation;
  • Rostelecom started the construction of the first Russian Tier IV data centre in Moscow with a 2,000 rack capacity;
  • The newly acquired DataLine has been certified as Cloud Verified partners of VMware. As part of the development of its products and services, DataLine has:
    • Upgraded its vCloud Director (Cloud-152) and hypervisor cloud services;
    • Added two-factor authorisation and VDI settings mechanisms (powered by Citrix);
    • Upgraded the Kubernetes clusters, located in clients' owned facilities;
    • Added new types of databases as part of the DBaaS service, such as Cassandra, Redis, RabbitMQ;
  • Rostelecom signed a partnership with VTB Group to provide a full range of data centre solutions, including broadband communication channels and the provision of server racks and hardware in data centres;
  • Sales of Rostelecom home CCTV cameras with cloud storage increased by 30%, which contributed to revenue growth of the Smart Home ecosystem services by 34%;
  • Wink platform active subscriber base grew by 1.7 fold;
  • B2C Broadband service revenues in the B2C segment grew by 10%;
  • Sales from the Antivirus service increased by 14%;
  • Two additional video surveillance solutions were implemented for Yandex, including the installation of:
    • highway cameras connected to Rostelecom platform for Yandex Taxi in ten Russian cities (using video analytics algorithms), and
    • public cameras in 50 Russian cities with live broadcasting on the Yandex.Weather website;
  • Rostelecom signed a number of large contracts to provide communication services with Russia's State Analytical Centre, Ministry of Labour and Social Affairs, State Commission for Radio Frequencies, Federal Agency For Fishery, Yakust Information technologies centre, VTB Bank, Vozrozhdenie Bank, Home Credit bank and other entities;
  • Following the acquisition of DataLine, Rostelecom strengthened its market position and became a leader in IaaS with an almost a quarter of the Russian market share, according to TMT Consulting;
  • Rostelecom was ranked first among data centre providers in Russia, according to IKS Consulting. Following the acquisition of DataLine the Company's market share reached 26% by the number of racks commissioned in Russia;
  • The Company has been ranked at the top of the independent J'son & Partners Consulting rating by the number of pay-TV B2B clients;
  • Rostelecom also leads by the number of video-surveillance cameras for B2B clients, according to TelecomDaily;
  • Rostelecom was ranked number one by the number of hosted PBX clients according to TMT Consulting Rating
  • Rostelecom has been ranked first in the 8-800 toll-free services according to TMT consulting
  • Rostelecom has become a leader in revenues from broadband service for;
  • The Company's Virtual PBX service and "Remote body temperature measurement" was included in the list of the best solutions by the International Telecommunication Union;
  • Rostelecom's contact centre started to provide access to a direct communication channel for the clients of Moscow Transport Authority;
  • Rostelecom provided video surveillance for the 2020 Russian constitutional referendum;
  • Revenues from Rostelecom's O2O[8] project increased by 42% in the second quarter of 2020;
  • Rostelecom launched the next generation Transit Europe - Asia (TEA) project. Round Trip Delay will not surpass 85 m/s from Moscow to Vladivostok, and 55 m/s from Moscow to Khyagt.
  • Tele2 Russia continues to proactively develop its business, demonstrating agility and flexibility amid the new reality. The Company has introduced a number of products and remote services, including:
    • A special tariff for gamers;
    • Contactless sim card delivery in the Moscow region;
    • New "My Tele2" product with a user self-registration option;
    • Sim-card delivery together with Yandex.Taxi;
    • Possibility to raplace sim-cards remotely;
    • Simplified sim-card registration on the Public Services Portal;
    • Newly launched digital space "Stay at home" for mobile users of all operators to support them during the coronavirus times;

The high quality of Tele2's services have been recognised by the industry for the second consecutive year with an "Oscar" for client relationship management, and the "Silver Mercury" award in six nominations for creative marketing communications.

Other news

  • Rostelecom acquired Forkam, a digitization provider for utility companies;
  • Rostelecom acquired an interest in SIGN.ME to add an e-signature solution to its digital services ecosystem;
  • The Board of Directors has convened the AGM, approved the nominations to the new Board and recommended that the AGM approves a dividend payment for 2019 of  RUB 5 per share;
  • Rostelecom announced a three-year bond with a total nominal value of RUB 10 billion, at a coupon rate of 6.75% per annum;
  • Rostelecom's ordinary shares have been consolidated under a single ticker RTKM;
  • ACRA affirmed AA(RU) to Rostelecom and to its bond issues;
  • Fitch Ratings have upgraded Tele2's credit rating to BBB- with a stable outlook;
  • All-Russia People's Front, Roscongress and Rostelecom all launched a hotline volunteer service #WeTogether;
  • Rostelecom Contact Centre has opened Coronavirus hotlines for SMP support and repatriating Russian citizens.

 

OPERATING REVIEW

Revenue analysis

 

Revenue structure by services

RUB million

2Q 2020

2Q 2019

change

6M 2020

6M 2019

Change

Mobile services

 42,908  

 37,131  

16%

 83,871  

 72,363  

16%

Broadband

 22,195  

 20,606  

8%

 44,187  

 41,648  

6%

Digital services

 15,013  

 8,922  

68%

 27,533  

 16,618  

66%

TV services

 9,285  

 9,327  

(0%)

 18,774  

 18,658  

1%

Wholesale services

 18,223  

 17,590  

4%

 35,993  

 34,600  

4%

VPN

 7,105  

 6,414  

11%

 14,130  

 11,639  

21%

Interconnect and traffic transit services

 4,475  

 5,064  

(12%)

 8,723  

 10,968  

(20%)

Infrastructure products and services

 4,155  

 3,726  

12%

 8,219  

 7,183  

14%

Rent of channels

 2,488  

 2,386  

4%

 4,921  

 4,810  

2%

Fixed telephony

 13,675  

 15,155  

(10%)

 27,864  

 31,006  

(10%)

Other services

 5,980  

 4,280  

40%

 10,669  

 8,345  

28%

Total

127,279  

 113,012  

13%

248,892  

 223,237  

11%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue structure by customer segments

RUB million

2Q 2020

2Q 2019

change

6M 2020

6M 2019

change

Residential customers

63,719

60,610

5%

126,527

120,641

5%

B2B / State clients

42,313

33,341

27%

81,302

64,319

26%

Operators

20,184

18,100

12%

39,029

36,324

7%

Other

1,063

962

10%

2,034

1,953

4%

Total

127,279  

 113,012  

13%

248,892  

 223,237  

11%

 

 

In the second quarter of 2020, revenue increased by 13% to RUB 127.3 billion, compared to the second quarter of 2019, as a result of the following factors:

  • a 68% increase in revenue from digital services, mainly due to the larger sales of e-government solutions, promotion of cloud and data centre services, Smart City projects and cyber security services;
  • a 16% increase in revenue from mobile services due to a higher volume of mobile data consumption and standard voice services;
  • a 40% increase in revenue from other services, mainly driven by money transfer commissions and mobile communication payments, as well as integrated projects with large state and corporate clients;
  • an 8% increase in revenue from broadband services due to a higher number of subscribers.

 

During the first six months of 2020, revenue increased by 11% to RUB 248.9 billion, compared to the first six months of 2019, as a result of the following factors:

  • a 16% increase in revenue from mobile services due to a higher volume of mobile data consumption and standard voice services;
  • a 66% increase in revenue from digital services, mainly due to larger sales of e-government solutions, promotion of cloud and data centre services, Smart City projects and cyber security services;
  • a 60% increase in revenue from broadband services due to a higher number of subscribers;
  • a 21% increase in revenue from VPN services, mainly due to higher demand from state and corporate clients.

Operating income analysis

Operating expenses structure

 

RUB million

2Q 2020

2Q 2019

 change

6M 2020

6M 2019

 change

Personnel costs

(32,067)

(27,986)

15%

(64,257)

(56,541)

14%

Depreciation, Amortization and impairment losses

(28,821)

(25,258)

14%

(55,949)

(49,193)

14%

Interconnection charges

(23,339)

(21,277)

10%

(44,628)

(41,474)

8%

Materials, repairs and maintenance, utilities

(9,075)

(7,838)

16%

(18,114)

(16,233)

12%

Gain on the disposal of PPE and intangible assets

946

781

21%

2,305

1,436

61%

Impairment loss of financial assets measured at amortized cost

(1,303)

(1,258)

4%

(2,466)

(2,494)

(1%)

Other operating income

4,655

5,185

(10%)

10,312

9,712

6%

Other operating expenses

(19,718)

(19,359)

2%

(38,591)

(35,684)

8%

Total operating expenses

(108,722)

(97,010)

12%

(211,388)

(190,471)

11%

In the second quarter of 2020, operating expenses increased by 12% compared to the corresponding period of 2019 and amounted to RUB 108.7 billion, largely due to the following factors:

  • a 15% increase (of RUB 4.1 bln) in personnel costs, mainly due to an increase in the number of employees within the digital business segments;
  • a 14% increase (of RUB 3.6 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects, impairment of intangible assets and lease;
  • a 10% increase (of RUB 2.1 bln) in interconnection charges, due to higher traffic caused by the pandemic and the massive transition to remote working;
  • a 16% increase (of RUB 1.2 billion) in materials, mainly due to an increase in expenditure on personal protective equipment amid pandemic, and the consolidation of expenses on electricity supplies for Rostelecom's recently acquired subsidiary DataLine.

During the first six months of 2020, operating expenses increased by 11% compared to the corresponding period of 2019 and amounted to RUB 211.4 billion, largely due to the following factors:

  • a 14% increase (of RUB 7.7 bln) in personnel costs, mainly due to an increase in the number of employees within the digital business segments;
  • a 14% increase (of RUB 6.8 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects, the impairment of intangible assets and leases;
  • an 8% increase (of RUB 3.2 bln) in interconnection charges, due to higher traffic caused by the pandemic and the massive transition to remote working;
  • an 8% increase (of RUB 3.0 bln) in other operating expenses, due to the implementation of Smart City projects, as well as the provision of equipment within B2B and B2G projects, higher agent payments for financial services in mobile commerce, recalculation of quality bonus payments;
  • a 12% increase (of RUB 1.9 billion) in materials, mainly due to an increase in expenditure on personal protective equipment amid pandemic, and the consolidation of expenses on electricity supplies for DataLine subsidiary.

Operating profit in the second quarter of 2020 increased by 16% year-on-year to RUB 18.6 billion and by 14% to RUB 37.5 billion in the six months of 2020, compared to the corresponding periods of 2019.

OIBDA for the second quarter and six months of 2020 increased by 15% year-on-year to RUB 48.8 billion and by 14% to RUB 95.9 billion respectively. OIBDA dynamics were driven by revenue growth and the above-mentioned factors, affecting operating expenses. The OIBDA margin increased by 0.8 p.p. to 38.3% in the second quarter of 2020 compared to the corresponding period of 2019. The OIBDA margin increased by 0.7 p.p. to 38.5% during the first six months of 2020 compared to the corresponding period of 2019.

 

 

Net Income Analysis

In the second quarter of 2020, profit before tax increased by 28% to RUB 10.0 billion, compared to the corresponding period in 2019. During the first six months of 2020, profit before tax increased by 16% to RUB 20.1 billion, compared to the corresponding period in 2019. These dynamics were mainly influenced by higher operating profit in the corresponding periods of 2020.

Income tax in the second quarter of 2020 was RUB 2.3 billion compared to RUB 1.9 billion in the second quarter of 2019. Income tax in the six months of 2020 was RUB 4.6 billion compared to RUB 3.8 billion in the six months of 2019.

Net profit in the second quarter of 2020 increased by 32% and totalled RUB 7.7 billion, compared to the corresponding period last year, and in the six months of 2020 - by 14% to RUB 15.4 billion versus the six months of 2019.

Financial review

Net operating cash flow in the second quarter of 2020 decreased by 52% to RUB 15.8 billion, compared to the corresponding period of 2019. The decrease in net operating cash flow in the second quarter of 2020 was mainly due to the change in the working capital, which was mainly driven by an increase in accounts receivable. This was caused by a lower base in the second quarter of 2019 due to the receipt of one-off repayments for the provision of high-speed Internet connection to healthcare centres in Russia. These dynamics in working capital also reflect a decrease in accounts payable as well as replacement of  short-term liquidity management measures with long-term financial instruments. Net operating cash flow in the six months of 2020 decreased by 33% to RUB 32.8 billion, compared to the corresponding period of 2019. The decrease in net operating cash flow during the first six months of 2020 was driven by the factors affecting the dynamics of net operating cash flow in the second quarter of 2020.

Cash outflow for investments in non-current assets, excluding state programmes, increased by 35% to RUB 24.7 billion (19.4% of revenue) in the second quarter of 2020. Including state programmes this indicator grew by 25% to RUB 27.6 billion (21.7% of revenue). During the first six months of 2020, cash outflow for investments in non-current assets, excluding state programmes, increased by 6% to RUB 46.7 billion (18.7% of revenue) while remaining flat at RUB 53.6 billion (21.5% of revenue), state programmes included.

Free cash flow in the second quarter of 2020 was RUB (8.8) billion compared to RUB 14.6 billion in the second quarter of 2019. Free cash flow during the first half of 2020 was RUB (14.8) billion compared to RUB (0.9) billion during the corresponding period of 2019.

 

 

 

 

 

 

Free Cash Flow (RUB, billion)

 

As at June 30, 2020, the Group's total debt has increased by 23% compared to the beginning of the year and amounted to RUB 444.8 billion, partially driven by the fundraising achieved to help complete the consolidation of Tele2. 100% of the Group's total debt remained rouble-denominated as at June 30, 2020

As at June 30, 2020, the Group's net debt increased by 22% compared to the beginning of the year and amounted to RUB 407.1 billion. The net debt /OIBDA ratio over the last 12 months stood at 2.2x as at 30 June 2020.

 

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4.00 PM (Moscow), 3.00 PM (CET), 2.00 PM (UK) and 9.00 AM (NYT). To participate in the conference call, please dial:

UK/ International:  +44 (0)330 336 9411

USA:    +1 323 794 2575

Russia:     +7 495 646 9190

 

Confirmation Code (ENG):  5636312

Confirmation Code (RUS):  3918926

 

 

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/rostelecom20200805/en.

 

A replay of the conference call will be available on the Company's website  https://www.company.rt.ru/en/ir/results_and_presentations/financials/IFRS/2020/2.

 

* * *

 

 

 

APPENDICES

  1. Reconciliation of OIBDA;
  2. Statement of Comprehensive Income for the six months of 2020;
  3. Statement of Cash Flows for the six months of 2020;
  4. Statement of Financial Position for the six months of 2020.

 

 

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;
  • Expenses related to non-government pension insurance .

 

RUB million

2Q 2020

2Q 2019

change

6M 2020

6M 2019

change

Operating income

18,557

16,002

16%

37,504

32,766

14%

Plus amortisation

28,821

25,258

14%

55,949

49,193

14%

Plus expenses related to the long-term management incentive programme

1,096

946

16%

1,810

1,833

(1%)

Plus expenses related to non-government pension insurance

326

270

21%

620

549

13%

OIBDA

48,800

42,476

15%

95,883

84,341

14%

OIBDA margin, %

38.3%

37.6%

 

38.5%

37.8%

 

 

 

 

APPENDIX 2: Statement of Comprehensive Income for the six months of 2020

 

 

Six-month period ended 30 June (unaudited)

2020

2019 (restated)

Revenue

248,892

223,237

Operating expenses

 

 

Wages, salaries, other benefits and payroll taxes

(64,257)

(56,541)

Depreciation, amortization and impairment losses

(55,949)

(49,193)

Interconnection charges

(44,628)

(41,474)

Materials, utilities, repairs and maintenance

(18,114)

(16,233)

Gain on disposal of property, plant and equipment and intangible assets

2,305

1,436

Impairment loss of financial assets measured at amortized cost

(2,466)

(2,494)

Other operating income

10,312

9,712

Other operating expenses

(38,591)

(35,684)

Total operating expenses, net

(211,388)

(190,471)

Operating profit

37,504

32,766

Share of net profit/(loss) of associates and joint ventures

309

(228)

Finance costs

(18,213)

(16,696)

Other investing and financial gain, net

1,545

755

Foreign exchange (loss)/gain, net

(1,074)

739

Profit before income tax

20,071

17,336

Income tax expense

(4,628)

(3,806)

Profit for the period

15,443

13,530

Other comprehensive income/(loss)

 

 

Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods

 

 

Exchange differences on translation of foreign operations

237

(244)

Other comprehensive income/(loss) for the period, net of tax

237

(244)

Total comprehensive income for the period

15,680

13,286

Profit attributable to:

 

 

Equity holders of the Group

14,957

13,162

Non-controlling interests

486

368

Total comprehensive income attributable to:

 

 

Equity holders of the Group

15,194

12,906

Non-controlling interests

486

381

Earnings per share attributable to equity holders of the Group - basic (in roubles)

5.12

5.74

Earnings per share attributable to equity holders of the Group - diluted (in roubles)

5.08

5.60

 

 

APPENDIX 3: Statement of Cash Flows for the six months of 2020

 

 

Six-month period ended 30 June (unaudited)

 

2020

2019 (restated)

Cash flows from operating activities

 

 

Profit before tax

20,071

17,336

Adjustments to reconcile profit before tax to cash generated from operations

 

 

Depreciation, amortization and impairment losses

55,949

49,193

Gain on disposal of property, plant and equipment and intangible assets

(2,305)

(1,436)

Impairment loss of financial assets measured at amortized cost

2,466

2,494

Share of net profit/(loss) of associates and joint ventures

(309)

228

Finance costs excluding finance costs on employee benefit obligations

18,190

16,663

Other investing and financial gain, net

(1,545)

(755)

Foreign exchange loss/(gain), net

1,074

(739)

Share-based motivation program

1,814

1,796

Increase in accounts receivable and contract assets

(14,419)

(8,406)

Increase in employee benefits

398

450

Increase in inventories

(923)

(1,148)

Decrease in accounts payable, provisions and accrued expenses

(15,550)

(522)

Increase in contract costs, prepayments and other assets

(7,403)

(7,938)

Increase/(decrease) in other liabilities

(4,131)

1,008

Cash generated from operations

53,377

68,224

Interest paid

(16,489)

(16,331)

Income tax refund

7

72

Income tax paid

(4,068)

(3,863)

Net cash from operating activities

32,827

48,102

Cash flows from investing activities

 

 

Purchase of property, plant and equipment and intangible assets

(53,600)

(53,733)

Proceeds from sale of property, plant and equipment, intangible assets and assets held for sale

2,977

2,268

Acquisition of financial assets

(3,501)

(3,669)

Proceeds from disposals of financial assets

1,748

3,262

Interest received

351

296

Subsidy from Government

2,667

2,168

Dividends received

159

206

Purchase of subsidiaries and business, net of cash acquired

(114,810)

(1,000)

Proceeds from disposal of subsidiaries, net of cash disposed

(74)

-

Acquisition of equity accounted investees

(25)

(502)

Net cash used in investing activities

(164,108)

(50,704)

 

Cash flows from financing activities

 

 

Issue of share capital

66,000

-

Proceeds from bank and corporate loans

501,818

283,596

Repayment of bank and corporate loans

(457,976)

(282,578)

Proceeds from bonds

40,000

15,000

Repayment of bonds

(1,861)

(5,115)

Repayment of vendor financing payable

(2)

(6)

Proceeds from other non-current financing liabilities

(7)

-

Repayment of lease liabilities

(7,484)

(5,359)

Acquisition of non-controlling interests

(20)

(905)

Dividends paid to shareholders of the Group

-

(5,739)

Dividends paid to non-controlling shareholders of subsidiaries

(270)

(431)

Net cash from / (used in) financing activities

140,198

(1,537)

Effect of exchange rate changes on cash and cash equivalents

(357)

(89)

Net increase/(decrease) in cash and cash equivalents

8,560

(4,228)

Cash and cash equivalents at beginning of the period

19,955

10,492

Cash and cash equivalents at the end of the period

28,515

6,264

 

 

 

APPENDIX 5: Statement of Financial Position for the six months of 2020

 

 

30 June

2020

(unaudited)

31 December

2019

(restated)

Assets

 

 

Non-current assets

 

 

Property, plant and equipment

529,047

522,681

Goodwill and other intangible assets

134,351

127,110

Right of use assets

57,892

49,228

Trade and other accounts receivable

6,887

5,646

Investments in associates and joint ventures

9,116

8,892

Other financial assets

4,087

2,667

Other non-current assets

12,509

10,119

Deferred tax assets

10,496

10,246

Contract assets

1,090

866

Contract costs

15,382

14,647

Total non-current assets

780,857

752,102

Current assets

 

 

Inventories

11,091

9,793

Contract assets

8,821

4,480

Contract costs

687

920

Trade and other accounts receivable

57,873

49,181

Prepayments

9,885

7,845

Prepaid income tax

2,419

868

Other financial assets

9,123

8,886

Other current assets

6,136

6,264

Cash and cash equivalents

28,515

19,955

Asset classified as held for sale

767

749

Total current assets

135,317

108,941

Total assets

916,174

861,043

Equity and liabilities

 

 

Equity attributable to equity holders of the Group

 

 

Share capital

95

93

Treasury shares

(14,374)

(53,391)

Retained earnings and other reserves

199,184

264,231

Total equity attributable to equity holders of the Group

184,905

210,933

Non-controlling interests

4,896

4,585

Total equity

189,801

215,518

Non-current liabilities

 

 

Loans and borrowings

384,364

280,571

Lease liabilities

51,269

42,394

Employee benefits

6,279

5,881

Deferred tax liabilities

41,721

38,381

Accounts payable and accrued expenses

1,240

1,486

Contract liabilities

14,885

17,472

Provisions

4,980

4,418

Other non-current liabilities

22,404

19,052

Total non-current liabilities

527,142

409,655

Current liabilities

 

 

Loans and borrowings

60,392

81,277

Lease liabilities

11,211

9,971

Accounts payable and accrued expenses

69,694

86,527

Income tax payable

1,875

2,692

Contract liabilities

31,213

31,353

Provisions

7,922

7,283

Other financial liabilities

1,172

164

Other current liabilities

15,752

16,603

Total current liabilities

199,231

235,870

Total liabilities

726,373

645,525

Total equity and liabilities

916,174

861,043

 


Rostelecom is the largest integrated digital services and products provider, operating in all segments of the telecommunications market in Russia. The Company serves millions of households, state and private enterprises across the country.

Rostelecom is Russia's undisputed market leader, providing high-speed Internet access and pay-TV. The total number of broadband users stands at over 13.4 mln users, it has more than 10.7 mln pay-TV customers, over 5.8 mln of which are subscribed to Rostelecom's IPTV services. Tele2 Russia, a Rostelecom subsidiary, is a major player in the mobile market with over 44 mln subscribers and the industry-leading NPS, a customer satisfaction benchmark.

During the first six months of 2020, the Group generated RUB 248.9 bln of revenues, RUB 95.9 bln of OIBDA (38.5% of revenue) and RUB 15.4 bln 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-centres 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.

 

*   *   *

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] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA

[2] International Financial Reporting Standards

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

[4] Here and below, 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

[5] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).

[6] Average revenue per user

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

[8] Operator to operator



ISIN: US7785291078
Category Code: IR
TIDM: RKMD
LEI Code: 2534001D752JPNM0H170
Sequence No.: 79988
EQS News ID: 1110247

 
End of Announcement EQS News Service

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