rostelecom announces its ifrs financial and operating results for the fourth quarter and full year of 2017

 

Digital transformation delivers strong top line growth of 5% in the fourth quarter of 2017

 

Moscow, Russia - March 6, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia's national telecommunications operator, today announces its consolidated financial results for the fourth quarter and the full year of 2017 prepared in accordance with IFRS[1].
 

KEY ACHIEVEMENTS

• Revenue grew by 5% year-on-year in the fourth quarter of 2017, the revenue continues to grow by 4-5% for a third consecutive quarter;
• The digital segment's[2] contribution to total revenue amounted to 47%;
• Consistently high growth rates in FTTx optic broadband clients (+9%) and in IPTV subscribers (+14%), ARPU keeps growing in our core broadband and IPTV segments;
• Free cash flow increased by 53% to RUB 20.4 billion for the twelve months of 2017;
• VAS and cloud services' contributed to the revenue growth by almost 40% in the fourth quarter of 2017, due to the development of the "Smart City" projects, cloud services and data centre services promotion.

 

FOURTH QUARTER 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 5% year-on-year to RUB 84.1 billion compared to the fourth quarter of 2016;
• OIBDA[3] increased by 5% to RUB 25.7 billion;
• OIBDA margin grew to 30.5% compared to 30.3% in the fourth quarter of 2016;
• Net profit increased by 16% to RUB 4.2 billion compared to the fourth quarter of 2016;
• CAPEX[4] increased by 23% to RUB 18.5 billion (21.9% of revenue) from RUB 15.1 billion (18.7% of revenue) in the fourth quarter of 2016;
• Free Cash Flow (FCF)[5] increased by 11% to RUB 17.3 billion compared to the fourth quarter of 2016;
• Net debt[6] increased by 2% since the beginning of 2017 and amounted to RUB 181.6 billion, resulting in a Net Debt / Annualised OIBDA ratio of 1.9x.

 

 

Key figures for the fourth quarter of 2017

RUB million	4Q 2017	4Q 2016	% change,  y-o-y
Revenue	84,113	80,407	5%
OIBDA	25,694	24,372	5%
OIBDA margin %	30.5%	30.3%
Operating Income	9,312	11,248	(17%)
Operating margin %	11.1%	14.0%
Net Income	4,169	3,586	16%
% of revenue	5.0%	4.5%
Capital Expenditure	18,462	15,060	23%
% of revenue	21.9%	18.7%
Net debt	181,594	177,481	2%
Net debt/ annualised OIBDA	1.9	1.8
FCF	17,283	15,618	11%

FULL YEAR 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 3% to RUB 305.3 billion compared to the full year of 2016;
• OIBDA[7] increased by RUB 0.085 billion to RUB 96.9 billion compared to the corresponding period of 2016;
• OIBDA margin of 31.7% compared to 32.5% in the full year of 2016;
• Net profit increased by 15% year-on-year to RUB 14.05 billion compared to the full year of 2016;
• CAPEX[8] decreased by 2% to RUB 60.8 billion (19.9% of revenue) from RUB 61.9 billion (20.8% of revenue) in 2016;
• FCF[9] increased by RUB 7.1 billion and 53% to RUB 20.4 billion compared to the full year of 2016.

 

Key figures for the full year of 2017

RUB million	FY 2017	FY 2016	% change,  y-o-y
Revenue	305,329	297,446	3%
OIBDA	96,857	96,772	0.1%
OIBDA margin, %	31.7%	32.5%
Operating income	37,885	39,836	(5%)
Operating margin, %	12.4%	13.4%
Net income	14,050	12,249	15%
% of revenue	4.6%	4.1%
Capital Expenditure	60,752	61,857	(2%)
% of revenue	19.9%	20.8%
Net debt	181,594	177,481	2%
Net debt/ annualised OIBDA	1.9	1.8
FCF	20,385	13,298	53%

 

 

 

 

 

 

 

 

 

 

Mikhail Oseevskiy, President of Rostelecom, commented:

 

«For the third consecutive quarter we have demonstrated high revenue growth rates and positive OIBDA dynamics. We are delivering on a successful digital transformation of our business model, as evidenced by a double-digit revenue growth in the digital business stream and the content segment that remains key engine for Rostelecom's strategic reformation.

 

In the residential segment, in addition to core connectivity service, which continues to be in high demand, our new products with high added value, such as "Smart house", "Interactive TV", antivirus and other services, are gaining increasing prominence. Rostelecom remains a backbone company for the State and business through services in cyber-security space, data centre virtual capacity, offering cloud services and the biometric platform. We continue to implement large State projects in video surveillance and we are developing Smart Cities' regional infrastructure. Thanks to solid financial support from the State we continue to drive the development of digital infrastructure in remote areas. We are optimising everyday business processes, improving the efficiency and usability for our clients. We are constantly seeking to make our services and customers' experience simple and convenient.

 

Our deep market knowledge and expertise, valuable experience and significant resource potential have enabled us to secure a large number of state contracts and acquire one of the leading positions in the development of a key part of Russia's national Digital Economy Programme. This will provide for a smarter and quicker strategic business transformation and will bring us closer to becoming a provider of digital services in the era of the new economic paradigm. We are delighted to be at the forefront of this global transformation leading to universal digitalisation, greater access to big data, operational excellence, faster and more efficient decision-making process. We believe all of this to contribute to better usage of resources and better quality of life.

 

Our achievements in 2017 have translated into strong financial results. In addition to the growth in revenue and operating income before amortisation, we have generated a one and a half times higher free cash flow, which is the basis for the dividend calculation.

 

Rostelecom's primary strategic advantages allow us to fully realise the great potential of the digitalisation for the State, business and society. We are confident that the strong results we have generated over the past few quarters are of sustainable nature and this track record for delivery will continue to make a substantial contribution to our new strategic plan which we are about to unveil in the very near future.»

 

 

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added:

 

"The impressive results in revenue in the fourth quarter of 2017 underpin our positive outlook for Rostelecom's strategic development in terms of digital transformation. We have delivered on our targets in the previous reporting period and have positive prospects for business growth down the road. We will be able to demonstrate a revenue growth by 2%, we expect OIBDA margin of more than 31.5%, and CAPEX in the range of RUB 60 to RUB 65 billion excluding the implementation of the state-related projects".

 

KEY OPERATING HIGHLIGHTS

1. The number of broadband subscribers grew by 3% to 12.7 million in the fourth quarter of 2017, compared to the corresponding period of last year;

      The B2C subscriber base grew by 3% to 12.0 million, whilst the number of subscribers connected by fibre optic increased by 8% year-on-year to 7.7 million (64% of the subscriber base).

2. The number of pay-TV subscribers grew by 5% to 9.8 million households, compared to the corresponding period of last year.

      The number of IPTV subscribers increased by 14% to 4.8 million;

3. The number of MVNO subscribers reached 0.8 mln;
4. The number of local telephony subscribers decreased by 8% to 19.1 million.

 

Number of subscribers (million):	4Q 2017	4Q 2016	% change, y-o-y	3Q 2017	% change, y-o-y
Broadband	12.7	12.4	3%	12.7	0.5%
Residential	12.0	11.6	3%	11.9	0.4%
Corporate clients	0.8	0.8	1%	0.8	1%
Pay TV	9.8	9.3	5%	9.7	1%
Including IPTV	4.8	4.2	14%	4.7	3%
MVNO subscribers	0.8	-		0.7	23%
Local telephony services	19.1	20.6	(8%)	19.5	(2%)

 

 
KEY EVENTS RELATING TO THE FULL YEAR OF 2017 AND AFTER THE END OF THE REPORTING PERIOD

Business News

 

• Rostelecom continues to expand and improve its offering:

 

       Rostelecom launched a new "Smart Home Video surveillance" service which allows monitoring households remotely from anywhere in the world;

       The "Gaming" tariff plan has grown - the first and only offering in the market with exclusive opportunities and premium content in the 7 popular computer games:

• the technical performance of the T-44-100 (P) tank in World of Tanks game has improved;
• a new exclusive frigate "Admiral Makarov" was introduced in the popular naval game "World of Warships";
• Jointly with Innova, Rostelecom launched a gaming option within the 4Game project; gamers can now enjoy additional bonuses in the three popular online games, including Lineage 2, Blade & Soul and Point Blank;
• Jointly with Mail.Ru Group, Rostelecom launched a new gaming option called Warface: gamers can now enjoy powerful weapons to accomplish game missions of any complexity, as well as keep the favourite weapon in the tool kit forever.

      Rostelecom introduced a new comprehensive package "Plus Account" for small and medium-sized business, which enables clients to enjoy traditional and digital services within a single plan and account; more than 5,000 packages were sold out;

      Rostelecom launched DDoS attacks protection services under a cloud-based service-provider scheme for those clients that are not subscribed to Rostelecom channels;

      Rostelecom launched a product offering based on the services of the "Virtual Storage" and "Virtual Data Processing Centre";

      New tariffs for "Interactive TV for business" and "TV for hotels" with PMS[10]  integration, as well as additional "Sport" packages were introduced;

      Rostelecom improved the functionality of its services and enhanced its product offering for corporate and state clients within a range of services including "Hosted PBX", "Web conferencing", "Managed communication services", "Virtual Data Processing Centre", and "Information security";

      Rostelecom launched a new cloud-based platform (e-assistant.ru) which provides advanced digital business solutions for reporting to supervisory authorities, business statistics and analytics, as well as information exchange with counterparties;

      Rostelecom continues to enhance the fixed telephony proposition:

• through the "Unlimited Russia" tariff plan and the "Unlimited Kazakhstan" option, to which more than quarter of a million telephony subscribers have connected; the tariff options " Favourite DLD calls", "Give the ILD calls" and others were also in high demand;
• Rostelecom started to offer a branded landline home phone with unlimited tariff plans; users who enjoy other tariff plans can also purchase the facility, including with a 12 months instalment plan;

      Special offers within the MVNO project were launched, including "mobile phones by interest-free instalments", "video traffic packages", and a brand-new "For all" tariff option was designed and introduced for families; Rostelecom thus increased the subscriber base to 0.8 mln users.

 

• Rostelecom keeps expanding the digital segment:

 

      Sales of Rostelecom's Antivirus service in the retail segment grew by more than 2.5 times in the reporting period;

      Rostelecom created Geodata Information System (GIS) for the Arkhangelsk region;

      Rostelecom created an interactive map of transport accidents based on geodata platform RusGIS for the Transport Prosecutor's office of the Volga District;

      An agreement was signed on traffic monitoring and DDoS protection services for the cloud-based platform TechnoServ Cloud;

      Rostelecom secured 5,268 telco racks with the newly commissioned Moscow Data Processing Centre (number one player in the Russian market);

      Rostelecom has entered into a Service Agreement with the Russian Ministry of Telecom and Mass Communications to provide state and municipal healthcare organizations with High Speed Internet Access (HSIA) in 2017. The contract value is RUB 1.93 billion;

      Rostelecom successfully delivered the video surveillance of elections at polling stations and local electoral committees on the Single day of voting on 10th of September of 2017;

      Rostelecom successfully delivered the video surveillance of the Unified State Exam in 2017, which contributed over RUB 1 billion of revenue;

      Rostelecom signed a Memorandum for the establishment of the National consortium of projects for digital technologies development and their integration in urban infrastructure;

      Rostelecom, The Internet Initiatives Development Fund (IIDF) and Skolkovo have started to select IT start-ups to participate in a joint acceleration programme. The companies will support computer equipment and software development companies, as well as start-ups ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars and drones;

      Rostelecom and Digital Security signed agreements to jointly monitor information security and the exchange of data, technologies and competences in this space;

      Rostelecom signed a number of agreements to create pilot sites for a new generation 5G network:

• with Nokia in Moscow (located in Skolkovo);
• with Ericsson in Saint-Petersburg (located in the Hermitage museum);
• with Huawei and Tattelecom in Tatarstan (located in Innopolis);

      Rostelecom signed an agreement with Megafon on cooperation in the space of 5G networks development;

      Rostelecom signed a strategic partnership agreement with Gazprom Neft on the innovations and industrial internet of things (IIoT) development;

      Rostelecom introduced beta-version of the Unified Biometric System;

      Rostelecom has been appointed as the operator of the Unified Biometric System in Russia;

• Enhancing further synergy between Rostelecom and Tele2:

      Tele2 has completely switched to Rostelecom's communication channels;

      Rostelecom secured a higher termination rate to access Tele2 numbering capacity for the international operators;

• Rostelecom signed a number of large contracts, including agreements with Roseestr (The Federal Service for State Registration, Cadastre and Cartography),  Russian Pension Fund, Judicial Department, Federal Informatisation Centre at the Central Election Commission of the Russian Federation, Saint-Petersburg Infromatisation and Communications Committee, the Moscow Competition Policy Department, Russian Space Systems, Gazprom Neft, Sberbank, Rosselkhozbank (Russian Agricultural Bank) and others;
• Rostelecom signed long-term contracts with Vimpelcom, Megafon and a number of large corporate clients for Rostelecom's network infrastructure lease and traffic transmission through its network;
• To further monetise the telecom transmission infrastructure within the TEA Network (Transit Europe Asia), Rostelecom signed an agreement with China Unicom, alongside a number of traffic transmission contracts with other international telecom operators;

 

Other News

• Rostelecom placed bonds equal to RUB 20 billion;
• A new option programme was approved for senior and middle management;
• Rostelecom acquired an independent Tyumen-based internet provider Sibitex and the leading Internet provider in Vladikavkaz Tvingo telecom LLC, as well as the Sailfish mobile operating system developer;
• Rostelecom acquired 100% of SafeData Group of companies;
• The Real Estate Portfolio Optimisation Programme in 2017 resulted in a 3.3% reduction of Rostelecom's total area; 665,000 sq. m. of additional area has been evaluated and listed for sale;
• Sberbank and Rostelecom signed an agreement on a parity basis to increase the capital of the sub-fund joint venture (JV) to RUB 8.8 billion.
• Rostelecom's Venture Fund invested in an e-Freight management operator engaged in the tracking of international cargo transportation, Transportation Information Technologies (TransInfoTech);
• Rostelecom successfully completed the first proof of concept (PoC) interoperability test for transport SDN (Software-Defined Networking) in the Russian Federation.

OPERATING REVIEW

Revenue Analysis

Revenue structure by services

RUB million	4Q 2017	4Q 2016	% change, y-o-y	FY 2017	FY 2016	% change, y-o-y
Broadband	18,160	17,270	5%	70,869	66,771	6%
TV services	7,069	6,287	12%	27,348	23,599	16%
Fixed telephony	19,151	21,322	(10%)	78,445	87,813	(11%)
Wholesale services	20,479	21,912	(7%)	77,800	79,010	(2%)
Rent of channels	2,365	2,482	(5%)	9,437	10,538	(10%)
Interconnection and traffic transit services	9,133	10,856	(16%)	33,253	35,102	(5%)
VPN	5,678	5,331	7%	22,243	20,823	7%
Rent and maintenance of telecommunications infrastructure	3,303	3,243	2%	12,867	12,546	3%
VAS and cloud services	8,884	6,400	39%	23,041	18,245	26%
Other telecommunications services	7,222	4,820	50%	18,658	14,242	31%
Other non-telecommunications services	3,148	2,397	31%	9,167	7,767	18%
Total	84,113	80,407	5%	305,329	297,446	3%

 

Revenue structure by management units

RUB million	4Q 2017	4Q 2016	%  change, y-o-y	FY 2017	FY 2016	% change, y-o-y
Residential customers	35,193	34,474	2%	136,304	133,917	2%
Corporate customers/ Governmental customers	32,520	28,631	14%	108,739	102,195	6%
Operators	14,781	16,203	(9%)	55,060	56,851	(3%)
Other	1,620	1,099	47%	5,226	4,483	17%
Total	84,113	80,407	5%	305,329	297,446	3%

 

In the fourth quarter of 2017, revenue increased by 5% to RUB 84.1 billion compared to the fourth quarter of 2016. Revenue dynamics were largely influenced by the following key factors:

• a 39% increase in revenue from VAS and cloud services, due to the development of the "Smart City" projects, cloud services and data centre services promotion;
• a 50% increase in revenue from other telecommunications services, partly due to revenue growth driven by equipment sales, including VAS & cloud related, as well as switching from the CPE  leasing to a sale scheme (or instalments); the MVNO project development also had an impact;
• a 5% increase in revenue from broadband services due to an increased number of subscribers and higher ARPU;
• a 12% growth in revenue from pay-TV services due to the growth of the IPTV subscriber base, and higher ARPU;

For the full year of 2017, revenue increased by 3% year-on-year to RUB 305.3 billion. Revenue dynamics were influenced by the following factors:

• a 26% increase in revenue from VAS and cloud services, mainly driven by the development of the "Smart City" projects, cloud services and data centre services promotion;
• a 31% growth in revenue from other telecommunications services, partly due to revenue growth driven by equipment sales, including VAS & cloud related, as well as switching from the CPE  leasing to a sale scheme (or instalments); the MVNO project development also had an impact;
• a 6% increase in revenue from broadband services due to an increased number of subscribers and higher ARPU;
• a 16% growth in revenue from pay-TV services due to the growth of the IPTV subscriber base, an increase in the consumption of VoD services and higher ARPU;

Operating Income Analysis

Operating expenses structure

RUB million	4Q 2017	4Q 2016	% change, y-o-y	12M 2017	12M 2017	% change, y-o-y
Personnel costs	(24,928)	(21,866)	14%	(93,381)	(90,340)	3%
Depreciation, Amortization and impairment losses	(15,444)	(13,342)	16%	(56,628)	(55,589)	2%
Interconnection charges	(14,769)	(15,457)	(4%)	(52,762)	(52,161)	1%
Materials, repairs and maintenance, utilities	(8,266)	(7,613)	9%	(25,926)	(24,917)	4%
Gain on the disposal of PPE and intangible assets	3,863	3,193	21%	5,344	4,556	17%
Reserves for bad debt expenses	(158)	(100)	58%	(2,776)	(2,775)	0%
Other operating income	3,856	2,682	44%	13,444	12,948	4%
Other operating expenses	(18,955)	(16,656)	14%	(54,759)	(49,332)	11%
Total operating expenses	(74,801)	(69,159)	8%	(267,444)	(257,610)	4%

 

In the fourth quarter of 2017, operating expenses increased by 8% compared to the corresponding period of 2016 and amounted to RUB 74.8 billion. This trend was influenced by the following factors:

• a 14% increase (by RUB 3.06 bln) in personnel costs, mainly due to the following factors: (1) allowances within long-term incentive programme, (2) transfer to a new corporate pension programme, and (3) growth in payroll due to structural changes in the personnel driven by ongoing digital transformation;
• a 14% increase (by RUB 2.3 bln) in other operating expenses, partly due to higher CPE expenses, as well as higher expenses within the "Smart City" projects accompanied by corresponding revenue growth;
• a 16% increase (by RUB 2.1 bln) in depreciation and amortisation, mainly due to commissioning of new objects;

In full year of 2017, operating expenses increased by 4%, compared to the corresponding period of 2016, and amounted to RUB 267.4 billion. The following factors influenced this dynamic:

• a 11% increase (by RUB 5.4 bln) in other operating expenses, partly due to higher CPE expenses, as well as higher expenses within the "Smart City" projects accompanied by corresponding revenue growth;
• a 3% increase (by RUB 3.04 bln) in personnel costs, mainly due to the following factors: (1) allowances within long-term incentive programme, (2) transfer to a new corporate pension programme, and (3) growth in payroll due to structural changes in the personnel driven by ongoing digital transformation;
• a 2% increase (by RUB 1.04 bln) in depreciation and amortisation, mainly due to the commissioning of new objects;  
• a 4% increase (by RUB 1.0 bln) in materials, repairs and maintenance, utilities costs, mainly due to the increase in materials costs within the implementation of certain large projects which translated in higher revenue.

Operating profit decreased by 17% to RUB 9.3 billion in the fourth quarter of 2017 compared to the corresponding period of 2016. In the full year of 2017, operating profit decreased by 5% year-on-year to RUB 37.9 billion.

OIBDA for the fourth quarter of 2017 increased by 5% and grew by RUB 0.085 bln for the full year of 2017 to RUB 25.7 billion and RUB 96.9 billion, respectively. The OIBDA margin increased by 0.2 p.p. to 30.5% in the fourth quarter of 2017, compared to the corresponding period of 2016. The OIBDA margin for the full year of 2017 was 31.7% compared to 32.5% in the full year of 2016.

Net Income Analysis

In the fourth quarter of 2017, profit before tax increased by 6% to RUB 5.2 bln compared to the corresponding period in 2016. Profit before tax for the full year of 2017 increased by 12% to RUB 19.0 bln.

The following factors influenced this dynamic in the fourth quarter of 2017:

• decrease in losses from affiliated companies, mainly from the JV with Tele2 Russia;
• lower financial expenses, due to a lower average borrowing rate;

Profit before income tax in the full year of 2017 was mainly influenced by reduced losses from affiliated companies, predominantly, due to the financial performance of the JV with Tele2 Russia.

In the fourth quarter 2017, income tax decreased by 21% to RUB 1.0 bln. In the full year of 2017, income tax expenses increased by 3% year-on-year and totalled RUB 4.9 bln.

The effective income tax rate was 20% in the fourth quarter of 2017 and 26% for the full year of 2017, compared to the 20% rate specified by the Tax Code. The higher effective income tax rate in the full year of 2017 was driven by the non-deductible expenses for taxation purposes.

Net profit in the fourth quarter of 2017 increased by 16% to RUB 4.2 billion. Net profit for the full year of 2017 increased by 15% to RUB 14.05 billion.

Financial Review

Consolidated net operating cash flow increased by 17% to RUB 29.0 billion in the fourth quarter of 2017, compared to the corresponding period in 2016. Consolidated net operating cash flow in the full year of 2017 increased by 7% to RUB 71.8 billion. An increase in consolidated net operating cash flow in the fourth quarter and full year of 2017 was partly due to better working capital management.

Consolidated cash outflow for investments in non-current assets increased by 23% to RUB 18.5 billion in the fourth quarter of 2017. Excluding the "Bridging the Digital Divide" project, this figure increased by 25% year-on-year to RUB 17.5 billion (20.8% of revenue). Consolidated cash outflow for investments in non-current assets in the full year of 2017 decreased by 2% year-on-year to RUB 60.8 billion. Excluding the "Bridging the Digital Divide" project, cash outflow for investments in non-current assets increased by 1% year-on-year to RUB 57.3 billion (18.8% of revenue). These trends were driven in the fourth quarter of 2017 by the uneven distribution of capital expenditure across the calendar year in accordance with the terms of signed contracts.

Consolidated free cash flow improved by 11% in the fourth quarter of 2017 and totalled RUB 17.3 billion. Consolidated free cash flow improved in the 12 months of 2017 by 53% and totalled RUB 20.4 billion. The free cash flow dynamics in the fourth quarter of 2017 were driven by positive changes in the working capital. In the full year of 2017 the free cash flow dynamics were driven by positive changes in the working capital, as well as lower capital expenditure.

As at December 31, 2017, the Group's total debt increased by 2% compared to the beginning of the year, and amounted to RUB 191.4 billion. Over 99% of the Group's total debt was rouble-denominated as at December 31, 2017.

As at December 31, 2017, the Group's consolidated net debt amounted to RUB 181.6 billion. A net debt /OIBDA ratio stood at 1.9x for the past twelve months ended in fourth quarter of 2017.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 6.00 PM (Moscow), 4.00 PM (CET), 3.00 PM (UK) and 10.00 AM (NYT). To participate in the conference call, please dial:

Russia:  +7 495 213 1767

UK/ International:  +44 (0)330 336 9105

USA: + 1 929 477 0448

 

Confirmation Code (ENG): 9905721

Confirmation Code (RUS): 3052853

 

 

A webcast of the conference call in English (simultaneous translation from Russian) will only be available in English. To access the webcast please follow the link http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=5305.

 

A replay of the conference call will be available on the Company's website http://www.rostelecom.ru/ir/results_and_presentations/financials/IFRS/2017/4/ in due course.

 

* * *

APPENDICES

1. Reconciliation of OIBDA;
2. Statement of Comprehensive Income for the full year of 2017;
3. Statement of Cash Flows for the full year of 2017;
4. Statement of Financial Position for the full year of 2017.

 

 

 

 

 

 

 

 

 

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 non-cash 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.

 

Non-cash expenses related to the long-term management incentive programme, implying accruals in personnel costs line starting from Q2, 2014, are not taken into account in the calculation of OIBDA.

 

RUB million	4Q 2017	4Q 2016	% change, y-o-y	FY 2017	FY 2016	% change, y-o-y
Operating income from continuing operations	9,312	11,248	(17%)	37,885	39,836	(5%)
Plus depreciation and amortisation from continuing operations	15,444	13,342	16%	56,628	55,589	2%
Plus non-cash expenses related to the long-term management incentive programme	938	(218)	-	2,344	1,347	74%
OIBDA	25,694	24,372	5%	96,857	96,772	0.1%
OIBDA margin, %	30.5%	30.3%		31.7%	32.5%

APPENDIX 2: Statement of Comprehensive Income for 12M 2017

 

APPENDIX 3: Statement of Cash Flows for 12M 2017

 

 

	31 December 2017	31 December 2016
Cash flows from operating activities
Profit before tax	18,906	16,941
Adjustments to reconcile profit before tax to cash generated from operations:
Depreciation, amortization and impairment losses	56,628	55,589
Gain on disposal of property, plant and equipment and intangible assets	(5,344)	(4,556)
Bad debt expense	2,776	2,775
Loss from associates and joint ventures	2,692	7,296
Finance costs excluding finance costs on pension and other long-term social liabilities	17,026	16,699
Other investing and financial gain, net	(941)	(1 061)
Foreign exchange loss/(gain), net	(122)	(515)
Share-based motivation program	2,309	1,019
Changes in net working capital:	(66)	(561)
Increase in accounts receivable
(Decrease)/increase in employee benefits	(5,078)	(3,941)
Increase in inventories	232	(2,351)
Increase in accounts payable, provisions and accrued expenses	3,963	1,376
Increase in other liabilities	(688)	(3,131)
Cash generated from operations	92,293	85,579
Interest paid	(17,548)	(18,410)
Income tax refund	1,825	4,391
Income tax paid	(4,801)	(4,383)
Net cash from operating activities	71,769	67,177
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets	(60,752)	(61,857)
Proceeds from sale of property, plant and equipment and intangible assets	9,368	7,978
Acquisition of financial assets	(12,762)	(9,736)
Proceeds from disposals of financial assets	11,574	10,831
Interest received	637	1,029
Government subsidy	772	-
Dividends received	6	22
Purchase of subsidiaries, net of cash acquired	(218)	(2,438)
Proceeds from disposals of subsidiaries, net of cash disposed	347	(1)
Acquisition of equity accounted investees	(2,430)	(2,778)
Net cash used in investing activities	(53,458)	(56,950)
Cash flows from financing activities
Sale of treasury shares	1	157
(Purchase) of treasury shares	(981)	(314)
Proceeds from bank and corporate loans	522,157	655,190
Repayment of bank and corporate loans	(519,403)	(665,936)
Proceeds from bonds	20,000	15,000
Repayment of bonds	(20,642)	(2,734)
Repayment of vendor financing payable	(9)	(9)
Proceeds from / (repayment of) other non-current financing liabilities	(7)	(1)
Options settlement repayments	(4,896)	(319)
Repayment of finance lease liabilities	(118)	(160)
Acquisition of non-controlling interest	(2,318)	-
Dividends paid to shareholders of the Group	(12,195)	(13,295)
Dividends paid to non-controlling shareholders of subsidiaries	(190)	(258)
Net cash used in financing activities	(18,601)	(12,679)
Effect of exchange rate changes on cash and cash equivalents	(152)	(456)
Net increase/(decrease) in cash and cash equivalents	(442)	(2,908)
Cash and cash equivalents at beginning of the period	4,257	7,165
Cash and cash equivalents at the end of the period	3,815	4,257

 

 

 

 

 

 

 

APPENDIX 4: Statement of Financial Position for 12M 2017

 

 

Rostelecom (www.rostelecom.ru) is one of the largest national telecommunications operators in Russia and Europe. The Group operates in all segments of the telecommunications market and covers millions of households in Russia.

Rostelecom is an undisputable leader of the broadband and pay-TV markets in Russia with over 12.7 million fixed-line broadband subscribers and over 9.8 million pay-TV subscribers, over 4.8 million of which are subscribed to Rostelecom's IPTV services.

The Group generated RUB 305.3 billion of consolidated revenues, RUB 96.9 billion of OIBDA (31.7% of revenue) and RUB 14.1 billion of net income in 2017.

The Group is a market leader in providing telecommunications services to government bodies and corporates of all levels.

It is also an important innovator that provides solutions in the field of E-Government, cloud computing, medicine, education, security and housing & utility services.

The Group's stable financial position confirmed by its credit ratings. Rostelecom was 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] International financial reporting standards

[2] The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services

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

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

[5] Here and below free cash flow is FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets

[6] Here and below, net debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets)

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

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

[9] Here and below free cash flow is FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets

[10] Property Management Systems