ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2020

 

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, commented: "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, commented: "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 added: "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.

 

KEY EVENTS RELATING TO FY 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 remote working product line "Technologies PRO" launched to expand services for Internet broadband customers with a number of products including dedicated customer support, antivirus, cloud storage on Yandex Disk and other;
• A unique comprehensive solution for high-precision remote body temperature measurement for offices.  Based on thermal imaging cameras, it offers a comprehensive software and hardware and can be easily integrated with clients' owned control systems. A number of companies including ALROSA and LUKOIL have already tested the new product;
• An innovative solution for monitoring of solid domestic waste was introduced to the market, enabling the inspection of waste collection sites, their operation schedules and compliance with standards, using video surveillance cameras and AI;
• A new platform Wi-Fi 2.0 was launched for B2B clients, offering enhanced statistical and analytical tools for tracking, analysing and measuring consumer behaviour while connected to public Wi-Fi networks;
• As part of the gaming business expansion a series of promotions and offerings were introduced to gamers, including extra bonuses for broadband users of MY.GAMES, a brand-new faster game-friendly router RT-X by Rostelecom and a new game, "Lost Ark", within the 'Gaming' tariff plan. In addition, further expansion of cloud gaming products saw the launch to users across the entire country;
• Regular upgrades were made to the Wink digital platform, including:
  • The launch of new TV packages - Transformer, Maximum, Premium and Super Hits subscription;
  • Special terms for the "Watching together" shared viewing option introduced for multi-device watching, connecting people from anywhere in the country;
  • Payments for Wink subscription now made available via Tele2 Russia accounts;
  • A new offer "Everywhere online" providing Tele2's clients with special subscription deals for the Wink video entertainment platform.

The number of devices connected to Wink grew more than fourfold to 8 million gadgets.

• Expanded functionality and added options within the Rostelecom Key solution for:
  • clients to use smart access control systems for household facilities, enabling doors to be opened remotely, create keys for gates, basements, lofts and other entrances;
  • remote control data from home utility meters and video surveillance service online ordering are now available on mobile devices, along with alarm codes that allow doors to open in emergencies;
• As part of the further development of its convergent proposition:
  • Sales of new tariff plans Premium History, Technologies of benefits PRO and new Internet options for devices were launched;
  • Mobile clients can now enjoy cloud gaming services (in partnership with GFN.RU);
• Within the Smart Home video surveillance services, Rostelecom:
  • launched Smart utility meters that display data for entire households and individual utility systems;
  • launched a new "Smart control and access management" platform which enables individual accounts to be created for tenants, who can be "electronically lodged" in the system using RFID tags, and a new option for intelligent video monitoring, including motion tracking features available on all moving smart home cameras from Rostelecom. Cameras with audio now have a siren function;

• Rostelecom continues to grow its digital segment in 2020:

• As part of cybersecurity services:
  • cybersecurity revenues grew more than twofold;
    • Rostelecom launched two new services, including Incident Response Plan (IPR) and a cyber-attack imitation platform called Red Teaming, which analyses cyber threats and assesses the existing defence capabilities on their owned IT infrastructure.
    • Upgraded version of the Solar Dozor solution launched to prevent data leaks and ensure  security of employee communications;
    • A set of DDos-attacks security solutions such as Solar appScreener, IGA-platform Solar inRights and web-security gate Solar webProxy were enhanced;
  • Sales of Solar appScreener started in five new countries;
  • Signed the largest information security contract with Singapore airlines for Solar appScreener.
• Rostelecom continues to grow its cloud services and data processing centres segments for B2B:
  • Data Centers revenue grew more than twofold;
  • Revenues from the Virtual PBX offering increased by 54%;
  • Virtual Data Centre services revenues increased by 129%;
  • The launch of a Virtual data center segment based on Tionix cloud platform;
  • Rostelecom launched new data centers in Moscow (for 100, 600 and 200 racks), Saint-Peterburg for 800 racks and Novosibirsk for 300 racks. The easternmost data centre was opened in Sakhalin (with an initial capacity of 25 racks and a potential for expansion to 180 racks);
• B2C fiber broadband revenues grew by 9,5%;
• Revenues from the Antivirus offering increased by 15%;
• Rostelecom continued to sign substantial contracts, while also executing large-scale projects:
  • Rostelecom successfully provided video surveillance for the single election day and the Unified State Exam (core and additional) as well as webcast;
  • Rostelecom has agreed to provide VTB with a Single Corporate Telecommunication Network and Wi-Fi in more than 1,500 branches;
  • Rostelecom completed setting up a Wi-Fi network across 400 Gazprombank branches;
  • Signed agreement with the Ministry of Digital Development, Communications and Mass Media to connect Central Electoral Commission facilities to a Single Telecommunications Network and provide information security services;
  • Rostelecom rolled out a comprehensive cross-country digital infrastructure for the 2021 National Census.

• Operator business segment highlights:

• O2O[8] revenues grew by 30% in 2020 with an increase in maintained third-party fibre optic capacity by 26,000 km and expansion of base transceiver stations (BTS) we serve by almost 10,000;
• An uplift in segment margin by 14 p.p.;
• A new 350 Gbit per sec capacity route via Kazakhstan launched as part of TEA extension.

• Rostelecom's subsidiary Tele2 Russia continues steady and dynamic growth:

• Within the regions of presence achieved 96% population coverage for 4G networks, 93% for 3G and 97% of 2G networks;
• Key achievements in 5G rollout include the launch of international 5G roaming in Switzerland, a pilot 5G zone in central Moscow together with Ericsson, and presentation of 5G capabilities in digital health at the CIPR (digital industry of industrial Russia) conference;
• Tele2 launched a Health & lifestyle website;
• Digital cinema tariff options launched for clients as part of "Everywhere online" with full access to Wink video library;
• A brand-new digital offering "Home under new rules" for all mobile operators servicing clients during the quarantine period;
• The total client base of virtual operators with the Tele2 Russia network surpassed 2.8 million (excluding Rostelecom MVNO clients);
• Tele2 launched a mobile phone recycling function as part of the "Remelting" environmental project;
• The high quality of Tele2's services have been recognised by the "Silver Mercury" award in six nominations as well as by "Effie Awards Russia" in eight nominations for creative marketing communications;
• Tele2 notched five years of operations in the Moscow region. Since the launch, the number of 4G base stations increased by 23 times, while the rate of base station construction now exceeds 2015 indictors by 1.5 times.

Tele2 has reaffirmed its rating as the highest rated mobile operator for overall customer satisfaction (NPS of 40% with huge gap to close competitor) and the fastest growing operator globally[9].

M&A deals

• Consolidation of a 100% share in Tele2 Russia to create the largest integrated digital services provider;
• Completion of the deal to acquire a 100% share of DataLine, the second largest datacentre provider in Russia;
• Strategic partnership to boost the development of its data centres and cloud business: VTB Bank invested RUB 35 billion for a 44.8% stake in RTK-DC;
• Acquisition of LUKOIL's telecommunication business;
• Acquisition of the national media operator Synterra Media;
• Acquisition of a leading Internet provider in Yekaterinburg and the Sverdlovsk region;
• Acquisitions of 51% in Fastech and 51% in Forkam - two digitization solutions providers for utility companies;
• Business-partnership with the leading system integrator in IT security Elvis Plus;
• Acquisition of interest in an e-signature provider Sign.Me as part of the expansion of its digital ecosystem;
• Rostelecom became a co-investor with the Russian Internet Initiatives Development Fund.

Other news

• Paid Dividends for 2019 of RUB 5 per share;
• Rostelecom announced the following bond placements:
  • a five-year bond of total nominal value of RUB 10 billion, at a coupon rate of 6.3% per annum;
  • a three-year bond of total nominal value of RUB 10 billion, at a coupon rate of 6.75% per annum;
  • a three-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.25% per annum;
  • a seven-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.65% per annum.
• 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[10];
• Rostelecom was included in the Bloomberg Gender-Equality Index for 2020 and 2021.

 

 

 

 

OPERATING REVIEW

Revenue analysis

 

Revenue structure by services

RUB million	4Q 2020	4Q 2019	change	2020	2019	change
Mobile	47,274	41,209	15%	176,958	153,760	15%
Broadband	23,626	21,904	8%	90,376	84,493	7%
Digital	30,443	19,915	53%	77,298	48,477	59%
TV services	9,792	9,468	3%	38,004	37,360	2%
Wholesale services	20,116	17,914	12%	74,762	69,703	7%
VPN	8,216	6,417	28%	29,722	24,273	22%
Interconnect and traffic transit services	4,593	4,418	4%	17,803	20,017	(11%)
Rent and maintenance of telecommunications infrastructure	4,732	4,639	2%	17,142	15,689	9%
Rent of channels	2,575	2,440	6%	10,095	9,724	4%
Fixed telephony	13,356	14,885	(10%)	54,620	60,824	(10%)
Other services	18,403	7,600	142%	34,871	21,135	65%
Total	163,009	132,896	23%	546,889	475,752	15%

 

 

 

 

Revenue structure by customer segments

RUB million	4Q 2020	4Q 2019	change	2020	2019	change
B2C	67,311	63,235	6%	259,782	245,791	6%
Corporate customers / Government customers	73,345	49,460	48%	201,618	151,989	33%
Operators	21,438	19,142	12%	81,030	73,811	10%
Other	916	1,057	(17%)	4,459	4,161	7%
Total	163,009	132,896	23%	546,889	475,752	15%

 

In the fourth quarter of 2020, revenue increased by 23% to RUB 163.0 billion, compared to the fourth quarter of 2019, as a result of the following factors:

• a 53% increase in revenue from digital services, mainly due to the growth in regional digital projects, growing demand for digital platforms in healthcare, public administration and elections, larger sales of cyber security services, the promotion of cloud and data centre services, as well as the consolidation of DataLine;
• revenue growth of 142%, generated by the delivery of a comprehensive software and hardware complex to the Federal State Statistic Service ROSSTAT for the Population Census project;
• a 15% increase in revenue from mobile services due to a higher volume of mobile Internet data consumption and standard voice services;
• a 12% increase in wholesale revenues, driven by a 28% increase in revenues from the growth of VPN B2B and state customers;
• an 8% increase in revenue from broadband services due to a higher number of subscribers, as well as revenues from Internet connection contracts.

During the twelve months of 2020, revenue increased by 15% to RUB 546.9 billion, year-on-year, as a result of the following factors:

• a 59% increase in revenue from digital services, mainly due to the growth in regional digital projects, growing demand for digital platforms in healthcare, public administration and elections, larger sales of cyber security services, the promotion of cloud and data centre services, as well as the consolidation of DataLine;
• a 15% increase in revenue from mobile services due to a higher volume of mobile Internet data consumption and standard voice services;
• revenue growth of 65%, generated by the delivery of a comprehensive software and hardware complex to the Federal State Statistic Service ROSSTAT for the Population Census project;
• a 7% increase in revenue from broadband services due to a higher number of subscribers, as well as higher revenues from Internet connection contracts.

 

 

 

 

Operating income analysis

Operating expenses structure

 

RUB million		4Q 2020		4Q 2019		change	2020		2019		change
Personnel costs		(40,303)		(34,701)		16%	(136,389)		(119,822)		14%
Depreciation, Amortization and impairment losses		(34,166)		(29,024)		18%	(119,702)		(104,062)		15%
Interconnection charges		(26,245)		(22,449)		17%	(94,860)		(85,506)		11%
Materials, repairs and maintenance, utilities		(12,537)		(10,131)		24%	(41,003)		(34,517)		19%
Gain on the disposal of PPE and intangible assets		2,151		5,643		(62%)	5,992		8,127		(26%)
Impairment loss of financial assets measured at amortized cost		(4,030)		(3,349)		20%	(7,165)		(6,588)		9%
Other operating income		6,603		5,491		20%	21,883		20,434		7%
Other operating expenses		(46,108)		(34,584)		33%	(106,680)		(92,538)		15%
Total operating expenses		(154,635)		(123,104)		26%	(477,924)		(414,472)		15%

In the fourth quarter of 2020, operating expenses increased by 26% compared to the corresponding period of 2019 and amounted to RUB 154.6 billion, largely due to the following factors:

• a 33% increase (of RUB 11.5 bln) in other operating expenses, due to B2B aтd B2G projects, including the expenses incurred during the delivery of the Population Census project for ROSSTAT;
• a 16% increase (of RUB 5.6 billion) in personnel costs, mainly due to an increase in the share of employees with digital skills;
• a 18% increase (of RUB 5.1 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and impairment of intangible assets and leases;
• a 17% increase (of RUB 3.8 bln) in interconnection charges, due to higher traffic caused by the pandemic and the massive transition to remote working and learning;
• a 24% increase (of RUB 2.4 billion) in materials, repairs and maintenance, utilities, mainly due to an increase in expenditure on personal protective equipment amid the pandemic, and the consolidation of expenses on electricity supplies for Rostelecom's recently acquired subsidiary DataLine, reflected in this line item;
• a 62% decrease (of RUB 3.5 billion) in gain on the disposal of PPE and intangible assets due to a larger subscriber base in 4Q 2019 at the time of the completion of the deal to sell the Central Telegraph building.

In the twelve months of 2020, operating expenses increased by 15% compared to the corresponding period of 2019 and amounted to RUB 477.9 billion due to the following factors:

• a 14% increase (of RUB 16.6 billion) in personnel costs, mainly due to an increase in the share of employees with digital skills;
• a 15% increase (of RUB 15.6 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and impairment of intangible assets and lease;
• a 15% increase (of RUB 14.1 bln) in other operating expenses, due to B2B aтd B2G projects, including the expenses incurred during the delivery of the Population Census project for ROSSTAT, reflected in 4Q 2020;
• an 11% increase (of RUB 9.4 bln) in interconnection charges, due to higher traffic caused by the pandemic and the massive transition to remote working and learning;
• a 19% increase (of RUB 6.5 billion) in materials, repairs and maintenance, utilities, mainly due to an increase in expenditure on personal protective equipment amid the pandemic, and the consolidation of expenses on electricity supplies for Rostelecom's recently acquired subsidiary DataLine.

Operating profit decreased by 14% in 4Q 2020 to RUB 8.4 billion and increased by 13% to RUB 69.0 billion in FY 2020 year-on-year.

OIBDA for 4Q 2020 increased by 10% to RUB 44.5 billion and by 14% to RUB 194.1 billion in FY 2020 year-on-year. OIBDA dynamics were influenced by revenue growth, and the above-mentioned changes in operating expenses. The OIBDA margin in 4Q 2020 stood at 27.3% compared to 30.6% in 4Q 2019. OIBDA margin in FY 2020 stood at 35.5% compared to 35.9% in FY 2019. Lower OIBDA margin in 4Q 2020 was mainly influenced by higher portion of one-off low-margin revenue (The Federal State Statistic Service (Rosstat) project). 

Net Income Analysis

In 4Q 2020, loss before tax stood at RUB (1.5) billion, compared to RUB (1.1) billion in the corresponding period of 2019. In FY 2020, profit before tax increased by 24% to RUB 34.0 billion compared to FY 2019. These dynamics in 4Q 2020 were mainly influenced by operating profit change as well as better financial results from associated companies. In FY 2020 these dynamics were influenced by higher operating profit, better financial results from associated companies as well as foreign exchange losses arising on the weakening of the exchange rate in 2020.

Income tax in 4Q 2020 was RUB 0.6 billion, compared to income tax refund of RUB 0.3 billion in the corresponding period of 2019. Income tax in FY 2020 amounted to RUB 8.7 billion compared to RUB 5.5 billion in FY 2019. Income tax dynamics was partly driven by dynamics in income before tax, as well as higher year-on-year expenditures, which are not deductible for tax purposes.

Net loss stood at RUB (2.1) billion, compared to RUB (0.8) billion the corresponding period of 2019, and in FY 2020 - net profit increased by 16% to RUB 25.3 billion versus the FY 2019.

Financial review

Net operating cash flow in 4Q 2020 remained almost intact and reached RUB 58.0 billion, compared to the corresponding period of 2019. In FY 2020 net operating cash flow decreased by 3% to RUB 136.8 billion compared to FY 2019. Net operating cash flow dynamics were influenced by a decrease in working capital, mostly driven by uneven advance payments on certain B2G contracts during the reporting periods.

Cash outflow for investments in non-current assets excluding state programmes in 4Q 2020 decreased by 16% to RUB 36.2 billion (22.2% of revenue), and including state programmes it decreased by 11% to RUB 52.1 billion (32.0% of revenue). Cash outflow for investments in non-current assets excluding state programmes in FY 2020 decreased by 1% to RUB 107.1 billion (19.6% of revenue), and including state programmes it increased by 1% to RUB 136.0 billion (24.9% of revenue).

FCF in 4Q 2020 totalled RUB 17.9 billion compared to RUB 15.7 billion in 4Q 2019. Free cash flow in FY 2020 totalled RUB 22.7 billion compared to RUB 30.3 billion in FY 2019.

 

Free Cash Flow (RUB, billion)

As at December 31, 2020, the Group's total debt increased by 12% compared to the beginning of the year and amounted to RUB 404.9 billion, partially driven by the raised financing for the consolidation of 100% share in Tele 2 Russia. 100% of the Group's total debt remained rouble-denominated as at December 31, 2020.

As at December 31, 2020, the Group's net debt increased by 9% compared to the beginning of the year and amounted to RUB 362.2 billion. The net debt /OIBDA ratio stood at 1.9x for the last twelve months.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4.00 PM (Moscow), 2.00 PM (CET), 1.00 PM (UK) and 8.00 AM (NYT). To participate in the conference call, please dial:

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

USA:    +1 646 828 8193

Russia:     +7 (495) 646 9190

 

Confirmation Code (ENG):  6606978

Confirmation Code (RUS):  5208508

 

 

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://www.webcast-eqs.com/register/rostelecom20210309/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/2020/4%20/

 

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APPENDICES

1. Reconciliation of OIBDA;
2. Statement of Comprehensive Income for FY 2020;
3. Statement of Cash Flows for FY 2020;
4. Statement of Financial Position for FY 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	4Q 2020	4Q 2019	change	2020	2019	change
Operating income	8,374	9,792	(14%)	68,965	61,280	13%
Plus amortisation	34,166	29,024	18%	119,702	104,062	15%
Plus expenses related to the long-term management incentive programme	1,679	1,286	31%	4,205	4,007	5%
Plus expenses related to non-government pension insurance	272	525	(48%)	1,178	1,354	(13%)
OIBDA	44,491	40,627	10%	194,050	170,703	14%
OIBDA margin, %	27.3%	30.6%		35.5%	35.9%

 

APPENDIX 2: Statement of Comprehensive Income for FY 2020

 

	Notes	Year ended 31 December
		2020	2019 (restated)
Revenue	29	546,889	475,752
Operating expenses
Wages, salaries, other benefits and payroll taxes	30	(136,389)	(119,822)
Depreciation, amortization and impairment losses	8, 9, 10, 18	(119,702)	(104,062)
Interconnection charges		(94,860)	(85,506)
Materials, utilities, repairs and maintenance	31	(41,003)	(34,517)
Gain on disposal of property, plant and equipment and intangible assets		5,992	8,127
Impairment loss of financial assets measured at amortized cost	13, 16	(7,165)	(6,588)
Other operating income	32	21,883	20,434
Other operating expenses	33	(106,680)	(92,538)
Total operating expenses, net		(477,924)	(414,472)
Operating profit		68,965	61,280
Share of net profit/(loss) of associates and joint ventures	12	969	(1,013)
Finance costs	34	(36,670)	(35,263)
Other investing and financial gain, net	35	1,926	1,451
Foreign exchange (loss)/gain, net		(1,183)	936
Profit before income tax		34,007	27,391
Income tax expense	28	(8,659)	(5,513)
Profit for the year		25,348	21,878
Other comprehensive income/(loss)
Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods
Share of other comprehensive income of associates		-	-
Exchange differences on translation of foreign operations		181	(292)
Net other comprehensive income/(loss) to be reclassified to profit or income/(loss) in subsequent periods		181	(292)
Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods
Remeasurement of defined benefit pension plans	27	21	(2)
Income tax on remeasurement of defined benefit pension plans	28	(4)	-
Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods		17	(2)
Other comprehensive income for the year, net of tax		198	(294)
Total comprehensive income for the year		25,546	21,584
Profit attributable to:
Equity holders of the Group		23,311	20,181
Non-controlling interests		2,037	1,697
Total comprehensive income attributable to:
Equity holders of the Group		23,509	19,874
Non-controlling interests		2,037	1,710
Earnings per share attributable to equity holders of the Group - basic (in roubles)	38	7.42	8.72
Earnings per share attributable to equity holders of the Group - diluted (in roubles)	38	7.32	8.51

 

APPENDIX 3: Statement of Cash Flows for FY 2020

 

		Year ended 31 December
	Notes	2020	2019  (restated)
Cash flows from operating activities
Profit before tax		34,007	27,391
Adjustments to reconcile profit before tax to cash generated from operations
Depreciation, amortization and impairment losses	8, 9, 10, 18	119,702	104,062
Gain on disposal of property, plant and equipment and intangible assets		(5,992)	(8,127)
Impairment loss of financial assets measured at amortized cost	16	7,165	6,588
Share of net profit/(loss) of associates and joint ventures	12	(969)	1,013
Finance costs excluding finance costs on employee benefit obligations	34	36,622	35,197
Other investing and financial gain, net	35	(1,926)	(1,451)
Foreign exchange loss/(gain), net		1,183	(936)
Share-based motivation program		3,859	4,027
(Decrease)/increase in accounts receivable and contract assets		(7,278)	952
Increase in employee benefits		321	858
(Increase) in inventories		(243)	(1,569)
Increase in accounts payable, provisions and accrued expenses		11,094	9,963
Increase in contract costs, prepayments and other assets		(16,873)	(16,625)
(Decrease)/increase in other liabilities		(2,063)	19,312
Net cash generated from operations before income tax and interests paid		178,609	180,655
Interest paid		(35,594)	(35,346)
Income tax refund		1,706	693
Income tax paid		(7,931)	(5,065)
Net cash from operating activities		136,790	140,937
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets		(135,987)	(134,383)
Proceeds from sale of property, plant and equipment, intangible assets and assets held for sale		6,236	9,434
Acquisition of financial assets		(14,196)	(8,150)
Proceeds from disposals of financial assets		11,461	4,809
Interest received		719	693
Subsidy from Government	26	14,901	13,572
Dividends received		569	232
Purchase of subsidiaries and business, net of cash acquired	6.1, 7	(119,444)	(23,009)
Proceeds from equity accounted investees	12	1,665	-
Proceeds from disposal of subsidiaries, net of cash disposed		(74)	-
Acquisition of equity accounted investees	12	(1,574)	(544)
Net cash used in investing activities		(235,724)	(137,346)
Cash flows from financing activities
Issue of share capital	21	66,000	-
Proceeds from bank and corporate loans	22	847,214	611,525
Repayment of bank and corporate loans	22	(852,883)	(593,746)
Proceeds from bonds	22	50,000	25,000
Repayment of bonds	22	(1,934)	(12,204)
Repayment of vendor financing payable		(2)	(51)
Proceeds from / (repayment of) other non-current financing liabilities		(29)	(11)
Proceeds from sale of non-controlling interests	11	35,000	-
Repayment of lease liabilities	10	(14,682)	(10,583)
Acquisition of non-controlling interests	11	(36)	(1,397)
Dividends paid to shareholders of the Group	21	(16,664)	(11,731)
Dividends paid to non-controlling shareholders of subsidiaries	11	(1,433)	(824)
Net cash from financing activities		110,551	5,978
Effect of exchange rate changes on cash and cash equivalents		(357)	(106)
Net increase in cash and cash equivalents		11,260	9,463
Cash and cash equivalents at beginning of the year		19,955	10,492
Cash and cash equivalents at the end of the year		31,215	19,955

 

APPENDIX 4: Statement of Financial Position for FY 2020

	Notes	31 December 2020	31 December 2019 (restated)
Assets
Non-current assets
Property, plant and equipment	8	575,356	525,153
Goodwill and other intangible assets	9	141,321	126,090
Right of use assets	10	95,733	70,653
Trade and other accounts receivable	16	6,317	5,646
Investments in associates and joint ventures	12	10,896	8,892
Other financial assets	13	815	2,667
Other non-current assets	14	12,975	10,119
Deferred tax assets	28	8,970	10,207
Contract assets	17	972	866
Contract costs	18	16,326	14,647
Total non-current assets		869,681	774,940
Current assets
Inventories	15	10,792	9,793
Contract assets	17	6,710	4,480
Contract costs	18	674	920
Trade and other accounts receivable	16	50,154	49,195
Prepayments		8,953	7,845
Prepaid income tax	28	1,377	868
Other financial assets	13	11,482	8,886
Other current assets	20	7,892	6,264
Cash and cash equivalents	19	31,215	19,955
Asset classified as held for sale	42	831	749
Total current assets		130,080	108,955
Total assets		999,761	883,895
Equity and liabilities
Equity attributable to equity holders of the Group
Share capital	21	95	93
Treasury shares		(14,374)	(53,391)
Retained earnings and other reserves		194,409	262,783
Total equity attributable to equity holders of the Group		180,130	209,485
Non-controlling interests		37,546	4,585
Total equity		217,676	214,070
Non-current liabilities
Loans and borrowings	22	372,406	280,571
Lease liabilities	10	86,392	63,156
Employee benefits	27	6,670	5,881
Deferred tax liabilities	28	41,494	39,425
Accounts payable and accrued expenses	23	1,580	1,496
Contract liabilities	25	15,811	17,472
Provisions	24	5,848	4,418
Other non-current financial liabilities	39	10,912	-
Other non-current liabilities	26	32,831	19,052
Total non-current liabilities		573,944	431,471
Current liabilities
Loans and borrowings	22	32,535	81,277
Lease liabilities	10	17,399	12,444
Accounts payable and accrued expenses	23	96,022	86,538
Income tax payable		3,023	2,692
Contract liabilities	25	34,680	31,353
Provisions	24	9,413	7,283
Other financial liabilities	39	1,914	164
Other current liabilities	26	13,155	16,603
Total current liabilities		208,141	238,354
Total liabilities		782,085	669,825
Total equity and liabilities		999,761	883,895

 

PJSC 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 5.9 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 FY 2020, the Group generated RUB 546.9 bln of revenues, RUB 194.1 bln of OIBDA (35.5% of revenue) and RUB 25.3 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. Note that the company changed the methodology for calculating OIBDA changed in 3q 2018 having excluded expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 and relevant periods of 2017 were recalculated in line with the renewed methodology.

[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 one user subscribed to a number of services simultaneously, including broadband, IPTV and digital cable TV

[8] Operator to Operator

[9] Based on GSMA and Analysis Mason DataHub data

[10] ITU, International Telecommunication Union