rostelecom announces its ifrs financial and operating results for the third quarter of 2017

 

DIGITAL TRANSFORMATION DELIVERS STRONG TOPLINE GROWTH OF 4%

Moscow, Russia - November 2, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia's national telecommunications operator, today announces its consolidated financial results for the third quarter of 2017 and nine months of 2017 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

• Revenue growth in the third quarter of 2017 of 4% year-on-year;
• Revenue growth across all business segments: b2c, b2b/g and b2o;
• The digital segment's[2] contribution to total revenue accounted for 47%;
• Consistently high growth rates in FTTx optic broadband clients (+10%) and in IPTV subscribers (+16%), ARPU keeps growing in our core broadband and IPTV segments;
• Rostelecom accounted for more than 70%[3] of net additions in the IPTV market, and for around 50%[4] of broadband net additions;
• Free cash flow increased by 21% to RUB 7.1 billion;
• The Smart City project steady growth is contributing significantly to the top line.

 

THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 4% to RUB 75.6 billion compared to the third quarter of 2016;

• OIBDA[5] of RUB 25.0 billion remained almost flat;
• OIBDA margin of 33.1% compared to 34.4% in the third quarter of 2016;
• Net profit of RUB 3.9 billion compared to RUB 4.1 billion in the third quarter of 2016;
• CAPEX[6] decreased by 7% year-on-year to RUB 12.1 billion (16.0% of revenue) from RUB 13.0 billion (17.9% of revenue) in the third quarter of 2016;
• Free Cash Flow[7] (FCF) improved by 21% to RUB 7.1 billion compared to the third quarter of 2016;
• Net debt[8] increased by 8% since the beginning of the year and amounted to RUB 191.2 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

 

Key figures for 3Q 2017, RUB mln

RUB million	3Q 2017	3Q 2016	% change, y-o-y
Revenue	75,614	72,781	4%
OIBDA	24,995	25,038	(0%)
OIBDA margin %	33,1%	34,4%
Operating Income	9,176	11,815	(22%)
Operating margin %	12,1%	16,2%
Net Income	3,905	4,060	(4%)
% of revenue	5,2%	5,6%
Capital Expenditure	12,125	13,029	(7%)
% of revenue	16,0%	17,9%
Net debt	191,152	190,071	0,6%
Net debt/ annualised OIBDA	2,0	1,9
FCF	7,055	5,851	21%

 

NINE MONTHS OF 2017 FINANCIAL HIGHLIGHTS

• Revenue increased by 2% to RUB 221.2 billion compared to the nine months of 2016;

• OIBDA[9] decreased by 2% year-on-year to RUB 71.2 billion compared to the nine months of 2016;
• OIBDA margin of 32.2% compared to 33.4% in the nine months of 2016;
• Net profit increased by 14% to RUB 9.9 billion compared to the nine months of 2016;
• CAPEX[10] decreased by 10% year-on-year to RUB 42.3 billion (19.1% of revenue) from RUB 46.8 billion (21.6% of revenue) in the nine months of 2016;
• Free Cash Flow[11] (FCF) improved by RUB 5 billion and reached RUB 3.1 billion compared to RUB -2.3 billion the corresponding period of last year.

 

Key figures for the nine months of 2017, RUB mln

RUB million	9M 2017	9M 2016	% change, y-o-y
Revenue	221,216	217,039	2%
OIBDA	71,163	72,400	(2%)
OIBDA margin %	32,2%	33,4%
Operating Income	28,573	28,588	(0%)
Operating margin %	12,9%	13,2%
Net Income	9,881	8,663	14%
% of revenue	4,5%	4,0%
Capital Expenditure	42,290	46,797	(10%)
% of revenue	19,1%	21,6%
Net debt	191,152	190,071	0,6%
Net debt/ annualised OIBDA	2,0	1,9
FCF	3,102	(2,320)	-

 

 

Mikhail Oseevskiy, President of Rostelecom, commented:

We are delighted to demonstrate robust topline growth the second consecutive quarter. The main driver for the 4% increase in revenues was the continuous increase in the subscriber base in our core broadband and IPTV markets, growing ARPU for these services and the rapid progress of our cloud services. The double-digit revenue growth of our large on-going regional Smart City projects has also played a significant role to replace traditional voice services and to grow  our digital segment in general.

As far as the operating income before depreciation and amortization is concerned, we have reached stable results in the reporting quarter year-on-year.

The growing capabilities of our new business segments have had a major influence on our results. Underpinning this is a solid digital transformation strategy, which has been designed to clearly address the current challenges and priorities of both the telecom industry and the Russian economy in general. We are at the forefront of the shift to a digital economy which is opening up tremendous new opportunities during this fourth industrial revolution. We have entered a new economic environment, where success is underpinned by operational excellence and optimum use of resources and capacities. Rostelecom is securing a solid niche by helping its clients thrive in such an environment by providing a robust infrastructure base and service platforms for both the state and the private sector, which is providing improvements in life quality and conditions.

We are already moving in this direction and are putting a lot of our efforts to achieve this. In order to support technological start-ups, Rostelecom has launched a joint acceleration programme with the Internet Initiatives Development Fund (IIDF) and Skolkovo Foundation. The programme targets computer equipment and software development projects to develop virtual telecommunications networks and Data Processing Centers, as well as exciting ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars, drones.

The most important event in this business stream was the launch of a so-called "virtual digital sandbox" by Rostelecom - a platform for testing technological solutions within a real infrastructure. The biometric identification space has developed rapidly around the globe, and Russia is no exception. We are working on the development of a "National Biometric Platform" which will enable users to be identified simultaneously by their faces and voices, and we plan to introduce this service to the market by the end of 2018. Projects like this have enabled Rostelecom to make a quantum leap in the international scene as a technological leader which will underpin our sustainable growth.

 

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

"The impressive results in revenue in the third quarter of 2017 prove that we are delivering on our digital transformation plan to become a leading digital services provider. This strategy along with Russia's stable economic environment and positive prospects for business growth, stemming from growing digitalization trends across private and public segments enable us to confidently improve our future revenue forecast and maintain our outlook for the year in terms of OIBDA and CAPEX. We therefore expect to deliver revenue growth of up to 1.5%, and an increase in OIBDA within 1%. We also expect a CAPEX to Revenue ratio of approximately 18.5% excluding the implementation of the Bridging the Digital Divide project."

 

KEY OPERATING HIGHLIGHTS

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

      The B2C subscriber base grew by 4% to 11.9 million, whilst the number of subscribers connected by fibre optic increased by 10% year-on-year to 7.6 million (64% of the subscriber base).

2. The number of pay-TV subscribers grew by 5% year-on-year to 9.7 million households;

      The number of IPTV subscribers increased by 16% year-on-year to 4.7 million.

3. The number of MVNO subscribers reached 0.7 mln.
4. The number of local telephony subscribers decreased by 7% year-on-year to 19.5 million.

 

Number of subscribers (million):	3Q 2017	3Q 2016	% change, y-o-y	2Q 2017	% change, y-o-y
Broadband	12,7	12,3	3%	12,6	1%
Residential	11,9	11,5	4%	11,8	1%
Corporate clients	0,8	0,7	1%	0,8	(1%)
Pay TV	9,7	9,2	5%	9,5	1%
Incl. IPTV	4,7	4,0	16%	4,6	3%
MVNO subscribers	0,7	-	-	0,5	45%
Local telephony services	19,5	21,0	(7%)	19,9	(2%)

 

 

KEY EVENTS RELATING TO 3Q 2017 AND AFTER THE END OF THE REPORTING PERIOD

Business news

• Rostelecom continues to expand and improve its offering:

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

    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;

    The subscribers of the "Gaming" tariff plan can now enjoy a new exclusive frigate "Admiral Makarov" in the popular naval game "World of Warships"; the technical performance of the T-44-100 (P) tank has also been improved;

    New tariffs for "Interactive TV for businesses" and "TV for hotels" with PMS[12] 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 continues to enhance the fixed telephony proposition:

• thanks to its tariff options Rostelecom managed to connect approximately 260,000 subscribers to "Unlimited Russia" and "Unlimited Kazakhstan";
• 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 in sets", and a brand-new "For all" tariff option was designed and introduced for families. This helped the MVNO subscriber base grow to 0.7 mln users.

• Rostelecom keeps expanding the digital segment:

    Sales of Rostelecom's antivirus service to our residential clients grew by more than 2.5 times in the reporting period;

    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 RUB 1 billion of revenue;

    Rostelecom signed a Memorandum for the establishment of the National consortium of projects for digital technologies development and integration in urban infrastructure. This is being implemented within Russia's strategy to create 50 Smart Cities across the country which will be put in place in future;

    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 to start-ups ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars, drones and smart cars;

    Rostelecom and Publishing House Prosveshcheniye created a JV to combine capabilities to create and promote  a digital educational platform;

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

    Rostelecom, Skolkovo and Nokia have signed a cooperation agreement to create a pilot site for a new generation 5G network in Skolkovo;

    The roadmap for the National Biometric Platform development programme was approved;

• B2b services are now available via Rostelecom's retail network and air tickets are available for purchase;
• Enhancing further synergy with Tele2, negotiations with international operators led to higher termination rate to access Tele2 numbering capacity;
• To further monetize 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;
• During the third quarter, the Company accounted for more than 70%,[13] of net additions in the IPTV market and around 50%[14] in the broadband market;
• Rostelecom signed several large contracts, including agreements with Roseestr (The Federal Service for State Registration, Cadastre and Cartography), Judicial Department at the Supreme Court of the Russian Federation, Sberbank, Rosselkhozbank (Russian Agricultural Bank), Ministry of Telecom and Mass Communications of the Russian Federation and others;
• Rostelecom has tested the First Multivendor Transport SDN.

 

OPERATING REVIEW

Revenue analysis

Revenue structure by services

RUB million	3Q 2017	3Q 2016	% change, y-o-y	9M 2017	9M  2016	% change
Broadband	17, 571	16, 497	7%	52, 709	49, 501	6%
TV services	6, 828	5, 972	14%	20, 279	17, 312	17%
Fixed telephony	19, 132	21, 310	(10%)	59, 295	66, 380	(11%)
Wholesale services	19, 649	19, 143	3%	57, 321	57, 098	0%
Rent of channels	2, 302	2, 566	(10%)	7, 071	8, 056	(12%)
Interconnect and traffic transit services	8, 418	8, 122	4%	24, 120	24, 247	(1%)
VPN	5, 785	5, 290	9%	16, 565	15, 492	7%
Rent and maintenance of telecommunications infrastructure	3, 144	3, 166	(1%)	9, 565	9, 303	3%
VAS and cloud services	5,558	4,497	24%	14,157	11,846	20%
Other telecommunications services	4,299	3,324	29%	11,437	9,533	20%
Other non-telecommunications services	2, 577	2, 038	26%	6, 019	5, 370	12%
Total	75, 614	72, 782	4%	221, 216	217, 039	2%

 

Revenue structure by customer segments

RUB million	3Q 2017	3Q 2016	% change, y-o-y	9M 2017	9M 2016	% change
Residential customers	33, 387	32, 749	2%	101, 111	99, 444	2%
Corporate customers / Government customers	26, 971	25, 235	7%	76, 219	73, 564	4%
Operators	13, 947	13, 532	3%	40, 280	40, 647	(1%)
Other	1, 310	1, 265	4%	3, 606	3, 384	7%
Total	75, 614	72, 782	4%	221, 216	217, 039	2%

In the third quarter of 2017, revenue increased by 4% year-on-year to RUB 75.6 billion as a result of the following factors:

• a 7% increase in revenue from broadband services due to an increased number of subscribers and higher ARPU;
• a 14% increase in revenue from pay-TV services due to growth in the "Interactive TV" segment subscriber base and higher ARPU;
• a 24% increase in revenue from VAS and cloud services related to the "Smart City" projects and cloud services promotion;
• a 29% increase in revenue from other telecommunications services, with further revenue growth contribution from the sales of equipment and software within the services agreement with video surveillance projects, "Smart City" projects and others, as well as the MVNO project;

 

In the nine months of 2017, revenue increased by 2% year-on-year to RUB 221.2 billion as a result of the following factors:

• a 6% increase in revenue from broadband services due to an increased number of subscribers and higher ARPU;
• a 17% increase in revenue from pay-TV services due to growth in the "Interactive TV" segment subscriber base, an increase in the consumption of VoD services and higher ARPU;
• a 20% increase in revenue from VAS and cloud services related to the 'Smart City' projects and cloud services promotion;
• a 20% increase in revenue from other telecommunications services, with further revenue growth contribution from the sales of equipment and software within the services agreement with video surveillance projects, "Smart City" projects and others, as well as the MVNO project.

 

 

 

 

 

 

Operating income analysis

Operating expenses structure

RUB million	3Q 2017	3Q 2016	% change, y-o-y	9M 2017	9M 2017	% change, y-o-y
Personnel costs	(22, 504)	(21, 750)	3%	(68, 453)	(68, 474)	(0%)
Depreciation, Amortization and impairment losses	(13, 983)	(12, 766)	10%	(41, 184)	(42, 247)	(3%)
Interconnection charges	(13, 671)	(12, 241)	12%	(37, 993)	(36, 704)	4%
Materials, repairs and maintenance, utilities	(5, 795)	(5, 998)	(3%)	(17, 660)	(17, 304)	2%
Gain on the disposal of PPE and intangible assets	685	402	70%	1, 481	1, 363	9%
Reserves for bad debt expenses	(1, 121)	(935)	20%	(2, 618)	(2, 675)	(2%)
Other operating income	3, 223	2, 741	18%	9, 588	10, 266	(7%)
Other operating expenses	(13, 271)	(10, 419)	27%	(35, 804)	(32, 676)	10%
Total operating expenses	(66, 438)	(60, 966)	9%	(192, 643)	(188, 451)	2%

In the third quarter of 2017, operating expenses increased by 9% compared to the corresponding period of 2016 and amounted to RUB 66.4 billion due to the following factors:

• a 27% increase (by RUB 2.9 bln) in other operating expenses, mainly due to higher expenses within the State Automated System (SAS) "Justice", "Safe City" projects;
• a 12% increase (by RUB 1.4 bln) in interconnection charges, due to a higher expenditure on the content due to larger pay-TV subscriber basу as well as the growth in corresponding revenues;
• a 10% increase (by RUB 1.2 bln) in depreciation charges, mainly due to commissioning of new objects in the end of 2016;
• a 4% increase (by RUB 0.8 bln) in personnel costs, mainly due to two reasons: allowances within long-term incentive programme for the period of 1-3Q 2017 of RUB 1.4 bln as well as a personnel cost decrease (ex. long-term incentive programme) of RUB 0.6 bln;

In the nine months of 2017, the operating expenses increased by 2% compared to the corresponding period of 2016 and amounted to RUB 192.6 billion due to the following factors:

• a 10% increase (by RUB 3.1 bln) in other operating expenses, mainly due to higher expenses within the State Automated System (SAS) "Justice", "Smart City" projects;
• a 4% increase (by RUB 1.3 bln) in interconnection charges, due to a higher expenditure on the content due to larger pay-TV subscriber base;
• a 3% decrease (by RUB 1.0 bln) in depreciation, amortization and impairment losses, due to rescheduling of the useful life of the fixed assets;
• a 7% decrease (by RUB 0.7 bln) in other operating income, mainly due to the higher subscriber base in the first quarter of 2016 and the cancellation of certain obligations[15];

Operating profit decreased by 22% year-on-year to RUB 9.2 billion in the third quarter of 2017, compared to the corresponding period of 2016. On a nine-month basis, operating profit changed very moderately year-on-year to RUB 28.6 billion in the nine months of 2017.

OIBDA for the third quarter of 2017 changed moderately to RUB 25.0 billion. OIBDA for the nine months of 2017 decreased by 2% to RUB 71.2 billion. The third quarter OIBDA margin was 33.1% in the third quarter of 2017 compared to 34.4% in the corresponding period of 2016. The OIBDA margin was 32.2% in the nine months of 2017 compared to 33.4% in the corresponding period of 2016.

Net Income Analysis

In the third quarter of 2017, profit before tax reached RUB 5.1 billion compared to RUB 6.0 billion in the corresponding period in 2016. In the nine months of 2017, profit before tax increased by 14% to RUB 13.5 billion.

The dynamics in profit before tax in the third quarter of 2017 was mainly driven by the following factors:

• lower operating income related to non-monetary items (Option Programme allowance and depreciation and amortization);
• positive result from other investing and financial gains due to better results from revaluation of financial instruments;
• a decrease in losses from associates, mainly from the joint venture with Tele2 Russia;

Profit before tax in the nine months of 2017 was mainly influenced by the following factors:

• higher revenue from other investments and financial gains due to better results from the revaluation of financial instruments;
• a decrease in losses from associates, mainly from the joint venture with Tele2 Russia;

Income tax in the third quarter of 2017 decreased by 38% to RUB 1.2 billion. Income tax in the nine months of 2017 increased by 13% to RUB 3.8 billion. The income tax dynamics reflect the changes in profit before income tax.

The effective income tax rate was 24% in the third quarter of 2017, and 28% in the nine months of 2017 compared to the rate of 20% set by the Tax Code. The higher income tax rate in the third quarter of 2017 was driven by the non-deductible expenses for taxation purposes.

Net profit decreased by 4% in the third quarter of 2017 and totalled to RUB 3.9 billion, and by 14% to RUB 9.9 billion in the nine months of 2017.

Financial review

Consolidated net operating cash flow in the third quarter of 2017 decreased by 1%, to RUB 18.0 billion, compared to the corresponding period of 2016, and increased by 1% to RUB 42.8 billion in the nine months of 2017. This decrease in consolidated net operating cash flow in the third quarter of 2017 was partly caused by higher profit tax payments and lower profit tax refunds. 

Higher profit tax refunds in the nine months of 2017, lower profit tax payments as well as decrease in interest rate payments, had a positive effect on the Company's consolidated net operating cash flow in the nine months of 2017.

Consolidated cash outflow for investments in non-current assets decreased by 7% year-on-year to RUB 12.1 billion in the third quarter of 2017. Excluding the "Bridging the Digital Divide" project, cash outflow decreased by 11% year-on-year to RUB 11.0 billion (14.6% of revenue). Consolidated cash outflow for investments in non-current assets in the nine months of 2017 decreased by 10% year-on-year to RUB 42.3 billion. Excluding the "Bridging the Digital Divide" project, cash outflow for investments in non-current assets decreased by 7% year-on-year to RUB 39.9 billion (18.0% of revenue). These trends were driven 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 21% in the third quarter of 2017 and totalled RUB 7.1 billion. Consolidated free cash flow improved in the nine months of 2017 and totalled RUB 3.1 billion compared to RUB (2.3) billion in the corresponding period of 2016. The free cash flow dynamics were driven by a lower consolidated cash outflow for investments in non-current assets.

As at September 30, 2017, the Group's total debt increased by 8% compared to the beginning of the year, and amounted to RUB 201.4 billion. Over 99% of the Group's total debt was rouble-denominated as at September 30, 2017.

As at September 30, 2017, the Group's consolidated net debt amounted to RUB 191.2 billion. A net debt /OIBDA ratio stood at 2.0x for the past twelve months ended in third quarter of 2017.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 6.00 PM (Moscow), 5.00 PM (CET), 3.00 PM (UK) and 11.00 AM (NYT). To participate in the conference call, please dial:

Russia:  +7 495 213 1767

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

USA: + 1 719 325 2202

Confirmation Code (ENG): 8843752

Confirmation Code (RUS): 7556406

 

 

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=5503.

 

A replay of the conference call will be available on the Company's website http://www.rostelecom.ru/ir/results_and_presentations/financials/IFRS/2017/3/ in due course.

 

 

* * *

 

APPENDICES

1. Reconciliation of OIBDA
2. Statement of Comprehensive Income for the nine months of 2017
3. Statement of Cash Flows for the nine months of 2017
4. Statement of Financial Position for the nine months 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	3Q 2017	3Q 2016	% change, y-o-y	9M 2017	9M 2016	% change, y-o-y
Operating income	9, 176	11, 815	(22%)	28, 573	28, 588	(0%)
Plus amortisation	13, 983	12, 766	10%	41, 184	42, 247	(3%)
Plus non-cash expenses related to the long-term management incentive programme	1, 836	457	302%	1, 406	1, 565	(10%)
OIBDA	24, 995	25, 038	(0%)	71, 163	72, 400	(2%)
OIBDA margin, %	33,1%	34,4%		32,2%	33,4%

 

 

APPENDIX 2: Statement of Comprehensive Income for 9M 2017 (to be upd)

 

	Nine-month period ended 30 September (unaudited)
	2017	2016
Revenue	221,216	217,039
Operating expenses
Wages, salaries, other benefits and payroll taxes	(68,453)	(68,474)
Depreciation, amortization and impairment losses	(41,184)	(42,247)
Interconnection charges	(37,993)	(36,704)
Materials, utilities, repairs and maintenance	(17,660)	(17,304)
Gain on disposal of property, plant and equipment and intangible assets	1,481	1,363
Bad debt expense	(2,618)	(2,675)
Other operating income	9,588	10,266
Other operating expenses	(35,804)	(32,676)
Total operating expenses, net	(192,643)	(188,451)
Operating profit	28,573	28,588
Loss from associates and joint ventures	(2,399)	(5,004)
Finance costs	(13,535)	(12,724)
Other investing and financial gain, net	1,074	640
Foreign exchange (loss)/gain, net	(4)	547
Profit before income tax	13,509	12,047
Income tax expense	(3,828)	(3,384)
Profit for the period	9,881	8,663
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations, net of tax	(67)	(417)
Other comprehensive loss for the period, net of tax	(67)	(417)
Total comprehensive income for the period	9,814	8,246
Profit attributable to:
Equity holders of the Group	9,517	8,253
Non-controlling interests	364	410
Total comprehensive income attributable to:
Equity holders of the Group	9,446	7,834
Non-controlling interests	368	412
Earnings per share attributable to equity holders of the Group - basic (in roubles)	4.23	3.68
Earnings per share attributable to equity holders of the Group - diluted (in roubles)	4.19	3.64

 

 

 

APPENDIX 3: Statement of Cash Flows for 9M 2017 (to be upd)

 

	Nine-month period ended 30 September (unaudited)
	2017	2016
Cash flows from operating activities
Profit before tax	13,709	12,047
Adjustments to reconcile profit before tax to cash generated from operations:
Depreciation, amortization and impairment losses	41,184	42,247
Gain on disposal of property, plant and equipment and intangible assets	(1,481)	(1,363)
Bad debt expense	2,618	2,675
Loss from associates and joint ventures	2,399	5,004
Finance costs excluding finance costs on pension and other long-term social liabilities	13,441	12,366
Other investing and financial gain, net	(1,074)	(640)
Foreign exchange loss/(gain), net	4	(547)
Share-based motivation program	1,381	1,184
Changes in net working capital:
Increase in accounts receivable	(12,231)	(9,258)
(Decrease)/increase in employee benefits	(169)	128
Increase in inventories	(345)	(615)
Decrease in accounts payable, provisions and accrued expenses	(441)	(2,142)
Decrease in other liabilities	(2,279)	(1,932)
Cash generated from operations	56,716	59,154
Interest paid	(13,700)	(14,383)
Income tax refund	1,771	1,395
Income tax paid	(1,975)	(3,822)
Net cash from operating activities	42,812	42,344
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets	(42,290)	(46,797)
Proceeds from sale of property, plant and equipment and intangible assets	2,580	2,133
Acquisition of financial assets	(9,575)	(5,737)
Proceeds from disposals of financial assets	5,423	6,376
Interest received	491	827
Dividends received	6	20
Purchase of subsidiaries, net of cash acquired	(64)	(2,438)
Proceeds from disposals of subsidiaries, net of cash disposed	347	(1)
Acquisition of equity accounted investees	(30)	(778)
Net cash used in investing activities	(43,112)	(46,395)
Cash flows from financing activities
Sale of treasury shares	1	8
(Purchase) of treasury shares	(981)	-
Proceeds from bank and corporate loans	415,828	496,127
Repayment of bank and corporate loans	(391,919)	(492,822)
Proceeds from bonds	10,000	15,000
Repayment of bonds	(20,418)	(2,734)
Repayment of vendor financing payable	(7)	(7)
Proceeds from / (repayment of) other non-current financing liabilities	(5)
Options settlement repayments	(209)	(231)
Repayment of finance lease liabilities	(89)	(116)
Acquisition of non-controlling interest	(2,255)	-
Dividends paid to shareholders of the Group	(12,195)	(13,295)
Dividends paid to non-controlling shareholders of subsidiaries	(183)	(248)
Net cash used in financing activities	(2,432)	1,682
Effect of exchange rate changes on cash and cash equivalents	(182)	(369)
Net increase/(decrease) in cash and cash equivalents	(2,914)	(2,738)
Cash and cash equivalents at beginning of the period	4,257	7,165
Cash and cash equivalents at the end of the period	1,343	4,427

 

 

 

 

APPENDIX 4: Statement of Financial Position for 9M 2017

 

 

 

 

	30 September 2017 (unaudited)	31 December 2016
Assets
Non-current assets
Property, plant and equipment	338,056	343,667
Investment property	161	181
Goodwill and other intangible assets	59,312	61,209
Trade and other accounts receivable	9,293	7,053
Investments in associates and joint ventures	65,978	68,352
Other financial assets	1,443	797
Deferred tax assets	666	606
Other non-current assets	4,943	4,945
Total non-current assets	479,852	486,810
Current assets
Inventories	6,788	6,444
Trade and other accounts receivable	52,815	45,884
Prepayments	2,875	2,166
Prepaid income tax	478	1,957
Other financial assets	8,929	5,367
Cash and cash equivalents	1,343	4,257
Other current assets	2,620	2,151
Total current assets	75,848	68,226
Held for sale assets	921	646
Total assets	556,621	555,682
Equity and liabilities
Equity attributable to equity holders of the Group
Share capital	93	93
Additional paid-in capital	90	90
Treasury shares	(65,556)	(67,034)
Retained earnings and other reserves	306,202	311,167
Total equity attributable to equity holders of the Group	240, 829	244,316
Non-controlling interests	3,253	4,317
Total equity	244,082	248,633
Non-current liabilities
Loans and borrowings	145,131	124,510
Employee benefits	5,049	5,217
Deferred tax liabilities	38,766	36,165
Accounts payable, provisions and accrued expenses	1,713	1,095
Other non-current liabilities	5,856	6,002
Total non-current liabilities	196,515	172,989
Current liabilities
Loans and borrowings	56,293	62,595
Accounts payable, provisions and accrued expenses	53,099	64,072
Income tax payable	49	146
Other current liabilities	6,583	7,247
Total current liabilities	116,024	134,060
Total liabilities	312,539	307,049
Total equity and liabilities	556,621	555,682

Rostelecom (www.rostelecom.ru) is one of the largest national telecommunications operators in Russia and Europe. The Company 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 9.7 million pay-TV subscribers, over 4.7 million of which are subscribed to Rostelecom's IPTV services.

In the nine months of 2017, the Group generated RUB 221.2 billion of revenues, RUB 71.2 billion of OIBDA (32.2% of revenue) and RUB 9.9 billion of net income.

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

Rostelecom is an important innovator that provides solutions in the field of E-Government, cloud computing, healthcare, 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] Company's data, estimates from the analytical agency TMT Consulting

[4] Company's data, estimates from the analytical agency TMT Consulting

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

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

[7] 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

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

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

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

[11] 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

[12] Property management system

[13] Company data, estimates from the analytical agency TMT-consulting

[14] Company data, estimates from the analytical agency TMT-consulting

[15] On the JSC "RTcomm.ru" project to provide satellite internet service to Far East