Financial Overview

Key financial highlights

Rostelecom’s financial performance in 2018 is testament to the Company’s stability and demonstrates good prospects for further development. The digital segment expansion and internal efficiency improvement proved to be the key drivers of the Group’s performance.

In 2018, Rostelecom’s revenue rose by 5% to RUB 320.2 billion, OIBDA increased by 4% to RUB 100.9 billion, and net profit grew by 7% to RUB 15.0 billion. Digital service development was the key driver of financial growth. Digital services grew by 7 pp and accounted for 55% of the Company’s revenue.

ItemTaking into account the impact of the new IFRS standards. The Group initially adopted IFRS 15 and IFRS 16 using the modified retrospective approach. Under this approach, the comparative information is not restated. The Group applied IFRS 9 from 1 January 2018 and has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9. 2016 2017 2018 2018 vs 2017, %
Revenue, RUB m 297,446 305,329 320,239 + 5
OIBDA, RUB m 96,771 96,688 100,900 + 4
% of revenue 32.5 31.7 31.5 –
Operating profit, RUB m 39,836 37,885 35,800 – 6
% of revenue 13.4 12.4 11.2 –
Net profit, RUB m 12,249 14,050 15,012 + 7
% of revenue 4.1 4.6 4.7 –
CAPEX, RUB m 61,857 60,752 73,179 + 20
% of revenue 20.8 19.9 22.9 –
Net debt, RUB m 177,481 181,594 186,712 + 3
Net debt/OIBDA 1.8 1.9 1.9 –
FCF,Starting from 2018, free cash flow is calculated based on the statement of cash flows as the net cash from operating activities, net of CAPEX, plus proceeds from sale of property, plant and equipment and intangible assets, plus interest received. Free cash flow for 2017 and 2016 is presented as reported in the corresponding period. RUB m 13,298 20,385 14,751 – RUB 5,634 m
Revenue breakdown, %
Revenue breakdown
Revenue, RUB m
Revenue
Net profit, RUB m, and net profit margin, %
Net profit
OIBDA, RUB m, and OIBDA margin, %
OIBDA
Free cash flow (FCF), RUB m
Free cash flow (FCF)
Operating expenses, RUB m
Operating expenses
Net debt, RUB m, and net debt/OIBDA
Net debt
Operating profit, RUB m
Operating profit
CAPEX, RUB m and % of revenue
CAPEX

Revenue breakdown

In 2018, Rostelecom’s revenue grew by 5% to RUB 320.2 billion. The B2C and B2B/G segments were the main contributors to the revenue, accounting for 43% and 38% of the revenue respectively. B2B/G demonstrated the highest growth rate with an 11% revenue growth, while other segments experienced almost no revenue growth.

Broadband (RUB 9.3 billion), TV (RUB 7.1 billion), and VAS and cloud services (RUB 10.9 billion) were the biggest contributors to the revenue growth by type of service. VAS and cloud services showed the highest year-on-year growth rate of 42%. Rostelecom continued reducing the share of fixed-line services in the Company’s total revenue – in 2018, it accounted for less than 22%.

In 2018, the following drivers contributed to revenue growth:

  • Development of VAS and cloud services including the Smart City project, video surveillance, promotion of cloud services and data centres
  • Broadband promotion: subscriber base expansion and ARPU growth, internet access for hospitals and out-patient clinics
  • Pay TV promotion, Interactive TV subscriber base expansion and ARPU growth
  • Development of wholesale services
Revenue by segment, RUB m
Segment 2016 2017 2018 2018 vs 2017, %
B2C 133,917 136,304 137,745 + 1
B2B/G 102,195 109,209 121,509 + 11
B2O 56,851 55,061 56,389 + 2
Other revenue 4,483 4,755 4,596 – 3
Revenue by type of service, RUB m
Type of service 2016 2017 2018 2018 vs 2017, %
Broadband 66,771 70,785 80,042 + 13
TV services 23,599 27,348 34,464 + 26
Fixed-line telephony 87,703 78,445 69,983 – 11
Wholesale services: 79,010 77,525 79,593 + 3
Lease of channels 10,538 9,437 9,582 + 2
Interconnection and traffic transfer 35,102 33,253 33,256 0
VPN 20,823 21,981 23,433 + 7
Lease and maintenance of telecommunications infrastructure 12,546 12,855 13,322 + 4
VAS and cloud services 18,245 26,013 36,902 + 42
Other telecommunications services 14,352 16,854 12,076 – 28
Other non-telecommunications services 7,767 8,359 7,179 – 14

Operating expenses

In 2018, Rostelecom’s operating expenses grew by 6% to RUB 284.4 billion. All of Rostelecom’s operating expenses increased, with interconnection charges demonstrating the highest growth of 10%.

The following key drivers impacted operating expenses in 2018:

  • For interconnection charges – growing channel lease and traffic transfer expenses accompanied by higher income, including under contracts with major businesses and government organisations, as well as from network infrastructure synergies with Tele2 Russia
  • For other operating expenses – video surveillance during elections, equipment delivery as part of various B2B/G projects, and growing service promotion expenses
  • Option programme expansion
Operating expenses, RUB m
Operating expenses 2016 2017 2018 2018 vs 2017, %
Personnel costs (90,340) (93,381) (97,350) + 4
Depreciation, amortisation, and impairment losses (55,589) (56,628) (60,329) + 7
Interconnection charges (52,161) (52,762) (58,293) + 10
Materials, repairs and maintenance, utilities (24,917) (25,926) (26,183) + 1
Gain on disposal of PPE and intangible assets 4,556 5,344 7,184 + 34
Impairment loss of financial assets measured at amortised cost (2,775) (2,776) (4,057) + 46
Other operating income 12,948 13,444 13,579 + 1
Other operating expenses (49,332) (54,759) (58,990) + 8
Operating expenses (257,610) (267,444) (284,439) + 6

OIBDA

In 2018, Rostelecom’s OIBDA grew by 4% to RUB 100.9 billion. In the reporting period, Rostelecom changed OIBDA calculation methodology by excluding expenses related to private pension fund programme from Q3 2018 onwards.

OIBDA breakdown, RUB m
Item 2016 2017 2018 2018 vs 2017, %
Operating profit 39,836 37,885 35,800 – 6
Add: depreciation 55,589 56,628 60,329 + 7
Add: non-cash expense under the long-term incentive programme 1,347 2,344 3,638 + 55
Add: expense under the private pension fund programme – (170) 1,133 –
OIBDAOIBDA is not an indicator calculated under US GAAP or IFRS. The Company calculates OIBDA as operating pro􀄛t before depreciation and non-cash expenses. 96,771 96,688 100,900 + 4
OIBDA/revenue, % 32.5 31.7 31.5 – 0.2 pp

Debt

By the end of 2018, Rostelecom’s total debt increased by 2.3% to RUB 204.3 billion. Rostelecom’s net debt was up 3% to RUB 186.7 billion, while the net debt to OIBDA ratio remained flat at 1.9. Over 99% of the Company’s total debt is rouble-denominated.

Key metrics
2016 2017 2018 2018 vs 2017, %
Total debt, RUB m 187,105 191,372 204,279 + 7
Net debt, RUB m 177,481 181,594 186,712 + 3
Net debt / OIBDA 1.8 1.9 1.9 –
Debt breakdown by maturity, %
Debt breakdown by maturity
Debt breakdown by instrument, excluding interest, %
Debt breakdown by instrument, excluding interest

Outlook

We expect our key financial indicators to grow, which allows us to set the following goals for 2019:

  • Revenue and OIBDA growth of at least 2.5%
  • CAPEX in the range of RUB 65 billion to RUB 70 billion, including RUB 7 billion of regulatory CAPEX and excluding the implementation of government programmes