Rostelecom's financial results for 9 months: record for revenue and profit

Финансовые результаты «Ростелекома» за 9 месяцев: рекорд по выручке и прибыли

Rostelecom (MCX: RTKM, RTKMP) — a large technology holding in the field of telecommunications and digital services. The company is one of the leaders in the Russian market of high-speed Internet access, pay tv, cloud technologies, mobile and home telephony, cybersecurity, data centers and e-government.

9 November Rostelecom released financial results based on the results of the first 9 months of 2021. Despite the slow growth of the subscriber base, the company has shown an increase in revenues in all key business segments and has shown record revenues and profits. Against the backdrop of strong financial results, management promises to increase dividends for this year to 6 Р, which will also prove to be a record payment in the history of the company.

In April, Rostelecom presented an updated strategy until 2025. Management plans, that the holding's revenue in 2025 will exceed 700 billion rubles, and net profit will double compared to 2020. I propose to consider the dynamics of the main indicators of the business, to understand, how achievable the goals are.

Disclaimer: if we write, that something has risen or fallen by X%, then by default we mean comparison with the report data for the same period last year, unless otherwise stated.

Revenue and profit

Rostelecom's revenue grew by 7% - up to 411.7 billion rubles, - which was a record result for this period. This was facilitated by an increase in revenue for mobile services by 11% - up to 143.6 billion rubles, fixed internet - on 9%, up to 72.7 billion rubles, and digital services - on 8%, up to 50.5 billion rubles. The worst result was shown by the home telephony segment, where, due to a reduction in the subscriber base, revenue continued to fall by 10% - up to 37 billion rubles.

The subscriber base in key segments of Rostelecom has generally shown weak dynamics in recent years. The number of Internet subscribers increased by less than 1% for the year, the number of Pay TV users grew by only 2%, and in the cellular segment there was even a quarterly subscriber outflow in the amount of 8%. This may indicate the saturation of the classic telecommunications business market and the limited growth potential in the segments of Internet access., Pay TV and mobile services.

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Judging by the priorities and the new strategy, management understands this too. In the coming years, the company expects outstripping growth in such promising areas, as cloud services and data centers, cybersecurity, telemedicine, development of digital services and services for the state and the population. In the classical directions, the management plans to rather keep the leading positions and increase the efficiency of the existing base..

Revenue structure by type of service

Mobile communication 34,9%
Fixed broadband internet 17,7%
Wholesale services 13,8%
Digital Services 12,2%
Telephony 9,0%
TV 7,2%
Other services 5,2%

34,9%

Dynamics of Rostelecom's subscriber base by 30 september, million people

2017 2018 2019 2020 2021
Private Internet users 11,9 12,0 12,0 12,3 12,4
Corporate clients - Internet users 0,9 1,0 1,0 1,1 1,1
Pay TV 9,7 10,1 10,3 10,7 10,9
Home telephony 19,5 17,8 16,0 14,5 12,9

The company's operating expenses increased by 7% - to 346,1 billion rubles, which is mainly due to the growth of depreciation charges, deployment of projects within the framework of the federal program "Digital Region", increased advertising and marketing costs, as well as repair and maintenance of infrastructure.

As a result, operating profit of Rostelecom grew by 7% and reached a record 65.7 billion rubles.

Net financial expenses of the business remained practically at the level of last year and amounted to 26.3 billion rubles. Income tax expense increased from 7,9 up to 10.1 billion rubles. As a result, the holding's net profit increased by 17% and amounted to 31.4 billion rubles, what has become a new all-time high for business.

Financial performance of Rostelecom for 9 months, billion rubles

Revenue Operating profit Net profit
2017 221,2 28,6 9,881
2018 233,0 27,6 12,7
2019 242,6 29,9 16,4
2020 383,9 61,7 26,9
2021 411,8 65,7 31,4

Investments

Rostelecom operates in one of the most technologically advanced and rapidly developing sectors of the economy. To stay competitive and adapt quickly, management has to invest significant amounts in the acquisition of new assets and improvement of infrastructure. Therefore, the size of capital investments in the last 5 years growing annually.

Following the first 9 months of 2021, it increased by 7% - up to a record 76.2 billion rubles. The total amount of investments for the current year is planned in the range of 110-115 billion rubles, including the development of fast-growing digital areas.

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It is worth noting, that in November Rostelecom acquired a leading developer in the field of digitalization of public administration - BFT-Holding LLC for 1.65 billion rubles. This will strengthen the position in the digital services and software market..

Capital investments excluding state programs for 9 months, billion rubles

2017 42,3
2018 45,9
2019 62,8
2020 71,0
2021 76,2

Debts

behind 9 months, Rostelecom's net debt grew by 39% - up to 502.5 billion rubles - against the backdrop of an increase in long-term loans and borrowings, as well as lease obligations.

The management calculates the level of debt burden according to the ratio "net debt / 12mOIBDA", where OIBDA is operating profit before depreciation, adjusted for non-cash expenditures under the long-term incentive program and non-state retirement benefits.

behind 9 months OIBDA increased by 13% - up to 169.7 billion rubles, - and the ratio "net debt / 12mOIBDA" from the beginning of the year increased from 1,9 up to 2.3 ×.

Debt dynamics at the end of the period, billion rubles

Net debt Net debt / OIBDA
2017 181,6 1,9×
2018 186,7 1,9×
2019 333,0 2,0×
2020 362,2 1,9×
9м2021 502,5 2,3×

Dividends

In April of this year, Rostelecom approved a new dividend policy, where changed the basis for calculating dividend payments. In the period from 2021 to 2023, the company will not rely on free cash flow when determining the amount of dividends, but for net profit. The total amount of dividends must be at least 50% from net profit, as it is spelled out in a new government decree for state-owned companies.

At the same time, the company seeks to pay at least 5 Р per ordinary share and annually increase the amount of payments by at least 5% given that, that the financial stability of the business is not threatened, and the level of debt burden according to the ratio "net debt / OIBDA" on an annualized basis does not exceed 3 ×.

In recent years, Rostelecom has paid 5 P per share of each type, but in a press release following 3 quarter of 2021, the President of PJSC "Rostelecom" Mikhail Oseevsky said, that strong financial results of the business will allow increasing dividend payments for 2021 to 6 Р.

Amount of dividends per ordinary and preference share in rubles

2016 5,39 Р
2017 5,05 Р
2018 5 Р
2019 5 Р
2020 5 Р
2021 6 Р

What is the bottom line

In the last 5 years, Rostelecom has significantly reduced its dependence on the home telephony market. If in 2016 the segment brought the highest income to the company, then according to the results 9 months of 2021, it accounts for only 9% proceeds.

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The company managed to compensate for the outflow of subscribers from wire telephony by attracting customers to the Internet, pay TV and mobile telephony. But the weak dynamics of the subscriber base suggests that, that in these markets there was saturation and the potential for further growth is limited by high competition among telecommunications companies.

In part, revenue growth in classic telecommunications services will support the upcoming tariff growth amid rising inflation, but management needs to look for new promising areas of development, to maintain the same business growth rate. The most promising areas in terms of the potential for increasing revenue in the coming years are cloud technologies and data centers., cybersecurity, digital services, services in the field of housing and communal services and public administration, as well as telemedicine.

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