shaping digital russia - rt.ru · source: company estimates, cisco, idc, mckinsey global institute...
TRANSCRIPT
SHAPING
DIGITAL RUSSIA
Investor Presentation based on 1Q 2016
2
Leading Provider of Integrated Digital Services
Overview
• player across most segments of telecom and
digital services
• Largest fixed line network in Russia with
unmatched access
• mln households passed by fibre, 46 mln
households passed in total
• mln broadband subscribers with over 50%
connected by fibre
• Exposure to high-growth potential markets such
as cloud services, TV services, data centre,
Geodata and Industrial Internet of Things
• Exposure to Russian mobile data market via JV
with Tele2 Russia (#4 mobile operator in Russia)
Key Financials
(1) Ordinary share capital structure as of March 31, 2016. Treasury shares are represented by shares owned by Mobitel.
State stake53%
Treasury shares15%
Other shareholders
(free float)32%
Shareholder Structure (1)
State Property
Agency 48.7%
4.3%
#1
31.1
11.9* Adjusted for a subscriber base audit in 1H15.
RUB bln FY 2014 FY 2015 YoY 1Q 2015 1Q 2016 YoY
Subscribers (mln)
- Broadband 11.2 11.6 5.6% * 11.2 11.9 5.9%
- IPTV 2.7 3.4 27.5% * 2.9 3.7 27.5%
- Telephony 24.4 22.1 -8.4% * 23.7 21.7 -8.3%
Households Passed by Fibre 6.6 4.5 0.9 0.5
- Total 26.1 30.7 27.0 31.1
Revenue 298.9 297.4 -0.5% 71.7 72.5 1.1%
Content & Digital Sevices
revenue106.7 117.2 9.8% 26.9 30.2 11.9%
OIBDA 102.5 100.8 -1.6% 24.5 24.7 0.7%
OIBDA margin 34.3% 33.9% -0.4 pp 34.2% 34.0% -0.2 pp
Free Cash Flow 27.3 22.0 -19.6% 0.4 -2.4 na
3
Our Progress
Target
Results
Technological
leadership in
IP networks
Differentiated
offerings
Best-in-class
customer
service
Organisational
transformation
Efficiency
improvement
31.1 mln HH
passed by
fibre as of
1Q 2016
33 mln HH
passed by
fibre by
2016YE
Procurement
optimisation
>RUB 2.5 mln
of revenue per
employee
in 2018
RUB 42 bln
procurement
savings
RUB 2.0 mln
revenue per
employee
Centralisation of
functions
Customer-oriented approach
Back-office
function
centralisation
Transition to
segment-
based model
SLA
improve-
ment
Self-
service
platforms
2x decrease in
repeated call share
Share of distant
channels: 25%/30%
in sales/care
Multiplay
New
products
pipeline
3Play, OTT video
& geodata services
launched
MVNO with
T2-RTK soon
4
Value Creating Transactions
Synergies/ Rationale Completed
• Acquisition of Data Intelligence expertise
• Product platform for banking and other retail
businesses
4Q 2015
IQMen –
Business
IntelligenceControlling Stake
Acquisition
1Q 2015SafeData
Controlling Stake
Acquisition
• Creation of #1 player on the Russian pay TV
content production market
• Attractive Russian Pay TV content market profile
• Access to exclusive library of content
• International expansion opportunities
2014-2015Media JV with
VGTRK
Mobile JV
with Tele2
Russia
• Nationwide operations with minimum overlap
• Deleveraging & deconsolidation of mobile Capex
• Dedicated management team and best in class
cost management culture
• F2M convergence upside through MVNO
2014
• Scaling up in Russian data storage market
• Leader in CDN & IX
• Complementary to our core business and easy to
upsell B2B/B2G
Exposure to attractive markets
Fundamentals to capture market opportunities
Operational efficiency upside
Incentivisedmanagement
Progressive dividend policy
5
Investment Highlights
6
Our Vision 2020
Sustainability of existing business & efficiency
improvement
Production System transformation
(management system, business processes, corporate culture)
Resources (people, network, technologies)
Long-term
drivers
• New business opportunities: digital content, services &
platforms
• Development of proprietary expertise & acquisition of existing
playersNew
businesses
Increase in market share & ARPU (VAS)
Medium-term
drivers
• MVNO with Tele2 (convergence & bundling)
• “Smart home” & “Safe home”
• Data-centres & cloud solutions
• Geodata services
The source of
FCF for
transformation
& growth
• Operational Efficiency Improvement Program
• Optimisation of network maintenance in rural
areas and small towns
• Accelerated monetisation of real estate
7
Transformation to a Digital Service Provider by 2020to Offset Saturation in Traditional Segments
CA
GR
20
15
-20
20
, %
Source: iKS Consulting, TMT-Consulting, Company estimates
Share in Rostelecom’s Revenue in 2015 & 2020, %
2015 2020
Market Size, RUB bln
25%
10%
7%
16%
21%
22%
8
Transformation of Revenue Structure
21%
7%
7%
5%
33%
28%
Broadband
Pay TV
VPN
VAS&Clouds
Telephony
Other
2015 2020F
Content & Digital Services
~40% ~60%
9
Solid Growth in Video-products
Pay-TV (mln subs)
IPTV (mln subs)
ARPU
8.0 8.1 8.2 8.48.6 8.8
159
176 181 182189
201
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
+9% YoY
2.72.9 3.0 3.1
3.43.7
223
248 253 252265 274
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
+27% YoY
41%
share
of IPTV
subs
Market Position
30%
18%
69%
17%
#1
#2(1)
#1
#2(1)
(1) Source: TMT-Consulting estimates for 1Q16, Company data. Players #2 in terms of revenue shares are the following: Tricolor TV for Pay TV and VimpelCom for IPTV.
(2) Source: Telecom Daily.
#1 in Pay TV
net additions
with ~50%
share (2)
Video-on-Demand
1,5971,722
88 92
1Q15 1Q16
Transactions
Transactions, ths
Revenue per view, RUB
+8% YoY
78
147
141 146
1Q15 1Q16
Subscriptions
Subscriptions, ths
Monthly revenue per subscription, RUB
+89% YoY
Pay TV
IPTV
Rostelecom owns 41% share in JV
Portfolio of 18 thematic TV channels
Expansion to Latin America, India & China
10
Leading Content Aggregator on the Russian
Market
Unique content proposition: >220 channels, incl. 58 in HD
Basic incl. HD
channels
Pa
ck
ag
es
Additional packages: Viasat Premium HD,
Amedia Premium, Your Ideal HD, PLUS Football,
Our Football, Your Cinema, Adult, Your Premiere
3 exclusive
channels, incl.
Paramount
ChannelIncrease up to 25-
26 HD channels
Launch of fully
HD package
soon
Direct contracts with all major Hollywood studiosDirect contracts with the key international
independent producers
Digital Television: Media JV with VGTRK
Leading Pay TV content provider in Russia with international presence Monthly audience reach, Pay TV channels, % (Russia 4 +)
Stable internet connection from any provider is
enough
Internet access at a minimum 1.6 Mb/s bandwidth from
any provider
Easy to acquire
OTT Box available for purchase online and offline
through various retail channels
Easy to install
No technician required, easy self-instalment
Diversified packages
Three tiers of packages available (from 320 roubles
/month)
Premium content, best titles and free VOD library
Free VoD library and best in class additional features
11
OTT Video: Interactive TV 2.0Unique Offering in a Rapidly Growing Market
Rapidly growing market
(c.15% anticipated 2015-
2020 CAGR)
Complements our wider
TV services offering
supporting Rostelecom
leading position in Pay-TV
Works with xDSL networks
Low subscriber
acquisition costs
Attractive for customers… …and Beneficial for Rostelecom
12
Data CentresStrong Position Providing Basis for Solid Growth
(1) Source: TMT-Consulting estimates. Player #2 in terms of racks is DataLine.
(2) Source: Company data.
(3) Source: iKS-Consulting, Company estimates.
Rostelecom’s Portfolio: Number of racks (2)
Rostelecom is the Largest Player in the Market (1)
Data Centre
Points of Presence
Juniper T640 / 1600 Node
Nx40G
Nx10G
London
International Segment
Stockholm
Frankfurt Amsterdam
Kaliningrad
Saint-Petersburg
MoscowSmolensk
TulaRostov Kazan
Samara
Elista
KrasnodarEkaterinburg
Novosibirsk
Khabarovsk
Rostelecom’s Portfolio: Infrastructure Overview
Data Centers Market Forecast in Russia (RUB bln) (3)
17% CAGR 2015–2020
15
33
2015F 2020F
14.3% 13.7%
#1
#2(2)
2,100
2,800
3,900
2013 2014 20152015
13
Cloud ServicesMassive Opportunity Ahead
Source: Company data, iKS-Consulting.
Cloud Services Market Forecast in Russia
(RUB bln)
Full Lineup of Cloud Solutions…
…Available under All Deployment Models…
Private cloud
Public cloud
Community cloud
Hybrid cloud
…Providing Unique Advantages to Users
Self-service
Available to access from different devices
Measurability of IT services
Multitenant pool of resources
16
44
2015F 2020F
22% CAGR 2015–2020
National Cloud
Platform
SaaS
PaaS
IaaS
High Security of Data Processing Centers
Information Security
• Virtual private or private
clouds without internet
access
• Registration and operations
accounting
• Cryptographic protection
• Proactive intrusion
prevention
• VPN, firewall
• Anti-virus
• DDoS protection
Physical Security
• Own DCPs and networks
• Detached zone, special for
cloud platform
• Control and access
management to server
• Security and fire alarms
• Automatic fire extinguishing
• CCTV
20% market
share in
IaaS market
2015
14
GeodataEntering High Growth Potential Market
Geodata Market Forecast in Russia (RUB bln)
Rostelecom is Strongly Positioned to Develop Leading Geodata
Service Offering …
…To Satisfy Growing Needs from Customers of Various Industries
Geographic Information
Systems and Geoservices
Navigation Information
GLONASS-based Services
Geodata-based
Marketing Services
Forestry Transportation Telecom Agriculture
Retail / FI Utilities Public sector
15% CAGR 2015–2020
Source: Company data, JSC Roskartographia
46
91
2015F 2020F2015
15
Industrial Internet of ThingsRostelecom Being at the Forefront of the Development
IIoT Infrastructure
Source: Company estimates, Cisco, IDC, McKinsey Global Institute
Percentage of Manual Processes that Could be
Automated through the Use of IIoT
20%
30%
40%
50%
60%
Manufa
ctu
ring
Pu
blic
se
cto
r
Tra
nsp
ort
atio
n
Reta
il
Oil
& G
as
Utilit
ies
Me
tals
& M
inin
g
Connected equipment
11
126
2015F 2020F
IIoT Market Forecast in Russia (RUB bln)
63% CAGR 2015–2020
Data
collection
Sensors, meters, actuators,
controllers
Local networks (Ethernet,
WiFi, ZigBee, Bluetooth)
Switches & routers
Data transfer
IIoT platformData storage
Data analytics
Device management
Applications
Largest superfast
network
Data-centres & Big
Data
Rostelecom is
well positioned to
capture market
opportunities2015
Rostelecom45.0%
VTB,27.5%
Other investors
27.5%65regions
covered
Source: AC&M Consulting
Financial Highlights
16
Mobile Joint Venture with Tele2 Russia
Shareholder Structure Corporate Governance
Board of Directors 4/11
Audit Committee
Nomination &
Remuneration Committee
Strategy Committee
Investments Committee
2/3
1/3
2/3
1/3
Ro
ste
lec
om
rep
res
en
tativ
es
Market Position in 2015
Including
1.3 mln
subs in
Moscow
61regions with 3G/4G
launched
since November 2014
31%
15%
#1
#4
Coverage
RUB bln 2014 2015 YoY 1Q 2015 1Q 2016 YoY
Subscribers (mln) 35.1 37.3 6% 34.9 38.4 10%
Revenue 87.4 94.6 8% 23.1 24.3 5%
OIBDA 25.0 23.4 -6% 5.2 3.0 -42%
OIBDA margin 28.6% 24.7% -3.9 pp 22.5% 12.3% -10.2 pp
CAPEX 13.2 39.0 195% 9.6 7.7 -20%
CAPEX / Revenue 15.1% 41.2% 26.1 pp 41.6% 31.7% -9.9 pp
17
Ambitions for 2020: Fueling Shareholder
Returns
Revenue
OIBDA
CAPEX /
Revenue*
FCF
improvementDividends
CAGR
1-2%
CAGR
+3%
3-4 pp
improvement
* Excluding Bridging Digital Divide project.
18
Largest Network with Growing
Fibre Penetration
Submarine Cable
Magadan-
Sakhalin-Kamchatka
Northern
Optical
Stream
Bridging Digital Divide Widest backbone
network in Russia
Coverage of ~46 mln
households
DWDM/SDH transport
network
~ 31 mln households
passed by fibre
IP/MPLS: 5-level of
SLA profile, ~12 Tb/s
capacity, ~1.5 Tb/s
international uplinks
53
19
Dense area
PON/FTTB
Total HH in Russia
Rural area
sponsored under BDD
project
Fibre + Public WiFi
Balanced Approach to Last-Mile Upgrade
We use different
last-mile solutions
to meet our
customer needs
and ensure
efficiency of our
investments.
Rural area
xDSL + wireless
46
Total HH Rostelecom
33>4
20
Bridging the Digital Divide in Russia
Note: Operating income is state-funded and is reported under “other operating income”.
…with Significant Upside Potential for RostelecomOverview Envisaged Influence
Upselling households for personal BB
access and other services
(on a commercial basis)
Opportunity to accelerate the upgrade
of existing networks from copper to
fibre and expand its footprint through
covering nearby towns
Opportunity to accelerate the upgrade
of existing networks from copper to
fibre reducing the maintenance costs
Operational
Efficiency
Revenue
Network
Coverage
Revenue
Strong Government
Commitment
Nation Wide Scale
Rostelecom is Exclusive Operator and
will Own Network
Upside Potential for Rostelecom
NPV positive, IRR > WACC
Rostelecom is to
construct fibre-
optics and organize
and maintain
collective Internet
access points
Ability to provide
VAS on commercial
basis to households
A Nation Wide Project to Provide High Speed Internet
Access to Rural Population….
….. and Sponsored by the Government…(RUB bln, Total for 2014-2024)
70
168
70
Capex + Opex Operating Income
Capex
Opex
Fibre network to
construct: 200th km
Rural settlements to
reach: c.13,800
~
~
2.8
5.6
6.6
4.5 0.5
13.9
19.5
26.1
30.7 31.1
2012 2013 2014 2015 1Q2016
Passed during the period
21
Leading Broadband Offering Driven by Best
Network
Growth in Network Capacity
(IP / MPLS, Tb/s)
Expansion of Fibre Coverage
(mln households)
Maintaining Leading Positions in the Market
Steep Growth of Fibre Subscriber
Base (mln subs)…… as a Part of Total Broadband (mln subs)
ARPU
#1
#2(1)
B2C B2B
#1
#2(1)
3.5
7.4
10.6
12.3
2012 2013 2014 2015
38%
9%
34%
11%
11.2 11.2 11.2 11.411.6
11.9
452 458 457446
455 454
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
+6% YoY
5.2 5.4 5.6 5.96.3
6.6
422 424 421409
423 423
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
+23% YoY
(1) Source: TMT-Consulting estimates for 1Q16, Company data. Players #2 in terms of revenue shares are the following: ER-Telecom for Broadband B2C and MTS for Broadband B2B.
(2) Source: TMT-Consulting.
#1 in
net additions
with 54%
share (2)
22
RUB bln FY 2014 FY 2015 YoY 1Q 2015 1Q 2016 YoY
Content & Digital Revenue 106.7 117.2 9.8% 26.9 30.2 11.9%
Broadband 60.4 63.9 5.8% 15.7 16.4 4.5%
TV 15.2 19.4 27.0% 4.6 5.6 22.5%
VAS & Clouds 11.4 14.2 25.0% 2.1 3.1 50.1%
VPN 19.7 19.7 0.0% 4.6 5.0 9.5%
Fixed Telephony 109.7 99.1 -9.7% 25.8 22.9 -11.3%
Wholesale Services (ex. VPN) 58.2 58.6 0.6% 13.9 14.8 6.3%
Other 24.3 22.5 -7.5% 5.1 4.7 -8.0%
Total Revenue 298.9 297.4 -0.5% 71.7 72.5 1.1%
23%
8%
4%
7%32%
20%
6%
BroadbandInternet
TV services
VAS & Clouds
VPN
Fixed telephony
Wholesaleservices (ex. VPN)
Other
Growth in Content & Digital Services Driven by Pay TV and VAS & Cloud services
FY 2015 & 1Q 2016 Revenue Key Drivers Revenue Breakdown, %
Content & Digital Services share
Double Play (BB + IPTV) Share in Additions
61%
68%
1Q15 1Q16
22%
6%
3%6%
36%
19%
7%
1Q161Q15
38% 42%
53.862.7
18.0%
21.1%
2014 2015
23
Financial Results FY 2015 & 1Q 2016
Revenue (RUB bln)
Net Income (RUB bln) & Net Income margin (%) CAPEX (RUB bln) & CAPEX / Revenue (%)
OIBDA (RUB bln) & OIBDA margin (%)
* The revenue, OIBDA, CAPEX and Net Income data are presented for continuing operations.
298.9 297.4
2014 2015
-0.5% YoY
102.5 100.8
34.3% 33.9%
2014 2015
13.2 14.4
4.4%4.8%
2014 2015
71.7 72.1 72.581.0
72.5
1Q15 2Q15 3Q15 4Q15 1Q16
+1.1% YoY
24.5 25.4 25.2 25.8 24.7
34.2% 35.1% 34.7%31.9%
34.0%
1Q15 2Q15 3Q15 4Q15 1Q16
16.3
11.116.0
19.3 19.0
22.7%
15.4%
22.0%23.9%
26.2%
1Q15 2Q15 3Q15 4Q15 1Q16
BDD2.7
2.1
6.1
2.0
4.13.0
2.9%
8.5%
2.8%
5.1%
4.1%
1Q15 2Q15 3Q15 4Q15 1Q16
3.2
24
Stable Leverage & Cash Flow Profile
by Maturity (excl. %), RUB bln by Rate by Currency
Net Debt (RUB bln) & Net Debt/OIBDA
Total Debt Structure
Total Debt (RUB bln)FCF Analysis (RUB bln)
by Type
171.3 168.2 174.9 173.7 176.5
1.7 1.71.7 1.7 1.7
1Q15 2Q15 3Q15 4Q15 1Q16
186.7 188.3 192.9 186.6 186.5
1Q15 2Q15 3Q15 4Q15 1Q16
0.4
6.1 6.4
9.1
-2.4
1Q15 2Q15 3Q15 4Q15 1Q16
77%
18%
5%
Loans Bonds Other
99%
1%
RUB Other
71%
8%
21%
Fixed rate Floating rate Key rate
32.3
61.452.8
1.720.0 17.5
2Q-4Q2016
2017 2018 2019 2020 2021 andonwards
25
Cost Control & Strong OIBDA Margin
Operating Expenses Dynamics
*Not including items excluded from OIBDA calculation: D&A and share-based compensation plan expenses.
Revenue Per Employee (RUB mln) &
Number of Employees (ths)Operational Efficiency Improvement Program
8.5
11.0
16.5
19.0
Gap 2013 2015 2016 2017 2018
Target: reduce Cost
Gap from 36% to 20-25% in
2018
RUB bln FY 2014 FY 2015 YoY 1Q 2015 1Q 2016 YoY
Wages, salaries, other benefits 88.1 89.4 1.5% 23.9 23.4 -2.3%
Interconnection charges 47.4 49.8 5.1% 11.3 12.8 13.6%
Materials, utilities, repair &
maintenance25.8 25.1 -2.7% 5.9 5.9 -0.6%
Other operating (income) /
expenses35.1 32.1 -8.5% 6.0 5.7 -5.5%
Operating expenses* 196.5 196.5 0.0% 47.2 47.8 1.3%
24.50.8 0.6 -1.5
0.04 0.3 24.7
1Q15 Revenue Payroll Interconnect Materials& Repair
Otherincome/
expenses
1Q16
1Q 2016 OIBDA (RUB bln) & OIBDA margin (%)
+0.7% YoY
&
-0.2 pp margin
34.2% 0.7% 0.8% -2.1% 0.0% 0.5% 34.0%
173.9165.1
158.8149.9
1.7 1.81.9
2.0
2012 2013 2014 2015
26
2016 Outlook
Revenue +1-2%
OIBDA Stable
CAPEX /
Sales*<19%
By providing this outlook, we reserve the right to revise or update it at any
subsequent period in case of events which, in our opinion, can increase uncertainty,
including but not limited to regulatory decisions, currency devaluation, consumer
spending contraction, budget cuts, or any other macroeconomic events and
decisions which can affect the Company’s actual results.
* Excluding BDD project Capex because income from
the BDD project is not included into Revenue line of
P&L (included in Other operating income).
Reiterated
Reiterated
Reiterated
27
Committed Management Team with Significant
TMT Experience
• President, CEO
• Joined the Company in March, 2013
• Over 15 years experience in Telecom & Media
• Previously CEO of National Telecommunications, largest
cable TV & IS provider in Russia
Sergey Kalugin
• Senior Vice President, Strategy & Media
• Joined the Company in May, 2013
• Over 10 years experience in Telecom & Media
• Previously Deputy CEO of National Telecommunications
Maria FlorentievaLarisa Tkachuk
• Senior Vice President, COO
• Joined the Company in April, 2013
• Over 14 years of Telecom & Media experience
• Previously Sales & Marketing Director at Megafon
Alexander Tseytlin
• Senior Vice President, Network & IT
• Joined the Company in May, 2013
• Over 30 years of Telecom experience
• Previously CEO at Mostelecom, Moscow incumbent cable
TV company
• Senior Vice President, CFO
• Joined the Company in May, 2013
• Over 20 years of TMT experience, over 10 years at CFO
position
• Previously CFO of Megafon and Tele2 Russia.
Kai-Uwe Mehlhorn
• Senior Vice President, HR
• Joined the Company in 2001
• Over 14 years experience in Organizational Development
and Human Resources
• Previously worked as HR Manager at Sheremetyevo
International Airport
Galina Rysakova
Management Board
28
Increasing Shareholder Remuneration through
Improved Dividend Policy 2016-2018
≥ 75% 45RUB bln
of Free Cash Flow In total
for 3 years
&Progressive
YoYBut not
less than
Financial
Results
29
Attachment
P&L Statement
30
Bln RUR 1Q 2016Growth
YoY - 1Q1Q 2015 2Q 2015 3Q 2015 4Q 2015 2015
Revenue (see breakdown below) 72.464 1.1% 71.710 72.130 72.496 81.019 297.355
Operating expenses (63.962) 2.4% (62.441) (62.015) (62.551) (71.761) (258.768)
Wages, salaries, other benefits and payroll taxes (23.927) -1.6% (24.322) (22.773) (21.416) (22.570) (91.081)
including stock option program (0.537) 43.1% (0.375) (0.452) (0.411) (0.417) (1.654)
Depreciation, amortization and impairment losses (15.632) 5.3% (14.849) (14.786) (14.826) (16.138) (60.599)
Interconnection сharges (12.811) 13.4% (11.296) (10.835) (12.264) (15.430) (49.825)
Materials, utilities, repair and maintenance (5.885) -0.6% (5.920) (5.641) (5.821) (7.742) (25.125)
Gain/(Loss) on sale and disposal of PPE and
intangible assets 0.498 285.2% 0.129 0.359 0.236 1.409 2.133
Bad debt expense (0.456) -15.5% (0.540) (0.653) (0.785) 1.095 (0.882)
Other operating income 4.936 36.8% 3.609 3.483 3.705 3.833 14.630
Other operating expense (10.685) 15.5% (9.252) (11.169) (11.381) (16.218) (48.020)
Operating profit 8.502 -8.3% 9.268 10.116 9.945 9.258 38.586
Operating Profit margin 11.7% -9.2% 12.9% 14.0% 13.7% 11.4% 13.0%
OIBDA 24.670 0.7% 24.492 25.353 25.182 25.812 100.839
OIBDA Margin 34.0% -0.3% 34.2% 35.1% 34.7% 31.9% 33.9%
Loss/(Income) from equity accounted investees (1.918) 120.5% (0.870) (0.291) (1.141) (1.281) (3.583)
Finance costs (4.107) 0.8% (4.073) (3.963) (3.990) (4.285) (16.311)
Other Investing and financial gain/(loss) 0.551 -160.7% (0.909) 1.944 (0.927) (0.542) (0.434)
Foreign exchange gain/(loss), net 0.741 -478.3% (0.196) (0.265) (0.341) (0.629) (1.431)
Profit before income tax 3.769 17.0% 3.221 7.540 3.546 2.521 16.827
Income tax expense (0.767) -31.6% (1.122) (1.411) (1.499) 1.596 (2.436)
Net profit 3.002 43.0% 2.099 6.129 2.046 4.117 14.391
Net profit margin 4.1% 2.9% 8.5% 2.8% 5.1% 4.8%
Revenue Structure
31
Bln RUR 1Q 2016Growth
YoY - 1Q1Q 2015 2Q 2015 3Q 2015 4Q 2015 2015
By services:
Broadband Internet 16.442 4.5% 15.740 15.735 15.910 16.495 63.880
TV services 5.613 22.5% 4.581 4.755 4.862 5.170 19.368
Fixed telephony 22.909 -11.3% 25.831 25.126 24.150 23.998 99.105
Wholesale services 19.747 7.1% 18.436 18.121 18.987 22.721 78.266
Rent of channels 2.844 -6.0% 3.024 2.878 2.899 2.913 11.714
Interconnect and traffic transit 8.853 14.5% 7.734 7.348 8.053 11.582 34.717
VPN 4.995 9.5% 4.560 4.874 4.976 5.301 19.711
Rent & maintenance of telecommunication
infrastructure 3.055 -2.0% 3.117 3.022 3.059 2.925 12.124
VAS & Clouds 3.100 50.1% 2.065 3.123 3.127 5.909 14.224
Other telecommunication services 3.122 -11.0% 3.507 3.580 3.286 4.125 14.498
Other non-telecommunication services 1.531 -1.3% 1.551 1.689 2.173 2.601 8.014
% of total revenues
Broadband Internet 22.7% 21.9% 21.8% 21.9% 20.4% 21.5%
TV services 7.7% 6.4% 6.6% 6.7% 6.4% 6.5%
Fixed telephony 31.6% 36.0% 34.8% 33.3% 29.6% 33.3%
Wholesale services 27.3% 25.7% 25.1% 26.2% 28.0% 26.3%
Rent of channels 3.9% 4.2% 4.0% 4.0% 3.6% 3.9%
Interconnect and traffic transit 12.2% 10.8% 10.2% 11.1% 14.3% 11.7%
VPN 6.9% 6.4% 6.8% 6.9% 6.5% 6.6%
Rent & maintenance of telecommunication infrastructure 4.2% 4.3% 4.2% 4.2% 3.6% 4.1%
VAS & Clouds 4.3% 2.9% 4.3% 4.3% 7.3% 4.8%
Other telecommunication services 4.3% 4.9% 5.0% 4.5% 5.1% 4.9%
Other non-telecommunication services 2.1% 2.2% 2.3% 3.0% 3.2% 2.7%
By customers:
B2C 33.556 -2.2% 34.326 33.521 33.086 33.549 134.482
B2B 12.673 -3.4% 13.126 13.755 13.976 13.741 54.598
B2G 11.575 7.5% 10.767 11.890 11.698 16.585 50.940
B2O 14.659 8.7% 13.491 12.964 13.735 17.144 57.334
B2C 46.3% 47.9% 46.5% 45.6% 41.4% 45.2%
B2B 17.5% 18.3% 19.1% 19.3% 17.0% 18.4%
B2G 16.0% 15.0% 16.5% 16.1% 20.5% 17.1%
B2O 20.2% 18.8% 18.0% 18.9% 21.2% 19.3%
Balance Sheet
32
Bln RUR 3/31/2016 3/31/2015 6/30/2015 9/30/2015 12/31/2015 12/31/2014
ASSETS
Non-current assets
Property, plant and equipment 333.579 322.819 323.730 324.907 338.699 328.266
Investment property 0.103 0.201 0.098 0.111 0.107 0.224
Goodwill and other intangible assets 59.752 58.851 59.198 58.454 60.755 58.420
Investment in associates 73.347 74.106 75.416 74.061 74.474 75.048
Other investments 0.754 0.146 0.121 0.248 0.621 0.110
Other non-current assets 9.420 10.668 10.551 10.800 8.867 9.633
Total non-current assets 476.954 466.791 469.114 468.581 483.524 471.701
Current assets
Inventories 3.934 4.440 3.662 3.462 4.060 4.827
Trade and other accounts receivable 48.856 53.401 50.300 50.163 43.152 45.056
Prepayments 2.328 3.175 2.320 2.642 2.822 4.363
Prepaid income tax 5.203 1.778 1.071 0.694 0.927 2.241
Other investments 4.791 1.945 8.502 5.540 5.719 1.934
Cash & cash equivalents 5.144 13.519 11.607 12.466 7.165 16.945
Other current assets 3.729 0.914 0.886 0.911 2.600 0.988
Total current assets 73.986 79.172 78.348 75.878 66.444 76.354
Assets held for sale 1.647 0.612 0.603 0.831 1.351 0.579
Total assets 552.587 546.575 548.065 545.290 551.319 548.634
EQUITY AND LIABILITIES
Equity
Share capital 0.093 0.097 0.097 0.097 0.093 0.097
Additional paid in capital 0.090 0.726 0.410 0.087 0.087 1.601
Treasury shares (68.669) (82.024) (81.170) (83.975) (68.669) (82.022)
Retained earnings and other reserves 317.329 324.681 320.355 324.876 314.236 322.257
Non-controlling interest 4.036 5.549 5.990 4.051 3.916 3.294
Total equity 252.879 249.029 245.682 245.136 249.663 245.227
Non-current liabilities
Loans and borrowings 141.205 104.662 112.343 108.631 126.620 137.872
Employee benefits 5.020 6.021 6.040 6.112 5.021 5.965
Deferred tax liabilities 33.329 32.571 32.050 32.380 30.238 31.206
Other non-current liabilities 7.876 5.359 5.063 8.009 9.088 5.120
Total non-current liabilities 187.429 148.613 155.496 155.132 170.967 180.163
Current liabilities
Loans and borrowings 45.262 82.062 75.973 84.274 59.934 52.142
Accounts payable 58.483 58.663 62.557 53.295 62.269 62.254
Other current liabilities 8.534 8.209 8.358 7.453 8.487 8.848
Total current liabilities 112.279 148.934 146.888 145.022 130.690 123.244
Liabilities held for sale 0.000 0.000
Total equity and liabilities 552.588 546.576 548.066 545.290 551.319 548.634
Net debt 176.532 171.260 168.207 174.899 173.670 171.135
Net debt / OIBDA LTM 1.7х 1.7х 1.7х 1.7х 1.7х 1.6х
Cash Flow Statement
33
Bln RUR 1Q 2016 1Q 2015 1H 2015 9M 2015 2015 2014
Cash flows from operating activities
Profit before income tax 3.769 3.221 10.761 14.307 16.827 47.754
Adjustments to reconcile profit before taх to cash generated from
operations:
Depreciation, amortization and impairment losses 15.632 14.849 29.635 44.461 60.599 60.635
(Gain)/Loss on sale and disposal of PPE and intangible assets (0.498) (0.129) (0.488) (0.724) (2.133) (1.452)
Bad debt expense 0.456 0.540 1.193 1.978 0.882 2.182
Loss/(Income) from equity accounted investees 1.918 0.870 1.161 2.302 3.583 0.517
Finance costs excluding finance costs on pension and other
long-term social liabilities3.985 3.883 7.662 11.473 15.560 14.939
Other Investing and financial gain/(loss) (0.551) 0.909 (1.035) (0.108) 0.434 (20.919)
Foreign exchange gain/(loss), net (0.741) 0.196 0.461 0.802 1.431 (0.183)
Share-based payment expenses 0.406 0.375 0.625 0.938 1.251 1.850
Changes in net working capital: (1.496) (3.595) (8.515) (7.771) 1.408 (6.256)
Cash generated from operations 22.879 21.118 41.460 67.657 99.842 99.067
Interest paid (4.764) (4.457) (8.403) (12.590) (17.082) (15.881)
Income tax paid (2.212) (0.355) (0.370) (0.393) (1.910) (3.640)
Net cash provided by operating activities 15.903 16.306 32.687 54.674 80.850 79.546
Cash flows from investing activities
Purchase of PPE and intangible assets (18.964) (16.286) (27.405) (43.383) (62.726) (57.666)
Proceeds from sale of PPE and intangible assets 0.635 0.383 1.186 1.597 3.838 5.433
Acquisition of financial assets (2.767) (0.102) (10.018) (10.250) (15.943) (2.115)
Proceeds from disposals of financial assets 3.251 0.157 2.563 5.890 10.442 25.925
Interest received 0.444 0.001 0.602 0.705 1.495 0.689
Dividends received 0.002 0.005 0.007 0.014
Purchase of subsidiaries, net of cash acquired 0.000 (0.430) (0.464) (0.464) (1.145) (0.029)
Proceeds from disposals of equity accounted investees (0.001) 0.322 0.240 (0.112)
Acquisition of equity accounted investees (0.778) (0.013) (0.016) (0.098) (2.098) (0.250)
Proceeds from equity accounted investees 0.322
Special dividends from disposed former mobile subsidiaries 7.003
Net cash used in investing activities (18.180) (16.290) (33.550) (45.676) (65.567) (21.108)
Cash flows from financing activities
Sale of treasury shares 0.815
Purchase of treasury shares (0.002) (0.005) (2.867) (2.867) (14.485)
Proceeds from bank and corporate loans 160.301 114.283 231.796 368.768 546.080 470.559
Repayment of bank and corporate loans (156.909) (117.548) (243.542) (376.378) (550.410) (496.482)
Proceeds from bonds 10.000 10.000 10.000
Repayment of bonds (2.408) (2.408) (12.112) (2.440)
Proceeds from promissory notes 0.012
Repayment of promissory notes (0.012)
Repayment of vendor financing payable (0.002) (0.002) (0.005) (0.044) (0.048) (0.009)
Proceeds from / (repayment of) other non-current financing (0.001) (0.002) (0.003) (0.004) (0.007)
Repayment of finance lease liabilities (0.055) (0.057) (0.056) (0.057) (0.003)
Acquisition of non-controlling interest (2.079) (2.350) (0.014)
Dividends paid to shareholders of the Group (0.012) (7.676) (7.676) (7.294)
Dividends paid to non-controlling shareholders of subsidiaries (0.039) (0.287) (0.308) (0.306)
Options settlement repayments (0.125) (0.448) (5.361)
Net cash used in financing activities 3.253 (3.325) (4.262) (13.478) (25.112) (49.666)
Net (decrease)/increase in cash and cash equivalents 0.715 (3.427) (5.338) (4.479) (9.780) 8.984
Effect of exchange rate changes on cash and cash equivalents (0.261) (0.118) (0.213) 0.001 0.050 0.212
Cash and cash equivalents at beginning of year 7.164 16.944 16.944 16.944 16.944 7.960
Cash and cash equivalents at the end of period 7.879 13.517 11.606 12.465 7.164 16.944
FCF (2.427) 0.403 6.468 12.888 21.962 27.313
Operational Data
34
MLN 1Q 2016 1Q 2015 2Q 2015 3Q 2015 4Q 2015 2015 2014 2013
Fixed-line subscribers 21.7 23.7 23.2 22.7 22.1 22.1 24.4 26.5
B2C 18.1 19.9 19.5 19.0 18.5 18.5 20.5 22.5
B2B 3.6 3.8 3.7 3.6 3.6 3.6 3.9 4.0
Broadband subscribers by client type 11.9 11.2 11.2 11.4 11.6 11.6 11.2 10.6
B2C 11.1 10.5 10.5 10.7 10.9 10.9 10.5 9.8
B2B 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
Broadband subscribers by technology 11.9 11.2 11.2 11.4 11.6 11.6 11.2 10.6
xDSL 5.2 5.8 5.6 5.5 5.3 5.3 6.1 6.6
FTTx 6.6 5.4 5.6 5.9 6.3 6.3 5.2 4.0
xDSL 44% 52% 50% 48% 46% 46% 54% 62%
FTTx 56% 48% 50% 52% 54% 54% 46% 38%
Pay-TV subscribers, including 8.8 8.1 8.2 8.4 8.6 8.6 8.0 7.5
IPTV 3.7 2.9 3.0 3.1 3.4 3.4 2.7 2.2
Cable TV 5.2 5.2 5.2 5.2 5.2 5.2 5.3 5.3
IPTV 41% 35% 36% 38% 40% 40% 34% 29%
Cable TV 58% 64% 63% 62% 60% 60% 66% 71%
ARPU
Broadband 454 458 457 446 455 449 449 448
incl. B2C 349 354 352 343 350 346 342 345
Fixed-Line 248 247 248 243 248 246 246 249
Pay-TV 201 176 181 182 189 181 149 133
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