Rostelekom Adr Regulatory News (RKMD)

 ROSTELECOM FINANCIAL AND OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST HALF OF 2021

Second quarter revenue increased by 9%, OIBDA[1] up 15%, net profit up 46% and FCF[2] increased by RUB 10.7 billion

Moscow, Russia - August 5, 2021 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the second quarter and first half of 2021 prepared in accordance with IFRS.

SECOND QUARTER 2021 KEY FINANCIAL HIGHLIGHTS

FIRST HALF YEAR 2021 FINANCIAL HIGHLIGHTS

Key figures for 2Q 2020, RUB mln

Key figures for 1HY 2020, RUB mln

Mikhail Oseevskiy, President of Rostelecom, commented: "We continued to perform well across all financial and operational indicators during the second quarter of 2021, demonstrating solid double-digit growth in revenue from digital and mobile services, OIBDA and net income. For the second quarter in a row, we have significantly improved our free cash flow position, which helps create a base from which to grow future dividend payments. The most important development during the quarter was the adoption of our updated strategy. Our strategic priority for the next five years is to further evolve into an integrated provider of digital services solutions with an emphasis on smart growth in our traditional business and focused leadership in digital clusters such as data centres and cloud services, cybersecurity, online medicine, digital regions and government digital services. To this end, we plan to gradually embark on a new business model which will be organised by clusters and segments. Our quarterly reporting will reflect that new structure to help us track the execution of our strategy by clusters and segments. We have a strong team capable of meeting our strategic goals which encompass growth as well as the realisation of further material cost reductions. This will underpin our sustainable development while creating additional value for all shareholders and stakeholders."

Vladimir Kirienko, First Vice-President of Rostelecom, commented: "The growth objectives set in our new strategy are very ambitious, but the results we have achieved during our digital transformation in recent years instil in us a confidence that by 2025 Rostelecom will cross the RUB 700 billion mark in terms of revenue, increase OIBDA by 1.5x and at least doubling net profit. These are ambitious strategic goals, but the momentum we have built with a close-knit professional team and the support of our shareholders will enable us to achieve them. A priority is to focus on our fast-growing digital segments, where we can build a strong leadership position and deliver an attractive return on investment."

Sergey Anokhin, Senior Vice-President and Chief Financial Officer added: "The Company has demonstrated further sustainable growth as well as effective cost control which resulted in a solid set of positive financial results in the second quarter and the first half of 2021. Rostelecom has already started reaping benefits from the launch of transformation programmes stipulated in the renewed strategy, including those related to curbing cost increases at a time when we are actively growing the business. This will create additional shareholder value and attractive returns on capital. We exceeded our expectations for the first half of 2021 and the moderate macroeconomic risk outlook enables us to look more optimistically at our anticipated results for the second half of the year. As a result of this, we are improving our previously published forecast for 2021. We are raising our outlook on consolidated OIBDA and now expect it to grow by 8-10%, and can review it once more at the third quarter 2021 results; our revenue outlook remains intact at a minimum 5% growth and we expect СAPEX of approximately RUB 110-115 billion, excluding the implementation of state programs."

KEY OPERATING HIGHLIGHTS

Fixed business

Mobile business

KEY EVENTS RELATING TO Q2 2021 AND AFTER THE END OF THE REPORTING PERIOD

Business news

Revenue generated by the "Game" tariff increased by 10% in the second quarter of 2021.

By the end of the first half of 2021, the number of Wink customers accessing videos on two or more devices increased to 2.3 million.

By the end of the first half of 2021, the "Key solution" covered 165,000 apartments.

Revenue generated from the "Smart Home" service and home video surveillance increased by 36% during the second quarter.

Other news

OPERATING REVIEW

Revenue analysis

Revenue structure by services

In the second quarter of 2021, revenue increased year-on-year by 9% to RUB 138.6 billion, as a result of the following factors:

In the first half of 2021, revenue increased by 9% year-on-year to RUB 270.5 billion, as a result of the following factors:

Operating income analysis

Breakdown of operating expenses

In the second quarter of 2021, operating expenses increased by 8% year-on-year, to amount to RUB 116.8 billion, largely due to the following factors:

Operating expenses for the first half of 2021 increased by 7% year-on-year to RUB 226.1 billion, largely due to the following factors:

Operating profit for the second quarter of 2021 increased by 15% year-on-year to RUB 21.8 billion and by 16% to RUB 44.5 billion year-on-year during the first half of 2021.

OIBDA for 2Q 2021 increased by 15% to RUB 55.9 billion, and by 16% to year-on-year during the first half of 2021 to RUB 111.4 billion. OIBDA dynamics were influenced by revenue growth and by the changes in operating expenses cited above. The OIBDA margin increased by 2.0 p.p. year-on-year to 40.4% during the second quarter of 2021 and was up 2.6 p.p. year-on-year to 41.2% during the first half of 2021.

Net Income Analysis

Profit before tax increased by 44% year-on-year during the second quarter of 2021 to RUB 14.2 billion, rising by 50% during the first half of the year to RUB 29.3 billion. This was mainly due to the increase in operating profit, a decrease in finance costs and the absence of foreign exchange losses during the reporting period.

Income tax in 2Q 2021 amounted to RUB 3.0 billion, compared to RUB 2.3 billion during the corresponding period of 2020. During 1H 2021, RUB 6.4 billion of income tax was paid, compared to RUB 4.5 billion during the first half of 2020, which is mainly due to changes reported in profit before tax.

Net profit increased by 46% year-on-year during the second quarter of 2021 to RUB 11.2 billion. During the first half of 2021, net profit increased by 52% year-on-year to RUB 23.0 billion.

Financial review

Net operating cash flow for 2Q 2021 increased by 67% year-on-year to RUB 25.4 billion, compared to the corresponding period of 2020. During the first half of 2021, net operating cash flow grew 71% year-on-year to RUB 31.7 billion.

At the end of the second quarter of 2021, cash outflow on investments in non-current assets, excluding state programmes, decreased by 2% to RUB 24.4 billion (17.6% of revenue). Taking into account state programmes, this figure increased by 11% to RUB 30.8 billion (22.2% of revenue). At the end of the first half of 2021, cash outflow on investments in non-current assets, excluding state programs, increased by 11% to RUB 51.6 billion (19.1% of revenue), taking into account state programs, this figure increased by 15% to RUB 61.5 billion (22.7% of revenue).

Free cash flow for 2Q 2021 amounted to RUB 1.1 billion, having improved year-on-year by RUB 10.7 billion. Free cash flow for the first half of 2021 improved by RUB 19.1 billion to reach RUB 3.2 billion. Factors that contributed to higher free cash flow during the second quarter of 2021 include growth in OIBDA, as well as uneven advance payments and work performed during a calendar year. Including the factors listed above, the improvement in free cash flow during the first half of 2021 was influenced by the lower volumes of accounts payable compared to the corresponding period of 2020

Free Cash Flow (RUB, billion)

As at June 30, 2021, the Group's total debt (including lease liabilities) amounted to RUB 531.0 billion, a slight change compared to the beginning of the year. 100% of the Group's total debt remains rouble-denominated as at June 30th, 2021.

As at June 30, 2021, the Group's net debt (including lease liabilities) amounted to RUB 493.8 billion, an increase of 6% since the beginning of the year. The company's debt burden over the past 12 months has decreased from 2.7x to 2.4x net debt/OIBDA[10] (including lease liabilities).

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4:00 PM (Moscow), 3:00 PM (CET), 2:00 PM (UK) and 9:00 AM (NYT). To participate in the conference call, please dial:

UK/ International:   +44 203 984 9844

USA:    +1 718 866 4614

Russia:     +7 (495) 283 98 58

Confirmation Code (ENG):  539980

Confirmation Code (RUS):  619022

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://mm.closir.com/slides?id=539980.

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/2021/2/

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APPENDICES

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:

APPENDIX 2: Statement of Comprehensive Income for H1 2021

APPENDIX 3: Statement of Cash Flows for H1 2021

APPENDIX 4: Statement of Financial Position for H1 2021

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 13.5 mln users, it has more than 10.8 mln pay-TV customers, over 6.3 mln of which are subscribed to Rostelecom's IPTV services. Tele2 Russia, a Rostelecom subsidiary, is a major player in the mobile market with the industry-leading NPS, a customer satisfaction benchmark. The joint mobile subscriber base is over 46.6 mln users.

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.

During the 1H 2021, the Group generated RUB 270.5 bln of revenues, RUB 111.4 bln of OIBDA (41.2% of revenue) and RUB 23.0 bln of net income.

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.

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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:

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:

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.

[2] 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.

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

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

[5] Here and below, lease liabilities.

[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] One ordinary share and one preferred share

[10] OIBDA for the last 12 months