Highlights

Investments highlights

Rostelecom is a lucrative opportunity for investors looking for stable cash generative and long term investments. The Company has taken a long-term view on telecom landscape evolution, with a value creation strategy that allows for changing marketplace dynamics. We seek to balance shareholder returns with sustainable growth by focusing on operational excellence, network modernization, client-centric approach and product development with the aim of enhancing our competitive edge and supporting top line, which positions us to be a leading ICT service provider in Russia.

In a nutshell, our investment case can be put down to the following:

  • We offer our investors an exposure to attractive markets with strong growth profiles; they include broadband, pay TV, media, value added services, clouds etc. We also provide an opportunity to participate in the growing mobile data segment through holding a 45% stake in the JV with Tele2 Russia.
  • We are the unchallenged leader in most of the telecom segments in Russia. Rostelecom is number one player in broadband, pay TV, including IPTV, fixed voice, both in B2B and B2C segments.
  • We have the largest, unique and unrivalled fixed-line infrastructure across Russia;
  • We have a significant upside potential from increasing operational efficiencies;
  • Rostelecom has a healthy balance sheet and an overall robust financial profile.

On balance, we are well-positioned to create value for our shareholders.

Key operating and financial highlights of 2014

2014 was the first year of implementation of our updated strategy approved by the BoD in December 2013. The Company started delivering on its key strategic goals related to transition towards a model of digital service provider, streamlining its corporate structure, demonstrating solid revenues growth and effective cash control management, organically extending its broadband and pay TV subscriber base and increasing the level of its internal efficiency.

2014 Highlights

In 2014 the Company managed to achieve strong financial and operating results.

Revenue from fixed-line operations grew by 3% year-on-year to reach RUB 298.9 billion. We continue to expand our broadband, pay-TV, and other bundled services and increase our revenues from these growing market segments. In 2014 the share of digital services was increased by 2 p.p. and is already competing with the revenue from traditional services.

Revenue[1] (RUB billion)

Fixed-line Revenue Breakdown, %

The number of broadband subscribers grew 6% year-on-year to 11.2 million subscribers;

  • The B2C subscriber base grew by 7% to 10.5 million, while the number of subscribers connected by fibre optic increased by 29% year-on-year to 5.2 million (46% of the subscriber base).

The number of pay-TV subscribers grew by 6% year-on-year to 8.0 million;

  • The number of IPTV subscribers increased by 24% to 2.7 million.

Broadband

Subscribers (million)

Fibre Subscribers (million)

Technology Breakdown (%)

PAY TV

Subscribers
(million)

IPTV Subscribers
(million)

Video-on-Demand Transactions (million)

Video-on-Demand Subscriptions (million)

OIBDA margin of fixed-line operations amounted to 34.3% in 2014. This is a solid result for a fixed incumbent which operates across such a vast geography compared to international peers. And we see a lot of upside potential in terms of improving our margin through operational excellence increase. Read more about operational efficiency program.

OIBDA margin dynamics was mainly impacted by the increased presence in the revenue structure of the growing, but lower margin, broadband and pay-TV segments as well as the lagged impact of initiatives taken by the management to optimise operating expenses.

Consolidated Net profit rose by 57% year-on-year to RUB 37.8 billion for the full year of 2014, reflecting a one-off paper gain from the completion of the deal with Tele2 Russia.



OIBDA (RUB billion) & OIBDA margin (%)Net Income (RUB billion) & Net Income margin (%)

We invest in upgrading our network and increasing its capacity to reach superior infrastructure quality, which enables the Company to deliver a full range of ICT solutions available on the market. Read more about our fibre rollout program and Software defined network approach.

The improved effectiveness of investment activities, including optimised tender procedures and relationships with suppliers, supported investment dynamics. Optimized procurement and tender processes enabled us to build more fibre networks at a comparatively lower level of capital expenditures.

CAPEX (RUB billion) & CAPEX / Revenue (%)

Households Passed by Fibre (million)

Consolidated net debt fell by 22% in 2014, due to finalising the mobile business transfer to the JV, which proved to be a timely move, given the current macroeconomic situation. Furthermore, our efforts to effectively manage cash flows led to a 27% increase in FCF to RUB 21.9 billion.

Net Debt Analysis (RUB billion)

FCF Analysis (RUB billion)

[1] Consolidated P&L data for 2013 and 1Q14 include the entire mobile business of Rostelecom, the 2Q14 data exclude mobile subsidiaries transferred to JV with Tele2 Russia and include RT-Mobile, the 3Q14 data consolidate RT-Mobile only for 1 month.

My Annual Report

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