Rostelecom · RUS:RTKM
Rostelecom — Investor Day (December 2015)
73 slides from Rostelecom's investor day presentation, Dec 7, 2015
Slide 1: Rostelecom Capital Markets Day
ROSTELECOM CAPITAL MARKETS DAY December 7, 2015
Slide 2: Disclaimer
Disclaimer By attending any meeting where this presentation is made, or by reading any part of this presentation, you acknowledge and agree to be bound by the following: • This presentation has been prepared by PJSC Rostelecom (the “Company”). This presentation is strictly confidential to the recipi
Slide 3: Capital Markets Day 2015 Agenda
Capital Markets Day 2015 Agenda Speaker 8.30 AM - 9.00 AM Registration 9.00 AM - 9.50 AM On a Transformation Path (incl. Q&A) Sergey Kalugin, CEO Product Development and Convergence Upside - 9.50 AM - 10.40 AM Larisa Tkachuk, COO Evolving to a Digital Service Provider (incl. Q&A) 10.40 AM - 11.00 AM
Slide 4: On a Transformation Path
ON A TRANSFORMATION PATH Sergey Kalugin, CEO
Slide 5: Key Messages
Key Messages We are We are We have transforming committed to accomplished to a digital sustainable a lot service shareholder provider returns 5
Slide 6: Our Progress
Our Progress Technological Best-in-class Differentiated Organisational Efficiency leadership in customer offerings transformation improvement IP networks service SLA Centralisa Procurement 33 mln HH Multiplay improve- tion of optimisation passed by ment functions New >RUB 2.5 mln Target fibre by pro
Slide 7: Value Creating Transactions
Value Creating Transactions Synergies/ Rationale Completed • Nationwide operations with minimum overlap Mobile JV • Leveraging mobile Capex with Tele2 • Dedicated management team and best in class 2014 Russia cost management culture • F2M convergence upside through MVNO • Creation of #1 player on th
Slide 8: Key Telecom Trends
Key Telecom Trends CUSTOMER TECHNOLOGY BUSINESS Readiness for Chats, uses exponential growth of images & video Simplification data usage Consumes heavy Fixed-mobile Virtualization (SDN) content convergence Wants simple & New services: media, Time to market customized services clouds, etc. Wants ever
Slide 9: Our Vision 2020
Our Vision 2020 • New business opportunities: digital content, services & Long-term platforms drivers New • Development of proprietary expertise & acquisition of existing businesses players • MVNO with Tele2 Russia (convergence & bundling) Medium-term Increase in market • “Smart home” & “Safe home”
Slide 10: Transformation to a Digital Service Provider by 2020
Transformation to a Digital Service Provider by 2020 to Offset Saturation in Traditional Segments Market Size, RUB bln 2015 2020 CAGR 2015-2020, % Share in Rostelecom’s Revenue in 2015 & 2020, % 10 Source: iKS Consulting, TMT-Consulting, Company estimates
Slide 11: Transformation of Revenue Structure
Transformation of Revenue Structure Content & Digital Services ~40% ~60% Broadband 21% 22% 25% 28% Pay TV VPN 6% VAS&Clouds 7% 10% 21% Telephony 6% 7% Other 33% 16% 2015E 2020F 11
Slide 12: Video Products
Video Products Leading Market Positions Solid Growth in Video-products Pay TV IPTV (mln subs) #1 +26% YoY organic 27% 3.0 3.1 2.7 2.9 18% 2.4 2.5 248 253 252 223 206 208 #2(1) 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 IPTV Video-on-Demand Revenue (RUB mln) #1 +34% YoY 69% 186 169 178 160 129 139 88 91 90 66 68
Slide 13: Leading Content Aggregator on the Russian Market
Leading Content Aggregator on the Russian Market Unique content proposition: >220 channels, incl. 43 in HD Basic incl. HD 3 exclusive TV Packages TV channels Additional packages: Viasat Premium HD, Launch of fully channels, incl. Amedia Premium, Your Ideal HD, PLUS Football, HD package Increase up t
Slide 14: Best TV series proposition
Best TV series proposition Content production: Unique VoD • Pilot project in subscriptions theaters in spring 2016 • >3 new projects to launch in 2016 ROUTE CREATED 14
Slide 15: Digital Television: Media JV with VGTRK
Digital Television: Media JV with VGTRK TOP-11 Digital Holdings in Russia Monthly audience reach Rostelecom Mail.Ru Group 36 mln 67% Portfolio owns 41% with 18 share in JV Yandex 35 mln 64% thematic channels Google Sites 33 mln 62% Expansion to Latin Digital America, 28 mln 53% India & Television Ch
Slide 16: OTT Video: Interactive TV 2.0
OTT Video: Interactive TV 2.0 Leading Offering in a Rapidly Growing Market Attractive for customers… …and Beneficial for Rostelecom Stable internet connection from any provider is Rapidly growing market enough (c.15% anticipated 2015- Internet access at a minimum 1.6 Mb/s bandwidth from any provid
Slide 17: Games Portal Launched
Games Portal Launched Open gaming platform Gaming without proprietary PC Cloud gaming service development Cybersport promotion Creation of a gamer community 17
Slide 18: Data Centres
Data Centres Strong Position Providing Basis for Solid Growth Rostelecom’s Portfolio: Infrastructure Overview Rostelecom is the 2nd Largest Player in the Market International Segment Data Centre Points of Presence By Revenue By Racks London Stockholm Juniper T640 / 1600 Node Nx40G 20% #2 Frankfurt A
Slide 19: Cloud Services
Cloud Services Massive Opportunity Ahead High Security of Data Processing Centres Full Lineup of Cloud Solutions… Physical Security SaaS • Own DCPs and networks PaaS • Detached zone, special for cloud platform National Cloud • Control and access Platform IaaS management to server 20% market • Securi
Slide 20: Geodata
Geodata Entering High Growth Potential Market Rostelecom is Strongly Positioned to Develop Leading Geodata Service Offering … Geodata Market Forecast in Russia (RUB bln) 15% 2015–2020 CAGR Geographic Information Navigation Information Geodata-based 91 Systems and Geoservices GLONASS-based Services M
Slide 21: Industrial Internet of Things
Industrial Internet of Things Rostelecom is at the Forefront of the Development IIoT Market Forecast in Russia (RUB bln) IIoT Infrastructure 63% 2015–2020 CAGR Connected equipment 126 Sensors, meters, actuators, controllers Rostelecom is Data Local networks (Ethernet, well positioned to collection W
Slide 22: Data Analysis to Benefit Business & Customers
Data Analysis to Benefit Business & Customers Breakdown of Big Data Market in Russia Big Data Market Forecast in Russia (RUB bln) 43% 2015–2020 CAGR 22% 40% 164 38% 28 Services Equipment Software 2015F 2020F In 2015 Rostelecom acquired 75% of • Targeted product upsale & churn IQMen Business Intellig
Slide 23: Ambitions for 2020: Fueling Shareholder Returns
Ambitions for 2020: Fueling Shareholder Returns CAGR Revenue 1-2% FCF CAGR improve Dividends OIBDA +3% ment 3-4 pp CAPEX / impro- Revenue* vement * Excluding Bridging Digital Divide project. 23
Slide 24: Dividend Policy 2016-2018
Dividend Policy 2016-2018 ≥ 75% of Free Cash Flow & Shareholder Returns ≥ 45 RUB bln for 3 years 24
Slide 25: Product Development and Convergence Upside - Evolving to a Digital Service Provider
PRODUCT DEVELOPMENT AND CONVERGENCE UPSIDE - EVOLVING TO A DIGITAL SERVICE PROVIDER Larisa Tkachuk, COO
Slide 26: Well-positioned to Meet Customer Demand
Well-positioned to Meet Customer Demand Home users Business users Operators High-speed connectivity, Reliable & nationwide Growing capacity & cost CUSTOMER content variety & integrated solutions reduction DEMAND personalisation POSITIONING BUILDING DIGITAL RUSSIA State-of-the-art Nationwide Innovati
Slide 27: Ambitious Targets in Customer Service
Ambitious Targets in Customer Service Net Promoter Score Increase Broadband NPS NPS drivers 35 11 Trusted Reliability brand -4 2014 2015 Target Pay TV NPS 38 Tailored Customer Pricing care 22 6 2014 2015 Target 27
Slide 28: B2C: Strengthening Market Positions
В2С: Strengthening Market Positions Subscriber Base / Growth Market Share by Revenue, % IP TV Up to 3.1mln /25% Unique content proposition 67% 75% Today Target Broadband Up to 10.7mln /6% Best high- speed proposition 37% Today 50% Target Telephony 19.0mln /(10)% Value for money 74% Today Stable Targ
Slide 29: Our Target – to Become the Largest Provider of Digital Services in Russia
Our Target – to Become the Largest Provider of Digital Services in Russia 4 Play VAS Full ECO systems Share of Bundles, % Media content MVNO 29% 79% Games TV 2015 Target Blended ARPU (BB+IPTV) Broadband Smart House / IoT 426 650 RUB RUB 2015 Telephony Target 2015 2016 2017 2020 Eco Games OTT IoT: Sm
Slide 30: Evolution in B2C Communications: OTT
Evolution in B2C Communications: OTT Аллё Manageable Cloud voice mail Mobility / ОТТ / WEB intellectual redirection status IPTV Broadband Admin Customisation 1 Cellphone Land line User1 SIP 8 499 xxx xxxx 2 Voice greeting User2 Notebook 3 Telephony Internet Tablet Contact list in PC/MAC WEB-portal L
Slide 31: Smart Home / IoT
Smart Home / IoT Security Utility meters 2016 2017 Management and control IoT 2017 - 2020 2016 1 Smart gread, Video monitoring, Security 2 Synergies between OTT and traditional services 3 Retention and loyalty increase Target 4 Grabbing competitor’s BB subs “Smart Home” penetration Launch in 2016 >
Slide 32: B2B: Enhancing Our Leadership
В2B: Enhancing Our Leadership Subscriber Base Market Share by Revenue, % Broadband 34% >40% 0.7mln Secured Connectivity Today Target Telephony Up to Integrated 45% 3.6mln Offerings Nationwide Today 50% Target 32
Slide 33: B2B Promising Areas
B2B Promising Areas B2B Large corporations Developers of software SMB & SOHO & IT- solutions B2G Managed Managed Security Location IaaS GIS MDM Services VideocomfoRT MVNO IIoT Services Intelligence ХaaS 2015 2016 2017 2020 33
Slide 34: B2B & B2G Cloud Ecosystem
B2B & B2G Cloud Ecosystem • My Office • ERP Cloud antivirus & New Virtual • Office 365 • E-Doc IT security Telephony Data-centre Cloud ECO system Fast installation Full Service Portfolio Access from all networks Customer`s CAPEX Optimization 34
Slide 35: E-Government Project
E-Government Project E-Government Infrastructure 1 Rostelecom Infrastructure 13 Covers all population of Russia Eco systems 2 National Cloud Platform Available in all regions Information Security Provision Customer Support Centre Technical Support of infrastructure and software Внешние External of E
Slide 36: B2O: Strengthening and Maintaining Positions on Key Markets
В2O: Strengthening and Maintaining Positions on Key Markets Market Share by Revenue, % IP transit 27% Unmatched direct Up to resources at major international exchange 35% points Today Target Voice Traffic Exchange 56% The fastest and the most Stable reliable connection between Europe and Asia Today
Slide 37: B2O Product Development
B2O Product Development International projects Long-term cooperation Technical Support (transit Europe-Asia, with guaranteed 24/7 North-South, Russia-CIS) commitments Capacity Upgrade more Network Rent + For Carriers in Russia than 10 Times Maintenance Antifraud system Profitability Traffic Filter S
Slide 38: Building up Effective Sales and Client Support System
Building up Effective Sales and Client Support System Contact Centres Optimisation: Cost Share of Distant Channels per Subscriber (Web, Call centres) AS IS -35% 28% 52% Today Today Target Target 1 Number of Retail Outlets Sales increase through development of distant channels 2 IT System development
Slide 39: MVNO with Tele2 Russia
MVNO with Tele2 Russia + = MVNO 1 Available as bundle with any Rostelecom service Network core DEF 2 Attractive pricing for Rostelecom and VAS platforms Marketing Tele2’s on-net connections Sales 3 Single Customer Support centre Service 4 Unified service proposition for fixed and mobile subscribers
Slide 40: New Nationwide Mobile Operator
NEW NATIONWIDE MOBILE OPERATOR
Slide 41: Tele2 – new federal operator
Tele2 – new federal operator On 6 August 2014, Tele2 Russia and Rostelecom completed setting up a new nationwide operator. Consolidated subscriber Commercial operations in Shareholders: base – 35 million over 60 Russian regions Rostelecom - 45% VTB structures & other investors - 55% 2G,3G LTE Unique
Slide 42: Strategy 2016-2020
Strategy 2016-2020 Vision We aim to be Russia's exceptional first choice in mobile communications . Mission We never give up or stop improving, and we relentlessly challenge stereotypes in order to offer our customers simple and honest solutions for the best price Targets #3 in Russia Forming an org
Slide 43: Key drivers of market growth: data
Key drivers of market growth: data the Big Three average revenue growth rate 21% from data (Y-o-Y) over 3Q15 > 39% penetration of mobile Internet users The increasing demand for data still remains a key driver of market growth. A number of wireless Internet users is positively correlated to increasi
Slide 44: Key drivers of Tele2 growth: 3G/4G rollout
Key drivers of Tele2 growth: 3G/4G rollout regions, where Tele2 has launched 3G/4G high- 59 speed wireless Internet under its own brand since November 2014 37% the CAPEX to sales ratio over 3Q15 15% active users of wireless Internet over 3Q15 76% traffic growth per user (Y-o-Y) over 3Q15 Source: Com
Slide 45: Key drivers of Tele2 growth: Moscow launch in October 2015
Key drivers of Tele2 growth: Moscow launch in October 2015 384k subscribers over the first 20 days of operations in the region 7k base stations on a launch date: 5000 3G and 2000 LTE 100 new base stations commissioned weekly after the launch in Moscow and Moscow Region 10k partnership PoS offering T
Slide 46: Key drivers of Tele2 growth: market share on rise in greenfields
Key drivers of Tele2 growth: market share on rise in greenfields Tele2 brand launches since May 2015 in the regions earlier 22 operated by Rostelecom subsidiaries Tele2 market share in legacy regions Tele2 market shares in greenfields 10% 33% 67% 90% Tele2 Other operators Tele2 Other operators Sourc
Slide 47: Network Evolution – Ensuring Superior Quality and Cost Efficiency
NETWORK EVOLUTION – ENSURING SUPERIOR QUALITY AND COST EFFICIENCY Alexander Tseytlin, CTO
Slide 48: Largest Fixed-Line Network in Russia
Largest Fixed-Line Network in Russia • 5-level of SLA 30 mln Passed with Transport profile households fibre IP/MPLS • ~DWDM, SDH 12 Tb/s capacity Network • ~ 1.5 Tb/s 33 mln Upgraded to N international uplinks households fibre by the end of 2016 Bridging Digital Divide(200k km fibre) 4 000 km Submar
Slide 49: Fibre Evolution Close to the End
Fibre Evolution Close to the End Our networks are engineered for massive volumes to ensure our customers have the best network experience possible. Fibre rollout for B2C 30m Total CAPEX HH passed 50 Fibre rollout for B2B 5.2k business RUB bln centres invested in 1.5x increase our network 2014-9M15 B
Slide 50: Balanced Approach to Last-Mile Upgrade
Balanced Approach to Last-Mile Upgrade Total HH in Russia Total HH Rostelecom 53 Dense area 46 PON/FTTB Rural area We use different xDSL + wireless last-mile solutions to meet our customer needs and ensure 33 Rural area sponsored under BDD efficiency of our investments. >4 project Fibre + Public WiF
Slide 51: Transformation Rationale
Transformation Rationale Network Efficiency Time to SDN/NFV Increase Market Transformation (Capex/Opex) 51
Slide 52: Moving Towards Simple and Low Cost Network Management Model: SDN & NFV
Moving Towards Simple and Low Cost Network Management Model: SDN & NFV Today Future 52
Slide 53: Based on SDN/NFV Technologies
IP/Optical Backbone Network CR Internet CR RGR RGR DWDM DWDM DWDM Based on SDN/NFV Technologies Mux Mux Mux HIGH LEVEL NETWORK DESIGN RGR RGR CR CR Virtual Network Functions (VNF) vBRAS, vIMS, РСПД IP, vIMS, Services vPBX, SDN Services IaaS vIMS, vDLNA, vFW, vCDN, vCG-NAT, vEPC, Optical vEPC, OSS/ T
Slide 54: Infrastructure Transformation Plan
Infrastructure Transformation Plan Services: Lab research and Pilot zones Services: Services: Feasibility (vCPE, vCG-NAT, vBRAS, vRouter, vFW, vRR) studies Implementation Public Cloud Infrastructure: Public Cloud Lab research and Pilot zones Infrastructure: Public Cloud Infrastructure Feasibility Im
Slide 55: Network Transformation KPIs
Network Transformation KPIs Network Maintenance Share of Monitored Equipment Service Activation Headcount Few Few 42% 90% 80k 50k days minutes Today Today Today Target Target Target Number of Network Time to Market of New Control Centres Services 67 14 3 7 mths mths Today Today Target Target 55
Slide 56: Transformation Targets
Transformation Targets Launch time End-to-end services for all and test time network types reduction Service order and Self-care portal management automatisation CAPEX OPEX / Revenue* -25% by 2020 -3-4 p.p. by 2020 Predictive Traffic routes Virtualization of network “Application and network platform
Slide 57: Operating Efficiency – On the Right Track
OPERATING EFFICIENCY ON THE RIGHT TRACK Kai-Uwe Mehlhorn, CFO
Slide 58: We Have Already Improved a Lot…
We Have Already Improved a Lot… 6 ~17k 35 ~40 6 RUB bln RUB bln RUB bln RUB bln of Cost Reduction – Employees Of Procurement Of Net Debt Income from Sale & Effect of the reduction Savings reduction Rent of Real Estate Operational in 2014-9M 2015 in 2014-9M 2015 in 2014-9M 2015 Efficiency Improvement
Slide 59: …in a Challenging Macro Environment
25 35 45 55 65 75 0% 1% 2% -5% -4% -2% -1% -3% Jan-14 Mar-14 Feb-14 Mar-14 Apr-14 Apr-14 May-14 May-14 Jun-14 Jun-14 Jul-14 Jul-14 Source: CBR, Capital IQ, Fedstat Aug-14 Aug-14 Sep-14 Real GDP Growth, % Sep-14 Oct-14 Oct-14 Exchange rate, RUB/USD Nov-14 Nov-14 Dec-14 Dec-14 Jan-15 Jan-15 Feb-15 Feb
Slide 60: Operational Efficiency Improvement Program: Closing Cost Gap
Operational Efficiency Improvement Program Closing Cost Gap The project was extended to 2018 Cost Gap vs Peer group (RUB bln)* GCB Gap and optimization targets Drivers % RUB bln Economy potential: 30-40% 49.1 Network 49% 32.6 Target: IT 16% 3.4 reduce Gap to Support & Overhead 33% 6.9 16.5 19.0 20-2
Slide 61: Operational Efficiency Improvement Program
Operational Efficiency Improvement Program Cumulative Effect in 2017 Total Effect 2017 (RUB bln) Effects of the Key Initiatives (RUB bln) 3.0 16.5 7.3 4.6 6.6 4.4 Personnel expenses 2.0 Materials, Utilities & 1.4 1.3 Maintenance Other operating 1.1 1.1 expenses 1.6 1.0 Revenue 0.8 1.4 0.6 0.6 1.2 0.
Slide 62: Key Initiatives: Increasing Personnel Efficiency
Key Initiatives: Increasing Personnel Efficiency Revenue per employee (RUB mln) & Focus on Technical & Administrative Staff Number of employees (ths) Optimisation through: 174 165 159 151 Delayering and lean organizational 2.5 structure 1.9 2.0 1.7 1.8 SDN/NFV network transformation IT transformatio
Slide 63: Key Initiatives: Modernization of Rural Networks
Key Initiatives: Modernization of Rural Networks Reduce rent Move equipment and building to outside operation containers costs Old switching MSAN, VoIP- Effect: by 2023 systems and gateway & analogue SoftSwitch stations 9.5 1.6 3.2 Replace Copper lines Reduce RUB bln RUB bln within Wireless maintena
Slide 64: Key Initiatives: Centralisation of Network Controlling
Key Initiatives: Centralisation of Network Controlling 2015 2019 FTE 4 700 2 100 Reduce personnel Effect: by 2019 costs & Control centres 67 7 overhead Share of 3.3 1.3 1.8 monitored 42% 90% RUB bln equipment RUB bln RUB bln Unify network monitoring systems CAPEX total Improve OPEX savings in Target
Slide 65: Key Initiatives (Cont’d)
Key Initiatives (Cont’d) Points of Sale Optimization Contact-centres Optimization Effect: by 2018 Effect: by 2018 0.5 1.4 0.3 0.8 RUB bln RUB bln RUB bln RUB bln CAPEX total CAPEX total Target Target OPEX per year OPEX per year 2015 2017 2013 2015 2017 Points of Contact 1 720 710 48 22 7 sale # cent
Slide 66: Procurement Efficiency
Procurement Efficiency KPI 2012 2013 2014 2015 Share of Tenders with >4 Participants*, % Savings, RUB bln >18x of share increase 50% 3,549 16,218 16,765 20,069 (all purchases) Savings, % 4.7% 16.5% 13.1% 21.1% (tenders) 27% Savings, % 18% 3.5% 10.3% 9.8% 13.3% (all purchases, incl. single source) 14
Slide 67: Real Estate Portfolio: On The Road From P&L Pressure
Real Estate Portfolio: On The Road From P&L Pressure … 15 RUB of Real Estate related OPEX per year bln 3k of people servicing Real Estate 30% of office space is excessive Surpass of Real Estate as % of total assets ratio compared to 2x global peers 67
Slide 68: Real Estate Portfolio: ... To Opportunities
Real Estate Portfolio: ... To Opportunities Area in the Portfolio (sq.m mln) Monetisation Approach Total 9.1 Regional Cost generating and low end Real capitals Estate 3.0 Auction sale Longer term value “Monetization” 0.7 unlocking Real Estate – able Real Estate Network Real Estate optimization pipel
Slide 69: Targets Going Further
Targets Going Further 19 RUB bln 25 RUB bln of Cost Reduction – Effect of the Operational Efficiency 110- Improvement Program by 2019 130k Of Income from Sale of Real Estate Target Headcount 69
Slide 70: Closing Remarks
CLOSING REMARKS Sergey Kalugin, CEO
Slide 71: Ambitions for 2020: Fueling Shareholder Returns
Ambitions for 2020: Fueling Shareholder Returns CAGR Revenue 1-2% FCF CAGR improve Dividends OIBDA +3% ment 3-4 pp CAPEX / impro- Revenue* vement * Excluding Bridging Digital Divide project. 71
Slide 72: Investment Highlights
Investment Highlights Progressive dividend policy Incentivised management Operational efficiency upside Fundamentals to capture market opportunities Exposure to attractive markets 72
Slide 73: Thank You!
THANK YOU! ‘Y Rosteleco m