The largest digital services provider in Russia

Rostelecom announces its IFRS financial and operating results for the first quarter 2014

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Moscow, Russia – May 27, 2014 – Rostelecom OJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announces its consolidated financial results for the first quarter of 20141 prepared in accordance with IFRS.

FIRST QUARTER 2014 FINANCIAL HIGHLIGHTS

When analysing the first quarter results, it is important to consider the following:

  • the completion of the first stage of the deal to create a JV with Tele2 Russia2, 3;
  • the consolidation of the results of OJSC Svyazinvest and its subsidiaries2, 4;
  • the separation of results from continuing operations and discontinued operations based on the decision to create a JV with Tele2 Russia2.
  • Consolidated Group revenues were up 1% year-on-year to RUB 80.4 billion for the first quarter of 2014 while revenues from continued operations (fixed business) increased by 4% to RUB 73.2 bln;
  • OIBDA5 amounted to RUB 26.5 billion compared to RUB 29.4 billion in the corresponding period of 2013;
  • OIBDA margin of 33% (37% in the first quarter of 2013);
  • Net income increased by 8% year-on-year to RUB 6.9 billion;
  • Capital expenditure6 decreased by 60% year-on-year to RUB 10 billion (12.4% of revenue);
  • Net debt7 of RUB 184 billion as at March 31 2014, with a net debt/OIBDA ratio of 1.7x;
  • Net cash from operating activities of RUB 22.7 billion with free cash flow of RUB 12.7 billion.

Sergey Kalugin, President of Rostelecom, commented: “We demonstrated stable financial and operating results in the first quarter of 2014. The Company continued to expand its broadband and IPTV subscriber bases during the first quarter of 2014, and we were also able to increase both revenue and profit while reducing our debt burden. The key achievements during the first quarter include completing the first stage of the deal to create a joint venture with Tele2 Russia, and signing two notable state contracts, one on providing video surveillance during the Unified State Exam worth RUB 600 million, and one on bridging the digital gap in the Russian regions by handling a RUB 163 billion federal government project. We are also pleased that our Board of Directors has recommended that shareholders approve a higher level of dividend per share. We also continue to develope and improve our service offering, increase income and focus on maximising internal efficiency.”

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added: “The results for the first quarter were in line with our expectations. The 1.1% increase in revenue growth for the first quarter coincided with an 8% increase in profits and we successfully replaced falling fixed voice income with revenue streams from fast-growing segments such as broadband, pay-TV, innovative services, and public sector projects. There are clear signals that we are improving our operating efficiency and we are on track to meeting our target for this year of reducing our operating expenses by RUB 5 billion. As part of our on-going strategic initiatives, the management team’s efforts are focused on expanding our income base and improving internal efficiency. These initiatives will not only help us to balance inflation risks and enhance our competitive position, they will also support our profitability level at a time of increased contribution from lower margin services as our pay tv and broadband businesses grow.”

KEY OPERATING HIGHLIGHTS

  • The number of broadband subscribers grew 8% year-on-year to 10.8 million;
    • The B2C subscriber base grew by 8% to 10 million, while the number of subscribers connected by fibre optic increased by 28% year-on-year to 4.3 million (40% of the subscriber base).
  • The pay-TV subscriber base grew by 8% year-on-year to 7.6 million;
    • The number of IPTV subscribers increased by 33% to 2.3 million
  • The number of mobile subscribers increased by 9% year-on-year to 14.8 million.

SIGNIFICANT EVENTS RELATING TO THE FIRST QUARTER 2014 AND AFTER THE END OF THE REPORTING PERIOD

Business News

  • Rostelecom and Tele2 Russia signed a framework agreement that will see the integration of their respective mobile assets;
  • Rostelecom successfully acted as Sochi Olympic and Paralympic Games general partner;
  • Rostelecom’s Board of Directors approved a new management option programme;
  • The first stage of the deal to create a JV with Tele2 Russia was completed;
  • Rostelecom signed two notable state contracts:
    • RUB 600 million contract with the Federal Education and Science Supervision Agency to provide video surveillance for the Unified State Exam in 2014;
    • A 10-year, RUB 163 billion state contract with the Federal Communications Agency , aimed at bridging the digital gap;
  • Rostelecom launched a company-wide Programme focused on improving Operational Efficiency;
  • Rostelecom’s shareholders elected a new Board of Directors at the EGM and also approved amendments to the Company’s charter;
  • Rostelecom’s Board of Directors set June 30, 2014 as the date for the Annual General Shareholders’ Meeting, and recommended dividend payments for 2013. The dividends are to be paid as follows:
    • RUB 4.848555414552 per Class A preferred share;
    • The dividend per ordinary share is calculated as follows: the total sum of RUB 8,824 mln, excluding the accrued dividends on the Class A preferred shares, is divided by the amount of Rostelecom ordinary shares outstanding as at July 14, 2014 (excluding the treasury shares on Rostelecom’s balance sheet).
  • The Company launched new IPTV bundles and offerings ;
  • The first multiplex system was made available for Rostelecom’s OTT customers;
  • New content services were developed, including an exclusive offer on the Paramount Channel, the addition of new TV channels, unlimited film storage and access to BRAIN GAMES; and
  • Rostelecom further developed the Europe-Asia transit project by constructing an additional section.

Reorganisation (spinning-off the mobile assets into RT-Mobile)

  • Rostelecom acquired 6.1% of its ordinary shares and 13.7% of its preferred shares as a result of the obligatory buyback from those shareholders who voted against the Company’s reorganisation.

Other News

  • The ratings agency Standard and Poor’s affirmed Rostelecom’s credit rating of BB+ with a stable outlook.

Full press-release


1 The data for the first quarter of 2013 is a combination of the consoliodated results of OJSC Rostelecom (according to IFRS), OJSC Svyazinvest and its subsidiary companies, which were merged with Rostelecom on October 1, 2013

2 Refer to Appendix 2

3 The 1Q 2014 IFRS financial results for the subsidiary companies transferred to the JV are fully included in Rostelecom Group’s consolidated results for the first quarter of 2014 (profit and loss statement, cash flow statement). However, the Group’s consolidated balance sheet as at March 31, 2014 does not include the figures of the subsidiary companies transferred to the JV.

4 Telecomcentre, OJSC Central Telegraph, CJSC Open Telecom, OJSC Giprosvyaz, OJSC Ingushelectrosvyaz, OJSC Chukotkasvyazinform, OJSC Bashinformsvyaz,,LLC Bashtelecomservice, LLC Bashtelecomleasing, LLC Bashtelecominvest, LLC Sterlitamak Building Service, OJSC Bashkortostan Mobile Network, OJSC Ufa Plant “Promsvyaz”, OJSC Moscow Inter-city Telephone Station No. 9 (MMTS-9)

5 Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA

6 Here and below, capital expenditure (“CAPEX”) comprises cash spent on purchase of property, plant and equipment and intangible assets

7 Here and below, net debt is calculated as total debt less cash, cash equivalents and short-term investments