OREANDA-NEWS. March 21, 2014. Rostelecom OJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, announces its consolidated financial results for the fourth quarter and the full year of 20131 prepared in accordance with IFRS2.

FULL YEAR 2013 FINANCIAL HIGHLIGHTS

When analysing the full-year 2013 results, it is important to consider the following:
the consolidation of the results of OJSC Svyazinvest and its subsidiaries3;
the restatement of historic data from previous periods in accordance with Appendix 2;
the separation of results from continuing operations and discontinued operations based on the decision to create a JV with Tele2 Russia, as outlined in Appendix 3;
the presence of significant one-off revenues in the results for 2012.
Consolidated revenues up 1% year-on-year to RUB 325.7 billion (excluding one-off revenues in the first quarter of 2012). Revenues decreased by 2% year-on-year after factoring in one-off revenues;
OIBDA4 amounted to RUB 113.3 billion;
OIBDA margin of 34.8% compared to 36.2% in 2012, reflecting:
the absence of one-off revenues in 2013;
the effect of merging Svyazinvest and its subsidiaries as part of the second stage of the Company’s reorganisation;

the increasing share of revenues by fast-growing segments, which operate at a lower margin than traditional segments.

Net income of RUB 24.1 billion. Net income according to Russian Accounting Standards (RAS), which is used to calculate dividends for preferred shares, amounted to RUB 35.3 billion;

Capital expenditure5 of RUB 68.5 billion (21.0% of revenue);

Net debt6 of RUB 217.3 billion as at 31 December, 2013 with a net debt/OIBDA ratio of 1.9x;

Net cash from operating activities of RUB 85.7 billion with free cash flow of RUB 17.2 billion.

FOURTH QUARTER FINANCIAL HIGHLIGHTS
Revenue remained flat year-on-year and amounted to RUB 85.3 billion;
OIBDA up 1% year-on-year to RUB 25.2 billion;
OIBDA margin rose to 29.5% from 29.2% in the fourth quarter of 2012;
Net income of RUB 1.0 billion compared to RUB 2.7 billion in the fourth quarter of 2012. This was due to the “paper” revaluation of costs relating to the option agreement with the Russian Direct Investment Fund (RDIF) and Deutsche Bank, as well as the effect of a tax impact of recovering a bad debt provision on a SkyLink loan;
Capital expenditure of RUB 21.4 billion (25.1% of revenue).

Sergey Kalugin, Rostelecom’s President, commented: “In 2013, Rostelecom completed the long process of creating a single national telecommunications company by merging with OJSC Svyazinvest, which enhances our ability to fully realise the economic benefits of the business’ scale.

Rostelecom has defined its strategic vision for the coming years, which is to transform the combined Rostelecom into modern, dynamic and world-class company. The strategy has been designed to reinforce the technical leadership of our network infrastructure, to ensure our customer service meets international best practice and to develop a differentiated product range based on unique bundles and content offerings. The strategy is also focused on delivering organisational improvements and achieving maximum operating efficiency.

Our strategic initiatives are reaping their first positive results. We were able to save more than RUB 16 billion by improving our tender procedures and relationships with suppliers.

We are also very pleased to have reached a joint venture agreement with Tele2 Russia at the end of 2013 that will see the mobile assets of Rostelecom and Tele2 Russia combine. By possessing a stake in a large and fast-growing mobile operator, the deal will allow Rostelecom to significantly strengthen its presence in the rapidly developing mobile data market.

Rostelecom continues to evolve, moving away from the traditional mobile operator model to become a modern service provider and Russia’s leading telecommunications company. In making this transition, our main objectives are to increase revenue by offering high-quality and modern services, ensure maximum operating efficiency and ultimately to create additional value for all our shareholders.”

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added: “Our team’s efforts to strengthen Rostelecom’s market position in key segments have enabled us to achieve stable operating and financial results in 2013. We continue to expand our broadband and pay-TV subscriber base and increase our revenues from these growing market segments. The number of broadband customers rose by 8% and reached 10.6 million by the end of 2013. The growth rate of subscribers connected by the fibre optic network was more pronounced, increasing by 30% to 4 million subscribers and making up 38% of the total subscriber base. 2013 was not an easy year with regard to the process of consolidating Svyazinvest, improving internal procedures and identifying strategic priorities. Despite this, we managed to achieve stable financial and operating results on the whole. We were also able to increase margins across the entire business in the fourth quarter by implementing measures to improve internal efficiency, which included the streamlining of our procurement procedures.”

1 Unaudited data for the fourth quarter, audited data for the full year 2013

2 Data for the first 9 months of 2013 is a combination of the consolidated financial statements of OJSC Rostelecom (IFRS), OJSC Svyazinvest and its subsidiaries, which were merged with Rostelecom on October 1, 2013.

3 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)

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

5 Here and below, capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets

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