OREANDA-NEWS. November 20, 2014. Rostelecom OJSC (MOEX - RTS: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, announces its consolidated financial results for the third quarter and the first nine months of 2014 prepared in accordance with IFRS.

THIRD QUARTER FINANCIAL HIGHLIGHTS FOR CONTINUING OPERATIONS (FIXED LINE BUSINESS)

Revenue from continuing operations grew 3% year-on-year in the third quarter of 2014 to RUB 74.8 billion;

Net profit of RUB 5.0 billion compared to RUB 9.5 billion in the third quarter of 2013;

OIBDA of RUB 26.2 billion compared to RUB 27.0 billion in the corresponding period of 2013;

OIBDA margin of 35.0% compared to 37.4% in the third quarter of 2013;

CAPEX of RUB 11.1 billion (14.8% of revenue), a 7% year-on-year increase (CAPEX represented 14.3% of revenue in the third quarter of 2013).

Net debt[ of RUB 181.9 billion with a net debt/annualized OIBDA ratio of 1.8x as at 30 September 2014.

CONSOLIDATED RESULTS

The transfer of Rostelecom’s mobile assets to the joint venture (“JV”) with Tele2 Russia had the following impact on the Company’s consolidated results:

The consolidated results for the third quarter of 2014 contain a one month contribution (July 2014) from RT-Mobile;

In the third quarter of 2014 after the deal with Tele2 Russia was completed, Rostelecom received a one-off gain before tax of RUB 22 billion as a result of fair valuation of investments to the JV with Tele2 Russia;

As a result of this one-off gain, Rostelecom’s consolidated net income increased by 157% to RUB 24.5 billion in the third quarter, and by 71% to RUB 39.6 billion in the nine months of 2014.

NINE MONTHS FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS FOR CONTINUING OPERATIONS (FIXED LINE BUSINESS)

Revenue from continuing operations grew 3% year-on-year in the nine months of 2014 to RUB 220.0 billion;

Net income of RUB 15.1 billion compared to RUB 23.9 billion in the nine months of 2013;

OIBDA of RUB 77.5 billion compared to RUB 80.6 billion in the corresponding period of last year;

OIBDA margin of 35.2% compared to 37.7% in the nine months of 2013;

Capital expenditure (“CAPEX”) of RUB 32.3 billion (14.7% of revenue). This represents a 18% year-on-year decrease (CAPEX was 18.3% of revenue in the nine months of 2013);

Sergey Kalugin, Rostelecom’s President, commented: “The deal to establish the JV with Tele2 Russia was completed in August, leaving us with a 45% stake in a newly created nationwide operator. This enables the management team to sharpen its focus on our core fixed-line business, where strong results were achieved in the priority broadband and pay TV segments during the third quarter of 2014.

We have introduced a number of successful initiatives, including the launch of a nationwide triple play promotion campaign to upsell to our current subscriber base and enhance loyalty. Furthermore, Rostelecom has become the second largest broadband player by subscriber base in the very competitive Moscow market. This is a great achievement when you consider that we only started our broadband operation in Moscow market just a few years ago when the market was already saturated.

We are therefore demonstrating that Rostelecom is on the right track and it shows what we can achieve with the right strategy, the foundation of which is our market leading customer service and high quality network infrastructure.”

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added: “Our mobile assets were successfully transferred to our joint venture with Tele 2 Russia in early August, leaving us with a minor contribution from these assets in our Q3 consolidated results, and this is nearly fully reflected in the bottom line of our fixed line business, which is our key segment. The transfer of our mobile assets to the mobile joint venture also led to a significant one-off gain, which relates to the difference between the book value and fair value of the transferred assets. This difference caused our net profit in the third quarter of 2014 to increase by more than 2.5 times.

We did not witness any negative impact on our demand for services during the third quarter as a result of the economic climate. In periods of macroeconomic instability the telecommunications business is one of the most resistant to fluctuations in consumer demand, as telecommunications expenses traditionally occupy a small proportion of both commercial and household budgets. Telecommunications services are also critically essential in the modern world. With this in mind, we maintain our forecast for 2014 and, in the fixed segment, expect to see revenue growth of 1-2%, closer to the higher end and the OIBDA margin to be in the 34-35% range, closer to the lower end. We also forecast CAPEX to be approximately 20-22% of revenue, closer to the lower end.”