Rostelecom OJSC: 3rd Quarter Results

  Rostelecom OJSC: 3rd Quarter Results

UK Regulatory Announcement

MOSCOW

            ROSTELECOM REPORTS IFRS CONSOLIDATED FINANCIAL RESULTS
        FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER30, 2012

Rostelecom OJSC (the “Group” and the “Company”) (MICEX - RTS: RTKM, RTKMP;
OTCQX: ROSYY), Russia’s national telecommunications operator, today announced
its unaudited IFRS consolidated^1 financial results for the third quarter and
nine months ended September 30, 2012.

NINE MONTHS FINANCIAL HIGHLIGHTS

  *Consolidated revenues up 8% year-on-year to RUB 238.7 billion
  *OIBDA^2 up 8% year-on-year to RUB 94.0 billion with an OIBDA margin of
    39.4% compared to 39.2% for the same period of 2011
  *Net income up 13% year-on-year to RUB 30.6 billion
  *Capital expenditure^3 of RUB 63.5 billion, representing 26.6% of
    consolidated revenues
  *Net debt of RUB 197.6 billion with a net debt / annualised OIBDA ratio of
    1.6x as at September 30, 2012.

THIRD QUARTER FINANCIAL HIGHLIGHTS

  *Consolidated revenues up 2% year-on-year to RUB 77.0 billion
  *OIBDA of RUB 29.4 billion with an OIBDA margin of 38.2%
  *Net income up 8% year-on-year to RUB 9.9 billion
  *Capital expenditure ^ of RUB 21.6 billion, representing 28.1% of
    consolidated revenues

KEY OPERATING HIGHLIGHTS

  *Total number of households passed reached 33.4 million^4, of which 15.7
    million (47%) were passed using FTTx technology
  *Total broadband subscriber base up 12% year-on-year to 8.9 million
  *Total Pay TV subscriber base increased by 11% year-on-year to 6.4 million,
    of which 1.2 million are interactive TV subscribers.

Alexander Provotorov, President of Rostelecom, commented: “We continue to
deliver on our strategy, which was approved by the Board in May 2011. During
the third quarter, we were actively involved in the construction of our mobile
networks in selected regions, primarily where Rostelecom already has mobile
operations or uses frequency licences obtained through the acquisition of Sky
Link, which was completed at the end of July. Following the test launch of our
first 3G network in the Irkutsk region, the mobile data traffic in the region
increased by 1.5 times. This clearly indicates that we are moving in the right
direction to meet our clients’ needs. Our successful participation in the LTE
licence tender process was also among the key developments of the third
quarter“.

Anton Khozyainov, Senior Vice President of Rostelecom, added: “During the nine
months to September 30, 2012, our top line grew 8% year-on-year to RUB 238.7
billion the, OIBDA margin increased to 39.4% and net income grew 13%
year-on-year to RUB 30.6 billion. In addition, in early November, we increased
the share of our long-term debt by placing bonds with a total value of RUB 10
billion. This was the first time the united Rostelecom has issued bonds since
the start of the reorganisation process in 2011. Rostelecom’s strong credit
ratings and the high demand for our bonds from investors enabled us to achieve
attractive terms for this offering and to set the coupon at 8.55% per annum.”

CONSOLIDATION AND INCLUSION OF SKY LINK CJSC FINANCIAL RESULTS

The acquisition of Sky Link CJSC (“Sky Link”) is the transaction under common
control. In accordance with the Company’s accounting policy under IFRS, such
transactions are accounted for as if the acquisition was completed at the
beginning of the earliest period that is presented in the financial
statements, but not earlier than the period in which Sky Link was acquired
under common control of the Group’s majority shareholder. The comparative
information, which is presented in the current financial statements, has
therefore been restated from the date that Sky Link was acquired by
Svyazinvest, i.e. Oct 4, 2010.

FINANCIAL SUMMARY

                                     %                          %
RUB million         3Q 2012   3Q 2011   change,   9M 2012   9M 2011   change,
                                  y-o-y                    y-o-y
Revenue             76,985    75,250    2%        238,691   221,838   8%
OIBDA               29,426    30,060    (2%)      93,972    86,858    8%
OIBDA margin, %    38.2%    39.9%            39.4%    39.2%    
Operating income    13,434    14,775    (9%)      45,871    41,779    10%
Operating margin,  17.5%    19.6%            19.2%    18.8%    
%
Net income          9,902     9,203     8%        30,626    27,038    13%
Net margin, %      12.9%    12.2%            12.8%    12.2%    
Capital             21,602    15,902    36%       63,460    42,647    49%
expenditure
% of revenue       28.1%    21.1%            26.6%    19.2%    
Net debt            197,593   147,226   34%       197,593   147,226   34%
Net
debt/annualised    1.6х     1.3х             1.6х     1.3х     
OIBDA

OPERATING REVIEW

Revenue structure by services^5

                                    %                          %
RUB million        3Q 2012   3Q 2011   change,   9M 2012   9M 2011   change,
                                 y-o-y                    y-o-y
                                                                             
Local telephony    21,125    21,615    (2%)      64,448    66,107    (3%)
services
Intra-zone
telephony          4,568     5,287     (14%)     14,085    16,261    (13%)
services
DLD/ILD
telephony          4,863     5,633     (14%)     15,404    17,782    (13%)
services
Interconnection
and traffic        5,418     5,635     (4%)      15,453    14,757    5%
transit services
Broadband          12,367    11,391    9%        36,911    34,330    8%
Internet
Pay TV             2,394     1,716     40%       6,592     4,847     36%
Mobile
communication      10,512    10,284    2%        30,989    30,340    2%
services
Data services
(VPN, data
centres,           5,149     4,874     6%        15,101    13,597    11%
wholesale
Internet sales)
Rent of channels   3,014     2,746     10%       8,826     7,558     17%
Other             7,575    6,069    25%      30,882   16,259   90%
Total revenue     76,985   75,250   2%       238,691  221,838  8%

Revenue structure by customer segments

                                     %                          %
RUB million         3Q 2012   3Q 2011   change,   9M 2012   9M 2011   change,
                                  y-o-y                    y-o-y
Residential         40,163    40,700    (1%)      121,924   124,084   (2%)
customers
Corporate           16,844    17,191    (2%)      50,364    49,630    1%
customers
Governmental        10,191    8,101     26%       38,601    23,488    64%
customers
Operators           9,787     9,258     6%        27,802    24,636    13%
Total revenue      76,985   75,250   2%       238,691  221,838  8%

The Company reported a 2% year-on-year increase in revenue to RUB 77.0 billion
in the third quarter, which reflected:

  *an increase in revenues from cloud and IT solutions and from
    infrastructure rental as part of other revenues
  *broadband revenue growth which was in line with an increase in subscriber
    base
  *Pay TV revenue growth reflecting an increase in subscriber base.

This growth was partially offset by a decline in revenues from Domestic Long
Distance and International Long Distance and intrazonal telephony services,
which primarily reflected on-going changes in usage patterns for traditional
fixed-line services.

Rostelecom reported an 8% year-on-year increase in revenues to RUB 238.7
billion for the first nine months of 2012. The year-on-year growth primarily
reflected an increase in revenues from cloud and IT solutions and
infrastructure rental as part of other revenues, and higher revenues from
broadband and Pay TV services driven by increases in their respective
subscriber bases.

Key operating indicators

Number of Subscribers                     % change,           % change,
(millions):             3Q 2012  3Q 2011  y-o-y      2Q 2012  y-o-y
Household passed incl    33.4      30.9      8%          33.1      1%
FTTх                     15.7      11.9      32%         14.8      6%
Local telephony          27.5      28.8      (4%)        27.8      (1%)
Mobile                   13.5      13.3      2%          13.5      0.4%
Broadband Internet       8.9       7.9       12%         8.6       3%
access incl.
Residential              8.2       7.3       13%         8.0       3%
Corporate                0.6       0.6       8%          0.6       2%
Pay TV incl.             6.4       5.8       11%         6.2       3%
IPTV                    1.2      0.5      120%       1.0      21%
                                                                             
Traffic, generated by
residential and
corporate
subscribers^6
(billions of minutes)
Intra-zone               2.3       2.7       (13%)       2.4       (5%)
DLD                      1.1       1.2       (13%)       1.2       (7%)
ILD                     0.1      0.1      (14%)      0.1      (4%)

The total broadband subscriber base grew by 12% year-on–year and by 3%
quarter-on–quarter to 8.9 million users, while the total Pay TV subscriber
base increased by 11% year-on–year and by 3% quarter-on-quarter to reach 6.4
million subscribers. This reflected an increase in IPTV subscriber base which
more than doubled year-on-year and grew 21% quarter-on-quarter.

The number of mobile subscribers increased by 2% year-on-year to 13.5 million,
when including Sky Link Group’s subscribers. The year-on-year increase in
subscriber base can be attributed to marketing and promotional activities
related to Rostelecom’s mobile offering. Rostelecom’s total subscriber base
for local telephony services decreased both year-on-year and
quarter-on-quarter, as a result of on-going changes in customer preferences
towards mobile communications.

OPERATING EXPENSES^7 STRUCTURE

RUB million                        %                            %
                                      change,                         change,
                3Q 2012  3Q 2011  y-o-y    9M 2012   9M 2011   y-o-y
Personnel costs   19,327    18,371    5%        61,366     59,396     3%
Interconnection   11,812    11,521    3%        34,459     29,966     15%
charges
Materials,
repairs and       7,134     7,039     1%        20,998     20,605     2%
maintenance,
utilities
Other operating   (4,023)   (2,961)   36%       (10,345)   (10,173)   2%
income
Other operating  13,309   11,220   19%      38,241    35,186    9%
expenses
Total            47,559   45,190   5%       144,719   134,980   7%

The Company’s total operating expenses, excluding depreciation and
amortisation, increased by 5% year-on-year to RUB 47.6 billion in the third
quarter of 2012. The increase primarily reflected:

  *а 19% year-on-year increase in other operating expenses to RUB 13.3
    billion, which is attributable to higher property tax and increased
    expenses attributable to SKY LINK prior to its acquisition by the Group.
  *a 5% year-on-year increase in personnel costs to RUB 19.3 billion.

The Company’s total operating expenses, excluding depreciation and
amortisation, increased by 7% year-on-year to RUB 144.7 billion for the first
nine months of 2012.

The Company reported OIBDA of RUB 29.4 billion in the third quarter and OIBDA
of RUB 94.0 billion for the nine months of 2012, with OIBDA margins of 38.2%
and 39.4%, respectively.

Depreciation and amortisation expenses increased by 5% year-on–year to RUB
16.0 billion in the third quarter and by 7% year-on-year to RUB 48.1 billion
for the year-to-date. This was in line with expenditure requirements for the
video surveillance project and the commissioning of new fixed assets.

Rostelecom’s capital expenditure increased by 36% year-on-year to RUB 21.6
billion in the third quarter and by 49% year-on–year to RUB 63.5 billion for
the nine months of 2012. The increase in CAPEX is the result of work carried
out to upgrade and build channels for the video surveillance project, the
modernisation of broadband networks and IT systems, as well as the launch of
new services and the construction of Rostelecom’s 3G infrastructure.

The Company reported an operating profit of RUB 13.4 billion in the third
quarter and RUB 45.9 billion for the nine months of 2012, with operating
margins of 17.5% and 19.2%, respectively.

Other expenses were flat year-on-year in the third quarter of 2012. The
year-on-year increase in financial expenses which was attributable to an
increase in total debt, was fully offset by an increase in the Group’s equity
participation in Svyazinvest and Bashinformsvyaz’s earnings and a foreign
exchange gain.

Profit before tax remained stable year-on-year at RUB 11.6 billion in the
third quarter and increased by 12% year-on-year to RUB 39.3 billion for the
nine months of 2012.

The Company’s income tax contributions decreased by 28% year-on-year to RUB
1.7 billion in the third quarter and increased by 6% year-on–year to RUB 8.7
billion for the nine months of 2012, which reflected changes in profit before
tax.

Rostelecom’s effective tax rate was 14.9% in the third quarter and 22.1% for
the nine months of 2012. The third quarter effective tax rate was lower than
the statutory rate due to the recognition of a one-off deferred tax asset on
Sky Link’s losses.

The Company reported an 8% year-on-year increase in net income to RUB 9.9
billion in the third quarter and a 13% year-on-year increase to RUB 30.6
billion for the nine months of 2012.

FINANCIAL REVIEW

Net cash generated by operating activities increased by 16% year-on-year for
the nine months of 2012 and amounted to RUB 73.2 billion.

Cash used in investing activities decreased by 21% year-on-year to RUB 58.2
billion for the nine months of 2012, mainly as a result of the acquisition of
a 71.8% stake in NTK in the first quarter of 2011.

The year-on-year decrease in cash provided by financing activities as at the
end of the first nine months of 2012 was mainly due to the acquisition of
3.86% of Rostelecom ordinary shares by Mobitel (“Mobitel”) and the acquisition
of a 28.2% stake in NTK.

The Group’s total borrowings, including current and non-current obligations,
amounted to RUB 201.6 billion as at September 30, 2012. Over 98% of the
Group’s total debt was ruble-denominated at the end of the third quarter.

The Group’s net debt therefore amounted to RUB 197.6 billion, equivalent to
1.6x annualised OIBDA.

SIGNIFICANT EVENTS RELATING TO THE THIRD QUARTER OF 2012 AND AFTER THE END OF
THE REPORTING PERIOD

Business news

  *According to the results of a Roskomnadzor tender for the allocation of
    LTE-standard licences, Rostelecom was awarded licences within the
    791-798.5MHz band and 832-839.5MHz band to roll-out its LTE network, which
    can be further modified to provide 4G services
  *Rostelecom announced that over 8,000 base stations will be installed in 27
    regions as part of the first stage of building a modern multi-standard
    mobile network. The network will offer all the advantages of existing
    technologies which are used to provide 2G, 3G and 4G wireless services
  *Rostelecom launched its first 3G network in the Irkutsk region. Mobile
    data traffic has multiplied 1.5 times since the network’s test launch

  *Rostelecom commissioned an Oracle-based Hyperion unified budgeting
    solution, which will help draw new budgets and provide further control
    functions for its divisions in all 8 marco regions
  *Rostelecom announced that its broadband subscriber base now exceeds 9
    million users as at the beginning of November 2012. Rostelecom remains the
    leader of the Russian broadband market with a 40% market share^8, which is
    almost 4 times more than its nearest competitor
  *Rostelecom appointed CJSC “Sberbank CIB”, VTB Capital CJSC and Gazprombank
    OJSC to organise the Group’s potential bond placement. The issue is
    expected to raise a total nominal value of RUB 100 billion
  *Rostelecom set the coupon for the Series 17 bonds at 8.55% per annum, with
    a period of 182 days. The bonds, totalling a nominal value of RUB 10
    billion, have a three-year put option from placement and a maturity of 5
    years.

Reorganisation

  *An EGM of Svyazinvest shareholders passed a resolution on July 29, 2012,
    to increase the company’s share capital by issuing additional shares,
    which was proposed by the company’s Board. The shares were offered as part
    of a private placement to existing Svyazinvest shareholders. Rostelecom
    will pay cash for the additional shares, while the State, represented by
    the Federal Property Management Agency, will purchase its additional stake
    by transferring to Svyazinvest its ordinary shares in OJSC
    Bashinformsvyaz, JSC Ingushelektrosvyaz, JSC Chukotkasvyazinform, OJSC
    MMTS-9, as well as its ordinary and Class A preferred shares in JSC
    Central Telegraph
  *Svyazinvest held an extraordinary general meeting of shareholders on
    October 10, 2012. The EGM approved an inter-party transaction agreement to
    purchase additional shares as stipulated between the Russian state
    represented by the Federal Property Management Agency and Svyazinvest

  *Rostelecom's Board of Directors approved the acquisition of 140,315,416
    additional ordinary nominal book-entry shares in Svyazinvest.

M&A

  *Rostelecom completed the acquisition of a 100% stake in Sky Link. As part
    of the deal, Mobitel LLC, a subsidiary of Rostelecom, acquired a 50% stake
    in Sky Link from Svyazinvest in exchange for 1.91% of Rostelecom ordinary
    shares. As a result, Mobitel’s effective ownership in Sky Link now amounts
    to 100%. The 1.91% stake in Rostelecom was valued at RUB 9.4 billion, or
    RUB 167 per share
  *Rostelecom Board of Directors approved selling Rostelecom’s 2.95% stake in
    SMARTS ordinary shares back to SMARTS

  *AMT CJSC and Westelecom JSC, wholly-owned subsidiaries of Rostelecom,
    acquired 100% shares in Chita-on-Line Ltd, one of the largest alternative
    operators in Chita, from private investors.

Other

  *A consortium which includes the Russian Institute of Directors and rating
    agency Expert RA confirmed Rostelecom's national corporate governance
    rating at the level of "8", which corresponds to “Developed Corporate
    Governance Practice” on the National Corporate Governance Scale.
  *A Russian rating agency "Reputation" assigned Rostelecom its first
    Corporate social responsibility rating of "AA (s)".

OTHER INFORMATION

Conference call

Rostelecom will host a conference call today at
7.00 AM (ET) / 12.00 PM (UK) / 1.00 PM (CET) / 4.00 PM (MOSCOW)

To participate in the conference call, please dial:

Russia +7 495 580 9543
UK/ International: +44 208 515 2319
US: +1 480 629 9819

A replay of the conference call will be available on the Company’s website
http://www.rostelecom.ru/en/ir/results_and_presentations/financials/2012/ in
due course.

FOR MORE INFORMATION PLEASE CONTACT:

IR department
Tel. +7 (499) 995-97-80
ir@rt.ru

^1 Q1 2011 financial results include contributions from North-West Telecom
OJSC, CenterTelecom OJSC, Southern Telecommunications Company OJSC,
VolgaTelecom OJSC, Uralsvyazinform OJSC, Sibirtelecom OJSC, Far East Telecom
OJSC (“RTOs”), and also Dagsvyazinform OJSC and Rostelecom OJSC (under RAS),
which had been under common control of Svyazinvest OJSC and were merged with
Rostelecom on April 1, 2011. Operating activities include contributions from
Sky Link CJSC, which was acquired by Rostelecom from Svyazinvest on July 27,
2012

^2 Here and below, please refer to Attachment 1 of this statement for a full
definition of OIBDA

^3 Here and below, capital expenditure (“CAPEX”) comprises cash spent on
purchase of property, plant and equipment and intangible assets

^4 Calculated as the sum of total number of households passed by xDSL, FTTx
and xPON technologies, excluding technology intersections.

^5 Effective from April 1, 2011, the methodological changes in the revenue
structure include the following: 1) revenue from DLD/ILD traffic transit,
which were previously included in the “DLD / ILD telephony services” reporting
line, are now included in the “Interconnection and traffic transit services”
reporting line; 2) revenue from mobile interconnection services, previously
included in the “Interconnection and traffic transit services” reporting line,
are now presented under "Mobile Communication Services"; 3) other
methodological changes had no significant impact on the reporting structure.

^6 Excluding traffic, generated by other telecom operators

^7 Excluding depreciation and amortisation

^8 Source: ACM-Consulting

ATTACHMENTS:

1. Reconciliation of OIBDA;
2. Statement of Comprehensive Income for the three and nine months ended
September 30, 2012 and 2011
3. Statement of Cash Flows for the nine months ended September 30, 2012 and
2011
4. Statement of Financial Position

ATTACHMENT 1

RECONCILIATION OF OIBDA

OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company
defines as operating income before depreciation and amortisation. We believe
that OIBDA provides useful information to investors because it is an indicator
of the strength and performance of our business operations, including our
ability to finance capital expenditures, acquisitions and other investments
and our ability to incur and service debt. OIBDA should not be considered in
isolation as an alternative to net income, operating income or any other
measure of performance under U.S. GAAP or IFRS.

                                      %                        %
RUB million            3Q       3Q       change,   9M       9M       change,
                     2012    2011    y-o-y    2012    2011    y-o-y
Operating income       13,434   14,775   (9%)      45,871   41,779   10%
Add: Depreciation      15,992   15,285   5%        48,101   45,079   7%
and amortisation
OIBDA                  29,426   30,060   (2%)      93,972   86,858   8%
OIBDA margin, %       38.2%   39.9%           39,4%   39.2%   
                                                                             

ATTACHMENT 2
STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2012

                     Three -month periods ended  Nine -month periods ended
                      September 30                 September 30
                      2012           2011          2012          2011
                                                           
                      (unaudited)    (unaudited)   (unaudited)   (unaudited)
                                                             
Revenue               76,985         75,250        238,691       221,838
Operating expenses
Wages, salaries,
other benefits and    (19,327)       (18,371)      (61,366)      (59,396)
payroll taxes
Depreciation,
amortization and      (15,992)       (15,285)      (48,101)      (45,079)
impairment losses
Interconnection       (11,812)       (11,521)      (34,459)      (29,966)
charges
Materials,
utilities, repairs    (7,134)        (7,039)       (20,998)      (20,605)
and maintenance
Gain/(loss) on
disposal of
property, plant and   (257)          (381)         (540)         (967)
equipment and
intangible assets
Bad debt (expense)    (521)          (494)         (1,166)       (462)
recovery
Other operating       4,023          2,961         10,345        10,173
income
Other operating      (12,531)      (10,345)     (36,535)     (33,757)
expenses
Total operating      (63,551)      (60,475)     (192,820)    (180,059)
expenses, net
Operating profit     13,434        14,775       45,871       41,779
Income from           1,259          932           3,486         2,737
associates
Finance costs         (4,398)        (3,497)       (12,164)      (10,265)
Other investing and   860            956           1,791         1,426
financial gain
Foreign exchange     479           (1,572)      324          (482)
(loss)/gain, net
Profit before        11,634        11,594       39,308       35,195
income tax
Income tax expense   (1,732)       (2,391)      (8,682)      (8,157)
Profit for the       9,902         9,203        30,626       27,038
period
                                                                             
Other comprehensive
(loss) / income
Revaluation (loss)/
gain on               502            (456)         (152)         (174)
available-for-sale
investments
Revaluation gain on
available-for-sale
investments           9              -             (740)         -
transferred to
profit on sale
Exchange
differences on        (24)           -             (68)          -
translating foreign
operations
Share of other
comprehensive         31             (11)          (63)          (11)
income recognized
by associates
Income tax in
respect of other     (103)         92           178          35
comprehensive loss/
(gain) income items
Other comprehensive
(loss)/ income for   415           (375)        (845)        (150)
the period, net of
tax
Total comprehensive
income for the       10,317        8,828        29,781       26,888
period
                                                                             
Profit attributable
to:
Equity holders of     9,817          9,381         30,506        27,192
the Group
Non-controlling       85             (178)         120           (154)
interests
                                                                             
Total comprehensive
income attributable
to:
Equity holders of     10,237         9,006         29,666        27,042
the Group
Non-controlling       80             (178)         115           (154)
interests
                                                                             
Earnings per share
attributable to
equity holders of     3.13           3.27          10.55         9.48
the Group – basic
(in Roubles)
Earnings per share
attributable to
equity holders of     3.11           3.21          10.45         9.32
the Group – diluted
(in Roubles)
                                                                             

ATTACHMENT 3
STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

                                      Nine-month periods ended 30 September
                                     2012 (unaudited)    2011 (unaudited)
Cash flows from operating activities                     
Profit before income tax               39,308               35,195
Adjustments to reconcile profit
before tax to cash generated
from operations:
Depreciation, amortization and         48,101               45,079
impairment losses
Loss on disposal of property, plant    540                  967
and equipment and intangible assets
Bad debt expense                       1,166                462
Income from associates                 (3,486)              (2,737)
Finance costs excluding finance
costs on pension and other long-term   11,464               9,263
social liabilities
Other investing and financing gain     (1,791)              (1,426)
Foreign exchange (gain)/ loss, net     (324)                482
Share-based payment expenses           41                   513
Changes in net working capital:
Increase in accounts receivable        (10,046)             (3,854)
Increase in employee benefits          647                  1,029
Increase in inventories                (542)                (1,287)
Increase/(decrease) in accounts
payable, provisions and accrued        5,098                (4,965)
expenses
(Decrease)/increase in other assets   (748)               2,664
and liabilities
Cash generated from operations         89,428               81,385
Interest paid                          (11,757)             (9,544)
Income tax paid                       (4,495)             (8,995)
Net cash provided by operating        73,176              62,846
activities
Cash flows from investing activities
Purchase of property, plant and        (63,460)             (42,647)
equipment and intangible assets
Proceeds from sale of property,
plant and equipment and intangible     1,225                752
assets
Acquisition of financial assets        (3,764)              (5,456)
Proceeds from disposals of financial   7,991                8,041
assets
Interest received                      209                  1,472
Dividends received                     822                  193
Purchase of subsidiaries, net of       (1,287)              (32,285)
cash acquired
Proceeds from disposal of              81                   -
subsidiaries, net of cash disposed
Acquisition of equity accounting      -                   (3,640)
investees
Net cash used in investing            (58,183)            (73,570)
activities
                                                                             

                                      Nine-month periods ended 30 September
                                     2012 (unaudited)    2011 (unaudited)
Cash flows from financing activities                     
Purchase of treasury shares            (21,928)             (6)
Sale of treasury shares                2,224                -
Proceeds from bank and corporate       380,463              167,438
loans
Repayment of bank and corporate        (343,289)            (150,061)
loans
Proceeds from bonds                    -                    12
Repayment of bonds                     (6,436)              (8,398)
Proceeds from promissory notes         22,863               13,490
Repayment of promissory notes          (22,946)             (14,840)
Repayment of vendor financing          (124)                (323)
payable
Repayment of other non-current         (9)                  54
financing liabilities
Repayment of finance lease             (1,185)              (2,398)
liabilities
Dividends paid to shareholders of      (12,808)             (113)
the Group
Dividends paid to non-controlling      (190)                (303)
shareholders of subsidiaries
Acquisition of non-controlling        (15,628)            (366)
interest
Net cash (used in)/ provided by       (18,993)            4,186
financing activities
                                                                             
Effect of exchange rate changes on    (11)                (15)
cash and cash equivalents
                                                                             
Net increase decrease in cash and     (4,011)             (6,553)
cash equivalents
Cash and cash equivalents at          7,380               12,694
beginning of the period
Cash and cash equivalents at the end  3,369               6,141
of the period
                                                                             

ATTACHMENT 4
STATEMENT OF FINANCIAL POSITION

                                                          
                                         30 September 2012   31 December 2011
                                       (unaudited)        
ASSETS
Non-current assets
Property, plant and equipment            358,260             335,205
Investment property                      186                 259
Goodwill and other intangible assets     86,778              88,937
Investments in associates                34,726              34,746
Other investments                        2,691               3,635
Deferred tax assets                      510                 1,127
Other non-current assets                14,549             13,562
Total non-current assets                497,700            477,471
Current assets
Inventories                              5,316               4,763
Trade and other accounts receivable      35,834              28,790
Prepayments                              4,445               2,706
Prepaid income tax                       1,753               3,309
Other investments                        656                 3,926
Cash and cash equivalents                3,369               7,380
Other current assets                    2,838              1,276
Total current assets                    54,211             52,150
Total assets                            551,911            529,621
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the Group
Share capital                            106                 106
Additional paid-in capital               34,842              34,739
Treasury shares                          (36,707)            (17,164)
Retained earnings and other reserves    253,529            247,928
Total equity attributable to equity      251,770             265,609
holders of the Group
Non-controlling interests               438                7,784
Total equity                            252,208            273,393
Non-current liabilities
Loans and borrowings                     127,655             90,806
Employee benefits                        12,399              11,752
Deferred tax liabilities                 21,067              20,699
Accounts payable, provisions and         124                 85
accrued expenses
Other non-current liabilities           4,014              3,689
Total non-current liabilities           165,259            127,031
Current liabilities
Loans and borrowings                     73,963              81,464
Accounts payable, provisions and         50,860              39,196
accrued expenses
Income tax payable                       937                 242
Other current liabilities               8,684              8,295
Total current liabilities               134,444            129,197
Total liabilities                       299,703            256,228
Total equity and liabilities            551,911            529,621

                                    * * *

Rostelecom (www.rostelecom.ru) is Russia’s largest national telecommunications
operator with presence in all Russian regions. The Group is a universal
operator and undisputable leader of broadband and pay-TV markets in Russia
with over 9 million fixed-line broadband subscribers and over 6 million pay-TV
subscribers. As Rostelecom develops its mobile data networks, its position as
a major mobile operator is growing with over 13 million currently subscribed
to Rostelecom’s mobile voice services. The Company currently has approximately
28 million local fixed-line voice subscribers and it is the leader in the
corporate and government services segment. The Group is also an important
innovator that provides solutions in the field of medicine, E-Government,
cloud computing and education.

Rostelecom was assigned a ‘BBB-’ and ‘BB+’ international credit ratings by
Fitch Ratings and Standard & Poor’s respectively, both with a ‘Stable’
outlook. The Group generated RUB 238.7 billion of consolidated revenues, RUB
94.0 billion of OIBDA (39.4% of revenues) and RUB 30.6 billion of net income
for the nine months ended September 30, 2012.

                                    * * *

Certain statements in this press release are forward-looking statements within
the meaning of the U.S. federal securities laws and are intended to be covered
by the safe harbors created thereby.

Those forward-looking statements include, but are not limited to:

• Management’s assessment of the Company’s future operating and financial
results as well as forecasts of the present value of future cash flows and
related factors;

• the Company’s anticipated capital expenditures and plans to construct and
modernize its network;

• the Company’s expectations as to the growth in demand for its services,
plans relating to the expansion of the range of its services and their
pricing;

• the Company’s plans with respect to improving its corporate governance
practices;

• the Company’s expectations as to its position in the telecommunications
market and the development of the market segments within which the Company
operates;

• economic outlook and industry trends;

• the Company’s expectations as to the regulation of the Russian
telecommunications industry and assessment of impact of regulatory initiatives
on the Company’s activity;

• other statements regarding matters that are not historical facts.

Such forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. These risks,
uncertainties and other factors include:

• risks relating to changes in political, economic and social conditions in
Russia as well as changes in global economic conditions;

• risks relating to Russian legislation, regulation and taxation, including
laws, regulations, decrees and decisions governing the Russian
telecommunications industry, securities industry as well as currency and
exchange controls relating to Russian entities and their official
interpretation by regulatory bodies;

• risks relating to the Company, including the achievement of the anticipated
results, levels of profitability and growth, ability to create and meet demand
for the Company’s services including their promotions, and the ability of the
Company to remain competitive in a liberalized telecommunications market;

• technological risks associated with the functioning and development of the
telecommunications infrastructure, technological innovations as well as the
convergence of technologies;

• other risks and uncertainties. For a more detailed discussion of these and
other factors, see the Company’s Annual Report and the Company’s other public
filings.

Many of these factors are beyond the Company’s ability to control or predict.
Given these and other uncertainties, readers are cautioned not to place undue
reliance on any of the forward-looking statements contained herein or
otherwise. The Company does not undertake any obligation to release publicly
any revisions to these forward-looking statements (which are made as of the
date hereof) to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, except as may be required
under applicable laws.

Contact:

Rostelecom OJSC
 
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