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Rostelecom OJSC: Half-yearly Report



  Rostelecom OJSC: Half-yearly Report

UK Regulatory Announcement

MOSCOW

PRESS RELEASE

   ROSTELECOM ANNOUNCES CONSOLIDATED IFRS FINANCIAL RESULTS FOR THE SECOND
                  QUARTER AND SIX MONTHS ENDED JUNE 30, 2013

Moscow, Russia – 22 August 2013 – Rostelecom OJSC (the “Group” and the
“Company”) (MICEX - RTS: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national
telecommunications operator, today announces its consolidated financial
results for the second quarter and six months ending June 30^th, 2013 prepared
in accordance with IFRS.

SIX MONTHS FINANCIAL HIGHLIGHTS

When comparing year-on-year performance for the first half of 2013, it is
important to note that substantial one-off revenues (“one-offs”) has been
recorded in the first quarter of 2012.

  * Consolidated revenue increased by 2% year-on-year to RUB 154.1 billion,
    excluding one-offs in the first quarter of 2012; reported revenue
    decreased by 5% year-on-year, including one-offs in the first quarter of
    2012;
  * OIBDA^1 of RUB 57.7 billion with an OIBDA margin of 37.4% (36.9% in 2012);
  * Net income of RUB 13.7 billion (reflects the change in Svyazinvest’s net
    profit recognition^2);
  * Capital expenditure^3 of RUB 31.9 billion, representing 20.7% of
    consolidated revenues;
  * Net debt^4 of RUB 181.9 billion with a net debt/annualized OIBDA ratio of
    1.6x as at 30 June 2013;
  * Net Cash from Operations of RUB 45.2 billion (up 3% y-o-y) and FCF^5 of
    RUB 13.3 billion.

SECOND QUARTER FINANCIAL HIGHLIGHTS

  * Consolidated revenue up 1% year-on-year to RUB 77.0 billion;
  * OIBDA of RUB 28.8 billion with an OIBDA margin of 37.4% (36.9% in 2012);
  * Net income of RUB 7.3 billion (reflects the change in Svyazinvest’s net
    profit recognition);
  * Capital expenditure of RUB 7.0 billion, representing 9.1% of consolidated
    revenues.

Sergey Kalugin, Rostelecom’s President, commented: “In terms of our
operational results, we are growing our subscriber base in some of the
industry’s key growth segments – Broadband and Pay TV. There is a great deal
of work to do in improving financial results of the Company, but we are
pleased with the early progress we are making. The Company’s reorganization is
almost completed, and in terms of our infrastructure, 3G networks have now
been launched in 21 regions. We have also enhanced our management team, which
is now made up of like-minded, highly successful professionals with vast
experience in telecoms, finance and marketing. A number of key areas have been
identified where improvements should be made if Rostelecom is to maximise its
efficiency. We are finalising the details of our strategy, which will be
submitted to the Board, and it will focus on accelerating the upgrade of our
network infrastructure, improving customer experience and developing products
that will distinguish Rostelecom from competition and deliver sustainable
growth – Rostelecom now certainly has the ingredients in place to deliver
this.”

Kai-Uwe Mehlhorn, Vice-President - Chief Financial Officer, noted: “The
results indicate that Rostelecom is continuing to substitute its traditional
income streams with some of the faster-growing market segments, such as pay TV
and broadband. Due to the relatively recent launch of our 3G networks,
penetration among our subscribers for mobile data services is still at a low
level, and revenue from data services is limited. Management initiatives have
already begun to have a positive effect on the business. However, the Company
will not be able to measure the extent of this positive influence until
subsequent reporting periods. 2013 is a transitional year for the Company, and
according to our forecasts, we will see slight revenue growth by the year-end,
with margins expected in the range of 36-39%. We are now establishing areas of
future growth, but it will take some time before this growth is realised.”

                                        %                             %
RUB million         2Q13      2Q12      change    1H13      1H12      change

                                        y-o-y                         y-o-y
Revenue             77,030    76,387    1%        154,097   161,706   (5%)
OIBDA               28,830    30,514    (6%)      57,667    64,921    (11%)
OIBDA margin, %     37.4%     39.9%               37.4%     40.1%      
Operating income    12,782    15,021    (15%)     24,264    32,812    (26%)
Operating margin,   16.6%     19.7%               15.7%     20.3%      
%
Net income          7,275     7,481     (3%)      13,688    19,948    (31%)
Net margin, %       9.4%      9.8%                8.9%      12.3%      
Capital             7,002     21,432    (67%)     31,890    41,858    (24%)
expenditure
% of revenue        9.1%      28.1%               20.7%     25.9%      
Net debt            181,921   194,883   (7%)      181,921   194,883   (7%)
Net
debt/annualized     1.6       1.4                 1.6       1.4        
OIBDA ratio^6

KEY OPERATING HIGHLIGHTS

  * Total broadband subscriber base up 11% year-on-year to 9.6 million
    subscribers. The number of subscribers connected via the fibre optic
    network increased by 1.5 times year-on-year to 3.3 million, representing
    34% of the subscriber base;

       * B2C subscriber base increased by 12% year-on-year to 8.9 million;

  * Total pay-TV subscriber base increased by 11% year-on-year to 6.9 million
    subscribers, of which the number of IPTV subscribers increased by nearly
    1.7 times to 1.7 million;
  * Total number of mobile subscribers increased by 2% year-on-year to 13.8
    million;
  * 3G networks have been commercially launched in 21 Russian regions.

                                                % change          % change
Number of subscribers (million)   2Q13   2Q12              1Q13  
                                                y-o-y             q-o-q
Local telephony                   26.4   27.8   (5%)       26.8   (2%)
Mobile                            13.8   13.5   2%         13.6   1%
Broadband Internet access incl.   9.6    8.6    11%        9.5    2%
Residential                       8.9    8.0    12%        8.8    2%
Corporate                         0.7    0.6    7%         0.7    1%
Pay TV incl.                      6.9    6.2    11%        6.8    1%
IPTV                              1.7    1.0    69%        1.6    7%

KEY EVENTS RELATING TO THE SECOND QUARTER OF 2013 AND AFTER THE REPORTING
PERIOD

Business News

  * LTE networks were launched in Sochi;
  * 3G networks were commercially launched in 21 regions, including in
    St-Petersburg and the Leningrad region;
  * Cloud services were launched for corporate clients;
  * A RUB 5 billion bond placement took place;
  * The AGM took place on 17 June, 2013, which approved a 2012 dividend
    payment of RUB 8.17 billion, or 25% of the Company’s net income for 2012
    in accordance with Russian Accounting Standards (RAS), which amounts to
    23.18% of the net income for 2012 according to International Financial
    Reporting Standards (IFRS), and consists of:

a) RUB 4.1022 per Class A preferred share (a total of 3.05% of 2012 net income
under RAS or 2.83% of 2012 net income under IFRS will be distributed as a
payment under this share class);

b) RUB 2.4369 per ordinary share (a total of 21.95% of 2012 net income under
RAS or 20.35% of 2012 net income under IFRS will be distributed as a payment
under this share class).

Reorganisation

  * On 26 June 2013, the EGM approved the Company’s reorganisation by merging
    Svyazinvest and its subsidiaries;
  * The Board of Directors approved the decision to increase the Company’s
    share capital through the issue of an additional 1,582,234,000 ordinary
    shares as part of the second stage of the reorganisation. As a result of
    the reorganisation 1,071,502,300 of the newly issued shares are planned to
    be placed in favour of Rosimuschestvo, a major Svyazinvest shareholder.
    The remaining shares will only be technically issued and will be cancelled
    in-line with legal requirements.
  * The Board of Directors outlined the share buyback procedure from the
    shareholders who voted against the reorganisation. As a result, the
    Company will acquire 6.5% of its own ordinary shares and 17.5% of
    preferred shares.

OPERATING REVIEW

Revenue Analysis

Revenue structure by services

                                        %                             %
RUB million           2Q13     2Q12     change    1H13      1H12      change

                                        y-o-y                         y-o-y
Local telephony       21,260   21,719   (2%)      42,659    43,323    (2%)
services
Intra-zone            4,152    4,720    (12%)     8,346     9,517     (12%)
telephony services
DLD/ILD telephony     4,206    5,070    (17%)     8,857     10,541    (16%)
services
Interconnection and
traffic transit       5,687    5,146    11%       11,063    10,035    10%
services
Broadband Internet    13,326   12,386   8%        26,680    24,544    9%
Pay TV                2,686    2,143    25%       5,458     4,198     30%
Mobile
communication         9,939    10,446   (5%)      19,442    20,477    (5%)
services
Data services (VPN,
data centres,         5,555    4,957    12%       10,890    9,952     9%
wholesale internet
sales)
Rent of channels      2,638    2,918    (10%)     5,246     5,812     (10%)
Other (including
one-offs earnings     7,581    6,882    10%       15,456    23,307    (34%)
in 1Q12)
Total revenue         77,030   76,387   1%        154,097   161,706   (5%)
Revenue excl.         77,030   76,387   1%        154,097   151,281   2%
one-off

Revenue structure by customer segments

                                      % change                       % change
RUB million         2Q13     2Q12                1H13      1H12     
                                      y-o-y                          y-o-y
Residential         40,119   40,680   (1%)       80,925    81,761    (1%)
customers
Corporate           17,425   17,156   2%         34,712    33,520    4%
customers
Governmental        9,801    9,445    4%         20,179    28,410    (29%)
customers
Operators           9,685    9,106    6%         18,281    18,015    1%
Total revenue       77,030   76,387   1%         154,097   161,706   (5%)
Revenue excl.       77,030   76,387   1%         154,097   151,281   2%
one-off

The Company reported a 1% year-on-year increase in revenue to RUB 77.0 billion
in the second quarter of 2013. This trend was influenced by the following
factors:

  * 8% revenue growth from broadband services, which increased by RUB 0.9
    billion;
  * 10% growth in other income, which increased by RUB 0.7 million. This
    includes income from the active development of intelligent network
    services (INS);
  * 12% growth in revenues from data services, including an increase in sales
    of VPN services, which were up RUB 0.6 billion.

In addition, revenues relating to the delivery of international, inter-city,
intra-zone and local telephone network services have continued to decline, as
a result of end users’ changing preferences with regards to how they make
calls, and the corresponding traffic migration to mobile operator networks.
Revenue from mobile service fell due to a decrease in ARPU, which relates to a
widespread lack of mobile data services in the first half of 2013. As of the
end of March 2013, Rostelecom started to actively launch 3G networks in the
regions where it provides mobile voice services. 3G networks have so far been
commercially launched in 21 regions.

The Group’s consolidated revenue increased by 2% year-on-year in the first
half of 2013 and amounted to RUB 154.1 billion, excluding one-offs in the
first quarter of 2012. This was largely due to growth in broadband and pay-TV.

Operating Income Analysis

Operating expenses structure (excluding amortisation)

                                        %                             %
RUB million         2Q13      2Q12      change    1H13      1H12      change

                                        y-o-y                         y-o-y
Personnel costs     20,572    19,904    3%        42,496    41,797    2%
Interconnection     12,137    11,313    7%        22,305    22,647    (1.5%)
charges
Materials,
repairs and         5,954     6,306     (6%)      11,903    13,570    (12%)
maintenance,
utilities
Other operating     (2,759)   (3,725)   (26%)     (5,242)   (6,322)   (17%)
income
Other operating     12,296    12,075    2%        24,968    25,093    (0.5%)
expenses
Total operating     48,200    45,873    5%        96,430    96,785    (0.4%)
expenses

The Company’s total operating expenses, excluding depreciation and
amortisation, increased by 5% year-on-year to RUB 48.2 billion in the second
quarter of 2013, mainly due to:

  * A 7% year-on-year increase in interconnection charges to RUB 12.1 billion,
    including a corresponding increase in income;
  * A 26% year-on-year decrease in other income to RUB 2.8 billion. These
    trends are mainly due to irregular compensation from the universal
    communications services fund. The situation is expected to stabilise over
    coming reporting periods and that the overall level of compensation will
    be comparable to the level of 2012;
  * A 2% year-on-year increase in other expenses to RUB 12.3 billion, largely
    due to a rise in bad debt provision. The provision for bad debt has been
    increased to account for the e-Government project and uncertainty with
    paying the contract;
  * A 3% year-on-year increase in personnel expenses to RUB 20.6 billion,
    which is partially linked to the change in the amount of performance based
    remuneration.

In the first half of 2013, operating expenses, excluding depreciation and
amortisation, remained largely unchanged compared to the corresponding period
last year and amounted to RUB 96.4 billion.

OIBDA for the second quarter of 2013 amounted to RUB 28.8 billion, and RUB
57.7 billion for the first half of 2013, with an OIBDA margin of 37.4% in each
case.

Depreciation and amortisation expenses increased by 4% in the second quarter
and first half of 2013 to RUB 16.0 billion and RUB 33.4 billion respectively.

The Company reported an operating income of RUB 12.8 billion in the second
quarter and RUB 24.3 billion for the six months of 2013, which amounts to
16.6% and 15.7% of the consolidated revenues respectively.

Net Income Analysis

The decrease in financial expenses in the second quarter and first half of
2013 by 9% and 2% respectively is due to a temporary reduction of 8% of total
debt. The decline of total debt is mainly due to CAPEX deviation during
calendar year as well as active working capital management (e.g. optimisation
of procurement process, payment terms).

In the second quarter of 2013, profit before tax amounted to RUB 9.1 billion,
a 13% year-on-year decrease. Profit before tax in the first six months of 2013
amounted to RUB 17.2 billion, a 35% year-on-year decrease.

The Company’s income tax contributions decreased by 40% year-on-year to RUB
1.8 billion in the second quarter of 2013, and fell by 45% year-on-year to RUB
3.6 billion in the first six months of 2013. This reflects changes in profit
before tax. The effective tax rate was 20% in the second quarter of 2013 and
21% in the first six months of 2013.

The change in net income in the second quarter of 2013 to RUB 7.3 billion, and
RUB 13.7 billion in the first six months of 2013, was largely as a result of
the following factors:

  * Allowance made for bad debts provision;
  * Irregular compensation from the universal communications services fund,
    which also had an impact on other operating income;
  * The launch of 3G networks in the regions, which continue to put short-term
    pressure on the business’ profitability;
  * A decrease in financial expenses.

Financial Review

Net operating cash flow increased by 3% year-on-year to RUB 45.2 billion in
the first six months of 2013.

Net cash used in investing activities decreased by 15% year-on-year to RUB
34.4 billion in the first half of 2013. CAPEX decreased by 67% year-on-year to
RUB 7.0 billion in the second quarter of 2013. This decrease reflects a CAPEX
deviation during calendar year as well as active working capital management
(e.g. optimisation of procurement process, payment terms).

The changes in net cash received from financing activities in the reporting
quarter were related to a decrease in debt.

As of 30 June 2013, the Group’s total debt decreased by 8% year to date and
amounted to RUB 197.2 billion. Nearly 99% of the Group’s total debt was
rouble-denominated as of 30 June 2013.

The Group’s net debt amounted to RUB 181.9 billion as of 30 June 2013,
equivalent to 1.6x annualised OIBDA.

OTHER INFORMATION

Conference Call

Rostelecom’s management will hold a conference call today at 4.00PM (Moscow),
2.00PM (CET), 1.00PM (UK) and 8.00AM (NYT). To participate in the conference
call, please dial:

Russia + 7 495 580 9543

UK/ International: +44-208-515-2303

US: + 1-480-629-9835

Access Code: 4631681

A replay of the conference call will be available on the Company’s website
http://www.rostelecom.ru/en/ir/results_and_presentations/financials/2013/ in
due course.

APPENDICES

1. Reconciliation of OIBDA;

2. Accounting policy specifics affecting Rostelecom’s results for the second
quarter and the first half of 2013;

3. Statement of Comprehensive Income for the second quarter and first half of
2013;

4. Statement of Cash Flows for the first half of 2013;

5. Statement of Financial Position as at 30.06.2013.

                                    * * *

For more information please visit http://www.rostelecom.ru/en/ir or contact:

“Rostelecom Investor Relations / Rostelecom IR” application is now available
to download for free from the Apple App Store and Google Play

Investor Relations Department

Tel. +7 (499) 995 97 80

ir@rt.ru

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         2Q 2013   2Q 2012   change,   1H 2013   1H 2012   change,
                                        y-o-y                         y-o-y
Operating income    12,782    15,021    (15%)     24,264    32,812    (26%)
Add: Depreciation   16,048    15,493    4%        33,403    32,109    4%
and amortisation
OIBDA               28, 830   30,514    (6%)      57,667    64,921    (11%)
OIBDA margin, %     37.4%     39.9%               37.4%     40.1%      

ATTACHMENT 2

ACCOUNTING POLICY SPECIFICS AFFECTING ROSTELECOM’S RESULTS FOR THE SECOND
QUARTER AND THE FIRST HALF OF 2013

Accounting for Rostelecom’s share in Svyzinvest’s net profit

A number of important actions aimed at implementing Rostelecom’s merger with
Svyazinvest and 20 regional companies, have been carried out since the
beginning of 2013 and the date of Rostelecom’s second quarter 2013 report.

The Boards of Directors of Rostelecom and Svyazinvest have agreed the price at
which shares will be exchanged once the reorganisation has been approved and
EGM of Rostelecom has approved the reorganisation. The completion of these
activities suggests that the reorganisation of Rostelecom is likely to take
place in 2013. To provide stakeholders with clarity regarding the Company’s
financial position and performance in anticipation of the completion of the
reorganisation, the Company has decided to change the way investments in
Svyazinvest are reported.

Moving forward, the key difference is that investments in Svyazinvest will no
longer be recognised using the equity method, and Rostelecom’s share in
Svyazinvest’s net profit, starting from the earliest possible comparative
period will be presented in the financial statements. The balance-sheet value
of the investments is no longer recognised as an asset, but is reflected as
equity in the financial statements.

Following the reorganisation, Rostelecom’s consolidated financials will
include the results of the merged companies. Given that the reorganisation is
reflected in the consolidated statements as a transaction under common
control, in accordance with Rostelecom’s current accounting policy, financial
statements for the previous periods will be restated to reflect the impact of
the reorganisation. The accounts will be restated going back to a date, no
earlier than the date at which the companies participating in the
reorganisation will come under ultimate shareholder’s common control.

Consolidation and inclusion of SKY Link CJSC financial results

The acquisition of Sky Link CJSC (“Sky Link”) is a 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 on October 1, 2010.

ATTACHMENT 3

STATEMENT OF COMPREHENSIVE INCOME FOR THE SECOND QUARTER AND FIRST HALF OF
2013

                      Three-month period ended 30   Six-month period ended
                      June                          30 June
                      2013            2013          2013          2012
                                                                 
                      (unaudited)     (unaudited)   (unaudited)   (restated)
                                                                              
Revenue               77,030          76,387        154,097       161,706
Operating expenses
Wages, salaries,
other benefits and    (20,572)        (19,904)      (42,496)      (41,797)
payroll taxes
Depreciation,
amortization and      (16,048)        (15,493)      (33,403)      (32,109)
impairment losses
Interconnection       (12,137)        (11,313)      (22,305)      (22,647)
charges
Materials,
utilities, repairs    (5,954)         (6,306)       (11,903)      (13,570)
and maintenance
Gain / (loss) on
disposal of
property, plant and   94              100           40            (283)
equipment and
intangible assets
Bad debt expense      (374)           (73)          (804)         (511)
Other operating       2,759           3,725         5,242         6,322
income
Other operating       12,016          12,102        (24,204)      (24,297)
expenses
Total operating       (64,248)        (61,366)      (129,833)     (128,892)
expenses, net
Operating profit      12,782          15,021        24,264        32,814
Income from           147             114           316           296
associates
Finance costs         (3,741)         (4,114)       (7,653)       (7,780)
Other investing and   270             217           855           1,208
financial gain
Foreign exchange      (401)           (788)         (543)         (138)
loss, net
Profit before         9,057           10,450        17,239        26,400
income tax
Income tax expense    (1,782)         (2,969)       (3,551)       (6,450)
Profit for the        7,275           7,481         13,688        19,950
period
                                                                              
Other comprehensive
income/(loss)
Items that may be
reclassified
subsequently to
profit and loss:
Revaluation loss on
available-for-sale    (705)           (545)         (658)         (654)
investments
Revaluation gain on
available-for-sale
investments           -               -             -             (749)
transferred to
profit on sale
Exchange
differences on        61              33            48            (44)
translating foreign
operations
Income tax relating
to items that may     9               150           -             150
be reclassified
Other comprehensive
loss for the          (635)           (362)         (610)         (1,297)
period, net of tax
Total comprehensive
income for the        6,640           7,119         13,078        18,653
period
                                                                              
Profit attributable
to:
Equity holders of     7,344           7,606         13,779        19,915
the Group
Non-controlling       (69)            (125)         (91)          35
interests
                                                                              
Total comprehensive
income attributable
to:
Equity holders of     6,705           7,247         13,165        18,621
the Group
Non-controlling       (65)            (128)         (87)          32
interests
                                                                              
Earnings per share
attributable to
equity holders of     2.53            2.50          4.74          6.86
the Group – basic
(in Roubles)
Earnings per share
attributable to
equity holders of     2.53            2.47          4.74          6.79
the Group – diluted
(in Roubles)

ATTACHMENT 4

STATEMENT OF CASH FLOWS FOR THE FIRST HALF OF 2013;

                                               Six-month period ended 30 June
                                                                   2012
                                               2013 (unaudited)   
                                                                   (restated)
Cash flows from operating activities
Profit before income tax                       17,239              26,400
Adjustments to reconcile profit before tax
to cash generated
from operations:
Depreciation, amortization and impairment      33,403              32,109
losses
(Gain) / loss on disposal of property, plant   (40)                283
and equipment and intangible assets
Bad debt expense                               804                 511
Income from associates                         (316)               (296)
Finance costs excluding finance costs on
pension and other long-term social             7,281               7,311
liabilities
Other investing and financing gain             (855)               (1,208)
Foreign exchange loss, net                     543                 138
Share-based payment expenses                   -                   41
Changes in net working capital:
Increase in accounts receivable                (3,555)             (11,644)
Increase in employee benefits                  85                  186
Decrease/(increase) in inventories             527                 (296)
Increase in accounts payable, provisions and   4,335               2,568
accrued expenses
Change in other assets and liabilities         (1,572)             (276)
Cash generated from operations                 57,879              55,827
Interest paid                                  (8,155)             (7,470)
Income tax paid                                (4,503)             (4,348)
Net cash provided by operating activities      45,221              44,009
Cash flows from investing activities
Purchase of property, plant and equipment      (31,890)            (41,858)
and intangible assets
Proceeds from sale of property, plant and      666                 147
equipment and intangible assets
Acquisition of financial assets                (3,718)             (3,509)
Proceeds from disposals of financial assets    395                 5,513
Interest received                              10                  106
Dividends received                             133                 11
Purchase of subsidiaries, net of cash          (21)                (1,175)
acquired
Proceeds from disposal of subsidiaries, net    -                   81
of cash disposed
Acquisition of equity accounting investees     (5)                 -
Net cash used in investing activities          (34,430)            (40,684)

                                              Six-month period ended 30 June
                                                                  2012
                                              2013 (unaudited)   
                                                                  (restated)
Cash flows from financing activities
Sale of treasury shares                       8,234               2,224
Purchase of treasury shares                   -                   (21,367)
Proceeds from bank and corporate loans        172,778             247,216
Repayment of bank and corporate loans         (219,276)           (209,045)
Proceeds from bonds                           30,000              -
Repayment of bonds                            (1,215)             (3,377)
Proceeds from promissory notes                -                   21,882
Repayment of promissory notes                 -                   (21,863)
Repayment of vendor financing payable         15                  (70)
Repayment of other non-current financing      (6)                 (6)
liabilities
Repayment of finance lease liabilities        (501)               (923)
Dividends paid to shareholders of the Group   (427)               (362)
Dividends paid to non-controlling             (18)                -
shareholders of the Group
Acquisition of non-controlling interest       -                   (15,628)
Net cash used in financing activities         (10,416)            (1,319)
                                                                              
Effect of exchange rate changes on cash and   16                  10
cash equivalents
                                                                              
Net increase in cash and cash equivalents     391                 2,016
Cash and cash equivalents at beginning of     10,370              7,380
the period
Cash and cash equivalents at the end of the   10,761              9,396
period

ATTACHMENT 5

STATEMENT OF FINANCIAL POSITION AS AT 30.06.2013;

                                                            
                                              30 June 2013   31 December 2012
                                              (unaudited)    (restated)
ASSETS
Non-current assets
Property, plant and equipment                 379,991        385,994
Investment property                           216            274
Goodwill and other intangible assets          84,191         87,830
Investments in associates                     5,420          5,179
Other investments                             1,763          2,498
Deferred tax assets                           3,192          2,694
Other non-current assets                      4,456          5,413
Total non-current assets                      479,229        489,882
Current assets
Inventories                                   4,007          4,534
Trade and other accounts receivable           37,672         33,992
Prepayments                                   3,486          3,912
Prepaid income tax                            3,363          2,921
Other investments                             4,467          952
Cash and cash equivalents                     10,761         10,370
Other current assets                          1,386          1,258
Total current assets                          65,142         57,939
Total assets                                  544,371        547,821
EQUITY AND LIABILITIES
Equity attributable to equity holders of
the Group
Share capital                                 106            106
Additional paid-in capital                    7,046          7,119
Treasury shares                               (28,374)       (36,615)
Retained earnings and other reserves          229,203        254,457
Total equity attributable to equity holders   207,981        225,067
of the Group
Non-controlling interests                     206            493
Total equity                                  208,187        225,560
Non-current liabilities
Loans and borrowings                          150,744        150,907
Employee benefits                             11,082         10,997
Deferred tax liabilities                      22,541         22,565
Accounts payable, provisions and accrued      224            230
expenses
Other non-current liabilities                 4,864          4,136
Total non-current liabilities                 189,455        188,835
Current liabilities
Loans and borrowings                          46,411         63,499
Accounts payable, provisions and accrued      91,573         59,889
expenses
Income tax payable                            35             50
Other current liabilities                     8,710          9,988
Total current liabilities                     146,729        133,426
Total liabilities                             336,184        322,261
Total equity and liabilities                  544,371        547,821

                                    * * *

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 9.6 million fixed-line broadband subscribers and over 6.9 million
pay-TV subscribers. As Rostelecom develops its mobile data networks, its
position as a major mobile operator is growing with over 13.8 million
currently subscribed to Rostelecom’s mobile voice services. 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 154.1 billion of consolidated revenues, RUB
57.7 billion of OIBDA (37.4% of revenues) and RUB 13.7 billion of net income
for the first six months ended June 30^th, 2013.

                                    * * *

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.

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

^2 In order to provide an accurate reflection of the Company’s financial
position and performance in anticipation of the completion of the
reorganisation, the Company has changed the way investments in Svyazinvest are
reported. The key difference is that investments in Svyazinvest will no longer
be recognised using the equity method, and Rostelecom’s share in Svyazinvest’s
net profit will be presented in the financial statements starting from the
earliest possible comparative period. Therefore, income from associated
companies in 1Q13 includes OJSC Bashinformsvyaz and others but does not
include Rostelecom’s share in OJSC Svyazinvest’s net profit.

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

^4 Here and below, net debt is calculated as the sum of long-term loans and
short-term borrowings minus cash and cash equivalents and short-term
investments

^5 Free Cash Flow is calculated as Net cash provided from operating activities
minus CAPEX

^6 Annualised OIBDA

Contact:

Rostelecom OJSC
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