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 email@example.com 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
Rostelecom OJSC: Half-yearly Report
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