Rostelecom OJSC: Rostelecom Announces Its IFRS Financial and Operating Results for the Fourth Quarter and Full Year 2013

  Rostelecom OJSC: Rostelecom Announces Its IFRS Financial and Operating
  Results for the Fourth Quarter and Full Year 2013

UK Regulatory Announcement

MOSCOW

Rostelecom OJSC (MOEX:RTKM, RTKMP; OTCQX:ROSYY), Russia’s national
telecommunications operator, today announces its consolidated financial
results for the fourth quarter and the full year of 2013^1 prepared in
accordance with IFRS^2.

FULL YEAR 2013 FINANCIAL HIGHLIGHTS

When analysing the full-year 2013 results, it is important to consider the
following:

  *the consolidation of the results of OJSC Svyazinvest and its
    subsidiaries^3;
  *the restatement of historic data from previous periods in accordance with
    Appendix 2;
  *the separation of results from continuing operations and discontinued
    operations based on the decision to create a JV with Tele2 Russia, as
    outlined in Appendix 3;
  *the presence of significant one-off revenues in the results for 2012.

  *Consolidated revenues up 1% year-on-year to RUB 325.7 billion (excluding
    one-off revenues in the first quarter of 2012). Revenues decreased by 2%
    year-on-year after factoring in one-off revenues;
  *OIBDA^4 amounted to RUB 113.3 billion;
  *OIBDA margin of 34.8% compared to 36.2% in 2012, reflecting:

       *the absence of one-off revenues in 2013;
       *the effect of merging Svyazinvest and its subsidiaries as part of the
         second stage of the Company’s reorganisation;
       *the increasing share of revenues by fast-growing segments, which
         operate at a lower margin than traditional segments.

  *Net income of RUB 24.1 billion. Net income according to Russian Accounting
    Standards (RAS), which is used to calculate dividends for preferred
    shares, amounted to RUB 35.3 billion;
  *Capital expenditure^5 of RUB 68.5 billion (21.0% of revenue);
  *Net debt^6 of RUB 217.3 billion as at 31 December, 2013 with a net
    debt/OIBDA ratio of 1.9x;
  *Net cash from operating activities of RUB 85.7 billion with free cash flow
    of RUB 17.2 billion.

FOURTH QUARTER FINANCIAL HIGHLIGHTS

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

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

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

^3 Telecomcentre, OJSC Central Telegraph, CJSC Open Telecom, OJSC Giprosvyaz,
OJSC Ingushelectrosvyaz, OJSC Chukotkasvyazinform, OJSC Bashinformsvyaz,,LLC
Bashtelecomservice, LLC Bashtelecomleasing, LLC Bashtelecominvest, LLC
Sterlitamak Building Service, OJSC Bashkortostan Mobile Network, OJSC Ufa
Plant “Promsvyaz”, OJSC Moscow Inter-city Telephone Station No. 9 (MMTS-9)

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

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

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

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

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

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

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

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

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

                                            2013                                  2012                                
                                                              From
                                      %         From          discontinued             From          From                    %
RUB million       4Q 2013   4Q 2012   change,   continuing    operations               continuing    discontinued            change,
                                   y-o-y    operations   (mobile       Total    operations   operations    Total   y-o-y
                                                (fixed-line   business)                (fixed-line   (mobile
                                                business)                              business))    business)
                                                              
Revenue           85,328    85,374    (0.05%)   290,736      34,968        325 704  295,341      37,094        332      (2%)
                                                                                                                    435
OIBDA             25,153    24,937    1%        104,148       9,134          113 282   109,615       10,728         120      (6%)
                                                                                                                    343
OIBDA margin, %   29.5%     29.2%               35.8%         26.1%          34.8%     37.1%         28.9%          36.20%
Operating         7,690     7,508     3%        45,234        -366           44,868    52,481        1,350          53,831   (17%)
income
Operating         9.0%      8.8%                15.6%         -1.0%          13.8%     17.8%         3.6%           16.20%
margin, %
Net income        1,022     2,658     (62%)     26,686        -2,555         24,131    35,577        -375           33,202   (27%)
% of revenue      1.2%      3.1%                9.2%          -7.3%          7.4%      11.9%         -1.0%          10.0%
Capital           21,386    28,342    (25%)                                  68,487                                 94,140   (27%)
expenditure
% of revenue      25.1%     33.2%                                            21.0%                                  28.3%
Net debt          217,310   200,769   8%                                     217,310                                200      8%
                                                                                                                    769
Net
debt/annualised  1.9      1.7                                       1.9                               1.7     
OIBDA

KEY OPERATING HIGHLIGHTS

  *The number of broadband subscribers grew by 8% year-on-year to 10.6
    million;

       *The B2C subscriber base grew by 9% to 9.8 million, while the number
         of subscribers connected by fibre optic increased by 30% year-on-year
         to 4.0 million (38% of the total subscriber base).

  *The pay-TV subscriber base grew by 9% year-on-year to 7.5 million
    subscribers

       *The number of IPTV subscribers increased by 38% to 2.2 million

  *The number of mobile subscribers increased by 9% year-on-year to 14.8
    million.

                               4Q    4Q    % change,  3Q 2013  % change,
Number of subscribers          2013  2012  y-o-y              y-o-y
(million)
Local telephony services        26.5   28.2   (6%)        27.0      (2%)
Mobile communication services   14.8   13.6   9%          14.1      5%
Broadband Internet              10.6   9.7    8%          10.3      2%
Residential                     9.8    9.0    9%          8.2       2%
Corporate clients               0.7    0.7    5%          0.7       1%
Pay-TV                          7.5    6.9    9%          7.3       2%
IPTV                           2.2   1.6   38%        2.0      9%

SIGNIFICANT EVENTS RELATING TO 2013 AND AFTER THE END OF THE REPORTING PERIOD

Business News

  *The Board of Directors approved the Company’s new strategy;
  *Rostelecom and Tele2 Russia signed a framework agreement on integrating
    their mobile assets;
  *The IPTV subscriber base reached 2 million in November 2013;
  *3G mobile networks were launched in 22 regions, including in St Petersburg
    and the Leningrad region;
  *Cloud services were launched for corporate clients;
  *Work commenced on reforming call centres;
  *A contract was signed with China Telecom on traffic transit from Europe to
    Asia;
  *The Company issued corporate bonds totalling RUB 30 billion;
  *The Board of Directors set 2 April, 2014 as the date for its EGM, where
    members of the Board of Directors are up for reelection and changes to the
    Company’s Charter will be made.

Reorganisation

Merger with Svyazinvest

  *The Board of Directors determined that a share buyback involving
    shareholders who voted against the reorganisation would be conducted at
    RUB 136.05 per ordinary share and RUB 95.24 per preferred share.
  *Svyazinvest bought 0.43% of Rostelecom’s ordinary shares from Mobitel for
    RUB 1.7 billion.
  *In June 2013, an EGM of Rostelecom’s shareholders approved the decision to
    reorganise the Company by merging Svyazinvest and a range of other
    companies which are either directly or indirectly fully owned by
    Rostelecom and/or Svyazinvest.
  *The Company acquired 6.5% of ordinary shares and 17.5% of preferred shares
    as a result of the compulsory share buyback from those shareholders who
    voted against the reorganisation.
  *The Company’s reorganisation in the form of merging Svyazinvest and a
    range of other companies which were either directly or indirectly fully
    owned by Rostelecom and/or Svyazinvest took place on 1 October, 2013.

The Spin-Off of Mobile Assets into CJSC RT-Mobile

  *The Board of Directors determined that a share buyback involving
    shareholders who voted against the reorganisation would be conducted at
    RUB 123.93 per ordinary share and RUB 87.80 per preferred share.
  *Shareholders approved the reorganisation at an EGM held in December 2013.
  *The Company acquired 6.1% of ordinary shares and 13.7% of preferred shares
    as a result of the compulsory share buyback from those shareholders who
    voted against the reorganisation.

M&A News

  *The Russian Direct Investment Fund (RDIF) and Deutsche Bank, one of the
    world’s leading banks, jointly acquired 72,187,366 Rostelecom ordinary
    shares. The investment amounted to RUB 7.674 billion.
  *LLC Mobitel acquired 7.45% of Rostelecom’s ordinary shares from
    Gazprombank for RUB 25.2 billion.

Other News

  *Fitch affirmed its rating for Rostelecom at investment grade (BBB-) with a
    stable outlook.
  *Standard & Poors confirmed Rostelecom’s credit rating as BB+ with a stable
    outlook.

OPERATING REVIEW

Revenue Analysis

Revenue structure by services

                    4Q               %                          %
RUB million          2013     4Q 2012   change,   2013      2012      change,
                                  y-o-y                    y-o-y
Local telephony      21,568   22,229    (3%)      87,436    89,504    (2%)
services
Intra-zone           4,230    4,889     (13%)     17,171    19,634    (13%)
telephony services
DLD/ILD telephony    4,011    5,030     (20%)     17,101    20,562    (17%)
services
Interconnection
and traffic          6,546    5,818     13%       24,864    21,991    13%
transit services
Broadband Internet   14,529   13,373    9%        55,938    51,619    8%
Pay-TV               3,274    2,449     34%       11,906    9,208     29%
Mobile
communication        9,884    10,172    (3%)      38,902    41,161    (5%)
services
Data services
(VPN, data           6,485    5,579     16%       23,025    20,872    10%
centres, wholesale
Internet sales)
Rent of channels     1,742    2,486     (30%)     9,486     11,433    (17%)
Other revenue       13,059  13,349   (2%)     39,876   46,451   (14%)
Total revenue       85,328  85,374   (0.05%)  325,704  332,435  (2%)

Revenue structure by customer segments

                                     %                          %
RUB million         4Q 2013   4Q 2012   change,   2013      2012      change,
                                  y-o-y                    y-o-y
Residential         41,537    41,778    (0.6%)    165,884   167,330   (1%)
customers
Corporate           18,253    18,189    0.4%      73,827    70,794    4%
customers
Governmental        14,055    15,028    (6%)      45,604    54,159    (16%)
customers
Operators          11,483   10,379   11%      40,389   40,152   1%
Total revenue      85,328   85,374   (0.05%)  325,704  332,435  (2%)

Revenue remained flat in the fourth quarter and amounted to RUB 85.3 billion.
This was influenced by the following factors:

  *9% revenue growth from broadband services as a result of an expanded
    subscriber base (an increase of RUB 1.2 billion);
  *16% revenue growth from data transfer services through promoting VPN
    services (an increase of RUB 0.9 billion);
  *34% revenue growth in pay-TV services due to an expanded subscriber base
    (an increase of RUB 0.8 billion).

Revenue dynamics were impacted by declining revenue from international,
inter-city, intra-zonal and local telephony services. This is due to changes
in end-users’ preferences in how telephone calls are made and the migration of
the corresponding traffic to mobile operators’ networks. Revenue from mobile
services fell due to a decline in ARPU. Postponing the commercial launch of 3G
networks also had an impact on revenue dynamics. Against the backdrop of
active promotions from competitors, Rostelecom launched its own campaigns to
retain subscribers and maintain market share. This in turn led to a higher
subscriber base.

In 2013, the Group’s revenue grew 1% year-on-year to RUB 325.7 billion
(excluding the one-off revenues in the first quarter of 2012). The main
drivers for this revenue growth were increased revenues from broadband
services and pay-TV. When one-off revenues are included, revenue fell by 2%
year-on-year.

Operating Income Analysis

Operating expenses structure (excluding amortization)

                                   %                            %
RUB million       4Q 2013   4Q 2012   change,   2013       2012       change,
                                y-o-y                      y-o-y
Personnel costs  24,284   24,230   0.2%     91,002    88,815    2%
Interconnection  14,116   13,389   5%       49,746    48,858    2%
charges
Materials,
repairs and      8,107    7,415    9%       28,495    28,483    0.04%
maintenance,
utilities
Other operating  (4,490)  (3,836)  17%      (15,929)  (14,749)  8%
income
Other operating  18,158   19,239   (6%)     59,108    60,686    (3%)
expenses
Total operating  60,175   60,437   (0.4%)   212,422   212,092   0.2%
expenses

In the fourth quarter of 2013, operating expenses excluding amortization were
slightly lower compared to the corresponding period of 2012 and amounted to
RUB 60.2 billion. This was influenced by the following factors:

  *A 6% year-on-year decline in other operating expenses to RUB 18.2 billion.
    This reduction can be attributed to falling property expenses following
    changes in tax rules in 2013;
  *A 17% increase in other operating income to RUB 4.5 billion this was
    partly due to receiving one-off income from disposing of other assets in
    the fourth quarter of 2013. The recovery of a large amount of losses from
    universal telecommunication services compared to the fourth quarter of
    2012 also contributed to this growth;
  *A 9% increase in materials and repairs and maintenance expenses to RUB 8.1
    billion following a rise in utility tariffs and repairs made to cable line
    infrastructure. These expenses remained flat in the full year 2013.

Operating expenses excluding amortization for the full year 2013 remained flat
compared to the corresponding period of last year and amounted to RUB 212.4
billion.

In the fourth quarter of 2013, OIBDA increased by 1% year-on-year to RUB 25.2
billion. In the full year of 2013, OIBDA amounted to RUB113.3 billion compared
to RUB 120.3 in 2012. The OIBDA margin in the fourth quarter amounted to
29.5%, and was 34.8% in the full year of 2013.

In the fourth quarter of 2013, depreciation and amortisation expenses remained
flat compared to the corresponding period last year and amounted to RUB 17.5
billion. Depreciation and amortisation expenses for the full year of 2013 grew
by 3% compared to 2012 and reached RUB 68.4 billion.

The Company’s operating income grew by 2% year-on-year to RUB 7.7 billion in
the fourth quarter of 2013. Operating income for the full year of 2013
amounted to RUB 44.9 billion compared to RUB 53.8 billion in 2012.

Net Income Analysis

The small increase in financial expenses in the fourth quarter of 2013 was
partly driven by lower levels of interest expenses being capitalised compared
to the fourth quarter of 2012, as well as higher total debt. The decrease in
financial expenses in 2013 was driven by higher levels of interest expenses
being capitalised.

Profit before tax amounted to RUB 2.9 billion in the fourth quarter of 2013
and RUB 32.1 billion in the full year of 2013. This represents a year-on-year
decrease of 13% and 24% respectively. Gross profit trends for the fourth
quarter of 2013 reflect the “paper” revaluation of costs relating to the
option agreement with the Russian Direct Investment Fund (RDIF) and Deutsche
Bank. The following had an impact on gross profit in the full year of 2013:

  *the high base effect in 2012, which was linked to the recognition of
    revenue from cancelling an option between Svyazinvest and Vnesheconombank,
    as well as selling Sberbank’s shares at a profit;
  *the deconsolidation of the subsidiary, GlobalTel.

In the fourth quarter of 2013, the Company’s income tax contributions
increased by 175% year-on-year to RUB 1.9 billion. In the full year of 2013,
income tax contributions decreased by 14% year-on-year to RUB 8.0 billion. The
effective income tax rate was 65% in the fourth quarter of 2013 and 25% for
the full year, compared to the 20% rate specified by the Tax Code. The
following factors contributed to the higher effective tax rate in the fourth
quarter of 2013:

  *The reversal of intergroup income from recovery reserves to account for
    the recovery of bad debts from Skylink. The tax rate was not reduced in
    this case since such an adjustment does not have any impact on the taxable
    base of a separate legal entity;
  *additional tax on mobile subsidiaries, which was accrued in the fourth
    quarter for all the previous periods. This relates to the decision to
    dispose of mobile assets.

The Group’s net profit amounted to RUB 1.0 billion in the fourth quarter and
RUB 24.1 billion in the full year of 2013.

Financial Review

Net operating cash flow amounted to RUB 85.6 billion in 2013, reflecting the
high base effect of 2012 as a result of certain one-off revenues.

Net cash used in investing activities fell by 33% in 2013 to RUB 61.9 billion.
Investments amounted to RUB 21.4 billion in the fourth quarter, 25% lower than
in the corresponding period of 2012. CAPEX decreased by 27% year-on-year to
RUB 68.5 billion in 2013. The decrease in investments in the fourth quarter
and full year of 2013 was down to management’s policy to improve the
effectiveness of investment activities, which includes optimising tender
procedures and relationships with suppliers.

The changes in net cash received from financing activities related to the
repurchase of shares from shareholders who voted against the Company’s
reorganisation.

At the end of 2013, the Group’s total debt grew by 5% and amounted to RUB
228.1 billion, which was partly due to buying back shares from shareholders
who did not approve the Company’s reorganisation. Nearly 99% of the Group’s
total debt was rouble-denominated as at 31 December, 2013.

As at 31 December, 2013, the Group’s net debt amounted to RUB 217.3 billion,
with a net debt / OIBDA ratio of 1.9x.

OTHER INFORMATION: CONFERNENCE CALL

Rostelecom’s management will hold a conference call today at 6.00PM (Moscow),
3.00PM (CET), 2.00 PM (UK) and 10.00 AM (NYT). To participate in the
conference call, please dial:

Russia: +7 495 213 0977

UK/International: +44 20 7784 1036

USA: +1 212 444 0895

Access code: 6662239

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

                                    * * *

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

APPENDICES

1. Reconciliation of OIBDA;

2. Accounting policy specifics affecting Rostelecom’s results for the fourth
quarter and full year of 2013;

3. Accounting policy specifics from separating the results of continuing and
discontinued operations in 2011-2013;

4. Statement of Comprehensive Income for the fourth quarter and full year of
2011-2013;

5. Statement of Cash Flows for the full year of 2011-2013;

6. Statement of Financial Position as at 31.12.2013, 31.12.2012, 31.12.2011.

APPENDIX 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         4Q 2013   4Q 2012   change,   2013      2012      change,
                                  y-o-y                    y-o-y
Operating income    7,690     7,508     2%        44,870    53,832    (17%)
Add: Depreciation   17,463    17,429    0.2%      68,414    66,511    3%
and amortisation
OIBDA               25,153    24,937    1%        113,282   120,343   (6%)
OIBDA margin, %    29.5%    29.2%            34.8%    36.2%    

APPENDIX 2: ACCOUNTING POLICY SPECIFICS AFFECTING ROSTELECOM’S RESULTS FOR THE
FOURTH QUARTER AND FULL YEAR OF 2013

The reorganisation in the form of merging OJSC Svyazinvest and 20 other
companies (either directly or indirectly controlled by Rostelecom and/or
Svyazinvest) 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 date at
which common control of the acquired company was established. For this reason,
the comparative information, which is presented in the current financial
statements, has therefore been revised to include data of the merged companies
from the earliest comparative period presented in the financial statements,
i.e. from 2011.

APPENDIX 3: ACCOUNTING POLICY SPECIFICS FROM SEPARATING THE RESULTS OF
CONTINUING AND DISCONTINUED OPERATIONS IN 2011-2013

In relation to Rostelecom Board of Director’s decision to create a joint
venture with Tele2 Russia by contributing its mobile assets to the JV and
following the EGM’s approval on 30 December to spin off its integrated mobile
assets into CJSC RT-Mobile, the Company presents results from continuing and
discontinued operations separately in accordance with IFRS 5.

The Group’s continuing operations results are presented as if the mobile
business was deconsolidated on the reporting date. Intergroup transactions
between continuing and discontinued operations are not excluded from the
continuing operations, but are presented as turnover from third parties.

The results from the discontinued operations present the sum of the results of
the mobile business operations and the losses from eliminating intergroup
operations. A full transcript of the components can be found in Note 35 of the
Group’s consolidated IFRS financial statements.

APPENDIX 4: STATEMENT OF COMPREHENSIVE INCOME FOR THE FOURTH QUARTER AND FULL
YEAR OF 2011- 2013

Statement of comprehensive income for full year of 2013

                                     Year ended 31 December 2013
                                                  Effect from   
                                      Continuing   Ddiscontinued
                                    operations  operations     Total
                                                                             
Revenue                               290,736      34,968          325,704
Operating expenses
Wages, salaries, other benefits and   (85,798)     (5,204)         (91,002)
payroll taxes
Depreciation, amortisation and        ( 58,914)    (9,500)         (68,414)
impairment losses
Interconnection charges               (42,420)     (7,326)         (49,746)
Materials, utilities, repairs and     (26,260)     (2,235)         (28,495)
maintenance
Loss on disposal of property, plant   111          (455)           (344)
and equipment and intangible assets
Bad debt expense                      (2,094)      (46)            (2,140)
Other operating income                15,228       701             15,929
Other operating expenses             (45,355)    (11,269)       (56,624)
Total operating expenses, net        (245,502)   (35,334)       (280,836)
Operating profit                     45,234      (366)          44,868
Income from associates                177          -               177
Finance costs                         (14,853)     (947)           (15,800)
Other investing and financial gain    4,981        (1,533)         3,448
Foreign exchange loss, net           (483)       (91)           (574)
Profit before income tax             35,056      (2,937)        32,119
Income tax expense                   (8,370)     382            (7,988)
Profit for the year                  26,686      (2,555)        24,131
Other comprehensive income/(loss)
Items that may be reclassified
subsequently to profit and loss:
Exchange differences on translating   41           -               41
foreign operations
Items that will not be reclassified
to profit and loss:
Remeasurement of defined benefit      1,853        -               1,853
pension plans
Income tax relating to items that    (371)       -              (371)
will not be reclassified
Other comprehensive income for the   1,523       -              1,523
year, net of tax
Total comprehensive income for the   28,209      (2,555)        25,654
year
Profit attributable to:
Equity holders of the Group           26,429       (2,557)         23,872
Non-controlling interests             257          2               259
Total comprehensive income
attributable to:
Equity holders of the Group           27,948       (2,557)         25,391
Non-controlling interests            261         2              263
                                                                             
Earnings per share attributable to
equity holders of the Group – basic   10.35        (1.00)          9.35
(in RUB)
Earnings per share attributable to
equity holders of the Group          10.35       (1.00)         9.35
–diluted (in RUB)

Statement of comprehensive income for full year of 2012

                                      Year ended 31 December 2012
                                                   Effect from  
                                       Continuing   discontinued
                                     operations  operations    Total
                                                                             
Revenue                                295,341      37,094         332,435
Operating expenses
Wages, salaries, other benefits and    (83,095)     (5,720)        (88,815)
payroll taxes
Depreciation, amortisation and         (57,134)     (9,377)        (66,511)
impairment losses
Interconnection charges                (40,736)     (8,122)        (48,858)
Materials, utilities, repairs and      (25,980)     (2,503)        (28,483)
maintenance
Loss on disposal of property, plant    (253)        (499)          (752)
and equipment and intangible assets
Bad debt expense                       (1,619)      230            (1,389)
Other operating income                 14,302       447            14,749
Other operating expenses              (48,345)    (10,200)      (58,545)
Total operating expenses, net         (242,860)   (35,744)      (278,604)
Operating profit                      52,481      1,350         53,831
Income from associates                 53           -              53
Finance costs                          (15,082)     (1,196)        (16,278)
Other investing and financial gain     6,695        (2,287)        4,408
Foreign exchange gain, net            432         57            489
Profit before income tax              44,579      (2,076)       42,503
Income tax expense                    (11,002)    1,701         (9,301)
Profit for the year                   33,577      (375)         33,202
Other comprehensive income/(loss)
Items that may be reclassified
subsequently to profit and loss:
Revaluation gain on                    1            -              1
available-for-sale investments
Revaluation gain on
available-for-sale investments         (740)        -              (740)
transferred to profit on sale
Exchange differences on translating    (88)         -              (88)
foreign operations
Income tax relating to items that      146          -              146
may be reclassified
Items that will not be reclassified
to profit and loss:
Remeasurement of defined benefit       330          -              330
pension plans
Income tax relating to items that     (66)        -             (66)
will not be reclassified
Other comprehensive income for the    (417)       -             (417)
year, net of tax
Total comprehensive income for the    33,160      (375)         32,785
year
Profit attributable to:
Equity holders of the Group            33,060       (383)          32,677
Non-controlling interests              517          8              525
Total comprehensive income
attributable to:
Equity holders of the Group            32,649       (383)          32,266
Non-controlling interests             511         8             519
                                                                             
Earnings per share attributable to
equity holders of the Group – basic    12.43        (0.14)         12.29
(in RUB)
Earnings per share attributable to
equity holders of the Group –diluted  12.34       (0.14)        12.20
(in RUB)

Statement of comprehensive income for full year of 2011

                                      Year ended 31 December 2011
                                                   Effect from  
                                       Continuing   discontinued
                                     operations  operations    Total
                                                                             
Revenue                                276,774      35,556         312,330
Operating expenses
Wages, salaries, other benefits and    (74,346)     (6,455)        (80,801)
payroll taxes
Depreciation, amortisation and         (50,425)     (8,897)        (59,322)
impairment losses
Interconnection charges                (35,121)     (7,002)        (42,123)
Materials, utilities, repairs and      (26,132)     (2,872)        (29,004)
maintenance
Loss on disposal of property, plant    (130)        (699)          (829)
and equipment and intangible assets
Bad debt expense                       (439)        (193)          (632)
Other operating income                 15,309       394            15,703
Other operating expenses              (44,894)    (10,392)      (55,286)
Total operating expenses, net         (216,178)   (36,116)      (252,294)
Operating profit                      60,596      (560)         60,036
Income from associates                 198          -              198
Finance costs                          (14,133)     (439)          (14,572)
Other investing and financial gain     3,851        (1,657)        2,194
Foreign exchange loss, net            (254)       (124)         (378)
Profit before income tax              50,258      (2,780)       47,478
Income tax expense                    (10,689)    30            (10,659)
Profit for the year                   39,569      (2,750)       36,819
Other comprehensive income/(loss)
Items that may be reclassified
subsequently to profit and loss:
Revaluation loss on                    (257)        -              (257)
available-for-sale investments
Share of other comprehensive gain      3            -              3
recognized by associates
Income tax relating to items that      (4)          -              (4)
may be reclassified
Items that will not be reclassified
to profit and loss:
Remeasurement of defined benefit       832          -              832
pension plans
Income tax relating to items that     (112)       -             (112)
will not be reclassified
Other comprehensive income for the    462         -             462
year, net of tax
Total comprehensive income for the    40,031      (2,750)       37,281
year
Profit attributable to:
Equity holders of the Group            39,819       (2,753)        37,066
Non-controlling interests              (250)        3              (247)
Total comprehensive income
attributable to:
Equity holders of the Group            40,281       (2,753)        37,528
Non-controlling interests             (250)       3             (247)
                                                                             
Earnings per share attributable to
equity holders of the Group – basic    14.46        (1.00)         13.46
(in RUB)
Earnings per share attributable to
equity holders of the Group –diluted  14.23       (0.98)        13.24
(in RUB)

Statement of comprehensive income for Q4 of 2013

                                                    
                                                   Three months ended
Mln Rub                                             31.12 2013  31.12 2012
                                                                
Revenue                                              85,328       85,374
Operating expenses
Wages, salaries, other benefits and payroll taxes    (24,284)     (24,230)
Depreciation, amortisation and impairment losses     (17,463)     (17,429)
Interconnection charges                              (14,116)     (13,389)
Materials, utilities, repairs and maintenance        (8,107)      (7,415)
Loss on disposal of property, plant and equipment    (196)        (255)
and intangible assets
Bad debt expense                                     (413)        (200)
Other operating income                               4,490        3,836
Other operating expenses                            (17,549 )   (18,784)
Total operating expenses, net                       (77,638)    (77,866)
Operating profit                                    7,690       7,508
Income from associates                               116          15
Finance costs                                        (4,145)      (3,937)
Other investing and financial gain                   (698)        (393)
Foreign exchange loss, net                          (54)        151
Profit before income tax                            2,909       3,344
Income tax expense                                  (1,888)     (686)
Profit for the year                                 1,021       2,658
                                                                             
Other comprehensive income/(loss)
Items that may be reclassified subsequently to       385          152
profit and loss:
Revaluation loss on available-for-sale investments   -            -
Share of other comprehensive gain recognized by      2            20
associates
Income tax relating to items that may be                          (147)
reclassified
Items that will not be reclassified to profit and   (371)       80
loss:
Remeasurement of defined benefit pension plans      16          105
Income tax relating to items that will not be       1,037       2,763
reclassified
Other comprehensive income for the year, net of
tax
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Group                          891          2,253
Non-controlling interests                            131          405
Total comprehensive income attributable to:
Equity holders of the Group                          901          2,364
Non-controlling interests                           136         399
                                                                             
Earnings per share attributable to                   0.37         0.86
equity holders of the Group – basic (in RUB)
Earnings per share attributable to                  0.37        0.85
equity holders of the Group –diluted (in RUB)

APPENDIX 5: STATEMENT OF CASH FLOWS FOR THE FULL YEAR OF 2011-2013

                                           Year ended 31 December
                                          2013       2012       2011
Cash flows from operating activities                             
Profit before income tax                    32,119      42,503      47,478
Adjustments to reconcile profit before
tax to cash generated
from operations:
Depreciation, amortization and impairment   68,414      66,511      59,322
losses
Loss on sale of property, plant and         344         752         829
equipment and intangible assets
Bad debt expense                            2,140       1,389       632
Income from associates                      (177)       (53)        (198)
Finance costs excluding finance costs on
pension and other long-term social          15,031      15,332      13,547
liabilities
Other investing and financial gain          (3,448)     (4,408)     (2,194)
Foreign exchange loss/(gain), net           574         (489)       378
Share-based payment expenses                -           18          588
Changes in net working capital:
Increase in accounts receivable             (5,706)     (8,193)     (2,211)
(Decrease)/ increase in employee benefits   (1,087)     162         (4,692)
Decrease in inventories                     986         192         158
Increase/ (decrease) in accounts payable,   378         4,431       (7,349)
provisions and accrued expenses
(Decrease)/ increase in other assets and   (2,318)    2,080      271
liabilities
Cash generated from operations              107,250     120,227     106,559
Interest paid                               (17,083)    (16,292)    (12,461)
Income tax paid                            (4,474)    (7,301)    (9,316)
Net cash provided by operating activities  85,693     96,634     84,782
Cash flows from investing activities
Purchase of property, plant and equipment   (68,487)    (93,665)    (87,905)
and intangible assets
Proceeds from sale of property, plant and   1,641       2,727       2,167
equipment and intangible assets
Acquisition of financial assets             (11,924)    (9,725)     (7,497)
Proceeds from disposals of financial        16,443      9,855       10,403
assets
Government grant received                   -           -           1,105
Interest received                           441         382         1,048
Dividends received                          11          8           11
Purchase of subsidiaries, net of cash       (47)        (1,507)     (32,281)
acquired
Proceeds from disposals of subsidiaries,    (6)         82          -
net of cash disposed
Acquisition of equity accounting           -          (20)       -
investees
Net cash used in investing activities      (61,928)   (91,863)   (112,949)
Cash flows from financing activities
Sale of treasury shares                     22,306      5,830       1,782
Purchase of treasury shares                 (58,376)    (22,126)    (4,507)
Proceeds from bank and corporate loans      509,685     532,983     298,626
Repayment of bank and corporate loans       (524,430)   (492,891)   (251,592)
Proceeds from bonds                         30,000      10,000      -
Repayment of bonds                          (1,613)     (7,285)     (13,932)
Proceeds from promissory notes              -           22,863      12,050
Repayment of promissory notes               (282)       (22,939)    (15,984)
Repayment of vendor financing payable       11          (163)       (368)
(Repayment of)/proceeds from other          (11)        (13)        72
non-current financing liabilities
Repayment of finance lease liabilities      (629)       (1,824)     (3,150)
Acquisition of non-controlling interest     (20)        (15,796)    (366)
Dividends paid to shareholders of the       (5,828)     (9,169)     (686)
Group
Dividends paid to non-controlling          (247)      (230)      (370)
shareholders of subsidiaries
Net cash (used in)/provided by financing   (29,434)   (760)      21,575
activities
Effect of exchange rate changes on cash    -          (16)       (26)
and cash equivalents
Net (decrease)/increase in cash and cash    (5,669)     3,995       (6,618)
equivalents
Cash and cash equivalents at beginning of  13,629     9,634      16,252
year
Cash and cash equivalents at the end of    7,960      13,629     9,634
year

APPENDIX 6: STATEMENT OF FINANCIAL POSITION AS AT 31.12.2013, 31.12.2012,
31.12.2011

                                    31 December  31 December  31 December
                                   2013         2012         2011
ASSETS
Non-current assets
Property, plant and equipment        335,059       399,917       348,493
Investment property                  113           274           259
Goodwill and other intangible        64,346        88,329        89,340
assets
Investments in associates            918           775           773
Other investments                    520           3,035         1,829
Deferred tax assets                  276           2,722         1,220
Other non-current assets            3,990        5,469        13,841
Total non-current assets            405,222      500,521      455,755
Current assets
Inventories                          3,941         4,990         5,172
Trade and other accounts             39,824        35,882        30,512
receivable
Prepayments                          3,508         4,416         2,945
Prepaid income tax                   4,894         2,951         3,384
Other investments                    1,966         3,492         4,609
Cash and cash equivalents            7,960         13,629        9,634
Other current assets                609          908          1,109
Total current assets                62,702       66,268       57,365
Held for sale assets                93,048       401          261
Total assets                        560,972      567,190      513,381
                                                                             
EQUITY AND LIABILITIES
Equity attributable to equity
holders of the Group
Share capital                        97            97            97
Additional paid-in capital           1,658         4,344         4,743
Treasury shares                      (68,325)      (34,822)      (18,388)
Retained earnings and other         262,967      266,607      235,158
reserves
Total equity attributable to         196,397       236,226       221,610
equity holders of the Group
Non-controlling interests           3,359        2,606        9,588
Total equity                        199,756      238,832      231,198
Non-current liabilities
Loans and borrowings                 184,600       152,874       94,640
Employee benefits                    9,774         10,861        11,046
Deferred tax liabilities             26,728        23,107        20,518
Accounts payable, provisions and     1,077         238           19,695
accrued expenses
Other non-current liabilities       5,127        4,136        3,689
Total non-current liabilities       227,306      191,216      149,588
Current liabilities
Loans and borrowings                 33,209        65,016        82,453
Accounts payable, provisions and     73,635        61,839        41,279
accrued expenses
Income tax payable                   69            55            243
Other current liabilities           9,350        10,232       8,620
Total current liabilities           116,263      137,142      132,595
Held for sale liabilities           17,647       -            -
Total liabilities                   361,216      328,358      282,183
Total equity and liabilities        560,972      567,190      513,381

                                    * * *

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 10.6 million fixed-line broadband subscribers and over 7.5 million
pay-TV subscribers. 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 325.7 billion of consolidated revenues, RUB
113.3 billion of OIBDA (34.8% of revenues) and RUB 24.1 billion of net income
for the 12 months ended December 31, 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.

Contact:

Rostelecom OJSC
 
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