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 firstname.lastname@example.org 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
Rostelecom OJSC: Rostelecom Announces Its IFRS Financial and Operating Results for the Fourth Quarter and Full Year 2013
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