Rostelecom OJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FIRST QUARTER 2014

  Rostelecom OJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING
  RESULTS FOR THE FIRST QUARTER 2014

UK Regulatory Announcement

MOSCOW

 ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FIRST
                                 QUARTER 2014

Moscow, Russia – May 27, 2014 – Rostelecom OJSC (MOEX: RTKM, RTKMP; OTCQX:
ROSYY), Russia’s national telecommunications operator, today announces its
consolidated financial results for the first quarter of 2014^1 prepared in
accordance with IFRS.

FIRST QUARTER 2014 FINANCIAL HIGHLIGHTS

When analysing the first quarter results, it is important to consider the
following:

- the completion of the first stage of the deal to create a JV with Tele2
Russia^2, 3;

- the consolidation of the results of OJSC Svyazinvest and its subsidiaries^2,
4;

- the separation of results from continuing operations and discontinued
operations based on the decision to create a JV with Tele2 Russia^2.

  *Consolidated Group revenues were up 1% year-on-year to RUB 80.4 billion
    for the first quarter of 2014 while revenues from continued operations
    (fixed business) increased by 4% to RUB 73.2 bln;
  *OIBDA^5 amounted to RUB 26.5 billion compared to RUB 29.4 billion in the
    corresponding period of 2013;
  *OIBDA margin of 33% (37% in the first quarter of 2013);
  *Net income increased by 8% year-on-year to RUB 6.9 billion;
  *Capital expenditure^6 decreased by 60% year-on-year to RUB 10 billion
    (12.4% of revenue);
  *Net debt^7 of RUB 184 billion as at March 31 2014, with a net debt/OIBDA
    ratio of 1.7x;
  *Net cash from operating activities of RUB 22.7 billion with free cash flow
    of RUB 12.7 billion.

RUB million                1Q 14    1Q 13    % change, y-oy
Revenue                    80,406   79,559   1%
OIBDA                       26,497    29,430    (10%)
OIBDA margin, %             33.0%     37.0%
Operating income            11,983    11,565    4%
Operating margin, %         14.9%     14.5%
Net income                  6,892     6,392     8%
% of revenue                8.6%      8.0%
Capital expenditure         9,959     25,112    (60%)
% of revenue                12.4%     31.6%
Net debt                    184,013   203,215   (9%)
Net debt/annualised OIBDA  1.7      1.8      
                                                               

Sergey Kalugin, President of Rostelecom, commented: “We demonstrated stable
financial and operating results in the first quarter of 2014. The Company
continued to expand its broadband and IPTV subscriber bases during the first
quarter of 2014, and we were also able to increase both revenue and profit
while reducing our debt burden. The key achievements during the first quarter
include completing the first stage of the deal to create a joint venture with
Tele2 Russia, and signing two notable state contracts, one on providing video
surveillance during the Unified State Exam worth RUB 600 million, and one on
bridging the digital gap in the Russian regions by handling a RUB 163 billion
federal government project. We are also pleased that our Board of Directors
has recommended that shareholders approve a higher level of dividend per
share. We also continue to develop and improve our service offering, increase
income and focus on maximising internal efficiency.”

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added:
“The results for the first quarter were in line with our expectations. The
1.1% increase in revenue growth for the first quarter coincided with an 8%
increase in profits and we successfully replaced falling fixed voice income
with revenue streams from fast-growing segments such as broadband, pay-TV,
innovative services, and public sector projects. There are clear signals that
we are improving our operating efficiency and we are on track to meeting our
target for this year of reducing our operating expenses by RUB 5 billion. As
part of our on-going strategic initiatives, the management team’s efforts are
focused on expanding our income base and improving internal efficiency. These
initiatives will not only help us to balance inflation risks and enhance our
competitive position, they will also support our profitability level at a time
of increased contribution from lower margin services as our pay TV and
broadband businesses grow.”

KEY OPERATING HIGHLIGHTS

  *The number of broadband subscribers grew 8% year-on-year to 10.8 million;

       *The B2C subscriber base grew by 8% to 10 million, while the number of
         subscribers connected by fibre optic increased by 28% year-on-year to
         4.3 million (40% of the subscriber base).

  *The pay-TV subscriber base grew by 8% year-on-year to 7.6 million;

       *The number of IPTV subscribers increased by 33% to 2.3 million

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

Number of subscribers    1Q 2014  1Q 2013  % change,  4Q 2013  % change,
(million)                                     y-o-y                 y-o-y
Local telephony          26.0     27.8     (6%)       26.5     (2%)
services
Mobile communication     14.8     13.6     9%         14.8     0.2%
services
Broadband Internet       10.8     10.0     8%         10.6     2%
Residential              10.0     9.2      8%         9.8      2%
Corporate clients        0.7      0.7      5%         0.7      1%
Pay-TV                   7.6      7.1      8%         7.5      1%
IPTV                     2.3      1.7      33%        2.2      6%
                                                              

SIGNIFICANT EVENTS RELATING TO THE FIRST QUARTER 2014 AND AFTER THE END OF THE
REPORTING PERIOD

Business News

  *Rostelecom and Tele2 Russia signed a framework agreement that will see the
    integration of their respective mobile assets;
  *Rostelecom successfully acted as Sochi Olympic and Paralympic Games
    general partner;
  *Rostelecom’s Board of Directors approved a new management option
    programme;
  *The first stage of the deal to create a JV with Tele2 Russia was
    completed;
  *Rostelecom signed two notable state contracts:

       *RUB 600 million contract with the Federal Education and Science
         Supervision Agency to provide video surveillance for the Unified
         State Exam in 2014;
       *A 10-year, RUB 163 billion state contract with the Federal
         Communications Agency , aimed at bridging the digital gap;

  *Rostelecom launched a company-wide Programme focused on improving
    Operational Efficiency;
  *Rostelecom’s shareholders elected a new Board of Directors at the EGM and
    also approved amendments to the Company’s charter;
  *Rostelecom’s Board of Directors set June 30, 2014 as the date for the
    Annual General Shareholders’ Meeting, and recommended dividend payments
    for 2013. The dividends are to be paid as follows:

       *RUB 4.848555414552 per Class A preferred share;
       *The dividend per ordinary share is calculated as follows: the total
         sum of RUB 8,824 mln, excluding the accrued dividends on the Class A
         preferred shares, is divided by the amount of Rostelecom ordinary
         shares outstanding as at July 14, 2014 (excluding the treasury shares
         on Rostelecom’s balance sheet).

  *The Company launched new IPTV bundles and offerings ;
  *The first multiplex system was made available for Rostelecom’s OTT
    customers;
  *New content services were developed, including an exclusive offer on the
    Paramount Channel, the addition of new TV channels, unlimited film storage
    and access to BRAIN GAMES; and
  *Rostelecom further developed the Europe-Asia transit project by
    constructing an additional section.

Reorganisation (spinning-off the mobile assets into RT-Mobile)

  *Rostelecom acquired 6.1% of its ordinary shares and 13.7% of its preferred
    shares as a result of the obligatory buyback from those shareholders who
    voted against the Company’s reorganisation.

Other News

  *The ratings agency Standard and Poor’s affirmed Rostelecom’s credit rating
    of BB+ with a stable outlook.

OPERATING REVIEW

Revenue Analysis

Revenue structure by services

RUB million                              1Q 2014  1Q 2013  % change, y-o-y
Local telephony services                 20,992   21,730   (3%)
Intra-zone telephony services            3,762    4,231    (11%)
DLD/ILD telephony services               3,969    4,695    (15%)
Interconnection and traffic transit      6,325    5,554    14%
services
Broadband Internet                       14,991   13,520   11%
Pay-TV                                   3,425    2,787    23%
Mobile communication services            9 ,239   9,503    (3%)
Data services (VPN, data centres,        5,853    5,349    9%
wholesale Internet sales)
Rent of channels                         2,527    3,335    (24%)
Other revenue                            9,324    8,854    5%
Total revenue                            80,406   79,559   1%
                                                          

Revenue structure by customer segments

RUB million             1Q 2014  1Q 2013  % change, y-o-y
Residential customers   41,570   41,958   (1%)
Corporate customers     18,235   17,949   2%
Governmental customers  10,408   10,607   (2%)
Operators               10,193   9,044    13%
Total revenue           80,406   79,559   1%
                                         

Revenue grew by 1% year-on-year in the first quarter of 2014 and amounted to
RUB 80.4 billion. This was influenced by the following factors:

  *11% revenue growth from broadband services as a result of an expanded
    subscriber base (an increase of RUB 1.5 billion);
  *14% revenue growth from data transfer services by attracting additional
    traffic volumes from other operators (an increase of RUB 0.8 billion);
  *23% revenue growth in pay-TV services due to an expanded subscriber base
    in the IPTV segment (an increase of RUB 0.6 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.

Operating Income Analysis

Operating expenses structure (excluding amortization)

RUB million                              1Q 2014  1Q 2013  % change, y-o-y
Personnel costs                          23,989   23,021   4%
Interconnection charges                  12,691   10,355   23%
Materials, repairs and maintenance,      6,922    6,228    11%
utilities
Other operating income                   (2,569)  (2,739)  (6%)
Other operating expenses                 12,876   13,264   (3%)
Total operating expenses                 53,908   50,128   8%
                                                          

In the first quarter of 2014, operating expenses excluding amortization grew
by 8% year-on-year to RUB 53.9 billion. This was influenced by the following
factors:

  *A 23% year-on-year increase in interconnection charges to RUB 12.7
    billion, which can be attributed to expanding the B2B and B2O business
    segments, which is accompanied by income growth, and increased content
    fees in relation the growing number of Pay TV subscribers;
  *A 4% year-on-year increase in personnel costs to RUB 24.0 billion due to
    the insourcing of a number of functions (the transfer of contracted agency
    staff to in-house employment to generate savings), along with one-off
    additional staff expenses relating to the Olympic and Paralympic Games in
    Sochi;
  *An 11% year-on-year increase in materials, repairs and utilities expenses
    to RUB 6.9 billion following a rise in utility tariffs and equipment
    installation charges, as well as the introduction of new facilities
    following the extension of our network.

In the first quarter of 2014, OIBDA reached RUB 26.5 billion, compared to RUB
29.4 billion in the corresponding period of 2013. The OIBDA margin in the
first quarter of 2014 was 33%, in contrast to 37% in 2013.

In the first quarter of 2014, depreciation and amortisation expenses decreased
by 19% compared to the corresponding period of 2013 and amounted to RUB 14.5
billion. The decrease in amortisation expenses is due to the absence of
amortisation expenses on mobile assets that are to be transferred to the JV
with Tele2 Russia (in accordance with IFRS rule 5).

The Company’s operating income for the first quarter of 2014 increased by 4%
and amounted to RUB 12 billion.

Net Income Analysis

Profit before tax grew by 11% in the first quarter of 2014 and amounted to RUB
9.2 billion. The following had an impact on gross profit in the first quarter
of 2014:

  *Income generated from the disposal of Rostelecom’s mobile business, which
    is reflected in the other operating income and expenses items;
  *An increase in financial expenses driven by lower levels of compounded
    interest expenses being capitalised compared to the first quarter of 2013;
    and
  *FX losses due to the weakening rouble.

Income tax in the first quarter of 2014 rose by 24% year-on-year to RUB 2.3
billion. The effective income tax rate was 25%, compared to the 20% rate
specified by the Tax Code. The higher effective tax rate in the first quarter
of 2014 was due to the non-accrual of tax (failure to deduct for tax purposes)
on some expenses.

The Group’s net profit increased by 8% in the first quarter of 2014 and
amounted to RUB 6.9 billion.

Financial Review

Net operating cash flow grew by 5% year-on-year in the first quarter of 2014
and amounted to RUB 22.7 billion. Free cash flow amounted to RUB 12.7 billion
in the first quarter of 2014, compared to - RUB 3.5 billion for the
corresponding period of 2013.

Net cash used in investing activities fell by 68% in the reporting quarter to
RUB 8.2 billion. Investments amounted to RUB 10 billion, a decrease of 60%
compared to the corresponding period of 2013. The decrease in investments in
the first quarter of 2014 was down to management’s policy of improving the
effectiveness of investment activities, which includes optimising tender
procedures and relationships with suppliers. The fact that the CAPEX programme
is implemented unevenly across the calendar year also contributed to this
reduction.

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

In the first quarter of 2014, the Group’s net debt fell by 6% from the
beginning of 2014 to RUB 214.7 billion. This reduction can be attributed to
the transfer of part of the Company`s debt to the JV with Tele2 Russia, and to
the repayment of a number of loans. More than 99% of the Group’s total debt
was rouble-denominated as at March 31, 2014.

As at March 31, 2014, the Group’s net debt amounted to RUB 184 billion with a
net debt / OIBDA ratio of 1.7x.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom’s management will hold a conference call today at 6.00PM (Moscow),
4.00PM (CET), 3.00 PM (UK) and 10.00 AM (NYT). To participate in the
conference call, please dial:

Russia: +7 495 705 9450

UK/International: +44(0)20 3427 1917

USA: +1 646 254 3365

Access code: 6213811

A replay of the conference call will be available on the Company’s website at
http://www.rostelecom.ru/ir/results_and_presentations/financials/IFRS/2014/ 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 first
quarter of 2014;

3. Statement of Comprehensive Income for the first quarter of 2014;

4. Statement of Cash Flows for the first quarter of 2014;

5. Statement of Financial Position as at the first quarter of 2014.

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.

RUB million                         1Q 2014  1Q 2013  % change, y-o-y
Operating income                    11,983   11,565   4%
Plus depreciation and amortisation   14,514    17,865    (19%)
OIBDA                                26,497    29,430    (10%)
OIBDA margin, %                     33.0%    37.0%    
                                                                         

APPENDIX 2: ACCOUNTING POLICY SPECIFICS AFFECTING ROSTELECOM’S RESULTS FOR THE
FIRST QUARTER OF 2014

1. Reorganisation through mergers

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.

2. Spinning off the mobile business

In relation to Rostelecom Board of Directors’ decision to create a joint
venture with Tele2 Russia by contributing its mobile assets to the JV, T2 RUS
Holding, 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 2 of the
Group’s consolidated IFRS financial statements.

Upon completion of the first stage of the deal, Rostelecom received 45% of the
voting rights, and 26% of the economic share of T2 RUS Holding.

The investment in T2 RUS Holding is reflected in Rostelecom’s consolidated
IFRS financial statement dated March 31, 2014 as an investment in an
associated company. The initial recognition of the investment is made on
value, which is based on the fair value of the assets, which were transferred
to T2 RUS Holding’s share capital. The fair value of the transferred assets
was determined by an independent auditor and amounted to RUB 26,874 billion.
Subsequent investments will be reflected in the financial results using the
equity method in accordance with IFRS 28.

APPENDIX 3: STATEMENT OF COMPREHENSIVE INCOME FOR THE FIRST QUARTER OF 2014

                                Three-month period ended 31 March 2014
                                  (unaudited)
                                  Continuing         Effect from
                               operations        discontinued  Total
                                                     operations*
                                                                 
Revenue                           73,155             7,251          80,406
Operating expenses
Wages, salaries, other
benefits and payroll              (22,752)           (1,237)        (23,989)
taxes
Depreciation,
amortization and                  (13,877)           (637)          (14,514)
impairment losses
Interconnection charges           (12,328)           (363)          (12,691)
Materials, utilities,             (6,405)            (517)          (6,922)
repairs and maintenance
Loss on disposal of
property, plant and               (69)               (23)           (92)
equipment and
intangible assets
Bad debt expense                  (899)              (112)          (1,011)
Other operating income            2,555              14             2,569
Other operating                 (9,634)           (2,139)       (11,773)
expenses
Total operating                 (63,409)          (5,014)       (68,423)
expenses, net
Operating profit                9,746             2,237         11,983
Income from associates            11                 -              11
Finance costs                     (4,114)            (70)           (4,184)
Other investing and               (833)              2,518          1,685
financial gain/(loss)
Foreign exchange loss,          (162)             (96)          (258)
net
Profit/(loss) before            4,648             4,589         9,237
income tax
Income tax expense              (2,271)           (74)          (2,345)
Profit/(loss) for the           2,377             4,515         6,892
period
                                                                             
Other comprehensive
income/(loss)
Items that may be
reclassified
subsequently to profit
and loss:
Exchange differences on
translating foreign             78                -             78
operations
Other comprehensive
income for the period,          78                -             78
net of tax
Total comprehensive
income/(loss) for the           2,455             4,515         6,970
period
                                                                             
Profit/(loss)
attributable to:
Equity holders of the             2,353              4,513          6,866
Group
Non-controlling                   24                 2              26
interests
                                                                             
Total comprehensive
income/(loss)
attributable to:
Equity holders of the             2,442              4,513          6,955
Group
Non-controlling                   13                 2              15
interests
                                                                             
Earnings/(loss) per
share attributable to
equity holders of the             1.02               1.94           2.96
Group – basic (in
Roubles)
Earnings/(loss) per
share attributable to
equity holders of the             1.02               1.94           2.96
Group – diluted (in
Roubles)
                                     
                                                                             
                                                                             
                         Three-month period ended 31 March 2013 (restated)
                          Continuing       Effect from
                        operations      discontinued       Total
                                           operations*
                                                         
Revenue                   70,580           8,979               79,559
Operating expenses
Wages, salaries,
other benefits and        (21,748)        (1,273)             (23,021)
payroll taxes
Depreciation,
amortization and          (15,648)         (2,217)             (17,865)
impairment losses
Interconnection           (9,056)          (1,299)             (10,355)
charges
Materials, utilities,
repairs and               (5,756)          (472)               (6,228)
maintenance
Gain / (loss) on
disposal of property,     89               (154)               (65)
plant and equipment
and intangible assets
Bad debt expense          (538)            60                  (478)
Other operating           2,716            23                  2,739
income
Other operating          (10,229)        (2,492)            (12,721)
expenses
Total operating          (60,170)        (7,824)            (67,994)
expenses, net
Operating profit         10,410          1,155              11,565
Income from               9                -                   9
associates
Finance costs             (3,696)          (277)               (3,973)
Other investing and       850              (22)                828
financial gain/(loss)
Foreign exchange         (122)           (18)               (140)
loss, net
Profit before income     7,451           838                8,289
tax
Income tax               (2,175)         278                (1,897)
(expense)/benefit
Profit for the period    5,276           1,116              6,392
                                                                             
Other comprehensive
income/(loss)
Items that may be
reclassified
subsequently to
profit and loss:
Exchange differences
on translating           (13)            -                  (13)
foreign operations
Other comprehensive
loss for the period,     (13)            -                  (13)
net of tax
Total comprehensive      5,263           1,116              6,379
income for the period
                                                                             
Profit attributable
to:
Equity holders of the     5,219            1,114               6,333
Group
Non-controlling           57               2                   59
interests
                                                                             
Total comprehensive
income attributable
to:
Equity holders of the     5,206            1,114               6,320
Group
Non-controlling           57               2                   59
interests
                                                                             
Earnings per share
attributable to
equity holders of the     2.00             0.42                2.42
Group – basic (in
Roubles)
Earnings per share
attributable to
equity holders of the     1.99             0.42                2.41
Group – diluted (in
Roubles)
                                                                             

* DISCONTINUED OPERATIONS

The following table illustrates information about consolidated income
statement of a discontinued operations for the year ended 31March 2014, 2013.

                                    Three-month period ended 31 March 2014
                                   Discontinued   Intragroup     Total
                                     operations      transactions
Revenue                              10,394         (3,143)        7,251
Operating expenses
Wages, salaries, other benefits      (1,237)         -               (1,237)
and payroll taxes
Depreciation, amortisation and       (637)           -               (637)
impairment losses
Interconnection charges              (3,007)         2,644           (363)
Materials, utilities, repairs and    (519)           2               (517)
maintenance
Loss on disposal of property,        (23)            -               (23)
plant and equipment
Doubtful debt allowance              (112)           -               (112)
Other operating income               14                              14
Other operating (expenses)/income   (2,635)        496            (2,139)
Total operating (expenses)/income,  (8,156)        3,142          (5,014)
net
Operating profit/(loss)             2,238          (1)            2,237
Finance (costs)/income               (643)           573             (70)
Other investing and financial        10,064          (7,546)         2,518
losses
Foreign exchange loss, net          (96)                         (96)
Profit/(loss) before income tax     11,563         (6,974)        4,589
Income tax expense                  (74)           -              (74)
Profit/(loss) for the period        11,489         (6,974)        4,515
                                                                             

                                    Three-month period ended 31 March 2013
                                   Discontinued   Intragroup     Total
                                     operations      transactions
Revenue                              10,075         (1,096)        8,979
Operating expenses
Wages, salaries, other benefits      (1,273)         -               (1,273)
and payroll taxes
Depreciation, amortisation and       (2,217)         -               (2,217)
impairment losses
Interconnection charges              (2,167)         868             (1,299)
Materials, utilities, repairs and    (479)           7               (472)
maintenance
Loss on disposal of property,        (154)           -               (154)
plant and equipment
Reversal of doubtful debt            60              -               60
allowance
Other operating income               19              4               23
Other operating (expenses)/income   (2,715)        223            (2,492)
Total operating (expenses)/income,  (8,926)        1,102          (7,824)
net
Operating profit                    1,149          6              1,155
Finance (costs)/income               (723)           446             (277)
Other investing and financial        526             (548)           (22)
gains/(losses)
Foreign exchange (loss)/income,     (20)           2              (18)
net
Profit/(loss) before income tax     932            (94)           838
Income tax benefit                  278            -              278
Profit/(loss) for the period        1,210          (94)           1,116
                                                                             

APPENDIX 4: STATEMENT OF CASH FLOWS FOR THE FIRST QUARTER OF 2014

                                         Three-month period ended 31 March
                                 Notes  2014 (unaudited)  2013 (restated)
Cash flows from operating                                  
activities
Profit before income tax                  9,237              8,289
Adjustments to reconcile profit
before tax to cash generated
from operations:
Depreciation, amortization and            14,514             17,865
impairment losses
Loss on disposal of property,
plant and equipment and                   92                 65
intangible assets
Bad debt expense                          1,011              478
Income from associates                    (11)               (9)
Finance costs excluding finance
costs on pension and other                3,993              3,789
long-term social liabilities
Other investing and financial             (1,685)            (828)
gain
Foreign exchange loss, net                258                140
Changes in net working capital:
Increase in accounts receivable           (1,721)            (3,456)
Increase in employee benefits             81                 48
(Increase)/decrease in                    (864)              298
inventories
Increase in accounts payable,             5,234              3,255
provisions and accrued expenses
Decrease in other assets and            (2,074)           (1,614)
liabilities
Cash generated from operations            28,065             28,320
Interest paid                             (4,322)            (4,023)
Income tax paid                         (1,036)           (2,648)
Net cash provided by operating          22,707            21,649
activities
Cash flows from investing
activities
Purchase of property, plant and           (9,959)            (25,112)
equipment and intangible assets
Proceeds from sale of property,
plant and equipment and                   290                315
intangible assets
Acquisition of financial assets           (121)              (2,061)
Proceeds from disposals of                1,508              4,332
financial assets
Interest received                         -                  3
Dividends received                        65                 -
Purchase of subsidiaries, net of        -                 (21)
cash acquired
Net cash used in investing              (8,217)           (22,544)
activities
                                                                             

                                        Three-month period ended 31 March
                                 Notes  2014 (unaudited)  2013 (restated)
Cash flows from financing                                  
activities
Sale of treasury shares                   815                1,170
Purchase of treasury shares               (13,773)           (2,820)
Proceeds from bank and corporate          81,999             97,473
loans
Repayment of bank and corporate           (85,273)           (125,494)
loans
Proceeds from bonds                       -                  25,000
Repayment of bonds                        -                  (398)
Proceeds from promissory notes            7                  -
Repayment of promissory notes             (7)                -
Repayment of vendor financing             (2)                (3)
payable
Repayment of other non-current            (2)                (3)
financing liabilities
Repayment of finance lease                -                  (291)
liabilities
Acquisition of non-controlling            -                  (20)
interest
Dividends paid to shareholders of       (10)              (67)
the Group
Net cash used in financing              (16,246)          (5,453)
activities
                                                                             
Effect of exchange rate changes         46                6
on cash and cash equivalents
                                                        
Net decrease in cash and cash           (1,710)           (6,342)
equivalents
Cash and cash equivalents at            7,960             13,629
beginning of the period
Cash and cash equivalents at the        6,250             7,287
end of the period
                                                                             

APPENDIX 5: STATEMENT OF FINANCIAL POSITION AS AT THE FIRST QUARTER OF 2014

                                                         
                                          31 March 2014  31 December 2013
                                            (unaudited)
ASSETS
Non-current assets
Property, plant and equipment               327,111         335,059
Investment property                         114             113
Goodwill and other intangible assets        59,278          64,346
Investments in associates                   27,802          918
Other investments                           700             520
Deferred tax assets                         347             276
Other non-current assets                   3,677          3,990
Total non-current assets                   419,029        405,222
Current assets
Inventories                                 4,511           3,941
Trade and other accounts receivable         46,383          39,824
Prepayments                                 3,818           3,508
Prepaid income tax                          4,802           4,894
Other investments                           24,387          1,966
Cash and cash equivalents                   6,250           7,960
Other current assets                       720            609
Total current assets                       90,871         62,702
Held for sale assets                       31,365         93,048
Total assets                               541,265        560,972
EQUITY AND LIABILITIES
Equity attributable to equity holders of
the Group
Share capital                               97              97
Additional paid-in capital                  1,624           1,658
Treasury shares                             (81,311)        (68,325)
Retained earnings and other reserves       293,156        262,967
Total equity attributable to equity         213,566         196,397
holders of the Group
Non-controlling interests                  3,350          3,359
Total equity                               216,916        199,756
Non-current liabilities
Loans and borrowings                        177,528         184,600
Employee benefits                           9,855           9,774
Deferred tax liabilities                    27,802          26,728
Accounts payable, provisions and accrued    2,421           1,077
expenses
Other non-current liabilities              5,268          5,127
Total non-current liabilities              222,874        227,306
Current liabilities
Loans and borrowings                        37,123          33,209
Accounts payable, provisions and accrued    51,150          73,635
expenses
Income tax payable                          41              69
Other current liabilities                  6,762          9,350
Total current liabilities                  95,076         116,263
Held for sale liabilities                  6,399          17,647
Total liabilities                          324,349        361,216
Total equity and liabilities               541,265        560,972
                                                                             

                                    * * *

Rostelecom (www.rostelecom.ru) is one of the largest national
telecommunications operators in Russia and Europe. The Group operates in all
segments of the telecommunications market and covers more than 34 million
households.

Rostelecom is an undisputable leader of the broadband and pay-TV markets in
Russia with over 10.8 million fixed-line broadband subscribers and over 7.6
million pay-TV subscribers.

The Group generated RUB 80.4 billion of consolidated revenues, RUB 26.5
billion of OIBDA (33.0% of revenues) and RUB 6.9 billion of net income for the
first three months ended March 31, 2014.

The Group is a market leader in providing telecommunications services to
government bodies and corporates of all levels. It is also an important
innovator that provides solutions in the field of medicine, E-Government,
cloud computing, education, security and housing & utility services.

Rostelecom was assigned ‘BBB-’ and ‘BB+’ international credit ratings by Fitch
Ratings and Standard & Poor’s respectively.

                                    * * *

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

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

  *Management’s assessment of the Company’s future operating and financial
    results as well as forecasts of the present value of future cash flows and
    related factors;
  *the Company’s anticipated capital expenditures and plans to construct and
    modernize its network;
  *the Company’s expectations as to the growth in demand for its services,
    plans relating to the expansion of the range of its services and their
    pricing;
  *the Company’s plans with respect to improving its corporate governance
    practices;
  *the Company’s expectations as to its position in the telecommunications
    market and the development of the market segments within which the Company
    operates;
  *economic outlook and industry trends;
  *the Company’s expectations as to the regulation of the Russian
    telecommunications industry and assessment of impact of regulatory
    initiatives on the Company’s activity;
  *other statements regarding matters that are not historical facts.

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

  *risks relating to changes in political, economic and social conditions in
    Russia as well as changes in global economic conditions;
  *risks relating to Russian legislation, regulation and taxation, including
    laws, regulations, decrees and decisions governing the Russian
    telecommunications industry, securities industry as well as currency and
    exchange controls relating to Russian entities and their official
    interpretation by regulatory bodies;
  *risks relating to the Company, including the achievement of the
    anticipated results, levels of profitability and growth, ability to create
    and meet demand for the Company’s services including their promotions, and
    the ability of the Company to remain competitive in a liberalized
    telecommunications market;
  *technological risks associated with the functioning and development of the
    telecommunications infrastructure, technological innovations as well as
    the convergence of technologies;
  *other risks and uncertainties. For a more detailed discussion of these and
    other factors, see the Company’s Annual Report and the Company’s other
    public filings.

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

^1 The data for the first quarter of 2013 is a combination of the consolidated
results of OJSC Rostelecom (according to IFRS), OJSC Svyazinvest and its
subsidiary companies, which were merged with Rostelecom on October 1, 2013

^2 Refer to Appendix 2

^3 The 1Q 2014 IFRS financial results for the subsidiary companies transferred
to the JV are fully included in Rostelecom Group’s consolidated results for
the first quarter of 2014 (profit and loss statement, cash flow statement).
However, the Group’s consolidated balance sheet as at March 31, 2014 does not
include the figures of the subsidiary companies transferred to the JV.

^4 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)

^5 Here and below, please refer to Attachment 1 of this statement for a full
definition of OIBDA

^6 Here and below, capital expenditure (“CAPEX”) comprises cash spent on
purchase of property, plant and equipment and intangible assets

^7 Here and below, net debt is calculated as total debt less cash, cash
equivalents and short-term investments

Contact:

Rostelecom OJSC
 
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