Investor Presentation
September 2013
www.rt.ru Disclaimer
By attending any meeting where this presentation is made, or by reading any part of this presentation, you acknowledge and agree to be bound by the following: . This presentation has been prepared by OJSC Rostelecom (the “Company”). This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form, in whole or in part. . The Company has included its own estimates, assessments, adjustments and judgments in preparing certain market information herein, which have not been verified by an independent third party. Market information included herein is, therefore, unless otherwise attributed exclusively to a third party source, to a certain degree subjective. While the Company believes that its own estimates, assessments, adjustments and judgments are reasonable and that the market information prepared by the Company appropriately reflects the industry and the markets in which it operates, there is no assurance that the Company’s own estimates, assessments, adjustments and judgments are the most appropriate for making determinations relating to market information. . Neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. . This presentation is confidential and does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. . This presentation is not intended for publication or circulation in the United States. This presentation does not constitute and should not be construed as an offer to sell or the solicitation of an offer to buy securities in the United States or to any U.S. person (as defined in Regulation S under the US Securities Act of 1933 (the “Securities Act”)). No securities of the Company have been, nor will be, registered under the Securities Act or the securities laws of any state of the United States, and unless so registered may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This presentation does not constitute a public offering or an advertisement of securities in the Russian Federation and does not constitute an offer or a proposal to make offers or to acquire any securities in the Russian Federation. . In any member state of the European Economic Area, this Presentation is made to and directed only at persons who are qualified investors within the meaning of article 2(1)(e) of the Prospectus Directive (2003/71/EC) (“Qualified Investors”). In addition, in the United Kingdom, this Presentation is made to and directed at: (i) investment professionals falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) and (ii) high net worth individuals, and other persons to whom it may lawfully be communicated, falling within article 49(2)(A) to (D) of the Order (such persons together with Qualified Investors, being “Relevant Persons”). In these jurisdictions, persons who are not Relevant Persons must not rely on or act upon the information contained in this presentation or any of its contents. Any investment or investment activity to which this Presentation relates is only available to Relevant Persons and will be engaged in only with Relevant Persons. The recipients of the information contained herein should not base any behavior that would amount to market abuse for the purposes of the Financial Services and Markets Act 2000 (“FSMA”) and the Code of Market Conduct made pursuant to the FSMA on the information in this Presentation or any information provided or discussed in connection with it. . This presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. Persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions. 2 www.rostelecom.ru Rostelecom Today
. Rostelecom networks and services cover all Federal districts of Russia, including Moscow Leading Universal . Strong market positions in most of the telecom segments operator . 68%1 market share in fixed voice . 39%1 market share in fixed Broadband . 54%1 market share in IPTV
~ 500,000 km of national backbone and unique “last mile” infrastructure with Unique infrastructure almost 34 mln households passed
1 1 1 Strong subscriber base 26,4 mln fixed – line subs, 9.6 mln broadband subs,6.9 mln pay-TV subs and 13.81 mln mobile voice subs
Revenue : RUR 321.3 bln Net Income : RUR 35.2 bln Positive Financial 2012 2012 OIBDA2012 : RUR 118.6 bln Cash CAPEX2012 : RUR 91.2 bln Results OIBDA margin2012: 36.9% Net debt/OIBDA31.12.2012: x1.7
. Currently traded on MICEX-RTS . Rostelecom is included in MSCI Large Cap. Current weight in MSCI Russia is Blue chip 1.47%2 . Investment rating “BBB-” from Fitch Rating (confirmed in August 2013), credit rating “BB+” from S&P rating agency (confirmed in June 2013)
1 – as of end of 2Q 2013 3 www.rostelecom.ru 2 – as at September, 06, 2013 New Executive Management Team Members
Sergey • President - CEO Maria • Vice-President, Strategy and Investor Kalugin Relations • Joined the Company in March, 2013 Florentieva • Joined the Company in May, 2013 • 12 years experience in Telecom & Media • 7 years experience in Telecom & Media • Previously CEO of National • Previously Deputy CEO of National Telecommunications Telecommunications Andrey • Senior Vice-President, Innovations Cheglakov • Joined the Company in April, 2013 • Over 10 years experience in Technology Kai-Uwe • Vice-President - CFO Mehlhorn • Previously worked as Deputy Director • Joined the Company in May, 2013 General at Federal Goznak • Over 21 years of TMT experience, 11 years at CFO position Dmitriy • Vice-President, IT • Previously CFO of Megafon and Tele2. Sadkov • Joined the Company in June, 2013 • Over 13 years of experience in IT Larisa • Senior Vice-President - Commercial • Previously served as Director of Tkachuk Director Management Consulting Department at IBS and at McKinsey & Company • Joined the Company in April, 2013 • Over 10 years of Telecom & Media Alexander • Senior Vice-President, Network experience Maintenance Tseitlin • Previously Commercial Director at Megafon • Joined the Company in May, 2013 • Over 30 years of Telecom experience • Previously CEO at Mostelecom 4 www.rostelecom.ru Key Events for 2013
HIGHLIGHTS
Operational news and results: Corporate news: • Growth of subscriber base in key segments: • On June, 26, 2013 Rostelecom shareholders approved merger with Svyazinvest and 20 subsidiaries • Fixed broadband (+11% y-o-y) • Board of Directors approved additional share issue of • Pay TV (+11% y-o-y) Rostelecom as part of the second stage of Reorganization • Mobile (+2% y-o-y) • On August 21, 2013 the Board of Directors declared the results • Commercial launch of 3G+ networks in 21 regions (including St- of tender offer for buyback process Petersburg and Leningrad region) • On AGM held in June 2013, the shareholders voted for 2012 • Tested LTE networks in Krasnodar and 1st LTE launch in Sochi dividends in the total amount of RUB 8,17 bln or 25% of net Income (RAS or 23,18% IRFS net income): • Launch of cloud services platform for corporate clients • RUB 4,1022 for 1 pref share Financial news and results: • RUB 2,4369 for 1 ord share • Moderate growth in revenue for 2Q 2013 (+1% y-o-y) to RUB • Fitch affirms OJSC Rostelecom at ‘BBB-’ with Outlook Stable 77,0 bln • Standard & Poor’s confirms Rostelecom’s corporate credit • OIBDA margin of 37,4% in 2Q 2013 (equally, 37,4% for 1H rating of “BB+” with stable outlook. 2013) • Bonds issue at RUB 5 bln with 7,5% annual coupon.
5 www.rostelecom.ru Key Priorities and Plans for Further Development
Speed up fixed and mobile • Currently the Company is reviewing its CAPEX program to optimize expenditures and network modernization expand the volume of construction without increase in budgeted amounts
• SLA implementation Improvement of client • Modernization of IT systems (OSS/BSS) to improve planning of telecoms resources, service provisioning of bundles offers, manage quality of service delivery, as well as control fraud of telecom data, forecast and support demand for services
Development of unique • Ideal balance of price and service in phone, internet and pay TV bundles service bundles and • The Company’s scale will allow it to develop media, content and offer unique and attractive tariff plans price-attractive products
Improvement of • Procurement systems revision • Optimization of real-estate portfolio operational efficiency • Cutting real estate management fees
• Profound improvement of business processes Improvement of business • Simplification of management structure administration • Employees’ engagement in the Company’s goals • Personnel development and recruitment of new highly-qualified people
6 www.rostelecom.ru Rostelecom is leading Telecom Operator
Fixed-line1 market shares in revenues, Info & communications services market trends 2012, % RUB Bln CAGR 2012/2017 Rostelecom MTS Total +6% 1 817 1 843 Market VympelCom 1 729 1 647 1 574 Mobile +24% Megafon 1 498 267 312 Broadband 170 209 105 141 IT services +15% Er-telecom 393 198 236 289 343 393 Others 50 58 65 71 Pay TV +10% 176 77 83 190 199 206 212 Fixed BB +4% 50 47 45 43 216 B2O segment -5% 244 233 41 39 222 212 205 200 Fixed -line -4% Mobile voice -2% 1 – combined for fixed-line telephony, broadband and pay-TV 674 668 658 645 624 600 &VAS Mobile market shares in revenues, 2012, 2012А 2013F 2014F 2015F 2016F 2017F %
Source: iKS-Consulting, J’son Consulting, IDC, OVUM MTS VympelCom Megafon Tele2 Rostelecom Others
Source: iKS-Consulting, J’son Consulting, IDC, OVUM 7 www.rostelecom.ru Leading positions in B2C Broadband Access
Fixed Broadband Fixed BB by technology KEY DATA (mln subscribers) (%)
Growth rate xDSL Fiber 12% • Rostelecom is the biggest provider y-o-y y-o-y 13% 13% of fixed broadband services in 12% 12% 11% 26% 28% 31% 33% 34% Russia with 39% market share (as of 1H 2013). • In 1H 2013 the number of fiber 74% 72% optic subscribers increased by 9,2 9,5 9,6 69% 67% 66% 8,6 8,9 50% y-o-y to 3,3 mln subs (or 34% share in total subs), while the overall subscriber growth 2Q 2012 3Q 2012 4Q 2012 1Q2013 2Q 2013 2Q2012 3Q2012 4Q 2012 1Q 2013 2Q2013 amounted to 11% (y-o-y) to 9,6 mln. Fixed BB Revenues Dynamics Fixed Broadband Market Split1 • Revenues from fixed broadband (RUB bln) increased by 9% y-o-y, while revenues from fiber segment Others doubled. 49,8 30%
14,2
24,5 26,7 x2 Rostelecom ER-Telecom 4,1 8,4 11% 35,6 39% 20,4 18,3 Vimpelcom 2012 1H 2012 1H 2013 10% MTS xDSL Fiber 10%
1 – B2C segment Source: AC&M-Consulting as of end of 2Q 2013 8 www.rostelecom.ru Leader on the Pay TV and Interactive TV market
Pay TV Pay TV by technology KEY DATA (mln subscribers) (%)
Growth rate Other IPTV 12% • Rostelecom is the leader on the y-o-y y-o-y 13% Pay TV market, with a 34% market 12% 16% 19% 11% 11% 21% 23% 24% share in revenues in 2Q 2013. 10% • IPTV is the key growth driver in the segment (+69% growth y-o-y to 84% 81% 79% 77% 76% 1,7 mln subs).
6,2 6,4 6,6 6,8 6,9 • In 1H 2013 the Company reported increase in share of IPTV from
2Q 2012 3Q 2012 4Q 2012 1Q2013 2Q 2013 2Q 2012 3Q 2012 4Q 2012 1Q2013 2Q 2013 16% to 24% in number of subscribers. Pay TV Revenues Dynamics • Revenues for IPTV doubled in 1H Pay TV Market Split1 (RUB bln) 2013 to RUB 1,8 bln (or 33% of total pay TV revenues compared to Growth rate y-o-y Others 20% in 1H 2012). 29% 9,1 • In 1H 2013 ARPU for both types of 2,1 29% technologies increased by over 5,4 16% y-o-y. 4,2 MTS 1,8 Rostelecom 14% 7,0 0,9 34%
3,3 3,6 ER-Telecom 2012 1H 2012 1H 2013 12% Vimpelcom Akado Pay-TV Interactive TV 5% 6% 1 – Cable TV and IPTV Source: AC&M-Consulting as of end of 2Q 2013 9 www.rostelecom.ru Mobile Segment Development
Mobile Segment KEY DATA (mln subs) Growth rate • Currently Rostelecom operates: y-o-y 7% 4% 2% 3% 2% • GSM networks in 30 Russian regions with a total population of around 60 mln people and a market share of 20-50% (market share in Russia – 6%); • 3G+ networks in 21 Russian regions (including 4 green-fields) with 13,5 13,5 13,6 13,6 13,8 total population of over 55 mln people; • LTE network in Sochi (Krasnodar in testing mode). 2Q 2012 3Q 2012 4Q 2012 1Q2013 2Q 2013 • Key focus for mobile segment development is mobile data to ensure universal internet access via both mobile and fixed devices. Market share 3G+ Commercial Launches as of Sept 01, 2013 (in subscribers)
3G launch in 2012 • Irkutsk region • Primorsky Krai Others • Ulyanovsk • Kurgan region 3% Megafon 3G launches in 2013 region • Chelyabinsk Rostelecom 28% • Orenburg region region 6% • Saratov region • Tyumen region • Nizhny • Yamalo- Novgorod Nenetskiy region Okrug • Tambov region • Volgograd • Tatarstan region Vimpelcom 24% • Krasnoyarsk • Krasnodar MTS region region 28% • Penza region • Samara region • Perm Krai • St-Petersburg Tele2 • Sverdlov region • Leningrad 11%
region Fields Green
10 www.rostelecom.ru Source: AC&M-Consulting as of end of 2Q 2013 Rostelecom in B2B and B2G, B2O Segments
1 B2B and B2G market in Revenues, % 2 1 Rostelecom is the absolute B2O market in Revenues, % market leader in B2B and B2G, with 51% market share Rostelecom Rostelecom
Other Other 2 Leader in B2O segment with operators operators 18% market share
3 19% annual revenue growth 3 4 in B2B and B2G Rostelecom revenues in B2B and B2G, Rostelecom revenues in B2O, RUB billion RUB billion +19% +9% 4 9% annual growth in B2O
11 www.rostelecom.ru Source: Rostelecom, IKS-Consulting, AC&M Cloud & IT Services: Competitive Advantage to Become the Unchallenged Leader
E-government O7. City United portal for public services City infrastructure monitoring Public services in e-format Predicting and prevention of emergency situations 70 out of 83 regions already subscribed (200K total in all levels)
O7. Medicine O7. 112 United electronic medical card United contact number for admission and processing of E-front desk messages Medicine info systems Special services coordination
O7. Education O7. DOC E-School and E-Nursery Office administration Social network for school students Document exchange Educational TV channel
O7. Housing O7. Business Tariff and budget control Automation of key business processes Payments and financial assets Virtual office Market potential - over 100K service companies 12 www.rostelecom.ru Shareholders’ Structure: Current and After Completion of SVI Merger
Current structure Structure after SVI merger completion2
State Property Agency State stake State stake 55,59%1 Other 51,03%1 telecom assets
25%+1
99,99% 4,64%1 Mobitel 40,20%1 4,211% Mobitel 7,21%1 Treasury shares 37,12%1 Other Other Shareholders Shareholders
1- Percentage of voting shares 2 – After SVI merger is completed the number of outstanding shares will decrease by c9,3% to 2669,2 mln ordinary shares (number of preferred shares will not change) 3 – The structure for prefferred shares after buyback and merger completion: Mobitel – 13 www.rostelecom.ru 12,55%, treasury shares – 17,55%, other shareholders – 69,90% Key goals of Reorganization
Elimination cross-ownership between Rostelecom and Svyazinvest Acquisition of new telecom assets with the aggregate annual revenues of approx. RUB 10 billion, incl: A 80% stake in Central Telegraph, the backbone network in Moscow and Moscow Region, a corporate customer base and a complex of 35,000+ sq.m. buildings in close proximity to the Kremlin A 28.2% stake in Bashinformsvyaz OSJC, the main fixed-line telephony provider in Republic of Bashkortostan. It is an excellent supplement to the current 39.8% stake held by Rostelecom and would enable to consolidate the Company’s financial and operating results Decrease in the number of shares after partial cancellation of treasury shares (from cross holding with Svyazinvest) will enable to increase the value company’s assets per share Potential growth in dividend payments per share as a result of the decreased number of shares Merger with 21 Rostelecom’s 100% subsidiaries to streamline the Group’s legal structure
14 www.rostelecom.ru Merger with Svyazinvest: Key Steps
On March 24, 2012 the President of RF signed a Decree No. 340 to merge Signing the Presidential Finalized decree Svyazinvest and Rostelecom All of the necessary Obtained approvals for SkyLink purchase, Svyazinvest’s additional share governmental approvals have issue and transfer of additional telecom assets from Svyazinvest to Finalized been obtained Rostelecom Acquisition of SkyLink A non-monetary transaction for a 1.91% of treasury shares held on the from Svyazinvest balance sheet of Mobitel LLC (Rostelecom’s 100% subsidiary) Finalized
Svyazinvest’s additional Svyazinvest carries out an additional issue. Rostelecom buys 140,315,416 issue shares in Svyazinvest to maintain its stake at 25% + 1 share until the merger Finalized
Corporate appraisal The two companies are appraised by an independent advisor Finalized Both companies hold shareholders’ meetings to obtain the merger Shareholders’ meeting approval Finalized
Mandatory redemption of Rostelecom spends 10% of its net assets value on mandatory redemption of shares from minority shares from the shareholders who vote against the merger or do not vote at all. By Sept, 09 shareholders 2013
Rostelecom’s additional Rostelecom conducts an additional issue in favour of the Federal Property October issue Management Agency 2013 Conversion of Rostelecom’s shares; the plan is also to cancel treasury October Conversion of shares shares resulting from the conversion 2013 15 www.rostelecom.ru Key Operational and Financial Results for 1H 2013
OIBDA (RUB bln) and Revenue (RUB bln) Net Income* (RUB bln) OIBDA margin (%) One-off OIBDA NI margin Growth effect 10% * margin * 3% rate 40% in 1Q’12 37% 37% -5% 2%** * 12% 11% 2%** 9% 321 10* 119 162 154 34 65 58 20 14
2012 1H 2012 1H 2013 2012 1H 2012 1H 2013 2012 1H 2012 1H 2013 * - video surveillance revenue (one-off) * - adjusted for Svyazinvest 25% share in RTKM net income ** - growth rate without video surveillance revenue in 1Q 2012 Fixed Broadband Pay-TV Mobile Segment (mln subscribers) (mln subscribers) (mln subscribers)
Growth Growth Growth rate y-o-y rate y-o-y rate y-o-y 4% 2%
12% 11% 12% 11%
13,6 13,8 9,2 9,6 6,6 6,9
2012 1H 2013 2012 1H 2013 2012 1H 2013
16 www.rostelecom.ru Revenue structure
1H 2012 1H 2013
Other 14% Local Other Interconnect, Local Telephone 10% Interconnect, Rent of Telephone services Rent of channels, data services 27% channels, data services 28% services 18% 16%
DLD / ILD / Pay-TV DLD / ILD / Intra-Zonal 3% Intra-Zonal 12% 11% Pay-TV Broadband 3% Broadband 17% 15% Mobile Mobile 13% 13%
The revenue structure in 1Q 2012 was influenced largely by one-off video surveillance revenue and resulted in increased share of other revenues.
17 www.rostelecom.ru Capital Expenditures
CAPEX Trends (RUB bln) KEY DATA
CAPEX / Revenue 28% • In 1H 2013 CAPEX decreased by 24% y-o-y 26% to RUB 32 bln. The decrease in investment in 21% the reporting quarter resulted predominantly:
• CAPEX deviation during calendar year; 91
42 • optimization of procurement process and 32 active working capital management.
2012 1H 2012 1H 2013 • We upgraded tender process to make it more transparent and efficient. Quarterly CAPEX Trends (RUB bln) • We expect 2013 CAPEX to be slightly higher CAPEX / Revenue 34% 32% than 20% of revenues. 28% 28%
9%
28 25 21 22
7
2Q 2012 3Q 2012 4Q 2012 1Q2013 2Q 2013
18 www.rostelecom.ru Tightening Cash Flow Control
Net Debt Analysis FCF1 Analysis KEY DATA (RUB bln) (RUB bln) Net Debt/ • As of end of 1H 2013 total debt OIBDA x 1,7 amounted to RUB 197 bln or x 1,6 8% down y-o-y
• Starting October 2012
203 Rostelecom successfully placed 182 13 five bond issues for the total 5 amount of RUB 40 bln. One of 2 the goals for bond issue was to 2012 1H 2012 1H 2013 2012 1H 2013 refinance current short-term 1 - Free Cash Flow = net cash provided by operating Bonds Issues Details activities less CAPEX loan and improve debt (RUB bln) structure.
8,6% 8,2% 8,2% 8,1% 8,2% • Average interest rate of 7,5% Coupon Company’s debt portfolio amounted to 8,32% compared 5 to 8,39% at the end of 1Q 2013. 10 5 40 • About 99% of our total debt is 10 ruble denominated to minimize 10 currency risk.
oct '12 jan '13 feb '13 feb '13 jun '13 Total • In 1H 2013 the Company reported FCF of RUB 13,3 bln. 19 www.rostelecom.ru Outlook for 2013
Revenue Slight growth in revenue for 2013
OIBDA margin 36-39%
Rating Maintain positive investment grade
CAPEX Slightly higher than 20% of revenues for 2013
20 www.rostelecom.ru Financial Statements and Attachment Other Information
21 www.rostelecom.ru P&L Statement
Bln RUR FINANCIALS FINANCIALS
Grwoth Grwoth Grwoth P&L 1Q 2013 2Q 2013 1H 2013 1Q 2012 2Q 2012 3Q 2012 4Q 2012 2012 rates 2Q rates 1H rates
Revenue (see breakdown below) 77,067 77,030 154,097 1% -5% 85,319 76,387 76,985 82,560 321,251 7%
Operating Expenses (65,585) (64,248) (129,833) 5% 1% (67,527) (61,365) (63,551) (74,606) (267,049) 11% Wages, salaries, other benefits and payroll taxes (see breakdown below) (21,924) (20,572) (42,496) 3% 2% (21,893) (19,904) (19,327) (22,942) (84,066) 10% including stock option program 0,000 0,000 0,000 0,000 Depreciation and Amortization (17,355) (16,048) (33,403) 4% 4% (16,616) (15,493) (15,992) (16,628) (64,729) 13% Interconnect Charges (10,168) (12,137) (22,305) 7% -2% (11,334) (11,313) (12,612) (12,853) (48,112) 18%
Materials, utilities, repair and maintenance (5,949) (5,954) (11,903) -6% -12% (7,264) (6,306) (7,134) (6,360) (27,064) -2% Other operating income 2,483 2,759 5,242 -26% -17% 2,597 3,725 4,023 3,523 13,868 -6% Other operating expense, including: (12,672) (12,296) (24,968) 2% 0% (13,017) (12,074) (12,509) (19,346) (56,946) 5% Impairment of property, plant & equipment (PPE) 0,000 0,000 0,000 0,000 0,000 Loss on sale and disposal of PPE (0,054) 0,094 0,040 -6% (0,383) 0,100 (0,257) (0,282) (0,822) 4% Bad debt reserve (0,430) (0,374) (0,804) 412% (0,438) (0,073) (0,521) (0,152) (1,184) 107% Operating Profit 11,482 12,782 24,264 -15% -26% 17,792 15,022 13,434 7,954 54,202 -10% Operating Profit margin 14,9% 16,6% 15,7% 20,9% 19,7% 17,5% 9,6% 16,9%
OIBDA 28,837 28,830 57,667 -6% -11% 34,408 30,515 29,426 24,582 118,931 1% OIBDA Margin 37,4% 37,4% 37,4% 40,3% 39,9% 38,2% 29,8% 37,0% -5%
Income from equity accounted investees 0,169 0,147 0,316 29% 7% 0,182 0,114 1,259 0,807 2,362 -47%
Finance costs (3,912) (3,741) (7,653) -9% -2% (3,666) (4,114) (4,398) (3,841) (16,019) 23%
Other Investing and financial gains 0,585 0,270 0,855 24% -29% 0,991 0,217 0,860 (0,351) 1,717 -17% Foreign exchange loss, net (0,142) (0,401) (0,543) -49% 293% 0,650 (0,788) 0,479 0,156 0,497 -232%
Profit before income tax 8,182 9,057 17,239 -13% -35% 15,949 10,451 11,634 4,725 42,759 -20%
Income tax expense (1,769) (1,782) (3,551) -40% -45% (3,481) (2,969) (1,732) (0,111) (8,293) -23%
Net Profit 6,413 7,275 13,688 -3% -31% 12,468 7,482 9,902 4,614 34,466 -19% Net Profit margin 8,3% 9,4% 8,9% 14,6% 9,8% 12,9% 5,6% 10,7% -24% 22 www.rostelecom.ru Revenue structure
Bln RUR
Grwoth Grwoth Grwoth Revenue / Breakdown 1Q 2013 2Q 2013 1H 2013 1Q 2012 2Q 2012 3Q 2012 4Q 2012 2012 rates 2Q rates 1H rates
By services: Local Telephone services 21,399 21,260 42,659 -2% -2% 21,604 21,719 21,125 21,286 85,734 -3%
Intra-Zonal 4,194 4,152 8,346 -12% -12% 4,797 4,720 4,568 4,669 18,754 -12%
DLD / ILD 4,651 4,206 8,857 -17% -16% 5,471 5,070 4,863 4,986 20,390 -15% Interconnect and traffic transit 5,376 5,687 11,063 11% 10% 4,889 5,146 5,418 5,550 21,003 6%
Mobile communication services 9,503 9,939 19,442 -5% -5% 10,031 10,446 10,512 10,172 41,161 1%
Rent of channels 2,608 2,638 5,246 -10% -10% 2,894 2,918 3,014 2,443 11,269 9% Broadband Internet 13,354 13,326 26,680 8% 9% 12,158 12,386 12,367 12,886 49,797 7%
Pay-TV 2,772 2,686 5,458 25% 30% 2,055 2,143 2,394 2,555 9,147 36%
Data services 5,335 5,555 10,890 12% 9% 4,995 4,957 5,149 5,714 20,815 10% Other 7,875 7,581 15,456 10% -34% 16,425 6,882 7,575 12,299 43,181 71%
0,0 0,0 % of total Revenues Local Telephone services 27,8% 27,6% 27,7% 25,3% 28,4% 27,4% 25,8% 26,7%
Intra-Zonal 5,4% 5,4% 5,4% 5,6% 6,2% 5,9% 5,7% 5,8%
DLD / ILD 6,0% 5,5% 5,7% 6,4% 6,6% 6,3% 6,0% 6,3% Interconnect and traffic transit 7,0% 7,4% 7,2% 5,7% 6,7% 7,0% 6,7% 6,5%
Mobile communication services 12,3% 12,9% 12,6% 11,8% 13,7% 13,7% 12,3% 12,8%
Rent of channels 3,4% 3,4% 3,4% 3,4% 3,8% 3,9% 3,0% 3,5% Broadband Internet 17,3% 17,3% 17,3% 14,3% 16,2% 16,1% 15,6% 15,5%
Pay-TV 3,6% 3,5% 3,5% 2,4% 2,8% 3,1% 3,1% 2,8%
Data services 6,9% 7,2% 7,1% 5,9% 6,5% 6,7% 6,9% 6,5% Other 10,2% 9,8% 10,0% 19,3% 9,0% 9,8% 14,9% 13,4%
By customers: B2C 40,806 40,119 80,925 -1% -1% 41,081 40,680 40,163 40,569 162,493 -2%
B2B 17,287 17,425 34,712 2% 4% 16,364 17,156 16,844 18,651 69,015 -1%
B2G 10,378 9,801 20,179 4% -29% 18,965 9,445 10,191 14,851 53,452 55% B2O 8,596 9,685 18,281 6% 1% 8,909 9,106 9,787 8,489 36,291 14%
B2C 52,9% 52,1% 52,5% 48,1% 53,3% 52,2% 49,1% 50,6% B2B 22,4% 22,6% 22,5% 19,2% 22,5% 21,9% 22,6% 21,5%
B2G 13,5% 12,7% 13,1% 22,2% 12,4% 13,2% 18,0% 16,6%
B2O 11,2% 12,6% 11,9% 10,4% 11,9% 12,7% 10,3% 11,3% 23 www.rostelecom.ru Balance Sheet
Bln RUR BALANCE SHEET 31.03.2013 30.06.2013 31.03.2012 30.06.2012 30.09.2012 31.12.2012 Assets Current Assets
Cash & cash equivalents 4,008 10,761 10,370 9,396 3,369 10,370 Other investments 1,137 4,467 0,952 2,939 0,656 0,952 Prepayments 3,331 3,486 3,912 3,939 4,445 3,912 Prepaid income tax 3,608 3,363 2,921 3,089 1,753 2,921 Inventories 4,139 4,007 4,534 5,070 5,316 4,534 Trade and other accounts receivable 38,778 37,672 33,992 39,204 35,834 33,992 Other current assets 1,325 1,386 1,258 2,596 2,837 1,258 Total current assets 56,326 65,142 57,939 66,233 54,210 57,939 Non-current assets
PPE & Intangible assets 383,424 379,991 385,994 346,053 358,260 385,994 Investment property 0,254 0,216 0,274 0,256 0,186 0,274 Goodwill and other intangible assets 85,240 84,191 87,830 87,006 86,778 87,830 Investment in associates 5,354 5,420 5,179 4,782 34,726 5,179 Other investments 2,471 1,763 2,498 2,209 2,691 2,498 Other non-current assets 8,220 7,648 8,107 16,666 15,259 8,107 Total non-current assets 484,963 479,229 489,882 456,972 497,900 489,882 Total assets 541,289 544,371 547,821 523,205 552,110 547,821
Liabilities Current Liabilities
Accounts payable 49,402 91,573 59,889 58,011 50,842 59,889 Short-term loans and borrowings 55,319 46,411 63,499 69,013 73,963 63,499 Other current liabilities 8,570 8,745 10,038 8,219 9,621 10,038 Total current liabilities 113,291 146,729 133,426 135,243 134,426 133,426 Non-current Liabilities
Shareholders equity 0,106 0,106 0,106 0,106 0,106 0,106 Treasury shares (35,445) (28,374) (36,615) (36,304) (36,707) (36,615) Additional paid in capital 7,119 7,046 7,119 8,736 34,842 7,119 Retained earnings and other reserves 260,917 229,203 254,457 239,670 253,529 254,457 Non-controlling interest 0,471 0,206 0,493 0,355 0,438 0,493 Long-term loans 156,130 150,744 150,907 138,205 127,655 150,907 Employee benefits 11,045 11,082 10,997 11,371 12,399 10,997 Deferred tax liabilities 22,650 22,541 22,565 21,681 21,067 22,565 Other non-current liabilities 5,005 5,088 4,366 4,142 4,356 4,366 Total non-current liabilities 427,998 397,642 414,395 387,962 417,685 414,395 Total equity & liabilities 541,289 544,371 547,821 523,205 552,110 547,821
Net Debt 206,304 181,927 203,084 194,883 197,593 203,084 Net Debt / OIBDA LTM x 1,8 x 1,6 x 1,6 x 1,6 x 1,6 x 1,7 24 www.rostelecom.ru Cash Flow statement
Bln RUR CASH FLOW STATEMENT 1Q 2013 1H 2013 1Q 2012 1H 2012 9M 2012 2 012 Cash flows from operating activities Profit before income tax 8,181 17,239 15,949 26,400 39,308 44,033
Adjustments to reconcile profit before taх to cash generated from operations: Depreciation and amortization 17,355 33,403 16,616 32,109 48,101 64,729 Loss on sale of property, plant and equipment 0,054 (0,040) 0,383 0,283 0,540 0,822 Impairment losses /(reversal of impairment losses) Finance costs excluding finance costs on pension and other lt social liabilities 3,725 7,281 3,429 7,311 11,464 15,054 Other non-cash (gains) / loss 0,041 Other investing and financing gains (0,585) (0,855) (0,991) (1,208) (1,791) (1,440) Other cash flows from operating activities 0,403 1,031 (0,394) 0,353 (2,644) (3,455) Share-based payment expenses 0,041 0,041 0,018 Changes in net working capital: (1,326) (0,180) (5,035) (9,462) (5,594) (0,591) Cash generated from operations 27,807 57,879 29,998 55,827 89,426 119,170 Interest paid (3,962) (8,155) (3,529) (7,470) (11,757) (16,015) Income tax paid (2,538) (4,503) (2,233) (4,348) (4,495) (6,924) Net cash provided by operating activities 21,307 45,221 24,236 44,009 73,174 96,231
Cash flows from investing activities
Purchase of PPE and intangible assets (24,889) (31,890) (20,426) (41,858) (63,460) (91,181) Proceeds from sale of property, plant and equipment 0,316 0,666 0,049 0,147 1,225 1,864 Acquisition of financial assets (0,161) (3,718) (3,578) (3,509) (3,764) (4,436) Proceeds from disposals of financial assets 0,076 0,395 4,296 5,513 7,991 8,300 Purchase of subsidiaries, net of cash acquired (0,021) (0,986) (1,175) (1,287) (1,287) Other cash flows from investing activities 0,003 0,122 0,069 0,198 1,145 Acquisition of equity accounted investees (0,005) (1,908) Net cash used in investing activities (24,681) (34,430) (20,576) (40,684) (58,184) (87,503)
Cash flows from financing activities 2,224 Purchase of treasury shares (18,975) (21,367) (21,928) (22,126) Sale of treasury shares 0,499 8,234 1,338 2,224 2,224 2,775 Proceeds from bank and corporate loans 97,428 172,778 110,589 247,216 380,463 532,663
Repayment of bank and corporate loans (125,159) (219,276) (80,557) (209,045) (343,289) (491,724) Repayment of bonds (0,398) (1,215) (0,659) (3,377) (6,436) (7,285) Proceeds from promissory notes 7,650 21,882 22,863 22,863 Repayment of promissory notes (2,250) (21,863) (22,946) (22,939) Dividends paid to shareholders of the Group (0,427) (0,001) (0,362) (12,808) (12,131) Other cash flows from financing activities 24,636 29,490 (14,333) (16,627) (17,135) (7,818) Net cash used in financing activities (2,993) (10,416) 2,802 (1,319) (18,990) (5,722)
Net (decrease)/increase in cash and cash equivalents 0,006 0,391 6,441 1,935 (4,000) 2,990
Effect of exchange rate changes on cash and cash equivalents (6,362) 0,016 (0,021) 0,011 (0,011) (0,016) Cash and cash equivalents at beginning of year 10,370 10,370 7,380 7,380 7,380 7,380 Cash and cash equivalents at the end of year 10,376 10,761 13,821 9,396 3,369 10,370
FCF (3,581) 13,331 3,810 2,151 9,713 5,050 25 www.rostelecom.ru Group’s dividends
Dividends (RUB bln) KEY DATA
% of net income RAS / IRFS 46% / 34% • In April 2012 the Board of Directors proposed to approve 2012 dividend payment in the total amount of RUB 8,2 bln or 25% of RAS net income for 25% / 24% 2012 or:
• RUB 4.1022 for 1 preferred share of class A (total payment of 3,05% of RAS net income or 2,87% of IRFS net income)
• RUB 2.4369 for 1 ordinary share (total payment of 21,95% of RAS net income or 20,64% IRFS net income)
• Dividends were approved during shareholders’ meeting in June 2013.
Dividend for 2012 • Dividend payment was affected by network modification and upcoming obligatory buy-out of minority shareholder who will vote against reorganization or will not participate in the voting. Total amount spent for • RUB 4,1022 for 1 preferred share buy-out will not exceed RUB 30,3 bln (10% of NAV as of 31/03/2013). of class A • Dividends are calculated as: • RUB 2,4369 for 1 ordinary share • at least 20% of IRFS net income / by number of ordinary shares for 1 ordinary share;
• 10% of RAS Net income / 25% of total number of shares for 1 preferred share.
26 www.rostelecom.ru Rostelecom Current Regulation Mode
1 Rostelecom is recognized as: Company’s regulated business • a natural monopoly • an operator with a strong foothold in the Share of revenues from Share of costs determined by the regulated services in company’s specific legal status in common use network total revenues, 2012 total costs, 2012 • a business entity dominating on commodity markets 6% 7% 2 Rostelecom is a full-service operator 46%
3 Rostelecom is subject to general industrial requirements to: Participation in the all-purpose • Licensing of and access to the numbering communications service resource and the radio frequency resource Indirect regulation of inter-connection • Network construction and commissioning Regulatory efforts: • Service quality/ provision procedure • Setting tariffs for regulated services • Anti-trust price control
4 The Company has commitments in • Public access to infrastructure and services connection with participation of the Russian • Control over major transactions and purchases Federation in its share capital • Requirements to the network architecture and radio frequency technologies 27 www.rostelecom.ru List of abbreviations
AGM Annual General Shareholders Meeting BB Broadband BoD Board of Directors CDMA Code Division Multiple Access (3G) CAPEX Capital Expenditures DLD Domestic Long Distance DTH Direct To Home FMC Fixed/mobile convergence FTTx Fiber to the x FX Foreign Exchange GSM Global System for Mobile Communication (2G) HH Households ILD International Long Distance IPTV Internet Protocol Television RTO Interregional Company LTE Long Term Evolution (4G) LTM Last Twelve Month MSCI Morgan Stanley Capital International MVNO Mobile Virtual Network Operator NGN Next Generation Network OIBDA Operating Profit Before Depreciation and Amortization RTCM Rostelecom SG & A Selling, General and Administrative expenses SME Small and Medium – size Enterprise
28 www.rostelecom.ru Contact Information
Investor Relations
Office +7 (499) 995 9780 E-mail: [email protected] Web: http://www.rostelecom.ru/en/ir/
29 www.rostelecom.ru