SHAPING DIGITAL RUSSIA
Investor Presentation based on 9M 2017 Leading Provider of Integrated Telecommunications Services
Overview Key Financials FY 2016
player across most segments of telecom and #1 digital services RUB RUB RUB 297.4 96.8 13.3 mln households passed by fibre – the largest 33.0 bln bln fixed line network in Russia bln Revenue OIBDA FCF mln broadband subscribers with over 60% 12.7 connected by fibre
Shareholder Structure (1) mln pay TV subscribers with near 50% using 9.7 IPTV Other State Property Agency 48.7% shareholders (free float) Exposure to high-growth potential markets such 32% as cloud services, TV services, data centre, State stake Geodata and Industrial Internet of Things 53%
Exposure to Russian mobile data market via JV Treasury with Tele2 Russia (#4 mobile operator in Russia) shares 15% 4.3%
(1) Ordinary shares. Treasury shares are represented by shares owned by Mobitel. 2 Revenue driversRevenue Transformation to a Digital Service Provider by 2020 as a Strategic Priority Market Size, RUB bln
2015 2020 increase Efficiency
%
2020, 2020,
-
Capital investments Capital CAGR 2015 CAGR
Share in Rostelecom’s Revenue in 2015 & 2020, % remuneration Source: iKS Consulting, TMT-Consulting, Company estimates Shareholder
Content & 39% Digital Services 44% ~60% Broadband 21% 22% 22% Pay TV 28% 27% 25%
VPN Financials 7% 8% VAS&Clouds 10% 7% 21% Telephony 7% 5% 7% 33% 29% 6% Other 16%
2015 2016 2020F 3 Revenue driversRevenue Robust Growth of Subscriber Base and ARPU in B2C
Broadband B2C Subscribers (mln) Pay TV Subscribers (mln) increase Efficiency
+4% YoY +5% YoY 11.9 11.6 11.7 11.8 11.5 9.5 9.7 11.3 9.0 9.2 9.3 9.4
224 226 225 360 365 365 360 214 +9% 351 investments Capital 345 +4% 201 206 YoY YoY
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 remuneration
incl. Fibre Subscribers (mln) incl. IPTV Subscribers (mln) Shareholder
+10% YoY +16% YoY 4.6 4.7 7.6 4.2 4.4 7.1 7.3 7.5 4.0 6.7 6.9 3.9
290 300 300 293 278 +6% 342 346 344 336 269 330 324 +4% YoY Financials YoY
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
ARPU 4 Revenue driversRevenue Development of Digital VAS & Strengthening of the Market-leading Positions
(1)
Market Position in 3Q 2017 (by revenue) MVNO with Tele2 Russia Subscriber Base (mln, B2C+B2B) increase Efficiency
+45% QoQ 73.1% ≈70%(1) in market net additions 0.67 38.4% ≈50%(2) 31.7% 0.46
in market net investments Capital additions 18.6% 10.1% 13.3% +1.3 +1.2 +2.6 pp YoY pp YoY pp YoY
Broadband Pay TV IPTV Rostelecom #2 2Q17 3Q17
(2) remuneration Blended ARPU (RUB) Shareholder
+7% YoY YoY sales growth of Antivirus 2.5x service
481
448 Share of Network Personal Financials 56% 65% Video Recorder (NPVR) users in IPTV subscriber base 3Q16 3Q16 3Q17 3Q17
(1) Source: TMT-Consulting estimates, Company data. Players #2 in terms of revenue shares are the following: ER-Telecom for Broadband, Tricolor TV for Pay TV and VimpelCom for IPTV. 5 (2) Blended ARPU includes revenue from broadband, IPTV and digital cable TV. Revenue driversRevenue Strong Results in В2В/G Segment …
Revenue in B2B/G (RUB bln) increase Efficiency 500+ Additional revenue from “Smart City” projects in +7% YoY RUB mln 3Q 2017
27.0 25.2 +8 Share of fibre broadband subscribers
p.p. Capital investments Capital
Agreements signed to develop and provide data centres’ infrastructure and "Virtual Data Center" service
3Q16 3Q17 remuneration
Broadband B2B/G Subscribers (mln) incl. Fibre Subscribers (mln) Shareholder
+1% YoY +27% YoY
2,500 0.76 0.76 0.75 0.75 2,400 0.29 0.31 0.75 0.28 0.74 0.26 2,300 0.24 0.22 2,132 2,200 2,082 2,103 2,069 2,076 2,051 Financials 2,100 3,749 3,511 3,380 3,045 3,086 2,885
2,000
1,900
1,800 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
ARPU 6 Revenue driversRevenue … Driven by Federal B2G Clients and New Services Performance
Revenue from Federal B2G Clients (RUB bln) Revenue from Broadband & VPN (RUB bln) increase Efficiency
+27% YoY +2% YoY
3.6 9.4
2.8 9.2 Capital investments Capital
3Q16 3Q17 3Q16 3Q17 remuneration
Revenue from New Services (RUB bln) ТОP-6 New Services Revenue Growth Shareholder
3х YoY 3.4x Wi-Fi 2.4х Videocomfort 1.1
2.6x Virtual Data Centre 1.6x TV for Business Financials 0.4 Top-6 = 80%
2.6x New Telephony 1.6x Call-centre 3Q16 3Q17
7 Revenue driversRevenue
Rostelecom’s ‘Smart City’ Platform Revenue from ‘Smart City’ projects
Electronic Tele- radiology 37 medical increase Efficiency in 7 regions projects in > 34 mln history in subscribers 7.2 18 regions 17 +68% regions (2016) RUB bln YoY 2016 Healthcare 12 229 E-Government projects in E-learning projects in 9 CCTV Safety 67 investments Capital regions Platform regions
112 Hot Line 13 projects in Emergency 12 regions Energy efficiency Alert
systems remuneration 92 Ecology Shareholder projects in 36 regions City Intellectual Transportation
‘Safe Roads’ Platform Financials
8 Revenue driversRevenue Data Centres Strong Position Providing Basis for Solid Growth
Rostelecom is the Largest Player…(1) … in the Fast Growing Market (2) Efficiency increase Efficiency 17% CAGR 2016-2020 Under construction – “Udomlya” project 4,000 14% share (2) #1 15.0
13.8 investments Capital
4,130 11.9
SDN
I-Teco
CROC
Selectel DataPro
DataLine 2014 2015 2016E 2020F
DataSpace
Rostelecom
Linxtelecom
Stack Group Stack remuneration Data Centres’ Portfolio Shareholder
4,130 3,900
2,800 Kaliningrad Saint-Petersburg 2,100 Moscow Nizhny Novgorod
Kazan Financials Ufa Ryazan
Krasnodar Ekaterinburg Stavropol Chelyabinsk Khabarovsk 2013 2014 2015 2016E2016 Sochi Novosibirsk
(1) Source: CNews, Company data. (2) Source: TMT-Consulting, Company estimates. 9 Revenue driversRevenue Cloud Services Massive Opportunity Ahead
Cloud Services Market Forecast (RUB bln) (1) Cloud Services Market Structure in 2016 (1) Efficiency increase Efficiency 21% CAGR 2016-2020 PaaS 3% 48.3
IaaS
28.0 35% Capital investments Capital 22.6 15.8 12.0 SaaS 61%
2014 2015 2016 2017F 2020F remuneration Rostelecom’s Services Shareholder 30-70%
TIONIX Cloud Platform National Cloud Platform Potential for IT-
infrastructure cost savings (OpenStack based) Financials
New Telephony Virtual Office CloudControl Virtual Data Centre (VDC)
Virtual Desktop WEB-videoconference, etc. NodeControl Infrastructure (VDI), etc.
(1) Source: SAP and Forrester. 10 Revenue driversRevenue Leading Content Aggregator & Media JV
Unique Content Proposition Media JV with VGTRK increase Efficiency
Digital Television – leading pay TV content provider in Including: Russia with international presence 220 • 70 channels in HD • 3 exclusive channels, incl. Paramount • Portfolio of 18 thematic TV channels channels • Expansion to Latin America, India & China Channel investments Capital • Strong results in 2016 • Basic includes HD channels • Additional include Viasat Premium HD, Packages Amedia Premium, Your Ideal HD, PLUS Revenue (RUB bln) Football, Our Football, Your Cinema, +23% YoY
Adult, Your Premiere Leader remuneration 2.2 Shareholder 1.8 with 30% OTT Access to premium content, best titles and share in thematic video: channels (1) Interactive free VOD library using internet TV 2.0 connection from any provider
2015 2016 Financials • Direct contracts with all major Hollywood studios • Direct contracts with the key international independent producers
(1) Source: TNS TV Index & TV Index Plus, Share, November 2016, Total Aud. 11 Revenue driversRevenue Mobile Joint Venture with Tele2 Russia
Access to Growing Mobile Data Market Efficiency increase Efficiency
Regions covered in total / Revenue growth in 2016 Base stations
12% 103k 65/48 covered with 4G networks Capital investments Capital
Upselling opportunities Share in Russian mobile Total number of points that became available market (by subscribers), 120k/ of sale / monobrand after Moscow launch and
15% player #4 in the total B2B remuneration
retail shops nation-wide network Shareholder market (1) 3.4k rollout
F2M convergence Unique corporate culture Player In the 65 covered MVNO / opportunities through
based on strong cost Financials regions (2) MVNO and cooperation management Synergies #3 on the B2O side
(1) Source: AC&M Consulting as of 4Q 2016. (2) Source: Company data. 12 Revenue driversRevenue Launch of MVNO with Tele2 Russia F2M Convergence on Track
Target 2020 increase Efficiency up to 15% of fixed-line MVNO subs, ths subscriber base +45% QoQ
+107% QoQ Nov 16, 2016 0.67 investments Capital
MVNO launched 0.46 Sep 15, 2016 in 65 regions 0.22 First 5 MVNO regions launched
1Q17 2Q17 3Q17
remuneration Shareholder Rationale
B2B/B2G clients to be upsold to mobile services
Increase in B2C customer loyalty Financials
Creating opportunities for development of IIoT & M2M
13 Revenue driversRevenue Operational Efficiency Improvement Continued Personnel Optimisation Effect of Operational Efficiency Program
173.0 -5% 19.0 increase Efficiency 164.6 158.9 16.5 149.9 142.5 14.2 134.9 11.0 2.2 8.5 2.1 7.5 1.9 2.0 1.7 1.8
2.5 2.5 investments Capital
2012 2013 2014 2015 2016 9M17 2014 2015 2016 2017F 2018F Average number of employees, ths Planned Achieved Revenue per employee LTM, RUB mln
Rostelecom’s Production System & Operations’ Management
remuneration Shareholder Increase of personnel Ability to rapidly Improvement of Efficiency and motivation and respond to market customer experience profitability increase
satisfaction changes Principles
Personnel productivity Operational expenses
Broadband / pay TV NPS Time to market of new services Financials increase reduction
20-30% 35 / 38 3 5-10%
months Targets 14 Revenue driversRevenue
Real Estate Portfolio Optimisation to Unlock Value Efficiency increase Efficiency Portfolio Breakdown in 2016 (sq.m mln) Real Estate Optimisation on Track in 2016
Total ≈300 ths sq.m sold in 2016
8.8 Regional investments Capital capitals RUB 3.1 bln 3.0 from rent of Real Estate >2 sq.m mln
RUB 0.5 bln remuneration ready for Shareholder OPEX savings in 2016 sale 0.6 RUB 3.3 bln income from sale of Real Estate
(ex. fund with Sberbank) Financials
Real estate sub-fund with Sberbank created with RUB 4.0 bln of proceeds
15 Revenue driversRevenue Largest Network with Growing Fibre Penetration
Bridging Digital Divide Efficiency increase Efficiency
Northern Optical
Stream Capital investments Capital
Submarine Cable remuneration Shareholder Magadan- Sakhalin-Kamchatka
Expansion of Fibre Coverage Growth in Network Capacity Capital Expenditures (RUB bln) & CAPEX/ (mln households) (IP / MPLS, Tb/s) Revenue (%) (1) 13.7 Passed during the period 12.3 24.1% 32.2 33.0 30.7 10.6 20.0% 18.2% 19.0% 26.1 18.0% Financials 4.5 1.5 0.8 7.4 19.5 6.6 13.9 5.6 3.5 71.2 2.8 52.9 53.8 59.5 56.6
2012 2013 2014 2015 2016 9M17 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 (1) Excluding BDD project in 2015-2016 and mobile in 2012-2014. 16 Revenue driversRevenue Balanced Approach to Last-Mile Upgrade
Total HH in Russia increase Efficiency
Total HH Rostelecom 53 Dense area investments Capital 46 PON/FTTB
Rural area
We use different remuneration xDSL + wireless Shareholder last-mile solutions to meet our customer needs 33 Rural area and ensure sponsored under BDD efficiency of our >4 project Financials investments. Fibre + Public WiFi
17 Revenue driversRevenue Government Sponsored “Bridging the Digital Divide” Project
A Nation Wide Project to Provide High Speed Internet Operational Highlights increase Efficiency Access to Rural Population…. 160
Rostelecom is to construct fibre-optics and organize and maintain collective Internet access points 500 ths households passed 14,000 investments Capital Nation wide scale 34 20 Rostelecom Strong 3,909 Upside NPV positive, 1,589 to own the government potential IRR > WACC networks commitment 2015 2016 Target
Settlements Fibre optic, ths km remuneration …with Significant Upside Potential for Rostelecom Financial Highlights* Shareholder Overview Envisaged Influence 168
Upselling households for personal BB access and other VAS (on a commercial basis) Revenue ≈70 ≈70 Opportunity to accelerate the upgrade of existing Revenue networks from copper to fibre and expand its Financials Network 13.3 footprint through covering nearby towns 3.2 10.4 5.2 Coverage 2015 2016 10-year total Opportunity to accelerate the upgrade of existing Operational networks from copper to fibre reducing the Operating Income Cash CAPEX OPEX Efficiency maintenance costs * Targets are based on the agreement signed in 2014. Note: Operating income is state-funded and is reported under “other operating income”. 18 Revenue driversRevenue Increasing Shareholder Remuneration through
Improved Dividend Policy 2016-2018
Efficiency increase Efficiency Capital investments Capital Progressive But not 45 YoY ≥ 75% less than
& RUB bln
remuneration Shareholder
of Free Cash Flow In total
for 3 years Financials
19 Revenue driversRevenue
Enhanced Long-term Incentive Programme 2017-2019 Efficiency increase Efficiency
Up to 1,000 employees to participate in the programme
Co-financing principle (share matching plan, SMP) investments Capital
Ordinary shares Additional shares are vested Senior management can participate
3 annual cycles: dedicated to the by the Company 6 months in the 2nd & 3rd cycles if maintaining remuneration 2017, 2018, 2019 programme: after participant’s investments ≥50% of additional shares granted Shareholder up to 6.0% under the programme under previous cycles
Key performance indicators: Entitlement for additional share-based remuneration • Free Cash Flow (FCF) depends on participant’s position, invested funds Financials • Net Profit and individual performance • Return on Invested Capital (ROIC)
20 Revenue driversRevenue Key Financial Highlights FY 2016 & 9M 2017
RUB bln FY 2015 FY 2016 YoY 9M 2016 9M 2017 YoY Efficiency increase Efficiency +4% Revenue growth in 3Q17 Revenue 297.4 297.4 0.03% 217.0 221.2 1.9%
Content & Digital 117.2 129.4 10.5% 94.2 103.7 10.2% Services revenue Growth in revenue from Content
+11% investments Capital OIBDA 100.8 96.8 -4.0% 72.4 71.2 -1.7% & Digital services in 3Q17
OIBDA margin 33.9% 32.5% -1.4 pp 33.4% 32.2% -1.2 pp
+21% FCF growth in 3Q17
Net Profit 14.4 12.2 -14.9% 8.7 9.9 14.1%
remuneration Shareholder Free Cash Flow 22.0 13.3 -39.4% -2.3 3.1 na Revenue Share of Content & Digital Services CAPEX 62.7 61.9 -1.4% 46.8 42.3 -9.6%
CAPEX / Sales 21.1% 20.8% -0.3 pp 21.6% 19.1% -2.4 pp 44% 47% Financials CAPEX / Sales 20.0% 19.0% -1.0 pp 19.7% 18.0% -1.7 pp excl. BDD 3Q16 3Q17 21 Revenue driversRevenue Continuing Growth of All Key Services as a Foundation for 4% Revenue Growth
3Q & 9M 2017 Revenue Drivers Revenue Breakdown (%) increase Efficiency
RUB bln 3Q 2016 3Q 2017 YoY 9М 2016 9М 2017 YoY 3Q 2016 3Q 2017 Broadband Internet Content & Digital 32.3 35.7 10.8% 94.2 103.7 10.2% TV services Revenue 8% 9% 23% 23% VPN Broadband 16.5 17.6 6.5% 49.5 52.7 6.5% 19% 18%
VAS & Cloud investments Capital 8% 9% services TV 6.0 6.8 14.3% 17.3 20.3 17.1% Fixed telephony 7% 8% 29% 6% 25% VAS & Cloud 7% Wholesale services 4.5 5.6 23.6% 11.8 14.2 19.5% (ex. VPN) services 44% 47% Other
VPN 5.3 5.8 9.4% 15.5 16.6 6.9% Content & Digital Services share
remuneration Shareholder
Revenue Dynamics (RUB bln) Fixed Telephony 21.3 19.1 -10.2% 66.4 59.3 -10.7%
1.1 0.5 Wholesale Services 0.9 -2.2 1.5 75.6 13.9 13.9 0.1% 41.6 40.8 -2.0% 1.1 0.0
(ex. VPN) 72.8 Financials Other 5.4 6.9 28.2% 14.9 17.5 17.1% +RUB 2.8 bln +3.9%
Total Revenue 72.8 75.6 3.9% 217.0 221.2 1.9% 3Q 2016 Broadband TV VAS & VPN Telephony Wholesale Other 3Q 2017 Cloud (excl. VPN) 22 * Content & Digital services = Broadband + TV + VAS & Cloud services + VPN services Revenue driversRevenue Revenue & OIBDA Dynamics in 3Q 2017
Revenue (RUB bln) OIBDA Dynamics (RUB bln) increase Efficiency
+1.9% YoY 0.6 +3.9% YoY -1.4 0.2 0.3 -0.2 0.5
25.0 2.8 -2.9 25.0 Capital investments Capital 80.4 217.0 221.2
71.8 72.8 70.4 75.2 75.6
Payroll
Other Other
income
3Q2016 3Q2017
expense
&Repair
expense
Revenue Baddebt
Materials
operating operating 9M16 9M17 Gainon
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 saleof PPE
Interconnect remuneration
OIBDA (RUB bln) & OIBDA margin (%) Shareholder
34.4% 33.4% Payroll (excl. ESOP) declined due to ongoing personnel 32.7% 33.1% 32.2% 31.6% 30.3% 30.6% optimization Interconnection charges increased along with the growth in corresponding revenue and higher content expenditures due to
a growing subscriber base Financials Increase in other operating expenses mainly caused by 25.0 24.4 24.6 25.0 72.4 22.7 21.6 71.2 additional expenses for “Smart City” and “State Automated System “Justice” projects
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 23 Revenue driversRevenue Net Income & FCF Dynamics in 3Q 2017
Net Income (RUB bln) & Net Income margin (%) Net Income Dynamics (RUB bln) increase Efficiency 4.1% 4.1 0.0 3.9 3.2% -0.2 0.7 5.6% -1.4 0.3 0.8 5.2% 4.5% 4.5% -1.2 0.8
3.8% investments Capital
2.2% 9.9 Tax
8.7
ESOP
FXnet
OIBDA 3Q2017 4.1 3.6 3.9 3Q2016 3.2 2.8
1.6 Depreciation
Financecosts
associates
Loss/(Income)from financialgain/(loss)
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 Otherinvesting and remuneration
Free Cash Flow (RUB bln) Shareholder
15.6 Allowance for a new long-term incentive programme (ESOP) was recorded in 3Q 2017 for 1Q-3Q 2017 3.1 Depreciation charges increased mainly due to commissioning of 7.1 5.9 new objects in the end of 2016
Other investing and financial gains increased as a result of Financials revaluation of financial instruments Decrease in losses from associates is mainly caused by better -2.3 -1.6 financial result of the JV with Tele2 Russia -5.7 -2.3 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 24 Revenue driversRevenue Increasing Efficiency of Capital Expenditures & Debt Portfolio
CAPEX (RUB bln) & CAPEX / Revenue (%) Total & Net Debt (RUB bln) increase Efficiency
Net Debt Total Debt Net Debt / OIBDA Capex 21.6% 19.1% 1.9 1.9 1.9 2.0 25.1% 1.9 1.8 19.7% 20.6% 18.7% 18.0% 17.9% 192.7 200.4 200.1 201.4 16.6% 16.0% 187.1 189.8
46.8 investments Capital 42.3 17.1% 17.7 14.8 15.1 14.6% 13.0 12.5 12.1 182.5 190.1 177.5 180.0 185.5 191.2
0.8 0.6 1.1 0.5 0.8 1.1 4.1 2.4
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 remuneration Total Debt Structure Shareholder
by Maturity (excl. %), RUB bln by Type by Currency
3% 0.1% 93.5 19%
42.6 Financials 25.2 20.6 16.9 1.2 78% 99.9% 4Q 2017 2018 2019 2020 2021 2022 and Loans Bonds Other RUB Other onwards 25 Revenue driversRevenue
2017 Outlook Efficiency increase Efficiency
Revenue Up to 1.5% growth Upgraded Capital investments Capital
OIBDA Up to 1% growth Reiterated
remuneration Shareholder
CAPEX / Sales ≈ 18.5% Reiterated
(excl. BDD) Financials
By providing this outlook, we reserve the right to revise or update it at any subsequent period in case of events which, in our opinion, can increase uncertainty, including but not limited to regulatory decisions, currency devaluation, consumer spending contraction, budget cuts, or any other macroeconomic events and decisions which can affect the Company’s actual results. 26 Attachment Detailed Performance Attachment P&L Statement
Growth Growth RUB bln 1Q 2017 2Q 2017 3Q 2017 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 YoY - 3Q YoY – 9M
Revenue 70.436 75.166 75.614 3.9% 1.9% 72.464 71.794 72.781 80.407 297.446
Operating expenses (62.343) (63.862) (66.438) 9.0% 2.2% (63.962) (63.523) (60.966) (69.159) (257.610) Wages, salaries, other benefits and payroll taxes (23.923) (22.026) (22.504) 3.5% 0.0% (23.927) (22.797) (21.750) (21.866) (90.340) including stock option program (0.006) 0.436 (1.836) 301.8% -10.2% (0.537) (0.571) (0.457) 0.218 (1.347) Depreciation, amortization and impairment losses (13.470) (13.731) (13.983) 9.5% -2.5% (15.632) (13.849) (12.766) (13.342) (55.589) Interconnection сharges (10.775) (13.547) (13.671) 11.7% 3.5% (12.811) (11.652) (12.241) (15.457) (52.161) Materials, utilities, repair and maintenance (6.183) (5.682) (5.795) -3.4% 2.1% (5.885) (5.421) (5.998) (7.613) (24.917) Gain/(Loss) on sale and disposal of PPE and intangible assets 0.154 0.642 0.685 70.3% 8.7% 0.498 0.463 0.402 3.193 4.556 Bad debt expense (0.656) (0.841) (1.121) 19.9% -2.1% (0.456) (1.284) (0.935) (0.100) (2.775) Other operating income 3.132 3.233 3.223 17.6% -6.6% 4.936 2.589 2.741 2.682 12.948 Other operating expense (10.622) (11.911) (13.271) 27.4% 9.6% (10.685) (11.572) (10.419) (16.656) (49.332) Operating profit 8.093 11.304 9.176 -22.3% -0.1% 8.502 8.271 11.815 11.248 39.836 Operating Profit margin 11.5% 15.0% 12.1% 11.7% 11.5% 16.2% 14.0% 13.4%
OIBDA 21.569 24.599 24.995 -0.2% -1.7% 24.670 22.692 25.038 24.372 96.772 OIBDA Margin 30.6% 32.7% 33.1% 34.0% 31.6% 34.4% 30.3% 32.5%
Loss/(Income) from equity accounted investees (1.024) (0.715) (0.660) -56.1% -52.1% (1.918) (1.583) (1.503) (2.292) (7.296) Finance costs (3.666) (5.802) (4.067) -6.3% 6.4% (4.107) (4.275) (4.342) (4.451) (17.175) Other Investing and financial gain/(loss) 0.481 (0.110) 0.703 -628.4% 67.8% 0.551 0.222 (0.133) 0.421 1.061 Foreign exchange gain/(loss), net 0.123 (0.082) (0.045) -128.6% -100.7% 0.741 (0.353) 0.159 (0.032) 0.515
Profit before income tax 4.007 4.595 5.107 -14.8% 13.8% 3.769 2.282 5.996 4.894 16.941
Income tax expense (0.857) (1.769) (1.202) -37.9% 13.1% (0.767) (0.681) (1.936) (1.308) (4.692)
Net profit 3.150 2.826 3.905 -3.8% 14.1% 3.002 1.601 4.060 3.586 12.249 Net profit margin 4.5% 3.8% 5.2% 4.1% 2.2% 5.6% 4.5% 4.1%
28 Attachment Revenue Structure
Growth Growth RUB bln 1Q 2017 2Q 2017 3Q 2017 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 YoY - 3Q YoY – 9M By services: Broadband Internet 17.528 17.610 17.571 6.5% 6.5% 16.442 16.562 16.497 17.270 66.771 TV services 6.642 6.809 6.828 14.3% 17.1% 5.613 5.728 5.972 6.287 23.599 Fixed telephony 20.399 19.763 19.132 -10.2% -10.7% 22.996 22.074 21.310 21.201 87.314 Wholesale services 17.363 20.308 19.649 2.6% 0.4% 19.747 18.207 19.143 21.912 79.010 Rent of channels 2.403 2.367 2.302 -10.3% -12.2% 2.844 2.646 2.566 2.482 10.538 Interconnect and traffic transit 6.743 8.958 8.418 3.7% -0.5% 8.853 7.272 8.122 10.856 35.102 VPN 5.073 5.707 5.785 9.4% 6.9% 4.995 5.207 5.290 5.331 20.823 Rent & maintenance of telecommunication infrastructure 3.144 3.277 3.144 -0.7% 2.8% 3.055 3.083 3.166 3.243 12.546 VAS & Clouds 3.643 4.957 5.558 23.6% 19.5% 3.100 4.249 4.497 6.400 18.245 Other telecommunication services 3.402 3.736 4.299 29.3% 20.0% 3.035 3.173 3.324 4.941 14.741 Other non-telecommunication services 1.460 1.982 2.577 26.4% 12.1% 1.531 1.801 2.038 2.397 7.767
Broadband Internet 24.9% 23.4% 23.2% 22.7% 23.1% 22.7% 21.5% 22.4% TV services 9.4% 9.1% 9.0% 7.7% 8.0% 8.2% 7.8% 7.9% Fixed telephony 29.0% 26.3% 25.3% 31.7% 30.7% 29.3% 26.4% 29.4% Wholesale services 24.7% 27.0% 26.0% 27.3% 25.4% 26.3% 27.3% 26.6% Rent of channels 3.4% 3.1% 3.0% 3.9% 3.7% 3.5% 3.1% 3.5% Interconnect and traffic transit 9.6% 11.9% 11.1% 12.2% 10.1% 11.2% 13.5% 11.8% VPN 7.2% 7.6% 7.7% 6.9% 7.3% 7.3% 6.6% 7.0% Rent & maintenance of telecommunication infrastructure 4.5% 4.4% 4.2% 4.2% 4.3% 4.3% 4.0% 4.2% VAS & Clouds 5.2% 6.6% 7.4% 4.3% 5.9% 6.2% 8.0% 6.1% Other telecommunication services 4.8% 5.0% 5.7% 4.2% 4.4% 4.6% 6.1% 5.0% Other non-telecommunication services 2.1% 2.6% 3.4% 2.1% 2.5% 2.8% 3.0% 2.6%
By management units: B2C 33.967 33.756 33.387 1.9% 1.7% 33.645 33.049 32.749 34.474 133.917 B2B/B2G 23.352 25.897 26.971 6.9% 3.6% 23.368 24.961 25.235 28.631 102.195 B2O 11.990 14.343 13.947 3.1% -0.9% 14.452 12.663 13.532 16.203 56.851 Other 1.128 1.169 1.310 3.5% 6.6% 0.998 1.121 1.265 1.099 4.483
B2C 48.2% 44.9% 44.2% 46.4% 46.0% 45.0% 42.9% 45.0% B2B/B2G 33.2% 34.5% 35.7% 32.2% 34.8% 34.7% 35.6% 34.4% B2O 17.0% 19.1% 18.4% 19.9% 17.6% 18.6% 20.2% 19.1% Other 1.6% 1.6% 1.7% 1.4% 1.6% 1.7% 1.4% 1.5% 29 Note: Fixed telephony and other telecommunication services revenues for 1Q-3Q 2016 have been restated due to relocation between the revenue lines. Attachment Balance Sheet
RUB bln 3/31/2017 6/30/2017 9/30/2017 3/31/2016 6/30/2016 9/30/2016 12/31/2016 Non-current assets Property, plant and equipment 341.177 339.034 338.056 333.579 331.771 334.580 343.667 Investment property 0.184 0.176 0.161 0.103 0.122 0.099 0.181 Goodwill and other intangible assets 60.479 59.950 59.312 59.752 61.609 60.730 61.209 Trade and other accounts receivable 7.022 8.966 9.293 4.969 5.334 5.435 7.053 Investment in associates 67.327 66.612 65.978 73.347 71.728 70.205 68.352 Other investments 1.178 1.415 1.443 0.754 0.805 0.845 0.797 Other non-current assets 5.707 6.027 5.609 4.451 4.297 5.006 5.551 Total non-current assets 483.074 482.180 479.852 476.954 475.666 476.900 486.810
Current assets Inventories 6.314 6.680 6.788 3.934 4.138 4.709 6.444 Trade and other accounts receivable 50.013 51.470 52.815 48.856 48.671 50.338 45.884 Prepayments 2.683 2.337 2.875 2.328 2.441 2.140 2.166 Prepaid income tax 1.654 0.472 0.478 5.203 4.899 2.870 1.957 Other investments 3.962 8.214 8.929 4.791 6.553 5.913 5.367 Cash & cash equivalents 5.828 6.388 1.343 5.144 3.640 4.427 4.257 Other current assets 2.428 2.262 2.620 3.729 2.155 2.063 2.151 Total current assets 72.882 77.823 75.848 73.986 72.496 72.460 68.226 Assets held for sale 0.733 0.859 0.921 1.647 1.734 1.727 0.646 TOTAL ASSETS 556.689 560.862 556.621 552.587 549.895 551.087 555.682
Equity Share capital 0.093 0.093 0.093 0.093 0.093 0.093 0.093 Additional paid in capital 0.090 0.090 0.090 0.090 0.090 0.090 0.090 Treasury shares (67.034) (64.602) (65.556) (68.669) (67.031) (66.932) (67.034) Retained earnings and other reserves 313.912 300.716 306.202 317.329 304.176 308.238 311.167 Non-controlling interest 4.430 3.138 3.253 4.036 4.102 4.246 4.317 Total equity 251.491 239.435 244.082 252.879 241.430 245.735 248.633
Non-current liabilities Loans and borrowings 120.261 140.724 145.131 141.205 134.452 140.543 124.510 Employee benefits 4.975 5.152 5.049 5.020 5.380 5.522 5.217 Deferred tax liabilities 37.701 37.972 38.766 33.329 32.486 33.175 36.165 Other non-current liabilities 7.538 7.449 7.569 7.876 10.025 10.926 7.097 Total non-current liabilities 170.475 191.297 196.515 187.429 182.344 190.166 172.989
Current liabilities Loans and borrowings 69.534 59.341 56.293 45.262 58.273 59.868 62.595 Accounts payable 58.384 64.041 53.099 58.483 60.800 48.368 64.072 Other current liabilities 6.805 6.748 6.632 8.534 7.050 6.950 7.393 Total current liabilities 134.723 130.130 116.024 112.279 126.123 115.186 134.060
TOTAL EQUITY AND LIABILITIES 556.689 560.862 556.621 552.588 549.897 551.087 555.682
Net debt 180.005 185.463 191.152 176.532 182.533 190.071 177.481 Net debt / OIBDA LTM 1.9х 1.9х 2.0х 1.7х 1.9х 1.9х 1.8х 30 Gross debt 189.795 200.065 201.424 186.468 192.725 200.411 187.105 Attachment Cash Flow Statement
RUB bln 1Q 2017 1H 2017 9M 2017 1Q 2016 1H 2016 9M 2016 2016 Cash flows from operating activities Profit before income tax 4.007 8.602 13.709 3.769 6.051 12.047 16.941 Adjustments to reconcile profit before taх to cash generated from operations: Depreciation, amortization and impairment losses 13.470 27.201 41.184 15.632 29.481 42.247 55.589 (Gain)/Loss on sale and disposal of PPE and intangible assets (0.154) (0.796) (1.481) (0.498) (0.961) (1.363) (4.556) Bad debt expense 0.656 1.497 2.618 0.456 1.740 2.675 2.775 (Income)/Loss from equity accounted investees 1.024 1.739 2.399 1.918 3.501 5.004 7.296 Finance costs excluding finance costs on pension and other long-term social liabilities 3.666 9.405 13.441 3.985 8.141 12.366 16.699 Other Investing and financial (gain)/loss (0.481) (0.371) (1.074) (0.551) (0.773) (0.640) (1.061) Foreign exchange (gain)/loss, net (0.123) (0.041) 0.004 (0.741) (0.388) (0.547) (0.515) Share-based payment expenses (0.004) (0.382) 1.381 0.406 0.838 1.184 1.019 Changes in net working capital: (3.218) (13.596) (15.465) (1.496) (10.748) (13.819) (8.608) (Increase) / decrease in accounts receivable (4.662) (9.545) (12.231) (6.018) (6.862) (9.258) (3.941) (Decrease) / increase in employee benefits (0.242) (0.065) (0.169) (0.001) (0.013) 0.128 (0.561) (Increase) / decrease in inventories 0.130 (0.236) (0.345) 0.116 (0.045) (0.615) (2.351) (Decrease) / increase in accounts payable, provisions and accrued expenses 3.094 (2.544) (0.441) 5.886 (1.560) (2.142) 1.376 (Decrease) / increase in other assets and liabilities (1.538) (1.206) (2.279) (1.479) (2.268) (1.932) (3.131) Cash generated from operations 18.843 33.257 56.716 22.879 36.882 59.154 85.579 Interest paid (4.823) (8.624) (13.700) (4.764) (9.333) (14.383) (18.410) Income tax refund 1.293 1.514 1.771 0.000 0.234 1.395 4.391 Income tax paid (0.414) (1.355) (1.975) (2.212) (3.624) (3.822) (4.383) Net cash provided by operating activities 14.899 24.792 42.812 15.903 24.159 42.344 67.177
Cash flows from investing activities Purchase of PPE and intangible assets (17.714) (30.165) (42.290) (18.964) (33.768) (46.797) (61.857) Proceeds from sale of PPE and intangible assets 0.506 1.420 2.580 0.635 1.438 2.133 7.978 Acquisition of financial assets (1.484) (7.264) (9.575) (2.767) (4.560) (5.737) (9.736) Proceeds from disposals of financial assets 2.477 3.919 5.423 3.251 4.678 6.376 10.831 Interest received 0.097 0.335 0.491 0.444 0.628 0.827 1.029 Dividends received 0.001 0.001 0.006 0.002 0.020 0.022 Purchase of subsidiaries, net of cash acquired (0.064) (0.064) (0.064) 0.000 (2.438) (2.438) (2.438) Acquisition of equity accounted investees (0.030) (0.778) (0.778) (0.778) (2.778) Proceeds from disposals of equity accounted investees 0.139 0.347 (0.001) (0.001) (0.001) (0.001) Net cash used in investing activities (16.181) (31.679) (43.112) (18.180) (34.799) (46.395) (56.950)
Cash flows from financing activities Sale of treasury shares 0.001 0.008 0.008 0.157 Purchase of treasury shares (0.981) (0.314) Proceeds from bank and corporate loans 112.899 269.120 415.828 160.301 324.543 496.127 655.190 Repayment of bank and corporate loans (109.714) (258.150) (391.919) (156.909) (313.984) (492.822) (665.936) Proceeds from bonds 10.000 10.000 15.000 15.000 Repayment of bonds (9.285) (20.418) (2.734) (2.734) (2.734) (2.734) Repayment of vendor financing payable (0.002) (0.005) (0.007) (0.002) (0.005) (0.007) (0.009) Proceeds from / (repayment of) other non-current financing liabilities (0.002) (0.005) (0.001) Repayment of finance lease liabilities (0.012) (0.061) (0.089) (0.001) (0.073) (0.116) (0.160) Acquisition of non-controlling interest (2.255) (2.255) Dividends paid to shareholders of the Group (12.195) (13.295) (13.295) Dividends paid to non-controlling shareholders of subsidiaries (0.183) (0.012) (0.045) (0.248) (0.258) Options settlement repayments (0.103) (0.209) (0.209) (0.125) (0.231) (0.231) (0.319) Net cash used in financing activities 3.068 9.153 (2.432) 0.518 7.479 1.682 (12.679) Net (decrease)/increase in cash and cash equivalents 1.571 2.131 (2.914) (2.021) (3.525) (2.738) (2.908) Effect of exchange rate changes on cash and cash equivalents (0.215) (0.135) (0.182) (0.261) (0.364) (0.369) (0.456) Cash and cash equivalents at beginning of year 4.256 4.256 4.256 7.164 7.164 7.164 7.164 Cash and cash equivalents at the end of period 5.827 6.387 1.342 5.143 3.639 4.426 4.256 FCF (2.309) (3.953) 3.102 (2.427) (8.171) (2.320) 13.298 31 Attachment Operational Data
1Q 2017 2Q 2017 3Q 2017 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 1Q 17/16 2Q 17/16 3Q 17/16 SUBSCRIBERS, MLN Local telephony 20.3 19.9 19.5 21.8 21.4 21.0 20.6 20.6 -7.1% -7.0% -7.2% B2C 16.8 16.5 16.1 18.2 17.8 17.5 17.1 17.1 -7.7% -7.6% -7.7% B2B 3.5 3.4 3.4 3.6 3.6 3.5 3.5 3.5 -4.0% -3.9% -5.0%
Broadband by client type 12.5 12.6 12.7 11.9 12.0 12.3 12.4 12.4 5.0% 4.6% 3.4% B2C 11.7 11.8 11.9 11.2 11.3 11.5 11.6 11.6 5.0% 4.7% 3.6% B2B 0.8 0.8 0.8 0.7 0.7 0.7 0.8 0.8 3.9% 3.6% 0.8%
Broadband by technology 12.5 12.6 12.7 11.9 12.0 12.3 12.4 12.4 5.0% 4.6% 3.4% xDSL 4.9 4.8 4.8 5.2 5.2 5.1 5.0 5.0 -6.5% -6.1% -6.2% FTTx 7.6 7.7 7.9 6.7 6.9 7.2 7.4 7.4 14.0% 12.7% 10.2% xDSL 39% 38% 38% 44% 43% 41% 40% 40% FTTx 61% 62% 62% 56% 57% 59% 60% 60%
Pay TV 9.4 9.5 9.7 8.9 9.0 9.2 9.3 9.3 6.4% 5.7% 5.4% IPTV 4.4 4.6 4.7 3.7 3.9 4.0 4.2 4.2 20.4% 18.1% 16.4% Cable TV 5.0 5.0 5.0 5.2 5.2 5.1 5.1 5.1 -3.4% -3.5% -3.3% IPTV 47% 48% 49% 41% 43% 44% 46% 46% Cable TV 53% 52% 51% 59% 57% 56% 54% 54%
Mobile (MVNO with Tele2) 0.2 0.5 0.7
ARPU, RUB Broadband B2C 365 365 360 354 351 345 360 352 3.2% 3.9% 4.2% B2B 2,076 2,051 2,132 2,114 2,082 2,069 2,103 2,092 -1.8% -1.5% 3.0% incl. Broadband FTTx B2C 346 344 336 333 330 324 342 332 3.8% 4.0% 4.0% B2B 3,045 3,086 2,885 3,821 3,749 3,511 3,380 3,598 -20.3% -17.7% -17.8% Local telephony B2C 251 249 243 267 257 250 255 257 -6.2% -3.2% -2.6% B2B 611 637 637 636 624 619 640 630 -3.9% 2.1% 2.9% Pay TV (B2C) 224 226 225 201 201 206 214 206 11.4% 12.4% 9.0% incl. IPTV 300 300 293 273 269 278 290 278 9.8% 11.6% 5.7% Note: Subscriber base and ARPUs for 2016 have been restated due to changes in methodology. 32 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 PJSC 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
33 CONTACTS
Investor Relations
Office +7 (499) 995 9780 E-mail: [email protected] Web: www.rostelecom.ru/en/ir/
34