#1९ Rostelecom More possibilities Investor Presentation November 2012 sochi.ru 2014#2Rostelecom 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: 2 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. 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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. www.rostelecom.ru#3Rostelecom Table of Content 1. Company overview 2. En route to a services company model: success on key strategic initiatives 3. Operational and Financial data 3 www.rostelecom.ru p. 4 p. 12 p. 20#4Chapter 1 Company overview 4 www.rostelecom.ru S Rostelecom#55 Rostelecom Rostelecom at a Glance Key state interest in telecom industry Unique infrastructure Rostelecom networks and services cover all Federal districts of Russia, including Moscow - Strong subscriber base - 500,000 km of national backbone and unique "list mile” infrastructure with over 33 mln households passed - ~27.51 mln fixed - line subs, ~ 8.91 mln broadband subs, ~ 6.41 mln pay-TV subs and 13.52 mln mobile voice subs Positive Financial Results Revenue 2011 RUR 296.0 bln OIBDA 2011 RUR 117.7 bln OIBDA margin 2011: 39.8% Net Income 2011 Revenue: High Single Digit CAGR Strategic Goals 2015 OIBDA margin around 40% Clear Ownership Structure Listing www.rostelecom.ru : RUR 46.1 bln Cash CAPEX 2011: RUR 82.8 bln Net debt 30.09.2012 RUR 197.6 bln CAPEX: average 20% of revenues for the period 2011-2015 Government controls > 55% of ord. shares Treasury shares: ~5% of ordinary shares and ~13% of preferred shares Other shareholders ~ 40% of ordinary shares - Currently traded on MICEX-RTS. LSE listing is planned in the near future On September 01, 2011 Rostelecom was included in MSCI Large Cap. Current weight in MSCI Russia of 2.19%3 1- As at September 30, 2012 2- including SkyLink, acquired in 3Q 2012 3-As at August 30, 2012#66 Rostelecom Investment case - capitalization growth and structural Clear outcome from structural changes changes Optimization of capital structure Consider preferred shares and treasury shares questions Growth of dividend yield Growth in Fundamentals Universal service company - full spectrum of telecom services to all types of clients with key focus on: Fixed and mobile broadband ➤ Pay-TV Universal multi-standard network covering whole territory of Russia Business expansion to adjacent segments (clouds, IT) Increase in operational effectiveness www.rostelecom.ru#7Rostelecom Shareholders' structure: current and target Current structure VNESHECONOMBANK State stake 55,2%¹ ९ 25%+1 Rostelecom Target structure SVYAZ INVEST State Property Agency 99,99% 40,2%¹ 4,6% Mobitel 100% Other Shareholders 1- Percentage of voting shares SKYLINK 2- Will depend on the valuation of Svyazinvest assets & Rostelecom 7 www.rostelecom.ru Other telecom assets VNESHECONOMBANK State stake >50%² Rostelecom <50%² Other Shareholders#8Rostelecom ~27.5 mln Fixed Voice Subs Мурманск National Integrated Operator ~6.4 mln Pay-TV Subs 8.9 mln BB Subs Амдерма Нарьян-Мар Воркута - 13.5 mln Mobile Subs • Хатанга • Тикси Шмидта Певек Беломорск Архангельск Каменный Салехард Волгочан Петрозаводск Інляндия Лапперанта Вайникалла Котка Кингисепп Эстония Ухта 0 Сыктывкар ^ Н. Уренгой С.Петербург Череповец п Ханты-Мансийск Ноябрьск Вологда Н.Тагил Кострома Киров Пермь Нижневартовск Сургут Новгород Псков Ярославль Екатеринбург Томск Латвия И-Ола Тюмень Иваново Ижевск Каунас Чебоксары OMCK HO Литва ны рек Смоленск Н. Новгород Рязань Kasa Mocksa Kanyra Саранск Ульяновск Самара Челябинск Курган Уфа Барнаул Беларусь Тула Магнитогорск Тамбов Казахстан • Брянск Орел Пенза Липецк Оренбург Г.-Алтайск ▲ Курск Саратов Воронеж Волгоград Белгород 8 Украина Ростов-на-Дону Украина Краснодар Ставрополь М.Воды Болгария Анапа Новороссийск Турция Астрахань Казахстан Элиста Майкоп Сочи Черкесск Нальчик ל - Грезный? Назрань Махачкала Владикавказ Грузия Италия Азербайджан www.rostelecom.ru Ачинск Красноярск Кемерово Новокузнецк Канск w Абакан Иркутск Улан-Удэ Благовещенск Чита Кызыл Хейхе Якутск Магадан • Тында Оха Комсомольск-на-Амуре Биробиджан • Князь Xa ский Ванкарем 4 Эгвекинот Южно-Сахалинск "Анадырь Уст-Большерецк ~33.4 mln Households passed ~500,000 km Backbone 8 commercial Data centers of 1223 m² Китай Фуюань Владивосток Япония Backbone Existing digital RRL Satellite Data-Centers Петропавловк Камчатский#9Rostelecom Strong market position Competitive environment¹) Rostelecom MTS VIP Megafon • As of September 30, 2012 Rostelecom was by far the biggest operator by subscribers and backbone network. Future growth will be driven by: Fixed and mobile data Operational Data 2) Backbone (000 km) 500 117 111 130 Fixed-Line subs (mln. subs) 27,5 6,3 n/a n/a Total HH passed (min.) 33,4 11,8 n/a n/a ✓ IPTV BB Subs (mln. subs) 8,9 2,1 2,3 n/a Mobile Subs (mln. subs). 13,5 70,7 56,2 62,8 Pay-TV Subs (mln. subs) 6,4 2,9 n/a n/a Sales points (000 units) ~2,5 4,2 -2,94) 1,6 Free Float (%) 40% 47% 18% 0% Financials (9M 2012) Revenue (RUR bln.) OIBDA (RUR bln.) OIBDA margin (%) Net Income (RUR bln.) Net Income margin (%) 238,7 249,7 218,2 199,5 94,0 110,9 92,8 84,6 39,4% 44,4% 42,5% 42,4% 30,6 46,1 n/a 12,8% 18,5% n/a 25,9 13,0% Source: Companies' data 1) all data from Russian operations only 2) as at September, 30, 2012 3) including SkyLink 4) including franchise sales points 5) Consolidated 9 www.rostelecom.ru Cloud solutions 1. Electronic government 2. Cloud document management system for federal and regional governments 3. Electronic Medicine 4. Electronic Education – "School of the Future" 5. Housing services and Utilities 6. Virtual Office - cloud solution for small and mid- size enterprises 7. Safe city #112 emergency service, ecological monitoring#10IPTV Rostelecom Market - focused strategy Cloud Solutions Mobile Broadband 10 ➤ Key driver for fixed broadband Market share 2011 Rostelecom 47% VimpelCom 38% Market growth potential '11-'16 CAGR 2011-2016 16 2 +52% MTS 2011 2016 Other 7% 8% > Unique area of expertise Source: iKS Consulting, IPTV 27 +50% Rostelecom 70% Others 30% 2011 2016 ➤ Access to growth story in mobile Mobile data subs 27% Only voice subs 73% 76 234 +25% 2011 2016 www.rostelecom.ru Source:AC&M Consulting, iKS-Consulting, J'son Consulting Source: iKS-Consulting, J'son Consulting#11Rostelecom Traditional business - Fixed Broadband ➤ Solid Fixed line telephony better then expected Rostelecom Market share 2011 Market growth CAGR potential '11-'16 2011-2016 present with strong potential Rostelecom 40% Vimpelcom MTS 11% 11% ER- Telecom 10% 177 113 Akado 4% +9% 2011 2016 Others 25% Source: AC&M - Consulting, by residential subs Source: iKS-Consulting, J'son Consulting Lines loss trend vs peers 2009 ➤ Better then world's peers -1% 2010 -1% 2011 Rostelecom Market share 2011 -3% Rostelecom -6% -6% 70% -8% -8% -9% 10% -12% AT&T -12% -12% British Telecom France Telecom Rostelecom Others 18% MTS 12% Key focus is to keep the number of paying households and up-sell current fixed line customers to other services (broadband, IPTV, mobile) 11 www.rostelecom.ru#12Chapter 2 En route to a services company model: success on key strategic initiatives 12 www.rostelecom.ru S Rostelecom#13Rostelecom Key strategic priorities 1 Integration & cost optimization 2 Broadband - fixed and mobile 3 Cloud & IT services - new growth opportunities 13 www.rostelecom.ru#14Rostelecom 1 Integration: becoming one company Integrated infrastructure Integrated management Single brand Fixed networks: migration to a single full IP network Mobile networks: upgrade of existing 2G networks and focus on development of universal 3G and LTE infrastructure Unified IT systems: billing, customer care and management Centralised group management structure Unified KPIs Unification of HR systems and new unified trade union contract ✓ Unified salaries and remuneration systems New positive image Unification of over 50 brands in a single "Rostelecom" brand New brand well received by all target audiences Selected strong product brands will be kept during 2012-2013 Effective real estate management Personnel expenses optimization Cost management Unification of procurement processes 14 Outsourcing of maintenance functions Energy effective initiatives Continuing cost optimization and synergies realization will help enhance the margins www.rostelecom.ru#15Rostelecom 1 Cost cutting possibilities Operational expenses 15 Area for Optimization 58% of all OPEX 60%. Personnel Optimization 9% Manageable Infrastructure maintenance and development " costs 42% of all OPEX Non- manageable costs www.rostelecom.ru 8% Real Estate Management 8% Sales/Services / Purchasing 15% Other manageable Depreciation / leasing Other non- manageable ☐ ☐ Key Area for Optimization Outsourcing Centers of competence (reduction of management levels, functions centralization) New infrastructure Automatization Energy effectiveness - Current RE portfolio optimization to cut maintenance OPEX Possible sale of high-end properties (25% of all), lease of other access properties Centralized purchasing Balanced distribution channels#16Rostelecom 2 Mobile Data - Leveraging country-wide presence to provide full-scale mobile operations Mobile Data users in Russia- by type of devices Key terms of Rostelecom 4G auction lot Smartphones 24% 2G internet users Trends • Growth in smart Spectrum allocated Number of regions to cover 01.12.2013 5 Mobile phones 54% in 2011 with 15 mln forecasted in 2013) 791-798,5/832-839,5 phone sales (8.5 mln 727,5-735768,5-776 2560-2570/2680-2690 01.12.2014 10 01.12.2015 20 30.11.2016 30 30.11.2017 50 30.11.2018 60 30.11.2019 all areas USB modems 21% 3G-tables 1% Source: J'son Consulting, 2011, by subs 3G network development 27 regions with expected completion in 2012-2013 3G licences coverage Source: Company information 16 www.rostelecom.ru • Stable sales of USB modems (13.5 mln in 2011 with 13 mln. in 2013) Greenfield regions • Moscow and • region St-Petersburg and region + commitment to invest Rub 15 bln per year (includes refarming cost). Capital expenditure by segment (2011-2015) 2011 breakdown Other 12% IT 7% Mobile 20% 2011-2015 CAPEX = 20% of Sales Mobile 25% Back- bone 24% • Krasnodar region • Samara region ⚫ Novosibirsk Last mile 36% Last mile 30% region 2011 Backbone 11% Other 27% IT 7% Total CAPEX RUB 82.8 bln CAPEX / Sales 28.0% Source: Company information Note: % of total CAPEX spent during 2011-2015#17Rostelecom 2 Fixed Broadband: from solid present into bright future Fixed broadband penetration in Russia 79% 69% Moscow 44% 39% 32% St-Pet All Russia Source: Telegeography, 2011, by residential subs Rostelecom *40%* Regions 2012F Rostelecom is a proved leader with 40% market share On-going last mile modernization project shows significant improvement in fiber subscriptions (from 20% in 3Q'11 to 28% in 9M'12) Solid growth in Moscow (from 6% market share in 2011 to 10% as of 1H 2012) - ✓ Average speed for fixed broadband – 5-6 mbit/s, speeds on fiber connection - up to 100 mbit/s Fiber rollout drives IPTV sales (from 350K in 1Q'11 to over 1.2 mln in 9M'12) with over 33 mln HH passed¹... and proved growth in Fiber Subs Subscribers breakdown by type Broadband Leader... Vimpelcom 11% MTS 11% ER- Telecom 10% XDSL Fiber 47% 22% 21% 26% 28% 53% Akado 4% 78% 79% 74% 72% Others 25% Source: ACM Consulting, 2011, by residential subs 1 - the number of HH passed excludes technologies intersections 17 www.rostelecom.ru 4Q2011 1Q2012 2Q2012 3Q2012 XDSL Fiber#18Rostelecom 3 Cloud & IT services: competitive advantage to become the unchallenged leader E-government United portal for public services Public services in e-format 70 out of 83 regions already subscribed (200K total in all levels) 07. Medicine United electronic medical card E-front desk Medicine info systems 112 07. Education E-School and E-Nursery Social network for school students Educational TV channel 07. Housing Tariff and budget control Payments and financial assets Market potential - over 100K 07. City ✓ City infrastructure monitoring Predicting and prevention of emergency situations 07.112 United contact number for admission and processing of messages Special services coordination 07. DOC Office administration Document exchange 07. Business ✓ Automation of key business processes Virtual office service companies 18 www.rostelecom.ru#19Rostelecom 3 Cloud & IT services - continued ✓ According to Presidential Degree, by 2015 all state services should be in electronic format In 2012 Rostelecom was appointed as a sole provider of E-government program ✓ E-government today: all 83 federal regions are covered; average annual service fee of RUB 10-30 mln / region. Over 26K municipal entities in Russia for potential coverage Federal budget for e-government modernisation in 2012: federal level - RUB 80 bln, regional level - RUB 60 bln Revenues from Cloud and Innovative services CAGR 2011-2016 over 70% 4 14,5 up to 50 10,5 2,8 2011 Video Surveillance E-Gov 2012F 2015F Rostelecom cloud solutions ✓ Cloud solutions: fee for services + fee for channels Healthy margins for cloud services: B2G E-Government ■ up to 20% at implementation stage Windows Office 365 Cloud Power ■ up to 40% at service stage B2B 19 www.rostelecom.ru ฟัล C www.gosuslugi.ru www.07.com#20Chapter 3 Operational and Financial Data 20 www.rostelecom.ru S Rostelecom#21Rostelecom Key Financial and Operational data 9M 20121 Revenue, RUB bln. OIBDA, RUB bln. Net Profit, RUR bln. Growth rate OIBDA Margin Net Income margin +8% 39,2% 39,4% 222 239 87 94 27 12,2% 12,8% 31 9M 2011 9M 2012 9M 2011 9M 2012 9M 2011 9M 2012 Local voice subscribers, mln 21 Broadband subscribers, mln Pay-TV subscribers, mln -0,3 -0,3 Churn in mln subs -0,3 Growth rate Growth rate 3,4% -0,4 4,3% 2,4% 2,5% 2,7% 2,8% 2,7% 1,6% 28,5 28,1 27,8 27,5 8,2 8,4 8,6 8,9 5,9 6,0 6,2 6,4 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2011 1Q 2012 2Q 2012 3Q 2012 www.rostelecom.ru 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#22Rostelecom Interconnect 7% Pay-TV 2% Revenue structure dynamics¹ By services, 3Q 2012 Other 18% Broadband 15% Mobile 14% Local Telephone services 29% DLD/ILD/ Intra-Zonal 15% Interconnect 6% Pay-TV 3% By services, 9M 2012 Other 23% Broadband 15% Mobile 13% Local Telephone services 28% DLD/ILD/ Intra-Zonal 12% 22 22 www.rostelecom.ru 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#23Rostelecom P&L1 Bln RUR P&L FINANCIALS 1Q 2012 2Q 2012 3Q 2012 9M 2012 9M 2011 Grwoth rates 2011 2010 Growth rates Revenue (see breakdown below) 85,319 76,387 76,985 238,691 221,838 7,6% 301,494 277,497 8,6% Operating Expenses Wages, salaries, other benefits and pay (66,992) (22,014) including stock option program (62,277) (20,025) 0.000 0.000 (63,551) (192,820) (180,059) (19,327) (61,366) (59,396) 0,000 7,1% 3,3% (241,155) (76,252) (227,543) 6,0% (74,731) 2,0% 0,000 1,101 (3,930) Depreciation and Amortization Interconnect Charges (11,812) Materials, utilities, repair and maintena Other operating income (7,264) 4,023 Other operating expense, including: (13,309) (16,616) (15,493) (10,835) (6,600) 2,299 (11,623) (15,992) (48,101) (45,079) 6,7% (57,427) (56,605) 1,5% Impairment of property, plant & equipment (PPE) 0,000 4,023 (13,309) 0,000 (11,812) (7,134) (20,998) 10,345 (38,241) (34,459) (29,966) 15,0% (40,736) (37,623) 8,3% (20,605) 1,9% (28,306) (25,439) 11,3% 10,173 1,7% 14,690 14,650 0,3% (35,187) 8,7% (53,123) (47,796) 11,1% 0,000 0,000 0,000 0,000 Loss on sale and disposal of PPE (0,383) 0,100 (0,257) (0,540) (0,967) -44,2% (0,844) (0,933) Bad debt reserve (0,438) (0,207) (0,521) (1,166) (0,462) (0,572) Operating Profit 18,327 14,110 13,434 45,871 41,779 9,8% 60,339 49,954 20,8% Operating Profit margin 21,5% 18,5% 17,5% 19,2% 18,8% 20,0% 18,0% OIBDA 34,943 29,603 OIBDA Margin 41,0% 38,8% 29,426 38,2% 93,972 86,858 39,4% 39,2% 8,2% 117,767 106,558 10,5% 39,1% 38,4% Income from equity accounted investee 1,558 0,669 1,259 Finance costs (3,666) (4,100) Other Investing and financial gains 0,991 (0,060) Foreign exchange loss, net 0,650 (0,805) (4,398) 0.860 0,479 3,486 (12,164) 1,791 0,324 2,737 27,4% (10,265) 18,5% 1.426 25,5% (0,482) -167,2% 4,473 (12,630) 2,135 (0,377) 0,353 (11,996) 5,3% 2,296 -7,0% (0,094) 301,8% Profit before income tax 17,860 9,814 11,634 39,308 35,194 11,7% 53,940 40,513 33,1% Income tax expense (4,247) (2,703) (1,732) (8,682) (8,157) 6,4% Non-controlling shareholders of subsidiaries (10,739) (10,084) 6,5% (0,167) Net Profit Net Profit margin 13,613 7,111 16,0% 9.3% 9,902 30,626 27,037 13,3% 12,9% 12,8% 12,2% 43,034 14,3% 30,429 41,4% 11,0% 23 www.rostelecom.ru 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#24Rostelecom Revenue Structure1 Bln RUR Revenue / Breakdown FINANCIALS Grwoth Growth 1Q 2012 2Q 2012 3Q 2012 9M 2012 9M 2011 2011 2010 rates rates By services: Local Telephone services 21,604 21,719 21,125 64,448 66,107 -2,5% 88,011 85,393 3,1% Intra-Zonal 4,797 4,720 4,568 14,085 16,261 -13,4% 21,443 23,358 -8,2% DLD/ILD 5,471 5,070 4,863 15,404 17,782 -13,4% 24,070 27,931 -13,8% Interconnect and traffic transit 4,889 5,146 5,418 15,453 14,757 4,7% 19,774 19,646 0,7% Mobile communication services 10,031 10,446 10,512 30,989 30,340 2,1% 40,660 35,531 14,4% Rent of channels 2,894 2,918 3,014 8,826 7,558 16,8% 9,713 Broadband Internet 12,158 12,386 12,367 36,911 34,330 7,5% 46,992 Pay-TV 2,055 2,143 2,394 6,592 4,847 36,0% 7,011 Data services 4,995 4,957 5,149 15,101 13,597 11,1% 18,893 9,143 6,2% 39,214 19,8% 1,102 536,2% 17,186 9,9% Cloud & E-gov Other 16,425 6,882 7,575 30,882 16,259 89,9% 24,927 18,993 31,2% % of total Revenues Local Telephone services 25,3% 28,4% 27,4% 27,0% 29,8% 29,2% 30,8% Intra-Zonal 5,6% 6,2% 5,9% 5,9% 7,3% 7,1% 8,4% DLD/ILD 6,4% 6,6% 6,3% 6,5% 8,0% 8,0% 10,1% Interconnect and traffic transit 5,7% 6,7% 7,0% 6,5% 6,7% 6,6% 7,1% Mobile communication services 11,8% 13,7% 13,7% 13,0% 13,7% 13,5% 12,8% Rent of channels 3,4% 3,8% 3,9% 3,7% 3,4% 3,2% 3,3% Broadband Internet 14,3% 16,2% 16,1% 15,5% 15,5% 15,6% 14,1% Pay-TV 2,4% 2,8% 3,1% 2,8% 2,2% 2,3% 0,4% Data services 5,9% 6,5% 6,7% 6,3% 6,1% 6,3% 6,2% Other 19,3% 9,0% 9,8% 12,9% 7,3% 8,3% 6,8% By customers: B2C 41,081 40,680 40,163 B2B 16,364 17,156 16,844 B2G 18,965 9,445 10,191 121,924 124,084 -1,7% 50,364 49,630 1,5% 38,601 23,488 64,3% 165,336 156,373 68,136 5,7% 62,149 9,6% 34,819 28,445 22,4% B20 8,909 9,106 9,787 27,802 24,636 12,9% 33,203 30,532 8,7% B2C 48,1% 53,3% 52,2% 51,1% 55,9% 54,8% 56,4% B2B 19,2% 22,5% B2G 22,2% 12,4% B20 10,4% 11,9% 21,9% 21,1% 22,4% 13,2% 16,2% 10,6% 12,7% 11,6% 11,1% 22,6% 22,4% 11,5% 10,3% 11,0% 11,0% 24 www.rostelecom.ru 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#25Rostelecom Balance Sheet¹ Other investments Bln RUR BALANCE SHEET Assets Current Assets Cash & cash equivalents Prepayments FINANCIALS 31.03.2012 30.06.2012 30.09.2012 31.03.2011 30.06.2011 30.09.2011 31.12.2011 31.12.2010 13,821 9,396 3,369 8,423 8,754 6,141 7,380 12,627 4,159 2,939 0,656 7,938 2,364 1,455 3,926 5,580 3,045 3,956 4,445 5,691 5,378 2,390 2,706 3,828 Prepaid income tax 5,198 3,089 1,753 1,354 3,309 Inventories 5,820 5,070 5,316 4,907 5,725 6,279 4,763 4,156 Trade and other accounts receivable 42,512 38,980 35,834 33,153 30,876 30,855 28,790 25,611 Other current assets 1,790 2,602 2,838 2,580 Total current assets 76,346 66,032 54,211 62,692 1,303 54,400 1,201 49,676 1,276 52,150 1,095 52,897 Non-current assets PPE & Intangible assets 336,870 346,053 358,260 303,943 304,492 Investment property 0,263 0,256 0,186 0,292 0,309 319,094 0,333 335,205 0,259 301,068 0.356 Goodwill and other intangible assets 88,343. 87,006 86,778 60,004 62,320 83,818 88,937 30,209 Investment in associates. 34,537 34,142 34,726 28,789 32,759 33,032 34,746 27,517 Other investments 2,763 2,209 2,691 3,359 3,635 Other non-current assets 15,271 16,666 15,059 20,956 20,145 Total non-current assets 478,047 486,333 497,700 Total assets 554,393 552,365 551,911 413,984 476,676 420,025 474,425 5,945 445,582 477,471 495,258 529,621 14,689 14,764 373,914 426,811 Liabilities Current Liabilities Accounts payable 47,926 58,012 50,860 34,625 37,994 38,745. 39,196 38,935 Short-term loans and borrowings 109,346 69,868 73,963 51,519 48,117 67,202 81,464 50,096 Other current liabilities 9,967 8,219 9,621 7,708 10,389 7,064 8,537 6,478 Total current liabilities 167,238 136,100 134,444 93,852 96,500 113,010 129,197 95,509 Non-current Liabilities Shareholders equity Treasury shares Additional paid in capital 0,106 (34,801) 34,739 Retained earnings and other reserves 248,982 0,106 (36,307) 34,739 241,977 0,106 (36,707) 34,842 253,529 0,100 (25,416) 33,424 215,582 Non-controlling interest 3,793 0,355 0,438 4,600 0,106 (25,416) 33,424 224,737 8,045 0,106 34,739 (17,437) 231,509 0,106 34,739 (17,164) 0,100 (25,410) 33,424 247,928 204,981 7,804 7,784 0,012 Long-term loans 96,755 136,965 127,655 119,208 102,127 87,620 90,806 87,941 Employee benefits 12,047 12,180 12,399 16,123 16,671 17,226 11,752 16,197 Deferred tax liabilities 21,416 22,109 21,067 16,609 16.435 18,317 20,699 12,281 25 Other non-current liabilities Total non-current liabilities Total equity & liabilities Net Debt Net Debt/ OIBDA LTM www.rostelecom.ru 4,118 4,142 4,138 2,594 1,796 2,363 3,774 1,776 387,155 554,393 416,266 552,365 417,467 382,824 377,925 551,911 476,676 474,425 382,248 495,258 400,424 331,302 529,621 426,811 188,120 194,498 197,593 x 1,5 x 1,5 x 1,6 154,366 x 1,5 139,126 147,226 x 1,3 160,963 119,830 x 1,4 x 1,1 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#2626 Rostelecom Cash Flow Statement¹ Bln RUR CASH FLOW STATEMENT FINANCIALS 1Q 2012 1H 2012 9M 2012 1Q 2011 1H 2011 9M 2011 2011 2010 Cash flows from operating activities Profit before income tax 17,202 27,674 39,308 12,646 23,600 35,195 53,940 40,513 Adjustments to reconcile profit before tax to cash generated from operations: Depreciation and amortization 16,616 32,109 48,101 13,862 29,794 45,079 57,427 56,605 Loss on sale of property, plant and equipment 0,383 0,283 0,540 0.005 0,586 0,967 0,287 0.933 Impairment losses /(reversal of impairment losses) 0,000 0,000 Finance costs excluding finance costs on pension and other It social liabilities 3,429 7.297 11,464 3,529 6,102 9,263 11,434 10,374 Other non-cash (gains) / loss (0,525) Other investing and financing gains (0,991) (0,931) (1,791) (0,090) Other cash flows from operating activities Share-based payment expenses Changes in net working capital: Cash generated from operations Interest paid Income tax paid (1,770) (1,427) (2,644) (2,647) (0,469) (2,926) (1,426) (2,656) (2,745) (1,793) (2,547) 0,530 0,041 0,041 0.041 0,000 0,411 0,513 0,588 3,930 (4,913) (9,220) (5,591) (8,667) (4,553) (6,413) (13,192) (4,075) 29.997 55,826 89,428 18,113 52,545 81,385 105,282 106,064 (3,529) (7,470) (11,757) (3,562) (6,430) (9,544) (11,234) (11,356) (2,233) (4,348) (4,495) (2,691) (3,244) 24,235 44,008 73,176 11,860 42,871 (8,995) (9,050) 62,846 84,998 (9,704) 85,004 Net cash provided by operating activities Cash flows from investing activities Purchase of PPE and intangible assets (20,426) (41,858) (63,460) Proceeds from sale of property, plant and equipment 0,049 0,147 1,225 (15,332) 0,325 (26,745) 0,629 Acquisition of financial assets. (3,578) (3,509) Proceeds from disposals of financial assets Purchase of subsidiaries, net of cash acquired 4,296 (0,986) 5,513 (1,175) (3,764) 7,991 (1,287) (2,793) 0,705 (4,054) 6,008 (42,647) (82,776) 0,752 (5,456) 8,041 1,484 (51,845) 1,284 (8,565) 9,176 (10,764) 20,152 (29,967) (30,005) (32,285) (32,281) (4,548) Other cash flows from investing activities Acquisition of equity accounted investees 2,232 2,470 Net cash used in investing activities (20,576) (40,684) (58,183) (0,103) (46,765) (3,640) (56,443) (3,640) (3,640) (73,570) (114,370) (26,000) (69,251) Cash flows from financing activities Purchase of treasury shares (18,975) Sale of treasury shares 1,338 Proceeds from bank and corporate loans 110,589 (21,367) 2,224 247,216 (21,928) (0,006) (0,006) (0,006) (1,486) (25,343) 2,224 380,463 1,754 62,745 95,518 Repayment of bank and corporate loans (80,557) (209,045) (343,289) (27,602) (79,350) Repayment of bonds (0,659) (3,377) (6,436) (3,300) (3,706) Proceeds from promissory notes 7,650 21,882 22,863 12,050 Repayment of promissory notes Other cash flows from financing activities Net cash used in financing activities (2,250) (21,863) (22,946) (12,093) 13,146 (13,539) 167,438 289,469 (150,061) (246,941) (8,398) (13,932) 13,490 123,353 (83,215) (11,077) 0,750 5,340 Dividends paid to shareholders of the Group (0.001) (0,362) (12,808) (14,333) (16,627) (17,136) (1,007) (2,291) 2,802 (1,319) (18,993) 30,787 9,772 (14,840) (1,768) (0,113) (0,116) (3,324) (3,479) 4,186 24,251 (7,276) (14,106) (4,481) (16,805) Net (decrease)/increase in cash and cash equivalents 6,461 2,005 (4,011) (4,118) (3,800) (6,538) (5,450) (0,994) Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at the end of year (0,021) 0,011 (0,011) (0,041) (0,056) 7,380 7,380 7,380 12,694 12,694 13,821 9,396 3,369 8.535 8,838 6,141 (0,015) 0,000 12,694 12,627 7,177 0,000 13,621 12,627 www.rostelecom.ru 1 - Consolidated results of the merged companies and Rostelecom according to IFRS#27Appendix Additional Information 27 www.rostelecom.ru S Rostelecom#28Rostelecom Dividend history Total dividend paid 2011 2010 2009 2008 RUB mln. ord pref Rostelecom 13 821 1 140 ord pref ord 810 N-West 559 pref ord pref 435 1 020 510 1414 707 278 521 307 544 321 Center 798 South Volga Grand Total 13 821 1 140 4 882 2 815 14 962 7 697 Dividend per share ord pref Rostelecom 4,70 4,70 2011 2010 2009 2008 ord pref ord pref ord pref 1,11 1,79 1,40 2,10 1,94 2,91 532 759 506 388 259 339 226 277 185 84 56 661 322 639 426 443 295 911 607 610 407 402 268 478 260 352 230 316 207 326 155 326 214 260 221 4 504 2 785 3 851 2 334 6 185 7 289 Dividends payable on the Preferred Shares are fixed by our charter in the amount of 10% of our net profits, based on the year-end RAS statutory accounting report, divided by the number of shares representing 25% of our outstanding shares. Dividends payable on Ordinary Shares must be equal to at least 20% of our net profit for the past fiscal year based on the year-end IFRS financial statements. On June 14, 2012 the AGM approved the following dividends payments: in the amount of RUB 15 bln or 45.95% of 2011 RAS net profit (32.48% of 2011 IFRS net profit), including: 3.5% of 2011 RAS net profit (2.48% of IFRS 2011 net profit) on preferred shares 42.45% of 2011 RAS net profit (30% of IFRS 2011 net profit) on all ordinary shares. Ural Sibir Far-East Total 28 www.rostelecom.ru#29Rostelecom Event* Merger with Svyazinvest - Schedule¹ Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 29 Stage 1. Svyazinvest to increase its authorised capital Svyazinvest to estimate the market value of Svyazinvest shares for placing purposes Svyazinvest to estimate the market value of the assets that the State will exchange for Svyazinvest's additional share issue Svyazinvest to call a Board of Directors meeting to discuss additional share issue Svyazinvest to hold its EGM Svyazinvest to call a Board of Directors to discuss approval of share issue documents and transactions connected to additional share issue, including EGM Svyazinvest to hold its EGM Registration of share issue documents with FSFM Rostelecom to hold a Board of Directors meeting Rostelecom to purchase additional issue of Svyazinvest shares Regisration of the results of additional share issue with the FSFM Stage 2. Svyazinvest to exchange Sky Link CJSC (Sky Link) shares for Rostelecom shares Ernst & Young to conduct an independent valuation of the Sky Link shares which form part of the deal Avers Group to conduct an independent valuation of Rostelecom shares Mobitel LLC (Mobitel) to obtain permission from FAS to purchase Sky Link shares Svyazinvest to hold a Board of Directors meeting to discuss: a) the sale of Sky Link b) the valuation of Rostelecom shares exchanged as part of the deal c) the convening of an EGM to approve the transaction d) the increasing of its stake in Rostelecom. Svyazinvest EGM to vote on the acquisition of Rostelecom shares from Mobitel in exchange for Sky Link shares Mobitel to obtain corporate approvals Mobitel to exchange 1.91% of Rostelecom shares for Sky Link shares Stage 3. Svyazinvest to purchase Rostelecom shares using proceeds from its additional share issue Svyazinvest to estimate the market value of the Rostelecom shares which it will acquire at a later date Both Mobitel and Svyazinvest to obtain respective corporate approvals Svyazinvest to purchase Rostelecom shares using proceeds from its additional share issue Stage 4. Completion of Svyazinvest's merger with Rostelecom Rostelecom to conduct a valuation of Svyazinvest shares to establish the share buyback conversion ratio Svyazinvest to conduct a valuation of Rostelecom shares to establish the share buyback conversion ratio Svyazinvet to hold a Board meeting to discuss: a) the convening of an EGM to seek approval for its merger with Rostelecom as part of the reorganisation, and to approve the conditions of the merger agreement and the transfer act b) the price of the share buyback c) to establish Svyazinvest's stance towards the reorganisation when voting at Rostelecom's EGM Svyazinvest EGM to approve the reorganisation Rostelecom to hold its Board meeting to discuss: a) the convening of an EGM to vote on the merger with Svyazinvest as part of the reorganisation, including the approval of the merger agreement b) the price of the share buyback Rostelecom EGM to approve the reorganisation Rostelecom to tender a mandatory buyback offer to their respective shareholders who voted against the reorganisation, or who did not participate in the vote Rostelecom to hold a meeting of its Board of Directors to discuss: a) the increasing of Rostelecom's authorised share capital by placing additional shares as part of the conversion of its old shares into new ones b) the approval of documentation relating to the additional share issue Rostelecom to register the additional share issue with the Russian Federal Service for Financial Markets (FSFM) Rostelecom to execute the mandatory buyback from shareholders who voted against the reorganisation, or who did not participate in the vote Rostelecom to convert Rosimush chestvo's stake in Svyazinvest into Rostelecom shares, calcellation of "ex-Svyazinvest" and treasury shares (from cross holding) Rostelecom to register the results of the additional share issue with the FSFM 100% 100% 100% 100% 100% - all the dates in the schedule are approximate and may change, depending on the completion of each reorganisation stage. www.rostelecom.ru 100% 100% 100% 100% 100% 100% 100% 1 - all the dates in the schedule are approximate and may change, depending on the completion of each reorganisation stage.#30Rostelecom Assets to be obtained during the merger with Svyazinvest From Svyazinvest From State Property Agency via Svyazinvest¹ Name Share Description Central Telegraph 51% HyproSvyaz 74,99% Broadband provider in Moscow (Qwerty brand) with over 8% market share, CentralTelegraph building of over 20K m² next to Kremlin Name Share Central Telegraph 29% Description Revenues in 2011 amounted to RUB 3.6 bln. Leading engineering company in telecom sector Bashinform 28.2% svyaz SkyLink 100% Kostroma GTS 37,29% United Register 9.0% Company CDMA operator with 1.5 mln mobile voice and 0.5 mobile data subs and 3G licenses for 69 regions Telecom provider in Kostroma and Volgorechensk (fix voice, cable TV, VPN, broadband) Registrator Chukotka Svyazinform 100% Ingushelectro 100% svyaz MMTS - 9 51% Major fix-line provider in Bashkortostan with revenues of RUB 5.87 bln (2011). Good addition to current 39.8% acquired by Rostelecom in 2011 Key telecom provider in Chukotka with reported revenues of over RUB400 mln in 2010 Major telecom provider in Ingushetia Key collocation and hosting provider in Moscow with revenues of over RUB 471 mln in 2010. Good addition to 41.1% already owned by Rostelecom. 1- after State Property agency contributes the assets into Svyazinvest 30 30 www.rostelecom.ru#3131 Rostelecom List of abbreviations BoD CDMA CAPEX DLD DTH Direct To Home FMC AGM BB Annual General Shareholders Meeting Broadband Board of Directors Code Division Multiple Access (3G) Capital Expenditures Domestic Long Distance Fixed/mobile convergence FTTx Fiber to the x FX GSM HH ILD IPTV Internet Protocol Television RTO Foreign Exchange Global System for Mobile Communication (2G) Households International Long Distance Interregional Company LTE Long Term Evolution (4G) LTM Last Twelve Month MSCI MVNO NGN OIBDA RTCM SG & A SME Morgan Stanley Capital International Mobile Virtual Network Operator Next Generation Network Operating Profit Before Depreciation and Amortization Rostelecom Selling, General and Administrative expenses Small and Medium - size Enterprise www.rostelecom.ru#32Rostelecom Contact Information Investor Relations Office +7 (499) 995 9780 Fax E-mail: Web: +7 (499) 972 8222 [email protected] www.rt.ru/en/centr-invest/info/ 32 32 www.rostelecom.ru