Investor Presentation Todays Presenters Sergey Maria Kalugin - - PowerPoint PPT Presentation

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Investor Presentation

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www.rostelecom.ru

Today’s Presenters

2

Sergey Kalugin

President, CEO

Ekaterina Ustinova

Head of Investor Relations

Kai-Uwe Mehlhorn

Senior Vice-President, CFO

Maria Florentieva

Vice-President, Strategy and Investor Relations

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www.rostelecom.ru

51.1% 20.1% 28.8%

Rostelecom at a Glance

3

Strong Subscriber Base & Market Share3 Financial Results 1H14

Broadband 10.9 mln 41%

Shareholder Structure 1

Other Shareholders Treasury shares2

Strengthened Positions in Mobile Business

Rostelecom holds 45% in T2-RTK (Tele2 Russia), a national mobile player

Combined mobile market share3 (by subs)

156.4* RUB bln

• 2% YoY

REVENUES

+3% YoY fixed

24.8 RUB bln

15.9% to Sales

CAPEX

• 24% YoY

54.1* RUB bln

34.6% margin

OIBDA

35.4% margin fixed

176.2 RUB bln

1.6x to OIBDA

NET DEBT

RUB 41.1 bln improvement

State Property Agency

47% 4.1%

State stake

B2C 50% B2B 23% B2G 14% B2O 13%

Revenue Mix by Segments 1H14

MTS 32% Megafon 28% Vimpelcom 23%

T2-RTK 15%

Other 2%

* Including effect of RUB 11.1 bln on revenue and effect of RUB 2.8 bln on OIBDA from discontinued operations.

Pay-TV 7.7 mln 22% Fixed Voice 25.6 mln 69%

1 As of October 1, 2014 2 Including shares owned by Mobitel 3 As of the end of 2Q2014

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www.rostelecom.ru

Content

4

Investment Highlights

1

Rostelecom Strategic Priorities

2

Financial Results & Outlook

3

SLIDE 5

• 1. Investment Highlights

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www.rostelecom.ru

Investment Highlights

6

2 3 4 5 6 1 Exposure to attractive markets with strong growth profiles Leading positions in most Russian telecom segments Unique and largest fixed-line network in Russia Significant upside potential from

• perational

efficiencies Robust financial profile Management team with significant TMT experience

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www.rostelecom.ru

2.3 4.9 7.2 9.5 11.8 14.1

2013 2014F 2015F 2016F 2017F 2018F

Exposure to Attractive Markets with Strong Growth Profiles

7

1

Pay TV and IPTV penetration in Russia3 Fixed Broadband Penetration1 (2013) VoD Market Volume4 (RUB bln) Mobile Data Market Volume4 (RUB bln)

ARPU CAGR 2013-2017 = 3%

5.5 6.6 8.0 9.5 10.8 12.0 13.1 14.0 1.1 2.1 3.4 4.4 5.2 6.1 6.9 7.5 0.4 0.7 0.9 1.1 1.4 1.6 1.9 6.7 9.1 12.1 14.8 17.2 19.5 21.6 23.4 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2Play (BB & Voice) 3Play (BB, TV & Voice) 4Play (BB, TV, Voice & Mobile)

Bundle subscribers in Russia2 (mln)

102 129 157 183 203 222 237

2012 2013 2014F 2015F 2016F 2017F 2018F Source: 1 Company estimates, iKS-Consulting, Pordata.pt, ITU 2 Ovum 3 J’Son & Partners Consulting 4 iKS-Consulting 40% 44% 47% 49% 50% 50% 53% 60% 61% 63% 64% 65% 66% 67% 69% 71% 82% 83% 89% 89% 97%

5% 7% 9% 11% 12% 13% 14% 58% 64% 70% 75% 78% 81% 83%

2012 2013 2014F 2015F 2016F 2017F 2018F

IPTV Pay TV

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www.rostelecom.ru

Rostelecom 41%/36%*

ER-Telecom 10%/9%

Rostelecom 22%/23%

Tricolor 29%/14%

Leading Positions in Most Russian Telecom Segments

8

2

IPTV Broadband B2C Pay-TV Broadband B2B Rostelecom 44%/30%

MTS 9%/12%

#1

by subscribers & revenue

#1

by revenue

Market share by subscribers / by revenue

Rostelecom 59%/61%

Vimpelcom 23%/26%

Estimated market size in 2H2013-1H2014 * Source: iKS-Consulting, AC&M Consulting for B2C broadband market share by subscribers Note: All data shown includes Russia only. For Tricolor TV only paying subscribers are taken into account

VimpelCom Others Tricolor Megafon ER-Telecom MTS Rostelecom

112

RUB bln

55

RUB bln

58

RUB bln

9

RUB bln

#1

by subscribers & revenue

#1

by subscribers & revenue

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www.rostelecom.ru

Largest Fixed-Line Network in Russia to Support Growth

9

Growing Demand for Speed and Capacity

IP Traffic Growth2

3x

2013 2018

Rostelecom is well positioned to support this demand….

500,000 km of backbone

Total footprint ~ 55 mln Total homes passed ~ 34 mln Total households upgraded to fiber by the end of 2016 ~ 33 mln … and monetize its network competitive advantages

• Upselling B2C and B2B customers to

fiber for higher speeds and video products

• Reliable and secure nation-wide

solutions for B2B and B2G clients

• Implementation of Bridging Digital

Divide program

Total capacity required in 20151

> 100 Mb/s

3

1 Average capacity required in metropolis area. Source: Company estimates 2 Source: Cisco

Fixed Internet Traffic, PB per month2 12 18 22 28 35 40 Average BB Speed in CEE, Mbps2

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www.rostelecom.ru

Significant Upside Potential from Operational Efficiencies

10

COST EFFECT

Network Modernization

Network Maintenance Cost REVENUE EFFECT High End Tariffs & Value Added Services

Personnel Efficiency Improvement Optimization of Retail Chain & Real Estate Portfolio Customer Care Improvement Procurement Optimization

Excessive Functions Eliminations Productivity Property Maintenance Cost Income from Disposals Customer Service Cost Customer Satisfaction

Prices Vendor compe- tition

Stable

4

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www.rostelecom.ru

32.7 24.8

1H13 1H14

28.8 21.2

1H13 1H14

9.0% 10.8%

2Q14 2Q13

7.2 8.2

2Q14 2Q13

4.1 4.9

2013 2012

2.4 3.1

2013 2012

71.0 72.6

2Q14 2Q13

79.9 76.0

2Q14 2Q13

Robust Financial Profile

1 Consolidated P&L data for 2013 and 1Q14 include the entire mobile business of Rostelecom, while the data for 2Q14 exclude mobile subsidiaries transferred to JV with Tele2 Russia. 2 OIBDA = Operating Profit excl. Long-term motivation program accrual expenses plus Depreciation & Amortization

11

Revenue Revenue fixed-line Capex Ordinary share Preferred share

27.5 26.2

2Q14 2Q13

29.1 27.6

2Q14 2Q13

OIBDA OIBDA fixed-line Capex (RUB bln) Revenue 1 (RUB bln) Capex fixed-line OIBDA2 (RUB bln) Dividends (RUB) OIBDA margin (%) Net Income & margin

38.7% 36.0%

2Q14 2Q13

36.5% 36.3%

2Q14 2Q13

OIBDA margin OIBDA margin fixed-line

• 5% YoY

due to demerger of mobile subsidiaries

+2% YoY

• 5% YoY

due to demerger of mobile subsidiaries

• 5% YoY

stable YoY

• 2.7pp YoY

Net Income Net Income margin

+28% YoY +18% YoY

• 26% YoY

+14% YoY +1.8pp YoY

• 24% YoY

5

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www.rostelecom.ru

Management Team with Significant TMT Experience

12

Sergey Kalugin

• President, CEO
• Joined the Company in March,

2013

• 12 years experience in Telecom

& Media

• Previously CEO of National

Telecommunications, largest cable TV & IS provider in Russia

Maria Florentieva

• Vice President, Strategy &

Investor Relations

• Joined the Company in May,

2013

• 7 years experience in Telecom

& Media

• Previously Deputy CEO of

National Telecommunications

Kai-Uwe Mehlhorn •

Senior Vice President, CFO

• Joined the Company in May, 2013
• Over 21 years of TMT

experience, 11 years at CFO position

• Previously CFO of Megafon and

Tele2 Russia.

Larisa Tkachuk

• Senior Vice President, Sales &

Marketing

• Joined the Company in April,

2013

• Over 10 years of Telecom &

Media experience

• Previously Sales & Marketing

Director at Megafon

Mikhail Irzhevsky

• Vice President, Legal Affairs

& Corporate Governance

• Joined the Company in

October, 2013

• Over 20 years of consulting in

international law firms

• Previously Partner at

Freshfields Bruckhaus Deringer LLP

Alexander Maslov

• Vice President, GR
• Joined the Company in June,

2013

• Over 7 years experience in IT,

Telecom & Media and over 20 years of Government experience

• Previously Deputy Minister of

Communications and Mass Media of Russia

Dmitriy Sadkov

• Vice President, IT
• Joined the Company in June,

2013

• Over 13 years of experience in

IT

• Previously Director of

Management Consulting Department at IBS and at McKinsey & Company

Alexander Tseitlin

• Senior Vice President,

Network Joined the Company in May, 2013

• Over 30 years of Telecom

experience

• Previously CEO at Mostelecom,

Moscow incumbent cable TV company

6

Galina Rysakova

• Senior Vice President, HR
• Joined the Company in 2001
• Over 13 years experience in

Organizational Development and Human Resources

• Previously worked as HR

Manager at Sheremetyevo International Airport

SLIDE 13

• 2. Rostelecom Strategic

Priorities

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www.rostelecom.ru

Rostelecom Strategic Priorities

14

Revenue CAPEX / Revenue OIBDA margin Technological leadership in IP networks 1 Differentiated

• fferings

2 Best-in-class customer service 3 Organisational & corporate culture transformation 4 Efficiency improvement 5

SHAREHOLDER RETURN

Proven track- record of cost control Effective utilization of 3G / 4G licenses & network roll-out Data growth

• pportunity

45% STAKE in T2-RTK

Dividends Fundamental value

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www.rostelecom.ru

Technological Leadership in IP Networks

15

Projects Multiservice Network Capacity IP/MPLS, Tb/s Households Passed by Fiber, mln Submarine cable Sakhalin - Magadan – Kamchatka Modernization of multiservice network Digital divide bridging

Сеть агрегации РФ AS 12389 (КЦ) AS РФ Единая сеть AS 12389 CR CR RGR RGR CG-NAT BRAS DR DR BPE

• Capex and opex decrease as a result of network hops
• ptimization
• Simplification and speeding up network development, including

the new services launch

• Increasing competition between vendors

Core (CR) Service level (BPE, BRAS, CG-NAT) 2014 2014-2016 Backbone (RGR) Aggregation Level (DR)

Test completed Test launched

Project’s stages Project’s target

Fiber Broadband 10 Мb/s

• Construction contract is signed with “INTER RAO UES Power

efficiency centre” to connect 13.6k rural settlements to fiber optic

• OJSC “Hyprosvyaz” was appointed as a major Project Office
• Testing of wireless broadband equipment is completed
• Construction is in process according to schedule
• Maximum capacity: up to 8Тb
• Project cost: ≈ RUB 3 bln
• Status: contracts with vendors are signed
• Construction start: Q3 2014
• Operations start: June 2016

3.5 4.5 3.5 7.4 9.7 2012 2013 7M2014 Load Capacity +111% +31% 2.8 5.6 2.6 7.9 2012 2013 7M2014 2014F +100% YoY +41% YoY

1

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www.rostelecom.ru

Differentiated Offerings – Subscriber Base

16

Subscribers (mln) Subscribers (mln) Video-on-Demand transactions (mln) Technology Breakdown (%)

ARPU

Fiber Subscribers (mln) IPTV Subscribers (mln)

7.1 7.2 7.3 7.5 7.6 7.7 129 131 132 140 143 147 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 +7.1% YoY 3.3 3.5 3.8 4.0 4.3 4.5 422 418 402 418 441 421 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 +27.3% YoY 0.9 1.0 1.2 1.5 1.7 1.6 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 +65.9% YoY Seasonality effect

PAY TV BROADBAND

2a

10.0 10.1 10.3 10.6 10.8 10.9 460 450 437 448 459 446 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 +7.4% YoY 1.7 1.9 2.0 2.2 2.3 2.4 180 182 182 201 210 206 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 +28.9% YoY 33% 35% 36% 38% 40% 41% 67% 65% 64% 62% 60% 59% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 FTTx xDSL

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www.rostelecom.ru

Differentiated Offerings – Triple Play

17

2b

“Three-in-one” Launch of a national triple play promotion campaign “Three-in-one”: savings on monthly charges for customers who simultaneously subscribe to the Home Internet, IPTV and Home Telephone

Home Internet

~ 450

RUB/month

VS.

Home Telephone

~ 180

RUB/month

IPTV

~ 200

RUB/month

3-in-1 from 499 RUB/month* for new clients or clients with 1 service (for promo-period only – 4 months)

 Extra package of TV channels  “Karaoke”  Multiroom

 3Play service and the promotional “Three-in-one” campaign aim is retention of fixed voice subscribers and increase in subscriber bases for broadband and pay TV.

from 685 RUB/month* for customers using 2 services

* Minimal tariff. Prices and specifications of the services may differ across the regions. Promotional period is 4 months.

• r

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www.rostelecom.ru

Transformation into Digital Services Provider

18

B2C B2B & B2G

• Triple Play
• Enhanced self-services

features

• SaaS (SAP, Microsoft)
• Vertical Solutions for

government sectors

• OTT Box with best in the

market offering of linear & VOD programming

• Online video-portal with

free access major TV channels shows and series catch up

• Integrated online portal

with e-commerce and financial services

• Data Centers with Tier 3

standards

• National CDN solution
• Private clouds enabled

by best in class connectivity standards, VPNs, security protocols, etc. TODAY NEXT STEPS FURTHER ON…. New product ecosystem

• Focus on development of

virtualized products within core capabilities area and partnering for the rest through collaboration alliances and open platform

2c

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www.rostelecom.ru

Best-in-Class Customer Service

First Results 19

3a

Based on the TOP 35 “Quick wins” project analysis September 2013 June 2014 KPIs 2015-2016

Repeated calls

1 19% 11% 5%

Calls resolved within target time

2 14% 54,3% 90% (2+3 lines)

3rd line of technical support

Repeated calls

1 15-25% 12-20% 10%

Customer issues average handle time

2 50-20 h 13 h 2,5 h

2nd line of technical support

Tickets resolved remotely

3 25-40% 52% 70%

Plan Achieved so far

The first results of customer calls and repeated calls reduction (3rd line of technical support)

28 738 15 714 12 507 11 896 11 582 11,3%

June 2014

103 707

May 2014

10,9% 11,4% 13,8% 104 296

April 2014

110 199

February 2014

113 978

October 2013

18,7% 153 682

Repeated calls Total calls

10% 70% (2+3 lines) 14% 6 h 60%

KPIs 2014 KPIs for

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www.rostelecom.ru

• 24 contact centers
• 4 contact centers in 3

macro-regional branches transferred to insourcing

• 2 macro-regional branches

has reached the targeted Service Level - 90% of inbound calls taken in the first 30 sec

• 70% of service operations

is supported by the Company‟s specialists

• 14 contact centers
• 19% cost reduction per minute of

service

• First Call Resolution of

85% - new KPI

• B2C: SL 90/30, LCR 10%
• B2B: SL 90/10
• 90% of service operations is

supported by the Company‟s specialists

• Market approach – pricing

depends on targeted SL, LCR и FCR

• 48 contact centers
• In 7 macro-regional

branches outbound

call support was

• utsourced to 3rd

parties

Best-in-Class Customer Service

Contact Centers Restructuring 20

3b

AS IT WAS AS IT IS OUR TARGETS FOR 2015-2016

Regions with outsourcing of outbound calls to third parties Regions with insourced contact centers

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www.rostelecom.ru

Organizational & Corporate Culture Transformation

21

4

Key Initiatives “Ideal Branch” Model Corporate Culture & Sustainability

Centralization of support functions (IT, backoffice, etc.) Creation of competence centers at macro branches level Outsourcing of certain business functions and related optimization of organizational structure Development of „ideal‟ operational model with solid scalability potential on the base of some pre- selected local branch Replication of developed operational model at regional branches level „Ideal branch‟ project is expected to be instrumental for the whole organizational transformation and should also set the ground for CRM and other IT systems improvements Management efficiency: lead by example, mentorship, commitment, encouragement and staff training Customer-oriented approach, continuous improvement Motivate to action and evaluate on real achievements Simplicity and delegation: facilitate accomplishment of the objectives and empowerment

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www.rostelecom.ru 22

5

Personnel productivity Total savings breakdown Project result: +1-2% OIBDA margin increase by 2017

26% 22% 7% 6% 5% 4% 2% 2% 26%

Points of sale Personnel efficiency Network modernization Consolidation of control centers Contact-centers Rent of channels Real estate in use Bills printing and delivery Other

RUB 15 bln

• f savings

Efficiency Improvement

2.9 4.2 4.6 2.9 1.8

Data for foreign operators include mobile business data (Source: companies’ data, World Bank)

Revenue per employee, RUB mln/person

CAGR

+10%

Orange DT/T-Mobile AT&T RTK 2018 RTK 2013 >2.5 Inflation Structural Business Changes OIBDA 2017 OIBDA 2013 Competition Negative Effect Positive Effect Procurement OEI Program Personnel Optimization

Procurement savings, RUB bln

3.5 16.1 8.5 >12.0 2012 2013 1H2014 2014F

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www.rostelecom.ru

Rostelecom, 45.0% VTB, 27.5% Other investors, 27.5%

Mobile: Joint Venture with Tele2 Russia

23

Russia Mobile assets

T2-RTK Shareholder Structure

The deal was completed ahead of schedule in August 2014 Rostelecom has 4 representatives in the BoD (out of 11,

• incl. 1 foreign independent director), 2 out of 3

representatives in the Audit and the Nomination & Remuneration committees, 1 out of 3 representatives in the Strategy and Investments committees JV is run by seasoned professionals with proven track- record and expertise in mobile operations mainly consisting

• f former Tele 2 Russia operational management team

(COO, CTO, CFO, etc.)

Accomplished Fixed-Mobile Synergies

MVNO agreement between Rostelecom and T2-RTK for LTE to provide 4-play services Fiber infrastructure sharing: backbone, regional level and backhauls

Tele2 Russia Holding

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• 3. Financial Results & Outlook

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www.rostelecom.ru

= 𝐒𝐕𝐂 𝟐𝟗𝟔. 𝟔 𝐜𝐦𝐨

CAPEX (RUB bln) and CAPEX / Revenue (%) OIBDA2 (RUB bln) and OIBDA Margin (%) Revenue 1 (RUB bln)

Key Consolidated Financial Results

25

79.6 73.6 81.0 85.3 80.4 76.0 71.0 72.6 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Total Fixed-line +2.3% YoY Effect from mobile subsidiaries 79.9 29.4 29.1 29.6 25.2 26.5 27.6 37.0% 36.5% 36.5% 29.5% 33.0% 36.3% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 1 Consolidated P&L data for 2013 and 1Q14 include the entire mobile business of Rostelecom, while the data for 2Q14 exclude mobile subsidiaries transferred to JV with Tele2 Russia. 2 OIBDA = Operating Profit excl. Long-term motivation program accrual expenses + Depreciation & Amortization 3 Free Cash Flow = net cash provided by operating activities less CAPEX

Net Debt/OIBDA

203.2 180.7 207.2 217.3 184.0 176.2 1.8 1.6 1.8 1.9 1.7 1.6 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Net Debt Analysis (RUB bln) FCF3 Analysis (RUB bln) Total Debt Structure (RUB bln)

20.5 37.2 43.6 45.5 37.5 2H2014 2018 and

• nwards

2016 2017 2015

by Maturity by Rate by Currency

25.1 7.6 14.4 21.4 10.0 14.8 31.6% 9.5% 17.8% 25.1% 12.4% 19.5% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 S&P / Fitch ratings BB+ stable / BBB- stable Fixed rate Floating rate 1% 99% RUB Other 1% 99% 1H14

• 3.1

3.0 17.2 10.7 2011 2012 2013 1H14

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Outlook for 2014

26

 The Outlook presented below covers the fixed-line business only.  Taking into account the current political and macroeconomic instability, the outlook may be revised in any of the subsequent periods.

Revenue  Moderate growth y-o-y (1-2%) OIBDA Margin  ~ 34-35% CAPEX  Stable Capex-to-Sales ratio (20-22%)

Reiterate Reiterate Reiterate

SLIDE 27

Appendices

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P&L Statement

28

Bln RUR P&L 1Q 2014 2Q 2014 Growth YoY 1Q 2013 2Q 2013 3Q 2013 4Q 2013 2013 2012 2011 Revenue (see breakdown below) 80.406 75.964

• 4.9%

79.559 79.858 80.959 85.328 325.704 332.435 312.330 Operating Expenses (68.423) (63.619)

• 5.0%

(67.994) (67.000) (68.213) (77.629) (280.836) (278.604) (252.294) Wages, salaries, other benefits and payroll taxes (23.989) (22.429) 2.2% (23.021) (21.937) (21.760) (24.284) (91.002) (88.815) (80.801) including stock option program 0.000 (0.750) 0.000 0.000 0.000 1.101 Depreciation and Amortization (14.514) (14.514)

• 10.8%

(17.865) (16.270) (16.816) (17.463) (68.414) (66.511) (59.322) Interconnect Charges (12.691) (12.364)

• 1.5%

(10.355) (12.555) (12.720) (14.116) (49.746) (48.858) (42.123) Materials, utilities, repair and maintenance (6.922) (6.587) 6.8% (6.228) (6.166) (7.994) (8.107) (28.495) (28.483) (29.004) Other operating income 2.569 2.883

• 1.7%

2.739 2.934 5.766 4.490 15.929 14.749 15.703 Other operating expense, including: (12.876) (10.608)

• 18.4%

(13.264) (13.006) (14.689) (18.149) (59.108) (60.686) (56.747) Impairment of PPE 0.000 0.000 0.000 0.000 0.000 Gain/Loss on sale and disposal of PPE (0.092) 1.275 3650.0% (0.065) 0.034 (0.117) (0.196) (0.344) (0.752) (0.829) Bad debt reserve (1.011) (0.721) 143.6% (0.478) (0.296) (0.953) (0.413) (2.140) (1.389) (0.632) Operating Profit 11.983 12.345

• 4.0%

11.565 12.858 12.746 7.699 44.868 53.831 60.036 Operating Profit margin 14.9% 16.3% 0.9% 14.5% 16.1% 15.7% 9.0% 13.8% 16.2% 19.2% OIBDA 26.497 27.609

• 5.2%

29.430 29.128 29.562 25.162 113.282 120.342 119.358 OIBDA Margin 33.0% 36.3%

• 0.4%

37.0% 36.5% 36.5% 29.5% 34.8% 36.2% 38.2% Income from equity accounted investees 0.011 0.161 475.0% 0.009 0.028 0.025 0.116 0.178 0.053 0.198 Finance costs (4.184) (3.980) 4.9% (3.973) (3.795) (3.887) (4.145) (15.800) (16.278) (14.572) Other Investing and financial gains 1.685 0.619 69.1% 0.828 0.366 2.951 (0.698) 3.447 4.408 2.194 Foreign exchange loss, net (0.258) 0.031

• 107.8%

(0.140) (0.395) 0.016 (0.054) (0.573) 0.489 (0.378) Profit before income tax 9.237 9.176 1.3% 8.289 9.062 11.851 2.918 32.120 42.503 47.478 Income tax expense (2.345) (0.993)

• 47.1%

(1.897) (1.878) (2.326) (1.887) (7.988) (9.301) (10.659) Net Profit 6.892 8.183 13.9% 6.392 7.184 9.525 1.031 24.132 33.202 36.819 Net Profit margin 8.6% 10.8% 8.0% 9.0% 11.8% 1.2% 7.4% 10.0% 11.8% FINANCIALS

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Revenue Structure

29

Bln RUR Revenue / Breakdown 1Q 2014 2Q 2014 Growth YoY 1Q 2013 2Q 2013 3Q 2013 4Q 2013 2013 2012 2011 By services: Local Telephone services 20.992 20.084

• 10.4%

21.730 22.403 21.734 21.568 87.436 89.504 91.526 Intra-Zonal 3.762 3.684

• 12.0%

4.231 4.184 4.525 4.230 17.171 19.634 22.439 DLD / ILD 3.969 3.609

• 15.0%

4.695 4.248 4.147 4.011 17.101 20.562 24.236 Interconnect and traffic transit 6.325 7.044 22.4% 5.554 5.754 7.010 6.546 24.864 21.991 20.444 Mobile communication services 9.239 3.583

• 64.0%

9.503 9.939 9.576 9.884 38.902 41.161 40.660 Rent of channels 2.527 2.881

• 12.4%

3.335 3.290 1.119 1.742 9.486 11.433 10.782 Broadband Internet 14.991 14.811 9.8% 13.520 13.487 14.402 14.529 55.938 51.619 47.984 Pay-TV 3.425 3.534 30.9% 2.787 2.700 3.145 3.274 11.906 9.208 6.748 Data services 5.853 5.619 0.0% 5.349 5.617 5.575 6.485 23.025 20.872 19.227 Other 9.324 11.115 34.9% 8.855 8.237 9.726 13.059 39.876 46.451 28.284 % of total Revenues Local Telephone services 26.1% 26.4% 27.3% 28.1% 26.8% 25.3% 26.8% 26.9% 29.3% Intra-Zonal 4.7% 4.8% 5.3% 5.2% 5.6% 5.0% 5.3% 5.9% 7.2% DLD / ILD 4.9% 4.8% 5.9% 5.3% 5.1% 4.7% 5.3% 6.2% 7.8% Interconnect and traffic transit 7.9% 9.3% 7.0% 7.2% 8.7% 7.7% 7.6% 6.6% 6.5% Mobile communication services 11.5% 4.7% 11.9% 12.4% 11.8% 11.6% 11.9% 12.4% 13.0% Rent of channels 3.1% 3.8% 4.2% 4.1% 1.4% 2.0% 2.9% 3.4% 3.5% Broadband Internet 18.6% 19.5% 17.0% 16.9% 17.8% 17.0% 17.2% 15.5% 15.4% Pay-TV 4.3% 4.7% 3.5% 3.4% 3.9% 3.8% 3.7% 2.8% 2.2% Data services 7.3% 7.4% 6.7% 7.0% 6.9% 7.6% 7.1% 6.3% 6.2% Other 11.6% 14.6% 11.1% 10.3% 12.0% 15.3% 12.2% 14.0% 9.1% By customers: B2C 41.570 36.598

• 11.7%

41.958 41.434 40.955 41.537 165.884 167.330 170.373 B2B 18.235 17.931

• 1.2%

17.949 18.147 19.477 18.253 73.827 70.794 72.437 B2G 10.408 11.163 11.0% 10.607 10.061 10.881 14.055 45.604 54.159 35.212 B2O 10.193 10.271 0.5% 9.045 10.216 9.645 11.483 40.389 40.152 34.308 B2C 51.7% 48.2% 52.7% 51.9% 50.6% 48.7% 50.9% 50.3% 54.5% B2B 22.7% 23.6% 22.6% 22.7% 24.1% 21.4% 22.7% 21.3% 23.2% B2G 12.9% 14.7% 13.3% 12.6% 13.4% 16.5% 14.0% 16.3% 11.3% B2O 12.7% 13.5% 11.4% 12.8% 11.9% 13.5% 12.4% 12.1% 11.0% FINANCIALS

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Balance Sheet

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Bln RUR BALANCE SHEET 3/31/2014 6/30/2014 3/31/2013 6/30/2013 9/30/2013 12/31/2013 12/31/2012 12/31/2011 Assets Current assets Cash & cash equivalents 6.250 7.249 7.287 14.891 7.416 7.960 13.629 9.634 Other investments 24.387 0.504 4.137 4.547 10.862 1.966 3.492 4.609 Prepayments 3.818 3.454 3.661 3.708 3.917 3.508 4.416 2.945 Prepaid income tax 4.802 3.902 3.635 3.381 2.701 4.894 2.951 3.384 Inventories 4.511 4.614 4.692 4.561 4.233 3.941 4.990 5.172 Trade and other accounts receivable 46.383 43.489 40.513 42.217 43.594 39.824 35.882 30.512 Other current assets 0.720 0.708 1.537 1.528 1.704 0.609 0.908 1.109 Total current assets 90.871 63.920 65.462 74.833 74.427 62.702 66.268 57.365 Assets held for sale 31.365 33.962 93.048 0.401 0.261 Non-current assets PPE & Intangible assets 327.111 323.050 396.995 393.840 389.140 335.059 399.917 348.493 Investment property 0.114 0.121 0.254 0.216 0.229 0.113 0.274 0.259 Goodwill and other intangible assets 59.278 59.489 85.724 84.672 83.196 64.346 88.329 89.340 Investment in associates 27.802 27.955 0.785 0.807 0.830 0.918 0.775 0.773 Other investments 0.700 0.254 0.112 0.147 0.138 0.520 3.035 1.829 Other non-current assets 4.024 4.342 8.325 7.752 9.430 4.266 8.191 15.061 Total non-current assets 419.029 415.211 492.195 487.434 482.963 405.222 500.521 455.755 Total assets 541.265 513.093 557.657 562.267 557.390 560.972 567.190 513.381 Liabilities Current liabilities Accounts payable 51.150 49.858 51.222 95.220 49.838 73.635 61.839 41.279 Short-term loans and borrowings 37.123 26.883 56.698 47.639 59.432 33.209 65.016 82.453 Other current liabilities 6.803 7.045 9.001 8.987 8.843 9.419 10.287 8.863 Total current liabilities 95.076 83.786 116.921 151.846 118.113 116.263 137.142 132.595 Liabilities held for sale 6.399 8.936 17.647 Equity Shareholders equity 0.097 0.096 0.097 0.097 0.096 0.097 0.097 0.097 Treasury shares (81.311) (81.382) (36.472) (31.194) (58.898) (68.325) (34.822) (18.388) Additional paid in capital 1.624 1.622 4.322 4.320 4.579 1.658 4.344 4.743 Retained earnings and other reserves 293.156 294.346 272.927 243.334 283.788 262.967 266.607 235.158 Non-controlling interest 3.350 3.125 2.664 2.429 3.201 3.359 2.606 9.588 Total equity 216.916 217.807 243.538 218.986 232.766 199.756 238.832 231.198 Non-current liabilities Long-term loans 177.528 158.577 157.941 152.454 166.017 184.600 152.874 94.640 Employee benefits 9.855 9.882 10.909 10.946 10.919 9.774 10.861 11.046 Deferred tax liabilities 27.802 26.836 23.322 22.927 24.626 26.728 23.107 20.518 Other non-current liabilities 7.689 7.270 5.026 5.108 4.949 6.204 4.374 23.384 Total non-current liabilities 222.874 202.565 197.198 191.435 206.511 227.306 191.216 149.588 Total equity & liabilities 541.265 513.094 557.657 562.267 557.390 560.972 567.190 513.381 Net Debt 184.014 176.159 203.215 180.655 207.171 217.309 200.769 162.850 Net Debt / OIBDA LTM x 1.7 x 1.6 x 1.8 x 1.6 x 1.8 x 1.9 x 1.7 x 1.4

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Cash Flow Statement

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Bln RUR CASH FLOW STATEMENT 1Q 2014 1H 2014 1Q 2013 1H 2013 9M 2013 2013 2012 2011 Cash flows from operating activities Profit before income tax 9.237 18.413 8.289 17.351 29.202 32.120 42.503 47.478 Adjustments to reconcile profit before taх to cash generated from operations: Depreciation and amortization 14.514 29.028 17.865 34.135 50.951 68.414 66.511 59.322 Loss on sale of property, plant and equipment 0.092 (1.183) 0.065 0.031 0.148 0.344 0.752 0.829 Impairment losses /(reversal of impairment losses) Finance costs excluding finance costs on pension and other lt social liabilities 3.993 7.784 3.789 7.395 11.102 15.031 15.332 13.547 Other non-cash (gains) / loss 0.750 Other investing and financing gains (1.685) (2.304) (0.828) (1.194) (4.145) (3.447) (4.408) (2.194) Other cash flows from operating activities 1.258 1.787 0.609 1.272 2.184 2.535 0.847 0.812 Share-based payment expenses 0.018 0.588 Changes in net working capital: 0.655 (8.278) (1.469) 1.133 (8.124) (7.747) (1.328) (13.823) Cash generated from operations 28.064 45.997 28.320 60.123 81.318 107.250 120.227 106.559 Interest paid (4.322) (8.270) (4.023) (8.263) (12.639) (17.083) (16.292) (12.461) Income tax paid (1.036) (2.214) (2.648) (4.644) (4.896) (4.474) (7.301) (9.316) Net cash provided by operating activities 22.706 35.513 21.649 47.216 63.783 85.693 96.634 84.782 Cash flows from investing activities Purchase of PPE and intangible assets (9.959) (24.798) (25.112) (32.673) (47.101) (68.487) (93.665) (87.905) Proceeds from sale of property, plant and equipment 0.290 1.714 0.315 0.667 0.920 1.641 2.727 2.167 Acquisition of financial assets (0.121) (0.321) (2.061) (3.718) (11.244) (11.925) (9.725) (7.497) Proceeds from disposals of financial assets 1.508 25.583 4.332 5.671 6.963 16.443 9.855 10.403 Purchase of subsidiaries, net of cash acquired (0.029) (0.021) (0.021) (0.021) (0.047) (1.507) (32.281) Other cash flows from investing activities 0.065 7.241 0.003 0.013 0.258 0.446 0.472 2.164 Acquisition of equity accounted investees (0.020) Net cash used in investing activities (8.216) 9.390 (22.544) (30.061) (50.225) (61.929) (91.863) (112.949) Cash flows from financing activities Purchase of treasury shares (13.773) (13.844) (2.820) (2.820) (33.121) (58.376) (22.126) (4.507) Sale of treasury shares 0.815 0.815 1.170 6.375 9.372 22.306 5.830 1.782 Proceeds from bank and corporate loans 81.999 193.130 97.473 172.833 327.254 509.685 532.983 298.626 Repayment of bank and corporate loans (85.273) (223.233) (125.494) (219.914) (344.991) (524.430) (492.891) (251.592) Repayment of bonds (2.440) (0.398) (1.215) (1.613) (1.613) (7.285) (13.932) Proceeds from promissory notes 0.007 0.012 22.863 12.050 Repayment of promissory notes (0.007) (0.012) (0.282) (22.939) (15.984) Dividends paid to shareholders of the Group (0.010) (0.012) (0.067) (0.427) (5.828) (5.830) (9.169) (0.686) Other cash flows from financing activities (0.004) (0.010) 24.683 29.258 29.167 29.105 (8.026) (4.182) Net cash used in financing activities (16.246) (45.594) (5.453) (15.910) (19.760) (29.435) (0.760) 21.575 Net (decrease)/increase in cash and cash equivalents (1.711) (0.711) (6.342) 1.262 (6.213) (5.669) 3.995 (6.618) Effect of exchange rate changes on cash and cash equivalents 0.046 (0.020) 0.006 0.016 (0.011) (0.000) (0.016) (0.026) Cash and cash equivalents at beginning of year 7.960 7.960 13.629 13.629 13.629 13.629 9.634 16.252 Cash and cash equivalents at the end of period 6.249 7.249 7.287 14.891 7.416 7.960 13.629 9.634 FCF 12.747 10.715 (3.463) 14.543 16.682 17.206 2.969 (3.123)

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Operational Data

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MLN ITEM 1Q 2014 2Q 2014 1Q 2013 2Q 2013 3Q 2013 4Q 2013 2013 2012 2011 Fixed-line subscribers 26.0 25.6 27.8 27.4 27.0 26.5 26.5 28.2 29.6 B2C 22.1 21.7 23.8 23.4 22.9 22.5 22.5 24.1 25.4 B2B 3.9 3.9 4.1 4.0 4.0 4.0 4.0 4.1 4.2 Broadband subscribers by client type 10.8 10.9 10.0 10.1 10.3 10.6 10.6 9.7 8.7 B2C 10.0 10.1 9.2 9.4 9.6 9.8 9.8 9.0 8.0 B2B 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 Broadband subscribers by technology 10.8 10.9 10.0 10.1 10.3 10.6 10.6 9.7 8.7 xDSL 6.5 6.4 6.6 6.6 6.6 6.6 6.6 6.7 8.1 FTTx 4.3 4.5 3.3 3.5 3.8 4.0 4.0 3.1 0.6 xDSL 60% 59% 67% 65% 64% 62% 62% 68% 93% FTTx 40% 41% 33% 35% 36% 38% 38% 32% 7% Mobile subscribers 14.8 6.3 13.6 13.8 14.1 14.8 14.8 13.6 13.1 Rostelecom 14.8 6.3 13.6 13.8 14.1 14.8 14.8 13.6 13.1 Pay-TV subscribers, including 7.6 7.7 7.1 7.2 7.3 7.5 7.5 6.9 6.1 IPTV 2.3 2.4 1.7 1.9 2.0 2.2 2.2 1.6 0.8 Cable TV 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 IPTV 30% 31% 25% 26% 27% 29% 29% 23% 13% Cable TV 70% 69% 75% 74% 73% 71% 71% 77% 87% Traffic (bln minutes) 3.0 2.8 3.5 3.4 3.3 3.3 13.5 15.2 17.4 Intra-zone 2.0 1.9 2.3 2.3 2.2 2.2 9.1 10.0 11.5 DLD 0.9 0.8 1.1 1.0 1.0 1.0 4.0 4.7 5.3 ILD 0.1 0.1 0.1 0.1 0.1 0.1 0.4 0.5 0.5 ARPU (RUB) Broadband 459 446 460 450 437 448 448 453 482 Fixed-Line 249 245 247 251 245 251 249 241 234 Pay-TV 143 147 129 131 132 140 133 116 104 Mobile 217 198 243 249 249 234 239 263 270

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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
• r 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

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• 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
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33

SLIDE 34

Contact Information

Investor Relations

Office +7 (499) 995 9780 E-mail: ir@rt.ru Web: http://www.rostelecom.ru/en/ir/