Investor Presentation
Today’s Presenters Sergey Maria Kalugin Florentieva President, CEO Vice-President, Strategy and Investor Relations Kai-Uwe Ekaterina Mehlhorn Ustinova Senior Vice-President, Head of Investor Relations CFO 2 www.rostelecom.ru
Rostelecom at a Glance Shareholder Structure 1 Financial Results 1H14 REVENUES OIBDA Other Shareholders 34.6% -2% YoY 156.4* 54.1* margin 28.8% State stake RUB bln RUB bln +3% YoY 35.4% State Property Agency 47% fixed margin fixed 51.1% 4.1% CAPEX NET DEBT 15.9% 1.6x 20.1% 24.8 176.2 to Sales to OIBDA RUB bln RUB bln Treasury RUB 41.1 bln -24% YoY shares 2 improvement * Including effect of RUB 11.1 bln on revenue and effect of RUB 2.8 bln on OIBDA from discontinued operations. Strong Subscriber Base & Strengthened Positions Revenue Mix by Segments 1H14 Market Share 3 in Mobile Business Rostelecom holds 45% in T2-RTK (Tele2 Russia), a national mobile player Broadband B2O Pay-TV 13% 10.9 mln Other 7.7 mln 41% 2% 22% T2-RTK B2G MTS 15% 14% B2C 32% 50% Fixed Voice Vimpelcom 25.6 mln 23% B2B 69% 23% Megafon 28% Combined mobile market share 3 (by subs) 1 As of October 1, 2014 3 www.rostelecom.ru 2 Including shares owned by Mobitel 3 As of the end of 2Q2014
Content 1 Investment Highlights 2 Rostelecom Strategic Priorities 3 Financial Results & Outlook 4 www.rostelecom.ru
1. Investment Highlights
Investment Highlights 1 Management team with significant TMT Exposure to 6 experience attractive markets with strong growth profiles 2 Robust financial profile Leading positions in most Russian telecom segments 5 Significant upside potential from Unique and largest operational 3 fixed-line network efficiencies in Russia 4 6 www.rostelecom.ru
Exposure to Attractive Markets with Strong 1 Growth Profiles Fixed Broadband Penetration 1 (2013) Bundle subscribers in Russia 2 (mln) 23.4 21.6 97% 1.9 89% 89% 19.5 1.6 83% 82% 1.4 17.2 71% 69% 67% 7.5 66% 65% 64% 63% 1.1 60% 61% 6.9 14.8 53% 6.1 50% 50% 49% 0.9 47% 44% 12.1 5.2 40% 0.7 4.4 9.1 3.4 14.0 0.4 13.1 6.7 12.0 2.1 10.8 9.5 1.1 8.0 6.6 5.5 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2Play (BB & Voice) 3Play (BB, TV & Voice) 4Play (BB, TV, Voice & Mobile) Pay TV and IPTV penetration in Russia 3 VoD Market Volume 4 (RUB bln) Mobile Data Market Volume 4 (RUB bln) ARPU CAGR 2013-2017 = 3% 83% 81% 78% 75% 14% 13% 70% 12% 11% 14.1 237 64% 222 11.8 9% 203 9.5 183 58% 7% 7.2 157 4.9 129 5% 2.3 102 2013 2014F 2015F 2016F 2017F 2018F 2012 2013 2014F 2015F 2016F 2017F 2018F 2012 2013 2014F 2015F 2016F 2017F 2018F IPTV Pay TV Source : 1 Company estimates, iKS-Consulting, Pordata.pt, ITU 2 Ovum 7 www.rostelecom.ru 3 J’Son & Partners Consulting 4 iKS-Consulting
Leading Positions in Most Russian Telecom 2 Segments Broadband B2C Broadband B2B 112 58 RUB bln RUB bln Rostelecom Rostelecom 44%/30% 41%/36%* #1 #1 by subscribers by subscribers & revenue & revenue ER-Telecom MTS 10%/9% 9%/12% Pay-TV IPTV 55 9 Rostelecom RUB bln RUB bln 22%/23% #1 #1 Rostelecom Vimpelcom 59%/61% 23%/26% by subscribers by revenue Tricolor & revenue 29%/14% Market share by subscribers / by revenue Rostelecom MTS Megafon VimpelCom ER-Telecom Tricolor Others 8 www.rostelecom.ru 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
Largest Fixed-Line Network in Russia to Support 3 Growth Growing Demand for Speed and Capacity Total capacity required IP Traffic Growth 2 in 2015 1 3x > 100 Mb/s Fixed Internet Traffic, Average BB Speed PB per month 2 in CEE, Mbps 2 2013 2018 35 40 28 18 22 12 … and monetize its network competitive Rostelecom is well positioned to support this demand…. advantages 500,000 km of backbone • Upselling B2C and B2B customers to Total footprint ~ 55 mln fiber for higher speeds and video products Total homes passed ~ 34 mln Reliable and secure nation-wide • solutions for B2B and B2G clients Total households upgraded to fiber by the Implementation of Bridging Digital • end of 2016 ~ 33 mln Divide program www.rostelecom.ru 9 1 Average capacity required in metropolis area. Source: Company estimates 2 Source: Cisco
Significant Upside Potential from Operational 4 Efficiencies COST EFFECT REVENUE EFFECT Network High End Maintenance Network Modernization Tariffs & Value Cost Added Services Excessive Personnel Efficiency Functions Eliminations Improvement Productivity Property Optimization of Retail Chain Maintenance Income from Cost & Real Estate Portfolio Disposals Customer Customer Care Service Cost Customer Improvement Satisfaction Prices Vendor Procurement Optimization Stable compe- tition 10 www.rostelecom.ru
Robust Financial Profile 5 Net Income & margin Revenue 1 (RUB bln) 2Q14 2Q14 76.0 8.2 -5% YoY +14% YoY Revenue Net Income due to demerger of 2Q13 2Q13 79.9 7.2 mobile subsidiaries 2Q14 2Q14 Revenue 72.6 Net Income 10.8% +1.8pp YoY +2% YoY fixed-line margin 2Q13 71.0 2Q13 9.0% OIBDA 2 (RUB bln) Capex (RUB bln) 1H14 2Q14 24.8 27.6 -5% YoY Capex OIBDA -24% YoY due to demerger of 1H13 32.7 2Q13 29.1 mobile subsidiaries 2Q14 26.2 OIBDA Capex 1H14 21.2 -5% YoY -26% YoY fixed-line fixed-line 2Q13 1H13 27.5 28.8 OIBDA margin (%) Dividends (RUB) 2Q14 2013 3.1 36.3% Ordinary +28% YoY stable YoY OIBDA margin share 2012 2Q13 2.4 36.5% OIBDA margin 2Q14 36.0% Preferred 2013 4.9 -2.7pp YoY +18% YoY fixed-line share 2012 2Q13 38.7% 4.1 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. 11 www.rostelecom.ru 2 OIBDA = Operating Profit excl. Long-term motivation program accrual expenses plus Depreciation & Amortization
Management Team with Significant TMT 6 Experience • Kai-Uwe Sergey Vice President, Strategy & Maria • Mehlhorn • President, CEO Senior Vice President, CFO Investor Relations Kalugin Florentieva • • Joined the Company in March, Joined the Company in May, 2013 • Joined the Company in May, 2013 • Over 21 years of TMT 2013 • 12 years experience in Telecom experience, 11 years at CFO • 7 years experience in Telecom & Media position & Media • • Previously CEO of National Previously CFO of Megafon and • Previously Deputy CEO of Telecommunications, largest Tele2 Russia. National Telecommunications cable TV & IS provider in Russia • • Vice President, Legal Affairs Senior Vice President, Alexander • Mikhail Larisa Senior Vice President, Sales & & Corporate Governance Network Tseitlin Marketing Tkachuk Irzhevsky Joined the Company in May, • Joined the Company in • Joined the Company in April, 2013 October, 2013 2013 • Over 30 years of Telecom • Over 20 years of consulting in • Over 10 years of Telecom & experience international law firms Media experience • Previously CEO at Mostelecom, • Previously Partner at • Previously Sales & Marketing Moscow incumbent cable TV Freshfields Bruckhaus Deringer Director at Megafon company LLP • • Vice President, IT Vice President, GR Galina Alexander • Dmitriy Senior Vice President, HR • • Joined the Company in June, Joined the Company in June, Rysakova • Maslov Joined the Company in 2001 Sadkov 2013 2013 • Over 13 years experience in • • Over 13 years of experience in Over 7 years experience in IT, Organizational Development IT Telecom & Media and over 20 and Human Resources years of Government experience • • Previously Director of Previously worked as HR • Management Consulting Previously Deputy Minister of Manager at Sheremetyevo Department at IBS and at Communications and Mass International Airport McKinsey & Company Media of Russia 12 www.rostelecom.ru
2. Rostelecom Strategic Priorities
Rostelecom Strategic Priorities 3 Best-in-class 2 customer 4 Organisational & Differentiated service corporate culture offerings transformation 1 5 Technological Efficiency leadership in IP improvement networks SHAREHOLDER RETURN OIBDA CAPEX / Revenue margin Revenue Fundamental Dividends value 45% STAKE in T2-RTK Effective Proven track- Data growth utilization of 3G / record of cost opportunity 4G licenses & control network roll-out 14 www.rostelecom.ru
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