Rostelecom

Earnings Release • Mar 3, 2020

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ROSTELECOM PJSC (RKMD)

ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2019

03-March-2020 / 09:30 MSK

Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.

The issuer is solely responsible for the content of this announcement.

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rostelecom announces its ifrs financial and operating results

for the FOURTH quarter AND FULL YEAR of 2019

Digital segment[1] grew by 13% in 2019; OIBDA[2] up 6%; FCF[3] increased by 55%

Moscow, Russia - March 3, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the fourth quarter and the full year of 2019 prepared in accordance with IFRS[4].

FOURTH QUARTER 2019 KEY FINANCIAL HIGHLIGHTS

• Revenue grew by 9% to RUB 94.9 billion compared to 4Q 2018;

• OIBDA of RUB 25.1 billion compared to RUB 26.0 billion in 4Q 2018;

• OIBDA margin of 26.4% compared to 29.8% in 4Q 2018;
• Net profit of RUB 0.1 billion compared to RUB 2.4 billion in 4Q 2018;
• CAPEX[5] excluding state programs increased by 51% to RUB 30.6 billion (32.3% of revenue) compared to 4Q 2018;
• FCF increased by 4% to RUB 18.7 billion compared to 4Q 2018;
• Net debt[6] increased by 14% since the beginning of the year to RUB 212.7 billion, resulting in a Net Debt/OIBDA ratio of 2.0x.

Key figures for 4Q 2019, RUB mln

RUB million	4Q 2019	4Q 2018	change, y-o-y
Revenue	94,867	87,257	9%
OIBDA	25,086	26,037	(4%)
OIBDA margin %	26.4%	29.8%	-
Operating Income	3,932	8,167	(52%)
Operating margin %	4.1%	9.4%	-
Net Income	112	2,351	(95%)
% of revenue	0.1%	2.7%	-
Capital Expenditure excl. state programs	30,607	20,322	51%
% of revenue	32.3%	23.3%	-
Net debt	212,748	186,712	14%
Net debt/ annualised OIBDA	2.0	1.9	-
FCF	18,744	18,063	681

FULL YEAR 2019 FINANCIAL HIGHLIGHTS

• Revenue increased by 5% to RUB 337.4 billion compared to 2018;

• OIBDA grew by 6% to RUB 106.5 billion;

• OIBDA margin increased to 31.6%;
• Net profit increased by 10% to RUB 16.5 billion;
• CAPEX excluding state programs increased by 22% year-on-year to RUB 71.8 billion (21.3% of revenue);
• FCF grew by 55% to RUB 22.8 billion compared to 2018.

Key figures for the full year of 2019, RUB mln

RUB million	2019	2018	change, y-o-y
Revenue	337,421	320,239	5%
OIBDA	106,526	100,900	6%
OIBDA margin %	31.6%	31.5%	-
Operating Income	33,852	35,800	(5%)
Operating margin %	10.0%	11.2%	-
Net Income	16,474	15,012	10%
% of revenue	4.9%	4.7%	-
Capital Expenditure excl. state programs	71,787	58,993	22%
% of revenue	21.3%	18.4%	-
Net debt	212,748	186,712	14%
Net debt/ annualised OIBDA	2.0	1.9	-
FCF	22,810	14,751	8,059

Mikhail Oseevskiy, President of Rostelecom, commented: "2019 was another successful year for Rostelecom with continued healthy operational and financial results. Our sustained competitive position in broadband and pay-TV markets allows us to concentrate our efforts on the further development of our digital solutions, including cloud and data centers, cyber-security, as well as smart products for households, business and State. The double-digit growth rate of our digital segment contributed to 2019 top line growth. As a result, revenue grew by 5%, OIBDA by 6% and net profit by 10%. Rostelecom's operational performance has generated one-and-a-half times higher FCF, which provides a comfortable financial platform for dividend payments in accordance with our current policy.

The consolidation of 100% of Tele2, the most dynamic and successful mobile company in Russia, was undoubtedly last year's key development for both Rostelecom and broader communications market. The deal is the largest telecom deal of recent years and will strengthen our leadership of the digital arena just as we enter a new era. The expanded ecosystem of new services and solutions will boost Rostelecom's financial results, solidify its competitive position, and improve revenues while retaining and expanding our customer base. Importantly, I am pleased to note that VTB and its partners will become our shareholders and will provide Rostelecom with supportive and long-term strategic motivation to help sustain and increase Rostelecom's capitalization. Our business strategy will soon be reviewed to set new ambitions and targets, focusing on the development of new products and technologies, including 5G networks."

Vladimir Kirienko, First Vice-President of Rostelecom, commented: "Rostelecom's solid performance over the last year was driven by encouraging digital transformation across all of our client groups and their growing interest in our developed digital offering. The B2B and B2G segments demonstrated the strongest results and sustainable double-digit growth of 13%. This success was mostly driven by Smart City projects, cloud services and data centers. These and other digital solutions have proved successful both among large state and business corporations and small and middle-sized enterprises.

We are seeing growing interest in our virtual IT infrastructure proposition from the business and State, and we are always seeking out new opportunities to strengthen our leadership position in this space alongside continuous technological improvement of cloud solutions and capabilities. The acquisition of DataLine made a major contribution to Rostelecom's strategic goal to increase its share of high margin cloud products as corporate and state clients are increasingly shifting to an IT-solutions service model. We have made significant progress in transitioning to digital, and Rostelecom is already ahead of the curve with its state-of-the-art products in cyber security, urban infrastructure management, medicine, education and other sectors. Innovation is at heart of our strategy and is a key sustainability driver for our business in the era of digital age."

Sergey Anokhin, Senior Vice-President and Chief Financial Officer, added: "Our solid 2019 results and our healthy cash position, underpins our ability to successfully invest in our digital segment. We therefore expect both our revenue and OIBDA in 2020 to grow by no less than 5% on a standalone basis (excluding the contribution of Tele2 Russia and DataLine). Capex is expected to be within the range of RUB 70-75 billion, excluding the implementation of state programs."

KEY OPERATING HIGHLIGHTS

Number of subscribers (million):	4Q 2019	4Q 2018	change, y-o-y	3Q 2019	change, y-o-y
Internet access	13.2	13.0	2%	13.1	1%
B2C: Broadband	12.2	12.0	1%	12.0	1%
B2B: Broadband + VPN	1.1	1.0	6%	1.0	2%
Pay TV	10.4	10.2	3%	10.3	1%
Incl. IPTV	5.6	5.3	6%	5.5	2%
MVNO subscribers	1.7	1.2	41%	1.5	15%
Local telephony services	15.7	17.4	(10%)	16.1	(3%)

ARPU[7] (RUB):	4Q 2019	4Q 2018	change, y-o-y	3Q 2019	change, y-o-y
Internet access
B2C: Broadband	402	392	2%	396	2%
B2B: Broadband + VPN	3,455	3,160	9%	3,475	(1%)
Pay TV	255	251	2%	248	3%
Incl. IPTV	320	328	(2%)	311	3%
Blended ARPU[8]	553	549	1%	536	3%

Total subscriber base

1. The total number of Internet subscribers among households grew by 1% to 12.2 million in the fourth quarter of 2019 compared to the corresponding period of last year; ARPU was up 2% to RUB 402.
2. The total number of Internet and VPN subscribers in B2B increased by 6% year-on-year to 1.1 million; ARPU grew by 9% to RUB 3,455.

3. The number of pay-TV subscribers grew by 3% to 10.4 million users compared to the corresponding period of last year, with average ARPU of RUB 255 for households, up 2% year-on-year;

4. The number of IPTV subscribers increased by 6% to 5.6 million, and ARPU reached RUB 320 for households.

5. The number of MVNO subscribers increased by 41% and reached 1.7 million users.

6. The number of local telephony subscribers decreased by 10% to 15.7 million.

KEY EVENTS RELATING TO FY2019 AND AFTER THE END OF THE REPORTING PERIOD

Business news

• Rostelecom continues to develop and expand its range of products and services:

• Wink platform is now available to all new IPTV subscribers across the country, providing current clients with the option of migrating to this new offering;

• OTT & Wink video content consumption continued to grow thanks to the promotion of Smart TV, Android TV, Apple TV applications as well as video portal platform use;
• "Altogether" and "For friends" special offers were launched, providing new clients with attractive packages comprising of Internet access, Wink and mobile services, including options with no need to acquire a TV set-top box;
• Jointly with Sberbank, Rostelecom launched a loyalty programme "Exchange "THANK YOU" on Wink";
• As part of enhancing the "Gaming" tariff plan offering, Rostelecom added two new games by Mail.ru "MY.GAMES" - ArcheAge and CrossFire;
• Rostelecom launched 'Game Market'; the 'Home Internet' users can now subscribe to the Nvidia Geforce Now (GFN.RU) online game platform which is able to turn any computer into a powerful gaming machine. Rostelecom also connected NVIDIA's servers to high-speed data transmission channels;
• As part of the "Smart Home" ecosystem:
  • a new federal platform "Rostelecom. Key" was launched; Rostelecom aims at adding new digital services for developers, managing companies and residents; the first products to be made available on the platform will be video surveillance of outdoor spaces and a smart intercom;
  • Rostelecom has sold 175,000 cameras since the launch of the video surveillance service for households;
  • revenue contribution of "Smart Home" ecosystem in 2019 top line reached RUB 1 billion;
• Rostelecom launched "Rostelecom Screens", a new product which allows B2B clients to centrally manage advertising and other media content across geographically distributed screens in real time;
• Rostelecom launched an M2M Control service, which enables businesses to remotely control SIM cards on applications and sensors within the M2M system and helps optimize business processes when communicating with IoT devices;
• Rostelecom launched a new end-to-end cyber-protection service which combines the managed information security service Solar MSS and Virtual Data Centre services;
• A new "Content filtration" service was launched enabling clients to block inappropriate or illegal content within Wi-Fi services;

• Within the MVNO project, Rostelecom introduced a fully convergent solution and a reliable platform to ensure seamless experience while using Internet, TV, content, game services and indoor and outdoor video surveillance; this had an impact on a twofold growth of MVNO sales over the year;

• Rostelecom continues to grow its digital segment:

• Revenues from "Smart City" projects grew by 50% in 2019;

• The Public Services Portal active users base reached 64 million;
• Revenues from optical tariff plans in 2019 surpassed the market twofold;
• The share of optical networks has increased to 64% in B2B and B2G segments over 2019;
• As part of Rostelecom's Bridging the Digital Divide project, more than 11,100 Internet access points have been installed;
• Over 7,000 remoted and socially important facilities have been provided with high speed Internet access;
• The "Antivirus" revenues grew more than two and half times through an increased penetration in the broadband user segment over 2019;
• An agreement was signed with Rusagro, Russia's largest vertically integrated agricultural holding company, to launch a control system that uses IoT to manage the harvesting of grains;
• Rostelecom and LUKOIL launched the first smart wells in Perm krai to remotely monitor and control oil and gas equipment in hard-to-reach production facilities;
• A smart waste collection and optimisation system was installed in Yamal as part of Rostelecom's Smart Cities project;
• Rostelecom became a universal data network carrier for Rosenergoatom JSC;

• As part of its cybersecurity offering development:

• revenues grew by 2.4 times in 2019;

• a total of 1.1 million cyber-attacks were repelled in 2019;
• Solar appScreener's share of exports was around 30% in 2019 total sales;
• 233 Russian banks have been collectively connected to Rostelecom's secured Unified Biometric System;
• Rostelecom became Russia's leading provider of cryptographic solutions to protect its state and corporate clients' communication channels[9];
• Russia's first cybersecurity lab was constructed to drive large-scale analytics of technological security across the industrial networks infrastructure;

• Cybersecurity product family was expanded through the launch of:

  • Solar MSS - Russia's biggest ecosystem of cybersecurity services to support Russian organisations in digital transformation;
  • the Solar Dozor 7 security solution which prevents leaks of sensitive information through its innovative user behaviour analytics feature;
  • the Solar webProxy web-security Gateway;
  • the commercial service to manage the vulnerabilities of the Qualys network infrastructure in the Russian cloud environment;
  • the Origin Event Inspection service which protects clients' web-based applications from DDoS attacks;

• Rostelecom continues to grow its cloud services segment for B2B:

• Sales of the Virtual PBX offering grew by 57%;

• Video-surveillance sales to B2B up by 59%;

• As part of the Virtual Data Centre offering:

  • revenues grew by 59% in 2019;
  • the total number of virtual machines spiked by 90% to 10,000 in 2019;
  • the service's functionality was complemented with an agent backup feature, premium technical support and file replication option;
  • a file storage has been launched in the second data centre in Moscow to improve reliability and facilitate complex projects to connect clients;
  • a new cloud data centre section was launched in Moscow, adding to the other four existing facilities in Moscow, Novosibirsk and Adler;
  • start of sales based on the White Label partnership programme which was enhanced in 2019 by further modifications to the cloud.rt.ru cloud platform, including through:
    • additional information security settings;
    • better flexibility of the orders' life span settings and tariff plans management;
    • further customisation of the portal interface;
  • Rostelecom started the commercial operation of 800 rack spaces at the new Udomlya Data Centre and the base data centre in Yekaterinburg (216 rack spaces);
  • Following the acquisition of Data Line, the total capacity increased to 11,500 rack spaces;

• Rostelecom created an IT infrastructure for seven state ministries and government offices within IQ-Quarter, a central business district in Moscow-City. The project included setting up IT systems in workspaces, data centers and cybersecurity services;

• Rostelecom signed a number of large contracts, including agreements with Rosatom, Roscosmos, Rosreestr (The Federal Service for State Registration, Cadastre and Cartography), Procurator-General's Office, Sberbank, LUKOIL, Rusagro, Transneft, MAGNIT and others;
• The tariffs for landline and telegram postage services were increased, starting from 16 July 2019;
• Rostelecom successfully delivered video surveillance of the Unified State Exam and on the Single Voting Day;
• Revenues from Rostelecom's O2O[10] project reached RUB 2.0 billion in 2019; by the end of the reporting period the Company had serviced more than 161,000 km of fiber-optic communication line and 75,000 base stations of third-party operators;
• Transit Europe-Asia (TEA) carrying capacity reached 3Tb/s following a 350 Gb/s upgrade.

Other news

• Rostelecom consolidated 100% of Tele2 Russia to develop the largest end-to-end provider of digital services in Russia.
• Rostelecom acquired a number of assets, including:
  • Data Line, the second largest datacentre provider in Russia;
  • Alliance Telecom Group, the leading provider of Internet access and pay-TV services across the Primorsky region;
  • Prometey, communications operator in St. Petersburg;
  • Infolink, one of the largest Internet providers in the Chuvash Republic.
• Rostelecom started to co-invest in the Russian Internet Initiatives Development Fund's start-up portfolio.
• Rostelecom announced the following bond placements:
  • a three-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.25% per annum;
  • a seven-year bond of total nominal value of RUB 15 billion, at a coupon rate of 6.65% per annum;
  • a six-year bond of total nominal value of RUB 10 billion, at a coupon rate of 6.85% per annum;
  • a ten-year bond of total nominal value of RUB 15 billion, at a coupon rate of 8.45% per annum.
• Rostelecom's subsidiary, Central Telegraph PJSC, has sold properties at 7, Tverskaya street, Moscow, with a total area of 35,198.7 sqm for RUB 3.5 billion.
• Rostelecom was included in the 2020 Bloomberg Gender-Equality Index.

OPERATING REVIEW

Revenue analysis

Revenue structure by services

RUB million	4Q 2019	4Q 2018	change	2019	2018	change
Broadband	21,727	21,335	2%	83,873	80,042	5%
TV services	9,408	9,145	3%	37,132	34,464	8%
Fixed telephony	15,105	16,948	(11%)	61,738	69,983	(12%)
Wholesale services	19,429	20,455	(5%)	81,391	79,593	2%
Rent of channels	2,452	2,505	(2%)	9,674	9,582	1%
Interconnect and traffic transit services	6,316	8,340	(24%)	30,295	33,256	(9%)
VPN	7,216	6,148	17%	27,558	23,433	18%
Rent and maintenance of telecommunications infrastructure	3,444	3,462	(0%)	13,864	13,322	4%
VAS and cloud services	20,908	13,204	58%	49,799	36,902	35%
Other telecommunications services	4,471	4,004	12%	14,274	12,076	18%
Other non-telecommunications services	3,820	2,165	76%	9,215	7,179	28%
Total	94,867	87,257	9%	337,421	320,239	5%

Revenue structure by customer segments

RUB million	4Q 2019	4Q 2018	Change	2019	2018	change
Residential customers	35,780	35,315	1%	140,338	137,745	2%
Corporate customers / Government customers	45,397	36,427	25%	137,726	121,509	13%
Operators	12,854	14,366	(11%)	55,096	56,389	(2%)
Other	836	1,147	(27%)	4,261	4,596	(7%)
Total	94,867	87,257	9%	337,421	320,239	5%

In the fourth quarter of 2019, revenue increased by 9% to RUB 94.9 billion, compared to the fourth quarter of 2018, as a result of the following factors:

• a 58% increase in revenue from VAS and cloud services, mainly due to proceeds from the development of "Smart City" projects, e-government solutions, and the promotion of cloud services;
• a 76% increase in revenue from other non-telecommunication services, mainly due to increased sales provided to large state clients;
• a 17% increase in revenue from VPN services, driven by higher demand from state and B2B clients;
• a 2% increase in revenue from broadband services due to a higher number of subscribers and higher ARPU;
• a 3% increase in revenue from pay-TV services due to growth in the IPTV subscriber base.

In full year of 2019, revenue increased by 5% to RUB 337.4 billion, compared to the twelve months of 2018, as a result of the following factors:

• a 35% increase in revenue from VAS and cloud services, mainly due to the development of Smart City projects, the promotion of public e-government services, cloud services and data-centres;
• an 18% increase in revenue from VPN services, driven by higher demand from state and B2B clients;
• a 5% increase in revenue from broadband services due to subscriber base growth and higher ARPU;
• an 8% increase in revenue from pay-TV services due to growth in the IPTV subscriber base;
• an 18% increase in revenue from other telecommunication services driven by growth in sales of video-surveillance equipment and mobile services.

Operating income analysis

Operating expenses structure

RUB million		4Q 2019		4Q 2018		change	2019
Personnel costs		(30,971)		(26,120)		19%	(106,193)
Depreciation, Amortization and impairment losses		(19,343)		(16,713)		16%	(67,313)
Interconnection charges		(13,674)		(15,826)		(14%)	(57,151)
Materials, repairs and maintenance, utilities		(7,871)		(7,778)		1%	(26,168)
Gain on the disposal of PPE and intangible assets		5,626		4,843		16%	8,081
Impairment loss of financial assets measured at amortized cost		(3,254)		(1,021)		219%	(6,190)
Other operating income		4,661		2,973		57%	17,359
Other operating expenses		(26,109)		(19,448)		34%	(65,994)
Total operating expenses		(90,935)		(79,090)		15%	(303,569)

In the fourth quarter of 2019, operating expenses increased by 15% compared to the corresponding period of 2018 and amounted to RUB 90.9 billion, largely due to the following factors:

• a 19% increase (of RUB 4.9 billion) in personnel costs, mainly due to an increase in the share of employees within the digital business segments;
• a 16% increase (of RUB 2.6 bln) in depreciation, amortization and impairment losses, due to higher payments associated with new objects and impairment of intangible assets;
• a more than threefold increase (of RUB 2.2 bln) in impairment loss of financial assets, valued at amortized cost, mainly driven by one-off material accruals from a number of projects with state clients;
• a 57% increase (of RUB 1.7 bln) in other operating income, due to higher sales within the Bridging the Digital Divide project.

In the twelve months of 2019, operating expenses increased by 7% compared to the corresponding period of 2018 and amounted to RUB 303.6 billion due to the following factors:

• a 9% increase (of RUB 8.8 bln) in personnel costs, mainly due to an increase in the share of employees within the digital business segments;
• a 13% increase (of RUB 7.8 bln) in other operating expenses, mainly driven by the implementation of Smart City projects and sales of equipment within B2B and B2G projects;
• a 12% increase (of RUB 7.0 bln) in depreciation, amortization and impairment losses, due to a reduced effect from the revised terms of useful life and higher payments associated with new objects and intangible assets;
• a 27% increase (of RUB 3.7 bln) in other operating income, due to higher sales within the Bridging the Digital Divide project.

Operating profit decreased by 52% year-on-year to RUB 3.9 billion in the fourth quarter of 2019, compared to the corresponding period of 2018. Operating profit decreased by 5% year-on-year to RUB 33.9 billion in the twelve months of 2019, compared to 2018.

OIBDA for the fourth quarter of 2019 decreased by 4% year-on-year to RUB 25.1 billion. OIBDA for the twelve months of 2019 increased by 6% to RUB 106.5 billion. The OIBDA dynamics was influenced by revenue growth, and the above-mentioned changes in operating costs. The OIBDA margin in the fourth quarter of 2019 stood at 26.4% compared to 29.8% in the fourth quarter of 2018. OIBDA margin increased by 0.1pp to 31.6% in the twelve months of 2019 compared to the corresponding period of 2018.

Net Income Analysis

In the fourth quarter of 2019, loss before tax stood at RUB 1.9 billion, compared to profit before tax of RUB 2.8 billion in the corresponding period of 2018. In the twelve months of 2019, profit before tax decreased by 5% to RUB 18.5 billion.

These dynamics were influenced in the fourth quarter of 2019 by the following factors:

• lower operating profit;
• higher financial expenses due to costs associated with financial instruments.

These dynamics were influenced in the twelve months of 2019 by the following factors:

• higher finance costs, partly due to an increase in leverage;
• lower operating profit;
• improved associated companies' financial results, mainly from the JV with Tele2 Russia;
• foreign exchange gains in the reporting period due to strengthened national currency.

Income tax refunds in the fourth quarter of 2019 stood at RUB 2.0 billion versus income tax of RUB 0.4 billion in the corresponding period of 2018. In the twelve months of 2019, income tax decreased by 54% to RUB 2.0 billion.

Net profit stood in the fourth quarter of 2019 at RUB 0.1 billion versus RUB 2,4 billion in the corresponding period of 2018, and increased by 10% to RUB 16.5 billion in the twelve months of 2019.

Financial review

Net operating cash flow in the fourth quarter of 2019 increased by 25% and amounted to RUB 48.9 billion, compared to the corresponding period of 2018. The increase in net operating cash flow in the fourth quarter of 2019 was mainly due to changes in working capital, mostly driven by other liabilities, related to advance payments for certain state contracts.

Net operating cash flow in the twelve months of 2019 increased by 29% and amounted to RUB 99.4 billion, compared to the corresponding period of 2018. The increase in net operating cash flow was mainly due to changes in working capital, mostly driven by changes in accounts receivables in the second quarter of 2019 within the project to provide Internet access to healthcare centres, as well as advance payments for certain state contracts in the fourth quarter of 2019.

Cash outflow for investments in non-current assets excluding state programmes in the fourth quarter of 2019 increased by 51% to RUB 30.6 billion (32.3% of revenue). Cash outflow for investments in non-current assets excluding state programmes in the twelve months of 2019 increased by 22% to RUB 71.8 billion (21.3% of revenue). These trends were driven by increased capital expenditure on programmes, financed by the State.

FCF in the fourth quarter of 2019 increased by 4% and totalled RUB 18.7 billion compared to the corresponding period of 2018. Free cash flow in the twelve months of 2019 increased by 55% and totalled RUB 22.8 billion compared to the corresponding period of 2018.

Free Cash Flow (RUB, billion)

As at December 31, 2019, the Group's total debt increased by 18% compared to the beginning of the year and amounted to RUB 241.2 billion, partially driven by the raised financing for the acquisition of DataLine, the financial results of which will be reflected in Rostelecom's P&L starting from the first quarter of 2020. Over 99% of the Group's total debt remained rouble-denominated as at December 31, 2019.

As at December 31, 2019, the Group's net debt increased by 14% compared to the beginning of the year and amounted to RUB 212.7 billion. The net debt /OIBDA ratio stood at 2.0x for the twelve months of 2019.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 4.00 PM (Moscow), 2.00 PM (CET), 1.00 PM (UK) and 8.00 AM (NYT). To participate in the conference call, please dial:

UK/ International:   +44 (0) 330 336 9411

USA:    +1 323 794 2590

Russia:     +7 (495) 646 9190

Confirmation Code (ENG):  1178197

Confirmation Code (RUS):  8150844

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/register/rostelecom20200303/en.

A replay of the conference call will be available on the Company's website https://www.company.rt.ru/en/ir/results_and_presentations/financials/IFRS/2019/4.

* * *

APPENDICES

1. Reconciliation of OIBDA;
2. IFRS 9, 15 and 16 standards application;
3. Statement of Comprehensive Income for the twelve months of 2019;
4. Statement of Cash Flows for the twelve months of 2019;
5. Statement of Financial Position for the twelve months of 2019.

APPENDIX 1: RECONCILIATION OF OIBDA

OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation and amortisation as well as some certain expenses. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt.

The following indicators are not taken into account in the calculation of OIBDA:

• Expenses related to the long-term management incentive programme, implying accruals in personnel costs line starting from 2Q 2014;
• Expenses related to non-government pension insurance starting from 3Q 2018.

RUB million	4Q 2019	4Q 2018	change	2019	2018	change
Operating income	3,932	8,167	(52%)	33,852	35,800	(5%)
Plus amortisation	19,343	16,713	16%	67,313	60,329	12%
Plus expenses related to the long-term management incentive programme	1,286	886	45%	4,007	3,638	10%
Plus expenses related to non-government pension insurance	525	272	93%	1,354	1,134	19%
OIBDA	25,086	26,038	(4%)	106,526	100,900	6%
OIBDA margin, %	26.4%	29.8%		31.6%	31.5%

APPENDIX 2: IFRS 9, 15 and 16 STANDARDS APPLICATION

The Group initially adopted IFRS 9, 15 and 16 using the modified retrospective approach starting from the first quarter of 2018.

The key changes related to the application of these standards are listed below:

• Expenses related to the operating leases have been capitalized and are reflected in the accounting balance sheet under the title "Right-of-use assets (RoU)". The RoU related liabilities are reflected in relative balance lines under same titles;
• The expenses related to the conclusion and implementation of contracts with customers have been capitalized and are reflected under "Revenue from Contracts with Customers";
• Assets for contracts with customers in arrears on payments for services rendered, but yet not invoiced, were excluded from the accounts receivable balance;
• Revenues from the sale of goods or provision of services of not sufficient individual value to customers, have been deferred;
• Recurring advances, containing the financing component, have been discounted;
• Impairment provisions of financial assets are recognised on the basis of expected credit losses.

APPENDIX 3: Statement of Comprehensive Income for the twelve months of 2019

		Year ended 31 December
		2019	2018 (restated)
Revenue		337,421	320,239
Operating expenses
Wages, salaries, other benefits and payroll taxes		(106,193)	(97,350)
Depreciation, amortization and impairment losses		(67,313)	(60,329)
Interconnection charges		(57,151)	(58,293)
Materials, utilities, repairs and maintenance		(26,168)	(26,183)
Gain on disposal of property, plant and equipment and intangible assets		8,081	7,184
Impairment loss of financial assets measured at amortized cost		(6,190)	(4,925)
Other operating income		17,359	13,673
Other operating expenses		(65,994)	(58,216)
Total operating expenses, net		(303,569)	(284,439)
Operating profit		33,852	35,800
Share of net profit/(loss) of associates and joint ventures		1,971	(91)
Finance costs		(19,519)	(17,275)
Other investing and financial gain, net		1,779	1,602
Foreign exchange (loss)/gain, net		438	(597)
Profit before income tax		18,521	19,439
Income tax expense		(2,047)	(4,427)
Profit for the year		16,474	15,012
Other comprehensive income/(loss)
Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods
Share of other comprehensive income of associates		-	22
Exchange differences on translation of foreign operations		(292)	428
Net other comprehensive (loss)/income to be reclassified to profit or income/(loss) in subsequent periods		(292)	450
Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods
Remeasurement of defined benefit pension plans		(2)	(180)
Income tax on remeasurement of defined benefit pension plans		-	36
Net other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods		(2)	(144)
Other comprehensive (loss)/ income for the year, net of tax		(294)	306
Total comprehensive income for the year		16,180	15,318
Profit attributable to:
Equity holders of the Group		14,777	14,154
Non-controlling interests		1,697	858
Total comprehensive income attributable to:
Equity holders of the Group		14,470	14,491
Non-controlling interests		1,710	827
Earnings per share attributable to equity holders of the Group - basic (in roubles)		6.38	6.23
Earnings per share attributable to equity holders of the Group - diluted (in roubles)		6.23	6.09

APPENDIX 4: Statement of Cash Flows for the twelve months of 2019

		Year ended 31 December
		2019	2018 (restated)
Cash flows from operating activities
Profit before tax		18,521	19,439
Adjustments to reconcile profit before tax to cash generated from operations
Depreciation, amortization and impairment losses		67,313	60,329
Gain on disposal of property, plant and equipment and intangible assets		(8,081)	(7,184)
Impairment loss of financial assets measured at amortized cost		6,190	4,925
Share of net profit/(loss) of associates and joint ventures		(1,971)	91
Finance costs excluding finance costs on employee benefit obligations		19,454	17,180
Other investing and financial gain, net		(1,779)	(1,602)
Foreign exchange loss/(gain), net		(438)	597
Share-based motivation program		4,028	3,500
Increase in accounts receivable and contract assets		(809)	(9,502)
Increase/(decrease) in employee benefits		858	(353)
Increase in inventories		(1,678)	(1,414)
Increase in accounts payable, provisions and accrued expenses		14,502	13,377
Increase in other assets		(6,950)	(4,245)
Increase in other liabilities		12,609	3,995
Cash generated from operations		121,769	99,133
Interest paid		(19,597)	(18,174)
Income tax refund		693	230
Income tax paid		(3,444)	(3,945)
Net cash from operating activities		99,421	77,244
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets		(100,513)	(73,179)
Proceeds from sale of property, plant and equipment, intangible assets and assets held for sale		9,532	10,097
Acquisition of financial assets		(8,152)	(7,351)
Proceeds from disposals of financial assets		4,809	5,296
Interest received		798	589
Subsidy from Government		13,572	3,641
Dividends received		232	95
Purchase of subsidiaries and business, net of cash acquired		(23,009)	(4,064)
Proceeds from disposal of subsidiaries, net of cash disposed		-	80
Acquisition of equity accounted investees		(544)	(4,386)
Net cash used in investing activities		(103,275)	(69,182)
Cash flows from financing activities
Proceeds from bank and corporate loans		555,802	579,949
Repayment of bank and corporate loans		(540,306)	(564,785)
Proceeds from bonds		25,000	10,000
Repayment of bonds		(7,389)	(11,209)
Repayment of promissory notes		(51)	-
Repayment of vendor financing payable		(11)	(15)
Repayment of other non-current financing liabilities		-	(1)
Proceeds from non-controlling shareholders of subsidiaries		-	24
Repayment of lease liabilities		(5,674)	(4,034)
Acquisition of non-controlling interests		(1,397)	-
Dividends paid to shareholders of the Group		(11,731)	(11,547)
Dividends paid to non-controlling shareholders of subsidiaries		(824)	(226)
Net cash from/(used in) financing activities		13,419	(1,844)
Effect of exchange rate changes on cash and cash equivalents		(89)	47
Net increase in cash and cash equivalents		9,476	6,265
Cash and cash equivalents at beginning of the year		10,080	3,815
Cash and cash equivalents at the end of the year		19,556	10,080

APPENDIX 5: Statement of Financial Position for the twelve months of 2019

		31 December	31 December
2019	2018 (restated)
Assets
Non-current assets
Property, plant and equipment		401,516	373,839
Investment properties		181	172
Goodwill and other intangible assets		91,318	66,083
Right of use assets		28,890	21,205
Trade and other accounts receivable		6,131	7,346
Investments in associates and joint ventures		72,850	69,982
Other financial assets		2,667	1,950
Other non-current assets		9,667	4,667
Deferred tax assets		1,133	863
Contract assets		866	501
Contract costs		12,774	12,323
Total non-current assets		627,993	558,931
Current assets
Inventories		9,413	7,631
Contract assets		4,610	9,511
Trade and other accounts receivable		45,988	44,189
Prepayments		5,618	4,380
Prepaid income tax		821	984
Other financial assets		8,888	7,487
Other current assets		4,640	2,856
Cash and cash equivalents		19,556	10,080
Asset classified as held for sale		749	554
Total current assets		100,283	87,672
Total assets		728,276	646,603
Equity and liabilities
Equity attributable to equity holders of the Group
Share capital		93	93
Additional paid-in capital		115	115
Treasury shares		(53,391)	(60,419)
Retained earnings and other reserves		310,807	307,234
Total equity attributable to equity holders of the Group		257,624	247,023
Non-controlling interests		4,564	3,909
Total equity		262,188	250,932
Non-current liabilities
Loans and borrowings		219,319	174,371
Lease liabilities		24,349	16,855
Employee benefits		5,881	4,675
Deferred tax liabilities		37,067	38,269
Accounts payable, provisions and accrued expenses		4,671	3,090
Other non-current liabilities		32,990	21,142
Total non-current liabilities		324,277	258,402
Current liabilities
Loans and borrowings		21,873	29,908
Lease liabilities		5,593	4,791
Accounts payable, provisions and accrued expenses		86,504	88,530
Income tax payable		1,168	644
Other current liabilities		26,673	13,396
Total current liabilities		141,811	137,269
Total liabilities		466,088	395,671
Total equity and liabilities		728,276	646,603

Rostelecom is the largest digital service provider, operating in all segments of the telecommunications market in Russia, it serves millions of households, the state and private enterprises across the country.Rostelecom is Russia's undisputed market leader, providing high-speed Internet access to over 13.2 million users and pay-TV services to more than 10.4 million clients, over 5.6 million of which are subscribed to Rostelecom's IPTV services.

In the twelve months of 2019, the Group generated RUB 337.4 billion of revenues, RUB 106.5 billion of OIBDA (31.6% of revenue) and RUB 16.5 billion of net income.

The Group is the leading provider of telecommunications services to government bodies and corporates of all levels.

Rostelecom is a key strategic innovator that provides solutions in the following fields: E-Government, cybersecurity, data-centers and cloud computing, biometry, healthcare, education and housing & utility services.

The Group's stable financial position is confirmed by its credit ratings. Rostelecom has been assigned 'BBB-' and 'BB+' international credit ratings by Fitch Ratings and Standard & Poor's respectively, and AA(RU) by ACRA.

*   *   *

Certain statements in this press release are forward-looking statements within the meaning of the U.S. federal securities laws and intended to be covered by the safe harbours created thereby.

Those forward-looking statements include, but are not limited to:

• Assessment of PAO Rostelecom's (the Company) future operating and financial results as well as forecasts of the present value of future cash flows and related factors;
• The Company's plans to take ownership stakes in other organisations;
• the Company's anticipated capital expenditures and plans to construct and modernize its network;
• the Company's expectations as to the growth in demand for its services, plans relating to the expansion of the range of its services and their pricing;
• the Company's plans with respect to improving its corporate governance practices;
• the Company's expectations as to its position in the telecommunications market and forecasts on the development of the market segments within which the Company operates;
• economic outlook and industry trends;
• the Company's expectations as to the regulation of the Russian telecommunications industry and assessment of impact of regulatory initiatives on the Company's activity;
• other statements regarding matters that are not historical facts.

Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include:

• risks relating to changes in political, economic and social conditions in Russia as well as changes in global economic conditions;
• risks relating to Russian legislation, regulation and taxation, including laws, regulations, decrees and decisions governing the Russian telecommunications industry, securities industry as well as currency and exchange controls relating to Russian entities and their official interpretation by regulatory bodies;
• risks relating to the Company, including the achievement of the anticipated results, levels of profitability and growth, ability to create and meet demand for the Company's services including their promotions, and the ability of the Company to remain competitive in a liberalized telecommunications market;
• technological risks associated with the functioning and development of the telecommunications infrastructure, technological innovations as well as the convergence of technologies;
• other risks and uncertainties. For a more detailed discussion of these and other factors, see the Company's Annual Report and the Company's other public filings.

Many of these factors are beyond the Company's ability to control or predict. Given these and other uncertainties, readers are cautioned not to place undue reliance on any of the forward-looking statements contained herein or otherwise. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements (which are made as of the date hereof) to reflect events or circumstances upon the annual report publication or to reflect the occurrence of unanticipated events, except as may be required under applicable laws.

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[1] Broadband + Pay TV + VAS and cloud services.

[2] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA. Note that the company changed the methodology for calculating OIBDA changed in 3q 2018 having excluded expenses related to non-government pension insurance. Historical OIBDA numbers for 2018 and relevant periods of 2017 were recalculated in line with the renewed methodology.

[3] Here and below, starting from 2019, Free Cash Flow (FCF) is calculated as net cash from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received, plus subsidy from government. Comparative statements of 2018 are given as they were disclosed in the corresponding period.

[4] International financial reporting standards.

[5] Here and below, capital expenditure ("CAPEX") comprises cash spent on fixed assets and intangible assets.

[6] Here and below, Net Debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets).

[7] Average revenue per user.

[8] Blended ARPU includes revenue from one user subscribed to a number of services simultaneously, including broadband, IPTV and digital cable TV.

[9] Company data.

[10] Operator to operator.

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ISIN:	US7785291078
Category Code:	FR
TIDM:	RKMD
LEI Code:	2534001D752JPNM0H170
Sequence No.:	50037
EQS News ID:	988049

End of Announcement	EQS News Service

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