Rostelecom — Interim / Quarterly Report 2016

Nov 10, 2016

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PJSC ROSTELECOM / 3rd Quarter Results

ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER AND NINE MONTHS OF 2016

10-Nov-2016 / 12:01 CET/CEST

Dissemination of a Regulatory Announcement, transmitted by EquityStory.RS, LLC - a company of EQS Group AG.

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 THIRD QUARTER AND NINE MONTHS OF 2016

Higher revenues driven by a substantial increase in the digital segment's contribution to overall revenue

Moscow, Russia - November 10, 2016 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia's national telecommunications operator, today announces its consolidated financial results for the third quarter and nine months of 2016 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

• Revenue grew by 0.4% to RUB 72.8 billion compared to the third quarter of 2015;
• Net income doubled to RUB 4.1 billion in the third quarter of 2016;
• Solid OIBDA margin of 34.4% in the third quarter of 2016;
• Higher digital segment[2] share of revenue of 44%;
• Rostelecom accounted for around 40%[3] of new subscriptions in the pay-TV market and over 50%[4] in the broadband market;
• Total fibre optic network coverage reached 31.8 million households by the end of the third quarter of 2016;
• Maintained high level of subscriber growth rate (+7%) for broadband and IPTV (+28%).

THIRD QUARTER 2016 FINANCIAL HIGHLIGHTS

• Revenue grew by 0.4% to RUB 72.8 billion compared to the third quarter of 2015;
• OIBDA[5] fell by 1% to RUB 25.0 billion compared to the third quarter of 2015;
• OIBDA margin of 34.4% compared to 34.7% in the corresponding period of last year;
• Net profit doubled to RUB 4.1 billion compared to the third quarter of 2015;
• CAPEX[6] decreased by 18% year-on-year to RUB 13.0 billion (17.9% of revenue) from RUB 16.0 billion (22.0% of revenue) in the third quarter of 2015;
• Free Cash Flow (FCF)[7] fell by 9% to RUB 5.9 billion compared to the third quarter 2015;
• Net debt[8] increased by 9% since the beginning of 2016, amounting to RUB 190.1 billion, resulting in a Net Debt / Annualised OIBDA ratio of 1.9x.

Key figures for 3Q 2016

RUB million	3Q 2016	3Q 2015	% change, y-o-y
Revenue	72,781	72,496	0.4%
OIBDA	25,038	25,182	(1%)
OIBDA margin %	34.4%	34.7%
Operating Income	11,815	9,945	19%
Operating margin %	16.2%	13.7%
Net Income	4,060	2,046	98%
% of revenue	5.6%	2.8%
Capital Expenditure	13,029	15,978	(18%)
% of revenue	17.9%	22.0%
Net debt	190,071	174,899	9%
Net debt/ annualised OIBDA	1.9	1.7
FCF	5,851	6,420	(9%)

NINE MONTHS OF 2016 FINANCIAL HIGHLIGHTS

• Revenue grew by 0.3% to RUB 217.0 billion, compared to the nine months of 2015;
• OIBDA fell by 4% to RUB 72.4 billion compared to the nine months of 2015;
• OIBDA margin of 33.4% compared to 34.7% in the nine months of 2015;
• Net profit fell by 16% to RUB 8.7 billion compared to the nine months of 2015;
• CAPEX increased by 8% year-on-year to RUB 46.8 billion (21.6% of revenue) from RUB 43.4 billion (20.1% of revenue) in the nine months of 2015;
• Free Cash Flow (FCF) was RUB -2.3 billion compared to RUB 12.9 billion in the corresponding period of last year.

Key figures for the nine months of 2016

RUB million	9M 2016	9M 2015	% change, y-o-y
Revenue	217,039	216,336	0.3%
OIBDA	72,400	75,027	(4%)
OIBDA margin %	33.4%	34.7%
Operating Income	28,588	29,328	(3%)
Operating margin %	13.2%	13.6%
Net Income	8,663	10,274	(16%)
% of revenue	4.0%	4.7%
Capital Expenditure	46,797	43,383	8%
% of revenue	21.6%	20.1%
Net debt	190,071	174,899	9%
Net debt/ annualised OIBDA	1.9	1.7
FCF	(2,320)	12,888	-

Sergei Kalugin, President of Rostelecom, commented:

'Our third quarter results were robust, both from a financial and operational perspective. We are delighted with the successful on-going transformation of the business, as well as the extent to which the digital segment is growing, driven by an increasing number of broadband and IPTV clients as well as sales in cloud services and other digital segments. This combination has led to an increase in revenue and profit, enabling Rostelecom to generate high margins and solid cash flow.

'We accomplished a number of important milestones during the quarter. Firstly, within the framework of an MVNO agreement, we commercially launched our own-brand mobile services based on the Tele2 network. This gives customers access to Rostelecom's mobile proposition through the Tele2 network across the country, it will strengthen customer loyalty in the B2C segment and bolster our position in the corporate and state user segments.

'Furthermore, the Board of Directors has approved a new LTIP programme, which provides each employee with the opportunity to become a shareholder, and benefit from the Company's increasing success and shareholder value growth. This will provide employees with a real sense of ownership, which will contribute to increased productivity and a more rapid transformation into a digital service provider.

'Finally, the Board of Directors has approved another important initiative to enhance efficiency and profitability - the introduction of a new production system based on 6 SIGMA and Lean Production approach, which we expect to help us increase productivity by 20-30%, depending on the business area function, and realise a 5-10% reduction in operating costs'

Kai-Uwe Mehlhorn, Senior Vice-President and Chief Financial Officer, added:

'We are pleased with the third quarter results, particularly the underlying performance of the business, which demonstrate that management initiatives are delivering results: our consolidated revenue is growing, despite the fall in income from voice services. OIBDA is stable, despite tough competition and inflation. There are however grounds for being conservative, due to the difficult macroeconomic environment and there is significant risk that state reimbursement for the Bridging the Digital Divide project will be reduced.

In terms of guidance, we therefore expect up to 1% year-on-year revenue growth for the full year, and we expect a lower year-on-year OIBDA range of between 4-6% compared to 2015. The impact of the lower reimbursement for the BDD project is expected to be offset by success in optimising operating expenses and increase revenue from digital services. We expect full year CAPEX of less than 19% of revenues (excluding the Bridging the Digital Divide project 'BDD').'

KEY OPERATING HIGHLIGHTS

1. The number of broadband subscribers grew by 7% year-on-year to 12.2 million in 3Q 2016;

• The B2C subscriber base grew by 7% to 11.4 million, whilst the number of subscribers connected by fibre optic increased by 21% year-on-year to 7.1 million (59% of the subscriber base).

2. The number of pay-TV subscribers grew by 9% year-on-year to 9.2 million households.

• The number of IPTV subscribers increased by 28% to 4.0 million.

3. The number of local telephony subscribers decreased by 8% to 20.9 million.

Number of subscribers (million):	3Q 2016	3Q 2015	% change, y-o-y	2Q 2016		% change, y-o-y
Broadband	12.2	11.4	7%	12.0		2%
Residential	11.4	10.7	7%	11.2		2%
Corporate clients	0.7	0.7	3%	0.7		1%
Pay TV	9.2	8.4	9%	9.0		2%
Incl. IPTV	4.0	3.1	28%	3.9		5%
Local telephony services	20.9	22.7	(8%)	21.3		(2%)

KEY EVENTS RELATING TO 3Q 2016 AND AFTER THE END OF THE REPORTING PERIOD

Business news

- Expanding the range of services:

- Began providing mobile services under its own brand based on the Tele2 network under an MVNO agreement; now Rostelecom customers can access the Rostelecom mobile proposition through the Tele2 network across the country;

- Rostelecom launched a federal Wi-Fi service for corporate clients and the public sector;

- Rostelecom updated the 'Gaming' tariff plan to include premium accounts; and

- Rostelecom launched a new IPTV smartphone app.

- Rostelecom remains a preferred and reliable partner to the state:

- Rostelecom organised video surveillance for the State Duma elections in 15 Russian regions; the total value of the contracts was more than RUB 500 million;

- Rostelecom won a RUB 43 million tender to introduce the domestic 'MyOffice Mail' product for the Moscow Department for Information Technology;

- On-going work on modernising the network infrastructure to ensure high quality digital services:

- Increased fibre optic network coverage to 31.8 million households;

- Rostelecom launched a sub-marine fibre optic link from Sakhalin - Kamchatka - Magadan. Now almost 500,000 inhabitants in the Kamchatka Krai and Magadan region, who had previously received their service via satellite, can enjoy unlimited high-speed internet;

- Rostelecom maintains a large and stable share of total new connections. The Company continues to strengthen its competitive position in the broadband and pay-TV market, attracting around 40%[9] of all new subscribers in the pay-TV market and more than 50%[10] in the broadband market for the third quarter;

- As part of its initiative to develop new fast growing business segments to drive revenue, Rostelecom launched a new teleshopping channel BOOM-TV, created in the JV framework with South Korean partners;

- Rostelecom concluded a number of major contracts totalling RUB 1.8 billion to broaden the digital business segment. This includes a contract with the federally funded Judicial Department's information analytics centre, as well as contracts related to 'Smart City' projects, VPN and others;

- Rostelecom signed long-term contracts with MTS, Vimpelcom and Megafon for the lease of its network infrastructure, thereby monetising its leading position as the major telecoms infrastructure operator in the country.

Other news

• The Company further optimised its debt portfolio by successfully completing a RUB 15 billion bond placement, with a record low coupon rate of 9.2%;
• To accelerate Rostelecom's transformation into a digital services provider, the Board of Directors approved a new long-term incentivisation programme for employees to provide a greater sense of ownership in the business and to incentivise success. The Company also introduced a new corporate pension scheme.
• To reinforce the Company's evolution into a digital services provider, the Company has also reviewed its production systems based on the tools and techniques of Lean Production and 6 SIGMA, which will increase productivity and reduce operating costs;
• Noting the improving macroeconomic situation in the country, Fitch and S&P upgraded the Company's outlook to Stable for Rostelecom's credit ratings;

OPERATING REVIEW

Revenue analysis

Revenue structure by services

RUB million	3Q 2016	3Q 2015	% change, y-o-y	9M 2016	9M 2015	% change, y-o-y
Broadband	16,497	15,910	4%	49,501	47,385	4%
TV services	5,971	4,862	23%	17,312	14,198	22%
Fixed telephony	21,219	24,150	(12%)	66,113	75,107	(12%)
Wholesale services	19,143	18,987	1%	57,098	55,544	3%
Rent of channels	2,566	2,899	(12%)	8,056	8,801	(8%)
Interconnection and traffic transit services	8,122	8,053	1%	24,247	23,135	5%
VPN	5,290	4,976	6%	15,492	14,410	8%
Rent and maintenance of telecommunications infrastructure	3,165	3,059	3%	9,303	9,198	1%
VAS and cloud services	4,498	3,127	44%	11,846	8,315	42%
Other telecommunications services	3,413	3,287	4%	9,799	10,374	(6%)
Other non-telecommunications services	2,040	2,173	(6%)	5,370	5,413	(1%)
Total	72,781	72,496	0.4%	217,039	216,336	0.3%

Revenue structure by customer segments

RUB million	3Q 2016	3Q 2015	% change, y-o-y	9M 2016	9M 2015	% change, y-o-y
Residential customers	32,634	33,086	(1%)	99,083	100,933	(2%)
Corporate customers	13,573	13,976	(3%)	39,211	40,857	(4%)
Government customers	12,781	11,698	9%	37,305	34,355	9%
Operators	13,793	13,736	0%	41,440	40,191	3%
Total	72,781	72,496	0.4%	217,039	216,336	0.3%

In the third quarter of 2016, revenue increased by 0.4% to RUB 72.8 billion compared to the third quarter of 2015. Revenue was influenced by the following factors:

- a 44% increase in revenue from VAS and cloud services due to an increase in the data-centres business, cloud services and the development of the 'Smart City' projects;

- 23% increase in revenue from pay-TV due to growth in the IPTV subscriber base, an increase in the consumption of VoD services and higher ARPU;

- a 4% increase in revenue from broadband services due to an increased number of subscribers;

- a 12% decrease in revenue from fixed-line telephony services.

In the nine months of 2016, revenue increased by 0.3% year-on-year to RUB 217.0 billion as a result of the following factors:

- a 42% increase in revenue from VAS and cloud services due to an increase in cloud services, data centre services and the development of the 'Smart City' projects;

- a 22% increase in revenue from pay-TV services due to growth in the IPTV subscriber base, an increase in the consumption of VoD services and higher ARPU;

- a 4% increase in revenue from broadband services due to an increased number of subscribers;

- a 12% decrease in revenue from fixed-line telephony services.

Operating income analysis

Operating expenses structure[11]

RUB million	3Q 2016	3Q 2015	% change, y-o-y	9M 2016	9M 2015	% change, y-o-y
Personnel costs	(21,750)	(21,416)	2%	(68,474)	(68,511)	(0%)
Interconnection charges	(12,241)	(12,264)	(0%)	(36,704)	(34,395)	7%
Materials, repairs and maintenance, utilities	(5,998)	(5,821)	3%	(17,304)	(17,382)	(0%)
Gain on the disposal of PPE and intangible assets	402	236	70%	1,363	724	88%
Reserves for bad debt expenses	(935)	(785)	19%	(2,675)	(1,978)	35%
Other operating income	2,741	3,705	(26%)	10,226	10,797	(5%)
Other operating expenses	(10,419)	(11,381)	(8%)	(32,676)	(31,802)	3%
Total operating expenses	(48,200)	(47,725)	1%	(146,204)	(142,546)	3%

In the third quarter of 2016, operating expenses, excluding amortisation, increased by 1% to RUB 48.2 billion compared to the corresponding period of 2015. This is mainly due to a decrease in operating income from the 'Bridging the Digital Divide' project, accompanied by a reduction in associated costs under other operating expenses, and growth in personnel costs because of one-off payments.

In the nine months of 2016, operating expenses excluding amortisation increased by 3% to RUB 146.2 billion, compared with the same period last year. This was influenced by the following factors:

- a 7% increase in interconnection charges, partly as a result of a larger pay-TV subscriber base, leading to higher content costs as well as increased interconnection costs;

- a 3% increase in other operating expenses, including increased expenses related to the 'Smart City' projects and others, accompanied by growth in corresponding income;

- a 35% increase in reserves for bad debt expenses mainly due to one-off effect from the rate adjustment method of collecting receivables in the second quarter of 2016;

Depreciation and amortisation expenses decreased by 14% year-on-year in the third quarter of 2016 and by 5% in the nine months of 2016 to RUB 12.8 billion and RUB 42.2 billion, respectively. The decrease is mainly due to a revision in the useful life of fixed assets.

Operating profit in the third quarter of 2016 grew by 19% to RUB 11.8 billion, compared to the corresponding period last year. For the 9 months of 2016 operating profit declined by 3% to RUB 28.6 billion.

OIBDA in the third quarter of 2016 fell by 1%, and by 4% year-on-year in the nine months of 2016, to RUB 25.0 billion and RUB 72.4 billion, respectively. The OIBDA margin was 34.4% in the third quarter compared to 34.7% in the corresponding period of 2015; in the nine months of 2016 the OIBDA margin was 33.4% (34.7% in the nine months of 2015).

Net Income Analysis

In the third quarter of 2016, profit before income tax grew by 69% and amounted to RUB 6.0 billion and for 9 months to RUB 12.0 billion compared to RUB 14.3 billion in the nine of 2015.

Profit before tax in the third quarter of 2016 was mainly influenced by the following factors:

- higher level of operating profit;

- the third quarter of 2015 higher comparable base of losses following the revaluation of financial instruments;

- positive foreign exchange rate differences in the reporting period;

- consolidation of losses from affiliated companies, mainly relating to the financial results of the JV with Tele2 Russia.

Profit before income tax in the nine months of 2016, was mainly influenced by the consolidation of losses from affiliated companies, mainly relating to the financial results of the JV with Tele2 Russia, lower losses from the revaluation of financial instruments and positive foreign exchange rate differences.

In the third quarter of 2016, income tax increased 29% year-on-year and amounted to RUB 1.9 billion. The Company's income tax contributions during the nine months of 2016 decreased by 16% to RUB 3.4 billion. The income tax dynamics were a result of an income profit before tax.

The effective income tax rate was 32% in the third quarter of 2016 and amounted to 28% in the nine months of 2016, compared to the 20% rate specified by the Tax Code. The higher effective tax rate was due to the presence of expenses that are non-deductible for tax purposes.

Net profit grew by 98% and amounted to RUB 4.1 billion in the third quarter of 2016. In the nine months of 2016, net profit totalled RUB 8.7 billion compared to RUB 10.3 billion in the nine months of 2015.

Financial review

Consolidated net operating cash flow amounted to RUB 18.2 billion in the third quarter of 2016, compared to RUB 22.0 billion in the corresponding period of 2015, totalling RUB 42.3 billion in the nine months of 2016, compared to RUB 54.7 billion during the nine months of 2015. The reduction in net operating cash flow in the third quarter of 2016 was due to the higher level of accounts receivable, a decrease in accounts payable, an increase in interest paid as well as a decrease in proceeds from the Bridging the Digital Divide project. The presence of significant recoveries of income tax in the third quarter of 2016 had a positive impact on cash flow value. The reduction in consolidated net operating cash flow for the first 9 months of 2016 largely accounted for an increase in accounts receivable and interest paid.

In the third quarter of 2016, consolidated free cash flow amounted to RUB 5.9 billion compared to RUB 6.4 billion in the third quarter of 2015. Consolidated free cash flow in the nine months of 2016 was RUB (2.3) billion compared to RUB 12.9 billion in the nine months of 2015.

Consolidated cash outflow for investments in fixed assets in the third quarter of 2016 decreased by 18% year-on-year to RUB 13.0 billion, increasing by 8% to RUB 46.8 billion for the nine months of 2016 compared to the corresponding period last year. This was due to CAPEX being unevenly distributed across the calendar year, in the current financial year the volume of investments was weighted in the first half.

As at the 30th of September 2016, the Group's total debt grew by 7% since the full year of 2015, to RUB 200.4 billion. More than 99% of the Group's total debt was rouble-denominated as at 30th September 2016.

As at 30th September, 2016 the Group's net debt amounted to RUB 190.1 billion with a net debt / OIBDA annualised ratio of 1.9x.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 6.00 PM (Moscow), 4.00 PM (CET), 3.00 PM (UK) and 10.00 AM (NYT). To participate in the conference call, please dial:

Russia +7 495 213 1767

UK/ International: +44(0) 330 336 9105

US: +1 719 325 2229

Access Code: 7823005

A webcast of the conference call will be available at: http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=4031.

A replay of the conference call will be available on the Company's website http://www.rostelecom.ru/en/ir/results_and_presentations/financials/IFRS/2016/3/ in due course.

* * *

APPENDICES

1. Reconciliation of OIBDA

2. Statement of Comprehensive Income for 9M 2016

3. Statement of Cash Flows for 9M 2016

4. Statement of Financial Position for 9M 2016

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 non-cash 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.

Non-cash expenses related to the long-term management incentive programme, implying accruals in personnel costs line starting from Q2, 2014, are not taken into account in the calculation of OIBDA.

RUB million	3Q 2016	3Q 2015	% change, y-o-y	9M 2016	9M 2015	% change, y-o-y
Operating income	11,815	9,945	19%	28,588	29,328	(3%)
Plus amortisation	12,766	14,826	14%	42,247	44,461	(5%)
Plus non-cash expenses related to the long-term management incentive programme	457	411	11%	1,565	1,238	26%
OIBDA	25,038	25,182	(1%)	72,400	75,027	(4%)
OIBDA margin, %	34.4%	34.7%		33.4%	34.7%

APPENDIX 2: Statement of Comprehensive Income for 9M 2016

	Three-month period ended 30 September (unaudited)
	2016	2015
Revenue	217,039	216,336
Operating expenses
Wages, salaries, other benefits and payroll taxes	(68,474)	(68,511)
Depreciation, amortization and impairment losses	(42,247)	(44,461)
Interconnection charges	(36,704)	(34,395)
Materials, utilities, repairs and maintenance	(17,304)	(17,382)
Gain on disposal of property, plant and equipment and intangible assets	1,363	724
Bad debt expense	(2,675)	(1,978)
Other operating income	10,266	10,797
Other operating expenses	(32,676)	(31,802)
Total operating expenses, net	(188,451)	(187,008)
Operating profit	28,588	29,328
Loss from associates	(5,004)	(2,302)
Finance costs	(12,724)	(12,026)
Other investing and financial gain/(loss), net	640	108
Foreign exchange gain/(loss)	547	(802)
Profit before income tax	12,047	14,306
Income tax expense	(3,384)	(4,032)
Profit for the period	8,663	10,274
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations, net of tax	(417)	257
Other comprehensive income for the period, net of tax	(417)	257
Total comprehensive income for the period	8,246	10,531
Profit attributable to:
Equity holders of the Group	8,253	9,924
Non-controlling interests	410	350
Total comprehensive income attributable to:
Equity holders of the Group	7,834	10,157
Non-controlling interests	412	374
Earnings per share attributable to equity holders of the Group - basic (in roubles)	3.68	4.39
Earnings per share attributable to equity holders of the Group - diluted (in roubles)	3.64	4.33

APPENDIX 3: Statement of Cash Flows for 9M 2016

	Nine-month period ended 30 September (unaudited)
	2016	2015
Cash flows from operating activities
Profit before tax	12,047	14,306
Adjustments to reconcile profit before tax to cash generated from operations:
Depreciation, amortization and impairment losses	42,247	44,461
Gain on disposal of property, plant and equipment and intangible assets	(1,363)	(724)
Bad debt expense	2,675	1,978
Loss from associates	5,004	2,302
Finance costs excluding finance costs on pension and other long-term social liabilities	12,366	11,473
Other investing and financial gain	(640)	(108)
Foreign exchange (gain)/loss, net	(547)	802
Share-based motivation program	1,184	938
Changes in net working capital:
Increase in accounts receivable	(9,258)	(6,919)
Increase in employee benefits	128	147
(Increase)/decrease in inventories	(615)	1,523
Decrease in accounts payable, provisions and accrued expenses	(2,142)	(2,311)
Decrease in other assets and liabilities	(1,932)	(211)
Cash generated from operations	59,154	67,657
Interest paid	(14,383)	(12,590)
Income tax refund	1,395	2,260
Income tax paid	(3,822)	(2,653)
Net cash from operating activities	42,344	54,674
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets	(46,797)	(43,383)
Proceeds from sale of property, plant and equipment and intangible assets	2,133	1,597
Acquisition of financial assets	(5,737)	(10,250)
Proceeds from disposals of financial assets	6,376	5,890
Interest received	827	705
Dividends received	20	5
Purchase of subsidiaries, net of cash acquired	(2,438)	(464)
Proceeds from disposals of equity accounted investees	-	322
Proceeds from disposals of subsidiaries, net of cash disposed	(1)	-
Acquisition of equity accounted investees	(778)	(98)
Net cash used in investing activities	(46,395)	(45,676)
Cash flows from financing activities
Purchase of treasury shares	-	(2,867)
Sale of treasury shares	8	-
Proceeds from bank and corporate loans	496,127	368,768
Repayment of bank and corporate loans	(492,822)	(376,378)
Proceeds from bonds	15,000	10,000
Repayment of bonds	(2,734)	(2,408)
Repayment of vendor financing payable	(7)	(44)
Repayment of other non-current financing liabilities	-	(3)
Options settlement repayments	(231)	(448)
Repayment of finance lease liabilities	(116)	(56)
Acquisition of non-controlling interest	-	(2,079)
Dividends paid to shareholders of the Group	(13,295)	(7,676)
Dividends paid to non-controlling shareholders of subsidiaries	(248)	(287)
Net cash used in financing activities	1,682	(13,478)
Net decrease in cash and cash equivalents	(2,738)	(4,479)
Effect of exchange rate changes on cash and cash equivalents	(369)	1
Cash and cash equivalents at beginning of the period	7,165	16,945
Cash and cash equivalents at the end of the period	4,427	12,466

APPENDIX 4: Statement of Financial Position for 9M 2016

	30 September 2016 (unaudited)	31 December 2015
Assets
Non-current assets
Property, plant and equipment	334,580	338,699
Investment property	99	107
Goodwill and other intangible assets	60,730	60,755
Investments in associates	70,205	74,474
Other financial assets	845	621
Deferred tax assets	620	627
Other non-current assets	9,821	8,241
Total non-current assets	476,900	483,524
Current assets
Inventories	4,709	4,060
Trade and other accounts receivable	50,337	43,152
Prepayments	2,140	2,822
Prepaid income tax	2,870	927
Other financial assets	5,913	5,719
Cash and cash equivalents	4,427	7,165
Other current assets	2,063	2,600
Total current assets	72,459	66,445
Held for sale assets	1,727	1,351
Total assets	551,086	551,320
Equity and liabilities
Equity attributable to equity holders of the Group
Share capital	93	93
Additional paid-in capital	90	87
Treasury shares	(66,932)	(68,669)
Retained earnings and other reserves	308,238	314,237
Total equity attributable to equity holders of the Group	241,489	245,748
Non-controlling interests	4,246	3,916
Total equity	245,735	249,664
Non-current liabilities
Loans and borrowings	140,543	126,620
Employee benefits	5,522	5,021
Deferred tax liabilities	33,175	30,238
Accounts payable, provisions and accrued expenses	5,018	3,545
Other non-current liabilities	5,908	5,543
Total non-current liabilities	190,166	170,967
Current liabilities
Loans and borrowings	59,868	59,934
Accounts payable, provisions and accrued expenses	48,367	62,268
Income tax payable	42	215
Other current liabilities	6,908	8,272
Total current liabilities	115,185	130,689
Total liabilities	305,351	301,656
Total equity and liabilities	551,086	551,320

Rostelecom (www.rostelecom.ru) is one of the largest national telecommunications operators in Russia and Europe. The Company operates in all segments of the telecommunications market and covers millions of households in Russia.

Rostelecom is an undisputable leader of the broadband and pay-TV markets in Russia with over 12.2 million fixed-line broadband subscribers and over 9.2 million pay-TV subscribers, over 4.0 million of which are subscribed to Rostelecom's IPTV services.

In the nine months of 2016 the Group generated RUB 217.0 billion of revenue, RUB 72.4 billion of OIBDA (33.4% of revenue) and RUB 8.7 billion of net income.

The Group is a market leader in providing telecommunications services to government bodies and corporates of all levels.

Rostelecom is an important innovator that provides solutions in the field of E-Government, cloud computing, healthcare, education, security and housing & utility services.

The Group's stable financial position confirmed by its credit ratings. Rostelecom was assigned 'BBB-' and 'BB+' international credit ratings by Fitch Ratings and Standard&Poor's respectively.

* * *

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 Rostelecom's PJSC (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.

Note: This announcement contains inside information.

Full name and position making the announcement - Pavel Nezhutin, Director of Corporate Governance Department.

[1] International financial reporting standards.

[2] The digital segment comprises broadband, pay-TV, VPN, VAS and cloud services

[3] Company data, estimates from the analytical agency TMT-consulting

[4] Company data, estimates from the analytical agency TMT-consulting

[5] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA

[6] Here and below, capital expenditure ('CAPEX') comprises cash spent on fixed assets and intangible assets

[7] Here and below, FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets

[8] Here and below, net debt is calculated as total debt less cash, cash equivalents and short-term investments (other financial assets)

[9] Company data, estimates from the analytical agency TMT-consulting

[10] Company data, estimates from the analytical agency TMT-consulting

[11] Excluding amortisation

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Language:	English
Company:	PJSC ROSTELECOM
	30 Goncharnaya st.
	115172 Moscow
	Russia
Phone:	+7 (499) 999-82-83
Fax:	+7 (499) 999-82-22
E-mail:	rostelecom@rt.ru
Internet:	www.rostelecom.ru
ISIN:	US7785291078
Listed:	Foreign Exchange(s) Moscow
Category Code:	QRT
TIDM:	RKMD
Sequence Number:	3583
Time of Receipt:	10-Nov-2016 / 12:00 CET/CEST

End of Announcement	EquityStory.RS, LLC News Service

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519509  10-Nov-2016