ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF 2018

rostelecom announces its ifrs financial and operating results

 for the FOURTH quarter AND FULL YEAR of 2018

DIGITAL SEGMENT CONTRIBUTION UP TO 57% OF TOTAL REVENUE IN 4Q 2018

Moscow, Russia - March 12, 2018 - 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 2018 prepared in accordance with IFRS[1],[2].

KEY ACHIEVEMENTS

FOURTH QUARTER 2018 KEY FINANCIAL HIGHLIGHTS

Key figures for 4Q 2018, RUB mln

FULL YEAR 2018 FINANCIAL HIGHLIGHTS

Key figures for the full year of 2018, RUB mln

Mikhail Oseevskiy, President of Rostelecom, commented:

"2018 was a milestone year for Rostelecom. We started to implement our 2022 strategy, with a strong focus on  improving our products and services ecosystem, enhancing efficiency, the further modernisation of our technological platform, and of course, the development of our  team.

Huge strides have been made in expanding and developing our digital products, entering new markets, launching the biometric platform, improving digital solutions for medicine and education sectors, and advancing our cybersecurity capabilities. Today, we don't just develop products and services, we stimulate emotions, create opportunities for education and healthcare, we cultivate a sense of security and we free up our clients' time by helping them streamline business processes. We help clients of any scale to grow their business, and support the government in providing improved services to its citizens.

Together with our brand refresh, which was a milestone event for us last year, we introduced a range of new digital products and tariff lines, in response to market changes and Rostelecom's priorities.

Our brand-new service and multimedia platform Wink was recently added to our private client ecosystem, marking an evolutionary stage in the development of IPTV, which is today popular among millions of families across the entire country. Wink is a truly comprehensive platform, comprising of a mobile app, a website and a Smart TV app, more than 200 TV channels and more than 12 thousand films and episodes already available to Rostelecom's clients, as well as a set of value added services including NPVR and Parental control options.

Products in our new tariff line were developed and named around the need of the typical family: "For Internet", "For Safety", "For Fun", "All together" and "Gaming". We have also improved our product offering with exclusive tariff plans. One of the latest developments is the launch of the "Cloud" tariff, together with Yandex, which offers high speed internet access and massive cloud storage capacity on Yandex.Disk, that is growing monthly by 1tb.

For entrepreneurs, we launched an updated platform "Plus Account" that ensures high speed Internet connectivity and mobile communication, with extra services also available, including a Hosted PBX, SMS advertising, Wi-Fi, video surveillance and TV for business.

Last year, we carried out many successful projects. One of them was video surveillance at the presidential election in Russia, where thousands of Rostelecom engineers in mobile teams oversaw the seamless functioning of our systems, once again reinforcing our competence, excellence and professionalism, as well as Rostelecom's status as a credible partner. In 2018, we completed another large-scale project to connect healthcare centres to the Internet, demonstrating our capability to run complex infrastructure programmes across the entire country. Public funding enabled us to further expand the number of high-speed connections in remote areas, and we also completed construction of an underwater sector of the fibre-optic communication line in Kuril Islands. The JV with Nokia marks another significant event last year and represents an important milestone when it comes to setting the backdrop for developing innovative technologies, as does the launch of the 5G pilot sites for a new generation 5G network located in Skolkovo, the State Hermitage museum and Innopolis.

Our growing digital segment gained further momentum, which now contributes more than 55% to our total revenue. Growth in our subscriber base coupled with higher ARPU, led to a significant increase in revenues from our core pay-TV and broadband segments, where we are leaders in the market. Additional products and services that we actively promote are in growing demand, and we also registered a twofold growth in revenues from Corporate TV and national Wi-Fi services. The Information security segment grew fourfold, and the number of "Smart Home" ecosystem subscriber base grew by sixteen times, resulting in a 24-fold growth in revenues.

The achievements listed above represent only some of our recent achievements. Our digital transformation has transformed the business and contributed to a very solid financial performance in 2018. Our revenue grew by 5%, while OIBDA increased by 4%, and net income - by 7%. Overall, we delivered a strong performance, and will continue to expand our digital business segments and improve efficiency.

I am delighted to reflect on a year that confirms Rostelecom's transformation into a dynamic and courageous digital player. We are maintaining our strong leadership in the market, our core objective of pursuing sustainable and accretive growth is enhancing shareholder value, which is reinforced by attractive dividend returns."

Sergey Anokhin, Senior Vice-President of Rostelecom and CFO of Rostelecom, added:

"The results in 2018 underpin our positive outlook for Rostelecom and our potential to pursue further grow in our digital segment. In addition to expanding our digital footprint, we are introducing measures that are improving internal efficiency. We expect our performance to continue to improve across all key financial indicators and we are therefore setting ourselves the following targets for 2019: revenue and OIBDA growth of at least 2.5%, and CAPEX in the range of RUB 65 to RUB 70 billion, taking into account RUB 7 billion of regulatory CAPEX and excluding the implementation of government programmes".

KEY OPERATING HIGHLIGHTS

Total subscriber base

 The number of IPTV subscribers increased by 9% to 5.3 million;

Subscriber base in the household segment

KEY EVENTS RELATING TO FY2018 AND AFTER THE END OF THE REPORTING PERIOD

Business news

 In September 2018, Rostelecom announced its new positioning and brand;

 Rostelecom launched "Wink", an OTT multimedia platform: by the end of 2018 the application was downloaded by more than 1.2 million users on mobile and SmartTV gadgets;

 The Company launched Rostelecom Lyceum, a platform that will enhance the quality, safety and availability of supplementary education in Russia;

 As part of its information security offering:

As a result, revenues from information security services grew by 4 times in 2018;

 In partnership with Yandex, Rostelecom launched a new "Cloud" tariff plan with high speed Internet access (of up to 250 Mbps) and increased cloud storage capacity on Yandex.Disk (with a +1Tb monthly addition);

 As part of the "Gaming" tariff plan development, Rostelecom improved connectivity with game servers and Internet speed increased to 800 Mbps. A number of gaming options were improved in some famous computer games, including in World of Warplanes (a special fighter aircraft Yak-3T) by Wargaming; Warface by Games.Mail.ru; Blade and Soul, Point Blank, Lineage2 and AION by 4Game;

 As part of the "Smart Home" ecosystem:

As a result, Rostelecom's "Smart Home" client base grew by 16 times in 2018, which translated to a 24 times increase in revenues;

 In B2B/G segments, Rostelecom increased product functionality and expanded its product offering for "Hosted PBX", "Web conferencing", "Managed communication services", "National Wi-Fi", "Virtual Data Centre", and "Information security";

 Within the MVNO project:

As a result, Rostelecom's MVNO client base increased to 1.2 million clients, which has placed Rostelecom first in the virtual mobile operators sector, with a market share of 56%[8];

 The number of pay-TV clients exceeded 10.2 million clients (including 5.3 million of IPTV users), and the number of Broadband clients reached 13 million;

 The number of commercial racks in Rostelecom's data centres grew by 11% to 5,870. This translated in a more than 20% revenue increase in the data centre segment in 2018;

 The Public Services Portal recorded 86 million users, twice as many as in 2017;

 Revenues from "Smart City" projects grew by 46% in 2018;

 More than two-fold increase in revenues from the "Corporate TV" service in 2018;

 The number of National Wi-Fi hotspots increased to 27,500. This generated a two-fold growth in revenues from this service in 2018;

 Rostelecom became a leader in cloud video surveillance for businesses with 25,000 IP-cameras connected across more than 10,000 organizations in all Russian regions, which resulted in a nearly 40% growth in revenues in this segment in 2018;

 The "Antivirus" services revenues increased almost two and half times in retail segment in the last 12 months;

 Rostelecom launched the Unified Biometric System, one of the key elements of the remote identification mechanism, that provides remote access to financial services for citizens;

 Rostelecom launched pilot sites for a new generation 5G network located in Innopolis in the Republic of Tatarstan, the State Hermitage museum in Saint-Petersburg and Skolkovo in Moscow;

 A 5G network-based test infrastructure for unmanned vehicles was launched in Skolkovo;

 Rostelecom successfully provided video surveillance during the presidential election in Russia on 18 March 2018;

 Rostelecom successfully delivered video surveillance of the Unified State Exam;

 Rostelecom provided video surveillance on the Single Voting Day at 10,510 district electoral committees and 871 territorial committees, in 11,381 offices in total, under federal and regional contracts;

 The integrated spatial information platform ("Geodata Information System" (GIS) "Zemlya" (the Earth), developed by Rostelecom, was launched in Russia's Arkhangelsk region.

Other news

OPERATING REVIEW

Revenue analysis

Revenue structure by services

Revenue structure by customer segments

In the fourth quarter of 2018, revenue increased by 4% to RUB 87.3 billion, compared to the fourth quarter of 2017, as a result of the following factors:

In full year of 2018, revenue increased by 5% to RUB 320.2 billion, compared to the twelve months of 2017, as a result of the following factors:

Operating income analysis

Operating expenses structure

In the fourth quarter of 2018, operating expenses increased by 6% compared to the corresponding period of 2017 and amounted to RUB 79.1 billion, largely due to the following factors:

In the twelve months of 2018, operating expenses increased by 6% compared to the corresponding period of 2017 and amounted to RUB 284.4 billion due to the following factors:

Operating profit decreased by 12% year-on-year to RUB 8.2 billion in the fourth quarter of 2018, compared to the corresponding period of 2017. Operating profit decreased by 6% year-on-year to RUB 35.8 billion in the twelve months of 2018, compared to the twelve months of 2017.

OIBDA for the fourth quarter of 2018 increased by 2% year-on-year to RUB 26.0 billion. OIBDA for the twelve months of 2018 increased by 4% to RUB 100.9 billion. The OIBDA dynamics was influenced by revenue growth, gains from real-estate disposal as well as the above-mentioned changes in operating costs. The OIBDA margin in the fourth quarter of 2018 was 29.8% compared to 30.5% in the fourth quarter of 2017. OIBDA margin reached 31.5% in the twelve months of 2018 compared to 31.7% in the corresponding period of 2017.

Net Income Analysis

In the fourth quarter of 2018, profit before tax decreased by 46% to RUB 2.8 billion, compared to the corresponding period in 2017. In the twelve months of 2018, profit before tax increased by 3% to RUB 19.4 billion.

These dynamics were influenced in the fourth quarter of 2018 by the following factors:

The increase in profit before tax for the twelve months of 2018 can be attributed to improved financial results of the associated companies, namely Tele2 Russia.

Income tax in the fourth quarter of 2018 decreased by 57% to RUB 0.4 billion. Income tax in the twelve months of 2018 decreased by 9% to RUB 4.4 billion.

The effective income tax rate stood at 16% in the fourth quarter of 2018, and 23% in the twelve months of 2018 compared to the 20% rate set by the Tax Code. A higher effective income tax rate in the twelve months of 2018 was driven by the non-deductible expenses for taxation purposes.

Net profit decreased by 44% in the fourth quarter of 2018 and totalled RUB 2.4 billion, and increased by 7% to RUB 15.0 billion in the twelve months of 2018.

Financial review

Net operating cash flow in the fourth quarter of 2018 increased by 35% and amounted to RUB 39.0 billion, compared to the corresponding period of 2017, and increased by 8% to RUB 77.2 billion in the twelve months of 2018. The increase in net operating cash flow in the fourth quarter and the twelve months of 2018 was mainly due to changes in working capital. Improved working capital in the fourth quarter in 2018 was partly driven by a decrease in account receivables for the "Smart City" projects and settlements with operators. Improved working capital in the twelve months of 2018 was partly driven by changes in accounts payable and other liabilities, related to the development of working capital management policy,

Cash outflow for investments in non-current assets increased by 48% to RUB 27.3 billion in the fourth quarter of 2018. Excluding state programmes, this figure increased by 27% to RUB 20.3 billion (23.3% of revenue). Cash outflow for investments in non-current assets increased by 20% to RUB 73.2 billion in the twelve months of 2018. Excluding state programmes, this figure increased by 6% to RUB 59.0 billion (18.4% of revenue). These trends were driven by increased capital expenditure on programmes, financed by the State. The increase in CAPEX excluding state programmes was influenced by the development of video surveillance platform in Moscow city.

Free cash flow in the fourth quarter of 2018 totalled RUB 18.1 billion compared to RUB 17.3 billion in the corresponding period of 2017. Free cash flow in the twelve months of 2018 totalled RUB 14.8 billion compared to RUB 20.4 billion in the corresponding period of 2017.

As at December 31, 2018, the Group's total debt increased by 7% compared to the beginning of the year and amounted to RUB 204.3 billion. Over 99% of the Group's total debt was rouble-denominated as at December 31, 2018.

As at December 31, 2018, the Group's net debt increased by 3% compared to the beginning of the year and amounted to RUB 186.7 billion. The net debt /OIBDA ratio stood at 1.9x for the 12 months 2018.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 5.00 PM (Moscow), 3.00 PM (CET), 2.00 PM (UK) and 10.00 AM (NYT). To participate in the conference call, please dial:

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

USA:    +1 929-477-0402

Russia:    +7(495) 646 9190

Confirmation Code (ENG):  2312815

Confirmation Code (RUS):  7295863

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/rostelecom20190312.

A replay of the conference call will be available on the Company's website https://www.company.rt.ru/ir/results_and_presentations/financials/IFRS/2018/4/.

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APPENDICES

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:

Comparable indicators in 2017 and last period of 2018 were reviewed under the applied methodology, starting from the third quarter of 2018.

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 2018

* The Group initially adopted IFRS 15 and IFRS 16 using the modified retrospective approach. Under this approach, the comparative information is not restated. The Group applied IFRS 9 from 1 January 2018 and has not restated comparative information for 2017 for financial instruments under the IFRS 9 standard.

APPENDIX 4: Statement of Cash Flows for the twelve months of 2018

APPENDIX 5: Statement of Financial Position for the twelve months of 2018

* The Group initially adopted IFRS 15 and IFRS 16 using the modified retrospective approach. Under this approach, the comparative information is not restated. The Group applied IFRS 9 from 1 January 2018 and has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9.

PJSC Rostelecom is the largest digital service provider, operating in all segments of the telecommunications market and covering millions of households in Russia.

Rostelecom is an undisputable leader of the broadband and pay-TV markets in Russia with over 13.0 million fixed-line broadband subscribers and over 10.2 million pay-TV subscribers, over 5.3 million of which are subscribed to Rostelecom's IPTV services.

In the twelve months of 2018, the Group generated RUB 320.2 billion of revenues, RUB 100.9 billion of OIBDA (31.5% of revenue) and RUB 15.0 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, 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:

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:

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.

[1] International financial reporting standards.

[2] The Group initially adopted IFRS 9, 15 and 16 using the modified retrospective approach starting from the first quarter of 2018. Please refer to Attachment 2. The 2017 numbers are presented here without implementation of the given standards.

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

[4] Here and below, please refer to Attachment 1 of this statement for a full definition of OIBDA. Note that the company changed the methodology of OIBDA calculation since 3q 2018 by excluding 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.

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

[6] Here and below starting from 2018 free cash flow is FCF is calculated as free cash flow from operating activity minus CAPEX, plus proceeds from selling fixed assets and intangible assets, plus interest received. FCF for Q4 & FY 2017 are presented as reported in a corresponding period.

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

[8] Based on TMT Consulting data