ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER AND NINE MONTHS OF 2020

rostelecom announces its ifrs financial and operating results

for the THIRD quarter and NINE MONTHS OF 2020

Q3 2020 Revenue growth of 13%; 17% increase in OIBDA[1]; FCF[2] up 26%

FY 2020 guidance upgraded to >=9% Revenue & OIBDA growth

Moscow, Russia - November 11, 2020 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the third quarter and nine months of 2020 prepared in accordance with IFRS[3].

In accordance with the accounting policy of the Group, the acquisition of Tele2 Russia has been recognized as a business combination under common control. According to this method the merger of businesses arising from a transfer of entity stakes under common control of the Group's shareholders, is presented as if the merger took place in the earliest period of the statements, or, if later, effective from the date that common control was put into effect; for this purpose comparatives are revised. Rostelecom's consolidated financial statements for 2019 have therefore been revised to incorporate Tele2 Russia's performance as if the acquisition had been completed on 1 January 2019.

THIRD QUARTER 2020 FINANCIAL HIGHLIGHTS

Key figures for 3Q 2020

NINE MONTHS OF 2020 FINANCIAL HIGHLIGHTS

Key figures for 9M 2020

Mikhail Oseevskiy, President of Rostelecom, commented:

"We delivered robust financial and operational growth in the third quarter of 2020. Growth across the Group remained on track with revenue up by 13%, OIBDA up 17% and FCF also up by 26%. Our key strategic business segments - mobile and digital services - continue to be successful as we remain focused on delivering Rostelecom's digital transformation strategy, which sets out our ambition to be the largest integrated digital company in Russia. Our ambitious digital economy projects, spanning a large variety of promising sectors, reinforce this solid growth trajectory. We continue to expand the industries we serve by entering new high-potential markets, building strong management teams to drive our robust marketing strategy to deliver growth into new and adjacent market segments. Through targeted M&A deals and partnerships, we are creating high-performing teams with diverse competencies to build on our competitive advantage. The acquisition of utilities software developers Forkam and Fastech; the expansion of our product ecosystem with Elvis Plus, the leading security system integrator; the strengthening of our position in video content terrestrial delivery, all have significant potential to expand and diversify products and solutions that sit within the growing ecosystem of Rostelecom business clusters.

We continue to develop smart digital solutions for business, government, and private users, and we will soon announce a refreshed strategy which will slightly recalibrate our focus. Built on strong recent achievements, the Rostelecom brand today represents a solid portfolio of fast-growing and high-potential businesses, that are currently undervalued by the market. Our key effort builds on delivering commercial and operational success, within these new business clusters, in order to unlock their potential and ultimately, the true value of our company. In addition to this strong focus on new growth projects and strengthening our position on the digital frontier, we plan to maintain an attractive dividend yield, which, coupled with steady business growth, shapes a unique long-term investment opportunity."

Vladimir Kirienko, First Vice-President of Rostelecom, commented:

"The recent achievements in key markets and across our business segments continue to translate into strong and steady growth while strengthening the long-term digital leadership of Rostelecom. Our constantly evolving digital offering continues to yield impressive results. The demand for cyber security solutions has increased more than two and a half times, while data centers and cloud/IaaS both have both doubled. E-government, video-webcast, smart household products and cloud telephony are performing increasingly well too. The introduction of new timely options and offerings within our digital product family has been well received by customers. Our strategic nation-wide convergent approach is paying off with increased clients' loyalty and growing sales. An example of this was the launch in cooperation with Tele2 of a new offer "Everywhere online" that provides our clients with special subscription deals for the Wink entertainment platform which is becoming increasingly popular. In October, we broke Wink's own concurrent viewers record with 3 million users watching the live stream of Khabib Nurmagomedov's fight with Justin Gaethje, final match in Khabib's storied career..

For our corporate clients, we launched "Technologies PRO", a new tariff offering for remote working with an expanded product line and added services such as personal manager, antivirus, cloud storage on Yandex. Disk and other, in addition to the core broadband service. I would also like to mention the launch of an innovative solution for monitoring solid domestic waste, which using video surveillance cameras and AI enables customers to assess the condition of waste collection sites, schedule and compliance with standards. The environmental protection services market is growing worldwide, and as the leading digital provider in the country, we realise the role we have to play, but also the significant opportunity in developing smart innovative products and solutions to help businesses, the government and households reduce their environmental impact."

Sergey Anokhin, Senior Vice-President and Chief Financial Officer, added:

"Our strong third quarter financial results reflect our plan for 2020 and we continue to deliver on our business targets. Despite the increased restrictions caused by the second wave of the pandemic, coupled with uncertainty surrounding macroeconomic dynamics, the considerable achievements made during the first three quarters, allows us to increase the forecast for key 2020 indicators. The management team therefore expects an increase in consolidated revenue of at least 9%, an increase in OIBDA of at least 9%; and СAPEX to stay within the range of 100-110 billion rubles excluding state programmes."

KEY OPERATING HIGHLIGHTS

Fixed-line business

Mobile business

KEY EVENTS RELATING TO 3Q 2020 AND AFTER THE END OF THE REPORTING PERIOD

Business news

Tele2 has reaffirmed its rating of the best company in overall customer satisfaction[9].

Other news

OPERATING REVIEW

Revenue analysis

Revenue structure by services

Revenue structure by customer segments

In the third quarter of 2020, revenue increased by 13% to RUB 135 billion, compared to the third quarter of 2019, as a result of the following factors:

During the nine months of 2020, revenue increased by 12% to RUB 383.9 billion, year-on-year, as a result of the following factors:

Operating income analysis

Operating expenses structure

In the third quarter of 2020, operating expenses increased by 11% compared to the corresponding period of 2019 and amounted to RUB 111.9 billion, largely due to the following factors:

During the nine months of 2020, operating expenses increased by 11% compared to the corresponding period of 2019 and amounted to RUB 323.3 billion, largely due to the following factors:

Operating profit in the third quarter of 2020 increased by 23% year-on-year to RUB 23.1 billion and increased by 18% year-on-year to RUB 60.6 billion for the nine months of 2020.

OIBDA for the third quarter and nine months of 2020 increased by 17% year-on-year to RUB 53.7 billion and by 15% year-on-year to RUB 149.6 billion respectively. OIBDA dynamics were driven by revenue growth and the above-mentioned factors, affecting operating expenses. The OIBDA margin increased by 1.5 p.p. at 39.8% in the third quarter of 2020 and by 1.0 p.p. to 39% during the nine months of 2020 compared to the corresponding periods of 2019.

Net Income Analysis

In the third quarter of 2020, profit before tax increased by 38% to RUB 15.4 billion, and by 24% to RUB 35.5 billion in the nine months of 2020, compared to the corresponding periods in 2019. These dynamics in the third quarter and the nine months of 2020 were mainly influenced by higher operating profit and foreign exchange losses arising on the weakening of the exchange rate in 2020.

Income tax in the third quarter of 2020 was RUB 3.4 billion compared to RUB 2 billion in the third quarter of 2019. Income tax in the nine months of 2020 was RUB 8 billion compared to RUB 5.8 billion in the nine months of 2019. The income tax dynamics was partly driven by higher year-on-year expenditures, which are not deductible for tax purposes.

Net profit increased by 31% in the third quarter of 2020 to RUB 12 billion, compared to the corresponding period last year, and in the nine months of 2020 - by 21% to RUB 27.4 billion versus the nine months of 2019.

Financial review

Net operating cash flow in the third quarter of 2020 increased by 32% to RUB 45.9 billion, compared to the corresponding period of 2019. The increase in net operating cash flow in the third quarter of 2020 was mainly due to the increase in operating cash flow, as well as the contraction in the working capital driven by higher payables and other liabilities. These in turn were related to the reflection of deferred revenues from a number of B2G contracts. Net operating cash flow in the nine months of 2020 decreased by 5% to RUB 78.8 billion, compared to the corresponding period of 2019, which was due to the factors that influenced this dynamic in the first six months of 2020.

Cash outflow for investments in non-current assets, excluding state programmes, increased by 30% to RUB 24.3 billion (18% of revenue) in the third quarter of 2020. Including state programmes this indicator grew by 39% to RUB 30.2 billion (22.4% of revenue). During the nine months of 2020, cash outflow for investments in non-current assets, excluding state programmes, increased by 13% to RUB 71 billion (18.5% of revenue) while increasing by 11% to RUB 83.8 billion (21.8% of revenue), state programmes included.

Free cash flow in the third quarter of 2020 increased by 26% to RUB 19.5 billion compared to the third quarter of 2019. Free cash flow during the nine months of 2020 was RUB 4.7 billion compared to RUB 14.6 billion during the corresponding period of 2019.

As at September 30, 2020, the Group's total debt has increased by 23% compared to the beginning of the year and amounted to RUB 443.3 billion, partially driven by the fundraising achieved to help complete the consolidation of Tele2. 100% of the Group's total debt remained rouble-denominated at that date.

As at September 30, 2020, the Group's net debt increased by 23% compared to the beginning of the year and amounted to RUB 410 billion. The net debt /OIBDA ratio over the last 12 months stood at 2.2x at that date.

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):  6177573

Confirmation Code (RUS):  1719269

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://www.webcast-eqs.com/register/rostelecom20201111/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/2020/3/.

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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:

APPENDIX 2: Statement of Comprehensive Income for the nine months of 2020.

APPENDIX 3: Statement of Cash Flows for the nine months of 2020.

APPENDIX 4: Statement of Financial Position for the nine months of 2020.

PJSC Rostelecom is the largest integrated digital services and products provider, operating in all segments of the telecommunications market in Russia. The Company serves millions of households, state and private enterprises across the country.

Rostelecom is Russia's undisputed market leader, providing high-speed Internet access and pay-TV. The total number of broadband users stands at over 13.4 mln users, it has more than 10.7 mln pay-TV customers, over 5.9 mln of which are subscribed to Rostelecom's IPTV services. Tele2 Russia, a Rostelecom subsidiary, is a major player in the mobile market with over 44 mln subscribers and the industry-leading NPS, a customer satisfaction benchmark.

During the nine months of 2020, the Group generated RUB 383.9 bln of revenues, RUB 149.6 bln of OIBDA (39% of revenue) and RUB 27.4 bln 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-centres 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.

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

[2] Here and below 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.

[3] International financial reporting standards.

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

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

[6] Average revenue per user

[7] Blended ARPU includes revenue from broadband, IPTV and digital cable TV

[8] Operator to Operator

[9] According to Romir holding data

[10] The amounts shown here do not correspond unaudited management interim condensed consolidated statement of profit or loss and comprehensive income for the nine-month period ended 30 September 2019 and reflect application of pooling of interest method applied to T2 RTK Holding LLC acquisition till 100% share

[11] The amounts shown here do not correspond unaudited management interim condensed consolidated statement of cash flows for the nine-month period ended 30 September 2019 and reflect application of pooling of interest method applied to T2 RTK Holding LLC acquisition till 100% share

[12] The amounts shown here do not correspond to the consolidated financial statements for the year ended 31 December 2019 and reflect adjustments made in connection with the completion the valuation of acquired net assets, with obtained control over them in 2019 and application of pooling of interest method applied to T2 RTK Holding LLC acquisition till 100% share