ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER OF 2017

rostelecom announces its ifrs financial and operating results for the third quarter of 2017

DIGITAL TRANSFORMATION DELIVERS STRONG TOPLINE GROWTH OF 4%

Moscow, Russia - November 2, 2017 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), Russia's national telecommunications operator, today announces its consolidated financial results for the third quarter of 2017 and nine months of 2017 prepared in accordance with IFRS[1].

KEY ACHIEVEMENTS

THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS

Key figures for 3Q 2017, RUB mln

NINE MONTHS OF 2017 FINANCIAL HIGHLIGHTS

Key figures for the nine months of 2017, RUB mln

Mikhail Oseevskiy, President of Rostelecom, commented:

We are delighted to demonstrate robust topline growth the second consecutive quarter. The main driver for the 4% increase in revenues was the continuous increase in the subscriber base in our core broadband and IPTV markets, growing ARPU for these services and the rapid progress of our cloud services. The double-digit revenue growth of our large on-going regional Smart City projects has also played a significant role to replace traditional voice services and to grow our digital segment in general.

As far as the operating income before depreciation and amortization is concerned, we have reached stable results in the reporting quarter year-on-year.

The growing capabilities of our new business segments have had a major influence on our results. Underpinning this is a solid digital transformation strategy, which has been designed to clearly address the current challenges and priorities of both the telecom industry and the Russian economy in general. We are at the forefront of the shift to a digital economy which is opening up tremendous new opportunities during this fourth industrial revolution. We have entered a new economic environment, where success is underpinned by operational excellence and optimum use of resources and capacities. Rostelecom is securing a solid niche by helping its clients thrive in such an environment by providing a robust infrastructure base and service platforms for both the state and the private sector, which is providing improvements in life quality and conditions.

We are already moving in this direction and are putting a lot of our efforts to achieve this. In order to support technological start-ups, Rostelecom has launched a joint acceleration programme with the Internet Initiatives Development Fund (IIDF) and Skolkovo Foundation. The programme targets computer equipment and software development projects to develop virtual telecommunications networks and Data Processing Centers, as well as exciting ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars, drones.

The most important event in this business stream was the launch of a so-called "virtual digital sandbox" by Rostelecom - a platform for testing technological solutions within a real infrastructure. The biometric identification space has developed rapidly around the globe, and Russia is no exception. We are working on the development of a "National Biometric Platform" which will enable users to be identified simultaneously by their faces and voices, and we plan to introduce this service to the market by the end of 2018. Projects like this have enabled Rostelecom to make a quantum leap in the international scene as a technological leader which will underpin our sustainable growth.

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

"The impressive results in revenue in the third quarter of 2017 prove that we are delivering on our digital transformation plan to become a leading digital services provider. This strategy along with Russia's stable economic environment and positive prospects for business growth, stemming from growing digitalization trends across private and public segments enable us to confidently improve our future revenue forecast and maintain our outlook for the year in terms of OIBDA and CAPEX. We therefore expect to deliver revenue growth of up to 1.5%, and an increase in OIBDA within 1%. We also expect a CAPEX to Revenue ratio of approximately 18.5% excluding the implementation of the Bridging the Digital Divide project."

KEY OPERATING HIGHLIGHTS

 The B2C subscriber base grew by 4% to 11.9 million, whilst the number of subscribers connected by fibre optic increased by 10% year-on-year to 7.6 million (64% of the subscriber base).

 The number of IPTV subscribers increased by 16% year-on-year to 4.7 million.

KEY EVENTS RELATING TO 3Q 2017 AND AFTER THE END OF THE REPORTING PERIOD

Business news

 Rostelecom launched a new "Video surveillance" service which allows monitor households remotely from anywhere in the world;

 Rostelecom introduced a new comprehensive package "Plus Account" for small and medium-sized business, which enables clients to enjoy traditional and digital services within a single plan and account;

 The subscribers of the "Gaming" tariff plan can now enjoy a new exclusive frigate "Admiral Makarov" in the popular naval game "World of Warships"; the technical performance of the T-44-100 (P) tank has also been improved;

 New tariffs for "Interactive TV for businesses" and "TV for hotels" with PMS[12] integration, as well as additional "Sport" packages were introduced;

 Rostelecom improved the functionality of its services and enhanced its product offering for corporate and state clients within a range of services including "Hosted PBX", "Web conferencing", "managed communication services", "Virtual Data Processing Centre", and "information security";

 Rostelecom continues to enhance the fixed telephony proposition:

 Special offers within the MVNO project were launched, including "mobile phones by interest-free instalments", "video traffic in sets", and a brand-new "For all" tariff option was designed and introduced for families. This helped the MVNO subscriber base grow to 0.7 mln users.

 Sales of Rostelecom's antivirus service to our residential clients grew by more than 2.5 times in the reporting period;

 Rostelecom has entered into a Service Agreement with the Russian Ministry of Telecom and Mass Communications to provide state and municipal healthcare organizations with High Speed Internet Access (HSIA) in 2017. The contract value is RUB 1.93 billion;

 Rostelecom successfully delivered the video surveillance of elections at polling stations and local electoral committees on the Single day of voting on 10th of September of 2017;

 Rostelecom successfully delivered the video surveillance of the Unified State Exam in 2017, which contributed RUB 1 billion of revenue;

 Rostelecom signed a Memorandum for the establishment of the National consortium of projects for digital technologies development and integration in urban infrastructure. This is being implemented within Russia's strategy to create 50 Smart Cities across the country which will be put in place in future;

 Rostelecom, The Internet Initiatives Development Fund (IIDF) and Skolkovo have started to select IT start-ups to participate in a joint acceleration programme. The companies will support computer equipment and software development companies to start-ups ventures in IoT and IIoT, cybersecurity, video analytics, computer vision technologies, connected cars, drones and smart cars;

 Rostelecom and Publishing House Prosveshcheniye created a JV to combine capabilities to create and promote a digital educational platform;

 Rostelecom and Digital Security have signed agreements to jointly monitor information security and the exchange of data, technologies and competences in this space;

 Rostelecom, Skolkovo and Nokia have signed a cooperation agreement to create a pilot site for a new generation 5G network in Skolkovo;

 The roadmap for the National Biometric Platform development programme was approved;

OPERATING REVIEW

Revenue analysis

Revenue structure by services

Revenue structure by customer segments

In the third quarter of 2017, revenue increased by 4% year-on-year to RUB 75.6 billion as a result of the following factors:

In the nine months of 2017, revenue increased by 2% year-on-year to RUB 221.2 billion as a result of the following factors:

Operating income analysis

Operating expenses structure

In the third quarter of 2017, operating expenses increased by 9% compared to the corresponding period of 2016 and amounted to RUB 66.4 billion due to the following factors:

In the nine months of 2017, the operating expenses increased by 2% compared to the corresponding period of 2016 and amounted to RUB 192.6 billion due to the following factors:

Operating profit decreased by 22% year-on-year to RUB 9.2 billion in the third quarter of 2017, compared to the corresponding period of 2016. On a nine-month basis, operating profit changed very moderately year-on-year to RUB 28.6 billion in the nine months of 2017.

OIBDA for the third quarter of 2017 changed moderately to RUB 25.0 billion. OIBDA for the nine months of 2017 decreased by 2% to RUB 71.2 billion. The third quarter OIBDA margin was 33.1% in the third quarter of 2017 compared to 34.4% in the corresponding period of 2016. The OIBDA margin was 32.2% in the nine months of 2017 compared to 33.4% in the corresponding period of 2016.

Net Income Analysis

In the third quarter of 2017, profit before tax reached RUB 5.1 billion compared to RUB 6.0 billion in the corresponding period in 2016. In the nine months of 2017, profit before tax increased by 14% to RUB 13.5 billion.

The dynamics in profit before tax in the third quarter of 2017 was mainly driven by the following factors:

Profit before tax in the nine months of 2017 was mainly influenced by the following factors:

Income tax in the third quarter of 2017 decreased by 38% to RUB 1.2 billion. Income tax in the nine months of 2017 increased by 13% to RUB 3.8 billion. The income tax dynamics reflect the changes in profit before income tax.

The effective income tax rate was 24% in the third quarter of 2017, and 28% in the nine months of 2017 compared to the rate of 20% set by the Tax Code. The higher income tax rate in the third quarter of 2017 was driven by the non-deductible expenses for taxation purposes.

Net profit decreased by 4% in the third quarter of 2017 and totalled to RUB 3.9 billion, and by 14% to RUB 9.9 billion in the nine months of 2017.

Financial review

Consolidated net operating cash flow in the third quarter of 2017 decreased by 1%, to RUB 18.0 billion, compared to the corresponding period of 2016, and increased by 1% to RUB 42.8 billion in the nine months of 2017. This decrease in consolidated net operating cash flow in the third quarter of 2017 was partly caused by higher profit tax payments and lower profit tax refunds.

Higher profit tax refunds in the nine months of 2017, lower profit tax payments as well as decrease in interest rate payments, had a positive effect on the Company's consolidated net operating cash flow in the nine months of 2017.

Consolidated cash outflow for investments in non-current assets decreased by 7% year-on-year to RUB 12.1 billion in the third quarter of 2017. Excluding the "Bridging the Digital Divide" project, cash outflow decreased by 11% year-on-year to RUB 11.0 billion (14.6% of revenue). Consolidated cash outflow for investments in non-current assets in the nine months of 2017 decreased by 10% year-on-year to RUB 42.3 billion. Excluding the "Bridging the Digital Divide" project, cash outflow for investments in non-current assets decreased by 7% year-on-year to RUB 39.9 billion (18.0% of revenue). These trends were driven by the uneven distribution of capital expenditure across the calendar year in accordance with the terms of signed contracts.

Consolidated free cash flow improved by 21% in the third quarter of 2017 and totalled RUB 7.1 billion. Consolidated free cash flow improved in the nine months of 2017 and totalled RUB 3.1 billion compared to RUB (2.3) billion in the corresponding period of 2016. The free cash flow dynamics were driven by a lower consolidated cash outflow for investments in non-current assets.

As at September 30, 2017, the Group's total debt increased by 8% compared to the beginning of the year, and amounted to RUB 201.4 billion. Over 99% of the Group's total debt was rouble-denominated as at September 30, 2017.

As at September 30, 2017, the Group's consolidated net debt amounted to RUB 191.2 billion. A net debt /OIBDA ratio stood at 2.0x for the past twelve months ended in third quarter of 2017.

OTHER INFORMATION: CONFERENCE CALL

Rostelecom's management will hold a conference call and webcast today at 6.00 PM (Moscow), 5.00 PM (CET), 3.00 PM (UK) and 11.00 AM (NYT). To participate in the conference call, please dial:

Russia:  +7 495 213 1767

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

USA: + 1 719 325 2202

Confirmation Code (ENG): 8843752

Confirmation Code (RUS): 7556406

A webcast of the conference call in English (simultaneous translation from Russian) will only be available in English. To access the webcast please follow the link http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=5503.

A replay of the conference call will be available on the Company's website http://www.rostelecom.ru/ir/results_and_presentations/financials/IFRS/2017/3/ in due course.

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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 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.

APPENDIX 2: Statement of Comprehensive Income for 9M 2017 (to be upd)

APPENDIX 3: Statement of Cash Flows for 9M 2017 (to be upd)

APPENDIX 4: Statement of Financial Position for 9M 2017

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 12.7 million fixed-line broadband subscribers and over 9.7 million pay-TV subscribers, over 4.7 million of which are subscribed to Rostelecom's IPTV services.

In the nine months of 2017, the Group generated RUB 221.2 billion of revenues, RUB 71.2 billion of OIBDA (32.2% of revenue) and RUB 9.9 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.

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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] International financial reporting standards.

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

[3] Company's data, estimates from the analytical agency TMT Consulting

[4] Company's 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 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

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

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

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

[11] Here and below 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

[12] Property management system

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

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

[15] On the JSC "RTcomm.ru" project to provide satellite internet service to Far East