ROSTELECOM PJSC: ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND OPERATING RESULTS FOR THE THIRD QUARTER OF 2018

rostelecom announces its ifrs financial and operating results

 for the third quarter of 2018

DIGITAL SEGMENT CONTRIBUTION UP TO 55% OF TOTAL REVENUE

Moscow, Russia - November 1, 2018 - Rostelecom PJSC (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest digital service provider in Russia, today announces its consolidated financial results for the third quarter of 2018 prepared in accordance with IFRS[1],[2].

KEY ACHIEVEMENTS

THIRD QUARTER 2018 FINANCIAL HIGHLIGHTS

Key figures for 3Q 2018, RUB mln

NINE MONTHS OF 2018 FINANCIAL HIGHLIGHTS

Key figures for the nine months of 2018, RUB mln

Mikhail Oseevsky, President of Rostelecom, commented:

"The robust top line growth for the third quarter of 2018 was accompanied by very strong bottom line performance. Total revenue increased by 5%, OIBDA, by 9% and net income by almost 50%. These achievements were mainly driven by the expansion of the digital and content services segment, which showed remarkable progress, and now accounts to 55% of revenue.

We are committed to further developing our digital unit. We are focusing on introducing technologies that make a difference to our customers, in a way that improves daily life by maximising comfort and convenience. We are no longer fixated on achieving a set number of connections, our technologies now have the capability to touch entire areas of our customers' lives. We are creating entire digital ecosystems, where every client will find solutions that meet their individual needs. This approach forms the basis of our new brand, which we presented in September this year. The new positioning incorporates our digital services and tariff lines in harmony with the transforming marketplace and the priorities we have set ourselves.

The multimedia platform Wink was 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, with extremely user-friendly functionality, 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 that grows monthly by 1tb. This is a service with unique features and storage capacities, available exclusively to Rostelecom's clients.

Another area that we have been actively integrating into our ecosystem is online education. We launched Rostelecom Lyceum, a platform that will reframe supplementary school education in Russia, significantly enhancing its quality, safety and availability. For entrepreneurs, we also launched an updated platform "Plus Account" that ensures high speed Internet connectivity and mobile communication, with extra services also offered, such as a Hosted PBX, SMS advertising, Wi-Fi, video surveillance and TV for business.

We have further expanded our digital offering by launching a range of additional solutions. We launched the Unified Biometrics System which is one of the key elements of the remote identification mechanism that provides remote access to financial services for citizens. As part of this project we also introduced "Rostelecom Key", a mobile app that identifies customers remotely using our Unified Biometrics System. The practical and secure nature of this solution led to the signing of a deal with Tinkoff Bank to integrate it with its own infrastructure and become the first vendor in Russia. The JV with Nokia marks another significant event this year and represents an important milestone when it comes to setting the backdrop for developing innovative technologies. It is also worth mentioning the 5G network-based testing infrastructure for unmanned vehicles that we launched in Skolkovo.

We continue to successfully implement highly strategic state projects for the Russian government. Public funding enabled us to further expand the number of high-speed connections in Russian healthcare centres and across remote areas. We also successfully provided video surveillance on the Single Voting Day at polling stations.

Our achievements reflect major commitment and delivery on our strategic objectives. This paves the way for the Company to propose the payment of an attractive interim dividend for the nine months of 2018, subject to approval at our next extraordinary general meetingat the end of December, thus distributing a part of the annual dividend sooner than planned".

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

"Rostelecom's results for the nine months of 2018 reflect our confident outlook for the future development of the digital segment. In addition to expanding our digital segment, we are introducing measures that are improving internal efficiency. This complements the efficiencies we are realising through in part the optimisation of our real estate portfolio. We expect our performance to continue to improve across all key financial indicators. We therefore raise our full year forecast for revenue growth and anticipate an increase in revenue of more than 3%. We expect an OIBDA margin of more than 31.5%, with CAPEX of RUB 60-65 billion, excluding the implementation of government programmes."

KEY OPERATING HIGHLIGHTS

Total subscriber base

 The number of IPTV subscribers increased by 9% to 5.1 million;

B2C subscriber base

KEY EVENTS RELATING TO 3Q 2018 AND AFTER THE END OF THE REPORTING PERIOD

Business news

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

 Rostelecom launched a product family of OTT media services under the "Wink" brand: the application was downloaded by more than 480,000 users on mobile and SmartTV gadgets within just a few days of its launch;

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

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

 As part of the "Gaming" tariff plan, a special fighter aircraft "Yak-3T" is now available in the famous aerial combat action game World of Warplanes;

 New tariff lines "Speed" and "Call" were launched for SMEs;

 As part of the "Smart Home" ecosystem:

 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:

 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 completed a large-scale project for the transfer of Alrosa's subscribers to a new digital platform in Sakha Republic (Yakutia);

 A JV with Nokia to develop innovation technologies was signed;

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

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

 The "Antivirus" services revenues posted more than twofold growth in the last 12 months in retail segment and eightfold growth across business and state client base.

Other news

OPERATING REVIEW

Revenue analysis

Revenue structure by services

Revenue structure by customer segments

In the third quarter of 2018, revenue increased by 5% to RUB 79.4 billion, compared to the third quarter of 2017, as a result of the following factors:

During the nine months of 2018, revenue increased by 5% to RUB 233.0 billion, compared to the nine months of 2017, as a result of the following factors:

Operating income analysis

Operating expenses structure

In the third quarter of 2018, operating expenses increased by 3% compared to the corresponding period of 2017 and amounted to RUB 68.5 billion, largely due to the following factors:

In the nine months of 2018, the operating expenses increased by 7% compared to the corresponding period of 2017 and amounted to RUB 205.3 billion due to the following factors:

Operating profit increased by 19% year-on-year to RUB 10.9 billion in the third quarter of 2018, compared to the corresponding period of 2017. Operating profit decreased by 3% year-on-year to RUB 27.6 billion in the nine months of 2018.

OIBDA for the third quarter of 2018 increased by 9% year-on-year to RUB 27.3 billion. OIBDA for the nine months of 2018 increased by 5% to RUB 74.9 billion. The OIBDA margin increased by 1.4 p.p. to 34.4% in the third quarter of 2018. OIBDA margin reached 32.1% in the nine months of 2018 compared to 32.1% in the corresponding period of 2017.

Net Income Analysis

In the third quarter of 2018, profit before tax increased by 42% to RUB 7.2 billion, compared to the corresponding period in 2017. In the nine months of 2018, profit before tax increased by 21% to RUB 16.6 billion.

These dynamics were influenced by the following factors:

The increase in profit before tax in the nine months of 2018 can be attributed to the following factors:

Income tax in the third quarter of 2018 increased by 28% to RUB 1.5 billion. Income tax in the nine months of 2018 increased by 4% to RUB 4.0 billion.

The effective income tax rate was at 21% in the third quarter of 2018, and 24% in the nine months of 2018 compared to the 20% rate set by the Tax Code. A higher income tax rate in the third quarter of 2018 and the nine months of 2018 was driven by the non-deductible expenses for taxation purposes.

Net profit increased by 46% in the third quarter of 2018 and totalled RUB 5.7 billion, and by 28% to RUB 12.7 billion in the nine months of 2018.

Financial review

Net operating cash flow in the third quarter of 2018 decreased slightly and amounted to RUB 18.3 billion, compared to the corresponding period of 2017, and decreased by 11% to RUB 38.2 billion in the nine months of 2018. The decrease in net operating cash flow in the nine months of 2018 was mainly due to changes in working capital, which was partly driven by an increase in accounts receivables for one-off projects in 2018. Changes in tax liabilities also had an impact on net operating cash flow in the nine months of 2018.

Cash outflow for investments in non-current assets increased by 35% to RUB 16.3 billion in the third quarter of 2018. Excluding the state programmes, this figure increased by 28% to RUB 14.1 billion (17.8% of revenue). Cash outflow for investments in non-current assets increased by 9% to RUB 45.9 billion in the nine months of 2018. Excluding the state programmes, this figure decreased by 3% to RUB 38.7 billion (16.6% of revenue). These trends were driven by an uneven distribution of capital expenditure across the calendar year in accordance with the terms of signed contracts.

Free cash flow in the third quarter of 2018 totalled RUB 3.4 billion compared to RUB 7.1 billion in the corresponding period of 2017. Free cash flow in the nine months of 2018 totalled RUB (3.3) billion compared to RUB 3.1 billion in the corresponding period of 2017.

As at September 30, 2018, the Group's total debt increased by 12% compared to the beginning of the year and amounted to RUB 213.6 billion. Over 99% of the Group's total debt was rouble-denominated as at September 30, 2018.

As at September 30, 2018, the Group's net debt increased by 12% and amounted to RUB 203.3 billion. The net debt /OIBDA ratio stood at 2.0x for the past twelve months ended in the last 12 months 2018.

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 9.00 AM (NYT). To participate in the conference call, please dial:

UK/ International:   +44 (0)330 336 9125

USA:    +1 646 828 8193

Russia:    +7 495 213 1767

Confirmation Code (ENG):  3083345

Confirmation Code (RUS):  7509555

A webcast of the conference call will only be available in English. To access the webcast please follow the link: https://webcasts.eqs.com/rostelecom20181101.

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/2018/3/.

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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:

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 nine 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 nine months of 2018

APPENDIX 5: Statement of Financial Position for the nine 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.

PAO 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 10.1 million pay-TV subscribers, over 5.1 million of which are subscribed to Rostelecom's IPTV services.

In the nine months of 2018, the Group generated RUB 233.0 billion of revenues, RUB 74.9 billion of OIBDA (32.1% of revenue) and RUB 12.7 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, 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 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

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