SHAPING DIGITAL RUSSIA. Investor Presentation based on 9M 2017

Transcription

1 SHAPING DIGITAL RUSSIA Investor Presentation based on 9M 2017

2 Leading Provider of Integrated Telecommunications Services Overview Key FY 2016 # player across most segments of telecom and digital services mln households passed by fibre the largest fixed line network in Russia RUB bln RUB 96.8 bln RUB 13.3 bln 12.7 mln broadband subscribers with over 60% connected by fibre Revenue OIBDA FCF 9.7 mln pay TV subscribers with near 50% using IPTV Exposure to high-growth potential markets such as cloud services, TV services, data centre, Geodata and Industrial Internet of Things Structure (1) Other shareholders (free float) 32% State Property Agency 48.7% State stake 53% Exposure to Russian mobile data market via JV with Tele2 Russia (#4 mobile operator in Russia) (1) Ordinary shares. Treasury shares are represented by shares owned by Mobitel. Treasury shares 15% 4.3% 2

3 CAGR , % Transformation to a Digital Service Provider by 2020 as a Strategic Priority Market Size, RUB bln Source: iks Consulting, TMT-Consulting, Company estimates Broadband Pay TV VPN VAS&Clouds Telephony Other 28% 33% 21% 5% 7% 7% Share in Rostelecom s Revenue in 2015 & 2020, % Content & Digital Services 39% 44% ~60% 27% 29% 22% 6% 7% 8% 21% 22% 16% 25% 7% 10% F 3

4 Robust Growth of Subscriber Base and ARPU in B2C Broadband B2C Subscribers (mln) +4% YoY Pay TV Subscribers (mln) +5% YoY Q16 3Q16 4Q16 1Q17 2Q17 3Q17 +4% YoY Q16 3Q16 4Q16 1Q17 2Q17 3Q17 +9% YoY incl. Fibre Subscribers (mln) +10% YoY incl. IPTV Subscribers (mln) +16% YoY % YoY % YoY 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 ARPU 4

5 Development of Digital VAS & Strengthening of the Market-leading Positions Market Position in 3Q 2017 (by revenue) (1) 50% (2) in market net additions 38.4% +1.3 pp YoY 10.1% 31.7% +1.2 pp YoY 18.6% 73.1% Broadband Pay TV IPTV Rostelecom # pp YoY 70% (1) in market net additions 13.3% MVNO with Tele2 Russia Subscriber Base (mln, B2C+B2B) Q17 +45% QoQ Q17 Blended ARPU (2) (RUB) +7% YoY 2.5x YoY sales growth of Antivirus service % 65% Share of Network Personal Video Recorder (NPVR) users in IPTV subscriber base 3Q16 3Q17 3Q16 3Q17 (1) Source: TMT-Consulting estimates, Company data. Players #2 in terms of revenue shares are the following: ER-Telecom for Broadband, Tricolor TV for Pay TV and VimpelCom for IPTV. (2) Blended ARPU includes revenue from broadband, IPTV and digital cable TV. 5

6 Strong Results in В2В/G Segment Revenue in B2B/G (RUB bln) +7% YoY RUB mln +8 p.p. Additional revenue from Smart City projects in 3Q 2017 Share of fibre broadband subscribers 3Q16 3Q17 Agreements signed to develop and provide data centres infrastructure and "Virtual Data Center" service Broadband B2B/G Subscribers (mln) +1% YoY ,082 2,103 2,069 2,076 2, ,132 2,500 2,400 2,300 2,200 2,100 2,000 incl. Fibre Subscribers (mln) +27% YoY ,749 3,511 3,380 3,045 3,086 2,885 1,900 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 1,800 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 ARPU 6

7 Driven by Federal B2G Clients and New Services Performance Revenue from Federal B2G Clients (RUB bln) % YoY 3.6 Revenue from Broadband & VPN (RUB bln) % YoY 9.4 3Q16 3Q17 3Q16 3Q17 Revenue from New Services (RUB bln) 3х YoY 1.1 ТОP-6 New Services Revenue Growth 3.4x Wi-Fi 2.4х Videocomfort 0.4 Top-6 = 80% 2.6x Virtual Data Centre 1.6x TV for Business 3Q16 3Q17 2.6x New Telephony 1.6x Call-centre 7

8 Rostelecom s Smart City Platform 92 projects in 36 regions 12 projects in 9 regions Safe Roads E-learning Energy efficiency Electronic Teleradiology medical history in in 7 regions 18 regions 112 Hot Line Healthcare 37 projects in 17 regions CCTV Safety Platform E-Government > 34 mln subscribers (2016) Emergency Alert systems 229 projects in 67 regions Ecology Revenue from Smart City projects 7.2 RUB bln +68% projects in 12 regions YoY City Intellectual Transportation Platform 8

9 Rostelecom DataLine DataPro Linxtelecom Selectel Stack Group I-Teco DataSpace SDN CROC #1 Data Centres Strong Position Providing Basis for Solid Growth Rostelecom is the Largest Player (1) in the Fast Growing Market (2) 14% share (2) 4,000 4,130 Under construction Udomlya project % CAGR E 2020F Data Centres Portfolio 3,900 4,130 2,100 2, E Kaliningrad Saint-Petersburg Krasnodar Moscow Nizhny Novgorod Kazan Ufa Ryazan Stavropol Sochi Ekaterinburg Chelyabinsk Novosibirsk Khabarovsk (1) Source: CNews, Company data. (2) Source: TMT-Consulting, Company estimates. 9

10 Cloud Services Massive Opportunity Ahead Cloud Services Market Forecast (RUB bln) (1) F 2020F Rostelecom s Services 21% CAGR Cloud Services Market Structure in 2016 (1) 30-70% IaaS 35% PaaS 3% SaaS 61% National Cloud Platform Potential for ITinfrastructure cost savings TIONIX Cloud Platform (OpenStack based) New Telephony Virtual Office CloudControl Virtual Data Centre (VDC) (1) Source: SAP and Forrester. WEB-videoconference, etc. NodeControl Virtual Desktop Infrastructure (VDI), etc. 10

11 Leading Content Aggregator & Media JV Unique Content Proposition 220 channels Packages OTT video: Interactive TV 2.0 Including: 70 channels in HD 3 exclusive channels, incl. Paramount Channel Basic includes HD channels Additional include Viasat Premium HD, Amedia Premium, Your Ideal HD, PLUS Football, Our Football, Your Cinema, Adult, Your Premiere Access to premium content, best titles and free VOD library using internet connection from any provider Media JV with VGTRK Digital Television leading pay TV content provider in Russia with international presence Portfolio of 18 thematic TV channels Expansion to Latin America, India & China Strong results in 2016 Revenue (RUB bln) % YoY Leader with 30% share in thematic channels (1) Direct contracts with all major Hollywood studios Direct contracts with the key international independent producers (1) Source: TNS TV Index & TV Index Plus, Share, November 2016, Total Aud. 11

12 Mobile Joint Venture with Tele2 Russia Access to Growing Mobile Data Market 12% Revenue growth in k Base stations 65/48 Regions covered in total / covered with 4G networks 15% Share in Russian mobile market (by subscribers), player #4 in the total market (1) 120k/ 3.4k Total number of points of sale / monobrand retail shops B2B Upselling opportunities that became available after Moscow launch and nation-wide network rollout Player #3 In the 65 covered regions (2) Unique corporate culture based on strong cost management MVNO / Synergies F2M convergence opportunities through MVNO and cooperation on the B2O side (1) Source: AC&M Consulting as of 4Q (2) Source: Company data. 12

13 Launch of MVNO with Tele2 Russia F2M Convergence on Track MVNO subs, ths +45% QoQ Target 2020 up to 15% of fixed-line subscriber base Sep 15, 2016 First 5 MVNO regions launched Nov 16, 2016 MVNO launched in 65 regions +107% QoQ Q17 2Q17 3Q17 Rationale B2B/B2G clients to be upsold to mobile services Increase in B2C customer loyalty Creating opportunities for development of IIoT & M2M 13

14 Targets Principles Operational Efficiency Improvement Continued Personnel Optimisation M Average number of employees, ths Revenue per employee LTM, RUB mln -5% 2.2 Effect of Operational Efficiency Program F 2018F Planned Achieved Rostelecom s Production System & Operations Management Increase of personnel motivation and satisfaction Improvement of customer experience Ability to rapidly respond to market changes Efficiency and profitability increase Personnel productivity increase 20-30% Broadband / pay TV NPS Time to market of new services 35 / 38 3 months Operational expenses reduction 5-10% 14

15 Real Estate Portfolio Optimisation to Unlock Value Portfolio Breakdown in 2016 (sq.m mln) Total Regional capitals >2 sq.m mln ready for sale Real Estate Optimisation on Track in ths sq.m sold in 2016 RUB 3.1 bln from rent of Real Estate RUB 0.5 bln OPEX savings in 2016 RUB 3.3 bln income from sale of Real Estate (ex. fund with Sberbank) Real estate sub-fund with Sberbank created with RUB 4.0 bln of proceeds 15

16 Largest Network with Growing Fibre Penetration Bridging Digital Divide Northern Optical Stream Expansion of Fibre Coverage (mln households) Passed during the period Growth in Network Capacity (IP / MPLS, Tb/s) % % 18.0% Submarine Cable Magadan- Sakhalin-Kamchatka Capital Expenditures (RUB bln) & CAPEX/ Revenue (%) (1) 20.0% 19.0% M17 (1) Excluding BDD project in and mobile in

17 Balanced Approach to Last-Mile Upgrade Total HH in Russia Total HH Rostelecom 53 We use different last-mile solutions to meet our customer needs and ensure efficiency of our investments >4 Dense area PON/FTTB Rural area xdsl + wireless Rural area sponsored under BDD project Fibre + Public WiFi 17

18 Government Sponsored Bridging the Digital Divide Project A Nation Wide Project to Provide High Speed Internet Access to Rural Population. Rostelecom to own the networks Rostelecom is to construct fibre-optics and organize and maintain collective Internet access points Strong government commitment Nation wide scale Upside potential NPV positive, IRR > WACC Operational Highlights 20 1, , ths households passed , Target Settlements Fibre optic, ths km with Significant Upside Potential for Rostelecom Overview Upselling households for personal BB access and other VAS (on a commercial basis) Opportunity to accelerate the upgrade of existing networks from copper to fibre and expand its footprint through covering nearby towns Opportunity to accelerate the upgrade of existing networks from copper to fibre reducing the maintenance costs Envisaged Influence Revenue Revenue Network Coverage Operational Efficiency Financial Highlights* * Targets are based on the agreement signed in Note: Operating income is state-funded and is reported under other operating income year total Operating Income Cash CAPEX OPEX 18

19 Increasing Remuneration through Improved Dividend Policy Progressive YoY & 75% 45 But not less than RUB bln of Free Cash Flow In total for 3 years 19

20 Enhanced Long-term Incentive Programme Up to 1,000 employees to participate in the programme 3 annual cycles: 2017, 2018, 2019 Co-financing principle (share matching plan, SMP) Ordinary shares dedicated to the programme: up to 6.0% Additional shares are vested by the Company 6 months after participant s investments under the programme Senior management can participate in the 2 nd & 3 rd cycles if maintaining 50% of additional shares granted under previous cycles Key performance indicators: Free Cash Flow (FCF) Net Profit Return on Invested Capital (ROIC) Entitlement for additional share-based depends on participant s position, invested funds and individual performance 20

21 Key Financial Highlights FY 2016 & 9M 2017 RUB bln FY 2015 FY 2016 YoY 9M M 2017 YoY Revenue % % Content & Digital Services revenue % % OIBDA % % OIBDA margin 33.9% 32.5% -1.4 pp 33.4% 32.2% -1.2 pp Net Profit % % +4% +11% +21% Revenue growth in 3Q17 Growth in revenue from Content & Digital services in 3Q17 FCF growth in 3Q17 Free Cash Flow % na CAPEX % % Revenue Share of Content & Digital Services CAPEX / Sales 21.1% 20.8% -0.3 pp 21.6% 19.1% -2.4 pp CAPEX / Sales excl. BDD 20.0% 19.0% -1.0 pp 19.7% 18.0% -1.7 pp 44% 47% 3Q16 3Q17 21

22 Continuing Growth of All Key Services as a Foundation for 4% Revenue Growth 3Q & 9M 2017 Revenue Drivers Revenue Breakdown (%) RUB bln 3Q Q 2017 YoY 9М М 2017 YoY Content & Digital Revenue % % Broadband % % TV % % VAS & Cloud services % % VPN % % 19% 29% 3Q % 23% 6% 7% 8% 18% 25% 3Q % 7% 23% 8% 9% 44% 47% Content & Digital Services share Broadband Internet TV services VPN VAS & Cloud services Fixed telephony Wholesale services (ex. VPN) Other Fixed Telephony % % Revenue Dynamics (RUB bln) Wholesale Services (ex. VPN) % % Other % % +RUB 2.8 bln +3.9% Total Revenue % % * Content & Digital services = Broadband + TV + VAS & Cloud services + VPN 3Q 2016 Broadband TV VAS & Cloud services VPN Telephony Wholesale (excl. VPN) Other 3Q

23 3Q 2016 Revenue Payroll Interconnect Materials & Repair Gain on sale of PPE Bad debt expense Other operating income Other operating expense 3Q 2017 Revenue & OIBDA Dynamics in 3Q 2017 Revenue (RUB bln) +3.9% YoY +1.9% YoY OIBDA Dynamics (RUB bln) Q16 3Q16 4Q16 1Q17 2Q17 3Q M16 9M17 OIBDA (RUB bln) & OIBDA margin (%) 33.4% 31.6% 34.4% 32.7% 33.1% 30.3% 30.6% 32.2% Payroll (excl. ESOP) declined due to ongoing personnel optimization Interconnection charges increased along with the growth in corresponding revenue and higher content expenditures due to a growing subscriber base Increase in other operating expenses mainly caused by additional expenses for Smart City and State Automated System Justice projects 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 23

24 3Q 2016 OIBDA ESOP Depreciation Loss/(Income) from associates Finance costs Other investing and financial gain/(loss) FX net Tax 3Q 2017 Net Income & FCF Dynamics in 3Q 2017 Net Income (RUB bln) & Net Income margin (%) 4.1% 3.2% 5.6% 5.2% 4.5% 4.5% 3.8% 2.2% Q16 3Q16 4Q16 1Q17 2Q17 3Q17 9M16 9M17 Net Income Dynamics (RUB bln) Free Cash Flow (RUB bln) Allowance for a new long-term incentive programme (ESOP) was recorded in 3Q 2017 for 1Q-3Q 2017 Depreciation charges increased mainly due to commissioning of new objects in the end of 2016 Other investing and financial gains increased as a result of revaluation of financial instruments Decrease in losses from associates is mainly caused by better financial result of the JV with Tele2 Russia Q16 3Q16 4Q16 1Q17 2Q17 3Q M16 9M17 24

25 Increasing Efficiency of Capital Expenditures & Debt Portfolio CAPEX (RUB bln) & CAPEX / Revenue (%) 20.6% % 18.7% 17.1% Capex 25.1% % 16.0% 14.6% Q16 3Q16 4Q16 1Q17 2Q17 3Q % 19.7% % 18.0% M16 9M17 Total & Net Debt (RUB bln) Net Debt Total Debt Net Debt / OIBDA Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Total Debt Structure by Maturity (excl. %), RUB bln % by Type 3% by Currency 0.1% Q and onwards 78% Loans Bonds Other RUB 99.9% Other 25

26 2017 Outlook Revenue Up to 1.5% growth Upgraded OIBDA Up to 1% growth Reiterated CAPEX / Sales 18.5% Reiterated (excl. BDD) By providing this outlook, we reserve the right to revise or update it at any subsequent period in case of events which, in our opinion, can increase uncertainty, including but not limited to regulatory decisions, currency devaluation, consumer spending contraction, budget cuts, or any other macroeconomic events and decisions which can affect the Company s actual results. 26

27 Attachment Detailed Performance

28 Attachment P&L Statement RUB bln 1Q Q Q 2017 Growth Growth YoY - 3Q YoY 9M 1Q Q Q Q Revenue % 1.9% Operating expenses (62.343) (63.862) (66.438) 9.0% 2.2% (63.962) (63.523) (60.966) (69.159) ( ) Wages, salaries, other benefits and payroll taxes (23.923) (22.026) (22.504) 3.5% 0.0% (23.927) (22.797) (21.750) (21.866) (90.340) including stock option program (0.006) (1.836) 301.8% -10.2% (0.537) (0.571) (0.457) (1.347) Depreciation, amortization and impairment losses (13.470) (13.731) (13.983) 9.5% -2.5% (15.632) (13.849) (12.766) (13.342) (55.589) Interconnection сharges (10.775) (13.547) (13.671) 11.7% 3.5% (12.811) (11.652) (12.241) (15.457) (52.161) Materials, utilities, repair and maintenance (6.183) (5.682) (5.795) -3.4% 2.1% (5.885) (5.421) (5.998) (7.613) (24.917) Gain/(Loss) on sale and disposal of PPE and intangible assets % 8.7% Bad debt expense (0.656) (0.841) (1.121) 19.9% -2.1% (0.456) (1.284) (0.935) (0.100) (2.775) Other operating income % -6.6% Other operating expense (10.622) (11.911) (13.271) 27.4% 9.6% (10.685) (11.572) (10.419) (16.656) (49.332) Operating profit % -0.1% Operating Profit margin 11.5% 15.0% 12.1% 11.7% 11.5% 16.2% 14.0% 13.4% OIBDA % -1.7% OIBDA Margin 30.6% 32.7% 33.1% 34.0% 31.6% 34.4% 30.3% 32.5% Loss/(Income) from equity accounted investees (1.024) (0.715) (0.660) -56.1% -52.1% (1.918) (1.583) (1.503) (2.292) (7.296) Finance costs (3.666) (5.802) (4.067) -6.3% 6.4% (4.107) (4.275) (4.342) (4.451) (17.175) Other Investing and financial gain/(loss) (0.110) % 67.8% (0.133) Foreign exchange gain/(loss), net (0.082) (0.045) % % (0.353) (0.032) Profit before income tax % 13.8% Income tax expense (0.857) (1.769) (1.202) -37.9% 13.1% (0.767) (0.681) (1.936) (1.308) (4.692) Net profit % 14.1% Net profit margin 4.5% 3.8% 5.2% 4.1% 2.2% 5.6% 4.5% 4.1% 28

29 Attachment Revenue Structure RUB bln 1Q Q Q 2017 Growth YoY - 3Q Growth YoY 9M 1Q Q Q Q By services: Broadband Internet % 6.5% TV services % 17.1% Fixed telephony % -10.7% Wholesale services % 0.4% Rent of channels % -12.2% Interconnect and traffic transit % -0.5% VPN % 6.9% Rent & maintenance of telecommunication infrastructure % 2.8% VAS & Clouds % 19.5% Other telecommunication services % 20.0% Other non-telecommunication services % 12.1% Broadband Internet 24.9% 23.4% 23.2% 22.7% 23.1% 22.7% 21.5% 22.4% TV services 9.4% 9.1% 9.0% 7.7% 8.0% 8.2% 7.8% 7.9% Fixed telephony 29.0% 26.3% 25.3% 31.7% 30.7% 29.3% 26.4% 29.4% Wholesale services 24.7% 27.0% 26.0% 27.3% 25.4% 26.3% 27.3% 26.6% Rent of channels 3.4% 3.1% 3.0% 3.9% 3.7% 3.5% 3.1% 3.5% Interconnect and traffic transit 9.6% 11.9% 11.1% 12.2% 10.1% 11.2% 13.5% 11.8% VPN 7.2% 7.6% 7.7% 6.9% 7.3% 7.3% 6.6% 7.0% Rent & maintenance of telecommunication infrastructure 4.5% 4.4% 4.2% 4.2% 4.3% 4.3% 4.0% 4.2% VAS & Clouds 5.2% 6.6% 7.4% 4.3% 5.9% 6.2% 8.0% 6.1% Other telecommunication services 4.8% 5.0% 5.7% 4.2% 4.4% 4.6% 6.1% 5.0% Other non-telecommunication services 2.1% 2.6% 3.4% 2.1% 2.5% 2.8% 3.0% 2.6% By management units: B2C % 1.7% B2B/B2G % 3.6% B2O % -0.9% Other % 6.6% B2C 48.2% 44.9% 44.2% 46.4% 46.0% 45.0% 42.9% 45.0% B2B/B2G 33.2% 34.5% 35.7% 32.2% 34.8% 34.7% 35.6% 34.4% B2O 17.0% 19.1% 18.4% 19.9% 17.6% 18.6% 20.2% 19.1% Other 1.6% 1.6% 1.7% 1.4% 1.6% 1.7% 1.4% 1.5% Note: Fixed telephony and other telecommunication services revenues for 1Q-3Q 2016 have been restated due to relocation between the revenue lines. 29

30 Attachment Balance Sheet RUB bln 3/31/2017 6/30/2017 9/30/2017 3/31/2016 6/30/2016 9/30/ /31/2016 Non-current assets Property, plant and equipment Investment property Goodwill and other intangible assets Trade and other accounts receivable Investment in associates Other investments Other non-current assets Total non-current assets Current assets Inventories Trade and other accounts receivable Prepayments Prepaid income tax Other investments Cash & cash equivalents Other current assets Total current assets Assets held for sale TOTAL ASSETS Equity Share capital Additional paid in capital Treasury shares (67.034) (64.602) (65.556) (68.669) (67.031) (66.932) (67.034) Retained earnings and other reserves Non-controlling interest Total equity Non-current liabilities Loans and borrowings Employee benefits Deferred tax liabilities Other non-current liabilities Total non-current liabilities Current liabilities Loans and borrowings Accounts payable Other current liabilities Total current liabilities TOTAL EQUITY AND LIABILITIES Net debt Net debt / OIBDA LTM 1.9х 1.9х 2.0х 1.7х 1.9х 1.9х 1.8х Gross debt

31 Attachment Cash Flow Statement RUB bln 1Q H M Q H M Cash flows from operating activities Profit before income tax Adjustments to reconcile profit before taх to cash generated from operations: Depreciation, amortization and impairment losses (Gain)/Loss on sale and disposal of PPE and intangible assets (0.154) (0.796) (1.481) (0.498) (0.961) (1.363) (4.556) Bad debt expense (Income)/Loss from equity accounted investees Finance costs excluding finance costs on pension and other long-term social liabilities Other Investing and financial (gain)/loss (0.481) (0.371) (1.074) (0.551) (0.773) (0.640) (1.061) Foreign exchange (gain)/loss, net (0.123) (0.041) (0.741) (0.388) (0.547) (0.515) Share-based payment expenses (0.004) (0.382) Changes in net working capital: (3.218) (13.596) (15.465) (1.496) (10.748) (13.819) (8.608) (Increase) / decrease in accounts receivable (4.662) (9.545) (12.231) (6.018) (6.862) (9.258) (3.941) (Decrease) / increase in employee benefits (0.242) (0.065) (0.169) (0.001) (0.013) (0.561) (Increase) / decrease in inventories (0.236) (0.345) (0.045) (0.615) (2.351) (Decrease) / increase in accounts payable, provisions and accrued expenses (2.544) (0.441) (1.560) (2.142) (Decrease) / increase in other assets and liabilities (1.538) (1.206) (2.279) (1.479) (2.268) (1.932) (3.131) Cash generated from operations Interest paid (4.823) (8.624) (13.700) (4.764) (9.333) (14.383) (18.410) Income tax refund Income tax paid (0.414) (1.355) (1.975) (2.212) (3.624) (3.822) (4.383) Net cash provided by operating activities Cash flows from investing activities Purchase of PPE and intangible assets (17.714) (30.165) (42.290) (18.964) (33.768) (46.797) (61.857) Proceeds from sale of PPE and intangible assets Acquisition of financial assets (1.484) (7.264) (9.575) (2.767) (4.560) (5.737) (9.736) Proceeds from disposals of financial assets Interest received Dividends received Purchase of subsidiaries, net of cash acquired (0.064) (0.064) (0.064) (2.438) (2.438) (2.438) Acquisition of equity accounted investees (0.030) (0.778) (0.778) (0.778) (2.778) Proceeds from disposals of equity accounted investees (0.001) (0.001) (0.001) (0.001) Net cash used in investing activities (16.181) (31.679) (43.112) (18.180) (34.799) (46.395) (56.950) Cash flows from financing activities Sale of treasury shares Purchase of treasury shares (0.981) (0.314) Proceeds from bank and corporate loans Repayment of bank and corporate loans ( ) ( ) ( ) ( ) ( ) ( ) ( ) Proceeds from bonds Repayment of bonds (9.285) (20.418) (2.734) (2.734) (2.734) (2.734) Repayment of vendor financing payable (0.002) (0.005) (0.007) (0.002) (0.005) (0.007) (0.009) Proceeds from / (repayment of) other non-current financing liabilities (0.002) (0.005) (0.001) Repayment of finance lease liabilities (0.012) (0.061) (0.089) (0.001) (0.073) (0.116) (0.160) Acquisition of non-controlling interest (2.255) (2.255) Dividends paid to shareholders of the Group (12.195) (13.295) (13.295) Dividends paid to non-controlling shareholders of subsidiaries (0.183) (0.012) (0.045) (0.248) (0.258) Options settlement repayments (0.103) (0.209) (0.209) (0.125) (0.231) (0.231) (0.319) Net cash used in financing activities (2.432) (12.679) Net (decrease)/increase in cash and cash equivalents (2.914) (2.021) (3.525) (2.738) (2.908) Effect of exchange rate changes on cash and cash equivalents (0.215) (0.135) (0.182) (0.261) (0.364) (0.369) (0.456) Cash and cash equivalents at beginning of year Cash and cash equivalents at the end of period FCF (2.309) (3.953) (2.427) (8.171) (2.320)

32 Attachment Operational Data 1Q Q Q Q Q Q Q Q 17/16 2Q 17/16 3Q 17/16 SUBSCRIBERS, MLN Local telephony % -7.0% -7.2% B2C % -7.6% -7.7% B2B % -3.9% -5.0% Broadband by client type % 4.6% 3.4% B2C % 4.7% 3.6% B2B % 3.6% 0.8% Broadband by technology % 4.6% 3.4% xdsl % -6.1% -6.2% FTTx % 12.7% 10.2% xdsl 39% 38% 38% 44% 43% 41% 40% 40% FTTx 61% 62% 62% 56% 57% 59% 60% 60% Pay TV % 5.7% 5.4% IPTV % 18.1% 16.4% Cable TV % -3.5% -3.3% IPTV 47% 48% 49% 41% 43% 44% 46% 46% Cable TV 53% 52% 51% 59% 57% 56% 54% 54% Mobile (MVNO with Tele2) ARPU, RUB Broadband B2C % 3.9% 4.2% B2B 2,076 2,051 2,132 2,114 2,082 2,069 2,103 2, % -1.5% 3.0% incl. Broadband FTTx B2C % 4.0% 4.0% B2B 3,045 3,086 2,885 3,821 3,749 3,511 3,380 3, % -17.7% -17.8% Local telephony B2C % -3.2% -2.6% B2B % 2.1% 2.9% Pay TV (B2C) % 12.4% 9.0% incl. IPTV % 11.6% 5.7% Note: Subscriber base and ARPUs for 2016 have been restated due to changes in methodology. 32

33 Disclaimer By attending any meeting where this presentation is made, or by reading any part of this presentation, you acknowledge and agree to be bound by the following: This presentation has been prepared by PJSC Rostelecom (the Company ). This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form, in whole or in part. The Company has included its own estimates, assessments, adjustments and judgments in preparing certain market information herein, which have not been verified by an independent third party. Market information included herein is, therefore, unless otherwise attributed exclusively to a third party source, to a certain degree subjective. While the Company believes that its own estimates, assessments, adjustments and judgments are reasonable and that the market information prepared by the Company appropriately reflects the industry and the markets in which it operates, there is no assurance that the Company s own estimates, assessments, adjustments and judgments are the most appropriate for making determinations relating to market information. Neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. This presentation is confidential and does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation is not intended for publication or circulation in the United States. This presentation does not constitute and should not be construed as an offer to sell or the solicitation of an offer to buy securities in the United States or to any U.S. person (as defined in Regulation S under the US Securities Act of 1933 (the Securities Act )). No securities of the Company have been, nor will be, registered under the Securities Act or the securities laws of any state of the United States, and unless so registered may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This presentation does not constitute a public offering or an advertisement of securities in the Russian Federation and does not constitute an offer or a proposal to make offers or to acquire any securities in the Russian Federation. In any member state of the European Economic Area, this Presentation is made to and directed only at persons who are qualified investors within the meaning of article 2(1)(e) of the Prospectus Directive (2003/71/EC) ( Qualified Investors ). In addition, in the United Kingdom, this Presentation is made to and directed at: (i) investment professionals falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ) and (ii) high net worth individuals, and other persons to whom it may lawfully be communicated, falling within article 49(2)(A) to (D) of the Order (such persons together with Qualified Investors, being Relevant Persons ). In these jurisdictions, persons who are not Relevant Persons must not rely on or act upon the information contained in this presentation or any of its contents. Any investment or investment activity to which this Presentation relates is only available to Relevant Persons and will be engaged in only with Relevant Persons. The recipients of the information contained herein should not base any behavior that would amount to market abuse for the purposes of the Financial Services and Markets Act 2000 ( FSMA ) and the Code of Market Conduct made pursuant to the FSMA on the information in this Presentation or any information provided or discussed in connection with it. This presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. Persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions 33

34 CONTACTS Investor Relations Office +7 (499) Web: 34