Full year 2013 highlights

When analysing the full-year 2013 results, it is important to consider the following:

The consolidation of the results of OJSC Svyazinvest and its subsidiaries

OJSC Svyazinvests subsidiaries Include Telecomcentre, OJSC Central Telegraph, CJSC Open Telecom, OJSC Giprosvyaz, OJSC Ingushelectrosvyaz, OJSC Chukotkasvyazinform, OJSC Bashinformsvyaz,,LLC Bashtelecomservice, LLC Bashtelecomleasing, LLC Bashtelecominvest, LLC Sterlitamak Building Service, OJSC Bashkortostan Mobile Network, OJSC Ufa Plant “Promsvyaz”, OJSC Moscow Inter-city Telephone Station No. 9 (MMTS-9).

The restatement of historic data from previous periods

The reorganisation in the form of merging OJSC Svyazinvest and 20 other companies (either directly or indirectly controlled by Rostelecom and/or Svyazinvest) is a transaction under common control. In accordance with the Company’s accounting policy under IFRS, such transactions are accounted for as if the acquisition was completed at the beginning of the earliest period that is presented in the financial statements, but not earlier than the date at which common control of the acquired company was established. For this reason, the comparative information, which is presented in the current financial statements, has therefore been revised to include data of the merged companies from the earliest comparative period presented in the financial statements, i.e. from 2011.

The separation of results from continuing operations and discontinued operations based on the decision to create a JV with Tele2 Russia

In relation to Rostelecom Board of Director’s decision to create a joint venture with Tele2 Russia by contributing its mobile assets to the JV and following the EGM’s approval on 30 December to spin off its integrated mobile assets into CJSC RT-Mobile, the Company presents results from continuing and discontinued operations separately in accordance with IFRS 5.
The Group’s continuing operations results are presented as if the mobile business was deconsolidated on the reporting date. Intergroup transactions between continuing and discontinued operations are not excluded from the continuing operations, but are presented as turnover from third parties. The results from the discontinued operations present the sum of the results of the mobile business operations and the losses from eliminating intergroup operations. A full transcript of the components can be found in Note 35 of the Group’s consolidated IFRS financial statements.

The presence of significant one-off revenues in the results for 2012

In march 2012 Rostelecom successfully completed the vast video surveillance project, which was carried out to monitor the Russian Presidential election voting process. This project added approximately RUB 11 billion of revenue to our top line.
  • Consolidated revenues up 1% year-on-year to RUB 325.7 billion (excluding one-off revenues in the first quarter of 2012). Revenues decreased by 2% year-on-year after factoring in one-off revenues;
  • OIBDA1 amounted to RUB 113.3 billion;
  • OIBDA margin of 34.8% compared to 36.2% in 2012, reflecting:
    • the absence of one-off revenues in 2013;
    • the effect of merging Svyazinvest and its subsidiaries as part of the second stage of the Company’s reorganisation;
    • the increasing share of revenues by fast-growing segments, which operate at a lower margin than traditional segments.
  • Net income of RUB 24.1 billion. Net income according to Russian Accounting Standards (RAS), which is used to calculate dividends for preferred shares, amounted to RUB 35.3 billion;
  • Capital expenditure2 of RUB 68.5 billion (21.0% of revenue);
  • Net debt3 of RUB 217.3 billion as at 31 December, 2013 with a net debt/OIBDA ratio of 1.9x;
  • Net cash from operating activities of RUB 85.7 billion with Free Cash Flow (FCF)4 of RUB 17.2 billion.

1 OIBDA is calculated as the sum of Operating profit and Depreciation, amortization and impairment losses.
2 Capital expenditure (“CAPEX”) comprises cash spent on fixed assets and intangible assets.
3 Net debt is calculated as total debt less cash, cash equivalents and short-term investments.
4 Free Cash Flow = net cash provided by operating activities less CAPEX.