Rostelecom Meets the New Year of 2013 with Actualized Strategy, Approved Budget and New Risk Management System

MOSCOW--()--

27 December 2012. OJSC Rostelecom (the “Company” or “Group”) (MICEX-RTS: RTKM, RTKMP; OTCQX: ROSYY) announces that at its meeting on December 26, 2012, the Company’s Board of Directors approved an updated strategy blueprint of the Company development for 2013-2017, prepared pursuant to requirements of the Federal Agency for the State Property Management (Rosimuschestvo).

Ivan Rodionov, Chairman of the Board of Directors, said: “We have actualized the Strategy taking into account the market dynamics and focusing on growth segments like fixed and mobile data, Pay TV and innovative services. In legacy segments we are more focused on cost optimization.”

The newly approved strategy takes into account market trends and updated launch dates of the Company’s UMTS networks, including those in Moscow and St. Petersburg.

The updated strategy emphasizes the difference between managing Rostelecom fixed-line business (fixed-line communications, as well as fixed broadband access, IPTV, VPN) and the Company’s key growth drivers (innovative cloud services and mobile business, primarily Wireless Broadband (WBB). The fixed-line business currently accounting for significantly more than half of the Company revenues is expected to decline over the five year term, as well as its profitability. Fixed-line telephony revenues dynamics are expected to be offset by revenue from broadband and IPTV.

According to the strategy, growth in innovative cloud services and WBB will enable Rostelecom to growth in line with the Russian telecom market (CAGR over the period 2013-2017 is expected to be around 6%1) or slightly over the market. This forecast is in line with the previous high single digit revenue growth guidance.

The business growth will be facilitated by focusing CAPEX on developing broadband access, Pay TV and transport network (accounting for 60% of the total CAPEX over 2013-2017), and on the mobile segment (24% of the total CAPEX over the same period). The remaining CAPEX will be spent on innovations etc. The average over 2013-2017 CAPEX to revenue ratio is expected around 14%, mainly due to the finalization of roll-out of IT systems and passing the investments pick in innovations segment after 2014.

The second ambitious goal for the years to come is cost cutting in the fixed-line segment. The ultimate goal for 2017 is Group OIBDA margin at level of 39%.

The cost cutting will be achieved by modernization of networks and avoiding overlaps, centralization and reduction of management levels in the Company, releasing real estate and cutting its maintenance costs.

Earlier the actualized strategy was discussed at a meeting of an extended Strategy Committee of the Board, attended by the Strategy Committee’s members, other Board members, and representatives of Rosimuschestvo and the Ministry of Communications and Mass Media of Russia.

The Board of Directors at its meeting today also approved the Risk Management Programme (RMP) for 2013.

Currently the RPM is focused on the most significant risks, primarily commercial risks and risks of changes in regulation. The identified risks were evaluated in details down to business segment level, services, and also across regions, down to specific cities in some instances. An essential component of the RMP is pragmatic measures put in place to mitigate risks, while the RPM for 2013 contains primarily project measures. Management responsibility for risk management system is reflected in motivation programme. These initiatives were supported by the Board of Directors. Risk management reports are to be submitted quarterly to the Board of Directors for review.

The Board of Director also approved Rostelecom budget for 2013.

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For more information please visit www.rostelecom.ru or contact:

Investor Relations Department
Tel. +7 (499) 995 97 80
ir@rt.ru

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Rostelecom (www.rostelecom.ru) is Russia’s largest national telecommunications operator with presence in all Russian regions. The Group is a universal operator and undisputable leader of broadband and pay-TV markets in Russia with over 9 million fixed-line broadband subscribers and over 6 million pay-TV subscribers. As Rostelecom develops its mobile data networks, its position as a major mobile operator is growing with over 13 million currently subscribed to Rostelecom’s mobile voice services. The Company currently has approximately 28 million local fixed-line voice subscribers and it is the leader in the corporate and government services segment. The Group is also an important innovator that provides solutions in the field of medicine, E-Government, cloud computing and education.

Rostelecom was assigned a ‘BBB-’ and ‘BB+’ international credit ratings by Fitch Ratings and Standard & Poor’s respectively, both with a ‘Stable’ outlook. The Group generated RUB 238.7 billion of consolidated revenues, RUB 94.0 billion of OIBDA (39.4% of revenues) and RUB 30.6 billion of net income for the nine months ended September 30, 2012.

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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 are intended to be covered by the safe harbors created thereby.

Those forward-looking statements include, but are not limited to:

  • Management’s assessment of the Company’s future operating and financial results as well as forecasts of the present value of future cash flows and related factors;
  • the Company’s anticipated capital expenditures and plans to construct and modernize its network;
  • the Company’s expectations as to the growth in demand for its services, plans relating to the expansion of the range of its services and their pricing;
  • the Company’s plans with respect to improving its corporate governance practices;
  • the Company’s expectations as to its position in the telecommunications market and the development of the market segments within which the Company operates;
  • economic outlook and industry trends;
  • the Company’s expectations as to the regulation of the Russian telecommunications industry and assessment of impact of regulatory initiatives on the Company’s activity;
  • other statements regarding matters that are not historical facts.

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:

  • risks relating to changes in political, economic and social conditions in Russia as well as changes in global economic conditions;
  • risks relating to Russian legislation, regulation and taxation, including laws, regulations, decrees and decisions governing the Russian telecommunications industry, securities industry as well as currency and exchange controls relating to Russian entities and their official interpretation by regulatory bodies;
  • risks relating to the Company, including the achievement of the anticipated results, levels of profitability and growth, ability to create and meet demand for the Company’s services including their promotions, and the ability of the Company to remain competitive in a liberalized telecommunications market;
  • technological risks associated with the functioning and development of the telecommunications infrastructure, technological innovations as well as the convergence of technologies;
  • other risks and uncertainties. For a more detailed discussion of these and other factors, see the Company’s Annual Report and the Company’s other public filings.

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 after the date hereof or to reflect the occurrence of unanticipated events, except as may be required under applicable laws.

1 Source: iKS – Consulting, J’son & Partners, IDC, OVUM, Company data

Short Name: Rostelecom OJSC
Category Code: MSC
Sequence Number: 357202
Time of Receipt (offset from UTC): 20121226T170452+0000

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