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Leading Provider of Integrated Telecommunications Services
Overview Key Financials FY 2016
(1) Ordinary shares. Treasury shares are represented by shares owned by Mobitel.
State stake53%
Treasury shares15%
Other shareholders
(free float)32%
Shareholder Structure (1)
State Property
Agency 48.7%
4.3%
#1
12.7
9.7
33.0
RUB
297.4bln
Revenue OIBDA FCF
RUB
96.8bln
RUB
13.3bln
player across most segments of telecom and
digital services
mln households passed by fibre – the largest
fixed line network in Russia
mln broadband subscribers with over 60%
connected by fibre
Exposure to high-growth potential markets such
as cloud services, TV services, data centre,
Geodata and Industrial Internet of Things
mln pay TV subscribers with near 50% using
IPTV
Exposure to Russian mobile data market via JV
with Tele2 Russia (#4 mobile operator in Russia)
3
25%
10%
7%
16%
21%
22%21%
7%
7%
5%33%
28%
Broadband
Pay TV
VPN
VAS&Clouds
Telephony
Other
Transformation to a Digital Service Provider by 2020as a Strategic Priority
CA
GR
20
15
-20
20
, %
Source: iKS Consulting, TMT-Consulting, Company estimates
Share in Rostelecom’s Revenue in 2015 & 2020, %
2015 2020
Market Size, RUB bln
Content &
Digital Services39% ~60%
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
22%
8%
7%
6%29%
27%
2015 2020F2016
44%
4
9.0 9.2 9.3 9.4 9.5 9.7
201 206214
224 226 225
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+5% YoY
3.9 4.04.2 4.4 4.6 4.7
269 278290
300 300 293
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+16% YoY
6.7 6.9 7.1 7.3 7.5 7.6
330 324342 346 344 336
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+10% YoY
11.311.5 11.6 11.7 11.8 11.9
351 345360 365 365 360
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+4% YoY
Robust Growth of Subscriber Base and ARPU in B2C
Broadband B2C Subscribers (mln)
ARPU
incl. Fibre Subscribers (mln)
Pay TV Subscribers (mln)
incl. IPTV Subscribers (mln)
+4%YoY
+4%YoY
+9%YoY
+6%YoY F
inancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
5
38.4%31.7%
73.1%
10.1%
18.6%13.3%
Broadband Pay TV IPTV
Rostelecom #2
Development of Digital VAS & Strengthening of the
Market-leading Positions
Blended ARPU (2) (RUB)
MVNO with Tele2 Russia Subscriber Base (mln, B2C+B2B)
0.46
0.67
+45% QoQ
Market Position in 3Q 2017 (by revenue) (1)
(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.
+1.3pp YoY
+1.2pp YoY
+2.6pp YoY
≈50%(2)
in market net
additions
≈70%(1)
in market net
additions
2.5xYoY sales growth of Antivirus
service
56% 65%
3Q163Q17
Share of Network Personal
Video Recorder (NPVR) users in
IPTV subscriber base
448
481
+7% YoY
2Q17 3Q17
3Q16 3Q17
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
6
Strong Results in В2В/G Segment …
Revenue in B2B/G (RUB bln)
Broadband B2B/G Subscribers (mln) incl. Fibre Subscribers (mln)
25.227.0
+7% YoY500+
RUB mln
Additional revenue from “Smart City” projects in
3Q 2017
Agreements signed to develop and provide data
centres’ infrastructure and "Virtual Data Center"
service
+8p.p.
Share of fibre broadband subscribers
ARPU
3Q16 3Q17
0.740.75 0.75 0.76 0.76
0.75
2,082 2,0692,103
2,076 2,051
2,132
1,800
1,900
2,000
2,100
2,200
2,300
2,400
2,500
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+1% YoY
0.220.24
0.260.28
0.29 0.31
3,749 3,511 3,380 3,045 3,086 2,885
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+27% YoY
Fin
ancia
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hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
7
… Driven by Federal B2G Clients and New Services
PerformanceRevenue from Broadband & VPN (RUB bln)Revenue from Federal B2G Clients (RUB bln)
Revenue from New Services (RUB bln)
0.4
1.1
3х YoY
9.2
9.4
+2% YoY
ТОP-6 New Services Revenue Growth
Top-6 = 80%
2.8
3.6
+27% YoY
Wi-Fi
Virtual Data Centre
New Telephony
Videocomfort
TV for Business
Call-centre
2.4х
1.6x
1.6x
3.4x
2.6x
2.6x
3Q16 3Q17 3Q16 3Q17
3Q16 3Q17
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
8
E-Government
Ecology
112 Hot Line
E-learning
‘Safe Roads’
Healthcare
Energy efficiency
CCTV Safety
Platform
Emergency
Alert
systems
City Intellectual
Transportation
Platform
Rostelecom’s ‘Smart City’ Platform
7.2RUB bln
+68%
YoY2016
Revenue from
‘Smart City’ projects
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
92projects in
36regions
37 projects in
17regions
13projects in
12regions
229projects in
67regions
12projects in
9regions
Electronic
medical
history in
18 regions
Tele-
radiology
in 7 regions> 34 mln
subscribers
(2016)
9
Moscow
Novosibirsk
Kaliningrad
Nizhny Novgorod
Krasnodar
Sochi
Stavropol
Ryazan
Khabarovsk
Ekaterinburg
Chelyabinsk
KazanUfa
Saint-Petersburg
4,130
4,000
Roste
lecom
Data
Lin
e
Data
Pro
Lin
xte
lecom
Se
lecte
l
Sta
ck G
rou
p
I-T
eco
Data
Space
SD
N
CR
OC
Data CentresStrong Position Providing Basis for Solid Growth
(1) Source: CNews, Company data.
(2) Source: TMT-Consulting, Company estimates.
Rostelecom is the Largest Player…(1) … in the Fast Growing Market (2)
17% CAGR 2016-2020Under construction
– “Udomlya” project
11.913.8 15.0
2014 2015 2016E 2020F
Data Centres’ Portfolio
2,100
2,800
3,9004,130
2013 2014 2015 2016E
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
2016
#1
14%share (2)
10
Cloud ServicesMassive Opportunity Ahead
12.015.8
22.6
28.0
48.3
2014 2015 2016 2017F 2020F
Cloud Services Market Forecast (RUB bln) (1)
(1) Source: SAP and Forrester.
21% CAGR 2016-2020
Cloud Services Market Structure in 2016 (1)
SaaS61%
IaaS35%
PaaS3%
Rostelecom’s Services
New Telephony Virtual Office
WEB-videoconference, etc.
CloudControl
NodeControl
Virtual Data Centre (VDC)
Virtual Desktop
Infrastructure (VDI), etc.
National Cloud Platform TIONIX Cloud Platform
(OpenStack based)Potential for IT-
infrastructure cost savings
30-70%
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
11
Leading Content Aggregator & Media JV
Media JV with VGTRKUnique Content Proposition
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
220channels
Including:
• 70 channels in HD
• 3 exclusive channels, incl. Paramount
Channel
Packages
OTT video:
Interactive TV 2.0
• 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
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
Revenue (RUB bln)
+23% YoYLeader
with 30%share in thematic
channels (1)
(1) Source: TNS TV Index & TV Index Plus, Share, November 2016, Total Aud.
1.82.2
2015 2016
• Direct contracts with all major Hollywood
studios
• Direct contracts with the key international
independent producers
12(1) Source: AC&M Consulting as of 4Q 2016.
(2) Source: Company data.
Mobile Joint Venture with Tele2 RussiaAccess to Growing Mobile Data Market
Unique corporate culture
based on strong cost
management
15%Share in Russian mobile
market (by subscribers),
player #4 in the total
market (1)
B2B
Upselling opportunities
that became available
after Moscow launch and
nation-wide network
rollout
65/48 Regions covered in total /
covered with 4G networks
MVNO /
Synergies
F2M convergence
opportunities through
MVNO and cooperation
on the B2O side
Player
#3In the 65 covered
regions (2)
120k/
3.4k
Total number of points
of sale / monobrand
retail shops
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
12% Revenue growth in 2016 103k Base stations
13
Launch of MVNO with Tele2 RussiaF2M Convergence on Track
Sep 15, 2016
First 5 MVNO regions
launched
Nov 16, 2016
MVNO launched
in 65 regions
MVNO subs, ths
Target 2020
up to 15% of fixed-line
subscriber base
Rationale
B2B/B2G clients to be upsold to mobile services
Increase in B2C customer loyalty
Creating opportunities for development of IIoT & M2M
Fin
ancia
lsS
hare
hold
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
0.22
0.46
0.67
1Q17 2Q17 3Q17
+45% QoQ
+107% QoQ
14
Operational Efficiency ImprovementContinued Personnel Optimisation Effect of Operational Efficiency Program
2.5
7.5
11.0
16.5
19.0
2.5
8.5
14.2
2014 2015 2016 2017F 2018F
Planned Achieved
Fin
ancia
lsS
hare
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rem
unera
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Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
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
Pri
ncip
les
20-30%
Personnel productivity
increase
5-10%
Operational expenses
reduction
Targ
ets
Time to market of new servicesBroadband / pay TV NPS
35 / 38 3 months
173.0164.6
158.9149.9
142.5134.9
1.7 1.81.9 2.0 2.1 2.2
2012 2013 2014 2015 2016 9M17
Average number of employees, ths
Revenue per employee LTM, RUB mln
-5%
15
Real Estate Portfolio Optimisation to Unlock Value
Portfolio Breakdown in 2016 (sq.m mln)
Total
Regional
capitals
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
>2sq.m mln
ready for
sale
Real Estate Optimisation on Track in 2016
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
≈300 ths sq.m
sold in 2016
0.6
8.8
3.0RUB 3.1 bln
from rent of Real Estate
16
Largest Network with Growing Fibre Penetration
Growth in Network Capacity
(IP / MPLS, Tb/s)
Expansion of Fibre Coverage
(mln households)
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
Submarine Cable
Magadan-
Sakhalin-Kamchatka
Northern
Optical
Stream
Bridging Digital Divide
3.5
7.4
10.6
12.313.7
2012 2013 2014 2015 2016
71.252.9 53.8 59.5 56.6
24.1%
18.2% 18.0%20.0% 19.0%
2012 2013 2014 2015 2016
Capital Expenditures (RUB bln) & CAPEX/
Revenue (%) (1)
(1) Excluding BDD project in 2015-2016 and mobile in 2012-2014.
2.85.6
6.6
4.5 1.5 0.8
13.9
19.5
26.1
30.7 32.2 33.0
2012 2013 2014 2015 2016 9M17
Passed during the period
17
53Dense area
PON/FTTB
Total HH in Russia
Rural area
sponsored under BDD
project
Fibre + Public WiFi
Balanced Approach to Last-Mile Upgrade
We use different
last-mile solutions
to meet our
customer needs
and ensure
efficiency of our
investments.
Rural area
xDSL + wireless
46
Total HH Rostelecom
33>4 F
inancia
lsS
hare
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
18
Government Sponsored
“Bridging the Digital Divide” ProjectOperational Highlights
Financial Highlights*
* Targets are based on the agreement signed in 2014.
Note: Operating income is state-funded and is reported under “other operating income”.
1,5893,909
14,000
2034
160
2015 2016 Target
Settlements Fibre optic, ths km
500 ths
households
passed
13.3 10.4
168
3.2 5.2
≈70 ≈70
2015 2016 10-year total
Operating Income Cash CAPEX OPEX
A Nation Wide Project to Provide High Speed Internet
Access to Rural Population….
…with Significant Upside Potential for Rostelecom
Overview Envisaged Influence
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
Operational
Efficiency
Revenue
Network
Coverage
Revenue
Rostelecom is to construct fibre-optics and organize and
maintain collective Internet access points
Strong
government
commitment
Nation wide scale
Rostelecom
to own the
networks
Upside
potential
NPV positive,
IRR > WACC
Fin
ancia
lsS
hare
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
19
Increasing Shareholder Remuneration through
Improved Dividend Policy 2016-2018
≥ 75% 45RUB bln
of Free Cash Flow In total
for 3 years
&Progressive
YoYBut not
less than
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
20
Enhanced Long-term Incentive Programme 2017-2019
Up to 1,000 employees to participate in the programme
3 annual cycles:
2017, 2018, 2019
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
Key performance indicators:
• Free Cash Flow (FCF)
• Net Profit
• Return on Invested Capital (ROIC)
Entitlement for additional share-based remuneration
depends on participant’s position, invested funds
and individual performance
Senior management can participate
in the 2nd & 3rd cycles if maintaining
≥50% of additional shares granted
under previous cycles
Co-financing principle (share matching plan, SMP)
Fin
ancia
lsS
hare
hold
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unera
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Capita
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ents
Effic
iency in
cre
ase
Revenue d
rivers
21
RUB bln FY 2015 FY 2016 YoY 9M 2016 9M 2017 YoY
Revenue 297.4 297.4 0.03% 217.0 221.2 1.9%
Content & Digital
Services revenue117.2 129.4 10.5% 94.2 103.7 10.2%
OIBDA 100.8 96.8 -4.0% 72.4 71.2 -1.7%
OIBDA margin 33.9% 32.5% -1.4 pp 33.4% 32.2% -1.2 pp
Net Profit 14.4 12.2 -14.9% 8.7 9.9 14.1%
Free Cash Flow 22.0 13.3 -39.4% -2.3 3.1 na
CAPEX 62.7 61.9 -1.4% 46.8 42.3 -9.6%
CAPEX / Sales 21.1% 20.8% -0.3 pp 21.6% 19.1% -2.4 pp
CAPEX / Sales
excl. BDD20.0% 19.0% -1.0 pp 19.7% 18.0% -1.7 pp
Key Financial Highlights FY 2016 & 9M 2017
+4%
+21%
+11%
Revenue growth in 3Q17
FCF growth in 3Q17
Growth in revenue from Content
& Digital services in 3Q17
Revenue Share of
Content & Digital Services
Fin
ancia
lsS
hare
hold
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
44% 47%
3Q16
3Q17
22
72.81.1 0.9
1.1 0.5-2.2
0.01.5 75.6
3Q 2016 Broadband TV VAS &Cloud
services
VPN Telephony Wholesale(excl. VPN)
Other 3Q 2017
23%
9%
8%
7%25%
18%
9%
Broadband Internet
TV services
VPN
VAS & Cloudservices
Fixed telephony
Wholesale services(ex. VPN)
Other
23%
8%
7%
6%29%
19%
8%
RUB bln 3Q 2016 3Q 2017 YoY 9М 2016 9М 2017 YoY
Content & Digital
Revenue32.3 35.7 10.8% 94.2 103.7 10.2%
Broadband 16.5 17.6 6.5% 49.5 52.7 6.5%
TV 6.0 6.8 14.3% 17.3 20.3 17.1%
VAS & Cloud
services4.5 5.6 23.6% 11.8 14.2 19.5%
VPN 5.3 5.8 9.4% 15.5 16.6 6.9%
Fixed Telephony 21.3 19.1 -10.2% 66.4 59.3 -10.7%
Wholesale Services
(ex. VPN)13.9 13.9 0.1% 41.6 40.8 -2.0%
Other 5.4 6.9 28.2% 14.9 17.5 17.1%
Total Revenue 72.8 75.6 3.9% 217.0 221.2 1.9%
Continuing Growth of All Key Services as a Foundation
for 4% Revenue Growth3Q & 9M 2017 Revenue Drivers Revenue Breakdown (%)
Content & Digital Services share
3Q 20173Q 2016
44% 47%
Revenue Dynamics (RUB bln)
+RUB 2.8 bln
+3.9%
* Content & Digital services = Broadband + TV + VAS & Cloud services + VPN
Fin
ancia
lsS
hare
hold
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
23
OIBDA Dynamics (RUB bln)
Revenue & OIBDA Dynamics in 3Q 2017
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
OIBDA (RUB bln) & OIBDA margin (%)
Revenue (RUB bln)
217.0 221.2
9M16 9M17
+1.9% YoY
72.4 71.2
33.4%32.2%
9M16 9M17
71.8 72.880.4
70.4 75.2 75.6
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
+3.9% YoY
22.7 25.0 24.421.6
24.6 25.0
31.6%34.4%
30.3% 30.6%32.7% 33.1%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
25.0 2.8
0.6-1.4 0.2 0.3 -0.2 0.5
-2.9 25.0
3Q
2016
Re
ven
ue
Payro
ll
Inte
rcon
ne
ct
Mate
ria
ls&
Re
pa
ir
Ga
in o
nsa
le o
f P
PE
Bad
debt
expe
nse
Oth
er
op
era
tin
gin
com
e
Oth
er
op
era
tin
gexpe
nse
3Q
2017
Fin
ancia
lsS
hare
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
24
Net Income Dynamics (RUB bln)
Net Income & FCF Dynamics in 3Q 2017
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
Net Income (RUB bln) & Net Income margin (%)
8.79.9
3.2%
4.1%
9M16 9M17
Free Cash Flow (RUB bln)
1.6
4.1 3.6 3.2 2.83.9
2.2%
5.6%
4.5% 4.5%3.8%
5.2%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
-5.7
5.9
15.6
-2.3 -1.6
7.1
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
4.1 0.0
-1.4
-1.2 0.8
0.3 0.8
-0.2 0.73.9
3Q
2016
OIB
DA
ES
OP
De
pre
cia
tion
Lo
ss/(
Incom
e)
fro
massocia
tes
Fin
ance
costs
Oth
er
investing a
nd
fin
an
cia
l g
ain
/(lo
ss)
FX
ne
t
Tax
3Q
2017
-2.3
3.1
9M16 9M17
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
25
20.6
42.6
16.9
1.2
25.2
93.5
4Q 2017 2018 2019 2020 2021 2022 andonwards
Increasing Efficiency of Capital Expenditures & Debt
PortfolioCAPEX (RUB bln) & CAPEX / Revenue (%) Total & Net Debt (RUB bln)
by Maturity (excl. %), RUB bln
Total Debt Structure
by Type by Currency
4.1 2.4
46.842.3
21.6%19.1%
19.7%18.0%
9M16 9M17
182.5 190.1 177.5 180.0 185.5 191.2
192.7 200.4187.1 189.8 200.1 201.4
1.91.9
1.81.9 1.9
2.0
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Net Debt Total Debt Net Debt / OIBDA
0.8 0.6 1.1 0.5 0.8 1.1
14.8 13.015.1
17.7
12.5 12.1
20.6%
17.9% 18.7%
25.1%
16.6% 16.0%
17.1%14.6%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Capex
78%
19%
3%
Loans Bonds Other
99.9%
0.1%
RUB Other
Fin
ancia
lsS
hare
hold
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rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
26
2017 Outlook
Revenue Up to 1.5% growth
CAPEX /
Sales
(excl. BDD)
≈ 18.5%
OIBDA Up to 1% growth
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.
Upgraded
Reiterated
Reiterated
Fin
ancia
lsS
hare
hold
er
rem
unera
tion
Capita
l investm
ents
Effic
iency in
cre
ase
Revenue d
rivers
28
Attachment
P&L Statement
RUB bln 1Q 2017 2Q 2017 3Q 2017Growth
YoY - 3Q
Growth
YoY – 9M1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016
Revenue 70.436 75.166 75.614 3.9% 1.9% 72.464 71.794 72.781 80.407 297.446
Operating expenses (62.343) (63.862) (66.438) 9.0% 2.2% (63.962) (63.523) (60.966) (69.159) (257.610)
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) 0.436 (1.836) 301.8% -10.2% (0.537) (0.571) (0.457) 0.218 (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 0.154 0.642 0.685 70.3% 8.7% 0.498 0.463 0.402 3.193 4.556
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 3.132 3.233 3.223 17.6% -6.6% 4.936 2.589 2.741 2.682 12.948
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 8.093 11.304 9.176 -22.3% -0.1% 8.502 8.271 11.815 11.248 39.836
Operating Profit margin 11.5% 15.0% 12.1% 11.7% 11.5% 16.2% 14.0% 13.4%
OIBDA 21.569 24.599 24.995 -0.2% -1.7% 24.670 22.692 25.038 24.372 96.772
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) 0.481 (0.110) 0.703 -628.4% 67.8% 0.551 0.222 (0.133) 0.421 1.061
Foreign exchange gain/(loss), net 0.123 (0.082) (0.045) -128.6% -100.7% 0.741 (0.353) 0.159 (0.032) 0.515
Profit before income tax 4.007 4.595 5.107 -14.8% 13.8% 3.769 2.282 5.996 4.894 16.941
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 3.150 2.826 3.905 -3.8% 14.1% 3.002 1.601 4.060 3.586 12.249
Net profit margin 4.5% 3.8% 5.2% 4.1% 2.2% 5.6% 4.5% 4.1%
29
Attachment
Revenue StructureRUB bln 1Q 2017 2Q 2017 3Q 2017
Growth
YoY - 3Q
Growth
YoY – 9M1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016
By services:
Broadband Internet 17.528 17.610 17.571 6.5% 6.5% 16.442 16.562 16.497 17.270 66.771
TV services 6.642 6.809 6.828 14.3% 17.1% 5.613 5.728 5.972 6.287 23.599
Fixed telephony 20.399 19.763 19.132 -10.2% -10.7% 22.996 22.074 21.310 21.201 87.314
Wholesale services 17.363 20.308 19.649 2.6% 0.4% 19.747 18.207 19.143 21.912 79.010
Rent of channels 2.403 2.367 2.302 -10.3% -12.2% 2.844 2.646 2.566 2.482 10.538
Interconnect and traffic transit 6.743 8.958 8.418 3.7% -0.5% 8.853 7.272 8.122 10.856 35.102
VPN 5.073 5.707 5.785 9.4% 6.9% 4.995 5.207 5.290 5.331 20.823
Rent & maintenance of telecommunication infrastructure 3.144 3.277 3.144 -0.7% 2.8% 3.055 3.083 3.166 3.243 12.546
VAS & Clouds 3.643 4.957 5.558 23.6% 19.5% 3.100 4.249 4.497 6.400 18.245
Other telecommunication services 3.402 3.736 4.299 29.3% 20.0% 3.035 3.173 3.324 4.941 14.741
Other non-telecommunication services 1.460 1.982 2.577 26.4% 12.1% 1.531 1.801 2.038 2.397 7.767
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 33.967 33.756 33.387 1.9% 1.7% 33.645 33.049 32.749 34.474 133.917
B2B/B2G 23.352 25.897 26.971 6.9% 3.6% 23.368 24.961 25.235 28.631 102.195
B2O 11.990 14.343 13.947 3.1% -0.9% 14.452 12.663 13.532 16.203 56.851
Other 1.128 1.169 1.310 3.5% 6.6% 0.998 1.121 1.265 1.099 4.483
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.
30
Attachment
Balance SheetRUB bln 3/31/2017 6/30/2017 9/30/2017 3/31/2016 6/30/2016 9/30/2016 12/31/2016
Non-current assets
Property, plant and equipment 341.177 339.034 338.056 333.579 331.771 334.580 343.667
Investment property 0.184 0.176 0.161 0.103 0.122 0.099 0.181
Goodwill and other intangible assets 60.479 59.950 59.312 59.752 61.609 60.730 61.209
Trade and other accounts receivable 7.022 8.966 9.293 4.969 5.334 5.435 7.053
Investment in associates 67.327 66.612 65.978 73.347 71.728 70.205 68.352
Other investments 1.178 1.415 1.443 0.754 0.805 0.845 0.797
Other non-current assets 5.707 6.027 5.609 4.451 4.297 5.006 5.551
Total non-current assets 483.074 482.180 479.852 476.954 475.666 476.900 486.810
Current assets
Inventories 6.314 6.680 6.788 3.934 4.138 4.709 6.444
Trade and other accounts receivable 50.013 51.470 52.815 48.856 48.671 50.338 45.884
Prepayments 2.683 2.337 2.875 2.328 2.441 2.140 2.166
Prepaid income tax 1.654 0.472 0.478 5.203 4.899 2.870 1.957
Other investments 3.962 8.214 8.929 4.791 6.553 5.913 5.367
Cash & cash equivalents 5.828 6.388 1.343 5.144 3.640 4.427 4.257
Other current assets 2.428 2.262 2.620 3.729 2.155 2.063 2.151
Total current assets 72.882 77.823 75.848 73.986 72.496 72.460 68.226
Assets held for sale 0.733 0.859 0.921 1.647 1.734 1.727 0.646
TOTAL ASSETS 556.689 560.862 556.621 552.587 549.895 551.087 555.682
Equity
Share capital 0.093 0.093 0.093 0.093 0.093 0.093 0.093
Additional paid in capital 0.090 0.090 0.090 0.090 0.090 0.090 0.090
Treasury shares (67.034) (64.602) (65.556) (68.669) (67.031) (66.932) (67.034)
Retained earnings and other reserves 313.912 300.716 306.202 317.329 304.176 308.238 311.167
Non-controlling interest 4.430 3.138 3.253 4.036 4.102 4.246 4.317
Total equity 251.491 239.435 244.082 252.879 241.430 245.735 248.633
Non-current liabilities
Loans and borrowings 120.261 140.724 145.131 141.205 134.452 140.543 124.510
Employee benefits 4.975 5.152 5.049 5.020 5.380 5.522 5.217
Deferred tax liabilities 37.701 37.972 38.766 33.329 32.486 33.175 36.165
Other non-current liabilities 7.538 7.449 7.569 7.876 10.025 10.926 7.097
Total non-current liabilities 170.475 191.297 196.515 187.429 182.344 190.166 172.989
Current liabilities
Loans and borrowings 69.534 59.341 56.293 45.262 58.273 59.868 62.595
Accounts payable 58.384 64.041 53.099 58.483 60.800 48.368 64.072
Other current liabilities 6.805 6.748 6.632 8.534 7.050 6.950 7.393
Total current liabilities 134.723 130.130 116.024 112.279 126.123 115.186 134.060
TOTAL EQUITY AND LIABILITIES 556.689 560.862 556.621 552.588 549.897 551.087 555.682
Net debt 180.005 185.463 191.152 176.532 182.533 190.071 177.481
Net debt / OIBDA LTM 1.9х 1.9х 2.0х 1.7х 1.9х 1.9х 1.8х
Gross debt 189.795 200.065 201.424 186.468 192.725 200.411 187.105
31
Attachment
Cash Flow StatementRUB bln 1Q 2017 1H 2017 9M 2017 1Q 2016 1H 2016 9M 2016 2016
Cash flows from operating activities
Profit before income tax 4.007 8.602 13.709 3.769 6.051 12.047 16.941
Adjustments to reconcile profit before taх to cash generated from operations:
Depreciation, amortization and impairment losses 13.470 27.201 41.184 15.632 29.481 42.247 55.589
(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 0.656 1.497 2.618 0.456 1.740 2.675 2.775
(Income)/Loss from equity accounted investees 1.024 1.739 2.399 1.918 3.501 5.004 7.296
Finance costs excluding finance costs on pension and other long-term social liabilities 3.666 9.405 13.441 3.985 8.141 12.366 16.699
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) 0.004 (0.741) (0.388) (0.547) (0.515)
Share-based payment expenses (0.004) (0.382) 1.381 0.406 0.838 1.184 1.019
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) 0.128 (0.561)
(Increase) / decrease in inventories 0.130 (0.236) (0.345) 0.116 (0.045) (0.615) (2.351)
(Decrease) / increase in accounts payable, provisions and accrued expenses 3.094 (2.544) (0.441) 5.886 (1.560) (2.142) 1.376
(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 18.843 33.257 56.716 22.879 36.882 59.154 85.579
Interest paid (4.823) (8.624) (13.700) (4.764) (9.333) (14.383) (18.410)
Income tax refund 1.293 1.514 1.771 0.000 0.234 1.395 4.391
Income tax paid (0.414) (1.355) (1.975) (2.212) (3.624) (3.822) (4.383)
Net cash provided by operating activities 14.899 24.792 42.812 15.903 24.159 42.344 67.177
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 0.506 1.420 2.580 0.635 1.438 2.133 7.978
Acquisition of financial assets (1.484) (7.264) (9.575) (2.767) (4.560) (5.737) (9.736)
Proceeds from disposals of financial assets 2.477 3.919 5.423 3.251 4.678 6.376 10.831
Interest received 0.097 0.335 0.491 0.444 0.628 0.827 1.029
Dividends received 0.001 0.001 0.006 0.002 0.020 0.022
Purchase of subsidiaries, net of cash acquired (0.064) (0.064) (0.064) 0.000 (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 0.139 0.347 (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 0.001 0.008 0.008 0.157
Purchase of treasury shares (0.981) (0.314)
Proceeds from bank and corporate loans 112.899 269.120 415.828 160.301 324.543 496.127 655.190
Repayment of bank and corporate loans (109.714) (258.150) (391.919) (156.909) (313.984) (492.822) (665.936)
Proceeds from bonds 10.000 10.000 15.000 15.000
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 3.068 9.153 (2.432) 0.518 7.479 1.682 (12.679)
Net (decrease)/increase in cash and cash equivalents 1.571 2.131 (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 4.256 4.256 4.256 7.164 7.164 7.164 7.164
Cash and cash equivalents at the end of period 5.827 6.387 1.342 5.143 3.639 4.426 4.256
FCF (2.309) (3.953) 3.102 (2.427) (8.171) (2.320) 13.298
32
Attachment
Operational Data1Q 2017 2Q 2017 3Q 2017 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 1Q 17/16 2Q 17/16 3Q 17/16
SUBSCRIBERS, MLN
Local telephony 20.3 19.9 19.5 21.8 21.4 21.0 20.6 20.6 -7.1% -7.0% -7.2%
B2C 16.8 16.5 16.1 18.2 17.8 17.5 17.1 17.1 -7.7% -7.6% -7.7%
B2B 3.5 3.4 3.4 3.6 3.6 3.5 3.5 3.5 -4.0% -3.9% -5.0%
Broadband by client type 12.5 12.6 12.7 11.9 12.0 12.3 12.4 12.4 5.0% 4.6% 3.4%
B2C 11.7 11.8 11.9 11.2 11.3 11.5 11.6 11.6 5.0% 4.7% 3.6%
B2B 0.8 0.8 0.8 0.7 0.7 0.7 0.8 0.8 3.9% 3.6% 0.8%
Broadband by technology 12.5 12.6 12.7 11.9 12.0 12.3 12.4 12.4 5.0% 4.6% 3.4%
xDSL 4.9 4.8 4.8 5.2 5.2 5.1 5.0 5.0 -6.5% -6.1% -6.2%
FTTx 7.6 7.7 7.9 6.7 6.9 7.2 7.4 7.4 14.0% 12.7% 10.2%
xDSL 39% 38% 38% 44% 43% 41% 40% 40%
FTTx 61% 62% 62% 56% 57% 59% 60% 60%
Pay TV 9.4 9.5 9.7 8.9 9.0 9.2 9.3 9.3 6.4% 5.7% 5.4%
IPTV 4.4 4.6 4.7 3.7 3.9 4.0 4.2 4.2 20.4% 18.1% 16.4%
Cable TV 5.0 5.0 5.0 5.2 5.2 5.1 5.1 5.1 -3.4% -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) 0.2 0.5 0.7
ARPU, RUB
Broadband
B2C 365 365 360 354 351 345 360 352 3.2% 3.9% 4.2%
B2B 2,076 2,051 2,132 2,114 2,082 2,069 2,103 2,092 -1.8% -1.5% 3.0%
incl. Broadband FTTx
B2C 346 344 336 333 330 324 342 332 3.8% 4.0% 4.0%
B2B 3,045 3,086 2,885 3,821 3,749 3,511 3,380 3,598 -20.3% -17.7% -17.8%
Local telephony
B2C 251 249 243 267 257 250 255 257 -6.2% -3.2% -2.6%
B2B 611 637 637 636 624 619 640 630 -3.9% 2.1% 2.9%
Pay TV (B2C) 224 226 225 201 201 206 214 206 11.4% 12.4% 9.0%
incl. IPTV 300 300 293 273 269 278 290 278 9.8% 11.6% 5.7%
Note: Subscriber base and ARPUs for 2016 have been restated due to changes in methodology.
33
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34