Moscow – March 31, 2011  – Rostelecom OJSC (the “Company”) (RTS, MICEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, today announced its unaudited consolidated IFRS financial results for the fourth quarter and twelve months ended December 31, 2010.

Fourth quarter financial highlights

Consolidated revenues up 3% year on year to RUB 17.2 billion;

Revenues from new and value-added services including electronic government up 37% year on year to RUB 7.2 billion, and accounted for 42.0% of the Company’s consolidated revenues compared to 31.4% for the corresponding period in 2009;

Adjusted OIBDA of RUB 2.3 billion (excluding RUB 350.0 million of non-cash accrual of stock based compensation for employees) with an adjusted OIBDA margin of 13.6%;

Adjusted net loss of RUB 0.8 billion;

Capital expenditure of RUB 2.0 billion – representing 11.6% of consolidated revenues. 

Twelve months financial highlights

Consolidated revenues of RUB 63.0 billion;

Revenues from new and value-added services including electronic government up 13% year on year to RUB 23.7 billion, and accounted for 37.7% of the Company’s consolidated revenues compared to 32.0% for the corresponding period in 2009;

Adjusted OIBDA of RUB 11.4 billion (excluding RUB 811.0 million of non-cash accrual of stock based compensation for employees) with an adjusted OIBDA margin of 18.0%;

Adjusted net income of RUB 2.5 billion⁾;

Capital expenditure of RUB 10.0 billion – representing 15.9% of consolidated revenues. 

Key recent developments

On September 30, 2010, Rostelecom acquired the 25%+1 share stake in the charter capital of Svyazinvest Telecommunication Investment Joint-Stock Company (“Svyazinvest”) from COMSTAR-UTS for RUB 26.0 billion.

The Company, OJSC Center Telecom, OJSC Sibirtelecom, OJSC Dalsvyaz, OJSC Volga Telecom, OJSC North-West Telecom, OJSC Uralsvyazinform, OJSC Southern Telecommunications Company (“RTOs”) paid interim dividends for the first nine months of 2010 in the amount of RUB 7.5 billion.

The extraordinary general meeting of the Company’s shareholders did not approve the proposed amendments to the Company’s Charter, related to the allocation of 10% of the Company’s net income for the full year as dividend payment on class A preferred shares.

On December 8, 2010, Standard & Poor's Ratings Services issued a report, stating that its “BB” long term corporate credit rating with “Stable” outlook for the Company was kept unchanged.

On February 04, 2011, the Company, together with OJSC Uralsvyazinform and OJSC North-West Telecom, completed the transaction to acquire 71.8% stake in OJSC National Telecommunications (“NTK”), largest independent cable TV operator and information provider in Russia, for a cash consideration of RUB 27.9 billion. NTK’s subscriber base as of September 30, 2010 comprised approximately 5.0 million subscribers, including 4.5 million TV subscribers and 431 thousand broadband subscribers.

On February 17, 2011, Russian Federal Service for the Financial Markets registered the additional share issue of 2,216,163,000 ordinary shares with a nominal value of RUB 0.0025 each and bond issues of the Company for up to RUR 31.56 bln. The share and bond issues will be effected through the conversion of ordinary and preferred shares, and bonds, respectively, of RTOs and OJSC Dagsvyazinform into the Company's ordinary shares and bonds, respectively, during the ongoing merger process.

The Company signed a memorandum of understanding about the joint development of LTE networks on the basis of infrastructure of Skartel LLC (Yota brand) with MTS OJSC, Vimpelcom OJSC, Megafon OJSC and Skartel LLC.

The Company generated RUB 17.2 billion of revenues for the fourth quarter of 2010, compared to RUB 16.7 billion for the corresponding period of 2009. The 3% year on year increase reflected:

Accelerating revenue growth from new and value-added services (primarily electronic government and data services);

Gradual decrease in revenues from traditional voice domestic and international long-distance (DLD/ILD) services.

Revenue from new and value-added services grew by 37% year on year to RUB 7.2 billion in the fourth quarter of 2010, and accounted for 42.0% of the Company’s consolidated revenues, compared to 31.4% for the corresponding period in 2009. The increase reflected the mixed effect of:

30% year on year increase in revenues from data transmission services (including Internet access services for operators (“wholesale Internet”) and corporate clients, as well as VPN services) to RUB 3.5 billion;

30% year on year decrease in revenues from leased line services to RUB 1.0 billion, primarily due to the construction of networks by other telecom operators.

Revenues from traditional voice domestic and international long-distance (DLD/ILD) services declined by 13% year on year to RUB 10.0 billion and accounted for 58.0% of the Company’s consolidated revenue in the fourth quarter of 2010, compared to 68.6% in the corresponding period of 2009. The decrease in revenues from traditional services was mainly in line with ongoing change in customer patterns regarding the use of traditional long-distance services.

The Company’s revenues for the year to date declined by 4% year on year to RUB 63.0 billion. The performance reflected:

Gradual decrease in revenues from traditional voice domestic and international long-distance (DLD/ILD) services which still represent the largest part of the revenues.

Accelerating revenue growth from new and value-added services (primarily electronic government and data services).

Operating expenses before depreciation, impairment of property, plant and equipment (PP&E) and gain on disposal of PP&E and the RUB 350.0 million non-cash accrual of stock based compensation for employees for the fourth quarter of 2010, increased by 8% year on year to RUB 14.8 billion, primarily due to the payment of annual bonuses for the full year 2010, reflection of full year expenses related to electronic government project. The Company’s total operating expenses for the fourth quarter of 2010 were up 11% year on year to RUB 18.3 billion, including impairment related to Amdocs billing system.

Operating expenses before depreciation, impairment of property, plant and equipment (PP&E) and gain on disposal of PP&E and RUB 811.0 million of non-cash accrual of stock based compensation for employees for the year to date decreased by 3% year on year to RUB 51.6 billion. Total operating expenses for the year to date remained unchanged year on year at RUB 61.1 billion.

Adjusted OIBDA in the fourth quarter of 2010 decreased by 22% year on year to RUB 2.3 billion in the fourth quarter of 2010 with OIBDA margin of 13.6%, compared to 17.9% in the corresponding period of 2009. Adjusted OIBDA was down 9% year on year to RUB 11.4 billion for the year to date adjusted OIBDA margin of 18.0% compared to 19.1% in the same period of 2009.

Depreciation decreased by 5% year on year to RUB 1.9 billion in the fourth quarter of 2010 and remained stable year on year to RUB 7.6 billion for the year to date. Capital expenditures decreased by 59% year on year to RUB 2.0 billion in the fourth quarter of 2010 and 12% year on year increase to RUB 10.0 billion for the year to date.

The Ñompany reported adjusted operating loss of RUB 0.7 billion in the fourth quarter of 2010 and adjusted operating income of RUB 2.7 billion for the year to date.

Interest expenses increased 9 times year on year in the fourth quarter due to the draw down of RUB 23.0 from Sberbank credit lines which was used to acquire 25% stake in Svyazinvest  on September 30, 2010. Interest expense increased three times year on year to RUB 691.0 million for the year to date.

The Company reported adjusted net loss of RUB 0.8 billion in the fourth quarter and adjusted net income of RUB 2.5 billion for the year to date.