Post on 21-Jan-2016
description
Rostelecom Investor Presentation
Investor Meetings, April 2006
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Certain statements in this presentation 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.
These 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 include the risk of changes the Company’s operations and business prospects, the general financial and economic circumstances, relating to regulation of the Russian telecommunications industry and the Russian legislation; the competition and other risks.
For a more detailed discussion of these and other factors, see the Company’s Annual Report on Form 20-F for its most recently completed fiscal year and the Company’s other public filings with The U.S. Securities and Exchange Commission. Many of these factors are beyond the Company’s ability to control or predict. Given these and other uncertainties, the Company cautions 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 to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as maybe required under applicable the U.S. federal securities laws.
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International operators
12%
Russian operators
62%Other5%
Moscow subscribers
21%
Outgoing ILD
23%
DLD45%
Incoming ILD
10%
Other22%
Rostelecom at a Glance
Key FactsKey Facts Revenue Breakdown
Rostelecom owns and operates nationwide digital trunk network
In all Russian regions Rostelecom provides fixed-line DLD and ILD services to end-customers
Rostelecom acts as a “carriers’ carrier” in the Russian market, interconnecting local public operators’ networks into a single national network
51% of voting shares owned by the state controlled holding company Svyazinvest
Shares traded on NYSE, LSE, RTS, MICEX
Market capitalization: USD 3.12 billion
Revenue breakdown by service*
Revenue breakdown by customer segment*
* In accordance with 2005 FY RAS results
4
Strong Position for Growth as Russia’s National Long-Distance Operator
Traffic growth in Russian telecom market continues
Russian telecommunications market grew by an impressive 38% in 2004 and is likely to grow by further 30% in 20051)
Unique nationwide infrastructure gives Rostelecom enduring competitive advantage
4-year modernization and capacity expansion program to support top-line growth
Rostelecom’s top-line growth strategy is yielding results
2005 FY non-consolidated revenue increased 7.5% (RAS)
Consolidated revenue increased 9.7% in H1 2005 (IFRS)
Opportunities for direct access to end-users throughout Russia from Jan. 1, 2006
Corporate restructuring and efficiency programs clearly paying off
OIBDA margin2) stable at 36.4% in H12005 (IFRS)
Steady headcount reduction underpins increasing productivity
Financial strength supports strategic aims
S&P long-term credit upgrade to “BB-” with stable outlook in March 2005
1) According to the Ministry of Information Technologies and Communications
2) OIBDA is a non-U.S. GAAP financial measure, which the Company defines as operating income before depreciation, amortization and loss on disposal of PP&E
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Nationwide Network Underpins Rostelecom’s Competitive Market Position
Developed trunk network underlies the Company’s competitive advantages
Competitive transit rates
Most reliable traffic transmission route in Russia
High service recognition from local and international operators
Low Repair & Maintenance expenses
Most extensive and sophisticated network infrastructure among Russian operators
Rostelecom has built the most advantageous technological position for providing long-distance services under the new regulatory requirements
almost 200,000 km in length points of presence across entire Russian Federation points of presence in London, Stockholm and Frankfurt
93% digitalized in channel-kilometers 100% digitalized in switching capacity
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Continued Traffic Growth on Rostelecom’s Network
7,136
8,220
6,179
3,915
4,960
9,094
9,347
3,500
4,500
5,500
6,500
7,500
8,500
9,500
1999 2000 2001 2002 2003 2004 2005F
Rostelecom’s domestic long-distance (DLD) traffic dynamics
DLD traffic growth of 3-7% p.a.
1,323
1,235
928
944
1,541
1,082
1,769
1,207
973929
897
1,449
869
1,693
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1999 2000 2001 2002 2003 2004 2005F
ILD outgoing ILD incoming
Rostelecom’s international long-distance (ILD) traffic dynamics
Mln min Mln min
Incoming ILD traffic growth at 15-20% p.a., outgoing ILD – at 10-15% p.a.
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Rostelecom’s Top-Line Growth Strategy Is Yielding Results
Total revenue (IFRS), RUR mln
Incoming ILD from international operators
27,8
53
28,8
23 31,3
94
31,2
67
27,8
53
37,3
18
2002 2003 2004
RevenueRevenue excl. effect of new settlement system
12.3%
19.4%
8.9%
3.5%
9,448 10,287
3,1663,384
2,0101,950
3,139
4,189
H1 2004 H1 2005
+ 8.9%
-6.4%
+ 3.1%
+ 33.5%
DLD and outgoing ILD from Russian
operators
DLD and outgoing ILD from subscribers
Other operations
Revenue (IFRS) by segment, RUR mln
17,921
19,652
9.7%
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Change in Rostelecom’s Market Status: Getting Direct Access to End-Users throughout Russia
End-users market
Direct long-distance service provider in Moscow• Provider of DLD and ILD services to MGTS’
subscribers only• Provider of channel capacity to Russian
corporate clients
Direct long-distance service provider in all Russian regions• Provider of DLD and ILD services to subscribers
of local network operators throughout Russia• Provider of channel capacity to Russian
corporate clients
Russian
operators
market
Nationwide carrier’s carrier and capacity provider
• Primarily provider of DLD and outgoing ILD traffic transit service to operators
• Provider of channel capacity to operators
Nationwide carrier’s carrier and capacity provider
• Primarily provider of channel capacity to operators
• Provider of traffic transit services
International
operators’
market
Provider of incoming ILD traffic transit, non-switched international traffic transit and
channel capacity
Other markets
Provider of equipment servicing, intelligent network services etc.
Rostelecom’s market presence until 2006: primarily wholesale operator
Rostelecom’s market presence from 2006: major Russian LD retail operator
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Evolving Rostelecom’s Business Model to Seize Opportunities in Liberalized Market Environment
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2000 2001 2002 2003 2004 2005F 2006F
Traffic transit from international operators
Direct traffic from subscribers
LD traffic transit from Russian operators
Until 2006 – primarily wholesale
LD operator
From 2006 – primarily retail
LD operator
Main contributor to top-line
LD traffic transit services to operators
LD calls provision to subscribers of local network operators
Revenue recognition
Transit and termination rate from operators
The whole amount of end-user tariff in Moscow
The whole amount of end-user tariff across Russia
Billing and
customer service
• B2B (in-house)
• B2C in Moscow (in-house)
• B2B (in-house)
• B2C in Moscow (in-house)
• B2C (outsourced in regions)
Rostelecom traffic volume by customer segment
New interaction system – expanded customer base and change in traffic split
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New Settlement System Effects on Rostelecom’s Profit & Loss Statement
Upward effect on revenues
Rostelecom recognizes as revenue the total amount of the end-user tariff
Changes in revenue composition: decrease in revenues from local operators and increase in revenues from subscribers
Upward effect on operating expenses
Rostelecom’s payments to local operators increase:
• initiation charge
• termination charge paid for incoming ILD traffic termination• additional service charges to local operators
Additional tax expense in the form of the Universal Service Fund tax (1.2% of revenues, collected from subscribers for LD services)
Effect on margins Negative effect on EBITDA margin
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Operators Market: Sharp Increase in Revenue from Leased Line Services Driven by Booming Demand
Strong growth in demand and competitive prices boost revenues from leased line services
2,402 2,767 4,638 6,046
2002 2003 2004 2005
Unique scale and capacity of Rostelecom’s nationwide network
Strong growth in demand for leased line services across Russia
Further expansion of flexible multiplexers network
High quality of service and brand awareness
Rostelecom enjoys strong position in the leased line market
Sustained growth in revenues
Revenue from leased line services
RUR mln
+15%
+68%
+30%
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International Market: Stable Revenues on the Back of Healthy Traffic Growth
Strong relationships with international operators underpin Rostelecom’s leading position in the international market
Active cooperation with international operators
Incoming ILD settlement rates revision
Strong growth in traffic and positive revenue dynamics
4,250 3,871 4,041 4,0826,018
1,693
1,449
1,207
973
869
2001 2002 2003 2004 2005F
Revenue, RUR mln
Traffic, mln min
Traffic and revenue from international operators
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Value Added Services: Enhancing Competitiveness by Catering to Corporate Customers’ New Needs
Rostelecom – competitive player in the VAS market
Surge in INS revenues26 48 142 430
2002 2003 2004 2005F
RUR mln
+196%
+85%
Revenue from Intelligent Network Services
+202%
Effective promotion of existing Intelligent Network Services (INS):
• Free-phone (8-800-200; 8-800-100)
• Televoting (8-803-200)
• Prepaid card
Active development of new services:
• 8-802/8-805/8-806/8-809 services to be launched
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Entry into Europe–Asia Transit Market WillStrengthen Competitive Potential in the Medium Term
Opportunities
Europe-Asia traffic is expected to
continue its 20 to 30% annual growth
trend
Existing undersea lines of competitors
will not be able to accommodate
growing capacity needs
Competitors’ undersea lines have certain
drawbacks, including limited capacity,
large length, poor quality & reliability
Rostelecom strengths
Rostelecom’s high-technology terrestrial countrywide network represents the shortest traffic transit route between Europe and Asia
We offer better quality and reliability of routing along with competitive pricing
• Capacity expansion of Rostelecom’s network to Chinese border underway
• Organization of point of presence in New York underway
Flexible solutions to customers needs - protocol insensitive technology enables to carry any
combination of voice, data, video and IP applications
Great potential of further development of TEA:
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Steady Efficiency Gains and Profit Performance Strengthen Rostelecom’s Financial Position
1) Adjusted to the new settlement system
2,820739 4,298398
2.900.76 0.41
4.42
2002 2003 2004 H1 2005Net profit, RUR mln EPS, RUR
Net profit and earnings per share
11,436 11,651 12,720 7,152
36%34%37%41%
2002 2003 2004 H1 2005OIBDA, USD mln OIBDA margin, %
2)2)
2) Decline in OIBDA margin is due to the introduction of the new settlement system
OIBDA and OIBDA margin
2,185 3,1411,898 5,005
2002 2003 2004 H1 2005
Operating profit, RUR million
29,222 27,152 25,968 25,153 24,315
546
702 690771
808
H1 2003 H2 2003 H1 2004 H2 2004 H1 2005
Average headcountRevenue/employee, RUR'000
1)
Revenue per employee
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Strong Balance Sheet and Steady Positive NOCF Generation Underlie Financial Flexibility
3.67.2
10.0
27.3
4.1 5.0
12.7
26.022.1
38.3
2000 2001 2002 2003 2004
Preferred sharesOrdinary shares
Dividends, USD million
5,713 2,075 7,754 5,917
2002 2003 2004 H1 2005
Net operating cash flow, RUR million
1,088
1,046
570 140
553
126
207
1,2871,1071,2101,932
127
31/12/2003 30/06/2004 31/12/2004 30/06/2005
more then two years1-2 yearsCurrent
Interest bearing loans, RUR million
Cur
rent
loan
s as
a %
of
cas
h an
d ca
sh
equi
vale
nts
88% 19%33%76%
Debt down 17.5%
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Capital Expenditure Program to Enhance Rostelecom’s Competitive Advantages
233
82 80
108
156
230-250
60-80
2000 2001 2002 2003 2004 2005F 2006F 2007F 2008F
USD mln
Investment priorities
Capacity expansion
Implementation of unified billing system
Construction of new fiber-optic lines
Secondary network modernization,
development of new services
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Today’s Priorities Focus on Competitive Strength and Efficiency
Traditional LD voice transit services to end-users
Advanced technological solutions for corporate clients
Further operationalefficiency enhancement
Further growth in traffic in the Russian market through active marketing efforts
Strengthening competitive position in Moscow
Active promotion of Europe-Asia traffic transit service
Strengthening leadership in the international market
Further trunk network modernization and expansion
Disposal of underperforming and non-core assets
Business processes and organizational structure optimization
Management’s key goal – to secure Rostelecom’s competitive position
in the liberalized market
Operators market
Active promotion and launch of new intelligent network services
Expansion of multi-service network
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A P P E N D I X
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Main Effect of the New Settlement System – Direct Revenue Recognition from End-Users
Old DLD settlement system
RTO #1:LD call
initiation
RTO #1:LD call
initiation
RTO #2:LD call
termination
RTO #2:LD call
termination
Long-distance operator
Long-distance operator
End-user tariff
Transit rate + Termination
charge
End-user
Termination charge
Termination charge
New DLD settlement system
End-user
RTO #1:LD call
initiation
RTO #1:LD call
initiation
RTO #2LD call :
termination
RTO #2LD call :
termination
Long-distance
operator #1
Long-distance
operator #1
Long-distance
operator #2
Long-distance
operator #2
End-user tariff
End-user tariff
Initiation charge
Termination charge
Initiation charge
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On January 1, 2006 Rostelecom Started Operating Under the New ILD Settlement System
Old settlement system
End-user
RTO(ILD call
initiation)
RTO(ILD call
initiation)
International operator(ILD call
termination)
International operator(ILD call
termination)RostelecomRostelecom
End-user tariff
50% of end-user tariff
Termination charge
International LD services to Russian end-users
International operator
International operator RostelecomRostelecom
International transit and
termination rate
RTO(ILD call
termination)
RTO(ILD call
termination)(no payments)
Incoming ILD traffic termination
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On January 1, 2006 Rostelecom Started Operating Under the New ILD Settlement System
New settlement system
RostelecomRostelecom
End-user tariff
End-userTermination
charge
RTO:ILD call
initiation
RTO:ILD call
initiation
International operator(ILD call
termination)
International operator(ILD call
termination)
Initiation charge
International LD services to Russian end-users
RTO(ILD call
termination)
RTO(ILD call
termination)
Termination chargeInternational
operatorInternational
operator RostelecomRostelecom
International transit and
termination rate
Incoming ILD traffic termination
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H1 2005 IFRS Financial Highlights: Robust Increasein Profits on Top-line Growth and Efficiency Gains
RUR mln H1 2005 H1 2004 Change, %
Local operators 12,285 10,732 14.5
Subscribers 4,112 4,368 -5.9
Foreign operators 2,302 2,204 4.4
Other 953 617 54.5
Total revenue 19,652 17,921 9.7
Operating expenses before depreciation and loss on disposal of PP&E (12,500) (11,379) 9.9
OIBDA 7,152 6,542 9.3
Depreciation 3,649 3,649 0.0
Loss on sale of property, plant end equipment (362) (73) 395.9
Total operating expenses (16,511) (15,101) 9.3
Operating profit 3,141 2,820 11.4
Gain from associates 26 74 -64.9
Net result from financial activities 563 294 91.5
Profit before tax 3,730 3,188 17.0
Income tax expense (910) (777) 17.1
Profit for the period 2,820 2,411 17.0
Earnings per share 2.90 2.48 16.9
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Condensed Consolidated Balance Sheet
RUR mln Jun. 30, 2005 Dec. 31, 2004 Change, %
Non-current assets 47,301 48,788 -3.0
Current assets 20,217 15,632 29.3
Accounts receivable, net 6,329 5,613 27.0
Short-term investments 6,302 8,150 -32.5
Cash and cash equivalents 6,802 1,255 442.0
Total assets 67,518 64,420 4.8
Total equity 51,598 50,838 1.5
Non-current liabilities 6,034 7,316 -17.5
Interest bearing loans, net of current portion 267 777 -65.6
Deferred tax liability 5,530 5,954 -7.1
Current liabilities 9,886 6,266 57.8
Accounts payable and accrued expenses 5,313 3,299 61.0
Current portion of interest bearing loans 1,287 1,107 16.3
Total liabilities 15,920 13,582 17.2
Total equity and liabilities 67,518 64,420 4.8
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Solid 2005 FY Performance under RAS Contributes to Rostelecom’s Strong Financial Position
2005 2004 Change, %
Million minutes
Domestic long-distance traffic 9,347 9,094 2.8
Outgoing international traffic 1,769 1,541 14.8
Incoming international traffic 1,693 1,449 16.8
RUR million
Revenue 40,292 37, 471 7.5
Operating expenses (28,331) (25,550) 10.9
incl. depreciation (2,627) (2,063) 27.3
EBITDA 14,588 13,983 4.3
Operating profit 11,961 11,920 0.3
Results from other operating activities 902 (1,214) n/a
Results from other non-sales activities (704) (926) -23.9
Profit before tax 12,159 9,781 24.3
Profit tax 3,132 2,559 22.4
Extraordinary items 1 (1) n/a
Net profit 9,028 7,221 25.0
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Rostelecom - Investment Profile
“BB-” credit rating from S&P, outlook stable
Corporate Governance Code and Code of Ethics in place
IFRS reporting
Listings:
NYSE, RTS, MICEX
Free float:
62% (49% ORD and 100% PREF)
Market capitalization:
USD 3.12 bn
Recent stock price (10/04/2006):
ORD: USD 3.49 (52 WK HI/LO: USD 3.86 / 1.96)
PREF: USD 2.30 (52 WK HI/LO: USD 2.61 / 1.40)
ADR: USD 20.83 (52 WK HI/LO: USD 22.70 / 11.67)
2004 Dividend yield:
2.5% (ORD) / 6.5% (PREF)
Dividend policy
PREF: 10% of the full financial year net profit under RAS
ORD: recommended by the Board of Directors
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Contact Information
Investor & Public Relations
Anton KlimenkoDirectorTel. + 7 495 973 9920Fax + 7 495 973 9977E-mail: AKlimenko@hq.rt.ru
Company Headquarters
14, 1st Tverskaya-Yamskaya StreetMoscow, 125047 RussiaTel. + 7 495 972 8283Fax + 7 495 787 2850E-mail: rostelecom@hq.rt.ru
www.rt.ru/en
Corporate Secretary
Olga Mokhoreva
Tel. + 7 495 973 9921Fax + 7 495 787 2850E-mail: Mokhoreva@hq.rt.ru
ADR Program Administration
JPMorganTel. + 1 800 428 4237
(Free Phone in the US)Tel. + 1 781 575 4328 E-mail: adr@jpmorgan.com
www.adr.com