Chairman’s statement

Ivan Rodionov
Chairman of the Board of
Directors of Rostelecom

Dear Shareholders and Stakeholders,

Rostelecom embarked on a major new chapter of its history in 2011.
The reorganisation of our Company and the consolidation of its regional telecom operators mean that as well as becoming a giant of the domestic telecommunications market, Rostelecom is also one of the world’s largest telecom companies in terms of scale. This brings with it a wide range of benefits as it expands our share of the telecommunications market as well as our presence in the capital markets.

The decision to reorganise Rostelecom was driven by our desire to take the Company to a new and exciting stage of its development. As a result of its restructuring, Rostelecom is a larger entity, the value of its assets has grown, the business has become far more stable and its investment appeal has significantly increased. It also means we have the largest telecommunications infrastructure in Russia, our ability to promote innovative telecommunications solutions has been enhanced and our competitive positioning is superior to anything else in the marketplace.

Minority shareholders benefit from higher trading liquidity, due to the increase in Rostelecom’s outstanding shares, and the inclusion of Rostelecom’s shares into the MSCI Index means that shareholders now have a blue chip investment in their portfolio.

The consolidation brings a range of additional benefits, particularly to consumers and end users. The quality and variety of services provided by Rostelecom to the public, to businesses and to the government will improve and the introduction of a fourth major federal-level player to the industry will intensify competition. A larger, universal operator also strengthens the State’s ability to modernise Russia’s network infrastructure, of which Rostelecom’s networks form a major part.

Minority shareholders benefit from higher trading liquidity, due to the increase in Rostelecom’s outstanding shares, and the inclusion of Rostelecom’s shares into the MSCI Index means that shareholders now have a blue chip investment in their portfolio. The additional fundamental value created by the consolidation has attracted interest from a wide range of investors and this has strengthened our position when negotiating strategic M&A transactions. New partners are increasingly requesting the use of Rostelecom shares as currency in transactions due to their high investment potential. This is why the Board of Directors has approved a share buyback, in which the Company accumulated a 3.86% stake of its ordinary shares. Some of these shares, which were acquired from minority shareholders in over-the-counter transactions to limit any dilution of the Company’s free float and to prevent stock price fluctuations caused by an open market buyback, may be sold during the Company’s SPO. The buyback presents obvious benefits and when Rostelecom’s growth potential is taken into consideration, we consider the deal do be highly accretive to all our shareholders.

The strategy, which sets out clear medium-term objectives, has been designed to ensure high levels of success, stability and sustainability for Rostelecom.

Looking further ahead, the Board’s approval of the united Rostelecom’s strategy up until 2015 is an additional significant landmark. The strategy, which sets out clear medium-term objectives, has been designed to ensure high levels of success, stability and sustainability for Rostelecom. A clear plan has been designed to improve operational performance and modernize and diversify the Company’s offering. The new, united Rostelecom is fast on the way to becoming a modern service company with a range of quality services, supplied by highly skilled and talented personnel.

Rostelecom’s Corporate Governance policies are being reviewed as part of our restructuring, as is the approval of a new united Rostelecom dividend policy. Changes to the Company’s dividend policy are of benefit both to existing shareholders and to potential investors, as the threshold for minimum dividend payout for ordinary shares has been revised. The Company also now uses International Financial Reporting Standards to determine united Rostelecom’s net profit for the purpose of calculating total dividend payments. This corresponds to best international practices and enables more objectivity in evaluating the Company’s performance, as contributions from Rostelecom’s subsidiaries and affiliates are taken into account.

The Board of Directors recommended that the AGM approves to pay a dividend for 2011 that amounts to RUB 14,961.559 million or 45.95% of 2011 net profit in accordance with RAS, which equals 32.48% of 2011 net profit as determined in accordance with International Financial Reporting Standards (“IFRS”), including:

  • a 2011 cash dividend of RUB 4.6959 per share on the Company’s Class A preferred shares, which represents 3.5% of 2011 net profit under RAS or 2.48% of 2011 net profit under IFRS on all Class A preferred shares;
  • a 2011 cash dividend of RUB 4.6959 per share on the Company’s ordinary shares, which is equivalent to 42.45% of 2011 net profit under RAS or 30% of 2011 net profit under IFRS on all ordinary shares.

I am confident that the reorganisation is just the beginning of better changes. We are proving that Rostelecom is able to promote change within itself and the competitive landscape that surrounds it. This creates unique advantages for the Company, sets the course for the market and creates bigger opportunities for its customers, partners, employees and shareholders.

Sincerely,
Ivan Rodionov
Chairman of the Board of Directors of Rostelecom

History

Service