Rostelecom secures strategic partnership to boost the development of its data centers and cloud business

VTB Bank has acquired 44.8% in Rostelecom Data Centers and cloud divisions

Moscow, Russia - December 24, 2020 - Rostelecom group (MOEX: RTKM, RTKMP; OTCQX: ROSYY), the largest integrated digital service provider in Russia, today announces that it has  signed the deal to attract VTB Bank as the strategic partner ("The Transaction") to jointly develop Rostelecom Data Centers ("RTK-DC"), a subsidiary that combines data centres and cloud assets. VTB Bank invests RUB 35 billion in RTK-DC for a 44.8% stake with a transaction multiple of 7.8x EV/OIBDA 2020. The deal is expected to be closed until the end of 2020. It also provides for the possibility of a Rostelecom Data Centers IPO within the coming three years.

Mikhail Oseevsky, CEO & President of Rostelecom, commented: ""We are very excited to initiate our strategic partnership with VTB Bank for the development of our cloud division. This is a significant milestone that will accelerate growth and facilitate the realisation of our data centers and cloud potential. Over the next couple of years, we expect this part of the business to deliver double-digit growth which will continue to power the delivery and expansion of Rostelecom's digital proposition.

We are seeing growing interest in Russian tech companies from capital markets, and together with VTB, we will plan for RTK-DC to go public in the medium term. This will provide the opportunity for institutional and retail investors to support our plans to drive future growth of this promising division. We expect the IPO of our cloud segment to yield higher valuation multiples that usually apply to data centers and cloud companies, which will ultimately lead to better market valuation of Rostelecom itself."

Yuri Soloviev, First Deputy President and Chairman of VTB Bank Management Board, commented: "Rostelecom is a long-standing partner of VTB and our investment in RTK DC is another milestone of this strategic relationship. Along with a great potential of joining up our forces for cloud development, we are seeing significant synergy opportunities for RTK DC and VTB's own cloud integration and digitalisation projects. We believe that RTK DC will benefit from the steadily growing demand for cloud models, as well as a significant backlog of demand for these technologies due to a relatively slow implementation pace in the Russian markets historically. Today, it is almost impossible to operate successfully without reliable digital technologies allowing real-time communication, which is why companies are increasingly relaying on these models. We are also confident of RTK DC's long-term success because of the growing investor interest in and focus on tech companies. Our professional team is excited to bring our capital markets expertise for a successful listing of RTK DC together with Rostelecom, in order to attract a broad range of investors".

Transaction strategic goals

The strategic partnership with VTB Bank will support Rostelecom's investment in the growth of data centers and cloud business. The transaction funds will be deployed for debt repayments and to drive the RTK-DC investment programme which includes the development of its regionally distributed data center network and the development of new cloud solutions.

The transition of state and corporate clients of various size onto subscription models of IT and cloud services consumption is the key driver of growth. Additional growth is also expected to come from the expansion of digital economy projects which captures demand for storing and processing digital data coming from mobility, AI, analytics, IoT and edge computing.

Further information is available at https://www.company.rt.ru/en/ir/news_calendar/.

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In early 2021 Rostelecom intends to host a conference call for investors and analysts where it will discuss the Transaction details and share the outlook of the core data centers and cloud business streams within the Rostelecom Group.

Further details of the conference call will be announced closer to the date.

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Rostelecom Data Centers (RTK-DC) manages Rostelecom's data centers and cloud services, including DataLine acquired in 2019. Today, RTK-DC is an undisputed leader in the data centers market with a 25%[1] share, and 26%[2] in cloud / IaaS market. The combined capacity of its data canter network is powered by 12,200 racks. The 2020 revenues are expected to exceed RUB 26 billion[3] with an OIBDA margin of 40%.

RTK-DC key business priority is the development and provision of wide-ranging turnkey solutions for the business and the State: including the development, roll-out and maintenance of information systems and software/hardware infrastructures through the geographically distributed data centers network and smart access to the cloud ecosystem.

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Rostelecom is the largest integrated digital services and products provider, operating in all segments of the telecommunications market in Russia. The Company serves millions of households, state and private enterprises across the country.

Rostelecom is Russia's undisputed market leader, providing high-speed Internet access and pay-TV. The total number of broadband users stands at over 13.4 mln users, it has more than 10.7 mln pay-TV customers, over 5.8 mln of which are subscribed to Rostelecom's IPTV services. Tele2 Russia, a Rostelecom subsidiary, is a major player in the mobile market with over 44 mln subscribers and the industry-leading NPS, a customer satisfaction benchmark.

The Group is the leading provider of telecommunications services to government bodies and corporates of all levels.

Rostelecom is a key strategic innovator that provides solutions in the following fields: E-Government, cybersecurity, data-centers and cloud computing, biometry, healthcare, education and housing & utility services.

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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 intended to be covered by the safe harbours created thereby.

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

• Assessment of PAO Rostelecom's (the Company) future operating and financial results as well as forecasts of the present value of future cash flows and related factors;
• The Company's plans to take ownership stakes in other organisations;
• 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 forecasts on 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 upon the annual report publication or to reflect the occurrence of unanticipated events, except as may be required under applicable laws.

[1] By #of racks as of 1 December 2020, according to IKS Consulting data

[2] By revenue as of 1 December 2020, according to IKS Consulting data

[3] Including revenues from companies of Rostelecom group