OREANDA-NEWS. January 15, 2010. Rostelecom(NYSE: ROS; RTS, MICEX: RTKM, RTKMP), Russia’s national telecommunications operator, announced its unaudited consolidated financial results for the first nine months of 2009 in accordance with International Financial Reporting Standards (IFRS).

Consolidated revenue for the fist nine months of 2009 remained stable compared to the same period of 2008, and amounted  to RUR 48.8 bln;

Revenue from datacom and intelligent network services (INS), derived as part of the Company’s business diversification initiatives, increased by 1.8 times year on year to RUB 7.1 bln and accounted for 14.6% of Rostelecom’s consolidated revenue;

OIBDA decreased by 19.5% year-on-year to RUR 9.5 bln, which implies a 19.5%  OIBDA margin;

Net profit amounted to RUR 3.3 bln, which implies a 72.5% year-on-year decrease.

During the first nine months of 2009, Rostelecom and its subsidiaries (hereinafter - “the Company”) showed the following financial and operating results:

RUR, mln

9M09

9M08

% Change

 

Revenue

48.764

48.603

0.3%

 

Operating expenses, incl.

44,834

42,407

5.7%

Depreciation and amortization

5,583

5,494

1.6%

Profit / (loss) from the disposal of fixed assets

18

(108)

N/A

 

OIBDA

9,495

11,798

-19.5%

OIBDAmargin, %

19.5%

24.3%

н.п.

 

Operating income

3,930

6,196

-36.6%

Operatingincomemargin, %

8.1%

12.7%

N/A

 

Net profit

3,261

11,871

-72.5%

Net profit margin, %

6.7%

24.4%

N/A

Revenue and positioning in major markets

The Company’s consolidated revenue for the first nine months of 2009 remained relatively stable compared to the year-earlier period and amounted to RUR 48,764.0 mln, which implies a slight increase of 0.3% in year-on-year terms.

Revenue from datacom rose steadily during the first nine months of the year. Datacom services, which include the bulk of Internet access solutions for operators (backbone Internet) and corporate clients as well as VPN services) more than doubled (up 2.1 times) to RUR 6,342.0 mln, including the consolidation of RTComm.ru.

INS revenue for the first nine months of 2009 amounted to RUR 774.0 mln, which implies an 18.4% year-on-year decrease. In this segment the Company’s results were impacted by the drop in demand following the global economic downturn as well as increased competition from other operators which began to sell their own intelligent numbers.

Revenue from leased-line services decreased by 8.3% year-on-year to RUR 5,499.0 mln. This decrease was mainly attributable to the fact that Russian operators (mobile and RTOs) have nearly completed the construction of their own networks, thus reducing their demand for channels. In addition, this offered operators the opportunity to provide channels for leasing, which led to increased competition in the Russian leased line market. Alongside this is the ongoing process of transitioning from analog to digital lines, which are less expensive to lease.

On the whole, revenue for the first nine months of 2009 from new and value-added services, including datacom, INS, leased lines and customer equipment services, among others, rose 19.1% year-on-year to RUR 15,720.0 mln, accounting for 32% of the Company’s consolidated revenue. Traditional domestic and international long-distance (DLD/ILD) voice services accounted for the other 68% of the Company’s consolidated revenue, compared to 73% of the total in the first nine months of 2008.

The Company’s positions in the traditional voice telecom segments were characterized by several trends during the first nine months of 2009.

Incoming ILD traffic rose 9.4% and amounted to 2,635 mln min.  In addition, traffic terminated in Russia decreased 1.4% year-on-year during the period, while transit traffic from international operators rose sharply, up 40.7%. In total, incoming ILD traffic amounted to 2,635 mln minutes, which implies a 9.4% increase year-on-year. Revenue from international operators for incoming ILD telephone traffic transit and termination increased 10.6% year-on-year to RUR 4,927 mln.

Domestic long-distance (DLD) traffic declined 7.5% year-on-year to 6,957.8 mln minutes while 2009 DLD revenues decreased 10.8% to RUR 19,533 mln in the first nine months 2009.

Outgoing international long-distance (ILD) traffic decreased 14.2% year-on-year, totaling 1,297.2 mln minutes. Revenue from ILD services to Russian end-customers and operators amounted to RUR 8,584.0 mln, a 5.3% decrease year-on-year.

The decrease in DLD and ILD traffic and revenue was primarily attributable to the global macroeconomic environment, growing competition in the LD market, as well as the continued migration of long-distance end-customer traffic from fixed-line to mobile networks. In addition, in order to provide clients (households, legal entities and Russian operators) with competitive tariffs the Company adheres to a flexible pricing policy which also impacted DLD and ILD revenues.

Operating expenses, OIBDA, operating profit

The Company’s operating expenses for the first nine months of 2009 amounted to RUR 44,834.0 mln, which implies a 5.7% increase year-on-year. This was primarily attributable to a rise in payments to international operators and the consolidation of RTComm.ru during the full nine-month period in 2009 compared to 2008, as the latter was consolidated only in the third quarter.

Payments made to international operators increased 22.9% year-on-year to RUR 7,367 mln owing to devaluation of the Russian ruble and growth in international transit traffic. Payments to Russian operators decreased 0.6% to RUR 18,509 mln as payments to Russian operators made by Rostelecom decreased as a result of a drop in volumes of DLD and outgoing ILD traffic and, consequently, in initiation and termination payments.

Payroll expenses for the first nine months of 2009 totaled RUR 7,569.0 mln, which implies a 10.9% increase year-on-year. This was primarily a result of the consolidation of RTComm.ru during the full nine-month period of 2009, as well as an increase in the salary budget.  It should be noted that the Company’s salary inflation indexing policy dating back to April 2008 yielded higher salaries and related payroll taxes in the first quarter of 2009 compared to the first quarter of 2008.

In line with the Company’s business optimization initiatives and the streamlining of the organizational structure, the overall headcount of Rostelecom and its subsidiaries was reduced by 3.5% year-on-year to 21,803 employees as of September 30, 2009. As for Rostelecom as a standalone entity, the reduction was 3.6%, with a headcount of 20,318 employees as of September 30, 2009.

In the first nine months of 2009, OIBDA dropped by 19.5% year-on-year to RUR 9,495 mln, which implies a 19.5% OIBDA margin.

Depreciation charges in the first nine months of 2009 amounted to RUR 5,583.0 mln, which implies a 1.6% increase year-on-year

As a result of nearly a 6% rise in operating expenses, while revenue remained virtually unchanged, the Company’s 9M09 operating profit decreased 36.6% year-on-year to RUR 3,930 mln, with an operating margin of 8.1%.

Other income/loss

Other income in the first nine months of 2009 amounted to RUR 266 mln (see Appendix II) compared to other income of RUR 9,587 mln in the same period a year ago (see Appendix II). This difference is attributable to significant additional income derived from the sale of financial investments during the first six months of 2008.

In February 2008, Rostelecom sold its stake in Golden Telecom, Inc. and the profit from this transaction before tax amounted to RUR 8,666 mln.

Consolidation

Consolidated financial results for the first nine months of 2009 include the results of operations conducted by Rostelecom and its subsidiaries: GlobalTel, Globus-Telecom, Zebra Telecom, MTs NTT, RTComm.ru and its subsidiaries, Westelcom, among others.

Net profit

Rostelecom’s first nine months 2009 consolidated net profit decreased by 72.5% and totaled RUR 3,261 mln. Net profit margin amounted to 6.7%.