OREANDA-NEWS. October 12, 2010. 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 first six months ended June 30, 2010.

HALF YEAR FINANCIAL HIGHLIGHTS

·        Consolidated revenues of RUB 30.0 billion, of which revenues from new and value-added services of RUB 10.7 billion were up 6% year on year to 35.7% of the Company’s consolidated revenues;

·        OIBDA* up 1% year on year to RUB 5.8 billion with an OIBDA margin of 19.4%;

·        Net profit up 31% year on year to RUB 1.9 billion.

KEY STRATEGIC DEVELOPMENTS

•         Rostelecom summarized the results of the public auction and chose Sberbank for the opening of non-revolving credit lines for a total amount of RUB 30.0 billion for periods between 24 and 36 months and with an interest rate range of 7.28% to 8.20%

•         Rostelecom’s AGM approved the merger of Rostelecom with 7 interregional companies and Dagsvyazinform in 1Q2011 and also approved the applicable share swap ratios. The Company’s shareholders also approved the distribution of the net profit for 2009 under Russian Accounting Standards (RAS): RUB 3.6 billion, or 70% of the net profit is to go towards an increase in Company equity; RUB 1.5 billion or 30% of the net profit is to be distributed as dividends for the full year 2009 with the following weighting:

1.      10% of total net profit for the full year 2009 is to be paid to holders of preferred shares

2.      20% of total net profit for the full year 2009 is to be paid to holders of ordinary shares.

·         The number of Rostelecom authorized ordinary shares increased to 5,900,000,000 from 905,330,221 for the purposes of the additional share issue related to the merger of the Company with seven interregional companies and Dagsvyazinform in 1Q2011

·         An EGM has been scheduled for November 10, 2010 to vote on the dividend payment for the first nine months of 2010, which amounts to:

o        0.0000000411722654% of the Company RAS net profit for the first nine months of the 2010 financial year per preferred share, and

o        0.0000000274519684% of the Company RAS net profit for the first nine months of the 2010 financial year per ordinary share

·         Rostelecom & IRCs repurchased shares representing not more than 10% of the companies' net assets as at March 31, 2010. The shares were repurchased from  shareholders who voted against or didn’t vote on the merger.

·         Rostelecom and Comstar Group completed a series of transactions involving the sale by Comstar Group to Rostelecom of the 25%+1 share in the charter capital of Svyazinvest OJSC. In conjunction with these transactions, Rostelecom transferred RUB 26 billion to Comstar Group.

Rostelecom generated RUB 30.0 billion of revenues in the first half of 2010, compared to RUB 32.8 billion for the corresponding period of 2009. The performance reflected growing revenues from new and value-added services (including data services, INS, leased lines and customer equipment services), offset by a decrease in revenues from traditional voice domestic and international long-distance (DLD/ILD) services.

Revenue from new and value-added services grew by 6% year on year to RUB 10.7 billion and accounted for 35.7% of the Company’s consolidated revenues for the first six months of 2010. The increase reflected the mixed effect of the threefold 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 5.5 billion, a 18% decrease in revenues from leased-line services to RUB 2.9 billion, mainly due to the construction of networks by other telecom operators, and a 12% increase in revenues from intelligent network services (INS) to RUB 583.0 million.

Revenues from traditional voice domestic and international long-distance (DLD/ILD) services decreased by 15% year on year to RUB 19.3 billion and accounted for 64.3% of the Company’s consolidated revenue in the first half of 2010, compared to 69.4% in the corresponding period of 2009.

In the traditional voice telecom segments there were several key trends that impacted Rostelecom during the first half of 2010.

Revenues from international operators for incoming ILD telephone traffic transit and termination decreased by 19% year on year to RUB 2.8 billion in the first six months of 2010. Revenue from ILD services to Russian end-customers and operators decreased by 23% year on year to RUB 4.4 billion.

Revenues from domestic long-distance (DLD) services decreased by 11% year on year to RUB 12.1 billion.

The decrease in DLD and OILD traffic and revenue is primarily attributable to the global macroeconomic environment, the growing competition in the long-distance market as well as the continued migration of long-distance end-customer traffic from fixed-line to mobile networks.

Total operating expenses excluding depreciation and amortization for the first half of 2010 decreased by 10% year on year and amounted to RUB 27.8 billion primarily due to the 25% decrease in payments to international operators to RUB 3.8 billion in line with the decrease in international transit traffic, 8% decrease in payments to Russian operators to 11.4 billion, due to 10% decrease in employee costs to RUB 4.9 billion, due to implementation of the Company’s business optimization initiatives and the streamlining of the organizational structure. Company's overall headcount decreased by 7% year on year to 20,550 employees as of June 30, 2010.

In the first half of 2010, OIBDA increased by 1% year on year to RUB 5.8 billion representing an OIBDA margin of 19.4%.

Depreciation and amortization remained flat year on year at RUB 3.8 billion.

Operating profit increased by 10% year on year to RUB 2.2 billion, with an operating margin of 7.3%, as a result of the optimization of operating expenses.

Other income for the first half of 2010 amounted to RUB 329.0 million compared to RUR 50.0 other expense in the first half of 2009.

In the first half of 2010, Rostelecom’s consolidated net profit increased by 31% to RUB 1.9 billion, representing 6.3% of revenues.

* OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation, amortization, loss from impairment of PP&E, goodwill and other intangible assets as well as loss on disposal of PP&E. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt. OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP or IFRS.