OREANDA-NEWS. January 11, 2011. Rostelecom (“the Company”) (RTS, MICEX: RTKM, RTKMP; OTCQX: ROSYY), Russia’s national telecommunications operator, hereby presents its unaudited consolidated IFRS financial results for the third quarter and first nine months ended September 30, 2010.

3Q financial highlights

Revenue amounted to RUR 15.8 bln, including revenue from new and value-added services, which increased by 16% to RUR 5.8 bln (37% from revenue compared to 32% for the third quarter of 2009);

Adjusted OIBDA1 (not including non-cash accrual of expenses under a long-term employee incentive program equal to RUR 461 mln) was equal to RUR 3.2 bln; OIBDA margin reached 20.3%;

Net profit1, adjusted for adjusted for non-cash accrual of expenses under a long-term employee incentive program was equal to RUR 1.4 bln;

Capital investments amounted to RUR 2.8 bln (17.5% of revenue).  

9M10  financial highlights

Revenue amounted to RUR 45.8 bln, including revenue from new and value-added services, which increased by 10% to RUR 16.5 bln (36% from revenue compared to 31% for the first nine months of 2009);

Adjusted OIBDA (not including non-cash accrual of expenses under a long-term employee incentive program equal to RUR 461 mln) was equal to RUR 9.0 bln; OIBDA margin reached 19.7%;

Net profit adjusted for adjusted for non-cash accrual of expenses under a long-term employee incentive program was equal to RUR 3.3 bln;

Capital investments amounted to RUR 7.7 bln (16.9% of revenue).  

Key events   

 Rostelecom acquired a 25%plus1 share stake in the charter capital of Telecommunication Investment Joint Stock Company (“Svyazinvest”) from Comstar-UTS for RUR 26.0 bln. RUR 23.0 bln of the credit lines were extended by Sberbank at a weighted average interest rate of 7.89%, RUR 3.0 bln came from the Company’s own funds, while RUR 3.0 bln came from the Company’s own funds.

An Extraordinary General Meeting of Shareholders, held in absentia on November 10, 2010, adopted a decision to approve the interim dividend payment for the first nine months of 2010:  RUR 1.67 per Class A preferred share and RUR 1.11 per common share

Shareholders did not approve the proposed amendments to the Company’s Charter, which called for allocating 10% of Rostelecom’s full-year net income as dividend payment on all outstanding Class A preferred shares.  

Headline financial indicators  

RUR, mln

Q310

Q309

Change, %

9M10

9M09

Change, %

Revenue

15.8

16.0

(1%)

45.8

48.8

(6%)

OIBDA

2.8

3.8

(27%)

8.6

9.5

(10%)

OIBDA margin, %

17.4%

23.5%

n.a.

18.7%

19.5%

n.a.

Adjusted OIBDA

3.2

3.8

(15%)

9.0

9.5

(5%)

Adjusted OIBDA margin %

20.3%

23.5%

n.a

19.7%

19.5%

n.a

Operating income

0.8

2.0

(60%)

3.0

3.9

(25%)

Operating margin, %

4.9%

12.2%

n.a.

6.4%

8.1%

n.a.

Adjusted operating income

1.2

2.0

(37%)

3.4

3.9

(13%)

Adjusted operating margin, %

7.8%

12.2%

n.a.

7.5%

8.1%

n.a.

Net profit

0.9

1.8

(50%)

2.8

3.3

(14%)

Net margin, %

5.8%

11.4%

n.a.

6.1%

6.7%

n.a.

Adjusted net margin

1.4

1.8

(25%)

3.3

3.3

0%

Adjusted net margin, %

8.7%

11.4%

n.a.

7.1%

6.7%

n.a.

Total comprehensive income

1.0

2.0

(51%)

 

2.8

 

3.5

 

(21%)

Capital investments

2.8

2.2

24%

7.7

4.1

87%

% of revenue

17.5%

14.0%

n.a

16.9%

8.5%

n.a

Rostelecom generated RUR 15.8 bln of revenues for the third quarter of 2010, compared to RUR 16.0 bln during the same period in 2009. This performance was attributable to the following factors:

Accelerating revenue growth from new and value-added services (including data services, INS, leased lines and customer equipment services);

Gradual decrease in revenues from traditional domestic voice and international long-distance (DLD/ILD) services.  

Revenue from new and value-added services grew by 16% year-on-year to RUR 5.8 bln in the third quarter of 2010, and accounted for 37% of the company’s consolidated revenues, compared to 32% during the same period in 2009. This increase was attributable to the following factors:

a 40% year-on-year increase in revenues from datacom services (including Internet access services for operators and corporate clients, as well as VPN services) to RUR 3.3 bln;

a 3% year-on-year increase in revenues from intelligent network services (INS) to RUR 1.2 billion.

an 11% year-on-year decrease in revenues from leased line services to RUR 1.4 bln, primarily due to the construction of networks by other fixed-line and mobile telephony operators.  

Revenues from domestic voice and international long-distance (DLD/ILD) services declined by 9% year-on-year to RUR 10.0 bln and accounted for 63% of the Company’s consolidated revenue in the third quarter of 2010, compared to 68% during the same period in 2009. The decrease in revenues from traditional services was mainly due to rising competition in the long-distance market, as well as the continued migration of long-distance end-customer traffic from fixed-line to mobile networks.

Rostelecom’s revenues for the year to date declined by 6% year-on-year to RUR 45.8 bln.

Operating expenses before depreciation, impairment of property, plant and equipment (PP&E) and gain on disposal of PP&E and the RUR 461.0 mln non-cash accrual of expenses under a long-term employee incentive program during the third quarter of 2010, increased by 3% year-on-year to RUR 12.6 bln, which was mainly attributable to a rise in SG&M expenses related to the ongoing reorganization. The company’s total operating expenses for the third quarter of 2010 went up by 7% year-on-year to RUR 15.0 bln.

Operating expenses before depreciation, impairment of property, plant and equipment (PP&E) and gain on disposal of PP&E and RUR 461.0 mln of non-cash accrual of expenses under a long-term employee incentive program for the first nine months of 2010decreased by 6% year-on-year to RUR 36.8 bln. Total operating expenses for the first nine months of 2010were down 4% year-on-year to RUR 42.8 bln.

Adjusted OIBDA in the third quarter of 2010 decreased by 15% year-on-year to RUR 3.2 bln in the third quarter of 2010, with OIBDA margin of 20.3%, compared to 23.5% during the same period in 2009. Adjusted OIBDA was down 5% year-on-year to RUR 9.0 bln for the first nine months of 2010, and a higher adjusted OIBDA margin of 19.7% compared to 19.5% in the year-earlier period.

Depreciation increased by 8% year-on-year to RUR 1.9 bln in the third quarter of 2010 and by 2% year-on-year to RUR 5.7 bln for the first nine months of 2010. This reflected a 24% year on year increase in capital investments to RUR 2.8 bln in the third quarter of 2010 and 87% year-on-year increase to RUR 7.7 bln for the first nine months of 2010.

Adjusted operating income decreased by 37% year-on-year to RUR 1.2 bln in the third quarter of 2010, with an adjusted operating margin of 7.8% and by 13% year-on-year to RUR 3.4 bln for the first nine months of 2010, with an adjusted operating margin of 7.5%. Other income increased by 25% year-on-year to RUR 394 mln in the third quarter of 2010 and doubled year-on-year to RUR 723.0 mln for the first nine months of 2010 mainly due to a decrease in foreign exchange losses.

Rostelecom’s adjusted net income declined by 25% to RUR 1.4 bln in the third quarter and accounted for 8.7% of consolidated revenues. Adjusted net income remained stable year on year at RUR 3.3 bln for the first nine months of 2010 and accounted for 7.1% of consolidated revenues. The EGM on November 10, 2010, voted to approve the dividend payment of RUR 1.2 bln for the period from January 1 to September 30, 2010, with 10% of net income under Russian Accounting Standards payable to preferred shareholders and 20% payable to common shareholders.