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31.05.2010
Rostelecom releases 2009 IFRS consolidated financial results

Press release

Moscow – May 31, 2010: Rostelecom (RTS, MICEX: RTKM, RTKMP; OTCQX: ROSYY) today announced its audited consolidated financial results for the full year ended December 31, 2009 in accordance with International Financial Reporting Standards (IFRS).

Highlights

Consolidated revenue for FY09 amounted to RUR 65.5 bn;
OIBDA* amounted to RUR 12.5 bn, representing an OIBDA margin of 19.1%;
Net profit amounted to RUR 3.5 bn;
Revenue from new high-tech services increased by 1.5 times year-on-year to
RUR 10.1 bn and accounted for 15.4% of Rostelecom’s consolidated revenue.

Rostelecom and its subsidiaries, (“the Company”), reported the following financial and operating results for full-year 2009:

RUR, mln	2009	2008	Change, %
Revenue	65,510	66,629	-1.7%
Operating expenses, incl.	61,246	59,809	2.4%
OIBDA	12,491	14,274	-12.5%
OIBDA margin, %	19.1%	21.4%	N/A
Operating profit	4,264	6,820	-37.5%
Operating margin, %	6.5%	10.2%	N/A
Net profit	3,456	12,182	-71.6%
Net margin, %	5.3%	18.3%	N/A
Aggregate revenue, total	3,894	5,628	-30.8%

Revenue and positioning in key markets

The Company’s consolidated revenue for full-year 2009 amounted to RUR 65,510.0 mln, implying a 1.7% decrease year-on-year, which is largely attributable to a reduction in revenues from a number of traditional segments, mainly DLD and ILD traffic.

In addition, through ongoing diversification of its business, the Company increased its overall revenues from new high-tech services, such as VPN, data centers and intelligent network services (INS), etc. raising their proportion to 15.4% of Rostelecom’s consolidated revenue mix.

Datacom services as a standalone business (Internet access services for operators (“wholesale Internet”), and corporate clients, as well as VPN, Data Center and VoIP services) rose substantially by 65.8% to RUR 9,014.0 mln. By the end of 2009, the Company’s share in the wholesale Internet services market reached 36%, while its share of the VPN services market stood at 46%.

The Company’s positions in the traditional voice telecom segments during 2009 can be summarized as follows: domestic long-distance (DLD) revenues fell by 11.5% to RUR 26,212.0 mln.

Revenues from international long-distance (ILD) services to Russian end customers and operators amounted to RUR 11,334.0 mln, a 6.2% decline year-on-year.

Total revenues from international operators for incoming ILD telephone traffic transit and termination dropped by 3.3% year-on-year to RUR 6,236.0 mln.

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

Nevertheless, at the end of 2009, the Company’s share in the market of fixed-line DLD/ILD services to Russian household and corporate customers remained relatively stable and amounted to more than 50%, compared to 2008. In the household fixed-line DLD/ILD service market as a standalone, the Company continues to command a dominant position, maintaining an 81% market share as of year-end 2009.

Revenue from leased-line services decreased by 9.8% year-on-year to RUR 6,958.0 mln. This decline is mainly attributable to the fact that Russian operators, (mobile and RTOs), have a reduced demand for channels from the Company, as they in the process of completing the construction of their own networks.

Operating expenses

Total operating expenses for 2009 amounted to RUR 61,246.0 mln, an increase of 2.4% year-on-year. This was primarily due to higher payments made to international operators (mainly as a result of the devaluation of the Russian ruble).

OIBDA, operating profit

In 2009, OIBDA fell by 12.5% year-on-year to RUR 12,491.0 mn, which implies an OIBDA margin of 19.1%.

Depreciation charges for 2009 amounted to RUR 7,580.0 mln, rising 5.7% year-on-year, in part due to the rapid growth of investment into the development of Rostelecom’s IP/MPLS network, as well as IT infrastructure for the provision of new high-tech services.

The Company’s full year 2009 operating profit fell by 37.5% year-on-year to RUR 4,264.0 mln, with an operating margin of 6.5%.

Other income/loss, profit before income tax

Other income for full-year 2009 amounted to RUR 409.0 mln compared to RUR 9,324.0 mln in 2008, (see Appendix I). This difference is largely attributable to the significant additional income derived from the sale of financial investments in 2008.

In February 2008, Rostelecom sold its stake in Golden Telecom, Inc. and the profit from this transaction before tax amounted to RUR 8,666.0 mn.

The Company’s profit before income tax for 2009 thus amounted to RUR 4,677.0 mln, compared to RUR 16,073.0 million in 2008.

Net profit

In 2009 the Company’s consolidated net profit fell by 71.6% to RUR 3,456.0 mln. Net margin stood at 5.3%.

Appendices:

Condensed consolidated statements of comprehensive income for the full year ended December 31, 2009 and December 31, 2008, RUR mln
Condensed consolidated statements of financial position as of December 31, 2009 and December 31, 2008, RUR mln.

Appendix I

Condensed consolidated statements of comprehensive income for the full year ended December 31, 2009 and December 31, 2008, RUR mln

RUR, mln	2009	2008	Change, %
Revenue from telephone traffic transmission:	44,527.0	48,874.0	-8.9%
DLD	26,212.0	29,611.0	-11.5%
Outgoing ILD	11,334.0	12,082.0	-6.2%
Incoming ILD (termination and transit)	6,236.0	6,450.0	-3.3%
Local	745.0	731.0	1.9%
Revenue from leased line services	6,958.0	7,710.0	-9.8%
Datacom services (incl. Internet access, VPN, Data Centers, VoIP)	9,014.0	5,437.0	65.8%
Other revenue	5,011.0	4,608.0	8.7%
Total revenue	65,510.0	66,629.0	-1.7%
Payments to Russian operators	(24,596.0)	(25,743.0)	-4.5%
Payments to international operators	(9,625.0)	(8,706.0)	10.6%
Wages, salaries, other payments and social insurance contributions	(10,197.0)	(9,473.0)	7.6%
Taxes other than on income	(649.0)	(618.0)	5.0%
Bad debt recovery	28.0	32.0	-12.5%
Other operating expenses	(7,980.0)	(7,847.0)	1.7%
Total operating expenses before depreciation and on disposal of PP&E and impairment of PP&E, goodwill and other intangible assets	(53,019.0)	(52,355.0)	1.3%
OIBDA	12,491.0	14,274.0	-12.5%
OIBDA margin, %	19.1%	21.4%	N/A
Depreciation charges	(7,580.0)	(7,174.0)	5.7%
Loss on sale and disposal of property, plant and equipment	(647.0)	(65.0)	10.0x
Impairment of PP&E, goodwill, and other intangible assets	-	(215.0)	N/A
Operating expenses	(61,246.0)	(59,809.0)	2.4%
Operating profit	4,264.0	6,820.0	-37.5%
Operating margin, %	6.5%	10.2%	N/A
Gains/loss from associates	4.0	(71.0)	N/A
Other income (net), incl.	409.0	9,324.0	-95.6%
Interest expenses	(234.0)	(268.0)	-12.7%
Interest income	1,568.0	1,646.0	-4.7%
(Loss) / gain on sale of investments	(81.0)	8,670.0	N/A
Foreign exchange loss, net	(893.0)	(788.0)	13.3%
Other non-operating income, net	49.0	64.0	-23.4%

Income before tax	4,677.0	16,073.0	-70.9%
Current tax charges	(1,270.0)	(4,331.0)	-70.7%
Deferred tax benefit	49.0	440.0	-88.9%
Income tax expenses	(1,221.0)	(3,891.0)	-68.6%
Net income, attributable to:	3,456.0	12,182.0	-71.6%
Equity holders of the parent	3,673.0	12,178.0	-69.8%
Non-controlling interests	(217.0)	4.0	N/A
Net margin, %	5.3%	18.3%	N/A
Other comprehensive income, net of tax, incl.	438.0	(6,554.0)	N/A
Valuation gain/loss on available-for-sale investments	506.0	(412.0)	N/A
Valuable gain on available-for-sale investments transferred to profit on sale	-	(8,666.0)	N/A
Acquisition of subsidiaries	-	268.0	N/A
Income tax relating to the components of other comprehensive income	(68.0)	2,256.0	N/A
Total comprehensive income	3,894.0	5,628.0	-30.8%

Appendix II

Condensed consolidated statements of financial position as of December 31, 2009 and December 31, 2008, RUR mln.

RUR, mln		Dec. 31, 2009	Dec, 31, 2008	Change, %
ASSETS
Non-current assets, incl.		45,298	43,982	3.0%
	Property, plant and equipment	40,249	39,586	1.7%
Current assets, incl.		31,447	32,721	-3.9%
	Accounts receivable, net	8,751	10,133	-13.6%
	Short-term investments	14,947	8,762	70.6%
	Cash & cash equivalents	6,996	11,992	-41.7%
Total assets		76,745	76,703	0.1%

EQUITY AND LIABILITIES

Shareholders’ equity, incl.		61,197	59,425	3.0%
	Non-controlling interests	-177	40	N/A
Current liabilities, incl.		13,290	14,867	-10.6%
	Current portion of long-term borrowings	1,980	2,522	-21.5%
	Short-term borrowings	140	13	10.8x
Non-current liabilities, incl.		2,258	2,411	-6.3%
	Long-term borrowings – net of current portion	-	117	N/A/
	Deferred tax liabilities	1,609	1,590	1.2%
Total liabilities		15,548	17,278	-10.0%
Total equity and liabilities		76,745	76,703
		76,745	76,703	0.1%

Net debt¹		-19,823	-18,102	9.5%