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Rostelecom

July 1, 2004

Rostelecom reports double-digit growth in revenue and OIBDA for Full Year 2003, driven by traffic growth, stronger competitive position and settlement system reform

Rostelecom (NYSE: ROS; RTS: RTKM, RTKMp), Russia’s national long-distance telecommunications operator, today announced audited results for the full year ended December 31, 2003 in accordance with International Financial Reporting Standards (IAS):

  • Consolidated revenue (1) for the full year 2003 increased by 24.1% to USD 1,039.1 million (2);
  • Excluding the effect of the introduction of the new settlement system (3), consolidated revenue totaled USD 942.4 million, an increase of 12.6% year-on-year;
  • Domestic long-distance traffic rose 15.2% versus 2002;
  • International outgoing traffic grew 7.2% while international incoming traffic grew 24.1% in 2003;
  • Full year 2003 OIBDA (4) amounted to USD 385.3 million, an increase of 11.9% year-on-year;
  • Operating profit surged 36.8% year-on-year to USD 109.2 million;

Rostelecom’s CEO Dmitry Yerokhin commented: “2003 marked an important shift in our priorities from restructuring to growth. Rostelecom achieved its key objective – a strong increase in traffic and revenues – thanks to the growth of the Russian telecoms market and intensive efforts to increase the Company’s competitiveness.
“Rostelecom maintained its leadership in the regions, stabilized its position in Moscow, and increased its share of incoming international traffic. The Company also enhanced operational efficiency, reduced debt and disposed of underperforming and non-core assets to increase its focus.
“In 2004, our goals are to further strengthen the Company’s position in the Russian telecommunications market, increasing revenues and efficiency levels while playing an active role in industry reform.”


Consolidated revenue for the full year 2003 increased by 24.1% to USD 1,039.1 million; or 12.6% to USD 942.4 million excluding the effect of the introduction of the new settlement system. Domestic long-distance traffic rose 15.2% year-on-year, while outgoing international traffic – by 7.2% as Rostelecom strengthened its leadership in the regions and stabilized its position in the Moscow market. Competitive new tariff policies in Moscow and the benefits of the new settlement system with regional operators contributed to traffic and revenue growth. Rostelecom also substantially strengthened its competitive position in the international operators’ market, gaining market share and delivering impressive incoming traffic growth of 24.1%.

A major milestone of 2003 was the reform of the settlement system for domestic long-distance traffic. The new system represents an important step in the development of a rational, market-based telecom sector. It significantly increased the transparency and accuracy of settlements and enabled Rostelecom to capture a greater share of traffic on its network. The introduction of the new settlement produced a USD 96.7 million positive effect on 2003 revenues and USD (89.8) million effect on operating costs.

Traffic growth resulted in higher payments to operators; and increases in salaries to achieve market levels also contributed to the rise in operating costs. Despite this, full year 2003 OIBDA increased 11.9% year-on-year to USD 385.3 million.

In 2003 the Company continued to optimize its assets structure, including discontinuation of usage of underperforming and inefficient assets and equipment. These efforts explain growth in non-cash loss on sale of property, plant and equipment. This had a negative effect on operating profit this year but will have a positive impact on cash generation in future years. Rostelecom also further reduced headcount by 13% year-on-year thanks to its asset optimization program and business-processes improvements. At December 31, 2003 the Company’s headcount amounted to 26,742.

In 2003 Rostelecom continued to improve balance sheet structure including optimization of corporate debt and disposal of non-core assets. In the first half of 2003 Rostelecom restructured its overdue Yen-denominated debt (principal and accrued interest) totaling an equivalent of approximately USD 100 million to the Ministry of Finance. As a result, penalties and fines accrued on the debt were written off, producing a positive impact of USD 24 million in non-operating income.

In the second half of 2003 Rostelecom sold its stake in RTC-Leasing, optimizing the Company’s business portfolio, while selling a non-core asset on favorable terms and reducing debt and credit risk. More details on consolidation of RTC-Leasing and the sale are provided below.

Consolidated net income for the full year 2003 totaled USD 40.6 million, an increase of 9.2% year-on-year.

In 2003 Rostelecom continued to invest in modernization and expansion of its nationwide network. Full year capital expenditures increased by 35% to USD 108 million compared to 2002, and investments are projected to increase to USD 170 million this year.

The key aim of the Company’s investment program is to secure its leading market position and support future growth. As we have stated earlier, in 2004 we expect domestic and international long-distance traffic growth of at least 10% and incoming international traffic growth of at least 20%. Non-consolidated revenue excluding the effect of the new settlement system is expected to grow by 11%.

(1) According to IFRS No. 5, adopted by the Company in 2003, the results of discontinued operations are to be reported separately in the profit and loss statements, including respective amounts for prior periods presented. Therefore results of RTC-Leasing and its subsidiaries, which represent leasing, and banking & investing segments are shown separately as “Net loss from discontinued operations, net of tax”

(2) In order to ensure comparability of Rostelecom’s performance to peer companies, all absolute figures in the profit and loss statements and the balance sheets, included in the text of the press release as well as Appendices I and II, are stated in US dollars (USD).
To calculate the dollar amounts of the profit and loss statements for the year 2002, inflated rubles as reported in the full version of the consolidated financial statements for the period were deinflated and translated into USD using average inflation indices and exchange rates except for non-monetary items (depreciation and loss on sale of property, plant and equipment) which were deinflated using historical inflation indices. Audited balance sheets items at December 31, 2002 were translated into USD using end-of-the-period exchange rate except for non-monetary items (PP&E, long-term investments, inventory, minority interest, deferred taxes, share capital and retained earnings), which were translated into USD using historical exchange rates.
Characteristics of economic position of the Russian Federation demonstrate that beginning January 1, 2003 its economy ceased to be hyperinflationary. Respectively, beginning January 1, 2003, the Group did not use provisions of IAS 29 “Financial Reporting in Hyperinflationary Economies”, and all ruble figures in the official consolidated financial statements for 2003 have not been adjusted for inflation. To calculate the dollar amounts of the consolidated financial statements for 2003, ruble amounts were translated into USD using average exchange rate (for P&L items) and end-of-the-period exchange rate (for monetary balance sheets items).

(3) Rostelecom financial results for the full year 2003 take into account the introduction of the new settlement system for domestic long-distance traffic transit in August 2003. In order to ensure comparability this press-release also contains comparable figures for the full year 2003 in accordance with the old settlement system. 

(4) OIBDA is a non-U.S. GAAP financial measure, which the Company defines as operating income before depreciation, amortization and 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.

***
Certain statements in this press-release are “forward-looking statements” within the meaning of the U.S. federal securities laws and are intended to be covered by the safe harbors created thereby.
These 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 include the risk of changes the Company’s operations and business prospects, the general financial and economic circumstances, relating to regulation of the Russian telecommunications industry and the Russian legislation; the competition and other risks.
For a more detailed discussion of these and other factors, see the Company’s Annual Report on Form 20-F for its most recently completed fiscal year and the Company’s other public filings with The U.S. Securities and Exchange Commission. Many of these factors are beyond the Company’s ability to control or predict. Given these and other uncertainties, the Company cautions 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 to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as maybe required under applicable the U.S. federal securities laws.

 

 


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