Rostelecom releases its 9 months 2003 results based on the principles of International Financial Reporting Standards

ROSTELECOM REPORTS 20.8% GROWTH IN NINE MONTHS 2003 CONSOLIDATED REVENUE, DRIVEN BY TRAFFIC GROWTH, STRONGER COMPETITIVE POSITION AND SETTLEMENT SYSTEM REFORM

Excluding the effect of the new settlement system introduction1 consolidated revenue increased by 13.1%

Rostelecom (NYSE: ROS; RTS, MICEX: RTKM, RTKMP),
Russia's national long-distance telecommunications operator, today announced results for the first nine months of 2003 based on the principles of International Financial Reporting Standards (IFRS):

• Consolidated revenue for the first nine months of 2003 increased by 20.8% to USD 738.72 million;
  
  
• Excluding the effect of the introduction of the new settlement system, consolidated revenue totaled USD 691.6 million, an increase of 13.1% year-on-year. Non-consolidated revenue (excluding the effect of the new settlement system) amounted to USD 642.8 million, an increase of 8.5% year-on-year;
  
  
• Domestic long-distance traffic was up 17.3% year-on-year3;
  
  
• International outgoing traffic grew by 5.6%; while international incoming traffic grew by 28.7%;
  
  
• First nine months 2003 operating income before amortization and depreciation and loss on disposal of property, plant and equipment (OIBDA4) amounted to USD 292.8 million, an increase of 9.8% year-on-year;
  
  
• First nine months 2003 net profit amounted to USD 36.4 million compared to USD 90.9 million for the same period a year ago.

Rostelecom's General Director Dmitry Yerokhin commented, «The positive trends that we experienced in the first half of 2003 strengthened going into the third quarter. We have stabilized the Moscow market, with increases in revenues and traffic from Moscow subscribers. Domestic long-distance traffic from regional markets continued to grow in double digits. Incoming international traffic demonstrated impressive growth accompanied by further increases in Rostelecom's market share».

Vladimir Androsik, Rostelecom's Chief Financial Officer, added. «We are pleased to report that the new settlement system for domestic long-distance traffic transit was successfully introduced in the third quarter of 2003. Introduction of the new system led to a USD 47 million increase in revenue and USD 45 million increase in costs (payments to local operators). As we have stated, the new system is transparent, meets international standards and strengthens Rostelecom's competitive position».

«OIBDA increased by 10%, OIBDA margin came to 40%. There was some pressure on operating costs mainly due to increases in non-cash items such as depreciation charges and loss on disposal of property plant and equipment, resulting from the Company's efforts to decommission analogue lines and other underperforming assets. It is important to note that, although these measures produced a negative effect on the profit and loss statement, they will lead to lower maintenance costs and higher cash flows in the future».

1. Rostelecom financial results for the first nine months of 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 first nine months of 2003 in accordance with the old settlement system. Please also note that according to Resolution of the Russian Government settlements for domestic long-distance traffic transit between Russian operators are carried out based on the traffic in the preceding month. However, current month traffic is used for preparation of the financial statements based on the principles of IFRS. Thus, reported financial results for the first nine months of 2003 include the effect of the new settlement system introduction for three months commencing July 1, 2003.
   
   
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 first nine months of 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 the first nine months of 2003 have not been adjusted for inflation. To calculate the dollar amounts of the consolidated financial statements for the first nine months of 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. The press release contains verified traffic data.
   
   
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.

   Press-release (pdf, 558 Kb)