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Rostelecom Releases its Half Year 2003 IAS Results

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ROSTELECOM REPORTS CONSOLIDATED FIRST HALF 2003 IAS REVENUE INCREASE OF 10.6% ON STRONG LONG-DISTANCE TRAFFIC GROWTH AND IMPROVED MARKET POSITION

Rostelecom (NYSE: ROS; RTS: RTKM), Russia’s national long-distance telecommunications operator, today announced results for the first half 2003 in accordance with International Financial Reporting Standards (IAS):

  • Consolidated revenue for the first half 2003 increased by 10.6% to USD 440.1* million. Non-consolidated Rostelecom revenue totaled USD 412.2 million, an increase of 4.6% year-on-year;
  • Domestic long-distance traffic was up 20.1% year-on-year**;
  • International outgoing traffic grew by 4.1%, while international incoming traffic grew by 29.5% in the first half 2003;
  • First half 2003 EBITDA amounted to USD 175.8 million, an increase of 1.7% year-on-year;
  • First half 2003 net profit increased by 42.1% to USD 29.7 million.

H1 2003 Developments

First half 2003 results underscore the strengthening of Rostelecom’s competitive position in its key markets. Non-consolidated revenue for the first half of 2003 totaled USD 412.2 million, an increase of 4.6% year-on-year. Consolidated revenue grew 10.6% to USD 440.1 million. A new aggressive approach in Moscow delivered its first results: revenue decline was brought to a stop while total traffic from Moscow subscribers increased by 6.9%. The decline in incoming revenue from international operators slowed significantly on the back of impressive traffic growth and growing market share. Both traffic and revenue from regional operators continued to grow steadily.

A number of factors had a negative effect on the Company’s six months 2003 operating performance, including increased staff costs (as expected) and higher payments to operators as well as growth in non-cash items: increased depreciation charges and loss on asset disposals.

In the first half of 2003 the Company restructured its overdue debt to the Ministry of Finance. As a result of the restructuring, penalties and fines accrued on the debt were written off, which produced a positive impact of USD 23.6 million on the financials, reported as non-operating income in Rostelecom’s first half 2003 results.

In the second half of 2003 the Company expects a further improvement in its revenue dynamics resulting from day-to-day efforts to strengthen its competitive position and helped by the interconnect system reform. Commencing August 1, 2003 a new transparent and efficient settlement mechanism for domestic long-distance traffic transit was introduced. The new settlement system should enhance Rostelecom’s revenue potential as it will halt the economically unjustified decline in traffic transit rates in Russia and increase Rostelecom’s traffic and revenue volumes.

* In order to ensure comparability of Rostelecom’s performance to peer companies, all absolute figures in the profit and loss statement and the balance sheet, 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 statement for the first half of 2002, inflated rubles as reported in the full version of the unaudited 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 sheet 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 economical position of the Russian Federation demonstrate that beginning January 1, 2003 its economy ceased to be hyperinflationary. Respectively, beginning January 1, 2003, the Group does not use provisions of IAS 29 “Financial Reporting in Hyperinflationary Economies”, and all ruble figures in the official consolidated financial statements for the first half 2003 have not been adjusted for inflation. To calculate the dollar amounts of the consolidated financial statements for the first half 2003, ruble amounts as reported in the full version of the unaudited consolidated financial statements were translated into USD using average exchange rate (for P&L items) and end-of-the-period exchange rate (for monetary balance sheet items).

** The press release contains verified traffic data