Rostelecom releases unaudited H1 2003 RAS results

ROSTELECOM REPORTS FIRST HALF 2003 RAS UNAUDITED NET PROFIT INCREASE OF 102.4% TO RUR 3,204.4 MILLION

• Revenue for the first half 2003 amounted to RUR 12,942.6 million, an increase of 29.9% versus first six months 2002*. Based on the adjusted first half 2002 numbers, revenue growth was 4.2%;
• Domestic long-distance traffic** was up 20.7% year-on-year;
• Outgoing international traffic grew by 3.5%, while incoming international traffic surged 29.5% compared to the first half 2002;
• Operating profit for the first six months 2003 increased 3.6% to RUR 4,217.9 million, while compared to adjusted operating profit for the first half 2002 it increased 6.0%;
• Net profit increased by 102,4% to RUR 3,204.4 million.

Moscow – July 31, 2003 – Rostelecom (NYSE: ROS; RTS: RTKM), Russia’s national long-distance telecommunications operator, today announced unaudited results for the first six months 2003 in accordance with Russian accounting legislation - RAS.

Domestic long-distance (DLD) traffic for the first half 2003 totaled 4,014.8 million minutes, a year-on-year increase of 20.7%. DLD revenues increased year-on-year by 13.2% to RUR 4,724.3 million.

Outgoing international long-distance (ILD) traffic in the first six months grew to 624.9 million minutes, a 3.3% increase over the first half 2002. ILD revenues from Russian operators and subscribers declined by 4.5% to RUR 3,772.9 million.

Incoming international traffic surged 29.5% year-on-year to 551.8 million minutes. Revenues from international operators (only for telephone traffic termination) totaled RUR 1,968.4 million, representing a 2.7% decline compared to the first half 2002. The revenue decline is due to Rostelecom’s efforts to decrease settlement rates with international operators throughout 2002.

Total revenues for the first half 2003 were RUR 12,942.6 million, up 29.9% year-on-year. As previously reported, the Company has moved to a new method of accounting for operations with international operators in its RAS financial statements, which takes into account the total amounts of both revenues from and payments to international operators. Based on the adjusted 2002 first half number, revenue growth was 4.2%.

First half 2003 operating costs amounted to RUR 8,724.7 million, a 48.1% increase versus the first six months of 2002. Operating costs, compared to the adjusted first half 2002 number, increased by 3.3%.

The increase in operating costs is primarily explained by the following factors: higher staff costs due to increases in payrolls and redundancy payments, an increase in payments to operators, higher public utilities prices, and growth in insurance costs as Rostelecom insured its production equipment in early 2003.

Depreciation charges declined by 29.1% to RUR 1,829.3 million as a number of Rostelecom’s leased assets were fully depreciated in the second half of 2002.

EBITDA was RUR 6,047.2 million, representing a 9.1% decline year-on-year. However, if compared to EBITDA of the first half 2002 adjusted for the new accounting method, the decline was 7.8%. This decline reflects growth in some of the operating costs as described above.

Operating profit grew by 3.6% to RUR 4,217.9 million, while compared to adjusted operating profit for the first half 2002 it increased 6.0%.

The results from other operating activities amounted to RUR -515 million compared to
RUR -1,041.3 million for the first six months of 2002. The improvement is primarily due to growth in interest income (by RUR 30.0 million), decrease in interest expenses (by RUR 101.9 million), lower bad debt expense (by RUR 183.1 million) as well as higher gains from sale of financial instruments.

Results from other non-sales activities amounted to RUR 629.7 million compared to
RUR -913.6 million in the first half of 2002. The improvement is explained by foreign exchange gains as well as income from the restructuring of Rostelecom’s debt to the Ministry of Finance.

As a result, first half 2003 net profit increased by 102.4% year-on-year to RUR 3,204.4 million.

Balance Sheet, RUR '000

Profit and Loss Statement, RUR '000

Key Ratios

* EBITDA and Operating margins decline is explained primarily by the growth in revenue resulting from the new method of accounting for operations with international operators

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.