Rostelecom sees a halving in third-quarter profit as rising costs hit bottom line

19 Nov 2014

Russian telecoms service provider Rostelecom has reported a halving in net income for the third quarter ended 30 September 2014, as rising operational costs bit hard into its earnings. The company booked net income of RUB4.971 billion (USD106.1 million) for the period under review, compared with RUB9.522 billion in Q3 2013, noting too that its results were affected by the completion of a plan to spin-off of its mobile assets. In a financial release, the carrier confirmed that the transfer of Rostelecom’s mobile assets to the joint venture with Tele2 Russia had the following impact on the company’s consolidated results:

- The consolidated results for the third quarter of 2014 contain a one-month contribution (July 2014) from RT-Mobile;

- In the third quarter of 2014 after the deal with Tele2 Russia was completed, Rostelecom received a one-off gain before tax of RUB22 billion as a result of fair valuation of investments to the joint venture with Tele2 Russia;

- As a result of this one-off gain, Rostelecom’s consolidated net income increased by 157% to RUB24.5 billion in the third quarter, and by 71% to RUB 39.6billion in the nine months of 2014.

Sergey Kalugin, Rostelecom’s President, commented: ‘The deal to establish the joint venture with Tele2 Russia was completed in August, leaving us with a 45% stake in a newly created nationwide operator. This enables the management team to sharpen its focus on our core fixed line business, where strong results were achieved in the priority broadband and pay-TV segments during the third quarter of 2014.’

State-controlled Rostelecom said revenue from continuing operations grew 3% year-on-year to RUB74.764 billion thanks to increases in the number of broadband and pay-TV subscribers on its books, although OIBDA slipped marginally to RUB26.160 billion from RUB27.003 billion and operating income dipped 14% to RUB10.799 billion. CAPEX of RUB11.067 billion (14.8% of revenue), marked a 7% y-o-y increase from RUB10.362 billion in 3Q13.

As at 30 September 2014, Rostelecom reported a total of eleven million broadband subscribers on its books, up 7% y-o-y from 10.3 million, including a similar 7% rise in residential high speed internet customers to 10.3 million and a 28% annualised increase in fibre-optic connections to 4.8 million. Further, the pay-TV user base increased by 6% to 7.8 million, the number of IPTV customers rose 26% to 2.5 million and the local fixed telephony user base decreased by 7% to 25 million – attributed to ‘changes in end-users’ preferences in how telephone calls are made and the migration of the corresponding traffic to mobile and VoIP operators’ networks’. The mobile base fell to zero (o) as a result of the deconsolidation of mobile assets following the creation of the joint venture with Tele2 Russia.

Russia, Rostelecom, Tele2 Russia