Rostelecom Quarterly Earnings Beat Estimates on Lower Spending

OAO Rostelecom, Russia’s state-run telecommunications operator, reported second-quarter earnings that beat analysts estimates as lower capital spending reduced financial costs.

Net income fell 3 percent to 7.28 billion rubles ($219 million), the company said today in a statement. This beat the average estimate of 6.49 billion rubles from four analysts in a Bloomberg survey. Sales rose 1 percent to 77 billion rubles. Rostelecom cut spending by two thirds to 7 billion rubles while net debt fell 7 percent to 182 billion rubles.

“Profit came higher than expected as the company slowed down capital spending and thereby cut financial costs,” Alexander Vengranovich, an analyst at Otkritie Capital in Moscow, said by phone. “What matters more is how Rostelecom will expand in mobile.”

Rostelecom, Russia’s dominant fixed-line operator with 160,000 employees, is losing users as customers abandon its service in favor of mobile phones. The company is spending more than $2.5 billion a year to expand into growing businesses including wireless service, pay-TV and fixed-line broadband.

The number of Rostelecom’s fixed-line users declined 5 percent from a year earlier to 26.4 million as of June 30, while mobile subscribers added 2 percent to 13.8 million. Fixed broadband users and pay-TV users both rose 11 percent to 9.6 million and 6.9 million respectively.

Second-quarter operating income before depreciation and amortization fell 6 percent to 28.8 billion rubles. The Oibda margin fell to 37.4 percent from 39.9 percent a year earlier as fixed-line users dropped the service and competition intensified in the country’s wireless market.

Full-year Oibda margin should range from 36 percent to 39 percent while revenue will probably show “slight” growth, the Moscow-based company said in a presentation today.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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