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. Last Updated: 07/27/2016

Acquisition of Sovintel Boosts Golden's Profits

Fixed-line carrier Golden Telecom said Monday that a key acquisition pumped up third-quarter profits and would fuel explosive revenue growth in 2003.

Golden said it had consolidated Sovintel, another local fixed-line carrier, from Sept. 16 after it closed a deal to buy the outstanding half of Sovintel shares from state long-distance carrier Rostelecom.

Golden had a net profit of $7.8 million in the third quarter, versus a loss of $1.9 million in third quarter of 2001. Revenues were up more than 25 percent to $46.3 million from $37 million the previous year.

Its customers appeared to be talking more and local voice revenues were sharply up, but analysts said they were disappointed by a fall in data revenues quarter on quarter and wanted explanations.

Deutsche Bank analyst Iouli Matevossov said that behind the Sovintel effect, traffic was up and the results showed a bright picture of the Russian telecoms industry in the third quarter overall.

"It looks to be not only Sovintel pushing operating income and EBITDA," Matevossov said, adding he expected the share to rise. "Traffic volumes are up 22 percent, so I would say this is quite good. I reckon it is probably driven by some of the mobiles."

Matevossov said Golden Telecom could have received a traffic boost from line rental from Mobile TeleSystems and Vimpelcom, the two biggest mobile operators, who rent lines from Golden.

"Generally the growth driver is there, the consumer sentiment is there -- people speaking, people calling -- this is good for Golden Telecom and the mobiles indirectly," he added. Vimpelcom and MTS are expected to report results closer to the end of the month.

"The Sovintel acquisition represents excellent value for our shareholders," Golden Telecom chief financial officer David Stewart said in a statement.

"We are looking to end 2003 with consolidated revenue of $320 million to $340 million, EBITDA of $100 million to $120 million and capital expenditure of $55 million to 65 million."

The company's revenues for the first nine months of 2002 were $121.9 million, and earnings before interest, taxes, depreciation and amortization were $36.7 million.

The company said revenues from its competitive local exchange carrier, or CLEC, business were up 61 percent from the third quarter of 2001 and up 73 percent from the previous quarter.

Tom Adshead of Troika Dialog said he was disappointed by business line and Internet revenues, which were up year on year but off from the second quarter.

Golden cited the bankruptcy of KPNQwest. It previously had a capacity exchange agreement with Ebone, once part of KPNQwest's network.

"We were hoping for slightly higher revenues and one worrying sign is the data revenues actually fell, although it is apparently a one-off. That is very much the core of Golden, of what drives Golden's earnings," Adshead said. "We are waiting for guidance on that."

Internet subscribers were up 5 percent quarter on quarter to 191,707.

Golden said it had also became the sole owner of its mobile operations in the Ukraine after buying out the remaining 31 percent of Golden Telecom Ukraine in the third quarter.