Ukrtelecom’s revenue declines 2% y-o-y in 1H11

Ukrtelecom (UX: UTLM UK) reported UAH 3,331 mln in 1H11 revenues yesterday (-2% y-o-y), according to a filing with the State Securities and Exchange Commission. The company’s EBITDA amounted to UAH 660 mln, margin of 20% (down 4 pp y-o-y, but up from 15% in 1Q11); net losses were UAH 215 mln, margin of -6%. Yegor Samusenko: The company’s losses in 1H11 are expected, as they still reflect the inefficient operations under state ownership. Ukrtelecom’s new owner took over only in 2Q11 and we expect a slow turnaround, accompanied by losses, to continue in 2H11 and 1H12. Among the positives in the 1H11 financials, we note revenue growth due to the increase in fixed-line tariffs as of May 1, which contributed UAH 55 mln to the top line – this could come to UAH 150 mln in additional revenue for the second half of the year and decrease losses to 2% of revenues. Its broadband segment was less positive – the company decreased its customer base growth to just 7% YTD, tiny given the current growth rate of broadband nationwide. On the cost side, Ukrtelecom improved its salary expenses by 4% y-o-y and should continue to lay off excessive personnel. While this could result in one-off payments of up to UAH 1 bln (only UAH 34 mln in 1H11), we see cutting the workforce as a key source of margin improvement. We expect no market reaction to the results given the strong support of the stock from the bottom at current prices and no trigger for upward movement.