Ukrtelecom improves profit, cuts market share in most segments in 9M12

Ukrtelecom (UTLM UK), Ukraine’s incumbent telecom operator, reported its 9M12 financials under IFRS last Friday. Revenue fell 2% yoy to UAH 4.95 bln, while its bottom line improved significantly compared to 9M11 UAS-based results: EBITDA reached UAH 1.26 bln (+12% yoy), and net income amounted to UAH 348 mln (vs. UAH 210 mln loss a year ago). In 3Q12 alone, the company posted flat qoq sales, 32% higher EBITDA and 22% higher net income. The improved bottom line comes from costs savings mainly – 3Q12 COGS reportedly decreased 8% compared to 1Q12, including a 3% decline in workforce costs. Meanwhile, Ukrtelecom continued to lose its market share: revenues in each of its growing market segments expanded less than the nation–wide segment’s growth in 9M12: +5% in local telephony (vs. +6% growth for the market), and +2% in internet (vs. +9% for the market). Long-distance telephony revenues (-6% yoy) fell much less than the total market (-14% yoy). The company’s fixed-line customer base saw a 5% yoy decline as of end-3Q12 (and -4% YTD).

Alexander Paraschiy: The only thing that allowed the company to post stable qoq sales was slight improvement in local fixed rates in May 2012, which might allow the company to report non-declining sales in the next quarter as well. Though, it is clear to us that gains in its growth segments will no longer offset the declines in revenues from other fading segments in the next 2-3 quarters, so we expect a further deterioration in Ukrtelecom’s top line in 2013. So far, the company has been able to cut its costs efficiently, and there is a high reserve for further optimizations – this should allow Ukrtelecom to increase profit in 2013 and perhaps in 2014. That said, Ukrtelecom looks like a profit growth story, though on the back of deteriorating sales.