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Russia's MTS optimistic as phone usage rises


MOSCOW, Aug 11 (Reuters) - Russia's top mobile carrier MTS defied the region's dire economic situation with a rise in sales and forecast-beating quarterly profit and said it was moderately optimistic for the second half of 2009.
Revenue rose in most local currencies compared with the first quarter and same period last year, which ran counter to Russia's deep recession, MTS' Chief Executive Mikhail Shamolin said.
Russia's economy contracted 10.9 percent in the second quarter as the country has entered its first recession in a decade, and rising unemployment, slower income growth and limited access to credit have hit most consumers.
In Russia, its key market where it competes with the country's no. two and three, Vimpelcom and MegaFon, sales rose 7 percent in roubles year-on-year and by 9 percent against the previous quarter.
"The telecom sector overall stays pretty resilient because the telecom and mobile product became such an integral part of a consumer's basket that it stays in demand despite the economic situation," Shamolin said in an interview with Reuters Television.
Analysts agreed with the executive's rosy assessment.
"MTS' results support our optimistic view on the company's fundamentals, confirming the sector's defensive nature as demand for mobile services is still strong despite the crisis," Uralsib analyst Konstantin Chernyshev wrote in a note.
But the company, which also has significant exposure to the corporate segment, limited its expectations to "moderate optimism" as it did not rule out a delayed decline in demand for its services as laid off workers fail to find new jobs.
MTS' shares were up 0.5 percent at $43.70 by 1641 GMT in New York, bucking an overall market decline. 


MTS, which services nearly 100 million subscribers in six former Soviet Union states, reported net profit of $563 million against a $541 million market view and a $57.7 million net loss in the previous quarter.
The strengthening of the rouble resulted in a $198 million foreign exchange gain against a $462 million forex loss in the first quarter, and together with rising sales in local currencies allowed it to return to profit in the April-June period.
But in year-on-year terms, net profit was down 15 percent as sales fell 23 percent to $2 billion because the rouble was still weaker to the dollar than a year ago.
Due to the consolidation of low-margin retail businesses in its results from February and March, MTS' margin on operating income before depreciation and amortisation fell to 47.2 percent from 51.2 percent a year earlier.
MTS also said it had accumulated $1.5 billion of cash by the end of June, part of which it will use to fund the acquisition of a 51 percent stake in fixed-line provider Comstar.
"We will need to take some (loans to buy Comstar) but we also have some cash on our balance so it will be eventually a combination of own funds plus some borrowings," Shamolin said.
MTS has to redeem $520 million before the end of 2009 and at least $933 million in 2010. Its total debt totals $4.6 billion.

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