Russia's MTS blames near 90% profit drop on increased interest costs
Adds detail in paragraphs 5-8
By Gleb Stolyarov and Alexander Marrow
Nov 19 (Reuters) -Russia's largest mobile operator MTS MTSS.MM on Tuesday blamed an 88.8% drop in third-quarter net profit on increased interest expenses as interest rates, which have climbed to 21%, drive up borrowing costs for Russian companies.
Huge expenditure on Russia's military, rouble weakness, labour shortages and robust consumer demand have all contributed to stubbornly high inflation, which the Bank of Russia is trying to tackle by raising interest rates to their highest level in more than 20 years.
MTS reported net profit of 1 billion roubles ($10.01 million) in the third quarter, down from 9 billion roubles in the same period last year.
"Interest expense and the revaluation of financial instruments and derivatives put pressure on net profit," MTS said in a statement.
A growing number of Russian companies and business leaders have criticised the central bank's monetary policy. The central bank insists that stark labour shortages are a bigger drag on development than the high borrowing costs.
Russian Railways, a key cog in Russia's industrial machine, is one of several firms planning to reduce investments next year. The state-owned monopoly expects its interest payment costs to hit $7 billion next year, suggesting a rise of around $4 billion, a company document seen by Reuters showed last week.
The central bank said on Tuesday that it may start cutting interest rates next year, providing there are no new shocks, but companies are clearly anticipating hefty interest costs in 2025.
MTS expects to spend 226.2 billion roubles ($2.26 billion) on debt repayment next year, according to a presentation. That will drop to 130.5 billion in 2026.
MTS reported a year-on-year revenue increase of 15.3% to 180.4 billion roubles in the third quarter, driven by higher revenues from core telecom services and growth in its banking and advertising divisions.
"We need to adjust our strategy and mode of operations due to the tightening of regulatory and monetary policy," President and CEO Viacheslav Nikolaev said in a statement.
($1 = 99.9000 roubles)
Reporting by Gleb Stolyarov and Alexander Marrow; editing by Jason Neely, Louise Heavens and Christina
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