OREANDA-NEWS. On 04 July 2008 Southern Telecommunications Company (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal fixed-line telecommunications provider for Russia’s Southern Federal District released FY2007 audited consolidated financial statements of the Group compiled under International Financial Reporting Standards (IFRS). The audit of 2007 financial statements was carried out by CJSC “KPMG”.

2007 consolidated revenue of the STC Group increased by 12.7% over 2006 to RUR 20,231 mln;

2007 EBITDA [1] increased 17.3% year on year to RUR 7,499 mln representing an EBITDA margin of 37.1%;

Operating profit for the reporting period grew 16.1% over 2006 to RUR 3,385 mln;

Revenues from document communication services (including Internet) rose 55.7% to RUR 2,878 mln.

Revenues

In 2007 consolidated revenue of the Group increased by 12.7% to RUR 20,231 mln.

Revenues from local voice services rose by 6.7% to RUR 9,008 million due to the increase in local tariffs in February 2007.

Revenues from intra-zonal telecommunication services grew by 21.5% to RUR 3,769 million in the period due to introduction of “Calling Party Pays” principle effective since 1 July 2006.

Revenues from interconnection and traffic transit services changed slightly in 2007 totaling RUR 2,901 million.

2007 revenues from document communications (including Internet) increased by 55.7% to RUR 2,878 million. Number of Internet broadband access subscribers surged 130.7% to 169.9 thousand users.

Revenues from other telecommunications services rose 109.3% to RUR 136 million.

In 2007 share of revenues from local voice telephone services decreased by 2.5 percentage points from 47.0% to 44.5% while the share of revenues from document communication (including Internet) increased by 3.9 percentage points from 10.3% to 14.2%.

In the period under report residential customers accounted for 51.1% of telecom services provided by the Company (vs.50.3% in 2006), corporate customers — for 40.12% (vs. 41.4% in 2006), government customers — for 8.8% (vs. 8.4% in 2006).

Other revenues from non-telecom services (revenues received from lease of property, manufacturing of the telecommunication equipment and its technical support, recreation services and sale of products and services provided by auxiliary units) increased by 13.1% to RUR 667 mln.

Operating expenses

In 2007 operating expenses of the STC Group increased by 12.0% to RUR 16,846 million. Though operating expenses in the period increased, the rise in revenue outpaced expenses by 0.7 percentage points due to tight cost control.

A 5.1%-decrease in expenses for wages and salaries was attributable to optimization of the headcount.

The growth of depreciation charges by 6.9% was due to implementation of earlier launched investment projects.

Amount of payments to national telecom operators rose 72.9% to RUR 1,834 million due to Internet traffic growth and introduction of “Calling Party Pays” principle

2007 material expenses amounted to RUR 2,610 million representing a 14.8%-increase over 2006.

2007 other operating expenses rose 0.8% to RUR 1,915 million mainly due to a 82.8%-increase in agency fees.

During 2007, the STC Group wrote-off 5,372 licenses for users of Oracle E-Business Suite software due to a reduction of personnel, in the amount of RUR 235 million, including capitalized interest of RUR 30 million.

Moreover,, the Company recognized a write-off of Amdocs Billing Suite software in the amount of RUR 107 million that was due to a partial deferral of implementation.

2007 EBITDA amounted to RUR 7,499 mln. EBITDA margin stood at 37.1% gaining 1.5 percentage points over 2006.

In 2007 operating profit of the STC Group rose 16.1% to RUR 3,385 mln. Profit during the reporting period amounted to RUR 1,215 mln, which represents a 250.2% rise over 2006.  Profit margin during the reporting period reached 6%.

Interest expense, net for the reporting period decreased 6.9% to RUR 2,135 million.

According to the Development Program for 2008-2012 approved in 2007, the STC. Group works  constantly on optimization of its borrowings structure.

The full text of the STC Group’s 2007 IFRS audited and consolidated financial statements can be viewed on the corporate website in the section "Investor Relations".

[1]  EBITDA  includes Earnings Before Interest Payable, Taxes, Leasing Payments, Depreciation and Amortization minus Interest Receivable