OREANDA-NEWS. On 11 August 2008 OJSC VolgaTelecom [(RTS: NNSI, NNSIP; MICEX: VTEL, VTELP; ADR OTC USA: VLGAY; ADR FSE: NZHGy.F; ADR BerSE: NZHGy.Be; ADR Xetra: NZHGy.De; ADR SSE: NZHGy.SG)] reported 2007 results according to International Financial Reporting Standards (IFRS). The financial statements were audited by independent auditor Ernst & Young LLC.

The Company for the first time has auditors’ report with no reservations in respect of the Company's consolidated financial statements under IFRS.  Property, Plant and Equ ipment fair value assessment resulted in cancellation of auditor’s reservation in respect of carrying amount of these assets.

 According to the audited statements, in 2007 OJSC VolgaTelecom delivered the following financial performance:

- total revenue was RUR 30,036 million, a gain of 19.1 % over 2006;

- operating profit climbed 25.8 % y-o-y to RUR 5,552 million;

- earnings before interest, taxes, depreciation and amortization (EBITDA) rose 27 % to RUR 11,163 million;

- net profit in the reporting period amounted to RUR 3,052 million, a 36.1 % y-o-y increase;

- EBITDA margin increased to 37.2 % from 34.9 % in 2006.

 OJSC VolgaTelecom’s development strategy implementation encouraged positive trends in the Company’s key financial and performance indicators:

-  aggressive high-tech communications services policy and leading-edge marketing decisions pushed up  2007 advanced services revenues  49.5 %  to 3,253 from 2,176 a year ago. Their largest proportion (96%) is derived from Internet access and data network services provision.  In 2007 dedicated and dial-up Internet access traffic increased more than 3.7-fold.

- in the reporting period mobile radiotelephone (cellular) services revenues rose 13% y-o-y  to RUR  4,167 million.

- the Company's efforts on finding optimum number of staff in 2007 led to a 9.8% drop (compared to the reporting period start) in average headcount  to 36.5 thousand employees at the reporting period end.

Intrazone and local telephony revenues comprise communications channels lease revenues that amount to RUR 440 mln and RUR 138 mln respectively (in 2006 they were RUR 367mln and RUR 104 mln, respectively).

 The rise in FY2007 revenues stemmed mainly from:

- increase in Internet access services revenues. Data transfer, telegraph and telematic services (Internet) revenues climbed 49.5% to RUR 3,253 mln;

- surge in revenues from services rendered to Russian operators. In 2007 OJSC VolgaTelecom delivered revenues of RUR 4,741 million from interconnection and traffic transmission services provision. The surge in these revenues was triggered by changes to legislation regulating traffic transmission settlements, effective since July 01, 2006;

- intrazone telephone services revenues growth (37.2 % y-o-y) which was driven by a full year of applying a new procedure of settlements for F2M connections.

Expenses

FY 2007 operating expenses climbed 17.6 % y-o-y to RUR 24,484 million.

The rise in the Company’s 2007 expenses was attributable chiefly to:

 -  increased consumer demand for the services, resulting in surge in expenses for settlements with providers of:

broadband Internet access (broadband subscribers increased 2.9-fold and traffic grew),

intrazone telephone services (intrazone traffic from fixed-line subscribers grew 37.9% y-o-y).

  - the Company’s investments in the network infrastructure development which was aimed to meet consumer demand and which resulted in increase in depreciation.

The portion of payments to personnel in the Company’s cost structure decreased drastically (5. 6%) to 34.8%. The Company’s staff optimization allowed for cutting personnel costs in 2007.

Stringent control over spending enabled the Company to reduce expenses for materials, repairs and maintenance, utilities by RUR 53 million.

In 2007 there were 369 thousand new fixed phone lines and 947 thousand new mobile phones lines.

Extensive investment program required funds borrowing that did not entail increase in long-term and short term borrowings debt which was RUR 14,660 million at the year end. Interest expense totaled RUR 1,134 million in 2007, a 11.4% increase over 2006.  Besides, in the previous period the Company raised both short and long-term borrowings to finance its communications networks development. The funds were raised primarily in the form of bank loans and finance lease.