OREANDA-NEWS. On 14 April 2009 VolgaTelecom (RTS: NNSI/NNSIP; MICEX: VTEL/VTELP; ADR: VLGAY) presented its audited 2008 financial results in accordance with Russian Accounting Standards (RAS).

Commenting on the company’s FY 2008 financial results, the general director of VolgaTelecom pointed out that despite the influence of factors which arose due to changes in the current legislation with respect to the cancellation of the compensatory surcharge and interconnection point fees, and the execution of tariff risk for regulated telecommunications services, which has had a negative impact on the Company’s revenues, by way of intense development in the high-revenue segment, and also actions aimed at minimizing the consequences of the economic crisis by enhancing operating efficiency, VolgaTelecom managed to achieve operating profit targets.

The operator’s headline 2008 financial and operating indicators, based on audited reporting data, can be summarized as follows:

Revenue from core types of activity – Rub 26.42 bln (105%)

Revenue from telecommunications services Rub 24.94 bln (104.4%);

EBIT – Rub 5.52 bln (90.5);

Pre-tax profit – Rub 4.07 bln (86.6%);

Net profit – Rub 2.95 bln (88.8%);

Netprofitmargin– 14.1% (-3.3% vs. 2007);

OIBDA* –Rub 9.87bln(102.9%);

OIBDA margin – 37.4%;

EBITDA ** – Rub9.91bln, (109.9%);

EBITDA margin – 37.5%;

Totalinvestments-  Rub 6,061 bln(82 %).

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 * OIBDA is measured as the amount of sales profit and depreciation of fixed assets.

** EBITDA is measured as the amount of profit before taxation, interest payable, depreciation of fixed assets, and lease payments adjusted for the amount of interest receivable.

The main reasons for the change in revenue are as follows:

Higher revenue due to an increase in the number of broadband Internet users.  The number of broadband Internet users (the Company provides services under the J trademark) increased by 210.8% and stood at 785,400, thanks to which the pace of revenue growth from Internet and network datacom stood at 158.6%.  The share of revenue from value-added services in VolgaTelecom’s revenue rose to 18.7% (up from 12.4% in 2007).

A decrease in the pace of revenue growth compared to 2007 was due to factors related to the legislative regulation of activities.  Cancellation of the compensatory surcharge on zonal call origination, and a change in the tariffication procedure under time-based billing.

A decrease in the use of telecommunications services, especially in the small and medium-sized business segment which was attributable to the influence of the global economic crisis, also contributed to lower revenue from telecommunications services.

VolgaTelecom’s total expenses stood at Rub 20.89 bln in 2008 (109.6%).  The largest components of the company’s cost breakdown fell to payrolls (30.2%) and depreciation (20.8%).

At the same time, the company’s accounting policy for reflecting expenses for providing universal telecommunications services in the cost of production and refunding expenses from the universal reserve fund in other operating revenues had a major impact on the increase of operating expenses and the decrease of operating activity.  In comparable terms, EBIT stood at Rub 6.4 bln in 2008.

Inthereportingperiod, theinvestmentsofVolgaTelecomdecreasedby18% andstoodatRub6.06 bln.  The biggest part of investments fell to investments in value-added services – 51.1% (vs. 27.1% in 2007), of which xDSL ISP accounted for over half.  The amount of investments in local and intrazonal telecommunications decreased to 20.6%.