Far East Telecom Released 1Q Unaudited Financial Results under RAS

OREANDA-NEWS. On 13 May 2009 Far East Telecom (RTS: ESPK, MICEX: DLSV, ADR US OTC: FEEOY, Deutsche Bourse and Berlin Stock Exchange: D7A), the biggest telecom of Russian Far East Region, announceв unaudited financial results for the 1st quarter of 2009 according to Russian Accounting Standards (RAS).

Financial Highlights for the 1st Quarter 2009

 

1. "OIBDA" was calculated as revenues minus operational expenses before depreciation;

2. "OIBDA margin" was calculated as OIBDA divided by revenues

3. “EBITDA” was calculated as profit before tax plus lease payments on off-balance lease plus interest payable less interest receivable

4. "EBITDA margin" was calculated as EBITDA divided by revenues.

Activity Efficiency Highlights

Employees number according to the records as of March 31, 2009 reached 11,043 employees having reduced for 276 people or by 2.5% comparing to the amount on January 1, 2009 (11,319 employees);

Revenue per employee increased by 22.3% up to 303.1 thousand RURles for the 1st quarter 2009 (the 1st quarter 2008 – 247.9 thousand RURles);

Amount of lines per employee increased by 8.6% up to 136.1 lines (the 1st quarter 2009 – 125.3);

Cost per 1 Rouble of revenue for the 1st quarter is 70.56 kopecks having increased by 1.6% (the 1st quarter 2009 - 69.43 kopecks) comparing to the same period of the last year.

Revenues from Telecommunication Services Highlights for the 1st Quarter 2009

Reasons for revenues growth are as follows:

increase in sale from Internet access services;

increase in sale from interactive television services (IP TV);

increase in sale from local telecommunication;

increase in sale from intrazone telecommunication services.

Revenue from Internet Access and Data Transmission Services

The highest growth rate of revenue was reached because of broad-band Internet access services subscribers’ base enlargement. Comparing to the 1st quarter 2008, it increased for 115,046 subscribers (as of march 31, 2009 it was 301,382 subscribers). Besides, revenue growth was stimulated by active advertising new limited and non limited tariffs, which for its turn promoted growth of income from subscriber’s charge.

Revenue increase on “Interactive television” (IP TV) service was 75.7% or 20.3 million RURles comparing to the 1st quarter of 2008. Revenue growth is due to subscribers’ base enlargement for 27,039 subscribers (as of March 31, 2009 size of subscribers’ base reached 47,866 subscribers). Also revenue increase is caused by IP TV extension in July 2008 in Amur Region.

Revenue from Local Communication Services

Increase in revenue from local telecommunication service is caused by growth of subscription tariffs for unlimited tariff plan starting from September 2008 and since March 2009.

Revenue from Intrazone Telephone Communication Services

Revenue growth is caused by including incomes from channels mutual backlog with CJSC “Company TransTeleCom” since July 2008 in Primorsky and Khabarovsky Branches to this statement. Without this factor revenue decreasing would be 3.7% or 16.1 million RURles. Decreasing is caused by interzone traffic decrease by 7.5% (or 28.7 million RURles) in respect to F2F traffic decrease to 14.9% or 27.5 million RURles. Traffic decrease was due to alternative internoze communications operators’ entry to the market and mobile substitution.

Revenues from Cellular Communication Services

Revenues from cellular communication for the 1st quarter 2009 decreased comparing to the 1st quarter 2008 by 20.2%. This decrease is due to subscribers’ base reduction to 7,750 subscribers and average income per subscriber that results from stiff competitive situation from Bolshaya Troika (Big Three) in Magadanskaya region and Kamchatskiy Krai.

Connection and Traffic Interconnection Services

Decrease of revenues from connection and traffic interconnection services for the 1st quarter 2009 comparing to the 1st quarter 2008 is caused by:

cancellation of payment for interconnection points maintenance starting on March 1, 2008;

income loss from traffic service due to demonopolization of zone fixed communication market and alternative communication providers entry to that market. These trends first appeared in Primorskiy, Khabarovskiy krai and Amur region;

local and zonal traffic income decreasing, which is caused F2M traffic increasing;

income loss from traffic of signal office centre (local signal initiation), which is caused by commutated Internet access revenue share decrease and DSL share increasing.

Changes in Subscribers’ Base and New Services Share in Revenue Resulting for the 1st Quarter 2009

Share of new services (Internet access, data transmission, mobile electronic communication, interactive television services and video on demand) in Company’s revenue structure in the 1st quarter 2009 reached 30.2% (for the 1st quarter 2008 share of new services was 26.5%);

Subscribers’ base of commutated Internet access dropped by 38% up to 120,344 subscribers (for the 1st quarter 2008 – 194,867 subscribers) because of subscribers’ transition to the service of broad-band Internet access;

Subscribers’ base of broad-band Internet access users increased by 62% up to 301,382 (for the 1st quarter 2008 – 186,336 subscribers);

Cellular communication subscribers’ base reduced by 7.5% up to 95,116 subscribers (Kamchatskiy Region 36,437 (for the 1st quarter 2008 – 46,334), Magadanskaya Region 58,679 (for the 1st quarter 2008 – 56,522);

Amount of basic telephone numbers at the end of the 1st quarter 2009 reached 1,362,291 numbers (at the end of the 1st quarter 2008 – 1,362,082 numbers).

Operating Expenses Highlights for the 1st Quarter 2009

 

5. Including expenses for electro -heat-and-power energy for 113.6 million Robles.

6. Informational, consulting, audit, transportation, safety, maintenance and repair, personnel re-training services, advertisement.

7. Lease payments, property rent, non-state pension insurance, voluntary medical insurance for employees

Wages payment expenses increased for 82.26 million RURles or by 13.4% comparing to the 1st quarter 2008 due to salary increasing of Company’s employees that was made in 2008.

Depreciation & amortization is held flat at level of the 1st quarter 2008.

Inventories are also held flat at level of the 1st quarter 2008.

Expenses increase for “Communications providers’ services” for 113.5 million RURles for the 1st quarter 2009 comparing to the same period of the last year was due to signing agreement on channels of level STM-16 Vladivostok- Khabarovsk mutual backlog with CJSC “Company TransTeleCom” of since July 1, 2008 (120 million RURles for one quarter). Without this factor’s influence there is an expenses decrease caused by decreasing Internet services using by other side operators and increasing OJSC Rostelecom’s Internet servicers using.

Expenses for “Expenses on communications providers’ services (excluding the OJSC “Rostelecom”)” increased to 113.5 million RURles in the 1st quarter 2009.

Increase for the “Rostelecom” services is caused by tariffs growth for channels rent in favor of the zone starting from March of 2008, as well as by expenses increase connected with Internet services usage growth.

Expenses for “Services of other (side) organization” increased to 26.1 million RURles; increasing is caused by other organization maintenance expenses growth, repair and maintenance of buildings, offices, constructions, and equipments.

Other expenses increase for the 1st quarter 2009 to 27.0 million RURles comparing to the same period of 2008 is due to expenses growth on software and data bases (8.7 million RURles, 7.5 million RURles of it are expenditures on licences writing off and OEBS application), expenses for agents services (7.8 million RURles), non-governmental retirement insurance for employees (3.8 million RURles).

Non-operational Incomes and Losses

The 1st quarter 2009 resulted in loss from other non-operational activity amounting at 150.7 million RURles that is 11.9% less comparing to the loss of the 1st quarter 2008 (expenses of 171.0 million RURles).

Interest income decreased by 21.5% and reached 3.6 million RURles;

Interest expenditures accounted at 129.5 million RURles that is kept on the level of the 1st quarter 2008 (130.1 million RURles);

Significant impact on losses reduction from other types of activity resulted from the fact that in 1st quarter 2009 Company sold some property which has not been used in production activity.

Equities and Liabilities

Net assets of OJSC Far East Telecom as of March 31, 2009 increased by 8.4% and reached 8,839.7 million RURles (as of December 31. 2008 – 8,152.1 million RURles). Share of equities in the balance increased by 3.5 points comparing the beginning of 2009 (48.3%) and reached 51.8%.

	2008 Million RURles	2007Million RURles	% Change, yoy
Debt (8)	5, 675.6	6, 187.4	(8.3%)
Net debt (9)	5, 398.5	6, 042.8	(10.7%)

 

8. Debt is equal to sum of long term credit and loan liabilities and short term credit and loan liabilities.

9. Net debt is calculated as actual debt minus cash funds, their equivalents and short-term financial investments.