Far East Telecom Released 1Q Results

OREANDA-NEWS. On 09 July 2009 OJSC "Far East Telecom" (RTS: ESPK, MICEX: DLSV, US OTC: FEEOY, Deutsche Bourse & Berlin Stock Exchange: D7A), a leader at telecommunications market of Far East Region, announced non audited financial results 3 months, ended 31st March 2009 in accordance with International Financial Reporting Standards (IFRS).

Consolidated financial statements include property, liabilities and operation results of Far East Telecom and its subsidiaries, which core businesses are local, cellular and other telecommunication services.

Far East Telecom Group Financial Highlights

		3 months, ended march 31, 2009, millions Roubles.	3 months, ended march 31, 2008, millions Roubles.	% Change, yoy
	Revenues	4,259	3,925	8.5%
	Revenues from telecommunications services	4,162	3,832	8.6%
	Operational expenses (net) before depreciation	2,452	2,315	5.9%
	OIBDA (1)	1,807	1,610	12.2%
	OIBDA margin,%	42.4%	41.0%	-
	EBITDA (2)	1,811	1,643	10.2%
	EBITDA margin,%	42.5%	41.9%	-
	Net profit for the reporting period	828	591	40.1%
	Net profit margin,%	19.4%	15.1%	-

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1. OIBDA was calculated as revenues minus operational expenses before depreciation.
2. EBITDA was calculated as profit before tax less depreciation and interest payable (net).

Subsidiary Companies

			Stake in subsidiary’s share capital, %
	Name	Type of business	As of 31 March 2009	As of 31 December 2008
	OJSC "Sakhatelecom"	Telecommunication services	51.00	51.00
	OJSC "AKOS"	Telecommunication services	94.45	94.35
	“INTERDALTELECOM”, LLC	Telecommunication services	100.00	100.00
	Wireless Information Technologies LLC.	Telecommunication services	100.00	100.00
	OOO "Set Stolitsa" (owned by OJSC "Sakhatelecom")	Telecommunication services	100.00	100.00
	OJSC Shakhtersksvyaz	Telecommunication services	100.00	100.00

"For the first three months of 2009 we demonstrated strong results of EBITDA Margin, and net profit by providing revenues growth increase under expenses growth. Free cash flow grew to more than 440 million Roubles, debt decreased 4% and reached 5.4 million Roubles”, - said Chief Executive Officer of OJSC Far East Telecom Andrew Balatsenko.

"In 2009 we will work to strengthen market as well financial positions of Far East Telecom Group of Companies by active marketing of services, development of technical infrastructure, expenses strict control, and investments efficiency increasing", - he added.

REVENUES FROM TELECOMMUNICATIONS SERVICES

		3 months, ended march 31, 2009, millions Roubles.	3 months, ended march 31, 2008, millions Roubles	% Change, yoy
	Local telephone calls	1,591	1,461	8.9%
	New services (Internet, ISDN, ADSL, IP-telephony)	1,170	860	36.0%
	Intrazone telephone services	605	630	(4.0%)
	Revenues from interconnected operators	381	473	(19.5%)
	Cellular services	277	288	(3.8%)
	Radio and TV broadcasting	40	35	14.3%
	Other telecommunications services (3)	98	85	15.3%
	Total revenues from telecommunications services	4,162	3,832	8.6%

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3. Including assistance and agential services.

Reasons for revenues growth are as follows:

increase in sale from new services;

increase in revenue from local telephone calls;

Revenue from New Services (Internet, ISDN, ADSL, IP-telephony)

The highest growth rate of revenue was reached on IP TV: 78% increase in revenue (for 3 months 2009 – 52.8 million Roubles, for 3 months 2008 – 29.7 million Roubles). The reason of revenue increasing is 31,307 customers’ additions (for 3 months 2009 – 54,704 subscribers; for 3 months 2008 – 23,397 subscribers). Strong growth of customers’ amount is conditioned by IP TV services active development by the Company and service expansion to June 2008 to Amur Branch of Far East Telecom.

Broad band Internet access services revenue grew 55% (for 3 months, ended March 31, 2009 – 886.6 million Roubles, for 3 months, ended March 31, 2008 – 573.7 million Roubles). The main growth driver is customers’ addition. Amount of IP TV customers grew up 137,140 comparing to amount for 3 month, ended March 31, 2008 (including 22,094 customers of OJSC “Sakhatelecom) to 343,337 subscribers. At the same time company succeeded in keeping ARPU at the level of 876 Roubles for 3 month, ended March 31, 2009 (for 3 month, ended March 31, 2008 – 926 Roubles).

Revenue from IP VPN also showed strong growth to 12.7 million Roubles (46%) (for 3 month, ended March 31, 2009 – 40.5 million Roubles, for 3 month 2008 – 27.8 million Roubles) because of customers’ addition (1,636 customers for 3 month 2009, 1,189 customers for 3 month 2008).

Local Telephone Calls

Increase in revenue from local telecommunication service is caused by tariffs growth starting since September 20, 2008 and 1 March 2009 to 11.2% and 8.7% correspondingly, for OJSC Sakhatelecom since March 1, 2009 to 6.3%. Subscribers base of local telephone services for March 31, 2009 decreased 0.3% or 4,773 clients comparing with subscribers base for March 31, 2008 and reached 1,625,203 clients (4) .

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4. Only commercial telephones were took to account, office (work) phones were not included to calculation.

Intrazone Telephone Services

Revenues from intrazone telephone services for 3 month, ended 31st March 2009, decreased 4% comparing to the same period of 2008. Revenue decrease is caused by interzone F2F traffic reduction to 11 million Roubles or 17% comparing with 3 months, ended 31st March 2008 because of mobile substitution.

Cellular Services

Revenues from cellular services for 3 month, ended 31st March 2009, decreased comparing to the same period of 3 month, ended 31st March 2008, 3.0% or 11 million Roubles. This decrease is due to revenues reduction in Kamchatsky and Magadan Branches of Far East Telecom as results of stiff competitive situation and adaptation of new tariffs with reduced telephone subscriber charge. OJSC AKOS revenue for 3 month ended 31st March 2009, increased, contrary, 4% or 7.2 million Roubles comparing with 2008.

Revenues from Interconnected Operators

Decrease of revenues from interconnected operators for 3 month 2009, ended 31st March 2009, is 19.5% or 92 million Roubles, comparing to the same period of 2008 is caused by:

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

introduction of varied tariffs for zone traffic termination within the territory of one village (0.80 – 1.25 Roubles per minute instead of 1.52 Roubles per minute);

decrease in interconnection revenue (zone traffic termination) due to demonopolization of intrazone communication market and entrance of alternative telecommunication providers to that market. These trends appeared in Primorskiy, Khabarovskiy, Amur and Kamchatsky Branches of Far East Telecom; 

decrease in revenue from traffic interconnection to access points (local traffic initiation), which is caused by Commutated Internet Access revenue share decrease and share increasing share of services under technology of ADSL.

Decrease of Far East Telecom’s revenue from Interconnection Services is partially compensated by revenue growth from other traffic interconnection services - local traffic termination and increase.

OPERATIONAL EXPENSES HIGHLIGHTS

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5. Including profit sale from fixed assets and other assets, and covering of expenses from universal services.
6. Including other organizations services and expenses to management, agent services, fire prevention, guard, rent of properties, payment to reserve fond of universal services, advertisement expenses, audit and consulting services.

Personnel Costs

Personnel costs for 3 month, ended 31st March 2009, increased 5.1% comparing to the same period of 2008 due to salary increase of Far East Telecom’s employees that was made in July of 2008.

Materials, Repairs and Maintenance, Utilities

12.6% growth in the line "Materials, repairs and maintenance, utilities" was due to increase of costs for utilities (20.5% or 27 million Roubles) and costs repairs and maintenance (49% or 24 million Roubles). Expenses for materials, including subscribers’ equipment for broadband access to the Internet services (BBA) and interactive digital television (IP-TV), are kept at the level of as it were for 3 month, ended 31st March 2008 (for 3 month, ended 31st March 2009 – 162 million Roubles).

Interconnection Charges – Domestic Operators

Interconnection charges grew 16.6% or 76 million Roubles and reached 533 million Roubles. This increase was mainly explained by the change in tariffs for intrazone channels rent services of OJSC “Rostelecom” effective from March 2008. Besides, there was an expenses growth caused by increasing of Internet services use during the reporting period.

Depreciation & Amortization

The clause "Depreciation and amortization" showed decrease 6.2%. This due to end of amortization for fixed assets, purchased under financial rent contracts in the 4th quarter 2008 and 1st quarter 2009 (expenses for 3 month, ended 31st March 2009 – 32.9 million Roubles, for 3 month, ended 31st March 2008 – 110.5 million Roubles).

EQUITY and LIABILITIES

Far East Telecom Group’s net assets as of March 31, 2009 reached 11,328 million Roubles, by increasing 7.9% or 828 million Roubles comparing to the amount as of December 31, 2008. Equity at the balance increased 2.3 pct from 50.3% to 552.6% comparing to the beginning of the reported period.

		3 months, ended march 31, 2009, millions Roubles.	3 months, ended march 31, 2008, millions Roubles.	% Change, yoy
	Debt (7)	5,456	5,687	(4.06%)
	Net Debt (8)	4,679	5,133	(8.84%)

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7. Debt is equal to the sum of long-term credit and loan liabilities, long-term financial lease liabilities, current credit and loan liabilities, long-term credits and loans share payable within a year and current financial lease liabilities.
8. Net debt is calculated as actual interest-bearing debt minus cash funds and its equivalents.

LIQUIDITY

For 31st March 2009 current liabilities exceeded assets for 1.669 million Roubles (for 31st December 2008 – 2.247 million Roubles).

	Liquidity Ratios	3 months, ended march 31, 2009, millions Roubles.	3 months, ended march 31, 2008, millions Roubles.
	Absolute liquidity ratio (9)	0.15	0.13
	Quick assets ratio (10)	0.44	0.38
	Current liquidity ratio (11)	0.69	0.58
	Working capital coverage ratio (12)	(1.69)	(2.31)

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9. Ratio is calculated as the sum of cash funds, their equivalents and short-term financial investments divided by total current liabilities.
10. Ratio is calculated as the sum of cash, its equivalents and short-term financial investments and current receivables divided by total current liabilities.
11. Ratio is calculated as total current assets divided by total current liabilities.
12. Ratio is equal to the difference between equity capital and total capital assets divided by total current assets.