Far East Telecoms Released Unaudited Results for 1H 2009

OREANDA-NEWS. September 15, 2009. Far East Telecom (RTS: ESPK, МICEX: DLSV, OTC US: FEEOY, Frankfurt and Berlin stock exchanges: D7A) announces its unaudited results for the first six months of 2009, ending June 30, 2009 in accordance with International Financial Reporting Standards (IFRS).

The company’s consolidated interim financial reports include the assets and liabilities pertaining to the results of the business activities of the Far East Telecom Group of companies, which provides local telephony, cellular telephony and other telecommunications services.

Headline financiali ndicators

Composition of subsidiary companies

General Director Andrey Balatsenko had the following to say: “We’re satisfied with the results of the Group’s companies in the first half of 2009.  Revenue outpaced the rise in net operating expenses, OIBDA came in 13% higher than in the year-earlier period, net profit increased by 29%, and profit margin exceeded 16%.  The healthy business model, which was chosen by the company during the pre-crisis period, concerted efforts to boost market share and the rollout of value-added services enabled us to achieve this performance”.

Revenue from sales

Higher revenue was attributable to:

An increase in revenue from datacom and telematic services (Intercom);

An increase in local telephony earnings.

Telegraphic, datacom and telematic services (Internet)

The most rapid growth in income came from interactive digital television, which amounted to 70% (for 6 months ended June 30, 2009 equal to Rub 106.3 mln, compared to Rub 62.5 mln in the year-earlier period).  The rise in earnings was due to an increase in the subscriber base (+32,551 subscribers) for a total of 62,240 subscribers as of the six months ended June 30, 2009, up from 29, 689 as of the six months ended June 30, 2008).   An increase in the subscriber base is attributable to the commercial launch of service at the Amur branch of Far East Teleceom in June 2008.

As for broadband Internet services, earnings rose 44% for 6 months ended June 30, 2009 equal to Rub 1,821.9 mln, compared to Rub 1,263.7 mln in the year-earlier period.  The main revenue growth driver was the increase in the subscriber base.  Compared with the same period in 2008, it increased by 135,539 subscribers (including 19,341 subscribers at Sakhatelecom) and reached 373,196 subscribers. In addition, the indicator “Average revenue per user” (ARPU) for 6 months ended June 30, 2009 stood at Rub 866 (compared to Rub 932 6 months ended June 30, 2008).

Major growth in revenue equal to Rub 25.6 mln (44%) was seen in virtual private networks (IP VPN) Rub 84.1 mln for 6 months ended June 30, 2009 vs. Rub 58.6 mln for 6 months ended June 30, 2008 as a result of a rise in the subscriber base – 1,679 for 6 months ended June 30, 2009 vs. 1,364 for 6 months ended June 30, 2008.

Local telephony

Growth from local telephony was attributable to an 11.2% tariff hike at Far East Telecom effective September 20, 2008 and 8.7% at March 1, 2009 and 6.3% at Sakhatelecom effective March 1, 2009.  The subscriber base of local telephony users as of June 30, 2009 decreased by 0.6% or by 9,235 subscribers compared with the subscriber base as of June 30, 2008 and stood at 1,620,676 subscribers. [4].

Intrazonal telephony

Intrazonal telephony earnings for the first six months of 2009 decreased by 1.2% compared to the same period in 2008.  The decrease in revenue was due to a contraction in F2F traffic by Rub 73.8 mln, or by 14%.  This was due to a 16% decrease in F2F traffic or by 20,073,000 min. as a result of mobile substitution.

Mobile (cellular) telephony

Cellular telephony revenue for the first six months of 2009 decreased by 6.6% compared to the same period in 2008, or by Rub 38 mln.  This was due to a decline in revenue at the Kamchatka and Magadan branches of Far East Telecom and at BIT owing to fiercer competition and the introduction of new tariff plans with reduced subscriber fees. By contrast, revenue at Akos rose by Rub 10.6 mln or 3% for six months ended June 2009.

Interconnect and traffic transmission

An 18.1% increase in revenue or Rub 162 mln from interconnect and traffic transmission for six months ended June 2009 was attributable to the following factors:

the cancellation of the service fee at interconnect points effective March 1, 2008;

the introduction of differentiated tariffs for zonal origination of calls within the limits of a single village (Rub 0.80 – 1.25 /min instead of Rub 1.52 /min);

the loss of a share of earnings from traffic transmission (zonal completion of calls) in connection with the deregulation of zonal market services and the entry into this market of alternative telecom operators .  These trends were mainly visible in the Primorsk, Khabarovsk, Amur and Kamchatka branches of Far East Telecom;

a decrease in the share of earnings from traffic transmission through access nodes (local call origination) in conjunction with a decrease in the share of dial-up Internet services and an increase in the share of ADSL Internet solutions.

In addition, a decrease in the share of revenue for the Far East Telecom Group of companies from zonal call termination was partially offset by a rise in revenue from other types of traffic transmission – local call termination.

Operating expenses and revenue

Payrolls, other payments and social contributions

Expenses under this line item increased by 6.6% compared with the same period in 2008 in connection with the indexation of salaries for the employees of Far East Telecom, which was performed in July 2008.

Materials, repair and maintenance, utility services

A 5.9% increase in the line item “Materials, repair and maintenance, utility services” was attributable to an increase in utility fees (9.4% or Rub 15 mln) as well as repair and service (21% or Rub 45 mln).  Material expenses, including subscriber equipment for the provision of broadband Internet and interactive television services decreased by 5.4% or Rub 19 mln compared to the same period last year.

Interconnect expenses

Expenses incurred for the services of telecom operators increased by 14.6% or Rub 138 mln and reached Rub 1,083 mln.  This was due mainly to a change in tariffs for the lease of intrazonal lines in the interests of the zone, which became effective in March 2008.  In addition, during the reporting period there was an increase of expenses due to a rise in consumption of Internet services.

Depreciation and amortization

The line item “Depreciation and amortization “showed a 7.3% increase in expenses.  This was due to the implementation of an investment plan and the commissioning of fixed assets.

In-house and borrowed capital

The net assets of the Far East Group of companies amounted to Rub 11,400 mln as of June 30, 2009, which implies an increase of 8.6% or Rub 900 mln compared with the data as of December 31, 2008, i.e.  Rub 10.500 mln.  In addition, the share of in-house capital in balance sheet currency increased by 2.4% compared with the beginning of the reporting period, i.e. from 50.3% to 52.7%.

 

Liquidity

As of June 30, 2009 current liabilities exceeded current assets by Rub 2,413 mln (Rub 2,247 mln as of December 31, 2008).

Further information on the Company can be found at www.dsv.ru, in the comprehensive information disclosure system SKRIN at www.skrin.ru, Interfax news agency at www.interfax.ru, and news agency AKM at http://www.akm.ru/.

[1]OIBDA is calculated as revenue minus operating expenses before depreciation;

[2]EBITDA is calculated as profit before taxation not including depreciation and interest-bearing expenses (net);

[3]including outsourcing and agency fees

[4]Includes only commercial line, agency and departmental lines not included;

[5]Including profit from the sale of fixed assets and other assets and the refund of looses from provision of universal telecom services;

[6]including outsourcing and management expenses, agency fees, expenses for fire safety and non-agency security, property lease expenses, deductions for the universal service fund, advertising expenses, audit expenses and consulting services;

[7]Interest-bearing debt is equal to long-term liabilities on credits and loans, long-term liabilities for financial lease, current liabilities for credits and loans, shares of long-term credits and loans subject to payment within a year, current liabilities for financial lease.

[8]Net debt is calculated as interest-bearing debt minus cash & equivalents.

[9]This ratio is calculated as cash & equivalents and short-term financial investments divided by all current liabilities.

[10]This ratio is calculated as cash & equivalents, short-term financial investments, current trade receivables divided by all current liabilities.

[11]This ratio is calculated as all current assets divided by all current liabilities.

[12]This ratio is calculated as the difference between in-house capital and all non-current assets divided by all current assets.