OREANDA-NEWS. November 06, 2009. OJSC Far East Telecom (RTS: ESPK, MICEX: DLSV, ADR: OTC of the USA: FEEOY, Frankfurt and Berlin Stock Exchange: D7A) announces financial results for 9 months 2009 according to Russian Accounting Standards (RAS).

 Financial Highlights for 9 Months 2009 

Results

9 Months 2009, million Roubles

9 Months 2008, million Roubles

% Change

Revenues

9,941.7

8,937.4

11.2%

including revenues form telecommunications services 

9,453.4

8,487.9

11.4%

Operating expenses

7,352.4

6,650.7

10.6%

Sales Profit

2,589.3

2,286.8

13.2%

Profit before tax

2,071.0

1,771.2

16.9%

OIBDA [1]

3,652.2

3,336.8

9.5%

OIBDA margin [2]

36.7%

37.3%

-

EBITDA [3]

3,533.8

3,141.3

12.5%

EBITDA margin [4]

35.6%

35. 2%

-

Net profit

1,627.0

1,300.6

25.1%

NP margin

16.4%

14.6%

-

"We reached OIBDA, EBITDA, and Net profit growth rate increasing comparing to the 1st quarter and 1st half of 2009 due to growth of sales of Internet access, interactive TV, and traditional telephone services, together with operational expenses strict control” – said Andrey Balatsenko, Chief Executive Officer. “For 9 months 2009 revenue growth rate exceeds the Company’s costs growth rate”, he also commented.    

Business Efficiency Highlights

Employees number according to the records as of September 30, 2008 reached 10,455 employees having reduced for 864 people or by 7.6% comparing to the amount on January 1, 2009 (11,319 people); 

Revenue per employee increased by 21.5% up to 941.5 thousand Roubles for 9 months 2009 (774.7 thousand Roubles for 9 months 2008); 

Amount of lines per employee increased by 8.4% up to 139.7 lines (128.9 for 9 months 2008); 

Cost per one Ruble of revenue for 9 months of 2009 is 0.7395 Roubles having increased by 0.3% comparing to the same period of the last year (0.7441 Roubles - for 9 months 2008).

Revenues from Telecommunication Services Highlights for 9 Months of 2009

Types of Services

9 Months 2009, Million Roubles

9 Months 2008, Million Roubles

% Change

Intrazone telephone communication services

1,660.17

1,420.98

16.83%

 

Local telephone communication services

3,838.82

3,454.66

11.12%

 

Mobile radio communication, wire broadcasting, radio broadcasting, television services

119.78

122.12

(1.92%)

 

Mobile radiotelephone (cellular) communication services

194.94

241.79

(19.38%)

 

Telegraph communication services, data communication services and telematic services

2,902.11

2,316.95

25.25%

 

including data transmission service and Internet access services (except interactive TV)

2,805.85

2,210.27

26.94%

 

    Including interactive television services (IP TV)

152.92

90.53

68.91%

 

Connection and traffic interconnection services

737.61

931.37

(20.80%)

 

TOTAL

9,453.43

8,487.87

11.37%

 

Reasons for revenues growth are as follows:

increase in sales from Internet access services;

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

increase in revenues from local telecommunication

Revenues from Internet access and data transmission services:

High growth rate of revenue was reached due to Broad-band Internet access services customers’ addition. Comparing to 9 months 2008 amount of customers increased to 118,358 having reached 356,918 subscribers. Besides, revenues growth was stimulated by marketing new limited and unlimited tariffs, which in its turn stimulated income growth from subscribers’ fee. 

Revenues increase on “Interactive television” (IP TV) service was due to customers addition to 30,411 clients (comparing to September 30, 2009 customers amount reached 63,294 customers). Also revenue growth was stimulated by beginning of serving “Interactive television” in Amur branch in July 2008, Magadansky and Sakhalinsky Branches in September 2009.

Revenues from Local Communications Services:

Revenue growth from Local communications services by 11.12% is caused by tariffs increasing in September 2008 and in March 2009.

Revenues from intrazone communications services:

Revenue growth is due to accounting income from mutual channels reservation with CJSC Company Transtelecom at this account since July 1, 2008 in Primorsky and Khabarovsky branches (120 millions Roubles per one quarter). It is 0.1% decreasing revenue without income from mutual channels reservation with CJSC Company Transtelecom (1.7 million Roubles). Decreasing is caused by falling of intrazone traffic: income from F2F traffic fell 14.2% (74.9 million Roubles), income from F2M traffic decreased 3.2% (19.8 million Roubles). Traffic decreasing is caused by alternative telecommunications operators of zone communications entering to the market and mobile cannibalization.

Decreasing of revenues from intrazone traffic was compensated by revenues growth from intrazone telecommunications channels rent to 107% (100.4 million Roubles).

Revenues from mobile (cellular) communications service

Revenues from mobile communications service for 9 months 2009 decreased 19.4% comparing to result of 9 months 2008. Decreasing is caused by loss of 22,335 customer (customers amount as of September 30, 2009 – 76,586 clients), as well as decreasing of ARPU per one customer from 252 Roubles for 9 months 2008 to 234 Roubles for 9 months 2009 which is caused by high competency at the market from operators of the Big Three in Magadansky and Kamchatsky regions.  Decreasing of customers’ amount is also caused by correction of customer base in Magadansky branch made in July 2009.

Revenues from connection and traffic interconnection

Decreasing revenues from connection and traffic interconnection for 9 months 2009 comparing 9 months 2008 is caused by:

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

partial income loss from traffic service (zone call termination) due to demonopolization of zone fixed communication market and appearance of alternative communication providers on that market. These trends first appeared in Primorsky, Khabarovsky, Kamchatsky, and Amursky branches of the Far East Telecom;

decreasing income from traffic interconnection at local and zone levels due to mobile cannibalization and part of traffic relocation to IP-nets;

income share decreasing on traffic interconnection access nodes (local call initiation) due to dial-up Internet access service share reduction and DSL Internet access share growth. 

Changing in Customers Base and New Services Market Share for 9 Months 2009 

-       New services share (Internet access, data transmission, mobile telecommunications, interactive television services, video on demand) reached 30.1% for 9 months 2009 in the Company’s total revenues (for 9 months 2008 the new services share was 27.4%);

-       Dial-up access to the Internet customers amount decreased 64% and reached 56,529 clients (for 9 months 2008 – 156,907 clients) because of clients migration to Broad-band Internet access;

-       Broad band Internet access amount of clients increased 49.6% to 359,918 customers (for 9 months 2008 – 238,560 clients);

-       Mobile net clients decreased 22.6% to 76,586 customers (Kamchatka region – 33,264 (9 months 2008 -40,315), Magadan region – 43,322 (9 months 2008 – 58,606);

-       Fixed phone customers at September 30, 2009 reached 1,361,214 numbers (as of September 30, 2008 – 1,361,869 numbers).

 Operational Expenses for 9 Months 2009 expenses

Type of Expenses

9 Months 2009,

9 Months 2008,

% Change

Million Roubles

Million Roubles

Wages payment expenses

2,256.59

2,061.51

9.46%

Social insurance

457.84

485.91

(5.78%)

Depreciation & amortization

1,062.87

1,049.96

1.22%

Inventories [5]

703.66

641.60

9.67%

Expenses on communications providers services (excluding the OJSC “Rostelecom”)

1,230.46

990.92

24.17%

Expenses on the OJSC “Rostelecom” services

273.55

224.37

21.91%

Services of other (side) organization [6]

568.38

537.69

5.70%

Provisions for deductions to the universal services

99.71

88.74

12.36%

Taxes and duties included into expenses resulted from ordinary activities

7.70

6.41

20.12%

Other expenses [7]

691.60

563.54

22.72%

TOTAL

7,352.36

6,650.65

10.55%

-       Wages payment expenses increased for 195.1 million Roubles or by 9.5% comparing to 9 months 2008 due to salary increasing of Company’s employees that was made in 2008 and salary indexation from the 1st April 2009.

-       Depreciation & amortization is held flat at level of 9 months 2008.

-       Inventories growth for 62.1 million Roubles or 9.7% comparing to result of 9 months 2008 is caused mainly by tariff growth to heat and electricity.

-       Expenses increase for line “Expenses on communications providers services (excluding the OJSC “Rostelecom”)” for 239.54 million Roubles for 9 Months 2009 comparing to the similar period of previous year is caused by signing agreement on channels of level STM-16 Vladivostok- Khabarovsk mutual backlog with CJSC “Company TransTeleCom” of since July 1, 2008 (120 million Roubles for one quarter). Without this factor’s influence expenses for this line is kept at the level of 9 months 2008.

-       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 30.7 million Roubles; increasing is caused by other organization maintenance expenses growth, repair and maintenance of buildings, offices, constructions, and equipments, advertisement, and increasing expenses for informational and consulting services.

-       Other expenses increase for 9 months 2009 to 128.06 million Roubles comparing to the same period of 2008 is due to expenses growth on software and data bases (47.4 million Roubles), expenses for agents services (19.3 million Roubles), non-governmental retirement insurance for employees (7.7 million Roubles), expenses for governance (14.2 million Roubles).

Non-operational Incomes and Losses

For 9 months 2009 resulted in loss from other non-operational activity amounting at 518.3 million Roubles (loss for 9 months 2008 – 515.5 million Roubles).

-       Interest income decreased by 58.9% and reached 9.2 million Roubles due to decreasing free money assets;

-       Interest expenditures accounted at 409.1 million Roubles that is higher than interest expenses for 9 months 2008 (378.0 million Roubles) to 31.1 million Roubles; This caused by increasing debt for 441 million Roubles comparing with the same period of previous year and growth of interest rates for borrowings;

-       Decreasing of loss from other activity is due to: increasing incomes from participating in other organizations, namely dividends increasing, received from OJSC Sakhatelecom (9 months 2009 – 54.2 million Roubles, 9 months 2008 – 28,9 million Roubles), accounting at “Other incomes” repayment of tax authorities unreasonable pretentions to VAT and profit tax amounted to 21.9 million Roubles by results of tax examination for the period from 2001 to 2002 years, income cumulating at the account line “Compensation of losses related to universal services” for 9 months 2009 – 86.2 million Roubles (for 9 months 2008 – 56.0 million Roubles).

Equities and Liabilities

Net assets of OJSC Far East Telecom as of September 30, 2009 increased 14.6% and reached 9,389.4 million Roubles (as of December 31. 2008 – 8,196 million Roubles). Net assets contain profit distribution per dividends payment by results of 2008 financial year for 431.1 million Roubles. Share of equities in the balance reached 52.3% having increased for 3.7 interest points comparing the beginning of 2009 (48.6%)

 

30 September 2009

31 December 2009

% Change

Million Roubles

Million Roubles

Debt[8]

5,880.4

5,675.6

3.6%

Net Debt[9]

5,743.4

5,398.5

6.4%

[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.

[5] Including expenses for electro -heat-and-power energy for 235.4 million Robles (9 month 2008 – 196.8).

[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, agent services, business trip expenses, soft ware and data bases expenses, expenses for governance.

[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.