OREANDA-NEWS. December 17, 2009. Far East Telecom (RTS: ESPK, МICEX: DLSV, OTC USA: FEEOY, Frankfurt and Berlin stock exchanges: D7A) hereby announces its unaudited 9M09 financial results ending September 30, 2009 in accordance with international financial reporting standards (IFRS).

The company’s consolidated interim financial reporting includes assets, property, liabilities and the results of the Far East Telecom Group of companies which provides local voice, cellular telephony and other telecommunications solutions.

The Groups’ headline financial indicators

 

9MendedSeptember30, 2009, RUR, mln 

9M ended September 30, 2008, RUR, mln 

Change, %

Revenue

12,736

11,956

6.5%

revenue from telecom services

12,421

11,649

6.6%

Operating expenses (net) before depreciation

7 981

7 658

4.2%

OIBDA[1]

4,755

4,298

10.6%

OIBDA margin,%

37.34%

35.95%

-

EBITDA[2]

4,762

4,320

10.2%

EBITDA margin,%

37.394%

36.13%

-

Profit during the reporting period

1,937

1,556

24.5%

Net profitmargin, %

15.21%

13.01%

-

Composition of subsidiaries

Name

Type of activity

Share in charter capital and other participatory rights, %

September30,2009

December31,2008

Sakhatelecom

Telecom services

51.00

51.00

Akos

Telecom services

94.45

94.35

Interdaltelecom

Telecom services

100.00

100.00

WirelessInformationTechnologies

Telecom services

100.00

100.00

Network Capital (owned by Sakhatelecom)

Technical maintenance of telecom networks

100.00

100.00

Shakhtersksvyaz

Telecom services

100.00

100.00

Revenue breakdown

 

9M ended September 30, 2009, RUR, mln 

9M ended September 30, 2008, RUR, mln 

Change, %

Localvoicetelephony

4,804

4,429

8.5%

Telegraphic, datacom and telematic services (Internet)

3,509

2,729

28.6%

Intrazonal telephony services

1,844

1,984

(7.1%)

Interconnect and traffic transit

1,080

1,298

(16.8%)

Mobile radio telephone (cellular) communication

800

831

(3.7%)

Mobile radio communication, wire and television broadcasting

120

119

0.8%

Other telecommunications services [3]

264

259

1.9%

Total revenue from telecommunications services

12,421

11,649

6.6%

Growth in revenue was driven by the following factors:

higher earnings from data and telematic services (Internet);

an increase in local voice revenue. 

Telegraphic, datacom and telematic services (Internet)

Interactive digital television showed the fastest pace of revenue growth, soaring 71% (reaching RUR 171.2 mln in nine months ended September 30, 2009, up from RUR 100.1 mln in nine months ended September 30, 2008).  Revenue growth was driven by an increase in the subscriber base, which added 35,655 subscribers (equal to 72,866 subscribers in nine months ended September 30, 2009, up from 37, 211 subscribers in nine months ended September 30, 2008.  Growth in the subscriber base was attributable to aggressive rollout of services and the launch of commercial services at the Amur branch in June 2008, and at the Magadan and Sakhalin branches of Far East Telecom in September 2009.

As for broadband Internet access services, revenue increased by 39% (RUR 2,748.9 mln in nine months ended September 30, 2009, up from RUR 1,976.4 mln in nine months ended September 30, 2008).  The main revenue driver was an increase in the company’s subscriber base.  Compared with the same period in 2008, the subscriber base went up by 137,700 subscribers (including a rise of 19,342 subscribers at Sakhatelecom) and reached 407,116 subscribers.  In addition, the metric “Average revenue per user” stood at RUR 832 in nine months ended September 30, 2009, down from RUR 914 in nine months ended September 30, 2008). 

Rapid growth was also seen in virtual private networks (IP VPN) (40%), which amounted to RUR 121.1 mln in nine months ended September 30, 2009, up from RUR 91.4 mln in nine months ended September 30, 2008 due to an increase in the number of access points (1,750 points in nine months ended September 30, 2009, up from 1,480 points in nine months ended September 30, 2008.

Local voice telephony

Revenue from local voice telephony increased by RUR 375 mln, which was attributable to an increase in Far East Telecom’s tariffs effective September 20, 2008 and March 1, 2009 by 11.2% and 8.7%, respectively, and a 6.3% tariff hike at Sakhatelecom effective March 1, 2009.  The subscriber base of local voice users decreased by 0.4% or by 6,529 subscribers compared with the size of the subscriber base as of September 30, 2008 and stood at 1,621,497 subscribers [4].

Intrazonal telephony

Intrazonal telephony revenues decreased in 7.1% in 9M09 compared with the same period in 2008.  Lower earnings were due to a decline in revenue from F2F traffic by RUR 109.5 mln or by 14% due to mobile substitution.

Mobile radio telephone (cellular) service

Revenue from the provision of cellular services decreased by 3.7% or RUR 31 mln in the first nine months of 2009 compared with the year-earlier period. This was due to a contraction of revenues at the Kamchatka and Magadan branches of Far East Telecom and at BIT, as a result of fiercer competition and the introduction of new tariff plans with lower subscriber fees.  The revenue of AKOS in the nine months ended September 30, 2009, by contrast, increased compared with the same period in 2008 by RUR 4 mln, or by 0.7%.

Interconnect and traffic transit

The 16.8% decline (RUR 218 mln) in revenues from interconnect and traffic transit in nine months ended September 30, 2009 compared with the same period in 2008 was attributable to:

the cancellation of service fees at interconnection points effective March 1, 2008;

the introduction of differentiated zonal tariffs for terminating calls within the limits of one settlement (RUR 0.80-1.25 per minute, instead of RUR 1.52 per minute);

the loss of a share of revenue from the transit of tariff (zonal termination of calls), due to the deregulation of the zonal fixed-line telecommunications market 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 lower share of revenue from transiting traffic to access hubs (local origination of calls) as a result of a decrease in the share of dial-up Internet traffic and an increase in the share of ADSL Internet traffic. 

Additionally, a decline in revenues from the Far East Telecom Group of companies from the zonal termination of traffic was offset by a rise in revenue from other types of transit traffic, i.e. local call termination.

Operating expenses and revenues

 

9M ended September 30, 2009, RUR, mln 

9M ended September 30, 2008, RUR, mln 

Change, %

 

 

Payrolls, other payments and social insurance contributions

(3,655)

(3,481)

5.0%

 

Depreciation and amortization

(1,741)

(1,600)

8.8%

 

Expenses payable to telecom operators

(1,597)

(1 481)

7.8%

 

Materials, repair and maintenance, utility services

(1,196)

(1,108)

7.9%

 

Taxes, except for profit tax

(235)

(212)

10.8%

 

Reserve against dubious debts

(60)

(108)

(44.4%)

 

Other operating revenue [5]

265

230

15.2%

 

Other operating expenses [6]

(1,503)

(1498)

0.3%

 

Totaloperatingexpenses

(9,722)

(9,258)

5.0%

 

Payrolls, other payments and social insurance contributions

Expenses under the item “Payrolls, other payments and social insurance contributions” increased by 5% compared with the same period in 2008, which was attributable to indexation of the employees of Far East Telecom, which was performed in July 2008.

Materials, repair and maintenance, utility services

A 7.9% increase in the item “Materials, repair and maintenance, utility services” was due to higher utility expenses (up 22.1% or RUR 60 mln) and expenses for materials, including subscriber equipment used to provide broadband Internet services and interactive television (4.8% or RUR 27 mln).  Repair and maintenance costs remained virtually unchanged compared to the same indicator last year (0.4% or RUR 1 mln). 

Expenses payable to telecom operators

Expenses payable to telecom operators increased by 7.8% or RUR 116 mln and reached RUR 1,597 mln.  This, in turn, was caused by a change in tariffs for the lease of intrazonal channels from Rostelecom on behalf of zonal interests, which took effect as of June 2009.  Furthermore, an increase in expenses associated with the consumption of Internet services was noted during the period under analysis. 

Depreciation and amortization

Expenses increased by 8.8% under the line item “Depreciation and amortization”.  This was attributable to implementation of the company’s investment plan and the commissioning of fixed assets.

Own and borrowed capital

The net assets of the Far East Telecom Group of companies reached RUR 11,962 mln, which is 13.9% more or RUR 1,462 mln compared with the date as of December 31, 2008, i.e. RUR 10,500 mln).  In addition, the proportion of own capital in the company’s balance-sheet currency increased by 4.1 percentage points compared with the year-earlier period from 50.3% to 54.4%.

 

9M ended September 30, 2009, RUR, mln 

9M ended September 30, 2008, RUR, mln 

Change, %

 

 

Interest debt [7]

5,389

5,687

(5.2)%

 

Net debt [8]

5,068

5,133

(1.3)%

 

Liquidity

As of September 30, 2009 current liabilities exceeded current assets by RUR2,238 mln(vs. RUR2,247 mln as of December31).

Liquidity indicator

As of September 30,

2009

As of December 31,

2008

 

 

Absolute liquidity ratio [9]

0.10

0.13

 

Acid-test ratio [10]

0.36

0.38

 

Current liquidity ratio [11]

0.61

0.58

 

Debtratio [12]

(1.92)

(2.31)

 

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

[2]EBITDA is calculated as earnings before interest (net), taxation, depreciation and amortization 

[3]Including outsourcing and agency operations

[4]Only commercial lines are calculated, not official service lines.

[5]Including profit from the sale of fixed assets and other assets and the compensation of losses from the provision of universal telecommunications services

[6]Including outsourcing services and management expenses, agency fees, fire and non-agency expenses, asset lease expenses, deductions to the universal service fund, advertising expenses, audit and consulting expenses

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

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

[9]This ratio is calculated as the amount of cash & cash equivalents and short-term financial investment divided by the total amount of current liabilities.

[10]This ratio is calculated as cash & cash equivalents, short-term financial investments, current trade accounts receivable divided by the total amount of current liabilities.

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