OREANDA-NEWS. May 12, 2010. OJSC Far East Telecom (RTS: ESPK, MICEX: DLSV, ADR of the USA: FEEOY, Frankfurt and Berlin Stock Exchange: D7A) announces nonaudited financial results for the 1st  quarter 2010 according to Russian Accounting Standards (RAS).

 Financial highlights according to the financial results of the 1st quarter 2010

Index 

1st quarter 2010, mln rubles. 

1st quarter 2009, mln rubles 

Changes, % 

Revenues from ordinary activities 

3 474.8 

3 297.0 

5.4% 

including revenues from communication services 

3 320.6 

3 133.6 

6.0% 

Expenses from ordinary activities 

2 582.0 

2 326.2 

11.0% 

Sales profit  

892.8 

970.8 

(8.0%) 

Before tax profit 

650.0 

820.2 

(20.8%) 

OIBDA[1]  

1 243.2 

1 320.8 

(5.9%) 

OIBDA margin[2] 

35.8% 

40.1% 

- 

EBITDA[3]  

1168.9 

1296.0 

(9.8%) 

EBITDA margin[4]  

33.6% 

39.3% 

- 

Net profit 

506.2 

644.7 

(21.5%) 

NP margin 

14.6% 

19.6% 

- 

“We are going to further strengthen company market positions by paying special attention to quality of our services, technical infrastructure improvement and focusing on the new services, which share in the revenue structure has exceeded 33%. Strict control over operational expenses and striving for better performances and liquidity figures will remain the key economic trends of the year”, - pointed out Andrey Balatsenko, OJSC Far East Telecom General Director. 

Performances 

       Staff on the payroll as of March 31st 2010 reduced by 212 persons (2.1% reduction) as compared to the data as of January 1, 2010 (10,215 persons) and numbered 10,003 persons; 

     Revenue per employee increased by 17.1%  to 354.8 thousand rubles for the 1st quarter 2010 ( 303.1 thousand rubles for the 1st quarter 2009); 

   Number of lines per employee increased by 9.2 % to 148.6 lines (136.1 for the 1st quarter 2009); 

   Prime cost per ruble was 74.31 kopecks in the 1st quarter 2010, which is a 5.3% increase against similar period of the last year (70.55 kopecks for the 1st quarter 2009).

Revenues from communication services for the 1st quarter 2010 

Services 

1st quarter 2010 

1st quarter 2009 

Changes, % 

 

mln rubles 

mln rubles 

Intrazone telephone communication service  

534.9 

538.7 

(0.7)% 

Local telephone communication service 

1 339.1 

1 258.7 

6.4% 

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

39.5 

40.1 

(1.5%) 

Mobile radio (cellular) communication  

52.3 

66.5 

(21.4%) 

Telegraph communication, data transmission and telematic services  

1 134.6 

969.0 

17.1% 

including data transmission and Internet access services (other than IP TV)  

1 020.3 

889.0 

14.8% 

including IP TV 

78.3 

47.3 

65.5% 

Traffic interconnection services 

220.2 

260.6 

(15.5%) 

TOTAL  

3 320.6 

3 133.6 

6.0% 

Revenues growth is highlighted by: 

      Internet access service income growth; 

      IP TV service income growth; 

      Local telephone communication service income growth. 

Income from Internet access and data transmission service 

High income growth rate is achieved due to enlarging broadband access subscriber base. It increased by 102,067 subscribers as against the 1st quarter 2009 (subscriber base as of March 31st 2010 was 403,449). Besides, the income growth was influenced by the promotion of new limit and unlimited tariff plans, which contributed to subscriber fee income growth. 

IP TV income increase was 65.5% or 31.0 mln rubles as compared to the 1st quarter 2009. The income increase is driven by subscribers base enlargement by 40,034 numbers (as of March 31st 2010 subscribers base reached 87,900 numbers). Revenue service of the IP TV that started in September 2009 in Magadansky and Sakhalinsky Branches also added to the income growth. 

Income from local telephone communication services 

Increase in income from local telecommunication service by 6.4% is caused by tariff growth in March 2009.

Income from intrazone communication service 

Income decrease by 0.7% or 3.8 mln rubles is caused by intrazone traffic volume reduction and subsequent decrease in income from the traffic by 11.2% (39.8 mln rubles) due to decrease in income from F2F traffic by 17.5% (27.5 mln rubles). The traffic volume reduction is caused by decline in the service consumption  because of mobile replacement. The reduction is compensated by growing income from intrazone communications channel provision by 94% (41.7 mln rubles).

Income from mobile communication  

Income from mobile communication services reduced in the 1st quarter 2010 by 21.4% as compared to the 1st quarter 2009. The reduction is caused by subscribers base decrease by 20,363 numbers (as of March 31st 2010  the subscribers base was 75,107 numbers), due to the tough competition from the Large Three operators in Magadanskaya oblast and Kamchatsky krai. 

Income from traffic interconnection services 

Income from traffic interconnection services decreased in the 1st quarter 2010 as against the 1st quarter 2009 due to: 

    income loss from traffic interconnection caused by zone fixed communication market demonopolization and alternative operators entering the market. These trends are most evident for Primorsky, Khabarovsky and Kamchatsky krais and Amurskaya oblast; 

    income loss from traffic interconnection at local and zone levels caused by mobile replacement and traffic partial overflow to ip-networks; 

   decrease in partial income from traffic interconnection to trunk access nodes (local call initiation) due to the reduction in Internet dial-up access service share and DSL service share growth. 

 Subscribers base and new service share in the 1st quarter 2010 

      New service (Internet access, data transmission, mobile communications, IP TV and video on demand) share in Company revenue structure for the three months 2010 reached 33.1% (as against 30.2% for three months 2009);  

   Internet broad band access subscribers base increased by 33.9% to 403,449 numbers (301,382 subscribers in the 1st quarter 2009); 

      Cellular communication subscribers base reduced by 21.3% to 75,107 numbers (Kamchatsky krai – 31,273 (36,616 for three months of 2009), Magadanskaya oblast -  43,834 (58,854 for three months 2009);

      Main station subscribers base as of March 31st 2010 was 1,375,181 numbers (1,380,899 numbers as of March 31st 2009). 

  EE Expenses for the 1st quarter 2010 

Expenses 

1st quarter 2010 

1st quarter 2009 

Changes, % 

mln rubles 

mln rubles 

Wage costs 

821.6 

697.0 

17.9% 

Social insurance contributions 

206.6 

156.5 

32.0% 

Fixed assets depreciation 

350.4 

350.0 

0.1% 

Tangible costs[5] 

291.6 

239.5 

21.8% 

Expenses on telecommunication operators (other than OJSC Rostelecom) 

407.4 

405.6 

0.4% 

Expenses on OJSC Rostelecom services 

83.8 

87.9 

(4.7%) 

Outsourced services[6] 

155.9 

155.5 

0.3% 

Universal service reserve deductions 

35.6 

33.0 

7.9% 

Taxes and fees included into expenses on ordinary activities 

3.4 

2.1 

61.9% 

Other expenses[7] 

225.7 

199.1 

13.4% 

TOTAL 

2 582.0 

2 326.2 

11.0% 

   Wage costs increased by 124.6 mln rubles or 17.9 % as against the 1st quarter 2009 due to Company staff wages increase program implemented in 2009 and reserve accrual for the current premium for the 1st quarter due to changes in accounting methods; 

      Growth of tangible costs by 52.1 mln rubles or 21.8% as compared to the 1st quarter 2009 is caused by heat and power energy tariff increase and growing expenses on subscribers equipment; 

      Increase in “Other expenses” in the 1st quarter 2010 by 26.6 mln rubles is mostly related to the growth of expenses on software and data bases, agency services and expenses on interactive entertainment services. 

Other revenues and expenses 

As a result of the 1st quarter 2010 OJSC Far East Telecom received loss from other non-operational activities in the amount of 242.8 mln rubles (as against 150.7 mln rubles loss in the 1st quarter 2009). 

       Interest yields increased by 6.6 mln rubles to 10.2 mln rubles due to increase in funds available for placement; 

      Interest costs amounted to 178.7 mln rubles to demonstrate a 49.2 mln rubles increase as against the 1st quarter 2009 (129.5 mln rles). The increase is related to БО-05 commercial bonds placement in the 2nd quarter 2010 with coupon revenue rate 15% annum. 

       Increase in loss from other activities was mostly due to decrease in income from fixed assets sales (6.9 mln rubles in the 1st quarter 2010 as compared to 57.3 mln rubles in the 1st quarter 2009).   

Equity and liabilities 

OJSC Far East Telecom net assets as of March 31st 2010 increased by 5.1%  to 10,437.8 mln rubles (9,932.8 as of January 1st 2010). Equity specific weight in the balance sheet reached 52.1% (51.1% as of the beginning of the year). 

  

as of March 31st 2010 

as of January 1st  2010 

Changes, % 

mln rubles 

mln rubles 

Interest bearing debt[8]

6 746.0 

6 820.9 

(1.1%) 

Net debt[9]

6 222.0 

6 675. 8 

(6.8%) 

[1]  OIBDA was calculated as revenues minus operational expenses before depreciation; 

[2] OIBDA margin was calculated as OIBDA/proceeds 

[3] EBITDA was calculated as profit before tax plus depreciation plus leasing payments on off-balance leasing plus interest payable less interest receivable  

[4] EBITDA margin was calculated as EBITDA/proceeds 

[5] Including 127.78 mln rubles for  electric and heat power (113.62 mln rubles in the 1st quarter 2009) 

[6] Information, consulting, audit, transportation, security, current maintenance and repairs, staff retraining, advertisement  

[7] Leasing payments, property rent, non-government pension insurance, voluntary medical insurance in favor of employees 

[8] Interest-bearing debt is equal to the sum of long-term credit and loan liabilities and short term credit and loan liabilities  

[9] Net debt is calculated as actual interest-bearing debt minus cash funds and their equivalents