08.10.2010, 21:20

Far East Telecom Releases 1H10 IFRS Financial Results

OREANDA-NEWS. October 08, 2010. Far East Telecom (RTS: ESPK, ММВБ: DLSV, OTC USA: FEEOY, Frankfurt and Berlin stock exchanges: D7A) hereby presents its unaudited financial results compiled in accordance with international financial reporting standards (IFRS).

The consolidated financial statement includes assets, liabilities and the results of the activities carried out by the Far East Telecom Group of companies, which is a provider of local voice, cellular telephony and other telecommunications services.

Headline financial indicators

	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
Revenue	8,987	8,544	5.2%
Revenue from telecom services	8,726	8,322	4.9%
Operating expenses (net) before depreciation	5,714	5,301	7.8%
OIBDA[1]	3,273	3,243	0.9%
OIBDA margin,%	36.4%	38.0%
EBITDA[2]	3,278	3,236	1.3%
EBITDA margin,%	36.5%	37.9%
Profit for reporting period	1,444	1,435	0.6%
Net profit margin, %	16.1%	16.8%

Subsidiaries

Company	Activity	Proportion in charter capital and other participatory right, %
Company	Activity	As of June 30, 2010	на 31 декабря 2009 г.
Sakhatelecom	Local voice	100.00	100.00
Akos	Cellular telephony	94.45	94.45
Interdaltelecom	Local voice	100.00	100.00
Wireless Information Technologies	Cellular telephony	100.00	100.00
Network Capital (owned by Sakhatelecom)	Local voice	100.00	100.00
Shakhtersksvyaz	Local voice	100,00	100,00

Revenue

Local voice	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
Local voice	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
	3,381	3,205	5.5%
Telegraph, datacom and telematic services (Internet)	2,828	2,342	20.8%
Intrazonal telephony	1,150	1,231	(6.6%)
Interconnect and traffic transmission	601	735	(18.2%)
Radio and mobile (cellular) telephony	545	541	0.7%
Mobile telephony, wire broadcasting, radio broadcasting and television	86	80	7.5%
Other telecom services[3]	135	188	(28.2%)
Total revenue from telecom services	8,726	8,322	4.9%

Revenue growth was driven by the following factors:

higher revenue from datacom and telematic services (Internet);

higher local voice revenue.

Local telephony

The RUR 176 mln rise in local voice revenue was attributable to tariff hikes at: Far East Telecom (+8.7% effective March 1, 2009) and Sakhatelecom (+6.3% as of March 1, 2009).

Telegraph, datacom and telematic services (Internet)

The fastest pace of revenue growth came from interactive digital television, which stood at 70.7% (equal to RUR 181.3 mln in 1H10 vs. RUR 106.2 mln in 1H09). Higher revenue was attributable to a rise in the subscriber base equal to 62,240 subscribers (112,840 subscribers as of June 30, 2010 vs. 62,240 subscribers as of June 30, 2009). Growth in the subscriber base was due to active and expansion and promotional activities.

Broadband Internet revenue increased by 26.4% in year-on-year terms (RUR 2,278.7 mln in 1H10 vs. RUR 1,802.7 mln in 1H09). The main revenue growth driver was an increase in the subscriber base. Compared with the same period in 2009 it increased by 108,383 subscribers, numbering 481,576 users. In addition, monthly average revenue per user (ARPU) for 1H10 amounted to RUR 809, down from RUR 866 in 1H09).

The rise in revenue from virtual private network (IP VPN) services amounted to RUR 34 mln or 40.5%, (RUR 118.3 mln in 1H10 vs. RUR 84.2 mln in 1H09). The change was due to an increase in the number of access points (2,891 points as of June 30, 2010 up from 1,713 points registered as on June 30, 2009.

Intrazonal telephony

Intrazonal telephony revenue decreased by 6.6%, down RUR 81 mln in the first six months of 2010. The decline in revenue was due to a 20% decrease in revenue from F2F traffic, which was down by RUR 91.3 mln and a 5% drop in F2M traffic, which went down by RUR 31 mln as a result of mobile substitution. The decline was partially offset by a RUR 44 mln increase in revenue from leasing intrazonal telecom lines.

Radio and mobile (cellular) telephony

Revenue from cellular telephony increased by 0.7% or RUR 4 mln in 1H10 compared to the year-earlier period. Akos showed a rise in revenue. The operator’s subscriber base amounted to 348,795 users as of June 30, 2010, down from 52,206 subscribers in the year-earlier period (401,001 subscribers as of June 30, 2009).

Interconnect and traffic transmission

The decline in revenue from interconnect and traffic transmission in the first six months of 2010 compared to the same period last year was 18.2%, or RUR 134 mln. This decrease was attributable to:

a drop in terminating of zonal traffic volumes due to the transmission of a part of traffic from mobile and DLD/ILD operators through the networks of zonal fixed-line alternative operators, as well as mobile substitution;

a decline in local voice origination services owing to a decrease in the proportion of dial-up Internet and an increase in the proportion of DSL services.

Operating expenses

	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
	Six months ended June 30, 2010, RUR, mln	Six months ended June 30, 2009, RUR, mln	Change, %
Payroll, other payments and social insurance contributions	(2,664)	(2,457)	8.4%
Depreciation and amortization	(1,157)	(1,155)	0.2%
Interconnect	(1,045)	(1,083)	(3.5%)
Materials, repair and maintenance, utilities services	(875)	(770)	13.6%
Other operating revenue[4]	141	182	(22.5%)
Other operating expenses[5]	(1,271)	( 1,173)	8.4%
Total operating expenses	6,871	6,456	6.4%

Payrolls, other payments and social insurance contributions

The rise in this line item is due to indexation of salaries in the third and fourth quarters of 2009 as a result of an increase in the minimum subsistence level, and an accrual of provisions under the current premium.

Interconnect

A 3.5% decline in the line item “Interconnect” was attributable to Rostelecom’s refusal to lease lines in the Kamchatka branch and the switch to a multi-service telecommunications network which was commissioned in 2009 in the Primorsk, Kamchatka and Magadan branches.

Materials, repair and maintenance, utilities services

The main reason for a 13.6% increase in the line item “Materials, repair and maintenance, utilities services” was higher expenses for utilities and materials, including subscriber equipment used to provide services.

Other operating expenses

An 8.4% increase in the line item “Other operating expenses” was due to a rise in the cost of interactive services, software and databases, lease expenses, and also an increase in deductions made to the universal service fund.

Own equity and borrowed capital

The net assets of the Far East Telecom Group of companies reached RUR 12,126 mln as of June 30, 2010, which is 8.0% or RUR 902 mln more compared to data as of December 31, 2009, when the value of the Group’s assets stood at RUR 11,224 mln. The proportion of own equity in balance sheet currency increased by 0.4% from 51.1% to 51.5%.

	As of June 30, 2010, RUR, mln	As of December 31, 2009, RUR, mln	Change, %
	As of June 30, 2010, RUR, mln	As of December 31, 2009, RUR, mln	Change, %
Interest debt[6]	6,283	6,276	0.1%
Net debt[7]	5,504	5,938	(7.3%)

Liquidity

As of June 30, 2010 current liabilities exceeded current assets by RUR 1,236 mln (vs. RUR 2,772 mln as of December 31, 2009).

Liquidity indicators	As of June 30, 2010	As of December 31, 2009
Liquidity indicators	As of June 30, 2010	As of December 31, 2009
Absolute liquidity ratio[8]	0.22x	0.11x
Acid test ratio[9]	0.55x	0.35x
Current liquidity ratio[10]	0.76x	0.52x
Equity ratio[11]	(1.95x)	(2.54x)

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

[2] EBITDA is calculated as pre-tax profit not including depreciation and interest expenses (net)

[3] Including outsourcing and agency services

[4] Including profit from the sale of PPE and other assets and the recovery of losses from provision of universal telecom services

[5] Including outsourcing, SG&A expenses, agency fees, fire safety and non-agency safety costs, property lease expenses, universal service fund deductions, advertising costs, audit and advisory services

[6] Interest debt is equal to the sum of long-term liabilities on credits and loans, long-term liabilities on financial lease, current liabilities on credits and loans, portions of long-term loans payable within one year, current liabilities on financial lease.

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

[8] The ratio is calculated as the sum of cash & cash equivalents and short-term financial investments divided by the sum of all current liabilities.

[9] The ratio is calculated as the sum of cash & cash equivalents, short-term financial investments, and current trade liabilities divided by the sum of all current liabilities.

[10] The ratio is calculated as the sum of all current assets divided by the sum of all current liabilities.

[11] The ratio is calculated as the difference between own capital and the sum of all non-working assets divided by the sum of all current assets.