OREANDA-NEWS. October 12, 2010. OJSC VolgaTelecom (RTS: NNSI/NNSIP, MICEX: VTEL/VTELP, ADR: VLGAY)  presents unaudited consolidated interim financial statements for 6 months of 2010 prepared in accordance with International Financial Reporting Standards (IFRS). Consolidated financial statements comprise financial statements of OJSC VolgaTelecom, its subsidiaries and associates prepared by applying uniform accounting policies.

For 6 months of 2010 the Group’s sales revenue has grown by 6.1% vs. similar period of the prior year and amounted to RUB 17, 095 million. Operating profit for the reporting period has grown by 20.2% and accounted for RUB 4, 120 million; net profit increased by 52.6% and amounted to RUB 2, 816 million.

The growth of the Group’s net profit was ensured by outstripping growth of sales revenue (6.1%) over operating expenses (2.3%) and reduction of interest expenses as a result of implementation of measures of anti-crisis strategy intended at increase of free cash flow.

Key financial performances

Indicator

6 months of 2010, RUB million

6 months of 2009, RUB million

Change

 

 

Sales revenue, RUB million

17, 095

16, 112

6.1%

Operating expenses, net, RUB million1

12, 975

12, 685

2.3%

Operating profit, RUB million

4, 120

3, 427

20.2%

Profit for the reporting period, RUB million

2, 816

1, 845

52.6%

EBITDA, RUB million2

7, 705

7, 054

9.2%

EBITDA margin, % 3

45.1%

43.8%

1.3 percentage points

OIBDA, RUB million 4

7, 694

7, 139

7.8%

OIBDA margin, %5

45.0%

44.3%

0.7 percentage points

Net profit margin, % 6

16.5%

11.5%

5.0 percentage points

1-      Operating expenses, net are calculated as the sum of expenses under items  “Personnel costs”, “Depreciation and amortization”, “Telecom operators’ services costs”, “Materials, repair and maintenance, public utility services”, and “Other operating expenses” adjusted for the amount of other operating profit;
2-      EBITDA is calculated as the sum of pretax earnings, financial expenses, depreciation and amortization adjusted for the amount of interest receipts of pension plan assets and financial assets; 3-      EBITDA margin is calculated as EBITDA/ “Sales revenue”; 4-      OIBDA is calculated as the sum of operating profit and expenses under item “Depreciation and amortization”; 5-      OIBDA margin is calculated as OIBDA/ “Sales revenue”; 6-      Net profit margin is calculated as “Profit for the reporting period”/ “Sales revenue”.

Sales revenue structure

At 6 months of 2010 end the largest share (36.3%) in the structure of the Group’s sales revenue falls on local telephony services revenue. Essential income items are data transmission services, telematic services (Internet -18.7%), mobile (cellular) services which overcame negative trends of development in the time of financial crisis (13.7%), intrazonal telephony services (12.7%), and interconnect and traffic transit services (11.9%).

Sales revenue structure for 6 months of 2010 is as follows:

Indicator

6 months of 2010, RUB million

6 months of 2009, RUB million

Change,

%

Share (%) in sales revenue

6 months of 2010

6 months of 2009

Local telephone services

6, 210

5, 673

9.5%

36.3%

35.2%

Telegraphy, data transmission network and telematic (Internet access) services

3, 202

2, 928

9.4%

18.7%

18.2%

Mobile (cellular) services

2, 341

2, 201

6.3%

13.7%

13.7%

Intrazonal telephony services

2, 170

2, 271

-4.4%

12.7%

14.1%

 

Interconnect and traffic transit services

2, 031

2, 029

0.1%

11.9%

12.6%

Mobile radio telephony, wire broadcasting, radio broadcasting and TV services  

377

370

1.7%

2.2%

2.3%

Other services

34

35

-3.3%

0.2%

0.2%

Assistance and agency services

248

255

-2.8%

1.5%

1.6%

Revenue from other sales

482

350

38.0%

2.8%

2.2%

Total

17, 095

16, 112

6.1%

100.0%

100.0%

Sales revenue structure by categories of customers:

Customer group

Share (%) in sales revenue

Change,%

6 months of 2010

6 months of 2009

Individuals

58.2%

57.3%

0.9%

Business entities

19.7%

20.2%

-0.5%

Telecom operators

14.0%

14.8%

-0.8%

State-financed organizations

8.1%

7.7%

0.4%

For 6 months of 2010 sales revenue has increased by RUB 983 million or 6.1%. The share of revenue from individuals and state-financed organizations has increased in the structure of the Group’s sales revenue, which was caused by intensive development of broadband access services on a large scale segment. Sales revenue dynamics was ensured by:
§     Regulator’s actions of increase in tariffs for local telephony services since February 01, 2010 (Russia’s FTS order No 274-ñ/1 of November 11, 2009). Indexation of tariffs – major factor of growth of both of local telephony services revenue (for the period under analysis they have grown by RUB 537 million or 9.5%) and of sales revenue upon the whole.
§     Growth of subscribers’ base of Internet broadband access services users. At Q 2-2010 end the number of broadband access services users accounted for 1, 071, 600 (without regard to users connected within national projects), the gain was 18.7% vs. similar period of the prior year.
§     Growth of subscribers’ base of mobile services users by 12.3% (at Q 2-2010 end the subscribers’ base was 4.1 million users). It should be noted that growth of MOU (traffic per a subscriber) for the period under analysis, and therefore of ARPU. For 6 months of 2010 mobile (cellular) services revenue amounted to RUB 2, 341 million, which is by RUB 140 million or 6.3 % more vs. similar period of the prior year.  
§     Retention of the trend of reduction of outgoing intrazonal traffic (-4.5%) due to mobile substitution. For 6 months of 2010 the reduction of intrazonal telephony services revenue vs. 6 months of 2009 accounted for RUB 101 million or 4.4%.

Expenditure pattern

For 6 months of 2010 the Group’s operating expenses have grown by 3.4%. For the reporting period the prime cost of RUB 100 of revenue accounted for RUB 80.95 which is RUB 2.08 (2.5%) lower than in similar period of the prior year (RUB 83.03).

The largest share in the structure of prime cost falls on personnel costs – 32.7% of the total expenses.

Expenditure pattern of VolgaTelecom’s Group is as follows:

Indicator

6 months of 2010, RUB million

6 months of 2009, RUB million

 

Change,

Share in expenses,

%

% 

6 months of 2010

6 months of 2009

Personnel costs

4, 525

4, 341

4.3%

32.7%

32.4%

Depreciation and amortization

3, 574

3, 713

-3.7%

25.8%

27.8%

Telecom operators’ services costs

1, 852

1, 770

4.6%

13.4%

13.2%

Materials, repair and maintenance, public utility services

1, 433

1, 269

12.9%

10.4%

9.5%

Other operating expenses

2, 454

2, 284

7.4%

17.7%

17.1%

Total operating expenses

13, 838

13, 377

3.4%

100.0%

100.0%

Other operating income

863

692

24.7% 

 

 

Total operating expenses, net

12, 975

12, 685

2.3% 

 

 

 In the reporting period the major changes in expenses were in the following items:

Materials, repair and maintenance, public utility services expenses have increased by RUB 163 million (12.9%), which is related to the growth of tariffs for electric power, fuel, public utility services and also increase in expenses for materials related to implementation of plans of communications services promotion;

Personnel costs have increased by RUB 185 million (4.3%) as a result of increase in salaries of major jobs within the framework of inflation expectations;

Depreciation and amortization expenses have reduced by RUB 139 million (3.7%), which is related to the decrease in the Company’s investment program in 2009 within the implementation of the Group’s anti-crisis strategy. 

 Major increase in other operating expenses and other operating income is related to reflecting in the statements of allocations for electric power for the past year.

Investments

For 6 months of 2010 the investments amounted to RUB 8, 411.0 million which is 7.5 times more vs. the investments of 2009. The largest share of investments (63%) is related to acquisition of a subsidiary (on June 03, 2010 VolgaTelecom completed the transaction of acquisition of 98.19% of shares of Teleset Networks PCL). The share of investments into the development of value-added services at H 1-2010 end accounted for Ä 24.2% or RUB 2, 037.6 million (arrangement of õDSL/Ethernet/FTTx-access, mobile services development, NGN, etc.). The share of investments into mobile business development accounted for 4.7% of the total investments.  

Investments structure

Investments

6 months of 2010

RUB million

Share, %

Total investments

8, 411.0

100.0%

Traditional telephony

64.6

0.8%

Value-added services

2, 037.6

24.2%

Of which mobile communications

398.6

4.7%

IT investments

235.1

2.8%

Data transmission network

303.2

3.6%

Other infrastructure

471.5

5.6%

Additions related to acquisition of subsidiaries

5, 299.0

63.0%

Equity and borrowings

At June 30, 2010 the Group’s net assets accounted for RUB 32, 439 million; their share in balance-sheet total is 56.5%, which is by 3.7 percentage points more vs. similar period of the prior year (52.8%).  At June 30, 2010 the interest-bearing debt amounted to RUB 13, 359 million, net debt – RUB 10, 389 million.

Debt load

Indicator

At June 30, 2010

At December 31, 2009

At June 30, 2009

 

 

Interest debt, RUB million8

13, 359

10, 404

14, 992

 

Net debt, RUB million9

10, 389

8, 371

12, 603

 

Net debt/shareholders’ equity

0.32

0.27

0.44

 

Net debt/Assets

0.18

0.16

0.23

 

8.       The Company’s debt is calculated as the sum of liabilities under long-term and short-term loans and borrowings;
9.       Net debt is calculated as the sum of long-term and short-term loan obligations adjusted for the amount of cash and cash equivalents, as well as for the amount of promissory notes and bonds available for sale.