OREANDA-NEWS. OJSC Center Telecom (RTS: ESMO, ESMOP; MICEX: CTLK, CTLKP; U.S. OTC: CRMUY), the leading provider of fixed-line telecommunications services in the Central Federal District of Russia, has issued its audited results of financial and economic activities for 2006 compiled in accordance with International Financial Reporting Standards (IFRS).

Alexander Lutsky, Center Telecom CFO, said that the company’s financial results reflect the management team’s efforts aimed at strengthening the company’s competitiveness and improvement of Center Telecom’s financial performance. He added: “Center Telecom’s revenues increased 2,83% and expenditures were reduced by 7,91%. EBITDA margin rose to 36,5%. Moreover we succeeded not only in increasing the share of revenues from non-regulated communications services in the company’s revenue structure but also in optimizing Center Telecom’s expenditures. This formed a basis for considerable growth of net profit which reached RUR1 836 million (in comparison with a RUR1 435 million net loss in 2005). Last year’s results formed the basis for successful development of the company.”

Center Telecom’s consolidated revenues for 2006 reached RUR29 483 million. This is 2,83% more than in 2005.

Local telephone communications. Revenues for 2006 rose 15,62% to RUR12 509 million (RUR10 819 million in 2005). The increase was based on growth in the customer base for traditional telecommunications services and increased tariffs for local telephone connections in September 2005.

Long distance telephone communications. From 1 January changes in Russian legislation regulating the telecommunications industry came into force. In accordance with the changes the order of settlements between Center Telecom OJSC and Rostelecom OJSC, the long distance telecommunication operator, has changed. Center Telecom no longer gains revenues from long distance telecommunications (in 2005 these revenues reached RUR6 789 million). However the company succeeded in increasing revenues from its basic operations. The new scheme of interaction with long distance telecommunications operators provided a 99,7% growth of revenues from services rendered to Russian telecommunications operators. These revenues reached RUR5 244 million (RUR2 626 million in 2005).

In addition, in 2006 Center Telecom concluded cooperation agreements with long distance telecommunications operators which led to the receipt of RUR1 384 million in revenues. 

Inter-zonal telephone communications. From 1 July 2006 the “Calling Party Pays” (CPP) principle came into effect in accordance with “Rules of rendering local, inter-zonal, long distance telephone communications services”. This led to 68,09% growth of revenues from inter-zonal telecommunications services. These revenues reached RUR3 555 million.

New telecommunications services. Owing to an active marketing policy and implementation of broadband Internet connection access on the basis of ADSL2+ technology under the DOMOLINK brand, the subscriber base of the service rose more than 700% reaching 115,052 subscribers. This dynamic growth of the subscriber base provided a significant increase in revenues from new telecommunications services: from RUR1 337 million in 2005 to RUR2 011 million in 2006 (50,41% increase).

The rise in expenses related to wages, salaries, other benefits and payroll taxes is connected with fulfillment of a program of personnel optimization and compensation payments.

The increase in depreciation and amortization payments is connected with new telecommunications equipment coming into operation.

The 54,07% decrease in expenses related to payments for communications operators’ services (RUR1 828 million in 2006) is determined mostly by the legislated change in the formula for interaction with long distance telecommunication operators.

Provision for impairment of receivables in the sum of RUR972 million is supplied by partial payment by the Russian Ministry of Finance of the Federal budgetary debt for telecommunications services rendered by Center Telecom to individuals served on a preferential basis during 2001-2004.

In 2006 the company approved a financial strategy aimed at a reduction in and restructuring of Center Telecom’s debt. In line with this strategy the company issued 05 series bonds for RUR3 000 million, bills for RUR4 001 million and received a US$115-million loan from Deutsche Bank. The funds were spent for the payment of short term debts and replacement of short term liabilities. Moreover the company reduced by 5,53% it total active debt (by RUR1 319 million).

In 2007 it is planned to continue the approved financial strategy. Most new funds in 2007 will be through long-term borrowings. Considering the reduction of previous debt the company expects to keep decreasing its debt load and to improve the structure of its debt portfolio in 2007.

The full version of CenterTelecom’s consolidated financial statements for 2006 according to IFRS is available on the Company’s corporate website.

The company’s financial results are audited by the independent auditing firm Ernst & Young LLC.