Far EastTelecom 9M RAS Net Profit Surges 25.1% y-o-y

OREANDA-NEWS. November 16, 2009. Far East Telecom (RTS: ESPK, МICEX: DLSV, OTC USA: FEEOY, Frankfurt and Berlin stock exchanges) hereby announces its 9M09 financial results in accordance with Russian Accounting Standards (RAS).

Headline financial indicators, 9M09

“We managed to increase the growth rate of OIBDA, EBITDA and net profit compared with the figures reported in the first quarter and the first six months of 2009 as a result of stronger earnings from Internet access, interactive television, traditional telephony and strict control of operating expenses. In the first nine months of 2009 the pace of revenue exceeded growth in the cost side”, said Andrey Balatsenko, the

Key efficiency ratios

The average number of staff on record as of September 30, 2009 stood at 10,455 employees, which implies a decrease of 864 people (or 7.6%) compared with the number of staff on record as of January 1, 2009 (11,319 employees);

Revenue per employee increased by 21.5% to RUR 941,500 in 9M09 (up from RUR 774,700 in 9M09);

The number of lines per employee increased by 8.4% to 139.7 (up from 128.9 in 9M08);

The ruble cost of revenue stood at 73.9 kopecks, which is 0.3% less than in the same period last year (RUR 74.41 in 9M08). 

9M09 revenue breakdown

Growth in revenues is attributable to:

higher revenue from Internet access;

higher revenue from interactive television;

higher revenue from local voice telephony. 

Revenue from Internet access and datacom

High revenue was achieved as the result of an increase in the subscriber base of broadband access users.  In year-on-year terms, the subscriber base increased by 118,358 subscribers, reaching 356,918.  The higher revenue also had a strong impact on rolling out new limited and unlimited tariff plans, which, in turn, contributed to the rise in revenue from subscriber fees.

The increase in revenue from interactive television was due to growth in the subscriber base by 30,411 users (as of September 30, 2009 the subscriber base totaled 63,294).  Higher revenue was also boosted by the commercial launch of interactive television services in July 2008 at the Amur branch, and at the Magadan and Sakhalin branches in September 2009.

Local voice

Local voice revenue increased by 11.12% on the back of tariff hikes in September 2008 and March 2009. 

Intrazonal telephony

Higher revenue is attributable to the reflection of revenues in this item from mutual line reservation with Transtelecom effective July 1, 2008 in the Primorsk and Khabarovsk branches (RUR 120 mln in one quarter). Not counting revenue from mutual line reservation with Transtelecom a 0.1% decline in revenue (RUR 1.7 mln) was observed.  The decline was due to a decrease in volumes of intrazonal traffic, as F2F traffic fell by 14.2% (RUR 74.9 mln), and F2M traffic decreased by 3.2% (RUR 19.8 mln).  The decline in traffic was due to the entry into the market of alternative zonal operators and mobile substitution. 

The decrease in revenue from intrazonal traffic was offset by a 107% rise in revenue from intrazonal telecom lines (RUR 100.4 mln).

Mobile telephony

Mobile telephony revenue for 9M09 decreased compared with the year-earlier figure by 19.4%.  The decline is attributable to a decrease in the subscriber base by 22,335 subscribers (the subscriber base stood at 76,586 as of September 30, 2009), and also a decrease in ARPU from RUR 252 in 9M08 to RUR 234 in 9M09, which is due to fierce competition on the part of the Big-3 in the Magadan region and the Kamchatka krai.  The decline in the subscriber base was also due to an adjustment made to the subscriber base at the Magadan branch in July 2009. 

Revenue from interconnect and traffic transmission

A decline in revenue from interconnect and traffic transmission during the first nine months of 2009 is attributable to the following factors:

cancellation of fees for servicing interconnection points as of March 1, 2008;

a decrease in the proportion of revenue from traffic transmission in connection with deregulation of the zonal fixed-line telecom market and the entry into this market of alternative telecom operators.  These trends were mainly characteristic of the Primorsk, Khabarovsk, Kamchatka and Amur regions;

a decrease in revenue from traffic transit on the local and zonal levels, which is due to mobile substitution and outflow of traffic to IP networks;

a drop in the proportion of revenue for traffic transit to access nodes (local origination of calls) as a result of a decrease in the proportion of dial-up services and a rise in the proportion of DSL Internet access services. 

Subscriber base and value-added service trends in 9M09

The proportion of value-added services (Internet access, datacom, mobile telephony, interactive television and video on demand) in the company’s 9M09 revenue breakdown reached 31% (up from 27.4% in 9M08);

The subscriber base of dial-up Internet subscribers fell by 64% to 56,529 subscribers (vs. 156,907 subscribers in 9M08) as a result of subscribers migrating to broadband Internet access;

The broadband subscriber base rose 49.6% to 356,918 subscribers (up from 238,560 subscribers in 9M08);

The mobile subscriber base decreased by 22.6% to 76,586 (Kamchatka krai – 33,264 (vs. 40,315 subscribers in 9M08), 43,332 in the Magadan region (vs. 58,606 in 9M08);

The subscriber base for main telephone lines stood at 1,361,214 lines as of September 30, 2009 (vs. 1,361,869 lines as of September 30, 2008). 

Expense trends for 9M09

Payrolls increased by RUR 195.1 mln or 9.5% compared with the same period last year in connection with measures taken in 2008 to raise the salaries of the company’s employees by way of indexation effective April 1, 2009;

Depreciation charges remained at the level of 9M09.

Expenses rose for the item “Material expenses” by RUR 62.1 mln or 9.7% compared with the same period last year mainly due to higher heat and electricity tariffs.

An increase in expenses for the item “Interconnect” amounting to RUR 239.54 mln for 9M09 compared with the same period last year due to the conclusion of an agreement on mutual reservation of telecom lines for STM-16 Vladivostok-Khabarovsk with Transtelecom effective June 1, 2008 (RUR 120 mln during one quarter).  Not counting this factor, the expenses under this item remained at the same level as in 9M08.

Higher expenses payable to Rostelecom are attributable to an increase in line-leasing tariffs on behalf of zonal interests beginning in March 2008, as well as an increase in the consumption of Internet services.

An increase of RUR 30.7 mln in expenses for the item “Outsourcing” mainly due to higher outsourcing costs paid to organizations for technical maintenance, repair, and service of buildings, premises, facilities and equipment, advertising, as well as higher expenses for information and consulting services.

An increase of RUR 128.06 mln in the item “Other” expenses is mainly attributable to higher costs for software and databases (RUR 47.4 mln), for agency fees (RUR 19.3 mln), for private pension insurance on behalf of employees (RUR 7.7 mln), and for management expenses (RUR 14.2 mln). 

Other revenue and expenses

During the first nine months of 2009 a loss of RUR 518.3 mln was posted from “Other non-operating activity” (compared to a loss of RUR 515.5 mln in 9M08). 

Interest revenue decreased by RUR 58.9 mln and stood at RUR 9.2 mln in connection with a decline in the volume of free cash flow for placement;

Interest expenses stood at RUR 409.1 mln, which is RUR 31.1 mln higher than the amount of interest expenses recorded for 9M09 ) 378.0 mln).  This is due to a RUR 441 mln increase in debt compared with the same period last year and an increase in interest rates on borrowings;

A decrease in the loss from other activity is due to: a rise in income from participation in other organizations, i.e. an increase in the amount of dividends generated by Sakhatelecom (RUR 54.2 mln in 9M09 vs. RUR 28.9 mln 9M08), reflection in the item “Other” revenue of excess fines and profit tax levied and refunded by tax authorities amounting to RUR 21.9 mln based on the results of a tax inspection for the period 2001-2002, and accrual of income under the line item “Reimbursement of losses incurred due to the provision of universal telecommunications services” for the first nine months of 2009 for a total of RUR 86.2 mln (vs. RUR 56 mln in 9M08). 

In-house and borrowed capital

The value of Far East Telecom’s net assets increased by 14.6% as of September 30, 2009 and stood at RUR 9,389.4 mln (vs. RUR 8,196 mln as of December 31, 2008).  The value of net assets takes into account the allocation of profit for dividend payouts on the results of the 2008 financial year for a total of RUR 431.1 mln.  The proportion of in-house funds in the balance sheet structure reached 52.3%, which implies a 3.7% increase compared with the beginning of the year (48.6%).