VolgaTelecom Presents Results of its Operations for 1Q

1  Sales profit margin is calculated as sales profit/sales revenues.

2 OIBDA is calculated as the sum of sales profit, amortization and depreciation of property, plant and equipment, and expenses of leasing payments.

3 OIBDA margin is calculated as OIBDA/sales revenues.

4 EBITDA is calculated as the sum of pretax earnings, interest due, amortization and depreciation of property, plant and equipment, expenses of leasing payments; this sum is adjusted by the amount of interest receivable. 

5  EBITDA margin is calculated as EBITDA/sales revenues.

6  Net profit margin is calculated as net profit /sales revenues.

Revenue structure

In Q 1-2010 the Company’s sales revenues amounted to RUB 7, 029.7 million, 5.6% gain vs. Q 1-2009. Communications services revenue accounted for RUB 6, 674.8 million, 5.3% gain. The share of communications services revenue in sales revenues accounted for 95%.

Revenue structure for Q 1- 2010:

The major sources of gain in revenue in Q 1-2010 were:

- growth of subscribers’ base of Internet broadband access services users by 22% vs. similar period of the prior year. At Q 1-2010-end the number of broadband access users (exclusively of national projects) accounted for 1, 046, 000;

- increase in tariffs for local telephony services since February 01, 2010 (Russia’s FTS order No 274-с/1 of November 11, 2009). For subscribers-individuals the increase in tariff for the use of subscriber’s line on average accounted for 10%, the cost of local phone calls has grown from 5% to 21% subject to the tariff plan. For subscribers-legal entities the increase in tariff for the use of subscriber’s line accounted for 7.1%, the cost of local phone calls vs. the existing tariffs has grown from 6.7% to 23.1% subject to the tariff plan.

The following factors constrain the growth of revenue:

- mobile substitution affecting the revenue from local and intrazonal telephony services. Intrazonal telephony services revenue has decreased by 4.0% (or RUB 45.2 million) vs. similar period of the prior year, basically due to the decrease of F2F traffic (-5.9%) and F2M traffic (-3.0%);

- increase in competition in wholesale market, reduction of volumes of DLD/ILD traffic in wire networks. Traffic transit services revenue has decreased by RUB 22.4 million vs. Q 1-2009 (of which RUB 13.1 million – decrease in revenue from zonal completion of calls as a result of reduction in volumes of traffic transit to network subscribers from DLD network operators).

Expenditure pattern

For Q 1-2010 ordinary operations expenses amounted to RUB 5, 320.6 million; 1.4% growth vs. Q 1-2009, which is lower than the growth of sales revenues  (5.6%). Efficient cost management had positive effect on the Company’s net operating margin which has grown vs. similar period of the prior year by 5.2 percentage points to 32.1%. 

VolgaTelecom’s expenditure pattern for Q 1-2010:

In Q 1-2010 the following expenditure items were reduced:

- Amortization and depreciation of property, plant and equipment were reduced by RUB 88.9 million due to post-crisis arrangements realized in 2009 which resulted in the reduction of investment amounts;

- Telecom operators’ services costs were reduced by RUB 15.7 million due to the refusal to use other operators’ channels as a result of construction of proprietary intraregional multiservice data transmission network, reduction of traffic to mobile (cellular) network operators due to mobile substitution and reduction of traffic initiated by the subscribers of operators connected at local level;

- Leasing payments expenses were reduced by RUB 21.4 million. This expenditure item is basically related to payment schedule under the contract of equipment finance lease used for universal service provision.   

18.1% increase in expenses of item “Material costs” is mainly related to the increase in tariffs for electric power and heat, utility and postal services and the increase in prices for fuel and materials.

The growth of other expenses is related to lessor’s increase in rental fee and implementation of projects related to automation, expansion and modernization of a number of business-processes which resulted in the growth of cost of software products and data bases written off to prime cost. 

Investments

In Q 1-2010 the investments amounted to RUB 341.5 million, which is by 89.2% higher vs. similar period of 2009. Major trend of investments – advanced services (71.4% or RUB 243.8 million of the total investments were allocated for arranging Internet broadband access on the basis of FTTx, Ethernet, and xDSL technologies, for NGN construction, etc.).

Structure of investments:

Q 1-2010

Q 1-2009

Change

Net debt*, RUB million

5, 796.4

11, 763.1

-50.7%

Net debt/EBITDAttm**

0.47

1.14

-58.8%

Interest due/EBITDA

0.07

0.17

-58.8

Accounts receivable turnover, days

22.79

23.64

-3.6%

Quick ratio

0.88

0.54

+63.0%