OREANDA-NEWS. September 28, 2010. VolgaTelecom (RTS: NNSI/NNSIP, МICEX: VTEL/VTELP, ADR: VLGAY)  hereby presents its unaudited consolidated interim financial statement for the first six months of 2010, prepared in accordance with international financial reporting standards (IFRS). The consolidated interim financial statement is prepared on the basis of the reports of VolgaTelecom’s subsidiaries and affiliated companies using a uniform accounting policy.

The Group’s revenue for six months of 2010 rose 6.1% compared with the same period last year and amounted to RUR 17,095 mln.  In addition, operating profit for the reporting period increased 20.2% and reached RUR 4,120 mln, while net profit soared 52.6% and amounted to RUR 2,816 mln.

The Group achieved higher net profit as the rise in revenue (6.1%) outpaced operating expenses (2.3%) and as the result of a decline in interest expenses due to the implementation of anti-crisis measures aimed at boosting free cash flow.

Headline financial indicators 

Indicator

1H10, RUR mln

1H09, RUR mln

Chng.

 

 

Revenue, RUR mln

17,095

16,112

6.1%

Net operating expenses, RUR mln 1

12,975

12,685

2.3%

Operating profit, RUR mln

4,120

3,427

20.2%

Profit for reporting period, RUR mln

2,816

1,845

52.6%

EBITDA, RUR mln 2

7,705

7,054

9.2%

EBITDA margin, % 3

45.1%

43.8%

1.3%

OIBDA, RUR mln 4

7,694

7,139

7.8%

OIBDA margin, %5

45.0%

44.3%

0.7%

Net profit margin,% 6

16.5%

11.5%

5.0%

Cost per RUR 100 of revenue 7

80.95

83.03

-2.5%

Net operating expenses are calculated as expenses under the items “personnel expenses”, “depreciation and amortization”, “interconnect expenses”, “materials, repair and maintenance, utilities”, and “other operating expenses”, adjusted for other operating revenue;

EBITDA is calculated as the sum of earnings before tax, financial expenses, depreciation and amortization adjusted for interest revenue on pension plan assets and interest on financial assets;

EBITDA margin is calculated as the ratio of EBITDA to Revenue;

ОIВDA is calculated as the sum of operating profit and expenses under the item “depreciation and amortization’;

ОIВDA margin is calculated as the ratio of OIBDA to Revenue;

Net profit margin is calculated as the ratio of Profit for the reporting period to Revenue;

Cost per RUR 100 of revenue is calculated as the ratio of Operating expenses to Revenue multiplied by 100.  

Revenue breakdown 

The largest revenue item (36.3%) of the VolgaTelecom Group of companies for the first six months of 2010 was local voice.  Other major items include datacom, telematic services (Internet) (18.7%), mobile and radio (cellular) telephony, which overcame negative trends experienced during the economic downturn (13.7%) , intrazonal telephony (12.7%), interconnect and traffic transmission (11.9%).

The revenue breakdown for 1H10 is as follows:

Indicator

1H10, RUR mln

1H09, RUR mln

Change,

%

  % of revenue

 1H 10

IH 09

Local voice

6,210

5,673

9.5%

36.3%

35.2%

Telegraphic, datacom and telematic services (ISP)

3,202

2,928

9.4%

18.7%

18.2%

Mobile and radio (cellular) telephony

2,341

2,201

6.3%

13.7%

13.7%

Intrazonal telephony

2,170

2,271

-4.4%

12.7%

14.1%

Interconnect and traffic transmission

2,031

2,029

0.1%

11.9%

12.6%

Mobile telephony, wire broadcasting, television  

377

370

1.7%

2.2%

2.3%

Other

34

35

-3.3%

0.2%

0.2%

Outsourcing

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%

Revenue breakdown by consumer categories 

Indicator

% of revenue

Change in proportion,%

1H10,

1H09,

Residential clients

58.2%

57.3%

0.9%

Corporate clients

19.7%

20.2%

-0.5%

Telecom operators

14.0%

14.8%

-0.8%

Government clients

8.1%

7.7%

0.4%

Revenue for the first six months of 2010 increased by 6.1% or RUR 983 mln.  Revenue derived from residential clients and government clients was higher due to more intense development of broadband Internet in the mass consumer segment.  These trends were driven by the following factors:   

The  regulator’s actions to increase local voice tariffs as of February 1, 2010 (Order No. 274-s/1 dated November 11, 2009).  Tariff indexation is the main growth diver both for local voice revenue (which rose 9.5% of by RUR 537 mln over the reporting period), and revenue in general.

Growth in the broadband Internet subscriber base.  As of the end of the second quarter of 2010 the number of broadband Internet users stood at 1,071,600 (not including users connected under national projects) with an increase of 18.7% compared to the same period last year.

A 12.3% increase in the cellular subscriber base (as of the end of the second quarter of 2010 the numbers of users stood at 4.1 mln).  Also noteworthy is the rise in MOU (traffic calculated as minutes of use per subscriber) during the reporting period, and, consequently, user profitability.  Revenue from radio and mobile (cellular) telephony for the first half of 2010 amounted to RUR 2,341 mln, which is 6.3% or RUR 140 mln more than in the same period last year.

The trend towards a decrease in outgoing intrazonal traffic (down 4.5%) as a result of mobile substitution.  The decline in revenue from intrazonal traffic for the first six months of 2010 stood at 4.4% in y-o-y terms or RUR 101 mln.  

Expense breakdown 

The Group’s operating expenses for the first six months of 2010 increased by 3.4%.  The cost per RUR 100 of revenue stood at RUR 80.95 during the reporting period, which is RUR 2.08 less than in the same period last year (RUR 80.03). 

The largest cost item was payrolls, which accounted for 32.7% of the total amount of total expenses. 

Cost structure 

Indicator

6 months of

2010, RUR mln

6 months of

2009, RUR mln

 

Change,

Proportion of expenses,

%

%

6 months of

2010

6 months of

2009

Personnel

4,525

4,341

4.3%

32.7%

32.4%

Depreciation and amortization

3,574

3,713

-3.7%

25.8%

27.8%

Interconnect

1,852

1,770

4.6%

13.4%

13.2%

Materials, repair and service, utilities

 

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 revenue

863

692

24.7%

 

 

Net operating expenses

12,975

12,685

2.3%

 

 

During the reporting period the main changes took placed in the following items: 

Expenses for materials, repair, service and utilities increased by RUR 163 mln (12.9%), which is attributable to higher power, fuel and utilities tariffs, and also an increase in expenses for materials connected with the implementation of plans for the promotion of telecom services;

Payroll expenses increased by 4.3%, or RUR 185 mln as a result of raises given to employees with key professions in view of inflationary expectations;

Depreciation charges decreased by 3.7% or RUR 139 mln, which was attributable to a decrease in the Company’s investment program within the framework of the Group’s anti-crisis strategy.  

The main increase in other expenses and other revenue was due to the recalculation of electricity costs for the reporting period. 

Investments 

The total amount of investments for the first six months of 2010 stood at RUR 8,411.0 mln, which is 7.5 times more than the level recorded during the same period in 2009.  The largest proportion of investments (63%) was associated with the acquisition of a subsidiary asset (on June 3, 2010 VolgaTelecom completed a transaction to acquire a 98.19% equity stake in Teleset Networks PCL).  The share of investments in the rollout of advanced telecommunications services at the end of 1H10 amounted to 24.2% or RUR 2,037.6 mln (organization of хDSL/Ethernet/FTTx access, expansion of cellular telephony, NGN, etc.).  The share of investments in the development of cellular telephony amounted to 4.7% of the total amount of investments.

Investment breakdown  

Purpose of investment

6 months of

2010

RUR, mln

proportion, %

Overall amount of investments

8,411.0

100.0%

Traditional telephony

64.6

0.8%

Advanced services

2,037.6

24.2%

incl. cellular telephony

398.6

4.7%

IT investments

235.1

2.8%

Datacom network

303.2

3.6%

Other infrastructure

471.5

5.6%

Receipts associated with the acquisition of subsidiaries

5,299.0

63.0%

Equity and borrowed capital 

The net assets of the VolgaTelecom Group amounted to RUR 32,439 mln as of June 30, 2010, their proportion in balance sheet currency amounted to 56.5%, which is 3.7% more than in the same period last year (52.8%).  As of June 30, 2010 interest debt amounted to RUR 13,350 mln, while net debt totaled RUR 10,389 mln.

Debt load  

Indicator

As of June 30, 2010

As of December  31, 2009

 

As of June 30, 2009

 

 

Interest debt, RUR, mln8

13,359

10,404

14,992

 

Net debt, RUR, mln 9

10,389

8,371

12,603

 

Net debt to equity  

0.32x

0.27x

0.44x

 

Net debt to assets активам

0.18x

0.16x

0.23x

 

The company’s debt is calculated as the sum of liabilities for long-term and short-term credits and loans;

Net debt is calculated as the sum of liabilities for long-term and short-term credits and loans and their equivalents, and also the sum of ready-for-sale promissory notes and bonds.