Far East Telecom Announced 9M Nonaudited Financial Results

OREANDA-NEWS. November 23, 2010. OJSC Far East Telecom (RTS: ESPK, MICEX: DLSV, ADR of the USA: FEEOY, Frankfurt and Berlin Stock Exchanges: D7A) announces nonaudited financial results for the 9 months 2010 according to Russian Accounting Standards (RAS).

Main data of the financial and economic activities of the 9 months 2010

Performances

* Staff on the payroll as of September 30, 2010 reduced by 614 persons (or 6.0%) as compared to the data as of January 1, 2010 (10,215 persons) and reached 9,601;

* For the 9 months 2010 revenue per employee increased by 15.6% to 1,088.4 thousand rubles (941.5 thousand rubles for the 9 months 2009);

* Number of lines per employee increased by 8.2% to 151.2 lines (139.7 for the 9 months 2009);

* Prime cost per ruble of proceeds was 73.64 kopecks in the 9 months 2010, which is a 0.4% reduction against similar period of the last year (73.96 kopecks in the 9 months 2009).

Revenues from communication services for the 9 months 2010

Services	9 months 2010, million rubles	9 months 2009, million rubles	Changes, %
Intrazone telephone communication service	1,602.9	1,660.2	(3.5%)
Local telephone communication service	4,042.6	3,838.8	5.3%
Mobile radio communication, wire communication services, broadcasting, television services	124.8	119.8	4.2%
Mobile radio (cellular) communication	158.3	194.9	(18.8%)
Telegraph communication, data transmission and telematic services	3,420.1	2,902.1	17.9%
including data transmission and Internet access services (other than IP TV)	3,071.3	2,652.9	15.8%
including IP TV	242.9	152.9	58.9%
Traffic interconnection services	635.5	737.6	(13.8%)
TOTAL	9,984.2	9,453.4	5.6%

Revenues growth is highlighted by:

* Internet access service income growth;

* IP TV service income growth;

* Local telephone communication service income growth.

Income from Internet access and data transmission service

High income growth rate is achieved due to enlarging broadband access subscriber base. It increased by 68,329 subscribers as against the 9 months 2009 (subscriber base as of September 30, 2010 is 425,247). Besides, the income growth was influenced by the promotion of new limit and unlimited tariff plans, which contributed to subscriber fee income growth.

IP TV income increase was 58.9% or 90.0 mln rubles as compared to the 9 months 2009. The income increase is driven by subscribers base enlargement by 44,247 numbers (as of September 30, 2010 subscribers base reached 107,541 numbers). Revenue service of the IP TV that started in September 2009 in Magadansky and Sakhalinsky Branches also added to the income growth.

Income from local telephone communication services

Increase in income from local telecommunication service by 5.3% is caused by tariff growth in February 2010.

Incomefromintrazonecommunicationservice

The income reduction by 3.5% or 57.3 mln rubles is caused by a drop in intrazone traffic volume that decreased the income by 11.8% (123.1 mln rubles) due to the F2F traffic income reduction by 20.6% or 93 mln rubles). The traffic volume reduction is related to lower demand for the service due to mobile replacement. The reduction is partly compensated by growing income from intrazone communication channels provision by 27% (64.8 mln rubles).

Income from mobile communication

Income from mobile communication services reduced in the 9 months 2010 by 18.8% as compared to the similar period of 2009. The reduction is caused by the tough competition from the Large Three operators in Magadansky and Kamchatsky regions.

Income from traffic interconnection services

Income from traffic interconnection services decreased in the 9 months 2010 by 13.8% as against the 9 months 2009 due to:

* lower income from OJSC Rostelecom because of 33B traffic reduction since January 1, 2010 from 1.25 rubles/min down to 0.50 rubles/min. The reduction of 33B income from OJSC Rostelecom is concurrent with equivalent reduction of Internet channel costs;

* partial income loss from traffic interconnection caused by zone fixed communication market demonopolization and alternative operators entering the market. These trends are most evident for Primorsky, Khabarovsky, Kamchatsky and Amursky regions. The income reduction is partly compensated by growing 33B income from OJSC Megafon after agreement conclusion with the operator and traffic return;

* income loss from traffic interconnection at local and zone levels caused by mobile replacement and traffic partial overflow to ip-networks;

* decrease in partial income from traffic interconnection to trunk access nodes (local call initiation) due to the reduction in Internet dial-up access service share and DSL service share growth.

Subscribers base and new service share in the 9 months 2010

* New service (Internet access, data transmission, mobile communications, IP TV and video on demand) share in Company revenue structure for the 9 months 2010 reached 33.2% (in the 9 months 2009 new service share was 30.1%);

* Internet broad band access subscribers base increased by 19.1% to 425,247 numbers (356,918 subscribers in the 9 months 2009);

* Cellular communication subscribers base reduced by 2.7% to 74,687 numbers (Kamchatsky region – 30,032 (33,264 in the 9 months 2009), Magadansky region – 44,655 (43,485 in the 9 months 2009);

* Main station subscribers base as of September 30, 2010 was 1,366,521 numbers (1,380,013 subscribers as of September 30, 2009).

Expenses for the 9 months 2010

Expenses	9 months 2010, million rubles	9 months 2009, million rubles	Changes, %
Wage costs	2,413.1	2,256.6	6.9%
Social insurance contributions	555.6	457.8	21.4%
Fixed assets depreciation	1,051.6	1,062.9	(1.1%)

 

Expenses	9 months 2010, million rubles	9 months 2009, million rubles	Changes, %
Tangible costs[5]	780.2	703.7	10.9%
Expenses on telecommunication operators (other than OJSC Rostelecom)	1,202.0	1,230.5	(2.3%)
Expenses on OJSC Rostelecom services	268.7	273.6	(1.8%)
Outsourced services[6]	542.2	568.4	(4.6%)
Universal service reserve deductions	107.3	99.7	7.6%
Taxes and fees included into expenses on ordinary activities	11.1	7.7	44.2%
Other expenses[7]	758.4	691.5	9.7%
TOTAL	7,690.2	7,352.4	4.6%

* Wage costs increased by 156.5 mln rubles or 6.9% as against the 9 months 2009 due to Company staff wages increase program implemented by the Company;

* Growth of tangible costs by 76.5 mln rubles or 10.9% as compared to the 9 months 2009 is mostly caused by heat and power energy tariff increase, and greater expenses on subscribers’ equipment;

* Increase in “Other expenses” in the 9 months 2010 by 66.9 mln rubles is mostly related to the growth of expenses on software, data bases, and IP TV contents.

Other revenues and expenses

As a result of the 9 months 2010 OJSC Far East Telecom received loss from other non-operational activities in the amount of 37.3 mln rubles (loss in 9 months 2009 was 518.3 mln rubles).

* Interest yields increased by 13.0 mln rubles to 22.2 mln rubles due to the changes in interest rate for funds accommodation and raising;

* Interest costs amounted by to 525.8 mln rubles to demonstrate a 116.7 mln rubles increase as against the 9 months 2009 (409.1 mln rubles) due to additional funds raising for redemption in the reorganization procedure;

* “Income from participation in other organizations” reflects dividends from OJSC Sakhatelecom accrued in the second and third quarters 2010.

Equity and liabilities

OJSC Far East Telecom net assets as of September 30, 2010 increased by 7.9% and reached 10,719.1 mln rubles (9,932.8 mln rubles as of January 1, 2010).

	as of September 30, 2010	as of January 1, 2010	Changes, %
mln rubles	mln rubles
Interest bearing debt[8]	7,569.4	6,820.8	11.0%
Net debt[9]	7,503.2	6,520.3	15.1%

The growth in debt figures is preconditioned by procurement of long-term credits for redemption funding in the Company reorganization procedure in the amount of 844 mln rubles in September 2010.

[1] OIBDA was calculated as revenues minus operational expenses before depreciation;

[2] OIBDA margin was calculated as OIBDA/proceeds

[3] EBITDA was calculated as profit before tax plus depreciation plus leasing payments on off-balance leasing plus interest payable less interest receivable

[4] EBITDA margin was calculated as EBITDA/proceeds

[5] Including 271.4 mln rubles for electric and heat power (235.4 mln rubles in the 9 months 2009)

[6] Information, consulting, audit, transportation, security, current maintenance and repairs, staff retraining, advertisement

[7] Leasing payments, property rent, non-government pension insurance, voluntary medical insurance in favor of employees

[8] Interest-bearing debt is equal to the sum of long-term credit and loan liabilities and short term credit and loan liabilities

[9] Net debt is calculated as actual interest-bearing debt minus cash funds and their equivalents