OREANDA-NEWS. December 30, 2010. OJSC VolgaTelecom (RTS: NNSI/NNSIP, MICEX: VTEL/VTELP, ADR: VLGAY) presents unaudited consolidated interim financial statements for 9 months of 2010 prepared in accordance with International Financial Reporting Standards (IFRS). Consolidated interim financial statements comprise financial statements of OJSC VolgaTelecom, its subsidiaries and associates (the Group) prepared by applying uniform accounting policies.

For 9 months of 2010 the Group’s sales revenue has grown by 7.8% vs. similar period of the prior year and amounted to RUB 26, 154 million. Operating profit for the reporting period has grown by 28% and accounted for RUB 6, 581 million; net profit increased by 56.3% and amounted to RUB 4, 440 million.

The growth of the Group’s net profit was ensured through realization of strategic measures intended at increasing operating efficiency, outstripping growth of sales revenue (5.5%) over operating expenses and reduction of interest expenses.

Key financial performances

Indicator

9 months of 2010

9 months of 2009

Change

 

Sales revenue, RUB million

26, 154

24, 265

7.8%

Operating expenses, net, RUB million 1

19, 573

19, 125

2.3%

Operating profit, RUB million

6, 581

5, 140

28.0%

Profit for the reporting period, RUB million

4, 440

2, 840

56.3%

EBITDA, RUB million 2

11, 930

10, 664

11.9%

EBITDA margin, % 3

45.6%

43.9%

1.7 percentage points

OIBDA, RUB million 4

11, 942

10, 732

11.3%

OIBDA margin, % 5

45.7%

44.2%

1.4 percentage points

Net profit margin,% 6

17.0%

11.7%

5.3 percentage points

Prime cost of RUB 100 of sales revenue 7

79.36

83.17

-4.6%

1-    Operating expenses, net are calculated as the sum of expenses under items  “Personnel costs”, “Depreciation and amortization”, “Telecom operators’ services costs”, “Materials, repair and maintenance, public utility services”, and “Other operating expenses” adjusted for the amount of other operating profit;  2-    EBITDA is calculated as the sum of pretax earnings, financial expenses, depreciation and amortization adjusted for the amount of interest receipts of pension plan assets and financial assets; 3-    EBITDA margin is calculated as EBITDA/ “Sales revenue”; 4-    OIBDA is calculated as the sum of operating profit and expenses under item “Depreciation and amortization”; 5-    OIBDA margin is calculated as OIBDA/ “Sales revenue”; 6-    Net profit margin is calculated as “Profit for the reporting period”/ “Sales revenue”; 7-    Prime cost of RUB 100 of sales revenue is calculated as Operating expenses/Sales revenue x 100.

Sales revenue structure

For 9 months of 2010 sales revenue has increased by RUB 1, 889 million or 7.8%. In the first place the growth of sales revenue was caused by the increase in revenue from local telephony services and Internet access services.

One of the factors of revenue growth by items and sales revenue upon the whole for the period under analysis was the acquisition of Teleset Networks PCL (Cyprus), its subsidiaries provide fixed-line telephony services, Internet broadband access services and cable TV services in the territories of Kazan, Naberezhnye Chelny and Ulyanovsk cities (on June 3, 2010 VolgaTelecom completed the transaction of acquisition of 98.19% shares of Teleset Networks PCL, and on December 01, 2010 the Company’s equity share was brought up to 100%).

In the Group’s sales revenue structure for 9 months of 2010 the largest share (35.8%) falls on local telephony services revenue. essential income items are data transmission services, telematic services (Internet) (19%), mobile (cellular) services (13.8%), intrazonal telephony services (12.8%), and interconnect and traffic transit services (11.9%).

Sales revenue structure for 9 months of 2010 is as follows:

Indicator

9 months of 2010, RUB million

9 months of 2009, RUB million

Change,%

Share (%) in sales revenue

9 months of 2010

9 months of 2009

Local telephony services

9, 357

8, 496

10.1

35.8

35.0

Telegraphy, data transmission network and telematic (Internet access) services

4, 958

4, 387

13.0

19.0

18.1

Intrazonal telephony services

3, 342

3, 403

-1.8

12.8

14.0

Mobile (cellular) services

3, 621

3, 358

7.8

13.8

13.8

Interconnect and traffic transit services

3, 114

3, 031

2.7

11.9

12.5

Mobile radio telephony, wire broadcasting, radio broadcasting and TV services  

568

555

2.2

2.2

2.3

Other services

54

79

-31.6

0.2

0.3

Assistance and agency services

364

379

-4.1

1.4

1.6

Revenue from other sales

776

577

34.6

3.0

2.4

Sales revenue - total

26, 154

24, 265

7.8

100.0

100.0

 Dynamics of sales revenue was ensured by: 

Indexation of tariffs for local telephony services (provision of subscriber’s line for use, local calls). For 9 months of 2010 local telephone services sales revenue amounted to RUB 9, 357 million (gain of 10.1% or RUB 861 million);

24.1% growth of subscribers’ base of Internet broadband access services users;

Retention of the trend of reduction of outgoing intrazonal traffic (-4.3%) due to mobile substitution. For 6 months of 2010 the reduction of intrazonal telephony services revenue vs. 9 months of 2009 accounted for RUB 61 million or 1.8%;

Growth of subscribers’ base of mobile services users, growth of MOU (traffic per a subscriber) and therefore of ARPU. For 9 months of 2010 mobile (cellular) services revenue amounted to RUB 3, 621  million, which is by RUB 263 million or 7.8% more vs. similar period of the prior year. 

Sales revenue structure by categories of customers:

 

9 months of 2010, %

9 months of 2009, %

Individuals

57.9

57.1

Business entities

20.4

20.5

Telecom operators

8.0

7.7

State-financed organizations

13.7

14.7

Total

100.0

100.0

Expenditure pattern 

For 9 months of 2010 the Group’s operating expenses amounted to RUB 20, 756 million. For the reporting period the prime cost of RUB 100 of sales revenue has reduced by 4.6% and accounted for RUB 79.36 vs. similar period of the prior year. 

Expenditure pattern for 9 months of 2010 is as follows:

Indicator

9 months of 2010, RUB million

9 months of 2009, RUB million

Change, %

Personnel costs

6, 627

6, 401

3.5

Depreciation and amortization

5, 361

5, 592

-4.1

Telecom operators’ services costs

2, 890

2, 684

7.7

Materials, repair and maintenance, public utility services

2, 151

1, 998

7.7

Other operating expenses

3, 727

3, 506

6.3

Total operating expenses

20, 756

20, 181

2.9

Other operating income

1, 183

1, 056

12.0

Operating expenses net

19, 573

19, 125

2.3

 The major changes in expenses vs. similar period of the prior year were in the following items: 

Materials, repair and maintenance, public utility services expenses have increased by 7.7%, which is mainly related to the growth of tariffs for electric power, fuel and public utility services in H I-2010;

Telecom operators’ services costs have increased by 7.7%, which is related to the growth of outgoing traffic of ZAO NCC subscribers, this growth affected the payments to other telecom operators;

Major increase in other operating expenses and other operating income is related to reflecting in the statements of allocations for electric power for the past year. 

Investments

For 9 months of 2010 the investments amounted to RUB 10, 036.0 million. The largest share of investments (45.9%) is related to acquisition of a subsidiary (on June 03, 2010 VolgaTelecom completed the transaction of acquisition of 98.19% of shares of Teleset Networks PCL). The share of investments into the development of value-added services for 9 months of 2010 accounted for 32.3% or RUB 3, 244.2 million (arrangement of хDSL/Ethernet/FTTx-access, mobile services development, NGN, etc.). The share of investments into mobile business development accounted for 6.2% of the total investments.

Investments structure

Investments

9 months of 2010

RUB million

share, %

Total investments

10, 036.0

100.0

Traditional telephony

235.1

2.3

Value-added services

3, 244.2

32.3

Mobile communications including

625.2

6.2

IT investments

420.4

4.2

Data transmission network

556.6

5.5

Other infrastructure

976.7

9.7

Additions related to acquisition of subsidiaries

4, 603.0

45.9

Equity and borrowings
The growth of net debt was caused by raising borrowed funds to perform the obligations of shares repurchase presented by shareholders within the framework of current reorganization of VolgaTelecom in the form of merger with Rostelecom, and also to finance the purchase of local telephony provider - Teleset Networks PCL.

Debt load

Indicator

At September 30, 2010

At December 31, 2009

 

 

Interest debt, RUB million8

18, 074

10, 404

 

Net debt, RUB million9

13, 168

8, 371

 

Net debt/shareholders’ equity

0.42

0.27

 

Net debt/Assets

0.22

0.16

 

Quick ratio10

0.97

0.63

 

8-    The debt is calculated as the sum of liabilities under long-term and short-term loans and borrowings;  9-    Net debt is calculated as the sum of long-term and short-term loan obligations adjusted for the amount of cash and cash equivalents, as well as for the amount of promissory notes and bonds available for sale;  10- Quick ratio is calculated as the ratio of current assets net of inventories and taxes to current liabilities.

Statement of compliance 

The consolidated financial statements are prepared and presented in accordance with the requirements of International Financial Reporting Standards (IAS) 34 “Interim Financial Statements”, as well as other International Financial Reporting Standards (IFRS) and respective interpretations approved by the Committee for International Financial Reporting Standards (CIFRS). All information should be considered with due account for the Group’s annual consolidated financial statements for the year ended December 31, 2009.