OREANDA-NEWS. January 11, 2011. VolgaTelecom (RTS: NNSI/NNSIP, МICEX: VTEL/VTELP, ADR: VLGAY) hereby presents its unaudited consolidated interim financial statements for the first nine months of 2010, drafted to international financial reporting standards (IFRS). The consolidated interim financial statement was prepared on the basis of reports from VolgaTelecom, as well as its subsidiaries and associates (the Group) using a uniform accounting policy.

The Group’s revenue increased by 6.8% during the first nine months of 2010 compared to the year-earlier period and amounted to RUR 26,154 mln.  Operating profit increased by 28% and amounted to RUR 6,581 mln.  Net profit during the reporting period surged 56.3% and reached RUR 4.440 mln.

An increase in the Group’s net profit was achieved due to the implementation of strategic measures aimed at raising its operating efficiency, as the revenue outpaced operating expenses by 5.5% and interest expenses on borrowed resources decreased. 

Headline financial indicators  

Indicator

9M10

9M09

Change

 

Revenue, RUR, mln

26,154

24,265

7.8%

Net operating expenses. RUR, mln1

19,573

19,125

2.3%

Operating profit, RUR, mln

6,581

5,140

28.0%

Profit during the reporting period, RUR, mln

4,440

2,840

56.3%

EBITDA, RUR, mln2

11,930

10,664

11.9%

EBITDA margin,%3

45.6%

43.9%

1.7%

OIBDA, RUR, mln4

11,942

10 732

11.3%

OIBDA margin, %5

45.7%

44.2%

1.4%

Net profit margin,%6

17.0%

11.7%

5.3%

Cost per RUR 100 of revenue7

79.36

83.17

-4.6%

Net operating expenses are calculated as the sum of expenses under the item “staff expenses”, depreciation and amortization”, “interconnect expenses”, “materials, repair and maintenance, utility services” and “other operating expenses” adjusted for other operating revenues;

EBITDA is calculated as pre-tax profit, financial expenses, depreciation and amortization adjusted for pension plan interest and revenue from interest on financial assets;

EBITDA margin is calculated as EBITDA/revenue;

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

ОIВDA margin is calculated as OIBDA/revenue;

Net profit margin is calculated as Profit during the reporting period/Revenue;

Cost per RUR 100 of revenue is calculated as Operating Expenses/Revenue multiplied by 100x.  

Revenue breakdown 

Revenue for the first nine months of 2010 increased by RUR 1,889 mln or 7.8%.  The rise in this metric was attributable, first and foremost, to an increase in local voice revenue and higher revenue from Internet access.

One factor behind the rise in revenue items and revenue in general during the period under review was the acquisition of Teleset Networks PCL (Cyprus), the subsidiaries of which provide fixed-line services, broadband Internet and cable TV in the cities of Kazan, Naberezhnye Chelny and Ulyanovsk (on June 3, 2010 VolgaTelecom executed a transaction to acquire a 98.19% stake in Teleset Networks PCL, while on December 1, 2010 this equity position was raised to 100%).

The largest proportion of the Group’s 9M10 revenue breakdown fell to local voice (35.8%).  Other major revenue items included telematic services (19%), mobile and radio (cellular) telephony (13.8%), intrazonal telephony (12.8%), and interconnect and traffic transmission (11.9%).

Revenue breakdown for 9M10 looks as follows:  

Indicator

9M10, RUR, mln

9M09, RUR, mln

Change,%

Proportion, % in revenue

9M10, RUR, mln

9M09, RUR, mln

Local voice

9,357

8,496

10.1

 

 

Telegraph, datacom and telematic services (Internet)

5,454

4,387

13.0

19.0

18.1

Intrazonal telephony

3,342

3,403

-1.8

12.8

14.0

Mobile and radio (cellular) telephony

3,621

3,358

7.8

13.8

13.8

Interconnect and traffic transmission

3,114

3,031

2.7

11.9

12.5

Mobile and radio, wire broadcasting, radio broadcasting and television

568

555

2.2

2.2

2.3

Other core activities

54

79

-31.6

0.2

0.3

Outsourcing contracts

364

379

-4.1

1.4

1.6

Non-core revenue

776

577

34.6

3.0

2.4

Total revenue

26,154

24,265

7.8

100.0

100.0

Revenue trends were attributable to the following factors: 

Indexation of local voice tariffs (subscriber line lease, local connections).  Local voice revenue for 9M10 amounted to RUR 9,357 mln (up 10.1% or RUR 861 mln);

The broadband Internet subscriber base increased by 24.1%;

The trend of a decline in outgoing intrazonal traffic (-4.3%) remained as a result of mobile replacement.  The decrease in intrazonal telephony revenue for the first nine months of 2010 relative to the same period last year amounted to RUR 61 mln, or 1.8%;

A rise in the cellular telephony subscriber base, MOU growth (traffic calculated per each subscriber), and, consequently, in subscriber profit margins.  Revenue from Mobile and radio (cellular) telephony for the first nine months of 2010 totaled RUR 3,621 mln, which is RUR 263 mln or 7.8% more than in the same period last year.  

Revenue breakdown for core services:  

 

9M10, %

9M09, %

Households

57.9

57.1

Commercial organizations

20.4

20.5

Budget organizations

8.0

7.7

Telecom operators

13.7

14.7

Total

100.0

100.0

Expense breakdown 

The Group’s operating expenses amounted to RUR 20,756 for the first nine months of 2010.  Cost per RUR 100 of revenue during the reporting period decreased by 4.6% and amounted to RUR 79.36, compared to RUR 83.17 during the same period last year.

Expense breakdown, 9M10  

Indicator

9M10, RUR, mln

9M09, RUR, mln

Change, %

Payrolls

 

 

3.5

Depreciation and amortization

5,361

5,592

-4.1

Interconnect

2,890

2,684

7.7

Materials, repair and maintenance, utilities

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 revenues

1,183

1,056

12.0

Net operating expenses

19,573

19,125

2.3

The main changes in expenses compared with the previous year took place in the following items: 

Expenses for materials, repair and maintenance, utilities increased by 7.7%, which was mainly attributable to tariff hikes for electricity, fuel, and utilities during the first six months of 2010;

Interconnect expenses went up by 7.7%, which was due to an increase in the volume of outgoing traffic from the cellular subscribers of NCC, which impacted payments made to other telecom operators;

The main increase in other expenses and other revenues was associated with reflection during the reporting period of recalculations for electricity over the past year.  

Investments 

The total amount of investments for the first nine months of 2010 totaled RUR 10,036.0 mln.  The biggest investment component equal to 45.9% was associated with the acquisition of a subsidiary asset (on June 3, 2010 VolgaTelecom completed a transaction to acquire 98.19% of the shares in Teleset Networks PCL). Investments in the expansion of advanced telecommunications services during the reporting period amounted to 32.3% or RUR 3,244.2 mln (organization of хDSL/Ethernet/FTTx access, expansion of cellular telephony, NGN etc.).  The proportion of investments in cellular expansion accounted for 6.2% of the total amount of investments.

Investment breakdown  

Area of investments

9M10

RUR, mln

Proportion, %

Total amount of investments

10,036.0

100.0

Traditional telephony

235.1

2.3

Advanced services

3,244.2

32.3

incl. cellular telephony

625.2

6.2

IT investments

420.4

4.2

Datacom network

556.6

5.5

Other infrastructure

976.7

9.7

Receipts associated with the acquisition of subsidiaries

4,603.0

45.9

Equity and borrowed capital 

The increase in net debt was attributable to the attraction of credit resources for the execution of obligations related to the buyback of shares presented by shareholders within the framework of the ongoing reorganization of VolgaTelecom as a merger into Rostelecom, and financing the takeover of local voice operator Teleset Networks PCL.

Debt load  

Indicator

9M10, RUR

9M09, RUR

 

 

Interest debt, RUR, mln8

18,074

10,404

 

Net debt, RUR, mln9

13,168

8,371

 

Net debt/equity

0.42

0.27

 

Net debt/assets

0.22

0.16

 

Quick ratio10

0.97

0.63

 

Debt is calculated as the sum of liabilities under long-term and short-term credits and loans;

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

The quick ratio is calculated as current assets minus commodity stocks and taxes to current liabilities.