Recent news

29.04.2010
Far East Telecom: net profit tops RUR 506 mln in Q110

Press release

Vladivostok – April 28, 2010. Far East Telecom (RTS: ESPK, MICEX: DLSV, OTC USA: FEEOY, Frankfurt and Berlin stock exchanges: D71) hereby announces its unaudited financial results for the first quarter of 2010 in accordance with Russian accounting standards (RAS).

Main financial indicators for Q1 2010

Indicator	Q110	Q109	%, Change
Revenue on main types of activity	3,474.8	3,297.0	5.4%
incl. telecom services	3,320.6	3,133.6	6.0%
Operating expenses	2,582.0	2,326.2	11.0%
EBIT	892.8	970.8	(8.0%)
Pre-tax profit	650.0	820.2	(20.8%)
OIBDA[1]	1,243.2	1,320.8	(5.9%)
OIBDA margin[2]	35.8%	40.1%	-
EBITDA[3]	1,168.9	1,296.0	(9.8%)
EBITDA margin[4]	33.6%	39.3%	-
Net profit	506.2	644.7	(21.5%)
NP margin	14.6%	19.6%	-

“Going forward, we expect to further strengthen the company’s market positions, devoting special attention to the quality of service, the development of technical infrastructure, while continuing to focus on value-added services, the proportion of which should exceed 33% in its revenue structure. Strict control over operating expenses and efforts to bolster profitability and liquidity metrics will remain the key economic trends of the year”, according to the general director of Far East Telecom Andrey Balatsenko.

Efficiency indicators

The company’s headcount stood at 10,003 employees as of March 31, 2010, which is down by 212 employees (or 2.1%) compared with the level recorded as of January 1, 2010 (10,215 employees);
Revenue per employee increased by 17.1% to RUR 354,800 in the first quarter of 2010 (up from RUR 303,100 in the first quarter of 2009);
The number of lines per employee rose by 9.2% to 148.6 lines (vs. 136.1 in the first quarter of 2009);
Cost per ruble of revenue in the first quarter of 2010 increased compared with the same period laast year by 5.3% and stood at 74.31 kopecks (vs. 70.55 kopecks in the first quarter of 2009).

Revenue breakdown in Q1 2010

Type	Q110,	Q109,	Change, %
Type	RUR, mln	RUR, mln	Change, %
Intrazonal telephony	534.9	538.7	(0.7)%
Local voice telephony	1,339.1	1,258.7	6.4%
Mobile radio service, wire broadcasting, radio broadcasting and television	39.5	40.1	(1.5%)
Mobile (cellular) telephony	52.3	66.5	(21.4%)
Telegraph, datacom and telematic services	1,134.6	969.0	17.1%
incl. datacom and Internet access (except for interactive TV services)	1,020.3	889.0	14.8%
incl. interactive TV services	78.3	47.3	65.5%
Interconnect and traffic transit	220.2	260.6	(15.5%)
TOTAL	3,320.6	3,133.6	6.0%

Growth of revenues was due to:

an increase in revenues from Internet access services;
an increase in revenues from interactive television services;
an increase in revenues from local telephony services.

Revenue from Internet access and datacom

The rapid pace of revenue growth was achieved by raising the broadband Internet subscriber base. Compared to the first quarter of 2009 this indicator increased by 102,067 subscribers (compared with 403,067 subscribers as of March 31, 2010). In addition, revenue growth was impacted by the aggressive promotion of new limited and unlimited tariff plans, which, in turn, contributed to an increase in subscriber fees.

Interactive television showed a rise in revenue equal to 65.5% or RUR 31 mln compared with this indicator in the first quarter of 2009. This was attributable to an increase in the subscriber base by 40,034 subscribers, as the subscriber base reached 87,900 as of March 31, 2010. In addition, higher revenue was due to the launch of commercial interactive television in September 2009 in the Magadan and Sakhalin branches.

Local voice revenue

The operator’s 6.4% increase in local voice revenue was attributable to a tariff hike effective in March 2009.

Intrazonal telephony revenue

A 0.7% decline in revenue or RUR 3.8 mln was due to a decrease in the volume of intrazonal traffic, which resulted in an 11.2% decline in traffic (RUR 39.8 mln) due to the contraction in a 17.5% contraction in F2F traffic (RUR 27.5 mln). The decline in traffic volumes was attributable to a downturn in the use of this service owing to mobile substitution. This decrease was offset by a 94% rise (RUR 41.7 mln) in revenue from the lease of intrazonal telecom channels.

Cellular revenue

Revenue from cellular telephony in the first quarter of 2010 decreased by 21.4% compared with the first quarter of 2009. This decline was attributable to a decrease in the operator’s subscriber base by 20,363 subscribers (as of March 31, 2010 the subscriber base stood at 75,107), which, in turn, was due to competition with the Big-3 in the Magadan region and Kamchatka krai.

Revenue from Interconnect and traffic transit

The decline in revenue from interconnect and traffic transit in the first quarter of 2010 compared with the first quarter of 2009 was attributable to the following factors:

a decrease in the proportion of revenue from traffic transit, which was due to the deregulation of the zonal fixed-line telephony market and the entry of alternative telecommunications operators into this market. These trends were observed mainly in the Primorsk, Khabarovsk and Kamchatka krais and the Amur region;
a decline in interconnect revenue at the local and zonal levels, which was attributable to mobile substitution and the outflow of traffic to IP networks;
a contraction in the proportion of revenue from traffic transit to access nodes (local call origination) as a result of a decrease in the share of dial-up Internet and an increase in DSL traffic.

Subscriber base trends and shares of value-added services in the first quarter of 2010

The proportion of value-added services (Internet access, datacom, mobile telephony, interactive television and video on demand) in the company’s revenue breakdown for the first three months of 2010 reached 33.1% (up from 30.2% in the first three months of 2009);
The operator’s broadband subscriber market increased by 33% to 403,449 subscribers (up from 301,382 in the first three months of 2009);
The cellular telephony base decreased by 21.3% to 75,107 subscribers (Kamchatka krai – 31,273 (down from 36,616 in the first thee months of 2009), Magadan region – 43,884 (down from 58,864 in the first three months of 2009).
The subscriber base for main telephone lines stood at 1,375,181 as of March 31, 2010 (down from 1,380,899 in the first three months of 2009).

Expense trends in Q1 2010

Expense item	Q110,	Q109,	Change, %
Expense item	RUR, mln	RUR, mln	Change, %
Payrolls	821.6	697.0	17.9%
Social insurance contributions	206.6	156.5	32.0%
Амортизация основных средств	350.4	350.0	0.1%
Materials [5]	291.6	239.5	21.8%
Interconnect (except Rostelecom)	407.4	405.6	0.4%
Expenses payable to Rostelecom	83.8	87.9	(4.7%)
Outsourcing [6]	155.9	155.5	0.3%
Deductions to universal service fund	35.6	33.0	7.9%
Taxes and fees attributable to main types of activity	3.4	2.1	61.9%
Other [7]	225.7	199.1	13.4%
TOTAL	2,582.0	2 326.2	11.0%

Payroll expenses increased by RUR 124.6 mln or 17.9% compared with the indicator in the first quarter of 2009 due to action taken in 2009 to raise employee salaries and the accrual of the current bonus reserve in the first quarter due to a change in accounting methodology;
An increase in the materials item amounting to RUR 52.1 mln or 21.8% compared to the first quarter of 2009 in connection with a rise in tariffs for thermal power and electricity and an increase in expenses related to subscriber equipment;
Increase in the “Other” expense item during the first quarter of 2010 by RUR 26.6 mln, which was attributable mainly to higher software, database, agency and interactive amusement expenses.

Other revenues and expenses

During the first quarter of 2010 the operator posted a loss from other non-operating activity equal to RUR 252.8 mln (vs. a loss of RUR 150.7 mln in the first quarter of 2009);
Interest revenue increased by RUR 6.6 mln and stood at RUR 10.2 mln which was due to an increase in the volume of free cash for placement;
Interest expenses stood at RUR 178.7 mln, which is RUR 49.2 mln higher than interest expenses recorded in the first quarter of 2009 (RUR 129.5 mln), which was due to the placement in the second quarter of 2010 of BO-05 tradable bonds with a 15% yield;
A higher loss from other activity resulted mainly from the decline in revenue from the sale of fixed assets (RUR 6.9 mln in Q1 2010 vs. RUR 57.3 mln in Q1 2001).

In-house and borrowed capital

The net assets of Far East Telecom rose by 5.1% as of March 31, 2010 and amounted to RUR 10,437.8 mln (up from RUR 9,932.8 mln as of January 1, 2010). The proportion of in-house capital in the balance sheet breakdown reached 52.1% (vs. 51.1% as of January 1, 2010).

	Q1 2010,	Q1 2009,	Change, %
	RUR, mln	RUR, mln	Change, %
Interest debt[8]	6,746.0	6,820.9	(1.1%)
Net debt[9]	6,222.0	6,675. 8	(6.8%)

Additional information on the company can be found in SKRIN’S comprehensive information disclosure system at www.skrin.ru, Interfax news agency at www.interfax.ru, and news agency AKM at www.akm.ru.

[1]OIBDA is calculated as revenue minus depreciation expenses;
[2] OIBDA margin is calculated as OIBDA/revenue;
[3] EBITDA is calculated as pre-tax profit + lease payments for off-balance sheet leasing + interest payable – interest receivable;
[4] EBITDA margin is calculated as EBITDA/revenue;
[5] Including electricity and heating expenses equal to RUR 127.78 mln (RUR 113.62 mln in the first quarter of 2009);
[6] Information, consulting, auditing, transportation, security, current repair and maintenance, executive retraining and advertising expenses;
[7] Lease payments, lease of property, private pension insurance, voluntary medical insurance used by employees;
[8] Interest debt is equal to long-term liabilities on credits and loans and short-term liabilities on credits and loans;
[9] Net debt is calculated as interest debt – cash and cash equivalents.

Recent news

29.04.2010 Far East Telecom: net profit tops RUR 506 mln in Q110

29.04.2010
Far East Telecom: net profit tops RUR 506 mln in Q110