Recent news

31.05.2010
VolgaTelecom releases audited 2009 IFRS financial statement

Press release

Nizhny Novgorod, May, 2010. VolgaTelecom [(RTS: NNSI, NNSIP; МICEX: VTEL, VTELP; ADR OTC USA: VLGAY; ADR FSE: NZHGy.F; ADR BerSE: NZHGy.Be; ADR Xetra: NZHGy.De; ADR SSE: NZHGy.SG)] hereby presents the results of its full-year 2009 financial activities in accordance with International Reporting Standards (IFRS).

The audit of the Company’s financial statement was conducted by independent audit firm KPMG. The consolidated financial statement includes assets, liabilities and results of the activities of VolgaTelecom and its subsidiaries.

The company received the audit report with respect to its consolidated financial statement, which was compiled in accordance with IFRS requirements with no reservations.

VolgaTelecom’s concerted efforts in 2009 as part of its anti-crisis strategy aimed at raising operating efficiency and raising free cash flow, make it possible to increase revenue, raise profitability and improve the Company’s financial condition.

The Company’s net profit increased by 42.4% compared with the same period last year.

The highlights of VolgaTelecom’s financial results for full-year 2009 are summarized in the table below.

Indicator	2009	2008	Change
Indicator	2009	2008	2009/2008
Revenue, RUR, mln	32,759	32,063	2.2%
Revenue from telecom services, RUR, mln	31,394	30,757	2.1%
Operating expenses, net RUR, mln¹	25,788	26,595	-3.0%
Operating profit, RUR, mln	6,971	5,468	27.5%
Net profit, RUR, mln	4,181	2,936	42.4%
EBITDA, RUR, mln ²	14,411	12,010	20.0%
EBITDA margin, % ³	44.0%	37.5%	6.5%
OIBDA, RUR, mln ⁴	14,474	12,155	19.1%
OIBDA margin, %⁵	44.2%	37.9%	6.3%
Operating profit margin, % ⁶	25.6%	19.7%	5.9%
Net profit margin, % ⁷	15.3%	10.6%	4.7%
Operating profit margin, % ⁸	21.3%	17.1%	4.2%
Net profit margin, % ⁹	12.8%	9.2%	3.6%

Revenue breakdown

Indicator	2009, RUR, mln	2008, RUR, mln	Change	2009 proportion in revenue, %	2008 proportion in revenue, %
Indicator	2009, RUR, mln	2008, RUR, mln	2009/2008, %	2009 proportion in revenue, %	2008 proportion in revenue, %
Intrazonal telephony	4,557	4,829	-5.6	13.9	15.1
Local telephony	11,512	10,934	5.3	35.1	34.1
Mobile radio communication, wire broadcasting, radio broadcasting	739	703	5.0	2.3	2.2
Mobile (cellular) telephony	4,532	4,658	-2.7	13.8	14.5
Telegraph, datacom and telematic services (Internet access)	5,915	5,095	16.1	18.1	15.9
Interconnect and traffic transmission	4,069	4,427	-8.1	12.4	13.8
Other main activities	70	111	-36.9	0.2	0.3
Total revenue from telecom services	31,394	30,757	2.1	95.8	95.9
Services under outsourcing agreements	510	548	-7.0	1.6	1.7
Revenue from non-core activities	855	758	13.0	2.6	2.4
Total revenue	32,759	32,063	2.2	100.0	100.0

Revenue for full-year 2009 amounted to RUR 32,759 mln, which represents a 2.2% increase year-on-year.

Key revenue drivers:

Expansion of broadband Internet access: as of year-end 2009 the number of broadband Internet users (not including national projects) amounted to 994,000, which implies a 28% increase compared with the year-earlier period.
A local voice tariff hike effective March 1, 2009 (subscriber line leasing for local calls) in accordance with Order No. 305-c/10 of the Federal Tariff Service of Russia dated November 28, 2008, and, as a result, growth in current payments.
Mobile replacement, which had an influence on intrazonal telephony, as revenue derived from intrazonal telephony decreased by 5.6% compared with the level recorded in 2008, mainly as a result of a decline in F2F traffic (-10%) and also in F2M traffic (-4%).
Cancellation of service fees at interconnection points (as of March 1, 2008), an intensification of competition on the wholesale market, a decrease in volumes of DLD/ILD traffic in wire networks determined revenue trends from the interconnection and transmission of traffic; the decline of revenue in this item stood at 8.1% compared to the year-earlier period.
In full-year 2009 revenue from the provision of mobile (cellular) telephony amounted to RUR 4,532 mln, which is 2.7% less than in 2008. In addition, thanks to a balanced tariff policy and active marketing efforts, the Company managed to achieve an 8.5% increase in its subscriber base (as of year-end 2009 the number of subscribers stood at 3.8 mln).

Expense breakdown

Indicator	2009, RUR, mln	2008, RUR, mln	Change	2009 proportion in expenses, %	2008 proportion in expenses, %
Indicator	2009, RUR, mln	2008, RUR, mln	2009/2008, %	2009 proportion in expenses, %	2008 proportion in expenses, %
Payrolls	8,624	8,738	-1.3	31.7	31.5
Depreciation and amortization	7,502	6,687	12.2	27.5	24.1
Interconnect	3,611	3,789	-4.7	13.3	13.6
Materials, repair and maintenance, utilities	2,810	2,752	2.1	10.3	9.9
Other operating expenses	4,691	5,798	-19.1	17.2	20.9
Total operating expenses	27 238	27 764	-1.9	100.0	100.0

Efficient cost control became the main driver for the Company’s profitability in 2009. The main factors which had an impact on the Company’s expense trends can be summed up as follows:

Concerted efforts to reduce operating expenses in line with the implementation of strategic initiatives aimed at developing and adopting anti-crisis measures for the purpose of optimizing expenses.
Optimizing interconnect policies with backbone Internet providers in order to lower the cost of traffic transmission and to reduce costs associated with outsourcing operations.

The Company’s activities aimed at ramping up free cash flow made it necessary to optimize the expenditure of funds, and also to use crisis-related issues as a means of cost-cutting. The Company managed to reduce its costs for materials and repair, which made it possible to offset tariff hikes in energy resources and utilities.

Depreciation and amortization

An increase in expenses is attributable to implementation of the Company’s investment program and major commissioning of plant, property and equipment at the end of 2008.

Other operating expenses

The Group as a whole showed a decrease in other operating expenses, as costs related to information and consulting services provided by outsourcing organizations, advertising expenses, other outsourcing expenses associated with management, expenses for bad debt recovery, charitable activities, and other operating expenses. In addition, other losses decreased due to the fact that unused license were decommissioned and works were terminated for some software products in 2008, as recorded in accounting entries.

Investments

The amount of 2009 capital expenses went down compared with the same period last year, showing nearly a three-fold decline, amounting to RUR 3,871 mln. The main areas of the Company’s investment policy are as follows:

Advanced telecommunications services (rolling out хDSL access, FTTx/Ethernet access, building telecommunications networks using Softswitch technologies);
Datacom network and infrastructure;
Construction and refurbishing of cellular networks;
IT investment.

All in all, 56,300 fixed-line numbers were commissioned in 2009, and the digitalization rate of the company’s telephone network stood at 81.1% as of year-end 2009. In addition, the number of Internet access ports stood at 226,000 units at the end of the year.

Headline financial indicators

Indicator	2009	2008	Change
Indicator	2009	2008	2009/2008
Interest debt, RUR, mln¹⁰	10,404	17,027	-38.9%
Net debt, RUR, mln¹¹	8,371	15,349	-45.5%
Net debt/EBITDA¹²	0.58	1.28	-0.70
Interest payable/EBITDA¹³	0.13	0.15	-0.02
ROIC,% ¹⁴	13.6%	9.7%	3.9%
Equity /total assets¹⁵	0.60	0.50	+0.10
Quick ratio¹⁶	0.63	0.38	+0.25

In order to minimize the consequences of the economic downturn in the economy of the country, the Company implemented the following measures aimed at enhancing the financial stability of its business:

The optimization of cash flows from operating activity was attributable to: cancellation of programs and projects which were terminated or postponed to a later time and maintenance of expenses related to ensuring stable functioning of the network – top priority payments; the transfer of payments under existing contracts to a later period on the condition that there are no outstanding accounts receivable.
The optimization of cash flows from investment activity was attributable to: a decrease in the volumes of the investment program, the cancellation of investment projects, the implementation of which does not affect profitable projects which generate cash flows; conducting negotiations with equipment suppliers on postponing payment deadlines; control over volumes of work in progress.
The organization of financing by using trade credit schemes.
The formation of financial streams by optimizing the loan portfolio, in order to ensure the proper functioning and development of the Company.

These actions enabled the Company to considerably boost generation of free cash flow, which, in turn, made it possible to lower the debt burden, refinancing risks, and improve liquidity.

On the whole, the VolgaTelecom’s full-year 2009 financial results are in line with its targets for major market segments and laying the groundwork for future growth.

The full version of VolgaTelecom’s full-year 2009 IFRS consolidated financial statement can be viewed on the company’s website at www.vt.ru.

1 Operating expenses include “Payrolls”, “Depreciation and amortization”, “Outsourcing expenses”, “Expenses for materials, repair and maintenance, and utility services”, “Other operating expenses”, - “Income statement”.
2 EBITDA is calculated as “Profit before tax”, Depreciation and amortization”, “Financial expenses”, – “Income statement”, minus “Revenue from interest on financial assets” – Notation “Other revenue and expenses related to financial and investment activity” minus “Revenue from interest on pension plan assets” – Notation “Other revenue and expenses on financial and investment activity”
3 EBITDA margin is calculated as “EBITDA/Revenue” – “Income statement”.
4 OIBDA is calculated as the sum of “Profit from operating activity” and “Depreciation and amortization” - “Income statement”.
5 OIBDA margin is calculated as OIBDA/”Revenue” – “Income statement”.
6 Operating profit margin is calculated as “Operating profit”/”Operating expenses” – “Income statement”, Operating expenses include “Payroll expenses”, “Depreciation and amortization”, “Expenses related to outsourcing, expenses for materials, repair and maintenance, utilities”, “Other operating expenses” - “Income statement”.
7 Net profit margin is calculated as “Profit for the reporting year”/”Operating expenses” – “Income statement”. Operating expenses include “Payroll expenses”, “Depreciation and amortization”, “Expenses related to outsourcing, expenses for materials, repair and maintenance, utilities”, “Other operating expenses” - “Income statement”.
8 Operating profit margin is calculated as “Profit from operating activity”/Revenue - “Income statement”.
9 Net profit margin is calculated as “Profit during the reporting period”/”Revenue” - “Income statement”.
10 Interest debt is calculated as the sum of “Long-term financial liabilities” and “Current financial liabilities” – “Balance at the end of the period”;
11 Net debt is calculated as the sum of “Long-term financial liabilities” and “Current financial liabilities” – “Balance at the end of the period” minus “Cash & cash equivalents” – “Balance at the end of the period” minus available-for-sale promissory notes and bonds.
12 Net debt/EBITDA is calculated as “Net debt/EBITDA
13 Interest payable/EBITDA is calculated as “Financial expenses” – “Income statement”/EBITDA.
14 ROIC is calculated as the return on invested capital as (1 – income tax rate) multiplied by (the sum of “Profit (loss) before tax from ongoing business activity” and “Financial expenses” - Income statement minus “Interest revenue on financial assets” – Notation “Other revenue and expenses” mins “Interest revenue on pension plan assets” – Notation “Other revenue and expenses”)/”Investment capital”

IK = invested capital, which is calculated using the formula:

IC=((Na- LFa)- (Ll- LFl)+( Ca- SFa)-(Cl- CFl),

where:

Na – “Total non-current assets” – Balance as of end of the period;
LFa – “Long-term financial assets” – Balance as of end of the period;
Ll – “Total long-term liabilities” – Balance as of end of the period;
LFl – “Long-term financial liabilities” – Balance as of end of the period;
Ca – “Total current assets” – Balance as of end of the period;
SFa – “Short-term financial assets” – Balance as of end of the period;
l – ‘Total current liabilities” – Balance as of end of the period;
CFl – “Current financial liabilities” – Balance as of end of the period;

15 Financial independence ratio is calculated as “Total capital”/”Total assets” – Balance as of end of the period.
16 Fast liquidity ratio is calculated as “Current assets listed on the Balance Sheet as of the end of the period” – minus “Trade and material inventories listed on the Balance Sheet as of the end of the period” minus “VAT on goods, work and services purchased”/”Current liabilities listed on the Balance Sheet as of the end of the period”.

Recent news

31.05.2010 VolgaTelecom releases audited 2009 IFRS financial statement

31.05.2010
VolgaTelecom releases audited 2009 IFRS financial statement