VimpelCom Announces First Quarter 2008 Financial and Operating Results
MOSCOW and NEW YORK, June 4 /PRNewswire-FirstCall/ -- Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE:VIP), a leading provider of telecommunications services in Russia and the Commonwealth of Independent States (CIS) today announced its financial and operating results for the quarter ended March 31, 2008.
Financial and Operating Highlights -- Net operating revenues reached $2,108 million, an increase of 41.7%
"Meanwhile our mobile business continues to show strong financial results. We are growing revenues and OIBDA in virtually all of our markets, in spite of the negative impact of economic problems in Central Asia, particularly in Kazakhstan. "With an OIBDA margin above 50% and a revenue growth rate above 40%, VimpelCom remains a rare example of a large, fast growing and highly profitable business. The underlying strength of our core business coupled with new opportunities of being an integrated player should provide a robust platform for our future growth ambitions." * On April 16, 2008, VimpelCom's Board of Directors recommended a dividend
Beginning with this quarterly report, we have made significant changes in the reporting structure in order to reflect the integration with Golden Telecom, which we began to consolidate into VimpelCom's accounts starting from March 1, 2008. Adjusting to the new complexity of the business we now consolidate our revenues along four segments: two geographic segments (Russia and the CIS) and two business segments (Mobile and Fixed). Fixed-line operations in Armenia (representing $36.2 million of revenue in the first quarter of 2008) are now reflected within the CIS fixed-line segment, while the results of Golden Telecom's mobile operations in Ukraine (representing $0.5 million of revenue in March 2008) are now part of the mobile business segment in the CIS. Due to the increasing integration between different parts of our business, we include inter-company transactions in the reported revenues of geographic and business segments, and indicate the amount of inter-company eliminations within and between the segments. We discontinued providing registered subscriber base numbers, completely shifting to active base. We have also aligned our churn rate reporting to the three month active subscriber base, which we believe is the most meaningful way of reporting. Consequently, this shift caused a step-change in our reported subscriber market share. Within sales, general and administrative costs (SG&A) we now provide an explicit breakdown between general and administrative costs (G&A) and sales and marketing costs (S&M). As sales and marketing costs include all of the relevant costs of subscriber acquisition, retention and usage stimulation, we believe these measures provide more accurate information than subscriber acquisition costs. Previously part of our S&M costs was shown in G&A. A country-by-country CAPEX breakdown can be found in Attachment D. A detailed country-by-country breakdown of the main financial and operating data can be found in the file entitled FinancialOperatingQ12008.xls on our website at http://www.vimpelcom.com/news/qrep.wbp. Key Consolidated Financial and Operating Results CONSOLIDATED OPERATIONS (US$, mln) Three months Net operating revenues 2,108 1,488 41.7% 2,010 4.9% * Number of ADSs is based on the ratio of 20 ADSs per one ordinary share, Net operating revenue 1Q 2008 (US$ mln) Russia CIS Eliminations Total Mobile business 1,675 271 -2 1,944 RUSSIA (US$ mln) Three months Net operating revenues 1,797 1,279 40.5% 1,702 5.6%
With the acquisition of Golden Telecom, a cornerstone of our integrated operator strategy, we assumed substantial debt and absorbed a lower-margin business. The acquisition dictated a more conservative approach to the Russian mobile market aimed at preserving our margins and maximizing cash-flow by restricting marketing expenses and maintaining stable pricing. Reduced marketing activities in a seasonally weak quarter resulted in a slight decline in ARPU, and, as a result, in mobile revenues compared to the previous quarter. Evidently, the decline in mobile revenue was more than offset by the addition of fixed-line revenue for March. Golden Telecom's revenue in Russia for the entire first quarter was approximately 61% higher than a year ago, driven by very good development in all business lines. Now that the Golden Telecom transaction and the initial part of the integration are behind us, we plan to step up marketing activities in order to protect our revenue market share on the Russian mobile market. The growth in our net income was disproportionately higher than the growth in our OIBDA, primarily due to a foreign exchange gain of $185 million. This foreign exchange gain resulted mainly from the revaluation of our U.S. dollar- denominated loans. RUSSIA REVENUE (US$ mln) Three months Net operating revenues 1,797 1,279 40.5% 1,702 5.6%
Active mobile subscribers
OIBDA Total 992 676 46.7% 773 28.3% CIS OPERATIONS (US$ mln) Three months Net operating revenues 317 211 50.2% 314 1.0%
However, our business dynamics were affected by economic problems in the Central Asian republics. In Kazakhstan, our largest market, the economy suffered from a liquidity crisis, while Tajikistan and Uzbekistan were seriously impacted by extremely cold weather and power outages. In Armenia we started to see positive trends and an increase in the number of active subscribers. We introduced our Beeline brand on the local market and accelerated our marketing activities. Our focus will remain on building market share and expanding fixed-mobile convergence opportunities. Net income losses in the first quarter were caused mainly by one-off factors, such as a $16 million write-off of equipment in Armenia in the course of modernizing the network. CIS Revenues Development
Net operating revenue 162.8 119.4 36.3 % 174.6 -6.8 % UKRAINE (US$ mln) Three months Net operating revenue 44.8 16.3 174.8 % 34.5 29.9 % ARMENIA (US$ mln) Three months Net operating revenue 59.1 54.1 9.2 % 59.8 -1.2 % UZBEKISTAN (US$ mln) Three months Net operating revenue 39.5 18.2 117.0 % 36.6 7.9 % TAJIKISTAN (US$ mln) Three months Net operating revenue 8.4 2.9 189.7 % 8.1 3.7 % GEORGIA (US$ mln) Three months Net operating revenue 2.4 0.03 7900 % 0.9 166.7 %
Eliminations -0.9 n/a n/a CIS Operating Highlights
UKRAINE Three months ARMENIA Three months UZBEKISTAN Three months TAJIKISTAN Three months GEORGIA Three months
CIS OIBDA Development
OIBDA total 134 90 48.9 % 145 -7.6 % KAZAKHSTAN (US$ mln) Three months OIBDA total 82.0 62.0 32.3 % 92.2 -11.1 % UKRAINE (US$ mln) Three months OIBDA total 3.2 -6.5 n/a 3.6 -11.1 % ARMENIA (US$ mln) Three months OIBDA total 29.1 27.3 6.6 % 32.5 -10.5 % UZBEKISTAN (US$ mln) Three months OIBDA total 20.9 8.6 143.0 % 17.8 17.4 % TAJIKISTAN (US$ mln) Three months OIBDA total 1.3 -0.3 n/a 1.4 -7.1 % GEORGIA (US$ mln) Three months OIBDA total -2.2 -1.2 83.3 % -2.3 -4.3 %
Recent Developments On May 27, 2008, VimpelCom received the preliminary conclusion of the Russian Tax Inspectorate's review of VimpelCom's tax filings for the 2005 and 2006 financial years. According to this document, VimpelCom owes approximately $54 million in additional taxes (excluding fines and penalties) for the respective years. Most of the claims are similar to the claims we received for previous financial years, and in the past we have been able to successfully reverse most of these claims in the Russian courts. On June 3, 2008, we submitted our preliminary objections to the Tax Inspectorate. We expect to receive a final tax claim in the near future and to appeal the final tax claim in the Russian courts to the extent that it is not reduced by our objections. We have not made any reserves for these tax claims, because we believe that the claims will ultimately be resolved in our favor. The Company's management will discuss its first quarter results during a conference call and slide presentation on June 4, 2008 at 6:30 pm Moscow time (10:30 am ET in New York). The call and slide presentation may be accessed via webcast at the following URL address http://www.vimpelcom.com/. The conference call replay will be available through June 13, 2008. The slide presentation webcast will also be available for download on VimpelCom's website This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements relate to the Company's strategic and development plans, including network development plans, developments in the telecommunications markets in which the Company operates, and the resolution of the tax claim for the financial years 2005 and 2006. These and other forward-looking statements are based on management's best assessment of the Company's strategic and financial position and of future market conditions and trends. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of unforeseen developments from competition, governmental regulation of the telecommunications industries in Russia and the CIS, general political uncertainties in Russia and the CIS and general economic developments in Russia and the CIS, continued volatility in the world economy, challenges to 3G and Far East tenders and/or litigation with third parties. The actual outcome may also differ materially if the Company is unable to obtain all necessary corporate approvals relating to its business (including approval of funding and specific transactions), if the Company is unable to successfully integrate newly-acquired businesses, including Golden Telecom, and other factors. As a result of such risks and uncertainties, there can be no assurance that the effects of competition or current or future changes in the political, economic and social environment or current or future regulation of the Russian and CIS telecommunications industries will not have a material adverse effect on the VimpelCom Group. Certain factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risks described in the Company's Annual Report on Form 20-F for the year ended December 31, 2007 and other public filings made by the Company with the United States Securities and Exchange Commission, which risk factors are incorporated herein by reference. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward- looking statements contained in this release, or to make corrections to reflect future events or developments. -Definitions and tables are attached -
Each ADS represents 0.05 of one share of common stock. This ratio was established effective August 21, 2007. ARPU (Monthly Average Revenue per User), a non-U.S. GAAP financial measure, is calculated by dividing the Company's service revenue during the relevant period, including roaming revenue and interconnect revenue, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, by the average number of the Company's active subscribers during the period and dividing by the number of months in that period. Reconciliation of ARPU to service revenues and connection fees, the most directly comparable U.S. GAAP financial measure, is presented below in the tables section. The Company believes that ARPU provides useful information to investors because it is an indicator of the performance of the Company's business operations and assists management in budgeting. The Company also believes that ARPU provides management with useful information concerning usage and acceptance of the Company's services. ARPU should not be viewed in isolation or an alternative to other figures reported under U.S. GAAP. Broadband internet service subscribers are those subscribers in the registered subscriber base who were a party to a revenue generating activity in the past three months and remained in the base at the end of the reported period. Such activities include monthly internet access using FTTB, xDSL and WiFi technologies. CIS Geographic Segment for the purpose of VimpelCom reporting includes our operations in the following countries: Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Armenia and Georgia. Fixed-line subscriber is an authorized user of fixed-line communications services. General and administrative costs (G&A) include salaries and outsourcing costs, including related social contributions required by Russian law; stock price-based compensation expenses; repair and maintenance expenses; rent, including lease payments for base station sites; utilities; other miscellaneous expenses, such as insurance, operating taxes, license fees, and accounting, audit and legal fees. Market share of subscribers for each relevant area is calculated by dividing the estimated number of our subscribers in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan and Armenia, respectively, by the total estimated number of subscribers in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan and Armenia, respectively and is provided by AC&M-Consulting. Mobile services are wireless voice and data transmission services excluding WiFi. MOU (Monthly Average Minutes of Use per User) is calculated by dividing the total number of minutes of usage for incoming and outgoing calls during the relevant period (excluding guest roamers) by the average number of active subscribers during the period and dividing by the number of months in that period. OIBDA is a non-U.S. GAAP financial measure. OIBDA, previously referred to as EBITDA by the Company, is defined as operating income before depreciation and amortization. The Company believes that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under U.S. GAAP, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our OIBDA calculations are commonly used as bases for some investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the wireless telecommunications industry. OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP. OIBDA does not include our need to replace our capital equipment over time. Reconciliation of OIBDA to operating income, the most directly comparable U.S. GAAP financial measure, is presented below in the reconciliation tables section. OIBDA margin is OIBDA expressed as a percentage of total net operating revenues. Reconciliation of OIBDA margin to operating income as a percentage of total net operating revenues, the most directly comparable U.S. GAAP financial measure, is presented below in the reconciliation tables section. Prepaid subscribers are those subscribers who pay for their services in advance. Sales and marketing costs (S&M) include marketing, advertising and dealer commissions expenses. Attachment B: VimpelCom financial statements Open Joint Stock Company "Vimpel-Communications" Three months ended Revenue based tax (1,499) (633) Net operating revenues 2,107,899 1,488,047 Operating expenses: Operating income 701,526 443,956 Other income and expenses: Income before income taxes and Income taxes expense 195,628 119,946 Income before cumulative effect of Cumulative effect of changes in Net income per common share $11.84 $5.45 Weighted average common shares Open Joint Stock Company "Vimpel-Communications" March 31, December 31, Non-current assets Total assets $16,026,134 $10,568,884 Liabilities and shareholders' equity Deferred income taxes 945,265 576,276 Minority Interest 406,265 288,410 Shareholders' equity 6,177,473 5,411,786 Total liabilities and shareholders' equity $16,026,134 $10,568,884 Open Joint Stock Company "Vimpel-Communications" Three months ended Net cash provided by operating activities $859,919 $ 655,865 Proceeds from bank and other loans 3,708,000 228,594 Sale of short-term investments 42,203 - Purchase of property and equipment (392,363) (279,988) Effect of exchange rate changes on cash 20,079 2,068 Net increase (decrease) in cash (383,031) 394,060 Supplemental cash flow information Cash paid during the period: Non-cash activities:
CONSOLIDATED OIBDA Consolidated Total OIBDA 1,126 766 918 Reconciliation of OIBDA Margin OIBDA Margin Consolidated Total OIBDA margin 53.4% 51.5% 45.7% Attachment D. Capex Development CAPEX (in US$ millions) Total capex 358.5 303.5 18.1% 795.8 -55.0%
CONTACT: Alexander Boreyko, VimpelCom, +7-495-910-5977, Web site: http://www.vimpelcom.com/
2008-06-04 06:34:33 0376908 PRNEWSWIRE
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