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Veon Ltd.

May 29, 2003

VimpelCom Announces First Quarter 2003 Financial and Operating Results

 

-- 47.6% year-on-year increase in net income --
-- 70.6% year-on-year increase in EBITDA --
-- net income breakeven in regional operations --
-- approximately 6.9 million subscribers as of today --



Moscow and New York (May 29, 2003) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced its financial and operating results for the quarter ended March 31, 2003. VimpelCom reported continued subscriber growth and an increase in net operating revenues, EBITDA and net income. For the quarter ended March 31, 2003, VimpelCom reported net operating revenues of $244.4 million, a 68.5% increase from the $145.1 million reported for the same period in 2002; EBITDA of $107.9 million, a 70.6% increase from the $63.3 million reported for the same period in 2002; and net income of $41.4 million, an increase of 47.6% from the $28.0 million reported for the first quarter of 2002. The Company's EBITDA margin for the first quarter of 2003 was approximately 44.2% compared to approximately 43.6% for the same period of 2002.

As of March 31, 2003, VimpelCom had approximately 6.19 million subscribers on its wireless networks and networks operated by VimpelCom's subsidiaries, including approximately 3.95 million subscribers in the Moscow license area and 2.24 million subscribers in the regions, a total year-on-year growth of approximately 132.5%. As of today, VimpelCom's total number of subscribers reached approximately 6.92 million, with approximately 4.22 million subscribers in the Moscow license area and 2.70 million in the regions outside Moscow.

Using independent sources to estimate the number of subscribers of the Company's competitors in the Moscow license area, VimpelCom estimates that its market share in the Moscow license area was 49.5% at the end of the first quarter of 2003, compared to the Company's estimated market share of 51.5% reported at the end of the first quarter of 2002. On a nationwide basis, independent sources estimate VimpelCom's market share at 29.0% at the end of the first quarter of 2003, compared to the Company's estimated market share of 26.0% recorded at the end of the first quarter of 2002.

Commenting on today's announcement, Jo Lunder, Chief Executive Officer of VimpelCom, said, "Our first quarter results demonstrate continued success of VimpelCom's expansion in the Russian cellular market. We are particularly pleased with the further progress in our financial performance, having reached the breakeven point at the net income level in our regional operations and improved margins in our consolidated financial figures. Going forward, we intend to continue pursuing our policy of profitable growth focusing on rapid nationwide expansion and improving the quality and strength of our profitable Moscow operation."

Financial and Operating Indicators

(Reconciliation of EBITDA to operating income and
EBITDA margin to operating income as percentage of net
revenues, the most directly comparable U.S. GAAP
financial measures, is presented below in the tables' section)

 

Three months ended

March 31,
2003

March 31,
2002

Change
Y-on-Y
(%)

Dec. 31,
2002

Change
Q-on-Q
(%)

Net operating revenues (US$,000)

244,437

145,060

68.5%

228,978

6.8%

EBITDA (US$,000) (1)

107,936

63,270

70.6%

84,615

27.6%

EBITDA margin (2)

44.2%

43.6%

-

37.0%

-

Gross margin (US$,000) (3)

196,570

117,891

66.7%

181,209

8.5%

Gross margin percentage (4)

80.4%

81.3%

-

79.1%

-

Net income (US$,000)

41,387

28,046

47.6%

39,078

5.9%

ARPU (US$) (5)

13.5

19.4

-30.4%

16.0

-15.6%

MOU (min) (6)

81.5

87.0

-6.3%

89.3

-8.7%

SAC (US$) (7)

20.8

30.4

-31.6%

20.9

-0.5%


 

Note:

1.        EBITDA is a non-U.S. GAAP financial measure. EBITDA, which represents operating income before depreciation and amortization, should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP. We believe that EBITDA is viewed as a relevant supplemental measure of performance in the wireless telecommunications industry. The performance that EBITDA measures does not include our need to replace our capital equipment over time.

2.        EBITDA margin is EBITDA expressed as a percentage of net operating revenues.

3.        Gross margin is defined as net operating revenues less selected operating costs (specifically, service costs, cost of handsets and accessories sold and cost of other revenues).

4.        Gross margin percentage is gross margin expressed as a percentage of net operating revenues.

5.        ARPU (Monthly Average Revenue per User) is calculated for each month in the relevant period by dividing the Company's service revenue during that month, including roaming revenue, but excluding revenue from connection fees and sales of handsets and accessories, by the average number of our subscribers during the month.

6.        MOU (Monthly Average Minutes of Use per User) is calculated for each month of the relevant period by dividing the total number of billable minutes of usage for incoming and outgoing calls during that month (excluding guest roamers) by the average number of subscribers during the month.

7.        SAC (Subscriber Acquisition Cost) is calculated as dealer commissions, advertising expenses and handset subsidies for the period divided by the number of gross sales during the period.

The Company's financial results include the activities in the regions outside of the Moscow license area. Total operating revenues, excluding inter-company transactions, for Moscow stand-alone and the regions in the first quarter of 2003 were $179.4 million and $65.1 million, respectively. Net income for the Moscow license area stand-alone in the first quarter of 2003 was $39.9 million and the regions' net income was $0.04 million, which is the first time that the regions reported a net income position since operations began.

Selling, general and administrative ("SG&A") expenses were $85.3 million in the first quarter of 2003, an increase of 70.6% compared to the $50.0 million reported in the same period of 2002 and a decrease of 5.0% compared to the $89.8 million reported for the fourth quarter of 2002. In the first quarter of 2003, SG&A as a percentage of net operating revenues was 34.9% compared to 34.4% reported in the same period of 2002 and 39.2% in the fourth quarter of 2002. The Company's average acquisition cost per subscriber (SAC) for the first quarter of 2003 was $20.8 compared to $30.4 for the same period of 2002 and $20.9 in the fourth quarter of 2002. The decrease in SAC as compared to the same quarter in 2002 resulted primarily from a growing percentage of regional sales where SAC is lower than in Moscow due to the relatively lower dealer commissions and larger proportion of sales through the Company's own offices.

For the first quarter of 2003, the Company recorded a $3.3 million provision for doubtful accounts receivable representing 1.4% of net operating revenues, compared with $4.7 million reported in the same period in 2002 representing 3.2% of net operating revenues and $6.7 million reported in the fourth quarter of 2002 representing 2.9% of net operating revenues. This reduction in provision for doubtful accounts was largely the result of improved risk management and cash collection procedures as well as the increased proportion of prepaid subscribers.

VimpelCom's total capital investments for the first quarter of 2003 were approximately $175.0 million, with $136.9 million of capital expenditures for purchase of property and equipment and $38.1 million of acquisitions of new entities. Capital expenditures for the Moscow license area in the first quarter of 2003 were approximately $49.2 million.

The Company's MOU in the first quarter of 2003 were 81.5 minutes, a decrease of approximately 6.3% compared to 87.0 minutes reported in the first quarter of 2002. The decrease in MOU in the first quarter of 2003 was primarily caused by increased competition and the growing proportion of prepaid subscribers in Moscow. ARPU for the first quarter of 2003 was approximately $13.5, a 30.4% decrease from $19.4 reported for the first quarter of 2002. The decrease in ARPU in the first quarter of 2003 reflected the corresponding decrease in MOU, as well as a reduction in tariffs and a growing proportion of regional subscribers who generate lower average revenue per subscriber than the subscribers in Moscow.

Key Subscriber Statistics

 

As of
March 31, 2003

As of
March 31, 2002

Change,
Y-on-Y
(%)

As of
Dec. 31, 2002

Change
Q-on-Q
(%)

Moscow license area

3,945,600

2,377,000

66.0%

3,712,700

6.3%

Contract

732,000

667,000

9.7%

725,200

0.9%

Prepaid

3,213,600

1,710,000

87.9%

2,987,500

7.6%

Regions

2,242,400

284,500

688.2%

1,440,400

55.7%

Total Number of Subscribers

6,188,000

2,661,500

132.5%

5,153,100

20.1%

 

Churn (quarterly)

9.6%

5.7%

--

8.7%

--


 

For the first quarter of 2003, the Company reported strong growth in its regional subscribers from 1,440,400 at the end of the fourth quarter of 2002 to approximately 2,242,400 at the end of the first quarter of 2003, or 55.7% of quarter-on-quarter growth. The first quarter of 2003 was also marked by substantial subscriber growth in the Moscow license area in the prepaid subscriber segment. As a result, the percentage of VimpelCom's prepaid subscribers in its Moscow subscriber base increased from approximately 80.5% at the end of the fourth quarter of 2002 to 81.4% at the end of the first quarter of 2003. VimpelCom's GSM subscribers in Moscow as a percentage of its overall Moscow subscriber base were 96.1% at the end of the first quarter of 2003, compared to 90.2% at the end of the first quarter of 2002.

The Company's quarterly churn rate in the first quarter of 2003 was 9.6%, compared to the Company's churn rate of 5.7% reported for the same period in 2002. The increase in churn was primarily the result of high subscriber growth rates in previous periods, particularly in the low-end user segment, as well as internal migration, which is technically regarded as churn, and increased competition.

The Company's management will discuss its first quarter 2003 results on a conference call on May 29, 2003 at 6:30 pm Moscow time (10:30 am EDT in New York). The call may be accessed via webcast at the following URL address http://www.vimpelcom.com. The conference call replay and the webcast will be available through June 5, 2003 and June 29, 2003, respectively. A Company presentation will be posted on VimpelCom's website http://www.vimpelcom.com.

VimpelCom is a leading provider of telecommunications services in Russia, operating under the "Bee Line" brand, which is one of the most recognized brand names in Russia. The VimpelCom Group's license portfolio covers approximately 92% of Russia's population (134 million people), including the City of Moscow, the Moscow Region and the City of St. Petersburg. VimpelCom was the first Russian company to list its shares on the New York Stock Exchange ("NYSE"). VimpelCom's ADSs are listed on the NYSE under the symbol "VIP". VimpelCom's convertible notes are listed on the NYSE under the symbol "VIP 05".

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 development plans. 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 wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia, the Company's ability to continue to grow its overall subscriber base, continued volatility in the world economy 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 telecommunications industry 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, 2001 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.

For more information, please contact:

Valery Goldin
VimpelCom (Moscow)
Tel: 7(095) 974-5888
vgoldin@vimpelcom.com

Christopher Mittendorf
Edelman Financial Worldwide
Tel: 1(212) 704-8134
christopher.mittendorf@edelman.com

- Tables attached -

Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Statements of Income

 

Three months ended
March 31,

2003

2002

(In thousands of US dollars,
except per share (ADS) amounts)

Operating revenues:

 

 

Service revenues and connection fees

US$ 230,099

US$ 134,753

Sales of handsets and accessories

13,426

11,896

Other revenues

912

401

Total operating revenues

244,437

147,050

 

Less revenue based taxes

-

(1,990)

Net operating revenues

244,437

145,060

 

Operating expenses

 

 

Service costs

37,160

20,565

Cost of handsets and accessories sold

10,707

6,604

Selling, general and administrative expenses

85,310

49,954

Depreciation

31,678

16,246

Amortization

7,372

2,704

Provision for doubtful accounts

3,324

4,667

Total operating expenses

175,551

100,740

 

Operating income

68,886

44,320

 

Other income and expenses:

 

 

Other income

574

637

Other expenses

(432)

(677)

Interest income

1,998

1,211

Interest expense

(16,036)

(6,608)

Net foreign exchange gain (loss)

1,327

(421)

Total other income and expenses

(12,569)

(5,858)

 

Income before income taxes and minority interest

56,317

38,462

 

Income taxes expense

14,912

10,426

Minority interest in net earnings (losses) of subsidiaries

18

(10)

 

Net income

US$ 41,387

US$ 28,046

 

Net income per common share

US$1.09

US$0.74

Net income per ADS equivalent

US$0.82

US$0.56

Weighted average common shares outstanding (thousands)

38,073

38,001

EBITDA

US$107,936

US$63,270

 

Open Joint Stock Company "Vimpel-Communications"
Consolidated Condensed Balance Sheet

 

 

March 31,
2003
(unaudited)

December 31,
2002

(In thousand US dollars)

Assets

 

Current assets:

 

Cash and cash equivalents

US$211,358

US$263,657

Trade accounts receivable

75,184

75,399

Other current assets

215,388

149,309

Total current assets

501,930

488,365

 

Non-current assets

 

Property and equipment, net

1,086,257

957,602

Intangible assets, net

55,608

55,730

 

 

 

Telecommunication licenses and allocation of frequencies, net

110,559

88,385

Other assets

107,975

102,662

Total non-current assets

1,360,399

1,204,379

 

Total assets

US$1,862,329

US$1,692,744

 

Liabilities and shareholders' equity

Current liabilities:

 

Accounts payable

US$98,345

US$80,241

Due to related parties

4,119

4,114

Customer deposits and advances

114,710

106,655

Deferred revenue

1,724

2,016

Bank loans, current portion

43,149

37,780

Capital lease obligation, current portion

4,123

3,868

Equipment financing obligations, current portion

154,253

134,617

Accrued liabilities

80,547

49,492

Total current liabilities

500,970

418,783

 

Deferred income taxes

45,839

35,227

 

 

Bank loans, less current portion

340,000

306,080

 

 

Capital lease obligation, less current portion

430

899

 

 

Accrued liabilities, non-current portion

2,400

3,265

 

 

5.5% Senior convertible notes due July 2005

87,236

85,911

 

 

Equipment financing obligations, less current portion

78,353

81,425

 

 

 

 

 

Minority Interest

101,163

98,491

 

 

 

 

 

Shareholders' equity

705,938

662,663

 

 

 

 

 

Total liabilities and shareholders' equity

US$1,862,329

US$1,692,744

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

Three months ended
March 31,

 

 

2003

2002

 

 

(In thousands of US dollars)

 

 

Net cash provided by operating activities

US$75,065

US$38,419

 

 

Proceeds from bank and other loans

56,962

516

 

 

Payments of fees in respect of capital contributions

-

(1,538)

 

 

Payments of fees in respect of debt issue

(1,249)

-

 

 

Repayment of bank loans

(20,910)

(516)

 

 

Repayment of equipment financing obligations

(23,824)

(3,185)

 

 

Repayment of lease obligations

(439)

(466)

 

 

Net cash provided by (used in) financing activities

10,540

(5,189)

 

 

 

 

 

Purchase of property and equipment

(87,799)

(32,431)

 

 

Purchase of StavTeleSot stock, net of cash acquired of US$658

(38,143)

-

 

 

Purchase of intangible assets

(5,435)

(1,539)

 

 

Purchase of other assets

(7,969)

(2,930)

 

 

Net cash used in investing activities

(139,346)

(36,900)

 

 

 

 

 

Effect of exchange rate changes on cash

1,442

(1,051)

 

 

 

 

 

Net decrease in cash

(52,299)

(4,721)

 

 

Cash and cash equivalents at beginning of period

263,657

144,172

 

 

 

 

 

Cash and cash equivalents at end of period

US$211,358

US$139,451

 

 

 

 

 

Supplemental cash flow information

 

 

Non-cash activities:

 

 

 

Equipment acquired under financing agreements

US$24,077

US$22,724

 

 

Accounts payable for equipment and other long-lived assets

50,137

24,059

 

 

Accrued debt and equity offering costs

294

399

 

 

Operating activities financed by sale of treasury stock

1,262

-

 

 

Acquisitions:

 

 

 

Fair value of assets acquired

66,634

-

 

 

Difference between the amount paid and the fair value of net assets acquired

(4,699)

-

 

 

Cash paid for the capital stock

(38,801)

-

 

 

  Liabilities assumed

US$23,134

US$-

 

 

Reconciliation of EBITDA to operating income

 

Three months ended

March 31, 2003

December 31, 2002

March 31, 2002

EBITDA

107,936

84,615

63,270

Depreciation

(31,678)

(26,679)

(16,246)

Amortization

(7,372)

(3,476)

(2,704)

Operating income

68,886

54,460

44,320

Reconciliation of EBITDA margin to operating income as percentage of net revenues

 

Three months ended

March 31, 2003

December 31, 2002

March 31, 2002

EBITDA margin

44.2%

37.0%

43.6%

Depreciation as percentage of net revenues

(13.0%)

(11.7%)

(11.1%)

Amortization as percentage of net revenues

(3.0%)

(1.5%)

(1.9%)

Operating income as percentage of net revenues

28.2%

23.8%

30.6%

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