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Dalsvyaz

October 12, 2005

Far East Telecom announces 1H 2005 un-audited financial and economic activity results according to International Financial Reporting Standards (IFRS)

Vladivostok, October 7, 2005.Open Joint Stock Company “Far East Telecommunications Company” (RTS: ESPK, MICEX: DLSV, OTC ADR: FEEOY), the leader on the Russian Far East Federal District telecommunications market, today announces 1H 2005 un-audited financial and economic activity results according to International Financial Reporting Standards (IFRS). Un-audited intermediate consolidated financial report is represented on the basis of balance-sheet, income statement and footnotes. Earlier FETEC has not announced reports of the kind*.

The report does not contain the information about comparable financial activity highlights for 6 months 2004. For the sake of comparison FETEC announces financial highlights for the year, ended in December 31, 2004, and the state as of December 31, 2004.

 

Main Financial Highlights of Income Statement

  Highlights

1H 2005 (mln. RUR) 

Results for 2004 (mln. RUR) 

Revenue, including:

   4 955,1

  8 933,5

Revenue from telecommunications services

 4877,1

  8 752,5

Operating expenses before depreciation& amortization

 (3 987,4)

 (7 444,7)

OIBDA**

 967,7

 1 488,8

OIBDA margin, % 

 19,5%

 16,7%

Depreciation& amortization

 587,1

 915,3

Operating profit

  380,6

  573,5

Efficiency from operating profit, %

 8,3%

  6,9%

EBIT

  318,8

  1 114,3

Net income

166, 3

 756, 1

Efficiency of net profit, %

3,4% 

8,5%

**OIBDA is calculated as revenue minus operating expenses before depreciation& amortization

 

As Anton A. Alexeev, FETEC’s CEO, says, “Today, we have three goals to realize: obtaining financial robustness with the help of business diversification, costs optimization and creating of the efficient system to obtain control over subsidiaries and affiliate companies”.

As Anton A. Alexeev, FETEC’s CEO, declares, “FETEC actively works over decreasing of regulated services share in company’s common revenue and to the end of 2005 plans to increase twice new telecommunications services share – from 5% in 2004 up to 10% in 2005”.

«As for the local telecommunications services, we consider them as the transport mean for the delivery of the new unregulated services, such as data transmission, play- and information- TV-services. Local telecommunication is planned to be developed, but as the mean for new services transmission. To the end of 2005 FETEC plans to represent Triple Play services on the telecommunications market. FETEC has all the technical and technological possibilities to realize it” – he emphasized.

The Efficient Activity Increase Program is realized in the company. The main condition of the Program is the excess of income growth speed over expenses growth speed. Firstly the program is aimed at the reduction of uneconomic directions of activity, the personnel and direct costs optimization.

From July 1, 2005 the personnel optimization campaign started in FETEC. If to take the results of the current year, 12% personnel reduction is estimated. As of the beginning of 2005 the actual personnel amount was over 18 700, as of October 2005 this highlight was less than 1 7500 and up to the end of the year will be reduced to 16 500. The personnel optimization is held by means of centralized services, organizational structure modernization, work measurement and equipment upgrade.

Company pays great attention to loan capital reduction, transmission of short-term liabilities into long-term liabilities, minimizing of payments with detached organizations, account receivable reduction.

“As for capital expenditures, FETEC invests into operating process optimization, operating expenditures reduction, putting into operation of unregulated services and telecommunications infrastructure development. The direction of higher priority for investments is the realization of investment projects with the term of payback period from a year up to 3 years” – Anton A. Alexeev declares.

Pursuant to the words of Anton A. Alexeev, FETEC’s CEO: “FETEC performs an active work, directed at the financial investments reduction and creating of the efficient system to obtain control over subsidiaries and affiliate companies. FETEC’s going to work with assets, which bring qualitative and quantitative payback for Company’s business ”.

“Summarizing 2005 results FETEC plans to get revenue equal to RUR 10 bln.” - Anton A. Alexeev declares.

 

Telecommunications Services Revenue Structure

 Highlights

 1H 2005
(RUR mln.) 

2004 Results
(RUR mln.)
 

Long-distance telecommunications connections provision

  1 397,6

 2 599,7

Local telecommunications connections provisions

1 357,3 

  2 146,7

Services for Russian telecommunications operators

  520,7

 975,7

New services

 373,8

 490,2

Installation and linkup fee

 276,7

   728,7

International telecommunications connections provision

  264,4

  524,0

Cellular services

 229,2

 340,4

Other services  

 203,1

 427,9

Radio- and telecasting

 90,2

 198,4

Data transmission and telematic services

 88,8

   160,8

Telecommunications channels lease provision

 60,7

 126,7

Documentary telecommunications services

 14,6

  33,3

Total: Summarizing all types of telecommunications revenues

  4 877,1

   8 752,5

 

Operating Expenditures Structure

Highlights

1H 2005 (RUR mln.)

2004 Results (RUR mln.)

Salary, other payments to employees and social payments

(1 985,9)

(3 776,0)

Telecommunications operators services costs – Russian operators

(883,9)

(1 611,5)

Depreciation& amortization

(587,1)

(915,3)

Other operational expenditures, net

(534,6)

(893,7)

Material, repair works and services, municipal services

(426,0)

(871,8)

Taxes, excluding income tax

(86,9)

(144,9)

Doubtful receivables fund creation expenditures

(37,5)

(121,6)

Fixed asset retirement loss

(32,6)

(25,2)

Total: Operating Expenditures

(4 574,5)

(8 360,0)

 

*Preparation principles of un-audited intermediate consolidated financial reports
1H 2005 FETEC intermediate financial report was prepared according to IFRS with taking into consideration a number of restrictions, enumerated in the chapter “Restrictions&Assumptions”. Intermediate consolidated financial report is represented on the basis of balance-sheet, income statement and footnotes. This report does not contain all the necessary information disclosure, required in accordance to IFRS relating to intermediate financial report. However, Company’s top-management considers the volume of the report to be sufficient for obtaining the appropriate outlook about 1H 2005 financial and economic activity results.

1H 2005 report according to IFRS is represented by FETEC the first time; earlier FETEC has not announced reports of the kind. The above-mentioned report is FETEC un-audited intermediate consolidated financial report. The auditing procedures, reviews and other analogical procedures won’t be held in relation of it. At the same time, taking into consideration FETEC experience in the field of submitting reports according to IFRS, Company considers the users can rely on the report. FETEC, its subsidiaries and affiliate companies keep books in RUR and make financial reports pursuant to Federal Law of the Russian Federation “About Accounting”. The preparation of the above-mentioned un-audited intermediate consolidated financial report has been fulfilled by FETEC on the basis of un-audited financial reports of FETEC, its subsidiaries and affiliate companies, made in the format, required by International Financial Reporting Standards with taking into consideration the assumptions, described further.

Restrictions and Assumptions in 1H 2005 FETEC report
During preparation of the un-audited intermediate consolidated financial report FETEC implemented the volume of procedures less than could be held during preparation of financial report according to IFRS. In this connection FETEC adopted the assumptions, including the assumption related to IFRS fixed assets cost, fair assets cost and subsidiaries’ liabilities, purchased in 2005, pension plan liabilities, deferred revenues, reserves for fixed assets depreciation, inventory and account receivable. Actual financial highlights of the report for the year, ended December 31, 2005 may differ from financial highlights of the present financial report, which is connected with specification of the information about assumptions, adopted by the Company, and with other information forthcoming.

The present un-audited intermediate consolidated financial report does not contain the information about comparable financial activity highlights for 6 months 2004. For the sake of comparison the Group announces financial highlights for the year, ended in December 31, 2004, and the state as of December 31, 2004.

The list of assumptions to FETEC un-audited intermediate consolidated financial report does not disclose all the information, the disclosure of which is required by IFRS. The list of assumptions to FETEC annual consolidated financial report may disclose the information in the volume more, than it is disclosed in the present FETEC un-audited intermediate consolidated financial report.

 

 

 

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