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UTK

October 6, 2004

UTK accelerates investments to strengthen future growth and market position: 2004 will be peak year for capital expenditure

Krasnodar, October 6, 2004: Southern Telecommunications Company (“UTK”) (RTS: KUBN; OTC: STJSY), the principal fixed-line telecommunications provider for Russia’s Southern Federal District, announces that on October 04, 2004 (minutes #10) the Board of Directors has approved the Company’s revised business plan for 2004. UTK will bring planned investments forward in order to satisfy the rapid growth in demand for telecom services and expand its market position. As a consequence, capital expenditure for the year as a whole will amount to approximately RUR 12.4 billion.

“We believe that additional capacity is needed now in order to enable the Company to seize the opportunities presented by the exceptionally strong growth of demand in the region, compete successfully for new subscribers and speed the roll out of new services,” said Ivan F. Ignatenko, General Director. “We expect that UTK’s investment program will peak in 2004 and that capital expenditure will decline substantially in subsequent years, thereby contributing to steady improvements in UTK’s financial performance going forward.”

According to the revised business plan, in 2004 UTK plans to install 715,000 new lines compared to the initial plan of 594,000 lines, a 34% increase over the previous year. This will bring the company’s installed capacity to 4.3 million lines. UTK also plans to connect 445,000 additional subscribers in 2004 compared to the initial planned 390,000. The increased investment will also be directed at other network infrastructure development. By accelerating its investment program, UTK will expand its market position while replacing costly analog lines and speeding the growth of profitable advanced telecom services such as Internet, ISDN, IP telephony, cable TV and call centers. In future years, investments are expected to decline substantially and will mainly be directed at incremental new line additions, last-mile construction and new equipment.

UTK expects a strong increase in revenues this year, and operating profit and EBITDA for 2004 will also increase compared to 2003. The accelerated investment program will result in higher operating costs, depreciation and interest expense in 2004. In accordance with its revised business plan, UTK therefore expects its financial results for 2004 to develop as follows.

KEY FINANCIAL RESULTS:

Mln. RUR 2002 2003 2004F
Total Revenue 10532 13507 17237
Operating Expenses (including depreciation) 8023 10453 13760
Operating income 2509 3054 3447
Operating margin 23,8% 22,6% 20,0%
Depreciation 709 1209 1981
EBITDA 3218 4263 5428
EBITDA margin 30,6% 31,6% 31,5%
Interests to payment 182 547 1909

* EBITDA is calculated as the sum of operating income and depreciation

 

 

 

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