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UTK

November 10, 2004

UTK reports 27.6% revenue growth to RUR12.1 million for the first 9 months of 2004 according to RAS

Krasnodar, November 10, 2004: JSC “Southern Telecommunications Company” (UTK) [(RTS: KUBN, KUBNP; OTC USA: STJSY)], the largest provider of fixed-line telecommunications services in the South Federal Region of Russia, today announced its financial results for the nine months ended September 30, 2004, in accordance with Russian Accounting Standards (RAS).

  • Revenue for the first nine months of 2004 grew by 27.6% to RUR12,127.3 million (USD415 million). 3Q 2004 revenue amounted to RUR4,310.9 million (USD147.5 million), illustrating an increase of 18.3% compared to 3Q 2003.
  • EBITDA** for the first nine months of 2004 increased by 17.2% to RUR3,529.7 million (USD120.7 million), compared to the corresponding period of 2003. 3Q 2004 EBITDA was RUR1,298.7 million (USD44.4 million), a 3.1% increase compared to the same period of 2003. EBITDA margin was 29.1%.
  • Revenue from value-added services increased to RUR636.6 million – a year-on-year surge of 74.2% - and accounted for 5.4% share of total revenue from telecommunication services of the company.
  • Number of telephones grew by 282,4 thousands in the first nine months of 2004, 47.4% more, than in the first nine months of 2003.
  • Domestic long-distance (DLD) traffic rose 12.7% for the first nine months of 2004, compared to the corresponding period of 2003, and amounted to 1,530.5 million minutes.

Key financial results:

RUR million 9M 2004 9M 2003 Change, % 3Q 2004 3Q 2003 Change, %
Revenue 12,127.3 9,504.9 27.6 4,310.9 3,647.9 18.3
Operating expenses (excluding depreciation) 8,597.4 6,494.3 32.3  3,011.4 2,390.3 25.9
Depreciation 1,185.7 710.9 66.8 370.7 244.9 52.0
EBITDA 3,529.7 3,010.9 17.2 1,298.7 1,257.9 3.1
EBITDA margin, % 29.1 31.6 - 30.1 34.5 -
Operating profit 2,344.0 2,300.0 1.9 928.0 1,014.0 -8.5
Operating profit margin, % 23.9 31.9 - 27.4 38.5 -
Interest expenses 1,344.5 298.8 349.5 528.5 144.8 264.1
Net profit 90.3 1,155.0 -92.1 46.0 573.3 -91.9
Capital expenditures 9,664.0 5,051.0 91.32 4,758.0 5,049.0 -5.7

As a result of the number of subscribers and DLD traffic increase during the first nine months of 2004, UTK revenue grew by 27.6% to RUR12,127.3 million. For this period EBITDA amounted to RUR3,529.7 million, demonstrating an increase of 17.2% in comparison with the corresponding period of 2003. Operating profit was RUR2,344 million, 1,9% more, than for the first nine months of 2003.

Operating profit margin decreased due to the rise of depreciation expenses and payments to JSC “Rostelecom” (as a result of the introduction of the new settlement system). Depreciation expenses growth followed putting into operation a large amount of fixed assets due to the high growth of the company’s subscriber base, digitalization of the local and intrazone network, and construction of the Internet access centers.

Revenue structure:

RUR million 9M 2004 9M 2003 Change, % 3Q 2004 3Q 2003 Change, %
Revenue 12,127.3 9,504.9 27.6 4,310.6 3,647.5 18.2
Revenue from telecommunication services, including 11,802.9 9,324.5 26.7 4,189.3 3,581.8 17.0
 Urban telephone network 3,517.8 2,828.4 18.7 1,224.0 1,101.9 11.1
 Rural telephone network 973.7 702.0 39.0 363.6 290.2 25.3
 DLD telephone network 4,157.3 3,466.8 14.8 1,463.2 1,262.4 15.9
ILD telephone network 835.2 706.3 17.7 299.4 247.9 20.8
Value-added services 636.6 364.6 74.2 246.5 131.5 87.5
 Interconnection and traffic transit services, including 1,299.4 746.5 221.8 472.8 370.9 27.5
 Payments from Rostelecom 494.7 ? ? 187.0 ? ?
 Other telecommunication services 402.9 509.9 -30.6 119.8 177.1 -32.4
Revenue from individuals 7,082.8 5,696.7 24.3 2 ,552.1 2 ,241.3 13.9
Revenue from commercial organizations 3,804.2 2,857.6 33.1 1,333.7 1,070.4 24.6
Revenue from non-commercial organizations 915.9 770.2 18.9 303.3 270.1 12.3

Revenue from telecommunication services increased by 26.7% for the first nine months of 2004, compared to the same period of 2003, and amounted to RUR11,802.9 million. Revenue from local telecommunication services grew by 23.2%, from DLD telecommunication services by 12.0%, from value-added services by 74.2%, revenue from other telecom operators by 221.8%. At the same time, income from other telecommunication services (wire and wireless broadcasting, radio broadcasting, paging, etc.) declined by 30.6% due to seize of non-profitable services.

Operating expenses: 

RUR million 9M 2004 9M 2003 Change, % 3Q 2004 3Q 2003 Change, %
Expenses on ordinary activity, including 9,783 7,205 35.8 3,382 2,634 28.4
Wages and salaries 3,088 2,459 25.6 1,081 884 22.3
Interconnection fees, including 1,833 1,224 49.7 657 490 33.9
Payments to Rostelecom 1,537 989 55.5 547 405 35.2
Taxes other than income tax 954 795 20.0 287 251 14.3
Depreciation 1,186 711 66.8 371 244 52.0
Materials, utilities 1,048 887 18.1 369 331 11.2
Third parties’ services 758 504 50.2 267 140 91.3
Other expenses 916 623 47.0 351 294 19.4
Other operating expenses, including 2,078 783 165.5 841.9 328.2 156.5
Interest expenses 1,344 298 350.0 529 145 264.2
Bad debts expenses 131 54 142.9 60 -2 -2,726.1
Taxes 366 160 129.2 130 28 361.6
Non-sale expenses 435 518 -15.9 183.9 156.1 17.8
 
Number of employees, thousand  39.4 41.1  -4.1 ? ? ?

UTK’s expenses on operating activity totaled RUR9,793 million for the period – a year-on-year increase of 35.8%. This resulted from depreciation expenses growth as well as payments to Rostelecom increase.

As a result of network digitalization and corporate structure optimization, the company’s number of employees decreased by 4.1% to 39,400.

Production:

  9M 2004 9M 2003 Change, % 3Q 2004 3Q 2003 Change, %
DLD traffic, million minutes 1,445.3 1,277.9 13.0 505.8 455.9 10.8
ILD traffic, million minutes 85.2 78 9.2 29.6 27.3 6.5
Number of telephones growth, thousand 282.4 191.5 47.4 135.8 94.9 43.1
Access lines installed growth, thousand lines 506.3 281.6 79.7 242.9 175.7 38.2
Digitalization rate, % 56.26 43.83 28.3 ? ? ?

For the first nine months of 2004, long-distance traffic of UTK totaled 1,530.5 million minutes (+12.7%), of which DLD traffic accounted for 1,445.3 million minutes (+13%) and ILD traffic -for 85.2 million minutes (+9.2%).

Telephone network modernization and development during the period allowed UTK to fulfill its plan of number of telephones increase. Local network’s number of telephones growth amounted to 282,400, of which individuals accounted for 91.6% share of total growth, commercial organizations for 7.38%, and non-commercial organizations for 1.02%. As of October 1, 2004, the number of telephones amounted to 3.85 million, of which 2.88 million – urban telephone network, while rural telephone network accounted for 970,280. The company’s penetration rate per 100 inhabitants was 21.58, including 26.52 for urban telephone network and 13.75 for rural telephone network.

New telecommunication services highlights:

RUR million 9M 2004 9M 2003 Change, % 3Q 2004 3Q 2003 Change, %
Revenue from value-added services, including 636.6 364.6 74.1 246.5 131.5 87.5
 Internet access 382.5 229.6 66.6 138.4 80.9 71.1
 ISDN 64.3 34.3 87.5 30.1 10.7 181.3
 VPN 113.8 60.6 87.8 43.8 24.3 80.3
 Intelligent networks 36.8 21.8 68.8 15.7 8.2
Share of revenue from value-added services in total revenue from telecommunication services, % 5.4 3.9 1.35-fold 5.9 3.7  ?
Internet connection, million hours 17.2 11.4 50.9 5.9 3.8 55.3
Internet traffic, ?byte 206.8 116.2 77.9 76 40.7 86.7

UTK revenues from value-added services surged up by 74.2% to RUR363.6 million for the nine months ended September 30, 2004. As a result, the share of revenue from value-added services in total telecommunication services revenue of the company increased to 5.4%. Revenue from Internet services increased by 66.6%, from virtual private networks (VPN) construction services by 87.8%, from Intelligent networks services by 68.8%, from ISDN services by 87.5%. At the same time the company’s Internet services volume are constantly increasing. Internet traffic rose 77.9% to 206.8 ?byte for the period, while dial-up Internet time rose 50.9% to 17.2 million hours.

Capital expenditures:

For the first nine months of 2004, capital expenditures of UTK increased by 91.32% year-on-year and totaled RUR 9,664 million. The company put into operation fixed assets for RUR 7,608.6 million. During the period, 506,010 lines were put into operation, including 218,000 lines to replace analogue equipment. This will allow the company to reduce its telephone network maintenance charges. As of October 1, 2004, UTK’s access lines installed capacity amounted to 4.08 million lines, while access lines in use totaled 3.89 million lines. The company’s nine months 2004 digitalization rate rose 28.36% year-on-year and totaled 56.26% as of the beginning of the fourth quarter of 2004, of which digitalization rate for urban telephone network was 61.87%, while digitalization rate for urban telephone network  was 38.37%.

Length of DLD trunk lines for the nine months of 2004 grew by 1.77 million channel*km and amounted to 13.19 million channel*km, of which digital lines grew by 1.95 million channel*km and amounted to 11.05 million channel*km (83.78% of total length). For this period, UTK increased its fiber-optic lines by 1,158 kilometers, thus the total length of fiber-optic lines reached  6, 953 kilometers as of October 1, 2004.

The full version of financial results for the nine months ended September 30, 2004, is available at the company’s corporate web-site at www.stcompany.ru

* Average CBRF RUR/USD rate of RUR29.22 for the 9 months of 2004 

** Calculated as sum of operating profit and depreciation

 

 

 

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