COMSTAR - United TeleSystems OJSC Financial Results for the Third Quarter and First Nine Months of 2007.MOSCOW -- "COMSTAR COMSTAR COMmon System for Technical Analysis and Reporting - United TeleSystems" OJSC OJSC Open Joint Stock Company ("Comstar" or "the Group") (LSE LSE - Language Sensitive Editor : CMST CMST Capacitated Minimum Spanning Tree (problem) CMST Characterization, Monitoring, and Sensor Technology CMST Center for Mathematics, Science, and Technology ), the leading integrated telecommunications operator in Russia and the CIS Cis (sĭs), same as Kish (1.) (1) (CompuServe Information Service) See CompuServe. (2) (Card Information S , today announced its unaudited consolidated US GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). financial results for the third quarter and nine months ended September 30, 2007. THIRD QUARTER HIGHLIGHTS * Revenues up 28% year on year to US$ 372.2 million * OIBDA OIBDA Operating Income Before Depreciation & Amortization (1) up 40% year on year to US$ 159.7 million and OIBDA margin of 43% * Operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. up 54% year on year to US$ 117.7 million and operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 32% * Net income of US$ 34.9 million before non-cash impact of revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of call and put option(1) * Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses up 23% year on year to US$ 105.2 million * 44% year on year growth in Moscow broadband Internet See broadband. subscriber base to 452,600 customers * Launch of revised broadband strategy including broadband sales under MGTS MGTS Message Generator Traffic Simulator MGTS Message Generation Test System brand and 'Fibre to the Curb' (FTTC (Fiber To The Curb) The installation of optical fiber to within several hundred feet of the home or office. At that point, the optics are converted into electronics for delivery into the premises, typically using DSL. ) modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, of MGTS 'last mile' access * 51% of MGTS residential subscribers on unlimited tariff plan; 22% on combined tariff plan; and 27% on per minute tariff plan, as at end of period * Comstar-Moscow corporate subscriber ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. up 12% year on year to US$ 570.0 NINE MONTH HIGHLIGHTS * Revenues up 30% year on year to US$ 1,080.2 million * OIBDA up 40% year on year to US$ 463.2 million and OIBDA margin of 43% * Operating profit up 44% year on year to US$ 346.2 million and operating margin of 32% * Net income of US$ 110.3 million before non-cash impact of revaluation of call and put option * Cash flow from operations up 26% year on year to US$ 306.7 million Sergey Pridantsev, President of Comstar, commented: "The third quarter was dominated by the implementation of our revised strategy. We took a number of key steps during the period, including the introduction of new broadband sales channels; the introduction of post-paid broadband Internet tariffs; the usage of the MGTS brand for low speed broadband tariffs; the introduction of one bill for residential telephony and broadband internet services; and the commencement of the modernization of the 'last mile' access in Moscow. These initiatives are already contributing to an accelerating net subscriber intake in the fourth quarter. We have also continued to roll out our regional development strategy through the consolidation and integration of local market leaders with complementary business models. This expansion is significantly enhancing our presence outside Moscow, as well as increasing the overall operating efficiency of our regional business." Irina Matveeva, Chief Financial Officer, added: "We have delivered strong organic growth in the quarter and for the year to date. We expect this momentum to continue throughout the rest of the year. We announced the acquisition of two large alternative operators outside Moscow since the end of the quarter. Full year 2007 revenue growth is now expected to be between 30% and 35%. The combination of improved operating efficiency and various positive year on year effects enabled us to deliver an increased OIBDA margin of 43% in the third quarter. We are investing further in the promotion of our high priority broadband service See broadband and broadband service provider. offering in the fourth quarter with the objective of growing our residential broadband subscriber base to 650,000 households by the end of 2007. Despite this increased level of investment, we still expect to achieve a full year OIBDA margin of not less than 40%. "As previously announced, the third quarter results were impacted by the revaluation of the call and put option issued in December 2006 in part payment for the acquisition of our stake in Svyazinvest. The US$ 196.0 million non-cash impact, including US$ 186.2 million recorded in the income statement, reflects the 40% appreciation of the Comstar share price during the third quarter; net income effect was reduced by US$ 82.4 million minority interest in the charge. The call element of the option will either be exercised or expire next month, and the remaining put element of the instrument will have considerably less impact on our income statement moving forward." FINANCIAL SUMMARY [TABLE OMITTED] OPERATING REVIEW Group Overview Comstar reported 28% year on year revenue growth in the third quarter, which continued to reflect the high customer demand for the unlimited tariff plan introduced by MGTS in February 2007, and for Comstar's double and triple-play service offerings. Comstar also received US$ 9.6 million of compensation from the Federal Budget for discounts provided to certain categories of customers prior to 2005, which compares with US$ 8.0 million of similar compensation received in the third quarter of 20063. The year on year revenue growth also continued to reflect the impact of the introduction of the 'Calling Party Pays' ('CPP') regulation from July 2006, which contributed US$ 29.7 million of revenue in the third quarter compared to US$ 16.3 million in the third quarter of 2006, and approximately US$ 15.5 million arising from the continuing appreciation of the Russian Ruble The ruble or rouble (Russian: рубль rublʹ, plural рубли́ rubli operating currency against the US dollar4 reporting currency Reporting Currency The currency used in published reports and financial documents. Notes: All annual and quarterly reports state the currency in which their results are listed. . [TABLE OMITTED] Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , excluding depreciation and amortisation Noun 1. amortisation - the reduction of the value of an asset by prorating its cost over a period of years amortization reduction, step-down, diminution, decrease - the act of decreasing or reducing something 2. charges, increased year on year in the third quarter but declined as a percentage of revenues from 61% to 57%. Operating expenses were up quarter on quarter. The increase was the net effect of the reorganization and headcount reduction at Comstar-Moscow, lower employment costs over the Summer vacation Summer vacation (also called summer holidays or summer break) is a vacation in the summertime between school years in which students are off for 3 months, depending on the country and district. period, seasonally lower utility costs, an increase in pension liabilities Pension liabilities Future liabilities resulting from pension commitments made by a corporation. Accounting for pension liabilities varies widely by country. , due to a revision of certain estimates underlying the calculation of these liabilities, and the continuing appreciation of the Russian Ruble against the US dollar. Network traffic costs increased by 45% year on year due to the increase in CPP cpp - C preprocessor. , the increased scale of the Group, and the changes in the interconnect (1) To attach one device to another. (2) A physical port (plug, socket) or wireless port (transmitter, receiver) used to attach one device to another. regime. The 28% quarter on quarter increase in network traffic costs was also due to higher CPP traffic, as well as the new agreements with mobile operators for the usage of direct dial Moscow numbers by mobile subscribers with effect from July 2007. Comstar reported a 40% year on year increase in OIBDA in the third quarter. The Group OIBDA margin expanded by 4 percentage points year on year and decreased quarter on quarter to 42.9% due to the lower level of compensation from the Federal Budget received in the third quarter. Group depreciation and amortisation charges increased by 12% year on year and quarter on quarter to US$ 42.0 million, which reflected the 24% year on year increase in the Group's asset base, as well as the appreciation of the Russian Ruble, which increased Ruble-denominated depreciation and amortisation charges translated into the US dollar reporting currency. Comstar reported a 54% year on year increase in operating profits, and an operating margin of 31.6%, compared to a margin of 26.2% for the third quarter of 2006. The Group reported a 15% reduction in net interest expense to US$ 8.5 million for the period, when compared to the second quarter of 2007. The net interest income of US$ 10.5 million for the same period of 2006 reflected the higher level of cash and short term investments following the Group's initial public offering, as well as the lower level of corporate borrowing ahead of the US$ 1.3 billion acquisition of the 25% plus one share stake in Svyazinvest in December 2006. Comstar reported a US$ 7.3 million foreign currency translation loss in the third quarter, compared to gains of US$ 5.2 million and US$ 0.1 million for the same period of 2006 and the second quarter of 2007, respectively. The loss was largely the result of foreign currency transaction losses arising from US dollar-denominated cash equivalents and short-term investments at Comstar-Moscow, following the change in its functional currency from US dollars to Russian Rubles with effect from the end of June 2007, as well as losses arising from the revaluation of MGTS's Euro-denominated capital lease obligations. In order to reduce the volatility in earnings caused by fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. foreign exchange rates, Comstar is reducing the amount of its non-Ruble-denominated borrowings and investments. The call and put option issued as part payment for the Svyazinvest stake continued to impact the Group's results and gave rise to a US$ 196.0 million non-cash charge Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. in the quarter, with US$ 186.2 million reported in the income statement and the remaining US$ 9.8 million recorded directly in equity in the Group's balance sheet. This follows the 40% increase in the market price of the Comstar Global Depositary Receipt depositary receipt A negotiable certificate that represents a company's publicly traded debt or equity. Depositary receipts are created when a company's shares or bonds are delivered to a depositary's custodian bank, which instructs the depositary to issue from US$ 9.25 on June 30, 2007 to US$ 12.95 on September 30, 2007. The strategic acquisition of the Svyazinvest shares has already proved a highly successful financial investment, with the value of the stake having risen by 37.5% from US$ 1.6 billion as at December 11, 2006 to US$ 2.2 billion as at the end of the third quarter, based on the combined market value of the listed Svyazinvest subsidiaries. This increase in value is not however recognized in Comstar's US GAAP accounts. The Group's effective tax rate, before the revaluation of the call and put option, increased to 29.8% for the period, compared to 28.4% for the second quarter, due to the net effect of intercompany foreign currency translation losses, which are tax-deductible but eliminated in the consolidated US GAAP accounts, and the writing off of certain deferred tax assets. The 23.7% effective tax rate for the third quarter of 2006 reflected the tax benefit of the foreign currency translation losses on the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. proceeds on deposit or in the form of promissory notes promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. . Group minority interests totalled a gain of US$ 44.0 million in the quarter, compared to a loss of US$ 33.4 million in the second quarter and a loss of US$ 22.7 million in the third quarter of 2006. The underlying strong revenue growth at MGTS, which is 56% owned by Comstar, was offset by the US$ 82.4 million minority interest in the above-mentioned non-cash charge option revaluation charge. Group net income before the non-cash impact of the revaluation of the call and put option therefore amounted to US$ 34.9 million in the quarter, compared to US$ 48.3 million for the same period of 2006 and US$ 39.2 million for the second quarter of 2007. Moscow City Telephone Network The Moscow City Telephone Network (Russian: Московская Городская Телефонная (MGTS) Comstar owns 56% of MGTS, which is Moscow's incumbent fixed-line telecommunications operator and the infrastructure provider for the Group. MGTS is the owner of the "last mile" in Moscow and has 3.6 million subscribers. The MGTS brand is also used for low speed broadband services to residential subscribers in Moscow. [TABLE OMITTED] MGTS generated 34% year on year revenue growth in the third quarter, which largely reflected the US$ 48.4 million year on year growth in residential and corporate voice revenues. Residential voice revenues were up 49% year on year, with 51% of MGTS residential subscribers choosing to remain on the unlimited tariff plan of RUR 380 (approximately US $15) per month (including 18% VAT) introduced in February 2007. MGTS received US$ 9.6 million of payments from the Federal Budget in the quarter by way of reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. for discounts provided to certain categories of low income residential subscribers, including pensioners and military veterans, under the terms of pre-2005 legislation. This compares with the US$ 8.0 million of similar payments received in the third quarter of 2006. MGTS has received US$ 36.5 million of compensation for the year to date, which compares with US$ 25.8 million for the same period of 2006. MGTS has received compensation for the years 2002-2004 in full and does not expect to receive any further compensation from the Budget moving forward. The introduction of CPP from July 2006 also continued to positively impact the revenue line by adding a further US$ 25.4 million of revenue in the third quarter, compared to US$ 14.7 million for the same period of 2006. Residential CPP traffic increased by 8% quarter on quarter from 315 million minutes to 339 million minutes, and contributed US$ 16.8 million of revenue in the quarter, compared to US$ 11.0 million for the same period of 2006. Corporate voice revenues were up 15% year on year, whilst access node and trunk rental revenues increased by 6% year on year. Corporate CPP traffic increased by 13% quarter on quarter from 130 million minutes to 147 million minutes, and contributed US$ 8.6 million of revenue in the quarter, compared to US$ 3.7 million for the same period of 2006. The number of corporate subscribers decreased by 3% year on year due to the merger of the Miussky and Zamoskvoretsky telephone nodes, the subsequent consolidation of client agreements and accounts, and the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of corporate clients as operators when they received operator licenses. Revenue from Operators was up 34% year on year, which reflected the 36% increase in access node and trunk rental revenues. Long-distance revenues increased by 18% year on year as a result of the rise in per minute charges from February 1, 2007 and the introduction of the compensation surcharge An overcharge or additional cost. A surcharge is an added liability imposed on something that is already due, such as a tax on tax. It also refers to the penalty a court can impose on a fiduciary for breaching a duty. . Operating costs operating costs npl → gastos mpl operacionales , excluding depreciation and amortization charges, were up year on year and quarter on quarter due to the net effect of higher CPP traffic costs, sales and marketing expenses, and non-state pension expenses due to a revision of certain estimates underlying the calculation of pension liabilities, but seasonally lower utility costs and reduced bad debt provisions following the stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying levels. MGTS therefore reported a 60% year on year increase in OIBDA, and an increased OIBDA margin of 50.2%, which compared to 41.9% in the third quarter of 2006 and 51.9% in the second quarter of 2007. COMSTAR-MOSCOW Comstar-Moscow is a leading alternative fixed-line solutions provider, primarily for corporate customers, which offers voice and data services to nearly 40,000 subscribers and has over 602,000 active lines in Moscow and the Moscow region. [TABLE OMITTED] The 35% and 12% respective year on year declines in residential and corporate voice revenues reflected the introduction of the new long distance regulations with effect from January 2006. Under the new rules, Comstar-Moscow recognizes the margin on long-distance traffic as agent fees from authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: long-distance providers and, therefore, classifies it as revenue from Operators. This compares with the prior recognition of the full per minute charge prior to January 2006. Revenues from Operators consequently increased by 21% year on year. As at September 30, 2007, virtually all of Comstar-Moscow subscribers have been transferred to the new 'agent' scheme. CPP revenues from calls to mobile users contributed approximately US$ 4.2 million of voice revenues in the quarter, compared to approximately US$ 3.7 million in the second quarter of 2007 and US$ 1.4 million in the third quarter of 2006. Residential ARPU decreased by 38% year on year, partially due to expansion into the Moscow suburbs, as well as the transition to the new agent's scheme for DLD/ILD services provision, which was not completed in the third quarter of 2006. The number of corporate subscribers decreased by 6% year on year due to the merger of the Comstar, MTU-Inform and Telmos billing systems, and the resulting merger of corporate accounts. Corporate customer data and internet service revenues increased by 4% year on year and quarter on quarter, despite the seasonally weaker summer period. Corporate subscriber ARPU increased by 12% year on year and 3% quarter on quarter to US$ 570.0, which primarily reflected the fixing of tariffs in Russian Rubles for a substantial part of the subscriber base during the first six months of 2007, as well as the merger of corporate accounts. Operating costs, excluding depreciation and amortization charges, were stable quarter on quarter as a percentage of revenues despite the increase in traffic costs as a result of the new agreements concluded with mobile operators, but up year on year due to higher corporate costs associated with the Group's expansion. Comstar-Moscow's OIBDA declined 3% quarter on quarter and 31% year on year following the changes in the organizational structure  This article has no lead section.To comply with Wikipedia's lead section guidelines, one should be written. in the middle of the third quarter of 2006. The OIBDA margin therefore declined to 17.6% in the third quarter from 27.8% in the third quarter of 2006, and from 19.2% in the second quarter of 2007. COMSTAR-DIRECT Comstar-Direct is the largest broadband service provider An ISP, telephone company, cable company or other carrier that offers high-speed communications to homes and businesses, typically for Internet access. Cable modems, DSL and T1 lines are the common technologies. See broadband, cable modem, DSL and T1. in Moscow, and has 452,600 residential subscribers, including 106,000 double-play (broadband Internet + IPTV (Internet Protocol TV) Also called "TV over IP," IPTV delivers scheduled TV programs and video-on-demand (VOD) via the IP protocol and digital streaming techniques used to watch video on the Internet. ) customers. The subsidiary is 52% owned and fully consolidated by the Group, with Sistema Mass Media owning the remaining 48% minority stake. The Comstar-Direct brand is used for high speed broadband services to residential subscribers in Moscow. [TABLE OMITTED] Residential broadband revenues grew by 27% year on year to US$ 24.2 million following healthy subscriber growth, and despite the year on year decline in average revenue per ADSL See DSL. ADSL - Asymmetric Digital Subscriber Line line (ARPL ARPL Adjust Requested Privilege Level ARPL Average Revenue Per Line ARPL Annual Review of Population Law ARPL Anti-Referral Payments Law ARPL A Retrieval Process Language ARPL Atmospheric Research Pty Ltd (Australia) )11 from US$ 19.2 to US$ 18.1. The lower ARPL reflected the extended five month churn churn: see butter. period introduced during the summer period, as well as the changes made to the tariff structure from May 2007. Revised broadband tariffs were introduced in September 2007, at the same time as the launch of the new broadband strategy and, therefore, only had limited impact in the third quarter. Corporate customer broadband revenues were up 19% year on year and quarter on quarter, following the increase in average revenue per ADSL user (ARPU) to US$ 230.4 in the third quarter, from US$ 175.9 in the third quarter of 2006 and US$ 192.5 in the second quarter. This development reflected the successful introduction of new tariffs for small and medium sized enterprises in May 2007. Segment OIBDA was up 5% year on year but declined 20% quarter on quarter, with the margin for the period declining to 18.4% from 20.7% a year ago, and from 23.0% in the second quarter of 2007. The quarter on quarter decline in the OIBDA margin reflected the second quarter impact of the retrospective discounts applied to the rental of MGTS ADSL ports since the beginning of 2007. Comstar's key objectives remain to increase its market share to 50% share of the Moscow broadband market in 2011 and to drive up ARPU levels on a progressive basis. MGTS is playing an active role in facilitating this growth by providing the 'last mile' access to its residential customer base in Moscow, and by utilizing its highly qualified technical support teams to sell in the new double-play offerings to this customer base. Comstar has rebalanced its infrastructure investment plans to focus on the selective modernization of this 'last mile' access, in order to offer greater capacity, higher speeds and enhanced services Enhanced service is service offered over commercial carrier transmission facilities used in interstate communications, that employs computer processing applications that act on the format, content, code, protocol, or similar aspects of the subscriber's transmitted information; . Comstar launched an integrated programme
The Integrated Programme (Abbreviation: IP), also known as of modernization of the Group companies' networks in October, in order to simultaneously increase network capacity and reduce investment and operational costs associated with servicing the current infrastructure. The integration is intended to eliminate the duplication duplication /du·pli·ca·tion/ (doo-pli-ka´shun) 1. the act or process of doubling, or the state of being doubled. 2. of investment in the development of two networks and generate cost savings over the coming years. The Group has already completed the upgrade of the MGTS and Comstar-Direct networks to 40 Gigabits per second, which provides a higher quality connection for customers and reduces the connection time for new subscribers to MGTS and STREAM services. Following the launch of the new broadband development strategy, Comstar initiated the selective modernization of the 'last mile' access in September, in order to move the DSLAM (DSL Access Multiplexor) A central office (CO) device for ADSL service that intermixes voice traffic and DSL traffic onto a customer's DSL line. It also separates incoming phone and data signals and directs them onto the appropriate carrier's network. See DSL. from the switching center A switching center is a node in a telecommunications Circuit switching network which is connected to either another switching center and/or to end user devices. Switching centers are aware of other centers and possible routes between them such that on demand a center can establish to the curb, using Fibre-to-the-Curb technology. Comstar-Direct expects to be able to provide 80% of MGTS residential subscribers with broadband Internet access Broadband Internet access, often shortened to just "broadband", is high speed Internet access—typically contrasted with dial-up access over modem. Dial-up modems are generally only capable of a maximum bitrate of 56 kbit/s (kilobits per second) and require the full use of a at an average speed of 20 Megabits per second (unit) megabits per second - (Mbps, Mb/s) Millions of bits per second. A unit of data rate. 1 Mb/s = 1,000,000 bits per second (not 1,048,576). E.g. Ethernet can carry 10 Mbps. by the end of 2009. This will enable subscribers to watch High Definition Television more than two TV sets per household. The total capital expenditure for this project is expected to be approximately US$ 100 million over the next two years. COMSTAR REGIONS & INTERNATIONAL Comstar's regional and international business comprises the Group's operations in the Russian regions (St. Petersburg, Krasnodar, Saratov, Samara Samara, river, Russia Samara (səmä`rə), river, c.360 mi (580 km) long, rising in the foothills of the S Urals, European Russia. It flows generally northwest, and joins the Volga River at Samara. , Tyumen, Khanty-Mansi and Yamalo-Nenetzky regions) and the CIS (Ukraine and Armenia). [TABLE OMITTED] The revenue growth in the corporate segment was driven by the inclusion of the Ukrainian and Armenian operations, which were acquired in the fourth quarter of 2006, and by the contribution from Sochitelecomservice, which was acquired in August and established Comstar as the largest alternative operator in the host city for the 2014 Olympics game. Operator revenues were in turn driven by the change in long-distance regulation and the resulting reallocation Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation of revenues from the corporate business. Segment revenues were up 10% year on year when excluding the Armenian, Ukrainian and newly acquired Sochi operations. Segment OIBDA declined year on year and quarter on quarter following the acquisition of, and investment in, the earlier stage and therefore lower margin businesses mentioned above. The restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of the operations, which commenced in the second quarter of 2007, is ongoing. The regional strategy is threefold. Firstly to expand the Group's presence in its current operating regions by building out the network, launching new green-field operations, and making bolt-on acquisitions that can be easily integrated into existing subsidiaries. Comstar plans to invest up to US$ 120 million in these projects, in order to grow the Group's regional revenues to US$ 200 million and achieve a regional alternative operator market share of at least 10% by the end of 2011. Secondly, the strategy involves the expansion of the Group's presence into new regions by acquiring competitive local exchange carriers with 25% or higher local market revenue shares. This second element has been evidenced by the acquisition of RTC See real time clock. and DTN See disruption-tolerant network and delay-tolerant network. after the end of quarter, as detailed later in this report. It is anticipated that these two key acquisitions will be followed by a further acquisitions, and that newly acquired businesses will contribute an additional US$ 300 million of revenue to the regional business by in 2011. The third element relates to the deployment of long distance services, which are expected to add a further US$ 50 million of revenue by in 2011. The Group's long distance service offering will be in place by the end of 2007. FINANCIAL REVIEW Group net cash provided by operations increased by 23% year on year to US$ 105.2 million in the third quarter. The 6% quarter on quarter decrease in net cash flow from operations primarily reflected the lower level of compensation received from the Federal Budget by MGTS in the third quarter. Net cash used in investing activities was 22% higher quarter on quarter at US$ 120.2 million, following the acquisition of stakes in new businesses and increased investments in short-term interest-bearing instruments, but 33% lower year on year. Group capital expenditure increased by 17% year on year and by 39% quarter on quarter to US$ 95.0 million, and primarily comprised the ongoing digitalization digitalization /dig·i·tal·iza·tion/ (dij?i-tal-i-za´shun) the administration of digitalis or one of its glycosides in a dosage schedule designed to produce and then maintain optimal therapeutic concentrations of its cardiotonic process and development of Next Generation Network ("NGN (Next Generation Networks) An umbrella term for mixed voice and data networks running over the IP protocol. See IP Multimedia Subsystem. ") infrastructure at MGTS. Total capital expenditure for the year to date therefore amounted to US$ 227.6 million. The Group therefore generated US$ 20.9 million of free cash flow (defined as net cash provided by operations less net cash used in investing activities) for the nine months ended September 30, 2007 and reported negative free cash flows of US$ 15.0 million for the quarter, primarily due to the increase in cash used in investing activities for the reasons described above. Comstar used US$ 14.9 million of cash in its financing activities in the third quarter, including the repayment of capital lease obligations and loans falling due during the period. This compared with US$ 6.8 million of cash used in financing activities during the same period of 2006. The Group's cash and cash equivalents therefore decreased by US$ 28.1 million during the third quarter to US$ 120.2 million. Total Group borrowings, including capital lease obligations, were 2% lower at US$ 838.5 million by the end of the period. The Group's net debt increased quarter on quarter to US$ 718.4 million and the total debt to OIBDA ratio12 continued to decline quarter on quarter to 1.7 times. [TABLE OMITTED] Comstar accounts for its shareholding in Svyazinvest at cost. The Group continues its evaluation of whether the acquisition of the 25% plus one share of Svyazinvest allows the Group to exercise significant influence over this entity, in which case the Group will account for its investment in Svyazinvest using the equity method. The investment has already proved highly successful with the value of the stake having risen by 37.5% from US$ 1.6 billion as at December 11, 2006 to US$ 2.2 billion as at the end of the third quarter, based on the combined market value of the listed Svyazinvest subsidiaries. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD Comstar's Global Depositary Receipts will be added to the MSCI Russia Index with effect from November 30, 2007 with an index weighting of 0.6%. Comstar announced the appointment of Irina Matveeva as Chief Financial Officer on October 5, 2007, with immediate effect. Irina had previously served as Chief Financial Officer of Comstar subsidiary MGTS since July 2006, and has worked for the Group for twelve years. Comstar announced the acquisition of 87.5% of Regional Technical Centre ('RTC') for a total cash consideration of US$ 21.0 million on November 13, 2007. RTC is an alternative regional fixed-line telecommunications operator in the Khanty-Mansi Autonomous Area Khanty-Mansi Autonomous Area (khŭntē`-mŭnsē`), administrative division (1995 pop. 1,326,200), 201,969 sq mi (523,100 sq km), W Siberian Russia. Khanty-Mansisk is the capital. of Russia. RTC provides fixed-line telecommunications services In telecommunication, the term telecommunications service has the following meanings: 1. Any service provided by a telecommunication provider. 2. , radio access, mobile services and dial-up internet access See dial-up. , as well as leasing channels to residential and corporate clients in Nizhnevartovsk, Surgut, Nyagan, and the Orenburg region. The company also has branches in Saratov, Ryazan and Moscow. RTC provided services to 8,319 subscribers as at the end of the third quarter 2007 and had 33,012 active lines, which accounted for 53% of installed numbering capacity in Nizhnevartovsk, Surgut, Nyagan, Orenburg and Orenburg region. The company reported revenues of US$ 18.2 million, a 28% OIBDA margin and US$ 2.3 million of net income for the twelve months ended December 31, 2006. The new operation will be integrated with Comstar's existing Tyumenneftegassvyaz operation under the Group's Tyumen branch, and Comstar's market share in the Khanty-Mansi Autonomous Area is therefore expected to increase to approximately 33%. Comstar announced the acquisition of 100% of Digital Telephone Networks South ('DTN') for a total cash consideration of 4.1 billion Russian Rubles (approximately US$ 167.4 million) on November 19, 2007. DTN is the largest alternative telecommunications operator in the Southern Federal District of Russia. DTN provides a full range of telecommunication services, including digital telephony Digital telephony is a technology used in the provision of digital telephone services and systems. Since the 1960s it has almost entirely replaced the old telephone system that used analog telephony. , leased channels and Internet access See how to access the Internet. , to residential and corporate subscribers, and serviced over 155,000 telephone numbers in Rostov-on-Don, Taganrog, Shakhty, Azov, Belaya Kalitva Belaya Kalitva (Russian: Бе́лая Кали́тва) is a town in Rostov Oblast, Russia. , Kamensk-Shakhtinsky and Gukovo, as at September 30, 2007. DTN reported revenues of US$ 41.8 million, a 53% OIBDA margin, and US$ 14.3 million of net income for the nine months ended September 30, 2007. The combination of DTN with Comstar's existing Southern branch will provide subscribers with a full range of integrated telecommunications services, generate synergies, reduce combined operating expenses, optimize business processes and create economies of scale. The acquisition is in line with Comstar's regional development strategy to acquire local market leaders, and DTN's above industry average profitability levels will enhance the Group's overall financial profile. OTHER INFORMATION Conference call Comstar will host a conference call today at 4.00 PM Moscow local time, 1.00 PM London local time and 8.00 AM New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of local time to present and discuss these results. Participants may dial into the call on the following numbers: [TABLE OMITTED] A replay facility will also be made available for 7 days after the call and may be accessed by dialing the following numbers and entering the following pin code: [TABLE OMITTED] A replay facility will also be made available within a month of this release at http://www.comstar-uts.com/en/for_investors/finresults/2007/. For further information, please visit www.comstar-uts.com. Comstar UTS (Universal Timesharing System) Amdahl's version of Unix System V. Release 4.0 is POSIX compliant. is the leading fixed-line telecommunications company See telecom company. in Moscow, both in terms of revenues and subscribers. Comstar UTS provides voice, data, Internet, pay-TV and other value-added services A value-added service (VAS) is a telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. to residential and corporate subscribers and operators, using its extensive backbone network A backbone network provides a path for the exchange of information between different LANs or subnetworks.[1] A backbone can tie together diverse networks in the same building, in different buildings in a campus environment, or over wide areas. and exclusive last mile access to 98% of Moscow households. The Company also offers communications services in five Russian regions and certain CIS countries There are two lists concerning CIS countries:
Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. of US$ 1,080 million and a 43% OIBDA margin for the nine months ended September 30, 2007. Comstar GDRs are listed under the symbol "CMST" on the London Stock Exchange London Stock Exchange London marketplace for securities. It was formed in 1773 by a group of stockbrokers who had been doing business informally in local coffeehouses. . Some of the information in this press release may contain projections or other forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. regarding future events or the future financial performance of Comstar UTS. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might", the negative of such terms or other similar expressions. Comstar UTS wishes to caution that these statements are only predictions, and that actual events or results may differ materially. Comstar UTS does not intend to update these statements to reflect events and circumstances occurring after the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of Comstar UTS, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries Comstar UTS operates in, as well as many other risks specifically related to Comstar UTS and its operations. 1 Here and below, please see Attachment A to this statement for a full definition of OIBDA and a reconciliation of Net Income before the non-cash impact of the revaluation of the call and put option. 2Please see Attachment A to this statement for a full definition of CAPEX. 3 MGTS received payments from the Federal Budget by way of reimbursement for discounts provided to certain categories of low income residential subscribers, including pensioners and military veterans, under the terms of pre-2005 legislation. Currently, MGTS does not provide such discounts and receives full tariffs from virtually all its subscribers. 4 The average exchange rate for the period was RuR 25.51 per US$ 1 in the third quarter of 2007; RuR 26.81 per US$ 1 in the third quarter of 2006; RuR 25.86 per US$ 1 in the second quarter of 2007; RuR 25.89 per US$ 1 for the first nine months of 2007; and RuR 27.39 per US$ 1 for the first nine months of 2006. 5Excluding depreciation and amortisation, net. 6Excluding US$ 8.0 million, US$ 9.6 million and US$ 27.0 million of compensation received from the Federal Budget in the third quarters of 2006 and 2007, and the second quarter of 2007, respectively. Here and below, ARPU calculations exclude connection fees. 7Primarily to Comstar-Direct. 8DLD/ILD minutes in Q2 2006 and H1 2006 include zonal traffic, free for the subscriber before the introduction of the CPP Rule effective July 1, 2006. 9Comstar-Moscow's OIBDA has been recalculated and now includes corporate expenses in line with the recent merger of the Corporate Center into Comstar-Moscow. 10The number of residential broadband internet and double-play subscribers has been recalculated in line with the new recognition methodology. Subscribers at the authorization stage are now excluded from the subscriber base, while those with temporarily blocked access are included in the subscriber base. As a result, a subscriber is recognized in the subscriber base if the ADSL line is activated and a subscriber is paying for broadband services, or the access is temporarily blocked but can be activated immediately after payment. 11 Please see Attachment A to this statement for a full definition of ARPL. 12 Calculated as total debt, as at the balance sheet date, divided by OIBDA for the twelve months preceding the balance sheet date. Attachment A [TABLE OMITTED] This results statement includes financial information prepared in accordance with accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, (US GAAP), as well as other non-GAAP financial information. The non-GAAP financial information should be considered as an addition to, but not as a substitute for, information prepared in accordance with US GAAP. OIBDA is operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before depreciation and amortisation, and the OIBDA margin is defined as OIBDA as a percentage of net revenues. These measures are included in this results statement in order to provide additional information regarding the Group's ability to meet future debt service payments, capital expenditure and working capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. , and as a metric to evaluate profitability. OIBDA is not a measure of financial performance under US GAAP, and is not an alternative to operating income as a measure of operating performance, or to cash flows from operating activities as a measure of liquidity. While depreciation and amortisation are considered operating costs under US GAAP, these items primarily represent the non-cash current period allocation of costs arising from the acquisition or development of long-term assets Long-Term Assets 1. Reported on the balance sheet, it's the value of a company's property, equipment and other capital assets, less depreciation. 2. A stock, bond or other asset that you plan on holding in your portfolio for a lengthy period of time. in prior periods. OIBDA is commonly used as a criterion for evaluation of operating performance by credit and equity investors and analysts. The calculation of OIBDA may be different from the calculation used by other companies and comparability may therefore be limited. OIBDA can be reconciled to the Group's consolidated statements as follows: Reconciliation of OIBDA [TABLE OMITTED] Net Income before the non-cash impact of the revaluation of the call and put option is net income before the change in the fair value of the derivative financial instrument (call and put option) and the minority interest in the output of the revaluation. This measure is included in the results statement in order to provide additional information regarding the Group's underlying operating performance. While the revaluation of derivative financial instruments is included in the determination of net income under US GAAP, this item only partially affects the Group's future cash flows and is not under the control of the management, as the fair value of the call and put option is dependant primarily on the market price of Comstar UTS GDRs. Reconciliation of Net Income before non-cash impact of revaluation of call and put option [TABLE OMITTED] ARPL (Monthly Average Revenue per Line), a non-US GAAP financial measure, is calculated for the relevant period by dividing Comstar UTS' Stream service revenue, including broadband internet, pay TV and bundled offering excluding connection fee, for that period by the average monthly number of the Comstar UTS' broadband subscribers during the period and by the number of months in the period. Reconciliation of ARPL to service revenues, the most directly comparable US GAAP financial measure, is presented below. We believe that ARPL provides useful information to investors because it is an indicator of the performance of the Group's business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets and assists management in budgeting. The management also believes that ARPL provides useful information concerning usage and acceptance of the Group's services. ARPL should not be viewed in isolation from or as an alternative to other figures reported under US GAAP. Average Revenue per ADSL Line (Residential Segment) [TABLE OMITTED] CAPEX (Capital Expenditures) is cash expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. for purchases of property, plant and equipment and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , and non-cash additions of property, plant and equipment and intangible assets, excluding considerations paid in business combinations allocated to property, plant and equipment and intangible assets. CAPEX can be reconciled to the Group's consolidated statements as follows: [TABLE OMITTED] Attachment B [TABLE OMITTED] (*) Certain prior year amounts have been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the 2007 presentation. [TABLE OMITTED] (*) Amounts as of December 31, 2006 were derived from the audited consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge of Comstar UTS as of December 31, 2006, 2005 and 2004 and for the years then ended and should be read in conjunction with these statements. [TABLE OMITTED] (*) Amounts as of December 31, 2006 were derived from the audited consolidated financial statements of Comstar UTS as of December 31, 2006, 2005 and 2004 and for the years then ended and should be read in conjunction with these statements. [TABLE OMITTED] (*) Certain prior year amounts have been reclassified to conform to the 2007 presentation. [TABLE OMITTED] (*) Certain prior year amounts have been reclassified to conform to the 2007 presentation. |
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