Comstar United TeleSystems OJSC: Financial Results for the First Quarter Ended March 31, 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 combined 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 three months ended March 31, 2007. FIRST QUARTER HIGHLIGHTS * Revenues up 32% year on year to US$ 328.9 million * 39% year on year growth in Moscow broadband Internet See broadband. subscriber base to 398,000 customers * Sevenfold sevenfold Adjective 1. having seven times as many or as much 2. composed of seven parts Adverb by seven times as many or as much Adj. 1. year on year increase in "Double play" Moscow subscriber base to 100,500 customers * OIBDA OIBDA Operating Income Before Depreciation & Amortization (1) up 27% year on year to US$ 130.4 million with margin of 39.6% (up quarter on quarter from underlying 33.3% margin in the fourth quarter of 2006) * Reorganization of Comstar Moscow contributes to improvement in OIBDA margin quarter on quarter from 18.4%(2) to 28.1% * 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 23% year on year to US$ 92.8 million with margin of 28% * Net income up 12% year on year to US$ 43.7 million * 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 year on year to US$ 89.1 million * Sale of 45% stake in Metrocom for US$ 20.0 million Nikolai Tokarev, Chief Financial Officer, commented: "The first quarter saw strong growth across the board in our underlying businesses, despite being a seasonally weak period of the year. The growth was supported by the high customer demand for the unlimited tier of the tariff plans introduced by MGTS MGTS Message Generator Traffic Simulator MGTS Message Generation Test System from February, as well as the positive year on year impact of the introduction of the 'Calling Party Pays' (CPP cpp - C preprocessor. ) regime. Our broadband business also continued its growth, with the number of subscribers up 39% year on year and surpassing the 400,000 milestone shortly after the end of the quarter. We achieved the targeted level of cost savings at Comstar Moscow following the restructuring and reorganization of the business, and Comstar Moscow consequently delivered a quarter on quarter increase in OIBDA margin from 18.4%3to 28.1%3. The development of the Group's businesses since the beginning of the year has been encouraging and we have a positive outlook for the full year. "As previously indicated, we have changed our disclosure and segmental segmental /seg·men·tal/ (seg-men´t'l) 1. pertaining to or forming a segment or a product of division, especially into serially arranged or nearly equal parts. 2. undergoing segmentation. reporting structure with effect from this quarter by integrating the announcement of our key performance indicators Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. and reporting operating results, and by providing a breakdown for four, rather than two, operating business segments. The change has been made in order to reflect the new operating structure of the Group, to provide greater transparency, and to facilitate greater understanding of the key drivers of our operating performance." FINANCIAL SUMMARY [TABLE OMITTED] OPERATING REVIEW As previously announced, Comstar has introduced a new segmental reporting structure in this report in order to reflect the new operating structure of the organization, to provide greater transparency, and to facilitate greater understanding of the Group's businesses and their drivers. The previous 'Traditional' and 'Alternative' reporting segments have been replaced with commentary, key performance indicators and financial results (revenues and OIBDA) for Moscow City Telephone Network The Moscow City Telephone Network (Russian: Московская Городская Телефонная (MGTS), Comstar Moscow, Comstar Direct, and Comstar Regions & International. For the purposes of comparability, Appendix C has been included at the end of this report to provide aggregated historic results (revenues and OIBDA) for each segment for each quarter of 2006. Group Overview The Group's 32% year on year revenue growth primarily reflected the high customer demand for the unlimited tier of the tariff plans introduced by MGTS from February 2007, the positive impact of the introduction of 'Calling Party Pays' (CPP), the healthy development of the Comstar Direct broadband Internet and double-play offerings and the continuing appreciation of the Russian Ruble The ruble or rouble (Russian: рубль rublʹ, plural рубли́ rubli against the US dollar. The year on year underlying, or organic, growth rate was 30%, when excluding the US$ 3.5 million revenue contribution from businesses that were acquired after the end of the first quarter of 2006 - DG Tel and Technologic Systems in Ukraine, Cornet and Callnet in Armenia, and Astelit in Russia. With the exception of Astelit, which was acquired in June 2006, the other operations were acquired and consolidated in the fourth quarter of 2006 with the entire full year results therefore accounted for in the fourth quarter alone. Group revenues would have been up 33% year on year if the Group had continued to recognize revenues collected from customers for long distance calls, rather than account for the margin from long distance providers under the new regulations introduced in 2006. Operating costs operating costs npl → gastos mpl operacionales , excluding depreciation and amortization charges, were up 34% year on year to US$ 198.5 million in the first quarter, but were stable quarter on quarter when excluding the US$ 62.1 million non-recurring stock bonus awards in the fourth quarter of 2006. The year on year increase was driven by US$ 17.0 million cost impact of the introduction of CPP and changes in the interconnection regime at MGTS; US$ 4.2 million of costs reported in the first quarter of 2007 by companies acquired in the second and fourth quarters of 2006; US$ 13.0 million growth in salary costs in MGTS; approximately US$ 7.0 million impact on MGTS costs of Ruble appreciation against US dollar and other factors. Employee costs in the other Group operating segments were relatively stable year on year. The Group also reported US$ 1.3 million of expenses relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the stock options granted to senior management and members of the Board of Directors in November 2006, which was in line with the previous guidance level. Comstar reported a 27% year on year increase in OIBDA to US$ 130.4 million and a first quarter OIBDA margin of 40%. The Group OIBDA margin was up quarter on quarter from an underlying5 level of 33% in the fourth quarter of 2006 due to the net positive effect of the introduction of new tariffs at MGTS and the improvement in Comstar Moscow's margin. The Group's depreciation and amortization charges increased by 40% year on year to US$ 37.6 million, but were stable quarter on quarter in line with the previous guidance. This year on year increase reflected the growth in the Group's fixed and intangible asset 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. base over the past twelve months; depreciation and amortization charges for businesses acquired during 2006; the previously announced accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. of analogue equipment by MGTS; and the positive currency effect of an appreciating ruble on MGTS's growing ruble-denominated depreciation and amortisation charges. The Group reported a net interest expense of US$ 10.5 million in the first quarter, compared to a net interest income of US$ 1.6 million for the comparable period of 2006. This reflected the interest payable on the US$ 675.0 million loan arranged in December 2006, as well as the year on year reduction in the Group's cash deposits following the acquisition of the Svyazinvest stake at the end of 2006. The Group's capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. costs were negligible in the first quarter of 2006 but totaled US$ 3.7 million in the first quarter of 2007, due to the increased amount of debt outstanding during the period. The Group also reported a US$ 3.4 million foreign exchange rate gain in the first quarter, as a result of the impact of the strengthening of the ruble against the US dollar on the Group's ruble-denominated net monetary assets Net monetary assets See: Monetary assets less monetary liabilities. . As announced in the Group's full year 2006 results, the put and call option that was issued over Comstar shares owned by MGTS Finance S.A. (a subsidiary of MGTS), as part of the purchase of the Svyazinvest stake, continued to impact on the Group's financial results in the first quarter. The liability is revalued at each balance sheet date and gave rise to a US$ 13.5 million non-cash gain in the quarter. The impact on the Group's net income was however reduced to US$ 7.5 million by MGTS's 44% minority interest in the gain6. The Group also reported a US$ 3.2 million gain on the sale of its 45% equity interest in Metrocom in March 2007. Comstar sold its stake in the St. Petersburg alternative fixed-line telecommunications operator for a cash consideration of US$ 20.0 million, which compared with a cash acquisition cost of US$ 12.2 million in September 2005. The disposal was in line with Comstar's objective to have controlling stakes and management control in all of its operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. . The book value of the holding had increased since to US$ 16.8 million at the time of the disposal due to the Group's non-cash equity participation in the earnings of Metrocom. Income before tax was therefore up 24% year on year to US$ 102.4 million. The Group's effective tax rate increased year on year from 20% to 26% in the first quarter, primarily as a result of the year on year decrease in non-taxable foreign exchange gains in the US GAAP accounts, and a decrease in tax deductible foreign exchange losses in the Group's statutory accounts resulting from a decrease in cash and short-term investments outstanding during the period, as well as an increase in certain non-tax deductible expenses. Comstar UTS (Universal Timesharing System) Amdahl's version of Unix System V. Release 4.0 is POSIX compliant. has adopted the provisions of the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income Taxes - an interpretation of Statement on Financial Accounting Standard No. 109", with effect from January 1, 2007. Under FIN No. 48, the impact of an uncertain income tax position on the income tax provision must be recognized as the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxation authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The adoption of FIN No. 48 resulted in a cumulative effect adjustment to the opening balance of retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. and minority interest liability as at January 1, 2007 of approximately US$ 2.4 million and US$ 1.1 million, respectively. As at March 31, 2007, the Company's liability for unrecognized income tax benefits totaled US$ 4.4 million. The adoption of FIN No. 48 also increased the Group's income tax expense for the first quarter of 2007 by approximately US$ 0.9 million. Comstar expects to complete the comprehensive analysis of all open tax positions as required by FIN No. 48, and to estimate and record the respective adjustments, by the end of 2007 but believes that the result of such analysis will not differ materially from the analysis performed to date. Comstar reported US$ 0.6 million of income from affiliates in the quarter, as the Group continued to account for its 45% equity participation in the earnings of Metrocom up until the sale of the asset on March 14, 2007. The year on year increase in minority interests in the Groups' earnings to total an expense of US$ 32.5 million reflected the growth in MGTS's earnings, whilst the fourth quarter 2006 gain of US$ 10.4 million reflected the impact of the non-cash put and call option 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. charge reported in MGTS's accounts. Group net income increased by 12% year on year to US$ 43.7 million. Following the Group's initial public offering of shares in February 2006, the weighted average number of outstanding Comstar shares increased year on year from 303,053,916 to 358,228,356, and the Group therefore reported basic and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of US$ 0.12 in the first quarter of 2007, compared to US$ 0.13 for the same period of 2006. The management of the Group is continuing to evaluate the appropriate accounting treatment for the Group's investment in Svyazinvest. In the first quarter of 2007 the Group did not recognize any income from Svyazinvest in its 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 and carried this investment at original cost as of March 31, 2007. Moscow City Telephone Network (MGTS) MGTS is Moscow's incumbent fixed-line telecommunications operator and has over 3.6 million subscribers. Comstar owns 56% of MGTS. [TABLE OMITTED] Residential customer revenues and 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. increased by 64% year on year and 30% quarter on quarter following the high customer demand for the unlimited tier of the tariff plans introduced by MGTS from February, 2007, as well as the continuing impact of the introduction of CPP from July 2006. As at the end of the quarter, 53% of MGTS subscribers had chosen the unlimited tariff plan and signed up to an increased tariff of RUR 380 per month. Residential fixed to mobile traffic revenues increased by 4% quarter on quarter following the introduction of the new rules, and increased from US$ 12.9 million in the fourth quarter of 2006 to US$ 13.6 million in the first quarter of 2007. Although revenue from payphones declined in line with market trends, Comstar announced after the end of the quarter that it will equip 200 of MGTS's 7,000 payphones in Moscow with Wi-Fi hot spots hot spots acute moist dermatitis. by the end of 2007, and thereby enable Internet access See how to access the Internet. in public places such as airports and railway stations The following is a list of railway stations (also called train stations) that is indexed by country. :Further information: List of IATA-indexed train stations Africa Morocco
Corporate customer revenues increased by 31% year on year following a 20% increase in Access node/Trunk rental revenues. Average revenue per month per access node rented to corporate subscriber increased by 29% year on year largely as a result of increase in sales of additional services to corporate customers together with access nodes. The 15% year on year increase in corporate voice revenues reflected the introduction of CPP, whilst the quarter on quarter decline is attributable to the seasonally weaker period of the year. Corporate ARPU also increased by 23% year on year following the introduction of the new tariff structures. The number of active corporate customer lines increased year on year by 2,500 lines to a total of 762,300 lines by the end of the quarter. The year on year and quarter and quarter decline in the number of corporate subscribers primarily reflected the consolidation of various accounts into single customer account contracts to simplify billing and collection processes. The growth in 'Operator' revenues reflected the change in the interconnect regime in 2006. Long distance traffic revenues were negative in the fourth quarter of 2006 due to the new agreement with licensed long-distance operator In telephony, the long-distance operator is available to assist with making long-distance telephone calls, answering billing questions, making collect calls and other functions, including emergency assistance. 'Rostelecom' from July 2006 and the subsequent retrospective recalculation re·cal·cu·late tr.v. re·cal·cu·lat·ed, re·cal·cu·lat·ing, re·cal·cu·lates To calculate again, especially in order to eliminate errors or to incorporate additional factors or data. of related revenues for the third and fourth quarters of 2006. The retrospective recalculation reduced revenues from traffic charges due to lower tariffs, but increased revenues from Access nodes/Trunk rental. The 37% quarter on quarter increase in the volume of billable long-distance traffic also reflects the agreement with Rostelecom on the definition and applicable prices for all traffic types. This increased volume of billable traffic is expected to be maintained throughout 2007. Per minute traffic charges increased year on year due to the introduction of the compensation surcharge of 0.37 rubles payable by Rostelecom with effect from February 1, 2007. The near 40% year on year and quarter on quarter increases in OIBDA primarily reflected the high customer uptake of the new voice tariff plans. The OIBDA margin increased substantially quarter on quarter but was stable year on year, largely due to the combined effects of increasing salary levels from October 2006 and lower margin CPP revenues from July 2006. COMSTAR MOSCOW Comstar Moscow is a leading alternative telecommunications operator in Moscow and the Moscow region, offering voice and data services to nearly 40,000 residential and corporate subscribers. The Company's operations primarily comprise Comstar, MTU-Inform, Telmos, Golden Line, Contrast Telecom, Unitel, Port Telecom and Astelit. Results for the latter four operations, which are located in the Moscow region, were previously reported as part of Comstar's regional business. [TABLE OMITTED] The year on year change in revenues generated from residential customers reflected the introduction of the new long distance regulations in 2006. Under the new rules, Comstar Moscow recognized the margin on long-distance traffic as agent fees from authorized long distance providers and classified it as 'Operator' revenues in the first quarter of 2007, while Comstar Moscow recognized the full per minute charge as its own residential or corporate customer revenues in the first quarter of 2006. Revenues from residential subscribers for calls to mobile operators, under the newly introduced CPP Rule, contributed approximately US$ 0.1 million of residential voice revenues during the first quarter, whilst revenues generated from corporate subscribers for calls to mobile operators contributed approximately US$ 3.4 million of corporate voice revenues. Had the Group continued to recognize all proceeds collected from customers for long distance traffic on behalf of long distance providers as its own revenues, approximately US$ 2.9 million of commission revenue recognized in the first quarter of 2007 would have been reported as approximately US$ 5.7 million of corporate voice revenue with a corresponding US$ 2.8 million of settlement costs included in 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. . Corporate customer voice revenues would then have increased by approximately 21% year on year. CPP revenues, and the effect of fixing the currency exchange rate at 28.7 rubles per US dollar for a significant part of the subscriber base during the first quarter, contributed to the solid growth in Data & Internet and Value added Value Added The enhancement a company gives its product or service before offering the product to customers. Notes: This can either increase the products price or value. services. Corporate revenues increased by 17% quarter on quarter, which was due primarily to the increase in CPP revenues and the aforementioned fixing of the exchange rate for subscriber billings, despite the seasonality effect of the lower number of working days in the first quarter of the year. Revenue from operators decreased by 11% quarter on quarter, which was primarily due to seasonal decline in DLD/ILD traffic. ARPU for corporate subscriber increased by 18% quarter on quarter to US$ 508.9, and partially reflected the fixing of tariffs for a substantial part the subscriber base in Russian rubles at an exchange rate of 28.7 Rubles per US dollar during the first quarter of 2007. The lower year on year increase in ARPU reflected the change in DLD/ILD regulations. The February 2007 introduction of an intra-office Wi-Fi solution for corporate wireless networks was the first commercial project of its kind in Russia. The service enables Comstar-UTS corporate clients to introduce secure intra-office wireless telephony telephony without wires, usually employing electric waves of high frequency emitted from an oscillator or generator, as in wireless telegraphy. A telephone transmitter causes fluctuations in these waves, it being the fluctuations only which affect the receiver. See also: Wireless networks without the need for significant investment in new equipment. The usage rates are competitive compared to mobile tariffs and offer significant savings to users, who are charged fixed line rates for making local, zonal, intercity and international calls, while intra-office calls are free of charge. The number of active corporate lines and price levels were largely stable period on period so the increase in revenue per customer and line demonstrated the increased uptake of value added services, as well as the prevailing regulatory changes. Comstar Moscow's OIBDA was up year on year and increased quarter on quarter from 18.4%11 to 28.1%12, in line with the cost saving and workforce reduction programs implemented in 2006. COMSTAR DIRECT Comstar Direct provides broadband and dial-up internet access See dial-up. and services. Comstar Direct is 52% owned and fully consolidated by the Group, with Sistema Mass Media owning a 48% minority stake in the entity. [TABLE OMITTED] The number of residential broadband subscribers increased by 39% year on year and 11% quarter on quarter to 398,000, despite the fact that the first quarter is the seasonally weakest period of the year. Comstar Direct became the first broadband operator in Moscow to pass the 400,000 broadband subscriber mark shortly after the end of the quarter. The number of double-play subscribers also increased by 21% quarter on quarter to over 100,000, whilst the dial-up subscriber base continued to decline as Comstar successfully upsold its subscriber base to higher ARPU broadband services See broadband and broadband service provider. . A new 'Try & Buy' marketing campaign was launched after the end of the quarter, in order to accelerate upselling and customer acquisition. For US$ 8 per month, new and existing subscribers are being offered a three month trial period with a service upgrade and modem, in order to enable unlimited internet usage with a one megabit per second A megabit per second (abbreviated as Mbit/s, Mbps, or mbps) is a unit of data transfer rate equal to 1,000,000 bits per second. Because there are 8 bits in a byte, a transfer speed of 8 megabits per second (8 Mbps) is equivalent to 1,000,000 bytes broadband connection See broadband and wireless broadband. . The renaming of MTU-Intel to the integrated Comstar Direct brand was completed at the end of the quarter, with STREAM remaining the primary customer facing brand. Seven new TV channels - RUTV, Vesti, Viasat Sport Viasat Sport is the common brand of several sports channels targeting the Nordic countries and Baltic countries owned by Modern Times Group. Viasat Sport is also the name of one tv-channel in the Baltics. Its main competitors are Canal+ and Eurosport. , Bridge TV, Dom Kino kino the juice of certain plants, some tropical and some Australian eucalypts, used in medicine as an astringent. , 2x2 and TeleNanny - were added to the Comstar Direct video content offering since the beginning of 2007, in order to further strengthen the combined double-play offering. Broadband revenues from residential subscribers consequently increased by 36% year on year and 17% quarter on quarter, whilst double-play revenues increased by over five times year on year as subscribers opted for a number of Comstar Direct's value added services. 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) )12 increased by 4% quarter on quarter from US$ 19.5 to US$ 20.3, which reflected the increasing proportion of higher revenue 'double-play' subscribers as a percentage of the total broadband customer base. The OIBDA margin for the period would have been at approximately the same level as in the first and fourth quarters of 2006, were it not for a 16% quarter on quarter increase in the cost base due to the higher fees payable for the utilization of the MGTS copper cable network. COMSTAR REGIONS & INTERNATIONAL Comstar's regional and international business comprises the Group's operations in the Russian regions (Sochi and Povolgie branches, as well as Conversya, Overta and Tymenneftegazsvyaz (TNGS TNGS Training Subject )) and in the CIS (DG Tel and Technologic Systems in Ukraine, and Cornet and Callnet in Armenia, which were acquired in the fourth quarter of 2006). [TABLE OMITTED] The total number of residential subscribers increased by 8% year on year to 80,700 as a result of the acquisition of the operations in Armenia and the Ukraine, as well as the organic development of Comstar's existing regional operators. The quarter on quarter development in residential subscriber revenues reflected the fact that the Ukrainian and Armenian operations were only acquired in the fourth quarter of 2006 and their combined full year results were reported in total in the fourth quarter of 2006, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Group's accounting policy. The corporate subscriber base demonstrated strong year on year and quarter on quarter growth as a result of the acquisition of the operations in Armenia and Ukraine, as well as the organic development of regional operations, primarily at Tyumenneftegassvyaz ("TNGS") following the completion of the network 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 the subsequent launch of new marketing campaigns. The business was profitable in the first quarter with a 6.2% OIBDA margin. The margin is expected to improve as the operations are more closely integrated and new service offerings are rolled out. Comstar announced after the end of the quarter that TNGS has now launched a zonal telephony network in the Khanty-Mansy Autonomous Region of Russia. TNGS is the second operator in the region to provide zonal traffic exchange services under the newly introduced regulations, and its revenues are expected to increase by over 10% year on year in 2007 from US$ 18.2 million in 2006. Comstar's regional strategy is to develop significant operating clusters around its regional branches. The Group has already opened regional branches in Sochi and 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. and will open additional branches in St. Petersburg, Saratov and Tymen. The Group is also reviewing further targeted acquisition opportunities in priority regions across Russia. Comstar also continued its strategic plan of expanding its regional presence to address corporate and high end residential customers in priority areas by securing IP Voice and Data transmission licenses in the key regions. Victor Koresh was appointed after the end of the quarter as Vice President with responsibility for the development of the Group's existing and newly acquired regional operations. His role is focused on the integration of the businesses and driving improved profitability levels by enhancing the companies' business processes, maximizing potential synergies and leveraging the Group's increased scale and range of product offerings. Mladen Pejnovic was appointed as Vice President for International Development after the end of the quarter in order to coordinate and drive the operating performance of the businesses outside Russia. Comstar seeks management control and consolidation of each of its operations, and therefore announced the acquisition of the remaining 25% of Comstar-Ukraine from its local partner after the end of the quarter, as described later in this report. Comstar announced a public share purchase offer to TNGS ordinary and preferred shareholders after the end of the quarter. These minority shareholders own 25% of TNGS. FINANCIAL REVIEW The Group's operations generated a year on year increase in net cash flow from operations to US$ 89.1 million. Group capital expenditure increased by 51% year on year to US$ 79.6 million, which was comfortably in line with the Group's guidance for total capital expenditure of no more than US$ 350.0 million in 2007. The investments primarily comprised the ongoing digitalization 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, as well as the upgrading of information systems throughout the Group, and TV content acquisition at Comstar Direct. The Group's working capital deficit declined by 9% quarter on quarter to US$ 633.1 million. 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 increased by 57% since the year end to US$ 150.3 million, which was primarily attributable to the introduction of the new MGTS tariffs and the additional time provided for customers to familiarize themselves with the new payment structure. The level of receivables is expected to be lower moving forward. Net cash used in investing activities was substantially lower, both year on year and quarter on quarter, at US$ 66.8 million and included US$ 20.0 million of cash received from the sale of the Group's 45% equity stake in ZAO ZAO Zakrytoe Aktsionernoe Obschestvo (Russian: Closed Joint Stock Corporation) ZAO Zenith Angle Offset ZAO Aluminium Doped Zinc Oxide (material for producton of organic light-emitting diodes) Metrocom to MST See micro systems technology. in March 2007. Comstar acquired the shareholding from Antel Holdings LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control in September 2005 for a total cash consideration of US$ 12.2 million. Comstar used US$ 4.0 million of cash in its financing activities in the first quarter of 2007, and the Group's cash and cash equivalents therefore increased by US$ 18.6 million during the first quarter to US$ 155.2 million at the end of the reporting period. The quarter on quarter increase in the Group's cash balances reflected the significant increase in revenues and reduced level of capital expenditure. Total Group borrowings remained stable since the end of 2006 at US$ 839.3 million. Comstar is currently finalizing the replacement of the US$ 675 million six-month loan facility arranged by ABN Amro ABN AMRO Algemene Bank Nederland-Amsterdam Roterdam Bank (Dutch bank) and Morgan Stanley  To comply with Wikipedia's , the introduction of this article needs a complete rewrite. in December 2006 with a RUR 26 billion
(approximately US$ 1 billion) credit facility from leading Russian bank Noun 1. Russian bank - solitaire with two players using separate packscrapette patience, solitaire - a card game played by one person Sberbank, which will provide a longer term financing solution. Free cash flow, calculated as net cash provided by operations less net cash used in investing activities, was positive for the period and amounted to US$ 22.3 million in the first quarter of 2007. Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. assigned a 'BB-' long term corporate credit rating to Comstar United TeleSystems (JSC JSC Johnson Space Center (NASA) JSC Joint Stock Company JSC Java Studio Creator JSC Joint Steering Committee JSC Joint Standing Committee JSC Journal of Symbolic Computation JSC Joint Scientific Committee ) in February 2007, with a 'positive' outlook. Standard & Poors also assigned its 'ruAA' Russia national scale rating to the Group. The Group's net debt level declined quarter on quarter from US$ 706.3 million to US$ 684.0 million. The Group's debt to equity ratio The debt to equity ratio (D/E) is a financial ratio indicating the relative proportion of equity and debt used to finance a company's assets. It is equal to total debt divided by shareholders' equity. 13 was reduced quarter on quarter from 54% to 52%. The total debt to OIBDA ratio14 decreased from 2.3x as at the end of the fourth quarter of 2006 to 2.1x as at the end of the first quarter of 2007. SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD Comstar announced the appointment of Sergey Pridantsev as President and Chief Executive Officer with effect from June 13, 2007. Mr. Pridantsev is the former General Director of JSC CenterTelecom, a provider of fixed-line telecommunications services In telecommunication, the term telecommunications service has the following meanings: 1. Any service provided by a telecommunication provider. 2. in the Central Federal District of Russia. Comstar signed a 5-year ruble-denominated credit facility of RUR 26 billion (approximately US$ 1 billion) at a fixed annual interest rate of 7.6% with the Savings Bank savings bank, financial institution that, until recently, performed only the following functions: receiving savings deposits of individuals, investing them, and providing a modest return to its depositors in the form of interest. of the Russian Federation Russian Federation: see Russia. (Sberbank) on June 8, 2007. The credit line is expected to be used to finance Comstar's investment in the development of its telecommunications network A telecommunications network is a of telecommunications links and nodes arranged so that messages may be passed from one part of the network to another over multiple links and through various nodes. development and the refinancing of existing loan facilities. Comstar received a total of approximately US$ 20 million of payments from the Federal Budget in April and May 2007, in compensation for discounts provided by MGTS to certain categories of low income residential subscribers, including pensioners and military veterans, under the terms of pre-2005 legislation. These payments will be included in the Group's accounts for the second quarter of 2007. Comstar continues to expect the full year 2007 payments to total approximately US$ 36 million and for the remaining payments to be made in the third and fourth quarters of the year. Comstar announced on June 4 that it had acquired the remaining 25% minority stake in its Ukrainian subsidiary, Comstar-Ukraine, from its Ukranian partner, Neotel, for a total cash consideration of US$ 0.9 million. Following the closing of this transaction, Comstar will become the 100% owner of Comstar-Ukraine. For compliance purposes Comstar purchased a 24% stake in Comstar-Ukraine, while UTS MGTS (a 100% subsidiary of MGTS), acquired the remaining 1% stake. Comstar announced on May 31 that its subsidiary, Tyumenneftegassvyaz ("TNGS"), had launched a zonal telephone network in the Khanty-Mansy Autonomous Region of Russia. TNGS is the second operator in the region to provide traffic and transit exchange services under the newly introduced regulations. The Board of Directors of Comstar announced on May 23 that the Annual General Meeting of Shareholders will be held on June 27, 2007. The Comstar Board of Directors is recommending the payment of a dividend of RUR 62.7 million (approximately US$ 2.4 million) for the twelve month period ended December 31, 2006, to shareholders as at the record date of May 17, 2007. The proposed dividend of RUR 0.15 per ordinary share, or approximately US$ 0.006 per share or 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 , would be due to be paid within 60 days of the date of the Meeting. The Board of Directors of Moscow City Telephone Network announced on May 24 that the MGTS Annual General Meeting of Shareholders will be held on June 29, 2007. The Board is recommending the payment of a dividend for the twelve months ended December 31, 2006, of approximately RUR 1.3 billion (approximately US$ 51.5 million) to shareholders as at the record date of May 12, 2007. The dividend payment of RUR 8.75 per ordinary share (approximately US$ 0.34) and RUR 39.77 per preferred share (approximately US$ 1.54) would represent the distribution of 21% of MTGS's net income (under Russian accounting standards) of RUR 6.3 billion (approximately US$ 245.5 million) for the period. Comstar announced on May 16 that its Board of Directors had accepted the resignation of Mr. Eric Franke as President and Chief Executive Officer of the Company and released Mr. Franke from his employment contract so that he could take up a position with another business. The Board of Directors appointed Nikolay Tokarev as interim President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of the Company. Comstar announced on May 11 that Moody's Investors Service Moody's Investors Service A leading global credit rating, research and risk analysis firm. Moody's Investors Service A leading firm engaged in credit rating, risk analysis, and research of fixed-income securities and their issuers. had assigned the Company a 'Ba3' corporate credit rating with a Stable outlook. Comstar announced on April 23 that it had acquired 100% of Golden Line, which was a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Comstar Direct, for a total cash consideration of US$10.2 million. Golden Line is a provider of dedicated leased access Leased Access airtime is airtime that the Federal Communications Commission mandates must be provided by cable operators (i.e. companies like Comcast and Time Warner Cable) for use by cable programmers, i.e., those who make cable programming, who are not owned by the operators. lines to corporate clients in Moscow, using its own fiber optic network and MGTS switches. The company offers a backbone including 48 core network nodes (networking) network node - (node) An addressable device attached to a computer network. If the node is a computer it is more often called a "host". , and leases circuits to over 100 telecommunication providers and carriers. The company was established in 1993 as a joint venture between Alcatel and MGTS. Comstar announced on April 23 that it had commenced the roll-out of a network of 200 Wi-Fi hot spots at MGTS coin-operated telephone boxes in Moscow. The hot spots provide customers with access to wireless Wi-Fi connection using pre-paid cards, SMS (1) (Storage Management System) Software used to routinely back up and archive files. See HSM. (2) (Systems Management Server) Systems management software from Microsoft that runs on Windows NT Server. authorization and MGTS phone cards. The enhanced facilities are being installed at train stations, airports and hotels. Comstar announced on April 20 that it had signed an agreement with Multiregional TransitTelecom (MTT MTT 3-(4,5-Dimethylthiazol-2-Yl)-2,5-Diphenyltetrazolium Bromide MTT Machine Tool Technology MTT Microwave Theory and Techniques MTT Mobile Task Team MTT Multi-Table Tournament (poker) ), Russia's nationwide domestic long-distance and international telecommunications operator, to use Comstar's Wi-Fi network See wireless Ethernet and 802.11. to provide WLAN See wireless LAN. WLAN - wireless local area network roaming wireless access for MTT's Russian and international mobile operator and Wi-Fi provider partners. The service will be available from the third quarter of 2007. Comstar subscribers will also be able to use Wi-Fi services provided by network operators with whom MTT has roaming agreements. Comstar announced on April 19 that it had been awarded 10 licenses to provide data transmission in the Krasnoyarsk, Krasnodar and Khabarovsk territories Khabarovsk Territory, administrative division (1989 est. pop. 1,800,000), 305,000 sq mi (789,950 sq km), Russian Far East. Situated in the eastern and northeastern extremity of Siberia, the territory is bounded by the Sea of Okhotsk in the east, the Maritime , and the Volgograd, Vladimir, Irkutsk, Leningrad, Tver, Saratov and Ulyanovsk regions. Comstar has now received 18 licenses for data transmission and 20 licenses for IP Voice Data transmission in the first four months of 2007, covering almost 40 key regions in Russia. Comstar announced on April 16 that Comstar Direct, the leading provider of 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 in Moscow under the "STREAM" brand, had become the first operator to reach the milestone of 400,000 subscribers and had increased its subscriber base by 11% since the end of 2006. The Extraordinary General Meeting of shareholders of Telecommunication Investment Joint Stock Company (Svyazinvest), which was held on April 5, elected Sergei Shchebetov (Chairman of the Comstar Board of Directors) and Anton Abugov (First Vice President and Head of Strategy and Development at Sistema) to the Svyazinvest Board of Directors. The appointments followed COMSTAR's acquisition of a 25% stake plus one share in Svyazinvest in December 2006. OTHER INFORMATION Annual General Meeting of Shareholders The 2007 Comstar Annual General Meeting of shareholders will be held on June 27, 2007 at 10.00 at 12 Petrovsky Boulevard Petrovsky Boulevard, (russian: Петровский Бульвар), is a major boulevard in Moscow. , Bldg. 3, Moscow. Further details about the meeting can be found in the Notice, which is available in the Investors / Corporate Governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. section of Comstar's corporate website - www.comstar-uts.com. Conference call Comstar management 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 the following numbers in order to access the call: UK / International: +44 20 7806 1951 US: +1 718 354 1385 A replay facility will also be made available for 7 days after the call and may be accessed by dialing the following numbers and using the '549497#' pin code: UK / International: +44 20 7806 1970 US: +1 718 354 1112 For further information, please visit www.comstar-uts.com Comstar UTS is the leading combined telecommunications operator in Moscow and the Moscow region, both in terms of revenues and subscribers. Comstar UTS provides voice, data, Internet, pay-TV and other value-added services 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 unique last mile access to 98% of Moscow households. The Company also offers communications services in several Russian regions, CIS and Eastern European countries. Comstar had 3.6 million MGTS subscribers, almost 40,000 Comstar Moscow subscribers, nearly 500,000 Comstar Direct Internet subscribers, and over 90,000 regional and international subscribers, as at March 31, 2007. Comstar UTS reported increased operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. of US$ 329 million and consolidated assets of US$ 3.67 billion for the three months ended March 31, 2007 . Comstar securities are listed under the symbol "CMST" on the Moscow Stock Exchange and 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 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. Attachment A NON-GAAP FINANCIAL MEASURES 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 amortization, 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 amortization 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 before non-comparable items [TABLE OMITTED] Reconciliation of Operating Profit before non-comparable items [TABLE OMITTED] Reconciliation of Net Income before non-comparable items [TABLE OMITTED] Reconciliation of Operating Cash Flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. before non-comparable items [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, 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 "COMSTAR - United TeleSystems" OJSC UNAUDITED CONSOLIDATED INCOME STATEMENTS consolidated income statement An income statement that combines the income statements of two or more organizations. As with other consolidated statements, a consolidated income statement eliminates any funds owed to or due from firms within the same group. [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. "COMSTAR - United TeleSystems" OJSC UNAUDITED CONSOLIDATED BALANCE SHEETS consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. [TABLE OMITTED] "COMSTAR - United TeleSystems" OJSC UNAUDITED CONSOLIDATED BALANCE SHEETS (continued) [TABLE OMITTED] "COMSTAR - United TeleSystems" OJSC UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS [TABLE OMITTED] (*) Certain prior year amounts have been reclassified to conform to the 2007 presentation. "COMSTAR - United TeleSystems" OJSC UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) [TABLE OMITTED] (*) Certain prior year amounts have been reclassified to conform to the 2007 presentation. Attachment C SUMMARIZED QUARTERLY SEGMENTAL INFORMATION Revenue [TABLE OMITTED] OIBDA [TABLE OMITTED] 1 OIBDA is defined as operating income before depreciation and amortization. Please see Attachment A to this statement for a full definition of OIBDA and a reconciliation of reported OIBDA and OIBDA before non-recurring items to operating income. 2 Excl. corporate costs (net of non-recurring stock bonus) of US$ 2.7 million for the fourth quarter of 2006 and US$ 5.7 million for the first quarter of 2007. 3 Excluding corporate costs (net of non-recurring stock bonus) of US$ 2.7 million for the fourth quarter of 2006 and US$ 5.7 million for the first quarter of 2007 4 Please see Attachment A to this statement for a reconciliation of OIBDA, Operating and Net Income and Cash Flow from Operations before non-recurring items, and a full definition of CAPEX. 5 Excluding US$ 62.1 million impact of stock bonus awards. See Attachment A for a reconciliation of OIBDA before non-comparable items (or underlying OIBDA). 6 See Attachment A for reconciliation of net income before non-comparable items. 7 Excluding US$ 25.8 million of compensation received from the Federal Budget in the second and third quarters of 2006 8 Primarily to Comstar Direct 9 DLD/ILD minutes in Q1 2006 and FY 2006 include zonal traffic, which were free of charge for subscribers before the introduction of the CPP Rule from July 1, 2006 10 Excluding corporate costs (net of non-recurring stock bonus award costs) of US$ 2.7 million for the fourth quarter of 2006 and US$ 5.7 million for the first quarter of 2007 11 Excluding corporate costs (net of non-recurring stock bonus award costs) of US$ 2.7 million for the fourth quarter of 2006 and US$ 5.7 million for the first quarter of 2007 12 Please see Attachment A to this statement for a full definition of ARPL. 13 Calculated as total debt (including long-term and short-term borrowings and capital lease obligations) divided by total equity. 14 Calculated as total debt, as at the balance sheet date, divided by OIBDA for the twelve months preceding the balance sheet date 15 Excluding stock bonus of US$ 62.1 million. |
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