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VimpelCom announces second quarter and six month 2003 financial and operating results


$9.0 million net income in the regions for second quarter of 2003

  • 76% year-on -year increase in net operating revenues
  • 95% year-on-year increase in EBITDA
  • 140% year-on-year increase in net income
  • approximately 8.5 million subscribers as of today

 

Moscow and New York (August 28, 2003) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced its financial and operating results for the quarter ended June 30, 2003. VimpelCom reported continued subscriber growth and an increase in net operating revenues, EBITDA and net income. For the quarter ended June 30, 2003, VimpelCom reported net operating revenues of $304.4 million, a 75.6% increase from $173.4 million reported for the same period in 2002; EBITDA of $139.9 million, a 95.0% increase from $71.8 million reported for the same period in 2002; and net income of $52.6 million, an increase of 139.9% from $21.9 million reported for the same period in 2002. The Company's EBITDA margin for the second quarter of 2003 was approximately 46.0% compared to approximately 41.4% for the same period in 2002.

Total operating revenues, excluding inter-company transactions, for the Moscow license area and the regions in the second quarter of 2003 were $216.72 million and $87.72 million, respectively. Net income for the Moscow license area and the regions in the second quarter of 2003 was $47.08 million and $9.03 million, respectively.

As of June 30, 2003, there were approximately 7.43 million subscribers on wireless networks operated by VimpelCom and its subsidiaries, an increase of approximately 126.9% compared to June 30, 2002, including approximately 4.43 million subscribers in the Moscow license area and approximately 3.00 million subscribers in the regions. As of today, there are approximately 8.54 million subscribers on wireless networks operated by VimpelCom and its subsidiaries, with approximately 4.84 million subscribers in the Moscow license area and approximately 3.70 million subscribers in the regions.

Based on independent sources, VimpelCom estimates that its market share in the Moscow license area was 48.8% as of June 30, 2003, compared to 52.0% as of June 30, 2002 and that its overall market share in Russia was 30.0% as of June 30, 2003, compared to 26.1% as of June 30, 2002.

Commenting on today's announcement, Jo Lunder, Chief Executive Officer of VimpelCom, said, "Our second quarter results reflect continued strong financial performance as a result of revenue growth and strict cost control. We are particularly pleased with our successful regional expansion, which has resulted in further improvement at the net income level. It is now evident that the regions are growing faster than Moscow, and that we are well positioned to capture this growth opportunity. The Company is entering a new phase with our Moscow and regional branches being equally important parts of our business performance."

 

Key Financial and Operating Indicators

 

  Three months ended Six months ended
June
30, 2003
June
30, 2002
Change
(%)
June
30, 2003
June
30, 2002
Change
(%)
Net operating revenues ($,000) 304,440 173,381 75.6% 548,877 318,441 72.4%
EBITDA ($,000) (1) 139,929 71,757 95.0% 247,865 135,027 83.6%
EBITDA margin (2) 46.0% 41.4% - 45.2% 42.4% -
Gross margin ($,000) (3) 249,022 139,045 79.1% 445,592 256,936 73.4%
Gross margin percentage (4) 81.8% 80.2% - 81.2% 80.7% -
Net income ($,000) 52,647 21,941 139.9% 94,034 49,987 88.1%
ARPU ($) (5) 14.3 18.9 -24.3% 13.9 19.1 -27.2%
MOU (minutes) (6) 93.8 94.7 -1.0% 88.2 91.3 -3.4%
SAC ($) (7) 21.1 31.3 -32.6% 21.0 30.9 -32.0%

 

Notes:

  1. EBITDA is a non-U.S. GAAP financial measure. EBITDA, which represents operating income before depreciation and amortization, should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP. We believe that EBITDA is viewed as a relevant supplemental measure of performance in the wireless telecommunications industry. The performance that EBITDA measures does not include our need to replace our capital equipment over time. Reconciliation of EBITDA to operating income, the most directly comparable U.S. GAAP financial measure, is presented below in the tables' section.
  2. EBITDA margin is EBITDA expressed as a percentage of net operating revenues. Reconciliation of EBITDA margin to operating income as percentage of net revenues, the most directly comparable U.S. GAAP financial measures, is presented below in the tables' section.
  3. Gross margin is defined as net operating revenues less selected operating costs (specifically, service costs, cost of handsets and accessories sold and cost of other revenues).
  4. Gross margin percentage is gross margin expressed as a percentage of net operating revenues.
  5. ARPU (Monthly Average Revenue per User) is calculated for each month in the relevant period by dividing the Company's service revenue during that month, including roaming revenue, but excluding revenue from connection fees and sales of handsets and accessories, by the average number of the Company's subscribers during the month.
  6. MOU (Monthly Average Minutes of Use per User) is calculated for each month of the relevant period by dividing the total number of billable minutes of usage for incoming and outgoing calls during that month (excluding guest roamers) by the average number of subscribers during the month.
  7. SAC (Average Acquisition Cost Per User) is calculated as dealer commissions, advertising expenses and handset subsidies for the relevant period divided by the number of gross sales during the relevant period.

Selling, general and administrative ("SG&A") expenses were $106.7 million in the second quarter of 2003, an increase of 67.3% compared to $63.8 million in the same period of 2002. In the second quarter of 2003, SG&A expenses as a percentage of net operating revenues were 35.1% compared to 36.8% in the same period of 2002. The Company's average acquisition cost per subscriber (SAC) for the second quarter of 2003 was $21.1 compared to $31.3 in the same period of 2002. The decrease in SAC was primarily attributable to the increase in regional sales as a percentage of total sales, as SAC is lower in the regions due to the relatively lower dealer commissions and larger proportion of sales through the Company's own offices.

In the second quarter of 2003, the Company recorded a $2.4 million provision for doubtful accounts receivable, representing 0.8% of net operating revenues for this period, compared to $3.5 million in the same period in 2002, representing 2.0 % of net operating revenues for that period. This decrease was largely the result of improved risk management and cash collection procedures as well as the increased proportion of prepaid subscribers.

VimpelCom's capital expenditures in the second quarter of 2003 were approximately $174.2 million, primarily for the purchase of property and equipment. Capital expenditures for the Moscow license area in the second quarter of 2003 were approximately $47.9 million.

MOU decreased slightly in the second quarter of 2003 to 93.8 minutes, compared to 94.7 minutes in the second quarter of 2002. However, primarily due to seasonal factors, MOU increased by 15.1% in the second quarter of 2003 compared to the first quarter of 2003. ARPU decreased in the second quarter of 2003 by approximately 24.3% to $14.30, compared to $18.90 in the second quarter of 2002, due to a reduction in tariffs as a result of increased competition and the growing proportion of regional subscribers (who generate lower ARPU than Moscow subscribers). However, seasonal factors caused ARPU to increase by 5.8% compared to the first quarter of 2003.

 

Key Subscriber Statistics

 

  As of
June 30, 2003
As of
June 30, 2002
Change,
Y-on-Y
(%)
As of
March 31, 2003
Change
Q-on-Q
(%)
Moscow license area 4,428,800 2,845,300 55.7% 3,945,600 12.2%
Contract 763,200 701,700 8.8% 732,000 4.3%
Prepaid 3,665,600 2,143,600 71.0% 3,213,600 14.1%
Regions 3,004,800 430,900 597.3% 2,242,400 34.0%
Total Number of Subscribers 7,433,600 3,276,200 126.9% 6,188,000 20.1%
 
Churn (quarterly) 10.5% 6.9% - 9.6% -

 

The Company’s regional subscribers increased approximately seven-fold between June 30, 2002 and June 30, 2003 to reach the figure of 3 million subscribers, including growth of 34% in the second quarter of 2003. The second quarter of 2003 was also marked by an increase in the number of VimpelCom’s prepaid subscribers in the Moscow license area as a percentage of its total subscribers in the Moscow license area, from approximately 81.4% at the end of the first quarter of 2003 to 82.8% at the end of the second quarter of 2003. The number of VimpelCom’s GSM subscribers in the Moscow license area as a percentage of its total subscribers in the Moscow license area increased to 96.8% at the end of the second quarter of 2003, compared to 92.7% at the end of the second quarter of 2002.

The Company's quarterly churn rate in the second quarter of 2003 was 10.5%, compared to 6.9% for the same period in 2002. The increase in churn was primarily the result of high subscriber growth rates in previous periods, particularly in the low-end user segment, as well as internal migration, which is technically regarded as churn, and increased competition.

The Company's management will discuss its second quarter 2003 results on a conference call on August 28, 2003 at 6:30 pm Moscow time (10:30 am EDT in New York). The call may be accessed via webcast at the following URL address http://www.vimpelcom.com. The conference call replay and the webcast will be available through September 5, 2003 and September 29, 2003, respectively. A Company presentation will be posted on VimpelCom's website http://www.vimpelcom.com.

VimpelCom is a leading provider of telecommunications services in Russia, operating under the "Bee Line" brand, which is one of the most recognized brand names in Russia. The VimpelCom Group's license portfolio covers approximately 92% of Russia's population (134 million people), including the City of Moscow, the Moscow Region and the City of St. Petersburg. VimpelCom was the first Russian company to list its shares on The New York Stock Exchange ("NYSE"). VimpelCom's ADSs are listed on the NYSE under the symbol "VIP". VimpelCom's convertible notes are listed on the NYSE under the symbol "VIP 05".

 

This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements relate to the Company's development plans. These and other forward-looking statements are based on management's best assessment of the Company's strategic and financial position and of future market conditions and trends. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of unforeseen developments from competition, governmental regulation of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia, the Company's ability to continue to grow its overall subscriber base, continued volatility in the world economy and other factors. As a result of such risks and uncertainties, there can be no assurance that the effects of competition or current or future changes in the political, economic and social environment or current or future regulation of the Russian telecommunications industry will not have a material adverse effect on the VimpelCom Group. Certain factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risks described in the Company's Annual Report on Form 20-F for the year ended December 31, 2002 and other public filings made by the Company with the United States Securities and Exchange Commission, which risk factors are incorporated herein by reference. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.

 

For more information, please contact:

Valery Goldin
VimpelCom (Moscow)
Tel: 7(095) 974-5888
vgoldin@vimpelcom.com

Christopher Mittendorf
Edelman Financial Worldwide
Tel: 1(212) 704-8134
christopher.mittendorf@edelman.com

 

- Tables attached -

Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Statements of Income

 

  Three months ended
June 30,
Six months ended
June 30,
2003 2002 2003 2002
(In thousands of US dollars , except per share (ADS) amounts)
Operating revenues:  
  Service revenues and connection fees US$290,426 US$164,328 US$520,525 US$299,081
Sales of handsets and accessories 12,956 11,372 26,382 23,268
Other revenues 1,058 393 1,970 794
Total operating revenues 304,440 176,093 548,877 323,143
  Less revenue based taxes - (2,712) - (4,702)
Net operating revenues 304,440 173,381 548,877 318,441
 
Operating expenses:  
  Service costs 42,774 24,048 79,934 44,125
Cost of handsets and accessories sold 12,641 10,272 23,345 17,348
Cost of other revenues 3 16 6 32
Selling, general and administrative expenses 106,721 63,809 192,031 113,763
Depreciation and amortization 42,652 21,881 81,702 40,831
Provision for doubtful accounts 2,372 3,479 5,696 8,146
Total operating expenses 207,163 123,505 382,714 224,245
 
Operating income 97,277 49,876 166,163 94,196
 
Other income and expenses:  
  Interest income 2,278 1,835 4,276 3,046
Gain on trading in securities 17 6 17 58
Interest expense (17,961) (11,998) (33,997) (18,606)
Net foreign exchange (loss) gain (1,286) (9,460) 41 (9,881)
Other (expenses) income (877) 1,205 (735) 1,113
Total other income and expenses (17,829) (18,412) (30,398) (24,270)
 
Income before income taxes and minority interest 79,448 31,464 135,765 69,926
 
Income taxes expense 23,129 9,523 38,041 19,949
Minority interest in net earnings (losses) of subsidiaries 3,672 - 3,690 (10)
 
Net income US$52,647 US$ 21,941 US$94,034 US$49,987
 
Net income per common share US$1.38 US$0.58 US$2.47 US$1.32
Net income per ADS equivalent US$1.04 US$ 0.44 US$1.85 US$ 0.99
Weighted average common shares outstanding (thousands) 38,079 38,006 38,076 38,004
 

 

Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Balance Sheet
 
  June 30,
2003
December 31,
2002
(In thousand US dollars)
Assets  
Current assets:
  Cash and cash equivalents US$188,490 US$263,657
Trade accounts receivable 81,658 75,399
Other current assets 214,914 149,309
Total current assets 485,062 488,365
 
Non-current assets:
  Property and equipment, net 1,214,996 957,602
Intangible assets, net 56,682 55,730
 
Telecommunication licenses and allocation of frequencies, net 109,244 88,385
Other assets 111,381 102,662
Total non-current assets 1,492,303 1,204,379
 
Total assets US$1,977,365 US$1,692,744
 
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable US$82,131 US$80,241
Due to related parties 3,550 4,114
Customer deposits and advances 124,857 106,655
Other advances 8,250 -
Deferred revenue 1,373 2,016
Ruble denominated bonds payable 98,852 -
Bank loans, current portion 43,630 37,780
Capital lease obligation, current portion 3,966 3,868
Equipment financing obligations, current portion 122,483 134,617
Accrued liabilities 89,592 49,492
Total current liabilities 578,684 418,783
 
Deferred income taxes 44,056 35,227
Bank loans, less current portion 330,789 306,080
Capital lease obligation, less current portion 153 899
Accrued liabilities, non-current portion 1,792 3,265
5.5% Senior convertible notes due July 2005 88,584 85,911
Equipment financing obligations, less current portion 67,440 81,425
 
Minority Interest 105,867 98,491
 
Shareholders' equity 760,000 662,663
 
Total liabilities and shareholders' equity US$1,977,365 US$1,692,744
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
  Six months ended
June 30,
2003 2002
(In thousands of US dollars)
Net cash provided by operating activities US$196,614 US$91,200
 
Proceeds from bank and other loans 121,732 251,286
Proceeds from issuance of ruble denominated bonds 97,119 -
 
Payments of fees in respect of debt issue (1,815) (6,203)
Repayment of bank and other loans (57,545) (1,037)
 
Repayment of equipment financing obligations (149,384) (16,290)
Repayment of capital lease obligations (661) (943)
Net cash provided by financing activities 9,446 226,813
 
Purchase of property and equipment (230,004) (86,812)
Proceeds from sale of property and equipment 8,250 -
Purchase of StavTeleSot stock, net of cash acquired of US$658 (38,143) -
Purchase of intangible assets (12,387) (3,987)
Purchase of other assets (14,420) (14,383)
Net cash used in investing activities (286,704) (105,182)
 
Effect of exchange rate changes on cash 5,477 2,124
 
Net (decrease) increase in cash (75,167) 214,955
Cash and cash equivalents at beginning of period 263,657 144,172
 
Cash and cash equivalents at end of period US$188,490 US$359,127
 
Supplemental cash flow information
 
Non-cash activities:
  Equipment acquired under financing agreements US$68,053 US$63,511
Accounts payable for equipment and other long-lived assets 25,587 25,468
Accrued debt and equity offering costs 249 -
Operating activities financed by sale of treasury stock 1,777 729
Acquisitions:
  Fair value of assets acquired 66,634 -
Difference between the amount paid and the fair value of net assets acquired (4,699) -
Cash paid for the capital stock (38,801) -
  Liabilities assumed US$23,134 US$-

Reconciliation of EBITDA to operating income
(In thousands of US dollars)

  Three months ended
June 30, 2003 March 31, 2003 June 30, 2002
EBITDA US$139,929 US$107,936 US$71,757
Less: Depreciation (33,914) (31,678) (19,097)
Less: Amortization (8,738) (7,372) (2,784)
Operating income US$97,277 US$68,886 US$49,876

Reconciliation of EBITDA margin to operating income as percentage of net operating revenues

  Three months ended
June 30, 2003 March 31, 2003 June 30, 2002
EBITDA margin 46.0% 44.2% 41.4%
Less: Depreciation as percentage of net operating revenues (11.1%) (13.0%) (11.0%)
Less: Amortization as percentage of net operating revenues (2.9%) (3.0%) (1.6%)
Operating income as percentage of net operating revenues 32.0% 28.2% 28.8%

Reconciliation of EBITDA to operating income
(In thousands of US dollars)

  Six months ended
June 30, 2003 June 30, 2002
EBITDA US$247,865 US$135,027
Less: Depreciation (65,592) (35,343)
Less: Amortization (16,110) (5,488)
Operating income US$166,163 US$94,196

Reconciliation of EBITDA margin to operating income as percentage of net operating revenues

  Six months ended
June 30, 2003 June 30, 2002
EBITDA margin 45.2% 42.4%
Less: Depreciation as percentage of net operating revenues (12.0%) (11.1%)
Less: Amortization as percentage of net operating revenues (2.9%) (1.7%)
Operating income as percentage of net operating revenues 30.3% 29.6%
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