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VimpelCom Announces Third Quarter and Nine Month 2007 Financial and Operating Results
MOSCOW and NEW YORK, Nov. 29 /PRNewswire-FirstCall/ -- Open Joint Stock
Company "Vimpel-Communications" ("VimpelCom" or the "Company") ( VIP),
a leading provider of wireless telecommunications services in Russia and
the Commonwealth of Independent States (CIS) today announced its financial
and operating results for the quarter and nine months ended September 30,
2007.
Financial and Operating Highlights
-- Net operating revenues reached a record high $1,955.9 million in the
third quarter, a year-on-year increase of 43.9% and a quarter-on-
quarter increase of 13.9%.
-- OIBDA reached a record high $1,015.2 million, a year-on-year increase
of 41.4% and a quarter-on-quarter increase of 13.2%.
-- OIBDA margin was 51.9%, including 52.7% in Russia and 52.7% in
Kazakhstan.
-- Net income totaled a record high $458.0 million, a year-on-year
increase of 70.7%.
-- Operating cash flow reached a record high $856.5 million, a year-on-
year increase of 34.1%.
-- MOU and ARPU grew sequentially, including 8.9% ARPU growth in Russia
Commenting on today's announcement, Alexander Izosimov, Chief Executive
Officer of VimpelCom, said, "It was another strong quarter for VimpelCom.
The Company achieved all-time records in key financial parameters: revenue,
OIBDA, net income and operating cash flow.
"We are pleased with our progress in Russia and in the CIS countries,
particularly in Ukraine and Uzbekistan. On the back of strong revenue
growth, OIBDA of our Ukrainian business moved into positive territory,
confirming our ability to build a profitable business in that country. In
Uzbekistan, we built our market share, while improving margins.
"We believe that the increasing usage in Russia and expanding
subscriber base in the CIS countries will continue to keep our business
growing robustly."
Changes in definitions and reported data
Beginning with the Company's 1Q2007 earnings press release, the number
of subscribers, ARPU and MOU are reported on the basis of active
subscribers. For convenience, we continue to report the registered
subscriber base and the related figures for comparable periods (see
Attachment A for relevant definitions and refer to Attachment D for
relevant data).
We continue to tighten our reported churn policy in order to decrease
license costs associated with keeping registered subscribers in the base.
For example, in Russia and Kazakhstan during the second and third quarters
of 2007 we decreased the period for the disconnection of inactive pre-paid
subscribers with a positive balance from twelve months to ten months and in
Ukraine -- from twelve months to six months. These changes decrease the
number of registered subscribers and affect our reported market share, but
have no impact on our active subscriber base.
In the future, our intention is to switch the subscriber churn policy
from reporting on the basis of registered subscribers to reporting on the
basis of active subscribers. We also intend to discontinue providing the
number of registered subscribers, as it has become operationally
irrelevant.
All the definitions in Attachment A refer to mobile subscribers. With
the acquisition of Armentel, the Company also has fixed-line subscribers
which are treated separately.
Attachments A, B, C and D present respectively
-- definitions for certain terms used in this press release,
-- the condensed consolidated financial statements of VimpelCom,
-- tables with relevant reconciliations of non-U.S. GAAP financial
measures to their most directly comparable U.S. GAAP financial
measures, and
-- certain additional reference data relating to the registered subscriber
base.
Key Consolidated Financial and Operating Results
Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Active subscribers 50,685,787 42,643,900 18.9% 47,701,300 6.3%
Fixed line
subscribers 616,175 N/A 610,300 1.0%
Net operating
revenues
(US$, 000) 1,955,938 1,358,853 43.9% 1,717,167 13.9%
OIBDA (US$, 000) 1,015,158 717,796 41.4% 896,758 13.2%
OIBDA margin 51.9% 52.8% 52.2%
Gross margin
(US$, 000) 1,589,625 1,109,219 43.3% 1,402,665 13.3%
Gross margin
percentage 81.3% 81.6% 81.7%
SG&A (US$, 000) 556,518 387,236 43.7% 494,445 12.6%
SG&A percentage 28.5% 28.5% 28.8%
Net income
(US$, 000) 458,050 268,370 70.7% 359,273 27.5%
Net income per
share (US$) 9.02 5.28 7.07
Net income per ADS
(US$)*) 0.45 0.26 0.35
*) Number of ADSs for the purposes of this calculation is based on the new
ratio of 20 ADSs per one ordinary share, which came into effect on
August 21, 2007.
In the third quarter of 2007, VimpelCom invested $338.8 million for the
purchase of long-lived assets. Additionally, the Company paid $232.7
million (net of cash of $2.8 million) for the acquisition of Severnaya
Korona, a mobile operator in the Irkutsk region of Russia.
Consolidated figures represent the combined effect of the Company's
operations in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and
Armenia.
Three months
RUSSIA 3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Net operating
revenues*)
(US$, 000) 1,652,266 1,228,062 34.5% 1,459,014 13.2%
including
interconnect
revenue 224,402 133,455 68.1% 203,348 10.4%
OIBDA (US$, 000) 871,163 666,354 30.7% 779,828 11.7%
OIBDA margin 52.7% 54.2% 53.4%
Gross margin
(US$, 000) 1,363,407 1,016,335 34.1% 1,208,626 12.8%
Gross margin
percentage 82.5% 82.7% 82.8%
SG&A (US$, 000) 477,277 346,157 37.9% 418,738 14.0%
SG&A percentage 28.9% 28.2% 28.7%
Net income (US$, 000) 422,580 279,958 50.9% 355,665 18.8%
ARPU, (US$) 13.4 10.6 26.4% 12.3 8.9%
MOU, (min) 208.9 151.9 37.5% 192.6 8.5%
SAC (US$) 24.8 18.3 35.5% 22.8 8.8%
Active subscribers 41,801,545 38,790,400 7.8% 40,139,600 4.1%
Churn 10.1% 9.9% 7.6%
Subscriber market
share**) 30.4% 32.4% 30.9%
*) Net operating revenues here exclude inter-company transactions (US$696
thousand in 3Q 2007, US$658 thousand in 3Q 2006, US$1,029 thousand in
2Q 2007).
**) Subscriber market share data presented here and in the following
country tables are published by AC&M-Consulting and are generally
based on registered subscribers.
In Russia, our continued efforts to deliver growth through active
marketing led to 34.5% year-on-year revenue increase. Our marketing efforts
have also resulted in further building our brand recognition. Notably,
international consulting company Interbrand Zintzmeyer & Lux valued
VimpelCom's "Beeline" brand at US$7.2 billion, naming it the most valuable
Russian brand for the third year in a row.
In the third quarter of 2007, our ARPU continued to expand, reaching
US$13.4, up 26.4% year-on-year and 8.9% quarter-on-quarter. This growth was
driven by an 8.5% quarter-on-quarter increase in usage with stable pricing.
The high volatility of VimpelCom's share price in the third quarter of
2007 increased our stock option accrual by $16.6 million as compared with the
second quarter. This non-cash factor more than explains the quarter-on-quarter
drop in the OIBDA margin.
Three months
KAZAKHSTAN 3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Net operating
revenues*)
(US$, 000) 166,262 103,497 60.6% 148,622 11.9%
including
interconnect
revenue 28,494 23,975 18.8% 26,487 7.6%
OIBDA (US$, 000) 88,127 49,023 79.8% 80,317 9.7%
OIBDA margin 52.7% 47.0% 53.7%
Gross margin
(US$, 000) 122,084 71,929 69.7% 111,960 9.0%
Gross margin
percentage 73.1% 69.0% 75.0%
SG&A (US$, 000) 32,650 22,508 45.1% 31,723 2.9%
SG&A percentage 19.5% 21.6% 21.2%
Net income**)
(US$, 000) 21,653 -567 16,381 32.2%
ARPU, (US$) 13.6 14.4 -5.6% 13.6 0.0%
MOU, (min) 112.7 87.5 28.8% 88.8 26.9%
SAC (US$) 10.0 8.5 17.6% 10.9 -8.3%
Active subscribers 4,343,073 2,596,300 67.3% 3,857,600 12.6%
Churn 5.9% 11.5% 6.3%
Subscriber market
share 47.3% 46.7% 49.3%
*) Net operating revenues exclude inter-company transactions (US$860
thousand in 3Q 2007, US$711 thousand in 3Q 2006, US$704 thousand in 2Q
2007).
**) After minority interest.
In the third quarter we continued to rapidly build our business in
Kazakhstan. The number of our active subscribers increased by 67.3%
year-on- year and 12.6% quarter-on-quarter. This growth came on the back of
intensive summer promotional activities, which also led to an exceptionally
strong 26.9% increase in MOU and a temporary decline in average price per
minute.
Subscriber growth, coupled with resilient quarter-on-quarter ARPU,
drove revenue gains of 60.6% year-on-year and 11.9% quarter-on-quarter.
Temporary promotional activities together with seasonal growth in roaming
put pressure on our gross margin.
As the market approaches saturation, and as competition intensifies, we
believe it is the right time to begin shifting our efforts towards the
quality of the subscriber base and revenue market share.
Three months
UKRAINE 3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Net operating
revenues*)
(US$, 000) 36,271 11,542 214.3% 22,741 59.5%
including
interconnect
revenue 10,861 3,648 197.7% 7,630 42.3%
OIBDA (US$, 000) 6,455 -6,072 -3,073
OIBDA margin 17.5% N/A N/A
Gross margin
(US$, 000) 23,314 7,335 217.8% 13,487 72.9%
Gross margin
percentage 63.0% 59.4% 56.7%
SG&A (US$, 000) 16,465 13,466 22.3% 16,527 -0.4%
SG&A percentage 44.5% 109.0% 69.5%
Net income
(US$, 000) -6,443 -12,974 -17,234
ARPU, (US$) 5.8 6.7 -13.4% 4.2 38.1%
MOU, (min) 168.2 168.4 -0.1% 159.9 5.2%
SAC (US$) 5.5 12.3 -55.3% 9.3 -40.9%
Active subscribers 2,212,250 766,100 188.8% 1,821,800 21.4%
Churn 25.5% 0.8% 7.0%
Subscriber market
share 5.1% 2.4% 5.2%
*) Net operating revenues exclude inter-company transactions (US$708
thousand in 3Q 2007, US$810 thousand in 3Q 2006, US$1040 thousand in
2Q 2007).
Our Ukrainian operations demonstrated very good performance with 188.8%
year-on-year and 21.4% quarter-on-quarter growth in active subscribers.
Implemented price increases, coupled with seasonally high guest roaming,
allowed us to increase our ARPU by 38.1% on a quarter-on-quarter basis
despite a continued aggressive pricing environment.
As a result of subscriber and ARPU growth we managed to achieve an
impressive 59.5% quarter-on-quarter revenue growth. We would note, however,
that seasonal effects on revenue are more pronounced in Ukraine than in our
other markets, because of the impact of roamers and short-term seasonal
users.
While revenue was up, our sales, general and administrative expenses
remained flat quarter-on-quarter, enabling us to become OIBDA-positive in
the third quarter, essentially in line with our earlier projections.
Our high level of churn reported in the third quarter was driven by our
efforts to increase tariffs, continued tightening of our churn policy and
expected seasonal churn of subscribers acquired during the last New Year's
promotion campaign.
Our focus in Ukraine remains on increasing our subscriber base, paying
particular attention to the profitability of the business.
Three months
UZBEKISTAN 3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Net operating
revenues*)
(US$, 000) 29,913 15,675 90.8% 23,126 29.3%
OIBDA (US$, 000) 16,923 9,532 77.5% 11,388 48.6%
OIBDA margin 56.1% 60.5% 49.1%
Gross margin
(US$, 000) 25,794 14,018 84.0% 19,967 29.2%
Gross margin
percentage 85.6% 89.0% 85.9%
SG&A (US$, 000) 8,668 4,462 94.3% 8,355 3.7%
SG&A percentage 28.7% 28.3% 36.0%
Net income
(US$, 000) 6,879 3,229 113.0% 4,253 61.7%
ARPU, (US$) 7.6 11.8 -35.6% 7.2 5.6%
MOU, (min) 289.8 304.8 -4.9% 265.6 9.1%
SAC (US$) 4.4 8.6 -48.8% 4.4 0.0%
Active subscribers 1,586,890 484,200 227.7% 1,192,400 33.1%
Churn 14.2% 6.7% 28.7%
Subscriber market
share 35.6% 25.0% 32.7%
*) Net operating revenues exclude inter-company transactions (US$237
thousand in 3Q 2007, US$79 thousand in 3Q 2006, US$108 thousand in 2Q
2007).
Uzbekistan demonstrated steady growth in subscribers over the last four
quarters, with our active subscriber base growing 227.7% year-on-year and
33.1% quarter-on-quarter. This growth, coupled with a 5.6% increase in
ARPU, led to a healthy 29.3% quarter-on-quarter revenue growth and OIBDA
margin expansion to 56.1%.
With a mobile penetration rate of only about 17%, our operational focus
in Uzbekistan remains on accelerating network build-out, maintaining high
subscriber growth and developing our sales and distribution network.
Three months
TAJIKISTAN 3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Net operating
revenues*)
(US$, 000) 7,615 77 9789.6% 5,161 47.5%
OIBDA (US$, 000) 1,646 -980 94 1651.1%
OIBDA margin 21.5% N/A 1.8%
Gross margin
(US$, 000) 5,153 -33 3,237 59.2%
Gross margin
percentage 67.3% -42.9% 62.4%
SG&A (US$, 000) 3,515 947 271.2% 3,118 12.7%
SG&A percentage 45.9% 1229.9% 60.1%
Net income **)
(US$, 000) -276 -782 -1,771
ARPU, (US$) 10.8 3.1 248.4% 10.1 6.9%
MOU, (min) 230.3 69.8 229.9% 224.2 2.7%
SAC (US$) 12.8 18.2 -29.7% 15.3 -16.3%
Active subscribers 268,446 6,900 3790.5% 204,900 31.0%
Churn 1.8% 26.9% 0.8%
Subscriber market
share 16.7% 1.9% 15.2%
*) Net operating revenues exclude inter-company transactions (US$39
thousand in 3Q 2007, US$0 in 3Q 2006, US$23 thousand in 2Q 2007).
**) After minority interest.
In Tajikistan we continue to demonstrate excellent dynamics with
consistent growth in financial performance and subscriber base. On a
quarter- on-quarter basis, the Company reported 47.5% growth in revenues
and 31.0% growth in the number of active subscribers.
OIBDA turned positive in the second quarter and continued to grow in
the third quarter, with the OIBDA margin expanding to 21.5%.
Three months
ARMENIA 3Q2007 2Q 2007 Change,
3Q07/2Q07
Net operating revenues*)
(US$, 000), including 63,277 58,349 8.4%
mobile revenues 25,723 23,135 11.2%
fixed revenues 37,554 35,214 6.6%
OIBDA (US$, 000) 32,888 30,069 9.4%
OIBDA margin 51.9% 51.6%
Net income**) (US$, 000) 15,961 3,963 302.8%
Mobile active subscribers 446,957 471,000 -5.1%
ARPU, (US$) 17.6 17.3 1.7%
MOU, (min) 181.0 185.1 -2.2%
Churn***) 4.4% 14.1%
Mobile subscriber market
share***) 33.6% 33.5%
Fixed subscribers 616,175 610,300 1.0%
ARPU fixed (US$) 20.4 19.3 5.7%
*) Net operating revenues exclude inter-company transactions (US$85
thousand in 3Q 2007, US$74 thousand in 2Q 2007).
**) After minority interest.
***) According to AC&M-Consulting, our mobile subscriber market share in
Armenia as of the end of October was 25.4%, reflecting among other
things, additional clean-up of our subscribers.
The Armenian business, acquired in the fourth quarter of 2006,
continues to show stable financial performance. Our mobile revenues
demonstrated solid 11.2% quarter-on-quarter growth. OIBDA margin remains
strong at 51.9%.
Our subscriber market share in the mobile market remains our key area
of concern. We have already taken a number of steps to strengthen our
competitive position. While these actions are already showing early signs
of positive impact, it will take time to fully realize the effects of our
efforts.
GEORGIA
The Company launched commercial operations in Georgia on March 15,
2007. Currently we continue to build the network and develop our sales and
distribution channels. In the third quarter, we reached approximately
26,600 active subscribers and had revenues of US$0.33 million, representing
90% quarter-on-quarter subscriber growth and 117% revenue growth on a
quarter-on- quarter basis. However our operations in this country are still
in an early phase of development.
The Company's management will discuss its third quarter results during
a conference call and slide presentation on November 29, 2007 at 6:30 pm
Moscow time (10:30 am ET in New York). The call and slide presentation may
be accessed via webcast at the following URL address
http://www.vimpelcom.com. The conference call replay will be available
through December 06, 2007. The slide presentation webcast will also be
available for download on VimpelCom's website http://www.vimpelcom.com.
The VimpelCom Group includes companies operating in Russia, Kazakhstan,
Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia. The VimpelCom Group's
GSM and 3G license portfolio covers a territory with a population of about
250 million. This includes the entire territories of Russia, Kazakhstan,
Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia. 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".
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 strategic and
development plans, including network development plans, and developments in
the telecommunications markets in which the Company operates. 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
telecommunications industries in Russia and the CIS, general political
uncertainties in Russia and the CIS and general economic developments in
Russia and the CIS, challenges to 3G and Far East tenders and/or litigation
with third parties or our shareholders (including Telenor), the Company's
ability to continue to grow its overall revenues and its subscriber base
and continued volatility in the world economy. The actual outcome may also
differ materially if the Company is unable to obtain all necessary
corporate approvals relating to its business (including approval of funding
and specific transactions) 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 and CIS telecommunications
industries 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, 2006 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:
Alexander Boreyko Peter Schmidt/Michael Polyviou
VimpelCom Financial Dynamics
Tel: 7(495) 910-5977 Tel: 1(212) 850 5600
Investor_Relations@vimpelcom.com mpolyviou@fd-us.com
Attachment A: Definitions
Registered subscriber is an authorized user of cellular services, using
one SIM card (GSM/3G) with one or several selective numbers or one handset
(DAMPS/CDMA) with one selective number. The number of subscribers includes
employees using cellular services and excludes guest roamers and users of
test SIM cards or handsets.
Reported churn rate is defined as the total number of registered
subscribers disconnected from our network within a given period of time
expressed as a percentage of the midpoint of subscribers in our network at
the beginning and end of that period. Contract subscribers are disconnected
if they have not paid their bills for two months. Prepaid subscribers are
disconnected in two cases: (1) an account have been blocked after the
balance drops to $0 or below for up to six months, (2) an account showed no
chargeable transaction for up to ten months. The exact number of months
prior to the disconnection varies by country and depends on the legislation
and market specifics.
Active subscribers are those subscribers in the registered subscriber
base who were a party to a revenue generating activity in the past three
months and remain in the base at the end of the reported period. Such
activities include all incoming and outgoing calls, subscriber fee
accruals, debits related to service, outgoing SMS, MMS, data transmission
and receipt sessions, but do not include incoming SMS and MMS sent by our
Company or abandoned calls.
Prepaid subscribers are those subscribers who pay for their services in
advance.
Fixed-line subscriber is an authorized user of fixed-line
communications services.
OIBDA is a non-U.S. GAAP financial measure. OIBDA, previously referred
to as EBITDA by the Company, is defined as operating income before
depreciation and amortization. The Company believes that OIBDA provides
useful information to investors because it is an indicator of the strength
and performance of our business operations, including our ability to
finance capital expenditures, acquisitions and other investments and our
ability to incur and service debt. While depreciation and amortization are
considered operating costs under U.S. GAAP, these expenses primarily
represent the non-cash current period allocation of costs associated with
long-lived assets acquired or constructed in prior periods. Our OIBDA
calculations are commonly used as bases for some investors, analysts and
credit rating agencies to evaluate and compare the periodic and future
operating performance and value of companies within the wireless
telecommunications industry. OIBDA should not be considered in isolation as
an alternative to net income, operating income or any other measure of
performance under U.S. GAAP. OIBDA does not include our need to replace our
capital equipment over time. Reconciliation of OIBDA to operating income,
the most directly comparable U.S. GAAP financial measure, is presented
below in the reconciliation tables section.
OIBDA margin is OIBDA expressed as a percentage of total net operating
revenues. Reconciliation of OIBDA margin to operating income as a
percentage of total net operating revenues, the most directly comparable
U.S. GAAP financial measure, is presented below in the reconciliation
tables section.
Gross margin is defined as total operating revenues less service costs
and cost of handsets and accessories sold.
Gross margin percentage is gross margin expressed as a percentage of
total net operating revenues.
Each ADS represents 0.05 of one share of common stock. This ratio was
established effective August 21, 2007.
ARPU (Monthly Average Revenue per User), a non-U.S. GAAP financial
measure, is calculated by dividing the Company's service revenue during the
relevant period, including roaming revenue and interconnect revenue, but
excluding revenue from connection fees, sales of handsets and accessories
and other non-service revenue, by the average number of the Company's
active subscribers during the period and dividing by the number of months
in that period. Reconciliation of ARPU to service revenues and connection
fees, the most directly comparable U.S. GAAP financial measure, is
presented below in the tables section. The Company believes that ARPU
provides useful information to investors because it is an indicator of the
performance of the Company's business operations and assists management in
budgeting. The Company also believes that ARPU provides management with
useful information concerning usage and acceptance of the Company's
services. ARPU should not be viewed in isolation or an alternative to other
figures reported under U.S. GAAP.
ARPU(REG) is ARPU calculated with regard to the registered subscriber
base.
MOU (Monthly Average Minutes of Use per User) is calculated by dividing
the total number of minutes of usage for incoming and outgoing calls during
the relevant period (excluding guest roamers) by the average number of
active subscribers during the period and dividing by the number of months
in that period.
MOU(REG) is MOU calculated with regard to the registered subscriber
base.
SAC (Average Acquisition Cost Per User), a non-U.S. GAAP financial
measure, is calculated as dealers' commissions (for sales and bonus for
exclusivity* ), advertising expenses and handset subsidies for the relevant
period divided by the number of new subscribers added during the relevant
period. Reconciliation of SAC to selling, general and administrative
expenses, the most directly comparable U.S. GAAP financial measure, is
presented below in the tables section. The Company believes that SAC in
growing markets provides useful information to investors because it is an
indicator of the performance of the Company's business operations and
assists management in budgeting. The Company also believes that SAC assists
management in quantifying the incremental costs to acquire a new
subscriber. SAC should not be viewed in isolation or as an alternative to
other figures reported under U.S. GAAP.
Market share of subscribers for each relevant area is calculated by
dividing the estimated number of our subscribers in Russia, Kazakhstan,
Ukraine, Uzbekistan, Tajikistan and Armenia, respectively, by the total
estimated number of subscribers in Russia, Kazakhstan, Ukraine, Uzbekistan,
Tajikistan and Armenia, respectively.
*) Dealers' bonus for exclusivity which we counted prior to the fourth
quarter of 2006 as a part of general and administrative expenses is now
included in the dealers' commission expense. Historical numbers
including SAC were recalculated accordingly.
Attachment B: VimpelCom financial statements
Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Statements of Operations
Three months ended Six months ended
September 30, September 30,
2007 2006 2007 2006
(In thousands of US dollars, except per share (ADS) amounts)
Operating revenues:
Service revenues
and connection
fees $1,953,719 $1,354,305 $5,155,393 $3,400,607
Sales of handsets
and accessories 1,427 4,365 4,212 15,013
Other revenues 1,822 710 4,024 2,274
Total operating
revenues 1,956,968 1,359,380 5,163,629 3,417,894
Revenue based tax (1,030) (527) (2,477) (1,328)
Net operating revenues 1,955,938 1,358,853 5,161,152 3,416,566
Operating expenses:
Service costs
(exclusive of
depreciation shown
separately below) 365,297 245,359 943,634 604,652
Cost of handsets
and accessories sold 1,016 4,275 4,235 14,121
Selling, general and
administrative expenses 556,518 387,236 1,490,430 1,025,192
Depreciation 285,572 243,593 840,109 609,532
Amortization 55,583 45,648 162,679 129,751
Provision for doubtful
accounts 17,949 4,187 44,520 10,643
Total operating expenses 1,281,935 930,298 3,485,607 2,393,891
Operating income 674,003 428,555 1,675,545 1,022,675
Other income and expenses:
Interest income 9,158 6,152 21,467 11,035
Other income 945 723 3,986 4,518
Interest expense (51,117) (49,210) (144,565) (139,802)
Other expenses (10,613) (8,480) (32,334) (20,795)
Net foreign exchange
gain (loss) 26,250 (11,753) 51,341 13,929
Total other income and
expenses (25,377) (62,568) (100,105) (131,115)
Income before income
taxes and minority
interest 648,626 365,987 1,575,440 891,560
Income taxes expense 171,109 99,088 434,703 262,832
Minority interest in
net earnings of
subsidiaries 19,467 (1,471) 46,139 13,307
Income before
cumulative effect
of change in
accounting principle 458,050 268,370 1,094,598 615,421
Cumulative effect of
changes in
accounting principles - - - (1,882)
Net income $458,050 $268,370 $1,094,598 $ 613,539
Net income per common
share $9.02 $5.28 $21.53 $12.09
Net income per ADS
equivalent $0.45 $0.26 $ 1.08 $0.6
Weighted average common
shares outstanding
(thousands) 50,773 50,843 50,832 50,929
Dividends per share - - $6.47 -
Dividends per ADS
equivalent - - $0.32 -
Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Balance Sheets
September 30, December 31,
2007 2006
(In thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents $1,027,797 $344,494
Trade accounts receivable 287,689 311,991
Other current assets 441,767 468,071
Total current assets 1,757,253 1,124,556
Non-current assets
Property and equipment, net 5,087,603 4,615,675
Telecommunication licenses and
allocation of frequencies, net 887,031 924,809
Other intangible assets, net 1,273,776 1,033,140
Other assets 781,360 738,366
Total non-current assets 8,029,770 7,311,990
Total assets $9,787,023 $ 8,436,546
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $511,378 $671,953
Customer advances and deposits 360,061 314,375
Bank and other loans, current portion 411,222 424,103
Accrued liabilities 410,752 201,545
Total current liabilities 1,693,413 1,611,976
Deferred income taxes 543,557 528,025
Bank and other loans, less current portion 2,332,064 2,065,329
Accrued liabilities 33,171 30,447
Minority Interest 268,967 257,859
Shareholders' equity 4,915,851 3,942,910
Total liabilities and shareholders' equity $9,787,023 $8,436,546
Open Joint Stock Company "Vimpel-Communications"
Unaudited Condensed Consolidated Statements of Cash Flows
Nine months ended
September 30,
2007 2006
(In thousands of US dollars)
Net cash provided by operating activities $2,208,039 $1,434,817
Proceeds from bank and other loans 519,349 747,909
Sale of treasury stock 39,788 -
Payments of fees in respect of bank loans (7,121) (41,651)
Repayment of rouble denominated bonds - (110,783)
Repayment of bank and other loans (325,934) (335,116)
Payment of dividends (331,886) -
Purchase of treasury stock (81,069) (38,535)
Net cash provided by financing activities (186,873) 221,824
Purchase of property and equipment (832,831) (883,720)
Acquisition of subsidiaries, net of cash (288,667) (265,264)
Purchase price adjustment for ArmenTel
and Tacom (12,688) -
Purchase of intangible assets (25,682) (25,758)
Purchase of other assets (212,467) (248,271)
Net cash used in investing activities (1,372,335) (1,423,013)
Effect of exchange rate changes on cash 34,472 7,619
Net increase (decrease) in cash 683,303 241,247
Cash and cash equivalents at beginning
of period 344,494 363,646
Cash and cash equivalents at end of period $1,027,797 $ 604,893
Supplemental cash flow information
Cash paid during the period:
Income tax 418,626 232,490
Interest 126,211 116,137
Non-cash activities:
Equipment acquired under financing and
capital lease agreements $39,365 $15,785
Accounts payable for equipment and other
long-lived assets 191,894 160,111
Offset of 2009 Tendered Notes - 232,766
Utilized part of Ericsson non-cash
discount in Ukraine (4,714) 17,899
Acquisitions:
Fair value of assets acquired 76,007 166,034
Fair value of minority interest acquired 41,636 -
Difference between the amount paid and
the fair value of net assets acquired 189,657 154,061
Cash paid for the capital stock (291,433) (273,716)
Liabilities assumed $15,867 $46,379
Attachment C. Reconciliation tables (Unaudited)
CONSOLIDATED
Reconciliation of OIBDA
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 1,015,158 717,796 896,758
Depreciation (285,572) (243,593) (285,365)
Amortization (55,583) (45,648) (53,807)
Operating income 674,003 428,555 557,586
Reconciliation of OIBDA Margin
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 51.9% 52.8% 52.2%
Less: Depreciation as a
percentage of net operating
revenue (14.6%) (17.9%) (16.6%)
Less: Amortization as a
percentage of net operating
revenue (2.8%) (3.4%) (3.1%)
Operating income as a
percentage of net operating
revenue 34.5% 31.5% 32.5%
RUSSIA
Reconciliation of OIBDA in Russia
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 871,163 666,354 779,828
Depreciation (249,781) (221,973) (240,387)
Amortization (29,470) (26,429) (28,478)
Operating income 591,912 417,952 510,963
Reconciliation of OIBDA Margin in Russia
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 52.7% 54.2% 53.4%
Less: Depreciation as a
percentage of net operating
revenue (15.1%) (18.0%) (16.5%)
Less: Amortization as a
percentage of net operating
revenue (1.8%) (2.2%) (1.9%)
Operating income as a
percentage of net operating
revenue 35.8% 34.0% 35.0%
Reconciliation of SAC in Russia
(In thousands of US dollars, except for SAC and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Selling, general and
administrative expenses 477,277 346,157 418,738
Less: General and
administrative expenses 351,028 247,190 305,941
Sales and marketing expenses,
including 126,249 98,967 112,797
advertising & marketing
expenses 59,478 46,487 57,636
dealers' commission expense 66,771 52,480 55,161
New gross subscribers,'000 5,100 5,404 4,947
Subscriber Acquisition Cost
(SAC) (US$) 24.8 18.3 22.8
Reconciliation of ARPU in Russia
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 1,650,358 1,223,681 1,457,896
Less: Connection fees 184 410 164
Less: Revenue from rent
of fiber-optic channels 1,003 760 983
Service revenue used to
calculate ARPU 1,649,171 1,222,511 1,456,749
Average number of registered
subscribers, '000 49,926 47,306 49,043
ARPU(REG) (US$) 11.0 8.6 9.9
Average number of active
subscribers,'000 40,933 38,365 39,359
ARPU (US$) 13.4 10.6 12.3
KAZAKHSTAN
Reconciliation of OIBDA in Kazakhstan
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 88,127 49,023 80,317
Depreciation (14,983) (17,981) (17,537)
Amortization (9,091) (9,550) (9,419)
Operating income 64,053 21,492 53,361
Reconciliation of OIBDA Margin in Kazakhstan
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 52.7% 47.0% 53.7%
Less: Depreciation as a
percentage of net operating
revenue (9.0%) (17.2%) (11.7%)
Less: Amortization as a
percentage of net operating
revenue (5.4%) (9.2%) (6.3%)
Operating income as a
percentage of net operating
revenue 38.3% 20.6% 35.7%
Reconciliation of SAC in Kazakhstan
(In thousands of US dollars, except for SAC and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Selling, general and
administrative expenses 32,650 22,508 31,723
Less: General and
administrative expenses 23,419 16,521 23,250
Sales and marketing expenses,
including 9,231 5,987 8,473
advertising & marketing
expenses 5,093 3,329 4,918
dealers' commission expense 4,138 2,658 3,555
New gross subscribers,'000 919 704 779
Subscriber Acquisition Cost
(SAC) (US$) 10.0 8.5 10.9
Reconciliation of ARPU in Kazakhstan
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 167,122 104,208 149,326
Less: Connection fees 0 0 0
Less: Revenue from rent of
fiber-optic channels 0 0 0
Service revenue used to
calculate ARPU 167,122 104,208 149,326
Average number of registered
subscribers, '000 5,120 3,077 4,598
ARPU(REG) (US$) 10.9 11.3 10.8
Average number of active
subscribers,'000 4,107 2,412 3,655
ARPU (US$) 13.6 14.4 13.6
UKRAINE
Reconciliation of OIBDA in Ukraine
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 6,455 (6,072) (3,073)
Depreciation (4,417) (1,218) (4,330)
Amortization (5,210) (5,232) (5,234)
Operating income (3,172) (12,522) (12,637)
Reconciliation of OIBDA Margin in Ukraine
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 17.5% (49.2%) (12.9%)
Less: Depreciation as a
percentage of net operating
revenue (12.0%) (9.8%) (18.2%)
Less: Amortization as a
percentage of net operating
revenue (14.1%) (42.4%) (22.0%)
Operating income as a
percentage of net operating
revenue (8.6%) (101.4%) (53.1%)
Reconciliation of SAC in Ukraine
(In thousands of US dollars, except for SAC and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Selling, general and
administrative expenses 16,465 13,466 16,527
Less: General and
administrative expenses 12,454 8,841 11,833
Sales and marketing expenses,
including 4,011 4,625 4,694
advertising & marketing
expenses 2,753 3,861 3,723
dealers' commission expense 1,258 764 971
New gross subscribers,'000 729 375 504
Subscriber Acquisition Cost
(SAC) (US$) 5.5 12.3 9.3
Reconciliation of ARPU in Ukraine
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 36,523 12,320 23,436
Less: Connection fees 112 3 36
Less: Revenue from rent of
fiber-optic channels 0 0 0
Service revenue used to
calculate ARPU 36,411 12,317 23,400
Average number of registered
subscribers, '000 2,668 741 2,474
ARPU(REG) (US$) 4.5 5.5 3.2
Average number of active
subscribers,'000 2,081 611 1,847
ARPU (US$) 5.8 6.7 4.2
UZBEKISTAN
Reconciliation of OIBDA in Uzbekistan
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 16,923 9,532 11,388
Depreciation (4,011) (2,380) (3,312)
Amortization (3,438) (3,268) (3,414)
Operating income 9,474 3,884 4,662
Reconciliation of OIBDA Margin in Uzbekistan
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 56.1% 60.5% 49.1%
Less: Depreciation as a
percentage of net operating
revenue (13.3%) (15.1%) (14.3%)
Less: Amortization as a
percentage of net operating
revenue (11.4%) (20.7%) (14.7%)
Operating income as a percentage
of net operating revenue 31.4% 24.7% 20.1%
Reconciliation of SAC in Uzbekistan
(In thousands of US dollars, except for SAC and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Selling, general and
administrative expenses 8,668 4,462 8,355
Less: General and
administrative expenses 6,003 3,355 6,579
Sales and marketing expenses,
including 2,665 1,107 1,776
advertising & marketing
expenses 1,112 500 856
dealers' commission expense 1,553 607 920
New gross subscribers,'000 603 128 403
Subscriber Acquisition Cost
(SAC) (US$) 4.4 8.6 4.4
Reconciliation of ARPU in Uzbekistan
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 31,159 16,279 24,009
Less: Connection fees 0 0 0
Less: Revenue from rent of
fiber-optic channels 0 0 0
Service revenue used to
calculate ARPU 31,159 16,279 24,009
Average number of registered
subscribers, '000 1,408 490 1,148
ARPU(REG) (US$) 7.4 11.1 7.0
Average number of active
subscribers,'000 1,372 458 1,109
ARPU (US$) 7.6 11.8 7.2
TAJIKISTAN
Reconciliation of OIBDA in Tajikistan
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 1,646 (980) 94
Depreciation (948) (41) (587)
Amortization (158) (50) (158)
Operating income 540 (1,071) (651)
Reconciliation of OIBDA Margin in Tajikistan
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 21.5% (1272.7%) 1.8%
Less: Depreciation as a
percentage of net operating
revenue (12.3%) (53.3%) (11.4%)
Less: Amortization as a
percentage of net operating
revenue (2.1%) (64.9%) (3.0%)
Operating income as a percentage
of net operating revenue 7.1% (1390.9%) (12.6%)
Reconciliation of SAC in Tajikistan
(In thousands of US dollars, except for SAC and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Selling, general and
administrative expenses 3,515 947 3,118
Less: General and
administrative expenses 2,470 885 2,044
Sales and marketing expenses,
including 1,045 62 1,074
advertising & marketing
expenses 553 62 665
dealers' commission expense 492 0 409
New gross subscribers,'000 81.5 3.4 70
Subscriber Acquisition Cost
(SAC) (US$) 12.8 18.2 15.3
Reconciliation of ARPU in Tajikistan
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and connection
fees 7,675 74 5,222
Less: Connection fees 0 0 0
Less: Revenue from rent of
fiber-optic channels 0 0 0
Service revenue used to
calculate ARPU 7,675 74 5,222
Average number of registered
subscribers, '000 256 13 181
ARPU(REG) (US$) 10.0 1.9 9.6
Average number of active
subscribers,'000 236 8 172
ARPU (US$) 10.8 3.1 10.1
ARMENIA
Reconciliation of OIBDA in Armenia
(In thousands of US dollars)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA 32,888 na 30,069
Depreciation (10,671) na (18,729)
Amortization (6,951) na (5,875)
Operating income 15,266 na 5,465
Reconciliation of OIBDA Margin in Armenia
Three months ended
September 30, September 30, June 30,
2007 2006 2007
OIBDA margin 51.9% na 51.6%
Less: Depreciation as a
percentage of net operating
revenue (16.8%) na (32.1%)
Less: Amortization as a
percentage of net operating
revenue (11.0%) na (10.1%)
Operating income as a
percentage of net operating
revenue 24.1% na 9.4%
Reconciliation of mobile ARPU in Armenia
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 25,623 na 23,208
Less: Connection fees 64 na 19
Less: Revenue from rent of
fiber-optic channels 0 na 0
Service revenue used to
calculate ARPU 25,559 na 23,189
Average number of registered
subscribers, '000 528 na 486
ARPU(REG) (US$) 16.1 na 15.9
Average number of active
subscribers,'000 483 na 446
ARPU (US$) 17.6 na 17.3
Reconciliation of fixed ARPU in Armenia
(In thousands of US dollars, except for ARPU and subscriber amounts)
Three months ended
September 30, September 30, June 30,
2007 2006 2007
Service revenue and
connection fees 37,551 na 35,214
Less: Connection fees 88 na 55
Service revenue used to
calculate ARPU 37,463 na 35,159
Average number of
subscribers,'000 611 na 608
Average revenue per
subscriber per month (US$) 20.4 na 19.3
Attachment D. Additional reference data
Operating and Financial Indicators
CONSOLIDATED Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered mobile
subscribers 60,990,302 52,381,500 16.4% 59,049,700 3.3%
Registered fixed
subscribers 616,175 N/A 610,300 1.0%
RUSSIA Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered
subscribers 50,296,378 47,651,000 5.6% 49,594,300 1.4%
ARPU(REG), (US$) 11.0 8.6 27.9% 9.9 11.1%
MOU(REG), (min) 171.3 123.2 39.0% 154.6 10.8%
KAZAKHSTAN Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered
subscribers 5,456,505 3,230,400 68.9% 4,837,200 12.8%
ARPU(REG), (US$) 10.9 11.3 -3.5% 10.8 0.9%
MOU(REG), (min) 90.4 68.6 31.8% 70.6 28.0%
UKRAINE Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered
subscribers 2,737,000 938,700 191.6% 2,661,400 2.8%
ARPU(REG), (US$) 4.5 5.5 -18.2% 3.2 40.6%
MOU(REG), (min) 131.2 139.0 -5.6% 119.4 9.9%
UZBEKISTAN Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered
subscribers 1,631,673 546,900 198.3% 1,224,800 33.2%
ARPU(REG), (US$) 7.4 11.1 -33.3% 7.0 5.7%
MOU(REG), (min) 282.4 285.0 -0.9% 256.5 10.1%
TAJIKISTAN Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered
subscribers 295,049 14,500 1934.8% 218,000 35.3%
ARPU(REG), (US$) 10.0 1.9 426.3% 9.6 4.2%
MOU(REG), (min) 212.7 40.6 423.9% 213.7 -0.5%
ARMENIA Three months
3Q2007 3Q2006 Change, 2Q2007 Change,
3Q07/3Q06 3Q07/2Q07
Registered mobile
subscribers 538,411 N/A 497,600 8.2%
ARPU(REG), (US$) 16.1 N/A 15.9 1.3%
MOU(REG), (min) 165.4 N/A 169.9 -2.6%
SOURCE Vimpel-Communications