VimpelCom announces second quarter and six month 2004 financial and operating results
26 Aug 2004
-- 61% year-on-year increase in net operating revenues -- -- 73% year-on-year increase in net income -- -- 75% year-on-year increase in OIBDA -- -- approximately 18.3 million subscribers -- -- commercial operations in 70 regions of Russia -- Moscow and New York (August 26, 2004) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP), a leading provider of wireless telecommunications services in Russia, today announced its financial and operating results for the quarter and six months ended June 30, 2004. During the second quarter, the Company reported rapid subscriber growth in the regions and increases in net operating revenues, OIBDA and net income. Consolidated financial statements of VimpelCom and consolidated financial statements of VimpelCom-Region, VimpelCom's subsidiary for regional development, are attached. Commenting on today's announcement, Alexander Izosimov, Chief Executive Officer of VimpelCom, said, "We are pleased with the Company's performance in the second quarter. We added approximately 3 million new subscribers, our largest quarterly increase in new subscribers in the Company's history. We launched five new networks in the regions and gained access to operations in three regions in the Far East through an acquisition. In addition, our financial results continue to strengthen, with our OIBDA margin reaching a new high of 49.8%." Mr. Izosimov continued: "We are pleased to see progress with the supply of numbering capacity and we look forward to continued strong growth, particularly in the Russian regions." Significant improvements in VimpelCom's financial and operating results in the second quarter of 2004, as compared with the second quarter of 2003, were achieved largely as a result of rapid subscriber growth combined with the effects of economies of scale, efficient cost control and lower acquisition costs per subscriber in the regions outside of Moscow. The Company's financial results include the activities in the Moscow license area and in the regions. Net operating revenues, excluding inter-company transactions, for Moscow stand-alone and the regions in the second quarter of 2004 were $289.1 million and $201.8 million, respectively. Net income for Moscow stand-alone and in the regions in the second quarter of 2004 was $68.9 million and $43.0 million, respectively. Selling, general and administrative ("SG&A") expenses, as a percentage of net operating revenues, improved to 32.3% reported in the second quarter of 2004 as compared with 35.1% in the second quarter of 2003. In part, it was caused by a temporary decrease in subscriber acquisition costs in Moscow in the second quarter of 2004 due to the transition from payments of a one-time dealer commission to payments of dealer commissions over six months. VimpelCom's total capital expenditures for the second quarter of 2004 were approximately $272.4 million, spent for the purchase of long-lived assets. On June 30, 2004, VimpelCom acquired approximately 93.5% of the outstanding shares of Dal Telecom International for a total purchase price of approximately US$74.1 million. Dal Telecom International, which operates in three regions in the Russian Far East, has short-term debt of approximately US$8.0 million. As previously disclosed, in January 2004, VimpelCom adopted a new depreciation policy. Based on periodic internal studies of the useful economic lives of the Company's property and equipment, the Company changed the estimated useful life of GSM telecommunications equipment from 9.5 to 7 years. This new policy was largely responsible for the increase to $62.7 million in depreciation reported for the second quarter of 2004 as compared to the $33.9 million reported for the same period in 2003. Depreciation expense did not increase significantly in the second quarter of 2004 as compared to the $57.3 million reported for the first quarter of 2004. The Company's MOU in the second quarter of 2004 was 96.3 minutes, a decrease of approximately 3.9% compared to 100.2 minutes recorded in the second quarter of 2003. As compared with 91.4 minutes recorded for the first quarter of 2004, MOU increased by 5.3%, primarily due to seasonal effects. ARPU for the second quarter of 2004 was approximately $10.8, a 24.7% decrease from the $14.3 reported for the second quarter of 2003. The downward trend in ARPU is caused primarily by rapid regional expansion, which increases the proportion of lower ARPU regional subscribers in the network. A very competitive environment in some regions amplifies this trend by putting additional pressure on tariffs. As compared with the first quarter of 2004, these effects were offset primarily by the seasonal increase in MOU. The Company reported a record subscriber growth in the second quarter of 2004 due to the acceleration in subscriber growth in the regions, the launch of new networks in five regions and the acquisition of Dal Telecom International, a cellular operator in three regions of the Russian Far East. The acquisition was closed on June 30, 2004, as a result of which VimpelCom obtained approximately 322,000 additional subscribers as of the date of acquisition. VimpelCom's subscriber growth in the second quarter of 2004 was negatively affected by the shortage of numbering capacity, particularly in Moscow. As previously disclosed, VimpelCom was granted additional numbering capacity in August both for Moscow and the regions. Using independent sources to estimate the number of subscribers of the Company's competitors, VimpelCom estimates its market share in Russia at 32.9% at the end of the second quarter of 2004, compared to 30.0% estimated at the end of the second quarter of 2003. VimpelCom's market share in the Moscow license area was 46.0% at the end of the second quarter of 2004, compared to the Company's estimated market share of 48.8% reported at the end of the second quarter of 2003. The Company's quarterly churn rate in the second quarter of 2004 was 9.4%, compared to the Company's churn rate of 10.5% reported for the same period in 2003. An increase in churn rate as compared with the 8.6% churn rate reported for the first quarter of 2004 was primarily due to the shortage of numbering capacity which forced the Company to temporarily reduce the termination period for inactive subscribers. This resulted in approximately 200,000 additional disconnects, which increased the second quarter churn rate by approximately 1.4%.
Full Press Release see on VimpelCom's website http://www.vimpelcom.com.
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