RNS Number:3211E
Teleset Networks PCL
24 September 2007
Press Announcement
FOR IMMEDIATE RELEASE Monday, 24 September 2007
Teleset Networks PCL ("Teleset"), the leading private fixed-line telecom
operator in Kazan, the capital of the Republic of Tatarstan, Russian Federation,
today, announces its unaudited Interim Results for the six months ended 30 June
2007
FINANCIAL HIGHLIGHTS
6 months ended 30 June. 2007 2006
US$'000 US$'000
Operating revenue 10,379 5,798
EBITDA 5,756 3,644
Profit from operations 4,100 2,748
Profit before taxation 3,421 2,658
Net profit 2,162 2,037
* Operating revenue up by 79 per cent
*Profit from operations up 49 per cent
* EBITDA up by 58 per cent with EBITDA and net profit margins of 55 per
cent and 21 per cent respectively
* Following TNPKO acquisition, subscriber base up by 53 per cent across
both residential and business segments
* Total of 112,078 subscriber lines at 30 June 2007
"We continue to see many exciting opportunities to grow revenue and profit and
are confident about Teleset's prospects for the remainder of 2007 and beyond."
(Philippos Vatiliotis, Chairman)
CONTACTS
Teleset Networks PCL +357 22 450 790
Yiannis Demetriou (CEO)
Blue Oar Securities - Nominated Adviser +44 (0) 20 7448 4400
Shane Gallwey
Metropol (UK) Limited - Broker +44 (0) 20 7439 6880
Alexander Selegenev
Bankside - Financial PR +44 (0) 20 7367 8888
Simon Bloomfield or Andy Harris
CHAIRMAN'S STATEMENT
During the first half of 2007, Teleset's management team continued to implement
its stated strategy of building its position in Kazan, including the successful
integration of the company's first acquisition, and to lay the foundations for
further profitable growth in Kazan and elsewhere in Russia.
Our strategy, for developing Teleset into a leading telecom operator in our
chosen markets whilst continuing to achieve strong growth in profits,
incorporates three core elements:
* increasing our market share and improving the average revenue per user
(ARPU);
* improving operational effectiveness and productivity; and
* expanding our network coverage following a demand-driven approach to
extending our infrastructure
As a result of the acquisition of TNPKO in November 2006, Teleset has
significantly increased its scale and market share in Kazan and, having
successfully completed the integration process, we are confident that we will
realise significant synergies from the enlarged business. As expected,
profitability for the 6 months ended 30 June 2007 reflected integration costs
and historically lower margins from TNPKO and we are now starting to realise the
synergies from the acquisition.
At 30 June 2007, our total number of subscribers was up 53 per cent to 112,078
compared to 73,094 at 30 June 2006. Operating profit for the 6 months ended 30
June 2007 increased by 49 per cent and profit before tax, at US$ 3.4 million,
grew by 29 per cent compared to the same period a year ago.
Following Telest's admission to AIM in the fourth quarter of 2006, overheads
increased significantly because of new costs associated with being a public
company, resulting in lower operating margins for the first half of 2007
compared to the same period of 2006. Whilst the impact of higher overheads on
operating margin will continue into the second half of the year, it will reduce
over time as the company continues to grow.
We continue to see many exciting opportunities to grow revenue and profit and
are confident about Teleset's prospects for the remainder of 2007 and beyond.
Philippos Vatiliotis
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
One of our top priorities for the first half of 2007 was to maintain organic
growth as well as to complete the integration of TNPKO. We have been successful
in this and, based on our experience, we are confident that TNPKO will, in
future, achieve margins similar to those of the existing business.
At the same time, the company has succeeded in adding a high quality range of
corporate customers to its subscriber base, including JSC Kazan Helicopters,
AkBars Mortgage and AkBars Medical Insurance, all of which are interconnected
using Teleset's fiber optic network.
The company has also successfully launched a new digital telephone switch unit
to provide a full range of telecom services to 52 residential complexes
(covering 1,252 flats) and 1,198 cottages within the Kirovskiy district of
Kazan.
Teleset has recently won a contract with Suvar-Kazan, one of the largest
construction companies in Tatarstan, for the interconnection of apartments and
fitness centres in a new residential area consisting of seven buildings. The
first three buildings, comprising 1,380 flats, are expected to be cabled in
2009.
We have continued the aggressive promotion of our internet services with the
result that Teleset now commands a 29 per cent market share in Kazan.
Our efficiency provides Teleset with a significant competitive advantage. The
fact that we have managed to maintain our EBITDA margin, at a significantly
higher level than the average for the Russian telecom industry, represents a
major strength.
The net profit margin for the period, at a healthy 21 per cent (2006: 35 per
cent) was in line with budget and we expect this to improve significantly
following the successful integration of TNPKO.
Our overall tax rate is currently higher than the standard rate of 24 per cent
as the result of deferred tax which we expect will fall in the first half of
2008.
Cash flow and our balance sheet are strong which will enable us to fund our
current expansion plans.
We believe all these achievements position us well for continued success for the
full year.
Net Operating Sales
In the 6 months ended 30 June 2007, Teleset operating revenues were US$ 10.4
million (2006: US$5.8 million), an increase of 79 per cent. This reflects the
growth in telephone rental fees and traffic which increased by 82 per cent to
US$ 5.0 million. Revenues from installation fees decreased by 10 per cent as
planned.
--------------------------------------------------------------------------------
Sales breakdown H1 2007 H1 2006
US$'000 US$'000 US$'000 Changes
--------------------------------------------------------------------------------
Telephony: installation 300 333 -33 -10%
Telephony: rental fee 3,884 1,730 2,413 82%
Telephony: traffic volume 1,458 1,199
ISDN: installation and rental 802 547 255 47%
Internet 3,017 1,376 1,641 119%
VoIP 309 283 26 9%
Sundry 610 331 279 84%
Total 10,379 5,798 4,582 79%
--------------------------------------------------------------------------------
The growth in telephone rental fees and traffic volume also resulted in an
overall increase in ARPU, thereby increasing recurring revenues. This trend is
expected to continue for the foreseeable future.
--------------------------------------------------------------------------------
Share of recurring and installation
revenue in fixed telephony H1 2007 H1 2006 2005 2004 2003
Telephony: installation fees 5% 10% 20% 31% 46%
Telephony: recurring revenues 95% 90% 80% 69% 54%
--------------------------------------------------------------------------------
Having successfully launched a promotion campaign for its Internet services, the
company increased revenues in this area by 119 per cent.
As a result of growing broadband penetration in Kazan, the company recorded a
103 per cent increase in xDSL traffic revenues.
--------------------------------------------------------------------------------
Internet services 1H2007 1H2006
US$'000 Share US$'000 Change
--------------------------------------------------------------------------------
Dial-up 1,397 46% 573 144%
xDSL:installation 63 2% 81 -22%
xDSL:traffic 1,449 48% 714 103%
Other 108 4% 8 1,250%
Total 3,017 1,376 119%
--------------------------------------------------------------------------------
The company's subscribers, both residential and corporate, benefit from the
existence of a wide range of Internet services including broadband, dial-up
access, co-location and media services.
--------------------------------------------------------------------------------
Number of subscribers 1H2007 1H2006 Changes
--------------------------------------------------------------------------------
Residential 104,233 68,468 52%
Corporate 7,845 4,626 70%
Total 112,078 73,094 53%
--------------------------------------------------------------------------------
Due to changes in Federal Law which came into effect on 1 July 2006, fixed-line
subscribers now pay for calls from fixed-line numbers to mobile phones. This
change has provided the company with additional income.
The company has successfully applied to the Federal Tariff Agency for a 50 per
cent increase in the fixed rental fee tariff and a 10 per cent increase in all
other tariffs with effect from 1 February 2007.
Operating Expenses
The biggest share in the overall company's expenditures is related to payroll
(14 per cent), interconnection expenses (10 per cent), maintenance costs (6 per
cent), and taxes (4 per cent).
--------------------------------------------------------------------------------
Cost breakdown H1 2007 as % of sales H1 2006 as % of sales
--------------------------------------------------------------------------------
US$'000 % US$'000 %
Payroll 1,500 14 656 11
Interconnect 1,018 10 627 11
Maintenance 583 6 309 5
Taxes 423 4 241 4
Professionals & auditor
fees 227 2 0 0
Other 783 8 391 7
Total 4,533 44 2,224 38
--------------------------------------------------------------------------------
The increase in payroll costs reflects both the increase in employees resulting
from the acquisition of TNPKO, awards designed to retain and motivate key
employees and Board of Directors remuneration policy. We expect to maintain the
ratio of payroll expenses to total expenses which, as stated above, remains
below the industry average.
Other Income
The company has signed contracts with Vimpelcom, Russia's second largest
cellular operator, and the State Television & Radio Company of the Republic of
Tatarstan for the construction and project management of fiber-optic network
capacity which will generate incremental revenue for the company.
Dividend
Net profit generated by the group will be retained in order to support further
organic growth. The directors do not recommend payment of interim dividends.
Capital Expenditure
During the period, capital expenditure amounted to US$ 1.9 million (2006: US$
1.2 million). This consisted mainly of the purchase of telecommunication
equipment (77.5 per cent of the total), new premises (7.8 per cent) and other
assets (14.7 per cent) as part of the expansion of the company's network and the
upgrade of telecommunication equipment.
New Major Shareholder
In March 2007, Templeton Strategic Emerging Markets Fund II ("TSEMF"), which is
managed by Templeton Asset Management Ltd ("TAML"), was issued 24,390,244 new
Teleset ordinary shares via a placing, at a price of US$0.41 (approx. 21 pence)
each, to raise a total of US$ 10.0 million before expenses. This investment
followed a comprehensive review by TSEMF of the prospects of the Russian
telecom market and the company's strategy for future growth.
Mr. Mashintsev, Executive Director of Templeton Asset Management Ltd, was
appointed a Non-executive Director following the placing.
Post-Period Events
Teleset announced on 4 July 2007 that it had agreed a US$ 20.0 million credit-
line from the Black Sea Trade and Development Bank ("BSTDB") on which interest
paid is 2.5 per cent over LIBOR. In addition, Teleset raised a further US$3.0
million via the issue to BSTDB of new ordinary shares at a price of 23.8 pence
per share. The new credit line will displace the costlier debt from a leading
Russian bank that was drawn upon to finance the TNPKO acquisition in November
2006. It will help the company to reduce the currently high net interest
expense and to maintain a healthy level of EBT and net profit margins.
On 19 July 2007, Mr. Gueorgui Horozov (who heads the business group in charge of
BSTDB's Corporate and Project Finance activities in the Infrastructure,
Telecommunications, Energy, Oil and Gas sectors in all 11 BSTDB member
countries) was appointed to the Board as a Non-executive Director.
Another two digital telephone switches have been launched in July 2007 in
Vahitovsky and Privolzhsky districts of Kazan to provide full-range of
telecommunications services.
The company announced on 10 August 2007 that the London office of Deutsche Bank
AG made a significant equity investment of US$ 1.7 million securing 3,481,592
new ordinary shares at a price of 24.5 pence per share.
On 27 August 2007, the company announced launch of a cable TV service, which
represents an important opportunity for Teleset to generate significant
incremental revenues from its digital network.
Outlook for full year 2007
Following the promising results for the first 6 months of 20077, we are
encouraged by the performance so far in the second half. We are benefiting from
the continuing liberalisation of the local and long-distance telecommunication
service markets in Tatarstan. We are also experiencing positive economic trends
in the region with real income up by 14.2 per cent between January-June 2007
gross regional product expected to grow at an annual rate of 6.1 per cent to 8.2
per cent.
These trends support the continued development of the fixed-line
telecommunications sector and underpin the growth prospects for the company.
Yiannis Demetriou
Chief Executive Officer
CONSOLIDATED INCOME STATMENT
for the period from 1 January 2007 to 30 June 2007
--------------------------------------------------------------------------------
Note 30/6/2007 30/6/2006
US$ US$
Operating revenue 1 10,378,880 5,797,645
Cost of sales (6,368,939) (3,222,175)
------------- -------------
Gross profit 4,009,941 2,575,470
Other income 90,068 172,719
------------- -------------
Profit from operations 4,100,009 2,748,189
Finance costs - net 2 (678,996) (90,245)
------------- -------------
Profit before taxation 3,421,013 2,657,944
Taxation (1,259,303) (620,478)
------------- -------------
Net profit 2,161,710 2,037,466
============= =============
Earnings per share
Basic earnings per share ($) 0.0194 0.0204
Diluted earnings per share ($) 0.0191 0.0204
CONSOLIDATED BALANCE SHEET
at 30 June 2007
--------------------------------------------------------------------------------
Note 30/6/2007 31/12/2006
US$ US$
ASSETS
Non-current assets
Property, plant and equipment 4 26,296,848 26,065,104
Intangible assets 5 8,044,674 8,064,651
------------ ------------
34,341,522 34,129,755
------------ ------------
Current assets
Stocks 6 1,893,321 1,497,591
Trade and other receivables 7 4,594,639 4,232,184
Refundable taxes 79,265 -
Cash at bank and in hand 14,570,200 4,351,945
------------ ------------
21,137,425 10,081,720
------------ ------------
Total assets 55,478,947 44,211,475
============ ============
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 2,841,949 2,282,924
Share premium 42,008,988 32,968,013
Exchange deference reserve 174,842 105,487
Merger reserve (19,535,126) (19,535,126)
Share options reserve 235,286 55,000
Accumulated profits 6,229,695 4,067,982
------------ ------------
31,955,634 19,944,280
------------ ------------
Non-current liabilities
Borrowings 9 16,802,939 17,871,279
Deferred tax 10 1,092,895 962,590
------------ ------------
17,895,834 18,833,869
------------ ------------
Current liabilities
Trade and other payables 11 3,627,479 3,292,592
Borrowings 9 2,000,000 2,000,000
Tax liabilities - 140,734
5,627,479 5,433,326
----------- -----------
Total liabilities 23,523,313 24,267,195
------------ ------------
Total equity and liabilities 55,478,947 44,211,475
------------ ------------
CONSOLIDATED CASH FLOW STATEMENT
for the period from 1 January 2007 to 30 June 2007
--------------------------------------------------------------------------------
Note 30/6/2007 31/12/2006
US$ US$
Cash flows from operating activities
Profit before taxation 3,421,013 4,447,621
Adjustments for:
Depreciation of property, plant and
equipment and amortisation of
intangible assets 4 1,655,931 2,383,269
Share option reserve 180,246 -
Profit from the sale of property, plant and
equipment - (253,044)
Interest income (329,725) (654,008)
Interest expense 978,955 1,123,043
------------ ------------
Profit from operations before working
capital changes 5,906,420 7,046,881
Changes in working capital:
Stocks (382,749) (350,781)
Trade and other receivables (330,953) 541,781
Trade and other payables 359,415 840,424
------------ ------------
Cash generated from operations 5,552,133 8,078,305
Tax paid (1,348,613) (1,426,590)
------------ ------------
Net cash from operating activities 4,203,520 6,651,715
----------- -----------
Cash flows from investing activities
Acquisition of subsidiary undertaking - (17,000,000)
Purchase of property, plant and equipment 4 (1,874,442) (3,385,048)
Purchase of intangible assets - (101,181)
Proceeds from sale of property, plant and
equipment 6,744 388,622
Interest received 329,725 654,008
------------ ------------
Net cash used in investing activities (1,537,973) (19,443,599)
------------- --------------
Cash flows from financing activities
Proceeds from issue of share capital 9,600,000 298,878
Repayment of borrowings (1,068,340) -
Proceeds from borrowings - 8,870,962
Interest paid (978,955) (1,123,043)
------------ ------------
Dividends paid - (792,632)
Net cash from financing activities 7,552,705 7,254,165
----------- -----------
Net increase/(decrease) in cash and cash
equivalents 10,218,252 (5,537,719)
Cash acquired on business combination - 169,070
Cash and cash equivalents at beginning of
the period 4,351,948 9,720,594
----------- -----------
Cash and cash equivalents at end of the
period 14,570,200 4,351,945
=========== ===========
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Operating revenue
30/6/2007 30/6/2006
US$ US$
Connection fees 299,672 332,910
Rental fees 3,883,963 1,729,739
Traffic fees 1,457,854 1,198,924
ISDN - Connection fees 30,256 66,133
ISDN - Traffic fees 772,058 480,381
Internet services 3,016,638 1,376,190
IP Services 308,712 282,636
Sundry income 609,727 330,732
---------- ---------
10,378,880 5,797,645
========== =========
2. Finance costs - net
30/6/2007 30/6/2006
US$ US$
Interest expense 978,955 446,227
Sundry finance expenses 29,766 15,467
Interest income (329,725) (371,449)
--------- ---------
678,996 90,245
========= =========
3. Earnings per share
Basic earnings per share have been calculated by dividing the net profit
attributable to ordinary shareholders by the weighted average number of shares
in issue during the relevant financial year.
Diluted earnings per share are calculated after taking into consideration the
potentially dilutive shares in existence as at the period ended 30 June 2007.
30/6/2007 30/6/2006
US$ US$
Net profit attributable to ordinary shareholders 2,161,466 2,037,466
Weighted average number of ordinary shares in
issue 111,492,541 100,000,610
----------- -----------
Basic earnings per share (US$) 0,0194 0,0204
Weighted average number of ordinary shares
including the effect of potentially dilutive
shares 113,452,369 100,000,610
Diluted earnings per share (US$) 0,0191 0,0204
Weighted average number of ordinary shares in
issue 111,492,541 100,000,610
Effect of potentially dilutive shares - share
options 1,959,828 -
----------- -----------
Weighted average number of ordinary shares
including the effect of potentially dilutive
shares 113,452,369 100,000,610
=========== ===========
4. Property, plant and equipment
Furniture,
Telecommu fixtures
-nication Motor and office
Premises equipment vehicles equipment Total
US$ US$ US$ US$ US$
Cost
At 1 January 5,962,012 31,552,356 619,880 2,081,905 40,216,153
2007
Additions 146,022 1,453,361 121,086 153,973 1,874,442
Disposals - (1,743) (18,208) (4,750) (24,701)
--------- --------- --------- --------- ---------
At 30 June 2007 6,108,034 33,003,974 722,758 2,231,128 42,065,894
--------- --------- --------- --------- ---------
Depreciation
At 1 January
2007 676,041 11,859,743 383,877 1,231,388 14,151,049
Charge for the
period 88,474 1,331,877 45,202 170,401 1,635,954
Disposals - (40) (14,913) (3,004) (17,957)
--------- --------- --------- --------- ---------
At 30 June 2007 764,515 13,191,580 414,166 1,398,785 15,769,046
--------- --------- --------- --------- ---------
Net book value
At 30 June 2007 5,343,519 19,812,394 308,592 832,343 26,296,848
========= ========== ======= ======= ==========
At 31 December
2006 5,285,971 19,692,613 236,003 850,517 26,065,104
========= ========== ======= ======= ==========
5. Intangible assets
Computer
Goodwill software Total
US$ US$ US$
Cost
At 1 January 2007 7,885,010 316,146 8,201,156
--------- ------- -----------
At 30 June 2007 7,885,010 316,146 8,201,156
--------- ------- -----------
Amortisation and impairment
At 1 January 2007 - 136,505 136,505
Amortisation during the period - 19,977 19,977
--------- ------- -----------
At 30 June 2007 - 156,482 156,482
--------- ------- -----------
Net book value
At 30 June 2007 7,885,010 159,664 8,044,674
========= ======= ===========
At 31 December 2006 7,885,010 179,641 8,064,651
========= ======= ===========
Goodwill is allocated to cash generating units (CGUs) that are expected to
benefit from that business combination, Goodwill represents the premium paid to
acquire TNPKO.
The Group tests goodwill for impairment annually or more frequently if there are
indications that goodwill might be impaired.
6. Stocks
30/6/2007 31/12/2006
US$ US$
Materials for network and exchanges 1,277,136 993,147
Spare parts and consumables 608,020 496,733
Goods for sale and cards 8,165 7,711
--------- ---------
1,893,321 1,497,591
========= =========
7. Trade and other receivables
30/6/2007 31/12/2006
US$ US$
Trade debtors 3,282,012 2,961,684
Deposits and prepayments 115,587 330,164
Other taxes paid in advance 84,678 58,841
Other receivables 943,027 748,055
Value added tax 169,335 133,440
--------- ---------
4,594,639 4,232,184
========= =========
8. Share capital
30/6/2007 31/12/2006
-------------------------------------------------------
Number of US$ Number of US$
shares shares
Authorised
Shares of CJ1 each 162,500,000 3,705,000 162,500,000 3,705,000
----------- --------- ----------- ---------
162,500,000 3,705,000 162,500,000 3,705,000
=========== ========= =========== =========
Issued and fully paid
At 1 January 102,736,610 2,282,924 102,191,010 2,222,970
Issue of shares 24,390,244 559,025 545,600 59,954
----------- --------- ----------- ---------
At 30 June 127,126,854 2,841,949 102,736,610 2,282,924
=========== ========= =========== =========
On 12 February 2007, the Board of Directors decided to increase the issued share
capital of the Company by 24,390,244 shares with a par value of CYP0.01 at an
exercise price of US$0,41 (GBP0,21).
9. Borrowings
30/6/2007 31/12/2006
US$ US$
Current
Bank loans 2,000,000 2,000,000
---------- ----------
2,000,000 2,000,000
========== ==========
Non-current
Bank loans 16,802,939 17,871,279
---------- ----------
16,802,939 17,871,279
========== ==========
Maturity of non-current borrowings:
between one to two years 8,802,939 9,871,279
between two and five years 8,000,000 8,000,000
----------- -----------
16,802,939 17,871,279
=========== ===========
The carrying amounts of current bank loans approximate their fair value.
10. Deferred tax
Deferred taxation is calculated on all temporary differences under the liability
method using the applicable tax rates,
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when the deferred taxes relate to the same fiscal authority
The movement on the deferred taxation account is as follows:
Accelerated tax
depreciation
US$
At 1 January 2006 834,064
Charged / (credited):
Income statement 208,869
Acquired through business combination (80,343)
---------
At 1 January 2007 962,590
Charged / (credited):
Income statement 130,305
---------
At 30 June 2007 1,092,895
=========
11. Trade and other payables
30/6/2007 31/12/2006
US$ US$
Trade payables 844,924 985,943
Advances from customers 393,961 340,409
Value added tax 562,092 490,759
Accruals 295,601 364,841
Other payables 1,341,477 900,190
Deferred income 189,424 210,450
--------- ---------
3,627,479 3,292,592
========= =========
This information is provided by RNS
The company news service from the London Stock Exchange
END
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