VimpelCom Announces Second Quarter 2008 Financial and Operating Results
MOSCOW and NEW YORK, Aug. 28 /PRNewswire-FirstCall/ — Open Joint Stock Company “Vimpel-Communications” (“VimpelCom” or the “Company”) , a leading provider of telecommunications services in Russia and the Commonwealth of Independent States (CIS) today announced its financial and operating results for the quarter ended June 30, 2008.
Financial and Operating Highlights — Net operating revenues reached $2,611 million, an increase of 52.1% versus 2Q2007. — OIBDA reached $1,223 million, an increase of 36.3% versus 2Q2007. — OIBDA margin was 46.8%, including 47.3% in Russia and 52.0% in Kazakhstan. — Net income totaled $470 million, an increase of 30.9% versus 2Q2007. — Mobile subscribers increased by 6.0 million versus 2Q2007, reaching 53.7 million. — $2 billion Eurobond issued to refinance short-term bridge loan. — Joint venture agreement signed in Vietnam, license acquired in Cambodia.
Commenting on today’s announcement, Alexander Izosimov, Chief Executive Officer of VimpelCom, said, “We are pleased with our robust second quarter results. The Company showed solid 52% annual revenue growth with a healthy 47% OIBDA margin, which is in line with our internal target for this stage of the integration of Golden Telecom. The increase in revenue was driven by fast organic growth in both our mobile and fixed-line operations as well as by the first full quarter consolidation of Golden Telecom.
“In the second quarter we successfully refinanced our short-term debt related to the Golden Telecom acquisition. Following the refinancing, we started to intensify our sales and marketing efforts in the Russian mobile segment, resulting in 11% quarter-on-quarter revenue growth in this segment.
“We are also very happy with our performance in the CIS, where we showed strong growth and increased revenue market share and ARPU in all geographies.
“We will continue to focus our efforts along three key priorities for the Company: developing integrated operations in Russia, including a strong push in the broadband business, continued development in the CIS markets and expansion outside of the CIS. These priorities prompted us to make some adjustments to our organizational structure which we believe will enhance the focus and efficiency of our business. “
Key Consolidated Financial and Operating Results CONSOLIDATED OPERATIONS (US$, mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenues 2,611 1,717 52.1% 2,108 23.9% OIBDA 1,223 897 36.3% 1,126 8.6% OIBDA margin, % 46.8% 52.2% 53.4% SG&A 774 494 56.7% 528 46.6% Including Sales & Marketing Expenses 215 167 28.7% 187 15.0% Including General & Administrative Costs 559 327 70.9% 341 63.9% SG&A percentage 29.6% 28.8% 25.0% Net income 470 359 30.9% 601 -21.8% Net income per common share, (US$) 9.26 7.07 11.84 Net income per ADS equivalent*), (US$) 0.46 0.35 0.59 Capital expenditures 664.0 334.8 98.3% 358.5 85.2% Mobile subscribers (’000) 53,707 47,702 12.6% 52,293 2.7% Broadband subscribers (’000) 610 n/a 534 14.2%
* Number of ADSs is based on the ratio of 20 ADSs per one ordinary share, which came into effect on August 21, 2007. Prior year amounts have been adjusted to reflect the new ratio.
Net operating revenue 2Q 2008*) (US$ mln) Russia CIS Eliminations Total Mobile business 1,862 319 -3 2,178 Fixed business 414 74 -11 477 Eliminations -37 -5 -2 -44 Total net operating revenue 2,239 388 -16 2,611
* Due to the increasing integration between different parts of our business, we include inter-company transactions in the reported revenues of geographic and business segments, and indicate the amount of inter-company eliminations within and between the segments. Reconciliation is presented in Attachment C.
In the second quarter we consolidated the business of Golden Telecom for the first full period. Smaller net income compared to the first quarter was due to an increase in interest expense, depreciation and amortization resulting from the Golden Telecom acquisition and a significant decrease in foreign exchange gain resulting from slower appreciation of the Russian ruble versus the US dollar.
RUSSIA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenues 2,239 1,460 53.4% 1,797 24.6% OIBDA 1,059 780 35.8% 992 6.8% OIBDA margin, % 47.3% 53.4% 55.2% SG&A 658 419 57.0% 434 51.6% Including Sales & Marketing Expenses 181 141 28.4% 158 14.6% Including General & Administrative Costs 477 278 71.6% 276 72.8% SG&A percentage 29.4% 28.7% 24.2% Net income 448 356 25.8% 616 -27.3%
Our revenue in Russia showed good growth of 53.4%, including 27.5% organic growth in mobile revenues.
Strengthening our sales and marketing activities in the mobile segment led to positive dynamics in new subscriber additions in May and June. Strong growth in usage was enhanced by positive seasonal trends, which, when coupled with stable pricing, resulted in an 11.4% quarterly increase in ARPU.
In residential broadband we continued the active rollout of our fiber-to- the-building networks (FTTB). By the end of the second quarter we reached 5.5 million households passed by our FTTB network and accumulated 476,000 FTTB subscribers, yielding a current take-up rate of 8.6%. The total number of broadband subscribers, taking into account all of the broadband technologies, reached 604,000.
Substantial growth in our G&A expenses both quarter-on-quarter and year- on-year is mainly connected with the full quarter consolidation of Golden Telecom ($127 million in the second quarter) and an abnormally low level of G&A shown in the first quarter due to the reversal of a $43 million accrual in our stock-price based compensation plans, resulting from the decline in VimpelCom’s ADS price during the first quarter of 2008.
OIBDA of our Russian operations in the second quarter passed the $1 billion mark. Despite some one-off costs related to the buyout of minority shareholders in Corbina Telecom in June 2008, the OIBDA margin was in line with our expectations for this stage of the integration of Golden Telecom.
RUSSIA REVENUE (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenues 2,239 1,460 53.4% 1,797 24.6% Mobile revenue 1,862 1,460 27.5% 1,675 11.2% Fixed revenue 414 n/a 132 Eliminations -37 n/a -10 RUSSIA OPERATING DEVELOPMENT 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 42,485 40,140 5.8% 42,079 1.0% Subscriber market share*), % 24.6% 30.9% 25.0% MOU, min 220.3 192.6 14.4% 198.7 10.9% ARPU, US$ 14.7 12.3 19.5% 13.2 11.4% Broadband subscribers (’000) 604 0 n/a 530 14.0%
* Subscriber market share data presented here and in the following country tables are published by AC&M-Consulting. Starting from January 1, 2008 VimpelCom’s subscriber market share is being reported solely on the basis of active subscribers, while previously it was based on registered subscribers. The drop in the reported market share in the second quarter of 2008 as compared to the second quarter of 2007 is mainly caused by the change of reporting methodology.
RUSSIA OIBDA DEVELOPMENT (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA Total 1,059 780 35.8% 992 6.8% Mobile OIBDA 969 780 24.2% 959 1.0% Fixed OIBDA 90 n/a 33 Total OIBDA margin, % 47.3% 53.4% 55.2% Mobile OIBDA margin, % 52.0% 53.4% 57.2% Fixed OIBDA margin, % 21.7% n/a 25.0% CIS OPERATIONS (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenues 388.1 260.1 49.2% 316.9 22.5% OIBDA 164.4 116.9 40.6% 134.3 22.4% OIBDA margin, % 42.4% 44.9% 42.3% SG&A 115.4 76.4 51.0% 94.3 22.4% including Sales & Marketing Expenses 33.9 26.0 30.4% 29.0 16.9% including General & Administrative Costs 81.5 50.4 61.7% 65.3 24.8% SG&A percentage 29.7% 29.4% 29.8% Net income 22.3 3.7 502.7% -14.3 n/a
In the CIS revenue growth was strong and ahead of major competitors in each of our markets*.
In Kazakhstan our efforts to strengthen the direct dealership network, improve service quality and maintain a conservative pricing policy resulted in 13.8% quarter-on-quarter revenue growth, which is twice the rate of our major competitor. We grew ARPU by 6% compared to the first quarter, which is particularly encouraging in light of ongoing economic difficulties in the country.
We also grew our revenue market share ahead of the competition in Uzbekistan. Due to a conservative pricing policy and our focus on network and service quality we were the only operator in Uzbekistan that increased ARPU compared to the first quarter.
As our business in Ukraine has become more robust, we initiated an aggressive sales and marketing campaign targeting high-quality subscribers. The improved quality of our subscriber base, coupled with a positive seasonal trend, helped us to grow ARPU through an increase in both usage and average price per minute. As a result, we organically boosted our mobile revenue by 26% compared to the first quarter and by 92% year-on-year. Additionally, consolidation of Golden Telecom led to total annual revenue growth of 199%.
We introduced the Beeline brand in Armenia in April 2008. A strong marketing campaign, supported by improved execution in retail, resulted in a gain in revenue market share of almost one percentage point compared to the previous quarter.
* Comparisons with competitors are based on publicly available information CIS Revenues Development KAZAKHSTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 185.3 149.3 24.1% 162.8 13.8% Mobile 182.5 149.3 22.2% 162.1 12.6% Fixed 4.9 n/a 1.1 Elimination -2.1 n/a -0.4 n/a UKRAINE (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 71.2 23.8 199.2% 44.8 58.9% Mobile 45.7 23.8 92.0% 36.4 25.5% Fixed 28.4 n/a 8.9 Elimination -2.9 n/a -0.5 n/a ARMENIA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 64.7 58.4 10.8% 59.1 9.5% Mobile 26.4 23.2 13.8% 22.9 15.3% Fixed 38.3 35.2 8.8% 36.2 5.8% Elimination 0.0 n/a 0.0 n/a UZBEKISTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 52.0 23.2 124.1% 39.5 31.6% Mobile 49.5 23.2 113.4% 38.7 27.9% Fixed 2.6 n/a 0.8 Elimination -0.1 n/a 0.0 TAJIKISTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 11.2 5.2 115.4% 8.4 33.3% Mobile 11.2 5.2 115.4% 8.4 33.3% Fixed n/a n/a n/a Elimination n/a n/a n/a GEORGIA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 3.9 0.2 1850% 2.4 62.5% Mobile 3.9 0.2 1850% 2.4 62.5% Fixed n/a n/a n/a Elimination n/a n/a n/a CIS REVENUES (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Net operating revenue 388.1 260.1 49.2% 316.9 22.5% Mobile 318.9 224.9 41.8% 270.9 17.7% Fixed 74.1 35.2 110.5% 47.0 57.7% Eliminations -4.9 n/a n/a -1.0 n/a CIS Operating Highlights KAZAKHSTAN 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 5,098 3,858 32.1% 4,777 6.7% Subscriber market share*), % 39.6% 49.3% 39.5% MOU, min 109.7 88.8 23.5% 99.1 10.7% ARPU, US$ 12.3 13.6 -9.6% 11.6 6.0% UKRAINE 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 2,111 1,822 15.9% 1,971 7.1% Subscriber market share*), % 3.8% 5.2% 3.5% MOU mobile, min 231.0 159.9 44.5% 210.2 9.9% ARPU mobile, US$ 7.5 4.2 78.6% 6.1 23.0% Broadband subscribers (’000) 6 n/a 4 50.0% ARPU broadband, US$ 32.7 n/a 39.4** -17.0% ARMENIA 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 655 471 39.1% 520 26.0% Subscriber market share*), % 30.5% 33.5% 26.9% MOU mobile, min 164.9 185.1 -10.9% 158.9 3.8% ARPU mobile, US$ 15.3 17.3 -11.6% 16.1 -5.0% UZBEKISTAN 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 2,754 1,192 131.0% 2,422 13.7% Subscriber market share*), % 31.2% 32.7% 33.6% MOU, min 294.6 265.6 10.9% 265.3 11.0% ARPU, US$ 6.6 7.2 -8.3% 5.8 13.8% TAJIKISTAN 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 435 205 112.2% 378 15.1% Subscriber market share*), % 17.4% 15.2% 16.5% MOU, min 241.1 224.2 7.5% 205.8 17.2% ARPU, US$ 9.4 10.1 -6.9% 8.0 17.5% GEORGIA 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Mobile subscribers (’000) 169 14 1107% 146 15.8% Subscriber market share*), % 4.9% 0.8% 4.7% MOU, min 89.3 82.5 8.2% 87.1 2.5% ARPU, US$ 8.2 4.8 70.8% 7.4 10.8%
* Source: AC&M-Consulting. The drop in the reported market share is caused by the fact that starting from January 1, 2008 VimpelCom’s market share is calculated on the basis of active subscribers, while before that date it was based on registered subscribers.
** Broadband ARPU for March 2008 only. CIS OIBDA Development KAZAKHSTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 96.4 80.3 20.0% 82.0 17.6% Mobile 94.2 80.3 17.3% 81.6 15.4% Fixed 2.2 n/a 0.4 OIBDA Margin, % 52.0% 53.8% 50.4% UKRAINE (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 9.4 -3.1 n/a 3.2 193.8% Mobile 2.5 -3.1 n/a 1.1 127.3% Fixed 6.9 n/a 2.1 OIBDA margin, % 13.2% n/a 7.1% ARMENIA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 30.3 30.1 0.7% 29.1 4.1% Mobile 10.3 11.6 -11.2% 10.4 -1.0% Fixed 20.0 18.5 8.1% 18.7 7.0% OIBDA Margin, % 46.8% 51.5% 49.2% UZBEKISTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 27.8 11.4 143.9% 20.9 33.0% Mobile 27.2 11.4 138.6% 20.6 32.0% Fixed 0.6 n/a 0.3 OIBDA Margin, % 53.5% 49.1% 52.9% TAJIKISTAN (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 2.6 0.1 2500% 1.3 100.0% Mobile 2.6 0.1 2500% 1.3 100.0% Fixed n/a n/a n/a OIBDA Margin, % 23.2% 1.9% 15.5% GEORGIA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total -2.1 -1.9 n/a -2.2 n/a Mobile -2.1 -1.9 n/a -2.2 n/a Fixed n/a n/a n/a OIBDA Margin, % n/a n/a n/a CIS OIBDA (US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q OIBDA total 164.4 116.9 40.6% 134.3 22.4% Mobile 134.7 98.4 36.9% 112.8 19.4% Fixed 29.7 18.5 60.5% 21.5 38.1% OIBDA margin, % 42.4% 44.9% 42.3%
For more information on financial and operating data for specific countries, please refer to the supplementary file FinancialOperatingQ22008.xls on our website at http://www.vimpelcom.com/news/qrep.wbp.
Recent Developments
In July 2008 VimpelCom signed a definitive agreement to establish GTEL- Mobile, a joint venture in Vietnam created to build a GSM network in the country. According to the terms of this agreement VimpelCom will receive a 40% interest in GTEL-Mobile for $267 million*.
In July 2008 VimpelCom acquired a 90% stake in Sotelco, a company holding a GSM license in Cambodia, for $28 million**.
VimpelCom announced today it has signed an agreement with Apple to bring iPhone 3G to Russia expected later this year.
* Full text of the relevant press-release can be found at http://www.vimpelcom.com/vietnam.wbp
** Full text of the relevant press-release can be found at http://www.vimpelcom.com/cambodia.wbp
The Company’s management will discuss its second quarter results during a conference call and slide presentation on August 28, 2008 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 September 4, 2008. The slide presentation webcast will also be available for download on VimpelCom’s website http://www.vimpelcom.com/.
The VimpelCom Group consists of telecommunications operators providing voice and data services through a range of wireless, fixed and broadband technologies. The Group includes companies operating in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia, in territories with a total population of about 250 million. 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, the CIS and South-East Asia, general political uncertainties in Russia, the CIS and South-East Asia, and general economic developments in Russia, the CIS and South-East Asia, continued volatility in the world economy, challenges to 3G and Far East tenders and/or litigation with third parties. 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), if the Company is unable to successfully integrate newly-acquired businesses, including Golden Telecom, 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, 2007 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.
– Definitions and tables are attached – Attachment A: Definitions
Mobile 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.
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 subscribers during the period and dividing by the number of months in that period. 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.
Broadband subscribers are those subscribers in the registered subscriber base who were a party to a revenue generating activity in the past three months. Such activities include monthly internet access using FTTB, xDSL and WiFi technologies.
CIS Geographic Segment for the purpose of VimpelCom reporting includes our operations in the following countries: Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Armenia and Georgia.
Fixed-line subscriber is an authorized user of fixed-line communications services.
General and administrative costs (G&A) include salaries and outsourcing costs, including related social contributions required by Russian law; stock price-based compensation expenses; repair and maintenance expenses; rent, including lease payments for base station sites; utilities; other miscellaneous expenses, such as insurance, operating taxes, license fees, and accounting, audit and legal fees.
Household passed are households located within buildings, in which indoor installation of all the FTTB equipment necessary to install terminal residential equipment has been completed.
Market share of subscribers for each relevant area is calculated by dividing the estimated number of our subscribers in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia, respectively, by the total estimated number of subscribers in Russia, Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and Armenia, respectively, and is provided by AC&M-Consulting.
Mobile services are wireless voice and data transmission services excluding WiFi.
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 subscribers during the period and dividing by the number of months in that period.
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.
Prepaid subscribers are those subscribers who pay for their services in advance.
Sales and marketing costs (S&M) include marketing, advertising and dealer commissions expenses.
Take-up rate for the FTTB network is calculated by dividing the number of FTTB subscribers by the total number of households passed.
Attachment B: VimpelCom financial statements Open Joint Stock Company “Vimpel-Communications” Unaudited Condensed Consolidated Statements of Operations Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 (In thousands of US dollars, except per share (ADS) amounts) Operating revenues: Service revenues and connection fees $2,604,081 $1,715,482 $4,709,353 $3,201,674 Sales of handsets and accessories 2,719 1,263 4,398 2,785 Other revenues 5,700 1,236 8,147 2,202 Total operating revenues 2,612,500 1,717,981 4,721,898 3,206,661 Revenue based tax (1,843) (814) (3,342) (1,447) Net operating revenues 2,610,657 1,717,167 4,718,556 3,205,214 Operating expenses: Service costs 596,316 313,011 1,027,310 578,337 Cost of handsets and accessories sold 2,382 1,491 3,993 3,219 Selling general and administrative expenses 773,589 494,445 1,302,034 933,912 Depreciation 385,012 285,365 742,004 554,537 Amortization 100,864 53,807 168,258 107,096 Provision for doubtful accounts 15,704 11,462 36,641 26,571 Total operating expenses 1,873,867 1,159,581 3,280,240 2,203,672 Operating income 736,790 557,586 1,438,316 1,001,542 Other income and expenses: Interest income 24,687 7,657 39,408 12,309 Interest expense (121,078) (47,643) (200,215) (93,448) Net foreign exchange gain 25,737 8,362 210,745 25,091 Other expenses (2,531) (7,866) (10,691) (18,680) Total other income and expenses (73,185) (39,490) 39,247 (74,728) Income before income taxes and minority interest 663,605 518,096 1,477,563 926,814 Income taxes expense 178,648 143,648 374,276 263,594 Minority interest in net earnings of subsidiaries 14,796 15,175 31,841 26,672 Net income 470,161 359,273 1,071,446 636,548 Net income per common share $9.26 $7.07 $21.10 $12.52 Net income per ADS equivalent $0.46 $0.35 $1.05 $0.63 Weighted average common shares outstanding (thousands) 50,797 50,833 50,787 50,862 Open Joint Stock Company “Vimpel-Communications” Unaudited Condensed Consolidated Balance Sheets June 30, March 31, 2008 2008 (In thousands of US dollars) Assets Current assets: Cash and cash equivalents $978,782 $620,680 Trade accounts receivable 535,080 525,599 Other current assets 791,227 685,934 Total current assets 2,305,089 1,832,213 Non-current assets Property and equipment, net 7,117,382 6,879,895 Telecommunication licenses and allocation of frequencies, net 1,035,420 1,062,501 Other intangible assets, net 5,307,097 4,946,283 Other assets 1,943,911 1,305,242 Total non-current assets 15,403,810 14,193,921 Total assets $17,708,899 $16,026,134 Liabilities and shareholders’ equity Current liabilities: Accounts payable $689,374 $634,414 Dividends Payable 505,193 0 Customer advances and deposits 436,785 431,011 Short-term debt 1,248,033 968,772 Accrued liabilities 939,355 686,983 Total current liabilities 3,818,740 2,721,180 Deferred income taxes 880,300 945,265 Long-term debt 6,502,874 5,709,263 Accrued liabilities 71,036 66,688 Minority Interest 373,504 406,265 Shareholders’ equity 6,062,445 6,177,473 Total liabilities and shareholders’ equity $17,708,899 $16,026,134 Open Joint Stock Company “Vimpel-Communications” Unaudited Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2008 2007 (In thousands of US dollars) Net cash provided by operating activities $1,821,228 $1,351,512 Proceeds from bank and other loans 4,955,985 291,896 Proceeds from sale of treasury stock 17,457 34,995 Payments of fees in respect of debt issues (52,766) (1,288) Repayment of bank and other loans (319,362) (215,434) Purchase of treasury shares (41,783) (81,069) Net cash provided by financing activities 4,559,531 29,100 Purchase of property and equipment (883,834) (558,550) Purchase of intangible assets (37,603) (14,185) Purchase of software (139,985) (83,636) Acquisition of subsidiaries, net of cash acquired (4,102,305) (55,924) Late payment of purchase price – (12,688) Loans granted (350,000) – Short term deposits (101,343) – Exercise of escrow cash depositing 200,170 – Prepayment for Limnotex (561,800) – Purchase of minority interest in consolidated subsidiaries (425,254) – Purchase of other assets, net (29,654) (55,454) Net cash used in investing activities (6,431,608) (780,437) Effect of exchange rate changes on cash and cash equivalents 25,920 5,997 Net increase (decrease) in cash and cash equivalents (24,929) 606,172 Cash and cash equivalents at beginning of period 1,003,711 344,494 Cash and cash equivalents at end of period $978,782 $950,666 Supplemental cash flow information Cash paid during the period: Income tax $330,721 $260,199 Interest $127,444 $99,475 Non-cash activities: Equipment acquired under financing agreements $54,880 $25,873 Accounts payable for equipment and license 275,074 199,033 Acquisitions: Fair value of assets acquired 2,544,330 41,636 Fair value of minority interest acquired 48,770 – Difference between the amount paid and the fair value of net assets acquired 3,152,540 14,288 Cash paid for the acquisition of subsidiaries (4,748,556) (55,924) Change in Fair value of Liabilities assumed $997,084 – Attachment C: Reconciliation Tables (Unaudited)
Reconciliation table of segments presented to segments reported in financial
statements due to inter-segment revenue adjustments (In millions of US dollars) Russia CIS Total Segment operating revenue 2,239 388 2,627 Inter-segment revenues -5 -11 -16 Operating revenues from external customers 2,234 377 2,611 Mobile Fixed business business Total Segment operating revenue 2,178 477 2,655 Inter-segment revenues -1 -5 -6 Elimination adjustments -1 -37 -38 Operating revenues from external customers 2,176 435 2,611 Reconciliation of Consolidated OIBDA (In millions of US dollars) OIBDA Consolidated Total Three months ended June 30, 2008 June 30, 2007 Mar 31, 2008 OIBDA 1,223 897 1,126 Depreciation (385) (285) (357) Amortization (101) (54) (67) Operating income 737 558 702 Reconciliation of OIBDA Margin OIBDA Margin Consolidated Total Three months ended June 30, 2008 June 30, 2007 Mar 31, 2008 OIBDA margin 46.8% 52.2% 53.4% Less: Depreciation as a percentage of net operating revenue (14.7%) (16.6%) (16.9%) Less: Amortization as a percentage of net operating revenue (3.9%) (3.1%) (3.2%) Operating income as a percentage of net operating revenue 28.2% 32.5% 33.3% Attachment D: Capex Development CAPEX (in US$ mln) 2Q 2008 2Q 2007 y-o-y 1Q 2008 q-o-q Total capex 664.0 334.8 98.3% 358.5 85.2% Russia 425.1 189.0 124.9% 212.5 100.0% CIS 238.9 145.8 63.9% 146.0 63.6% Kazakhstan 55.4 45.8 21.0% 42.6 30.0% Ukraine 54.1 46.0 17.6% 26.6 103.4% Armenia 20.9 20.4 2.5% 14.6 43.2% Uzbekistan 82.8 18.5 347.6% 48.0 72.5% Tajikistan 13.5 5.7 136.8% 7.2 87.5% Georgia 12.2 9.4 29.8% 7.0 74.3%
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