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RTS: ESPK MICEX: DLSV
ADR: FEEOY
Investor Relations
Presentation for Analysts and Investors Group of
Brunswick UBS
Chief Executive Officer Far East Telecommunications
Company Anton A. Alexeev
May 26, 2005
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Investor Relations
Safe Harbor
The forward-looking information , which is included in this presentation, are the statements, made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. The presentation contains information about the future events and financial results, estimated by the Company in the future. These statements involve a number of risks and uncertainties. Among the factors that could cause future results include: deterioration of economy; changes of the laws, which are currently in force; increase in dependence on “Rostelecom”,OJSC, concerning the questions of proportion establishment, according to which the payment for international and long-distance traffic is divided: changes in rate of currency exchange; changes in percentage rates; changes in prices for raw materials and services, used by the issuer; changes in political situation in the country; military conflicts and cases of emergency; impossibility to continue the license for carrying out activity. The more detailed description of risks and uncertainties of the company you can find in the quarterly accounts and annual reports of “DALSVYAZ”, OJSC. The majority of the mentioned factors are beyond the control or the possibility of prognostication on the Company’s behalf. Taking onto consideration all the above-mentioned information, the Company does not recommend to rely upon any forward-looking statements, included into this presentation. The Company does not commit itself to disclosing any changes to this presentation with the aim to show the events or circumstances, which took place after the date of this presentation, or with the aim o show the unforeseen events, with the exception of the cases when this disclosure is required in accordance to the Private Securities Litigation Reform Act of 1995.
All the financial results, included in this presentation, were accounted according to Russian Accounting Standards. 2004 results are audited and comparable.
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Investor Relations
Far East Federal District
2004 Performance Review
Financial Results for 2002 – 2004
Technical Results for 2002 – 2004
Plans and guidance for 2005
FETEC at the capital markets
Q&A
Contents
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Investor Relations
FETEC is the leader of the Far East Telecommunications market;
FETEC provides services in 7 regions of the Russian Far East.
The largest region of the Russian Federation;
Borders on North Korea, North America, China, Japan;
Territory of 3.3 million square km (which is 9 times more than territory of Germany).
The number of inhabitants – 6.1 mln. people – 4.2% of total Russian number. 4,8 mln. (80%) of them are urban citizens;
Region of rending services
Russian Far East Federal District
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The Leader at Russian Far East Telecommunications Market
Market share at the served region is 51%:
Investor Relations
85% - local telephone services
89,5% - long distance domestic and international communications
60% - the Internet
27% - cellular communications (in Kamchatka and Magadan regions)
Results for 2004
6
Financial Highlights of 2004
Strong Y-o-Y Financial Results Growth (compared to 2003)
Revenue growth – 30.6% (the highest in the industry)Net income from operating growth – 66.4% (the highest in the industry)Net income (including income from assets sale) increased by 6 timesEBITDA increased by 90% EBITDA (including income from assets sale) increased by 3.5 timesThe level of digitalization (upgrading) is 61.7%Operated net capacity increased by 10% (or 115,7 thousand subscribers)Average staff number increased by 1.8% (341 people)
Revenues increased to : cellular – by 73,6% to 332 million rub. new services – by 61% to 524 million rub.local telephone services – by 30,6% to 3,2 billion rub.long distance domestic and international communications – by 10% to 3,2 billion rub.
Investor Relations
7
The Highest Revenue Growth Rate in the Industry
5.3
6.8
8.9
2002 2003 2004
+28.4%
+30.6%
Revenue (billion rub.)
Revenue increase by 30.6% in 2004 was primary driven by sale increase of 1 825,1 million rub. and increasing tariff income of 227,9 million rub.
Investor Relations
Results for 2004
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Revenue Structure by Types of Services
30.5%
6 726 million rub. 8 779 million rub.
2003 2004
Growth
43%
Local Telephone Services
36%
2%
10%
4%5%
Long distance communications
Local Telephone Services
38%
Document ServicesNew Services
Wireless, Cellular Services
Others9%
4%
6%2%
41%
Investor Relations
Document ServicesNew Services
Wireless, Cellular Services
Others
Long distance communications
Results for 2004
9
Expenditures from operating (million rub.)
2003 2004
Others expenditures
Expenditures from other companies services
Expenditures from OJSC Rostelecom
Expenditures from other telecom operators (except operators of the Group)
Electricity charges
Material Expenditures
Amortization and depreciation
Expenditures for social Insurance
Staff wages and Salaries
5 928
7 751
Investor Relations
Results for 2004
2 9412 353
671
812,2
627
315
480
385
143,1
127
314
244
823
1 192,1
481
535,3
529
706,3
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The Highest Net Income Growth Rate in the Industry
304,3
182,8
133
2002 2003 2004
Net Income from operating (million rub.)
+37.4%
+66.4%1 114
182,8133
2002 2003 2004
Net income, including income from assets sale (million rub.)
+37.4%
+526%
Investor Relations
Results for 2004
11
Strong growth of the efficiency
Revenue per line (thousand rub.)
Revenue per worker (thousand rub.)
2002 2003 2004
5,0
7,46,1
277
492
375
2002 2003 2004
+21.4%
+20.6%
+35.4%
+31.2%
Revenue per line increased by 20.6% through revenue increase by 30.6%, and the network capacity put into operation increased by 10,2%.
Revenue per worker increased by 31.2% through both revenue increase by 30,6% and decrease of average staff number by 0,5%.
Investor Relations
12
Triple EBITDA growth
EBITDA (million rub)
2002 2003 2004
623
2 431
698
EBITDA* increased by 90% to 1.3 billion rub.
EBITDA (including income from assets selling) increased by 3.5 times to 2,4 billion rub.
EBITDA growth was primary driven by income before taxes up 510% (+ 1.3 billion rub), amortization and depreciation up 200% ( + 312 million rub.), and interests up 300% (+121 million rub.).
EBITDA margin increased by 2.7 times to 27% (in 2003 - 10%).
+12%
+248.4%
* EBITDA is calculated as income before taxes + amortization and depreciation + interests (%).
Investor Relations
1 326
+90%
13
130% revenue increase from local telephone services
Revenues from local telephone services (million rub.) FETEC provides services in 7
regions of the Russian Far East.
There are 6.1 million people live in the Far East, 80% of them live in the cities.
Far East telecommunications market is still far from satiation. Telephone density at the end of 2004 was 24%. (20.5% in 2003).
1 9732 421
3 166
2002 2003 2004
+22.7%
+30.8%
Local telephone services revenue increase was driven by subscribers number increase (+115,7 thousand) and by average tariff increase by 16.5%.
Investor Relations
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Revenue from long distance domestic and international communications (million rub.)
Revenue growth from long distance communications
2 503
2 9123 197
2002 2003 2004
Long distance domestic and international communications revenue increased by 9,8% because of 12% growth of outgoing traffic.
628 916
561 380
457 550
2002 2003 2004
Long distance traffic growth (thousand minutes)
+16.4%
+9.8%
+22.7%
+12%
Investor Relations
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161% revenue growth from new services
Revenue from new services and data transmission (million rub.)
2002 2003 2004
115 364126 518
45 268
2002 2003 2004
Internet (dial up) users number
213 304
485,4
39,1
20,9217
325
524.5
Other new services (ISDN, IP-telephony, Data transmission)
DSL users number
1 465
7 915
2003 2004
4
Internet (dial-up, DSL)+49.8%
+61.4%
+154.9%
+9.7%
+440%
Investor Relations
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Strong new services traffic growth
2002 2003 2004
The Internet traffic volume (thousand minutes)
3 880
2 224
2003 2004
IP-telephony communications (thousand minutes)
2002 2003 2004
The Internet traffic volume (Gbytes)
+74.4%
+35%
72 87198 375
+55.8%153 228
+89,4%
+49,7%
335 386
635 219
950 996
Investor Relations
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174% revenue growth from cellular services
191 131
332
2002 2003 2004
Revenues from cellular services (million rub.)
FETEC provides cellular services in two regions of the Far East: Kamchatka region (GSM-900/1800) and Magadan Region (GSM-900).
11 7159 480
30 779
Number of cellular subscribers
2002 2003 2004
+45.8%
+73.8%
+23.6%
+162.7%
Investor Relations
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Staff number decrease of 1.8%
20 073
18 968
18 627
2002 2003 2004
Average staff number, including outside deputies and workers, who work under the
contracts (people)FETEC pursues the policy of staff optimization.
In 2004 staff number decreased by 1.8% (341 people) compared to 2003. - 5.5%
- 1.8%
Investor Relations
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Capital Expenditures
2002 2003 2004
Capital Expenditures (million rub.)
816
2 012
3 107
+146.7%
+54.4%
Investor Relations
The main priorities of FETEC investment program in 2004 were net expansion and upgrading, increasing of extension intraband optical lines of transmission, new communication and informational
technology inculcation.
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Installed net capacity
Operated net capacity
Strong increase of the net capacity
2002 2003 2004
1 191
1 331
1 508
1 087 1 143 1 259
Dynamics of the network capacity growth (thousand numbers)
Installed net capacity increased by 13% compared to 2003.
Operated net capacity increased by 10% compared to 2003.
Quantity of telephone devices increased 115 702 numbers.
Coefficient of installed 2002 2003 2004 network operating % 91,25 85,9 83,5
+11.7%
+5.1%
+13.3%
+10.2%
Investor Relations
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Level of the net digitalization (upgrading) 61.7%
38.7
48.3
61.7
2002 2003 2004
Electronic automatic exchanges share in the installed net (%)
Investor Relations
22
The structure of installed net capacity
11%4%
3%
44%38%
31%
39%48%
62%
14% 3%
3%
2002 2003 2004
1 191 1 331 1 508+11,7% +13,3%
Investor Relations
Installed net capacity (thousand numbers)
Ten-step Switchboards
Digital Switchboards
Coordinate Switchboards
Quasi-digital Switchboards
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Strengthening of competitive
positions
Increasing of Efficiency
Net Expansion and Modernization
(upgrading)
Active developing of the new services
Holding the leading position on the Far East
Revenues and tariffs growth maintaining
Expenditures optimization and their growth rate decreasing
Staff number decreasing
Low profitability assets selling
Corporate governance efficiency increasing
Subscribers quantity increasing (operated net capacity increasing)
Optical network expansion
Net carrying capacity expansion
Net digitalization (upgrading) increasing
The main FETEC goals in 2005
Investor Relations
24
Market share forecast
4.15.3
6.88.9
10.312.2
2001 2002 2003 2004 2005 2006
8.3
10.6
11.4
17.8
20.6
24.4Growth by 3 times
Investor Relations
FETEC market share at the Far East Telecommunications Market
2001- 2006 (billion rub.)*
In 2006 telecommunications market is estimated to grow by 3 times compared to 2001 or by 37% compared to 2004.
The main factors of market growth:
dissatisfied demand for traditional telecommunications services (telephone density is 24%);
regional economy growth;
demand increasing for the alternative services;
Forecast for FETEC market share in 2005 – 50%;
Local telephone services – 84%;
Zonal telephone services – 100%
Internet – 63%
Cellular services – 24%*
*Of Kamchatka and Magadan Regions*Company’s forecast
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Financial Guidance for 2005
8,9
10,3+15%
Revenue (Billion rub.)
2004 г. 2005 г.
Net Income from operation (million rub.)
+18%
2004 г. 2005 г.
304,2
360
Capital Expenditures (billion rub.)
2004 г. 2005 г.
2,1-43,5%
3,1
Investor Relations
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40%38%
38%41%
9%6%4%4%
2%2%7%9%
2004 2005
8,9 10,3
FETEC revenues by types of services (billion rub.)
Revenue share from new services will increase to 9%
Investor Relations
Others
Document services
Wireless, cellular Services
New Services*
Long distance services
Local telephone services
*New services - the Internet (dial-up, DSL, ISDN), IP- telephony, data transmission
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1,15
2,17
1,62
1,75
1,88
1,12
1,29
1,26
1,49
38,13
4,93
4,93
36,86
1,42
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Прочие
Shareowner capital structure (April 26, 2004)
Investor Relations
28
FETEC Shares at RTS (list «B»)
QUOTES May 18, 2005
Common shares Ticker: ESPK Face value 20 rub. Shares outstanding 95 581 42 52 weeks max. price $1.5 52 weeks min. price $0.89 WA price $1.2
Preferred shares Ticker: ESPKP Face value 20 rub. Shares outstanding 31168 901 52 weeks max. price $1.37 52 weeks min. price $0.76 WA price $1.14
Volume of shares trading at RTS in 2004 году increased by 2.3 times to 19 million.
USD.
Volume of common shares trading at RTS (2003 – 2005)
Investor Relations
ESPK
2003 2004 2005
$
FETEC shares are also traded at MICEX in the list “B”. Ticker: DLSV, DLSVP
+89%
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FETEC ADR at OTC Market
FEEOY
Investor Relations
Dalsvyaz is implementing ADR program of 1 level (Pink Sheets) since 2002.
Transfer agent is
Bank custodian is ING Bank – www.ing.com
The trading is on Over the counter market.
1 ADR is equal 30 common shares of Dalsvyaz OJSC.
The amount of shares outstanding is 1 274 418 units.
The company issued financial results accordingly IAS since 2002 – www.dsv.ru the IR section.
For more information visit www.adr.com
25
27,5
Price for last 52 weeks
max
min
30
Market cap growth
Market capitalization, December 31, 2003 – April 30, 2005
(RTS)
At the end of 2004 FETEC market cap increased to $133,7 million, but at the end of April 2005 it increased by 30% compared to 2004 and reached $173 million.
Investor Relations
020406080
100120140160180200
31.1
2.20
03
29.0
2.20
04
30.0
4.20
04
30.0
6.20
04
31.0
8.20
04
31.1
0.20
04
31.1
2.20
04
28.0
2.20
05
30.0
4.20
05
milli
on U
SD
$ 173 million.
31
Dividend growth
Dividends (rub.)
0,31 0,4
1,2
0,580,73
3,62
2002 2003 2004
(recommended)
Investor Relations
Common shares
Preferred shares
32
B - B -
B
5,35,8
(+5)4,8
(+4)
0
1
2
3
4
5
6
7
8
9
10
July 1, 2003 June 24,2004
December28, 2004г
International ratings
Investor Relations
2002 2003 2004
Credit rating – Fitch Ratings Corporate governance rating Standard & Poors
33
Thank you for attention!
Investor Relations
Questions?
Investor Relations DepartmentFETEC OJSC
57 Svetlanskaya St., Vladivostok,690590 Russia
Тel.: +7(4232) 208-500, ext. [email protected]
www.dsv.ru