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VimpelCom announces third quarter and nine-month financial results


  • Net loss of $43.9 million for 3rd quarter 1998
  • 57% increase in EBITDA for 3rd quarter 1998
  • 62% year-to-year subscriber growth

 

Moscow and New York (December 1, 1998) - Open Joint Stock Company Vimpel-Communications ("VimpelCom" or the "Company") (NYSE: VIP) today announced financial results for its third quarter and nine months ended September 30, 1998.

As of September 30, 1998, VimpelCom had over 141,600 subscribers on its networks, a 62% increase over the 87,600 subscribers at the end of the third quarter of 1997. Additionally, VimpelCom's 50% subsidiary in Samara had approximately 10,200 subscribers at the end of the third quarter of 1998, a 127% increase over the 4,500 subscribers reported at the end of the third quarter of 1997.

Net loss for the third quarter was $43.9 million, or a loss of $2.28 per share ($1.71 per ADS), compared to net income of $14.3 million, or $0.74 per share ($0.56 per ADS), earned in the same period in 1997. Each ADS represents 0.75 of one share of common stock. The net loss arose as a result of losses on foreign exchange, due to the sharp decline in the ruble as compared to the US dollar, and the write-down of the Company's GKO holdings (short-term Russian government treasury bonds) and other investments, following the Russian Government's decision in August to default on its GKOs and then to later reschedule these obligations for a fraction of their face value.

Total operating revenues for the third quarter of 1998 were $103.9 million, a 33% increase over the $78.0 million reported in the same period in 1997. Net operating revenues (net of revenue-based taxes) were $100.6 million, a 34% increase over the $75.0 million reported in the third quarter last year. Operating income for the third quarter of 1998 was $30.8 million, an increase of 59% compared with the $19.4 million reported in the same period a year ago.

EBITDA (earnings before interest, tax, depreciation, amortization, losses on foreign exchange and short-term securities) for the third quarter of 1998 was $41.7 million, 57% higher than the $26.6 million in the same period in 1997. The EBITDA margin for the third quarter of 1998 was 41.5%, an improvement over the 35.4% EBITDA margin in the same quarter in 1997. The increase in EBITDA margin in the third quarter was due primarily to an improvement in service revenue margins and lower SG&A cost margins, which more than offset the lower contributions from one-time activation fees and the higher provision for doubtful accounts receivable.

Net loss for the nine months ended September 30, 1998 was $13.7 million, or a loss of $0.71 per share ($0.53 per ADS), compared to net income of $46.9 million, or $2.43 per share ($1.82 per ADS), earned in the same period in 1997. Total operating revenues for this period were $299.9 million, a 39% increase over the $216.0 million reported in the same period in 1997. Net operating revenues (net of revenue-based taxes) were $288.9 million, a 39% increase over the $207.4 million reported in the same period in 1997. Operating income was $89.6 million, an increase of 51% compared with $59.4 million reported for the first nine months of 1997.

Commenting on today's announcement, Dmitri Zimin, President and Chief Executive Officer of VimpelCom said, "We are obviously disappointed to report a net loss for the third quarter. However, this was largely brought about by the sudden change in the macroeconomic environment, which resulted in the Company incurring significant losses on foreign exchange and having to write-down its GKO holdings and other investments. Despite the onset of the economic crisis in Russia during the third quarter, we are pleased to report continued revenue, subscriber and EBITDA growth both on a year-to-year and quarter-to-quarter comparative basis."

VimpelCom continues to make progress on a number of fronts. On August 4, the Company received amendments to its original GSM-1800 licenses for the Moscow License Area and the Central and Central Black Earth License Areas of Russia, which permit it to build dual band GSM-900/1800 networks in these regions. On October 21, the Company successfully deployed the first phase of its GSM-900 network in the Moscow License Area, in line with its strategy to build the most advanced and cost effective dual band GSM-900/1800 network using 3 MHz of frequencies in the 900 MHz band. The Company is expected to pay $30 million through a series of payments during 1998 and 1999 for these frequencies, subject to fulfillment by all parties of the terms of the issuance of such license amendments.

Dr. Zimin continued, "During the month of October, we launched a prepaid service in our GSM Moscow network with a view to broadening our potential market and capturing a more cost-conscious subscriber segment. We are pleased with the way the market is responding to this new product in spite of the current difficult economic situation here in Russia."

Selling, general and administrative expenses for the third quarter of 1998 increased 27% to $26.0 million compared to the $20.4 million reported in the same period in 1997. The absolute increase in selling, general and administrative expenses in the third quarter of 1998 was due primarily to a general increase in the level of business activity compared with the same period in 1997.

For the third quarter of 1998, the Company recorded a $6.2 million provision for doubtful accounts receivable compared to $4.1 million in the same period in 1997. This increase in provision for doubtful accounts receivable was due in part to the overall growth in business activity during the quarter compared to 1997, and to provide for customers who are taking longer to pay their bills than they have in the past, as well as customers from whom the Company believes payment is unlikely. The Company believes that its provision for doubtful accounts receivable is conservative and adequate.

Depreciation and amortization expense was $10.9 million for the third quarter of 1998, a 51% increase compared to $7.2 million in the same period of 1997. The increase was due to the increased depreciable asset base resulting from the Company's continuing capital investments in its D-AMPS and GSM-900/1800 networks.

Like many companies, VimpelCom is reliant on technology to deliver services to its customers. During 1998, VimpelCom has been utilizing, and intends to continue utilizing, internal and external resources to identify, correct or reprogram and test its computer systems for Year 2000 compliance. VimpelCom expects to replace some systems and modify others as part of this process. In October 1998, VimpelCom hired a Chief Information Officer, who, through consultation with various members of Management as well as the Company's auditors, intends to finish developing a strategic plan for VimpelCom with respect to the Year 2000 problem by the beginning of the first quarter of 1999.

In addition, VimpelCom is analyzing the extent to which its operations may be affected by the compliance efforts of other companies on which the VimpelCom's operations rely and is taking steps to minimize these problems. However, there can be no assurance that the systems of other companies on which VimpelCom's operations rely will be corrected in a timely manner, or that any such failure of VimpelCom or another company to become compliant will not have an adverse effect on VimpelCom's operations.

VimpelCom is a leading provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line". The VimpelCom Group operates GSM and Digital-AMPS cellular networks in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The VimpelCom Group holds various cellular licenses covering a total population of approximately 100 million (68% of Russia's population). VimpelCom was the first Russian Company listed on the New York Stock Exchange (November 1996), and trades under the symbol "VIP".

 

This press release contains forward-looking statements related to the development of the Company's business. These statements are based on Management's best assessment of future market conditions and trends. The actual outcome may differ from these statements as a result of unforeseen developments from competition, governmental regulations of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia, all of which may be aggravated by the current economic and political crisis. No assurance can be given that the economic crisis will abate in the foreseeable future or that the full impact of the economic crisis on the VimpelCom Group can be assessed at this time. As a result of such uncertainties, there can be no assurance that current or future changes in the political, economic and social environment or current or future regulation of the Russian telecommunications industry will not have a material adverse effect on the VimpelCom Group. 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:
Valery Goldin
VimpelCom (Moscow)
7(095) 974-5888
vgoldin@vimpelcom.com

Mona Walsh/Glenn Wiener
Edelman Financial Worldwide
1 (212) 704 4423/8174
mona_walsh@edelman.com
glenn_wiener@edelman.com

Open Joint Stock Company Vimpel-Communications
Unaudited Consolidated Condensed Statements of Income

  Three months ended
September 30,
Nine months ended
September 30,
  1998 1997 1998 1997
  (In thousands, except per share (ADS) amounts)
Operating revenues  
   Service revenues and connection fees US$ 95,516 US$ 69,805 US$ 273,061 US$ 191,716
   Sales of handsets and accessories 8,303 8,041 26,082 22,402
   Installation and equipment contracts    122    148    708    1,863
      Total operating revenues 103,941 77,994 299,851 215,981
   less revenue-based taxes    3,365    3,013    10,929    8,574
Net operating revenues 100,576 74,981 288,922 207,407
 
Operating expenses:  
   Service costs 19,842 16,985 56,133 45,133
   Cost of handsets and accessories sold 6,810 6,837 20,372 16,401
   Cost of installation and equipment contracts 39 95 394 1,170
   Selling, general and administrative expenses 25,964 20,357 74,410 57,579
   Depreciation and amortization 10,946 7,185 29,974 16,864
   Provision for doubtful accounts    6,192    4,129    18,076    10,840
Total Operating expenses    69,793    55,588    199,359    147,987
 
Operating income 30,783 19,393 89,563 59,420
 
Other income and expenses:  
   Other income 324 178 1046 315
   Interest income   1,990 (81) 6,582
   Loss on short-term securities (28,162)   (28,162)  
   Interest expense (4,002) (2,182) (10,018) (4,946)
   Net foreign exchange (loss) gain    (35,557)    (132)    (38,039)    2,278
Total other income and expenses    (67,397)    (146)    (75,254)    4,229
 
Income before income taxes and minority interest (36,614) 19,247 14,309 63,649
 
Provision for income taxes 6,587 5,253 26,793 17,077
Minority interest in net losses of subsidiaries    702    (281)    1,218    (320)
Net income(loss)    US$ (43,903)    US$ 14,275    US$ (13,702)    US$ 46,892
 
Net income (loss) per common share $(2.28) $0.74 $(0.71) $2.43
Net income (loss) per ADS equivalent $(1.71) $0.56 $(0.53) $1.82
Weighted average common shares outstanding (thousands) 19,280 19,280 19,280 19,280
 
EBITDA US $41,729 US $26,578 US $119,537 US $76,284



Open Joint Stock Company Vimpel-Communications
Condensed Consolidated Balance Sheet

  September 30,
1998
(Unaudited)
December 31,
1997

 
 (In thousands US dollars)
Assets  
Current Assets:  
  Cash and cash equivalents US$ 9,393 US$ 14,333
  Short-term investments 1,279 24,169
  Accounts receivable 47,540 41,487
  Other current assets    29,591    34,436
Total current assets 87,803 114,425
 
Property and equipment, net 414,842 347,653
Other assets    54,330    21,020
Total Assets    556,975    483,098
 
Liabilities and shareholders' equity  
Current liabilities:  
  Accounts payable US$ 42,628 US$ 12,287
  Customer deposits 55,707 51,738
  Bank loans 15,585 11,001
  Equipment financing, current portion 16,631 10,389
  Other accrued liabilities    14,089    11,382
Total current liabilities 144,640 96,797
 
Deferred incomes taxes 45,904 35,201
Equipment financing and other liabilities 164,778 136,962
 
Minority interest 7,704 6,487
 
Shareholders' equity    193,949    207,651
 
Total liabilities and shareholders' equity    US$ 556,975    US$ 483,098



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