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VimpelCom announces fourth quarter and twelve months financial results
  • Net loss of $4.7 million for the twelve months ended December 31, 1998
  • 13% Year-to-year subscriber growth

Moscow and New York (March 26, 1999) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced financial results for the fourth quarter and twelve months ended December 31, 1998.

Despite the Russian economic crisis, VimpelCom's total year-to-year subscriber growth was approximately 13%. As of December 31, 1998, the number of subscribers on the Company's Moscow networks was 124,037, as compared to 110,140 subscribers reported in 1997. The number of subscribers on VimpelCom's Moscow networks decreased in the fourth quarter by approximately 12%, as compared to the 141,600 subscribers reported as of September 30, 1998. At the end of 1998, VimpelCom's 50% joint venture in Samara had 10,325 subscribers, an increase of 84% over the 1997 year end subscriber figure of 5,602.

VimpelCom's Moscow GSM network experienced a moderate increase in subscribers in the fourth quarter of 1998, despite the reduction in the Company's overall subscriber base during that same period. As of December 31, 1998, VimpelCom's Moscow GSM network had 21,066 subscribers, which constituted approximately 17% of the Company's total subscriber base as of such date, compared to 9% at the end of 1997.

VimpelCom's annual average monthly airtime usage per subscriber in 1998 was 295 minutes, approximately 22% less than the 376 minutes reported in 1997. Management believes that this increased rate of decline was exacerbated by the Russian economic crisis, resulting in a 28% quarter-over-quarter sequential decline. VimpelCom's annual average monthly service revenue per subscriber (ARPU) for 1998 was approximately $213, 23% less than the $277 reported in 1997. This reflected the decline in minutes of airtime usage, as tariffs did not change materially during 1998. VimpelCom also recorded an extraordinarily high churn rate in 1998, estimated at 54% for the year, most of which occurred subsequent to the Russian economic crisis. The Company has continued its strict policy of disconnecting non-paying customers, which accounted for almost two thirds of all disconnects during 1998. In Moscow, VimpelCom estimates that as of December 31, 1998, its subscriber market share was approximately 44%, a decrease of 8% from the 52% reported as of December 31, 1997.

For the fourth quarter ended December 31, 1998, net income was $9.0 million, or earnings of $0.47 per share ($0.35 per ADS), a 37% decrease over the $14.2 million, or $0.74 per share ($0.55 per ADS), reported in the same period of 1997. Each ADS represents 0.75 of one share of common stock. The decline in net income in the fourth quarter of 1998 compared to the same period in 1997 was due to the continued deterioration of the Russian economy. In the fourth quarter, losses in subscribers and reduced air time usage resulted in lower revenues and a sharp drop in operating income. Fourth quarter operating results were also negatively impacted by an increased provision for doubtful accounts and further losses on foreign exchange, as a result of the continuing decline in the value of the ruble compared to the U.S. dollar. A reduction in the provision for income taxes of $9.7 million, due to an over accrual in prior periods, significantly improved net income in the quarter.

Total operating revenues for the fourth quarter of 1998 were $76.1 million, a 15% decrease compared to the $89.9 million reported in the same period in 1997. For the fourth quarter of 1998, total net operating revenues (net of revenue-based taxes) were $72.1 million, a 17% decrease compared to the $86.5 million reported in the fourth quarter last year. Operating income for the fourth quarter of 1998 was $12.3 million, a decrease of 55% compared to the $27.4 million reported in the same period in 1997.

EBITDA for the fourth quarter of 1998 was $24.6 million, 31% lower than the $35.8 million reported in the same period in 1997. The Company's EBITDA margin for the fourth quarter of 1998 was 34%, a decrease of 17% from the 41% reported for the same quarter in 1997. The decrease in the Company's EBITDA margin in the fourth quarter of 1998 compared to the same period in 1997 was due primarily to the increase in the provision for doubtful accounts receivable.

EBITDA for the twelve months ended December 31, 1998 was $144.1 million, 29% higher than the $112.1 million reported in 1997. The Company's EBITDA margin for 1998 was 40%, compared with 38% reported in 1997. Net loss for the twelve months ended December 31, 1998 was $4.7 million, or a loss of $0.24 per share ($0.18 per ADS) compared with net income of $61.1 million, or $3.17 per share ($2.38 per ADS) reported in 1997. Net loss for the year was primarily due to the Russian economic crisis, which resulted in significant 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. This followed the Russian Government's decision in August to effectively default on its GKO obligations and later to reschedule these obligations for a fraction of their face value. The Company, similar to many other enterprises, financial institutions and investment funds, had viewed such GKOs as a reliable investment and hedge against inflation and was not able to foresee the August default.

Total operating revenues for 1998 were $376.0 million, a 23% increase compared to $305.9 million reported in 1997. Net operating revenues (net of revenue-based taxes) for 1998 were $361.0 million, a 23% increase compared with $293.9 million reported in1997. Operating income for 1998 was $101.8 million, an increase of 17% compared to $86.8 million reported in 1997.

Commenting on today's announcement, Dmitri Zimin, President and Chief Executive Officer of VimpelCom said, "Our fourth quarter and year end results reflect the full impact of the economic downturn in Russia. During the fourth quarter we experienced a loss of subscribers and lower traffic volumes, reducing our overall revenues by approximately 27% as compared with the third quarter. During the first quarter of 1999, we have continued to experience difficult operating conditions. However, there are clear signs that the high churn level experienced in the fourth quarter of this past year is beginning to stabilize and decline."

Zimin continued, "The launch of our prepaid service in our D-AMPS and GSM Moscow networks has helped boost sales by broadening our potential market and capturing a more cost-conscious subscriber segment to fill unused capacity of our networks. Prepaid services have also helped retain customers most affected by the economic downturn. During the month of March, in response to a prepaid service promotion, weekly sales rose to pre-crisis levels. During the course of the year, as we complete the build out of our dual-band GSM-900/1800 network, we plan to launch other new products as a means of further growing our subscriber base."

Selling, general and administrative expenses for the fourth quarter of 1998 decreased 15% to $19.1 million compared to the

$22.6 million reported in the same period in 1997. For the year ended December 31, 1998 selling, general and administrative expenses were $93.5 million, 17% higher than the $80.2 million for the same period in 1997. As a percentage of net revenue in 1998, selling, general and administrative expenses for the year decreased from 27.3% to 25.9% compared to the same period in 1997.

For the fourth quarter of 1998, the Company recorded a $6.3 million provision for doubtful accounts receivable compared to a write-back of $0.6 million for the same period in 1997. This increase in provision for doubtful accounts receivable was primarily due to the continuing deterioration in the Russian economy which resulted in customers taking longer to pay their bills than they had in the past and an increase in 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 $12.3 million for the fourth quarter of 1998, a 46% increase compared to $8.4 million reported for the same period of 1997. For the year ended December 31, 1998 depreciation and amortization expense was $42.3 million, 68% higher than the $25.2 million for the same period in 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 and the amortization of the GSM- 900 licenses acquired during 1998. Capital expenditure in 1998 amounted to $115.1 million, 40% lower than the $194.1 million in 1997.

Additionally, 1998 was marked by a significant achievement whereby VimpelCom entered into a strategic investment agreement with Telenor, a leading Norwegian telecoms operator with a strong customer base, state-of-the-art technology and high quality management team. Capital generated from this investment will further solidify our competitive position, and Telenor's operating and managerial expertise, will help foster growth for VimpelCom.

VimpelCom is a leading provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line". The VimpelCom Group operates GSM-900/1800 and Digital-AMPS cellular networks in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The VimpelCom Group holds cellular licenses covering a total population of approximately 100 million (70% of Russia's population). VimpelCom was the first Russian Company listed on the New York Stock Exchange (November 1996), and its ADSs trade 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

Glenn Wiener
Edelman Financial Worldwide
1 (212) 704 8174
glenn_wiener@edelman.com

Open Joint Stock Company Vimpel-Communications
Consolidated Condensed Statements of Income
               
               
      Three months ended   Twelve months ended
      December 31,   December 31,
      1998 1997   1998 1997
      (In thousands, except per share (ADS) amounts)
Operating revenues              
Service revenues and connection fees     US$ 71,732 US$ 79,636   US$ 344,793 US$ 271,352
Sales of handsets and accessories     4,290 9,532   30,372 31,934
Installation and equipment contracts     84 781   792 2,644
Total operating revenues     76,106 89,949   375,957 305,930
less revenue-based taxes     4,030 3,422   14,959 11,996
Net operating revenues     72,076 86,527   360,998 293,934
               
Operating expenses:              
Service costs     17,603 18,342   73,736 63,475
Cost of handsets and accessories sold     4,472 9,627   24,844 26,028
Cost of installation and equipment contracts     17 801   411 1,971
Selling, general and administrative expenses     19,129 22,609   93,539 80,188
Depreciation and amortization     12,295 8,374   42,269 25,238
Provision for doubtful accounts     6,284 (628)   24,360 10,212
Total Operating expenses     59,800 59,125   259,159 207,112
               
Operating income     12,276 27,402   101,839 86,822
               
Other income and expenses:              
Other income     1,100 1,331   2,146 1,646
Income (loss) on trading securities       (141)   (9,242) 6,441
Net write-down of Russian government securities     1,934     (17,067)  
Interest expense     (4,364) (4,125)   (14,382) (9,071)
Net foreign exchange (loss) gain     (10,086) (443)   (48,125) 1,835
Total other income and expenses     (11,416) (3,378)   (86,670) 851
               
Income before income taxes              
and minority interest     860 24,024   15,169 87,673
               
Provision for income taxes     (9,692) 9,750   17,101 26,827
Minority interest in net losses of subsidiaries     1,565 (90)   2,783 (230)
Net income (loss)     US$ 8,987 US$ 14,184   US$ (4,715) US$ 61,076
               
Net income (loss) per common share     US$ 0.47 US$ 0.74   US$ (0.24) US$ 3.17
Net income (loss) per ADS equivalent     US$ 0.35 US$ 0.55   US$ (0.18) US$ 2.38
Weighted average common shares              
outstanding (thousands)     19,280 19,280   19,280 19,280
               
EBITDA     US$ 24,571 US$ 35,776   US$ 144,108 US$ 112,060


Open Joint Stock Company Vimpel-Communications
Condensed Consolidated Balance Sheet
           
      December 31,   December 31,
      1998   1997
        (In thousands US dollars)  
           
Assets          
Current Assets:          
Cash and cash equivalents     US$ 14,479   US$ 14,333
Short-term investments     2,167   24,169
Accounts receivable     34,354   41,487
Other current assets     21,377   34,436
Total current assets     72,377   114,425
           
Property and equipment, net     416,036   347,653
Other assets     47,654   21,020
Total Assets     US$ 536,067   US$ 483,098
           
Liabilities and shareholders' equity          
Current liabilities:          
Accounts payable     US$ 36,573   US$ 12,287
Customer deposits     46,214   51,738
Bank loans     10,754   11,001
Equipment financing, current portion     17,501   10,389
Other accrued liabilities     7,594   11,382
Total current liabilities     118,636   96,797
           
Deferred incomes taxes     41,151   35,201
Equipment financing and other liabilities     164,075   136,962
           
Minority interest     9,269   6,487
           
Shareholders' equity     202,936   207,651
Total liabilities     US$ 536,067   US$ 483,098
and shareholders' equity          



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