Annual report 2009 For people Annual report 2009 to understand each other, it is important to assist them communicate Bright colors of communication Annual report 2009 Infocommunications is the most dynamic branch of Reporting today to our shareholders, partners and Russian economy, and the interregional telecommuni- clients, we can firmly say that despite the challenges cations companies of Svyazinvest Group, including and complicated tasks we faced in 2009, we North-West Telecom, are generally recognized as its honourably fulfilled our main mission to provide our leaders. clients with reliable telecommunications services, including Internet access, local telecommunications In recent years, JSC North-West Telecom made a services, IP-TV and VPN networks. breakthrough in the market for broadband Internet access services and implemented large scale social We create the most important, invaluable opportunity programs so that now in every point of the North- for anyone – to communicate with others, and making West Federal Region of Russia the most up-to-date communication brighter and more diverse with the telecommunications services are accessible. Thus the use of innovative telecommunications technologies. most important task was implemented, set by the state This is because all the ports installed by us, the and branch authorities – that of ensuring equal access thousand of kilometers of cables laid, the most to telecommunications services for all inhabitants of sophisticated equipment installed – all these are Russia regardless of their geographical location and intended for people to say over the telephone, living standards. perhaps, the most important words of their lives, to conclude a profitable deal, to find information on the For North-West Telecom, 2009 was another year of Internet which could profoundly change the lives of ongoing financial indicators and business efficiency people in their life for the better, to meet with like- growth, but another serious landmark lies ahead: the minded persons on a chat site or write in their blogs state, as the key shareholder of JSC Svyazinvest, is something which could resolve and old dispute. And, interested not only in the development of separate perhaps, it could be invaluable information for companies of the group as successful business units, ensuring a safe and peaceful sky for all the inhabitants but also in moving to a brand new level. And I hope of the North-West Federal Region under which to live, “In recent years, JSC North-West that the shareholders, taking into account the transferred through our secure network. “We create the most important, Telecom made a breakthrough in extremely positive development dynamics of North- invaluable opportunity for the market for broadband Internet West Telecom in recent years, will support the initia- Our efforts and the positive changes which have taken anyone – to communicate with tives aimed at the creation of a united telecommuni- place in the Company have certainly reflected on the access services and implemented cations company. To the best of my belief, the united operational indicators. We have succeeded in building others, and making communica- large scale social programs so that company which is being created today will become an an effective competitive business, satisfying all our tion brighter and more diverse with now in every point of the North- undisputed leader in the industry. clients’ requirements. We have laid the foundation for the use of innovative telecommuni- a growth in the Company’s investor attractiveness, West Federal Region of Russia the which will allow our shareholders to receive dividend cations technologies” most up-to-date telecommunica- income at above the average industry level and tions services are accessible” proceeds from a growth in the share price. Chairman of the Board of Directors General Director of JSC North-West Telecom of JSC North-West Telecom Evgeny Valerievich Yurchenko Vladimir Aleksandrovich Akulich Key Performance Indicators Revenue from telecommuni- Revenue per line, cations services, RUR mln RUR thousand Financial indicators, RUR mln 2007 2008 2009 25,000 6,000 5,850 5,800 Revenue 23,643 24,521 26,295 24,000 24,103 Costs 17,689 20,683 23,987 5,600 23,000 Sales profit 5,955 3,883 2,308 22,732 5,487 5,400 Net profit 11,305 3,622 3,473 5,340 22,000 21,926 +6.6% Assets 47,632 53,118 56,528 +6.0% 5,200 Long-term liabilities 5,673 13,450 8,121 +2.7% 21,000 +3.7% 5,000 Short-term liabilities 5,070 2,686 8,643 2007 2008 2009 2007 2008 2009 EBITDA 18,551 9,637 10,818 Net assets 28,962 31,216 33,825 Financial ratios Share of new services Number of broadband access Capex / Revenue, % 41.2 56.7 26.6 in revenue, % subscribers, thousand EBITDA margin, % 78.5 39.3 41.1 Net profit margin, % 47.8 14.8 13.2 20 20.0 1,000 ROA (Return on Assets), % 28.4 7.2 6.3 893.4 18 800 ROE (Return on Equity), % 48.1 12.1 10.7 17.4 635.8 Equity / Assets, % 61.0 58.7 60.0 16 600 Net debt / EBITDA, % 0.57 1.57 1.52 14 +2.6% 400 Current liquidity, % 0.80 0.64 0.43 311 12.3 +40.5% 12 200 Operational indicators +5.1% +104% 10 0 2007 2008 2009 2007 2008 2009 Installed capacity, thousand lines 5,080.4 5,175 5,234 Digitalization level of local network, % 61.5 66.6 67.8 Installed capacity of broadband access ports, thousand 466 971 1,283 Securities Revenue per employee, Number of lines per Market capitalization, RUR mln 43,824 6,829 22,666 RUR thousand employee Market capitalization, USD mln 1,779 232 749 1,200 210 Dividends, RUR per 1 share: 1,192 204 common shares 0.642 0.617 0.591 200 197 1,100 1,081 privileged shares 3.997 1.281 1.228 190 Dividend yield, %: 1,000 180 177 common shares 2.3 7.5 2.7 942.8 +3.6% +10.2% 170 privileged shares 14.9 16.4 6.1 900 160 +11.3% EPS (weighted), RUR 20.00 6.45 6.14 +14.7% 800 150 2007 2008 2009 2007 2008 2009 Table of contents Main Business Corporate Securities...58 Corporate Events...10 Description...16 Governance...42 61 Shareholder Structure 12 Corporate Events 18 Industry Overview 44 Shareholder Relations 62 Company Position 2009 21 Characteristics of the Region 45 The Board of Directors on the Stock Market 15 Corporate Events where the Company 47 General Director 65 Dividends 2010 Operates 48 Management Board 66 Bonds 24 Market Position 49 Internal Audit Commission of the Company 49 Internal Audit 29 Network Infrastructure 50 External Audit 34 IT-Solutions 50 Corporate Governance Ratings 34 Finances 51 Investment Community 39 Property Complex Relations 40 2010 Plans 55 Subsidiaries and Dependent Companies Risks...68 Social Reference and Contact Appendix...95 Responsibility...76 Information...88 70 Sovereign and Regional Risks 78 Human Resources Policy 70 Industry Risks 82 Social Policy and Charity 71 Financial Risks 73 Legal Risks 73 Risk Management ANNUAL REPORT 2009 TABLE OF CONTENTS 8 9 MAIN CORPORATE EVENTS Communication makes Bright colors of sense when there is communication someone to share the success with ANNUAL REPORT 2009 MAIN CORPORATE EVENTS Bright colors of communication ANNUAL REPORT 2009 communications line from Kingisepp to mative of allowances for accrual of • A regional representative office of 2009 Ivangorod (in the Leningrad Region) the Board of Directors, and the 2008 North-West Telecom in the Flagman was completed. Annual report and the annual account- category was opened in the Komi • A digital interactive television ser- ing statements, including the profit Republic. Corporate Events vice under the Avangard TV trademark and loss statement, were determined. • The size of interest rate of 6th cou- was put into commercial operation in The shareholders adopted the divi- pon of series 05 bonds was set at the Kaliningrad. dends for 2008 which totaled 1.281 level of 9.65% annually. 2009 • The updated official website of the rubles per each privileged share and • Payment of 5th coupon on 05 bond Company, www.nwtelecom.ru, was pre- 0.617 rubles per each common share. issue was fully performed. The 5th cou- sented, corresponding with the latest The meeting of shareholders elected pon interest rate totaled 15% p.a., 37 trends of Internet development and W3C the new composition of the Board of rubles 40 kopecks was accrued per • The Board of Directors of North- markup validation standards. Directors and Internal Audit Commis- each bond. West Telecom adopted a resolution • The 5th coupon interest rate on 05 sion and appointed the external audi- • Payment of 18th coupon on 03 on placement of four issues of bond issue was set at 15% p.a. tor CJSC PriceWaterhouseCoopers bond issue was fully performed. The exchange-traded bonds (series BO-01, • Payment of 4th coupon on 05 bond Audit. 18th coupon rate totaled 8.6% p.a., 2009 2009 BO-02, BO-03, BO-04) with duration issue was performed in full volume. 21 rubles 44 kopecks was accrued per of up to three years. The overall The rate upon 4th coupon totaled 15% each bond. volume of each issue is RUR 1 bln. annually, 37 rubles 40 kopecks was Nominal value of each bond is RUR accrued per each bond. • First syndicated loan totaling 50 mil- • In accordance with the order of the 1,000. • An agreement on the collection of lion euro, attracted in December 2009 Federal Tariff Service of Russia, tariffs • CJSC PriceWaterhouseCoopers Au- debts of subscribers – legal entities and with the assistance of leading organi- on local telephony of North-West dit was recognized the winner of the individuals — with collection agency zers Citibank N.A., ING Bank (Eurasia), Telecom were changed and additional tender for the selection of an indepen- LLC “Russian Debt Corporation” Bank Societe General Vostok and Mos- unlimited tariffs on payment of intra- 2009 dent audit organization for North-West (“Russkaya Dolgovaya Korporatsia”) cow Narodny Bank Limited, was fully zonal telephony services were Telecom.