(TNW.L) Teleset Networks PLC Buy/Sell

6 months ended June, 30 1H 2009 1H 2008 Change
Operating revenue, RUR 502,052,585 351,248,598 43%
Operating revenue, USD 15,127,304 14,754,081 2.5%
Operating profit, USD 6,635,099 6,549,610 1.3%
EBITDA, USD 9,350,090 8,667,207 7.9%
EBITDA margin 62% 59%
Net profit, USD 4,714,034 4,349,851 8.4%
Net margin 31% 29%
Earnings per share, cent 2.99 2.91 2.7%

Operational Highlights

Astaire Securities Plc - Nominated Adviser & Broker: +44 20 7448 4400 Shane Gallwey
Bankside Consultants - Financial PR adviser: +44 20 7367 8888

Simon Bloomfield, Steve Liebmann, Andy Harris

Non-executive Chairman's statement

The economic landscape has changed dramatically since the middle of 2008 with the decline in the global economy and turmoil in the financial markets creating exceptionally challenging business conditions all over the world.

Against this background, the performance of Teleset Networks has been most encouraging and all four operational companies within the Group (Teleset in Kazan, TNPKO, Teleset in Naberezhnye Chelny and STS in Ulyanovsk) have been delivering strong results.

Management's main priority has been focused on continuing the organic development of the Company whilst successfully completing the integration of STS, as planned, in March 2009. As expected, STS contributed significantly to profitability for the 6 months ended 30 June 2009 and we are now starting to realise synergies from the enlarged business.

Building the customer base

At 30 June 2009, the total number of Teleset Networks telephone subscribers was 161,600 with broadband users increasing by 32 per cent to 34,600 since the end of 2008. This in turn reflects continuing growth in broadband penetration in Tatarstan which, at 32 per cent, compares favourably with the average penetration of 25 per cent for Russia as a whole*.

The investment we made in our digital network is enabling Teleset to take full advantage of this situation by actively promoting DSL with the offer of complementary services, such as IPTV, WiFi connection and many others.

Another important step in the development of Teleset is the zonal network, which has already become an important contributor to the Company's overall revenue.

Board of directors

In April 2009 Mr. Georgui Horozov, a Non-executive Director representing the Black Sea Trade and Development Bank, resigned from the Board. His vast experience has been of great value to us and I would like to thank him for his valuable input to the Company.

I would also like to thank my Board colleagues for their hard work during the last challenging months and to pay tribute to employees, at all levels, for their commitment and loyalty to the Company.

Future prospects

Teleset Networks is continuing to build the business and shareholder value for the long-term, investing in the infrastructure of the Volga region and building strong relationships with our customers and property developers that are based on excellent service and on our commitment to helping them thrive in this fast changing world.

We are confident that 2009 will be another year of significant and profitable progress.

Philippos Vatiliotis, Non-executive Chairman

The results of Teleset Networks for the first half of 2009 provide a solid basis for optimism about the future. Despite the fact that 2009 has so far been tough for the economy and for the business generally, the results we have achieved have met all our expectations with all areas delivering resilient performances.

As a consequence, we are confident that Teleset will emerge from this recession a strong business with significantly better prospects than our competitors.

New opportunities

Teleset's success in difficult economic circumstances is the result of reacting quickly to changes in market conditions and offering business and residential users new and improved products and services at competitive prices.

This approach has been key in Teleset continuing the rapid expansion of its broadband customer base which increased by 32 per cent in the first half of 2009 to 34,600 subscribers.

As a result of an active marketing and sales programme, Teleset is continuing to grow its broadband customer base which will benefit the financial performance in the second half of 2009 and beyond.

Another significant contributor to the Company's growth has been the zonal network. We anticipate that this will become an increasingly significant source of revenue.

Following the vast investment made in its digital network, Teleset Networks has a significant edge over many of its local competitors. This will enable the Company to continue to be successful, and increase share, in a rapidly changing market.

Meeting the customers' needs

We have made major advances in customer service which will continue to be crucial to our success. In January 2009, we launched a unified call-center for our subscribers in Kazan and Naberezhnye Chelny. Now all our customers, whether residential or corporate, fixed-line or broadband subscribers, can access comprehensive advice on our services, tariffs and modern technologies.

Our goal is to make Teleset Networks a leader in customer service in the region. For this purpose we have introduced a client satisfaction program, including various measures to increase the loyalty of our clients. Our approach to customer service will be to deliver products and service to suit their individual needs.

Since this summer, our clients have been able to subscribe to our services both separately and in a range of tailor-made packages on which they can benefit from significant financial incentives.

We are proud that many new customers joined us in the first half 2009. They include state and municipal institutions (Administration of the Ministry of industry and trade of the Russian Federation for Tatarstan), educational establishments (Kazan state technical university), numerous banks and a big number of SMEs.
Results

Despite the financial downturn, the results we have achieved in the first half of 2009 are in line with the budget and with the management's expectations.

It needs to be noted, that the functional currency of the subsidiaries of Teleset Networks is the Russian ruble, while the presentation currency is the US dollar. As a result of the substantial depreciation of the ruble, the presentation of the Company's results in US dollars does not reflect the true underlying performance of Teleset Networks which we believe is both excellent and reflects a significantly better operational performance than our peers.

In the 6 months ended 30 June 2009, Teleset's operating revenue was USD 15.1 million. This means 2.5 per cent growth since last year. In ruble equivalent the operating revenue growth rate is 43 per cent.

Net profit is USD 4.71 million, which means an increase on the first half of 2008 of 8.4 per cent (H1 2008: USD 4.34 million). In terms of the functional currency, the increase was 51 per cent to RUR 156.5 million (H1 2008: RUR 103.5 million).

Another key figure is the EBITDA margin which was 62 per cent for the period (H1 2008 - 59 per cent).

Internet services continue to generate sustainable income which was USD 4.7 million or 35.8 per cent of total revenues (net of zonal revenues) for the first half of 2009.

An important contributor to the Group's income remains telephony rental fees which were USD 4.5 million, constituting 34.8 per cent of total income for the period.

H1 2009, USD Share of revenue
Connection fees 124,241 1.0%
Rental fees 4,534,071 34.8%
Traffic fees 1,188,327 9.1%
ISDN: Connection fees 54,202 0.4%
ISDN: Traffic fees 959,767 7.4%
Internet Services 4,669,725 35.8%
IP Services 220,348 1.7%
Sundry Income 1,296,878 9.9%

Outlook for full year 2009

Teleset is weathering the global economic storm quite well. It is also benefiting from the low penetration of broadband services in Tatarstan and its superior operating efficiency and consequent ability to win market share.

We continue to balance our rapid growth with strong business organisation and a focus on optimising costs.

With sustainable growth coming from both an expanding product portfolio and from selective expansion outside the region, all supported by a strong, cash-heavy balance sheet, the future prospects of the Company seem very promising.

Yiannis Demetriou, Chief Executive Officer
Condensed consolidated statement of financial position

30 June 2009
30 June 31 December

Note US$ US$

Non-current assets
Property, plant and equipment 4 30,877,259 32,209,568
Intangible assets 5 27,082,000 28,559,091
57,959,259 60,768,659

Current assets
Inventories 2,982,024 3,185,603
Trade and other receivables 6 7,570,463 6,826,416
Refundable taxes 11 - 370,120
Cash at bank and in hand 20,704,457 22,588,307
31,256,944 32,970,446
Total assets 89,216,203 93,739,105

Equity attributable to owners of the parent
Share capital 4,335,361 4,335,361
Other reserves 7 25,729,135 28,084,984
Retained earnings 22,487,435 17,773,401
52,551,931 50,193,746
Minority interest 4,371,904 4,023,233
Total equity 56,923,835 54,216,979

Non-current liabilities
Borrowings 8 19,776,106 22,770,642
Deferred tax liabilities 2,479,113 3,107,243
Deferred income 10 84,679 90,013
22,339,898 25,967,898

Current liabilities
Trade and other payables 9 4,874,100 5,737,582
Deferred income 10 12,982 13,707
Borrowings 8 5,000,000 7,802,939
Current tax liabilities 11 65,388 -
9,952,470 13,554,228
Total liabilities 32,292,368 39,522,126
Total equity and liabilities 89,216,203 93,739,105

Condensed consolidated income statement

Period from 1 January 2009 to 30 June 2009

30 June 2009 30 June 2008
Note US$ US$
Revenue 12 15,127,304 14,754,081
Operating expenses (8,644,708) (8,452,544)
Other income 152,503 278,442
Other expenses - (30,369)
Operating profit 6,635,099 6,549,610
Finance income 14 644,895 735,076
Finance costs 14 (818,276) (914,533)
Profit before tax 6,461,718 6,370,153
Tax 15 (1,356,110) (2,020,302)
Net profit for the period 5,105,608 4,349,851

Attributable to:
Owners of the parent 4,714,034 4,349,851
Minority interest 391,574 -
5,105,608 4,349,851
Earnings per share (cent) 16
Basic earnings per share 2.99 2.91
Diluted earnings per share 2.76 2.60

Condensed consolidated statement of comprehensive income

Period from 1 January 2009 to 30 June 2009

30 June 2009 30 June 2008
Note US$ US$
Net profit for the period 5,105,608 4,349,851

Comprehensive income
Exchange difference on the translation of (3,036,859) 2,972,049

foreign operations
Deferred tax on the translation of foreign 598,791 (675,326)

operations
Other comprehensive income, after tax (2,438,068) 2,296,723
Total comprehensive income for the period 2,667,540 6,646,574

Attributable to:
Owners of the parent 2,318,869 6,646,574
Minority interest 348,671 -
2,667,540 6,646,574

Condensed consolidated statement of changes in equity

Period from 1 January 2009 to 30 June 2009

Attributable to the owners of the parent
Other
Share reserves Retained Minority
capital (Note 7) earnings interest
Total Total
Note US$ US$ US$ US$ US$ US$
At 1 January 2008 3,082,011 28,112,295 9,210,968 40,405,274 - 40,405,274

Comprehensive income
Net profit for the period - - 4,349,851 4,349,851 - 4,349,851
Exchange difference arising on - 2,972,049 - 2,972,049 - 2,972,049

the translation of foreign subsidiaries
Deferred tax on the - (675,326) - (675,326) - (675,326)

translation of foreign operations
Total comprehensive income for - 2,296,723 4,349,851 6,646,574 - 6,646,574

the period

Other equity changes
Issue of share capital 630,725 9,240,291 - 9,871,016 - 9,871,016
Equity share based payments - 65,076 - 65,076 - 65,076
630,725 9,305,367 - 9,936,092 - 9,936,092
At 30 June 2008 3,712,736 39,714,385 13,560,819 56,987,940 - 56,987,940
At 1 January 2009 4,335,361 28,084,984 17,773,401 50,193,746 4,023,233 54,216,979

Comprehensive income
Net profit for the period - - 4,714,034 4,714,034 391,574 5,105,608
Exchange difference arising on - (2,993,956) - (2,993,956) (42,903) (3,036,859)

the translation of foreign subsidiaries
Deferred tax on the - 598,791 - 598,791 - 598,791

translation of foreign operations
Total comprehensive income for - (2,395,165) 4,714,034 2,318,869 348,671 2,667,540

the period

Other equity changes
Equity share based payments - 39,316 - 39,316 - 39,316
- 39,316 - 39,316 - 39,316
At 30 June 2009 4,335,361 25,729,135 22,487,435 52,551,931 4,371,904 56,923,835

Condensed consolidated statement of cash flows

Period from 1 January 2009 to 30 June 2009

30 June 2009 30 June 2008
Note US$ US$

Profit before tax 6,461,718 6,370,153

Adjustments:
Depreciation of property, plant and 4 2,593,880 2,033,591

equipment
Share based payment 39,316 65,076
Amortisation of intangible assets 5 121,111 84,006
Loss from the sale of property, plant and 70,300 30,369

equipment
Interest income 14 (644,895) (735,076)
Interest expense 14 528,878 872,321
Deferred income 90,451 -
9,260,759 8,720,440

Changes in working capital:
Inventories 201,845 (709,207)
Trade and other receivables (1,086,895) (1,139,932)
Trade and other payables (623,166) 2,092,168
Cash flows from operations 7,752,543 8,963,469
Tax paid (916,041) (1,920,534)
Net cash from operating activities 6,836,502 7,042,935

Payment for purchase of intangible assets 5 (85,935) (2,852)
Payment for purchase of property, plant and (3,230,999) (2,409,661)

equipment
Proceeds from disposal of property, plant 4 57,140 35,451

and equipment
Interest received 644,895 735,076
Net cash used in investing activities (2,614,899) (1,641,986)

Proceeds from issue of share capital - 9,871,016
Repayments of borrowings (5,537,214) (1,109,190)
Proceeds from borrowings - 10,000,000
Interest paid (528,878) (872,321)
Net cash (used in) / from financing (6,066,092) 17,889,505

activities

Cash and cash equivalents:
At beginning of the period 22,588,318 15,024,993
Effect of exchange rate fluctuations on (39,372) 216,976

cash held
At end of the period 20,704,457 38,532,423

Notes to the interim condensed consolidated financial statements

Period from 1 January 2009 to 30 June 2009

1. Unaudited financial statements

The interim condensed financial statements for the period ended 30 June 2009 and from 1 January 2009 to 30 June 2009 respectively, have not been audited by the external auditors of the Company.

2. Incorporation and principal activities

The Company Teleset Networks Public Company Limited (the ''Company'') was incorporated in Cyprus on 19 June 2006 as a private company with limited liability under the Companies Law, Cap. 113. Its registered office is at 89 Lemesou, 2121 Aglantzia, Nicosia, Cyprus.

The principal activity of the Group, which is unchanged from last year, is to provide telecommunication services to residential and business customers through the operation of a local digital fixed*line network in Kazan, the capital of the Republic of Tatarstan in the Russian Federation, in Naberezhnye Chelny, the second largest city in the Republic and also in Ulyanovsk, the capital of Ulyanovsk region. The basic services that Teleset Networks offers to its customers are: traditional voice telephony, data transmission, value added business services, cable TV, and other specialised telecom services.

3. Accounting policies

These interim condensed financial statements, which are presented in United States Dollars, have been prepared in accordance with the International Accounting Standard 34 ''Interim Financial Reporting'' as issued by the International Accounting Standards Board and as adopted by the European Union. The interim condensed financial statements do not include all the information and disclosures that are required for the annual financial statements and must be read in conjunction with the annual financial statements for the year ended 31 December 2008.

The Group has adopted all applicable new and revised International Financial Reporting Standards (IFRS) and the Amendments to IFRS as issued by the International Accounting Standards Board and adopted by the European Union, as well as the Interpretations as issued by the International Financial Reporting Interpretations Committee and adopted by the European Union, that relate to the Group's operations.

The accounting policies and methods used in the preparation of the interim condensed financial statements are in accordance with those used in the annual financial statements for the year ended 31 December 2008.

As from 1 January 2009, the Group has adopted IAS 1 (Revised 2007): "Presentation of Financial Statements" for the presentation of its financial statements. The application of IAS 1 (Revised 2007): "Presentation of Financial Statements" has significantly changed the presentation of the financial statements including these interim condensed financial statements. The adoption of the standard does not affect the financial position or profits of the Group, but gives rise to additional disclosures, and also requires the preparation of a new statement 'Statement of comprehensive income'. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged, however some items that were recognised directly in equity are now recognised in other comprehensive income, such as for example revaluation of property, plant and equipment.

Accounting estimates and judgement

The preparation of financial statements requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group's accounting policies. It also requires the use of assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

Costs that are incurred during the financial year are anticipated or deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year.

Corporation tax is calculated based on the expected tax rates for the whole financial year.

4. Property, plant and equipment

The main changes since last year*end are as follows:
30 June 2009 30 June 2008
US$ US$
Additions 3,230,999 2,409,661
Disposals (127,440) (65,820)
Exchange differences (1,841,987) 1,402,590
Amortisation for the period (2,593,880) (2,033,592)

5. Intangible assets

The main changes since last year*end are as follows:
30 June 2009 30 June 2008
US$ US$
Additions 85,935 2,852
Exchange differences (1,441,915) 1,318,369
Amortisation for the period (121,111) (84,004)

6. Trade and other receivables

30 June 2009 31 December 2008
US$ US$
Trade receivables 6,570,759 5,546,135
Less: Provision for impairment of receivables (342,605) (342,605)
Trade receivables * net 6,228,154 5,203,530
Deposits and prepayments 426,645 301,660
Advances to subcontractors 100,040 224,313
Taxes paid in advance 815,624 1,096,913
7,570,463 6,826.416

7. Other reserves

Share
Share Translation option Merger
premium Reserve reserve Reserve
Total
US$ US$ US$ US$ US$
At 1 January 2008 46,748,338 404,583 494,500 (19,535,126) 28,112,295
Deferred tax on the - (675,326) - - (675,326)

translation of foreign operations
Exchange difference arising on - 2,972,049 - - 2,972,049

the translation of foreign subsidiaries
Issue of share capital 9,240,291 - - - 9,240,291
Equity share based payments - - 65,076 - 65,076
55,988,629 2,701,306 559,576 (19,535,126) 39,714,385

At 30 June 2008

At 1 January 2009 55,366,010 (8,370,552) 624,652 (19,535,126) 28,084,984
Deferred tax on the - 598,791 - - 598,791

translation of foreign operations
Exchange difference arising on - (2,993,956) - - (2,993,956)

the translation of foreign subsidiaries
Equity share based payments - - 39,316 - 39,316
55,366,010 (10,765,717) 663,968 (19,535,126) 25,729,135

At 30 June 2009

8. Borrowings
30 June 2009 31 December 2008
US$ US$

Current borrowings
Bank loans 5,000,000 7,802,939

Non current borrowings
Bank loans 19,776,106 22,770,642
Total 24,776,106 30,573,581

9. Trade and other payables

30 June 2009 31 December 2008
US$ US$
Trade payables 551,661 1,025,933
Advances from customers 1,223,976 941,613
VAT 178,710 206,617
Accruals 528,507 640,102
Other payables 2,391,246 2,923,317
4,874,100 5,737,582

The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.

10. Deferred income

30 June 2009 31 December 2008
US$ US$
Government grants 97,661 103,720
97,661 103,720
Deferred income after more than one year (84,679) (90,013)
Deferred income within one year 12,982 13,707

11. Current tax liabilities / (current tax assets)

30 June 2009 31 December 2008
US$ US$
Corporation tax 65,388 (370,120)
65,388 (370,120)

12. Revenue
30 June 2009 30 June 2008
US$ US$
Connection fees 124,241 323,499
Rental fees 4,534,071 4,754,942
Traffic fees 1,188,327 2,144,317
ISDN: Connection fees 54,202 110,191
ISDN: Traffic fees 959,767 1,228,024
Internet Services 4,669,725 4,673,801
IP Services 220,348 421,473
Zonal, LD, ILD fees 2,079,745 -
Sundry Income 1,296,878 1,097,834
15,127,304 14,754,081

13. Staff costs
30 June 2009 30 June 2008
US$ US$
Wages and salaries 2,303,968 2,223,173
Share based payments 39,316 65,076
2,343,284 2,288,249

14. Finance income / cost
30 June 2009 30 June 2008
US$ US$
Interest income 644,895 735,076
Finance income 644,895 735,076
Net foreign exchange transaction losses 252,275 -
Interest expense 528,878 872,321
Other finance expenses 37,123 42,212
Finance costs 818,276 914,533
Net finance costs (173,381) (179,457)

15. Tax
30 June 2009 30 June 2008
US$ US$
Corporation tax * current period 1,322,295 1,921,246
Deferred tax * charge 33,815 99,056
Charge for the period 1,356,110 2,020,302

16. Earnings per share

30 June 2009 30 June 2008

Basic earnings per share
Earnings attributable to shareholders (US$) 4,714,034 4,349,851
157,556,715 149,424,847

Weighted average number of ordinary shares in issue during the year
2,99 2,91

Basic earnings per share (cent)

Diluted earnings per share
Earnings attributable to 4,714,034 4,349,851

shareholders (US$)
Effect of potentially dilutive (89,027) (193,418)

shares (US$)
4,625,007 4,156,433
157,556,715 149,424,847

Weighted average number of ordinary shares in issue during the year
Effect of potentially dilutive 10,094,838 10,140,686

shares
167,651,553 159,565,533
2.76 2.60

Diluted earnings per share (cent)

17. Related party transactions

The following transactions were carried out with related parties:

17.1 Directors' remuneration

The remuneration of Directors and other members of key management was as follows:
30 June 2009 30 June 2008
US$ US$
Non executive Directors 52,876 25,072
Executive Directors 223,564 273,412
Share based payments 39,316 65,076
315,756 363,560

18. Contingent liabilities

The Group had no contingent liabilities as at 30 June 2009.

19. Commitments

The Group had no capital or other commitments as at 30 June 2009.

20. Events after the end of the reporting period

There were no material events after the reporting date, which have a bearing on the understanding of these interim condensed financial statements.

This information is provided by RNS The company news service from the London Stock Exchange

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