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JSFC Sistema (SSA)

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Wednesday 08 June, 2005

JSFC Sistema

Final Results

JSFC Sistema

Sistema Announces Financial Results for the Twelve Months Ended December 31,

MOSCOW--(BUSINESS WIRE)--June 8, 2005--Sistema (LSE:SSA), the largest private
sector consumer services company in Russia and the CIS, today announced its
consolidated US GAAP financial results for the twelve months ended December 31,


    --  Consolidated revenues grew 52% to US$ 5.71 billion

    --  OIBDA(a) increased 52% to US$ 2.46 billion

    --  Net income from continuing operations before effect of cumulative change
        in accounting principle increased by 94% to US$ 446.7 million

    --  Net income grew 6% to US$ 411 million

    --  Total consolidated assets increased 29% to US$ 8.78 billion

Vladimir Evtushenkov, President and Chief Executive Officer of Sistema,
commented: '2004 was a positive year for Sistema, as all of our business
segments reported healthy sales growth and profitability. Despite increasing
competition, our telecommunications assets were able to maintain their leading
position in their existing markets, as well as to extend their footprints by
entering new markets. We have consolidated our ownership in a number of
subsidiaries, and the performance across the group has reinforced the breadth of
our consumer services offering across Russia and the neighboring CIS states.'

'We have also made great strides within the organization, in terms of the
operational integration of new businesses under our strong brands, as well as
the development and application of group-wide corporate governance procedures.
The successful high growth profile of our businesses, and the markets in which
we operate, enabled us to refinance our debt facilities last year, and to
complete an Initial Public Offering after the end of the year. The proceeds of
the IPO provide us with enhanced flexibility moving forward, both in terms of
investing in our existing businesses, as well as the possibility to acquire
strategic new assets, in order to further build on our market-leading

(a)OIBDA is operating income before depreciation and amortization. See Appendix
1 for full definition of OIBDA and its reconciliation to operating income.


(US$ millions)                                   2004     2003  Change
--------------------------------------------- -------- -------- ------
Revenues                                      5,711.3  3,759.9     52%
--------------------------------------------- -------- -------- ------
Operating income                              1,664.7  1,105.7     51%
--------------------------------------------- -------- -------- ------
Operating Margin                                   29%      29%     -
--------------------------------------------- -------- -------- ------
Net Income                                      411.2    387.0      6%
--------------------------------------------- -------- -------- ------

--------------------------------------------- -------- -------- ------
OIBDA                                         2,464.6  1,626.7     52%
--------------------------------------------- -------- -------- ------
OIBDA Margin                                       43%      43%     -
--------------------------------------------- -------- -------- ------


Sistema's acquisition strategy is focused on strengthening its positions in each
of its business areas and consolidating key assets. During 2004 the company
acquired a number of new assets and increased the shareholdings in a number of
existing assets. Major acquisitions included the purchase of 51.0% of a
Ukrainian IT distributor and systems integrator Kvazar-Micro for US$ 28.0
million, as well as 30.0% of Mezhregionalny Transit Telecom (MTT), a nationwide
transit traffic operator, for US$ 39.9 million. As a result of the purchase,
Sistema increased its shareholding in MTT to 45.0%. Our interest in insurance
business ROSNO increased to 49.0% by the end of the year, following the purchase
of existing and newly issued shares. ROSNO itself also acquired 100% of property
insurance company Leader for US$ 3.0 million. Finally, Sistema acquired an
additional 19% of East-West United Bank for US$ 7.0 million, and now owns 49% of
the Luxembourg-based banking business.

Sistema's mobile subsidiary Mobile TeleSystems (MTS) expanded into Uzbekistan
during 2004 with the acquisition of 74.0% of Uzdunrobita for US$ 121.2 million.
MTS also made a number of strategic acquisitions during the final quarter of the
year in order to further expand its footprint and ownership of well-positioned
local wireless operators. These acquisitions included 76% of Gorizont RT
(Republic of Sakha) for US$ 53.2 million; 100% of US-based MCT Sibi Corp., which
owns a 93.5% stake in Sibintertelecom (Chita region and the Aginsk-Buryatsk
Autonomous District) for US$ 37.4 million; and 52.5% of Telesot-Alania (Republic
of North Ossetia) for US$ 6.2 million.

MTS continued to consolidate minority stakes in the previously acquired
businesses, including the remaining 47.3% of TAIF Telcom (Republic of Tatarstan)
for US$ 63.0 million, and the remaining 50.0% of Far Eastern mobile operator
Primtelefon for US$ 31.0 million. MTS acquired an additional 11% stake in
SCS-900 (Siberia); the remaining 40% of FECS-900 (Khabarovsk Region); the
remaining 49% of UDN-900 (Udmurtia Republic); an additional 7.5% of MSS (Omsk
region); the remaining 35% of MTS-NN (Nizhny Novgorod); the remaining 49% of
Novitel (handset dealer in Moscow); and the remaining shares in Astrakhan Mobile
and Volgograd Mobile. The combined cost of these transactions was US$ 31.2

In 2004, Sistema disposed of 83.5% of its CDMA-800 business P-Com to Sky-Link
for US$ 16.0 million and of 100% of media subsidiary Sofora for US$1.1 million.
We also sold 33.0% of common shares of STROM telecom for a cash consideration of
US$2.0 million.


Sistema's consolidated net revenues increased by 52% year on year to US$ 5,711.3
million (US$ 3,759.9) in the twelve months ended December 31, 2004. This growth
reflected the performance of all of the group's business segments. Revenue
growth in existing businesses for the year ended December 31, 2004 was US$
1,536.5 million, or 41%. The consolidation of Kvazar-Micro, Primtelefon,
Uzdunrobita and others contributed a total of US$ 414.9 million to the increase.
The Telecommunications segment's share of Group revenues continued to decline -
from 86% to 81% year on year - as the Group benefited from continued growth
across its non-telecom businesses.

Group OIBDA increased by 52% year on year to US$ 2,464.6 million (US$ 1,626.7
million). The Group's OIBDA margin was therefore maintained at 43%. In 2004, all
of Sistema's operating segments reported positive operating income and OIBDA,
except for our Corporate and Other Segment, where negative OIBDA was driven
mainly by corporate center overheads.

Income from continuing operations before cumulative effect of a change in
accounting principle almost doubled in 2004, increasing from US$ 230.7 million
to US$ 446.7 million. Sistema's net income, which was positively affected in
2003 by the gain from discontinued operations of US$ 156.4 million, and
negatively affected in 2004 by the US$ 35.5 million cumulative effect of the
change in accounting principle, increased by 6% year on year to US$ 411.2
million (US$ 387.0 million).

Sistema's total consolidated indebtedness increased to US$ 3,064.9 million as at
December 31, 2004, compared to US$ 2,685.4 million at the end of 2003. Over the
course of 2004 the Group extended its debt maturity, with the share of long-term
debt increasing from 55.0% to 81.5% of total consolidated indebtedness. At the
same time, consolidated interest expense for the twelve month period ended
December 31, 2004 only increased to US$ 213.9 million (US$ 198.3 million),
reflecting a lower cost of borrowing in 2004. The Group's total debt to
consolidated OIBDA ratio stood at the end of 2004 at 1.2x, compared to 1.7x as
at December 31, 2003. Capital expenditures amounted to US$ 1,627.0 million.


The Telecommunications segment's revenues grew by 42% year on year to US$
4,616.7 million (US$ 3,247.6 million) in the twelve month period ended December
31, 2004. MTS and MGTS continued to represent over 90% of the Telecommunications
segment revenue, with both companies reporting continued revenue growth. MTS's
revenues grew year on year by 48.5% to US$ 3,918.2 million (US$ 2,638.2
million). Sales growth reflected record subscriber intake levels and increased
penetration in both Russia and neighboring CIS countries.

MGTS posted a 26.6% year on year increase in revenues to US$ 481.6 million (US$
380.4 million) following tariff increases and strong dynamics in unregulated
services, including wholesale ADSL Internet access. In 2004, the Group's
existing unregulated fixed line operator and internet service provider
businesses were operationally integrated under the Comstar United TeleSystems
(Comstar UTS) brand. Combined revenues of Comstar, MTU-Inform, Telmos, MTU-Intel
and Golden Line grew by 13.9% to US$ 282.5 million (US$ 248.0 million).

OIBDA for Sistema's telecommunications segment increased by 49.9% year on year
to US$ 2,414.0 million (US$ 1,609.9 million) and the segment's OIBDA margin
further improved to 52.3% (49.6%).


Sistema's technology business now accounts for 8.5% of our aggregated revenues,
compared to 2.3% of revenues for the prior reporting period. The segment's
revenues increased by more than five times year on year to US$ 498.4 million
(US$ 85.9 million), and the businesses reported a considerable increase in OIBDA
from negative US$ 0.5 million to US$ 49.4 million. This growth was both organic
and acquisitive, with Strom Telecom revenues increasing 173% from US$ 37.3
million to US$ 101.8 million, the consumer electronics business revenues growing
more than sevenfold from US$ 7.4 million to US$ 51.6 million, and the
consolidation of Kvazar-Micro, the Ukrainian IT and systems integration
business, contributing US$ 293.5 million to the segment's revenue.


Revenues from Sistema's Insurance business, comprised of ROSNO and its
subsidiaries, increased by 60.0% year on year to US$ 300.2 million (US$ 187.9
million), which reflected growth of premiums in ROSNO's key business lines, such
as voluntary medical insurance (VMI), property insurance and car (MOD)
insurance. The company maintained its cautious approach to the obligatory motor
third party liability insurance (OMTPL) and positioned itself in the higher-end
niche of the market. In 2004, ROSNO also established two subsidiaries targeting
potential growth areas of the Russian insurance market - Allianz-ROSNO Asset
Management and Allianz-ROSNO Life Insurance. As a result of improved
profitability in the core lines of business and a better performance of the
investment portfolio, the segment's operating income grew by 76.6% to US$ 30.2
million (US$ 17.1 million), bringing the operating margin to 10% from 9.1% a
year earlier.


Revenues of the Moscow Bank for Reconstruction and Development (MBRD) increased
by 14% year on year in 2004 to US$ 65.7 million (US$ 57.5 million) as the bank
continued to expand its corporate and retail banking business. In 2004, MBRD
opened two new regional branches - in Krasnodar and Ekaterinburg, 11
mini-offices in Moscow, and added 68 ATMs to its cash machine network. Sistema
intends to further develop the bank's retail business through partnership with
Sabre Capital, a London-based private equity fund with significant expertise in
rolling out retail banking networks in a number of emerging markets. The Sabre
Capital transaction is expected to close in 2005. MBRD reported a more than
fourfold increase in operating income to US$ 11.7 million (US$ 2.6 million),
which was mainly driven by the interest income from the bank's corporate and
retail business lines.

Other Businesses

Revenues of Sistema's Real Estate business, which is managed through
Sistema-Hals, more than doubled in 2004 to US$ 90.4 million from US$ 39.1
million in 2003 as a result of successful completion of a number of projects, as
well as higher income from leased properties. Sistema-Hals launched a number of
office, residential and retail development projects, mainly in Moscow, but also
in St Petersburg and other regional centers. In early 2005, Sistema engaged
Cushman & Wakefield, an international appraisal firm, to perform a valuation of
its real estate development portfolio. As a result, Sistema's stake in 28
development projects on various stages of completion was valued at US$ 238.0

The Retail segment, represented by Detsky Mir, Russia's largest retailer of
children's goods and one of the most recognized brands, reported a 42.8% growth
in revenues to US$79.3 million from US$55.5 million in the previous year, as the
company continued to roll out its retail chain. Opening of 4 new stores in
Moscow and 2 in St Petersburg led to a decline in OIBDA margin to 13.1% vs.
14.1% in 2003. In 2005, Detsky Mir has already opened 2 new stores, and is on
track towards meeting its target of opening up to 15 stores by the year-end.

For Sistema's Multimedia business, 2004 was the year of planning and preparation
for the launch of its pay-TV and video-on-demand offering over ADSL, which took
place in May 2005. The segment's financial results were driven by the
traditional media operations, which includes newspaper publishing, print
distribution and advertising. Revenues in this business increased year-on-year
to US$36.2 million (US$35.2 million in 2003).


After the close of the year, Sistema announced the acquisition of a further 5%
of MTT for US $6.4 million, which increased the Group's voting power in MTT to
50%. In May 2005, MTT was issued one of the first long-distance telephony
licenses in the process of liberalization of the long-distance market. The
company intends to start providing long-distance telephony services in the
second half of 2005.

Sistema also acquired a further 13.33% of the Moscow Bank for Reconstruction and
Development for US$ 10.0 million, which increased the Group's voting power in
MBRD to 98.9%; and the remaining 20% of Moscow fixed line operator Telmos for
approximately US$ 8.5 million, which increased the Group's voting power in
Telmos to 100%.

In February 2005, Sistema successfully completed the largest ever Initial Public
Offering by a Russian company by offering 1,550,000 shares in the form of
77,500,000 Global Depositary Receipts to institutional investors. The GDRs were
admitted to trading on the international order book of the London Stock Exchange
Official List on 14 February 2005. The net proceeds from the Offering totaled
US$ 1,284.6 million, and the company's total issued and outstanding share
capital consequently increased to 9,650,000 shares. Prior to the offering of
GDRs, Sistema's Russian ordinary shares were listed on the Russian Trading
System (RTS) and the Moscow Stock Exchange (MSE).

In February 2005, Fitch Ratings upgraded Sistema's long-term corporate credit
rating to 'B+' from 'B', and in March 2005 Standard & Poor's raised Sistema's
corporate rating from 'B' to 'BB-'.


The Board of Directors of Sistema has proposed a cash dividend of RUR 26.0 per
share (equivalent of $0.93 as of the announcement date) to the Annual General
Meeting of Shareholders, to be held on 30 June 2005 in Moscow, for the twelve
months ended 31 December 2004. The total dividend payable, if approved, would
therefore amount to RUR 250.9 million (US$ 9.0 million), which is equivalent to
2.2% of the Group's consolidated net income for the twelve month period. The
Group paid a dividend of RUR 18.5 per share (US$ 0.64 per share) to shareholders
in 2004 for the twelve months ended 31 December 2003, or a total amount of RUR
149.85 million (US$ 5.2 million).

Sistema continued to enhance its corporate governance practices during 2004. The
Board of Directors has formed a Corporate Governance Committee, chaired by
Vyacheslav Kopiev, Deputy Chairman of the Board. Sistema also appointed a
Corporate Secretary and developed a Corporate Governance Code. Throughout the
year, we continued to benefit from the expertise of the International Advisory
Council, which was formed in 2003 to bring together a number of highly
experienced Russian and international business leaders.

Ron Sommer has been nominated for election to the Board of Directors at the
Group's Annual General Meeting of Shareholders as a non-executive independent
director. Dr. Sommer is the former Chief Executive of Deutsche Telekom, and is
currently Chairman of the aforementioned International Advisory Council.

Until 2005, Sistema has reported its financial results under US GAAP on a
semiannual basis. Starting from second half of this year, we intend to move to
quarterly reporting.

Sistema is the largest private sector consumer services company in Russia and
the CIS, with over 45 million customers. Sistema develops and manages
market-leading businesses in selected service-based industries, including
telecommunications, technology, insurance, banking, real estate, retail and
media. Founded in 1993, the company reported revenues of US$ 5.7 billion for the
full year 2004, and total assets of US$ 8.8 billion as at December 31, 2004.
Sistema's shares are listed under the symbol 'SSA' on the London Stock Exchange,
under the symbol 'AFKS' on the Russian Trading System (RTS), and under the
symbol 'CUCT' on the Moscow Stock Exchange (MSE).

Some of the information in this press release may contain projections or other
forward-looking statements regarding future events or the future financial
performance of Sistema. You can identify forward looking statements by terms
such as 'expect,' 'believe,' 'anticipate,' 'estimate,' 'intend,' 'will,'
'could,' 'may' or 'might' the negative of such terms or other similar
expressions. We wish to caution you that these statements are only predictions
and that actual events or results may differ materially. We do not intend to
update these statements to reflect events and circumstances occurring after the
date hereof or to reflect the occurrence of unanticipated events. Many factors
could cause the actual results to differ materially from those contained in our
projections or forward-looking statements, including, among others, general
economic conditions, our competitive environment, risks associated with
operating in Russia, rapid technological and market change in our industries, as
well as many other risks specifically related to Sistema and its operations.


This results statement includes financial information prepared in accordance
with United States Generally Accepted Accounting Principles (US GAAP), as well
as other non-GAAP financial information. The non-GAAP financial information
should be considered as an addition to, but not as a substitute for, information
prepared in accordance with US GAAP.

OIBDA is operating income before depreciation and amortization and the OIBDA
margin is defined as OIBDA as a percentage of net revenues. These measures are
included in this results statement in order to provide additional information
regarding the Group's ability to meet future debt service payments, capital
expenditure and working capital requirements, and as a metric to evaluate
profitability. OIBDA is not a measure of financial performance under US GAAP,
and is not an alternative to net income as a measure of operating performance,
or to cash flows from operating activities as a measure of liquidity. While
depreciation and amortization are considered operating costs under GAAP, these
items primarily represent the non-cash current period allocation of costs
arising from the acquisition or development of long term assets in prior
periods. OIBDA is commonly used as a criterion for evaluation of operating
performance by credit and equity investors and analysts. The calculation of
OIBDA may be different from the calculation used by other companies and
comparability may therefore be limited. OIBDA can be reconciled to the Group's
consolidated statements as follows:

US$ 000s                             2004           2003
Operating Income                     1,664,706      1,105,743
Add depreciation and amortization    799,885        520,976
OIBDA                                2,464,591      1,626,719




                                                      2004       2003

  Cash and cash equivalents                     $  503,747 $  283,165
  Short-term investments                           207,293    278,850
  Loans to customers and banks, net                379,310    364,982
  Insurance-related receivables                    130,278     96,309
  Accounts receivable, net                         327,921    182,251
  Other receivables and prepaid expenses, net      583,074    567,125
  Inventories                                      276,832    166,203
  Deferred tax assets, current portion              73,592     53,964

                                                 ---------- ----------
    Total current assets                         2,482,047  1,992,849
                                                 ---------- ----------

Property, plant and equipment, net               4,435,215  3,368,121
Advance payments for non-current assets            181,281     52,969
Long-term receivables                                4,513      1,223
Long-term investments                               45,911     41,393
Investments in affiliated companies                206,520    150,936
Goodwill                                           174,341     71,998
Licenses, net                                      750,933    669,988
Other intangible assets, net                       467,160    446,381
Debt issuance costs, net                            27,267     17,251
Deferred tax assets                                  3,482      5,575

                                                 ---------- ----------
TOTAL ASSETS                                    $8,778,670 $6,818,684
                                                 ========== ==========


  Accounts payable                              $  361,016 $  234,871
  Bank deposits and notes issued                   326,861    173,748
  Insurance-related liabilities                    344,460    207,440
  Taxes payable                                    117,888    117,142
  Deferred tax liabilities, current portion         22,071        508
  Accrued expenses, subscriber prepayments and
   other current liabilities                       737,394    607,083
  Short-term notes payable                         221,103    349,083
  Current portion of long-term debt                340,938    844,106

                                                 ---------- ----------
    Total current liabilities                    2,471,731  2,533,981
                                                 ---------- ----------

  Capital lease obligations                          3,412      4,943
  Long-term debt                                 2,494,522  1,475,921
  Subscriber prepayments, net of current portion   156,233    103,059
  Deferred tax liabilities                         218,620    230,986
  Postretirement benefit obligation                 16,226      8,590

                                                 ---------- ----------
    Total long-term liabilities                  2,889,013  1,823,499
                                                 ---------- ----------

Deferred revenue                                   130,913    115,363

                                                 ---------- ----------
TOTAL LIABILITIES                                5,491,657  4,472,843
                                                 ---------- ----------

Minority interests in equity of subsidiaries     1,851,027  1,356,557

Commitments and contingencies                            -          -

  Share capital (68,325,000 shares authorized,
   8,100,000 shares issued and outstanding with
   par value of 90 RUR and 0.1 RUR as of
   December 31, 2004 and 2003, respectively)        25,090        171
  Additional paid-in capital                       198,882    189,934
  Retained earnings                              1,164,404    783,258
  Accumulated other comprehensive income            47,610     15,921

                                                 ---------- ----------
TOTAL SHAREHOLDERS' EQUITY                       1,435,986    989,284

                                                 ---------- ----------
                                                 ========== ==========


ENDED DECEMBER 31, 2004 and 2003 (Amounts in thousands of U.S. dollars, except
share and per share amounts)

                                                     2004        2003

Sales                                         $ 5,392,827 $ 3,543,154
Revenues from financial services                  318,459     216,761

                                               ----------- -----------
TOTAL REVENUES                                  5,711,286   3,759,915
                                               ----------- -----------

Cost of sales, exclusive of depreciation and
 amortization shown separately below           (2,020,124) (1,256,494)
Financial services related costs, exclusive of
 depreciation and amortization shown
 separately below                                (201,631)   (131,533)

                                               ----------- -----------
TOTAL COST OF SALES                            (2,221,755) (1,388,027)
                                               ----------- -----------

Selling, general and administrative expenses   (1,009,716)   (689,057)
Depreciation and amortization                    (799,885)   (520,976)
Goodwill impairment                                     -     (19,251)
Other operating expenses, net                     (44,529)    (37,326)
Equity in net income of investees                  27,121         465
Gain on disposal of interests in subsidiaries       2,184           -

                                               ----------- -----------
OPERATING INCOME                                1,664,706   1,105,743
                                               ----------- -----------

Interest income                                    18,061      19,341
Interest expense, net of amounts capitalized     (213,943)   (198,346)
Currency exchange and translation gain/(loss)      12,620      (3,015)

                                               ----------- -----------
Income from continuing operations before
 income tax, minority interests and cumulative
 effect of a change in accounting principle     1,481,444     923,723
                                               ----------- -----------

Income tax expense                               (445,731)   (290,933)

                                               ----------- -----------
Income from continuing operations before
 minority interests and cumulative effect of a
 change in accounting principle               $ 1,035,713 $   632,790
                                               ----------- -----------

Minority interests                            $  (589,014)$  (402,120)

                                               ----------- -----------
Income from continuing operations before
 cumulative effect of a change in accounting
 principle                                        446,699     230,670
                                               ----------- -----------

Gain from discontinued operations (net of
 income tax effect of $3,248)                           -      12,810

Gain on disposal of discontinued operations
 (net of income tax effect of nil)                      -     143,567

Cumulative effect of a change in accounting
 principle (net of income tax effect of nil)      (35,472)          -

                                               ----------- -----------
NET INCOME                                    $   411,227 $   387,047
                                               =========== ===========

Other comprehensive income/(loss):
Unrealized gain on securities available for
 sale, net of income tax effect of nil              1,967       5,582
Change in fair value of interest rate swaps,
 net of taxes                                        (257)          -
Translation adjustment, net of minority
 interest of $28,582 and $24,426,
 respectively, and income tax effect of nil        29,979      35,321
Income tax effect of changes in the functional
 currency, net of minority interest of $17,184          -     (22,449)

                                               ----------- -----------
Comprehensive income                          $   442,916 $   405,501
                                               ----------- -----------

Weighted average number of common shares
 outstanding                                    8,100,000   8,100,000

Earnings (loss) per share, basic and diluted:
  Income from continuing operations before
   cumulative effect of a change in accounting
   principle                                  $      55.1 $      28.5
  Gain from discontinued operations                     -        19.3
  Cumulative effect of a change in accounting
   principle                                        (4.38)          -
  Net income                                        50.77        47.8



                                                        2004     2003

  Net income                                        $411,227 $387,047

  Adjustments to reconcile net income to net cash
   provided by operations:
    Gain from discontinued operations                      -  (12,810)
    Depreciation and amortization                    799,885  520,976
    Goodwill impairment                                     -  19,251
    Loss on disposal of property, plant and equipment   1,551  15,048
    Long-term investments impairment                         3,070  -
    Gain on disposal of discontinued operations           -  (143,567)
    Loss on disposal of interests in subsidiaries            1,862  -
    Cumulative effect of a change in accounting principle   35,472  -
    Minority interests                               589,014  402,120
    Equity in net income of investees                   (27,121) (465)
    Deferred income tax benefit                      (58,903) (42,601)
    Provision for doubtful accounts receivable       29,809     9,972
    Allowance for loan losses                        13,810     9,902
    Inventory obsolescence charge                     5,868      (797)

  Changes in operating assets and liabilities, net
   of effects from purchase of businesses:
    Trading securities                               27,142   (38,988)
    Loans to banks                                  (25,661) (121,444)
    Insurance-related receivables                    31,111   (19,715)
    Accounts receivable                             (101,567) (47,005)
    Other receivables and prepaid expenses           (3,929) (101,632)
    Inventories                                     (112,269) (54,406)
    Accounts payable                                   54,110  (1,600)
    Insurance-related liabilities                  51,985      43,877
    Taxes payable                                  (1,997)     24,694
    Accrued expenses, subscriber prepayments
     and other liabilities                        171,966     136,567
    Postretirement benefit obligation               7,636       1,978
                                               ----------- -----------

    Net cash provided by operations             1,904,071     986,402
                                               ----------- -----------

  Purchase of property, plant and equipment    (1,498,098) (1,024,870)
  Purchase of intangible assets                  (164,577)   (134,424)
  Purchase of businesses, net of cash acquired   (338,906) (1,005,451)
  Proceeds from disposal of subsidiaries, net
   of cash disposed                                   649      71,417
  Purchase of long-term investments               (76,217)    (88,281)
  Proceeds from sale of long-term investments           -       6,538
  Purchase of short-term investments             (142,696)   (102,165)
  Proceeds from sale of short-term investments    187,500         312
  Proceeds from sale of property, plant and
   equipment                                        7,807       4,384
  Net increase in loans to customers              (39,898)    (92,696)
                                               ----------- -----------

    Net cash used in investing activities      (2,064,436) (2,365,236)
                                               ----------- -----------

  (Principal payments on)/proceeds from short-
   term borrowings, net                           (263,981)   120,772
  Net increase/(decrease) in deposits from
   customers                                       150,876    (15,294)
  Net increase in bank promissory notes issued      12,838     56,449
  Proceeds from grants                               3,285      7,390
  Proceeds from capital transactions of
   subsidiaries                                      9,445          -
  Proceeds from long-term borrowings, net of
   debt issuance costs                           1,458,082  2,182,802
  Principal payments on long-term borrowings      (868,347)  (758,784)
  Principal payments on capital lease
   obligations                                      (7,924)   (25,534)
  Payments to shareholders of subsidiaries        (108,165)   (63,069)
  Dividends paid                                    (5,162)
                                                 ---------- ----------

    Net cash provided by financing activities   $  380,947 $1,504,732
                                                 ---------- ----------

INCREASE IN CASH AND CASH EQUIVALENTS           $  220,582 $  125,898

CASH AND CASH EQUIVALENTS, beginning of the year   283,165    157,267
                                                 ---------- ----------

CASH AND CASH EQUIVALENTS, end of the year      $  503,747 $  283,165
                                                 ========== ==========

  Interest, net of amounts capitalized          $ (265,779)$ (146,863)
  Income taxes                                    (487,447)  (335,636)

  Property, plant and equipment contributed free
   of charge                                    $   13,597 $   18,793
  Equipment acquired through vendor financing       20,714     17,093
  Equipment acquired under capital leases            6,393     17,709

    CONTACT: Sistema Investor Relations
             Andre Bliznyuk, +7 095 730 1543
             [email protected]
             Shared Value Limited
             Matthew Hooper, +44 (0) 20 7321 5023
             [email protected]

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