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Sistema JSFC

January 5, 2005

Sistema announces financial results for the nine months ended September 30, 2004

Moscow, January 5, 2005. Sistema today announced its consolidated US GAAP financial results for the nine months ended September 30, 2004.

 

HIGHLIGHTS

  • Consolidated revenue up 58.5% to US$4.14 billion
  • OIBDA[*] up 65.6% to US$1.85 billion
  • Net income up 90.9% to US$337 million
  • Total consolidated assets up 13.0% to US$ 7.68 billion
  • 34.9% increase in shareholders’ equity to US$ 1.33 billion

 

Evgeny Novitsky, President of Sistema, commented on the nine month results: “The results of the first nine months of 2004 were in line with the company’s expectations and continued the trend seen in the first-half results. Strong organic growth coupled with successful acquisitions across various business segments once again confirmed Sistema’s ability to focus on its key priorities. The company intends to continue on its path of growth and expansion in Russia and the CIS.”

 

FINANCIAL SUMMARY

 

(US$ millions)

9m 2004

9m 2003

Change

FY 2003

Revenues

4,135.9

2,608.6

58.5%

3,759.9

Operating income

1,306.5

761.4

71.6%

1,105.7

Margin

31.6%

29.2%

 

29.4%

Net Income

336.7

176.4

90.9%

387.0

 

 

 

 

 

OIBDA*

1,847.2

1,115.7

65.6%

1,626.7

Margin

44.7%

42.8%

 

43.3%

 

ACQUISITIONS AND DIVESTITURES

 

The key acquisition of the reporting period was the purchase of a 51% stake in Kvazar-Micro Corporation B.V., a Ukraine-based computer hardware and software distribution, IT and systems integration business, for cash consideration of $28.0 million, including a contribution to the share capital of Kvazar-Micro of $18.0 million. Through this acquisition, Sistema added the IT and systems integration business division to its Technology Segment.

 

In the reporting period, Sistema also increased its stake in Mezhregionalny Transit Telecom (MTT), operator of a nation-wide transit network providing telecommunication services and network interconnection for mobile and fixed network operators throughout Russia, from 15% to 44.8% through the acquisition of 29.8% of MTT’s shares for cash consideration of $39.8 million.

 

By purchasing an additional 5% stake of East-West United Bank (EWUB) in the first half of 2004 for cash consideration of $1.7 million, Sistema increased its beneficial ownership and voting interest in EWUB to 35%. Sistema’s stake in EWUB was further increased in November 2004, when the company acquired an additional 14% of the bank’s shares for $5.3 million, raising its ownership to 49%. Both transactions were executed pursuant to an option agreement signed between Sistema and Vneshtorgbank in 2001.

 

During the nine months ended September 30, 2004, ROSNO repurchased 3.44% of its outstanding shares from a director of the consolidated group for total cash consideration of $5.1 million. Later in the same period Sistema acquired from ROSNO 1.75% of its shares for $2.8 million in cash. The remaining repurchased shares were sold by ROSNO to Allianz AG.

 

In August 2004, Sistema sold 83.5% of the common shares of its subsidiary P-Com to Sky-Link, a Sistema affiliate, for promissory notes worth $16.0 million. The revenues of P-Com were excluded from Sistema’s consolidated revenues from January 1, 2004.


In addition, during the periods under review, Sistema acquired controlling and non-controlling stakes in several small regional companies. Sistema also increased its shareholdings in several subsidiaries by acquiring stakes from minority shareholders and related parties. 

 

OPERATING REVIEW

 

Growth in revenues in the nine-month period ended September 30, 2004 compared with the nine-month period ended September 30, 2003 was primarily due to organic growth as well as to acquisitions. Organic growth in our aggregated revenues in the nine-month period ended September 30, 2003 was $1,216.0 million, or 46.6%. The consolidation of Comstar, Primtelefon (a subsidiary of MTS), Kvazar-Micro and Uzdunrobita (a subsidiary of MTS) contributed $56.2 million, $45.3 million, $206.4 million and $41.4 million, respectively, to the increase in aggregate revenues for the nine-month period ended September 30, 2004.

 

The Telecommunications Segment continued to be the largest revenue contributor during the nine-month period ended September 30, 2004, though its share of the aggregated revenues decreased to 81.0% from 87.1% in the nine-month period ended September 30, 2003 due to accelerated growth and significant acquisitions in our other segments. MTS and MGTS were the largest contributors to the growth of the Telecommunications Segment revenue. Revenues of MTS grew by $910.7 million or 48.8%, exclusive of the effects of acquisitions of Primtelefon and Uzdunrobita, and revenues of MGTS grew by $64.4 million or 23.1% over the nine-month period ended September 30, 2003. This increase was primarily due to the significant growth in MTS’ subscriber base from 13.9 million as of September 30, 2003 to 26.6 million as of September 30, 2004. The increase in MGTS’ revenues was primarily due to increases in subscription fees for residential and government subscribers that took effect in June and August 2003.

 

The increase in the revenues of our Technology Segment was primarily attributable to the organic growth of STROM Telecom and Sitronics, as well as to the acquisition of Kvazar-Micro in July 2004. The consolidation of Kvazar-Micro contributed $206.4 million to the increase in aggregate revenues of the Technology Segment for the nine-month period ended September 30, 2004. Revenues of STROM Telecom and Sitronics increased by $18.6 million and $11.9 million, or by 64.5% and 596.2%, respectively. Revenues of STROM telecom increased mainly due to its sale of new billing systems to MTS and MGTS. Revenues of Sitronics increased as a result of increased production of consumer electronics under the Sitronics umbrella brand.

 

Revenues from our Insurance Segment grew by 51.0% due to ROSNO’s promotion of new insurance products and the expansion of its client base in line with the overall growth of the insurance market in Russia.

 

Our real estate, tourism and retail businesses were the largest contributors to the organic growth in the Other Businesses Segment with increases in revenue of $76.8 million,
$23.9 million and $15.7 million, respectively, in the nine-month period ended
September 30, 2004 compared with the same period in 2003. The real estate business revenues increased as a result of the sale of completed office buildings and residential property in Moscow. The revenues of the tourism business increased primarily due to an increase in the number of Intourist’s customers during this period.

 

Group OIBDA increased in the nine-month period ended September 30, 2004 by 65.6% to reach $1,847.2 million. As a result of this growth in absolute terms, OIBDA margin increased to 44.7% in the first nine months of 2004 from 42.8% in the same period of 2003.

 

Sistema’s consolidated indebtedness stood at $2,540.0 million as at September 30, 2004, compared with $2,403.2 million at September 30, 2003.

 

For further information, please visit www.sistema.ru or contact:

 

Sistema Investor Relations                                                        Shared Value Limited

Andre Bliznyuk                                                                         Edward Baumgartner

Tel: +7 095 730 1543                                                              Tel. +44 (0) 20 7321 5037

bliznyuk@sistema.ru                                                               sistema@sharedvalue.net

 

Sistema is the largest private sector consumer services company in Russia and the CIS, with over 30 million customers. Sistema develops and manages market-leading businesses in a few select service-based industries, including telecommunications, technology, insurance, banking, real estate, retail and media. Founded in 1993, the company reported revenues of US$ 3.8 billion in 2003 and US$ 4.1 in the first nine months of 2004, with total assets exceeding US$ 7.6 billion as at September 30, 2004.

 
 
 

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