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Sistema JSFC

September 7, 2005

Detsky Mir Group expands its retail chain

Moscow, Russia – September 7, 2005 – Sistema (LSE: SSA), the largest private sector consumer services company in Russia and the CIS, announced today that it has expanded its retail chain from 13 stores in 2004 to 25 medium scale stores and 8 small scale outfits in 2005. As part of the expansion programme, the retail business of Sistema, “Detsky Mir” Group (“Detsky Mir” or the “Group”) – has made the following acquisitions for a total cash consideration of $3 million:

 - 4 small children’s goods outlets with the brand name “Virastai-ka”

 - a medium size children’s goods retailer ZAO “Chudo-Ostrov-Neva” based in St. Petersburg, which consists of 6 large outlets

 - “S-Toys”, a children’s toys wholesale company.

With the acquisition of “Virastai-ka”, Detsky Mir added a new, small-scale outfit to its existing retail network. The small scale format is new to the Group and is expected to enable further penetration of the children’s goods market across segments. Revenues of “Virastai-ka” amounted to $1.3 million in 2004.

The acquisition of “Chudo-Ostrov-Neva” gives the Group a leading position in St. Petersburg, the second largest market in Russia after Moscow. Five “Chudo-Ostrov-Neva” outlets will be re-branded “Detsky Mir” and one will adopt the smaller “Virastai-ka” format. The consolidated revenues of “Chudo-Ostrov-Neva” were $8.5 million in 2004.

“S-Toys” is a leading children’s toys wholesale company in Russia with $5.2 million in revenues in 2004 and opportunities for market share growth through further consolidation of the segment. The acquisition of “S-Toys” is designed to achieve greater synergy between “Detsky Mir’s” retail and wholesale operations and to grow market share.

Through capitalizing on its market and technological expertise, Detsky Mir will be able to immediately increase floor space utilization in the acquired outfits by at least 20%, which should result in a significant increase of the overall viability of the businesses.

The Group’s rapid growth is achieved not only through exploiting acquisition opportunities in this fragmented market, but also through pursuing organic growth. The Group has launched 10 stores year to date, which brings the total number to 33.

The Group is the largest retailer in the Russian children’s goods market in terms of revenues, and among the most recognized brands in Russia. Detsky Mir Centre purchases goods from over 600 suppliers through contracts with local importers, wholesalers and well-known international manufacturers of children’s goods. Approximately 80% of all goods purchased by Detsky Mir Centre are imported.

Detsky Mir’s flagship store in Moscow, located within walking distance of the Kremlin, has a total area of 57,568 sq.m. The retail area in the store comprises approximately 33,329 sq.m. in total of which 8,500 sq.m. are devoted to Destky Mir, with the remainder leased out, making it one of the largest children’s department stores in Europe.

The Detsky Mir Group had revenues of $92 million for the year ended December 31, 2004.

 

 

 

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