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UTK

April 13, 2005

UTK's business plan for 2005: focus on internal reserves

Krasnodar, April 13 2005: Southern Telecommunications Company, or UTK, the largest fixed-line operator in Russia’s Southern Federal District, (???: KUBN; OTC: STJSY) announced that on March 25 the Company's board of directors (see Protocol N 30) approved UTK's business plan for 2005 (budget calculated under Russian Accounting Standards (RAS))

Commenting on the budget for 2005, UTK's General Director Georgy Romsky said:

"By implementing an investment program in 2003-2004 the Company has strengthened its market positionand ensured a reliable technological base for sustainable long-term business development. In 2004, however, the Company's debt increased as a result of borrowing on the market.

Under the business plan for 2005, UTK is to focus on maximum use of its internal reserves and to increase efficiency of the Company's financial and economic indicators. This can be attainable, as the Company's investments in its fixed assets have exceeded depreciation in the recent years.

In order to stabilize UTK's financial situation and maintain its leading position, the Company's business plan for 2005 sets the following priority tasks:

- To reduce investments by almost 3.7 times to 3.25 billion rubles,

- To reduce costs drastically and to cut the number of personnel by 5%,

- To optimize the balance sheet and payables,

- To prevent the increase of net borrowings and paying interest from operating revenues,

- To restructure subsidiaries and non-core businesses.

The implementation of these tasks will help UTK to improve its performance in 2005, to pay liabilities on time, to achieve financial results not lower than in 2004, and to retain the leading position on the communications market of Russia's Southern Federal District."

Under the approved budget for 2005, UTK plans to increase gross revenues by 7.7% to 18.05 billion rubles. This implies that revenues from communication services are to increase by 9.2% to 17.8 billion rubles, while revenues from new services* are expected to increase by 152.8% (1.35 billion rubles), and

revenues from operators acquired by UTK are to increase by 100.9%, (2.31 billion rubles), including Rostelecom's revenues at 652.7 million rubles (+2,6%).

An increase in UTK's tariff revenues is possible thanks to better operating performance and a higher tariff component (the increase in tariffs for standard communication services is expected to be 120%).

The number of telephone lines is expected to increase by 54,000 in 2005, increasing UTK's subscriber base to 3.984 million lines by late 2005. According to the Company's forecast, long-distance communication traffic (without IP-telephony) in 2005 is to amount to 2.09 trillion minutes, up 5.0% on the year. As a result, revenues from local communication services are expected to increase by 9.0% (to 7.24 billion rubles) and revenues from long-distance communication services by 6.5% (to 8.77 billion rubles).

Thanks to intensive development and promotion of new technologies, revenue from new services is to show the most growth in the structure of the Company's tariff revenues, rising from 5.4% in 2004 to 7.6% in 2005. The Company aims to increase the number of operational xDSL-connections by 4.3 times to

37,100 by the end of 2005.

The reduction of costs will make it possible for revenues to grow faster than costs by 3.9 percentage points. According to the 2005 budget, the Company's value is to amount to 13.86 billion rubles in 2005, which is up 3.8% on the year.

 

PRESS-RELEASE

The Company plans to decrease value indicator per every 100 rubles of gross revenue by 3.6% to 76.8 rubles.

To increase efficiency, UTK continues to optimize the number of its employees. In 2005, the Company plans to reduce the average number employees by 4.7% to 37,480. As a result, the share of the Company's costs on wages as a percentage of total costs is to fall from 30.3% to 27.7%.

Thanks to the completion of the construction and the launch of new facilities in 2005, depreciation costs are to remain flat on the year, with their share of total operating costs amounting to 17.0% (2.36 billion rubles).

The share of material costs toward total costs is to reduce from 8.6% to 7.5%; the share of costs for Rostelecom's services (15.9%) is not to change significantly (2.22 billion rubles). As a result, the management of UTK plans to increase sales profit by 23.1% to 4.2 billion rubles in 2005, which will ensure an increase in profit margin from 20.3% to 23.2%, and an increase in sales profit per employee by 29.2% to 111,500 rubles.

EBITDA** is to increase 31.6% on the year to 5.62 billion rubles, while EBITDA Margin is to increase from 25.5% to 31.1%.

In 2005, the Company plans to reduce its investment program by 3.7 times to 3.25 billion rubles. Of this amount the Company is to make 76% of investments from its own funds. The Company plans to spend 55% of total investments on the development and digitalization of telephony, 16% - on new services development, 12% - on data transmission networks, and 10% - on information technologies. Investments in fixed assets are planned at 3.7 billion rubles, which is 35% of the amount used in 2004. The level of investment should be enough to meet marketing goals, to complete the projects started earlier and to develop of new communication services. According to the investment program, UTK plans to introduce 93,800 numbers in 2005 (including the replacement of 36,500), 895.8 kilometers of lines within a zone, and to increase digitalization of the local network from 59.4% to 62.1%.

The development of new services in 2005 includes an increase in broadband access to the Internet (focusing on ADSL2+ technology), an increase in the number of access hubs (on the base of IP/MPLS technology), an increase in the subscriber base (on the base of Ethernet-to-home technology) on a multiservice network, and an increase in the number of wireless access points, or Wi-Fi hotspots. The Company also plans projects to develop cable TV and IP-TV (on the basis of HFC and ??? Ethernet-to-home

technologies), to upgrade data transmission networks and to develop call centers, which will make it possible to provide several services simultaneously.

Due to the reduction of investments and foreign borrowing, the Company plans to reduce costs by 9 times as compared to 2004 - to 29.6% (2.6 billion rubles). In addition, the management of UTK has set a target of paying off the Company's liabilities fully and on time.

* Revenues from new communication services which are to be used for budgeting include: Internet access, IP-telephony, ISDN, VPN MPLS (all including revenues from operators); services from intellectual networks (ICC).

** EBITDA includes Earnings Before Interest, Taxes, Depreciation and Amortization.

For any further information please contact:

UTK IR Team

Phone + 7 861 253 20 30, fax + 7 861 253 19 69, e-mail: pmaleev@mail.stcompany.ru

UTK PR Team

Phone + 7 861 259 56 99, fax + 7 861 259 56 99, e-mail: dali@mail.stcompany.ru

Southern Telecommunications Company PJSC, or UTK, is the principal provider of fixed line telecommunications for Russia’s Southern Federal District, a region covering 520,000 square kilometers with a population of 18.7 million people. UTK provides various telecom services of local and long-distance telephony and a broad range of value-added services (services of Internet, IP-telephony, ISDN, VPN, and others). UTK’s total revenue for 2004 is up 24% to RUR16.8 billion. EBITDA is up

PRESS-RELEASE

25% to RUR4.3 billion. UTK operated 4,0 million units of basic telephone sets. During 2004, UTK increased its market share of local fixed- line services to 83% and value-added services to 44%.

UTK is a subsidiary of Svyazinvest holding, which owns 38% of UTK’s authorized capital. Shares of UTK are traded in the Classic Market of NP “FB RTS” (KUBN; KUBNP), the Russian Trading System (RTS) (KUBNG; KUBNPG), and in the stock section of the Moscow Interbank Currency Exchange (MICEX) (UTEL; UTELP). One unit of American Depositary Receipt (ADRs) of UTK represents 50 common shares of the Company. UTK ADRs are traded in the US over-the-counter market (STJSY) and are quoted in the over-the counter markets of the Frankfort and Berlin Stock Exchanges (KUE) and NEWEX (KUE).

Additional information about the Company can be accessed on the website at www.stcompany.ru, in the Information Disclosure System SKRIN Issuer, in KUBN_RU of the systems Bloomberg and Reuters, and on the web-portal Rustocks.com.

 

 

 

 

 

 

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