Krasnodar, August 16, 2005:"Southern Telecommunications Company" PJSC [(RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal telecommunications provider for Russia's Southern Federal District, today reported its audited consolidated 2004 financial results in accordance with International Financial Reporting Standards (IFRS) The audit of 2004 financial statements was performed by Ernst and Young Vneshaudit.

 - 2004 consolidated revenue rose 24.2% over 2003, reaching RUR 17, 322.8 mln (USD 601.3 mln¹);

 - 2004 OIBDA² increased 32.5% year on year to RUR 4, 205.5 mln (USD 146 mln) representing an OIBDA margin of 24.3%;

 - Operating profit grew 99.8% over 2003 to RUR 1,506.3 mln (USD 52.3 mln); 

 - 2004 revenues from new value added services³ rose 56.2% to RUR 803.4 mln (USD 27.9 mln); revenues from services for national operators - 76.9% (to RUR 876.9 mln);

 - Number of basic telephone sets increased 10.1% as a total of 360.9 ths new subscribers were added to the client base of the Company  in 2004;

 - Long-distance traffic grew 7.6% to 1.98 trillion minutes.

Commenting on the 2004 financial results, Georgy ROMSKY, UTK CEO, stated: <2004 was a year of active development of the Company's business in all telecom market segments. Due to sizeable expansion in the Company's subscriber base, local tariff growth and stimulation of the market demand for value-added services by reorganization of sales system, 2004 consolidated revenue of "UTK" PJSC increased by 24.2 % to 17.3 billion rubles and the 2004 operating profit doubled.

High investment activity in 2004 arose from the necessity to further develop and upgrade telecommunication networks for maintaining the Company's market leadership positions. The made capital expenditures allowed to put over 580 thousand lines into operation in 2004, a 9.7%-increase over 2003. Such sizeable increase in numbering capacity allowed, in its turn, to add more than 360 thousand basic telephone sets to the Company's subscriber base, gaining 21.6% over 2003.

In order to stabilize UTK's financial situation and maintain its market leadership in 2005 we set the following priority tasks:

 - To reduce investments by almost 3.4 times to 3.7 billion rubles. Money will be invested only in projects having the shortest pay-back periods and the highest economic return on the investments,

 - To reduce costs drastically and to cut the number of personnel by 4.2%,

 - To stir up introduction of new technologies and value-added services, to perform reengineering of business processes,

 - 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 above mentioned tasks are reflected in the Company's development strategy and business plans and their implementation will help UTK to improve its performance in 2005, to pay liabilities on time and to retain its leading positions on the telecommunications market of Russia's Southern Federal District."

KEY FINANCIAL HIGHLIGHTS FOR 2003-2004                 

UTK's 2004 consolidated revenue grew 24.2% to RUR 17,322.7 mln (USD 601.3 mln). Revenues from telecom services increased by 22.3% to RUR 16,542.9 mln (USD 574.2 mln), other revenues  - by 87% to RUR 779.8 mln.

Revenues up due to development of value-added and local services

The increase in UTK's 2004 revenues from telecommunications services was mainly due to expansion in the Company subscribers' base, a 9.4-increase in average revenue per user (ARPU) to 261.2 rubles per month and growth in revenues from value-added services and traffic transit services for interconnected operators.

2004 revenues from local telephone services grew by 22%, reaching RUR 6,210.5 mln. Revenues from local calls (subscriber monthly local fee and time-based payments for local calls) rose by 28% to RUR 4,786.8 mln, revenues from installation and connection fees increased by 5.5% to RUR 1,423.7 mln.

Most important factors in the 2004 revenue increase from local services were a 10.1%-expansion in the Company subscriber base to 3,928.2 ths basic telephone sets (adding 360.9 ths new subscribers in 2004) and the increase in local tariffs. From October 1, 2004 monthly local fees increased by an average of 31.8% for the urban population, 26.2% - for the rural population, and 26.4% for the business sector.

2004 revenues from long-distance telephone services increased 15.5% to RUR 6,989.8 mln, including RUR 5,894 mln (up 16.8%) from domestic long-distance calls and RUR 1,095.8 mln (up 9.2%) from international long-distance calls.

The increase in domestic long-distance telephony revenues was due to a 7.6%-growth in DLD traffic to 1,870.8 million minutes and a 8.5%-increase in average DLD tariff  from 2.90 to 3.15 rubles per minute⁴. The increase in international long-distance telephony revenues was due to a 8.1%-growth in ILD traffic to 113.8 million minutes and a 1.0%-increase in average ILD tariff from 9.53 to 9.63 rubles per minute.

Revenues from value-added services and from services for national operators showed the highest growth rates. Due to UTK's aggressive investment program and active marketing policy 2004 revenues from value-added telecom services increased by 56.2% to RUR 803.4 mln. As a result market share of the Company  in the regional value-added market increased from 36%  to 44.7% in 2004.

Revenues from services for national operators increased by 76.9% to RUR 876.9 mln. Revenues from services rendered to OJSC Rostelecom for termination of long-distance traffic of its operators-partners in the network of the Company rose 98% to RUR 582.8 mln, revenues from services rendered to interconnected telecom operators that transfer intercity and international traffic of their customers via network of the Company grew by 46.1% to RUR 294.1 mln.

Revenues from other telecom services⁶  increased by 20.4% to RUR 1,662.3 mln.

In whole share of revenues from long-distance telephony in the Company's telecom revenues had a downward tendency that resulted from the UTK's policy aimed at optimization of tariffs and eliminating cross-subsidies between local and long-distance telephone services. In 2004 share of revenues from long-distance telephone services decreased from 44.7% to 42.3% while the share of revenues from local telephony remained practically the same (37.5%), the share of revenues from new value-added services increased from 3.8% to 4.9% and the share of revenues from services for national operators rose from 3.7% to 5.3%.

In the period under report residential customers accounted for 53% of telecom services provided by the Company   (vs.54.6% in 2003), corporate customers - for 34.5% (vs. 33.7% in 2003), government customers - for 7.5% (vs. 7.6% in 2003), privileged customers⁷ - for 5.0% (vs. 4.1% in 2003).

Other revenues from non-telecom services(from manufacturing of the telecommunication equipment and its technical support, transportation services, recreation services and sale of products and services provided by auxiliary units) increased by 87.0% to RUR 779.8 mln.

Operating expenses - positive trend in revenue growth compared to the Company's operating costs due to tight control and costs optimization 

UTK's operating expenses increased by 19.9% in 2004 to RUR 15,816.4 mln. The Company's weighted policy on cost control allowed it, for every 1 ruble of revenues from primary activities, to reduce costs by 3.5 %, from 0.95 to 0.91 rubles. Revenue growth exceeded operating costs by 4.3 percentage points.

The main contributors to the growth in operating cost were the increase of expenses on wages and salaries and other social payments to employees (up 20% to RUR 6,112.6 mln) as well as expenses on traffic transit services (up 33.2% to RUR 2,495.2 mln, RUR 1,878.1 mln of them being payments to Rostelecom). Material expenses (including repairs and maintenance, public utilities) grew by 34.8% to RUR 2, 297.2 mln.

The increase of wage and salary expenses was due to the change of minimal base wage rate, effective since May 1, 2004. But the specific weight of this cost item in the operating costs structure had not changed (representing 38.6%). The increase of expenses in traffic transit services (representing specific weight of 15.8% vs. 14.2% in 2003) was due to growth in the volume of long-distance traffic generated by the Company's client base and interconnected telecom operators as well as to the implementation of a new interconnect settlement system with OJSC Rostelecom, effective since August 1, 2003⁷. Depreciation charges of the Company (representing specific weight of 17.1% vs. 18.3% in 2003) contributed slightly to operating costs growth.

Material expensesgrowth (representing specific weight of 14.5% vs. 12.9% in 2003) was mainly due to the increase in the installed and equipped capacity, increase in cost of materials and spare parts, payments to outsider organizations for repairs and maintenance of buildings, inflationary effects as well as increases in the electricity and public utilities tariffs.

Other2004 operating expenses of the Company rose by 2.9% to RUR 1,544.2 mln. This was mainly due to the increase in expenditures for insurance of property, plant and equipment in the framework of centralized insurance programs (which was the case for the whole of the telecommunications sector and the region), for rent of premises as well as due to increase in advertising expenses related to re-branding of the Company's services and promotion actions aimed at increase in sales volume of new value-added services. 

2004 OIBDA amounted to RUR 4, 205.5 mln (USD 146 mln), OIBDA margin rose by 1.5 percentage points to 24.3%.

2004 operating income of UTK PJSC grew 99.8 % to RUR 1,506.3 million (USD 52.3 million). As a result the 2004 operating margin of the Company  stood at 8.7% in comparison with 5.4% last year.

Other revenues and expenses  

Other revenuesof the Company in 2004 decreased by 26.8 % to RUR 346.6 million due to a 51.2%-reduction in profits from financial investments to RUR 184.3 mln. Conversely, other expenses increased by 164.5 % to RUR 2,150.8 million in the reporting period. This was mainly due to a 225.7%-increase in interest expenses to RUR 2,080.9 million in 2004 in connection with sizeable long borrowings for financing intensive 2004 investment program of the Company. At the same time, the foreign exchange loss decreased by 67% to RUR 57 mln due to reduction of the portion of vendor foreign currency credits in the structure of the Company's credit portfolio. 

Net financial result 

Income tax expenses stood at RUR 329.6 mln, a 62.3%-decrease over a year ago. In 2004 minority interest decreased by 79% to RUR 39.6 mln. As a result 2004 net loss of the Company  was RUR 667.0 mln (USD 23.1 mln). This was mainly due to the increase in the expenditures for  the Company's debt service.

Appendices

1. Consolidated Income Statement for the years 2003 and 2004.
2. Consolidated Balance Sheets (reduced versions) as of 31 December 2003 and 31 December 2004.

Complete version of 2004 IFRS consolidated financial statements of UTK with notes to them may be viewed on the  corporate web site in "IR section/Financial reports"section. You can familiarize yourself with the additional information about UTK on the corporate website  www.stcompany.ru.

On 18 August, 2005 from 14:00 till 15:30 (Moscow time) "UTK" PJSC will hold the Internet conference "Consolidated 2004 financial statements of "UTK" PJSC in accordance with International Financial Reporting Standards (IFRS)" on the site IK "FINAM"

Certain statements of this press release are "forward-looking statements" within the meaning of the U.S. Securities Acts. The Articles of these Acts stipulating exemption from liability for acting in good faith shall be applied to such forward-looking statements.  

Due to the effects of the risks and uncertainties described hereinafter the Company's actual results could be significantly different from the forecasts stated in this press release. Such risks include the possibility that the economic and financial environment of the Company may change affecting its development prospects. There are also risks related to possible change of political and economic situation in Russia, change of the Russian legislation, change of the current or future regulation of the Russia telecommunications sector as well as risks associated with competition and other factors.

Most of the abovementioned factors cannot be controlled or predicted by the Company. Therefore, the Company does not recommend to rely unreasonably on any statements of this press-release containing forecasts of future events.

The Company is not obliged to publicly disclose any information about the changes to this press-release with the purpose to reflect events or circumstances which took place after the date of the press-release, or with the purpose to specify unforeseen events that took place, except for cases when such disclosure is required by the Russian federal laws on securities.

Appendix I

Consolidated profit and loss statement for the years 2003 and 2004

Appendix II

Consolidated balance sheets (reduced versions) as of December 31, 2003 and December 31,2004

¹ Unless specified otherwise, US dollar figures hereinafter are provided at the Central Bank of Russia average exchange rate of USD 1 = RUR 28.81 in 2004 and RUR 30.67 in 2003.
² OIBDA is calculated as the sum of operating profit and depreciation.
³ Value-added telecom services provided by UTK contain services of VPN (virtual private networks) construction on the basis of MPLS and other technologies, data transfer, Internet access (permanent IP-circuit, dial-up access, xDSL broadband access, Wi-Fi-based wireless access), termination of IP-traffic, digital cable TV network (IPTV), multimedia and multi-service networks on the basis of HFC, Ethernet to the home, and other technologies, video telephony and video conferencing, intelligent networks, content services including on the basis of Call-centers, Hosting and Co-location.
⁴ At the same time, from October 1, 2004 national long-distance tariffs for all categories of customers in tariff zones 1 and 2 have been reduced by 5 %  during busy hours (working days - from 7.00 a.m till 9.00 p.m. ) in UTK's branches "Svyazinfrom" of Astrakhan region", "Volgogradelectrosvyaz", "Kubanelectrosvyaz", "Rostovelectrosvyaz", "Electrosvyaz" of Stavropol Territory".
⁵ For the purposes of this press release other telecommunication services provided by "UTK" PJSC include rent of telephone channels, cellular services, radio and TV broadcasting, data transfer and telematic services, documentary services, other telecom services. The latter services primarily consist of revenues received by public switched telephone network (PSTN) exchanges from the rent of direct lines and local junctions.
⁶ Privileged customers are individuals that the government had agreed to provide certain benefits, including reduced cost for telecommunication services. The government was obliged to compensate the Company 50% of charged tariffs from the state budget.
⁷  See details in the Notes to consolidated financial statements of "UTK" PJSC, page 21.
⁸ US dollar figures in Appendix I are provided at the Central Bank of Russia average exchange rate of USD 1 = RUR 28.81 in 2004 and RUR 30.67 in 2003.
⁹ US dollar figures in Appendix II are provided at the Central Bank of Russia exchange rate of USD 1 as at the end of the specified periods = RUR 29.45 as of December 31, 2003 and RUR 27.75 as of December 31, 2004.