svyazinvest: 2003 results and 2004 key objectives

Svyazinvest: 2003 results and 2004 key objectives

April 2004

Evgeny Yurchenko, Deputy Director General

Svyazinvest

2 APRILAPRIL 2004, 2004, LONDONLONDON

Svyazinvest holds a leading position in the Russian fixed-line market

Company JSC Svyazinvest Foreign shareholders

Other

CenterTelecom 51% 8% 41%

North-West Telecom 51% 14% 35%

VolgaTelecom 51% 17% 32%

South Telecom 51% 10% 39%

Uralsvyazinform 53% 13% 34%

Sibirtelecom 51% 7% 42%

Dalsvyaz 51% 16% 33%

Rostelecom 51% 27% 22%

State75% - 1 share

Mustcom25% + 1 share

JSC Svyazinvest

7 mega-regionals

JSC Rostelecom MGTSOther

Controlling stake

Blocking stake

Company profile:

• Svyazinvest foundation – 18 September, 1995

• Sale of Svyazinvest stake to Mustcom – July 1997

• Consolidation of companies – 72 regional telecom operators were merged into 7 mega-regionals in 2000-2002

Share capital (voting stock)


JSC North-West Telecom 3.4 m lines in service market cap. $561 mn

JSC CenterTelecom 5.8 m lines in service market cap. $782 mn

JSC South Telecom 3.4 m lines in service market cap. $376 mn

JSC Dalsvyaz 1.1 m lines in service market cap. $157 mn

JSC Sibirtelecom 3.5 m lines in service market cap. $761 mn

JSC Uralsvyazinform 3.3 m lines in service

market cap. $1 518 mn

JSC VolgaTelecom 4.0 m lines in service market cap. $970 mn

Consolidation of telecom operators enabled Svyazinvest to create economically viable, competitive companies

In the result of consolidation, mega-regionals:

became more investor attractive reduced the cost of borrowed funds optimized equipment purchase


2002 2003 (estimate)

Revenue per line, RUR, th 4,279 5,06 +18,6%

Revenue per employee, RUR, th 330,1 430,3 +30,4%

Lines per employee 77 85 +9,9%

Profit per line, in thousands of RUR 1,18 1,32 +18,2%

Domestic/international traffic per line, min 445,9 488,2 +9,5%

Profit margin, % 35,7 35,7

2003 Svyazinvest major economic indicators

30,8

39,5

31,3

21,7

35,7 35,7

92,2

70,5

119,8

88,5

151,0

111,6

2001 2002 2003 (estimate)2001 2002 2003 (estimate)

Revenue CostsSales profit, RUR bnProfit margin, %

RU

R b

n

Revenue and costs* Sales profit*

26,928,2

Average number of lines

29,8

2001 2002 2003 (estimate)

Lin

es

mn

* data include JSC MGTS figures


The holding company’s investment activity in 2003

2002 2003 2002 2003

Capital investments

Lines installedDomestic /

international channels deployed

Transmission lines rolled out

2002 2003

RU

R,

bn

Lines, mn

Chan-nels,

th

Km, th

Digitalization level – 43.1% against 37.46% in 2002.

Installed capacity – 33.4 mn lines against 31.26 mn lines in 2002.

Increase in main telephone lines – 1.5 m against 1.34 m in 2002.

Rural telephony: 302.3 thousand lines installed compared to 214.4 thousand lines in 2002.

Automatic exchanges upgrade – 676.5 thousand lines.

2002 2003 (estimate) 2002 2003 (estimate)

46,4

27,4

41,7

22,0

3,5

2,653,0

63,9 14,3

9,5

Roll-out of capital assets

RU

R,

bn


Corporate reform

During 2003:

1. Svyazinvest in conjunction with the consulting firm developed a comprehensive Corporate Restructuring Program (CRP). The master plan of this program was approved by Svyazinvest management board in December 2003.

2. CRP Management Centers were set up at mega-regional companies; a number of meetings between Svyazinvest working group specialists, the consulting firm and specialists from every mega-regional company were held; development of master plans was launched.

Under the Corporate Restructuring Program, at every mega-regional company a CRP master plan based on the standard structure and recommendations on implementing Svyazinvest methodical documents will be developed.

Implementation of CRP master plans will improve asset management, reduce current costs, as well as enhance competitiveness and market capitalization of mega-regional companies.


01/01/03 01/07/03 01/08/03

Residentialcustomers(including VAT)

Budget-fundedinstitutions(excluding VAT)

Businessorganizations(excluding VAT)

RUR

Monthly rate for urban fixed subscribersTariffs growth for local telephone services in 2003:

Urbantelephony

Rural telephony

Residential customers

29% 30%

Budget-funded institutions

22% 22%

Business organizations

21% 21%

Rebalancing of tariffs for telecom services

123

167 167

118

162 162

95

137 138

In 2003 tariffs for domestic long-distance calls for budget-funded institutions, business organizations and residential customers were brought to a similar level.

In 2004 Svyazinvest will carry on increasing tariffs for local telephone services to the level of economically feasible costs, inclusive of target profitability, as well as optimizing tariffs for international calls.

Average zonal tariff revision for domestic long-distance calls

Res

iden

tial

cu

sto

mer

s

Bu

dg

et-

fun

ded

in

stit

uti

on

s

Bu

sin

ess

org

aniz

atio

ns

+2,3%

-14,3%

+1,5%

-8,3% -10,3%

-25%Zones 1-4 Zones 5-7


Tariffs for local telephone services compared to European telecom operators

Average monthly rate, US$

Average monthly rate in

Russia is still about 3 times

lower than in Central and

Eastern Europe, and is 5

times lower than in

Western Europe.

Average monthly rate at mega-regional companies amounts to $ 4.4

3,9

3,7

4,2

4,3

4,4

5,2

5,4

11,4

15.8

12,5

CenterTelecom

South Telecom

VolgaTelecom

Sibirtelecom

North-West Telecom

Urasvyazinform

Dalsvyaz

Cesky Telecom

TPSA

Matav


Corporate governance rating of mega-regional companies (Standard & Poor’s)

Corporate governance ratings of 4 mega-regional companies assigned by S&P were above average ( 5 points out of 10);

Corporate governance ratings of 3 companies were upgraded;The holding company’s target for 2004 is to further improve its corporate governance,

meeting international standards.

Company Rating as of early 2003

Rating as of year end 2003

Change

JSC North-West Telecom 5,6 5,9 0,3

JSC CenterTelecom - 5,3

JSC South Telecom 5,2 5,6 0,4

JSC VolgaTelecom - 5,8

JSC Uralsvyazinform 6,0 6,1 0,1

JSC Sibirtelecom - 5,7

JSC Dalsvyaz - 5,3

JSC Rostelecom - 6,4


Marketing Strategy

2004 key marketing objectives To strengthen company’s presence in the telecom market

To increase market share in certain segments

To increase company’s profitability by means of enhancing revenue per customer and expanding subscriber base

To build sustainably growing client-base through increasing customer loyalty

Work with allied operators

MRC’s marketing strategies Clear-cut system of marketing planning and accounting

Program of aggressive service promotion for each customer category

Regular marketing researches

Implementation of customer relationship management concept Improvement of client service

Transfer to unified billing system

Upgrade of sales and major corporate client servicing systems


Data traffic through Internet, Tbyte Internet connections with PSTN access, min mn

Development of value-added services

113 250530

2150

3000

1,9

2,8

2002 2003 (estimate)

RUR bn

Revenues from Internet services GSM subscriber base of Svyazinvest cellular companies, thousand+47,3%

2000 2001 2002 2003 2004

Jan. 2003

July 2003

Dec 2003

479573

211

503

673840

1100

280

476

597

1018

4 313

6 850

2002 2003 2002 2003

Internet services development

the Volga region the Urals Siberia


Credit ratings of mega-regional companies

Company Rating Outlook Agency

North-West Telecom В- Stable S&P

South Telecom В- Negative S&P

CenterTelecom CCC+

Stable S&P

VolgaTelecom В Stable S&P

Dalsvyaz В Positive Fitch

Uralsvyazinform В/ВB- Stable /Stable

S&P/Fitch

Sibirtelecom В+ Positive Fitch

Rostelecom В Positive S&P


2003 Capitalization dynamics

In 2003 Svyazinvest calculated capitalization grew from $ 1.3 bn to $ 3.3 bn.

In 2003 MRCs aggregate capitalization increase was over 220%.

The best capitalization dynamics among Eastern European telecom companies.

+ 16%

+ 221%

+ 57%

50

100

150

200

250

300

350

04.01.03 05.03.03 04.05.03 03.07.03 01.09.03 31.10.03 30.12.03

Telekomunikacja Polska Cesky Telecom Aggregate MRCs RTS index

+ 16%

+ 221%

+ 57%


2004 key objectives

Further increase of revenues through stepping up the amount of services offered and raising tariffs for local telephone services.

Production cost optimization, maintaining high profitability of Svyazinvest companies.

Implementation of new approaches to investment planning. Implementing provisions of the Code of Corporate Conduct across all mega-

regional companies. Development and implementation of measures under the Corporate

Restructuring Program of Svyazinvest subsidiaries to enhance company value and management efficiency.

Working out tariff plans for providing local telephone services to subscribers as a basic type of tariff setting.

Gradual increase of tariffs for local telephone services to the level of economically feasible costs, target profitability inclusive.

Continuing the revamp of the holding company’s human resources policy to meet current market challenges.


Revenue per line – 6.0 thousand rubles (up 19% against 2003)

Profit per line – 1.6 thousand rubles (up 18.5% against 2003)

Profit margin – 35.8% (35.7% in 2003)

Investments – 54.6 bn rubles (up 17.7% against 2003)

Lines to be installed – 4.0 mn lines (3.46 mn in 2003)

A proportion of costs in revenues – 73.6% (73.9% in 2003)

151,0

186,4

111,6

137,3

39,549,1

1 2 3 4 5 6

RUR bn

2003 2004 2003 2004 2003 2004

Revenue Operating costs Sales profit

Svyazinvest 2004 target performance indicators*:

* 2003 estimated data.


Thank you!

APRIL 2004APRIL 2004, , LONDONLONDON

svyazinvest: 2003 results and 2004 key objectives

Documents

mn lines

service market

average number of lines

main telephone lines

svyazinvest foundation

megaregional company

megaregional companies

mnjsc south telecom