“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC

ANNUAL REPORTANNUAL REPORT130.06.2004

“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC “SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC

AgendaAgenda

of the Annual General Shareholders’ Meeting of “UTK” PJSC of the Annual General Shareholders’ Meeting of “UTK” PJSC 30.06.2004 30.06.2004

AgendaAgenda

of the Annual General Shareholders’ Meeting of “UTK” PJSC of the Annual General Shareholders’ Meeting of “UTK” PJSC 30.06.2004 30.06.2004

1. Approval of the annual report, annual financial accounts including profit and loss statement (profit and loss accounts), distribution of profits and losses of the Company according to the results of the reporting financial year (2003).

2. Determination of 2003 dividend size, form and time of payment under each category and type of shares

3. Election of the members to the Company’s Board of Directors

4. Election of the members to the Company’s Auditing Commission

5. Appointment of the Company’s Auditor for the year 2004

6. Determination of the rates of deductions for calculation of the annual remuneration to be paid to the members of the Board of Directors

7. Introduction of amendments and additions to the Company’s Charter

8. Introduction of amendments and additions to the Company’s Provisions on the Board of Directors

9. Introduction of amendments and additions into the Company’s Provisions on the Management Board

10. Introduction of amendments and additions to the Company’s Provisions on the Auditing Commission


Approval of the annual report, annual Approval of the annual report, annual financial accounts including profit and financial accounts including profit and loss statement (profit and loss loss statement (profit and loss accounts), distribution of profits and accounts), distribution of profits and losses of the Company according to losses of the Company according to the results of the reporting financial the results of the reporting financial year (2003)year (2003)..


Speaker – I.F. Ignatenko, General Director of “UTK” PJSC

“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC


General information about “UTK” PJSC General information about “UTK” PJSC

The Company’s structureThe Company’s structure

Significant corporate events of the yearSignificant corporate events of the year

Positioning in the marketPositioning in the market

Performance resultsPerformance results

Financial resultsFinancial results

Auditor’s OpinionAuditor’s Opinion

Report of the Auditing Commission Report of the Auditing Commission

Development prospectsDevelopment prospects

STRUCTURE OF THE REPORTSTRUCTURE OF THE REPORT


http:http:\\\\www.stcompany.ruwww.stcompany.ruE-mail: [email protected]: [email protected]. +7(8612) 53-20-56Tel. +7(8612) 53-20-56

RegisteredRegistered

by the Act of the Krasnodar City Registration by the Act of the Krasnodar City Registration ChamberChamber №494 №494 seriesseries А А

Head officeHead office::6666, Karasunskaya Street, Krasnodar , Karasunskaya Street, Krasnodar

GENERAL INFORMATION ABOUT THE COMPANYGENERAL INFORMATION ABOUT THE COMPANY

Full registered name, date of the Full registered name, date of the registrationregistration



Size - 1 bln 297 mln 779 ths 384,66 rubles

Par value - 0,33 ruble

Common registered non-documentary shares

2 960 512 964

Preferred registered non-documentary shares

972 151 838

Authorized capitalAuthorized capital


17,09 16,13

88,7 82,91 83,87

11,30%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003

Legal persons

Individuals


Ownership structureOwnership structure


Other20.66%

J.P. Morgan Chase Bank 4.65%

"Branswick UBS Warburg Nominees" CJSC5.61%

"ABN AMRO Bank А.О." CJSC7.12%

"ING Bank (Euroasia) " CJSC6.54%

"DKK" CJSC15.44%

"Investitsionnaya kompaniya svyazi" OJSC (“Svyazinvest” OJSC) 38.16%

LINDSELL ENTERPRISES LIMITED – holder1.82%


Capital structureCapital structure


13322

13195191

9056117 85

323258

368484

372480

352367

803

1415

524691

0

1500

"Ura

lsvy

azin

form

"O

JSC

"Vol

gaT

elec

om"

OJS

C

"Cen

tral

Tel

ecom

" O

JSC

"Sib

irT

elec

om"

OJS

C

"UT

K"

PJS

C

"Nor

th-W

este

rnte

leco

m"

OJS

C

"Dal

svya

z" O

JSC

as at 31.10.2002as at 01.01.2003as at 01.01.2004


Market capitalization of inter-regional entitiesMarket capitalization of inter-regional entities, , USD mlnUSD mln



Dynamics of UTK share prices and market indices in 2003Dynamics of UTK share prices and market indices in 2003

4

5

6

7

8

9

10

11

Shar

e pr

ice,

US

cent

s

Average common share (CS) price Average preferred share (PS) price

min PS 5.1 cents (05.01.03)

max PS 8.83 cents (20.10.01.03)

min CS 6.93 cents (27.01.03)

max CS 10.3 cents (20.10.03)

Source: RTS databaseTrading volume Amount, mln$

CS 286 5.43

PS 130 2.63

Total 416 8.06



ADR capitalization of “UTK” PJSC in ADR capitalization of “UTK” PJSC in 2003, 2003, USD mlnUSD mln

+65.3%

6,9 7,1 7,4 7,8 7,78,5 8,9

10,09,5

10,8

4,74,3

0

2

4

6

8

10

12Ja

n.03

Feb.

03

Mar

. 03

Apr

.03

May

.03

Jun.

03

Jul.0

3

Aug

.03

Sep.

03

Oct

.03

Nov

.03

Dec

.03


5,6

5,2

5

5,2

5,4

5,6

5,8

• Corporate Governance Corporate Governance ScoreScore

12 February 2003 11 November 2003

• Long-term corporate local Long-term corporate local and foreign currency credit and foreign currency credit rating rating

27 December 2001 02 April 2003

В -

ССС+

On August 6, 2003 Standard & Poor's assigned its "ruBBB" On August 6, 2003 Standard & Poor's assigned its "ruBBB" Russia national scale rating to PJSC "Southern Russia national scale rating to PJSC "Southern Telecommunications Company" ("UTK" PJSC). At the Telecommunications Company" ("UTK" PJSC). At the same time, Standard & Poor's assigned its "ruBBB" rating same time, Standard & Poor's assigned its "ruBBB" rating to "UTK" PJSC Russian ruble (RUR) 1.5 billion senior to "UTK" PJSC Russian ruble (RUR) 1.5 billion senior unsecured bond issue due 2006unsecured bond issue due 2006


Rating Agency “Standard & Poor’s”Rating Agency “Standard & Poor’s”


• LocationLocation

Building 1, 77, Sadovnicheskaya nab., Moscow, Building 1, 77, Sadovnicheskaya nab., Moscow, RussiaRussia

««Ernst and Young VneshauditErnst and Young Vneshaudit»» CJSC CJSC

• LicenseLicense

License No. Е003246 for auditing, in particular for License No. Е003246 for auditing, in particular for general and bank auditing and for auditing of general and bank auditing and for auditing of insurance companies, foundations and exchanges, insurance companies, foundations and exchanges, was granted for five years and approved by Order was granted for five years and approved by Order No. 9 of the RF Ministry of Finance dated January No. 9 of the RF Ministry of Finance dated January 17, 2003 (valid till 17.01.2008).17, 2003 (valid till 17.01.2008).


The Company’s AuditorThe Company’s Auditor



• LocationLocation

15a, Kalanchevskaya Str., Moscow, 107078, 15a, Kalanchevskaya Str., Moscow, 107078, RussiaRussia..Tel.Tel.//faxfax: (095) 933-42-21.: (095) 933-42-21.E-mailE-mail: [email protected]: [email protected]

««Registrator-svyazRegistrator-svyaz»» CJSC CJSC

• LicenseLicense

Number: 10-000-1-00258.Number: 10-000-1-00258.

Date of issue: 1.10.2002 Date of issue: 1.10.2002

Period of validity: unlimited.Period of validity: unlimited.Licensing body:Licensing body: Federal Commission for Federal Commission for Securities Market of Russia.Securities Market of Russia.

RegistrarRegistrar


Elected on 25.06.2003

Corporate Governance CommitteeCorporate Governance Committee

Budget and Investment Planning Budget and Investment Planning CommitteeCommittee

Nominations and Compensation CommitteeNominations and Compensation Committee

Audit CommitteeAudit Committee

40 meetings were held184 issues were considered and approved

THE COMPANY’S STRUCTURETHE COMPANY’S STRUCTURE

Board of Directors Board of Directors



Management Board Management Board

Elected on 25.06.2003

12 meetings were held140 issues were considered and approved

FFinancial and economic operations of the Companyinancial and economic operations of the Company

CCapital constructionapital construction

DDevelopment of the Company’s investment program and budget for their evelopment of the Company’s investment program and budget for their submission to the Board of Directors for approvalsubmission to the Board of Directors for approval

Determination of the priority development trendsDetermination of the priority development trends

Approval of the internal documents regulating the Company’s operationsApproval of the internal documents regulating the Company’s operations

Supervising accounts receivable and drawing up actions on their reductionSupervising accounts receivable and drawing up actions on their reduction

SSocial and economic developmentocial and economic development



Auditing Commission Auditing Commission

Elected on 25.06.2003The terms of reference of the Auditing Commission cover: The terms of reference of the Auditing Commission cover:

checking the reliability of the data contained in the accounts and other financial checking the reliability of the data contained in the accounts and other financial documents of the Company; documents of the Company;

revealing any facts of violation of the procedure for book-keeping and revealing any facts of violation of the procedure for book-keeping and submission of financial reports, established by the legal acts of the Russian submission of financial reports, established by the legal acts of the Russian Federation; Federation;

checking the observance of the legal standards in tax calculation and paymentchecking the observance of the legal standards in tax calculation and payment ;;

revealing any facts of violation of the legal acts of the Russian Federation, in revealing any facts of violation of the legal acts of the Russian Federation, in compliance with which the Company performs its financial and economic compliance with which the Company performs its financial and economic operationsoperations;;

evaluating the economic advisability of financial and economic operations of evaluating the economic advisability of financial and economic operations of the Company.the Company.


General Director

Board of Directors

General Shareholders’ Meeting

Management Board

General Management

Branches

( 10 branches of major business)

Branches

( 3 branches of secondary business)


Organizational structureOrganizational structure


Gen

eral

man

agem

ent

Technological Commercial

Financial

Economic

Construction

Corporate Governance

Legal

Security

Personnel management

Administrative

Accounting

Internal AuditInformation


Main functional blocks of the General Management Main functional blocks of the General Management organizational structureorganizational structure


Optimization of the number of structural divisions in the Optimization of the number of structural divisions in the Company’s branches – according to management Company’s branches – according to management standardsstandards

Establishment of effective vertical and horizontal Establishment of effective vertical and horizontal relations between structural divisions – according to relations between structural divisions – according to business management doctrinebusiness management doctrine

Optimization of the staff number in structural divisions – Optimization of the staff number in structural divisions – in conformity with scientifically proved labor standardsin conformity with scientifically proved labor standards

Improvement of systems, forms and methods of Improvement of systems, forms and methods of managementmanagement


The basic directions of optimization of the The basic directions of optimization of the Company’s organizational structure are the Company’s organizational structure are the following:following:


Extraordinary General Shareholders’ Meeting was held onExtraordinary General Shareholders’ Meeting was held on 21.01.2003. 21.01.2003.Venue: 44, Krasnaya Street, Krasnodar, Krasnodar kraiVenue: 44, Krasnaya Street, Krasnodar, Krasnodar krai

Annual General Shareholders’ Meeting was held onAnnual General Shareholders’ Meeting was held on 25.06.2003. 25.06.2003.Venue:Venue:::“Health-care center “Orbita” CJSC, Olginka, Tuapse district, Krasnodar krai.“Health-care center “Orbita” CJSC, Olginka, Tuapse district, Krasnodar krai.

SIGNIFICANT CORPORATE EVENTS OF THE YEARSIGNIFICANT CORPORATE EVENTS OF THE YEAR

General Shareholders’ MeetingsGeneral Shareholders’ Meetings



Corporate reorganizationCorporate reorganization

Rearrangement of organizational structure

and human resources management

Creation of communication networks’

management system

Change of information technologies

Development of business opportunitiesIncrease of efficiency of

accounting and economic subdivisions

Reorganization of logistical support

Corporate actions of general character


Description Measure unit

Fact 2002

Plan 2003 Growth rate,%

Increase in number of basic telephones sets 165 775 244 596 147,5

Average number of lines Ths lines 3 211,1 3 409,8 106,2

Revenue from sales RUR mln 10 532 13 269,6 125,9

Revenues from new services RUR mln 305,6 434,5 142,2

Income per 1 line RUR 3 279,8 3 891,6 118,6

Income per 1 employee RUR 247 572 322 124,6 130,1

Number of lines per employee Lines/employee

75,5 82,8 109,7

Average number of employees on pay-roll people 42 541 41 194 96,8

Average wages RUR 5 099,6 6 532,3 128,1

Capex volume RUR mln 3 571 ,6 8 308, 2 232,6

Number capacity to be put into service Ths lines 374,3 513,3 137,1


Approval of 2003 BudgetApproval of 2003 Budget


Russian Economic Forum in London, 3.04.2003

International Congress "Trust and Security in the Information Society", 21-22.04.2003, Moscow

International Investment Forums «South of Russia-2003», 6-9.04.2003, Madrid and 26-29.09.2003, Berlin


Participation in exhibitions and Participation in exhibitions and congresses, meetings with investorscongresses, meetings with investors



International Exhibition “Svyaz-Expocomm,2003International Exhibition “Svyaz-Expocomm,2003», », May,May, 2003, 2003, MoscowMoscow

InternationalInternational Investment Forum Investment Forum ««Days of the Krasnodar krai in GermanyDays of the Krasnodar krai in Germany», », MayMay 2003, 2003, HannoverHannover

International Exhibition of telecommunications, new infocommunication International Exhibition of telecommunications, new infocommunication technologies and their applicationstechnologies and their applications « «Infocommunications of Russia XXI centuryInfocommunications of Russia XXI century»,», SeptemberSeptember,, Russia Russia

World ExhibitionWorld Exhibition « «TelecomTelecom-2003», -2003», OctoberOctober, , SwitzerlandSwitzerland, , GenevaGeneva




On April 18, 2004 a meeting of "UTK" PJSC Management and top managers of On April 18, 2004 a meeting of "UTK" PJSC Management and top managers of the fund ‘’Templeton Russia Fund’’ headed by Mr. Mark Mobius, the Company’s the fund ‘’Templeton Russia Fund’’ headed by Mr. Mark Mobius, the Company’s shareholder, was held in Krasnodar.shareholder, was held in Krasnodar.

On On 15 15 SeptemberSeptember 2003 2003 a conference with analysts and investors devoted to a conference with analysts and investors devoted to placement of UTK series 01 bond issue to have been performed on 18.09.2003 was placement of UTK series 01 bond issue to have been performed on 18.09.2003 was held in Moscow. The Company presented its plans of business development up to held in Moscow. The Company presented its plans of business development up to 2006 at the conference.2006 at the conference.




Actions on investor relations and Actions on investor relations and development of the development of the secondary market of sharessecondary market of shares

Program on investor relations and development of Program on investor relations and development of the secondary market of shares in 2003the secondary market of shares in 2003 was was approved by the Board of Directors on 25 April 2003.approved by the Board of Directors on 25 April 2003.

AimsAims:: to ensure fair market value and to form the to ensure fair market value and to form the Company’s liquid securities market, to make the Company’s liquid securities market, to make the Company more recognizable by the participants of Company more recognizable by the participants of the investment communitythe investment community



Customer serviceCustomer service

Integrated system of sales of telecom services and advertising in the telecommunications market of the Southern federal district

Set up of Unified Accounting and Service Centers

Main tasks:To meet the requirements of various categories of customers for the range of telecommunications services available.

To ensure a sufficiently high level of service for key customers

The efficient promotion of services to the telecommunications market of the SFD taking into account the Company’s service, regional and client segment priorities



Personnel managementPersonnel management

The main concept of the personnel management system used by The main concept of the personnel management system used by the Company is to increase business efficiency of the company by the Company is to increase business efficiency of the company by raising the effectiveness of its human resourcesraising the effectiveness of its human resources

90%

80%

91,4%

81%

Provision with specialistshaving higher education

Provision with specialistshaving secondary special

education

2002

2003

70.92%

81.6%Average over

“Svyazinvest” OJSC



Improvement of quality management systemImprovement of quality management system

Improvement of quality control system in Improvement of quality control system in accordance with ISO 9000 standards makes it accordance with ISO 9000 standards makes it possible to ensure reliable and stable operation possible to ensure reliable and stable operation of the Company as well as to achieve the set of the Company as well as to achieve the set goal which is to provide goal which is to provide Southern regions of Southern regions of Russia with full range of integrated telecom Russia with full range of integrated telecom services of high quality services of high quality


POSITIONING IN THE MARKETPOSITIONING IN THE MARKET

23,428,4

15,9

46,5%

51,4%

45%

20

25

30

35

40

45

50

55

2001 2002 2003

0

10

20

30

40

50

60

Telecommunications market, RUR bln

Market share of "UTK" PJSC, %

Telecommunications market of the Southern Telecommunications market of the Southern federal district federal district

GoalGoal: : to increase UTK market share toto increase UTK market share to 51% 51%



Telecommunications market of the Southern Telecommunications market of the Southern federal districtfederal district

19,8%

19,1% 30,7%

26,0% 5,2%

4,9% 10,8%

7,4% 41,7%

34,5%

0% 20% 40% 60% 80% 100%

2002

2003

Local telephony

Long-distance fixed-line telephony

New services (VAS)

Other services

Cellular communication



Priority development trendsPriority development trendsPriority development trendsPriority development trends

Counteraction to competitors in the market of long-distance telephony.Counteraction to competitors in the market of long-distance telephony. Sale promotion of services of long-distance fixed-line telephonySale promotion of services of long-distance fixed-line telephony..Development of public switched telephone network PSTN paying special attention to Development of public switched telephone network PSTN paying special attention to business sector (high profitability, good prospects of broadening the range of business sector (high profitability, good prospects of broadening the range of provided services)provided services)..Introduction of universal service cards for payment of telecommunications servicesIntroduction of universal service cards for payment of telecommunications services ..Provision of package services.Provision of package services. Introduction of time-based billing system SPUS.Introduction of time-based billing system SPUS.

Traditional telecommunications servicesTraditional telecommunications services

Introducing new technologies and services corresponding to the tendencies of market Introducing new technologies and services corresponding to the tendencies of market development and meeting the customers’ real requirements (Call-centers, intelligent development and meeting the customers’ real requirements (Call-centers, intelligent services, cable TVservices, cable TV) ) Making value-added services more competitive including in the spheres of customer Making value-added services more competitive including in the spheres of customer serviceservice..Developing integrated data networks (multi-service networks) in the Southern Federal Developing integrated data networks (multi-service networks) in the Southern Federal DistrictDistrict..Introduction of universal service cards to pay for telecommunications services providedIntroduction of universal service cards to pay for telecommunications services provided ..Popularization of the pre-paid cardsPopularization of the pre-paid cards..Technical realization of intra-regional roaming of servicesTechnical realization of intra-regional roaming of services..Providing services “in packageProviding services “in package””..

New value-added servicesNew value-added services



Priority development trendsPriority development trendsPriority development trendsPriority development trends

Tariff policyTariff policyto even out tariffs in the framework of the inter-regional company, to minimize to even out tariffs in the framework of the inter-regional company, to minimize tariff differences in the consolidated company taking into account regional tariff differences in the consolidated company taking into account regional peculiarities;peculiarities;

to introduce step-by-step unified tariff system for all categories of customersto introduce step-by-step unified tariff system for all categories of customers;;

to reduce cross-subsidiesto reduce cross-subsidies;;

to bring regulated tariffs to the level of economically justified costs on the basis to bring regulated tariffs to the level of economically justified costs on the basis of separate cost accounting and standard level of profit, their further of separate cost accounting and standard level of profit, their further rebalancing according to “price cap” method (limit pricing);rebalancing according to “price cap” method (limit pricing);

to include investment component in tariff structureto include investment component in tariff structure;;

to develop tariffs on value-added services on the basis of new technologies, using to develop tariffs on value-added services on the basis of new technologies, using the experience of domestic and foreign operatorsthe experience of domestic and foreign operators; ;

to elaborate various tariff plans for package servicesto elaborate various tariff plans for package services;;

to use flexible system of discounts with regard to customer demand, growth of to use flexible system of discounts with regard to customer demand, growth of volume of provided services and earnings increasevolume of provided services and earnings increase..


11075,1

3571,51762,2

0

12000

2001 2002 2003

PERFORMANCE RESULTSPERFORMANCE RESULTS

Investment policyInvestment policy

Capital expenditures, RUR mln

310.1%

202.7%

8244,9

18703078,4

0

12000

2001 2002 2003

Fixed assets put into operation, RUR mln

267.8%

164.6%


32

35,3

29,70 26,0

31,7

27 22

17,4

25,6

19

15,6

18,7

0% 20% 40% 60% 80% 100%

2001

2002

2003

Extension New construction

Reconstruction Technical reequipment



Capex breakdownCapex breakdown




Allocation of capital expendituresAllocation of capital expenditures

74

77,8

69,4 8,3

2,6

12 4

4

5,6

10

15,6

16,6

0% 20% 40% 60% 80% 100%

2001

2002

2003

Local telephony

Long-distance telephony

Value-added services

Other


0%

50%

100%

2001 2002 2003

Own funds Borrowed funds



Sources of financingSources of financing, %, %

75%

48%

12,5%

25%

52%

87,5%




Borrowed funds breakdownBorrowed funds breakdown, %, %

0%

50%

100%

2001 2002 2003

Bank credits Bonded loans

Credits from vendors Leasing

Other borrowed funds

43%

25%

33%

78%

50%14%

10%

22% 15%

10%




436,835,7

60,5

95,7

196,2313,7

0

600

2001 2002 2003

ruralTN

urbanTN

Number capacity put into operationNumber capacity put into operation,, ths lines ths lines

374.2

532.5

231.9

142.3%

161.4%



2742,05

1459,3 1629,25

0

3000

2001 2002 2003

Increase in the length of long-distance (intra-zonal) Increase in the length of long-distance (intra-zonal) telephone channelstelephone channels , , ths channel/kmths channel/km

168.3%

111.6%

Fiber-optic lines put into serviceFiber-optic lines put into service,, km km

197.1%

102.7%

Indicators of network developmentIndicators of network development

1354,3668,9 686,95

0

1500

2001 2002 2003




SDH equipment manufactured by SDH equipment manufactured by Siemens, Alcatel, Lucent Siemens, Alcatel, Lucent TechnologesTechnologes, , Huawei are Huawei are deployed in the intra-zonal deployed in the intra-zonal transportation networktransportation network

STM-1/4/16/64STM-1/4/16/64

STM-1/4/16/64STM-1/4/16/64

STM-1/4/16/64STM-1/4/16/64




Increase in the number of basic telephonesIncrease in the number of basic telephones,, ths sets ths sets

165.8

296.8

153.1

178.9%

108.4%

3,5 3,8 3,63,3

0

5

at 01.01.2003 at 01.01.2004

Installed capacity, mln lines

Equipped capacity, mln lines

21537,5 36,1

81,8

115,5 129,70

300

2001 2002 2003

rural TNurban TN


92,393,3

91,3

94,1 94,195,8

95,1%93,9%93,4%

86889092949698

100

2001 2002 2003

80%

85%

90%

95%

100%

rural TN

urban TN

urban andrural TNs



7,321,9

11,4

56,345,239,3

31,6%

48,4%

38,7%

0

20

40

60

80

100

2001 2002 2003

0%

10%

20%

30%

40%

50%

60%Digitization rateDigitization rate,%,%

Equipped capacity factorEquipped capacity factor,%,%



Main economic indexesMain economic indexes

8218,4 10531,913506,6

0

14000

2001 2002 2003

Revenue from sale of goods, works, servicesRevenue from sale of goods, works, services,, RUR mln RUR mln

128.24%

128.15%

7899,2 10042,413222,7

0

14000

2001 2002 2003

Revenue from telecommunications servicesRevenue from telecommunications services,, RUR mln RUR mln

131.7%

127.1%




Dynamics of revenue structure from telecommunications services, %Dynamics of revenue structure from telecommunications services, %

4297,5

5270,6

6668

2601,8

3694,8

5250,8 546

751,8

771,4

756,9

305,6

248,1

0% 50% 100%

2001

2002

2003

DLD and ILD telephony

Urban and rural TNs

Value-added services

Other telecommunications services

50.4% 4.1%39.8%

52.5% 3.1%36.8%

54.4% 3.0%33.0%




Revenues from value-added services (VAS)Revenues from value-added services (VAS),, RUR mln RUR mln

546,1

305,6248,1

4,1%

3,1%3,0%

0

200

400

600

800

1000

2001 2002 2003

0,0

1,0

2,0

3,0

4,0

5,0

Revenues from VAS, RURmln

Share in tariff revenues,%178.7%123.2%

0

50

100

150

200

250

300

350

Inte

rnet IP

VP

N

ISD

N

TV IN

0

500

1000

1500

2000

2500 2002, RUR mln

2003, RUR mln

Growth rate, %

Dynamics of revenues from value-added servicesDynamics of revenues from value-added services




6058 8022,810452,9

0

14000

2001 2002 2003

CostsCosts , , RUR mln RUR mln

130.29%

132.43%

0% 100%

2001

2002

2003

Wages and salariesUnified income taxDepreciation chargesMaterialsPayments to RostelecomElectricity chargesTaxesOtherSecurityInsuranceTrainingAdvertising costs

Dynamics of costs structureDynamics of costs structure, %, %33.8% 10.3%10.5% 9.3% 14.3%

32.8% 8.8%10.9% 9.9% 14.25%

31.4% 10.5%11.4% 11.3% 13.7%




2,233,15

2,14

27,2%23,3%

20,3%

0

1

2

3

4

5

2001 2002 2003

0%

EBITDA, RUR bln

EBITDA margin,%

EBITDA EBITDA in comparable conditionsin comparable conditions,, RUR bln RUR bln

0,770,76

0,74

0,7

2001 2002 2003

Cost price of one ruble of revenueCost price of one ruble of revenue,, RUR RUR




45828

4254140992

329,3

179,3

247,6

36000

46000

2001 2002 2003

0

50

100

150

200

250

300

350 Staff number, people

Revenue per oneemployee, RUR ths

32,71%38,10%

28,10% 27,90%

0%

50%

2002 2003

Growth rate ofbusiness efficiency,%

Growth rate ofrevenue,%

Growth rates of revenues and business efficiencyGrowth rates of revenues and business efficiency, %, %

Business efficiencyBusiness efficiency




3948,50

3279,80

2681,10

2000

3000

4000

2001 2002 2003

Revenue per one line, RUR

83,40

75,50

66,90

65

85

2001 2002 2003

Number of lines per one employee,lines/employee


539,10489,90413,40

0

200

400

600

2001 2002 2003

DLD/ILD traffic per one line, minutes


3127

3866

30562498

123,6%

121,4%

126,4%

122,3%

0

6000

2002 2003

Tariff revenue per one line, RUR

Costs per one line, RUR

Revenue growth rate, %

Costs growth rate,%





FINANCIAL RESULTSFINANCIAL RESULTS

26,2

4,8

11,20 15,701,902,40

0

35

2001 2002 2003

Non-current assets Current assets

Structure and history of balance sheet accountsStructure and history of balance sheet accounts,, RUR bln RUR bln

18,118,1

3131AssetsAssets

13,31,6 3,8

5,2

9,111,8

12,5

2,5 2,50

35

2001 2002 2003Borrowed funds Accounts payable Own funds

+12.2

+0.7

LiabilitiesLiabilities

+12.9+71.3%+5.0

+38%13,113,1

18,118,1

3131

13,113,1




15,7026,202,40

4,80

2002 2003

Current assets

Non-current assets

0 5 10 15 20 25 30

2002

2003

Fixed assets Other non-current assets Intangible assets

0 1 2 3 4 5 6

2002

2003

InventoriesAccounts receivable (due in more than 12 months)

Accounts receivable (due in less than 12 months) Cash and cash equivalents

Short-term financial investments

13% 87%

16%

84%

Non-current assetsNon-current assets Current assetsCurrent assets

AssetsAssets

+12.918,118,1

3131

+71.3%

79,8%

89,6%

30,4%62,4%

46,7%44,1%


0 2 4 6 8 10 12 14

2002

2003

Credits and loans

Bonds

Leasing, commercial credit

Bills of credit

11,8

12,5

2,50

13,30

3,80

5,20

2002 2003

Own fundsAccounts payableBorrowed funds



0 5 10 15 20

2002

2003

Long-term Short-term

BorrowingsBorrowings

LiabilitiesLiabilities

1818..11

3131

+0.7

+12.2

BorrowingsBorrowings

59,7%

53,5%

65%

21%

40,4%

16,6%

43% 14%



Net assets of the Company Net assets of the Company

As at 01.01.2003

As at

01.01.2004

1. Net assets (RUR ths) 12 017 083 12 766 438

2. Authorized capital (RUR ths) 1 297 779 1 297 779

3. Reserve fund (RUR ths) 63 200 64 889

4. Net assets/authorized capital ratio (ROE) (line.1/line.2) (%)

925,9 983,7

5. . Net assets/sum of authorized capital and reserve fund ratio (line.1/(line.2+line.3) (%)

882,9 936,9

+ RUR 749.4 mln



Dynamics of profitDynamics of profit,, RUR mln RUR mln

30542509

21601665

2274

1460 1389,61247,3

-500

500

1500

2500

3500

4500

2001 2002 2003

sales incomePre-tax profitPre-tax profit in comparable conditions

10801562

978 871,1781,9

-500

500

1500

2500

3500

4500

2001 2002 2003

Net profit Net profit in comparable conditions


0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

200320022001

Increase of share capital

Covering the losses of thereporting year

Creating a special stockfund of employees

Dividend payment

Creating reserves

Retained earnings balance

67.8%

32.2%

RUR 1080 mln

Reporting period


Main directions of retained earnings distribution Main directions of retained earnings distribution


0,0812

0,18908

0,0812

0,11114

0,18908

0,1607

0

0,2

2001 2002 2003

Ordinary sharesPreference shares


Dividend payment, RURDividend payment, RUR


AUDITOR’S OPINIONAUDITOR’S OPINION

AUDITOR’S OPINIONAUDITOR’S OPINIONon 2003 Financial accounts of “UTK” PJSC on 2003 Financial accounts of “UTK” PJSC

by “ERNST AND YOUNG VNESHAUDIT” CJSCby “ERNST AND YOUNG VNESHAUDIT” CJSC

In our opinion, in 2003 the bookkeeping procedure related to preparing the Financial accounts of "Southern

Telecommunications Company" PJSC complied with the requirements of Federal Law “On Accounting” No. 129-FZ of November 21, 1996, and the above accounts prepared in compliance with the said Law reliably represent in all material aspects the financial standing of "Southern Telecommunications Company" PJSC as of December 31, 2003 and its business results for the period from January 1, 2003 till December 31, 2003 inclusive.


REPORT OF THE AUDITING COMMISSIONREPORT OF THE AUDITING COMMISSION

In the opinion of the members of the Auditing Commission In the opinion of the members of the Auditing Commission based on the results of the audit of the Company’s business based on the results of the audit of the Company’s business operations in 2003 and its 2003 financial accounts, financial operations in 2003 and its 2003 financial accounts, financial accounts of “Southern Telecommunications Company” accounts of “Southern Telecommunications Company”

PJSC are prepared PJSC are prepared in the way to present, in all in the way to present, in all material respects, the assets and liabilities of material respects, the assets and liabilities of "Southern Telecommunications Company" PJSC "Southern Telecommunications Company" PJSC as of 31 December 2003 and its financial results as of 31 December 2003 and its financial results for the year 2003for the year 2003 in compliance with the Federal Law in compliance with the Federal Law “On Accounting” No. 129-FZ of November 21, 1996 and the “On Accounting” No. 129-FZ of November 21, 1996 and the normative documents of the Ministry of Finance of the normative documents of the Ministry of Finance of the Russian Federation (Orders № 34n of 29.07.98 (amended Russian Federation (Orders № 34n of 29.07.98 (amended and restated), № 43n of 06.07.99, № 67n of 22.07.2003).and restated), № 43n of 06.07.99, № 67n of 22.07.2003).


DEVELOPMENT PROSPECTSDEVELOPMENT PROSPECTS

Telecommunications developmentTelecommunications development

670680

594

336376390

75,4%

67,2%

58,2%

0

100

200

300

400

500

600

700

800

2004 2005 2006

0

10

20

30

40

50

60

70

80

Number capacity to be put into operation, ths linesIncrease in number of basic telephones, ths setsDigitization rate, %


26,4

21,1

17

2,871,971,35

7,9%

11,9%10,9%

0

5

10

15

20

25

30

2004 2005 2006

0

2

4

6

8

10

12

14

Revenue, RUR bln

Net profit, RUR bln

Revenue share from value-added services, %

Economic Economic indexesindexes




Priority trendsPriority trendsIntroduction of the procedure of obligatory feasibility study in order to Introduction of the procedure of obligatory feasibility study in order to determine the potential customers’ demanddetermine the potential customers’ demand

Formation of package services for VIP- and corporate clientsFormation of package services for VIP- and corporate clients

Bringing state-regulated tariffs on telecom services to economically Bringing state-regulated tariffs on telecom services to economically justified levels taking into account their investment componentjustified levels taking into account their investment component..

Making up and realization of the annual Program on measures to Making up and realization of the annual Program on measures to promote the Company’spromote the Company’s..

Improvement of the system of sales and customer service Improvement of the system of sales and customer service

Creation of universal payment system for telecom services using Creation of universal payment system for telecom services using unified service cardsunified service cards..

Development of integrated inter-regional multi-service and Development of integrated inter-regional multi-service and transportation networkstransportation networks..

Searching the ways to reduce losses from unprofitable servicesSearching the ways to reduce losses from unprofitable services



Strategic aims and goalsStrategic aims and goals Strengthening the Company’s leading position in the region in order to Strengthening the Company’s leading position in the region in order to achieve 51% of the total revenue of telecommunications sector of the achieve 51% of the total revenue of telecommunications sector of the Southern federal district by the year 2006Southern federal district by the year 2006

Ensuring annual growth of sales volume by 20% and increase of the Ensuring annual growth of sales volume by 20% and increase of the Company’s capitalization per lineCompany’s capitalization per line

Technical re-equipment and development of communication networks of Technical re-equipment and development of communication networks of

all levels, reaching digitization rate ofall levels, reaching digitization rate of 75% 75% by 2006 by 2006

Creating common information space and integrating in the global Creating common information space and integrating in the global

information communityinformation community

Realization of the integrated Program on the reorganization of the merged Realization of the integrated Program on the reorganization of the merged

operators in all directions by the year 2006 operators in all directions by the year 2006

Increasing operating profit per one lineIncreasing operating profit per one line


Agenda item Agenda item №2№2Agenda item Agenda item №2№2


Determination of 2003 dividend size, form and time of payment under each category and type of shares

Determination of 2003 dividend size, form and time of payment under each category and type of shares

Speaker – S.G. Fefilova, Deputy General Director of “UTK” PJSC


32%

68%

2003 net profit 2003 net profit amounted to RURamounted to RUR 11,,080 080 millionmillion

RUR 108.0 mln

Ordinary shares

Preference shares

RUR 348.4 million were RUR 348.4 million were allocated to dividend allocated to dividend payment under all categories payment under all categories of sharesof shares

Determination of 2003 dividend size


Determination of 2003 dividend size

Number of shares, units

Amount of dividend, RUR

ths

Dividend per one share,

RUR

Ordinary registered non-documentary shares

2 960 512 964 240 396 0.0812

Preference registered non-documentary shares

972 151 838 108 043 0.11114


Determination of form and time of 2003 dividend payment under each category and type of shares

It is proposed to pay the following 2003 dividendIt is proposed to pay the following 2003 dividend::

1.1. preference share dividend amounting to 0.11114 (naught preference share dividend amounting to 0.11114 (naught point one one one one four) ruble per one share. point one one one one four) ruble per one share. Dividend should be paid in cash prior to August 29, Dividend should be paid in cash prior to August 29, 2004;2004;

2.2. ordinary share dividend amounting to 0.08120 (naught ordinary share dividend amounting to 0.08120 (naught point zero eight one two zero) ruble per one share. point zero eight one two zero) ruble per one share. Dividend should be paid in cash prior to December 15, Dividend should be paid in cash prior to December 15, 2004.2004.




Election of the members to the Company’s Board of Directors Election of the members to the Company’s Board of Directors



№ Name Post held

1 Stanislav Petrosovich Avdiyants Executive Director – Director of the Department for Economic and Tariff Policy, “Svyazinvest” OJSC

2 Vadim Yevgenyevich Belov Deputy General Director, “Svyazinvest” OJSC

3 Mikhail Borisovich Vasilyev Head of the Representative Office of “NCH Advisors Inc.”

4 Igor Vilgelmovich Volkovyski Head of Administrative Department of the Board of the Presidential Plenipotentiary in the Southern Federal District

5 Vladimir Lukich Gorbachev 1st Vice-chairman of the the RF State Duma Committee for Energy, Transport and Communications

6 Denis Viktorovich Kulikov Expert, Investor Protection Association (non-commercial organization) , “Svyazinvest” OJSC

7 Alexander Leonidovich Merzlenko Vice-president, “Renaissance-Capital” Ltd.

8 Georgy Alekseevich Romsky Deputy General Director, “Svyazinvest” OJSC

9 Stanislav Nikolaevich Panchenko Deputy General Director, “Svyazinvest” OJSC

10 Irina Petrovna Ukhina Deputy Director, Department of Corporate Governance, “Svyazinvest” OJSC

11 Andrei Anatolyevich Tshepilov Chief specialist, Securities Department, “Svyazinvest” OJSC

Board of Directors Board of Directors of “Southern Telecommunications Company” PJSC of “Southern Telecommunications Company” PJSC

((elected at the General Shareholders’ Meeting held on elected at the General Shareholders’ Meeting held on 2525 June June 2003 2003, Minutes, Minutes №14) №14)


№ Name Post held

1 Stanislav Petrosovich Avdiyants Executive Director – Director of the Department for Economic and Tariff Policy, “Svyazinvest” OJSC

2 Vadim Yevgenyevich Belov Deputy General Director, “Svyazinvest” OJSC

3 Mikhail Borisovich Vasilyev Head of the Representative Office of “NCH Advisors Inc.”

4 Igor Vilgelmovich Volkovyski Head of Administrative Department of the Board of the Presidential Plenipotentiary in the Southern Federal District

5 Vladimir Lukich Gorbachev 1st Vice-chairman of the the RF State Duma Committee for Energy, Transport and Communications

6 Vladimir Vladimirovich Dudchenko Head of Analytical Department, Representative Office of “NCH Advisors Inc.”

7 Dmitry Georgievich Yefimov Head of the Independent Directors Group, Investor Protection Association (non-commercial organization) , “Svyazinvest” OJSC

8 Ivan Fyodorovich Ignatenko General Director, "UTK" PJSC

9 Denis Viktorovich Kulikov Expert, Investor Protection Association (non-commercial organization) , “Svyazinvest” OJSC

10 Andrey Vladimirovich Morozov Legal expert, Representative Office of “NCH Advisors Inc.” in Moscow (consulting)

11 Stanislav Nikolaevich Panchenko Deputy General Director, “Svyazinvest” OJSC

12 Iliya Vladimirovich Ponomaryov Head of the section, Department of Economic Planning and Budget, “Svyazinvest” OJSC

13 Georgy Alekseevich Romsky Deputy General Director, “Svyazinvest” OJSC

14 Elena Vladimirovna Umnova Director, Finance Department, “Svyazinvest” OJSC

15 Irina Petrovna Ukhina Deputy Director, Department of Corporate Governance, “Svyazinvest” OJSC

16 Andrei Anatolyevich Tshepilov Chief specialist, Securities Department, “Svyazinvest” OJSC

Information about the candidates to the Board of Directors of “UTK” PJSC Information about the candidates to the Board of Directors of “UTK” PJSC



Election of the members to the Company’s Auditing Commission Election of the members to the Company’s Auditing Commission

Speaker – T.V. Rusinova, Chief Accountant of “UTK” PJSC


Auditing Commission of “UTK” PJSC Auditing Commission of “UTK” PJSC ((elected at the Annual General Shareholders’ Meeting held onelected at the Annual General Shareholders’ Meeting held on

2525 June June 2003, 2003, MinutesMinutes №14) №14)

№ Name Post held

1 Natalia Vladimirovna Boyarskikh Chief accountant, “Kubanelectrosvyaz”, branch of "Southern Telecommunications Company" PJSC

2 Lyubov Aleksandrovna Greseva Senior specialist, Department for Internal Audit and Economic Analysis, “Svyazinvest” OJSC

3 Vladimir Vladimirovich Kozin Director, Department for Direct Investments and Property, “Svyazinvest”OJSC

4 Irina Viktorovna Prokofieva Director of the Department for Internal Audit and Economic Analysis, “Svyazinvest” OJSC

5 Kirill Viktorovich Frolov Chief specialist, Department for Internal Audit and Economic Analysis, “Svyazinvest” OJSC


On 5 March On 5 March 20042004 UTK Board of Directors approved the UTK Board of Directors approved the resolution to nominate the following candidates to the resolution to nominate the following candidates to the

Company’s Auditing Commission (MinutesCompany’s Auditing Commission (Minutes №35) №35)

№ Name Post held

1 Lyubov Aleksandrovna Greseva Senior specialist, Department for Internal Audit and Economic Analysis, “Svyazinvest” OJSC

2 Lyubov Yurievna Podgornaya Head of the section for Internal Audit, "UTK" PJSC

3 Irina Viktorovna Prokofieva Director of the Department for Internal Audit and Economic Analysis, “Svyazinvest” OJSC

4 Natalia Valerievna Uzlova Deputy head of the business accounting section, “Svyazinvest” OJSC

5 Natalia Petrovna Utina Head of the section, Department for Economic Planning and Budget, “Svyazinvest” OJSC



Appointment of the Company’s Appointment of the Company’s auditor for the year 2004auditor for the year 2004 Appointment of the Company’s Appointment of the Company’s auditor for the year 2004auditor for the year 2004

Speaker – T.V. Rusinova, Chief Accountant of “UTK” PJSC



Determination of the rates of deductions Determination of the rates of deductions for calculation of the annual for calculation of the annual remuneration to be paid to the members remuneration to be paid to the members of the Board of Directorsof the Board of Directors

Determination of the rates of deductions Determination of the rates of deductions for calculation of the annual for calculation of the annual remuneration to be paid to the members remuneration to be paid to the members of the Board of Directorsof the Board of Directors

Speaker – S.G. Fefilova, Deputy General Director of “UTK” PJSC


It is proposedIt is proposed to approve the following rates of to approve the following rates of deductions for calculation of the annual remuneration deductions for calculation of the annual remuneration to be paid to the members of the Board of Directors:to be paid to the members of the Board of Directors:

1.1. 00..17% 17% of the Company’s EBITDA for the of the Company’s EBITDA for the reporting year as per the Company’s IAS reporting year as per the Company’s IAS financial accountsfinancial accounts

2.2. 00..23% 23% of the Company’s net profit allocated of the Company’s net profit allocated to dividend payment according to the to dividend payment according to the financial results of the reporting yearfinancial results of the reporting year

“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC

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