Annual Report Table of Contents
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Annual Report Table of Contents GENERAL DIRECTOR’S ADDRESS TO SHAREHOLDERS 3 THE COMPANY PROFILE 4 I. KEY MILESTONES OF 2004 7 II. GOVERNING BODIES 2.1 Board of Directors 11 2.2 Management Board 12 2.3 Audit Commission 13 2.4 Board of Directors Report 14 III. PRINCIPAL BUSINESS LINES OF THE COMPANY 3.1 Company’s Position in Communication Industry 17 3.2 Principial Business Lines of the Company 17 3.3 Structure of Profits from Telecommunication Services 18 3.4 Local Telecommunications 19 3.5 Long-distance Telecommunications 20 3.6 New Services 21 IV. RESULTS OF THE COMPANY’S ACTIVITIES IN 2004 4.1 Key Financial and Perfomance Indicators 25 4.2 Marketing Strategies 29 4.3 VIP Clients 30 4.4 Tariff Policy 30 4.5 Investment Policy 32 4.6 Dividend Policy 33 4.7 Daughter and Affiliated Companies 34 V. THE COMPANY ON CAPITAL MARKETS 5.1 The Company on Capital Markets 39 5.2 Trading Floors 40 5.3 Company Capitalization 42 5.4 Level 1 ADR Program 42 5.5 Corporate Bonds 43 5.6 Ratings 44 VI. CORPORATE GOVERNANCE 6.1 Corporate Governance 47 6.2 Investors Relations 48 6.3 Public Relations 49 6.4 Charity Activities 50 6.5 Staff Policy 51 6.6 Development Perspectives 53 6.7 Information for Shareholders 55 General Director’s Address to Shareholders Dear shareholders! OJSC «CenterTelecom» is a successful and steadily developing company, which takes one of the leading posi- tions on the telecommunication services market of the Russian Federation. Our mission is the development and upgrading of the telecommunication infrastructure on the territory of Russia's Central Federal District. We offer millions of people services based on up-to- date technological solutions. Innovation for us is not only new technological developments and upgrades, it is the key factor of competitiveness and perpetuum mobile of progress which creates new quality of life. Year 2004 turned out to be not very easy for the Company. Tariffs adjustment for the local telecommunica- tion services wasn't implemented within schedule time, so that didn't allow CenterTelecom to compensate increased expenditures, which, first of all, were connected with the significant capital investments into the communi- cation infrastructure of the Central Federal District. Nevertheless, the Company managed to finish the year 2004 with profit. In 2004 the Company implemented the most amplitudinous invest- ment program in its history. Investments into the communication systems development increased by 34% comparing with 2003 and reached 9.764 bn rubles. New electronic automatic telephone exchanges were put into operation and 2.4 thousand km of fiber-optic intraareal transmis- sion links were installed with the use of SDH equipment produced by Siemens, Alcatel, ECI Telecom and Huawei. I would like to thank all shareholders, managers, employees, part- ners and friends of CenterTelecom for keeping on the joint activities aimed at the Company's business indexes improvement and its efficiency increase. I am sure that our cooperation will allow to strengthen the CenterTelecom positions and will result in capitalization increase and our shareholders welfare growth. Annual report 2004 3 The Company Profile Location 23 Proletarskays Street, Khimki, Moscow region, 141400, Russia Mailing address: 6 Degtyarny Pereulok, building 2, GSP-3, Moscow, 125993, Russia Telephone: +7 (095) 209-34-34, Fax: +7 (095) 209-30-07 E-mail: [email protected] Internet site: www.centertelecom.ru State registration The Company was registered according to administrative ordinance of the Head of the Moscow region №567-r of June 9, 1994, certificate of state registration №127 of June 20, 1994. According to the Federal Law «On state registration of legal entities» the Company was registered in the unified register of legal entities on November 1, 2002 №1025006174710. Auditor Name: Closed Joint-Stock Company «Ernst and Young Vneshaudit». License number: 003246 Date of issue: January 17, 2003 Term of validity: till January 17, 2008 Registration body: Ministry of Finance of the Russian Federation Agreement term of validity: till complete fulfillment of the obligations (auditor obligation is to check the Financial statements of CenterTelecom for the period starting with January 1, 2004 to December 31, 2004). Registrar Name: Closed Joint-Stock Company «Registrator-Svyaz» Location: 15A Kalanchevskaya Street, Moscow, 107078 Mailing address: 15A Kalanchevskaya Street, mail box 45, Moscow, 107078 Telephone: +7 (095) 933-42-21, Fax: +7 (095) 933-42-21 E-mail: [email protected] License number: 10-000-1-00258 Date of issue: October 1, 2002 Term of validity: with no validity limits Registration body: Federal Commission on Securities Market 4 Annual report 2004 I Key Milestones of 2004 Key Milestones of 2004 CenterTelecom acquired 100% share holding of telecommunication operator "Russian Telecommunication Network", operating on the Russian telecommunication market under ROSNET trademark. The Company's Board of Directors approved the Corporate Governance Code of OJSC «CenterTelecom». The Company's Board of Directors made decision on place- ment of interest-bearing documentary non-convertible bonds of OJSC «CenterTelecom» 04 series with the face value of 1 000 rubles each and total nominal value of 7 000 000 000 rubles. The Company's Board of Directors made decision on expediency of the Charter Capital increase by means of the shares face value increase from 0.3 rubles to 3.0 rubles each. Mode of shares placement - conver- sion of the earlier placed shares of the same category (type) into shares with higher face value. «Russian Institute of Directors - Rating Agency «Expert-RA» consortium assigned «A» class National Corporate Governance Rating to the Company, which excludes any events related to the OJSC «CenterTelecom» shareholders rights violation, executive bodies unfair activities and provision of low-quality information to the shareholders and investors. The Company's Board of Directors approved the regulations on the OJSC «CenterTelecom» Dividends Policy. The General Annual Meeting of the OJSC «CenterTelecom» share- holders in the form of joint presence took place on June 11, 2004. Standard&Poor's Governance Services upgraded Corporate Governance Score (CGS) of OJSC "CenterTelecom" from CGS-5.3 to CGS-5.8 due to the number of positive changes in the Company's cor- porate governance. Annual report 2004 7 The Company's Board of Directors in order to improve its corporate governance and bodies and officials compliance with the procedure requirements, which guarantee implementation of the Company's share- holders rights and legal interests, decided to approve the Regulations on Corporate Secretary and Corporate Secretary Staff of OJSC "CenterTelecom". Ruben Amaryan, General Director of OJSC "CenterTelecom", held the Ceremony of the 6-millionth subscriber memorable certificate pres- entation. During August 17-31, 2004 series of 4 documentary interest- bearing non-convertible bonds, the total amount - 5 622 595 000 rubles, were placed. According to the public irrevocable offer, CenterTelecom redeemed 1 284 820 bonds of series 03 at the 101.5% of the face value, the total amount - 1 304 092 300 rubles, which had been fully sold at the same price during the period starting with September 17 to October 12 of 2004. According to the results of Standard&Poor's "Russian Companies Information Transparency Research 2004", OJSC «CenterTelecom» took place among top ten companies. According to the “Expert-RA” rating agency, CenterTelecom took the fifth place in the services sales amount among the largest telecom- munication companies. International rating agency Fitch Ratings assigned to OJSC «CenterTelecom» International Long-term Unsecured Credit Score in for- eign currency «B-», forecast «Negative» and Short-term Credit Score in foreign currency «B». Federal Financial Markets Service of Russia conducted state regis- tration of the issues of ordinary and preference shares A type with the face value of 3.0 rubles each, placed through conversion of the earlier floated shares of the same category (type) with the face value of 0.3 rubles each. 8 Annual report 2004 II Governing Bodies 2.1 Board of Directors The Annual General Meeting of the CenterTelecom sharehold- ers, held on June 11, 2004, elected the Board of Directors consisting of the following members: Valery N. Yashin General Director of OJSC «Svyazinvest» Stanislav P. Avdiyants Executive Director - Director of Economic and Tariff Policies Department of OJSC «Svyazinvest» Boris D. Antonyuk Deputy Minister of Information Technologies and Communication of the RF Ruben A. Amaryan General Director of OJSC «CenterTelecom» Vadim Y. Belov Deputy General Director of OJSC «Svyazinvest» Alexander P. Gribov Deputy Head of Department - Head of Division of the Russian Federal Property Fund Alexander V. Ikonnikov Chairman of the Independent Directors Association Managing Board Oksana V.Petrova Deputy Head of Methodology and Information Division under the Corporate Governance Department of OJSC «Svyazinvest» Elena V. Umnova Director of Finance Department of OJSC «Svyazinvest» Gregory M. Finger Executive Director of the Moscow Representative Office of «NCH Advisors Inc» Yevgeny V. Yurchenko Deputy General Director of OJSC «Svyazinvest» Board of Directors Committees Staff and Remunerations Committee Corporate Governance Committee Audit Committee Strategic Development Committee Annual report 2004 11 2.2 Management Board Membership of the Management Board consisting of eleven persons was approved by the CenterTelecom