OJSC «SIBIRTELECOM»
Annual Report 2005
Contents
Letter from the General Director...... 4 1. Business Profile...... 6 2. Basic Corporate Events ...... 12 3. Review of Results for 2005...... 16 4. Financial Review...... 28 5. Investments and Technological Network Development...... 34 6. Associated Business...... 46 7. Personnel ...... 52 8. Prospects of Development ...... 58 9. Securities ...... 64 10. Corporate Governance...... 70 11. Financial Statement (RAS)...... 78 Corporate Information...... 86
Annual Report 2005 Letter from the General Director
To always move forward!
Dear Ladies and Gentlemen, The largest Siberian telecoms operator Sibirtelecom OJSC would like to present you an annual report for the year of 2005. The reporting year was marked for the Management of the Company by qualitative changes in all kinds of Company’s activities. The chosen policy of the complete modernization was confirmed right by the results of 2005. This course made it possible to successfully carry out the worked out plans and considerably advance in a wide range of lines. We realize that Company’s welfare, observance of our shareholders’ interests, and harmonization of relations with our customers depend on timely change in priorities from the traditional regulated services to the new ones that are supported by a demand on the market. In view of the above, our marketing strategy is under the following development: we examine our customers’ behaviour, watch our competitors’ activity, introduce technological innovations, and improve the system of the Company’s management. Our marketing policy is oriented to the demand of the customers concentrated in 15 largest cities of the Siberian Federal District. We consider that the demand for the fixed telephony services has been quite satisfied. Today the company provides services for more than 4 million subscribers of fixed telephony. Such a broad subscriber base enable us to use “the last mile”, that is our key competitive resource, with confidence to develop the sector of broadband access to Internet. Having a purpose of occupying this segment, the Management of the Company decided to diverse the existing brand by entering a new market under the Webstream trademark developed for the young people and representatives of small- and medium-scale business. In the future we plan to provide IP-TV services with the required content under this trademark. Having counted on state-of-the-art technological solutions, our company was among the first ones to introduce the NGN packet network in Omsk and Novokuznetsk.
Letter from the General Director Great attention is paid to the cellular business of the Company. Within a year, our operators doubled the subscriber base that amounted to 2 million people. The number of base stations considerably increased, and the Company’s coverage at the cellular map of the region became broader. We purchased a control packet of the shares of GSM operator Altaisvyaz that has licences for providing the services in Altai Krai and the Republic of Altai. We also counted on the development of new standards in cellular communications. In 2005, Yeniseitelecom CJSC, a subsidiary operator, put the CDMA-2000 standard network into revenue service in Krasnoyarsk Krai. A similar standard was proposed to the customers of Tomsk and Irkutsk regions in the beginning of 2006. Last year 6.1 milliard rubles were invested in the infrastructure development. The biggest part of the capital investments is intended to develop local telephony facilities, data transmission network, and communication infrastructure facilities. The level of investments for application of new services made up 12% in 2005. As a result, the Company’s revenue grew up to 21.9 milliard rubles in 2005. The 1 milliard US dollars level of market capitalization reached by the company in September 2005 became a significant event for the company. In October we expanded the geography of trading out shares. First level ADRs began public float at Berlin and Frankfurt stock exchanges. The effectiveness of the Company’s work is confirmed by its growing international rating. Standard&Poor’s Agency announced about a rise in the Company’s Corporate Government Score (CGS) by the international scale (from CGS-4+ to CGS-5 (by the national scale: from CGS-4.7 to CGS-5.1). Fitch Ratings Agency confirmed the Long-term Issuer Default Rating of the Company at level ‘B+’, Short-term Rating at level ‘B’, and changed the rating outlook from “Positive” to “Stable”. Today our company successfully raises long-term funds at the debenture market and constantly improves the process organization, technology and the scheme of bond issue. The cost of drawing the financial resources is decreasing. During the last year the company profitably employed the existing economic situation two times. The interest rate for bonded debts made up 9.2% and 7.85% p.a. Our company was the first one in Svyazinvest holding company to introduce Oracle E-Business Suite (ERP) system of enterprise’s management in the general directorate and three branches: Novosibirsk, Altai, and Omsk, where Master-system of the first release was employed. It was responsible for the creation of uniform accounting systems in the management of fixed assets and personnel. It is used to create a uniform data base for the enterprise, which makes it possible to systematize the information with respect to fixed assets, organization structure of the enterprise, daily performance records, and transfer of personnel. In addition, a unified reporting system will be developed for all branches of Sibirtelecom OJSC. Company’s management sees further improvement of corporate management, effective protection of shareholders’ and investors’ rights, providing the subscribers with the required services, efficient and profitable work of the Company as its paramount task. We make every effort to create an efficient system of communication between the investors and the management, provide a high level of transparency of all aspects of our activity, management structures and regulations. Distinguished shareholders, I assure you that our policy to complete modernization and to achieve success on the market is unfailing!
Sincerely yours,
General Director of Sibirtelecom OJSC Аnatoly Nikulin
Annual Report 2005
Business Profile
General information about the Company 1 Sibirtelecom Joint-Stock Company, hereinafter referred to as Sibirtelecom OJSC or the Company, is one of the largest telecoms operators in Russia acting on the territory of the Siberian Federal District (SFD).
Area: 5 115 thousand sq.km (30% of Russia’s territory) Population: 20 mln.people (14% of Russia’s population) The urbanization level of population: 70% Share of population in the largest cities: 45%
Except for the Republic of Tyva, the branches of Sibirtelecom OJSC are located in the following regions of the SFD: in the Republics of Altai, Buryatia, and Khakassia, the Altai and Krasnoyarsk Krais (including Taimyr and Evenki Autonomous Areas), Irkutsk (including the Ust-Ordyn Autonomous District), Kemerovo, Novosibirsk, Omsk, Tomsk, Chita Regions (including Aginsk Buryat Autonomous District).
Sibirtelecom OJSC provides the telecommunication services ranging from the traditional telephone communication to the new services based on the intelligent networks.
Business profile The Company’s Position in the Telecommunications Market of SFD
General Characteristics of the Telecommunications Market of SFD Telecommunication services market of SFD amounted to 10.3% of telecommunication services market of Russian Federation in 2005. The current macroeconomic situation promotes growth of the telecommunications market in the Siberian Federal District. The predictable growth value of the actual gross regional product (GRP) of Siberia in 2006- 2007 within the range of 3-6% provides for rapid expansion of the SFD telecommunications market. This enables an increase of revenues in the telecommunications sector presently accounting for 2.5% of GRP in the Siberian Federal District. The low value of this figure being less than the average for Russia and most countries of the world evidences that the supply of telecommunication services does not meet the potential demand as yet. Proceeding from the above, experts forecast that the average annual growth of telecommunication sector revenues in the forthcoming three years may reach at least 20-22% or in excess of 25% provided that the goals of growth acceleration are achieved.
Market Position of the Company. Sibirtelecom continues to be the leader on the telecommunication market in the region, occupying 45% of the total market size. The most stable positions of the Company are at the markets of traditional services of local and intrazone telephony (79% and 86% of the market respectively). The Company can have the dominant position on the fixed communication market in the Siberian Federal District due to, first of all, its competitive advantages, most important of which include: - A big subscriber base; - The public telephone network infrastructure that is the most branchy one and unique in many aspects with the points of its presence in most inhabited places of SFD, in virtually all districts and microdistricts of big cities; The Company is one of the leading providers of Internet services (47% of the market) and mobile communication operators (17% of the market).
Annual Report 2005 Key Performance Figures
2004 2005 Changes
Income statement (RAS) Revenues mln. rub. 19 040 21 907 2 867 from communication services mln. rub. 18 650 21 456 2 806 from non-core activities mln. rub. 390 451 61 Expenses mln. rub. 16 120 18 883 2 763 EBITDA mln. rub. 4 886 5 537 651 EBITDA margin 25.7% 25.3% Operating income mln. rub. 2 920 3 024 104 Operating income margin 15.3% 13.8% Income before taxation mln. rub. 1 211 1 269 58 Income before taxation margin 6.4% 5.8% Net income mln. rub. 657 708 51 Net income margin 3.5% 3.2% Other financial information (RAS) Assets (as of December 31) mln. rub. 25 333 29 174 3 841 Capital and reserves mln. rub. 10 643 11 103 460 Net assets mln. rub. 10 778 11 218 440 Income per 1 share rub. 0.049 0.053 0.004 Non-financial data Installed capacity of Automatic Switch- ing Centres (on December 31) urban telephone network thousand 3 412 3 598 186 numbers rural telephone network thousand 780 795 15 numbers Digitization of switching capacity : Of all local telephone networks 56% 63% Of city telephone networks 64% 70%
Of country telephone networks 24% 29% Average number of employees (includ- thousand 47.5 43.4 -4.1 ing outside part-time employees, employees employees under contract, and other people non included in the list)
10 Business profile The Company’s Mission and Strategic Goals The Company’s Mission is to combine state-of-the-art technologies and elaborated marketing policy to provide a wide choice of high quality telecommunication services for all user categories. Based upon the existing economic, technical and personnel potential, Sibirtelecom sets as its long-term marketing goal: - Keeping the leading positions on the markets of local and domestic long-distance (intraareal) line telephony - Keeping dominating positions on the Internet and data transmission service markets - Providing stable presence and expansion of its participation on the mobile communication services in all regions covered by the Inter-regional Company. - Arranging multi-purpose communication services on the territory of the SFD; - Achievement of the maximum coverage of population by federal programs of TV-radio-broadcasting and in that way liquidation of information inequality between city-dwellers and villagers.
Main Tasks for Strategic Goal Achievement:
- Keeping not less than 80% of the local line telephony due to further development of the numbering capacity of the telephone lines, raising the quality of services provided to subscribers by gradual digitalization of the network, application of NGN technologies to satisfy the demand for the voice telephony - Increasing profitability of traditional telephony services due to a larger range of the provided services, including additional types of services, intelligent network services, informational and reference services - Keeping the positions on the market of domestic long-distance (intraareal) communication by means of competitive tariffs, professional work with corporate customers and aggressive promotion of international communication services for the population - Winning and keeping not less than 50% of the Internet and data transmission services market due to the development of access network access, use of interconnected backbone transmission networks of Sibirtelecom and wide application of the technologies of line (xDSL, ETTH) and wireless subscriber access - Rendering of IP-TV services on the territory of the SFD - Rendering of multi-purpose communication services on the territory of the SFD - Entry to the market of digital on-air TV broadcasting through DVB-T technology - Strengthening of Company’s positions on the market of mobile communication services by means of further development of mobile business in the branches and affiliate mobile companies.
Annual Report 2005 11
2 Basic Corporate Events January January 21, 2005. The number of mobile communication subscribers of the Company exceeded 1 mln people. February February 24, 2005. Yeniseitelecom CJSC, a subsidiary of Sibirtelecom OJSC, acquired from MST Corp. 59.7% of shares of Altaisvyaz OJSC that provides mobile communication services on the territory of Altai Krai and of the Republic of Altai. March March 4, 2005. The Board of Directors appoints Mr. A.I. Nikulin to the office of General Director for a term until March 4, 2007. April April 6, 2005. The Company’s managers meet members of the investment community in Novosibirsk. The delegation included analysts and agents of foreign investment funds Templeton, Invesco, Vontobel, Banca Immobiliare, Studi & Investimenti, Alfa AM, Unifund, Uralsib AM, and ING Bank. April 8, 2005. The Company’s officers participate in the annual conference “Telecommunications and Investments”, Moscow. April 10-13, 2005. The Company’s top managers participate in the Russian Economic Forum and Road Show, London. April 29, 2005. The Company makes placement of 3,000,000 centrally-held documentary non-convertible bearer bonds, Series 05 with a par value of 1000 rubles each. The annual interest rate of coupons 1-6 is 9.2%. The bonds are to be redeemed in April 2008, 1092 days after the date of placement. April 25, 2005. Fitch Ratings Agency confirmed the Long-term Issuer Default Rating of the Company at level ‘B+’, Short-term Rating at level ‘B’, and changed the rating outlook from “Positive” to “Stable”. May May 16, 2005. The Board of Directors decides to introduce amendments to the Bylaws of the Company related to the establishment of the Sibirtelecom Representation Office in Moscow. June June 16, 2005. The Board of Directors approves internal documents regulating basic corporate activities of the Company: - “Issuer’s Information Policy Regulations for Sibirtelecom”; - “Regulations Governing the Procedure of Using Information (about Sibirtelecom’s Activities, Securities and Securities Transactions) that is Not Publicly Available and May Materially Affect the Market Value of Sibirtelecom Securities if Improperly Used or Disclosed”. June 21, 2005. The annual general meeting of Sibirtelecom adopts resolutions to approve the annual report and the annual financial statements of 2004, elects the Board of Directors and the Audit Commission, and approves amendments and addenda to the Bylaws and internal documents of the Company and the nomination of the Auditor for the year 2005. June 23, 2005. Series 05 bonds included in the Register of Unlisted Securities of MICEX Stock Exchange. July July 6, 2005. The Company presents the audited consolidated financial statements of 2004 prepared in compliance with international accounting standards (IAS). July 25, 2005. A meeting with members of Standard&Poor’s for revision of the corporate governance score (CGS) of Sibirtelecom. September September 2, 2005. Standard&Poor’s upgrades the Company’s corporate governance score from CGS-4+ to CGS-5 on the global scale and from CGS-4.7 to CGS-5.1 on the Russian country scale. September 16, 2005. A meeting with members of Fitch Ratings for revision/ conformation of Sibirtelecom’s credit rating.September 22, 2005. The Company makes placement of 2,000,000 centrally-held documentary non-convertible bearer bonds, Series 06 with a par value of 1000 rubles each. The annual interest rate of coupons 1-6 is 7.85%. The bonds are to be redeemed in September 2010, 1820 days after the date of placement. The issued bonds are subject to offer after three years
14 Basic corporate events upon request of their holders. September 28-30, 2005. The Company’s top managers participate in the annual Brunswick UBS conference and the Telecommunications Round Table, Moscow. Besides, a series of meetings with members of the investment community is held. September 28, 2005. Company participates on in the INFOCOM show (Moscow). October October 11, 2005. The Company presents the non-audited consolidated financial statements for the first six months of 2005 prepared in compliance with international accounting standards (IAS). October 12, 2005. Trading the Company’s first-level American Depositary Receipts (ADR) begins in the Freiverkehr (Free Circulation) Segment of the Frankfurt and Berlin Stock Exchanges. November November 24-25, 2005. The Company’s top managers participate in the conference organized by FIM Securities in Moscow. November 29, 2005. Series 06 bonds in the Register of Unlisted Securities of MICEX Stock Exchange. December December 1-2, 2005. The Company participates in the Second Federal Investment Forum, Moscow. December 2, 2005. The Fitch Ratings agency confirms the ‘B+’ grade for Long-term Issuer Default Rating with a stable outlook and the ‘B’ grade for the Short-term Rating of the Company. December 9, 2005. The Company participates in “Russia – Hi-Tech 2005”, Kuala- Lumpur, Malaysia. Included in the display of Svyazinvest, Sibirtelecom represents new and traditional services of the Company in the Siberian Federal District. December 27, 2005. The Board of Directors approves the Dividend Policy Regulations.
Annual Report 2005 15
Review of Results for 2005
Overall results of telecommunication business development 3 Revenue structure The Company revenues reached 21 906.7 million rubles in 2005, having grown by 2 866.9 million rubles or by 15.1% as compared with 2004. 97.9% of revenues were obtained from principal activity; similar value is fixed in the specific weight of profile business in revenue growth. Diagram 1. Company revenues (mln.rubles)
The main factors of growth in the accounting year were as follows: development of telecommunication network, increased digitalization of switching and line facilities, Company subscriber base, growth of Internet calls flow capacity, development of mobile communication. Table 1. Company revenue amount and structure
Revenues, mln.rub Growth in 2005. Revenue structure 2004 2005 mln. rub. % 2004 2005
Domestic and international long-distance telephone communication 7 353.3 7 103.2 -250.1 -3.4% 38.6% 32.4% Urban and rural telephone communication 7 508.9 9 163.6 1 654.7 22.0% 39.4% 41.8% Revenues from communication operators 1 804.5 2 631.9 827.4 45.9% 9.5% 12.0% Revenues from new communication services 811.1 1 110.0 298.9 36.9% 4.3% 5.1% Wireless communication 436.9 693.9 257.0 58.8% 2.3% 3.2% Document electric communication 361.7 354.3 -7.4 -2.0% 1.9% 1.6% Wire communication 280.7 281.6 0.9 0.3% 1.5% 1.3% Wireless communication, broad- casting, TV, satellite broadcasting 68.7 82.6 13.9 20.2% 0.4% 0.4% Other communication services (profile business activities) 24.4 34.9 10.5 43.0% 0.1% 0.2% Revenues from communication services, total 18 650.2 21 456.0 2 805.8 15.0% 98.0% 97.9% Revenues from other nonprofile business 389.6 450.7 61.1 15.7% 2.0% 2.1%
Revenues, total 19 039.8 21 906.7 2 866.9 15.1% 100.0% 100.0%
18 Review of Results for 2005 In the Company revenue structure the main components are revenues from providing local communication services (9 163.6 mln. rubles), domestic and international long-distance (7 103.2 mln.rubles) telephone communication services (41.8% and 32.4% respectively). Revenues from operators, including 4% of revenues from Rostelecom OJSC, are essential item of revenue structure–12.0% (2 631.9) mln. rubles. Revenues from new services (Internet, ISDN, IP-telephony, intelligent network services) come to 5.1% (1 110.0 mln.rubles), Revenues from wireless communication amount to 3.2% (693.9 mln.rubles). More than 68% of Company revenues were provided by the largest Company affiliates– Novosibirsk (17.0%), Krasnoyarsk (14.2%), Irkutsk (13.0%), Altai (12.0%) and Kemerovo (11.9%).
Diagram 2. Company revenues per regions in 2005 (mln.rubles)
Urban and rural telephone communication The main generator of revenues, as it was a year before, is subindustry of local telephone communication. Company Revenues from urban and rural telephone communication services rose by 1 654.7 mln.rubles or by 22.0% (57.7% of the total revenue growth) in 2005 and reached 9 163.6 mln. rubles (41.8% in revenues structure as against 39.4% in 2004). Diagram 3. Revenues from urban and rural telephone communication services (mln.rub.)
Annual Report 2005 19 Diagram 4. Diagram 5. Share in Company revenues for 2005 Share in Company revenue growth for 2005
Growth of revenues from urban and rural telephone communication services in 2005 was the result of services‘expanding, as well as tariff factor. Expansion of services. The number of fixed network subscribers exceeded 4055 thousand people, that is 6% higher than that of the previous year. One should note that there is still quite a big amount of pent-up demand for installing fixed telephone numbers (Company’s waiting list has not been substantially reduced, moreover, there is the lowest in Russia level of telephone density in the Siberian region).
Diagram 6. Quantity and growth of Company master subscriber units in regions against the end of 2005.
Tariff indexing. 30% user charge growth for population (average growth value in Sibirtelecom OJSC) and 23.8% user charge growth for organizations from November 1, 2004, with follow-up 16.9% and 15.0% respective increase from November 1, 2005, was made under negotiating with the Federal Tariff Service in order to eliminate cross- financing and bring local telephone communication tariffs to the level of economically sound expenses. Dynamics of average revenue rate for given services amounted to 127.4% in 2005, as compared with 2004, under the category of “Population”, and 122.1% under the category of “Organizations”.
20 Review of Results for 2005 Table 2. Amount and structure of Company revenues from urban and rural telephone communication services
Revenues, mln.rub. Growth in 2005 Share in Company 2004 2005 mln.rub. % revenues 2004 2005
Payment for providing access 1 503.5 1 425.5 -78.0 -5.2% 7.9% 6.5% Providing local telephone communication (talk) 5 198.4 6 967.9 1 769.5 34.0% 27.3% 31.8% Providing local telephone communication from pay station 84.3 59.5 -24.8 -29.4% 0.4% 0.3% Lease of technical facilities and other services 722.7 710.7 -12.0 -1.7% 3.8% 3.2%
Urban and rural communication telephone services, total 7 508.9 9 163.6 1 654.7 22.0% 39.4% 41.8%
Absolute growth of revenues from local telephone connections amounted to 1 769,5 mln. rubles. At the same time, increase of revenues under this item has compensated reverse dynamics of network access services, connections through pay stations, lease of technical facilities and other local communication services thereof. Negative dynamics of Revenues from network access service is governed by reduced growth rate of master telephone sets. The quantity of master telephone sets increased by 211.9 thousand units (or by 5.5%) in 2005, including number of urban telephone networks (UTN) telephone sets, which has grown by 183.9 thousand units (5.8%). In previous year the Company managed to provide growth of 244.6 thousand units, including UTN units, by 211.8 thousand units. Domestic and international long-distance telephone communication Slightly weakened position of long-distance communication services (96.6% in dynamics against the level of 2004) was observed in 2005. Company revenues from domestic long-distance (DLD) and international long-distance (ILD) telephone communication services reduced by 250.1 mln. rubles (or by 3.4%) in 2005, and amounted to 7,103.2 mln. rubles (32.4% of revenue structure against 38.6% in 2004). Diagram 7. Revenues from DLD and ILD telephone communication services (mln.rub.)
Annual Report 2005 21 Diagram 8. Share of revenues from DLD/ILD telephone communication services in Company revenues for 2005
The amount of calls flow capacity slightly rose (by 1.1%) in 2005, however, due to current competitive situation on telecommunication market, slight decrease of average revenue tariff occurred. Table 3. Amount and structure of Company revenues from DLD/ILD telephone communication services
Revenues, mln. rub. Growth in 2005 Share in Company 2004 2005 Mln. rub. % revenues 2004 2005
Domestic and international long-distance communication services, total 6 107.8 5 852.9 -254.9 -4.2% 32.1% 26.7% Providing international long- distance telephone connection (including connection via pay station) 982.6 955.9 -26.7 -2.7% 5.2% 4.4% Leasing DLD/ILD channels and other services 262.9 294.4 31.5 12.0% 1.4% 1.3%
Providing domestic long-dis- tance telephone connection (including connection via pay station) 7 353.3 7 103.2 -250.1 -3.4% 38.6% 32.4% Rendering Services to Communication Operators Considerable contribution to the growth of Company revenues was made by growing revenues from services rendered to other communication operators. Company revenues from communication operators rose by 827.4 mln.rubles or by 45.9% (28.9% of the total revenues growth) in 2005, and reached 2 631.9 mln. rubles (12.0% of revenues structure against 9.5% in 2004). Diagram 9. Revenues from services to communication operators (mln. rub.) The following factors governed revenues growth:
22 Review of Results for 2005 - increased number of connected operators; - revising some tariffs (towards increase) for services rendered to communication operators
Diagram 10. Diagram 11. Share of revenues from services Share of revenues from services to communication operators to communication operators in Company revenues for 2005 in Company revenues growth for 2005.
New Telecommunication Services In 2005, Revenues from new services (Internet, IP-telephony, ISDN, and services of intelligent networks) exceeded the level of 1 milliard rubles (136.9% growth by 2004), their specific weight in revenue structure amounts to 5.1% (4.3% in 2004), share in revenue growth is equal to 10.4% (against 8.2% of revenue growth in 2004). Diagram 12. Revenues from new communication services (mln.rub.)
Diagram 13. Share of revenues from Diagram 14. Share of revenues from new communication services new communication services in Company revenues for 2005 in Company revenues for 2005
Revenues from Internet access grew by 40.3% in 2005 and amounted to 946.6 mln.rubles. Growth of revenues from given services is fully due to expansion of activities. Internet access traffic via Switched Telephone Network exceeded the level of 2 milliard minutes in the accounting period, having increased by 508.9 mln. minutes (33.6%) in comparison with the traffic of 2004; the amount of information, transmitted via Internet network, rose by 80.2% and amounted to 327 mln. Mbyte.
Annual Report 2005 23 Table 4. Amount and structure of Company revenues from new telecommunication services
Revenues, mln.rub. Growth in 2005 Share in Company 2004 2005 mln. rub. % revenues 2004 2005
Internet 674.8 946.6 271.8 40.3% 3.5% 4.3% ISDN 70.5 63.9 -6.6 -9.4% 0.4% 0.3% IP-telephony 64.3 80.3 16.0 24.9% 0.3% 0.4% Intelligent network services 1.5 2.7 1.2 80.0% 0.0% 0.0% Other new services (Backbone Network Station, videophone connect) 0.0 16.5 16.5 0.0% 0.1%
New telecom services, total 811.1 1 110.0 298.9 36.9% 4.3% 5.1%
Wireless communication Company revenues from wireless communication rose by 58.8% (not taking into account daughter cellular business) in 2005 and amounted to 693.9 mln. rubles (3.2% in revenues structure against 2.3% in 2004). Specific weight of this item in revenues growth is 9.0%. Diagram 15. Revenues from wireless communication services (mln.rub.)
Diagram 16. Diagram 17. Share of revenues from wireless Share of revenues from wireless communication communication in Company revenues for 2005. in Company revenues grovth for 2005.
Sibirtelecom OJSC accounts show revenues from given kind of activities, obtained in affiliates’ organization departments (OD), which are engaged in cellular business. The largest specific weight in the total amount of revenues from mobile service communication belongs to Ulan Ude Cellular Network – OD of Buryat affiliate of OJSC Sibirtelecom. In 2005 the number of Sibirtelecom OJSC subscriber terminals, connected to mobile telecommunication networks, reached 250 562 units, that is 145 498 units more than in 2004.
24 Review of Results for 2005 Table 5. Amount and structure of Company revenues from wireless communication services
Receipts, mln. rub. Growth in 2005 Share in Company 2004 2005 Mln.rub. % revenues 2004 2005
Cellular communication 426.9 685.8 258.9 60.6% 2.2% 3.1% Paging 0.06 0.01 -0.1 -83.3% 0.0% 0.0% Other services 9.9 8.1 -1.8 -18.2% 0.1% 0.0%
Wireless communication services, total 436.9 693.9 257.0 58.8% 2.3% 3.2%
Wireless communication, TV, radio and wire broadcasting Company revenues from wireless communication, radio broadcasting, on-air and cable television broadcasting, wire broadcasting services rose by 14.8 mln.rubles or by 4.2% in 2005, and amounted 364.2 mln. rubles (1.7% of revenues structure). Diagram 18. Revenues from wireless communication, TV, radio and wire broadcasting services (mln.rub.)
Diagram 19. Diagram 20. Share of revenues from wireless Share of revenues from wireless communication, communication, TV, radio and wire broadcasting TV, radio and wire broadcasting services services in Company revenues for 2005. in growth of Company revenues for 2005. In 2005 Company revenues from wire broadcasting services rose slightly. They actually remained at the
level of 2004- that is 281.6 mln. rubles. The number of wire broadcasting radio sets is more than 1 320 thousand units against the end of 2005, which is nearly 17% lower than similar figure for 2004. Revenues from TV, radio broadcasting rose by 20.2% in 2005.The number of USB/FM broadcasting subscribers came to 594 thousand against the end of 2005, that is 40.4% higher than the level of the previous year; the number of cable television subscribers came to nearly 12 thousand (that is 29.4% more)
Annual Report 2005 25 Table 6. Amount and structure of Company revenues from wireless communication, TV, radio and wire broadcasting services
Revenues, mln.rub. Growth in 2005 Share in Company 2004 2005 mln. rub. % revenues 2004 2005
Wireless communication, radio, TV 68.7 82.6 13.9 20.2% 0.4% 0.4% Wire broadcasting 280.7 281.6 0.9 0.3% 1.5% 1.3%
Wireless communication, radio, TV, and wire broadcasting services, total 349.4 364.2 14.8 4.2% 1.8% 1.7%
Documentary communication Total Revenues from providing documentary communication services (telegraph, telex, fax) amounted to 354.3 mln.rubles in 2005 (1.6% of revenues structure). Diagram 21. Revenues from documentary communication (mln.rub.)
Diagram 22. Share of Revenues from documentary communication services in Company revenues for 2005.
Due to the development of modern data transmission services, revenues from telegraph communication services have been gradually reducing. In 2005 revenues from telegraph communication services reduced by 8.2%, the quantity of sent cables reduced by 20.6%. Revenues from data transmission amounted to 118.5 mln.rubles in 2005, which is 25.8% higher than the same figure for 2004.
26 Review of Results for 2005 Table 7. Amount and structure of Company revenues from documentary communication services
Revenues, mln.rub. Growth in 2005 Share in Company 2004 2005 Mln.rub. % revenues 2004 2005 0,8% Telegrams 191.9 176.2 -15.7 -8.2% 1.0% 0.8%0,1% Subscriber telegraphy 28.8 26.0 -2.8 -9.7% 0.2% 0.1%0,5% Data transmission 94.2 118.5 24.3 25.8% 0.5% 0.5% Receipts from telematic services 0,1% Other services 11.6 12.0 0.4 3.4% 0.1% 0.1%0,1% 35.2 21.6 -13.6 -38.6% 0.2% 0.1%
Documentary communication, 1,6% total 361.7 354.3 -7.4 -2.0% 1.9% 1.6%
Annual Report 2005 27
Financial review
Financial indices 4 The structure of expenses The fiscal year was marked by a positive dynamics of indices characterizing the financial results of the Company’s activities. Table 8. Basic financial indices according to RAS (million rubles)
2004 2005 Changes, %
Revenues 19 039.8 21 906.7 15.1% Expenses 16 119.9 18 883.1 17.1% EBITDA 4 886.3 5 536.5 13.3% EBITDA margin 25.7% 25.3% Operating income 2 919.9 3 023.6 3.6% Operating income margin 15.3% 13.8% Income before taxation 1 210.9 1 269.5 4.8% Net income 656.5 708.1 7.9% Net income margin 3.4% 3.2%
The revenues of the Company in 2005 amounted to 21 906.7 million rubles having increased by 2 866.9 million rubles or 15.1% in comparison with 2004. The expenses of the Company in 2005 grew by 2 763.2 million rubles or 17.1% in comparison with 2004 and amounted to 18 883.1 million rubles. The largest share in the total expenditure increase belongs to expenses on salaries and social insurance, other expenses, depreciation, and expenses on services of external organizations. As compared with 2004: - the increase of expenses on salaries and social deductions made up 814.4 million rubles or 11.1%. The main factors of salary expenses growth appeared to be the average wage increase stipulated by the present situation at the labor market and charging of the reserve for renumeration payment according to the performance results for the year in all the subsidiaries of the Company. At the same time, the volume of deductions to social insurance reduced by 7.9% as a result of the UST rate reduction; - the increase of other expenses amounted to 609.6 million rubles or 41.6% that is mainly stipulated by the deductions to the reserve of universal service in accordance with the Federal law “On communications” and established procedure stated by the Resolution of the Government of the RF dated April 21, 2005 “On the approval of the Rules of forming and spending the resources of the universal service reserve”, as well as by the increase of the expenses on private pension insurance; - the volume of the charged depreciation of fixed capital increased by 546.5 million rubles or 27.8% which is connected with the aggressive investment policy of the Company aimed at the development of the network; - the increase of the Company’s expenses on services of strange organizations made up 373.9 million rubles or 33.0%, which is mainly stipulated by increased expenses on the services, separated from the Company’s structure into outsourcing as well as by the reflection of the expenses on the Enterprise Resource Planning (ERP) on the basis of Oracle E-Business Suite.
30 Financial review Table 9. Structure of Company’s expenses
Expenses, million Increase 2005 The structure of rubles mln. % expenses 2004 2005 rubles 2004 2005
Expenses on salaries and social insurance 7 366.2 8 180.6 814.4 11.1% 45.7% 43.3% Fixed assets depreciation 1 966.4 2 512.9 546.5 27.8% 12.2% 13.3% Expenses on the services of Rost- elecom OJSC 2 335.4 2 473.6 138.2 5.9% 14.5% 13.1% Services of outside organizations 1 133.1 1 507.0 373.9 33.0% 7.0% 8.0% Material costs 997.4 1 198.7 201.3 20.2% 6.2% 6.3% Expenses on the services of com- munications operators (except the Companies of the Group) 426.7 486.7 60.0 14.1% 2.6% 2.6% Electric power 216.8 245.0 28.2 13.0% 1.3% 1.3% Expenses on the services of com- munications operators – members of the Group 184.5 171.0 -13.5 -7.3% 1.1% 0.9% Taxes and charges included into the structure of expenses on usual activities 28.6 33.2 4.6 16.1% 0.2% 0.2% Other expenses 1 464.8 2 074.4 609.6 41.6% 9.1% 11.0%
Expenses total 16 119.9 18 883.1 2 763.2 17.1% 100.0% 100.0%
The increase of EBITDA in 2005 in comparison with 2004 made up 650.2 million rubles or 13.3%. The EBIDTA margin is 25.3%. Operating income amounted to 3 023.6 million rubles, having increased by 103.7 million rubles or 3.6% in comparison with 2004. Operating margin is 13.8%. Income before taxes increased by 58.6 million rubles or 4.8% and amounted to 1 269.5 million rubles. The net income made up 708.1 million rubles having increased by 7.9% in comparison with 2004. The net income margin is 3.2%.
Annual Report 2005 31 Drawing of credit resources and loans Finance resources structure For the past years the Company has assimilated a significant volume of capital investments, which has considerably influenced the increase of payable loan resources share in the structure of the Company’s liabilities. The total credit and loans debt for 2005 increased by 48% and by January 1, 2006 it amounted to 11 921 million rubles, including long-term debt – 8 653 million rubles (72% of the total credit and loans debt), and short-term debt – 3 268 million rubles (28% of the total credit and loans debt). A considerable increase of debt capital arose from floating two bond loans for the sum of 5 milliard rubles (72% of the sum of loan resources drawn in 2005). Diagram 23. The structure of the Company’s credit and loans debt in 2005.
The share of the Company’s net worth in the structure of the balance makes up 38%, the debt capital accounts for 62%. The Company’s approved budget for 2006 provides for the assimilation of 5 795 million rubles of capital investments. For all that great importance of mobilization of fixed capital in a short-term plan, the inner resources are not sufficient enough to fulfill break-through measures. Therefore the budget for 2006 has a plan to draw loan resources in the sum of 7 687 million rubles, that will be directed (in addition to the investment plan) to refinance the previously taken liabilities (redeemable bonds total 1530 million rubles, redeemable credits and loans total 2 502 million rubles). Moreover, the Company sticks to a balanced approach, which will make it possible to keep the international credit rating at a sufficiently high level. The borrowings portfolio for 2006 in the context of drawing instruments is as follows: - Bond loan - 2 000 million rubles, that makes up 26% of the volume of drawn resources. - Bank credits - 5 687 million rubles, that makes up 74% of the volume of drawn resources. At the end of 2006 credit and loans debt will increase by 26% and will amount to 15 bill. rub.
32 Financial review Credit rating On December 2, 2005 the Fitch Ratings International Agency confirmed the “B+” grade long-term Company’s default rating with a ‘Stable’ outlook, and the “B” grade for the short- term rating of the Company. The ratings show the dominant position of the Company on the market in the area of its activity in Eastern and a considerable part of Western Siberia. The ratings also take into account the influence of Svyazinvest OJSC that has a controlling block of shares in the amount of 50.67% on taking strategic decisions in the Company. The outlook ‘Stable’ is connected with expectations that the Company can maintain its market share in the segment of local communication services and increase its share in the segments of mobile communication and ‘new’ services.
Annual Report 2005 33
Investments and Technological Network Development
In 2005 construction of communication objects was carried out in the Company in accordance with capital construction plans aimed at the development of telecommunication networks, putting into operation of 5 new facilities, further digitalization of telecommunication networks, introduction of new technologies. Putting into operation new objects made it possible to extend the length of intraareal channels, to enlarge the number of automatic long-distance exchange channels, to enhance the installed (digital) capacity of automatic switching centres of local telephony and main telephone apparatuses. The principal characteristic of the current stage of Sibirtelecom’s technical development is large-scale upgrading of the networks. Priorities of the Company’s Business
Construction and Upgrading of Backbone, Intraareal and Transport Networks. In 2005, new circular–type structures were arranged in Altaisk, Tomsk, Novosibirsk and Omsk branches. In order to increase calls flow capacity and to provide new services, transport network modernization was performed in 3 branches: in the Altai branch (Barnaul – Kalmanka, Pospelikha, Rubtsovsk); in Khakass branch (Abakan – Bograd – Kopievo), where facilities level was changed from STM-4 for STM-16, and in Kemerovo branch (Kemerovo-Novokuznetsk), where facilities level was changed from SDM-16 for XDM-1000.
Adopting New Technologies and Broadening in the Range of Services. One of the Company’s priority lines is establishing scaleable data transmission network infrastructure. Building, modernizing and developing new fragments of data transmission network infrastructure is carried out according to multi-service requirements implying multi-purpose nature of modern data transmission network, i.e. it must be capable of transferring different traffic (voice, video, data) under predetermined parameters of service quality and confidentiality level. Based on such network infrastructure, the Company can develop both Internet access services and Virtual Private Netrworks (VPN) services for corporate customers. Broadband access network is being actively developed in order to provide data transmission services as well as to build backbone multi-service networks. Company’s current priority line for broadband access infrastructure is the technology of high speed data transmission via xDSL physical lines (digital subscriber lines) - ADSL and G.SHDSL. Copper line resources make it possible to perform rapid and large-scale development of access networks without building line and cable structures. One of the Company’s important strategic goals is to provide access to data transmission network infrastructure to as many users as possible. For this purpose, aggressive efforts are taken to develop dial access services, which are the most available type of access to data transmission networks and Internet network. Dial access services are rendered by multiMinutes facilities, providing access to the public telephone network by means of digital interfaces. One of the most significant Company projects is the development of a single multiservice MPLS-based (Multi- Protocol Label Switching) network. The multiservice nerwork is to solve two groups of foreground tasks. First, to provide corporate customers of the Siberian region with multi-protocol quality data transmission in various service forms. Mass market will obtain high speed Internet connection based on broad band technologies. In future it will be this network that will be able to withstand communication load of different types (voice, data, and video). Due to its intelligent solutions it will become the Next Generation Network(NGN); Secondly, the multi-service network will serve as a necessary basis for Sibirtelecom corporate information networks. Successful result of Oracle ERP and CRM (system of enterprise resource and customer service centralized management) realization directly depends on multi-service network operability. While developing telecommunication networks, the Company places the main emphasis on digitalization of primary networks by means of new transmission lines with the technology of Synchronous Digital Hierarchy (SDH). In order to increase reliability and survivability of primary communication, the Company specialists provide for building circular-type structures with the utilization of synchronous hierarchy systems which pass high end speedy digital flows. Construction of access networks includes optic cable-assisted triggering of backbone and distributing sections of subscriber access network. 155 Мbit/s, 622 Мbit/s, 2.5 Gbit/s Synchronous Hierarchy Facilities (SDH) and 2 Мbit/s flow add/drop multiplexer are used in the intraareal primary network for the arrangement and further development of digital networks. Integrated digitalization of the primary network is carried out at all levels taking into account technical and economical expediency and efficiency.
36 36 Investments and Technological Network Development In an effort to solve tasks set by the Ministry of Communication and Informatization to provide communication services to population in difficult to access regions of the Siberian Federal District, where there is no cable infrastructure, the Company is actively using an alternative method of telephone installation – development of wireless access networks. Systems of subscriber radio access of DECT standard (Digital Enhanced Cordless Telecommunication) have an undoubted advantage – scan speed and ability of step–by–step capacity growth, as may be necessary. To extend inter-station connection lines, satellite technologies are used. Investment Policy Commercial and financial results in the future depend directly on the telecommunication network the Company is developing today. In 2005 the work of Sibirtelecom’s management was aimed at the fulfillment of the decisions made at the annual General Meeting of Shareholders, by the Board of Directors, connected with the realization of the main economic and performance indicators, plans of technical upgrade of telecommunications, development of new services, providing unbroken high-quality communications, strengthening of Company’s position on the communication market. The volume of investments into Sibirtelecom’s fixed capital in 2005 was increased by 9.5% and amounted to 6.1 milliard rubles, while the correlation of the investments and the profit decreased from 29% in 2004 to 28% in 2005.
Diagram 24. Investments into fixed capital (milliard rubles)
Annual Report 2005 37 A considerable volume of capital investments (about 44%) was used in accordance with Company’s investment programme to build, expand and upgrade traditional telephony objects. 429 thousand numbers of urban and rural telephone stations were put into operation. The second sectoral line according to the volume of invested capital in 2005 is the construction of intraareal fiber-optic communication lines. The volume of capital investments in this line amounted to 880 mln. rubles (14% of the total investment programme). Over 12% of capital investments of the total investment programme were used to build and develop telecommunication objects connected with providing new services to Company’s customers (in addition to traditional telephony and mobile communication). Some investment projects connected with the construction of transmission NGN networks (Next Generation Networks), organization of хDSL access and dial-up Internet access, IP-telephony, construction and expansion of cable TV networks, etc. were financed. The volume of capital investments in this line amounted to 753 mln rubles. The main volume of investments within this line in 2005 was used to build multi-service NGN networks in the cities of Novokuznetsk and Omsk. One should note the unique character and complexity of construction of said objects that are connected with the absence of experience in building networks of such level. Omsk region has become the first regions on the territory east of the Ural Mountains, where wide-scale introduction of this technology started. Sibirtelecom plays the role of a pioneer in this line, and is a company that gains and accumulates basic experience. Diagram 25. Structure of investments into fixed capital in 2005, main sectors.
The leaders of investment activity in 2005 among the regions were Kemerovo, Novosibirsk Regions and Krasnoyarsk Krai, where the capital investments volume amounted to 47% of the total realized investment programme of Sibirtelecom OJSC for 2005.
38 38 Investments and Technological Network Development Diagram 26. Structure of investments into fixed capital in 2005 in regions
Annual Report 2005 39 Network Development Within the year of 2005, considerable work was done to upgrade and develop the intraareal networks, which led to the extension of intraareal telephone channels to 43 794 thousand chan.km mainly due to the construction and commissioning of fiber-optic communication links. The total length of Company’s fiber-optic communication links was increased by 2.8 thousand km and amounted to about 10.1 thousand km by the end of 2005. The share of channels formed by digital transmission systems increased from 97% to 99%. Diagram 27. Length of long-distance (intraareal) telephone channels (thousand chan./km.)
The highest growth of digital transmission systems was reached in the following branches: Altai (11 225 thousand channels/km), Tomsk (8 983.7 thousand channels/km), Krasnoyarsk (7 832. 6 thousand channels/km). The increase in the incoming automatic channels equaled 2 477 channels. It became possible due to Buryat, Krasnoyarsk and Kemerovo branches (445, 843 and 532 channels respectively). The total installed capacity of АMTS was increased from 83 867 to 96 481 channels. The growth in the installed capacity of АMTS amounted to 12 614 channels. The total installed capacity of fixed telecommunications network in Sibirtelecom, OJSC increased from 4192 to 4393 thousand numbers including urban telephone network from 3412 to 3598 thousand numbers and rural communication from 780 to 795 thousand numbers. In 2005 step-by-step equipment at Automatic Switching Centres was removed completely. Diagram 28. Installed capacity of ASC of the local telephony network (thousand numbers)
40 40 Investments and Technological Network Development The available capacity of telecommunication network in Sibirtelecom equaled 4082.2 thousand numbers, including 3362.5 and 719.8 thousand numbers in the urban telephone network and rural communication, respectively. The coefficient of using installed capacity is 93.4% and 90.5 % in the urban telephone network and country communication, respectively. In general the share of installed capacity in the local communication at the digital Automatic Switching Centres increased from 56% to 63% as compared with the last year. Diagram 29. Level of digitalization of local telephone network ASCs
The share of installed capacity at the electronic Automatic Switching Centres in the urban telephone networks increased within the reporting period from 64% to 70%. This coefficient is much higher in the following regional branches: Тоmsk (95 %), Irkutsk (82 %), Buryatia (88 %) and Gorno-Altaisk (81 %). In the country communication networks, the share of installed capacity at the electronic Automatic Switching Centres increased from 24% to 29%. The highest performance was achieved in the branches: Tomsk (63 %) and Gorno-Altaisk (61 %). Diagram 30. Level of digitalization of urban and rural ASCs in regions in 2005.
Despite the fact that satisfying of the demand for communication services is of primary importance in the branches of Sibirtelecom, in the beginning of 2006, 374 thousand applications for the installation of telecommunication network were not satisfied. These applications include 36 thousand applications from privileged categories of population.
Annual Report 2005 41 The installed capacity of the City Telephone Network with the time-based registration system amounted to 3 156 thousand numbers, of the Rural Telephone Network – 335 thousand numbers with the total number of 3 493 thousand numbers in the network. The growth of the installed capacity with the time-based registration system in the network amounted to 358 676 numbers including 276 851 and 81 825 numbers in the City Telephone Network and Rural Telephone Network, respectively. In 2005, the number of paystations to accept a common pay card in the branches of Sibirtelecom amounted to 9 872. Within the realization of the 2005 investment plan, Sibirtelecom OJSC the following most important projects were carried out in the sphere of development of new technologies:
• Multiservice communication networks In 2005, the main priority for the development of new technologies consisted in the development of multiservice communication networks, including access networks. Multiservice networks are considered to be transportation means for the popular service of Internet access, as well as for services of constructing private networks for corporate customers. The development results achieved by the branches are as follows:
Khakassia Branch As of the beginning of 2006, the Khakassia branch network of data transfer has 12 nodes with capacity of 1656 ports, with their main port in the city of Abakan. It consists of a switching router of Cisco 7606 type connected to IP DSLAM Huawei of Khakassia cities and regional centres, such as Abakan, Sayanogorsk, Chernogorsk, Abazy, etc. through the switches of Cisco Catalist 3750 МЕ multiservice network.
Buryatia Branch In Ulan-Ude a multiservice network with the 1Gb/s transmission capacity was constructed according to IP/MPLS technology. The network consists of 5 reference nodes making a ring. A broadband access network xDSL was also constructed. In Ulan-Ude, 11 nodes with 672 ports were installed, that include 528 ADSL ports and 144 G.SHDSL ports. In addition, 11 nodes with the total capacity 256 ADSL2+ ports were installed in Buryatia. The existing node of switching access to Internet was extended for 240 lines (8E1). The total number of customer lines amounted to 480 due to the extension. “Omega” Lawfully Authorized Electronic Surveillance system was also put into operation.
Novosibirsk Branch In Novosibirsk, a multiservice network that supports «protocol/multiprotocol» switching Internet technology by markers was constructed according to IP/MPLS technology. It consists of 16 nodes connected by fiber-optic communication links with 1 GB/s transmission capacity. The total capacity is 700 GE ports. The network of broadband access in Novosibirsk was extended. 24 nodes were upgraded, 20 new nodes were installed. The total number of nodes is 44 with the total capacity of 5184 АDSL2+ ports. A network of broadband access was constructed in Novosibirsk region. Its total number of nodes is 34, the total capacity equals 640 ADSL2+ ports. A pilot area of optic access networks was organized. In the elite residential buildings 7 ETTН nodes with the capacity of 936 Ethernet ports were established.
Krasnoyarsk Branch In order to realize the investment plan of 2005, almost all automatic switching centres were equipped with broadband system made by the HUAWEI company, which resulted in increasing both the coverage area of potential customers and growing number of xDSL-access customer ports by 2320. Further extension of the multiservice network provides for equipment installation in the Krasnoyarsk city. In 2005, some equipment of the multiservice network and broadband xDSL access with the total installed capacity of 448 xDSL-access customer ports was installed in Achinsk, Kansk, Nazarovo, Zelenogorsk, Minusinsk, Sosnovoborsk, and the settlement of Beryozovka.
42 42 Investments and Technological Network Development Irkutsk Branch In 2005, within the framework of constructing a regional multiservice communication network (MCN), some segments of MCN were put into commercial operation in Angarsk, Usolye-Sibirskoye, Cheremkhovo, etc.
Tomsk Branch The developed multiservice branch made it possible to install MPLS in the whole network and implement the technology of service quality (QoS) within the branch multiservice networks. The data-transfer rate of urban backbone network was changed to 1Gb/s. In 9 regional centres such as Kolpashevo, Bely Yar, Kozhevnikovo, Asino, Molchanovo, Melnikovo, Bakchar, Podgornoye, Krivosheino, the value of transmission capacity grew to 50Mb/ s due to the use of a SDH-network. The number of ADSL-ports was increased by 2768. At present, ADSL-connection is available thoughout Tomsk region except for the city of Kedrovy. There are 22 nodes of ADSL-access in operation in Tomsk. Since 10 new nodes of ADSL-access have been constructed, their total number amounted to 33 nodes. The number of dial-up access ports (V.34 and V.92) was increased by 485, that include 304 ports in Tomsk, 90 - in Seversk, 90 - in Strezhnevoy, 1 - in Zyryanka, with the total quantity of 1497.
Chita Branch To fulfill the investment plan, “Multiservice Network” project was implemented by Chita branch, which resulted in the creation of a base level in the multiservice network that utilized state-of-the-art equipment. Some additional fiber-optical communications were also constructed.
Gorno-Altai Branch The project of multiservice network construction in the Republic of Altai was completed in 2005. The network covered the following areas: the city of Gorno-Altaisk, the settlement of Maima and the settlement of Shebalino. The constructed multiservice network made it possible to provide modern communication services: IP-telephony, video, virtual private networks, etc. ADSL technology was used for customers to get broadband access, due to which they have high speed access to Internet via a common telephone customer line. The total installed capacity of the network is 328 ports, the growth amounted to 312 ports. By the end of the year, 50 customers were connected using ADSL-technology, which increased the number of customers by 77%. 120 ports were installed by dial-up access. The external channel transfer-rate increased from 704 kb/s to 8 Mb/s and considerably improved the quality of the provided services.
Omsk Branch In Omsk a broadband access network consisting of 28 Automatic Switching Centres was constructed in 2005; the total number of ADSL 2+ and SHDSL ports was 1968 and 288, respectively. The broadband access network with the capacity of 208 ports is operated in 13 regions in the branch. In Omsk the multiservice network was put into use according to IP/MPLS technologies in 2005; 7 nodes have Cisco equipment in Omsk, in 13 regions Cisco 2811 is used. 11 new nodes of Ethernet network were installed in Omsk within the year. They have Cisco Сatalist 3560 equipment.
Altai Branch In 2005, the existing multiservice nodes were expanded, some new ones were constructed. In such cities as Barnaul, Biysk, and Rubtsovsk the urban multiservice networks were constructed using GB Ehternet technology, which made it possible to provide a broadband access to Internet by ADSL2+ technology. During upgrading x.25 networks, a network of dial-up access was opened, which greatly improved the quality of providing the dial-up access to Internet in the regions. The modem pools were spread in the region’s cities.
Kemerovo Branch As a result of upgrading the multiservice network in 2005, 4 nodes of multiservice access were created. They formed a logical ring based on Gigabit Ethernet-technology. In Novokuznetsk 44 nodes of multiservice access were installed and formed some logical rings based on the Gigabit Ethernet-technology.
Annual Report 2005 43 Within the project of broadband access creation, the number of xDSL network access ports was increased to 4136 and SHDSL ports to 800 ports. The following projects were carried out according to the new technologies:
• Satellite Communication In the Irkutsk branch, the stations of VSAT satellite communication were built in regional centres such as Kachug and Balagansk, and reconstructed in the settlements of Yelantsy and Zhigalovo in 2005. The transmission capacity of the satellite channels was increased in the directions of Bodaibo, Zhigalovo, Kachug, Yelantsy. All zone stations of satellite communication were changed to work with artificial satellites of LMI-type.
• Cable Television
Kemerovo Branch: A pilot zone of cable television was built in Prokopiyevsk, Kemerovo branch, the increased number of customers amounted to 1022.
Irkutsk Branch: In Irkutsk the distribution network of cable television was expanded by 1570 customers. As of January 1, 2006, the installed capacity of the network equaled 20164 connection points and the used capacity was 10 132 customers.
Novosibirsk Branch: In Novosibirsk the head-end of cable television interactive network was upgraded. 13 satellite receivers and 1 satellite station were installed and adjusted, which makes it possible to increase the number of satellite channels that are received and broadcasted to the network to 30-40.
• IP Telephony Networks
Novosibirsk Branch: In the Novosibirsk branch the IP-telephony node was increased by 16 streams of E1 PRI (408 access ports) in 2005. On the basis of an installed Cisco AS5400HPX access server, “IP-telephony on credit” service was provided. In addition, the service for rendering urban phone numbers by IP-technology was developed at this node. At the present time, the total node capacity is 840 input lines.
Buryatia Branch: The existing node of IP-telephony access grew by 120 lines, the total number of customer lines amounting to 180 after its extension.
Irkutsk Branch: Some gateways on the basis of universal access servers such as Cisco AS5400HPX and Cisco AS5400, were installed in 2005 in the cities of Irkutsk region to provide corporate customers and the population with the services to transmit voice information by packet network with the total capacity of 1530 access lines. The planned work was continued in order to connect corporate customers using Frame Relay, IP/ VPN technologies of asynchronous transmission mode (ATM), to provide VoIP, VоFR voice services, and to connect the corporate network and “Start” automatic system of payments for cash offices in the region.
Tomsk Branch: The number of IP-telephony ports was increased by 210, now it amounts 240 ports. The expansion was provided by Cisco, AS5000 series universal access server.
Novosibirsk Branch: An IP-TV-pilot zone was organized (IP-TV head-end was installed for 1000 licences). Currently, 16 satellite channels can be transmitted to the multiservice network.
44 44 Investments and Technological Network Development • Internet access network
Novosibirsk Branch: The dial-up access node to Internet was expanded by 648 access ports using “Internet on credit” service of 8-180 series access and upgrading Cisco AS5850 access server. The total serial capacity of dial-up access nodes amounted to 2836 input lines, including 2700 input lines provided by “Internet on credit” (8-180). Some equipment consisting of 3 servers of the second order of data centre was installed. It was designed to placing information resources of the customer such as data bases, a Web-server, a FTP-server, etc. in the technological resources and technical areas of an operator.
Irkutsk Branch: To provide the population with a dial-up access to Internet, some dial-up access nodes were installed and put into operation on the basis of Cisco AS5400 equipment, which made it possible to provide services according to V.92 Protocol in the following cities: Irkutsk, Angarsk, Usoliye-Sibirskoye, Cheremkhovo, Zima, Sayansk, Ust-Kut, Ust-Ilimsk, Bratsk, Nizhneudinsk, Tayshet, and Slyudyank. The total number of dial-up access installed in 2005 made up 2310 digital lines.
Tomsk Branch: Some pilot project on highspeed access to Internet was started in 2005 on the basis of ETTH technology. As of the end of 2005, the total installed capacity of xDSL customer lines in Sibirtelecom amounted to 33 667 ports and 13 867 V34 and V92 lines of dial-up access.
Annual Report 2005 45
Associated Business
As of January 2006, the Company has a share in the authorized stock of 34 enterprises, 10 of which are its branches (over 51% in the authorized stock) and 9 are associated companies (over 20% in the 6 authorized stock). 19 of the enterprises work in the profile business including 9 branches and 6 associated companies. Profile companies provide communication services that relate to the Company’s sphere of activity in the biggest and most profitable market segments – mobile communication, Internet services, local telephony. To directly participate in the management of such companies and include their financial results into Company’s consolidated statements, the Company tries to obtain controlling stock (over 50% of the authorized stock) in these companies. With the purpose of optimization of Company’s portfolio composition – investments into associated business, the Company worked out a ‘Model of Reorganization of Sibirtelecom’s Associated Companies’ (hereinafter – Model). The Model did not take into consideration the mobile communication companies and Svyazinvest investee companies. The Model divides the companies according to the main activity lines of Sibirtelecom OJSC and provides specific recommendations on further participation in associated business. The following work was carried out within this Model in 2004-2005: liquidation of non-strategic, non- profile and illiquid assets (pursuant to the Model, shares in 14 companies were liquidated) and expansion of Company’s business due to consolidation and stronger control in branches and associated companies. Mobile Communication Business The year of 2005 brought good achievements in the development of Company’s mobile communication business. As of January 1, 2006, the Company owns the stock of 4 companies providing mobile communication services, 3 of which are 100% subsidiaries. Yeniseytelecom CJSC and Baikalwestcom CJSC branches are the leaders in the markets of the Krasnoyarsk Krai and Irkutsk Region respectively. They work in GSM 900/1800 and IMT-MC 450 standards. STeK GSM CJSC (Kemerovo Region) works in the GSM 900/1800 standard. In accordance with the concept of Company’s mobile communication development, the priority line is the development of GSM business as it is one of the most profitable and quickly developing market segments. Despite of the strong competition, the number of GSM subscribers of the Company grew 2 times in 2005. The branches in Krasnoyarsk Krai, Irkutsk Region and the joint venture of the Buryatia branch in the Republic of Buryatia steadily hold their leading positions, being notably ahead of their competitors. The Company is aware of the good prospects of mobile business development and makes efforts to strengthen its positions on the mobile communication market. In the first quarter of 2005 Yeniseytelecom CJSC obtained the controlling stock of Altaisvyaz OJSC (59.7%), a promising GSM operator that holds No.4 position in Altai Krai. The index of average revenue per user (ARPU) exceeded average Russian indices of the leading national mobile communication operators and made up USD 12.8. As of May 1, 2006, the total number of mobile communication subscribers of the Company was 2.3 mln.
46 Associated Business Table 10. Information about Company’s participation in companies providing mobile communication services (over 20% of the authorized capital).
Company’s name Principal activity Share in Investment in Revenues in authorized authorized capital, 2005, thousand capital, % thousand rubles rubles
Yeniseytelecom CJSC Mobile communication, 100 38 824 3 125 601 GSM 900/1800,
IMT-MC 450 standard Baikalwestcom CJSC Mobile communication, 100 24 582.2 2 419 328 GSM 900/1800,
IMT-MC 450 standard Sotovy Telephon Mobile communication, 100 100 61 533 Kuzbassa GSM, CJSC GSM 900/1800 standard
Annual Report 2005 47 Internet Business As of January 1, 2006, the Company owns the stock of 4 companies providing Internet services including its 3 subsidiaries. This sector of the telecommunication market is one of the sectors that are the most dynamic according to the development and introduction of advanced technologies. Profile companies that provide Internet services are strategic for the Company. The goal of the Company is to consolidate and enhance control over these companies. In 2005 the Company increased its share in the authorized capital of AK Mobiltelecom OJSC (from 61.16% to 64.99%). The main advantages of this company that is the leader on the market in the Republic of Buryatia is the possibility to influence pricing, recognizability of the brand and creation of a professional manager team. In April of 2006, the Company purchased additional 49% of voting shares and became a 100% owner of RINET OJSC, a big provider of Internet services in Novosibirsk Region. The Company plans to develop this business taking into account the investment and marketing policies of the Company and its branches. To exclude competition and obstacles on the way of achieving its commercial goals, the Company analyses the share of the branches and regional associated companies in specific market segments having the goal to determine the best way for the Company to participate in these segments – through its affiliates or by participating in associated business.
Table 11. Information about participation of the Company in enterprises providing Internet access services (over 20% of the authorized capital).
Company’s name Principal activity Share in Investment in Revenues in authorized authorized capital, 2005, thousand capital, % thousand rubles rubles
ChitaNET CJSC Data transfer, 100 1 148 23 393 Internet Mobiltelecom Joint Stock Data transfer, 64.99 6 498.5 68 709 Company on Telephony Internet, page com- Development OJSC munication Regional Information Internet 51 76.5 52 138 Networks OJSC Irkutsk Raschetnaya Internet 34 680 79 Palata OJSC
48 Associated Business Local Telephony The Company owns stock of 8 companies that provide local telephony services in the following cities: Novosibirsk, Barnaul, Irkutsk, Bratsk. One of the companies is a 100% subsidiary (Altai Telecommunication Company, CJSC), 5 companies are associated ones, 2 – other types of companies. This business is traditional for the Company. Taking into account the market share, the financial results of companies’ activity, the volume of economic relations with the Company, some specific recommendations concerning the expediency of reorganization, preservation or discontinuation of this business, as well as possible increase in the share in capital of companies with the purpose of stronger control are developed. Table 12. Information about participation of the Company in enterprises providing local telephony services (over 20% of the authorized capital).
Company’s name Principal activity Share in Investment Revenues authorized in authorized in 2005, capital, % capital, thousand thousand rubles rubles
Altai Telecommunication Local telephony 100 100 5 955 Company, CJSC NOVOCOM, CJSC Local telephony, Internet 50 2 080 48 851 TeleRoss-Novosibirsk CJSC Telephony, 50 230 4 004 data transmission, Internet (Golden Telecom) ATS-41, CJSC Local telephony, Internet 49 1 984.5 40 483 ATS-32, CJSC Local telephony, Internet 40.42 5.8 37 648 Digital Network and Tele- Local and intrazone 30 27 26 430 communication Systems of telephony Novosibirsk Region, OJSC
Annual Report 2005 49
Personnel
Upgrading Management Structure 7 To upgrade the management structure, in 2005 the Company realized the following measures: On February 25, 2005 the Company accomplished standardizing the management personnel structures in its subsidiaries, approved department functions, stated the number of employees in every functional department. These measures resulted in a 16% reduction of the listed number of management personnel in the Company branches. In 2005 the Enterprise Resource Planning (ERP) system based on the Oracle EBS system was introduced in Company’ general management, its Novosibirsk, Omsk and Altai branches. The transition to the new management system led to changes in the business-processes in the fields of personnel management and fixed assets, namely: - the functions regarding fixed assets accounting and payments to personnel at the branch management level were centralized, - the functions between the functional units were redistributed. During the reporting year some further work on the optimization of the number of Company’s structural subdivisions and personnel number was conducted. As a result, the number of structural subdivisions reduced by 27 and made up 125 units by the end of the reporting year. The average number of Company’s employees in comparison with the similar period of the previous year reduced by 8.7% and amounted to 43 352 people. Diagram 31. Average number of Company’s employees (thousand persons)
3.9% of employees have higher and secondary professional education (in 2003 this figure was 48.7% of the general number of employees, and in 2004 - 50.9%), 41.7% are under 40 years of age, 3.7% are employees of the retirement age, as compared to 2004 this figure is 1% less. The average age of Sibirtelecom, OJSC is 40 years. Sibirtelecom, OJSC employs 1 doctor of science and 36 candidates of science.
54 Personnel Personnel Relations Development and training of personnel is one of the leading directions of the human resource management. Investing its means in trainings, the Company acquires highly skilled professionals, who are able to accomplish their tasks effectively and in accordance with the Company strategic objectives. Training is a multi-stage process, directed at raising the qualification level, which, in its turn, makes it possible to increase the productivity, to improve the Company image as employer and to increase its investment appeal. To make training possible, Sibirtelecom, OJSC possesses its own training centers in five branches: Novosibirsk, Altai, Omsk, Irkutsk and Kemerovo. In 2005, 9100 people were trained to develop their competence, which is 14% more than in 2004. 5 479 of the people were trained on the base of Sibirtelecom’s training centres. During 2005 the Company paid much attention to its social policy, which is aimed at motivation of employees, satisfying their social needs and more effective use of their labor potential. The social policy of Sibirtelecom was realized within the terms of a unified collective agreement signed on the day of integration of 11 interregional companies. The agreement came into force on April 1, 2005. The measures for optimization of labor remuneration and motivation resulted in an increase of the average salary of Company’s employees. The rate of the average salary growth in 2005 compared to 2004 amounted to 23.3%; the average salary in Sibirtelecom OJSC amounted to 11.924 rubles. Diagram 32. Average salary of Sibirtelecom’s employees (rub.)
On January 1, 2005 a unified agreement for non-governmental provision of pensions with non-governmental retirement funds ‘Telecom-Soyuz’ came into force. The agreement equally refers to all employees of Sibirtelecom on equal conditions. The personnel is motivated not only by monetary stimulation and social guarantees, but also by the realization of their spiritual needs expressed in a person’s interest in the results of his work. In 2005, 11 employees were awarded with honorary signs ‘Honoured employee of Sibirtelecom, OJSC’, 72 employees received honorary diplomas of Sibirtelecom, OJSC, 66 people were conferred on the “Master of Communication” title, and 9 employees got the ‘Honoured Radio Operator’ Bande. The Company does not forget employees who gave their knowledge and effort to the communications industry. That is why Company’s branches and general management, together with trade unions, always supports retired employees. They organize meetings on the day of telecommunication workers, Victory Day.
Annual Report 2005 55 They grant financial support for medical treatment and everyday needs. In 2005 that support amounted to 26.8 million rubles. The human resource department of Sibirtelecom was the winner of all-Russian competition ‘The best human resource department of 2005’.
56 Personnel Business Efficiency Year by year efficiency indicators of Company’s business are improving. For example, in 2005 the number of lines per one employee increased from 80 to 95, or by 19.1%, while the income per one employee increased from 401 thousand rubles to 505 thousand rubles, or by 26.1%.
Diagram 33. Number of telephone lines per 1 employee
Diagram 34. Revenues per 1 employee (thousand rubles)
Annual Report 2005 57
PROSPECTS OF DEVELOPMENT
Having adapted itself to the conditions of a telecommunication market with high competition, Sibirtelecom responds by means of particular actions to the specific nature of the current period, which is governed by 8 extremely quick expansion of mobile communication, liberilization of the telecommunication market and drastic escalation of competitiveness in all directions. That is why, Company’s management poses a problem and performs consistent actions towards a fundamental change in its business profile. The Company must turn from a local telephone and telegraph operator into a company of local and areal communications, a provider of convergent voice communication services, Internet access, data transmission, integrated information and communication solutions for business, education and leisure. Such business profile will be the key to the Company income growth. In the period of 2006 – 2007, Sibirtelecom plans to do a number of have-to-be-done transformations thereby passing the required stage of modernization that include: • optimization of Company business portfolio by means of distinct configuring of the main business (Fixed telephony/Internet/Data transmission); • protection of the main business from customer base dilution and profitability reduction, and a considerable reduction in its vulnerability by mobile and alternative operators; • establishing new lines of the major business, based on broadband lines, high speed Internet access and state-of–the–art data transmission services.
60 Prospects of Development Based on the formed market profile, the following priority lines in the development of the communication services for 2006 were determined:
Local Telephone Communication Substitution of analog telephony for digital one will be performed first in 15 priority cities of the Siberian Federal District. The number of main phone systems will amount to not less than 164 thousand units. NGN is the priority technology for network development. The capacity for the above substitution will be determined based on Company’s financial resources and technological expediency of the substitution.
Domestic and International Long-Distance Communication Services In connection with liberalization of the long-distance communication market (see section 3 above), the emphasis is laid upon IP-telephony in this service segment. In the context of IP-technology development and formation of Company’s own pack commutation, the priority target in all branches is promotion of IP-telephony. Before ‘Rules for rendering data transmission communication services’ come into force, the Company provides IP-telephony services within the framework of telematic services. It is expected to adjust the market strategy in the future. Branches are advised to promote IP-telephony on credit before July 1, 2006. It is envisaged to develop IP-telephony centres in 4 branches, where the growth of service size requires corresponding development of centres. In order to solve the problems of providing IP-telephony services, taking into account the changed rules of licensing thereof, it is proposed to start cooperation with audio transmission telematic services of Rostelecom or of any other operators that have the required licence.
Dial-up Internet Access Services It is planned to continue the development of dial-up Internet access service. It is envisaged to develop dial-up access centres in 7 branches. It keeps on being the most available type of Internet access that is proved by a stable growth of demand for this service. If branches can providing such services alongside with traditional telephony services without required registration, concluded contract, issued Internet cards, only by subscribers identification through their phone number, it creates favourable conditions for the development of such services. It is planned to develop modem pool for this purpose. When establishing the size of modem pool development, the flow of the most profitable and the most active users who have moved towards dedicated line segment access (хDSL) will be taken into consideration.
Multi-Service Networks, xDSL Broadband Access Networks ADSL is a popular technology in the segments of small-scale and medium-scale business, as well as among the population (high-profit group and medium-profit group). It is planned to develop or build xDSL broadband access network assisted by ADSL G.SHDSL Minutess. To provide transport for broadband network traffic, it is planned to perform proper upgrading or build data transmission backbone networks that have functions of multi-purpose transfer environment (multi-service nature) and guarantee established parameters of quality services and safety level. Thus, created network infrastructure will provide an opportunity for rendering various services from Internet access or virtual private networks to muti-media information transmission. Aggressive promotion of broadband access Internet service in all branches will make it possible to improve the position and raise competitiveness of the Company considerably. In 2006, it is planned to put into operation nearly 70 thousand ADSL ports. Construction of ETTH (Ethernet to the house) networks is considered a priority for mass demand objects, for example, in the case when the services are provided to more than 20% of dwellers of newly built residence and office building. Common implementation intended for 2006 will involve 3.7 thousand ETTH ports (optical write with MetroEthernet, FastEthernet last mile allocation). Allocated sales will be arranged for these services.
Wireless Broadband Access Services Solutions based on wireless technologies are considered by the Company to be the most significant for medium-term prospects of 3-5 years. Wi-Fi and WiMAX technologies will be develop simultaneously, for different target segments.
Annual Report 2005 61 In 2006, the main line of the Wi-Fi service segment is arranging pilot zones in 15 priority cities for the Inter-regional Company by installing 5-10 POPs in each of them, in particular, in the airport, railway station, central public telephone office, large hotels, exhibition buildings, etc. Arranging allocated sale of Wi-Fi, WiMAX services is regarded as the main aspect thereof. There is a possibility that some profile businesses may be acquired. The following problems will be solved in 2006 in the service segment of the WiMAX network: • obtaining licence for rendering WiMAX service; • obtaining frequencies; • arranging a pilot zone in the cities of Krasnoyarsk and Novosibirsk; • arranging allocated sale.
Cable Television Services In the course of executing the investment plan for 2006, it is planned to build a cable television network (CTV) providing IP-TV services in Novosibirsk, Barnaul, Tomsk, and to expand the CTV network in Irkutsk. Priority is given to projects of access infrastructure development on the basis of xDSL technology. The created access networks are considered part of the multi-purpose (multi-service) network infrastructure that makes it possible to render services to various categories of customers (Internet access, virtual private networks) with established quality service parameters and the required safety level. Another important problem is being solved - arranging allocated sale of satellite cable television services.
Intelligent Network Services It should be noted that autonomous platforms for rendering intelligent services are already working in 7 branches. A task was set to develop a common intelligent communication network in 5 strategically important Sibirtelecom branches: Novosibirsk, Kemerovo, Altai, Omsk and Krasnoyarsk. Preparation for establishing an intelligent communication network (ICN) is also being done in other branches (with the exception of Gorno-Altaisk branch). The Company will expand the spectrum of rendered ICN services with content, and will develop ICN service offers in general, in the framework of convergence with other networks.
Content Service Taking into account the necessity to enhance the attractiveness of new services, to increase the number of subscribers, profitability of new directions, strength of positions under conditions of severe competition, the Company will be doing a lot of work for service content-filling. IP-TV, ICN, NGN, work with network resources (first of all, creating Company’s own web-portal) are considered the priority directions for content realization in 2006. It is planned to establish cooperation with content suppliers.
Multi-Purpose Communication Services Arranging multi-purpose communication services on the territory of the Siberian Federal District is a solution of an important, socially significant problem of the Company. For this purpose, it is planned to realize the first stage in 2006 by putting into operation not less than one coin telephone on the competition territory of the following branches: Chita, Buryat, Irkutsk, and Krasnoyarsk. The Company is expected to take part in future competitions for the right to render such services in the Siberian Federal District. It is also planned to establish the amount of compensation for arranging such kind of services.
Call Processing Centres The Company is working on the project of arranging a single call processing centre (CPC) in all branches of Sibirtelecom, monitored by the Novosibirsk branch. Establishment of a CPC will make it possible to optimize providing reference information services (09, 009, state of the account information, subscribers’ servicing, technical support, etc.), which are currently
62 Prospects of Development rendered to subscribers by the Company. Thus, the existing demand for such services will remain. The project is planned to be realized in Novosibirsk, Irkutsk, Krasnoyarsk, Omsk, Kemerovo, Tomsk and Khakass branches.
Multi-Access Centres (MAC) At present, MAC are available in 15 priority cities. Decisions concerning other inhabited localities will be made individually, taking into account the market situation and the project payback terms. In the period of 2006-2008, it is planned to transfer unprofitable wire broadcasting to USB FM broadcasting in all branches. A pilot zone of on-air broadcasting will be built in the Tomsk branch and will subsequently cover other subjects of the Siberian Federal District.
Annual Report 2005 63
Securities
Authorized Capital of the Company 9 The authorized capital of the Company is 2 387 973 276.45 rubles. Table 13. Structure of Company’s authorized capital as of January 01, 2006.
Type of shares Number of Par value of Par value, rub. Share in shares, pcs. a share, rub. authorized capital, %
Ordinary 12 011 401 829 0.15 1 801 710 274.35 75.45 Preference shares, typeА 3 908 420 014 0.15 586 263 002.10 24.55
Total: 15 919 821 843 - 2 387 973 276.45 100.00
Table 14. Structure of Company’s authorized capital as of January 01, 2006.
Registered persons Number of Share in registered persons authorized capital, %
Legal entities, total: 182 89.75 including: • residents 162 87.99 • non-residents 20 1.76 Individual persons, total: 19 031 10.25 including: • residents 19 015 10.24 • non-residents 16 0.01
Total: 19 213 100.00
Table 15. Information about shareholders with biggest share holding
Legal entities Ordinary Share in shares, % authorized capital, %
Svyazinvest, OJSC 50.67 38.23 ING Bank (Eurasia), CJSC 21.61 18.34
Depositary-Clearing Company, CJSC 4.38 7.46
UBS Nominees, CJSC 2.94 7.18
National Depositary Centre, NP 5.58 6.77
66 Securities Circulation of Company’s stock at Russian Stock Exchanges Company’s shares are actively quoted at three Russian stock exchanges: - “Russian Trading System” Stock-Exchange, Non-profit Partnership (ENCO, ENCOP; ordinary shares are quoted on the stock exchange in the quotation list “А” second level, the preference shares – in the quotation list “B”); - “Russian Trading System” Stock-Exchange, OJSC (ENCOG, ENCOPG; ordinary shares and preference shares of the Company are quoted in the quotation list “A” second level); - “’MICEX’ Stock Exchange” CJSC (STKM, STKMP; ordinary shares of the Company are quoted in the quotation list “A” first level). All Russian trading floors submit quotations daily during trading sessions. The P&C (put and call) between the quotes for purchase and sale of shares of the Company has a tendency to decrease. The market price per Company’s share in 2005 showed a rather high degree of correlation with the RTS index that is one of the aggregated indices of the stock market in Russia. The trade volume of Company’s shares on the Russian stock market in 2005 amounted to about USD 146 mln. The trade volume on the classical market of the ‘RTS’ Non-profit Partnership made up about USD 37 mln, on the ‘RTS’ OJSC stock market – over USD 21 mln, on MICEX – about USD 88 mln. The double-sided quotations, the decreasing P&C as well as the increasing bidding volumes testify to the high level of liquidity of Company’s stock market. Market Capitalization of the Company Positive operational, financial and organizational results achieved by the Company in 2005 have a positively influence Company’s market capitalization. According to the results of auctions in the Russian Trading System, the market Capitalization of the Company has grown over 1.6 times from January 2005. On September 28, 2005 Company’s capitalization exceeded USD 1 milliard for the first time and was over USD 1.4 milliard as of May 1, 2006. Diagram 35. Market capitalization of the Company
Annual Report 2005 67 Programme of 1st level American Depositary Receipts (ADR) Since September 4, 2001 the Program of American Depositary Receipts (ADR) of 1st level for ordinary shares of the Company has been operating. The depository is the JP Morgan Chase Bank, N.A.; the custodian bank is the ING Bank. The conversion coefficient for ADR is 1:800. Company’s ADR are quoted on the US over-the-counter market (the ticker is SBTLY). The range of ADR quotations for Company’s shares in 2005 was from USD 45.92 to USD 59.20 per 1 ADR (the growth rate – 28.9%). The number of ADR increased within the reporting period by 37.3% and amounted at the end of 2005 to 2 147 216. That makes 14.3% of the total number of distributed ordinary shares of the Company. With the purpose to form an efficiently operating stock market of the Company with high liquidity indices and a new level of capitalization, some measures were taken in 2005 to list Company’s shares in the form of 1st level ADR on the territory of Germany. On October 12, 2005 trading with Sibirtelecom’s ADRs started in the “Freiverkehr” segment (public float) of the Frankfurt and Berlin Stock Exchanges.
Company’s Bonds Quick development of the Company requires a considerable amount of circulating assets, but the existing procedures of state regulation of tariffs for the services provided by traditional communication operators limit the ability of the Company to generate money flows in the required volume. An efficient instrument that makes it possible to provide good financing of the investment programme and that is widely used by the Company is bonded loan. The first large-scale project of the Company to attract long-term financial resources on the market of corporate bonds was floating a 1.53 milliard rub. loan with the maturity of 3 years in July 2003. Today the Company successfully attracts long-term financial resources on the debenture market, always improving the organization of the process, the technology and the structure of bonded loan issues (for example, the 6th issue of bonded loan provides a possibility for the bond holders to require early repayment (offer after 3 years), the maturity period was extended to 5 years). Favourable market situation developing on the Russian debenture market as well as the reputation of a reliable issuer that fulfils its obligation in full and in time, make it possible for the Company to regularly reduce the interest expense. Financial resources from flotation of Company’s bonded loans are used to develop the existing and to obtain new telecommunication facilities, to upgrade telecommunication equipment, to increase its digitalization level, to develop new communication services and to finance expenses for increasing contributions to the authorized capital of branches and associated companies. In addition, the means from the issue and sale of bonds are used to refinance previously issued bonds. Currently, there are 4 bonded loans of the Company in circulation with the total volume of 8.53 milliard rubles. Sibirtelecom’s bonds were included in the list of non-listed stock of MICEX. In 2005 the total trading volume amounted to about 2.1 milliard rubles.
68 Securities Table 16. Main characteristics of bonded loans of the Company
3rd issue 4th issue 5th issue 6th issue
Nominal issue 1 530 mln rub. 2 000 mln rub. 3 000 mln rub. 2 000 mln rub. volume, mln rub. Beginning/end of July 18, 2003/ July 08, 2004 / April 29, 2005 / September 22, 2005 / floating July 18, 2003 July 30, 2004 April 29, 2005 September 22, 2005 Maturity date/circu- July 14, 2006 July 05, 2007 April 25, 2008 September 16, 2010 lation period (1092nd day (1092nd day (1092nd day (1820th day after the after the date of after the date of after the date of date of placement) placement) placement) placement)
Coupon rate, % per 14.5 % (interest 12.5% (interest 9.2% (inter- 7.85% (interest rate annum rate of 1-6 rate of 1-6 est rate of 1-6 of 1-6 coupons) coupons) coupons) coupons) interest rate of 7-10 coupons is deter- mined by Issuer. Possibility of early - - - Offer after 3 years repayment Type of floating/ Public Public Public Public Type of auction ubscription subscription subscription subscription Additional Documentary, Documentary, Documentary, Documentary, information payable to payable to payable to payable to bearer bearer bearer bearer Information about Alfa-Bank OJSC Promsvyazbank Svyaz-Bank OJSC Svyaz-Bank OJSC issuer manager CJSC Co-organizer: Co-organizer: Promsvyazbank Promsvyazbank CJSC CJSC Information about Alfa-Bank OJSC Promsvyazbank Svyaz-Bank Svyaz-Bank OJSC, underwriter CJSC, OJSC, Promsvyazbank CJSC NIKOIL Finan- Promsvyazbank cial Corporation CJSC
On April 27, 2006 the Federal Financial Markets Service registered the 7th issue of Company’s bonded loan in the amount of 2.0 milliard rubles. Main characteristics of the bonded loan: 2 000 000 documentary non-convertible bearer bonds, Series 07, with a par value of 1000 rubles each, to be redeemed 1092 days after the date of placement (on the one thousand nine hundred second day), the warrant is paid once every half a year. The interest rate of the first warrant is determined by means of a competition among potential bond purchasers on the date the floating begins. In the case the Company does not make a decision about purchasing bonds from their holders before the date of placement, the interest rates of the second and the following warrants are determined as equal to the interest rate of the first warrant and are fixed for the whole period of bond circulation. Bonds are planned to be placed at the auction of the institutor of trade on the securities market – MICEX, in May, 2006.
Annual Report 2005 69
71 Corporate Governance Corporate Governance
Corporate Governance Principles 10 Sibirtelecom OJSC, being an international level company that forms customers’ needs in telecommunication and information services and that satisfies them to a great degree on the basis of applied advanced technologies and high quality standards, follows principles and rules of corporate conduct. The Board of Directors approved the Code of Corporate Governance that has been in force since December 26, 2003. Principles and rules in the Code comply with international standards based not only on the observation of the requirements of the law, but also on application of standards of corporate governance advance practice and on ethic standards of business conduct that are common for all participants of the business community. The work of the Company is based on the fact that its shareholders have some rights regarding the Company, and the Board of Directors, the Management Board and the General Director have to honour and protect these rights. The Company secures the right of the shareholders to take part in profit allocation. It does everything in order that the funds that cannot be used for the realization of highly efficient projects that increase the value of the Company and its shares would be used to pay dividends for both preferential and ordinary shares. On December 27, 2005 the Board of Directors approved the Regulation on the dividend policy of the Company, developed according to the Federal Law “On Joint-Stock Companies” and the Charter of the Company. The Regulation regulates the order of the announcement, distribution and payment of dividends upon shares of every category. Based on the principles of disclosure of information about the Company, and, in particular, such fundamental principles as availability of information to all shareholders and interested persons, reliability and completeness of the information, the management of the Company carries out the information policy trying to maintain reasonable balance between openness of the Company and the security of its commercial interests. Based on this policy, the Board of Directors of the Company approved the following internal documents on June 16, 2005: - Regulation on the information policy of the Company, the main goal of which is to increase the level of information openness and confidence in the relations between the Company, its shareholders and investors. The regulation determines the list of information and document subject to disclosure to Company’s shareholders, potential investors, professional participants of security market and other interested persons, as well as rules, methods and terms of providing such documents. - Regulation on the use of information about Sibirtelecom OJSC activity, about its securities and transactions with them, that is not public, that, if illegitimately used or disclosed, can considerably influence the market cost of Sibirtelecom’s securities. The Reulation is aimed at regulating the use of insider information and includes: determination of insider information and the insider; the order of use of insider information; methods of protection of insider information from illegitimate use.
Compliance with the Corporate Governance Standards Sibirtelecom OJSC complies with requirements of corporate governance standards observation of which is an obligatory condition for Company’s stock to be included in ‘A’ quotation lists of Russian Stock Exchanges (in accordance with the requirements of ‘Regulation on activity connected with organization of trade on security market’ approved by the order of the Federal Service on Financial Markets of December 15, 2004, No. 04-1245/пз-н (amended, as of June 22, 2005, No. 05-22/пз-н). Corporate Governance Rating On September 2, 2005 Standard & Poor’s international rating agency increased the corporate governance score (CGS) of the Company from CGS-4+ to CGS-5, the CGS of the Company according to the Russian scale being increased from CGS-4.7 to CGS-5.1. CGS of the Company is calculated as a result of the following points according to components rated from 1 (lowest) to 10 (highest): • The ownership structure and external influence – 4/according to the Russian scale – 4.4;
72 Corporate Governance • Shareholders’ rights and relations with financially interested persons - 7/according to the Russian scale – 7.0; • Financial transparency, information disclosure and audit – 6/according to the Russian scale – 6.0; • Composition and efficiency of the Board of Directors – 4+/according to the Russian scale – 4.5. The following advantages of corporate governance practice in the Company were marked out by the Standard & Poor’s rating agency: • An active role of the Board of Directors and its committees, first of all the Audit Committee where independent directors have most positions; • A decrease of risks connected with negative aspects of state regulation of the branch; • About 28% of consolidated Revenues of Sibirtelecom OJSC fall at non-regulated segments, this index being higher than in most other branch establishments of Svyazinvest OJSC. This decreases dependence of the company on rate regulation; • Participation of the main members of top management in Company’s capital, which brings their interests closer to interests of other shareholders of Sibirtelecom; • Procedures of preparation of holding shareholders’ meetings that comply with high international standards; • Readiness of the Company to have a dialogue with investors in accordance with statutory documents and internal regulations of the Company.
Annual Report 2005 73 Corporate Governance Bodies General Meeting of Shareholders
On June 21, 2005 there was an annual General Meeting of Company’s Shareholders. The General Meeting made decisions connected with the approval of the annual report and annual financial statements for the 2004 fiscal year, elected the Board of Directors and the Audit Committee of the Company, determined the size of dividends for 2004, approved alterations and supplements to the Statute and Bylaws of the Company and appointed the Auditor of the Company for 2005. The Board of Directors The Board of Directors of the Company was elected at the annual General Meeting of Shareholders of Sibirtelecom, OJSC held on June 18, 2004 and acted till the annual General Meeting of Shareholders held on June 21, 2005:
Name, patronymic, last name Position
Yevgeny Valeryevich Yurchenko Deputy General Director of Comstar United TeleSystems, Chairman of the Board of Directors OJSC Anatoly Ivanovich Nikulin – General Director of Sibirtelecom, OJSC Deputy Chairman of the Board of Directors Maxim Victorovich Bobin Head of Legal Department of the Moscow Representa- tive Office of NCH Advisors, Inc. (USA) Alexander Arkadievich Yermolich Head of the Corporate Governance Department of Svyazinvest OJSC Yelena Victorovna Zazubova Director of the Economic Planning and Budgeting Department of Svyazinvest OJSC Gennady Ivanovich Kovalenko Head of the Department of Legal Groundwork of Svyazin- vest, OJSC Marina Nikolayevna Osadchaya Head of the Department of Marketing and Services Sale Organization, Svyazinvest OJSC Igor Veniaminovich Pozhidayev Head of the Department of Information Technologies of Svyazinvest OJSC Igor Nikolayevich Repin Deputy Executive Head of the Association on Protection of Investors’ Rights (city of Moscow) Georgy Alexeyevich Romsky General Director of South Telecommunication Company, OJSC Vladimir Anatolyevich Statin General Director of Association on Protection of Inter- ests of Shareholders of Enterprises and Organizations, Non-profit Partnership, Manager of the Personnel Centre – the Russian Institute of Directors (RID), Moscow
74 Corporate Governance At the annual meeting of the shareholders of Sibirtelecom, OJSC held on June 21, 2005 the following Board of Directors of the Company that acted by the moment of drawing up the annual report, was elected:
Name, patronymic, last name Position
Sergey Ivanovich Kuznetsov – Principal Deputy General Director of Svyazinvest, OJSC Board of Directors Chairman Anatoly Ivanovich Nikulin – General Director of Sibirtelecom, OJSC Deputy Board of Directors Chairman Boris Dmitrievich Antonyuk Deputy Minister of Information Technologies and Con- nection of the Russian Federation Valery Panteleyevich Bakalov Academic Secretary of Siberian State University of Telecommunication and Information Andrey Vladimirovich Beskorovainy Manager of the Federal Agency on Communication Maxim Victorovich Bobin Head of Legal Department of the Moscow Representa- tive Office of NCH Advisors, Inc. (USA) Alexander Arkadyevich Yermolich Head of the Department of Corporate Governance of Svyazinvest, OJSC Yelena Victorovna Zazubova Director of the Department of Economic Planning and Budgeting of Svyazinvest OJSC Igor Veniaminovich Pozhidayev Head of the Department of Information Technologies of Svyazinvest OJSC Igor Nikolayevich Repin Deputy Executive Director of the Association on Protec- tion of Investors’ Rights (Moscow) Vladimir Anatolyevich Statin General Director of the Association on Protection of In- terests of Shareholders of Enterprises and Organizations, Non-profit Partnership, Manager of the Personnel Centre – the Russian Institute of Directors (RID), Moscow
Committees of the Board of Directors On July 5, 2005, the Board of Directors adopted a resolution to establish four committees listed below: • Committee on Personnel and Remuneration, • Committee on Corporate Governance, • Committee on Strategic Development, • Committee on Audit.
Audit Committee The composition of the Audit Committee elected by the annual General Meeting of Shareholders of Sibirtelecom OJSC on June 18, 2004
Name, patronymic, last name Position
Svetlana Anatolyevna Groza Director of Internal Audit Department, Sibirtelecom OJSC Andrey Mikhailovich Levitsky Deputy Director of Finance Department, Svyazinvest OJSC Yekaterina Alexandrovna Pavlova Main Specialist of Accounting Department, Svyazinvest OJSC Sergey Vladimirovich Podosinov Main Specialist of Internal audit Department, Svyazin- vest, OJSC Irina Victorovna Prokofyeva Director of Internal audit Department, Svyazinvest, OJSC
Annual Report 2005 75 The composition of the Audit Committee elected by the annual General Meeting of Shareholders of Sibirtelecom on June 21, 2005:
Name, patronymic, last name Position Konstantin Vladimirovich Belayev Deputy General Director of Svyazinvest, OJSC Alexander Vladimirovich Kachurin Head of Board of Treasury of the Financial Department of Svyazinvest, OJSC Ilya Vladimirovich Ponomaryev Head of the Department of Economic Planning and Budget- ing of Svyazinvest, OJSC Yelena Vladimirovna Umnova Director of the Financial Department of Svyazinvest, OJSC Vyacheslav Yuryevich Charkovsky Main Specialist of the Accounting Department, Svyazinvest, OJSC
General Director On March 4, 2005, in connection with the expiration of the term of office of Sibirtelecom’s General Director, the question ‘On appointment of Sibirtelecom’s General Director and determination of the term of his office’ was discussed at a formal meeting of the Board of Directors of the Company in Moscow, and decisions concerning the appointment of Anatoly Ivanovich Nikulin the General Director of Sibirtelecom OJSC and determination of his term of office from March 5, 2005 to March 5, 2007 inclusively were unanimously made. Evaluating the work of Anatoly Nikulin in the position of the head of Sibirtelecom OJSC, the Board of Directors marked, that the unanimously adopted decision about his appointment is the evaluation of General Director’s professionalism in managing the Company, in the competently held corporate restructuring, creation of a professional team, development of new lines in the telecommunication business, and management of Company’s finances and assets. Executive Committee Executive Committee approved by the Board of Directors of Sibirtelecom on July 29, 2004 with the term expiring on July 5, 2005:
Name, patronymic, last name Position Anatoly Ivanovich Nikulin General Director of Sibirtelecom, OJSC Ivan Ivanovich Borzenko Deputy General Director, Head of Security Department of Sibirtelecom, OJSC Ivan Vitaliyevich Dadykin General Director of RTKomm-Sibir, CJSC Nina Ivanovna Kirichek Deputy General Director, Director of Personnel and General Questions Department of Sibirtelecom, OJSC Vladimir Victorovich Nozdrin Deputy General Director, Technical Director of Sibirtelecom, OJSC Alexander Ilyich Polnikov Chief Executive, Director of Department of Capital Investments of Svyazinvest, OJSC Vitaly Fedorovich Popov Deputy General Director, Director of Tomsktelecom, Regional Branch of Sibirtelecom, OJSC Aleksey Sergeyevich Sukontsev Deputy General Director, Director of Chitatelecom, Regional Branch of Sibirtelecom, OJSC Galina Ivanovna Khvoshchinskaya Chief Accountant of Sibirtelecom, OJSC Alexander Andreyevich Sheifer Deputy General Director, Director of Economics and Finance Department, Sibirtelecom, OJSC
76 Corporate Governance In accordance with the Board of Directors’ decision of December 21, 2004, the following member was included in the Executive Committee:
Dmitry Nikolayevich Levin Deputy General Director, Commercial Director of Sibirtelecom OJSC
The Executive Committee of Sibirtelecom OJSC approved on July 5, 2005 and acting on the moment when the annual report was made out:
Name, patronymic, last name Position
Anatoly Ivanovich Nikulin General Director of Sibirtelecom OJSC Lyudmila Aleksandrovna Head of Telecommunication Department, Arzhannikova Svyazinvest OJSC Ivan Ivanovich Borzenko Deputy General Director, Head of Security Department, Sibirtelecom OJSC Anatoly Victorovich Grib Deputy General Director, Director of Corporate Management and Information Technologies, Sibirtelecom OJSC Nikolay Aleksandrovich Grishko Deputy General Director, Director of Krasnoyarsk Branch of Sibirtelecom OJSC Nina Ivanovna Kirichek Deputy General Director, Head of Personnel Department , Sibirtelecom OJSC Dmitry Nikolayevich Levin Deputy General Director, Director for Business Development, Sibirtelecom OJSC Vladimir Ivanovich Lokhtin Executive Director, Director of Department for Capital Investments, Sibirtelecom OJSC Vladimir Victorovich Nozdrin Deputy General Director, Technical Director of Sibirtelecom OJSC Galina Ivanovna Khvoshchinskaya Chief Accountant of Sibirtelecom OJSC Alexander Andreyevich Sheifer Deputy General Director, Director of Economics and Finance Department, Sibirtelecom OJSC
By the decision of the Board of Directors of December 9, 2005, the following member of the Executive Committee terminated his authority early, on December 2005:
Vladimir Ivanovich Lokhtin Chief Executive, Director of Capital Investment Department of Svyazinvest, OJSC
On January 1, 2006 the following member of the Executive Committee was appointed:
Tamara Alekseyevna Chernikova Head of Securities and Obligations Branch in the Finance Department of Svyazinvest, OJSC
Corporate Secretary Since November 26, 2004 functions of the Corporate Secretary of the Company are fulfilled by Yury Ivanovich Shilin.
Annual Report 2005 77
Financial Statement
Balance Sheet 11 For the year ended December 31, 2005, thousand rubles ASSETS Code of At the Beginning At the End of the Line of the Reported Reported Year Year
I. Non-Current Assets Intangible Assets 110 754 748 Fixed Assets 120 16 865 280 20 205 221 Capital Investments 130 818 128 826 056 Profitable Investments in materi- als and capital equipment 135 Long-term Investments, including: 140 982 548 1 016 371 Investments in Subsidiaries 141 730 664 731 257 Investments in Associated Companies 142 4 573 4 546 Investments in Other Companies 143 33 281 67 307 Other Long-term Investment 144 214 030 213 261 Deferred Tax Assets 145 254 540 279 626 Other Non-Current Assets 150 1 582 752 1 966 990
Total for Part No 1 190 20 504 002 24 295 012
II. Current Assets Inventory, including : 210 757 906 634 868 Raw Materials, Materials and Others 211 528 131 463 026 Expenses on Work in Progress (distribution costs) 213 125 134 Ready Goods for Trading 214 29 385 29 922 Goods Dispatched 215 5 30 Expenses for Future Periods 216 200 240 141 742 Other Materials and Expenses 217 20 14 Value Added Tax on Purchased Materials and Goods 220 1 344 785 1 482 746 Accounts Receivable (payments to be received in more than 12 months from the reporting date) including: 230 186 104 113 906 Buyers and Customers 231 96 813 24 664 Advances Paid 232 8 576 4 235 Other Debtor 233 80 715 85 007 Accounts Receivable (payments to be received wirhin 12 months from the reporting date), including: 240 2 226 611 2 241 804 Buyers and Customers 241 1 674 387 1 789 159 Advances Paid 242 234 599 131 342
80 Financial Statement ASSETS Code of At the Beginning At the End of Line of the Reported the Reported Year Year
Other Debtor 243 317 625 321 303 Short-Term Financial Investments 250 58 412 5 090 Monetary Funds 260 254 421 399 688 Other Current Assets 270 1 064 878
Total for Part II 290 4 829 303 4 878 980
Balance (the sum of lines190+290) 300 25 333 305 29 173 992
LIABILITIES Code of At the Beginning At the End of the Line of the Reported Reported Year Year
III. Capital and Reserves Authorized Capital 410 2 387 973 2 387 973 Additional Capital 420 1 966 411 1 874 566 Reserve Capital 430 119 399 119 399 Own Shares Bought from Shareholders 440 Unappropriated Income (outstanding loss) of Previous Years 460 6 169 180 6 013 075 Unappropriated Income (outstanding loss) of Reporting Year 470 Х 708 127
Total for Part III 490 10 642 963 11 103 140
IV. Long-Term Liabilities Credits and Loans, including: 510 4 598 756 8 652 724 Credits 511 1 058 514 1 651 419 Loans 512 3 540 242 7 001 305 Deferred Tax Liabilities 515 434 596 489 654 Other Long-Term Liabilities 520 1 769 161 930 834
Total for Part IV 590 6 802 513 10 073 212
V. Short-Term Liabilities Credits and Loans, including: 610 3 406 672 3 268 101 Credits 611 2 674 366 1 116 181 Loans 612 732 306 2 151 920 Accounts Payable, including: 620 3 800 946 3 627 743 Buyers and Customers 621 2 131 614 2 033 143 Received Advances 622 347 234 391 971
Annual Report 2005 81 LIABILITIES Code of At the Beginning At the End of the Line of the Reported Reported Year Year
Arrears of Wages and Salaries 623 156 129 147 932 Debts to State Off-Budget Funds 624 89 642 75 145 Tax Debt 625 534 256 413 260 Other Creditor 626 542 071 566 292 Debts to Constitutor (Income Payable) 630 68 815 36 915 Deferred Income 640 135 248 114 424 Provision for Future Expenses 650 476 148 950 457 Other Short-Term Liabilities 660
Total for Part V 690 7 887 829 7 997 640
Balance (the sum of lines 490+590+690) 700 25 333 305 29 173 992
Reference about Values Counted on Off-Balance Accounts
Name of Index Code of At the Beginning At the End of the Line of the Reported Reported Year Year
Rented Fixed Assets 901 1 010 268 993 839 Including Leasing 911 698 754 619 203 Inventory Holdings Received to Keep Safely 902 57 509 49 124 Goods Taken on Commission 903 16 187 16 434 Liabilities of Insolvent Debtor Written Off 904 510 299 592 741 Received Loan and Payment Coverage 905 28 248 18 696 Given Loan and Payment Coverage 906 4 841 931 3 412 709 Depreciation of Housing Resources 907 18 062 3 843 Depreciation of Object External Accomplishment and Others 908 12 Payments for Communication 909 63 486 133 659
82 Financial Statement Reference about Value of Net Assets
Name of Index Code of At the Beginning At the End of the Line of the Reported Reported Year Year
Net Assets 1000 10 778 211 11 217 564
Annual Report 2005 83 Income Statement For the year ended December 31, 2005, thousand rubles
Name of Index Code of Reporting Similar Period Line Period of Previous year
I. Ordinary activities’ revenues and expenses Revenues From Sales of Goods, Production, Works, Services (Less Value Added Tax, Excise Taxes and Other Similar Compulsory Payments) 010 21 906 693 19 039 837 Including: From Sales of Telecom Services 011 21 455 961 18 650 257 Net Cost of Sold Goods and Services 020 (18 883 058) (16 119 922) Including Communication Services 021 (18 635 235) (15 879 793)
Operating Income (Lines 010 -020) 050 3 023 635 2 919 915
II. Operating Revenues and Expenses Interests Receiveble 060 53 730 36 206 Interests Payable 070 (1 071 352) (619 557) Income from Participation in Other Organizations 080 145 706 74 717 Other Operating revenues 090 362 240 333 204 Other Operating expenses 100 (717 814) (962 162)
III. Non-Sales Revenues and Expenses Non-Sales Revenues 120 311 386 331 761 Non-Sales Expenses 130 (838 044) (903 199) Income (Loss) before taxes (Lines 050+060- 070+080+090-100+120-130) 140 1 269 487 1 210 885 Expenses on Income Tax (Lines -151+152- 153) Including: 150 (560 067) (541 991) Deferred Tax Liabilities 151 (55 058) (97 199) Deferred Tax Assets 152 25 086 117 827 Current IncomeTax 153 (530 095) (562 619) Income (loss) from Ordinary Activities (Lines 140-150) 160 709 420 668 894
IV. Extraordinary Revenues and Expenses Extraordinary Revenues 170 1 962 492 Extraordinary Expenses 180 (3 255) (12 872) Net Income (Retained Income (Loss) of Reporting Period) (Lines 160+170-180) 190 708 127 656 514 Reference Conditional Expenses/Revenues on Income Tax 201 (306 097) (287 641) Permanent Tax Liabilities 202 (359 383) (285 156) Permanent Tax Assets 203 105 413 30 806
84 Financial Statement Name of Index Code of Reporting Period Similar Period of Line Previous year
Basic Income (Loss) on One Share 301 0,00005 0,00005 Diluted Income (Loss) on One Share 302
Interpretation of Some Incomes and Losses
Name of Index Code of Reporting Period Similar Period of Line Previous year Income Loss Income Loss
Fines, Penalties and Forfeit Imposed by Authorities or Court (arbitration tribunal) 401 6 223 (860) 10 877 (2 345) Income (Losses) of Previous Years 402 173 221 (164 699) 135 483 (139 688) Payment of Damages Caused by Default on Liabilities 403 6 162 (863) 3 966 (628) Exchange Differences in Transac- tions with Foreign Currencies 404 11 412 (5 383) 36 295 (23 393) Allocation to Ratable Reserve 405 254 427 (120 123) 123 739 (399 003) Writing off Accounts Receivable and Accounts Payable 406 15 681 (22 709) 44 825 (29 601)
The complete Audited Financial Statements of Sibirtelecom OJSC for 2005 (including audit report prepared by an independent audit agency) are available on the Company’s corporate web-site at: http://www.sibirtelecom.ru/english/investors/financial.php (in English); http://www.sibirtelecom.ru/investor/finot.php (in Russian).
Annual Report 2005 85 Corporate Information
Location:
53 Gorkogo St., Novosibirsk, 630099, Russia Phone: +7 (383) 21-91-106 Fax: +7 (383) 22-35-445 e-mail: [email protected]
Company Registrar:
Obyedinennaya Registratsionnaya Kompania (United Registration Company), OJSC Licence No.10-000-1-00314 of March 30, 2004. Postal address: P/b 162, Moscow, 107078, Russia Phone: +7 (495) 933-42-21 Fax: +7 (495) 933-42-21 e-mail: [email protected]
Company’s Auditor:
Ernst and Young Ltd. Licence No. Е002138 of September 30, 2002, Postal address: 77 Sadovnicheskaya Nab., bldg.1, Moscow, 115035, Russia Phone: +7 (495) 755–97-00 Fax: +7 (495) 755-97-01 e-mail: [email protected]
Investors Relations:
Sergey Pirozhkov, Director of Department Phone: +7 (383) 21-91-169 e-mail: [email protected] Aleksey Shipitsyn, Head of Division Phone: 7 (383) 21-91-197 Fax: +7 (383) 21-91-521 e-mail: [email protected]
Sibirtelecom OJSC in Internet:
http://www.sibirtelecom.ru
86 Corporate Information