Svyazinvest in 2002: restructuring continuing

November 2002

2

Telecommunications is one of the most advanced sector of the Russian economy

Total Rural2000 2001 2000 2001

New lines in service, th lines42.8%

3.0%

14052017

155 159

Revenues, bln RUR

40.0%

2000 2001New

27.6% 53.4%

132,5

186,0

66,6 85,065,9

101,1

2000 2001 2000 2001Total Traditional

Capital expenditure Fixed capital expenditure

1Q01 1Q02 1Q01 1Q02

3,656,36

2,15

5,12

Capex, bln RUR

174.2% 241.9%

3

Svyazinvest dominates Russia’s wireline telecoms

Svyazinvest JSC (established in 1995)

Urals region

Volga region

North-West region

Siberia region

Central region

Southern region

Far East region

State75% - 1 share

Mustcom25% + 1 share

53% - Svyazinvest

13%< - foreign

shareholders

34% - other

shareholders

51% - Svyazinvest

14%< - foreign

shareholders

~35% - other

shareholders

51% - Svyazinvest

16%< - foreign

shareholders

32% - other

shareholders

51% - Svyazinvest

7%< - foreign

shareholders

42% - other

shareholders

51% - Svyazinvest

8%< - foreign

shareholders

41% - other

shareholders

51% - Svyazinvest

10%< - foreign

shareholders

39% - other

shareholders

51% - Svyazinvest

16% - foreign

shareholders

33% - other

shareholders

Rostelecom

51% - Svyazinvest

49% - other

shareholders

29,7 mln lines in service providing local and long-distance services to 93% of the Russian customers

4

Svyazinvest financial highlights, 2000-F2002 (Rb mn)

Svyazinvest has enjoyed strong financial and

operating performances in 2001

20012000

11.512.0Return on sales, %

4.543.83Return on assets, %

6.675.73Return on capital, %

7155EBITDA per employee, th RUR

1.010.84EBITDA per AL, th RUR

7066AL per employee.

210156Revenues per employee, th RUR

2.992.37Revenue per AL, th RUR

5

1H02 results show that this positive trend continues

42,3

54,2

13,6 14,8

3,9 5,8

0

10

20

30

40

50

60

Sales EBITDA Net profit

1H01 1H02

Bln RUR

9,2 10,7

23,829,3 29

36,9

0

10

20

30

40

50

ROS ROA ROE

1H01 1H02

Increase1H 2002

26%2.4Increase in capacity (2002 estimates), mln

4%0.53EBITDA per AL, th

22%1,95Revenue per AL, th RUR

9%75AL per employee

14%40EBITDA per employee, th RUR

33%146Revenues per employee, th RUR

6

Estimated Svyazinvest’s capitalization is $1.43 bln

Estimated capitalization of Svyazinvest is US$ 1.43 bln as per 18 October 2002

South6%

North West10%Center

11%others

12%

Urals12%

Volga8%

Siberia8%

Far East2%

Rostelecom31%

7

North-West regionNorth-West Telecom

Lines in service: 3,2 mln

Central regionCenterTelecom

Lines in service: 5,4 mln

Southern regionSouthern Telecom Company

Lines in service: 3,2 mln

Far EastDalsvyazLines in

service: 1.0 mln

SiberiaSibirtelecom

Lines in service: 3.3 mln

UralUralsvyazinform

Lines in service: 2,9 mln

Volga regionVolgaTelecom

Lines in service: 3.7 mln

Svyazinvest has consolidated its regional subsidiaries into seven mega-regional operators of fixed telephony

8

Urals, Far East, North-West and South swept shares recently: other mega-regionals to follow by the end of 2002

North West

Urals

SiberiaSouth

Far East

Volga

Share swap – Completed 09/30/02

Registration of Share Placement Report with FCSM – 10/31/02(E)

Share swap – Completed 09/30/02

Registration of Share Placement Report with FCSM – 10/31/02(E)

Center

Share swap – 11/30/02

Registration of Share Placement Report with FCSM – 12/31/02(E)

Share swap – 11/30/02

Registration of Share Placement Report with FCSM – 12/31/02(E)

Share swap – 11/30/02

Registration of Share Placement Report with FCSM – 12/31/02(E)

Share swap – Completed 10/31/02

Registration of Share Placement Report with FCSM – 11/30/02(E)

Share swap – Completed 10/31/02

Registration of Share Placement Report with FCSM – 11/30/02(E)

9

Russian mega-regionals are large enough to compete with European peers …

0.8 1.1

2.9 3.3 3.7

6.3

10.5

1.0

2.9 3.2 3.2 3.3 3.7

5.4

European peers

Russian mega-regionals

Lines in service, mln 1H2002

10

471607

8831032

19874696

6174

42

48

51

52

55

76

118

Far East

South

Volga

Center

Siberia

North West

Urals

TPSA

Cesky Telecom

OTE

Matav

Telenor

KPN

Sonera

Russian mega-regional

European peers

… but they are relatively cheap

Average CEE telecoms’ MСap/AL

is $703 vs Russian $63.

11

0

30

60

90

120

150

as of 01/01/01 as of 01/01/02 as of 01/09/02

residential governmental business

Although tariff level is growing constantly, …

RUR

12

… it’s still very low comparatively to European telecoms

Average tariff's level, US$ per month

2.4

2.4

2.6

2.8

3.0

3.4

3.7

5.2

9.1

9.7

9.8

10.2

Center

South

Volga

Siberia

North West

Urals

Far East

Cesky Telecom

OTE

TPSA

Matav

KPN

Russian monthly tariff is

about 3 times less than

CEE average and 8.6 than

in Western Europe.

mega-regional average tariff is $2.9 per month

13

0

10

20

30

40

1999 2000 2001 2002 2003 20040

500

1000

1500

2000

2500

3000

3500

1999 2000 2001 2002 2003 2004

Rostelecom

Far East

Siberia

Urals

South

Volga

Center

North West

Capex forecast,bln RUR

New access lines, mln per year

Network development is the key goal of Svyazinvest

14,24

17,6318,52

27,89

32,52

34,24

1,19 1,07

1,72

2,40

3,00

3,20

14

93,9

109,8

129,2

31,2

77,6

61,1

34,746,4

2,72,2

1,9

3,2

5,4

0

20

40

60

80

100

120

140

1997 1998 1999 2000 2001 2002E 2003F 2004F

0

1

2

3

4

5

6

Revenue (bln RUR) Revenue (bln US$, right axis)

Financial forecast of group Svyazinvest

15

Svyazinvest is increasing efficiency of mega-regionals within four blocks of corporate restructuring

The finance and economic block in merged entities is designed to ensure

an effective system of financial planning and control

Creating a methodology to calculate economically feasible costs

Creating a unified accounting policy and introducing separate accounting for revenues and expenses

Compiling financial statements in compliance with IAS

Budgeting Cost-cutting program

Identifying a medium term marketing strategy for the mega-regional telecoms

Training and certifying the Company’s marketing staff

Developing a methodology and carrying out:

assessment of key personnel, recruiting qualified executives, training key specialists.Creating a rotational policy and a result-

oriented incentive system

The marketing block is designed to give the merged entities a powerful

marketing strategy

HR management program

Technical audit of regional telecom operators

Technical development principles of merged entities

Working out a general network development plan for the holding company until 2007

Technological integration of the networks of merged entities

16

Preparations for transition to reporting under IAS

• Training and implementation of in-house IAS reporting

• Quarterly IAS reporting since 2002

A new budgeting methodology was worked out and launched

A uniform management accounting system was elaborated

Preparations to change the tariff regulation system

• An economically feasible cost calculation methodology was

worked out

• Beginning from 2002 the holding company’s operators are

planning a trial application of the methodology, and beginning

from 2003 – to adopt a long run incremental costs method

In 2001 Svyazinvest implemented a number of projects aimed at creating an efficient system of business planning and control

17

Foreign currency loans reduction switching over rubble loans

New HR program

Guidelines for mega-regionals’ marketing strategy

General plan for network development of mega-regionals and

Rostelecom, as integral parts of the telecommunications

network of the Russian Federation for the period until 2007

Separate accounting of revenues and expenses from different

services

Svyazinvest is currently working on:

18

Long-term local and foreign currency credit ratings were assigned to all seven surviving entities during 2001-02

Credit ratings of surviving entities are only 1-2 points lower than that of the Russian Federation

Company Credit Rating Outlook Agency

Sibirtelecom В Stable Fitch

VolgaTelecom

Dalsvyaz

В- В-

Stable

Stable

S&P

Fitch

Uralsvyazinform В-/В Stable S&P/Fitch

South Telecom ССС+ Stable S&P

North-West Telecom CCC+ Stable S&P

CenterTelecom CCC Stable S&P

19

Growth of capitalization in 1H 2002 - 75%3-5-fold increase in capitalization

should the restructuring be completed and telecoms tariffs in Russia reach the level of Eastern European tariffs.

Svyazinvest high performance figures led to a significant growth of its market capitalization

169

341

185

244

173

220

142

149 214

386

114

233

11

52

0

50

100

150

200

250

300

350

400

mln

$

Center North-West Volga South Urals Siberia Far East

early 2001

November 20 2002

20

Gross income per employee – RUR 310,000 (130% compared to 2001)

Operating profit per employee – RUR 85,000 (148% compared to 2001)

Number of lines per employee – 76 (109% compared to 2001)

Gross revenue per line – RUR 4,000 (119% compared to 2001)

Operating profit per line – RUR 1,116,000 (136% compared to 2001)

Installation of new telephone capacity – 2.4 million lines (1.9 million lines in 2001)

A proportion of expenses in the gross income – 72% (down 3% as compared to 2001)

Bn, RUR

Gross income

Operatingexpenses

Sales revenue

All business efficiency indicators of the holding company are planned to increase in 2002

2000 2001 2002

92,1

110,5

70,582,3

28,221,7

73,4

55,3

18,1

In 2002:

2000 2001 2002 2000 2001 2002

21

November 2002

Thank you!