“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC
Agenda
of the Annual General Shareholders’ Meeting of “UTK” PJSC
30.06.2004
1. Approval of the annual report, annual financial accounts including profit and loss
statement (profit and loss accounts), distribution of profits and losses of the Company
according to the results of the reporting financial year (2003).
2. Determination of 2003 dividend size, form and time of payment under each category
and type of shares
3. Election of the members to the Company’s Board of Directors
4. Election of the members to the Company’s Auditing Commission
5. Appointment of the Company’s Auditor for the year 2004
6. Determination of the rates of deductions for calculation of the annual remuneration
to be paid to the members of the Board of Directors
7. Introduction of amendments and additions to the Company’s Charter
8. Introduction of amendments and additions to the Company’s Provisions on the Board
of Directors
9. Introduction of amendments and additions into the Company’s Provisions on the
Management Board
1
REPORT
10. Introduction of amendments and additions to the Company’s ANNUAL
Provisions
on the30.06.2004
“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC
Approval of the annual report, annual
financial accounts including profit and
loss statement (profit and loss
accounts), distribution of profits and
losses of the Company according to
the results of the reporting financial
year (2003).
Speaker – I.F. Ignatenko, General
Director of “UTK” PJSC
ANNUAL REPORT
2
30.06.2004
STRUCTURE OF THE REPORT
General information about “UTK” PJSC
The Company’s structure
Significant corporate events of the year
Positioning in the market
Performance results
Financial results
Auditor’s Opinion
Report of the Auditing Commission
Development prospects
ANNUAL REPORT
3
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Full registered name, date of the
registration
http:\\www.stcompany.ru
E-mail: operator@mail.stcompany.ru
Tel. +7(8612) 53-20-56
Registered
by the Act of the Krasnodar City Registration
Chamber №494 series А
Head office:
66, Karasunskaya Street, Krasnodar
ANNUAL REPORT
4
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Authorized capital
Common registered nondocumentary shares
Preferred registered nondocumentary shares
2 960 512 964
972 151 838
Size - 1 bln 297 mln 779 ths 384,66 rubles
Par value - 0,33 ruble
ANNUAL REPORT
5
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Ownership structure
100%
90%
80%
70%
60%
50%
88,7
82,91
83,87
11,3
17,09
16,13
2001
2002
2003
40%
30%
20%
10%
0%
Legal persons
Individuals
ANNUAL REPORT
6
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Capital structure
"Branswick UBS
Warburg
Nominees"
CJSC
5.61%
Other
20.66%
"Investitsionnaya
kompaniya
svyazi" OJSC
(“Svyazinvest”
OJSC)
38.16%
J.P. Morgan
Chase Bank
4.65%
"ABN AMRO
Bank А.О."
CJSC
7.12%
"ING Bank
(Euroasia) "
CJSC
6.54%
LINDSELL
ENTERPRISES
LIMITED –
holder
1.82%
"DKK" CJSC
15.44%
ANNUAL REPORT
7
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Market capitalization of inter-regional entities,
USD mln
1415
1500
as at 31.10.2002
as at 01.01.2003
as at 01.01.2004
803
691
117
372
95
524
484
368
131
56
367
258
323
191
352
90
22
"North-Western
telecom" OJSC
"UTK" PJSC
"SibirTelecom"
OJSC
"Central
Telecom" OJSC
"VolgaTelecom"
OJSC
"Uralsvyazinform"
OJSC
0
ANNUAL REPORT
85
133
"Dalsvyaz" OJSC
480
8
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Dynamics of UTK share prices and market indices in 2003
Average common share (CS ) price
Average preferred share (PS ) price
11
max CS 10.3 cents
(20.10.03)
Share price, US cents
10
9
8
7
min CS 6.93 cents
(27.01.03)
max PS
8.83 cents (20.10.01.03)
6
5
min PS
5.1 cents (05.01.03)
4
Source: RTS database
Trading volume
Amount, mln$
CS
286
5.43
PS
130
2.63
Total
416
8.06
ANNUAL REPORT
9
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
ADR capitalization of “UTK” PJSC
in 2003, USD mln
12
+65.3%
10,0
7,7
Jun.03
Jul.03
4,3
7,8
May.03
6
6,9
7,1
7,4
Apr.03
8
Mar. 03
10
8,5
8,9
10,8
9,5
4,7
4
2
ANNUAL REPORT
Dec.03
Nov.03
Oct.03
Sep.03
Aug.03
Feb.03
Jan.03
0
10
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Rating Agency “Standard & Poor’s”
• Corporate Governance
Score
5,8
5,6
5,4
5,2
5
5,6
5,2
12 February 2003
• Long-term corporate local
and foreign currency credit
rating
11 November 2003
В-
ССС+
27 December 2001
02 April 2003
On August 6, 2003 Standard & Poor's assigned its "ruBBB"
Russia national scale rating to PJSC "Southern
Telecommunications Company" ("UTK" PJSC). At the same
time, Standard & Poor's assigned its "ruBBB" rating to
"UTK" PJSC Russian ruble (RUR) 1.5 billion senior
unsecured bond issue due 2006
ANNUAL REPORT
11
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
The Company’s Auditor
«Ernst and Young Vneshaudit» CJSC
• Location
Building 1, 77, Sadovnicheskaya nab., Moscow,
Russia
• License
License No. Е003246 for auditing, in particular for
general and bank auditing and for auditing of
insurance companies, foundations and exchanges,
was granted for five years and approved by Order
No. 9 of the RF Ministry of Finance dated January
17, 2003 (valid till 17.01.2008).
ANNUAL REPORT
12
30.06.2004
GENERAL INFORMATION ABOUT THE COMPANY
Registrar
«Registrator-svyaz» CJSC
• Location
15a, Kalanchevskaya Str., Moscow, 107078,
Russia.
Tel./fax: (095) 933-42-21.
E-mail: regsw@asvt.ru
• License
Number: 10-000-1-00258.
Date of issue: 1.10.2002
Period of validity: unlimited.
Licensing body: Federal Commission for
ANNUAL REPORT
Securities Market of Russia.
13
30.06.2004
THE COMPANY’S STRUCTURE
Board of Directors
Elected on 25.06.2003
Corporate Governance Committee
Budget and Investment Planning
Committee
Nominations and Compensation Committee
Audit Committee
40 meetings were held
184 issues were considered and approved
ANNUAL REPORT
14
30.06.2004
THE COMPANY’S STRUCTURE
Management Board
Elected on 25.06.2003
Financial and economic operations of the Company
Capital construction
Development of the Company’s investment program and budget for their
submission to the Board of Directors for approval
Determination of the priority development trends
Approval of the internal documents regulating the Company’s operations
Supervising accounts receivable and drawing up actions on their reduction
Social and economic development
12 meetings were held
140 issues were considered and approved
ANNUAL REPORT
15
30.06.2004
THE COMPANY’S STRUCTURE
Auditing Commission
Elected on 25.06.2003
The terms of reference of the Auditing Commission cover:
checking the reliability of the data contained in the accounts and other financial
documents of the Company;
revealing any facts of violation of the procedure for book-keeping and
submission of financial reports, established by the legal acts of the Russian
Federation;
checking the observance of the legal standards in tax calculation and payment;
revealing any facts of violation of the legal acts of the Russian Federation, in
compliance with which the Company performs its financial and economic
operations;
evaluating the economic advisability of financial and economic operations of
the Company.
ANNUAL REPORT
16
30.06.2004
THE COMPANY’S STRUCTURE
Organizational structure
General Shareholders’ Meeting
Board of Directors
Management
Board
General Director
General Management
Branches
( 10 branches of major business)
Branches
( 3 branches of secondary business)
ANNUAL REPORT
17
30.06.2004
THE COMPANY’S STRUCTURE
Main functional blocks of the General Management
organizational structure
Commercial
Construction
Financial
Security
Legal
Administrative
Internal Audit
Accounting
General management
Technological
Economic
Corporate
Governance
Information
Personnel
management
ANNUAL REPORT
18
30.06.2004
THE COMPANY’S STRUCTURE
The basic directions of optimization of the
Company’s organizational structure are the
following:
Optimization of the number of structural divisions in the
Company’s branches – according to management
standards
Establishment of effective vertical and horizontal
relations between structural divisions – according to
business management doctrine
Optimization of the staff number in structural divisions –
in conformity with scientifically proved labor standards
Improvement of systems, forms and methods of
management
ANNUAL REPORT
19
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
General Shareholders’ Meetings
Extraordinary General Shareholders’ Meeting was held on 21.01.2003.
Venue: 44, Krasnaya Street, Krasnodar, Krasnodar krai
Annual General Shareholders’ Meeting was held on 25.06.2003.
Venue::“Health-care center “Orbita” CJSC, Olginka, Tuapse district, Krasnodar krai.
ANNUAL REPORT
20
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Corporate reorganization
Change of information
technologies
Rearrangement of
organizational structure
and human resources
management
Increase of efficiency of
accounting and economic
subdivisions
Creation of
communication networks’
management system
Reorganization of
logistical support
Development of business
opportunities
Corporate actions of
general character
ANNUAL REPORT
21
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Approval of 2003 Budget
Description
Measure
unit
Fact 2002
Plan 2003
Growth
rate,%
Increase in number of basic telephones
sets
165 775
244 596
147,5
Average number of lines
Ths lines
3 211,1
3 409,8
106,2
Revenue from sales
RUR mln
10 532
13 269,6
125,9
Revenues from new services
RUR mln
305,6
434,5
142,2
Income per 1 line
RUR
3 279,8
3 891,6
118,6
Income per 1 employee
RUR
247 572
322 124,6
130,1
Number of lines per employee
Lines/em
ployee
75,5
82,8
109,7
Average number of employees on pay-roll
people
42 541
41 194
96,8
Average wages
RUR
5 099,6
6 532,3
128,1
Capex volume
RUR mln
3 571 ,6
8 308, 2
232,6
Number capacity to be put into service
Ths lines
374,3
513,3
137,1
ANNUAL REPORT
22
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Participation in exhibitions and
congresses, meetings with investors
Russian Economic Forum in London, 3.04.2003
International Congress "Trust and Security in the Information Society", 2122.04.2003, Moscow
International Investment Forums «South of Russia-2003»,
6-9.04.2003, Madrid and 26-29.09.2003, Berlin
ANNUAL REPORT
23
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Participation in exhibitions and
congresses, meetings with investors
International Exhibition “Svyaz-Expocomm,2003», May, 2003, Moscow
International Investment Forum «Days of the Krasnodar krai in Germany»,
May 2003, Hannover
International Exhibition of telecommunications, new infocommunication
technologies and their applications «Infocommunications of Russia XXI century»,
September, Russia
World Exhibition «Telecom-2003», October, Switzerland, Geneva
ANNUAL REPORT
24
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Participation in exhibitions and
congresses, meetings with investors
On April 18, 2004 a meeting of "UTK" PJSC Management and top managers of
the fund ‘’Templeton Russia Fund’’ headed by Mr. Mark Mobius, the Company’s
shareholder, was held in Krasnodar.
On 15 September 2003 a conference with analysts and investors devoted to
placement of UTK series 01 bond issue to have been performed on 18.09.2003 was
held in Moscow. The Company presented its plans of business development up to
2006 at the conference.
ANNUAL REPORT
25
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Actions on investor relations and development of the
secondary market of shares
Program on investor relations and development of
the secondary market of shares in 2003 was
approved by the Board of Directors on 25 April 2003.
Aims: to ensure fair market value and to form the
Company’s liquid securities market, to make the
Company more recognizable by the participants of
the investment community
ANNUAL REPORT
26
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Customer service
Integrated system of sales of telecom services and advertising in
the telecommunications market of the Southern federal district
Set up of Unified Accounting and Service Centers
Main tasks:
To meet the requirements of various categories of customers for
the range of telecommunications services available.
To ensure a sufficiently high level of service for key
customers
The efficient promotion of services to the telecommunications
market of the SFD taking into account the Company’s service,
regional and client segment priorities
ANNUAL REPORT
27
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Personnel management
The main concept of the personnel management system used by
the Company is to increase business efficiency of the company by
raising the effectiveness of its human resources
90%
80%
81%
91,4%
81.6%
70.92%
Provision with specialists
having higher education
2002
2003
Average over
“Svyazinvest” OJSC
Provision with specialists
having secondary special
education
ANNUAL REPORT
28
30.06.2004
SIGNIFICANT CORPORATE EVENTS OF THE YEAR
Improvement of quality management system
Improvement of quality control system in
accordance with ISO 9000 standards makes it
possible to ensure reliable and stable operation
of the Company as well as to achieve the set goal
which is to provide Southern regions of Russia
with full range of integrated telecom services of
high quality
ANNUAL REPORT
29
30.06.2004
POSITIONING IN THE MARKET
Telecommunications market of the Southern
federal district
55
60
51,4%
50
45
50
40
40
35
30
46,5%
45%
23,4
28,4
30
20
15,9
25
10
20
0
2001
2002
2003
Telecommunications market, RUR bln
Market share of "UTK" PJSC, %
Goal: to increase UTK market share to 51%
ANNUAL REPORT
30
30.06.2004
POSITIONING IN THE MARKET
Telecommunications market of the Southern
federal district
19,8%
26,0%
5,2% 7,4%
41,7%
2003
19,1%
4,9% 10,8%
30,7%
34,5%
2002
0%
20%
40%
60%
80%
100%
Local telephony
Long-distance fixed-line telephony
New services (VAS)
Other services
Cellular communication
ANNUAL REPORT
31
30.06.2004
POSITIONING IN THE MARKET
Priority development trends
Traditional telecommunications services
Counteraction to competitors in the market of long-distance telephony.
Sale promotion of services of long-distance fixed-line telephony.
Development of public switched telephone network PSTN paying special attention to
business sector (high profitability, good prospects of broadening the range of
provided services).
Introduction of universal service cards for payment of telecommunications services.
Provision of package services.
Introduction of time-based billing system SPUS.
New value-added services
Introducing new technologies and services corresponding to the tendencies of market
development and meeting the customers’ real requirements (Call-centers, intelligent
services, cable TV)
Making value-added services more competitive including in the spheres of customer
service.
Developing integrated data networks (multi-service networks) in the Southern Federal
District.
Introduction of universal service cards to pay for telecommunications services provided.
Popularization of the pre-paid cards.
Technical realization of intra-regional roaming of services.
ANNUAL REPORT 32
Providing services “in package”.
30.06.2004
POSITIONING IN THE MARKET
Priority development trends
Tariff policy
to even out tariffs in the framework of the inter-regional company, to minimize
tariff differences in the consolidated company taking into account regional
peculiarities;
to introduce step-by-step unified tariff system for all categories of customers;
to reduce cross-subsidies;
to bring regulated tariffs to the level of economically justified costs on the basis
of separate cost accounting and standard level of profit, their further
rebalancing according to “price cap” method (limit pricing);
to include investment component in tariff structure;
to develop tariffs on value-added services on the basis of new technologies, using
the experience of domestic and foreign operators;
to elaborate various tariff plans for package services;
to use flexible system of discounts with regard to customer demand, growth of
volume of provided services and earnings increase.
ANNUAL REPORT
33
30.06.2004
PERFORMANCE RESULTS
Investment policy
Capital expenditures, RUR mln
12000
310.1%
202.7%
1762,2
11075,1
3571,5
0
2001
2002
2003
Fixed assets put into operation, RUR mln
12000
267.8%
164.6%
1870
8244,9
3078,4
0
2001
2002
2003
ANNUAL REPORT
34
30.06.2004
PERFORMANCE RESULTS
Investment policy
Capex breakdown
29,70
26,0
35,3
31,7
25,6
18,7
2003
17,4
15,6
2002
32
27
19
22
2001
0%
20%
40%
60%
Extension
New construction
Reconstruction
Technical reequipment
80%
ANNUAL REPORT
100%
35
30.06.2004
PERFORMANCE RESULTS
Investment policy
Allocation of capital expenditures
69,4
8,3
5,6
16,6
2,6 4
15,6
2003
77,8
2002
74
12
10
4
2001
0%
20%
40%
60%
80%
100%
Local telephony
Long-distance telephony
Value-added services
Other
ANNUAL REPORT
36
30.06.2004
PERFORMANCE RESULTS
Investment policy
Sources of financing, %
100%
25%
75%
52%
50%
48%
87,5%
12,5%
0%
2001
Own funds
2002
2003
Borrowed funds
ANNUAL REPORT
37
30.06.2004
PERFORMANCE RESULTS
Investment policy
Borrowed funds breakdown, %
100%
22%
15%
78%
25%
50%
0%
2001
50%
14%
33%
10%
10%
2002
2003
Bank credits
Bonded loans
Credits from vendors
Leasing
Other borrowed funds
43%
ANNUAL REPORT
38
30.06.2004
PERFORMANCE RESULTS
Investment policy
Number capacity put into operation, ths lines
600
142.3%
161.4%
95,7
374.2
60,5
231.9
436,8
35,7
196,2
532.5
313,7
rural
TN
urban
TN
0
2001
2002
2003
ANNUAL REPORT
39
30.06.2004
PERFORMANCE RESULTS
Indicators of network development
Increase in the length of long-distance (intra-zonal)
telephone channels , ths channel/km
3000
168.3%
111.6%
2742,05
1459,3
1629,25
2001
2002
0
2003
Fiber-optic lines put into service, km
1500
197.1%
102.7%
668,9
686,95
2001
2002
1354,3
0
2003
ANNUAL REPORT
40
30.06.2004
PERFORMANCE RESULTS
Indicators of network development
STM-1/4/16/64
STM-1/4/16/64
SDH equipment manufactured by
Siemens, Alcatel, Lucent
Technologes, Huawei are
deployed in the intra-zonal
transportation network
STM-1/4/16/64
ANNUAL REPORT
41
30.06.2004
PERFORMANCE RESULTS
Indicators of network development
Increase in the number of basic telephones, ths sets
300
296.8
178.9%
81,8
108.4%
153.1
37,5
165.8
36,1
115,5
129,7
2001
2002
215
rural TN
urban TN
0
2003
Installed capacity, mln lines
5
Equipped capacity, mln lines
3,8
3,5
3,3
3,6
0
at 01.01.2003
at 01.01.2004
ANNUAL REPORT
42
30.06.2004
PERFORMANCE RESULTS
Indicators of network development
Equipped capacity factor,%
100
98
96
94
92
90
88
86
100%
95,1%
93,4%
95,8
92,3
94,1
93,9%
93,3
95%
90%
94,1
91,3
85%
80%
2001
2002
rural TN
2003
urban TN
urban and
rural TNs
Digitization rate,%
100
48,4%
80
60
31,6%
45,2
39,3
7,3
11,4
50%
40%
56,3
40
20
38,7%
60%
21,9
0
30%
20%
10%
0%
2001
2002
2003
ANNUAL REPORT
43
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Revenue from sale of goods, works, services, RUR mln
14000
128.24%
128.15%
8218,4
10531,9
13506,6
0
2001
2002
2003
Revenue from telecommunications services, RUR mln
14000
131.7%
127.1%
7899,2
10042,4
2001
2002
13222,7
0
2003
ANNUAL REPORT
44
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Dynamics of revenue structure from telecommunications services, %
50.4%
2003
39.8%
6668
5250,8
52.5%
2002
36.8%
5270,6
33.0%
4297,5
0%
546 756,9
3.1%
3694,8
54.4%
2001
4.1%
305,6 771,4
3.0%
2601,8
248,1
751,8
50%
100%
DLD and ILD telephony
Urban and rural TNs
Value-added services
Other telecommunications services
ANNUAL REPORT
45
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Revenues from value-added services (VAS), RUR mln
1000
4,1%
800
3,0%
600
400
3,1%
178.7%
123.2%
200
248,1
5,0
4,0
3,0
546,1
305,6
2,0
Revenues from VAS, RUR
mln
Share in tariff revenues,%
1,0
0
0,0
2001
2002
2003
Dynamics of revenues from value-added services
350
300
250
200
150
100
50
0
2500
2000
1500
2002, RUR mln
2003, RUR mln
Growth rate, %
1000
500
IN
TV
ISDN
VPN
IP
Internet
0
ANNUAL REPORT
46
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Costs , RUR mln
14000
130.29%
132.43%
6058
8022,8
10452,9
0
2001
2002
2003
Dynamics of costs structure, %
33.8%
10.5% 10.3% 9.3% 14.3%
32.8%
10.9% 8.8% 9.9% 14.25%
31.4%
11.4% 10.5% 11.3% 13.7%
Wages and salaries
Unified income tax
Depreciation charges
Materials
Payments to Rostelecom
Electricity charges
Taxes
Other
Security
Insurance
Training
Advertising costs
2003
2002
2001
0%
100%
ANNUAL REPORT
47
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
EBITDA in comparable conditions, RUR bln
5
27,2%
4
23,3%
20,3%
EBITDA, RUR bln
3
2
2,23
EBITDA margin,%
3,15
2,14
1
0
0%
2001
2002
2003
Cost price of one ruble of revenue, RUR
0,77
0,76
0,74
0,7
2001
2002
2003
ANNUAL REPORT
48
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Business efficiency
46000
329,3
45828
247,6
42541
40992
179,3
350
Staff number, people
300
250
Revenue per one
employee, RUR ths
200
150
100
50
36000
0
2001
2002
2003
Growth rates of revenues and business efficiency, %
50%
38,10%
28,10%
32,71%
27,90%
Growth rate of
business efficiency,%
Growth rate of
revenue,%
0%
2002
2003
ANNUAL REPORT
49
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Business efficiency
Revenue per one line, RUR
600
3279,80
3000
400
2681,10
413,40
489,90
539,10
2002
2003
200
0
2000
85
DLD/ILD traffic per one line, minutes
3948,50
4000
2001
2002
2003
Number of lines per one employee,
lines/employee
83,40
2001
75,50
66,90
65
2001
2002
2003
ANNUAL REPORT
50
30.06.2004
PERFORMANCE RESULTS
Main economic indexes
Business efficiency
126,4%
6000
121,4%
123,6%
Tariff revenue per one line, RUR
122,3%
Costs per one line, RUR
Revenue growth rate, %
3866
3127
Costs growth rate,%
3056
2498
0
2002
2003
ANNUAL REPORT
51
30.06.2004
FINANCIAL RESULTS
Structure and history of balance sheet accounts, RUR bln
35
Assets
31
13,1
1,90
11,20
+5.0
+38%
18,1
4,8
+12.9
+71.3%
2,40
26,2
15,70
0
2001
35
2002
Non-current assets
2003
Current assets
Liabilities
31
12,5
+0.7
18,1
13,1
9,1
0
11,8
1,6
2,5
3,8
2,5
2001
2002
Borrowed funds
5,2
Accounts payable
+12.2
13,3
2003
Own funds
ANNUAL REPORT
52
30.06.2004
FINANCIAL RESULTS
Structure and history of balance sheet accounts, RUR bln
Assets
18,1
2,40
15,70
31
4,80
+12.9
+71.3%
Non-current assets
13%
87%
26,20
2002
2003
Current assets
Other non-current assets
Intangible assets
79,8%
2002
5
Inventories
Accounts receivable (due in more than 12 months)
Accounts receivable (due in less than 12 months)
Cash and cash equivalents
Short-term financial investments
2003
89,6%
0
84%
2003
Non-current assets
Fixed assets
10
20
25
30
30,4%
62,4%
2002
15
Current assets
16%
44,1%
0
1
46,7%
2
3
4
ANNUAL REPORT
5
6
53
30.06.2004
FINANCIAL RESULTS
Structure and history of balance sheet accounts, RUR bln
Liabilities
31
18.1
65%
21%
14%
+0.7
11,8
5,20
16,6%
13,30
+12.2
3,80
2,50
12,5
40,4%
2002
Own funds
Accounts payable
Borrowed funds
43%
2003
Credits and loans
Borrowings
Long-term
Borrowings
Bonds
Leasing, commercial credit
Short-term
Bills of credit
2003
59,7%
2003
53,5%
2002
2002
0
5
10
15
20
0
2
4
6
8
10
ANNUAL REPORT
12
14
54
30.06.2004
FINANCIAL RESULTS
Net assets of the Company
As at
01.01.2003
1. Net assets (RUR ths)
As at
01.01.2004
12 017 083
12 766 438
1 297 779
1 297 779
63 200
64 889
4. Net assets/authorized capital ratio
(ROE) (line.1/line.2) (%)
925,9
983,7
5. . Net assets/sum of authorized capital
and reserve fund ratio
(line.1/(line.2+line.3) (%)
882,9
936,9
2. Authorized capital (RUR ths)
3. Reserve fund (RUR ths)
+ RUR 749.4 mln
ANNUAL REPORT
55
30.06.2004
FINANCIAL RESULTS
Dynamics of profit, RUR mln
sales income
Pre-tax profit
Pre-tax profit in comparable conditions
3054
2509 2274
4500
3500
2500
1500
2160
1665
1460
1247,3
1389,6
500
-500
2001
2002
2003
4500
3500 Net profit
Net profit in comparable conditions
2500
1500
978
1562
781,9
1080 871,1
500
-500
2001
2002
2003
ANNUAL REPORT
56
30.06.2004
FINANCIAL RESULTS
Main directions of retained earnings distribution
1600000
Increase of share capital
RUR 1080
mln
Covering the losses of the
reporting year
1400000
1200000
1000000
Creating a special stock
fund of employees
800000
67.8%
Dividend payment
600000
400000
Creating reserves
32.2%
Retained earnings balance
200000
0
2001
2002
Reporting period
2003
ANNUAL REPORT
57
30.06.2004
FINANCIAL RESULTS
Dividend payment, RUR
0,2
0,18908
0,18908
0,1607
0,11114
0,0812
0,0812
0
2001
2002
2003
Ordinary shares
Preference shares
ANNUAL REPORT
58
30.06.2004
AUDITOR’S OPINION
AUDITOR’S OPINION
on 2003 Financial accounts of “UTK” PJSC
by “ERNST AND YOUNG VNESHAUDIT” CJSC
In our opinion, in 2003 the bookkeeping procedure related to
preparing
the
Financial
accounts
of
"Southern
Telecommunications Company" PJSC complied with the
requirements of Federal Law “On Accounting” No. 129-FZ of
November 21, 1996, and the above accounts prepared in
compliance with the said Law reliably represent in all material
aspects the financial standing of "Southern Telecommunications
Company" PJSC as of December 31, 2003 and its business
results for the period from January 1, 2003 till December 31,
2003 inclusive.
ANNUAL REPORT
59
30.06.2004
REPORT OF THE AUDITING COMMISSION
In the opinion of the members of the Auditing Commission
based on the results of the audit of the Company’s business
operations in 2003 and its 2003 financial accounts, financial
accounts of “Southern Telecommunications Company” PJSC
are prepared in the way to present, in all material
respects, the assets and liabilities of "Southern
Telecommunications
Company"
PJSC
as of 31 December 2003 and its financial results for
the year 2003 in compliance with the Federal Law “On
Accounting” No. 129-FZ of November 21, 1996 and the
normative documents of the Ministry of Finance of the
Russian Federation (Orders № 34n of 29.07.98 (amended
and restated), № 43n of 06.07.99, № 67n of 22.07.2003).
ANNUAL REPORT
60
30.06.2004
DEVELOPMENT PROSPECTS
Telecommunications development
Number capacity to be put into operation, ths lines
Increase in number of basic telephones, ths sets
Digitization rate, %
75,4%
800
700
600
500
80
67,2%
58,2%
670
680
594
70
60
50
400
300
40
390
376
30
336
200
20
100
10
0
0
2004
2005
2006
ANNUAL REPORT
61
30.06.2004
DEVELOPMENT PROSPECTS
Economic indexes
Revenue, RUR bln
Net profit, RUR bln
Revenue share from value-added services, %
30
14
10,9%
25
11,9%
26,4
20
15
7,9%
12
10
21,1
8
17
6
10
4
5
1,35
1,97
2,87
0
2
0
2004
2005
2006
ANNUAL REPORT
62
30.06.2004
DEVELOPMENT PROSPECTS
Priority trends
Introduction of the procedure of obligatory feasibility study in order to
determine the potential customers’ demand
Formation of package services for VIP- and corporate clients
Bringing state-regulated tariffs on telecom services to economically
justified levels taking into account their investment component.
Making up and realization of the annual Program on measures to
promote the Company’s.
Improvement of the system of sales and customer service
Creation of universal payment system for telecom services using
unified service cards.
Development of integrated
transportation networks.
inter-regional
multi-service
and
Searching the ways to reduce losses from unprofitable services
ANNUAL REPORT
63
30.06.2004
DEVELOPMENT PROSPECTS
Strategic aims and goals
Strengthening the Company’s leading position in the region in order to
achieve 51% of the total revenue of telecommunications sector of the
Southern federal district by the year 2006
Ensuring annual growth of sales volume by 20% and increase of the
Company’s capitalization per line
Technical re-equipment and development of communication networks of
all levels, reaching digitization rate of 75% by 2006
Creating common information space and integrating in the global
information community
Realization of the integrated Program on the reorganization of the merged
operators in all directions by the year 2006
Increasing operating profit per one line
ANNUAL REPORT
64
30.06.2004
“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC
Approval of the annual report, annual
financial accounts including profit and
loss statement (profit and loss
accounts), distribution of profits and
losses of the Company according to
the results of the reporting financial
year (2003).
Speaker – I.F. Ignatenko, General
Director of “UTK” PJSC
ANNUAL REPORT
65
30.06.2004
“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC
Agenda item №2
Determination of 2003 dividend size, form
and time of payment under each category
and type of shares
Speaker – S.G. Fefilova, Deputy
General Director of “UTK” PJSC
ANNUAL REPORT
66
30.06.2004
Determination of 2003 dividend size
2003 net profit
amounted to RUR
1,080 million
RUR 348.4 million were
allocated to dividend
payment under all categories
of shares
68%
Ordinary shares
32%
RUR
108.0
mln
Preference shares
ANNUAL REPORT
67
30.06.2004
Determination of 2003 dividend size
Ordinary registered nondocumentary shares
Preference registered nondocumentary shares
Number of
shares, units
Amount of
dividend, RUR
ths
Dividend per
one share,
RUR
2 960 512 964
240 396
0.0812
972 151 838
108 043
0.11114
ANNUAL REPORT
68
30.06.2004
Determination of form and time of 2003 dividend
payment under each category and type of shares
It is proposed to pay the following 2003 dividend:
1. preference share dividend amounting to 0.11114 (naught
point one one one one four) ruble per one share.
Dividend should be paid in cash prior to August 29,
2004;
2. ordinary share dividend amounting to 0.08120 (naught
point zero eight one two zero) ruble per one share.
Dividend should be paid in cash prior to December 15,
2004.
ANNUAL REPORT
69
30.06.2004
“SOUTHERN TELECOMMUNICATIONS COMPANY” PJSC
Agenda item №3
Election of the members to the
Company’s Board of Directors
Speaker – I.F. Ignatenko, General
Director of “UTK” PJSC
ANNUAL REPORT
70
30.06.2004
Board of Directors
of “Southern Telecommunications Company” PJSC
(elected at the General Shareholders’ Meeting held on 25 June 2003, Minutes №14)
№
Name
Post held
1
Stanislav Petrosovich Avdiyants
Executive Director – Director of the Department for Economic and Tariff
Policy, “Svyazinvest” OJSC
2
Vadim Yevgenyevich Belov
Deputy General Director, “Svyazinvest” OJSC
3
Mikhail Borisovich Vasilyev
Head of the Representative Office of “NCH Advisors Inc.”
4
Igor Vilgelmovich Volkovyski
Head of Administrative Department of the Board of the Presidential
Plenipotentiary in the Southern Federal District
5
Vladimir Lukich Gorbachev
1st Vice-chairman of the the RF State Duma Committee for Energy,
Transport and Communications
6
Denis Viktorovich Kulikov
Expert, Investor Protection Association (non-commercial organization) ,
“Svyazinvest” OJSC
7
Alexander Leonidovich Merzlenko
Vice-president, “Renaissance-Capital” Ltd.
8
Georgy Alekseevich Romsky
Deputy General Director, “Svyazinvest” OJSC
9
Stanislav Nikolaevich Panchenko
Deputy General Director, “Svyazinvest” OJSC
10
Irina Petrovna Ukhina
11
Andrei Anatolyevich Tshepilov
Deputy Director, Department of Corporate Governance, “Svyazinvest”
OJSC
ANNUAL REPORT 71
Chief specialist, Securities Department, “Svyazinvest” OJSC
30.06.2004
Information about the candidates to the Board of Directors of “UTK” PJSC
№
Name
Post held
1
Stanislav Petrosovich Avdiyants
Executive Director – Director of the Department for Economic and Tariff Policy,
“Svyazinvest” OJSC
2
Vadim Yevgenyevich Belov
Deputy General Director, “Svyazinvest” OJSC
3
Mikhail Borisovich Vasilyev
Head of the Representative Office of “NCH Advisors Inc.”
4
Igor Vilgelmovich Volkovyski
Head of Administrative Department of the Board of the Presidential Plenipotentiary in
the Southern Federal District
5
Vladimir Lukich Gorbachev
1st Vice-chairman of the the RF State Duma Committee for Energy, Transport and
Communications
6
Vladimir Vladimirovich Dudchenko
Head of Analytical Department, Representative Office of “NCH Advisors Inc.”
7
Dmitry Georgievich Yefimov
Head of the Independent Directors Group, Investor Protection Association (noncommercial organization) , “Svyazinvest” OJSC
8
Ivan Fyodorovich Ignatenko
General Director, "UTK" PJSC
9
Denis Viktorovich Kulikov
Expert, Investor Protection Association (non-commercial organization) , “Svyazinvest”
OJSC
10
Andrey Vladimirovich Morozov
Legal expert, Representative Office of “NCH Advisors Inc.” in Moscow (consulting)
11
Stanislav Nikolaevich Panchenko
Deputy General Director, “Svyazinvest” OJSC
12
Iliya Vladimirovich Ponomaryov
Head of the section, Department of Economic Planning and Budget, “Svyazinvest”
OJSC
13
Georgy Alekseevich Romsky
Deputy General Director, “Svyazinvest” OJSC
14
Elena Vladimirovna Umnova
Director, Finance Department, “Svyazinvest” OJSC
15
Irina Petrovna Ukhina
Deputy Director, Department of Corporate Governance, “Svyazinvest” OJSC
ANNUAL REPORT
16
Andrei Anatolyevich Tshepilov
Chief specialist, Securities Department, “Svyazinvest” OJSC
72
30.06.2004
Agenda item №4
Election of the members to the
Company’s Auditing Commission
Speaker – T.V. Rusinova, Chief
Accountant of “UTK” PJSC
ANNUAL REPORT
73
30.06.2004
Auditing Commission of “UTK” PJSC
(elected at the Annual General Shareholders’ Meeting held on
25 June 2003, Minutes №14)
№
Name
Post held
1
Natalia Vladimirovna Boyarskikh
Chief accountant, “Kubanelectrosvyaz”, branch of "Southern
Telecommunications Company" PJSC
2
Lyubov Aleksandrovna Greseva
Senior specialist, Department for Internal Audit and Economic Analysis,
“Svyazinvest” OJSC
3
Vladimir Vladimirovich Kozin
Director, Department for Direct Investments and Property,
“Svyazinvest”OJSC
4
Irina Viktorovna Prokofieva
Director of the Department for Internal Audit and Economic Analysis,
“Svyazinvest” OJSC
5
Kirill Viktorovich Frolov
Chief specialist, Department for Internal Audit
and Economic Analysis, “Svyazinvest” OJSC
ANNUAL REPORT
74
30.06.2004
On 5 March 2004 UTK Board of Directors approved the
resolution to nominate the following candidates to the
Company’s Auditing Commission (Minutes №35)
№
Name
Post held
1
Lyubov Aleksandrovna Greseva
Senior specialist, Department for Internal Audit and Economic Analysis,
“Svyazinvest” OJSC
2
Lyubov Yurievna Podgornaya
Head of the section for Internal Audit, "UTK" PJSC
3
Irina Viktorovna Prokofieva
Director of the Department for Internal Audit and Economic Analysis,
“Svyazinvest” OJSC
4
Natalia Valerievna Uzlova
Deputy head of the business accounting section, “Svyazinvest” OJSC
5
Natalia Petrovna Utina
Head of the section, Department for Economic Planning and Budget,
“Svyazinvest” OJSC
ANNUAL REPORT
75
30.06.2004
Agenda item №5
Appointment of the Company’s auditor
for the year 2004
Speaker – T.V. Rusinova, Chief
Accountant of “UTK” PJSC
ANNUAL REPORT
76
30.06.2004
Agenda item №6
Determination of the rates of deductions
for calculation of the annual remuneration
to be paid to the members of the Board of
Directors
Speaker – S.G. Fefilova, Deputy
General Director of “UTK” PJSC
ANNUAL REPORT
77
30.06.2004
It is proposed to approve the following rates of
deductions for calculation of the annual remuneration
to be paid to the members of the Board of Directors:
1. 0.17% of the Company’s EBITDA for the
reporting year as per the Company’s IAS
financial accounts
2. 0.23% of the Company’s net profit allocated
to dividend payment according to the
financial results of the reporting year
ANNUAL REPORT
78
30.06.2004