The company generated Rub 5.8 billion of revenue during the first six months of 2003, which is up 21.5% against the same period of the year-earlier period, with sales revenue rising by 26%.

Sales revenue posted a 15.1% increase compared to the first six months of 2002.  Sales revenue reached a total of Rub 1.3 billion.

Growth in main lines for the period beginning January 1, 2003 stood at 96,600 units (a 45% increase over the first six months of 2002).

Long-distance traffic posted a 20% gain in the first six months of 2003 compared with the year-earlier period.

STC’s 1H 2003 revenue stood at Rub 5.8 billion, which is 21.5% higher than the same period last year.  Furthermore, revenue derived from the sale of telecom services reached Rub 5.7 billion (up 26.0% y-o-y), including

STC’s 1H 2003 revenue stood at Rub 5.8 billion, which represents a 21.5% gain compared with the same period last year.  In addition, revenue from telecom services stood at Rub 5.7 billion (up 26% y-o-y), including: long-distance and international traffic (inc. transmit traffic) - 51.5% (+ 20.6%), long-distance traffic – 31.1% (up 31.8%), rural traffic – 7.2% (+31.4%), Internet services -  2.6% (+ 38.2%), other services – 7.6% (ISDN, IP telephony, value-added services, sale of plastic telephone cards, wireline broadcasting, radio and television transmission broadcasting, etc.).

Operating expenses reached Rub 4.7 billion (+23.5%).  The increase of expense rates over revenues was due mainly: to the increase in property insurance expenses after a inventory was made of property with the ensuing adjustments to all affiliated companies; to the active application of leasing mechanisms, which makes it possible to establish adequate timelines for usage of fixed assets; and the escalation of additional operating costs together with growth in the subscriber base and telecom network load.

The breakdown of operating expenses during the first six months of 2003 looked as follows: payroll expenses – 45.3%, depreciation of fixed assets – 11.5%, material expenses – 8.5%, payment from Rostelecom services – 13.3%, other expenses – 21.5%.  In addition, given the fast rates of network upgrading, material expenses decreased by 9.7% compared with the first six months of 2002.

Sales revenue posted a 15.1% gain and reached Rub 1.3 billion.  Profit margin on sales revenue during the first half of 2003 reached 23%.

1. Not counting sales revenues for 2002 financial assets.

2. EBITDA is calculated as the sum of profit earnings payable before interest, taxation and depreciation.

Financial results from other operating activity for the first half of 2003 stood at (Rub -205.5 million), however when compared with the same period in 2002 under comparable conditions one can observe a 38.4% improvement in this indicator.  The operating result is explained by the inclusion of a number of taxes and fees within the composition of operating expenses.  In addition, interest payment increased during the reporting period due to an escalation of external financing for the purposes of raising the company’s key performance indicators and reducing the yield rates of investment capital. The company’s financial independence ratio was 0.59 as of July 1, 2003, which points to the company’s financial stability.

The financial result of non-sales activity posted a 12% increase and stood at (Rub -281.8 million).  The negative value of this indicator is explained by the high exposure to negative foreign exchange differences within the total breakdown of non-sales expenses (43%), which in turn reflects the significant amounts of commodity crediting which are traditionally used by telecommunications operators as a source of financing. It should also be noted that the volume of negative foreign exchange differences declined by 25.2% on the back of measures undertaken by the company to reduce its exposure to foreign-denominated borrowed financing.

Pre-tax profit posted a 44.3% loss and stood at Rub 857.5 million.  In addition, growth compared with pre-tax profit during the first six months of 2002, following adjustment for profit from sale of financial assets, stood at 27.8%.

Net profit dropped by 37.9% and totaled Rub 673.5 million.  In addition, growth in comparable conditions with respect to the year-earlier period stood at 121.3%.

Growth in main telephone lines since the beginning of 2003 stood at 96,600 units (+ 45% against 1H 2002), of which 74,400 units were attributable to city switching facilities (+47.7%).  Thus, as of July 1, 2003, 3.4 million main telephone lines were in service, including 2.6 million to city switching facilities.  The total volume of long-distance traffic executed since the beginning of 2003 stood at 871 million minutes (+20%).

Average number of staff employed at the company as of July 1, 2003 stood at 41, 189, which is 3.2% less than the total listed at the beginning of 2003, and 5.9% less than the number listed as of July 1, 2002.

The volume of capital investments during the first six months of 2003, according to preliminary data, stood at Rub 1,911.3 million (+103.9%), with Rub 1,086.2 million spent on entering fixed assets into service (+151.1%).  Automatic switching facilities entered into service during the period posted a line capacity of 105,900 (+29.1%), including 79,400 lines attributable to city switching facilities.  All in all, the total number of lines in service for local telecom networks was 3.65 million lines as of July 1, 2003.

The major automatic switching facilities (ATS) entered into service during the first six months of 2003 were as follows: ATSs in the city of Maikop (10,000 lines), Stavropol (9,950 lines), Armavir (5,660 lines), Vladikavkaz (3,834  lines), Pyatigorsk (2,338 lines). Kislovodsk (2,000 lines), Kurganinsk (1,536 lines); a cable television network for 1,000 subscribers in the city of Volgograd; RRP Ust-Labinsk-Belorechensk-Apsheronsk (89.6 km); VOLP Rostov-on-the-Don-Aksai-Novocherkassk (48.2 km), VOLP Nalchik-Nartkala (10.3 km); KLS Value-Added Platform PROTEI in the city of Rostov-on-the-Don (240 ports), and an expansion of the data transmission network in Rostov-on-the-Don (1,200 ports).