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Uralsvyazinform

June 22, 2007

Uralsvyazinform represents 2006 IAS audited consolidated financial report

Ekaterinburg – June 22, 2007 – Uralsvyazinform (RTS: URSI/URSIP) the leading carrier of fixed-line and mobile services in the Urals region, Russia presents the audited consolidated financial statements for the year ended December 31, 2006 prepared under International Financial Reporting Standards (IFRS). The financial statements were audited by OOO “Ernst and Young”.

Revenue increased by 11.7% as compared to 2005 and amounted to US$ 1.2 bln. Although the company lost revenues in ILD/DLD services, the growth was due to revenue gains in mobile services, new services as well as services for operators.

Revenue from mobile services totaled US$ 374.3 mln. (+16.9% on 2005). The segment contributed 29.9% of overall revenues.

Revenues from new services (Internet, ISDN, intelligent networks, etc.) and data transmission services reached US$ 95.6 mln (+46.9%). The segment contributed 7.6% of overall revenues.

Operating expenses in 2006 increased by 17.5% and totaled US$ 1.1 bln., mainly due to the growth in depreciation and amortization expenses related to fixed assets valuation (+34.1%) as well as personnel expenses (+22.4%) related to growth of pension liabilities expenses.

The fair fixed assets valuation accomplished in 2006 enabled the company to obtain a first unqualified auditor’s report.

 

Financial highlights 2005-2006, US$ million:*

                                                                                                          2006                 2005             Change, %

Revenues, US$ mln                                                                              1,251.8             1,120.5            +11.7%

OIBDA, US$ mln                                                                                   345.1                327.4              +5.4%

OIBDA margin                                                                                      27.6%               29.2%                   -

Operating profit, US$ mln                                                                      139.1                173.8               -20.0%

Operating margin                                                                                  11.1%              15.5%                   -

Profit before income tax, US$ mln                                                           49.0                 100.7              -51.3%

Net profit, US$ mln                                                                                30.6                  67.2                -54.5%

Net margin                                                                                            2.4%                6.0%                    -

EPS                                                                                                     0.0008               0.002               -60.0%

 

* Here and henceforth currency conversions are based on average exchange rates:

2006 – RUR 27.1, 2005 – RUR 28.3

 

Valeryi Chernyshev, CFO comments: “In 2006 our departments have done a lot to perfect the procedure of IAS financial reporting preparation. This enabled us to obtain a first unqualified auditor report with no notes and qualified opinion. We also drew to an end an independent valuation of asset fair value as well as decided to revise depreciation and amortization policy, in particular, reduction of equipment amortization terms.

These measures, on the one hand, enable the company to obtain resources for update of fastchanging technologies and, on the other hand, led to the increase of amortization expenses shown in financial reporting. In future, due to the completion of our largest investment projects, we forecast the decrease of amortization expenses growth rate.

At the end of 2005 we undertook worker pension reform also resulting in impact on the 2006 financial reporting. We made the pension system more clear and fair. Personnel optimization led to stabilization of wage fund, and new pension liabilities increased resulting in 17.2% growth of “Wages, salaries, other benefits and payroll taxes”. Starting from 2007, measures on further personnel optimization will enable to achieve the reduction of personnel expenses and social benefits in overall expenses.

In 2006 the company did a lot to prepare for operation in new regulatory telecom environment.

Changes in principles of interaction with operators, provision of opportunity to choose LD operators and local telephony tariffs and other changes demanded additional investments to equipment update. 4Q 2006 saw an active preparation for 3 tariff plan implementation starting from February 01, 2007. I suppose it is the largest reform in local telephony that drew it closer to global telecom industry. Preparation for the reform also included mailing out almost 3 mln. letters with description of 3 new tariffs and supplementary agreements. These non-recurrent expenses made an impact on 2006 financial reporting but they already give economic return resulting in revenue gains in local telephony and services for operators.

Changes in state regulation of telecom industry, growth of financial indicators, perfection of IAS financial reporting preparation in 2006 should have a positive effect in years to come.

Uralsvyazinform will continue to boost an active expansion on local new services market, primarily, broadband access, to increase subscriber loyalty and ARPU in mobile market that will result in revenue gains in cost-effective segments. A further personnel optimization will continue. We reached success in increase of asset management effectiveness, including realty and transport, and this will lead to decrease of the expense growth rate on these items. Besides, we continue to sell minority stakes and non-core assets, some transactions being already carried out in 2007 (minority stakes in OAO “Tatinkom-T”, ZAO “Telephone company “Ural”, etc.). Therefore, the measures taken by the management enables us to optimistically forecast the growth of performance indicators in mid-term perspective.”

 

The complete consolidated financial statements for 2006 under IFRS and accompanying auditor

notes are available from the corporate web-site on www.usi.ru/en/.

 

 

 

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