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March 12, 2004

Business-plan of "UTK" PJSC for the year 2004 (budget in accordance with Russian accounting standards)

  • 2004 total revenue is expected to increase 26% to RUR 17,018 mln, revenues from telecom services will rise by 27.2% to RUR 16,818.2 mln
  • Revenues from value-added services are to reach RUR 872.9 mln (their share in total revenue structure is to be up 5.2% versus 4.1% in 2003)
  • Operating profit is to reach RUR 4,444.5 mln, net profit – RUR 1,359.7 mln
  • Volume of domestic long-distance traffic is  to be increased by 14.3%, international long-distance traffic – by 5,8%; volume of traffic via assigned channels of Internet access will rise by 81%,  via  dial-up channels –by 55%.

On March 01, 2004 the Board of Directors of "Southern Telecommunications Company" PJSC    approved the budget of the Company for 2004 (Minutes ?33). "UTK" PJSC plans to keep high growth rates of industrial and economic indicators. According to 2004 budget  "UTK" PJSC expects its revenues to increase 26% on the year to RUR 17,018 mln including revenues from telecom services —  up 27.2 % to RUR 16,818.2 mln. Alongside with growth of revenues from all provided services, the structure of UTK tariff revenues will change. Share of revenues from value-added services will rise to 5.2 % in 2004, from local services - up to 41.1 %. Share of revenues from long-distance telephony is to be reduced to 51.2%, from other telecom services – down to 2.5 %. The planned structure of UTK revenues from telecom services for 2004 is as follows:

-         services of local telephony –  RUR 6,915.8 mln,

-         services of long-distance telephony – RUR 8,608.5 mln,

-         value-added services* — RUR 872.9 mln,

-         other services – RUR 421.0 mln

The Company  plans to provide revenue growth from local telephony on the basis of expansion of its subscriber base and tariff increase. In 2004 number of basic telephones is to be increased by 390 000 sets (up 31.3% over 2003) including 286 100 sets - in urban telephone network and 103 900 sets - in rural telephone network. This will result in 11%- increase of the Company’s subscriber base, in 2004 it will stand at 3,957 ths basic telephone sets.

Growth of revenues from long-distance telephony is to be provided by increase of outgoing domestic long-distance traffic by 14.3 % up to 2,002 million minutes and  international long-distance traffic - by 5.8 % up to 112 million minutes.

Growth of revenues from value-added services is expected to be provided by creation of new and modernizations of already existing access nodes to data network (SPD). In 2004 the traffic volume via assigned channels of Internet access is planned to increase not less than by 81% (compared to a 84%-increase in 2003 up to 174 thousand Gb), via dial-up access to Internet — by not less than  55 % (compared to a 51%-increase in 2003 up to  966 million minutes).

In 2004 the Company  plans to reduce the cost price of its core activity to 73.9 rubles per 100 rubles of gross revenue. According to the approved budget "UTK" PJSC  operating expenses will make RUR 12,573.5 mln and their structure will not be greatly changed. Salaries and wages will stand at 32.3%, depreciation charges - 12.3% (RUR 1,546.5 mln), payments to Rostelecom - 16.2% , social expenses – 11.0%, material charges – 7%, other operating costs –21.1% (0,3 % of them being taxes in the structure of the cost price). Growth of other operating costs is caused by rise of rates for electricity and municipal services, increase of expenses for personnel training , advertising, insurance and protection of the Company’s property.

As a result, UTK operating profit is expected to make RUR 4,444.5 mln, pre-tax profit -  RUR 1,789.1 mln, net profit — RUR 1,359.7 mln.

To increase the Company’s business efficiency, the work on optimization of personnel size will be continued. In 2004 the Company  plans to decrease the size of its basic staff by 3.4% to 39.6 thousand employees.

As a result of realization of the Company’s development strategy, UTK plans to retain its positive dynamics in terms of business efficiency:

-          revenue per line will make RUR 4, 537.3, tariff revenue per line — RUR 4, 484, operating profit per line — RUR 1,185;

-          revenue per employee is to reach RUR 429.7 thousand, tariff revenue per employee — RUR 424.6 ths, operating profit per employee — RUR 112.2 ths, number of lines per employee — 94.7 lines.

The amount of 2004 capital investments is to make RUR 8, 464 mln, 60% of them to be allocated to purchase of the equipment and other fixed assets, the rest — to building and assembly jobs. Fixed assets valued at RUR 8,498.5 mln are to be put into service. 59.3% of 2004 capital expenditures will be allocated to traditional telephony, 19.3% - to the development of telecom network infrastructure, 21.4% - to other investment projects (development of new services, information technologies, etc.). Development of highly profitable value-added services will be actually financed in the framework of expenditures for development of  local telephony and network infrastructure of the Company since increase of a digitization level of the network, introduction of high-speed intra-zonal communication channels based on SDH-, IP- and DPT-technologies allow to expand the coverage area, amount and quality of provided services.

According to 2004 investment program "UTK" PJSC  plans to put 594 395 lines into operation, which is up 12 % over 2003. As a  result, the installed capacity is expected to increase to 4.2 million subscriber sets, 94 % of them to be equipped (including  94,3 % - in urban TN and 93,2 % - in rural TN); the installed capacity having time-based billing function (SPUS) will make 3.1 million subscriber sets. The digitization level of urban and rural telephone networks is to be increased to 58,2 % by the end of 2004  (including 63 % - in urban TN, 40 % - in rural TN). "UTK" PJSC plans to put 8.26 thousand channels of automated long-distance telephone exchanges into service. Besides, the 2004 investment program of the Company  provides for active development of intra-zonal and data networks. Length of long-distance telephone channels is to be increased by 3,207.9 thousand channels/km,  length of fiber-optic lines - by 3380.2 kilometers.


* Revenues from value-added services include revenues from providing Internet, IP-telephony and ISDN- services, intelligent services, VPN- services, cable TV and call-center services, etc.




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