Moscow, Russia October 5, 2006 - Sistema (LSE: SSA), the largest private sector consumer services company in Russia and the CIS, today announced its unaudited consolidated US GAAP financial results for the six months ended June 30, 2006.

HIGHLIGHTS

ˇ Consolidated revenues up 37% year on year to US$ 4.6 billion

ˇ OIBDA[1] up 16% year on year to US$ 1.7 billion

ˇ Operating income up 10% year on year to US$ 1.04 billion

ˇ Net income up 36% year on year to US$ 310.1 million

ˇ Total consolidated assets up 49% year on year to US$ 17.3 billion

ˇ Earnings per share up 31% year on year to US$ 0.64

Alexander Goncharuk, President and Chief Executive Officer of Sistema, commented: "The company has demonstrated impressive results in the first half of 2006, and we are happy to see all of our target strategic goals for the period being met. This relates both to the financial results presented today, and to the key operational performance indicatorsť.

FINANCIAL SUMMARY

(US$ millions)	1H 2006	1H 2005	Year-on-year Growth	FY 2005
Revenues	4,598.0	3,360.1	37%	7,593.5
Operating income Margin	1,038.6 23%	941.3 28%	10%	1,957.4 26%
Net Income Margin	310.1 7%	227.7 7%	36%	534.4 7%
OIBDA Margin	1,653.1 36%	1,421.9 42%	16%	2,982.0 39%

OPERATING REVIEW

Sistema's consolidated revenues increased by 37% year on year, which reflected a solid performance by the Group's Telecommunications businesses and the rapid development of the Group's non-telecommunications operations. The non-telecommunications businesses accounted for 28% of Group consolidated revenues for the first half of the year, compared to 21% for the same period of 2005. The organic year on year and like for like growth was 29% and amounted to US$ 4,252.9 million in the first half of 2006, excluding businesses acquired or divested since the end of the first half of 2005. 

Group OIBDA increased by 16% year on year for the first six months ended June 30, 2006 with the lower OIBDA margin impacted by relative margin pressures in the wireless telecommunications business. The non-telecom segments showed lower margins compared to the Telecommunications segment due to their comparatively early stages of development.

Consolidated depreciation and amortization expense was up by 28% year on year following the increase in depreciation in the Group's telecommunication segment. Selling,General and Administrative expenses rose by 61%, from US$ 574.4 million to US$ 924.9 million in the first half of 2006, as a result of the strong growth in the existing and newly acquired businesses. US$ 94 million, included in S,G&A expense, reflects the fair value of non-cash compensation to employees.

Group operating income was up 10% year on year and included the net gain of US$ 121.6 million on the disposal of interest in certain subsidiaries, including 5% of SITRONICS stock.

The effective tax rate increased from 30.9% to 37.2% year on year as a result of foreign exchange gains on non-ruble denominated long-term debt, which are taxable under Russian statutory law.

The marginal decrease in minority interest reflects further consolidation of minority shares in the telecommunication segment, as well as the acquisition of an additional 2.3% of the outstanding shares of MTS in December 2005, offset by the decline of the Group's ownership in Comstar UTS to 59% following its IPO.

Net income for the first half of the year was up 36% year on year to US$ 310.1 million, from  US$ 227.7 million.

The weighted average number of shares outstanding increased year on year from 464,944,750 in 2005 to 481,342,813 in 2006, and the Group reported a 31% year on year increase in basic and diluted earnings per share from US$ 0.49 to US$ 0.64.

Telecommunications[2]

(US$ millions)	1H 2006	1H 2005
Revenues	3,297.4	2,680.0
OIBDA	1,551.1	1,383.0
Operating Income	954.0	920.5
Net Income	570.9	620.8

The Telecommunications segment reported 23% year on year revenue growth and accounted for 72% of Group consolidated revenues for the first half of 2006, compared to 79% for the first half of 2005.  The growth was primarily organic with neither MTS or Comstar UTS having made any scale acquisitions since the end of the first half of 2005.  MTS continued to be the main contributor and accounted for 78% of the segment's year on year growth. 

MTS added 5.9 million subscribers during the first six months of 2006, of which the majority were in the Russian and Ukrainian markets, and reported 21% year on year revenue growth for the period from US$ 2.3 billion to US$ 2.8 billion. MTS results for the second quarter of 2006 showed an increase in ARPU to US$ 7.5 from US$ 6.6 in the first quarter of 2006. Comstar UTS generated 28% year on year revenue growth from US$ 419.4 million to US$ 536.3 million, following continued increases in traditional fixed-line regulated revenues, as well as increasing demand for the ADSL and pay-TV offerings.[3].  These broadband data and video services accounted for 18% of Comstar UTS's total alternative fixed-line revenues for the period, compared to only 11% a year ago. 

Segment OIBDA was up 12% year on year, with the lower year on year OIBDA margin of 47% (52%) resulting from the decrease in margin in the wireless telecommunications business. MTS's OIBDA for the period increased by 10% year on year from US$ 1.2 billion to US$ 1.3 billion.  Comstar UTS reported a 26% year on year increase in OIBDA from US$ 173.5 million to US$ 218.7 million. 

The year on year fall in segment net income was due to the lower contribution from MTS of US$ 479.1 million (US$ 536.3 million), which was impacted by increasing service costs in the Company and, as a result, a declining net margin.  Comstar UTS meanwhile reported almost doubling net income year on year, from US$ 49.6 million to US$ 97.4 million.

Technology

(US$ millions)	1H 2006	1H 2005
Revenues	696.6	426.5
OIBDA	80.6	115.4
Operating Income	62.4	109.9
Net Income	33.7	64.6

The Technology segment generated 63% year on year revenue growth for the period and accounted for 12% of Group revenues, compared with 8% for the same period of 2005. The growth was primarily driven by the Telecom Solutions business, which accounted for 51%, or US$ 352.2 million (US$ 166.1 million), of segment revenues and included the newly acquired Intracom Telecom. Improved profitability levels in the segment were distorted in the second quarter of 2006 as a result of the consolidation of Intracom Telecom.  Intracom Telecom was acquired on the last day of the reporting period, with the resulting consolidation effect that the business' revenues and expenses were consolidated for the entire first six months of the year, whilst the earnings for the period prior to the acquisition of the controlling interest are reported in minority interests and are not therefore included in the operating income for the period. Thus, Intracom Telecom accounted for US$ 217.0 million of the increase in Technology segment revenues and for US$ 21.1 of the increase in its OIBDA.

Real Estate

(US$ millions)	1H 2006	1H 2005
Revenues	106.5	33.7
OIBDA	44.4	3.9
Operating Income	42.7	3.2
Net Income	9.3	3.5

Sistema Hals revenues have tripled year on year in the first half of 2006, which was primarily due to the sale of the Pokrovka 40, an office and hotel complex, for approximately US$ 75.0 million. OIBDA was up more than 10 times, from US$ 3.9 to US$ 44.4 million primarily due to the sale of the premises described above.

The June 30, 2006, report from Cushman&Wakefield Styles&Riabokobylko valued 88 properties/projects in the portfolio, with 100% share of freehold and leasehold interest held by Sistema Hals in each property, at US$ 1 865 403 000, and attributable value (excluding minority interest) at US$ 1 509 534 000.

Insurance

(US$ millions)	1H 2006	1H 2005
Revenues	280.8	197.9
Gross Premiums Written	411.0	317.9
Net Premiums Earned	255.8	183.2
Net Income	17.3	7.9
Key Ratios
Loss ratio	(53.5)	(57.1)
Expense Ratio	(38.9)	(36.8)
Combined Ratio	(92.3)	(93.9)

Revenues for the Rosno insurance business increased by 42% year on year in the first half of 2006 and reflected the expansion of the client base and the overall positive development in the Russian insurance market. Gross premiums written increased by 29% year on year with voluntary medical insurance premiums up 72%, automotive insurance premiums up 74%, and non-life insurance premiums up 59%.

Allianz-Rosno Asset Management increased its assets under management from US$ 441.4 million to US$ 467.5 year on year, which included particularly strong growth in third party funds.

The growth in premiums and investment returns resulted in a more than doubling of net income year on year.

Banking

(US$ millions)	1H 2006	1H 2005
Revenues	87.8	45.8
Operating Income	8.6	3.1
Net Income	3.7	1.2

The Moscow Bank for Reconstruction and Development (MBRD) reported an almost doubling of revenues year on year, following a doubling of the bank's loan portfolio and increasing interest income from the retail banking operations.  The acquisition of Sistema's leasing companies in March 2006 also contributed US$ 5.1 million to the year on year growth. The bank increased its interest income from non-group clients following the expansion of the retail business to 12 branches and 41 mini-offices.

Both the operating and net income margins increased year on year.

Retail

(US$ millions)	1H 2006	1H 2005
Revenues	117.9	45.2
OIBDA	(7.4)	4.6
Operating Income	(8.3)	3.8
Net Income	(9.8)	2.3

Detsky Mir, the specialist children's goods retailer, more than doubled its revenues year on year following the opening of seven new retail stores during the first half of the year and the opening of 28 new outlets since the end of the first half of 2005.  These 28 stores contributed US$ 21.4 million in new sales, or 18% of total revenues, while the wholesale company C-Toys accounted for US$ 26.9 million or 23% of the Company's total revenue for the period.

The Company's profitability was adversely affected during the period of rapid expansion: Detsky Mir now has 48 stores in 19 Russian cities, compared to only 20 a year ago.  This additional scale will enable the company to benefit from increased purchasing and sales synergies and will allow it to secure the footprint in the prime segment of the retail market.

Media

(US$ millions)	1H 2006	1H 2005
Revenues	45.6	93.5
OIBDA	9.9	3.9
Operating Income	2.8	0.5
Net Loss	(0.2)	(1.5)

Sistema Mass Media's results reflected the transfer of the MTU-Intel and Golden Line businesses to the Telecommunications segment.  The two businesses contributed US$ 51.3 million of revenues in the first half of 2005.  US$ 26.1 million of the division's revenues for the first half of 2006 were generated by companies acquired since the beginning of 2005, whilst US$ 68.6 million of the first half 2005 revenues were accounted for by companies that were subsequently sold or transferred to other Group reporting segments.  

The division's operating profitability however improved by US$ 2.3 million year on year primarily due to the consolidation of the results of United Cable Network acquired in February 2006 which contributed US$ 3.5 million to the Segment's operating income.

FINANCIAL HIGHLIGHTS

Sistema generated a 16% year on year increase in cash flow from operations from US$ 584.8 million to US$ 677.8 million for the first half of the year.  The increase was primarily related to organic business growth and increased profitability.

Net cash used in investing activities was US$ 2.0 billion in the first half of 2006 and reflected marginally increased capital expenditure of US$ 999.7 billion, compared to US$ 981.5 million in the prior year, as well as the purchase of businesses for a total combined consideration of US$ 394.9 million.  

Cash flow from financing activities amounted to US$ 2.0 billion in the first half of 2006 and reflected US$ 977 million of net proceeds from the Comstar UTS initial public offering, which took place in February 2006.

The Group's net debt amounted to US$ 4.5 billion at the end of the first half of 2006, compared to US$ 2.5 billion as at June 30, 2005 and US$ 3.9 billion as at December 31, 2005.  The Group's increase in borrowings included US$ 285.0 million of debt consolidated as a result of the acquisition of Intracom Telecom, US$ 160.0 million of proceeds from the MBRD bond offering in March and June 2006, and the US$ 200.0 million raised by the Sitronics Finance bond offering in February 2006.

ACQUISITIONS AND DIVESTITURES

In Technology segment, Sitronics acquired 51% of voting stake of Intracom Telecom, a provider of telecommunications solutions and services in the Eastern Europe and Middle East. The total cash consideration for the deal is US$150.6 million, including US$ 43.9 million payable upon due diligence completion. Additionally, Sitronics entered into a put option agreement to acquire the remaining 49.0% of common shares of Intracom Telecom.

Comstar UTS announced an unconditional purchase offer for MGTS ordinary shares in December 2005.  Comstar UTS acquired 3,363,332 MGTS shares during the first two months of 2006, equivalent to 4.21% of the outstanding ordinary shares, for a total cash consideration of RUR 1,600 million (equivalent to US$ 59.1 million as at June 30, 2006).  Comstar UTS purchased an additional 3.82% of MGTS common stock from minority shareholders for US$ 71.5 million in March 2006.  As a result, Comstar UTS's voting and economic interests in MGTS have increased to 53.0%.

Comstar UTS also purchased 100% of Astelit, an alternative fixed-line telecommunications company, for US$ 7.8 million in June 2006.  Astelit holds licences to provide integrated fixed-line services across 51 Russian regions to large corporate customers, and has over 200 km of its own fiber optic infrastructure in city centres.  Astelit has subsequently been rebranded as M-Telecom.

ROSNO acquired a 51% stake in Medexpress, which is a provider of voluntary medical insurance in the North-western region of the Russian Federation, for US$ 6.6 million in January 2006.  The Group plans to further develop Medexpress' operations and use its distribution network as an additional sales channel for ROSNO products.

Sistema Mass Media and ECU GEST acquired 90% and 10% respectively of JIR Broadcast and JIR Inc., which are the owners of 100% of United Cable Networks ("UCN"), for a total cash consideration of US$ 145.9 million in February 2006.   UCN is a pay-TV and broadband service provider with 724,000 subscribers in 17 metropolitan areas across the Russian Federation. Sistema Mass Media sold its ownership in Gazeta Metro in June 2006 for US$ 1.9 million in cash.  Sistema Mass Media acquired GK Sendi, which is an internet provider in Nizhny Novgorod, and Informservis, which is a cable television operator in the same region, for US$ 6.3 million in January 2006. The Group intends to use these acquisitions to further develop its digital TV and broadband networks in the regions.

Detsky Mir completed the acquisition of 99% of Tireks Development, which owns a 30% stake in Group subsidiary Dom Igrushki, for a cash consideration of US$ 2.4 million in March 2006.

Intourist purchased a 20% equity interest in Cosmos Hotel for approximately US$ 20.8 million in March 2006, and now controls the Company with a 63.4% shareholding. 

Concern RTI acquired a 50% plus one share interest in UralEleketro, and a 100% stake in UralElektro-K, for a combined cash consideration of US$ 5.4 million in March 2006. Both companies manufacture electronic equipment.

RECENT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD

In October 2006, Sistema acquired a 66% controlling stake through directed new share issue in WaveCrest Group Enterprises Ltd. ("WaveCrest"). WaveCrest is a global communications service provider offering wholesale (operator) and retail (residential) telephony services, using conventional circuit-switched and Internet protocol (IP) telephony.

MTS acquired a 75% controlling stake in Dagtelecom from Glaxen Corp. for $14.7 million in July 2006. Dagtelecom is the GSM-900 mobile services provider in the Republic of Dagestan, in the south of Russia, with a population of 2.6 million, and has 1.7 million subscribers.  

Intourist Overseas Limited purchased a 51% stake in Tatilya Turizm Seyahat Insaat, a Turkish travel operator, for US$ 0.3 million in July 2006.

The Group acquired a 81.25% share in ZAO Sahles, the owner of controlling stakes in the entities that together comprise the Perm Motors Group for US$ 122 million in August 2006. Perm Motors is one of Russia's largest manufacturers of jet aircraft engines and industrial turbines.

In July 2006, the Group disposed of Glorely, a subsidiary holding 35% interest in Sistema-Invest, the owner of the Group's energy companies in the Republic of Bashkortostan for a total cash consideration of $201.0 million.

In July-September 2006, Sistema Mass Media acquired several cable television operators in various Russian regions, namely 74% share in Smolensk-based "Teleradiotekhnika" for $1.2 million, 100% share in Voronezh-based "Elecom-service" for $1.0 million, 100% share in "Telesat" located in Nizhny Tagil for $0.4 million, 74% share in a group of operators based in Ivanovo for $7.1 million, 55% share in "Electronica" in Balakovo for $0.8 million and 90% share in "Sallak" based in Krasnodar for $0.2 million. These acquisitions contibuted to the Group's expansion in the regional cable television market.

In August 2006, the Group sold for $20.0 million its 8% interest in MTK ("KOMKOR") together with additional 3% interest acquired from a related party after June 30, 2006.