telecommunications

Yesterday, AFK Sistema announced its financial results for the first half of 2003. Compared to the first six months of last year, the corporation's revenue increased by more than $1 billion - from $409 million to $1.57 billion. The corporation's reporting now includes the income of Mobile Telesystems OJSC, the controlling stake of which AFK concentrated in its hands in April of this year of the year. According to experts, the increase in the share of the telecommunications business in Sistema's income is quite natural and is associated with the overall growth of the Russian communications market.
At the end of 2002, the majority of Sistema's revenue came from the telecommunications business (52%). The next most profitable companies in AFK are insurance (Sistema participates in the capital of one of the largest Russian insurers - ROSNO), electronic production (a group of industrial enterprises united this year into the Concern Research Center), as well as financial transactions (see chart).
Telecommunications have not always been Sistema's core business. The corporation, which in the mid-90s was mainly interested in retail, insurance, and tourism business, actively began to engage in telecommunications in 1998 (at this time Sistema gained control of OJSC MGTS). Before this, Sistema briefly owned 40% of the shares of VimpelCom OJSC, as well as a small stake in Mobile Telesystems OJSC. Sistema concentrated a controlling stake in the largest mobile communications company in Russia in the nineties, but in 2000 the corporation's share was diluted after the placement of MTS shares on stock exchanges. And in April of this year, Sistema was able to regain a controlling stake in MTS by purchasing a 10% stake from the telecommunications concern Deutshe Telekom. And I got the opportunity to integrate MTS results into my financial statements.
Yesterday, the first such report for six months was made public. The corporation's revenues for the first six months of this year amounted to more than $1.5 billion. For comparison, Sistema's revenue for the entire last year amounted to only $932 million. At the same time, the share of Sistema's revenue from the telecommunications business immediately increased to 87.1%. “The fact that the majority of the holding’s income comes from the telecommunications business is quite logical,” says Nadezhda Golubeva, an analyst at the Aton investment company. “It is well known that in Russia the telecommunications industry is growing very quickly, much faster than many other industries.”
Before the corporation added MTS to its assets, the share of communications companies in AFK's income had never been so high. Without MTS, analysts say, Sistema's report would have looked much worse. “Based on the fact that the operating profitability of MTS was about 36%, we can conclude that the profitability of AFK Sistema for other assets was lower. If not for the consolidation of MTS, Sistema would have shown a net loss,” says Nadezhda Golubeva.
It is interesting that Sistema does not yet openly call the corporation a telecommunications holding. Its representatives say that the growth in income is due not only to the consolidation of MTS and the success of its subsidiaries in the communications market, but also to the “successful development of the insurance business and financial services.” In addition, this year the corporation unveiled ambitious plans for the development of a business related to information technology, namely JSC Concern Scientific Center, whose enterprises are concentrated in Zelenograd and Voronezh. To confirm the seriousness of its intentions, Sistema entrusted the management of the KSC to the former head of Sistema Telecom, Alexander Goncharuk, whose name is associated with the formation of the corporation’s telecommunications business.
VALERY KODACHIGOV

Newspaper "Kommersant" No. 211 dated November 19, 2003, p. 17

Themes:

MTS activities

Sistema credited MTS to its account