The concern announced losses for the first time

The Russian IT company Sitronics announced yesterday a net loss of $28 million for the first quarter of 2007. Experts state that Sitronics is suffering losses due to the fact that it was unable to diversify its business and get rid of dependence on its parent company, AFK. System".

Sitronics yesterday announced unaudited consolidated US GAAP results for the first quarter of 2007. The company's revenue for the reporting period amounted to $310 million, while the loss on OIBDA (before depreciation of fixed assets and amortization of intangible assets) was $11.4 million, and the net loss was $28 million. The company did not disclose the amount of revenue for the first quarter of 2006, but Sitronics President Evgeny Utkin claims that this year’s figures are approximately 10% higher than the previous one. True, it is not entirely correct to compare indicators, since in 2006 the company did not consolidate the Greek Intracom Telecom purchased in the summer.

Mr. Utkin explains the losses by the costs of vertical integration of the company, the development of solutions for new generation multiservice networks (NGN), third generation cellular networks (3G) and WiFi. “A number of large-scale projects moved from the first to the second half of 2007. In particular, the creation of an NGN network in MGTS and the construction of a 3G network for MTS (both companies are subsidiaries of AFK Sistema. - Kommersant ). It turns out that we have already invested funds into developing solutions, but it hasn’t been possible to sell them yet.” However, Mr. Utkin did not say how much the company spent on these developments and how much it was going to earn.

Sitronics' business consists of three areas: Telecommunications Solutions, Information Technologies and Microelectronic Solutions. Sitronics' revenue in 2006 amounted to $1.6 billion, operating profit - $128.2 million, net profit - $61.3 million. The main shareholder is AFK Sistema, which owns 50.26% of the shares. The second largest shareholder is Ecu Gest Holding SA with 13.7% shares. Sitronics' wholly owned subsidiary, Sitronics Management LLC, owns 9.82% of the shares. The remaining shares belong to Sistema's top managers, including the president of AFK Sistema, Alexander Goncharuk.

Experts were not surprised by Sitronics' results. "The company explains very vaguely the reasons for the losses. I believe they are related not only to the costs of developing solutions, but also to the consolidation of Intracom Telecom, which, obviously, was unprofitable. In general, concerns about Sitronics' excessive dependence on the telecommunications market and parent company - AFK Sistema," believes Uralsib analyst Konstantin Belov. According to his calculations, the share of profit received by Sitronics from AFK in 2006 was approximately 78%. “The majority of revenue continues to come from the telecommunications business, in which Sitronics is still dependent on orders from the main shareholder. At the same time, Sitronics microelectronics accounted for only 7.6% of consolidated revenue at the end of 2006. IT- the direction, in turn, is not characterized by profitability: this figure last year was about 4%,” continues Mr. Belov.

Vladislav Ryabyuk, executive director of Troika Dialog's investment banking department, is less categorical about Sitronics' prospects. “The concern’s revenue is highly dependent on specific contracts. Therefore, you should not judge the company by the first quarter, which is usually the most unfavorable of the year,” the expert believes. However, Mr. Ryabyuk agrees that there is a negative trend: since the IPO in February 2007, the company’s depositary receipts on the London Stock Exchange have fallen in price by about 30% - to $7.7. Yesterday, depositary receipts of Sitronics on the London Stock Exchange fell by 1.65%.

Alexander Kommersant-Malakhov

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