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Golden Telecom, Inc. INVESTOR ROADSHOW March 2003. Agenda. Investment Highlights Golden Telecom Business Overview and Strategy Golden Telecom Financial Overview Appendix. Investment Highlights. Unique growth proposition - PowerPoint PPT Presentation
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Golden Telecom, Inc.INVESTOR ROADSHOW
March 2003
2
Agenda
Investment Highlights
Golden Telecom Business Overview and Strategy
Golden Telecom Financial Overview
Appendix
3
Unique growth proposition
Growth rate of an alternative operator with the profitability of an incumbent
Standard & Poor’s gave Golden Telecom an issuer credit rating of BB-/Stable, one notch below the sovereign rating and higher than any other rated telecom operator in Russia
Solid and growing market share with attractive corporate customer base in an expanding economy
Corporate incumbent of choice with blue chip customers and widest geographic reach
#1 in corporate market in key cities of Moscow, Kiev, N. Novgorod, #2 in St. Petersburg
Continued expansion of Russian economy will stimulate further demand
Profitable, cash generative business model with modest capex needs
Operating cash flow positive since 1998
Net income positive throughout 2002
Modest capex needs of $55-65mm for 2003, at approx. 18% of sales
Poised for significant growth both organically and through consolidation
2003 Revenue expected to be $320-340mm
2003 EBITDA expected to improve to $100-120mm
Well positioned to play consolidator role in fragmented market which will further solidify market share
Strong management team and committed shareholders
Shareholders include Russian and foreign strategic and financial investors, committed to maximising shareholder value
Investment Highlights
4
Agenda
Introduction
Golden Telecom Business Overview and Strategy
Golden Telecom Financial Overview
Appendixes
5
Golden Telecom: The Facts
GTI largest independent provider of fixed-line telecommunication services in Russia and CIS
More than 10 years of operating history
Market leader (#1 or #2) in core markets
Blue chip customer base
$289 million in pro-forma combined revenues in 2002
Pro-forma combined EBITDA of $97 million in 2002
Consolidated revenues of $198.7 million in 2002, consolidated EBITDA - $61.4
Profitable since 1Q02: consolidated net income of $29.8 million in 2002
Publicly traded on NASDAQ since 1999
Nasdaq: GLDN
Market capitalization as at May 12, 2003: $521mm
Closing price as at March 12, 2003: $19.20
6
Operating and Ownership Structure
Operating Structure Ownership Structure – As of September 30, 2002
Golden Telecom, Inc. and affiliates
Sovintel
Golden Telecom(Ukraine)
TeleRoss’sRegional JVs
ADS(N.Novgorod)
SA Telcom(Kazakhstan)
100%
100%
100%
58%
50%Alfa Group 40%
Rostelecom 15%
Public and others 16%
EBRD 11%
ING Baring Affiliates 10%
Capital International 8%
7
Golden Telecom’s success model: creation of corporate incumbent
Lack of adequate infrastructure in the market – still only 30% of infrastructure is digitalLack of adequate telecom infrastructure in Russia sparked accelerated growth of facilities-based alternative operators
Weak incumbents – alternatives command 40% share in industry revenuesWeak incumbents were, and still are, slow in adjusting operations to market conditions and highly competitive environment
Building own customer accessGolden Telecom consistently puts highest priority on development of its own local access infrastructure to preserve high degree of independence from incumbents and therefore high sustainable margins
Golden Telecom’s strong competitive position and customer base, its sustainable high margins and superior service offering make it the best positioned fixed-line operator in Russia
Market Shares in Moscow, 2001 The three elements of successful conversion of an alternative into incumbent
Source: RosBusiness Consulting: Telecom Report, 2001
8
Continuing economic expansion drives demand for modern digital communications
Russian economic growth Fifth consecutive year of growth Stable political environment Progress with tax and judicial reform Slowing inflation Trade surplus and stable currency CB forex reserves are at all time high levels Russia’s credit rating upgraded by S&P to “BB”
and by Moody’s to “Ba2” in December 2002
Telecom industry in Russia poised to grow quicker than economy
2% of GDP for telecom industry is considerably below 4-5% average for developed countries
Low penetration levels: fixed line penetration is 21%, mobile penetration is 12%, internet penetration is 3%
Weak incumbents Alternative operators are the locomotive of fixed line telecom growth
Incumbent operators continue to lag behind technologically, operationally and financially
Social burden of servicing residential customers at prices below cost
The need to upgrade legacy analog networks to digital standard with no incremental revenue
GDP growth in Russia
4,980 5,400 5,720 6,080 6,5006,980
7,4508.3%
4.0%4.4%4.2%4.0%4.0%5.0%
2000A 2001A 2002E 2003E 2004E 2005E 2006E
GDP per capita ($ at PPP) Real GDP growth
Source: Economist Intelligence Unit, August 2002
Historic penetration levels in Russia
Source: Pyramid Research
9
Services by Product Lines and Customer Segments
Product lines
Voice Data Internet
Business customers
Local, DLD & International Telephony
Digital network “Value Added Services”
Equipment sales & maintenance
Call center services
Dedicated Private Lines
Frame Relay and ATM based services
Dedicated Internet access
Virtual Private Networks
Operators
Local numbering
Local traffic termination
Outbound DLD & International voice
Inbound DLD & International voice termination
Capacity Resale
Global partnership with international carriers without presence in Russia
Voice over IP Termination
Broadband IP Connectivity
Consumers
Prepaid calling cards Dial-up Internet Access
Cu
sto
mer
seg
men
ts
10
How Do Various Businesses Fit Together?
Operators: Bulk Revenues at Low Incremental Cost Consumer Internet: Anticipation of Rapid Growth
Business Customers: Core
Why business customers?
High and stable growth
High gross margin, although substantial SG&A
Low customer turnover
Ability to differentiate ourselves Negates commoditization
Customer “ownership”: profits can be protected against migration up the supply chain (for example to MGTS or to Rostelecom)
Why operators?
Improved profitability through better capacity utilization: economies of scale and scope
Lower gross margin, but very low SG&A
Very stable revenue flows from cellular operators for local access and numbering, although other wholesale revenues are more volatile
Active participation in VoIP traffic – capturing revenues which bypass traditional voice channels
Why dial-up Internet?
Further capacity utilization: filling the network during night hours
Wide geographic coverage by POPs provides excellent technological platform for building unique nation-wide brand
Very low Internet penetration (1.5%) in Russia: high potential for exponential growth
ROL content provides excellent marketing platform, differentiation attribute and market development stimulant
Golden Telecom leverages its business services network into operator and consumer markets, hence diversifying revenue streams and improving profitability through scale and scope economies
11
Business Services: Customer Base and Product Mix
MNC and large Russian enterprises are the main customers of managed network solutions and account for over three quarters of all business customer segment revenues
2003 business services: revenue by customers 2003 business services: revenue by product
Large Enterprises 77%
Pre-paid & Residential 4%
SME/SOHO 19%
Data 17%
Voice 59%
Prepaid Cards 5%
Source: Golden Telecom forecast
Internet 19%
Business customers
Enterprises SME/SOHO
Clients that spend more than $2,000/month;access through fiber optic
Clients that spend less than $2,000/month;access through direct access (fiber/copper),
MGTS copper, indirect access, WLL
Business centers &
hotels
Moscow corporate
Russia MNCBusiness
customers
Residential & elite
apartments
Prepaid phone cards
Business Services: 61% of total 2003
revenue
12
With its leadership position in Moscow, Golden Telecom is the largest independent fixed-line voice services provider in Russia and the CIS
Business Services: market position in voice services
Voice market shares of alternative operators in Moscow, 2001
Combellga 12%
Golden Telecom 32%
MTU 17%
Comstar 13%
Telmos 5%
Other 13%
Equant 8%
The size of the corporate voice services market exceeded US$500mm in 2001 (excluding incumbent providers)
Market share of 32% in Moscow, leading positions in St. Petersburg (#2), Nyzhny Novgorod (#1), Kiev (#1) among alternative providers
Historically development focused on higher end of the market – large corporate customers
Growth priorities: SME/SOHO market segment, sales to government
Growth expectations of around 10% p.a.
Voice services will remain the biggest revenue and EBITDA contributor in the next 3 – 4 years
Distribution and local numbering capacity are key drivers of business growth
Source: Golden Telecom
13
Given its strong market position in the corporate network market, Golden Telecom capitalizes on the growth potential of a highly profitable and sustainable segment of the telecom sector
Business Services: market position in corporate data & Internet
The size of the corporate network market exceeded US$200mm in 2001 (excluding incumbent providers)
Market share of 35% nationwide (Russian Federation)
Market share in IP/data of 24% in Moscow (Equant 36%, Golden Line 9%)
Only one major competitor nationwide: Equant (50%); one upcoming competitor: TTK
Growth expectations of around 30-40% p.a.
Complex business with high barriers to entry (geographical spread, integrated services)
High margin business (limited competition) Predatory growth opportunity (Equant
difficulties) Russian & CIS networks
Corporate networks market share Russia, 2001
Golden Telecom is the #2 corporate network solutions provider in Russia
Source: Golden Telecom
14
Carrier Services: Customer base and product mix
2003 carrier services revenue by customers 2003 carrier services revenue by product
Intl. Carriers – Voice 11%
Domestic Carriers14%
Cellular Operators51%
Data 7%
Voice 91%
Source: Golden Telecom forecast
Internet 2%
Carrier Customers
Voice Services Data & Internet Services
Cellular Operators
Domestic Operators
International Carriers
2nd and 3rd Tier ISPs
VoIP Operators
International Carriers
Intl. Carriers – Data 7%
ISPs 2%
- Local numbering
- Local, DLD, ILD outbound voice traffic
- Local numbering
- DLD, ILD outbound voice traffic
- Termination of inbound voice traffic
- IP transit - Termination of inbound VoIP traffic
- FR distribution for MNCs customers of international carriers
- SDH bandwidth between Russia and RoW
VoIP Operators 15%
Carrier Services: 24% of total 2003
revenue
15
Carrier Services: market position
The size of the Wholesale market equaled US$1. 5bn in 2001 (including incumbent providers)
Market share GTI < 5 %
Major competitors: incumbents Rostelecom, Svyazinvest, MGTS Ukrtelecom, Kazakh Telecom, etc.
Other players in Russia International operators: C&W, Telia, Sonera Local LD operators: Transtelecom, Equant,
ComBellga, Teleport-TP, Andrew Local alternative operators: MTU, PTT
Wholesale market share Russia, 2001
Carrier Services provide excellent synergies with Business Services, thus improving capacity utilization rates and return on investment
Source: Golden Telecom
16
Carrier Services: A stable combination of businesses with different fundamentals
Cellular Operators
Since 1993 GTI provides local (numbering capacity), DLD and ILD access
Service offering expanded into system integration activities such as construction of base station networks, building call center ring across 14 cities, etc. All cellular operators are customers
~ 50% of Carrier Services in revenue (12% of total GTI revenue estimate for 2003)
High margins, very low customer churn (no number portability)
Growth rates = 10% and regional expansion may bring this higher
Limited competition (MTU Inform)
Voice Carrier Services Data Networking
GTI terminates inbound international voice and VoIP traffic from international carriers and provides DLD and ILD access to local fixed line operators interconnected with GTI network
~ 40% of Carrier Services revenue (10% of total GTI revenue estimate for 2003)
Lower margin: price-sensitive commoditized service
Organic outbound traffic is leveraged to receive and retain inbound streams
Many competitors
GTI distributes FR service to MNCs – customers of GTI’s global partners, provides IP backbone access to small ISPs, sells excess SDH capacity
10% of Carrier Services revenue (2% of total revenue estimate for 2003)
High margins, very low churn (IT directors don’t want to switch network providers, expensive to have two providers as compared to having two voice providers)
Growth rates = 15%
For international FR connectivity, limited competitors (C&W and other international carriers won’t connect with Equant due to global competition). IP Transit and SDH have 5 competitors
60% of Carrier Service revenue is a stable and predictably growing with solid margins
17
Market Share: 24% in the Russian Federation; 40% in Moscow
Competition Moscow: MTU – Inform Regions: local providers Nationwide: none
Mass market product Distribution as opposed to direct sales Low margins necessitate high volumes
Market is poised for region-driven growth +40% growth p.a., largely driven by regions Access driven – lack of infrastructure in
Russia guarantees sustainable market shares for facilities based ISPs
In 2001 Moscow accounted for 45% of ISP market-wide revenues. In 2002, the figure is estimated at 35%
ROL brand subscriber/revenue organic growth
The growing ISP market offers attractive synergies with the core business of GTI and a high standalone growth potential
US$’000Count in ‘000
Note: excludes Cityline brand subscribers to exhibit organic growth rates; Source: Golden Telecom
Golden Telecom is the only nationwide ISP in Russia
18
A winning strategy
Core resources Growth strategy
Leading market position
High market shares in the largest Russian and Ukrainian cities
Blue chip customer base - including Coca-Cola, Pepsi, Mars, Nestle Ford, Renault UBS Warburg, Citibank, Renaisance Capital, Bank Menatep TNK, Caspian Pipeline Consortium
Unmatched breadth and depth of service offering in all customer segments
Businesses
Operators
Consumer
Superior service offering
Access to Capital
Significant cash resources on balance sheet
Unused debt capacity
Access to international financial markets
Grow $ base in core markets: Moscow, St. Petersburg
Expand to new markets and new market segments
Growth through acquisitions
Grow in line with the market
Capitalise on new consolidated position: cross selling opportunities between Sovintel & TeleRoss
Expand regionally replicating Moscow model (MANs with high degree of independence from incumbents)
Expand aggressively in SME
Tap into sales to Government market
Pursue consolidation opportunities in Moscow and St. Petersburg
Leverage regional presence into market dominance in the largest regional cities through potential acquisitions of existing MANs
Strict acquisition criteria and conservative financial approach
Under new management, Golden Telecom pursues a focused growth strategy based on core competencies
19
Formulation of regional strategy
Goal: replicate successful Moscow model in economically strong regional centers
Keys to success: focus on corporate market, independence from incumbents
Focus on high margin corporate market
Ability to develop independently from incumbent protects margins
Independence is secured through obtaining sufficient interconnect with local PSTN and building own access network
Three alternative approaches of regional development: green field, acquisition, building on existing presence
All approaches are feasible and decision to use one or another is based on local circumstances
20
Acquisitions of ADS and KIS as an example of regional acquisition strategy
Reasons for choosing acquisition approach: ADS maintains working relationship with
Volga Telecom It has sufficient local numbering capacity and
sufficient interconnect with incumbent The company operates almost entirely on its
own infrastructure It has experience in services to business
customers The market is poised for growth in business
services It is operating cash flow positive Golden Telecom has controlling interest of
58%
Market Share of ADS Merged in Nyzhny Novgorod
Created the leading alternative provider in the third largest Russian city with growth rate of 30% in 2002
Source: Golden Telecom
21
Agenda
Introduction
Golden Telecom Business Overview and Strategy
Golden Telecom Financial Overview
Appendix
22
Group Financial Characteristics
High and consistent revenue growth
High EBITDA growth with expanding margins
High earnings growth
High cash flow generation
Modest capex needs
Strong balance sheet with positive net cash position and unused debt capacity
23
Strong Historical Growth and Track Record
Consolidated Revenue Consolidated EBITDA
97.9113.1
140.0
198.7
1999 2000 2001 2002
US$ mm
Revenue CAGR 26.6%¹
16.4 16.7 27.4 61.4
14.8%
19.6%
30.1%
16.8%
1999 2000 2001 2002
US$ mm Margins, %
¹ Revenue CAGR based on 1999-2002 period² EBITDA CAGR based on 1999-2002 period
EBITDA CAGR 55.3%²
Acquisition of the remaining 50% stake in Sovintel in September 2002 has a major positive impact on consolidated results
24
Trended quarterly income statement 2001-3 (unaudited)
(US$,000) 1Q 2001 2Q 2001 3Q 2001 4Q 2001 1Q 2002 2Q 2002 3Q 2002 4Q 2002 1Q 2003
Total Revenue $32,320 $33,891 $37,067 $36,760 $36,350 $39,217 $46,376 $76,784 $78,376Growth -1% 5% 9% -1% -1% 8% 18% 66% 2%
Total Cost of Sales 14,686 15,980 16,923 16,096 15,370 17,556 21,617 36,646 37,299
Gross Margin 17,634 17,911 20,144 20,664 20,980 21,661 24,759 40,138 41,077Growth 4% 2% 12% 3% 2% 3% 14% 62% 2%
Gross Margin % 55% 53% 54% 56% 58% 55% 53% 52% 52%
Selling, general and administrative 12,707 12,799 12,787 10,642 9,687 10,237 10,792 15,431 13,438SG&A % 39% 38% 34% 29% 27% 26% 23% 20% 17%
EBITDA 4,927 5,112 7,357 10,022 11,293 11,424 13,967 24,707 27,639Growth 8% 4% 44% 36% 13% 1% 22% 77% 12%
EBITDA % 15% 15% 20% 27% 31% 29% 30% 32% 35%
Depreciation 4,075 4,426 4,863 5,322 4,982 5,035 5,638 7,905 8,024Amortization (including Goodwill) 5,678 5,954 5,650 5,430 1,021 1,212 1,680 2,488 2,381Impairment charge 0 0 0 31,291 0 0 0 0
Operating income/(loss) (4,826) (5,268) (3,156) (32,021) 5,290 5,177 6,649 14,314 17,234
Equity in earnings (losses) of ventures 583 2,159 2,441 2,972 1,710 (1,223) 3,294 594 119Interest income (expense),net 851 414 (23) (465) (61) (24) (133) (449) (398)Foreign currency loss (295) (13) (53) (286) (325) (182) (119) (548) 190
Income/(loss) before Taxes & MI (3,687) (2,708) (791) (29,800) 6,614 3,748 9,691 13,911 17,145
Provision for income taxes (223) (823) (1,039) 183 (1,316) (833) (1,630) (848) (4,233)Minority interests (0) (3) (43) (71) (66) (161) (182) (118) (92)
Cum. effect of change in acctg principle 0 0 0 0 974 0 0 0
Net income/(loss) $ (3,910) $ (3,534) $ (1,873) $ (29,688) $ 6,206 $ 2,754 $ 7,879 $ 12,945 $ 12,820
GOLDEN TELECOM, INC.
25
Trended Quarterly Balance Sheet (1)
25
As at the end of
GOLDEN TELECOM, INC.
(US$ ,000) Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003
ASSETSCurrent assetsCash and cash equivalents $ 103,521 $ 70,586 $ 42,983 $ 37,404 $ 47,219 $ 51,679 $ 65,527 $ 59,625 69,294 Investments available for sale - - - 8,976 5,025 1,998 - - Accounts receivable, net 18,158 19,763 20,049 21,875 26,757 24,514 47,026 46,224 51,054 Restricted cash 97 97 97 - - - - - Prepaid expenses 4,595 6,175 5,833 6,356 5,522 6,275 8,388 7,811 7,439 Other assets 5,564 6,594 6,472 10,124 8,762 10,151 13,656 13,794 16,449
Total current assets 131,935 103,215 75,434 84,735 93,285 94,617 134,597 127,454 144,236
Property and equipment, net 89,109 92,580 106,413 98,590 98,133 98,278 162,878 166,121 167,834 Investments in and advances to ventures 51,106 53,793 53,753 45,981 49,358 46,447 754 721 Goodwill and intangible assets, net 64,994 88,988 83,580 57,146 56,220 53,403 127,270 127,669 127,293 Restricted cash and other noncurrent assets 5,035 6,476 6,938 13,932 10,901 10,199 11,587 13,845 12,369
TOTAL ASSETS $ 342,179 $ 345,052 $ 326,118 $ 300,384 $ 307,897 $ 302,944 $ 437,086 $ 435,810 451,732
26
Trended Quarterly Balance Sheet (2)
26
GOLDEN TELECOM, INC.
As at the end of
(US$ ,000) Q1 2001 Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilitiesAccounts payable and accrued expenses $ 26,513 $ 30,141 $ 34,314 $ 27,327 $ 30,183 $ 31,505 $ 52,847 $ 48,268 48,572 Debt maturing within one year 2,923 8,583 3,833 9,869 8,256 1,747 1,747 8,988 16,488 Due to affiliates - 6,250 6,250 - - - 15,492 1,999 3,236 Short-term capital lease obligation - - 1,392 1,597 1,643 1,694 1,734 1,775 1,816 Other current liabilities 8,643 9,003 8,284 9,932 9,737 7,556 10,439 9,950 9,861
Total current liabilities 38,079 53,977 54,073 48,725 49,819 42,502 82,259 70,980 79,973
Long-term debt, less current portion 9,933 4,297 4,197 3,337 3,289 2,612 2,439 24,111 16,463 Related party long-term debt 6,250 - - - - - 30,000 - Long-term capital lease obligation - - 6,484 7,453 7,112 6,529 6,081 5,621 5,151 Taxes and other non-current liabilities 4,955 7,003 7,183 14,058 13,540 12,983 21,895 25,453 25,969
TOTAL LIABILITIES 59,217 65,277 71,937 73,573 73,760 64,626 142,674 126,165 127,556
Minority Interest 3,337 3,238 4,456 5,967 6,033 4,761 2,076 2,187 2,279 SHAREHOLDERS' EQUITYCommon stock 246 246 246 248 249 251 291 270 272 Treasury stock - - (25,000) (25,000) (25,000) (25,000) (25,000) - Additional paid-in capital 413,095 413,541 413,602 414,407 415,460 418,157 469,017 446,215 447,832 Accumulated deficit (133,716) (137,250) (139,123) (168,811) (162,605) (159,851) (151,972) (139,027) (126,207)
TOTAL SHAREHOLDERS' EQUITY 279,625 276,537 249,725 220,844 228,104 233,557 292,336 307,458 321,897
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 342,179 $ 345,052 $ 326,118 $ 300,384 $ 307,897 $ 302,944 $ 437,086 $ 435,810 451,732
27
Golden Telecom Key Consolidated Financials
Consolidated Results by Line of Business (unaudited)
27
Continuing growth, improving margins
Revenues 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03CLEC 12.2 10.8 10.7 11.4 19.7 49.7 51.2Data and Internet 16.5 18.6 18.2 20.0 19.2 21.5 21.0Long distance 4.9 4.2 4.3 4.6 4.6 5.2 5.0Mobile services 3.7 3.5 3.3 3.3 3.3 3.1 3.2Eliminations (0.2) (0.4) (0.1) (0.1) (0.5) (2.7) (2.0) Total revenues 37.1 36.7 36.4 39.2 46.3 76.8 78.4Growth, % 8% -1% -1% 8% 18% 66% 2%
EBITDACLEC 6.0 4.9 5.4 5.2 8.2 18.9 20.4Data and Internet 3.0 5.4 6.2 6.0 5.5 5.3 6.4Long distance 0.4 0.1 0.1 (0.2) - 0.4Mobile services 1.3 1.1 1.2 1.6 1.8 1.6 1.8Corporate (3.3) (1.5) (1.6) (1.2) (1.5) (1.5) (1.0) Total EBITDA 7.4 10.0 11.3 11.4 14.0 24.7 27.6EBITDA Margin 20% 27% 31% 29% 30% 32% 35%
28
Golden Telecom Key Pro-Forma Combined Financials
Pro-Forma Combined Results by Line of Business (unaudited)
28
Continuing growth, improving margins
Revenues 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03CLEC 40.2 40.0 40.6 42.7 49.9 49.7 51.2Data and Internet 16.5 18.6 18.2 20.0 19.2 21.5 21.0Long distance 4.9 4.3 4.5 4.7 5.0 5.1 4.9Mobile services 3.7 3.5 3.3 3.3 3.3 3.1 3.2Eliminations (1.9) (1.1) (1.0) (0.6) (1.2) (2.7) (2.0) Total revenues 63.4 65.3 65.6 70.1 76.2 76.7 78.3Growth, % 8% 3% 0% 7% 9% 1% 2%
EBITDACLEC 16.8 16.1 16.1 16.4 19.8 18.9 20.4Data and Internet 3.0 5.4 6.2 6.0 5.5 5.3 6.4Long distance 0.9 0.5 0.6 0.3 0.2 0.7 0.3Mobile services 1.3 1.1 1.2 1.6 1.8 1.6 1.8Corporate (3.3) (1.5) (1.6) (1.2) (1.5) (1.5) (1.0) Total EBITDA 18.7 21.6 22.5 23.1 25.8 25.0 27.9EBITDA Margin 29% 33% 34% 33% 34% 33% 36%
29
Agenda
Introduction
Golden Telecom Business Overview and Strategy
Golden Telecom Financial Overview
Appendixes
30
Sovintel Network in Moscow
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G O L D E NT E LE C O ME W SD
31
ADS Network in Nizhny Novgorod
Fiber optic channels
Coverage
Nodes
32
Current network - MAN and Local Access
• Golden Telecom focuses its network investment where maximum value is created for the customer: access and switching
• Ownership of last mile also provides high degree of Golden Telecom’s independence from local incumbent operators
34
Current network - DLD and International
International connectivity:
STM-16 from Moscow to Stockholm: IRU with Sonera
STM-4 from Stockholm to London: IRU with Sprint
45M Moscow to New York: from Sonera
Domestic connectivity:
STM-4(16) to St. Petersburg: IRUs from Sonera
Three VC3 Links IRUs from Transtelecom:
Moscow – Ekaterenburg-Novosibirsk-Irkutsk-Khabarovsk-Vladivostok;
Moscow - Nyzhny Novgorod;
Moscow - Voronezh - Samara - Ufa - Ekaterenburg.
Intercity connection to major cities in European part of Russia: 60 E1 leases from Rostelecom and Transtelecom
Leased space segment to providing connectivity for 62 owned and customer earth stations used for remote locations and as a back up for terrestrial channels(C-band – 72MHz, Ku-band-18MHz).
• Prudent investment strategy:
• investment is directed into demand driven access infrastructure,
• highly commoditized long-distance capacity is leased on a competitive market to avoid significant one-time cash outlays into capacity with unproven demand
35
Network expansion plan objectives
The industry development over past 20-25 years has moved from focus on switching to transport and now to access
Ability to access customers over own infrastructure is the key to success
Move toward smaller customers in Moscow and St. Petersburg and the regions requires differentiated approach to network expansion.
Renting access lines from incumbents has proven to be difficult with incumbents protecting their monopoly position and government not interfering
Current status
The focus of network development going forward will be access:
1. Further expansion with fiber to large customers
2. Building own access network to smaller customers utilizing different technologies: wireless, copper and others
3. Replacing rented access lines with own network assets in a variety of technological ways
30% of next year’s capex is allocated for building access infrastructure, 30% will be for maintenance and the remaining 40% - for services upgrades, switching and transport
Special Note Regarding Forward Looking StatementsCertain statements contained in this presentation or made during the meeting concerning management’s intentions, expectations or predictions are forward looking statements. Such statements include estimates of future financial and operating performance, expectations regarding future market position, geographical markets that we plan to enter, our future product offerings, our assessment of the risk factors and effectiveness of our strategic responses.It is important to note that the company’s actual results may differ materially from those projected in such forward looking statements. Factors that may cause the anticipated results not to occur include unanticipated changes in customer demand, changes in competitive product offerings, increased price competition, change in macroeconomic and political environment, changes in local regulatory regimes, or shifts in strategy of our partners.
All forward looking statements are made as of today and Golden Telecom disclaims any duty to update such statements.Additional information concerning the factors that could cause actual results to differ materially from those projected in the forward looking statements is contained in the company’s annual report on Form 10K for the year ended December 31, 2001, quarterly reports on Form 10Q for quarters ended September 30, 2002 and June 30, 2002 and other filings with the U.S. Securities and Exchange Commission (SEC). Copies of these filings may be obtained by contacting Golden Telecom or the SEC.
For more information contactInvestor Relations:e-mail: [email protected], web: www.goldentelecom.ru tel.: +7-501-797-9300; fax: +7-501-797-9332