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Sistema Capital Markets Day 2007
LondonJune 04, 2007
Vladimir Evtushenkov, Chairman of the Board of DirectorsAlexander Goncharuk, President Alexei Buyanov, Senior Vice President and Head of Finance and InvestmentAnton Abugov, First Vice President and Head of Strategy and Development
2
Disclaimer
Matters discussed in this presentation may constitute forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events revenues or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “predict”, “could”, plan”, “project,” “will,” “may,” “should” and similar expressions identify forward-looking statements. Forward-looking statements include statements regarding: strategies, outlook and growth prospects; future plans and potential for future growth; liquidity, capital resources and capital expenditures, financing needs, plans or intentions relating to acquisitions, our competitive strengths and weaknesses, growth in demand for our products; economic outlook and industry trends; developments of our markets; legal trends and the impact of regulatory initiatives; and the strength of our competitors.
The forward-looking statements in this presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control and we may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the achievement of the anticipated levels of revenues, profitability and growth, cost and synergy of our recent acquisitions and restructuring, the timely development and acceptance of new products, the impact of competition and competitive pricing, the ability to obtain necessary regulatory approvals and the ability to fund our future operations and capital needs through borrowing or otherwise, the ability to successfully implement any of our business strategies, the ability to integrate our business and to realize anticipated cost savings and operational benefits from such integration, our expectations about growth in demand for our products and services, the effects of inflation, interest rate and exchange rate fluctuations, and our success in identifying other risk to our business and managing the risk of the aforementioned factors, the condition of the economy and political stability in Russia and the other markets of operations and the impact of general business and global economic conditions.
Neither we, nor any of our respective agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this presentation.
The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice.
3
Introduction to Sistema
Career in Sistema• 2006: Chairman of the Board of Directors• 2005: President• 1995 – 2005: Chairman of the Board• 1993 – 1995: President• 1993: Founded SistemaBackground• 2002 to present: member of the Board of Directors of the Russian Chamber
of Commerce and Industry; member of the Government Commission on Science and Innovation Policy and a member of the Presidential Council on Science and High Technologies
• 2001 to present: member of the Bureau of the Board of Directors of the Russian Union of Industrialists and Entrepreneurs, Head of the Union’s Committee on industrial policy
• 1990 – 1993: Chairman of the Moscow City Committee on Science and Engineering
• 1987 – 1990: Head of the Central Administration on Science and Engineering of the Moscow City Executive Committee
• 1982 – 1987: Chief Engineer and subsequently first Deputy General Director of the Polymerbyt Scientific and Production Association
• 1975 – 1982: Deputy Director and Chief Engineer at the Karacharovo Plastics Works
Education• 1980: The School of Economics of the Moscow State University• 1973: D. Mendeleev Moscow Chemical Engineering Institute
Vladimir Evtushenkov
4
Russian Economic Development in 2006
Real GDP Growth, % Real Disposable Income Growth (%)and Consumer Loans ($ bln)
Benign macroeconomic environment for Sistema businesses
Central Bank Reserves ($ bln) and Inflation (%)
Retail Markets and Services Growth (%)
6,9%
7,2%6,4%
3,9% 3,3%3,2%
0,8% 1,1% 2,9%
12%
10%11%
2004 2005 2006
Russia
USA
Germany
China
125
182
30412%
11%
9%
0
50
100
150
200
250
300
350
2004 2005 2006
0%
2%
4%
6%
8%
10%
12%
14%
11
21
44
8%
11%10%
0
10
20
30
40
50
2004 2005 2006
0%
2%
4%
6%
8%
10%
12%
12,5% 12,8% 13,0%
7,0% 6,8%8,1%
2004 2005 2006
Retail Markets
Services
5
Operational Results
Career in Sistema• 2006 to present: President; Member of the board of Sistema, Sistema
Telecom, Sitronics, Sistema-Hals, Sistema Mass Media• 2003 – 2006: General Director of Concern Sitronics• 1998 – 2003: President of Sistema Telecom• 1995 – 1998: Vice President of Sistema• 1998 and 2002-2003: Chairman of the Board, MTS
Background• 1991 – 1993 General Director of Insurance Company Leader• 1987 – 1991: Senior officer at the Main Headquarters of the Navy
Education• 1987: Grechko Naval Academy • 1978: Sevastopol Naval Engineering Academy
Alexander Goncharuk
6
• Consolidated revenues up 43% year on year to $ 10.9 billion
• OIBDA up 36% year on year to $4.0 billion
• Net income up 52% year on year to $813 million
• Total consolidated assets up 54% year on year to $20.1 billion
• Earnings per share up 67% year on year to $94.4
• Successful IPOs and listing on London Stock Exchange:
– $1,060 million raised by Comstar UTS in February 2006
– $432 million raised by Sistema Hals in November 2006
• Acquisition of 25%+1 stake in Svyazinvest for $1.3 billion in December 2006
Highlights of 2006
Solid financial results along with successful investment operations
7
Accelerated growth while maintaining sound financial position
Sistema Consolidated Financials (US GAAP)
Revenues ($ bln) OIBDA ($ bln)
Net Income ($ bln) Consolidated Debt ($ bln)
5,77,6
10,9
2004 2005 2006
1.9
4.4
6.9
0.81.5 1.8
0
2
4
6
8
2004 2005 2006
0.5
1.5
2.5
3.5
4.5
Debt
Debt/OIBDA
0,40,5
0,8
2004 2005 2006
2.53.0
4.0
2004 2005 2006
CAGR 38%
CAGR 50%
CAGR 26%
BB -BB -B S&P Credit Rating
+43%
+52%
+36%
8
Top Management Appointments in 2006
Sistema
Telecom Retail
Alexander GoncharukPresident
February 2006
Anton Abugov1st Vice-president
Head of Strategy and DevelopmentAugust 2006
Leonid MelamedMTS
April 2006
Maxim YentyakovDetsky MirJuly 2006
Key management appointments at Sistema and its major businesses were made in 2006
Denis MuratovVice president
Head of InnovationsFebruary 2006
Mass MediaBanking
Sergey ZaytsevMBRD
July 2006
Technology
Evgeny UtkinSitronics
February 2006
Michael DounaevSMM
January 2006
9
Unjustified Discount to Net Asset Value
Sistema stock is traded with 28% discount to Net Asset Value making it deeply undervalued
17.4
2.1
13.3
Portfolio Capitalisation
Sistema MCap ***
$ 19.5 bn
-0.9**
Corporate Net Debt
NAV
18.6Publicly traded assets***(89%)
* Sistema management valuation, **as of March 31 2007, *** Closing prices on 31.05.2007
28% discount, or $5.2 bn
Non-listed assets*(11%)
10
Telecommunications
Sistema Portfolio
Public companies
Mobile Fixed Line
Non-public businesses Others
CDMA Long Distance
Diversified portfolio guaranteeing continued growth over the long term
Banking
Healthcare Radars and Aerospace
Telecommunications
Oil & Petrochemicals
TourismMass Media
Retail
Real EstateTechnology
11
Major Developments in Public Businesses in 2006 – 2007
• Revenue and OIBDA growth by 28%; OIBDA margin exceeded Vimpelcom’s (50.6% vs. 50.4%)
• Customer base grew by 25% and reached 74 mln
• Mr. Leonid Melamed appointed CEO of MTS; re-branding and management strengthening led to MCap exceeding $20 bln
• Revenue growth by 23%, OIBDA by 2%
• Broadband client base increased by 67%
• $1.06 bln raised during IPO on LSE in February 2006
• 25% + 1 stock of Svyazinvest acquired for $1.3 bln
• Revenue growth by 204%, OIBDA by 500%
• Project development pipeline grew by 20%
• IPO at London Stock Exchange, post-money valuation over $2 bln
• Sistema-Hals portfolio valuation by Cushman & Wakefield as of Jan 01, 2007 was 35% up vs. that as of June 30, 2006
• Revenue growth by 68%, OIBDA by 11%
• External (outside Sistema group) sales share reached 78%
• Acquired 51% of Intracom Telecom (Greece)
• Established a strategic alliance with Cisco and STMicroelectronics (0.18µ)
12
Major Developments in Fast Growing Private Businesses
• Revenue growth by 90%, OIBDA by 71%• Explosive growth of retail business: the
portfolio increased 5 times to over $350 mln; the total retail market doubled
• Reached Top30 by total assets and Top20 in the most rapidly growing car loans and mortgages sectors
• Revenue growth by 61%, OIBDA by 75%• Total sales area exceeded 100,000 square meters,
29 new stores opened bringing a number of stores to 65
• A desirable tenant for middle and upper middle class shopping centers
• Revenue growth by 106%, OIBDA by 125%• Stream-TV is the largest pay-TV operator in
Russia with 15% market share. Presence in 37 cities, 3.5 million households passed
• Mobile TV (DVBH): pilot project in Moscow; acquisition of licenses in 17 largest cities of Russia
• Maxima advertising agency in top10 media buyers in Russia; presence in Ukraine, Belarus, Kazakhstan
• Revenue growth by 176%, OIBDA – 8 times• Significant market position strengthening after
acquisition of the Cosmos Hotel and Riviera and Skyway tour operators (Intourist is #1 tour operator in RF)
– 99 retail outlets (12 in Moscow, 23 in St-Pete, 33 subsidiaries in regions)
– 2,300 hotel rooms under management
13
Sistema Value Added to Businesses in 2006
• New KPIs approach and business specific KPIs developed
• Management compensation linked to KPIs
• Global satellite navigation system GLONASS
• The Center for Management in Crisis Situations for the Ministry of Emergencies
• ST Microelectronics• Cisco
Strengthening mgmt teams of • Telecoms• Rosno• Retail
• Sistema invested over $5 bln in 2006 in its business lines
• Svyazinvest• Intracom Telecom• UCN Cable TV• Sale of Rosno (Sistema’s
own M&A activity)
GovernmentRelations
KPIsM&A
Support
Access to capital
ManagementSupport
StrategicPartnerships
Sistema holding structure proved beneficial to our portfolio businesses
14
Sistema Management’s Top Priority
• We have streamlined and segmented our portfolio to focus capital and management resources on the most value adding businesses
• Sistema management sees as its top priority achieving fair valuation of Sistema shares by the market
• We will grow the share of non public businesses in our portfolio as well as improve our management approach including new KPIs and incentive principles
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Alexei Buyanov
Career in Sistema
• 2002 to present: SeniorVice President and Head of the Finance and Investment Complex; Member of the Board of the following companies: MTS, Sistema Telecom, MBRD, East-West United Bank, Sistema-Hals, Detsky Mir Center
• 1998 – 2002: Vice President of MTS
• 1996 – 1997: Vice President and First Vice President at Sistema-Invest
• 1994 – 1996: various positions at the Property Complex
Background
• 1992 – 1994: researcher at the Institute of Mechanics Problems (IMP) of the Russian Academy of Sciences
Education
• 1992: Moscow Physics and Engineering Institute
Finance
16
Notes: (1) Operating Income is calculated as revenues less operating costs, plus income from equity investees and net gain or loss on sale of subsidiaries. (2) OIBDA represents the sum of operating income, depreciation and amortisation
Profit & Loss
Balance Sheet
Cash Flow
Consolidated2003 2004 2005 2006
Revenues 3 760 5 711 7 594 10 863Growth (y-o-y) 51,9% 32,9% 43,1%
Depreciation and amortisation -521 -800 -1 024 -1 290Operating Income (1) 1 106 1 665 1 934 2 733
Growth (y-o-y) 50,5% 16,2% 41,3%Margin 29.4% 29,2% 25,5% 25,2%
Net Income 387 411 534 813Growth (y-o-y) 6,2% 29,9% 52,2%
Margin 10.3% 7,2% 7% 7,5%
OIBDA (2) 1 627 2 465 2 958 4 023Margin 43.3% 43,2% 37% 37%
Total Assets 6 840 8 779 13 091 20 131
Total Debt 2 685 3 065 4 371 6 874
Net Debt 2 402 2 561 3 888 6 330
Shareholders’ Equity 989 1 436 3 234 4 521
Cashflow from Operations 935 1 904 1 793 2 116Cashflow from Investments -2 273 -2 064 -4 276 -5 372Cashflow from Financing 1 464 381 2 462 3 317
US GAAP, $ mln
Financial Highlights
Sistema’s financial performance consistently improving year after year
17
Segmental Analysis
Segment ($ mln) Revenue OIBDA % Margin Net Debt Net Debt, %(Cash)
2006 Revenue Breakdown – Telecom Contribution
66%
14%
6%2%
12%
TelecomTechnologyInsuranceBankingOther
Wireless(MTS)85%
Incumbent - fixed
(MGTS)9,3%
Alternative - fixed 5,7%
Telecom business is the key revenue driver
Telecommunications 7 476 3 576 47,8% 3 543Technology 1 611 172,5 10,7% 505Insurance 639 46,4 7,3% (112)Banking 228 37,2 16,3% 163
Other Businesses (inc. corporate) 1 372 468,2 34,1% 1 502
AGGREGATE TOTAL 11 326 4 301 38,0% 5 601Intra-segment eliminations -328 -184
Consolidated TOTAL 10 862,8 4 023,5 37,0% 6 330
55,9%7,9%
-1,7%2,7%
23,7%
88,5%
100%729 11,5%
18
Diversification
Revenue
OIBDA
2005 2006
Assets
Telecom79%
Others21%
87%Telecom
Others13%
Telecom63%
Others37%
Telecom74%
Others26%
Telecom65%
Others35%
Telecom73%
Others27%
Contribution of non-telecommunication segment continues to increase
19
High
+EstablishedPositiveYesNoneBashkir oil
-NoneNegativeYesHealthcare
-NoneNegativeYesHighRadar and Aerospace
-NoneNegativeYesHighMass Media
-EstablishedNegativeYesHighDetsky Mir
+/-EstablishedBreak-evenYesHighIntourist
+/-EstablishedBreak-evenPossibleModerateMBRD
+/-EstablishedBreak-evenYesHighSistema-Hals
+/-EstablishedBreak-evenYesModerateSitronics
+EstablishedPositiveNoneTariffDrivenMGTS
+EstablishedPositiveYesModerateComstar
+EstablishedPositivePossibleModerateMTS
Access to Third Party
CapitalOperating
FCFM&ACapEx
Sistema's Holdco Cash
Impact
Sources of CashUses of Cash
Business line
Capital Allocation
Sistema is focused on growing non public assets
20
S&P BB- Positive 01/02/2007Fitch Ratings B+ Positive 28/04/2006Moody’s B1 Stable 19/11/2003
S&P BB- Positive 01/02/2007Moody’s Ba3 Positive 10/05/2007
S&P BB- Positive 01/02/2007Moody’s Ba3 Stable 19/01/2006
S&P BB- Positive 01/02/2007Moody’s Ba3 Stable 10/05/2007
Fitch B- Stable 14/02/2006Moody’s B3 Stable 16/02/2006
Fitch B Positive 19/02/2007Moody’s B1 Stable 14/12/2004
Agency Rating Outlook Date
Sistema
MTS
MGTS
Comstar
Sitronics
MBRD
Credit Ratings
21
Loans vs Bonds
Public
45%
Non-public
55%
Debt structure
$ mln, US GAAP
2685,43064,94370,66873,6Total
802,6890,9948,41590,6Corporate and Other
--45,590,9Retail
--39,0359,7Real Estate
--13,817,7Mass Media
-7,3150,0399,1Banking
3,20,51,01,3Insurance
33,827,596,5505,3Technology
1845,82138,73076,43908,9Telecommunications
2003200420052006
Telecommunications57%
Corporate23%
Others20%
Debt Level
Debt portfolio is allocated among all divisions
22
• Strong liquidity position
• Prudent approach to leverage
• Easy access and well established reputation in capital markets
• Credit profile confirmed by rating agencies
• Maturity profile matching the company’s investment cycle
OIBDA/Interest Expense
6,9x8,2x
11,5x
18,0x
2002 2003 2004 2005
11,5x
2006
Total Debt/OIBDA
1,64x 1,67x
1,20x1,46x
2002 2003 2004 2005
1,71x
2006
Strong Financial Position
Strong financial position confirmed by solid ratings
23
Return on Equity(2)Return on Total Assets(1)
Portfolio Management Indicators
Notes:1. Calculated as OIBDA / Average Total Assets2. Calculated as Net Income / Average Book Equity
36% 31%27%
24%
2004 2005 2006
34%
23% 23%
2004 2005 2006
Efficient use of assets and good measure of corporate profitability
24
Sistema Strategy
Career in Sistema
• 2006: First Vice president and Head of the Strategy and Development Group; a Member of the Board of Sitronics, Svyazinvest, Sky Link
Background
• 2003 – 2006: Managing Director at Rosbank
• 1997 – 2006: Strategy adviser to Tatar-American Investments and Finance Group (TAIF)
• 1999: Adviser to RAO UES
• 1998 – 2002: Director of Corporate Finance at UFG
Education
• 1998: National Economy Academy under the Government of the Russian Federation
Anton Abugov
25
Sistema Strategy Highlights
1. Invest in our fast-growing non-public businesses
2. Acquire more non-public assets in the industries we are already present in
3. Take businesses public only after extracting maximum value for existing shareholders
4. Become a strategic partner of the State: supplier of goods and services and co-investor in PPP projects
5. Explore technology and services convergence in telecommunications
26
Sistema Management Approach
1. Portfolio segmentation by asset type: public/private, controlling/minority holdings, start-up/rapidly growing/mature
2. Investment principles, a management model and incentives for the management tailored to different types of assets
3. Set of customized KPIs for all Business Lines• Simplicity and measurability with only 5-7 indicators• Maximizing the shareholder value creation • Benchmarking to market and competitors
4. Recruitment of the best managers and specialists available in the market; stock option motivation schemes
• All monetary incentives linked to meeting the KPIs
• Phantom stock options on Sistema and our subsidiaries’ shares as well as deferred stock bonus
27
Shareholders’ goals (for 4 years, to 2010, incl. M&A)
Category Possible indicators Applicable to Sistema companies
1.Return on capital
TSR > TSRindex and COE • All public• MTS, Comstar-UTS, Sistema-Hals, Sitronics
ROE > COE• Non-public or financial
institutions• MBRD
IRR (2007-10) > WACC• Non-public, at an early
stage of development• Medsi
ROIC > WACC • Other non-public • Detsky Mir, SMM, RTIS, Intourist
2.Capitalisation$ … mln in 2010 • Non-public
• MBRD, Detsky Mir, SMM, RTIS, Intourist, Medsi
Not specified • Public• MTS, Comstar, Sistema-Hals, Sitronics
3.Market position
Топ-N in 2007-10• If the market can be
estimated
• MTS, Comstar-UTS, Sintronics, Sistema-Hals, Detsky Mir, MBRD, SMM, Intourist, Medsi
Not specified• If the market cannot be
estimated or multi-business holdings
• RTIS
Return on capital becomes the priority indicator for Sistema
Customised KPIs for Sistema businesses (part 1)
28
Operational targets (for 2 years, to 2008, organic growth only)
Category Possible indicators Applicable to Sistema companies
4.Revenue
Increase % > Market/Competitors/Index
• Reliable information on market and competition available
• MTS, Comstar, Sistema Hals, Sitronics
Portfolio NAV growth (%)• When US GAAP revenues are non indicative
• Sistema Hals
Assets growth (%) • Financial institutions • MBRD
> $ … mln • Other businesses
5.OIBDA margin
> Market/ Competitors/Index
• Reliable information on market and competition available
• MTS, Comstar
Cost/Income ratio • Bank • MBRD
> …% • No reliable information available • All except MTS
6-7. Specific criteria
NPS > …%
(net promoter score)
• Companies in consumer and service markets
• MTS, Comstar, DM, MBRD, SMM, Intourist, Medsi
Other industry specific • Other businesses
Businesses must improve their competitive positions and outperform competitors rather than just meet business plan targets
Сustomised KPIs for Sistema businesses (part 2)
29
New Reward & Incentives Scheme
Sistema Phantom
Stock Option
Sistema Subsidiaries Stock Option
Sistema Stock Bonus
• The right to receive cash deferred by 3 years conditioned to Sistema performance
• The right to acquire shares of receive cash deferred by 3 years conditioned to business long-term KPIs
• Stock bonus deferred by 3 years conditioned to Sistema performance
Annual Cash Bonus
• Linked to individual KPIs
LONG-TERM MOTIVATION INSTRUMENTSSHORT-TERM MOTIVATION
INSTRUMENTS
Sistema has adopted a new motivation system for all managers through the entire Corporation aimed at creating strong incentives to grow the shareholder value
30
Sistema Portfolio Transformation (Strategic Goal)
Sistema will strive to raise the non-listed companies share in our Portfolio to make the stock more attractive. We will invest in our current growth opportunities with potential new investments closer to 2010
Current Portfolio
Proactive search and investments in new non-
listed opportunities
Fast Growth of Non-listed Companies
“А Big Deal”(e.g. petrochemicals)
2007 – 2010 г.2007 – 2009
New Private
90%
Public Companies(not inclusive Oil)
Non-Listed (from current
Portfolio)
Big Deal
15%
15%10% 15%
Public 45%
10%
Public Bashkirian Oil
30%
25%
15%75% 55%
Public Companies(including Bashkirian Oil)
Non-Listed (from current
Portfolio)
31
Waves of Growth
1995
I
II
III
IV
Telecommunications(Round Table 1)
SitronicsSisitema Hals
(Round Table 2)
Banking Retail
Mass Media(to follow)
Radar & Aerospace Travel
Health CarePetrochemicals
200720052003
Sistema’s diversified portfolio ensures steady growth of the Corporation. We will give some of the highlights of the 4th wave further in this presentation
32
67
124
249
3 11 24
2004 2005 2006
• CRTIS market segment share up from 10,5% to 16%**.• Government-ordered defense R&D accounted for $72 mln.• Started implementation of the The Center for Management
in Crisis Situations project as a main contractor of the Ministry of Emergencies (together with Sitronics)
• Expanded into civil and civil-defense B2G areas (contracts with Ministries and Federal Agencies other than Defense)
Radars and Aerospace: CRTIS Results and Outlook
Revenues and OIBDA ($ mln) Major Developments in 2006
Market Trends, Positioning and Strategic Outlook
• Monopoly supplier of strategic missile defense solutions (radar technology) in the $750 mln market segment of defense information, communication and navigation systems (grows at 10-14% per year**)
• Capitalize on over than 60 years of defense R&D in the area of radar and aerospace technologies
• Expand expertise in the area of large-scale federal projects like GLONASS
• Invest in developing leading edge products and solutions.
CRTIS will continue capitalizing on the R&D expertise, implementing complex B2G projects and focusing on the leading edge R&D for new markets
+92%
B2G Contract Portfolio to 2015 ($ mln)*
403
1100
2500
610
24
0
500
1000
1500
2000
2500
3000
2004 2005 2006
0
5
10
15
20
25
30
Total Amountof Contracts(till 2015)
Number ofB2G Contracts
* 2007-2015 State Arms Development Program**CRTIS estimates
33
98 98
270
4 3 21
2004 2005 2006
Travel: Intourist Results and Outlook
Revenues and OIBDA ($ mln) Major Developments in 2006
Number of Tourists Serviced (‘000)(packaged tours)
Market Trends, Positioning and Strategic Outlook
• Vertical integration strategy in rapidly growing Outbound segment
– Projected market growth rate >15% (5% of Russians travel abroad vs. 40% in Germany)
– 3% current market share with the target to multiply it several times by 2010
– Aggressive capturing the market by building own retail chain selling up to 50% of own product
– Travel product value proposition via own hotel management in Russia and abroad
– Alliance with an air charter company to control the fleet• Retaining the leadership position on the Inbound market
Intourist became top 1 travel company in Russia in 2006 and has ambitious strategic plans to multiply its market share in several years on the rapidly growing Outbound segment
164141 152
12
115
165
2004 2005 2006
Inbound
Outbound
+176%
• Significant market position strengthening after acquisition of the Cosmos Hotel and Riviera and Skyway tour operators (Intourist is top-1 tour operator in Russia)
– 133 retail outlets (102 in ownership, 31 franchisees)– 2,300 hotel rooms under management
• One of the largest air charter consolidators (over 100,000 passengers in 2006)
34
Health Care: Medsi Results and Outlook
Revenues and OIBDA ($ mln) Major Developments in 2006
Services (‘000) and patients (‘000)
643794
1155
1825
48
0200400600800
100012001400
2004 2005 2006
0
10
20
30
40
50
60
Services
Patients
Market Trends, Positioning and Strategic Outlook
• A new holding company Medsi Group created for Sistema’s health care assets
• New clinics format developed• Several constructions started• Medsi II clinic opened in 2005 is recognized by major
insurance companies as the best Moscow clinic for children
• Market ($5-8 bln, with Moscow accounting for 35%) grows more than 20% year-on-year with Top 3 largest clinic operators owning less than 3% of the market
• Development of a leading private healthcare services company in Russia with best comprehensive medical care and largest chain of private clinics
• National healthcare services brand creation• Strategic partnership with an expert for hospital network
development• Acquisition of well-run competitors and consolidation of
the market
Medsi is uniquely positioned to take advantage of the paid healthcare market growth
7
10
16
1 1
5
2004 2005 2006
+64%
35
Petrochemicals: Bashkirian Oil Assets
Oil Business• A strategic asset, generating
satisfactory returns • Looking for opportunities to increase
our stakes up to controlling to create a vertically integrated oil company
• Using our business restructuring expertise to maximize shareholder value
Opportunity in Petrochemicals• Strengthening of cooperation with
Nizhnekamskneftekhim (current supplier of ethanol for Ufaorgsintez)
• Potential alliance with other players and creation of a leader in petrochemicals in Russia - in a technologically advanced sphere where cash rich oil giants are reluctant to invest at the moment
Company Business Voting shares, %
Position
Bashneft Upstream 26% 3% of Russian oil production
Ufaneftekhim
Downstream
29%
10% of Russian processionUfa NPZ 28%
Novoil 30%
Ufaorgsintez Petrochemicals 26% #1 producer of synthetic ethyl spirit, 30-40% of Russian production of phenol, acetone and polypropylene
Bashkir-nefteproduct
Oil product trade
27% One of top supplier of oil products in Volga region
Sistema’s Bashkirian Oil Assets Strategic Outlook
Oil and Petrochemicals Industries in Russia
• Nearly half of Russian oil production was exported in 2006 (233 mln tons of 480 produced)
• Leading Oil producers see petrochemicals as their second priority as crude oil prices stay high
• Russian demand for petrochemical products (synthetic rubber, polyethylene and polypropylene ect.) is growing at 10% pa (official reporting)
Financial investment with an option to develop a leader in technologically advanced sphere of petrochemicals in Russia
36
Sistema as a partner of the State
Project Sistema role
Healthcare services
Transformation of state-owned clinics to a chain of modern healthcare centers
• Construction contractor• IT solution supplier• Operator of the modernized clinics chain
National Crisis Management Centre
Construction of modern command and control centre for the Ministry of Emergencies
• Sistema companies implement entire range of works from construction to communications and IT networks setup
GLONASSCommercialization of Russian satellite navigation system
• Major participant of several GLONASS linked projects (Sitronics and CRTIS)
Security systems
National video surveillance system (CCTV) for crime prevention
• Development of hardware and software solutions
TV Digitalization of the TV in Russia• Supplier of hardware solutions• Operator of the signal delivery distribution
networks
Examples of current and potential projects
Increasing government spending and State investment programs present additional business opportunities for Sistema businesses
