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Comstar-UTS
Presentation at UBS 2007 Annual Investment Conference
Moscow, Russia
November 15, 2007
UBS conference November 15, 2007
2
Combined Telecom Operator
ILEC in Moscow
3.6 million residential subscribers
More than 90% of lines are ADSL compatible
CLECs in Moscow and regions
0.6 mln active lines in Moscow
0.9 million subscribers outside Moscow
Multi-service solutions to corporate &developers
CLEC in Moscow
#1 broadband provider
33% marketshare
0.4 million residential subscribers
STATE HOLDING
Comstar owns 25%+1 share
7 ILECs, Rostelecom, Central Telegraph
32 million installed lines covering 90% of Russia
ILD/DLD OPERATOR
Cooperation with Comstar:
DLD/ILD services to Comstar clients
Comstar-UTS Sister companies
MOBILE OPERATOR
Cooperation with Comstar:
joint use of network infrastructure,
convergent projects,
joint sales efforts
UBS conference November 15, 2007
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Value drivers
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
Simplifying Organizational Structure
Unlocking Operational Potential
Increasing Broadband Market Share & ARPUSelective Modernisation of the “Last Mile”
Regulated tariff rebalancingCost optimizationIncrease in efficiency
Capitalising on Svyazinvest stake as a financial investment and through participation in privatization
Driving Regional Expansion
UBS conference November 15, 2007
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Simplifying Organizational Structure
51%
52%
48%
Other
14%
Free float 35%
Regionalbranches
56%
23%
17.3%
21%
Now
7.7%
Objective
• Elimination of cross ownership between MGTS and Comstar
• Integration of Comstar Direct
• Turning regional subsidiaries into affiliates
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
UBS conference November 15, 2007
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Unlocking Operational Potential● Management by processes
● Comstar focus:► Strategy► Regions (M&A, Greenfield)► SvyazInvest
● MGTS focus : ► Network modernization & maintenance► Mass market sales
● Comstar – Direct focus: ► High-value broadband sales
● Outsourcing of non-core functions
Lines / Employees
Source: Analysts reports
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
●Potential for Significant headcount reduction
UBS conference November 15, 2007
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Increasing Broadband Market Share
Objective of >50% market share in Moscow by 2011 from current 33%*
Revised broadband strategy
• Direct sales using MGTS technicians and brand
• Unique Post-paid tariffs, One Bill for all telecom services for residentials
• Selective Modernization of the “Last Mile”► Fiber to the Curb (FTTC)- started Sep. ’07► CAPEX of up to $100 million► 70-80% of the “last mile” is to be “Speed
Up” to 20-25 Mbps by 2010Source: Company data, Direct INFO, Pyramid Research. Penetration calculated as % of households, 1H2007
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
AKADO; 10%
Golden Telecom; 17%
Qwerty (Centel); 8%
Others; 32% Comstar UTS; 33%
Moscow Residential BB Market, 2Q’07
Total: 1.3 mn subs
426 thousand subs
UBS conference November 15, 2007
Fiber
Copper
7
Modernization of the “Last mile”
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
Curb
1. Fiber to the curb
Curb
Apartment
Modem
Set-top-box
~1,5 кмbackbone
Box
~300 м.
11 000 curbs
35 000 apartment blocks
250 switching centers
Services
6 Mbps
Speed
• IPTV (1 TV set)• Internet (up to 2 Mbps)
DSLAM
20-25 Mbps
• HDTV (2-3 TV sets)• Internet (10-20 Mbps)
1 Gbps• HDTV• Internet (100+ Mbps)• Smart home• Video monitoring • etc
Fiber
Fiber
2. Moving DSLAM closer to the customer- to the curb
3. Selective installation of fiber to the home
Copper
UBS conference November 15, 2007
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Regulated tariff rebalancing
June 30, 2007
Time-based tariff plan
(RU 125 + RU 0.28 per minute) 26%
Combined tariff plan
(RU 229 for 370 minutes then RU 0.23 per minute)
22%
Unlimited time tariff plan
(RU 380 per month)52%
Residential Subscriber Mix
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
1,1 1,9 2,3 2,73,0
4,2 4,85,3
6,57,6 7,6
10,2
0
2
4
6
8
10
12
'99 '00 '01 '01 '02 '02 '03 '03 '04 '05 '06 1H07
Growth in Regulated Tariffs (US$)
UBS conference November 15, 2007
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Driving Regional Expansion
*Source: Сomstar-UTS estimates
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
DLD/ILD/Transit
Regions ofpresence
CLEC
$1,3 BN
$4,4 BN Strategy
• Increasing market share in the regions of presence
• Expansion into the target regions
• Entering the DLD/ILD segment
Russian Fixed Line Market (2007E)
- Comstar presence (Current)
2
3
- Comstar target (Future)- $17,8 BN
100%
80%
0%
20%
60%
40%
$3,4 BN
ILEC
Moscow
1
$1,2 BN
CLEC
$1,3 BNILEC
$1,2 BN
CLEC
ILECILEC
CLEC$1 BN
$1,6 BN$2,3 BN
Targetregions
Otherregions
•Tyumen•Saratov•Volga•South•Saint Petersburg
•South•Volga•Ural•Siberia
UBS conference November 15, 2007
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Capitalizing on Svyazinvest Investment
• 25% +1 share acquired for US$ 1.3 billion in December 2006
• Call (by December 2007) and put (2 year) option agreement with Seller for 11% of Comstar shares currently held by MGTS Finance
• 2 seats on the Board of Directors
• Successful financial investment
• Upside option as Strategic Player in privatization process
STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST
Svyazinvest*, 78%
Golden telecom, 3%
Comstar, 0.4%MTT, 4%
Russian regional market, US$, 2006
* Including Rostelecom 16%
UBS conference November 15, 2007
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The Unique Investment Opportunity
Comstar Market Cap
21.6% of Svyazinvest
USD 5.17 billion
Comstar Market Cap ex
Svyazinvest
Comstar
EV
USD 1.92 billion
USD 3.26 billion
USD 3.93 billion
EV/EBITDA 20071 6.5x
Valuation at ILEC
Multiples
USD 3.66 billion
EV/EBITDA 2007 6.0x
¹Source: Consensus (Morgan Stanley, URALSIB, Goldman Sachs, Deutsche UFG, Troika Dialog, Aton Capital, Alfa Bank, ING, Renaissance Capital, UBS, Merrill Lynch, Veles capital, Credit Suisse, FIM, MDM Bank, JPMorgan). All data as at 29 October 2007
Valuation at BroadbandMultiples
USD 5.36 billion
EV/EBITDA 2007 8.8x
Valuation at Altnet
Multiples
USD 5.18 billion
EV/EBITDA 2007 8.5x
UBS conference November 15, 2007
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Contacts
For additional information please visit
www.comstar-uts.com
or contact Masha Eliseeva
Head of Investor Relations
Phone: +7 985 997 08 52
E-mail: [email protected]
UBS conference November 15, 2007
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Appendix
UBS conference November 15, 2007
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Combining Growth & Profitability
Source: Company reports
Comstar
Magyar
FastwebLiberty Global
Telenet
Tele2
Telefonica O2 CZOTE
Golden Telecom
TP
Comcast
Cable & Wireless
Eesti Telecom
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
2006 Sales Growth
20
06
EB
ITD
A M
arg
in
UBS conference November 15, 2007
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Income Statement
Half Year Highlights● 32% year on year revenue growth ● 42.9% OIBDA margin● US$ 14.5 million change in fair value of call and put option
(US$ Million) 2004 2005 2006 1H2006 1H2007
Revenues 695,1 907,6 1 120,2 536,4 708,0Y-o-Y Growth 18,0% 30,6% 23,4% 27,9% 32,0%
OIBDA (excl. Stock Bonus Awards) 249,9 358,8 428,6 217,3 303,6Margin 35,9% 39,5% 38,3% 40,5% 42,9%
Operating Income (excl. Stock Bonus Awards) 173,7 268,4 297,7 163,5 228,5Margin 25,0% 29,6% 26,6% 30,5% 32,3%
Net Income (excl. Stock Bonus Awards and change in fair value of call and put option less minority share)
76,1 105,9 178,1 97,4 75,3
Margin 11,0% 11,7% 15,9% 18,2% 10,6%
Capex 228,5 232,3 316,1 135,0 148,1% of Revenues 32,9% 25,6% 28,2% 25,2% 20,9%
UBS conference November 15, 2007
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Segmental Breakdown
* Excluding US$ 62.1 million Stock Bonus Awards
Revenue (US$ Million) Q1 2006 Q2 2006 Q3 2006 Q4 2006* FY 2006 Q1 2007 Q2 2007
MGTS 175,6 209,7 208,4 208,4 802,2 247,3 291,4
Comstar Moscow 62,4 67,9 68,6 64,6 263,4 65,0 70,1
Comstar Direct 30,4 32,4 32,9 34,3 130,0 37,2 38,9
Comstar Regions & International 7,5 7,0 8,2 16,6 39,2 11,6 11,6
Intersegment Sales -26,1 -30,4 -26,3 -31,8 -114,6 -32,2 -32,8
Total Revenue, net of intersegment transactions
249,8 286,6 291,8 292,1 1120,2 328,9 379,2
OIBDA (US$ Million)
MGTS 82,9 101,8 87,3 84,1 356,0 114,4 151,1
Comstar - Moscow 14,2 13,0 19,1 9,2 55,5 12,5 13,5
Comstar - Direct 4,9 1,0 6,8 6,5 19,2 4,6 9,0
Comstar - Regions & International 1,3 1,4 1,7 -0,4 4,0 0,7 1,4
Effect of eliminations and other consolidations adjustments
-1,0 -2,1 -1,0 -2,0 -6,1 -1,8 -1,8
Total OIBDA 102,3 115,0 113,9 97,4 428,6 130,4 173,2
UBS conference November 15, 2007
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Cash Flow Statement
(US$ Million) 2004 2005 2006 1H2007
Net cash provided by operations 225,2 271,2 288,7 201,5
Net cash used in investing activities -187,2 -255,2 -1 767,0 -165,6
Net cash provided by / (used in) financing activities -19,5 -20,3 1 550,9 -24,9
Effects of foreign currency translation of cash and cash equivalents
2,0 -1,0 2,0 0,6
Cash and cash equivalents at the beginning of the period 47,0 67,4 62,0 136,6
Cash and cash equivalents at the end of the period 67,4 62,0 136,6 148,2
UBS conference November 15, 2007
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Balance Sheet
Half Year Highlights
● US$ 675 million 6 month loan facility arranged in December 2006 with ABN AMRO Bank N.V.● Refinanced in June 2007 with 5 year RUR 26 billion credit facility from Sberbank● Total debt of US$ 823.5 million● Net debt of US$ 675.3 million
(US$ Million) 2004 2005 2006 1H2007
Assets 1 418,4 1 641,4 3 537,6 3 762,5
Current Assets 335,6 405,2 445,1 574,2
Long-term assets 1 082,8 1 236,2 3 092,5 3 188,3
Liabilities 586,4 645,8 1 470,6 1 573,1
Current Liabilities 223,2 274,4 1 140,9 543,6
Long-term liabilities 363,2 371,4 329,7 1 029,5
Minority Interests 450,6 516,1 496,7 530,0
Shareholder's equity 381,4 479,5 1 570,2 1 659,5