OREANDA-NEWS. August 25, 2010. “COMSTAR – United TeleSystems” OJSC (“Comstar” or “the Group”) (LSE: CMST), the largest integrated telecommunications provider in Moscow and 83 Russian cities, today announced its unaudited consolidated US GAAP financial results for the second quarter and the six months ended June 30, 2010.

SECOND QUARTER HIGHLIGHTS

Consolidated revenues up 6% year on year in ruble terms to USD 411.1 million

Adjusted OIBDA of USD 164.5 million, up 2% year on year in ruble terms when excluding previously accrued expenses for cancelled 2008 phantom option programme from the financial results for 2Q2009

Adjusted OIBDA margin of 40.0% (compared to 41.4% in 2Q2009 when excluding previously accrued phantom option expenses from the financial results for 2Q2009)

Adjusted net income attributable to Comstar-UTS shareholders up 47% year on year in ruble terms to USD 48.8  million (when excluding previously accrued phantom option expenses from the financial results for 2Q2009)

Cash and cash equivalents and short term investments almost tripled year on year in ruble terms to USD 551.9 million

Cash flow from operations of USD 89.6 million

Cash capital expenditure of USD 40.7 million represents 9.9 % of consolidated revenues

Free cash flow of USD 48.9 million

Total broadband subscriber base up 22% year on year and 6% quarter on quarter to 1.4 million

DLD/ILD traffic passed through Comstar’s proprietary network up more than 2.5 times year on year to 178.3 million minutes, with DLD/ILD consolidated revenues of USD 20.3 million

HALF YEAR HIGHLIGHTS

Consolidated revenues up 7% year on year in ruble terms to USD 818.1 million

Adjusted OIBDA of USD 324.3 million, up 6% year on year in ruble terms when excluding the effect of previously accrued expenses for cancelled 2008 phantom option programme from the financial results for 1H2009 and 1Q2010

Adjusted OIBDA margin of 39.6% (compared to 39.8% in 1H2009 when excluding the effect of previously accrued expenses for cancelled 2008 phantom option programme from the financial results for 1H2009 and 1Q2010)

Adjusted net income attributable to Comstar-UTS up 87% year on year in ruble terms  to USD 94.9 million (when excluding the effect of previously accrued expenses for cancelled 2008 phantom option programme from the financial results for 1H2009 and 1Q2010)

Cash flow from operations up 5% year on year in ruble terms to USD 237.7 million

Cash capital expenditure of USD 57.3 million represents 7.0% of consolidated revenues

KEY STRATEGIC DEVELOPMENTS OF THE SECOND QUARTER

Signed agreements to sell 25%+1 share stake in OJSC Svyazinvest to OJSC Rostelecom for RUR 26 billion through a series of transactions, and subject to the parties involved obtaining the necessary approvals

Acquisition of Penza Telecom, the leading alternative telecommunications operator in the Penza telecoms market, and the leading internet and pay-TV services provider in the cities of Penza and Zarechye

MGTS’ AGM approved the payment of a RUR 49.44 dividend (approximately USD 1.59) per preferred share for the full year 2009, and decided that no dividend shall be paid to holders of MGTS’ ordinary shares for the full year 2009. The total dividend payment to be made to holders of preferred shares will therefore total RUR 789 million (or approximately USD 25.4 million), which is equivalent to 10% of MGTS’ net income for the full year 2009 under Russian Accounting Standards (RAS). Comstar’s AGM decided that no dividend should be paid out for the full year 2009 due to the losses reported for the full year under Russian Accounting Standards (RAS) and US GAAP.

The Boards of Directors of MTS and Comstar recommended the merger of MTS and Comstar-UTS Open Joint Stock Companies. The announcement was followed by the launch of a voluntary tender offer by MTS for up to 9% of Comstar ordinary shares and including shares underlying GDRs.

Standard & Poor's Ratings Services revised its outlooks on Comstar and MGTS to positive from stable as a reflection of a corresponding upgrade to MTS’ outlook.

Sergey Pridantsev, President and Chief Executive Officer, commented: “We have reported another quarter of consistent sales and profit growth, which has enabled us to deliver healthy financial results in line with our expectations, whilst sustaining the momentum of the implementation of our strategy. We have initiated the organic rebranding of our alternative segment, and launched the first convergent subscriber offerings in May, in line with Comstar’s integration into MTS. On June 25, both Comstar’s and MTS’ Boards of Directors recommended the proposed merger of Comstar and MTS. The merger is subject to approval by 75% of the shareholders present at each company’s EGMs, which are scheduled for December 23, 2010.”

 “We accelerated the modernization of our networks in the regions during the quarter and, following the acquisitions of Multiregion by MTS and Penza Telecom by Comstar, the fixed-line business of MTS Group is now present in over 110 regional cities, compared to 83 cities at the end of the first quarter. MGTS has continued to up-sell its subscribers to additional services and 24% of MGTS voice subscribers now also subscribe to broadband services either from MGTS or Comstar, while 28% of MGTS’s voice subscribers are also customers of Comstar DLD/ILD connection services.”

Alexey Kaurov, Chief Financial Officer, added: “Consolidated revenues were up 6% year on year in ruble terms in the second quarter and up 7% for the first half of the year, which is in line with our guidance for mid single digit percentage point revenue growth this year. Our OIBDA, when excluding the reversal of the cancelled 2008 phantom option programme, was up 2% year on year in the second quarter and up 6% in the first half of the year in ruble terms. We therefore delivered an adjusted OIBDA margin of 40.0% in the quarter and 39.6% for the first half of the year, which is at the top end of the range of our long-term OIBDA margin guidance of between 35 and 40 per cent.”

 “Cash capital expenditure represented 9.9% and 7.0% of consolidated revenues for the second quarter and first six months respectively. We expect cash CAPEX to increase in the second half of the year and to represent up to 20% of full year revenues. This includes our investments in the MGTS digitalization project using IMS technology, which was re-launched in the middle of this year, as well as the modernization of our regional broadband networks, which we expect to finalize by the end of 2010. The weighting also reflects the post-payment terms of our agreements with telecom equipment suppliers.”