Sistema Announces Financial Results for the Fourth Quarter and Twelve Months Ended December 31, 2006

Sistema (LSE: SSA), the largest private sector consumer services company in Russia and the CIS, today announced its unaudited consolidated US GAAP financial results for the fourth quarter and full year ended December 31, 2006. FOURTH QUARTER HIGHLIGHTS Consolidated revenues up 56.4% year on year to US$ 3.4 billion OIBDA up 52.5% year on year to US$ 1.0 billion Operating income up 68.3% year on year to US$ 640.2 million Net income down 7.0% year on year to US$ 93.2 million US$ 432.1 million raised through successful initial public offering and listing on London Stock Exchange of Sistema Hals in November 2006 Acquisition of a blocking stake of 25% plus one share in Svyazinvest for US$ 1.3 billion in December 2006 Bitel write-off by MTS in the amount of US$ 150 million FULL YEAR HIGHLIGHTS Consolidated revenues up 43.1% year on year to US$ 10.9 billion OIBDA1 up 36.0% year on year to US$ 4.0 billion Operating income up 41.3% year on year to US$ 2.7 billion Net income up 69.0% year on year to US$ 903.3 million Total consolidated assets up 53.8% year on year to US$ 20.1 billion Earnings per share up 67.4% year on year to US$ 94.4 US$ 1,060.0 million raised through successful initial public offering and listing on London Stock Exchange of Comstar UTS in February 2006 Alexander Goncharuk, President and Chief Executive Officer of Sistema, commented: "Sistema Group companies delivered solid operational results in 2006. We have expanded margins while maintaining high growth rates in our non-telecom businesses. Our operational performance was supplemented by a number of sizable transactions, including the strategic acquisition of a 25 per cent plus one share stake in Svyazinvest, IPOs of Comstar UTS and Sistema Hals. We have made significant efforts to realign our Group telecom operations and focus our priorities on consistently delivering on our targets in the future”. FINANCIAL SUMMARY The reported financial results of Sistema are presented in the following summary. They include three items, two of which were in Comstar UTS, for the fourth quarter and the full year which are not comparable to the previous reporting periods and impact Sistema in the fourth quarter of 2006. The first item was the non-recurring US$ 62.3 million stock bonus awards to employees of Comstar UTS, which impacted the Group’s OIBDA. The second item was a non-cash charge of US$ 60.0 million, which arose from the revaluation in Comstar UTS of the put and call option issued in connection with the acquisition of a 25% plus one share stake in State Telecommunications Investment Company ‘Svyazinvest’ on December 11, 2006. The third item, write-off of MTS’ investment in Bitel, impacted the Group’s net income for both the fourth quarter and the full year by a US$ 79.7 million (net of minority interest). (US$ millions) Q4 06 Q4 05 Year onYearGrowth FY 06 FY 05 Year onYearGrowth Revenues 3,401.6  2,175.3  56.4% 10,862.8  7,593.5  43.1% OIBDA 1,000.5  656.2  52.5% 4,023.5  2,958.4  36.0% OIBDA Margin 29.4% 30.2%   37.0% 39.0%   Operating income 640.2  380.4  68.3% 2,733.2  1,933.8  41.3% Operating Margin 18.8% 17.5%   25.2% 25.5%   Net income 93.2  100.2  -7.0% 903.3  534.4  69.0% Net income Margin 2.7% 4.6%   8.3% 7.0%   OPERATING REVIEW Sistema’s consolidated revenues increased by 56.4% year on year in the fourth quarter to US$ 3.4 billion and by 43.1% to US$ 10.9 billion in 2006, as a result of solid performance by the Group’s Telecommunications segment and steady growth of the Group’s non-telecommunications operations. The non-telecommunications businesses accounted for 38.4% of Group consolidated revenues in the fourth quarter and 31.2% in 2006, compared to 26.5% and 22.4% for the corresponding periods of 2005. The organic year on year growth in 2006 (excluding businesses acquired or divested since the end of the fourth quarter of 2005) was 34.3% and amounted to US$ 2.6 billion. Group OIBDA increased by 52.5% year on year in the fourth quarter, and by 36.0% year on year from US$ 3.0 billion to US$ 4.0 billion in 2006. The Group’s OIBDA margin decreased slightly from 30.2% to 29.4% in the fourth quarter as a result of non recurring items recorded in Comstar UTS’s results, as explained above. MTS has shown a particular robust growth with OIBDA margin expanding by 4 percentage points in the fourth quarter year on year. Group OIBDA margin in 2006 declined slightly from 39.0% to 37.0% as a result of the increase of the share of low-marginal businesses, primarily Sitronics, stock bonus awards by Comstar UTS and slight decrease in OIBDA margin of Telecommunications segment due to the impact of the introduction of the new regulation on long distance traffic, introduction of Calling Party Pays and change in settlements with operators. Group operating income was up 68.3% year on year in the quarter from US$ 380.4 million to US$ 640.2 million, and by 41.3% from US$ 1.93 billion to US$ 2.73 billion in 2006. The operating margin in the fourth quarter was 18.8%, compared to 17.5% a year ago and was 25.2% in 2006, compared to 25.5% in 2005. Consolidated depreciation and amortization expense was up by 30.6% year on year in the quarter and by 25.9% in 2006, following the growth in the Group’s depreciable asset base; the previously announced revision of the estimated remaining useful life of MGTS analogue equipment; the depreciation and amortization charges arising from the purchase of the increased shareholding in MGTS; and the currency translation effect of a weakening US Dollar on MGTS’s rouble denominated depreciation and amortization charges. Selling, General and Administrative expenses rose by 33.5% for the quarter and by 42.6% in 2006, from US$ 485.6 million to US$ 648.0 million and from US$ 1.4 billion to US$ 2.0 billion, respectively. US$ 62.3 million in the quarter and US$ 153.0 million in 2006, included in SG&A expense, reflects the value of non-cash compensation received by employees. The effective tax rate increased from 28.8% to 32.9% in 2006, as a result of foreign exchange gains on non-rouble denominated debt and the effects of the stock bonus awards and the option revaluation charge in Comstar, as well as the write-off of the investment in Bitel, which are not tax-deductible. The increase in minority interest reflects changes both in net income of the Group and the share of ownership in the Group’s companies. Net income in the fourth quarter was down year on year to US$ 93.2 million from US$ 100.2 million. In 2006, the net income growth was 69.0% from US$ 534.4 million to US$ 903.3 million. The weighted average number of shares outstanding increased from 9,475,980 in 2005 to 9,570,050 in 2006. Telecommunications2 (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 2,096.3  1,598.3  31.2% 7,475.6  5,892.9  26.9% OIBDA 942.3  682.0  38.2% 3,576.3  2,922.5  22.4% Operating Income 606.8  425.6  42.8% 2,377.4  1,933.3  23.0% Net Income 137.3  142.2  (3.4)% 757.2  677.6  11.7% The Telecommunications segment, which comprises MTS and Comstar UTS, reported 31% year on year revenue growth to US$ 2.1 billion in the fourth quarter of 2006 and 26.9% year on year increase to US$ 7.5 billion for the full year. The segment accounted for 61.6% of the Group’s consolidated revenues in the quarter, compared to 73.5% a year ago. The growth was primarily organic with the exception of US$ 23.0 million revenue contribution from newly acquired businesses in Comstar UTS (DG Tel and Technologic Systems in Ukraine, Cornet and Callnet in Armenia, and Astelit) and MTS (Dagtelecom). MTS continued to be the main contributor to the segment revenues and accounted for 95.0% of the segment’s year on year growth in the quarter. MTS added 5.3 million subscribers during the fourth quarter of 2006 as a result of the organic growth in its business, and reported 35.5% year on year revenue growth for the period from US$ 1.3 billion to US$ 1.8 billion. The mobile operator added 14.7 million subscribers during 2006. Revenues in 2006 increased by 27.4% year on year to US$ 6.4 billion from US$ 5.0 billion. MTS results for the fourth quarter of 2006 showed a year on year increase in average monthly service revenue per subscriber ("ARPU”) for the Russian customer base from US$ 7.4 to US$ 8.5. Comstar UTS generated 7.9% year on year revenue growth in the fourth quarter and 23.4% growth in 2006, from US$ 270.7 million to US$ 292.1 million and from US$ 907.6 million to US$ 1.1 billion, respectively, reflecting robust growth in organic revenues, as well as US$ 25.8 million contribution received by MGTS from the federal budget for the discounts granted to certain categories of residential subscribers of MGTS prior to January 1, 2005 and US$ 32.9 million from the introduction of CPP ("Calling Party Pays”) on July 1, 2006. Data and internet services to residential users of the alternative segment were up 30.6% year on year. Segment OIBDA was up 38.2% year on year in the quarter and up 22.4% in 2006, with OIBDA margin of 45.0% in the fourth quarter and 48.0% in 2006, resulting from significant improvements in operations of MTS after the restructuring program introduced by the current management in May 2006. MTS’ OIBDA in the fourth quarter increased by 48.0% year on year from US$ 621.3 million to US$ 919.8 million3. OIBDA in 2006 increased by 25.8% from US$ 2.6 billion to US$ 3.2 billion. OIBDA margin was nearly flat year on year at 51% despite revenue growth of 27.4% in 2006. Comstar UTS reported a 9.3% increase in OIBDA (before non-recurring US$ 62.1 million stock bonus awards) from US$ 89.1 million to US$ 97.4 million in the quarter and a 19.5% increase in 2006, from US$ 358.8 million to US$ 428.6 million. The segment net income decreased 3.4% in the fourth quarter and increased 11.7% year on year to US$ 137.3 million in the fourth quarter and US$ 757.2 million in 2006, and included US$ 79.7 million (net of minority interest) write-off of investment in Bitel by MTS in the fourth quarter. In December 2006, Comstar UTS announced the acquisition of a blocking stake 25.0% plus one share in Svyazinvest from Mustcom Limited for a total cash consideration of US$ 1.3 billion. In April, 2007, the EGM of Svyazinvest elected Sergei Shchebetov (Chairman of the Board of Directors of Comstar UTS) and Anton Abugov (First Vice President and Head of Strategy and Development at Sistema) to the Board of Directors of Svyazinvest. Technology4 (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 565.2  308.4  83.3% 1,610.7  961.1  67.6% OIBDA 63.0  4.9  1,190.2% 172.5  155.6  10.9% Operating Income 54.8  0.4  14,081.5% 129.8  143.5  -9.6% Net Income 29.0  5.8  397% 61.5  60.7  1.2% The Technology segment of Sistema, which is represented by SITRONICS, generated 83.3% revenue growth year on year to US$ 565.2 million in the fourth quarter and 67.6% increase year on year to US$ 1.6 billion in 2006, and accounted for 16.0% and 14.2%, respectively, of Group revenues in 2006, compared to 13.7% and 12.0%, respectively, for the same periods of 2005. In June 2006, SITRONICS acquired 51.0% of Intracom Telecom, a provider of advanced telecommunications solutions and services for fixed and wireless operators, primarily in the Eastern Europe and Middle East. In February 2007, SITRONICS completed its Initial Public Offering on the London Stock Exchange The net proceeds of the offering to SITRONICS totaled US$ 356.4 million. Real Estate (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 121.8  42.9  184% 282.9  78.4  261% OIBDA 33.1  1.3  2,446% 93.1  12.5  645% Operating Income 30.3  2.0  1,415% 86.0  10.4  726% Net Income 18.7  0.9  1,978% 52.7  2.3  2,191% The Real Estate segment, which is represented by Sistema Hals, reported almost four-fold revenue growth year on year to US$ 282.9 million in 2006. Its revenues nearly tripled year on year to US$ 121.8 million in the fourth quarter. The real estate development division remained one of the primary growth drivers of the segment and accounted for 72% of total segment’s revenues compared to 52% in 2005. This growth in revenues in 2006 resulted primarily from the sale of "Pokrovka 40” project, which is a mixed-use Class A office and hotel complex in the center of Moscow, for US$ 83.7 million, "Yartsevskaya 27” project, a residential development in Moscow, for US$ 26.3 million. Additionally, Sistema Hals recognized US$62.4 million in revenues from the partial completion of the Siemens Tower project. Sistema Hals’s project construction management division contributed US$ 22.2 million increase in revenues compared to 2005. The asset management division increased revenues by 80% year on year to US$ 27 million in 2006 primarily as a result of an increase in the number of sold houses within the asset restructuring program and the growth in rental revenue. The segment’s OIBDA increased twenty five times year on year to US$ 33.2 million in the fourth quarter and increased almost eight-fold year on year to US$ 93.1 million from US$ 12.5 million a year ago. In November 2006, an IPO of Sistema Hals raised US$432.1 million from on London Stock Exchange, valuing the company at US$ 2.1 billion. Insurance (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 194.4  121.1  61% 638.6  408.9  56% Gross Premiums Written 196.1  111.3  76% 794.9  463.4  72% Net Premiums Earned 167.9  102.4  64% 571.5  364.8  57% Net Income 3.7  0.2  1,750% 27.1  19.7  38%   Key Ratios Loss ratio 54.5% 57.1% 54.6% 55.6% Expense Ratio 47.4% 44.3% 41.2% 39.5% Combined Ratio 101.9% 101.4% 95.7% 95.0% The Insurance segment, which included ROSNO for the full reporting period, increased revenues by 61% year on year to US$ 194.4 million in the fourth quarter and by 56% year on year in 2006. The growth was primarily driven by significant increase in motor vehicle insurance premiums. Gross premiums written (GPW) increased by 76% year on year to US$ 196.1 million in the fourth quarter and by 72% year on year to US$ 794.9 million in 2006. Voluntary medical insurance premiums were up 56%, automotive insurance premiums increased by 115%, and non-life insurance premiums rose by 34% in the fourth quarter. The operations of new joint venture VTB-ROSNO added US$ 17.4 million to GPW and US$ 10.3 million in revenue in 2006. Allianz-ROSNO Asset Management increased its assets under management year on year from US$ 434.6 million to US$ 476.9 million in the fourth quarter, which was primarily driven by strong growth in third party funds. Banking5 (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 58.8  29.5  99% 202.6  106.8  90% OIBDA 7.4  3.7  100% 24.2  14.3  69% Operating Income 6.2  3.2  94% 21.2  12.7  67% Net Income 7.8  3.6  116% 14.7  8.8  67% The Banking segment of the Group is represented by the Moscow Bank for Reconstruction and Development (MBRD) and its subsidiaries. The segment revenues nearly doubled year on year to US$ 58.8 million in the fourth quarter and increased by 90% to US$ 228.2 million in 2006. The bank’s loan portfolio grew 153% year on year and interest income received from the retail banking operations grew to US$ 25.3 million in 2006. The bank increased its interest income from non-Group clients following the expansion of its retail business to 13 branches and 108 mini-offices. The leasing activities contributed US$ 13.7 million to the segment’s revenue in 2006. The bank’s profitability more than doubled in the fourth quarter of 2006 to US$7.8 million and increased by 67% to US$ 14.7 million in 2006. In December 2006, MBRD purchased 2.0% share in East-West United Bank (EWUB) from Vneshtorgbank ("VTB”) for a total cash consideration of $0.8 million, increasing the Group’s ownership in EWUB to 51.0%. Retail (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 135.1  104.9  29% 335.3  208.0  61% OIBDA 23.7  6.1  289% 20.9  12.1  73% Operating Income 19.9  5.7  249% 15.2  10.4  46% Net Income 13.1  3.1  323% 4.9  3.8  29% The Retail segment of the Group, which includes Detsky Mir, the specialist children’s goods retailer and wholesale trader, increased its revenues by 29% year on year in the fourth quarter to US$ 135.1 million and by 61% year on year to US$ 335.3 million in 2006. The segment added 29 retail stores during the year, which contributed US$ 42.9 million, or 12.8 %, to total revenues in 2006. Wholesale operations accounted for US$ 49.0 million, or 36% of total revenues, in the fourth quarter of 2006 and for US$ 62.5 million, or 19% of the full year revenues. The segment’s net income improved dramatically in the fourth quarter to US$ 13.1 million with a net income margin of 9.7%. Following the period of expansion the retail network of Detsky Mir is represented by 69 stores in 34 Russian cities (as at 30 April, 2007), compared to 36 stores in 16 cities as at the end of 2005. Media (US$ millions)   Q4 2006   Q4 2005   Year onYearGrowth   FY 2006   FY 2005   Year onYearGrowth Revenues 41.2  12.1  241% 106.7  52.4  104% OIBDA 13.6  10.7  27% 26.6  11.6  129% Operating Income 11.8  8.7  36% 15.4  7.1  117% Net Income 9.6  5.7  69% 13.5  2.5  440% The Media segment, which operates in Pay-TV, advertising, print and other media sectors, doubled its revenues year on year to US$ 106.7 million in 2006, while revenues increased more than threefold to US$ 41.2 million in the fourth quarter of this year. United Cable Network, the largest provider of Pay TV services in Russia, which was acquired in February 2006, contributed US$ 45.5 million in revenues in 2006. The segment’s operating income increased by 36% year on year to US$ 11.8 million in the fourth quarter primarily due to gain from disposal of "Literaturnaya Gazeta”, the Russian newspaper, in the amount of US$ 3.2 million. United Cable Network contributed US$ 2.2 million to the segment’s operating income in 2006. FINANCIAL HIGHLIGHTS Net cash provided by operating activities was up 18.0% year on year to US$ 2.1 billion in 2006. The increase in the Group’s operating cash flows was primarily related to the growth in the profitability of its operations. Net cash used in investing activities was US$ 5.4 billion for the full year of 2006, and included capital expenditures of US$ 2.4 billion for the full year of 2006, compared to US$ 2.5 billion a year ago. The Group spent US$ 631.4 million for the full year of 2006 on purchases of businesses. Cash flow from financing activities amounted to US$ 3.3 billion for the full year of 2006, which primarily reflected proceeds of US$ 1.5 billion received from the initial public offering of Comstar UTS, which took place in February 2006, and the initial public offering of Sistema-Hals, which took place in November 2006. The Group’s net debt amounted to US$ 6.3 billion at the end 2006, compared to US$ 3.9 billion as at December 31, 2005. The Group’s increase in borrowings included the US$ 675 million loan facility arranged by Comstar UTS with ABN AMRO N.V., US$ 285 million of consolidated debt as a result of the acquisition of Intracom Telecom, US$ 160 million received from the bond offering of MBRD in March and June 2006, and US$ 200 million raised by the SITRONICS Finance from the bond placement in February 2006, as well as additional financing attracted by MTS. The Group’s net cash balance amounted to US$ 543.4 million at the end of 2006, compared to US$ 482.6 million as at December 31, 2005. In February 2007, Standard & Poor's (S&P) Ratings Services revised its outlook on Sistema to positive from stable. At the same time the 'BB-' long-term corporate credit rating on the company was reaffirmed. ACQUISITIONS AND DISPOSALS In December 2006, Comstar UTS announced the acquisition of a blocking stake 25% plus one share in Telecommunication Investment Joint Stock Company (Svyazinvest) from Mustcom Limited for a total cash consideration of US$ 1.3 billion. The Company arranged a US$ 675 million six month loan facility with ABN AMRO Bank N.V. in connection with this transaction. The interest rate was fixed at 1.2% above LIBOR. The term of the loan can be extended to twelve months. In December 2006, Comstar UTS announced that it has reached an agreement with Intracom Holdings (ASE:INTRK) to subscribe to a 51% stake in Hellas On Line SA (HoL) for a cash consideration of € 47.9 million. The closing of the transaction, which is subject to certain conditions precedent including approval of Greek regulatory authorities, is expected during the first half of 2007. In October 2006, Comstar announced the acquisition of two telecom operators in Kiev, Ukraine – DG Tel and Technologic Systems – through its local subsidiary Comstar – Ukraine for a total cash consideration of US$ 4.7 million; the acquisition of Astelit, an alternative fixed-line operator, for US$ 7.8 million and the acquisition of Unitel for a total cash consideration of US$ 4.8 million. Unitel is an alternative wireless fixed-line telecommunications company serving customers in the Moscow region. In August 2006, the Group acquired a 81.25% stake in ZAO Sahles, the owner of controlling stakes in the entities that together comprise the Perm Motors Group, for US$ 122 million. Perm Motors is one of Russia’s largest manufacturers of jet aircraft engines and industrial turbines. The Group did not obtain control over operating activities of the acquired companies and therefore they were not consolidated as of the end of 2006. In July 2006, MTS acquired a 75% controlling stake in Dagtelecom from Glaxen Corp. for US$ 14.7 million. Dagtelecom is the GSM-900 mobile services provider with 1.7 million subscribers in the Republic of Dagestan, in the south of Russia, with a population of approximately 2.6 million people. In July 2006, the Group disposed of Glorely, a subsidiary holding 35% interest in Sistema-Invest, the owner of the Group’s energy companies in the Republic of Bashkortostan, for a total cash consideration of US$ 201.0 million. In June 2006, SITRONICS acquired 51% voting stake in Intracom Telecom, a provider of telecommunications solutions and services in the Eastern Europe and Middle East, for a total cash consideration of US$ 150.6 million, including US$ 43.9 million payable upon the completion of due diligence. Additionally, SITRONICS entered into a put agreement to acquire the remaining 49% of Intracom Telecom. The exercise period of the put option is 36 months following a 24 months period post the acquisition date. In March - October 2006, Sistema purchased in a series of transactions 2.9% of its total shares outstanding for a total cash consideration of US$ 347.1 million. Sistema plans to establish a share option programme for the top management of the Company. The acquired shares are intended for the funding of this programme, and may also be used in connection with certain future acquisitions. In March 2006, Intourist purchased a 20% equity interest in Cosmos Hotel for approximately US$ 20.8 million. It now has a controlling interest in Cosmos Hotel of 64.1%. In February, March and October 2006, Comstar UTS completed several transactions on acquisition of MGTS’ common stock under unconditional purchase offers. As a result of these transactions, Comstar UTS purchased 11.3% of voting and 9.4% of total shares of MGTS for a total cash consideration of $181.4 million, increasing its ownership interest and voting interest in MGTS to 55.7%. In February 2006, Sistema Mass Media and ECU GEST acquired 90% and 10%, respectively, of JIR Broadcast and JIR Inc., the owners of 100% of United Cable Networks, for a total cash consideration of US$ 145.9 million. UCN is a Pay-TV and broadband service provider with 724,000 subscribers in 17 metropolitan areas across the Russian Federation. SIGNIFICANT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD In March 2007, Sistema-Hals announced the results of an independent valuation of its real estate property and projects. According to the valuation carried out by Cushman and Wakefield Styles & Riabokobylko (C&WS&R), the value of the Sistema-Hals stake in the property and projects increased by 35% in the period from June 30, 2006 to January 1, 2007. In March 2007, Comstar sold its 45% equity stake in ZAO Metrocom, an alternative fixed-line telecommunications operator based in St. Petersburg, to ñlosed joint-stock company MST. The shares were sold for a total cash consideration of US$ 20 million. Comstar acquired the stake in September 2005 for US$ 12.2 million in cash. The sale was in line with Comstar’s intention to have controlling stakes in all of its operations and Comstar is evaluating other means of expanding its operations in the St. Petersburg area. In February 2007, Sistema completed the sale of a 49.2% stake in ROSNO to Allianz, Sistema’s strategic partner in ROSNO, for a total cash consideration of US$ 750.0 million, resulting in a gain from disposal of US$ 591.8 million. Sistema remains a shareholder in ROSNO with a 2.8% stake in the subsidiary. Conference call information The conference call will be hosted at 9.00 am (ET) / 2.00 pm (UK time) / 3.00 pm (CET) / 5.00 pm (Moscow Time) on Wednesday, 16 May 2007. The dial-in numbers for the conference call are: UK +44 20 7138 0835 US +1 718 354 1172 International +44 20 7138 0835 A replay number will be available for 7 days after the conference call. To access the replay, please dial: UK +44 20 7806 1970 US +1 718 354 1112 International +44 20 7806 1970 The replay access number is 4913597# For further information, please visit www.sistema.com. 1 OIBDA is defined as operating income before depreciation and amortization. See Attachment A for this statement for the whole definition of OIBDA and a reconciliation of OIBDA to operating income. 2 Here and further, in the comparison of period to period results of operations, in order to analyze changes, developments and trends in revenues by reference to individual segment revenues, revenues are presented on an aggregated basis, which is revenues after elimination of intra-segment (between entities in the same segment) transactions, but before inter-segment (between entities in different segments) eliminations, unless accompanied by the word "consolidated”. Amounts attributable to individual companies, where appropriate, are shown prior to both intra-segment and inter-segment eliminations. 3 Here and further, MTS and Comstar UTS OIBDA are shown on consolidated basis and differ from respective standalone OIBDA values owing to certain consolidation reclassifications and adjustments. 4 Here and further, SITRONICS’ and Sistema Hals’ financial results are shown on consolidated basis and differ from respective standalone values owing to certain consolidation reclassifications and adjustments. 5 The results of Banking segment are shown excluding the operating results and effects of acquisition of control over the operations of East-West United Bank in December 2006. Sistema is the largest private sector consumer services company in Russia and the CIS, with over 75 million customers. Sistema develops and manages market-leading businesses in selected service-based industries, including telecommunications, technology, insurance, banking, real estate, retail and media. Founded in 1993, the company reported revenues of US$ 10.9 billion for the full year of 2006, and total assets of US$ 20.1 billion as at December 31, 2006. Sistema’s shares are listed under the symbol "SSA” on the London Stock Exchange, under the symbol "AFKS” on the Russian Trading System (RTS), and under the symbol "SIST” on the Moscow Stock Exchange (MSE). Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Sistema. You can identify forward looking statements by terms such as "expect,” "believe,” "anticipate,” "estimate,” "intend,” "will,” "could,” "may” or "might” the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industries, as well as many other risks specifically related to Sistema and its operations. SISTEMA JSFC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)   US$ million Jan-Dec2006   Jan-Dec2005   Oct-Dec2006   Oct-Dec2005   Sales 10,054,552  7,143,386  3,137,828  2,079,734  Revenues from financial services 808,230  450,163  263,785  95,582    TOTAL REVENUES 10,862,782  7,593,549  3,401,613  2,175,316    Cost of sales, exclusive of depreciation and amortization shown separately below (4,510,874) (2,877,169) (1,548,968) (919,340) Financial services related costs, exclusive of depreciation and amortization shown separately below (563,230) (342,018) (176,443) (83,477)   TOTAL COST OF SALES (5,074,104) (3,219,187) (1,725,411) (1,002,817)   Selling, general and administrative expenses (2,016,227) (1,414,313) (648,006) (485,577) Depreciation and amortization (1,290,266) (1,024,592) (360,241) (275,763) Other operating expenses, net (171,544) (71,392) (61,010) (42,809) Equity in net income of investees 92,196  54,446  13,270  65  Net gain on disposal of interests in subsidiaries and affiliates 330,412  15,326  20,011  11,989    OPERATING INCOME 2,733,249  1,933,837  640,226  380,404    Interest income 65,439  66,132  17,659  9,275  Change in fair value of derivative financial instruments (60,000) -  (60,000) -  Interest expense, net of amounts capitalized (355,326) (225,684) (98,217) (35,792) Currency exchange and translation loss 67,300  (13,913) 61,379  499  Impairment loss on investment in Bitel (150,000) -  (150,000) -    Income before income tax and minority interests 2,300,662  1,760,372  411,047  354,386    Income tax expense (803,429) (512,993) (208,523) (108,901)   Equity in net income of energy companies in the Republic of Bashkortostan 139,794  23,587  (11,514) 23,587    Income before minority interests 1,637,027  1,270,966  191,010  269,072    Minority interests (733,736) (740,514) (97,806) (172,841)   Income from continuing operations before extraordinary gain 903,291  530,452  93,204  96,231    Extraordinary gain -  3,956  -  3,956    NET INCOME 903,291  534,408  93,204  100,187    Weighted average number of common shares outstanding 9,570,050  9,475,980    Earnings per share, basic and diluted   94.4    56.0          SISTEMA JSFC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)   US$ ‘000 December 31,2006 December 31,2005   ASSETS   CURRENT ASSETS: Cash and cash equivalents $ 543,381  $ 482,647  Short-term investments 998,989  594,196  Loans to customers and banks, net 1,289,832  451,395  Insurance-related receivables 233,400  149,589  Accounts receivable, net 1,069,706  442,643  Prepaid expenses, other receivables andother current assets, net 985,055  567,544  VAT receivable 450,703  495,191  Inventories and spare parts 661,568  482,909  Deferred tax assets, current portion 195,672  123,681          Total current assets   6,428,306    3,789,795    Property, plant and equipment, net 7,453,054  5,876,124  Advance payments for non-current assets 385,281  233,761  Investments in affiliates 1,108,647  914,203  Investments in shares of Svyazinvest 1,390,302  -  Other investments 122,500  150,000  Goodwill 514,460  330,932  Licenses, net 477,054  615,042  Other intangible assets, net 1,205,039  886,272  Loans to customers and banks, net of current portion 464,490  117,107  Debt issuance costs, net 80,220  82,662  Deferred tax assets, net of current portion 73,623  33,472  Other non-current assets 428,508  61,480          Total non-current assets 13,703,178  9,301,055          TOTAL ASSETS $ 20,131,484  $ 13,090,850  SISTEMA JSFC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)   US$ ‘000 December 31,2006 December 31,2005   LIABILITIES AND SHAREHOLDERS’ EQUITY   CURRENT LIABILITIES: Accounts payable $ 868,378  $ 594,816  Bank deposits and notes issued, current portion 920,369  459,629  Insurance-related liabilities 721,192  412,328  Taxes payable 150,894  125,474  Deferred tax liabilities, current portion 52,714  28,149  Subscriber prepayments, current portion 508,558  472,673  Derivative financial instruments 184,316  -  Accrued expenses and other current liabilities 896,314  517,451  Short-term loans payable 1,297,168  637,769  Current portion of long-term debt 262,140  523,530          Total current liabilities   5,862,043    3,771,819    LONG-TERM LIABILITIES: Long-term debt, net of current portion 5,314,304  3,209,311  Subscriber prepayments, net of current portion 136,861  163,897  Bank deposits and notes issued, net of current portion 65,200  37,200  Deferred tax liabilities, net of current portion 290,115  237,916  Postretirement benefits obligation 16,391  16,217  Deferred revenue 129,120  125,700          Total long-term liabilities   5,951,991    3,790,241          TOTAL LIABILITIES   11,814,034    7,562,060    Minority interests in equity of subsidiaries 3,626,453  2,295,147    Commitments and contingencies -  -    Puttable shares of SITRONICS 80,000  -    SHAREHOLDERS’ EQUITY: Share capital (9,365,757 and 9,650,000 shares issued and outstanding as of December 31, 2006 and 2005, respectively, with par value of 90 Russian Rubles) 30,057  30,057  Treasury stock (284,243 shares with par value of 90 Russian Rubles as of December 31, 2006) (347,068) -  Additional paid-in capital 2,196,475  1,479,743  Retained earnings 2,589,589  1,696,276  Accumulated other comprehensive income 141,944  27,567          TOTAL SHAREHOLDERS’ EQUITY 4,610,997  3,233,643          TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 20,131,484  $ 13,090,850  SISTEMA JSFC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)   2006  2005  CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 903,291  $ 534,408  Adjustments to reconcile net income to net cash provided by operations: Extraordinary gain -  (3,956) Depreciation and amortization 1,290,266  1,024,592  (Gain)/Loss on disposals of property, plant and equipment (16,917) 15,638  Impairment loss on investment in Bitel 150,000  -  Non-cash compensation to employees 90,778  -  Profit recognized by the percentage-of-completion method on real estate developed for sale (96,919) (2,195) Gain on disposal of interests in subsidiaries and affiliates (330,412) (15,326) Minority interests 733,736  740,514  Equity in net income of investees (231,990) (78,033) Deferred income tax benefit (108,140) (105,920) Debt issuance cost amortization 27,035  16,341  Change in fair value of a derivative financial instrument 60,000  -  Amortization of connection fees (106,430) (75,955) Provision for doubtful accounts receivable 122,827  59,564  Allowance for loan losses 35,363  62,054  Inventory obsolescence expense 1,013  10,875    Changes in operating assets and liabilities, net of effects from purchase of businesses: Trading securities (147,034) (306,567) Loans to banks (422,031) 86,254  Insurance-related receivables (75,089) (47,837) Accounts receivable (388,246) (181,033) Prepaid expenses, other receivables and other current assets (277,111) (338,073) VAT receivable 45,720  (149,192) Inventories and spare parts 59,757  (198,249) Accounts payable 80,402  311,936  Insurance-related liabilities 261,553  127,255  Taxes payable 14,738  6,566  Subscriber prepayments 125,320  164,412  Accrued expenses and other liabilities 314,006  130,053  Postretirement benefits obligation   174    4,704    Net cash provided by operations   2,115,660    1,792,830    CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (1,766,148) (2,087,101) Purchases of intangible assets (599,390) (372,552) Purchases of businesses, net of cash acquired (631,401) (540,404) Proceeds from disposals of subsidiaries, net of cash disposed 235,174  12,862  Purchases of long-term investments (1,699,048) (796,990) Proceeds from sale of long-term investments 20,000  13,053  Purchases of other non-current assets (138,827) (8,134) Purchases of short-term investments (623,179) (839,516) Proceeds from sale of short-term investments 449,039  662,847  Proceeds from sale of property, plant and equipment 32,302  4,179  Cash deposited for acquisition of Intracom Telecom (46,100) -  Increase in restricted cash (22,624) (5,269) Net increase in loans to customers   (581,631)   (319,174)   Net cash used in investing activities   (5,371,833)   (4,276,199)   CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term borrowings, net 523,930  408,707  Net increase in deposits from customers 341,677  112,663  Net increase in bank promissory notes issued (24,905) 50,511  Proceeds from grants -  3,360  Proceeds from capital transactions of subsidiaries 1,450,256  -  Proceeds from long-term borrowings, net of debt issuance costs 2,287,294  1,340,784  Principal payments on long-term borrowings (636,983) (526,852) Principal payments on capital lease obligations (5,197) (4,468) Payments to shareholders of subsidiaries (262,419) (198,333) Dividends paid (9,678) (8,752) Purchase of treasury stock (347,068) -  Proceeds from issuance of common stock, net of issuance costs   -    1,284,649    Net cash provided by financing activities $ 3,316,907  $ 2,462,269    INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS $ 60,734  $ (21,100) CASH AND CASH EQUIVALENTS, beginning of the year   482,647    503,747  CASH AND CASH EQUIVALENTS, end of the year $ 543,381  $ 482,647  SISTEMA JSFC AND SUBSIDIARIES SEGMENTAL BREAKDOWN FOR THE FULL YEAR 2006, 2005 (UNAUDITED)   For the Year ended December 31, 2006   Tele?commu?nications   Tech?nology   Insurance   Banking   Mass Media   Real Estate   Retail   Corporate and Other   Total   Net sales to external customers (a) 7,469,439  1,268,368  604,220  204,010  78,872  273,096  335,144  629,635  10,862,784  Intersegment sales 6,150  342,366  34,412  24,181  27,834  9,770  165  17,933  462,811  Income from equity affiliates 91,717  245  391  -  5,529  -  -  138,945  236,827  Interest income 56,483  11,223  -  -  289  4,454  863  30,780  104,092  Interest expense (200,424) (32,235) -  -  (727) (7,560) (7,927) (127,670) (376,543) Net interest revenue (b) -  -  34,578  26,792  -  -  -  -  61,370  Depreciation and amortization (1,198,980) (42,706) (4,393) (3,236) (11,155) (7,153) (5,706) (16,937) (1,290,266) Operating income 2,377,358  129,809  42,015  33,971  15,447  85,974  15,152  310,648  3,010,374  Income tax expense (645,042) (40,847) (14,202) (8,276) (2,575) (16,564) (2,413) (73,510) (803,429) Income before minority interests and extraordinary gain 1,448,668  68,854  25,779  25,837  14,672  64,068  6,432  337,692  1,992,002  Investments in affiliates 266,488  -  -  -  6,675  -  -  842,408  1,115,571  Segment assets 12,656,286  1,638,708  946,831  2,513,548  355,477  943,348  238,138  3,514,069  22,806,405  Indebtedness (c) (3,908,943) (505,333) (1,317) (399,069) (17,693) (359,727) (90,890) (1,590,640) (6,873,612) Capital expenditures 2,001,973  103,869  14,440  11,414  83,714  134,738  32,341  3,874  2,386,363    (a) - Interest income and expenses of the Insurance and Banking segments are presented as revenues from financial services in the Group's consolidated financial statements.   (b) - The Banking segment derives a majority of its revenue from interest. In addition, management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, only the net amount is disclosed.     (c) - Represents the sum of short-term and long-term debt, including vendor financing, and capital lease obligations For the Year ended December 31, 2005   Tele?commu?nications   Tech?nology   Insurance   Banking   Mass Media   Real Estate   Retail   Corporate and Other   Total   Net sales to external customers (a) 5,892,232  665,680  371,936  78,228  26,137  73,552  207,972  277,812  7,593,549  Intersegment sales 651  295,453  36,924  28,557  26,291  4,896  36  5,782  398,590  Income from equity affiliates 66,382  16  239  1,231  -  -  -  10,165  78,033  Interest income 32,386  715  -  -  260  660  148  43,874  78,043  Interest expense (148,681) (10,155) -  -  (1,393) (5,702) (2,266) (81,126) (249,323) Net interest revenue (b) -  -  -  13,046  -  -  -  -  13,046  Depreciation and amortization (989,210) (12,044) (4,373) (1,555) (4,540) (2,104) (1,618) (9,148) (1,024,592) Operating income/(loss) 1,933,269  143,517  28,417  12,722  7,070  10,399  10,445  (63,012) 2,082,827  Income tax expense (444,975) (31,705) (11,175) (3,967) (1,174) (4,248) (2,712) (13,037) (512,993) Income/(loss) before minority interests and extraordinary gain 1,352,892  101,892  19,679  8,755  3,814  2,315  5,649  (111,582) 1,383,414  Investments in affiliates 214,259  -  -  17,749  469  2,397  -  679,329  914,203  Segment assets 9,268,693  553,165  564,775  1,134,962  81,905  331,793  146,284  2,052,771  14,134,348  Indebtedness (c) (3,076,414) (96,537) (955) (150,000) (13,807) (38,977) (45,488) (948,432) (4,370,610) Capital expenditures 2,339,371  30,512  8,417  5,170  28,423  18,571  8,971  44,882  2,484,317    (a) - Interest income and expenses of the Insurance and Banking segments are presented as revenues from financial services in the Group's consolidated financial statements.   (b) - The Banking segment derives a majority of its revenue from interest. In addition, management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, only the net amount is disclosed.     (c) - Represents the sum of short-term and long-term debt, including vendor financing, and capital lease obligations Attachment A Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP. Operating Income Before Depreciation and Amortization (OIBDA) and OIBDA margin. OIBDA represents operating income before depreciation and amortization. OIBDA margin is defined as OIBDA as a percentage of our net revenues. Our OIBDA may not be similar to OIBDA measures of other companies; is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of mobile operators and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our OIBDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the wireless telecommunications industry. OIBDA can be reconciled to our consolidated statements of operations as follows:     Oct-Dec2006   Oct-Dec2005   Jan-Dec2006   Jan-Dec2005   Operating Income 640,225  403,991  2,733,248  1,959,424                      Depreciation and Amortization 360,241  275,641  1,290,266  1,024,592                      OIBDA 1,000,466  679,754  4,023,514  2,982,016