FOR IMMEDIATE RELEASE June 25, 2007 JSC SITRONICS SUMMARY FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 MOSCOW, Russia June 25, 2007 JSC SITRONICS ( SITRONICS or The Company ) (LSE: SITR), a leading provider of telecommunications, IT and microelectronic solutions in Russia and the CIS, with a growing presence in Central and Eastern Europe, the Middle East and Africa, today announced its summary unaudited consolidated US GAAP financial results for the first quarter of 2007 ended March 31, 2007. Summary Financial Results Total revenues for the first quarter amounted to US$ 310.0 million, following healthy growth in the Information Technology Solutions and Microelectronics Solutions segment areas, as well as the impact of the consolidation of Intracom Telecom s results for the first quarter of 2007. SITRONICS acquired 51% of Intracom Telecom in June 2006 and SITRONICS total assets had consequently increased to US$ 1.97 billion as at the end of the first quarter. The proportion of revenues generated from unrelated parties reached 88%. SITRONICS reported a negative OIBDA 1 of US$ 11.4 million in the first quarter and a net loss of US$ 28.0 million. Operating Review The IT Solutions and Microelectronic Solutions segments performed in line with expectations during the first quarter. However, the Telecommunications Solutions segment was adversely affected by the delay in a number of projects from the first half of the year until the second half of the year and beyond. This reflected the effects of industry consolidation and the deferral of operators capital and operating expenditure on new technologies such as 3G, NGN (next generation networks) and WIMAX. The delayed projects include the development and implementation of Next Generation Network technology for Moscow City Telephone Network (MGTS) and of third generation (3G) mobile telecommunications technology for Mobile TeleSystems (MTS), both of which are now expected to run through the second half of 2007 and beyond. 1 OIBDA is defined as operating income before depreciation and amortization. Please see Attachment A for a full definition of OIBDA and a reconciliation of OIBDA to operating income.
The Information Technology Solutions, Microelectronic Solutions, and Other Businesses (Electronics Manufacturing Services and Consumer Electronics) segments all reported stable year on year profitability levels. The Other Businesses reported largely unchanged small loss year on year, despite a substantial reduction in revenues in line with the previously announced focusing and downsizing of the operations to meet changing market conditions. The first quarter profitability levels were however adversely impacted by an overall loss for the Telecommunications Solutions segment. The increased cost base was due to the higher level of fixed costs following the scaling up of the operations, the increase in research and development costs related to new products that were due to be implemented during the period but have been delayed, and the ongoing expansion into the Middle East and Africa. Outlook The first quarter revenue and profitability trends are expected to continue into the second quarter of the year. However, SITRONICS revenue streams are largely dependent on scale contracts that tend to weight more to the second half of the year. SITRONICS has won a number of new public and private sector tenders and contracts during the first half of 2007. The pipeline remains strong and the Company expects a significant increase in revenues during the second half of 2007. This demonstrates the healthy underlying development of the business. In addition to the anticipated implementation of the MGTS and MTS projects, the Telecommunications Solutions segment has secured billing system contract wins with Wateen Telecom in Pakistan and Telecom Srbija in Serbia. The business has also signed new contracts for the provision of NGN and billing technologies to German-based operator CALLAX, and for the supply of telecommunications infrastructure and implementation services to Bulgaria s BTC Mobile. The IT Solutions segment has broadened its services focus to include new industry sectors such as Finance and Retail, and this is starting to pay off. The business has commenced an integrated banking system pilot at Russia s second largest bank VTB - to implement Oracle s I-Flex, and also started the implementation of Oracle s Retek Retail software at Russian children s goods retail network - Detsky Mir. The business has also won a large contract for a World Bank-funded project at the Statistics Committee in the Ukraine. The Microelectronics Solutions segment has expanded its successful RFID ticketing technology project in the Moscow Metro (subway) by winning a tender to provide RFID tickets for ground transportation in the Moscow region. The business also signed a US$ 75 million contract with the National Machinery Import & Export Corporation of China for the supply of microelectronic products to China for the next 5 years. SITRONICS has reorganized the Telecommunications Solutions segment and introduced a new management team, in order to increase sales capacity, leverage cross and up-sell opportunities, accelerate growth, reduce costs and improve operating profitability in Russia and the CIS, as well as to identify organic growth and acquisition opportunities in new industry segments and geographies. The company is also working to optimize its product portfolio and focus research and development investments on newer technologies.
The operational integration of Intracom Telecom is ongoing and expected to result in enhanced sales reach, reduced overhead costs and improving working capital management. The IT and Microelectronic Solutions segments are anticipated to meet expectations for the full year, whilst the Telecom Solutions segment is expected to generate revenues close to the previous expectations but with continuing margin pressure in 2007. The Other Businesses are expected to be profitable for the full year on a combined basis. Comments from the President Evgeny Utkin, President of SITRONICS, commented: As announced at the time of our full year results in May, we are today providing an update on summary financial results for the first quarter of 2007, ahead of our half yearly results statement in September. The first quarter saw continued revenue growth and an increased diversification in our customer base but decreased net profits and OIBDA. We have strengthened our partnerships with international industry leaders such as Oracle and CISCO, and have also developed our own IP-based solutions for each of the principal evolving technologies, which we believe position us well for the future. The IT Solutions and Microelectronic Solutions segments performed well, with strong sales growth and stable profits. We continue to invest in developing new industry sectors and geographical markets, and these investments are leading to new contracts and a growing pipeline. The telecommunications industry is going through a period of consolidation and technological change, which has adversely impacted our results during the first six months of 2007, with a number of customers delaying the introduction of new technologies until later in the year. We have reacted to the changing market environment by broadening out our technology, client, sector and geographical base. Such initiatives have enabled us to develop a healthy pipeline and secure new customer contracts, which are expected to lead to significantly improved operating performance in the second half of 2007. Our home markets continue to show significant Information and Communication Technology sector growth and the rapid development of knowledge-based economies makes them some of the fastest growing markets in the world. Whether through government initiative or commercial enterprise, we believe technology will be among the main drivers of economic development in the region and that SITRONICS is uniquely positioned to capitalize on this growth. Other Information SITRONICS will announce its full financial results for the six months ended June 30, 2007, in September 2007. A further financial summary for the third quarter ended September 30, 2007 will be provided in December 2007. Conference call SITRONICS management will host a conference call today at 5.00 PM Moscow local time, 2.00 PM London local time and 9.00 AM New York local time to present and discuss the summary results. Participants may dial the following numbers in order to access the call:
UK / International: +44 20 7138 0836 US: +1 718 354 1172 A replay facility will also be made available for 7 days after the call and may be accessed by dialing the following numbers and using the following pin code: UK / International: +44 20 7806 1970 US: +1 718 354 1112 PIN CODE: 8543813# *** For further information, please visit www.sitronics.com or contact: SITRONICS Alexey Tischenko, Head of Capital Markets & Investor Relations Tel: +7 495 221 49 43 / +7 495 225 00 30 ir@sitronics.com Shared Value Limited Matthew Hooper Tel. +44 (0) 20 7321 5010 sitronics@sharedvalue.net Elena Sanarova, Public Relations Tel : +7 495 225 0030 Sanarova@sitronics.com ABOUT SITRONICS SITRONICS is a leading provider of telecommunication solutions, including software, equipment and systems integration, IT solutions and microelectronic solutions in Russia and the Commonwealth of Independent States with a strong presence in Central and Eastern Europe and a growing presence in the Middle East and Africa. SITRONICS serves over 3,500 clients, maintains offices in 30 countries and exports its products and services to more than 60 countries. SITRONICS has over 10,000 employees of whom approximately 4,600 are involved in research and development. SITRONICS key Telecommunication Solutions operations are based in Prague, Czech Republic and Athens, Greece, while the company s IT Solutions and Microelectronic Solutions divisions are based in Kiev, Ukraine and Zelenograd, Russia respectively. For the three months ended March 31, 2007, SITRONICS revenues were US$ 310 million. As of 31 March 2007, SITRONICS had total assets of US$ 1.97 billion. SITRONICS is majority owned by Sistema, the largest diversified holding company in Russia and CIS. SITRONICS has developed strategic alliances in its home markets with Cisco Systems, STMicroelectronics, Infineon and Giesecke & Devrient in relation to certain products and services. SITRONICS has vendor relationships with Siemens, Ericsson, Motorola,
ORACLE, Intel, Sun Microsystems and Microsoft. Key customers include Sistema group companies, such as MTS, Comstar UTS and MTT, and also OTE, Cosmote, Vodafone, Ericsson, Arcelor Mittal (formerly Mittal Steel) and TCL. 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 SITRONICS. 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. These statements are only predictions and actual events or results may differ materially. We do not intend to or undertake any obligation 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, and other factors specifically related to SITRONICS and its operations. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares or other securities of SITRONICS, nor shall any part of it nor the fact of its distribution form part of or be relied on in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of SITRONICS.