FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2006

Moscow, Russia - July 13, 2006 - Sistema (LSE: SSA), the largest private sector consumer services company in Russia and the CIS, today announced its consolidated US GAAP financial results for the first quarter and three months ended March 31, 2006.

HIGHLIGHTS

- Consolidated revenues up 30% year on year to US$ 2.01 billion

- OIBDA¹ up 21% year on year to US$ 774.8 million

- Operating income up 11% year on year to US$ 470.0 million

- Net income up 17% year on year to US$ 129.5 million

Alexander Goncharuk, President and CEO, commented: "The first quarter saw double digit revenue, OIBDA and operating income growth for the fifth straight quarter since Sistema became a publicly listed company.  This continued strong performance reflected healthy growth in our telecommunications businesses as well as an increasing contribution from our non-telecommunications businesses including our Technology, Insurance and Banking divisions. Overall, non-telecommunications businesses contributed 15.1% of group operating income in the quarter, compared to less than 1% a year ago. This demonstrates both the strengthening market positions of our range of consumer-focused service businesses, as well as the success of our financial investments such as the acquisition of minority stakes in six energy companies in the Republic of Bashkortostan."

FINANCIAL SUMMARY

US$ millions	Q1 2006	Q1  2005
Consolidated Revenues	2,011.0	1,551.1
OIBDA	774.8	641.4
Operating Income	470.0	423.5
Net Income	129.5	110.5

OPERATING REVIEW

Consolidated revenues for the first quarter of 2006 increased by 29.7% year on year to US$ 2.01 billion from US$ 1.55 billion for the same period of 2005. Sistema's revenue mix continued to reflect strong growth in the Group's non-telecommunications businesses, which accounted for 23.8% of consolidated revenues in the first quarter of 2006. The two largest non-telecommunications businesses - Technology and Insurance - contributed 8.5% and 6.4% of Group consolidated revenues, respectively.  

Sistema's OIBDA for the first quarter of 2006 increased by 20.8% year on year to US$ 774.8 million from US$ 641.4 million for the first three months of 2005, with the OIBDA margin decreasing to 38.5% from 41.4% a year ago.

The Group's operating income for the first quarter grew by 11.0% year on year from US$ 423.5 million to US$ 470.0 million, and was positively impacted by the increased associated company income from equity participations, with the oil-producing and refining companies in Bashkortostan contributing a US$ 57.2 million share of earnings for the period. Sistema's ownership stake in these assets increased in the fourth quarter of 2005 to over 20%², and Sistema therefore now reports its share of earnings in these companies but does not consolidate any sales in its consolidated financial statements.

Net income for the first quarter was up 17.2% year on year from US$ 110.5 million in 2005 to US$ 129.5 million in the current year.

Telecommunications

US$ millions	Q1 2006	Q1  2005
Revenues	1,534.2	1,242.4
OIBDA	692.8	634.0
Operating Income	398.8	423.5
Net Income	128.6	156.3

Revenues for the Telecommunications segment were up 23.5% year on year, which primarily reflected the growth in MTS' revenues. MTS added 2.86 million subscribers during the first quarter of 2006, of which the majority were in the Russian and Ukrainian markets. The share of value added services as a percentage of MTS' total revenues increased quarter on quarter in the first quarter by two percentage points to 14%. Telecommunications segment revenues accounted for 71.4% of Group revenues for the first quarter of 2006³, compared to 75.8% for the first quarter of 2005.

Telecommunications segment OIBDA increased by 9.3% year on year, and the OIBDA margin for the first quarter of 2006 declined year on year from 51.0% to 45.2%.

Net income decreased by 17.8% year on year, which reflected the decline in MTS earnings. The net income margin for the first quarter consequently declined from 12.6% to 8.4% year on year.

MTS' consolidated revenues increased by 21.9% year on year from US$ 1.06 billion to US$ 1.29 billion⁴. MTS' OIBDA for the period was US$ 581.0 million and the OIBDA margin decreased to 45.1%. MTS reported net income of US$ 184.4 million, compared to US$ 232.5 million for the first quarter of 2005. 

Comstar UTS' consolidated revenues increased by 22.1 % year on year to US$ 249.8 million in the first quarter of 2006 from US$ 204.6 million for the same period of 2005. This growth was primarily organic, with businesses acquired after March 31, 2005 contributing only US$ 8.4 million to Comstar UTS' total consolidated revenues in the first quarter of 2006.

The company's OIBDA increased by 19.5% year on year to US$ 101.3 million from US $ 84.8 million in 2005. Net income was up 38.7% year on year from US$ 28.2 million to US$ 39.2 million. Comstar UTS demonstrated robust growth across all subscriber segments in its traditional fixed-line communications business during the first quarter, with a 20.1% aggregate increase in revenues from these operations on a quarter-on-quarter basis. The positive trends in the alternative fixed-line business included a sharp rise in ADSL and pay-TV sales, with the cumulative share of these services as a proportion of Comstar UTS' total alternative fixed-line revenues more than doubling year on year from 8.0% to 17.5%.

Comstar UTS completed its Initial Public Offering in February 2006, which raised over US$ 1.06 billion, with net proceeds to the company amounting to US$ 0.98 billion.

Technology

US$ millions	Q1 2006	Q1  2005
Revenues	282.4	194.3
OIBDA	60.6	17.4
Operating Income	59.4	14.6
Net Income	31.5	4.5

SITRONICS, the technology arm of Sistema, generated year on year revenue growth of 45.3% for the period, and, as a result, accounted for 13.1% of Group revenues, compared with 11.8% in the same period of 2005. The growth was primarily driven by the IT Services business, which accounted for 42.4% or US$ 119.8 million of segment revenue. OIBDA for the IT Services business increased by more than four times year on year to US$ 3.3 million, with net income increasing at a similar pace to US$ 2.9 million in the first quarter of 2006. This reflected the strong growth in higher margin systems integration business and the expansion into higher growth CIS markets.

The Telecommunications Solutions business also showed significant year on year growth with revenues increasing by 78.4% to US$ 102.1 million and OIBDA increasing by over three times to US$ 53.7 million.  Net income was up by more than three times to US$ 42.1 million in the first quarter.

The Microelectronics Solutions business generated 52.2% year on year revenue growth to US$ 22.4 million, with a sixfold increase in OIBDA to US$ 6.7 million. Net income increased to US$ 3.3 million, compared with a net loss of US$ 1.2 million in the first quarter of 2005.

Consumer electronics segment revenues grew by 12.2% year on year to US$ 33.2 million in the first quarter of 2006 from US$ 29.6 million for the first quarter of 2005. However, a US$ 3.0 million loss at the OIBDA level reflected a fall in demand for Liquid Crystal Display monitors in the first quarter of 2006, as well as the renewal of the range of Concern SITRONICS products, which led to a decrease in margins due to the discounted selling of legacy model electronic appliances.       

Real Estate

US$ millions	Q1 2006	Q1  2005
Revenues	15.7	5.5
Operating Income	(0.4)	1.7
Net Income	(5.8)	(0.5)

Revenues for Sistema Hals, the real estate division of Sistema, rose by 185.5% year on year in the first quarter to US$ 15.7 million.

The net loss increased from US$ 0.5 million in the first quarter of 2005 to US$ 5.8 million in the first quarter of 2006 due to an increase in administrative expenses, primarily driven by a larger pipeline of construction projects, as well as a US$ 3.7 million negative currency translation effect, which compared with a net gain of US$ 0.5 million for the same period 2005.

Insurance

US$ millions	Q1 2006	Q1  2005
Revenues	138.4	96.6
Gross Premiums Written	226.6	201.3
Net Premiums Earned	121.4	91.3
Net Income	6.4	2.8

Key Ratios

Loss ratio	48.5%	52.5%
Expense Ratio	38.8%	33.4%
Combined Ratio	87.3%	85.9%

Revenues for ROSNO, the insurance division of Sistema, increased by 43.3% year on year in the first quarter. Gross premiums written increased by 12.6% to US$ 226.6 million in the first quarter, which primarily reflected the 51% year on year growth in Voluntary Medical Insurance premiums; a 53% increase in Motor Own Damage premiums; and a 24% increase in obligatory third-party motor liability insurance.   

Allianz-Rosno Asset Management increased its third party assets under management to US$ 160.2 million, and now has total assets under management of US$ 594.1 million.

Driven by strong insurance and investment results, segment net income increased by 128.6% year on year to US$ 6.4 million in the first quarter.

Banking

US$ millions	Q1 2006	Q1  2005
Revenues	44.1	22.5
Operating Income	8.7	2.5
Net Income	5.9	1.0

Retail

US$ millions	Q1 2006	Q1  2005
Revenues	56.0	18.2
OIBDA	(2.9)	1.8
Operating Income	(3.1)	1.5
Net Income	(5.0)	0.6

Detsky Mir, the specialist children's goods retailer, more than tripled its revenues year on year to $56.0 million. The business' OIBDA declined year on year in the first quarter from a profit of US$ 1.8 million to a loss of US$ 2.9 million, which was due to a significant increase in the number of rented outlets and a resulting increase in selling, general and administrative expenses. The development of the wholesale business through S-Toys and NeuKoln, which were acquired in 2005, has temporarily depressed gross margins on a blended basis. Gross margins in the wholesale business are typically lower than in retail and range between 1% and 5%. In addition, the gross margins achieved at the new retail stores are still relatively low compared to those achieved at the flagship store in the Moscow city centre.

Net income for the first quarter of 2006 therefore declined year on year from a profit of US$ 0.6 million in the first quarter of 2005 to a net loss of US$ 5.0 million in the current year.

Detsky Mir has acquired and opened thirty six new retail stores since the first quarter of 2005.  These stores contributed US$ 13.1 million in new sales, or 23.4% of segment revenues, while the wholesale business accounted for US$ 20.4 million or 36.4% of the total revenue for the segment.

Media

US$ millions	Q1 2006	Q1  2005
Revenues	19.8	32.4
OIBDA	3.7	0.2
Operating Income	0.1	(1.4)
Net Income	(1.7)	3.1

Sistema Mass Media, the media division of Sistema, reported a 38.9% year on year decline in revenues in the first quarter following the disposal of non-core loss-making subsidiaries in 2005. The segment's operating profitability consequently improved from a loss of US$ 1.4 million in 2005 to a profit of US$ 0.1 million in the current year.

Net income declined from a profit of US$ 3.1 million in the first quarter of 2005 to a net loss of US$ 1.7 million in the first quarter of 2006 resulting from the absence of significant disposal effects in 2006.

Approximately US$ 13.8 million of the total segment revenues of US$ 19.8 million in the first quarter of 2006 were generated from companies acquired in 2005 and 2006, while US$ 29.8 million of the first quarter 2005 revenues of US$ 32.4 million were accounted for by companies subsequently disposed of, or transferred to other reporting segments. For example, MTU-Intel and Golden Line, which were subsequently included in the Telecommunications division, contributed approximately US$ 22.2 million of segment revenues in the first quarter of 2005.

FINANCIAL HIGHLIGHTS

Cash Flow

Sistema generated cash flow from operations of US$ 256.5 million in the first quarter of 2006, which compared with US$ 515.4 million for the first quarter of 2005. The decrease is primarily related to the growth in loans outstanding to banks issued by MBRD, whereas the corresponding increase in debt financing secured by the bank is included in cash inflow from financing activities.

Net cash used in investing activities was US$ 864.6 million in the first quarter of 2006 and primarily reflected capital expenditure in the Telecommnications division, as well as the purchase of businesses for a total combined consideration of US$ 320.7 million. These purchases included the acquisitions of 100% of United Cable Networks, 8.03% of MGTS, and 20% of Cosmos Hotel.

Capital expenditure, excluding acquisitions, totaled US$ 393.8 million for the first quarter of 2006, compared to US$ 455.0 million for the first quarter of 2005, whereas the proportion  of capital expenditure  accounted for by the telecommunications division decreased year on year from 95.0% to 90.1%.

Cash flow from financing activities amounted to US$ 1.23 billion in the quarter and primarily reflected the proceeds from the Comstar UTS Initial Public Offering, which took place in February 2006.

Net debt was US$ 3.5 billion at the end of the first quarter of 2006, compared with US$ 1.92 billion as at 31 March 2005.

ACQUISITIONS AND DIVESTITURES

In the Telecommunications segment, Comstar UTS made an unconditional purchase offer to the holders of common shares of MGTS in December 2005. The offer price was set at RUR 490 (equivalent to US$ 17.6 as at March 31, 2006) per one common share of MGTS. Shareholders of MGTS could accept this offer within 30 days of receipt of official notification. In February 2006, Comstar UTS announced the results of its public share purchase offer to MGTS common stock shareholders. During the first two months of 2006, Comstar UTS acquired 3,363,332 MGTS ordinary shares, representing 4.21% of the outstanding ordinary shares, for a total cash consideration of RUR 1,600 million (equivalent to US$ 57.6 million as at March 31, 2006). In March 2006, Comstar UTS purchased an additional 3.82% of MGTS common stock from minority shareholders for US$ 71.5 million. As a result, Comstar UTS' voting power and ownership interest in MGTS have increased to 63.7% and 53.0% respectively.

In the Insurance segment, ROSNO acquired a 51% stake in Medexpress, which is a provider of voluntary medical insurance in the North-western region of the Russian Federation, for a cash consideration of US$ 6.6 million. The Group plans to further develop Medexpress' operations and use its distribution as an additional sales channel for ROSNO products.

In the Mass Media segment, Sistema Mass Media and ECU GEST acquired 90% and 10% respectively of JIR Broadcast and JIR Inc., which are the owners of 100% of United Cable Networks ("UCN"), for a total cash consideration of US$ 145.9 million.  This included the refinancing of the debt previously obtained by JIR Broadcast and JIR Inc. UCN is a pay-TV and broadband service provider in Russia, which operates in 17 metropolitan areas throughout the Russian Federation and has 724,000 subscribers.

In January 2006, Sistema Mass Media acquired GK Sendi, which is an internet provider in Nizhny Novgorod, and Informservis, which is a cable television operator in the same region, for a combined total cash consideration of US$ 6.3 million. The Group intends to use these acquisitions to further develop its digital TV and broadband networks in the regions.

In the Retail segment, Detsky Mir completed the acquisition of 99% of Tireks Development, which owns a 30% stake in Group subsidiary Dom Igrushki, for a cash consideration of US$ 2.4 million in March 2006.

In the Corporate and Other segment, Intourist purchased a 20% equity interest in Cosmos Hotel for approximately US$ 20.0 million in March 2006. Upon completion of this transaction, Intourist became the controlling shareholder in Cosmos Hotel with a 61.8% shareholding.

Additionally, in the Corporate and Other segment, Concern RTI acquired a 50% plus one share interest in UralEleketro, and a 100% stake in UralElektro-K, for a combined cash consideration of US$ 5.4 million in March 2006. Both companies manufacture electronic equipment.