STARMAN                            FINANCIAL REPORT                     22.08.2005



COMMENTS TO THE CONSOLIDATED INTERIM REPORT FOR THE 1ST HALF-YEAR 2005



General information



In the first half-year 2005,  Starman's  net  profit  rose  substantially  as  the

company continued to achieve  its  targets.  By  the  end  of  June,  Starman  had

successfully launched telephone services and the company's shares were  listed  on

the main list of the Tallinn Stock Exchange.

Starman's total revenue for the 1st half-year 2005 amounted to 5.85 million  euros

- a 37% increase, compared to the same period last year. EBITDA for  the  first  6

months of the year amounted to 1.9 million euros, and net profit  to  0.7  million

euros - a respective 29% and 31% increase, compared to the first  half-year  2004.

When considering the EBITDA and net profit for  the  1st  half-year  2005,  it  is

worth noting that  the  results  include  0.26  million  euros  worth  of  one-off

expenses. The majority  of  these  expenses  (99.5%)  were  incurred  in  the  2nd

quarter. Therefore, the profit for  the  2nd  quarter  (0.22  million  euros)  was

smaller than that for the 1st quarter (0.48 million euros).

AS Starman has taken a clear focus on  private  customers.  Starman's  triple-play

offering (cable television, Internet and telephone) provide household  users  with

the option of ordering all services from a single service  provider  offering  the

best price and quality ratio on the Estonian market.

In August, the  company  introduced  a  new  logo  and  corporate  symbolic.  This

reflects the company's development from a  small  cable  operator  into  Estonia's

largest telecommunication company providing services through cable networks.





Financial ratios



A selection of ratios for evaluating the economic activities in  the  first  half-

year 2005:



                          2003      2004       1st       

                                               half-year 

                                               2005      

                                                         

 Sales increase           35%       44%        37%       

 EBITDA margin            38%       32%        32%       

 Gross margin             16%       12%        15%       

 Net margin               13%       10%        12%       

 Revenue/average assets   0.62      0.68       0.66      

                                                         

 Equity ratio             70%       51%        51%       

 Debt to equity           0.34      0.73       0.69      

 Debt/EBITDA              1.05      2.08       1.72      

 Investments/EBITDA       0.78      2.15       1.25      

                                                         

 Current ratio            0.66      0.78       0.75      

 Invoice turnover rate    23.5      18.5       18.3      

 (annual)                                                



Definitions:

Sales increase = increase compared to the same period last year

EBITDA = operating profit + depreciation and amortisation

EBITDA margin = EBITDA/total revenue

Gross margin = operating profit/total revenue

Net margin = net profit/total revenue

Revenue/average assets - for comparison purposes, the revenue for the 1st half-

year 2005 have been multiplied by 2

Equity ratio = equity/total assets

Debt = borrowings + long-term borrowings

Debt/EBITDA - for comparison purposes, EBITDA for the 1st half-year 2005 has been

multiplied by 2

Current ratio = current assets/current liabilities

Invoice turnover rate = revenue for the period/accounts receivable at the end of

the period



Group structure



The Starman Group incorporates the parent company AS Starman, and the fully  owned

subsidiaries  AS  Levi  Kaabel,  Tallinna  Kaabeltelevisiooni  AS  and  AS  Telset

Telecommunications Group. These companies  were  incorporated  under  the  Starman

Group in June 2004. The primary assets of the companies were sold  to  the  parent

company immediately after the acquisition of these subsidiaries.  In  effect,  the

subsidiaries have had no extra-group turnover since December 2004.

On 31 May 2005, Starman acquired from AS Levi Kaabel full ownership of  AS  Telset

Telecommunications Group. On the same day, Starman and its subsidiaries  concluded

a merger agreement on the merger of Starman  and  all  of  its  subsidiaries.  The

merger process is scheduled to be completed at the end of 2005.



Revenue and expenses



Cable television and Internet  services  contributed  the  majority  of  Starman's

total revenue for the  1st  half-year  2005  -  52%  and  41%  of  total  revenue,

respectively.

Revenue from cable television services increased by 56%, compared to the 1st half-

year 2004. Revenue for the second quarter exceeded that for the first  quarter  by

9%. Organic growth in recent years has been  achieved  at  the  expense  of  price

increase. Cable television  service  prices  are  normalising,  but  still  remain

relatively low, considering the living standard in Estonia. At  the  end  of  June

2005, the company had a total of 128 thousand cable television customers  -  a  3%

decrease  in  customer  numbers  as  of  the  end  of  2004  mostly  due  to   the

standardisation of prices. Starman discontinued  inefficient  special  offers  and

standardised prices for Starman and former TELE 2 customers. The effect  of  these

changes on the revenue from cable television  services  is  significantly  smaller

than that relating to the drop in customer  numbers,  since  average  revenue  per

unit (ARPU) showed a significant increase among  customers  eligible  for  special

offers.



Revenue from Internet services increased by 20%, compared  to  the  1st  half-year

2004. Revenue for the second quarter exceeded that for the first  quarter  by  1%.

The slowdown in internet  revenue  growth  in  first  half  of  the  year  can  be

explained by the marketing focus on selling telephony services. As of the  end  of

June, the company had a total of  26  thousand  Internet  customers.  Starman  has

maintained its position as the leading broadband provider among private  customers

in the company's "footprint". Although no  change  occurred  in  customer  numbers

compared to the beginning of the year, the company succeeded  in  maintaining  its

ARPU in the 1st half-year, even though ARPU is clearly being pushed  down  by  the

market. As has become normal for Starman, autumn/early winter is  the  season  for

growth in Internet services.

Backed by a  rapid  expansion  in  customer  numbers,  telephone  services  showed

notable sales increase month after month. By the end of June 2005, Starman  had  a

total of 7.3 thousand telephone customers. Telephone services  contributed  3%  of

the total revenue for the 1st half-year 2005,  but  in  the  near  future  we  can

expect a substantial increase here.

Contributing 3% of the total revenue of AS  Starman  for  the  1st  half-year  and

decreasing by 33% compared to the same period 2004, sales of goods  and  materials

is primarily influenced by the decline in sales of Internet modems.



Starman's operating expenses amounted to 3.96 million euros in the  1st  half-year

2005, having grown by 41% compared to the same period 2004. Upon eliminating  one-

off expenses (especially fringe benefit tax on stock options issued to  Management

Board members, IPO expenses, and expenses on the pending TELE 2 court  case)  from

the operating expenses, the restated operating expense  growth  indicator  amounts

to 32%.

If we disregard the above one-off expenses, we can see that  expenses  on  network

maintenance-related services and materials - mainly relating to the  upgrading  of

the outdated cable network acquired as part of the TELE 2 transaction  -  as  well

as a 60% increase in programs costs increased at a growing rate in the  1st  half-

year 2005, compared to last year. For the majority of expense items, the  rate  of

growth in expenses was smaller than the increase in revenue.

Personnel expenses increased by 41% compared to last year. The average  number  of

employees amounted to 174 in the 1st half-year of 2005. As at 30  June  2005,  the

company employed 191 people - a  17%  increase,  compared  to  the  end  of  2004.

Employee numbers rose due to the increased focus on improving customer service.

In expenses related to asset valuation, the provision for bad  debts  amounted  to

34 thousand euros - i.e. 0.6% of the turnover for the period. Loss of  inventories

and discounts totalled 33 thousand euros in the first half of 2005.



EBITDA for the first 6 months  of  2005  amounted  to  1.89  million  euros.  Upon

elimination of one-off expenses, the EBITDA margin would amount to 37%.



Depreciation costs increased by 21% compared to the 1st half-year 2004.

Financial expenses, the negative effect of the significant appreciation of the  US

dollar on the company's financial results - especially in  the  second  quarter  -

deserves  to  be  separately  mentioned.  The  results  recorded  under  financial

expenses make up less than a half of the estimated total foreign exchange loss.



Net profit for the first 6 months of 2005 amounted  to  0.7  million  euros.  Upon

elimination of one-off expenses, the  net  profit  margin  would  amount  to  17%,

instead of the "official" 12%, whereas net profit  growth  would  amount  to  80%,

compared to the first 6 months of 2004.





Balance sheet, investments, financing



In the first half-year 2005, Starman's investments in  fixed  assets  amounted  to

2.36 million euros, of which  0.64  million  euros  were  invested  in  the  first

quarter and 1.72 million euros  in  the  second  quarter.  The  company  made  the

following investments: cable network renovation and construction  -  0.73  million

euros; telephone modems - 0.42 million euros; DIGI  TV  Head-End  -  0.32  million

euros; Internet equipment - 0.37 million euros (incl. Head-End`s  :  0.27  million

euros); cable television Head-End`s and equipment: 0.2 million euros (incl.  cable

television Head-Ends: 0.16 million  euros);  telephone  Head-End  -  0.18  million

euros; computers and computer systems - 0.06 million euros;  other  investments  -

0.08 million euros.

Upgrading of and enhancement of the data communication capability of the  existing

network made up the majority  of  the  investments  in  the  cable  network.  Data

communication capability increased to 73%. While  at  the  end  of  2004,  Starman

covered 243 thousand households with 161 thousand - i.e. 66% of the  households  -

being serviced by a network with data communication capabilities,  the  respective

numbers as of 30 June 2005 were 245 thousand  and  178  thousand.  Investments  in

telephone modems were directly related to the  growth  in  customer  numbers.  The

majority of 2005 investment in Internet  and  cable  television  equipment,  which

enhances quality and supports the growth in customer  numbers,  was  made  in  the

first 6  months  of  the  year.  The  DIGI  TV  Head-End  and  telephone  Head-End

investment is associated with the development of new products  and  solutions.  As

of 30 June 2005, the respective equipment had not yet been fully accepted and  was

therefore recorded under "Construction-in-progress".



In  the  first  half-year  2005,  Starman  succeeded   in   maintaining   a   high

capitalisation, a relatively low  debt  level  and  a  sufficient  liquidity.  The

balance sheet as of 30 June 2005, shows that several  current  asset  and  current

liability entries have significantly increased, compared to 2004, as a  result  of

larger-than-average investments made at the end of the 2nd quarter.  The  majority

of the increase in inventories is  thus  made  up  of  telephone  modems  not  yet

delivered to  the  customers,  while  standard  receivables  from  customers  have

actually  decreased  by  0.04  million  euros  (the  increase  in  item  "Accounts

receivable" was, above all,  conditioned  by  receivables  related  to  sales  and

leaseback transactions) and accounts payable and accrued  expenses  largely  hinge

on the fact that equipment  suppliers  have  granted  Starman  longer-than-average

payment terms for major projects. The increase  in  taxes  payable  is,  primarily

related to the one-off fringe benefits specified above.





Rändy Hütsi

Member of the Management Board

+372 677 9977

Additional information: AS Starman consolidated interim report for the  1st  half-

year 2005