Mobile TeleSystems Announces Financial Results for the Second Quarter Ended June 30, 2016

Aug 18, 2016, 08:09 ET from Mobile TeleSystems (MTS)

MOSCOW, August 18, 2016 /PRNewswire/ --

Mobile TeleSystems PJSC ("MTS" NYSE: MBT; MOEX: MTSS), the leading telecommunications provider in Russia and the CIS, today announces its unaudited IFRS financial results for the three months ended June 30, 2016. 

Key Financial Highlights of Q2 2016 

  • Consolidated group revenue increased by 5.3% y-o-y to RUB 108.1 bln
  • Total revenue in Russia rose by 3.3% y-o-y to RUB 97.4 bln
  • Mobile service revenue in Russia increased by 0.1% y-o-y to RUB 72.8 bln
  • Sales of goods in Russia increased by 38.7% y-o-y to RUB 10.6 bln
  • Active subscriber base increased by 3.5% for the Group to 109.0 mln
  • MTS's proprietary retail network in Russia increased to 5,838 stores
  • Revenue in Ukraine increased by 13.5% y-o-y to UAH 2.7 bln
  • YTD Free Cash Flow reached nearly RUB 24.0 bln
  • Total Group debt fell to RUB 274.5[1] bln as Net Debt/LTM Adjusted OIBDA remained stable at 1.1x



Key Corporate and Industry Highlights 

  • Paid out in dividends RUB 28.0 bln or RUB 14.01 per ordinary MTS share (RUB 28.02 per ADR) based on FY2015 results
  • The Board of Directors recommended that the Extraordinary General Meeting of shareholders approve semi-annual dividends of RUB 11.99 per ordinary MTS share (RUB 23.98 per ADR), or a total of RUB 24.0 bln, based on H1 2016 financial results
  • MTS through its subsidiary, Dega Retail Holding Limited, repurchased USD 267 mln of Loan Participation Notes due in 2020 (issued in 2010 in the amount of USD 750,000,000 at 8.625%) through a tender offer
  • Sold 50.01% stake in the telecommunications operator Universal Mobile Systems (UMS) to the State Unitary Enterprise Centre of Radio Communication, Radio Broadcasting and Television of The Ministry of Development of Information Technologies and Communications of the Republic of Uzbekistan

 

Commentary  

Mr. Andrei Dubovskov, President and CEO of MTS, commented, "For the period, we are pleased to report strong topline growth of 5.3% as total Group revenue increased to RUB 108.1 bln. Factors that have allowed us to build on our successful 3D strategy and set the pace for the market include: strong retail sales; stable service revenue despite on-going weaker usage in certain mobile market segments; growth in B2C home Internet and pay-tv markets; and growth in Ukraine through the steady adoption of 3G data services.

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[1] Net of financial leasing and unamortized debt issuance cost adjustment, as of June 30, 2016

Macroeconomic factors and competitive issues continue to impact our performance in many ways, in particular voice and messaging usage in roaming, but in sum, our group revenue performance currently out-paces the market."

Mr. Dubovskov continued, "OIBDA performance was slightly weaker in Q2 than anticipated as we witnessed a 4.3% decline in OIBDA for an OIBDA margin of nearly 38%. Our guidance for the year was predicated on changes in the retail environment, but we continue to see strong competitor activity in this space. Retail competition impacts both the gross margin and OIBDA directly, but it also has a sustained impact on effective pricing. These factors, combined with the continued macroeconomic volatility throughout our markets, dampened our performance for the period."

Mr. Vasyl Latsanych, Vice President, Strategy and Marketing, commented, "Total revenue in Russia increased by 3.3% to RUB 97.4 bln. Our mobile business revenue grew slightly during the period as we see a continuation of trends that had previously defined our growth: stronger data usage due to both the growth of customer usage and migration to data plans, as smartphone penetration reached over 51%; 3.2% growth in subscribers as we focus more on sales through our proprietary retail channels; and higher handset sales as we continue to implement our retail strategy of upgrading existing feature phone users, as well as attracting new active voice and data users."

Mr. Latsanych continued, "In our fixed-line business, revenue decreased by 2.8% to RUB 15.3 bln. We see continuous growth from our B2C broadband and pay-TV markets, as market shares in Moscow in both home internet and pay-tv rose. However, overall B2B and B2G spending has fallen due to macroeconomic factors, which reduces overall voice calling. In Ukraine, revenue for the period increased by 13.5% to UAH 2.7 bln. Key drivers include an increase of subscribers and data consumption, which is rising as we have rolled out 3G to all major population centers throughout Ukraine. Among our foreign subsidiaries, revenue in Armenia declined 18.6% year-over-year, while in Turkmenistan, we saw a 7.5% decline. Both markets remain exposed to macroeconomic trends, which continue to weaken voice and data usage."

Alexey Kornya, Vice President, Finance, Investments and M&A, added, "We witnessed a decline in year-over-year group OIBDA of 4.3% to RUB 40.9 bln. While the decline we have seen in the contribution from our foreign subsidiaries has stabilized, Russia witnessed OIBDA decline due to factors we have long identified as having a negative impact on our OIBDA, including higher retail expenses and also roaming costs in light of higher currency volatility. Overall, for the first half of 2016, we are only down 2.2% on OIBDA, which is close to our previous guidance of minus 2%."

Mr. Kornya continued, "Group net profit for the period decreased year-over-year to RUB 9.1 bln. Primary this decline was attributable to a number of factors, including OIBDA trends; the accelerated realization of RUB 3.1 bln in interest expense due to our repurchase of USD 267 mln of our 2020 Eurobond notes; and a smaller non-cash FOREX gain compared to Q2 2015 of RUB 1.0 bln for the period, due to relative ruble weakness vis-à-vis our non-ruble denominated debt."

"Free cash flow to date amounted to 24.0 billion rubles, an increase of 22% year-over-year for the period. CAPEX equaled nearly RUB 40.0 bln, lower than in H1 2015, but in line with our guidance of RUB 85 bln for the year. Spending is lower in each of our markets as we focus on incremental investments in our more developed data markets and have completed our launch of our core 3G network in Ukraine.

"Recently, we paid out dividends of RUB 28.0 bln or RUB 14.01 per share. The Board of Directors also recommended that an Extraordinary General Meeting of Shareholders approve a semi-annual dividend payment of close to RUB 24.0 bln or RUB 11.99 per share, which would satisfy our commitment to deliver RUB 25 - 26 per share in dividends over the course of calendar year 2016.

"By the end of the period, total debt stood at RUB 274.5 bln[2], which is trending lower due to our on-going debt repayments as well as financial policies. Our net debt/LTM Adjusted OIBDA remained stable at a manageable 1.1x, a comfortable level for the Company and very low in relation to our peers. Virtually our entire non-ruble debt position is currently covered by a combination of hedges, short-term deposits and stable long-term investments, all of which are denominated in US dollar or Euro. Adding to this, we repurchased USD 267 mln of our 2020 Eurobonds in Q2 to take advantage of a strong market and our favorable liquidity position to provide hedges against currency volatility and balance sheet flexibility. We remain focused on sustaining a strong balance sheet and identifying further ways to optimize our debt portfolio."

2016 Outlook 

In accordance with IFRS 5 disclosure requirements, from Q3 2016 the Group shall present financial results in a manner that enables users of the financial statements to evaluate the effects of discontinued operations. Results of discontinued operations shall be excluded from the results of continuing operations and presented separately as a single amount in the statement of comprehensive income. 

Group Revenue: For 2016, MTS amends its Group revenue outlook to 2-3% growth, due to disposal of UMS LLC and expected full deconsolidation of UMS's financial results in Q3 2016 and other factors:

  • Subscriber growth in Russia;
  • Rising data usage and sustained data adoption in Russia and Ukraine;
  • Increased sales of handsets in Russia; and
  • Rising share in Moscow B2C broadband/pay-TV markets.

 

Group OIBDA: MTS is compelled to revise its outlook on adjusted Group OIBDA growth to -4% due primarily to the sale of UMS LLC as well as other factors:

  • Sustained competitive pressures in the Russian distribution market and the Company's strategic efforts to sustain market share;
  • The build-out of 3G in Ukraine and non-market factors impacting our profitability;
  • Developments in foreign subsidiaries; and
  • Macroeconomic developments and currency volatility throughout our markets of operation.

 

Group CAPEX: MTS affirms its Group CAPEX guidance of RUB 85 bln

Additional Information 

MTS continues to see sustained macroeconomic volatility in its markets of operations that may impact the financial and operational performance throughout the Group.

Conference Call 

The conference call will start today at:

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[2]  Net of financial leasing and unamortized debt issuance cost adjustment, as of June 30, 2016

18:00 hrs (Moscow time)

16:00 hrs (London time)

11:00 hrs (US Eastern time)

To take part in the conference call, please dial one of the following telephone numbers and quote the confirmation code, 9935476

From Russia + 7 495 545 0588

From the UK: + 44(0)20 3427 1906

From the US: + 1 646 254 3361

The conference call will also be available at: http://www.mtsgsm.com/news/reports/ via audio webcast.

A replay of the conference call will be available for seven days on the following telephone numbers:

From the US: +1 347 366 9565 PIN 9935476

From the UK: +44(0)20 3427 0598 PIN 9935476

This press release provides a summary of some of the key financial and operating indicators for the period ended June 30, 2016. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

Financial Summary

   
    RUB mln                 Q2'16   Q2'15   y-o-y   Q1'16   q-o-q
    Revenues               108,136 102,691    5.3% 108,090   stable
    OIBDA                   40,885  42,722   -4.3%  41,279    -1.0%
    - margin                 37.8%   41.6%   -3.8%   38.2%    -0.4%
    Operating profit        20,053  22,501  -10.9%  21,031    -4.6%
    - margin                 18.5%   21.9%   -3.4%   19.5%    -1.0%
    Net profit               9,056  17,074  -47.0%  14,507   -37.6%
    - margin                  8.4%   16.6%   -8.2%   13.4%    -5.0%

 

Russia Highlights

   
    RUB mln                 Q2'16    Q2'15   y-o-y   Q1'16   q-o-q
    Revenues[3]              97,435  94,336    3.3%  96,302     1.2%
    - mobile                 72,786  72,749    0.1%  71,132     2.3%
    - fixed                  15,263  15,706   -2.8%  15,369    -0.7%
    - integrated services     1,258       -     n/a   2,492   -49.5%
    - sales of goods         10,552   7,607   38.7%  10,700    -1.4%
    OIBDA                    39,706  41,245   -3.7%  38,583     2.9%
    - margin                  40.8%   43.7%   -2.9%   40.1%     0.7%
    Net profit               10,788  18,746  -42.5%  15,000   -28.1%
    - margin                  11.1%   19.9%   -8.8%   15.6%    -4.5%

 

Ukraine Highlights

   
    UAH mln                 Q2'16   Q2'15   y-o-y   Q1'16   q-o-q
    Revenues                 2,745   2,419   13.5%   2,761    -0.6%
    OIBDA                      827     942  -12.2%     803     3.0%
    - margin                 30.1%   38.9%   -8.8%   29.1%     1.0%
    Net profit                 222     214    3.7%     275   -19.3%
    - margin                  8.1%    8,8%   -0.7%   10.0%    -1.9%

 

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[3] Revenue, net of intercompany between mobile, fixed and integrated services

Armenia Highlights

   
    AMD mln                 Q2'16    Q2'15   y-o-y   Q1'16   q-o-q
    Revenues                 15,040  18,479  -18.6%  14,151     6.3%
    OIBDA                     5,944   8,491  -30.0%   5,618     5.8%
    - margin                  39.5%   45.9%   -6.4%   39.7%    -0.2%
    Net profit/(loss)       (1,991)   4,078     n/a     239      n/a
    - margin                    n/a   22.1%     n/a    1.7%      n/a

 

Turkmenistan Highlights

   
    TMT mln                 Q2'16   Q2'15   y-o-y   Q1'16   q-o-q
    Revenues                    66      71   -7.5%      67    -1.7%
    OIBDA                       22      27  -17.2%      24    -7.5%
    - margin                 33.4%   37.4%   -4.0%   35.5%    -2.1%
    Net profit                  10      13  -29.1%      11   -15.8%
    - margin                 14.4%   18.8%   -4.4%   16.8%    -2.4%

 

Uzbekistan Highlights

   
    UZS mln                  Q2'16     Q2'15    y-o-y    Q1'16    q-o-q
    Revenues                  92,372    37,398  147.0%    85,241     8.4%
    OIBDA                      9,770  (22,235)     n/a     5,731    70,5%
    - margin                   10.6%       n/a     n/a      6.7%     3.9%
    Net loss                (10,771)  (28,123)     n/a  (12,507)      n/a
    - margin                     n/a       n/a     n/a       n/a      n/a

 

Belarus Highlights

   
    BYR bln                 Q2'16   Q2'15   y-o-y   Q1'16   q-o-q
    Revenues                 1,619   1,302   24.3%   1,489     8.7%
    OIBDA                      757     673   12.4%     681    11.1%
    - margin                 46.8%   51.7%   -4.9%   45.7%     1.1%
    Net profit                 466     368   26.6%     397    17.2%
    - margin                 28.8%   28.2%    0.6%   26.7%     2.1%

 

CAPEX Highlights

   
    RUB mln                             FY 2015          6M 2016
    Russia[4]                                79,619          35,306
    - as % of rev                             20.4%           18.2%
    Ukraine[5]                               12,427           3,155
    - as % of rev                             44.1%           20.8%
    Armenia                                   1,371             281
    - as % of rev                             15.2%            6.6%
    Turkmenistan                                500              63
    - as % of rev                              9.8%            2.3%
    Uzbekistan                                2,195             867
    - as % of rev                             47.6%           20.1%
    Group                                    96,111          39,671
    - as % of rev                             22.3%           18.3%

 

* * *

For further information, please contact in Moscow:

Joshua B. Tulgan
Director, Corporate Finance & Investor Relations
Mobile TeleSystems PJSC
Tel: +7 495 223 2025
E-mail: ir@mts.ru

Learn more about MTS. Visit the official blog of the Investor Relations Department at http://www.mtsgsm.com/blog/ and follow us on Twitter: JoshatMTS


* * *
Mobile TeleSystems PJSC ("MTS" - NYSE: MBT; MOEX:MTSS) is the leading telecommunications group in Russia, Central and Eastern Europe. We provide wireless Internet access and fixed voice, broadband and pay-TV to over 100 million customers who value high quality of service at a competitive price. Our wireless and fixed-line networks deliver best-in-class speeds and coverage throughout Russia, Ukraine, Armenia, Turkmenistan and Belarus. To keep pace with evolving customer demand, we continue to grow through innovative products, investments in our market-leading retail platform, mobile payment services, e-commerce and IT solutions. For more information, please visit: http://www.mtsgsm.com. * * * 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 MTS, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might," and 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 undertake or intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. We refer you to the documents MTS files from time to time with the U.S. Securities and Exchange Commission, specifically the Company's most recent Form 20-F. These documents contain and identify important factors, including those contained in the section captioned "Risk Factors" that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, the severity and duration of current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of Russian, U.S. and other foreign government programs to restore liquidity and stimulate national and global economies, our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so, strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses, potential fluctuations in quarterly results, our competitive environment, dependence on new service development and tariff structures, rapid technological and market change, acquisition strategy, risks associated with telecommunications infrastructure, governmental regulation of the telecommunications industries and other risks associated with operating in Russia and the CIS, volatility of stock price, financial risk management and future growth subject to risks. Attachments to the Second Quarter 2016 Earnings Press Release Attachment A Non-IFRS financial measures. This presentation includes financial information prepared in accordance with International Financial Reporting Standards, or IFRS, as well as other financial measures referred to as non-IFRS. The non-IFRS financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Due to the rounding and translation practices, Russian ruble and functional currency margins, as well as other non-IFRS financial measures, may differ. 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. OIBDA may not be similar to OIBDA measures of other companies, is not a measurement under IFRS and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of profit or loss. 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 IFRS, 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. We use a term Adjusted for OIBDA and operating income when there were significant excluded one off effects. OIBDA can be reconciled to our consolidated statements of operations as follows:

   
    Group (RUB mln)             Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating profit             22,501  27,319  18,876  21,031   20,053
    Add: Loss from impairment
    of goodwill in Armenia            -       -   3,516       -        -
    Adjusted operating profit    22,501  27,319  22,392  21,031   20,053
    Add: D&A                     20,221  20,700  21,103  20,248   20,832
    Adjusted OIBDA               42,722  48,019  43,495  41,279   40,885

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[4] Excluding costs of RUB 3.4 bln related to the acquisition of a 4G license in Russia in 2015 and RUB 2.6 bln in 2016

[5] Excluding purchase of 3G license in Ukraine in the amount of RUB 7.0 bln in 2015

   
    Russia (RUB mln)      Q2'15    Q3'15   Q4'15   Q1'16    Q2'16
    Operating profit       23,728  27,275  23,481  21,599    21,954
    Add: D&A               17,517  17,252  17,634  16,984    17,752
    OIBDA                  41,245  44,527  41,115  38,583    39,706

   
    Ukraine (RUB mln)      Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating profit         1,190   1,675   1,158     795      627
    Add: D&A                 1,107   1,358   1,390   1,557    1,530
    OIBDA                    2,297   3,032   2,548   2,351    2,157

   
    Armenia (RUB mln)           Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating profit/ (loss)        412     680 (3,122)     120      136
    Add: Loss from impairment
    of goodwill in Armenia            -       -   3,516       -        -
    Adjusted operating profit       412     680     394     120      136
    Add: D&A                        525     626     656     737      681
    Adjusted OIBDA                  937   1,306   1,050     857      817

   
    Turkmenistan (RUB mln)  Q2'15    Q3'15   Q4'15   Q1'16    Q2'16
    Operating profit            237     326     330     278       209
    Add: D&A                    165     203     209     232       207
    OIBDA                       402     529     538     510       416

   
    Uzbekistan (RUB mln)  Q2'15    Q3'15   Q4'15   Q1'16    Q2'16
    Operating loss        (1,373) (1,404) (1,163)   (607)     (447)
    Add: D&A                  917   1,275   1,228     760       667
    OIBDA                   (455)   (128)      65     154       220

OIBDA margin can be reconciled to our operating margin as follows:

   
    Group                       Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating margin              21.9%   23.7%   16.7%   19.5%    18.5%
    Add: Loss from impairment
    of goodwill in Armenia            -       -    3.1%       -        -
    Adjusted operating margin     21.9%   23.7%   19.8%   19.5%    18.5%
    Add: D&A                      19.7%   18.0%   18.6%   18.7%    19.3%
    Adjusted OIBDA margin         41.6%   41.7%   38.4%   38.2%    37.8%

   
    Russia                 Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating margin         25.2%   26.2%   22.9%   22.4%    22.5%
    Add: D&A                 18.6%   16.6%   17.2%   17.6%    18.2%
    OIBDA margin             43.7%   42.8%   40.1%   40.1%    40.8%

   

    Ukraine                Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating margin         20.2%   22.5%   16.7%    9.9%     8.8%
    Add: D&A                 18.8%   18.2%   20.0%   19.5%    21.4%
    OIBDA margin             38.9%   40.7%   36.7%   29.4%    30.1%

   
    Armenia                     Q2'15    Q3'15   Q4'15   Q1'16   Q2'16
    Operating margin              20.1%   26.9%     n/a    5.6%     6.6%
    Add: Loss from impairment
    of goodwill in Armenia            -       -  155.0%       -        -
    Adjusted operating margin     20.1%   26.9%   17.4%    5.6%     6.6%
    Add: D&A                      25.7%   24.8%   28.9%   34.2%    32.9%
    Adjusted OIBDA margin         45.8%   51.7%   46.3%   39.7%    39.5%

   
    Turkmenistan          Q2'15    Q3'15   Q4'15   Q1'16    Q2'16
    Operating margin        22.0%   24.3%   23.4%   19.4%     16.8%
    Add: D&A                15.4%   15.1%   14.8%   16.2%     16.6%
    OIBDA margin            37.4%   39.4%   38.1%   35.6%     33.4%

   
    Uzbekistan            Q2'15    Q3'15   Q4'15   Q1'16    Q2'16
    Operating margin            -       -     n/a     n/a       n/a
    Add: D&A                    -       -   61.1%   34.1%     31.9%
    OIBDA margin                -       -    3.2%    6.9%     10.5%

*** Attachment B Net debt represents total debt less cash and cash equivalents and short-term investments and long-term deposits. Our net debt calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare our periodic and future liquidity within the wireless telecommunications industry. The non-IFRS financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Net debt can be reconciled to our consolidated statements of financial position as follows:

   
                                                     As of Mar 31,    As of June 30,
    RUB mln                                                  2016              2016
    Current portion of LT debt and of finance
    lease obligations                                      46,273            49,586
    LT debt                                               259,968           225,569
    Finance lease obligations                              10,650            10,297
    Total debt                                            316,891           285,452
    Less:
    Cash and cash equivalents                              44,389            24,956
    ST investments                                         30,961            27,978
    LT deposits                                            28,886            30,409
    Effects of hedging of non-ruble denominated
    debt                                                   14,636            12,369
    Net debt                                              198,019           189,740

Free cash-flow can be reconciled to our consolidated statements of cash flow as follows:

   
                                                   For the six       For the six
                                                   months ended     months ended
    RUB mln                                       June 30, 2015     June 30, 2016
    Net cash provided by operating activities              72,016            63,674
    Less:
    Purchases of property, plant and equipment           (40,921)          (25,545)
    Purchases of intangible assets[6]                    (12,720)          (14,126)
    Proceeds from sale of property, plant and
    equipment                                               1,326             1,300
    Investments in associates                                   -           (1,326)
    Free cash flow                                         19,701            23,977

LTM Adjusted OIBDA can be reconciled to our consolidated statements of operations as follows:

   
                                        Six months      Six months     Twelve months
                                           ended      ended June 30,       ended
    RUB mln                            Dec 31, 2015        2016        June 30, 2016
                                                    A               B       C = A + B
    Net operating profit                       46,195          41,084          87,279
    Add: Impairment of goodwill in
    Armenia                                     3,516               -           3,516
    Add: D&A                                   41,803          41,080          82,883
    LTM ADJUSTED OIBDA                         91,514          82,164         173,678

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[6] Excluding costs of RUB 3.4 bln related to the acquisition of a 4G license in Russia in 2015 and RUB 2.6 bln in 2016 and purchase of 3G license in Ukraine in the amount of RUB 7.0 bln in 2015

*** Attachment C Definitions Subscriber. We define a "subscriber" as an organization or individual, whose SIM-card: shows traffic-generating activity or accrues a balance for services rendered or is replenished or topped off Over the course of any three-month period, inclusive within the reporting period, and was not blocked at the end of the period. ***

   
    MOBILE TELESYSTEMS
    CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
    As of June 30,2016 AND As of December 31,2015

    (Amounts in millions of RUB)

                                                            As of June 30,           As of December 31,
                                                                 2016                       2015
    NON-CURRENT ASSETS:
    Property, plant and equipment                                            288 402            302 662
    Investment property                                                          359                364
    Intangible assets                                                        110 609            109 064
    Investments in associates                                                  8 545              9 299
    Deferred tax assets                                                        8 816              9 287
    Other non-financial assets                                                   682                480
    Other investments                                                         34 386             34 667
    Accounts receivable (related parties)                                      3 513              3 335
    Other financial assets                                                    17 773             25 203
    Total non-current assets                                                 473 085            494 361

    CURRENT ASSETS:
    Inventories                                                               12 813             14 510
    Trade and other receivables                                               37 252             34 542
    Accounts receivable (related parties)                                      2 447              6 326
    Short-term investments                                                    27 978             49 840
    VAT receivable                                                             7 041              9 815
    Income tax assets                                                          3 655              5 190
    Assets held for sale                                                         461                549
    Advances paid and prepaid expenses, other
    current assets                                                             5 665              4 781
    Cash and cash equivalents                                                 24 956             33 464
    Total current assets                                                     122 268            159 017

    Total assets                                                             595 353            653 378

    EQUITY:
    Equity attributable to equity holders                                    145 216            160 115
    Non-controlling interests                                                  6 218              8 256
    Total equity                                                             151 434            168 371

    NON-CURRENT LIABILITIES:
    Borrowings                                                               234 634            292 168
    Deferred tax liabilities                                                  29 094             27 346
    Provisions                                                                 2 221              2 565
    Other financial liabilities                                                  554                676
    Other non-financial liabilities                                            4 182              4 342
    Total non-current liabilities                                            270 685            327 097

    CURRENT LIABILITIES:
    Borrowings                                                                49 009             53 701
    Provisions                                                                 5 691              7 863
    Trade and other payables                                                  82 981             57 756
    Accounts payable (related parties)                                         1 702              1 809
    Income tax liabilities                                                     1 045                831
    Other financial liabilities                                                7 991              9 778
    Other non-financial liabilities                                           24 815             26 172
    Total current liabilities                                                173 234            157 910

    Total equity and liabilities                                             595 353            653 378

   
    MOBILE TELESYSTEMS
    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
    FOR THE THREE AND SIX MONTHS ENDED June 30, 2016 AND 2015

    (Amounts in millions of RUB except per share amount)

                                                                                                                Three    Three
                                                                                                                months   months
                                                                  Six months ended        Six months ended      ended    ended

                                                                                                               June 30, June 30,
                                                                    June 30, 2016           June 30, 2015        2016     2015

    Net operating revenue
    Service revenue                                                            195 007                 188 831   97 680   95 021
    Sales of goods                                                              21 219                  14 042   10 456    7 669
                                                                               216 226                 202 873  108 136  102 690
    Operating expenses
    Cost of services                                                          (68 374)                (63 400) (33 776) (31 028)
    Cost of goods                                                             (20 053)                (11 729) (10 307)  (7 043)
    Selling, general and administrative expenses                              (47 579)                (44 745) (23 912) (22 449)
    Depreciation and amortization expense                                     (41 080)                (40 669) (20 832) (20 221)
    Other operating income/(expenses)                                              482                   (611)     (17)     (94)
    Operating share of the profit of associates                                  1 462                   1 643      761      646
    Provision for cash balances deposited in distressed
    Ukrainian banks                                                                  -                 (1 698)        -        -

    Operating profit                                                            41 084                  41 664   20 053   22 501

    Currency exchange gain                                                       3 270                     107      997    3 616

    Other (expenses)/income:
    Finance income                                                               3 005                   4 763    1 309    2 437
    Finance costs                                                             (16 057)                (12 609)  (9 323)  (6 561)
    Other expenses                                                             (1 294)                   (599)    (608)    (594)
    Total other expenses, net                                                 (14 346)                 (8 445)  (8 622)  (4 718)

    Profit before tax                                                           30 008                  33 326   12 428   21 399

    Income tax expense                                                         (6 720)                 (6 649)  (3 457)  (4 711)

    Profit for the period                                                       23 288                  26 677    8 971   16 688

    Loss for the period attributable to non-controlling
    interests                                                                      275                   1 284       85      386

    Profit for the period attributable to owners of the
    Company                                                                     23 563                  27 961    9 056   17 074

    Other comprehensive income/(loss)
    Items that may be reclassified subsequently to profit or
    loss
    Exchange differences on translating foreign operations                     (9 603)                (12 042)  (1 429)  (3 085)
    Net fair value loss on financial instruments                               (1 736)                 (3 402)    (131)    (811)
    Other comprehensive loss                                                  (11 339)                (15 444)  (1 560)  (3 896)
    Total comprehensive income for the period                                   11 949                  11 233    7 411   12 792
    Less comprehensive loss for the period attributable to the
    non-controlling interests                                                      921                   1 604      233      860

    Comprehensive income for the period attributable to owners
    of the Company                                                              12 870                  12 837    7 644   13 652

    Weighted average number of common shares outstanding, in                                                      1 989    1 988
    thousands - basic                                                        1 989 067               1 988 730      424      730
    Earnings per share attributable to the Group - basiс:                        11,85                   14,06     4,55     8,59
    Weighted average number of common shares outstanding, in                                                      1 990    1 989
    thousands - diluted                                                      1 989 510               1 989 951      174      951
    Earnings per share attributable to the Group - diluted:                      11,84                   14,05     4,55     8,58

   
    MOBILE TELESYSTEMS
    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    FOR THE SIX MONTHS ENDED June 30, 2016 AND 2015

    (Amounts in millions of RUB)

                                                                                       Six months ended      Six months ended
                                                                                         June 30, 2016         June 30, 2015

    Profit for the period                                                                             23 288            26 677

    Adjustments for:
    Depreciation and amortization                                                                     41 080            40 669
    Finance income                                                                                   (3 005)           (4 763)
    Finance costs                                                                                     16 057            12 609
    Income tax expense                                                                                 6 720             6 649
    Currency exchange gain                                                                           (3 270)             (107)
    Change in fair value of financial instruments                                                        179              (91)
    Amortization of deferred connection fees                                                           (491)             (569)
    Share of the profit of associates                                                                  (442)             (839)
    Inventory obsolescence expense                                                                       621                86
    Allowance for doubtful accounts                                                                    1 131             1 483
    Change in provisions                                                                               6 317             4 752
    Other non cash items                                                                               (793)             (294)

    Movements in operating assets and liabilities:
    Increase in trade and other receivables                                                          (7 458)           (4 824)
    Decrease/(increase) in inventory                                                                     950           (2 516)
    Decrease/(increase) in VAT receivable                                                                461           (1 599)
    Decrease in advances paid and prepaid expenses                                                       843             3 113
    (Decrease)/Increase in trade and other payables and other current liabilities                    (3 337)             2 103
                                                                                                           -
    Dividends received                                                                                 1 181             1 471
    Income taxes paid                                                                                (2 960)           (4 207)
    Interest received                                                                                  2 081             2 062
    Interest paid (net of interest capitalised)                                                     (15 479)           (9 849)
    Net cash provided by operating activities                                                         63 674            72 016

    CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                                      (25 545)          (40 921)
    Purchases of intangible assets (net of purchases of 3G licences in Ukraine and
    4G licenses in Russia)                                                                          (14 126)          (12 720)
    Purchases of 4G licenses in Russia/3G licences in Ukraine                                        (2 598)           (7 044)
    Proceeds from sale of property, plant and equipment and assets held for sale                       1 300             1 326
    Purchases of short-term investments                                                              (4 891)          (28 790)
    Proceeds from sale of short-term investments                                                      22 040             4 422
    Purchase of other investments                                                                    (2 591)          (39 867)
    Proceeds from sale of other investments                                                                2                97
    Investments in associates                                                                        (1 326)                 -
    Net cash used in investing activities                                                           (27 735)         (123 497)

    CASH FLOWS FROM FINANCING ACTIVITIES:
    Cash flows under capital transactions with related parties                                         3 063             4 252
    Loan principal paid                                                                             (26 035)           (9 009)
    Proceeds from loans                                                                                1 036            43 818
    Repayment of notes                                                                              (17 904)             (479)
    Notes and debt issuance cost paid                                                                      -           (1 213)
    Finance lease principal paid                                                                       (168)             (224)
    Dividends paid                                                                                         -              (82)
    Cash outflow under credit guarantee agreement related to foreign-currency
    hedge                                                                                            (1 034)                 -
    Other financing activities                                                                             -                 5
    Net cash (used in)/provided by financing activities                                             (41 042)            37 068

    Effect of exchange rate changes on cash and cash equivalents                                     (3 405)           (2 924)

    NET DECREASE IN CASH AND CASH EQUIVALENTS:                                                       (8 508)          (17 337)

    CASH AND CASH EQUIVALENTS, at beginning of the period, including cash and cash
    equivalents within assets held for sale of 156 as of January 1, 2015                              33 464            61 566

    CASH AND CASH EQUIVALENTS, at end of the period                                                   24 956            44 229
    Less cash and cash equivalents within assets held for sale                                             -             (109)
    CASH AND CASH EQUIVALENTS, at end of the period                                                   24 956            44 120

SOURCE Mobile TeleSystems (MTS)