Mobile TeleSystems Announces Financial Results for the First Quarter Ended March 31, 2013

MOSCOW, June 7, 2013 /PRNewswire/ --

Mobile TeleSystems OJSC ("MTS" -NYSE: MBT), the leading telecommunications provider in Russia and the CIS, today announces its unaudited US GAAP financial results for the three months ended March 31, 2013.

Key Financial Highlights of Q1 2013

• Consolidated revenues up 2% y-o-y to RUB 93 billion
• Increase in mobile service revenue in Russia of 7% y-o-y to RUB 63 billion
• Consolidated Adjusted OIBDA^[1] up 3% y-o-y to RUB 39 billion
• Group Adjusted OIBDA margin improved 0.3 pp to 42.1% Adjusted OIBDA y-o-y
• Consolidated net income^[2] of RUB 13 billion
• Free cash-flow^[3] reached RUB 24 billion for the first three months of 2013

Key Corporate and Industry Highlights

• Entered into transaction to acquire a 25.095% stake in MTS Bank through a share issuance for RUB 5.09 billion; the transaction was completed in early April 2013
• Approved a new dividend policy aimed at a payout of a minimum dividend distribution of at least 75% of free cash-flow for the relevant financial period or, if greater, RUB 40.0 billion per year
• Annual dividend recommendation by the MTS Board of Directors of RUB 14.6 per ordinary MTS share (approximately RUB 29.2 per ADR) for the 2012 fiscal year, amounting to a total of RUB 30.2 billion, and a semi-annual dividend recommendation of up to RUB 11.0 billion on the basis of H1 2013 financial and operating results
• Issued USD-denominated Loan Participation Notes in the amount of $500 million with an annual interest rate of 5.00% and a maturity in June 2023
• Placed exchange-traded ruble bond, which is worth RUB 10.0 billion and has a maturity of ten years
• Appointed Mr. Mikhail Arkhipov to the position of Vice President, Human Resources
• MTS's brand was ranked in the BRANDZ™ Top 100 Most Powerful Brands, a ranking published by the Financial Times and Millward Brown Optimor,  with a brand value of $10.63 billion

Commentary

Andrei Dubovskov, President and CEO of MTS, commented, "During the quarter, Group revenues increased by 2% to 92.9 billion rubles. Overall growth compared to Q1 2012 was limited by the suspension of our operations in Uzbekistan. Excluding Uzbekistan, our topline grew by 6% year-over-year due to sustained growth in consumption of voice and data services in our markets. Our revenues in Russia increased by 5% to 82.7 billion rubles.  Mobile service revenues increased by 7%, but overall growth in total mobile revenues was slightly lower - at 5% - due to a decline in retail sales. In Q1 2013, we rebalanced our product portfolio, decreasing the share of premium-priced handsets in the sales mix, which directly led to the decrease in sales of handsets and equipment by 6% year-over-year. Instead, we focused on promoting sales of low-budget smartphones, including MTS-branded devices, which naturally have a greater impact in stimulating ARPU growth."

He continued, "In Q1 2013, we delivered a 37% increase in data traffic revenue compared to Q1 2012. This growth outpaces average growth rates in the market and is attributable to a number of factors, including the quality of our network, our market-leading distribution platform, bundled tariff plans designed to upsell customers and stimulate usage, our focus on sales of affordable data-enabled devices and partnership with handset manufacturers to bundle data plans with handset sales. Our fixed-line operations showed strong performance during the quarter. Fixed-line revenues went up by 4% year-over-year to 14.1 billion rubles. The growth resulted from continued network modernization in the regions enabling us to upsell existing broadband and Pay-TV customers and enhance market share."

Alexey Kornya, MTS Vice President and Chief Financial Officer, said, "In Q1 2013, Group Adjusted OIBDA increased by 3% year-over-year to 39.1 billion rubles. Excluding Uzbekistan, Adjusted OIBDA grew year-over-year by 8%.  This was driven by top-line growth, although we faced continuing cost pressure from our network roll-out, retail expansion and increase in personnel costs.  On a margin basis, the Group's Adjusted OIBDA margin came in for Q1 2013 at 42.1%. In Q1, net income came in at 13.0 bln rubles, which include a foreign currency loss in the amount of 1.5 billion rubles. During the quarter, our total debt decreased slightly to 222 billion rubles. Our net debt/ LTM Adjusted OIBDA ratio improved to 1.1x due to improving operating performance and strong debt management practices."

Mr. Dubovskov concluded, "Overall we see continued stability and consistency in our markets of operation.  With this in mind, MTS introduced a new dividend policy in April 2013.  For the calendar years 2013-2015, MTS aims to pay out a minimum dividend distribution equal to at least 75% of free cash-flow for the relevant financial period or, if greater, RUB 40 bln per year.  MTS will begin to pay out dividends on a semi-annual basis using interim H1 and full-year financial results as a foundation.  In April 2013, the MTS Board of directors recommended that AGM approve FY 2012 dividends of RUB 14.6 per ordinary MTS share. In addition, the Board advised that MTS consider a semi-annual dividend payout of up to RUB 11 bln on the basis of its H1 2013 financial results, which should become available in Autumn 2013.  Overall, the payout could increase the cumulative amount returned to investors in 2013 by over 35% relative to 2012.

"In our view, aligning our dividend policy with free cash flow allows the market to better forecast our shareholder return and more clearly anticipate future performance of the company.  In effect, this policy allows MTS to ensure it has sufficient flexibility to meet our investment needs, cover our financial obligations and then return extra cash to investors.  To meet this commitment, we do not envision any change in our current leverage ratios or require us to borrow additional funds.  When our H1 2013 results become available, we will make another proposal to the Board of Directors on an interim dividend payout, which we would envision being paid by the end of 2013."

This press release provides a summary of some of the key financial and operating indicators for the three months ended March 31, 2013. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

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For further information, please contact in Moscow:

Mobile TeleSystems OJSC ("MTS") is the leading telecommunications group in Russia and the CIS, offering mobile and fixed voice, broadband, pay TV as well as content and entertainment services in one of the world's fastest growing regions. Including its subsidiaries, the Group services nearly 100 million mobile subscribers. The Group has been awarded GSM licenses in Russia, Ukraine, Turkmenistan, Armenia and Belarus, a region that boasts a total population of more than 200 million. Since June 2000, MTS' Level 3 ADRs have been listed on the New York Stock Exchange (ticker symbol MBT). Additional information about the MTS Group can be found at http://www.mtsgsm.com.

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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.

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1.  See Attachment A for definitions and reconciliation of OIBDA and OIBDA margin to their most directly comparable US GAAP financial measures.

2.  Attributable to the Group.

3.  See Attachment B for reconciliation of free cash-flow to net cash provided by operating activity.

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

Joshua B. Tulgan
Director, Corporate Finance & Investor Relations
Mobile TeleSystems OJSC
Tel: +7-495-223-2025
E-mail: [email protected]

SOURCE Mobile TeleSystems OJSC