Mobile TeleSystems Announces Financial Results for the First Quarter Ended March 31, 2015

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May 19, 2015, 08:00 ET

MOSCOW, May 19, 2015 /PRNewswire/ --

Mobile TeleSystems OJSC ("MTS" -NYSE: MBT), the leading telecommunications provider in Russia and the CIS, today announces its unaudited IFRS financial results for the three months ended March 31, 2015.

Key Financial Highlights of Q1 2015

Consolidated group revenue increased 2.7% y-o-y to RUB 100.2 bln
Total revenue in Russia rose 3.6% y-o-y to RUB 90.4 bln
Mobile service revenue in Russia improved 3.9% y-o-y to RUB 70.5 billion
Data traffic revenue in Russia grew 26.0% y-o-y to RUB 18.1 bln
Handset sales increased 1.2% y-o-y to RUB 6.3 bln
Group Adjusted OBDA down 2.0% to RUB 41.3 bln
OIBDA in Russia rose 0.9% y-o-y to RUB 38.2 bln

Key Corporate and Industry Highlights

Won a tender for a nationwide license for the provision of 3G telecommunications services in the 1950-1965 MHz/2140-2155 MHz in Ukraine. The cost of the license amounted to UAH 2.7 bln.
Launched LTE network in the 1800 MHz range in Moscow and LTE network in the 800 MHz range throughout the Moscow region
Launched LTE network in the 1800 MHz range in Saint Petersburg and the Leningrad Region
Launched LTE network in the 1800 MHz range in the Krasnodar region in southern Russia
Annual dividend recommendation by the MTS Board of RUB 19.56 per ordinary MTS share (RUB 39.12 per ADR), or a total of RUB 40.419 bln based on the full-year 2014 financial results, upon acceptance by the AGM and completion of this payment, MTS will have paid out up to RUB 53.2 bln rubles based on fiscal year 2014 financial results
Signed a USD 200 mln equivalent term loan facility agreement with China Development Bank Corporation ("CDB") in renminbi and US dollars.

Commentary

Mr. Andrei Dubovskov, MTS President and CEO, commented, "For the period, MTS again demonstrated strong operational trends in our core markets. Revenue for the Group grew 2.7% year-over-year to 100.2 billion rubles. Growth was primarily driven by increases in voice usage and data adoption.

Despite the volatile and generally negative macroeconomic environment, we maintained strong profitability with a Group Adjusted OIBDA margin coming in at 41.2%. In Russia, we continue to benefit from growing smartphone penetration and increased data usage in all customer segments while overall demand for our services remains resilient. Our sensible commercial strategies, the speed and quality of our networks, our commitment to customer service and the biggest chain of proprietary retail stores have allowed us to continue to outperform the market."

Mr. Vasyl Latsanych, MTS Vice President for Marketing, said, "Revenue at our business in Russia grew 3.6% year-over-year to 90.4 billion rubles. The most significant growth was seen in our mobile business, which increased 3.9% year-over-year to 70.5 billion rubles. This was mainly attributable to the higher uptake of data plans as smartphone penetration reached 43.5% among our active subscribers, contributing to a 26.0% increase in data traffic revenue year-over-year. In Ukraine, our revenues grew 9.0% year-over-year to 2.6 billion hryvnas. In spite of the operational challenges in the East and the exit from Crimea, MTS-Ukraine's operations show remarkable resilience. In addition, revenues were boosted during the quarter by an increase in termination rates as well as by the hryvnia devaluation against the US dollar, as interconnect rates are fixed in hard currency."

Mr. Alexey Kornya, MTS Vice President for Finance and Investments, said, "MTS Russia OIBDA increased 0.9% year-over-year to 38.2 billion rubles. OIBDA was positively impacted by a growing share of high-margin data revenues. At the same time, weaker roaming revenues and increased roaming expenses depressed the margin, which came in at 42.2%. Sequentially, OIBDA fell by 7.7% in line with revenue. In Ukraine, we delivered stable Adjusted OIBDA of 1.2 billion hryvna with an OIBDA margin of 47.0%. On a quarterly basis, we saw a strong increase in OIBDA due to growth in interconnect revenues.

Group net income for the period, declined 14.3% to 10.9 billion rubles and was impacted by the decline in OIBDA; a FOREX loss of 3.5 billion rubles in Q1 2015 based on the value of MTS's foreign currency-denominated debt due to ruble depreciation and volatility throughout the period; and a reserve related to the cash balances held in distressed banks in Ukraine in the amount of 1.7 billion rubles. Free cash flow for the first three months fell by 56.1% to 15.0 billion rubles. Free cash flow was largely impacted by higher than normal CAPEX for the period. This included both the settlement of invoices billed at the end of 2014 and our planned network build for 2015."

Mr. Alexey Kornya added, "At MTS we have long considered dividends to be a key commitment to our shareholders. This is both a reflection of the strong market, in which we operate, and prudent management of our business. We are pleased that the results of 2014 will allow us to pay out the largest dividend in our history; for the Fiscal Year 2014, MTS will have paid out 53.2 billion rubles. Most importantly, this sum is derived from our free cash flow, which does not require us to resort to outside funding to finance this payment. Unlike some, our view is that a dividend story is best preserved by paying one. And in that respect in April, the Board recommended to the AGM to be held on June 25, 2015, to approve annual dividends of 19.56 rubles per ordinary MTS share, or a total of 40.4 billion rubles, based on the full-year 2014 financial results."

Mr. Andrei Dubovskov concluded, "As you've seen from the results of all players in the sector, even in conditions of greater macroeconomic uncertainty, the Russian telecoms sector continues to present growth opportunities - but only operators with the right business model will be able to realize them. Our enhanced leadership of the sector positions us to benefit ahead of our competitors, for example from the continued increase in data usage and strong unit sales in lower-value handsets."

Change to International Financial Reporting Standards

In 2010, the Russian State Duma enacted a law requiring Russian public companies to prepare consolidated financial statements under International Financial Reporting Standards (IFRS). To conform to this requirement, the Group will prepare its consolidated financial statements for the year ended December 31, 2015, with comparative information for the year ended December 31, 2014, under IFRS.

This change also reflects our commitment to transparency and facilitates more accurate like-for-like comparison with the Group's European peers, most of whom report under IFRS.

The accounts in IFRS will continue to be presented in Russian rubles as MTS' core assets and activities are based primarily in Russia.

The Group is reporting its quarterly results under IFRS starting from Q1 2015. Comparative information for the previous quarters of 2014 presented has been restated to comply with IFRS.

The following table and notes summarize the impact of the conversion from US GAAP to IFRS on selected IFRS and non-IFRS measures of the Group for the year ended December 31, 2014.

   
    As of December, 31 2014
    RUB mln                          US GAAP     IFRS    Difference


    Revenue                           410,758    410,780         22
    Adjusted OIBDA                    175,463    179,127      3,664
    Net Income                         52,393     51,496      (897)
    CAPEX                              92,599     91,929      (670)
    Net Debt                          185,525    183,006    (2,519)

Adjusted OIBDA

Upon transition to IFRS, the Group will start reporting its share of profits or losses of Mobile TeleSystems LLC ("MTS Belarus"), a 49% owned associate, within operating income and, consequently, OIBDA, since the entity is viewed as part of the Group's core telecommunications operations. The Group will continue to report its share of profits or losses of MTS-Bank below operating income and OIBDA.

Net income

Difference in net income reported under IFRS as compared to net income previously reported under US GAAP is due to a number of differences, including:

accounting for the put option issued by the Group over the non-controlling interest in K-Telecom, an 80%-owned subsidiary in Armenia, as financial liability (US GAAP: mezzanine equity) recognizing the change in its fair value in profit or loss (US GAAP: equity);
non-consolidation of Tsifrovoe Teleradioveschanie LLC ("TSTV"), an operator of MTS's satellite project owned by Sistema Mass Media, a subsidiary of Sistema JSFC;
an adjustment to the share of net income of MTS Belarus due to the differences in hyperinflationary economies accounting;
an increase in depreciation and amortization expenses due to reversal of impairment on the consolidated statement of financial position related to the assets of our subsidiary in Turkmenistan ("MTS Turkmenistan") which were previously impaired; and
a different approach to capitalization of borrowing costs under IFRS.

CAPEX

Different capitalization policies for borrowing costs under the IFRS led to a reduction in total CAPEX.

Net debt

Upon transition to IFRS, the Group presents deferrals of debt issuance costs in the statement of financial position as a reduction of the debt balance (US GAAP: presented as assets). The Group's debt under IFRS also does not include the debt of TSTV which is not consolidated under IFRS comparing to US GAAP.

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.

This press release provides a summary of some of the key financial and operating indicators for the period ended March 31, 2015. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

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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 over 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.

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

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

SOURCE Mobile TeleSystems OJSC