Mobile TeleSystems Announces Financial Results for the Second Quarter Ended June 30, 2014

MOSCOW, August 20, 2014 /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 June 30, 2014. 

Key Financial Highlights of Q2 2014 

• Consolidated Group revenues increased 1.4% y-o-y to RUB 98.9 billion
• Mobile service revenue in Russia rose 6.3% y-o-y to RUB 70.9 billion
• Data traffic revenue in Russia grew 39.7% y-o-y to RUB 15.3 billion
• Fixed-line revenue in Russia grew 2.6% q-on-q to RUB 15.6 billion
• Consolidated Group OIBDA net of one-off effect due to compensation for the settlement over Bitel LLC^[1] down 0.6% y-o-y to RUB 43.2 billion
• Group OIBDA margin net of one-off effect due to compensation for the settlement over Bitel LLC fell slightly 0.9 pp to 43.7%
• Consolidated net income^[2] of RUB 21.1 billion
• Free cash-flow from continuing operations^[3] adjusted for the compensation for the settlement over Bitel LLC increased 12.0% to RUB 46.0 billion for the six months ended June 30, 2014

Key Corporate and Industry Highlights 

• MTS`s brand was included in the BrandZ™ Top 100 Most Valuable Global Brands 2014 ranking for the seventh consecutive year and placed ninth among the Top 10 leading telecommunications brands in the world. MTS ranked #80 overall among the top 100 global brands.
• Acquired a 10.82% stake in Ozon Holdings ("Ozon"), the leading Russian e-commerce company
• Sold a remaining 49% stake in Business-Nedvizhimost CJSC to Sistema JSFC  for RUB 3.1 billion
• Redeemed the remaining amount of RUB 15.0 billion series 04 bond
• Completed dividend payment of RUB 18.6 per ordinary MTS share (RUB 37.2 per ADR), or a total of RUB 38.4 billion, based on the full-year 2013 financial results.
• Launched LTE networks in 25 regions throughout Russia
• Semi-annual dividend recommendation by the MTS Board of RUB 6.2 per ordinary MTS share (RUB 12.4 per ADR) amounting to the total of RUB 12.8 billion on the basis of the H1 2014 results. The EGM to approve the dividends will be held on September 30, 2014
• Signed a settlement agreement with the Republic of Uzbekistan, which may allow the Company to relaunch operations through a joint venture with the government of Uzbekistan
• Moody`s Investor Service has upgraded MTS's senior unsecured issuer rating from Ba2 to Baa3 with a stable outlook. This represents a two-notch upgrade and classifies MTS as investment grade
• Standard & Poor's Ratings Services raised MTS`s corporate credit rating to 'BBB-' from 'BB+'. The outlook on the foreign currency rating is negative and that on the local currency rating is stable. Ratings on the Company's senior unsecured debt were raised to 'BBB-' from 'BB+'. This represents a one-notch upgrade and classifies MTS as investment grade

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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.

Commentary 

Mr. Andrei Dubovskov, President and CEO of MTS, "During the quarter we increased our Group revenues by 1.4% year-over-year to RUB 98.9 billion. We realized strong growth in our core Russian market and saw positive dynamics in Ukraine, Armenia and Turkmenistan despite macroeconomic issues. Growth in our markets, however, was offset by significant hryvna depreciation in Ukraine, while in Armenia, slight year-on-year weakness was mitigated by strong sequential growth."

Mr. Vasyl Latsanych, MTS Vice President for Marketing, said, "In Q2, our Russian business grew 4.5% year-over-year to RUB 90.4 billion. Driving this growth were exceptionally strong mobile service revenues, which increased by 6.3% year-over-year. Key drivers included: greater adoption of data plans as smartphone penetration among our active subscribers reached 37.0%; upselling existing subscribers on data plans; increase in the subscriber base as we added 5.6 million subscribers during the year; and stable churn dynamics. We continued to see greater challenges in our Ukraine business unit, but we delivered growth year-over-year. In local currency, its revenues grew 2% year-over-year UAH 2.6 billion as MTS expanded its subscriber base."  

Mr. Alexey Kornya, MTS Vice President and Chief Financial Officer, said, "In Q2 2014, Group OIBDA declined by 2.6% year-over-year to over RUB 43.2 billion. In the second quarter of 2013 we realized one-off gain related to the compensation we received for the settlement over Bitel LLC. Without this effect, our OIBDA declined by 0.6%. The decline was largely attributable to macroeconomic factors impacting our business in Ukraine and greater G&A expenses due to roll-out of our mobile and fixed networks in Russia. Our OIBDA margin net of the Bitel LLC settlement declined year-over-year by merely 0.9pp to 43.7%. In Russia, OIBDA grew by 2.8% year-over-year to RUB 40.3 billion. This reflects our sustained revenue growth and increased share of high-margin data revenues in the revenue mix. In Ukraine, OIBDA declined by 3.1% to nearly UAH 1.3 billion. During the quarter, profitability was pressured by an increase in frequency fees and higher electricity costs. We also saw a currency devaluation effect as some of cost items, including roaming and SIM cards, are denominated in non-hryvna currencies."  

He continued, "For the period, Group net income from continuing operations increased Q-o-Q by 61.9% to RUB 21.1 billion. Primarily we benefitted from a non-cash FOREX gain in the amount of RUB 4.2 billion due to ruble appreciation versus the previous quarter. Operating cash flow from continuing operations for the first six months of 2014 increased slightly by 2.7% relative to the same period in 2013. Free cash flow for the first six months of 2013 adjusted for compensation for the settlement over Bitel LLC received in Q2 2013 - increased by 12.0% year-over-year."

Mr. Andrei Dubovskov, President and CEO of MTS, added, "For now, as our results indicate, our business remains strong. However, macroeconomic weakness and uncertain political environment in Ukraine, however, force us to alter our full year guidance. While we expect Russia still to grow  at the high end of our initial guidance of 3-5%, developments in Ukraine will limit Group growth to at least 1% in revenue for 2014. We should anticipate stable OIBDA year-over-year.  Growth in our Russian markets will be offset by the decrease in profitability in our non-Russian assets, as well as the absence of certain positive one-offs we realized in 2013.  Our CAPEX spending too should come in at 90 billion rubles, which is consistent with the guidance we gave at the beginning of the year."

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 June 30, 2014. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/. 

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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

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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]

SOURCE Mobile TeleSystems OJSC