Mobile TeleSystems Announces Financial Results for the Third Quarter Ended September 30, 2012

MOSCOW, November 14, 2012 /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 September 30, 2012.

Key Financial Highlights of Q3 2012

• Consolidated revenues of $3,132 million stable q-o-q
• Consolidated adjusted OIBDA^[1] of $1,379 million stable q-o-q with 44.0% OIBDA margin
• Consolidated net income^[2] of $630 million
• Free cash-flow^[3] positive with $1.6 billion for the nine months ended September 30, 2012

Key Corporate and Industry Highlights

• Obtained license and frequencies to provide LTE telecommunication services in Russia in the FDD (frequency division duplexing) standard
• Announced the withdrawal of operating licenses of Uzdunrobita FE LLC ("MTS-Uzbekistan"), MTS's wholly owned subsidiary in Uzbekistan
• Completed the dividend payment of RUB 14.71 per ordinary MTS for the 2011 fiscal year, amounting to a total of RUB 30.4 billion
• Resumed operations in Turkmenistan
• Repurchased the series 05 ruble-denominated bond in the amount of approximately RUB 13.2 billion and changed the bond's coupon rate from an annual rate of 14.25% to 8.75%
• Launched MVNO LTE network in Kazan
• Launched  Russia's first TDD (time division duplexing) LTE network in Moscow and the Moscow region
• Acquired a 100% stake in Elf group of companies, a fixed broadband and pay-TV services provider in Belgorod and the Belgorod region, for RUB 220 million
• Acquired a 100% stake in LLC "Intercom", a broadband and cable TV provider in the Mari El Republic, for RUB 90 million
• Signed a non-binding indicative offer between MTS, MTS Bank and Sistema JSFC to purchase up to 25.095% stake in MTS Bank through a share issuance for up to RUB 5.09 billion
• Pursuant to the decision of the appeals court of the Tashkent City Criminal Court the amount of penalties to be paid by MTS-Uzbekistan was determined at approximately $600 million and the previously arrested assets of MTS-Uzbekistan were unfrozen  

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1.  See Attachment A for definitions and reconciliation of adjusted OIBDA and adjusted 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, commented, "Group revenue for the quarter was stable quarter-on-quarter at just over $3.1 billion due to negative ruble dynamics vs. US dollar during the period despite positive seasonal factors and higher consumption of voice and data products. Group revenue was also significantly impacted by loss of Uzbekistan revenue due to the suspension of our operating license in July. We continue to witness steady subscriber growth and signs of stability and moderate competitive pressures in our markets of operation. For the period, total revenues in Russia increased in ruble terms by 8% year-over-year to 88.3 billion rubles driven by steady voice usage, continued adoption of data services and an increase in our subscriber base and handset sales, including sales of higher-value smartphones due to seasonal factors and expansion of the retail footprint."

Mr. Alexey Kornya, MTS Vice President and Chief Financial Officer, said, Group OIBDA rose slightly to nearly $1.38 billion in line with our revenue performance. Our adjusted OIBDA margin for the period reached 44.0%. Overall we are seeing results of our efforts to increase profitability in our business and realize greater efficiencies across the Group. In Russia, OIBDA rose 9% year-over-year to 40.1 billion rubles. OIBDA margin in Russia increased from 44.6% in Q2 to 45.4% in Q3, an improvement which reflects seasonal trends and cost efficiencies despite significantly higher retail costs. Still, our margin is pressured by increase in labor costs, that have advanced 50 basis points year-over-year as a percentage of revenue reflective of higher payroll taxes and social contributions; increase in rent and maintenance costs on the back the expansion of our mobile and fixed network; and continued expansion of the retail footprint. However, we are confident despite these factors we will deliver strong margins and are comfortable with raising our OIBDA margin guidance to over 42% for 2012."

He continued, "Year-to-date CAPEX exceeded $1.81 billion. Investments are largely being focused on expanding our 3G network and preparing for our 4G roll-out: identifying new sites, connecting base stations to fiber, and proceeding with the implementation of our GPON project in Moscow. Overall, however, we feel it prudent to raise our CAPEX guidance for the year from 20-22% of sales to 23-24% of sales or roughly $2.9 billion. This increase is due to the effects of currency on our equipment costs and services since we first guided at the beginning of the year, as opposed to any dramatic change in our investment plans."

Mr. Dubovskov added, "Over the past quarters, we have seen clear volatility in our net income over currency fluctuations related to our debt composition and other one-time factors, including developments in our Central Asia markets. In this difficult currency environment, we have come to the conclusion that net income is not the best metric to use as a basis for the calculation of our dividend. We are currently devising a new policy that ties dividend amount to free cash flow which, in our view, constitutes a clearer, more transparent basis for determining our return to shareholders. We expect to propose the new policy to our Board of Directors for adoption prior to the final determination of our FY2012 dividend. For now, we can say that we intend to increase our cumulative dividend payout over the next three years by at least 25% in relation to the roughly 91 billion rubles we have paid out since fiscal year 2009. This implies a total cumulative dividend of at least 114 billion rubles for the fiscal years 2012 to 2014 or a payout per share of at least 18 rubles 30 kopeks. We believe that this level, which should constitute a sizable portion of our free cash flow, will allow us over the next three years to meet our investment needs, maintain our relative debt levels and demonstrate our commitment to shareholder value."

This press release provides a summary of some of the key financial and operating indicators for the period ended September 30, 2012. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

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 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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SOURCE Mobile TeleSystems OJSC