FORM 6-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Issuer
March 17, 2015

 

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

Commission file number:  333-12032

 

Mobile TeleSystems OJSC

(Exact name of Registrant as specified in its charter)

Russian Federation

(Jurisdiction of incorporation or organization)

 

4, Marksistskaya Street
Moscow 109147
Russian Federation

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F   x   Form 40-F   o

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes   o   No   x

 

 

 



 

GRAPHIC

 

Press release

 

Mobile TeleSystems Announces Financial Results for the Fourth Quarter and Full Year Ended December 31, 2014

 

March 17, 2015

 

Moscow, Russian Federation — 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 and full year ended December 31, 2014.

 

Key Financial Highlights of Q4 2014 and FY 2014

 

·                  Consolidated group revenue for FY 2014 increased 3.1% y-o-y to RUB 410.8 bln

 

·                  Total revenue in Russia for FY 2014 increased 5.6% y-o-y to RUB 374.9 bln

 

·                  Data traffic revenue in Russia for FY 2014 grew 35.9% y-o-y to RUB 64.4 bln

 

·                  Consolidated Group Adjusted OIBDA(1) for FY 2014 up 0.3% y-o-y to RUB 175.5 bln

 

·                  OIBDA in Russia for FY 2014 increased 4.5% y-o-y to RUB 164.8 bln

 

Outlook for 2015

 

·                  Group revenue may increase >2%

 

·                  Group OIBDA margin will be greater than 40%

 

·                  Total Russia revenue may increase > 3%

 

·                  Group CAPEX spending will be approximately RUB 85 bln(2)

 

MTS sees significant macroeconomic uncertainty and volatility across its markets of operation, which may cause MTS to revisit its revenue and OIBDA guidance and, in turn, impact its financial and operating results.

 

Key Corporate and Industry Highlights

 

·                  Launched commercial operations in Uzbekistan.

 

·                  Partnered with VimpelCom to jointly roll-out and utilize LTE networks in 36 Russian regions.

 

·                  Acquired  regional assets of SMARTS OJSC In Penza Region, Ivanovo Region and Bashkiria for a price of RUB 3.1 bln including debt

 

·                  Completed dividend payment of RUB 6.2 per ordinary MTS share (RUB 12.4 per ADR), or a total of RUB 12.8 bln based on the H1 2014 financial results.

 


(1)  OIBDA net of gain in the amount of RUB 6.7 bln from reentrance into Uzbekistan and excluding provision for investments in JSC DeltaBank in Ukraine of RUB 5.1bln.

 

(2)  Excluding cost of 3G license and investments in 3G network in Ukraine.

 



 

·                  Signed an agreement with Sberbank of Russia to open a non-revolving line of credit for a total amount of RUB 50.0 bln and amended terms of an existing credit agreement in the amount of RUB 20.0 bln.

 

·                  Acquired 952,000 ordinary shares of the MTS-Bank’s additional shares issuance for RUB 3.6 bln.

 

·                  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 rage in Saint Petersburg and the Leningrad Region.

 

Commentary

 

Mr. Andrei Dubovskov, MTS President and CEO, commented, “For the quarter, Group revenues increased by 2.3% year-over-year to RUB 107.2 bln. We delivered strong revenue growth in our business units in Russia and Turkmenistan, but saw a slight decline in Armenia and sustained weakness in our operations in Ukraine due to macroeconomic and political factors. In Russia, we continue to outperform the market and strengthen our leadership. For the quarter, revenues increased by 4.1% year-over-year to RUB 98.0 bln. For the year, Russia revenue increased 5.6% driven by network improvements through the build-out of LTE networks in 76 of the Russia’s regions, development of our 3G networks and roll-out of fiber-optic lines across the country; the success of the market’s leading offerings in integrated voice and data tariff plans; and strong retail operations, which allow us to promote sales of high-quality, affordable smartphones and tablets.”

 

Mr. Vasyl Latsanych, MTS Vice President for Marketing, said “In Q4, we continued to capitalize on trends we’d seen from previous quarters.  Revenues in our core mobile business improved 4.5% year-over-year driven by migrating customers from feature phones to smartphones by focusing on data in our marketing communications and working closely with handset vendors to create unique products in the market. The growth was aided by rising penetration of our voice & data Smart tariffs in the base, higher messaging revenues due to increased sales of SMS packages; strong subscriber additions as we increased our subscriber base by roughly 5 million subscribers; and high-quality of subscriber additions as showcased by the lowest level of churn in the market.”

 

Mr. Alexey Kornya, MTS Vice President for Finance and Investments, added, “In Q4 2014, we witnessed both seasonal weakness and a number of one-off factors in our operating income.  For the quarter, our Adjusted OIBDA declined 5.3% to RUB 42.6 bln. Our profitability reflects revenue dynamics in each of our markets of operation, including higher sales of handsets in Russia; the impact of hryvna and ruble volatility on our operating expenses, including international roaming and calling; increased taxes and spectrum fees in Ukraine; the effects of a planned salary increase implemented in September 2014; rising general & administrative  costs due to the enhancement of our mobile and fixed networks in Russia and inflationary pressure; and costs related to the launch of our operations in Uzbekistan. Overall, this translated to an OIBDA margin of 39.7% for the Group. In Russia, OIBDA increased by 0.5% year-over-year to RUB 41.3 bln. We continue to benefit from sustained growth in mobile service revenues and increased contribution from high-margin data revenues. Positive trends were offset by inflationary pressure, the impact of ruble devaluation on costs denominated in foreign currencies, primarily related to international roaming and international calling, and impact of higher low-margin handset sales. On a quarterly basis, OIBDA fell by 9.1% due to seasonal factors, including lower revenues from roaming, and a periodic increase in payroll, with an OIBDA of at 42.1%. For the year, however, Group OIBDA was up slightly to RUB 175.5 bln for the year, a strong sign of the strength and efficiency of the organization and our markets.”

 



 

He continued, “In Q4 2014, net income fell year-on-year to RUB 1.6 bln. In addition to the aforementioned developments to our adjusted OIBDA, other extraordinary factors influencing our bottom line include: a reserve of RUB 5.1 bln rubles based on UAH 1.4 bln held at DeltaBank, which was declared insolvent in early March; an impairment of our stake in MTS Bank in the amount of RUB 3.2 bln; and a gain in the amount of RUB 3.1 bln from the reentrance into Uzbekistan. For the period, we recognized a non-cash FOREX loss of roughly RUB 9 bln due to the impact of ruble depreciation on our non-ruble debt portfolio. Additional factors impacting our net income include the performance of investments in MTS Bank and Ozon, as well as the contribution from our minority stake in MTS Belarus. Despite the operating challenges throughout our markets, MTS continues to generate significant operating cash flows. Exclusive of one-offs, as well as investments in associates and acquisitions of subsidiaries, operating cash flow from continuing operations improved 1.8% compared to 2013. This led to a strong free cash flow of RUB 57.0 bln.”

 

Mr. Andrei Dubovskov, MTS President and CEO, concluded, “And despite the challenges, over the past year, we saw in our markets core revenue growth; generally stable market shares among key competitors; sustained levels of investment; and strong levels of profitability. This gives us confidence looking ahead to 2015 and beyond. For Russia, we anticipate revenue growth of over 3% in 2015 driven by continued migration to data plans and rising data usage. For the Group we see the revenue growing by more than 2% driven by the improvement in data revenues in our key markets, and we are cautiously targeting Group OIBDA margin of over 40%. Obviously macroeconomic issues and currency stability remain the key factors, which may influence our revenue and margins. Our plans for CAPEX in 2015 are to decrease slightly in the absolute amount of capital expenditures to roughly RUB 85 bln.  Ruble volatility does imply that we will purchase less equipment, but we feel that we are best prepared for such a scenario. In 2014, we launched and developed LTE in 76 regions and installed over 15,000 3G/4G base stations, a record for MTS. Network build-out allowed us to dramatically increase data transfer speeds and improve customer experience as indicated by high levels of satisfaction among MTS customers measured by various marketing metrics. Thus, we feel comfortable about our competitive position as we economize on network investments.”

 

Additional Information

 

In 2010, the Russian State Duma enacted the law requiring Russian companies, which have securities traded on the Moscow Exchange, to prepare consolidated financial statements under International Financial Reporting Standards (IFRS) beginning from the financial year ending on December 31, 2015. To conform to this requirement, the Group will prepare its financial statements for the year ended December 31, 2015 with comparable data for the year ended December 31, 2014 under IFRS.

 

As of Q3 2014, MTS adjusted its subscriber reporting methodology to reflect three-months of subscriber activity instead of the previously used six-month methodology.  In accompanying materials, subscriber numbers, as well as related operational indicators like Average Revenue Per User (ARPU) and Minutes of Use (MOU), Average Price Per Minute (APPM) and churn have been restated since Q1 2013 to provide like-for-like comparisons for FY2014 operational indicators.

 

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 December 31, 2014. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

 



 

Financial Summary

 

RUB mln

 

Q4’14

 

Q4’13

 

y-o-y

 

Q3’14

 

q-o-q

 

2014

 

2013

 

y-o-y

 

Revenues

 

107,188

 

104,751

 

2.3

%

107,148

 

STABLE

 

410,758

 

398,443

 

3.1

%

Adjusted OIBDA

 

42,596

 

44,988

 

-5.3

%

48,186

 

-11.6

%

175,463

 

175,011

 

0.3

%

- margin

 

39.7

%

42.9

%

-3.2

pp

45.0

%

-5.3

pp

42.7

%

43.9

%

-1.2

pp

Adjusted net operating income

 

23,191

 

27,219

 

-14.8

%

29,152

 

-20.4

%

100,753

 

101,758

 

-1.0

%

- margin

 

21.6

%

26.0

%

-4.4

pp

27.2

%

-5.6

pp

24.5

%

25.5

%

-1.0

pp

Net income from continuing operations

 

1,646

 

19,750

 

-91.7

%

16,062

 

-89.8

%

51,822

 

76,105

 

-31.9

%

- margin

 

1.5

%

18.9

%

-17.4

pp

15.0

%

-13.5

pp

12.6

%

19.1

%

-6.5

pp

Net income attributable to the group

 

1,646

 

19,750

 

-91.7

%

16,062

 

-89.8

%

51,822

 

79,839

 

-35.1

%

- margin

 

1.5

%

18.9

%

-17.4

pp

15.0

%

-13.5

pp

12.6

%

20.0

%

-7.4

pp

 

Russia Highlights

 

RUB mln

 

Q4’14

 

Q4’13

 

y-o-y

 

Q3’14

 

q-o-q

 

2014

 

2013

 

y-o-y

 

Revenues(3)

 

98,044

 

94,154

 

4.1

%

99,209

 

-1.2

%

374,895

 

354,894

 

5.6

%

- mobile

 

74,782

 

71,556

 

4.5

%

77,324

 

-3.3

%

290,955

 

272,502

 

6.8

%

- fixed

 

15,966

 

16,725

 

-4.5

%

15,799

 

1.1

%

62,533

 

63,301

 

-1.2

%

-sales of handsets & accessories

 

9,061

 

7,760

 

16.8

%

7,785

 

16.4

%

28,769

 

26,317

 

9.3

%

OIBDA

 

41,324

 

41,107

 

0.5

%

45,437

 

-9.1

%

164,844

 

157,699

 

4.5

%

- margin

 

42.1

%

43.7

%

-1.6

pp

45.8

%

-3.7

pp

44.0

%

44.4

%

-0.4

pp

Net income

 

4,483

 

17,117

 

-73.8

%

10,818

 

-58.6

%

44,362

 

64,115

 

-30.8

%

- margin

 

4.6

%

18.2

%

-13.6

pp

10.9

%

-6.3

pp

11.8

%

18.1

%

-6.3

pp

 

 

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

ARPU (RUB)

 

342.0

 

325.2

 

336.2

 

358.3

 

337.8

 

338.6

 

339.1

 

MOU (min)

 

375

 

353

 

373

 

377

 

393

 

359

 

372

 

Churn rate (%)

 

9.8

%

10.1

%

10.9

%

9.2

%

11.0

%

38.1

 

41.0

%

 

Ukraine Highlights

 

UAH mln

 

Q4’14

 

Q4’13

 

y-o-y

 

Q3’14

 

q-o-q

 

2014

 

2013

 

y-o-y

 

Revenues

 

2,277

 

2,441

 

-6.7

%

2,817

 

-19.2

%

10,076

 

9,965

 

1.1

%

Adjusted OIBDA

 

964

 

1,276

 

-24.5

%

1,210

 

-20.3

%

4,686

 

5,176

 

-9.5

%

- margin

 

42.3

%

52.3

%

-10.0

pp

42.9

%

-0.6

pp

46.5

%

51.9

%

-5.4

pp

Net income

 

(140

)

636

 

n/a

 

763

 

n/a

 

2,424

 

2,464

 

-1.6

%

- margin

 

n/a

 

26.1

%

n/a

 

27.1

%

n/a

 

24.1

%

24.7

%

-0.6

pp

 


(3) Revenue, net of intercompany between mobile and fixed

 



 

 

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

ARPU (UAH)

 

37.0

 

36.8

 

38.3

 

41.1

 

34.8

 

39.5

 

39.7

 

MOU (min)

 

586

 

573

 

575

 

483

 

480

 

608

 

554

 

Churn rate (%)

 

7.4

%

6.2

%

4.5

%

4.6

%

17.6

%

27.2

%

34.2

%

SAC (UAH)

 

53.3

 

49.4

 

50.8

 

63.4

 

69.3

 

54.8

 

57.6

 

- dealer commission

 

29.7

 

29.4

 

31.2

 

37.5

 

40.0

 

32.1

 

34.2

 

- adv&mktg

 

14.8

 

12.1

 

13.3

 

17.0

 

20.3

 

14.1

 

15.4

 

- handset subsidy

 

0.9

 

0.7

 

0.8

 

1.7

 

2.8

 

1.1

 

1.4

 

- SIM card & voucher

 

7.8

 

7.2

 

5.6

 

7.1

 

6.2

 

7.6

 

6.5

 

 

Armenia Highlights

 

AMD mln

 

Q4’14

 

Q4’13

 

y-o-y

 

Q3’14

 

q-o-q

 

2014

 

2013

 

y-o-y

 

Revenues

 

19,572

 

19,778

 

-1.0

%

22,066

 

-11.3

%

77,651

 

79,926

 

-2.8

%

OIBDA

 

9,112

 

5,298

 

72.0

%

12,057

 

-24.4

%

38,014

 

36,862

 

3.1

%

- margin

 

46.6

%

26.8

%

19.8

pp

54.6

%

-8.0

pp

49.0

%

46.1

%

2.9

pp

Net income

 

3,522

 

(1,442

)

n/a

 

4,243

 

-17.0

%

11,554

 

8,400

 

37.5

%

- margin

 

18.0

%

n/a

 

n/a

 

19.2

%

-1.2

pp

14.9

%

10.5

%

4.4

pp

 

 

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

ARPU (AMD)

 

3,113.5

 

2,691.1

 

2,939.3

 

3,378.6

 

2,956.6

 

3,206.5

 

2,988.8

 

MOU (min)

 

460

 

464

 

516

 

527

 

523

 

430

 

508

 

Churn rate (%)

 

8.3

%

7.8

%

7.7

%

9.0

%

9.5

%

33.2

%

33.9

%

SAC (AMD)

 

6,800.7

 

5,129.8

 

5,302.3

 

4,773.3

 

6,261.6

 

6,415.7

 

5,362.8

 

 

Turkmenistan Highlights

 

TMT mln

 

Q4’14

 

Q4’13

 

y-o-y

 

Q3’14

 

q-o-q

 

2014

 

2013

 

y-o-y

 

Revenues

 

76

 

72

 

5.3

%

72

 

5.7

%

282

 

253

 

11.5

%

OIBDA

 

30

 

44

 

-30.1

%

30

 

1.7

%

117

 

104

 

11.9

%

- margin

 

40.2

%

60.6

%

-20.4

pp

41.8

%

-1.6

pp

41.3

%

41.2

%

+0.1

pp

Net income

 

25

 

39

 

-36.7

%

26

 

-3.5

%

98

 

90

 

+9.7

%

- margin

 

32.9

%

54.6

%

-21.7

pp

36.0

%

-3.1

pp

34.8

%

35.4

%

-0.6

pp

 

 

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

ARPU (TMT)

 

13.9

 

12.8

 

13.6

 

14.1

 

14.8

 

13.2

 

13.8

 

MOU (min)

 

620

 

588

 

574

 

564

 

553

 

649

 

563

 

Churn rate (%)

 

13.5

%

12.0

%

10.4

%

11.2

%

10.3

%

49.8

%

43.3

%

SAC (TMT)

 

22.1

 

23.9

 

24.1

 

26.7

 

26.1

 

14.9

 

25.2

 

 



 

CAPEX Highlights

 

RUB mln

 

FY 2011

 

FY 2012

 

FY 2013

 

FY 2014

 

Russia

 

66,869

 

82,896

 

70,910

 

86,162

 

- as % of rev

 

21.4

%

24.5

%

20.0

%

23.0

%

Ukraine

 

4,487

 

4,125

 

8,840

 

4,210

 

- as % of rev

 

13.4

%

10.9

%

22.2

%

12.8

%

Armenia

 

1,344

 

751

 

1,093

 

1,142

 

- as % of rev

 

22.8

%

12.5

%

17.5

%

16.0

%

Turkmenistan

 

n/a

 

11

 

732

 

1,084

 

- as % of rev

 

n/a

 

3.4

%

25.8

%

28.4

%

Group

 

72,798

 

87,783

 

81,575

 

92,599

 

- as % of rev

 

20.9

%

23.2

%

20.5

%

22.5

%

 

* * *

 

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: ir@mts.ru

 

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

 

* * *

 

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 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 Fourth Quarter and Full Year 2014 Earnings Press Release

 

Attachment A

 

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP. Due to the rounding and translation practices, Russian ruble and functional currency margins, as well as other non-GAAP 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 accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. 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 generally accepted accounting principles, 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)

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income

 

27,219

 

23,437

 

24,973

 

32,756

 

21,183

 

101,758

 

102,349

 

Less: Gain from reentrance in Uzbekistan

 

 

 

 

(3,604

)

(3,130

)

 

(6,734

)

Add: Provision for investment in Delta bank

 

 

 

 

 

5,138

 

 

5,138

 

Adjusted operating income

 

27,219

 

23,437

 

24,973

 

29,152

 

23,191

 

101,758

 

100,753

 

Add: D&A

 

17,769

 

18,014

 

18,258

 

19,034

 

19,404

 

73,253

 

74,710

 

Adjusted OIBDA

 

44,988

 

41,451

 

43,231

 

48,186

 

42,596

 

175,011

 

175,463

 

 

Russia (RUB mln)

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income

 

25,865

 

22,464

 

24,150

 

28,249

 

24,212

 

94,873

 

99,075

 

Add: D&A

 

15,243

 

15,310

 

16,159

 

17,188

 

17,112

 

62,825

 

65,768

 

OIBDA

 

41,107

 

37,773

 

40,309

 

45,437

 

41,324

 

157,699

 

164,844

 

 

Ukraine (RUB mln)

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income/(loss)

 

3,109

 

2,634

 

2,153

 

2,071

 

(3,467

)

11,745

 

3,390

 

Add: Provision for investment in Delta bank

 

 

 

 

 

5,138

 

 

5,138

 

Adjusted operating income

 

3,109

 

2,634

 

2,153

 

2,071

 

1,671

 

11,745

 

8,528

 

Add: D&A

 

2,085

 

2,256

 

1,665

 

1,410

 

1,449

 

8,896

 

6,780

 

Adjusted OIBDA

 

5,194

 

4,890

 

3,818

 

3,481

 

3,120

 

20,641

 

15,308

 

 



 

Armenia (RUB mln)

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income/(loss)

 

(27

)

221

 

347

 

642

 

464

 

1,299

 

1,674

 

Add: D&A

 

448

 

440

 

419

 

425

 

523

 

1,560

 

1,807

 

OIBDA

 

420

 

662

 

766

 

1,067

 

986

 

2,859

 

3,481

 

 

Turkmenistan (RUB mln)

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income

 

488

 

289

 

354

 

352

 

457

 

1,159

 

1,452

 

Add: D&A

 

11

 

25

 

23

 

27

 

48

 

18

 

123

 

OIBDA

 

498

 

315

 

377

 

379

 

506

 

1,177

 

1,576

 

 

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

 

Group

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income

 

26.0

%

24.0

%

25.3

%

30.6

%

19.8

%

25.5

%

24.9

%

Less: Gain from reentrance in Uzbekistan

 

 

 

 

(3.4

)%

(2.9

)%

 

(1.6

)%

Add: Provision for investment in Delta bank

 

 

 

 

 

4.7

%

 

1.2

%

Adjusted operating margin

 

26.0

%

24.0

%

25.3

%

27.2

%

21.6

%

25.5

%

24.5

%

Add: D&A

 

17.0

%

18.5

%

18.5

%

17.8

%

18.1

%

18.4

%

18.2

%

Adjusted OIBDA margin

 

42.9

%

42.5

%

43.7

%

45.0

%

39.7

%

43.9

%

42.7

%

 

Russia

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating margin

 

27.5

%

25.7

%

26.7

%

28.5

%

24.7

%

26.7

%

26.4

%

Add: D&A

 

16.2

%

17.5

%

17.9

%

17.3

%

17.5

%

17.7

%

17.5

%

OIBDA margin

 

43.7

%

43.3

%

44.6

%

45.8

%

42.1

%

44.4

%

44.0

%

 

Ukraine

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating income/(loss)

 

31.3

%

27.6

%

28.1

%

25.5

%

(46.5

)%

29.6

%

10.3

%

Add: Provision for investment in Delta bank

 

 

 

 

 

68.9

%

 

15.7

%

Adjusted operating margin

 

31.3

%

27.6

%

28.1

%

25.5

%

22.4

%

29.6

%

26.0

%

Add: D&A

 

21.0

%

23.6

%

21.7

%

17.4

%

19.4

%

22.4

%

20.7

%

Adjusted OIBDA margin

 

52.3

%

51.2

%

49.8

%

42.9

%

41.8

%

52.0

%

46.7

%

 

Armenia

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating margin

 

n/a

 

15.2

%

21.7

%

32.9

%

21.7

%

20.9

%

23.4

%

Add: D&A

 

28.2

%

30.2

%

26.2

%

21.8

%

24.4

%

25.0

%

25.3

%

OIBDA margin

 

26.5

%

45.4

%

47.9

%

54.6

%

46.1

%

45.9

%

48.7

%

 

Turkmenistan

 

Q4’13

 

Q1’14

 

Q2’14

 

Q3’14

 

Q4’14

 

2013

 

2014

 

Operating margin

 

59.5

%

35.9

%

41.6

%

38.7

%

36.4

%

40.8

%

38.0

%

Add: D&A

 

1.3

%

3.1

%

2.7

%

3.0

%

3.8

%

0.6

%

3.2

%

OIBDA margin

 

60.8

%

39.0

%

44.3

%

41.7

%

40.2

%

41.5

%

41.2

%

 

***

 



 

Attachment B

 

Net debt represents total debt less cash and cash equivalents and short-term investments. 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-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

 

Net debt can be reconciled to our consolidated statements of financial position as follows:

 

RUB mln

 

As of Dec 31, 2013

 

As of Dec 31, 2014

 

Current portion of debt and of capital lease obligations

 

25,064

 

42,674

 

Long-term debt and capital lease obligations

 

194,084

 

249,717

 

Total debt

 

219,148

 

292,391

 

Less:

 

 

 

 

 

Cash and cash equivalents

 

30,612

 

61,410

 

Short-term investments

 

14,633

 

9,849

 

Long-term deposits

 

 

13,671

 

Effects of hedging on non-ruble denominated debt

 

1,825

 

21,936

 

Net debt

 

173,903

 

185,525

 

 

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

 

RUB mln

 

For the year
ended Dec 31, 2013

 

For the year
ended Dec 31, 2014

 

Net cash provided by operating activities

 

159,924

 

159,518

 

Less:

 

 

 

 

 

Purchases of property, plant and equipment

 

(67,146

)

(74,243

)

Purchases of intangible assets

 

(14,429

)

(18,356

)

Proceeds from sale of property, plant and equipment

 

418

 

619

 

Investments in and advances to associates

 

(5 ,089)

 

(7,767

)

Acquisition of subsidiaries, net of cash acquired

 

 

(2,755

)

Free cash flow from continuing operations

 

73,678

 

57,016

 

 

***

 



 

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.

 

Average monthly service revenue per subscriber (ARPU). We calculate our ARPU by dividing our service revenues for a given period, including interconnect, guest roaming fees and connection fees, by the average number of our subscribers during that period and dividing by the number of months in that period.

 

Average monthly minutes of usage per subscriber (MOU). MOU is calculated by dividing the total number of minutes of usage during a given period by the average number of our subscribers during the period and dividing by the number of months in that period.

 

Churn. We define our “churn” as the total number of subscribers who cease to be a subscriber as defined above during the period (whether involuntarily due to non-payment or voluntarily, at such subscriber’s request), expressed as a percentage of the average number of our subscribers during that period.

 

Subscriber acquisition cost (SAC). We define SAC as total sales and marketing expenses and handset subsidies for a given period. Sales and marketing expenses include advertising expenses and commissions to dealers. SAC per gross additional subscriber is calculated by dividing SAC during a given period by the total number of gross subscribers added by us during the period.

 

***

 



 

MOBILE TELESYSTEMS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS (UNAUDITED) AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

 

(Amounts in millions of RUB except per share amount)

 

 

 

Three months ended

 

Twelve months ended

 

 

 

December 31,
2014

 

December 31,
2013

 

December 31,
2014

 

December 31,
2013

 

 

 

 

 

 

 

 

 

 

 

Net operating revenue

 

 

 

 

 

 

 

 

 

Service revenue and connection fees

 

98 063

 

96 947

 

381 822

 

371 950

 

Sales of handsets and accessories

 

9 125

 

7 804

 

28 936

 

26 493

 

 

 

107 188

 

104 751

 

410 758

 

398 443

 

Operating expenses

 

 

 

 

 

 

 

 

 

Cost of services

 

(24 734

)

(21 837

)

(89 589

)

(83 777

)

Cost of handsets and accessories

 

(7 609

)

(7 190

)

(25 093

)

(22 636

)

Sales and marketing expenses

 

(6 039

)

(6 093

)

(21 908

)

(22 861

)

General and administrative expenses

 

(24 214

)

(21 333

)

(90 971

)

(85 458

)

Depreciation and amortization expense

 

(19 404

)

(17 769

)

(74 710

)

(73 253

)

Provision for doubtful accounts

 

(769

)

(1 506

)

(3 266

)

(3 106

)

Other operating expenses

 

(1 228

)

(1 803

)

(4 468

)

(5 594

)

Provision for investment in Delta Bank

 

(5 138

)

 

(5 138

)

 

Gain from reentrance

 

3 130

 

 

 

6 734

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income

 

21 183

 

27 220

 

102 349

 

101 758

 

 

 

 

 

 

 

 

 

 

 

Currency exchange and transaction loss

 

(8 936

)

(840

)

(18 024

)

(5 473

)

 

 

 

 

 

 

 

 

 

 

Other (expenses)/income:

 

 

 

 

 

 

 

 

 

Interest income

 

1 106

 

675

 

4 519

 

2 793

 

Interest expense, net of capitalized interest

 

(4 282

)

(2 983

)

(16 453

)

(15 498

)

Other (loss)/income

 

(4 766

)

1 516

 

(3 651

)

13 108

 

Total other (expenses)/income, net

 

(7 942

)

(792

)

(15 585

)

403

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before provision for income taxes

 

4 305

 

25 588

 

68 740

 

96 688

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

(2 805

)

(5 669

)

(16 347

)

(19 633

)

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

 

1 500

 

19 919

 

52 393

 

77 055

 

 

 

 

 

 

 

 

 

 

 

Net income from discontinued operations

 

 

 

 

3 733

 

 

 

 

 

 

 

 

 

 

 

Net income

 

1 500

 

19 919

 

52 393

 

80 788

 

 

 

 

 

 

 

 

 

 

 

Less net income/(loss) attributable to the noncontrolling interests

 

146

 

(167

)

(571

)

(949

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to the Group

 

1 646

 

19 752

 

51 822

 

79 839

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss), net of taxes

 

 

 

 

 

 

 

 

 

Currency translation adjustment

 

14 626

 

435

 

8 925

 

(2 877

)

Unrealized (loss)/gains on derivatives

 

(1 492

)

75

 

2 801

 

1 445

 

Unrecognized actuarial (loss)/gains

 

(1

)

157

 

14

 

185

 

Total other comprehensive income/(loss), net of taxes

 

13 133

 

667

 

11 740

 

(1 247

)

Total comprehensive income

 

14 633

 

20 586

 

64 133

 

79 541

 

Less comprehensive income attributable to the noncontrolling interests

 

(2 571

)

(183

)

(3 576

)

(1 056

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to the Group

 

12 061

 

20 403

 

60 557

 

78 485

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, in millions - basic and diluted

 

1 989

 

1 989

 

1 989

 

1 989

 

Earnings per share attributable to the Group - basic and diluted:

 

 

 

 

 

 

 

 

 

EPS from continuing operations

 

0.83

 

9.93

 

26.06

 

38.27

 

EPS from discontinued operations

 

 

 

 

1.88

 

Total EPS

 

0.83

 

9.93

 

26.06

 

0.14

 

 



 

MOBILE TELESYSTEMS

CONSOLIDATED  STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND DECEMBER 31, 2013

 

(Amounts in millions of RUB)

 

 

 

As of December
31, 2014

 

As of December
31, 2013

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

61 410

 

30 612

 

Short-term investments

 

9 849

 

14 633

 

Trade receivables, net

 

32 966

 

34 554

 

Accounts receivable, related parties

 

4 525

 

965

 

Inventory and spare parts

 

7 510

 

8 498

 

VAT receivable

 

8 071

 

6 651

 

Assets held for sale

 

2 004

 

0

 

Prepaid expenses and other current assets

 

25 789

 

20 763

 

Total current assets

 

152 124

 

116 676

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

299 479

 

270 660

 

 

 

 

 

 

 

INTANGIBLE ASSETS

 

98 780

 

74 329

 

 

 

 

 

 

 

INVESTMENTS IN AND ADVANCES TO ASSOCIATES

 

16 277

 

13 393

 

 

 

 

 

 

 

OTHER INVESTMENTS

 

14 969

 

4 392

 

 

 

 

 

 

 

OTHER NON CURRENT ASSETS

 

27 298

 

6 074

 

 

 

 

 

 

 

Total assets

 

608 927

 

485 524

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Trade accounts payable

 

36 337

 

23 864

 

Accrued expenses and other current liabilities

 

53 754

 

49 619

 

Accounts payable, related parties

 

4 674

 

3 315

 

Current portion of long-term debt, capital lease obligations

 

42 674

 

25 064

 

Total current liabilities

 

137 439

 

101 862

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

Long-term debt

 

240 860

 

194 074

 

Capital lease obligations

 

8 857

 

10

 

Deferred income taxes

 

33 278

 

21 202

 

Deferred revenue and other long-term liabilities

 

9 376

 

9 391

 

Total long-term liabilities

 

292 371

 

224 677

 

 

 

 

 

 

 

Total liabilities

 

429 810

 

326 539

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

3 192

 

2 932

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Total shareholders’ equity attributable to the MTS Group

 

165 949

 

151 931

 

Non-redeemable Noncontrolling interest

 

9 976

 

4 122

 

TOTAL SHAREHOLDERS` EQUITY

 

175 925

 

156 053

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

608 927

 

485 524

 

 



 

MOBILE TELESYSTEMS

CONSOLIDATED  STATEMENTS OF CASH FLOWS

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013

 

(Amounts in millions of RUB)

 

 

 

Twelve months
ended

 

Twelve months
ended

 

 

 

December 31, 2014

 

December 31, 2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

52 393

 

80 788

 

Net (income) loss from discontinued operations

 

 

(3 733

)

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

74 710

 

73 253

 

Non cash gain from reentrance in Uzbekistan

 

(6 724

)

 

Non cash provision for investment in Delta Bank

 

5 061

 

 

Currency exchange and translation loss

 

18 024

 

5 473

 

Debt issuance cost amortization

 

645

 

784

 

Amortization of deferred connection fees

 

(1 912

)

(1 921

)

Equity in net loss/(income) of associates

 

2 880

 

(2 472

)

Inventory obsolescence expense

 

357

 

660

 

Provision for doubtful accounts

 

3 266

 

3 106

 

Deferred tax loss

 

6 540

 

9 671

 

Other non-cash items

 

328

 

(192

)

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease/(Increase) in trade receivables

 

4 466

 

(3 474

)

Decrease/(Increase) in inventory

 

731

 

(592

)

Decrease/(Increase) in prepaid expenses and other current assets

 

777

 

(2 966

)

Increase in VAT receivable

 

(1 058

)

(1 190

)

Decrease/(Increase) in trade accounts payable, accrued liabilities and other current liabilities

 

(3 616

)

898

 

Dividends received

 

2 650

 

1 831

 

Net cash provided by operating activities - continuing operations

 

159 518

 

159 924

 

Net cash used in operating activities - discontinued operations

 

 

(547

)

Net cash provided by operating activities

 

159 518

 

159 377

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of subsidiaries, net of cash acquired

 

(2 755

)

 

Purchases of property, plant and equipment

 

(74 243

)

(67 146

)

Purchases of intangible assets

 

(18 356

)

(14 429

)

Proceeds from sale of property, plant and equipment

 

619

 

418

 

Purchases of short-term investments

 

(35 923

)

(37 623

)

Proceeds from sale of short-term investments

 

47 619

 

27 785

 

Purchase of other investments

 

(34 613

)

(703

)

Proceeds from sale of other investments

 

19 831

 

 

Investments in and advances to associates, net

 

(7 767

)

(5 088

)

Net cash used in investing activities - continuing operations

 

(105 588

)

(96 786

)

Net cash provided by/used in investing activities - discontinued operations

 

 

115

 

Net cash used in investing activities

 

(105 588

)

(96 671

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of notes

 

2

 

25 651

 

Repayment of notes

 

(23 152

)

(6 195

)

Notes and debt issuance cost paid

 

(360

)

(193

)

Reimbursement of debt issuance cost

 

 

959

 

Capital lease obligation principal paid

 

(227

)

(202

)

Dividends paid

 

(49 921

)

(39 706

)

Cash on sale of MGTS Business Estate (net of cash disposed) to AFK

 

 

3 068

 

Cash on sale of building to AFK Sistema

 

508

 

 

Proceeds from loans

 

69 421

 

353

 

Loan principal paid

 

(29 437

)

(38 996

)

Other financial activities

 

(5

)

116

 

Net cash used in financing activities - continuing operations

 

(33 171

)

(55 145

)

Net cash provided by/(used in) financing activities - discontinued operations

 

 

 

Net cash used in financing activities

 

(33 171

)

(55 145

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

10 195

 

1 037

 

 

 

 

 

 

 

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS:

 

30 953

 

8 598

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, at beginning of the period

 

30 612

 

22 014

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, at end of the period

 

61 566

 

30 612

 

Less cash and cash equivalents within assets held for sale

 

-156

 

 

CASH AND CASH EQUIVALENTS at end of period

 

61 410

 

30 612

 

 



 

GRAPHIC

Investor conference call – March 17, 2015 Andrei Dubovskov President, Chief Executive Officer Alexey Kornya Vice President, Chief Financial Officer Vasyl Latsanych Vice President, Chief Marketing Officer GROUP FINANCIAL RESULTS FOR THE FOURTH QUARTER AND FULL YEAR 2014

 


GRAPHIC

SAFE HARBOR Some of the information in this presentation 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.

 


GRAPHIC

TABLE OF CONTENTS FINANCIAL & CORPORATE HIGHLIGHTS KEY PERIOD & FY 2014 highlights: 3D Strategy Group financial highlights: revenue Group financial highlights: adjusted OIBDA Group financial highlights: net income Group mobile subscriber dynamics Group capital expenditures Group debt at the end of Q4 2014 Group balance sheet Net Debt Group cash flows Outlook for 2015 Dividend outlook 3D strategy KEY FINANCIAL & OPERATING RESULTS Russian financial highlights Russian revenue breakdown Russian mobile operating indicators Russia fixed operating indicators MGTS MTS retail network development MTS in Financial Services Ukraine, Armenia and Turkmenistan financial highlights & operating indicators Uzbekistan: re-entering the market APPENDIX

 


4 FINANCIAL & CORPORATE HIGHLIGHTS

 


DATA: Growth in a year of challenges Rise in Group revenue in spite of macroeconomic challenges throughout our markets of operation Market-leading growth in data traffic revenue in Russia Highest smartphone penetration in the Russian market Launch and development of LTE in 76 regions of Russia Won license to provision 3G-services throughout Ukraine KEY PERIOD & FY 2014 HIGHLIGHTS: 3D STRATEGY DIFFERENTIATION: Focus on a unique customer value proposition Leading retail network and improved sales of smartphones Continued build out of GPON and improved market share in Moscow broadband and pay-tv markets Acquired regional assets of SMARTS OJSC In Penza Region, Ivanovo Region and Bashkiria for RUB 3.1 bln including debt Acquired a 10.82% stake in OZON Holdings (“OZON”), the leading Russian e-commerce company, for USD 75 mln DIVIDENDS: Efficiency and value creation Payout of record RUB 51.2 bln in dividends for calendar year 2014 Growth in Adj. OIBDA year-over-year despite intense cost, currency pressure and macroeconomic volatility in key markets Reduced net interest expense by RUB 771 mln despite volatile markets Partnered with VimpelCom to roll-out LTE networks in 36 regions +2.3% * OIBDA net off gain in the amount of RUB 6.7 bln mln from reentrance into Uzbekistan and excluding provision for investments in DeltaBank in Ukraine of RUB 5.1 bln. +0.3% +4.5% +3.1%

 


GRAPHIC

GROUP FINANCIAL HIGHLIGHTS: REVENUE Y-on-Y revenue growth due to increase in voice and data traffic revenues and subscriber base growth in Russia Group revenue performance offset by decline in subscriber base and fall in revenues in Ukraine, due to discontinuation of operations in Crimea, ongoing hostilities in the East of Ukraine and sustained macroeconomic weakness Q-on-Q revenue growth mitigated by seasonally lower roaming revenues in the key markets TOTAL GROUP REVENUE (RUB bln) +1.3% +2.3% STABLE +3.1%

 


GROUP FINANCIAL HIGHLIGHTS: ADJUSTED OIBDA ADJ. OIBDA MARGIN* 44.8% 42.9% 42.5% 43.7% 45.0% 39.7% 43.9% 42.7% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 *Adjusted for a gain in the amount of RUB 6.7 bln (RUB 3.6 bln in Q3 2014 and RUB 3.1 bln in Q4 2014) from reentrance into Uzbekistan and adjusted for provision for investments in DeltaBank in Ukraine of RUB 5.1 bln in Q4 2014 TOTAL GROUP ADJUSTED OIBDA* (RUB bln) -2.8% -5.3% -11.6% +0.3% +1.9% -2.1% -0.9% -1.0% -0.6% -0.4% ADJUSTED OIBDA MARGIN: FACTOR ANALYSIS In Q4, OIBDA margins typically decline due to seasonal factors, including fewer working days, lower roaming and higher end-of-year costs Key one-time or limited factors that contributed to the q-on-q decline include the launch of operations in Uzbekistan and a periodic payroll increase in September 2014 Inflationary expenses continue to pressure OIBDA, such as increased utility expenses, lines and sites rental costs, higher network maintenance and IT costs and increased taxes and frequency fees in Ukraine

 


GRAPHIC

GROUP FINANCIAL HIGHLIGHTS: NET INCOME Net income dynamics in Q4 2014 reflect: OIBDA trends A FOREX loss of RUB 8.9 bln based on the value of MTS’s foreign currency-denominated debt due to ruble depreciation A reserve related to the insolvency of JSC DeltaBank, Ukraine’s fourth-largest bank, in the amount of RUB 5.1 bln A gain in the amount of RUB 3.1 bln from reentrance into Uzbekistan, recognized upon completion of an appraisal of the asset by an independent consultancy Additional expenses due to impairment charges at MTS Bank and share of losses at associates MTS continues to see sustained macroeconomic volatility in its markets of operations that may impact the financial and operational performance throughout the Group TOTAL GROUP NET INCOME* (RUB bln) -9.2% -91.7% -89.8% -35.1% *Includes gain in the amount of RUB 6.7 bln (RUB 3.6 bln in Q3 2014 and RUB 3.1 bln in Q4 2014) from reentrance into Uzbekistan NET INCOME MARGIN 17.5% 18.9% 13.4% 21.3% 15.0% 1.5% 20.0% 12.6% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014

 


GRAPHIC

GROUP MOBILE SUBSCRIBER BASE DYNAMICS In Russia, MTS continues to attract and retain high-quality subscribers by promoting innovative tariff plans and driving sales through its proprietary retail network In Q3 2014, MTS adjusted its subscriber reporting methodology to reflect three-months of subscriber activity instead of the previously used six-month methodology MTS sustains its active subscriber base through: Best-in-class customer service Market-leading network performance and Tariff plans and a market-leading retail platform designed to migrate voice-only customers to data plans MTS SUBSCRIBERS (MLN UNLESS NOTED) Q3 2014 Q4 2014 % Change TOTAL MOBILE 105.1 104.1 -0.9% RUSSIA 73.3 74.6 +1.8% UKRAINE* 22.7 20.2 -11.0% TURKMENISTAN 1.7 1.7 +1.6% ARMENIA 2.2 2.2 -0.2% UZBEKISTAN 0.0 0.2 N/A BELARUS** 5.3 5.3 STABLE *Including CDMA subscribers **MTS owns a 49% stake in Mobile TeleSystems LLC, a mobile operator in Belarus, which is not consolidated

 


GRAPHIC

GROUP CAPITAL EXPENDITURES In 2014, CAPEX amounted to RUB 92.6 bln slightly exceeding management guidance of RUB 90.0 bln due to prepayment to the vendors in Q3 2014 prior to substantial depreciation of the ruble Key projects include the enhancement of 3G networks in Russia, roll-out of LTE/4G networks throughout Russia, and the ongoing deployment of GPON in Moscow as well as network modernization in other markets of operations RUSSIA 66,869 82,896 70,910 86,162 UKRAINE 4,487 4,125 8,840 4,210 ARMENIA 1,344 751 1,093 1,142 TURKMENISTAN n/a 11 732 1,084 GROUP 72,798 87,783 81,575 92,599 - AS % OF REVENUE 20.9% 23.2% 20.5% 22.5% (IN RUB mln) 2011 2012 2013 2014

 


GROUP DEBT AT THE END OF Q4 2014 **Debt composition by currency includes FOREX hedging in the amount of $675.3 mln as of Q4 2014 DEBT COMPOSITION BY CURRENCY Q4 2014** 2% 79% 19% 43% 57% MTS 08 and BO-01 ruble bonds contain put options that can be exercised in November 2015 and in March 2018 respectively. MTS expects the options to be exercised. DEBT REPAYMENT SCHEDULE (RUB bln) Total Group Debt* = 283.0 RUB bln DEBT COMPOSITION BY TYPE Q4 2014* Signed an agreement with Sberbank of Russia to open a non-revolving line of credit for a total amount of RUB 50.0 bln and maturity in September 2021 and amended the terms of an existing credit agreement in the amount of RUB 20.0 bln by extending maturity from July 2015 to September 2017 Repurchased the Series 03 ruble bond in the amount of RUB 3.7 bln High proportion of ruble-denominated debt mitigates risks associated with currency volatility and enhances MTS’s balance sheet strength The share of US dollar-denominated debt increased 2pp in comparison with the Q3 2014 due to ruble depreciation *Net of financial leasing

 


GRAPHIC

GROUP BALANCE SHEET BALANCE SHEET (RUB mln UNLESS NOTED) As of December 31, 2013 As of December 31, 2014 CASH AND CASH EQUIVALENTS 30,612 61,410 SHORT-TERM INVESTMENTS 14,633 9,849 LONG-TERM DEPOSITS - 13,671 TOTAL DEBT* 219,148 292,391 LONG-TERM DEBT 194,084 249,717 SHORT-TERM DEBT 25,064 42,674 NET DEBT** 172,078 185,525 LTM ADJUSTED OIBDA 175,011 175,463 NET DEBT/LTM ADJUSTED OIBDA 1.0x 1.1x Quarterly increase in cash and cash equivalents and decline in short-term investments, while operating cash flow remains strong Quarterly increase in the amount of total debt due drawing of a RUB 25.0 bln from a credit line signed with Sberbank and revaluation of the foreign currency denominated portion of debt portfolio *Including capital lease obligations **Adjusted for the effects of hedging of non-ruble denominated debt

 


GRAPHIC

NET DEBT Net debt/OIBDA increase primarily due to currency translation effect of MTS’s USD- and EUR-denominated debt Most of MTS’s non-ruble debt is in the form of two Eurobonds with maturities in 2020 and 2023 MTS also holds roughly USD 675 mln in fully hedged bilateral USD-denominated debt In Q4 2014, MTS drew RUB 25 bln in bank credit to provide additional flexibility in liquidity +0.14p NET DEBT/OIBDA: FACTOR ANALYSIS LTM OIBDA/ Net Interest Expenses 11.8 13.8 14.5 15.4 16.1 14.7 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 NET DEBT* (RUB bln) +0.19p -0.08p -0.08p *Adjusted for the effects of hedging of non-ruble denominated debt

 


GRAPHIC

GROUP CASH FLOWS OPERATING AND FREE CASH FLOW FROM CONTINUING OPERATIONS (RUB bln) MTS boasts stable operating cash flows despite currency weakness in its markets of operation Year-over-year increase in adjusted operating cash flow from continuing operations due to: Improvements in working capital Reduction of net interest expense due to astute debt management higher dividends from Belarus Year-over-year decline in FCF due to increased CAPEX as the Company prepaid a higher amount of foreign currency denominated equipment in anticipation of further weakening of the ruble M&A activities, including acquisition of a stake in Ozon Holdings, participation in the additional share issuance of MTS-Bank OJSC and acquisition of a three regional assets of SMARTS OJSC MTS continues to demonstrate strong cash generation through its operations +18.6% -0.3% +60.3% ADJUSTED OPERATING AND FREE CASH FLOW FROM CONTINUING OPERATIONS* (RUB bln) * Operating and Free Cash Flow from continuing operations net of one-off effect related to the compensation for the settlement over Bitel LLC and excluding proceeds from sale of PPE and investments in associates and acquisition of subsidiaries +26.0% +61.8% -22.6% +15.6% +1.8% +37.6% +26.0% +57.7% -11.0%

 


GRAPHIC

OUTLOOK FOR 2015 MTS expects to realize: Group revenue growth of more than 2% Revenue growth in MTS Russia more than 3% Group OIBDA margin of more than 40% Group CAPEX of RUB 85.0 bln Group revenue and OIBDA dynamics will continue to be impacted by currency volatility in Russia and Ukraine MTS sees significant macroeconomic uncertainty and volatility across its markets of operation, which may cause MTS to revisit its revenue and OIBDA guidance and, in turn, impact its financial and operating results TOTAL GROUP REVENUE (RUB bln) GROUP CAPEX (RUB bln) >2% GROUP ADJSUTED OIBDA MARGIN >3% TOTAL RUSSIA REVENUE (RUB bln) >40.0% ≈85.0* 410.8 42.7% 92.6 * Without the costs of 3G license and investments in 3G network in Ukraine 374.9

 


DIVIDEND OUTLOOK DIVIDEND POLICY In April 2013, MTS Board approved a new dividend policy, which stipulates that for the calendar years 2013-2015, MTS aims to payout a minimum dividend distribution of an amount equal to at least 75% of Free Cash Flow for the relevant financial period or, if greater, RUB 40.0 bln per year In 2013, MTS also started paying out dividends on a semi-annual basis using interim H1 and full-year financial result MTS paid out in total RUB 41.0 bln in 2013 and RUB 51.2 bln in 2014 OUTLOOK FOR 2014+ MTS confirms its dividend guidance for 2014 – 2015 of at least RUB 90.0 bln for the period MTS aims to sustain its level of dividend payout in 2015 DIVIDEND HISTORY AND OUTLOOK (RUB bln)

 


GRAPHIC

DATA DIFFERENTIATION 3D STRATEGY: LEVERAGING STRENGTHS & OPPORTUNITIES KEY MTS GROWTH OPPORTUNITIES GROWTH IN MOBILE BROADBAND GROWTH IN FIXED BROADBAND/PAY TV GROWTH IN CONVERGENT CORPORATE SERVICES Sustained efficiency and cash flow generation MTS 3D STRATEGY DIVIDENDS Provide customers with fastest, most reliable data networks Increase data penetration in our subscriber base Ensure customers have the best connectivity experience in their homes, workplace and places in between Offer customers unique products and services to enhance their digital lives Establish Moscow as world-class in terms of connectivity and network access Ensure a best-in-class customer experience to improve loyalty throughout our markets of operation Improve continuously the operational efficiency of MTS Enhance shareholder returns KEY MTS STRENGTHS Largest subscriber base Strongest presence in high-value & corporate segment Fastest mobile network speeds Most advanced retail platform in market Leadership in mobile banking space Clear dividend policy PAYMENT OPTIONS AND MOBILE BANKING TRADITIONAL TELECOMMUNICATIONS BUSINESS NEW BUSINESSES Track record of success FTTB/FTTH services in 180 major Russian cities Digital Moscow Highest customer loyalty ratings Strong position in Ukraine/CIS markets Top brand

 


18 KEY FINANCIAL & OPERATING RESULTS

 


GRAPHIC

RUSSIA FINANCIAL HIGHLIGHTS Y-on-Y revenue expansion driven by: Higher usage of voice, messaging and data products Increased data adoption among subscribers Strong subscriber additions Higher sales of handsets Slight Q-on-Q decline in revenue demonstrate seasonal trends, including lower roaming revenues Quarterly OIBDA decline reflective of: Seasonally lower contribution from roaming revenues Impact of increased costs related to international calling and international roaming Increase of payroll in September 2014 Inflationary expenses TOTAL RUSSIA REVENUE (RUB bln) TOTAL RUSSIA OIBDA (RUB bln) +2.9% +4.1% -1.2% -1.0% +0.5% -9.1% OIBDA MARGIN 45.4% 43.7% 43.3% 44.6% 45.8% 42.1% 44.4% 44.0% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 +5.6% +4.5%

 


GRAPHIC

RUSSIA REVENUE BREAKDOWN MOBILE REVENUE (RUB bln) FIXED LINE REVENUE (RUB bln) SALES OF HANDSETS & ACCESSORIES (RUB bln) +1.0% +4.5% -3.3% +8.7% -4.5% +1.1% +9.4% +16.8% +16.4% Y-on-Y growth in mobile service revenue attributable to: Increased adoption of data through higher penetration of smartphones and tablets Upselling of existing data users to tariff plans and options with higher traffic allowances Expansion of the subscriber base Growth in messaging revenues Quarterly decrease in mobile service revenues due to traditional seasonal factors, such as lower roaming Y-on-Y decline in fixed-line revenue due to a one-off effects from recognition of revenue derived from a fixed-line telecommunications projects with the Government of Moscow in Q4 2013 Quarterly rise in sales of handsets due to increased purchases due to currency volatility at end of year +6.8% -1.2% +9.3%

 


GRAPHIC

RUSSIA MOBILE OPERATING INDICATORS ARPU (RUB) MOU (MIN) ARPU dynamics demonstrate success of upselling customers to tariff plans with larger data packages, as well as the increased penetration of smartphones and tablets Quarterly decline in ARPU attributable to traditional seasonal factors, including lower roaming revenues and higher seasonal sales MOU dynamics showcase success in driving usage by promoting tariff plans with free on-net calling Churn increased slightly due to seasonal factors, but remains at the lowest level in the market -1.8% -1.2% -5.7% +1.9% +4.8% +4.2% SUBS, MLN 67.3 69.4 70.0 70.6 73.3 74.6 69.4 74.6 CHURN, % 8.9% 9.8% 10.1% 10.9% 9.2% 11.0% 38.1% 41.1% VAS ARPU 102.2 111.8 112.0 112.6 118.3 120.8 102.7 115.3 - AS % OF ARPU 29.3% 32.7% 34.4% 33.5% 33.0% 35.8% 30.3% 34.0% APPM 0.95 0.91 0.92 0.90 0.95 0.86 0.94 0.91 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 +0.1% +3.6%

 


RUSSIA MOBILE OPERATING INDICATORS DATA TRAFFIC REVENUE (RUB bln) +10.5% +27.2% +2.5% TOTAL VAS REVENUE (RUB bln) +9.1% +13.7% +1.6% Growth in data revenues demonstrates success in upselling customers on data plans, promotion of affordable smartphones in its retail chain, sustained investment in 3G/LTE networks, and success in creating the market’s strongest value proposition to customers Sustained data traffic revenue growth driven by growth in smartphone and tablet penetration and migration of customers to larger data packages Key initiatives included: Launch and development of LTE networks in 76 Russia’s regions New Year promo campaigns – data packages, minutes of usage and sms for free to increase customer loyalty Pilot launches of “shared” tariff plans in four regions Partnerships with Nokia and Samsung to bundle Internet access with purchase of smartphone +18.1% +35.9%

 


GRAPHIC

RUSSIA FIXED OPERATING INDICATORS Residential ARPU growth highlights the rising share of double-play and triple-play customers in the customer base, migration of Pay-TV subscribers to MTS’s digital TV platform, upselling of broadband subscribers through modernization of fixed-line networks in the regions and migration of ADSL customers in Moscow to GPON Increase in the number of households passed highlights ongoing network expansion in the regions Decline in residential subscriber base highlights the migration of Pay TV subscribers from analog to digital platforms, which results in defection of certain types of subscribers and decline in the number of fixed telephony subscribers in Moscow ARPU RESIDENTIAL (RUB) +3.9% +6.9% +4.6% TOTAL HOUSEHOLDS PASSED, 000S 12,134 12,269 12,347 12,390 12,471 12,541 NUMBER OF SUBS, 000S* 7,690 7,563 7,426 7,294 7,185 7,062 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 *Including residential fixed-line telephony, broadband, and pay-TV subscribers

 


GRAPHIC

MGTS *Source: TMT Consulting MTS SUBSCRIBER SHARE IN THE MOSCOW B2C BROADBAND MARKET* MTS SUBSCRIBER SHARE IN THE MOSCOW B2C PAY TV MARKET* In H2 2011, MGTS began a RUB 50.0 bln investment project to replace outdated ADSL networks with state-of-the-art Gigabit Capable Passive Optic Network (GPON), which allow Internet access speeds of up to 1 Gb/s to all of Moscow's and Moscow region's 4.4 million lines MGTS has so far installed over 40,000 km of fiber-optic lines MGTS currently offers broadband access at the speeds up to 500 Mb/s and 190 TV channels, including 24 HD channels as well as VoD services over IPTV MGTS is growing its subscriber base by upselling its existing customers from ADSL and acquiring new subscribers The project is expected to be completed by the end of 2015, which will enable MTS/MGTS to introduce unrivaled services, unmatched reliability and the fastest Internet access in B2C broadband and Pay-TV markets Construction of GPON network enabled MTS to markedly increase its subscriber share in the Moscow B2C broadband and Pay TV markets GPON ROLLOUT/SUBSCRIBERS (mln)

 


GRAPHIC

MTS RETAIL NETWORK DEVELOPMENT At the end of Q4 2014, MTS’s retail network comprised 4,245 stores, including 1,326 franchised outlets During the quarter, MTS increased its retail footprint by 83 own stores In Q4 2014, smartphones accounted for 65.0% of phones sold in MTS stores in units In Q4 2014, total smartphone penetration reached 42.4% DEVELOPMENT OF MTS RETAIL NETWORK SMARTPHONES SALES AND PENETRATION, 2011 – 2014

 


GRAPHIC

FINANCIAL SERVICES TOTAL CREDIT PORTFOLIO (RUB bln) TOTAL NUMBER OF MTS DENGI CARDS ISSUED (mln) +44.0% +30.2% -4.3% +15.2% +28.4% +3.7% During the quarter MTS continued to see strong demand for point-of-sale loans for smartphones with 20.6% of smartphones sold with the assistance of some P-o-S credit through MTS’s banking partners On December 17, 2014, sales of handsets on credit were discontinued due to the change in the banks’ commercial policies following the rate increase by the Central Bank of Russia Turnover and number of users of mobile payments through SMS-based services, MTS’s mobile application Easy Payment and website continue to rise due to enhancement of mobile commerce platform and marketing campaigns aimed at promoting mobile payments MOBILE PAYMENTS TURNOVER (RUB bln) MOBILE PAYMENTS USERS (mln) +22.8% +37.9%

 


GRAPHIC

UKRAINE FINANCIAL HIGHLIGHTS Y-on-Y revenue decline attributable to: Discontinuation of operations in Crimea Ongoing hostilities in the East of Ukraine Sustained macroeconomic weakness resulting in lower consumption of voice and data products throughout the country Key factors related to decline in OIBDA: Revenue dynamics Increased operating expenses due to inflationary pressure, higher utility prices, and a 2x increase in monthly frequency fees One-off charge related to non-recoverable VAT expenses Hryvna devaluation impact on the costs denominated in foreign currencies, including international calling and international roaming Reserve of UAH 1.4 bln booked due to insolvency of JSC Delta Bank TOTAL UKRAINE REVENUE (UAH mln) TOTAL UKRAINE ADJUSTED OIBDA* (UAH mln) -7.3% -6.7% -19.2% ADJUSTED OIBDA MARGIN 51.5% 52.3% 51.1% 49.8% 42.9% n/a 51.9% 32.1% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 +1.1% -5.8% -24.5% -20.3% ADJUSTED OIBDA MARGIN 51.5% 52.3% 51.1% 49.8% 42.9% 42.3% 51.9% 46.5% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 -9.5% *Adjusted for provision for investments in DeltaBank in Ukraine of RUB 5.1 bln. in Q4 2014

 


GRAPHIC

UKRAINE OPERATING INDICATORS Y-on-Y decline in ARPU due to lower usage of voice, data, messaging and content products due to macroeconomic factors and challenges of provisioning services in eastern Ukraine Quarterly decline in ARPU attributable to the challenging macro environment and seasonal factors Year-over-year decline in minutes of use attributable to difficulty in provisioning services in eastern Ukraine and impact of macroeconomic factors on overall voice traffic Quarterly rise in churn attributable to cessation of business activity in Crimea and churn of Crimea-based MTS Ukraine customers ARPU (UAH) MOU (MIN) -9.9% -5.9% -15.5% -1.0% -18.1% -0.6% SUBS, MLN 21.3 21.5 21.7 22.3 22.7 20.2 21.5 20.2 CHURN, % 6.8% 7.4% 6.2% 4.5% 4.6% 17.6% 27.2% 34.2% VAS ARPU 12.9 12.8 12.6 11.3 10.3 9.4 13.0 11.4 - AS % OF ARPU 31.3% 34.5% 34.2% 29.6% 25.0% 26.9% 32.9% 28.8% SAC 57.1 53.3 49.4 50.8 63.4 69.3 54.8 57.6 APPM 0.069 0.063 0.064 0.067 0.085 0.072 0.065 0.072 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 +0.4% -8.9%

 


GRAPHIC

UKRAINE OPERATING INDICATORS Decline in total VAS revenue as a result of reduced consumption of value-added services, messaging and SMS-based content related to overall drop in domestic traffic Period decline in data traffic revenue reflects overall decrease in usage TOTAL VAS REVENUE (UAH mln) DATA TRAFFIC REVENUE (UAH mln) +1.8% -26.4% -13.2% +4.1% -16.1% -13.5% -10.5% +3.4%

 


GRAPHIC

ARMENIA FINANCIAL HIGHLIGHTS TOTAL ARMENIA REVENUE (AMD bln) TOTAL ARMENIA OIBDA (AMD bln) -12.2% -1.0% -11.3% -56.7% +72.0% -24.4% OIBDA MARGIN 54.4% 26.8% 45.5% 47.9% 54.6% 46.6% 46.1% 49.0% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 Revenue dynamics driven by a sustained decline in international calling due to macroeconomic factors Quarterly revenue decline attributable to seasonal factors Y-on-Y OIBDA growth attributable to: increase in the termination rates with MTS Russia in December 2013 which negatively impacted Q4 2013 results regulatory decision to increase termination rates for international calling starting from Q3 2014 Quarterly OIBDA dynamic reflect topline dynamics and a write-off of bad debt -2.8% +3.1%

 


GRAPHIC

ARMENIA OPERATING INDICATORS ARPU (AMD) MOU (MIN) -13.6% -5.0% -12.5% SUBS, 000S 2,063.2 2,099.7 2,102.5 2,121.8 2,149.4 2,145.5 2,099.7 2,145.5 CHURN, % 8.5% 8.3% 7.8% 7.7% 9.0% 9.5% 33.2% 33.9% SAC 6,077.1 6,800.7 5,129.8 5,302.3 4,773.3 6,261.6 6,415.7 5,362.8 APPM 7.99 6.77 5.80 5.70 6.41 5.65 7.46 5.88 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 Y-on-Y decline in ARPU attributable to an increase in free on-net calls included in the packages as well as reduced international calling Quarterly decline in ARPU in line with traditional seasonal trends due to lower subscriber roaming revenues Y-on-Y rise in MOU reflects MTS’s efforts to drive voice usage +2.1% +13.4% -0.8% -6.8% +18.1%

 


GRAPHIC

TURKMENISTAN FINANCIAL HIGHLIGHTS TOTAL TURKMENISTAN REVENUE (TMT mln) TOTAL TURKMENISTAN OIBDA (TMT mln) OIBDA MARGIN 38.3% 60.6% 39.0% 44.3% 41.8% 40.2% 41.2% 41.3% Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 Y-on-Y topline growth driven by increased data and content revenues due to network enhancement and promotion of data services Quarterly revenue growth due to the launch of voice & data tariff plan Smart Sharp drop in OIBDA due to: one-off effect on OIBDA in Q4 2013 attributable to the cancellation of reserves for salaries and stock options, reserves for frequency payments, line rentals and network dismantling due to liquidation of BCTI, the former MTS subsidiary increased line rentals costs from June 2014 Quarterly OIBDA improvement attributable to growing contribution from data revenues +11.5% +11.9% +2.3% +5.3% +5.7% +61.7% -30.1% +1.7%

 


GRAPHIC

TURKMENISTAN OPERATING INDICATORS ARPU (TMT) MOU (MIN) Y-on-Y growth in ARPU reflects MTS’s success in monetizing its subscriber base and rising data traffic revenues Sequential decline in MOU attributable to MTS’s initiatives aimed at reducing the share of free on-net calling in the traffic mix SUBS, 000S 1,725.1 1,723.5 1,691.9 1,699.4 1,691.3 1,718.8 1,723.5 1,718.8 CHURN, % 13.0% 13.5% 12.0% 10.4% 11.2% 10.3% 49.8% 43.3% SAC 18.1 22.1 23.9 24.1 26.7 26.1 14.9 25.2 APPM 0.022 0.022 0.022 0.024 0.025 0.027 0.020 0.025 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2013 2014 +1.5% +6.5% +5.0% +0.5% -10.8% -2.0% +4.5% -13.3%

 


GRAPHIC

UZBEKISTAN: RE-ENTERING THE MARKET KEY FINANCIAL METRICS (USD mln) SUBCRIBERS, 000S 188.1 MOU (MIN) 445 Q4 2014 OPERATING INDICATORS On September 24, 2014, MTS took possession of a 50.01% stake in the Russian-Uzbek entity Universal Mobile Systems LLC (UMS) The assets, equipment and infrastructure, which were previously owned by Uzdunrobita FE LLC, former MTS subsidiary in Uzbekistan, were transferred to UMS UMS has been granted 2G, 3G and LTE licenses, and received frequencies, numbering capacity and other permits required for the launch of the operations MTS launched operations throughout the territory of Uzbekistan on December 1, 2014 TOTAL REVENUE OIBDA -11.9 1.9

 


35 APPENDIX

 


GRAPHIC

Non-GAAP financial measures. This presentation includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP. Due to the rounding and translation practices, Russian ruble and functional currency margins, as well as other non-GAAP 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 accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. 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 generally accepted accounting principles, 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: DEFINITIONS & RECONCILIATIONS Q4 2013 Q3 2014 Q4 2014 RUB mln Group RUS UKR ARM TUK Group RUS UKR ARM TUK Group RUS UKR ARM TUK OPERATING INCOME 27,219 25,865 3,109 (27) 488 32,756 28,249 2,071 642 352 21,183 24,212 (3,467) 464 457 Less: Gain from reentrance into Uzbekistan - - - - - (3,604) - - - - (3,130) - - - - Add: Provision for investment in Delta bank - - - - - - - - - - 5,138 - 5,138 - - ADJUSTED OPERATING INCOME/LOSS 27,219 25,865 3,109 (27) 488 29,152 28,249 2,071 642 352 23,191 24,212 1,671 464 457 ADD: D&A 17,769 15,243 2,085 448 11 19,034 17,188 1,410 425 27 19,404 17,112 1,449 523 48 ADJUSTED OIBDA 44,988 41,107 5,194 420 498 48,186 45,437 3,481 1,067 379 42,596 41,324 3,120 986 506

 


GRAPHIC

2013 2014 RUB mln Group RUS UKR ARM TUK Group RUS UKR ARM TUK OPERATING INCOME 101,758 94,873 11,745 1,299 1,159 102,349 99,075 3,390 1,674 1,452 Less: Gain from reentrance into Uzbekistan - - - - - (6,734) - - - - Add: Provision for investment in Delta bank - - - - - 5,138 - 5,138 - - ADJUSTED OPERATING INCOME 101,758 94,873 11,745 1,299 1,159 100,753 99,075 8,528 1,674 1,452 ADD: D&A 73,253 62,825 8,896 1,560 18 74,710 65,768 6,780 1,807 123 ADJUSTED OIBDA 175,011 157,699 20,641 2,859 1,177 175,463 164,844 15,308 3,481 1,576 DEFINITIONS & RECONCILIATIONS Annual adjusted OIBDA can be reconciled to our consolidated statements of operations as follows: Q4 2013 Q3 2014 Q4 2014 Group RUS UKR ARM TUK Group RUS UKR ARM TUK Group RUS UKR ARM TUK OPERAING INCOME MARGIN 26.0% 27.5% 31.3% n/a 59.5% 30.6% 28.5% 25.5% 32.9% 38.7% 19.8% 24.7% (46.5%) 21.7% 36.4% Less: Gain from reentrance into Uzbekistan - - - - - (3.4%) - - - - (2.9%) - - - - Add: Provision for investment in Delta bank - - - - - - - - - - 4.7% - 68.9% - - ADJUSTED OPERATING MARGIN 26.0% 27.5% 31.3% n/a 59.5% 27.2% 28.5% 25.5% 32.9% 38.7% 21.6% 24.7% 22.4% 21.7% 36.4% ADD: D&A 17.0% 16.2% 21.0% 28.2% 1.3% 17.8% 17.3% 17.4% 21.8% 3.0% 18.1% 17.5% 19.4% 24.4% 3.8% ADJUSTED OIBDA MARGIN 42.9% 43.7% 52.3% 26.5% 60.8% 45.0% 45.8% 42.9% 54.6% 41.7% 39.7% 42.1% 41.8% 46.1% 40.2%

 


GRAPHIC

2013 2014 Group RUS UKR ARM TUK Group RUS UKR ARM TUK OPERAING INCOME MARGIN 25.5% 26.7% 29.6% 20.9% 40.8% 24.9% 26.4% 10.3% 23.4% 38.0% Less: Gain from reentrance into Uzbekistan - - - - - (1.6%) - - - - Add: Provision for investment in Delta bank - - - - - 1.2% - 15.7% - - ADJUSTED OPERATING MARGIN 25.5% 26.7% 29.6% 20.9% 40.8% 24.5% 26.4% 26.0% 23.4% 38.0% ADD: D&A 18.4% 17.7% 22.4% 25.0% 0.6% 18.2% 17.5% 20.7% 25.3% 3.2% ADJUSTED OIBDA MARGIN 43.9% 44.4% 52.0% 45.9% 41.5% 42.7% 44.0% 46.7% 48.7% 41.2% DEFINITIONS & RECONCILIATIONS

 


GRAPHIC

DEFINITIONS & RECONCILIATIONS RUB mln As of Dec 31, 2013 As of Dec 31, 2014 Current portion of LT debt and of capital lease obligations 25,064 42,674 LT debt and capital lease obligations 194,083 249,717 Total debt 219,147 292,391 Less: Cash and cash equivalents 30,612 61,410 ST investments 14,633 9,849 LT deposits - 13,671 Effects of hedging of non-ruble denominated debt 1,825 21,936 Net debt 172,078 185,525 Free cash flow is represented by net cash from operating activities less cash used for certain investing activities. Free cash flow is commonly used by investors, analysts and credit rating agencies to assess and evaluate our performance over time and within the wireless telecommunications industry. Because free cash flow is not based in US GAAP and excludes certain sources and uses of cash, the calculation should not be looked upon as an alternative to our Consolidated statement of cash flows or other information prepared in accordance with US GAAP. RUB mln For the year ended Dec 31, 2013 For the year ended Dec 31, 2014 Net cash provided by operating activities from continuing operations 159,924 159,518 Less: Purchases of property, plant and equipment (67,146) (74,243) Purchases of intangible assets (14,429) (18,356) Proceeds from sale of property, plant and equipment 418 619 Investments in and advances to associates (5,089) (7,767) Acquisition of subsidiaries, net of cash acquired - (2,755) Free cash flow from continuing operations 73,678 57,016 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-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

 


DEFINITIONS & RECONCILIATIONS Average monthly service revenue per subscriber (ARPU). We calculate our ARPU by dividing our service revenues for a given period, including interconnect, guest roaming fees and connection fees, by the average number of our subscribers during that period and dividing by the number of months in that period. Average monthly minutes of usage per subscriber (MOU). MOU is calculated by dividing the total number of minutes of usage during a given period by the average number of our subscribers during the period and dividing by the number of months in that period. 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. Churn. We define our “churn” as the total number of subscribers who cease to be a subscriber as defined above during the period (whether involuntarily due to non-payment or voluntarily, at such subscriber’s request), expressed as a percentage of the average number of our subscribers during that period. Subscriber acquisition cost (SAC). We define SAC as total sales and marketing expenses and handset subsidies for a given period. Sales and marketing expenses include advertising expenses and commissions to dealers. SAC per gross additional subscriber is calculated by dividing SAC during a given period by the total number of gross subscribers added by us during the period.

 


GRAPHIC

CONTACT INFORMATION MTS Investor Relations +7 495 223 20 25 ir@mts.ru www.mtsgsm.com Latest Financial Information www.mtsgsm.com/resources/reports/ Official MTS Blog www.mtsgsm.com/blog/ Follow Us twitter.com/JoshatMTS Download the MTS Investor Relations App for Pad: http://goo.gl/oRuyqk

 

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

MOBILE TELESYSTEMS OJSC

 

 

 

 

 

 

 

By:

/s/ Andrei Dubovskov

 

 

Name:

Andrei Dubovskov

 

 

Title:

CEO

 

 

 

 

Date:   March 17, 2015

 

16