Mobile TeleSystems Announces Financial Results for the Second Quarter Ended June 30, 2016

This press release provides a summary of some of the key financial and operating indicators for the period ended June 30, 2016. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.

Financial Summary

 
 RUB mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 108,136 102,691 5.3% 108,090 stable
 OIBDA 40,885 42,722 -4.3% 41,279 -1.0%
 - margin 37.8% 41.6% -3.8% 38.2% -0.4%
 Operating profit 20,053 22,501 -10.9% 21,031 -4.6%
 - margin 18.5% 21.9% -3.4% 19.5% -1.0%
 Net profit 9,056 17,074 -47.0% 14,507 -37.6%
 - margin 8.4% 16.6% -8.2% 13.4% -5.0%

Russia Highlights

 
 RUB mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues[3] 97,435 94,336 3.3% 96,302 1.2%
 - mobile 72,786 72,749 0.1% 71,132 2.3%
 - fixed 15,263 15,706 -2.8% 15,369 -0.7%
 - integrated services 1,258 - n/a 2,492 -49.5%
 - sales of goods 10,552 7,607 38.7% 10,700 -1.4%
 OIBDA 39,706 41,245 -3.7% 38,583 2.9%
 - margin 40.8% 43.7% -2.9% 40.1% 0.7%
 Net profit 10,788 18,746 -42.5% 15,000 -28.1%
 - margin 11.1% 19.9% -8.8% 15.6% -4.5%

Ukraine Highlights

 
 UAH mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 2,745 2,419 13.5% 2,761 -0.6%
 OIBDA 827 942 -12.2% 803 3.0%
 - margin 30.1% 38.9% -8.8% 29.1% 1.0%
 Net profit 222 214 3.7% 275 -19.3%
 - margin 8.1% 8,8% -0.7% 10.0% -1.9%

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^[3] Revenue, net of intercompany between mobile, fixed and integrated services

Armenia Highlights

 
 AMD mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 15,040 18,479 -18.6% 14,151 6.3%
 OIBDA 5,944 8,491 -30.0% 5,618 5.8%
 - margin 39.5% 45.9% -6.4% 39.7% -0.2%
 Net profit/(loss) (1,991) 4,078 n/a 239 n/a
 - margin n/a 22.1% n/a 1.7% n/a

Turkmenistan Highlights

 
 TMT mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 66 71 -7.5% 67 -1.7%
 OIBDA 22 27 -17.2% 24 -7.5%
 - margin 33.4% 37.4% -4.0% 35.5% -2.1%
 Net profit 10 13 -29.1% 11 -15.8%
 - margin 14.4% 18.8% -4.4% 16.8% -2.4%

Uzbekistan Highlights

 
 UZS mln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 92,372 37,398 147.0% 85,241 8.4%
 OIBDA 9,770 (22,235) n/a 5,731 70,5%
 - margin 10.6% n/a n/a 6.7% 3.9%
 Net loss (10,771) (28,123) n/a (12,507) n/a
 - margin n/a n/a n/a n/a n/a

Belarus Highlights

 
 BYR bln Q2'16 Q2'15 y-o-y Q1'16 q-o-q
 Revenues 1,619 1,302 24.3% 1,489 8.7%
 OIBDA 757 673 12.4% 681 11.1%
 - margin 46.8% 51.7% -4.9% 45.7% 1.1%
 Net profit 466 368 26.6% 397 17.2%
 - margin 28.8% 28.2% 0.6% 26.7% 2.1%

CAPEX Highlights

 
 RUB mln FY 2015 6M 2016
 Russia[4] 79,619 35,306
 - as % of rev 20.4% 18.2%
 Ukraine[5] 12,427 3,155
 - as % of rev 44.1% 20.8%
 Armenia 1,371 281
 - as % of rev 15.2% 6.6%
 Turkmenistan 500 63
 - as % of rev 9.8% 2.3%
 Uzbekistan 2,195 867
 - as % of rev 47.6% 20.1%
 Group 96,111 39,671
 - as % of rev 22.3% 18.3%

* * *

For further information, please contact in Moscow:

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

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

* * *
Mobile TeleSystems PJSC ("MTS" - NYSE:MBT; MOEX:MTSS) is the leading telecommunications group in Russia, Central and Eastern Europe.  We provide wireless Internet access and fixed voice, broadband and pay-TV to over 100 million customers who value high quality of service at a competitive price. Our wireless and fixed-line networks deliver best-in-class speeds and coverage throughout Russia, Ukraine, Armenia, Turkmenistan and Belarus. To keep pace with evolving customer demand, we continue to grow through innovative products, investments in our market-leading retail platform, mobile payment services, e-commerce and IT solutions. For more information, please visit: http://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 Second Quarter 2016
Earnings Press Release
Attachment A
Non-IFRS financial measures. This presentation includes financial information prepared in accordance with International Financial Reporting Standards, or IFRS,  as well as other financial measures referred to as non-IFRS. The non-IFRS financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Due to the rounding and translation practices, Russian ruble and functional currency margins, as well as other non-IFRS 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 IFRS and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of profit or loss. 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 IFRS, 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) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating profit 22,501 27,319 18,876 21,031 20,053
 Add: Loss from impairment
 of goodwill in Armenia - - 3,516 - -
 Adjusted operating profit 22,501 27,319 22,392 21,031 20,053
 Add: D&A 20,221 20,700 21,103 20,248 20,832
 Adjusted OIBDA 42,722 48,019 43,495 41,279 40,885

--------------------------------------------------

^[4] Excluding costs of RUB 3.4 bln related to the acquisition of a 4G license in Russia in 2015 and RUB 2.6 bln in 2016

^[5] Excluding purchase of 3G license in Ukraine in the amount of RUB 7.0 bln in 2015

 
 Russia (RUB mln) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating profit 23,728 27,275 23,481 21,599 21,954
 Add: D&A 17,517 17,252 17,634 16,984 17,752
 OIBDA 41,245 44,527 41,115 38,583 39,706

 
 Ukraine (RUB mln) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating profit 1,190 1,675 1,158 795 627
 Add: D&A 1,107 1,358 1,390 1,557 1,530
 OIBDA 2,297 3,032 2,548 2,351 2,157

 
 Armenia (RUB mln) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating profit/ (loss) 412 680 (3,122) 120 136
 Add: Loss from impairment
 of goodwill in Armenia - - 3,516 - -
 Adjusted operating profit 412 680 394 120 136
 Add: D&A 525 626 656 737 681
 Adjusted OIBDA 937 1,306 1,050 857 817

 
 Turkmenistan (RUB mln) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating profit 237 326 330 278 209
 Add: D&A 165 203 209 232 207
 OIBDA 402 529 538 510 416

 
 Uzbekistan (RUB mln) Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating loss (1,373) (1,404) (1,163) (607) (447)
 Add: D&A 917 1,275 1,228 760 667
 OIBDA (455) (128) 65 154 220

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

 
 Group Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin 21.9% 23.7% 16.7% 19.5% 18.5%
 Add: Loss from impairment
 of goodwill in Armenia - - 3.1% - -
 Adjusted operating margin 21.9% 23.7% 19.8% 19.5% 18.5%
 Add: D&A 19.7% 18.0% 18.6% 18.7% 19.3%
 Adjusted OIBDA margin 41.6% 41.7% 38.4% 38.2% 37.8%

 
 Russia Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin 25.2% 26.2% 22.9% 22.4% 22.5%
 Add: D&A 18.6% 16.6% 17.2% 17.6% 18.2%
 OIBDA margin 43.7% 42.8% 40.1% 40.1% 40.8%

 

 Ukraine Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin 20.2% 22.5% 16.7% 9.9% 8.8%
 Add: D&A 18.8% 18.2% 20.0% 19.5% 21.4%
 OIBDA margin 38.9% 40.7% 36.7% 29.4% 30.1%

 
 Armenia Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin 20.1% 26.9% n/a 5.6% 6.6%
 Add: Loss from impairment
 of goodwill in Armenia - - 155.0% - -
 Adjusted operating margin 20.1% 26.9% 17.4% 5.6% 6.6%
 Add: D&A 25.7% 24.8% 28.9% 34.2% 32.9%
 Adjusted OIBDA margin 45.8% 51.7% 46.3% 39.7% 39.5%

 
 Turkmenistan Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin 22.0% 24.3% 23.4% 19.4% 16.8%
 Add: D&A 15.4% 15.1% 14.8% 16.2% 16.6%
 OIBDA margin 37.4% 39.4% 38.1% 35.6% 33.4%

 
 Uzbekistan Q2'15 Q3'15 Q4'15 Q1'16 Q2'16
 Operating margin - - n/a n/a n/a
 Add: D&A - - 61.1% 34.1% 31.9%
 OIBDA margin - - 3.2% 6.9% 10.5%

***

Attachment B
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-IFRS financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS.
Net debt can be reconciled to our consolidated statements of financial position as follows:

 
 As of Mar 31, As of June 30,
 RUB mln 2016 2016
 Current portion of LT debt and of finance
 lease obligations 46,273 49,586
 LT debt 259,968 225,569
 Finance lease obligations 10,650 10,297
 Total debt 316,891 285,452
 Less:
 Cash and cash equivalents 44,389 24,956
 ST investments 30,961 27,978
 LT deposits 28,886 30,409
 Effects of hedging of non-ruble denominated
 debt 14,636 12,369
 Net debt 198,019 189,740

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

 
 For the six For the six
 months ended months ended
 RUB mln June 30, 2015 June 30, 2016
 Net cash provided by operating activities 72,016 63,674
 Less:
 Purchases of property, plant and equipment (40,921) (25,545)
 Purchases of intangible assets[6] (12,720) (14,126)
 Proceeds from sale of property, plant and
 equipment 1,326 1,300
 Investments in associates - (1,326)
 Free cash flow 19,701 23,977

LTM Adjusted OIBDA can be reconciled to our consolidated statements of operations as follows:

 
 Six months Six months Twelve months
 ended ended June 30, ended
 RUB mln Dec 31, 2015 2016 June 30, 2016
 A B C = A + B
 Net operating profit 46,195 41,084 87,279
 Add: Impairment of goodwill in
 Armenia 3,516 - 3,516
 Add: D&A 41,803 41,080 82,883
 LTM ADJUSTED OIBDA 91,514 82,164 173,678

--------------------------------------------------

^[6] Excluding costs of RUB 3.4 bln related to the acquisition of a 4G license in Russia in 2015 and RUB 2.6 bln in 2016 and purchase of 3G license in Ukraine in the amount of RUB 7.0 bln in 2015

***

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.
***

 
 MOBILE TELESYSTEMS
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
 As of June 30,2016 AND As of December 31,2015

 (Amounts in millions of RUB)

 As of June 30, As of December 31,

2016 2015
 NON-CURRENT ASSETS:
 Property, plant and equipment 288 402 302 662

Investment property 359 364
 Intangible assets 110 609 109 064

Investments in associates 8 545 9 299
 Deferred tax assets 8 816 9 287

Other non-financial assets 682 480
 Other investments 34 386 34 667

Accounts receivable (related parties) 3 513 3 335
 Other financial assets 17 773 25 203

Total non-current assets 473 085 494 361

 CURRENT ASSETS:
 Inventories 12 813 14 510

Trade and other receivables 37 252 34 542
 Accounts receivable (related parties) 2 447 6 326

Short-term investments 27 978 49 840
 VAT receivable 7 041 9 815

Income tax assets 3 655 5 190
 Assets held for sale 461 549

Advances paid and prepaid expenses, other
 current assets 5 665 4 781

Cash and cash equivalents 24 956 33 464
 Total current assets 122 268 159 017

 Total assets 595 353 653 378

 EQUITY:
 Equity attributable to equity holders 145 216 160 115

Non-controlling interests 6 218 8 256
 Total equity 151 434 168 371

 NON-CURRENT LIABILITIES:
 Borrowings 234 634 292 168

Deferred tax liabilities 29 094 27 346
 Provisions 2 221 2 565

Other financial liabilities 554 676
 Other non-financial liabilities 4 182 4 342

Total non-current liabilities 270 685 327 097

 CURRENT LIABILITIES:
 Borrowings 49 009 53 701

Provisions 5 691 7 863
 Trade and other payables 82 981 57 756

Accounts payable (related parties) 1 702 1 809
 Income tax liabilities 1 045 831

Other financial liabilities 7 991 9 778
 Other non-financial liabilities 24 815 26 172

Total current liabilities 173 234 157 910

 Total equity and liabilities 595 353 653 378

 
 MOBILE TELESYSTEMS
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 FOR THE THREE AND SIX MONTHS ENDED June 30, 2016 AND 2015

 (Amounts in millions of RUB except per share amount)

 Three Three

months months
 Six months ended Six months ended ended ended

 June 30, June 30,

June 30, 2016 June 30, 2015 2016 2015

 Net operating revenue
 Service revenue 195 007 188 831 97 680 95 021

Sales of goods 21 219 14 042 10 456 7 669

216 226 202 873 108 136 102 690
 Operating expenses
 Cost of services (68 374) (63 400) (33 776) (31 028)

Cost of goods (20 053) (11 729) (10 307) (7 043)

Selling, general and administrative expenses (47 579) (44 745) (23 912) (22 449)

Depreciation and amortization expense (41 080) (40 669) (20 832) (20 221)

Other operating income/(expenses) 482 (611) (17) (94)

Operating share of the profit of associates 1 462 1 643 761 646

Provision for cash balances deposited in distressed
 Ukrainian banks - (1 698) - -

 Operating profit 41 084 41 664 20 053 22 501

 Currency exchange gain 3 270 107 997 3 616

 Other (expenses)/income:
 Finance income 3 005 4 763 1 309 2 437

Finance costs (16 057) (12 609) (9 323) (6 561)

Other expenses (1 294) (599) (608) (594)

Total other expenses, net (14 346) (8 445) (8 622) (4 718)

 Profit before tax 30 008 33 326 12 428 21 399

 Income tax expense (6 720) (6 649) (3 457) (4 711)

 Profit for the period 23 288 26 677 8 971 16 688

 Loss for the period attributable to non-controlling
 interests 275 1 284 85 386

 Profit for the period attributable to owners of the
 Company 23 563 27 961 9 056 17 074

 Other comprehensive income/(loss)
 Items that may be reclassified subsequently to profit or
 loss
 Exchange differences on translating foreign operations (9 603) (12 042) (1 429) (3 085)

Net fair value loss on financial instruments (1 736) (3 402) (131) (811)

Other comprehensive loss (11 339) (15 444) (1 560) (3 896)

Total comprehensive income for the period 11 949 11 233 7 411 12 792

Less comprehensive loss for the period attributable to the
 non-controlling interests 921 1 604 233 860

 Comprehensive income for the period attributable to owners
 of the Company 12 870 12 837 7 644 13 652

 Weighted average number of common shares outstanding, in 1 989 1 988

thousands - basic 1 989 067 1 988 730 424 730

Earnings per share attributable to the Group - basi?: 11,85 14,06 4,55 8,59

Weighted average number of common shares outstanding, in 1 990 1 989

thousands - diluted 1 989 510 1 989 951 174 951

Earnings per share attributable to the Group - diluted: 11,84 14,05 4,55 8,58

 
 MOBILE TELESYSTEMS
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 FOR THE SIX MONTHS ENDED June 30, 2016 AND 2015

 (Amounts in millions of RUB)

 Six months ended Six months ended

June 30, 2016 June 30, 2015

 Profit for the period 23 288 26 677

 Adjustments for:
 Depreciation and amortization 41 080 40 669

Finance income (3 005) (4 763)

Finance costs 16 057 12 609

Income tax expense 6 720 6 649

Currency exchange gain (3 270) (107)

Change in fair value of financial instruments 179 (91)

Amortization of deferred connection fees (491) (569)

Share of the profit of associates (442) (839)

Inventory obsolescence expense 621 86

Allowance for doubtful accounts 1 131 1 483

Change in provisions 6 317 4 752

Other non cash items (793) (294)

 Movements in operating assets and liabilities:
 Increase in trade and other receivables (7 458) (4 824)

Decrease/(increase) in inventory 950 (2 516)

Decrease/(increase) in VAT receivable 461 (1 599)

Decrease in advances paid and prepaid expenses 843 3 113

(Decrease)/Increase in trade and other payables and other current liabilities (3 337) 2 103

-
 Dividends received 1 181 1 471

Income taxes paid (2 960) (4 207)

Interest received 2 081 2 062

Interest paid (net of interest capitalised) (15 479) (9 849)

Net cash provided by operating activities 63 674 72 016

 CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property, plant and equipment (25 545) (40 921)

Purchases of intangible assets (net of purchases of 3G licences in Ukraine and
 4G licenses in Russia) (14 126) (12 720)

Purchases of 4G licenses in Russia/3G licences in Ukraine (2 598) (7 044)

Proceeds from sale of property, plant and equipment and assets held for sale 1 300 1 326

Purchases of short-term investments (4 891) (28 790)

Proceeds from sale of short-term investments 22 040 4 422

Purchase of other investments (2 591) (39 867)

Proceeds from sale of other investments 2 97

Investments in associates (1 326) -

Net cash used in investing activities (27 735) (123 497)

 CASH FLOWS FROM FINANCING ACTIVITIES:
 Cash flows under capital transactions with related parties 3 063 4 252

Loan principal paid (26 035) (9 009)

Proceeds from loans 1 036 43 818

Repayment of notes (17 904) (479)

Notes and debt issuance cost paid - (1 213)

Finance lease principal paid (168) (224)

Dividends paid - (82)

Cash outflow under credit guarantee agreement related to foreign-currency
 hedge (1 034) -

Other financing activities - 5

Net cash (used in)/provided by financing activities (41 042) 37 068

 Effect of exchange rate changes on cash and cash equivalents (3 405) (2 924)

 NET DECREASE IN CASH AND CASH EQUIVALENTS: (8 508) (17 337)

 CASH AND CASH EQUIVALENTS, at beginning of the period, including cash and cash
 equivalents within assets held for sale of 156 as of January 1, 2015 33 464 61 566

 CASH AND CASH EQUIVALENTS, at end of the period 24 956 44 229

Less cash and cash equivalents within assets held for sale - (109)

CASH AND CASH EQUIVALENTS, at end of the period 24 956 44 120

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