MBT Mobile TeleSystems Public Joint Stock Company

MOSCOW, November 17, 2016 /PRNewswire/ -- Mobile TeleSystems PJSC ("MTS") (NYSE: MBT; MOEX: MTSS), the leading telecommunications provider in Russia and the CIS, today announces its unaudited IFRS financial results for the three months ended September 30, 2016.

Key Financial Highlights of Q3 2016

• Consolidated group revenue decreased by 1.3% y-o-y to RUB 112.2 bln
• Total revenue in Russia decreased by 0.8% y-o-y to RUB 103.1 bln
• Group adjusted OIBDA down 5.1% y-o-y to RUB 45.7 bln
• OIBDA in Russia down 3.0% y-o-y to RUB 43.2 bln
• Group net profit fell 12.8% y-o-y to RUB 12.6 bln
• Sales of goods in Russia increased by 8.0% y-o-y to RUB 13.6 bln
• Total subscriber base increased by 2.5% to 108.8 mln
• MTS's proprietary retail network in Russia increased to 5,998 stores
• Revenue in Ukraine increased by 11.2% y-o-y to UAH 2.9 bln
• Total Group debt fell to RUB 267.9[1] bln as Net Debt/LTM Adjusted OIBDA remained stable at 1.1x

Key Corporate and Industry Highlights

• Paid out in dividends RUB 24.0 bln or RUB 11.99 per ordinary MTS share (RUB 23.98 per ADR) based on H1 2016 results. Together with the earlier payment of RUB 28.0 bln  (RUB 14.01 per ordinary share or 28.02 per ADR) based on FY2015 results, the total dividend paid per share in calendar year 2016 was RUB 26 per ordinary share, which is in line with the new Company's dividend policy
• The Board of Directors approved a Tender Offer that was launched on October 31, with the proposed return of a maximum of RUB 4,934,527,300 to the Company's Holders of Shares of Common Stock and ADS Holders
• MTS's majority shareholder, Sistema, has also agreed to sell an amount of shares proportional to its aggregate ownership upon completion of the tender, so that the total return to all shareholders could reach RUB 10 bln
• Sold 50.01% stake in the telecommunications operator Universal Mobile Systems (UMS) to the State Unitary Enterprise Centre of Radio Communication, Radio Broadcasting and Television of the Ministry of the Development of Information Technologies and Communications of the Republic of Uzbekistan
• The launch of the mobile app "MTS Money", which enables customers to upload virtual banking cards, tickets for public transportation in Moscow and discount coupons to their NFC-enabled smartphones
• The launch of a new payment system, allowing customers to leave their cash and bank cards at home by which MTS subscribers will be able to make payments from their mobile accounts in a variety of stores or cafés
• The launch of a pilot project to utilize Big Data for the development of MTS monobrand retail chain
• Acquisition of a regional asset of SMARTS to enhance services in Republic of Mari El through additional spectrum of 14.8 Mhz in the 1,800 Mhz range that will allow to develop LTE networks
• Launched the Innovation Center, a department that brings a new approach to business development through the launch of new products and services. The Center uses a flexible methodology for service development (the agile-methodology). The establishment of the Innovation Center will enable the timeline for launching new products to be reduced by 3x-4x
• Successfully placed RUB 10 bln exchange-traded Series 2 bond with a first coupon rate of 9.4%, which was one of the lowest ruble-based coupon rates among corporate borrowers on the local market in recent years 
• Redeemed series 05 ruble-denominated bond, which was issued on July 28, 2009, by repaying the remaining portion of the instrument in the amount of RUB 1.8 bln
• MTS was the first company in the history of Russian corporate governance to launch an online service for electronic voting for MTS shareholders
• MTS won the Telecommunications award in the country category at the 2016-2017 World Branding Awards
• MTS and Samsung Electronics, the world-leading company in consumer electronics and hi-end IT, announced the signing of a memorandum with the intention to co-operate in developing 5G technologies. Under the strategic partnership, companies will work on innovations aimed at implementing LTE-Advanced Pro network, developing the standards and deployment of 5G in Russia regions
• Partnership agreement with Huawei by which Huawei will supply a broader range of smartphones and other consumer electronics for sale through the MTS retail network
• The launch of Wi-Fi calling in Russia enabling subscribers to make voice calls wherever there is a Wi-Fi connection (Voice over Wi-Fi)
• MTS terminated its rating relationship with Moody's Investors Service Ltd

Commentary

Andrei Dubovskov, President and CEO of MTS commented, "For the period we saw a slight revenue decline of 1.3% year-over-year to RUB 112.2 bln. Macroeconomic factors and competitive issues continue to impact our performance in many ways, in particular voice and messaging usage in roaming, but in general, our revenue trends have shown relative stability in comparison to our peers throughout our markets of operations.

Vasyl Latsanych, Vice President, Strategy and Marketing, highlighted, "Total revenue in Russia did decline slightly by 0.8% to RUB 103.1 bln, as the weaker economy impacts travel and roaming usage. Nevertheless, we saw stronger data usage due to both the growth of customer usage and the migration to data plans as smartphone penetration reached nearly 52%, and a 2.8% growth in subscribers. In our fixed-line business, revenue increased slightly by 0.1% to RUB 15.1 bln. We see continuous growth from our B2C broadband and pay-TV markets, as market shares in Moscow in both home internet and pay-tv improved.

"In Ukraine, revenue for the period increased by 11.2% to nearly UAH 2.9 bln. Key drivers include a 2.7% increase in subscribers and data consumption, which is rising as we have rolled out 3G to all major population centers throughout Ukraine.  Among our foreign subsidiaries, revenue in Armenia and Turkmenistan fell during the period. Both markets remain exposed to macroeconomic trends, which continue to weaken voice and data usage."

Mr. Dubovskov continued, "Adjusted OIBDA declined 5.1% year-over-year to RUB 45.7 bln. We already warned of weaker Adjusted OIBDA performance when we lowered our guidance for the year, and certain factors continued to impact us, including competition, reduced usage of services sensitive to macroeconomic factors and a lower contribution from foreign subsidiaries due to ruble appreciation during the period."

Commented Alexey Kornya, Vice President, Finance, Investments and M&A, "We saw relative strength in our Russian operations as Russia OIBDA declined 3.0% year-over-year. As indicated by our Group adjusted OIBDA performance, Russia showed a relative improvement in OIBDA quarter-on-quarter as well (8.8% vs 8.0% growth) when compared to 2015. Like in previous quarters, roaming usage and its impact on overall revenues, as well as our retail expansion and efforts to manage the increased competition within the marketplace, continued to pressure profitability.

Mr. Kornya continued, "In Ukraine, adjusted OIBDA improved year-over-year to nearly UAH 1.1 bln. We continue to see improvement in Ukraine efficiency as we realize the scale benefits of our 3G investments in the market through rising subscriber levels and growing revenues from voice and data products. In our other markets, OIBDA trends in Armenia and Turkmenistan reflect revenue dynamics, as we see customer usage impacted by the weakened economy through a reduction in international dialing and roaming."

"Group net profit for the period decreased slightly year-over-year to RUB 12.6 bln. This included a RUB 2.7 bln loss on the disposal of UMS LLC. Other factors impacting our net profit include OIBDA dynamics, a decrease in non-cash FOREX loss from ruble appreciation  and a stronger ruble in relation to group currencies and key non-ruble expenses."

"Free cash flow to date amounted to RUB 48.9 bln, an increase of 67.2% year-over-year through the first nine months. Lower CAPEX spending of RUB 58 bln year-to-date is a key factor, and we expect more moderate CAPEX spending to continue and be in line with our guidance of RUB 85 bln. By the end of the period, total debt stood at RUB 267.9 bln – net of leases and debt issuance costs – which is trending lower due to our on-going debt repayments as well as financial policies. Our net debt/LTM Adjusted OIBDA remained stable at a manageable 1.1x, a comfortable level for the Company and very low in relation to our peers."

Mr. Dubovskov concluded, "While our quarterly performance was below past performance, we feel strongly that MTS is well-positioned for the future. In our key markets, we've seen the effects of macroeconomic weakness, especially in segments like roaming and small business, impact our results disproportionately to our competitors. Despite these challenges, we have been successful in sustaining our market share.

"Overall, we saw subscriber growth in our key markets of Russia and Ukraine. We've completed our core network build, and we now offer LTE in every region of Russia and 3G services throughout Ukraine. In Moscow, our market share in Internet and pay-tv is increasing. Our expansion into complementary businesses remains promising as we have issued more than 3.2 million of MTS Money cards. Our balance sheet remains the strongest in the business. We've sustained current net debt/adjusted OIBDA levels for many quarters and generate sufficient cash flow to make a healthy return to shareholders."

2016 Outlook

In accordance with IFRS 5 disclosure requirements, from Q3 2016 the Group shall present financial results in a manner that enables users of the financial statements to evaluate the effects of discontinued operations. Results of discontinued operations shall be excluded from the results of continuing operations and presented separately as a single amount in the statement of comprehensive income.

Group Revenue: For 2016, MTS reiterates its Group revenue outlook at 2-3% growth, after disposal of UMS LLC and expected full deconsolidation of UMS's financial results in Q3 2016 and other factors:

• Subscriber growth in Russia;
• Rising data usage and sustained data adoption in Russia and Ukraine;
• Increased sales of handsets in Russia; and
• Rising share in Moscow B2C broadband/Pay-TV markets.

Group OIBDA: MTS reiterates its outlook on adjusted Group OIBDA growth rate at -4% due primarily to the sale of UMS LLC as well as other factors:

• Sustained competitive pressures in the Russian distribution market and the Company's strategic efforts to sustain market share;
• The build-out of 3G in Ukraine and non-market factors impacting our profitability;
• Developments in foreign subsidiaries; and
• Macroeconomic developments and currency volatility throughout our markets of operation.

Group CAPEX: MTS aims to reduce FY2016 CAPEX to RUB 85 bln

Additional Information

MTS continues to see sustained macroeconomic volatility in its markets of operations that may impact the financial and operational performance throughout the Group.

Conference Call

The conference call will start today at:

18:00 hrs (Moscow time)
15:00 hrs (London time)
10:00 hrs (US Eastern time)

To take part in the conference call, please dial one of the following telephone numbers and quote the confirmation code, 8926555

From Russia: + 7 495 213 1767
From the UK: + 44(0)20 3043 2002
From the US: + 1 719 325 2229

The conference call will also be available at: http://www.mtsgsm.com/news/reports/  via audio webcast.

A replay of the conference call will be available for seven days on the following telephone numbers:

From the US: +1 719 457 0820 PIN 8926555
From the UK: +44(0)20 7660 0134 PIN 8926555

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

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

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Mobile TeleSystems PJSC ("MTS") (NYSE: MBT; MOEX: MTSS) is the leading telecommunications group in Russia and the CIS.  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: www.mtsgsm.com.

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Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of MTS, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might," and the negative of such terms or other similar expressions.  We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not undertake or intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. We refer you to the documents MTS files from time to time with the U.S. Securities and Exchange Commission, specifically the Company's most recent Form 20-F. These documents contain and identify important factors, including those contained in the section captioned "Risk Factors" that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, the severity and duration of current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of Russian, U.S. and other foreign government programs to restore liquidity and stimulate national and global economies, our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so, strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses, potential fluctuations in quarterly results, our competitive environment, dependence on new service development and tariff structures, rapid technological and market change, acquisition strategy, risks associated with telecommunications infrastructure, governmental regulation of the telecommunications industries and other risks associated with operating in Russia and the CIS, volatility of stock price, financial risk management and future growth subject to risks.

Attachments to the Third 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 profit or loss as follows:

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

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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:

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

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

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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.

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[1] Net of financial leasing and unamortized debt issuance cost adjustment, as of September 30, 2016

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

[3] 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

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

[5] Excluding RUB 875 mln spent on CAPEX in Uzbekistan in 2016, which was stated under cash flows from discontinued operations

[6] Excluding costs of RUB 2.6 bln in 2016 and purchase of 3G license in Ukraine in the amount of RUB 7.0 bln in 2015