Mobile TeleSystems Announces Financial Results for the Second Quarter Ended June 30, 2012
MOSCOW, August 28, 2012 /PRNewswire/ --
Mobile TeleSystems OJSC ("MTS" -NYSE: MBT), the leading telecommunications provider in Russia and the CIS, today announces its unaudited US GAAP financial results for the three months ended June 30, 2012.
Key Financial Highlights of Q2 2012
- Consolidated revenues up 3.6% q-o-q to $3,122 million
- Consolidated adjusted OIBDA[1] up 9.1% q-o-q to $1,374 million with 44.0% OIBDA margin
- Consolidated net loss[2] of $682 million
- Free cash-flow[3] positive with $1.1 billion for the six months ended June 30, 2012
Key Corporate and Industry Highlights
- Obtained license and frequencies to provide LTE telecommunication services in Russia in the FDD (frequency division duplexing) standard
- Announced the suspension of operating licenses of Uzdunrobita FE LLC ("MTS-Uzbekistan"), MTS's wholly owned subsidiary in Uzbekistan
- Acquired a 100% stake in Tascom CJSC, a market leader in providing telecommunication services to corporate clients in Moscow and the Moscow region, for $38.3 million[4]
- Agreed to a memorandum of understanding with other telecommunications operators to jointly lay and operate an underwater fiber-optic cable Sakhalin-Magadan-Kamchatka. Total length of the cable is approximately 2,000 km
- Signed a shareholders agreement with AFK Sistema to jointly develop and manage the multimedia content portal Stream.ru (formerly Omlet.ru), following the reduction of MTS's stake in LLC Stream from 100% to 45% and subsequent deconsolidation of the asset
- Completed the dividend payment of RUB 14.71 per ordinary MTS for the 2011 fiscal year, amounting to a total of RUB 30.4 billion
- Received licenses and agreed upon legal and technical conditions to resume operations in Turkmenistan
- Repurchased the series 05 ruble-denominated bond in the amount of approximately RUB 13.2 billion and changed the bond's coupon rate from an annual rate of 14.25% to 8.75%
- Acquired a 100% stake in Elf group of companies, a fixed broadband and pay-TV services provider in Belgorod and the Belgorod region, for RUB 220 million
- Acquired a 100% stake in LLC "Intercom", a broadband and cable TV provider in the Mari El Republic, for RUB 90 million
Impairment charges related to MTS' operations in the Republic of Uzbekistan
On June 28, 2012, MTS announced that Uzbekistan authorities were conducting audits of the financial and operating activities of MTS-Uzbekistan and that certain MTS-Uzbekistan managers were detained without any legitimate grounds.
On July 17, 2012, MTS-Uzbekistan suspended its operations in Uzbekistan following receipt of an order from the Communications and Information Agency of Uzbekistan ("SACI") informing MTS-Uzbekistan of the temporary suspension of the operating license of MTS-Uzbekistan for a period of 10 business days.
On July 30, 2012, the Tashkent Economic Court granted a petition, which was filed on July 27, 2012 by the SACI, to extend the suspension of the operating of license of MTS-Uzbekistan for an additional period of three months. MTS-Uzbekistan filed an appeal to challenge this decision on August 8, 2012. On August 17, 2012, this appeal was denied.
On August 8, 2012, MTS announced that from August 6, 2012 through August 7, 2012, 16 regional antimonopoly departments of the Republic of Uzbekistan simultaneously held hearings and declared that MTS-Uzbekistan violated antimonopoly laws, consumer protection laws and laws governing advertisements. In total, the claims of the antimonopoly regulator against MTS-Uzbekistan amounted to approximately $80 million, which was subsequently reduced by the central anti-monopoly authority to approximately $13 million.
On August 9, 2012, MTS announced that the SACI had filed a petition with the Tashkent Commercial Court to withdraw all operating licenses of MTS-Uzbekistan. In addition, numerous claims were asserted against MTS-Uzbekistan on the grounds that it failed to comply with applicable licensing requirements.
On August 13, 2012, the Tashkent Commercial Court granted SACI's petition to withdraw all operating licenses of MTS-Uzbekistan. Subsequently, on August 27, 2012, MTS-Uzbekistan's appeal was denied. MTS also received the content of 16 findings of tax audits conducted by Uzbekistan tax authorities, which resulted in claims against MTS in excess of $669 million.
MTS maintains that since the acquisition of MTS-Uzbekistan in 2004, it has duly complied with the requirements of the laws of Uzbekistan, a fact which has been confirmed by numerous audits conducted by the SACI and other regulatory bodies of Uzbekistan. Furthermore, in the last two months, in an attempt to clarify the situation and engage the relevant authorities in constructive discussions, MTS has sent numerous letters to the government of the Republic of Uzbekistan, including the President of Uzbekistan, I.A. Karimov. To date, MTS has not received any official response.
While MTS strongly denies any wrongdoing alleged by the various Uzbekistan authorities and has challenged, and intends to continue to challenge, the legality of their actions, MTS has fully complied with the relevant court decisions described above and has suspended all of its operations in Uzbekistan. Considering the adverse impact of such circumstances on MTS’ ability to conduct operations in Uzbekistan, MTS has determined that a portion of its long-lived assets attributable to Uzbekistan was impaired and has recorded an impairment charge of $579 million in the consolidated statement of operations for the three months ended June 30, 2012. In addition, MTS has provided for tax, anti-monopoly and other liabilities that management believes are probable to result from the various legal proceeding currently ongoing in Uzbekistan in the amount of $500 million. The total effect of impairment charges on MTS’ statement of operations, visible in its US GAAP net income for the three months ended June 30, 2012, is as follows:
Reconciliation of financial statements for events in Uzbekistan
USD million Q2 2012
Net Operating Income before adjustments attributable to Uzbekistan 794.6
Impairment of goodwill & long-lived assets in Uzbekistan 579.0
Provision for tax and anti-monopoly claims in Uzbekistan 500.0
Net Operating Loss (284.4)
Net Loss[5] (673.4)
In connection with recent developments, MTS is conducting an internal review to evaluate events surrounding MTS-Uzbekistan and its employees, including communications with relevant international and local authorities, as well as correspondence with the General Prosecutor's Office, SACI and anti-monopoly organizations.
Commentary
Mr. Andrei Dubovskov, President and CEO of MTS, commented, "Group revenue for the quarter increased 4% quarter-on-quarter to reach over $3.1 billion US dollars in spite of a significant weakening of our core currencies versus the US dollar. We saw sustained growth in usage of voice and data products in each of our markets of operation. We also see signs of stability and moderate competitive pressures in our markets. Total revenues in Russia increased in ruble terms by 9% year-over-year to 82.8 billion rubles. Year-over-year our mobile business grew by 10% to 69.3 billion rubles. As we predicted, we continue to see benefits in our mobile business through a combination of strong tariff plans, prudent sales strategies and continued investments in our networks."
Mr. Alexey Kornya, MTS Vice President and Chief Financial Officer, said, "In the first quarter, we grew Group adjusted OIBDA by 5% year-over-year to $1.37 billion US dollars despite a year-over-year weakening of the ruble/USD rate of nearly 11%. Our adjusted OIBDA margin for the period reached 44.0%, an increase of 2.4 percentage points from Q2 2011. Overall we are seeing success in our efforts to increase profitability in our Russian business and realize greater efficiencies across the Group. In Russia, OIBDA rose 14% to 36.9 billion rubles while our OIBDA margin increased from 42.7% to 44.6% in Q2 2012. While we are obviously pleased with our strong performance and the overall profitability of the Group, we feel there is a likelihood that margins will weaken in the second-half of the year due to the stabilization of revenue dynamics given the overall economic environment; increased labor costs based on new laws regarding social taxes; continuously rising rent and maintenance costs as we expand our mobile and fixed networks; further expansion of our retail footprint and its rising contribution to the Group's financial results, and the impact of the developments around our subsidiary in Uzbekistan which has been delivering high margins."
Mr. Dubovskov added, "In Uzbekistan, despite the successful growth and development of our telecommunications business, as we have recounted in our public disclosure, our subsidiary has been subjected to numerous actions by various authorities that have led us to suspend our operations. While we continue to challenge the allegations against MTS-Uzbekistan and make use of the appeals process within Uzbekistan, we are also evaluating other appropriate legal strategies to defend our legitimate rights and investment interests. We also remain engaged to secure the release of our imprisoned employees." In Turkmenistan, we came to an agreement with government authorities in over the resuming of our operations and will re-launch services in September. We do not anticipate large costs to get the network up and running; our asset remains intact and in good condition. In Russia, we continue to see opportunities to create value in our business. By the end of the year, we will increase our retail footprint by up to 500 stores. The combination of 3G networks and a retail presence will help us drive sales of smartphones and increase smartphone penetration, which will in turn lead to higher-value customers."
This press release provides a summary of some of the key financial and operating indicators for the period ended June 30, 2012. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/.
Learn more about MTS. Visit the official blog of the Investor Relations Department at http://www.mtsgsm.com/blog/
Mobile TeleSystems OJSC ("MTS") is the leading telecommunications group in Russia and the CIS, offering mobile and fixed voice, broadband, pay TV as well as content and entertainment services in one of the world's fastest growing regions. Including its subsidiaries, the Group services over 100 million mobile subscribers. The Group has been awarded GSM licenses in Russia, Ukraine, Turkmenistan, Armenia and Belarus, a region that boasts a total population of more than 200 million. Since June 2000, MTS' Level 3 ADRs have been listed on the New York Stock Exchange (ticker symbol MBT). Additional information about the MTS Group can be found at http://www.mtsgsm.com.
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.
1. See Attachment A for definitions and reconciliation of OIBDA and OIBDA margin to their most directly comparable US GAAP financial measures.
2. Attributable to the Group.
3. See Attachment B for reconciliation of free cash-flow to net cash provided by operating activity.
4. Acquisition through MTS' subsidiary MGTS. Additional payment of $6.9 million is deferred for 12 months and is contingent upon fulfillment of certain agreed requirements. MGTS also assumed net debt of Tascom in the amount of $9.7 million
5. Before the non-controlling interest
SOURCE Mobile TeleSystems OJSC
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