1. See Attachment A for definitions and reconciliation of adjusted OIBDA and adjusted OIBDA margin to their most directly comparable US GAAP financial measures.
2. Attributable to the Group.
3. See Attachment B for reconciliation of free cash-flow to net cash provided by operating activity.
CommentaryMr. Andrei Dubovskov, President and CEO of MTS, commented, "Group revenue for the quarter was stable quarter-on-quarter at just over $3.1 billion due to negative ruble dynamics vs. US dollar during the period despite positive seasonal factors and higher consumption of voice and data products. Group revenue was also significantly impacted by loss of Uzbekistan revenue due to the suspension of our operating license in July. We continue to witness steady subscriber growth and signs of stability and moderate competitive pressures in our markets of operation. For the period, total revenues in Russia increased in ruble terms by 8% year-over-year to 88.3 billion rubles driven by steady voice usage, continued adoption of data services and an increase in our subscriber base and handset sales, including sales of higher-value smartphones due to seasonal factors and expansion of the retail footprint." Mr. Alexey Kornya, MTS Vice President and Chief Financial Officer, said, Group OIBDA rose slightly to nearly $1.38 billion in line with our revenue performance. Our adjusted OIBDA margin for the period reached 44.0%. Overall we are seeing results of our efforts to increase profitability in our business and realize greater efficiencies across the Group. In Russia, OIBDA rose 9% year-over-year to 40.1 billion rubles. OIBDA margin in Russia increased from 44.6% in Q2 to 45.4% in Q3, an improvement which reflects seasonal trends and cost efficiencies despite significantly higher retail costs. Still, our margin is pressured by increase in labor costs, that have advanced 50 basis points year-over-year as a percentage of revenue reflective of higher payroll taxes and social contributions; increase in rent and maintenance costs on the back the expansion of our mobile and fixed network; and continued expansion of the retail footprint. However, we are confident despite these factors we will deliver strong margins and are comfortable with raising our OIBDA margin guidance to over 42% for 2012." He continued, "Year-to-date CAPEX exceeded $1.81 billion. Investments are largely being focused on expanding our 3G network and preparing for our 4G roll-out: identifying new sites, connecting base stations to fiber, and proceeding with the implementation of our GPON project in Moscow. Overall, however, we feel it prudent to raise our CAPEX guidance for the year from 20-22% of sales to 23-24% of sales or roughly $2.9 billion. This increase is due to the effects of currency on our equipment costs and services since we first guided at the beginning of the year, as opposed to any dramatic change in our investment plans." Mr. Dubovskov added, "Over the past quarters, we have seen clear volatility in our net income over currency fluctuations related to our debt composition and other one-time factors, including developments in our Central Asia markets. In this difficult currency environment, we have come to the conclusion that net income is not the best metric to use as a basis for the calculation of our dividend. We are currently devising a new policy that ties dividend amount to free cash flow which, in our view, constitutes a clearer, more transparent basis for determining our return to shareholders. We expect to propose the new policy to our Board of Directors for adoption prior to the final determination of our FY2012 dividend. For now, we can say that we intend to increase our cumulative dividend payout over the next three years by at least 25% in relation to the roughly 91 billion rubles we have paid out since fiscal year 2009. This implies a total cumulative dividend of at least 114 billion rubles for the fiscal years 2012 to 2014 or a payout per share of at least 18 rubles 30 kopeks. We believe that this level, which should constitute a sizable portion of our free cash flow, will allow us over the next three years to meet our investment needs, maintain our relative debt levels and demonstrate our commitment to shareholder value." This press release provides a summary of some of the key financial and operating indicators for the period ended September 30, 2012. For full disclosure materials, please visit http://www.mtsgsm.com/resources/reports/. Learn more about MTS. Visit the official blog of the Investor Relations Department at http://www.mtsgsm.com/blog/ and follow us on Twitter: JoshatMTS * * *