Mobile TeleSystems (MTS) announces financial results for the third quarter 2000 and nine months ended 30th september 2000.

16 November 2000

MTS subscriber base reaches 1 million Moscow, Russian Federation — 16th November 2000 — Mobile TeleSystems OJSC (NYSE: MBT), Russia’s largest GSM 900/1800 mobile operator, today announced that its active subscriber base reached 1 million people and made public its financial and operational results for the third quarter of the year 2000 and nine months ended 30th September 2000.

 

The one millionth active subscriber was registered at one of MTS’s new customer service centres on November 13th 2000. Having exceeded the one million mark, MTS has joined the league of leading European cellular providers, such as TeleDenmark Mobil GSM 900 (Denmark), Eircell GSM 900 (Ireland), Stet Hellas GSM 900 (Greece), Telenor Mobil GSM 900/1800 (Norway). Since the beginning of the year 2000 MTS’s customer base has more than tripled compared to 307,000 active subscribers in December of 1999. MTS’s regional subscriber base, beyond the Moscow license area, reached 66,000 net subscribers as of November 13th 2000, an increase of 725% compared to December 1999.

Explosive growth of customer base, which started in the second quarter of the year 2000, continued in the third quarter, during which time MTS’s network was joined by 249,000 net subscribers. At the end of the third quarter (on September 30th 2000), the number of active subscribers was 889,000.

Customer base growth in the third quarter took place against a drop in churn, which decreased to 5.1% over 6.4% in the second quarter. This decline is a reflection of the growing loyalty among MTS customers, who appreciate the high level of MTS’ network and the quality of service.

During the period between the beginning of the third quarter and November 13th 2000, MTS:

  • launched the first ever General Packet Radio Service network (GPRS) in Russia, keeping in line with its strategy of being the first to offer new technologies;
  • launched two new independent regional networks in the Far East (the Amur region) and in the Central Urals (the republic of Udmurtia), thus becoming the first GSM provider in these regions;
  • became the first Russian mobile operator whose active subscriber base reached 1 million

MTS’s revenues in the first nine months of this year increased by 42% compared to the same period last year. MTS’s net income in the first nine months increased by 21% over the first nine months of 1999. This is a reflection of strong demand for mobile services, MTS’s successful marketing strategy and an upward trend in the Russian economy on the whole.

Commenting on the results, Mr Mikhail Smirnov, President and Chief Executive Officer of Mobile TeleSystems OJSC, said:

“We are delighted with the progress we have made during the year 2000. This progress continues and as of November 13th we have over 1 million active subscribers, which is comparable to some domestic fixed line operators and some European mobile service providers. The number of base stations within MTS network exceeded 1000.

“We are now operating in 21 of our 34 license areas. The MTS network launch in the Far East and in the Central Urals has demonstrated MTS’s ability to build networks far removed from its own operating networks, a pre-requisite for increasing national presence and becoming a federal mobile services provider. Today we are already building networks in three new regions (Ivanovo, Nizhniy Novgorod and Kirov regions) and are carrying out feasibility studies to start the construction in two more regions — those of Perm and Chelyabinsk.”

Financial highlights

  9 m 1,999,000 USD 9 m 2,000,000 USD Change (%) 2Q 2,000,000 USD 3Q 2,000,000 USD Change (%)
Net revenue 258,812 368,178 42% 120,027 146,110 22%
EBITDA 123,930 171,433 38% 58,437 60,8641 4%
EBITDA margin 48% 47%   49% 42%1  
Net income 62,613 75,878 21% 28,028 28,5601 2%
  • Revenue for the nine months of 2000 rose to US$368 million over US$259 million for the 9 months of 1999, up 42%. Revenue in the third quarter reached US$146 million, a 22% increase over the second quarter of 2000.
  • EBITDA for the nine months of 2000 reached US$171 million, an increase of 38% over the nine months of 1999. Long term focus on managing the cost base ensured the positive trend in operating margin set. EBITDA margin comprised 47% for the nine months of 2000. In the third quarter of 2000, EBITDA margin was 42%.
  • Net income for the nine months of 2000 was US$ 76 million, an increase of 21% over the nine months of 1999.

Operational Highlights

  2Q 2000 3Q 2000
Subscribers 640,000 889,000
ARPU (USD) 67 58
MOU (minutes) 173 175
Subscriber churn rate (%) 6.4 5.1
  • 1 million active subscribers as of November 13th (889,000 active subscribers at the end of 3Q2000).
  • First ever in Russia GPRS network was launched in August 2000, only a month after the same service had been offered by such high ranking cellular operators as BT Cellnet in the UK and T-Mobil in Germany
  • Number of base stations increased to 731 in the Moscow license area and to 311 in the regions.
  • Churn rate is down to 5.1% in the third quarter of 2000 from 6.4% in the second quarter of 2000.
  • ARPU in the third quarter decreased to US$58 over US$67 in the second quarter of 2000. This reflects a general trend for a company entering the mass market. MTS’s ARPU is higher than the corresponding figures of European operators.
  • The increase in MOU in the third quarter of 2000 is due not only to the increase in the customer base but also to a higher usage of additional services, including the increase in data traffic.
1

In October 2000 the US Securities and Exchange Commission (SEC) issued its interpretation of revenue recognition rules (Staff Accounting Bulletin 101, or SAB 101). The issue of the final SAB 101 interpretation is expected during December 2000. In order to comply with the SEC interpretation MTS expensed an additional US$7,6 million of deferred costs in the third quarter of 2000.

MTS condensed consolidated balance sheets per september 30, 2000, per december 31, 1999 and september 30, 1999

Amounts in thousands of U.S. dollars
ASSETS 1999 Sep 2000 Sep 1999
CURRENT ASSETS:  
Cash $10,000 $318,256 $9,654
Trade receivables, net 24,720 13,551 35,371
Accounts receivable related parties 5,973 14,637 721
Inventory, net 16,577 22,693 11,862
Total other current assets 29,317 31,607 17,957
Total current assets 86,587 400,744 75,565
PROPERTY, PLANT AND EQUIPMENT  
PPE, at cost 298,005 448,879 279,028
Accumulated depreciation (47,735) (76,002) (38,427)
Property, plant and equipment, net 250,270 372,877 240,601
INTANGIBLE ASSETS  
Intangible assets, at cost 65,648 93,579 59,300
Accumulated amortization (25,787) (34,300) (23,701)
Intangible assets, net 39,861 59,279 35,599
LICENSES, Gross 252,651 252,651 252,651
Accumulated depreciation (16,450) (38,035) (9,585)
Licenses, net 236,201 214,616 243,066
GOODWILL, Gross 42,739 42,739 42,739
Accumulated depreciation (8,650) (13,229) (7,123)
Goodwill, net 34,089 29,510 35,616
SUBSCRIBER ACQUISITION COSTS, Gross 53,124 87,586 45,242
Accumulated amortization (21,199) (43,863) (17,833)
Subscriber acquisition costs, net 31,925 43,723 27,409
DEBT ISSUANCE COSTS, gross 6,111 1,351 6,110
Accumulated amortization (4,103) (833) (3,751)
Debt issuance costs, net 2,008 518 2,359
INVESTMENTS IN AND ADVANCES TO AFFILIATES 1,106 1,855 544
Total assets $682,047 $1,123,122 $660,759
LIABILITIES AND SHAREHOLDERS’ EQUITY 1999 Sep 2000 Sep 1999
CURRENT LIABILITIES:  
Accounts payable related parties 3,049 3,049 7,170
Trade accounts payable 78,984 100,992 67,425
Debt current portion 38,333 60,644 54,250
Other payables 2,880 4,942 8,847
Accrued liabilities 29,229 39,511 30,601
Total current liabilities 152,475 209,138 168,293
LONG TERM LIABILITIES:  
Debt 66,334 36,379 48,000
Other long term liabilities 93,256 88,792 96,155
Total long term liabilities 159,590 125,171 144,155
Total liabilities 312,065 334,309 312,448
MINORITY INTEREST 26,258 11,167 27,635
SHAREHOLDERS’ EQUITY :  
Common stock 49,276 50,558 49,276
Treasury shares   -10206  
Additional paid-in capital 182,975 550,243 181,483
Retained earnings 111,473 187,051 89,917
Total shareholders’ equity 343,724 777,646 320,676
Total liabilities and shareholders’ equity $682,047 $1,123,122 $660,759

MTS condensed profit loss account in usd x 000, comparing 9 months 2000 against 9 months 1999 and the 3rd quarter 2000 against the 2nd quarter 2000 (consolidated)

Amounts in thousands of U.S. dollars
  Sep 2000 Sep 1999 % diff. 3rd qtr 2000 2nd qtr 2000 % diff.
Net revenues:  
Total service revenue 327,845 227,848 44 134,112 104,945 28
Total one time revenue 40,333 30,964 30 11,998 15,082 -20
Total net revenue 368,178 258,812 42 146,110 120,027 22
Direct costs:  
C.O.S. and services -91,162 -64,670 41 -34,778 -30,180 15
Sales and Marketing expenses -37,885 -16,259 133 -19,003 -9,350 103
Operating expenses -69,998 -44,679 57 -32,049 -24,272 32
Provision doubtful accounts -2,305 -7,506 -69 -353 -1,152 -69
Depreciation and amortization -61,788 -33,589 84 -22,975 -19,969 15
Total direct costs -263,138 -166,703 58 -109,158 -84,923 29
Net operating income 105,040 92,109 14 36,952 35,104 5
Net non-operating expenses -4,982 11,030 55 184 1,271 86
Net income before profit tax and minority interest 100,058 81,079 23 36,768 33,833 9
Provision for income tax -28,788 19,379 49 -10,120 -7,726 31
Minority interest 4,608 913 405 1,912 1,921 -0.00
Net income 75,878 62,613 21 28,560 28,028 2
EBITDA 171,433 123,930 38 60 864 58 437 4
EBITDA Margin 46.56 47.88 -3 41.66 48.69 -14

MTS operational highlights, comparing 9 months 2000 against 9 months 1999 and the 3rd quarter 2000 against the 2nd quarter 2000

  Sep 2000 Sep 1999 % diff. 3rd qtr 2000 2nd qtr 2000 % diff.
SUBSCRIBERS x 1000  
Consolidated 889 238 274 889 640 39
Moscowlicense area 837 232 261 837 613 37
Regional license areas 52 6 767 52 27 93
AVERAGE MONTHLY MINUTES OF USE PER SUB  
Consolidated 156 224 -30 175 173 1
AVERAGE MONTHLY SERVICE REVENUE PER SUB  
Consolidated in USD 61 142 -57 58 67 - 13
AVERAGE MONTHLY SERVICE REVENUE PER MINUTE  
Consolidated in USD 0.39 0.63 -38 0.33 0.38 - 13
CHURN RATE in %  
Consolidated 17.18 12.74 35 5.08 6.43 -21
Moscow license area 17.43 12.44 40 5.06 6.49 -22
Regional license areas 12.38 27.67 -55 5.42 4.94 10
SUBSCRIBER AQUISITION COSTS (Total costs)  
Advertising and promotion 15,221 7,340 107 5,406 5,306 2
Dealer commission expensed 8,398 2,369 254 7,932 168 4,621
Dealer commission capitalized 26,064 13,423 94 5,145 13,271 -61
Total SAC in USD x 1000 49,683 23,132 115 18,483 18,745 -1
SUBSCRIBER AQUISITION COSTS (Per gross addition)  
Advertising and promotion 23 50 -54 19 20 -5
Dealer commission expensed 22 61 -64 47 15 213
Dealer commission capitalized 28 47 -40 2 36 -106
Total SAC per gross addition in USD 73 158 - 54 64 71 -10
CAPEX in million USD 156 90 73 64 56 16

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