Mobile TeleSystems (MTS) financial results for the second quarter 2001

16 August 2001

MTS announces continuing profitable growth for the Second quarter 2001 Moscow, Russian Federation — 16 August 2001 — Mobile TelesyStems OJSC (NYSE: MBT), Russia’s leading mobile operator, today announced its financial and operational results for the 2nd quater 2001 and the six months ending 30th June 2001.

   

Financial highlights

US$ ’000 Second Quarter
2001 (US$, 000)
Second Quarter
2000 (US$, 000)
Change, % Six months ended
June 30, 2001 (US$, 000)
Six months ended
June 30, 2000 (US$, 000)
Change, %
Net revenue 205,890 120,027 72% 372,193 222,068 68%
EBITDA 1 81,541 58,437 40% 160,094 110,569 45%
EBITDA margin 1 40% 49% N/a 43% 50% N/a
Net income 1 35,038 28,028 25% 66,253 47,318 40%
  Second Quarter
2001 (US$)
Second Quarter
2000 (US$)
Change, % Six months ended
June 30, 2001 (US$)
Six months ended
June 30, 2000 (US$)
Change, %
Subscribers total, including


1,856,000 640,000 190%
Moscow license area


1,654,000 612,000 170%
Regional license area


202,000 28,000 621%
ARPU (US$) 39 67 (42%) 38 68 (44%)
MOU (minutes) 166 173 (4%) 155 154 (1%)
Subscriber churn rate (%) 4.9% 6.4% N/a 10.5% 13.5% N/a
Subscriber acquisition costs, US$ 62 71 (12%) 62 79 (22%)

During the first half of year 2001, MTS’ overall active subscriber base has increased by 190% to 1,856,000 as of 30th June 2001 (compared to 640,000 active subscribers on 30th June 2000). 436,000 net subscribers joined the MTS network during the second quarter of this year. MTS’ regional subscriber base, beyond the Moscow license area, reached 202,000 active subscribers as of 30th June 2001, seven times more than on June 2000. On 3rd August 2001, MTS’ announced that it had surpassed its two millionth customer mark. MTS took six years to gain one million subscribers, while the second million joined the network in a mere eight and half months. MTS expects subscriber growth to continue as the company expands its network across regional Russia, also bearing in mind the start up of operations in major cities like St. Petersburg and Nizhny Novgorod this year. MTS’ regional expansion strategy is to consolidate a wireless pan-Russian network so as to become Russia’s nationwide mobile operator. MTS has allocated $110 million for regional expansion this year. During the first six months of 2001, 250 new base stations were added to the MTS network, bringing the cumulative number to 1,373 base stations, of which 949 base stations were located within the Moscow license area and 434 in the regions. Three new switches were installed in Moscow in the first half of year 2001, which brought the total number of switches in the Moscow license area up to eight. As of today, switching capacity in Moscow is 2.5 million subscribers. Average revenue per subscriber (ARPU) per month for the second quarter 2001 was $39 compared to $40 in the first quarter of 2001, and showed $38 for the first half of the year 2001. Average monthly minutes of use per subscriber (MOU) was 166 minutes in the second quarter 2001, an expected seasonal growth from MOU of 152 minutes in the first quarter 2001.

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It should be noted that MTS changed its accounting policy in regards to subscriber acquisition costs, which is reflected in financial reports as of the beginning of MTS’ current fiscal year. The effect of this change in accounting policy on MTS’ income (before income tax) for the six months ended June 30 2001 is $28 million. Net revenues for the second quarter of 2001 rose to $206 million, an increase of 72% compared to the same period in 2000. Earnings before interest, tax, depreciation and amortization (EBITDA) for the second quarter of 2001 were $81 million, an increase of 40% compared to the second quarter of 2000. Such a steady and sustained EBITDA growth reflects the viability of MTS’ overall business strategy, combined with a continued explosive demand for mobile services in Russia. EBITDA margin, an indicator of business efficiency, for the second quarter of 2001 was 39% compared to 49% in the second quarter 2000, mainly caused by the one-time write-off of capitalized dealer commission. Net income for the second quarter of 2001 was US$ 35 million, still an increase of 25% for the same period of 2000. Half year results were also strong, with revenue of $372 million up 68% compared to the same period last year, evidencing a sustainable level in MTS’ revenue growth. EBITDA for the first six months of the year 2001 reached US$ 160 million, an increase of 45% over the first six months of 2000. EBITDA margin comprised 43% for the first six months of the year 2001. MTS’ total investment in the network development was US$ 163 million in the first six months of 2001. Commenting on the results, Mr. Mikhail Smirnov, President and Chief Executive Officer of Mobile TeleSystems OJSC, said: “MTS’ results clearly demonstrate that with better than expected growth of subscriber numbers over the past six months and constantly improving business efficiency, MTS continues to report strong increases in profitability. We are witnessing an unprecedented demand for mobile services, and we are proud to be at the forefront of this technological revolution in Russia. By establishing a mobile market in Russia, MTS delivers progress not only to Moscow and St Petersburg, but also to Russia’s most remote areas.” Operational highlights.

MTS condensed consolidated balance sheets at December 31, 2000 and June 30, 2001

Amounts in thousands of US$
ASSETS Dec. 31 2000  June 30 2001
Cash and cash equivalents 75,828 22,642
Short term investments 170,000 171,122
Trade receivables, net 15,817 21,623
Accounts receivable related parties 4,937 3,289
Inventory, net 23,551 16,540
Total other current assets 39,851 73,329
Total current assets 329,984 308,545
Property, plant and equipment, net 439,307 562,992
Intangible assets, net 57,586 70,309
Licenses, net 204,996 265,971
Goodwill, net 27,984 24,932
Subscriber acquisition costs, net 27,553  —
Debt issuance costs, net 450 315
Investments in and advances to affiliates 13,472 1,455
Total assets $ 1,101,332 $ 1,234,519
LIABILITIES AND SHAREHOLDERS’ EQUITY Dec. 31, 2000 June 30, 2001
Accounts payable related parties 3,792 3,404
Trade accounts payable 99,397 116,992
Debt current portion 24,000 3,150
Other payables 17,398 17,445
Accrued liabilities 38,175 46,546
Total current liabilities 182,762 187,537
Debt 23,305 38,155
Other long term liabilities 94,181 130,751
Total long term liabilities 117,486 168,906
Total liabilities 300,248 356,443
MINORITY INTEREST  — 468
SHAREHOLDERS’ EQUITY:
Common stock 50,558 50,558
Treasury shares (10,206) (10,206)
Additional paid-in capital 502,511 512,782
Retained earnings 258,221 324,474
Total shareholders’ equity 801,084 877,608
Total liabilities and shareholders’ equity $ 1,101,332 $ 1,234,519

MTS consolidated condensed statements of operations for the three and six months ended June 30, 2000 and 2001

Amounts in thousands of US$, except share and per share data
  Second quarter
2001
Second quarter
2000
Six months ended
30 June, 2001
Six months ended
30 June, 2000
Total service revenue 190,869 104,945 345,969 193,733
Connection fees 4,968 3,314 9,115 6,907
Handset and accessories sales 10,053 11,768 17,109 21,428
Total net revenue 205,890 120,027 372,193 222,068
Direct costs:
Interconnect and line rental 17,449 8,602 31,864 16,908
Roaming expenses 13,616 9,415 27,113 17,023
Cost of equipment 9,794 12,163 17,163 22,453
C.O.S. and services 40,859 30,180 76,070 56,384
Sales and Marketing expenses 57,804 9,350 78,574 18,882
Operating expenses 24,410 24,272 54,439 37,949
Provision doubtful accounts 126 1,152 681 1,952
Depreciation and amortization 31,261 19,969 58,565 38,813
Total direct costs 154,460 84,923 268,329 153,980
Net operating income 51,430 35,104 103,864 68,088
Non-operating income/(expense)
Currency exchange (29) (435) 595 723
Interest income (3,643) (7,560)
Interest expense 1,440 2,714 2,390 5,770
Other non-operating (income) /expenses. 1,576 (1,008) 2,137 (1,695)
Net non-operating expenses (656) 1,271 (2,438) 4,798
Net income before profit tax and
minority interest 52,086 33,833 106,302 63,290
Provision for income tax 17,445 7,726 40,446 18,668
Minority interest (397) (1,921) (397) (2,696)
Net income 35,038 28,028 66,253 47,318
EBITDA 81,541 58,437 160,094 110,569
EBITDA margin 40% 49% 43% 50%
Weighted average number of shares outstanding 1,993,326,138 1,634,527,440 1,993,326,138 1,634,527,440
Earnings per share (basic and diluted), US$ 0.0176 0.0171 0.0332 0.0289


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