Mobile TeleSystems announces financial results for the fourth quarter 2001 and year ended 31st December 2001

10 April 2002

Moscow, Russian Federation — 10th April 2002 — Mobile TeleSystems OJSC (NYSE:MBT), Russia’s largest mobile cellular operator, today reports its results for the fourth quarter 2001 and the year ended 31st December 2001.

 

The number of MTS subscribers exceeds 3.5 million

The company shows a substantial growth in main financial and operational indicators and maintains leadership on the cellular market of Russia. As of today, the number of MTS subscribers exceeds 3.58 million. The company’s regional subscribers amount to 1.48 million, including subscribers of Kuban-GSM — the largest Russian regional operator, the acquisition of which MTS announces today.

Main 2001 highlights:

  • Record growth of financial and operational indicators as compared to previous year: total revenues for the year of $893 million, an increase of 67%; EBITDA reached $424 million, an increase of 80%; net income for the year of $207 million, an increase of 120%.
  • Strong subscriber growth with over 1.4 million new subscribers, resulting in a total of 2.65 million active subscribers at the year-end.
  • Successful $250 million Eurobond issue in December.
  • Establishment of MTS as the leading nationwide cellular provider with a footprint on the key regional markets of largest cities after Moscow — Saint-Petersburg and Nizhni Novgorod.

Commenting on the results, Mr Mikhail Smirnov, President of Mobile TeleSystems OJSC, said:

“The company’s results have once again shown a record of subscriber and revenue growth. MTS maintains leadership on the Russian mobile market. While we give special attention to Moscow as the most important segment of the national market, we continue to build our network and brand in the regions.”

“We’ve done a good job last year and expanded our business substantially. But we fully recognize that last year’s success does not give us time for rest. Moving on continuously is one of the conditions of operating in a dynamic cellular market in general, and in Russia specifically.”

“In 2002 we intend to continue our aggressive regional expansion strategy and to introduce additional data and information services to our subscribers. Simultaneously, we are planning to launch a series of initiatives and innovations in the marketing policy. All this is in line with our strategy of becoming Russia’s leading nation-wide mobile operator.”

FINANCIAL HIGHLIGHTS

  Year ended 2000$ mln Year ended 2001$ mln Increase / (decrease) % 4Q 2000$ mln 4Q 2001$ mln Increase / (decrease) %
Net revenue 535.7 893.2 67 167.5 54
EBITDA 232.6 424.1 80 66.4 125.4 89
EBITDA margin 44% 47% N/a 40% 49% N/a
Net Income 90.0 207.4 120 19.4 62.7 223
Capital expenditures 195.0 396.7 103 132.5 128.1 (3)
EPS, US$ 0.050 0.104



Net revenue in 2001 increased by 67% to $893 million, from $536 million last year.

EBITDA was $424 million for 2001, an increase of 80% compared with last year.

EBITDA margin increased from 44% for the corresponding period to 47%.

Net income for the year 2001 increased by 120% as compared with 2000 and was $207 million.

In the fourth quarter 2001 revenues were $258.5 million. EBITDA for the fourth quarter of the year 2001 reached $125.4 million, which is a growth of 89% compared to fourth quarter of 2000, while EBITDA margin grew to 49% reflecting continued efficiency improvements. Net income grew by 223% compared to fourth quarter 2000 and was $62.7 million.

Such a strong financial performance is a reflection of continued strong demand for mobile services in Moscow and growth of demand in the regions, MTS’ successful expansion into new markets of Russia, focus on high-end users and effective management.

Operational Highlights


Year ended 2000 Year ended 2001 4Q 2000 4Q 2001
Subscribers, Moscow 1,113,000 2,035,000 1,113,000 2,035,000
Subscribers, regions 87,000 615,000 87,000 615,000
ARPU (US$) 54 36 51 32
MOU (minutes) 151 157 167 154

MTS’ capital expenditures were US$396.7 million in 2001 which is an increase of 103% compared to$195 million invested during 2000. Cumulative network investments amounted to $881 million.

During 2001, 1,002 new base stations were added to the MTS network, while current base stations were expanded. The number of base stations reached 2,125 in Russia, including 1,144 in the Moscow licence area. Eighteen new switches were installed in the MTS network during 2001, bringing the number of switches integrated into the MTS network at the end 2001 to a total of 31. Currently, the network integrates 34 switches; total capacity allows to service 5.7 million subscribers in the overall network, including 3.8 million in Moscow license area.

Churn rate for the year 2001 was 26.8% which is somewhat higher than 21.6% in 2000. This has resulted from a strict active subscriber accounting policy*, high inflow of seasonal subscribers using the mobile phone for the summer season in May through October, (accordingly counted as churn subscribers in the period of November to January) and general increase of migrating subscribers.

At the same time, the company saw an increase in subscribers in the corporate sector, which is attributed to the quality of communications and services of the MTS network and the widest coverage in Russia.

The company’s comprehensive tariff policy on the mass market enabled it to maintain a high level of ARPU even though the subscriber base has more than doubled. ARPU was $36 over 2001, which is one of the highest among world operators.

* Active subscriber in MTS network is a subscriber whose telephone is blocked for not more than 2 months.

The year 2001 stands out as the year of large-scale regional expansion in Russia and the commencement of the company’s first project in the CIS.

In September 2001, MTS won the tender for a GSM license in Belarus and became one of the first Russian operators to enter CIS markets. MTS plans to launch the network in Belarus in the year 2002.

Undoubtedly, 2001 saw an outstanding event — acquisition of Telecom XXI through which MTS gained access to the second largest market of Saint Petersburg and 9 North-West regions with a population of over 14 million people. This major market deal was closed in May 2001 and MTS managed to build the network and launch it into operations within shortest possible time limits. Faced by tight competition MTS has shown record subscriber growth rates. In less than five months MTS’s market share in the region exceeded 20%, 278,000 new customers joined the network.

2001 also saw the launch of MTS networks in the major Volga region industrial center — Nizhni Novgorod, as well as Kirov and Ivanovo regions. Having acquired Telecom-900, MTS implemented its strategy in entering the East of Russia, establishing a footprint in three key regions in the Urals, Siberia and the Far East.

In April 2002 MTS provided services for over a third of Russian mobile subscribers (with a market share of 35.2%). The company’s GSM market share was 41%. In most of the company’s operational regions MTS dominates the market with a share of over 50%. After acquisition of Kuban-GSM — the largest Russian regional operator with 495,000 subscribers — MTS regional subscriber base reached almost 1.5 million.

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

Amounts in thousands of U.S. dollars, except share and per share data

31 December, 2000 30 December, 2001
CURRENT ASSETS:
Cash and cash equivalents $75,828 $219,629
Short-term investments 170,000 85,304
Trade receivables, net 15,817 24,258
Accounts receivable, related parties 4,937 2,377
Inventory, net 23,551 26,184
Prepaid expenses 11,268 22,712
VAT receivable 17,741 82,216
Deferred tax asset 2,071 12,040
Other current assets 8,771 8,374
Total current assets 329,984 483,094
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $87,676 and $168,989, respectively 439,307 857,498
INTANGIBLE ASSESTS, net of accumulated amortization of $33,648 and $52,953, respectively 57,586 83,507
LICENSES, net of accumulated amortization of $43,913 and $83,528, respectively 204,996 276,875
GOODWILL, net of accumulated amortization of $14,756 and $20,861, respectively 27,984 22,411
SUBSCRIBER ACQUISITION COSTS, net of accumulated amortization of $74,803 and $140,053, respectively 27,553
DEBT ISSUANCE COSTS, net of accumulated amortization of $900 and $1,210, respectively 450 3,997
INVESTMENTS IN AND ADVANCES TO AFFILIATES 13,472 740
Total assets $1,101,332 $1,728,122

MTS condensed consolidated balance sheets at December 31, 2000 AND 2001

Amounts in thousands of U.S. dollars, except share and per share data

31 December 2000 31 December 2001
CURRENT LIABILITIES:
Accounts payable, related parties $3,792 $3,549
Trade accounts payable 39,864 108,661
Deferred connection fees 14,923 21,419
Subscriber prepayments and deposits 44,610 63,741
Debt, current portion 24,000 14,325
Short term portion of future lease payments 14,401
Income tax payable 15,082 23,078
Accrued liabilities 38,175 51,407
Dividends payable 1,038 1,038
Other payables 1,278 2,319
Total current liabilities 182,762 303,938
LONG-TERM LIABILITIES:
Bonds payable, principal 248,976
Debt, net of current portion 23,305 34,869
Long term portion of future lease payments 7,696
Promissory notes payable 5,486 5,792
Deferred connection fees, net of current portion 16,630 26,269
Deferred taxes 72,083 67,210
Total long-term liabilities 117,486 390,812
Total liabilities 300,248 694,750
MINORITY INTEREST 13,556
SHAREHOLDERS EQUITY:
Common stock: (2,096,975,792 shares with a par value of 0.1 rubles authorized and 1,993,326,138 shares issued as of June 30, 2001 and December 31, 2000, 345,244,080 of which are in the form of ADS) 50,558 50,558
Treasury stock (9,966,631 common shares at cost) (10,206) (10,206)
Additional paid-in capital 552,030 555,794
Shareholder receivable (49,519) (38,958)
Retained earnings 258,221 462,628
Total shareholders’ equity 801,084 1,019,816
Total liabilities and shareholders' equity $1,101,332 $1,728,122

MTS condensed consolidated statements of operations for the fourth quarter 2001 and 2000 and for the year 2000 and 2001

Amounts in thousands of U.S. dollars, except share and per share data

Three months ended December
2000
Three months ended December
2001
Year
2000
Year
2001
NET REVENUES



Service revenues, net 156,624 238,284 484,469 830,308
Connection fees 3,928 6,040 14,885 21,066
Equipment sales 6,982 14,167 36,358 41,873

167,534 258,491 535,712 893,247
COST OF SERVICES AND PRODUCTS (including related party amounts of $8,846, $5,576 and $29,291 respectively)



Interconnection and line rental 13,775 17,908 41,915 75,278
Roaming expenses 11,229 17,821 41 178 68,387
Cost of equipment 862 13,514 39,217 39,828

24,142 49,243 122,310 183,493
OPERATING EXPENSES (including related party amounts of $9,670, $5,064 and $8,882 respectively) 37,841 45,956 107,839 131,379
SALES AND MARKETING EXPENSES (including related party amounts of $9,670, $5,064 and $8,882 respectively) 38,544 27,149 76,429 135,282
PROVISION FOR DOUBTFUL ACCOUNTS 98 654 2,403 3,219
DEPRECIATION AND AMORTIZATION 25,896 39,596 87,684 133,143
Net operating income 41,013 95,974 139,047 306,731
CURRENCY EXCHANGE AND TRANSLATION COSTS 803 690 1,066 1,871
OTHER EXPENSES (INCOME):



Interest income (4,285) (1,363) (7,626) (11,829)
Interest expenses, net of amounts capitalized 3,015 985 11,335 6,944
Loss on disposal of other assets

Other expense (income) (242) 4,089 (502) 7,327
Total other expenses (income), net (1,512) 3,711 3,207 2,442
Income before provision for income taxes and minority interest 41,722 91,492 134,774 302,418
PROVISION FOR INCOME TAXES 22,366 23,463 51 154 88,438
MINORITY INTEREST
(5,285) (6,428) 6,614
NET INCOME 19,356 $62,744 $90,048 $207,366
Weighted average number of shares outstanding 1,806,968,096 1,806,968,096 1,993,326,138
Per common share: basic and diluted:



Net income before cumulative effect of a change in accounting principle

0.050 0.113
Cumulative effect on prior years (to December 31, 2000) of a change in accounting principle

(0.009)
Net income

0.050 0.104

Contact investor relations:

+ 7 495 223 20 25 ir@mts.ru

MTS Investor Relations
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