Mobile TeleSystems (MTS) financial results for the first quarter 2002

29 May 2002

Moscow, Russian Federation — 29 May 2002 — Mobile TeleSystems OJSC (NYSE:MBT), Russia’s largest mobile cellular operator, today reports its results for the first quarter 2002.

 

The company shows a substantial growth of the regional subscriber base which grew by almost 1000% since March last year. Today, the company has 4.05 million active users, 1.83 million of which reside outside of the Moscow licence area.

Financial highlights

US$ million 3 months ended
March 31, 2002
3 months ended
March 31, 2001
Change, %
Net revenue 247.6 166.3 49
EBITDA 117.2 78.5 49
EBITDA margin 47.3% 47.2%
Net Income 43.9 31.2 41

Net revenue in the first quarter 2002 was $247.6 million which is an increase of 49% from the same period last year. The substantial growth reflects increasing demand for mobile services in Russia and strengthening of MTS’ leadership in this sector of the market. EBITDA in the first quarter 2002 was $117.2 million, an increase of 49% over the same period last year. EBITDA margin in the first quarter 2002 was 47.3% compared with 47.2% in Q1 2001. Net income for first quarter 2002 was $43.9 million, an increase of 41% over the same period 2001.

Operational highlights

US$ million 3 months ended
March 31, 2002
3 months ended
March 31, 2001
Change, %
Total subscribers, including 3,527,788 1,421,000 148%
Moscow license area 2,084,606 1,302,000 60%
Regions 1,443,182 119,000 1112%
ARPU (US$) 27 40 (33%)
MOU (minutes) 142 152 (7%)
Churn rate (%) 9.8 6.1
SAC per gross addition (US$) 36 62 (42%)

Today, the number of the company’s active subscribers is 4.05 million of which 1.83 live in the regions outside of the Moscow licence area. MTS’ Moscow license area subscriber base amounted to 2.08 million on 31 March 2002. Outside the Moscow licence area the company witnessed an intensive growth of the subscriber base which grew by 1112% over 12 months and to reach 1.44 million on 31 March 2002. In the first quarter 2002 ARPU decreased to $27 compared to $40 for the same period last year. The decrease in ARPU is mostly attributed to a tariff reduction in Q4 2001, and a continuing change in the subscriber mix. MOU per user in the first quarter 2002 was at the level of 142. Subscriber churn rate in the first quarter 2002 was 9.8% compared to 10.57 % in the fourth quarter 2001 which shows a reversal in the former tendency of churn to increase. SAC per gross new additional subscriber in the first quarter 2002 decreased by 42% and was $36 compared to $62 in the first quarter 2001. The current number of MTS base stations is 3,064, including 1,315 in the Moscow licence area and 1,749 in the regions. The company’s investments in the first quarter 2002 were $119 million compared to $79 million for the same period last year. Corporate Governance MTS has traditionally followed a policy of openness and transparency to our shareholders and bondholders. Just recently, this policy has been rewarded — MTS’ corporate governance principles, disclosure standards and reporting transparency were rated by Standard & Poor’s as being in line with the best international practice. In May 2002 Standard & Poor’s assigned a corporate governance score of 7.4 to MTS (on a scale of 1-10), the highest score assigned to any Russian company. Expansion in the regions In March 2002 MTS acquired a controlling stake in Kuban GSM, the financials of which were not previously consolidated in MTS’ reports. The deal allows MTS to extend its footprint in the strategically important regions of the South of Russia, the Krasnodar region and the Republic of Adygeya with a total population of over 5.5 million. Another 5 million Russians visit the region during the vacation season. Kuban GSM network covers the largest cities of the Black sea coast, Novorossiisk, Anapa, Tuapse, Sochi, Adler, Dagomys, Lazarevskoye. In May 2002 MTS gained total control over Bashkortostan’s largest operator BM-Telecom, strengthening its presence in the important Volga macroregion. BM-Telecom’s network covers a territory with over 70% of the Republic’s inhabitants, its share on the local mobile market is 75%. MTS is actively expanding in 13 regions of the company’s license area: Arkhangelsk, Vologda, Kurgan, Orenburg, Tambov, Tyumen, Chelyabinsk regions, as well as in Komi-Permyatsk (Kudymkar), Nenets (Naryan-Mar), Yamalo-Nenets (Salekhard), Khanty-Mansiysk) autonomous districts, Karelia Republic (Petrozavodsk), Republic of Altay (Gorno-Altaysk). The company is also constructing a network in Belarus. Commenting on the first quarter result Mikhail Smirnov, President of MTS said: “This year the company is developing at an unprecedented rate already as a federal network. We are pleased with our results. During this period MTS has moved ahead substantially in the regions, and today we are proud to say that we have significantly neared our aim to become a truly national mobile operator. MTS is constructing the largest network using advanced technology and is committed to offering the best communications and service to our subscribers”.

Mobile TeleSystems consolidated balance sheets at december 31, 2001 and march 31, 2002

Amounts in thousands of U.S. dollars

December 31, 2001 March 31, 2002
CURRENT ASSETS:
Cash and cash equivalents $219,629 $46,037
Short-term investments 85,304 165,166
Trade receivables, net 24,258 31,980
Accounts receivable, related parties 2377 4907
Inventory, net 26,184 25,874
Prepaid expenses 22,712 24,935
VAT receivable 82,216 113,772
Deferred tax asset 12,040 13,910
Other current assets 8374 8749
Total current assets 483,094 435,330
PROPERTY, PLANT AND EQUIPMENT 841,308 962,005
OTHER INTANGIBLE ASSETS 83,507 84,578
LICENSES 297,490 426,033
GOODWILL 22,411 22,411
DEBT ISSUANCE COSTS 3997 4251
INVESTMENTS IN AND ADVANCES TO AFFILIATES 740 925
Total assets $1,732,547 $1,935,533

Mobile TeleSystems consolidated balance sheets at december 31, 2001 and march 31, 2002

Amounts in thousands of U.S. dollars

December 31, 2001 March 31, 2002
CURRENT LIABILITIES:
Accounts payable, related parties $6142 $7489
Trade accounts payable 106,068 69,998
Deferred connection fees 21,419 21,656
Subscriber prepayments and deposits 63,741 79,693
Debt, current portion 18,245 18,425
Promissory Notes, current portion 580
Short term portion of future lease payments 14,401 12,211
Income tax payable 23,078 40,632
Accrued liabilities 51,626 66,834
Other payables 3357 5905
Total current liabilities 308,657 322,843
LONG-TERM LIABILITIES:
Bonds payable, principal 248,976 306,856
Debt, net of current portion 30,150 64,307
Long term portion of future lease payments 7696 6340
Promissory notes payable 5792 1023
Deferred connection fees, net of current portion 26,269 25,109
Deferred taxes 72,192 107,439
Total long-term liabilities 391,075 511,074
Total liabilities 699,732 833,917
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 12,999 36,919
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 555,794 556,145
Shareholder receivable (38,958) (38,288)
Retained earnings 462,628 506,488
Total shareholders’ equity 1,019,816 1,064,697
Total liabilities and shareholders’ equity $1,732,547 $1,935,533

Mobile TeleSystems unaudited consolidated statements of operations for the three months ended march 31, 2001 and 2002

Amounts in thousands of U.S. dollars
  March 31, 2001 March 31, 2002
NET REVENUES

Service revenues, net $155,315 $228,072
Connection fees 4146 6541
Equipment sales 6842 12,991

166,303 247,604
COST OF SERVICES AND PRODUCTS

Interconnection and line rental 14,415 23,715
Roaming expenses 13,497 17,116
Cost of equipment 7299 18,118

35,211 58,949
OPERATING EXPENSES 30,029 39,846
SALES AND MARKETING EXPENSES 20,770 25,301
DEPRECIATION AND AMORTIZATION 27,304 41,008
Net operating income 52,434 82,500
CURRENCY EXCHANGE AND TRANSLATION LOSSES 624 831
OTHER EXPENSES (INCOME):

Interest income (3917) (3404)
Interest expenses, net of amounts capitalized 950 9603
Other expense (income) 561 1857
Total other expenses (income), net (2406) 8056
Income before provision for income taxes and minority interest 54,216 73,613
PROVISION FOR INCOME TAXES 23,001 26,159
MINORITY INTEREST
3594
NET INCOME $31,215 $43,860
Weighted average number of shares outstanding 1,993,326,138 1,983,399,507

Contact investor relations:

+ 7 495 223 20 25 ir@mts.ru

MTS Investor Relations
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