Financial Results for the Fourth Quarter and Full-Year Ended December 31, 2005

27 March 2006

Moscow, Russian Federation – March 27, 2006 – Mobile TeleSystems OJSC (“MTS” – NYSE: MBT), the largest mobile phone operator in Russia and the CIS, today announces its fourth quarter and full-year 20051 financial and operating results.

Q4 and FY 2005 Financial and Operating Results
MTS_Q4_FY_05_Mgmt_Pres.pdf (450,3 KB)

Financial Highlights

  • Consolidated revenues up 28.9% year-on-year to $5,011 million
  • Consolidated OIBDA2 up 21.2% year-on-year to $2,539 million
  • Annual OIBDA margin of 50.7%
  • Consolidated net income up 14.0% year-on-year to $1,126 million

Operating Highlights

  • Consolidated subscriber base reached 58.2 million; almost 24 million new subscribers added during 2005
  • Strong growth in subscriber additions in the fourth quarter with 7.8 million new users
  • Number one position in terms of subscribers maintained in Russia, Belarus, Turkmenistan and Uzbekistan
  • Expansion of operations in the former Soviet Union (FSU)
  • Consolidated subscriber base of 60.3 million as of February 28, 2006

Financial Summary (Unaudited)

 

US$ million

Q4

2005

Q4

2004

Change

Y-on-Y

FY

2005

FY

2004

Change

Y-on-Y

Revenues

1,332.7  

1,079.7

23.4%

5,011.0

3,887.0

28.9%

Net operating income

362.7

272.9

32.9%

1,632.0

1,419.1

15.0%

Net operating margin

27.2%

25.3%

-

32.6%

36.5%

-

Net income

242.6

174.3

39.2%

1,126.4  

987.9

14.0%

OIBDA

613.1

497.9

23.1%

2,539.1

2,094.8

21.2%

OIBDA margin

46.0%

46.1%

-

50.7%

53.9%

-

Vassily Sidorov, President and CEO of MTS, commented:

“Our main goals in 2005 were to retain leadership, integrate the business and lay the foundation for strengthening the Company’s lead in 2006-2008. The latter included executing a number of crucial integration measures, such as the full-pledged rollout of a new management system, migration of our pre-paid customers to a new billing platform, consolidation of our call centers and radical enhancement of customer service quality and other key operational processes. These measures were successfully implemented.

“Our marketing initiatives of Q4 2005 and first quarter of this year have been geared at strengthening our customers’ loyalty and, ultimately, the stabilization and growth in ARPU.

“The growth of our top-line by $1.1bn in 2005 was unrivaled by anyone in our peer group.

“The geography of our business continued to expand in 2005. At the end of the year, we operated in 82 out of 86 regions for which we hold licenses in Russia and, during the year, we expanded into Turkmenistan and Kyrgyzstan. These untapped markets offer great opportunities for growth. At the same time, expansion carries the burden of additional risk, as represented by the events in Kyrgyzstan. I would like to reaffirm our position on Bitel. We strongly believe that the seizure of Bitel’s offices was unlawful, and we will continue to defend our ownership title through courts. Currently, we have no operational control over Bitel.

“There are a number of regulatory challenges to be faced in 2006, including Calling Party Pays (CPP), Mobile Number Portability (MNP) and Mobile Virtual Network Operators (MVNOs). CPP is to be introduced on July 1, 2006, but the terms have yet to be determined by the regulators. These terms may potentially have a negative effect on our profitability, as our revenues may decrease without a similar reduction in associated costs.

“MTS remains committed to increasing shareholder value. In 2006 we will continue to focus on customer loyalty, revenue growth, operational efficiency and combining investments in growth with increasing cash returns to our shareholders.”

Operating Overview

Market Growth

2005 showed a healthy subscriber growth dynamic with strong additions in Russia and Ukraine. Mobile penetration3 in the Company’s core markets increased during the year from 51% to 87% in Russia and from 29% to 64% in Ukraine.

In particular, MTS’ seasonal promotions during the New Year and Christmas holiday period led to a strong fourth quarter, with 7.8 million in consolidated subscriber additions.

Subscriber Development

The Company added 24.0 million new customers during 2005 on a consolidated basis; its operations in Russia accounted for 17.7 million of the subscriber intake.

In Q4 alone, the Company’s consolidated subscriber base increased by 7.8 million new subscribers, with its operations in Russia adding nearly 5.4 million net new subscribers.

The Company added a further 2.1 million new subscribers since the beginning of 2006, expanding its consolidated subscriber base to 60.3 million4

Business Expansion

MTS’ operational regions in Russia increased from 76 in 2004 to 82 in 20055, with the majority added in the south of the country. In June 2005, MTS acquired BCTI, the leading mobile operator in Turkmenistan.

Market Share

The Company’s marketing and promotional activity during 2005, including a new image campaign in Russia, seasonal promotions and the launch of a new set of tariffs, helped MTS to maintain a strong position in its markets of operations.

MTS’ market share in the fourth quarter was at 35.1% in Russia, 44.5% in Ukraine, and 55.1% in Uzbekistan. MTS’ unconsolidated joint venture in Belarus had a market share of 51.6% at YE 2005.

Customer Segmentation

Mass-market subscribers continued to account for the majority of the subscriber growth in 2005. Subscriptions to MTS’ pre-paid tariff plans (Jeans in Russia, and Jeans and SIM-SIM in Ukraine) in 2005 accounted for 94% of gross additions in Russia and 95% in Ukraine.

At YE 2005, 88% of MTS’ customers in Russia and 90% of its customers in Ukraine were signed up to pre-paid tariff plans, compared to 77% and 86% respectively at YE 2004.

 

Q4 2005

Q3 2005

Q2 2005

Q1 2005

Q4 2004

Total consolidated subscribers, end of period (mln)

58.19

50.36

44.07

38.69

34.22

Russia

44.22

38.87

34.09

30.25

26.54

Ukraine

13.33

10.94

9.52

8.08

7.37

Uzbekistan

0.58

0.49

0.40

0.35

0.31

Turkmenistan

0.07

0.06

0.06

-

-

MTS Belarus6

2.13

1.85

1.61

1.40

1.21

Russia

ARPU (US$)7

7.3

8.9

9.3

9.1

11.2

MOU (minutes)

123

130

134

138

164

Churn rate (%)

5.2

2.9

6.8

6.7

6.3

SAC per gross additional subscriber (US$)

19.8

18.6

18.4

18.2

19.4

Ukraine

ARPU (US$)

9.1

10.8

10.8

10.0

12.4

MOU (minutes)

120

132

118

130

127

Churn rate (%)

6.0

6.2

5.7

5.1

1.78

SAC per gross additional subscriber (US$)

9.4

15.7

14.2

22.1

15.4


 Russia

  • Revenues up 21.6% year-on-year to $3,701 million9; fourth quarter revenues up 16.5% year-on-year to $954 million10
  • Net income increased by 1.6% year-on-year to $773 million; fourth quarter net income increased by 19.5% year-on-year to $152 million
  • OIBDA up 14.7% year-on-year to $1,877 million; fourth quarter OIBDA up 14.7% year-on-year to $428 million
  • Full year OIBDA margin of 50.7%; fourth quarter OIBDA margin of 44.8%

MTS’ average monthly minutes of usage per subscriber (MOU) in Russia decreased in the fourth quarter of 2005 to 123 minutes from 130 minutes in the third quarter (the fourth quarter is seasonally weak due to seasonal promotions and the addition of mass-market subscribers). MOU of contract11 subscribers increased from 309 minutes in Q3 to 348 minutes in Q4.

The average monthly service revenue per subscriber (ARPU) in Russia in the fourth quarter decreased sequentially to $7.3 from $8.9 in the third quarter, in line with the decline in per subscriber usage. Annual ARPU in 2005 decreased to $8.4 from $12.2 in 2004.

Subscriber acquisition cost per gross additional subscriber (SAC) in Russia in the fourth quarter increased in Russia to $19.8 from $18.6 in the third quarter due to seasonal advertising and marketing (a decline in annual SAC from $21.0 in 2004 to $18.8 in 2005).

The quarterly churn rate was 5.2% in the fourth quarter. The annual churn rate of 20.7% marked a reduction from 27.5% in 2004.

Ukraine

  • Revenues up 44.4% year-on-year to $1,202 million12; fourth quarter revenues up 37.4% year-on-year to $338 million13
  • Net income increased 44.9% year-on-year to $324 million; fourth quarter net income up 89.4% year-on-year to $82 million
  • OIBDA up 32.1% year-on-year to $585 million; fourth quarter OIBDA up by 36.5% year-on-year to $157 million
  • Full-year OIBDA margin of 48.7%; fourth quarter OIBDA margin of 46.4%

MOU decreased sequentially in Ukraine in the fourth quarter to 120 minutes from 132 minutes in the third quarter as a result of seasonal promotions, with the bulk of new subscribers added towards the end of the quarter. Annual MOU increased from 114 minutes in 2004 to 117 minutes in 2005.

ARPU in Ukraine decreased to $9.1 in the fourth quarter from $10.8 in the third quarter due to the addition of mass-market subscribers and seasonal promotions. ARPU in 2005 was $9.5 compared with $12.6 in 2004.

SAC in the fourth quarter of 2005 fell significantly to $9.4 from $15.7 in the third quarter largely reflecting the significant increase in net additions, the vast majority of which were prepaid subscribers that have a significantly lower SAC than contract subscribers. SAC for the full year 2005 decreased to $13.8 from $18.6 in 2004 as a result of the Company’s successful efforts at reducing dealer commission and handset subsidies costs.

Uzbekistan

Revenues in Uzbekistan in the fourth quarter contributed $25.5 million to the Company’s consolidated revenues (up 52.7% y-o-y), $15.5 million to its consolidated OIBDA (up 55.0% y-o-y) with an OIBDA margin of 60.6%, and $6.6 million to its consolidated net income (up 73.7% y-o-y). Fourth quarter ARPU was $15.9, down from $18.3 in the previous quarter (annual ARPU at $16.2). Fourth quarter MOU was 450 minutes, an increase from 437 minutes in the previous quarter (annual MOU at 433 minutes).

Turkmenistan

MTS’ operations in Turkmenistan contributed $17.7 million to the Company’s consolidated revenues, $13.0 million to its consolidated OIBDA (OIBDA margin of 73.7%), and $2.0 million to its consolidated net income in the fourth quarter. Fourth quarter ARPU was at $88.4, a decrease from $89.0 in the previous quarter.

Financial Position

Full year cash expenditure on property, plant and equipment amounted to $1,758.0 million, of which $1,145.4 million was invested in Russia, $571.1 million in Ukraine, and $40.0 million in Uzbekistan. MTS’ expenditure on property, plant and equipment in the fourth quarter totaled $611.6 million, of which $328.9 million was invested in Russia, $267.5 million in Ukraine, and $13.7 million in Uzbekistan.

Cash expenditure on intangible assets during the year amounted to $423.4 million ($302.5 million in Russia, $104.6 million in Ukraine and $16.3 million in Uzbekistan). MTS spent $196.7 million on the purchase of intangible assets during the fourth quarter ($136.0 million in Russia, $56.3 million in Ukraine and $4.4 million in Uzbekistan).

In line with the Company’s strategy to expand the geography of its operations, MTS continued to consolidate its operations in Russia and acquire operators in other countries. The Company spent $178.9 million (net of cash in acquired companies) on acquisitions during the year, comprised of $138.1 million in the regions of Russia and $40.8 million on acquiring the business in Turkmenistan. Of the total acquisition expenditures in 2005, $141.0 million was spent in the fourth quarter.

As of December 31, 2005, MTS’ total debt14 was at $2.85 billion, resulting in a ratio of total debt to OIBDA of 1.1 times, compared to 0.9 times in 2004. The Company’s cash and cash equivalents amounted to $78.3 million at the end of 2005 and net debt amounted to $2.74 billion.

1 Based on unaudited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (‘US GAAP’).
2 See Attachment A for definitions and reconciliation of OIBDA and OIBDA margin to their most directly comparable US GAAP financial measures.
3 The source for all market information in this press release is AC&M-Consulting.
4 As of February 28, 2006
5 Previously reported as 77 regions at YE 2004. As of December 1, 2005, there are now 88 territorial sub-divisions in Russia instead of 89, after the merger of the Perm Region and the Komi-Permyak Autonomous District into the single Perm Territory.
6 MTS owns a 49% stake in Mobile TeleSystems LLC, a mobile operator in Belarus, which is not consolidated.
7 See Attachment C for definitions of ARPU, MOU, Churn and SAC.
8 The significant decrease in the quarterly churn rate to 1.7% can be largely attributed to the adoption in Ukraine of the churn policy used by MTS in Russia, whereby pre-paid customers are defined as churning after six months of inactivity, rather than the previous three month criteria. Under the previous churn calculation, quarterly churn rate in Q4 2004 was at 7.2%.
9 Excluding intercompany eliminations of $3.4 million.
10 Excluding intercompany eliminations of $1.3 million.
11 Subscribers signed to “MTS” family of tariff plans.
12 Excluding intercompany eliminations of $8.0 million.
13 Excluding intercompany eliminations of $1.1 million.
14 Total debt is comprised of the current portion of debt, current capital lease obligations, long-term debt and long-term capital lease obligations; net debt is the difference between the total debt and cash and cash equivalents and short-term investments; see Attachment B for reconciliation of net debt to our consolidated balance sheet.

 

Attachments to the Fourth Quarter and Full-Year 2005 Earnings Press Release

Attachment A

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Operating Income Before Depreciation and Amortization (OIBDA) and OIBDA margin. OIBDA represents operating income before depreciation and amortization. OIBDA margin is defined as OIBDA as a percentage of our net revenues. Our OIBDA may not be similar to OIBDA measures of other companies; is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of mobile operators and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our OIBDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the wireless telecommunications industry. OIBDA can be reconciled to our consolidated statements of operations as follows:

 

US$ million

Q4 2005

Q4 2004

FY 2005

FY 2004

Operating income

362.7

272.9

1,632.0

1,419.1

Add: depreciation and amortization

250.4

225.0

907.1

675.7

OIBDA

613.1

497.9

2,539.1

2,094.8



US$ million

Q4 2005

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating income

233.5

115.3

8.3

5.5

Add: depreciation and amortization

194.4

41.4

7.2

7.5

OIBDA

427.9

156.7

15.5

13.0

 

US$ million

Q4 2004

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating income

195.9

72.5

4.4

n/a

Add: depreciation and amortization

177.1

42.3

5.6

n/a

OIBDA

373.0

114.8

10.0

n/a

 

US$ million

FY 2005

 

Russia

Ukraine

Uzbekistan

Turkmenistan1

Operating income

1,153.5

431.3

30.0

17.2

Add: depreciation and amortization

723.0

153.8

22.4

7.9

OIBDA

1,876.5

585.1

52.4

25.1


US$ million

FY 2004

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating income

1,096.4

318.3

4.4

n/a

Add: depreciation and amortization

540.2

124.5

11.0

n/a

OIBDA

1,636.6

442.8

15.4

n/a

 

OIBDA margin can be reconciled to our operating margin as follows:

 

Q4 2005

Q4 2004

FY 2005

FY 2004

Operating margin

27.2%

25.3%

32.6%

36.5%

Add: depreciation and amortization as a percentage
of revenue

18.8%

20.8%

18.1%

17.4%

OIBDA margin

46.0%

46.1%

50.7%

53.9%

 

US$ million

Q4 2005

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating margin

24.4%

34.1%

32.4%

31.3%

Add: depreciation and amortization as a percentage
of revenue

20.4%

12.3%

28.2%

42.4%

OIBDA margin

44.8%

46.4%

60.6%

73.7%


US$ million

Q4 2004

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating margin

24.0%

29.5%

26.5%

n/a

Add: depreciation and amortization as a percentage
of revenue

21.7%

17.2%

33.6%

n/a

OIBDA margin

45.7%

46.7%

60.1%

n/a

 

US$ million

FY 2005

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating margin

31.2%

35.9%

34.7%

51.4%

Add: depreciation and amortization as a percentage
of revenue

19.5%

12.8%

25.9%

23.6%

OIBDA margin

50.7%

48.7%

60.6%

75.0%

 

US$ million

FY 2004

 

Russia

Ukraine

Uzbekistan

Turkmenistan

Operating margin

36.0%

38.2%

16.6%

n/a

Add: depreciation and amortization as a percentage
of revenue

17.7%

15.0%

41.1%

n/a

OIBDA margin

53.7%

53.2%

57.7%

n/a

 
1 Six-months operations consolidated for FY 2005

Attachment B

Net debt can be reconciled to our consolidated balance sheets as follows:

 

US$ million

As of           December 31, 2005

As of
December 31,
2004

Current portion of debt and of capital lease obligations

768.7

379.4

Long-term debt

2,079.0

1,553.8

Capital lease obligations

2.9

3.9

Total debt

2,850.6

1,937.1

Less:

       Cash and cash equivalents

       Short-term investments

 

(78.3)

(28.1)

 

(274.2)

(73.4)

Net debt

2,744.2

1,589.5



Attachment C

Subscriber. We define a “subscriber” as an individual or organization whose account shows chargeable activity within sixty one days, or one hundred and eighty three days in the case of our Jeans brand tariff, or whose account does not have a negative balance for more than this period.

Average monthly service revenue per subscriber (ARPU). We calculate our average monthly service revenue per subscriber by dividing our service revenues for a given period, including guest roaming fees, by the average number of our subscribers during that period and dividing by the number of months in that period.

Average monthly minutes of usage per subscriber (MOU). MOU is calculated by dividing the total number of minutes of usage during a given period by the average number of our subscribers during the period and dividing by the number of months in that period.

Churn. We define our “churn” as the total number of subscribers who cease to be a “subscriber” as defined above during the period (whether involuntarily due to non-payment or voluntarily, at such subscriber’s request), expressed as a percentage of the average number of our subscribers during that period.

Subscriber acquisition cost (SAC). We define SAC as total sales and marketing expenses and handset subsidies for a given period. Sales and marketing expenses include advertising expenses and commissions to dealers. SAC per gross additional subscriber is calculated by dividing SAC during a given period by the total number of gross subscribers added by us during the period.

MOBILE TELESYSTEMS CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND THE YEARS ENDED DECEMBER 31, 2005 AND 2004

(Amounts in thousands of U.S. dollars, except share and per share amounts)

 


Three months ended Three months ended Year ended Year ended

December 31, 2005 December 31, 2004 December 31, 2005 December 31, 2004
Net operation revenue
Service revenue and connection fees 1 310 202 1 058 718 4 942 288 3 800 271
Sales of handsets and accessories 22 492 20 938 68 730 86 723

1 332 694 1 089 656 5 011 018 3 886 994
Operating expenses
Cost of service 198 117 145 617 732 867 481 097
Cost of handsets and accessories 83 525 69 318 254 606 218 590
Sales and marketing expenses 192 289 162 582 608 092 460 983
General and administrative expenses 206 308 186 132 758 729 575 296
Depreciation and amortization 250 472 224 987 907 113 675 729
Provision for doubtful accounts 14 089 9 030 50 407 26 459
Other operationg expenses 25 228 9 190 67 173 29 777
Net operating income 362 666 272 881 1 632 031 1 419 063
Currency exchange and translation losses (gains) (5 239) (3 882) (10 319) (6 529)
Other expense (income):
Interest income (2 727) (3 214) (24 828) (21 792)
Interest expenses 38 385 29 128 132 474 107 956
Other expense (income) (8 170) (11 451) (29 150) (33 456)
Total other expense (income), net 27 488 14 463 78 496 52 708
Income before provision for income taxes and minority 340 417 262 300 1 563 854 1 372 884
Provision for income taxes 91 146 85 073 410 590 354 664
Minority interest 6 626 2 970 26 859 30 342
Net income 242 645 174 257 1 126 405 987 878
Weighted average number of shares outstanding, in thousands 1 987 084 1 986 102 1 986 820 1 984 497
Earnings per share — basic and diluted 0.12 0.09 0.57 0.50


MOBILE TELESYSTEMS CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND DECEMBER 31, 2004

(Amounts in thousands of U.S. dollars, except share amounts)

 


As of December 31, 2005 As of December 31, 2004
CURRENT ASSETS:
Cash and cash equivalents $78 284 $274 150
Short-term investments 28 059 73 360
Trade receivables, net 209 320 162 525
Accounts receivable, related parties 7 661 17 768
Inventory, net 156 660 89 518
VAT receivable 398 021 272 578
Prepaid expenses and other current assets 413 248 151 056
Total current assets 1 291 253 1 040 955
PROPERTY, PLANT AND EQUIPMENT 4 482 679 3 234 318
INTANGIBLE ASSETS 1 439 362 1 208 133
INVESTMENTS IN AND ADVANCES TO ASSOCIATES 107 959 81 235
OTHER INVESTMENTS 150 000 -
OTHER ASSETS 74 527 16 546
Total assets 7 545 780 5 581 187
CURRENT LIABLITIES
Accounts payable 363 723 242 495
Accrued expenses and other current liabilities  749 600 591 058
Accounts payable, related parties 40 829 17 009
Current portion of long-term debt, capital lease obligations 768 674 379 406
Total current liabilities 1 922 826 1 229 968
LONG-TERM LIABILITIES
Long-term debt 2 078 955 1 553 795
Capital lease obligations 2 928 3 947
Deferred income taxes 158 414 160 390
Deferred revenue and other 57 824 47 665
Total long-term liabilities 2 298 121 1 765 797
Total liabilities 4 220 947 2 995 765
COMMITMENTS AND CONTINGENCIES  —  —
MINORITY INTEREST 30 744 62 099
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 December 31, 2005 and December 31, 2004, 763,554,870 of which are in the form of ADS as of December 31, 2005 and 432,414,940 — as of December 31, 2004) 50 558 50 558
Treasury stock (5,400,486 common shares at cost as of December 31, 2005 and 7,202,108 — as of December 31, 2004) (5 534) (7 396)
Additional paid-in capital 568 104 564 160
Unearned compensation (1 210) (1 780)
Shareholder receivable (7 182) (18 237)
Accumulated other comprehensive income 50 614 22 444
Retained earnings 2 638 739 1 913 574
Total shareholders’ equity 3 294 089 2 523 323
Total liabilities and shareholders’ equity 7 545 780 5 581 187


MOBILE TELESYSTEMS CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004

 


Nine months ended December 31, 2005 Nine months ended December 31, 2004
CASH FLOWS FROM OPERATIONG ACTIVITIES:
Net income $1 126 405 $987 878
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest 26 859 30 342
Depreciation and amortization 907 113 675 729
Amortization of deffered connection fees (44 207) (46 978)
Equity in net income of associates (39 522) (24 146)
Provision for obsolete inventory 9 112 4 610
Provision for doubtful accounts 50 407 26 459
Deferred taxes (64 959) (76 023)
Non-cash expenses associated with stock bonus options 1 400 900 
Changes in operation assets and liabilities:
Increase in accounts receivable (86 008) (101 223)
Increase in inventory (74 557) (24 179)
Increase in prepaid expenses and other current assets (163 630) (18 571)
Increase in VAT receivable (125 186) (55 044)
Increase in trade accounts payable, accrued liabilities and other 274 153 331 835
Net cash provided by operationg activities 1 797 380 1 711 958
CASH FLOWS FROM INVESTING ACTIVITIES:
TAIF Telcom call option exercise
Acquisition of subsidiaries, net of cash acquired (178 917) (355 744)
Purchase of property, plant and equipment (1 757 980) (1 204 400)
Purchase of intangible assets (423 367) (154 544)
Purchase of short-term investments (37 375) (114 440)
Proceeds from sale of short-term investments 82 724 286 340
Proceeds of other investments (150 000)
Investments in and advances to associates 12 789 (413)
Net cash used in investing activities (2 452 117) (1 543 201)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised  4 256 4 049
Proceeds from notes issue 398 944
Repayment of notes  — (600 000)
Notes issuance/loans agreement costs (59 163) (12 039)
Capital lease obligation principal paid (8 129) (15 274)
Dividends paid (407 210) (232 662)
Proceeds from loans 1 012 613 1 177 556
Loan principal paid (491 481) (320 511)
Payments from shareholders 11 698 9 654
Net cash provided/(used) in financinf activities 461 528 10 773 
Effect of exchange rate changes on cash and cash equivalents (2 657) 4 613
NET INCREASE IN CASH AND CASH EQUIVALENTS (195 866) 183 774
CASH AND CASH EQUIVALENTS, at beginning of period 274 150 90 376
CASH AND CASH EQUIVALENTS, at end of period 78 284 274 150


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