Mobile services

Russia's MTS Upbeat on Sales as Profits Dip

Russia's MTS is sticking to guidance that revenues will increase this year after flagging growth in the second quarter fueled by smartphone sales and rising usage of mobile data services.

The operator, which remains Russia's biggest mobile service provider, has been hit by economic turmoil in the region as well as fighting in Ukraine -- its second-biggest market -- but has continued to report revenue growth over the first half of the year in line with full-year targets. (See MTS Braced for Ruble Trouble and MTS's Russian Resolution.)

Mobile TeleSystems OJSC (MTS) (NYSE: MBT) is guiding for a revenue increase of 2% this year, as well as growth of 3% in Russia, and saw its sales rise by 3.9% in the second quarter, to 102.7 billion Russian rubles ($1.56 billion), compared with the same period last year.

Even so, the operator blamed its various challenges for a fall in operating income before depreciation and amortization (OIBDA), with its OIBDA margin shrinking to 41.6% from 44.2% in the second quarter of 2014.

"This reduction from last year is due largely to a lower contribution from our Ukraine business given the cessation of operations in Crimea, ongoing turbulence in the east of Ukraine and hyrvnia devaluation, as well as costs related to our relaunch in Uzbekistan," said Andrei Dubovskov, the CEO of MTS.

MTS claimed to have shut down its Crimean network after Russia annexed the region in March last year, while its business in the east of Ukraine has been affected by the fighting between pro-Russian separatists and Ukrainian government troops.

In the meantime, the hyrvna -- the Ukrainian currency -- has continued to suffer, losing value against the Russian ruble.

As noted by Dubovskov, MTS has also incurred extra costs as a result of its recent re-entry into the Uzbek market, which it quit in 2012 following a dispute with local authorities.

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In a presentation of its results, MTS said the OIBDA decline also reflected a bigger contribution from handset sales to overall revenues than in the same period last year, although it remains confident its full-year OIBDA margin will exceed 40%.

Pressure on OIBDA triggered a 21.7% drop in net income, to RUB17.1 billion ($260 million), compared with the second quarter of 2014.

While costs have been mounting, MTS has been able to continue attracting customers in Russia, which accounted for 92% of second-quarter revenues and where its subscriber base grew to 75.4 million from 74.5 million in the year-earlier quarter.

In Ukraine, the operator's customer base shrank to 20.3 million, from 22.3 million in the year-earlier quarter, with revenues falling by 8.5%, to 683 million Ukrainian hyrvnia ($30.9 million), over the same period.

Hoping to attract more customers to its mobile data plans, MTS is spending heavily on the rollout of 3G and 4G networks in Ukraine and Russia respectively and invested RUB53.6 billion ($810 million) in capital expenditure over the first six months of the year.

The operator has raised capex guidance for the full year to about RUB92 billion ($1.4 billion), from a previous forecast of RUB85 billion ($1.29 billion), to reflect additional 3G investments in Ukraine.

Capex last year amounted to RUB92.6 billion in total.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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