Mobile TeleSystems PJSC (MBT) 2014 Q2 法說會逐字稿

Good day and welcome to the Mobile TeleSystems second-quarter 2014 financial and operating results announcement conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Joshua Tulgan. Please go ahead, sir.

Welcome, everyone, to MTS's second-quarter financial and operating results conference call. Before beginning our discussion, as always, I need to remind everyone that, except for historical information, comments made during this call may constitute forward-looking statements which may involve certain risks. These statements may relate to one of the following issues: the strategic development of MTS's business activities in Russia and abroad; revenue and/or subscriber dynamics; financial indicators such as operating income before depreciation and amortization or cash flow projections; operating indicators like average revenue per user or value-added service indicators; debt instruments and their usage; legal actions or proceedings directed at the Company or its representatives; regulatory developments and their impact on the Company's operations; technical matters as they pertain to our communications networks, including equipment licensing or network technology; activities and lines of business that complement our communication networks; capital expenditures and operating expenses; and macroeconomic developments within our markets of operation.

A comprehensive overview of these issues is available in MTS's annual report and Form 20-F, which is available on our website, or through the United States Securities and Exchange Commission. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These statements may include company press releases, earnings presentations, our Form 20-F, as well as any other public filings made by the Company with the US SEC, all of which are available on the Company website, www.mtsgsm.com, or that of the SEC at www.sec.gov.

MTS disavows any obligation to update any previously made forward-looking statements as spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentations and materials used and referenced in this conference call are available on our company website.

With that, I will turn the call over to Mr. Andrei Dubovskov, President and Chief Executive Officer of MTS.

Thank you, Josh. Ladies and gentlemen, thank you for joining us on today's conference call to discuss the Company's financial and operating results for the second quarter 2014.

Joining me today are Alexey Kornya, Vice President and Chief Financial Officer; Vasyl Latsanych, our Vice President and Chief Marketing Officer; Viacheslav Nikolaev, Head of Marketing Department; and Andrei Smelkov, Vice President, International Subsidiaries.

During the quarter we increased our group revenues by 1% year-on-year to RUB98.9 billion. Realized strong growth in our core Russian market and positive dynamics in Ukraine and Turkmenistan despite macroeconomic issues. Growth in our markets, however, was offset by significant hryvnia depreciation in Ukraine and slight weakness in our Armenian market.

Our core mobile businesses remain resilient to macroeconomic factors in our markets, despite the number of factors outside the realm of our control. We've delivered positive revenue growth and strong stability in each of our markets. Judging from our competitive reporting, we are also outperforming our peers. Nevertheless, macroeconomic factors are beginning to impact our results, which will force us to revisit our guidance and outlook for the year.

And now Vasyl Latsanych will discuss our business unit performance.

Good day, ladies and gentlemen. In Q2, our Russian business grew 5% year-over-year to RUB90.4 billion. Driving this growth were exceptionally strong mobile services revenues, which increased over 6% year-over-year. Key drivers included: greater adoption of data plans and smartphone penetration among our active subscribers reached 37 percentage points; upselling existing subscribers on data plans and to higher data consumption; increase of the quality of our subscriber base as we added over 4.5 million subscribers during the year; and stable churn dynamics.

Sales of handsets and accessories including slightly year-over-year increase slightly year-over-year to RUB5.9 billion. For the quarter, revenues were slightly up due to seasonal factors. We also took decisions on further reduced low-margin wholesale through the regional dealers.

Overall, in spite of the macroeconomic factors, sales of smartphones and units increased by 52% year-over-year, a fact which continued to drive smartphones penetration in our base among lower value users. Our fixed line revenues declined slightly by 1% year-over-year to RUB15.6 billion. This dynamic, however, reflects a positive one-off effect from the recognition of our revenues from our video monitoring project in Moscow in the second quarter of year 2013. Net of this effect, we increased our revenues through the ongoing modernization of our regional network to full fiber, increased penetration of double-play and triple-play products throughout the market, the continued migration of pay-TV subscribers from analog to digital TV platform, and an increase in the number of GPON subscribers in Moscow.

By the end of the period, we were providing broadband via GPON over 360,000 households and pay-TV to over 90,000 households in Moscow. Our residential fixed line ARPU figures, which grew by 8% year-over-year, testified to our success in the integration and modernization of acquired regional businesses. Since early 2013, where active phase of modernization began, we increased our broadband footprint in the regions by 680,000 households and pay-TV footprint by 560,000 households.

And though the total number of the fixed line subscribers is declining due to the traction of so-called social package and lower value subscribers, the quality of the base is improving as we see the influx of subscribers using FTTP and digital TV solutions. We continued to see greater challenges in our Ukrainian business unit, but we deliver growth year-over-year. In our local currency its revenues grew 2% year-over-year, UAH2.56 billion as MTS expanded its subscriber base.

In Armenia, revenue fell by over 4% year-over-year to AMD18.9 billion. Macroeconomic slowdown and heightened competition are having an effect on our performance, but we maintained a leading market share. During the quarter, we responded to higher levels of competition by increasing the share of three on-net calls and data packages included in the bundles which led to a decline of our ARPU number. Sequentially, however, we improved our revenue market share in the markets.

In Turkmenistan, we continued to see positive dynamics as we increased revenues by 11% to nearly TMT69 million. Market developments have allowed us to discontinue some promotional campaigns related to our initial launch, which allowed us to increase ARPU by 7% year-over-year.

Thank you, ladies and gentlemen, and now Alexey Kornya will further discuss the Group's profitability and financial performance.

Thank you, Vasyl. In the second quarter 2014, the EBITDA declined by 3% or RUB43.2 billion. As a reminder, in the second quarter of 2013 we realized one-off gain related to the compensation we received from the settlement over Bitel. Without this effect, our EBITDA declined just slightly by 0.6%, primarily due to currency factors, namely depreciation of Ukrainian hryvnia.

Our EBITDA margin net of Bitel settlement declined year-over-year by merely 0.9 percentage points to 43.7%. In Russia, EBITDA grew by 3% year-over-year to RUB40.3 billion. This reflects our sustained revenue growth and increased of higher-margin data revenues in the revenue mix. On a quarterly basis, our EBITDA increased by 7% due to a seasonally higher contribution from roaming and B2B customers.

In Ukraine, EBITDA declined by 3% to UAH1.3 billion. During the quarter, profitability was pressured by an increase in frequency fees and high electricity costs. We also saw a currency devaluation effect on some cost items, including roaming and SIM cards, which are denominated in non-hryvnia currencies. Overall for the quarter we delivered an EBITDA margin of 49.8%, which showcases an enhanced strength of our operations.

In Armenia, EBITDA fell by 13% year-over-year to AMD9 billion. As in previous quarters, the decline in the EBITDA was related to the increase in termination rates with MTS Russia, we implemented in the fourth quarter 2013. Going forward, this will continue to weigh down on the margins, though organically the unit continues to show strong profitability.

In Turkmenistan, we delivered to EBITDA of TMT30.7 million for a margin of 44.3%. Increase in EBITDA was driven by growth in revenues and measures introduced to decrease costs including network maintenance costs and line rental fees. For the period, net income from continuing operations increased quarter on quarter by 62% to RUB21.1 billion. Primarily we benefited from a non-cash ForEx gain in the amount of RUB4.2 billion due to the ruble appreciation versus the previous quarter.

Quarterly dynamics was also aided by a lower interest expense as we redeemed the remaining amount of RUB15 billion bond and prepaid a portion of a euro-denominated facility. For the past year we have also engaged in interest rate hedging and this undoubtedly had yielded a positive effect for us.

Operating cash flows for the first six months of 2014 increased by 3% relative to the same period in 2013. Overall, free cash flow grew 4% year-over-year, but if we adjust free cash flows to exclude one-off effects from Bitel settlement in second quarter 2013, we see an adjusted free cash flow increase of nearly 12% year-over-year.

In August, the MTS Board of Directors recommended to the shareholder meeting to be held on September 30, 2014, to approve interim dividends based on the first-half 2014 results in the amount of RUB6.2 per ordinary MCS share or RUB12.4 per ADR for a total of RUB12.8 billion. The board also recommended to set the record date for the shareholders and ADR holders entitled to receive interim dividends as October 14, 2014. According to the new requirements of the Russian law, the payout will be within 25 days after the record date.

By the end of the period, our total debt increased slightly to RUB224.2 billion. Our net debt to last 12 months adjusted to EBITDA remains at a comfortable level of 0.9 multiple. Over the last quarters we achieved strong progress in debt management and minimization of interest payments. Our interest coverage ratio, based on last 12 months' EBITDA, rose from 9.6% in first quarter 2013 to 11.7% in second quarter 2014 through improvements in our EBITDA, strong debt management practices.

Overall, healthy operational trends, limited principal payments in the next 12 months, and now success in debt portfolio management places MTS in a strong position to manage the uncertain macroeconomic environment we are facing.

Now I am passing word to Andrei Smelkov.

Thank you, Alexey. I am very pleased to announce that MTS has signed a settlement agreement with Republic of Uzbekistan governing its return to the market. The agreement will establish a joint venture which will be majority-owned by MTS with the government of Uzbekistan.

The joint venture will operate using assets, equipment, and infrastructure previously owned by Uzdunrobita, our former subsidiary in the market. According to the agreement, the new venture will receive 2G, 3G, and LTE licenses, sufficient numbering capacity, and all necessary permits to enable us to start the network by the end of the year. Upon fulfillment of all of the conditions and transfer of a 50.01% stake in the joint venture to MTS, both MTS and the government of Uzbekistan will discontinue related ongoing legal precedents. The settlement will be governed by the English law.

For now we are actively working to rebuild our staff and capabilities in preparation for the transfer of assets to our new enterprise. During our third quarter that closes in November we can provide further information on the markets and our prospects. But we still believe that we can capture value in this market, one of the largest and, as of now, the most underserved markets in the CIS. Thank you.

Thank you, Andrei. It's Andrei Dubovskov. Obviously the key issue we need to address is Ukraine.

In early August we announced the cessation of operations in Crimea. In June, when regulations arose to align Crimean laws with those of the Russian Federation, it had become increasingly difficult to manage MTS Ukraine's operations. Our Ukraine subsidiary's ability to provide services was compromised by issues ranging from irregular electricity deliveries to new business regulations.

Then in early August an operator called Win-Mobile began operations in Crimea using frequencies that had been used by MTS Ukraine earlier. In this environment, despite our best efforts, it became physically impossible to continue to provide telecommunication services so we decided to suspend our business operations.

Throughout the summer we had been communicating with our clients about these increasing difficulties. [With] our network as it remains we have reduced our staff and closed operations until the political environment becomes clearer.

Since early summer, we have had increasing difficulty in parts of eastern Ukraine as well. Erratic electricity deliveries remain our main problem in areas around [Luhansk] and Donetsk, while the fighting has also damaged some network components.

However, these problems are solvable. Within 24 hours in the cessation of fighting in Sloviansk, we were able to restore our network. Naturally, we hope a peaceful resolution as soon as possible so as to safeguard the safety of our customers and employees and resume network services for so many people affected by the fighting.

Overall, it is still difficult to gauge the effect in our operations from this ongoing conflict. Crimea has accounted for close to 10% of our revenues in Ukraine in 2013, but in other areas people have obviously kept their when services are available. As soon as it is practical, we would be happy to provide more information on what impact we may see in the second half of the year. For now, however, as our results indicate, our business remains strong and we are fully committed to further developing this market.

Development in Ukraine, however, forced us to alter our full-year guidance. Given the sustained currency weakness and macroeconomic weakness, we have already seen a decline in ruble terms in our Ukraine business. While we expect Russia still to grow at the high end of our initial guidance of 3% to 5%, development in Ukraine will bring new growth to at least 1% in revenue for 2014.

We should anticipate stable EBITDA over a year. Growth in our Russian markets will be offset by the decrease in profitability in our non-Russian assets as well as the absence of certain positive one-offs we realized in 2013. Our CapEx spending should come in at RUB90 billion, which is consistent with the guidance we gave at the beginning of the year.

With that, we would like to open the call to questions, thank you.

(Operator Instructions) JP Davids, Barclays.

Good afternoon. I've got two questions, please. The first question is focused on Russia. Given the increasingly challenging macro backdrop, do you see customers in the market changing their focus from customer and quality of service to purely on price?

And related to that, clearly VimpelCom has been relatively aggressive on the average price per minute. Is this a cause for concern in terms of market share?

The second question is really around your medium-term outlook. Clearly you haven't revised that today. Can you give us a bit of color on what we should think around medium-term growth prospects? Thank you.

It's Andrei Dubovskov, thank you for that question. Talking about your third question about customer behavior, more or less you are right and this is the reason why we are not going to increase our price level. I hope you know that the trend in the market, unfortunately for our competitors, but talking about our December, we are not going to do the same.

And speaking about the minute of usage, again you are right, one of our competitors is a really aggressive in this area but MTS really much more aggressive in this area than we VimpelCom. I just want to remind you that our minute of usage in second quarter 2014 was 342 minutes. It is the highest level of minutes of usage in the Russian markets, in big three.

Second question I will pass to Alexey Kornya.

Thank you. We're not changing our medium-term outlook. We think it is too early to say anything about any potential implications for our medium-term outlook, so we maintain that at this point of time.

Thank you.

Imari Love, Morningstar.

Thanks for taking the call. Quickly on Uzbekistan, when you exited it was roughly 4.5% of your OIBDA. Where -- given that you are starting from scratch, where you see that ending up maybe four to five years from now? Roughly around that same percentage or do you think it will be a little bit lower than that going forward?

Thank you for the question. We believe that in the medium-term we would expect to see low single-digit share of revenues coming from this market.

And OIBDA?

About the same. Also the contribution from this market we expect will be both on revenue and OIBDA in the area of low single digit.

Ivan Kim, VTB Capital.

Good afternoon. On the macroeconomic outlook for the second half, do you see the corporate customers already tightening belts so to say? And do you see the budget cuts and any impact on your revenue for the second half?

Then, secondly, what percentage of your subscriber base is on MTS SMART there at the moment roughly? And when do you expect the transition to -- a more general question when you expect the transition to bundles would be mostly over? Thank you.

This is Vasyl Latsanych and I will try to answer that question. In terms of our corporate business customers, we do not see yet any tremendous moves, but we do realize that for the quarter macro going down we may see some slow down in the growth of the business segment, specifically in the area of roaming and increased data consumption.

We do believe, though, that we are set better for this, [even if] difficult climate comes, than our competitors because we do have greater connections and greater base of the big corporate market, big corporate customers which still tends to be adjusting their behavior though still compensating to the overall macro when their business is still very important. So they are not going to be falling down anyway.

In terms of the -- the second question was more about -- sorry, was it about the APPM?

No, it actual was on the percentage of your subscriber base on MTS SMART tariffs at the moment roughly and when do you think more generally transition to bundles would be over? Thank you.

Thank you for that question. To be honest for Russia, which is, in that term, a plus behind the European counterpart in the market, we do believe that this move is just beginning.

So we may be speaking at the moment for some teams' percentages going higher in some more modern parts of Russia like Moscow, St. Petersburg, big cities, and for sure lower in some rural areas. But effectively the year 2014 is the first year we have hit the market with these kind of tariffs and promoted this very heavily and actually bundled it with many handsets and made many promotional activities.

So I think some [tentative] results will due to come in 2013 because that will be the flagship of whatever we do in the market at the moment. Going for the bundled tariffs, which would secure our data revenues, which would protect our messaging revenues and at the same time give good, generous bundles to our voice customers. Those will be our major activity in the market for the rest of 2014 and 2015, so I think this question will be right to answer it somewhere in the end of 2015 when we have all of our activities worked on already and penetrated in the markets.

Thank you.

Alex Kazbegi, Renaissance Capital.

Yes, thank you. Two questions also from me. One would be on Ukraine. If you could just remind us in terms of any renewals of licenses, frequencies, anything which should be coming up over the next, so to say, 12 months which you think could potentially either be increased in price or changed or whatever the risks you might be seeing there.

The second question would be just on the margins again, just again noticing that your margin in Russia went down and you said it's due to, so to say, network expansion. Disregarding, so to say, your guidance on the EBITDA in general, do you see that as a recurring state or do you think that it is a natural expansion state when you achieve scale and those additional costs will go away and the margin will still have a potential for improvement?

With regards to that one also, in terms of overall margins, is that I think you mentioned also that on your approach to the MTS did get a bit more stringent approval of the cards. Again, is that a sign that we should possibly expect or worry about the bad debts or NPLs raising in the coming quarters or is there something else? Thank you very much.

Alex, it's Andrei Dubovskov. Thank you for your question. I'm going to talk about the first question and second question we will pass to Alexey Kornya.

According to the latest Ukrainian government decision, right now we have increased in the prices for our current frequencies band and this is the reason why our profitability in Ukraine are slightly less than in previous periods. Talking about our next licenses, 3G or others, we have no information. We have no additional information right now, but of course we are ready to invest to Ukrainian markets if this license will be in the market.

But even the 2G license, the renewal of the 2G license is not due yet, right?

Talking about our current licenses? Our frequency permissions we have no limitation, time limitation or other limitations right now.

As far as margin concerned, we see that right now in Russia margins are relatively stable with deviations within 1 percentage point. So going forward we expect that, as we have been guiding, that they will be about stable level or slightly declining, but that will be within again 1 percentage point on year. So stable or slightly within 1 percentage point reduction, that's what we expect. And that will be very much declined by top-line growth rates.

And on the cards and the provisions, do you expect any worsening there? Why stricter rules to approve new cards?

This is Vasyl and I will answer that question. In fact, we were very rapidly expanding for the last two years with our card business and POS loans business. We do see that with the rapid expansions NPL is growing and we also see that the market is tightening up and giving less credit at the moment and performing more scrutiny to the customers who come for a loan first time or who come to a loan without a good credit history.

We do believe that this is -- wasn't right in the possibilities of some economic slowdown, so we will be following -- actually we did not follow, we did initiate that suit and started off performing some scrutiny on our process of issuing the card and making sure that as we have reached certain capacity of the cards issued in the bank we do not have an increase of NPL in the future. But we rather work on the quality of our portfolio and have better customers for the future couple of quarters, which might be generally getting tight in the banking business.

Okay, very clear. Thank you very much.

Herve Drouet, HSBC.

Good afternoon, thank you. Also two questions on my side. The first one is back to Russia and looking at the guidance; you are giving some new guidance for Russia.

It looks like for the second half you expect a bit of moderations on the growth, but still something not that far off what you have done in the first half for Russia. I was wondering where do you see risk in terms of segments if the macroeconomic impact, more than it has done in H1. Do you think it will be more the mobile segments?

And do you think the fixed line segments, which now is less under decline than previously, could start maybe potentially to offset some of the pressure you may get on the mobile side? Is it your perception I'm trying to get at is my first question.

Second question is regarding your CapEx. Just wanted to check with you if your current CapEx guidance includes the start-up costs in Uzbekistan -- sorry, yes. So just to clarify that, please.

Let me start from the second and the first will answer Vasyl. On CapEx, we do not expect any material, at least this year, CapEx impact from our re-entrance in Uzbekistan so we can easily absorb it within our current CapEx guidance. So these are not material amounts, if this and when it happens.

In addition, (multiple speakers) -- sorry? It's Andrei Dubovskov. In addition, let me remind you that we are not going to invest to Uzbekistan until our financing in Uzbekistan will recover from Uzbek's credit from Uzbek's banks.

All right then. The question on the segments, the value segments and potential change in their behavior. Yes, we do believe that some of the high-mid and high segment might be affected by the economic -- the overall economic downturn. And, again, especially in their roaming charges and potentially in some other international calls and some other high-value services.

But this is why we do put a lot of efforts to penetrate the voice and data tariff plans into those segments to secure some revenue that would be inevitable to us to sustain the market share in that segment. If you take a look at our current ARPUs of being close to RUB400 to RUB450 that you will understand that this is a relatively small fraction of the expenditures of our customers. And that should not be effective in the first and in the second place whenever economical downturn goes throughout Russia. I am speaking then about the mobile business.

Meanwhile, the fixed business is, relatively speaking, even in better shape because the fixed line and the TV ARPUs in Russia are generally very low in the first place, because of the very high competition that goes there locally driven the local players. So we do have the TV ARPUs and the broadband ARPUs, as I say, already pretty much adjusted to very small spans and I don't think they have any potential for a decrease.

You would actually even see that the ARPU has increased in the recent couple of quarters on the broadband and on the TV, and that is because we are working on adjustments of our current pricing to the market level where sometimes we might be even lower than the markets. So we do not fear of being attacked in those segments because we are already performing there relative to the markets either on par or below.

Thank you. Just maybe a follow-up question just on Uzbekistan. Just wanted to check with you; will the operations be fully consolidated under MTS financials?

Yes, we will consolidate under full consolidation with the loans.

Thank you, thank you very much.

Igor Semenov, Deutsche Bank.

Thank you very much. Just wanted to ask again about Ukraine. Can you tell us a little bit more about what's going on in recent weeks?

What is the rate of the decline in the business relative to the same period last year, sort of July/early August? How more significant a decline it is compared to full Q2? Thank you.

And I'm talking about the impact in local currency.

Igor, I think there are two aspects. First, operational trends. We do not see principal change in operational trends. As we said, we will feel pressure coming from instability in macroeconomic difficult situation on the market, so we will probably see operational trends further declining. However, we are not right now in the position to quantify them.

Another factor, which is even by far more material now, group parameters is hryvnia devaluation. As we saw in recent days or recent couple weeks that it continues further devalue so it might put additional pressure on our group performance. However, we believe that our guidance already absorbs further focus of hryvnia devaluation until the year end, so we -- if it's not dramatic development in hryvnia, I think we will stay within our guidance.

Okay. And is there any update on the sanctions against Russian companies? Are you in contact with the authorities? What is their feedback and intentions, if you may talk about that? Thank you.

We don't have any other information than the information which you have, so it's just the same.

Thank you.

Ksenia Mishankina, UBS.

Thank you for the presentation. I have a few questions. Could you please indicate your CapEx guidance for full-year 2015? Do you plan any bond buybacks? And what are your issuance plans in the local market? Thank you.

Thank you. As far as our CapEx guidance, medium-term concern we are not changing at this point of time. We believe that there is relatively high uncertainty yet and we will have to see, but no change at this point of time, which is around RUB85 billion over the next couple years after 2014.

We are looking at the bond buybacks opportunistically, so if there is a good opportunity in the market, we might be doing some portional buyback. And we are not planning at this point of time any new issuance. We have -- at the end of second quarter we had more than RUB70 billion in cash reserves, so we don't need any refinancing until the year-end with all CapEx and other needs taken in the account.

Alexander Vengranovich, Otkritie Capital.

A couple of questions on Ukraine and Crimea. First, can you please explain to me the accounting of Crimean operations in the third quarter and going forward? Should there be any changes to the classification of that revenues, probably they will come to Russia or they were --? This is the first question.

Second, regarding their Ukrainian operations, what percentage of your subscriber base in Ukraine is currently affected by the military actions in the eastern Ukraine? I assume you have some technical problems regarding operating the network also there. Can you explain whether you had any shutdowns of the network (technical difficulty) actions being held?

And the third question is about the current Ukrainian hryvnia to ruble exchange rate which you assumed for your guidance Ukrainian operations for this year. Thank you.

It's a lot of questions including in one issue. First of all, I hope you understand that our current Crimean results are included in our group results right now. We are talking about our (inaudible) or -- it depends on a lot of issues which we need to take into account in the near future, including government's decision, including some issues which can appear in the near future. But right now all Crimean results are included in our group results.

Talking about the percentage of subscriber base which impacted by fighting in eastern Ukraine, it's difficult to talk about this issue because we have no information how many our current subscribers are right now located in these areas. We know that some subscribers migrating to the central Ukrainian territories, some subscribers migrating to the Russian.

Let's wait and see. I think we need to explore this situation more deeply later.

Talking about the technical problems, this is real technical problems for absence of electricity and some are other of its -- some problems with technical destroying especially in fighting regions. This is a real problem and during last some months we are talking about it with our clients and authorities.

And speaking about the hryvnia exchange rates, Alexey Kornya will talk about it.

We are forecasting and we are putting in our forecast some slight decline in hryvnia, further devalue, slight further devalue of hryvnia. We would not put the exact exchange rate hryvnia to ruble, but giving you some idea that's about UAH15 for dollar by the end of the year.

Okay, thank you.

Olga Bystrova, Credit Suisse.

Good afternoon. I have couple of questions. One is you continue to see quite strong subscriber base growth in Russia. I just wanted to see what -- on which plans do you see a majority of subscribers signing up? Is that bundles? And if it is, whether it's SMART or SMART Plus bundle, or it's a sort of per unit -- per minute/per unit usage plans?

The second question, you mentioned that you are not sort of doing the same what some other competitors are doing which you mentioned, increasing prices. Are you in this environment seeing some impact on your gross additions because of these moves of competitors? And maybe you can elaborate specifically what kind of price increases you are seeing in the market that concern you, so to speak.

The final question is on the voice revenues, some of your competitors have seen much more dramatic deterioration and invoice revenue trends. You also see deterioration, but not as material. And I was just wondering maybe you can talk to us about drivers of declining trends in voice revenues. Thank you very much.

This is Vasyl and I believe these questions are more in my area. So the first one about what is the major attraction tariff plan in our base, it has been for quite a while already that we are attracting most of our customers to our most permanent and most successful tariff for the entire 2013 as well. It is super MTS with zero or three on-net calling throughout the territory or some actions even throughout Russia.

We believe that this represents very good value for money for our customers and that is also reflected in the fact that we did not have to have the greatest cost efficiency in the market, which we believe we are not holding. We are not selling most of the new SIM cards in the market, but due to the fact that we only sell those SIM cards with the good value tariffs and we do watch very carefully that our quality of the sales is not dropping and we are having only the new real customers, active customers connected, our churn as you can see gets very low compared to the market and is very stable. And even with an increase of our market share is not increasing following that trend of the market share increase.

That means that we are not washing the base down, but we are having very high quality connections and we don't need to increase the number of the connections in that specific case. Because we do believe that the whole market might be slowly getting smaller in terms of the connections, meanwhile our share, respectively, increases but without any loss of the quality.

In terms of the customers' behavior, our super MTS tariff plan represents very good value because people can talk for free on-net, literally, as much as they want. So they don't need to seek for any better opportunity because there is no better opportunity to talk on the network then for free. Meanwhile, our off-net tariffs are very competitive and that creates a good bond between ourselves and our customers.

So this again it gets reflected in the churn figures, which you can see are not increasing and, in spite of the competition, sometimes getting more aggressive as said in the beginning of this call. Our current APPM levels based at 90 kopeks per minute and our current churn space of 9.4% churn, and we do not see any moves out there so we do not need to readjust our policy for this most successful tariff plan.

In terms of the voice and data, as you asked, this is very important tariffs plan, but as I said before for the future, we are seeing certain relatively low percentage of the new connections made with that tariff plan. And they are relatively low because we would like that to be much higher, but it's still in the -- still much below 50% and the base penetration is still much below 20% as I said before [as it seems].

We would like that to increase. We are focused on that because that secures our future revenues in all main three areas: voice, SMS and messaging, and data. Couple of competitors did increase their prices; we could see and monitor that in the market.

We did not follow this suit because we believe that at this time when people are very actively looking at what is the good opportunity in the market in terms of value for money, you should not be restraining the customers and increasing the tariff plans, especially on those customers which are with us for a long time. We did see that some of our competitors did change many tariff plans very concerning those customers that are staying with those carriers for more than a half year or sometimes even a year.

We do not follow that practice so far and we believe that that will create a good bond between us and our customers, which again gets reflected in the low churn figures.

Igor Goncharov, BCS.

Thank you very much for the presentation for the conference call. My question relates to the midterm guidance which you have reiterated during the conference call.

This guidance has been given before the public announcement of the return or resumption of the Uzbekistan operations. And as far as I remember, it was about 3% to 5% growth in revenue terms in 2015, 2016 and 2%, 3% growth in OIBDA terms. My question is: is this guidance -- this reiterated guidance should be right as our guidance of growth net of Uzbek operations or does it include the effect of consolidation or resumption of Uzbekistan operations?

At this point of time it does not include the resumption of Uzbekistan operations. It was -- it is not yet clear for when and how that happens.

Thank you very much.

Anna Lepetukhina, Sberbank.

Hello, I have two questions. My first question is whether you are able to repatriate cash from Ukraine, and if possible, when was the last time you paid dividends from Ukraine to [enter] Russia?

My second question is on CapEx. Despite lower revenues and EBITDA growth, you reiterated your CapEx at time to be the new [book]. I am just trying to understand; is it logical to assume that you will reallocate some of CapEx from Ukraine to Russia?

Also, whether it includes any potential investment in Uzbekistan that you might need to make this year and whether there is scope or scaling down investments. If macroeconomic situation will start impacting your financials in Russia in second half of the year. Thank you.

Anna, thank you. We are not facing yet any principal difficulties with capital repatriations from Ukraine. Although that is not clear how the recent law will describe the capital repatriation since the law stipulated that specific area. However, as I said, this year we are already receiving some dividends from Ukraine, a few tens of millions, and we do not, as I said, see principal obstacles to that going forward midterm.

As for reallocating CapEx from Ukraine to Russia, yes, we do consider some minor reallocation in terms of that a bit higher spend in Russia, but these are not material amounts and they are not impacting our guidance in no way.

Let me just -- Andrei Smelkov -- let me clarify situation with necessity to invest margins to Uzbekistan or absence of this [nice asset] actually. First of all, new joint venture will inherit the network from our former subsidiary, Uzdunrobita, including network of course.

Let me remind you that that network capacity was calculated for 9 million customers. Of course, now we will not get 9 million customers, at least in the first stage of our development and that means that we will need to invest a lot of money to increase capacity of our network. This is first of all.

Second of all, we are going to attract loan on the local market in Uzbekistan in order to finance our operations before we will come to EBITDA breakeven. And that means we are not going to invest externally to Uzbekistan at all. Thank you.

Thank you, but can I just ask a follow-up on CapEx in the Ukraine? So basically can we assume that you plan to invest what was guided at the beginning of the year despite the situation in Ukraine as it stands right now?

Yes.

Thank you.

(Operator Instructions) Olga Bystrova, Credit Suisse.

Thank you very much. I had a third question that wasn't answered, I think it was forgotten about. The trends in voice revenues that you see; sort if you could talk to us about drivers that you think are responsible for deterioration in those trends and whether you think it will be -- you will see worsening trends going forward from here or this is the level of growth that you are likely to see in voice revenues through the end of the year. Thank you very much.

Okay, I'm sorry. This is Vasyl. It did not really get your question. Could you please explain where you've seen those trends that you would like to get explained?

Yes. When you report numbers, you show sort of voice revenues separately from sort of service revenues and those numbers imply effectively flat voice revenues for you in the second quarter. It's a slight worsening of a trend from the first quarter. Competitors have seen much worse, so I just want to see what are you seeing on your network in terms of drivers of voice revenues and how we should think about it going forward.

All right. Well, the fact is that our voice revenue is relatively flat already a couple of quarters and we do believe this is where we did hit certain market fluctuations with our voice services. Though you would still see that our MOU, minutes of usage, goes up.

As you can see, we have increased it by 5.2 percentage points and that probably tells you that the voice gets consumed still actively and it does actually increase the consumption. The revenue impact is rather because of the increase of the free on-net or cheap calling versus the more expensive calling directions. As I said before, I will add to the international calling, long-distance calling, and some of the roaming calling.

We see our task as to secure this revenues as we do not have any significant deterioration of our voice revenue with the help of the voice and data tariff plans. Meanwhile increase the data revenues and, therefore, facilitate the increase of the total revenues of the business.

Okay. Well, thank you.

We have no further questions at this time.

Then, operator, thank you very much, ladies and gentlemen. We welcome all of you at any time to contact our Investor Relations department for further questions.

A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate everyone's interest and wish everyone a pleasant day and evening. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.