Mobile TeleSystems PJSC (MBT) 2014 Q3 法說會逐字稿

Good day and welcome to the Mobile TeleSystems third 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.

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

Joining me today are of course Mr. Andrei Dubovskov, the President and Chief Executive Officer of MTS; Alexey Kornya, Vice President -- excuse me.

Before we begin our discussion today, I would like to remind anyone that except for any historical information, comments made during the call may constitute forward-looking statements. These may involve certain risks. They may relate to one of the following issues. The strategic development of MTS' business activities, both 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 services indicators; debt instruments and their usage; legal actions or proceedings directed at the Company or its representatives; regulatory developments and the impact on the Company's operations; technical matters as they pertain to our communications networks, including equipment licensing or network technologies; activities in lines of businesses that complement our communications networks; capital expenditures and operating expense; and macroeconomic developments within our markets of operation.

A comprehensive overview of these issues is available in MTS' annual report and Form 20-F which is available on our website or through the website of the US SEC. 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, the aforementioned Form 20-F as well as any other public filings made by the Company with the United States Securities and Exchange Commission, all of which are available on the company website, www.mtsgsm.com or that of the SEC, www.sec.gov.

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

And with that, I'll turn this over to Mr. Andrei Dubovskov, President and CEO of MTS.

So, ladies and gentlemen, thank you for joining us on today's conference call to discuss the Company's financial and operating results for the third quarter 2014. Joining me today are Alexey Kornya, Vice President and Chief Financial Officer and Vasyl Latsanych, Vice President, Chief Marketing Officer.

During the quarter, we increased our Group revenue by 3.6% year over year to RUB107.1b. We witnessed revenue growth in Russia, Ukraine and Turkmenistan but registered a slight decline in Armenia. As in Q2, hryvnia devaluation and the weakening ruble impacted our Group performance.

Third quarter is traditionally the strongest for MTS. During this quarter, we managed to (inaudible) the pace of growth in Russia by building on the strength of our platform, increased quality of our data networks through the extension of 3G and LTE, continued excellence in customer service, sensible commercial policies aimed at increasing usage, the (inaudible) leading value proposition on integrated voice and data tariff plan, and the strength of our retail operations and activity to promote sales for affordable smartphones.

As our competitors have already reported their results for the period, we can add that that despite economic uncertainty and changes in the competitive landscape, MTS strengthened its leadership in the Russian market. However, we continue to see medium and long-term risks for our business based on the market economic uncertainty which I will address later in this call.

Now, Vasyl will discuss our business unit performance.

Good day, ladies and gentlemen. In Q3, we saw very strong growth in our Russian business unit with revenues improving by 8.4 percentage points year over year to RUB99.2b. The growth was attributable to exceptionally strong performance in our mobile operations where revenues grew 9.1% year over year. The growth was driven by continued subscriber migration from feature phones to smartphones as smartphone penetration in our active base reached almost 40%; success of our Smart family of tariffs which allows us to upsell existing subscribers on data plans by stimulating consumption of data products; continued growth of messaging as we increased sales of SMS bundles; growing penetration of tablets, as the number of tablets in our network increased by 35% year over year; expansion of the subscriber base as we added 5.95m subscribers during the period and high-quality subscriber additions as demonstrated by positive dynamics in ARPU and sustained lower level of churn in the market.

Quarter on quarter, our revenues rose by 9.1% as we benefited from seasonally strong roaming revenues and an increase in subscriber base. Sales of handsets and accessories increased by 9.7% year over year to RUB7.8b. Year over year, sales of smartphones and units improved by 20% while sales of tablets in units grew 4.3 times. Our handsets revenue was also boosted by sales of different models of iPhones in our store but the sale of less expensive devices continued to fuel our retail growth.

On a quarterly basis, our retail sales grew by 32.9% due to seasonal factors and expansion of our non-franchise retail chain by [50] additional stores.

Our fixed line revenue grew by 2.7% year over year to RUB15.8m. Revenue dynamics were impacted by modernization and expansion of our networks in the regions as we replaced outdated ADSL lines with FTTB connections, growing penetration of double play and triple play products in our base, migration of pay TV subscribers from analog to digital TV platform and migration of ADSL customers in Moscow to GPON and additions of new GPON subscribers in B2C and B2B segments.

Year over year, we saw an increase in the residential ARPU of 6.1%. We attribute this uplift so service improvements and our focus on promoting double/triple play offerings. As in the previous quarters, decline in our subscriber base was impacted by defection of so-called social package and lower value subscribers and a decline in the number of fixed telephony subscribers in Moscow.

By the end of the year, we aim to enhance our presence in the pay TV market by launching sales of satellite TV services under the MTS brand. We will offer satellite TV subscribers 160 TV channels including 30 high definition channels available in six languages. By offering a set-top box with an integrated MTS SIM card, we can offer customers a variety of value-added services including delayed viewing, pausing, video on demand and interactive TV guides and internet Wi-Fi access.

We believe that MTS is uniquely positioned to succeed in this market through the strength of our brands, the quality and diversity of our content portfolio, our retail platform and existing customer service capabilities.

In Ukraine, we continued to see volatility brought by -- brought on by macroeconomic factors as the political issues in eastern Ukraine progress. Despite reduction in domestic voice, SMS and data usage, we did see seasonally strong revenue growth in the market of nearly 7% year over year. The decline in usage was offset by growth of our international calling and roaming revenues.

In Armenia, revenue fell by 2% year over year to AMD22.1b. The decline reflects the overall macroeconomic slowdown in the region and sustained competitive pressure. Despite the challenge of this environment MTS managed to grow its market share primarily through increasing the share of free on-net calls and data packages included in bundled carrier plans. This is reflected in the ARPU numbers which declined by 6.3% year over year. Growing increase in revenues is attributable to seasonally high roaming and international calling revenues and regulatory decision to increase termination rates for international calling starting from Q3 2014.

In Turkmenistan, revenues improved by 1.9% to TMT71.5m. The growth as driven by higher consumption of data services due to data networks modernization.

And now, Alexey Kornya will further discuss the Group's profitability and financial performance.

Thank you, Vasyl. In the third quarter of 2014, adjusted OIBDA increased by 4.1% to RUB48.2b. Our growth in OIBDA reflects many factors including top-line revenue dynamics in each of our markets of operation, the effect of the steadily rising contribution from data revenues in Russia, the impact of hryvnia and ruble depreciation on our operating expenses, increased taxes and spectrum fees in Ukraine, the declining share of sales and marketing costs and rising G&A costs due to enhancement of our mobile and fixed network in Russia and inflationary pressure.

On a quarterly basis, adjusted OIBDA grew by 11.5% which was largely driven by seasonally higher roaming revenues and higher-quality subscriber additions while maintaining steady sales marketing expenses and personnel costs. Overall, our adjusted OIBDA margin came at 45%.

In Russia, OIBDA grew by 9.4% year over year to RUB45.4b. This reflects both strong growth in mobile service revenues and an increased contribution from high-margin data revenues.

On a quarterly basis, OIBDA increased by 12.7% due to seasonal factors including higher contribution from roaming. This translates into margin of 45.8%, the highest number we have registered in our Russian business since early 2009.

In the Ukraine, OIBDA declined by 10.7% year over year to UAH1.2b. Profitability was under pressure due to increased taxes and frequency fees, higher payroll, electricity and site rental costs and the impact of the currency devaluation on the cost items, including roaming and SIM cards, denominated in foreign currencies. However, the biggest impact came from non-reimbursable related taxes which we were compelled to expense. For the quarter we delivered an OIBDA margin of 42.9%.

In Armenia, OIBDA fell by 1.6% year over year to AMD12.1b. As in previous quarters, the decline in OIBDA was related to the increase in termination rates with MTS Russia we implemented in fourth quarter 2013. But on a quarterly basis, the OIBDA grew by 33% driven by traditionally higher roaming revenues and regulatory decision to increase termination rates on international calling from July 2014. The combination of these factors allowed us to deliver a strong OIBDA margin of 54.6%.

In Turkmenistan, we delivered OIBDA of TMT29.9m for the margin of 41.8%. Year over year, our OIBDA improved by 11.2%, driven by our efforts to decrease costs, including network maintenance costs and changes in taxation policies.

For the period, net income declined quarter on quarter by 23.8% to RUB16.1b. In fourth quarter 2013, we registered a non-cash ForEx loss in the amount of RUB9.5b from revaluation of the foreign currency denominated portion of debt portfolio after significant ruble depreciation.

The quarterly decline in bottom line was more pronounced as in the second quarter we had a non-cash ForEx gain in the amount of RUB4.2b due to strengthening of the ruble.

Despite macroeconomic weakness across our markets, MTS continues to generate stable operating cash flows. Our free cash flows for the first nine months of 2014 declined by 11.7% compared to the previous period, but in second quarter 2013, we benefited from a one-off gain from the settlement over Bitel.

Adjusted for this factor, our free cash flow was down just 7% but this drop can be explained by higher CapEx spending in third quarter 2014. For the first nine months 2014, CapEx was higher at over RUB53b or at a pace higher than in 2013. However, during the quarter, we prepaid for a high amount of non-ruble denominated equipment in anticipation of further weakening of the ruble.

By the end of the period, our total debt amounted to RUB233.8b. Our net debt to last-12-months OIBDA ratio was 0.9 and remained at a low level by industry standards.

In October, we signed an agreement with our longstanding partner Sberbank to open a non-revolving line on credit for total amount of RUB50b and maturity in September 2021. We also amended an increasing credit agreement with Sberbank in the amount of RUB20b by extending maturity until September 2017.

Obviously, we consider it as a testament of our core financial strength and deep relations with our banking partners to be able to conclude financing agreements in this challenging environment.

Overall, strong performance of our core mobile and fixed businesses, limited debt repayments in the next quarters and our success in debt portfolio management allows us to face deterioration in macroeconomic environment and reducde liquidity in the capital market with confidence.

It's Andrei Dubovskov, Alexey. In Q2, there is certain macroeconomic risks we see in our markets. While we do not see interfering effects so far, we do continue to look at ways which the overall economy may impact our business going forward.

It's difficult to forecast what the ongoing trends may be in core markets of Russia and Ukraine. But we feel comfortable at this stage raising our guidance for 2014.

As we detail in the accompanying presentation, we expect strength in the Russian market and strong performances in Ukraine and Armenia to lift revenue by at least 2% for the year. Russia will see around 5% of growth to this based around strong performance in the mobile market.

In spite of the volatility in the ruble we are seeing in Q4, we do expect Group OIBDA to improve by approximately 1%. So as we have for years mitigated exposure to foreign currency expenses in our OpEx, we continue to have high as 10% of expenses in foreign currency in our various markets.

Likewise, CapEx remains on track at roughly RUB90b. However, this number could change due to the currency fluctuation. Next week, we are on track to launch our operation in Uzbekistan. As we announced previously, we are resuming operations in the attractive market through a joint venture with some Uzbek government agency.

We remain optimistic that we can recapture a piece of this attractive market but the speed at which we are operating coupled with the rush to launch prior to the holiday period, gives us caution in providing any guidance for the future. We will elaborate on this more fully in our end of year disclosure next March.

And this is one of the important news. On a technical matter, we have amended our reporting to show three months activity among our subscribers in Russia and our other markets. Historically, MTS has shown six months active subscribers numbers in calculating the subscriber base, ARPU, MOU and other metrics. This approach has matched our churn policy and reflected legacy issues in the marketplace.

(Inaudible) for easy comparisons, we have also amended subscriber numbers in the related calculations from Q1 2013 to reflect this change.

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

(Operator Instructions). JP Davids, Barclays.

Good afternoon. I've got two questions please. The first question is around Russia and specifically on LTE. Can you talk about whether you are seeing -- to what extent, users that are adopting LTE are moving to higher data bundles? And if you can provide a little bit of color around how big the upgrades have been?

Related to that, your drive to this point has been on less expensive smartphone handsets. Do you think you might shift more towards pushing 4G handsets into the market?

Separately, just to check on MTS Bank, you recently provided a little bit more capital into MTS Bank. Have you got any other funding commitments over the next 12 months? Thank you.

Yes, thank you for the question. It's Andrei Dubovskov. I'm going to talk about the first question and second question about the MTS Bank, Vasyl are ready to talk about it.

Speaking about our LTE network. First of all, I just want to remind you that we are going to have a really good coverage till the end of this year to approximately 600 cities across Russia in all Russian regions. That means that we will be the number one, speaking about the coverage and speaking about the quality in Russian LTE network. At the same time, as you know, we are going to increase smartphone penetration.

And first of all, you're absolutely right, it will be LTE handsets. But you know it's a little bit some tricky question because right now LTE handsets are expensive for the Russian market. And at the same time, 3G handsets can be -- speaking about the price of 3G handsets can be less than $100.

And that's a good situation for us because we can (inaudible) to increase the presence of 3G smartphones in our monobrand shops but at the same time, we have no possibility to radically increase LTE smartphones in our network.

But I'm absolutely sure that in the near future maybe till the summer next year, we will see a lot of new smartphones will be approximately the same, speaking about the price, like 3G smartphones. It can increase the smartphone penetration, first of all, LTE smartphone from current level of 6%, 7% to 30%, 40%. And at the end of the day, I think that 3G smartphone penetration will be approximately 70%, 80% till the next year, till the end of next year. And LTE smartphone penetration will be approximately 20%, 25% the same period.

But of course, there are key problems -- not key problems, but the key message for us, it's data bundled tariffs. We are going to substitute our current tariffs and zero net (inaudible) by voice and data carriers. With very high smartphone penetration which we aim at, we hope that the data revenue in the next year will be not less than in current year, despite the macroeconomic factors and the other challenges.

Maybe we can support approximately the same growth of data revenue like in this year. And the next question about the MTS Bank, Vasyl, please.

Thank you, Andrei. That's a simple question. We don't have any commitments for the next upcoming periods. What we did was supplement for the liquidity at the bank in the current period. But there are no other commitments that we would be putting into our plans for the next long period.

Thank you.

Alexander Vengranovich, Otkritie Capital.

Yes, hi, good afternoon. Two questions from my side. First on the higher usage of voice. So we see that third quarter was really strong and probably unusually strong. So can you please elaborate what exactly was driving the high usage this quarter?

And the second question here, after the second quarter, you've actually downgraded your guidance now we see that you are improving your guidance once again. What really happened in the third quarter which made you change your mind for -- it looks like something unexpected happened and which dramatically improved your results and probably your vision till the end of the year? So can you please elaborate on this? Thanks.

Hi, Alexander, this is Vasyl. The first question is relatively simple. The increase -- sharp increase in MOU and ARPU is the direct result of the six month to three month base calculation migration. So before, we have reported six months and now we report three month base. That has changed the base for calculation of minutes of use and ARPUs.

The second question is about the guidance. Well, first of all, the guidance -- the whole market is volatile. So the guidance in the beginning of the year, we have made, was really a pessimistic one. Now we have some more optimism after the results for the third quarter. That's why we are slightly improving the guidance. But as you can see, there are mostly the results of this third quarter that improve the overall yearly performance which we guide to.

So as far as I understand, the improvement came not only because you changed your -- in terms of revenue terms, that didn't have any effect. The methodology of the calculation of the subscribers obviously didn't have any effect on your revenues. And we see that there is definitely an improvement of the voice revenues. What was driving that improvement? So, was that purely additions or -- so we also see that ARPU is growing. So this should definitely be explained not only by the changes in the methodology. So I just do not get it.

Okay, Alexander, I'll try to then elaborate a little on that question, a little more on that question. We have seen the base growth -- the annual base growth of almost 6m customers Q3 over Q3 previous year. At the same time, we did see an uplift in the usage. So therefore, these two factors have concluded to the growth of the overall minutes sold to the customers and respectively the ARPU plus it was also under effect of six month to three month base calculation migration.

But in fact, we did sell more minutes and we did have more customers in that period of time. So the third quarter came up strong in the voice revenue and also respectively strong in the interconnect revenues and even roaming revenues were strong in the Q3.

So basically third quarter was better than you expected after the end of the second quarter, correct?

Well, pretty much obviously. If you can see our guidance for the whole year, we did not expect Q3 to be that strong. And that is the result -- that results into a slight overview of our guidance for the rest of the year.

Thank you.

Alex Balakhnin, Goldman Sachs.

Yes, good afternoon. Two questions from me. One is on the fixed line business performance. I recall in the Investor Day in the beginning of the year you mentioned that you expected quite a good dynamics for MGTS between 2013 and 2016, and so far, the fixed-line business is stagnating, I would say. Is this temporary performance and you expect a turnaround any time soon, or you may update us on your expectations on MGTS?

My second question, to the extent you can share, is you mentioned the new borrowings and renewals of the debt facilities. Can you update us probably not necessarily quantitatively but qualitatively on the borrow rates you agreed with with the banks? Thank you.

On the first question, MGTS, what we see is a continuous trend of decrease of the voice line usage throughout Moscow. Basically, that's the overall trend for Russia, but we operate in Moscow, so we know that trend for Moscow, which we try hard to replace by broadband and TV sales.

In fact, we have seen both broadband and specifically TV sales increase in Moscow during the last couple of quarters, and we managed to replace the loss of the voice revenue with the new revenue coming from these two new services. Overall, we do not expect voice revenue to increase in MGTS, and the future of MGTS revenue increase is totally a factor of the GPON network, aggressive sales and more customers connecting to broadband and to TV offerings at MGTS.

As far as debt and the terms of our borrowings are concerned, we are not disclosing the exact parameters, although you might see it later when we do 20-F. I just can say that on one side that reflects the changed macroeconomic environment. On the other side, we believe that we shift very strong results in initiation and in timely setting the deal with our bank partners.

Thank you. And just a very quick follow up on my first question. So at the Investor Day you mentioned in the presentation that you plan to add something like RUB10b incremental revenues between 2013 and 2016 in MGTS. Does this plan stay, or given the path of the voice -- of traditional voice revenue erosion, do you think it may be a little bit ambitious?

Okay, thank you, Alex. Well, I do recall that we had very strong expectations from MGTS business growth, which constituted of several factors, including the ones that I have mentioned before and also some of the B2B and B2G contracts that we expected to be available for us throughout the next couple of years.

While we probably have to admit that due to volatility of the market and weakening of the economy, some of -- the overall economy, some of the B2B and B2G businesses would not be available or would be delayed to our business. So potentially the growth that was projected will not turn out as high as it was expected, but we do still manage to grow that business, mostly due to B2C business offerings and unfold of our GPON network.

And, Alex, so let me remind you -- I just want to attract your attention to the fact that right now we have very big differences between the current capacity of our GPON network in Moscow and our current subscriber base, more than five times. Approximately 3m households we are covered right now, and no more than 0.5m subscribers, broadband -- I mean broadband subscribers. That means we have all possibilities already to increase the penetration of our current network. It leads us to increase our revenue growth.

Thanks, team, that's very clear. Thanks.

Herve Drouet, HSBC.

Yes, good afternoon. Two questions, as well, from my side. The first one is on the margins. I've been surprised in Russia how healthy your margins have remained, despite the currency weakness of the ruble. I was wondering, do you expect those margins to stay at those levels looking forward? At the moment, is there not any inflationary pressure you see either on wages, either on costs which are in foreign currency? I'm quite surprised by the very healthy margins you've disclosed in third quarter in Russia in the current macro environment. So just want to get a bit of maybe more color on that.

And on the other side, in Ukraine, where we've seen some kind of margins pressure, do you think there could be some stabilization on the other side in Ukraine from now, compared with relatively weaker margins we've seen in Ukraine?

And my second question is on the roaming and the impact on roaming and the international roaming. I was wondering if you can disclose any figures of how much the international roaming was this quarter and how it compared before with last year, if you seasonally adjust it. Have you seen a higher portion of the international roaming coming through compared with Q3 last year?

Thank you for your question. I think while analyzing margins, one should differentiate the trends which we expect to see and which we will see in the Ukraine and in Russia. In Ukraine, we had in the third quarter a one-off factor related to tax effect, which we will -- might not probably see further on. However, generally, we will see pressure coming on the Ukraine margin, coming from devaluation, coming from general macroeconomic weak situation and instability in the environment.

While in Russia, we expect to see more stable cost environment, although, of course, we will see and realize also a strong devaluation effect coming through the fourth quarter, in particular on our margin, and one should also remember that third quarter is seasonally the highest period of margins. That is why, while the fourth quarter and the first quarter are usually weaker, both in revenue terms and in the margin, that is why we would see some decline, clearly.

And we expect even to see in the fourth quarter some decline on a year-on-year basis on the Group level, which is reflected partially in our guidance. Looking forward for in the midterm perspective, I would say we will see in Russia more kind of stable margins, some variation within one percentage point, probably, but not strong decline, while in Ukraine we'll see more pressure on the margins, which will put pressure on the Group performance.

And here is Vasyl on the question of international roaming. Well, I can't disclose the numbers right now, but the roaming, both in terms of users and usage and charges this year in Q3 was higher than in Q3 2013. So overall, we did have more revenue coming from that side, but please remember that 2013 Q3 was relatively high, and 2014 Q3 was, again, the peak of the roaming season due to [toys] and migration.

So, in fact, we did see that high peak in 2014 Q3, which is not sustainable throughout the year, because this is seasonal. And the season this year obviously was a bit higher than the previous year, so we did see an increase in these charges -- the numbers I don't have with me at the moment.

All right, okay, and just --

If I may --

Yes?

If I may just follow up on the margin question, quick one, I want to stress that while looking and analyzing our margin performance, we're of course focusing on absolute OIBDA dynamics. We believe what is important is dynamic and growth in absolute terms of our OIBDA. That, it is our predominant focus, and we are guiding this year that we, despite the high volatility in the markets and devaluation, will be able to provide growth in absolute OIBDA and that the same target for us would be midterm going forward.

All right. Thanks for all that. And just a quick follow up, could you tell us a bit, this one-off in Ukraine that happened in Q3, by how much was the amount on the OIBDA?

Pardon?

The one-off you mentioned for Ukraine in Q3? Could you give us a bit of more -- what the size it was for just this one-off in Ukraine on the OIBDA, on the tax?

Well, our tax expense went up by four times in the third quarter comparatively to the second quarter, so it was quite sizable. It was a few percentage points in terms of margin impact.

All right. Thank you. Thank you very much.

Dalibor Vavruska, Citi.

Hello. Good evening. I have two questions, if I may. One is, just could you remind us about the management performance KPIs? In particular, whether the Russian business KPIs also matter for the top management or whether it's just the Group numbers.

And the second question is on CapEx. I think we talked in the past periods about there are reasons not to increase CapEx or we get this impression that investors may be becoming a little more rational on CapEx. I'm just wondering if you can give us an update this quarter on how you see the CapEx going forward, and whether you see maybe that situation, competition on the CapEx front coming down, given the economic uncertainties. Thank you.

Dalibor, good to hear you. It's Andrei Dubovskov. So speaking about our KPIs, it's a very (inaudible) situation when our management team, first of all, that our leadership position, at the same time, a really big share of KPIs, it's free cash flow, because it's related to our possibilities to pay dividends. You know that approximately one year ago, a change at our dividend policy -- right now, our dividend is based on our free cash flow, and that's the reason why one of the important KPIs in the management team is free cash flow.

Talking about our CapEx, this is no changes in our forecast. We are going to spend approximately RUB80b or RUB85b in 2015. As you know, we made a prepayment to our vendors for the next year development, and it means that in 2015, we are going to spend our financial resources just for construction, not for new equipment.

It means that in natural numbers, we are going to construct in 2015 approximately the same network, same development, like we planned earlier. But it's led us to slightly less capital expenditure than in 2014.

Okay, thank you. Thank you.

[Ksenia Mishankina], UBS.

Hi. This is Ksenia Mishankina from UBS. Thank you for the presentation. I have several questions. There were rumors in the press about potential sale a 15% stake in MTS by Sistema. Could you please comment on that, and also, could you please outline your borrowing plans for next year? Thank you.

We cannot comment on rumors, and in particular related not to us but to our shareholders. We don't know anything about that.

Okay, thank you. And could you please outline your borrowing plan for next year?

Yes, for the next year, we have about RUB20b for refinancing, and thanks to the restructuring, which we have earlier this year, we reduced the overall amount due for refinancing for the end of next year. That gives us some flexibility, so in 2015, out of those RUB20b, we'll have either prolonged debt agreements or refinanced them. There are different options possible, and we have quite a strong cash flow, including free cash flow, in order to ensure our financial stability in the next year.

Okay, thanks.

(Operator Instructions). Anna Lepetukhina, Sberbank.

Yes, hello. I have several questions. My first question is on CapEx. I just want to understand, given that you are prepaying for 2015 and you guide the same RUB90b CapEx for this year, it implies that you intend to spend less, especially given that even if we look year to date to third quarter, ruble already witnessed weakness. So I'm just trying to understand where exactly you are scaling down investments, whether it is only in Ukraine, or you are kind of postponing some projects also in Russia?

My second question is on intercompany eliminations. In the third quarter, they increased quite substantially, and so as far as I understand, it can be driven by increase in calling volume between countries, so can you please explain what exactly was the reason for this? And my third and last question is you mentioned that in Ukraine you saw boost as a result of international calling and roaming revenues.

APPM we can see increased substantially in Ukraine, so for how long do you think this situation is sustainable and it can support revenues in Ukraine? Thank you.

So, Anna, it's Andrei Dubovskov, and talking about our CapEx. As we described earlier, you know that we have three main areas which spend in our financial resources, first of all our usual development in 2G 3G networks and other secondary it's new areas for us. It's LTE development, and (inaudible) area. You know that more than tow last years, we are developing our GPON network in Moscow.

And according to this situation, you know that we are going to finalize our 2G and 3G development until the end of this year. We are going to finalize our LTE network at least just until the summer of next year, and as you know, right now, you have approximately 3m households in Moscow covered by GPON technology. It means that in nearer future, maybe in two, three quarters, we can finalize -- we are going to finalize our GPON development in Moscow.

It means we have all possibilities to decrease not radically but slightly decrease our capital expenditure in Russia. At the same time, you know that right now we have no 3G license in Ukraine. It means that we are not going to spend a lot of money to Ukraine's network. Maybe we will some have expenses in Uzbekistan, but of course, it will not be a very big size. It will be not sizable impact.

Alexey. Let me take the second one, on intercompany eliminations. Yes, you are right. We saw an increased volume of traffic between countries constituting our Group, which drove an increase in intercompany eliminations.

This is Vasyl. I'll take the third question. Excuse me?

Yes, I just wanted to follow up, but between which countries and to which extent it boosted revenues of which country?

Well, I think it's just overall volume which grew across our business, depending on the materiality of our businesses. Clearly, like 80% or more than 80% of our business, 90% of our business is Russia, so the rest is other countries. So that's -- you can mention that these volumes are pretty much distributed among other countries of our operations.

Thank you.

Anna, if you'll allow, I'll take the third question. So, yes, we did see a certain impact of the international calling, and that is reflected in the overall performance of Ukraine, and specifically, you can see it in APPM increase.

That was in Q3, which was partially relatively normal operations and partially impacted by the political turbulence operations in the end of Q3 in August and September. We cannot call these results totally sustainable, because we understand that since August, the situation in the eastern part of Ukraine, where we yield very significant revenues, has worsened for us, and the both holding pattern, MOUs and subscriber base have deteriorated.

We believe that this will be resulting in weaker results of the future periods in the specific territory of Ukraine which is in the east, and that will make the results of the growth that we have achieved in Q3 unsustainable for the future periods.

Thank you.

(Operator Instructions). Alexandra Serova, Renaissance Capital.

Good evening, gentlemen. Congratulations on the strong results. Two questions from my side. First, on Ukraine, can you please give us the amount of cash you currently have on MTS Ukraine, and do you have any understanding when MTS would be able to resume dividends from Ukraine, banned in late September.

And my second question is about subscriber growth in Russia, quite a substantial number in third quarter. Do you think it's sustainable? Maybe you see subscribers coming on your network from VimpelCom or Tele2? Thank you.

Let me take the first one, and we have approximately $200m, $300m in Ukraine, and we are not planning to raise those money in the anticipation of 3G options. And depending on the terms of these options and success, and thirdly, the regulatory environment, we will consider further steps.

I will take question of the subscriber growth in Russia. Well, this is sustainable. This growth has happened for a long period of time. As you can see, this almost 6m growth comes from year-over-year result. And the sources of this growth are very versatile, so we cannot say that we have picked up the majority of customers from Rostelecom or Tele2. And if we take a look at our MNP port ins, we do not see a single source of the growth.

The growth comes from the market, and we believe that our products and services are uniquely positioned to be attractive for the mass customer in Russia, throughout the regions and throughout different carriers' basis.

Okay, thank you.

Igor Semenov, Deutsche Bank.

Yes. Hi. Thanks very much. Just quickly, what trends outside of this perhaps unsustainable growth in Q3 from a major boost in subscribers that -- I don't know, my impression is that is definitely not sustainable. In normal circumstances, what do you see from your existing subscribers? What kind of volumes do they generate? Do they continue to operate as normal, or do you detect signs of declining calling activity and volumes and perhaps less predisposition to take up bundles that basically are corporates and consumers starting to save? Can you comment on that?

Igor, we do not see the tendencies or trends for savings or for decline in usage or for shortcuts of the existing services by our customers, consumption by our customers. So we think that the consumption is sustainable. We believe that the base growth is relatively sustainable as well, because we do not see any slowdown in the market in terms of sales, even after the closing period of Q3.

We think that in fact the macro situation might have an effect on roaming, on some premium services, but the basic service, where we make most of our money, will be sustainable and we believe will be growing. By how much? Well, this is reflected in our guidance for the year-end 2014.

We do not believe in some increasing growth, but we believe that the market will still be growing.

Excellent. That's very helpful. Thank you very much.

(Operator Instructions).

Operator, are there any more questions?

There are no further questions at this time.

Okay, then everyone, thank you very much for joining us on the call. We welcome you at any time to contact our investor relations department for any further questions or clarifications. 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, wish everyone a pleasant day. And to those to whom it's appropriate, a happy Thanksgiving.

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