MTS swings to net profit on data growth, one-off gains

Russia’s MTS swung to a net profit and reported revenue growth for the three months ending June thanks to rising demand for mobile data services and various one-off gains, including settlements related to its disputed ownership of Bitel, an operator in the Kyrgyz Republic.

Russia’s MTS swung to a net profit and reported revenue growth for the three months ending June thanks to rising demand for mobile data services and various one-off gains, including settlements related to its disputed ownership of Bitel, an operator in the Kyrgyz Republic.

The operator, which leads VimpelCom (Amsterdam, Netherlands) and MegaFon (Moscow, Russia) in Russia’s vast mobile market, reported net income of RUB29 billion ($880 million), compared with a net loss of RUB23 billion for the three months ending June 2012, and saw revenues increase by 5%, to RUB97 billion, over the same period.

MTS (Moscow, Russia) paid $150 million to investment group Nomihold Securities for a 50% stake in Bitel in 2005, but subsequently claimed it was never allowed to take ownership of the asset.

Last June, however, MTS and Nomihold Securities announced they had reached a settlement that appears partly responsible for boosting the Russian operator’s net income for the second quarter of 2013.

But management figures claim strong organic growth also explains the improvement in profitability.

“We continue to see market-leading growth in data traffic and messaging revenues, which grew 40% year-on-year,” said Andrei Dubovskov, the chief executive of MTS. “Our fixed-line operations showed strong performance in spite of sustained competitive pressures, having increased by 4% year-over-year to RUB14.4 billion.”

Dubovskov also stuck by previously issued financial guidance for the full year, with revenues expected to grow by 5–7% in 2013.

MTS also expects to achieve a margin for operating income before depreciation and amortization (OIBDA) of 43% this year, compared with an OIBDA margin of 45.5% for the second quarter, with recent margin improvements driven by one-off factors, the rising share of data traffic revenues and reduced handset sales.

The operator has recently concluded agreements with Ericsson (Stockholm, Sweden) and Nokia Siemens Networks (Helsinki, Finland) for the rollout of LTE networks in Russia, although ratings agency Fitch believes the acquisition of LTE player Scartel (Moscow, Russia) by MegaFon could put both MTS and VimpelCom at a slight disadvantage in Russia’s 4G market.