MTS Group grew revenues 11.3 percent year-on-year to RUB 130.1 billion in the fourth quarter of 2018. Revenues generated in Russia increased by 10.7 percent to RUB 121.5 billion.
Adjusted OIBDA of the group was 55.6 billion, up by 23.0 percent, and the figure totaled RUB 53.0 billion in Russia, up by 21.3 percent. The adjusted OIBDA margin totaled 42.8 percent, up by 4.1 percentage points from a year earlier. MTS said the results were in line with its targets.
In its financial statements for the third quarter, MTS reserved RUB 55.8 billion as a potential liability with respect to the investigation being conducted by the US Securities and Exchange Commission (SEC) and the US Department of Justice (DOJ) in relation to its former operations in Uzbekistan. In the fourth quarter 2018, MTS accounted for another RUB 3.3 billion to reflect the change in RUB/USD exchange rate.
On 7 March, MTS announced that it reached a resolution with the DOJ and a settlement with the SEC. In connection with the agreements, MTS agreed to pay USD 850 million, in line with the amount reserved previously.
As a result of this provision recognition, group net profit for the year totaled RUB 6.8 billion. Excluding this one-off factor, the group would have reported net profit of RUB 65.9 billion.Full-year capital expenditures rose 13.2 percent to RUB 86.5 billion, excluding the purchase of licenses in Ukraine. Capex was equal to 18.0 percent of revenues. The higher investment as well as spending on acquisitions reduced free cash flow to RUB 54.8 billion in 2018 from RUB 71.5 billion in 2017.
MTS increased its investments in Russia, focusing on network construction to deliver better 4G coverage. In total, over 21,500 base stations were built in 2018 across 83 regions of Russia, of which over 13,400 were LTE base stations. As a result, by the end of the 2018, LTE population coverage increased to 68 percent.
MTS also continued expanding its fiber-optic network. By the end of 2018, the penetration of FTTB and GPON reached 93.2 percent.
The mobile subscriber base of the group dropped by 1.1 percent over the year to 105.3 million. The figure grew by 0.1 percent to 78.0 million in Russia.
Outlook: slower revenue growth, OIBDA pressure
For 2019, MTS said it targets stable OIBDA and revenue growth over 3 percent. Regulatory factors such as the end to national roaming charges as well as the shift to data over voice and rising handsets sales and retail competition in Russia will affect results, offset by expected continued organic growth in Ukraine.
Capital expenditure is estimated to grow to RUB 90 billion this year, due to continued LTE upgrades, implementation of infrastructure and spectrum sharing projects within Russia, the roll-out of LTE services in Ukraine and preparations for 5G. MTS lowers its estimate for the additional investment required to comply with the Russian data retention law from RUB 60 billion to RUB 50 billion over five years starting from July 2018.
