Operator: Good day and welcome to Mobile TeleSystems' Fourth Quarter and Full Year 2012 Financial and Operating Results Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Joshua Tulgan. Please go ahead, sir.
Joshua B. Tulgan - Director, IR: Thank you very much. Welcome to MTS' conference call to discuss the Company's fourth quarter and full year 2012 financial and operating results. Before beginning our discussion, I would like to remind everyone that expect for historical information, comments made during this call may constitute forward-looking statements which may involve certain risks.
These statements may relate to any one of the following issues; the strategic development of MTS' business activities, both in Russia and abroad; revenue and/or subscriber growth; financial indicators such as operating income before depreciation and amortization, average revenue per user and cash flow projections; debt instruments and our usage; legal actions or proceedings directed at the Company or its representatives; regulatory developments and their impact on the Company's operations and the markets in which we operate; technical matters as they pertain to our communications networks, including equipment, licensing our network technologies; activities and lines of business that complements our communications networks; capital expenditures and operating expenses 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 U.S. 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, MTS' Form 20-F, as well as other public filings made by the Company within the United States SEC, all of which are available on the MTS' website www.mtsgsm.com or that of the U.S. SEC at www.sec.gov.
MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or made 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.
I'll now turn the call over to Mr. Andrei Dubovskov, President and Chief Executive Officer of MTS.
Andrei Dubovskov - CEO: Ladies and gentlemen, thank you for joining us on today's conference call to discuss the Company's financial and operating results of the fourth quarter and full year 2012. Joining me today are Alexey Kornya, Vice President, Chief Financial Officer; Aleksander Popovskiy, Vice President, Chief Operating Officer; Vasyl Latsanych, Vice President, Chief Marketing Officer; and Michael Hecker, Vice President, Strategy and Corporate Development and M&A.
For the year 2012, Group revenues increased by 1% to $12.4 billion. Overall, we saw strong operating dynamics in our core market. However, our Group top line performance was limited by a significant weakening of the Russian ruble versus the U.S. dollar and the mid-year suspension of our operations in Uzbekistan.
We continue to see growth in our markets driven by sustained towards usage and great adoption of data products and services. We saw both ARPU and usage growth in each of our core markets of operation, a sign of Group excellence throughout the organization. In 2012, total revenues in Russia increased in ruble terms by 8% to RUB338 billion. Key drivers included increased usage of data products; an increase in handset sales, including sales of higher-value smartphones through our expanding proprietary retail chain; our ability to attract and retain higher-value subscribers.
In 2012, our mobile business grew by 9%, to RUB183.6 billion. In Q4 2012, our revenues rose by 12% year-over-year. This increase can be attributed towards a successful execution of our commercial strategies which include excellent customers with tariffs deciding to promote on their calling which has increased customer loyalty churn and improve with our interconnect balance. Probably within mobile broadband services and other value added services and increasing sales of handsets and rates including smartphones and tablets.
Our factors in promotion on that column coupled with a change in our dealer commission structure all with us to reduce our analyzing churn rate from 47.6% in 2011 to 42.4% in 2012. We also witnessed ARPU rise by 9% for the year. (Indiscernible) of our competitive failure proposition to customers and ability to return quality customers. Growth in data and smartphone users remains our key priority. Throughout the year we launched a new tariff plans for smartphones and tablets and partnered with handset vendors to introduce it with models of our customers.
Bundled tariffs and smartphones at different price points remains a key factor in our ability to grow in this market. For this year data traffic revenue grew 34% while value added services ARPU as a percentage of total ARPU improved to 29.5% in Q4 2012. Messaging also back 2012 and grew by 2% which is a sign that our proliferation of smartphones is not impacting our messaging revenues. Over our value added service revenue grew by over 25% for the year.
For the quarter mobile revenues were largely in line with third quarter, which is still unusual we continue to see similar factors such as reduced customer enrollment impacting our top line. Yet we were successful in certain business by attracting a net addition of 500,000 subscribers in Q4 and promoting increased data usage. Relatively stable quarter-on-quarter ARPU suggests that we attract high value subscriber. One factor as it should be continued in our improved value added service and data performance is the sales of handsets and accessories which increased 34% year-over-year.
If you recall, in Q4 2011, we reduced our wholesale transit sales which is why sales fell quarter-on-quarter that year. Throughout 2012, we still increased retail sales of smartphones which is obviously the key driver for data growth. We expanded our retail network by over 300 stores in 2012 to service both higher traffic and smaller underserved communities. We also increased the share of high value smartphones and tablets in our sales mix along with the introduction of lower priced MTS-branded smartphones. We also actively used credit products in partnership with MTS Bank and other financial institution to promote sales. By end of the year, MTS Bank booked nearly 300,000 point-of-sale loans to support smartphone growth.
In 2012, our fixed line revenue grew by 6% due to the enhancement of our fixed line networks and minor M&A activity. In Q4 2012, revenues rose 15% compared to the previous year. Corporate markets' revenues were boosted by acquisition of an alternative operator Tascom which has significantly strengthened our participation in the Moscow corporate market. Residential and corporate ARPU were overall stable during 2012.
In 2012, we continued to improve our fixed line networks which allow us to improve pricing and increase customer value. Over the course of the year, MTS connected to 100,000 Moscow households, out of 1 million households passed to our GPON network. We currently have more than 80,000 active subscribers (requesting) Internet at the speed up to 2,200 megabit per second. In 2013, we aim to significantly have GPON network, grow our broadband subscriber base, and launch a platform of convergent offers, including product and services for the home.
In July, we completed digitalization of our TV networks replacing analog broadcasting station with digital media. In September, we began swapping analog set-top units to digital boxes to be able to offer our subscribers a greater variety of content up to 140 channels, including HD channels as well interactive services such as video-on-demand. We expect to upgrade 3 million households throughout Russia to a digital platform during the next 15 months.
In Ukraine, revenue increased by 6% to UAH9.7 billion. In Q4 2012, revenues grew by 4% year-over-year to UAH2.4 billion. In Q4 2012, the share of value-added services in ARPU went up to 42.7% from 30.5% a year earlier. This is a one-off event attributable to a reclassification of revenues from (bandwidth) tariff plans. Even with absence of UMTS 3G in the market, we are still able to achieve substantial growth in data traffic revenues as demand grows everywhere.
In Armenia, our revenues increased in 2012 by 4%, up to AMD77.6 billion. During 2012, the promotion of our net tariff plans resulted in increase in (more of) 10%. Our focus on attracting higher value of subscriber has translated into a 5% ARPU increase and strong year-over-year reduction in the churn rate from 39.1% to 34.7%.
In Q4 2012, revenues declined sequentially due to the seasonal lower roaming revenues, as it related to resumed operations in Turkmenistan in August 2012. Beginning in August, our customers were able to activate their SIM cards. A month later we started selling new SIM cards. SIM then well have managed to quickly grow our customer base due to the quality of our networks and the strength of our brand. By the end of this year, we were servicing 1.45 million customers. In the remaining months of 2012, we realized $10.6 million in revenue, having spent minimum CapEx to relaunch the network.
Now, Alexey Kornya will further discuss the Group's profitability and financial performance.
Alexey Kornya - VP and CFO: Thank you, Andrei. In 2012, Group adjusted OIBDA increased by 3% to $5.3 billion. Through the year, we showed faster adjusted OIBDA growth relative to revenues despite the suspension of our business in Uzbekistan, which had historically demonstrated a higher adjusted OIBDA margin than elsewhere.
On the margin basis, the Group's adjusted OIBDA margin came in above our guidance for 2012 at 42.6%. For the quarter, Group adjusted OIBDA increased by 1 percentage points year-over-year despite ongoing costs in Uzbekistan and strategic decisions made by the Company to increase our retail network and increase in sales of handsets.
In Russia, OIBDA rose by 11% to RUB148 billion. Sustained improvements in OIBDA through the year reflected ongoing efforts by the Company to manage costs, while we realized benefits from reduced competitive activity. In particular, by switching connections to revenue sharing scheme, we were successful in decreasing our payout for dealer commissions by more than 20% for the year.
For the quarter, we did see significant decrease in the OIBDA margin compared to fourth quarter 2011. These reasons, which we have discussed previously, include higher dealer commissions (indiscernible) through revenue sharing in second half of the year, increased advertising during the holiday period. The expansion of our retail network continued impacting inflation adjusted costs, including ramping utility costs, rising maintenance costs due to expansion of our network and increasing salaries and social contributions on the back of expansion of MTS retail chain, the upward revision of the compensation of retail stores employees and increase in personnel costs (indiscernible) related to rollout of (indiscernible) networks.
OIBDA trends in our CIS markets were largely in line with the top line performance and competitive factors. In Ukraine, the OIBDA reached UAH4.9 billion in 2012. For the year, the OIBDA margin came in at 40.8%, an increase of 2.8 percentage points compared to the previous year.
In Armenia, our OIBDA margin improved in 2012 to AMD44.4 billion. In our fourth quarter 2012, the management delivered strong growth in profitability increasing the OIBDA margin from 50.5% to 53.4% due largely to their successful implementation of new tariffs and commercial policies. And in Turkmenistan, we see strong profitability with the resumption of operations in full 2012.
In fourth quarter, net income reached $547 million. Expenses below OIBDA were largely in line with previous quarters, though we did benefit with the $28 million Forex gain and depreciation (and appreciation) improvements. For the year overall, net income decreased by 30% to roughly $1 billion due to the write-offs related to suspension of our operations in Uzbekistan. Without the write-offs, however, we would have realized an adjusted net income of nearly $2 billion, a 38% increase from 2011. Supporting this profitability is the 10% increase in operating cash flow compared to 2011, despite relative ruble weakness.
In fourth quarter 2012, our total debt increased slightly quarter-over-quarter to $7.6 billion. We had no principal repayments during the quarter, but drawing (indiscernible) financing on the back of CapEx spend and currency fluctuations, namely the weakening of the ruble year-over-year translated into a slight increase now on the debt-to-EBITDA ratio at 1.3 multiple.
We were also successful in reducing the average cost of debt by 70 basis points to 7.17%. Our debt level remained quite manageable as we have no principal repayments in 2013 and 2014. However, we believe capital markets both in Russia and abroad continue to favor MTS and we may consider opportunities to refinance portions of our portfolio to lower our overall costs. We also are engaged with our lenders and equipment suppliers to consider various financing schemes for our ongoing network improvements.
Overall, the business continues to generate high amount of cash. Operating cash-flow increased in 2012 by 10% despite ruble weakness (to over) $4.2 billion. Despite sustained level of capital expenditures, free cash flow for the year reached $1.3 billion, an increase of 25% compared to 2011. CapEx for the year came in line with our guidance at $2.9 billion, or roughly23% of sales.
In 2012, we continued build-out of our 3G networks which has reached 28,000 base stations, with over 90% sites connected via IP channels. We invested in backbone and backhaul roll-out in the regions as well as in our GPON project in Moscow, bringing the total length of our fiber-optic networks up to 142,000 kilometers. Significant investments were also channeled towards upgrading our IT infrastructure.
Andrei Dubovskov - CEO: Thank you, Alexey. With the near completion of our aggressive rollout of 3G in 2012, we foresee a decrease in 3G-related CapEx in 2013. Also, we have current down investments in 3G network we aim to begin the rollout of LTE networks in Moscow and Russia's largest cities in 2013. We need to direct sufficient funds towards LTE network build-out to ensure we are able to offer our customers cutting-edge solutions and seize commercial opportunities which LTE provides.
Coupled with the year-over-year weakening of the ruble versus the U.S. dollar, we expect to spend 20% of sales on capital investments. For the period 2013 to 2015, we expect cumulative CapEx sales ratio in the range of 18%, 19%.
At this point, we consider our network competitive with any in the market. Our 2G base network remains (unrealized) at 41,700 base stations. By the end of the year, we could also boost 28,000 3G base stations in which 90% our connected via our IP protocol. Over 90% of 3G base stations are HSPA+ enabled, while we have up to 50% of our base stations in larger cities already future dual cell HSPA, a technology that greatly increases performance on 3G phones and the key performance standard to ensure customers get the most out of neutrality and handset currently sold in the Russian markets.
We are also now focusing on our build-out of LTE to meet license requirements and ensure that our customers can take advantage of this new technology. Our LTE TDD network in Moscow was launched in September and we have already seen tens of thousands of customers try our networks. By summer, we will have LTE commercially launched in regions acquired by our (licenses) and expand into cities with large populations and communities and the services by high quality fixed line broadband Internet.
We will start network build-out in two ranges; the 800 megahertz range in the regions where (refinement) is not required and the 2,600 megahertz range, enabling speeds up to 37.5 megabit per second and 75 megabit per second respectively. By the end of the year we anticipate an installed base of over 5,000 base stations. We believe that we can realize our goal up 5% to 7% growth in revenue in 2013. Key factors include increase in voice usage through data design to drive our net usage and improve customer loyalty, higher sales of handsets and accessories, growth in data revenues through high penetration of smartphones and modems, commercial developments in core markets.
As we discussed it previously macroeconomic factors the change in revenue mix in our company and improvement in the competitive environment have to sustain our OIBDA margin in the range of 41% to 42% for the year. These factors include higher sales of handsets and devices, rising labor costs due to expansion of our retail network, higher labor and maintenance costs in our fixed line networks as we build transition to our networks, inflationary pressure in operational expenses and recent changes in our Group footprint in Central Asia.
In sum, we continue to believe that overall environment can allow us to grow our market sustain our profitability and improve on cash flows.
Thank you for your time now. I will open the call to questions.
Operator: Cesar Tiron, Morgan Stanley.
Cesar Tiron - Morgan Stanley: Two questions from my side please, on your 2013 EBITDA guidance, it looks a little bit conservative in light in what you've accomplished in 2012. Is that guidance mainly reflection of a change in the revenue mix or do you expect to see some slight pressure on your core Russian business margin? If yes, can you say why? The second question would be on the CapEx. I noticed that there is some increase in your CapEx to sales ratio guidance for 2014 and '15. Can you please explain what has changed over the past six months, so you felt you had to increase this longer term CapEx guidance and explain if this is mainly due to the fixed or the mobile networks?
Alexey Kornya - VP and CFO: This is Alexey Kornya. On the EBITDA, we are doing with lower slightly from this year our guidance for the next year, but this mainly due to a change in the structure for revenue. We do think that we'll have a higher share of retail business in our portfolio next year, which is a low margin. Also we'll see some impact from our network expansion, which we undertook over the previous periods. So, these are two main factors. The third big factor is a catch up from dealer conditions which we'll see in the next year comparatively to this year due to transition to revenue saving schemes. So these are three main factors which will basically contribute to slightly lower margin as we expect it, or stable slightly lower margin than we saw this year. For CapEx guidance, we do slight upgrade our guidance in CapEx, because we believe that LTE technology will come to the market faster than we previously expected as we see it from other markets because people are adopting this technologies quick adoption of customers of these technologies quicker than with the 3G case, so we see that will probably accelerate our LTE development and that's slightly reflected in our guidance summary or that's reflected in our slide guidance summary.
Andrei Dubovskov - CEO: It's Andrei, of course speaking about your question about CapEx to fixed or mobile area; of course its mobile area, of course it's 3G first of all and LTE network.
Operator: Ivan Kim, VTB Capital.
Ivan Kim - VTB Capital: Two questions please, one on the distribution side. So as you are staying in Euroset now and you have the strongest mono-brands retail network, what kind of implications you see for the markets in 2013? Previously you said that change in distribution is one of the key sets for you, but now it seems that have actually probably the strongest footprint. The second one on the margin again for 2013, what kind of upside risks do you see to your margin guidance?
Vasyl Latsanych - VP, Marketing: I will start responding, it's Vasyl Latsanych, CMO, on Euroset and retail sales. We were earlier not prepared for any changes in the retail landscape in Russia, thus built out the strongest and the biggest network of retail stores across the country. At the moment, we're reporting 4,462 stores around Russia with roughly 1,500 of franchise stores and nearly 3,000 owned stores. We believe leveraging this, we will be well positioned against any possible changes in our competitor's situation on the retail, sharing some networks, buying, selling, cooperating on other networks as long as the number of stores of our competitor stores does not increase dramatically. We also made some strategic preliminary alliances with other Russian national networks and also made ourselves very strongly positioned in the local network. So we believe that all the preemptive moves which we actually started long before there was any kind of agreement reached by our competitors on Euroset, we have at least zero base scenario that we don't lose anything on the sales. But I also think that we're even better positioned to gain something out of more higher quality sale in the channels whether it will be less competition between the operators as in our channels, we will clearly dominate, even in those channels that are not our own or we don't control 100%.
Ivan Kim - VTB Capital: Sorry, but that's why I am saying, so on top of what you named, you also are staying in Euroset as far as I understand, so you have at least compared to VimpelCom, you have much stronger distribution footprint for 2013. I mean, how these..?
Vasyl Latsanych - VP, Marketing: I think I understood your question. We're not seeing it as a long-term situation. We're in negotiations with every network and every possible partner including Euroset. The conditions are under negotiation. The fact that we are there is a legacy. It may change. We are not counting on it for the long-term. So, we are building an independent from Euroset situation for our retail network. The fact that we are there is a plus, but it might not last long. We understand that. We are realistically thinking about it.
Alexey Kornya - VP and CFO: For the second question, this is Alexey Kornya. We think in respect of the risks which might impact our margin guidance, these are competition and overall competitive environment, if it gets tense. And second is overall inflationary environment in the market. If we'll see high inflation in the market, then specifically on those costs which are being driven by inflation for us.
Ivan Kim - VTB Capital: I actually meant upside risks to the margin guidance.
Alexey Kornya - VP and CFO: Well, upside risk is also the ones related to competition, so if competition gets better or weaker, we'll definitely benefit from this. And second factor is higher consumption of that product, which by essence is high marginal product. So, we'll grow faster than we expect and then we saw in previous years then we'll realize it in the margin.
Operator: Alexander Vengranovich, FC Otkritie.
Alexander Vengranovich - FC Otkritie: I actually have a question regarding the data revenues, and the smartphone penetration in network. We have seen that you have done a substantial progress in penetration of smartphones in 2012. At the same time, the percentage of the share data revenues increased from around 8% in 2011 to 10% in 2012. What sort of smartphone penetration in your networks do you expect by the end of 2013, and also, what sort of data revenues percentage estimate in your revenue growth and EBITDA margin guidance for next year? And probably if you can elaborate going further what is the saturation in your mind for both; so for the share of data revenues in the future and for the penetration of the smartphones in the network?
Vasyl Latsanych - VP, Marketing: This is Vasyl Latsanych and I will try to answer that question. First of all, the smartphone penetration this month we reported is around 23%. That very much depends on what you find the smartphone as in different markets – there is different methodologies. But we are across Russia counting it the same way and that is almost doubled since the end of the previous year. We believe that this approximately at 1 percentage point per month is the minimum growth rates for 2012 and may very well accelerate up to 1.5% in the year 2013 unless some other macroeconomical factors influence. At the same time, it very much depends on lower-priced handsets, smartphone handsets developing in the markets and appearing in great (masses), like our smartphone last year; that cost less than $100 on retail shelves was really booming while we see other big manufacturers producing predominantly high-end very expensive devices, which is slowing down the growth in volumes, in numbers of the smartphones, while showing very good results in terms of the smartphone sales revenues which we are not so much concerned about. In terms of revenue of the data services, as you pointed out we have grown last year, we believe that this will be just the beginning because we have been extensively building 3G network and have just started the 4G network build-out in 2012. So, in 2013, I expect that growth to be significantly higher, but that would be really a forward looking statement to say by how much. I would expect and we make every efforts, including tariff plans, smartphone sales, data promotion, to make sure that the data gets very well penetrated in the base, and at this moment, according to our knowledge, the penetration of the data is the highest in Russia in MTS base. But that is still away unfortunately from European standard limit, so we want to reach up to 40% or even 50% of smartphone penetration in the coming years as we see it's very much possible in the European markets.
Operator: Anna Kurbatova, BCS Financial Group.
Anna Kurbatova - BCS Financial Group: My first question is about, one line in your P&L statement, could you elaborate the $82 million amount referring to provision for claims in Uzbekistan. And also, my second question is about your mobile voice and messaging revenue trends in Moscow. You are seeing – now we see very good numbers for messaging revenue. You have double-digit growth year-on-year. But maybe you could elaborate what trends you see, let's say, traditional mobile revenue is such well-penetrated with smartphone market in Moscow. So, whether you already see some pressure from OTT options or not?
Alexey Kornya - VP and CFO: Let me take the first one. It's Alexey Kornya. We did not change and there is no change in provision for Uzbekistan. Basically, there was only (a change) and so there is no change in impact on now being from Uzbekistan for which we reflected now second quarter financials. We only change the split between impairment of video and provision for claims. So previously, it was low amount for impairment. So, in the final annual results we increased impairment value and we decreased provision for claims. However, overall, the total amount has not changed and it equals to total book value of our assets in Uzbekistan, so whatever the development in Uzbekistan it will be neutral – negative development in Uzbekistan, it will be neutral for our financial statements.
Vasyl Latsanych - VP, Marketing: As of the second part of the question – this is Vasyl Latsanych. Actually, we don't show the granularity of region-by-region in this report and I don't have these numbers at my hands, but it's more about how we see the situation generally OTT was really always stronger in Moscow as well as WiFi was stronger in Moscow than in other regions. We have adopted our tariff plans and our behavior pretty long ago by selling big bundle plans including our very popular MTS-MAXI plant which includes both messaging and data and thus called us from the cannibalization of OTT players and OTT services in most populated places in most advanced and smartphone penetrated cities like Moscow, Saint Petersburg, Ekaterinburg (indiscernible) and others.
Operator: Viacheslav Shilin, Deutsche Bank.
Viacheslav Shilin - Deutsche Bank: I guess I have only one question just wanted to ask you to clarify the comments that you made when talking about Slide 9 debt profile, you've said something similar to that you are thinking off proactively managing your future, while the cost of funding by potentially reducing it by refinancing some debt with longer maturities. Is my understanding correct and if yes than what it does it mean that you are thinking of refinancing exchange in your ruble and dollar loans that you have or you are actually thinking of doing something with a dollar bond as well?
Alexey Kornya - VP and CFO: We consider different options how we can optimize our debt portfolio in particular we are targeting extensive maturity of our debt portfolio. Since it slightly decreased over the last two years, through because this just comes naturally maturity of our debt. We are considering as I said different options. We are still giving preferences to ruble denominated facilities. However different options are possible.
Viacheslav Shilin - Deutsche Bank: So, just I guess to narrow down the question; so it is mostly concerning the debt due '14, '15, '16, '17, as far as and some euro bond which is due in 2020, or including the euro bond as well?
Alexey Kornya - VP and CFO: It mostly relates to the debt 2015, '16, '17 and we are not really yet considering anything related to 2020.
Operator: Olga Bystrova, Credit Suisse.
Olga Bystrova - Credit Suisse: Just wanted to check your dividend policy. You have elaborated that in the third quarter results both potential increase over next three years. So I was wondering how you're – any of your thinking has changed on that. So that's one thing. Second thing, it looks like, if I calculated correctly, voice revenues in Russia in the fourth quarter improved in terms of growth rates. I was just wondering what might have changed since the first three quarters of the year and how we should think about voice revenues in Russia going forward in terms of growth rates. Finally, if you could talk a little bit about what are you seeing in the first quarter in terms of consumer behavior? How economy is affecting it, if at all? Whether subscriber trends in the first quarter for MTS and for the market have changed relative to last year?
Alexey Kornya - VP and CFO: Let me take the first one. We will not change our plans for dividends. So we confirm our intention to bring for the consideration of the Board change in dividend policy which will imply minimum increase of our dividend payout over the next three years by 25%. (at first) this is just minimum and this policy has to be considered together with the decision over the dividends for 2012 to be paid in 2013 and till the end of April.
Vasyl Latsanych - VP, Marketing: This Vasyl Latsanych speaking about the voice revenues in Russia. Yes, we did see voice revenues improved, but that's mostly to the re-composition of the tariff plans. We generally see voice revenues being pretty flattening across the markets and our most revenue growth comes from additional services including bonding services like messaging, as I said before and data and content services. In Q1, I don't really see any specific trends that I would be speaking about at this moment. No definitely negative trends, generally seasonal regular trends showing us that we are within the guidance on most of the numbers and indicators.
Olga Bystrova - Credit Suisse: That also relates to subscriber trends for you relative to the market overall, right?
Vasyl Latsanych - VP, Marketing: Excuse me, there was difficulty hearing you. Could please repeat that?
Olga Bystrova - Credit Suisse: Also the question on the 1Q trends, was it related to subscriber growth for you relative to market let's say. Have any trends have changed from last year?
Vasyl Latsanych - VP, Marketing: The trends on the subscribers growth numbers; first, the biggest trend on the subscriber growth numbers in our base is because of the decrease of the churn. So we have less customers churning and with even lower sales we have growth in the base. We are very happily seeing the customers being more sticking in our base using more services. The ARPU is growing down, the MOU is growing down – growing up, sorry. The ARPU is growing up, MOU growing up and at the same time the churn is growing down, so these are very healthy trends. At the same time we see our competitors making some highest sales in terms, but this is very seasonal and we will not comment really on some activities. There is no seasonal increase or decrease of overall sales numbers. We only know that at this moment we are growing healthily and our churn is a very, very low and we are happy with that.
Unidentified Analyst: I would like to ask a question about your dividend policy. Previously you told that you wanted to peg your dividend payments to cash flows. Can you give us some updates? This is the question. And the second question is, can you give us some approximate breakdown of CapEx for 2013?
Alexey Kornya - VP and CFO: As follows dividend policy is concerned, we do not plan to have any direct calculation or any direct pegging our understanding that overall level of dividends will be defined taking into consideration few factors, those including our cash flow and our leverage positions. More details will be upon our approval of our dividend policy in April. As for CapEx as far as breakdown for CapEx in 2013 is concerned, the big chunk of the investment, which is about 40%, will go into 3G in our existing infrastructure. Then we have significant portion coming to fixed business, which is about the same share of revenue as overall CapEx and the rest coming into transparent network, backbone, backhaul, some IC and LTE projects.
Operator: JP Davids, Barclays.
JP Davids - Barclays: Two questions, please. The first question is on your LTE rollout. You've mentioned during the presentation higher network costs impacting margins looking out. How do you think the LTE rollout or acceleration of LTE will impact that, particularly as we look out to sort of 2016 and beyond? Do you start seeing margins improve there as the network is more efficient to run? And then the second question is on your Moscow fixed service. You mentioned in the presentation a converged offerings being launched in 2013. Is this converged with mobile, and if so, will the converged offerings be marketing-led or pricing-led?
Aleksander Popovskiy - VP and COO: This is Aleksander Popovskiy. I will answer on LTE (indiscernible) and consequences for margins, so mostly we don't expect big influence for margins from LTE (indiscernible), especially in the first years when the most of LTE sites will be collocated with 3G. So there is not a big growth in rental expenses towards landlords. And the same is for transport, because mostly we have our own transport and we just undertook a big modernization of transport system both intercity and inner-city, so there is no reasons for big impact on margins, at least in the next couple of years from this side. Long-term, it is difficult to say because, of course, long-term LTE will mostly evolve as a small-cell concept, and with the small cell, it can be potentially bring some savings on rental because it's anyhow a different scheme, so less harm towards real estate and all the things. So, it is difficult to predict at the moment so what will be the influence in three to five years from LTE. On converged offerings in Moscow, so, yeah, I can transfer this to Vasyl.
Vasyl Latsanych - VP, Marketing: This is Vasyl. I will answer the conversion offers. At this moment, we are selling conversion offers of broadband and television – sorry, broadband television and fixed telephony. The mobile telephony is not included this moment because of regulation around MGTS. At the same time, we're considering some of the cross promotions from both sides which have to be legally very, very accurately constructed. That will most likely happen end of this year, next year as we go further with both bigger and more network expansion. In terms of the leading pricing, by leading, would we mean the most expensive ones? Yes, if it regards to the high-end technology, GPON high-speed. But we have to understand that the market is very highly penetrated and even with the superior GPON technology, we have to be competitive in those places where there are already a couple of players battling for subscribers. So we will be on par or slightly above the market, but that's after the initial entry phase.
Operator: Igor Semenov, Deutsche Bank.
Igor Semenov - Deutsche Bank: I have a few follow-ups. On the smartphones, can you split out the Android's and Apple's iOS from the rest of the smartphones? So in your total base of 22%, 23% penetration what is the Android and iOS? Also, just wanted to understand better the message on the CapEx increase, I mean, you now are saying that part of it is related to LTE developing faster than expected, could you explain a little bit better why this is happening, and does it mean that future years you would expect CapEx to drop off more quickly, and also follow-up on the growth sales and churn, I mean if quite frankly I don't think 11% churn, but quarter is small I mean it's still very high. I mean it's decreasing still very high relative to other markets. But so can you talk a little bit about your expectations for this year, do you think there will be a further reduction in churn, now you are seeing this 11% per quarter sort of sustainable and finally on Uzbekistan there were still some cost involved in Q4 do you expect further costs in Uzbekistan in 2013 or this is it?
Vasyl Latsanych - VP, Marketing: I will take to first and third one. So, the first one was on the smartphone the split in Android, iOS is very simple. It's pretty much following the worldwide tendencies expect for United States, as we all can see Apple is not doing good job in Russia and their share in Russia is not growing substantially. They are hanging somewhere in between 12% and 14% in our base which we see below what it should be if the job was done properly. While, Android is very rapidly increasing its share by more than 2% per month leading to about 40% in total. The rest is composed of Symbian, Windows and other small systems. We must admit that there is a highest churn from Symbian base phones even they relates Nokia, Symbian's to Android, but recently we see some uplift in Windows, especially with the new Windows 8 platform Windows based phones. The question about churn, just the question about churn is very simple one, you have to compare apples-to-apples comparing our numbers to Russian market you see that they are outstandingly and substantially and consistently low. We can say that in Ukraine our churn is much lower than in Russia, but the market composition in Ukraine is completely different. So market wise this churn we consider it to be very good and still unchallenged.
Andrei Dubovskov - CEO: I just want to remind you that in 2012 we had the lowest historical churns. Speaking about the last five, six years 42.7%, on LTE Aleksander Popovskiy will answer, Alexey Kornya already should have told that we expect that catch up of LTE technology would be much faster than that of the 3G and UMTS, because most of our customers already used to data so they know modems, they know touch screen. They have tablets and all the things. So it is not something that had to be invented as it was already there with the EMTS and which took three to five years to invent all the things to really enable all the advantages of this technology. So with LTE we don’t have this problem our customers have really urged hungry for data and we see examples from other markets like LTE champions for example like Korea, where they really have a decline of 3G traffic towards 4G. So we see that LTE terminals are introduced into market much faster than we expected earlier, so already in the Russian markets have around 10 different models, the one that is most of – most of them are high end, but the number will grow significantly. You should understand that our networks will be commercially available mostly at the end of this year and beginning of the next year when terminals will already come at a pretty affordable prices we expect. So in terms of CapEx influence, we don't expect huge impact on CapEx because of course we will build less 3G base stations, first of all. This will give us some opportunity to rollout 4G more. This technology is more capacity effective and what is very important is in particular for Russian market then that is for LTE we also have 800 band available here, which gives us much higher coverage than that of 3G where we only had in most regions except maybe couple of them – we said couple of region, we have only 2.1 which presumes more base stations for the same coverage. So with LTE, we have new artificial technology in terms of capacity and more efficient frequency band in terms of coverage so LTE wouldn't be that expensive like 3G and LTE will also as I already told will be based on the same backbone which we build for 3G.
Alexey Kornya - VP and CFO: On the fourth question as far as cost for Uzbekistan concerned, in the second half of 2012, we run approximately about 5 million-10 million per quarter. Of course mostly related to rolling down our operation, paying people salaries and conserving our networks. However, end of last year, beginning of this year, most of the people were dismissed, conservation of network was completed. Basically we run out of cash in Uzbekistan. So that we will not see any cessation costs related to Uzbekistan 2013, other than the legal costs.
Igor Semenov - Deutsche Bank: Can I go back to CapEx on LTE. The previous messages were that the transition to LTE does not increase CapEx because radio equipment comes LTE enabled, so you just need a minor software upgrades that's it. Now you're saying that there is an increased CapEx because of LTE. So, why is that? Is it because you need more sites to provide proper coverage or and does it mean that as you build out – you bring forward CapEx, does it mean that it will drop off faster after 2015?
Alexey Kornya - VP and CFO: I think that the message was not exactly the one which we referred. We will never saying that LTE CapEx is basically non-existent, because of (single run) and so on so forth we were saying that it is as per base station expense, it is lower than what we saw because of backbone and so on so forth. However, still there will be quite CapEx related even per base station, even though it is lower than in 3G and 2G, it will be there. So, what affects our CapEx is ambition on how quickly we do roll out (of RLC). We are just kicked up raising our CapEx from what we previously executed.
Operator: Evgeny Golosnoy, Metropol.
Evgeny Golosnoy - Metropol: I have a question regarding your dividends, future dividends. You mentioned that they might be rising 24%, 25% on some, let's say, three, five-year basis. How it's going to work? Are you going to make one-time increase and then index the dividend annually or it’s going to be sort of 5 percentage points increase in dividends every year?
Alexey Kornya - VP and CFO: Well, the exact split over the next years of dividend split out will depend on free cash flow and leverage ratio. We do expect some increase already this year. However, overall our policy as we state or our proposition to the Board is that over the next three years we'll pay at least 25% more than we paid before. The exact composition will be decided each year by the Board of Directors.
Evgeny Golosnoy - Metropol: But that's why I'm asking, I was under an impression that originally you meant that the 24% increase or 20% something increase would apply to this year's dividend, but now you're sort of referring to a five-year period or whatever. So, it's going to be some percentage increase by 10%, 15% whatever every year or it's just the one-time?
Alexey Kornya - VP and CFO: Well, our expectation that it will be certain amount per share which we indicated, at least minimum. However, we are not yet have visibility to tell you what will be level of dividends three years away from today. So, sorry, but we cannot give you that level of granularity.
Operator: Anna Kurbatova, BCS Financial Group.
Anna Kurbatova - BCS Financial Group: I actually wanted to ask again about your OIBDA margin guidance for 2013 and the implication of the introduction of MNP in Russia. So, taking into account that the principal should be introduced in Russia from December 1st, what should we expect in terms of additional pressure on your OIBDA quarter-by-quarter. So would you expect this additional costs to fall into one certain quarter, let's say, third this year or it will be additional cost spreads more or less equally?
Alexey Kornya - VP and CFO: As for the impact of MNP (on our) EBITDA margin, we do not foresee any impact for this year. As you correctly pointed, the introduction of MNP will be effective very late this year, early next year. But there will be no impact for us on the margin. There will be minor impact on our CapEx. However, this is not of the size to affect our guidance and overall outlook for CapEx.
Aleksander Popovskiy - VP and COO: To add a little bit on MNP, so, yes, there is some capital expense this year in terms of operational expense for technology as such. There is no big expenses. As far as I understand, it is (blend of) finance MNP database from government funds, like from universal service fund and other funds. So, we will not pay directly for this database management. There can be some effects probably from a marketing side, but as we mentioned earlier many times, we don't expect a big impact from MNP on the market. So we don't expect that more than 5% of people will use it in the near future.
Anna Kurbatova - BCS Financial Group: Okay, then it means that to be 100% prepared for MNP implementation by December 3rd, your additional cost will be mainly on the CapEx side (indiscernible) this year?
Alexey Kornya - VP and CFO: Yeah, 100% on the CapEx side; no operational expense for MNP in production. We don't have even an idea how.
Operator: Olga Bystrova, Credit Suisse.
Olga Bystrova - Credit Suisse: Can you talk a little bit about spectrum, a discussion in the press and within the government about spectrum frequency tenders and licenses that has been going on as well as a potential discussion on payments for technicality, just where that discussions stands, what could be the implications for the licensing costs or spectrum costs in Russia if any? The second sort of follow-up, you haven't really talked much about the financial services that you all just launched with the acquisition of MTS Bank. What is currently the percentage of revenues that you generate from financial services if you are ready to elaborate on that? Finally just a small question on how are you expecting to price LTE data given that you started talking a bit more about LTE – more aggressive about LTE deployment now?
Aleksander Popovskiy - VP and COO: About spectrum regulation in Russia. So, yes, we expect some changes in the regulation. Definitely that we mostly expect is spectrum sharing of course because we were really considering this opportunity when it will come to the market. Our Minister of Communication says that it could be introduced this summer, so we will see this as not very likely, but get there really sure, so maybe be we can trust them. The other thing that they want to introduce is spectrum auctions, but it is very speculative to say what will be the starting price and how it can potentially influence, because there are two problems here; first of all, there is not much spectrum available for those auctions and it is really difficult to understand how without fully clearing spectrum from military use, for example, you can introduce the spectrum for an auction. It is not likely. There will be some pilot auctions maybe this year for some minor bands of spectrum for 2G and then we will see how it works and what is the price level. Frankly speaking we don't expect this to be very high because of limited number of spectrum and because most of the spectrum that is available for mobile communications in Russia is available on the principle of secondary usage. So you basically have no guarantee that in each particular place this spectrum will be clean from government authorities. So your question was very broad, so we can actually talk for long on this. If you somehow focus it, then we can answer. In terms of bank services, I'll transfer you to Vasyl.
Vasyl Latsanych - VP, Marketing: This is Vasyl again. The point is that we do not consolidate anyhow the bank revenues and we are not at this moment in a position to commence what the revenues of specific services of the bank are. At the same time we are looking forward to have our share of profits of the business that we have together. The profits were not yet achieved, so we only commenced on that general numbers on customer numbers that we have and at this moment we don’t have the visibility to further details on this project.
Andrei Dubovskov - CEO: Speaking about your third question – it's Andrei Dubovskov I just want to say that in my opinion they are on (indiscernible) if really establish different price between LTE and 3G technology in the market. We believe that our clients need to have equivalent pricing for all technologies and it's not dependent on technology issues in Russia. So it will be really market price it will be approximately the same price like in 3G network and so I hope it will be a success in this market.
Unidentified Analyst: I have just a small question on your SG&A line could you please tell us what stays behind the 21% increase in administrative and general expenses? Thank you.
Andrei Dubovskov - CEO: That mostly relates to increase in salaries and compensation on the back of growth of our EPL network. And change in taxation for social taxes.
Operator: We have no further questions.
Joshua B. Tulgan - Director, IR: Thank you operators. Ladies and gentlemen thank you very much. We welcome you at any time to contact our Investor Relations department for any 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 your interest and wish everyone a pleasant day.
Operator: That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.