Operator: Good day and welcome to the Mobile TeleSystems' First Quarter 2013 Financial and Operating Results Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Mr. Joshua Tulgan. Please go ahead.
Joshua B. Tulgan - Director IR: Ladies and gentlemen welcome to MTS' conference call to discuss the Company's first quarter 2013 financial and operating results. Before beginning our discussion, I would like to remind everyone that except for historical information, comments made during this call may constitute forward-looking statements which may involve certain risks.
These statements may relate to one of the following issues; the strategic development of MTS' 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, cash flow projections and/or 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, our Form 20-F, as well as 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 U.S. SEC at www.sec.gov.
MTS disavows any obligation to update any previously made forward-looking statements mentioned on this conference call or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentations and materials cited 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 for the first quarter 2013. As usual, joining me today are Alexey Kornya, Vice President, Chief Financial Officer; Vasyl Latsanych, Vice President, Chief Marketing Officer; and Michael Hecker, Vice President, Strategy and Corporate Development and M&A.
(As we only recently) reported at the last set of numbers and discussed our performance during 2012, we will provide a (clear cut view) of the results we achieved during the first three months of the year. One important remark before we jump into discussion of the results. Beginning this quarter, we have begun reporting our GAAP financial results in Russian rubles. As Russia-based revenue accounts for such high portion of our revenue, we believe that reporting in rubles better represents the true financial and operating dynamics of the group. We will continue to provide local currency financial and operating indicators for our operations outside Russia and relevant year's dollar currency rates in our materials which we post on our website.
During the quarter, Group revenue increased by 2% to 92.9 billion rubles. Overall growth compared to Q1 2012 was limited by the suspension of our operations in Uzbekistan. Ex Uzbekistan, our top line grew by 6% year-over-year due to sustained growth in consumption of voice and data services in our markets. In Q1 2013, our revenues in Russia increased by 5% to 82.7 billion rubles. This was boosted by strong performance of our mobile and fixed operations, while our service revenues increased by 7%, evidence of our success in driving higher voice and data usage.
In Q1 2013, minutes of usage increased by 10% compared to the first quarter of our previous year, which combined with data growth drove ARPU higher by 4%. The growth reflects our success in promoting tariff plans with free on-net-calling and increasing data penetration. This also translated into higher customer royalty and enabled us to reduce churn from 11% in Q4 2012 to 9.5% in Q1 2013. Single-digit cost related churn has not been (since) 2009. Reduction in churn is reflective of our focus of the quality of subscriber base and ongoing changes in the distribution market.
In Q1 2013, we delivered a 37% increase in data traffic revenue compared to Q1 2012. This growth outpaces average growth rates in the market and is attributable to a number of factors. Quality of our data network (indiscernible) compared with more than 42,300 2G and more than 29,200 3G base stations as well as more than 2,000 base stations in the LTE TDD network in Moscow in the Moscow region. Capacity of the MTS retail chain that enables us to boost penetration of smartphones and tablets in our network and promote data tariff plans, launch of tariff plans bundling voice and data and other half of the tariff structure aim to improving customer experience and upselling existing users, focus on sales of off the label smartphones, including MTS-branded devices and partnership with vendors to offer free mobile internet for customers, purchasing smartphones in the MTS retail network.
In Q1 2013, we rebalanced our retail sales portfolio. This lead to a decrease in the share of premium priced handsets in the sales mix, which in turn led to the decrease in overall sales of handsets and equipment by 6% year-over-year. We also fully excited the market for wholesale handset sales. Instead, we focused on promoting sales of low-budget smartphones, including MTS-branded devices, which naturally have a greater impact in stimulating ARPU growth. Sales of these devices increased more than two times year-over-year.
Content revenue declined by 12% year-over-year as the reduced promotional campaign related to Q1 2012 and that are used for the measures to manage in solicited SMS based services. Messaging revenues rose 14% year-over-year, a sign that the increasing voice and data usage is having an erratic effect on messaging.
Our fixed line operations showed strong performance during the quarter. Fixed line revenues went up by 4% year-over-year to RUB 14.1 billion. The growth resulted from continued network modernization in the regions enabling us to upsell existing broadband and Pay-TV customers and enhance market share.
More than 85% of households in the regions are now connected via fiber-to-the-building technology.
In Moscow we have passed more than 1 million households with GPON and connected more than 320,000 households. Around 100,000 subscribers are already accessing their internet via GPON from MGTS.
We also continued rollout of our digital TV platform offering up to 160 channels including HD channels. The platform is already commercially launched in more than 70 cities out of 150 cities where we have presence in the fixed line service.
Our commercial broadband and Pay-TV users as well as overall stabilization of the competitive environment (indiscernible) grow the traditional ARPU by 3% year-over-year. Quarter-over-quarter ARPU increased by driven by revision of prices for the fixed telephone and MGTS. Corporate ARPU increased by 7% year-over-year, reflective of our focus on promoting fixed broadband as well as introduction of value-added services, such as VPNs and cloud solutions.
In Ukraine revenue increased by 7% year-over-year to UAH 2.4 billion this rise was attributable to the sustained growth in data services consumption as well as prices revision in H2 2012, data traffic revenue increased by 21% in spite of the absence of MTS 3G in the market. Sequential decline in data traffic revenues was attributable to better classification of the revenues from bundles from Q3 2012 to Q4, 2012. Overall, top line dynamics was in line with the seasonal terms.
In Armenia, we delivered 7% revenue growth up to AMD17.8 billion, the growth was enabled by our continue effort to attract and retain higher value customers and thus retain leadership position in the market with market share of 53.4%.
In Turkmenistan, we continue to grow a subscriber base and earned back share of the market at the end of Q1 2013. We had nearly 1.9 million customers in our network, which according to our estimates corresponds to a market share of approximately 39%. During the cost we generated TMT48.3 million in revenues and increase of 79% compared to Q4, 2012.
Now, Alexey Kornya will further discuss the Group's profitability and financial performance. Please Alexey.
Alexey Kornya - VP and CFO: Thank you, Andrei. In first quarter 2013 Group adjusted OIBDA increased by 3% year-over-year to RUB39.1 billion. Excluding Uzbekistan, adjusted OIBDA grew year-over-year by 8%. This was driven by top-line growth, although we faced continuing cost pressure from our network roll-out, retail expansion and increase in personnel costs. On a margin basis, the Group's adjusted OIBDA margin came in for first quarter 2013 at 42.1%.
In Russia, OIBDA rose in line with revenue by 6% year-over-year to RUB35.8 billion. Main drivers include growth in consumption of data and reduction in the sales of handsets. For the quarter, we delivered a strong OIBDA margin of 43.3%, which was slightly higher than the one in first quarter 2012. In spite of the higher dealer conditions year-over-year, due to the delayed shift of shifting to a revenue sharing cost model and increased inflationary costs.
Compared to fourth quarter 2012, our OIBDA margin improved by 1.3 percentage points; the increase was attributable to growing consumption of data services, improved interconnect dynamics, lower sales of handsets and the seasonally stable marketing expenses.
In Ukraine, the OIBDA increased by 16% year-over-year to UAH1.2 billion. Strong growth was reflective of the rising contribution of high marginal data services in total revenues, improvement in interconnect revenues and as well a reduction in advertising expenses, lower sales of handsets and continued focus on the optimization of operational expenses.
Overall our OIBDA margin was 61.5% for the period, an increase of 3.7% compared to the first quarter of the previous year. Since first quarter 2009, our OIBDA margin in Ukraine has increased steadily quarter-by-quarter or by 9 percentage points, which is a strong validation of our commercial policies, efforts to reduce churn and then (lessen) policies in the market.
In Armenia, our OIBDA for the first quarter came in at AMD8.9 billion. OIBDA dynamics were attributable to one-off effects from equipment swap resulting in recognition of additional AMD3.5 billion in the OIBDA of first quarter 2012.
Net of the effect, our subsidiary in Armenia delivered sales OIBDA growth in line with the top line trends. In Turkmenistan, we generated OIBDA of TMT13.2 million and the margin of 27.2% in what is basically (newly face duration). In first quarter, net income came in at RUB 13 billion, which include foreign currency loss in the amount of RUB 1.5 billion. During the quarter, our total debt increased slightly to RUB 222 billion.
Our ratio of net debt to last 12 months adjusted OIBDA improved 1.1, due to improving operating performance and strong debt management practices. In April 2013, we tapped local markets successfully placing on the Moscow Interbank Currency Exchange our first issue of ruble exchange traded bonds in the amount of RUB 10 billion. The bond has a coupon rate of 8.25% and the maturity of 10 years with a 5-year put option.
In May 2013, we (resumed) to international capital markets by successful placing of new 10-year Eurobond offering in the amount of $500 million with the coupon rate of 5%. The placement set a number of milestones. Despite incredibly tight window in the market, we were able to obtain the lowest coupon every issued by MTS on its U.S. dollar international bond issue and lower stable coupon for Russian non-investment grade 10-year international bond issue. The coupon rate was also lower than the price of many private investment grade peers assessing the market recently.
The demand for our bond was exceptionally strong, which permitted us to price the issue 30 basis points less than our operated debt. This in turn allowed MTS to establish new benchmark rate to overall lower our cost of funding. Operational cash flows for the three months of 2013 again decreased by 4% when compared to the same period last year to RUB 36.3 billion due to termination of operations in Uzbekistan. Free cash flow for the quarter came at RUB 23.9 billion.
Andrei Dubovskov - CEO: Overall, we see continued stability and consistency in our markets of operation. With this in mind, MTS introduced a new dividend policy in April 2013. The new policy contains a number of key points. For the calendar year 2013-2015, MTS aims to pay out a minimum dividend distribution equal to at least 75% of free cash flow for the relevant financial period or, if greater, RUB 40 billion per year. MTS will begin to pay out dividends on a semiannual basis using interim H1 and full year financial results as foundation.
In April 2013, the MTS Board of Directors recommended that AGM approve full year 2012 dividends of RUB 14.6 per ordinary MTS share. In addition, the Board advised that MTS consider a semi-annual dividend payout of up to RUB 11 billion on the basis of its H1 2013 financial results, which should become available in autumn 2013. Overall, the payout could increase the cumulative amount returned to investors in 2013 by over 35% relative to 2012.
In our view aligning our dividend policy with free cash flow allows the market to better forecast our shareholder return and more clearly anticipate future performance of the company.
In effect this policy of MTS to ensure it has efficient flexibility to meet our investment needs cover our financial obligations and then return extra cash to investors. To meet this commitment, we do not envision any change in our leverage ratios or require us to borrow additional funds. When our H1 2013 results become available we will make another proposal to the Board of Directors on an interim dividend payout, distribute a dividend being paid by the end of 2013.
With that I would like to open the call to questions.
Operator: Cesar Tiron, Morgan Stanley.
Cesar Tiron - Morgan Stanley: Two questions actually, first on Russia, well done on the performance of your core business. I would like to ask if you can comment on the data pricing environment in Russia and why you think you are growing data revenues significantly faster than Megafon. Second question on the Ukraine you continue to gain quite a substantial market share in the quarter. Can you please explain what you think the driver is and also let us know if you are seeing the margin improvement in Ukraine is that sustainable? Thank you very much.
Vasyl Latsanych - VP, Marketing: It's Vasyl Latsanych, CMO, replying to the first part of question regarding the data pricing and data growth. The data pricing is a substantial, but not far from being the only factor of growth of data revenues in 2013. We have to take into account the significant increase of our network, both in terms of coverage and in terms of the throughput in most of places where data does matter, which is the result of very significant buildup of the data capacity in 2011 and 2012. At the same time, as we indicated, we have committed and we have executed huge number of activities to promote the data capacity that we build and to enhance the customer experience with the data devices like smartphones and tablets. We have seen quite substantial growth of both tablets and smartphones throughout 2012 in all of our territories and especially in big cities. We believe that that all is quite equal contributor of the overall data sales and we believe that that is quite – that is going to be quite a substantial – there is going to be quite a substantial growth in 2013 as we see that our efforts are unfolding through the year and our plans are pretty aggressive to go after the data market and to grow to be the leader in the market quite soon.
Andrei Dubovskov - CEO: It's Andrei Dubovskov. I just want to talk about your second question and it's very simple answer and it's not concerned in our Ukrainian aggregation also but other markets of course. In my opinion, the normal base for all results across the MTS countries is its subscriber loyalty. If you have good subscriber loyalty you have very good possibility to translate it into your revenue and after that you have very good possibility to translate it to good marginality and we are going to do the same in the Russian market of course.
Cesar Tiron - Morgan Stanley: So do you believe that the uplift in the EBITDA margin in the Ukraine is sustainable?
Andrei Dubovskov - CEO: I think it can be no less than 50% in Ukraine and maybe better. It depends on the economy in Ukraine. It depends on the latter factors but I think it will be no less than 50%.
Operator: JP Davids, Barclays.
JP Davids - Barclays Capital: Two questions for me please. The first one on Russia, your competitor VimpelCom has announced a ramp up in its mono-brand distribution platform. What do you think this means for the market as a whole and does it make you relook at your own strategy in any way? The second question please, is on the Ukraine, just following up on maybe the margin outlook but slightly broader question. Do you see the change in ownership at Ukraine Telecom as a very important milestone in this market? What do you think it – and more broadly what do you think it means for the spectrum auctions and the future for the market?
Vasyl Latsanych - VP, Marketing: This is Vasyl. Regarding the sales situation with the channels and Euroset, VimpelCom Megafon, we don't have any pressure from Euroset being a part of VimpelCom and a private ownership and then being a part of VimpelCom and Megafon. We believe that our position with a very high-profile monobrand MTS network in Russia as well as our good relationships with other networks, including those local networks (indiscernible) in Russia are a good sustainable platform for us to gain the sales that we believe are fair and that will give us the growth in the future periods. We do not think that there is a threat coming from Euroset anymore as it used to be in the end of the years of 2000s.
Andrei Dubovskov - CEO: It's Andrei Dubovskov. Speaking about the question of UkrTelecom, in my opinion there should be no change in the Ukrainian market because during last five years as you know telecom have 3G license and nowhere the results speaking about market share, revenues et cetera, and the change in shareholders' ownership issue in my opinion have no impact into this market.
JP Davids - Barclays Capital: If I may quickly follow up on the Russian distribution question, specifically looking there at VimpelCom's ramp up in monobrand, it plans on increasing its square footage by fourfold over the next three years. So aside from Euroset put that to one side, its change, I guess, it's more aggressive stance on monobrand. Is that going to have an impact on the way you approach the market or do you think it actually maybe helps consolidate a part of the independent distribution channel? Thank you.
Vasyl Latsanych - VP, Marketing: This is Vasyl answering. We have built the biggest brands and we believe the best mono-brands in Russia during the years of 2010 to 2011. We may be seeing our competitors trying to catch up with us on that side. We don’t think that this gives us any potential threats from redistribution of the networks and of the sales in Russia as we believe that we have already done what they are trying to accomplish right now.
Operator: Imari Love, Morningstar.
Imari Love - Morningstar: So, in the fourth quarter, you made a strategic shift towards lower priced handsets and veering away from the iPhone, wanted to try to get a gauge of how sustainable that strategy is and what other handsets have you started to work away from given the strategy?
Vasyl Latsanych - VP, Marketing: This is Vasyl again. Yes. We have introduced in September 2012 our lowest price in the market handsets of the low $100 per piece and it was very successful and we believe that this is a very good trend that we have spotted in the market because there is much more of customers coming through the bottom level of pricing range getting from a feature phones into the smartphones and increasing their ARPUs and starting using data services immediately. We want – as we said in the previous calls, we want to fuel that growth by introducing next generations of low level price level, but still good customer experience handsets and we have a pipeline throughout 2013. We will be releasing them quite soon. This does not mean that we will be replacing the top end smartphones with the bottom end lower range smartphones, because we believe that along with entering the data environments through the smartphone entrance, people are also increasing their demands and upgrading their devices. So, we do see very high sales of top smartphones in the market like one top sellers in the Q4 was Samsung Galaxy S III, which is quite a top smartphone, because it was in a high demand and lot of people upgraded from low and medium range smartphones to the top smartphones. So, we have two different markets. One is the entry level from the people with the feature phones, which there is still majority in Russia, and the other one climbing up and upgrading their devices to the top ones. We will not be missing any of these markets, both will be on our shelves and both will be on the promotion, like there are numbers of promotion with Nokia, HTC, and Samsung in our markets that are supported by us in both terms of advertising co-promo and additional benefits to the customers.
Operator: Ivan Kim, VTB Capital.
Ivan Kim - VTB Capital: Two questions please. One on smartphone penetration, it seems it has slowed down actually despite the push of the budget handsets, added just a couple of percentage points in the first quarter in Russia. So, can you please elaborate on the trends there? Secondly, the constant revenue was down 12% in Russia in the first quarter year-on-year. Can provide the reasons for that, please?
Vasyl Latsanych - VP, Marketing: Let me answer the first question. No. We did not slowdown, because usually the higher sales of smartphones and basically any devices are towards the end of the year. So, we usually have the slower first quarter, second quarter, and then higher third and fourth quarter. So we will see the growth and actually from what we see today, month-by-month, we do increase the speeds of the smartphone penetration which now is approximately 1 percentage point per month or about that. That still is subject to seasonality.
Joshua B. Tulgan - Director IR: Ivan, can you repeat your second set of question please?
Ivan Kim - VTB Capital: Yes, sure. The content revenue, which is called the data content in your disclosure, was down 12% year-on-year in the first quarter. Just wanted to get your views on why that happened.
Vasyl Latsanych - VP, Marketing: The question on the content revenue has two-folds; one, that it is seasonal. Usually in the first quarter, it's a low season for content. The fourth quarter is the highest season, so we may see a drop. The year-over-year change, though, is also because there is much more attention paid to the quality of content throughout Russia by even the government institution and also by ourselves or I should say, first by ourselves and then even by the government institutions. We do not want to create any unnecessary content revenues that would drive the churn of the customers and unsatisfaction of the customers. Russia is overall going through the process of rethinking the content services, rethinking the mobile payment services where we want to be on a very clean page and we want to have only those services that are really in demand of the customers. So this is a bit of change in the market that is going on and we are quite ahead of the change.
Operator: Herve Drouet, HSBC.
Herve Drouet - HSBC: My first question is regarding your fixed line business, I mean the, in the next, in the past few quarters, firstly your total Pay-TV subscribers have declined I know there is some seasonality there, but it looks like the decline has been more than what we've seen seasonally before. I was wondering if any reason for that, and also the success rate income of conversion rate of the (indiscernible) getting broadband subscribers have been reduced I know you had a project of increasing that ratio but in Q1 compared with Q4 there has been as well, kind of a stabilization even slightly lower ratios, so I was wondering how we should expect that it evolves all the time so that would be my first question. The second question is it looks like you are still investing in your GPON network relatively heavily especially through your CapEx and especially in Moscow and I was wondering I mean, if something happened potentially I mean there have been different rumors at different times about potential merger with Akado. I was wondering if something happen with Akado could that change your strategy on the GPON and your GPON investments. Thank you.
Alexey Kornya - VP and CFO: Overall development of our fixed business there are two moments first we are scaling down our wholesale part of this business. So we are not really growing in that field and that’s somehow reflected in our growth but that improves our marginality and basically the quality of our fixed line business. Second fold we are focusing on our investments at this point of development mostly on modernization upgrading our network, which basically creates a basis for future – sets the foundation for future development securing our existing customer base and we are not really aggressive in terms of CapEx other than GPON and Moscow outside of Moscow in terms of greenfield buildup. We are looking more rather on some inorganic opportunities, but generally focusing in our investment activities on modernization and upgrading. For the second part related to GPON in Moscow, I will pass over to Michael Hecker.
Michael Hecker - Vice President, Strategy and Corporate Development: Yeah. Let me make a short comment on GPON and the alleged rumors on Akado. We usually do not comment any kind of M&A rumors, however, let me show you two things. First thing, we are not in any kind of negotiations with Akado. And secondly let me reassure that we are very much focused on continuing our GPON rollout and following our GPON rollout strategy we have over 1 million households already passed and out of 1 million households we have round about 320,000 households already connected via MGTS to GPON and there is no strategy change intended on that. We are continuing very successfully our rollout and we'll continue to do that throughout this year and next year.
Andrei Dubovskov - CEO: It's Andrei Dubovskov; I just wanted some information about this project. I think the situation when we are investing a lot of monies here in Moscow for build GPON network. It means that we have very good competitive position in Moscow and it means that if you are going to buy somebody's share in Moscow we can do it only with a very big discount because again we have very good competitive position in Moscow and it will be much more profitable for us to build our own network.
Herve Drouet - HSBC: I was wondering, in terms of the conversion rates how do you see that evolving over time in terms of (homes passed) versus broadband user are being connected especially on the GPON?
Vasyl Latsanych - VP, Marketing: I mean, well as I said today we have already converted 320,000 that is the third of just passed households to MGTS, round about 100,000 are already on broadband. These are numbers we can – that we can say at this very moment and we are continuing with the conversion as we speak. It's a little bit early to give some kind of intimidate status evaluation at this point of time. But we are very successfully continuing the conversion as we have started it last year.
Operator: Alexander Vengranovich, Otkritie Capital.
Alexander Vengranovich - FC Otkritie: My question involves your guidance. If I remember last time you also gave us the guidance for the next two years for the year '14 and '15, so this time I don't see in that presentation, do you just careful your previous guidance regarding the future year and as you see probably some changes in the market plans or you still retreated just you mentioned in the presentation? That's the first question. Second question, I have seen recently promos from very cheap smartphones from RUB 500 in Moscow, are they – is it a real price of the smartphone or is this device being partly subsidized?
Vasyl Latsanych - VP, Marketing: I'm sorry. Excuse me, for routing but it seems that we went death on this side a little bit. Can you please restate your question and identify yourself please?
Alexander Vengranovich - FC Otkritie: This is Alexander Vengranovich for Otkritie Capital, and so I just start from the first question here. So, my first question is about your guidance. For last time, I think during the fourth quarter results, so you gave us also the guidance for next year, so for the year '14 and '15 and this time, I haven't seen this guidance in the presentation. Just something change in your mind and you just give the guidance for this year or you still reiterate your previous use regarding the same type of 5% to 7% growth rate for next two years like 41%, 42% EBITDA margin for financial year '14, and 31% for financial year '15, when has changed? Second question is about your focus on cheap smartphones, so we certainly have seen promo in Moscow advertising a smartphone of I think RUB 500 price. I just want to check whether it’s a real price of the smartphone or this market is subsidized by you? Thank you.
Operator: Please go ahead.
Andrei Dubovskov - CEO: Hi, ladies and gentlemen we fell off again. Alex, can you repeat your second question please?
Alexander Vengranovich - FC Otkritie: So, second question is regarding your focus on cheaper smartphones. So, I just recently seen adverting of very cheap smartphone I think from RUB 500 price. I just want to check whether it's a full price of the phone or you're doing subsidy for the type of the low price smartphones?
Vasyl Latsanych - VP, Marketing: This is Vasyl. Are you sure this was MTS advertising, because we did not have any RUB 500 smartphones. That might have been a special CRM offer. So, we do offer some subsidies usually in form of services to our existing customers, but we would not offer on the shelf anything below the shelf price which is non-subsidized, and the last one was below $100, but far about RUB 500 that we have done in Russia. So, it might have been a mistake on something. It might have been a feature phone, but we don't advertise feature phones, or I don't know it might have been (Ukrainian) advertising, but they have (indiscernible) and it's totally different exchange rate.
Alexander Vengranovich - FC Otkritie: And for the first question?
Vasyl Latsanych - VP, Marketing: Sorry, could you please repeat the first question. We had the break down and I am not sure I got you.
Alexander Vengranovich - FC Otkritie: Sure. So my first question is regarding your guidance. I remember on the last conference call, fourth quarter results, you were guiding for also the growth in the next two years, the financial year '14...
Alexey Kornya - VP and CFO: Alex, we got this question. You probably didn't hear us because of connection. We (update) our guidance and you can find it in our management presentation Page 12.
Alexander Vengranovich - FC Otkritie: So for – because I have seen just for financial year '13 (indiscernible), so nothing changes?
Alexey Kornya - VP and CFO: No, that's mid-term - we did a mid-term guidance for the next three years including this year as well.
Operator: Olga Bystrova, Credit Suisse.
Olga Bystrova - Credit Suisse: When you were answering question about data growth, you mentioned that you want to be a leader in the market. Can you maybe in light of that should have talked a little about your key three KPIs, whether they have changed recently and what they are specifically? Then the second question is regarding volume and average price of handset sales, obviously revenues have declined but can you sort of talk a little bit about volume trends and how average prices have changed year-on-year?
Vasyl Latsanych - VP, Marketing: Okay, let me answer the first quarter, regarding the KPIs for the data growth, if I got it right, the things that we watch very carefully on the data is first of all the data penetration in the base, which at the moment as far as we understand, we hold the leadership position in Russia as well as, we are the leaders on the numbers of customers using data in Russian market, while first of all due to our highest base in Russia in terms of the overall. So we believe that this is very valid KPI for the beginning. But then the next one would be what is the data ARPU of the customers split into a small screen customer base and a large screen customer base, while we are focused on the small screen customer base working with a smartphone penetration first of all because we believe that that creates a double value in the customers who use both voice services and data services. So for us at data customer on small screen on smartphone is more valuable than the data customer on the dongle or on a modem.
Olga Bystrova - Credit Suisse: I think I probably asked the question wrong. I wanted you to talk about management KPIs how they have changed. Obviously you are looking gain or regain the number one position in the data market because I have always been talking about being number one in the overall market. Just wanted to see how management KPIs has changed and whether they have changed recently and what they are at the top three?
Vasyl Latsanych - VP, Marketing: Well probably we are not in a position to talk in details about the management KPI right now, but what we should say is that data growth and data revenue is one of the top KPIs throughout the company for all levels of management and it is split into different KPIs for all levels and different parts of our organization. So for some it will be their smartphone penetration for the others it will be their percentage of the ARPU as data ARPU for the first, it will be something else. But it will aggregate into the data revenue in the all management KPI system throughout the company.
Olga Bystrova - Credit Suisse: What about cash flow KPIs or any other KPIs that you have that you can talk about?
Alexey Kornya - VP and CFO: Well, this is Alexey Kornya. We (have said) KPIs being set for us once in the year. They are not changing through the year by the Board of Directors if we talk about management and then they are cascaded down the Company, and they include, as Vasyl mentioned, there are some KPIs related to that in general corporate financial parameters. That being revenue, OIBDA, those types of corporate KPIs
Operator: Anna Kurbatova, BCS Financial Group.
Anna Kurbatova - BCS Financial Group: My first question is about your central Asian business, basically two small questions. First of all, I see that until now you recorded negative OIBDA in Uzbekistan. So I assume there are some costs associated with closing the operations, but anyway would be very great to know when you cease to show any negative OIBDA in Uzbekistan. And the second question about Turkmenistan, you are already two quarters operating after the break. So what's your view on the market and (indiscernible) of your subscriber there? Are you in position – do you think to regain that market share that you had before the break to return to 2 million plus subscribers? Thank you. This is the first question.
Alexey Kornya - VP and CFO: On the first question in Turkmenistan – on Uzbekistan, we do encounter some costs in the first – we did encounter some costs in the first quarter. They relate mostly to parting with our employees. We dismissed about 300 people and basically paid them a healthy compensation for that. So that one was paid from the local accounts in the local currency and that's mostly what you see is reflective in our financial statements related to Uzbekistan. There are some minor other costs in Uzbekistan related to legal costs so on and so forth. But next quarter further on we see that the size of those costs will diminish and we will not have significant impact on our financials.
Vasyl Latsanych - VP, Marketing: On the second half question regarding Turkmenistan, for sure it is difficult to come back to the market and try to get – regain the position that we had previously because the market deteriorated for us and some of the customers unfortunately were attracted to other networks. But we should say that the brunt of MTS and its image in the market was incredibly strong and upon our return during the first 24 hours of the relaunch of our operations our base was composed of 647,000 subscribers which returned to our network just on the first day. Then since that time we have experienced quite high growth of people who are either reactivating their old SIM cards which they kept throughout the time when we were – when the network was off or they were coming to the stores and getting the new SIM cards or reactivating their old SIM cards with the numbers that they possessed before. We believe that the current number of below 2 million customers is far away from being – from flattening but we will still go over 2 million we believe and we will grow in that market. But probably putting ourselves a target of grow back to the number we had before would be quite a stretch and at this moment we would not like to put some unrealistic targets in front of our management who are pretty stressed getting the business back on feet in Turkmenistan. But we see very high (indiscernible) of the existing base, a very nice growth of MOU and ARPU in local currency for sure, you can see that on our reports. We believe that that will continue for several quarters as the business is regaining the momentum.
Anna Kurbatova - BCS Financial Group: May I ask my second question basically about the cost structure. Well the general administrative expense is a percentage of revenue to 23% and I wonder whether it was mostly driven by the repair and the maintenance costs, so as we understand now which is associated with greater network complexity or so on or there were any specific factors also in the first quarter which drove this cost line?
Andrei Dubovskov - CEO: Well we see that it's not being viewed as some one-offs its more kind of trend in our financials. We should relate it expansion of our network and repair operations in our network, radio network and our retail operations.
Operator: Igor Semenov, Deutsche Bank.
Igor Semenov - Deutsche Bank: Just a quick follow-up on something you mentioned in your presentation. I just wanted to verify, can you comment on the level of dealer commissions? Are they increasing you said or they are actually decreasing? Thank you. I mean, per subscriber?
Vasyl Latsanych - VP, Marketing: The dealer commissions in our system where we only use revenue sharing is exclusively a factor of the ARPU. So whenever the ARPU of the first month is growing, the dealer commissions will be growing unless we change the system. At the moment, we do not change the system, we are very stable. There is a slight increase in the ARPU, so you may infer that there is a slight increase in the dealer commission. There is no other factor that would be in the markets like it used to be in the old ages when you paid upfront the incentive fees or any super-commissions for plan achievements in these markets anymore at least in our system. So it means that there is no unexpected movement in the dealer commissions in our plans for 2013.
Igor Semenov - Deutsche Bank: Okay, but for example this share, has it increased compared to last year or it remains stable? I mean the structure of dealer commissions, if your customer generates X, you pay a small share of revenue to the dealer. If they managed to attract really high value customer, you pay them more, right, so has this structure changed?
Vasyl Latsanych - VP, Marketing: The overall situation is not changing in principles as I said. So, yes, if we attract them a higher value customer the dealer commissions will be higher automatically. But at the same time, you might have seen some of our reporting the increase, which is rather a catch-up, so it's a transition phase from a fixed dealer commission to a revenue share commission, where before we paid high fixed commissions than as we changed the revenue share that's a mathematic calculation. We have dropped down the commissions, because we stopped paying the fixed ones and the revenue share commissions are kicking in after certain period of time. So you may see that increase as effect of increase of penetration of dealer commission on the revenue sharing basis. But the principle stays the same. So as soon as we achieve the – which we actually already achieved, the balance level of the revenue share, well, all the sales are only done on the revenue share basis. It's then becoming a factor of the – on the big numbers of the ARPU only, which if we attract the higher value customers, it will also be reflected in ARPU as well as in the dealers commissions.
Igor Semenov - Deutsche Bank: Can you remind us what's the cap and in terms of the amount else in terms of the lengths of this agreement. I mean, you are not paying dealers forever. I mean, is it 12 months, can you align me?
Vasyl Latsanych - VP, Marketing: I'm sorry, but I don't think we should discuss that online on the caps and the months. I should only say that there is both limits on their term, in terms of the months and on the amount in terms of not more than this.
Operator: Olga Bystrova, Credit Suisse.
Olga Bystrova - Credit Suisse: Again, sorry but my second question on the breakdown of handset sales was not answered. If I may ask you translate. So basically, you reported the revenue decline, but can you talk about a specific volume trend and also average pricing trend of handsets and your network. That would be very much appreciated.
Andrei Dubovskov - CEO: Yes, as the top handsets are going down on price in Russia and the most expensive handset phones are not being sold in our network of retail stores. We do see certain decline in average price of the smartphone that we sell through our network and respectively on the network of – in the base of our mobile subscribers. That has couple of inputs. First of all, we do sell more of the cheap smartphones, so we are decreasing the average price of the smartphone per base and also we have seen quite big handset manufacturers (indiscernible) in the end of last year, which created some price declines on the on-shelf price of Samsung and Nokia and that also is reflected in the lower average price that we see throughout the market right now; not only in our retail, in our base. That does not mean that we don't, for example, have the inflow of iPhones into our base, because since the iPhones are sold in the market and this is quite free market in terms of there is no context, there is not obligations, no SIM locks, we do see a significant portion of iPhones sold in Russian market, the (landing) on our network and that for sure also create certain higher price smartphone penetration increase in our network as well. But overall average price for the smartphone in our network is going down in spite of average price of handsets including smartphone and feature phone which is going up.
Olga Bystrova - Credit Suisse: But the volume has increased or the volume has decreased.
Vasyl Latsanych - VP, Marketing: Well the seasonality gives us anyway a lower volume in the first quarter than whatever was in the fourth quarter.
Olga Bystrova - Credit Suisse: No, year-on-year.
Vasyl Latsanych - VP, Marketing: The overall decline in the volume year-over-year is mostly a factor of decrease of the wholesales of the smartphones that we used to have quite big in our TKA network.
Operator: (Ana, Sberbank.)
Ana - Sberbank: My first question is a follow-up on your strategy in data services. I mean I just want to understand how aggressive you are prepared to be to gain or to become the leader on the data market are you prepared to sacrifice margins and go for more aggressive advertising campaigns or start advertising more aggressively handsets and what is your competitor response. That’s my first question. And my second question is on the growth in messaging. Can you please explain what was drawing this growth and why messaging in Russia increased 14% year-on-year?
Ana - Sberbank: The first question regarding the data. Well, we should not be talking about the sacrifice of the margin on data, because data is a very, very high margin product. So as we part of our, even mathematically if we move part of our ARPU from voice services to data services, we already increased the margin. Being said that, we are going to be aggressive, but mostly in promoting and selling to the base data services, not necessarily the street prices have to be incredibly aggressive and competitive. We do believe that there is more of chance of selling the data to the existing customers where you don't have to be extremely aggressive in pricing then trying to fight for the customers in the street where the competition is based on the data price. So, said that, we do not think that there is a high threat of margin deterioration due to our aggressive behavior in the data market and pricing? The second question is a very interesting one, because I do understand that if you take a look at the European messaging revenues, you would rather see declines and sometimes of this very drastic declines. It's a different situation and basically all of our markets you will see an increase in both Russian market and the second most significant market ours in Ukraine, which is mostly due to our packaging and our pricing models that we use for driving the revenues of the messaging in Russian market. Also it is a factor of much lower penetration of IP messaging in Russia like iMessaging or Vibers or WhatsApps. The penetration is here, but it is significantly lower than a penetration in the European countries. So packaging messages into the bundled tariff plans, which include voice, data and messaging and also generally relatively high price for SMS in Russian market that keeps the messaging revenues still growing, which is also a factor of our customer base growth.
Ana - Sberbank: Sorry, can I just clarify, so it means that it wasn’t just one-off and we should anticipate it in the following quarters as well? I mean it might not sustain for long but nevertheless it wasn’t due to some one-off campaign?
Vasyl Latsanych - VP, Marketing: Well if you could see our previous reports for the previous quarters, messaging revenues have been growing consistently quarter-through-quarter. I should not say how much it will grow in the future but I believe that it still has potential to grow at least for this year.
Operator: Anna Kurbatova, BSC.
Anna Kurbatova - BCS Financial Group: Again on handsets and subsidies, there was an article last week in (indiscernible) saying that you expected to subsidize some smartphones for your corporate customers. Could you a bit elaborate on this topic how far are you going to go with this?
Vasyl Latsanych - VP, Marketing: Anna, I am sorry we don’t seem to be aware of such an article, hence we definitely are not considering any heavy or any even light subsidies, on shelf subsidies in Russian market. As you know there is no mechanism for a customer lock and/or long term contracts in the market. So subsidies are very tricky. We are not in that market and I don’t know what information got into (indiscernible). We haven’t seen it.
Andrei Dubovskov - CEO: And our position – it's Andrei Dubovskov, is very clear. It's not depended on ready mix article or as in newspapers not subsidized in each markets mass markets or corporate doesn't matter.
Operator: There are no further questions queued at this time.
Joshua B. Tulgan - Director IR: Thank you, operator. 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 call will be available on our website if you wish to replay. In the meantime we appreciate your interest and wish everyone a pleasant day and evening.
Operator: That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.