Mobile Telesystems Earnings Call NUGGETS: Dividend Outlook, Exceptional Items at EBITDA Level

On Tuesday, Mobile Telesystems OJSC ADR (NYSE:MBT) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Dividend Outlook

JP Davids – Barclays Capital: Two question please, the first one on the Uzbek impairment, just in terms of your dividend outlook for 2012, will this impairment be looked at or considered when you pay out dividends at the end of 2012 with the knowledge that you do have a dividend payout ratio as guidance – an EPS payout ratio. The second question is a broader question on mobile data and more specifically, when you move into the LTE world in Russia, do you see this as an opportunity to accelerate usage amongst your base or to price the product differently?

Alexey Kornya – VP and CFO: At this time I will answer on the first one, on dividend. At this time it is too early to speculate what will be the final impact of events in Uzbekistan. With now year and financial and operating – full year financial and operating results which in turn will affect our proposal to the Board of Directors on recommended dividend payments. Under the internal policies are defined as a percentage of net income and under Russian law, we can pay dividends from our net income, under Russia accounting standards and the percentage of retained earnings. While we have the option to revisit our internal policies, we also possess enough funds in our retained earnings to sustain the level of dividend payments, which we historically had. So, at this point, as I said, I think it’s a bit too premature to speculate about what will be hit of these events on our dividends.

Aleksander Popovskiy – VP and COO: On LTE, yes we are very – we are already moving to LTE world, as we probably have now just announced our first LTE launch on September 1, in Moscow. This will be our own TD-LTE network, which will be fully operational since September 1, this year. We of course see LTE as an opportunity both for accelerating usage of course, this is logical because of the higher speed and ARPU also, in two ways. The first opportunity of course LTE rises the quality standard of mobile data to the new level, which gives us a moral right to price it differently, to switch more towards tiered pricing and to price it eventually higher than we used to for 3G networks and the other way is that by releasing our existing 3G network from huge big screen traffic, which we mostly offloaded to LTE networks. We raise the level of customer experience for smartphones, which gives us of course a high potential for ARPU growth and for growth penetration of mobile data.

Andrei Dubovskov – President and CEO: Some words about pricing. It’s Andrei Dubovskov. I couldn’t tell price policy in Moscow region. We are not going to establish very big differences between price in 3G or 4G networks.

Exceptional Items at EBITDA Level

Cesar Tiron – Morgan Stanley: I actually would like to know, if you can go through those exceptional items at the EBITDA level one more time and say if your expectations of lower margin in H2 2012 is compared to H1 or compared to Q2? Thank you very much.

Andrei Dubovskov – President and CEO: Well that’s both, that relates our low expectations second half of the year against first half of the year, and further as we’ll see in the second half third and fourth quarter. We expect that they will be quicker than our second quarter. Even though third quarter can be quite a key because of seasonality I think we’ll see the main impression on our margin somewhere in the fourth quarter and basically that still allows us to show quite a good profitability level and we believe as respect of our margin. We will be at the very high end of our guidance.

Cesar Tiron – Morgan Stanley: Do you mind to go through those exceptional items one more time?

Andrei Dubovskov – President and CEO: Well, you mean which positively affected our financials or…

Cesar Tiron – Morgan Stanley: Yes.

Andrei Dubovskov – President and CEO: We expect they come out. Then we had sell of equipment against which we previously reserved. Then the release of employee bonus for full financial year 2011, we had the sale of real estate premise in MGTS. And reduction of interconnect expense in Ukraine due to release of some reserve held against interconnect.

Cesar Tiron – Morgan Stanley: The total impact was 150 basis points, 1.5%.

Alexey Kornya – VP and CFO: That was around 1.5 percentage points.