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. Last Updated: 07/27/2016

MTS Beats Q1 Profit Forecasts on Ruble Strength, More Usage

Mobile phone operator MTS posted forecast-beating results on forex gains, increased usage and rising subscriber numbers, which it expected to underpin future growth.

The global downturn had a moderate impact on the Russian telecoms sector, mainly through a sharp depreciation of the ruble, while sales in local currencies continued to grow, albeit at a slower pace.

Regional telecoms sector valuations are at their cheapest level for many years but also need to justify potential growth rates, Citigroup said in a comment on the results, noting that MTS's Russian mobile revenue growth was two percentage points above its 14.2 percent forecast.

MTS, which reported on Tuesday a first-quarter net profit of $381 million against a $357 million market view and a $53.3 million year-ago loss, said a stronger ruble resulted in a $77 million forex gain after a $489 million loss a year ago.

As the ruble has recovered from a year-ago slump on the back of stronger prices for oil, Russian companies have recorded foreign exchange gains, giving them favorable comparisons with the year-earlier periods.

The appreciation in the ruble and other local currencies helped MTS lift first-quarter revenues by 23 percent year on year to $2.61 billion.

Sales also found support from a higher mobile subscriber base and increased usage, as mobile segment revenues rose 18 percent to $2.07 billion.

"Overall, increasing usage, greater adoption of data products, subscriber additions and our extension into new products and services continue to support our growth.

"While we do not yet see a distinct impact on our business from the improving economic environment, we continue to outperform our peers in our markets of operation," MTS said.

MTS said average mobile traffic per one subscriber rose by 6 minutes in its key market, Russia, over the past 12 months, to stand at 211 minutes per month.

Increased sales of handsets also helped, said MTS, which opened more than 1,000 stores over the past year.

The low-margin retail business continued to dilute its margins which, based on the operating income before depreciation and amortization, lost 1 percentage point to stand at 44.1 percent, in line with analysts' forecasts.

MTS, part of oil-to-telecoms conglomerate Sistema, is Russia's largest mobile operator by sales and subscriber numbers and also operates in Armenia, Belarus, Ukraine, Turkmenistan and Uzbekistan.

As of April 30, it had 103 million subscribers, according to market research group AC&M, compared with 97 million a year ago.