The path length of 24 years for MTS company was full of the most ambitious change. First and foremost, we ourselves are different now: a local mobile operator was transformed into multi-service. But now we are not resting on our laurels. The era of great events and achievements only starts!

Today MTS is focused on IT industry and digital environment. We have all the resources to continue to create digital products and services that impact society, culture and economy. We know how to change to a better tomorrow!

. . .

Continue

MTS Annual Report

2016

We turn changes into reality

Read the Report Watch the Video
Annual Report 2016 Русский PDF-version

MTS Group Today

>139 thousand
base stations

>213 thousand
km of fiber-optic lines

10 million
households in Russia covered by fixed lines of MTS and 9 million by broadband Internet

 

>6 thousand
retail stores of MTS. More than 6 million on-line orders per year

110
offices of MTS Bank in Russia

70 thousand
employees

 

Main Outcomes for 2016

Financial indicators

Consolidated income
435.7 billion RUB

OIBDA
169.3 billion RUB

OIBDA profitability
38.8%

Average net profit
48.5 billion RUB

Net income margin
11.1%

Operational indicators

Penetration of financial services into subscriber base
20%

A unique digital ecosystem has been created: 24 applications, 7.3 million monthly users

Cumulative effect from the use of Big data
536 million RUB

Revenues from system integration in 2016
5.6 billion RUB

Dividend payments in 2016 in the amount of 26.0 rubles per share + yeld of 0.4 rubles per share as a part of redemption program


  • Strong financial performance in 2016, despite the difficult macroeconomic situation and competition: in 2016 consolidated revenues of MTS Group grew by 2% over the year to 435.7 billion rubles.
  • MTS, one of the largest tower infrastructure and antenna-mast structures operators in the Russian Federation has announced its entry into the tower infrastructure rental market. The Company has elaborated a strategy for development of its own telecommunications infrastructure, which also involves the creation of a new business for management of the existing tower infrastructure.
  • MTS opened the Innovation Center, a unit that forms a new approach to research into promising areas of business development in the company and the subsequent launch of products and services. The work of the MTS Innovation Center includes iterative development of services, dynamic formation of requirements and their implementation by a team of experts of various profiles. Using this approach, the company expects to reduce the time to market of new products three to four times in the long term.
  • MTS for the first time in the history of corporate governance in Russia launched online shareholder electronic voting service based on ComVoting.

Even in such difficult conditions, the Company successfully grows its revenues year after year, fulfills all tasks to achieve target profitability and meet all obligations to ensure profitability for shareholders, including, first of all, dividend payments."

Chairman of the Board of Directors of MTS PJSC
Ron Sommer

Message of the Board Chairman

2016 Highlights

15
February
MTS, British Telecom, Deutsche Telekom, JIO Infocomm, Millicom, Orange, Rogers, TeliaSonera and TIM have created an alliance of operators to quickly and effectively promote products and services of innovative partner companies. The total potential client base of all alliance members covers about one billion people in more than 80 countries.
11
April
The Board of Directors of MTS approved new dividend policies. In accordance with the new dividend policy to apply in 2016–2018, the company set a target dividend yield of 25.0–26.0 rubles per one common share of MTS PJSC (50.0–52.0 rubles per ADR) during each calendar year. With that, the dividend policy assumes a minimum dividend payout of 20.0 rubles per share (40.0 rubles per one ADR) per year.
20
April
MTS and Samsung Electronics have started cooperation for the development of Samsung’s branded retail stores in Russia. MTS will build and will manage a network of showrooms under the Samsung brand in several key regions of Russia.
3
June
MTS launched the Moscow’s first fragment of the Fourth Generation network in Russia with LTE FDD1 frequency aggregation and LTE TDD2 in Moscow. Combination of these two standards in other regions of Russia will enable MTS to significantly improve LTE network coverage and increase the peak mobile Internet rates up to 187 Mbps.
15
June
MTS and Ericsson conducted the first successful testing of LTE-U (LTE-Unlicensed) mobile technology in Russia, demonstrating aggregation of two frequency bands — 10 MHz in the 1800 MHz bandwidth of the LTE standard and 20 MHz in the unlicensed 5 GHz bandwidth at Wi-Fi access points. During the tests data rate reached 200 Mbit/s.

MTS announced early redemption of outstanding Eurobonds issued for a total of $ 750 million with maturity in 2020, through its subsidiary company of Dega Retail Holding Limited. In June, MTS purchased its own Eurobonds with a par value of $ 267.44 million.
19
July
MTS paid the last seventh coupon and redeemed Series 05 ruble bonds. Thus MTS has completed repayment of seven-year bonds of Series 05 for the total amount of 15 billion rubles.
19
August
MTS announced reduction of the authorized capital to 199.84 million rubles (1,998,381,575 placed ordinary registered shares) from 206.64 million rubles (2,066,413,562 shares) according to the procedures for repayment of 3.29% of shares.
15
September
MTS and Nokia Corp. Successfully conducted testing of fifth generation (5G) mobile communication technology, and achieved a record for Russia’s mobile data speed of 4.5 Gbit/s in 200 MHz band.
20
September
MTS acquired a 100% stake in the regional telecommunications operator JSC SMARTS-Yoshkar-Ola through its subsidiary Telecom Povolzhye LLC from the SMARTS Group for 41 million rubles, including the net debt of 27.7 million rubles.
31
October
In October and December 2016, the Board of Directors decided to hold modified two Dutch auctions for share buyback program for the total amount of up to 10 billion rubles. In October 2016 and January 2017, MTS repurchased 17,532,278 shares for the total amount of 5.0 billion rubles, and also acquired shares from its majority shareholder, JSFC Sistema, in proportion to its effective share of ownership, at the prices determined by the auction. In total, MTS spent 10 billion rubles on the acquisition of 35,121,665 shares.
3
November
MTS and Nokia Corp. announced successful completion of the Russia’s first tests of the integrated Internet of Things (IoT) solution on MTS network.
22
November
MTS completed payment of dividends for the first half of 2016 in the amount of 24 billion rubles.
28
November
MTS and VimpelCom began sharing radio spectrum in 4G networks in the city of Cherepovets (Vologda region), increasing mobile data rates for their subscribers. This region was the first where for the first time in Russia two operators combined their frequency bands as a part of a large-scale project on joint construction and operation of LTE networks in more than 30 regions of the Russian Federation.
16
December
MTS began transition to the next, going right after 4G mobile communication standard — LTE-Advanced Pro (4.5G), launching the country’s fastest fourth-generation sections on the existing network with peak data rates of up to 700 Mbps. High-speed commercial networks 4.5G from MTS have been already launched in Moscow, St. Petersburg, Ufa and Yakutsk.

Management Report

In 2016 MTS remained the leader in the mobile market in Russia, which is the key market for the Group and generates 90% of its income, both in terms of absolute revenue, OIBDA, OIBDA margin, subscriber number and subscriber growth, increasing its breakaway by revenue and OIBDA from other players in the market year to year."

President of MTS PJSC
А.А. Dubovskov

Message of the President Our Strategy Financial Indicators of the Group

Corporate Governance

Digitalisation is the strongest global trend of the modern world. Being a telecommunications company, we feel our special involvement in this process.

Digital transformation poses new challenges for us, not limited to the need to apply new methods in marketing or production activities, but also poses new requirements to the corporate governance quality.

Confirming our adherence to the principles of information openness and transparency, strict observance of business ethics, socially responsible business and maintaining a balance of interests of management and shareholders, our Company demonstrates compliance with corporate governance standards at the highest level."

Corporate Governance Director of MTS PJSC
Maxim Kalinin

Sustainable Development

Every year MTS strives to improve practices in the field of corporate social responsibility and sustainable development.

In 2016, we first prepared and approved the MTS Corporate Social Responsibility Strategy until 2020.

Being a major employer, we understand our responsibility to the staff and members of their families. We strive to provide opportunities not only for professional development of employees, but also opportunities for social self-realization. We are proud of our volunteer movement and plan to continue the development of our social projects."

Member of the Management Board, Vice President for Human Resources
Mikhail Arkhipov

Our Approach to Sustainable Development/Social Responsibility

Information about the Company

Full trade name of the Company:

  • in Russian:
    Публичное акционерное общество «Мобильные ТелеСистемы».
  • in English:
    Mobile TeleSystems Public Joint Stock Company.

Short trade name of the Company:

  • in Russian: ПАО «МТС»
  • in English: MTS PJSC

Location of MTS PJSC:
Russian Federation 109147, Moscow, Marksistskaya St., 4

Phone: (495) 911 6555

Fax: (495) 911 6599

Correspondence address of MTS PJSC:
Russian Federation, 109147, Moscow, Vorontsovskaya Str., 5, bldg. 2

E-mail: info@mts.ru

Internet: www.mtsgsm.com

© 2017 MTS PJSC. © 2017 Konstantin Lapushkin, site development

Message of the Board Chairman

Dear shareholders,

First of all, I would like to note that the actual levels achieved by MTS in 2016 in terms of key performance indicators fully meet our expectations. I’ll let the management of the Company to give details on this year’s performance; for my part, I would like to highlight the fact that the goals that we faced last year were achieved in unfavorable macroeconomic context observed in the markets where we operate, which, however, was not something new and unexpected for us. The economic background that was perceived as a challenge three years ago has become a familiar environment for us, and we feel more than confident in it. Even in such difficult conditions, the Company successfully grows its revenues year after year, fulfills all tasks to achieve target profitability and meet all obligations to ensure profitability for shareholders, including, first of all, dividend payments.

Even in such difficult conditions, the Company successfully grows its revenues year after year, fulfills all tasks to achieve target profitability and meet all obligations to ensure profitability for shareholders, including, first of all, dividend payments.

It should be noted that currently the telecommunications market in its traditional sense has practically no prospects for further growth. In the markets where we operate the fixed segment still has some potential for organic and inorganic growth, but here we are talking about the dynamics in couple of percents, which does not allow us to count on significant progress in the business where have operated for many years. That is why in 2014 one of the key strategic priorities for our company was Differentiation. Today we can say that all the tasks that we set ourselves in this area have been fulfilled, the goals have been achieved. MTS’s competencies expanded into new areas such as financial services, Internet of Things, Big Data, system integration and a number of others. Over this period we have traveled from project teams to full-fledged divisions within our organizational structure, from pilot projects to robust products which are used by millions of customers, from a near-zero commercial effect to billions in revenues. We are ready to build a new environment for our business on this foundation, and move further into the digital age.

Consolidated income of MTS Group

In order to emphasize the desire not only to expand the scope of our activities, but also to change the general approach to the development of new products, solutions, to the very principles of work organization and company management, in 2016 the Board of Directors decided to transform the strategy “3D: Data. Differentiation. Dividends” into a new form: “3D: Data. Digital. Dividends”. You will learn more about the elements of our new strategy in the section “Our Strategy”. I also would like to mention that it is based on the aspiration to realize the potential of our company during Digital Transformation, which is a key task for us in the near future.

Another important decision made by the Board of Directors of MTS in 2016 was the approval of the dividend policy for 2016–2018. Without going too much into details that will be revealed below, I emphasize that we continue the good tradition laid down in the previous 3 years: namely, ensuring stable, guaranteed, high level of return on investment for our shareholders.

Before I give the floor to MTS President Andrey Dubovskov, I would like to thank all the members of the Board of Directors for their hard and fruitful work during the year. The hours of joint discussion of key issues for the company, free and open exchange of opinions, high professionalism and experience of each Board member were embodied in the most important strategic and tactical decisions. Details on the activities of the Board of Directors will be discussed in the “Corporate Governance” section; I also note that this year the Board has traditionally demonstrated the high level of execution of its key functions: ensuring information openness and transparency, protecting shareholders’ rights, controlling management activities and collegial way of making major management decisions.

Chairman of the Board of Directors of MTS PJSC
Ron Sommer

Message of the President

Dear shareholders,

In 2016 MTS remained the leader in the mobile market in Russia, which is the key market for the Group and generates 90% of its income, both in terms of absolute revenue, OIBDA, OIBDA margin, subscriber number and subscriber growth, increasing its breakaway by revenue and OIBDA from other players in the market year to year.

We completed the year 2016 successfully, despite the crisis events in the economy and increased competition. MTS Group built modern communication networks, introduced innovative technologies and services, mastered new areas, and increased efficiency and attractiveness of business. Just as before, we are maintaining our leadership positions in Russia, working for the benefit of our customers, employees and shareholders, building harmonious relations with all stakeholders in the markets where we operate.

Last year MTS Group revenue grew by 2.1% to 435.7 billion rubles, outstripping the dynamics of key markets due to increased consumption of data services in the main regions where we operate and sales of mobile devices in Russia, and the adjusted OIBDA decreased slightly to 169.3 billion rubles, given the macroeconomic instability and tightening competition.

In 2016 MTS remained the leader in the mobile market in Russia, which is the key market for the Group and generates 90% of its income, both in terms of absolute revenue (103.8 billion rubles), OIBDA (41.0 billion rubles), OIBDA margin (39.6%), subscriber number (80 million) and subscriber growth (+3.5%), increasing its breakaway by revenue and OIBDA from other players in the market year to year. In the fourth quarter of 2016, MTS turned out to be the only Big Three operator to demonstrate growth in total revenue (+1.2%) and the smallest OIBDA decrease (-0.2%) in annual terms.

In Ukraine, Belarus, Armenia and Turkmenistan, the business of MTS was complementary to market volatility, but the company’s market positions in these countries remained stable in general.

As a result, at the end of 2016 MTS was the leader in terms of capitalization in all markets where the company operates.

As a result, at the end of 2016 MTS was the leader in terms of capitalization in all markets where the company operates.

This performance is an evidence of the successful completion of the first stage of “3D” Strategy during 2014–2016. Since 2017, the strategy “Data. Differentiation. Dividends” has been transformed into updated strategy: “Data. Digitalisation. Dividends” with a focus on active promotion of digital services.

Data

In 2016, the company continued data transformation, actively investing in the construction of mobile data networks in all 83 regions of Russia. The company increased penetration of smartphones and data services in the subscriber base, offering high-quality access to high-speed mobile Internet and attractive tariff bundles.

During the past year MTS commissioned about 10,000 base stations, including about 6,300 LTE stations, bringing the total number of base stations in Russia to 139,600. We started using the frequency resource LTE-TDD purchased at the auction, and were the first company in Russia to start shared operation of frequency spectrum with another telecom operator, and in some regions launched fragments of the country’s fastest network of the next standard: LTE-Advanced Pro (4.5G).

Continuing to invest in the development of infrastructure, we see the possibility of gradual reduction of our capital costs while maintaining the quality of the services and increasing cash flow.

By the end of 2016, MTS completed the main stage of building its own transport fiber-optic network, expanding it to 213 thousand kilometers, and also completed expansion of its own retail network with over 6,000 points of sales.

Thanks to the development of data networks and own distribution channels, penetration of mobile Internet to the subscriber base at the end of 2016 was 49%, smartphone penetration was more than 54%, and LTE traffic in the total data traffic in our network grew to 26% in 2016 from 17% in 2015.

MTS continued to increase its growth rates in another important market — Ukraine, launching and expanding 3G networks in all major localities, providing 54% of the country’s population with access to data services. As a result, we observe exponential growth in data consumption in Ukraine.

Continuing to invest in the development of infrastructure, we see the possibility of gradual reduction of our capital costs while maintaining the quality of the services and increasing cash flow. Completion of the main stage of network construction enabled us to reduce capital expenditures in 2016 by 13.1% to 83.6billion rubles.

From differentiation to digitalisation

Today, we understand differentiation not only as expanding our presence in other areas, but also business digitalization by actively implementing IT in products, services, and operations.

After acquisition of NVision Group, MTS’s business in system integration market demonstrated promising results in 2016, opening prospects for turning MTS into a major integrated IT solutions and IoT-services supplier for the corporate segment. We managed to offer new IT-products, continue the development of Big Data projects, and strengthen our presence in the cloud and M2M-solutions market. Thus, in the fourth quarter of 2016, sales of NVision Group software grew by 17.7% quarter-on-quarter, and by the end of 2016 the revenue from system integration amounted to 5.6 billion rubles, which affected the dynamics of MTS’s total revenue. We strengthened our leadership in the Russian IoT market: by the end of 2016 the company served 4.4 million SIM cards, which accounted for 46% of the M2M market1.

1 According to AC&M research agency.

Today, we understand differentiation not only as expanding our presence in other areas, but also business digitalization by actively implementing IT in products, services, and operations.

In addition to business development, acquisition of a system integrator enables us to accelerate introduction of digital technologies in our operations, including customer service, development of IT systems and innovative corporate culture. For example, just the effect from using Big Data in internal business processes amounted to more than 530 million rubles in 2016.

Strengthened expertise of MTS in the IT field expands OTT, IP and cloud services digital ecosystem: by the end of 2016, over 7.3 million subscribers were actively using 24 branded applications of MTS. We have made serious progress in implementing GSMA Network 2020 program, offering subscribers IP communications services: along with the further development of IP-messaging service and MTS Connect chat service we launched Wi-Fi Calling (Voice over Wi-Fi), which allows subscribers to use voice MTS communication services in any available Wi-Fi network.

In 2016, MTS realized the main internal synergies with MTS-Bank by upgrading its IT platform, which enabled us to make a quantum leap and to increase penetration of financial services to the subscriber base to 20% or 14.8 million people, as well as launch “MTS Money Wallet” application, which will provide “one-click “access to the entire ecosystem of MTS digital financial services.

We strengthened our presence in the e-commerce market through the stake in OZON Holdings, as well as through improvement of sales through our own online store, shop.mts.ru, whose share in the total retail sales of MTS amounted to 10.4% or 4.4 billion rubles.

We entered the tower infrastructure rental market and created a new business for management of the existing infrastructure and further monetization of assets, offering at the first stage more than 5,500 towers and antenna support structures in various regions of Russia.

Last year, we tested the revolutionary 5G and IoT technologies with our key vendors, and also opened the Innovation Center, a unit engaged in development of a new approach to researching prospective business areas and subsequent launch of products and services.

Dividends

We continued our policy aimed at increasing the profitability for shareholders. The total amount of dividends paid per share in the 2016 calendar year was 26.0 rubles (52.0 rubles per ADR). In June 2016, MTS paid dividends in the amount of 14.01 rubles per one registered ordinary share of MTS (28.02 rubles per ADR) or a total of 28.0 billion rubles based on the financial performance in 2015. In the fourth quarter, MTS paid dividends for the first half of 2016 in the amount of 11.99 rubles per one ordinary registered share (23.98 rubles per ADR) or 23.96 billion rubles in total.

In April 2016, the Board of Directors approved a new dividend policy of the company, which will apply in 2016–2018. In line with the new policy, the company set a target dividend yield at the level of 25.0–26.0 rubles per ordinary share of MTS (50.0–52.0 rubles per ADR) for each calendar year. With that, the dividend policy provides for a minimum dividend payout of MTS of 20.0 rubles per share (40.0 rubles per one ADR) per year. Just as before, the dividends will be paid in two installments during the calendar year. At the same time, MTS is moving to more even distribution of dividend payments during the year.

We continued our policy aimed at increasing the profitability for shareholders. The total amount of dividends paid per share in the 2016 calendar year was 26.0 rubles (52.0 rubles per ADR).

To increase the return on earnings per share in April 2016, we announced that we will use up to 30 billion rubles for share buyback program within three years. For this purpose, MTS acquired 17.5 million of its own shares for a total of about 5.0 billion rubles at two auctions in the fourth quarter of 2016 and the first quarter of 2017. Simultaneously, MTS entered into a binding agreement with JSFC Sistema to acquire a stake in proportion to the share of the principal shareholder at arm’s length prices. In total, MTS acquired 35.1 million shares worth 10.0 billion rubles.

Forecast for 2017 and update of the strategy

Taking into account the uncertain macroeconomic situation, volatility of exchange rates in the markets where we operate, increased competition in retail segment and in tariff policy, dynamics of revenue from services in Russia, and potential growth in the consumption of high-margin services, including roaming services, we prepared a fairly wide Group’s revenue and adjusted OIBDA estimate — from –2% to +2%. We hope that the growth of MTS’s revenue in Russia by 0.3% YoY in the fourth quarter of 2016 will continue as a sign of the economy’s emerging recovery from the recession and revival of the demand.

Reduced capital expenditure of 80 billion rubles in 2017, as well as possibility of further reduction of CapEx in 2018–2019 due to completion of large-scale construction projects of optical networks, the main stage of aggressive deployment of LTE network in Russia and 3G networks in Ukraine, will have positive impact on cash flow. In the next two to three years, we will continue to optimize the costs of building and operating infrastructure. MTS employs shared use of infrastructure networks, and from this year starts projects on sharing the frequency spectrum in more than 30 regions of Russia.

This does not mean that we stop there. After the aggressive construction of 4G networks the company has to invest in digitization of internal processes and the development of new digital products to meet the onset of the 5G era. Thus, we are betting on digitalisation and implementation of evolutionary 5G solutions in the Russian market.

In 2017 we changed one component in the updated “3D” strategy, to be adjusted annually, replacing “differentiation” with “digitalisation”. In order not to turn the Company into a “pipe”, we must fill this “pipe” with content, i.e. digital services developed independently or in cooperation with partners. In this way we’ll be able to make a significant contribution to economic growth, introduction of innovations and improvement of the quality of life of more than 100 million subscribers in Russia and the countries where we operate.

President of MTS PJSC
А.А. Dubovskov

Our Strategy

Key areas of development and goals

The whole world around us is rapidly changing, digitized, and we certainly can not stay behind, we need to adapt to these changes, to move away from archaic, obsolete models of existence to the area we call Digital. We should start to feel ourselves not as a traditional telecom, but as a company that sees its future in new industries.

President of MTS PJSC
Andrey Dubovskov

The most striking global trend of the modern world in our view is the process of digitalisation of all areas of human activity: high-tech and traditional industries, scientific activity and healthcare, art and everyday life of people. This trend creates a number field of new opportunities, promotes formation and development of new businesses and entire industries, stimulates creation of new companies, radically changes the investment landscape. Moving towards the digital future sets new challenges that are not limited to the need to apply new marketing methods or production activities, but it introduces new requirements to the principles of company positioning in the economic environment, management style and corporate culture.

Being a telecommunications company, we feel our special involvement in this global trend. Telecommunications are the basis for digitalisation processes, a prerequisite for their existence; on the one hand, it provides us with a lot of new opportunities, on the other hand it places high demands on the quality of our work and imposes a special responsibility for making right management decisions. In a rapidly changing environment, the key to success is the willingness to change and to constantly adjust the development path of our company, as well as courage to make decisions and clear vision of the prospects.

Following the ideas presented above, in 2016 we decided to transform the strategic concept “3D: Data. Differentiation. Dividends” into a new form: “3D: Data. Digital. Dividends”.

Data

The area “Data” is the basis of the updated version of our strategy, a foundation for implementation of the entire variety of current and future products, services and projects, as well as for successful transformation of MTS into a digital company. Data concept is multifaceted. On the one hand it is a physical environment, which includes components such as backbone channels, 2/3/4G and fixed networks, satellite components, IT systems. On the other hand, it is a basic data service, basic tariffs and generated data traffic, that is, it forms the bottom layer of the client experience. The key priorities in this area for us are the constant improvement of network performance, data speed, optimization of the use of the frequency resource, building up of the capabilities of our own IT platforms that form the toolkit for interaction with customers and partners.

Digital

“Digital” concept is central to our updated strategic paradigm. It goes through all the diversity of our activities related to the creation of client experience, development of partner projects, interaction with external environment, as well as implementation of changes within the company itself. In a more specific way Digital can be presented as the process of introducing digital technologies into operations, including building a new generation of IT environments, changing the principles and methods of interaction with customers and partners, developing a flexible, proactive, stimulating innovation of corporate culture.

Data area can be called a tool, while Digital includes the processes of implementing all the changes that required from us by the digital age. We understand that the global trend of digitalisation carries a large number of uncertainties, but it also provides a huge field of opportunity and we intend to be an active player in this field.

Currently, the key businesses in this part of our strategy include: financial services, Internet of Things, Big Data, Digital commerce, system integration, OTT. In addition, we see a number of other promising areas, closely monitor their dynamics and will add them to our portfolio of projects as they evolve to the level commercially viable given the scale of our business.

We will strive to hold a significant market position in all the above areas, but at the same time, we realize that for a number of reasons (primarily high level of risk or a small scale), the presence in a number of areas will be more reasonable if implemented through Partner programs. More active interaction with business partners who can implement their ideas using the resources of our Company is an important area for our efforts. We strive to be a strong, reliable and flexible partner in the digital environment. We are positive that our infrastructure, experience and knowledge will be a reliable support for a number of new businesses and will become a guarantee of mutually beneficial cooperation.

It should be noted that the base for Digital was laid down due to successful implementation of the “Differentiation” area within “3D” Strategy. Today we can say that the goals of differentiation have been successfully achieved, the company has acquired unique competencies in the areas going beyond the traditional telecom. Our main goal now is the active development of these areas, which will generate value in the most promising markets, create a unique client experience to enrich people’s lives and provide them with new opportunities, which eventually will enable us to continue to occupy a leading market position.

Dividends

Area “Dividends” fully retains its content, which we described earlier as a part of the “3D” strategy. In this way we emphasize that neither the complicated macroeconomic landscape, twists and turns of competition, nor the new global trends affect our desire to create shareholder value and maintain stable return for shareholders. The key goal in this area remains constant and consistent increase of business efficiency; with that, we consider digitalisation as a new tool for reach this goal. For example, changing the balance between offline and online sales, as well as the use of new sales technologies has the potential to reduce costs of attracting subscribers.

In order to ensure stability and predictability of the cash flow and reduce currency risks, we pay special attention to maintaining the optimal level and structure of debt, as well as its cost.

The main strategic priorities of MTS in the short and medium term are:

  • Leadership in revenues in the key mobile services market in Russia
  • Active development of data networks to provide basic services (voice + data)
  • Providing a full range of services in a fixed segment, ensuring high level of quality and competitive pricing
  • Introducing digital tools into all company processes, building a new kind of IT environment
  • Implementation of promising projects enabling to operate value-generating businesses (financial services, Internet of Things, Big Data, Digital commerce, system integration, OTT)
  • Ensuring high return on investment for shareholders

At the end of 2016, MTS confirms its own positioning as the leader in our key mobile segment of the telecommunications industry. At the same time, we are enthusiastically looking at the prospects opened by the digital future and set ourselves a new strategic goal: to transform ourselves into a Digital company. We believe that the infrastructure created by us, our accumulated knowledge and experience, ability to respond to new challenges and willingness for change, including corporate culture, organizational structure and management style, will enable us to succeed in a number of new business areas and take a strong position in new markets. The purpose of this evolution is the acquisition of new competencies in a number of businesses that will enable us to create even more comprehensive and high-quality client experience and enrich our capabilities as a business partner, which will eventually enable us to successfully conduct business in the new digital world and achieve a high level of profitability for shareholders.

Financial Indicators of the Group1

Income of the Group2 (RUB bln)

1 Information on the consolidated financial and operating results of MTS Group in Q4 2016 and 2016 in general: www.company.mts.ru/comp/ir/report/2017-03-21-5771077/.

2 Excluding discontinued operations in Uzbekistan.

Continuing to implement our strategy, we demonstrated strong financial results in 2016 despite the difficult macroeconomic situation and competition. Financial volatility in certain markets was reflected in the performance of the Group, but in general, it meets our expectations. We believe that MTS will benefit as much as possible in case of improvement of macroeconomic conditions and business environment.

MTS PJSC President
Andrey Dubovskov

Distribution of Group’s income1

1 Excluding internal group operations.
The total amount of percentages may differ from 100% due to rounding.

The Group’s revenue increased by 2.1% in 2016 and amounted to 435.7 billion rubles. Sustained growth in the use of data services in key markets, coupled with the increase in mobile phone sales in Russia offset the negative impact of macroeconomic factors in such segments as services for corporate customers and roaming services, while the effect of ruble appreciation led to reduction in the contribution of revenues of foreign subsidiaries to overall performance. In general, the revenue dynamics outstripped the market in key regions of MTS‘presence.

MTS PJSC President
Andrey Dubovskov

Adjusted Group OIBDA1 and OIBDA margin (RUB bln)

Adjusted OIBDA margin: factor analysis (RUB bln)

1 Less provision for funds in Ukrainian banks subsequently recognized insolvent in the amount of 1.7 billion rubles for 9 months of 2015 and for the loss from impairment of goodwill in Armenia by 3.5 billion rubles in Q4 2015. Adjusted for the effect of the termination of operations in Uzbekistan.

Despite the long-term macroeconomic instability and increased competition in key markets, adjusted OIBDA in 2016 declined slightly and amounted to 169.3 billion rubles. Additional costs for the development of the retail chain, as well as macroeconomic factors had a negative impact on profitability in Russia, while strengthening of the ruble limited contribution of foreign subsidiaries. Nevertheless, stabilization of the macroeconomic environment and strategic approach to improving efficiency contribute to positive impact the overall improvement of the situation in the Russian market on MTS business in general.

MTS PJSC President
Andrey Dubovskov

Net income and net profit margin of the Group (RUB bln)

Factor analysis of net income (RUB bln)

The Group’s net profit for the year slightly decreased to 48.5 billion rubles, on the whole following the OIBDA dynamics. Gradual strengthening of the ruble during the year, combined with improved financial results of subsidiaries and associates, including MTS Bank, offset one-off losses, including sale of UMS.

Vice-President for Finance and Investment, Mergers and Acquisitions, Member of the Management Board
Alexei Kornya

Liquidity and cash flow (RUB bln)

As of the end of the year, total debt was 274.8 billion rubles (less leasing costs and borrowing costs). This indicator is reduced due to stabilization of exchange rates, as well as the repayment of various debt instruments. In particular, in June, taking advantage of the favorable market situation and high liquidity of securities, MTS bought its own Eurobonds for USD 267 million, in order to hedge future currency risks and fluctuations in the book value of debt.

Vice-President for Finance and Investment, Mergers and Acquisitions, Member of the Management Board
Alexei Kornya

Debt payment schedule (RUB bln)

Net debt (RUB bln)

Debt structure by currencies

Debt structure by type

Capital expenditures (CAPEX) (RUB bln)

2015 2016
CAPEX
(RUB bln)
As % of income CAPEX
(RUB bln)
As % of income
Russia1 79.6 20.4% 73.8 18.4%
Ukraine2 12.4 44.1% 7.5 25.6%
Armenia 1.4 15.2% 1.0 11.8%
Turkmenistan 0.5 9.8% 0.4 9.0%
Group3 96.1 22.5% 83.6 19.2%

1 Excluding expenses for acquisition of 4G licenses in amount of RUB 3.4 bln in 2015 and RUB 2.6 bln in 2016.

2 Excluding expenses for acquisition of 3G licenses in Ukraine in amount of RUB 7.0 bln in 2015.

3 Including capital expenditures in Uzbekistan, reflected in the cash flow from discontinued operations.

Capital expenditures of MTS in 2016 amounted to 83.6 billion rubles, which is 13.1% less than in 2015, and slightly lower than projected 85.0 billion rubles. At the end of 2016, MTS completed the fiber optic network development program and launched LTE-enabled networks in all regions of Russia where it operates.

In 2016 MTS additionally built 6,200 LTE base stations to expand high-quality mobile network for customers and maintain the leading position in the market. Continuing to invest in infrastructure development, the company sees the possibility of a gradual reduction of its capital expenditures while maintaining the quality of services provided and increasing cash flows.

Vice-President for Finance and Investment, Mergers and Acquisitions, Member of the Management Board
Alexei Kornya

Free cash flow (FCF = OCF – CAPEX) (RUB bln)

1 Except for expenditures for acquisition of 3G licenses in Ukraine in the amount of RUB 7.0 bln in 2015 and 4G licenses in Russia in the amount of RUB 3.4 bln in 2015 and RUB 2.6 bln in 2016.

Free cash flow amounted to 47.0 billion rubles in 2016. There was a slight decrease compared to 2015, which is largely due to one-time transactions, such as investments in MTS Bank in the amount of 4.1 billion rubles and higher interest payments due to repurchase of MTS Eurobonds in June 2016 with a maturity in 2020. Besides, appreciation of the ruble increased the company’s tax base.

Vice-President for Finance and Investment, Mergers and Acquisitions, Member of the Management Board
Alexei Kornya

Retail development

Number of stores

Profit and gross income from sales of phones and accessories (RUB bln)

OIBDA impact (2014 and 2016) (RUB bln)

2017 ESTIMATE

Group income estimate (RUB bln)

Income of the Group: MTS estimates change in the Group’s income within +2 / –2% due to the following factors:

  • Competition in retail and tariff policy.
  • Planned volume of sales of phones and equipment, taking into account optimization of retail.
  • Dynamics of revenue from services in Russia.
  • Dynamics of revenue of foreign subsidiaries and volatility of currency exchange rates against Russian ruble.

Adjusted OIBDA estimate (RUB bln)

OIBDA of the Group: MTS estimates change in the Group’s OIBDA within +2 /–2% due to the following factors:

  • Competitive situation and planned optimization in retail.
  • Potential growth in the consumption of expensive services, including roaming services.
  • Business development in foreign subsidiaries.
  • Macroeconomic changes and volatility of exchange rates in the markets where the Company operates.

CAPEX estimate (RUB bln)

Group CAPEX: MTS plans to reduce CAPEX to 80 billion rubles due to:

  • Launch of LTE networks in all regions of Russia by mid-2016.
  • Completion of large-scale construction of optical networks in key regions of Russia.
  • Continued development of LTE networks.
  • Implementation of projects on infrastructure and spectrum sharing with other operators.
  • Completion of the main construction of 3G network in Ukraine and further construction of LTE networks.
  • Implementation of evolutionary 5G solutions on the Russian market.
  • Continued investment in digital products.

Report of the Board of Directors

Results of the year in the context of implementing the Company’s strategy

The high intensity of the work of the Board was determined by the current market conditions, namely: overall stagnation of the telecommunications market, being the main marked for MTS, persisting complex macroeconomic background in the countries where we operate, as well as strong competition. Global trend of digitalisation deserves special attention, which substantially adjusts the priorities of investors, contributing to the development of new companies and leading to radical changes in the approach to business of many companies and entire sectors of the economy.

All these factors together increased the price of decision making, which made it necessary to consider a large number of alternative scenarios with greater attention to details. The past year has required us to make bold and at the same time cautious decisions in the field of strategic positioning of the Company, having a significant impact on such important elements as organizational structure, directions of investment flows, operational management methods. These general words cover the hours of hard work of the entire Board of Directors, including the creation of a common vision for the Company’s future way of development, regular active interaction with MTS management and shareholders’ representatives, preparation of preliminary materials for meeting of the Committees, and the process of collegial decision- making during meetings of the Board.

The key issue that required the attention of the Board of Directors was the Company’s strategy. In 2014, we adopted a general strategic formula represented as “3D: Data. Differentiation. Dividends “.Now we are pleased to state that the goals set in the framework of one of its key elements – “Differentiation”, have been successfully implemented, as a result of which the Company gained new competencies and entered into a number of business areas adjacent to the traditional telecom. Thus, a reliable basis was created for the next evolutionary step associated with a focus on a new area called Digital, which became the central link of our updated strategy “3D: Data. Digital. Dividends”.

During the past year, the work of the Board of Directors of MTS PJSC was quite an intense, and the achieved results, in our opinion, fully correspond to the spirit of confident leadership inherent in our company.

In order to understand the scale of the work performed when formulating the updated strategy, it is important to get an impression of the versatility of the Digital concept, to realize all the changes that the Company had to undergo during Digital transformation. These changes affect all key aspects of the company’s operation, including human resources, financial and investment flows, operational and corporate governance; that’s why the development of such a program required involvement of all committees of the Board of Directors. As a result, this year a new vector was defined for the Company’s further movement, and such an important decision is undoubtedly based on deep analytical efforts, detailed analysis of the world experience, and joint discussions that have built the confidence in the prospects of the way chosen and correctness of our decision.

The continuity of the new strategic form should be also emphasized, in which the foundation for Digital transformation were the existing assets of the company in the form of the network itself, competencies and experience of the personnel, the brand’s power, customer loyalty, and the end result is the creation of shareholder value, and high return on investment.

Another important decision of the Board of Directors is the adoption of Dividend Policy for 2016–2018. The adopted policy is a simple and clear projection of the fact that the interests of investors are of paramount importance for us, and illustrates the diligence the Board of Directors exercises when fulfilling one of its most important functions: comprehensive care about shareholders’ rights and interests.

Besides high-order decisions, an important part of the work of the Board is the constant monitoring of investment flows, the leading role here is played by the Budget Committee and Audit Committee. In the past year, the Company actively worked on a number of key areas of investment, namely:

  • The final stage of 3G network construction was completed, in the future the construction will be localized, following the needs for local extensions or increased capacity.
  • The construction of LTE network was in the most active phase. In 2016, coverage of the main target territories in all regions of Russia was provided, so in the future we plan to reduce the intensity of construction in this area.
  • Through participation in frequency auctions and localized M&A investments, the Company expanded the available spectrum, ensuring the potential to increase network capacity in the future, in case of further increase in traffic consumption.
  • A large-scale 3G network construction program was implemented in Ukraine, which enabled us to now demonstrate an increase in revenue in this market by more than 10% in 2016 and provided an opportunity to tap into further growth of the market, which we believe will be observed in the next 2–3 years.
  • IT infrastructure investments have been made, and this element is intended not only to meet the current needs of the company, but is also aimed at forming the technological environment necessary for the Digital Transformation.

According to the results of 2016, the investment plans have been completed in line with the targets: the actual capital expenditures amounted to 86.1 billion rubles, as compared with the target of about 85 billion rubles.

In the future, we expect equally intense efforts for planning and controlling investments related to implementation of the company’s Digital Transformation. First of all, these will be investments in the internal IT environment, intellectual assets and a number of projects that were confirmed as promising at the pilot stage. It should be noted that the intensity of our work in this area will increase due to the need for detailed analysis of promising projects, where the decision will be taken based on evaluation not only of the local effect, but also of the impact on the company’s strategic position. Herewith, we proceed from the understanding that investment activity should be balanced in such a way as to unconditionally ensure guaranteed level of dividends to our shareholders.

In 2016, the work of the Board of Directors of MTS was aimed at achieving our main goals: ensuring the Company’s sustainable development, high operating results, observing the rights and interests of shareholders and guaranteeing them high and stable profitability. The work of the Board of Directors as a whole was efficient, the Board played an active role in the Company’s development, carried out strategic management of and control over its operations.

Roles of independent members of the Board of Directors

A high-quality corporate governance system and efficiently operating Board of Directors are the most important conditions for the long-term sustainable development of a modern company.

We recognize that independent directors should be included in the composition of the Board of Directors for effective implementation of its functions and making informed, informed decisions, ensuring control over management in the interests of the company’s owners.

In June 2015, we increased the number of independent directors in the Board of Directors to four. The increase in the number of independent directors empowers the independent position in the Board of Directors to exert greater influence on the business decisions, corporate policies and strategies of the Company.

Determining the right business development strategy is one of the main components of its success. The Board of Directors is responsible for strategic management of the Company; therefore it is very important that its activities always remain effective. This goal can be achieved by evaluation of performance of the Board of Directors.

According to recommendations of the Code, the key committees (Audit, Remuneration and Nomination) are formed exclusively from independent directors.

In 2016, we increased the number of independent Directors in the Budget Committee the Strategy Committee, Corporate Governance Committee, and the Remuneration and Nomination Committee. Regina von Flemming (independent director) who previously had not been a member of any committee of the Board of Directors became a member of certain committees.

Thus, we note significant expansion of the role of independent director in such matters as corporate strategy and strategy monitoring, improving the quality of corporate governance of the Company as a whole, assessing the situation in reorganizations, mergers and acquisitions.

Evaluation of the Board of Directors performance

In 2016, with the assistance of consultants, we revised the methodology for evaluation of performance of the Board of Directors, focusing, among other things, on the recommendations of the Corporate Governance Code. With the methodological support of consultants, we conducted evaluation of performance of the Board of Directors using the new methodology (questionnaire method) and, based on its results, made important management decisions.

Development of the Corporate Governance System and plans for 2017

In the reporting year, we continued to improve the corporate governance system of the Company.

Our efforts in this area were aimed at further implementation of the Roadmap to introduce the Code’s recommendations (“Roadmap”) at MTS, and, according to our calculations, we achieved more than 85% fulfillment of the Code’s recommendations. For details on fulfilment of the Code please see the section on observation of principles and recommendations of the Corporate Governance Code.

The past year was the year of completion of the first stage of listing upgrade at the Moscow Stock Exchange, when new requirements for corporate governance of issuers entered in force. Thus, our efforts were also aimed at full implementation of the Exchange Listing Rules. We were able to resolve the arising issues and achieved full compliance of the Company with the requirements.

Summing up the reporting year, I should note that we managed to achieve our goals. In the next year, we will continue to improve the corporate governance of the Company, taking into account the results of research in the field of Russian corporate governance1.

1 “Research in the field of Russian corporate governance” is understood as the study “Corporate Governance Index 2016” (prepared by the Association of Independent Directors together with the National Research University “Higher School of Economics”) and the study “National Corporate Governance Index 2016” (conducted by the National Association Independent directors)

New procedure for review of related party transactions at MTS: the main elements

Since January 1, 2017, the requirements of the legislation on review of related party transactions have changed.

Under the new rules, a related party transaction does not require mandatory consent/approval from the Board of Directors. Instead of approval, the company shall inform about the transaction members of the Board of Directors, members of the collegial executive body of the company, and in some cases also shareholders of the company2. In future, such persons have the right to request consent of the authorized body for the transaction, and if no such requests are made, the transaction can be completed. In addition, the law introduced a materiality threshold for related party transactions: related party transaction with a price of ≤ 0.1% of the book value of assets are excluded from the attention of the Board of Directors and may be concluded by the sole executive body independently. The threshold of materiality can be reviewed by decision of the Bank of Russia.

2 Shareholders are notified of the transaction if all members of the board of directors (supervisory board) of the company are related to the transaction, or if its formation is not provided for by law or by charter of the company (para. 1.1 Art. 81 of the Law on Joint Stock Companies).

In accordance with the changed regulation, MTS introduced a new procedure for reviewing related party transactions:

1) Information on upcoming related party transactions with a price > 0.1% of the book value of MTS assets is sent to members of the Board of Directors and members of the Management Board 15 days before they are made.

2) Within 15 days, any member of the Board of Directors or a member of the Management Board may request the consent of the Board of Directors to approve the related party transaction.

3) If a request for approval of the transaction is not made, the transaction is completed. When a request for approval is received, the transaction is submitted for consideration by the Board of Directors and is made only upon the consent of the Board of Directors.

In 2016, in order to comply with applicable international auditing standards regarding the disclosure of transactions with related parties, MTS PJSC introduced a control procedure of the Audit Committee of the Board of Directors for transactions with companies of JSFC Sistema PJSC Group. All transactions between MTS PJSC and the companies of JSFC Sistema PJSC Group, regardless of the price, are reviewed by the Audit Committee for compliance with the interests of the company.

MTS shareholders’ meetings are moving into virtual space

MTS introduces innovations in all areas, including in relations with shareholders.

In the fall of 2016, MTS together with “Independent Registrar Company” (NRC) JSC for the first time launched online e-voting service based on ComVoting, which enabled MTS shareholders to vote electronically at the extraordinary General Meeting of Shareholders on September 30, 2016.

ComVoting service allows the shareholders to remotely participate in voting through MTS website. Voting is available both to shareholders holding their shares directly in the register, as well as to shareholders holding their shares in depository, including on the accounts of the Central Depository.

In 2017, during the annual General Meeting of Shareholders of MTS PJSC, our shareholders in real time will be able not only to watch the meeting from the screens of their gadgets, but also monitor the voting online.

Chairman of MTS PJSC Board of Directors
Ron Sommer

Interaction with Shareholders and Investors

MTS Securities

Dynamics of prices and volume of trading in MTS PJSC common shares

Trading platform: MOEX (Moscow), issuer code MTSS

Dynamics of prices and volume of trading in American Depositary Receipts of MTS PJSC

Trading platform: NYSE (New York), issuer code MBT

Market capitalization of MTS PJSC

Trading platform: MOEX (Moscow), issuer code MTSS

Capitalization is calculated as a product of the total amount of MTS PJSC shares and weighted average price of one share, calculated according to prices at the moment of closing of trade in MTS PJSC shares at Moscow Exchange.

Dividends

Board of Directors and MTS executives understand that permanent stable dividends are the integral component of the investment appeal of MTS and profitability for the shareholders.

Being a leader among telecommunication companies that operates in rapidly developing and at the same time volatile markets, MTS primarily has a goal to maintain a sufficient volume of resources and level of flexibility in order to reach its operational and financial targets. Experience shows that MTS always looks for ways to create a value for the shareholders through both commercial and financial strategies which can include both organic or non-organic development and Company’s practices in capital management.

During the year MTS complied with its dividend policy and paid shareholders RUB 52.0 bln in dividends through two semi-annual payments. In November, we completed the second payment, and as a result, the total amount of dividends for the year was RUB 26 per share.

In addition, the Board of Directors set a task for the Company’s management to consider the expediency of share buyback program as an additional way of forming further shareholder value. This program would enable the Company to allocate up to RUB 30 bln for the repurchase of shares during the next three years.

Regulation “On Dividend Policies” is published at the official website of MTS PJSC1.

Dividend history

1 www.mtsgsm.com/information/dividends/.
2 The amount of semi-annual dividend payment was recommended by the Board of Directors and is subject to approval at the Annual Shareholders Meeting to be held on June 23, 2016.

History of dividend payment in 2016

  • In 2016, MTS paid out RUB 52.0 bln or RUB 26.0 per share in the form of dividends. In June, MTS made the first payment of RUB 28.0 bln (RUB 14.01 rubles per common share and 28.02 for ADRs) based on the results of the full year 2015. In the fourth quarter MTS paid additionally RUB 24.0 bln or RUB 11.09 per common share (RUB 23.98 per ADR) for the first half of 2016.

The Company has fully met its obligation to shareholders on payment of dividends.

  • In October and December 2016, the Board of Directors decided to hold modified Dutch auctions for share buyback program for the amount of up to RUB 10 bln. In two rounds in October 2016 and January 2017 MTS bought 21,888,117 shares for the amount of RUB 5 bln. MTS also bought the corresponding amount of JSFC Sistema shares to maintain an effective stake of the shareholder. In general, MTS used RUB 10 bln for the program, having bought 35,121,665 shares.

Dividend history and forecast (RUB bln)

Structure of Management and Supervisory Bodies of MTS in 2016


Shareholder capital structure

Authorised capital of MTS PJSC as of December 31, 2016 amounted to RUB 199,838,157.50

Placed and declared shares of MTS PJSC as of December 31, 2016

Shares’ categories (types) Quantity (pcs.) Nominal value of
one share (RUB)
Placed shares
Ordinary shares 1,998,381,575 0.1
Voting shares 1,998,381,575 0.1
Preferred shares 0 0
Declared shares
Ordinary shares 100,000,000 0.1
Preferred shares 0 0

Shareholder capital structure of MTS PJSC as of December 31, 20161

Information about persons owning shares disposing of votes by shares being beneficiaries by shares of MTS PJSC

Number of ordinary shares Interest of authorised capital
Sistema PJSFC2,3 993,961,917 49.74%3
MGTS PJSC4 8,421,463 0.42%
Stream Digital LLC5 3,060,409 0.15%
Shares in free circulation6 992,937,786 49.69%
Total 1,998,381,575 100.00%

1 All ordinary registered voting shares at the disposal of MTS PJSC, in accordance with requirements of current legislation do not grant a voting right, are not counted during voting, dividends are not accrued for them.

2 The ownership interest of JSFC Sistema PJSC includes ownership interests of its following subsidiaries: LLC Sistema Telecom Assets (11.03% of shares of MTS PJSC) and Sistema Finance S.A. (6.95% of shares of MTS PJSC).

3 Vladimir Petrovitch Evtushenkov is a controlling person of JSFC Sistema PJSC.

4 The stake of JSFC Sistema PJSC MTS PJSC, including indirect ownership through controlled entities (MGTS PJSC and Stream Digital LLC) is 50.31%, while an effective share is 50.03%.

5 MGTS PJSC and Stream Digital LLC are subsidiaries of MTS PJSC.

6 Includes 10.5% of shares of MTS PJSC and ADR for 39.19% of shares of MTS PJSC.

Information on the number of shareholders

Total number of persons registered in the shareholder register of the issuer as of the end of 4-th quarter of 2016: 875.

Total number of persons included in the list of persons compiled by the latter (as of September 5, 2016) having a right to exercise (implement) rights to shares of MTS PJSC and for compilation of which nominal issuer’s shareholders presented data on persons, for the benefit of whom they owned (own) shares of MTS PJSC: 17,153.

For updated information about the shareholder capital structure visit the Company’s web-site – www.company.mts.ru/comp/ir/shareholders/

Our Approach to Sustainable Development/Social Responsibility

Last year, the Company approved the first Corporate Social Responsibility Strategy.

When developing the Strategy, we took into account the accumulated experience of our Company in the field of corporate social responsibility and examples from the best world practice. Realizing our responsibility to our stakeholders and taking into account global social and environmental problems, we took into account the main areas addressed by strategic documents of the Russian Federation and the countries where we operate, as well as the UN Sustainable Development Goals 2030 as a part of implementation of our strategy.

Our main goal is to improve the quality of life and safety of people and society by developing innovations and providing a wide range of services to our clients.

The quality of life is the main condition for the sustainable social development of civil society and the individual; it includes a number of socio-economic or other criteria reflecting the level and extent of the person’s well-being achieved in various areas of his life.

Our current approach to safety is the reliable foundation which is needed to meet the needs of society now and in the future.

We pay significant attention to the creation of a flexible corporate culture of the company, which stimulates the development of innovations and allows us to continuously improve our services and technologies, thus contributing to the improvement of the quality of life.

Our corporate social responsibility and sustainable development strategy (further CSR) is a continuation of the company’s business strategy 3D (Date, Digitalisation, Dividends). As part of implementation and realization of the CSR strategy, we plan to revise and, if necessary, establish new key performance indicators in the field of CSR annually.

We build CSR system in accordance with the demands of the society, consumers, shareholders, employees, government, non-profit and public organizations, partners and suppliers, local communities.

Our CSR activity covers the social, economic and environmental spheres and involves work in nine main areas:

  • improving the quality of life of subscribers
  • care for employees and their development
  • development of corporate volunteering
  • charity
  • development of regions, territories of presence and local communities
  • synergy between CSR practices and the creation of common values
  • responsible business management
  • development of services increasing environmental sustainability
  • environmental protection measures

The principles of socially responsible business aimed at ensuring sustainable development and growth of the Company’s well-being, formation of a competitive economy, improving the quality of life and the prosperity of the society underlie the CSR activities of MTS.

Every year MTS strives to improve practices in the field of corporate social responsibility and sustainable development.

In 2016, we first prepared and approved the MTS Corporate Social Responsibility Strategy until 2020.

Being a major employer, we understand our responsibility to the staff and members of their families. We strive to provide opportunities not only for professional development of employees, but also opportunities for social self-realization. We are proud of our volunteer movement and plan to continue the development of our social projects.

Member of the Management Board, Vice President for Human Resources
Mikhail Arkhipov

These principles were formulated with involvement of all stakeholders and taking into account their expectations, and are set out in the Corporate Social Responsibility Policy. The policy “MTS Activity in the Field of Corporate Social Responsibility” is an internal document which regulates implementation of CSR projects.

The Company’s activities in the field of CSR are based on the following principles:

  • Respect for the interests of stakeholders
  • Rule of law
  • Compliance with international standards of conduct
  • Development and implementation of innovative technologies
  • Ethical conduct
  • Respect for human rights
  • Transparency
  • Improvement of corporate governance system
  • Accountability
  • Zero toleration to corruption in all forms and manifestations

The Board of Directors and the Management Board of MTS are the main governing bodies of CSR.

Their competence includes the approval of CSR strategy and social programs, monitoring their implementation and assessing the effectiveness of social projects. Vice President for Human Resources, together with Corporate Social Responsibility Department of the Human Resources Unit are responsible for planning, direct implementation and consolidation of CSR activities. Planning and implementation of social initiatives of MTS in the regions are carried out by MTS HR, Marketing and PR department employees appointed locally.

Since 2014, the company has a Corporate and Social Responsibility Committee (CSR Committee). It is an advisory body under the President, whose members consider, discuss and approve various CSR projects related to initiation of partner programs, translation of the CSR Policy into the external and internal environment, creation of CSR environment within and around the Company, consolidation and efficient use of MTS resources in integrated CSR-projects, preparation of Sustainability Report, approval of work plans of the Corporate Center and Clusters of MTS.

One of the strategic goals and objectives within the framework of the HR strategy 2016 was the involvement of top management in implementation of social projects and their personal active participation.

We are firmly convinced that management involvement raises the level of projects, helps to gain strategic vision and develop new directions. The focus on realizing the social potential of employees and the opportunity to participate in events together with top management undoubtedly raise the level of staff involvement and positively affect the development of the business as a whole.

In 2016, top management took part in key federal CSR projects: “Children on the Internet”, “Networks for all Ages”, “Telecom Idea” and International Volunteer Day.

In 2017, we plan to continue to involve top management representatives in implementation of key projects by raising their awareness.

Our official website contain MTS Group’s Sustainability Reports, main charitable projects implemented by the Company, and also contacts for feedback.

We maintain continuous dialogue with stakeholders and give an opportunity to obtain all information about one’s social activities.

Plans for 2017:

  • Improve the quality of life of subscribers by popularization of and promoting the use of mobile Internet in the community;
  • Move to a more modern and qualitative level of non-financial reporting: application of GRI Standards, which will enable to focus on the essential aspects of sustainable development of MTS Group when compiling Sustainable Development Report;
  • Continue to involve the regions in implementation of key regional CSR projects and countries where MTS operates: “Children on the Internet”, “Networks for All Ages”, “Mobile Academy of MTS”, “Telecom Idea”, volunteerism and creative project “Mobile Theater of MTS Tales”;
  • Continue the development of “Social HR” area: expanding the opportunities for internships, practical training and employment of people with disabilities and older people, active participation and involvement of the Company’s employees in socially significant activities aimed at the socialization of young people with disabilities in society;
  • Continue work in “Eco-Telecom” area: popularization of environmentally responsible way of life and attitude to natural resources, support of federal and international eco-activities;
  • Continue work on application of the provisions of the international standard ISO 26000: 2010 “Social Responsibility Guidelines” with functional units of MTS.