It's been a good six months since we've checked in on how Mobile TeleSystems
As it happens, Mobile TeleSystems ("MTS" to its friends) reported its second-quarter numbers on Tuesday. Rather than succumb to short-term-ism, however, let's look through the most recent news to the bigger picture, and examine how Russia's biggest cell-phone operator has done year to date:
- First-half (H1) revenues rose to $3.7 billion, up 33% from H1 2006.
- Operating income was up 61% to $1.3 billion.
- Net income achieved a clean doubling, to $956 million.
- Likewise earnings per share, which doubled to $0.48 per share.
- Dilution was a no-show. To the contrary, MTS' share count actually declined a skosh.
Special applause, however, has to go to MTS' free cash flow, which more than quintupled year over year to $825 million in H1 2007 -- even as the company maintained its usual conservative calculations. Breaking FCF into its component parts, we see that while it's true that capital expenditures declined significantly, the fact that MTS counts funds spent on acquisitions as a capital expense offsets the decline in "ordinary" capex. In short, the rise in FCF owes to superb growth in operating cash flow, plain and simple.
Which brings us to perhaps the most interesting facet of MTS' report -- namely, where it's been making its capital expenditures. In Q2, the firm poured well more than half of its $226 million in capex into neighboring Ukraine -- but with mixed success. Like Russia, Ukraine is quickly approaching the saturation point for cell-phone services. (Indeed, if you take the math at face value, both markets are already supersaturated. Among the customers of MTS, Megafon, VimpelCom
Nonsensical on its face, what these numbers tell us is that (1) cell-phone use is widespread in both countries, and (2) many cell-phone users have more than one of the cell-phone-enabling SIM cards, and freely switch between providers, depending on who is offering the best deal on any given day.
While MTS seems to be getting a handle on how to manage fickle customers in Russia, where customer churn (a.k.a. turnover) continues to decline (down to 5.2% in Q2), it still has work to do next door. In Ukraine, churn nearly doubled year over year, reaching 14.1% as customers frenetically shuffled SIM cards from various cell-phone service providers. Result: Even though MTS added 1.2 million customers in Russia, and 0.3 million more in Uzbekistan and Turkmenistan, total customer additions across the former Soviet republics that are members of the Commonwealth of Independent States (CIS) rose just 0.5 million, thanks to 0.9 million customers jumping ship in Ukraine. Oops.
How was MTS doing when last we checked in? See for yourself: