Headings and Fonts
000 155 071
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000 155 071
192 192 192 Investor presentation 122 098 166
000 110 038 December 2013
213 234 192 Disclaimer Headings and Fonts
000 155 071 Certain statements and/or other information included in this document may not be historical facts and may constitute “forward looking statements” within the meaning of Section 27A of the U.S. Securities Act and Section 2(1)(e) of the U.S. Securities Exchange Act of 1934, as amended. The words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plans”, “forecast”, “project”, “will”, “may”, “should” and similar expressions may identify forward looking statements but are not the exclusive means of identifying such statements. Forward looking statements include statements concerning our plans, expectations, projections, objectives, Chart Colours targets, goals, strategies, future events, future revenues, operations or performance, capital expenditures, financing needs, our 000 plans or intentions relating to the expansion or contraction of our business as well as specific acquisitions and dispositions, our 155 071 competitive strengths and weaknesses, our plans or goals relating to forecasted production, reserves, financial position and future operations and development, our business strategy and the trends we anticipate in the industry and the political, economic, social 192 and legal environment in which we operate, and other information that is not historical information, together with the assumptions 192 192 underlying these forward looking statements. By their very nature, forward looking statements involve inherent risks, uncertainties and other important factors that could cause our actual results, performance or achievements to be materially different from results, 122 performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are 098 166 based on numerous assumptions regarding our present and future business strategies and the political, economic, social and legal environment in which we will operate in the future. We do not make any representation, warranty or prediction that the results 000 anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only 110 038 one of many possible scenarios and should not be viewed as the most likely or standard scenario. We expressly disclaim any obligation or undertaking to update any forward-looking statements to reflect actual results, changes in assumptions or in any other 213 234 factors affecting such statements. 192
2
Agenda
Headings and Fonts
What Is What MegaFon 000 155
071 1. What is MegaFon
2. Corporate and Financial Highlights Q3 2013 Financial
Chart Colours and and
000 155
071 3. Financial and Operating Results Q3 2013 2013 HighlightsQ3 Corporate Corporate
192 192
4. Outlook for 2013
192
Results Results Q3 122 098 2013
166
Financial and and Financial Operating 000 110
038
213 234
192
Outlook Outlook for 2013
Headings and Fonts
What Is What MegaFon 000 155
071
Financial Financial
Chart Colours and and
000 155
071 2013 HighlightsQ3 Corporate Corporate
192 192
192
Results Results Q3 122 098 2013
166
Financial and and Financial Operating 000 110
038
213 234
192 01 What is MegaFon
Outlook Outlook for 2013
1. What is MegaFon
Headings and Fonts MegaFon at a glance What Is What HIGHLIGHTS CONSOLIDATED REVENUE BREAKDOWN MegaFon 000 155 . 2nd largest Russian mobile operator(1), with over 66MM subscribers(2) 9M 2013 Revenues 071 STRONG FUNDAMEN- and historically growing market share RUR 217.5Bn TALS - Strong, well-recognised brand Sales of handsets Wireless revenues; and accessories; 88.0% . Unique network position overall on the back of substantial investments 5.7% . Leading 4G/LTE operator providing access to 4G/LTE network in 31
Russian regions, covering over 30% of population by the end of Q3 Financial Chart Colours 2013 Wireline revenues; and - Unrivalled LTE spectrum position after completion of Scartel/Yota 6.3% 000 acquisition in Oct-2013 155
071 . Innovative player with a customer-centric approach and a leading 2013 HighlightsQ3 Corporate Corporate position in digital services and content 99% of revenues comes from Russia
192 . Extensive retail network of c.1,850 own-and-operated stores, 192 complemented with c.1,680 3rd party monobrand stores
COMPELLING HISTORICAL FINANCIAL PERFORMANCE 192 . Managed by a professional team with solid track record 2010-12
RUR Bn 2010 2011 2012 9M 2013 . Listed on the London and Moscow stock exchanges since 27 Nov 2012 CAGR 122 Total mobile
57.2 62.8 64.6 6.3% 68.3 2013 098 subscribers (MM) 166 . Superior historical growth among Big 3 Russian mobile operators with
Consolidated revenue 215.3 242.4 272.3 12.5% 217.5 and Financial GROWTH significant future growth potential
Consolidated OIBDA 97.6 100.6 117.1 9.6% 102.1 Operating Results Results Q3 Operating 000 Margin (%) 45.3% 41.5% 43.0% 46.9% 110 . Focus on improving operating efficiency and capital expenditure Capex (66.5) (70.6) (45.2) (17.6%) (23.3) 038 RETURNS management which translates into growing cash flows As % of revenues 30.9% 29.1% 16.6% 10.7% . Highly attractive shareholder remuneration policy. Last twelve month OIBDA−Capex 31.1 30.0 71.9 52.2% 78.8
(3)
dividend yield of c.5.7% 213 As % of revenues 14.4% 12.4% 26.4% 36.2% 234 192
Source: Company data. Outlook Outlook Note: for 2013 (1) — By overall mobile revenues and number of subscribers as at Sep-13 (2) — Total number of subscribers is c.68.3 MM in Russia, Tajikistan, South Ossetia and Abkhazia 5 (3) — Calculated as dividend per GDR of RUR 64.51 (equivalent to $1.97) announced on 1 July 2013 over GDR price of $34.60 as of 18 November 2013
1. What is MegaFon
20 years of our success story to become Leading 4G Headings and Fonts Launch of 4G/LTE provider in Russia
services in Is What partnership with Acquisition of MegaFon a leading telecom operator in Russia 100% stake in 000 Yota, reached 76 155 cities and towns by Yota/Scartel 071 YE 2012 recommended for MegaFon total Revenues shareholder vote (RUB Bn) Acquisition of 25% stake in Euroset
Acquisition Start listing on the of Net-by-Net LSE and MICEX
Acquisition of MegaLabs Financial Chart Colours Synterra launches operations and Becomes #2 mobile 000 1st operator to operator in Russia ~20x 155 launch 3G in terms of
071 network in subscribers 2013 HighlightsQ3 Corporate Corporate 1st operator Russia in St. to cover all Peters- Launch of online regions in burg 192 store and Russia
192 1st operator in introduction of
192 Europe to launch EDGE technology st 272,3 NorthWest GSM “MMS” and 1 242,4 acquired nine operator in other regional Russia to 215,3 122 introduce GSM operators 2013 098 “Mobile-TV” 181,9 166 and renamed MegaFon and Financial “NorthWest GSM” founded, Results Q3 Operating 000 launched 110 operations in St.
038 Petersburg
213 234 1993 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E
192
Outlook Outlook for 2013
Source: Company data. 6
1. What is MegaFon
Headings and Fonts Successful IPO followed by a strong share price performance
What Is What MegaFon (1) (2) 000 THE BEST EMEA IPO IN 2012 … …FOLLOWED BY THE STRONG SHARE PRICE PERFORMANCE … 155 071 Share price performance since MegaFon IPO, $ $37 +74% “MegaFon is another fantastic win for London. It is our largest $34 telecoms offering for over ten years“
$31 Alastair Walmsley London Stock Exchange $28 +31% $25 +23% Financial Chart Colours
$22 and +8% “It’s the biggest stock market listing by a Russian company $19 000
since aluminium producer Rusal floated in Hong Kong in 2010 $16
155 071 2013 HighlightsQ3
and the largest flotation since Facebook went public on New Corporate
окт окт 13
авг13
сен13
дек дек 12
янв 13
ноя ноя 12
апр апр 13
май май 13
фев 13 фев
мар мар 13 июл 13 York’s NASDAQ in May “ июн 13
192 The Times MSCI Russia 192 192 …ALLOWING TO FORM A ROBUST SHAREHOLDING STRUCTURE(3)
“There are decent arguments that MegaFon's medium-term commercial prospects are the brightest of the lot since it is a 122 MegaFon 098 pure-play Russian operator and appears well-invested for the owned stock; 2013 166 4G era.” 7,57% and Financial The Guardian Free Float;
14,71% Results Q3 Operating 000 AF Telecom, 110 MegaFon CEO; 50.0%+ 038 “The deal stands out for its landmark appeal and its success 2,55% 100 shares against what can only be described as a hostile reception”
TeliaSonera;
EuroWeek 213 25,17% 234
192 Outlook Outlook
Source: Press as of November 2012, Bloomberg as of 18 Nov 2013. for 2013 Notes: (1) — According toEMEA Finance. 7 (2) — Share prices indexed to MegaFon LSE share price since MegaFon IPO on 27 Nov 2012. (3) — Shareholding structure as of 30 Sep 2013.
1. What is MegaFon
Attractive Russian telecommunications market
Headings and Fonts What Is What in the early stages of digital transition MegaFon 000 155 ATTRACTIVE RUSSIAN MARKET FUNDAMENTALS MEGAFON TRACK RECORD OF GAINING MARKET SHARE 071 STRONG MACRO RUSSIAN MOBILE SUBSCRIBERS MARKET SHARE
Russia CEE average(1) WE average(2) (Subscribers in millions)
Real GDP growth (2012-2015E, %) 3.6 3.0 0.7 188 208 219 228 230 234 ∆
GDP per capita (2013E, $ ‘000) 15.7 12.0 37.8 34,4% Financial Chart Colours 33,4% 32,6%
Government Debt/GDP (2012, %) 10.9 36.9 94.7 30,7% 30,9% 30,5% and (3.9 pp) 27,7% +4.6 pp 000 25,4% 25,8% 27,1% 27,1% 155 FAVOURABLE COMPETITIVE TELECOM MARKET DYNAMICS 24,2%
(1.1 pp) 2013 HighlightsQ3 071 25,1% 24,3% 24,3% . 3 nationwide mobile operators 23,0% 24,5% 23,7% Corporate 17,2% 18,0% 17,8% 17,1% 17,6% 17,5% +0.4 pp . Predominantly prepaid market, limited handset subsidies 192 2008 2009 2010 2011 2012 9M 2013 192 . Telecom market expected to grow at a CAGR of 5.2% during 2012-2015E 192 Others
. Relatively high OIBDA margin (compared to developed markets) on the
back of growing ARPU TOTAL REVENUES, 1H2013 DATA REVENUES, 1H2013 122 098 2013 4,7%
166 RELATIVELY BENIGN REGULATORY FRAMEWORK 13,1% Financial and and Financial . MTR, roaming rates, and last mile fiber access are not regulated(3) 30,9% 24,9% 35,4% Results Q3 Operating 000 . Mobile number portability has not been implemented yet(4) 26,8% 110 038 . Local loop unbundling is not implemented
29,1% 35,0%
213 234 Source: Company data, IMF: World Economic Outlook; World Bank; Russian Economic Report; Others 192 CIA World Factbook, AC&M.
Note: Outlook Outlook (1) — Includes Ukraine, Belarus, Kazakhstan, Poland, Latvia and Czech Republic for 2013 (2) — Includes Spain, Italy, UK, France and Germany 8 (3) — Increased Government focus on MTR and potential roaming regulation (4) — In May-12, the Ministry of Communications published a draft law which is expected to implement MNP from Dec-13, however it was reported that MNP introduction may be postponed
1. What is MegaFon
Headings and Fonts Demonstrating strong operating and financial performance
What Is What MegaFon 000 SUPERIOR OPERATING PERFORMANCE… …TRANSLATING INTO STRONG FINANCIALS 155 071 TOTAL RUSSIA WIRELESS SUBSCRIBERS, MM CONSOLIDATED REVENUE BREAKDOWN, RUB Bn 272,3 Growth 66,3 61,6 62,6 62,8 242,4 ▲ 8.3% 56,6 215,3 17,9 13,3 217,5 15,2 8,4 200,7 23,2 7,5 5,2 12,3 16,1 19,1 21,0 20,0 13,4 9,1 13,8 241,1
218,8 Financial 202,7 178,2 191,4
Chart Colours and and 2010 2011 2012 9M 2012 9M 2013 2010 2011 2012 9M 2012 9M 2013 000 Data service user base (1) User base not using data service (2) Wireless services Wireline services Equipment & Accessories 155 071 2013 HighlightsQ3 BLENDED RUSSIA ARPU(3) AND BLENDED MOU(4) CONSOLIDATED OIBDA AND OIBDA MARGIN Growth Corporate 299 301 294 ▲ 19.1% 285 288 45,3% 46,9% 192 43,0% 42,7% 192 41,5% 192 330 312 310 330 316 102,1
97,6 100,6 117,1 85,7
122 2010 2011 2012 9M 2012 9M 2013 2010 2011 2012 9M 2012 9M 2013 2013 098 ARPU, RUB per month MOU, minutes per month 166 RUSSIA DATA ARPU (ARPDU(4)) AND DSU(6) CONSOLIDATED CAPEX AND CAPEX MARGIN and Financial
Less Operating Results Results Q3 Operating 1 324 30,9% 29,1% ▼ 19.9% 000 1 068 1 006 110 628 16,6% 038 14,5% 66,5 70,6 10,7% 256 45,2 164 161 176 29,1
148 23,3
126 213 2010 2011 2012 9M 2012 9M 2013 234 2010 2011 2012 9M 2012 9M 2013 DSU, Mb/month 192 Data ARPU, RUB per month Operating results provided on this page cover only the Russian
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed Outlook business; financial results present consolidated numbers for 2013 (1) — Data Service User is defined as a Subscriber who has used any of our data transfer services within the preceding three months (2) — Active subscribers that do not comply with the definition of Data Service User Base (3) — Total wireless services revenues (including interconnection and roaming charges but excluding connection revenues) for a given period divided by average number of wireless subscribers, divided by number of months in such period 9 (4) — Total number of minutes in a given period divided by average number of subscribers in such period, divided by number of months in such period (5) — Total data revenues in a given period divided by average number of data service subscribers during such period, divided by number of months in such period (6) — Total number of megabytes transferred during a given period divided by average number of data subscribers during such period, divided by number of months in such period
1. What is MegaFon
Headings and Fonts Ten priorities of MegaFon strategy
What Is What MegaFon 000 155
071 GROW FASTER THAN MARKET MAINTAIN HIGH PROFITABILITY IMPROVE INVESTMENT EFFICIENCY
INITIATIVES 1 Leadership in mobile data (focus on data monetization) Financial Financial Chart Colours 2 Development of new businesses 5 • Operational excellence 6 • Investment and management 000 155 071 2013 HighlightsQ3 Focus on key regions in Russia Corporate 3
192 192 4 Aggressive growth in B2B
192
122 COMPETENCIES 7 Client focus: positioning, Customer Experience Excellence, client analytics, etc. 098 2013
166 Financial and and Financial Strategic partnerships
8 Results Q3 Operating 000 110 038 INFRASTRUCTURE 9 Motivation and KPIs
AND ENABLERS
213 234 Best network and IT infrastructure: advantage over competitors in pace of technology roll-out combined with high 192 10
efficiency
Outlook Outlook for 2013 10
Headings and Fonts
What Is What MegaFon 000 155
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Financial Financial
Chart Colours and and
000 155
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192 192
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Results Results Q3 122 098 2013
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Financial and and Financial Operating 000 110
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213 Corporate and Financial 234 01
192 Outlook Outlook Highlights Q3 2013 for 2013
2. Corporate and Financial Highlights Q3 2013
Headings and Fonts Q3 2013 Key corporate events What Is What CONTINUE TO FOLLOW LONG TERM STRATEGY FOCUSED ON MOBILE INTERNET SERVICE DEVELOPMENT MegaFon 000 155 071 CONTINUE FOCUSING ON MOBILE INTERNET GROWTH AND KEY CORPORATE EVENTS IMPROVEMENT OF CUSTOMER SERVICE . Completed acquisition of Scartel / Yota to strengthen
. Continued pioneering of 4G/LTE to maintain leadership in MegaFon’s leading position in 4G / LTE market in Russia mobile data
― On 12 September 2013 MegaFon’s extraordinary general ― Significantly expanded our equipment product line. Financial Chart Colours
meeting of shareholders approved the acquisition of a Currently we offer the widest range of 4G/LTE enabled and 100% interest in LLC Scartel (“Scartel”)/LLC Yota devices 000 (1) 155 (“Yota”) from Garsdale Services Investment Limited 071 ― More than 20 models of smartphones, tablets, 2013 HighlightsQ3
(“Garsdale”). The deal was closed on 1 October 2013 Corporate modems and routers presented in our retail stores . Paid the first dividends as a public company of RUR 64.51(2) 192 ― Launched a new branded 4G/LTE smartphone 192 per 1 ordinary share (or per 1 GDR) in July 2013 192 “MegaFon 4G Turbo” ˗ the most affordable branded . A new MegaFon’s Board of Directors was elected in smartphone in Russia September 122 ― By the end of Q3 2013 MegaFon provided access to 098 ― TeliaSonera representatives were replaced by two new 4G/LTE network in 31 regions in Russia, covering 2013 166
members c. 30% of population in the country and Financial Operating Results Results Q3 Operating 000 . Supported the 2013 XXVII Summer Universiade Games in . Launched its own payment terminals in MegaFon outlets 110 Kazan as the General Partner and Official Telecom Provider allowing the customers to top-up their accounts and pay 038
. Continued development of a global strategic partnership bills commission-free
with Telefónica S.A. to exploit economies of scale in joint 213 234 procurement and to exchange technological know-how
192 Outlook Outlook
All financial results provided in this presentation are stated on consolidated IFRS basis unless otherwise mentioned. for 2013 Note: (1) — MegaFon acquired a 100% interest in Maxiten Co Limited, which holds a 100% interest in Scartel and Yota. 12 (2) — Dividends amounting to RUR 40Bn attributable to four consecutive quarters (from Q2 2012 to Q1 2013. Approximately RUR 3Bn of these dividends were paid to the Company’s wholly-owned subsidiary MegaFon (Investment s) Cyprus Limited, which holds the Company’s treasury shares
2. Corporate and Financial Highlights Q3 2013
Headings and Fonts Q3 2013 Financial and operational highlights
What Is What MegaFon 000 155 KEY POINTS 071 CONSOLIDATED Q3 2013 77.5
REVENUE (RUR Billion) Q3 2012 71.1 (up by ▲9.0% y-o-y) . All business revenue streams have demonstrated
robust growth CONSOLIDATED Q3 2013 . OIBDA growth is primarily driven by increase in 35.4 Financial (RUR Billion) Q3 2012
Chart Colours OIBDA 32.0 (up ▲10.5% y-o-y) revenues and and
000 . Net profit uplift reflects growth in operating profit in 155 Q3 2013 OIBDA 2013 HighlightsQ3
071 45.6 Q3 2013 vs. Q3 2012 Corporate Corporate MARGIN (%) Q3 2012 45.0 (up ▲0.6 p.p. y-o-y) . CAPEX amounted to RUR 10.9Bn 192 192
Q3 2013 . Subscriber base continued to grow supported by 192 NET 15.3 (1) uptake in sales of smartphones and mobile internet PROFIT (RUR Billion) Q3 2012 14.9 (up c. ▲2.9% y-o-y) devices 122 098 2013 166 Q3 2013 CAPEX(RUR Billion) 10.9 and Financial
Q3 2012 Results Q3 Operating 7.2 (up ▲51.5% y-o-y) 000 110 All financial results provided in this presentation are stated on consolidated IFRS basis 038 (2) MOBILE SUBSCRIBERS Q3 2013 68.3 unless otherwise mentioned. Note: (Million, as of 30 September) Q3 2012
64.8 ▲
(up 5.4% y-o-y) 213 (1) — Net profit attributable to equity holders of the Company. 234 (2) — Data includes subscribers of the Company in Russia and subscribers of its 192 subsidiaries: “TT mobile” CJSC in the Republic of Tajikistan, “AQUAFON-GSM” CJSC in the
Republic of Abkhazia and “OSTELEKOM” CJSC in the Republic of South Ossetia Outlook Outlook for 2013 13
2. Corporate and Financial Highlights Q3 2013
Headings and Fonts Strong momentum in mobile data revenue growth continues
What Is What MegaFon 000 155 071 CONSOLIDATED REVENUE GROWTH BRIDGE Growth . Solid consolidated revenue growth ▲ 9.0% RUR Bn of 9.0% y-o-y 1,1 77,5
1,3 0,1 . Mobile data continued to be the key driver of top Financial Chart Colours 1.5 line growth, representing c. 37.5% of total and revenue increase in Q3 2013 000 2.4 155 071 2013 HighlightsQ3
― Data revenue grew by 24.2% y-o-y Corporate 71,1 (1) 192 . Value-added services (“VAS”) was the second 192 largest contributor in monetary terms, 192
demonstrating significant growth of 18.5% y-o-y
122
. Voice was the third largest contributor to total 2013 098 166
revenue growth in Q3 2013, adding RUR 1.3Bn and Financial
Sales of equipment and accessories continued Results Q3 Operating 000 . 110 to grow significantly, showing 31.5% uplift y-o-y 038 +24.2% +18.5% +2.8% +1.3% +31.5% (1) (2) Revenue Data VAS Voice Wireline Equipment and Revenue
Q3 2012 services accessories Q3 2013
213 y-o-y growth 234 192
Due to rounding, manual calculations for financials and KPIs may differ from those displayed. Outlook Outlook Note: for 2013 (1) — Whereas previously MegaFon broke out SMS and other VAS statistics separately, in order to be comparable with its peers, MegaFon will henceforth combine SMS and other VAS under the single heading “VAS” 14(2) — Voice revenues consist of Wireless Services Revenues from Local Subscribers, Interconnection revenues, Roaming Charges to other Wireless Operators and Other mobile revenue.
2. Corporate and Financial Highlights Q3 2013
Acquisition of Scartel / Yota to strengthen MegaFon’s leading
Headings and Fonts What Is What
position in 4G / LTE market in Russia MegaFon 000 155 ON 1 OCTOBER 2013 MEGAFON COMPLETED THE ACQUISITION OF 100% INTEREST IN SCARTEL / YOTA FROM GARSDALE, THE 071 CONTROLLING SHAREHOLDER OF MEGAFON — The only operator in Russia with an up-and-running multicity 4G / LTE network
— Scartel owns 2x30 MHz nationwide 4G / LTE spectrum in the 2.5-2.6 GHz frequency band and a 4G / LTE network covering 31 regions in Russia or over 30% of the Russian population — Financial Chart Colours Yota provides 4G / LTE mobile internet services to 672k B2C and 44k B2B retail customers using Scartel’s network (as of Sep
2013) and st nd 000 — Equity consideration of $ 1.18Bn paid in two deferred installments upon 1 and 2 anniversary of closing provides additional 155
comfort in terms of the Company’s cash flows and leverage, plus assumption of Net Debt of c.$ 560MM 2013 HighlightsQ3
071 Corporate Corporate COMPELLING ACQUISITION RATIONALE 192 192 . Unique opportunity to acquire a stronghold in the 4G/LTE UNIQUE SPECTRUM POSITION POST ACQUISITION
2 x 40 MHz 192 segment:
“We buy the future, not the past” 122
2.5-2.6 GHz 2013 2 x 30 098 . Enhanced spectrum position provides MegaFon with long- Band 166 MHz term sustainable competitive advantage and best product and Financial
offering for consumers Results Q3 Operating 000 110 . Acquisition is consistent with MegaFon’s data leadership 2.5-2.6 GHz 2 x 10 2 x 10 2 x 10 2 x 10 2 x 10 038 Band strategy MHz MHz MHz MHz MHz
Significant cash flow improvement that MegaFon can . 213 MegaFon MegaFon MTS VimpelCom Rostelecom 234 capitalise on going forward Post Acquisition Pre Acquisition
192 Not taking into account 2 x 7.5 MHz in 800 MHz spectrum band that each operator has. Outlook Outlook
. Attractive transaction structure for 2013 15
2. Corporate and Financial Highlights Q3 2013
Headings and Fonts Further 4G rollout leadership in Russia
What Is What MegaFon
000 155 TOWNS COVERED BY LTE/4G AS OF 30 SEP 2013 KEY STATISTICS TOP 10 CITIES WHERE SERVICE IS LIVE 071 Proforma 3Q 2013 # City Population % of Russia Population 1 Moscow 11.6 MM 8.1% covered by 4G 43.2 MM 2 St. Petersburg 5.0 MM 3.5% % of total population in 30.3% 3 Novosibirsk 1.5 MM 1.0% Russia 4 Yekaterinburg 1.4 MM 1.0% # of federal Financial Chart Colours districts covered 31 (out of 83) 5 Samara 1.2 MM 0.8% 6 Kazan 1.2 MM 0.8% and # of cities and 156 towns covered 000 7 Ufa 1.1 MM 0.8% 155
8 Krasnoyarsk 1.0 MM 0.7% 2013 HighlightsQ3 071 9 Perm 1.0 MM 0.7% Corporate 10 Krasnodar 0.8 MM 0.5% 192 Other 17.4 MM 12.4% 192
192 Total 43.2 MM 30.3%
122 098 2013
166
Financial and and Financial Operating Results Results Q3 Operating 000 110
038
213 234
192
Outlook Outlook for 2013 16 Note: Russian population as of the latest census in October 2010.
2. Corporate and Financial Highlights Q3 2013
MegaFon and Telefonica Strategic Partnership
Headings and Fonts to gain global company advantages with no significant investments
What Is What MegaFon 000 155 MEGAFON AND TELEFONICA SIGNED STRATEGIC PARTNERSHIP MEGAFON BENEFITS FROM TELEFONICA’S EXPANDING 071 AGREEMENT PARTNERSHIP PROGRAM
MegaFon and Telefonica Partners Telefonica signed Strategic Financial Partnership Chart Colours Agreement on and 27 May 2013 000 155 071 2013 HighlightsQ3 Corporate
192 192 192
122 Telefonica Partnership Program coverage
Key areas of collaboration 2013 098 166 . More than 50 countries Joint procurement and Financial
Knowledge sharing . Approximately 1.5Bn people in addressable markets Results Q3 Operating 000 110 New services for Russian and International MNCs . Over EUR 25Bn of purchasing budget 038
New businesses development . More than 200 Global Biggest MNC Customers
213 Carrier business 234
192 Outlook Outlook MEGAFON AND TELEFONICA FURTHER ENHANCED RELATIONSHIP BASED ON STRATEGIC PARTNERSHIP AGREEMENT for 2013 17
Headings and Fonts
What Is What MegaFon 000 155
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Financial Financial
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Results Results Q3 122 098 2013
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Financial and and Financial Operating 000 110
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213 02 Financial and Operating 234
192 Outlook Outlook Results Q3 2013 for 2013
3. Financial and Operating Results Q3 2013
Headings and Fonts Key highlights: Strong revenue growth and margin improvement
What Is What MegaFon 000 155 REVENUE, OIBDA AND NET PROFIT 071 Growth Growth ▲ 9.0% ▲ 8.3% . Our strong Q3 2013 performance derived 200,7 217,5 72,2 77,5 71,1 71,6 67,7 from 9.0% y-o-y topline growth in Revenue revenue from the core business,
including 24.2% growth in data revenue, Financial Chart Colours (2) and 18.5% growth in VAS , resulting and Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 000 from a 5.4% y-o-y increase in the 155 Growth Growth
subscriber base and higher usage of 2013 HighlightsQ3
071 ▲ 10.5% ▲ 19.1% Corporate Corporate 35,4 102,1 services by our subscribers 32,0 31,4 32,4 34,3 85,7 192 OIBDA and 47,8% 47,5% 46,9% . Continuing focus on operating efficiency 192 45,6% 45,0% 43,9% OIBDA margin 42,7% 192 initiatives together with strong revenue
growth resulted in an OIBDA growth of 122 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 10.5% y-o-y and an OIBDA margin 098 2013 166 Growth increase by 0.6pp up to 45.6% y-o-y
Growth and Financial ▲ 2.9% ▲ 60.8% 18,6 41,5 (1) Results Q3 Operating 14,9 15,3 . Net profit in Q3 2013 grew by 000 Net profit(1) and Net 12,6 13,6 110 25,9% 25,9 2.9% y-o-y 038 profit margin 20,9% 18,6% 18,8% 19,8% 19,1%
12,9%
213 234 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 192
Quarterly data, RUR Bn % of Revenue Outlook
9 months data, RUR Bn for 2013
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed 19 (1) — Net profit attributable to equity holders of the Company. (2) — VAS revenue now includes revenue from SMS and other VAS services.
3. Financial and Operating Results Q3 2013
Key highlights: Continued cash flow growth driven
Headings and Fonts What Is What by high margins and lower CAPEX MegaFon 000 155 Growth Lower CAPEX, OIBDA-CAPEX, FREE CASH FLOW 071 ▲ 51.5% ▼ 19.9% 16,1 . CAPEX for Q3 2013 amounted to RUR 29,1
10,9 23,3 10.9Bn, growing by 51.5% y-o-y
CAPEX 7,2 8,3 22,5% 4,1 . OIBDA-CAPEX lower by 1.4% y-o-y in Q3 10,1% 11,6% 14,0% 14,5% 10,7% 6,0% Financial
Chart Colours 2013 due to acceleration of CAPEX and and Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 spending program in the third quarter 000 Lower Growth 155 ▼ ▲ 39.1% 1.4% . Free Cash Flow grew by 13.9% y-o-y in 2013 HighlightsQ3 071 28,3 78,8 Corporate 24,8 26,0 24,5 Q3 2013, primarily driven by an increase 41,8% 56,6 in cash flow from operating activities in 192 OIBDA-CAPEX 35,0% 15,3 35,9% 36,2%
192 31,6% 28,2% the third quarter
192 21,4%
122 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 098 2013
166 Growth Growth Financial and and Financial ▲ 13.9% ▲ 37.9%
28,0 73,5 Results Q3 Operating 24,6 000 22,9 22,6 53,3 110 Free Cash Flow 17,5 038 36,2% 34,6% 33,8% 31,2% 33,8%
24,4% 26,5%
213 234 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 192
Quarterly data, RUR Bn Outlook 9 months data, RUR Bn % of Revenue for 2013
20 Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed
3. Financial and Operating Results Q3 2013
Headings and Fonts Breakdown of consolidated revenue
What Is What MegaFon 000 RUR Bn Growth Growth Growth Growth WIRELESS SERVICES, WIRELINE 155 ▲9.0% ▲ 8.3% 9M 2013 vs. Q3 2013 vs. SERVICES AND EQUIPMENT & 071 Q3 2012 9M 2012 77,5 217,5 ACCESSORIES REVENUES 71,1 71,6 72,2 4,7 ▲ 31.5% 200,7 12,3 ▲ 35.6% 67,7 ▲ 1.3% ▲ 3.2% 3,6 4,2 4,0 4,6 9,1 13,8 . Wireless revenue grew by 8.3% in 4,6 4,5 3,6 4,7 13,4 4,5 Q3 2013 driven by ― an increase in subscriber base Financial Chart Colours and strong demand for airtime and
000 ▲ 8.3% ▲ 7.3% ― MegaFon’s key focus on data 155 68,2 191,4 178,2 2013 HighlightsQ3
071 62,9 62,9 59,6 63,5 revenue expansion Corporate Corporate ― further improvement in revenue 192 from VAS 192
192 . Sales of equipment and accessories
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013 increased by 31.5% in Q3 2013 vs. 122
Q3 2012, driven by stimulation of 2013 098 Wireless services Wireline services 166 equipment sales through our own Equipment & Accessories and Financial retail network, expansion of our Revenue mix (%) Results Q3 Operating 000 product line, and significant Wireless 110 88.5% 87.8% 88.0% 88.0% 88.0% 88.8% 88.0% 038 services (1) increase in the number of MegaFon Wireline 6.4% 6.3% 6.7% 6.5% 5.9% 6.7% 6.3% customized smartphones and
services
mobile internet devices sold, 213 Equipment & 5.1% 5.9% 5.3% 5.5% 6.1% 4.5% 5.7% 234 accessories including branded smartphones 192
(“MegaFon Login”, “MegaFon 4G Outlook Outlook Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed for 2013 (1) — Wireless services revenue includes monthly fees, airtime revenues, own subscriber roaming, connection fees, data Turbo”) 21 revenue, value added service (“VAS”) revenue, wireless interconnection revenues, roaming charges to other wireless operators and other wireless services revenues
3. Financial and Operating Results Q3 2013
Breakdown of Russia wireless services Results provided on this page cover only the Russian business Headings and Fonts
revenues Is What Growth Growth MegaFon 000 RUR Bn VOICE, DATA, SMS AND OTHER VAS ▲8.3% Growth ▲7.3% Growth 155 Q3 2013 vs. 9M 2013 vs. REVENUES IN RUSSIA 071 Q3 2012 9M 2012 67,2 188,9 . Russian wireless services revenue 62,1 62,0 62,8 176,1
58,9 9,5 ▲ 18.5% 27,1 ▲ 11.7% grew by 8.3% in Q3 2013 to RUR
8,0 9,3 8,8 24,3 67.2Bn, a faster rate than the 8,9 ▲ 24.2% 12,4 ▲ 23.7% 34,8 growth in subscriber base of 5.6% 28,0 Financial 10,0 10,6 11,4
Chart Colours 11,0 y-o-y and and . Mobile data remains the fastest 000 155 growing revenue stream 071 2013 HighlightsQ3
▲ 2.9% ▲ 2.6% increasing by 23.7% y-o-y and Corporate 44,1 42,6 45,3 123,8 127,0 42,1 39,0 accounting for almost 18.5% of 192 total Russian wireless services 192 192 revenues (vs. 16.2% in Q3 2012)
. Revenue from VAS increased by Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013
122 18.5% y-o-y due to uplift in 2013 098 Voice Data transfer (Data) VAS messaging services and growing 166 popularity of content and other and Financial Revenue VAS services Results Q3 Operating 000 mix (%) 110 Voice(1) 70.9% 67.9% 66.3% 67.8% 67.4% 70.3% 67.3% 038 Data transfer 16.2% 17.1% 18.6% 18.2% 18.5% 15.9% 18.4%
(Data)
213 (2) 234 VAS 12.9% 15.0% 15.1% 14.0% 14.1% 13.8% 14.3%
192 Outlook Outlook Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed for 2013 (1) — Voice includes revenues from: local subscribers which includes monthly fees, airtime revenues, own subscriber roaming and connection fees; wireless interconnection revenues; roaming charges to other wireless operators; and other wireless revenues 22 (2) — Whereas previously MegaFon broke out SMS and other VAS statistics separately, in order to be comparable with its peers, MegaFon will henceforth combine SMS and other VAS under the single heading “VAS”
3. Financial and Operating Results Q3 2013
Drivers of Russia total wireless services Results provided on this page cover only Headings and Fonts the Russian business
revenues: Wireless subscribers Is What MegaFon 000 (m) TOTAL RUSSIA WIRELESS SUBSCRIBERS 155 Growth INCLUDING BREAKDOWN OF DATA 071 ▲5.6% SERVICE USERS Growth
▲15.9% . Our continuous focus on customer service improvement and churn rate 66,3 62,8 62,6 62,7 64,1 reduction, including loyalty Financial Chart Colours
programmes as well as revenue-share and schemes with dealers, resulted in the 000 23,2 20,0 22,4 155 21,0 21,9 steady growth in our subscriber base 071 2013 HighlightsQ3 by 5.6% y-o-y Corporate
192 . Data service user base grew by 15.9% 192 192 y-o-y, much faster than the overall
subscriber base, due to our effective
122 strategy of promoting data services, 098 including 4G/LTE 2013
166 Financial and and Financial
― Wireless data services users Operating Results Results Q3 Operating 000 accounted for 34.9% of the 110 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 038 Company’s total subscriber base as of 30 September 2013 vs.
Data service user base (1) User base not using data service (2)
31.8% as of 30 September 2012 213 234
192 Outlook Outlook Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed for 2013 (1) — Data Service User is defined as a Subscriber who has used any of our data transfer services within the preceding three months 23 (2) — Active subscribers that do not fall within the definition of Data Service User Base
3. Financial and Operating Results Q3 2013
Breakdown of Russia wireless services Results provided on this page cover Headings and Fonts only the Russian business
revenues: MoU and APPM Is What MegaFon 000 (1) (2) . While overall voice traffic has 155 BLENDED MOU & BLENDED APPM 071 Lower Growth been growing, blended MOU ▼ 0.3% ▲2.4% decreased slightly by 0.3% y-o-y 294 310 300 largely due to faster growth in the 301 309 294 301 number of data subscribers vs.
1,14 total number of all subscribers Financial 1,10 1,10 Chart Colours 1,07 1,07 1,07 1,07
. Blended APPM increased to RUR and
000 1.14, a y-o-y growth of 3.6%, due 155
to our continuous effort to 2013 HighlightsQ3 071 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
9M 2012 9M 2013 Corporate promote special bundled tariffs MOU, minutes per month APPM, RUR (i.e. “X”, “M”, “L”) and seasonal 192 192 (3) effect of higher roaming charges 192 BLENDED ARPU RUR per Growth Growth resulting from growing number of
▲4.4% month ▲3.6% people going abroad during 122 331 330 333 343 316 330 098 314 vacation period 2013 166 . Blended ARPU reached 343 RUR and Financial
per month, a y-o-y increase of Results Q3 Operating 000 110 3.6%, largely due to growing 038 popularity of VAS and data services
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013
213 Quarterly data 9 months data 234 192
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed Outlook Outlook (1) — Total number of minutes in a given period divided by average number of subscribers in such period, divided by number of months in such period; for 2013 (2) — ARPU for a given period divided by MOU in such period; (3) — Total wireless services revenues (including interconnection and roaming charges but excluding connection revenues) for a given period divided by 24 average number of wireless subscribers in such period, divided by number of months in such period
3. Financial and Operating Results Q3 2013
Breakdown of Russia wireless services Results provided on this page cover Headings and Fonts only the Russian business
revenues: DSU and APPMb Is What MegaFon 000 (1) (2) 155 DSU & APPMB . Mobile data services continued to 071 Growth Growth ▲30.0% ▲31.7% be the main engine for revenue 1 324 growth, contributing 37.5% of 1 301 1 254 1 346 1 221 1 006 overall revenue increase y-o-y 1 035
0,16 . DSU demonstrated strong growth Financial Chart Colours 0,16 0,13 of 311 Mb per month or 30.0% y- 0,14 0,13 0,14 0,13 and o-y that was primarily driven by 000 155 continued 4G/LTE rollout and 071 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 2013 HighlightsQ3 9M 2012 9M 2013 launch of attractive tariffs for this Corporate DSU, Mb/month APPMb, RUR technology, along with the growth 192 of smartphone and tablet 192 (3) 192 DATA ARPU (ARPDU ) penetration RUR per Growth Growth month ▲7.7% ▲9.3% . We managed to stabilise APPMb 176 122 170 181
by switching our focus from high 2013 098 168 168 167 161
166 traffic-consuming dongles to more Financial and and Financial
cost-effective smartphones and Operating Results Results Q3 Operating 000 tablets 110 038 . Such efforts resulted in 7.7% ARPDU growth y-o-y
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013
213 Quarterly data 9 months data 234 192
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed Outlook Outlook (1) — Total number of megabytes transferred during a given period divided by average number of data subscribers during such period, divided by number of for 2013 months in such period; 25 (2) — ARPDU for a given period divided by DSU in such period; (3) — Total data revenues in a given period divided by average number of data service subscribers during such period, divided by number of months in such period
3. Financial and Operating Results Q3 2013
Headings and Fonts Key drivers of strong OIBDA margin
What Is What MegaFon 000 KEY FACTORS INFLUENCING OIBDA 155 Key components 071 MARGIN IMPROVEMENT Y-O-Y OIBDA (RUR Bn) 32.0 ▲6.4 ▼2.3 ▲0.7 ▼1.4 35.4 ▲10.5% . Gross profit grew by 7.6% in Q3 2013
y-o-y from RUR 53.8Bn to RUR 1,1% 0,1% 57.9Bn, while gross profit margin 45,6% ▲0.6pp decreased to 74.6% vs. 75.6% y-o-y Financial Chart Colours 45,0% -0,4% -0,2% largely due to growing proportion in and
000 revenues of lower margin sales of 155 071 handsets and accessories. We 2013 HighlightsQ3 promote customized MegaFon Corporate branded equipment in order to 192 192 facilitate data usage growth 192
. OIBDA increased by 10.5% in Q3 122 2013 y-o-y from RUR 32.0Bn to RUR 098 2013
166 35.4Bn and OIBDA margin reached Financial and and Financial
+9.0% +13.4% -12.8% +8.6% 45.6% in Q3 2013 compared to Operating Results Results Q3 Operating 45.0% in Q3 2012 000 OIBDA margin Revenue Cost of revenue Sales and General & OIBDA margin 110 Q3 2012 marketing Administrative Q3 2013 038 (incl. dealer comm.) ― The key drivers of the growth were the continuing increase in
Gross profit
213 revenue and streamlining of 234
192 operating expenses, such as Outlook Outlook
advertising, dealer commissions, for 2013 Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed. etc. 26
3. Financial and Operating Results Q3 2013
Consolidated CAPEX Headings and Fonts CAPEX AND CAPEX MARGIN(1)
RUR Bn Is What MegaFon 000 . CAPEX for Q3 2013 amounted to RUR 155 Growth Lower 071 10.9Bn, growing substantially ▲ 51.5% ▼19.9% compared to the prior two quarters 29,1
16,1 ― CAPEX spending programme accelerated largely due to the
completion of our tender for Financial Chart Colours 23,3
network rollout and modernization and
000 in July 2013 155 10,9 071 2013 HighlightsQ3
. We expect further acceleration of our Corporate CAPEX in Q4 2013 8,3 192 192 7,2
192
22,5% 122 098 4,1 2013
166 14,5% Financial and and Financial 14,0% 10,7% 10,1% 11,6% Results Q3 Operating 000 6,0% 110 038
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 9M 2012 9M 2013
213 234 Quarterly data 9 months data % of Revenue
192
Outlook Outlook for 2013
Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed 27 (1) — MegaFon CAPEX refers to actual CAPEX accrued for the year and may not match cash flow CAPEX.
3. Financial and Operating Results Q3 2013
Headings and Fonts Maintained solid cashflow generation
What Is What MegaFon 000 . We maintained solid cashflow 155 QUARTERLY DEVELOPMENT OF OIBDA MARGIN, CAPEX AS % OF REVENUE AND OIBDA-CAPEX MARGIN generation in Q3 2013 071 ON AN LTM BASIS ― Q3 2013 LTM OIBDA-CAPEX LTM margin amounted to 32.6%, 46,0% 46,2% Quarterly 44,7% 44,7% slightly decreasing compared to 44,1% 43,0% 43,0%
OIBDA as % Financial 41,5% 40,9% 41,7% the same indicator in Q2 2013 Chart Colours 40,8% of Revenue (33.4%) largely due to CAPEX and 10.9% acceleration in Q3 2013 000 155
071 2013 HighlightsQ3 Corporate Corporate 34,1% 33,8% 32,8% 32.6% LTM 192 29,1% OIBDA-CAPEX 192 192 26,9% as % of Revenue
24,6%
20,4% 122 098 16,6% 2013 166 14,3% LTM Quarterly and Financial 12,6% 13,6% CAPEX as % of Results Q3 Operating 000 110 Revenue 038
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
213 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 234
192
Outlook Outlook for 2013 28 Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed
3. Financial and Operating Results Q3 2013
Headings and Fonts Consolidated balance sheet and leverage What Is What BALANCE SHEET AS OF 31 DEC 2012 AS OF 30 SEP 2013 KEY BALANCE SHEET ITEMS MegaFon 000 155 Cash and cash equivalents 2.4 18.9 071 . Strong cash flow generation in the Short-term investments 22.2 38.7 first 9 months of 2013 allowed
Total debt 145.2 148.6 MegaFon to maintain stable liquidity
Long-term debt 126.5 139.2 position, while rewarding the shareholders Short-term debt 19.9 10.3 Financial Chart Colours
Deferred financial cost (1.2) (0.9) ― RUR 40Bn dividends paid in July and Net debt (1) 120.6 90.8 (3) 000 2013 155 (2) Shareholders’ equity 117.9 128.2 2013 HighlightsQ3
071 ― Q3 2013 cash and cash Corporate Corporate Total assets 351.4 363.0 equivalents, and short-term
192 investments amounted to RUR 192 NET DEBT AND NET DEBT / LTM OIBDA (1)
57.7Bn 192 RUR Bn / (x)
1,25x . Dividend payout had no significant 122 1,03x impact on Company’s leverage 0,81x 2013 098 0,68x 166 138,6 0,59x 120,6 ― Net debt/LTM OIBDA ratio slightly and Financial 100,8
increased to 0.68x in Q3 2013 vs. Results Q3 Operating 76,7 90,8 000 0.59x in Q2 2013 110 038 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Net Debt Net debt/LTM OIBDA
213 234 Note: Due to rounding, manual calculations for financials and KPIs may differ from those displayed 192 (1) — Net debt is calculated as the difference between (a) cash, cash equivalents, and principal amount of deposits and (b) principal amount of loans and borrowings
less unamortized debt issuance fees. Outlook Outlook (2) — Including non-controlling interests. for 2013 (3) — Approximately RUR 3Bn of these dividends were paid to the Company’s wholly-owned subsidiary MegaFon (Investment s) Cyprus Limited, which holds the Company’s treasury shares 29
Headings and Fonts
What Is What MegaFon 000 155
071
Financial Financial
Chart Colours and and
000 155
071 2013 HighlightsQ3 Corporate Corporate
192 192
192
Results Results Q3 122 098 2013
166
Financial and and Financial Operating 000 110
038
213 234
192 05 Outlook for 2013
Outlook Outlook for 2013
4. Outlook for 2013
Headings and Fonts Outlook for 2013
What Is What MegaFon 000 155 071
REVENUE GROWTH High single digit revenue growth REITERATED
Financial Financial
Chart Colours and and
000 REVISED 155 OIBDA MARGIN
≥44.0% 2013 HighlightsQ3
071 UPWARDS Corporate Corporate
192 192 192
Expected capital expenditures REVISED 122 CAPEX 098 DOWNWARDS 2013
166 in the range of RUR 50—55Bn
Financial and and Financial Operating Results Results Q3 Operating 000 110
038
213 234
192
Outlook Outlook for 2013 31 Headings and Fonts
000 155 071
Chart Colours
000 155 071
192 192 192
122 098 166
000 110 038
213 234 192
32 Headings and Fonts For further information visit our IR website 000 http://ir.megafon.com: 155 071
Chart Colours
000 155 071
192 192 192
122 098 166 Contact Information
000 MegaFon Investor Relations 110 038 30 Kadashevskaya embankment Moscow, 115035, Russia Tel.: +7 495 926 2012 213 234 Email: IR@megafon.ru 192 Web: ir.megafon.com