Message of the Board Chairman

Dear shareholders,

2015 was a challenging year for the economy of Russia and neighbourin countries. The ongoing crisis affected the telecommunications industry negatively as well: fall of the consumer purchasing power, reduction of expenses of the corporate customers, rouble devaluation and rise in the borrowing costs. As always happens in such cases, the market competition has been increasing for each remaining rouble, hryvnia or dram of the customer. Therefore, I am pleased to report that, despite this complicated situation, in 2015, MTS Group increased its revenue by 5% to RUB 431 billion, including due to its growth in the largest, yet stagnant Russian mobile communication market.

Senior executives specified the main company performance outcomes for the past year in more detail in the next section. Here, I would like to draw your attention to the fact that the overall positive company development dynamics in this difficult time evidences both the right choice of MTS development strategy in general and its high-quality implementation by the Group’s management fully supported and controlled by the Board of Directors. Although Andrey Dubovskov, the President of our company, will set out in this Report the MTS strategy in more detail in a few pages, I would like to highlight the main achievements in its implementation in 2015.

Following the strategy approved at year-end 2013, MTS identified three main development areas: Data, Differentiation and Dividends (the 3D strategy). I am pleased to report that MTS demonstrated good results in all these areas. Thus, in 2015, MTS revenue from mobile data transfer in the Russian market grew by 20% to RUB 77.2 billion, including due to the significant growth in LTE base stations; 3G-networks were launched in all major cities of Ukraine and their active construction is going on that has already given further impetus to business in this country. New business directions aimed at ensuring sustained business growth in the future were being developed actively. Although the share of financial services, M2M services, satellite TV and fixed line communication in the Russian regions is not great in terms of the total revenue, I am sure that these services will become a full-fledged support for MTS business in the future. Finally, thanks to the competent work of the company’s financial unit and to the continued managerial efforts to improve operating efficiency, MTS in 2015 paid record-setting dividend amounting to RUB 52 billion.

Over the past year, the Board of Directors met about 12 times and these meetings were by no means formal. Whether a discussion of the management report on the overall strategy progress, changes in the company KPI or entering a system integration market new to MTS – all these and dozens of other equally important issues were subjected to an extensive discussion by the Board members. An ample narrative on the activity of the Board of Directors is set forth in the relevant section hereof. I would like to thank my colleagues from the Board for their contribution to the representation of interests of the company shareholders. Our four independent non-executive directors used their considerable experience by participating actively in the strategy discussions and making of investment decisions. In these difficult times, we remain committed to high corporate governance standards and keep a regular and transparent communication with our shareholders and the market in general.

Ron Sommer,
Chairman of MTS PJSC Board of Directors