SSA.L Regulatory News (SSA)

FOR IMMEDIATE RELEASE

SISTEMA ANNOUNCES FINANCIAL RESULTS FOR THE FIRST QUARTER 2016

Moscow, Russia - 2 June 2016 - Sistema JSFC ("Sistema" or the "Company", together with its subsidiaries, "the Group") (LSE: SSA, MOEX: AFKS), a publicly-traded diversified holding company operating primarily in Russia and the CIS, today announces its unaudited consolidated financial results in accordance with International Financial Reporting Standards (IFRS) for the first quarter ended 31 March 2016.

STRONG OPERATIONAL AND STRATEGIC PROGRESS

· Strong performance by MTS, outpacing peers in terms of revenue growth

· Detsky Mir and Segezha Group remain key growth drivers for Sistema

· Continued expansion of the agriculture business, with land bank almost doubled

· New progressive dividend policy to support attractive shareholder returns

SOLID FIRST QUARTER 2016 FINANCIAL RESULTS

· Consolidated revenues grew by 3.3% YoY to RUB 173.3 billion

· Adjusted OIBDA stable YoY at RUB 44.3 billion, with an adjusted OIBDA margin of 25.5%

· Adjusted net income attributable to the Group of RUB 2.5 billion versus adjusted net loss in the same period last year

· Net debt at the Corporate Centre level of RUB 76.8 billion as at 31 March 2016

· As of 31 March 2016, cash position at the Corporate Centre level of RUB 33.8 billion, excluding RUB 12.9 billion represented by deposits

Mikhail Shamolin, President and Chief Executive Officer of Sistema, commented:

"Sistema's strong financial results in the first quarter of 2016 reflect our ongoing effort to develop the Group's assets into market-leading companies with clear strategies, resilient business models and strong cash generating capabilitites.

"MTS again outperformed its peers in the first quarter, delivering strong top-line growth and healthy margins in a highly competitive environment and proving the strength of its strategy. Children's goods retailer Detsky Mir and pulp-and-paper holding Segezha Group delivered the fastest year-on-year growth within the portfolio, remaining our key growth drivers. Detsky Mir increased revenues by more than 35%, while continuing to add new stores and expand its market share. Segezha boosted revenues nearly 40% driven by both organic growth and the acquisition of Lesosibirsk LDK No. 1, which represents a very strong and promising addition to Segezha's business.

"Our Indian telecommunications subsidiary, SSTL, broke even on the OIBDA level in the quarter, a solid result as we work toward closing the transaction to merge the company's business with Reliance Communications, one of the leading telecom operators in India.

"In the second quarter of 2016, we maintained strong investment momentum in agriculture with the acquisition of approximately 110 thousand hectares of land in the Rostov region and Stavropol Krai, which almost doubles our land bank, and puts us well on track to building out Russia's leading agricultural holding.

"While we keep strong focus on increasing our asset value and cash generation, our priorities for 2016 will be optimisation of leverage and increasing shareholder distributions. In April, Sistema's Board of Directors approved a new progressive dividend policy which states that the dividend for each reporting year will be, at a minimum, the higher of either an amount equivalent to a dividend yield of 4% or RUB 0.67 per share.

 We believe that this new policy will help us to maximise shareholder value as we continue to deliver on our strategy."

Conference call information

Sistema's management will host an analyst conference call today at 10:00 am (EST)/ 3:00 pm (London time) / 4:00 pm (CET)/ 5:00 pm (Moscow time) to present and discuss the first quarter 2016 results.

The dial-in numbers for the conference call are:

Russia

+7 495 213 0977

8 800 500 9311 (toll free)

United Kingdom

+44 20 3427 1906

0800 279 5736 (toll free)

United States

+1 646 254 3360

+1 877 280 1254 (toll free)

Conference ID: 1033434

Alternatively, you can quote the conference call title: "Sistema First Quarter 2016 Financial Results".

A replay of the conference call will be available on the Company's website www.sistema.com for seven days after the event.

For further information, please visit www.sistema.com or contact:

FINANCIAL SUMMARY AND GROUP OPERATING REVIEW

Sistema's consolidated revenues increased by 3.3% year-on-year in the first quarter of 2016, reflecting strong growth of handset sales and data revenues at MTS, continued expansion of Detsky Mir in the Russian market and robust revenue growth at Segezha Group driven by increased production and consolidation of Lesosibirsk LDK No. 1.

The quarter-on-quarter decrease in Group revenues was mainly driven by seasonal factors at portfolio companies, most notably MTS, Detsky Mir and RTI.

Group selling, general and administrative expenses (SG&A) increased by 8.6% year-on-year to RUB 37.4 billion, reflecting consolidation of new assets and a continued focus on cost discipline across key subsidiaries. The SGA /Revenues ratio improved year-on-year at MTS (20.3% vs 20.7% in the first quarter of 2015), Detsky Mir (28.4% vs 30.1%) and Medsi (17.8% vs 23.7%). SG&A at the Corporate Centre increased at a below inflation rate of 7.3% year-on-year and decreased by 68.7% quarter-on- quarter to RUB 1.7 billion. Depreciation and amortisation expenses increased by 0.2% year-on-year and by 3.1% quarter-on-quarter to RUB 24.4 billion.

In the reporting quarter, Group adjusted OIBDA was flat year-on-year and increased by 24.3% quarter-on-quarter to RUB 44.3 billion. All major consolidated assets were profitable on the OIBDA level despite the seasonally weak first quarter, while SSTL and MTS Bank demonstrated significant year-on-year OIBDA improvements. The Group's adjusted OIBDA margin was 25.5% in the reporting quarter, compared to 26.4% in the corresponding period of 2015 and 18.5% in the fourth quarter of 2015.

Adjusted net income attributable to Sistema improved to RUB 2.5 billion in the first quarter of 2016, as compared to an adjusted net loss of RUB 2.7 billion in the first quarter last year, mainly due to the foreign exchange gains.

The year-on-year decline in the Group's net income was due to a gain of RUB 35.0 billion recognised in the first quarter of 2015 as a result of the Ural Invest settlement.

OPERATING REVIEW

MTS

MTS's revenues grew by 7.9% year-on-year in the first quarter, due to a 71% increase in handset and accessory sales, as well as higher data services consumption and growth of the active subscriber base.

Adjusted OIBDA was substantially stable year-on-year at RUB 40.5 billion despite higher sales volumes of lower-margin handsets and increased investment in growing the retail network amid stiffer competition in the Russian mobile telecoms market.

Net income rose by 33.3%, in particular as a result of a non-cash foreign exchange gain.

MTS's active subscriber base increased by 3.8% year-on-year and 0.4% quarter-on-quarter to 108.3 million as of 31 March 2016.

Significant events after the end of the reporting period

In April 2016, MTS's Board of Directors set a dividend policy for 2016-2018 that implies a target payout of RUB 25.0-26.0 per ordinary share, with a minimum payout of RUB 20.0 per ordinary share. The Board also instructed management to propose a share buyback programme and to allocate up to RUB 30 billion for this purpose over three years.

Detsky Mir

Detsky Mir's revenues increased by 35.1% year-on-year in the quarter, driven by a 13.1% rise in like-for-like sales and increased traffic at existing stores.

Detsky Mir's adjusted OIBDA increased 16.9% year-on-year as the company implemented a competitive pricing policy aimed at increasing its market share in Russia. SG&A as a percentage of revenues continued to decline (down 1.7 percentage points year-on-year) as costs remained strictly controlled, including through increased automation of business processes, headcount optimisation and the reduction of leasing rates for retail facilities.

During the first quarter, Detsky Mir opened four new stores, bringing the total number of stores to 428. The company plans to open at least 50 new stores in 2016.

Segezha Group

Segezha's robust revenue growth of 39.8% year-on-year was driven by increased sales of paper, plywood and lumber, changes to the rouble exchange rate, and the consolidation of Lesosibirsk LDK No. 1, Russia's largest vertically integrated wood processing enterprise.

OIBDA increased by 7.8% year-on-year. The year-on-year contraction in the OIBDA margin was mainly due to pressures associated with the increased cost of chemicals and other materials starting from second half of 2015. At the same time, the OIBDA margin was supported by optimisation of production costs and an increase in the share of Segezha's own logging in volumes of raw wood consumed to 68% from 53% in the first quarter of 2015, which compensated for the rise in cost of purchasing raw wood.

Segezha's capital expenditures of RUB 2.4 billion in the reporting period were mainly to complete construction of a paper packaging plant in the Rostov Region, where the first production line began operations in March 2016. Over the course of 2016, priorities of Segezha's investment programme's include modernisation of paper and sack production, construction of a sawmill at the Segezha Pulp & Paper Plant, and construction of a plywood factory in the town of Kirov.

RTI

RTI's revenues declined by 60.1% year-on-year primarily as a result of the disposal of the Information and Communication Technologies business unit (ICT) as well as fluctuations of revenues from certain large contracts. Revenue from the Microelectronics business unit increased by 23.1% year-on-year in the quarter thanks to increased deliveries of microchips and radio-frequency identification (RFID) tags designed and manufactured by RTI entities.

The OIBDA margin increased by 5.3 percentage points year-on-year as a result of increased profitability at the Microelectronics business unit and the disposal of the ICT business unit.

SG&A decreased by 45.0% year-on-year mainly due to disposal of ICT.

Targin

Targin's revenues increased by 17.6% year-on-year due to a 2% increase in drilling volumes, a 4% increase in capital-repair and ongoing well-maintenance services, and a 3% increase in transportation services.

The OIBDA margin improved by 3.3 percentage points year-on-year to 12.7% as high-margin services accounted for a larger share of revenues.

Targin is implementing an investment programme to expand its offering in key business segments and develop new technologies. The programme is financed through bank loans.

Medsi

Medsi's revenues grew by 16.3% year-on-year as a result of increased traffic from patients covered by insurance and growth of the client base driven by successful marketing campaigns. The number of unique clients paying out-of-pocket increased by 12% year-on-year. The seasonal decline in the number of visits was largely offset by the increased average spend per visit, with revenues down only 1.8% quarter-on-quarter.

Medsi delivered positive OIBDA of RUB 43 million for the quarter, despite seasonality.

The clinical and diagnostic centre at Belorusskaya, Medsi's largest asset, which accounts for 22% of revenues, increased revenues by 10% year-on-year in the first quarter.

Bashkirian Power Grid Company (BPGC)

BPGC's revenue increased by 3.4% and OIBDA increased by 4.2% year-on-year due to indexation of tariffs from 1 July 2015, and also non-material growth of total productive electricity output and capacity.

The number of consumers connected to distribution grids increased 47.6% year-on-year.

Net income declined by 13.9% year-on-year due to higher amortisation charges resulting from commissioning of fixed assets, and also due to lower interest income.

BPGC's priority for 2016 remains the implementation of Smart Grid technology to the Ufa city network.

Sistema Shyam TeleServices Ltd. (SSTL)

Revenues at Sistema Shyam TeleServices Ltd. (SSTL) grew by 10.9% year-on-year, driven by an increase in non-voice revenues. SSTL broke even at the OIBDA level in particular due to optimisation of expenses.

Net debt decreased by 52.2% year-on-year and by 17.8% quarter-on-quarter due to pre-payment of loans.

SSTL's high-speed data services now cover over 1,250 towns across nine circles.

In 2015, Sistema and SSTL entered into an agreement to merge SSTL's telecommunications business with the business of Reliance Communications (RCom), one of India's leading telecom operators. Completion of the transaction is conditional upon a number of approvals being obtained. As of the end of May 2016, the transaction has been approved by the Securities and Exchange Board of India (SEBI) and the Competition Commission of India. All necessary approvals from shareholders and creditors have also been secured. The transaction is subject to final approvals from the Rajasthan and Bombay High Courts, as well as the Department of Telecommunications of India.

MTS Bank

MTS Bank's interest income and total revenues increased slightly quarter-on-quarter reflecting the stabilised volume of performing assets as well as resumption of retail lending in 2015.

MTS Bank's net loss declined significantly to RUB 0.1 billion in the first quarter as a result of lower provision charges and improvement of the risk profile of the bank's loans to individuals.

The majority of retail loans issued in the quarter are represented by consumer credit for purchases of mobile phones and other merchandise at MTS retail outlets. Most corporate loans were extended to medium-sized businesses or Sistema Group companies.

MTS Bank's aims for 2016 are to continue establishing a high-quality loan book, reducing expenses and maintaining its capital adequacy ratios.

Binnopharm

Revenue declined by 11.0% year-on-year and by 49.7% quarter-on-quarter as Binnopharm pursued its strategy of scaling back the low-margin distribution business and focusing on its own products.

The decline in revenue and OIBDA quarter-on-quarter was mainly due to uneven sales of the Regevak B vaccine, most of which are expected in the second half of 2016.

During the quarter, Binnopharm began construction of a new research and development centre in the town of Zelenograd in the Moscow region with the aim of further expanding its own product line of pharmaceuticals.

Intourist

Revenues at Intourist in the quarter increased 5.2% year-on-year, driven by growth of income from hotels outside Russia. The quarter-on-quarter decline in revenues and OIBDA was due to seasonal factors, as most conferences at Group hotels take place at the end of the calendar year.

As of 31 March 2016, Intourist Group comprised eight hotels in Russia, Italy, the Czech Republic and Namibia, with a total of 2,501 guest rooms.

Corporate

The Corporate segment comprises companies that control and manage Sistema's interests in its subsidiaries.

In the first quarter of 2016, the Corporate Centre's SG&A increased at a below inflation rate of 7.3% year-on-year and decreased by 68.7% quarter-on- quarter to RUB 1.7 billion.

KEY GROUP HIGHLIGHTS IN 1Q 2016 AND AFTER THE REPORTING PERIOD

In May 2016, Sistema adopted a programme for senior management of the Company to participate in the share capital of Sistema JSFC and Group companies ("the Programme"). Under the Programme, heads of Sistema's investment portfolios will have the obligation to make a one-off investment equal to a substantial part of their total annual income in shares and participatory interests of existing assets under their management. Heads of investment portfolios will also invest a portion of their total annual income in shares and participatory interests of each of new assets acquired under their management during a year. Heads of Sistema's functional subdivisions will have the obligation to invest a substantial part of their total annual income in shares of the Company annually.

In May 2016, Sistema's 100% subsidiary Agroholding Steppe signed legally binding agreements to acquire several companies in the Rostov and Stavropol regions controlling a total land bank of c. 110,000 hectares. As a result of completion of these transactions total land bank operated by Sistema's agroholding and its affiliates will almost double, reaching c. 247,000 hectares as compared to c. 137,000 hectares as of the end of 2015.

In April 2016, Sistema's Board of Directors approved a new dividend policy whereby the total dividend recommended by the Board for each reporting year will be, at a minimum, the higher of either an amount equivalent to a dividend yield of 4% per Sistema ordinary share or RUB 0.67 per Sistema ordinary share. Sistema will seek to distribute dividends twice per year. For 2015, the Board recommended that the Annual General Meeting of shareholders (AGM) approve a total dividend payment of RUB 6.47 billion, representing a payment of RUB 0.67 per ordinary share or RUB 13.4 per GDR.

In February 2016, Sistema's subsidiary LLC LesInvest (the parent holding company of Segezha Group) acquired a controlling stake in OJSC Lesosibirsk LDK No. 1, one of the largest vertically integrated wood processing enterprises in Russia, based in Krasnoyarsk region. OJSC Lesosibirsk LDK No. 1 is one of Russia's largest producers of lumber, fibre board, planed mouldings and furniture made from Angara pine. It processes more than 1 million cubic meters of logs annually. The total annual allowable cut comprises 2.9 million cubic metres.

***

For further information, please visit www.sistema.com or contact:

Sistema is a publicly-traded diversified holding company in Russia and the CIS, which invests in and is a major shareholder of companies serving approximately 150 million customers in the sectors of telecommunications, high technology, pulp and paper, banking, retail, tourism and healthcare services. Founded in 1993, the Company reported revenues of RUB 708.6 billion for 2015, and total assets of RUB 1.3 trillion as at 31 December 2015. Sistema's global depository receipts are listed under the symbol "SSA" on the London Stock Exchange. Sistema's ordinary shares are listed under the symbol "AFKS" on the Moscow Exchange. Website: www.sistema.com

The Company is not an investment company, and is not and will not be registered as such, under the U.S. Investment Company Act of 1940.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Sistema. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might" the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. In addition, there is no assurance that the new contracts entered into by our subsidiaries referenced above will be completed on the terms contained therein or at all. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industries, as well as many other risks specifically related to Sistema and its operations.

SISTEMA JSFC AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSSFOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

SISTEMA JSFC AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED statement of financial position

as of MARCH 31, 2016 AND DECEMBER 31, 2015 

SISTEMA JSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED statement of financial position

as of MARCH 31, 2016 AND DECEMBER 31, 2015 (CONTINUED)

SISTEMA JSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

SISTEMA JSFC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

 SISTEMA JSFC AND SUBSIDIARIES

Attachment A

Operating Income Before Depreciation and Amortisation (OIBDA) and OIBDA margin. OIBDA represents operating income before depreciation and amortisation. OIBDA margin is defined as OIBDA as a percentage of our net revenues. Our OIBDA may not be similar to OIBDA measures of other companies; is not a measurement under accounting principles generally accepted under IFRS and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of profit and loss. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of businesses and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under IFRS, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. OIBDA is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies.

Adjusted OIBDA, operating income and net income/(loss) attributable to Sistema shareholders. The Company uses adjusted OIBDA, adjusted operating income and adjusted net income/(loss) attributable to Sistema shareholders to evaluate financial performance of the Group. These represent underlying financial measures adjusted for a number of one-off gains and losses. We believe that adjusted measures provide investors with additional useful information to measure our underlying financial performance, particularly from period to period, because these measures are exclusive of certain one-off gains and losses.

Adjusted operating income and adjusted OIBDA can be reconciled to our consolidated statements of profit and loss as follows:

Adjusted net income / (loss) attributable to Sistema shareholders can be reconciled to our consolidated statements of profit and loss as follows:

Net debt at the Corporate Centre level. We define net debt as indebtedness less cash, cash equivalents and other liquid deposits and financial instruments. The indebtedness is defined as long-term debt, including its current portion, and short-term debt. We believe that the presentation of net debt at the Corporate Centre level provides useful information to investors because we use this measure in our management of the Corporate Centre's liquidity, financial flexibility, capital structure and leverage. The IFRS financial measure most directly comparable to net debt at the Corporate Centre level is the indebtedness of our Corporate segment as reported in our segment disclosures. Net debt at the Corporate Centre level can be reconciled to the indebtedness of our Corporate segment as follows: