SSA.L Regulatory News (SSA)

FOR IMMEDIATE RELEASE 3 April 2017

Sistema announces financial results for the fourth quarter and full year 2016

Moscow, Russia - April 3, 2017 - Sistema PJSFC ("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 consolidated financial results in accordance with International Financial Reporting Standards (IFRS) for the fourth quarter and full year ended December 31, 2016.

STRATEGIC PROGRESS

STRONG FINANCIAL PERFORMANCE FOR FULL YEAR 2016

SOLID FOURTH QUARTER FINANCIAL RESULTS

SHAREHOLDER REMUNERATION AND DIVIDEND POLICY

· Progressive dividend payments and shareholder returns:

- RUB 7.8 billion final dividend for 2016 recommended by the Board of Directors. The total amount of the interim and final dividends for 2016 is expected to be RUB 11.5 billion, which is equivalent to a dividend yield of 6% based on Sistema's weighted average share price in 2016

- New dividend policy targeting minimum annual dividend per share and minimum dividend yield introduced in April 2016. On 1 April 2017 Sistema's Board of Directors approved increases of minimum annual dividend yield to 6% from 4% and minimum dividend per share to RUB 1.19 from RUB 0.67

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

"In 2016, Sistema delivered solid strategic progress as we continued to create value within our portfolio, successfully monetise our investments, optimise debt and increase cash distributions to our shareholders.

"We have continued to capitalise on MTS's market leadership in Russia and resilient cash flows and to focus on shareholder remuneration, while boosting the performance of our other portfolio companies, represented by Detsky Mir and non-public assets, which together contributed over 15% to the portfolio's OIBDA and over 35% of total dividends and regular cash returns received by the Corporate Centre.

"In 2016, Detsky Mir and Segezha Group delivered 31% and 29% revenue growth respectively and strong OIBDA margins. Agricultural assets increased their total land bank 2.3 times to 315,000 hectares, rapidly gained scale across key business lines and delivered strong aggregated OIBDA thanks to both M&A and enhanced business processes. Another business that is becoming a visible part of the portfolio is the real estate segment which focuses on monetising Sistema Group properties and selected new projects. In 2016, it delivered RUB 12.8 of revenues with an OIBDA margin of 41%.

"We also saw a 14.4% revenue growth at our healthcare business Medsi. We continue to believe in excellent market opportunities for this business and are investing in building new modern medical facilities.

"During 2016 and the first quarter of 2017 we maintained strong momentum in asset monetisation. The IPO of Detsky Mir in February 2017 achieved a solid valuation of 9.2 EV/2016 EBITDA, representing a five-fold increase in the company's valuation since 2012. Together with other notable monetisations - including sales of stakes in MTS and the successful disposal of 50% in SG-trans - this IPO allowed us to raise additional funds for reinvestment, deleveraging and distribution to shareholders.

"Sistema's monetisation pipeline remains strong. We continue to work on a number of capital-raising transactions for the portfolio companies, including potential IPOs in agriculture, forestry, real estate and other sectors.

"Our strategic progress positions Sistema firmly to continue investing in the Russian market and to increase cash distributions to shareholders. Today, we are pleased to announce that our Board of Directors has proposed a final dividend for 2016 of RUB 7.8 billion, which together with the interim dividend represents a 6% dividend yield based on Sistema's average share price in 2016. Simultaneously the Board has updated our dividend policy to increase our minimum targeted dividend yield from 4% to 6% and minimum dividend per share from RUB 0.67 to RUB 1.19, which confirms our confidence in our strategy, our assets and our home market".

Vsevolod Rozanov, Senior Vice President and Chief Financial Officer of Sistema, said:

"In 2016, Group adjusted OIBDA increased 5.7%, driven in particular by growth in our retail, paper and packaging, agriculture and real estate businesses, and resulting in a solid margin of 26.3%. A significant contribution to increased profitability came from improvements at MTS Bank, confirming that we have defined the right strategy for the asset.

"In 2016, Sistema generated RUB 59.6 billion at the Corporate Centre level through dividends, regular cash returns and monetisations of MTS and SG-trans shares. Together with accumulated cash at the beginning of the year, this allowed us to reduce total financial liabilities, which contracted by RUB 67 billion during the year.

"Our deleveraging and debt optimisation program was successful in 2016. We repaid a significant portion of FX-denominated liabilities, bringing the share of FX-debt in our total financial liabilities down to 46% vs. 61% as of the beginning of the year. This year we continued to optimise our debt portfolio by placing five-year local bonds totalling RUB 15 billion at a very comfortable rate of 8.9% (on first ten coupons) to refinance more expensive bank and public debt.

"Our portfolio companies have also demonstrated increased financial maturity, with Segezha Group and Agroholding Steppe successfully raising bank debt to finance CAPEX and M&A, affirming the market's confidence in our assets and their strategy.

"Our cash position remained comfortable as of the end of the reporting year and in the first quarter of 2017 it was further strengthened by proceeds of RUB 12.9 billion from Detsky Mir's IPO and of RUB 4.7 billion from the MTS share buyback, which will support implementation of our strategy going forward."

Conference call information

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

The dial-in numbers for the conference call are:

Russia

+7 495 213 1767

8 800 500 9283 (toll free)

United Kingdom

+44 330 336 9105

0800 368 0934 (toll free)

United States

+1 719 325 2385

1 888 349 9618 (toll free)

Conference ID: 9721951

Alternatively, you can quote the conference call title: "Sistema Fourth Quarter and Full Year 2016 Financial Results".

A replay of the conference call will be available on the Company's website www.sistema.com for 7 days after the event.

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

FINANCIAL SUMMARY AND GROUP OPERATING REVIEW

In 2016, the Group's revenues increased by 2.8% due to Detsky Mir's continued expansion in the Russian market, acquisitions and organic growth in the agricultural sector, the consolidation of Kronshtadt and strong results at Segezha Group. Sistema's revenues increased by 1.6% year-on-year in the fourth quarter of 2016 driven by the Group's largest non-telecom asset (Detsky Mir) and Segezha Group. Lower revenues at RTI, in particular due to the disposal of NVision in 2015, partially offset the Group's solid growth for the year and for the fourth quarter.

In 2016, selling, general and administrative expenses (SG&A) growth was contained to 5.9% year-on-year, generally in line with the inflation rate in Russia over the same period, despite organic growth at MTS and Detsky Mir and an acquisition by Segezha Group driving SG&A higher. Depreciation and amortisation expenses increased by 9.1% year-on-year in 2016.

Despite a modest decline in adjusted OIBDA at MTS, the Group's adjusted OIBDA increased by 5.7% year-on-year in 2016, mainly due to a reduction in provision charges and continued improvements in asset quality at MTS Bank, as well as OIBDA growth at Detsky Mir, Steppe and Segezha. Sistema's adjusted OIBDA grew by 14.8% year-on-year in the fourth quarter of 2016.

In 2016, adjusted consolidated profit attributable to Sistema was RUB 1.7 billion, compared to a net loss in 2015, largely due to improved results at MTS Bank.

OPERATING REVIEW[4]

MTS

MTS remains Russia's leading mobile operator, growing revenue 2.1% in 2016 and 0.2% year-on-year in the fourth quarter 2016. Higher data usage and handset sales offset weaker roaming usage and lower contributions from subsidiaries outside Russia. An increase in internet traffic was driven by higher subscriber numbers for the "Smart" voice and data (V&D) tariff in Russia and deployment of a 3G network in Ukraine.

In 2016, MTS's total subscriber base increased by 3.1 million customers, 2.8 million of them in Russia. MTS's customer base is notable for its active internet users and high smartphone penetration. MTS continues to successfully develop home internet and pay TV services in Russia.

Against the backdrop of prolonged macroeconomic volatility and retail expansion costs, adjusted OIBDA declined by 3.2% in 2016. The adjusted OIBDA margin remained high at 36.9% and 38.5% in the fourth quarter and full year 2016, respectively. Margins were negatively affected by higher sales volumes of relatively low-margin mobile phones.

Profit attributable to Sistema increased by 64.1% in the fourth quarter year-on-year as lower leverage led to a reduction in interest costs, and also due to a sharply lower loss at MTS Bank. The decline in profit for the full year in 2016 was the result of the repurchase of USD 267 million of MTS's outstanding 2020 Eurobond Notes.

During the 2016 calendar year, MTS paid out dividends of RUB 52.0 billion, in line with dividend payments in 2015.

Detsky Mir

Detsky Mir's revenues increased by 31.4% for the full year 2016 driven by like-for-like sales growth of 12.3%, stores opened in previous years beginning to operate at full capacity and continued expansion of the retail chain. The group opened 100 new Detsky Mir stores and one new ELC store in 2016, bringing the total number of outlets to 525 as of December 31, 2016. E-commerce was Detsky Mir's fastest growing sales channel, with online sales more than doubling in 2016.

Adjusted OIBDA increased by 32.6% for the full year 2016 due to improved operational efficiency. The ratio of administrative expenses to revenues declined from 27.7% in 2015 to 23.7% in 2016 in particular due to further automation of key business processes. As an anchor tenant at most shopping malls where it has a presence, Detsky Mir succeeded in significantly lowering rental costs as a percentage of sales and increased the operational efficiency of its chain of stores.

Adjusted profit attributable to Sistema rose by 28.0% for the full year 2016 to RUB 2.8 billion. Detsky Mir paid out a record dividend for 2016 of RUB 4.4 billion, including RUB 3.0 billion paid to Sistema. The success of Detsky Mir's IPO in February 2017 represented an acknowledgement of its outstanding performance over the last several years.

In 2017, Detsky Mir plans to open at least 70 new stores.

Segezha Group

Revenue at Segezha Group increased by 28.7% in 2016 as a result of increased production capacity, expansion of paper sack sales to new markets and consolidation of Lesosibirsk Woodworking Plant No.1 ("LWP"), which delivered strong operational and financial performance for the year, contributing RUB 5.7 billion in revenue.

Adjusted OIBDA rose by 37.6% driven in large part by contributions from LWP and a new paper sack production facility in the Rostov region.

Adjusted profit attributable to Sistema declined as Segezha's investment programme generated increased amortisation expenses, as well as due to higher interest expense. In 2016, Segezha raised a EUR 383.6 million syndicated loan.

On the operational side, Segezha sold a record number of paper sacks as a result of a new production line in Segezha, the plant in the Rostov region coming online and increased efficiency of sales thanks to switching production to high demand seasons. In 2016, sales of sack paper declined year-on-year as Segezha increased use of its own materials to produce sacks. Overall, its paper production was flat year-on-year despite a production stoppage at Segezha Pulp & Paper Mill for upgrade work. Timber production more than doubled in 2016 as a result of the consolidation of LWP. 

Agroholding Steppe

In 2016, Steppe's revenue and adjusted OIBDA increased four-fold, primarily driven by both M&A and organic growth.

2016 saw a record harvest of 1.04 million tonnes of grain. The significant increase in the gross harvest was achieved thanks to the acquisition of additional land as well as implementation of agricultural technologies and improved execution discipline.

Milk output increased by 20% thanks to a 13% year-on-year expansion of the herd to 3,700 cows and increased productivity. A landmark event for the dairy segment in 2016 was regulatory approval to export to European Union markets based on an assessment that Steppe's milk meets EU standards.

In 2016, Steppe planted 150 hectares of new high-density orchards, which will be fully operational in 2018. Fruit yields increased by 5% in 2016 to 42.1 tonnes per hectare.

Total tomato and cucumber production rose by 22% in 2016 to 45,800 tonnes as a result of an increase in greenhouses area under cultivation and an increase in yields from 31.6 kilograms per square metre in 2015 to 35.1 kilograms per square metre in 2016.

In May 2016, an additional 110,000 hectares of land in the Stavropol and Rostov regions were acquired and included in the 2016 harvest. The production of grain by new assets increased 65% as compared to 2015. At the end of 2016, Steppe acquired an additional 68,000 hectares of land and is currently integrating them into its business.

In 2016, ownership of Sistema's 50% share in RZ Agro was transferred to Agroholding Steppe as part of the strategy to establish a large-scale agriculture holding.

RTI

RTI's revenue declined for the full year and fourth quarter of 2016 year-on-year, reflecting the disposal of NVision in 2015, as well as lower project volumes on a large defence contract where work was primarily carried out in 2014 and 2015. In addition, both the key Defence Solutions business unit and the Microelectronics business unit reported lower revenue as customers placed orders later in the year.

Adjusted OIBDA decreased for the full year reflecting revenue trends and impairment loss recognition for accounts receivable and supply stock. RTI's adjusted OIBDA margin was flat at 9.1% in 2016.

In December 2016, RTI restructured its debt portfolio through loan agreements with VTB Bank. The agreements provide for the deferment of a significant portion (about 60%) of RTI Group's debt until 2021, to be followed by annual settlement payments through the end of 2026, as well as a grace period for interest payments. The rest of the debt will be refinanced through five-year revolving credit lines, which will give RTI Group additional flexibility in managing its working capital.

Medsi

In 2016, Medsi increased revenues by 14.4% year-on-year. Revenue generated from individuals grew by 11%. Revenue generated from insurers (including from Mandatory Medical Insurance, or MMI) rose by 19%, in part due to a 13% increase in patient visits covered by insurance.

The Clinical Diagnostic Centre at Belorusskaya remained Medsi's largest and busiest facility in 2016, and grew revenues by 6% year-on-year. The new Clinical Diagnostic Centre at Krasnaya Presnya continues to open new departments, and facilities already in operation posted a utilisation ratio of 65%, but there remains significant scope for increasing traffic by opening additional facilities. Overall, revenue at Moscow clinics increased by 15% in 2016, driven by an 11% increase in patient visits and a 4% increase in the average check.

Revenue from regional clinics grew by 7.6% in 2016 driven by optimisations of the sales strategy.

OIBDA rose by 72.4% in 2016 despite negative dynamics in the fourth quarter year-on-year caused by slightly increased marketing expenses and other accrued non-cash provisions.

Medsi posted a net loss for the year of RUB 499 million as a result of a higher amortisation expense and a pressures from currency revaluation.

In January 2017, the Ministry of Health accredited Medsi to host clinical trials for new medicines and treatments. Medsi plans to partner with Binnopharm in this area, and will host trials in cardiology, rheumatology, oncohematology, trauma care and other areas.

Bashkirian Power Grid Company (BPGC)

Revenue at BPGC grew by 9.6% year-on-year in the fourth quarter 2016 and by 8.3% for the full year 2016.

In the fourth quarter, OIBDA increased by 169.6% year-on-year, driven mainly by indexation of electricity transmission tariffs that came into force on 1 July 2016. OIBDA for the full year 2016 was also strong, rising by 30.1%. BPGC continues to be in a long-term regulatory period based on returns on invested capital, running from 2014 to 2023.

The OIBDA margin in the fourth quarter increased by 21.9 percentage points year-on-year to 36.9% and for the full year it grew by 5.9 percentage points to 35.1%. These improvements facilitated a reduction in reserves for potential disputes with counterparties in electricity transmission and sales.

Technical connections of new users continued to increase in 2016. Losses of electricity remained virtually unchanged at 2015 levels. A strategic goal for BPGC is the reconstruction of Ufa's electricity grid using Smart Grid technology. Preliminary results from the implementation programme indicate a potentially significant reduction in electrical losses given comparable conditions for electrical flows, as well as a reduction in incidents affecting electricity supply and a reduction of operating costs.

Sistema Shyam TeleServices Ltd. (SSTL)

In 2016, Sistema and Reliance Communications Ltd ("RCom") continued to work towards the merger of SSTL's telecommunications business with RCom. The transaction has been approved by India's two main stock exchanges (NSE and BSE), the Securities and Exchange Board of India (SEBI), the Competition Commission of India (CCI), and the Bombay and Rajasthan High Courts. All necessary shareholder and creditor approvals have also been properly secured. As of close of business on 31 March 2017, Sistema and RCom were in discussions with the Department of Telecommunication of India (DoT) and other regulatory and judicial bodies regarding final conditions of the potential transaction. The decisions regarding the completion of the transaction are expected to be made based on the timing of the approval processes and substance of the final conditions to be approved.

MTS Bank

MTS Bank's revenue decreased by 9.6% year-on-year in the fourth quarter and by 21.0% in the full year 2016. Interest income declined for the quarter and for the year as a result of a reduction in risk appetite and the size of the loan book in a period of economic contraction, as well as due to lower interest rates in the Russian market. In line with the bank's plans to increase income contributions from low-risk transaction products, the share of fee and commission income increased in revenues to 16.0% in 2016, versus 13.3% in 2015.

Loss attributable to Sistema saw significant contraction in the fourth quarter and the full year 2016, as provision charges reduced thanks to the optimisation of the bank's lending policy and a new credit scoring system rolled out in 2015-2016.

In the fourth quarter of 2016, MTS Bank strengthened its capital position via a RUB 10.5 billion additional share issue acquired by Sistema and MTS, which will allow the bank to deliver on its strategy of developing as a universal digital financial institution that partners with MTS.

To build on synergies with MTS's sales network, the bank opened 18 flagship branches under the scheme Bank+Operator (an MTS retail shop paired with a fully fledged bank branch) in 2016. The bank opened smaller financial zones at an additional 50 MTS retail shops. In 2017, the bank aims to market its products at more than 1,000 MTS retail shops.

Real Estate (Leader-Invest, Business-Nedvizhimost, Mosdachtrest)[6]

Leader-Invest's revenue increased nine times to RUB 8.8 billion in 2016 driven by revenue recognition on the sale of apartments in five Moscow residential complexes - Dom na Lyusinovskoy, Dom na Nagatinskoy, Dom na Samarinskoy, Dom na Rogozhskom and Dom na Izumrudnoy.

OIBDA at Leader-Invest in 2016 totalled RUB 3.0 billion, which resulted in an OIBDA margin of 34.2%. In the reporting year the company delivered profit of RUB 2.3 billion.

In 2017, Leader-Invest will continue to implement highly profitable infill construction projects. The company will also launch construction in the complex redevelopment projects Nagatino I-Land and 120 Lobachevsky St. In 2017, Leader-Invest plans to become a top-3 developer by total residential offering in "old Moscow", the most lucrative region of the Russian capital.

In December 2016, Leader-Invest issued its first exchange-traded bonds for RUB 3 billion. The five-year notes call for semi-annual coupon payments and a tender offer 1.5 years from the date of issuance. The rate of 1-3 coupons is set at 13.5% per annum.

Sistema's rental assets (Business-Nedvizhimost and Mosdachtrest) delivered combined revenue of RUB 4.0 billion in 2016, primarily driven by property rentals, as well as the sale of assets.

Adjusted OIBDA of the rental assets amounted to RUB 2.2 billion in 2016.

At the end of 2016, Business-Nedvizhimost agreed upon the principal terms of a framework agreement with X5 Retail Group for X5 to set up stores on the first floors of former MGTS telephone stations. The first pool of buildings to be leased has been approved.

Binnopharm

Binnopharm delivered strong financial results in the fourth quarter and full year 2016 thanks to consistent delivery on its strategy. Revenue rose by 33.4% year-on-year in the fourth quarter and by 16.9% for the full year. Sales of Binnopharm's own products accounted for 78% of revenue in 2016, up from 43% a year earlier. Sales of Regevak B vaccine declined from 36% of total revenue in 2015 to 29% in 2016. In the commercial segment, sales of Binnopharm's own products increased from 29% of total revenue in 2015 to 47% in 2016.

OIBDA increased by 36.7% year-on-year in the fourth quarter and by 114.7% for the full year 2016. Profit grew by 34.1% year-on-year in the fourth quarter and totalled RUB 11 million for the full year 2016, versus a net loss in 2015.

In 2016, Binnopharm opened its own research and development centre, a 400 square metre facility that includes seven laboratories. More than 20 drugs are at various stages of development and registration.

In the fourth quarter of 2016, Binnopharm acquired Alpharm, which produces two over-the-counter (OTC) products, Kipferon and Prosopin. The acquisition allows Binnopharm to enter the OTC market. In future the company may benefit from use of its own interferon compounds in drug production.

Hospitality assets

Sistema's hospitality assets increased revenues by 32.9% year-on-year in the fourth quarter of 2016 and grew by 13.9% for the full year 2016 as a result of Sistema Hotel Management's acquisition of Regional Hotel Chain in the fourth quarter, which increased the number of hotel rooms operated by Sistema from 2,501 to 3,771.

OIBDA declined by 64.4% year-on-year in the fourth quarter, but rose by 9.7% for the full year. Loss at hospitality assets was RUB 265 million in the fourth quarter and RUB 252 million for the full year. This was primarily the result of a decrease in revenues in rouble terms from hotels outside Russia as a result of the strengthening of the rouble.

In the fourth quarter the acquisition for RUB 2.6 billion of Regional Hotel Chain consisting of nine hotels with a total of 1,379 rooms was completed. The hotels are Courtyard by Marriott Paveletskaya (Moscow), Holiday Inn Express (Voronezh) and seven hotels operating under the Park Inn by Radisson brand in Astrakhan, Izhevsk, Kazan, Novosibirsk, Sochi, Volgograd and Yaroslavl.

Corporate

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

In 2016, Sistema generated RUB 59.6 billion of cash at the Corporate Centre through monetisation of SG-trans and MTS shares, as well as dividends and regular cash returns from portfolio companies. Sistema received dividends and regular cash returns totalling RUB 23.1 billion from MTS and RUB 12.3 billion from Detsky Mir and non-public assets.

In the fourth quarter of 2016, Sistema paid an interim dividend for the first six months of the year totalling RUB 3.67 billion (RUB 0.38 per ordinary share or RUB 7.6 per GDR).

KEY CORPORATE HIGHLIGHTS IN THE FOURTH QUARTER AND AFTER THE REPORTING PERIOD

In March 2017, Sistema subsidiary Sistema Finance S.A. sold 16,038,892 ordinary shares of MTS in connection with a tender offer to purchase MTS shares, for a total consideration of RUB 4.7 billion. Sistema Group's effective stake in the share capital of MTS stands at 50.03%.

In February 2017, Detsky Mir completed an initial public offering on Moscow Exchange. The IPO price was set at RUB 85 per share, implying a market capitalisation of RUB 62.8 billion when shares began trading on 10 February 2017. Sistema sold 151,301,256 shares via the offering, and held a stake in Detsky Mir's equity capital of 52.1% post-offering.

In January 2017, Sistema announced that the entire debt of RTI Group, except for liabilities pertaining to state defence orders which are covered by government guarantees, will be refinanced in 2016-2017 by VTB Bank, which will become the group's major lender, providing up to RUB 28.5 billion in financing. The loan agreements provide for the deferment of about 60% of RTI Group's debt until 2021, to be followed by annual settlement payments through the end of 2026, as well as a grace period for interest payments. The rest of the debt will be refinanced through five-year revolving credit lines, giving RTI additional flexibility in managing its working capital. Sistema will buy from VTB (as the legal successor of OJSC Bank of Moscow) 15.32% of OJSC RTI's share capital for a consideration of RUB 4.5 billion, with final settlement in January 2019. Following the acquisition, Sistema will own 87% of RTI's equity.

In December 2016, Sistema announced the sale of 100% of the shares of Targin JSC to PJSC Rosneft Oil Company for up to RUB 4.1 billion.

In November 2016, Sistema subsidiary Sistema Hotel Management LLC acquired nine hotels for a consideration of RUB 2.6 billion from VIYM, a private equity firm. The hotels are Courtyard by Marriott Paveletskaya (Moscow), Holiday Inn Express (Voronezh) and seven hotels operating under the Park Inn by Radisson brand in the cities of Astrakhan, Izhevsk, Kazan, Novosibirsk, Sochi, Volgograd and Yaroslavl. The properties include a total of 1,379 rooms with a total area of 87,613 square metres. The consolidated debt of the properties is RUB 4 billion.

In November 2016, Sistema acquired 7,362,690 ordinary shares of MTS Bank, placed as part of an additional issue, for a total consideration of RUB 7.7 billion. As a result of the transaction, Sistema's share in the capital of MTS Bank is 71.87%.

In October 2016, Sistema agreed with Rusnano on restructuring an option agreement dated 15 May 2014 with respect to shares of Mikron. Under the terms of the restructuring, in 2017 Sistema will acquire from Rusnano 20.42% of Mikron shares for a consideration of RUB 8.1 billion, of which RUB 4.8 billion is to be paid by 28 December 2016 and RUB 3.3 billion by 29 December 2017.

***

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 over 100 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 697.7 billion for 2016, and total assets of RUB 1.1 trillion as at December 31, 2016. 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 PJSFC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PROFIT OR LOSSFOR THE YEARS AND THREE MONTHS ENDED DECEMBER 31, 2016 AND 2015

SISTEMA PJSFC AND SUBSIDIARIES

AUDITED CONSOLIDATED statement of financial position

as of DECEMBER 31, 2016 and 2015

SISTEMA PJSFC AND SUBSIDIARIES

AUDITED CONSOLIDATED statement of financial position

as of DECEMBER 31, 2016 and 2015 (CONTINUED)

SISTEMA PJSFC AND SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

SISTEMA PJSFC AND SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (CONTINUED)

SISTEMA PJSFC 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 profit/(loss) attributable to Sistema shareholders. The Company uses adjusted OIBDA, adjusted operating income and adjusted profit/(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 profit / (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: