Financial results | Q2 2017

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performance, capital expenditures, financing needs, our plans or intentions relating to the expansion or contraction of our business as well as specific acquisitions and dispositions, our

competitive strengths and weaknesses, the risks we face in our business and our response to them, 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 and legal environment in which we operate,

and other information that is not historical information, together with the assumptions 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, performance

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results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only 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 factors affecting such statements.

Q2 2017KEY HIGHLIGHTS

SERGEY SOLDATENKOV,MEGAFON CEO

FINANCIAL HIGHLIGHTS

Q2 2017 KEY CONSOLIDATED

OF MEGAFON GROUP1

1 Consolidated financial highlights of MegaFon Group include the financial results of MegaFon standalone and the financial results of Mail.Ru Group Ltd. since the beginning of 20172 Profit attributable to equity holders of the Company, excluding non-cash impairment of Euroset joint venture in the amount of 15.93 Starting from the first quarter of 2017, pursuant to the adoption of its new dividend policy, the Group switched from reporting free cash flow, the financial measure previously used, to reporting a new financial measure, free cash flow to shareholders

NOTE:

All financial figures provided in this presentation are presented on consolidated IFRS basis unless otherwise stated

89.7CONSOLIDATED REVENUE RUB bn

Q2 / 2017

Q2 / 2016 78.7

34.2 15.8% y-o-yCONSOLIDATED OIBDARUB bn

Q2 / 2017

Q2 / 2016 29.6

38.2 0.7 p.p. y-o-yOIBDA MARGIN %

Q2 / 2017

Q2 / 2016 37.5

5.6 22.2% y-o-yAdj. NET PROFIT2

RUB bnQ2 / 2017

Q2 / 2016 7.2

13.8CAPEX RUB bn

Q2 / 2017

Q2 / 2016 12.9

9.9 100.5% y-o-yFREE CASH FLOW3

RUB bnQ2 / 2017

Q2 / 2016 5.0

6.8% y-o-y

13.9% y-o-y

Q2 2017 and post-closing events

Another step to 5G

During St. PetersburgInternational Economic Forum,MegaFon and Huawei set anabsolute record for the speed ofthe mobile Internet connection inRussia at 35 Gbit/s

Pavel Korchagin was appointedas a new Chief TechnologicalOfficer following the resigning ofAlexander Bashmakov, who leftthe company in June to pursuenew opportunities

End of Euroset JV

Changes in management team

VK Mobile

Based on the agreement reachedbetween the parties, MegaFonwill acquire VimpelCom’s 50%interest in Euroset, which willsurvive as an operating company.VimpelCom will acquire half ofEuroset’s retail stores

“Vkontakte”, the largest socialnetwork in Russia, in cooperationwith MegaFon launched newproduct offering VK Mobile withunlimited access to VK, incl. freemusic streaming and 50% cash-back for VK content

Membership in ANO “Digital economy”

The Board approved membership of MegaFon in Autonomous non-profit organization ”Digital economy” aimed to coordinate realization of the program “Digital economy of the Russian Federation” till 2024 adopted by the Government

New tariff plans “Vklyuchaisya1!”

MegaFon introduced a new tariffline “Vklyuchaisya!” for a newgeneration of mobile users.These tariffs are tailored to meetthe interest of our digitalsubscribers in their everyday life,based on the profile of usage

1 Connect

To End EurosetJoint Venture

MegaFon and VEON

to pursue their independent retail strategies and optimise mobile distribution in Russia.

Analysis of fairness of split was confirmed by Deloitte²

Expected completion by end of 2017- Q1 2018

At closing VEON pays RUB bn 1.25 and acquires rights to 50% of Euroset stores in exchange for VEON’s equity stake in Euroset

FAS and corporate approvals obtained, completion is subject to other conditions precedent

Following completion

We consider a number of strategic options with respect to Euroset:– keeping Euroset as a separate multibrand channel– integration into monobrand stores, incl. footprint optimization– possible combinations with other market players

MegaFon

~ 2 K stores

1.2

5

RU

B b

n

100%

NewCo¹

~2 K stores

50% stake in Euroset

10

0%

sta

ke

in

New

Co

Euroset

VEON

100%

NOTE:1 A company with ~2K lease agreements for VEON stores2 CJSC ”Deloitte & Touche CIS”, an independent appraisal

EXECUTION OFCOMMERCIAL STRATEGYVLAD WOLFSON,MEGAFON CСO

Vklyuchaisya1!

MegaFon introduced a new service price offering

to meet the interest of our digital subscribers in their everyday life

2 Previously one had to increase number of minutes, when increasing number of MBs and vice versa when moving to senior tariffs

NOTE:

Considers behavior of our subscribers

based on Big Data analysis of a

subscriber’s mobile app usage

We have changed our approach to forming service price offerings. New offering Vklyuchaisya!:

Includes most popular services in

subscription fee

Offers tailor-made options depending on

usage profile of each subscriber2

This leads to a bigger share of higher ARPUsubscribers in new gross adds without a change intotal number of gross adds

Uplift in ARPU without direct increase in prices

Avoidance of direct comparison with competitors' products

Enhancement of emotional attractiveness of the tariff

1 Connect!

Connect! Interact Connect! Speak

Connect! Premium Connect! Watch

Connect! ListenConnect! Write

Unique loyalty program1

for card-holders

MegaFon.TV MegaFon.Card

Unique freeTV & VoD OTT service offering premium contentfor high LTVclients

Unique single account for mobile and banking card

2.4 mlnusers registered

70% of registered users are subscribers using MegaFonbundled tariffs

0.8 mln cardsissued to MegaFonsubscribers

RUB 9bn total transaction volume 1H2017

UniqueDigital Products

MegaFon continues improving its

NOTE: 1 For each RUB100 spent on MegaFon.Card a cardholder gets 10 MB giftCardholders subscribed for Connect! tariff line get additional 1GB gift for the fist transaction above RUB 100

Launch of SMS advertising service - MegaFon.Target

An effective targeted advertising tool. Customer base > 6,000 customers as of 30 June 2017

FMC partnership program across Russia

Aimed at expansion of B2B service portfolio through offering of FMC and Virtual PBX solutions

B2X1

segment

Key developments in

in 1H 2017

B2X continued strong performance in 1H 2017

Note: (1) B2X includes both B2B and B2G segments

Fiscal data solution tool for mobile cash desks

A comprehensive solution for working with online cash-desks that allows companies to send fiscal data to tax authorities. Customer base includes 2,500 subscribers and 500 customers as of 30 June 2017

New clients\projects

302 K number of B2X clients,

+5% y-o-y

+8.8% y-o-y growth of total

B2X revenue

+9.7% growth of B2X mobile

revenue

3.9 mln number of B2X mobile

data users, +21% y-o-y

Number of B2Xprojects

On the back of superior infrastructure MegaFonexecuted the

In 1H 2017

Complete network and infrastructure support¹:• 11k km of FOCL used • Additional indoor coverage provided on 80 venues• Geo-differentiated DWDM2 network rolled-out• ISDN-telephony arranged for sportscasters

35 Mb/s average downlink speed of the mobile

Internet connection

20 TB of total traffic used with

• Instagram as the most traffic-intensive app

• WhatsApp as the most popular messenger, and

• YouTube / FB as preferred streaming channels

1.2 mln mins talked = 24 months of non-stop talk Installation of sensors technology on traffic signs

Installation of smart utility metering systems in Innopolis (City of Kazan)

Note: (1) Pursuant to the Agreement with National Center of Informatization for rendering full range of mobile and wireline services and arrangement of the respective infrastructure at 2017 Confederations Cup and 2018 World Cup venues (2) DWDM - Dense Wavelength Division Multiplexing, technology allows to avoid possible network interruptions in the event of failure of one of the elements(3) Narrow Band Internet of Things (4) LoRa is a wireless communication technology developed to create the low-power, wide-area networks (LPWANs) required for machine-to-machine (M2M) and Internet of Things (IoT) applications

IoT project at the gas condensate field in Yamal

Based on NB-IOT3 technology

Based on LoRa4 technology

Q2 2017

GEVORK VERMISHYAN, MEGAFON CFO

RESULTS

High-speed network development

Focus on increase of 4G/LTE network capacityand improvement of 4G service quality

28

49

7277

82 83

25%36%

51%59%

65% 67%

2012 2013 2014 2015 2016 1H 2017

Number of Russia’s regions where MegaFon 4G services are available

% of population covered(2)

Note:1 Acquisition of SMARTS Group regional assets with 900/1,800 MHZ spectrum in 2014-20172 Russian population as of the latest census in October 2010

Federal regions covered by MegaFon 4G / LTE network

Cities where LTE-Advanced available

ChelyabinskRostov-on-Don

Nizhniy Novgorod

SamaraUfa

Tula

OmskSochi

Novosibirsk

Khabarovsk

Krasnoyarsk

IvanovoYaroslavl

Lipetsk

Krasnodar

Yakutsk

Kaliningrad

Neryungri

Amur region

Saint-Petersburg

Moscow

Chita

Sakhalin

Vladivostok

4G available in 83 federal regions

> 33,270 4G base stations

94 countries /153 operators for LTE roaming

12.7 million 4G-enabled devices in network

In Moscow and Moscow region since Q4 2016

LTE-A services launched in 29 regions of Russia

52.6% share of 4G traffic in total data traffic

2-fold increase of 4G traffic usage y-o-y

1,800 MHz spectrum acquired from SMARTS is being

deployed for LTE development

In Q2 2017, total revenue decreased by 1.0 % y-o-y to RUB 78.0 bn mainly due to 13.0% decline in sales of equipment and accessories, while wireless revenue remained stable, wireline revenue was up 2.8%.

EARNINGS TRENDS

KEY HIGHLIGHTSOF TELECOM SEGMENT:

1 In Q4 2016, adjusted OIBDA is represented. It is OIBDA adjusted to exclude impairment loss relating to the goodwill allocated to the Broadband internet cash generating unit2 Net profit attributable to equity holders of the Company, excluding non-cash impairment of Euroset joint venture in the amount of 15.9 3 Key performance indicators

NOTE:

Due to rounding, manual calculations for financials and KPIs(3) may differ from those displayed

REVENUE

In Q2 2017, OIBDA increased by 3.6% y-o-y and reached RUB 30.6 bn due to decline in cost of services, lower marketing and G&A expenses

Adj. Net profit2 decreased by 23.7% y-o-y to RUB 5.5 bnmainly due to increased interest expense and forex loss

OIBDA

Adj. NET PROFIT2% of Revenue

RUB bn

78.7 81.1 81.3 74.5 78.0

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

153.9 152.5

1H 2016 1H 2017

29.6 32.329.1 29.0 30.6

37.5% 39.8% 35.7% 39.0% 39.3%

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

59.8 59.6

38.9% 39.1%

1H 2016 1H 2017

7.2 6.3

3.1 3.85.5

9.2% 7.8%3.8% 5.2% 7.1%

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

1

3.6%

Growth

0.3%

41.8%

1.0%

Lower

23.7%

Lower

0.9%

16.19.410.4%6.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0

5.0

10.0

15.0

20.0

1H 2016 1H 2017

SEGMENTREVENUE

KEY COMPONENTS OF TELECOM

1 Other wireless revenue includes revenues from VAS services; revenue from local subscribers which includes monthly fees, airtime revenues, own subscriber roaming and connection fees; wireless interconnection revenues; roaming charges to other wireless operators2 In Q4 2016, adjusted OIBDA is represented. It is OIBDA adjusted to exclude impairment loss relating to the goodwill allocated to the Broadband internet cash generating unit

NOTE:

Due to rounding, manual calculations for financials and KPIs(3) may differ from those displayed

1.0%

Lower

WIRELESS SUBSCRIBERS- RUSSIA

Handsetsand accessories

Wireline

Other wirelessrevenue1

Data

RUB bn

(million)

Share of data users in total subs base, as % of total

Share of data revenue in total Revenue

1.5%

y-o-y

5.9%

2.8%

2.8%

20.7 21.7 21.4 20.9 21.9

44.6 46.2 44.5 41.8 43.4

6.36.4 7.0

6.16.5

7.1 6.8 8.45.7

6.2

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

26.3% 26.8% 26.3% 28.1% 28.1%

13.0%

30.0 30.8 31.0 31.1 31.0

74.7 75.5 75.6 75.6 75.8

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

40.1% 40.8% 41.0% 41.2%40.9%

Data users, mln User base not using data, mln

0.2%

Service revenue demonstrated positive growth of 0.2% y-o-y forthe first time since Q1 2016, which can be an inflection point ofrevenue recession:

- Total wireless revenue remained stable y-o-y impacted by adecline in revenue from traditional voice services which was off-set by growth of mobile data revenue and value-added services

- Mobile data segment increased by 5.9% y-o-y to RUB 21.9 bnand represents 28.1% of total revenue. Growth was driven byhigher data usage on the back of MegaFon data initiatives,including cancelation of unlimited tariffs, bundles repricing andintroduction of new tariff line “Vklyuchaisya!” (Connect!)

- Wireline revenue increased by 2.8% y-o-y due to continuedexpansion of B2X client base and B2X service portfolio

Sales of handsets and accessories decreased by 13.0%y-o-y as a result of reduction in the number of owned retail storesand change in product line in favor of higher margin but lower-volume device portfolio

In Q2 2017, OIBDA was up 3.6% to RUB 30.6 bn and OIBDA margin increased by 1.8 p.p. y-o-y to 39.3%KEY FACTORS

INFLUENCING OIBDA MARGININ TELECOM SEGMENT

NOTE: Due to rounding, manual calculations for financials and KPIs may differ from those displayed

- Gross profit increased by 0.7% y-o-y and gross profit margin was up by 1.2 p.p. to 71.2% due to the decline in the cost of services resulting from decrease in:

- cost of equipment and accessories as a result of decline in sales of equipment

- channel lease cost due to shift from expensive satellite communication channels to cheaper terrestrial ones

- Sales & marketing expenses were down by 6.3% y-o-y due to higher advertising expenses in Q2 2016 related to rebranding

- General & administrative expenses declined by 1.7% y-o-y due to higher operating taxes in Q2 2016 related mainly tosignificant tax charge accrual due tax audit in Tajikistan

KEY COMPONENTS

OIBDA margin (%)

OIBDA (RUB bn)

37.5%

1.2 p.p.

S&M as % ofrevenue

0.3 p.p.

G&A as % ofrevenue 39.3% 1.8 p.p.

30,629,6 0,3

Cost of revenue Sales&Marketing

0,3

OIBDA Q2 2016

(0,8) 1,2

Revenue General&Marketing

OIBDA Q2 2017

Gross profit

Gross profit margin

-1.0% -5.0%

+0.7%

-6.3% -1.7%

0.2 p.p.

3.6%

Growth

In Q2 2017, MegaFon invested RUB 13.1 bn, which is 1.9% higher than in Q2 2016, due to higher spending on network roll-out and modernization. Our CAPEX is in line with our technical plan for network development

FREE CASH FLOW AND CAPEX

KEY HIGHLIGHTSOF TELECOM SEGMENT:

1 MegaFon CAPEX refers to actual CAPEX accrued for the year and may not match cash flow CAPEX.2 In Q4 2016, adjusted OIBDA is represented. It is OIBDA adjusted to exclude impairment loss relating to the goodwill allocated to the Broadband internet cash generating unit

NOTE:

Due to rounding, manual calculations for financials and KPIs(3) may differ from those displayed

CAPEX1

OIBDA-CAPEX increased by 4.9% y-o-y due to higher OIBDA

Free Cash Flow increased by 49.7% y-o-y mainly due tohigher operating cash flow generation on the back ofworking capital improvement, mainly due to decrease ininventory and receivables

4.9%

Growth

OIBDA-CAPEX

FREE CASH FLOW

% of Revenue

RUB bn

12.9 11.7

26.7

8.113.1

16.4% 14.4%32.9%

10.9% 16.9%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

27.2 21.3

17.7%14.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1H 2016 1H 2017

16.720.6

2.3

20.917.5

21.2% 25.4%

2.9%

28.0% 22.4%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

0.0

5.0

10.0

15.0

20.0

25.0

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

32.6

38.4

21.2%

25.2%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%

28.0

30.0

32.0

34.0

36.0

38.0

40.0

1H 2016 1H 2017

5.0

10.7

6.74.0

7.4

6.3%13.2%

8.3% 5.3%9.5%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

10.3

11.4

6.7%

7.5%

5.9%6.4%6.9%7.4%7.9%8.4%8.9%9.4%9.9%

9.69.8

10.010.210.410.610.811.011.211.411.6

1H 2016 1H 2017

1.9%

Growth

21.7%

17.6%

49.7%

Growth

10.9%

Strong increase in DSU (+52.6% y-o-y) in Q2 2017 was driven by

DSU AND APPMB– RUSSIA

1 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 period2 ARPDU for a given period divided by DSU in such period3 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

NOTE:

Due to rounding, manual calculations for financials and KPIs may differ from those displayed

- promotion of bundle tariffs with higher data allowances- intensive roll-out of high-speed network- continued increase in data-enabled devices registered on

MegaFon network, representing 59.4% of all devices as of the end of quarter

APPMB decreased by 0.02 RUB y-o-y due to higher data allowance and increased penetration of bundle tariffs

52.6%

Growth

DSU1 & APPMB2

DATA ARPU(ARPDU3)

APPMb, RUB

In Q2 2017 ARPDU increased by 1.7% y-o-y on the back ofdata revenue growth supported by cancelation of unlimitedtariffs, bundles repricing and introduction of new tariff line

DSU, Mb/month

RUB per month

3,9514,195

5,061 5,727 6,029

0.06 0.06 0.05 0.04 0.04

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

3,9465,878

0.06 0.04

1H 2016 1H 2017

49.0%

229 231 228 224233

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

232 228

1H 2016 1H 2017

1.7%

1.7%

Growth

1 Liquidity is calculated as the sum of Cash @ cash equivalents and Short-term investments

NOTE:

Due to rounding, manual calculations for financials and KPIs may differ from those displayed

NET DEBT AND LIQUIDITY POSITIONIN TELECOM SEGMENT

Net debt and Net debt/LTM OIBDA

Net debt/LTM OIBDA

0.54x

Growth

Liquidity1

Currency split

Net debt

RUB bn / x

RUB

USD

Net debt build-up, RUB bn As of 31 Mar 2017 Change

Cash and cash equivalents 21.9 (2.0)

Short-term investments 9.7 9.6

Total debt 261.0 4.2

Long-term debt 208.9 (7.5)

Short-term debt 52.1 11.7

Net debt 229.4 (3.4)

44%

56%

As of 30 Jun 2017

19.9

19.3

265.2

201.4

63.8

226.0

167.1 190.2 196.9

229.4 226.0 1.33x

1.56x 1.63x

1.91x 1.87x

0.50x

0.70x

0.90x

1.10x

1.30x

1.50x

1.70x

1.90x

2.10x

2.30x

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

MegaFon retained a comfortable level of leverage

- Net debt/LTM OIBDA at 1.87x level at the end of Q2 2017

Continued mitigation of FX risk and ample liquidity for dividend payment

- 56% of cash held in US dollars to offset the revaluationof FX-denominated liabilities

- Remaining cash held in Rubles to take advantage of higher deposit rates

- A comfortable level of liquidity for dividend payment

Predominant portion of the debt portfolio is denominated in Rubles to minimize FX risk

DEBT PROFILEOF TELECOM SEGMENT

1 On nominal basis2 Including structured and plain vanilla FX hedges

NOTE:

Due to rounding, manual calculations for financials and KPIs may differ from those displayed

By instrument

% of total

No short-term refinancing risk

- 51% of the Company’s debt becomes due within 5 years or later

- Most of 1Y maturities attributable to RUB bonds

Bank Loans

Bonds

30 Jun 2017

By currency1 By maturity

Equipment Financing

RUB

USD

USD Hedged2

EUR

1 Year

3 Years

2 Years

4 Years

5 Years and Longer

20%

11%

11%

57%

83%

10%5%

2%

62%17%

21%

31 Mar 2017

24%

11%

7%

51%

81%

10%

5%

4%

61%18%

21%

7%

Diversified portfolio structure with no reliance on any specific means of financing

FOR TELECOM SEGMENT

Service revenue

OUTLOOKFOR 2017

Flat to low single digit y-o-y growth

OIBDA112-118 RUB bn

CAPEX55-60 RUB bn

Reiterate Reiterate Reiterate

CONTACT INFORMATIONMEGAFON INVESTOR RELATIONS

+7 495 926 2012

41 Oruzheyniy lane, Moscow, 127006 RussiaIR@megafon.ru

corp.megafon.com