UPDATE 1-Mobile operator MTS bets on digital services as quarterly profit slips

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MOSCOW, May 18 (Reuters) - Russia's biggest mobile operator MTS on Tuesday reported an almost 9% drop in first-quarter net profit to 16.2 billion roubles ($219.7 million) but said expansion in digital services should allow it to deliver on financial goals.

MTS, part of conglomerate Sistema, said that when adjusted for derivative operations used to mitigate currency risk, net profit was almost 20% higher in year-on-year terms. Revenue rose by 5.5% year-on-year to 123.9 billion roubles.

"Looking ahead, we see promising trends in 2021, including rapid uptake in digital services as well as the easing of pandemic-related roaming headwinds," said President and CEO Vyacheslav Nikolaev.

The company confirmed its 2021 revenue and core profit outlook, which forecast a rise in revenues and adjusted operating income before depreciation and amortisation (OIBDA) of more than 4% and capex of between 100-110 billion roubles.

For the three months ending March 31, free cash flow, excluding MTS Bank, fell 37.1% year-on-year to 11.3 billion roubles, which MTS said reflected higher capital expenditures in the first quarter of 2021 than the same period in 2020.

MTS, which had solid growth in fintech, media, cloud and digital offerings, is one of several Russian companies developing services beyond its core business. Last month it launched an online cinema, KION, to that end.

Adjusted OIBDA rose 6.7% year-on-year to 55.4 billion roubles and the OIBDA margin stood at 44.7% in the first quarter, up from 44.2% a year earlier.

($1 = 73.7375 roubles) (Reporting by Alexander Marrow; Editing by Katya Golubkova and Jane Merriman)