Mobile TeleSystems PJSC (MBT) 2020 Q3 法說會逐字稿

Dear ladies and gentlemen, welcome to the conference call of Mobile TeleSystems. At our customers' request, this conference will be recorded. (Operator Instructions) I now hand you over to Polina Ugryumova, Director of Investor Relations, who'll lead you through this conference. Please go ahead.

Welcome, everybody, to today's event to discuss MTS' third quarter 2020 financials and operating results. Before we start, I must remind you that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors, including related to the COVID-19 pandemic, could cause our actual results to differ materially from those contained in our projections or forward-looking statements. This, in turn, imply certain risks, a more thorough discussion of which are available in our annual report on Form 20-F or the materials we have distributed today.

MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. As always, you can find our press release and presentation for this call on our IR website.

Today's presenters are: Alexey Kornya, President and CEO; Slava Nikolaev, First Vice President for Customer Experience, Marketing and Ecosystem Development; Inessa Galaktionova, First Vice President for Telecommunications; and Andrey Kamensky; Vice President for Finance; and Ilya Filatov, Vice President for Financial Services and CEO of MTS Bank, who will speak in Russian, and I will translate.

Now it's my pleasure to introduce Alexey to kick us off.

Thank you. Welcome, everyone, and thank you for joining us. I will begin with the headlines and the highlights before handing it over to Slava and Inessa for ecosystem and telecom update. Ilya will then give some color on MTS Bank, and Andrey will go over our group financial results, then we'll wrap up for questions.

I'm very excited to be able to report that MTS has once again delivered another set of solid results for third quarter 2020. For the quarter, group revenue grew 4.9% year-over-year to reach RUB 129 billion. We delivered balanced growth in both telecom services as well as new segments beyond connectivity, with all 4 of our [business lines contributing].

[My role] with FinTech, Media, and Cloud & Digital Solutions combined outpaced connectivity to deliver more than half of the total upside. Group adjusted OIBDA was likewise up a solid 3.3% year-over-year to reach over RUB 58 billion. The increase was primarily driven by service revenue, OpEx savings in retail as well as the positive contribution from banking services.

Overall, I am encouraged by our robust year-to-date performance, especially given the volatility in challenges amid the COVID-19 pandemic.

Encouragingly, in third quarter, we saw many of the headwinds begin to ease. Our stores in Russia mostly resumed normal operations, and MTS Bank returned to profitability in the relatively more stable macro environment.

At the same time, challenges remain. Most notably the decline in international roaming, but also the overall higher level of economic uncertainty, which could put additional pressure on our segments most exposed to the micro cycle, in particular, B2B and financial services. We also continue to make progress on our transformation plan.

Let me give you a few of the recent highlights. In artificial intelligence, we announced a new position for Vice President for AI or for artificial intelligence, and we are happy to have a proven leader in the sector, Alexander Khanin, joining MTS to take the role. In cloud, we recently launched a major new Tier 3 modular data center outside St. Petersburg, and we have strengthened partnerships on next-generation technologies such as teaming up with Canonical to deploy Charmed OpenStack. In 5G, we continue to engage with key stakeholders on defining the path forward in Russia, and we are partnering in pilot projects to strengthen our position ahead of the future commercial rollout.

Overall, we continue to execute at pace on the CLV 2.0 strategy that we have laid out for you a year ago. As you recall, there are 2 fundamental pillars: first, be the best telecom in Russia; and second, capture digital upside. Today, we are more confident than ever that we have a strong foothold to catch some of the digital wave.

With that, I will hand it over to Slava, who will give a customer experience and make a system update.

Thanks, Alexey, and good afternoon, and good morning to everyone joining us. 2020 has been an unprecedented year for digital uptake, both globally as well as for MTS. Overall, we are making good progress against many of the KPIs we track closely. Let me share a few.

First and foremost, we've now reached more than 6 million multi-product users. These are customers who are consuming more than 1 service across telecom, media and FinTech. For reference, that's a bit under 10% of the size of our overall mobile subscriber base. And going forward, we see significant potential to increase that penetration further.

In Q3, we also saw surging adoption of our loyalty program, MTS Cashback, with registered users more than doubling year-over-year to 8.4 million. And we continue to gain traction with our MyMTS app with monthly active users up around 20% year-over-year. Digitizing customer care not only helps boost cost efficiency, but it also provides a highly effective channel for targeted marketing.

In the high-value segment, we are off to a good start with our MTS Premium ecosystem bundle, which we launched over this summer. Today, we have over 4 million users, keeping in mind that includes those who automatically qualified by passing a spending threshold. And we are seeing robust uptake. Engagement has already reached around 20% of total users by the second month after launch.

Turning to MTS TV. We're seeing very robust net adds. In Q3, we gained additional impulse on top of the already solid momentum from Q2. Viewership was up by 700,000, a 15% quarter-over-quarter increase. And breaking that down further, it's even more impressive. In OTT alone, we saw exceptional 50% growth in users quarter-over-quarter. So we are moving at full force to capture some of the in-home entertainment market.

At MTS Bank, our customer base remains stable despite economic volatility. We've also recently taken some steps to revamp our mobile banking app to provide a more full-featured and user-friendly experience. At the end of Q3, we had nearly 1.1 million app users. We are also pivoting our marketing approach, allocating over half of our spend towards bundle and ecosystem offers. And we see encouraging signs we are successfully winning mind share. According to our consumer brand tracking, we're perceived as a top 3 ecosystem player among leading Russian tech and financial companies. We think that's a very promising leading indicator.

Finally, we are also making progress on revamping our app library, which we developed largely in-house. We are adding modular login and payment models to more than 10 of our apps. This significantly enhances the user experience by providing a fully consistent interface across our app portfolio. With that, let me hand it over to Inessa for a telecom and B2B update.

Thank you, Slava. Q3 was another strong quarter for MTS and core connectivity.

Let me start with mobile. Wireless service revenue accelerated from Q2 to reach a solid 3% growth year-over-year. Notably, we successfully bridged the gap that resulted from the loss of international roaming due to the pandemic-related travel restrictions. That's particularly impressive roaming seasonality and we believe reflects the strength underlying performance of the business.

Looking ahead, Q4 is historically a light quarter for travel, so we expect to see roaming headwinds easing through the end of the year. Furthermore, the anticipated upcoming vaccine rollout gives us some cautious optimism that roaming may begin to recover in the new year.

Turning to the mobile customer base. In Q3, 3-month subscribers in Russia rebounded to 78.2 million as retail operations fully resumed. That's a bit below the pre-COVID level, which in part reflects the ongoing impact on migrants, tourists and visitors.

Most importantly, we continue to see healthy dynamics in our high-value base. These are all subscribers who have been with us for 12 months or longer. We also continue to refine our tariff structure in line with evolving market conditions. For example, we are encouraging customers to migrate from [our highest] unlimited plans by offering new tariffs with generous data caps at an attractive price point.

So overall, we feel good about our mobile revenue and subscriber performance in Q3.

Turning to fixed line. In Q3, we enjoyed robust dynamics, and we closed the quarter with revenue up 1.7% year-over-year. Excluding telephony, which is in secular decline, fixed line revenue was up a solid 5.4% year-over-year. And currently, we carried out Q2 momentum towards in consumer broadband, with net adds holding steadily at around 100,000 quarter-on-quarter. We expect some connectivity growth to continue, and we see this as a powerful tool in cementing customer relationship.

On the retail side, foot traffic returned to healthy level in Q3, following the declines that we saw in Q2. That supported sales of devices and accessories, which were up nearly 3% year-over-year. That said, uncertainly remains as the epidemiological situation continues to evolve, which could impact consumer spending during the holiday season.

In e-comm, we saw exceptional performance, with online sales up more than 75% year-over-year. And we recently reached a major milestone by becoming the first Russian operator to launch a SIM nationwide with a fully remote authorization and activation process.

Finally, turning briefly to the B2B segment. 2020 has been the year of digital acceleration. And in Q3, we continue to see robust demand for next-generation services. Overall revenue in our cloud and digital solution vertical was up 24% year-over-year.

Our cloud business alone saw more than 80% revenue growth with solid double-digit performance in IoT as well.

Finally, in B2G, revenue was up an impressive 22% year-over-year. That was largely driven by major contracts to bring social facilities online. Those projects not only make good business sense, they reaffirm our commitment to breach the digital divide and help improve access to high quality connectivity. So with that, let me hand it to Ilya for banking and FinTech update.

(foreign language)

[Interpreted] Thank you, Inessa. The third quarter proved to be a period of recovery in FinTech following the negative impact from the pandemic despite the ongoing market uncertainty. As we previously discussed, the Russian banking industry faced a steep decline in demand for credit products at the beginning of Q2. However, in early May, the industry saw early signs of demand recovery, and by July, had returned to precrisis levels.

Consumer loan issuance by MTS Bank had fully recovered by the end of Q2.

(foreign language)

[Interpreted] Over the past year, the bank's assets grew 14.6% to reach RUB 203 billion, with the total gross loan portfolio up 26% and the gross retail loan portfolio, in particular, up 34.4% to RUB 107 billion. During the pandemic, the loan portfolio growth slowed. In Q2, the gross retail loan portfolio from MTS Bank increased 1.2%, while in the third quarter, we saw growth accelerate to 8%.

(foreign language)

[Interpreted] Net interest income in the first 9 months of 2020 increased 37.4% to RUB 11.3 billion, reflecting loan portfolio growth. Overall, net income for the 9 months period amounted to RUB 251 million versus a net loss for the first half of the year of RUB 924 million due to substantial loan provisions.

(foreign language)

[Interpreted] Cost of risk for the overall loan portfolio came in at 4.6%, significantly below the 11% seen in Q2. The decline in cost of risk reflects the high base from loan loss provisions booked during the second quarter as well as the normalization of the macroeconomic environment in Q3. The share of nonperforming loans in the retail portfolio was 10.9% versus 8.1% in the second quarter. However, the bank continues to maintain a conservative approach to provisioning with NPL coverage standing at 124%.

(foreign language)

[Interpreted] In terms of capitalization, we remained at a comfortable level, our N 1.0 consolidated regulatory capital adequacy ratio was 13.5% as of October 1, which provides a moderate cushion in capital resource versus the minimum regulatory requirements of 10.5%, including buffer.

(foreign language)

[Interpreted] We are consistently executing on our strategy with a focus on developing digital channels and adhering to a conservative risk management policy. As a result, we are confident the bank will record positive net profit for the full year, while achieving operational and financial growth.

(foreign language)

[Interpreted] Now let me give the floor to Andrey for a financial update.

Ilya, thank you. Overall, in the third quarter, group adjusted OIBDA increased 3.3% year-over-year to reach over RUB 58 billion. Growth was achieved despite the steep decline in international roaming revenue, which is margin accretive for us.

OIBDA was supported by higher telecom service revenue as well as OpEx savings from our retail optimization actions. On that note, we also want to remind investors that we saw a strong contribution to OIBDA from retail at the end of last year. So looking ahead, we expect this factor to moderate in the fourth quarter of this year on tougher comps.

Group net profit increased 2.3% year-over-year to RUB 18.8 billion. Net profit growth was constrained by the noncomparable base from discontinued operations in Ukraine. At the same time, this was more than offset by positive impact from core business performance as well as lower finance costs.

Now a few words on CapEx. We continue to invest heavily in our network as well as in new digital growth areas. In the first 9 months of the year, group cash CapEx amounted to RUB 63.7 billion year-to-date, equivalent to a ratio of 17.4% to sales.

In addition, recent FX trends have driven our CapEx spending higher in ruble terms since a large portion is allocated toward radio equipment price and foreign currency. As you recall, we have a long-standing practice to proactively manage FX exposure through derivative instruments.

Given the ruble dynamics this year, we have seen a net positive cash contribution from the expiration of derivative contractions for (inaudible). When adjusting for this positive fact, our full year 2020 CapEx guidance remains unchanged at around RUB 90 billion.

Turning to free cash flow. Recently, we have received some feedback about how we report this metric. In particular, given the increasing importance of interbank. In banking sector, free cash flow was not widely recognized as a particularly meaningful indicator. Moreover, MTS Bank funding and lending operations have produced substantial fluctuations in group free cash flow over certain reporting periods.

Internally, we have always tracked core cash flow also as a key reference in recommending our regular dividend payout. Therefore, in the interest of transparency, going forward, we will be reporting free cash flow from excluding flow -- excluding the bank. On this basis, group free cash flow ex bank, amounted to RUB 54.2 billion in the first 9 months of this year. This was down RUB 5.3 billion year-over-year when also excluding the SEC DOJ payment in the first quarter of the previous year. We believe this represent robust cash generation given the noncomparable base from 2019, which included a contribution from our former operations in Ukraine.

Free cash flow in 9 months 2020 was supported by a relatively stronger core performance in continuing operations as well as lower financing and tax payments versus the year ago period.

Finally, turning to the balance sheet. Over the past few years, we have established a solid track record in delivering material gains by bringing our borrowing costs down. In the third quarter, our gross debt weighted average interest rate dropped to 6.6%, a decrease of nearly 120 basis points year-over-year, and we continue to take actions to optimize our debt portfolio.

To conclude, our strategic stance in financial management is simple: a strong balance sheet, methodical capital allocation and robust cash flow. Now let me hand it back to Alexey for his closing remarks.

Thank you, Andrey. Overall, we are managing well across both core telecom as well as our 3 verticals beyond connectivity. In 2020, we have not only risen to the occasion operationally, we have accelerated our digital transformation strategically, and we are seeing that reflected in our results.

In light of our year-to-date resilience, solid financial performance and increased visibility towards the year-end 2020, we are upgrading our full year guidance to revenue growth of at least 3% from flat to 3%, and flat to 2% growth in adjusted OIBDA from minus 2% to flat, while maintaining our cash CapEx guidance of around RUB 90 billion, when including the effect from derivative instruments.

Turning to shareholder remuneration. We have now completed our regular dividend payout for the year. We slightly outperformed our policy target and delivered a total of RUB 29.5 per ordinary share. We are also on track to complete our 2020 buyback program at around RUB 15 billion. Although this year, we are returning over RUB 100 billion to shareholders, setting a new record for MTS.

Finally, as one of Russia's leading public companies, we are committed to close engagement with the investor community. That's why we were particularly proud to have been named the best executive team in our sector across the broader EMEA region in the 2020 Institutional Investor Survey.

In addition, Andrey, Polina and I were also recognized #1 in our individual categories. We appreciate your support, and we look forward to continuing the conversation in 2021 and beyond.

So to sum up, we have navigated through challenges. We are moving forward on our growth strategy. We delivered in third quarter, and we are well positioned to deliver a solid close to the year. So with that, let me hand it back to Polina for Q&A.

Thank you, Alexey, and thank you to the rest of the speakers. As we take questions, please be aware there may be a slight delay for translation. Operator, with that, let's open up the line for questions.

(Operator Instructions) The first question is from Ondrej Cabejšek of UBS.

Congratulations on the results. I have a couple of obvious questions before I get back in the queue. So I was wondering, in terms of the mobile service revenues, you've highlighted that most of the headwinds that you faced so far are sort of going away now. So I was wondering more about the competitive situation and your plans to increase prices. As we've come to expect in the first quarter, one of your competitors who's reported so far was highlighting sort of mixed message in terms of currently, there being more competition in the market, but at the same time, being a rational expectation that the market as a whole, again, goes through another round of repricing in the first quarter. So your views on that, please? My first question.

Second question in terms of the store account. So you clearly are still managing the overall numbers. Are you ready at this stage with stores actually opening up, but you closing them further to give more sort of color as to what you expect in terms of closures for the near term?

And related to that third question, please. In terms of OIBDA guidance. So you -- if I just look at the swing in your OIBDA guidance today versus what we've seen so far, it sort of implies more than what you expect on the top line in terms of guidance change. I was just wondering where the assumption of improved profitability versus what you've seen so far as precisely coming from.

Ondrej, thank you. I'll take the first and third, and Inessa will answer the second. As far as competitive -- overall competitive environment, we see it relatively stable. We don't see major challenges. However, it is worth noting that [we won] being quite active in reducing prices in some regions recently. However, we don't see it as a major change in overall competitive landscape in overall pricing policies.

We would like to note these developments in the market recently. And taking those developments, we remain relatively positive towards overall competitive situation going forward.

In our guidance, speaking about our guidance (inaudible) for our understanding of competitive environment as well as some macroeconomic and other potential volatility. So -- and here, we use our traditional approach to revise guidance only in the period when we have enough visibility towards the year.

Regarding the retail. So we we're not changing our approach towards retail optimization. So we're looking and watching capital with situation on the market. We definitely, by the end of the year, not planning to reduce additional shops. So for the year, we closed 600 shops, which we reported during the Q2 results. And until the end of the year, we don't have any further plans to reduce it further.

At the same time, we'll definitely see how the situation is going to develop. In case we see some elements and opportunities to reduce next year, we'll definitely do that because we are pretty healthy and pretty happy with our [subleased] development. So if there will be availability and necessity on the market, we will do some optimization, but then we'll just inform the next [year already].

Can I have just one short follow-up? Is there an explicit answer that you can give us in terms of your specific approach as we as we get to very close to 1Q? Or is it your plan currently to again go through repricing as we saw in the past couple of years?

Well, if I understood, the question is what are our plans for repricing? I think taking recent pricing developments and overall approach, it's too early to give any guidance on our repricing approach or strategy over the next year.

The next question is from Ivan Kim of Xtellus Capital.

Yes, can I please dwell on the same subjects, more or less? First, on retail optimization. So who in particular are you watching now? Because it looks like that the rest of the market is ready to optimize seasonally, optimize quite a bit. And is it not vice versa that the market is watching you, what you do going forward? That's the first question.

And then the second question on pricing, but from the different standpoint, from a regulatory standpoint. Federal antimonopoly service was a bit more active recently asking Tele2 to retract what they did in May with the price increase. So do you think they could [increasingly] be a factor again? Or any future action that you may take?

I will take the first question regarding retail optimization. So to be honest, we are not watching on the steps what our competitors are doing because we're leading on the market. And we're just watching how the traffic develops because we do see that in -- during the summer time, it recovers after Q2. But now we see that there is some -- how to say, there is some changes in the traffic, so it's slowing down.

And definitely, we have some plans on the sales. So we'll see -- actually, that depends on the market situation, not on the movement of our colleagues, yes? That relates on the retail optimization.

And as far as with the antimonopoly authorities is a risk for price -- pricing, price upgrades, it is a factor and that would be nice to say that they have no influence over the overall pricing environment and situation. So we are wishing, but I would say that overall competitive environment is a bigger factor than regulation and -- at least in pricing policy. So we have not seen price being the major limitation towards reasonable pricing in the market, but rather the overall competitive situation and competition. We have 4 aggressive players in the market, so that being the major factor for overall pricing policy.

The next question is from Alexander Vengranovich of Renaissance Capital.

Two questions from my side on ecosystem development. So first one, can you explain the -- it's not technical. Can you explain the accounting of MTS Premium subscription revenue? Is this split between the different segments? And -- so just wanted to understand how much goes into mobile and how much into the other segments?

And the second question is what sort of target penetration of the different ecosystems and kind of a segment view you have in mind within your 5-year strategy? So for example, talking about MyMTS App, Cashback, Banking Solutions, whatever. So whatever you can share.

Okay. For the first question, we do not disclose the allocation of Premium revenues into different services. But I can tell you that the methodology of doing that has actually reflects actual usage of those advantages that are being given to subscribers. So it's kind of natural and it doesn't redistribute the natural flow of revenues.

On the second question, we can say that we were anticipating having 10 million subscribers in FinTech and 10 million subscribers of our payTV. These were our main targets for the nearest strategic period as well as at least 40% of our subscribers are becoming our ecosystem subscribers.

The next question is from Henrik Herbst of Morgan Stanley.

I've got a -- 2 questions, actually. Firstly, I just wanted to ask about your mobile service revenue trends, which do indeed look very strong. I mean, I guess, you've got about 3 percentage points, I think, headwind from roaming, which means that you've got underlying service revenue growth of 6% on a subscriber base that is, yes, flat or slightly down year-over-year. So just wondering what's driving that?

Are you seeing any benefits from sort of COVID in terms of more data usage, et cetera? Or should we think about that as sort of a pretty much sustainable underlying rate and as we go into Q4, and I guess, 2021, depending on roaming, you could see sort of 4% to 6% service revenue growth?

Then I also wanted to follow-up on the nonperforming loans, which -- I mean, it sounds like you're pretty confident in the business and that's sort of temporary. Can you maybe give some more insights into what's, I guess, relatively obvious, what's driving the increase in nonperforming loans? And how you can feel so confident that, that trend is sort of going to reverse?

And then the last point, I guess, is in terms of your asset -- portfolio of assets, as there's been recent speculation in the press that you were looking at adding on to your bank business. I know you probably can't talk about individual potential deals, but more generally, how do you think about your asset portfolio? And where do you see any gaps or anything you can sort of -- can streamline your portfolio? Any thoughts on that?

Henry, thank you first of all, for your question. Actually, by asking your first question, you almost answered [them all]. So first of all, we managed to close the gap of roaming by -- first of all, by very strong subbase, who is definitely penetrating and using more data. So the ARPU is growing.

Also, during that time, our customers are really focused on the client service because it's very important to have, during those times, very good quality of the service, mobile and fixed. So this is actually the main element.

And also, as you remember, we made some price increase beginning of the year that also helped slightly in Q3 just by keeping -- by closing this gap, driven by international roaming.

(foreign language)

[Interpreted] We do not see any significant risk related to rate and NPL as we have even further, maybe even more stricter, our policy for building the provisions. And as we have already mentioned, our coverage ratio currently stands at 124%.

The third, it relates to specifically bank, how we see the difference of our bank portfolio with the TCS Group. If I'm guessing this right, right?

Yes, sort of. But I guess also more generally.

Well, in terms of financial services, I think we see that their focus in the active side is mostly in credit cards, while we are particularly strong in point of sales and general credits in terms of portfolio difference. And overall, TCS, in our view, is the financial service group, and they are not -- we are not viewing them being an ecosystem because they are predominantly focused on one industry, which is financial sector, while we view ourselves being in at least 3 industries actively. And in this sense, we have more diverse portfolio in our product mix.

The next question is from Rumi (sic) [Sunil] Rajgopal of HSBC.

I would want to check on what are the company's plans in terms of the CapEx for next year, especially with the with -- especially with the 5G coming in, what is your perspective on that?

And secondly, what are your thoughts around the next key growth areas that you see outside of the data and voice?

So actually, the answer to the first question in terms of the CapEx plans for next year, I think it's too early to share. But of course, you know the factors that can be behind that. And of course, in terms of 5G, actually, nothing actually to share so far. So not in the plans.

And yes, as we talk about key growth areas, I think we -- you can pretty much see that from our strategy. Because our strategy, when we talk about digital upside, refers to potential -- to the areas where we see potential for growth and development growth of ARPU and loyalty for our customer base. So we are focusing on 3 segments or 3 markets, which are beyond connectivity and beyond traditional telecom. These are financial services, and we see that financial services are going through a major transformation and the recent upside there, particularly in some consumer finance and daily usage of financial services for B2C segment.

Then another segment is media, where we see also a major transformation in the way how the content being consumed is moving on. So here, we also see an opportunity. And cloud services, and in particular, cloud businesses, including Internet of Things Solutions platforms inclusive some B2G segment is being the fourth area where we expect to see growth.

So these are all in our strategy, and we focus on that. We still believe that telecom in Russia is a growth sector, and we see potential for growth in this sector as well.

The next question is a follow-up from Ondrej Cabejšek.

I wanted to follow-up on your fixed business. So going back to the second quarter, you suddenly showed a big acceleration in terms of the fixed broadband product, especially. So your comment back then was that this level of sort of mid-single-digit growth you saw then as sustainable for the foreseeable future. But in the third quarter, the growth rate was back to sort of 1%, 2%. So I was wondering is this because you are perhaps more aggressive in fixed mobile consolidation -- sorry, fixed [SNC] bundling the products together, maybe booking the discounts for that and in the fixed service? Or why has suddenly the revenue growth rate dropped to below what you said you would be expecting?

Okay. In the second quarter, we have also -- well, firstly, let me refer to our expectations on the growth in fixed line. We believe that there is a good potential of growth in fixed line. And we keep on upgrading and developing our networks in fixed business because we do think that we can see mid-single-digit growth rates in this segment.

And without telephony effect going down, we would have seen more than 5% growth in this sector in the third quarter. As for difference between second quarter and third quarter, there was one-off factor in the second quarter related to B2G contracts with social object being connect -- or well, social, how to say, socially significant facilities being a factor in the second quarter.

So that's -- that effect is a high second quarter base, but we'll continue to see next year also the effect from these services. And we'll see -- we expect to see fixed line business being a contributor to overall growth as well.

Just maybe some additions to Alexey's answer regarding this B2G allocation. So it's not like one-off effect, this is 1 even allocation because the government contracts, they're not equally distributed for the year. So the part of the contract was just allocated in Q2. But that means that it's just really for the year, not an equal part. That's the reason of this high-growth in Q2.

And sorry, I misunderstood, I think -- I didn't catch the part where you were saying that the growth could have been or would have been mid-single digit, if it were not for something? Can you please repeat that?

Yes. What I was referring that we have a significant part of decline in fixed line telephony. If we exclude it for this factor, fixed line -- the other part of fixed line business showed more than 5% growth.

Understood. And one more short follow-up, please, if I may, on the -- any sort of visibility or plans on any potential future buybacks? I think you went into 2020, not expecting one, but then you launched a smaller one because of where the share price dropped, can you share any views on how you would be approaching any potential future buybacks in the sort of short-term at this stage?

For this year, the plan was RUB 15 billion, and we'll complete buyback for this amount for going -- so going forward, we don't have any plans yet to share.

All right. I'm sorry, does that mean that you don't expect any or that you will be deciding between -- allocating between dividends and buybacks in the future or that there are no plans? How do I read that answer, please?

No. We have not decided yet. And as we always say, there is a dividend policy, which we follow and any upgrade towards these dividend policies, discretional step, depending on overall financial performance and results of the company.

Our next question is from Dilya Ibragimova of Citibank.

Congratulations on the strong results. I have 3 questions, if I may. First is on MTS Premium. I just wanted to ask if you could share the split of the users into [same] versus the eligible ones. And if you could comment whether there is any specific feature that indeed your customers find appealing, which makes them take after the product?

Second question is on competition. Again, apologies for that to dwell on the subject, but if you could comment what -- on maybe where exactly VLine is being aggressive? VLine has also been mentioned by Tele2 management last week that they are being more aggressive in selected regions. And while VLine mentioned that they just launched some use targeted tariffs, which are -- which have no expiry. Do you feel like it's -- they are aggressive in specific segments. I think they've also mentioned they plan to have more of segmentation product coming up.

Just color what -- is it only competition in specific segments? And is it -- are we still -- are our tariffs -- I would not -- just to confirm that there is nothing to do with the unlimited. So we're not going back to unlimited competition? Yes, any color would be appreciated.

And the third question on retail, online versus off-line. Online sales have been weak and the offshore retail have been growing quite strongly due to the COVID. Do you see rationale for driving online part of it? And does [it seem] or this remote identification, which is now seems to be easier from this year as opposed to what it has been the requirements in the past, is it a path that you would be exploring going forward? And would -- do you plan to maybe specifically drive online share in your overall retail sales?

Okay. I'll answer the first question on MTS Premium, again, if the question was engaged versus total users. Total users [that we have] about 4 million. And the second month of our launch, we've seen 20% of users actively using some of the benefits, one or more benefits that were provided by MTS Premium.

Sorry, just a follow-up on that. Are 20% also paying users?

Both. We did not divide. Of course, I think that out of paying users, this percentage would be naturally more, but I don't have a specific number for you.

As for competition, the price adjustment -- well, let me start from the general comments. The general comments is that we see the overall competitive environment as being quite stable. And I would say even benign looking forward. Still, however, we see that in about 40 regions, VLine made price adjustments. They were not in specific segments, they were across the board. But once again, we don't see that as being a game changer in the market.

So regarding online, off-line. As we mentioned, definitely, the pandemic stimulated the usage of online. And during Q2, we saw a huge increase of our online sales. So in the peak, it was around 40% of our general sales coming through online, I mean, for retail.

Now it's a more stable the percentage, so it's around 30%, and it's staying on the same level, yes, in spite that almost all the shops are opened and -- but there is still a huge demand by buying goods through online. And then overall, we're almost doubling year-on-year our sales through online, both SIM cards, even 3x growth. And the sales of headphones and accessories were almost doubling.

We have the same outlook for next year. So we are fully sure that online is going to play one of the key role both for SIM cards and for goods sales next year, and we're doing everything just to have a very good client, a customer join through online channels.

Regarding [used SIM] as you know, used SIM right now, the launch of used SIM was in a pilot mode. So we are testing there how it's working, what is the demand. And again, it will depend on our own regulations, how quickly it will be launched officially in Russia. But we are fully prepared and as soon as the regulatory is done, so we are ready just to propose to every user who wants that.

The next question is from Anna Kurbatova of Alfa-Bank.

I have two minor questions. First of all regarding your guidance...

Anna, sorry, this is Polina. Your line does not work very well. Can you please try again?

Can you hear me?

Anna, you are too close to the microphone.

Can you hear me now?

Much better.

I apologize, yes. This is a handset. My first question is regarding your guidance, whether it -- your new top line and OIBDA growth projections take into account the disposal of NVision?

And the second one, if it's possible for you to give a comment on the situation in Belarus with your unconsolidated subsidiary there because -- well, the quarter or the year-over-year numbers in 3Q look like well enough with the growth and the revenue of mid-teens while I personally was expecting some maybe pressure on mobile operations there in relation with the politically challenging situation. So any comment on the current situation in the Belarus market would be very grateful.

Thank you. For guidance, this does include the consolidation of NVision. But in accordance with the U.S. GAAP, although anyway, it's on a comparative basis. So we'll have it year-over-year, report our full year results on a comparable basis, like we've done it with the disposal of our Ukrainian business.

As for Belorussia (sic) [Belarus], we don't see the major -- the major impact on our business dynamics there in the market from whatsoever there in the market. In third quarter, we had 16% growth in local currency, as you could see from our reporting, and more than 10% growth in our OIBDA, once again, local currency.

We expect to end up with a strong year in Belorussia (sic) Belarus and once again, we don't see the major disruption to our business there.

The next question is a follow-up from Ivan Kim of Xtellus Capital.

Yes, quick question on your third quarter treasury stock. So any -- are we nearing any sort of action with regards to canceling that or partially canceling that?

Yes. The answer is the same. Actually, as we always say that strategically, we believe that it does make sense actually to cancel it. But now we actually -- we're more concerned about our possibility to pay and deliver dividend payments according to our dividend policy. So in the short term, we do not see it as an opportunity.

(Operator Instructions) The next question is from Evgeny Annenkov of Bank of America.

I have 2 questions, please. Firstly, on your OpEx optimization. It seems that in Q3, you continue with some cost optimization even on top of store closures and it positively contributed more than RUB 1 billion to your OIBDA. Can you please give details on these costs, was that temporary and related to COVID or some of them are recurring cuts, like potentially cellular optimization, more preferential lease rates?

And secondly, on the bank. So MTS Bank reported a nice improvement in margins year-on-year, and despite cost of risk was actually up year-on-year. So do you think assuming no extra provisions, so RUB 1 billion plus net income level per quarter is sustainable? And overall, when do you think you can reach your 20% ROE target?

Yes. I will take the first question in terms of the OpEx optimization. Of course, the major part is coming from retail. It's coming from the rent cost, and it's coming from the payroll. But of course, this is not only retail because we have some other sectors, which also were affected negatively by the pandemic. Therefore, actually as a response to that, we had to reconsider some of our costs. And of course, the most of it are the payroll and in most of the cases, this is the rent. So that's the major lines that were reconsidered during that time.

If there no further questions, I hand back to the speakers for a conclusion.

There was the second question. We'll answer the second one.

(foreign language)

[Interpreted] We do confirm that we estimate the third quarter was much better in terms of the operational efficiency as compared to the second quarter, when we speak about our banking segment. But as we have already mentioned during our Q2 disclosure, we do expect that for the full year, the bank will report a positive result in terms of the net income. However, we cannot kind of define the accurate estimate of this net income (inaudible).

I'm sorry, just to confirm, you think this potential lower lease rates might sustain in 1 or 2 quarters?

Evgeny, can you please repeat your question?

My question is on leasing costs for your stores. You said you managed to get some more beneficial rates in Q3, you think it might be sustainable in Q4 and potentially next year?

You referred to the optimization in the rental rates?

Yes.

Well, rental rates, we saw some kind of recovery. And I think we achieved certain optimization, which we will carry on. However, the materiality of this optimization is not that high as we saw it back in second quarter and partially in third quarter. However, we do expect to see some carry on, on optimization overall in our retail for the next year.

So now there are no further questions.

Ladies and gentlemen, thank you very much for listening. As usual, we will make a replay of this call available on our IR page in the near future. If you have any further questions, please do not hesitate to reach out to MTS Investor Relations at any time. Our inboxes and phone lines are open.

In the meantime, we appreciate your interest in MTS and wish everyone a happy and healthy holiday season.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.