Mobile TeleSystems PJSC (MBT) 2020 Q2 法說會逐字稿

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

Welcome, everybody, to today's event to discuss MTS Second Quarter 2020 Financial and Operating Results. As usual, please be aware 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 the actual results to differ materially from those contained in our projections or forward-looking statements. This, in turn, implies certain risks and also discussions of which are available in our annual report and 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 the risks. I also want to remind you that you can find copies of the presentation and materials used and referenced in this conference call on our Investor Relations website.

Today's presenters are Alexey Kornya, President and Chief Executive Officer; Slava Nikolaev, First Vice President for Customer Experience, Marketing and Ecosystem Development; Inessa Galaktionova, First Vice President for Telecommunications; 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.

Welcome, everyone, and thank you for joining us. Given the ongoing global pandemic, I wanted to begin with an update of where we stand today before turning to our second quarter performance and highlights. First and foremost, our guiding principles remain unchanged: Protect our employees, support our customers and help society more broadly. As we said on our last call in May, the pandemic has had several major impacts on our company, most notably, a steep drop in international roaming and slowdown in retail sales and the change in risk profile of the loan book at MTS Bank. While significant uncertainty remains, we have also gained some much-needed clarity.

On the retail side, following the initial drop in sales in April, recovery kicked off in May that continued into June as social distancing eased. Our operations are now mostly back to normal. Overall, we see the market rebound continue. On the connectivity side, traffic volatility has mostly abated while we continue to see resilient demand on both mobile and fixed line services. While limited international travel has resumed, roaming headwinds have continued into peak summer travel season. And therefore, we expect them to have a material impact on our results in third quarter.

Finally, I also wanted to highlight that at a global level, we are now leaving in an unprecedented time of digital acceleration. As we look at the bigger picture, current trends only further reinforce my confidence in our 2-prong loan growth strategy.

Firstly, we are maintaining a leading network, investing in coverage, capacity and quality. Our goal is to provide reliable connectivity when, how and where it is needed. Second, we continue to move at the pace of transformation path we laid out last year. In FinTech, although we are in a challenging macro cycle, the industry is rapidly moving towards digital sales banking, contactless payments and other areas where we see competitive niche. In media, the shift towards video-on-demand is accelerating and set to fundamentally reshape the entertainment industry. And in B2B businesses, prioritizing agile and IT approaches, remote work solutions and cloud-based workflows. We expect these trends to continue, and I am confident we are well positioned to capture some of the digital tailwinds.

Turning now to our performance, I am happy to report that despite volatility and headwinds, we successfully delivered growth in second quarter. Group revenue was up 1.3% year-over-year to reach RUB 117.7 billion. Importantly, top line growth was driven both by our core telecom business as well as segments beyond connectivity. At the same time, we saw a significant negative impact in the retail with the overall market slowdown during the pandemic.

Group adjusted OIBDA notched up slightly by 0.6% year-over-year, and reached RUB 51.6 billion. OIBDA was supported by core performance and a positive one-off, while negatively impacted by provisions at MTS Bank. Andrey will go into more details here -- there.

Finally, despite recent operational challenges, we continue to execute on our strategy at pace across all fronts. Let me share just a few recent highlights. In July, we received the first 5G license in Russia under a specialized millimeter wave spectrum. While the commercial 5G rollout is still some time away, we are targeting initial limited use cases with Internet of Things, such as an industrial process automation. In addition, we are also launching 5G smartphone cells in our retail stores to begin driving device penetration on our network. This summer, we also launched Marvin, our in-house AI-based virtual assistant. This project builds on the expertise in natural language processing we gained from developing our own customer support chatbot. Users can communicate with Marvin via multiple channels, including a dedicated app and an MTS-branded smart speaker, which is now in initial public use. And in media, we are making steady progress to expand our content offering and strengthening partnership with leading players, such as Channel One, Russia's most watched TV network.

With that, I will hand it over to Slava, who will give you customer experience and ecosystem update.

Thank you very much, and hello, everyone. As Alexey said, everywhere we look today, the world is becoming more digital. Successfully capturing that demand requires a customer-centric approach backed up by world-class products and services. And that's what we've been doing. As you know, we began this journey several years ago by shifting towards a more open and straightforward approach in customer engagement. For example, we took steps to prevent subscribers for being signed up for add-on services they didn't really want. And while this did impact revenue in the short term, it also strengthened the brand trust and loyalty, which is the foundation for our long-term success. More recently, we're seeing that other players begin to move in this direction.

We welcome the market to move toward greater transparency, but we are not standing still. We are now moving forward on the next phase, which is leveraging the trust we have built across, and upsell services beyond connectivity.

In Q2, we saw growing adoption across many of our apps and programs. Our pay-TV subscriber base jumped up around 7% quarter-over-quarter to 4.9 million users. This was driven in part by our bundle offer, which is called #StayHome. Our loyalty program MTS cashback saw slightly 73% increase in registered users year-over-year, reaching over 6 million participants. And we are continually expanding that program. For example, we recently launched a promo under which new subscribers can convert unused data balances into cash back rewards. We are also driving penetration of our mobile apps with MTS Bank users up nearly 60% year-over-year and active users of My MTS now topping 22 million.

These are promising trends as we move forward on our CLV 2.0 strategy. And I also wanted to highlight a few recently major milestones as we take our customers' value prop to the next level. Last week, we launched a partnership in Russia with Spotify, the world's most popular audio streaming subscription service. Under the partnership, we're offering 6 free months of premium service for eligible subscribers with follow-on payments handled via their MTS account. This exclusive offer is a great example of how we are strengthening our ecosystem through partnership. It also demonstrates that MTS' leading market position and commitment to compliance and transparency makes us a partner of choice for global companies looking to tap into the Russian markets.

Beyond music, we're also moving forward in video. Fundamentally, in media the content is the product. And there are 2 pillars to our content strategy. The first is our content library. This is absolutely critical for customer retention. To keep viewers happy for long term, we need a large diverse lineup of in-demand titles. We have to appeal to every case and every manner we stand, both day in and day out. We've recently concluded multiple agreements with some of the world's top studios that will multiply the size of our premium content library several folds. The second half of the equation is customer acquisition. Here, the focus is exclusivity. We're taking the multipronged approach that includes first look rights, joint development and, in certain cases, our own production. We're filling up the pipeline and have half a dozen content projects already underway. As they seem to have done many series for the year, they will provide a powerful magnet to draw new viewers to our platform. In addition, on the technical side, we have unified our distribution back end in more than a dozen large cities.

So to sum up, we now have all the pieces in place, a scalable platform, an array of channels and a differentiated content strategy. That makes it the right time to expand our marketing, which is why we recently launched a nationwide advertising campaign focused on Be MTS Online [senior] mix viewers.

Last but not least, in July, we unveiled MTS Premium, the new bundle package that combines offers and services from across our ecosystem. It's free for higher revenue subscribers and RUB 199 for a month for others. It includes a subscription to MTS TV, spam call blocking and extra 5 gigabytes of mobile data as well as access to special retail discounts and privileged rates at MTS Bank. We think this will be a compelling offering for many of our subscribers.

As we build our ecosystem, we're also changing how we internally track customer lifetime value. And we are already seeing some promising indicators. For example, we see ARPU is 1.5 -- 1.7x higher and churn is more than 50% lower for users that have subscribed to 2 or more MTS services versus a single service. As for 3 and more, the gap grows to more than double the ARPU with churn down by factor of 3 or more. So we are making good progress, we see potential upside, and we are powering our ecosystem to do well going forward.

Now let me hand it over to Inessa for telecom and B2B update.

Thank you, Slava. While 2020 has been a year of challenges, one thing has been never clear. Connectivity is essential to society, essential to the economy and essential to everyday life. As we move further into the recovery phase, I am happy to report MTS telco business has remained resilient. And we have successfully adjusted our operations to mitigate the situation. In distribution, we are diversifying our cost channels in line with our long-term mobile strategy. We have added more than 12,000 distribution points in Russia. We have launched new partnerships with e-commerce players such as Ozon and Wildberries. And we have expanded brick-and-mortar distribution with partners such as Detsky Mir.

In fixed line, we saw certain new adds as home connectivity became even more critical for work, study and entertainment. In Q2, our broadband base was up an exceptional 8.7% quarter-on-quarter, and TV was not far behind at plus 7%. Altogether, fixed line revenue was up more than 5% year-over-year. We continue to enjoy a leading position in Moscow, where we saw the biggest transition to remote work with an essential estimated market share at over 40% in both broadband and pay-TV.

Turning to mobile voice and data. In Q2, we kept a laser focus on support to customers, including temporary, enduring the cost of traffic to official hotlines and websites. We also focused and improved our CRM approach, leveraging big data for targeted, personalized engagement. In Q2, we saw incremental improvement in customer loyalty. Quarterly mobile churn was down about 1/3 of percentage point.

To some extent, this slightly reflected to see the customer looking to switch providers during the pandemic. Despite lower churn, we saw Russian mobile subscribers go downward by 1.7% quarter-on-quarter. That said, we're seeing reasonably solid performance when taken into account the drop in tourists, migrants and secondary SIM users as well as the obstacle to customer acquisition and retention. Despite those factors, we saw nearly 2% year-over-year increase in Russian mobile service revenue reflecting a healthy ARPU accretion.

Moreover, our tracking indicates that many of our consumers shifting from dual to single SIM preferably choose MTS as their sole operator. Overall, while the market remains competitive, we continue to remain comfortable in our leading position.

Looking ahead, we expect international enrollment, which is a key margin driver, to remain under pressure in the second half of the year. It's also important to keep in mind that given our subscriber base, we have relatively higher roaming revenue than some of our peers. We estimate the absolute impact from roaming in Q3 will probably be slightly higher than in Q2 from the historical concentration of summer travel in July and August. At the same time, there could be some minor offsets from great long distance calling as Russian offsets for domestic vacations.

Turning now to retail. Despite the store closure and falling foot traffic in April, Russia retail revenue was down low single-digit at minus 3.4% year-over-year, reflecting a sales rebound in May and June. We also continue to forge ahead on our optimization strategy. By the end of Q2, our footprint has declined by 600 stores year-over-year. That fulfills our initial guidance for year-end 2020. We are not only on track, we're ahead of our schedule. But we continue to see long-term opportunities to further right size our retail. At the same time, the retail market in 2020 is highly volatile and there is reduced visibility looking ahead.

We are also currently monitoring the situation. And so far, we have not taken any decisions. That said, we intend to move further in this direction and could consider additional moves this year if the competitive situation allows. Beyond store part, we continue to build momentum in diversifying channels and phones.

In Q2, we saw exceptional growth in online sales more than doubling year-over-year. But more recently in July, we launched our first MTS showroom in Moscow as a flagship store to showcase our premium products.

Turning to B2B. The corporate segment has also been negatively impacted by roaming as company scaled back business travel. In addition, we see some pressure on the SME side, given the macro cycle. However, we're also seeing a certain new demand in new growth segments. The figures from Q2 are impressive. MTS cloud revenue more than doubled year-over-year. Revenue from IoT smart connectivity and vertical solutions was up double digits versus the prior year quarter. VPN revenue was also up double digits. MTS Marketer, our marketing service for SME, saw extraordinary top line growth. And big data, which began as internal enabler, saw external revenue more than doubled year-over-year.

On the enterprise and B2G side in Q2, we won several large contracts worth over RUB 1 billion. In B2G, in particular, we saw revenue up more than 30% year-over-year in Q2. This is underpenetrated but addressable market for us. And we see promising prospects in this space with projects underway to bring online social significant facilities such as schools and medical clinics.

So to sum up, amid headwinds, we are demonstrating results. In a changing customer landscape, we are focused on acquisition and retention. As digital accelerates, we are moving forward to look for capturing new growth opportunities.

So with that, let me hand it to Ilya for finance -- FinTech. Over to you.

(foreign language)

[Interpreted] As we mentioned today, FinTech was one of the MTS segments most impacted by COVID. In April, the Russian banking industry faced a serious decline in demand for credit products as quarantine restrictions were introduced. However, in May, demand began to rebound, and the industry recovery is still ongoing. MTS Bank followed the overall market trend, and we are also gradually restoring consumer lending volumes.

(foreign language)

[Interpreted] Over the past year, the bank's assets have increased 29.4% with our total gross loan portfolio up 30.6% and the growth retail loan portfolio, in particular, up 48.1% to RUB 99.3 billion. Obviously, the pandemic slowed the loan portfolio growth in Q2 but we hope to continue moving towards precrisis levels and again see growth accelerate in Q3. In June, monthly consumer loans issued by MTS Bank, particularly, returned to baseline at about 97% of the precrisis level.

(foreign language)

[Interpreted] Quarantine restrictions led to a greater share of customer acquisition through digital channels. Today, the bank issues around 1/3 of cash flows through digital channels. In addition, in Q2, the bank joined the Russian software payment system, which allows our client to transform money quickly and commission free.

(foreign language)

[Interpreted] Net interest income in the first 6 months of 2020 increased 40% to RUB 7.3 billion, reflecting loan portfolio growth over the past 12 months. At the same time, loan restructuring by certain clients and the overall increased level of credit risk led to higher bank provisioning in the second quarter. As a result, at the end of the quarter, the bank reported a net loss of RUB 0.9 billion.

(foreign language)

[Interpreted] As we expected, cost of risk grew in the second quarter due to additional provisions. Cost of risk for the overall portfolio came in at 11.7% and for retail specifically it was 13.4%. This was above the levels in the first quarter, 6.6% and 8.4%, respectively. The share of nonperforming loans in the retail portfolio was 8.1% versus 6.6% in the first quarter.

(foreign language)

[Interpreted] In terms of capitalization, we are at a comfortable level. At the end of H1, the N1.1 and N1.0, consolidated regulatory capital adequacy ratios, were 8.9% and 13.7%, respectively, which, according to our estimate gives extra cushion in capital reserves versus the minimum regulatory requirements of 4.5% and 8%, respectively. These ratios demonstrate that despite the pandemic, the bank remains resilient. At the present time, we see no need for additional capitalization of the bank.

(foreign language)

[Interpreted] It is also worth mentioning that few days ago, Fitch confirmed bank's rating at BB minus with a stable outlook, noting its strong financial performance and the sustained positive effect of the bank's joined integration with MTS Group.

(foreign language)

[Interpreted]

Given the ongoing economic recovery, the bank's conservative approach to risk management and consistent implementation of the bank's strategy with a focus on development of digital channels, we believe our FinTech vertical can recover relatively quickly from losses incurred as a result of the pandemic and resume operational and financial growth.

(foreign language)

[Interpreted] Now let me hand it to Andrey for the financial update.

Thank you, Ilya. So let me begin by walking through some of the impacts at the adjusted OIBDA level and below. Group adjusted OIBDA increased 0.6% year-over-year to RUB 51.6 billion, primarily driven by solid performance in core services as well as OpEx savings. Those savings were in part due to our optimization efforts. However, we also saw one-off reductions in rental and labor costs amid the pandemic reflecting dynamics in leases and sales commissions.

In addition, we also saw a one-off positive impact from evaluation of a provision we had booked previously in relation to a regular case regarding bulk SMS rates for banks. We initially had more conservative expectations and we have now adjusted the provision as we gain greater clarity. At the same time, the positive factors were mostly offset by COVID-19-related factors, in particular, the headwinds in roaming as well as loan provisioning at MTS Bank. Group net profit decreased 7.5% year-over-year to RUB 11.8 billion. Net profit was supported by core business performance, lower net interest expenses, reflecting declining interest rates and the positive impact from discontinued operations in Ukraine. At the same time, we saw a negative impact from operations with derivatives and the FX effect that ruble rebounded growth in March.

On a half year basis, this was partially offset by the positive impact we saw in Q1 as the ruble weakened. Net profit was also negatively impacted by MTS Bank, although we expect Bank to return to profitability (inaudible) during the second half of 2020.

Turning to CapEx. In the second quarter, we continued to invest heavily in network infrastructure, with group cash CapEx in the first half of this year coming in at RUB 40.8 billion. That gives a CapEx to sales ratio of just over 17%. Given the traffic dynamics this year as well as the competitive situation, we plan to continue investing in the second half of the year. Free cash flow remained robust at RUB 24.8 billion for the half of the year. Compared to last year, we paid relatively less debt in 2020, although we have also seen a bit higher level of working capital. We continue to have a strong balance sheet with ample liquidity and robust cash flows. We are also maintaining a disciplined approach to debt management. We have a fully local, well-insulated net debt position, and we remain opportunistic in the ruble bond market. Rates are low and demand is healthy.

In the second quarter, we issued nearly RUB 32 billion of bonds on MOEX, and we fully repaid the outstanding portion of $750 million Eurobond that we issued 10 years ago. Overall, as we discussed before, we are making good progress and steadily bringing down our cost of investments.

Second quarter, our gross debt weighted average interest rate declined from 8.1% to 6.7% down more than 1.4 percentage points year-over-year. As you recall, in 2018, we were the first operator in Russia to begin reporting under the IFRS 15 and 16 standards. At the same time, in the interest of comparability, we continued disclosing our leverage under the prior standard for the past couple of years. However, recently, we have seen many of our global and most of our local peers switch to comparing leverage based on OIBDA, including IFRS 15 and 16.

In addition, we have also now established a trend line with 6 quarters of reporting under the new standards on the last 12-month basis. So we feel it's the right time to make the switch as well. On this basis, in the second quarter, our leverage remained steady at 1.3x.

Now I will hand it back to Alexey for his closing remarks.

Thank you, Andrey. Overall, I am encouraged by our performance in the first half of the year. And I am proud of the team for what we have accomplished. I think we can see without invigilation that in the second quarter we truly lived up to our slogan to be better every day. Given our core resilience and increased visibility into the second half of the year, we are reaffirming our yearly guidance of flat to 3% growth in revenue, minus 2% in adjusted OIBDA and around RUB 90 billion in CapEx cash.

Finally, despite the tough environment, we are nonetheless delivering a record year for shareholder returns. We have already paid out a special dividend launched in 2020 buyback program and completed payment of our regular full year dividend based on 2019 results. In addition, the Board has recommended our secondary payment based on first half 2020 results. Taken together, we expect to return potentially more than RUB 100 billion to shareholders this year. We are proud of our track record. And in July, we were named a top 10 most popular stock on MOEX for retail investors.

We hope our global investor base also feels that we are proving.

So to sum up, we successfully mitigated the operational challenges in second quarter. We're in a good shape as we head into the second half of the year, and we are confident we will emerge stronger and well positioned to capture the next growth wave.

Thank you, and let me hand it back to Polina for Q&A.

Thank you, Alexey, and thank you to the rest of the speakers. Before we take questions, I wanted to give a heads-up. There might be a delay, if your question requires translation.

Operator, let's open the line for the questions.

And the first question is from Ondrej Cabejšek from UBS.

Congratulations on the results. I have a question or several maybe, starting with your EBITDA progression and EBITDA guidance in general. Can I just understand what you expect in the second half because if we try to break down the drivers here, your service revenues are growing and are likely to continue growing throughout the year. It's the handset sales that are down, the low-margin sales that are down. The adjusted EBITDA numbers include the provisions from the bank. So why exactly do you expect the second half of -- sorry, second half of this year to be much worse than what we saw year-to-date? That's my first question.

Okay. Is the second question coming?

Yes, maybe. The second question was really on the service revenue. You noted at your first quarter results call, sorry, that you seem to be out of the words that compared to April, May and June were much better, that the only negative impact that you saw basically was roaming. So I just wanted to confirm that, that is still the case and what trends you are seeing in the third quarter? That was my second question.

Let's answer the first one. In respect of OIBDA guidance, we think it is too early to revise our guidance at this stage because the heaviest impact from roaming revenues is coming in the third quarter. So we'll have to see that the dynamics of our business, both in financial services because the micro situation does not allow yet to expect a much stronger or quick recovery. So to sum it up, we think it is reasonable to maintain our guidance, taking the third quarter impact which we expect at this level.

And the second question is somehow interrelated, if we hear it right, with respect of third quarter roaming and traffic revenues, we do see some traffic -- roaming, traffic appearing due to eased travel restrictions. However, we -- historically, the third quarter is the highest in terms of roaming. That is why in terms of materiality, that carries the biggest impact on the performance.

Okay. That is clear. And if I may follow-up on the first question. So maybe just can you tell us maybe what's going on with some of your OpEx items because, again, you're a high revenue -- so the high-margin revenues are growing as the low-margin revenues are declining. And the adjusted EBITDA actually includes the provision. So what's going on with the other cost items? Can you give us a bit of a color why we should expect margin contraction? Is there anything outside of roaming, basically, that is driving this outlook?

Ondrej, so we cannot get it fully. Can you speak up a little bit clear and slower, sorry for -- but we cannot comprehend.

Yes. So if I could follow-up on the first question, please. So my point is that your high-margin revenues seem to be growing the service revenues. The lower margin revenues are in decline, sales are good, et cetera. You adjust for bank provisions in your adjusted EBITDA guidance, and still you are guiding for a margin contraction. So basically, my question is, outside of roaming, is there any other OpEx impact that you could explain why this guidance is still for margin contraction for this year?

Well, I think we still have to see the recovery in retail. On the other side, there was some positive one-off in the second quarter, which were marked. So we don't see other major factors other than overall macro economic uncertainty, continued pressure in FinTech area roaming. And as I said, overall macroeconomic factors.

The next question is from Slava Degtyarev, Goldman Sachs.

Also a couple of questions. Firstly, how would you assess how much of the cost savings that you did throughout Q2 have a lasting effect in the medium term? And how much of the spending curve will get back in the second half already? And secondly, also on the service revenues, it looks like your underlying service revenue growth in Russia was very resilient in Q2, if probably not accelerated, if adjusted timing effects of the tariff reviews that you've done in Q1 and also the negative roaming effect in Q2. So what was driving that substantial (inaudible) acceleration in your view? Is it higher consumption of services or anything else?

Yes. Thank you very much for the question. Let me start with the first one. As I mentioned actually, we saw some one-off reductions in our rental and labor costs related to our retail network. And looking forward, as we are saying, that the situation is actually rebounding. I think that this cost will be back. So the short answer is that I think the major part of this optimization we'll see in the second quarter. Although we made some optimization, and that will be -- also that will have an impact in the mid-term as well, but it will be minor versus the -- comparing these reductions in rental and labor costs in retail.

Okay. I will take the second question regarding service revenue. So some clarification on that from our side. So first of all, we have pretty stable service. We see the healthy growth of ARPU due to penetration of high tariff plans. And on top of that, we see that for -- first of all also, we see that the flow is declining. And actually, that's all in terms of trends. And also an additional one -- one additional moment, which I also mentioned in my speech that we see the trend that second SIM -- most of our consumers are refusing from second SIM and turning to MTS SIM card as the main and single one. So that also brought penetration of new users for our MTS services.

And the next question is from Alexander Vengranovich, Renaissance Capital.

A couple of questions, please. First one, how would you characterize the post-COVID situation on the mobile market? So obviously, MegaFon would be having the largest market share. Do you feel that in the third quarter, the market remains pretty stable more or less in line, obviously, post-COVID?

And do you see any negative signs of accelerated competition in the market? And the related question here, do you feel that there might be an opportunity to target adequate base prices again here, like all the market players did in the first half of the year?

And my second question is on margin effects. Can you clarify the RUB 1.7 billion positive impact (inaudible) where -- I mean, where exactly it comes from? Did you pay any leases for the closed stores during the period? And if that -- if you optimize some of the costs, does that automatically mean that this cost will still optimize in the third quarter of this year?

Okay. As for the competitive environment, we don't see any change in terms of intensity of competition. So overall, we say it's a stable, normal situation. We still feel it could impact on -- in the market, which relates -- which reflects in roaming, as we mentioned already and partially in B2B segment as well.

So we cannot say yet that we are fully back to post-COVID. However, as I said, we see some recovery in terms of traffic distribution. We see some recovery in -- due to ease of travel restrictions. So we hope that by the fourth quarter, we'll see a more kind of post-COVID environment.

We do not see any particular opportunities currently for tariffs increases. And in particular, we've seen those already, and we are more kind of pushing our customers migrating to high tariffs due to growth of their consumption as a part of our ARPU growth strategy.

Yes. And answering your second question in terms of the breakdown of RUB 1.7 billion positive impact on OIBDA coming from retail. I think it's driven -- it was driven by the closure of the stores in the second quarter. And in terms of the breakdown, the major part of it is coming from the payroll and the rest from the rent and other related costs.

So basically, if you reopen most of the stores in the third quarter that means that this positive impact will be lower. Did I understand it right?

Yes. Absolutely.

And the next question is from Ivan Kim, Xtellus Capital.

2 questions from my side, please. First, on the MTS Bank provisions in the second half. So far incremental provisions this year were about RUB 2.5 billion, can you please provide maybe an estimate for what the incremental further provisions will be in the second half of the year? And my second question is regarding CapEx. I think there was a previous discussion that some of the year-over-year spending can be lower. So the question is whether the CapEx for the year can be lower than RUB 90 billion.

[Foreign Language.]

[Interpreted] We think that the majority of the provisions we have -- we might have expected to build during the year have been already booked during Q2. And booked as dynamics in the July and August, we do expect that in the second half of the year or for the full year numbers, the bank should become positive at the level of the net profit.

Yes. And coming to your second question about potential for CapEx, I mean, lower for the year, actually, if you land any regulatory factors, they are very minor. So we see no changes because of that. And as I mentioned in my speech, we actually -- we continue to invest heavily in our network, which proved to be the right case during the pandemic. And we do not change our plan for CapEx, as we mentioned before, which is RUB 90 billion for the total year.

And the next question is from Evgeny Annenkov, Bank of America.

I have 2 questions, please. First is on MTS Bank. What outlook do you have for net interest margin for H2, given falling interest rates and also higher share of the impaired loans in your book? And second, in your OIBDA guidance, do you assume any visible impact of higher share of your fixed revenue, given MGTS generates close to 70% EBITDA margin?

(foreign language)

[Interpreted] As we have mentioned, we do estimate that the majority of the provisions we are obliged to do have been already booked during Q2, and we do expect that them to become (inaudible) fully announced.

And what outlook do you have for maybe net interest margin, is it picking up for provisions such for -- for your margin as you mentioned?

For your second question in relation to guidance, we -- if -- of course, that includes fixed revenue. Maybe we didn't get the whole question, but of course, that includes all revenues. We include all revenues in our guidance.

And we have a follow-up question from Ondrej Cabejšek, UBS.

Short question, please, on the fixed side in Russia. You saw some pretty good acceleration. Can you comment a bit on the outlook and how sustainable that growth rate is, potentially what the drivers are, et cetera?

In Russia, in where? Fixed line?

Yes.

Ondrej, the question -- can you repeat the question, sorry.

Okay. So my question is on the fixed line in Russia. You saw some significant acceleration. My question is how sustainable the current growth rate is around 5% because I think a lot of your peers saw some acceleration as well. How sustainable that is from your view? And what potential drivers contribute to that, if yes or no?

Ondrej, thank you. I think the growth rates of mid-single digits are sustainable for this year, and we expect to end up with, in the second half of the year, somewhere mid-single-digit in fixed line.

(Operator Instructions) And the next question is from Dilya Ibragimova, Citibank.

Congratulations with the strong results. My question is perhaps to follow on the content strategy. Is there a ballpark number that you're budgeting either as OpEx or CapEx on the content and I'm looking at exclusive content specifically.

Yes. Well, as we are starting with our media, we are quite conservative in our spend for the content. However, it is a part of our strategy. So we will invest, and that included in our guidance for this year. We would prefer not to disclose the figures, especially thinking that COVID situation did impact this part of our business as well in content production.

Okay. And can I just follow-up on this? Does it tend to be more of an operating cost or capital investment?

No. There will be both. There will be both. The significant part of that growth in both OpEx and CapEx.

(Operator Instructions)

And we haven't received any further questions at this point. I hand back to the speakers for closing remarks.

Ladies and gentlemen, thank you very much for listening.

If you have any further questions, we welcome you to contact MTS Investor Relations at any time. A webcast of this discussion will be available soon on our website if you wish to replay the call. In the meantime, we appreciate your interest in MTS, and wish you a happy rest of the day.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]