Mobile TeleSystems PJSC (MBT) 2019 Q4 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) May I now hand you over to Polina Ugryumova, Director of Investor Relations, who will lead you through this conference. Please go ahead.

Welcome, everybody, to today's event to discuss MTS fourth quarter and full year 2019 financial and operating results. As usual, I must remind everyone that, except for historical information, any comments made during this call may constitute forward-looking statements. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These, in turn, implies certain risks, a more thorough discussion of which are available in our annual report or 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. You can find copies of the presentations and materials used and referenced in this conference call on our Investor Relations website.

Finally, I also wanted to highlight that following the sale of our operations in Ukraine in December, we have retrospectively restated all 8 quarters in 2019 and 2018 in our summary financials. The impact from our activities in Ukraine has now been reclassified under discontinued operations in our group profit and loss statement.

Now back to our results. Today's presenters are Alexey Kornya, President and CEO; Slava Nikolaev, First Vice President for Customer Experience and Marketing; Inessa Galaktionova, First Vice President for Telecommunications; and Andrey Kamensky, Vice President of Finance.

Now I will hand over to Alexey to kick us off.

Welcome, everyone. And thank you for joining us. Before we begin, I wanted to say just a few words on the recent developments. As you know, there has been some significant socioeconomic news over the past several days. Naturally, this has led to market uncertainty. While the situation continues to evolve, we remain focused on what we can control and confident in our business looking ahead.

On macroeconomic side, our prudent financial approach largely protects us from currency volatility. We have limited ForEx exposure in terms of debt, and we also actively use derivative instruments to minimize risk related to ForEx volatility.

On the coronavirus situation, we are monitoring the global developments and taking appropriate steps to protect our employees. We believe our sector is resilient and, even more importantly, has a much-needed role to play in helping travelers' businesses and families keep in touch remotely.

Now turning to today's agenda. I will begin with our performance in 2019 and some of the strategic highlights for the year. Slava will then take you through our recent ecosystem news, and Inessa will give you telecom business update. Finally, Andrey will go over financials before I wrap up with our outlook for 2020.

As you may recall, in third quarter, we upgraded where we wanted to be at the end of the year, and we'll largely keep all those targets, bearing in mind that the guidance we gave included the now deconsolidated operations in Ukraine. Extrapolating for full year impact from Ukraine, we estimate group revenue in 2019 would have grown more than 7% versus 2018. On a similar basis, growth in group adjusted OIBDA would have fallen within the middle of our guidance range of 4% to 5% based on our projections.

For the year, CapEx came in at RUB 91.5 billion. This was principally in target as we continue to heavily invest in network development. Altogether, in 2019, we added nearly 23,000 base stations in Russia. Finally, we also followed through our commitment to reduce our retail footprint by at least 200 stores in the second half of 2020.

Turning to our -- on 2019 financials. As Polina mentioned, we have retrospectively deconsolidated Ukraine. This aims at providing a more transparent view on the performance of our continuing operations. On the like-for-like basis, revenue in fourth quarter was up more than 4% year-over-year to reach RUB 127.1 billion, driven by core mobile connectivity and MTS Bank. Overall, we successfully carried out momentum forward and delivered a solid close to 2019.

For the year, annual group revenue was up 5.5% year-over-year to RUB 476 billion, and we saw year-over-year growth in mobile revenue in all 4 quarters as well as a strong top line contribution from MTS Bank. This illustrates how we are successfully maintaining a solid core business while also moving beyond connectivity. In fourth quarter, group adjusted OIBDA was roughly flat year-over-year with a few one-off negative impacts that Andrey will talk about in more detail. For the year, we saw solid adjusted OIBDA growth of 2.8% year-over-year to RUB 210.3 billion. Despite facing regulatory headwinds, the primary driver was core connectivity with an additional contribution from MTS Bank.

Finally, we made multiple big strategic moves in 2019. Geographically, we derisked our international exposure and sharpened our focus on our core market. Organizationally, we revamped our structure around 4 business verticals, supported by horizontal enabling functions. Strategically, we laid out a vision to build a digital ecosystem on top of our strong telecom foundation. Operationally, we made progress on rightsizing our retail footprint to drive long-term value creation. And financially, we further optimized our debt portfolio and capital, laser focus on cash generation and shareholder returns. Overall, I am encouraged by the pace and progress of our execution on the strategic initiatives, and I am confident these steps are positioning the company for long-term success.

With that, I will hand it over to Slava for a marketing and ecosystem update.

Thank you, Alexey. In the middle of last year, we took a bold step to begin refreshing our company branding, launched a cleaner, more contemporary visual, and we took an extensible approach to better accommodate our expanding product lineup. We adopted an umbrella brand that easily adapts to a wide range of formats such as vertical content for smart devices. We began rolling out last year, and we immediately saw good results in our advertising surveys. We've continued to make progress, and I'm happy to report we are also seeing positive dynamics in our overall brand health tracking.

At the beginning of this year, we saw a further increase of our NPS. And according to our analysis, we have retained and even improved solidly among the big 3 operators in Russia. Looking ahead, our brand favorability is a critical enabler as we move into new product segments. We are very happy with the new style, and we are confident we are headed in the right direction as we're seeing good reception in the market.

Recently, we took another ambitious step by setting up a new unit for our live content, MTS Entertainment. This will be distinct from MTS Media, which covers video and music. We have several entertainment projects in the works in partnership with event agencies on performance. Later this year, we'll be launching our flagship branded facility in Moscow, MTS Live Arena. This will be one of the premier concert venues in Moscow. We are also partnering with a couple of other sites in Russia. Strategically, entertainment has a lot of synergies with our ticketing business, too. And it helps us engage younger audiences and energize our brand perception. Content-wise, I think I can safely say that we have a strong lineup in the pipeline. We are excited about these opportunities and we have high expectations and we are off to a strong start, I'd say.

I also wanted to briefly go over the steps we're taking to revamp the way we approach product development. One of our competitive advantages is our capabilities in in-house app development, everything from the back end to the front end. We started down this path a few years ago, and we've really delivered. Today, we have dozens of [polished] popular apps. And in Q4, our anchor app, My MTS, surpassed 20 million monthly active users. But we are not stopping there. At the organizational level, we are improving our approach to product development. Historically, we've had multiple product teams working independently. However, this can sometimes pose challenges in terms of ensuring compatibility and consistent look and feel. To help address this, we have now rolled out a unified quality control system across the company. And on the back end, we've -- we're combining our efforts to build out modular capabilities in areas like client ID, log-in, payment and others. These steps have multiple benefits. First, they help ensure consistent and seamless user experience. Second, they give us plug-and-play building blocks that can speed up product development. Third, they give our partners a standardized technical interface. And fourth, they provide us with a deeper insight into subscriber economics long term. Ultimately, that insight will allow us to take a personalized approach to marketing.

So overall, we are enhancing the ways we engage with customers. We're expanding our channels for interaction, both on and off-line, and we are putting the customer at the center of everything we do to provide a more compelling and engaging experience.

Now let me hand it over to Inessa for a telecommunications business update.

Thank you, Slava. I will begin with overall Russia results and then walk you through our performance and connectivity by segment.

In Q4, Russia revenue was up 3.9% year-over-year to RUB 126.2 billion driven by MTS Bank and mobile services. Adjusted OIBDA increased 0.5% year-over-year to RUB 53.3 billion, supported by top line performance. For the year, Russian revenue grew 5.5% to RUB 472.6 billion, and adjusted OIBDA was up 2.5% to RUB 214.6 billion. Adjusted OIBDA margin in Russia stood at 45.4%.

Turning to connectivity. In Q4, mobile services revenue growth accelerated by 30 basis points versus Q3, up 3.3% year-over-year. This partly reflected ease in comps. In particular, in Q4, the cancellation of the majority of on-net roaming in fall 2018 became fully priced into the base. Importantly, we also continue to see positively subscriber dynamics. We had 1.1 million total net adds in 2019, reaching 79.1 million subscribers at the end of the year. Furthermore, we also continue to see promising trends in customer loyalty. In particular, we had robust long-term retention dynamics for subscribers who remained with us for more than 12 months. This is a promising indicator as we work to cement our customer relationships.

Along those lines, we continue to make strides in growing connectivity convergence. In 2019, we more than doubled the size of our convergent customer base, reaching 1.2 million convergent subscribers across mobile, fixed line and satellite. And we have ambition plans to significantly increase penetration going forward.

Turning to retail. After several years of rapid sales growth, we experienced flattish performance in 2019. The dynamics in Russia are largely in line with global trends. Market research indicates worldwide smartphone shipments declined in 2019 for the first time in more than a decade. For the year, we saw sales of handsets and accessories down 1.6% to RUB 58.9 billion. At the same time, we saw strong performance in online sales volume, which were up around 15% year-over-year in 2019 to RUB 8 billion. Taken together, these signals reaffirm our strategic logic to rightsize our footprint for today's market.

As Alexey mentioned, in the second half of 2019, we reduced our network by over 2,000 stores. And we're continuing to take further steps this year. So far, we're on track to reach our target up to 400 additional net closure by the end of 2020.

Having said that, on the competitive side, we are seeing some mixed signals. We're closely monitoring the evolving market situation, and we will decide on further action in due course.

Looking ahead, our storefronts will remain the primary channel for high-quality face-to-face customer touch points. To that end, last year, we announced plans to revamp our retail network. This is aimed at providing a more convenient and more engaging shopping experience. We are now in execution on that plan.

In terms of operation, we are improving our IT and CRM systems. In terms of design, we are moving towards launching new stores formats. And in the terms of products, we're expanding our offering beyond connectivity. A good example is the financial services. Today, over than 1,000 of our stores are equipped with ATM or payment terminals from MTS Bank, and we have plans to significantly increase number this year. In addition, we have verified the identity of 4 million customers through our retail network. These users can apply online for an MTS Bank card product and, if approved, immediately begin making contactless purchases from their phone, all without even stepping foot in a bank branch.

Overall, we are making great progress in retail, and we see that reflected in the figures. In 2019, we saw an overall strengthening of our CMPS through the year, starting from around 60% in January to reach a very solid 65% by December.

Turning to B2B. This is already a significant segment for us with annual revenue of more than RUB 65 billion across connectivity, integration cloud and other services. At the same time, we're starting from a low base, and we see significant room to grow up our market share. A good example is in B2G. Last year, we won our first major B2G tender to bring connectivity for over 5,000 government facilities over 3 years. Projects like this enable us to expand our fixed line infrastructure, and they demonstrate our commitment to help every Russian citizen benefit from the digital economy.

Finally, a few comments on our foreign markets. In Armenia, we continue to face regulatory and competitive headwinds. While revenue for the full year was down 2.2%, OIBDA increased by 3.5%, supported by double-digit growth in the fourth quarter. Belarus also continued to see solid performance, with revenue and OIBDA up double digits for both the quarter and the full year.

With that, let me hand it to Andrey.

Thank you, Inessa. I will start with a few highlights from the bank, then I will turn back to group results.

2019 was the first full year of consolidated operations for MTS Bank, and our efforts are beginning to bear fruit. Since consolidation, the bank has seen a significant acceleration in growth, a testament to the progress we are making on our FinTech strategy. For the full year 2019, our loan portfolio expanded by 44%. That drove 21% growth in net interest income despite a declining interest rate environment. The bank also saw solid net profit performance, reaching RUB 1.3 billion for the year. In line with our strategy, retail loans were our primary growth driver. In total for the year, MTS Bank issued more than RUB 100 billion in retail loans with the overall retail portfolio increasing by 73%. Moreover, we made solid progress in expanding our customer base, which reached 2.1 million bank clients by the end of the year. In the long term, we continue to target 10 million financial service users, including bank clients. Our progress to date gives us confidence in reaching that target.

Coming back to the group. A few comments on adjusted OIBDA dynamics. In the fourth quarter, adjusted OIBDA grew 1% year-over-year, which was somewhat slower compared to top line growth. This was largely due to year-end provisions related to MTS Bank as well as bad debt allowances recorded by us in the third quarter. In addition, there was a high base effect given very strong adjusted OIBDA performance in the year-ago quarter. For the year, adjusted OIBDA was up 2.8% versus 2018. Group net profit reached RUB 54.2 billion, including discontinued operations in Ukraine. For the full year, net profit nominally increased 8x year-over-year, which largely reflects the provision in 2018 related to the SEC/DOJ investigation.

On a like-for-like basis, we saw strong positive contribution to group net profit from our continued robust core operating performance. At the same time, net profit was negatively impacted by 2 other factors. First was an increase in interest expenses. While some of this reflects a higher run rate in underlying financing costs, roughly half came from noncash impacts related to IFRS 9 reporting requirements.

Second, we also saw an impact from operations with hedging instruments amid the strengthening ruble environment in 2019. In addition, we recorded noncash FX losses from depreciation of the ruble. For example, the cash received in U.S. dollars from the sale of Ukraine declined in ruble terms toward the end of the year. We regularly carry out derivative transactions with the aim to manage our financial position, and we believe recent external developments confirm the logic of our approach. Overall, we are confident that our underlying profitability remains strong, reaffirming the health of our core business.

Turning to CapEx. Total spending for the year amounted to RUB 91.5 billion, marginally above our guidance of RUB 90 billion. In 2019, we continued to actively invest in developing our network, which is the strategic foundation of our brand favorability, customer satisfaction and long-term business success. Excluding the SEC/DOJ payment and cash received from the sale of the Ukraine operations, underlying free cash flow in 2019 increased by 34% to RUB 73.6 billion versus the prior year. This was supported by strong cash generation in our core business. In addition, there was a lower base effect due to relatively higher acquisition activity in 2018. 2019, the total impact of MTS Bank on group free cash flow was largely neutral. Overall, our free cash flow performance confirms our continued ability to generate cash and return it to investors.

At the end of the year, net debt to last 12 months adjusted OIBDA stood at 1.5%, excluding the effects of IFRS 15 and 16. In 2019, we also actively moved forward on optimizing our debt portfolio. Russia has a very active local bond market, providing a powerful lever in refinancing. In the previous year, we issued 7 series of local bonds on MOEX, totaling more than RUB 70 billion. These were long-term issuances of up to 7 years, increasing the tenor of our overall portfolio. And over the course of the year, coupons for new issuances declined by more than 200 basis points, lowering our cost of financing. Overall, we have solidified our position and have already today nearly covered our entire funding needs to refinance debt maturing in 2020.

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

Thank you, Andrey. As I said earlier, I am encouraged by the pace of our execution and performance in 2019. We entered 2020 from a position of strength, and we feel there is a stable growth potential going forward. Looking ahead, we are already seeing positive pricing dynamics and additional room for retail optimization. Given this context, we are forecasting group revenue to grow around 3% in 2020. At this stage, we expect OIBDA to remain roughly flat, although we are aiming for some upside. For the year, we expect CapEx to come at around RUB 90 billion, including data storage investments with the reduction of spending from Ukraine, offset by an expected revamp in new growth areas. This guidance is based on our best view of the world today. We see a number of positive trends such as growing data consumption in a rational competitive environment. At the same time, we may be impacted by macroeconomic forces and other factors outside of our control. That said, we believe we are in a secure position, and I am confident in our ability to adjust and adapt as necessary. .

Last but certainly not least, we remain focused on generating attractive returns for our investors. In particular, I am pleased to note that in 2019, we slightly exceeded our first year commitment under our new dividend policy. In total, we returned around RUB 67 billion to shareholders last year while including buybacks on top of our regular dividend payments. And in first quarter this year, we paid a special dividend that was roughly equal to half of the proceeds from the sale of our Ukraine operations. Following the Ukraine divestment, core free cash flows are likely to be somewhat lower in the near term. At the same time, our solid track record and outlook in Russia give us full confidence in our ability to fulfill our dividend policy going forward. Moreover, we believe our steady performance stands in contrast to recent dynamics in our share price, which now looks undervalued. As a result, and given our strong cash generation, we are considering launching an additional RUB 15 billion buyback program. We plan to ask the Board to consider this matter in the near future.

Last year, we laid out our new vision and strategy for the company. It has 2 pillars: world-class connectivity and digital upside. We have all the ingredients for success, the right resources, the right partnerships and the right people. This is a multiyear journey. We are still at the starting line, but I am excited and confident about our future. Thank you, and let's open up lines for questions.

Operator, we're now ready to take questions.

(Operator Instructions) And the first question we received is from Mr. Tiron of Bank of America Securities.

It's Cesar from Bank of America. I have 3, sorry about that. The first one is on your flat OIBDA guide versus the 3% revenue growth. Can you please explain if you already assumed some retail optimization into the OIBDA guide and how much you've assumed?

The second one, I wanted to ask what FX have you used for your CapEx budget. And do you see any risk in spending more than RUB 90 billion if the ruble depreciates to RUB 90 to the dollar, for example? Or would you, in that case, just reduce the amount of dollar CapEx spend?

And then the third question really is on your comments on the buyback. Can you please explain what drove the decision? What can be the size? And also, if you can link it to the shares that you have in treasury. Are you not concerned that if you buy back more shares and don't cancel them, that would create some concerns in the market?

This is Andrey. I'll take the first 2 questions. The first question was about OIBDA guidance. I just want to confirm that this guidance included the retail optimization that Inessa talked about that we had in mind. Your second question was about FX effect in CapEx budget. Currently, I just want to say that, as I already mentioned, that we are quite actively using our hedging instruments to -- not to have FX exposure. We don't have FX exposure in our debt. And actually, I think the major part of our CapEx FX is already hedged. And at the moment, it's pretty early to actually speculate on what can happen depending on FX, so we're pretty comfortable at the current situation that we will deliver and not only the amount of the CapEx but also the -- what exactly we want to build in this year.

And let me take the last one. On the buyback, we think that we have very strong financial position right now. We are delivering very good operational results. We are positively looking at 2020 in terms of our top line growth and potential OIBDA upside. Taking all those factors together, we feel possible to provide additional return to our investors. And with the macroeconomic volatility and as the price of the stock is going down, we feel more efficient to do it in the form of buyback. So the buyback is a preferred option for us right now. As I said, the total amount we are considering is about RUB 15 billion. And yes, and that is it.

And would that buyback be -- did you have a time frame for it? I mean, would it be realized in H1 or H2 this year?

We'll bring it to the Board, the consideration to the Board in the near future, and then we'll act depending on the stock price performance. And to add to your question on treasuries, strategically, as we many times mentioned, we are looking in cancellation. However, tactically, we -- for the reasons of keeping a good retail earnings cushion, tactically, we don't want to do that, so we'll look for opportunities. Our financial performance will give us such an opportunity.

And the next question is from [Ms. Ibragimova] with the UK.

I had a couple of questions. First is a follow-up on Inessa's comment that -- what she was talking about the retail that signals from the competitions are the competition are mixed, if maybe you could elaborate a bit on what you implied by that, both from positive and negative side. And my second question is on investments that are being done by competition. It seems like peers, for example, tier 2 has been -- had a bit back-ended CapEx in Q4. Your -- the line, overcapacity line, has also enhanced plans for investments. Would -- are you reflecting that on potential competitive intensity? What do you think -- and do you think there is a risk of overcapacity, looking at 2020, '21?

Okay, let me comment on retail optimization. Last year, we mentioned that we see opportunity on the Russian market, opportunity to decrease the number for retail footprint. And last year, we announced that we are prepared to reduce up to 600 shops. Last year, we did an exercise, and we closed 200 shops. And this year, we are making the exercise to continue further closing the retail. Of course, we benchmark what our partners on the market are doing, yes, because being a leader in the market, we're definitely also having very healthy situation on the sales. I don't want to ruin that situation. So before closing every and each shop, we'll definitely monitor the situation and make the decision. So we confirm that we still have the plans for 400 shops. But as mentioned, we will keep you informed every quarter on the status, on the progress.

And I will elaborate on competitive market landscape, we feel that, overall, the competition is reasonable. In particular, we don't see a lot of competitive...

(technical difficulty)

Ladies and gentlemen, due to a technical issue, we will have to pause this conference for a few moments. Please stay on the line. Thank you.

The conference is now being resumed. I'll hand back to the speakers.

Yes, we stopped on discussing competitive environment. So as we said, and as I said, we see overall reasonable competitive environment and in particular in the pricing field. We don't see the key players are falling in the pricing war, which is encouraging us, and we think that the trend will continue.

Also, we don't see any threat in terms of CapEx competitive for investments because we are basing our CapEx program more on the customer needs and capacity requirements rather than competitive situation.

And the next question is from Slava Degtyarev Goldman Sachs.

First question, how do you see mobile service revenue progression in Russia in 2020? Do you think that the recent tariff increases will lead to acceleration of growth in 2020 compared to the levels we have seen in Q4? And secondly, how do you see developments around the affordable Internet projects? Do you see any free data traffic level, which is comfortable for you to provide to the customers? Would you see any risks of additional costs on the back of that?

Okay. I will take the first question regarding the mobile revenue. So we do forecast very healthy growth in mobile service revenue due to several reasons. First of all, as Alexey mentioned, we have right now a healthy competition, and there is no price wars on the market. Secondly, as I mentioned in my speech, we finished last year with good growth of sub base. So we finished the year with a sub base of 79.1 million subscribers which gives us and our resources very healthy. So we see all the elements are in place to forecast healthy revenue growth.

And as for socially significant information resources, it's a little bit too premature give any indication or estimation of a potential impact because there is no clarity on what will be included in such resources, what would be the treatment of such resources and so on and so forth. So I think right now, we are in discussion with the regulator and with authorities on that project, and we cannot give you much of visibility.

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

Yes. Firstly, congratulations on great execution throughout 2019. On the fourth quarter '19 numbers, I would have expected the mobile service revenue growth to accelerate a little more since the internal roaming effect was completely phased out, and was more or less at par with third quarter growth. So any color on the factors there would be much appreciated.

And secondly, going back to CapEx. So I understand about the hedging instruments, of course. But is there a ruble level where you think the CapEx will go up in the ruble terms?

I will take the first question. I can tell you that while you see that, really, there was slightly lower growth of mobile service revenues in Q4, there wasn't one single reason for that. There were a few, most of which were a one-off. I can give you an example. We've been moving a big tariff plan from pure per month payment to per month and per day, which, technically, in the month of change would lead to decreasing revenues. But later on in the coming months, it will increase revenues because people would be online more. So there were a lot like -- when we checked, there were like 7 or 8 different reasons for that, most of which, again, were one-off. So we expect this to look even better further.

Yes. With regard to the CapEx, just -- first, I want just to repeat that part of our FX exposure within the CapEx is hedged. The rest amount is not that big. And in the current situation, I think, as I said, we are pretty comfortable with the levels that we mentioned. And I think it's pretty early at this stage to talk about what can -- when the amount can be higher. I think that we can accommodate and we have some certain flexibility internally with our vendors. But still, I think, depending on the situation on the market, we will monitor this, and then we will provide more information later on. Thanks.

Just a quick follow-up on the mobile service revenue growth. Slava, do you have an estimate of what it would have been without those one-offs?

Well, again, it's -- you understand that it wouldn't be a pure estimate. So I see that it's going to be below, again, at 7 or 8 different reasons from RUB 100 million to RUB 200 million each, so roughly below RUB 1 billion, but something like that.

And the next question is from Ondrej Cabejsek of UBS.

2 questions from me, please. The new business CapEx, so you're referring to CMD slide, the 2020 total CapEx guidance, I believe, implies that you will be at the very high end of what the new business CapEx should be as a percentage of total. Can I just understand whether that is a sort of initial rollout phase that should subside over time? Or whether we could expect, for example, in the next 3 years over the entire medium-term guidance period, the new business CapEx to be up to 20% of total? That's the first question.

Second question, if you could maybe at this stage, elaborate a bit more on why exactly the RUB 60 billion in potential retained earnings after a potential treasury cancellation would be too low, whether that is simply due to some residual covenants or whether that is just cautiousness on your part? Any color would be helpful.

Okay. I'll answer the questions. On the CapEx side, I think the estimate of 20% is a little bit puzzling. I don't know where it's coming from. As far as the overall CapEx in new areas is concerned. We see these are usually less capital-intensive areas. So we do not expect that growth in those businesses going forward will trigger a significant CapEx requirements. However, of course, in order to support the growth, for example, in financial services or in other areas, will require certain capital investments.

So based on that, we don't think that the -- one should expect the share of CapEx in new areas grow, but I don't think also that we'll see significant reduction, and that is just initial stage. No, I think we'll pretty much keep the level of investments in order to support the growth, sufficient in order to support the growth, if I was clear in my answer.

And on retained earnings, that's a very long term-based decision, what is the sufficient level of retained earnings in order to support a long-term dividend commitments and long-term vision of the growth in return to our shareholders. So there's no solid figure or there is no strict limit. That's more kind of estimate, soft estimate where we feel confident in what we believe should be the right size of this cushion.

Okay. Maybe just explaining on the CapEx because I'm referring to your Capital Markets Day slide where you're saying basically the estimate for 2019 of the new products and business is about RUB 10 billion, and then you're saying that the total -- or the new CapEx could be up to 15 -- or say, up to 20% of the total over 2020 through 2022, up from 13%. So just backing out what that might be, it sounds like going into 2020 with your RUB 90 billion total CapEx guidance. Assuming a RUB 10 billion flat number for Yarovaya roughly, it seems like you're ramping investments into those new businesses quite significantly versus 2019. So you're saying basically that if you can confirm that the levels that we're going to see in 2020 should be assumed for the foreseeable future as well in the coming...

Yes. Okay. Thank you. We got it. I think it was the upper end of -- and for this year, and that also is very much defined on how you split the CapEx between your infrastructure, where you are [lacking]. So I think it's in upper end. And for this year, for 2020, I would say that we have a lower figure on CapEx into new areas.

So is the core driving the higher number then? Just to confirm.

Yes, yes. That's -- I didn't get it was a question. Yes, the core is -- also is driving basically or contributing to the CapEx guidance, which we gave, yes.

And the next question is from Igor Goncharov, Gazprombank.

My question basically was also related to CapEx and was largely answered like a minute ago. But just to follow up briefly, if you say the core CapEx is the driver of the CapEx hike, CapEx increase because clearly, you're increasing CapEx in comparison to ex Ukraine level of last year. So if the core is the driver of this, could you elaborate a bit what drives the increase in the core CapEx? I understand that from your previous answer that FX is not the driver of that, but what is the driver of the CapEx increase of the core CapEx increase next year -- this year, 2020?

Well, once again, the share of noncore CapEx or CapEx in other business lines is growing. It is not 20%. It's below that figure for this year, but it is clearly growing, and it's one of the key contributors to the overall growth of CapEx. Still the core CapEx, overall CapEx remains flat. And also, we include Yarovaya investment into this guidance which is, in 2020, will be higher than in 2019. So these are the key factors. So growing noncore, growing Yarovaya and stable core business. But of course, core business is a significant part of our CapEx.

And the next question is from Svetlana Sukhanova, Sberbank.

May I ask 2 questions? My first question would be on CapEx again. I'm sorry but under a bit different source. Can you remind us what share of your CapEx is at FX-linked? Because you also have construction, you also have to pay constructors. You also have to buy some kind of metal, et cetera, et cetera. So what kind of -- what percentage of your CapEx is FX-linked. That would be my first question.

And my second question would be on top line guidance. Inessa answering Slava's question said that you do expect healthy growth in mobile service revenues in 2020. My -- and you have subscriber base growth. And you have repriced your tariff, my understanding, by around 4%. Why are you guiding top line to grow only 3%? In what kind of lines do you expect slow down?

Svetlana, thank you very much. This is Andrey answering your first question, speaking about the CapEx. What we are saying is that there is no direct link. There is indirect link of our FX exposure within the CapEx, and it's up to 50% of our CapEx, less than 50%.

Well, given the current situation, about the second question about top line guidance, frankly speaking, I don't see it as too conservative. I mean, if you would look at last year, at the beginning of the year, we gave approximately the same level of guidance. And I think it's pretty accurate, given the data that we have now at hand.

There are currently no further questions. (Operator Instructions) And the next question is from Alexander Vengranovich, Renaissance Capital.

Just a follow-up to the previous question on revenue guidance. So when we look at your forecast, can you please help us to kind of understand what sort of underlying growth you forecast for the new business segment? Or if you can provide more understanding on how you look at development of MTS Bank this year, which might be the largest part of the additional revenue segments, adjusted revenue segments, which will be contributing to your revenue as I think it will be the largest driver of that? Because as far as I understand, we are more or less on the same page on the core business growth. And the biggest question will be how the other adjusted revenue streams will be growing, which will create more volatility around your top line.

Thank you. We expect the other areas, nontelco, to grow at a good pace, and we assume it's about double digit. But in particularly, in financial services, might be not that high growth in media. But in B2B, digital and cloud services also is aggressive growth estimates. However, we have also flattish dynamics in our retail, which is about 90 -- RUB 80 billion, RUB 90 billion of our overall RUB 500 billion revenue, sorry. So that's -- we forecast that taking a reduction in retail footprint and overall macroeconomic situation and so on and so forth will be flat. And some other segments, noncore segments will potentially, like roaming for example, will suffer probably from the current development, macroeconomic developments and so on and so forth. So overall, we are coming to the figure which you see in our guidance. And we believe it's a solid estimate for 2020, taking our current situation.

And the next question is from Sergey Libin of Raiffeisen Bank.

It is on the MTS Bank, actually. With the expected but fast growth, as you said, do you think that the bank would need the capital increase this year?

Sergey, thank you very much. This is Andrey. Speaking about MTS Bank, you're absolutely right that to support this level of growth, we are ready to support the bank. And within this year, RUB 4 billion were -- would be provided into the capital of the bank -- sorry, RUB 5 billion.

RUB 5 billion? Okay. Very helpful.

And to add to this question, I would like just to stress the success of growth in our financial services. Our bank was within top 5 banks in Russia in growth of retail portfolio last year.

There are currently no further questions.

Okay. 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 and wish everybody a pleasant day.

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