This post was originally published on this site
Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) Q1 2020 Earnings Conference Call May 26, 2020 11:00 AM ET
Company Participants
Polina Ugryumova – Director, IR
Alexey Kornya – President and CEO
Vyacheslav Nikolaev – First VP, Customer Experience & Marketing and Ecosystem Development
Inessa Galaktionova – First VP, Telecommunications
Andrey Kamensky – VP, Finance
Conference Call Participants
Cesar Tiron – Bank of America Merrill Lynch
Ivan Kim – Xtellus Capital
Ondrej Cabejsek – UBS
Herve Drouet – HSBC
Alexander Vengranovich – Renaissance Capital
Vyacheslav Degtyarev – Goldman Sachs
Dilya Ibragimova – Citi
Igor Goncharov – Gazprombank
Polina Ugryumova
Welcome everybody to today’s event to discuss MTS First Quarter 2020 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.
This, in turn, implies certain risks and more thorough discussion 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 risks. You can find copies of the presentations and materials used in reference in this conference call on our Investor Relations website.
Today’s presenters are Alexey Kornya, President and CEO; Slava Nikolaev, First Vice President for Customer Experience and Marketing and Ecosystem Development; Inessa Galaktionova, our First Vice President for Telecommunications; and Andrey Kamensky, Vice President for Finance.
Now, it’s my pleasure to introduce Alexey to kick us off.
Alexey Kornya
Welcome everyone and thank you for joining us. I would like to begin by saying that our thoughts are with all of those affected by the global coronavirus pandemic. This is an unprecedented time that is impacting billions of people around the world, including millions of our customers and thousands of our employees.
Connectivity has never been more critical and we are proud to be helping our customers stay in touch with their friends and family, as well as colleagues and classmates.
While their agenda of the call is our first quarter results, the focus of much of the discussion today will be understandably, the ongoing impact from COVID-19. As the scale of this situation became clear in February, we activated our continuity protocols and established a taskforce to coordinate our response.
Let me go over a few of the steps we have taken. First and foremost, our highest priority is the health and safety of MTS team. We have now transitioned over 30,000 employees to remote work. At the same time, many of our workers has mission-critical jobs in stores and in the field that cannot be done from home.
To help protect them, we have put in place extensive sanitation measures, such as temperature screening, face masks, and cleaning protocols, in line with local, regional, and national guidelines.
Second, we have launched multiple initiatives to help those being impacted. For healthcare workers, we are providing free connectivity for doctors fighting COVID-19 in many Russian regions. For customers, we are providing unrestricted access to essential resources at zero cost, including free calls and traffic to official hotlines and websites. And for society, we are supporting multiple public initiatives to help the most impacted.
In addition, the senior management team has pledged to donate at least 10% of our salaries to charity. And we have launched an internal crowdfunding campaign to encourage employees to follow suite.
While our business is resilient, we’re not immune. Our core focus has been to keep society connected, while moving swiftly to adapt how we engage with our customers. On the network side, we boosted capacity and reallocated resources, and we have successfully handled dramatic rise in traffic with minimal disruption.
On the sales side, we are strengthening online channels, diversifying SIM distribution and doubling down on digital customer care. And on product side, we’ve launched new offers and content to help better meet changing customer needs. Slava will talk more about those supports.
Overall, I’m encouraged by how rapidly we have adapted to the situation. As a digital-first company, we were already embracing agile-based practices, including open feedback, rapid screens, and lean development. And we are now successfully applying those principles to remote collaboration. I would like to thank the entire MTS team for their dedication and professionalism in the challenging time.
While we cannot predict all of those impacts from COVID-19, one thing is clear, digital transformation is now spinning ahead. At MTS, we continue to move forward at full force across of all our verticals. And in the first quarter, we had a number of notable developments. In telecom, we refined our tariffs, took a stake in the regional fixed-line operator and launched the first industrial 5G zone in Russia.
In Fintech, we launched the completely revamped mobile banking app and saw strong growth in our customer base. That said looking ahead; we are now anticipating some negative impacts which Andrey will go over in more detail.
In media, we embarked on the new partnership projects including JV with Channel One and new initiatives income-producing content. And in B2B, we saw exceptional performance in promising areas including triple-digit growth, line growth, and Cloud & Collocation services and we expanded our offerings in new product lines.
I also wanted to highlight that last week we announced new candidates for the Board of Directors who have a deep bench of expertise across retail, media, and digital transformation. This competences our complimentary to our growth strategy and I hope to welcome the new members of the Board following the AGM in June.
Now, turning to our results, in this relatively normal environment in first quarter, we saw solid overall performance in the first three months of the year, group revenue increased nearly 9% year-over-year to reach around RUB120 billion on the back of positive contribution from all of our four verticals.
Most impressively, around half of the topline growth came from adjacent segments beyond connectivity. We have been making steady progress in our transformation and that’s how being reflected — and now being reflective in our figures. Group adjusted OIBDA was up 1.6% to reach RUB51.5 billion, driven by growth in core services, which Inessa will talk about in more detail.
At the same time, we were constrained by high base due to a positive one-off in first quarter 2019 and excluding this effect, adjusted OIBDA saw solid 5.6% underlying growth year-over-year. Overall, I’m happy to say that we deliver yet another strong quarter of solid results.
With that, I will hand it over to Slava to give customer experience and marketing update.
Vyacheslav Nikolaev
Thank you, Alexey. As we all know, the world is facing unprecedented challenges and disruption. But as always, change also brings opportunities and we firmly believe that those who adapt fastest today will be best positioned for tomorrow.
In the current environment, our guiding principle is providing comprehensive and consistent support for our customers. As we do this, our focus is on strengthening long-term relationships and not short-term monetization. This not only makes good business sense, but it’s the right thing to do.
As Alexey mentioned, we have launched a number of CSR initiatives to support those who are most impacted. I particularly wanted to highlight the work we have done to provide connectivity for doctors fighting the virus. We have launched a new tariff with three free months of connectivity, which are offered to thousands of healthcare workers. This was the first project of its kind in Russia and we hope it’s a help to those on the front lines.
We’ve also been seeing changes to consumer behavior as people migrated to working, studying, and socializing from home. More and more of our daily lives is happening through digital channels and we are moving decisively to offer new solutions for new lifestyles. For example, we launched a stay home bundle of digital services that packages together MTS TV, music, library, fitness, and telemedicine via our SmartMed application.
We are also providing extra rewards within our loyalty program for online purchases of much needed goods, such as grocery and food delivery, and in life entertainment, we have shifted gears towards online programming, launching a series of virtual concerts with some of the freshest top performing artists.
Viewers can watch a free stream via MTS Life with the option for an immersive experience with a VR headset. To-date, over 30 million people have tuned in and we have a packed event lineup ahead of us.
Given where we are in the business cycle, as we execute on those initiatives, we’re taking a cautious approach in terms of OpEx. But ultimately, this is an investment in the future. Beyond the recovery phase, we think many changes to consumer behavior will likely persist. That’s we think now is a good time to begin disclosing additional metrics around our ecosystem development.
In Q1, we continue to see growing adoption of MTS apps. A good example is the MTS Bank application, with users up more than 70% year-over-year, breaking the 1 million mark for the first time.
Additionally, our flagship self-care hub, MyMTS reached nearly 22 million active users. Although going forward, we expect that number to plateau, given that we have already attracted our most digitally savvy users to the platform.
But we are staying ahead of the curve and now shifting our focus towards expanded functionality; in particular, by aiming to deepen Fintech based features and capabilities.
We’ve set up a joint team with MTS Bank to do just that and we have some exciting developments in the pipeline. As regards to Bank, we continue to see robust growth in the customer base in Q1, reaching nearly 2.5 million Bank clients, over half of which are now key audience of high frequency daily banking users.
And lastly, in media, we have a stable foundation of 4.6 million Pay TV years, with promising prospects to add new customers by leveraging bundle offers and exclusive content.
Overall, we’ve made steady progress in cultivating our ecosystem and those efforts are beginning to bear fruit.
Now, let me hand it over to Inessa for Telecom business update.
Inessa Galaktionova
Thank you, Slava. As Alexey mentioned, connectivity is now more important than ever. Over the past two and a half months, we have successfully adopted our strategy to unprecedent challenges. Operationally, this has required tremendous efforts from redirecting call centers and redesigning sales channels to reassigning employees to remote work. We executed lightning speed and despite disruption, successfully maintained overall high service quality as well as healthy sales dynamics.
Turning to Q1 results, let me begin with mobile in Russia. Although we saw solid topline performance with year-over-year mobile service revenue growth in Russia accelerating nearly 7% to reach around RUB80 billion, this is part reflected in the impact of tariff adjustments towards the beginning of the year.
In addition, there was a low base effect due to pricing moves going into effect relatively late in 2019. We also continue to actively fine-tune our tariff structure. For example, new subscribers of our flagship tariff are now presented with an additional paid option to activate unlimited data above 25 gigabits. As we reflect due to travel restriction, we have seen a step off in roaming the revenues. We expect this is materially impact our results in Q2 and potentially into the second half of the year.
Turning into subscriber dynamics. In Q1, our mobile customer base in Russia was up just under 1 million subscribers year-over-year. At the same time, given the retail situation in Q2, we began seeing a significant impact on ads and outflow.
The situation is evolving and they backed hard to forecast. That said, we expect a reduction in churn will only partly compensate for lower [Indiscernible] translating into net decline in subscribers.
However, we’re seeing the biggest dynamic is in the low value segments, such as storage, guest workers, and secondary SIM users. Altogether, this represents a small share of total revenue.
In contrast, we’re seeing great results among our high value customers who continue to be our strategic focus and target audience for upselling digital services. So, while we do expect an impact, we continue to see long-term opportunities for ARPU attrition.
In fixed-line in Russia, we saw positive revenue growth of 1.4% year-over-year in Q1 to reach RUBU15.3 billion. Notably, we saw solid performance in consumer broadband and TV more than offsetting declines in lending phones, excluding telephony, B2C fixed revenue were up over 5%. More recently, new ads and bandwidth upgrades are higher than forecasted, particularly in Moscow as people are working, studying, and relaxing more at home.
Turning now to retail. In the first quarter, we saw solid 6.1% year-over-year growth of sales of handsets and accessories reversing the dynamics we saw in Q4. That said we believe this is part reflected a temporarily blip due to foreign exchange volatility, in particular, as ruble weakened, consumers have — may have accelerated purchases of imported devices ahead of expected price increase.
In cure will also continue to execute on our optimization program and we were on track to hit our target of up to 400 net closures this year. However, the world has now changed and retail is one of the most impacted sectors. As an essential business, many of our stores have remained open during the crisis, although stores in shopping malls have had to close in line with local health guidelines.
Given self-installation measures, we have also seen a significant decline in foot traffic. Altogether, we’re anticipated to lose a major share of retail revenue in Q2. But we’re not standing still, while moving swiftly to adopt our approach to the current environment, we have expanded contactless SIM delivery to hundreds of Russian cities and we have added thousands of new SIM distribution points in the central retail outlets, including post offices, grocery stores, and pharmacies.
In addition, we have received regulatory approval for self-registration of SIM cards. And we have already fully put this into commercial operation with an app-based identify [ph] verification process. Looking ahead, we plan to prioritize this channel as a key level to lower subscriber acquisition costs.
We’re also broadening our chances, satisfaction tracking across all of our sales channels. We want to make sure customers have a great experience during each and every touchpoint whether in stores, online, or at their door.
At the end of the day, our telecom strategy is simple, best brands, best network, best customer base. We have a strong start to this year and despite challenges, I’m confident we’re on the right track.
With that, let me hand it to Andrey.
Andrey Kamensky
Thank you, Inessa. As usual I will start with an update on MTS Bank before circling back to group financials. Given the installation from COVID-19 in Q1, the Bank saw continued strong performance in the first three months of the year.
Net interest income rose 43% year-over-year to RUB3.6 billion, driven by 50% growth in gross loans versus the year ago quarter. Net profits for the Bank amounted to more than RUB200 million, which included the negative impact of about 480 million rubles as we proactively books provision in response to the changing macro environment in Q2.
In line with our consumer focus, portfolio growth was driven by retail loans, which were up 67% year-over-year to RUB91.1 billion. Importantly, we saw a good mix of growth across general purpose loans and the card product contributing to overall portfolio diversification.
Shifting gears from Q1 to Q2, in contrast to connectivity the banking sector is more sensitive to macro volatility. And we have begun to see significant shifts in the indicators we track. By early April, sales of new loans were down around 60%, partly reflecting the closure of retail branches, but also changing patterns in consumer spending and savings.
We have also seen an increase in requests for loan restructuring. Given the signals, we are carrying out a deep and comprehensive assessment of the portfolio and we’re modeling a variety of forward-looking scenarios.
While the full impact remains difficult to estimate, we’re taking a cautious approach. We currently envisaged cost of fleet [ph] to further increase in Q2. That will likely require additional provisions that would be recorded in future reporting periods, which we expect to put pressure on the bank’s OIBDA and net income.
Nonetheless, we are confident we will overcome the speed bump. Moreover, recent developments have only further reaffirmed the logic behind our strategy. Now, more than ever, consumers are shifting to digital first banking, from online customer service to virtual cards and contactless payments.
Coming back to the group, in Q1, group net profit came in at RUB17.7 billion, largely flat year-over-year. On top of support from core operating performance, net profit also saw significant positive impacts from depreciation of the ruble, which — with losses from a fixed FX [ph] more than offset by changes to the fair value of the derivative instruments. In addition, a decline in finance income versus a year ago quarter was largely offset by lower financing costs, reflecting our ongoing efforts to optimize our debt portfolio.
At the same time, net profit faced headwinds from a relatively high base in discontinued operations in the first quarter of the previous year. In particular, from MTS former Ukrainian operations, as well as the reassessment of the reserve related to Uzbekistan. Excluding discontinued operations, in the first quarter of this year, net profit from continuing operations increased 33.8% year-over-year to reach RUB17.3 billion.
Turning to CapEx and cash flow. Capital spending for the first three months of the year increased by RUB3.6 billion as we continue to actively invest in improving capacity and coverage.
When excluding the payment related to Uzbekistan in the first quarter of 2019, free cash flow in the first quarter of 2020 declined RUB6.7 billion year-over-year, and totaled RUB17.5 billion largely driven by the two factors; first, higher CapEx intensity this year due to the acquisition of a stake in the regional [Indiscernible] business, and the second, a high base from the divestment of our stake in [Indiscernible] in the year ago quarter.
Turning to the balance sheet, this year, we are continuing to take timely steps aimed at optimizing our debt portfolio. In the reporting period, we issued RUB15 billion in exchange-traded bonds, with a maturity of seven years and the coupon rate of 6.6%. We also raised two loans with a maturity of five and six years, totaling RUB75 billion. By the end of March, our gross debt FX exposure had been reduced to just 2%.
Total group debt at the end of the quarter stood at RUB423.4 billion, with the weighted average interest rate decreasing nearly 30 basis points from the end of last year to 7.4%.
Our net debt to last 12 month’s adjusted OBIDA ratio stood at 1.6% at the end of the quarter excluding the effect of IFRS 15 and 16. And we find this level very comfortable in the current environment.
Now, I will hand it back to Alexey for his closing remarks.
Alexey Kornya
Thank you, Andrey. Since first quarter, the world has changed and so has our outlook for 2020. In the interest of transparency, I wanted to share some of the operational indicators we track internally to give you a sense of what we are seeing. Importantly, some of the biggest impacts we saw in April are now starting to reverse in May. In connectivity, roaming is at near zero, while local traffic remains elevated, particularly in fixed-line. Although the early spike of in top-ops and add-ons has now returned to baseline.
In retail, many of our outlets that were temporary closed in March have begun reopening and we are seeing growth as in sales or goods trending in line.
In Fintech, our retail bank operations have fully resumed. In addition, virtual card is up more than a third, despite a sharp decline in overall card issuance. But, as Andrey mentioned, we are expecting an impact from economic headwinds.
Finally, in digital, we are seeing breakneck growth in new users. In April, MyMTS adoption was up 2.5 times and ads in SmartMed and Smart University were up an explosive 10 times. That’s a powerful catalyst for our ventures in filming this seminar, online education.
Taking these trends together, as well considering the increased uncertainty for the remain — for the remainder of the year, we’re revising our 2020 guidance downward to a flat to 3% growth in revenue, minus 2 to flat in the adjusted OIBDA, and maintaining our CapEx outlook at around RUB90 billion.
Despite this revision, we are confident in the relatively — relative resilience of our core business as well as our solid liquidity position and sustained cash generation ability.
In terms of shareholder enumeration, we remain fully committed to fulfilling our dividend policy in 2020. Furthermore, this year, we have already paid a special dividend in first quarter, as well as launched the repurchase program to buy back up to 15 billion rubles of our shares.
Finally, the Board has also recommended the full year 2019 dividend of RUB20.57 per ordinary share for approval at the AGM in June, which by the way, we will be conducting remotely for the first time. We will be webcasting the event and we have an action-packed lineup. I hope you will join us remotely.
So, to sum up, we had the solid first quarter, well gating [ph] second quarter, and we are continuing to move forward on laying a strong foundation for the future of MTS.
Thank you and let’s open up line for the questions.
Polina Ugryumova
Operator, we’re ready to take questions now.
Question-and-Answer Session
Operator
The first question we’ve received from Cesar Tiron of Bank of America Your line is now open. Go ahead.
Cesar Tiron
Yes, hi. Good evening everyone. Thanks for the call and for the opportunity to ask questions and congrats on the numbers. I have two please, two questions. So, the first one is really on the traffic if you can please share again, the data trends are in May and how this compares to April?
And then the second question would be really on the on the guidance to downgrade, but it looks more like an upgrade to the underlying business I guess. Can you please tell us what you have assumed in terms of performing for the full year? Have you assumed that there is no warming revenue for all of the remainder of 2020? And then what type of provisions have you assumed for MTS Bank going forward? Thank you so much.
Alexey Kornya
Thank you for your questions. On data traffic trends in May, we see that still the fixed-line the traffic is quite elevated and overall over those few months, we saw in my time packet coming from more on the — in terms of capacity, stretch on the fixed-line rather than on mobile.
So, in mobile the traffic is up from the pre-pandemic period is about 10%, while in fixed-line is about 30%, 40% and in Moscow, even is above debt. So, in the same way, we see some reduction of the stretch in May versus April in fixed-line, but overall the situation is same as such.
And as far as guidance concerned, we would — taking the uncertainty in relatively low visibility of how things developed? We would refrain from navigating as a particular contributions from business lines into this guidance. We think that with already [Indiscernible] of the businesses, we took into account certain recovery both in terms of isolation requirements and some other aspects starting from summer.
But generally, we think that this is quite a strong guidance. I agree here with you. That’s quite a strong guidance stating their overall macroeconomic situation and the strong roaming effect which we saw in the second quarter.
Cesar Tiron
Okay. Thank you, Alexey. But just to make sure you have assumed in the press release, I guess you have assumed further provisions up in MTS Bank into the next quarters into the guidance, right?
Alexey Kornya
Yes, yes. We assumed significant provision, which we’ll probably see in the second quarter in our financial statements.
Cesar Tiron
Thank you so much, very clear. Thank you.
Alexey Kornya
It is important to say that, our risk policy is quite sober in financial segment and always — was that — it was a such, we showed our cost of risk and we even started expecting some slowdown in the — in 2020. Already in 2019, we started putting a more strict risk requirements towards the B2C loan portfolio in the bank and that will have a positive impact on our provisioning this year. So, we’ve been quite cautious and start taking relevant measures early enough.
Cesar Tiron
Thank you so much. Thank you.
Operator
Thank you. The next question is from Ivan Kim of Xtellus Capital. Your line is now open. Please go ahead.
Ivan Kim
Good afternoon. Just a follow-up on the Bruce questions. So, you don’t want to share how much you planned for provisions MTS Bank for the second quarter? Just to make sure, and my two questions are. First on, retail footprint, do you see the opportunity to accelerate the closure of the stores? And how do you see that market evolving throughout the year?
And my second question is on the acceleration in domestic mobile service revenues excluding roaming. In the second quarter, you saw a 40% increase in demand for voice and data packages in April, some returned to baseline and May of course, but even that 40% increase is quite significant. So do expect the acceleration domestic mobile service revenue in the second quarter and how significant that’s going to be. Thank you.
Alexey Kornya
I’ll take the provision and the next two will Inessa. On provision, I would like to specify two important aspects. Firstly, it’s too early to indicate because they are ultimate provision for the first quarter will depend on the certain consumer behavior in the particular in — which we’ll see upon completion of the second quarter. So in this sense, we wouldn’t be even able to indicate the — to give you any guidance in respect, because it’s too early.
Firstly, and secondly, just to stress once again, we have been quite sober in terms of our resources. We start early enough years in the starting from the end of 2019, a more disciplined risk approach. And that also allows us to limit the potential additional provisions, as we think we’ll see in the second quarter.
Inessa Galaktionova
Regarding the retail footprint, and as we promised for 2020, we plan to close around 400 shops. So in the first quarter, we closed around 170 shops, and actually we’re planning to close the rest up to September, but due to the quarantine, we were forced to close, much high number in April and May. So, and we will follow on the situation on the — on the market. And we’ll see how many shops will open at the end of Q2.At the moment, we don’t plan to close more than 400. But we’ll definitely review the situation on the market andwe’ll take further actions based on future results.These are some retail footprint.
Regarding the acceleration of roaming and effect on Q2, weonce again will mention that in Q1, it was effects on the on — the product and on the low base — sub-base in Q1. So we don’t expect any effects continue in Q2.
Ivan Kim
Okay. Thank you.
Operator
Thank you. The next question is from Ondrej Cabejsek of UBS. Your line is now open. Please go ahead.
Ondrej Cabejsek
Hi, and thank you for the opportunity. I have a follow-up on the guidance in the previous questions more related to revenue trends and data trends per se. Can I just understand, or if you could give us more color, because you indicated that the trends are stabilizing and improving already in May? Could you give us just an idea of what happens to service revenue trends in mobile in April?
And then in terms of the guidance going forward, would you be able to give us an indication in terms of what the assumptions regarding mobile service revenues are for the updated guidance?
Vyacheslav Nikolaev
Hi, I will take this question. This is Slava Nikolaev. And I can tell you that, service revenue up, when we’re talking about service revenue, the major impact in service revenue we had was roaming. And given that we’ve had most of these impacts already in April, I can tell you that in these terms, the trends in May seem — seems better, nothing ominous in addition to that.
Ondrej Cabejsek
So no — no number that you’re willing to give us for example, April, what the trough of the trends look like?
Vyacheslav Nikolaev
No, no, no, no particular numbers. You probably to know our revenue streams in roaming. We’ve disclosed that many times. So actually, we expect them to come back at some point. In other revenues, we again, we don’t see many decline in mobile revenues.
Ondrej Cabejsek
Okay. Thank you. And then second question if I may. You finished the acquisition of the regional broadband provider. Can I understand, clearly there’s more demand for fixed broadband in Russia, it’s still an under penetrated market. Is this potentially given the current increase in demand for fixed broadband first of several acquisitions that we may expect from MTS in this space?
Alexey Kornya
Well, it’s, I don’t think that, the particular growth in broadband demand is improving variation — approaches or the — the price of the assets either downwards or upwards. So I wouldn’t say that, it’s — it principally changes our approach. So we do look at opportunities in the market.
We continue to monitor, and it is part of our strategy to grow non-organically in our fixed line presence in the regions, to the extend it is possible in the economically viable. So we will continue with this approach.
Ondrej Cabejsek
Okay. Thank you very much.
Operator
Thank you. The next question is from Herve Drouet of HSBC. Your line is open. Please go ahead.
Herve Drouet
Yes. Thank you. Good afternoon. A couple of questions as well. The first one is, could you share with us maybe the NPL or back debt that you have experience in April or beginning of May? Or maybe in terms of trend to give us a bit of an idea on how the provisions may look for MTS Bank?
The second question is regarding your CapEx. I mean, we’ve seen there is much more traffic in fixed line. I was wondering, are you starting to shift a bit more CapEx more towards fixed or digital as there is an acceleration of digital adoptions? This is purely mobile or do you stay with your current plan — as plan at the end of last year. And out of these CapEx, how much for this year out of the RUB90 billion is for the Yarovaya Law is my second question?
And just finally, just a comment, do you believe that could be a very good opportunity to drastically reduce your points of sales in terms of retail shops, especially as the online retail has increased quite significantly? Do you believe your competitors may gradually move more towards that route rather than just physical outlets? Thanks.
Alexey Kornya
Let me let me once again to take the bank question on NPL and provisions. We showed the figures on our NPL in cost of risk as of effect up to April 20 in our slide deck. So in terms of like being more numerical, so we didn’t see much of the growth in the NPL, and really some growth in cost of risk on the back of macroeconomic development with additional provision to come.
But just reiterate what I said, to give you a more detailed or more specific indication will be pretty much here. We think that we have over disposing policy approach. And we’ll yet have to see how the situation develops towards the end of second quarter. We give guidance with taking into account the additional provisions required for MTS Bank.
Andrey Kamensky
Yeah. I’ll take the second question about CapEx. As we reiterated, our forecast for this year — for the same amount, as we said before, you should bear in mind that if you compare our CapEx versus previous year that we are spending a bit more, if you take out the Ukraine operations out, and this increase that — specifically has to do with more CapEx that we are spending on fixed business, because it’s growing and it is a part of our strategy. We are focusing on conversion products more and more. And of course, digital products, which became a part of our strategy and actually — and our operations.
Inessa Galaktionova
Okay. I will repeat — regarding retail footprint. So first of all, we don’t — we don’t need a vertical optimization in retail. First of all, because our retail chain generates very positive sales, and secondly, we had plans to close this year around 400 shops.
In Q1, we closed 170 and the rest 230, we were planning to close in Q2. And as you know, as it’s mentioned on 18 slide, in April, it was close due to quarantine — and due to Coronavirus around 50% of our chain and in May around 25%. So actually at the end of the day, so it was the biggest, the big part of our retail chain was closed.
So at the moment, we don’t plan to close more than 400 shops this year, but we’ll navigate we’ll see the situation on the market, and if it will be required and if we see some additional proof that we need to optimize a certain number for shops, we will definitely announce that, but at the moment, we stick to our plans to close 400 shops this year.
Herve Drouet
All right. Okay. And maybe just a follow up on the CapEx, how much for this year is going to be spend for the Yarovaya Law in data storage out of the RUB90 billion?
Andrey Kamensky
Actually, we did not disclose the parts of the CapEx, we’re also referring to the total amount.
Herve Drouet
All right. Okay.
Andrey Kamensky
You’re asking about Yarovaya Law?
Herve Drouet
Yes, Yarovaya, yeah just for details, out of the RUB 90 million spend. Yes, yes.
Andrey Kamensky
Yeah. Look, I we — our guidance is RUB50 billion over the five year period. And we are saying that we’ll be trending a little bit towards the beginning or the start of those, you know, for implementation Yarovaya Law. So you can assume that, that will be around if you divide 50 by 5.
Herve Drouet
Okay.
Andrey Kamensky
That’s a rough indication.
Herve Drouet
Yeah. Understood. Thank you.
Operator
Thank you. The next question is from Alexander Vengranovich of Renaissance Capital. Please go ahead. Your line is now open.
Alexander Vengranovich
Yes. Good afternoon. This is Alexander Vengranovich from Renaissance Capital. Just two follow ups I think from my side. So, the first one is on the rising data consumption in April and May. I’m just wondering how – how it’s possible for you and to upsell your customers with higher speed data tariff from fixed line and probably bigger packages than mobile. Do you think that it’s feasible to do it in this environment?
And you already start to see that the customers are taking a higher speed better or bigger packages from your mobile network. So I’m just trying to understand, what sort of upsell opportunity is on your fixed line and mobile network? That’s my first question.
And the second question is also on your competitive environment mobile. So you’ve done the price increase early in the first quarter 2020. And I think most of your competitors did the same. Also, in April, we’ve seen that Tele2, have started to quite substantially increase the prices for the tariffs, in some of the regions, I’m just trying to understand if it’s a major change to the competitive environment.
I mean, that is becoming even better, because like everybody’s trying to, optimize its marketing proposition for the customers. And there is no further disruptive activity from Tele2 anymore on the market. So do you see any changes of the first quarter with regards to the competitive environment? Thank you.
Alexey Kornya
Okay. With the first question, first of all, I want to stress that we see higher data consumption prep, primarily in fixed line, though, overall trend that we see from the beginning of the year and including the time after COVID that people tend to get higher tariff plans, high priced tariffs with bigger allowances. And you probably remember that complaint in February we started to go away from pure unlimited tariff plans making you know, additional services for unlimited for a separate price.
So, first, we see increase in tariff pricing with us. And secondly, with, we’ve already told you that many, many times that environment, a competitive environment in Russia is improving. And I think that what you see in the first quarter is just the result of that. We’ve seen Tele2 following our moves for a long time now, and I’m completely not surprised that they’re increasing their prices following our changes.
So, I wouldn’t say that, it’s a major change of competitive environment. And just something that led to a very stable increase of our mobile revenues in the — in the end of last year and the beginning of this year. So I think it’s just remaining the same for the last nine to 12 months.
Alexander Vengranovich
Okay. Thank you. That’s clear.
Operator
Thank you. The next question is from Vyacheslav Degtyarev of Goldman. Your line is now open. Please go ahead.
Vyacheslav Degtyarev
Yeah. Thank you very much for the presentation. Two questions. Firstly on guidance, you haven’t lowered your margin guidance for the full year despite the loss of the high margin roaming revenues. Can you please talk a little bit about the mitigating factors that you’re implementing across your business maybe on the personnel side, marketing side or subscriber, acquisition costs, et cetera?
And secondly, a question on the B2B digital and cloud performance basically, can you elaborate how they performed in Q2 or whether there is an acceleration of growth there or you observe certain challenges? Thank you.
Alexey Kornya
Let me tell you on guidance. Actually, we do reduce our guidance by expanding the range. So we put the range in staffing on OIBDA from minus two to flat. So that gives us certain — gives you visibility and gives us certain, you know, better and better flexibility, as we’ll see how the situation develops towards the year end.
And of course we are taking a number of initiatives in order to optimize our costs, starting from revising our roaming agreements, reducing our marketing budgets and many other initiatives, which will help us to catch up with our OIBDA current guidance. Saying that, we think and here I probably agree with you, it is a strong guidance on OIBDA, but we’ll have to take certain force in order to deliver.
And now on B2B digital, yes, we see double-digit growth in the segment organically. If we look and now we believe that the strong demand will stay there. So, we have a very good infrastructure. We acquired as you know, one of the top leading data centers — commercial data centers Avantazh. We shall now, we will start filling in this year. So that gives us additional contribution to our revenue. So overall, we’re quite positive for now Data Cloud and B2B business digital development.
Vyacheslav Degtyarev
Okay. Thank you very much.
Operator
Thank you. The next question is from the Dilya Ibragimova of Citi. Your line is now open, please go ahead.
Dilya Ibragimova
Thank you very much. I had a couple of couple of questions. First is on, if one of you, if you could share perhaps your thoughts on Board nominations. You did mentioned strong candidates and specifically what your thoughts are whether you have any projects in mind on following the appointments and elections for AGM of Ernst — Konstantin Ernst and the very seated tech [ph] I think was venture capitalist with tech background, Alexander Galitsky. So, that my first question or question if you could share your thoughts there?
And second question is on B2B or maybe a later in the stage [ph] whether you see your data center capacity as sufficient, whether you plan to invest more considering the strong demand for media and entertainment specifically was that what you’re thinking is in terms of network architecture, whether use faster 5G or whenever that comes in or even with the 4G people stream content where they need more localized presence of the data center cloud solutions to be able to offer good quality of services. And maybe last one, on the media and entertainment vertical, considering strong demand or strong viewership that you have seen in April, in May, with all the events that you have been introducing and see you — see this vertical as an opportunity to drive customer loyalty only or do you think you could monetize this as well under new initiatives you’ve mentioned the JV with the [indiscernible] also I think the new producer is so much that he is looking to produce their films, do you have thought there? Thanks.
Alexey Kornya
Few words on Board of Directors nominations. I think the new Board is strengthened in order to respond to help the company with the new strategy — ecosystem strategy and growing outside of pure telco product proposition. So, we have Konstantin and the rising guru or — in the media in Russia. As you know, we signed an agreement with per view channel on strategic partnership. And in this sense to develop our media together, in this sense it is a logical addition to our Board taking our strategic partnership.
And his expertise and his knowledge Nadia Shouraboura is a very experienced professional in building and developing ecosystems and it seems that we are facing a lot of ecosystematic challenges and questions she’ll be helping us to give a proper response or to develop. And in particular, in data center strategy development she has also very good experience with Amazon. And Shaygan, he is really experienced both Telecom being a Chief Technical in the Verizonand in Digital Banking, being a technical digital expertise in leading banks.
And Mr. Galitsky has a very broad experience in different industries and with startups and with how you build up the business and how you develop businesses. So these are all very strong additions, we believe to our Board. One can note that also we have majority of Board members is now independent. That is also a very strong indication of strategic approach or strategic stance which we’ll get from the Board.
Dilya Ibragimova
Okay.
Alexey Kornya
Yeah, that’s probably some thoughts on in strategy of the Board. It will be data center capacity utilization, we are not using that heavily for — or we don’t see it as a primary source for internal usage. In particular, when we talk about entertainment or media or something like that. These are just the minority for our data capacity. Utilization and the primary use of course is a commercial.
So, we’ll fell — although we have our internal use, but with the new data centers build up, with the new development of course the primary goal will be is commercial to develop on that and to build the revenue stream. And in this sense, we have a lot of capacity, we’ll build and we acquired significant capacity which will monetize in this year, next year going forward.
Dilya Ibragimova
Okay.
Alexey Kornya
On entertainment, actually that’s a very interesting question. Because at first, we realized when we were launching these virtual concerts, we realized that definitely not the time and place to monetize that heavily on subscriber base at the moment. But it was really great impact on our image and loyalty and we’ve got a lot of positive response. And in addition to that, I can tell you that the actual the cost of contact in this endeavor is really great. It’s one of the lowest in the history of such events.
But at the same time, I think that coming back to normal, we will be able to monetize that. Because first of all, we’ve already for some time we had an interesting VR project that maybe wasn’t that popular in the pre-COVID times, but now as we see a huge demand in online concerts. Currently in Russia, we believe that we’ll be able to provide concerts still free of charge in normal — perhaps in normal quality, but we’ll charge for 4K and we will charge also for VR 360 and other additional capabilities that we already have on our platform. So it’s actually good in both ways.
Dilya Ibragimova
That’s very helpful. Thank you very much.
Operator
Thank you. The next question is from Mr. Goncharov of Gazprombank. Please go ahead, your line is now open.
Igor Goncharov
Yes. Thank you very much for the opportunity. Just two, quick follow-up questions. One, on the dividends, you mentioned in your presentation that you remained committed to the dividend payments during the year 2020. For some reasons you mentioned the year 2020 specifically, doesn’t mean that there is some — do you see some flexibility in relation to the dividend payments in the year 2021, which is still includes into the current dividend policy? That’s question number one.
Question number two relates to the completed integration across Telecom and Tele2. Do you see any changes in the competitive environment in recent months related to this integration; do you see any additional pressure potentially on your business from this? Thank you.
Andrey Kamensky
So the answer to the first question is very simple. We’re going to stick to our dividend policy which is valid for three years. So there is no changes that we foresee for 2021 in terms of dividends.
Alexey Kornya
Speaking on competitive environment, firstly, overall is we already mentioned, we think that it remains stable. We don’t see any deterioration or neither significant improvement in place, we think it is stable and that gives us certain optimism. I would put it that way and in this sense, we don’t see effects from consolidation across Telecom and Tele2 having any specific impact on the current competitive environment.
I would rather say, we encourage any consolidation in the market because they think that overall consolidation of the market is good and positive steps and leads to value — certain value creation in the markets. So I think it’s rather the move in the positive direction.
Igor Goncharov
Okay. Very clear. Thank you very much.
Operator
Thank you. We now received a follow-up question of Ondrej Cabejsek of UBS. Your line is now open, please go ahead.
Ondrej Cabejsek
Hello, thank you. A follow-up, I’m not really expecting an answer, but I’m going to try. Can you give us an indication of what amount of — what part of your growth as is currently coming from VEON as in I’m really interested. What part of your service revenue growth that is above market is driven by the losses that VEON is reporting? Thank you.
Alexey Kornya
Well that we cannot say sorry. It’s very specific question and I don’t think that this is necessarily the source of our growth. So I wouldn’t really comment on our competitors anything.
Ondrej Cabejsek
Okay. Thank you.
Operator
Thank you very much. As there are no further questions, I would like to turn back to you.
Polina Ugryumova
Ladies and gentlemen, thank you very much for listening. If you have any further questions, we welcome you as usual 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 happy and healthy day. Please stay safe.
Operator
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.
