Mobile TeleSystems Public Joint Stock Company
Q2 2021 Earnings Call Transcript

Published: 19 Aug 2021

[Operator:]

Please standby. Good day, everyone. And welcome to the Mobile TeleSystems PJSC Second Quarter 2021 Financial and Operating Results Announcement and Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Polina Ugryumova, Director of Investor Relations. Please go ahead.

[Polina Ugryumova:]

Welcome everybody to today's event to discuss MTS Second Quarter 2021 Financial and Operating Results. Before we start, I must remind you that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors could cause our actual results to differ materially from those contained in our projections or forward-looking statements. These in some 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 gives about 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. I would also like to flex that we have added a few extra slides to the presentation. If you have delved in by phone, we encourage you also tune into the webcast. The supplemental presentation materials will be made available on our website following this call. Today's presenters are Slava Nikolaev, President, and CEO, Olga Ziborova, Vice President for Ecosystem Development and Marketing. Inessa Galaktionova, Associate Vice President for Telecommunications, Ilya Filatov, Vice President for Financial Services and CEO of MTS Bank. And Andrey Kamensky, Vice President for Finance. So with that, let me turn this over to Slava to kick us off.

[Slava Nikolaev:]

Thank you, Polina. And thanks to everyone for joining the call. Overall, we had a very strong headline result in the second quarter. We entered a double-digit growth territory for both revenue and adjusted OIBDA. Moreover, we increased revenue by 10 per 6% year-over-year, despite the ongoing challenges from the pandemic. While retail had an artificially low base due to store closures in 2020, all other segments saw a solid performance on a like-for-like basis. Together, non-silicon segment contributed well over half of the group's top-line upside. This further demonstrates the progress we're making in diversifying beyond conductivity. Our top-line results resonated in operating income. FinTech was the largest OIBDA driver, reaffirming the role MTS Bank has begun to play for us as a key profit center. We also saw a slight tailwind from roaming, which mostly reflected improved roaming terms with foreign operators. In retail, we experienced some OIBDA pressure due to margin compression and COVID -related OpEx savings in the year-ago quarter, looking ahead with the significant headroom for OIBDA exertion from both roaming restoration and retail optimization. So overall, strong performance in Telecom and even stronger in other areas. Due to popular demand and the increasing importance of our ecosystem verticals, we will be gradually increasing transparency in segment reporting. On the slide, you can see the scale of our businesses for the first half of the year, as well as revenue dynamics for the last 12 months. In Q2, standalone revenue grew more than 20% year-over-year in retail, more than 30% in media, more than 40% in FinTech. And speaking of rapid growth, we'll reach nearly 50% year-over-year growth in cloud and digital solutions. Turning to strategy over the past several months, the MTS management team has conducted a comprehensive review of the Company. We've taken a deep dive into each of our businesses as well as look closely at the market perception of valuation multiples in different sectors. We've reached the conclusion that many of our businesses and not appropriately valued by the market. We are taking several steps to address that. First and foremost, is improving the way we run the Company by ensuring each business has not only a fit-for-purpose business model but also the right management structure and level of market feasibility. In terms of organization structure, on the one hand, our consumer is facing ecosystem verticals, FinTech, media, and retail are already relatively clearly defined. On the other hand, we have extensive infrastructure assets that remain fully embedded within MTS. Therefore -- and in consultation with the Board of Directors, the MTS management has initiated a restructuring process whereby we'll propose to the Board the separation of our tower and certain digital infrastructure assets into this thing wholly owned legal entities. We are targeting legal separation of both power and network assets to be completed by early 2022 subject to board approval and subsequent approval at the general meeting of shareholders. We firmly believe this change will have further improved business execution by delegating decision-making authority and enhancing management accountability. Moreover, formalizing cross-business relationships may help us improve how we measure ecosystems synergies, and benchmark inter-group services against the market, plus improving future efficiency by sharpening the focus of each leadership team. Over the longer term, these steps also have the potential to unlock significant value for shareholders. Ultimately, we see that multiple MTS businesses are reaching sufficient scale through directly answer the capital markets. Due to MTS Bank's growth trajectory and successful track record, FinTech could be one of the first candidates for consideration. A few more words on infrastructure, on the passive side, we believe the market has been getting closer to parity in terms of the scale of coverage. And there are signaled, it may be moved towards consolidation. In this environment, we think it makes sense to be opportunistic regarding our tower assets. On the active side, the proposed infrastructure separation would combine together our fixed-line data center and cloud assets into a 100% wholly-owned entity, MTS Web Services. We think this approach has multiple potential benefits. First, in the context of the future development of Edge cloud solutions as standalone business that combined extensive network infrastructure with advanced cloud data has capabilities could occupy an exceptionally advantages market position. Second, speeding up our time-to-market in development -- in developing Cloud Business Solutions. Third, incentivizing management to pursue external growth opportunities. Fourth, driving cost optimization for more efficient infrastructure management. And fifth, creating a pure plays standalone provider of infrastructure services with long-term optionality for value crystallization. If approved by our board and shareholders, we would target MWS to begin business operations in early 2022. At the same time, the company's picture on licenses and overall traditional telecom business, including subscriber and customer relationships, will remain with MTS. Ultimately, we believe MTS web services can become Russia's leading private provider of next-generation cloud and network solutions. I also want to be clear that at this stage, the seasoned management proposal. All of these plans are subject to Board of Shareholder approval. Moreover, from the customer's point of view, nothing would change. MTS will remain the more -- the core client-facing service provider. And looking ahead, our digital ecosystem remains our key strategic focus as we seek to drive overall customer lifetime value. And on that note, let me hand it to Ugryumova for an ecosystem update.

[Olga Ziborova:]

Thank you, Slava. I'm happy to report in Q2, we saw solid performance across the ecosystem. Let me share just a few of the highlights. Non-core revenue grew 27% year-over-year, reaching around 25% on consolidated group revenue. Ecosystem clients increased by 14% quarter-on-quarter, reaching 7.4 million. It declines ecosystem clients as customers, who are actively and deliberately using a least MTS products or . In addition, EBITDA products per customer simply increase in both Q1 and Q2 reaching 1.4 as the end opposite reporting period. The number of MTS Premium subscribers has doubled during the second quarter. Following a shift to an UP-based model this year. I will also be seeing healthy dynamics in MTS equitable loyalty rewards program. Most importantly, ecosystem engagement each indicates it's focused on multifamily video. For example, users of both MTS Premium and MTS three times higher NPS and 18 times slower tune those long ecosystem clients. In major pure ship continued to climb. These 46 million users up nearly three times a year-over-year, and to the good production in contempt result to additional store containers, a top 15 sports foremost towards shows on the platform associates list, or Saddam, our SME advertising platform, MTS Marketer, is experiencing robust sustained growth. Its campaign revenue increase five times year-over-year in Q2 and externally, subscription-based pilot project, to give the usual quarter in few retail businesses, as well today in with Visium Shammo H. With that, let me pass it to Inessa for Silicom and B2B updates.

[Inessa Galaktionova:]

Thank you, Polina. In mobile, service revenue in Russia grew 5.3% year-over-year in Q2, reflecting continued growth in data consumption, as well as overall tariff dynamics. Moreover, our subscriber base continues to increasing the regional level last seen in 2019. At the same time, international roaming revenue remained more than 60% below Q2 2019. Given the new virus and ongoing travel restrictions, we expect full-year revenue from international roaming to remain well below the roughly 10 billion robust released in 2019. In 6 lines, we saw very robust growth in B2C telephony of around 12%, although roughly 1/3 of the Delta came from an inorganic impact due to the consolidation of acquired wireline businesses. Excluding that factor, decline B2C revenue as telephony grew 8.4% year-over-year organically. Overall, the fixed-line subscriber base ticked up to 4 million, and aggregate revenue was up just 4% year-over-year. Turning to B2B. Our cloud and digital solutions businesses are firing on all cylinders with revenue growing nearly 50% year-over-year in Q2. High-yield likewise is performing well. Subscriber’s devices increased more than a quarter versus the year-ago period. As Olga mentioned, marketing as a service revenue was up an exceptional five times year-over-year. Additionally, B2G, fixed-line revenue for social important facilities was up 20% year-over-year. And we're continuing to make good progress in commercial private IoT. I also wanted to highlight that in Q2 we closed 100% of Multiregional TransitTelecom. MTT authorities Russia's largest platform for telecom office, which integrated into customer software products and services. This is a key strategic acquisition that greatly enhanced our exposure to high growth .

[Polina Ugryumova:]

At the global level, Unified Communications is a major growth segment for the telecom industry. And MTS is now the market leader in that space in Russia and will position to capture incremental revenue going forward. So with that, let me hand it to Ilya (ph) for a finances update.

[Ilya Filatov:]

Thank you, Polina (ph). I'm here to report that in Q2 investments continued overall, delivered a very strong performance, successfully paying forward, our forward momentum from Q1. In terms of results for the first half of the year, and there's bump net worth reach 3.4 billion Operating income deferred in the form of travel increased by 50% or rowes reached over 80%. I'd also like to highlight 3% developments. Inlay in MTS Bank issue, in debit bonds of 5 billion? And the book was more for them for time?. Second, we have now reached a level 3 digital channel accounts for the majority of the volume of desk funnel loans and copies. And third, in July, the investing of sectarian, leading blockchain trade finance platform and is will explain with national service, we can offer to B2B clients. In particular, 33A will fluctuate and supply chain finance. Turning to our growth drive, the core retail loan portfolio grew nearly 60% year-over-year. And in Q2, both contribute to the year-over-year increase in net interest income for the 6 months of the year. Moreover, net fee and commission income in the first half of the year more than doubled year-over-year reached $7 billion contributed 40% of overall operating income . Cost of risk for the full decreased significantly year-over-year from 13% to 5% to 7.3% in Q2. What a little ultra-flip, a deep base of portfolio growth with the availability of these existing grown being significantly below them.? A little region. When nuance?. In addition, past-due accounts remain at the comfortable level and the shape of the sales decline to page 7.5%. A favorable supports to the bank gross net strategy. In the second quarter and additional capital inception for your billion will be carried out. In capital equity ratio increased and maintained at home, specifically, Maryland, involved a royalty? Equipment. Overall, we are successfully achieving an increase in growth rates in 2021. As the brand has repeated gave up seem income increased to the level of its material contribution to the profit -- profitability of the group as a whole.

[Slava Nikolaev:]

Supporting the Stewart of transparency, we also wanted to provide a bit more color on our media and retail businesses. Looking ahead, our core focus is gearing those for long-term profitability. In retail, it's mostly an OpEx exercise, while in media, it's also about being careful of calibrating comms and investment, which we are keeping well under control as you could have seen on Slide 7 when we've shown it. In media, we are successfully gaining traction following the launch of our event Q1 platform in April and Q2 3 months MTT viewers we're up more than 11% quarter-over-quarter. Revenue and OIBDA likewise saw healthy growth well into double-digits year-over-year. In retail, we saw very robust sales of handsets and accessories in the reporting period. This in part reflected a low base from the year-ago quarter when many of our stores were closed in line with public health guidelines, mid the pandemic. We're also seeing some pressure due to the shifting brand mix in device sales. Consumers are increasingly shifting towards more premium brands, which have slimmer gross margins. In Q2, retail EBITDA after lease expenses and cost to obtain contracts amounted to minus 1.4 billion Rubles, equivalent to an annual run rate of negative 5.5 billion Rubles. We believe there is room for improvement there. And we are targeting to bring that to a break-even level by year-end 2022. We recently appointed a new leader Fahrid (ph) from to help us sharpen our focus on retail and efficiency. Now, let me hand it to Andrey for a financial update.

[Andrey Kamensky:]

Thank, Slava. Group net profit for the quarter increased 46.5% year-over-year to 17.2 billion Rubles. Net income growth was supported by higher profitability at MTS Bank, core operating performance, as well as lower financing costs. In addition, there was a significant positive impact from the fixed and derivatives operations, reflecting relative currency dynamics in Q2 2021 versus the Q2 previous year. Now a few words on CapEx and cash. Our CapEx run rate remains on target with the guidance we provided earlier in the year, free cash flow in the first half of the year amounted to 16.8 billion Rubles. The decline versus the first half of the previous year reflects multiple factors, including a significant negative year-over-year impact from acquisitions in 2021 and proceeds from the sales of associates in 2020. Combined, those two factors are up to a delta of around negative 7 billion rubles. In addition, historically, our CapEx is skewed towards the second half of the year. While in 2021, we have budgeted investments, be spread more evenly between quarters. Taking these factors into account, we expect underlying cash generation to remain at a healthy level for the full year. Turning to the balance sheet, our gross weighted average interest rates slightly increased to 6.6%, which reflects the impact of the key rate hikes on our floating debt instruments. At the same time, we feel very comfortable in terms of our overall debt position in terms of leverage and repayment schedule. Now, I will hand it back to Slava for his closing comments.

[Slava Nikolaev:]

Thank you, Andrey. I will view it briefly short. Given those solid results, I'm happy to report that we are upgrading our 2021 outlook to offer single-digit growth in revenue and more than 5% growth in adjusted OIBDA. While reaffirming our CapEx guidance of around 100 or 200 billion Rubles. Finally, on shareholder returns, last week, we completed full-year 2020 dividend payments. And in July, the Board recommended a first-half 2021 semi-annual dividend combined the expected total regular dividend payout in the calendar year 2021 comes to 37.06 Rubles per ordinary share. We feel that this is a reflection of our robust performance, as well as our confidence in our outlook going forward. So with that, let me hand it back to Polina for the Q&A.

[Polina Ugryumova:]

Thank you, Slava. And thank you to the rest of the speakers. As we take questions, please be aware, there might a slight delay in translation. Operator, with this, let's open up the line for questions.

[Operator:]

Thank you. . We'll take our first question from Ivan Kim with Xtellus Capital.

[Ivan Kim:]

Good afternoon. Two questions from me, please. Sorry, if I missed that. But can you elaborate on the margin pressuring retail? You mentioned the shift in the mix, which is an understandable factor, but there should be more than that since the margin was just 1.6% in the quarter. So just wondering whether it will continue or is more of a one-off thing. And then secondly, can you please elaborate on what drove MTS ecosystem clients so much quarter-and-quarter increments.

[Slava Nikolaev:]

On the first question -- well, that is a great question. I would've thought that is more than that, but majorly, it is really a change of mix of devices. If you ask whether it's going to change or what's going to keep the pressure on the margin with our outlook and target that we have mentioned towards our retail. I believe that we are going to be able to change that mix and to improve our margins in retail to a positive area, even in old OIBDA. Yeah, on the -- sorry, on the second question about , I'll take it, too. It's actually a mix of different factors. One of them is very good uptake of our premium service. The other one is increased activity in CRM and where we allow our clients to get more for less. And at the same time, we see better connections to the new tariff, which is also on this by multi-product solution. But neither of these is a single solution. It's a combination of factors.

[Ivan Kim:]

All right. Thank you.

[Operator:]

All right. We'll take our next question from Hnerik Herbst with Morgan Stanley.

[Hnerik Herbst:]

Yes. Thanks very much. I had two pretty quick questions. The first one was just in terms of your separation of infrastructure. Did I hear it correct that it was one tier Company in one info Co with a data center or was it one with all your telecommunication for structure basically and the other thing was did you say that you -- are you just setting it up in a separate legal entity or are you actually looking to get term investors or looking at opportunities to IPO of something like that? And then the second question is around CapEx, which is up a bit, obviously, this year versus the sort of run-rate previous years. Maybe it's too early, but should we think about 2021 CapEx as sort of a and a return to more normal levels from 2022? Thanks so much.

[Slava Nikolaev:]

Okay. I'll take the first question and then I will hand it over to Andre on infrastructure separation. Once again, it's two companies. One Company is power is only. The second Company is infrastructure plus data centers. These are separate legal entities -- two separate legal entities. And we'll see how it goes. From now the main, the main idea is to focus to have more opportunities on the tower side because we see this as a major trend. And on the infrastructure Company, we see the main idea is to focus its development from now -- now our kind of telecom and technical block and is considered to be in a very traditional structure. And we see that this could really transform into the most modern edge cloud solutions. And we have all these -- all the parts that when put together, could bring us to a very good market position on that. So on that, again, we will probably be looking for different opportunities, but so far the idea is to create this Company.

[Andrey Kamensky:]

I will take the last question on CapEx. I will just reconfirm what we said earlier this year that you're absolutely right. We see and we consider this CapEx this year as certain peak as a temporary ramp up as we invest in our future, not in rate. So we presume that we will come back to more or less comparable levels that we've seen before.

[Hnerik Herbst:]

Brilliant. Thank you very much.

[Operator:]

Our next question comes from from Goldman Sachs.

[Slava Degtyarev:]

Yes. Thanks so much for the presentation. A couple of questions. So firstly, what would be your current thinking over the long-term leverage levels for MTS? Are you aiming to stay at broadly current net debt to EBITDA levels or looking for a certain move here? And secondly, probably also follow-up on with regard to the available utilization. What would be your long-term consideration is you currently have in mind with regards to them maximization on the portfolio and separation, is it that you can see that long-term potential partner? You can see the partial sale of the business, so you may consider 100% divestment or the sale of the controlling stake, or it's -- you're optimistic, you're currently opportunistic across all of the options? Thank you.

[Slava Nikolaev:]

Yes. I will take the first question in terms of leverage levels. As we said before, we see 2 as quite a comfortable ratio of net debt to OIBDA. Currently, stands at a level of 1.6, but the covenants that we have are much higher than the levels that I mentioned. So we are in a pretty comfortable situation at the moment. On the second question is, I would say too generalist because it very much depends on the Company and on the general levels. But actually, we're looking at different opportunities now and we don't want to tie ourselves to any of them. But of course, what I want to say is that the safety of our main business is one of the things that we are considering most important here.

[Slava Degtyarev:]

Okay. Thank you very much.

[Operator:]

Our next question comes from Alexander Vengranovich with Renaissance Capital.

[Alexander Vengranovich:]

Yes. Good afternoon. A couple of questions from my side. First, on the re-launch of the OGT video service last quarter, are you satisfied with the general lack of visit results in the launch? It seemed that the overall increase of users who are was probably not that impressive, and the growth was really comparable with the previous quarters. I'm just wondering whether you see that satisfactory, and whether your plan may be to increase the spending on the contents to accelerate it. Then on related questions here. You showed the profitability of the media services. Can you please remind us on the accounting of content standing to our Media services segment, whether you capitalize it and depreciate over time? And if that's the case, can you please roughly share with us kind of the share of the CapEx in the first half of '21, which was maybe related to the Media services segments. So that's probably from my side.

[Slava Nikolaev:]

Let's start with the first question. You know, we're never satisfied with the results. So I think we can do better, but we have to, we have to understand one thing. Q1, on the one end, is deliberately a launch under a new brand. And we think it's a very right thing going forward. But at the same time, can take time to get the brand to be recognized by the clients. We see that we have a very good reception of our originals, which I think we took the right way of doing that. And I expect this to grow faster than I was shown in the second quarter. On the second question -- and I didn't maybe you would probably help me to somehow understand it because we capitalize our content production and we've shown the amount of this product on the second seven slides of this presentation and this is it. So maybe if you want to some more details, you could --

[Alexander Vengranovich:]

Yes, I found it. Sorry for that. I found the CapEx number --

[Slava Nikolaev:]

Okay. Great.

[Alexander Vengranovich:]

-- On the 7th slide. So that's okay. So I just wanted to confirm that this capitalized. Okay. Good. And then maybe like a sort of follow-up question. When do we look at the number of their service SEP clients in the second quarter, I think there was a minor quarter-over-quarter reduction of the active users. So I'm just wondering whether it has any grounds behind it or you feel that there were a number of the users is close to saturation and it's probably the maximum level you're expecting it to be overall in the future.

[Slava Nikolaev:]

I can tell you, you got me for a second, but where did you find there --

[Alexander Vengranovich:]

Yeah. So when I look at I think in the first quarter, the number of the My MTS app, monthly active users was roughly around 24.6 million customers, if I am correct, and in this quarter, it was roughly around 24.5 million. So I'm just wondering whether it hasn't grown behind it. If I'm correct.

[Slava Nikolaev:]

It's generally flat. But frankly speaking, the most important part here is that when we've been discussing my MTS numbers several quarters ago and even years, we said that we were expecting it to plateau at some point. I'm not sure that we got to that point yet, but we see that the majority of people, who use smartphones, already have my MTS and you have to understand that if people use several sim cards, they usually use my MTS on one of their devices. So in these terms, this could be multiply. We have multiple users. We don't count them as multi my MTS users. So on these terms, we're pretty happy with our current The number of users, but I see that with the development of the content of this application, we are going to see additional growth. For example, we have two teams working on the Fintech part of My MTS and we expect more clients for this -- from this site in the following quarters, too. So it's going to grow further, but I don't see anything ominous in those figures. And I see that our subscribers are very happy with the My MTS which it's usually showing the MTS.

[Alexander Vengranovich:]

Okay, good. Based on what you say, I'm believing that in a way that this roughly 25 million My MTS users probably represent the majority where are close to 100% of the smartphone users on MTS through unique smartphone users on the MTS network, right?

[Slava Nikolaev:]

That's not what I said. Sorry.

[Alexander Vengranovich:]

Okay. Thank you.

[Operator:]

Our next question comes from Andre Cabesek with UBS.

[Andre Cabesek:]

Hi, thank you for the presentation. I got two questions and two follow-ups, please. So the first question on the bank. First of all, you mentioned the last point that there may be a need for some kind of equity injection, essentially next year with the doing so much better now, is that still potential consideration? And then also, is there any space you think for potentially reversing some of the provisions that you made last year at the bank? The second question would be, you mentioned a couple of minutes ago that in terms of margin improvement that could be done via ongoing retail optimization. But I believe in the previous quarter, your comments around retail was that you don't actually see on the short-term so much space for doing that too if you could please clarify where we are and only the follow-ups for later.

[Slava Nikolaev:]

Yes. I will take the first question because as a shareholder of the bank, we are quite comfortable and happy with the level of growth that we see at the bank and the level of risk that means at the very comfortable levels. So as a shareholder, we're ready to support you. We already did this in the first half of the year and we are ready to actually support the bank and its growth further. So that will be our position. Well, and also just as a follow-up of this first

[Andrey Kamensky:]

Question in terms of the reversal of the provisions. Actually, we see very positive dynamics in terms of provisions, but the provisions that it needs, actually, don't estimate any substantial reversal of them, provided the current posted over bank and the regulations investments.

[Slava Nikolaev:]

Again, on retail, we see that margin improvement couldn't be reached even on the current amount of source. We are planning to optimize some of the numbers of stores, but they are positioning and product fix within the stores and services within the services, including, of course, the northern little-known on the hardware provision. But generally, as we've put this before, we are -- they are on a very competitive market. And we were always ready and we were still ready, to go down. We don't but we don't see enough movement from other sites. We have -- I can tell you, I would be very happy to move in this direction, but I don't see any signs of that. And we -- so far, we decided to go into the different directions. But frankly, I'm very confident that we can reach the goals that I have already mentioned regarding retail.

[Andre Cabesek:]

Thank you. And the follow-ups that I had for the previous questions raised on with respect to the leverage, you keep mentioning sometimes it seems, and correct me if I'm wrong, that it is becoming more of a target than a comfort level?

[Slava Nikolaev:]

Not actually. The question was actually, what kind of a comfortable level that we see and that was the answer for that. We don't see it as a target, no. We can see the current levels.

[Andre Cabesek:]

Okay. Thank you. And the second follow-up, if I may just on the infrastructure. I know you said you don't want to close avenues or talk about this in too much detail. But if you had all options open on the table, talking specifically about the towers, I guess because I think you made it clear that the FinTech and the infrastructure are businesses that you see more of potentially as IPO and value on the targets. But in terms of the towers, if you could create a list of preferences between completely selling them, on the one end, on the opposite end sharing both active and positive elements of the towers with one of your competitors, for example, and all of them are going through similar reviews. What would be the preference of the management today?

[Slava Nikolaev:]

You No. The pointer is that we started an internal discussion because we are taking the opportunistic position here. We are looking at different options, there are many of them. And I wouldn't say that we have a list of preferences, I don't know. It would be very theoretical and could be perceived wrong. I wouldn't be able to know -- to answer this question precisely for least of preferences.

[Andre Cabesek:]

All right. Thank you very much.

[Operator:]

As a reminder everyone . And we'll take a follow-up question from Ivan Kim with Xtellus Capital.

[Ivan Kim:]

Thank you for the opportunity. Just two more questions on MTT acquisition. Can you maybe give us some color on what sort of growth you expect from MTT and probably generally from your virtual PBX business. That's the first question. The second question -- sorry to dwell on leverage -- but so you're pretty out for ass leverage is now two times including the dividend payments that you're going to make this year. Your leverage, including leases 2.5 times. So I am just wondering, do you perceive that as an issue at all, or you will be kind of comfortable moving to two times based on your leverage definition, which is 1.6 currently. Thank you.

[Inessa Galaktionova:]

Okay. Ivan, I will take the first question on MTT. And then, we're closing that deal. So definitely, we have actually strategy once part of the synergies was based on the basic products, virtual , which is actually are growing organically, and we do expect some single or in a good period on a good foretasted would be double-digit figures. But the main extra strategy behind buying this asset was to have very big growth on Silicom API and here we'll do expect GDP growth. It will depend on the call, which will be in introducing new products on the market. And using there will establish B2B channels to bring that product on the market and to our clients. And still, we actually expect a very big gross. So we'll definitely keep informed in our next reporting. Next reporting, yes.

[Slava Nikolaev:]

Yes. Ivan, and then your second question, of course. Just to clarify, I mentioned where the current definition of leverage, which is 1.6. So in these terms, I've said that the comfort level is around 2.

[Ivan Kim:]

Thank you.

[Operator:]

All right. We'll take the next follow-up from Alexander Vengranovich with Renaissance Capital.

[Alexander Vengranovich:]

Yes, thanks. So in your presentation, you mentioned that the ecosystem clients and those clients we usually use multiple services have the multiple on lower churn against the average client of MTS. So I'm just wondering how big maybe if you can do in providing caller, how big is the overall should reduction year-over-year in the second quarter. And if you can, can you please quantify any financial impact, for example, on selling expenses, which you've already seen in the second quarter, for example, from the churn reduction year-over-year. And then in the matter of for reduction of the new sim cards sold from bliss on optimization on the stuff, anything which you can share how this churn reduction from the existing clients and to help you to save on their selling expenses. That will be helpful. Thank you.

[Slava Nikolaev:]

We're not calculating it through -- the all the time because it's a very -- I think I've tried to explain it when we reported results of the first quarter, that it is a very tricky figure because when you connect them to another service, you'll see that the term is going down and you can attribute it to a new service or to a telecom increase. But generally, what I wanted to say is that, first of all, the major impact could be seen in telecom growth results, which we will show separately to you. And you can see that it's now traditionally better than many of our competitors. But there is no exact figure. We calculate it. I think it's in the first quarter will calculate it that more than 50% of Telecom growth was attributed to multiproduct and LCOS system clients’ effect. So this is generally it, but again, this is a very, very big figure. I wouldn't put a pin on it.

[Alexander Vengranovich:]

Okay. I got it.

[Operator:]

And we will take our next question from Jeffgimi (ph) with the Bank of America.

[Jeffgimi:]

Hi, good evening. And thank you for the presentation and opportunity to ask a question. I have just one. Could you please provide some updates on the regulation? First, on 5G potential spectrum allocation and rollout model if any update with consortium model on a standalone basis. And the second one is also on 4G spectrum licenses, renewals, and Russia that are expiring and potential requirements, it could be linked to it like rural coverage or federal rules coverage. If you could please provide any update on the discussions with regulators? Thank you.

[Slava Nikolaev:]

Okay. On 5G, nothing major really happened during the last three months and except for the news that you probably heard about localization, but we've accepted -- expected them. And this terms on consortium mobile, a little bit -- let me put it this way. I am optimistic, that said that I believe that this probably could be sold only with mutual -- with the help of mutual efforts. And I'm optimistic that this is being sold in the right way. In the second part, we'll see how it officially looked forward. But I think there will be some links, yes, and it's -- I think it's already public. I don't see this as major news. But again, according to the way being discussed, I don't think it would put any major pressure on our CapEx or Capital. It's reasonable. Its 10 years license agreement, so it's looked very .

[Jeffgimi:]

Thank you. So any potential KPIs and spending from your site will build potentially spread or by 23rd not immediately in the two prior years.

[Slava Nikolaev:]

And then in addition to that, I can tell you that the government actually expect us, operators, to cooperate on this -- in this matter. And they are really looking, I see if they put significant efforts to help us with that, including some negotiations with the energy companies and local governments. So it seems that this time, it might be a positive thing. And yes, it will be spread in the next 10 years.

[Jeffgimi:]

Thanks so much.

[Operator:]

And there are no further questions. I'd like to turn the call back to Polina for the closing remarks.

[Polina Ugryumova:]

Thank you. We have one question coming from the journalists, which is about our plans related to potentially additional buybacks. If you have any plans to launch a new buyback before the end of this year.

[Slava Nikolaev:]

So I'll answer. For this year, we actually finalize the buyback program that we run. And we don't have any plans to have another program until the end of this year.

[Polina Ugryumova:]

Operator, do we have any other questions online?

[Operator:]

No, there are no further questions at this time.

[Polina Ugryumova:]

Okay. Thank you very much, ladies and gentlemen, for listening to this call. As usual, we will make a replay of this call available on our IR webpage in the near future. If you have any further questions, please do not hesitate to reach out to MTS Investor Relations at any time. Our inboxes and phone lines are open. In the meantime, we appreciate your interest in MTS and wish everyone a pleasant day. Thank you.

[Operator:]

And that concludes today's presentation. Thank you for your participation. You may now disconnect.