Mobile TeleSystems Public Joint Stock Company
Q1 2019 Earnings Call Transcript

Published: 23 May 2019

[Operator:]

Ladies and gentlemen, welcome to Mobile TeleSystems First Quarter 2019 Financial Operating Results Announcement Conference Call. I now hand over to your host, Polina Ugryumova, IR Director. Madam, please go ahead.

[Polina Ugryumova:]

Welcome, everybody, to today's events to discuss MTS' first quarter 2019 financial and operations 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 imply certain risks, a 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. Copies of the presentations and materials used and referenced in this conference call are available on our company website. Now, I have the pleasure of presenting MTS President and Chief Executive Officer, Mr. Alexey Kornya.

[Alexey Kornya:]

Ladies and gentlemen, thank you for joining us. With me today are Slava Nikolaev, Vice President of Marketing; Inessa Galaktionova, Vice President of Sales and Customer Service; Andrey Kamensky, Vice President of Finance, Investments and Money; and Kirill Dmitriev, Vice President for Digital Solutions for Home. As usual, I will begin with the group highlights. I also want to give you a short update on our digital transformation. Slava, Inessa, and Andrey will then walk you through our business performance. And finally, I will wrap up before we take questions. I'm happy to tell you that we are off to a strong start in 2019, delivering another set of solid results in first quarter. In Russia, we continued to see rational market landscape, growing data consumption as well as positive but somewhat moderating dynamics in retail sales. Year-over-year group revenue increased 9.4% to RUB 118 billion. This was primarily driven by our Russian operations despite some regulatory and tax headwinds. We also saw exceptional growth in Ukraine. Of course, we continue to observe major topline impact from the consolidation of MTS Bank in third quarter last year. Excluding the impact of the bank, group revenue increased by a solid 4.8% in the first quarter on a like-for-like basis. Group OIBDA came in at RUB 55.3 billion for the quarter, up 6.0% from the previous year. Excluding the impact of MTS Bank, OIBDA grew 5.7% on a comparable basis. Now, let me give you a few brief highlights on the progress we are making on our ongoing transformation. We continue to move forward on developing new business direction and building out an integrated digital ecosystem. [indiscernible] were captured in incremental revenue by cross-selling financial products and services across our subscriber base. In first quarter, the loan portfolio of MTS Bank grew nearly 30% year-over-year, while maintaining a solid overall level of credit risk. In entertainment, we launched the new streaming platform in March, and we continue to enhance the user experience with attractive commercial offers. In cloud-based services, over 600 clients are already being served by the cloud MTS platform. And we have strengthened our position in the significant market as a significant market player via the acquisitions of Avantage and IT-Grad. In big data, we are building a world-class in-house data science team to realize powerful benefits from analytics. For example, we are enhancing the productivity of our retail workforce by carefully examining foot traffic dynamics. In banking, big data is enabling us to better understand these operated profiles to develop personalized offers. And we have launched our own targeted marketing service for SME called MTS Marketolog. In total, around 20% of group revenue is already today being generated by products and services that go beyond traditional connectivity. And on average, these segments are seeing double-digit growth. While we are still in the relatively early stage of our transformation, we are beginning to see real and substantial results. Now I will turn it over to Slava, who will go into greater detail on our country markets.

[Slava Nikolaev:]

Thank you, Alexey. In Q1, we saw strong topline performance in Russia despite the negative impact from the cancellation of internal roaming and a 2% VAT increase. Revenue in Q1 grew 7.9% year-over-year to RUB 109.1 billion, driven by mobile services, handset sales and the consolidation of MTS Bank. In services, we continue to see a stable benign market environment. In certain region, some players are making limited aggressive pricing moves at the tactical level, but we regard this as a normal course of business and an indicator of healthy competitive dynamics. Overall, the rational conditions established over the past couple of years continue. Moreover, we see emerging opportunities to increase ARPU as well as indicators that the industry as a whole is ready for price adjustments. Altogether, we feel quite comfortable in the current market environment, which provides a firm foundation for further development. Going forward, we expect our revenue growth to accelerate as we get into the second half of the year, provided there are no new regulatory pressures. In the midterm, we expect stable low single-digit services growth to continue. In fixed line, we had a slight 0.1 uptick in revenue year-over-year against the backdrop of continued long-term weakness in the fixed telephony segment. At the same time, we saw an increased adoption of broadband and pay-TV services. By the end of Q1, we successfully grew our share in the consumer market in Moscow to 39% in broadband and 43.6% in pay-TV. The number of households using GPON services grew to almost 2 million. Revenue from our e-ticketing and cybersports segments increased 32.1% year-over-year. And our integration business saw a topline growth of 65.4%. In Ukraine, we saw double-digit revenue growth of 19% year-over-year on the back of rapidly rising data consumption. OIBDA, likewise, was up an impressive 19.2%. We continue to roll our 4G network as well as fine tune our 3G footprint. Going forward, we expect the current double-digit growth to normalize in the low teens, given the stable competitive environment and rising data consumption. In Armenia, we saw declining revenue and OIBDA. This reflects a tough competitive environment as well as the recent cuts to mobile termination fees. And in Belarus, which is not consolidated, we enjoyed solid double-digit growth in revenue and OIBDA. Now, I will turn the call over to Inessa, who will walk us through our retail business.

[Inessa Galaktionova:]

Thank you, Slava. We continued to see a number of positive trends, including a sustainable slowdown in gross adds and declining churn rates across the industry. In first quarter, total handsets and accessories grew 12.9% year-over-year driven by the continued strong demand for smartphones with retail smartphones sales up 26%. This was partially offset by sluggish sales of accessories and declining sales of pushbutton phone. According to our research, MTS out-crossed the overall Russian handset market which we estimate as having grown 11% in first quarter year-over-year. Upgrade incentives were a key driver. In particular, our cash back program remains highly popular with customers. We observed several notable trends in the handsets market in first quarter. Sales of mid and high end smartphones remained strong, with the market growing both in terms of units sold as well as the average price which we estimate to have reached RUB 16,000. We also saw growing demand for low-end smartphone priced under RUB 10,000 as users switched from feature phones. Going forward we expect the Russian handset market to materially slow down throughout the remainder of 2019. This is driven by two factors

[Andrey Kamensky:]

Thank you, Inessa. For the first quarter, we reported group OIBDA of RUB 55.3 billion growing 6% year-on-year. You can see the walk on the slide. We saw positive impact from core services growth in both Russia and Ukraine, which was partially offset by the consolidation of internal roaming in Russia. A significant portion of the positive OpEx impact in Russia was due to one-off effect from a real estate transaction, which contributed around half of the nominal group OIBDA growth. Group net profit came in at RUB 17.6 billion for the quarter up 14.1% year-over-year. Net profit margin stood at 14.9%. Looking at the factor analysis, net earnings growth was driven by increase in OIBDA as well as interest income. Meanwhile, we also saw higher financing costs owing to our increased gross debt position. Turning to CapEx. We continued to invest in improving network quality. In the first three months of the year CapEx totaled RUB 16.6 billion. Overall, the group had a CapEx to revenue ratio of 14.1%, with a relatively higher spending in Ukraine given the ongoing 4G rollout. We continue to expect CapEx of up to RUB 90 billion in 2019 given seasonality and additional investments required to comply with year-ago regulations. Free cash flow for the quarter was negative RUB 31.4 billion driven by the SEC/DOJ payment. Excluding the payment, positive free cash flow would have totaled RUB 24.2 billion up from RUB 13.9 billion in the year-ago quarter which had compared to a more intense M&A activity. We continue to make smart bets when we see the right opportunities. In first quarter we announced the acquisition of the cloud assets of IT-Grad one of Russia's largest IAS providers. This strategic bid strengthens our footprint in the cloud services space and positions us to capture future growth. Turning to MTS Bank, we continue to see solid performance in the core banking business. In the first quarter net interest income rose 18.7% year-over-year to RUB 2.5 billion. Total outstanding loans increased to 39.9% -- 37.9% year-over-year to RUB 85.8 billion with cost of risk coming in just under 4%. Personal loan issuance was up 2.3 year-over-year and credit card issuance was up 3.4 times. We are making good progress on realizing synergies and we can see this reflected in the figures. As Alexey mentioned, we are leveraging big data analytics to gain better line of sight into our vast pool of subscribers and customers. That enables us to better understand the risk profile and market personalized offer. As a result in 2018, we saw fourfold growth in cross-selling of goods and services year-over-year. This is a great illustration of the benefits of blending a bank with telcoms and we continue to see opportunities to drive additional synergies going forward. In January, MTS issued RUB 10 billion in exchange-traded bonds. And the total debt increased by the end of the quarter to RUB 387.4 billion, with a slight quarter-on-quarter increase in the weighted average interest rate to 8.1%. Our balance sheet remains strong with a net debt to last 12 months adjusted OIBDA ratio of 1.5x excluding the impact of new IFRS standards. Finally, earlier this month, we completed the share buybacks that began last July. Over the past year, we repurchased 5.68% of our share capital through our wholly owned subsidiary Bastion. In total, we spent RUB 29.8 billion under the program, split roughly equally between 2018 and 2019. Now, I will turn it back to Alexey for his closing remarks.

[Alexey Kornya:]

I'm very much encouraged by our strong operational performance in first quarter, even as we faced regulatory headwinds. Given these results, we feel comfortable raising our full year OIBDA guidance to largely flat year-over-year, up from our previous outlook of slightly negative. Compared to the first half of the year, we expect OIBDA growth will comparatively slow down in the second half due to the high basis yet from second half 2018, as well as one-off effect in the first quarter this year. We reaffirm our revenue guidance of over 3% growth year-over-year, keeping in mind in the exceptional surge in retail sales last year. Of course, uncertainties related to the competitive landscape, the regulatory environment and other factors could materially impact the group's performance. As you know, we continue to return the majority of our free cash flows to shareholders via dividends. In first half -- in the first quarter, the Board approved a new policy, increasing our annual dividend target over the next three years to at least RUB 28 per ordinary share or RUB 56 per ADR. We remain committed to generating significant long-term value for our global pool of investors and we hope this step reaffirms how serious would take that commitment. To sum up, we have a clear vision and strategy. We are off to a strong start in 2019 and we are laser focused on continuing to deliver going forward. Thank you. And we will now take your questions.

[Polina Ugryumova:]

Operator, we are now ready to take questions. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, we will now start our Q&A session. [Operator Instructions] Our first question is from HSBC. Please go ahead.

[Herve Drouet:]

Yes, good afternoon. This is Herve Drouet from HSBC. Thank you very much for the presentation. A couple of questions on my side. Firstly, the real estate I wanted just to check the amount of the one-off. Am I understanding, well it seems the region of the 1.2 billion. When you say half of the growth of the group EBITDA you are referring in absolute term or -- so I just wanted to check in terms of the size of the one-off in real estate? Second question is regarding Ukraine and 5G in Ukraine. I mean, I don't know if you can give us an update. And finally as well as with the ongoing current listing discussion that you have, just wanted to see as well, if there is any update you can give us as well as in terms of timing. Thank you.

[Alexey Kornya:]

Can we just specify the second question? It is about 5G and the Ukraine or 5G in Ukraine?

[Herve Drouet:]

In terms of the plan of 5G on availability of frequencies, but also licensing. It looks like there's been some ongoing discussions in terms of a degree which has been signed I believe in Ukraine. So I just wanted to get your view on what is expectation for 5G in Ukraine in term of the delivery of licensing and in which frequencies and how available those frequency will be?

[Alexey Kornya:]

Okay. Let me take second and the third and then Andrey will take the first one. As far as the 5G in Ukraine is concerned, there are no specific announcements made by the regulator, so the plans are not fully communicated. We keep on the outlook and discussions, but there is no specific date set and no specific visibility at this point of time. As far as the capital strategy and leasing topic, we just confirm our commitment to return to community by the end of the summer with the -- our strategy in this respect. So far we continue our dialogues with shareholders.

[Andrey Kamensky:]

With regard to your first question, we're not disclosing the exact amount. We are saying that the effect, the one-off effect of this real estate transaction is around half of the nominal group OIBDA growth. So that's the indication that we are giving. Thank you.

[Herve Drouet:]

All right. Thank you.

[Operator:]

Our next question is from Dalibor Vavruska from Citi. Please go ahead.

[Dalibor Vavruska:]

Hello. Good afternoon. Can you hear me? Hello?

[Polina Ugryumova:]

Yes. We can hear.

[Dalibor Vavruska:]

Yes, thank you. I just wanted to ask about this 5G in Russia. If you can give us some updates, number one. The second question is around this case Huawei now with the potential restrictions on the handsets and the equipment. I'm just wondering whether you envisage any impact of that -- of these different scenarios that may play out and how you are planning for that. Thank you.

[Alexey Kornya:]

Okay, Dalibor, thank you for your questions. By the way, no one is congratulating us with a good set of results. It wasn't that good enough, I'm just wondering. As far as the 5G in Russia, we right now are in discussion with the regulator. I think the key challenge or the key topic is the availability of spectrum in country because the main spectrum in 3.5 megahertz is occupied right now by other services and they need to be full-scale program on clearing up the spectrum. So if other spectrums are available in C-band we are discussing right now is the approach. However, we agreed on some testing zones already where we can start testing 5G already this year and particularly in Moscow. However, as there is no final decision as to what would be the approach, how the regulator will approach the issue of lacking spectrum, non-availability of spectrum, and what would be the distribution policy, whether they will be consortium of all the players, which will invest in freeing up the spectrum or there will be tenders or what is the approach. There is not yet final decision on this side of the regulator. So some uncertainty in this area remains in place. On the other side that indicates that certain CapEx savings. Or we do not have any plans for CapEx in 5G in the coming -- in this year. Even I think there will be no major investments in the next year. As far as Huawei's situation concerned, we don't take any specific actions. Or there is no impact in our operational activity from this executive order taken by U.S. authorities. Of course, we are closely monitoring situation. We are in discussion with Huawei with suppliers. However, we do not see immediate direct impact from that on us. And as far as handsets are concerned, we keep on supplying our network phone demand. We did not see any decrease in demand following this order in Huawei handsets. So it did not impact the demand in our sales.

[Dalibor Vavruska:]

Okay. Thank you very much Alexey.

[Operator:]

Our next question is from Igor Goncharov from Gazprombank. Please go ahead.

[Igor Goncharov:]

Yes. Thank you very much. Let me congratulate you with a great set of results.

[Alexey Kornya:]

Thank you.

[Igor Goncharov:]

A couple of questions. Thank you for the results. A couple of questions. One in your press release you mentioned that you have completed the next recurrent round of the buyback. And in this relation I have two questions. One is what is your view -- what are your plans with regard to the shares that you have -- shares that you have accumulated from your balance? And if you plan to cancel them what could be the time frame for the cancellation? And number two is what is the view on the further rounds of the year buyback if any? And the other question is on the real estate transaction. I understand you don't provide any additional quantitative details, but maybe you can qualitatively explain what is the nature of the transaction? Thank you.

[Andrey Kamensky:]

Yes. I will take both questions. The first which relates to the buyback, yes, we have finalized the program that was initiated last year in July. At the moment, there are no plans for new progress. But you know that recently we have approved the new dividend policy, we should set the minimum level for our dividend payment. And actually this is our -- this is one more time to confirm our commitments to the higher yield that we deliver to our shareholders. In terms of the cancellation of the shares that we currently have on our balance sheets, there are no exact plans to do this. We are still in the process of considering it. Yes. And so that's related to the first question. With regard to the -- related to the real estate transactions and that was disclosed in our -- in the first quarter. And actually this is the transaction when we sold the power of our real estate following the past and the positive effect that we also -- we were seen in the first quarter. So, actually there are no more details related to this transaction. Thank you.

[Igor Goncharov:]

Thank you very much.

[Operator:]

Our next question is from Mr. Alexander from Renaissance Capital. Please go ahead.

[Alexander Vengranovich:]

Yes. Good afternoon. So two questions, please. So the first one is sort of a follow-up probably on the buyback just from a different point of view. So looking at your like leverage you're at around 1.5 net debt to EBITDA, basically after the dividend payments you're likely be close to 1.8. So can you please provide any sort of updated view on how comfortable you are with this leverage and how far it might go? Like can you over the short-term period and break this threshold for example to net debt to EBITDA? Or it's completely unacceptable for you, let's put it this way? So that's the first question. And second question on MTS Retail, so I see that the number of the retail stores is pretty stable in this quarter. So there were some big expansion last quarter, and again, it's stable now. You have at the same time really good results in development of MyMTS user base. And obviously their achievements are quite visible year-over-year. So when do you think you might consider again probably some optimization of the MTS Retail network? Because it looks like more and more are servicing of their subscribers will be done for MyMTS app. And the competitive situation in the market is also pretty stable, which probably does not require you to be very active at retail front. So just like wanted to hear your thoughts on that? Thank you.

[Andrey Kamensky:]

This is Andrey. I will answer the first question. Just to confirm that our net debt-to-OIBDA ratio now at the end of the first quarter stands at the level of 1.2. This is excluding the U.S. IFRS standard. So this is on a comparative basis in the same numbers that we were showing in 2018. With regard to the whether we are comfortable -- on the comfortable level, this is just to reiterate what we were seeing before that in principle the comfort level that we see is around 2. But even -- I'm still talking about the old IFRS standards. But even if it's a bit above 2, this is not something that we see as a problem for us.

[Polina Ugryumova:]

Does that answer your question?

[Alexander Vengranovich:]

Yes sure.

[Andrey Kamensky:]

Hold on a second and the answer to the…

[Inessa Galaktionova:]

Okay. I'll give some snapshot of the stores. As I mentioned, we are heavily investigating the situation in the market. On the current competition -- on the current markets, we don't see right now any crucial needs to optimize in the chain. We are pretty comfortable with the current level of our retail footprint. But in the merger as was mentioned during that year, we are investigating the opportunity, maybe to optimize till the level of the -- minimum level like 500 -- 5,600 something like that. But again, it will depend on the competition environment. So far, we are pretty comfortable with the current footprint.

[Alexey Kornya:]

I would just a little elaborate on that, that generally the trends which we are seeing in market are somewhat encouraging, that we don't see intensification of competition in retail space. And in this sense, we see potential for market starting improving for all players in this market. So as more and more goes into online, we see that the market might start optimizing already this year. And as Inessa mentioned, we vision that we might move towards the lower end of our target range in terms of number of stores, which is 5,600.

[Alexander Vengranovich:]

Yes. The reason I asked, because obviously we'll know that it's an easy way how you can possibly impact your OIBDA levels. Obviously, that optimization in the market is stable, looks pretty reasonable to do that. And I think there's still some sort of confusion on the market, why despite the fact that nobody from the competitors is doing some -- any active movements in this -- in the area. Everybody's too cautious regarding the future and not cutting the number of the stores. Just a general comment.

[Alexey Kornya:]

As I said the trends are encouraging. We are monitoring, yet, too early to change anything in our strategy. But let's see and let -- we will keep on monitoring the situation throughout the year.

[Alexander Vengranovich:]

Okay. Thank you.

[Operator:]

[Operator Instructions] Our next question is from Anna Kazaryan from VTB Capital. Please go ahead.

[Anna Kazaryan:]

Good evening. Thank you for opportunity to ask the question. I have a question for relatively new services for you. Since some quarters have already passed since you acquired the assets in e-ticketing and esports, can you give your view update on these services? For example, what's contribution from these services you have seen to your core mobile operations? Did you have to change your approach, your view on these assets? For example, there were use cases that you decided to eliminate charges from customers for your e-ticketing services. Overall, how do you evaluate performance of these assets? Thank you.

[Slava Nikolaev:]

Okay. I'll take this question. It's Slava. Currently, I can say that besides of -- especially, beside of eSports but also besides of e-ticketing, is not so huge that it could really contribute into mobile operations. But the growth of both of these segments is very promising. So we believe that we will see this contribution in the future. And on the other hand we see a contribution of our knowledge of the market into operations of both e-ticketing and esports, which just shows that there are synergies in these businesses and our mobile business.

[Anna Kazaryan:]

Okay. Thank you.

[Operator:]

Our next question is from Mr. Alexander from Renaissance Capital. Please go ahead.

[Alexander Vengranovich:]

Yes. It's Alexander Vengranovich again from Ren Cap. Just a follow-up question probably on the pay-TV services. So you mentioned in your presentation that that goes quite well, so offsetting the decline in fixed telephony. So -- and like, looking at the market trends, obviously a lot of OTT players investing a lot in the content -- on content. And, like, recently, like, Yandex announced their intentions to change the landscape, probably like invest more in their own production. I mean, it looks like that’s becoming more and more important for the consumer that you provide all content on the platform. So the question is, whether you're okay, first, with the technological part of MTS TV platform? And do you think it requires some, like, improvement, or you might consider even some M&A in this respect? And the second question is, whether you will consider like improving or increasing your investments, maybe on the content side or partnering with the other content producers or like the other video streaming services to improve the quality of the service for the users, if that's clear. Thank you.

[Slava Nikolaev:]

I will also take this question. First of all, regarding the product and our satisfaction with quality, we are now -- currently, as we speak, we are launching our new TV platform, which in my view is going to be one of the best on the market. And it will provide us with a very good client experience and a lot of opportunities in both linear TV and video-on-demand and also and partners' services and in many, many other aspects. So in these terms, we are really optimistic. On the content side, of course, in order to grow the number of subscribers, one definitely has to go into content co-production. But we are not looking into huge investments in this area, but would rather go -- rather conservatively and collaborating with different parents of the market, since we do see this as the best combination with the state-of-the-art product that we're going to have in the nearest future.

[Alexander Vengranovich:]

Thank you. That’s clear.

[Operator:]

Our next question is from Dalibor, Citi. Please go ahead.

[Dalibor Vavruska:]

Hello, this is Dalibor again. So, now I can congratulate you for the results. And I just have a quick follow-up one more broader question. As you know in Europe the telecom industry is experiencing a lot of pressure and low expectations. Your partner company, Vodafone, I think is a typical example of this. I'm just wondering if you can name one or two differences in the environment that you're facing in Russia or your strategy relatively to what is happening in Europe that could make investors more confident in the case in MTS versus what we see in developed Europe?

[Andrey Kamensky:]

Dalibor, thank you for your question. Look I think if we take what are the challenges, so what are the key challenges, which we see, they are probably in the regulatory field. So we saw recently the fee increase which effected our tariffs, we saw inter-country roaming elimination area mile [ph] all of this what we had is a major headwinds in the past. So, similar initiatives might come out and we expect this is the key challenge, key risk area for us in terms for our predictability of our results and so on and so forth. Secondly, of course, relatively lower disposable income is also limiting somewhat the growth potential for us. However, there are two very strong complements to our growth in basis for our strategy -- basis on which we based our strategy. Firstly, we have in Russia quite a closed digital ecosystem in terms of local players formation. Like the biggest search engine in Russia is Yandex. The biggest social networks are VK, VKontakte. The biggest online cinemas is not Netflix but EV [ph] and so on and so forth. So, in this sense, this is the uniqueness of the market. So, we believe it gives us a unique opportunity to build solid digital products and win these markets with those products. And secondly, the pricing levels where we spend on our services starting from satellite TV which is right now less than -- average ARPU in satellite TV is less than RUB200 which is like $2, $3 and -- or even less than sometimes. And we have one of the cheapest data globally. And in many other areas we have very low pricing. So, in this sense that gives us very good opportunity to grow further and to generate additional revenue based on where we stand right now. For example in Ukraine we see that very large on that because that low base effect, the market generates strong double-digit growth of 20%, 30%. So, we are rather long-term, we are rather optimistic because of the latter factors which I mentioned as the potential for our strategy in digital transformation in building up a good basis for our further growth.

[Dalibor Vavruska:]

Okay. Thank you, again. Thank you.

[Operator:]

[Operator Instructions] We have a follow-up question from [Indiscernible] from HSBC. Please go ahead.

[Herve Drouet:]

Yes. This is Herve Drouet again from HSBC. Just a follow-up question as well. Firstly, on RussNet just wanted your confirmation of that on your side there is no additional cost if some kits need to be installed and if that is either subsidized or paid by government entities to do that. And second one is, could you give us a kind of an idea in terms of within your network how much of Huawei equipment there is to give a sense of how much that would represent in terms of your network in terms of your equipment versus other suppliers? Thank you.

[Andrey Kamensky:]

Great. Thank you for the questions. As far as internet regulation is concerned, it is being paid by the government. So, we are more -- whatever the equipment to being sold whatever the investments to be made so far, how the law stimulates it right now it is to be provided by the government or by the regulation regulatory budgets and we are just to install the appropriate business. And speaking about Huawei we have about 30% even less than 30% of our network if we talk about radio. But one should understand usually it is not on the radio. So, it's very difficult to measure whether or how what is to the share of what is to the proportion of Huawei equipment on the network. But it still -- we have probably the lowest level of Huawei equipment among all the players in our market. But still it's quite a sizable piece of our infrastructure and we think it's a reflection of our global situation.

[Herve Drouet:]

Thank you.

[Operator:]

[Operator Instructions] We have a question from Ms. Anna [ph] from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good afternoon. Thank you very much for taking my question. As far as the positive one-off…

[Polina Ugryumova:]

Sorry, Anna. Your voice is very low. Could you speak up please?

[Unidentified Analyst:]

I'm sorry. I’m sorry, very sorry. The question is regarding the real estate. As far as the positive impact one-off on the EBITDA came from the real estate transaction, could you please give us some update about the long-term MTS real estate program? How much or how many square meters you still have that may be disposed in the coming years? And what are your expectations in this regard? Thank you.

[Alexey Kornya:]

Yeah. We pretty much done most of disposition of our MTS real estate. So we still have hundreds of square -- hundreds of thousands of square meters in our ownership. But this is for our technical needs and for our own needs. As far as to the program related to GPON and freeing up with real estate it's pretty much been complete and most of this is being disposed.

[Unidentified Analyst:]

Okay. Thank you very much. Does that mean that the transaction that you've made in the first quarter is pretty much one of the last one that could affect your results, operational results in the next quarters or years? Thank you.

[Alexey Kornya:]

Well, we do not have anything specific in our plans related to sale of real estate over the next 12 months.

[Unidentified Analyst:]

That’s very helpful. Thank you.

[Polina Ugryumova:]

Does this answer your question?

[Unidentified Analyst:]

Yes, sure. Thank you very much.

[Operator:]

Thank you. You're welcome. Our next question is from Jena [ph] from BCP Securities. Please go ahead.

[Unidentified Analyst:]

Thank you for presentation and thank you for taking our questions. Congratulations on solid set of results. I have a question about IFRS 16. Net leverage presented from your viewpoint excludes all the leasing, which technically should be included under the IFRS 16. Going forward, are you planning to adjust that report? Or you'll continue to exclude the short-term and long-term lease obligations from net leverage calculation? Thank you.

[Andrey Kamensky:]

Thank you very much for your question. As you said, actually the number that we disclosed 1.5 on our leverage this is excluding new IFRS standards. And as I said, we deliberately give this number to be on the comparable basis versus the figures that we're providing for 2018. And going forward for this year, we plan actually to continue this indication. And at certain moments, of course, we'll shift to the new IFRS standards. But for the time being, we would like to continue giving these figures on a comparable basis versus 2018. Thank you.

[Unidentified Analyst:]

Thank you. And just to clarify that on the OIBDA side, you also continue to -- because OIBDA would have been positively impacted if you include IFRS 16. So you continue to do both kind of excluding that IFRS 16 for the moment?

[Andrey Kamensky:]

No, no.

[Alexey Kornya:]

On OIBDA, no, no, we were early adopters of new standards. So we switched to new standards yet last year. So…

[Unidentified Analyst:]

On OIBDA as you…

[Alexey Kornya:]

…Jena, on many other areas we are the first. So here we were the first to use the new standards. And in this sense we are already reporting in new standards from last year.

[Unidentified Analyst:]

Just to clarify. On OIBDA you already adopted. On net leverage for now you're still reporting under the old one. Is that correct?

[Polina Ugryumova:]

Jena, this is Polina from IR. So we already report on the new absolute amounts of revenues and OIBDA. And the old standards refer only to the leverage ratio, which we are showing. And this is for the purpose to maintain the consistency and to show the continuing trends, okay, and to make the numbers comparable.

[Unidentified Analyst:]

Thank you so much for clarification. Thank you.

[Operator:]

[Operator Instructions] We have no further questions. Dear speakers back to you for the conclusion.

[Polina Ugryumova:]

Ladies and gentlemen, thank you very much for listening. We welcome you to at anytime to contact the MTS Investor Relations department if you have further questions. A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate your interest and wish everybody a pleasant day.

[Operator:]

This concludes today's conference call. Thank you all for your participation. You may now disconnect.