Mobile TeleSystems Public Joint Stock Company
Q4 2018 Earnings Call Transcript

Published: 19 Mar 2019

[Operator:]

Ladies and gentlemen, welcome to Mobile TeleSystems Q4 and Full Year 2018 Financial and Operating Results Announcement and Conference Call. I will now hand you over to host Polina Ugryumova, Head of IR. Madam, the floor is yours.

[Polina Ugryumova:]

Welcome everybody to today's event to discuss the Company's fourth quarter and full year 2018 financial and operating results. As usual, I must remind everybody 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, may imply certain risks, a more thorough discussions of which are available in our Annual Report on Form 20-F or the materials that we've 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 on today's conference call to discuss the Group’s financial and operating results for the fourth quarter and full year 2018. Joining me on our call to comment on results are Slava Nikolaev, VP for Marketing; Kirill Dmitriev, who's has been recently appointed to supervise and develop our new dedicated business unit for Digital Solutions for Home; Andrey Kamensky, Vice President of Finance and Investments; Inessa Galaktionova, Vice President of Sales and Customer Services; and Ilya Filatov, CEO, MTS Bank. First of all, it is my pleasure to welcome the new member of our management team, Inessa Galaktionova, who has recently joined MTS as our new Vice President for Sales and Customer Services. Inessa has a strong background in marketing, both within the telecom sector and other industries, which I'm sure will be supportive to our growth opportunities in the retail development relevant and help to further solidify MTS market leadership. I would like also to introduce Ilya Filatov, the Chairman of the Management Board of MTS Bank, who is now becoming a full member of MTS team with MTS Bank already significantly contributing to the success results of MTS Group in second half and full-year 2018. Inessa and Ilya, welcome on board. We’re delighted to report another successful quarter and a very strong set of results for the year for MTS. During the last quarter of 2018, Group revenue increased by double digits, 11.3% to RUB 130 million. Excluding the impact of consolidating MTS Bank on like-for-like basis, our Group revenue increased by an impressive 7.2%. Meanwhile, for the full year Group revenue reached RUB 480 million, showing the total increase of 8.4%. Despite the regulatory challenges impacting us in the second half of the year, on a like-for-like basis, revenue rose by 6.8%, the Company's highest level of growth since 2012. Overall, in 2018, we achieved the record high growth rates since 2012 with the major drivers of this growth being well beyond our traditional connectivity part of the business. This includes record revenues in handset sales approaching RUB 60 billion for full year from almost 30% growth year-over-year, also more than RUB 7 billion of revenues from integration services that witnessed more than 30% increase, new revenue from consolidation of MTS Bank and other growing business lines. We maintained strong growth momentum, thanks to continued rise in data consumption, in ARPU, robust sales figures for handsets, and our increasing strength in Ukrainian market. Fourth quarter Group adjusted OIBDA was RUB 55.6 billion, up 23% compared to the previous year, which was positively impacted by the new IFRS standards. Adjusted OIBDA grew 3.9 on a like-for-like basis, excluding the impact of the consolidation of MTS Bank. For the year, on like-for-like basis, we achieved an impressive 5.1% growth in OIBDA, driven by increased revenues as well as improved profitability in our markets. Our adjusted OIBDA margin has now reached 46% under the new IFRS standards for the year. Now, I’ll turn the call over to Slava and Kirill who will further elaborate on our performance and key strategic development in our core markets.

[Slava Nikolaev:]

Thank you, Alexey. Our revenue has grown in Russia by 10.7% in Q4 and by 8.7% for the year, driven by an impressive handset sales dynamics as well as continued growth in our core mobile segment. The consolidation of MTS Bank also contributed to an increase in the top-line. In Q4, the competitive terms in the mobile market remained largely unchanged as compared to Q3. Our mobile service revenue grew 1.6% year-over-year, showing some slowdown in annual growth, explained by the more noticeable negative impact from the cancellation of internal roaming coming into full force in this quarter, as well as the effect of the higher base of our very strong results in Q4 2017. Overall, throughout the year, our mobile business has continued to grow as we benefited from a better pricing environment in 2018, as well as a sustained growth in data usage and ARPU. MyMTS application continued to be hugely successful. By the end of the year, we had 14.1 million active users. We added 4.6 million new users just over this year alone. Today, MyMTS is not just an instrument for the customers to cover basic operations like checking their balance or on topping up mobile account, it is a comprehensive offering. For us, MyMTS is becoming an effective display case for new products and services that we offer to our clients, providing them with excellent customer experience and building up comprehensive digital ecosystem. Fixed line revenues in Russia decreased lately by 0.4% in Q4 and 0.6% for the full year due to the continued trend of customers giving up their fixed line services. Our market share of broadband internet and pay TV in Moscow reached 38% and 43%, respectively. Over 1.9 million Moscow households are using our GPON services as of today. In 2018, revenues from our integration business reached RUB 7.4 billion, thanks to an ever-increasing number of complex projects and technical support services. We believe in our strategy to increasingly move towards offering convergent services, as this not only allows us to better monetize our client base and support revenues, but also to continually earn the loyalty of our customers. During last year, we have completed the rollout of our convergence services across Russia, offering bundled services including fixed, mobile and TV. We have good traction with sales of convergence products, currently reaching 40% to 50% of total sales of fixed services. Finally, I will give some color on the operational performance in our foreign markets. In Ukraine, strong growth momentum continues. On a comparable basis, we have witnessed a 9.3% growth in revenues over the years, supported by the continued strong uptake of data product supported by existing 3G coverage and ongoing LTE rollout. Excluding the impact of new IFRS standards, OIBDA in Ukraine grew 11% in Q4 and 13.3% over the year. In Armenia, we saw recovery in revenue trends over Q4 with 3.2% growth supported by noticeable growth in sales of goods. For the whole year, revenue grew by 2%. Due to some inventories write-offs, OIBDA on a like-for-like basis declined by 20.3% in Q4 and 9.1% for the full year. In Belarus, we continued to enjoy solid double-digit growth, both in terms of revenues and OIBDA for both Q4 and full year. Now, I turn to Kirill, who will address developments related to our sales and retail.

[Kirill Dmitriev:]

Thank you, Slava. In 2018, we actually expanded in the handset market, which was an important part of our business strategy. We achieved almost 30% growth in revenue from handset sale over the year, outpacing the market and widening our market share from 10% to around 14%. And increased demand for data goes hand in hand with the consumer shift towards more premium devices. MTS has grown strong relationships with key mobile producers such as Apple, Samsung and Huawei, as well as some other vendors, allowing us to fully meet this demand with a broad choice of devices to offer to our customers. Aiming to further incentivize our customers to update their smartphones, we have successfully launched a range of initiatives during the year that were widely picked up by our clients such as the Cashback and the Trade-in offers. In 2018, almost half of all smartphones within MTS Retail were sold via the Cashback program. Our online retail sales approached RUB17 for the year, adjusting a year-on-year growth of 24%, also reflecting the underlying trend towards online retail. Overall, we are strategically developing our products to meet these trends and converge with customer needs. Over 2018, we increased the number of our retail stores by around 200. We aim for a total of 5,500 to 6,000 scores for maximum efficiency in today's competitive environment. This gives us an opportunity to maintain traffic and stay in touch with our customers, in turn fostering loyalty and enabling monetizing and integration in our ecosystem. Through our network of stores, we have direct physical contact with the customer, establishing the deeper and more personal relationships with them. In the longer term, we will remain opportunistic to potential moves in the market towards retail optimization. It is important to note that quite apart from the number of retail stores in the Russian market, we continue to see growing trends in the overall amount of SIM card sales and the continued reduction in churn. We estimate that in 2018 the number of gross additions to the market fell below 90 million SIM cards versus more than 120 million the market saw in 2016. Now, I would like to spend a bit of time on exciting new vertical which is separated within our strategic development. The new business line MTS Home focuses on TV, broadband offering for households and the development of new solutions for home. In our view, the Russian market for digital home solutions remains largely untapped. At the same time, we see increasing demand for digital solutions including smart home devices, smart boxes and others. We believe that our operational capability and achieved expertise in offering converged services are a solid base for us to successfully expand in this market. We already have a strong and reliable infrastructure platform with the technical ability to offer our fixed line services to almost 15 million households. We also see additional leverage from our long-term relationships with the key global vendors, helping us to solidify our presence in this market. Our goal is to lead the market in the Russian digital home services over the mid-term horizon. Now, I turn over to Andre who provides further details on our financial performance.

[Andrey Kamensky:]

Thank you, Kirill. For the fourth quarter of 2018, we reported Group adjusted OIBDA RUB 55.6 billion. This result included the impact of new IFRS standards, which added RUB 7.8 billion related to consolidation of dealers, commissions and lease expenses. On a comparable basis, fourth quarter 2018 Group adjusted OIBDA showed a solid growth of 5.8% year-over-year, mainly supported by the strong performance of our core Russian market where we continue to enjoy an improving pricing environment, growing data consumption and boosted sales of handsets. Solid performance of our Ukraine unit as well as consolidation of MTS Bank also positively impacted our fourth quarter and full-year results. In the third quarter of previous year, MTS reserved RUB 55.8 billion as the potential liability with respect to the litigation being conducted by the U.S. Securities and Exchange Commission and the U.S. Department of Justice in relation to its former operations in Uzbekistan. On 7th March this year MTS announced that it had reached a resolution with the DOJ and the settlement with the SEC for which it agreed to pay the aggregate amount of $850 million, which fully reflects the amount reserved previously. We expect the payment to be finalized by the end of this quarter. For 2018, CapEx, excluding licenses totaled RUB 86.5 billion, a 13.2% increase year-on-year as a result of our continuing LTE rollout in Russia. Our CapEx to sales ratio reached 18%. The combined impact from higher CapEx such as of Avantage, one of the largest data centers in Russia, the acquisition of MTS Bank and other investments made during this year led to lower free cash flow for 2018 of RUB 54.8 billion versus a record high of RUB 71.5 billion last year. For 2018, free cash flow was also positively impacted by the adoption of the new IFRS standards. By the end of 2018, our total debt stood at RUB 368.7 billion. Our balance sheet remains strong with net debt to last 12 months adjusted OIBDA ratio at 1.2, the factor significantly lower than our regional or global peers. During the year, we continued to optimize our portfolio through new issuance, repayments and refinancing. In March 2018, we made a partial early repayment on a 10-year credit facility concluded in 2009 or $224.7 million and issued two series of RUB 10 billion exchange-traded bond to finance the repayment. In the second and third quarter of previous year, we restructured a number of our credit facilities at Sberbank for a total amount of RUB 145 billion and signed two loan agreements with the VTB Bank for a total amount of RUB 50 billion. In September, MTS repurchased local bonds for RUB 8.9 billion. Now, allow me to comment on the key performance indicators for MTS Bank in 2018. The year 2018 has been successful overall as the Bank strengthened its position in the retail segment and grew faster than the market in two product lines. With this, the Bank’s growth accelerated in the second half of the previous year when MTS acquired the controlling stake. Total issue of loans more doubled in 2018, while issue of retail loans increased almost four times. This clearly illustrates the immediate benefits of integration, and this was with the help of MTS big data analysis that the Bank was able to design and offer suitable and attractive financial services to MTS’ current customers. In addition to the increased sales, the Bank expanded digital its reach including expanding MTS own sales channel to integrate the most popular product offerings into the MyMTS application. It is important to emphasize here that the substantial growth of sales outperformance has been achieved without any compromise in the overall level of credit risk. Cost of risk did not exceeded 6% for the new lines and remained below 3% on average with the bank project. For the total loan portfolio, the NPL ratio declined to 11% from 19% a year ago. In 2018, we generated a healthy return for our shareholders. For the calendar year, MTS continued to fulfill its commitment to strong, historical dividends by making two dividend payments, which totaled RUB 26 per share or roughly RUB 52 billion. In July 2018, MTS announced launch of a new buyback program, which authorized the Company to its wholly-owned subsidiary Bastion to return up to RUB 30 billion back to the shareholders over the period of two years. By the end of the year, Bastion has acquired almost 56 million shares of common stock, representing 2.8% of share capital. The total consideration reached RUB 14.9 billion. Combined with the previous buyback program ended in March 2018, this translates to roughly RUB 31.1 per share return to shareholders in the previous year. The MTS management has recently presented the new dividend policy to the Board of Directors. Our previous dividend policy covered a three years period, which terminated in 2018. The feedback we received from our investors confirmed our understanding of dividends as being crucial part of our investment case. We also understand investors appreciate the basic principles will stick to in remuneration policy. We will announce the new dividend policy in the coming days following the Board approval. As we commented further, we remain committed to high shareholders returns supported by our strong balance sheet and confirm that the new policy being too high extent the continuation of the previous one will remain an integral parts of our 3D strategy. In the beginning of February, we announced the launch of our capital markets structure review and the start of the consultation period with our investors to discuss questions related to the current structure of the public listing of our shares. These consultations with investors are ongoing. We are aware of investors concerned and believe we need a sufficient amount of time to make a detailed analysis of the feedback received. We want to stress again that no decisions have been taken get. With the help of our legal and financial advisors, management will evaluate the available options before presenting them to the Board of Directors. We’ll give further update on the results of our internal work and further steps, if any, as part of our first half results announcements in late August. In the meantime, we continue to be focused on MTS operational performance and target to maintain sufficient level of cash generation, supporting our strong balance sheet. We believe that our new dividend policy which will be announced in the coming days will resonate with investors and will be a clear demonstration of our continued commitment to our global shareholder base. Now, I turn back to Alexey for his closing remarks.

[Alexey Kornya:]

2018 was a remarkable year for us in terms of growth. While the relatively steady competitive environment continues to support stable pricing in the market, the major driver of our revenues and profits is clearly the continued underlying growth in demand for data together with our proactive approach towards the better integration of our customer relationships, so offering superior products, introducing new services and realizing full potential we're seeing in the handsets market. Looking ahead, we believe that the underlying trends will remain supportive for us. Still we understand that the previous year set a high comparative base for our future growth. The recent changes in regulatory environment will also have an impact in flowing our growth in 2019 to a more noticeable extent than last year. Our strong performance in second half 2018 has resulted in the relatively high base effect for 2019 growth rates. As such, following high growth rates in first half 2019, we expect the pace of growth to slow down somewhat in the second half to give a final result of more than 3% for the full year 2019. Rising data consumption and industry ability to adjust prices will help to offset most of the negative impact from internal roaming cancellation and VAT increase. The above mentioned regulatory factors will have an even more noticeable impact on our EBITDA in addition to the cost increases associated with higher property tax set for 2019 as well as an indexation of wages we have implemented in the middle of last year. Finally, our last year’s great achievement in the absolute amount of OIBDA in 2018 makes the growth this year as really challenging task. For now, we're expecting a slight decline in OIBDA on the back of superior performance of 2018 with the ambitious target to keep the OIBDA flat. We note that our outlook for revenue and the OIBDA growth is given on the new IFRS standards and including the results of MTS Bank. On CapEx, we reiterated previous estimate of RUB 160 billion for the period of 2018-2019 excluding the spending related to the Yarovaya Law. Separately, we lowered our estimate of additional investments required in line with Yarovaya Law to RUB 50 billion from RUB 60 billion over a five-year period. Overall, for 2019, MTS expects its CapEx spending to be around RUB 90 billion including investments required for data storage. And we are making good progress along the road to implement our digital transformation strategy in creating digital ecosystem for our clients and customers. This evolution is also reflected in continued organizational changes within the Company with separate new business verticals and from new teams -- and form new teams focusing on our new growing business lines. FinTech presents one of the most important promising parts of our business. We’re very excited about our new capabilities to capture the potential growth in the FinTech market acquired by the full consolidation of MTS Bank. As Andrey mentioned earlier, MTS Bank has significantly accelerated with retail product sales without any compromise in overall level of risk with the new potential immediately unlock by the use of MTS big data capabilities and MTS digital sales channels. This is a clear demonstration of the synergies we have been already able to achieve on the crossroads of telecom and banking services. The bank financial products are highly complemented into our core business. And fully integrating it under the MTS Group umbrella allows us to offer our customers new integrated services, boosting revenue streams and consolidating our brand in the wider consumer space. So called entertainment segment is the second visible direction in implementing our strategy to increase engagement with our customers from both traditional and digital channels, and to create a comprehensive ecosystem through offering fully convergent products. As we speak, we are launching a state-of-the-art TV platform across Russia, which will leverage the growth of our convergence client base further. We believe we are able to provide our existing and new customers with unrivaled TV watching experience encompassing all available channels including big screens, mobile and satellite. Our existing partnerships with key players in the market allow us to comprehensively meet current customer demand, while we are also looking to explore different approaches to content creation including exclusivity and coproducing opportunities. In another example of how we can effectively engage with our customers beyond the core telco services, just a week ago we launched WASD.TV, our new interactive gaming platform. This is in addition to ticketing business that we acquired and developed last year, as well as another innovative services for the retail market. Finally, we made significant progress in B2B part of our strategy. MTS is becoming one of the leading players in the fastest growing cloud service market. We added more than 400 corporate clients in cloud just over last year, starting practically from zero and further strengthening our market position as a result of purchasing Avantage, one of the larger financial data centers in Russia together with acquisition of IT-Grad, one of the leading cloud service providers in the country. Technology wise, MTS remains the leader in the Russian telecommunication space. This year, we launched the country’s first federal-level network for Internet of Things services based on Narrow-band Internet of Things technology, covering 49 Russian regions. I think, you will agree that the above progress clearly demonstrates that MTS as a business, is also as a team of people is looking ahead towards the digital tomorrow, ensuring that we continue leading from the front and that we are able, adapt quickly and efficiently to capitalize on fast-opening new commercial streams in our markets of operations. The demand for our services continues to increase and is boosted by opportunities presented by growth sector synergies. We’re therefore optimistic about the prospects for our future growth. Thank you.

[Polina Ugryumova:]

Operator, we are ready to take questions.

[Operator:]

[Operator instructions] Our first question is from Ivan Kim, VTB Capital. Sir, please go ahead.

[Ivan Kim:]

Good evening. Couple of questions from my side. Firstly, can you share with us what was the aggregate investor feedback in very simple terms, agree or disagree with the potential changes to capital markets framework? The second question is with regards to the treasury shares. You've accumulated a chunk of those. When do you plan to cancel the shares that you would back? And the third is just technical one. Can you tell us what was the free cash flow under the old accounting standards, if we exclude the consolidation of MTS Bank because it looks like it distorts the numbers quite a lot? Thank you.

[Andrey Kamensky:]

Thank you, Ivan. This is Andrey, I’ll take all these three questions. So, the first one with regard to the general investor feedback. I think that what I want to say is that no decision has been taken yet. It’s too premature now to discuss any scenarios and prevails at this stage. Therefore, actually, we don't give any comments regarding the feedback. We are continuing our consultations. And as we said, we will come back with more information when we will disclose our first half results of this year by late August. In terms of the treasury shares. I think what we're currently doing where we're waiting the available options. So, this was the treasury shares. And one of the risks we’re seeing in the potential shares cancellations that it might negatively impact our retained earnings and does put certain limits on the amount of dividends we targeted to distribute to our shareholders. And with the above mentioned risks, we’re unlikely to proceed with the shares cancellation for a while. And plus to that the new dividend policy as we said, which is a continuation of the previous ones as we believe as long as we are keeping the approach that wasn't the previous dividend policy. We believe that there is strong commitment that we're giving to our investor base. And the third question with regard to the free cash flow. If we take out the impact of the new IFRS standard, so the major impact would be our CapEx, which is by RUB 10 billion was more in 2018 versus previous year. And our acquisitions that we did in the previous year that add approximately RUB 15 billion. So that was the major drivers behind it if I takeout IFRS standards and the bank.

[Operator:]

Our next question comes from Herve Drouet, HSBC. Please go ahead.

[Herve Drouet:]

Couple of questions on my side as well. Firstly, on the revenue on your guidance you gave for 2019. In your current plan, do you expect to push the VAT hike to your consumer at this stage and that is what you built in your guidance for 2019. On the EBITDA side, I understand that you highlight some reasons why you believe the EBITDA for 2019 will be somewhat under pressure year-on-year. I was wondering, either some elements in terms of start-up costs we should consider? I mean, you mentioned several new initiatives with your TV platforms, as well as your expansions in the B2B markets and cloud computing, I was wondering as if it’s related to that. And finally, we’ve seen now for four quarters your retail shops expanding. And I was wondering how you see that evolving. I was still surprised to see in Q4, a significant increase on retail shops, just wanted to get to the more color on the dynamics, which looks like to reverse, this is what we've seen in the past.

[Slava Nikolaev:]

Hey, it's Slava. I'll take the first question. I guess, that we're not making any special VAT increases. We do though change overall pricing environment towards higher ARPU, working with more for more principle. So, generally, we see that ARPU of subscriber base is growing. But, as I said, no direct changes, and there is 1.8 something percent.

[Andrey Kamensky:]

On the OIBDA side, actually everything that we mentioned during our speech were incorporated in our forecasts and all the factors that behind this forecast were also mentioned.

[Alexey Kornya:]

On the third -- it's Alexey. We do not think that it is a strategic role of ours to expand our retail network. As we were mentioning, long term, we think that the smaller number of retail shops is sufficient for this market as the normalization of SIM card sales and rotation of SIM cards continues in the market. By the way, we saw in 2018 the lowest level of total number of SIM cards being sold in the market over the last three years. So, we can say that it is encouraging trend in terms of market rationalization, in optimization. In this sense, as we see that the whole market goes in the model of lower churn and less need for retail distribution or retail presence, we’ll be ready to follow those trends. However, up until today, we didn't see the readiness of the market to reduce its distribution presence and its retail presence. And we believe that the size of retail, which we have today is reflective of what the competitive environment is in distribution.

[Herve Drouet:]

And just maybe a follow-up, maybe just on the group adjusted EBITDA. I mean, either particular items, the one you listed this quarter, relatively big list where you think there could be more risk in terms of keeping your EBITDA flat or potentially slightly negative. What makes you conservative, especially taking into account that you have -- you still expect some single-digit growth on the top-line? So, I was wondering is there particular items there where you think that is more at risk. Is it more than labor cost you think, what would be more difficult to manage? Is it the regulatory environment? And if it is a case, which exactly part do you think could be more at risk? I was wondering if you can give a bit more color on where you think the pressure on the EBITDA may come from.

[Alexey Kornya:]

We see two major factors being risk factors for our OIBDA dynamic and growth going forward? Those being regulatory situation, so, the new regulatory initiatives, which might impact. And the second one is overall macroeconomic health in the market of our presence.

[Operator:]

Thank you. We have next question from Alexander Vengranovich, SOVA Capital. Sir, please go ahead.

[Alexander Vengranovich:]

So, I think, I got a couple of questions from my side. So first, what's your view on the timing of the introduction of electronic SIMs to the market? Do you see any sort of substantial risks under this introduction for growing churn which might also require therefore I imagine a fewer marketing tools, and probably your retail network will also at some stage become to a larger expense not required to compete on this new electronic SIMs market. So just maybe will be great if you could share your opinion of whether this is going to be a big driver for the market or not? The second question is actually on your M&A strategy in 2019. So, you were quite active last year. And I am just wondering because your organic growth for the business seems to be pretty limited, do you think you might again be active in terms of M&A in 2019, what sort of targets you have in mind, and which areas you might be considering to be active because they might be complementary to your existing portfolio? And probably the last, like a small question on your CapEx guidance. So, you mentioned earlier in your presentation that you might consider looking at sort of exclusive content creation for your TV platform. Do you think it might impact your capital guidance, because it might require some substantial investments in the creation of the new content? Thank you.

[Slava Nikolaev:]

On the first question, I would say it's too early to evaluate any impact on the market because in e-CIM situation, it is really -- details are of great importance. So, so far, I'd say, it's one of the proposals and there will be definitely -- major discussion on that in the future with all bodies of the government involved. So, again, too early.

[Alexey Kornya:]

I would add to Slava’s point that the e-SIM initiatives are mainly for the benefit, they are designed for the benefit of either larger internet players or vendors, handset providers. So, in this sense, these are very much subject to local, how they will be landed in the local market and then local regulation. Back to Slava’s point that details are important share. And I’ll comment on M&A part. We continue to look at non-organic opportunities for our development as far as that is complementary to our strategy in our plans for expanding outside of purely connectivity.

[Andrey Kamensky:]

Your comments on the third question in terms of the content, the answer is that we do not plan to spend significant amount on the content. Therefore, it will not anyhow change our guidance that we gave for the CapEx.

[Operator:]

Thank you. Our next question is from Ondrej Cabejsek, UBS. Sir, please go ahead.

[Ondrej Cabejsek:]

A couple of questions for me, please. I’d like to follow up on the retailer question from Herve and specifically on MyMTS, your digitization efforts in general. So, if I look at the progression and you are on-boarding more than 1 million customers on to the app per quarter. So, I was wondering when we can expect this to result in some sort of decrease in distribution and customer care cost. And then, if you could -- high level question, if you could somehow comment on potential impacts of the now sort of semiofficial Rostelecom-Tele2 merger, and whether this is somehow, for example, fueling now your conversions and retail efforts?

[Slava Nikolaev:]

Let me take the first question. If I got it right, you’re asking what is the connection -- what is the impact of progress in our MyMTS installation against our progress in retail. I would say that we had a major impact of this fast growing number of customers using MyMTS application, not in the decrease of the retail store since we -- I use the stores and the retail not just to sell the SIM card but the whole range of different products -- others we have on board. But, we see a very progressing decrease in the number of incoming calls we are handling through our call centers, for example, which has a very positive impact on our OIBDA and on overall consumer satisfaction which are measured via CMPS and via some other metrics, which are causing the slower market.

[Andrey Kamensky:]

And if I may, I’ll just add a little bit on that as we grow in our retail, it is important to understand that our products becoming more and more convergent. And as we offer handset on sell, we are benefiting all sorts of FinTech services, which we can offer to facilitate those sales, and also we introduced our fresh, loyalty program MTS Cashback, which also becomes a part of this. So, when we think about retail in our expansion in this area, which we demonstrated in 2018, it is very much interrelated with a number of other services which we are offering to our customers, digital services starting from, as I said, insurance, credits online and ending up with the loyalty programs and other digital services and products. And what was the second one?

[Ondrej Cabejsek:]

The second question is the high level sort of comment, if you could give any on the advanced talks between Rostelecom and Tele2, and if this is perhaps something that is now driving more of the convergence efforts on your end and potentially even the expansion of the retail network as well this is a sort of defensive move in a way?

[Alexey Kornya:]

Well, we are welcoming consolidation of the market because we think that the industry will benefit through building up with stronger players and enhancing its investment capabilities. And some consolidation of the market is to the benefit we believe long-term of the market and of the industry.

[Ondrej Cabejsek:]

Okay. Thank you. And maybe one short follow-up please. Is there something that we should be aware of in terms of working capital for 2019?

[Alexey Kornya:]

Well, actually, there is no guidance in terms of the working capital. We believe that’d be in the more or less flat versus previous year.

[Operator:]

[Operator Instructions] We have a question from Bank of America [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good evening and thank you for the presentation. My question is on MTS Bank. Do you target any visible improvement in profitability in the mid-term, or would you consider it to rather sort of support to your mobile operations? In particular, it seems like the bank's revenue is still being significantly consumed by loan provisions. Is it still due to some legacy issues, or is it already more of normalized risk profile you are okay with?

[Alexey Kornya:]

Thank you for your questions. Strategically, we think that we can see better return on equity. And that will continue growth both in terms of volume and particularly in B2C segments and with the further improvement on profitability of our FinTech products and offerings.

[Operator:]

[Operator Instructions] We do not have other question at this moment. Dear speakers, back to you for the conclusion.

[Polina Ugryumova:]

Ladies and gentlemen, thank you very much for listening. We welcome you at any time to contact MTS Investor Relations team if you have any further questions. A webcast on this presentation 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:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participating. You may now disconnect.