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Mobile TeleSystems PJSC (MBT)
Q1 2020 Earnings Call
May 26, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Dear ladies and gentlemen, welcome to the Conference Call of MTS. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions
[Operator Instructions]
May I now hand you over to Polina Ugryumova, Director of Investor Relations, who will lead you through this conference. Please go ahead.
Polina V. Ugryumova -- Director, Investor Relations
Welcome everybody to today's event to discuss MTS first quarter 2020 financial and operating results. As usual, I must remind everyone that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These, in turn, imply certain risks and more thorough discussion of which are available in our annual report and Form 20-F or the materials we have distributed today.
MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. You can find copies of the presentations and materials used and referenced in this conference call on our investor relations website.
Today's presenters are Alexey Kornya, President and CEO; Slava Nikolaev, First Vice President for Customer Experience and Marketing and Ecosystem Development; Inessa Galaktionova, our First Vice President for Telecommunications; and Andrey Kamensky, Vice President for Finance.
Now, it's my pleasure to introduce Alexey to kick us off.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Welcome everyone and thank you for joining us. I would like to begin by saying that our thoughts are with all of those affected by the global coronavirus pandemic. This is an unprecedented time that is impacting billions of people around the world, including millions of our customers and thousands of our employees. Connectivity has never been more critical and we are proud to be helping our customers stay in touch with their friends and family as well as colleagues and classmates.
While the agenda for this call is our first quarter results, the focus of much of the discussion today will be understandably the ongoing impact from COVID-19. As the scale of the situation became clear in February, we activated our continuity protocols and established a task force to coordinate our response.
Let me go over a few of the steps we have taken. First and foremost, our highest priority is the health and safety of MTS team. We have now transitioned over 30,000 employees to remote work. At the same time, many of our workers has mission-critical jobs in stores and in the field that cannot be done from home. To help protect them, we have put in place extensive sanitation measures such as temperature screening, face masks and cleaning protocols, in line with local, regional and national guidelines.
Second, we have launched multiple initiatives to help those being impacted. For healthcare workers, we are providing free connectivity for doctors fighting COVID-19 in many Russian regions. For customers, we are providing unrestricted access to essential resources at zero cost, including free calls and traffic to official hotlines and websites. And for society, we are supporting multiple public initiatives to help the most impacted. In addition, the senior management team has pledged to donate at least 10% of our salaries to charity. And we have launched a crowdfunding [Phonetic] campaign to encourage employees to follow suit.
While our businesses is resilient, we're not immune. Our core focus has been to keep society connected, while moving swiftly to adapt how we engage with our customers. On the network side, we boosted capacity and reallocated resources and we have successfully handled dramatic rise in traffic with minimal disruption. On the sales side, we are strengthening online channels, diversifying SIM distribution and doubling down on digital customer care. And on product side, we've launched new offers and content to help better meet changing customer needs. Slava will talk more about those efforts.
Overall, I'm encouraged by how rapidly we have adapted to the situation. As a digital service company, we were already embracing agile best practices, including open feedback, rapid streams [Phonetic] and lean development. And we are now successfully applying those principles to remote collaboration. I would like to thank the entire MTS team for their dedication and professionalism in the challenging time. While we cannot predict all of those impacts from COVID-19, one thing is clear, digital transformation is now speeding ahead. At MTS, we continue to move forward at full force across of all our verticals.
And in the first quarter, we had a number of notable developments. In telecom, we refined our tariffs, took a stake in the regional fixed line operator and launched the first industrial 5G zone in Russia. In fintech, we launched the completely revamped mobile banking app and saw strong growth in our customer base. That said, looking ahead, we are now anticipating some negative impacts, which Andrey will go over in more detail. In media, we embarked on the new partnership projects including JV with Channel One and new initiatives in co-producing content. And in B2B, we saw exceptional performance in promising areas, including triple-digit growth, line growth [Phonetic], in cloud and colocation services, and we expanded our offerings in new product lines.
I also wanted to highlight that last week we announced new candidates for the Board of Directors, who have a deep bench of expertise across retail, media and digital transformation. These competences are complementary to our growth strategy and I hope to welcome the new members of the Board, following the AGM in June.
Now turning to our results. Amid a relatively normal environment in the first quarter, we saw solid overall performance in the first three months of the year. Group revenue increased nearly 9% year-over-year to reach around RUB120 billion on the back of positive contribution from all of our four verticals. Most impressively, around half of the top line growth came from adjacent segments beyond connectivity. We have been making steady progress on our transformation and that's now being reflected in our figures.
Group adjusted OIBDA was up 1.6% to reach RUB51.5 billion, driven by growth in core services, which Inessa will talk about in more detail. At the same time, we were constrained by a high base due to a positive one-off in first quarter 2019. And excluding this effect, adjusted OIBDA saw solid 5.6% underlying growth year-over-year. Overall, I'm happy to say that we delivered yet another strong quarter of solid results.
With that, I will hand it over to Slava to give you customer experience and marketing update.
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
Thank you, Alexey. As we all know, the world is facing unprecedented challenges and disruption. But as always, change also brings opportunities and we firmly believe that those who adapt fastest today will be best positioned for tomorrow. In the current environment, our guiding principle is providing comprehensive and consistent support for our customers. As we do this, our focus is on strengthening long-term relationships and not short-term monetization. This not only makes good business sense, but it's the right thing to do.
As Alexey mentioned, we have launched a number of CSR initiatives to support those, who are most impacted. I particularly wanted to highlight the work we have done to provide connectivity for doctors fighting the virus. We have launched a new tariff with three free month of connectivity, which were offered to thousands of healthcare workers. This was the first project of its kind in Russia and we hope it's a help to those on the front lines.
We have also been seeing changes to consumer behavior as people migrated to working, studying and socializing from home. More and more of our daily lives is happening through digital channels and we are moving decisively to offer new solutions for new lifestyles. For example, we launched a #StayHome bundle of digital services that packages together MTS TV, music, library, fitness and telemedicine via our SmartMed application. We are also providing extra rewards within our loyalty program for online purchases of much needed goods such as grocery and food delivery.
And in live entertainment, we have shifted gears toward online programming, launching a series of virtual concerts with some of Russia's top performing artists. Viewers can watch a free stream via MTS Live with a option for an immersive experience with a VR headset. To date, over 30 million people have tuned in and we have a package [Phonetic] event line up ahead of us.
Given where we are in the business cycle, as we execute on those initiatives, we're taking a cautious approach in terms of opex, but ultimately this is an investment in the future. Beyond the recovery phase, we think many changes to consumer behavior will likely persist. That's why we think now it's a good time to begin disclosing additional metrics around our ecosystem development.
In Q1, we continued to see growing adoption of MTS apps. A good example is the MTS Bank application with users up more than 70% year-over-year, breaking the 1 million mark for the first time. Additionally, our flagship self-care app MyMTS reached nearly 22 million active users. Although going forward, we expect that number to plateau, given that we have already attracted our most digitally savvy users to the platform.
But we are seeing ahead of the curve and now are shifting our focus toward expanded functionality in particular by aiming to deepen fintech-based features and capabilities.
We've set up a joint team with MTS Bank to do just that and we have some exciting developments in the pipeline. As regards to the Bank, we continued to see robust growth in the customer base in Q1, reaching nearly 2.5 million bank clients, over half of which are in our key audience of high-frequency daily banking users. And lastly, in media, we have a stable foundation of 4.6 million pay TV viewers with promising prospects to add new customers by leveraging bundle offers and exclusive content. Overall, we have made steady progress in cultivating our ecosystem and those efforts are beginning to bear fruit.
Now, let me hand it over to Inessa for our telecom business update.
Inessa Galaktionova -- First Vice President for Telecommunications
Thank you, Slava. As Alexey mentioned, connectivity is now more important than ever. Over the past 2.5 months, we have successfully adopted our strategy to unprecedented challenges. Operationally, this has required tremendous efforts from redirecting call centers and redesigning sales channels, to reassigning employees to remote work. We executed at lightning speed. And despite disruptions, successfully maintained overall high-service quality as well as healthy sales dynamics.
Turning to Q1 results, let me begin with mobile in Russia. Overall, we saw solid top line performance with year-over-year mobile service revenue growth in Russia accelerating nearly 7% to reach around RUB80 billion. This as part reflected in the impact of tariff adjustments toward the beginning of the year. In addition, there was a low base effect due to pricing moves going into effect relatively later in 2019. We also continue to actively fine-tune our tariff structure. For example, new subscribers of our flagship tariff are now presented with an additional paid option to activate unlimited data above 25 gigabit. As an early effect [Phonetic], due to travel restriction, we have seen as step fall-off in roaming revenue. We expect this to materially impact our results in Q2 and potentially into the second half of the year.
Turning to subscriber dynamics. In Q1, our mobile customer base in Russia was up just under 1 million subscribers year-over-year. At the same time, given the retail situation in Q2, we've begun seeing a significant impact on adds and households. The situation is evolving and the impact hard to forecast. That said, we expect a reduction in churn with only partly compensated for lower adds, translating into net decline in subscribers. However, we're seeing the biggest dynamic is in the low-value segment, such as tourists, guest workers and secondary SIM users. Altogether, this represent a small share of total revenue.
In contrast, we're seeing greater resiliency among our high-value customers, who continue to be our strategic focus and target audience for upselling digital services. So, while we do expect some impact, we continue to see long-term opportunities for ARPU accretion.
In the fixed line in Russia, we saw positive revenue growth of 1.4% year-over-year in Q1 to reach RUB15.3 billion. Notably, we saw solid performance in consumer broadband and TV, more than offsetting declines in landline phones [Phonetic]. Excluding telephony, B2C fixed revenues were up over 5%. More recently, new handsets [Phonetic] and bandwidth upgrades are higher than forecasted, particularly in Moscow as people are working, studying and relaxing more at home.
Turning now to retail. In the first quarter, we saw solid 6.1% year-over-year growth of sales of handset and accessories, reversing the dynamics we saw in Q4. That said, we believe this as part reflected a temporary blip due to foreign exchange volatility, in particular, as ruble weakened, consumers have -- and we have accelerated purchases of imported devices ahead of expected price increase. In Q1, we also continued to execute on our optimization program and we were on track to hit our target of up to 400 net closures this year.
However, the world has now changed and retail is one of the most impacted sectors. As an essential business, many of our stores have remained open during the crisis, although stores in shopping malls have had to close in line with local health guidelines. Given self isolation measures, we have also seen a significant decline in foot traffic. Altogether, we anticipate to lose a major share of retail revenue in Q2, but we're not standing still. We are moving swiftly to adapt our approach to the current environment. We have expanded contactless SIM delivery to hundreds of Russian cities and have added thousands of new SIM distribution points in the central retail outlets, including post offices, grocery stores and pharmacies.
In addition, we have received regulatory approvals for self registration of SIM cards and we've already fully put this into commercial operation with an app based identified verification process. Looking ahead, we plan to prioritize this channel at the key level to lower subscriber acquisition cost. We're also broadening our SIM-based infection tracking [Phonetic] across all of our sales channels.
We want to make sure customers have a great experience during each and every touchpoint, whether in stores, online or at their door. At the end of the day, our telecom strategy is simple, best brand, best network, best customer base. We had a strong start to this year. And despite challenges, I'm confident we're on the right track.
With that, let me hand it to Andrey.
Andrey Kamensky -- Vice President for Finance
Thank you, Inessa. As usual, I will start with an update on MTS Bank, before circling back to Group financials. Given the insulation from COVID-19 in Q1, the bank saw continued strong performance in the first three months of the year. Net interest income rose 43% year-over-year to RUB3.6 billion, driven by 50% growth in the gross loans versus the year-ago quarter.
Net profit for the bank amounted to more than RUB200 million, which included a negative impact of about RUB480 million as we proactively booked provision in response to the changing macro environment in Q2. In line with our consumer focus, portfolio growth was driven by retail loans, which were up 67% year-over-year to RUB91.1 billion [Phonetic]. Importantly, we saw a good mix of growth across general purpose loans and the card products, contributing to overall portfolio diversification.
Shifting gears from Q1 to Q2, in contrast to connectivity, the banking sector is more sensitive to macro volatility. And we have begun to see significant shifts in the indicators we track. By early April, sales of new loans were down around 60%, partly reflecting the closure of retail branches, but also changing patterns in consumer spending and saving. We have also seen an increase in the request for loan restructuring. Given the signals, we are carrying out a deep and comprehensive assessment of the portfolio and we're modeling a variety of forward-looking scenarios. While the full impact remains difficult to estimate, we are taking a cautious approach.
We currently envisage cost of risk to further increase in Q2, that will likely require additional provisions that would be recorded in future reporting periods, which we expect to put pressure on the bank's OIBDA and net income. Nonetheless, we are confident we will overcome this speed bump. Moreover, recent developments have only further reaffirmed the logic behind our strategy. Now more than ever, consumers are shifting to digital-first banking from online customer service to virtual cards and contactless payments.
Coming back to the Group. In Q1, Group net profit came in at RUB17.7 billion, largely flat year-over-year. On top of support from core operating performance, net profit also saw a significant positive impact from depreciation of the ruble, which with losses from a fixed effect more than offset by changes to the fair value of the derivative instruments. In addition, a decline in finance income versus the year-ago quarter was largely offset by lower financing costs, reflecting our ongoing efforts to optimize our debt portfolio.
At the same time, net profit faced headwinds from relatively high base in discontinued operations in the first quarter of the previous year, in particular from MTS's former Ukrainian operations as well as the reassessment of the reserve related to Uzbekistan. Excluding discontinued operations, in the first quarter of this year, net profit from continuing operations increased 33.8% year-over-year to reach RUB17.3 billion.
Turning to capex and cash flow. Capital spending for the first three months of the year increased by RUB3.6 billion as we continue to actively invest in improving capacity and coverage. When excluding the payment related to Uzbekistan in the first quarter of 2019, free cash flow in the first quarter of 2020 declined RUB6.7 billion year-over-year and totaled RUB17.5 billion, largely driven by the two factors. First, higher capex intensity this year due to the acquisition of a stake in the regional fixed business; and second, a high base from the divestment of our stake in Ozon in the year-ago quarter.
Turning to the balance sheet. This year, we are continuing continuing to take timely steps, aimed at optimizing our debt portfolio. In the reporting period, we issued RUB15 billion in exchange-traded bonds with a maturity of seven years and the coupon rate of 6.6%. We also raised two loans with a maturity of five and six years totaling RUB75 billion. By the end of March, our gross debt FX exposure had been reduced to just 2%. Total Group debt at the end of the quarter stood at RUB423.4 billion with the weighted average interest rate decreasing nearly 30 basis points from the end of last year to 7.4%. Our net debt to last 12 months adjusted OIBDA ratio stood at 1.6 at the end of the quarter, excluding the effects of IFRS 15 and 16. And we find this level very comfortable in the current environment.
Now I will hand it back to Alexey for his closing remarks.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Thank you, Andrey. Since first quarter, the world has changed and so has our outlook for 2020. In the interest of transparency, I wanted to share some of the operational indicators we track internally to give a sense of what we are seeing. Importantly, some of the biggest impacts we saw in April are now starting to reverse in May.
In connectivity, roaming is at near zero, while local traffic remains elevated, particularly in fixed line. Although the early spike in top-ups and add-ons has now returned to baseline. In retail, many of our outlets that were temporarily closed in March have begun reopening and we are seeing gross adds in sales of goods trending in line.
In fintech, our retail bank operations have fully resumed. In addition, virtual card is up more than a third, despite a sharp decline in overall card issuance. But as Andrey mentioned, we are expecting an impact from economic headwinds. Finally in digital, we are seeing breakneck growth in new users. In April, MyMTS adoption was up 2.5 times and adds in SmartMed and SmartUniversity were up an explosive 10 times. That's a powerful catalyst for our ventures in telemedicine and our online education.
Taking these trends together as well considering the increased uncertainty for the remainder of the year, we are revising our 2020 guidance downward to a flat to 3% growth in the revenue, minus 2% to flat in the adjusted OIBDA and maintaining our capex outlook at around RUB90 billion. Despite this revision, we are confident in the relative resilience of our core business as well as our solid liquidity position and sustained cash generation ability.
In terms of shareholder remuneration, we remain fully committed to fulfilling our dividend policy in 2020. Furthermore, this year, we have already paid a special dividend in first quarter as well as launched a repurchase program to buyback up to RUB15 billion of our shares. Finally, the Board has also recommended a full-year 2019 dividend of RUB20.57 per ordinary share for approval at the AGM in June, which by the way, we will be conducting remotely for the first time. We will be webcasting the event and we have an action pack lineup. I hope you will join us remotely.
So, to sum up, we had a solid first quarter. We are navigating second quarter and we are continuing to move forward on laying a strong foundation for the future of MTS. Thank you and let's open up line for the questions.
Polina V. Ugryumova -- Director, Investor Relations
Operator, we are ready to take questions now.
Questions and Answers:
Operator
Thank you very much.
[Operator Instructions]
The first question we've received is from Cesar Tiron of Bank of America. Your line is now open, go ahead.
Cesar Tiron -- BofA Securities -- Analyst
Yes, hi. Good evening everyone. Thanks for the call and for the opportunity to ask questions and congrats on the numbers. I have two please -- two questions. So, the first one is really on the traffic. If you can please share again the data trends in May and how those compares to April? And the second question would be really on the guidance. It's a downgrade, but it looks more like an upgrade to the underlying business, I guess. Can you please tell us what you have assumed in terms of roaming for the full year? Have you assumed that there is no roaming revenue for all of the remainder of 2020? And then, what type of provisions have you assumed for MTS Bank going forward? Thank you so much.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Thank you for your questions. On data traffic trends in May, we see that still the fixed line, the traffic is quite elevated. And overall, over those few months, we saw a much high impact coming from -- in terms of capacity stretch on the fixed line rather than on mobile. So, in mobile, the traffic is up from the pre-pandemic period, is about 10%, while in fixed line, is about 30%, 40%. And in Moscow, even is above that. So, we see some reduction of the stretch in May versus April in fixed line, but overall the situation is staying as such.
And as far as guidance is concerned, taking the uncertainty and relatively low visibility of how things develop, we would refrain from maybe guessing, in particular, contributions from business lines into this guidance. We think that with all variety of the businesses, we took and take on certain recovery both in terms of isolation requirements and some other aspects starting from summer. But generally, we think that this is quite a strong guidance. I agree here with you. That's quite a strong guidance, taking the overall macroeconomic situation and the strong roaming effect, which we saw in the second quarter.
Cesar Tiron -- BofA Securities -- Analyst
Okay. Thank you, Alexey. But just to make sure you have assumed -- it's in the press release I guess -- you have assumed further provisions at MTS Bank into the next quarters into the guidance, right?
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Yes, yes. We assumed significant provision, which we'll probably see in the second quarter in our financial segments.
Cesar Tiron -- BofA Securities -- Analyst
Thank you so much. Very clear. Thank you.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
It is important to say that our risk policy is quite sober in financial segment and always was as such. We showed our cost of risk and we even started expecting some slowdown in 2020. Already in 2019, we started putting more strict risk requirements toward B2C loan portfolio in the bank. And that will have a positive impact on our provisioning this year. So, we've been quite cautious and started taking relevant measures early enough.
Cesar Tiron -- BofA Securities -- Analyst
Thank you so much again. Thank you.
Operator
Thank you. The next question is from Ivan Kim of Xtellus Capital. Your line is now open. Please go ahead.
Ivan Kim -- Xtellus Capital -- Analyst
Good afternoon. Just a follow-up on the previous question. So, you don't want to share how much you planned for provisions at MTS Bank for the second quarter, just to make sure? And my two questions are, first on the retail footprint, do you see the opportunity to accelerate the closure of the stores? And how do you see that market evolving throughout the year? And my second question is on the acceleration in domestic mobile service revenue. So excluding roaming, in the second quarter, you saw a 40% increase in demand for voice and data packages in April. Some returned to baseline in May of course, but even that 40% increase, is quite significant. So, do you expect the acceleration in domestic mobile service revenue in the second quarter and how significant that's going to be? Thank you.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
I'll take the provision and the next two will be answered by [Phonetic] Inessa.
On provision, I would like to specify two important aspects. Firstly, it's too early to indicate because the ultimate provision for the first quarter will depend on the certain consumer behavior, and in particular, vintage, which we'll see upon completion of the second quarter. So in this sense, we wouldn't be even able to indicate -- to give you any guidances in this respect, because it's too early, firstly.
And secondly, just to stress once again, we have been quite sober in terms of our risk policies. We start early enough, yet indeed starting from the end of 2019, a more disciplined risk approach. And that also allows us to limit the potential additional provisions as we think we'll see in the second quarter.
Inessa Galaktionova -- First Vice President for Telecommunications
Regarding the retail footprint, as we promised for 2020, we're planning to close around 400 shops. So, on our first quarter, we closed around 170 shops and actually we are planning to close the rest up to September. But due to the quarantines, we are forced to close much high number in April and May. And we will follow on the situation on the market and we'll see how many shops will open at the end of Q2.
At the moment, we don't plan to close more than 400, but will definitely review the situation on the market and we will take further actions based on Q2 results. This is on the retail footprint.
Regarding the acceleration of roaming and effect on Q2, once again we mentioned -- that in Q1, it was effect on the pricing and on the low base -- sub base in Q1. So, we don't expect an effect continue in Q2.
Ivan Kim -- Xtellus Capital -- Analyst
Okay, thank you.
Operator
Thank you. The next question is from Ondrej Cabejsek of UBS. Your line is now open. Please go ahead.
Ondrej Cabejsek -- UBS -- Analyst
Hi and thank you for the opportunity. I have a follow-up on the guidance in the previous questions, more related to revenue trends and then data trends per se. Can I just understand or if you could give us more color because you indicated that the trends are stabilizing and improving already in May. Could you give us just an idea of what happened to service revenue trends in mobile in April? And then, in terms of the guidance going forward, would you be able to give us an indication in terms of what the assumptions regarding mobile service revenues are for the updated guidance, please?
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
Hi, I will take this question. This is Slava Nikolaev. I can tell you that service revenue -- when we're talking about service revenue, the major impact in service revenue we had was roaming. And given that we've had most of this impact already in April, I can tell you that in these terms, the trends in May seems better. Nothing ominous in addition to that.
Ondrej Cabejsek -- UBS -- Analyst
So, no number that you're willing to give us, for example, April, what the trough of the trends look like?
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
No particular numbers. You probably should know our revenue streams in roaming. We've disclosed that any times. So actually, we expect them to come back at some point. In other revenues, we again -- we don't see many decline in mobile revenues.
Ondrej Cabejsek -- UBS -- Analyst
Okay, thank you. And second question, if I may, you finished the acquisition of the regional broadband provider. Can I understand clearly there is more demand for fixed broadband in Russia, it's still an under-penetrated market. Is this potentially given the current increase in demand for fixed broadband first of several acquisitions that we may expect from MTS in this space?
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Well, I don't think that the particular growth in broadband demand is improving variation approach [Phonetic] or the price of the assets neither downwards nor upwards. So, I wouldn't say that it principally changes our approach. So, we do look at opportunities in the market. We continue to monitor and it is part of our strategy to grow non-organically in our fixed line presence in the regions to the extent it is possible and economically viable. So, we'll continue with this approach.
Ondrej Cabejsek -- UBS -- Analyst
Okay, thank you very much.
Operator
Thank you. The next question is from Herve Drouet of HSBC. Your line is open. Please go ahead.
Herve Drouet -- HSBC -- Analyst
Yes, thank you. Good afternoon. Couple of questions as well. The first one is, could you share with us, maybe the NPL or bad debt you have experienced in April or beginning of May or maybe in term of trend to give us a bit of an idea on how the provisions may look for MTS Bank? The second question is regarding your capex, I mean, we've seen there is much more traffic in fixed line. I was wondering, are you starting to shift a bit more capex more toward fixed or digital as there is an acceleration of digital adoptions versus purely mobile or do you stay with your current plan as planned at the end of last year? And out of this capex, how much for this year, out of the RUB90 billion is for the Yarovaya law is my second question. And just finally, just a comment, do you believe there could be a very good opportunity to drastically reduce your point of sales in term of retail shops, especially as the online retail has increased quite significantly? And do you believe your competitors may gradually move more toward that route rather than just physical outlets? Thanks.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Okay. Let me once again to take the bank question on NPL and provisions. We showed the figures on our NPL and cost of risk effect up to April '20 in our slide deck. So, in terms of like being more numerical, so we didn't see much of the growth in the NPL and there is some growth in cost of risk on the back of macroeconomic development with additional provisions to come. But to just reiterate what I said to give a more detailed or more specific indication will be premature. We think that we have a sober risk policy approach and will yet have to see how the situation develops toward the end of second quarter. We give guidance with -- taking into account the additional provisions required for MTS Bank.
Andrey Kamensky -- Vice President for Finance
Yeah, I will take the second question about capex. As we reiterated our forecast for this year for the same amount as we said before, you should bear in mind actually if you compare our capex versus previous year, that we are spending a bit more, if you take out the Ukraine operations out. And this increase specifically has to do with more capex that we're spending on fixed business because it's growing and it is a part of our strategy. We are focusing on conversion products more and more, and of course digital products, which became part of our strategy and our operations.
Inessa Galaktionova -- First Vice President for Telecommunications
Okay. I will repeat the answer regarding the retail footprint. So, first of all, we don't need a radical optimization in the retail, first of all, because our retail chain generates really qualitative sales. And secondly, we had plans to close this year around 400 shops. In Q1, we closed 170, and the rest 250, we were planning to close in Q2. And as you know, and as it's mentioned on eighteenth slide, in April, it was closed due to quarantine, due to coronavirus, around 50% of our chain. And in May, around 25%.
So actually, at the end of the day, so it was -- the big part of our retail chain was closed. So, at the moment, we don't plan to a close more than 400 shops this year, but will navigate -- will see the situation on the market. And if it's required and if we see some additional proofs that we need to optimize a certain number of our shops, we will definitely announce that. But at the moment, we stick to our plans to close 400 shops this year.
Herve Drouet -- HSBC -- Analyst
Right, OK. And maybe just a follow-up on the capex. How much for this year is going to be spend for the Yarovaya law in data storage, out of the RUB90 billion?
Andrey Kamensky -- Vice President for Finance
Actually, we do not disclose the parts of the capex. We're also referring to the total amount.
Herve Drouet -- HSBC -- Analyst
All right. Okay.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
You are asking about Yarovaya?
Herve Drouet -- HSBC -- Analyst
Yeah. Yarovaya, just for this year out of the RUB90 billion spend this year?
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Yeah, look, I think -- our guidance is RUB50 billion over the five-year period. And we are saying that we'll be trending a little bit toward the beginning or the start of implementation of Yarovaya law. So you can assume that will be around, if you divide RUB50 billion by five. That's a rough indication.
Herve Drouet -- HSBC -- Analyst
Yup, understood. Thank you.
Operator
Thank you. The next question is from Alexander Vengranovich of Renaissance Capital. Please go ahead. Your line is now open.
Alexander Vengranovich -- Renaissance Capital -- Analyst
Yes. Good afternoon. This is Alexander Vengranovich from Renaissance Capital. Just two follow-ups I think from my side. So, the first one is on the rising data consumption in April and May. I'm just wondering how it's possible for you to upsell your customers with higher speed data tariffs on fixed line and probably bigger packages on mobile? Do you think that it's feasible to do it in this environment? And you've already started to see that the customers are taking high speed data tariffs or bigger packages on your mobile network? So, I'm just trying to understand what sort of an upsell opportunity is on your fixed line and mobile network? That's my first question.
And the second question is also on your competitive environment in mobile. So, you've done the price increase early in the first quarter '20 and I think most of your competitors did the same. Also in April, we've seen that Tele2 had started to quite substantial increase the prices for e-subscriber tariffs [Phonetic] in some of the regions. I'm just trying to understand if it's a major change to the competitive environment, I mean, that it's becoming even better, because like everybody, it's trying to optimize its marketing proposition for the customers and there is no further disruptive activity from Tele2 anymore on the market. So, do you see any changes after the first quarter with regards to the competitive environment? Thank you.
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
Look, with the first question, first of all, I want to stress that we see higher data consumption primarily in fixed line,though overall trend that we see from the beginning of the year and including the time after COVID, that people tend to get higher-priced tariff plans with bigger allowances. And you probably remember that campaign in February, we started to go away from pure unlimited tariff plans, making additional services for unlimited for a separate price.
So first, we see increase in tariff pricing with this.
And second, we've already told you that many, many times that competitive environment in Russia is improving. And I think that what you see in the first quarter is just a result of that. We've seen Tele2 following our moves for a long time now and I'm completely not surprised that they're increasing their prices, following our changes.
So, I wouldn't say that it's a major change of competitive environment. It's just something that led to a very stable increase of our mobile revenues in the end of the last year and the beginning of this year. So, I think it's just remaining the same for the last nine to 12 months.
Alexander Vengranovich -- Renaissance Capital -- Analyst
Okay. Thank you. That's clear.
Operator
Thank you. The next question is from Vyacheslav Degtyarev of Goldman Sachs. Your line is now open. Please go ahead.
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Yeah. Thank you very much for the presentation. Two questions. Firstly on guidance, you haven't lowered your margin guidance for the full year, despite the loss of the high-margin roaming revenues. Can you please talk a little bit about the mitigating factors that you are implementing across your business, maybe on the personnel side, marketing side or subscriber acquisition cost, etc.?
And secondly, a question on the B2B digital and cloud performance basically. Can you elaborate outperformance [Phonetic] in Q2 or whether there is an acceleration of growth there, or you observe certain challenges? Thank you.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Let me tell you on guidance. Actually, we do reduce our guidance by expanding the range. So, we put a range in starting on OIBDA from minus to flat. So, that gives you visibility and gives us certain better flexibility as we'll see how the situation develops toward the year-end.
Of course, we are taking a number of initiatives in order to optimize our costs, starting from revising our roaming agreements, reducing our marketing budgets and many other initiatives, which will help us to catch up with our OIBDA current guidance. Saying that, we think -- and here I probably agree with you, it is a strong guidance on OIBDA. But we'll have to take certain force in order to deliver.
And on B2B digital, yeah, we see double-digit growth in this segment, organically, if you look. And we believe that the strong demand will stay there. So, we have very good infrastructure. We acquired, as you know one of the top leading data centers -- commercial data centers, Avantazh, which now we will start filling in this year, so that gives us additional contribution to our revenue. So, overall we're quite positive on our data cloud and B2B business digital development.
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Okay, thank you very much.
Operator
Thank you. The next question is from Dilya Ibragimova of Citi. Your line is now open. Please go ahead.
Dilya Ibragimova -- Citigroup -- Analyst
Thank you very much. I had a couple of questions, please. First is on, just wanted to -- if you could share perhaps your thoughts on Board nominations. You did mention strong candidates and specifically what your thoughts are, whether you have any projects in mind, following the appointment and election post-AGM of Konstantin Ernst, and [Indecipherable] I think was a venture capitalist with a tech background, Alexander Galitsky, So, that's my first question, I would expect or if you could share your thoughts there [Phonetic].
Second question is on B2B, a lot of maybe [Indecipherable] and whether you see your data center capacity as sufficient, whether you plan to invest more, considering the strength from demand for media and entertainment specifically, whether or what your thinking is in terms of network architecture, whether you've asked for 5G [Phonetic] or whenever that comes in, or even with the 4G, where people stream content, whether you need more localized presence of the data center cloud solutions to be able to offer good quality of services?
And maybe last one on the media and entertainment vertical, considering strong demand or strong viewership that you have seen in April and in May, with all the events that you have been introducing, do you see this vertical as an opportunity to drive customer loyalty only or do you think you could monetize this as well and with your new initiatives you've mentioned [Phonetic] that JV [Indecipherable]? Thanks.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Well, a few words on Board of Directors nominations. I think the new Board gives strength in order to respond or to help the Company with the new strategy -- ecosystem strategy -- and going outside of fewer telco product proposition. So, we have Konstantin and the leading [Indecipherable] in mid-Russia. As you know, we signed an agreement with [Indecipherable] on strategic partnership and in this sense to develop our media together. And in this sense, it is a logical addition to our Board, taking our strategic partnership, and his expertise and his knowledge. Nadia Shouraboura is a very experienced professional in building and developing ecosystems. And since we are facing a lot of ecosystematic challenges and questions, she will be helping us to give you a proper response to develop. And in particular, in data center strategy development, she has also very good experience with Amazon. And Shaygan, he is very experienced both in telco, and being chief technical in Verizon and in digital banking, being technical digital expertise in leading banks. And Mr. Galitsky has a very improved experience in different industries and with start-ups and with how you build up the business and how you develop businesses. So, these are all various strong additions we believe to our Board.
One can know that also we have a majority of Board members as now independent. That is also very strong indication of strategic approach or strategic stance, which we'll get from the Board. Yeah, that's probably some thoughts on in respect to the Board.
With B2B data centers' capacity utilization, we are not using that heavily for or we don't see it as the primary sources of our internal usage in particular when we talk about entertainment or media or something like that. These are just minority of our data capacity utilization. And the primary use of course is commercial. So, we'll sell -- although we have varied internal use, but with the new data center build up, with the new development, of course, the primary goal will be in commercial to develop on that and to build the new revenue streams.
And in this sense, we have a lot of capacity. We build and we acquired significant capacity, which will monetize in this year and next year, going forward.
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
On entertainment, actually that's a very interesting question. Because at first we realized -- when we were launching these virtual concerts, we realized that it's definitely not the time and place to monetize that heavily on subscriber base at the moment. But it was a really great impact on our image and on loyalty. We've got a lot of positive response. And in addition to that, I can tell you that -- actually the cost of content in this endeavor is really great. It's one of the lowest in the history of such events.
But at the same time, I think that coming back to normal, we will be able to monetize that, because, first of all, we had already for some time -- we had an interesting VR project that maybe wasn't that popular in the pre-COVID times. But now as we see huge demand in online concerts currently in Russia, we believe that we'll be able to provide concerts still free of charge in normal capacity and normal quality, but we'll charge for 4K and we will charge also for VR 360 and other additional capabilities that we already have on our platform. So, it's actually good in both ways.
Dilya Ibragimova -- Citigroup -- Analyst
That's very helpful, thank you very much.
Operator
Thank you. The next question is from Mr. Goncharov of Gazprombank. Please go ahead. Your line is now open.
Igor Goncharov -- Gazprombank -- Analyst
Yes, thank you very much for the opportunity. Just two quick follow-up questions. One on the dividend, you mentioned term in your presentation that you will remain committed to the dividend payments during the year 2020. For some reasons, you mentioned the year 2020 specifically. Does it mean that there is some -- do you see some flexibility in relation to the dividend payments in the year 2021, which is still included into the current dividend policy? That's question number one.
Question number two relates to the completed integration of Rostelecom and Tele2. Do you see any changes in the competitive environment in the recent months related to this integration? Do you see any additional pressure potentially on your business from this? Thank you.
Andrey Kamensky -- Vice President for Finance
Yeah. So, the answer to the first question is very simple. We're going to stick to our dividend policy, which is well for three years. So, there is no changes that we foresee for 2021 in terms of dividends.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Speaking on competitive environment, firstly, overall as we already mentioned, we think that it remains stable. We don't see any deterioration or neither significant improvement in place. We think it is stable and that gives us certain optimism. I would put it that way. And in this sense, we don't see effects from consolidation of Rostelecom and Tele2, being having any specific impact on the current competitive environment. I would rather say we encourage any consolidation in the market because we think that overall consolidation of the market is a good and positive step and leads to certain value creation in the markets. So, I think it's rather the move in the positive direction.
Igor Goncharov -- Gazprombank -- Analyst
Okay. Very clear. Thank you very much.
Operator
Thank you. We now received a follow-up question of Ondrej Cabejsek of UBS. Your line is now open. Please go ahead.
Ondrej Cabejsek -- UBS -- Analyst
Hello. Thank you, a follow-up. I'm not really expecting an answer, but I'm going to try. Can you give us an indication of what amount of -- what part of your growth as is currently coming from VEON as in, I'm really interested, what part of your service revenue growth, that is above market, is driven by the losses that VEON is reporting? Thank you.
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Yeah, well, that we cannot say, sorry. It's a very specific question and I don't think that this is necessarily the source of our growth. So, I wouldn't really comment on our competitors anything.
Ondrej Cabejsek -- UBS -- Analyst
Okay, thank you.
Operator
Thank you very much. There are no further questions. I would like to turn back to you.
Polina V. Ugryumova -- Director, Investor Relations
Ladies and gentlemen, thank you very much for listening. If you have any further questions, we welcome you as usual to contact MTS Investor Relations at any time. A webcast of this discussion will be available soon on our website, if you wish to replay the call. In the meantime, we appreciate your interest and wish everybody a happy and healthy day. Please stay safe.
Operator
[Operator Closing Remarks]
Duration: 66 minutes
Call participants:
Polina V. Ugryumova -- Director, Investor Relations
Alexey Kornya -- President, Chief Executive Officer and Chairman of the Management Board
Vyacheslav Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development
Inessa Galaktionova -- First Vice President for Telecommunications
Andrey Kamensky -- Vice President for Finance
Cesar Tiron -- BofA Securities -- Analyst
Ivan Kim -- Xtellus Capital -- Analyst
Ondrej Cabejsek -- UBS -- Analyst
Herve Drouet -- HSBC -- Analyst
Alexander Vengranovich -- Renaissance Capital -- Analyst
Vyacheslav Degtyarev -- Goldman Sachs -- Analyst
Dilya Ibragimova -- Citigroup -- Analyst
Igor Goncharov -- Gazprombank -- Analyst
