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Mobile TeleSystems PJSC (NYSE:MBT)
Q2 2020 Earnings Call
Aug 19, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Dear ladies and gentlemen, welcome to the [Technical Issues]. [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, ma'am.

Polina Ugryumova -- Director of Investor Relations

Welcome everybody to today's event to discuss MTS Second Quarter 2020 Financial and Operating Results. As usual, please be aware that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors, including related to the COVID-19 pandemic, 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 discussions 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 the risks. I also want to remind you that 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 Chief Executive Officer; Slava Nikolaev, First Vice President for Customer Experience and Marketing and Ecosystem Development; Inessa Galaktionova, our First Vice President for Telecommunications; Andrey Kamensky, Vice President for Finance; and Ilya Filatov, Vice President for Financial Services and CEO of MTS Bank, who will speak in Russian and I will translate.

Now, it's my pleasure to introduce Alexey to kick us off.

Alexey Kornya -- President and Chief Executive Officer

Welcome, everyone and thank you for joining us. Giving the ongoing global pandemic, I wanted to begin with an update of where we stand today before turning to our second quarter performance and highlights.

First and foremost, our guiding principles remain unchanged, protect our employees, support our customers and help society more broadly. As we said on our last call in May, the pandemic has had several major impacts on our company; most notably a steep drop in international roaming and slowdown in retail sales, and the changing risk profile of the loan book at MTS Bank. While significant uncertainty remains, we have also gained some much-needed clarity.

On the retail side, following the initial drop in sales in April, recovery kicked off in May that continued into June as social distancing eases. Our operations are now mostly back to normal. Overall, we see the market rebound continue.

On the connectivity side, traffic volatility has mostly abated, while we continue to see resilient demand on both mobile and fixed line services. While limited international travel has resumed, roaming headwinds have continued into peak summer travel season and therefore, we expect them to have a material impact on our results in third quarter. Finally, I also wanted to highlight that at global level, we are now living in unprecedented time of digital acceleration. As we look at the bigger picture, current trends only further reinforce my confidence in our two-pronged loan growth strategy.

Firstly, we are maintaining a leading network investing in coverage, capacity and quality. Our goal is to provide the reliable connectivity when, how and where is needed. Second, we continue to move with the pace of transformation path we laid out last year. In fintech, although we are in the challenging macro cycle, the industry is rapidly moving toward digital sales banking, contactless payments and other areas where we see competitive niche.

In media, the shift toward video-on-demand is accelerating and set to fundamentally reshape the entertainment industry. And in B2B, businesses are prioritizing agile and IT approaches, remote work solutions and cloud-based workflows. We expect these trends to continue. And I'm confident we are well positioned to capture some of the digital tailwinds.

Turning now to our performance. I'm happy to report that despite volatility and headwinds, we successfully delivered growth in second quarter. Group revenue was up 1.3% year-over-year to reach RUB117.7 billion. Importantly, top line growth was driven both by our [Technical Issues] as well as segments beyond connectivity. At the same time, we saw a significant negative impact in the retail with the overall market slowdown during the pandemic. Group adjusted OIBDA notched up slightly by 0.6% year-over-year and reached RUB51.6 billion. OIBDA was supported by core performance and the positive one-off, while negatively impacted by provisions at MTS Bank. Andrey will go into more details there.

Finally, despite recent operational challenges, we continue to execute on our strategy at pace across all fronts. Let me share just a few recent highlights. In July, we received the first 5G license in Russia with a specialized millimeter wave spectrum. While the commercial 5G roll-out is still some time away, we are targeting initial limited use case with Internet of Things such as an industrial process automation. In addition, we are also launching 5G smartphone sales in our retail stores to begin driving revised penetration on our network.

This summer, we also launched Marvin, our in-house AI-based virtual assistant. This project builds on the expertise in natural language processing again from developing our own customer support chatbot. Users can communicate with Marvin via multiple channels, including dedicated app and an MTS-branded smart speaker, which is now in initial public use. In the media, we are making steady progress to expand our content offering and strengthening partnership with leading players such as Channel One, Russia's most-watched TV network.

With that, I will hand it over to Slava, who will give you customer experience and ecosystem update.

Slava Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development

Thank you very much, and hello, everyone. As Alexey said, everywhere we look today, the world is becoming more digital. Successfully capturing that demand requires a customer-centric approach backed up by world-class products and services, and that's what we've been doing.

As you know, we began this journey several years ago by shifting toward a more open and straight-forward approach in customer engagements. For example, we took steps to prevent subscribers for being signed up for add-on services they didn't really want and while this can impact revenue in the short term, it also strengthened the brand trust and loyalty, which is the foundation for our long-term success. More recently, we're seeing that other players begin to move in this direction. We welcome the markets move toward greater transparency, but we are not standing still. We are now moving forward on the next phase, which is leveraging the trust we have built to cross and up-sell services beyond connectivity.

In Q2, we saw growing adoption across many of our apps and programs. Our pay-TV subscriber base jumped up around 7% quarter-over-quarter to 4.9 million users. This was driven in part by our bundle offer, which is called [Indecipherable]. Our loyalty program MTS Cashback saw slightly 73% increase in registered users year-over-year, reaching over 6 million participants. And we're continually expanding that program. For example, we recently launched a promo, under which new subscribers can convert and use data balances into cashback rewards. We are also driving penetration of our mobile apps with MTS Bank users, up nearly 60% year-over-year and active users of MyMTS now talking 22 million. These are promising trends as we move forward on our CLV 2.0 strategy.

And I also wanted to highlight a few recent major milestones as we take our customers a value prop to the next level. Last week, we launched a partnership in Russia with Spotify, the world's most popular audio streaming subscription service. On the partnership, we're offering six free months of premium service for eligible subscribers with follow-on payments handled via their MTS accounts. This exclusive offer is great example of how we are strengthening our ecosystem through partnership. It also demonstrates that MTS's leading market position and commitment to compliance and transparency makes us a partner of choice for global companies looking to tap into the Russian markets.

Beyond music, we're also moving forward in video. Fundamentally, the media -- in media, the content is the product. And there are two pillars to our content strategy. The first is our content library. This is absolutely critical for customer retention. To keep viewers happy long term, we need a large diverse lineup of in-demand titles. We have to appeal to every case [Technical Issues] day in and day out. We've recently concluded multiple agreements with some of the world's top studios that will multiply the size of our premium content library several fold.

The second half of the equation is customer acquisition. Here the focus is exclusivity. We're taking the multi-pronged approach that includes first look like, joint development and in certain cases, our own production. We're filling up the pipeline and have half a dozen content projects already under way. As they [Indecipherable] the year, they will provide a powerful magnet to draw new viewers to our platform. In addition, on the technical side, we've unified our distribution back end in more than a dozen large cities.

So to sum up, we now have all the pieces in place, a scalable platform, an area of channels and a differentiated content strategy. That makes it the right time to expand our marketing, which is where we recently launched a nationwide advertising campaign focus on the MTS online [Indecipherable].

Last, but not least, in July, we unveiled MTS Premium, the new bundle package that combines offers and services from across our ecosystem. It's free for high-revenue subscribers and RUB199 a month for others. It includes a subscription to MTS TV, spam call blocking and extra 5 gigabytes of mobile data as well as access to special retail discounts and privileged rates of MTS Bank. We think this will be a compelling offering for many of our subscribers.

As we build out our ecosystem, we're also changing how we internally track customer lifetime value. And we are already seeing some promising indicators. For example, we see ARPU is 1.7 times higher and churn is more than 50% lower for users that have subscribed to two or more MTS services versus a single service. As a free [Indecipherable], the gap grows to more than double the ARPU with churn down by a factor of three or more. So we are making good products. We see potential upside, and we're powering our ecosystem the way we are going forward.

Now, let me hand it over to Inessa for telecom and B2B updates.

Inessa Galaktionova -- First Vice President for Telecommunications

Thank you, Slava. While 2020 has been a year of challenges, one thing has been never clear, connectivity is essential to [Indecipherable], essential to the economy and essential to everyday life. As we move forward into the recovery phase, I'm happy to report MTS [Phonetic] core business has remained resilient. And we have successfully adjusted our operations to mitigate visitation. In distribution, we're diversifying our sales channels in line with our long-term mobile strategy. We have added more than 12,000 distribution points in Russia. We have launched new partnership with e-commerce players, such as Ozon and Wildberries, and we have expanded brick-and-mortar distribution with partners such as Detsky Mir.

In fixed line, we saw certain new adds as home connectivity became even more critical for work, study and entertainment. In Q2, our broadband base was up an exceptional 8.7% quarter-on-quarter and TV was not far behind the plus 7%. Altogether, fixed line revenue was up more than 5% year-over-year. We continue to enjoy [Technical Issues] where we saw the biggest transition to remote work with an essential -- estimated market share above 40% in both broadband and Pay-TV.

Turning to our mobile voice and data. In Q2, we kept a laser focus on supporting customers, including temporary [Phonetic] and during the course of traffic to official hotlines and websites. We also further improved our current approach leveraging big data for targeted personalized engagement. In Q2, we saw incremental improvement in customer loyalty. Quarterly mobile churn was down about a third of a percentage point. To some extent, this largely reflected fewer customers looking to switch providers during the pandemic.

Despite lower churn, we saw Russian mobile subscribers [Indecipherable] downward by 1.7% quarter-on-quarter. That said, we think this is a solid performance, once again, if account the drop in tourist, migrants and secondary SIM users as well as the obstacle to cost on acquisition in medium term. Despite those factors, we saw a nearly 2% year-over-year increase in Russia mobile service revenue, reflecting healthy ARPU accretion. Moreover, our second indicator is many of our consumers shifting from dual to single SIM preferably choose MTS as their sole operator.

Overall, while the market remains competitive, we continue to remain comfortable in our leading position. Looking ahead, we expect international roaming, which is a key margin driver, are to remain on the pressure in the second half of the year. It's also important to keep in mind that given our subscriber base, we have relatively high roaming revenue than some of our peers. We estimate the absolute impact from lower roaming in Q3 will probably be slightly higher than in Q2 from the historical concentration of summer travel in July and August. At the same time, there could be some minor offset from greater longer distance calling as Russian [Indecipherable] domestic locations.

Turning now to retail. Despite the store closure and trailing food traffic in April, Russia retail revenue was down low-single-digit at minus 3.4% year-over-year, reflecting a sales rebound in May and June. We also continue to forge ahead on our optimization strategy. By the end of Q2, our footprint has declined by 600 stores year-over-year. That fulfills our initial guidance for the year in 2020. We're not only on track, we're ahead of our schedule. We are also expecting to see long-term opportunities to further rightsize our network. At the same time, the retail market in 2020 is highly volatile, and there is reduced visibility looking ahead. We're also closely monitoring the situation and so far, we have not taken any decisions. That said, we intend to move further in this direction and could consider additional moves this year, if the competitive situation allows.

Beyond store count, we continue to build momentum in diversifying channels and forms. In Q2, we saw exceptional growth in online sales more than doubling year-over-year. At more recent in July, we launched our first MTS showroom in Moscow as a flagship store to [Technical Issues].

Turning to B2B. The corporate segment has also been negatively impacted by roaming as companies scaled back business travel. In addition, we see some pressure on the SME side, given that macro cycle. However, we're also seeing a surge in demand in new growth segments. The figures from Q2 are impressive. MTS cloud revenue more than doubled year-over-year. Revenue from IoT smart connectivity and vertical solution was up double-digits versus the prior year quarter. VPN revenue was also up double-digits. MTS Marketer, our marketing service for SMEs saw extraordinary top line growth. And big data, which began as internal enabler, saw external revenue more than double year-over-year.

On the enterprise and B2G side, in Q2, we won several large contracts worth over RUB1 billion. In B2G, in particular, we saw revenue up more than 30% [Phonetic] year-over-year in Q2. This is underpenetrated, but addressable market for us as we keep promising prospects in this space with projects under way to bring online social and significant facilities [Indecipherable] such as schools and medical clinics.

From a total sum up, amid headwinds, we are demonstrating results in a changing customer landscape, while focusing on acquisition and retention. As the digital accelerates, we're moving forward to capture new growth opportunities.

So with that, let me hand it to Ilya for fintech update [Phonetic].

Ilya Filatov -- Vice President for Financial Services and Chief Executive Officer of MTS Bank

[Foreign Speech]

As we mentioned, fintech was one of the MTS segments most impacted by COVID. In April, the Russian banking industry faced a serious decline in demand for credit products as current restrictions were introduced. However, in May, demand began to rebound and the interest recovery is still ongoing. MTS Bank followed the overall market trend and we are also reduced restoring consumer lending volumes.

[Foreign Speech]

Over the past year, the bank's assets have increased 29.4% with our total gross loan portfolio up 30.6% and the gross retail loan portfolio, in particular, up 48.1% and RUB99.3 billion. Over this year, the pandemic slowed loan portfolio growth in Q2, but we hope to continue moving toward pre-crisis levels and to again see growth accelerate in Q3. In June, monthly consumer loans issued by MTS Bank, particularly in terms of baseline at about 97% of pre-crisis level.

[Foreign Speech]

Quarantine restrictions led to greater share of customer acquisition through digital channels. Today, the bank issues around one-third of cash loans through digital channels. In addition, in Q2, the bank joined the Russian software payment system, which allows our client to transfer money quickly and commission free.

[Foreign Speech]

Net interest income in the first six months of 2020 increased 40% to RUB7.3 billion, reflecting loan portfolio growth over the past 12 months. At the same time, loan restructuring by certain clients and the overall increased level of credit risk led to higher bank provision in the second quarter. As a result, at the end of the quarter, the bank reported a net loss of RUB0.9 billion.

[Foreign Speech]

As we've said, the cost of risk grew in the second quarter due to additional provisions. Cost of risk for the overall portfolio came in at 11.7% and for retail specifically, it was 13.4%. This was above the levels in the first quarter, 6.6% and 8.4% respectively. The share of non-performing loans in the retail portfolio was 8.1% versus 6.6% in the first quarter.

[Foreign Speech]

In terms of capitalization, we are at a comfortable level. At the end of H1, the N1.1 and N1.0 consolidated regulatory capital adequacy ratios were 8.9% and 13.7% respectively, which according to our estimate gives extra cushion in capital reserves versus minimum regulatory requirements of 4.5% and 8% respectively. These ratios demonstrate that despite the pandemic, the bank remains resilient. At the present time, we see no need for additional capitalization of the bank.

[Foreign Speech]

It is also worth mentioning that a few digital [Technical Issues] minus with a stable outlook, noting its strong financial performance and the sustained positive effect of the bank's joint integration with MTS Group.

[Foreign Speech]

Given the growing economic recovery, the bank's conservative approach to risk management and consistent implementation of the bank's strategy with a focus on development of digital channels, we believe our fintech vertical can recover relatively quickly from losses incurred as a result of the pandemic and resume operational and financial growth.

[Foreign Speech]

Now, let me hand it to Andrey for the financial update.

Andrey Kamensky -- Vice President for Finance

Thank you, Ilya. Let me begin by walking through some of the impacts at the adjusted OIBDA level and below. Group adjusted OIBDA increased 0.6% year-over-year to RUB51.6 billion, primarily driven by solid performance in core services as well as opex savings. Those savings were in part due to our optimization efforts. However, we also saw one-off reductions in rental and the labor costs amid the pandemic, reflecting dynamics in leases and sales commissions.

In addition, we also saw a one-off positive impact from revaluation of a provision we had booked previously in relation to a regulatory case regarding bulk SMS rates for banks. We initially had more conservative expectations, and we have now adjusted the provision as we gained greater clarity. At the same time, the positive factors were mostly offset by COVID-19-related factors, in particular, the headwinds in roaming as well as loan provisioning at MTS Bank.

Group net profit decreased 7.5% year-over-year to RUB11.8 billion. Net profit was supported by solid business performance, lower net interest expense reflecting declining interest rates and a positive impact from discontinued operations in Ukraine. At the same time, we saw a negative impact from operations with derivatives and the FX effect that ruble rebounded growth in March. On a half-year basis, this was partially offset by the positive impact we saw in Q1 as the ruble weakened. Net profit was also negatively impacted by MTS Bank, although we expect bank to return to [Technical Issues] second half 2020.

Turning to capex. In the second quarter, we continued to invest heavily in network infrastructure with Group cash capex in the first half of this year coming in at RUB40.8 billion. This gives a capex to sales ratio of just over 70%. Given the traffic dynamics this year as well as the competitive situation, we plan to continue investing in the second half of the year. Free cash flow remained robust at RUB24.8 billion for the half of the year. Compared to last year, we paid relatively less [Indecipherable] in 2020, although we have also seen a bit higher level of working capital.

We continue to have a strong balance sheet with ample liquidity and robust cash flows. We're also maintaining a disciplined approach to cash management. We have a fully local, well insulated net debt position. And we remain opportunistic in the ruble bond market. Rates are low and demand is healthy. In the second quarter, we issued nearly RUB32 billion of bonds in MOEX and we fully repaid the outstanding portion of $750 million Eurobond we issued 10 years ago. Overall, as we discussed before, we're making good progress and steadily bringing down our cost of investments.

In second quarter, our gross debt weighted average interest rate declined from 8.1% to 6.7%, down more than 1.4 percentage points year-over-year. As you recall, in 2018, we were the first operator in Russia to begin reporting under the IFRS 15 and 16 standards. At the same time, in the interest of comparability, we continued disclosing our leverage under the prior standards for the past couple of years. However, recently, we have seen many of our global and most of our local peers switched to calculating leverage based on OIBDA, including IFRS 15 and 16. In addition, we have also now established a trend line with six quarters of reporting under the new standards on the last 12-month basis. So we feel the right time to make the switch as well. On this basis, in the second quarter, our leverage remained steady at 1.3 times.

Now, I will hand it back to Alexey for his closing remarks.

Alexey Kornya -- President and Chief Executive Officer

Thank you, Andrey. Well, I'm encouraged by our performance in the first half of the year, and I'm proud of the team for what we have accomplished. I think we can see without the visualization that in the second quarter, we truly lived up to our slogan "To Be Better Every Day." Given our core resiliency and increased visibility into the second half of the year, we're reaffirming our earlier guidance of flat to 3% growth in revenue, minus 2% to flat in adjusted OIBDA, and down RUB90 billion in capex cash.

Finally, despite the tough environment, we are nonetheless delivering a record year for shareholder returns. We have already paid out a special dividend launched in 2020 buyback program and completed payment of our regular full-year dividend based on 2019 results. In addition, the Group has recommended our secondary payment based on first half 2020 results. Taking together, we expect to return potentially more than RUB100 billion to shareholders this year. We are proud of our track record and in July, we were named the Top 10 most popular stock on MOEX for retail investors. We hope our global investor base also feels that we are delivering.

So to sum up, we successfully navigated the operational challenges in second quarter. We are in good shape as we head into the second half of the year, and we are confident we will emerge stronger and well positioned to capture the next growth wave.

Thank you. And let me hand it back to Polina for Q&A.

Polina Ugryumova -- Director of Investor Relations

Thank you, Alexey, and thank you to the rest of the speakers. Before we take questions, I wanted to give a heads-up, there might be a delay, if your question requires translation. Operator, let's open the line for the questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And the first question is from Ondrej Cabejsek, UBS. Your line is now open. Please go ahead.

Ondrej Cabejsek -- UBS -- Analyst

Hello, and congratulations on the results and thanks for the opportunity to ask questions. I have a question or several maybe. Starting with your OIBDA progression and OIBDA guidance, can I just understand what you expect in the second half because if we try it to break down the drivers here, your service revenues are growing like continue growing throughout the year. It's the handset sales that are down, the low margins [Technical Issues] down. The adjusted OIBDA numbers include the provisions from the bank. So why exactly do you expect the second half of this year to be much worse than what we saw year-to-date is my first question.

Alexey Kornya -- President and Chief Executive Officer

Okay. If the second question is coming?

Ondrej Cabejsek -- UBS -- Analyst

Yeah. Maybe, the second question was maybe on the service revenues. You noted at your first quarter results calls -- call, sorry, that you seem to be out of the words that compared to April, May and June were much better that the only negative impact that you saw basically was roaming. So I just wanted to confirm that, that is still the case and what trends you're seeing in the third quarter? That was my second question. Thank you.

Alexey Kornya -- President and Chief Executive Officer

Let me answer the first one. In respect of OIBDA guidance, we think it is too early to revise our guidance at this stage because the heaviest impact from roaming revenues is coming on the third quarter. So we'll have to see that the dynamics for our business both in financial services because micro situation does not allow yet to expect much stronger or quick recovery. So to sum it up, we think it is reasonable to maintain our guidance taking the first quarter impact, which we expect at this level.

And the second question is somehow inter-related. If we hear it right, respect for a third quarter roaming and traffic revenues, we do see some traffic -- roaming traffic appearing due to ease of travel restrictions. However, we -- historically, this third quarter is the highest in terms of roaming, that is why in terms of reality that carries the biggest impact on the performance.

Ondrej Cabejsek -- UBS -- Analyst

Okay. That is clear. Thank you. And if I may follow up on the first question. So maybe just you need to tell us maybe what's going on with some of your opex items, because again it's your high revenue -- so the high margin revenues are growing as the low margin revenues are declining. And the adjusted OIBDA actually includes the provision. So what's going on with the other cost items? Can you give us a bit of a color why we should expect margin contraction? Is there anything outside of roaming basically that is driving this outlook?

Alexey Kornya -- President and Chief Executive Officer

Ondrej, sorry, we cannot get it fully. Can you speak up a little bit clear and slower? Sorry for -- but we cannot comprehend.

Ondrej Cabejsek -- UBS -- Analyst

Yes. If I could follow up on the first question, please. So my point is that your high margin revenue seems to be growing, the service revenues. The lower margin revenues are in decline, sales of goods, etc. You adjust for bank provisions in your adjusted OIBDA guidance and still you are guiding for margin contraction. So basically my question is, outside of roaming, is there any other opex impact that you could explain why this guidance is still for a margin contraction for this year?

Alexey Kornya -- President and Chief Executive Officer

Well, I think we still have to see the recovery in retail. On the other side, there were some positive one-off in the second quarter, which we're marked. So we don't see other major factors other than overall macroeconomic uncertainty, continued pressure in fintech area, roaming and as I said, overall macro economy.

Ondrej Cabejsek -- UBS -- Analyst

All right. That is clear. Thank you.

Operator

The next question is from Vyacheslav Degtyarev, Goldman Sachs. Your line is now open. Please go ahead.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Yeah, thank you very much for the presentation. Also, a couple of questions. Firstly, how would you assess how much of the cost savings that you did throughout Q2 have a lasting effect in the medium term? And how much of the spending curve will get back in the second half already?

And secondly, also on the service revenues, it looks like your underlying service revenue growth in Russia was very resilient in Q2, if probably not accelerated, if adjust timing effects of the tariff reviews you've done in Q1 and also the negative roaming effect in Q2. So what was driving that [Technical Issues] acceleration in your view? Is it higher consumption of the services or anything else? Thank you.

Andrey Kamensky -- Vice President for Finance

Yeah. Thank you very much for the question. Let me start with the first one. As I mentioned, actually, we saw some one-off reductions in our rental and labor costs related to our retail network. And looking forward, as we are saying the situation is actually rebounding, I think that this cost will be back. So the short answer is that I think the major part of this optimization we will see in the second [Phonetic] quarter. Although we made some optimization and that will be -- also that will have an impact in the mid-term low, but the minor versus the comparing these reductions in rental and labor costs in retail.

Inessa Galaktionova -- First Vice President for Telecommunications

Okay. I will take the second question regarding service revenue. So some clarification on that from our side. So first of all, we've pretty stable service. We see the healthy growth of ARPU due to penetration of high tariff plans. And on top of that, we see that -- in the first quarter also, we see that [Indecipherable] is declining. And actually -- that's all in terms of trends. And also an additional -- one additional moment, which I also mentioned in my speech that we see the trend that the second SIM, most of our consumers are refusing from second SIM and turning to the MTS SIM card as the main and a single one. So that also brought penetration of new users for our MTS services.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Thank you very much.

Operator

And the next question is from Alexander Vengranovich, Renaissance Capital. Your line is now open. Please go ahead.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yes, good afternoon. A couple of questions, please. First one, how would you characterize the post-COVID situation on the mobile market? So obviously, MegaFon would be having the largest market share. Do you feel that in the third quarter, the market remains pretty stable more or less in line [Technical Issues] COVID? And do you see negative signs of accelerated competition in the market. And the related question here, do you feel that there might be an opportunity to target adequate base prices again here, like all the market players did in the first half of the year?

And my second question from margin effects. Can you clarify the RUB1.7 billion positive impact [Technical Issues] where exactly comes from? Did you pay any leases for the closed stores during the period? And if that -- if you optimize some of the costs, does that automatically mean that this cost will still optimize in the third quarter this year? Thank you.

Alexey Kornya -- President and Chief Executive Officer

Okay. As for the competitive environment, we don't see any change in terms of intensity of competition. So overall, we say it's a stable, normal situation. We see COVID impact on -- in the market, which relates -- which reflects in roaming, as we mentioned already, and partially B2B segment as well. So we cannot say that yet that we are fully back to post-COVID. However, as I said, we see some recovery in terms of traffic distribution. We see some recovery in -- due to ease of travel restriction. So we hope that by the fourth quarter, we will see more kind of post-COVID environment. We do not see any particular opportunities currently for tariff increases. And in particular, we've seen those already, and we are more kind of pushing our customers migrating to high tariffs [Technical Issues] their consumption as a part of our ARPU growth strategy.

Andrey Kamensky -- Vice President for Finance

Yes. And answering your second question in terms of the breakdown of RUB1.7 billion positive impact on -- coming from retail. I think it's driven -- it was driven by the closure of the stores in the second quarter. And in terms of the breakdown, the major part of it is coming from the payroll and the rest from the rent and other related costs.

Alexander Vengranovich -- Renaissance Capital -- Analyst

So basically, if you reopened most of the stores in the third quarter, that means that this positive impact will be lower, did I understand it right?

Andrey Kamensky -- Vice President for Finance

Yes.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Okay.

Andrey Kamensky -- Vice President for Finance

Absolutely.

Operator

And the next question is from Ivan Kim, Xtellus Capital. Your line is now open. Please go ahead.

Ivan Kim -- Xtellus Capital Partners -- Analyst

Good afternoon. Two questions from my side. First on the MTS Bank provision in the second half [Technical Issues]. Can you please provide maybe an estimate for what the incremental further provisions will be in the second half of the year?

And my second question is regarding capex. And I think there was a previous discussion that some of [Technical Issues] spending can be [Technical Issues]. So the question is whether the capex for the year can be lower than RUB90 billion. Thank you.

Ilya Filatov -- Vice President for Financial Services and Chief Executive Officer of MTS Bank

[Foreign Speech]

We think that the majority of the provisions we have expected -- we might have expected to build during the year has been already [Technical Issues] during Q2 and put it as dynamics in July and August, we do expect that in the second half of the year or for the full year numbers, the Bank should become positive at the level of the net profit.

Andrey Kamensky -- Vice President for Finance

Yeah. Ivan, and coming to your second question about potential for capex coming lower for the year, actually, if you land any regulatory factors, they're very minor. So we see no changes because of that. And as I mentioned in my speech, we -- actually, we continue to invest heavily in our network, which proved to be the right case during the pandemic. And we do not change our plan for capex, as we mentioned before, which is RUB90 billion for the total year.

Ivan Kim -- Xtellus Capital Partners -- Analyst

Great. Thank you.

Operator

And the next question is from Evgeny Annenkov, Bank of America. Your line is now open. Please go ahead.

Evgeny Annenkov -- Bank of America Merrill Lynch -- Analyst

Good evening, and thank you for the presentation. I have two questions, please. First is on MTS Bank. What outlook do you have for net interest margin for H2, given falling interest rates and also higher share of the impaired loans in your book? And second, in your OIBDA guidance, do you assume any visible impact of higher share of your fixed revenue, given MTS generated close to 70% OIBDA margin. Thank you.

Ilya Filatov -- Vice President for Financial Services and Chief Executive Officer of MTS Bank

[Foreign Speech]

As we've mentioned -- as Ilya has mentioned [Technical Issues], we do estimate that the majority of the provisions we are obliged to do have been already booked during Q2 and we do expect the [Technical Issues].

Evgeny Annenkov -- Bank of America Merrill Lynch -- Analyst

Thank you. And what outlook do you have for net interest margin picking up for [Technical Issues]?

Alexey Kornya -- President and Chief Executive Officer

For your second question in relation to guidance, of course, that includes fixed revenue. Maybe, we didn't get the full question, but of course that includes all revenues. We include all revenues in our guidance.

Evgeny Annenkov -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And we have a follow-up question from Ondrej Cabejsek, UBS. Your line is now open.

Ondrej Cabejsek -- UBS -- Analyst

Yes, thank you. Short question, please on the fixed side in Russia, you saw some pretty good acceleration. Can you comment a bit on the outlook and how sustainable that growth rate is, essentially what the drivers are, etc.? Thank you.

Alexey Kornya -- President and Chief Executive Officer

Acceleration in where? Fixed line?

Ondrej Cabejsek -- UBS -- Analyst

Yes.

Alexey Kornya -- President and Chief Executive Officer

Ondrej, the question -- can you repeat the question, sorry?

Ondrej Cabejsek -- UBS -- Analyst

So my question is on the fixed line in Russia. You saw some significant acceleration. My question is how sustainable? The current growth rate is around 5%, because I think a lot of your peers saw some acceleration as well. How sustainable that is from your view and what potential drivers contribute to that [Indecipherable]? Thank you.

Alexey Kornya -- President and Chief Executive Officer

Okay. Thank you. I think the growth rates for mid-single-digits are sustainable for this year, and we expect to end up with -- in the second half of the year, somewhere mid-single-digit in fixed line.

Ondrej Cabejsek -- UBS -- Analyst

Okay. Thank you.

Operator

[Operator Instructions] And the next question is from Dilya Ibragimova, Citibank. Your line is now open. Please go ahead.

Dilya Ibragimova -- Citigroup -- Analyst

Hi, thanks very much for the opportunity. Congratulations with the strong results. My question is perhaps to Slava on the content strategy. Is there ballpark number that you are budgeting either at opex or capex on the content? And I'm looking at exclusive content, specifically. Thanks.

Slava Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development

Yeah. Well, as we are -- starting with our media, we are quite conservative in our spend for the content. However, it is part of our strategy. So we will invest and that included in our guidance for this year. We would prefer not to disclose the figures, especially taking the COVID situation did impact this part of our business as well, in content production.

Dilya Ibragimova -- Citigroup -- Analyst

Okay. Thanks. And can I just follow-up on this? Does it tend to be more of an operating cost or capital investment? Thanks.

Slava Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development

No, there will be both the significant part of that growth in both opex items.

Dilya Ibragimova -- Citigroup -- Analyst

All right. Thanks very much.

Operator

[Operator Instructions] And we haven't received any further questions at this point. I hand it back to the speakers for closing remarks.

Polina Ugryumova -- Director of Investor Relations

Ladies and gentlemen, thank you very much for listening. If you have any further questions, we welcome you 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 in MTS and wish a happy rest of the day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Polina Ugryumova -- Director of Investor Relations

Alexey Kornya -- President and Chief Executive Officer

Slava Nikolaev -- First Vice President for Customer Experience and Marketing and Ecosystem Development

Inessa Galaktionova -- First Vice President for Telecommunications

Ilya Filatov -- Vice President for Financial Services and Chief Executive Officer of MTS Bank

Andrey Kamensky -- Vice President for Finance

Ondrej Cabejsek -- UBS -- Analyst

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Alexander Vengranovich -- Renaissance Capital -- Analyst

Ivan Kim -- Xtellus Capital Partners -- Analyst

Evgeny Annenkov -- Bank of America Merrill Lynch -- Analyst

Dilya Ibragimova -- Citigroup -- Analyst

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