Mobile TeleSystems (NYSE:MBT) Q3 2018 Earnings Conference Call November 20, 2018 10:00 AM ET
Polina Ugryumova - Head of Investor Relations
Alexey Kornya - President and Chief Executive Officer
Andrey Kamensky - Vice President, Finance, Investments and M&A
Vyacheslav Nikolaev - Vice President, Marketing
Kirill Dmitriev - Vice President, Sales and Customer Services
Ivan Kim - VTB
Cesar Tiron - Bank of America Merrill Lynch
Alexander Vengranovich - Sova
Slava Degtyarev - Goldman Sachs
Madhvendra Singh - Morgan Stanley
Alex Kazbegi - Renaissance Capital
Svetlana Sukhanova - Sberbank IS
Sergey Libin - Raiffeisen Bank
Ladies and gentlemen welcome to Mobile TeleSystems Third Quarter 2018 financial and operating results announcement and conference call.
I will now hand you over to Polina Ugryumova, Head of Investor Relations. Madam, you may begin.
Welcome everybody to today's event to discuss the Group's third quarter 2018 financial and operating results.
As usual, I must remind everybody that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These, in turn, imply certain risks, a more thorough discussion of which are available in our annual report on Form 20-F or the materials that we've distributed today. MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentation and materials used and referenced in this conference call are available on our company's Web site.
And now I have the pleasure of presenting MTS' President and Chief Executive Officer, Mr. Alexey Kornya.
Ladies and gentlemen, thank you for joining us on today's conference call to discuss the group's financial and operating results for the third quarter 2018.
Joining me to comment on our results are Vyacheslav Nikolaev, Vice President, Marketing; Kirill Dmitriev, Vice President, Sales and Customer Services and Andrey Kamensky, Vice President, Finance, Investments and M&A.
Let me begin with the key highlights to the quarter. In third quarter, we delivered another strong set of results, in Russia, the market continued to grow despite the recent regulatory changes in the environment of a relatively stable and healthy competitive dynamics with continuing increase in data consumption and ARPU. MTS has maintained robust growth momentum.
During the third quarter group revenues increased by 11.7% to RUB128 billion excluding the impact of the new IFRS standard group revenues increased by 12.1%. This growth was primarily driven by strong underlying performance in Russia and accelerated growth in Ukraine.
In third quarter, we began consolidating the results of MTS Bank, which also contributed to reported growth. Excluding the impact of bank consolidation on like-for-like basis our group revenue increased by meaningful 8.7%. Third quarter group adjusted to EBITDA was RUB59.3 billion up 21.6% compared to the previous year. Obviously, this substantial increase was aided by a new IFRS standard. On a like-for-like basis, we also see 7.3 increase driven by revenue performance. Excluding the impact of consolidation of MTS Bank and the new IFRS standards, adjusted to EBITDA grew 4.9% on a comparable basis. Our adjusted to EBITDA margin has now reached 46.3% under the new IFRS standards.
Now, I turn the call over to Vyacheslav and Kirill, who will give more color on our key market performance.
Thank you, Alexey.
For the period, we saw strong top-line performance in Russia as revenue increased 12% to RUB119.1 billion driven by an impressive dynamics in handset sales as well as continued growth in core mobile segments.
The consolidation of MTS Bank also contributed to increase in the top-line. Our mobile business continued to grow despite the cancellation of internal roaming from September. We continue to see sustained growth in data usage and ARPU in a relatively healthy pricing environment. In August, MTS launched the new tariff plan called [Terifisher] [ph] with unlimited internet. We already see the first positive results. The tariff was very well received by the market.
Those MTS clients who opt to switch to [Terifisher] tend to grow their ARPU where their average data consumption is not increasing materially. Our fixed line business demonstrated modest revenue decline of 1.5% mainly weakness in fixed telephony segment. Meanwhile MTS widened its market share in broadband internet and PayTV segments in Moscow to 36.5% and 42% respectively according to internal estimates.
The number of households using GPON services grew to 1.9 million, revenue contribution from our new segments e-gaming and e-ticketing was mainly in line with the previous quarters, while our integration business doubled in Q3 on increasing number of projects. In Ukraine, we witnessed an acceleration in growth of double-digit numbers, on a comparable basis, our revenue increased 13.8% on a continuing strong take up of data products supported by existing 3G coverage and ongoing LTE rollout.
Excluding the impact of new IFRS standards, OIBDA grew 26.9%. in Armenia with a 2.3% decline in top-line and 5.4% decrease in OIBDA on a like-for-like basis, while in Belarus, we enjoyed a solid double-digit growth in both revenues and OIBDA.
Now, I turn the call to Kirill, who will speak on sales and retail development.
Thank you, Vyacheslav.
In Q3, our handset sales revenue grew year-on-year further accelerated to 37.5%, this is compared to 21% growth seen in the overall Russian smartphone market on our estimates. We grew faster than the market and widened our market share from 10% in April to above 13% by the end of Q3.
This outperformance was mainly the result of our initiatives to incentivize customers to update their smartphones, in particular there was a lot of discounts and bonuses to be replaced by the cash back program, which has become the most efficient tool to attract customers.
In Q3, half of our smartphones within MTS retail were bought via the cash back program. And the trend was, the Russian consumers spent less on travel this summer and prefer to buy expensive goods including smartphones. This is also demonstrated by the continued increase of the smartphone penetration in our subscriber base which reached 68.9% by the end of Q3. We observed a sustained trend of customers shift towards more expensive devices and we can meet this demand with MTS broad portfolio of devices.
This autumn we successfully launched the sales of new iPhone models XS and XR thoroughly extending our relationship with Apple. Meanwhile we also saw the highest growth in demand for the high-end models from Samsung and Huawei. We continue to see promising trends in e-commerce which remains an integral part of our sales strategy.
In Q3, our online sales in retail grew by more than 50% year-on-year and exceeded RUB2 billion. We further improved our online shop through integrating two new features for our customers. First we launched the separate interface for B2B customers. This is the first step towards the planned launch of our dedicated online shops for business clients. Secondly, we introduced the online trading calculator which helps our customers to immediately see and deploy discount that he or she may get when making the online order from the new smartphone while selling the existing device under the trading mechanism.
Our self-care mobile application myMTS is becoming more and more popular. This quarter the number of one month users hit 30 million mark. We focus heavily on customers experience and continue to integrate new options into myMTS. Recently for example, we added MTS cash back and the possibility to make applications for home internet, TV and centralized services. Regarding our physical store footprint, in Q3 this year the number of stores in MTS retail remained unchanged.
Now Andrey will provide further details on our financial performance.
Thank you, Kirill.
For the third quarter of 2018, we reported group adjusted OIBDA of RUB59.3 billion. This result include the impact of new IFRS standards which added RUB7 billion related to capitalization of dealers commissions and lease expenses.
On a comparable basis, group adjusted OIBDA showed a growth of 7.3% year-on-year. The key drivers of this growth were mobile revenue and profitability improvement in Ukraine, consolidation of MTS bank has also positively impacted group adjusted OIBDA dynamics.
Meanwhile, we also saw an increase on cost side mainly due to higher spectrum fees. In Q3 MTS reserved RUB55.8 billion as the potential liability with respect to the investigation being conducted by the U.S. Securities and Exchange Commission and the U.S. Department of Justice in relation to its former operations in Uzbekistan. There can be no assurance as to the form, timing or terms of any resolution to the investigation. As a result of this provision recognition, the group finished Q3 with net loss of RUB37 billion excluding these non-cash provision, MTS would have reported net profit of RUB18.7 billion.
In the nine months of 2018, CapEx excluding licenses totaled RUB55.4 billion a 13.8% increase year-on-year which largely reflects the continuing LTE rollout in Russia. During the third quarter, we spent RUB21.2 billion and the CapEx to sales ratio reached 16.6%. The combined impact from higher CapEx that is of Avantazh one of the largest data centers in Russia as well as several acquisitions and investments made during the year led it to a lower risk free cash flow over nine months of 2018 of RUB40.3 billion versus RUB55.7 billion a year ago. Free cash flow was also positively impacted by the adoption of the new IFRS standards.
Total debt increased during this quarter to RUB376.5 billion mostly on Ukraine facilities from VTB for the total amount of RUB75 billion. At the same time, we repurchased local [rouble] [ph] bonds for RUB8.9 billion under put option. We continue to systematically optimize our debt portfolio. We decreased the weighted average interest rate to 7.9% in Q3 and extended the average maturity of outstanding debt through refinancing loans at Burbank for a total amount of RUB110 billion during the third quarter.
Our balance sheet remains strong with net debt to last 12 months adjusted OIBDA ratio at [1.2] [ph]. In 2018, we paid the total dividend of RUB26 per ordinary share in line with our dividend policy. In addition in July, MTS launched a new share repurchase program for RUB30 billion over two years. In line with our plans, we fulfilled half of the program in 2018.
Now I turn back to Alexey for his closing remarks.
Again, this strong top-line performance in 2018, we feel comfortable to raise our full year guidance to the second time this year following the upgrade announced in second quarter. For revenue we now expect a 4% to 6% growth. This reflects the continued increase in data consumption across our customer base, acceleration of growth in sales of goods as well as the recent regulatory changes related to internal roaming.
As for OIBDA, our outlook remains unchanged at about 2% growth as we expect certain factors including regulatory changes to impact the profitability in fourth quarter to a great extent as compared to previous quarters. Overall, we believe we are now in solid underlying performance going forward.
Finally, I would like to say a couple of words about our ambitions in developmental financial services. We have recently consolidated the controlling stake in MTS Bank aiming to more effectively leverage these challenges between telecom and banking businesses. We are very confident about continuing improvement in the core bank business. The changing product mix with focus shifting towards the retail customers together with more disciplined approach in managing risks resulted in the noticeable improvement in the bank's earnings since 2013. After a number of loss making year, yes, MTS Bank reported a net profit of about RUB600 million in 2017 on a standalone basis or for the first nine months of 2018, the bank's net income on the standalone basis reached RUB673 million.
We believe that norm in MTS customer profiles when offering financial products to our clients gives us a competitive edge. One of the key recent developments was the launch of dual contract or double offer is an initiative under which most of new customers of MTS are finding banking contract in parallel with the telecom contract. This allows us to offer personalized financial services that customers can accept online with just one click. For that type of customers, we have just launched virtual credit card which they can get remotely in myMTS app, one specific offer from MTS Bank is received and accepted. We are targeting to have at least 5 million MTS customers who signed up for dual contract by the end of next year.
We also have a number of other innovative financial services products in the pipeline which we will look to offer to go MTS customer base in order to increase the client's engagement and loyalty. Big data one of the innovative areas which MTS has been focusing on since 2015 offers another highly efficient instrument helping us leverage the synergies between our telecom and our bank.
In 2018, MTS Bank improved its scoring models, with the help of big data analytics. Since the introduction of the improved scoring system, MTS Bank has increased the share of approved loans application by 5 percentage points, while the level of defaults on these new loans remains largely unchanged. This is a good example of the synergies that might be achieved at the cross-road of telecom and the bank. We expect few other improvements in scoring process as more and more data on customers behavior becomes available. While we continue to increase our capabilities in big data.
Overall, we continue to believe that fintech is a critical pillar in our digital transformation strategy. Fintech is not just good business by itself, but it is also a great contributor to the lasting loyalty with our customer base and an important enabler for a variety of products and services in our ecosystem.
Thank you and we are now ready to answer your questions.
Operator, we are ready to answer the questions.
Thank you. [Operator Instructions] Our first question comes from Ivan Kim from VTB. Please go ahead.
Yes. Good afternoon. I have two questions please. Firstly, on the potential impact of the potential settlement of [bills back] [ph] case. So if it happens, do you anticipate any influence on your dividends or buyback? Related to that, what is your comfortable leverage level? And maybe if you can give a comment also whether you consider the sale [indiscernible] in light of this upcoming settlement just to free up some cash? And secondly, just is there any timing on the purchase of the remaining stake in MTS bank. Thank you.
Ivan, thank you for your question. I'd like to stress that [the result] [ph] was which we made, it relates to potential liability related to them going investigation. And there was -- and we would like to stick to this awarding which was thoroughly checked with our legal team. So not to rephrase it in a different form to start with.
Then as for the potential implication for dividend policy, we believe that our dividend is important piece of our value proposition thesis for the market and that will remain as such. So we will come with the new dividend policy traditionally in spring of next year and we expect that substantial dividend return will be part of our value proposition going forward. We are not ready to give more visibility to what is our dividend policy at this point of time. And I would like to stress here that this rhetoric's has not changed from what we communicated and what we promised over the long period of time in relation to our dividend policy.
Could you remind, what was the second question?
Yes. So related to the first one as to what is your comfortable leverage level, if I may ask? And the second question was the timing of the purchase of the remaining stake in MTS bank? Thank you.
Okay. With the leverage we had a really strong balance sheet and right now our leverage substantially below that of our peers in the market. And we are comfortable with the level of all the leverage up to two times net debt to EBITDA, our covenants reflect up to three times that to EBITDA. So right now we're having 1.2. So we are very comfortable with the current standing and don't see any threats to our balance sheet strength.
As far as timing of purchase of the remaining stake in MTS Bank, I just can confirm that full consolidation of MTS Bank is our strategic goal and I think that there remains is as such as for when we will agree on the full consolidation or full purchase of remaining minority stakes but that we don't ready to give. We have not yet made any decision at this point of time.
Our next question comes from Cesar Tiron from Bank of America Merrill Lynch. Go ahead.
Yes. It's Cesar. I have three questions, if that's okay. The first one, there seems to be a slowdown in the -- not in the revenue but in the service revenue growth in Russia in 3Q on a year-on-year basis. Can you please explain the reasons? Second question, the pressure on the margins in Russia in 2H, you said relate among others to the incremental spectrum costs. Can you please say exactly how much it is? And also mention if we should expect these costs to be repeated in 1H next year as well? And then, third question as regards to the DoJ SEC related provision, can you please explain the timing of the decision to take that provision in that specific quarter because I think this issue has been going on for a couple of years now? Thank you so much.
This is Vyacheslav Nikolaev. I will take the first question. There are two main reasons for a slight slowdown that you can see in service revenue in Russia. One is, high base last year you can see that our major growth started in the third quarter of last year, so one thing. And second, we have already had some impact of elimination of inter country roaming which actually deleted these revenues in September this year. These are two main reasons, otherwise we are going in the same trends.
Speaking about the third question on timing or flow, I feel as it relates to the investigation we do not comment on the ongoing investigation. So unfortunately, I have nothing to it, what we have already communicated.
So answering your question. Yes, sorry.
Yes, sorry. Just on the timing, my question was not on the investigation, but just as to why you decided to take that provision in that specific quarter?
In the quarter, IFRS standards, we need to provide when we can evaluate potential outcomes from such an investigation. So right now we feel having more visibility towards the potential outcome and for that reason we have made this evaluation and made provisions.
So if I -- this is Andrey Kamensky, if I can answer your second question which was on the pressure on the margins in the second half of this year. You can see the main drivers or factors which were listed in our guidelines, which are hitting mostly in the second half of this year. This is the increase in spectrum cost that you mentioned, but besides that we have some other factors such as like roaming also labor costs. So that put pressure on us in the second half and because of that actually we're keeping the guideline on the OIBDA level.
In terms of the effect itself, in the second half from the spectrum fees, we are disclosing this also in the presentation among the factors which hit our OIBDA. The fact -- in fact the hit is RUB400 million, if we compare it with the quarter of 2017.
Thanks for taking my question. Very helpful. Thank you.
Our next question comes from Alexander Vengranovich from Sova. Please go ahead.
Yes. Thank you. So first question is on your integration business. So it doubled year-over-year in the fourth quarter. Can you please provide us first with the reasons for such a rapid acceleration of the growth. And can you also please share some targets on that business segments and what sort of plans you have for the product development of this business line. So obviously we've seen recently you launched partnership, on the loud business looks like that's going to be like a pretty promising. So if you can evaluate probably the plans that will be quite interesting.
And also on your M&A plans, so you've done a couple of small M&As recently in e-gaming like ticketing. Do you have any further sort of priority areas where you can invest in the future outside of financial services, which looks like your top priority for now. And should we expect any further M&A activity from your side at least next year? Thank you.
Alex, thank you for your question. The growth which we demonstrated in our integration business is due to the development of these business line. So we did introduce some new products which includes a partnership with Microsoft and Microsoft licenses as we also note in our press release, we are partnering with Microsoft for Azure Stack products in some other products will be added to our portfolio going forward. So we expect this business to grow and we reflect this expectation and our focus towards the growth. We even separated the new business line which we call now is B2B digital products with the new Vice President, head of this business line Valery Shorzhin is now heading this -- as the Vice President for B2B digital services this business line. And this business line will include a few product, so if you did the addition including clouds including B2B Internet of Things and new developments in industrial automation.
So all the products in this kind of sphere will now have a high focus within our organizational structure and I think integration services will -- is also part of this story and will contribute towards our overall growth. So we are optimistically looking at the potential for this direction and this business. And as part of M&A plans, the answer is traditional, whatever is complementary to our overall strategy, we'll be considering. There is nothing specific to announce at this point of time.
Okay. Thank you.
Our question comes from Slava Degtyarev from Goldman Sachs. Please go ahead.
Hi. Yes. Thanks for the call. How do you think basically you and the industry will learn to deal with a value added tax increase starting from January. Do you have certain plans to increase the prices across your mobile or fixed line products? And also your free cash flow is declining this year driven by high CapEx and various investments and looking for 2019 and beyond, how do you think about the cash generation, do you think that's 2018 is a trough year in terms of the cash generation? Thank you.
Thank you for the question. I have to say that we have some tariffs that are primarily in B2B that are nominated before the value added tax. So those will automatically increase. But this is really a minority of our tariffs. Other tariffs are -- we set them including VAT and we do not have any direct plans of increasing the prices at the 1 January when the new tax is going to be implied. We do change our tariff plans on a constant basis reflecting the changes in the market. But this is not directly connected in any way to the rate increase.
Yes. Your second question about the cash generation. You're absolutely right that -- it decline in 2018. And the reasons it was our CapEx investments and M&A deals. And looking forward, I think you have all the data in hand, it's actually the formula because we are seeing that in terms of our CapEx we already gave the number for two years for 2018 and 2019. So we expected within RUB160 billion over two years. And in terms of our operating cash flow it is growing actually and we believe that we will see the same trend for -- moving forward as well.
Slava, this is Polina. We have also missed your second question can never be repeat it please.
No. That actually was the question about the VAT and the cash flow. All my questions are answered. Thank you.
Our next question comes from [indiscernible] from UBS. Please go ahead.
Hi. Thank you for taking my questions. I've got a couple of please. I was just wondering if I could follow up on the leverage policy, if this will change somehow under the new IFRS standard going into next year potentially. Second question is, if you could give us some color on the incoming unlimited tariff customers three months into this new initiative, if you could break this down a bit. And then, the third question is, if you could provide some background on the thinking behind the cash back initiatives whether these are related simply to growing data consumption or whether this is a conservative reaction to what's going on in the retail market especially driven by the VEON. Thank you very much.
The new tariff plan, first of all, we see about 50% of new sales being sold to this tariff plant. So it's a very positive thing. Another point is that we of course have migrations within our subscriber base, but the new tariff is one of the very few that shows increase on average in ARPU in migrations within the subscriber base. At the same time, the average usage and this tariff for data is even lower than in some old tariff plans including youth tariff lines. So there seems to be really success on both the cost side and revenue side.
So let me take the third question on the cash back, we can slightly elaborate what's happening in this retail market. First of all, if you are going to this question, but I want to stress it out that the number of our retail stores remains unchanged. At the moment we don't see any prerequisites for any -- I would say closing down process for the retail optimization. This is mainly driven by the different agenda or agendas, if I may name it like that by different carriers. We are fully satisfied with the current level of our presence throughout Russia. We still have around 5.7000 stores including franchisees and the effect with it.
We're getting cash back and what's happening in the smartphone market, first of all, the smartphone market reflects a little trend. It remains more stable in the units. So in the fourth quarter specifically the Russians smart markets grew 1.6% in units and around 21% in unit terms. We on the contrary still enjoy quite the risk of our -- it will disallow around about 50% revenue wise and around 14% in units. Why we did so? At the moment, we would like to stimulate the additional footfall, the inflow of the customers into our stores and we see that this footfall can be updated. It can be provided -- the new services we are launching or we will be launching in the near future including the fintech services and the payment system and all the stuff, insurance policy and so forth. We at the moment enjoy the quite tight grip or what's happening in the market and we all be curious we have the largest market share in smartphones and we think that this is the good balance of the value and revenue.
As for the outlook for the future, I believe that we will remain flexible in terms of our pricing policy and aggressiveness on the cash back. Thank you.
Thank you. Can I just -- I'm not sure I heard -- whether you are answering the question on the leverage policy and essentially changing under the new IFRS Standard. And then, if I may follow-up on the two answer that you gave us, could you breakdown within the unlimited tariff sales, could you break them down between the -- among the four different peers that you are rolling out? Please. Thank you.
Between four different what?
If I may intervene here. On -- I think just to summarize what Slava commented on unlimited data plans, we see growth in APRU. And that's one of the most successful ARPU growing tariff plans. And the second one is that we see that, real consumption is even lower in terms of data consumption more than some other tariff plans. So we are not ready to make direct comparison between different tariff plans which we have on shelf. I think that's the best characteristics of the quality of the proposition and the benefits which is given to us.
And as far as -- if I answer your question, and as far as leverage is concerned, we don't see any reasons to change our leverage policy not related to IFRS and that's not related to any of this.
Okay. Thank you very much.
Our next question comes from Madhvendra Singh from Morgan Stanley. Please go ahead.
Yes. Hi, thanks. Just to wanted to discuss the competitive environment in Russia and especially the unlimited tariffs launched, do you see these tariffs going away or do you think they would become permanent features of the market? And if that is the case, that does become a permanent feature in the market? And then, is it likely that you actually start to see some pricing pressure on those back into the service. And then, secondly, I look at number of stores actually went up during the quarter not along. So how does that tend to be the overall strategy of reducing the number of stores? Thank you.
Okay. If I understand the first question correctly you're asking whether the unlimited tariff plans will stay or go on this market that is still I would say unclear at that point. In my view this will not stay forever and at some point we might go away from a limited tariff plans again. It's a good instrument against tariff wars against decreasing prices by some of the competitors. But whenever the markets will turn back to growth, I think we might again go away from another tariff plans. But it's not a promise. I think we can do it somewhere next year.
Let me pick the second question of yours. Could you please rephrase it once again. I don't think I got it right.
Sorry. Just wanted to understand your retail distribution strategy, the overall ambition of reducing the number of support still impact. And what happened in the third quarter, you could discuss that as well. Thank you.
Okay. I'll provide a little bit more outlook for followers. First of all nothing really changed in the market -- in the retail market in the third quarter compared to the second quarter. So we see that all of the players in the market included us don't show any, I would say sign of willingness to significantly decrease the number of stores, all they care is for the own agenda. As for us, we keep the level of what -- the size of our footprint in Russia stable. I don't see any significant changes because there a couple -- dozen of stores up plus or minus that don't make any difference from my perspective. So 5.7 key stores for Russia is at the moment the optimal or close to optimal level of retail. Maybe we can see that -- maybe we'll open a hundred or 200 stores more or we'll maybe close down a hundred or a couple of hundreds of stores. This is not the major change and this is not a sign of some optimization or improving I would say it's a sentiment for the market.
At the moment we see, let me repeat it again, we don't see any prerequisites from the market to get optimized. Maybe this will change. The story will change in the early on the first half of next year because by that moment of time some relationships with the major independent players will be changed from what we expect them to be changed from VEON or from other players. But at the moment again, all of the carriers have the -- more or less optimal size or the retail from their perspectives. No major changes. Thank you.
Okay. Thank you.
[Operator Instructions] Our next question comes from Alex Kazbegi from Renaissance Capital. Please go ahead.
Good afternoon. Two small questions please. On your CapEx guidance there are two elements there which are, one is the spending on the compliance with the anti-terror law in Russia and the other one as you mentioned there also some evolution of the commercial piece the 5G solutions. I wonder do you see any risks there for one or the other spending to actually increase. Are you fully in compliance so to say what the government wants to see in terms of the implementation of this anti-terror law or do you think there is a risk that this CapEx may actually be change up what you've done with that mostly upwards? And related to that was 5G, I mean I assume here that you are talking about just pure rollout and maybe buying some spectrum, but not really buying a license. There was a talk of a possibility that there will be a license auction at some stage in Russia. Do you have any visibility of that, and again, what is the risk of these CapEx do actually increase?
And the second question is, just on MTS Bank. Do you have a target, credit portfolio which you would be comfortable with in terms of just the target price portfolio. Thank you.
Thank you, Alex. So in terms of the CapEx I thought -- I think that the guidance that we gave 160 rubles for two years for CapEx, again we will repeat that actually does not include the CapEx [indiscernible] mostly. And at the moment, we don't see any risk in increasing this number. And we also said that [indiscernible] the estimation that we gave was the RUB60 billion for five years starting from summer this year. And at the moment the same situation that we so seen no risk that this amount can be higher.
Alex, it's not as 5G concerned. We don't have any visibility right now is -- towards what would be the approach towards 5G in terms of how it will be auctioned, how it will be distributed and so on so forth. We think it is very important for development of infrastructure for development for industry in our country for development for economical growth. That will be a full fledged 5G policy on -- from the governmental level, which will allow is substantial 5G spectrum for the development of 5G in the country. So we will use at least five six hundred megahertz in C-band and about 1000 in millimeter band. I need it for a full scale 5G development in the country. However, right now there is once again no clarity as to what is the approach of the government and when this will be available.
And speaking about Bank, of course, tactically we do have in the budgets for the next year some created portfolio targets but these that are the tactical and not strategic goals. So created portfolio is not the key metric or follow success or the key target or the key KPI for the bank. We think of bank in two ways.
Firstly, how that will be affecting in terms of loyalty and value it to our existing customer base. So for that goal we need to develop a top notch daily banking experience we need to develop transactional services offering and so on so forth. So this is not necessarily related to our created portfolio. It's more customer being willing to use our services including financial services.
And of course, the negative side of the bank, we also think of that. However, here we need to have a very balanced approach and we thoroughly monitor that there will be a balance between risk which we're seeking and the growth which we achieve. So these are two fold goals. One of them is in terms of how much time customers spend with us how willing they are and how deep is being iteration. And the second is the growth in net income when key financial metrics means growth.
Thank you, Alexey.
We have a follow-up question from Alexander Vengranovich from Sova Capital. Please go ahead.
Yes. Thanks again for taking the question. I just had a brief one. So I see on your presentation Slide 9, you have quite a nice pickup in the number of active users of myMTS app. So basically every quarter you are adding more than a million of active users. I'm just wondering whether you can already share some benefits in terms of the cost savings which this users allow you to execute in terms of your customer service savings like regarding some people in your stores, which are doing customer service or whatever you can share with us. And also do think that is a good possibility that you might even accelerate the number of the users of myMTS app together like a closer to some meaningful numbers as a percentage of your data users and it's sort of a tool you might be using to reach that. Thank you.
Alexander let me briefly answer your question. First of all, thanks for acknowledging that we demonstrating a good progress because we are. This is the outcome of the initial work of different functions in our company. Answer to your question in terms of what the kind of the real implication on the savings. We enjoy the second consecutive year of the decrease in numbers of headcount contact centers, first of all, which has a very good implication on our OIBDA because we minimize the cost we bear, first of all.
Secondly we enjoy some optimization in the service operations in retail absolutely. Because nowadays part of the working time spent on how well you reach directions in our retail is going down, while the percentage of time dedicated by the floor staff, four personnel in our stores, who sell the most expensive devices the iPhones or the accessories is going up. So this is kind of indirect implications, so it would not be -- it would not have been possible I would say demonstrates actually good results in the retail operations. If you would not have picked up some of the time of our stuff. So as for your potential -- outlook in question. I will turn it over to Vyacheslav.
Yes. I think that I cannot promise you that we will increase the base of active users in myMTS, but we really anticipate to go with this trend for the next year at least. We are providing new function and this application, sometimes every two weeks, sometimes every second release which is one month. And we give more and more features to our subscribers including banking and it can be a growth signal for the cards including different means of payments including for example some -- well, I would rather go for benefits that subscribers can get only using this application, which actually allows us to increase daily users. Because when you see the number and compare it to the number of data users, it's slightly unfair because if you look at daily users, you would see the number is not on the presentation, but it's now close to 3 million, which is a huge number even for a social network. So this is something that we are really looking forward. We are looking for people to come back to this application many times during the month not only monthly users.
So we think that we still have great opportunities here, but we are already on a very good level of usage without making any harsh moves like some of our international peers. They made this move like you will never use data without opening our application. This is something we are not using yet and we think we're still growing at a very good speed with much nicer incentives for our subscribers.
And I have one more word to add here, nowadays, there are some offerings for our customers mainly driven by the big data or the data produced by big data which the customer can only get via this application. We will push the story forward to make -- to create more opportunities for the customer with the application and spent more time or visit it more frequently. Thank you.
All right. Thank you.
Our next question comes from Svetlana Sukhanova from Sberbank IS. Please go ahead.
Hi, everyone. I have two questions. I would be on your strategy, my perception was that sometime ago you approved that the Board of Director's a new strategy. So my question would be how different is it from existing strategy, and if you plan to share this new strategy with us. So that would be the first question.
And the second question would be on the building which you recently acquired for RUB4000 billion. Can you please share with us [indiscernible] building and what you expect to do with it. And what if you show system-related companies which are product [Technical Difficulty] driven buildings.
So only your building, would it be, why you rent it, and will you just remove that system-related company from the business. Thank you so much.
Okay. Thank you. Speaking about authorization, it did not change conceptually or principally, of course it moves together with the evolution of the company. It stayed the same 3G strategy with the higher focus on digital, so we announce within our strategy that we are going to go more aggressively towards new lines of business. And here we hire focus on convergence those businesses and services into our main product in our main service, which is the connectivity.
So that already reflected in our convergent fixed line and TV propositions which were rolled out through this year all across our fixed line presence. And that is reflected in our more aggressive for move into fintech and financial convergence with connectivity that reflected in B2B that we are focusing more on new digital B2B services which will be add-on or which will have an additional growth such as those which I mentioned cloud integration service and so on so forth which will create a higher valu add on the main value proposition, which we bring to our B2B customers. So this is in a nutshell, essence of our refreshed or re-styled strategy which is in core is the same that we are focusing on our core business being best infrastructure, best value proposition, leader in the market in terms of innovation in this sphere and more aggressively converting our digital services and developing our digital services with our core proposition.
And on top of that, the leader even in return including dividend return to our shareholders. And now speaking about specific deal that's purely economical -- or now we're sitting right now in this building and we are planning to increase our occupation of this space. So that will be [indiscernible]. That doesn't mean that we'll be the only ones but we'll be clearly [indiscernible] the presence in our building. And that's we in Moscow, in our headquarters we own predominantly all our headquarters buildings in Moscow region.
So Sistema companies are also [indiscernible] right?
Their presence will decrease over time, but of course there might be some will stay there. They are subject to negotiation, some of them have long-term contracts. But as I said, we view that we are already occupying substantial parts of this business. So for us as we're sending our teams, our digital product teams. We need to have more capacity. We need to have more modern capacities. And that's part of our strategy in allocating our IT teams, product teams into modern facilities. So that's complementary to what our vision and requirements are, because we need the additional capacities. So we were occupying already this building and we are increasing our occupancy. That does not mean that we'll in one year there will be no one at the [indiscernible] . But long term, yes, of course, we see that we'll have enough personnel potentially to accommodate this whole building. Not now yet.
Very clear. Thanks for the answer to the both questions.
Our next question comes from Sergey Libin from Raiffeisen Bank. Please go ahead.
Yes, hello. I wanted to follow up on the EBITDA guidance, so it seems like that's for the fourth quarter -- your current guidance implies the decline in OIBDA. So I just wanted to understand for example even if we did that the upcoming spectrum fees then there would still be a decline in organic OIBDA. And I wanted to understand whether you already see something, two months into the fourth quarter something that's completely different from what was the case in the first nine months and something really bad that's [indiscernible] or are you just leaving room for something bad to happen in December and October and November are pretty much okay and somewhat less in line with what you saw throughout the first nine months of the year.
Sergey, thank you. So in answering your question I will come back to one of the answers that already I gave on in terms of our guideline on OIBDA. If you see in our press release actually we listed the factors that we foresee in the fourth quarter and most of them are negative. And then, of course, this is the reason why actually we're staying pretty conservative so far at the moment. And the answer is actually that at the moment, we don't see, we want to be -- we want to stay conservative actually and not to come up with a more optimistic guideline.
So then -- and the main factor is, if you see OIBDA level, this is of course the spectrum fees and the roaming. And of course, the fact in the fourth quarter would be in terms of the roaming for example would be higher than in the third quarter and that this is one of the reasons why we actually -- we're hitting the guidance on OIBDA. So that's practically it.
Okay. Thank you.
Operator, as there are no further questions, we would like to conclude this conference call. Ladies and gentlemen, thank you very much for listening. We welcome you at any time to contact MTS Investor Relations department. If you have further questions as a part of this discussion we'll be available on our Web site, if you wish to replay the call. In the meantime, we appreciate your interest and wish everybody a pleasant day.
Ladies and gentlemen this concludes our conference call. Thank you all for participating. You may now disconnect.