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Mobile TeleSystems PJSC (MBT) Q1 2019 Earnings Call Transcript

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Mobile TeleSystems PJSC (NYSE: MBT)
Q1 2019 Earnings Call
May 23, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

Polina Ugryumova -- Director, Investor Relations

Welcome everybody to today's events to discuss MTS first quarter 2019 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, a more thorough discussion of which are available in our annual report and Form 20-F or the materials we've distributed today. MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentations and materials used and referenced in this conference call are available on our Company website.

Now, I have the pleasure of presenting MTS President and CEO, Mr. Alexey Kornya.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Ladies and gentlemen, thank you for joining us. With me today are Vyacheslav Nikolaev, Vice President of Marketing; Inessa Galaktionova, Vice President of Sales and Customer Service; Andrey Kamensky, Vice President of Finance, Investments and Money and Kirill Dmitriev, Vice President for Digital Solutions for Home. As usual, I will begin with the Group highlights. I also want to give you a short update on our digital transformation. Vyacheslav, Inessa, Andrey will then walk you through our business performance. And finally, I will wrap up before we take questions.

I'm happy to tell you that we are off to a strong start in 2019 delivering another set of solid results in first quarter. In Russia, we continue to see rational market landscape growing data consumption as well as positive but somewhat moderating dynamics in retail sales. Year-over-year Group revenue increased 9.4%, to RUB118 billion . This was primarily driven by our Russian operations despite some regulatory and tax headwinds. We also saw exceptional growth in Ukraine. Of course, we continue to observe a major top line impact from the consolidation of MTS Bank in third quarter last year.

Excluding the impact of the bank, Group revenue increased by a solid 4.8% in the first quarter on a like-for-like basis. Group OIBDA came in at RUB55.3 billion for the quarter, up 6% from the prior year. Excluding the impact of MTS Bank, OIBDA grew 5.7% on a comparable basis. Now let me give you a few brief highlights on the progress we are making on our ongoing transformation. We continue to move forward on developing new business direction and building out an integrated digital ecosystem. In FinTech, we are captured in incremental revenue by cross selling financial products and services across our subscriber base. In first quarter, the loan portfolio of MTS Bank grew nearly 30% year-over-year, while maintaining a solid overall level of credit risk. In entertainment, we launched the new streaming platform in March and we continue to enhance the user experience with attractive commercial offers.

In cloud-based services, over 600 clients are already being served by the Cloud MTS platform and we have strengthened our position in a significant market -- as a significant market, via the acquisitions of Advantage and IT-Grad. In big data, we are building a world-class in-house data science team to realize powerful benefits from analytics. For example, we are enhancing the productivity of our retail workforce by carefully examining food traffic dynamics. In banking, big data is enabling us to better understand the digitally created profiles to develop personalized offers. And we have launched our own targeted marketing service for SME called MTS Marketolog.

In total, around 20% of Group revenue is already today being generated by products and services that go beyond traditional connectivity. And on average, these segments are seeing double-digit growth. While we are still in the relatively early stage of our transformation, we are beginning to see real and substantial results.

Now, I will turn it over to Slava, who will go into greater detail on our country markets.

Vyacheslav Nikolaev -- Vice President, Marketing

Thank you, Alexey. In Q1, we saw strong top line performance in Russia, despite the negative impact from the cancellation of internal roaming and the 2% VAT increase. Revenue in Q1 grew 7.9% year-over-year to RUB109.1 billion driven by mobile services, handset sales and the consolidation of MTS Bank. In services, we continue to see a stable benign market environment. In certain regions, some players are making limited aggressive pricing moves at a tactical level but we regard this as a normal course of business and an indicator of healthy competitive dynamics.

Overall, the rational conditions established over the past couple of years continue. Moreover, we see emerging opportunities to increase ARPU as well as indicators that the industry as a whole is ready for price adjustments. Altogether, we feel quite comfortable in the current market environment, which provides a firm foundation for further development. Going forward, we expect mobile revenue growth to accelerate as we get into the second half of the year provided there are no new regulatory pressures. In the mid-term, we expect stable low single digit services growth to continue. In fixed line, we had a slight 0.1% uptick in revenue year-over-year against the backdrop of continued long term weakness in the fixed telephony segments. At the same time, we saw an increased adoption of broadband and Pay TV service. By the end of Q1, we successfully grew our share in the consumer market in Moscow to 39% in broadband and 43.6% in Pay TV, the number of households using GPON services grew to almost 2 million.

Revenue from our e-ticketing and cyber sports segments increased 32.1% year-over-year and our integration business saw top line growth of 65.4%. In Ukraine, we saw double-digit revenue growth of 19% year-over-year on the back of rapidly rising data consumption, OIBDA likewise was up an impressive 19.2%. We continue to roll out our 4G network as well as fine-tune our 3G footprint. Going forward, we expect the current double-digit growth to normalize in the low teens given the stable competitive environment and rising data consumption. In Armenia, we saw declining revenue on OIBDA. This reflects a tough competitive environment as well as the recent cuts to mobile termination fees. And in Belarus, which is not consolidated, we enjoyed solid double-digit growth in revenue and OIBDA. Now, I will turn the call over to Inessa, who will walk us through our retail business.

Inessa Galaktionova -- Vice President, Sales and Customer Service.

Thank you, Slava. We continue to see a number of positive trends including a sustainable slowdown in gross adds and declining churn rates across the industry. In first quarter, sales of handsets and accessories grew 12.9% year-over-year driven by the continued strong demand for smartphones, with the sale of smartphone sales up 26%. This was partially offset by sluggish sales of accessories and declining sales of push button phones. According to our research, MTS have crossed the overall Russian handset market, which we estimate as having grown 11% in first quarter year-over-year. Upgrade incentives were a key driver in particular our cash back program remains highly popular with customers. We observed several notable trends in the handset market in first quarter. Sales of mid and high end smartphones remain strong with the market growing, both in terms of units sold as well as the average price, which we estimate to have reached RUB16,000. We also saw growing demand for low end smartphones priced under RUB10,000 as users switch from feature phones.

Going forward, we expect the Russian handset market to materially slow down throughout the remainder of 2019. This is driven by two factors. The higher base effect from exceptional growth we saw last year and affordable dynamics in consumer purchasing power. Last year our revenue from sales of phones and accessories grew 29% year-over-year on the background of 20% was overall market growth. This year, we expect the market to decelerate to single digits. With MTS roughly in line with the overall trend. Our monobrand storefront have proven to be a highly effective platform for customer touch points. I am happy to note that in April our (inaudible) network won the top prize for best practice and employee engagement at the prestigious Customer Experience Work Awards.

This year was also recognized with high marks for customer experience, which is also reflected in our transactional net promoter score of 63% in retail. In first quarter, the number of MTS store remain sustainably flat. In the current environment, we feel comfortable of the retail footprint in the average of 5.5 or 6,000 outlets. In the medium term, we may move closer to the lower end of that guidance. As before, we continue to see long term potential that the market could move toward optimization. However, at the present time, we have yet to see any big swings in that direction. We continue to monitor the situation closely and we'll adjust our result strategic as needed in the line with market trends. In addition, we observe sustainable positive dynamics in our online sales channels. In the first quarter, revenue from online sales rose 13.7% year-over-year to RUB1.5 billion . Finally, we continue to actively develop our proprietary apps My MTS enhancing the user experience with new feature. This year, we have already launched personalized offers, chat-based support and integration with Samsung Pay and Google Pay. By the end of first quarter, we had over 15 million active users of My MTS at around 40% year-over-year. Now I will turn over to Andrey to discuss our Group (ph) performance -- financial, thank you.

Andrey Kamensky -- Vice President, Finance, Investments and Mergers and Acquisitions

Thank you, Inessa. For the first quarter, we reported group OIBDA of RUB55.3 billion growing 6% year-on-year. You can see the work on the slide. We saw positive impact from core services, growth in both Russia and Ukraine was -- which was partially offset by the cancellation of internal roaming in Russia. A significant portion of the positive OpEx impact in Russia was due to a one-off effect from a real estate transaction which contributed around half of the nominal Group OIBDA growth. Group net profit came in at RUB17.6 billion for the quarter up 14.1% year-over-year. Net profit margin stood at 14.9%. Looking at the factor analysis, net earnings growth was driven by the increase in OIBDA as well as interest income. Meanwhile, we also saw higher financing costs owing to our increased gross debt position.

Turning to CapEx, we continue to invest in improving network quality. In the first three months of the year, CapEx totaled RUB16.6 billion . Overall, the Group had a CapEx to revenue ratio of 14.1% with relatively higher spending in Ukraine, given the ongoing 4G rollout. We continue to expect CapEx of up to RUB90 billion in 2019 given seasonality and additional investments required to compliant with year ago regulations. Free cash flow for the quarter was negative RUB31.4 billion driven by the SEC and DOJ payments. Excluding that payment, positive free cash flow would have totaled RUB24.2 billion up from RUB13.9 billion in the year ago quarter, which had compared to the more intense M&A activity. We continue to make smart bets when we see the right opportunities. In first quarter, we announced the acquisition of the cloud assets of IT-Grad, one of Russia's largest IaaS providers. This strategic deal strengthens our footprint in the cloud services space and positions us to capture future growth.

Turning to MTS Bank, we continue to see solid performance in the core banking business. In the first quarter, net interest income rose 18.7% year-over-year to RUB2.5 billion . Total outstanding loans increased to 39.9% -- 37.9% year-over-year to RUB85.8 billion with cost of risk coming in just under 4%. Personal loan issuance was up 2.3 year-over-year and credit card issuance was up 3.4 times. We're making good progress on realizing synergies and we can see this reflect in the figures. As Alexey mentioned, we are leveraging big data analytics to gain better line of sight into our vast pool of subscribers and customers that enables us to better understand the risk profile and market personalized offers. As a result in 2018, we saw fourfold growth in cross-selling of goods and services year-over-year.

This is a great illustration of the benefits of blending a bank with telecoms. And we continue to see opportunities to drive additional synergies going forward. In January, MTS issued 10 billion in exchange traded bonds and the total debt increased by the end of the quarter to RUB387.4 billion . With the slight quarter-on-quarter increase in the weighted average interest rate to 8.1%. Our balance sheet remains strong with a net debt to last 12 months adjusted OIBDA ratio of 1.5% excluding the impact of new IFRS standards. Finally, earlier this month, we completed the share buybacks that began last July. Over the past year, we repurchased 5.68% of our share capital through our wholly owned subsidiary, Bastion. In total, we spent RUB29.8 billion under the program, split roughly equally between 2018 and 2019. Now I will turn it back to Alexey for his closing remarks.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

I'm very much encouraged by our strong operational performance in first quarter even as we faced regulatory headwinds. Given these results, we feel comfortable raising our full-year OIBDA guidance to largely flat year-over-year, up from our previous outlook of slightly negative. Compared to the first half of the year, we expect OIBDA growth will comparatively slow down in the second half due to the high base effect from second half 2018 as well as one-off effect in the first quarter this year.

We reaffirm our revenue guidance of over 3% growth year-over-year keeping in mind the exceptional surge in retail sales whereas last year. Of course uncertainties related to the competitive landscape, the regulatory environment and other factors could materially impact the Group's performance. As you know, we continue to return the majority of our free cash flows to shareholders as dividends.

In first half -- in the first quarter, the Board approved a new policy increasing our annual dividend target over the next three years to at least RUB28 per ordinary share or RUB56 per share. We remain committed to generating significant long-term value for our global pool of investors and we hope this step reaffirms how seriously we take that commitment. To sum up, we have a clear vision and strategy. We are off to a strong start in 2019. And we are laser focused on continuing to deliver going forward.

Thank you. And we will now take your questions.

Polina Ugryumova -- Director, Investor Relations

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question is from HSBC. Please go ahead.

Herve Drouet -- HSBC -- Analyst

Yes, good afternoon, this is Herve Drouet from HSBC. Thank you very much for the presentation. Couple of question on my side. Firstly, the real estate, I wanted just to check the amount of the one-off. Am I understanding well, it's in the region of the RUB1.2 billion when you say half of the growth of the Group EBITDA you are referring in absolute term or so, I just wanted to check in term of the size of the one-off in real estate?

Second question is regarding Ukraine and 5G in Ukraine, I mean I don't know if you can give us an update. And finally, as well with the ongoing current listing discussion you have just wanted to, to see as well, if there is any update you can give us as well as in term of timing. Thank you.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Herve Drouet -- HSBC -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Okay. Let me take the second and the third and then Andrey will take the first one. As far as 5G in Ukraine is concerned there are no specific announcements were made by the regulator. So the plans are not fully, communicated. We keep on the dialog and discussions, but there is no specific date set and no specific visibility at this point of time.

As far as the capital strategy and listing topic, we just confirm our commitment to return to the community by the end of summer with our -- with our strategy in this aspect. So far we continue our dialogs with shareholders.

Andrey Kamensky -- Vice President, Finance, Investments and Mergers and Acquisitions

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

Herve Drouet -- HSBC -- Analyst

All right, thank you.

Operator

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

Dalibor Vavruska -- Citigroup -- Analyst

Hello, good afternoon. Can you hear me? Hello?

Polina Ugryumova -- Director, Investor Relations

Yes, we can hear you.

Dalibor Vavruska -- Citigroup -- Analyst

Yeah. Thank you. I just wanted to ask about this 5G in Russia, if you can give us some updates. Number one. The second question is around this case, Huawei now with the potential restrictions on the handsets and the equipment. I'm just wondering, whether you envisage any impacts of that, of the different scenarios that may play out and how you're planning for that? Thank you.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Okay, Dalibor, thank you for your questions. By the way, no one is congratulating us with the good set of results. Wasn't they good enough? Just wondering. As far as the 5G in Russia, we right now in discussion with the regulator. I think the key challenge or the key topic is availability of spectrum in country because the main spectrum in 3.5 megahertz is occupied right now by other services and need to be full scale program on cleaning up this spectrum.

So if other spectrums are available in C-band, we are discussing right now is the approach. However, we agreed on some testing zones already where we can start testing 5G already this year in basically in Moscow. However, there is no final decision as to what would be the approach, how the regulator will approach the issue of lacking spectrum, non availability of spectrum and what would be the distribution policy, whether they will be consortium of all the players which will envious in freeing up the spectrum or there will be tenders or what is the approach. There is no yet final decision on the side of the regulator.

So some uncertainty in this -- it remains in place. On the other side that indicates that, you know, certain CapEx savings or we do not have any plans for CapEx in 5G in the coming -- in this year and even I think there will be no major investments in the next year. As far as Huawei situation, concerned, we don't take any specific actions or there is no impact in our operational activity from this executive order taking by US authorities. Of course, we are closely monitoring situation, we are in discussion with Huawei, with suppliers. However, we do not see in the immediate direct impact from that on us. And as far as handsets concerned, we keep on supplying our network upon demand.

We did not see any decrease in demand following this order in Huawei handsets. So it did not impact the demand in our sales.

Dalibor Vavruska -- Citigroup -- Analyst

Okay. Thank you very much Alexey.

Operator

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

Igor Goncharov -- Gazprombank -- Analyst

Yeah, thank you very much, and let me congratulate you with the great set of results.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Thank you.

Igor Goncharov -- Gazprombank -- Analyst

Thank you for the results. Couple of questions, one, in your press release, you mentioned that you have completed the next big current round of the buybacks. And in this relations, I have two questions, one is what is your view -- what was your plans with regards to the shares that you have -- quite at least reserve that you have accumulated on your balance and if you plan to cancel them, what could be the timeframe for the cancellation. And number two is, what is the view on the further rounds of the buyback, if any, and the other question is on the real estate transaction, I understand you don't provide any additional quantitative details, but maybe you can qualitatively explain what is the nature of the transaction? Thank you.

Andrey Kamensky -- Vice President, Finance, Investments and Mergers and Acquisitions

Yes, I will take both questions. The first, which relate to the buyback, yes, we have finalized the program that was initiated last year in July. At the moment, there are no plans for new programs, but you know that recently we have approved the new dividend policy which sets us the minimum level for our dividend payment. And actually this is our, this one more time confirm our commitment to the higher yield that we deliver to our shareholders. In terms of the cancellation of the shares that we currently have on our balance sheet. There are no exact plans to do this. We are still in process of considering it. Yes. And so that's related to the first question. With regard to the second, related to the real estate transaction that was disclosed in our -- in the first quarter and actually this is the transaction when we sold power of our real estate from MGTS and the positive effect that we also -- we will see in the first quarter, so actually, no more details related to this transaction.

Thank you.

Igor Goncharov -- Gazprombank -- Analyst

Thank you very much.

Operator

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

Alexander Vengranovich -- Renaissance Capital -- Analyst

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

Andrey Kamensky -- Vice President, Finance, Investments and Mergers and Acquisitions

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

Polina Ugryumova -- Director, Investor Relations

Does it answer your question?

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yes sure.

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Hold on a second, then the answer to the...

Inessa Galaktionova -- Vice President, Sales and Customer Service.

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Alexander Vengranovich -- Renaissance Capital -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Alexander Vengranovich -- Renaissance Capital -- Analyst

Okay, thank you.

Operator

(Operator Instructions) Our next question is from Anna Kazaryan from VTB Capital. Please go ahead.

Anna Kazaryan -- VTB Capital -- Analyst

Good evening. Thank you for opportunity to ask the question. I have question for relatively new services for you, since some quarters have already passed since you acquired the assets in e-ticketing and e-sports. Can you give your view -- updates on this services for example what's contribution from this services. You have seen through your core mobile operations. Did you have to change your approach, your view on this assets for sample there were unused pieces that you decided to eliminate charges from customers for your e-ticketing services. Overall, how do you evaluate the performance of this assets. Thank you.

Vyacheslav Nikolaev -- Vice President, Marketing

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

Anna Kazaryan -- VTB Capital -- Analyst

Okay. Thank you.

Operator

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

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yes, that's Alexander Vengranovich again from Ren Cap. Just a follow-up question probably on the pay TV services. So you've mentioned in your presentation that that goes quite well so offsetting the decline in fixed telephony. So and -- like looking at the market trends, obviously lot of OTT players are investing a lot in the content -- on content and like recently like Yandex announced their intentions to change the landscape probably like invest more in their own production. I mean, it looks like that's becoming more and more important for the consumer that you provide all contents on the platform.

So the question is whether you are OK first, with the technological part of MTS TV platform? And do you think, it requires some like improvement or you might consider some -- even some M&A in this respect?

And the second question is whether you will consider like improving or increasing your investments, maybe on the content side or partnering with other content producers or like the other video streaming services to improve the quality of the service for the users. If that's clear. Thank you.

Vyacheslav Nikolaev -- Vice President, Marketing

I will also take this question. First of all, regarding the product and also the section with quality. We are now coming as we speak, we are launching our new TV platform, which in my view is going to be one of the best on the market and it will provide us with very good client experience, and a lot of opportunities in both linear TVs and video on demand and also in partner services and in many many other aspects.

So in this, in these terms, we are really optimistic. On the content side, of course, in order to grow the number of subscribers, one definitely has to go into call it co-production. But we are not looking into huge investments in this area, but would rather go -- rather conservatively and collaborating with different players of the market since what they see this as the best combination with the state of the art product that we're going to have in the near future.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Thank you. That's clear.

Dalibor Vavruska -- Citigroup -- Analyst

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

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

Vyacheslav Nikolaev -- Vice President, Marketing

Dalibor, thank you for the question. Look, I think if we take what are the challenges or what are the key challenges which we see, they are probably on the regulatory field. So we saw recently VAT increase, which effected our tariffs. We saw intra-country roaming elimination -- all this what we had is a major headwinds in the past. So similar initiatives might come out and we expect this is the key challenge or a key risk area for us in terms of our predictability of our results and so on so forth.

Secondly, of course, a relatively low disposable income is also limiting somewhat the growth potential for us. However, there are two very strong compliments to our growth in basis for our strategy -- basis on which we base our strategy. Firstly, we have in Russia quite a closed digital ecosystem, in terms of local players formation, like the biggest search engine in Russia is Yandex, the biggest social networks VK and Odnoklassniki, the biggest online cinemas is not Netflix but EV and so on so forth.

So the market -- in this sense, this is the uniqueness of the market. So we believe it gives us the unique opportunity to build slowly digital products and win this market with those products. And secondly, the pricing levels where we spend on our services starting from Satellite TV which is right now less than -- average ARPU in satellite TV is less than RUB200 which is like $2, $3 and -- or even less than sometimes. And we have one of the cheapest data globally. In many other areas, we have very low pricing. So in this sense that gives us very good opportunity to grow further and to generate additional revenue based on where we stand right now.

For example in Ukraine, we see that really large on that because of that low base effect, the market generates strong double-digit growth of 20%, 30%. So we are rather -- long term we are rather optimistic, because of the latter factors which I mentioned as to potential for our strategy in digital transformation and building up a good basis for our further growth.

Dalibor Vavruska -- Citigroup -- Analyst

Okay, thank you again, thank you.

Operator

(Operator Instructions) We have a follow-up question from, a caller from HSBC. Please go ahead.

Herve Drouet -- HSBC -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Unidentified Participant

Thank you.

Operator

(Operator Instructions) We have a question from Ms. Anna from Alpha Bank. Please go ahead.

Anna Kotelnikova -- Alpha Bank -- Analyst

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

Operator

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

Anna Kotelnikova -- Alpha Bank -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Anna Kotelnikova -- Alpha Bank -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

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

Anna Kotelnikova -- Alpha Bank -- Analyst

Okay, that's very helpful. Thank you.

Polina Ugryumova -- Director, Investor Relations

Does this answer your question?

Operator

Yes, sure. Thank you very much.

Okay, you're welcome. Our next question is from Juana from BCP Security. Please go ahead.

Juana -- BCP Security -- Analyst

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

Vyacheslav Nikolaev -- Vice President, Marketing

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

Juana -- BCP Security -- Analyst

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

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

On OIBDA, still we were early adopters for new standards. So we switched to new standard yet last year. Juana, as in many other areas, we are the first. So here we were the first of it the new standards and in this sense, we are already reporting in new standards from last year.

Juana -- BCP Security -- Analyst

Just to clarify, on EBITDA. You already adopted, on net leverage for now, you're still reporting under the old one. Is that correct?

Polina Ugryumova -- Director, Investor Relations

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

Juana -- BCP Security -- Analyst

Thank you so much for clarification. Thank you.

Operator

(Operator Instructions) We have no further questions, dear speakers, back to you for the conclusion.

Polina Ugryumova -- Director, Investor Relations

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

Operator

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

Duration: 54 minutes

Call participants:

Polina Ugryumova -- Director, Investor Relations

Alexey Kornya -- Chairman of the Management Board, President and Chief Executive Officer

Vyacheslav Nikolaev -- Vice President, Marketing

Inessa Galaktionova -- Vice President, Sales and Customer Service.

Andrey Kamensky -- Vice President, Finance, Investments and Mergers and Acquisitions

Herve Drouet -- HSBC -- Analyst

Dalibor Vavruska -- Citigroup -- Analyst

Igor Goncharov -- Gazprombank -- Analyst

Alexander Vengranovich -- Renaissance Capital -- Analyst

Anna Kazaryan -- VTB Capital -- Analyst

Unidentified Participant

Anna Kotelnikova -- Alpha Bank -- Analyst

Juana -- BCP Security -- Analyst


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