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Mobile TeleSystems PJSC (MBT) Q2 2019 Earnings Call Transcript

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Mobile TeleSystems PJSC (NYSE: MBT)
Q2 2019 Earnings Call
Aug 20, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to MTS Second Quarter 2019 Financial and Operating Results Conference Call. I will now hand you over to your host Ms. Polina Ugryumova, IR Director. Madam, the floor is yours.

Polina Ugryumova -- Director, Investor Relations

Welcome, everybody, to today's events to discuss MTS second 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 most thorough discussion of which are available in our annual report and Form 20-F or the materials we have distributed to date. MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. You can find copies of the presentations and materials used and referenced in this conference call, which are available on our company website.

Today's presenters are Alexey Kornya, President and Chief Executive Officer; Vyacheslav Nikolaev, First Vice President for Customer Experience and Marketing, Inessa Galaktionova, our First Vice President for Telecommunications and Andrey Kamensky, First Vice President of Finance. Now I will hand it over to Alexey to kick us off.

Aleksey Kornya -- President and Chief Executive Officer

Thank you, everyone, for joining us today. I am happy to note we have delivered another set of solid results in second quarter and we are now moving further into the second half of the year from a position of strength. In second quarter, total group revenue was up 9.4% year-over-year, reaching RUB125.1 billion. We are -- also saw [Indecipherable] with all our geographic markets contributing positively. Overall group OIBDA was up 4.1% year-over-year to RUB56 billion. Excluding the effect of MTS Bank, on a like-for-like basis, revenue was up 4.5% and OIBDA up 1.2% year-over-year.

Before we go deeper into the results, I wanted to take a moment to talk about how we are realigning our organization to accelerate our digital transformation. First, we are setting up 4G sim business Verticals, Telecommunications, FinTech, Clouds and B2B digital and media and TV.

Given the importance of connectivity, we have created the new First Vice President position to head this core business. Since joining MTS at the beginning of the year, Inessa has quickly proven herself a capable leader with a fresh perspective and a laser-sharp focus on operational rigor. I am confident she is the right fit for this critical role. Second, we are strengthening our horizontal capabilities to tie the ecosystem together and empower our product teams. This includes areas like marketing and IT, as well as our proven big data expertise and growing AI competencies.

Looking forward, the horizontals will serve as centers of expertise to enable business execution in the verticals. In many cases and place, we will be directly embedded within an agile mission-based product teams. In addition, the horizontals will help nurture our digital start-ups. For example, in cybersport education and other new directions. To provide additional flexibility and agility, they will operate outside the verticals in the early phases with the potential to be integrated into the core as they grow and mature.

We also plan to strengthen partnerships in certain areas, for example, in video content production. As we diversify our ecosystem. It is critical to maintain the unified 360 degree view of our customer and their total lifetime value. To that end, Slav Nikolaev's role has been elevated to First Vice President for customer and experience in marketing. He will now oversee how we interact and engage customers across the ecosystem, working in close consideration with Inessa and other vertical leaders.

Overall, this is a fundamental realignment of the way we run our company. We are transitioning away from a region hierarchy into more flexible, agile metrics organization. These changes are aimed at empowering our teams to more rapid development, launch and scale the new products and will fill our digital ecosystem. I am confident this is the right framework and the right team to execute and deliver on our long term growth strategy.

With that, let me turn to Slava Nikolaev.

Vyacheslav Nikolaev -- Vice President, Marketing

Thank you, Alexey. Hello everyone. Let me briefly highlight just a few of the latest developments as we move beyond connectivity. In cloud, we saw a seven fold year over year increase in data processing and storage volumes in Q2. In big data we are leveraging analytics to smartly allocate network capacity in real time. We also continue to improve credit scoring for MTS Bank. In e-sports we have already reached over 40,000 daily viewers less than six months after launching our WASDTV streaming platform.

And in artificial intelligence and FinTech we are integrating new capabilities into our My MTS mobile app. My MTS is our central digital customer care. We have solid ratings on both the Google Play and Apple app stores. In Q2 we saw adoption accelerate and reached over 17 million active users, more than one third of our subscribers on smart devices. The app now features an AI based chatbot that successfully resolves over 80% of customer inquiries without the involvement of a human operator.

We are also integrating our MTS Bank products into the app as well as fixed line MTV account management. As part of our sharper focus on customer loyalty, we are proactively shifting away from an opt out value added services toward opt-in services with a clear and simple value proposition. For example, in June we launched a new service to block scam callers by detecting suspicious activity on our network in real time using big data. For RUB1 a day, subscribers can block scam calls before their phone even rings. This is a good illustration of how we are moving the needle on customer care and loyalty.

According to our estimates, we have now taken a strong NPS lead among the big three telcos in Russia. Looking ahead, that provides us a firm foundation to sell new services beyond connectivity to an audience that already knows and trusts the MTS brand. On a related note, in June we unveiled the biggest revamp of the MTS brand in over a decade. The new branding features a simpler, cleaner graphical style that better integrates into reach marketing imagery and digital displays.

We purposefully designed it to be adaptable and expandable across our expanding ecosystem. Going forward, it will serve as an umbrella for a growing portfolio of digital products and services. We also updated our slogan to be better every day, reflecting current custom consumer sentiment as well as our own commitment to continuous improvement. According to our market research, the new style has been well-received with an increase in audience favorability even in our first video ad campaign.

This summer, we were thrilled that MTS was recognized as Russia's most valuable TMT brand by Brand Finance. We are confident the recent refresh builds on that strong legacy and positions us for the future. Now I'll hand over to Inessa for our telecom business update.

Inessa Galaktionova -- Vice President of Sales and Customer Service

Thank you Slav. Russia continued to be our main topline growth driver despite continuing regulatory headwinds and moderating retail sales. Country revenue in Q2 grew 8.4% year-over-year to RUB115.3 billion, driven by mobile connectivity and software sales, integration services and the consolidation of MTS Bank.

OIBDA in Russia grew 2.3% year-over-year to RUB52.3 billion, with margin decreasing to 45.3% as our revenue mix shifted. From our point of view, the Russian mobile services market remained stable with healthy competitive dynamics. We expect growth to continue and potentially slightly accelerate in the second half of the year on unit cost.

Looking beyond mobile connectivity, we also seeing significant long term opportunities to tap into new markets. In B2B we welcome the recent efforts by the Ministry of Digitalization Development, Communication and Mass Media to stimulate competition in public tenders. With the right regulatory conditions now in place, we're happy to participate in early this month where we were awarded a RUB3.9 billion contract to bring online over 5,000 public facilities in nine Russian regions. This is a good example of how our core telecom strategy is evolving to capture additional revenue, supports the digitalization of the economy and improve people's lives.

Turning now to sales, as you recall, last quarter we forecasted slowdown in headset sales after a year of rapid growth while MTS is consistently outperforming the market. As expected, we saw sales of handset and accessories decelerate in Q2, with the revenue roughly flat year-over-year. We're seeing clear signals that retail market dynamics are shifting and we have begun adjusting our strategy accordingly.

In June, we launched a partnership with Russia's largest multi-brand retailer Sistema . Under the agreement MTS SIM cards are being made available on the shelves of 5,000 additional stores nationwide. This new channel is supplementary and we don't expect it to represent a substantial sales. At the same time, by diversifying our team distribution, we're aiming to open a window to optimize our retail footprint. In the short term, we're targeting to close to a deal of 300 storefronts by the end of this year. We will closely monitor the situation and depending on how the competitive environment evolves, we're prepared to further resize our footprints over time.

The overall market mood seems to be shifting in this direction as we see significant upside for optimization will drive value accretion over the next several years. Turning to our international markets, Ukraine also saw solid performance with both revenue and OIBDA up by double digits year-over-year. OIBDA increased 30.8% from the year ago quarter with somewhat large supply growth of 20.7% reflecting our active marketing efforts and retail expansion.

In Armenia revenue was down 3.5% year-over-year in the marketplace in soft competition and regulatory changes. At the same time, we saw EBITDA increase 6% driven by OpEx optimization. Finally, in Belarus, which is not consolidated, we continue to enjoy double digit growth in both revenue and OIBDA. Now I will pass it to Andrey.

Andrey Kamensky -- Vice President of Finance

Thank you, Inessa. In the second quarter we saw solid 4.1% year-over-year growth in the group OIBDA to reach RUB56.1 billion. Broadly speaking, this was a steady continuation of the positive underlying trend we saw in the first quarter. Moreover, we successfully overcame regulatory headwinds with OIBDA growing in all of our markets, Russia, Ukraine and Armenia, including contribution from MTS Banks. And we continue to take steps to digitalize our processes that are aimed at improving our long term operational efficiency. Group net profit came in at RUB12.7 billion, down 11% year over year, partially driven by higher interest costs related to increased debt. At the same time, a significant impact came from the high base effect due to IFRS reporting requirements with respect to improved loan terms in the second quarter of the previous year.

Capital spending for the first half of the year was RUB39.3 billion, driven by continuing investments to improve network coverage and quality. The ratio of capex to revenue stood at a healthy 16.2%. Excluding the SEC DOJ payment, underlying free cash flow in the first half of the year was RUB22.7 billion.

Free cash flow was supported by OIBDA growth, while negatively impacted by investments in software upgrades, the consolidation of MTS Bank and high income tax payments in the second quarter. An additional impact was seen from the high base effect due to a spike in interest received from maturing deposits in the first half of the previous year. We expect the majority of the sectors will be equaled out in the second half with minor impact on full year free cash flow.

Taking a closer look at the bank, we continue to see solid performance and rapid expansion in line with our FinTech strategy.

In the second quarter, net interest income rose 11% year-over-year to RUB2.7 billion. Total portfolio increased 53.3% year-over-year to RUB96.4 billion. As Slav mentioned, we're also making steady progress on integrating the bank into our ecosystem. In June, we launched a new flagship credit card product under our MTS cash back loyalty brand. Card holders earn points through spending which can be redeemed for mobile services or purchases at MTS retail stores.

Turning to our balance sheet, we continue to optimize our debt portfolio. In the reporting period we issued two series of exchange traded books -- bonds on MOEX totaling RUB12.5 billion. We also made the full early repayment of a 10 year USD credit facility backed by Sweden Export Credit Agency EKN with an outstanding balance of $163.9 million. These steps demonstrate our continuing efforts to seek timely opportunities to refinance our debt while mitigating the risks such as currency exposure.

Total group debt at the end of the quarter stood at RUB377.2 billion with the weighted average interest rate holding steady at 8.1%. Overall, our ratio net debt to the last 12 months adjusted OIBDA remains at a comfortable level of 1.6. Now, I will turn it back to Alexey for his closing remarks.

Aleksey Kornya -- President and Chief Executive Officer

Thank you. I am encouraged by our year-to-date performance and proud of the entire MTS team for what we have achieved so far in 2019. Given our strong first half results and increased visibility in second half, I feel confident in raising our full year guidance to 4% to 6% growth in revenue and low-single digit growth growth in OIBDA.

I also wanted to give a brief update on where we stand with our equity capital market strategy review. We have now completed the open consultation period with the market and are in the process to digesting the results internally. There are a number of options still being considered, including reserving the current listing structure with no change.

We will keep the market updated as we make a final recommendation, which we expect to be in the next few months. I would like to thank our shareholders for their patience and input into the process, we greatly appreciate your active engagement and we'll share more as soon as we can. Last but certainly not least. I also wanted to highlight that we recently completed our full year 2018 dividend payment and the Board has recommend that our first half dividend amount for the shareholder approval. Together, this come to RUB28.66 per ordinary share for the calendar year, which is above all dividend policy target and represents more than a 10% of increase over dividend paid in 2018. So to sum up, we are sustaining our momentum in 2019. We are continue to generate significant returns to our shareholders and we are making steady progress in better positioning our business for the future.

Thank you and let's open the line for questions.

Polina Ugryumova -- Director, Investor Relations

Operator, we're ready to take questions now.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now start Q&A session.

[Operator Instructions]

Our first question from Albert Herve, HSBC. Sir, please, your line is open.

Herve Drouet -- HSBC -- Analyst

Yes. Thank you. This is Herve Drouet from HSBC. Thank you very much for the presentations. Couple of questions from my side. So first one, could you give us a bit, maybe more color on -- I mean, on the competitive landscape in Russia? I mean, you mentioned in your press release that you think kind of stable competition at the moment in Russia, which makes you believe, I mean, there is room to increase your guidance. What specifically you think has changed in Russia to make it more stable? I mean, do you see some of your competitors changing their tariffs in that sense and at the same time, it looks like the number of points of sales continue to increase. I will have thought that in a more stable competitive environment, that will start to be a decrease of the number of point of sale. So I would like to see if, from your perspective, there is any reason to why we still see, those point of sales increasing. And my second question is around the interest and interest cost. I was wondering, have you done recently, some refinancing? That may explain some of the increase of the financing cost, especially in other expenses. Thank you.

Aleksey Kornya -- President and Chief Executive Officer

It's Aleksey. I will take the first one. As far as competitive situation concern, we feel that it is stable in the pricing field with even some slight increase in pricing and growing consumption of that which contributes to sudden ARPU growth. And what is more importantly, we see positive trends in distribution outside in the cost competitive which we just mentioned that we think the market is open for certain optimization in the retail side. And on our side we are planning to close from 200 to 300 stores until the year -- until the end of this year.

And we think that, other players are also open to a more rational distribution approach. So all this together makes us feel quite comfortable in terms of overall competitive environment in the market.

Herve Drouet -- HSBC -- Analyst

[Speech Overlap] Go ahead, sorry.

Vyacheslav Nikolaev -- Vice President, Marketing

I'm just going to answer your second question, which is related to the interest expense to the finance cost. If you look at our P&L, you'll see this at first quarter of around RUB3 billion. There are two major components of this effect. One is coming from the 2018 with a high base effect due to IFRS requirements where actually what we did is was that debt modification gain that we received last year and because of that, we had the higher base in 2018. That was the first effect, which was quite significant and the second effect that was the higher interest costs related to increased debt. So that's the answer to your finance -- to this question but overall, we see that our growing business will compensate this negative effect coming from their higher debt.

Herve Drouet -- HSBC -- Analyst

Thank you very much. Maybe just a follow up, maybe back on the competitive landscape. I mean, have you seen any change on the credit to Russia in terms of the way they act within some part of the markets? And also coming back to your comments, very positive on how potentially the distribution channel may gradually reduce the number of shops. I mean, are you saying that you are ready to take the first move on your side to decrease now your number of store which is something we haven't seen yet when we looked at quarter-on-quarter, your point of sales are continuing to increase Q2 versus Q1. Now, are you saying that you expect that numbers now for the end of the year to decline quite significantly to 200 to 300 stores? Just wanted to confirm that.

Vyacheslav Nikolaev -- Vice President, Marketing

Well, on the pricing side, way it concerns Tele2. They retain their discount policy. But in this sense, it doesn't change the overall situation in the market and in this sense, we feel that the market is stable. No one takes more aggressive steps and we don't see activity in terms of aggressive steps in price -- on the price side. So, yes, Tele2 is a challenger for this market, a discounter player, they are slowly gaining a little bit for market share. But at the same time, we don't see that it has changed some activity -- their activity, their steps gets changed relative to what we saw a year ago or two years ago. And as for the retail situation, yes with our agreement with Sistema, we feel that our number of touch points with the customer is sufficient enough in order to take the first steps in reducing our distribution.

Herve Drouet -- HSBC -- Analyst

Thank you. That's very clear. Thanks. Thanks again.

Operator

Our next question from an Alexander Vengranovich, Renaissance Capital. Sir, please go ahead.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yeah, good afternoon. Two questions from my side. First one is on My MTS app usage. So looking at your numbers, on the quarterly numbers, there was some significant acceleration the number of the users quarter-over-quarter. So typically you're adding around 1 million of monthly active users over the quarter. This quarter, it was like 2 million. So I'm just wondering whether you had any specific promotion of the app in the quarter or should we consider these growth as organic throughout 2019? And so that's the first question. And the second question is about the rebranding. Do you have any estimates on the costs of rebranding across the whole organization this year and whether these costs will be significant for the company? Thank you.

Aleksey Kornya -- President and Chief Executive Officer

Thank you. I will take both questions, My MTS, we didn't have any -- we haven't done any specific promotion in the second quarter. On the other hand, we've introduced quite a few interesting features into My MTS. So I cannot promise you, of course, that the growth will really continue. But I think that in the third quarter we're going to see additional acceleration because we did promote some new features of My MTS on ATL. So it's going to grow definitely in the third quarter, but I see this as a very healthy growth of My MTS in the second quarter, based not on money spent on marketing, but on features.

Regarding the second question, we were not planning any significant budget for rebranding because we've done that definitely on digital side immediately. But we are not planning to replace all the costly equipment with brand right away, it's going to be in the normal way of changing the old science to new science.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Okay, got it. Thank you.

Operator

Our next question is from Vyacheslav Degtyarev, Goldman Sachs. Please go ahead.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Yeah. Thanks for the call. There were certain press speculations over potential sale of the Ukrainian business, although those rumors have been rejected quite quickly. Still, can you describe your approach to all of the international operations? Are those quite strategic for the group and can you opportunistically consider or some divestments? Thank you.

Aleksey Kornya -- President and Chief Executive Officer

We consider those geographies where we are present is our strategic footprint. At the same time, we are not looking at the active expansion beyond our current geographic footprint because we think that markets are quite mature already and there are no clear cross-border synergies through whatever expansion is possible. As far as divestment opportunistically depending on the specific situation, we are open for considering such opportunities.

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Thank you very much.

Operator

Our next question is from -- Slav, that's it for you?

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Yes, that's it from my side . Thank you.

Operator

Okay, perfect, thank you. Our next question is from Svetlana Sukhanova, Sberbank. Ma'am Please go ahead.

Svetlana Sukhanova -- Sberbank -- Analyst

Hi, everyone. Your mobile subscribers in Russia have started to grow in the second quarter after several consequent quarters of decline in mobile subscriber base. May I ask what happened? Is it kind of video growth of video subscribers or is it primarily driven by the growth of IoT subscribers, which are so complimentary about in the following page of the press release? And my second question here would be out of that kind of mobile subscribers in Russia, how much IoT subscribers do you have? Thank you very much.

Inessa Galaktionova -- Vice President of Sales and Customer Service

Okay. Regarding your equation on our growth, so first of all, this is the flat growth year on year. Most probably you mentioned the growth second quarter --

Svetlana Sukhanova -- Sberbank -- Analyst

Quarter-on-quarter because you had several consequent quarters of decline quarter-on-quarter subscriber base.

Inessa Galaktionova -- Vice President of Sales and Customer Service

Yes, so first of all, we are happy with the close of our sales. So our churn is very healthy and then secondly, we are doing some right things in the distribution channels, not just by growing the quantity, but working on the quality side. The product itself and also the healthy distribution gives us these drivers for the subscriber growth quarter -- second quarter over first quarter.

Svetlana Sukhanova -- Sberbank -- Analyst

Thank you very much. But can you answer my question, please? What's the number of IoT subscribers overall? And out of the incremental growth, how much of that is coming from IoT subscribers and from video subscribers? Thank you very much.

Aleksey Kornya -- President and Chief Executive Officer

We are not disclosing the exact number for our IoT subscribers. Still we believe that we are clear leaders in this direction and overall in the market, firstly because we have the biggest network and that includes in the IT network where we take lead. And we were the first one to launch this network and we have the biggest footprint currently with 60 regions footprint for narrow-band Internet of Things network. So we estimate a strong leadership of us in this market.

Svetlana Sukhanova -- Sberbank -- Analyst

Thank you very much, but again back to my question --

Aleksey Kornya -- President and Chief Executive Officer

Did you get the answer?

Svetlana Sukhanova -- Sberbank -- Analyst

Yes, yes I got the answer about overall number but if I may ask about the incremental growth, so [Indecipherable] if you would drive that kind of incremental growth quarter-on-quarter in the number of subscribers was contributed both by IoT subscribers and both by video subscribers because you distributed the channels, et cetera.

Vyacheslav Nikolaev -- Vice President, Marketing

Okay Svetlana, we got the question. I can assure you that it's not the number of IoT subscribers that has driven the growth in the second quarter, we have a healthy growth of general subscribers too.

Svetlana Sukhanova -- Sberbank -- Analyst

It's very clear now. Thanks so much.

Operator

Our next question from Ondrej Cabejsek, UBS. Please go ahead.

Ondrej Cabejsek -- UBS. -- Analyst

Hi, thank you. Two questions for me, please. So first one is on content production. So you've been talking about producing your own content recently more and more. If you could just speak about sort of capital intensity you're planning in this venture and then very conceptually, whether you see this more as a defensive initiative, given the growing importance of convergence in Russia or whether you think this can actually become a digital growth driver for you. And second question on 5G, please. Last time you mentioned that you don't expect any significant 5G capex before 2021. But what we've seen in the meantime is some press reports on the fact that the free gigahertz bands may not even be freed up for the telecoms industry. So if you could talk a bit about how this changes your assumptions in terms of timing and capex and whether potentially this changes your view on how you would go about rolling out the network in conjunction with like the rest of the sector in Russia or not. Thank you.

Aleksey Kornya -- President and Chief Executive Officer

Thank you. On the cost of content production, I think it's firstly the approach will be quite weighted. We are not planning major investments into this area short-term. So we'll start moving and building our media verticals still being quite conservative and cautious on that side, although, on the other side, it's too early to give the exact indications of what would be our strategy investment.

So we'll be better positioned as we build kind of finalize build up of our media vertical and we proved the strategy for this, the direction which we expect to have by the end of the year. And as far as 5G concerned, we don't see any changes toward our estimates which have no material impact on our capex in 2019 and 2020.

Ondrej Cabejsek -- UBS. -- Analyst

So then can I just follow up on the second question? Do you expect this -- what I just mentioned to happen and materialize, i.e. no free gigahertz spectrum being given to the sector? And if so, what impacts would you see on yourself in terms of timing and then potential CapEx for the technology overall?

Aleksey Kornya -- President and Chief Executive Officer

Well, it doesn't say that -- we still expect that certain clarity on the frequency will be achieved. And we'll see what together with [Indecipherable] when discussing and we'll see certain path toward what is what is the approach and what is the -- how did you later see the development into this field. And we might see certain decisions sooner than the period which we indicate still in some future. However, it doesn't mean even that if there are certain allocation of frequencies and even if there are more clarity on frequencies, it doesn't mean that we'll be immediate capex start irrespective of what are those decisions and how they have to be implemented. We just don't feel that there is right now a demand. We expect that the first 5G census to appear only by the end of this year. So there is no strong need on building up aggressively 5G at least at the current stage, with the current penetration of 5G smartphones, which is effectively zero for today. It will not be sufficient. It will be nothing meaningless in the next year. So in this sense -- at this stage this is more of a [Indecipherable] than in real consumer experience and economical rationale.

Ondrej Cabejsek -- UBS. -- Analyst

All right. Thank you very much.

Operator

Our next question is from Alexander Vengranovich, Renaissance Capital. Sir please go ahead.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Yes. Thanks again. One follow-up question from my side on MTS Bank. So we've seen quite a significant increase in the loan portfolio of the bank. So my question relates to the future outlook for the bank's profitability. So typically when you have the correct expansion of the loan portfolio, that would create a risk for some more prudent provisioning of that portfolio and ultimately have some negative impact on the profitability. So I'm just wondering whether you see the current level of the profitability as organic and should we expect any further volatility from that level this year, probably over the coming couple of quarters? So that's my question. Thank you.

Vyacheslav Nikolaev -- Vice President, Marketing

Thank you for the question. Firstly, I would like to stress that the growth in our portfolio is a good indication of synergistic effects which we demonstrate through consolidating MTS Bank within the group in deriving [Indecipherable] effects based on our big data and other elements of our ecosystem on the portfolio of MTS Bank. First of all, we are succeeding specifically in B2C segment where we feel quite confident where we have priority in our strategy and where we able successfully generate synergetic effect from our big data knowledge of our customer base and more efficient scoring and better services being provided. That includes, by the way, our distribution side where we also feel strong and where we also through our distribution sales [Indecipherable] is also generating healthy return for our credit portfolio, saying that, it is also important to stress that the growth in our portfolio goes along with this stable cost of risk and at the quite healthy level.

So right now we see that by market standards, we are quiet conservative one the side of cost of risk and in this sense, we don't expect that we are taking any excessive risks and we don't expect any additional provisions. Moreover, we expect solid growth of our net income this year versus last year. So if last year we had about RUB600 million of net income, I think this year we expecting somewhere within RUB1 billion range of net income, which is a good addition in terms of year-on-year.

Alexander Vengranovich -- Renaissance Capital -- Analyst

Thank you. Clear.

Operator

[Operator Instructions]

We have follow-up question from Albert Herve, HSBC. Sir please go ahead.

Herve Drouet -- HSBC -- Analyst

This is Herve Drouet from HSBC. Just a follow up question again on a MTS Bank and about the net interest income you are posting. How do you book those net interest income? I would have expected while your retail loans portfolio grow, you will have a a significant pickup in the net interest income you are booking on your P&L. It looks like also it's growing, it's more flattish, it doesn't follow at all the growth of the retail loans. I was wondering if there's some specificities that explained that we don't have the same growth trajectory on your net interest income versus your retail loan's growth. Thank you.

Aleksey Kornya -- President and Chief Executive Officer

So net interest income goes into OIBDA and the contribution into EBITDA, which we have in our factor analysis, is an indication of this healthy growth, which we have from net interest income, operating interest income, which we have from the MTS Bank. As net income goes, of course, into consolidated group net income and we see good -- pretty stable dynamics first half year-on-year in terms of net income but a healthy growth in net operating income and we are guiding -- what I'm guiding the overall growth in net income along with net operating income on our full year results. So what we'll see -- we'll see good growth on all parameters year-on-year.

Herve Drouet -- HSBC -- Analyst

All right. And what I was trying to find out is, as your retail loans increase and maybe you have different type of margins, you are doing on those retail loans, I was wondering in term of the quality of the loans, I mean, is there a change in the type of loans you are gradually taking, which may explain the fact that maybe what you are booking on the net interest margins income is maybe it's not growing as fast as the volume of the retail loans you are taking on.

Aleksey Kornya -- President and Chief Executive Officer

Well, you can see our NPLs now cost of risk they are pretty stable in year-on-year terms, they're even decreasing. So in this sense, we're very comfortable. The growth of portfolio doesn't go at the expense of risk. You can see it from the indicators -- the figures which we have provided.

Herve Drouet -- HSBC -- Analyst

All right. Okay, Thank you.

Operator

[Operator Instructions]

We have no other question at this moment. Dear speakers, back to you for the concluding remarks.

Polina Ugryumova -- Director, 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 team at anytime. A webcast of the discussion will be available soon on our website, if you wish to replay the call. In the meantime, we appreciate your interest and wish everybody a pleasant day.

Operator

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

Duration: 46 minutes

Call participants:

Polina Ugryumova -- Director, Investor Relations

Aleksey Kornya -- President and Chief Executive Officer

Vyacheslav Nikolaev -- Vice President, Marketing

Inessa Galaktionova -- Vice President of Sales and Customer Service

Andrey Kamensky -- Vice President of Finance

Herve Drouet -- HSBC -- Analyst

Alexander Vengranovich -- Renaissance Capital -- Analyst

Vyacheslav Degtyarev -- Goldman Sachs -- Analyst

Svetlana Sukhanova -- Sberbank -- Analyst

Ondrej Cabejsek -- UBS. -- Analyst

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