Q2 2020 VEON Ltd Earnings Call
Good day, ladies and gentlemen, and welcome to the field second quarter Twentytwenty results webcast and conference.
This time all participants you know just 90 megawatts of to speak presentation. There will be a question answer session.
Yes. Good question Jordan the session you when each press star one on you'll kind of thing.
As a reminder, today's conference is being recorded.
I'd now that's cool or if it's Nick Cashel head of Investor Relations. Please go ahead.
Hi, Good day, ladies and gentlemen, I welcome to be on second quarter results presentation on the crucial group head of Investor Relations I'm pleased to be joining the launch they bought calling in city because she is a long without the chip I see again.
Today's presentation will begin with an overview about second quarter results from Sig, Ken followed by an operational review from corn, and Suji, who will kind of how the cabin and didn't make as a fix it all business during the law school that well in hand, it back to sit cancer discussed are looking on new financial guidance for full year 2020.
Yeah, but they'll be 10 should we ample time for your questions, but but with all she decided these for the ended the presentation.
Just before getting started up Lux reminds you that we make you may make forward looking statements during today's presentation, which involve certain risks and uncertainties.
These statements like in part to the company's anticipated performance and God's for 2020, particularly in lots of the kinda endemic.
Due to market development she trains.
Operationally Nitwit development in it we can basements and the company's ability to realize its targets and commissioning strategic initiatives, including both current and future transactions.
Certain factors may cause actual results to differ materially from dice and forward looking statements, including their risks detailed in the Companys annual report on form 20-F, and other recent public filings made by the company with <unk>.
The earnings release any earnings presentation, each of which include reconciliations of non <unk> for his financial measures presented today can we can be downloaded from our website with that let me hand up second.
Thanks, Nick and good morning, and good afternoon to all participants.
Thank you for joining us for this present tissue or second quarter results.
Hope you all managed to stay safe and the growth during this unprecedented periods for all the way.
You too. So this will impact over the course 19 pandemic when activity across Britain markets.
Look those in test flight before from the girls easing source ended the quarter.
Our financial performance was impacted as a consequence, although I'm pleased to say that.
On to focus on up on cost control towards it did the grille concept.
Let me go to go straight to the headline numbers, which are summarized here on slide five.
Group revenue for the quarter declined 46.9% in local currency terms year on year to see 1.9 billion U.S. dollar.
When reported basis the year on your children to read it wasn't minus 16.3% once the negative impact of currency movements amounting to undo the 72 million euros filler are accounted for.
Look downcycles or markets explains the skin or distributed decline given the requirement to close stores, which is significant because three into top ups and do you watch states.
The Lucille Micronutrient is particularly in Russia, and the shop for in the roaming income due to travel restrictions also contributed.
Together these more than offset to the Palestinian pixel increased demand for data and fixed line services, which we have seen across our markets since looked almost were introduced.
Despite these tend to be that's when we were pleased to deliver solid double digit local currency girlfriend data revenues during the quarter up 14.4% year on year or close for 5.2 person on reported basis.
This reflects the underlying strength in data demand that characterizes our markets has been as the rapid uptake in digital services that looked loans are encouraging.
EBITDA declined by 7.7% in local currency terms to 809 million U.S. dollar on reported basis. This corresponds to an 18.7% you on your decline.
No that's for comparative purposes, you know a little quicker some numbers, we had excluded the one of payment of 38 million U.S. dollar booked in Q2 last year, instead to especially the composition of the Super subsidiary in Kazakhstan.
During the termination of well well the network sharing agreement in that market the impact or reach our industry. It in greater detail in the next flight.
Our group EBITDA margin was 42.7 per cent for the quarter decline, a 1.2% year on year or minus 0.4% in local currency terms.
Although this is a weaker outcome on both measures our continued focus on reducing costs offset the margin impact all the quarter's revenue decline.
She here was that sounds downsizing all our headquarters as a reduction in HR related engine expenditure.
Rich together more than offset higher net circle picks from other investment in Fourg infrastructure in Russia.
Well pretty sure topics was 9.5 person higher in the quarter, which also reflects our investment activities in Russia.
This brought the group's cutbacks in test ratio to 20.8% more on this when I talk about or finish it off later.
Finally, our leverage ratio stood at two times net debt to EBITDA for the quarter up slightly from 1.9 times in Q2 linking primarily reflecting the folding it into the experience is of course it goes so look bones.
These numbers exclude lease liabilities unexpected and express EBITDA on a rolling 12 month basis and for comparative purposes exclude last year's payments from Ericsson.
Looking at though or financial results in greater detail flux sick.
That's out the impact okay. So on both reported EBITDA and EBITDA margin in Q2, Lincoln and illustrates the euro and your change in beach. If this is excluded.
This is kept it into two adjusted lines in the middle though the stable you see that the declines in EBITDA, and EBITDA margin or minus 15.4% and 0.3 percentage points, respectively. Excluding case up.
On the right. The site, we have mostly illustrated the impact will be another one item that was a future or the stores wholesale 20 linking this round of that 50 million U.S. fill their payments from it.
Rich along with the case, though we have excluded in adjusted studies for reported EBITDA and EBITDA margin.
As a reminder, Davidson payment that was accounted for as maybe think Q1 Lincoln animals that received in two separate cash payments or hundred 75 million U.S. filler in Q1 and two to Lincoln.
The group recorded a net talkatone home business, the 6 million U.S. filler in the quarter, an increase from last year's figure of 69 million euros filler.
The rise in profit reflects a full in the financial expenses for living you're already financing activities and two nonoperating gains which combines value over 86 million dollar, namely.
The revaluation gain on the liability related to our acquisition of varied in Pakistan become 26, then.
At the gains relates to settlements regarding the seasonal one O.G.P.H. business since back in 2014 [noise].
[noise] moving to slide seven and a more detailed breakdown or our revenue during the quarter.
The general Petraeus is one of lower revenues across our operations as look those continued if the exceptional Ukraine and cause that stuff there both in data demand enabled us to grow.
Our top line in each market. Despite these challenges.
This in the Russia reflected the disruption to our retail channels as a consequence of store closures as well as a new reps and so roaming revenues and the smaller migrants customer base, because they'll look dogs.
Okay sounds reported performance was affected by look dose as whether they're comping impact losses tax regime change as you said just for the latter packaged foods has seen revenues rose by 3.5%.
You also see last year's case or payment and second quarter. If it had been a separate components in the all in this waterfall that the left and the rights inside of the charts respectively.
Turning now to EBITDA on slide eight.
We continue to reduce costs across the group, which enabled us to record a broadly stable margin pair for most compared with Q2 last year once the impact of cancer that just for.
Sure there downsizing all of our headquarters function, which was since before the pandemic and additional savings in HR and stuff goes through the key contributors here.
Together those more than offset a rising that's required to close in Russia, which reflects our accelerated network investment there.
Without these network expenditures, our Russian EBITDA margin would have been around 300 basis points higher.
But we believe making the necessary investments in our networks in Russia, no. He's the right course election, both for other customers and also for our shareholders.
Finally in Pakistan. It is important to point to the impact on last year's tax regime changes and the good and the reclassification unless I'm a tradition expense on another reported performance, which taken together accounted for about three quarters are they beat that decline there in Q2.
Turning now to our capital structure on slide nine.
Our priorities to ensure that we have the capital and liquidity strength today given to navigate the groups such as food. During this quarter period. This hasn't been active management all of our dept, including hedging or just a little diabetes nurses or rubles revenues to insulate us from adverse currency movements.
You can see the impact or hedges on that too right.
We chose Dickerson makes all of our borrowings crew and post hedging.
As you can see our Ruby liabilities are very much to other ruble revenues as a result.
On a net currency basis adjusting for our cash holdings, which are shown in the 11 cents Pie chart.
Well, you installer and ruble liabilities are brought the similar that's 50% and 48% respectively.
[noise] group that was broadly similar to Q1 levels at 7.6 billion U.S. dollar.
This was an active quarter for the management all of our balance sheet using richer successfully issued 20 billion rubles in senior secured notes at 6.3%.
Representing the lowest coupon another four a ruble you about setting.
The quarter also source negotiate nearby that's real Luminex north facilities.
To all our Q banking Counterparties in Russia.
Since served to reduce sporting close and increase maturities on over 1.9 billion U.S. filled up.
Taken together these activities enable us to reduce our average cost that's further to 6.4% at end of Q2 hundred it's lower than Q2 banking.
The group continues to have access to considerable cash and undrawn credit facilities, which together amounted to 2.5 billion U.S. filler.
We have also finished amendment shoot all of our boardings productivity this financing near term maturities and pushing out the average 10, though all of our debt to 2.8 years compared to 2.3 years. It ends up to one this year.
Moving to slide 10.
They are falling a bit of experience in the second quarter resulted in a modest right in our group leverage ratio, which stood at two times at Delta couture. Excluding these that it is.
This remains in line with the until a guy this or their own two times, we have said Oh set ourselves and that reflects what we view as an exceptional quarter trading given the revenues that inevitably lost because of looked on.
In summary, the measures we have taken to enhance troubleshoot secured our liquidity position places some position financially to navigate this challenging periods. This that let me to hand over to come to discuss our operational performance during the quarter in more detail. Thank you.
Thank you sat down and thank you all for joining us on the line today in early May at the time of our first quarter results menu office adjusting to the mark to market.
Mitch we thought at the time as a temporary measure while we have agent the peak off the pandemic to pass three months on the majority office are still facing at least some limitations on our ability to return to our places.
This is one of many challenges, which are driving an ever greater dependency on telecommunication services and redefining the role of our industry in the daily lives of our customers and the markets the offerings.
However, and nothing to this new normal has been tough in a number of days for our Indicee just as it has been for the broader economy and for our customers.
Let me summarize what it meant for our group in the last quarters and what it will mean going forward over the next two flights.
Second quarter solve the full impact or locked down on our operational performance these trends, which intensified in April and May show sizeable abating in June and July as restrictions on store closures and movement on people the east.
As a consequence roaming revenues fell substantially to 0.4% of revenue.
Paired with 2.1% in financial year 2019.
No no just had to see significant impact on our gross additions and airtime sales while traveled restrictions also men and lost in my customers from our subscriber base, particularly in Russia.
We also saw in migration and data traffic from Mumbai to fix networks as well as they shift in network usage and they from the urban centers suburban and rural areas.
These shows the impact of this in our fixed networks, where daily volumes peaked in Q2 at levels of 35% higher than the first quarter.
Mcdonald's accelerating the growth in our Fourg customer base during the quarter.
In closing, Russia, where our Fourg subscribers grew in number by over 20% year on year.
We also experienced faster adoption rates for our self care applications.
For reach our melody active users have almost doubled year over year.
The trend was similar for our digital services, such as TV that all customer base is now 50% larger than in Q2 last year.
Overall increased demand for Fourg and faster adoption of digital services have enabled us to report another quarter or double digit year on year growth in data living.
Moving next slides looking ahead into second half and beyond we anticipate a gradual improvement in operational sense and expect some of the more positive dynamics of customer behavior to all plus the bundling.
Specifically.
We expect it's small recovery in roaming revenues and mightn't customers assembled as you.
We also expect and partial more gradual shift in urban populations back to metropolitan centers as workplaces reopened.
Installed sales are expected to recover steadily assuming local lockdowns are not leading Paul.
We expect some degree off remote smoking no remaining and future off professional life.
Our positioning for these changes through investments in both networks and services for our new business the home beat to age customers.
Mark Downs have also placing greater emphasis on digital sales channels, which we are positioned to serve given our ongoing investment in customer self care applications and the digital business support systems that enable them.
Throughout we will remain focused on mitigating the impact of the funding on our financial performance from cost control to ensure that captured the margin benefits as revenues any color.
Next slides turning now to the individual performances of our major markets.
Russia business be line was particularly impacted by Lockdowns, which denied us installed sales for much of the quarters and significantly reduced our roaming and magnet customer revenues.
These temporary interruptions did not distract us from our program will accelerate the network deployment, which is a vital.
On and off our turnaround strategy for the markets.
Progress here in the second quarter in Warsaw, We talked a number of Fourg base stations, increasing by 24%, enabling us grow our fourg customer base by 22% year on year.
We also saw growth in adoption of digital services, including be like TV that our customer base grew over 50% year on year.
Also continue to optimize our retail footprint as we increase our emphasis on digital channels and we have now close 627 stores over the past nine months.
[noise] next slides looks at the year on year comparisons for be line over the quarter.
Total revenues fell by 9.7% of theirs, we were required to close over 14, hundreds start due to the <unk> 19, pandemic and the experience and almost 90% fall in roaming revenues as struggles came to a halt.
The shift from more welcome fix networks, we observed at the group level was clear in Russia performance mobile services revenues falling by 9.8% and fixed services revenues rising by 8.9.
Helping this fixed line Ross is our growing base of beat to the customers. Many of whom are currently working remotely, which we are serving with products like be free which provides.
Services in a single birthplace as a service bundles.
Similar to the rise in Dayton demand benefited be line, which recorded at 4.9% increase year on year in mobile data revenues.
This was also driven by solid growth in our Fourg customer base, which grew over 20% year on year and now represents 43% of our subscribers.
Success in attracting teach fourg customers, partially offset the loss of subscribers elsewhere, particularly amongst our Megan user base very sharp decline in numbers contributed to 8.4% fall in total subscribers for the quarter.
That said the began to see positive subscriber trends return in June and July, which we anticipate will continue.
As well as the revenue impact to at the 20% decline in EBITDA. We recorded for the quarter also reflects higher levels of network Opex, resulting from our continued investment in fourg infrastructure and customer experience.
We believe this is vital to restoring growth through positive gross additions lower churn and higher ARPU.
Next slide.
Talks about Kazakhstan.
Alongside Ukraine, which soggy will discuss Kazakhistan one of these one off the two markets in which we have enjoyed positive revenue growth during the quarter and writers of 9.2% on an underlying basis.
Data revenues once again drove this growth.
Good morning by almost 40% year over year.
This was enabled by more than doubling our fourg base stations and expanding our fourg user base by over 20%.
Our team in Kazakhstan had been successful in driving digital adoption through there do you celebrate operator brand easy which provides a flexible range of prepaid bundled services on an RTT basis to customers via dedicated smartphone app.
Rapid digital adoption is also evident in the team's success in driving both in mobile financial services that they now have close to 2 million users.
Turning now on to the numbers off the line 'cause it stuff.
The impact of case, though is illustrated in the left on charts by the shaded component of our second quarter bars adjusting for one off related to two felt the case out payments revenue grew by 9.2% and EBTDA grew by 13.4%.
Charts illustrate the steady growth we have enjoyed in fourg users up 24% year over year.
And the substantial rise in data revenue has contributed to up to 40% year over year.
You will see that our subscriber base declined by 6% year on year, but this reflects the impact of I am registration vetted requirements of our in force last November as well as the store closures and lack of Ross assets.
Our subscribers are spending more with us demonstrated by the 11.9% rise in our.
The 10 percentage point increase into share a fourg users in our customer mix contribution to this rise.
Kazakhstan is that market that bright digital future.
It's just one off the first markets in which we successfully trial Fiveg services back in November 2019.
While fiveg investments remains a distant need for now the nation's rapid do you still adoption provides us an opportunity to offer our customers and wide variety of latest digital services.
With that let me pass the floor or decide to take you through our other markets saggy.
Thank you again.
Let me first talk about buckets done then Ukraine unplanned and conclude with some observations on highlights from the rest of our markets.
It was another solid quarter for us we managed to hold at the blend broadly flat despite the disruption caused by ludlum's.
Peter These results was our success in growing data revenues to expanding our fourg customer base.
Underpinning this growth was funded investment in our networks, which enable us to expand the number of our Fourg base stations by 17%.
Right for keeping attrition above 30% of our total subscribers.
The growth rates well quite substantial we think the revenues growing close to dented person on the bulk of a 72% expansion of our Fourg base on a strong uptake of our go ecosystem of digital services.
That is a poster child or how rapid digital adoption is combining with an ecosystem of services to that impressive growth rates in brothers like discussion that market, leading to the financial services platform, well or customer base five to 8 million monthly active user mark during Q2.
Similarly impressive has been the growth we secured in our self got well, we now have over 6 million users, which is four times a number we recorded this time last year.
Moving to slide 19.
Not to numbers.
You don't get revenue decline you see here, reflecting bite off last year stacked machine changes, which these stores operational comprised subs.
Adjusting for these and despite the love down revenue grew was 0.5% on their opinion by the strong 27.6% rice in data revenue as well as a 5.6% expansion of our total customer base.
EBITDA was also impacted by that that changes and also by that by a change in the accounting treatment of the hour X what he'd license amortization expense from below EBITDA to San Francisco.
Excluding the impact of this every day would have decreased by 6.4%, especially the minus 20.6% with four so we recorded for the quarter.
You'll see some of the data on for Gkp ice I've already referred to the right kind panel of this is like which also underscores how the affords the opportunity in Pakistan remains at the early early stage with the smartphone adoption and our Fourg subscriber base still around 30% level.
Despite the impressive 11.7% buying growth we secured in our Fourg base during Q2.
To conclude Pakistan overview, we went to share more details around that progress. We've made we've just gosh under penetrated at the presence.
Collectively our users conduct at 900 million transactions over the course of that last 12 months, which I combine body of 1.7 trillion, Pakistan rupees or just over $10 billion.
Taken as a whole our monthly active user base stood at 8.1 million at the end of Q2 during which the year over year growth mobile wallets was around 41%.
In April we start issuing global standards QR codes as a means for mertens looks at payments digitally leased technologies more affordable and these have to that probably than traditional bunch offsets.
In May two two that's cash loans at first and only 40, but she does merchant onboarding process in Pakistan.
These are all merchants across the country to open a secure merchant account through a few simple steps all of them, but from 100% online and with less than or they start accepting payments for goods and services. So digitally both over the counter an online.
Prior to this whole process could pick up to two months and reclass physical submission of the condition.
During the pick up the looked down just cash and real close to 7000 medicines using this technology.
Recently, we have had particular success units I think self employed will face, but people are telling just during the love them. Just got is now the nations largest financial services related to Pakistan freelancers with over 76000 registered users from these traditional community who have to get apart from transaction with over 1.2 billion like extended release.
Moving now to another of our growth markets Ukraine.
Keeps the record positive growth in both revenue and maybe the eight during the quarter. Despite the impact of the.
If the success here represents reflects its continued ability to grow its product offering too much the evolving needs opex customers.
Underpinning. This was the continued investment we dedicated to our Fortinet.
Which enabled us to grow our number of they stations on customer base by around 50% year over year.
We ended the quarter with over 80% of the initial population on the Fourg coverage.
This network abilities were funded expanded during the quarter throughout the more you signed between keeps that on both a phone on network sharing which broadens our forces you reach in Europe and rural areas.
Keystone operates one of the groups most diversified range obviously the services both what we can see subscribers through brother, So brothers like Dr. online and our keeps that TV content platform and also for B to B customers, what our strategic partnership with Microsoft which was announced last December is enabling us to leverage the power of I got the big data.
And cloud computing dollar business subscribers.
These paralyzed the business with a balanced portfolio of growth opportunities marketplace that is rapidly maturing.
Although these allow us to grow revenues by 6.8% on EBITDA by 11.5% in Q2.
Helped by the good cost control.
Loves Downs boost the adoption of our digital services on increased demand for data on fixed line services contributing 13.1% growth in data revenues and 9.4 consent increasing our.
Demographic trends understated decline in multi seem users continued to provide a headwind against which keeps that so he said, though customer base fall by 3.1% year over year. However, we see is our fourg customer base grew by 51% and now represents over 30% of our total subscribers.
An increase of 11 percentage points year over year.
This position as a strongly to enjoy put through growth in these markets as the needs of our retail and business customers develop.
Not much like keeps growing ecosystem of services.
Finally, let me turn to some of the key trends across all their markets, which we summarized.
Here on slide 23.
The key theme that on their beans. These markets is the long term growth opportunity, we see in 40 services, which is especially when it across the group we had enabling through concern investment in our networks in markets like Algerian Bangladesh is enabling a strong growth in they've done I think proportions of local populations fall within our fourg footprint.
Marty immediately these markets have been affected with operational disruptions brought about by that dynamic on their growth momentum has been interrupted as a consequence.
But that's with all the good businesses our focus remains on the long term potential and we will continue to invest in some of these industries most exciting early stage growth markets.
With that let me hand back to certain to conclude with so many of our outlook for the remainder of the financial yet.
Second.
Thank you said you know.
Let me know turn to financial guidance, which we have reintroduce for financial your 22, any following an assessment or the impact of 19 or know about performance.
This is the total slide 25.
I've been encouraged by gradually recover covering the revenues it goes to measure to all our markets since the middle of Q2 as look those are steadily.
We expect this revenue trends will continue in the second house and will enable us to the recurring group EBITDA as well.
As a consequence, we hit we now expect a low to mid single digit local currency decline in both group revenue and EBITDA for the full your 22 anyway.
This compares with 3.4% local currency decline in revenue and 4.8% decline in debit data at the interim stage.
Our guidance implies we expect to see the pace of EBITDA recoded accelerate at the group level in the second house as most really news return and our cost control measures continue to make it positive contribution to our margin.
Our new guidance also industries. This study operational improvements to be so in May and June given that last quarter. You observed an April has seen a high single digit decline in local currency revenue and the mid teens fall in EBITDA year over year.
I would caution that this new group guidance assumes it continued gradual lifting or looked on the restrictions across our markets. There remains some risk that we could see looked on the restrictions reinstated which would have and negative impact on our outlook.
I would also draw attention to Russia. Their Q3 is likely to remain challenging given the underlying performance issues. We are tackling. This assumption is however captured in our new 2020 group guidance.
Investment in our network in Russia continues and we expect that there was also this and the broader turned around strategy, which has been on their way, we'll be evident in be last pillar for most during the first half of 22 anyone.
We have also reinstate the guidance for book purposes, and pass it given the importance we assign to investing in our Fourg networks in order to seize big considerable growth opportunity the enjoying data.
This is no set the 20% to 24% for the full year applied the from the 21 to 22 person level, we guided to at the full year 29 to stage, which primarily reflects the logo or even expectations. We have set for 22 and as a consequence, so cool. Thank you.
Regarding dividends our policy remains as previously disclosed to pay at this 50% or they could to free cash flow of their licenses.
While maintaining net debt to last 12 month EBITDA, it's around two times.
And taking into account medium term investment opportunities.
Cash flow Gen cash flows generated in the first level for 2020, the weaker compared to last year.
Given that in the second house, we may potentially faced a number of uncertainties. We currently believe it is unlikely that we will pay a dividend for the full year 2020.
With that I'd like to thank you for your attention and pass the call over the operator for your questions.
Thank you.
Thank you, ladies and gentlemen, as a reminder, if he would like to ask a question. Please press star one on your telephone keypad.
She was named to be taken.
Your name Spinach apologies and if you wish to cancel that request. Please press the house K, but second star one to ask a question.
And your first question comes from the line of he's fluff.
Yes at Goldman Sachs. Please go ahead your line is open.
Yeah. Thanks, very much for presentation couple of questions I, certainly can you elaborate on that.
Well thanks linking.
Yes.
Please.
What about Uh huh.
Yeah.
You envisage by the end of the here or outlook.
That's your best shows up at all 21.
Thank you.
Oh that you can eliminate that you take into consideration.
Secondly.
Can you show them so the level of the expertise we got slow.
Yeah.
That you envisage for the company any thoughts.
On the upside on the downside.
Going into the second call. Thank you.
Okay. Okay.
Okay. Thank you very much regarding your first question about the dividend.
As I mentioned in during the presentation, our dividend policy stays the same which links the dividend payouts to net dipped below 12 month EBITA and also it's good to free cash flow.
There's also have you mentioned our current at Stendal June net debt to EBITDA is around two times, which is quite.
At the edge or the policy.
In the coming quarters second half of the year. They also turnkey that I was referring to was related to the Kuwait 19, and potentially look tungsten and different there's different jurisdictions and their potential impacts on our results basic they beat them to cash flow.
And apart from that of course, we are looking at certain M&A transactions as well and so the realization and the timing or those transactions also may impact the accrued to free cash flow richfield in that the impact the dividend dividend payout.
That's the all looked at steps, we can share at the moment regarding free cash flow.
As I mentioned again first of all free cash flow is lower than last last year. This same same period, but however, if you should also note that last year first so we had a couple of positive on those demand was made one was edson.
Payment of 350 million dollar, but if you exclude two on those from both years still this year or pre cash flow in this first wells is slightly lower than last year.
Having said that again, the uncertainties around the core 19.
Potential currency fluctuations in the in the emerging markets at the appropriate thing in these may impact.
Our our EBITDA in the cash flow into second half of the year.
Yeah. So that's that's what I can say a and for the free cash flow I think we don't give any guidance. So I think I should say I should point at this moment.
Oh, Okay, let's say if you like February next year.
I'm not going introducing that that dividend payment lightly.
You guys kind of.
Okay.
Of course, the final decision as to the boat board of directors.
But but if if this satisfy all the conditions as far as opposed to I think that the border. There. This will take this into consideration in their decision incipient to anyone.
Okay. Thank you.
Your next question comes from the line as Ivan Kim Exodus Capital. Please go ahead. Your line is now open.
Yes. Good afternoon two questions. Please firstly, it's clear that this year.
Kept on concerts your will be high so for how long do you think.
Your Capex will stay elevated.
As the first question on the second question on.
The Russian market. So in terms of the customer loss in the second quarter.
Can you split that out.
What percentage of the customer loss more migrant workers.
General apart from the network investments or what are the measures in Russia. That's dates are trying to be the surrounds.
How well your family there are set going.
So any color around Oh that'll be great. Thank you.
You on thank you very much discussion in terms of capital intensity of you have to understand that we are still in the penetration increased phases of fourg in all of our markets. So we will see around 20%, 18% to 20% capital intensity as we have an.
Trinity to reach minimum 70% of Fourg penetration over the years to come this may change from Mark to markets, but you should expect this to continue for a while given the fact that we are still penetration level around 40% and we have quite a long road to go with regard to the Russian.
Almost 3 million impact overall subscriber numbers. So this is an important portion to look at having said that our fourg subscriber base has increased healthily in Russia, as well from 32% to 42% penetration of total subscribers. So that's.
That has been the major drivers.
I have seen in the market.
Okay. Thank you and what about the family thirst. So your watch them our early in the year.
Do you see.
Like better retention do see upside down Sal.
How are they going.
Considering the probably the impact and the impact on gross additions as well as top up I think it would be unfair to make a comment about the family targets and their performance, but overall what I can tell you is our modernization of value propositions for the Russian marketplace are already being worked on for the second half of the year.
Okay. Thank ACA. Thanks.
Ladies and gentlemen, necessarily remind you if you would like to ask a question. Please press star one on your telephone keypad.
And the next question comes from the line as Andre Kubicek GBS. Please go ahead. Your line is open.
Thank you.
But that's your question please.
It is an effect if he could please give us a bit more context in terms of what's what part of the Opex decline that you highlight was topline growth and what sort of.
Percentage of that could potentially be structural and if you could maybe put that into context with the.
Program that the company had last year I don't know if it still has that.
Program under using management of declining the constant currency by roughly one percentage point per year.
And second question. Please just on distribution in Russia.
Some of your upgrades have launched.
Distribution partnerships.
And also make comments that obviously in this situation the.
The consumers are learning to sort of undergo digital customer journeys and so there is clearly potential to sort of downsize the footprint of the stories for there so.
You shared this view on a short term basis, because clearly losing market share is.
Something or a situation in which you potentially don't want to do this too fast there too aggressively thank you.
This is gone let me answer the second question on distribution and I believe the Opex and the EBITDA impact to Salka in Russia and overall the college showed us actually that the future of distribution is all about digital and alternative channels and with that in mind, we are significant.
The upgrading our customers healthier application capabilities self registration capabilities and we're already seeing the impacts of those again for the future. We see franchise Mays models and alternative distribution channels balancing out significantly the physical inefficient cost structure of the distribution.
Network.
We have already closed permanently 627 stores in Russia and for the future. We will further optimize these numbers, which franchise alternative partnerships and alternative channels.
Second we want to comment about the EBITDA in the topline impact on EBITDA. Thank you.
Regarding opex actually Twentytwenty and specific to Q2, there really specific periods regarding opex than the cost saving initiatives. However, if you refer to page 29 of our presentation, you can see where we focus on where we delivered during the quarter.
If I just elaborate it a bit on that.
In this quarter. Obviously, we are we managed to reduce our DNA and HR and of course, which you may say that partly partly structural partly short them quick wins in our cost structure, but we have delivered in total 26 million U.S. filler year over year savings in the quarter apart from that.
There is an ongoing program in the H. good.
It was started we started before the pandemic actually add to reduce the cost year over year and we see that program is is delivering good results and it will continue.
For the rest of the year as well so some some significant.
Cost reductions are coming from there as well and in the same slide you can see that compared to last year. The same quarter, we reduced the cost at each grew by 69 million use filler, which is quite significant if you look at the group's structural cost, which I believe it personally more important because if we improved our structural cost which.
Can benefit from those cost savings in the long term as well not only temporary in the long term as well and if you compare Q to Q2 last year as a group perspective.
Our structural costs decreased by 15% in Q2, that's coming from many many initiatives.
We will continue to focus on those as well the only thing that is different from this trend is the network related expenses as as discussed in at the beginning audio the even though this presentation actually we continue to invest in our mainly fourg networks. So that that is also very critical.
For us in the long term sustainability of the growth and profitability for the group so that that increased investments in networks and could be wrong to contain those investments.
Which is obvious from our capex maintenance capex intensity guidance as well.
Currently of Euro or you'd we don't have any any network cost savings because we are growing the growing the network, but in time, we believe that we talked limitations in the network as well we will start to get some benefits from from that area as well. So it's difficult to give you an absolute amount.
Also number how this will impact our course intensity as you mentioned in your question pro but the trend wise perspective, we are reducing our opex in general and also we also reducing our structural opex, which is more imported in my opinion didn't it along long term.
Second discount just as to what certain just mentioned because certain mentioned already that there was a 300 basis points impact in Russia, EBIT da impacted by all these actions and.
Our new turnaround strategy and execution is focused on customer experience.
To make sure that our customers are experiencing a world class service, we are taking actions as we speak to deploy a fourg network for subway system.
And as part of these exercises we are providing free Wi Fi access for all our customers on the subway and increasing our capacities on transmissions, which are having a direct impact to our operational costs and I think you know these are all the.
Investments that we are doing for the right ambitions and the right direction.
Thank you for that I may have a follow up question for each can can you give us a sort of trend for the next couple of yet in terms of what.
Directionally in terms of store.
Closures is there a number 5% 10 per cent per year that you think is realistic in terms of tens of that.
And Sir please comment on the Opex program that the company had again I'd been I'm not sure that actually it's still valid but can you just confirmed that the.
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Opex intensity.
Program, it's something that's still the management targets currently thank you.
Sure. If you remember we have previously provided the guidance of 600 stores to be closed over time, we already are at 627.
Frankly speaking I will leave if somebody told me that 14 hundreds of arsenals in Russia will be closed due to the kovats pandemic that happened and now we have a much better understanding of our potential with our digital interaction with our customers, but before giving new number I really would like to see a little bit more about how can.
It goes on and how the closures of our stores are impacted but clearly optimization. In this area is further possible through franchises partnerships alternative channels and most importantly, the digital penetration increases.
We feel only I don't want to give any specific number.
For the Opex improvement, but what I can say.
This call with pandemic chain changes lots of things undone because of this after the code pandemic return back to the normal we think that many things will not be normal as we define normal in before the pandemic. So because of this reason, we look and deep dive each and every close.
Item and we are trying to to think outside the box how we can improve the cost structure not only should with short term wins. This long term structural changes. So I believe that sometime beginning of next year, we will be in a better position to two to guide you.
What kind of impact they've had a positive impact we can achieve in the opex structure.
Thank you very much.
Your next question comes from the line a stellar quite yet but please. Please go ahead your line is anything.
Hi, there good afternoon, and then he thinks that the call today and I was wondering if I could ask a couple of questions. In the first one is earlier in the call you mentioned that any potential consideration.
Yes, I just wondering if there's any more details you get paid on that if you're preparing Tony.
Okay and in particular, unaware that some key dates attached to the shareholder agreement in Algeria, Cotton 10 to 21 and just thinking in any further discussions after cash the picture business.
And the second question, but especially on the funding so if I didnt quite active but refinancing.
And addressing the cost at that and but the average maturity stoppable three years. So just wondering why you're drilling next steps that you are considering on underfunding strategy advocate.
Thank you Stella and let me take first that M&A question, and then I'll defer those should account for the second part.
So talking about Algeria, as you mentioned.
We have a potential deadline on July 2021, so for the time being no no action on that regard, we definitely seen a very good progress in the country and the team did a good job deploying capital. That's my way. So we are currently comping that things are arena in I would play there.
When it comes through M&A, that's multiple front that we are continuing to evaluate both on the traditional connectivity business, but also on the non connectivity side. There's no announcements at this point, but it is something that it's one of our priorities for the remainder of the yes.
I think is there just regarding the funding strategy I can explain in four pillars.
So the first colors decreasing the cost of that so we will continue to focus a decrease of our blended cost of that for the group that will be the first pillar second pillar is increasing the tenor including the maturities we managed to increase the maturities Iris materially from 2.33 years to 2.8 years.
In our opinion that we should be should increase the further so tender should should I wish I should increase further the third pillar. We're operating in 10 different cancers are more most of them are emerging or frontier markets and we are exposed to potential currency depreciation the third pillar because of this is to leverage.
The balance sheet in local currencies that we are operating in the third and the lost last pillar is diversification of sources, we want a diversified sources of funds from the DCM markets from banks for local market.
So that the pillars those are the pillars of the strategy increasingly decreasing the cost of that increasing teller.
Increasing leverage in local currencies and diversifying the sources of funds.
That's great. Many thanks I just wondering if I can follow up a couple of points and could you say said. This is just me we could explain about that more what you mean by a connectivity that's a seminar connectivity site and and just in terms of the currency mix I mean as I saw that you had ending at the hedging and.
Secondly, yes, Tceight does this kind of natural imply that you won't have a lower amount if you're gone in dollars standing in the future kind of all else equal. Thanks.
Sure happy to debridement color.
I was referring for non connectivity is the things that are you mentioned like Algeria of course, Pakistan as you know there's another situation, where we have put call option, there and acquisitions that we could do perhaps in the b to C or b to B area. When I say of non connectivity is area that we've been calling ventures and this refers to financial service.
Yes.
Content and potentially some big data properties.
Regarding the currencies as you know slightly lower than 50% over businesses in Russia. So we were exposed the ruble ruble depreciation or click appreciation. So we always keep give focus on to make natural hedge if possible if not possible through derivatives, we want to keep the ruble expert.
As you under control apart from that of course, we will always have probably U.S. dollar that as well.
Because as you know you use pillar that market is the deepest markets market between the currencies and in some cases, we can leverage the balance sheet in U.S. dollar with EBITDA will be the proper condition. So we will you look at both whichever is beneficial for the company, we will leverage that but having said that we always keep our eyes.
On on hedging.
Because we don't want to get exposed to Saddam currency fluctuations.
Sure sure XL the answers appreciate it.
Final question comes from the line as an area. So that piece. Yes. Please go ahead. Your line is right then.
Good afternoon, Thank you for the call.
I have a follow up on grants if you could just a little bit clarify your message here. So.
Are you, saying that there is a risk if you can't meet your guidance for the full year that that there will be not able to comment no dividend or what you're seeing is that in the base case, if financial performances in wireless expectations and the Monday plant plant sign lattice expectations. This is when you would not still requirement.
Dividend for the full year, just travel sense directionally. Thank you.
Thank you again I want to refer to our policy. Our policy says that we will distributor we consider to distribute dividend minimal 50% of the free cash flow after certain items.
And we will maintain our net debt to EBITDA around two times. So as you know our numbers are close to that.
That that guidance, where our let the parameters around two times as of end of June So as we discussed and as we all know that second half of the there are lots of uncertainties.
We which may be realized which may also impact our guidance as well. So that's why we said that when we look at the feature there uncertainties around the operational.
Results coming from the call. It lockdowns currency depreciation there are some elections there are many many things apart from that as I said, we have M&A M&A transactions, which may be realized in this year or early next year as well. So combination of old is really a thing.
At a dividend payout early next year based on 2020 is unlikely but of course, we have to see the final actual numbers and that will be evaluated by the board of beyond beginning of 2021.
Thank you just quick follow up.
Could you please update us what's current state associations and spectrum payments.
In Pakistan is there any depth the fat work like any sense when we get final decision.
The.
So as you all to take or I will take it.
So I can go ahead, and I will complement if needed.
Okay.
As you know the license payment, we have done 50% of the license payment in protest.
And in Q2, we also paid 57.5 million U.S. dollar as well again in protest.
And currently because of the quote lockdowns on.
Most of the government authorities in Pakistan are closed courts are closed so.
Because of all these results the negotiations I cannot say that it if they are ongoing.
As it should be.
But after reopening of the authorities the government agencies et cetera, I believe that did again the discussion if the government authorities will restart.
Okay. Thank you very much.
Thank you.
You have.
Said, a few questions on the lines and the next comes from the line of Andre Kubicek GBS. Please go ahead. Your line is now open.
Thank you for taking my follow up it relates to the fixed business in Russia. So so it in that particular business, you're sort of doing very well and I think you're going at the highest growth rate.
From the big operators. So if you could elaborate a bit needs. Because this is quite saturated market I think, especially where you are sort of focus than that in urban areas. If you could elaborate a bit on where that growth is really coming from.
Potential to sustain these.
We'll go digit growth rates, you see over the medium term and connected that if you could please elaborate on whether there has been any change to your.
Sex mobile conversion strategy. Thank you.
Sure.
Thanks for the question as we mentioned the customer behavior due to the Lockdowns really pushed some of our customers to consume more fixed networks.
Now of course Kovich impact has been attributed to that however, this is not the only trend actually our strong b to B business is also a key driver of that as our customers HVOR from there on locations and we have to understand that seeks networks are normally much more sticky and I'd.
We expect these customers going back to only mobile mobile and fixed are not substitutes. So they will be consuming mobile as well as they keep their current fixed networks. The average tenure of fixed customer it is much longer.
Dan mobile customers. So I think this charge is a reflection of our strength in b to b business and our customers preference to consume on networks and their choice of operators being be line and I do expect that these.
Customers continue consuming this even after the call it.
And therefore, we will see in addition to that of course them returning to mobile network utilization as well.
Thank you.
Thank you.
Your final question comes from the line of Oksana must yes.
Let's have a capital. Please go ahead your line is open.
Hi, yes. Thank you for rapid change its ask questions. So the first one would be could you. Please give us some color on budget you reach any decision on the acquisition of doing 15% in Pakistan business from your partners.
And the second one is could you. Please update us why your panties think strategy, whether you're still looking for the secondary listing or not thank you.
I'll take the first one on on Pakistan, and then maybe circon organic or or Alex can comment.
So we didn't make any decision as you know there's a fixed period on time.
To make this put call option. So we have a we are evaluating the options and we'll come back with updates when is required.
Excellent and just regarding the the listing and alternative listings. This this topic as you mentioned last time has been raised by a number of investors and clearly we always take investors' concerns to heart and it has been it is being discussed internally and we are evaluating this anderson has been a position to to get feedback.
The Mark you will do Sir.
Thank you.
Have a nice set of questions at this time please continue.
Is there no further questions were just like to thank everyone for taking time to dial into our call. If you do have any further follow up questions. Please feel free to reach out to us.
Take care, everyone will speak again soon thanks remind you stay healthy.
That does conclude the confidence that's day. Thank you for participating you may disconnect.
Yeah.
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