Q4 2020 VEON Ltd Earnings Call
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Good day, ladies and gentlemen and welcome to the year twenty-twenty and fourth quarter 2020 results webcast and conference calls at this page all participants. I knowed after the speaker presentation. There will be a question answer session to ask a question during the session. You will need to press star one on your telephone. As of Thursday. Today's conference is the recorded I would now like to turn the conference over to mister Nik Kershaw head of investor relations, please go ahead sir. Good day everyone welcome to the fourth quarter and results presentation Nik Kershaw repaired of investor relations. Please be joining the line today by corn and 30 our group co-ceos along with our group CFO second taka Dan Alexander topic of Osteo for beilein. Russia will join us for the Q&A session at the end. Today's presentation will begin with an overview in some highlights of the past year from con following this will do age
detailed review on Russia, but both
On and she said you will then discuss some of our other larger markets which you can give you a review of our fourth quarter Financial results will then hand it back to surgery to discuss our Outlook and priorities for 21 and see if it will ensure that this ample time for your questions, but we would ask you that you say these for the end of the presentation before getting started. I'd like to remind you that we may make forward-looking statements during the presentation which involves certain risks and uncertainties these statements relating to the company's anticipated the forms and guidance for 20 21 future Market developments and Trends operational network network investment and a company's ability to realize its Target and Commercial strategic initiatives including current and future transactions certain factors may cause actual results to differ materially from those in our forward-looking statements including the risks detailed in the company's annual report on form 20-f and other recent public filings made by the company of the issue. She their earnings release and the presentation Each of which include reconciliation of non. Yep.
Chris measures can be done at it from our website with that. Let me hand over to call.
Thank you Nicks. Hello to everyone and thank you for joining us.
This year was marked by COVID-19 and the changes that it imposed on our lives. But since the very beginning we took a proactive approach so that the year was not about what college did to our business but more about what we did as a business in the existence of the new reality throughout the year. We kept on executing in delegating authority to operate in country tips hiring top talent to drive our strategy for Words protecting our employees in all countries that are we operate accelerating the moment before deployment improving the quality of service to our customers achieving strong operational foundations, which will carry the Beyond group further. I will elaborate further on these points as we go through the presentation.
Today, I'm pleased to tell you that in quarter for Beyond group is back to Iran aircraft with 4.4 1.4% Total revenue increase and 0.5% Pietro's in local currency only full year capex investment of 1.9 billion USD was a significant contributor to the Improvement of quality and capacity across all our markets driving the growth of our 4G base a key foundation on today's and future growth potential is based on
next
I want to recap some of our most significant achievements in 2020 firstly we enhanced our governments implementing a lean headquarters office local Boards of directors at each one of our operating companies this new governance allows for greater efficiency and speed and reacting to market conditions. We have also been a continuous improvements to our capital structure. I will leave later on for a second our Chief Financial Officer to update you further 2nd month. We have reached eighteen million 4G subscribers, and we are now serving 38% of our base with 4G.
this indicates
It full ten percentage Point Drive in our 4G subscriber penetration, which was possible due to record Network rollouts improvements in network quality and other states taken in customer experience.
Search we are executing well on our Russia turnaround. We will dive deeper into this key group priority, but for the moment, let me just mention that our Russian Opera recorded Positive year-on-year Growth both in December and now in January 2021.
The 4th of humans. I want to highlight is the growth in our digital verticals across the group Saturday Herrero will expand on this exciting area, which is Central to our longer-term growth strategy next slide.
In this slide, you will see the improving Trend in our group revenues as the year progressed on a monthly basis the 1.4% year-on-year growth in Q4 off and more specifically the 5% increase in the month of December was achieved despite the significant drop in roaming revenues improving financial performance. So far Russia business, which registered year-over-year growth in December contributed to this group results mobile data revenues, remain a key driver of Revenue growth Faith groups and in Q4 be registered a 14.4% year-on-year growth in mobile data revenues. Another growth engine is stick Services where we saw an increase in demand usage and subscriber base which led to 31% year-on-year growth in Kazakhstan 21% in Ukraine and 10% in Russia.
On the next slide number eight. Let me elaborate on 4G growth the corner store Stone of our strategy. We have added twenty million subscribers over the last couple of months reaching to a total of 80 million for the user's this means an important shift in the structure of our customer base as we now serve 38% of our customers with a 5G connectivity an improvement of ten percentage points a year ago. Why does this transformation of the customer base method? You will see some of the reasons already on the box light on the bottom left our 4G subscribers consume to the four times more data less and have significantly higher output over. The next few months is our Target is to drive 4G penetration in our customer base up to 75% and this will support not only the growth of our connectivity business, but also,
People are digital products and Prospects.
Do you have a
Also added 11 million self-care application users digitizing our relationship with our customers.
On Slide line, you will see what we own owns and operates one of the largest Emerging Markets our portfolios. We are passionate about simplify and clarify our business models allowing for a better understanding of the underlying value in our assets. We are taking actions on our portfolio of towers country-by-country which until this point were hidden a set of Assets in our business today as a group. We have close to 50,000 Towers across the nine countries. We operate during the year. We are looking to establish dedicated local business units that will allow us to operate in a more focused way this key asset of Beyond and offer to all stakeholders better understanding of the opportunities that it can generate both for each individual markets or and for our group as a whole.
Now, let me talk about executing on Russia turn around.
First and foremost the changes to the management team in vlife team is everything Alexander talk about the CEO of beeline Russia joined V on on April 6th 2020 of the 15 people that report to him twelfth have joined the company after his arrival with a high degree of motivation committment this team arrives and executes be lifestyle and turnaround strategy, which has already delivered the recent year-on-year growth in December and January this year.
You will have Alexandra tago KO here with us today to answer any questions. You may have him later in the grenade session.
On the next slide for Russia speaker cost improving our network coverage and quality was the first priority and this slide is the overview of the achievements in this area over the past eighteen months. We accelerated our Network Investments almost doubling our base stations being able to stay and even accelerate the course pack 4G investment strategy as, challenge. Our industry's revenues was no small feat and I would like to thank our boards for their support on this this investment improved coverage and quality which in turn drives the strong growth in our 4G user base now reaching almost 50% of our customer base in Russia. We had seen a remarkable Improvement in network service consistency and speeds leading to better customer experience in all of the regions in Focus, but most notably in Moscow City.
Moscow Metro 4G coverage has been completed at the record speed across the country customer experience significantly improved with lower call drop rates and more seamless access to mobile data. Our voltage platform is used by one out of three clients.
On the next slide looking through the financial performance for beilein Russia from second-quarter loss. We have seen D line revenue Trends improved sequentially over the last five or six months in total revenues were down only by 2% year-over-year and in the month of December moved to 3.6% off your on your growth. I'm pleased to note that the same positive trend in monthly total revenues continue in January 2021.
No, looking at service levels, excluding the impact of the drop in roaming and content revenues. We have closed the V shaped curve in December for service revenues as well. I'm following four months of improvement adjusted service seventies in December where flat year-over-year
next slide in addition to the new leadership team and network improvements putting customer at the heart of our turnaround strategy has been vital to our operations in two thousand when the team relentlessly works on the optimization of our distribution chain, improving the digital accessibility of our services in the past, 24 months. You have made good progress on reducing our physical store footprint closing 872 stores during this. We expect to see further optimization over the next couple of quarters as we reduce our physical point-of-sale. We are focused on growing our online presence our self service platform might be line now serves 35% of our subscriber base.
Beeline was the first introduced esim remote activation capabilities to the market the Eastern continues to offer an alternative digital channel for new customer acquisition long as the digitalization efforts in our sales operations continued revenues from online sale of devices increased five-fold an online sale or SIM cards grew by 10% year-over-year in the quarter.
Next slide we are also improving the customer experience with simpler carrot plants that correspond to the needs of our customers play. We have introduced generation and you you know what this tariff plan which allows the user to practically create their own offer. This tariff is managed through our digital Self Service platform might be line at home or friends and family offer is another plan that has been well received by the market with 20% year-over-year increase in subscriptions and all time low turn level to improve experience on the network.
with all the
It's taken at all the stages of the customer Journey. We now have more customers who benefit more from our services and stay with us longer. This is shown on the top right side of the slide. There are quarterly churn rate is down around two point three percentage points year-over-year proving. We are heading in the right direction.
Next slide in 2026 line became a growth engine as seen on slide sixteen be lines fixed one business shows from growth in the second half of the year and reach 9.7% year-over-year growth in Q4. The targeted Investments meant that we were able to deliver customer needs better as work from home online education and on-line entertainment became the norm of Life today. We have over 200,000 kilometers of fiber in Russia, which connects 30% of our base stations as well as giving us the backbone to serve our B2B and b2c customers with fix services.
In 2020 our customer offering so 41% growth in data traffic and our subscriber base will more than 9% year-over-year off more than half of our fixed subscribers also benefits from B. Line's mobile services creating a multi-layer conversions engagements off which 13.9 million homes passed as well as a growing beets of the opportunity. We are confident that our fixed business will continue to grow supporting our overall service and Thursday revenues in the years to come.
Let me know and over to Saturday to discuss the digital business in Russia. Sorry, thanks con and hi everyone on the line. Let me start with a few talk about our group digital strategy before updating you on the progress. We made in Russia and other markets. We see huge potential to deploy Digital Services across all of our markets and I'm going about this in one of two ways depending on our local competitive advantage and the little majority of the market in countries, like Russia and Kazakhstan we decided to go deep in specific verticals life like an attic where we can establish a strong competitive Advantage by leveraging our big data and AI capabilities for countries, like Pakistan and Bangladesh. We believe we can go one step further and I don't mean an ecosystem that provides a range of Digital Services built around our Market leadership in fintech with just cash and entertainment with toffee.
Let's not complete our Russian review slide Seventeen shows you the positive results deliver by our Russian B2B business during 20/20 a show on the left this post Malone single digit top-line growth in the first three quarters accelerating to double-digit growth in Q4. This has been reported by value of Partnerships with companies in other Industries through which we help them increase customer reach drawing on our expertise in big data and analytics the Cornerstone for this Services is what we call analytics in a box a tool kit that improves Compaq targeting capabilities in video audio and geoanalytics. This has driven large prices in our big data and a tech revenues which grew by 44% and 14% respectively. Thank you for help by the growing number of corporate Partnerships. We now starfish.
It's not take a closer. Look to our digital opportunities in Russia has shown slight a team. Our goal here is to establish deep vertical Partnerships in each of the Three core competencies fintech and text home entertainment. These are massive addressable markets which are still largely unmet they provide us with a wealth of possibilities to deliver Digital Services either directly to customers or indirect to them be a partnership or joint ventures syntax has the largest potential it's on a hundred and ten billion dollar market growing 15% annually and is already providing us with opportunities to work with leading financial institutions to enhance the retail banking the participants.
I text is a B2B Market which is already an eight billion dollar opportunity and he's growing double-digit here. We are working with a leading retailer to transform in-store experience has through Thursday, like marketing for entertainment remains a fragmented Market with relatively low penetration rates, which offers a vegetable 3D to assert the lines TV technologically advanced and localized, we come to each of these opportunities. Well equipped with fifty million plus customers a high-speed Data Network and Advance data capabilities. We are now adding a growing list of partnership wage, which would allow us to strange belief TV reach into host of other Industries.
Flight 19 sent out the progress we already made on the syntax side. We have a flourishing relationship with Alpha bank. One of the nation's leading lenders here. Has developed an AI technology that creates customer profiles based on their interaction with our services, which Alpha is now using to drive its customer onboarding process and credit scoring.
We are improving and speeding up Alphas credit application procedures to the use of mobile IDs, which is 3 times faster compared to the previous model.
On top of that. Alpha is now issuing co-branded credit and debit cards will be like around 20% of the castle issue now our bill and grin in return for which we received a late fee and a share of future income the relationship with Alpha continues to grow and expand to other services and became the model for how our data capabilities can help Boost customer reach out for other Financial situations in retail. We have established a strong partnership with one of Russia's leading franchises X5 to provide big data analytics to drive in or marketing this page update Revenue model of social media companies into the store by displaying Taylor adds to individuals at the point of sale.
Billing technology is now being used in 255 stores, which have a combined customer Food Hall of three hundred thousand people in j.
We have also automated the management of X5 transactional data accelerating processing times and strengthening payments connectivity across its network of stuff in entertainment. We have launched a new version to be like TV with a big data-driven recommendation engine that Taylor's content based on customer behaviour Matrix. This goes Way Beyond multimedia based engines that drive other platforms Pizza the customer experience of selecting the consuming titles boosting engagement. We are already seeing the early part of this new format customer watching hours increase by two point five times a year. Thank you for and our monthly active userbase expanded by 1/3 to 2.7 million.
Let me now turn to other markets and to life examples of how we establishing dominant ecosystems like strengthening our digital marketing leadership.
The boutique has a similar Financial Services entertainment and in the middle, here it comes.
Jessica is the poster-child of what we aim to achieve in financial services. We have increased dominance by adopting a winner-takes-all approach and offering a full range of digital Financial Services to customers and Merchants choice.
2020 was an excellent year for the business just cash monthly active userbase grew by 2/3 to 12.2 million and it's Martin Network expanded to 57,000. Only choice is the total value process across the platform amounted to around 14 us billion dollars.
To build on top of that success. We recently announced a global partnership with MasterCard. This partnership will allow us to expand our customer and Merchant proposition in Pakistan and the other top key markets that we are going to add range from issuance and processing platforms to cutting-edge analytics that will allow us to provide taylor services to SMS and customers
looking next to the cameras showed up in Bangladesh illustrate the value that we can bring to a bit to be platform through our expertise in digital payments that goes a coupon driving our investment in the public forum in October last year and although it's still early days in our partnership shops recent growth suggest the considerable opportunity ahead of us help broaden the platform capabilities.
Moving out to entertainment in Bangladesh demonstrates how breaking the mold of traditional content Services covering success where others have failed in a market for international subscription-based may have largely been unsuccessful tough is focused on Sports and a combination of local Regional and user-generated content is driving high levels of Engagement in our platform. The girl that I see is that clear confirmation that the products has a market feed from launching November 2019 traffic close 2020 with 2.3 million monthly active users among which hath of them are daily active users.
On top of that around 70% of these are not currently dangling some customers. These are scales the opportunity for us to grow Bangladesh subscriber base further with toffee while I do the products advertising and subscription revenues.
Turning now to individual markets. Let me start with Pakistan. I'm pleased to report just record a record quarter with its highest have a reverence which grew by almost 4% year-on-year in local currency into 440 subscribers growth was a measure Tailwind. We added close to ten million subscribers over the course of twenty twenty and increase the 40 penetration of our subscriber Base by twelve points to 38% alongside growth in Disguise. Our Jazz World self-care up more than double its user base here on during you for this is enabling higher level of customer engagement and is proving to be an important detail Channel during this pandemic Pakistan's a video performance look subdued but in his started by a change in accounting treatment of our x-rated special license and one of item in Q4 2019, it also reflects the investment. We are making to accelerate the growth of just cash.
I just think for this on.
the line Grill by plus 9% year-on-year
Told me next to Ukraine deliver a really strong Court demonstrating a full recovery to pre-commit operating Trends Revenue grew by 15% year-on-year driven by double-digit our program, which reflects our eyes when our forty penetration rate to 36%
Data growth was a strong again Rising by 28% into for almost twice the pace of our total service revenues fix like revenues were strong as well increasing by 21% as homework in Kentucky, and we met this demand for additional fiber rollouts. Like Russia v2v is an important market for us in Ukraine here. We have expanded our capabilities by creating an open API ecosystem to encourage your principal opportunity to engage with our services.
Finally, I'm really proud of the international recognition that keeps the team received in the European excellence awards for their smartphone for parents Campaign, which encourages digital literacy among all Nations under Diaries. This is a great example of the many programs. Our offices are running day-to-day to help bring down the digital device between generations and communities.
Finally, let's talk to character which like Ukraine is demonstrating that it's back to full strength delivering 20% year-on-year Revenue growth in Q4. Kazakhstan has the highest 4G penetration rate of our may be send it to 4 at 54% growing by 13 percentage points over the course of twenty twenty.
For adoption is driving strong data revenues which rose by 31% during the course. It's also encouraging the adoption of the services like be like TV where we double our user base near and Dear God.
Our 16 business is also driving data growth as subscribers stream content from home fixed-line revenues grew 31% in Q4 helped by a big focus on conversion products this customer base grew by close to 80% and now accounts for one in five of our customers.
Kazakhstan is another group market for mobile Financial Services. We've been expanding our ecosystem of agents and so a 40% growth in our wallet users in Q4.
We're also expanding the reach of high-speed connectivity to rural communities here. We are proud to be part of Nations 250 plus program through which we are sharing networks with other operators to help bridge the digital divide between communities with that. Let me hand over to second to take you through our financial results at the group level during the quarter Circle.
Thanks Sergio and hello to all participants in the comments live. I will now elaborate on our financial results in more detail.
Moving to slide twenty-five after several challenging quarters and pleased to report that we own group returned to growth in the last quarter of the year with almost all of our markets showing him input your own hands compared with Q3 a slight 25 sets out revenues grew by 1.4% year-on-year during for in local currency terms led by Steady Improvement in Russia, double-digit growth involved Ukraine and Kazakhstan on a reported basis. This corresponds to minus 11.3% Once currency movements are 269 million u.s. Dollar or accounted for group followed revenues Rising by 0.8% in local currency terms or minus 11.6% on a reported basis. Once again, we continue to prioritize 4G network Investments across our footprint. This was reflected in Euro and your rights and group topic up by 16.5% this topic intensity. Yep.
3.7% for the
For you, I will I be charged for the full year was brought to Flat at 41.4% and net profit for the quarter was at $35 mainly due to adverse current group leverage in the meantime, which we know show on a post. I press 16 basis was 2.3 x f one has mentioned that in line with our internal guidance of around two point four times, which corresponds to two times multiple. We have communicated before as our comfort level on a preference sixteen basis.
Looking at these numbers in Greater detail flight 26 set out our Q4 results alongside our full-year numbers and the corresponding year-on-year growth rate for each the left-hand number illustrate our return to growth in local currency revenue and everything before following the sequential Improvement. We saw during Q3 to help calm this last year this slide also sets out an adjusted value for a bit. Which is relevant for the full. Your comparison wants to non-recurring items are excluded namely month special compensation. We received in Q2 last year or thirty-eight million dollar relating to the ending of a network sharing equipment in Kazakhstan and secondly 350 million am accounted for is Audrey other operating income in q1 last year relating to a one-time vendor payment.
You see that if these are just for the euro in your declining group is considerably lower falling only by 2.1% in local currency terms. I would also note that the group saw the clear you do new Improvement in full year net profit if exclude non-cash impairment and the ones I mentioned earlier on this basis net profit group. I'm not 16% year-on-year.
Is there a reminder for more information on the impairment charge related to good with Russia that we recorded in the third quarter of 2020. Please refer to the appendix lights all this presentation.
On July 27th, we show you our Revenue performance in more detail almost all of our markets because it Improvement in urine your growth Trends in reform including red sure where the 2% decline is a significant recovery from the 7% decline in Q3 the double-digit growth phase recorded by both, Ukraine and Kazakhstan illustrate the potential markets to recover. Once you logged under relaxed both markets are also enjoying strong levels of 4G adoption, which is helping to drive double-digit growth in our home.
Rules in for subscribers was seen in all of our markets and this have the group to grow its Mobile customer base. Once again in 3 4 by 2 million to 209 million subscriber in to record Another record double-digit mobile data growth. You also see that the impact of Forex movements will never reported numbers on discharging reach at 269 million u.s. Dollar for the quarter meant that reported revenues decreased by 11.3% year-on-year widely reported a year-on-year increase of 1.4% loss in Revenue in local restaurants.
Turning off the slight. We need everything local currency Rose by 0.8% versus Q4 last year helped by the double-digit growth. We enjoyed in Ukraine and consult the slower trans. We saw in Russia reflects too, driven declined roaming and our cleanup process in content revenues, both of which are high-margin revenue streams. It also reflects operating costs associated with our Network investment program and the transitioning or network maintenance activities in house, which is temporarily resulting in higher wage in Russia.
Cruise control was again a key Focus for us throughout the quarter particularly at the level. We have been more than half of our group overhead compared to last year. This current wage at forty 1 million u.s. Dollar versus hundred and five million u.s. Dollars last quarter or the of 2019.
Finally currently had twins. Oh hundred twelve million dollar impact with the reports they bit which declined by 11.6% year-on-year.
I would also like to underscore the resilience that our operating companies demonstrated throughout twenty-twenty in terms of cash generation. This is Summer on slides 29 all of our major markets contributed positively to our operational cash flow which at the group level amounted to over one point seven billion years. We also worked hard to reduce financing costs which includes savings around hundred million dollars in annual run rate interest expenses. This is not helping our Equity free cash flow which off the lease payments and licenses amount of $257 for 20 20.
I would also like to reiterate that the group will not be paying a dividend for the full year twenty-twenty in line with our previous guidance while it is encouraging to see positive Equity free-cash-flow wage or immediate Focus remains on prioritizing Network and digital Investments to Steve the growth opportunities. We see in future this decision also reflects the ongoing production process to move to full ownership of our package from business and system a Tennessee manage group leverage within our internal guidance all over around two point four times. Let me know move on to recap our recent activity, including our capital structure.
2020 was a busy year for us on the financing side a key highlight here is our 6.5 billion US dollar medium-term not program which were established in April this enabled us to take advantage of favorable capture market conditions three times during the course of the year and we Finance over 1.6 billion US dollar worth of depth at home or coupons and longer maturities.
Is it?
Multi-currency facility hour to ruble denominated dropdowns under the empty and program also enabled us to increase our Ruby boring to match our Google revenues more closely with the Adaptive approach in Ukraine and Kazakhstan entering into local currency long loan agreements worth around hundred and seventy million dollar during 3/4 ton better match to our Revenue Footprints in each currency.
The impact of our financing activities is clear from these graphs.
First of all, our average cost of depth in multiple currencies now stands at 5.9% that's hundred fifty bit slower than it was in Q4 last year and she was around hundred million dollar per year in interest expenses and secondly other average maturity has raised by more than a year to three point three and a half years over the same. Our Employment Program still has considerably had room and we will continue to remain vigilant for Market opportunities to refine us at lower coupons and off while improving about depth currently mix as well.
Plus 31 shows the current mix all of our depth in more detail as well as the impact of our hedging activity a couple of points to not hear our US dollar cash balance looks off but this reflects a timing issue between our US dollar bond issue in November and the repayment of 260 million dollar bonds that mature early in February month.
We are also holding cash for the settlement or the adg put option in Pakistan, which will be used. Once this process completes adjusting for this our net box filter and Ruble exposures taking into consideration. Both our Hedges and cash balances are closer to 52% and 43% respectively.
This slide also illustrates the maturity profile over that the two large columns in 25 and 27 reflect the scale over the financing activities in this message during the year, which have helped to push out the average maturity profile of our borrowings to three and a half years. Finally. I would once again draw the attention to the fact that the group has access to amount into 3.2 billion US dollar split equally between cash Holdings and undrawn credit facilities.
We'll just like 32 summarizing whole group that changed over the quarter group net that excluding these liabilities Rose modestly during 3 4 to 6.5 US dollar which mainly reflects Ruble appreciation versus the US dollar during the quarter along with the decline in reported editor this resulted in a small quarter-on-quarter life in our leverage ratio to 2.3 times post after 16 from 2.1 times in Q3, which is in line with the internal guidance of around two point four times a day.
For what we have shown in this last fish words, we can confirm that the group remains in a strong financial position to face possible future macro headwinds. This has been our Prime objective given the maximum certainties that the past year has presented to us.
Let me conclude my remarks with our Outlook and expectations for the year ahead.
Once lights 33 we are today introducing new Financial guidance for 20 21, which anticipates low to Middle. Sorry, low-to-mid single-digit growth in both group revenue and editor and capital intensity or 20 to 24% Our guidance assumes the steady recovery. We have seen in our operations continues. It also assumes our markets do not feed return or prolonged strict lockdown measures. Let me also highlight that the recovery we have seen a customer since the end of Q2 may not be linear. Why challenges continue on the road back to the full normalization of businesses?
But as markets like Ukraine and Kazakhstan are already demonstrating. There is no reason to assume that our businesses will not recover fully and demand for our services will not be reduced by depending that to the contrary has underscored the value connectivity with that. Let me have the surgery for concluding remarks. Thank you.
Many thanks second. Let me conclude our presentation with summary of the group's priorities in the year ahead which has set out here on slide thirty-five. We are fully committed to maintaining the pace of em out and accelerating the growth of our 4G subscriber base. These are the fundamental drivers of our Core Business as well as the enabler of our digital Ambitions. This is a key priority in Russia. Where as we saw in Q4. It is driving positive subscriber trends that will help Revenue growth resume, which will remain on track to achieve during the first half of this year off. It is also supporting the double-digit growth potential of Ukraine Pakistan and Kazakhstan, which we are pleased to see recovering strongly from the lockdowns. We are a hundred percent committed to build scale wage, you know Digital Services in every Market this includes depending the verticals. I described in Russia and deploying ecosystems where we are establishing in the markets like Pakistan and Bangladesh elsewhere.
Away from my auto rotation. We continue to monitor market conditions for opportunities to further optimize our capital structure and our portfolio of markets remain on the constant review to ensure that our capital is Faith in growth opportunities that we believe can maximize shareholder value over time. Our cost base is a priority for our leadership teams, and we will look to make sure further adjustments here to enjoy our business operate as efficiently as possible. Finally. We're in the process separating our two hours from our operating business as a first step towards ensuring their value is fully recognized by the market more or less. Once we determine our scope of the opportunities here with that. Let me pause and hand the call over to the operator for your questions.
Thank you. Ladies and gentlemen as a reminder if
To wish to ask a question, please. Press star one on your telephone keypad and wait for your name to be announced. Please stand by while we compiled the Q&A Q. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, that is star one if you wish to ask a question.
Thank you. And your first question comes from Andre. It's a basic from UBS, please go ahead your line is open.
Hi, thank you and congratulations on the progress that you're making. I have a couple of questions for the Outlook mainly first one in terms of capex. So you're now giving us a lot of kpix Russia especially but you're also guiding for roughly similar topics in Tennessee for 20 21. Can you speak a bit about uh, how much of that is still not going towards improvements and Russia and how much is that will amount be kind of reallocated to other markets or or segments second question on on your priorities for next year. I'm talking about potential streamlining of the portfolio. Uh, I know that I guess down to various factors by how are you today? Thinking about Algeria? I mean if there is a good good price, is that something that you can now say that you will be looking to sell and finally on the tower. It's if I may, I mean be honest had a history of trying to uh, do do GE
Either or cell towers in Pakistan. Is there is there a a way that you're thinking about potentially monetizing towers and like you're strictly not because like I said with your balance sheet average kind of sale and lease-back would probably be the best option how you're thinking about. This is RJ be your primary concern or or are you still looking at selling em, you know parts of the portfolio and and and some of these Market thank you. Thank you for the question. Let me answer first question and then I'll pass it took this as you know, we are constantly reviewing our portfolio. We do that on a six monthly basis. We we sell our Armenia because we felt it was our operation where we were not positioned to extract the maximum value and our local shareholders there were in a position. We think the same way for other markets and our bill is to focus on Thursday.
I guess what we can make a shift and increase our value for shareholders and move on on the others that perhaps are not important for us when it comes to Algeria. You'll see that it's a country that has a lot of potential that we we've been pushing really hard on many aspects when they put option arrive, which is July 1st will make a decision at this point. There's there's nothing changing from our previous bill, which is we are happy where we are. We are continue focusing on rolling out for G and improving the international connectivity. So when July comes will update your call. Can you want to comment on topics and hours? Sure. Sure. So thanks a lot for the question on the topic side, you know our capex investments are focused on three important Dimensions off the coverage and quality. And as I mentioned you have reached now with the addition of twenty million additional 4GB customers at 38% penetration of our subscriber base in LTE.
We have to increase the Spanish.
It's up to seventy 75% that will practically mean that you're going to be seeing similar amount of Investments as we have guided this year in 2021 to contain approximately House of this investment naturally goes to Russia where half of our business is taking place. But as I mentioned you before G penetration rate in Russia is slightly higher towards more closer to the 50% range. So that's can give you an indication about what that could mean for the market as a whole now. Did you go to the office hours the towers business as we move from 4G to 5G type of platforms and higher than education as countries also prioritize rural area access to a digital and digitalization plans is becoming an area where we are going to be seeing more scalability requirements more standardization requirements, which ultimately dead
Why is independent our operators what we will be doing this year to make sure that we simplify our business models and we crystallized the value of art our assist so that we have closable options for the Future. These options could be merger of our operations to create these scalable and standardized independent hours of operation capable. Some of that could be one of the duration of these assets. Some of them will be actually getting focused and much more efficient operations of these entities and I shares of bigger JB's rather than our own Tower infrastructure. So we will be keeping our options open as we make sure that country-by-country. We prepare our operation. All these clothes are bookcases.
Thank you. And if I managed to pull up on the topic, so you're you're you're kind of indicating that house of the topics next to your more or less should still go to Russia. What are the kind of kpis that you're looking for? Because they are clearly presenting some very good progress there. So what else is in the pipeline and then the second one from you are talking about, you know, reaching much higher penetration Lund beja doubling your penetration levels of afford to users. Uh, that is obviously enabled by 4G coverage and devices et cetera. So is this an indication that elevated levels May say you would be on for for more than just twenty twenty-one.
First of all and quick answer to your question. Yes, you should at least see our current level of Carfax for another two years to continue as we increase that for G penetration and wage increase from 28 to 38 this year from 19 to 20 and you will see us probably reaching around 50% if this year at the end of this year, so we will need to continue the strength to really seventy 75% in order to sustain our growth and also customer satisfaction levels. Now when I talk about the the Russian peace, I mean mm. Was it. Where we focused on three key markets in Russia and they are Moscow oblast of Moscow greater Moscow the Metro of Moscow Saint Petersburg, May simply just won't had partially krasnodar and this was our first phase of making sure that we provided customers what they really demanded from us and the results as you can see. Yep.
the astounding success
Now this year we're going to be moving to the next stage on the next sixteen priorities that we have and I would like to invite Alexander topical. He is on the call with us just first of all to invite him to yourselves but also to get his perspective about what we intend to do this year on the network rollouts Alexander. Are you with us? Just kind of here, go ahead.
Actually you you said the main thing already. So we unfortunately be lying under invested the previous years into his Network and lost and lost to the positive attitude from many clients and and that resulted in the loss of client base in 2019, and and the work we performed in 2012. We actually reached the lowest point of our about four months in in in May that was accumulated with quality problems. But since then Thursday, we're a growing steadily our client base and our Revenue Top Line and and definitely Scott mentioned already. We will continue to do this this year and and and next year cause we have to to to invest more into into the quality of our network. But in addition to that I want to say that it's not only about Catholics. Actually. We we made a log
Optimization exercises and I can say that for example in Moscow. Oh network is one of the best in the city so and our clients start to feel that already.
Thank you. Your next question comes from the line of Henry cast from Morgan Stanley, please go ahead and line is open. Yeah. Hello. I've got two questions, please. I was just wondering first name terms of your guidance. You're saying low to mid-single digits in local currency. I guess you exited twenty Twenty Yards as you were saying about 5% growth. If I am I got the chart rights in local currency, and I guess Russia is is is just about sort of timing your comments are getting quite a lot easier throughout the year. So I was just wondering the sort of low single-digit. Well, what are you solving particular thinking about as as as the main risks that could make you end up at the sort of low end of that guy. And then secondly, I guess I just wanted to get your thoughts on dividends. Maybe it's too early about dividends for twenty Twenty-One. I guess you haven't
Said said anything really on on yet in terms of I guess if you if you do indeed end up sort of mid single-digit local-currency growth and currencies. I'm not really sort of move much throughout the year. I mean, what's how should we think about the potential for you to start to pay a dividend again, or should we do we have to wait until you sort of walk through the topics heavy topics investment cycle. Thanks very much.
All right. Thank you very much.
Let me give a flavor of the you know, where we stand in terms of the business Outlook that we see and then I will need the word to start on to answer in further detail about the little question but I think you know, you will not precise us being a little bit pregnant on the Outlook as we just see the vaccination efforts throughout our operations and we would like to keep an eye on that and probably will give you the right and exact answer by the end of q1 in terms of what the those expectations will be. But you know from this perspective, I would like to keep our presence in terms of where we head in the in the momentum of the business second. Thank you, Thank you for asking this question because when we see the initial notes from the office PC that this question is coming in in many reports. So if you let me I want to spend a little bit more time to explain more detail about this question. First of all some housekeeping matters. Yep.
So we have a dividend policy, which says 50% free cash flow of the licenses subject to maintaining our leverage ratio around two times 16. Oz is equivalent to 2.4 times for surface 16. So this is our policy dividend policy and I can confirm that our dividend policy still in place. So there is no change in our dividend policy.
He said that the 2020 is still in the numbers. We generated $357 billion dollar Equity free cash flow. However, we are expecting to use from her to this cash generation for the AVG put option exercise in Pakistan one one the transaction complete. So that's why that's one of the reasons that we don't pay dividends for 20 28 that production is a kind of any transaction. So what's going to happen in twenty Twenty-One. First of all, we started to see and Report, you know, you both in real life maybe going to 4 and and we are hopeful I'm very bullish that during the year 2021. We will start to to report higher, you know, we'll face in in in a GPS including ribbing hopefully in cash flows of so first of all, we want to deliver better results than 20 21 click on T. There are a couple of other things that we have focusing and Ed.
Continue to focus on the portfolio optimization in 20 21. In the meantime, you will see that will be very active in the in the in the PCM Market in banking market crash in 2020. We are going to be in the market hopefully in after each and every result announcements on a quarterly basis and we will keep the focus on improving our captive by doing what by increasing our channels from 3.45 years reducing our cost of that further. And in the meantime this way we want to focus off to improve are currently mix as well. So hopefully by better results better portfolio and better capital structure by the end of twenty one and it's the same dividend policy will be in a much better position in front of our board for dividend proposal for our shareholders. And of course, the final decision will be will be made by birth.
prime minister
Perspective our homework is to deliver as I said better capital structure better results that our portfolio so that the dividend distribution decision by the under-21 can be made life easier than this.
I can I thank you very much.
Thank you. Your next question comes from Yvonne Kim from Capitol, please go ahead and open.
Yes, good afternoon. Two quick questions for me first. Can we use the $35 to cost of the run-rate 4:21 a.m. Then? Secondly, uh, can you comment on Direction Where MPS in Russia is going now in let's say January how it's How are you performing your superiors? Thank you God. Thank you and let me start with the the MPS question and I will leave the other question to Circle, you know, when you do improvements on your network. There are two cycles off results that come up. The first one is quality improves and you see a direct impact on the churn rate that goes down and this is exactly what we are experiencing today. The MPS is just a little bit more delayed response that will come from the market as people talk to each other about their experiences improved experiences. So you will need to do a job.
A little bit more time for us to talk about MPS but probably by the media this year we will be getting a more concrete answers to also to the MPS issue, but we are very comfortable and we see the momentum on the outside in terms of our existing base having better experiences and therefore staying with us longer and providing less prep Lanes in the system. These are already measurable and under records. Sorry for the wrong dates assumption for that profit. As you know, there was no one of them for however since they're reporting in u.s. Dollar while operating in non US dollar countries. So we exposed to 4 again and losses depending on how long the local currency movements. So for example, the interior before we recorded 45 million dollar it explores.
So what the account from that if if you can make an assumption for the effects you can use this as a Runway, but again, as I said, this is subject to a dynamic student be respected quotes.
Yes, I'm sorry. I was just asking about a quarter cost for let's see 21 the question. Sorry. I can't take this is around, but you will see gradual decrease during this June twenty one as well. So it will be very cheap, but but not as significant as we experienced this year.
Great. Thanks.
Thank you. You next question comes from Alex Jones from New Street research, please go ahead and let it open. Yeah. Hi. Thank you for the call. Just two quick questions. Just first off on Russia. It'd be great to get the perspective of the competitive environment that you're seeing at the moment and in particular around the strategy around Paris, and I know a year ago, there was some Choice increases in the market. There is some talk that maybe that can happen again potentially if that was to happen. I mean, would you follow are you do you feel like you're in a position where you can change a little bit more given the quality of the service and network investment you've done or do you sort of feel still having a slightly discounted price will help you in your strategy to gain potentially gain back some of the shows that you've lost faith and then secondly just on Pakistan exited the year. I think you for growth and run about 3% top-line growth and you talking about double-digit wage.
For four. For the whole of two twenty Twenty-One. So just get some understanding around. What do you think is going to be recovering or that that growth how that growth is going to come through. Is that Pure Life give you a call. Just give him the code impact or are there other sort of significant impacts or issues that that could potentially help that growth rate. Thanks a lot.
Sure, first of all with regard to the Russia, if you noticed we started to give some flavors of our new customer value propositions. And this is only the beginning you will not see us getting aggressive on the pricing on the contrary. Our strategy has been always been more for more more quality more services and in in exchange for more relevance, and of course, we're more revenues so you will see that sent over that direction and I think you know overall the Russian competitive environment is is rational in terms of market dynamics on the tower side. Russia is one of the most advanced markets that we have. We do have in our company national title company and I think you know, we will be focusing as a priority when it comes to crystallising our values Russia will be one of our top priorities.
It's just a follow-up story on Pakistan. Just the growth was around about 3% And you looking for double-digit growth. I mean Saturday, please correct me if I'm wrong Pakistan the year 2020 was a very particular year. If you would normalize our parts done business with slow motor of 2019 and all the changes in the regulatory environment. Actually. We see Pakistan business mid-teens growth in terms of the potential and I think you know, that's that's how we see the business and I'm I'm particularly happy with that wage. So you anything to add. Yeah. Sorry. I was on your right. So the impact that you are seeing it's because of this one off but besides that if you normalize it we see a Healthy Growth would believe that with investment that we are making on the network and the continuous increase Authority customers. We should see this momentum keeping up during 2021.
Thank you. We have no further questions at this time. I would not like to send you back to Nick for closing remarks.
I just like to thank everyone again for for dining in this afternoon. If you do have any more questions, please just reach out to us. Take care and we'll speak soon. Thank you very much, bye-bye. Thank you. Thank you. That does include a conference for today. Thank you for calling meeting. You may all disconnect.
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