Q1 2021 VEON Ltd Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the first quarter 'twenty, one results webcast and conference call. At this time all participants are in listen only mode. After the speaker presentation there'll be a question and answer session to ask a question during the session you and each press star one and your telephone.
A reminder, today's conference is being recorded I would now like behind the conference over to Mr. Nick crucial head of Investor Relations. Please go ahead Sir.
Hi, good afternoon, and good morning, everyone and welcome to the on first quarter results presentation for the period ending 31 March.
<unk> joined on the launch of day by calling and said he or she is along with our grief if I stick and OCA done Alexander total course, Rcs will be a lot and Russia will join us for the Q&A session today.
And today's presentation will begin with and you and some highlights from the past year from corn.
Following this we will do a review and the key markets of both corn and synergy schedule and discuss the base business and our smaller markets were sick and giving the review of all and.
And our financial results, we'll then hand, it back to call and to discuss the outlook and the priorities for the year and <unk>.
And it will ensure that there's ample comp your Christmas, but we would also did you say for the end of the presentation.
Before getting started I would like to remind you that we may make forward looking statements during the presentation, which involves certain risks and uncertainties. These.
These statements relate in part to the company's anticipated performance and guidance for 2020, one, particularly and lots of the COVID-19 pandemic.
Future market developments and train.
Operational and network development and network investment and the company's ability to add assets targets and commercial and strategic initiatives, including current and future transactions.
Certain factors may cause our results to differ materially from those and the forward looking statements, including the risks detailed and all annual report form 20-F, and other recent public filings made by the company at the ACC.
And the earnings release and the presentation each of which includes reconciliations of the non <unk> measures because interest day can be downloaded from our web shops.
With that let me hand over to Claude.
Thank you Nick Hello to everyone and thank you for joining US let me start with giving you some group highlights of our achievements during the past quarters and.
And we will then move on to discuss more details on the operational performance of our markets.
As you will remember, we started reporting quarter on quarter and improvement since the third quarter of 2020.
And the final quarter of last year, we returned to year over year organic growth in the first quarter of 2021, our year over year growth has accelerated significantly as our hard work over the six quarters started paying off today I'm pleased to report that we don't group delivered a $4 three per.
<unk> increase in total revenue in local currency.
And when one considers the one less calendar day and the periods. The normalized growth in total revenues has been above 5% consistently since December.
Similarly, local currency EBITDA and the quarters accelerated to four 4% year on year growth. These growth trends in our financials are the first results of strong underlying operational dynamics.
We have grown and our customer base expanded four G coverage improved Fuji service quality and increase the number of <unk> capable handsets and our customer base and the expanded not only the numbers, but also the share of <unk> users and our subscriber base.
Key factor powering this change is our targeted network investments.
With a capex intensity ratio of $24 seven and much better linearity off capex spend of $4 25 for 125 million U S dollars and this quarter. We are glad to see this investment translate into customer experience improvements and real time and impacting the usage churn.
And our pool for existing users.
And the coming quarters, we expect to see the increasingly positive financial impact of our early deployment of investments.
Next slide.
Before we get into the details of our operational performance I would like to give you an update on our strategic priority, which are initially discussed with you during our last year and results.
And this priority is our infrastructure assets portfolio.
I can confirm that today in our two largest power markets, Russia, and Pakistan, you have separate legal entities and place that hold our tower assets in Ukraine and Bangladesh. The teams are also making progress industry got <unk>.
Recent transactions and developments and tower assets across our industry have made it abundantly clear that infrastructure assets and bad significant value.
And the limited presence of independent tower calls and other markets combined with future requirements for network expansion represents a truly unique opportunity.
Next slide.
Returning to the operational performance of the old group companies, our Russian business is gaining momentum both in revenue and customer metrics.
As the chart on the left hand side demonstrate we have a solid year on year monthly total revenue growth both for the group at large and Russia since December.
And then February is adjusted for one less calendar day. This performance now takes beeline, Russia to year over year organic growth of total revenues for the entire quarter.
Similarly total revenues, we have also seen positive trends and service revenues I will elaborate on this further in the upcoming slides.
The chart on the right highlights the customer base.
We have started seeing stabilization and total subscriber numbers for Beeline, Russia. Since June 2020, more importantly, we are seeing consistent growth in forging users within our customer base, resulting in a steady increase of <unk> penetration, which has reached 14, 9% of our base as of the end of this quarter.
Up from 41% penetration a year ago.
Next slide.
Several quarters ago I had shared with you a sequel to the trends that we expect to see and Russia.
We're expecting to see a force stage process network improvements.
<unk> to the behavior of our existing users, including how you use it and less churn.
And positive developments and customer perception and gains and new customer base.
Rich will then translate into a stage for financial results. It is important to note that we are in various stages of this progression and different parts of and different geographies of Russia and that success has been led by key urban markets like Moscow and St. Pete.
The positive customer and financial metrics that we are reporting today are primarily driven by the targeted network investments and Moscow City Center and St Petersburg, and our immediate priorities.
Beeline has also been expanding its footprint across the country more recently and are for <unk> base stations, and Russia are up by 25% year on year.
In city centers and across the country. We are also investing heavily and improving customer loyalty and then two and customer experience.
In this quarter, our quarterly churn has decreased by two seven percentage points in comparison to the first quarter of 2020.
We have also seen a shift and mobile number portability trends were this quarter as we move to the net positive porting additions.
We also continue to improve the usage of our self care application, which as of March served $8 5 million monthly users as their digital gateway to our services.
Yes.
Next slide.
This slide shows the financial performance for Beeline, Russia quarter.
Quarterly revenues were up one 4% despite one less calendar day following three quarters of sequential growth.
Service revenues were down one 1% year on year for the quarter, which as Mark and overall improvement from two 3% year on year decline in Q4 of last year in month of March we have observed a year over year positive growth in service revenues for the first time and 24 months.
As I previously mentioned a key driver of this acceleration in our <unk> customer base, which now reached 49% up from 41 a year ago.
As we have been sharing over the past few quarters. We also track the changes to our customers monthly behavior and the impact of different kinds of forging usage have over same parameters, such as ARPA churn and engagement in terms of data use.
Indications of Beeline, Russia, and average cold tumors of our voice and <unk> services has roughly twice the ARPA level of their voice only customer.
While our customers who also uses one of our digital services on top of voice and <unk> connectivity has roughly three times the ARPA.
Churn is caused as we move from voice only to bundled voice and data and have further reduced by one fifth as we move to multi play users from.
From a data usage perspective, our average double play for GE user consumes two five times the data off and average user and this ratio goes up to three times, when we compare and multi play user with an average user base and the total.
These figures indicate the potential and he can do a little further as our customers choose to use our <unk> services and even more importantly, true truthfully use our digital services and solutions on top of our data and voice offerings.
Next slide.
Moving on to Kazakhstan. This country remains our highest <unk> penetration markets, reaching 56%.
This was instrumental and reporting here another solid set of results with revenues up almost 17% year on year and EBITDA growing 12, 4% showing a margin of 51, 6%.
This high level of <unk> adoption is a key enabler of data consumption.
Data revenues now contributes 66% of total mobile service revenues.
Also in Kazakhstan Lockdowns are supported continued take up of next generation connectivity and services, including E learning for schools and students.
Momentum and our fixed line business continues with fixed line revenues up 29% year on year helped by continued focus on convergent products.
We're pleased to see our self care users more than doubling while our beeline TV users grew 73% year on year.
Our strong network is proving to be a real differentiator and supporting the growth of digital services.
With that let me hand over to started to take you through Crane, Pakistan and some of our digital initiatives sorry.
Thank you Ken.
Let's now turn to one of our fastest growing markets, Ukraine, but it keeps the record another strong quarter delivering double digit growth in both revenue and EBITDA.
Strong towards the adoption is the main tailwind here and he is enabling and keeps them to grow at a pool and maintaining impressive margins.
Revenue in local currency terms grew by 15% underpinned by data revenue growth of 28%.
The adoption of our digital services continued to accelerate with our sales get user base growing by 76% year on year and the total number of keep that people use us exceeding 400000.
This has been enabled through the expansion of our <unk> network, which now reached 87 per cent of the population and gained 24% of <unk> subscribers year on year.
And the big benefit of that and the impressive growth in article 16% and across time.
Keeps that.
And so a fixed line and b to B growth story.
It has one of the highest fixed line revenues growth rates in the group, 17% in Q1 and deliver B to B revenue growth of six 4% through our continued focus on digital solutions and big data services.
Turning next to Pakistan.
Q1 saw solid trends for this high growth market revenue grew by 12% year on year, driven by impressive growth in our subscriber base.
Many of these were new fortune customers, which as a group grew by 62% and now accounts portfolio, 2% of our total.
Scribes, and 13% increase compared with Q1 last year.
This is reflected in the strong data revenue growth, we saw in the quarter, which rose 28% year on year.
Pakistan remains the gold standard for the group's ambition and to hit our financial services through the success of desk cash, which leads the local market here desk.
<unk> had another successful quarter with revenues growing 27% year on year, and I think subscriber better space, which is $13 nine monthly.
Million monthly active users, which is nearly 80% higher than it was a year ago, we continue to invest in the future success of <unk> cash.
And this is reflected in deserts and beat the performance, which grew by eight 1%.
I want to spend a few moments on the long term growth opportunity that Pakistan operations, which we summarized here on slide 13.
The nation's demographics and among the world's most attractive is population is the largest.
Almost two thirds are on the verge of 30 and middle class is growing rapidly.
These are valuable ingredients for a long term perspective of a business like ours.
They are also important considerations given that we now have full ownership of our Pakistan operating company through the put option process that conclude and thank you.
And can also see here how these macro trends are driving our rapid embrace of digital services.
And that penetration is high and Internet usage is rising.
By combining these two.
We are solving everyday problems for our customers and Pakistan in areas like banking, where almost 80% of their low population don't have access to bank accounts.
That cash is that substantial beneficiary of this and he's seeing rapid adoption of its services for things that makes me ticket program like paying bills or online shopping.
On Slide 14, you can see that achievement of desk cash alongside those of the other digital services that together with and our Benzos Division.
The data here also underscores our ambition to replicate our success and Pakistan in other markets.
Share stimulus demographics and unmet needs.
Bangladesh is a great example.
And with Pakistan These markets, China, India and offer early stage opportunities for our business, where our services comes off local needs.
The success of ship up in Bangladesh is a strong example, here our investment is helping to grow the nation's leading digital platform for people to be commerce, which is linking us supply.
Ross the nation's highly fragmented retail sector.
Sharp has seen strong growth and its revenues over the past 12 months, and it's proving and providing us with a stable opportunity in my life financial services as we harness our expertise to its platform.
Digital Entertainment is a third vertical where benches is currently focused and Bangladesh is again, our local success story.
And with the growth of profit.
The growth of these local content platform has surpassed our expectations.
$3 8 million monthly active users, Texas and Steve.
The user base is over five times the size it was last year and the engagement rates and really struggling with how they use as being at least on a daily basis.
And Russia, our be lengthy content platform and is also enjoying good growth following the launch of big data, driven and recommendation engine, which tailored content based on customer behavior metrics.
Its user base grew by 28% and Q1 and is showing encouraging engagement rates.
Looking finally at our smaller market on slide 15.
And the key thing here is the expansion of our Fuji opportunity for network investment and growth of our <unk> user base.
And this is resulting in significant growth in data demand across these early stage markets.
The opportunity here as we have done in our largest markets is to monetize these demand sort of deployment of digital services that meet local needs.
And is that it's already well advanced and Bangladesh and he is gathering pace elsewhere.
Let me now hand over to Silicon to take you through the group's financial performance in Q1 and greater detail.
And then.
Thanks and good.
And good afternoon and towards microphone and.
In the coming slides and I love elaborate on our financial results in more detail.
Okay.
The recovery and the group revenue and EBITDA achieved during the second half of 2020 accelerated in Q1. This year as many of our operating company to build resilience towards look those experiences and our markets.
Well those second and third pandemic weighted resulted and the restrictions being introduced and certain markets. There that shows we have made to our operations, including greater use of digital channel resulted in a greater degree of resilience to their impact and.
And as set out on slide 17 group revenue increased by four 3% year over year in local currency terms led by a two 9% range and service revenue.
Robust customer demand for data once again enabled double digit growth and mobile data revenue, which increased by 13, plus 13, 6% year over year.
And the reference price will decide you will see that ratio was back to growth in the first quarter with local currency revenues, increasing by one four percentage year over year.
Pakistan, Ukraine, and Kazakhstan, all delivered double digit revenue growth and together were the main contributors to the group's positive revenue performance.
Turning now to the next slide we can see how we have maintained their focus on costs throughout the quarter, which enabled us to hold our EBIT margins broadly flat at 44% and to grow reported EBITDA by $4 four per cent year over year and language series.
And unfortunately, our focus on managing costs, and we introduced a new efficiency program, which we called project optimum.
At school is to cultivate continuous improvement with both short term quick wins and long term structural changes across the group in order to ensure the operating efficiency up to the highest industry standard.
Optimum growth had been cascaded throughout our operating companies and now form part of the short term incentive program for all of our senior employees.
So far and we have identified a total of two and a half billion U S dollar growth for addressable costs, which correspond to 56% of our 2020 total operating expenditures.
Finally on this slide net income for the quarter was humbling and 38 million U S dollar representing a you'd already raised over 15%.
Let's move now free cash flow and operational Capex on slide 19.
And maintained our focus on investing and the exploration of a word for it and network during the quarter, which now reached seven 6% or the $680 million combined population and our nine operating markets.
As a consequence of operational Capex rose to $425 million in Q1, 'twenty, one and corresponding to Capex and cash at all 24, 7% during the last 12 months.
Here's the growth it's a couple of the rifle site.
Russia continued to account for the lion's share or just leaving and lessened and the resulting cumulative impact is helping to drive growth and beeline, Russia for the customer base, which was up by a further 312% euro value during the quarter.
Despite this elevated investment all of our core markets, including Russia generated positive operational cash flow, which at the group level amounted to 451 million U S dollar for the quarter.
Moving to debt and equity free cash flow on slide 28.
<unk> level net debt rose to $8 $3 billion during the quarter.
Our leverage ratio remained flat at two four times, we didnt have a comfort level when it force for 16 basis, which includes lease liabilities as well.
We shall look at our debt profile and detailed on the next slide but we have summarized here the various financing activities, we completed during the quarter.
Further extending the maturity and reducing cost of borrowing at both group and operating company levels.
The key transaction during the quarter was a new multi currency revolving credit facility for $1 25 billion and you're a seller that we signed in March.
Facility, which was concluded with 10 international banks replaces the previous our share from 2017.
And has an initial tender three years plus the option of true one year extensions thereafter subject to lender consent.
Moving now to equity free cash flow as you can still and the rest and settle this slide yes, yes. It was $50 million before lessons payments Oliver maybe have paid $64 million for various licenses during the quarter also reached 59 million where it was in Bangladesh.
License payments and Bangladesh include the first installment of a new spectrum license acquired where we paid 25% or the total coastal hundreds and 15 million and your installer and the first quarter.
The other important point here is that capex related payments during the quarter was around $85 million higher than the Capex made in Q1 'twenty one day.
Due to payments related investments proved from prior quarters.
As we noted with our full year results, we would expect Hep experiments and normalized during the year.
Moving now to slide 21.
Our debt and cash position at the end of the first quarter. Please note that numbers presented on this slide exclude lease liabilities.
Gross debt was broadly stable compared with Q4 last year and we continue to optimize the group's Florida facility aiming to lower our borrowing costs.
Compared to Q1 last year, our weighted average cost of debt in multiple currencies has fallen by 90 basis points to five 9% and.
And the group's average debt maturity has increased to three four years at the end of Q1 'twenty one from two three years a year earlier.
We closed Q1, this year with net debt of $8 $3 billion, including lease liabilities.
Corresponds to a leverage ratio of around two four times.
Putting these liabilities our growth and net debt amounted to $7 five and $6 4 billion U S dollar respectively.
Hello, I'm, sorry, our various credit facilities. The group's available liquidity remains healthy and Q1 'twenty, one two and a half billion dollar underpinned by cash holdings of $1, two and Unutilized committed facilities, all $1 3 billion U S dollars.
Sure.
Finally, let me turn to our outlook for the year ahead.
And the strong start to the year showing the continuation of improving trends from last year has resulted in the decision to raise our financial guidance for the group for full year 2021.
Set out here on slide 22, we now expect to see mid single digit local currency growth and the group revenue and EBIT in 2003 day one.
This compares to our prior guidance of low to mid single digit growth.
And before our guidance assumes that we will not share return to strict lockdowns across our markets and that their restrictions remain in place and this will gradually ease in the months at <unk> I would like to hand back to come to summarize our priorities and the Europe comp. Thank you very much.
Share count just looking through the priorities of 2021 and on next slide you will recognize the 2021 priorities, we highlighted with our full year results.
While we still have some work to do over the rest of the year I am pleased to note that we have shown progress across all seven priorities we highlighted.
Let me close with comments on some of these points the.
And the momentum in <unk> continues as we continue working towards our medium term goal of over 70% penetration of <unk> subscribers and our total subscriber base, we will enable continued growth across our markets.
In Russia, we delivered the first full quarter of positive growth and we will continue with this progress.
We are pleased to complete the Pakistan acquisition and now we have 100% ownership of our Pakistani entity Jess.
Finally on towers, and you'll continue to make progress on separating out.
Tower assets in these countries. This remains an important priority for our team.
We will be holding a capital markets day in September this year to update you on the group's strategic initiatives and I hope, we will be able to meet you face to face at that time.
With that let me pause and hand, the call over to the operator for your questions.
Thank you.
Once again and they should have a question and I'll comment on todays call. Please press star one on your telephone.
Wait for your name.
So that star one you should all have a common total question.
Our first question comes from the strength of.
And Rick Hough from Morgan Stanley. Your line is open please ask your question.
Hello, Thanks, very much I had a I had a few questions.
Firstly I was just wondering in terms of your new guidance. So youre now a little bit more upbeat and your revenue and EBITDA is it fair to assume I mean that has anything changed.
With your Capex your view on Capex. So is it fair to assume that Capex is likely to come in at the lower end of your of your 2000 and <unk>, 24% guidance range.
And then secondly, I wanted to pull off from your I mean, do you sort of repeatedly bring up your tower assets.
Strategic or something.
Great opportunities can you maybe talk a little bit about how you think.
And why you're so excited about it.
And how actively looking from a buyer.
Would you be happy to give up control.
Or what makes you and why.
And talking so much about it I guess, just just putting it in a separate units and legal entity it doesn't really change anything.
Yeah, I think that what I mean.
I guess last question is you've now done and 4% per.
Revenue and EBITDA growth and local currency and as you pointed out the comps are getting easier.
Throughout the year your guidance already assume that we're not getting sort of backwards in terms of lockdowns et cetera.
So why shouldn't growth accelerates throughout the year.
We also comp piece you're running.
Uh huh.
Headwinds.
So.
I mean would you argue that your guidance is still a little bit conservative.
Thanks very much.
And then thank you very much and it may start with the Capex question you have historically the telephone companies have.
Right.
<unk> performance in the linearity of their Capex investments I think we have reached the capex intensity of 24, 7% and Q1, which shows that we have improved our linearity, which ultimately will lead into higher and monetization of these investments.
We think thats still our outlook for the entire year is in line with our guidance of 22% to 24% of topline.
In terms of tower assets, we're excited because we believe in the markets that we operate and independent tower companies do.
Do you actually have.
And the early embryonic stages, we do not see just separating our tower assets into different entities as the end game, we look for crystallization of value by creating synergies with other independent tower company and we keep our options open there. So I will not give you more details.
Our plans, but in every country, we do have value crystallization plan in place that we will share with you as things progress.
With regard to our guidance, we think now it is prudent to apply and mid single digit growth guidance for our topline and EBITDA. We are still in the process of it.
Assessing the pandemic and lockdowns in certain countries, like Algeria, and Bangladesh and Pakistan that might be further waves to come. So we are still keeping a cautious.
Policy in terms of looking to our growth levels for the net of the.
The year considering that.
We do not expect any roaming revenues to come back we do not expect any migrant workers activities, but I believe that at this particular time it would be prudent to keep our guidance at the mid level teams. Thank.
Thank you very much.
Thank you. Our next question comes from the line of pharma and depth direct from Goldman Sachs. Your line is open. Please ask your question.
Yeah. Thank you so much of the presentation a couple of questions. Firstly can you elaborate on the potential implications on the tax increase.
And the dividends that you reported range from Russia, Poland, the Netherlands and it.
And how litigation and kind of progressed here and.
Well, you can see that any actions to mitigate the potential and magnetic effect.
And secondly on Russia can you comment on them and yes.
Score progression in Russia, and specific day, probably and mothball, if you track that.
It looks like you have.
Well with regards to the capital deployment athletes and muscle.
Thank you very much I will let circle to comment on the tax question, you have and between Russia, and Poland and then I will ask actually Alexander total go to comment on the NPS scores and Russia and muscle.
Circa.
Yes. Thank you.
Regarding the double tax treaty, it's been Russia, and in Netherlands, and first of all you should note that there is no change for 2020 one.
And there'll be no impact on our financials for this year.
If the current existing agreement between two countries.
And that will be effective from the integral and next year.
And by that time, we can have from tens to restructure our corporate structure to optimize the tax but in the meantime, we are waiting for to see what will replace the existing double tax treaty between two countries, but again to reiterate there is no impact or this change and this year's financials.
Thank you Sir Alexander can you give us the MTS.
Relation and Russia, and specifically and Moscow, Yes, exactly Ken.
And definitely as you know Nps's event and initial thought on that day and this is why it doesn't react immediately.
And your efforts, but I'm glad to see and glad to declare that are actually there is simple. This is reaction and then.
Yes.
It started to grow very that is not.
Scale, but still overall, russias and NPS started to growth and.
The second.
The second important thing here is that the NPS is up our competition started to decline and actually it has been declining for a year already so the gap between us and and the leaders and this parameter net net.
And I have to play if if looking into the company entered this NPS, namely pricing transparency offering what is it.
Which is very important we see that and some of those we became.
Even talked to and this is the huge change year on year of and who are lagging behind the whole the whole market.
From Moscow multiple for US is the most important day, Scott mentioned several times and at the same time and we were struggling a lot so again theres and Russia over.
And most co MTS is lower than our Russia and P. S. But it has the same dynamics it started to grow and I am sure.
And as its inertial and it will to continue to grow next next quarters.
True.
Thank you Alex.
Thank you very much.
Thank you. Our next question comes from the line of Scott <unk> from UBS. Your line is open. Please ask your question.
Hi, Thank you.
Two questions for me please.
Please.
One on Russia, specifically, so you've clearly added a lot of fixed costs.
The network rollout and there might be something else also over the past where you are in the house closes.
Give us a sense of when.
Uh huh.
First of all how much was added and then in terms of the momentum and when can we expect now that Russia and around and the supply for EBITDA.
You too.
And I'll start growing E revenues.
Flowing through over those fixed costs, sorry, if there was anything beyond those fixed costs that we should be aware about.
Second question.
Group EBITDA and share also you are now.
And that you've found about two and half billion addressable cost can you just elaborate a bit on what exactly does that mean like what is the potential from.
Cost cutting over the medium term and is this kind of in line with the previous guidance that the company had of targeting about one percentage point.
Margin expansion.
And believe this is a more substantial than that and then when can we expect this to.
B faith and near term short term low.
Medium to long term thank you.
Maybe I will ask Cellcom to respond to the second question you have and then I will focus on the Russia EBITDA questions. Okay.
Thank you.
Maybe.
I can use a couple of minutes to explain this program itself and I think.
And it will be useful.
And as you said.
We are focusing on the close not on the and the short term and the long term as well.
So this program has some short term quick wins approach, which we want to benefit in 2021. However in the meantime, you want to focus on long term structural changes, where we can benefit from the upside and the long term, meaning in the next couple of couple of years, So before starting this.
Program and what do we have done and we said, let's forget about our cost structure and.
And as you know and telecom there are certain costs that you can address and certain other said you cannot address because it's also your control it's coming from the from the market dynamics It is coming from.
Are there others other dynamics.
And then we look at our cost structure, we found out that positively and more than half of the cost.
And our portfolio, which is 56% to be precise can be addressable.
So that's a good starting point and.
The other component that we look at it we look at the currency dynamics and our cost space and again, we found out that overall cost base.
Our cost based on foreign denominated currency was just hard cash U S. R or euro is only 10% around 10% so 90% of the cost overall is denominated in local currency. That's also a good starting point for us. So what we are trying to target here.
Yeah. This is not a new one year programs and the long term program.
Richard it's derived from the op growth in the country level, it's been lumpy driven from the HB and Upsells and it will be driven by the business owners in the countries. So we have multiple initiatives hundreds of initiatives each and every country. Some of them are short term some of them are long term for the long term.
We have to invest first probably this year and get the benefits and the coming years, but all the low we are very optimistic.
We're optimistic that we can we can start to get upside from this cost program in the coming quarters and in order to incentivize the Ulta management as well and you also incorporated certain targets coming from this project in the short term incentives or the local and senior management team.
So that's why.
And we are we are.
Positive amongst program. It maybe just maybe early to quantify the benefits for this year, but I think in the coming quarters, we will be and a better position to give you more.
And I believe about.
Ask them and deploy them and this and this program.
And second maybe you can also give you a highlight about the HQ cost base, how it evolves and Q1, okay. Thank you very much coming from bringing that as well of course and we are not running this program only and of course, we are also running the same at <unk> and.
As you know in 2020, we significantly reduced <unk> cost more than 60 per cent of reduction and we also and also continuing to focus on and that's part is low and to want to Q1 this year.
Almost half.
And the HQ costs compared to last through Q1, so to be precise the decrease of course around 55%.
And then and rest of the year, we will continue to focus on <unk> side as well.
And then with regard to your question about the Russia EBITDA, Let me give you a little bit of perspective about why we think the four 8% drop year on year is actually a good achievement from many perspectives first of all during the pandemic, we have seen discontinuation of roaming revenue, which is a very.
High margin business, secondly, voluntarily cut all potential customer satisfaction deteriorating content businesses to improve the clarity and the NPS scores that we are receiving you see the impact on the NPS scores and disposals and the high margin business and <unk>.
And for that the calendar day effect of one day of leap year.
And also lack of migrant workers.
And he has an impact on the overall EBITDA performance. So despite all these changes.
In addition to in sourcing of our network management operations.
We are doing actually better than the expected levels and Thats why I think this is also acceptable levels.
Thank you.
Fallout from first.
And in terms of the HQ.
Net.
And as HQ, the kind of near term easy win that you mentioned and if the run rate that we saw.
And in the first quarter.
That may be standard throughout the year and then currency.
Is there a target by which.
As we now approach the actual service spending and surrounding the second quite a for Russia is there is there a kind of commitment that you can give in terms of Russia and around our targeting and maybe a commitment but it's hard it. Thank you.
I mean, sorry, if I can just say we at <unk>.
This stage, we're not giving specific targets on either our cost program on the one one margin I think as we progressed during the course of the yes, we will see maybe unite the interim period huffing Sky and you can see we're in a position I think at this stage.
Early in the year and.
As Colin mentioned earlier on and the call saw some uncertainties around maybe you may see that the impact of COVID-19 come back and whatever the case and so I think.
Not give formal guidance from that at this stage.
Regarding the HQ costs between the quarters, there and maybe some fluctuations, but overall you can take Q1 as a base.
For the full year.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Ivan Kim from <unk> Capital. Your line is open. Please ask your question.
Hi, good afternoon.
Three questions from me. Please on Russia first if you look up the market share of your gross additions and mobile doesn't exceed your current market share now.
And then.
And in line or below.
And secondly, sorry to dwell on that.
And that will continue.
And you don't see from but I think it's pretty clear.
Bye now.
Tax system per cent and Russia at source.
And it won't affect this year, but it will affect next year most likely.
And so what I was thinking because I.
If you we remain batch tax residence I don't think there was any way around this.
So any.
Collins.
Potential implications and what youre going to pay and tax would be highly appreciated and then.
Lastly on just cash so can you talk a bit about the just cash longer term runway and growth and procurements you from an out of the customer growth outpaces revenue.
By a lot.
And I do think the growth revenue growth, there and will accelerate and closer to.
Customer office usage.
Platform increases and maybe you can also comment on your competitive positioning against China and North Sea price. Thank you.
Sure I'm happy to take their desk cash first and then pass it to canon and silica.
When it comes to market position, we were close to 60% market share versus 37 38 per cent of easy basis as you will notice.
The percent that just inverse so a year ago easy Pacer. It was the one having the majority of the market.
And thanks to the jump of the team that turnaround when it comes to revenue lines.
We are not.
And going upside I would say that they use our parameters that we focus first on payment and consumer now we expanded to consumer lending and thanks to our Microfinance license. We are able to extend this type of credits, but it's something that grew dramatically during the past quarter and we continue to invest and that we got and final.
And the merchant proposition, we wanted to have a very strong proposition and our focus has been on creating a seamless merchant onboarding. We now have more than 90000 monthly active merchants, which makes us the biggest metro and are quite off Pakistan.
And the plan is to continue to provide these type of services to this collective escrow accounts.
Secure payments and this type of things.
And the pipeline of flow releases, so overall three product lines consumer payments, and then loans and finally net its merchant proposition.
Thanks, Sergei Circuit, and you want to yes.
For the double tax treaty and maybe I should have mentioned and more detail, let me to take it in more detail.
As you all know currently.
And further BTT between two countries Theres, no withholding tax and interest.
And there's 5% holding tax on dividends.
So we don't know what's going to replace the current double tax treaty, but assuming that it will be the same as the double stack switches between Russia, and Cypress, Malta and Luxembourg.
Assume that they will be blank blanket, 15% withholding tax on both interest and dividends.
So you see us.
And this dividends and into separately.
We are not receiving dividends from the input from Russia because of the operations in Russia, but book.
We have some good.
Dividends coming from Russia to the Netherlands.
If you assume that withholding tax on dividend such dividend will increase from 5% to 15% and diverse case scenario that will impact that.
Our cash flow by $15 million.
And $5 million.
Annual basis.
Moving to interest we have couple of intercompany loan arrangements between each day and input from Russia.
Which is now subject to net interest and the new withholding tax and Julien.
And if there's a withholding tax of 15% on the intercompany loan with <unk>.
They're much easier to restructure those loan arrangements. So we don't think that there's a risk there because we can always.
Net intercompany and laws such debt.
And are not subject to 15% withholding tax.
All in all day.
Even if we don't do anything about the corporate structure, our exposure and.
Additional withholding tax on dividends is much more $15 million.
And we believe that we can restrict it to inter company loans, such that there'll be no withholding tax.
I hope that there's more clarity and.
Let me move to the question you asked about weighted our gross additions and Russia, and our market share and the gross editions are bigger or less and our market share overall I will give you some insights about subscriber dynamics and I will ask Alexandre to add if there is more but as you can imagine we are firstly report so it's difficult to judge.
We have a higher market share and gross adds or not but what I can tell you is and you see a very healthy trend in terms of the churn rates and Russia, and we also see a very healthy trend in terms of number portability and.
And we understand the dynamics being negatively impacted on the gross adds market because of lack of migrant workers, but still we see actually a strong growth trend on that side as well Alexander anything you would like that with regard to specific market share comparisons on gross assets, yeah exactly come actually you're all aware.
The fact that gross adds and Russia is something strange and sexually you should always.
And remember that the quality of those growth as is.
Very poor all over the industry and this is why we formulated last year for ourselves and doesn't do them.
Want to play this game, so actually we're fighting for the clients, but not for.
Gross total gross sales.
In terms of real clients dynamics.
Dynamics is positive already and.
Good. So this is what we care about.
Thank you Alexandre.
Alright, Thank you very much thank.
Thank you thank.
Thank you and next question comes from the line of Alastair Jones from New Street Research. Your line is open. Please ask your question.
Yeah, Hi, Thank you for the call I just wanted to touch base on the Russian situation, just with regards to the Opex and the costs I know you said.
Leave it to the issues around.
The margins and why the squeeze and that's been happening, but just if I look at the.
The Opex, which has been sort of rising costs are rising 3% earlier and then a.
Couple of quarters, guys, not rising 6%. So I can understand that is related to you and Netflix investments that youre undertaking and I just wanted to get and outlook going forward and the second half of the year.
That 6% getting to be sort of remaining at that sort of level as that further and inflationary pressure going to come through on the opex side of things or does that 6% start to ease as the quarter.
And at the year progresses, just to sort of give an indication as to essentially where the EBITDA growth can come back into Russia, and the second half and then just secondly on the content again, you talked about the content and services, having an impact.
How far are we along the line themselves, we're moving that content revenue and when should that be.
Basically come out and come out of them.
Sorry about that.
And when should that content and services come out of the revenue line.
And.
Yes, just to give an idea on that and then finally just on license fee payments.
I know you had obviously the Bangladesh fee that they paid.
This quarter are there any other license fee payments expected in the next six to 12 months. Thank you.
Yeah. So.
So let me first of all.
Start with your question about the Opex and EBITDA and Russia. The squeeze that you have seen is primarily driven by the top line movements that I explained by Rami as well as relative to the exclusion of the content revenues with regard to the progress on the content and services. We have done that so you should not be expecting more to come on that.
Right.
So we do expect that these levels to be stabilizing.
And with regard to the.
The payments.
Licenses.
As you know, we have and ongoing payment scheme, and maybe set and can help me with the Pakistan situation I think next quarter, we have to make the payment there as well right just a pause.
From the ongoing license frequency payments that we may have and in multiple countries.
The most.
The amount is in Pakistan and.
Mountain and 45 million U S dollar, which will be paid in may and made this year. So that's.
And that's number one and of course next year may the same four to 5 million Golar will come again for Pakistan.
And second Big one maybe I can see Bangladesh as we mentioned and the release, we of course and license amount for amount 215 million and seller also which we pay 25% of it and the rest which is $86 million net will be paid in five annual installed and so we will see.
And the next.
12 months second installments and lung editions book.
Alright, thank you.
Alastair.
Thank you. Our next question comes from the line of Alexander <unk> from Renaissance. Your line is open. Please ask your question.
Yes, hi, thanks for the opportunity to ask a question. So two questions from my side first one one and your tower portfolio. So and the presentation. You mentioned four markets I guess on the Russia, and Ukraine, and the Bangladesh and kind of our key markets for our per.
Full optimization initiatives. So just a question on the auto market. So are you still considering any initiatives there or it's kind of another priority at this stage and we expect you to focus on this score and Lisa markets, only and what sort of timing should we expect how far you are from.
Any actions.
On.
And then when deletion or.
More efficient usage from the tower portfolio and this market. So that's my first question and the second question is sort of a follow up on your <unk>.
Capex outlook and your thinking around Capex. So you raised your revenue guidance for this year, but at the same time you have your capex to revenue ratio unchanged and 22 to 24 does that mean that you are expecting somewhat higher.
And Capex this year versus your initial expectation and at the beginning of the year or you just consider the changes and not material. So we just decided to keep it and in connection to that.
Can you remind us reach and.
Fixed rates for Russia.
Our Russian ruble and.
And then Pakistan and maybe Ukraine, you used for your Capex assumptions and the budget for this year. Thank you. Okay. Let me start with day Capex intensity because the day range. We provide 2018 to 24 is actually sub.
Sufficient enough not to be impacted by the guidance that guidance, we have changed with regards to the foreign currency rates.
You can take that question actually.
You feel them and I don't want to disclose the specific it's expressed at UBS TMT and there are plenty, but what I can say our.
<unk>, our usual prudent and compare to the current FX rate.
Exploration, Pakistan is better than what we assumed and a six week in Ukraine and.
And Russia are in line with our assumptions at the beginning of this year.
I think that will give you some.
From guidance.
And Alexander with regard to your tower portfolio question, let me try to explain it. This way we have a total of 50000 towers and our portfolio and nine of our operations. The two of the biggest markets that we have is Pakistan and Russia and.
And two of the most advanced markets, we have closer to crystallization of value is Russia, and Bangladesh and the reason we mentioned about four because we believe those are.
Most significant ones, but it doesn't mean that we're not active on all countries and our portfolio.
Yes.
Thank you and thank you very much.
And last question comes from the line up of <unk> from UBS. Your line is open. Please ask your question.
Our highest.
Questions from me. Please one is on Pakistan, So and citizens just that's I mean clearly the.
Graham.
This business is having a negative impact from the margin, but in general I belief and seconds, usually a much higher margin than the.
Core services. So when can we expect adjusted cash they come out.
Accretive to the margin is there like a medium term outlook for that please and then second question on Bangladesh I believe.
At least according to local press a couple of years ago volume.
Or bank delinquency for sales and you've kind of settled and what with Ah.
And that not happening you've mentioned some.
Investments and PCB opportunities and digital opportunities a year ago now if I look at your cash.
Indication around mugwort us today, it seems like Youre ready.
Ready to invest in the country quite heavily so just.
I guess the general comment from you in terms of how core or noncore, Bangladesh you and.
And what kind of original CVC theyre going forward being a subscale player. Thank you.
So net.
Let me start with Bangladesh and I think that.
What you saw during the presentation reflects how we feel about Bangladesh.
Growing economy more than 170 million people living there most of them.
Close to 30 years old so the economy is being stable and it's a play that everybody would fight for it we're getting our I would say your attempts to succeed so we feel that Bangladesh. It's a good opportunity for us our investments and spectrum talk about that the growth that we're seeing and digital with Duffy and the investments that we've made them show up I think it's key.
<unk> testimony that we are therefore, the long term. So we are now contributing and further discipline of bundling when it comes to just guys.
We focus at the beginning on consumer payments because it's.
A high frequency exercise and it's something that you build your user base when it comes to be to say as I said before we are now expanding towards loans insurance and probes at will.
Bring more revenue to digest guys and also at the merchant proposition. So we can see other use cases overall, we feel that this is something that 2021 will be.
But important for the success of the company. So we are trying to see the results of these investments beginning of the dividend income.
Thank you.
And our spectrum, if I may so and Bangladesh the price that everybody paid with very high, especially considering the.
Bounce a spectrum that was distributor do you expect that to.
Improve the competitive situation and I guess, that's a question.
And particularly because the bundling has been the challenger and that market and in general do you see because we've seen two.
Big potential spectrum builds and both Pakistan and Bangladesh do you think that COVID-19 and general or something that.
And would drive.
The government and deal flow.
And Terry markets to try and extract more and more money.
From the industry in general over over the next couple of days.
I cannot comment on what the governments of these two buckets so to speak.
Tough to say what I can say is that if you look at the auction of Bangladesh out of the city of four player that word prism mangling was the one that was most efficient.
We get the spectrum that we require to continue to be the best for G provider and that caused that its below the because of the other spaces. So overall I think that the.
The jump of the teams have worked quite successfully and their overall these markets, where Betty hit hard when it comes to covet.
And loved them happening as we speak and Mike.
So it will depend a lot.
And on what happens in the next few months to see if we can grab more market share from our competitors, but overall as I said, we are confident that we have the right assets and the right value proposition in both markets to be successful.
And maybe if I can add if you look to the results of the auction the actually paid the most of the price effective.
And the spectrum in terms of the results we are comfortable.
From position, we have in Bangladesh and most importantly, we may not be operating nationwide, but regionally value adds.
And this we have the best network and the best customer experience.
And that's why we are.
And actually happy with the market positioning there.
Thank you very short films and sorry, if I may just and since the second look down and I've noticed that is there any day.
And anything materially different from how people.
Operator.
To date versus a year ago like is it easier to.
Run the business and in a place like that.
Compared to a year ago.
We have learned a lot in terms of the experiences operating and they look down market and.
And we have significantly improved our self serve capabilities mobility of our sales forces and all.
Alternative methods of reaching to the customers. So we feel much more comfortable today in terms of effects of potential lockdowns.
Thank you very much thank you.
Okay.
No further questions. Please continue.
If there's no question and so I would like to thank everyone for dialing in.
Any more questions or need anything clarify piece just reach out to us. Thanks again, everyone and have a great day bye bye. Thank you.
And thank you. Thank you that does conclude our conference for today and thank you to everyone who participated in today's call you may now all disconnect.
[music].
Yes.
And.
[music].