VEON Ltd. (VEON) Q3 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to VEON Third Quarter 2020 Results Webcast and Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to hand the conference over to Mr. Nik Kershaw, Head of Investor Relations. Please go ahead, sir.

Hi. Good afternoon and good morning everyone. Welcome to VEON's third quarter results presentation. Nik Kershaw, Group Head of Investor Relations. I'm pleased to be joined on the line today by Kaan Terzioglu, Sergi Herrero, our group co-CEOs, along with our group CFO, Serkan Okandan Today's presentation will begin with an overview of our third quarter results from Serkan, followed by an operational review from Kaan and Sergi to discuss the trends we saw across our business during the last quarter, as the pandemic lockdown through that. We'll then hand it back to Serkan to discuss our outlook and our new financial guidance for the full-year. As ever, we will ensure that there'll be ample time for your questions, but we would ask you to save this for the end of the presentation. Before getting started, I'd like to remind you that we may make forward-looking statements during today's presentation, which involves certain risks and uncertainties. These statements relate in part to the company's anticipated performance and guidance for 2020, particularly in light of the COVID pandemic, future market developments and trends, operational and network development and network investments and the company's ability to realize its targets and commercial and strategic initiatives, including current and future transactions. Certain factors may cause actual results to differ materially from those in the 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 with the SEC. The earnings release and the earnings presentation each of which include reconciliations of non-IFRS financial measures presented today can be downloaded from our website. With that, let me hand over to Serkan.

Thanks, Nik, and good morning and good afternoon to all participants. Thank you for joining us for this presentation of our third quarter results. After several difficult months for our business during the strict lockdowns that COVID-19 record, I'm pleased to say that the third quarter saw a steady recovery in operating trends back towards more normal levels. We look at how this developed as the quarter progressed a little later, but let me first go straight to our reported numbers, which are summarized here on Slide 5. Group revenue for third quarter declined by 1.3% in local currency terms year-over-year to US$2 billion and encouraging rise from the $1.9 billion recorded in Q2. On a reported basis, the year-on-year change in revenue was minus 10.4%, once the negative impact of currency movements amounting to $202 million are accounted for. Once again, data revenue net of our growth rising by 13.1% year-over-year in local currency terms, or 3.1% on a reported basis. This result reflects the continued expansion of our 4G networks and subscriber numbers, as well as the rapid uptake in digital services that COVID has encouraged. Local currency EBITDA was flat year-over-year, a good result despite being boosted by a $52 million positive contribution or the reversal of provision in Pakistan. Adjusted for this, EBITDA fell by 5.5% year-over-year in local currency, more on this later. Once currency effects are accounted for reported EBITDA fell by 9% year-over-year. Group EBITDA was - margin was 45.1%, which was up 0.7 percentage points year-over-year on a reported basis. This was helped by continued cost reduction particularly in HQ overhead, and it was boosted by the reversal of the provision of Pakistan with $52 million. Net profit for the quarter before one-off items was $145 million. However, this is before a non-cash impairment of $790 million, which principally relates to the carrying value of goodwill for Beeline in Russia, which we have incurred by US$723 million. The impairment reflects a number of headwinds for our Russia business, which has in recent years seen its revenues and profitability challenged by competitive pressures in the markets. More recently, the impact of a weaker Russian ruble, along with ongoing COVID lockdowns and associated travel restrictions have had a negative impact on consumer spending, which weakened during the third quarter. Together with a slower than anticipated recovery in Beeline's ARPU which has impacted projected revenues, as well as the low market capitalization of the group, a revision to our previous estimate has been deemed necessary. Measures to turn around Beeline are well-advanced, and we still anticipate the business will return to positive year-over-year revenue growth and deliver further improvement in operational KPIs in the first half of 2021. More on this from Kaan when he presents Russia later in the presentation. Turning to the final numbers on the slide, operational CapEx was 9.3% higher in the quarter, which reflects our group wide 4G investment program particularly in Russia. This dropped the Group's CapEx intensity ratio to 21.8%. Finally, our leverage ratio for the quarter stood at 1.9 times net debt-to-EBITDA, which remains consistent with our goal or keeping group leverage at or around two times. Moving to Slide 6. Aside from the numbers, the third quarter was a busy one for the group, with a number of key milestones achieved on several fronts. Operationally, our focus remains on accelerating the deployment over 4G networks across all our markets. We have grown our 4G subscriber base by 37% over the past 12 months, adding 20 million 4G subscribers to 8 million of which were gained in Q3 alone, a rise of 14% from Q2. We continued to develop our digital verticals, resulting in impressive growth for JazzCash in Pakistan and Beeline TV in Russia during the quarter. We are also fostering partnerships that can accelerate the growth over digital services. And earlier this month announced a strategic investment by our ventures division in ShopUp, a digital business in Bangladesh that offers us a promising platform to develop our mobile financial services offering there. In terms of funding, Kyivstar was launched our second bond issue under our medium term note program, which helps reduce our cost of debt by 119 basis points, compared with Q3 last year. From a shareholder value perspective, a number of milestones were also reached during both during Q3 and early weeks of this current quarter. Each of which underscore our commitment to creating frameworks that reflect the financial and governance needs of shareholders. We reached an agreement with our depository bank, which means that investors holding our stock via our NASDAQ listing will no longer be subject to an annual depository fee. In Pakistan, the exercise or the put option by our business partner in Jazz means that the group will capture the full value of this fast growing business once this transaction closes. Just today, we announced the successful sale of our Armenian business, an outcome that reflects the ongoing optimization of our operating portfolio. This transaction has now closed, it's shares transferred and cash received. Kyivstar put in place a new governance model for the group based on a leaner HQ function and greater empowerment over our local boards, which now also draw on the expertise and experience of independent directors. Taken together, we believe these steps strengthen the foundations of our business and the value proposition we can offer our shareholders. Looking at our financial results in greater detail, Slide 7 sets out our third quarter performance alongside our corresponding performance at the nine-month stage. To have comparisons this last year for the nine months figures, we also set out adjusted values for both revenue and EBITDA, once two non-recurring items are excluding from last year's figures, which are detailed in the footnotes. We are also set out here the impact to the impairment on financial performance in Q3, and for the first nine months. The key trends I'd like to highlight here is the quarter-over-quarter improvement we have seen in revenue, EBITDA, and EBITDA margin, each have rebounded from Q2 levels. This is consistent with the recovery and business activity we saw in Q3 as our operating companies returned to normal trading conditions compared to the restrictions that lockdown imposed on them in Q2. We are provided more detail on these sequential trends here on Slide 8. As you can see from the right hand chart, the decline in local currency revenues bottomed in early Q2, and has shown steadily since. As a result, the groups for both reported revenue EBITDA, adjusted for provisional reversal in Pakistan grew 5% quarter-over-quarter in Q3. Certain aspects over product revenues will take longer to return to normal, which means both benefits and challenges for us in the meantime. Growth in our fixed line revenues for example, remains high as home routineg outlines the full lockdown phase of the pandemic illustrated by strong double-digit growth rates we recorded in Kazakhstan and Ukraine in Q3 and the 9% revenue growth we saw in Russia. Roaming revenues, meanwhile, remain understandably weak as travel takes far longer to recover to anywhere near pre COVID levels. They currently stand at roughly one-third for the group revenue contribution they were making this time last year. However, the overall pattern of recovery is consistent with the revised guidance we shared with you last quarter. And assuming current lockdown restrictions do not worsen. We expect these trends to continue in Q4 more on this when I take us through guidance at the end of the presentation. Moving to Slide 9 and a more detailed breakdown over revenue during the quarter. The key theme across all markets was an improvement in year-over-year trends compared with Q2. With three of our larger markets, namely Pakistan, Ukraine and Kazakhstan, each delivering double-digit underlying growth. Russia continued to report a decline in revenues, largely as a result of significantly lower roaming revenues due to travel restrictions, as well as a further fall in customer numbers. However, the pace of revenue decline in Russia was shallower than in Q2. And we remain confident that the measures we are taking there will support an operational turnaround during the first half of 2021. You will also see here the impact of ForEx weakness on our reported numbers, which at US$202 million for the quarter, meant that reported revenues fell by 10.4% year-over-year, compared with a smaller, only 1.3% decline in local currency terms. Turning now to Slide 10, EBITDA in local currency terms was up slightly by 0.1% versus Q3 last year, helped by the double-digit growth we enjoyed in Ukraine and Kazakhstan. Once again, cost control was a key focus for us throughout the quarter, particularly at HP level, where we reduce our corporate overhead by 46% year-over-year to US$43 million. Finally turning to headwinds of $90 million impacted reported EBITDA, which declined by 9% year-over-year. Turning now to our capital structure on Slide 11, as has been the case throughout this pandemic, strength in both capital and liquidity remain priorities as we navigate the group through this challenging period. In Q3, this meant active management of our debt through a second lockdown under the MTN program, which enabled us to refine some of our existing maturities through a five-year RUB 10 billion note issue. We also refinanced our existing RUB 30 billion bilateral loan facility in Russia and fully repaid our borrowings under our revolving credit facility. Together, this has enabled us to lower our average cost of borrowing by 119 basis points compared to Q3 last year. I had also point out that so far this year, we have been able to access credit markets at lower coupon rates than both our average cost of ruble debt and some of the more expensive U.S. dollar borrowings we acquired through the consolidation of GTH in the previous quarters. We have also managed to mature to all our borrowings proactively, refinancing near-term maturities and pushing out the average tenor of our debt to 2.8 years compared this 2.5 years at the end of Q3 last year. We continued to match our borrowings to our functional currencies as far as it is practical, using ruble hedges, where appropriate in managing liabilities against our Russian revenues. The impact of these hedges is illustrated on the two right hand pie charts, which show the currency mix - of our borrowings plus and post hedging, the result of which our ruble exposure rises from 31% to 42%. Adjusting for our cash holdings as well, which are shown in the left hand side a pie chart. Our net ruble exposure rises further to 48%, comfortably matching our ruble revenues as a result. Finally on the slide, the group continues to access to considerable cash and undrawn credit facilities, which together amounts to US$2.8 billion, up from $2.5 billion at the end of last quarter. Moving to Slide 12, which shows how group that changed over the quarter. Slightly lower cash CapEx as well as a stronger EBITDA than Q2 enable us to reduce our net debt position this quarter to $5.9 billion, down from $6.4 billion in Q2. This resulted in a small quarter-on-quarter fall in our leverage ratio to 1.9 times excluding these liabilities from two times in Q2, which is in line with the internal guideline of around two times we have set out to ourselves. To summarize, the group remains in a strong position financially, despite the challenges of recent quarters, and we will continue to look for market opportunities to enhance our balance sheet while safeguarding our liquidity position in the quarters ahead. With that, let me hand it over to Kaan to take us through our operational performance during the quarter in more detail.

Thank you, Serkan and warm welcome to all participants online. Today, I'm pleased to talk about not only a recovery from the impact of COVID-19 in third quarter, but also a strong operational foundation that make us optimistic about long-term growth of VEON Group. Going through Q3, we have witnessed the recovery in revenues and acceleration in our 4G subscriber base, and the lower churn in all key markets. We continue to invest in our networks in order to respond to the ever growing demand of our customers and took measures to improve customer experience. We built teams and other operational capabilities, most notably in IT that will carry us further. In the course of the quarters, we have reached year-on-year growth levels across all operations despite the loss of migrant workforce revenues and rent roaming revenues. There will be both challenges and opportunities for our business as we go forward. We are both committed and better prepared today to serve our customers with connectivity and digital products, as the world adjust to new ways of interacting socially, professionally and commercially. If we go to Slide 14, 4G penetration is the cornerstone of VEON growth opportunity as both our existing base shifts to 4G from two and third generation technologies. And we acquire new customers through deploying new networks and population coverages. This shift has the potential to transform the financial characteristics of our businesses, giving the higher data consumption, higher ARPU and lower churn that it generates. Here I'm pleased to report that we have made good progress in Q3. As VEON Group, we now serve 73 million customers with our 4G services that signifies a year-on-year growth rate of nearly 40% and additional 20 million users year-over-year, 8 million just added in Q3. Today, 35% of our total customers consumed 4G services, 45% is up from 25% a year ago. On the slide, you can already see the additional value that our customers who are users of voice versus 4G data delivered. In comparison to the average users they consume about two to four times more data depending on the market. And their ARPU is up to two times higher and the churn rate is half on average. And the ARPU of a customer who uses one of our digital services like Beeline TV, or mobile financial services on top of 4G data is at least three times of that voice only customers and about 25% to 40% higher than that of a two-play 4G customer. Including 3G customers, two-thirds of our total customers are now mobile data users which gives us an immediate opportunity to continue the migration towards 4G in the coming quarters. In addition to this, business-to-business, and fixed line services are additional two growth engines for us. On our B2B mobile services revenues, we have seen a growth of 5.6% this quarter, driven by an expansion of our B2B customer base by 4.4%. Russia, Pakistan and Ukraine each made strong contributions. We will look at those when we reviewed these markets later in the presentation. A similar pattern is evident in our fixed line service revenues, which grew by 4.4% year-over-year, led by an expansion of our customer base of almost 10%. The combination of these factors provides a strong platform of our long-term growth and the great foundation from which we grow a range of new digital services. Let me hand over to Sergi to update you on the latest developments regarding digital services. Sergi?

Thanks Kaan. And good morning, good afternoon, everyone. You've been hearing about our digital initiatives for a while now, and we probably will stand by a more granular and detailed update on the progress we are making with some of them. We found VEON Ventures, where I joined from Facebook in September 2019. [indiscernible] led by the name, [indiscernible] is another typical corporate venture capital platform for passive investments. Its ultimate goal is to find, build and scale digital services in high growth verticals that can be further enhanced through close partnership with VEON's close connectivity businesses, and therefore result in an increase of the overall valuation of the VEON Group. This will enrich experience of our 200 plus million customers, help extend our reach of the 600 million people that live in our operating markets, and on earth asset that have been - that have the potential to become the multi-market leaders of the decade ahead. In order to maximize our impact, we decided to initially focus on three main verticals, digital financial services, content and ad tech. We have the fortune that some of these opportunities are already being developed within the group's operating businesses. JazzCash, our leading digital financial services franchise in Pakistan is a great example of that. The role of [indiscernible] here has been to expand JazzCash's reach of abilities through technology, product and channel development. Adding to our code technology to replace patient or point of sale terminals, creating a full digital onboarding for merchants and tailoring JazzCash service to Pakistan freelance community are great examples of how we can help develop the business from within. Last week’s announcement of our strategic investment in ShopUp, alongside Sequoia Capital employees ventures is an excellent illustration of how VEON Ventures can help us broaden our growth opportunities in one of VEON’s most dynamic and growing markets. ShopUp provides a mobile first commerce platform that brings buyers and sellers together across Bangladesh's highly fragmented retail supply chain, which is dominated by micro and small businesses. It also offers access to digital credit, which provides VEON Ventures with an excellent opportunity to leverage our skills in mobile financial services, and develop this capability together. The second vertical content already has some great examples of how we are leveraging the very latest distribution technologies to deliver video streaming to millions of our customers, Beeline TV in Russia and Toffee in Bangladesh are pioneering this content right and enjoying rapid rates of adoption. Beeline TV expanded its user base by over 40% year-over-year during the quarter. Toffee meanwhile recorded over $1.5 million monthly active users in Q3, and has since passed the 2 million mark, a great achievement for a service launch less than a year ago. The third vertical ad tech illustrate how we can leverage a deeper understanding of our customers behavior to enhance their digital experience of our services, and those provided by our platform partners. An update, we have already doubled down on our offering in Russia, where we possess robust capabilities and technology. By leveraging the synergies between them, we are strengthening our market proposition and showing impressive progress in the process. These experience will enable us to explore this ad tech to our overall process starting with our adjacent and CIS markets. Let me pause here and hand back to Kaan to discuss Russia and Kazakhstan.

Thank you, Sergi. Turning now on to the individual performances of our major markets starting with Russia. This is Slide 16. COVID-19 did not distract us from the focus on execution of turnaround in Russia, which we should anticipate will happen in multiple stages. Stage one, improvement in our network metrics. Two, improvement in customer experience KPIs. Three, resumption of subscriber base growth. Four, following a return on year-on-year growth in revenue. The new Beeline team under Alexander Torbakhov's leadership remains focused on improving our network performance, and we are pleased to see the first results of this effort. Good progress was made in Q3 with an 18% increase in Moscow data speeds, network quality, and the completion of the first phase of our Moscow Metro rollout. Today 70% of Moscow subway stations are covered, and we anticipate the completion of the coverage by the end of the year. We are also seeing encouraging signs of improvement in our subscriber base, with 10% growth of our 4G user base year-on-year. Another positive sign is the two percentage point fall in churn we recorded this quarter. Here I'm pleased to say that the churn reduction driven by better network quality is also added by stricter policy we are applying to third party content services, improving customer satisfaction. We are also seeing encouraging trends in the take up of our digital services. Enhanced functionalities of My Beeline application, our self-service platform has contributed to a 33% increase in its monthly active users. Similarly, broadening the content offer of Beeline TV has helped us drive large rises in its user base, which has reached 2.5 million. As I mentioned earlier, B2B is a major opportunity for us in Russia. Bee free type services which we are positioning for growing range of business activities for remote working is now replicated in many of our markets. Our mobile B2B service revenues grew 4.2% year-on-year in Q3, during which we expanded our B2B customer base around 10%. Also impressive growth in big data and artificial intelligence enabled services their revenues more than doubled during the quarter. In September, we closed the acquisition of the telecoms operator WESCO, one of the leading independent operators in the Moscow region serving around 10,000 business-to-business customers, which will provide us with a strong synergies as we extend our fixed line IP and cloud services further. Now turning onto the number on Slide 17. Russia's total revenue declined by 6.8% year-on-year, partially recovering from last quarter’s decline of close to 10% and closing the quarter with 5.9% year-on-year decline in September revenues. This improvement was achieved despite smaller revenue contribution from migrant workers customers. Visible in sub-base decline and the 68% year-on-year decline in roaming revenues which alone is equivalent to a topline impact of 2% on Beeline Russia's total revenues. Eliminating our requested services from third party content providers contribute to a 21% fall in content revenues this quarter, with a top line impact of about 0.5%. As I mentioned on the previous slide, this has a significant impact in better customer experience and churn reduction. And we are confident that this is the right way to go for long-term growth and customer satisfaction. Another area of growth has been our fixed line business, where revenues grow 9% year-on-year, as customers continue to benefit from our fixed line data at home, and pay more of their services following revisions to our product offerings and pricing. And other positive contribution through revenues came from handset sales, as handset revenues increased over 50% quarter-over-quarter once most of Beelines stores were reopened. In Q3, Beeline recorded an 18% year-on-year decline in EBITDA primarily due to lower revenues and higher structural costs associated with higher interconnection costs, increased network investments and continued insourcing of technology operations. While these efforts on the technical side have a negative impact on costs, we are confident of their long-term positive impact on customer experience and service quality. In summary, the steep price we recorded in our both our 4G customer base and the 4.5% growth that we are seeing in data revenues gives us confidence that we are on the right path. By keeping up on our focus on improving customer experience, we will continue to target a return to year-on-year growth for revenues in the first half of 2021. Turning next to Kazakhstan on Slide 18, Beeline Kazakhstan is our fastest growing market recording more than 14% year-on-year revenue growth in Q3. This growth is driven by the fact that we have already reached 50% penetration of 4G customer base in our customer portfolio. This is the highest among our operating companies. In Q3, our network expanded to cover 75% of the nation's population. We also signed an important network sharing partnership with Kazakhstan, other two mobile operators to extend high-speed network to rural communities with populations about 250. We are pleased to be able to contribute to the elimination of the digital device in Kazakhstan. I'm also pleased to note that the growth in 4G adoption underpins the expansion of digital services. Beeline TV has seen its monthly active user base doubled year-over-year in Q3 to 1.6 million. My Beeline self-care application recorded also a 94% increase in unique users. Our mobile financial services enjoyed a quick rise, with active wallet users growing by 59% year-on-year. Finally, our digital operator Izi saw further growth in its customer base and remains on track to reach 50,000 users by the end of this current quarter. On the fixed side, the increased demand for home connectivity has allowed us to grow our revenues 40% year-on-year in Q3. As a result of the growth in fixed mobile convergence roughly one in five of our fixed line customers now use our convergent products. This gives them more flexibility in using our services while strengthening the foundations of our customer engagement. Looking more closely to the numbers on Slide 19. As we can see, revenues grew by 14.4% year-on-year underpinned by data revenue growth of 35%, which reflects the very encouraging structural growth plans I just outlined. Strength in our top-line led to a 17.3% rise in our EBITDA carrying our EBITDA margin to 53%. As previously noted, our 4G subscriber base grew about 20% year-over-year and half of our subscriber base now consists of 4G users, reflecting an 11 percentage point growth in 4G penetration. The decline in the total customer base reflects the reduction in gross adds due to limited mobility, along with ongoing effects of the introduction of SEC IMEI registration rules in Q4 of last year. The second impact is visible in the year-on-year comparisons for the entire industry, and is a distortion that will pass away as we move to 2021. Let me now hand over to Sergi to take you through Pakistan and Ukraine, before we close the formal part of this presentation. Sergi?

Thanks Kaan. Let me turn next to a market that is very close to my heart, Pakistan and the three themes that dominate the quarter. Growth 4G and digital services just saw a return to revenue growth during Q3 as lockdown were eased and solid subscriber market share expanded again. We continue to expand our 4G network increasing our number of base stations by 19% to reach 56% of nation's population, an increase of seven percentage points year-on-year. Once again, data services were the focus of our engagement with customers. We JazzCash more than doubling its monthly active users to 9.7 million during the quarter. And I'm pleased to report that this week we just passed the 10 million monthly active users mark with over 2 million of these wallets being active each day during the month of September alone a fantastic milestone for the business and for the overall financial inclusion efforts in Pakistan. This volume of activity has helped push the number of transactions conducted on the JazzCash platform to over 1 billion over the past 12 months. As well as financial services, we also made good progress in expanding our digital engagement with customers through our self-care app Jazz World which saw an impressive 158% increase in monthly active users compared with Q3 last year. And on our content service, Jazz TV also enjoyed a strong quarter, with each subscriber base passing the 1 million mark and growing 85% from a year earlier. Turning now to the numbers, the 11.5% revenue growth you see here captures the recovery in the month following the lockdowns. But also the administration fee reversal we collect in Q3, 2019 relating to the suo moto order tax regime change. If we adjust for that tax impact, the revenue growth rate is 7%. This increase was underpinned by another strong quarter for mobile data revenue, which rose by 25% year-over-year, and we successfully grew our 4G subscribers with an additional 3 million users. This leaves our 4G subscriber base 70% larger than it was this time last year, and we will have a considerable growth run away ahead of us given that almost two-thirds of our subscribers are yet to adopt 4G. Reported EBITDA growth of 41.2% is distorted by the reversal of a one-off tax provision of US$52 million if reduced for this EBITDA grew by 2.4% year-on-year. Reported EBITDA was also negatively impacted by the change in accounting of the security deposit we made on the protest in respect of our ex-Warid spectrum license, which from last quarter is now amortized as part of our service cost. Finally, let me turn now to Ukraine and Kyivstar. Kyivstar saw double-digit growth in both revenue and EBITDA in Q3 following the relaxation of lockdowns. Adding this was a growth - was a strong rebound in 4G subscriber growth, which jumped by over 20% quarter-on-quarter and enabled a double-digit expansion in ARPU. This growth follows a period of sustained network deployment that has seen our total number of 4G base station increase by 65% since this time last year, and include installations in the [indiscernible]. Kyivstar growth in digital services has been impressive with our MyKyivstar self-care app user base rising by 52% year-over-year, and growth in Kyivstar TV content users by 37%. Kyivstar has continued to drive demand for its B2B services by bringing to Ukraine, the very latest in digital technologies and services. The strategic partnership Kyivstar announced with Microsoft in late 2019 has been an important catalyst here and has enabled Kyivstar to offer cloud services alongside the development of its own AI and big Data capabilities. Kyivstar went one step further recently, by becoming the first operator to provide open API capabilities to developers. In order to encourage a collaborative ecosystem of services between the company and Ukraine's largest and talented community of developers. Ukraine’s telecoms industry benefit from a supportive regulator, and a number of recent policies that encourage the development of telco services and although we are monitoring the impact of new quarantine measures on the performance of our business, we remain positive on the long-term outlook of these dynamic markets for our services. Turning now to numbers on Slide 23, you can see the two left hand bar charts the acceleration in both revenue and EBITDA. We're experience in Q3 restoring the double-digit growth that was dominant trend for us in this market pre COVID. Mobile data revenue once again drove this growth rising by 23% year-on-year and on the back of an impressing ARPU and strong digital service adoption. Linking this trend is the success we have secured in expanding our 4G user base through greater network availability. Kyivstar 4G network now covers 85% of the nation's population and our user base is growing rapidly up 50% year-on-year in Q3. This follows a big jump in our 4G penetration rate during the quarter up by one-third year-on-year 236% which still leaves us a considerable growth runway ahead of us smartphone adoption accelerates. Let me finish by highlighting some of the key trends in our other markets, which we have set out on Slide 24. These markets are each at various stages of smartphone adoption. But the common theme is that the expansion of 4G coverage is boosting with the revenues and increase in ARPU. You can see in the second row of numbers, how these is translating into 4G customer growth, particularly in Bangladesh, where our 4G user base more than double in the size, year-on-year. We are executing on 4G deployment alongside the introduction of similar range of digital services, but tailor in each instance to [indiscernible] place. A great example here is Toffee in Bangladesh, which following its launch in last November, went on to reach the number one spot locally on Google Play, and has seen more than 50 million downloads so far. Although some of these smaller markets are taking longer to recover from lock-downs, we are particularly pleased to see Bangladesh return to year-on-year growth this quarter, and we remain positive on the considerable long run potential of this early stage. Let me now hand over to Serkan to conclude our presentation with some remarks on outlook and guidance. Serkan?

Thank you, Sergi. Let me now turn to the outlook of Q4 and our expectations for the full-year 2020 financial performance, which is set on Slide 26. We are today confirming our financial guidance for 2020, which is set out on this slide anticipates a low-to-mid single digit local currency year-over-year decline in both group revenue and EBITDA, and capital intensity of 22% to 24%. This is consistent with our performance at the nine-month stage. Our guidance assumes the steady recovery we have seen in our operations will continue into Q4, and as seems current lockdown restrictions do not worsen, a deterioration here would have a negative impact on this outlook. I would also like to reiterate what I said last quarter regarding our dividends. Cash flows generated in the first nine months of 2020 were weaker compared to last year, which reflects the acceleration in 4G investment programs across the group. Coupled with the cost associated with the put option exercise for our partners Pakistan, management anticipates no dividend for the year 2020. Let me to conclude with some key messages, we'd like to leave with you on Page 26. First, a key theme or Q3 was a sequential recovery in the group's financial performance as our market exited lockdowns. Second, our 4G opportunity is the backbone of our growth story, and we are executing on it at page. Third, there is no change in our expectation of an operational turnaround in Russia during the first half of 2021 when we expect positive revenue and subscriber growth to resume. Fourth, the expansion over digital capabilities is helping us for a stronger, more enduring relationships with our customers through a growing range of new services. Fifth, shareholder value remains uppermost in our priorities, and we continue to evolve our business to serve its needs. And finally, assuming current lockdown restrictions across our market do not worsen in Q4, our financial guidance for the financial year of 2020 is unchanged. With that, I'd like to thank you for your attention and pass the call over to questions. Operator?

[Operator Instructions] And your first question comes from the line of [indiscernible] at Morgan Stanley. Please go ahead. Your line is open.

Yes, thanks. Thanks very much. I had a few questions. Just wondering in Russia in various ways you - I guess, predominantly sort of Moscow and St. Petersburg at this point. But in areas where you've upgraded in network, what are you seeing in terms of NPS maybe ARPUs and sort of churn effect? And then secondly, I was wondering, I mean, you gave some pretty good stats in terms of 4G versus the average pace. But what are you actually seeing when customers upgrades which I guess the early adopters are already generating higher ARPUs probably lowered churn than the average customer, just sort of a 3G customer going to 4G. What are you seeing in terms of our uplift churn reduction particularly in Russia? And then the third, last question is, you've sold Armenia? Can you talk a little bit about how you see or how you think about your portfolio of assets I guess geographically, but also in terms of sort of vertical integration do you, I know there has been I guess this morning even some speculation about you potentially selling - looking to sell your towers in Russia? So just your thinking around owning infrastructure both in Russia and other markets? Thanks very much.

Thank you very much for the question. This is Kaan, I will take the - especially the part about the Russia. It's been about 12 months that we have pushed the button with regard to our turnaround program, and we have prioritized Moscow, Moscow center, Moscow Oblast and also St. Petersburg as our priority areas, where we have concentrated our investment efforts. I'm glad to see that actually year-on-year, thanks to these efforts, our quality of service today in Moscow center has been none to - second to none of the other operators also certified by third parties. And we have seen about two full percentage points of churn reduction. Thanks to the achievements on this network quality. We are just 70% done with Moscow Metro, and with the completion of that, this customer satisfaction levels are expected to go even higher. Same results with regard to the St. Petersburg in the city and also with St. Petersburg subway system. So really strong results in terms of customer satisfaction levels and key network KPIs. The fact that we have been faster and basically more concentrated on the Moscow center also gives us differentiation with regard to the different NPS scores compared to the Moscow Oblast, delivering solid proof points that actually this is working, and as we roll out our network in a more densified way in the Moscow Oblast and complete the metro deployment, we will get even better results. Looking into migration from 2G, 3G to 4G, and ultimately what I call a multi-play customers meaning that the 4G customers also enjoying some digital services. And this could be Beeline TV or our financial services. The ARPU levels from a single play voice customer to a double play data and voice customers to an LTE customer is almost 1x, 2x, 3x. And when a customer also enjoys a digital service on our network, we actually see further reductions in churn and about 20% to 30% additional ARPU from that type of customers. And we see all these actually, evolutions also happening, as we have converted almost 20 million additional customers into LTE, and 8 million of those in the last quarter. So I hope this gives you a little bit more color on how we impact the growth rates moving forward. It's very important for us that as our customers are more adopting 4G, they will be consuming more data. And they will be actually having an opportunity also to consume additional digital services, which will lead into more ARPU and also less churn. With regard to our portfolio, we would like to make sure that we focus on key markets that could help us to move the needle in terms of our top line growth and profitability. Therefore, we are continuously reviewing our portfolio, and as we have announced, we have sold our Armenia operation. We believe that every country needs to be the top priority of the investor in those countries. And we would like to make sure that we apply this principle to the markets that we operated. We believe Armenia with the investments done by the team investors entrepreneurs will be positioned in much better way for a digital infrastructure with their focus and commitment for deploying these technologies. We will continuously review our portfolio and make sure that we focus on the markets that we believe we can make a huge contribution.

Next question comes from the line of Ondrej Cabejšek at UBS. Please go ahead. Your line is open. Ondrej Cabejšek: Hi, thank you for the presentation and for taking my question. A follow up on Russia please. So you now seem confident to be able to turn around Russia in 1H 2021. I was just curious what assumptions you're using there. Because if we sort of look at the, if we break down the growth rates in the third quarter, then even if we sort of exclude the roaming impact, and the third-party revenue impact, then clearly there is a sort of drag, not just from the eroding customer basis? So what are the assumptions there? And for example, how far are you with phasing out the third-party revenues, which you mentioned, had a bit of a drag this quarter? What are the other sort of customer initiatives that you are taking in order to drive this turnaround? And then one question for Sergi, please? How far are we from the defense like business being big enough to the report it is a separate entity in Pakistan. And one more question on Pakistan, there is a - there were some headlines around essentially new spectrum, targeting something like $1 billion to be auctioned towards the end of this year? If we could get any updates on that please? Thank you

Let me start with the questions around Russia. As we have reported, our revenue dropped in Q3 6.8%. This is a significant improvement if you compare to Q2 which was around double-digit declines. I would like to mention that this 5%, almost quarter-on-quarter increase and we have today also disclosed an additional data points specifically for Russia. And that's the September momentum, which is at 5.9%. Despite the fact that we have lost two full percentage points due to roaming, we have lost a significant, almost similar amount due to migrant workers. And we have lost about 0.5 percentage points about the content, strict rules about high quality content, and improving the customer satisfaction with regard to the additional potential toxic revenues. So this is really critical that we see this momentum. And this is happening week-over-week, month-over-month and we believe that our adoption of 4G, our customer churn rates declining almost two full percentage points are all contributions and the good signs of recovery here. I will leave the second question to Sergi to answer yes.

Thank you, Kaan. When it comes to JazzCash and separation, you know that we are in the middle of a put option with our partner there. So it would not be prudent to go too long on this topic. We have no ongoing plans. But we'll be able to talk more about this when we close the transaction hopefully before the end of the year. When it comes to new spectrum auctions as you know the government issue a paper seeking for experts and some consultation on how to craft when it comes to 5G and new spectrum. This is as much as the government is sharing with us now, I was there last week, and I was able to meet with some people and the government. There's not a clear timeline when it comes to issuing new spectrum. So I think that for at least the next six months, no news will come in that regard. Ondrej Cabejšek: Thank you one short follow-up if I may Kaan the assumptions that you have in the turnaround does that assume again sort of new price increases in 1Q depending on we saw this year?

Well in terms of the assumptions behind the turnaround and the steps that we are going to go through. When you start actually focusing on customer satisfaction, the first thing you focus on is your network quality and from the last year, 12 months ago to today. That's where we started to focus on critical areas, especially Moscow, St. Petersburg, Krasnodar in terms of our active investment areas. When you start this it takes about two to three quarters for investments to be deployed fully and to become life. After this customer experience starts to be visible and this is exactly the time that we are currently experiencing. Next stage will be direct impact on churn reduction and NPS and finally, the improvement on year-on-year revenue. So these are our assumptions. Of course, one of the most important actions that we have taken in Russia was reholding off the entire leadership team with a real energy and commitment to success. And this of course, requires that we will be moving more and more our captive subscribers into 4G and it will only be possible to also adapt with pricing features of new packages, as we complete our deployment of Metro by the end of this year. So you will see us getting more active with much more richer packages and probably improved pricing. And as we do that, we will of course move the value chain in a higher level. Ondrej Cabejšek: That makes lot of sense. Thank you.

Also in the previous question, I missed one part about the Russian towers. I know that there has been some questions about potential sale of the towers. We don't have a specific sale plan as we speak. But we always look into our infrastructure assets as a unique part of our portfolio that could be creating more shareholder value. We will of course update you as we clarify our plans in this area. But at this particular point, I would like to make sure that we don't have a sale plan on this area.

Your next question comes from the line of Ivan Kim at Xtellus Capital. Please go ahead. Your line is open.

Yes, I mean there are three questions from me, please if I may. Firstly, on the dividend outlook, so if everything goes as you'd expect with the turnaround and growth and market such as Kazakhstan, Ukraine and Pakistan. So - is everything sort of say impact for dividends to be paid again in 2022 that’s the first question? The second question is on the capital intensity in Russia so for how long do you expect a capital intensity in Russia to stay at current levels? And then finally, I guess a regular question on the listing structure. So you said before, you'll be in the market until the year end not a lot of time left so anything you can communicate will be great? Thanks.

Serkan, why don't you take the dividend?

Okay yes, this is Serkan actually your question is about dividend potential dividend payment in 2022 regarding 2021 results. To-date, I don't want to speculate about the 2021 results and the potential dividend payout. But what I can say is that our dividend policy is in place. There is no change in the dividend policy. And of course, depending on the results and the subject to the approval of the Board there's a potential to return back to dividend payouts at that time. But I think it is quite early to speculate whether we can restart or we can distribute dividends that time. I think capital intensity in Russia.

Yes, of course the capital intensity in Russia, we are planning to focus on actually a smart technology deployment plan, which involves about looking into Russia in more than 400 revenue generating units. And based on this, we have a clear plan to deploy the CapEx of course, in balance with our revenue growth and cost management practices as well. So you will be seeing actually slightly above CapEx sales ratios in Russia for this year and next year and later on normalizing.

Your next question comes from the line of Maria Sukhanova at BCS. Please go ahead, your line is open.

Yes, good afternoon. Just first off congrats with sequential improvement just saw a number of countries. I had a question about Pakistan. They were also headlines today about that your office is reportedly still there by tax authorities provided some tax dispute. Could you please elaborate on that a bit and tell us what those are there? And also if everyone is on Pakistan questions, you were also supposed to have a court hearing today right about the spectrum payments. So if there are any use in this regard, that will be helpful?

Thank you for that. I could barely hear you. So please, if I don't address the questions properly, just tell me. So both questions are related to the tax disputes when it comes to the tower sale there. Basically, the court order is happening as we speak. So I cannot comment on that, because I don't have real-time information. What I know from the team is that our position is very strong. And we are backed by our advisors there. That it has been perhaps a misunderstanding with some of the authorities there, and that the office will be de-seal actually today by itself. So that's the latest that I have from Pakistan. And that why I can tell you.

Sergi, the second question was around the spectrum where we've made the payments, and so far the payment last year and the payment this year, and the next court date for that was scheduled for today. So - the question was just, have we got any updates on the process around the engagement that we are having ourselves and they are [ph] now having with the regulation around that?

Unfortunately, I cannot tell you more than that. We made some payments on the protest as you know in the past. Our approach has always been to collaborate with the government and find amicable solutions. The court hearing today it's ongoing, so we don't have a written resolution. So it will be not written from my side to comment on - and we have the documents outside. And that's as much as I can say fortunately.

And your next question comes from Dilya Ibragimova at Citi. Please go ahead. Your line is open.

Quick question on Russia if I may, just on the tariffs that you appear to have launched earlier, I think around September time, it tariffs that which has no expiry. And I just wanted to get your thoughts what your expectations are - are you testing the market with this new non-expiry tariff or do you feel like this is a gap on the market? And you expect positive customer pick up on the back of this, and maybe if you could share how the pickup of this tariff has been so far?

Well, you're referring to generation tariffs that.

Yes.

We have recently launched in Russia, we have noticed that there is an incredible excitement and interest in terms of environments and wasting no resources in the Russian youth and younger generations. And we have actually optimized our offers directly addressing this particular market segments. We have got very good feedback from the customer base. And I think you know, this is a - consider this as a day off especially that with the customers as we get ready for our much more enriched offers later in this year.

Your next question comes from the line of [indiscernible]. Please go ahead. Your line is open.

Yes, first of all on Pakistan. Thank you very much for answering to Maria's question. But when do you think you will be able to update us on what's happening to your headquarter and what's happening to your license. Should we expect any press release from you today, or you think the resolution will take longer that's about Pakistan? And I got two quick questions on Russia. First one would be on your tariff increase, if you have increased tariffs this year already or if you plan to increase them by the year-end. And another question would be what’s the status of your retail network, how much more stores do you plan to close by the end of the year? Thank you.

So I'm happy to address the Pakistan one, we should have something else to tell you regarding our offices today for sure. I don't think that we're going to have a lot of clarity when it comes to the licenses because as you can imagine, it's a complex process. So we probably take a bit more than that. And I will also like to remind that the offices, it's not all the offices that we have in Islamabad we have - probably quite big operation there. It has been only two of our offices, ones that are perhaps more visible to the public, which is part also of these ongoing discussion so, that we should be able to provide an update today on this.

And with regard to our commercial product portfolio in Russia, you will see us getting more and more for more type of an approach with much more granularity for different market segments as we move into the later part of this. With regard to our retail network, we have close to 700 stores in Russia. And our intention is over the next three years to have a minimum of one-third of our sales through digital channels. And we are actually restructuring our organization to allow us to execute on these plans. As you know, our new B2C leader [indiscernible] will be coming back to the market with our new offer portfolio as well as strategy on the distribution side in Q4.

Very clear thank you very much. And we'll be looking forward for the update for Pakistan court. Thank you.

Your next is from the line of Alex Vengranovich, Renaissance Capital. Please go ahead. Your line is now open.

Yes, good afternoon, gentlemen a couple of questions from my side. First one, again on the Russia you are like main competitor, MTS has recently launched its own ecosystem of services in the single subscription for several products around the core connectivity and financial services. So I just wanted to get your view on that. Do feel that your future endeavors in driving additional digital solutions in Russia will be also built around the ecosystem with a single subscription like all the big competitors are doing? From the different angles like from banking, from the internet services providers, like a different sort of companies or you want to keep it kind of a separate just like trying to pitch each additional product as a kind of a core leader in its service category so just wanted to get your view on that first? Second one, about cleaning up toxic content revenue. I think I heard about that cleaning up for many, many years from all the companies and looks like it's a never ending process? So can you please maybe elaborate on that, whether you feel there is any sort of a light at the end of the tunnel, and whether this process might end at some point of time? And at some point of time, you will not expect this to put a drag on your top-line that's my second question. And the third question is, I'm trying to get an update on your plans regarding additional listings. So for example, we were previously discussing potential Moscow exchange listing or London Stock Exchange. If there is any sort of updates on that front will be also helpful? Thank you.

So I can take the first and second one and then Kaan will help us with the third one. Look, I'm a firm believer of open ecosystems, I don't think that we can at this point force people to be with us by locking them. I think that we will be reducing our potential when it comes to value creation. I think that it's up to the product to speak more than us when it comes to bundling so to answer directly your question. I feel that we have the potential to have separate business that can standalone when it comes to financial services [indiscernible] of course, when the synergies between them, and the core connectivity asset will leverage that. But it's not the intent to which solely to improve the ARPU or reduce churn that will be. I would say, leaving money on the table and not growing the pie. We want to grow the pie and we want to be sure that our customers and users benefit from services. And even if they are not customers of Beeline, that they feel that we are building things that resolve their problems, and they improve their day-to-day lives. And hopefully by them, attract to use other services. One of them can be connectivity, but I will leave that open its better than close. When it comes to cleaning up toxic revenues look, this is something that is close to our hearts and I'm very personal. I do believe that if we don't clean it immediately, all the efforts that we are doing on improving the quality and being cost percentage [ph] versus specifically, will be futile. So - one of our priorities to be sure that when we come here and talk to you next quarter, either are zero or close to zero, so you can see and appreciate the progress that we are making. Kaan - can you comment on the third one?

So yes, thank you very much. So we are out of the tunnel, no light of the tunnel, but we are out of the tunnel in that regard. And you will see, we'll see the results as we move on in terms of higher customer satisfaction for sure. So looking into the listings area, actually I would refer Nik to you. We are considering alternatives in this specific area. But we will let you know when we come to a conclusion, and that time has not come yet. Nik, anything you would like add?

I think that as Kaan said, this is something we've been given feedback from a lot of investors on. And obviously, we are looking into this and to make sure we do the best course of action over the long-term for all stakeholders. So as soon as we in a position to update you on this, we will.

We have a follow-up from the line of Ondrej…

So [Joseph] if I may add, we just heard from our team in Pakistan, it seems that the commissioner has issued an order to de-seal the offices in fact immediately. So this is coming from our teams in Pakistan. So that should be taking effect as I said immediately.

Thank you. And the next question comes from the line of Ondrej Cabejšek at UBS. Please go ahead. Your line is open. Ondrej Cabejšek: Thank you. Just one conceptual question for Kaan. So you've been in for a couple of quarters now. You came to a company that was very different from the one that you left last year. And as we go through this turnaround phase-by-phase, you're now confident that we can sort of go back to growth in the core markets pretty soon? So just curious on a high level, what sort of learnings from the Excel play book do you think, you can employ once we get back to the growth phase or is there anything specific that you're planning for when VEON gets back to the key target that you have, which is returning Russia to growth? Thank you.

Thank you very much for the question. Now, it's really critical that an operator reaches in the early days of 4G deployments reaches minimum of 20% customer penetration in the first 24 months, and moves fast to 30%, 40% and ultimately to 70% on this. And I think, when I look to the potential we have in all of our markets, I exactly see this potential. We need to be pushing first, high quality 4G penetration in our markets. But more importantly, once this is achieved, this is just the table stakes, it's very important for us to increase the relevance of our services. And this can only happen through deploying right digital services. That's why I see in VEON, my co-CEO and myself, our job is to work really hand-in-hand to make sure that we bring the right offers to the market. So that the relationship that we built the customers are not based on pure connectivity, but adding value to their real interest of using this connectivity. And that is a priority that we have. Now we are in early stages of declaring success with regard to the 4G penetration, but progressing very solidly. And as we do these are priorities of digital services, just like in my past experience demonstrated will bring higher ARPU, higher consumption of data and less churn. And we see the early signs of that and I'm very happy monitoring that.

Ladies and gentlemen, we are time up, and I would now hand you back over to Nik. Please go ahead.

I just would like to say thanks very much everyone for dialing into our presentation. We hope we covered most of your questions. If you do have any incremental questions, please feel free to reach out to me and you have my contact details. And we’ll be speaking to you again soon. Thank you very much. Have a good day.

Thank you.

Thank you.

That does conclude the conference for today. Thank you for participating. You may all disconnect.