Creating Value in Russia
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Analyst & Investor Conference © VimpelCom Ltd. 2014 Creating Value in Russia Mikhail Slobodin Group Executive Vice President and Head of Russia London, January 28-29, 2014 Analyst & Investor Conference © VimpelCom Ltd. 2014 Strong free cash flow generation • Good quality mobile network • Strong mobile data revenue growth • High EBITDA margin • Robust cash flow generation • Customer focus < 2 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Mobile data to grow in Russia with 24% CAGR Market dynamics* (Revenues in RUB billion) CAGR, % 1.520 1.562 1.445 1.478 2013-2016 Total 2.6% 756 760 756 776 Mobile core1 -0.8% 217 213 2 222 Fixed voice -2.5% 229 253 177 217 133 Mobile data3 24% 305 318 330 340 Fixed data4 3.6% 2013 2014 2015 2016 Telecom market expected to grow with 2.6% CAGR 2013 - 2016, driven by mobile data * Source: Company estimates 1 Voice revenue + messaging + roaming 2 B2B voice + B2C voice 3 Mobile Data + Other VAS + Content &M-Commerce + M2M < 3 > 4 B2B non-voice + RBB + Pay TV Analyst & Investor Conference © VimpelCom Ltd. 2014 Russian telecom market Mobile market share (including Rostelecom)2 (Service revenue), % Mobile1 5% • ~87% prepaid market 4% VimpelCom 7% 26% • ~170% penetration MTS Megafon 3 major players (MTS, Megafon and VimpelCom) • Tele 2 28% with comparable market shares Rostelecom 29% • ARPU ~USD 10 Other 1 Fixed Fixed broadband market share2 • Rostelecom is still dominant market leader (on subs), % Voice traffic declining due to fixed-to-mobile • 10% VimpelCom substitution 31% Rostelecom • Residential broadband penetration ~54% and Er-telecom growing by ~2% per quarter 39% 9% MTS 11% Other 1 Source: Informa 2 Source : official reporting of B3, T2, Rostelecom, others - BU Russia estimates < 4 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Regulatory issues 2014 • MNP effective from December 2013 ► Moderate impact expected • Content regulation ► Regulatory requirement to get customer approval for any VAS request • Tech neutrality – 1800 band available for LTE deployment ► In the long-run tech neutrality is positive for all players as data growth will require more spectrum. • Introduction of legal requirement to allow MVNOs ► We expect low impact in 2014 < 5 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Stable EBITDA margin and strong cash flows Total revenues EBITDA & EBITDA margin Cash flow1 & (RUB billion) (RUB billion) cash flow margin (RUB billion) 285.4 292.9 123.3 266.1 120.5 69.8 67.3 106.7 46.9 42.2% 42.1% 24.5% 23.0% 40.1% 17.6% FY11 FY12 LTM 3Q13 FY11 FY12 LTM 3Q13 FY11 FY12 LTM 3Q13 • Growing revenues due to strong mobile data revenue growth • EBITDA margin and cash flows stabilized as savings from Operational Excellence program re-invested in data network and expansion of owned mono-brand stores 1 Cash flow defined as EBITDA - CAPEX < 6 > Analyst & Investor Conference © VimpelCom Ltd. 2014 What have we delivered since last A&I Conference? 1. Substantially improved mobile data network: at par with peers in key regions 2. Improved distribution: tripled number of owned mono-brand stores 3. New management appointed to implement phase 2 of the transformation 4. Rolled out LTE in Moscow Oblast and 6 other regions 5. Grew penetration of bundles in our subscriber base 6. Continued Operational Excellence savings, supporting EBITDA margin 7. Stable cash flow, despite significant CAPEX < 7 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Transformation Phase 2 : Customer focus 2012/2013 2014/2016 Phase 1 Phase 2 • Fixing the basics • Build customer centric organization • Reaching par in mobile data • Focus on Customer Excellence network quality in key regions • Cultural transformation • Roll-out owned mono-brand stores • Further improvements in mobile • Operational Excellence 1.0 data network quality • Operational Excellence 2.0 < 8 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Strategic initiatives pursued to achieve group objectives Profitable Growth Customer Increase Operational Excellence Net Cash Excellence Capital Efficiency < 9 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational NPS as primary tool for improvements and measurement Net Cash Excellence Excellence Capital Efficiency Company wide NPS Market research department, • Strategic tool used for benchmarking VimpelCom • KPI for management performance • Customer loyalty and satisfaction NPS customer touch-point • Operational tool Customer • Measure NPS on each level experience, VimpelCom • Actionable improvements CUSTOMER WEB SALES OFFERING CARE Call center Self-care Mono-brand Outbound social media stores targeted marketing < 10 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational Creating a superior customer experience Net Cash Excellence Excellence Capital Efficiency Closed the gap in 3G Tripled number of coverage and doubled mono-brand stores in network speed 2013 Improve customer perception Launched initiatives Launched employee to address customer engagement campaign: pain-points “One day with the Client” < 11 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational Network quality at par with peers Net Cash Excellence Excellence Capital Efficiency Russia Moscow +43% +30 p.p. +188% +34 p.p. 78% 73% 96% 99% 92% 63% 82% 48% 48% 65% 26.7 21.7 23.2 4.9 18.7 19.3 3.8 2.8 1.7 2.0 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 1Q13 2Q13 3Q13 4Q13 HSPA+ coverage 3G base stations (K units) < 12 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational Owned mono-brand stores tripled Net Cash Excellence Excellence Increased distribution via Owned mono-brand stores mono-brand stores Capital Efficiency 1,240 . Owned 21% mono-brand . Euroset 38% 39% 47% 400 4Q12 . Mono-brand 4Q13 21% franchise Other retailers 11% . 13% 10% Provide service Stimulate data through Diversify Enhance marketing to subscribers access to devices distribution communication Decrease Key facilitator Decrease Increase churn to sell data churn and awareness increase and loyalty active sales < 13 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational New value proposition supported by clear communication Net Cash Excellence Excellence Capital Efficiency • New value proposition • New slogan for the • New campaign to Beeline brand Newimprove campaign customer to improveperception customer • Live Journal CEO Beeline perception (popular blog in Russia) < 14 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Customer Excellence Profitable Growth Customer Increase Operational Simplify pricing Net Cash Excellence Excellence • Continuously shrink tariff portfolio to simplify customer choices Capital Efficiency ► Currently we have 4 bundle price plans and 1 on-net offering, plus special offerings for tablets, dongles ► Our target is to sufficiently reduce number of different options, while still addressing specific needs For smartphones For feature phones Simplified tariff portfolio reduces complexity For tablets For USB-modems < 15 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Profitable Growth Profitable Growth Customer Increase Operational Accelerated LTE network roll out Net Cash Excellence Excellence Expect to cover half of population by end of 2015 Capital Efficiency LTE network roll out plan Today Phase I Phase II LTE commercially LTE to be launched in 19 Launch of LTE in more launched in Moscow regions in 1H14 (Phase 1), regions in 2H14 (60 regions, and 6 license regions including St. Petersburg, Phase 2) if supported by Moscow Oblast, market demand Ekaterinburg, N. Novgorod, Rostov-na-Donu, etc. Ready to adjust LTE network roll out based on market demand < 16 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Profitable Growth Profitable Growth Customer Increase Operational Driving mobile data Net Cash Excellence Excellence Capital Efficiency • Focus on small and medium screens • Increase smartphone penetration and usage • Improved network quality and LTE launch in Moscow and 6 regions • Increased bundled price plans twofold Data revenue & traffic growth Data revenue Traffic split (RUB & Gb billion) 30 14% 24 22% 27% 18 140 63% 70% 74% 87 86% 47 78% 73% 37% 30% 26% FY11 FY12 LTM 3Q13 FY11 FY12 LTM 3Q13 FY11 FY12 LTM 3Q13 . Data revenue . Data traffic . Small Screen . Large Screen < 17 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Operational Excellence 2.0 Profitable Growth Customer Increase Operational Excellence Net Cash Excellence • Improved decision making processes and performance management Capital Efficiency • Effective personnel management and development of organizational capabilities • Network sharing, network maintenance outsourcing • Supply chain optimization • Shared service center for Finance, HR and Procurement • Improve efficiency while improving customer service < 18 > Analyst & Investor Conference © VimpelCom Ltd. 2014 Capital Efficiency Profitable Growth Customer Increase Operational Excellence Net Cash Excellence • Growing level of CAPEX requires improvements in investment allocation & Capital Efficiency prioritization processes ► Increased level of accountability ► Improvement of quality of investment cases and decisions taken ► Greater focus on project management ► Focus on monitoring and post investment reviews ► Tighter control • Optimization of investment portfolio • Thorough expertise