Our Cornerstone, Russia
Total Page：16
File Type：pdf, Size：1020Kb
60 2019 FINANCIAL REVIEW CONTINUED OUR CORNERSTONE, RUSSIA Our largest market, Russia is the Cornerstone of our business, contributing 43% of Group EBITDA1 in 2019. Our operating business, Beeline, serves 55 million customers through a growing range of services, from traditional voice, data and broadband through to streamed media content (Beeline TV) and mobile financial services. A mature market with four main providers, Russia saw continued price competition in 2019 through the promotion of unlimited data tariff plans. Beeline experienced a challenging New services year in 2019 as aggressive competition Russia is a sophisticated, competitive Key economic indicators2 in the market exacerbated our market with a proven customer relative weakness in network and appetite for the growing range 146m 4.7% distribution, resulting in a year-on- of services Beeline can offer. This Population Inflation rate year decline in our revenues of 0.6% customer journey often starts with on an organic basis. our self-care application, MyBeeline, a personalised portal through which -0.1% 1.3% Mobile service revenues led this we can interact with our customers Population Real GDP decline, falling by 2.0% year-on- and configure a range of services growth growth year on an organic basis as ARPUs that match their needs based on softened in response to continued their preferences and other data price competition in unlimited data they share with us. By applying Market characteristics tariffs. This was compounded by algorithmic analysis to these data, a decline in our customer base we are demonstrating higher levels 159% 60% which partly reflected the restructuring of ARPU and customer retention Market 4G market of our store distribution network rates through the more tailored penetration share under our Beeline brand, service choices we are able to offer. completed in 2018. This refocused our distribution strategy around MyBeeline had 10.1 million monthly 76% 50% higher-value customers and resulted active users (MAUs) at the end of Prepaid share 4G smartphone in some customers leaving our 2019 and had helped to secure penetration network as a consequence. 2.2 million MAUs for BeelineTV, our online streaming service that 1 Weaker mobile service revenues configures movie and other video FY 2019 EBITDA contribution more than offset the progress we content to individual subscriber (Percentages) achieved in growing our fixed mobile profiles, and Beeline’s growing range convergence (FMC) products during of mobile financial services which 2019, which contributed to a 5.8% recorded 4.9 million MAUs at the increase in our broadband revenues end of 2019. and offset lower fixed line sales as we 43 pivot away from voice-only business. Although Russia’s total mobile Success here was enabled through penetration rate rivals many effective tariff structures and efficient developed markets (159% in 2019), sales strategies as well as the growth 4G smartphone penetration still of new revenue contributions in our accounts for only half of the B2B business. market’s subscriber base, suggesting a strong future for the Despite the dip in revenues, good growth of new, 4G-enabled services. Cornerstone Other cost control enabled Beeline to This is reflected in the headroom expand its organic EBITDA margin by we see for Beeline to expand its 4G 0.3% and deliver a similar amount of footprint, which stood at 38% of our organic EBITDA in 2019 as in the year total customer base at the end of prior on a pre-IFRS 16 basis. 2019, and to deliver new services 1. EBITDA excluding corporate costs to match the capabilities 4G offers. 2. Key economic indicators sourced from IMF database VEON Integrated Annual Report 2019 61 INTRODUCTION Challenges and opportunities Pricing The number of mobile customers Beeline’s operational challenges in Pricing, similarly, has been an and data customers in Russia 2019 stem from a combination of industry-wide issue, with strong decreased in 2019 year-on-year, company-specific issues and wider competition around unlimited data in each case driven by a reduction in VALUE CREATION industry problems. bundles. Beeline’s strategy here sales through alternative distribution has been to restore pricing power channels following the expansion of through an expanded customer Beeline monobrand stores. Network offer of digital applications and The network perception issues Beeline bundled products, including FMC has experienced reflect a degree of Mobile ARPU decreased by 2% services, which by the end of 2019 underinvestment in our networks in year-on-year to US$5.3, mainly were being taken by half of our driven by devaluation of the Russian recent years that we are now correcting. SUMMARY PERFORMANCE broadband customers (1.3 million ruble. In local currency terms, ARPU FMC subscribers in total). increased by 1%. Beeline increased network investment by 35% in 2019, and by Taken together, we are confident the end of Q4 2019 had 38% more that these measures to address 4G base stations than a year before. our network perception issues, This investment has boosted our 4G our distribution strategy and our coverage considerably, with 86% of approach to pricing will be successful GOVERNANCE CORPORATE our customers with access to our in reversing the revenue trends of 4G network at the end of 2019, up recent quarters. from 74% at the close of 2018. That is important for revenues, since based on 2019 numbers a Beeline Placing the customer at the centre Revenue 4G subscriber generates, on average, of each of these will be a vital aspect (RUB billion) close to three times the ARPU of a of our success. Here, the creation of a new role within Beeline – our 2G subscriber. INFORMATION FINANCIAL Chief Customer Experience Officer +6.2% – underscores our commitment to The impact of this active putting the customer at the top 291. 289.9 deployment strategy has since 23.0 2.9 table and engaging each through been evident in March 2020 products and services that will earn statistics from the Federal Service their loyalty. for Supervision of Communications, Information Technology and Mass Media Distribution, which show 2019 Performance INFORMATION ADDITIONAL Beeline moving from 3rd place, On a reported basis, total operating from 4th, in terms of total number revenue in Russia decreased in 2019 of base stations. by 4% year-on-year, mainly due to the devaluation of the Russian Distribution ruble. In local currency terms, total Distribution efficiency is an industry- operating revenue declined by 0.6% FY16 FY1 FY18 FY wide problem rather than a year-on-year compared to 2018. challenge for Beeline alone. The EBITDA Pre-IFRS 161 Russian market is overserved by 1 Adjusted EBITDA increased (RUB billion) retail stores, which places an undue in 2019 by 16% year-on-year to financial burden on its operators. US$1.96 billion, primarily due to the adoption of IFRS 16. The rise +0.2%1 Beeline has taken major strides was impacted by savings in structural towards addressing its own operating expenses, including savings 104.8 104.3 104. 10.0 distribution footprint, which in commercial costs, lower spectrum underwent a significant restructuring costs and the reversal of certain in 2018 when it consolidated retail provisions, which was partially offset stores formerly owned by Euroset by the devaluation of the Russian under the Beeline brand. It closed ruble. In local currency terms, around 200 of these stores in the our adjusted EBITDA increased second half of 2019 and plans to by 21% year-on-year and by 0.3% close a further 400 in 2020. on a pre-IFRS 16 basis. At the same time, Beeline has been deepening digital routes to market by developing its online sales channels, FY16 FY1 FY18 FY leveraging the growing presence of our MyBeeline self-care application 1. Adjusted EBITDA is a non-IFRS financial within our customer base to drive measure. See Glossary on page 111 for 1. Growth excludes IFRS 16 impact engagement and customer retention. a full definition. in FY 2019 Integrated Annual Report 2019 VEON.