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VEON Ltd. (NASDAQ:VEON)
Q1 2020 Earnings Call
May 07, 2020, 3:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the VEON first-quarter 2020 results webcast and conference. [Operator instructions] As a reminder, today's conference is being recorded. Speakers, you may begin.

Nik Kershaw -- Group Head of Investor Relations

Good morning, ladies and gentlemen, and welcome to VEON's first-quarter results presentation. It's Nik Kershaw here, VEON's group head of investor relations. I'm pleased to be joined on the line today with Kaan and Sergi, our group co-CEOs; as well as the group's new CFO, Serkan Okandan, who I'm very pleased to introduce to you today, and he started here on the first of this month. So welcome, Serkan.

Today's presentation will begin with an overview of our first-quarter results from Serkan, followed by an operational review from Kaan and Sergi, which is our co-chief executive officers [Inaudible]. Then hand it over to Serkan to start with the outlook and a bit of update on the months that have gone. And as ever, we will ensure that they tend to answer your questions after we save at the end of the presentation. Before getting started, I would like to remind everyone, we may make some forward-looking statements [Inaudible] which involves risks and uncertainties.

These statements relate in part to the company's anticipated performance and operational guidance for 2020, particularly in light of the COVID-19 pandemic, future market developments and trends, operational and network development and investment, and the company's ability to realize its targets and strategic investments [Inaudible] in 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 earnings presentation, each of which includes reconciliations to non-IFRS submitted since today and can be downloaded from our website. And with that, let me hand over to Serkan.

Serkan Okandan -- Chief Financial Officer

Thanks, Nik, and good morning to all participants. Thank you for joining us for this presentation of our results. Q1 has been an exceptional time for everyone. Although our lives have been touched by the current pandemic, and many have seen their lifestyles change dramatically as lockdowns have taken hold.

I hope that you, and your loved ones, are all in good hands. Precisely how COVID-19 is impacting our services is something Kaan And Sergi will turn their attention to later in the presentation. So let me go straight to our first-quarter numbers, which are summarized on Slide 5. At the group level, our revenue for the quarter in local currency terms was broadly flat year over year, up 0.3% at around USD 2.1 billion.

Excluding the impact of the Pakistan tax regime change in April 2019, year-over-year growth in revenue is plus 2.7% in local currency terms. On a reported basis, the year-over-year change in revenue was minus 1.3%, while the negative impact of currency movements amounting to USD 34 million are accounted for. Once again, data drove our revenues, rising 18.3% year over year in local-currency terms or 16.6% on a reported-currency basis to USD 662 million. Our continued focus on 4G with the associated growth in data revenues is a key theme for our group.

EBITDA declined by 1.8% in local-currency terms to USD 920 million, which excludes the one-off vendor payment of USD 350 million, which was recorded in Q1 last year. On a reported basis, this equates to a 29.1% year-over-year decline with this one-off payment included in last year's results. The impact of this payment is also evident in our EBITDA margin, which boosted our prior-year margin considerably, whereas in local-currency terms, and excluding this payment, the year-over-year decline in EBITDA margin was moderated by only one percentage point. Our EBITDA was also negatively impacted by the tax regime changes in Pakistan in April 2019, which we have spoken about at length on our recent earnings calls.

Excluding the impact of this change from last year, group EBITDA would have risen by plus 1% year over year this quarter. Operational CAPEX, which we define as excluding license payments and capitalized leases, amounted to USD 368 million in the quarter, corresponding to our last 12 months CAPEX-to-sales ratio of 19.5%, which is 3.3 percentage points higher than Q1 last year as we stepped up investment in our 4G networks, particularly in Pakistan, Kazakhstan, and Bangladesh. Finally, on this slide, at 1.8 times, our net debt-to-EBITDA ratio was marginally lower than Q1 '19's 1.9 times. This was positively impacted by the weakness in the ruble toward quarter end, which resulted in lower consolidated group debt levels in dollar terms.

Moving to Slide 6 to our key financial highlights. You can see the impact of Pakistan's tax regime changes on our revenue performance here, without which, we would have recorded a 2.7% increase in group revenues in local-currency terms. Our service costs were 3.5% higher year over year, principally reflecting higher network costs in Russia. We continue to make progress in reducing our corporate costs, which we decreased by a further 8% compared with Q1 last year.

The full-year '19 one-off vendor payment is classified hereunder other operating income, the EBITDA impact of which we have illustrated as EBITDA adjusted values. Net profit for the quarter was USD 108 million. The year-over-year decline in our net profit is again substantially attributed to the one-off vendor payment last year. Although higher service costs supplied with a small increase in financial costs also contributed to this fall.

Finally, the large decrease in equity-free cash flow partly reflects the receipt of half of the one-off vendor payment in Q1 last year amounting to USD 175 million. Recall the second half was paid in Q2 '19, and so we will have the same comparison effect in equity-free cash flow, but not in EBITDA when we report our next quarter. Moving to Slide 7. Turning to country contributions to revenue and EBITDA during the quarter.

Throughout our growth engine markets, Ukraine and Kazakhstan once again made solid contributions to our revenue performance. So true with Pakistan, but this is distorted on a reported basis by the tax regime changes in Q1 '19. Offsetting this was Russia, which is the main focus for the group to turn around. The net effect was a broadly flat revenue performance before currency effects of USD 34 million, which, when accounted for, resulted in a 1.3% decline in reported revenue.

The EBITDA picture is similar. And here, we break out the one-off vendor payment in the second column to illustrate this impact. Moving to Slide 8 to our capital structure. Looking now at our capital structure, we have continued to manage our borrowings and credit facilities actively to ensure that we have the capital and liquidity strength to navigate the group successfully during this volatile period.

This includes active hedging of our U.S. dollar liabilities versus our ruble revenues. We have continued to optimize our funding mix in a manner that reflects the functional currencies of our operation, which has resulted in our ruble borrowings rising over the last 18 months as we restructure our debt out of U.S. dollars toward rubles, and to a lesser extent, toward Pakistani rupee.

Weakness in the ruble during the first quarter of 2020 reduced the proportion of our global borrowings to 42% of total group debt, compared to 47% at the end of last year. When translated into dollar terms, this also resulted in a lower level of absolute debt in U.S. dollars. The group currently has total cash and undrawn facilities available amounting to USD 2.7 billion, a considerable buffer which we believe is more than sufficient to manage the business through this challenging time.

Similarly, we continue to manage the tenor of our borrowing using opportunities in the debt market to refinance near debt maturities and to lock in longer-dated maturities at lower coupon rates. As a result of these efforts, a 600 bps year-over-year fall in our average cost of debt has been achieved. It is also worth mentioning that during the quarter, we tapped our 2021 -- sorry, 2025 dollar bond for a further USD 300 million and also extended both maturities and size of the group's bilateral ruble facilities. Moving to Slide 9.

We have managed to keep group leverage broadly flat over the past three months despite the sharp fall in the value of the ruble in Q1. The matching of our ruble debt to our ruble EBITDA is the key factor here. Group leverage stood at 1.8 times EBITDA at the close of the quarter versus 1.9 times at the end of 2019, within the internal guideline of two times we have set for ourselves over the past several quarters. In summary, I would like to reiterate that despite both the uncertain impact and duration of the COVID-19 pandemic, the group's focus in recent years on strengthening its balance sheet and improving liquidity leave us comfortable that we have the financial strength to weather this period.

This is the end of my presentation. And let me now pass the call over to Kaan and Sergi to discuss the operational performance of the group during this first quarter and outline the impact of COVID-19 pandemic on our business. Kaan?

Kaan Terzioglu -- Co-Chief Executive Officer

Serkan, thank you very much. Welcome to the team. And good morning, everyone. For the vast majority of you listening to this call from your homes today, you won't need me to remind you that this current pandemic has had a profound impact on the way we live, our communities, livelihoods, and individual lifestyles.

COVID-19 itself and its indirect impact through oil prices and foreign currency devaluations, and most importantly, lockdowns represent short, midterm, and long-term impacts of our industry and for our company. COVID itself has achieved no other CEO, CIO, CTO, could achieve in terms of digitalization of our work. It is obvious how the current lockdowns are transforming the role of the telecommunications industry in the daily lives of many of us and businesses. This is only the beginning.

Telecom industry will be integral to the value chains of all industries. On the other side, no one is immune to the short-term impacts of currency movements, restrictions to mobility of individuals and pressure of income, and spending power of businesses and consumers. It will, therefore, come as little surprise that we have seen considerable impact on the operational performance of our services as lockdowns hold across 10 operating markets toward the latter part of Q1 and the month of April. The dominant theme here is one of divergence.

Every market has its own dynamics and is impacted in its unique way, but it is also evident, is a clear pattern of digital adoption, which we believe will be a long-lasting legacy of COVID-19 era. The key trends we are experiencing are outlined here in this slide results from a number of broader trends across our industries. These trends include higher usage patterns in voice and data and faster depletion of packages; a migration toward fixed networks while population remains locked down; a sharp drop in roaming revenues as migrant workforce driven gross adds, while cross-border travel restrictions remain in place; disruption in our retail channels resulting from store closures, curfews, including lower device sales and pop-ups for pay-as-you-go products; disruption to seasonal worker migration, daily job availability patterns, which is, in turn, resulting in lower remittances and lower incomes; migration of customers away from urban centers toward suburbs and rural areas, resulting in a shift in voice and data load across our networks impacted by different coverage situations; disruption to daily wage earners and lack of credit card and mobile banking platforms in some of cash-based economies. In short term, net financial impact of these trends I have outlined is, of course, negative and is likely to remain so while current lockdowns persist.

For our business, this is likely to be most apparent during Q2 as a number of our markets move deeper into the pandemic. More on this will be covered by Serkan addressing the guidance at the end of this presentation. As we look to the -- next slide, please. As we look to mitigate the impact of COVID-19 on our business, we have to be focused on extending the payment terms with our key vendors, optimizing costs, and CAPEX as appropriate across our operations, focusing on optimizing our balance sheet structure in the coming quarters.

It is important that we do not lose focus on our planned operational improvements throughout the balance of the year, which will stand with us in the medium term. This is not a crisis that we can afford to waste. There are some clear long-term opportunities for us as digital adoption becomes a necessity rather than a lifestyle luxury. We have already responded to those through new products such as BeeFree in Russia, which provides home workers with a suite of business resources in recognition that business through home is likely to be a significant channel of opportunity for us going forward.

We believe the current environment provides telecom operators with a real opportunity to bridge the financial divide, which is prevalent across a number of our markets. And we will remain alert to potential opportunities that offer us the ability to expand our service capabilities or provide us with additional scale in our existing operations. Sergi will be covering more this topic later. Turning deep dive next slide into our performance, let me start with the progress we have made in Russia.

We have appointed a new CEO to lead Beeline Russia, Alexander Torbakhov, who started his role at the beginning of April. I am very excited to have Alexander join our team, and I'm confident that he has the driving passion to execute the necessary improvements in our Russian business. We have continued our accelerated network rollout with a one-third increase in the number of base stations in Q1. This moved Beeline already to third position from fourth in terms of total number of base stations in the month of March.

We continue to optimize our distribution footprint, closing 300 more stores in addition to the 200 we closed last year. That leaves us well on track to achieve 600 closures we have earmarked, while all the time used in customer engagement through online and software channels. We have made further progress in enhancing Beeline's customer proposition through the expansion of our digital services in areas we believe current environment -- we believe, such as mobile financial services, societal impact services, on-demand contact, including live digital concerts. And most importantly, we put the customer at the top table in everything we do.

Our first priority is to improve the entire customer experience and to drive levels of customer satisfaction and retention upwards. Turning to Russia's operational performance. Next slide, on 13, you will see some encouraging early evidence that our focus on network improvement is driving 4G and digital adoption rates higher. As these metrics in the right-hand box illustrate, there is a huge upside in front of us.

This is important as we pointed out during our Q4 presentation in February, a Beeline 4G subscriber generates an ARPU close to three times that of a 2G subscriber. Underpinning this is a substantial step-up in investment in Beeline's 4G network, which is evident in record deployment of 4G network. These investments brought our CAPEX-to-sales ratio to just under 25% in Q1 as we make the necessary investments to eliminate our performance gaps and restore confidence with our customers. That said, Russia's financial performance will still continue to the lag of that the broader group.

Revenue for the quarter fell 2.6% year on year, with mobile service revenues falling by 4.4% as a consequence of a drop of 1.4% in customer base and 2.9% in ARPU. Offsetting this is a very good performance of our fixed-line business, which saw services revenue rise 7.2% during the quarter. Strong growth in our fixed-mobile convergence customer base, which expanded by 21.3% to over 1.4 million. Beeline is the market leader in FTTB subscriber growth.

Data revenue growth was solid again, up 8.5% year on year, and overall data volumes grew considerably by over 60% as we increased our 4G coverage by six percentage points to 86% of the population and 99.4% in Moscow. Another growth area is B2B. An increased working from home culture benefited our B2B mobile service revenues, which rose 6.6% year on year, helped by Beeline's tailored solution for SMEs like BeeFree, which I mentioned earlier, which takes as a workplace-as-a-service approach to provide IT, communications and HR solutions to employees' desks regardless of their location. Store closures, as a result of lockdown later in the quarter, had a direct impact on our equipment sales, which are 1.7% lower during the quarter, as well as our service revenues given their point-of-sale growth driving SIM sales and top-ups.

As I said during Q4 results presentation back in February, reversing Russia's revenue trends is the key priority for our leadership in 2020. Unlimited data bundles across the market is neither fitting to the realities of COVID-19 nor helping the industry as a whole to grow its value generation potential. However, our success will be ultimately defined by the perception of our customers. And here we will continue to direct our efforts to ensure that Beeline's value proposition is second to none, both in terms of quality of networks and impact of our distribution channels and the range of services we offer.

This will remain the core focus of Alexander and his team in the months ahead as we work to return Beeline to growth. Next slide is about Kazakhstan. This is a market that demonstrates how focused investment in 4G infrastructure can lead growth higher when bundled with a strong customer proposition built around digital services. Our business in Kazakhstan saw revenues growth by almost 20% in Q1, and mobile data revenues registered a growth close to 47%.

Kazakhstan is another market where we are pursuing a strategy of accelerated 4G investments. Our CAPEX in that market increased two and a half fold during the quarter compared to Q1 last year, allowing us to increase our 4G coverage and grow our 4G subscriber base by over 40%. We also signed a spectrum sharing agreement with Kcell relating to the use of 5 megahertz spectrum during the quarter, which will increase our 4G coverage even further. Next slide, looking into Beeline Kazakhstan's performance in numbers.

Year-on-year growth in both revenue and EBITDA of close to 18%; a steady upward trajectory in data revenues over the past quarters resulting in almost 47% increase year on year; an expansion of our 4G footprint, which covers almost 70% of the Kazakh population; and a 4G customer base, which grew 40% year over year, become 44% of our overall mobile subscribers. On the right-hand side, you can see a small decline in our overall subscriber base as a result of introduction of IMEI registration, which means that we are losing lower multi-value SIM users. We believe the introduction of Djezzy will be a key differentiator for us in the market. Our confidence in the 4G value proposition in Kazakhstan gave rise to Djezzy, a digital-only service where even SIM cards are ordered and registered and provisioned online.

In March, we have seen a significant uptick in our customers' enthusiasm to try it out, and it will be a testament for the value we can deliver via digital services on 4G network. What is particularly important here is that the rate of data revenue growth matched almost precisely the growth in our customer data use during the quarter. This demonstrates our ability to translate consumption directly into revenues when we tailor our services effectively to customer needs. In Kazakhstan, I'm happy to say that not just raw data, but growing range of mobile financial services, on-demand TV content, and interactive self-care applications is on a healthy growth trajectory as well.

Let me now hand over to Sergi to update on these two other high-growth markets for 4G services, Pakistan, and Ukraine. Sergi?

Sergi Herrero -- Chief Operating Officer

Thank you, Kaan, and good morning, everyone. I'm turning, friends, to our business in Pakistan. It was an eventful first quarter for us in Pakistan. As you know, we announced the arrival of Erwan Gelebart as our new CEO for JazzCash.

Erwan brings more than 20 years of experience in financial services and a successful track record of building and scaling digital payments across Africa and Asia. We all look forward to welcoming him when he joins JazzCash later this month. We also started a new partnership with Mastercard, announced this Tuesday, which will enable merchants to accept digital payments for customers, digitize their supply chain, and move to cashless operations. The success of this and other digital services have been enabled through the continued investment in our 4G network, which doubled its user base during the past 12 months and a 17% growth we recorded in our data revenues.

As in all of our markets, our success is ultimately defined by the strength of our customer value proposition. A good example of this approach is a huge adoption rate we've enjoyed for our self-care app, Jazz World, which has grown tenfold in the 12 past months and passed the 5 million mark. Jazz World has become the entry point to discover personalized offers, loyalty programs, and the primary customer support channel. The digital focus aims to connect with Pakistan's young aspirational demographic and their strong demand for digital and mobile-centric products.

Moving to Slide 17. Before diving into Jazz's performance, it's important to point out the distortion that changes in the tax regime had in our reported revenues. Reported revenue growth shown here of minus 2.6% masks a growth rate, which, without the tax change, would have been of 12.8%. Similarly, EBITDA would have grown by 4.2% excluding this impact, and by 7.7% without the reclassification of the payment we made in respect of our ex Warid spectrum license, the amortization of which has now been brought above the line into EBITDA.

This strong performance was led by the continued growth of our data revenues, up 17% year over year, and helped by further expansion of our 4G network and subscriber base, which at 14% growth is over twice the growth rate we saw in our total subscriber base. The JazzCash reserves, these have a particular mention, given the substantial growth it recorded. It's up 42% year over year, bringing the total number of mobile wallets up to 7.8 million, which in turn, drove more than 230 million transactions. All of this has been possible through expansion of our customer proposition.

During Q1, we launched new remittance services for freelancers. We expanded our USSD based offerings, and we also enable bank cards to be linked to JazzCash wallets as a funding mechanism. Moving now to Ukraine, Slide 18. We continue to invest heavily in 4G network deployment in Q1, cementing our market leadership, both on coverage and speed.

This enables us to grow our 4G customer base considerably, up 87% year over year, and achieve close to 30% penetration of our total subscribers with 4G services. Also, we continued to experience a growing demand for our fixed-line business, which experienced double-digit growth as we expanded our FTTB and FMC subscriber base. We saw similar growth rates happening in our mobile services revenues as we invest in our 4G network and grow our ecosystem of local digital services. Taken together, this is a strong performance for our long-term growth, given 4G adoption still remains at relatively early stage.

Moving to Slide 19. We are now focusing into the numbers. Kyivstar revenues grew by 16% during the quarter, which along with lower service and commercial costs, enable a 25% growth in EBITDA. Data revenues were once again strong, growing by 22%, helped by the near doubling of our 4G subscribers compared to Q1 last year.

Similarly strong was Kyivstar ability to increase 4G smartphone penetration among its subscriber base, which at 50%, it's almost twice of the broader market penetration rate at the start of the quarter. This progress is reflected in the adoption rates of our digital services, which have accelerated in recent weeks. Our newly launched converged digital TV service surpassed 200,000 active user mark at the end of the quarter, and Kyivstar self-care app is seeing its user base rise by 55% in March. If we move to Slide 20.

I would like to end with a summary of our key data trends across our other markets, which is summarized in this slide. The key things here are substantially similar to our other markets: purposeful investment in our 4G network, enabling strong double-digit growth in data revenues and ARPU expansion as we strengthen our customer proposition through media digital services. For example, in Uzbekistan, Unitel recorded a more than a doubling in integrated traffic and close to a 27% rise in data revenues. In Algeria, the introduction of new tariff range in the second half of 2019 saw positive results during Q1, with Djezzy's ARPU growing for a second quarter in a row by 8%.

And in Bangladesh, the introduction of simplified tariffs alongside further investment in its 4G network, enabled Banglalink to post close to 43% growth in data usage during the quarter and increased its data revenues by almost one-fifth compared to Q1 last year. With that, let me hand it back to Serkan to discuss our outlook and guidance.

Serkan Okandan -- Chief Financial Officer

Thank you, Sergi. Let me now turn to the outlook for the remainder of the financial year. The first four months of 2020 have been an unprecedented period for the global economy and global business community. No one is immune to the dramatic reorganization of social and economic activity that has taken place in such a short period of time.

And although our industry may be a potential beneficiary of many of these new patterns of behavior in the long term, it is too early to predict the longer-term operational and financial impact of these once societies return to a normality. For now, as a consequence of the uncertainty surrounding both the duration and eventual economic impact of the lockdowns, we believe it is no longer prudent to provide financial guidance for the year 2020. However, we note that in the month of April, we saw a high single-digit year-over-year decline in our revenues and a mid-teens decline in EBITDA, both in local currency terms as the group experienced a significant impact from the continued disruption of our retail networks and product revenues. Despite our immediate business challenges, we remain committed to executing various operational improvements we have under way across our markets, which we expect will support the group's operating performance over the medium term.

This includes moving ahead with the expansion and upgrade our 4G networks, which provide us with clear long-term growth opportunities as we expand and launch our growing range of local digital services. With that, let me hand the floor over to your questions. Thanks, and stay healthy.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Ondrej Cabejsek. Please go ahead. Your line is now open.

Ondrej Cabejsek -- Analyst

Hi. Thank you for the detailed presentation and the opportunity. Ondrej from UBS. I have a couple of questions, of course, but I'm going to start with one, the most obvious one, I guess.

The COVID impacts that you mentioned in April. If you could perhaps provide a bit more color in terms of where the biggest impacts are coming from. If you could maybe speak about Russia a bit versus the more emerging markets in Asia and Africa. Also, if you have any updates from governments on when societies and economies can be opened up again, whether there have been any regulatory impacts in your business at this time.

I know, for example, in Ukraine, I believe there have been some price increases, for example, have been disallowed. So if you could provide a bit more color on the breakdown of these impacts and any details would be very helpful.

Kaan Terzioglu -- Co-Chief Executive Officer

Sure. Let me try to answer that question because I think it's really important to understand the impact of specifically lockdowns, because April shows us that it's not the COVID-19, but the execution of the lockdowns actually to the extreme measures like curfew, which is having impacts because of a couple of reasons. One, consumer behavior changes significantly. First of all, the change happens from mobile networks to fixed networks.

So in markets where we do have a fixed franchise like in Russia, the impact of this leakage of revenues will be, of course, less. The second issue, consumers move from urban centers literally to the rural areas and suburbs. Clearly, we are covering overall 62% of the population in our 10 markets. For example, Moscow has 99.4% coverage.

However, entire Russia has 68% coverage when it comes to LTE. So movement from urban areas to rural areas, actually, is another leakage of revenues. Clearly, people not being able to visit our stores do the top-ups in markets where we have a higher percentage of pay-as-you-go products, is also another sort of revenue leakage. Yes, consumption increases, but depletion of packages also gets faster, which means that customers need to top-up.

And inability to top-up through digital means because lack of credit card penetration, mobile banking platforms or simply not being able to go to a terminal is actually another leakage point in impact. Now in markets like Russia, where financial services platforms are much more robust than in places compared to places like Bangladesh, this is an impact which is felt less. The other issue is international travel restrictions. We have two important elements here.

One is roaming. And this basically impacts places like Georgia more where the tourism is 20% of the GDP. But it impacts also Russia because there is the migrant workforce moving from Uzbekistan, Kyrgyzstan, Kazakhstan, Armenia, on a consistent basis to Russia, almost 4 million, 5 million migrant workers each year, creating a seasonal business. Now we see also this business disappearing.

And as this business disappears, remittances disappear, putting pressure on consumer spending. And also places like these, we have daily wage earners like Bangladesh and Pakistan, again another pressure on consumer spending habits. So if you look to all these categories of impacts, different countries have different levels of actually getting impact. I would rank Russia on the lower side of these impacts, given the fact that we have a balanced fixed-mobile infrastructure, we have a growing B2B business.

We have a growing FTTH business. We have a better bankable society with more credit card penetration. All these factors put actually Russia on the low side and countries like Georgia and Bangladesh on the higher side of the impact, averaging, as I mentioned, a high single-digit impact on the revenue leakage on the top line. I hope it answers your question.

Sergi Herrero -- Chief Operating Officer

If I may add to that. As Kaan mentioned, there was definitely a negative impact in some of our operations. But I would like also to highlight the positive impact that we saw, especially in Russia because of the COVID. So all our digital products that were at the beginning of the year, initial bets, we saw tremendous growth in some of these assets.

To give you just an example, specifically in Russia, we piloted this live concept of concert. And we had almost two concerts already. The first one, we saw 200,000 customers viewing it. And the customer's range was fairly young, between 32 and 38 years old.

The second one, we had already 150,000 people registered and fairly younger to 24 to 30. So we are seeing that our proposition, when it comes to digital, is fitting the expectations and needs of this young population that focus on quality of service, but also on quality of content. If we move into more emerging economies, JazzCash is a good example there. We saw, as we mentioned, a huge increase when it comes to digital wallet usage, but not only on P2P, but also on the usage of these services to pay taxes and to pay another type of merchants.

Finally, you refer to government. I think that our relationship with governments is quite close, and we continue to talk with all of them to ensure that we can be of support in this type of crisis and that we also share what the reality is in our operations. And the last one is Bangladesh. We mentioned last quarter the launch of Toffee.

We are seeing a huge growth when it comes to Toffee users. We surpassed the 500,000 user mark. And with the same type of pattern, more time spent in our platform and a very young demographic asking for these types of services.

Ondrej Cabejsek -- Analyst

That is a very helpful color. Just one follow-up on this before I move to my second question, please. Can you perhaps provide more concrete numbers for Russia in particular, well what impacts you're seeing? Or you're just going to stick to the group level numbers?

Kaan Terzioglu -- Co-Chief Executive Officer

I think if you stick to the group level numbers at this stage, it will be better because you can imagine high single teen for the group, lower end, higher end, you can give yourself a range on that.

Ondrej Cabejsek -- Analyst

OK. OK. Understood. And the second question, please, what I had is relating to your CAPEX plans for the year because clearly, you went into 2020 with some investment targets, I guess, especially for Russia.

So if you could please just update us on where you are on those, whether you expect any sort of disruptions in executing on these targets perhaps because of supply chain disruptions or mobility restrictions, etc., and how that potentially impacts your performance currently as well.

Kaan Terzioglu -- Co-Chief Executive Officer

Sure. We are focused on making sure that we have a higher reach on the 4G customer base, and we increase the quality of services across the board, but specifically in Russia as well. And we are continuing to execute on that. I think it's very important that we keep our smart and purposeful investments in place despite the fluctuations we see in the markets.

Having said that, COVID itself had a couple of impacts also on the supply chain. We see six to eight weeks of delays in shipment of equipment, but more importantly, due to curfews, we also see delays in the ability of us deploying some networks. This will naturally result in shifting of some of our CAPEX to Q1 of next year and Q2 of next year as we try to deploy the investments we have in mind. But our focus on investing in the right areas to make sure that we provide the right quality of service to the right customers with 4G remains intact.

Ondrej Cabejsek -- Analyst

That is excellent. Thank you very much.

Operator

Our following question comes from the line of Slava Degtyarev from Goldman Sachs. Please go ahead. Your line is now open.

Slava Degtyarev -- Goldman Sachs -- Analyst

Thank you very much for the presentations. Can you please elaborate a bit more on how you see mobile service revenue progression in Russia in the coming quarters? And would you expect the Q1 to be the weakest point of the year? Or you think that Q2 and Q3 can deteriorate further on the back of the roaming CAPEX? And actually, excluding the rolling pressures, would you envisage certain growth improvements by the end of the year, or broadly speaking, when you expect Russia to return to growth? Would it be achieved by the end of the year? And I appreciate fully the scope of the uncertainty. And lastly, my second question is out of the high single-digit revenue decline that you envisaged in April, can you broadly comment again roughly how much is coming from the rolling device sales and the organic service revenue pressure? And also what is the reason for the margins to decline?

Kaan Terzioglu -- Co-Chief Executive Officer

Yes. So first of all, let me start saying that the actions that we are taking in Russia in terms of improving our network coverage in Moscow, in St. Petersburg, in the top 12 cities, is continuing full speed. And as a result of that, what we have seen in Q1 in terms of better than being Q4 as we have expressed.

And our plan is to get these improvement levels consistently throughout the year. Of course, the shutdowns, lockdowns has an impact which we did not foresee in Q1 when we announced our Q4 results and our plans for the year. But I expect this improvement of our results on service revenues will be systematic. Our original target was getting back into year-on-year growth by Q4.

This might be delayed by one or two quarters due to the COVID impact, but we see these improvements already happening, and we have the early signs of normalization and toward growth market in this area. As I mentioned, we already have our B2B business growing healthily, 6.6%. Our data revenues are on growth trajectory with 8.5%, and our FTTH business, specifically also driven by the COVID-19 with the fixed networks getting higher consumption levels is on a healthy growth of almost 8%. All these things are giving us the confidence as we build our capacity and quality in the top cities that we are on the right track.

With regard to more detailed granular analysis of April. April, by the way, is a factual number that we are transparently sharing with you. But I think the only thing I would say on top of that is Russia was on the lower side of those impacts, and markets like Georgia and Bangladesh was on the highest. But I think that's the granularity that we would like to stick to at this point.

Slava Degtyarev -- Goldman Sachs -- Analyst

OK. But maybe quickly on the reasons for the margins decline. For example, it looks like the device sales at least are a low-margin business. Is there basically roaming and the organic service revenue, high-margin business, leading to the margins decline in April?

Kaan Terzioglu -- Co-Chief Executive Officer

If you are specifically looking into the situation in Russia, you should understand that, first of all, the lockdowns came late in effect in Q1. And our deployment of networks has an impact on the structural OPEX on technology side, and these are the results that you are seeing in terms of the EBITDA performance there. Actually, on the April results, the impact is more visible in terms of equipment sales, and that's actually, that was included in my statements earlier about the Russia shutdown impact. Our equipment sales are only down 1.7%, if you look to the results of Q1 announcement in Russia.

Serkan Okandan -- Chief Financial Officer

Kaan, if you allow me, this is Serkan. Maybe -- can I add a few words about the margin decline because the same question may come in the following questions?

Kaan Terzioglu -- Co-Chief Executive Officer

Yes, please.

Serkan Okandan -- Chief Financial Officer

If you look at it from the high level, we have roughly 70% gross margin. So 30% of revenues which are, we can say, direct cost of our business, are more or less linked to revenue trends. Unless we do some structural changes in our direct costs, that goes in line with the revenue. So when revenues goes down, our service cost goes down, and then we keep more or less the same margin.

And then we have 44% EBITDA margin in Q1, so which means that the rest is our OPEX. However, this decline in revenue that we have seen in April, as we all know that it happened very fast. COVID-19 impact more or less started sometime in March and then the dip probably was in April. So when you look at the cost structure of telecom companies, there are some costs that you can stop immediately.

And some other costs, there should be a time lag. After you implement some actions, you can see the impacts with the lag, lag of time, because you do the decision today, you start implementation. And sometimes, the first implementation of some initiatives can create additional cost as well. So when you only compare Q2 and Q1, it is normal that the first reaction of the EBITDA margin cannot be as efficient as the long-term or the second or the third quarter reaction, because there's a time lag.

So that was the main reason when you calculate the absolute numbers you see that, more or less, all the revenue decline in Q1 to Q2, you can see more or less a similar amount in absolute number in EBITDA line as well. But if you look at the longer perspective, the actions that management are taking and will take will gradually absorb the sudden impact.

Slava Degtyarev -- Goldman Sachs -- Analyst

OK. Thank you so much.

Operator

[Operator instructions] Our following question comes from the line of Herve Drouet from HSBC. Please go ahead. Your line is now open.

Herve Drouet -- HSBC -- Analyst

Yes. Good morning. Thank you again for the presentation. A couple of questions as well on my side.

Firstly, the first one is regarding your fixed-line business, what you've seen during the lockdown? I mean, have you seen any impact, firstly, on fixed-line at all? Or is it mostly purely mobile, which was really affected? Regarding potentially your future constrain, you experienced so far any countries which highlighted some constraint post-COVID-19 impact in terms of either dividend payout constraints or cash repatriation constrain? And finally, maybe a question in terms of the debt and the debt structure and cash flows. Firstly, looking forward, and with the FX movements we've seen, do you believe the current exposure in U.S. dollar of your debt, which is, I believe, around 52% or 53% is adequate? Or do you think there is room to further change the debt capital structure?

Kaan Terzioglu -- Co-Chief Executive Officer

Maybe I'll take the first question on the fixed networks, and I'll leave Serkan to answer the others. Of course, we see a major change in consumer behaviors and the change is migration from mobile usage toward fixed usage. And actually, in markets where we have a fixed franchise, and the examples would be Russia, Armenia, also Ukraine, Kazakhstan, to a certain extent. In these markets, we have seen also a surge in terms of new adds to our fixed-line businesses, which shows both in terms of customer acquisition, but also utilization of TV services that we provide also at the households.

So there is a strong momentum on the fixed side, which we are actually benefiting in the markets that we have a fixed franchise.

Herve Drouet -- HSBC -- Analyst

Yes. Maybe just a follow-up. Have you taken the opportunity as well with the lockdown maybe to provide more fixed wireless? I mean, as people especially, as you mentioned, moved a bit away from the urban centers and move toward maybe places where in rural area where the coverage, especially mobile coverage was lower. Did you had any specific promotion, etc., for fixed wireless access, for instance, in remote area?

Kaan Terzioglu -- Co-Chief Executive Officer

Absolutely. We do have in the -- as a form factor in terms of dongles or access points that provides the fixed wireless access solutions. And I think this segment of the business in the future will be also another growth market as we also experienced with pre-5G type of technologies as well. So this is an area that we're also seeing lots of activity and demand.

Serkan Okandan -- Chief Financial Officer

If I take the second question. As you all know, as we all know, we are not operating in the easiest countries. We are operating in emerging and frontier countries. And these countries may have regulatory restrictions.

That's why we are closely monitoring what's happening in all of our footprint countries. But so far, we haven't seen any significant change in the regulations or the other related matters regarding upstreaming cash to the group level. So we haven't seen any significant change in the regulatory environment in that respect. Your third question about debt structure.

Of course, there is always area to improve, obviously. So the easiest way to do this, let's look at from three different aspects: first, tenor over debt; second, cost; and the third, diversification. So I think we can improve in all aspects. We can improve our average maturity that we are working on to a more reasonable, more relaxed level.

Secondly, we can improve our cost, average cost of debt. And I believe that in the coming quarters we will have some actions almost concluded that those actions will impact the first two KPIs positively. And thirdly, we can, of course, diversify in terms of currency, in terms of source of funding. So in the coming quarters, I think we are going to focus on all three areas.

Having said that, you referred specifically to U.S. dollar debt. Of course, the one extreme is you hedge all the risk. But hedging is usually an expensive way of mitigating the risk.

And if you hedge 100% of something, it means that you shouldn't do that transaction because you are hedging it 100%. So the cheapest way to hedge is natural hedging. And that's what we did in Russia. As I mentioned in the Slide 8, if you look at our debt composition, 42% of our debt in ruble and 44% of EBITDA of the group is coming from Russia.

So that creates a natural hedge. So going forward, in summary, we will focus on improving tenor, maturity of the debt, decrease the cost of debt and diversify our source of funding. In the meantime, we will focus on increasing as much as possible natural hedge, which is free. And the rest, we will selectively focus on how we hedge the risk at a reasonable level and at a cheapest cost.

Herve Drouet -- HSBC -- Analyst

All right. Thank you.

Operator

Our following question comes from the line of Svetlana Sukhanova. Please go ahead. Your line is now open.

Svetlana Sukhanova -- Analyst

May I come back to the question of Russian EBITDA. I'm very puzzled. Every time I read your press release, you review decline in the Russian EBITDA due to higher structural cost, due to network investments or deployment of the network. How come? Because as I understand, network investments, deployment of the network, it's all capitalized expenses, in other words, it's CAPEX rather than OPEX.

How can CAPEX pressure EBITDA? Can you please elaborate?

Kaan Terzioglu -- Co-Chief Executive Officer

I think if you look to the increased deployment and increased service capacity over our network, it is natural that there will be higher operational costs in addition to our, of course, CAPEX happening. And as the number of mobile usage base due to the COVID is having an impact, I think it is normal that we see that impact on the top line having an impact on the EBITDA level. As Serkan has indicated, that will have a bigger percentage point impact on the EBITDA. But don't underestimate that as we let up more base stations, that also drives higher operational costs and interconnect costs.

So that's why you see a higher level of EBITDA erosion. But as Serkan mentioned, there will be mitigation impacts that will come over time that you will also see. Serkan, anything you would like to add?

Serkan Okandan -- Chief Financial Officer

You've made it very clear, Kaan. I think when you make a network investment, there is a CAPEX component, obviously, which doesn't hit the P&L, at least above EBITDA level. However, when you roll out a network, when you put new base stations, new transmission lines. First of all, you have to maintain them.

And if you don't own the land, you have to pay rent. And you have to pay electricity. You have these kinds of things, which are all OPEX. So maintaining a bigger network, which we are increasing the coverage of the network, mainly in 4G, gives us extra OPEX cost as well.

So that's the main reason why network rollout and fast network rollout that what we are doing in Russia immediately hits the OPEX line.

Svetlana Sukhanova -- Analyst

I have two questions here. First, can you please quantify this OPEX effect? And that's the first question. And then can you please elaborate, if you expand your 4G coverage, do you use any new sites or use existing sites? Because if you are using existing sites, and my perception was that most of the sites which you use is like existing sites, you don't have to pay incremental rents. You don't have to pay for the incremental transmission, etc., etc..

Can you please elaborate and try to quantify this incremental effect on the OPEX from network rollouts?

Kaan Terzioglu -- Co-Chief Executive Officer

I will not specifically go to the quantification, but let me give more color on what we are doing. It is neither only using existing nor adding new. It's a combination of these things. If I would give you some examples, we will probably introduce close to 2,000 additional new sites in Moscow and Moscow Oblast this year.

And most importantly, we are covering, as we speak, the entire Moscow Metro, which is actually completely net new. So it is not only about putting additional capacity on the existing locations, we are really going for that best customer experience possible, especially in Moscow, that we will differentiate our services in the market. And that includes adding to existing, but also adding new sites.

Svetlana Sukhanova -- Analyst

Thank you. Fair enough.

Operator

Our following question comes from the line of Dilya Ibragimova from Citibank. Please go ahead. Your line is now open.

Dilya Ibragimova -- Citi -- Analyst

Hi. Thanks very much for the opportunity to ask a question. I had two questions, and both of them on Russia and both are on pricing. The first one is on -- I just wanted to follow-up on Kaan's comment earlier on the call that you will be on one side, you understand that -- you highlight, unlimited data bundles are not helping the sector.

And at the same time, you are thinking that you'd like to have a value proposition, which will be second to none. Could you please give a bit more color what you're thinking in terms of pricing of services? Does that mean you are, at least at this stage, maybe we would rather keep the tariff structure as you have, including the unlimited? So that's question one. And maybe just looking beyond the COVID environment? And second question, I think on the previous call, you mentioned that you were trying to do some changes to the tariff and move away from unlimited. I was just wondering what you have seen during the quarter, how successful that was? And yes, what your thoughts are there?

Kaan Terzioglu -- Co-Chief Executive Officer

Yes. I think both questions are kind of related to each other in a way. I think the realities of today, what the lockdowns has practically made this practice of unlimited pricing a thing of the past. We cannot continue, and we cannot push this service because it will be actually compromising the service that we can provide to all our customers that we commit to.

This will turn into a fixed wireless access solution, which will be completely conflicting with the purpose of our service propositions. So you will see us changing from that direction to make sure that we actually provide the best experience, making sure that it is rich with services, but it is not providing an unlimited offer on a value which is built on very scarce resources of spectrum and CAPEX investments. So that is, I think, the message that I want to leave with you.

Dilya Ibragimova -- Citi -- Analyst

That's very helpful. And maybe just a follow-up on the comment that you just made. Is there -- on your spectrum, I think, portfolio, especially in Moscow, how sufficient is that? And do you see any room to have access to additional spectrum considering all the constraints that are there in Russia? Is that affecting the 5G side? Do you have the 4G, 4.5G?

Kaan Terzioglu -- Co-Chief Executive Officer

Yes. For 4G and 4.5G, we are very satisfied with the spectrum we have. Through utilization of advanced technologies on optimization and through utilization with, again, advanced technologies on video compression and optimization of data consumption, we are able to create additional capacity. And actually, our positioning in terms of spectrum ownership even today positions us very strongly in the market and we are satisfied with that.

Dilya Ibragimova -- Citi -- Analyst

Thanks very much.

Operator

Our following question comes from the line of Ondrej Cabejek from UBS. Please go ahead. Your line is now open.

Ondrej Cabejsek -- Analyst

Yes. Thank you. I had a follow-up question just on your retail and distribution in Russia. Maybe a bit early to say, but I was wondering, you now have a concrete target of 600 stores closed by the end of the year.

I was wondering if is there upside to this number, you think? Because one of your peers also with a similar target of 600 store closures said that, I believe, should market permit, they see upsides essentially double that number of 600 over some period. So with the digitization that you've been talking about in Russia, where do you see the upside and potential retail repair?

Kaan Terzioglu -- Co-Chief Executive Officer

I think in my earlier comments as well, I made the statement that Russia overall is quite inefficient with its distribution and retail markets. And it's not only about us. But I think this COVID experience gives us a unique opportunity to completely rethink, not incrementally improve, but rethink about the way we reach to our customers. It's about selling digitally.

It's about servicing digitally. And it's about if we keep doing business with online e-commerce resources and deliveries at home. And I think we are going to be completely rethinking our model to make sure that while we increase the service capacity to the customer, we completely change the way we operate on our retail model as we move on.

Ondrej Cabejsek -- Analyst

And can you just maybe -- from your perspective, now that you've been on for some time, what are like the necessary conditions for you not just for VEON, but for the whole market to scale back simultaneously or as a whole? What do you think needs to happen for that?

Kaan Terzioglu -- Co-Chief Executive Officer

I think what needs to happen is already happening. I think one of the most important things in this market is self-registration capabilities and mobile payment capabilities. I think the government's actions in all the markets are toward making sure that the self-registration is becoming a modest operating standard. And mobile payment capabilities are also is an adjacent market that we actually look into very strongly and invest very strongly.

And as those capabilities start to emerge, I think we will see a completely different type of distribution and customer engagement framework for our industry, and we will be the leading drivers of that.

Ondrej Cabejsek -- Analyst

Clear. Thank you.

Operator

Our following question from the line of [Inaudible] from [Inaudible] Asset Management. Please go ahead. Your line is now open.

Unknown speaker

Hi. Thanks for the call today. Can you remind us what your available credit facilities are? I'm not sure if you'll be able to answer this, but I saw you launch a new MTN Program. Does that mean you'll be addressing your short-term maturities by looking at bond markets? And then my last question is, I think you have spectrum payments coming up in Pakistan.

Can you remind me what they are?

Serkan Okandan -- Chief Financial Officer

Yes. Regarding your first question, please refer to Page 27 in our presentation. On that slide, you will see the unused credit facilities. Basically, we have an RCF, syndicated RCF facility, which we have around USD 1 billion unused committed credit line, plus we have around $240 million unused facility in Pakistan.

Those are the two items on Page 27. For your second question, as you may know, we have already deposited a security deposit, 50% of the license fee. So the other 50% is outstanding. There are still ongoing discussions and the process is ongoing about the timing and the way of payment, the schedule of payments for the other 50%.

But as you may know, in Pakistan, you have options. Either you can pay in one shot or you can pay in multiple installments on a yearly basis up to five years. So we have both options. But as I said, still the process is ongoing.

Operator

We have no further questions at this time. Please go ahead.

Nik Kershaw -- Group Head of Investor Relations

I'd just like to thank everyone for dialing in today and for taking the time. If you do have any incremental questions, please just feel free to reach out to us. Thank you very much, everyone, and have a good day.

Kaan Terzioglu -- Co-Chief Executive Officer

Thank you. Thank you very much.

Serkan Okandan -- Chief Financial Officer

Thank you, all.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Nik Kershaw -- Group Head of Investor Relations

Serkan Okandan -- Chief Financial Officer

Kaan Terzioglu -- Co-Chief Executive Officer

Sergi Herrero -- Chief Operating Officer

Ondrej Cabejsek -- Analyst

Slava Degtyarev -- Goldman Sachs -- Analyst

Herve Drouet -- HSBC -- Analyst

Svetlana Sukhanova -- Analyst

Dilya Ibragimova -- Citi -- Analyst

Unknown speaker

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