Macroeconomic improvements in Belarus continued in the year under review, and GDP is expected to have grown by 4.0 % (IMF estimate) in 2018 (2017: +2.4 %). The Belarusian Rouble devalued sharply in April, but the devaluation then slowed and amounted to 9.3 % over the course of the year (period average). In addition, the government continued to be restrictive on price increases in order to stabilize inflation, which came in at 5.6 % year-on-year.
Despite its lack of a 4G license, velcom maintained its superior standard in terms of the coverage and quality of its mobile network. Competition in the mobile business was intense with regard to tariffs based on unlimited data offers. These offers had a negative impact on the sale of data packages. In light of this, velcom deployed unlimited data and voice offers with speed restrictions depending on the chosen tariff. The shift from prepaid offers towards contract offers continued. Meanwhile, demand for expensive devices remained high and the margin on handsets positive. The position in the fixed-line business was strengthened by the acquisition of Vitbesk Garant, consolidated from May 1, 2018. As the financial impact of Vitebsk Garant on the Belarus segment is marginal, no proforma view is provided.
Inflation-linked price increases of 2.9 % and 2.4 % were implemented in the mobile business as of April 1 and September 1, 2018, respectively. In March and October 2018, velcom increased the fixed-line tariffs for existing customers by 9.0 % and 5.0 % respectively.
Total revenues in the Belarus segment decreased by 1.2 % (reported: –0.3 %). Excluding minor positive one-off effects in the reporting and comparison period as well as a negative FX effect of EUR 40.0 mn, they rose by 8.4 % year-on-year (reported: +9.5 %). This increase in local currency resulted from higher equipment revenues. These were due to more expensive devices and higher quantities, which were supported by an attractive smartphone portfolio, advertising campaigns, and installment sales. Service revenues fell as the higher fixed-line service revenues did not compensate for the lower mobile service revenues as a result of the above mentioned decreased data monetization.
Total costs and expenses rose on a local currency basis, driven by higher costs of equipment due to more expensive handsets and higher quantities, as well as other costs settled in hard currency and personnel costs. Content costs were also higher. Interconnection expenses increased due to the rise in outgoing traffic.
Excluding FX effects and one-off effects, EBITDA fell by 1.9 % (reported: –1.6 %), mainly as the lower mobile service revenues could not be offset by the higher fixed-line service revenues. Together with higher depreciation in comparison with the previous year as a result of the brand value amortization in the amount of EUR 31.3 mn (2017: EUR 13.0 mn), operating income fell by 28.8 %. Excluding the D&A of the brand value amortization, operating income increased by 12.6 % year-on-year.
The previous analysis is based on proforma figures if not stated otherwise. 1)
1) Proforma figures are not audited and include effects of M&A transactions executed between the start of the comparison period and the end of the reporting period. In the Belarus segment, this applies to the acquisition of fixed-line operator Garant (Gomel) in Belarus, consolidated as of August 1, 2017.