Imports of energy autonomy equipment, mln USD
Source: Open4Business.com.ua and experts.news
The president of Kyivstar, the market’s largest mobile operator, Oleksandr Komarov, expects the sector to grow in 2023 due to continued demand for modern communication services, the effect of a low base and de-occupation, but this growth will be relatively small due to a decline in the active subscriber base and a reduction in profitability.
“The main factor of any market is its capacity in terms of the number of consumers. We see it stabilizing around the level of about 10% of the active base that was before the war. Geographically, we have stabilized. Moreover, I expect that there will be some de-occupation, and we will be able to grow at the expense of the returned territories,” he said in an interview with Interfax-Ukraine.
Komarov added that the first quarter of 2022 was still “more or less normal,” but in the following months the market began to decline.
“That is, I think that the industry will recover a bit in the second, third, and fourth quarters: not only because it is growing, but also because the comparison bases have fallen significantly,” the Kyivstar president explained his expectations.
He also noted that communication services are critical services for consumers, and therefore demand for them is not elastic. “Moreover, the crisis encourages people to spend more on telecommunications: people want to reserve their ability to stay in touch. During the blackouts, we had an incredible growth of new connections across the Ukrainian telecom market,” Komarov said.
Kyivstar’s president also pointed to the continued demand for more modern communication services, naming LTE and 4G services as the key drivers, which had been driving the market growth of 15% annually in the last three years before the war.
“In 2022, the market grew by 5%, while LTE consumption grew by almost 30% year-on-year, with the LTE customer base increasing by only 4%. That is, consumption is the main driver that continues to pull this market upwards: people need more mobile Internet,” stated the head of the largest mobile operator.
Among the factors that will negatively affect revenues, he pointed to the ongoing decline in the active roaming subscriber base due to the protracted war. According to him, it is slow because it is restrained by the “roaming like at home” service.
Komarov emphasized that this service and a number of other factors have led to a significant increase in the company’s expenses, which has put pressure on profits and reduced profitability.
“In the first quarter, Kyivstar’s total revenue in hryvnia grew by 6% year-on-year, while profit grew by only 1%, and overall profitability decreased to 59% from 62% in 2022,” the company’s president said.
Among the factors, he named an increase in the share of negative or very low-margin income, such as roaming, rising risk costs, restoration costs, and social assistance. In particular, Komarov said, Kyivstar provided financial charity and bonus services worth UAH 1.08 billion over the 15 months of the war.
“Of course, it is also inflation: cost inflation, electricity inflation, wage inflation, etc.”, added the CEO.
Komarov noted that Kyivstar’s investments and expenditures are largely made in foreign currency, and the devaluation of the hryvnia has led to a year-on-year decline in purchasing or investment power in foreign currency of 8%.
“As a company that is integrated into domestic consumption on the one hand and purchasing equipment from international suppliers on the other, we have to understand that the pre-war formula of average industry profitability will not work for the next few years. We will face significant pressure on profitability,” stated the head of the largest mobile operator.
He also said that it would be impossible to raise telecom tariffs to the extent necessary to compensate for the increase in costs.
According to him, certain inflationary elements are built into pricing. In addition, customers follow their consumption by switching from old tariff plans to new ones. On average, there are up to 100 thousand such migrations per month, Komarov said.
As reported earlier, Kyivstar increased its hryvnia revenue by 6% in the first quarter of 2023 (down 17.2% in dollars) compared to the same period in 2022, to UAH 8.346 billion. EBITDA increased by 1% in UAH (down 21.2% in USD) year-on-year to UAH 4.921 billion.
The subscriber base in the first quarter of 2023 amounted to 24.3 million, down 6.7% year-on-year, while the number of 4G users increased by 4.2%, or 600 thousand, to 13.3 million, and 4G penetration in the subscriber base reached 54.6%.
The US dollar weakened against major world currencies on Monday.
Investors are estimating the probability of worsening of the situation in the world economy after central banks of several countries raised interest rates last week, Trading Economics notes.
In addition, Friday’s published statistical data had a negative impact on the value of the U.S. currency.
The Purchasing Managers Index (PMI) in the U.S. manufacturing sector fell to 46.3 points in June from 48.4 points a month earlier, according to preliminary data from S&P Global, which calculates the index. This is the lowest level in six months. The decline in the indicator came as a surprise to analysts, who had forecast an average rise to 48.5 points.
The services PMI fell to 54.1 points this month from 54.9 points in May, with the composite reading down to 53 points from 54.3 points.
The euro is trading near $1.0911 in the morning versus $1.0895 in the previous session.
The value of the single European currency is now around 156.38 yen compared to 156.59 yen on Friday. The dollar exchange rate is 143.36 yen versus 143.73 yen at the end of the previous trading day.
The DXY index, which shows the value of the U.S. dollar against six major world currencies, was down 0.18% in trading. The WSJ Dollar, which tracks the movement of the dollar against 16 currencies, declined 0.09%.
The pound traded at $1.2733 on Monday, compared to $1.2714 at the close of previous trading. The euro is unchanged at £0.8568.
Analysts at Mitsubishi UFG forecast the British currency could rise to $1.3 this year.
Fitch Ratings has affirmed Ukraine’s Long-term foreign currency Issuer Default Rating (IDR) at “CC”, the agency said in a statement on its website.
“The affirmation of Ukraine’s IDR in foreign currency at ‘CC’ reflects Fitch’s expectations for further restructuring of commercial debt before the end of the two-year break in Eurobond payments in September 2024,” the agency said.
It notes that sovereign foreign debt service will increase to $7.6bn in 2025, large budget deficits over the medium term will increase already high public debt and burden sharing with commercial creditors is a likely condition for continued official sector support.
According to Fitch, Ukraine is likely to opt for a single comprehensive debt restructuring next year. However, if security uncertainty persists, the agency expects an interim step in the form of a further deferral of Eurobond payments, similar to how official creditors have agreed to extend the moratorium on payments until the end of 2026 under the EFF with Ukraine.
It is also clarified that Fitch has affirmed the IDR at “CCC-” in local currency. It explained that the higher rating than that of the debt in foreign currency reflects the greater obstacles to restructuring the debt in local currency, given that only 4% belong to non-residents, while 48% belong to the National Bank of Ukraine and 38% to Ukrainian banks, including half of the state banks.
“We do not see significant international pressure to restructure domestic debt, including due to risks to domestic demand for government debt and confidence in banks. Nevertheless, there is still significant credit risk over the longer term, given uncertainty about the sources of funding for a potentially protracted war and a significant recovery effort,” the report said.
According to it, Fitch’s baseline scenario assumes the war will last until 2024 within its current broad parameters.
“We believe that Ukraine currently has a strategic military advantage, backed by modernized weaponry, Western intelligence, and firm resolve. However, in our core scenario, military superiority is not sufficient for decisive achievement of objectives,” the rating agency pointed out.
It added that there is also a lack of politically credible concessions that could form the basis of a negotiated settlement, which could lead to a very protracted conflict.
“In the longer term, we expect some form of settlement to end the war, although we think a frozen conflict is more likely than a sustained peace agreement,” Fitch wrote.
It predicts GDP will grow by 3.5% in 2023 and 4.0% in 2024 after a 29% contraction in 2022. According to the agency, consumption will recover somewhat on easing fears of a broader military escalation, but investment remains depressed. Fitch believes this year’s planned $14 billion in emergency recovery spending will fall short.
The agency expects the budget deficit this year to rise to 17.3 percent of GDP from nearly 16 percent of GDP (25 percent of GDP excluding international grants) last year because of war-related spending and a reduction in the grant component of budget support.
“We expect the deficit to remain high in the medium term, in part because of huge reconstruction needs and structurally higher defense spending than before the war,” the report states.
The agency adds that it sees greater uncertainty about external financing beyond next year, in part because of potential donor fatigue.
Fitch also predicts that the government debt will rise to 85% of GDP by the end of 2023 and to 94% by the end of 2024, while last year it increased by 30 percentage points (p.p.) to 78.5% of GDP.
According to the agency, the USD/UAH peg will remain in place until 2023, with a moderate depreciation in 2024 as the exchange rate becomes more flexible and exchange controls gradually loosen.
Fitch also forecasts an increase in the current account deficit to a deficit of 1.8% of GDP in 2023 and 3.5% in 2024, from a surplus of 5% in 2022, as imports recover faster than exports.
“Large official sector loans and gradually improving net migration help bolster our forecast of an increase in international reserves to $38.9 billion at the end of 2023, equivalent to 4.8 months of current external payments, above the median for all B-rated sovereigns,” the report said.
Fitch forecasts that inflation will fall to 14.5% at the end of this year and to 12.7% on average in 2024 from 15.3% at the end of May and 26.6% last year. According to the agency, the National Bank will lower the discount rate by 5 p.p. – to 20%, but the risks are still skewed upwards, including the consequences of the Kakhovka dam collapse.
The grain harvest in Ukraine this year is expected to be about 46 million tons, which is 5-7% less than last year, said First Deputy Minister of Agrarian Policy and Food Taras Vysotsky.
“As of today, there is a weighted average forecast: it is expected that the grain will be harvested about 46 million tons. This, unfortunately, is less than last year. The decrease is about 5-7%,” he said on national telethon Monday.
At the same time, Vysotsky noted that domestic consumption of grain is 18 million tons.
“Therefore, even collecting 46 million tons, it is still 2.5 times more than the domestic need, respectively, there is no risk for shortage of grain for domestic purposes today,” – said the first deputy minister.
As previously reported, in mid-March, the Ministry of Agrarian Policy predicted a reduction in the total gross yield of grain and leguminous crops in the season of 2023 to 44.3 million tons against 53.1 million tons in the previous season.
Australian Prime Minister Anthony Albanese announced another package of military support to Ukraine worth 110 million Australian dollars (about $74 million), local media reported.
The new package will include 70 pieces of equipment, including 28 M113 armored vehicles, 14 special-purpose vehicles, 28 MAN 40M medium trucks and 14 trailers.
Kiev will also receive a significant supply of 105mm artillery shells.
In addition, Canberra will provide 10 million Australian dollars to the United Nations to meet Ukraine’s humanitarian needs.
The prime minister stressed that Australia would support Ukraine for as long as necessary.
