May 25, 2018 / 3:14 PM / 3 months ago

Veon expects Russia business to slow in coming quarters

ST PETERSBURG, May 25 (Reuters) - Emerging markets telecoms operator Veon expects its business in Russia, its biggest market, to slow in coming quarters as the Russian economy is struggling to gain momentum.

The head of the group’s Russian business also told Reuters that its cashflow would be hurt as it would has to invest in preparation for a new Russian data storage law.

The Dutch-based company, which operates in Russia, Pakistan, Ukraine, Uzbekistan, and Algeria, last week reported a wider loss for the first quarter but said core operations in Russia had improved.

Vasyl Latsanych, CEO of the Russian business, said that pickup was likely to be short-lived.

“The first quarter turned out to be very good... This was due to a number of factors, including one-offs,” Latsanych told Reuters during an economic forum in St Petersburg. “We would like to let (the market) know that the growth pace of the first quarter should not be expected in the coming quarters because there are no particular economic preconditions for it.”

Officials expect Russia’s economy to grow by up to 2 percent this year but it only expanded by 1.3 percent from a year earlier in January-March.

“In the first quarter, the economy did not expand as we did - this means that we could find new sources of growth... But we may fail to find them in the second or third quarters,” he said.

Latsanych previously worked as vice president for strategy and marketing at MTS , Russia’s top mobile phone operator.

DATA LAW INVESTMENTS

A new law will come into effect on Oct. 1 requiring telecoms operators in Russia to store user communications data for up to six months, part of broader counter-terrorism legislation aimed at bolstering state security.

For telecom groups, that means extra spending on hardware, which Veon had preliminarily estimated at 45 billion roubles ($725 million) for the next five years, of which 6 billion in 2018.

Latsanych said the lion’s share of the company’s investments related to the legislation would fall in 2019.

“The law is a “black swan”. Its implementation will force us to invest more than we planned and more than last year,” Latsanych said.

“It will pressure our cashflow but not the efficiency, efficiency should stay at a high level,” he said, adding the bulk of investments would be reflected in capital expenditure while operating costs would be largely unaffected. ($1 = 62.0887 roubles) (Additional reporting by Anastasia Teterevleva; editing by Maria Kiselyova and Susan Fenton)

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