Results webcast and conference. I would now like to hand the call over to Nik Kershaw, Head of Investor Relations. Please go ahead, sir.
Hi. Good day, ladies and gentlemen. Welcome to VEON's second quarter results presentation. I'm Nik Kershaw, Group Head of Investor Relations. I'm pleased to be joined on the line today by Kaan and Sergi, our Group Co-CEOs, along with our Group CFO, Serkan. Today's presentation will begin with an overview of our second quarter results from Serkan, followed by an operational review from Kaan and Sergi, who will cover how the COVID pandemic has affected our business during the last quarter. We'll then hand it back to Serkan to discuss our outlook and our new financial guidance for full year 2020. As ever, to ensure there will be ample time for your questions, but we'll ask you to save these for the end of the presentation. Just before getting started, I'd like to remind you that we may make forward-looking statements during today's presentation, which involve certain risks and uncertainties.
These statements relate in part to the company's anticipated performance and guidance for 2020, particularly in light of the COVID-19 pandemic, future market developments and trends, operational and network development and network investments, and the company's ability to realize its targets and commercial and strategic initiatives, including both current and future transactions. Certain factors may cause our 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 the earnings presentation, each of which include reconciliations of non-IFRS financial measures presented today, can be downloaded from our website. With that, let me hand over to Serkan.
Thanks, Nik. Good morning and good afternoon to all participants. Thank you for joining us for this presentation of our second quarter results. I hope you have all managed to stay safe and well during this unprecedented period for all of us. Q2 saw the full impact of the COVID-19 pandemic on activity across our operating markets as lockdowns intensified before some degree of easing towards the end of the quarter. Our financial performance was impacted as a consequence, although I am pleased to say that continued progress on cost control provided a degree of offset. Let me go straight to the headline numbers, which are summarized here on slide five. Group revenue for the quarter declined by 6.9% in local currency terms year-on-year to $1.9 billion U.S.
On a reported basis, the year-on-year change in revenue was -16.3% once the negative impact of currency movements amounting to $178 million are accounted for. Lockdowns across our markets explain the scale of this revenue decline, given the requirement to close stores, which significantly constrained top-ups and device sales. The loss of migrant revenues, particularly in Russia, and the sharp fall in roaming income due to travel restrictions, also contributed. Together, these more than offset the positive impacts of increased demand for data and fixed line services, which we have seen across our markets since lockdowns were introduced. Despite these headwinds, we were pleased to deliver solid double-digit local currency growth in data revenues during the quarter, up 14.4% year-on-year or +5.2% on a reported basis.
This reflects the underlying strength in data demand that characterizes our markets, as well as the rapid uptake in digital services that lockdowns are encouraging. EBITDA declined by 7.7% in local currency terms to $809 million. On a reported basis, this corresponds to an 18.7% year-on-year decline. Note that for comparative purposes in our local currency numbers, we have excluded the one-off payment of $38 million booked in Q2 last year in respect of special compensation received by our subsidiary in Kazakhstan following the termination of a network sharing agreement in that market, the impact of which I'll illustrate in greater detail in the next slide. Our group EBITDA margin was 42.7% for the quarter, a decline of 1.2% year-on-year or -0.4% in local currency terms.
Although this is a weaker outcome on both measures, our continued focus on reducing costs offset the margin impact of the quarter's revenue decline. Key here was the planned downsizing of our headquarters, as well as a reduction in HR-related and G&A expenditure, which together more than offset higher network OpEx from our investment in 4G infrastructure in Russia. Operational CapEx was 9.5% higher in the quarter, which also reflects our investment activities in Russia. This brought the group's CapEx intensity ratio to 20.8%. More on this when I talk about our financial outlook later. Finally, our leverage ratios stood at 2 times net debt to EBITDA for the quarter, up slightly from 1.9 times in Q2 2019, primarily reflecting the fall in EBITDA we experienced as a consequence of lockdowns.
These numbers exclude lease liabilities and express EBITDA on a rolling 12-month basis, and for comparative purposes, exclude last year's payment from Ericsson. Looking at our financial results in greater detail. Slide six sets out the impact of Kcell on both reported EBITDA and EBITDA margin in Q2 2019 and illustrates the year-on-year change in each if this is excluded. This is captured in the two adjusted lines in the middle of this table. You will see that the declines in EBITDA and EBITDA margin are -15.4% and 0.3 percentage points, respectively, excluding Kcell. On the right-hand side, we have also illustrated the impact of another one-off item that was a feature of the first half of 2019, the $350 million payment from Ericsson, which along with Kcell, we have excluded in adjusted values for reported EBITDA and EBITDA margin.
As a reminder, the Ericsson payment was accounted for as EBITDA in Q1 2019 and was received in two separate cash payments of $175 million in Q1 and Q2 2019. The group recorded a net profit of $156 million in the quarter, an increase from last year's figure of $69 million. The rise in profits reflects a fall in financial expenses following our refinancing activities and two non-operating gains, with a combined value of $86 million. Namely, a revaluation gain on a liability related to our acquisition of Warid in Pakistan back in 2016, and a gain related to a settlement regarding the sale of one of GTH's business since back in 2014. Moving to slide seven, and a more detailed breakdown of our revenue during the quarter. The general pattern is one of lower revenues across our operations as lockdowns continued.
With the exception of Ukraine and Kazakhstan, where growth in data demand enabled us to grow our top line in each market despite these challenges. Weakness in Russia reflected a disruption to our retail channels as a consequence of store closures, as well as a near absence of roaming revenues and a smaller migrant customer base because of lockdowns. Pakistan's reported performance was affected by lockdowns, as well as the accounting impact of last year's tax regime changes. If we adjust for the latter, Pakistan would have seen revenues rise by 0.5%. You will also see last year's Kcell payment and second quarter FX headwinds as separate components in this waterfall at the left and right-hand side of the chart, respectively. Turning now to EBITDA on slide eight.
We continued to reduce costs across the group, which enabled us to record a broadly stable margin performance compared with Q2 last year, once the impact of Kcell is adjusted for. Further downsizing of our headquarters function, which was planned before the pandemic, and additional savings in HR and staff costs were key contributors here. Together, those more than offset a rise in network-related costs in Russia, which reflects our accelerated network investment there. Without these network expenditures, our Russian EBITDA margin would have been around 300 basis points higher. We believe making the necessary investments in our networks in Russia now is the right course of action, both for our customers and also for our shareholders.
Finally, in Pakistan, it is important to point out the impact of last year's tax regime changes and the reclassification of license amortization expense on our reported performance, which taken together account for around three-quarters of the EBITDA decline there in Q2. Turning now to our capital structure on slide nine. Our priority is to ensure that we have the capital and liquidity strength to navigate the group successfully during this volatile period. This has meant active management of our debt, including hedging of our U.S. dollar liabilities versus our ruble revenues to insulate us from adverse currency movements. You can see the impact of our hedges on the two right-hand pie charts, which show the currency mix of our borrowings pre and post hedging. As you can see, our ruble liabilities are well matched to our ruble revenues as a result.
On a net currency basis, adjusting for our cash holdings, which are shown in the left-hand pie chart, our US dollar and ruble liabilities are broadly similar at 50% and 48%, respectively. Group debt was broadly similar to Q1 levels at $7.6 billion. This was an active quarter for the management of our balance sheet, during which we successfully issued RUB 20 billion in senior secured notes at 6.3%, representing the lowest coupon ever for a ruble Eurobond offering. The quarter also saw us negotiate new bilateral loan facilities with two of our key banking counterparties in Russia, which have since served to reduce borrowing costs and increase maturities on over $1.9 billion of debt. Taken together, these activities enabled us to reduce our average cost of debt further to 6.4% at the end of Q2, 100 basis points lower than Q2 2019.
The group continues to have access to considerable cash and undrawn credit facilities, which together amount to $2.5 billion. We have also managed the maturity of our borrowings proactively, refinancing near-term maturities and pushing out the average tenure of our debt to 2.8 years, compared to 2.3 years at the end of Q1 this year. Moving to slide 10. The fall in EBITDA we experienced in the second quarter resulted in a modest rise in our group leverage ratio, which stood at two times at the end of Q2, excluding lease liabilities. This remains in line with the internal guidance of around two times we have set ourselves and reflects what we view as an exceptional quarter's trading, given revenues that were inevitably lost because of lockdowns.
In summary, the measures we have taken to enhance our balance sheet and secure our liquidity position place us in a strong position financially to navigate this challenging period. With that, let me hand over to Kaan to discuss our operational performance during the quarter in more detail. Thank you.
Thank you, Serkan, and thank you all for joining us on the line today. In early May, at the time of our first quarter results, many of us adjusting to remote working, which we thought at the time as a temporary measure while we awaited the peak of the pandemic to pass. Three months on, the majority of us are still facing at least some limitation on our ability to return to our places of work. This is one of many challenges which are driving an ever greater dependency on telecommunication services and redefining the role of our industry in the daily lives of our customers and the markets we operate. However, adapting to this new normal has been tough in a number of ways for our industry, just as it has been for the broader economy and for our customers.
Let me summarize what it meant for our group in the last quarter and what it will mean going forward over the next two slides. Second quarter saw the full impact of lockdowns on our operational performance. These trends, which intensified in April and May, showed signs of abating in June and July as restrictions on store closures and movement of people were eased. As a consequence, roaming revenues fell substantially to 0.4% of group revenue, compared with 2.1% in financial year 2019. Store closures had a significant impact on our gross additions and airtime sales, while travel restrictions also meant a loss in migrant customers from our subscriber base, particularly in Russia. We also saw a migration in data traffic from mobile to fixed networks, as well as a shift in network usage away from the urban centers to suburbs and rural areas.
We saw the positive impact of this in our fixed networks, where daily volumes peaked in Q2 at levels of 35% higher than the first quarter. Lockdowns accelerated the growth in our 4G customer base during the quarter, including Russia, where our 4G subscribers grew in number by over 20% year-on-year. We also experienced faster adoption rates for our self-care applications, for which our monthly active users have almost doubled year-over-year. The trend was similar for our digital services such as TV, where our customer base is now 50% larger than in Q2 last year. Overall, increased demand for 4G and faster adoption of digital services have enabled us to report another quarter of double-digit year-on-year growth in data revenues. Moving to the next slide.
Looking ahead, in the second half and beyond, we anticipate a gradual improvement in operational trends and expect some of the more positive dynamics of customer behavior to outlast the pandemic. Specifically, we expect a slow recovery in roaming revenues and migrant customers as travel resumes. We also expect a partial, more gradual shift in urban populations back to metropolitan centers as workplaces reopen. In-store sales are expected to recover steadily, assuming local lockdowns are not re-imposed. We expect some degree of remote working will remain a feature of professional life. We are positioning for these changes through investments in both networks and services for our new business to home, B2H customers. Lockdowns have also placed a greater emphasis on digital sales channels, which we are positioned to serve given our ongoing investment in customer self-care applications and the digital business support systems that enable them.
Throughout, we will remain focused on mitigating the impact of the pandemic on our financial performance through strong cost control to ensure that we capture the margin benefits as revenues recover. Next slide. Turning now to the individual performances of our major markets. Our Russia business, Beeline, was particularly impacted by lockdowns, which denied us in-store sales for much of the quarter and significantly reduced our roaming and migrant customer revenues. These temporary interruptions did not distract us from our program of accelerated network deployment, which is a vital component of our turnaround strategy for the market. Progress here in the second quarter was sound, with our number of 4G base stations increasing by 24%, enabling us grow our 4G customer base by 22% year-on-year.
We also saw good growth in adoption of digital services, including Beeline TV, where our customer base grew over 50% year-on-year. Also, continue to optimize our retail footprint as we increase our emphasis on digital channels, and we have now closed 627 stores over the past nine months. Next slide looks at the year-on-year comparisons for Beeline over the quarter. Total revenues fell by 9.7% after we were required to close over 1,400 stores due to the COVID-19 pandemic and experienced an almost 90% fall in roaming revenues as travels came to a halt. The shift from mobile to fixed networks we observed at the group level was clear in Russia's performance, with mobile services revenues falling by 9.8% and fixed services revenues rising by 8.9%.
Helping this fixed line growth is our growing base of B2B customers, many of whom are currently working remotely, which we are serving with products like Bee FREE, which provides a suite of services in a single workplace as a service bundle. Similarly, the rise in data demand benefited Beeline, which recorded a 4.9% increase year-on-year in mobile data revenues. This was also driven by solid growth in our 4G customer base, which grew over 20% year-on-year and now represents 43% of our subscribers. Success in attracting 4G customers partially offset the loss of subscribers elsewhere, particularly amongst our migrant user base, where a sharp decline in numbers contributed to 8.4% fall in total subscribers for the quarter. That said, we began to see positive subscriber trends return in June and July, which we anticipate will continue.
As well as the revenue impact, the 20% decline in EBITDA we recorded for the quarter also reflects higher levels of network OpEx resulting from our continued investment in 4G infrastructure and customer experience. We believe this is vital to restoring growth through positive gross additions, lower churn, and higher ARPU. Next slide talks about Kazakhstan. Alongside Ukraine, which Sergi will discuss, Kazakhstan is one of the two markets in which we have enjoyed positive revenue growth during the quarter, a rise of 9.2% on an underlying basis. Data revenues once again drove this growth, rising by almost 40% year-over-year. This was enabled by more than doubling our 4G base stations and expanding our 4G user base by over 20%.
Our team in Kazakhstan have been successful in driving digital adoption through their digital operator brand, Izi, which provides a flexible range of prepaid bundle services on an OTT basis to customers via a dedicated smartphone app. Rapid digital adoption is also evident in the team's success in driving both in mobile financial services, where they now have close to 2 million users. Turning now on to the numbers of Beeline Kazakhstan. The impact of Kcell is illustrated in the left-hand charts by the shaded component of our second quarter bars. Adjusting for one-off related to Kcell payment, revenue grew by 9.2% and EBITDA grew by 13.4%. The charts illustrate the steady growth we have enjoyed in 4G users, up 24% year-over-year, and the substantial rise in data revenue has contributed to up to 40% year-over-year.
You will see that our subscriber base declined by 6% year-on-year. This reflects the impact of IMEI registration, where requirements were enforced last November, as well as the store closures and lack of gross ads. Our subscribers are spending more with us, demonstrated by the 11.9% rise in ARPU. The 10 percentage point increase in the share of 4G users in our customer mix contribute to this rise. Kazakhstan is a market with a bright digital future. It is one of the first markets in which we successfully trialed 5G services back in November 2019. While 5G investment remains a distant need for now, the nation's rapid digital adoption provides us an opportunity to offer our customers a wide variety of latest digital services. With that, let me pass the floor over to Sergi to take you through our other markets. Sergi?
Thank you, Kaan. Let me first talk about Pakistan, then Ukraine, and finally conclude with some observations and highlights from the rest of our markets. It was another solid quarter for Jazz. We managed to hold the top line broadly flat despite the disruption caused by lockdowns. Key to these results was our success in growing data revenues through expanding our 4G customer base. Underpinning this growth was further investment in our networks, which enable us to expand the number of our 4G base stations by 17% and drive 4G penetration above 30% of our total subscribers. The growth rates were quite substantial, with data revenues growing close to 28% on the back of a 32% expansion of our 4G base and a strong uptake of our growing ecosystem of digital services.
Jazz is the poster child of how rapid digital adoption is combining with an ecosystem of services to drive impressive growth rates in products like JazzCash. The market leading digital financial services platform, where our customer base passed the 8 million monthly active user mark during Q2. Similarly impressive has been the growth we secure in our self-care app, where we now have over 6 million users, which is four times the number we recorded this time last year. Moving to slide 19. We're going to move now to numbers. The year-on-year revenue decline you see here reflects the impact of last year's tax regime changes, which distorts the operational comparisons. Adjusting for this, and despite the lockdown, revenue grew was 0.5%, underpinned by the strong 27.6% rise in data revenue, as well as a 5.6% expansion of our total customer base.
EBITDA was also impacted by the tax changes and also by a change in the accounting treatment of our Warid license amortization expense from below EBITDA to services cost. Excluding the impact of this, EBITDA would have decreased by 6.4% versus the -20.6% we recorded for the quarter. You'll see some of the data and 4G KPIs I've already referred to in the right-hand panel of this slide, which also underscores how the 4G opportunity in Pakistan remains at a relative early stage, with a smartphone adoption and our 4G subscriber base still around 30% level, despite the impressive 11.7% point growth we secure in our 4G base during Q2. To conclude Pakistan overview, we wanted to share more details around the progress we've made with JazzCash and the opportunity that it presents.
Collectively, our users conducted 900 million transactions over the course of the past 12 months, with a combined value of PKR 1.7 trillion, or just over $10 billion. Taken as a whole, our monthly active user base stood at 8.1 million at the end of Q2, during which the year-over-year growth in mobile wallets was around 41%. In April, we start issuing global standard QR codes as a means for merchants to accept payments digitally. This technology is more affordable and easier to deploy than traditional points of sales. In mid-Q2, JazzCash launched the first and only fully digital merchant onboarding process in Pakistan.
This allow merchants across the country to open a secure merchant account through a few simple steps, all of them performed 100% online, and with less than a day, start accepting payments for goods and services sold digitally, both over the counter and online. Prior to this, the whole process could take up to two months and require physical submission of documentation. During the peak of the lockdown, JazzCash enrolled close to 7,000 merchants using this technology. More recently, we have had particular success in attracting self-employed who face particular challenges during the lockdown. JazzCash is now the nation's largest financial services provider to Pakistan freelancers, with over 76,000 registered users from this professional community who have together performed transactions worth over PKR 1.2 billion. Moving now to another of our growth markets, Ukraine.
Kyivstar record positive growth in both revenue and EBITDA during the quarter, despite the impact of the lockdowns. Kyivstar success here reflects its continued ability to grow its product offering to match the evolving needs of its customers. Underpinning this was the continued investment we dedicated to our 4G network, which enabled us to grow our number of base stations and customer base by around 50% year-over-year, and to finish the quarter with over 80% of the nation's population under 4G coverage. These network capabilities were further expanded during the quarter through the MOU signed between Kyivstar and Vodafone on network sharing, which broadens our 4G reach in rural areas.
Kyivstar operates one of the group's most diversified range of digital services, both for B2C subscribers through products like Doctor Online and our Kyivstar TV content platform, and also for B2B customers, where our strategic partnership with Microsoft, which was announced last December, is enabling us to leverage the power of IoT, big data, AI, and cloud computing to our business subscribers. This provides the business with a balanced portfolio of growth opportunities in a marketplace that is rapidly maturing. All of this allow us to grow revenues by 6.8% and EBITDA by 11.5% in Q2, helped by the good cost control. Lockdowns boost the adoption of our digital services and increase demand for data and fixed-line services, contributing 13.1% growth in data revenues and 9.4% increase in ARPU.
Demographic trends and the steady decline in multi-SIM users continue to provide a headwind, against which Kyivstar, so its total customer base, fall by 3.1% year-over-year. However, our 4G customer base grew by 51% and now represents over 30% of our total subscribers, an increase of 11 percentage points year-over-year. This position has strongly to enjoy future growth in this market as the needs of our retail and business customers develop, and are matched by Kyivstar's growing ecosystem of services. Finally, let me turn to some of the key trends across other markets, which we summarize here on slide 23. The key theme that underpins these markets is the long-term growth opportunity we see in 4G services, which is as well across the group, we are enabling through concerted investment in our networks.
In markets like Algeria and Bangladesh, it is enabling a strong growth in data revenue as rising proportions of local populations fall within our 4G footprint. More immediately, these markets have been affected with operational disruptions brought about by the pandemic, and their growth momentum has been interrupted as a consequence. As with all the group businesses, our focus remains on the long-term potential, and we will continue to invest in some of this industry's most exciting early-stage growth markets. With that, let me hand back to Serkan to conclude with a summary of our outlook for the remainder of the financial year. Serkan?
Thank you, Sergi. Let me now turn to financial guidance, which we have reintroduced for financial year 2020 following an assessment of the impact of COVID-19 on our performance. This is set out on slide 25. We have been encouraged by a gradual recovery in revenues across the majority of our markets since the middle of Q2, as lockdowns were steadily eased. We expect this revenue trend will continue in the second half and will enable a steady recovery in group EBITDA as well. As a consequence, we now expect a low to mid-single digit local currency decline in both group revenue and in EBITDA for the full year 2020. This compares with a 3.4% local currency decline in revenue and 4.8% decline in the EBITDA at the interim stage.
As such, our guidance implies we expect to see the pace of EBITDA recovery accelerate at the group level in the second half as lost revenues return and our cost control measures continue to make a positive contribution to our margin. Our new guidance also illustrates the steady operational improvement we saw in May and June. Given that last quarter, we observed that April had seen a high single-digit decline in local currency revenue and a mid-teens fall in EBITDA year-over-year. I would caution that this new group guidance assumes a continued gradual lifting of lockdown restrictions across our markets. There remains some risk that we could see lockdown restrictions reinstated, which would have a negative impact on our outlook. I would also draw attention to Russia, where Q3 is likely to remain challenging given the underlying performance issues we are tackling.
This assumption is, however, captured in our new 2020 group guidance. Investment in our network in Russia continues, and we expect that the results of this and our broader turnaround strategy, which is well underway, will be evident in Beeline's performance during the first half of 2021. We have also reinstated guidance for group CapEx intensity, given the importance we assign to investing in our 4G networks in order to seize the considerable growth opportunity we enjoy in data. This is now set at 22%-24% for the full year, up slightly from the 21%-22% level we guided to at the full year 2019 stage, which primarily reflects the lower revenue expectations we have set for 2020 as a consequence of COVID-19.
Regarding dividends, our policy remains as previously disclosed: to pay at least 50% of equity free cash flow after licenses while maintaining net debt to last 12-month EBITDA at around two times and taking into account medium-term investment opportunities. Cash flows generated in the first half of 2020 were weaker compared to last year. Given that in the second half, we may potentially face a number of uncertainties, we currently believe it is unlikely that we will pay a dividend for the full year 2020. With that, I'd like to thank you for your attention and pass the call over to the operator for your questions. Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad and wait for your name to be taken. Wait for your name to be announced. Apologies. If you wish to cancel that request, please press the hash key. Once again, that's star one to ask a question. Your first question comes from the line of uncertain a t Goldman Sachs. Please go ahead. Your line is open.
Yes, thank you very much for the presentation. Couple of questions. Firstly, can you elaborate on the dividend outlook for 2020? Basically, is the outlook not to pay is more about higher than 2x net debt to EBITDA that you envisage by the end of the year, or outlook on the leverage to potentially worsen further throughout 2021, or any other potential uncertainties that you can elaborate on that you take into consideration? Secondly, can you share some thoughts on the level of the equity free cash flow for this year that you envisage for the company? Any thoughts potentially on the upside and on the downsides going into the second half? Thank you.
Okay.
Serkan.
Okay. Thank you very much. Regarding your first question about the dividend, as I mentioned in the presentation, our dividend policy stays the same, which links the dividend payout to net debt to last 12 months EBITDA, and also acute free cash flow. As also we mentioned, our current at the end of June, net debt to EBITDA is around two times, which is quite at the edge of the policy. In the coming quarters, second half of the year, the uncertainty that I was referring to was related to the COVID-19 and potential lockdowns in different jurisdictions and their potential impacts on our results, basically EBITDA and the cash flow. Apart from that, of course, we are looking at certain M&A transactions as well. The realization and the timing of those transactions also may impact the equity free cash flow, which will impact the dividend payout.
That's the outlook that we can share at the moment. Regarding free cash flow, as I mentioned again, first-half free cash flow is lower than last year, the same period. However, we should also note that last year, first half, we had a couple of positive one-offs. The main one was Ericsson payment of $350 million. If we exclude the one-offs from both years, still this year, our free cash flow in the first half is slightly lower than last year. Having said that, again, the uncertainties around the COVID-19, potential currency fluctuations in the emerging markets that we are operating in, these may impact our EBITDA and the cash flow in the second half of the year. That's what I can say. For the free cash flow, I think we don't give any guidance, so I think I should pause it this moment.
Okay, thank you. Let's say if you, by February next year have around 2x leverage, do you think that dividend payment is likely or not? If you can comment. Thank you.
Of course, the final decision is to the board of directors, but if we satisfy all the conditions as per the policy, I think that the board of directors will take this into consideration in their decision in February 2021.
Okay, thank you.
Your next question comes from the line of Ivan Kim at Xtellus Capital. Please go ahead. Your line is now open.
Yes, good afternoon. Two questions, please. Firstly, it's clear that this year's capital intensity will be high. For how long do you think your CapEx will stay elevated? That's the first question. The second question on the Russian market. In terms of the customer loss in the second quarter, can you split out what % of the customer loss were migrant workers? In general, apart from the network investments, what are the measures in Russia that you take to turn the business around? How well your family tariffs are going? Any color around all that would be great. Thank you.
Ivan, thank you very much. This is Kaan. In terms of capital intensity, we have to understand that we are still in the penetration increase phases of 4G in all of our markets. We would see around 18%-20% capital intensity, as we have an opportunity to reach minimum 70% of 4G penetration over the years to come. This may change from market to market, but we should expect this to continue for a while, given the fact that we are still penetration level around 40% and we have quite a long road to go. With regard to the Russian market, in Russia, especially the lockdowns and the store closures, had almost 50% reduction in gross additions, new customer inflow to our business.
Assuming that you would have normally 6 million new additions to this due to heavy migrant traffic in the country, this was almost a 3 million impact overall subscriber numbers. This is an important portion to look at. Having said that, our 4G subscriber base has increased healthily in Russia as well from 32% to 42% penetration of total subscribers. That has been the major drivers as we have seen in the market.
Okay, thank you. What about the family tariffs? You launched them early in the year. Do you see better retention? Do you see upsell, downsell? How are they going?
Considering the COVID-19 impact and the impact on gross additions as well as top-up, I think it would be unfair to make a comment about the family tariffs and their performance. Overall, what I can tell you is our modernization of value propositions for the Russian marketplace are already being worked on for the second half of the year.
Okay. Thank you, Kaan.
Thank you.
Ladies and gentlemen, as a further reminder, if you would like to ask a question, please press star and one on your telephone keypad. The next question comes from the line of Andrey Krivoshik at UBS. Please go ahead, your line is open.
Thank you. Hello, I've got two questions, please. One is on OpEx. If you could please give us a bit of more context in terms of what part of the OpEx decline that you highlight was top-line driven, and what sort of percentage of that could potentially be structural? If you could maybe put that into context with the program that the company had last year. I don't know if it still has that program under you as new management of declining the cost intensity by roughly one percentage point per year. Second question please, just on distribution in Russia.
Some of your peers have launched distribution partnerships, and also made comments that obviously in this situation, the consumers are learning to sort of undergo digital customer journeys, and so there is clearly potential to downsize the footprints of the stores further. Do you share this view on a short-term basis? Because clearly losing market share is something or a situation in which you potentially don't want to do this too fast or too aggressively. Thank you.
This is Kaan. Let me answer the second question on distribution, and I will leave the OpEx and the EBITDA impact to Serkan. In Russia and overall, the COVID showed us actually that the future of distribution is all about digital and alternative channels. With that in mind, we are significantly upgrading our customer self-care application capabilities, self-registration capabilities, and we are already seeing the impacts of those. Again, for the future, we see franchise-based models and alternative distribution channels balancing out significantly the physical inefficient cost structure of the distribution network. We have already closed permanently 627 stores in Russia, and for the future, we will further optimize these numbers with franchise, alternative partnerships, and alternative channels. Serkan, you want to comment about the EBITDA and the top-line impact on the EBITDA?
Thank you. Regarding OpEx, actually 2020 and specifically Q2, they are really specific periods regarding OpEx and the cost-saving initiatives. However, if you refer to page 29 of our presentation, you can see where we focus and where we deliver during the quarter. If I just elaborate a little bit on that, in this quarter, obviously we managed to reduce our G&A and HR and staff costs, which you may say that partly structural, partly short-term quick wins in our cost structure. We have delivered in total $26 million year-over-year savings in the quarter. Apart from that, there's an ongoing program in the HQ, which started before the pandemic, actually, to reduce the costs year-over-year. We see that that program is delivering good results, and it will continue for the rest of the year as well.
Some significant cost reductions are coming from there as well. In the same slide, you can see that compared to last year, the same quarter, we reduced the cost at HQ by $69 million, which is quite significant. If you look at the group structural cost, which I believe personally more important because if we improve our structural cost, we can benefit from those cost savings in the long term as well, not only temporary, in the long term as well. If you compare Q2 to Q2 last year as a group perspective, our structural costs decreased by 15% in Q2. That's coming from many initiatives, and we will continue to focus on those as well. The only thing that is different from this trend is the network-related expenses. As discussed at the beginning of this presentation actually, we continue to invest in our mainly 4G networks.
That is also very critical for us in the long-term sustainability of the growth and profitability of the group. That increased investments in networks, and we want to continue those investments, which is obvious from our CapEx intensity guidance as well. Currently, year-over-year, we don't have any network cost savings because we are growing the network. In time, we believe that with the optimizations in the network as well, we will start to get some benefits from that area as well. It's difficult to give you an absolute amount, absolute number, how this will impact our cost intensity, as you mentioned in your question. The trend-wise perspective, we are reducing our OpEx in general, and we are also reducing our structural OpEx, which is more important, in my opinion, in the long term.
Serkan, this is Kaan. Just to add to what Serkan just mentioned, because Serkan mentioned already that there was a 300 basis point impact in Russia EBITDA impacted by all these actions. Our new turnaround strategy and execution is focused on customer experience. To make sure that our customers are experiencing a world-class service, we are taking actions as we speak to deploy a 4G network for subway system. As part of these exercises, we are providing free Wi-Fi access for all our customers on the subway and increasing our capacities on transmissions, which are having a direct impact to our operational costs. I think these are all the investments that we are doing for the right ambitions and the right direction.
Thank you for that. If I may have a follow-up question for each. Kaan, can you give a sort of trend for the next couple of years in terms of what directionally in terms of store closures? Is there a number, 5%, 10% per year that you think is realistic in terms of that? Serkan, if you could please comment on the OpEx program that the company had. Again, I'm not sure that actually it's still valid, but can you just confirm that the percentage point per year OpEx intensity program is something that the management targets currently? Thank you.
Sure. If you remember, we have previously provided a guidance of 600 stores to be closed over time. We already are at 627. Frankly speaking, I wouldn't believe if somebody told me that 1,400 of our stores in Russia would be closed due to the COVID pandemic. That happened, and now we have a much better understanding of our potential with our digital interaction with our customers. But before giving a new number, I really would like to see a little bit more about how pandemic goes on and how the closures of our stores are impacted. But clearly, optimization in this area is further possible through franchises, partnerships, alternative channels, and most importantly, the digital penetration increases.
If you allow me, I don't want to give any specific number for the OpEx improvement, but what I can say, this COVID pandemic changes lots of things. Because of this, after the COVID pandemic return back to the normal, we think that many things will not be normal as we define normal in before the pandemic. Because of this reason, we look and deep dive each and every cost item, and we are trying to think outside the box how we can improve the cost structure, not only with short-term wins, with long-term structural changes. I believe that sometime beginning of next year, we will be in a better position to guide you what kind of impact, definitely positive impact, we can achieve in the OpEx structure.
Thank you very much.
Your next question comes from the line of Stella Cridge at Barclays.
Hi there. Good afternoon, and many thanks for the call today. I was wondering if I could ask a couple of questions. The first one is, earlier in the call, you mentioned that M&A was a potential consideration for the rest of the year. I was just wondering if there was any more details you could provide on that, if you were referring to any specific geographies.
In particular, I'm aware that some key dates with regards to the shareholder agreement in Algeria come up in 2021, and I was just wondering if there'd been any further discussions with regards to the future of that business. The second question was just on the funding. You've obviously been quite active with refinancing and addressing the cost of debt, but the average maturity is still below three years. I was just wondering, what are the main next steps that you're considering on the funding strategy? That'd be great. Thanks.
Thank you, Stella. Let me take first the M&A question, and then I'll defer to Serkan for the second part. Talking about Algeria, as you mentioned, we have a potential deadline on July 2021. For the time being, no actions on that regard. We definitely seen a very good progress in the country, and the team did a good job deploying CapEx in a smart way. We are fairly confident that things are in a good place there. When it comes to M&A, there's multiple fronts that we are continuing to evaluate, both on the traditional connectivity business, but also on the non-connectivity side. There's no announcements at this point, but it is something that it's one of our priorities for the remains of the year.
Thank you, Sergi. Regarding the funding strategy, I can explain in four pillars. The first pillar is decreasing the cost of debt. We will continue to focus to decrease our blended cost of debt for the group. That will be the first pillar. Second pillar is increasing the tenor, increasing the maturities. We managed to increase the average maturities from 2.3 years- 2.8 years. In our opinion, we should increase that further, so average tenor should increase further.
The third pillar, we are operating in 10 different countries, and most of them are emerging or frontier markets, and we are exposed to potential currency depreciation. The third pillar, because of this, is to leverage the balance sheet in local currencies that we are operating in. That's the third. The last pillar is diversification of sources. We want to diversify sources of funds from the DCM markets, from banks, from local markets. Those are the pillars of the strategy. Decreasing the cost of debt, increasing tenor, increasing leverage in local currencies, and diversifying the sources of funds.
That's great. Many thanks. I was just wondering if I could follow up on a couple of points. Sorry if this is just me if you could explain a little bit more what you mean by a connectivity business on the non-connectivity side. Just in terms of the currency mix, I mean, obviously saw that you have been doing the hedging, particularly on the USD side. Does this kind of naturally imply that you want to have a lower amount of Euro bonds in $ outstanding in the future, kind of all else equal? Thanks.
Sure. Happy to provide more color. What I was referring for non-connectivity is the things that you mentioned, like Algeria. Of course, Pakistan, as you know, there's another situation with a put call option there, and acquisitions that we could do perhaps in the D2C or B2B area. When I say of non-connectivity is the area that we've been calling ventures, and this refers to financial services, content, and potentially some big data properties.
Regarding the currencies, as you know, slightly lower than 50% of our business is in Russia, we are exposed to RUB depreciation or appreciation. We always keep focus on to make natural hedge if possible. If not possible, through derivatives, we want to keep the RUB exposure under control. Apart from that, of course, we will always have probably U.S. dollar debt as well, because as you know, U.S. dollar debt market is the deepest market between the currencies, and in some cases, we can leverage the balance sheet in U.S. dollar with the proper condition. We will look at both. Whichever is beneficial for the company, we will leverage that. Having said that, we will always keep our eye on hedging, because we don't want to get exposed to sudden currency fluctuations.
Sure. Many thanks for all the answers. That is appreciated.
The final question comes from the line of Maria Sukhanova at BCS. Please go ahead. Your line is open.
Good afternoon. Thank you for the call. I have a follow-up on dividends. If you could just a little bit clarify your message here. Are you saying that there is a risk if you can't meet your guidance for the full year that then you would recommend no dividend? Or what you are saying is that in the base case, if financial performance is in line with expectations and the M&A plans are in line with expectations, this is when you would not still recommend a dividend for the full year? Just to have more sense direction-wise. Thank you.
Thank you. Again, I want to refer to our policy. Our policy says that we will distribute, or we will consider to distribute dividend minimum 50% of the free cash flow after certain items. We will maintain our net debt to EBITDA around two times. As you know, our numbers are close to that guidance, our net debt to EBITDA is around two times as of end of June. As we discussed, and as we all know that the second half of the year, there are lots of uncertainties which may be realized, which may also impact our guidance as well.
That's why we said that when we look at the future, there are uncertainties around the operational results coming from the COVID lockdowns, currency depreciation. There are some elections. There are many things. Apart from that, as I said, we have a M&A transaction which may be realized in this year or early next year as well. Combination of all these, we think that a dividend payout early next year based on 2020 is unlikely. Of course, we have to see the final actual numbers, and that will be evaluated by the board of VEON beginning of 2021.
Thank you. Just quick follow-up. Could you please update us what's current status on negotiations on spectrum payments in Pakistan? Is there any date set or any sense when we get final decision?
Sergi, you want to take or I will take it?
Serkan, go ahead and I'll complement if needed.
Okay. As you know, the license payment, we have done 50% of the license payment in protest. In Q2, we also paid $57.5 million as well, again in protest. Currently because of the COVID-19 lockdowns and most of the government authorities in Pakistan are closed, courts are closed. Because of all these reasons, the negotiations, I cannot say that they are ongoing as it should be. After reopening of the authorities, the government agencies, et cetera, I believe that again, the discussion with the government authorities will restart.
Okay. Thank you very much.
Thank you.
We do have a further few questions on the lines. The next comes from the line of Andrey Krivoshik of UBS. Please go ahead. Your line is now open.
Thank you for taking my follow-up. It relates to the fixed business in Russia. In that particular business, you're sort of doing very well. I think you have one of the highest growth rates from the big operators. If you could elaborate a bit, please, because this is quite a saturated market, I think especially where you are sort of focused in the urban areas. If you could elaborate a bit on where that growth is really coming from, and what potential to sustain these high single digit growth rates you see over the medium term. Connected to that, if you could please elaborate a bit on whether there has been any change to your fixed- mobile convergence strategy. Thank you.
Sure. Thanks for the question. As we mentioned, the customer behavior due to the lockdowns really pushed some of our customers to consume more fixed networks. Of course, COVID's impact has been attributed to that. This is not the only trend. Actually, our strong B2B business is also a key driver of that as our customers work from their home locations. We have to understand that fixed networks are normally much more sticky, and I do not expect these customers going back to only mobile.
Mobile and fixed are not substitutes, so they will be consuming mobile as well as they keep their current fixed networks. The average tenure of a fixed customer is much longer than a mobile customer. I think this surge is a reflection of our strength in B2B business and our customers' preference to consume home networks and their choice of operator being Beeline. I do expect that these customers to continue consuming this even after the COVID. Therefore, we will see in addition to that, of course, them returning to mobile network utilization as well.
Thank you.
Thank you.
Your final question comes from the line of Oksana Mustiatsa of Sova Capital. Please go ahead. Your line is open.
Hi. Yes, thank you for the opportunity to ask questions. The first one would be, could you please give us some color on whether you reach any decision on the acquisition of the remaining 15% in the Pakistan business from your partners? The second one is, could you please update us on your current listing strategy, whether you're still looking for the secondary listing or not? Thank you.
Happy to take the first one on Pakistan, and then maybe Serkan or Nik or Alex can comment. We didn't make any decision. As you know, there's a fixed period on time to make this put call option. We are evaluating the options, and we'll come back with updates when it's required.
Oksana, just regarding the listing and alternative listings, this topic, as you mentioned last time, has been raised by a number of investors. Clearly, we obviously take investors' concerns to heart. It is being discussed internally, and we are evaluating this. As soon as we're in a position to give feedback to the market, we will do so.
Thank you.
There are no further questions at this time. Please continue.
If there are no further questions, we'd just like to thank everyone for taking time to dial into our call. If you do have any further follow-up questions, please feel free to reach out to us. Take care everyone, and we'll speak again soon. Thanks very much.
Thank you. Stay healthy.
That does conclude the conference for today. Thank you for participating. You may all disconnect.