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VEON Reports Good Q2 2019 Results

AMSTERDAM, Aug. 1, 2019 /PRNewswire/ -- VEON Ltd. (NASDAQ: VEON, Euronext Amsterdam: VEON), a leading global provider of connectivity and internet services, today announces financial and operating results for the quarter ended 30 June 2019.

Q2 2019 RESULTS1

  • Revenue tracking in line: total revenue increased by 7.5% organically2 year on year with service revenue increasing 5.0% organically2 to USD 2,080 million, driven by particularly strong performances in Ukraine and Pakistan
  • Organic data revenue growth remains robust: the momentum in mobile data revenue continued in the period growing by 22.7% year on year organically2, with Ukraine (+77%), Pakistan (+59%) and Bangladesh (+28%) delivering strong performances on the back of ongoing 4G/LTE investments
  • Reported revenue flat as currency headwind slows: the currency headwind in the period was limited to USD 179 million resulting in a decline in reported revenue of only 0.4% year on year. This compares to the 5.6% decline in the first quarter.
  • EBITDA (pre-IFRS 16) delivers good organic growth: EBITDA (pre-IFRS 16) increased organically2 by 11.1% year on year to USD 866 million, resulting in an EBITDA margin of 38.3%. Ukraine and Pakistan delivered particularly strong performances in organic EBITDA. Reported EBITDA grew by 16.1% year on year
  • Cost intensity ratio3 continues to improve organically2: We recorded a 2.7 percentage point year on year organic2 improvement in our cost intensity ratio, helped in particular by Ukraine and Pakistan which both saw benefits from above-inflation revenue growth while we continued to progress on lower corporate costs
  • Corporate costs trending lower: Corporate costs were USD 60 million, which resulted in a 15% year on year decline in the first half 2019. This is in line with VEON´s ambition to reduce corporate costs by 25% year on year in FY 2019 and to halve the corporate cost run-rate from FY 2017 level by end-FY 2019
  • Equity free cash flow4 excluding licenses USD 338 million: In the quarter, adjusting for the positive effect of IFRS 16, the company generated USD 249 million equity free cash flow (excluding licenses), including USD 175 million from Ericsson. Equity Free Cash Flow excluding licenses for the half year adjusted for IFRS 16 impact was USD 630 million
  • Reported cash flow impacted by tax payment: cash flow was negatively impacted by the first payment of USD 54 million related to GTH tax settlement

KEY DEVELOPMENTS

  • Board of Directors approved interim FY 2019 dividend per share of USD 0.13
  • VEON's Group Chief Financial Officer to step down at the end of September 2019
  • GTH reached an agreement with the Egyptian Tax Authority ("ETA") to settle all outstanding tax liabilities of GTH and its Egyptian subsidiaries for a total amount of USD 136 million
  • The mandatory tender offer ("MTO") in relation to Global Telecom Holding ("GTH") commenced on 2 July and will expire on 6 August 2019. While we remain optimistic on the outcome of this process, we will need to wait until the closing of offer period to have certainty on the outcome
  • During the second quarter, VEON received the balance of the Ericsson payment of USD 175 million, supporting equity free cash flow. Cash flow was negatively impacted by the payment of USD 54 million in taxes to the ETA ahead of the MTO
  • Strengthening our management team: Sergi Herrero appointed as the COO for VEON Ventures
  • VEON shareholders elected Muhterem Kaan Terzioğlu as a new member of VEON's Board of Directors


OUTLOOK

  • FY 2019 guidance confirmed: Low single-digit organic2 growth for revenue, low to mid single-digit organic2 growth for EBITDA and Equity Free Cash Flow excluding licences of approximately USD 1 billion. While we are tracking ahead of our guidance at the interim period, we note the second half metrics are more challenging. Directionally there is upside to revenue and EBITDA.

URSULA BURNS, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, COMMENTS:

"VEON reported a strong first half 2019 with continuing good operational performance. Despite the challenging market conditions, we continue to make steady progress on network performance and distribution optimization. Our strong results in Ukraine and Pakistan ensured a balanced performance for the Group. Our service revenue growth was largely driven by strong growth in data revenue on the back of the continued investment in our data networks in the period. This will remain a key focus for VEON over the medium-term while we explore new ventures in the longer-term.

We remain acutely focused on costs not only at the Group level but across all our operations. The improving cost efficiencies we are delivering have allowed a number of our smaller markets to record encouraging incremental profitability for the Group.

As we continue to focus on simplifying our structure, we are encouraged by the progress we are making with our restructuring plans for GTH, including the commencement of the mandatory tender offer on 2 July 2019, and we are optimistic on concluding this process successfully. We believe that a simplified and streamlined Group will allow us to further unlock value for shareholders over the medium to long term.

Despite some macro and regulatory challenges, we remain optimistic on the medium to long term opportunity that our portfolio presents, and we will continue to focus on driving strong operational performance, while simplifying our portfolio and maximizing data opportunities. We have confirmed our guidance for FY 2019."

Key results compare to prior year results unless stated otherwise

Organic change is a non-IFRS measure and reflects changes in revenue, EBITDA and cost intensity ratio, that excludes the effect of foreign currency movements, the impact of the introduction of IFRS 16, exceptional income of USD 350 million in respect of revised partnership with Ericsson and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations

Cost intensity ratio is defined as service costs plus selling, general and administrative costs, less other revenue, divided by total service revenue. Based on FY 2018, in USD million (3,697+1,701-133)/8,526

Equity free cash flow excluding licenses is a non-IFRS measure and is defined as free cash flow from operating activities less cash flow used in investing activities, excluding M&A transactions, capex for licenses, inflow/outflow of deposits, financial assets and other one-off items. EFCF target for FY 2019 is based on currency rates of 20 February 2019, excludes USD 136 million payment of Global Telecom Holding tax settlement, includes the one-time cash received in connection with a revised arrangement from Ericsson of USD 350 million. See attachment C for reconciliations

FY 2019 targets exclude the impact of the introduction of IFRS 16


Note:

In Q2 2019, both revenue and EBITDA were positively impacted by special compensation of USD 38 million related to the termination of a network sharing agreement in Kazakhstan between our subsidiary KaR-Tel LLP and Kcell Joint Stock Company ("Kcell") due to Kazakh telecom JSC's acquisition of 75% of Kcell's shares.

In addition, in Q2 2019, as a result of the USD 136 million GTH Tax Settlement (see below "GTH Tax Settlement''), VEON has recorded an additional provision of USD 56 million with USD 27 million in the EBITDA and USD 29 million in the income tax.

KEY RESULTS: CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS

USD million

2Q19

2Q19
pre-IFRS 16

2Q18

Reported YoY

Reported YoY
pre-IFRS 16

Organic
YoY 1

Total revenue, of which 

2,261

2,261

2,270

(0.4%)

(0.4%)

7.5%

   mobile and fixed service revenue

2,080

2,080

2,136

(2.6%)

(2.6%)

5.0%

   mobile data revenue

590

590

517

14.2%

14.2%

22.7%

EBITDA

994

866

857

16.1%

1.0%

11.1%

EBITDA margin (EBITDA/total revenue)

44.0%

38.3%

37.7%

                         6.2p.p.

                         0.6p.p.

1.3p.p.

Profit from continued operations

75

97

25

196.5%

n.m.


(Loss) from discontinued operations

-


(169)

n.m.

n.m.


Profit/(Loss) for the period 

75

97

(144)

 n.m. 

 n.m. 


Equity free cash flow excl. licenses 2

338

249

206

63.9%

20.9%


Capital expenditures excl. licenses

547

450

402

36.0%

11.8%


LTM capex excl. licenses/revenue

18.4%

16.7%

17.4%

                         0.9p.p.

                       (0.7p.p.)


Net debt

8,179

6,085

8,645

(5.4%)

(29.6%)


Net debt/LTM EBITDA

2.1

1.7

2.5

n.m.

n.m.


Total mobile customer (millions)

212

212

210

0.9%



Total fixed-line broadband customers (millions)

3.9

3.9

3.6

8.5%




Organic change is a non-IFRS measure and reflects changes in revenue, EBITDA and cost intensity ratio, that excludes the effect of foreign currency movements, the impact of the introduction of IFRS 16, exceptional income of USD 350 million in respect of revised partnership with Ericsson and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations


Equity free cash flow excluding licenses is a non-IFRS measure and is defined as free cash flow from operating activities less cash flow used in investing activities, excluding M&A transactions, capex for licenses, inflow/outflow of deposits, financial assets and other one-off items. See attachment C for reconciliations


USD million

1H19

1H19
pre-IFRS 16

1H18

Reported YoY

Reported YoY
pre-IFRS 16

Organic
YoY 1

Total revenue, of which 

4,385

4,385

4,520

(3.0%)

(3.0%)

7.4%

   mobile and fixed service revenue

4,085

4,085

4,292

(4.8%)

(4.8%)

5.3%

   mobile data revenue

1,157

1,157

1,022

13.3%

13.3%

24.5%

EBITDA

2,292

2,038

1,711

34.0%

19.1%

10.7%

EBITDA margin (EBITDA/total revenue)

52.3%

46.5%

37.9%

                       14.4p.p.

                         8.6p.p.

1.5p.p.

Profit from continued operations

605

652

68

n.m.

n.m.


(Loss) from discontinued operations

-

-

(300)

n.m.

n.m.


Profit/(Loss) for the period 

605

652

(232)

 n.m.

 n.m.


Equity free cash flow excl. licenses 2

795

630

540

47.2%

16.6%


Capital expenditures excl. licenses

988

838

757

30.5%

10.7%


LTM capex excl. licenses/revenue

18.4%

16.7%

17.4%

                         0.9p.p.

                       (0.7p.p.)


Net debt

8,179

6,085

8,645

(5.3%)

(29.6%)


Net debt/LTM EBITDA

2.1

1.7

2.5

n.m.

n.m.


Total mobile customer (millions)

212

212

210

0.9%



Total fixed-line broadband customers (millions)

3.9

3.9

3.6

8.5%



Contents
MAIN EVENTS......................................................................................................... 6
GROUP PERFORMANCE............................................................................................. 8
COUNTRY PERFORMANCE........................................................................................ 11
CONFERENCE CALL INFORMATION............................................................................. 18
ATTACHMENTS...................................................................................................... 21

PRESENTATION OF FINANCIAL RESULTS

VEON's results presented in this earnings release are based on IFRS unless otherwise stated and have not been audited.

Certain amounts and percentages that appear in this earnings release have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including those in tables, may not be an exact arithmetic aggregation of the figures that precede or follow them.

All non-IFRS measures disclosed in the document, i.e. EBITDA, EBITDA margin, EBIT, net debt, equity free cash flow excluding licenses, organic growth, capital expenditures excluding licenses, are reconciled to the comparable IFRS measures in Attachment C.

As a result of the termination of the agreement to sell its Pakistan tower business, the Company amended prior periods presented in the interim consolidated financial statements to retrospectively recognize the depreciation charge of USD 37 million per annum that would have been recognized had the disposal group not been classified as held for sale.

IMPACT OF IFRS 16 - LEASES ON FINANCIAL INFORMATION

From 1 January 2019, VEON has adopted International Financial Reporting Standards (IFRS) 16 (Leases). VEON is presenting Q2 2019 results excluding the impact of IFRS 16 for comparability purposes with prior periods, as well as presenting reported results which will reflect the new baseline for future period over period comparisons.

All forward looking targets exclude the impact of the introduction of IFRS 16 in FY 2019.

All comparisons are on a year on year basis unless otherwise stated.

MAIN EVENTS

REVENUE AND EBITDA

Reported revenue (-0.4% YoY) and EBITDA (+16.1% YoY) were impacted by both currency movements and IFRS 16 implementation in this year. On an organic basis revenue increased 7.5% YoY with EBITDA up 11.1% YoY driven predominately by the particularly strong performance from both Pakistan and Ukraine. While we are tracking ahead of our guidance at the interim period for revenue and EBITDA, the second half metrics are more challenging, and we will see some slowdown in the YoY trends.

While reported revenue was impacted by currency movements, the headwinds in Q2 2019 were limited to USD 179 million. This compares to the currency headwinds of USD 291 million in the first quarter where reported revenue was down 5.6%. The performance of the Russian ruble and Pakistan rupee will be key drivers for the balance of the year. 

During Q2 2019, both revenue and EBITDA were positively impacted by special compensation of USD 38 million related to the termination of a network sharing agreement in Kazakhstan between our subsidiary KaR-Tel LLP and Kcell Joint Stock Company ("Kcell") due to Kazakh telecom JSC's acquisition of 75% of Kcell's shares. This amount will be allocated to incremental network investments in Kazakhstan during the year and as such we expect no real impact on cash flow.

As a result of the USD 136 million GTH Tax Settlement (see below "GTH Tax Settlement''), VEON has recorded an additional provision of USD 56 million with USD 27 million in the EBITDA and USD 29 million in the income tax.

COST INTENSITY

In Q2 2019, cost intensity improved by 2.7 percentage points year on year mainly due to lower service costs in Russia, Ukraine and Pakistan. We are seeing continued progress across a number of our smaller markets and we expect the contribution from the other markets to become more meaningful over the coming year. In its 2018 results, VEON announced its commitment to reduce the Group's cost intensity ratio by at least 1 percentage point organically1 per annum between 2019 and 2021, from 61.8% as reported in FY 2018. 

At the Group level, the main contributor to cost intensity improvement for 2019 is still expected to be a further reduction in VEON's corporate costs. Cost intensity is defined as service costs plus selling, general and administrative costs less other revenue divided by total service revenue.

VEON'S BOARD OF DIRECTORS HAS APPROVED AN INTERIM FY 2019 DIVIDEND PER SHARE OF USD 0.13

VEON's Board of Directors approved the distribution of an interim gross dividend of USD 0.13 per share for 2019, with a record date of 14 August 2019, compared to USD 0.12 in Q2 2018. For ordinary shareholders at Euronext Amsterdam, the interim dividend of USD 0.13 will be paid in Euro.

VEON GROUP CHIEF FINANCIAL OFFICER

On 28 June 2019, VEON announced that VEON's Group Chief Financial Officer, Trond Westlie, will step down at the end of September. A worldwide search is underway for his replacement.

GTH TAX SETTLEMENT

On 26 June 2019, GTH reached agreement with the Egyptian Tax Authority ("ETA") to settle all outstanding tax liabilities of GTH and its Egyptian subsidiaries for a total amount of USD 136 million (the "GTH Tax Settlement"). The GTH Tax Settlement is in respect of tax liabilities of GTH and its Egyptian subsidiaries for the tax years 2000 through 2018. From 26 June 2019, following the first settlement payment of USD 54 million by GTH to the ETA, GTH was released in relation to tax years from 2006 through 2007 and 2010 through 2018. In respect of the years 2000 through 2005 and 2008 through 2009 for GTH and all years up to and including 2018 for GTH's Egyptian subsidiaries, the tax releases are expected to take effect immediately on the payment of the second settlement of USD 82 million by no later than 31 December 2019, at which time GTH is expected to delist from the Egyptian Exchange (the "EGX").

As a result of the USD 136 million GTH Tax Settlement, in Q2 2019, VEON has recorded respective liability to the ETA of USD 56 million with USD 27 million recorded under EBITDA and USD 29 million in the income tax line.

MANDATORY TENDER OFFER AND COMPREHENSIVE GTH RESTRUCTURING

On 10 February 2019, VEON submitted an application to the Egyptian Financial Regulatory Authority (the "FRA") to approve a mandatory tender offer by VEON Holdings B.V. for any and all of the outstanding shares of GTH which are not owned by VEON (up to 1,997,639,608 shares, representing approximately 42.31% of GTH's issued shares) (the "MTO"). On 26 June 2019, the FRA approved the MTO at an adjusted offer price of EGP 5.08 per share. The MTO commenced on 2 July 2019 and is expected to end on 6 August 2019. To further simplify VEON's corporate structure, following a successful completion of the MTO and the requisite shareholder approval, it is anticipated that GTH will be delisted from the EGX. Furthermore, VEON has submitted an offer to GTH to acquire substantially all of its operating assets, subject to successful completion of the MTO and delisting. The asset transfers will be conducted at the imputed MTO valuation. 

AGM ELECTED ONE NEW DIRECTOR

Following the election of the directors of the VEON Board at the AGM on 18 June 2019, the VEON Board now includes eleven previously serving directors, Ursula Burns, Guillaume Bacuvier, Osama Bedier, Mikhail Fridman, Gennady Gazin, Andrei Gusev, Gunnar Holt, Sir Julian Horn-Smith, Robert Jan van de Kraats, Guy Laurence and Alexander Pertsovsky, as well as one new director, Muhterem Kaan Terzioğlu.

STRENGTHENING THE TEAM

On 16 July 2019, VEON announced the appointment of Sergi Herrero as the Chief Operations Officer for VEON Ventures, effective from September 2019. Sergi will sit on VEON's Group Executive Committee and report to the Chairman and CEO, Ursula Burns. Sergi will lead our Ventures division and define the company's growth plans outside the traditional connectivity business, with a focus on adjacent digital products.

1 Organic change is a non-IFRS measure and reflects changes in revenue, EBITDA and cost intensity ratio. Organic change excludes the effect of foreign currency movements, the impact of the introduction of IFRS 16, exceptional income of USD 350 million in respect of revised partnership with and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations.

GROUP PERFORMANCE

FINANCIALS BY COUNTRY

USD million

2Q19

2Q19
Pre-IFRS16

2Q18

Reported
YoY

Reported
pre-IFRS 16
YoY

Organic1
YoY


1H19

1H19
Pre-IFRS16

1H18

Reported
YoY

Reported
pre-IFRS 16
YoY

Organic1
YoY

Total revenue

2,261

2,261

2,270

(0.4%)

(0.4%)

7.5%


4,385

4,385

4,520

(3.0%)

(3.0%)

7.4%















Russia

1,124

1,124

1,174

(4.2%)

(4.2%)

0.0%


2,172

2,172

2,340

(7.2%)

(7.2%)

2.1%

Pakistan

348

348

363

(4.2%)

(4.2%)

20.5%


710

710

731

(2.9%)

(2.9%)

22.0%

Algeria

187

187

200

(6.3%)

(6.3%)

(3.4%)


379

379

402

(5.7%)

(5.7%)

(2.4%)

Bangladesh

137

137

131

4.7%

4.7%

5.4%


271

271

260

4.1%

4.1%

5.0%

Ukraine

212

212

173

22.6%

22.6%

24.4%


400

400

329

21.5%

21.5%

22.4%

Uzbekistan

67

67

79

(15.5%)

(15.5%)

(10.6%)


131

131

155

(15.6%)

(15.6%)

(11.9%)

HQ

-

-

-





-

-

-




Other and eliminations

186

186

151





323

323

300


















Service revenue

2,080

2,080

2,136

(2.6%)

(2.6%)

5.0%


4,085

4,085

4,292

(4.8%)

(4.8%)

5.3%















Russia

1,014

1,014

1,076

(5.8%)

(5.8%)

(1.6%)


1,974

1,974

2,187

(9.7%)

(9.7%)

(0.6%)

Pakistan

324

324

337

(3.8%)

(3.8%)

21.1%


662

662

678

(2.4%)

(2.4%)

22.6%

Algeria

187

187

198

(5.8%)

(5.8%)

(2.9%)


378

378

400

(5.3%)

(5.3%)

(2.0%)

Bangladesh

134

134

125

7.1%

7.1%

7.8%


264

264

250

5.7%

5.7%

6.6%

Ukraine

210

210

172

22.5%

22.5%

24.3%


397

397

327

21.3%

21.3%

22.2%

Uzbekistan

67

67

79

(15.6%)

(15.6%)

(10.7%)


131

131

155

(15.6%)

(15.6%)

(12.0%)

HQ

-

-

-





-

-

-

-



Other and eliminations

144

144

148





279

279

293

-

















EBITDA

994

866

857

16.1%

1.0%

11.1%


2,292

2,038

1,711

34.0%

19.1%

10.7%















Russia

498

413

441

12.9%

(6.4%)

(2.1%)


966

799

884

9.3%

(9.6%)

(0.5%)

Pakistan

185

175

175

6.0%

0.0%

26.0%


369

345

349

5.5%

(1.3%)

24.2%

Algeria

84

75

87

(3.7%)

(14.1%)

(11.4%)


172

156

178

(2.9%)

(12.5%)

(9.3%)

Bangladesh

55

45

45

21.4%

(0.5%)

0.1%


114

95

91

25.0%

3.4%

4.2%

Ukraine

138

132

95

44.7%

38.9%

40.9%


256

245

184

39.3%

33.5%

34.5%

Uzbekistan

35

33

35

0.8%

(3.9%)

1.9%


67

64

68

(2.6%)

(6.4%)

(2.3%)

HQ

(60)

(60)

(54)





237

236

(134)




Other and eliminations

60

53

33





111

98

90


















EBITDA margin

44.0%

38.3%

37.7%





52.3%

46.5%

37.9%





1 Organic change is a non-IFRS measure and reflects changes in revenue, EBITDA and cost intensity ratio. Organic change excludes the effect of foreign currency movements, the impact of the introduction of IFRS 16, exceptional income of USD 350 million in respect of revised partnership with Ericsson and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations

Reported total revenue decreased by 0.4% year on year in Q2 2019 to USD 2.3 billion, driven by good operational performance that was largely offset by currency headwinds of USD 179 million. Organically, total revenue increased by 7.5% mainly as a result of revenue growth in Pakistan, Ukraine and Bangladesh in addition to special compensation received in Q2 2019 of USD 38 million related to the termination of network sharing agreement with Kcell. The total revenue organic trend was supported by good organic growth in mobile data revenue, which increased by 22.7% for the quarter. Reported mobile data revenue (+14.2%) was impacted by currency headwinds of approximately USD 50 million. Mobile customers increased year on year to 212 million at the end of Q2 2019, with customer growth in Pakistan, Algeria and Bangladesh, which was partially offset by a decrease in the customer base in Russia and Uzbekistan.

EBITDA pre-IFRS 16 increased organically by 11.1% to USD 866 million in Q2 2019, primarily due to a strong performance in Pakistan and Ukraine. Reported EBITDA increased by 16.1% year on year positively impacted by IFRS 16, which offset the negative impact of currency headwinds of USD 86 million.

Adjusting for the positive effect of IFRS 16, the company generated USD 249 million in equity free cash flow (excluding licenses) during Q2 2019, an increase of 20.9% year on year. This includes USD 175 million of second payment received from Ericsson and USD 38 million related to the termination of network sharing agreement with Kcell. Cash flow was negatively impacted by the payment of USD 54 million related to the GTH Tax Settlement. Reported equity free cash flow (excluding licenses) was USD 338 million in Q2 2019.

VEON's HQ segment consists largely of the costs of VEON's headquarters in Amsterdam. Corporate costs were USD 60 million in Q2 2019, up 10%, as a result of release of certain provisions in Q2 2018. VEON is on track to deliver on its target to reduce corporate costs by approximately 25% in FY 2019 from USD 359 million in FY 2018 and maintains the mid-term ambition to halve the run-rate of its corporate costs between FY 2017 (USD 431 million) and year-end 2019. 

"Other" in Q2 2019 includes the results of Kazakhstan, Kyrgyzstan, Armenia, Georgia, other global operations, services and intercompany eliminations and USD 27 million of additional provision in relation to the GTH Tax Settlement.

INCOME STATEMENT & CAPITAL EXPENDITURES













USD million

2Q19

2Q19
Pre-IFRS16

2Q18

Reported
YoY

Reported
pre-IFRS 16
YoY


1H19

1H19
Pre-IFRS16

1H18

Reported
YoY

Reported
pre-IFRS 16
YoY

Total revenue

2,261

2,261

2,270

(0.4%)

(0.4%)


4,385

4,385

4,520

(3.0%)

(3.0%)

Service revenue

2,080

2,080

2,136

(2.6%)

(2.6%)


4,085

4,085

4,292

(4.8%)

(4.8%)

EBITDA

994

866

857

16.1%

1.0%


2,292

2,038

1,711

34.0%

19.1%

EBITDA margin

44.0%

38.3%

37.7%

         6.2p.p.

 0.6p.p. 


52.3%

46.5%

37.9%

              14.4p.p.

              8.6p.p.

Depreciation, amortization, impairments and other

(530)

(417)

(474)




(1,040)

(818)

(974)



EBIT (Operating Profit)

464

449

383




1,252

1,220

737



Financial income and expenses

(196)

(153)

(194)




(393)

(303)

(391)



Net foreign exchange (loss)/gain and others

(22)

(22)

(11)




(8)

(8)

1



Share of (loss)/profit of joint ventures and associates

-

-

0




(0)

-

0



Other non operating gains / losses 

10

10

(15)




14

14

(25)



(Loss)/Profit before tax

256

285

161




865

923

321



Income tax expense

(182)

(187)

(136)




(260)

(272)

(253)



(Loss)/Profit from continued operations

75

97

25




605

652

68



(Loss)/Profit from discontinued operations

-

-

(169)




-


(300)



(Loss)/Profit for the period attributable to VEON shareholders

70

91

(142)




565

608

(254)
















2Q19

2Q19
Pre-IFRS16

2Q18

Reported
YoY

Reported
pre-IFRS 16
YoY


1H19

1H19
Pre-IFRS16

1H18

Reported
YoY

Reported
pre-IFRS 16
YoY

Capex

553

456

497

12.6%

(8.2%)


999

849

1,271

(19.8%)

(33.2%)

Capex excl. licenses

547

450

402

36.0%

11.8%


988

838

757

30.5%

10.7%

Capex excl. licenses/revenue

24.2%

19.9%

17.7%




22.5%

19.1%

16.7%



LTM capex excl. licenses/revenue

18.4%

16.7%

17.4%




18.4%

16.7%

17.4%




Note: prior year comparatives are restated following the classification of Italy Joint Venture as a discontinued operation and retrospective recognition of depreciation and amortization charges in respect of Deodar

Q2 2019 ANALYSIS

Reported EBITDA increased by 16.1%. EBITDA pre-IFRS 16 increased by 1.0% year on year, as the strong operational performance was offset by currency headwinds. Operating profit pre-IFRS 16 for the quarter increased to USD 449 million, mainly due to lower depreciation and amortization charges during the quarter. 

The year on year decrease in net finance income pre-IFRS 16 was mostly due to the lower debt levels during the quarter, which more than offset the marginal increase in the cost of debt as a result of an increase in the Russian ruble-denominated debt portion. Consequently, profit before tax pre-IFRS 16 was USD 285 million in Q2 2019, higher that the USD 161 million recorded in Q2 2018. Reported profit before tax increased to USD 256 million in Q2 2019.

Pre-IFRS 16 income tax expenses increased to USD 187 million in Q2 2019 from USD 136 million in Q2 2018. The year on year comparison is affected by a number of exceptional items in Q2 2019: a portion of additional tax provision of USD 29 million recorded as a result of the GTH tax settlement and a reversal of deferred tax assets at HQ of USD 49 million. Excluding these exceptional items, income tax decreased year on year mainly due to lower corporate income tax rate in Uzbekistan.

In Q2 2019, the Company recorded a net profit of USD 91 million for the period attributable to VEON´s shareholders pre-IFRS 16.

Capex excluding licenses pre-IFRS 16 increased to USD 450 million in Q2 2019 from USD 402 million in Q2 2018 due to Yarovaya investments in Russia and additional network investments in Kazakhstan required as a result of the termination of a network sharing agreement with Kcell for which VEON received compensation recorded as revenue this quarter. The ratio of LTM capex excluding licenses pre-IFRS 16 to revenue for the last twelve months was 16.7%.

FINANCIAL POSITION & CASH FLOW












USD million

2Q19

2Q19
Pre-IFRS 16

1Q19

1Q19
Pre-IFRS 16

QoQ

QoQ
Pre-IFRS 16





Total assets

16,519

14,479

16,676

14,638

(0.9%)

(1.1%)





Shareholders' equity

4,000

4,000

3,933

3,933

1.7%

1.7%





Gross debt

9,513

7,419

9,533

7,465

(0.2%)

(0.6%)





Net debt

8,179

6,085

8,265

6,197

(1.0%)

(1.8%)





Net debt/LTM EBITDA

2.1

1.7

2.2

1.7



















USD million

2Q19

2Q19
Pre-IFRS 16

2Q18

YoY

YoY
Pre-IFRS 16


1H19

1H19
Pre-IFRS 16

1H18

YoY

YoY
Pre-IFRS 16

Net cash from/(used in) operating activities

745

657

600

145

57


1,550

1,385

1,302

248

83

Net cash from/(used in) investing activities

(454)

(454)

(459)

5

5


(1,480)

(1,480)

(90)

(1,390)

(1,390)

Net cash from/(used in) financing activities

(191)

(102)

(332)

141

230


(580)

(415)

(1,332)

752

917

Gross debt was stable from Q1 2019 to Q2 2019. In Q1 2019, gross debt increased mainly due to the impact of the introduction of IFRS 16 and a drawdown under the VEON Holding B.V. Revolving Credit Facility in Amsterdam to fund the collateral for the MTO for GTH. Over the last year VEON significantly improved its currency mix of debt as it reduced its exposure to euro denominated debt and increased its Russian ruble debt exposure.

Net cash from operating activities increased year on year, mainly due to the second, final payment from Ericsson of USD 175 million in respect of a revised partnership agreement announced in Q1 2019, partially offset by the first payment of USD 54 million related to GTH Tax Settlement. In Q2 2018, VEON recorded an exceptional improvement in working capital related to a cash settlement.

Net cash flow used in investing activities was stable from Q1 2019 to Q2 2019 comparing to the last quarter. However, the mix has changed: in Q2 2018 VEON purchased licenses in Ukraine, while in Q2 2019 an additional investment was made in network, including Yarovaya expenses in Russia.

Net cash used in financing activities pre-IFRS 16 amounted to USD 102 million in Q2 2018, compared to USD 332 million in Q2 2018; mainly driven by lower refinancing activities in Q2 2019 compared to Q2 2018.

Net debt pre-IFRS 16 in Q2 2019 was USD 6,085 million and the net debt/ LTM EBITDA ratio was 1.7x. The net debt includes cash balances of USD 645 million pledged as collateral for the MTO. Reported net debt ratio at the end of Q2 2019 was 2.1x.

COUNTRY PERFORMANCE

  • Russia
  • Ukraine
  • Pakistan
  • Algeria
  • Bangladesh
  • Uzbekistan

 

RUSSIA









RUB million

2Q19

2Q18

YoY


1H19

1H18

YoY

Total revenue

72,554

72,542

0.0%


141,801

138,893

2.1%

Mobile service revenue

56,992

57,609

(1.1%)


111,926

111,892

0.0%

Fixed-line service revenue

8,465

8,901

(4.9%)


16,967

17,768

(4.5%)

EBITDA

32,172

27,243

18.1%


63,106

52,447

20.3%

EBITDA margin

44.3%

37.6%

        6.8p.p.


44.5%

37.8%

        6.7p.p.

EBITDA pre-IFRS 16

26,669

27,243

(2.1%)


52,200

52,447

(0.5%)

EBITDA margin pre-IFRS 16 

36.8%

37.6%

       (0.8p.p.)


36.8%

37.8%

       (0.9p.p.)

Capex excl. licenses

19,541

13,321

46.7%


37,006

22,328

65.7%

LTM Capex excl. licenses /revenue

20.8%

16.5%

        4.3p.p.


20.8%

16.5%

        4.3p.p.

Capex excl. licenses pre-IFRS 16

15,157

13,321

13.8%


30,143

22,328

35.0%

LTM Capex excl. licenses /revenue pre-IFRS 16

18.5%

16.6%

        1.9p.p.


18.5%

16.6%

        1.9p.p.









Mobile








Total revenue

64,047

63,576

0.7%


124,755

121,029

3.1%

- of which mobile data

15,450

15,417

0.2%


30,471

30,555

(0.3%)

Customers (mln)

54.3

56.4

(3.7%)





- of which data users (mln)

35.8

36.6

(2.3%)





ARPU (RUB)

348

338

2.9%





MOU (min)

305

323

(5.8%)





Data usage (MB/user)

5,046

3,454

46.1%





Fixed-line








Total revenue

8,507

8,966

(5.1%)


17,046

17,865

(4.6%)

Broadband revenue

2,711

2,547

6.4%


5,372

5,107

5.2%

Broadband customers (mln)

2.5

2.3

7.3%





Broadband ARPU (RUB)

371

373

(0.7%)





In Russia, the market was characterized by continued price and sales competition during the quarter impacting the overall market growth. However, Beeline continued to show steady progress on network performance and distribution optimization. Beeline reported flat total revenue growth year on year while EBITDA pre-IFRS 16 declined by 2.1%.

Total revenue in Q2 2019 was at RUB 72.6 billion, driven by the strong growth in sales of equipment and accessories up 20% to RUB 6.9 billion, following the expansion of our monobrand stores. Mobile service revenue decreased by 1.1% to RUB 57.0 billion, negatively impacted by the VAT increase to 20% from 18% and the termination of national roaming. The strong growth in VAS, content and revenue from mobile financial services was offset by the decline in voice revenue following continued price competition during the quarter. While data volumes continued to grow strongly, data revenue growth was more muted as price competition remained.

Mobile customers decreased by 3.7% year on year to 54.3 million largely as a result of a decline in sales through alternative distribution channels following the expansion of Beeline monobrand stores. We also saw a decline in migrant customers volumes by 30% in the period. Churn continued to improve quarter on quarter, and we would expect to see an improvement in customer trends towards the end of this year with the change in distribution model and the base effect from the last quarter of 2018. As first patterns of this process, we see quarterly growth of subscriber base by ~100 thousands in Q2 2019 vs Q1 2019. Mobile ARPU increased by 2.9% year on year, partially supported by the reduction in low ARPU customers.

Fixed-line revenue, adjusted for the centralization of transit services revenue and multinational data service revenue in VEON Wholesale Services, grew in Q2 2019, driven by continued improvements in B2C and B2B segments. VEON Wholesale Services is a Group division based in Amsterdam centrally managing wholesale services for all Group operations. Fixed-line service revenue declined by 4.9% mainly due to the decrease of approximately RUB 0.4 billion in transit traffic service revenue. The Fixed Mobile Convergence ("FMC") proposition continues to play an important role in the turnaround of the fixed-line business for Beeline. The FMC customer base grew by 18% year on year in Q2 2019 to more than 1.1 million, which represents a 47% FMC customer penetration in the broadband customer base, supporting improvements in broadband customer churn.

Beeline continues to focus on the B2B segment, improving its proposition with new digital offers and solutions to both small and large enterprises. The 2Q19 B2B service mobile revenue increased by 2.4%.

EBITDA pre-IFRS 16 declined by 2.1% year on year driven by the revenue decrease, leading to an EBITDA margin of 36.8% (flat quarter on quarter). The year on year decline in EBITDA margin pre-IFRS 16 was driven by the change in revenue mix as a result of the strong growth in sales of equipment and accessories, which are characterized by lower margins. The impact of the change in revenue mix on EBITDA margin in Q2 2019 was approximately 1.3 percentage points. The VAT increase and the suspension of national roaming impact on revenue had an impact on reported EBITDA.

Capex excluding licenses pre-IFRS 16 increased by 13.8%, as a result of increased network investments and investments related to the Yarovaya Law. During Q2 2019, we increased 4G base stations by 50%. Beeline continues to invest in network development to ensure it has the best quality infrastructure that is ready to integrate new technologies. The LTM capex (excluding licenses) to revenue ratio pre-IFRS 16 was 18.5% in Q2 2019. The reported capex excluding licenses increased by 47% year on year during the quarter. The Yarovaya Law-related investment plans are progressing in alignment with legal requirements.

UKRAINE









UAH million

 2Q19 

 2Q18 

YoY


 1H19 

 1H18 

YoY

Total revenue

5,624

4,521

24.4%


10,750

8,785

22.4%

Mobile service revenue

5,257

4,200

25.2%


10,020

8,149

23.0%

Fixed-line service revenue

333

297

11.9%


662

593

11.7%

EBITDA

3,656

2,490

46.8%


6,880

4,902

40.3%

EBITDA margin

65.0%

55.1%

        9.9p.p.


64.0%

55.8%

        8.2p.p.

EBITDA pre-IFRS 16

3,508

2,490

40.9%


6,592

4,902

34.5%

EBITDA margin pre-IFRS-16

62.4%

55.1%

        7.3p.p.


61.3%

55.8%

        5.5p.p.

Capex excl. licenses

1,152

927

24.3%


2,134

1,614

32.3%

LTM capex excl. licenses/revenue

17.5%

16.0%

        1.5p.p.


17.5%

16.0%

        1.5p.p.

Capex excl. licenses pre-IFRS 16

991

927

6.9%


1,786

1,614

10.7%

LTM capex excl. licenses/revenue pre-IFRS 16

15.8%

16.0%

      (0.2p.p.)


15.8%

16.0%

      (0.2p.p.)









Mobile








Total operating revenue

5,248

4,224

24.2%


10,020

8,192

22.3%

- of which mobile data

2,784

1,574

76.9%


5,238

2,915

79.7%

Customers (mln)

26.2

26.5

(1.1%)





- of which data customers (mln)

15.7

13.5

16.2%





ARPU (UAH)

66

52

26.9%





MOU (min)

571

580

(1.5%)





Data usage (MB/user)

3,345

1,811

84.7%





Fixed-line








Total operating revenue

333

297

11.9%


662

593

11.7%

Broadband revenue

215

185

16.6%


424

366

16.0%

Broadband customers (mln)

1.0

0.9

11.5%





Broadband ARPU (UAH)

76

73

4.4%





In Ukraine, Kyivstar sustained another period of solid outperformance in a growing telecoms market. The results followed strong marketing activities and improving network quality. Data consumption continue to grow as we continue to focus on our high value customers.

Kyivstar continued its strong performance in Q2 2019, with total revenue increasing by 24.4% year on year to UAH 5.6 billion. The revenue growth was supported by the prior year phasing of tariff modernization activities which were predominately implemented in mid-2018. Mobile service revenue grew by 25.2% to UAH 5.3 billion, driven by the strong data revenue growth. Growing data customers and data usage growth supported an ARPU increase of 26.9% year on year to UAH 66. Kyivstar´s mobile customer base decreased by 1.1% to 26.2 million due to Ukrainian demographic trends and the reduction in multi SIM users. Despite this, data penetration continued to increase, and data customers grew 16.2% year on year.

Fixed-line service revenue grew by 11.9% year on year to UAH 333 million, driven by an increase in the fixed broadband customer base of 11.5% year on year, while fixed broadband ARPU increased by 4.4% year on year to UAH 76.

EBITDA pre-IFRS 16 increased by 40.9% year on year, with an EBITDA margin of 62.4%. The strong EBITDA growth was driven by revenue growth, while good cost control in the period further supported margin expansion. Reported EBITDA increased by 46.8% year on year to UAH 3.7 billion.

Capex excluding licenses pre-IFRS 16 increased by 6.9% year on year as a result of further 4G/LTE roll-out during the quarter. Kyivstar continued to focus on 4G/LTE roll-out during the quarter. Reported capex excluding licenses increased by 24.3% at UAH 1.2 billion.

In July 2019, National Bank of Ukraine abolished any limits on the repatriation of dividends. VEON believes that this is a meaningful step forward in supporting group cashflows.

PAKISTAN









PKR billion

2Q19

2Q18

YoY


1H19

1H18

YoY

Total revenue

51.1

42.4

20.5%


101.7

83.4

22.0%

Mobile service revenue

47.7

39.4

21.1%


94.8

77.3

22.6%

of which mobile data

12.5

7.9

58.8%


26.1

14.9

75.4%

EBITDA

27.3

20.4

33.7%


52.9

39.9

32.7%

EBITDA margin

53.4%

48.2%

        5.3p.p.


52.0%

47.8%

        4.2p.p.

EBITDA pre-IFRS 16

25.7

20.4

26.0%


49.5

39.9

24.2%

EBITDA margin pre-IFRS 16 

50.4%

48.2%

 2.2 p.p. 


48.7%

47.8%

 0.9p.p. 

Capex excl. licenses

9.7

6.7

45.0%


17.0

14.0

21.4%

LTM Capex excl. licenses /revenue

13.5%

17.5%

        4.0p.p.


13.5%

17.5%

        4.0p.p.

Capex excl. licenses pre-IFRS 16

9.8

6.7

46.8%


17.0

14.0

21.4%

LTM Capex excl. licenses /revenue pre-IFRS 16

13.5%

17.5%

      (4.0p.p.)


13.5%

17.5%

      (4.0p.p.)









Mobile








Customers (mln)

59.5

55.5

7.2%





- of which data users (mln)

36.9

31.5

17.3%





ARPU (PKR)

268.2

236.9

13.2%





MOU (min)

521

543

(4.2%)





Data usage (MB/user)

1831

950

92.7%





Jazz continued to perform well despite the ongoing competitive nature of the Pakistani market, particularly in data and social network offers. Jazz continued to maintain its premium price positioning in Pakistan following successful repricing activities during the quarter.

In Q2 2019, total revenue grew by 20.5% year on year. This was supported by good operational execution as well as higher usage by customers following the suspension of taxes ("suo moto"1 order). Excluding the impact of suspension of taxes collected, revenue growth was 15%. The 'suo moto'1 order was reversed on 24 April 2019 negatively impacting the performance in May and June. Service revenue growth was predominately driven by data revenue growth of 58.8%. The data revenue growth was driven by an increase in data customers, doubling of data usage through higher bundle penetration and continued data network expansion. Financial services revenue grew as well during this quarter by 36% year on year as Jazz Cash increased its 30-day active wallet subscriber base to 5.7 million with revenue in the quarter of PKR 1.9 billion, a sequential increase of 7.7% from the first quarter of this year.

The customer base increased by 7.2% year on year, supported by higher data customers on the back of the continued expansion of the data network. The quarter on quarter customer trend reflects our commercial strategy to focus on high value customers in order to further improve new sale customer mix, leveraging on network quality of service.

EBITDA pre-IFRS 16 grew year on year by 26.0% on the back of above-inflation revenue growth, resulting in an EBITDA margin pre-IFRS 16 of 50.4%. excluding "suo moto"1 impact, the year on year EBITDA growth pre-IFRS 16 would have been 18.3% year on year. For 2019, EBITDA also includes the negative accounting impact of minimum tax on revenue (~PKR 0.6 billion in Q2), booked above EBITDA, which diluted the EBITDA margin by 1.1 percentage points. Reported EBITDA in Q2 2019 increased by 33.7% year on year to PKR 27.3 billion.

In Q2 2019, capex excluding licenses pre-IFRS16 increased to PKR 9.8 billion, following network improvement and 4G/LTE rollout. Reported capex excluding licenses increased year on year to PKR 9.7 billion.

At the end of Q2 2019, Jazz has data coverage in more than 225 cities (defined as cities with at least three base stations). At the end of Q2 2019, population coverage of Jazz's data network was more than 50%.

In June 2018, the Supreme Court ordered ("suo moto") an interim suspension of the deduction of taxes on prepaid and postpaid connections on each recharge/top-up/load levied by mobile phone service providers. On 24 April 2019, the Supreme Court disposed of the proceedings and restored the impugned tax deductions, deciding that it would not interfere in the matter of the collection of public revenue. On 3 July 2019, the Supreme Court issued its detailed reasons and, in addition to confirming its ruling on tax deductions, further clarified that mobile phone service providers cannot charge customers for service and maintenance charges. From Q3 2018 till Q1 2019, revenue was positively impacted by ~PKR 5.2 billion, mainly on account of higher usage by customers, and EBITDA by ~PKR 2.4 billion on average per quarter.

The ex-Warid license renewal was due in May 2019. Pursuant to directions from the Islamabad High Court, the Pakistan Telecommunication Authority ("PTA") issued a license renewal decision on 22 July 2019 requiring payment of USD 39.5 million per MHz for 900 MHz spectrum and USD 29.5 million per MHz for 1800 MHz spectrum, equating to an aggregate price of approximately USD 450 million (excluding applicable taxes of ~13%). The PTA's decision can be appealed to the Islamabad High Court before 21 August 2019.

1 In June 2018, the Supreme Court ordered ("suo moto") an interim suspension of the deduction of taxes on prepaid and postpaid connections on each recharge/top-up/load levied by mobile phone service providers. On 24 April 2019, the Supreme Court disposed of the proceedings and restored the impugned tax deductions, deciding that it would not interfere in the matter of the collection of public revenue. On 3 July 2019, the Supreme Court issued its detailed reasons and, in addition to confirming its ruling on tax deductions, further clarified that mobile phone service providers cannot charge customers for service and maintenance charges

 

null

ALGERIA
















DZD billion

 2Q19 

 2Q18 

YoY


 1H19 

 1H18 

YoY

Total revenue

22.3

23.1

(3.4%)


45.1

46.2

(2.4%)

Mobile service revenue

22.3

22.9

(2.9%)


45.0

45.9

(2.0%)

of which mobile data

6.4