VEON Ltd. (VEON) Earnings Call Transcript & Summary

Hi. Good morning and good afternoon, ladies and gentlemen. I'm Nik Kershaw. It's my pleasure to welcome all of you to the 2023 Annual General Meeting of Shareholders of the VEON Ltd. Thank you for joining us. I would like to remind you to take your attention to our disclaimer as published on our website. As per our notice of meeting circulated to shareholders on or around the 22nd of May 2023, the purpose of this meeting is limited to the full presentation of the financial statements of the company, change the size of the group Board, amendments to company bylaws and electing directors. Today, the Annual General Meeting is hosted by our Chairman, Gunnar Holt. We're also joined by our CEO, Kaan Terzioglu. Let us now begin with an introduction from our Chairman. Over to you, Gunnar.

Thank you, Nik, and good morning, and good afternoon to all of you. And it's my pleasure to welcome all of you to the 2023 Annual General Meeting of Shareholders of VEON Ltd. As you know, after this AGM, I will be stepping down from my position as a member of -- and Chair of the VEON Board. I would like to thank my fellow Board members and the management team for their commitment and endeavoring support during my 8 years' serving on the VEON Board. During this period, we have seen the company successfully navigate through a number of challenges and make substantial improvements to its corporate governance. The group's 2022 results are excellent, evidence of the successful turnaround we have achieved in each of our markets as we continue to streamline our portfolio. Over last year, our share price has increased by around 70%. Please refer to the AGM section of the website for easy access to the first VEON's 2022 governance report and other AGM-related materials included -- including some year up to dates. I would like to share some brief comments with you about the past year. The operational results for 2022 were achieved towards the backdrop of extreme challenges for the VEON Group, particularly for our colleagues in Ukraine. Despite this environment, the individual countries performed very well, and I believe that our operating model to empower each local operations have proven to be the right one. Each of our countries today is successfully running its business and deploying its own digital operator model. This means they are in a better position to build the unique -- build on the unique opportunities in each of those markets. We are now in the final phase of the sale of our Russian operations. And I'm confident that VEON will continue to build on its achievements in the years ahead through operational excellence and also continued restructuring of the group. I am proud of what has been achieved over the last year. Then turning to today's AGM teams. The proposed company director list, which is presented at this session is composed of 7 candidates. This will allow for a lean, efficient and quick decision-making in the context of a smaller company following a disposal of Russia. Six directors currently serving on the Board have been recommended. In addition, Kaan Terzioglu, the current CEO, has also been included in the recommended slate for appointment to the Board. These 7 candidates have a highly diverse range of skills and experiences. 4 of them have been determined by the Board to be independent in line with rigorous company procedures. The new Board will, according to the bylaws, elect a new Chair following this AGM. The current Board is also recommending 2 changes to the company's bylaws. First, that the Board shall consist of not less than 5 directors and not more than 9 directors. Secondly, that the Board, from time to time, shall delegate certain of its powers to committees consisting of members of the Board, including a committee or committees with responsibility for audit, board nomination and compensation and also such other committees as the Board deemed necessary or appropriate. The independent status of 4 candidates is also recognized by leading proxy adviser, Glass Lewis. On the slide in front of you, you can see the details of the proxy recommendation. In addition, we maintain a consistent record of high participation from shareholders amidst these challenging times. The recommendations from ISS were different than those of Glass Lewis and we have engaged them on this matter in regard to director independence. Moving to the procedural points. We have established now that there are at least 2 shareholders represent -- present, either in person or by proxy, representing more than 50% of the total issued voting shares of the company. We, therefore, can conclude that we have established a quorum. I would now like to pass the floor over to Kaan, who will run through a summary of VEON's Group performance in 2022 and outline more recent progress with some year up-to-date figures. Thank you, Kaan.

Thank you, Gunnar. Good morning, good afternoon, everyone, and thank you for attending our Annual General Meeting. Let me directly start with the financial performance for 2022. With Russian operations classified at -- as asset held for sale and discontinued, VEON Group is today more compact in size in absolute terms with a healthier balance sheet and a significantly higher growth. For the full year 2022, excluding Russia, local currency service revenues were up 13.9% and local currency EBITDA was up 12.6%. Due to the currency devaluation in both Pakistan and Ukraine, imported revenues were down 2.4% in U.S. dollar terms and reported EBITDA in U.S. dollar terms was down 5% year-on-year. Group capital expenditures were $823 million, up 2.9% year-on-year with continued investment in 4G, most notably in Ukraine, Bangladesh and Uzbekistan. CapEx intensity stood at 22.1%, with a marginal increase of 1.1 percentage points. The reported EBITDA and stable CapEx compared to the prior year resulted in $746 million unlevered free cash flow whereas equity free cash flow for the year was $142 million. Higher 4G penetration, higher relevance for our digital operator offerings in line with our DO 1440 strategy, fair pricing for the true value we deliver and good cost management enabled us to deliver this growth despite geopolitical and macroeconomic headwinds. We maintained a healthy cash position throughout the year despite the challenges. We closed the year with a total cash of $3 billion, including $2.5 billion at HQ level, all held in international Tier 1 U.S. and European banks. Our local country operations remain largely self-funded. Let me continue with an overview of our priorities in the past year, which was unprecedented in terms of challenges for our company. Early in 2022, we have made some commitments and I'm glad to report each one of them has been met. Protecting our people and supporting employees was our #1 priority in 2022 and continues to remain an important focus for the group. Connectivity is a fundamental humanitarian need and we are providers of an essential service. We operated with this awareness in 2022, and this will continue to be part of our priorities as our operations move forward, demonstrated by our recent investment commitment in Ukraine. Throughout 2022, protecting the good standing of our company, maintaining appropriate liquidity and capital structures [Technical Difficulty] sustainability of the group and I'm happy to say that we have successfully delivered on this. We promised to continue to drive the growth with 4G and digital operator focus and have ended the year delivering on this promise. In 2022, maintaining a disciplined approach to our portfolio was a must. We concentrated in larger markets, conditions to digital operator value generation and successfully divested our operations in Algeria and Georgia. In 2022, we upstreamed approximately $1.7 billion to the group with the Russian tower transaction in Algeria and Georgia, which allowed us to successfully weather liquidity challenges. Looking into our year-to-date revenue performance in 2023. The strong foundation we established since 2021 has allowed us to accelerate growth even in the face of challenges. We have delivered 5 consecutive quarters of double-digit local currency revenue growth since the beginning of [Technical Difficulty]. The momentum is even stronger in April, May this year, with a quarter-to-date year-over-year growth in the revenues of 19% and in EBITDA, 19.6%. Throughout this period, Kyivstar has continued to grow despite all odds serving the people of Ukraine. And for the April-May period, it has returned to double-digit growth. [Technical Difficulty] commitment of our team in Ukraine and essentiality of the services that we provide to keep Ukraine connected. Excluding Ukraine, the group has moved steadily from 8.2% growth in Q4 2021 to reach 20.2% growth made quarter-to-date. VEON's digital operators, 1,440, is the heart of our growth strategy. The successful execution of our digital operator strategy across our countries is leading to market share gains in each one of our operations. We have developed a broad range of digital products and services across our markets as part of this strategy. This capability is allowing us to implement inflationary pricing across our operations. We see financial services, entertainment, health care and education as our key adjacent markets where we aspire to be #1 or #2 in all the countries where we exist. At the end of May 23, multi-play subscribers who are users of at least one of our digital services on top of classic 4G data and voice increased 36.5% year-on-year and reached 28.1 million. With higher ARPU, lower churn, these customers account for 22.3% of our total subscriber base and delivered 40.3% of our subscriber revenues. I am also happy to note that our Digital Operator 1,440 model successfully implemented across our operations was recognized as the best mobile service for connected customers at the last Mobile World Congress in Barcelona. Before moving to the next slide, I want to highlight a few of the high-impact digital products that support this growth and clear examples of how we penetrate adjacent markets. In Ukraine, Helsi, the country's largest medical information system and a leading digital health care provider serves 25 million users with reliable medical advice and access to 33,000 doctors and specialists across 1,500 health care institutions. In the first quarter of 2023, Helsi users booked and attended 1.8 million appointments digitally. This is up from 1.6 million digital appointments in the fourth quarter of 2022. In Pakistan, JazzCash, the #1 fintech service in the country has 14.6 million monthly active users and the network of nearly 190,000 active merchants. 1.4 million monthly active users of JazzCash are consumers of our micro loans, a 28% increase with a 66% year-on-year increase in average loan size to 3,300 rupees. Tamasha, the leading entertainment platform of the country demonstrated accelerated growth of its monthly active user base up 3.1 fold to 4.4 million and daily watch time of active users rose to 28 minutes, 34% increase year-on-year. In Kazakhstan, a digital-only neobank simply had 278,000 monthly active users in May, up 2.5x year-on-year. Furthermore, Simply has an agreement with Visa to issue fully digital Visa Platinum cards, one of the unique global cases among telecom operators. Beeline-Kazakhstan's streaming service, BeeTV, which has both mobile and IPTV offerings, has 637,000 monthly active users in May. Finally, Toffee, the largest entertainment platform in Bangladesh recorded 8.9 million monthly active users, up by 57% year-on-year. This morning, we have disclosed our performance for the first 5 months of 2023. In Ukraine, Kyivstar continues to deliver local currency growth accelerating to 15.3% quarter-to-date. And in our 5 other markets, we are recording double-digit local currency growth in both revenue and EBITDA. We are the market leader in Ukraine, Pakistan, Kazakhstan, Uzbekistan, and we are gaining market share in all markets, including Bangladesh and Kyrgyzstan. At the consolidated level, our service revenues grew 17.4% in local currency year-to-date and were down by 6.9% on a reported basis due to currency depreciation in Pakistan and Ukraine. We have accelerated from 15.9% first quarter growth rate to 19.5% growth in the last quarter. Similarly, on EBITDA, we continue to see very encouraging trends. Our cost management initiatives are delivering results as we see double-digit EBITDA growth. Year-to-date EBITDA was up 14.6% year-on-year and 19.6% quarter-to-date in second quarter. To conclude our presentation, let me remind you our key ambitions for 2023. First, as I have already mentioned, finalizing the sale of our Russian assets is priority #1. Two, the scheme of arrangement for our 2023 notes has already been implemented, and we have seen a marked reduction in group leverage. We continue to work on the further optimization of our capital structure including gaining -- regaining access to the debt capital markets. We continue to execute our "4G for all" and "Digital Operator" strategy, which is the cornerstone of our growth, expanding our 4G network and our portfolio of digital services. Four, we remain focused on monetizing our existing infrastructure assets, specifically our towers and work here is also progressing. Finally, we are committed to unlocking shareholder value and this will include plans for listing of our entities locally when the right investment climate is available. Recapping the developments around the sale of our Russian operations is -- which I mentioned as top priority, I would like to focus on some details. On November 24, 2022, we announced that following a competitive process, we have entered into an agreement to sell our Russian operations to certain members of the Beeline Russia management team at an enterprise value of approximately $5 billion. On February 7, the Russian regulator issued its approval of the proposed sale. With our first quarter results on May 4, we noted that PJSC VimpelCom had independently acquired approximately $1.6 billion in VEON holding notes. On May 30, 2023, we announced the submission of all necessary documentation to Euroclear, Clearstream and registrars for cancellation of VEON's bonds held by its subsidiary, PJSC VimpelCom. And we are actively working with the organizations to effectuate the request. With this submission, the company entered the final stages in the closing of the sale of VEON's Russia operations. Finalizing the sale of this asset is priority #1, and the team is working hard on the completion of this mission. As VEON management, we continue to believe that the proposed sale represents the optimal solution for all stakeholders and that the group will be well positioned for faster growth with much stronger balance sheet after completion of the transaction. I would like to thank the regulatory authorities for their ongoing support as we move towards the finalization. Let me now focus on our work in Ukraine and our priorities and actions to help the country's recovery and reconstruction efforts. Kyivstar is the country's #1 operator and continues to lead the resilience of communications in the country. 93% of our mobile radio network is operational at the end of March, serving millions of users with high-quality connectivity services in Ukraine and roam-like offers, keeping millions of customers outside of Ukraine connected. Kyivstar has successfully increased 4G penetration via its 4G everywhere program, going above and beyond maintenance but bringing high-quality mobile Internet to Ukraine. Our team serves Ukraine not only with the connectivity, but also with digital services that make essential services accessible and affordable, such as digital health services with Helsi and mobile education with Kyivstar TV. We are committed to accelerating these investments and starting the reconstruction of Ukraine now. Last week in London, we announced that VEON will invest an equivalent of $600 million in the recovery of Ukraine over the next 3 years. This will span Kyivstar's infrastructure projects ensuring essential connectivity, 4G services throughout the country, fiber infrastructure and eventual focus on 5G. This also will include development of superior digital services accessible to all Ukrainians and communities supported. Following the announcement of this commitment to invest in Ukraine, we received letters of support for this commitment from a number of our United States and U.K.-based shareholders, including [ Shark Capital, Helicon and Snowcap ]. It is extremely encouraging to see our shareholders stand with VEON as we commit to investing in Ukraine's recovery. We would like to thank our Board as well as our shareholders for their continued support on this matter. I would like to thank the Kyivstar team for their tireless dedication and our thoughts and prayers with the families of the 5. We lost 5 colleagues since the start of the conflict in Ukraine and I would like to start by acknowledging their service to our customers. Our Kyivstar team in Ukraine continues to do a tremendous job for serving our customers with essential connectivity and increasingly relevant digital services. Let me take this opportunity to express my gratitude to all VEON employees for their hard work, which has allowed us not to only successfully navigate a challenging year, but also turn it into a growth story. In closing, allow me to once again personally thank Gunnar, who has led VEON's Board over the past year and has supported VEON management over 8 years as a member of VEON's Board. It has been a pleasure to work with you. And as management team, we are grateful for your leadership. Gunnar, back to you.

Thank you, Kaan. I now would like to run us through the formal business of today's meeting. All shareholders, shareholder representatives and other participants attending this meeting have been asked to do so electronically as permitted under the company's bylaws. An invitation to join the meeting by way of the company's Zoom video conferencing has been sent to registered holders of shares, their duly authorized proxies, all the [indiscernible] entities who have requested attendance at the meeting. During the course of this meeting, if you have any difficulties in accessing or using the company's Zoom video conferencing network, please use the raise your hand feature to be recognized by a member of our team. Once recognized, you will be directed to someone who can assist you. Alternatively, you may also send us an e-mail at [email protected] so that we can promptly assist you in resolving any issues. We would also like to welcome Gijs ter Braak to today's meeting. public notary of the law firm, Simmons & Simmons, who will be supervising the counting of the poll votes, as well as representatives from Wakefield Quin who serves as the company's registered secretary and legal advisers in Bermuda. The meeting agenda and the procedural guidelines have been made available to all eligible shareholders ahead of this meeting. We would like to note that the use of visual or audio recording equipment other than the company's video conferencing network Zoom is not permitted at this meeting. Furthermore, if at any time, the safety of those attending the meeting is compromised or bylaws permit the Chairman to adjourn the meeting to a future date and time. At today's meeting, we will now begin by formally laying our audited financials for the year ended December 31, 2022 [indiscernible] Next, we will be asking shareholders to vote on the election of nominated individuals to serve as directors of the company to hold office until the next Annual General Meeting. If you have already submitted a proxy, you do not need to vote here unless you wish to change your vote. Your proxies will vote in accordance with your proxy instructions. If you wish to vote at this meeting, please use the poll card distributed to you by e-mail ahead of this meeting. Alternatively, if you would like another poll card, please use the Raise Your Hand feature to be recognized by a member of our team. You will then be directed to someone who will ask you for your e-mail address so that we may send you a poll card now. You may also send us an e-mail at [email protected] to which we will promptly reply by sending you a poll card. Let's take then the item on the agenda. Item 1, that the size of the Board is decreased from 12 to 7 members. The first item on the agenda is that the size of the Board is decreased from 12 to 7 members. The second item on the agenda, that the bylaws of the company adopted the 10th of June 2021 will be revised and restated. The second item of the agenda is that the Board shall consist of such number of directors being not less than 5 directors and not more than 9 directors as the Board shall determine from time to time, subject to approval by a resolution of the company passed by shareholders representing a simple majority of the total voting rights of shareholders who vote in person or by proxy on the resolution. The third item on the agenda is that bylaw 43 of the company's bylaws adopted 10th June 2021, be revised and restated. The third item of the agenda is that the board from time to time shall delegate certain of its powers to committees consisting of members of the Board, including a committee or committees with responsibility for audit, Board nomination and compensation and such other committees as the Board has deemed necessary or appropriate. Each such committee shall have such name, composition, powers and responsibilities as set out by the Board in such committee charters. Then finally, the fourth item on the agenda, proposal for director appointments. The fourth and final matter to put to shareholders today is the election of directors to serve on the Board of Directors until the next Annual General Meeting of the company. As set out in the notice of the meeting, there are 7 individuals seeking election as directors of the company, each of whom will be appointed by virtue of the cumulative voting system detailed in the notice of the meeting. The 7 nominees have each been vetted and recommended by the company's nominating and corporate governance committee as well as the Board of Directors. They are first, Augie Fabela; #2, Yaroslav Glazunov; #3, Andrei Gusev; #4, Karen Linehan; #5, Morten Lundal; #6 Michiel Soeting; and #7 Kaan Terzioglu. Each director nomination proposal will be voted on separately by cumulative voting. And summary biographies of all nominees were included in the notice for the meeting. Instructions for cumulative voting are all set out in the notice of the meeting as well as on your poll card. In brief, you should multiply the number of voting shares that you hold by 7 and distribute the total number of votes among 1 or more of the nominees. Before we formally consider the proposals to be voted upon today, we are opening the floor to questions received from duly appointed shareholder representatives who are entitled to vote at this meeting. We have circulated procedural guidelines ahead of the meeting in order to enable us to conduct an orderly meeting. We are limiting the session of questions submitted ahead of the meeting. Other questions may be submitted to the Board separately for a response outside the forum of this meeting. Let us address any questions we have received so far. Our Investor Relations team will, as always, be available to receive and answer further questions outside this forum of the meeting. Nik, could you please present any questions to us?

Thank you, Gunnar. At this time, there are no -- no questions have come in. So I can pass the call back to you. Thank you, Gunnar.

Okay. Thank you, Nik. We shall now turn to the vote on proposals before the meeting. For proposals 4.1 to 4.7 relating to the election of directors, cumulative voting applies. Details of the cumulative voting procedure were included in the notice of the meeting, but are also summarized on the poll card. If you have not already submitted your vote by proxy ahead of the meeting, please now complete your poll card and e-mail it to us at [email protected]. If you have a completed poll card to submit and have not done so yet, please now e-mail it to us at [email protected]. Is there anyone who has not yet cast his vote or her vote and wishes to do so? There appears to be none. And thus, I declare the vote formally closed. Mr. Ter Braak, as the public notary supervising the voting of this year's Annual General Meeting, please collect and count the votes and notify us when you are prepared to report the results. Thank you.

Thank you. I am ready to report results. Based upon the votes received and by proxy and by poll cards, I confirm the following: with respect to proposals 1, 2 and 3, all have been approved by the shareholders; with respect to proposals 4.1 to 4.7, each nominated candidate has been elected as a director of the company in accordance with the bylaws of the company.

Thank you, Mr. Ter Braak. In view of the voting results, I can confirm that each of the following will hold office as directors of the company until the 2024 Annual General Meeting: Augie Fabela, Yaroslav Glazunov, Andrei Gusev, Karen Linehan, Morten Lundal, Michiel Soeting and Kaan Terzioglu. We now have reached the end of the formal business of this meeting. As Chairman of the [ 2022-2023 ] Annual General Meeting of VEON, I now declare this meeting foreclosed. All the best to all of you. Thank you.