VEON Ltd. (VEON) Earnings Call Transcript & Summary

Good morning to all people in the room. Good morning, afternoon to the people who have dialed in on Zoom. We have about 40 attendees on Zoom. So welcome to all of you. We are very proud. This is Kyivstar's first investor conference since listing. It's a proud moment for us at VEON and Kyivstar. So thank you for being here and sharing this occasion with us. My name is Anand Ramachandran, I'm the Chief Corporate Development Officer at VEON and handle the Investor Relations functions. To kick off, I'll just do my duty and point you firstly to the disclaimers, which are all laid out on Page 2 of the presentation. You'll find it filed with the SEC. You'll find it on the Kyivstar and the VEON website. With that, let me now quickly introduce a few key management members here. Firstly, Augie, Augie Fabela, he's our VEON Chairman and Founder, so we're again privileged to have Augie with us. Next Kaan Terzioglu, Kaan is VEON Group CEO; and then the Kyivstar stars of the show, Oleksandr Komarov, CEO of Kyivstar, who bunch of you have already spoken to on various calls. And with him is Boris Dolgushin, Kyivstar's CFO. So the way we work today, I will request Kaan to just say a few words of welcome, and then we'll follow up with Oleksandr and Boris talking you through a story which most of you know pretty well, but just to quickly summarize that, and then we'll open it up for Q&A. [Operator Instructions] So with that, let me pass it over to Kaan.

Thank you, Anand. Good morning. It's great to have you all here. Yesterday was a difficult night in Kyiv, and 17 people passed away during the attacks, including 4 children. I would like to ask also the audience in this Zoom just to take a moment and maybe remember the ones who passed away in this national mourning day in Ukraine. Anand said it well. It's a proud day. It's been a fascinating journey. And the journey has been going on for more than 35 years for some of us like Augie, who has been on these type of events for many times probably. I think this is your fifth bell ringing ceremony to come. But the first Ukrainian company to be listed in NASDAQ at the time of a war, I think, marks the resilience of the country. And also the opportunities that lies in front of us in terms of the growth potential that our business in Ukraine will bring. But let me take a moment because my team here, Sasha and Boris, I'm sure they will do a fantastic job talking about Ukraine. But I want to give a little bit about perspective from a VEON level. We are a different type of a company. Don't please refer to us as a telecoms operator. We are a digital operator. In essence, it means we are a consumer and enterprise services company which happens to have a telecom license. And it is kind of the best of both worlds where we benefit from having low-cost customer acquisition and where we are leveraging our amazing distribution capabilities for the digital services that makes impact on lives and livelihoods of individuals, businesses and countries. That's what we call the Digital Operator because compared to a traditional telecom company, which has a very limited relevance for the customers, it's actually about 32 minutes to be precise. On average, people do 17 minutes of calls out and receive 16 minutes of calls in. We would like to have a relevance for every single minute in a day. That's why we call it DO1440, Digital Operator 1440 minutes. Every single minute of the day, we would like to be relevant to our customers, relevant to our customers in terms of providing them entertainment services, financial services, communication services, health care, education and for our business customers, enterprise services from cloud to data centers, to software development and system integration. And that's really the business that we are here to talk about. You may have seen our second quarter results. And we are very close to the quiet period. So I'm not going to talk about, of course, this quarter's trends, but you may have noticed we have reached now 18% of our revenues coming from direct digital services. These direct digital services are actually coming from customers who are consuming our financial services and their interest income, insurance premiums. They are advertising revenues, they are subscription revenues. And this is growing about 60% year-on-year. In 3 years from today, we will be sitting in this room looking to a company generating more than 50% of revenues from digital services. We believe that the future of telecom industry is not anymore providing number of minutes, number of gigabytes, number of SMSs. It's about providing meaningful digital services. That's why we call it Digital Operators, DO1440. Now it's not going to stop there because we are all in the middle of an incredible transformation to what we call Augmented Intelligence. And I'm choosing my words very carefully. I'm not using the word artificial intelligence. There is nothing artificial about artificial intelligence. It's the most wrongly named technology that I have ever seen in the last 3 decades. This is about augmenting skills, competencies of individuals, of companies, of countries to make them more competitive, more effective, more productive. And you will see us successfully implement also local language models, which will be agentic features for our customers so that the best teacher can be in Islamabad. The best doctor can be in Dhaka. The best family, the way they are coaching their kids will be in the countries that we will be at. Those agentic features are already out there integrated to our applications, especially to super apps. You will notice very fast that we are a multi-brand operation. We are Jazz in Pakistan. Aamir is there. Actually, if you would like to ask more questions about Pakistan, our CEO of Pakistan. We are Banglalink in Bangladesh. Johan is here from Bangladesh. We are Kyivstar in Ukraine. We are Jananda in Kazakhstan, and we are Hambi in Uzbekistan. We serve a total of 0.5 billion population. One out of 3 is our communication services customers. One out of 4 consumes our digital services. And that's the future of the VEON that we are all excited about. I will stop there. We are all here to answer your questions. I would like to welcome almost more than 40 people online as well, listening to us, and I would like to pass the word to Ukraine, which is the topic of this week. Again, we are very proud that we will be -- we are already trading in NASDAQ, and we will be ringing the bell tomorrow, and we will be actually running the symposium for invest in Ukraine now. I am so amazed and impressed with the investor interest in Kyivstar's IPO. We have the record-breaking 25% redemption rate, shows actually the appetite of investors in the business opportunity in Ukraine. And we have already 2 research reports out with target prices of 16% and 19.8%. I think it gives lots of weight on shoulders of Sasha and Boris and myself, and we are ready to take that additional weight. Thank you very much. And Sasha, the floor is yours.

Thank you very much. Yes. Can you imagine how difficult to present something after combat. So let me start with the introduction. I know maybe it will be not the first time for the share of the audience, but still. So myself is Oleksandr Komarov, I'm CEO of the Kyivstar Group, I'm Ukrainian, I'm based in Ukraine and somehow I'm proud to be Ukraine and taking into account the current circumstances, okay? It's a privilege to be the CEO of the Kyivstar Group business. Kyivstar is almost the same age as Ukraine independence, okay? So company is 27-plus years old. And I think that during these years, the company has proven its ability first to compete. From number 5, 6 telecom player on the market, we are stable #1 with a significant gap, again, the closest competitor. Two, develop. So company was a latecomer into the fixed broadband business, okay? And during the 10 years, we achieved #1 position with sustainable 14% market share. And to transform, right now, we are probably facing the major transformation of the Kyivstar Life from the telco operator to the digital service provider with the telco license. And I'm here to present a unique opportunity to invest into the one of the business -- one of the best business in the Eastern Europe by many metrics, and I will prove this during this presentation. This is an opportunity to invest into the Ukraine and Ukrainian recovery, and this is an opportunity to support Ukraine in a very difficult time. My own career my major roles during my career actually were in 2 businesses, in telecom and in advertising business. So last 20 years, I'm leading different organizations and with quite remarkable results achieved. So I used to be CEO for small agency that was acquired by WPP in 2004. And I become CEO of the biggest advertising group in Ukraine in 2012, 2013. So we progressed from to 0 to one of the biggest marketing communication organization in Ukraine. I joined Beeline Kazakhstan in 2013. I joined Beeline in 2013, okay, as a leader of the second player with something like 30-plus percent market share. I ended up my mission in Kazakhstan with a leadership position with almost 40% market share, #1 by subscriber, #1 by revenue market share, okay? And I'm leading Kyivstar. And honestly, it's even more difficult to lead market leader than a challenger, okay? So you need to transform, you need to be -- in order to compete successfully, you have to be at least a few steps ahead of the market. This is the only one way, how you can compete. Otherwise, they are grabbing share by share, step-by-step, a share of your market. So I'm glad to present Boris because since Kazakhstan journey, we are working together as a team. And all this actual success in Kazakhstan and our results in Ukraine were achieved in a cooperation and teamwork with Boris. So Boris, please.

Thanks, Oleksandr. So I would like to introduce myself. Boris Dolgushin, I have been more than 2 decades with the VEON Group. So I started -- I built my career actually from the linear analyst position, go to like Head of Business Controlling, Head of Finance, CFO positions. I have been with 10 markets of VEON's own historical presence in CIS countries, Southeast Asia, Central Asia and Europe. So I'm with Kyivstar since 2012 as the Board member. And in 2019, I joined in the operational role. So with Oleksandr we met when I was a Board member in Kazakhstan. So Oleksandr was the CCO and then CEO of this company and kind of grateful rejoined Oleksandr in Ukraine. So when I joined, it was a company, actually, it was predominantly telecom business and predominantly mobile. So currently, we own 5 businesses already, and we are not stopping there. So I think you will like our value creation story that we have presented to you today. Thank you.

So let me briefly present Kyivstar Group business. Kyivstar Group business literally consists of 3 main lines. The first one and the biggest one is the mobile telco business, which is around 33% of our business. The second line is our fixed broadband business, which is around 6% of our business. Our telco business is growing double digit year-on-year, as you see in our quarterly results, okay? And the third line is the new businesses that we are creating, that we are acquiring, building the Digital Operator. So our digital business right now achieved 10.3% at the end of Q2 2025 with the growth rate 460% year-on-year. And this growth is not only driven by the Uklon acquisition. This growth is driven by mid-double-digit growth of Kyivstar TV business, healthy AdTech business, okay? More than 100% growth of our cloud and big data growth year-on-year, okay? And as you have heard, Kaan, so we still have a challenge to achieve group average, which is around 18%. So we still have a challenge to catch our friends from Pakistan with an almost 25% as far as I remember share of the digital business. So we are on the way to build digital operator. We have a very, very strong fundamentals. Mobile telco, we have a leadership position with 47% plus subscriber market share with, let's say, adequate competition on the market between 3 players. It's Kyivstar market leader, Vodafone #2 with 31% plus or 32% market share. And LifeCell was that was recently acquired by NGG French Holding in Ukraine with around 20% market share. Market is relatively stable. If you will compare situation in 2020 versus 2025, the deviation between the players are just a few percentages. So in a fixed broadband, it's a difficult market with more than 3,000 players. Market was not regulated historically, okay? Market is using the simplified taxation scheme and from my perspective, is abusing simplified taxation scheme. As a result, we have plenty of small, small, small operators. But we are quite confident with the government push okay, to eliminate, let's say, taxation optimization schemes, okay? And with the growing popularity of the 3P proposition, fixed convergence, fixed mobile convergence proposition plus entertainment, big players have quite I would say, good opportunity to grow organically and to participate into the market consolidation. During the last few years, 4 relatively big operators were acquired by Kyivstar, Vodafone and Datagroup. So how we are growing. What are the fundamentals of our growth, okay? So as you see, we were able, despite the war, despite the headwind, despite the difficult macroeconomics to demonstrate real value creation for our shareholders through the constant ARPU growth and how we are able to achieve this. There are a few fundamentals. The first one is technological leadership. Kyivstar is operating the best telco network in the Ukraine. So this is actually the best fixed and mobile infrastructure. okay? And this has been confirmed by Ookla. As an example, once again, in Q1 2025, we achieved all 3 awards simultaneously. The best network by quality of experience, the biggest network by coverage and the fastest network. And this is very much supported by the biggest share of frequencies that we operate in Ukraine. The second is growing penetration of data, okay, growing penetration of data customers growing consumption of the data. So LTE right now, we achieved around 65% penetration into our customer base and overall data customers are more than 70% from our current. And we are still growing. Yes, we are not growing like in 2018, 2019, but that is still reasonable mid-double-digit growth year-on-year in data consumption. The third factor is disciplined inflationary pricing. So taking into account a quite heavy license obligations, okay, necessity to beat relatively high double-digit inflation in Ukraine. So we keep in mind a quite simple formula to create value despite inflation and devaluation of the national currency. And the first factor, which is growing in its importance is our digital value proposition. On the right side of the slide, you see penetration of the multiplay customer. Multiplay is our healthy telco customer who is using at least one of the digital services provided by Kyivstar. So right now, you see we have 6.5 million multiplay customers. And in general, we have around 30.4 million, okay, digital customers. Literally, I can say the Kyivstar Group providing services to every Ukrainian. We have access to 1 million households, okay? We are servicing 22-plus million mobile customers. We are servicing 13.4 million digital customers in Ukraine. So I can assume that every Ukrainian consume at least one service from the Kyivstar right now. And this combination of technological leadership, inflationary pricing, growing demand for data okay? And digital value proposition that is a result of successful execution of our strategy drives us toward the future growth and popularity of our services. And then I'm absolutely sure that we have significant opportunity ahead of us. Ukraine right now is actually has the lowest -- one of the lowest ARPU in Eastern Europe. So with all our achievements with 30% growth of ARPU in a hard currency during the year since the beginning of the -- we are still more or less on par with Moldova, okay? We are 2x lower than average Eastern European ARPU. And we are 3-plus times lower than average Eastern European ARPU. So this is the situation. So I'm quite confident that market has strong potential. And it is up to us, our strategy is to unlock this potential for the shareholders and for the market development because at the end, it is very much about investments into infrastructure, investments into the digital services and strengthen the resilience of our network in a quite difficult circumstance. I hope that it will be supported by strong GDP growth. What you see right now is a conservative scenario, conservative scenario based on the, let's say, assumption that war will stay with us. In case of any successful resolutions and cease fire and peaceful resolution, most probably we will face in times higher GDP growth, much more direct foreign investments sponsored by public companies sponsored by governments that will let Ukrainian economy to fly. I had a lot of meetings with journalists during these weeks in New York, okay? And I see Ukraine, as a country that will be a member of the European Union during the next 5, 7 years. I see Ukraine being supported by the European community. I see Ukraine as one of the best countries to do business in order to, let's say, relaunch Ukrainian economy and to accelerate it in the nearest future. From ARPU perspective, so let me give you some insights. According to the GSMA ranking, Okay. So Kyivstar is one of the best telco businesses in the world by many metrics. We are #2 by churn. We are among top 5 by growth rate -- among top 15 by growth rate. And we are among top 5 -- actually #2 by marginality according to the Q2 ranking right now. But by ARPU, Ukraine is in between Iran and the Mozambique, unfortunately. It's country number 131. So I'm quite confident that we have significant window for the future market growth. The fixed market is a different story. Somehow, in our strategy, this is one of the strategic priority. This is the area where we can achieve organic accelerated growth and nonorganic growth through the consolidation. So my own opinion that 3,000 market player is actually unsustainable model. It's just a matter of any kind of regulation. It's just a matter of consolidation. So it's just a matter of the next technologies that are coming. So from my perspective, and we are ready for this, we have to accelerate our organic growth based on our value proposition, and this is convergent value proposition. Right now, from 100% of our fixed broadband customers 80-plus percent are mobile customers. And from 100%, 34-plus percent are entertainment customers. They are customers of the Kyivstar TV platform. So this creates a quite unique competitive advantage, that we want to scale up in order to develop our fixed business in order to grow, and we are ready for acquisitions. So we are ready to consider any interesting target in order to accelerate our growth in the fixed broadband business. And of course, the main focus of our current transformation is DO1440 strategy, okay? We have 2 interrelated but separate strategies for the B2C market and for the B2B market. So in B2C, as you see, we are focused on the multi verticals, with high engagement of the customer base. So as I mentioned, we have 13.4 million monthly digital active users. And from this, and it contributes from my Kyivstar ecosystem application. Kyivstar TV, 2 million plus customers. This is a modern entertainment platform with more than 300 TV channels with 20,000 titles on demand, with different subscription models, that is growing around 40% -- 40-plus percent year-on-year. So Helsi business. Helsi is information system for the hospitals. This is actually a bridge between all the Ukrainians and Ukrainian hospital system. So in order to get access to the doctors, every Ukrainian is going through the system like Helsi. And we have just 2 competitors. Helsi is a market leader with around 42% market share, with almost 1,600 medical institutions with access to 60,000 medical professionals, and with 1 million customers. We recently launched a subscription packages based on the Helsi services. We see significant opportunity in developing our B2B business, but at the same our main focus is how to develop B2C value proposition based on the current assets we have in Helsi. Our recent acquisition right here in Uklon business. It's market leader, that is operating in 27 cities in Ukraine and in Tashkent, in Uzbekistan with -- I will provide you a few metrics based on the Q2 results when we integrated Uklon. With more than 40 million rights provided in Ukraine and Uzbekistan with more than 1 million deliveries, orchestrated to the customers, with more than 100,000 drivers, who are providing services. This is the biggest ride-hailing platform with enormous opportunity for horizontal expansion and for the international expansion. In the B2B side, we are very much focused how to enrich telco value proposition to our B2B customers with the services. And these services are big data cloud, cybersecurity, Artica. For your understanding, we have penetrated from our, for example, large account segments, more than 40% of our large accounts are buying something on the top of the telco services. Izi Cloud, Microsoft licenses, for example, Azure, Amazon Cloud, Kyivstar Cloud. So we are developing multi-cloud strategy. So customers can get from Kyivstar access to the national cloud built by Kyivstar, access to the international big players in a comfortable way because there is no one solution for the customers. Customers are looking for a variety for different purposes. And this business is also growing in times actually year-on-year in our portfolio. So our idea is to differentiate ourselves from the telco simple commoditized value proposition. So we are not just a telco provider. We are a provider of the digital services who can help you to grow your business who can help you to make your business more efficient. These are a few details about our digital verticals, I will probably skip it because I have provided this information on the previous slide. And let me summarize my part with a statement that is actually on this slide. So our growth strategy is focused on strengthening our telco value proposition and the expansion of our digital services and conversion of all this portfolio into mutually interrelated value creation machine for the customers. So with this, I will give a voice to Boris to finalize the presentation.

Yes. First, I would want to summarize the strategy based on the pillars and the statements presented by Oleksandr. So we have 2 major domains. One is telecom, one is digital. So in telecom, what we are looking at is strengthen our digital leadership. And the moment we are now, and I will also show it in the financial slide, I think this is the best moment in to kind of strengthen our leadership across all telco domains. So we are very much focused on the value market share, so not subscriber kind of as a number of SIM, but rather a paying subscriber base and the multiplay users, and that's why you see these trends growing. So what Oleksandr show on our ARPU region, so bridging these gaps. So although we are growing in double digit in local currency ARPU, we are growing single digit even in dollars despite all the inflation and devaluation. So the focus is to grow it further and to bridge it with the Eastern European peers. And in terms of the broadband business, so definitely, we see a lot of opportunities to consolidate the market. So we are doing both organically with the launch of our FTTH and GPON technologies. And we are rolling out the network most intensively even during the war because this is part of the critical infrastructure and definitely nonorganic acquisition given a super defragmented market. So on the digital domain, so first, we want to utilize we are currently in 5 businesses already. So extracting the synergies of these businesses and the new products kind of these businesses allow us to launch, this is one of the focuses. Then we are also targeting kind of nonorganic targets. So nonorganic and kind of M&A is a part of our strategy. Again, a very good moment to buy. So we have lots of interesting assets available in the Ukrainian market. So they are currently traded with a discount because of the war. And we do have the cash that we are accumulating there. So that's why we are reinvesting in strengthening our digital positioning. So in terms of the growth, so you would see -- we cannot definitely do the forward-looking statement. But based on our historical and current performance, you would see that we are growing low double digit in our telco business, and we are committed kind of to continue this growth, offsetting the devaluation and inflationary pressure. In terms of the digital, we are currently growing by mid-double digit. In some of the products, we are growing by triple double digit, and I believe we would be able to continue this trend. So before I move to financials, I want to show you the critical risks that -- like issues that we faced during COVID, but especially during the start of the full-scale war in Ukraine and how we turn these kind of challenges into the strength and the opportunities for us. So first, if you look at our subscriber base, you would see a decline of about 1.4 million customers within 2022, and this is the direct impact of the war and the population kind of migrated outside of Ukraine, predominantly to Europe. So some of the population we launched with the occupation of the Eastern territories. At the same time, we managed to launch this roam-like-home offer. So this offer allowed the customers permanently located outside of Ukraine, so let's say, in European Union, so to use our services to top up on a regular basis. So not only we keep the connection with the 1.2 million customers as of the end of last year. So we are also kind of -- don't need to kind of rewire them, and they're a very good part of our paying base. So the cyber-attack that we faced in 2023, and this was the largest cyber-attack in the history of telecommunications worldwide. So this was part of the hybrid war. So we managed kind of to completely reshuffle our cybersecurity perimeter. So now currently, it's one of the most protected network, which is also confirmed by all the external audits and tests that we are doing with the professional companies. So in terms of the network resilience, so I would say that this, I think, one of the most resilient, if not the most resilient network in the world. So as you know, there was a kind of a huge pressure on the energy infrastructure during the war with the permanent shelling and like direct selling on the energy objects, and we are very much dependent on the electricity for sure. So we managed to strengthen our network in the way that it can sustain full national energy blackout for up to 10 hours. And this is -- I'm talking about the radio part of the network. So if you take the core part, it's for actually several days. Then the macro factors. So this was, again, one of the biggest challenges we had. So first of all, devaluation, inflation that we need to adjust. And as you see from our numbers, we have successfully addressed this. So we always try to follow the same approach as we all follow on the market, which we call a kind of inflationary pricing, adjusting kind of the inflation level and the GDP growth. And so far, we are able not only to grow again double digit in the local currency, but also in hard currency, which is dollar. So one of the biggest factors that depressed our marginality, again, if you compare marginality levels pre-war and now, although we are still top 2 operator in the world according to GSMA, was the electricity hit. So electricity prices, they surged almost 3x since the start of the full-scale war, and this is a significant chunk of our cost. The good thing is that Ukraine now is fully integrated into European electrical grid. So the prices are balanced with the Eastern European markets for Ukraine. So we don't expect further surge of these prices beyond Europe, and this is fully reflected in our financials. So kind of what you see, it's kind of our organic clean result. So let me move to the numbers. So I will start with revenue. So Kyivstar has been always financially very strong company. So here, we are showing kind of the last 3 years starting from 2023. And you see that despite the COVID, despite the full-scale war, we continue growing. So we are $1 billion company. So we have some nonorganic adjustments in 2023 and 2024 related to the cyber-attack. So this was not a direct loss from the cyberattack, but our intentional kind of a move to -- for the customer appreciation program, where we gave 1 month of free services to our customer base. So we managed to retain full paying subscriber base and fully restore it by Q1 2024. So we can like easily -- I mean, really say that this was a one-off only related to the 2 quarters between 2023 and 2024, and we haven't seen any negative impacts going forward. So in terms of marginality, Oleksandr already mentioned, so we are #2 despite the war. So we are on average, I think, 56%, 57% for the last 12 months. So if you take our Q2 performance, we are performing even better at 58%. So this ability to generate top line into the bottom line. So we are not stopping at EBITDA level. You would see that our cash generation capacity, it's about 30% of our top line, $309 million is the last 12 months cash generation. potential. And this is despite a very high CapEx kind of $280 million because usually as a telecom and VEON group average, so we are investing, let's say, from 17% to 19% of our revenue into our CapEx. But here, we are intentionally reinvesting into this technological leadership given the temporary limitation on the dividend upstreaming during the Martial law that are relevant to all Ukrainian companies. And we know this business. So this is a very profitable business. So it gives a very decent return, and this is part of our technological leadership strategy. So finally, I would like to highlight the cash balances that we have. So $450 million. This is post acquisition of Uklon and post acquisition of the minority investment in Helsi. So we are kind of -- we do have a very strong basis, not only kind of to develop our core operations and finance our strategy, but also look at the potential acquisitions. Q2 results, I think many of you saw this. So they actually reconfirm the trends on growth. So you see 28% of revenue growth even in dollar terms. So definitely, there is a one-off related to the cyberattack 2024. If you adjust for this, we are 23% year-on-year in terms of the top line adjusted for cyber-attack. So I think what is also remarkable that in terms of revenue, we reached in Q2, 10% of our total revenues comprised now of digital revenue. I remember a couple of years ago, when we made internal guidance, we put 5%, 6% as our ultimate target. So we are currently at 10%, but we are still below the VEON average. So we are -- we have a work to catch up on this digital domain. In terms of EBITDA, so the same 32% growth in dollars, so adjusted for the cyberattack, 17%. And the same you would see in all the operational KPIs. So for example, the total multiplay users, it's absolutely organic growth of 24% if we are talking about the second half of the year. And then ARPU, as you can see, again, we are not only growing in Kyivna terms, so we are also growing in dollar terms. So we are currently at 3.4. -- small update on our valuation where we stay now. So I think many of you remember the slides that we presented before the listing. So we target at that time about 3.5, 3.6, I think, the EBITDA multiple. So currently, we are at 4.3. So we added about $400 million to the estimate kind of we presented at that time. So you see our stock price, so the share ownership, so about 10.4% is currently owned by the sponsor, the SPAC sponsor and the external investors. So VEON definitely keep control of this company as this is the absolutely strategic asset for VEON. So, so far, I would say that the trading and the trading results are exceeding our expectations. And here, I'm giving back to Oleksandr to summarize.

Yes, let me summarize right? So I think it's quite unique asset. So it's a company with a history with a proven track of records, okay? It's a company with a very, very professional team. I will give you just one figure. So our employee engagement level is above 86% despite the work. We are among top 10 best employers in Ukraine and #1 according to many, many different categories, okay? We have a very, very strong balance sheet. So we are sustainable. So we are in green, okay? We have strategy. We have ambition. We have strategy to achieve these ambitions, and we have resources in order to execute well, okay? So we are one of the best national brands. So probably we are the biggest consumer brand in Ukraine. But at the same time, we are national advocate. Part of our decision to be here is driven by the opportunity to be the first one and to demonstrate example and to create opportunity, opportunity for the Western investment community, but at the same time to give an example to the Ukrainian big businesses that it is possible despite the war, okay? And so I think that is quite unique value. And from my perspective, as it was underlined by respective analysts, so their potential is enormous. So we know what we are doing. We have extremely good fundamentals. We have a very good team in place, okay? And we are executing with a high quality. So thank you for your attention, okay? And I will give voice to our analyst to moderate.

[Operator Instructions] So we'll now move towards a Q&A session. Please raise your hands and we'll then move -- bring the mic to you.

Great presentation, guys. You're producing a lot of free cash flow. Can you prioritize how you're going to -- what you're going to do with that cash flow and how you're going to reinvest that? And maybe can you characterize the opportunity for acquisitions? How much can you really deploy there over the next kind of 5 years or so?

We have 3 major priorities. Probably Boris will add some colors with figures if necessary, but we have 3 major priorities. The first is investment into the telecom leadership, not only in -- from a general perspective. For example, with direct-to-sell services that we are going to introduce at the end of this year, this is investments into the innovations. This is investments into the emergency communication, taking into account importance of communication for our customers, okay? So this is the first direction. The second direction is actually resilience. We already invested around USD 100 million into the different aspects of the network and business resilience and redundancy, okay? And we are doing this, okay? So we have some ongoing projects like, for example, our cybersecurity protection project, Sentinel, and others, okay? And of course, the main focus is how to support with these proceeds, accelerated transformation of Kyivstar from the telco provider to the digital service provider with the telco license. And it is kind of internal and external investments. Internal example is a large language model that we are developing in cooperation with the Ministry of Digital Transformation. External example is Uklon acquisition, okay? In M&A activity, we have 3 major focuses. The one, the priority #1 is digital ecosystem. The priority #2 is fixed broadband business, okay? And the priority #3 is businesses that can help us to strengthen to hedge our business. I will give you one example, alternative energy. So smart investments into the alternative energy can help us to diversify the sources of energy and at the same time to hedge future pricing volatility.

So you have a lot of opportunity to invest in growth. Do you think you can put all that cash to work within Ukraine and investing in growth?

Yes. Well, I can take this one. So actually, we do have $450 million as we shared as cash. So it doesn't mean that this is the limit of our potential cash potential. So we can really go kind of and have several instruments kind of to increase this cash capacity if needed. So I think when it goes to M&A, so it's about the availability of the good targets on the market because we have like several simple requirements to these potential targets, which is we pay increase in Ukraine. Due to the current legislation, we cannot buy the companies directly located abroad offshore of Ukraine. Second, we are looking for the assets that are very complementary to our strategy that fit into this strategy as Oleksandr explained. And third, we look for the companies and the teams, especially who are strong and compliant enough to be a part of the public company. And with these 3 requirements kind of like mapping this to our strategic goals, so it's not about kind of whether we do have cash for this, it's about whether we do have the right targets.

And how many companies are you kind of tracking now as a target, one? And two, can you just remind us what have you paid historically as a revenue multiple for acquisitions?

So I think Uklon would be a good example. So it's $155 million -- $153 million that we paid in cash already. So I think the overall transaction would be around $160 million, including all the deferred payments. So the multiple would be 7 to 8, I think.

EBITDA...

Yes, EBITDA.

Uklon is a rare example, okay, on this market because Uklon is a fast-growing business. But at the same time, it's a significantly profitable business.

Congratulations to the Kyivstar team, Cohen Circle as a sponsor and VEON team for executing the historical listing of the only Ukrainian assets on the Prestige NASDAQ High Growth Stock Exchange. Honor for us all to be here. My name is Yi Fu Liang with Cantor Fitzgerald. So Oleksandr, I just want to start with you on the long-term strategic vision of Kyivstar. We understand you are the #1 mobile player, fixed line player. I guess the question is, do you want to be like one of the tech titans kind of like of the U.S., the Google of the world, Microsoft of the world? Or do you want to be like a super app kind of like the Tencent of the world that serves many other players because Kaan kicked off the presentation today with do you want to attract the customer 24/7. So I just -- I understand -- I just want to get your thoughts on the greater vision.

It's a good question, okay? So somehow, our vision is globally to the Kakao business. When we have ecosystem of interrelated digital services where we can get, let's say, competitive advantages because of the synergies, okay? Kaan bai mentioned this. Mobile telco business is a brilliant low-cost acquisition machine, okay? So as an example, okay? So that is actually producing a lot of big data. If we are able to use this big data in the right way, and I'm considering Kyivstar as one of the strongest big data organization in Ukraine. We are earning around 6% of our top line based on the one-to-one campaigns that are automatically generated right now. So we are working with the 1,000 target groups with whom we are communicating on a personal base, okay, in order to improve their quality of experience, okay, and to rise average ARPU as a result. So somehow, this is the layer where we would like to achieve synergies between our businesses, okay? And this is our focus. And in general, I want at the end to award every customer for every step within the ecosystem. So right now, we are on the way to shape this vision with more details, okay? Because we are doing some simple synergies between Uklon and Kyivstar. We are doing a lot of pilots between Beeline Uzbekistan and Uklon Uzbekistan because Uklon Uzbekistan is a relatively small and flexible business there. And in order to accelerate, we are running around 20 different pilots in different areas, how to attract more riders, how to increase engagement, okay, how to service in a better way our riders in Uzbekistan. So we are trying to find this way how to build this kind of intrinsic synergies for our customers to make them as comfortable as possible because they're using services provided by the Kyivstar Group.

And along the same topic, Oleksandr, I still want to stick with the M&A side because, obviously, the growth story, obviously, a big part of it is corporate development, kind of using your cash flow from your telecom business to acquire these undervalued assets, I consider undervalued assets in Ukraine right now. You have Uklon, which is arguably the Uber of Ukraine. You got Kyivstar TV, another digital TV leader as well as Helsi, clearly the digital leader there. Does it make sense if I brought the idea of -- I mean, you already commented on investing in alternative energy, which is a great idea to hedge the inflation side of it. Does it make sense to add kind of like an e-commerce type of platform like in Amazon or eBay and on our payment side to close out the ecosystem there?

You're absolutely right. We have right now a few priorities in our future development and e-commerce plus digital financial services are actually top priorities. So we are looking for the ways how in organic or nonorganic way we can enter these, let's say, verticals, okay? I'll give you one hint. Kyivstar, together with Uklon, together with Helsi is generating around, let's say, $2-plus billion gross merchandise value. So it's a huge transactional business that is already incorporated into our operations. And we are considering how the most efficient way to extract value for the organization and to strengthen our value proposition to the customers.

That's my follow-on question with that is, I know for you, Kaan, is you got the ride-hailing side, right? But then you could extend to the food delivery side. Helsi, you could do more kind of like a Teladoc's telemedicine. How do you balance all this with the understanding you still have to run a telco business? Do you have to increase your resource a lot to extend this organic growth to extract more value there?

We are working in a holding company mode, okay? So we have Helsi as a separate stand-alone organization with 240 employees. We have Uklon as a stand-alone 800 employees. I'm Chairman of the Board -- of the both boards, actually of 2 companies, okay? And my role is to ensure that both companies have ambitious strategy, okay? And this strategy are heavily based on the synergies that can be provided by the group in order to increase efficiency or accelerate growth, okay? So somehow, we do not integrate this into the one, let's say, vertical. So we are trying to let every entity to have an independent ambitious strategy in order to ensure growth, but to support this growth through the ecosystem cooperation.

Got it. Kind of like the Berkshire Hathaway where you have such.

Kakao. Probably the closest example that you can use is actually Kakao.

Got it. I want to turn to you on the financial side. You talk about multiplay customer base. I think this is a secret weapon to drive growth and better pricing for Kyivstar. For the benefit of the audience, multiplay customer is a client that uses 4G and voice connectivity plus one more apps, right? I think it grew 24% to 6.5 million customers, latest data. So my question is twofold, right? The ARPU side, you cited about 1/3 of your peers in Central Europe, Eastern Europe. How would you slowly, gradually get your ARPU up to deliver more value proposition? That's one side of it, Boris. The other side is customer acquisition costs. You obviously have 23 million subscriber -- roughly 22 million. I assume you're going to target the existing customer base to upsell. Does it mean your customer acquisition is very low just because you already have a good population to target? And that's it for me.

I would start with the ARPU growth. So what we see from the statistics is a direct correlation between this penetration of multiplay and the ARPU. So let me give you an example. So if you take an average kind of a basic 2G customer, so who is not using data, using data very accidentally. So the ARPU may be, let's say, $1.8 to $2. If you take the full multiplay customer, they're not only using kind of telecom services, but one of the other services from the range, the ARPU would go down to the range of $5, $6 go up, sorry, to the range of $5, $6. So that's why on average, you get $3.4. But you see this -- and I think the key to this growth of the ARPU and the growth of the value is the penetration of multiplay. And kind of when you are upselling the customers, let's say, when you kind of modernize the base, you give the value to them. And this value is actually the value that ecosystem create. In terms of the acquisition, although it's a very highly penetrated market, as you know in Ukraine, so kind of we see that the current existing subscriber base where we have almost half of the market is the main source of the growth, and this is about developing this base with the services. But when you are talking about acquisition and acquisition costs, so acquisition costs are relatively very low, I would say, in Ukraine. So we are also moving with the digitalization of our acquisition channels, for example, now we reach, I think, more than 10% of sales in our digital sales and digital sales cost you way less for sure. And the more you move there, so the more is the kind of per unit cost is declining. That's why the acquisition cost is definitely not a burden for the Ukrainian market. So I think the focus is again to find and acquire this real value base, and we definitely do not play any [ sing ] games.

Yes. We are focused on the high-quality acquisition. So we are trying to avoid some kind of simple straightforward subscriber market share because market is have significant double in penetration. So we are very much focused on a baked stable customer base to develop.

Boris, Oleksandr, I'll move to Zoom. There's a bunch of questions here, so I'll ask them on behalf of the participants. So first question, a couple of questions from Matt Harrigan. Matt Harrigan with Benchmark. His first question is, you've conveyed how low the mobile ARPU is for Ukraine relative to other Eastern European economies. How do you think Ukraine compares to other economies as far as digital app spending goes per capita basis? And is this a better indication for Kyivstar's growth potential than relative traditional mobile ARPUs?

We don't have this specific metric. Most probably we can calculate it, but we are using second metric which is a share of wallet. And it's not only low from the perspective of absolute ARPU, it is very low from the perspective of the share of wallet. So somehow, this gives us the kind of confidence that this is a potential for growth.

Correct. And as you pointed out, if you look at other VEON geographies, there's a lot of potential for that growth as well. Second question from Matt. How many of the 3,000 fixed broadband operators have sufficient scale and network quality to be attractive for acquisition? And do you see fixed wireless as another avenue to drive broadband growth?

From this, 3,000 players is a bit artificial figure. So I think that the real figure is at least 2x less because this kind of cascading of operators is being used for the tax optimization to be transparent and fair, okay? So from this, let's say, 1,000 players, there are definitely more than 100 players who are worth to consider. This -- our kind of threshold is to consider operators with around at least 50,000 customer base with a complementary footprint because we have our own and very strong footprint, Kyivstar has direct access with the infrastructure to half of the Ukrainian households. So we have 4 million ports installed around Ukraine. And from these 4 million ports, we have 1 million-plus active customers right now. So that's why this is the second criteria. And of course, the third criteria is reasonable transparency and compliance, okay? But we have a sufficient number of players, okay? So taking into account that we are a market leader with 14% market share. Our closest competitor is Ukrtelecom with 5-plus percent market share. So it's a long tail of midsized operators who can be considered as a potential target for the acquisition.

Fixed wireless?

Fixed wireless as a second question. So yes, we are considering this as one of the initiatives, but it's not a major one. okay? So our approach is to satisfy every customer request. This is our approach, okay? We want to develop, okay? So we are right now building a value proposition that is based on, let's say, reasonable device, okay, monthly fee. But this is -- so taking into account the fiber penetration in Ukraine, okay? So the number of investments done into the backbone into the last miles, okay? So there is not so significant demand.

Next question is from Nicholas Paton of Edison. He has 2 questions. Firstly, what would be a realistic target for ARPU growth, let's say, 1 year and 2 years post the end of the war? So if you could indicate -- I would probably see it...

If I'll answer this question, we can close the meeting.

I agree with you. Yes. So Nick, I think the answer to your question is probably more indicative in the relative ARPUs that Sasha has talked about.

It's a trend. You see. So yes, we did some declaration during the last Capital Market Day conducted by VEON, okay? So I think you can make a reasonable assumptions based on the figures.

Okay. His second question is, how would you expect electricity prices to trend post the end of the conflict? And a second subpart to that question is, how quickly is VEON's kilowatt-hour usage typically going up given how quickly is Kyivstar's kilowatt-hour usage is going up?

Let me take the second part of this question, okay? So yes, the electricity price annual growth consists of 2 elements, the nominal price growth and actually the growing network, okay? Growing network consists of modernization and growing number of radioactive elements that we are using. So on average, we are growing our network by 1,000 sites during the last 2.5, 3 years, which is around 5%, 6% from the total number. So let's, we can assume the organic growth is driven -- is actually contributing around 5%, 6%, 7% to the overall growth. The major factor is inflation. And as Boris mentioned, so somehow being integrated into the European energy market, okay, we are using almost the same prices. And I think that at some -- to some point, okay, we are at the peak of the prices. possible because it's quite significant pressure on the Ukrainian production, on the Ukrainian economy right now because of the electricity prices, okay? Moreover, after the war, it will -- I hope that it will be very much depends what will happen with Zaporizhzhia Nuclear Station because with Zaporizhzhia Nuclear Station back into the Ukrainian grid, we have excessive capacity.

Thank you. Before -- there's a couple of more questions on the Zoom, but I just want to come back and check if there are any questions in the room first? Okay. As you think I'll go back to Zoom. This is from Chris Hoare at New Street Research. Chris asks, given your acquisition intentions, what do you think is a plausible figure? Or how much of the cash do you think you can -- you would expect to deploy into digital acquisitions over the next 2 to 3 years if you had the right amount kind of targets available. So that's question one. Question two, is there any update you can give us on the possibility of Kyivstar entering the financial services space and what needs to change in terms of regulation for that to happen?

Let me take the first one. So actually, we do not have such an internal target even kind of what are we going to invest in the acquisitions. So this is much more bottom-up. So kind of what targets we have that follow the criteria that I explained earlier and to what extent we can close this transaction and how fast we can close this transaction. And the financing is actually coming as the secondary issue because we always have kind of our own funds accumulated in Kyivstar, we can go to the external financing. So financing is not a problem for us. So it's rather to finding the right targets that's suitable to the strategy and to the status of the public company.

Yes. So with the DFS services, okay, so it's a different regulator. We have been regulator as a telecom operator by National Commission, okay? For the financial services as a National Bank of Ukraine, there are different types of licenses. There are different types of requirements. And what we are doing right now is trying to analyze, okay? So taking into account our strategic options. What type of license we will need and what types of requirements we have to satisfy. So we are a bit at the early stage to answer this question with all possible details.

Got it. One more question from Tatsuhiro Nagochi. He asks, how will Kyivstar's listing on NASDAQ change its relationship with VEON and impact our corporate governance, if any? So that's question number one. Question number two, does Kyivstar have any plans to initiate or expand dividend payments to shareholders in the near future?

Yes. So in terms of governance, so Kyivstar Group Limited is a separate public company. So definitely, VEON is the main shareholder of this public company. That's why VEON has a good representation on the Board of the KGL. But it doesn't mean it only consists of the VEON Board members. So we have several independent members on the Board as well. So the group will be managed by this separate Board, and we do have all definitely the committees, Nomination and Remuneration Committee, Audit and Risk Committee in place. And kind of -- yes, so we consider it as a separate group and manage it via the separate KGL, so Kyivstar Group Limited governance next kind of to VEON governance. So VEON governance is like totally separate. The second question was about...

Dividends.

Dividends, yes. So currently, kind of we are working on the fact. So if you follow kind of the developments of the currency control legislation in Ukraine, you would see that with the course of time, again, if you compare with the starting point, which is the beginning of 2022, so the regulation is being liberalized. So currently, they are limited to a very small number, let's say, the companies or the legal entities cannot upstream more than EUR 1 million per month as per the legislation. So we do believe that as long as this liberalization continues, kind of we will be definitely looking at the cash and the cash reserve that we currently have on the account as a more kind of locked up dividends kind of attributable to the shareholders. And I really believe that whenever it's allowed regulatory to upstream them, we return to the history of the dividend upstream that we had up to 2021. And this was kind of one of the main point of our capital allocation that we keep and we distribute a very healthy dividend for our operations.

Clear, Boris. I'll now bring it back to the room. There's a couple of questions here.

Jim Moran again from Oppenheimer. Just a few questions. On the broadband front, I think it's around $50 per home pass to construct.

It's close to $100. $100. It depends on the technology. FTTH is a bit lower. FTTB is a bit higher. We are not building FTTB anymore. So it's up to $100.

And what do you think the acquisition prices would look like compared to building out on your own?

It's very much in the range of the annual ARPU, okay? So it's a multiple to the annual ARPU. And right now, it's significantly deviated from player to the player, okay? So -- but I can say it's probably on average in the range from 2 to 3 years.

How much, sorry.

2 and 3 to the annual ARPU.

Okay. Great. And then on the network, where are you with 4G coverage? And when do you start 5G? And will that change the CapEx trajectory?

Yes. So on a 4G coverage, we are at the level of 97% of the population covered by us. We are a market leader with significant gap against closest competitor, okay? With 5G, it's a national strategy, okay? So that is, from my perspective, will depend on the war and cease fire to some extent, okay? But right now, according to the strategy, the earliest, let's say, time for 5G launch is 2027, which I'm considering quite ambitious, honestly, okay? So -- but I think that probably end of '27, '28 might be a kind of launch of the 5G services in Ukraine, okay? So far, we have agreed with the government that we will run a few, let's say, full-scale pilots, okay? And the first one is already in place. It is not activated yet. It's coverage of the central district in Kyiv. And we confirm that we are ready to cover some areas in Kyiv and Kharkiv and a couple of other cities. but just in a pilot mode.

And do you have spectrum available to build out 5G? What band would you use? And then maybe Boris, could you remind us the uplift in ARPU from 3G to 4G that you've witnessed historically?

Yes, again, somewhere from 1.8 to 2. So this is the lowest kind of for the basic GSM services going like to 5, 6 per customer if you are fully digital customer. And I'm not talking the highest ARPU in the network for sure, but I am like talking average numbers.

The difference, okay. So sorry, what was your first question was you have the spectrum available for 5G.

And maybe how much spectrum do you control now in total?

We have 200 megahertz. From this 200 megahertz, we have 80 megahertz FDD spectrum, okay, which is 160 total, okay? And we have 40 megahertz of TDD, 2,300 spectrum. So we have reasonable, let's say, bandwidth of spectrum. We are market leader in absolute term. We are #2 in spectrum per customer, okay? So -- and we feel ourselves very, I will say, confident with available spectrum. We have the best position in the low-end spectrum of 900 megahertz and 1,800. And we are on par in 2,600, 2,100 with the competitors. So for 5G spectrum is available, especially 3,500, I do not expect serious competition because 300 megahertz right now on the shelf of the regulator. okay? But we are facing an issue with a low-band spectrum. So -- and the only one opportunity is a conversion of the current digital TV national transmission system and 700 megahertz. It's a significant project that most probably would be sponsored by the government or even operators. And here, we might have 20 megahertz of 700 FDD spectrum.

This is Yi again with Cantor Fitzgerald. So I want to circle back, Oleksandr and Boris, on the telecom opportunity. I understand on the mobile side, it's a 3-horse race. But on the fixed line side, because about 60%, 70% of the market share is still very fragmented. How fast is an acquisition? I know you guys did a tuck-in land acquisition, about $2 million a couple of years ago. How fast are you able to roll up the more fragmented part?

It is not so fast, okay? So in our -- it sounds a bit like -- it's not a forward-looking statement. It's our strategic priorities. And in our strategic priorities, we want to acquire, let's say, 100, 10,000, 200,000 customers as a result of nonorganic development. But this is a kind of opportunistic approach. So we will not make this for the sake of the acquisition. We will make this if it creates value for the shareholders.

Got it. Got it. Understood. And then when started the conversation, you talked about Augmented Intelligence. You also talked about the amount of data repository you guys have at your disposal at Kyivstar. I was wondering if you could tease us on like the large -- LLM, large language models thought process that you could help augment Kyivstar in the M&A process? Or does it make sense to build it organically or a combination of both?

I think then a combination of both. With our latest project with the Ministry of Digital Transformation, we want to actually significantly invest into our own competitors, okay? We want to have -- to secure some kind of IP rights for the future model, not rights, but we will have some kind of priorities in utilization of the models and commercialization of the model. And of course, we are considering this will be a national sovereignty model that can be used for the critical enterprises like Kyivstar.

Got it. Got it. In terms of like the cloud business, I was wondering if you could like give us a little more color. You mentioned you work with the hyperscalers. Does it make sense, Oleksandr, for you to be the hyperscaler at one point?

It is possible, okay? So I see this strategy as a kind of evolution, okay? And so I will give you a perspective from the client, okay? Clients have different demands. You can't satisfy all client demands with just international hyperscaler, first, because there are some regulations. Sometimes clients are not ready to provide their data. So at the same time, they want to have some kind of flexible solutions on site. So at the end, I'm sure that every big client will use all types of clouds. They will use hyperscaler on global scale. They will use their own clouds, and they will use national clouds for some purposes, okay? And there are different tasks that can be actually resolved with different types of the clouds, okay? So what we are doing, we are scaling up our capabilities. So we have started with cooperation with Microsoft. We achieved significant results there, okay? We added Amazon, and we are just starting our cooperation with Amazon. But at the same time, we already launched our own cloud, and we are ready to scale it up, okay? And we are also considering can we play some role in the development of the national language model, not only from the development perspective, but also from the computing perspective. So this is our kind of vision that we are building step by step.

Got it. Makes sense. And my final question is since we have the VEON Group here as well, and Boris kind of touched upon it when he was talking about separate Boards maintaining proper controls and governance. Still VEON obviously is investing for the long term, but they still have outsized ownership, 89%. I was wondering we could pick your brains from an investor perspective. What is VEON's plan like longer term in terms of maybe perhaps gradual divestiture per se in terms of the ownership?

It's better.

Thanks a lot for the question. And I think you made the reference to Berkshire Hathaway in terms of the model. All our operators in every single country operate independently at their own funding models. And actually, throughout this room, you have independent Board members of our local opcos. So we are actually very disciplined when it comes to governing our operations, and we kind of work like a private equity as VEON Group as an asset manager. So from that perspective, when I look to the case of Ukraine, we believe we have a responsibility to contribute to the development of capital markets in Ukraine. And if it will require us to even increase our public ownership of the asset, we will not be hesitant to make that move. We have to be also very clear about one thing. We talked a lot about acquisitions. Actually, as VEON Group, we are extremely disciplined and conservative when it comes to making acquisition decisions. But in the case of Ukraine, we have a situation where we have a lot of underutilized cash on our balance sheet. We have a great team that we trust, and we have a great opportunity that we see of undervalued assets in the country. And this is actually a sign of us delivering on our promise to invest $1 billion to Ukraine to make sure that we actually invest in undervalued assets that will create revenues, EBITDA and cash for us. Ukraine is a good example. Helsi is a good example. There is a healthy pipeline that we look at today that we can easily deploy this. But as we do this, we would like to make sure that more people invest in Ukraine now. Actually, from here, we will be heading to a symposium named Invest in Ukraine Now. And I think if they want to invest in our company, we have to make room for them. And we see this as a responsibility as well. Yes. Thank you.

I think we are running out of time. We still have a few questions from Zoom. But just given the respect to timings for people that we've given earlier, I'd like to conclude by thanking you all for taking the time to attend this presentation. Thank you, Augie, Kaan, Sasha Boris. Thank you all for all your questions. There are a few questions outstanding. We've noted them down. And as always, keep the questions coming to any of us, very happy to deal with them at a later stage and look forward to continuing to interact with you. Thank you. Thank you.