VEON Ltd. (NASDAQ:VEON) Q3 2023 Earnings Call Transcript

VEON Ltd. (NASDAQ:VEON) Q3 2023 Earnings Call Transcript November 20, 2023

Faisal Ghori: Hi, good morning, and afternoon, and thank you for everyone joining us today for VEON’s Third Quarter Presentation for the Period Ending September 30, 2023. I’m Faisal Ghori, Head of Investor Relations. I’m pleased to be joined in the room today by Kaan Terzioğlu, our CEO; along with Joop Brakenhoff, our CFO. Today’s presentation will begin with the key highlights and business updates from Kaan, following discussion of detailed financial results by Joop. We’ll then hand it back to Kaan to discuss our outlook and priorities for 2023. We’ll then open up the line for Q&A. Before getting started, I would like to remind you that we may make forward-looking statements during today’s presentation, which involve certain risks and uncertainties.

These statements relate in partly to the company’s anticipated performance and guidance for 2023, future market developments and trends, operational and network development and network investments and the company’s ability to realize its targets and commercial and strategic initiatives, including current and future transactions. Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the company’s annual report on Form 20-F and other recent public filings made by the company with the SEC. The earnings release and the earnings presentation, each of which include reconciliation of non-IFRS measures presented today can be downloaded from our website. With that, let me hand it over to Kaan.

Kaan Terzioğlu: Faisal, thank you very much. Good morning and good afternoon to everyone. Thank you very much for joining us for our presentation of VEON’s third quarter results for 2023. Before we jump into it, please allow me to take a few minutes and zoom out and talk a little bit about where we are today, and how we got there. I have been in the industry for nearly 30 years. And in that time period, as you may imagine, I have seen quite a bit. VEON is beyond all these and it has a very special place in my heart. VEON is resilient. VEON is strong, VEON is tough. And let me say it again, resilient, strong and tough. Nearly two years ago, we were thrown into an unprecedented situation. Two of our largest markets, 70% of business went to war with each other.

The company was thrown its largest set of challenges ever. Not only did we have to deal with the day-to-day challenges to continue providing essential vital services to our customers, we had extraordinary challenges dealing with regulators, governments, sanctions, and financial market actors. I want to thank all of our employees, our partners, and our shareholders for supporting us under very trying circumstances. We could not have done it without you. I also want to talk a bit about culture. I’m a believer in the adage, culture eats strategy for breakfast. We had a good culture at VEON prior to the challenges we have faced, but now having been thrown into the fire, we have emerged tested by war, battle ready, excited and optimistic about our future, about what we can do for our customers, our partners, and our shareholders.

We now have an exceptional culture at VEON, which is reflected across all of our portfolio. Let me give you a few examples. In markets like Pakistan and Bangladesh, our companies are the highest ranked national employers. Employees that had previously departed our companies are rejoining our groups, helping us to deal with the challenges and showing their loyalties. Why I am confident that we can continue delivering growth? Because we have exceptional people and the performance-driven culture. During the last 24 months, we have not only survived, but we have tried. We have continued to deliver services to our customers and delighted them. We will continue to generate significant shareholder value. We are working tirelessly to deliver profitable, sustainable growth.

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Q&A Session

And imagine a second, if our team can deliver results as strong as these under most difficult circumstances, what we can do in more normal environment in the quarters to come. Let me spell it out for you. VEON will keep moving faster, stronger, and harder. This is VEON 2.0. I am deeply proud of all our employees across all of our operating companies for their exceptional hard work and commitment to VEON and our shared future. With that said, let’s talk about Russia. The business, this business was originally founded in Russia and exiting was neither easy nor simple. Yet, day one, we made a choice and we chose Ukraine, and our team worked tirelessly in an extremely challenging environment to exit smoothly a very large country. I wanted to thank everyone who helped VEON successfully complete the sale of our Russian business.

I’m pleased to note the positive impact that this has already had on our cooperation with banks and brokers with trading volumes of our stock rising and sell side coverage from Barclays, New Street Research and I&M now available. With the sale of our Russian business complete, VEON has significantly deleveraged its balance sheet and we are delivering much faster growth. Moving on, our operating companies in their markets are all delivering double digit local currency revenue growth. I will present the highlights of the third quarter of 2023 on next slides, and then move to a country by country overview of our operating companies and their continued execution of VEON’s digital operator strategy. This time, as you have demanded, I will give you more detailed update on our digital services and some more KPIs around those.

What is VEON 2.0? The material on this slide should be familiar to you from my introduction. In short, the new VEON is focused on five pillars: Delivering double digit growth. As a result of rolling up our sleeves and creating renewed foundation for growth, we have shown we can and will continue delivering double digit growth. Two, margin expansion. As we continue to grow, we will see margin expansion both from operating leverage and our renewed cost controls. Third, high free cash flow generation. As a result of the first two pillars and moderation of CapEx, as we get closer to our objectives to being an asset-light company and 70% 4G penetration, VEON will be highly free cash flow generative. Four, strong balance sheet. No one comes out of what we have come out without recognizing the value of a fortress balance sheet.

We will continue to deliver, delever and optimize our capital structure. I’ve been speaking about our digital operator for some time now. Now we are beginning to see the fruits of the last two years of work. We are now moving from having just customer market share gains to having consumer business wallet share gains. Our digital products and services will further make us even more valuable to our customers. Let me move to the next slide. In the third quarter of 2023, we once again achieved double digit growth at 19% year-on-year revenue growth in local currency terms. Service revenues rose at a similar rate, up 19.8%, year-on-year. Local currency EBITDA expanded in the third quarter at a rate of nearly 31%; and normalized for local currency EBITDA growth, taking some immaterial one-offs aside, 27.4% year-on-year growth.

In United States dollars terms we saw year-on-year growth of 6% revenues and 17% EBITDA in third quarter. While foreign currency depreciation continue to impact our reported currency performance, macro conditions are stabilizing in our markets. The operational robustness of our business is showing faster growth in EBITDA and margin expansion. CapEx was down 29.8% year-on-year to $131 million for the third quarter, and our CapEx intensity for the quarter came in at 13.9% in line with seasonality. We have a robust balance sheet with a net cash of $2.2 billion, of which $1.8 billion was held at headquarters as of September 30th. Joop will later update you on our pro forma liquidity position, reflecting the completion of our Russia exit and early redemption of 2023 and ’24 notes in October later in the presentation.

Next slide. VEON has consistently executed on driving high growth in markets over the last past three years. We have grown local currency service revenues 1.5x over the last 2.5 years. This should help drive home what is possible in these markets. With the right strategy, the right culture, and the team can deliver growth as well in excess of traditional telco operator. As we have expanded access to 4G connectivity and offer tailored portfolios of connected digital services in each market, we are able to convert a growing number of customers to multiplay users with higher ARPU and lower churn. The digital operator approach has resulted in double digit two-year cumulative average growth rates across Kazakhstan, Uzbekistan, Pakistan, Bangladesh, and Ukraine, as you can see in the slide.

With the exit of Russia on October the 9th, VEON has achieved a significant deleveraging of its balance sheet with a more robust balance sheet. On a pro forma basis, adjusting to account for the completion of the transaction, shortly after the reporting period ended, gross debt decreased to $4.4 billion; net debt dropped to $2.7 billion; net debt, excluding capitalized leases dropped to $1.8 billion. And this would put our net debt to EBITDA multiple at 1.21 excluding leases at the end of October 2023. With an optimized capital structure following our exit from Russia, VEON can now focus on delivering its digital operator an augmented intelligence for all strategies across Ukraine and its five high growth frontier markets across Central and South Asia.