VEON Ltd. (NASDAQ:VEON) Q4 2023 Earnings Call Transcript

VEON Ltd. (NASDAQ:VEON) Q4 2023 Earnings Call Transcript March 21, 2024

VEON Ltd.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Faisal Ghori: Hi, good afternoon and good morning to everyone. Thank you for joining us today for VEON’s fourth quarter results presentation for the period ending December 31, 2023. I’m Faisal Ghori, Head of Investor Relations. I’m pleased to be joined in the room today by Kaan Terzioglu, our Group CEO, along with Joop Brakenhoff, our Group CFO. Today’s presentation will, as is usual, 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 2024. We will 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 relating partly to the company’s anticipated performance and guidance for 2024, future market developments and trends, operational network developments and network investments, and the company’s ability to realize its targets in 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 risk detailed in the company’s annual report on the 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. We also note that today’s presentation will include ratings from credit agencies. A rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time. With that, let me end it over to Kaan.

Kaan Terzioglu: Thank you, Faisal. Good morning, good afternoon. Happy Nowruz, Ramadan Kareem to all. Thank you for joining our fourth quarter’s 2023 and full year’s results webcast. Before we get into the detail, allow me to turn and zoom out and refresh our memory. When Russia-Ukraine war started, we made a choice. We chose Ukraine. Our exit from Russia resulted, as you can see, in full year results in a very different VEON. We might be more compact in terms of balance sheet, half the size, but today we are a much faster growing company with a very healthy balance sheet. We continued delivering strong results in Q4 2023. Normalized revenues were up 18% year-on-year, and normalized EBITDA grew even faster at 25% year-on-year.

For the full year, we have 18% top line growth, 20% EBITDA growth and 53% free cashflow growth, taking the free cashflow yield of 24%. Such results makes us extremely satisfied. Our decentralized operational model with world-class governance allows us to build a leaner, faster, more profitable, and more cash-generative company. Our local brands may be different. Jazz in Pakistan, Kyivstar in Ukraine, Banglalink in Bangladesh, Beeline in Uzbekistan and Kazakhstan. Names, brands may be different, but they all execute the same strategy, drive for the same targets, and they grow faster than their local competition. In the majority of our markets, we have the highest net promoter scores, fastest broadband networks, and we are not only gaining market share, but also gaining wallet share.

VEON today is resilient. It is strong. VEON is tough, which takes me to Kyivstar in Ukraine. I want to thank our CEO, Alexander Komarov and his exceptional team. In the aftermath of the cybersecurity attack on December 12th on our network, thanks to their swift response, as of yesterday, we have surpassed the activity levels in terms of number of customers, data consumption, voice calls, roaming users, TV entertainment consumers, as well as health services consumers. And we are even more than pre-attack levels. Moving on, let me also speak a little bit about our ongoing integration into capital markets. I’m happy to see that we are reintegrating to the capital markets community. Recently, we attended New Street Research, BCG Conference this past quarter, and we have also attended JP Morgan and EFG conferences in the past few weeks.

See also 15 Countries with the Highest Life Expectancy in Africa and 30 Cities With The Highest Cost of Living.

Q&A Session

Currently our securities are covered by Barclays, New Street Research, [I&M, Telomere] (ph) and Imperial Capital. In the recent weeks, Standard & Poor’s and Fitch issued their ratings about our company and MSCI rated us AA for ESG, putting us into the leaders category. If we haven’t had a chance to communicate with you directly, please reach out to Faisal and our investor relations colleagues. I want to talk about AI for a moment. Not because everybody talks about it, not necessarily because I see AI as a tool to save costs, but because what matters. What matters is our customers. How can we make a doctor in Dhaka the best doctor? How can we make a teacher in Islamabad the best teacher? An auto mechanic, a farmer, a small business owner, smarter and more efficient.

We are excited to make this happen. This is what we call AI 1440, augmented intelligence in every single minute in a day. All our operating companies are working with the leading research institutions in their respective countries to develop small language models and job-specific language models. We can create AI-based language-specific models in Punjabi, Urdu, Bengali, Kazakh, Uzbek, and in Ukrainian to respond to the needs in our markets with augmented intelligence. There is nothing artificial about AI. There is a way of using augmented intelligence purposefully. I cannot see a better value proposition than making our customers successful. In the upcoming slides, I will outline the key achievements from the fourth quarter of 2023, followed by a detailed review of each country’s operations and their ongoing implementations of VEON’s Digital Operator strategy.

Towards the end of my presentation, I will provide an in-depth update on these developments before handing it to Joop. What is VEON 2.0? You can see in the slide five key pillars. Pillar number one, achieving double-digit growth. Through diligent efforts and establishing a new growth baseline, we have demonstrated our capability and commitment to sustain double digit growth trends. We call it fair market growth in line with nominal GDP and growth in our markets. We have 520 million potential customers and people living in our countries. Only one out of two have access to a proper, robust broadband service. Only two out of 10 has an access to a proper financial service. We believe the organic growth potential in our markets will be exponentially increased as we tap into the adjacent markets such as financial services, entertainment, education and healthcare.

Pillar number two, expanding margins. Our growth trajectory will facilitate margin expansion given operational leverage and enhance cost management. As this year has demonstrated, we are very effective when it comes to cutting costs out of our HQ costs and also OpEx. Pillar number three, maintaining a robust balance sheet. Based on recent experiences, the importance of a solid balance sheet is very clear. We will continue to de-leverage and optimize our capital structure. We no longer need excess cash for liquidity and you will see us getting more effective in cash management having an impact on interest expenses. Pillar number four, generating more cash. Growing revenue, cost management, less interest expense will also be accelerated by moderation in investments.

As we reach our 70% 4G penetration and already exceeded in some countries, you will see us moderating our investments. All these three elements with the investments focus will increase significantly our cash flow generation capability. Pillar number five, advancing our digital operator vision. All the customers we have in the countries that we operate in, they deserve the services of any other developed markets. You will see us serving this unmet demand when it comes to entertainment, financial services, education and healthcare. And these will accelerate even the organic growth factors from 4G penetration, smartphone penetration, as well as the natural demographic flows. On top of this, you will see us integrating augmented intelligence and capabilities to our services in all markets.

Let’s move to the next slide. During my presentation, I will concentrate on normalized constant currency growth rates, which more accurately reflects the true underlying growth trends and operational achievements across our operating companies. In 2023, we achieved growth of 18% year-on-year revenue in normal local currency terms. Service revenues rose at a similar rate, up 18%, again in normalized local currency terms. Local currency normalized EBITDA expanded in 2023 at a rate of 20% year-on-year, and it is indicative of positive operating leverage and sound execution on cost management programs. The financial results for 2023 showcase our business’s inherent and robust capacity for generating strong free cash flow. Equity-free cash flow increased 53% to $434 million.

This results in a free cash flow yield post interest expenses of 24% for beyond. Our balance sheet remains strong with a cash position of $1.7 billion. Of this, $1.3 billion is held at headquarters level as of December 31st. Later in this presentation, Joop will provide an update of our pro forma liquidity status, which takes into account the completion of our exit from Russia and early redemption of our ‘23 and ‘24 notes in October. Let me share the details of the one-off items that have impacted our performance of the group for ‘23. Number one is tax-related one-offs in Pakistan and Uzbekistan. In 2022, we had some landmark court cases positive for us, resulting in a positive decision. Second, one-off expenditures in HQ, including our expenditures related to Russia exit.

Number three, charitable donations in Ukraine and the cyberattack impact. You can see all the numbers related to those three elements up in the slides. After adjusting for these factors, VEON’s organic, like-for-like growth in 2023 continues to lead the sector, showcasing an impressive year-on-year growth of 18% and 20% increase in EBITDA. Taking these into account, Q4 2023 organic like-for-like growth at VEON would be 18% growth in revenue and 25% growth in EBITDA. For the full year, revenue grew 18% and EBITDA group 20%. Let’s move to the next slide. In fourth quarter, we once again achieved double digit growth at 18%. Local currency normalized EBITDA on fourth quarter at 25%, which excludes one-off impacts that I have mentioned. In terms of reported dollars, we experienced a 1% increase in both total revenues and service revenues for the fourth quarter.