L1 Technology looks for acquisition and investment opportunities within the global technology space with a strong focus on the software and data sectors.
L1 Technology has a 47.85% voting stake in VEON, the global telecoms company headquartered in Amsterdam, and a 13.22% stake in Turkcell, Turkey’s leading telecoms operator.
Telecoms form the backbone – in terms of connectivity and service – of today’s digital world. The challenge is to monetise this position and provide customers with both connectivity and new digital services. As software and technology change the way the world does business, L1 seeks to invest in companies that are at the forefront of this change.
We seek to invest in technology businesses which can be leveraged as platforms to expand internationally, through acquisitions or broadening the product set.
Our permanent capital and long term operational focus, provides L1 Technology with the ability to underwrite hold periods longer than a typical private equity fund. In addition, we have the flexibility to own majority control positions or large minority stakes.
Our technology investments overall made good progress this year. Software and new technology is enabling companies to change their operating models and increase cash flow.Alexander Pertsovsky Managing Partner L1 Technology
VEON’s seven year transformation
VEON, which is now three years into its seven-year transformation, delivered the majority of its 2017 financial targets, generating USD $1.1 bn underlying equity free cash flow, up 31.4% year-on-year. VEON continued to grow in terms of revenue, EBITDA and free cashflow compared to last year. VEON’s capital structure was improved; governance, controls and compliance strengthened.
Although VEON remains fully committed to its digital strategy, which aims to substantially reduce costs and increase revenue through new digital services and reduce churn, financial progress was not as good as we would like. EBITDA and gearing performance in Q4 was weaker than expected by the market which led to a correction in VEON’s share price in early 2018. That being said, the company is striving to improve.
VEON’s 50/50 JV in Italy with Hutchison is on track to deliver annual target synergies of EUR 700 m in a highly competitive market. It also refinanced its debt, saving EUR 270 m of annual interest. The JV is on track to build Italy’s leading mobile network and is transforming into a “simple and digital” company, ahead of the fourth entrant coming into the Italian telecoms market in 2018.
VEON is also on track to roll out a new IT platform to replace its 300 fragmented core IT systems in 2018 and deployed a proprietary real-time data analytics engine that makes use of the rich data available to telecom operators to develop new customer offers.
L1 Technology, in line with L1’s buy and build strategy, is solely focused on and committed to the creation of long-term shareholder value. Shareholders received USD $0.28 per share in 2017, a 21.7% increase year-on-year. We support a sustainable and progressive dividend based on the further improvement in equity free cash flow which is expected in the medium term.
Turkcell makes good progress
This year Turkcell has achieved outstanding results following a successful start to the implementation of its digital strategy after repositioning itself as a digital operator. In 2017 revenue increased 23.4% and EBITDA increased 34.8% year-on-year. Turkcell is focusing on selling digital service packages rather than voice minutes or basic data package. Turkcell expects to start licensing of digital services to other operators in addition to launching more digital services direct to consumers - both of Turkcell as well as other operators.
L1 Technology Investments
L1 Technology continues to actively look for investments in technology and software companies that fundamentally improve business efficiency.
Uber went through a turbulent year with the departure of Travis Kalanick, revelations of a dysfunctional culture and regulatory challenges in a number of cities. Dara Kosrowshahi took over as Uber’s CEO, setting a more different tone and announcing plans for an IPO in 2019. Despite this, Uber continued to perform strongly on the topline, near doubling its gross bookings, and there are some signs of stemming the increases in cash burn. In December, a consortium led by Softbank invested USD $9 bn at a blended valuation slightly below L1’s entry valuation.
Qvantel, a provider of BSS (business support system) solutions for telecoms, focussed on ramping up its capabilities to successfully deliver very large projects. The management team was strengthened with the arrival of the new CEO Ove Anebygd, with 20+ years of experience from Ericsson, and a range of new executives. Qvantel posted strong revenue growth (103%), while re-investing most of its cash flows in R&D and paying out USD $4.3 m in dividend. L1 Technology invested in Qvantel in 2016.
FreedomPop’s revenue growth slowed down significantly to just under 9% in the US, and both Spain and the UK are proving to be subscale markets. FreedomPop remains one of the best affordable telco offerings in the US, but generalised pricing pressure is reducing its value edge. With the shareholders’ support, FreedomPop is building on its digital conversion experience, developing hosted solutions for mobile operators to reduce customer acquisition costs. Early signs are encouraging with contracts signed with WindTre, Cyta and Masmovil.