Transforming telecoms and technology
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 in which the world does business, L1 seeks to invest in companies that are at the forefront of this change.
2018 was a landmark year for VEON during which they delivered on their financial targets, strengthened their financial foundations, and repositioned the business for emerging markets growth.Alexander Pertsovsky Managing Partner L1 Technology
VEON’s seven-year transformation
2018 was a landmark year for VEON during which they delivered on their financial targets, strengthened their financial foundations, and repositioned the business for emerging markets growth.
Ursula Burns was appointed as Chairman and CEO of VEON on 13th December 2018. Ursula has served as Chairman of the Board since July 2017 and as Executive Chairman since March 2018, during which time she has successfully introduced a simplified corporate structure, including a leaner operating model along with an increased focus on emerging markets.
VEON achieved its financial targets in FY 2018. Total revenue increased 3.5% organically in FY 2018, fulfilling the target of low single-digit organic growth, as a result of strong performances in Russia, Pakistan, Ukraine, and Uzbekistan. EBITDA increased organically by 6.2% for the year, exceeding the target of low to mid-single digit organic growth, driven by good operational performances in Russia, Pakistan, and Ukraine and by a 17% year-on-year reduction in corporate costs.
FY 2018 equity free cash flow excluding licenses increased 28.3% year on year to $1,032m from $804m in FY 2017, reaching the FY 2018 target of around $1bn.
In Q4 2018, VEON used approximately $1.3bn in proceeds from the sale of its Italy joint venture, Wind Tre, to buy back and cancel VEON Holdings and PJSC VimpelCom USD bonds ($1,147m) and to pre-pay all outstanding amounts under its CCB Euro loan ($116m). These debt repayments and currency swaps in Q3 2018 and Q4 2018 allowed VEON to significantly improve its debt currency mix by reducing its exposure to EUR debt to zero and increasing its RUB debt exposure.
VEON announced a revised agreement with Ericsson to upgrade its core IT systems in several countries in the coming years and to release Ericsson from the development and delivery of the Full Stack Revenue Manager Solution. The parties have signed binding terms to alter the existing agreements and as a result VEON will receive $350m during the first half of 2019.
On 10th February 2019, VEON submitted a public mandatory cash tender offer (MTO) with the Egyptian Financial Regulatory Authority for the purchase of up to 1,997,639,608 shares of GTH, representing 42.31% of its issued capital, at a price of EGP 5.30 per share. The proposed offer price represents a 45.8% premium over GTH’s average three-months share price. As previously announced, VEON intends to take GTH private following the MTO.
VEON has committed to reduce the group’s cost intensity ratio by at least 1 percentage point organically per annum between 2019 and 2021, from 61.8% as reported in FY 2018. Efficiency initiatives will be focused on reducing service costs and technology, commercial, general, and administrative expenses. Based on FY 2018 figures, 1% cost intensity reduction represents around $85m.
VEON’s Board of Directors approved a final dividend of $0.17 per share, bringing total 2018 dividends to $0.29 per share, in line with the group’s progressive dividend policy.
Turkcell makes good progress
This year, Turkcell continued to make good progress with its digital strategy. In 2018, revenue increased 22%, and EBITDA increased 17% year on year. Turkcell is now focusing on selling digital service packages outside Turkey. It has announced three deals with Chaudhry Group in Nepal, Digicel in the Caribbean, and ALB Telecom in Albania. Further partnership discussions are ongoing. As a digital operator, Turkcell is continually adding more digital services such as email to its offerings. They received extensive positive press coverage and prizes during the Mobile World Congress in Barcelona in February 2019 due to their digital products as well as contribution to social responsibility and gender equality. J.P. Morgan praised their digital services, already valuing them at $1bn, and recently increased its Turkcell price target.
L1 Technology portfolio
VEON is a multinational telecommunication services company.