Veon Makes Steady Progress in Seven-Year Transformation
In 2019 VEON made good progress with successful restructuring of its non-CIS subsidiaries holding structure and massive HQ simplification. 2019 financial targets were met or acceded despite challenges in Russian business.
Veon’s total FY 2019 revenue increased 3.4% organically, fulfilling the target of low single-digit organic growth. EBITDA increased organically by 9.6%, exceeding the target of low to mid-single digit organic growth, driven by strong operational performance in Ukraine, Pakistan, Kazakhstan and Bangladesh and by a 23% reduction in corporate costs from $359 million in FY 2018 to $277 million in FY 2019 and approximately $200 million run-rate as of YE 2019. FY 2019 equity free cash flow excluding licenses of USD 1 billion was in line with target.
Since 2Q FY 2019 VEON’s business in Russia has been experiencing significant challenges and as a result Beeline revenue for the year dropped 0.6% and EBITDA grew only 0.3%. Reversing the negative trend of the recent quarters remains VEON’s key priority in the year ahead. L1 Technology believes that the actions being taken in late 2019 and 2020 to strengthen Beeline management team, formulate new strategy, improve the quality of its networks, optimise its distribution footprint and reconfigure customer offers will yield results towards the latter part of 2021.
In 2019, VEON continued to digitalize its business by making considerable investment in IT infrastructure. This has involved installing the very latest Digital Business Support Systems, which are critical for customer experience in Bangladesh, Kyrgyzstan, Pakistan, and Ukraine, and increasing network investment in all of its countries. VEON also continued to rigorously simplify HQ organisation, cutting down personnel from roughly 900 in FY 2018 to 200 by YE 2019.
In line with its strategy to optimize the Group portfolio, in 2019 VEON successfully completed the take private of Egypt-listed, GTH, a holding company that owns Veon’s non-CIS subsidiaries. As part of the transaction Veon acquired 42% of GTH shares it did not own for $590 million from minorities via a public mandatory cash tender offer (“MTO”). Since MTO completion, Veon has been streamlining ownership of GTH’s operating companies by transferring it from Egypt to Netherlands.
Increase in Veon's FY2019 revenue
Organic growth in EBITDA
In line with its strategy VEON further strengthened its management team and corporate governance, with appointment of Sergi Herrero and Kaan Terzioğlu as co-Chief Executive Officers. Kaan and Sergi will jointly drive performance of the Group, with complementary focus areas. Kaan will lead on VEON’s core telecommunication services and oversee operations in Russia, Kazakhstan, Uzbekistan, Kyrgyzstan and Georgia. Sergi will lead on building new ventures, digital products, partnerships and oversee operations in Pakistan, Ukraine, Algeria, Bangladesh and Armenia.
In consumer digital Veon has good progress in increasing penetration of its self-care apps (Russia 20% of subscribers use MyBeeline at least once a month) which is important for overall digitalization of Veon business, growing content TV business with 2.2m monthly users in Russia and digital financial services mainly in Pakistan with 7.3m of monthly ewallets.
The end of monitorship in 4Q 2019 in connection with the conclusion of 2016 Deferred Prosecution Agreement was a major milestone for Veon and is testament to high standards of ethics and compliance.
VEON’s Board of Directors approved a final dividend of US 15 cents per share, bringing total 2019 dividends to US 28 cents per share which represents 70% of equity free cash flow after licences, in line with the Group’s dividend policy.
Looking to 2020 VEON has not been immune to the economic impact of COVID-19. Operationally, this has resulted in divergent trends across its business, with greater demand for broadband and digital services offset by an inevitable decline in roaming revenues. Given the impact and duration of this pandemic remain uncertain, VEON believe it is no longer prudent to give financial guidance for 2020.
L1 Technology continues to see opportunity for VEON to capture long term growth potential of its early stage data and digital markets, where the population is set to grow by 10% over the next decade, and there is only 34% average digital services penetration.
Environmental, Social and Governance
VEON operates in emerging markets with young and growing populations, where mobile phone penetration is still on the increase and where the digital connectivity services it provides are in themselves an important driver of economic and social development. In many of the markets in which it operates, a large proportion of the population is unbanked.
VEON is developing digital financial services to address their needs. For example, its Jazz business in Pakistan had 7.3m active users of its mobile financial services at the end of 2019, and in addition to providing mobile wallet services, it has been pioneering initiatives with tax authorities to digitise tax payments and with insurers to facilitate access to health and life insurance.
VEON’s Make Your Mark programme fosters local entrepreneurial ecosystems to encourage start-ups and help people create better futures for themselves and their communities. In 2019, through a network of seven tech-hubs, it supported 3,751 start-ups. In Pakistan, for example, Jazz in 2016 entered into a public-private partnership with the National ICT R&D Fund to fund the Jazz National Incubation Centre. By the end of 2019, 162 start-ups had graduated, and a further 120 were in incubation.
VEON also invests in tech-centric educational initiatives to help people who lack access to basic education, vocational training, and digital skills so that they can recognise the opportunities and make the most of the digital world. By way of illustration of the scale of the issue, it is estimated that in Pakistan almost 23m school-age children are not in any form of education. VEON’s Jazz Smart School Programme launched in Pakistan in 2017, and by the end of 2019 it had benefited more than 38,000 female students aged 12 to 16 and more than 1,000 female teachers across 75 public-sector schools in the country. More broadly, in 2019, VEON provided 56,026 subsidised internet connections and supported 12,000 people in literacy programmes.
This year in October, VEON’s compliance monitorship came to an end, with the company having clearly demonstrated that it has addressed the issues identified by the Department of Justice. Today its sustainability reporting is extremely comprehensive, and the company is now ranked 32nd out of 480 in the Dutch Transparency Benchmark (Transparantiebenchmark), up from 449th in 2011. In 2020, it published an Integrated Report, which will further enhance transparency, combining its financial and sustainability reporting in a single document.