AMSTERDAM, Aug. 2, 2018 /PRNewswire/ -- VEON Ltd. VEONVEON)), a leading global provider of connectivity and internet services headquartered in Amsterdam and serving more than 240 million customers, today announces financial and operating results for the quarter ended 30 June 2018.

KEY DEVELOPMENTS

• FY 2018 guidance reaffirmed after revenue and EBITDA organic¹ growth in Q2 and H1 2018
• Interim dividend approved of USD 0.12 per share, compared to USD 0.11 announced in August 2017
• New HQ operating model being built with high-level reporting structure established
• Agreement for the sale of 50% stake in the Italy Joint Venture to CK Hutchison
• Offer to acquire GTH assets in Pakistan and Bangladesh
• AGM elected three new directors

Q2 2018 KEY RESULTS²

• Total reported revenue decreased by 6.1% to USD 2,270 million, mainly due to currency movements
• Total revenue grew organically¹ by 3.0%, driven by Russia, Pakistan, Ukraine and Uzbekistan, partially offset by continued pressure in Algeria and Bangladesh
• Reported EBITDA decreased 8.0% to USD 857 million, primarily due to the significant devaluation of the Uzbek, Russian and Pakistani currencies, as well as the cost of Euroset integration in Russia
• EBITDA grew by 4.8% organically¹, driven by good operational performance in Russia, Pakistan and Ukraine, partially offset by declining EBITDA in Algeria and Bangladesh
• EBITDA margin of 37.7%, down 0.8 percentage points year on year, due to the cost of Euroset integration
• Equity free cash flow³ excluding licenses totalled USD 206 million in Q2 2018 and USD 540 million in H1 2018

URSULA BURNS, EXECUTIVE CHAIRMAN, COMMENTS:

"In the second quarter, we delivered strong operating results in our largest and most important geographies and made progress in refining our strategic framework for growth. We took decisive action to sharpen VEON's focus on the emerging markets and streamline our headquarters operations, while maintaining robust compliance and internal controls and continuing our focus on our digital core offerings. These steps will allow us to grow in these key markets by delivering a locally relevant offering to the benefit of our customers, employees and shareholders. The board and senior management team are focused on executing against this strategic framework and driving value for all of our stakeholders."

 

KEY RESULTS: CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS

Contents

MAIN EVENTS......................................................................................................... 5

GROUP PERFORMANCE............................................................................................. 7

COUNTRY PERFORMANCE........................................................................................ 12

CONFERENCE CALL INFORMATION............................................................................. 21

ATTACHMENTS...................................................................................................... 25

PRESENTATION OF FINANCIAL RESULTS

VEON's results presented in this earnings release are based on IFRS and have not been audited.

Certain amounts and percentages that appear in this earnings release have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including those in tables, may not be an exact arithmetic aggregation of the figures that precede or follow them.

All non-IFRS measures disclosed in the document, i.e. EBITDA, EBITDA margin, EBIT, net debt, equity free cash flow, organic growth, capital expenditures excluding licenses, last twelve months (LTM) Capex excluding licenses/Revenue, are reconciled to the comparable IFRS measures in Attachment C.

VEON Ltd. owns a 50% share of the Italy Joint Venture (with CK Hutchison Holdings Ltd. owning the other 50%) and we account for this joint venture using the equity method as we do not have control. All information related to the Italy Joint Venture is the sole responsibility of the Italy Joint Venture's management, and no such information contained herein, including, but not limited to, the Italy Joint Venture's financial and industry data, has been prepared by or on behalf of, or approved by, our management. All information related to the Wind Tre Joint Venture is the sole responsibility of the Wind Tre Joint Venture's management, and no such information contained herein, including, but not limited to, the Wind Tre Joint Venture's financial and industry data, has been prepared by or on behalf of, or approved by, our management. For further information on the Italy Joint Venture and its accounting treatment, see Note 6 to our audited consolidated financial statements included in our Annual Report on Form 20-F for the year ended 31 December 2017.

On 3 July 2018, VEON Ltd. entered into an agreement with CK Hutchison Holdings Ltd., for the sale of its 50% stake in the Italy Joint Venture (see Main Events below). As a result of this anticipated transaction, the investment in the Italy Joint Venture was reclassified as an asset held-for-sale and a discontinued operation as of 30 June 2018. Subsequent to its classification as a discontinued operation, as of 30 June 2018, the Italy Joint Venture is no longer a reportable segment.

All comparisons are on a year on year basis unless otherwise stated.

MAIN EVENTS

VEON'S SUPERVISORY BOARD HAS APPROVED AN INTERIM DIVIDEND 2018 OF USD 0.12 PER SHARE

Consistent with the Company's commitment to paying a sustainable and progressive dividend based on the evolution of its equity free cash flow, the Supervisory Board approved the distribution of an interim gross dividend of USD 0.12 per share for 2018, with a record date of 14 August 2018, compared to USD 0.11 announced in August 2017. For ordinary shareholders at Euronext Amsterdam, the interim dividend of USD 0.12 will be paid in euro.

VEON GROUP MANAGEMENT AND STRUCTURE UPDATE

As part of its ongoing comprehensive review to ensure VEON's HQ is an effective, efficient organization, the Group is making changes to how it supports its operating companies in emerging markets. Kjell Morten Johnsen has been appointed Group Chief Operating Officer, a role he had held on an interim basis since March 2018. To support VEON's increased focus on emerging markets with a simplified flatter structure, all VEON's operating companies will report directly to Kjell.

Christopher Schlaeffer, Group Chief Commercial & Digital Officer, has chosen to leave VEON later this year. Christopher joined at the start of 2016 to lead a newly created Digital function as well as the Group's commercial teams. VEON remains committed to its significant investment in digital infrastructure and services and a search is underway for his successor.

Mark MacGann, Group Chief Corporate & Public Affairs Officer, has also decided to leave VEON. Mark joined in early 2016 in a newly created role to oversee the Group's communications, corporate, regulatory and government affairs efforts. The position is not being filled and the teams will be integrated into different relevant functions.

There are no leadership changes in legal, compliance, finance, HR or technology.

The new high-level structure has now been established as VEON continues to create a leaner HQ with clear accountability, while continuing our commitment to the highest standards of compliance and internal controls. This work is ongoing as VEON transitions to a more efficient operating model.

AGREEMENT FOR THE SALE OF 50% STAKE IN THE ITALY JOINT VENTURE TO CK HUTCHISON

On 3 July 2018, VEON (through its wholly owned subsidiary VEON Luxembourg Holdings S.a r.l.) entered into an agreement with CK Hutchison for the sale of its 50% stake in the Italy Joint Venture. On completion, VEON will receive a total cash consideration for its equity stake of EUR 2,450 million (approximately USD 2,867 million equivalent¹) and CK Hutchison will take control of the Italy Joint Venture with VEON fully exiting. VEON intends to use a fraction of proceeds to acquire the GTH assets and the remainder to reduce debt, reducing its leverage ratio and supporting its current dividend policy², whilst pursuing other strategic initiatives. Following completion of both transactions, net pro-forma leverage ratio will be approximately 1.8x, significantly below VEON's target ratio of 2.0x.

OFFER TO ACQUIRE GTH ASSETS IN PAKISTAN AND BANGLADESH

In addition to reducing VEON's debt level, a fraction of the sale proceeds of VEON's 50% stake in the Italy Joint Venture (approximately USD 400 million) will be used to further the Group's ambitions of simplifying its corporate structure and increasing focus on emerging markets. Accordingly, on 2 July 2018, VEON submitted an offer to acquire the assets of Global Telecom Holding S.A.E ("GTH") in Pakistan and Bangladesh for a gross consideration for the equity of USD 2,550 million. These assets are already fully consolidated in VEON's accounts. VEON will continue to hold its stake in Algeria (Djezzy) through GTH.

AGM ELECTED THREE NEW DIRECTORS

Following the election of the directors of the Supervisory Board at the AGM of 30 July 2018, the Supervisory Board now includes eight previously serving directors, Ursula Burns, Mikhail M. Fridman, Gennady Gazin, Gunnar Holt, Andrei Gusev, Sir Julian Horn-Smith, Guy Laurence and Alexander Pertsovsky, as well as three new directors, Guillaume Bacuvier, Osama Bedier and Robert Jan van de Kraats.

EUROSET STORES INTEGRATION AND REBRANDING INTO BEELINE MONOBRAND STORES IN RUSSIA ON TRACK

The nationwide integration of the Euroset stores under the single brand "Beeline" integration is on track and at the end of June 2018, around 1,400 Euroset stores out of the total 1,600 were integrated and rebranded into Beeline monobrand stores. The company expects the integration to be completed in August 2018.

GROUP PERFORMANCE

FINANCIALS BY COUNTRY

 

Group reported revenue for Q2 2018 decreased by 6.1% year on year to USD 2.3 billion, primarily due to currency headwinds in Russia, Uzbekistan, Pakistan, Algeria and Bangladesh. Group revenue increased by 3.0% organically, driven by revenue growth in Russia, Pakistan, Ukraine and Uzbekistan, which was partially offset by continued pressure on revenue in Algeria and Bangladesh. The revenue trend was supported by good organic growth in mobile data revenue, increasing 24.5% for the quarter. Reported mobile data revenue increased by 11.0%. Mobile customers increased 0.9% to 210 million at the end of Q2 2018, primarily driven by growth in customer numbers in Pakistan, Bangladesh and Ukraine.

Group reported EBITDA decreased by 8.0% to USD 857 million in Q2 2018, compared to USD 931 million in Q2 2017, primarily due to the significant devaluation of the Uzbek, Russian and Pakistani currencies as well as Euroset integration costs, partially offset by lower corporate costs. EBITDA organically increased by 4.8%, driven by good operational performances in Russia, Pakistan and Ukraine, which were partially offset by EBITDA pressure in Algeria, Bangladesh and Uzbekistan. A more detailed explanation for these trends is provided in the following paragraphs.

For the discussion of each country's individual performances below, all trends are expressed in local currency.

In Russia, Beeline reported good results in Q2 2018, delivering year on year EBITDA growth, despite the integration costs for Euroset that were incurred during the quarter. The competitive environment was relatively stable during the quarter, though the company expects the macro-economic and market conditions to remain challenging in Russia, including as a result of the recent weakening of the ruble. Total revenue in Q2 2018 increased by 6.0%, driven by an increase in mobile service revenue and a strong growth in sales of equipment and accessories of 107.2%, which was mainly attributable to the additional monobrand stores established following the Euroset stores integration and rebranding. Mobile service revenue increased by 3.5%, driven by growth in mobile data and other value-added services, thereby offsetting the decrease in voice revenue. Mobile ARPU continued its growth trajectory in Q2 2018, increasing by 5.6% year on year. Fixed-line service revenue decreased by 10.0%, mainly due to a decrease in transit traffic revenue, which was partially centralized at VEON Wholesale Services, a Group division based in Amsterdam centrally managing arrangements of VEON Group companies with international carriers, and reported in revenue of the Group's segment "other". EBITDA increased by 1.2% in Q2 2018, driven by revenue growth, partially offset by increased advertising costs, growth in technical and IT costs as a result of network expansion and Euroset integration costs of approximately RUB 1 billion during the quarter. Russia's EBITDA margin in Q2 was 37.6%, a decrease of 1.8 percentage points year on year, largely as a consequence of the incurred Euroset integration costs.

In Pakistan, total revenue grew by 4.9% year on year and was supported by an acceleration of mobile data revenue growth of 37.0% year on year, in turn driven by an increase in data customers and usage through higher bundle penetration and continued data network expansion. The customer base for Jazz, our operating business and local brand, increased by 5.6% year on year, driven by gross additions together with lower churn as a result of simplifying prices and more efficient distribution channel management, coupled with better customer retention. Jazz sees data and voice monetization among its key priorities, underpinned by the aim to offer the best network in terms of both quality of service and coverage. EBITDA increased by 16.8%, driven by revenue growth, opex synergies and the absence of merger integration costs, leading to an EBITDA margin of 48.2%, an increase of 4.9 percentage points year on year and an increase of 0.7 percentage points quarter on quarter.

In Algeria, trends are improving as customers grew and revenue stabilized quarter on quarter, signalling a turnaround in a challenging market with intense price competition and a regulatory and macro-economic environment which remains characterized by inflationary pressures and import restrictions on certain goods. In Algeria, total revenue decreased by 8.5% year on year, a slightly lower pace of decline compared to Q1 2018 (-9.3%) as the operational turnaround continued. Price competition, in both voice and data, caused a continued reduction in ARPU. Djezzy's Q2 2018 service revenue decreased by 7.9%, while data revenue growth was 80.7% year on year, due to higher usage and a substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out. This data revenue growth is also supported by the change towards a more aggressive data pricing strategy since the beginning of 2018. However, in Q2 the market reacted and the share of gross adds for Djezzy slightly decreased compared to Q1, while still leading the market with the highest share. The net adds trend, reversed from negative to positive during Q1 2018, was still positive during Q2 2018 and led to customer growth quarter on quarter of 1.1%, or broadly flat year on year. EBITDA decreased by 11.9% year on year, mainly due to the decline in revenue.

In Bangladesh, total revenue decreased by 8.4% year on year, mainly driven by service revenue, which decreased by 10.0% year on year. The decline in service revenue was still mainly due to the gap in 3G network coverage compared to the competition. However, service revenue increased by 0.8% quarter on quarter in Q2 2018; the increase was mainly driven by data growth resulting from improved network during the quarter, following spectrum acquisition in Q1 2018 and enhanced network availability, along with the expansion of the distribution footprint. The customer base grew by 4.1% year on year, supported by improved distribution, however the sequential decrease in customer base was mainly caused by intense pricing pressure in the market, resulting in ARPU decreasing year on year by 14.1%. Data revenue increased by 14.5% year on year, driven by increased smartphone penetration and 88.0% year on year data usage growth, along with 20.8% growth in active data users. EBITDA in Q2 2018 decreased by 23.3% to BDT 3.8 billion, mainly as a result of revenue decline and an increase of structural opex related to network expansion. The EBITDA margin was 34.4% in Q2 2018, which represents a year on year reduction of 6.7 percentage points.

In Ukraine, total revenue increased by 11.4% year on year, mainly driven by continued strong growth of mobile data revenue, which increased by 69% as a result of growing data usage and successful marketing activities driven by the continued 3G network roll-out and data-centric tariffs. EBITDA increased by 8.0%, representing an EBITDA margin of 55.1%, driven by revenue growth, partially offset by increased service costs and customer acquisition costs.

Uzbekistan continued to report double digit revenue growth, driven by repricing activities that the company introduced in March 2018. Total revenue for the quarter increased by 10.3% and mobile service revenue increased by 10.0%, driven by 10.9% growth in ARPU. Mobile data traffic more than doubled and mobile data revenue increased by 53.1% year on year, supported by the continued high-speed data network roll-out, increased smartphone penetration and the launch of new bundled offers. EBITDA decreased by 11.5% and the EBITDA margin was 43.5% in Q2 2018, mainly driven by an increase in customer tax (~UZS 57 billion), which doubled to UZS 4,000 per customer per month from 1 January 2018 and the negative impact of the reduction in mobile termination rates.

The HQ segment in Q2 2018 consists largely of costs in VEON's headquarters in Amsterdam and London, costs for digital and external costs for services and projects (e.g. M&A and legal costs). In Q2 2018, these combined costs decreased by 43% year on year to USD 54 million mainly driven by a decrease in personnel costs, external cost for services and the release of certain provisions. VEON has the mid-term ambition to halve the run-rate of corporate costs between FY 2017 (USD 431 million) and year-end 2019.

"Other" in Q2 2018 includes the results of Kazakhstan, Kyrgyzstan, Armenia, Georgia, Tajikistan, other global operations and services and intercompany eliminations.

INCOME STATEMENT & CAPITAL EXPENDITURES

Q2 2018 ANALYSIS

Currency weakness, mainly as a result of continued devaluation of the Russian ruble, Pakistan rupee and Uzbek som, resulted in an 8% decline in reported EBITDA in Q2 of USD 857 million. Reported EBIT was USD 392 million, slightly up year on year, helped by lower depreciation and amortization costs mainly as a result of the devaluation of the Uzbek som. In addition, this decrease was driven by the classification of Pakistan towers as assets held for sale from Q3 2017 and higher amortization in Pakistan in Q2 2017, following the revision of the useful life of Mobilink and Warid brands.

Profit before tax turned positive at USD 171 million, compared to a loss of USD 108 million in Q2 2017 mainly due to the Euroset impairment of USD 110 million and high expenses due to the early redemption premiums on bond repurchases of USD 124 million. Furthermore, financial expenses decreased year on year in Q2 2018 as a result of lower indebtedness, coupled with lower interest rates. Starting from Q2 2018 and retrospectively, the share of loss of joint ventures and associates will no longer include the proportionate results (50%) of the Italy Joint Venture, after the announcement on 3 July 2018 of the agreement for the sale of VEON's 50% stake in the Italy Joint Venture to CK Hutchison.

The year on year increase in income tax expense to USD 139 million in Q2 2018 was primarily attributable to higher taxes in Russia resulting from higher profitability, while in Q2 2017 tax expenses in Russia were low because of deductibility of fees paid in connection with bond repurchases in 2017.

As a result of the anticipated sale transaction highlighted in the section "Main Events", the investment in the Italy Joint Venture was reclassified as an asset held-for-sale and a discontinued operation as of June 30, 2018, with retrospective adjustment to comparative periods in the Income Statement. The Q2 loss from Italy (presented as a discontinued operation) increased in Q2 2018 to USD 170 million compared to USD 85 million in Q2 2017, mainly due to higher negative purchase price allocation adjustments for VEON IFRS reporting purposes, despite lower underlying local net loss for the period.

In Q2 2018, the company recorded a net loss for the period attributable to VEON´s shareholders of USD 138 million, driven by the above-mentioned factors.

Capex excluding licenses increased to USD 402 million in Q2 2018, primarily as a result of higher capex in Russia due to accelerated network roll-out and Euroset integration. The LTM ratio of capex excluding licenses to revenue was 17.4% in Q2 2018, or 1 percentage point lower than Q2 2017.

FINANCIAL POSITION & CASH FLOW

Total assets decreased by USD 1,308 million compared to Q1 2018 mainly due to currency depreciation in Russia and Pakistan and the loss from the Italy JV.

Gross debt decreased approximately USD 410 million quarter on quarter mainly due to the scheduled repayment of HQ loans and bonds, as well as the depreciation of the ruble and euro. The reduction in net debt in Q2 2018 was driven by a reduction in gross debt, while cash and deposits remained broadly stable quarter on quarter. Net debt/LTM EBITDA ratio in Q2 2018 was 2.5x.

Net cash from operating activities was broadly stable year on year at USD 600 million, driven by higher cash flow from continuing operations as a result of continuous improvements in working capital offsetting the decrease in EBITDA. The year on year improvement in working capital was mostly related to cash in of certain settlement, partially offset with purchase of inventory devices in Russia due to Euroset integration.

Net cash flow used in investing activities decreased year on year by USD 267 million as the payment of the 4G/LTE license purchase in Ukraine in Q2 2018 of USD 74 million was lower compared to the investment in the Pakistan license in Q2 2017 of USD 295 million.

Net cash paid in financing activities amounted to USD 332 million in Q2 2018, compared to net cash received of USD 909 million in Q2 2017; the difference was driven by significantly lower debt facility draw-downs in Q2 2018 compared to Q2 2017.

COUNTRY PERFORMANCE

• Russia
• Pakistan
• Algeria
• Bangladesh
• Ukraine
• Uzbekistan
• Italy

RUSSIA

 

Beeline reported good results in Q2 2018, delivering year on year EBITDA growth, despite the integration costs for Euroset that occurred during the quarter. The competitive environment was relatively stable during the quarter, though the company expects the macro-economic and market conditions to remain challenging in Russia, including as a result of the recent weakening of the ruble.

Total revenue in Q2 2018 increased by 6.0% year on year to RUB 72.5 billion, driven by an increase in mobile service revenue and a strong growth in sales of equipment and accessories of 107.2% to RUB 5.7 billion, which was mainly attributable to the additional monobrand stores following the Euroset integration and rebranding since 22 February 2018. Mobile service revenue increased by 3.5% to RUB 57.6 billion, mainly driven by growth in mobile data and other value-added services, offsetting the decrease in voice revenue. Mobile ARPU continued its growth trajectory in Q2 2018, increasing by 5.6% year on year.

Mobile data revenue continued to grow, increasing by 6.2% to RUB 15.4 billion, as a result of an increased penetration of integrated bundles and smartphones, resulting in data traffic growth. Mobile data ARPU showed continued improvement, growing by 8.9%, driven by successful upselling activities and continued efforts to simplify tariff plans, while being supported by increased penetration of bundled propositions in the customer base.

Beeline's mobile customer base decreased by 3.3% year on year to 56.4 million customers, in line with the market trend, driven by a reduction in sales from alternative distribution channels, as Beeline focused on monobrand distribution. The customer decrease was caused by a decline in customers with a lifetime less than 12 months, while customers with a lifetime longer than 12 months increased in the customer base. The share of B2C sales volume from Beeline monobrand stores increased to 38% at the end of Q2 2018, compared to 24% in the prior year.

Fixed-line service revenue decreased by 10.0% to RUB 8.9 billion. The decline was mainly due to a decrease of approximately RUB 600 million in transit traffic revenue, which was partially centralized at VEON Wholesale Services, a Group division based in Amsterdam centrally managing arrangements of VEON Group companies with international carriers, and reported in revenue of the Group's segment "other". Excluding this impact, fixed-line revenue would have decreased by 4.4%, showing an improving trend compared to previous quarters. The centralization of the international interconnect and transit traffic services revenues will continue in the remainder of this year and the expected maximum impact on revenue for Russia is USD 45 million, while the expected maximum impact on EBITDA is USD 5 million in FY 2018. The FMC proposition continues to play an important role in the turnaround of the fixed-line business for Beeline. The FMC customer base grew by 34.0% year on year in Q2 2018 to 973,000. This represents a 43% FMC customer penetration in the broadband customer base, supporting improvements in broadband customer churn.

Beeline continues to focus on the B2B segment, improving its proposition with more customized offers and solutions to both small and large enterprises. The segment's fixed-line business demonstrated a 2.5% growth compared to the first quarter, for the first time in three years, mostly attributable to the modernization of the network infrastructure and growth in sales.

EBITDA increased by 1.2% to RUB 27.2 billion, leading to an EBITDA margin of 37.6%, a decrease of 1.8 percentage points year on year. The year on year growth in EBITDA was driven by the revenue growth, partially offset by increased advertising costs, growth in technical and IT costs as a result of network expansion and Euroset integration costs of approximately RUB 1 billion during the quarter. The integration costs are partially offset by improved margin on equipment and accessories, as a result of growth in sales of devices mainly driven by the increased number of Beeline monobrand stores. The Euroset integration is on track and at the end of July 2018, around 1,400 Euroset stores out of the total 1,600 were integrated and rebranded into Beeline monobrand stores. Beeline expects continued negative impact on EBITDA of approximately RUB 3 billion in FY 2018 due to the integration and rebranding costs for the Euroset stores into Beeline monobrand stores. Additionally, Beeline expects EBITDA margin pressure following the integration and rebranding of the Euroset stores. To partially offset this effect, Beeline plans to decrease its expenditures on alternative sales channels.

The Euroset integration is an important milestone in executing Beeline´s monobrand strategy. After the rebranding and integration of the Euroset stores, Beeline expects a positive effect on revenue going forward and, from 2019, on EBITDA, driven by acceleration in device sales and channel-mix improvement.

Capex excluding licenses increased by 69.0% year on year during the quarter, mainly as a result of accelerated network roll out and the integration of Euroset stores. Beeline continues to invest in network development to ensure it has high-tech and up to date network infrastructure that is ready to integrate new technologies. The LTM capex excluding licenses to revenue ratio for Q2 2018 was 16.6%.

The current best estimate for the expenditures related to the Yarovaya law in FY 2018 of approximately RUB 6 billion are expected to be recognized in Q3 and Q4 2018.

PAKISTAN

The market in Q2 2018 remained competitive, particularly relating to data and social network offers.

Jazz continued to show growth of both revenue and customers despite these competitive market conditions. In Q2 2018, whilst the country was characterized by political and currency uncertainty ahead of the upcoming elections, revenue growth of 4.9% year on year was supported by an acceleration of mobile data revenue growth of 37.0% year on year, driven by an increase in data customers and usage through higher bundle penetration and continued data network expansion. 

The customer base increased by 5.6% year on year, driven by gross additions together with lower churn as a result of simplifying prices and more efficient distribution channel management, coupled with better customer retention. Jazz sees data and voice monetization among its key priorities, underpinned by the aim to offer the best network in terms of both quality of service and coverage.

EBITDA increased by 16.8%, driven by revenue growth, opex synergies and the absence of merger integration costs, leading to an EBITDA margin of 48.2%, an increase of 4.9 percentage points year on year and an increase of 0.7 percentage points quarter on quarter.

Capex excluding licenses slightly decreased year on year to PKR 6.7 billion in Q2 2018, supporting 4G/LTE network expansion. Quarterly distribution is more balanced in FY 2018, while the LTM capex excluding licenses to revenue ratio was 17.5%. At the end of the Q2 2018, 3G was offered in more than 368 cities while 4G/LTE was offered in over 117 cities (defined as cities with at least three base stations). At the end of Q2 2018, population coverage of 3G and 4G/LTE networks was 52% and 32.5% respectively.

ALGERIA

In Algeria, trends are improving as customers grew and revenue stabilized quarter on quarter, signalling a turnaround in a challenging market with intense price competition and a regulatory and macro-economic environment which remains characterized by inflationary pressures and import restrictions on certain goods.

Revenue decreased by 8.5% year on year, a slightly lower declining pace compared to Q1 2018, as an operational turnaround continued. Price competition, in both voice and data, caused a continued reduction in ARPU.

Djezzy's Q2 2018 service revenue was DZD 22.9 billion, a 7.9% decline, while data revenue growth was 80.7%, due to higher usage and a substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out. This data revenue growth is also supported by the change towards a more aggressive data pricing strategy since the beginning of 2018. However, in Q2 the market reacted, and the share of gross adds for Djezzy slightly decreased compared to Q1, while still leading the market with the highest share. The net adds trend, reversed from negative to positive during Q1 2018, was still positive during Q2 2018 and led to customer growth quarter on quarter of 1.1% or broadly flat year on year. The quarter on quarter growth was driven by continued positive uptake of new offers.

ARPU declined by 5.1% year on year, primarily driven by continued and intense price competition.

In June 2018, Djezzy successfully migrated to the new DBSS platform. This step towards the digitization of core processes is expected to result in simplification, agility, faster time to market, coupled with improved competitive speed and customer service.

In Q2 2018, EBITDA decreased by 11.9% year on year, mainly due to the decline in revenues. The new Finance Law, effective from January 2018, continues to impact year on year performance. As a result of new taxation, Djezzy's EBITDA was negatively impacted in Q2 2018 by approximately DZD 207 million. This impact on EBITDA was broadly offset by the positive impact from the partial MTR symmetry, which has been in place since 31 October 2017.

At the end of Q2 2018, the company's 4G/LTE services covered 28 wilayas and more than 25.4% of the country's population, while the 3G network covered all 48 wilayas and more than 75.6% of population. In Q2 2018, capex excluding licenses was DZD 3.3 billion, with an LTM capex excluding licenses to revenue ratio of 13.9%.

BANGLADESH

The market during Q2 2018 was characterized by accelerated price pressure from competition. The regulatory environment remains challenging and limits customer growth in the market. For example, the regulator has recently restricted sale of subsequent SIM card within 3-hours of purchase of the preceding SIM using the same national identity card. This restriction has impacted the gross additions across the mobile industry in Bangladesh.

In Bangladesh, Q2 2018 results continue to be affected by intense competition, with a specific focus on customer acquisition, and also by costs related to the network expansion after the acquisition in Q1 2018 of additional spectrum and a 4G/LTE licence. During Q2 2018, Banglalink continued to focus on acquiring customers in a competitive market, with improved network availability.

Revenue in Q2 2018 decreased by 8.4% year on year, mainly driven by service revenue, which decreased by 10.0% year on year to BDT 10.5 billion. The decline in service revenue was still mainly due to the gap in 3G network coverage compared to competition. However, the service revenue increased by 0.8% quarter on quarter in Q2 2018; the increase was mainly driven by data growth resulting from improved network during the quarter, following spectrum acquisition in Q1 2018 and enhanced network availability, along with the expansion of the distribution footprint. The customer base grew by 4.1% year on year, supported by improved distribution, however the sequential decrease in customer base was mainly caused by intense pricing pressure in the market.  As a result of this pricing pressure, ARPU decreased year on year by 14.1%. Data revenue increased by 14.5% year on year, driven by increased smartphone penetration and 88.0% year on year data usage growth, along with 20.8% growth in active data users.

Banglalink's EBITDA in Q2 2018 decreased by 23.3% to BDT 3.8 billion, mainly as a result of revenue decline and increase of structural opex due to network expansion. The EBITDA margin was 34.4% in Q2 2018, which represents a year on year reduction of 6.7 percentage points.

In Q2 2018, capex excluding licenses significantly increased year on year to BDT 1.7 billion, driven by investments to improve network resilience and roll-out 4G/LTE sites. Banglalink continues to invest in efficient, high-speed data networks aiming to substantially improve its 3G network coverage (approximately 72% of the population at the end of Q2 2018, versus approximately 70% in Q1 2018) and availability. The 4G/LTE service, which was launched in February 2018, covered a population of approximately 15% at the end of Q2 2018. LTM capex excluding licenses to revenue ratio was 27.9%.

UKRAINE

Kyivstar launched 4G/LTE from April 2018, following the spectrum acquisition in February and March 2018. Kyivstar further strengthened its market position in a growing market and believes it is well positioned to increase the geographical coverage of its high-speed data network in Ukraine.

Kyivstar continued its strong performance in the second quarter, as total revenue increased by 11.4% year on year to UAH 4.5 billion. Mobile service revenue grew by 11.4% to UAH 4.2 billion. The growth in mobile service revenue was mainly driven by continued strong growth of mobile data revenue, which increased by 69% as a result of growing data usage and successful marketing activities, driven by the continued 3G and 4G/LTE network roll-out and data-centric tariffs. As a result, data consumption per user increased 139.0% in Q2 2018 compared to the same quarter in the previous year.

Kyivstar´s mobile customer base increased by 1.4% to 26.5 million, supported by improved churn, while mobile ARPU increased by 9.6% year on year to UAH 52.

Fixed-line service revenue grew 7.3% year on year to UAH 297 million. Uptake for Kyivstar's FMC proposition, which was launched in 2017, continues to be strong and the fixed broadband customer base increased by 6.5% year on year to 858,000, while fixed broadband ARPU increased by 4.3% year on year to UAH 72.6.

EBITDA increased by 8.0% year on year to UAH 2.5 billion in Q2 2018, representing an EBITDA margin of 55.1%, driven by revenue growth and partially offset by increased service costs and customer acquisition costs.

Q2 2018 capex excluding licenses was UAH 927 million with an LTM capex excluding licenses to revenue ratio of 16.0%, as Kyivstar continued to roll out its 3G network, reaching a population coverage of 74.5 %, up from 69% in the same quarter last year. During Q2 2018 Kyivstar started 4G/LTE rollout in 21 cities, covering 20% of the population.

UZBEKISTAN

Unitel continued to report double-digit revenue growth in Q2 2018, driven by repricing initiatives introduced in March 2018. Total revenue for the quarter increased by 10.3% year on year and mobile service revenue increased by 10.0% to UZS 629 billion, driven by 10.9% growth in ARPU. Mobile data traffic more than doubled and mobile data revenue increased by 53.1% year on year, supported by the continued roll-out of its high-speed data network, increased smartphone penetration and the launch of new bundled offerings. As a result, the penetration of bundled tariff plans in the customer base increased to 30.4% in Q2 2018, from 21.9% in Q2 2017. Total mobile customers decreased by 3.1% to 9.3 million, partially due to a clean-up of the customer base.

EBITDA decreased by 11.5% to UZS 277 billion and the EBITDA margin was 43.5% in Q2 2018, mainly driven by external factors such as the increase in customer tax (~UZS 56 billion), which doubled to UZS 4,000 per customer per month from 1 January 2018, and the negative impact of the reduction in mobile termination rates.

Capex excluding licenses totalled UZS 132 billion and the Q2 2018 LTM capex excluding licenses to revenue ratio was 15.0%. The company continued to invest in its high-speed data networks, improving the 4G/LTE coverage to 25% and increasing the number of nationwide 3G sites by 33% year on year. Further improvements to the high-speed data networks will continue to be a priority for Unitel for the remainder of 2018.

The cash and deposits balances as of the end of Q2 2018 in Uzbekistan are USD 96 million in Uzbek som. In Q2 2018, VEON's subsidiary PJSC VimpelCom successfully repatriated a net amount of approximately USD 86 million from Uzbekistan. The repatriation of cash was executed at the market rate and the Company aims to continue to repatriate excess cash in the remainder of FY 2018.

ITALY JOINT VENTURE

Wind Tre's total revenue in Q2 2018 decreased by 11.4% year on year to EUR 1.4 billion, primarily driven by a 9.8% decline in mobile service revenue and lower CPE ("Customer Premises Equipment") related to mobile handsets. The mobile service revenue decline was primarily due to continuing aggressive competition in the market, which was exacerbated at the end of May by a new market entrant, which impacted both customer base (-5.3%) and ARPU. In addition, a delay in network modernization due to the U.S. Department of Commerce's Denial Order issued to ZTE Corporation ("ZTE") negatively impacted Wind Tre's revenue and the company's ability to compete and retain customers in non-modernized areas. The mobile handset revenue decline was primarily due to a lower volume of gross additions and more selective mobile customer scoring starting from H2 2017.

In Q2 2018, mobile ARPU slightly declined to EUR 10.5, a 6.1% year on year erosion, almost completely attributable to the voice component.

Fixed-line service revenue declined by 4.0% year on year, due to ARPU dilution only partially offset by the 1.1% increase in both direct and broadband customers, driven by the increased demand for fibre connections. In Q2 2018, the fixed-line direct customer base and the broadband customer base reached 2.5 million and 2.4 million respectively. Within the broadband customer base, fibre customers almost tripled year on year. The highly competitive market has impacted Q2 2018, particularly on total and broadband ARPUs, which both slightly decreased year on year.

Q2 2018 EBITDA increased by 1.9% year on year to EUR 451 with revenue pressure more than offset by change in accounting to IFRS 15, contributing 5.3p.p. of EBITDA growth coupled with incremental synergies (approximately EUR 41 million in Q2 2018) and approximately EUR 45 million lower YoY integration costs.    

Wind Tre's EBITDA margin increased 4.3 percentage points to 33.1%.

Capex in the quarter was EUR 235 million and was primarily focused on modernizing and merging the former Wind and Tre networks as well as expanding capacity and coverage of 4G/LTE.

At the end of June 2018 approximately 1/3 of the transmission sites were modernized including Rome, Milano and Bologna. The network modernization resulted in a sensible network performance improvement in these cities, leading to an overall improvement of the customer experience.

On 3 July 2018, VEON (through its wholly owned subsidiary VEON Luxembourg Holdings S.a r.l.) entered into an agreement with CK Hutchison for the sale of its 50% stake in the Italy Joint Venture.

CONFERENCE CALL INFORMATION

On 2 August 2018, VEON will also host a conference call by senior management at 9:30 CEST (8:30 BST) on the same day, which will be made available through following dial-in numbers. The call and slide presentation may be accessed at http://www.veon.com

9:30 CEST investor and analyst conference call

US call-in number: +1 (929) 477 0448

Confirmation Code: 7347728

International call-in number: 44 (0) 330 336 9126

Confirmation Code: 7347728

The conference call replay and the slide presentation webcast will be available until 9 August 2018.

The slide presentation will also be available for download on VEON's website.

Investor and analyst call replay

US Replay Number: +1 719 457 0820

Confirmation Code: 7347728

UK Replay Number: 0800 101 1153

Confirmation Code: 7347728

DISCLAIMER

This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by words such as "may," "might," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "seek," "believe," "estimate," "predict," "potential," "continue," "contemplate," "possible" and other similar words. Forward-looking statements include statements relating to, among other things, VEON's plans to implement its strategic priorities, including operating model and development plans; anticipated performance and guidance for 2018 and 2019, including VEON's ability to generate sufficient cash flow; future market developments and trends; operational and network development and network investment, including expectations regarding the roll-out and benefits of 3G/4G/LTE networks, as applicable; the effect of the acquisition of additional spectrum on customer experience; VEON's ability to realize the acquisition and disposition of any of its businesses and assets; VEON'S ability to realize financial improvements, including an expected reduction of net pro-forma leverage ratio following the successful completion of certain dispositions and acquisitions; and VEON's ability to realize its targets and strategic initiatives in its various countries of operation. The forward-looking statements included in this press release are based on management's best assessment of VEON's strategic and financial position and of future market conditions, trends and other potential developments. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of demand for and market acceptance of VEON's products and services; continued volatility in the economies in VEON's markets; unforeseen developments from competition; governmental regulation of the telecommunications industries; general political uncertainties in VEON's markets; government investigations or other regulatory actions; litigation or disputes with third parties or other negative developments regarding such parties;; risks associated with data protection or cyber security, other risks beyond the parties' control or a failure to meet expectations regarding various strategic priorities, the effect of foreign currency fluctuations, increased competition in the markets in which VEON operates and the effect of consumer taxes on the purchasing activities of consumers of VEON´s services. Certain other factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risk factors described in VEON's Annual Report on Form 20-F for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (the "SEC") and other public filings made by VEON with the SEC. Other unknown or unpredictable factors also could harm our future results. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Under no circumstances should the inclusion of such forward-looking statements in this press release be regarded as a representation or warranty by us or any other person with respect to the achievement of results set out in such statements or that the underlying assumptions used will in fact be the case. Therefore, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date hereof. We cannot assure you that any projected results or events will be achieved. Except to the extent required by law, we disclaim any obligation to update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made, or to reflect the occurrence of unanticipated events. Non-IFRS measures are reconciled to comparable IFRS measures in VEON Ltd.'s earnings release published on its website on the date hereof. Furthermore, elements of this press release contain or may contain, "inside information" as defined under the Market Abuse Regulation (EU) No. 596/2014.

VEON Ltd. owns a 50% share of the Italy Joint Venture (with CK Hutchison owning the other 50%) and we account for this JV using the equity method as we do not have control. All information related to the Italy Joint Venture is the sole responsibility of the Italy Joint Venture's management, and no information contained herein, including, but not limited to, the Italy Joint Venture's financial and industry data, has been prepared by or on behalf of, or approved by, our management. As a result of this, we do not provide any reconciliations for non-IFRS measures for the Wind Tre Joint Venture. For further information on the Italy Joint Venture and its accounting treatment, see "Explanatory Note—Presentation of Financial Information of the Italy Joint Venture" included in our Annual Report on Form 20-F for the year ended 31 December 2017 and notes 5, 14 and 25 to our audited consolidated financial statements filed therewith.

All non-IFRS measures disclosed further in this press release (including, without limitation, EBITDA, EBITDA margin, EBT, net debt, equity free cash flow, organic growth, capital expenditures excluding licenses and LTM (last twelve months) capex excluding licenses/revenue) are reconciled to comparable IFRS measures in VEON Ltd.'s earnings release published on its website on the date hereof. In addition, we present certain information on a forward-looking basis (including, without limitation, the expected impact on revenue, EBITDA and equity free cash flow from the consolidation of the Euroset stores after completing the transaction ending the Euroset joint venture). We are not able to, without unreasonable efforts, provide a full reconciliation to IFRS due to potentially high variability, complexity and low visibility as to the items that would be excluded from the comparable IFRS measure in the relevant future period, including, but not limited to, depreciation and amortization, impairment loss, loss on disposal of non-current assets, financial income and expenses, foreign currency exchange losses and gains, income tax expense and performance transformation costs, cash and cash equivalents, long - term and short-term deposits, interest accrued related to financial liabilities, other unamortized adjustments to financial liabilities, derivatives, and other financial liabilities.

ABOUT VEON

VEON is a NASDAQ and Euronext Amsterdam-listed global provider of connectivity and internet services, with the ambition to lead the personal internet revolution for over 240 million customers it currently serves, and many others in the years to come.

Follow us:

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visit our blog @ blog.veon.com  

go to our website @ http://www.veon.com

CONTENT OF THE ATTACHMENTS

For more information on financial and operating data for specific countries, please refer to the supplementary file Factbook2Q2018.xls on VEON's website at http://veon.com/Investor-relations/Reports--results/Results/.

ATTACHMENT A: CUSTOMERS

ATTACHMENT B: DEFINITIONS

ARPU (Average Revenue per User) measures the monthly average revenue per mobile user. We generally calculate mobile ARPU by dividing our mobile service revenue during the relevant period, including data revenue, roaming revenue, MFS and interconnect revenue, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, by the average number of our mobile customers during the period and dividing by the number of months in that period. Wind Tre defines mobile ARPU as the measure of the sum of the mobile revenue in the period divided by the average number of mobile customers in the period (the average of each month's average number of mobile customers (calculated as the average of the total number of mobile customers at the beginning of the month and the total number of mobile customers at the end of the month) divided by the number of months in that period.

Mobile data customers are mobile customers who have engaged in revenue generating activity during the three months prior to the measurement date as a result of activities including USB modem Internet access using 2.5G/3G/4G/HSPA+ technologies. Wind Tre measures mobile data customers based on the number of active contracts signed and includes customers who have performed at least one mobile Internet event during the previous month. For Algeria, mobile data customers are 3G customers who have performed at least one mobile data event on the 3G network during the previous four months.

Capital expenditures (capex) are purchases of new equipment, new construction, upgrades, licenses, software, other long-lived assets and related reasonable costs incurred prior to intended use of the non-current asset, accounted at the earliest event of advance payment or delivery. Long-lived assets acquired in business combinations are not included in capital expenditures.

Capital expenditures (capex) excluding licenses is calculated as capex, excluding purchases of new spectrum licenses.

EBIT or Operating Profit is calculated as EBITDA plus depreciation, amortization and impairment loss. Our management uses EBIT as a supplemental performance measure and believes that it provides useful information of earnings of the Company before making accruals for financial income and expenses and net foreign exchange (loss)/gain and others. Reconciliation of EBIT to net income attributable to VEON Ltd., the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment C below.

Adjusted EBITDA (called EBITDA in this document) is a non-IFRS financial measure. VEON calculates Adjusted EBITDA as (loss)/profit before tax before depreciation, amortization, loss from disposal of non-current assets and impairment loss and includes certain non-operating losses and gains mainly represented by litigation provisions for all of its segments except for Russia. Our Adjusted EBITDA may be used to evaluate our performance against other telecommunications companies that provide EBITDA.

Additionally, a limitation of EBITDA's use as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue or the need to replace capital equipment over time. Reconciliation of EBITDA to net income attributable to VEON Ltd., the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment C below.

EBITDA margin is calculated as EBITDA divided by total revenue, expressed as a percentage.

Gross Debt is calculated as the sum of long term notional debt and short-term notional debt.

Equity free cash flow is a non-IFRS measure and is defined as free cash flow from operating activities less cash flow used in investing activities, excluding M&A transactions, capex for licenses, inflow/outflow of deposits, financial assets and other one-off items. Reconciliation to the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment C below.

An FMC customer is a customer on a 1 month Active Broadband Connection subscribing to a converged bundle consisting of at least fixed internet subscription and at least 1 mobile SIM

Households passed are households located within buildings, in which indoor installation of all the FTTB equipment necessary to install terminal residential equipment has been completed.

MFS (Mobile financial services) is a variety of innovative services, such as mobile commerce or m-commerce, that use a mobile phone as the primary payment user interface and allow mobile customers to conduct money transfers to pay for items such as goods at an online store, utility payments, fines and state fees, loan repayments, domestic and international remittances, mobile insurance and tickets for air and rail travel, all via their mobile phone.

Mobile customers are generally customers in the registered customer base as at a given measurement date who engaged in a revenue generating activity at any time during the three months prior to such measurement date. Such activity includes any outgoing calls, customer fee accruals, debits related to service, outgoing SMS and MMS, data transmission and receipt sessions, but does not include incoming calls, SMS and MMS or abandoned calls. Our total number of mobile customers also includes customers using mobile internet service via USB modems and fixed-mobile convergence ("FMC")

Net debt is a non-IFRS financial measure and is calculated as the sum of interest bearing long-term notional debt and short-term notional debt minus cash and cash equivalents, long-term and short-term deposits. The Company believes that net debt provides useful information to investors because it shows the amount of notional debt outstanding to be paid after using available cash and cash equivalents and long-term and short-term deposits. Net debt should not be considered in isolation as an alternative to long-term debt and short-term debt, or any other measure of the Company financial position.

Net foreign exchange (loss)/gain and others represents the sum of Net foreign exchange (loss)/gain, VEON's share in net (loss)/gain of associates and Other (expense)/income (primarily (losses)/gains from derivative instruments) and is adjusted for certain non-operating losses and gains mainly represented by litigation provisions.

NPS (Net Promoter Score) is the methodology VEON uses to measure customer satisfaction.

Organic growth in revenue and EBITDA are non-IFRS financial measures that reflect changes in Revenue and EBITDA, excluding foreign currency movements and other factors, such as businesses under liquidation, disposals, mergers and acquisitions.

Reportable segments: the Company identified Russia, Pakistan, Algeria, Bangladesh, Ukraine, Uzbekistan and HQ based on the business activities in different geographical areas

Total revenue in this section is fully comparable with Total Operating revenue in MD&A section below.

ATTACHMENT C: RECONCILIATION TABLES

RECONCILIATION OF CONSOLIDATED EBITDA

 

RECONCILIATION OF CAPEX

 

RECONCILIATION OF ORGANIC AND REPORTED GROWTH RATES

 

 

RECONCILIATION OF VEON CONSOLIDATED NET DEBT

 

RECONCILIATION OF EQUITY FREE CASH FLOW

 

RECONCILIATION OF SHARE OF PROFIT / LOSS FROM ITALY JOINT VENTURE

EBITDA RECONCILIATION FOR COUNTRY

Q2 2018

 

Q2 2017

 

H1 2018

 

H1 2017

 

RATES OF FUNCTIONAL CURRENCIES TO USD¹

 

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SOURCE VEON Ltd.