VEON Reports Solid Third Quarter Results With Robust Free Cash Flow Generation And Announces Mandatory Tender Offer For GTH
Thursday, November 09, 2017 1:01:00 AM ET
Q3 2017 KEY RESULTS
-- Total revenue increased 4.0% year-on-year, and 3.2% organically1
-- EBITDA increased 16.4% (USD 146 million) to USD 1,042 million, mainly driven by an exceptional income from a one-off adjustment to a vendor agreement; underlying EBITDA increased USD 31 million year-on-year, 3.5% organically1, to USD 993 million
-- Solid revenue and underlying EBITDA2 performance during the quarter was driven by Russia, Pakistan, Ukraine and Uzbekistan, partially offset by continued pressure in Algeria and Bangladesh
-- Underlying EBITDA margin of 40.4%, organically1 stable year-on-year
-- Underlying equity free cash flow excluding licenses totalled USD 475 million in Q3 and USD 965 million year to date
-- Targets for 20173 confirmed: single digit organic revenue growth, flat to low single digit organic growth of underlying EBITDA margin and underlying equity free cash flow excluding licenses of USD 850-950 million
-- VEON submitted a mandatory tender offer in relation to Global Telecom Holding
-- Signed tower sale agreement in Pakistan for USD 940 million equivalent, representing a high single digit multiple of contributed annual EBITDA, with the parties aiming for completion before the end of 2017
-- In largest high-yield transaction of a European issuer since 2014, Wind Tre JV completed the full refinancing of its debt, which is expected to generate approximately EUR 270 million of annual interest savings, incremental to previously announced opex and capex synergies of EUR 700 million per annum. The refinancing will also bring significant improvements to the maturity profile
-- Telenor completed the third sell-down of its equity stake in VEON, increasing the free float to 29.2%4
-- Liberalization of currency exchange regime in Uzbekistan
-- Agreement to sell the Laos operations
-- VEON personal internet platform commercially launched in five markets
-- Trond Westlie succeeds Andrew Davies as Group Chief Financial Officer with effect from today. Joshua Drew (Group Chief Compliance Officer) and Jacky Simmonds (Group Chief People Officer) also appointed to the senior management team
VEON Ltd. (VEON, EURONEXT AMSTERDAM: VEON ) a leading global provider of connectivity and internet services headquartered in Amsterdam and serving over 235 million customers, today announces financial and operating results for the quarter ended 30 September 2017.
JEAN-YVES CHARLIER, CHIEF EXECUTIVE OFFICER, COMMENTS: "VEON reported another solid performance in the third quarter with further growth in revenue and EBITDA, driven in particular by strong results in Russia, Pakistan and Ukraine, and also delivered on a number of our strategic imperatives. The solid operating performance and ongoing strategic execution have helped to grow further the underlying equity free cash flow, which reached USD 965 million for the first nine months of the year. This underscores the success of the performance transformation program which we launched in August 2015, where we committed to generate at least USD 750 million of annualized cash flow improvements by the end of 2018 and further underpins the sustainable and progressive dividend policy that we announced in February of this year. In addition, we can confirm our full year 2017 guidance, which we recently updated in conjunction with the Uzbek som liberalization.
Across the Group, we remain focused on implementing our strategy to revitalize and reinvent our business. Yesterday, we submitted a mandatory tender offer in relation to GTH, while during the quarter we also announced the value accretive sale of our Pakistan tower business. Wind Tre, our joint venture in Italy, has completed the full refinancing of its debt, optimizing its capital structure, reducing annualized interest costs and improving maturities. This transaction was the largest high yield transaction of a European issuer since 2014. These refinancing benefits are incremental to the opex and capex synergies announced with the merger and will help to further accelerate cash flow generation and deleveraging. Finally, we have now commercially launched the VEON personal internet platform in five of our markets."
1) Organic change reflects changes in revenue and EBITDA excluding foreign currency movements and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations
2) Underlying EBITDA excludes exceptional items in Q3 2016 consisting of performance transformation costs of USD 66 million and exceptional items in Q3 2017 consists of a net benefit of USD 49 million, resulting from exceptional income of USD 106 million from a one-off adjustment to a vendor agreement, offset by costs of USD 57 million related to the performance transformation costs and other legal costs. See Attachment C for reconciliations
3) FY 2017 targets after Uzbekistan currency regime adjustment are based on pro-forma results for 2016, including 12 months of Warid contribution; organic targets for revenue and underlying EBITDA margin are at constant currency, excluding exceptional items, e.g. transformation costs and M&A. Underlying equity free cash flow excluding licenses is calculated at the target rates for 2017. See Attachment C for reconciliations
4) Telenor has indicated that the third transaction will be the final divestment of Telenors VEON ADSs, as Telenor expects to use the balance of its remaining ADSs to exchange and/or redeem the exchangeable bond
KEY RESULTS: CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS
USD million 3Q17 3Q16 Reported Organic
YoY YoY 1
Total revenue, of which 2,456 2,361 4.0% 3.2%
mobile and fixed service revenue 2,358 2,276 3.6% 3.0%
of which mobile data revenue 482 379 27.0% 26.6%
EBITDA 1,042 896 16.4% 16.7%
EBITDA underlying 2 993 962 3.2% 3.5%
EBITDA margin underlying 2(EBITDA underlying/total revenue) 40.4% 40.7% (0.3p.p.) 0.1p.p.
Profit from continued operations 151 72 109.7%
Profit from discontinued operations - 421 n.m
Profit for the period attributable to VEON shareholders 125 445 (71.9%)
Underlying equity free cash flow excl. licenses 3 475 489 (2.9%)
Capital expenditures excl. licenses 398 382 4.1%
LTM capex excl. licenses/revenue 18.4% 16.7% 1.7p.p.
Net debt 8,672 6,832 26.9%
Net debt/LTM EBITDA underlying4 2.3 1.8
Total mobile customer (millions, excluding Italy) 211 206 2.3%
Total fixed-line broadband customers (millions) 3.5 3.4 4.7%
USD million 9M17 9M16 9M16 Reported Organic
pro-forma Warid4 reported YoY YoY 1
Total revenue, of which 7,154 6,685 6,531 9.5% 2.1%
mobile and fixed service revenue 6,891 6,456 6,309 9.2% 2.0%
of which mobile data revenue 1,383 1,026 1,014 36.4% 28.3%
EBITDA 2,834 2,485 2,449 15.7% 10.5%
EBITDA underlying 2 2,861 2,708 2,672 7.1% 2.3%
EBITDA margin underlying 2(EBITDA underlying/total revenue) 40.0% 40.5% 40.9% (0.9p.p.) 0.1p.p.
Profit/(loss) from continued operations (118) 36 70 n.m
Profit from discontinued operations - 804 804 n.m
Profit/(loss) for the period attributable to VEON shareholders (158) 737 771 n.m
Underlying equity free cash flow excl. licenses 3 965 900 900 7.2%
Capital expenditures excl. licenses 994 869 869 14.4%
LTM capex excl. licenses/revenue 18.4% 16.7% 16.8% 1.7p.p
1) Organic change reflects changes in revenue and EBITDA excluding foreign currency movements and other factors, such as businesses under liquidation, disposals, mergers and acquisitions. See Attachment C for reconciliations
2) Underlying EBITDA excludes exceptional items in Q3 2016 consisting of transformation costs of USD 66 million and exceptional items in Q3 2017 consisting of a net benefit of USD 49 million, resulting from exceptional income of USD 106 million from a one-off adjustment to a vendor agreement, offset by costs of USD 57 million related to the performance transformation programme and other legal costs. See Attachment C for reconciliations
3) Underlying equity free cash flow excluding licenses is defined as free cash flow from operating activities less free cash flow used in investing activities (excluding capex for licenses and withholding tax related to Pakistan spectrum of USD 29.5 million), excluding M&A transactions, transformation costs and other one-off items
4) Pro-forma assuming that the results of Warid have been consolidated (including intercompany eliminations) within VEONs results with effect from 1 January 2016, this also applies for the calculation of LTM EBITDA underlying for the net leverage ratio at Q3 2016
Contents MAIN EVENTS..............................................................................................................5 GROUP PERFORMANCE..........................................................................................8 COUNTRY PERFORMANCE...................................................................................12 CONFERENCE CALL INFORMATION...................................................................20 ATTACHMENTS........................................................................................................23
PRESENTATION OF FINANCIAL RESULTS VEONs results presented in this earnings release are based on IFRS and have not been audited. "EBITDA" or "reported EBITDA" presented in this document is called "Adjusted EBITDA" in the Managements Discussion and Analysis of financial condition and results of operations (MD&A) section.
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, underlying EBITDA, underlying 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.
As at 7 November 2016, VEON Ltd. owns a 50% share of the Wind Tre Joint Venture (with CK Hutchison 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 Wind Tre Joint Venture is the sole responsibility of the Wind Tre Joint Ventures management, and no information contained herein, including, but not limited to, the Wind Tre Joint Ventures financial and industry data, has been prepared by or on behalf of, or approved by, our management. VEON Ltd. is not making, and has not made, any written or oral representation or warranty, express or implied, of any nature whatsoever, with respect to any Wind Tre Joint Venture information included in this report. For further information on the Wind Tre Joint Venture and its accounting treatment, see "Item 5--Operating and Financial Review and Prospects--Key Developments and Trends--Wind Tre Joint Venture" "Explanatory Note--Accounting Treatment of our Historical WIND Business and the new Wind Tre Joint Venture" and Note 6 to our audited consolidated financial statements included in our Annual Report on Form 20-F for the year ended 31 December 2016.
All comparisons are on a year-on-year basis unless otherwise stated.
IFRS 15 Revenue from contracts with customers -- The Group is in the final stages of assessing the impact of IFRS 15. Based on the analysis performed thus far, the Company expects an immaterial impact on revenue recognition, due to currently existing product offering (i.e. prevailing pre-paid service offering). The Company expects that the annual impact stemming from capitalization of costs incurred in acquiring contracts with customers upon adoption in 2018 will also be immaterial for the Groups operating results.
IFRS 9 Financial instruments -- The Group is in the process of assessing the impact of IFRS 9, which may be material to the consolidated income statement and consolidated financial position of the Company, upon adoption in 2018.
VEON SUBMITTED A MANDATORY TENDER OFFER IN RELATION TO GLOBAL TELECOM HOLDING ("GTH") On 8 November 2017, VEON submitted an application to the Egyptian Financial Supervisory Authority ("EFSA") to approve a mandatory tender offer ("MTO") by VEON Holdings B.V. for any and all of the outstanding shares of GTH which are not owned by VEON (up to 1,997,639,608 shares, representing 42.31% of GTHs total shares). The MTO will be funded by cash on hand and/or the utilization of undrawn credit facilities.
The proposed offer price under the MTO is EGP 7.90 per share, which is the same price as the most recent GTH share buy-back in February 2017. The current six-month volume-weighted average trading price of GTHs shares is EGP 6.63 and the current six-month simple average trading price of GTHs shares is EGP 6.61.
The MTO is subject to EFSA approval. As the EFSA approval process is still pending, VEON is unable to comment further on this matter.
SIGNED AGREEMENT FOR TOWER SALE IN PAKISTAN FOR USD 940 MILLION EQUIVALENT, CLOSING EXPECTED BY THE END OF 2017 VEON and GTH announced on 30 August 2017 that their subsidiary in Pakistan, Jazz, signed an agreement for the sale of its tower business for approximately USD 940 million, subject to adjustments.
Jazz will be selling its wholly-owned tower company, Deodar, with a portfolio of approximately 13,000 telecommunication towers, to Tanzanite Tower (Private) Limited ("Tanzanite"), a tower operating company owned by edotco Group Sdn. Bhd. ("edotco") and Dawood Hercules Corporation ("Dawood").
The transaction will be on a cash and debt-free basis, with total consideration of PKR 98,700 million (USD 940 million)1,2. The enterprise value represents a high single digit multiple of contributed annual EBITDA. At completion of the sale, Deodar will enter into a master services agreement ("MSA") with Jazz, whereby it will continue to provide tower services to Jazz. The initial term of this MSA is twelve years and is renewable at Jazzs discretion for three consecutive periods of five years each. As result of this, and from the completion of the transaction onwards, the company expects an annualized dilution of the Groups EBITDA margin of approximately 1.33 percentage points.
Proceeds from the transaction will be utilized for Jazzs funding of recently awarded spectrum and the repayment of a proportion of Jazzs outstanding debt. The remaining amount will be distributed to Jazzs shareholders by the end of 2018 and GTH will use these funds to repay outstanding debt.
PKR 69,930 million (USD 666 million)1 of the PKR 79,800 million (USD 760 million)1 cash consideration is expected to be received at closing, while the remainder will be paid within 12 months thereafter. The positive impact of this transaction on the net leverage ratio for the Group is expected to be approximately 0.1x on a pro-forma basis.
As a result of the terms of the Warid earn-out agreement, following the completion of the transaction, GTHs stake in Jazz will be approximately 83%. Completion of the transaction is subject to the satisfaction or waiver of certain conditions, including receipt of customary regulatory approvals, with the parties aiming for completion before the end of 2017.
WIND TRE COMPLETED THE FULL REFINANCING OF ITS DEBT, WHICH IS EXPECTED TO GENERATE APPROXIMATELY EUR 270 MILLION OF ANNUAL INTEREST SAVINGS TOGETHER WITH SIGNIFICANT IMPROVEMENTS TO THE MATURITY PROFILE Wind Tre S.p.A. ("Wind Tre") successfully completed the refinancing of its external debt through a combination of (i) EUR 2.250 billion Senior Secured Floating Rate Notes due 2024, (ii) EUR 1.625 billion 2.625% Senior Secured Notes due 2023, (iii) EUR 1.750 billion 3.125% Senior Secured Notes due 2025 and (iv) USD 2.0 billion 5.0% Senior Secured Notes due 2026 (collectively, the "Notes"). Proceeds from the offering, along with proceeds under a new EUR 3.4 billion senior facilities agreement dated October 24, 2017 (consisting of a EUR 3.0 billion amortizing term loan and a EUR 400 million revolving credit facility) were used to: (i) repay outstanding amounts under the existing senior facilities agreement, (ii) repay loans with Wind Tres subsidiary, Wind Acquisition Finance S.A. ("WAF"), which will use the funds to repay all of WAFs existing senior secured notes and senior notes (the "Existing Notes") and (iii) fund costs, fees and expenses, including call premia relating to the foregoing.
1) Assumed exchange rate of PKR/USD: 105
2) PKR 18,900 million (USD 180 million) being in the form of a vendor loan note, payable to Jazz at or before three years from closing
3) Calculated from VEON Q3 2017 LTM results
The refinancing marks a major milestone for Wind Tre and achieves a refinancing of all of its senior and junior secured third party debt with an optimized capital structure, reduced annualized interest costs and extended maturities. Annual gross interest savings from the refinancing are estimated to be around EUR 270 million and result in an average cost of debt of 2.7% following the refinancing compared to a 5.5% average cost of debt at the end of Q3 20171. These savings are incremental to previously announced opex and capex synergies of EUR 700 million per annum.
TELENOR COMPLETED THIRD SELL DOWN OF ITS EQUITY STAKE IN VEON INCREASING THE FREE FLOAT TO 29.2% VEONs free float increased further to 29.2% during the quarter after Telenor East Holding II AS ("Telenor") sold 90,000,000 common shares in the form of American Depositary Shares ("ADSs") listed on the NASDAQ Global Select Market and common shares ("common shares") listed on Euronext Amsterdam at a public offering price of USD 4.15 per ADS or common share. The transaction settled on 25 September 2017.
VEON did not receive any proceeds from the sale of the shares by Telenor and Telenors sale of the shares did not result in any dilution of the companys issued and outstanding shares. Telenor has indicated that the transaction was the final divestment of Telenors VEON ADSs, as Telenor expects to use the balance of its remaining ADSs to exchange and/or redeem its outstanding 3 year exchangeable bond issued in September 2016, at which point in time the free float can move up to 43.8%.
LIBERALIZATION OF CURRENCY EXCHANGE RULES IN UZBEKISTAN On 15 September 2017, VEON noted the announcements from the government of Uzbekistan, liberalizing the currency exchange rules and resetting the official exchange rate at 8,100 Uzbek som per U.S. dollar, which represented nearly a halving of the value of the Uzbek som to the U.S. dollar.
The Uzbek som denominated cash balances and deposits held by Unitel, VEONs Uzbek subsidiary, are now valued at approximately USD 372 million. Due to this significant amount of accumulated cash, Unitel has not been able to take advantage of the currency liberalization yet, but discussions are progressing with the Uzbek authorities on terms and conditions of converting the accumulated cash in the country into U.S. dollars.
The new official exchange rate will directly impact the reported results for the VEON group for two reasons. Firstly, the Uzbek som results of Unitel will now be translated into U.S. dollars at a higher exchange rate. Secondly, Unitel and all other telecommunications operators will experience an erosion of EBITDA resulting from the fixing of tariffs from U.S. dollars to Uzbek som at the prior official exchange rate. As a result, VEON expects annualized decreases in revenues of USD 300-350 million and in underlying EBITDA of USD 175-225 million. Based on 20162 total annual revenues of approximately USD 9 billion and underlying EBITDA of approximately USD 3.6 billion, the impact represents approximately 3.5% of revenues and approximately 5.5% of underlying EBITDA. The Groups net debt/underlying EBITDA ratio immediately increased by 0.1x, which was in line with our previously communicated expectations, while net assets decreased by approximately USD 430 million3 compared to the previously communicated expectation of a decrease of USD 485 million, the difference being mainly attributable to foreign exchange assumptions.
AGREEMENT TO SELL THE LAOS OPERATIONS VEON announced on 27 October 2017 that its wholly owned subsidiary, VimpelCom Holding Laos B.V., has entered into an agreement to sell its 78% stake in VimpelCom Lao Co. Ltd ("VimpelCom Lao") to the Government of the Lao Peoples Democratic Republic ("Government of the Lao PDR") for gross proceeds of USD 22 million. Following the sale, the Government of the Lao PDR will own 100% of the share capital of VimpelCom Laos.
The sale of VEONs operations in the Lao PDR is consistent with the Groups strategy to dispose of non-core assets. As at 30 June 2017, VimpelCom Lao had 289,000 customers.
Transfer of ownership of VimpelCom Lao to the Government of the Lao PDR is subject to the satisfaction of certain conditions, including receipt of necessary corporate and regulatory approvals. The net proceeds will be close to zero because the VimpelCom Lao entity has an outstanding loan and other receivables owing to VEON group entities, all of which will be discharged as part of the sale. The transaction is expected to close in Q1 2018.
1) Expected annualized interest savings of EUR 270 million assumes stable gross debt
2) 2016 results including pro-forma 12 months Warid
3) Of which USD 420 million have been recognised in currency translation reserve and USD 16 million (before tax) is recognised in net foreign exchange/(loss) gain and others in VEONs income statement
TROND WESTLIE SUCCEEDS ANDREW DAVIES AS GROUP CHIEF FINANCIAL OFFICER WITH EFFECT FROM TODAY. JOSH DREW (GROUP CHIEF COMPLIANCE OFFICER) AND JACKY SIMMONDS (GROUP CHIEF PEOPLE OFFICER) ALSO APPOINTED TO THE SENIOR MANAGEMENT TEAM VEON announced that Trond Westlie will join VEON as Group Chief Financial Officer. Andrew Davies will remain an active member of the senior management team until the end of 2017 and will continue to be board member of Wind Tre. Trond Westlie joined VEON following the end of the quarter on 2 October 2017 and assumes his duties as Chief Financial Officer with effect from today. Trond is a highly experienced financial executive having been Chief Financial Officer of AP Moller-Maersk from 2010 to 2016 and Chief Financial Officer of Telenor from 2005 to 2009. He previously served as a member of the VEON Supervisory Board and was Chairman of its Audit Committee between July 2014 and August 2016.
Joshua Drew was appointed as Group Chief Compliance Officer on 5 October 2017. Josh joined VEON in July 2016 as Associate General Counsel and worked at Hewlett-Packard as Associate General Counsel prior to this.
Finally, VEON announced the appointment of Jacky Simmonds as Group Chief People Officer effective from 1 January 2018. Jacky is currently Group People Director at easyJet Plc.
All three executives will be members of VEONs senior management team and will report directly to Jean-Yves Charlier, Chief Executive Officer.
GROUP PERFORMANCE - Q3 2017
-- Total revenue increased 4.0% year-on-year with organic growth of 3.2% year-on-year
-- EBITDA increased 16.4%, including net exceptional income of USD 49 million resulting from a USD 106 million one-off adjustment to a vendor agreement, partially offset by USD 57 million performance transformation costs and other legal costs
-- Underlying EBITDA increased USD 31 million, and 3.5% organically year-on-year, to USD 993 million, leading to an underlying EBITDA margin of 40.4%, organically stable year-on-year
-- Underlying equity free cash flow excluding licenses totalled USD 475 million in Q3 and USD 965 million for the first nine months of 2017
FINANCIALS BY COUNTRY
USD million 3Q17 3Q16 Reported Organic 9M17 9M16 9M16 Reported Organic
YoY YoY pro-forma reported YoY YoY
Total revenue 2,456 2,361 4.0% 3.2% 7,154 6,685 6,531 9.5% 2.1%
Russia 1,229 1,090 12.7% 2.9% 3,523 2,984 2,984 18.1% 1.3%
Pakistan 391 368 6.2% 6.9% 1,146 1,080 926 23.8% 6.4%
Algeria 238 265 (9.9%) (9.8%) 701 794 794 (11.6%) (11.1%)
Bangladesh 144 157 (7.9%) (4.6%) 443 469 469 (5.5%) (2.9%)
Ukraine 166 155 7.8% 10.0% 463 436 436 6.2% 10.5%
Uzbekistan 130 169 (22.9%) 24.4% 436 498 498 (12.5%) 18.3%
HQ - - -
Other and eliminations 158 157 0.6% 442 424 424 10.0%
Service revenue 2,359 2,276 3.6% 3.0% 6,891 6,456 6,309 9.2% 2.0%
Russia 1,174 1,056 11.2% 1.5% 3,376 2,883 2,883 17.1% 0.5%
Pakistan 363 345 5.2% 5.9% 1,068 1,018 871 22.6% 5.2%
Algeria 233 263 (11.5%) (11.3%) 689 787 787 (12.5%) (11.9%)
Bangladesh 140 153 (8.9%) (5.6%) 431 458 458 (6.1%) (3.6%)
Ukraine 166 154 7.6% 9.8% 461 434 434 6.3% 10.6%
Uzbekistan 130 169 (23.0%) 24.3% 435 498 498 (12.6%) 18.2%
Other and eliminations 153 136 12.5% 431 378 378 14.5%
EBITDA 1,042 896 16.4% 16.7% 2,834 2,485 2,449 15.7% 10.5%
Russia 479 413 15.7% 5.7% 1,359 1,155 1,155 17.6% 1.1%
Pakistan 209 147 41.8% 42.8% 530 413 378 40.3% 28.6%
Algeria 115 136 (14.8%) (14.6%) 334 422 422 (20.8%) (20.3%)
Bangladesh 56 73 (23.8%) (21.1%) 186 212 212 (12.3%) (10.0%)
Ukraine 90 86 6.0% 8.2% 254 237 237 7.4% 11.8%
Uzbekistan 66 96 (30.9%) 10.3% 228 290 290 (21.4%) 5.7%
HQ (30) (95) (68.9%) (200) (329) (332) (39.3%)
Other and eliminations 57 40 39.5% 143 84 87 189.5%
EBITDA margin 42.4% 37.9% 4.5 p.p. 39.6% 37.2% 37.5% (2.1 p.p.)
EBITDA underlying 993 962 3.2% 3.5% 2,861 2,708 2,672 7.1% 2.3%
Russia 478 419 14.0% 4.1% 1,361 1,164 1,164 16.9% 0.5%
Pakistan 215 154 39.5% 40.4% 548 440 403 36.0% 25.4%
Algeria 116 148 (21.9%) (21.8%) 335 435 435 (23.0%) (22.6%)
Bangladesh 57 73 (22.1%) (19.3%) 187 222 222 (15.9%) (13.7%)
Ukraine 91 86 6.2% 8.5% 256 236 236 8.3% 12.7%
Uzbekistan 67 96 (30.9%) 10.3% 230 287 287 (20.6%) 6.9%
HQ (91) (57) (60.3%) (221) (204) (204) (8.3%)
Other and eliminations 60 43 45.3% 165 128 128 22.4%
EBITDA margin underlying 40.4% 40.7% (0.3 p.p) 40.0% 40.5% 40.9% (0.9 p.p.)
Group revenue for Q3 2017 increased 4.0% year-on-year to USD 2.5 billion, while organic growth was 3.2%, driven by strong revenue growth in Russia, Pakistan, Ukraine and Uzbekistan, with continued pressure in Algeria and Bangladesh.
Mobile data revenue continued to show strong organic growth at 26.6% during the quarter, with total mobile customers increasing 2.3% to 211 million at the end of Q3 2017, primarily driven by Russia, Pakistan, Bangladesh and Ukraine. The Group continues to see strong uptake in its fixed-mobile convergence ("FMC") proposition, which reached more than one million customers in Q3 2017.
Reported EBITDA increased 16.4% to USD 1,042 million, which included USD 49 million of exceptional income driven by a USD 106 million one-off adjustment to a vendor agreement partially offset by USD 57 million of costs from the Group-wide performance transformation program and other costs. Underlying EBITDA increased 3.5% organically year-on-year to USD 993 million, leading to an underlying EBITDA margin of 40.4%, organically stable year-on-year. The reconciliation table for reported EBITDA and underlying EBITDA is set forth in Attachment C.
For the discussion of each countrys individual performances below, all trends are expressed in local currency.
In Russia, total revenue in Q3 2017 increased 2.9%, driven by an increase in mobile revenue, partially offset by a decrease in fixed-line service revenue. Mobile data revenue continued to grow strongly increasing by 13.8%. Reported EBITDA increased by 5.7%, while underlying EBITDA increased by 4.1%, adjusted for exceptional costs in Q3 2016 and Q3 2017 related to the performance transformation program.
In Pakistan, VEON acquired Warid in 2016, strengthening its leading position in the market. As a result, Warids financial results have been consolidated into VEONs financial statements with effect from 1 July 2016, which means that this is the first quarter in which the Pakistan financials are fully comparable year-on-year. Total revenue grew by 6.9%, mainly due to growth in data and financial services revenues. Data revenue grew by 38.9%, driven by an increase in data customers through higher bundle engagement and continued 3G network expansion. Reported EBITDA margin increased to 53.3% (+13.4 percentage points year-on-year), benefitting from revenue growth, opex synergies and a positive impact of PKR 3.5 billion from the release of historic SIM tax accruals. Underlying EBITDA margin, excluding the negative impact of PKR 0.7 billion for performance transformation and integration costs, was 55.1% in Q3 2017, improving by 13.1 percentage points year-on-year while the underlying EBITDA margin, excluding the above-mentioned release of historic SIM tax accruals, would have been 47.3%.
In Algeria, total revenue decreased 9.8% with service revenue decreasing 11.3% as Djezzy continues to operate in a challenging environment with high inflation, increased VAT and taxes on recharges following the new Finance Law enacted on 1 January 2017, and intense competition on data pricing. Price competition, on both voice and data, caused continued reduction in ARPU and a year-on-year increase in churn. Data revenue growth was 55.0%, due to higher usage and a substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out and the simplified data-centric pricing architecture. Underlying EBITDA, adjusted for exceptional costs related to the performance transformation program in Q3 2017, decreased by 21.8%, mainly due to the decline in revenue.
In Bangladesh, total revenue decreased by 4.6%, driven by a 5.6% decline in service revenue. The decline in service revenue was partially due to the spectrum disadvantage and resulting gap in 3G network coverage versus the market leader, along with adverse weather conditions during the quarter. In addition, the market is still characterized by intense price competition which more than offset the continued increase in data revenue of 28.0%. The companys underlying EBITDA decreased by 19.3%, mainly due to the declining revenue trend, customer acquisition activity and technical expenses during the quarter.
In Ukraine, total revenue increased by 10.0% with mobile service revenue growing by 10.2%, driven by successful commercial activities and continued strong growth of mobile data revenue which grew by 70.4%. The growth of mobile data revenue was driven by an increase in data customers, successful marketing activities and increased penetration of data-centric tariffs. Underlying EBITDA, adjusted for performance transformation costs in Q3 2017, grew by 8.5%.
Uzbekistan continued to report strong revenue growth, despite the liberalization of the Uzbek som on 4 September 2017. As a result of this liberalisation, the companys tariffs, which had previously been pegged to the U.S. dollar, were fixed in Uzbek soms at the FX rate of UZS 4,210 to the U.S. dollar. Total revenue increased 24.4% and mobile service revenue increased 24.3%, supported by successful marketing activities, increased revenues from interconnect services, value added services and mobile data revenue growth of 31.0%. Underlying EBITDA increased 10.3%, driven by increased revenue, partially offset by higher interconnect costs as a result of both higher off-net usage and a negative currency effect, together with increases in customer costs, content costs, frequency fees and structural opex.
The HQ segment includes the costs of VEONs headquarters in Amsterdam, the London digital office and the Eurasia Hub. In Q3 2017, corporate costs increased by USD 34 million year-on-year largely due to increased HR costs related to variable remuneration plans and significant increase in headcount mainly related to the digital strategy.
"Other" includes the results of Kazakhstan, Kyrgyzstan, Armenia, Georgia, Tajikistan and intercompany eliminations.
INCOME STATEMENT & CAPITAL EXPENDITURES
USD million 3Q17 3Q16 Reported 9M17 9M16 9M16 Reported
YoY pro-forma reported YoY
Total revenue 2,456 2,361 4.0% 7,154 6,685 6,531 9.5%
Service revenue 2,358 2,276 3.6% 6,891 6,456 6,309 9.2%
EBITDA 1,042 896 16.4% 2,834 2,485 2,449 15.7%
EBITDA margin 42.4% 37.9% 4.5p.p. 39.6% 37.2% 37.5% 2.1p.p.
Depreciation, amortization, impairments and other (481) (490) (1.7%) (1,539) (1,512) (1,456) 5.7%
EBIT 561 406 38.1% 1,295 972 993 30.4%
Financial income and expenses (202) (211) (3.7%) (603) (580) (565) 6.8%
Net foreign exchange (loss)/gain and others 25 4 n.m. (65) 43 37 n.m.
Share of profit/(loss) of joint ventures and associates (60) (13) n.m. (256) (29) (29) n.m.
Impairment of JV and associates - - (110) - - n.m.
Profit before tax 324 186 74.4% 261 406 436 (40.1%)
Income tax expense (173) (114) 53.7% (379) (370) (366) 3.6%
Profit/(loss) from continued operations 151 72 109.5% (118) 36 70 n.m
Profit from discontinued operations - 421 n.m - 804 804 n.m
Profit/(loss) for the period attributable to VEON shareholders 125 445 (72%) (158) 737 771 n.m
3Q17 3Q16 Reported 9M17 9M16 9M16 Reported
reported YoY pro-forma reported YoY
Capex 406 426 (5.0%) 1,318 996 971 35.7%
Capex excl. licenses 398 382 4.0% 993 869 823 20.7%
Capex excl.licenses/revenue 16.2% 16.2% 0.0p.p
LTM capex excl. licenses/revenue 18.4% 16.7% 1.7p.p.
Q3 2017 ANALYSIS
EBIT increased year-on-year to USD 561 million, due to the growth in EBITDA and stable depreciation and amortization.
The strong increase in profit before tax to USD 324 million was driven by the increase in EBIT, higher year-on-year FX gains, partially offset by the loss in JV and associates. Net FX losses and other gains of USD 25 million are driven by a USD 44 million one-off arbitration award related to a prior WIND indemnification. VEONs 50% share of loss of the Wind Tre joint venture, which amounted to USD 60 million, was driven by accelerated depreciation and amortization for the network modernization.
Prior to the Wind Tre joint venture closing in November 2016, WIND had been accounted for as a discontinued operation and classified as held for sale under IFRS rules since Q3 2015. As a result, the Q3 2016 results were positively affected by the elimination of depreciation and amortization charges from the results of WIND. Following the closing of the Wind Tre joint venture transaction, this "discontinued operations" accounting treatment is no longer applicable in 2017.
Income tax expense increased in Q3 2017 to USD 174 million mainly due to higher taxable profit in Russia and Pakistan and higher withholding taxes related to dividends from Pakistan and Algeria.
In Q3 2017, the company recorded a profit for the period attributable to VEON shareholders of USD 125 million.
Capex excluding licenses increased 4.0% to USD 398 million in Q3 2017 primarily due to improved capex planning, compared to back end loaded capex in FY 2016 and improved coverage and network availability in Bangladesh.
The LTM (Last Twelve Months) ratio of capex (excluding licenses) to revenue was 18.4% in Q3 2017, with the Q3 2017 stand-alone ratio at 16.2%, stable year-on-year.
FINANCIAL POSITION & CASH FLOW
USD million 3Q17 2Q17 QoQ
Total assets 20,280 21,034 (3.6%)
Shareholders equity 4,809 5,355 (10.2%)
Gross debt 11,437 11,624 (1.6%)
Net debt 8,672 8,403 3.2%
Net debt/underlying LTM EBITDA 2.3 2.2
USD million 3Q17 3Q16 YoY 9M17 9M16 YoY
Net cash from/(used in) operating activities 834 988 (154) 1,996 1,430 566
from continued operations 833 741 92 1,996 808 1,190
from discontinued operations - 247 (247) - 622 (624)
Net cash from/(used in) investing activities (376) (493) 117 (1,690) (1,670) (20)
from continued operations (376) (324) (52) (1,690) (1,091) (599)
from discontinued operations - (169) 169 - (579) 579
Net cash from/(used in) financing activities (519) (370) (149) (356) 349 (705)
from continued operations (519) (360) (159) (356) 369 (726)
from discontinued operations - (10) 10 - (20) 21
Total assets decreased compared to Q2 2017 mainly driven by the Uzbek som devaluation, which almost halved the U.S. dollar equivalent value of the assets in the country.
Gross debt decreased 1.6% quarter on quarter mainly due to the refinancing of the USD 1 billion Alfa Bank facilities, through new ruble facilities of USD 819 million equivalent at HQ with Alfa Bank and VTB.
Net cash from operating activities decreased year-on-year in Q3 2017 by USD 154 million, as the USD 92 million higher cash flow from continued operations was more than offset by the year-on-year decrease in net cash from discontinued operations as a result of the closing of the Wind Tre joint venture transaction in November 2016, from which time onwards Italy is no longer accounted for as a discontinued operation.
Net cash flow used in investing activities increased year-on-year by USD 117 million. Q3 2016 benefited from a USD 81 million loan repaid by Warid to Mobilink, more than offset by the impact of accounting change for Italy which is no longer accounted for as a discontinued operation.
Net cash used in financing activities increased in Q3 2017, mainly due to USD 186 million of interim dividend payments in September 2017 to VEON equity holders and USD 87 million paid to non-controlling interests.
COUNTRY PERFORMANCE - Q3 2017
RUB million 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 72,559 70,529 2.9% 205,472 202,873 1.3%
Mobile service revenue 59,164 56,784 4.2% 167,186 162,348 3.0%
Fixed-line service revenue 10,114 11,459 (11.7%) 29,663 33,578 (11.7%)
EBITDA 28,239 26,710 5.7% 79,234 78,389 1.1%
EBITDA underlying 28,202 27,090 4.1% 79,401 78,999 0.5%
EBITDA margin 38.9% 37.9% 1.0p.p. 38.6% 38.6% (0.1p.p.)
EBITDA underlying margin 38.9% 38.4% 0.5p.p. 38.6% 38.9% (0.3p.p.)
Capex excl. licenses 10,906 9,444 15.5% 25,483 19,817 28.6%
LTM Capex excl. licenses /revenue 17.1% 15.7% 1.3p.p.
Total revenue 62,417 59,044 5.7% 175,730 169,167 3.9%
- of which mobile data 15,284 13,426 13.8% 43,697 37,685 16.0%
Customers (mln) 58.8 58.4 0.7% - - -
- of which data users (mln) 39.1 36.2 8.0% - - -
ARPU (RUB) 334 324 3.2% - - -
MOU (min) 325 336 (3.3%) - - -
Data usage (MB/user) 2,816 2,037 38.3% - - -
Total revenue 10,142 11,485 (11.7%) 29,742 33,706 (11.8%)
Broadband revenue 2,532 2,806 (9.8%) 7,761 8,808 (11.9%)
Broadband customers (mln) 2.2 2.1 3.2% - - -
Broadband ARPU (RUB) 384 438 (12.5%) - - -
Note: fixed-line, mobile revenue and their components have been restated to align them with Group accounting policies
Performance in Russia continued to improve during Q3 2017, but the market conditions and competition remain challenging.
Total revenue in Q3 2017 increased 2.9% to RUB 72.6 billion, driven by an increase in mobile service revenue and sales of equipment and accessories. Mobile service revenue increased by 4.2% to RUB 59.2 billion, driven by growth mobile data, value added services and mobile financial services, partially offset by a decrease in voice revenue.
Beeline has increased its focus on the B2B segment, improving its proposition with more customized offers and solutions to both small and large enterprises. As a result, mobile service revenue in the B2B segment showed strong dynamics in a stagnating market, growing 6.7% year-on-year, driven by a growth of 8% in the customer base. Overall, B2B revenue contributed RUB 16.2 billion to revenue.
Mobile data revenue continued its strong growth, increasing 13.8% to RUB 15.3 billion, resulting from increased penetration of integrated bundles and smartphones together with data traffic growth. Mobile ARPU continued to improve, showing growth of 3.2%, driven by successful upselling activities and continued efforts to simplify tariff plans, while also being supported by increased penetration of bundled propositions in the customer base. Beelines mobile customer base increased by 0.7% year-on-year to 58.8 million in Q3 2017.
Fixed-line service revenue decreased by 11.7% to RUB 10.1 billion, mainly driven by the effect of the strengthening ruble on foreign currency contracts and growing penetration of FMC in the customer base to more than 800,000 customers.
Reported EBITDA increased by 5.7% to RUB 28.2 billion, while underlying EBITDA increased by 4.1%, adjusted for exceptional costs related to the performance transformation program. The underlying EBITDA margin was 38.9%, representing a year-on-year improvement of 0.5 percentage points. In September 2017, Beeline started a national promotion campaign for the VEON internet platform, after its soft launch in July 2017. The increased costs related to the VEON internet platform roll-out are expected to negatively impact EBITDA margins for the remainder of this year. Furthermore, Beeline expects additional EBITDA margin pressure related to the Euroset transaction. The annualized negative impact on VEON Groups EBITDA margin as a result of the Euroset transaction is expected to be approximately 1.5 percentage points (based on VEONS Q3 2017 LTM results).
Capex excluding licenses increased 15.5% year-on-year during the quarter as a result of improved capex planning, compared to back end loaded capex in FY 2016. The LTM capex to revenue ratio for Q3 2017 was 17.1%.
PKR billion 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 41.2 38.5 6.9% 120.3 113.1 6.4%
Mobile service revenue 38.2 36.1 5.9% 112.1 106.6 5.2%
of which mobile data 6.4 4.6 38.9% 17.4 12.6 37.9%
EBITDA 22.0 15.4 42.8% 55.7 43.3 28.6%
EBITDA underlying 22.7 16.2 40.4% 57.5 45.9 25.4%
EBITDA margin 53.3% 40.0% 13.4p.p. 46.2% 38.3% 8.0p.p.
EBITDA underlying margin 55.1% 42.0% 13.1p.p. 47.8% 40.6% 7.2p.p.
Capex excl. licenses 8.2 7.6 8.1% 18.6 15.6 19.2%
LTM capex excl. licenses/revenue 18.1% 15.9% 2.2p.p.
Customers (mln) 53.1 51.0 4.1%
- of which data users (mln) 28.4 24.7 15.0%
ARPU (PKR) 241 241 0.0%
MOU (min)1 512 522 (2.0%)
Data usage (MB/user) 573 421 36.1%
1 MoU and ARPU have been adjusted in 2016 due to a change of components in the definition of traffic
In July 2016, VEON acquired Warid, strengthening its leading position in Pakistan, and as a result, Warids financial results have been consolidated into VEONs financial statements with effect from 1 July 2016. Consequently, this is the first quarter in which the 2017 results of Pakistan are fully comparable year-on-year.
Jazz continued to show mid single-digit growth of both revenue and customers despite the aggressive market. Revenue growth of 6.9% year-on-year was supported by continued growth in mobile data revenue which grew 38.9% year-on-year, driven by an increase in data customers through higher bundle engagement and the continued 3G network expansion. The customer base increased by 4.1% year-on-year driven by continued customer satisfaction achieved by a focus on price simplicity and efficient distribution channel management. Jazz sees data and voice monetization among its key priorities, underpinned by the ambition to offer the best network in terms of both quality of service and coverage.
The reported EBITDA margin increased to 53.3% (+13.4 percentage points year-on-year), benefitting from revenue growth, opex synergies and a positive impact of PKR 3.5 billion from the release of historic SIM tax accruals.
Underlying EBITDA margin, excluding the negative impact of PKR 0.7 billion for performance transformation and integration costs, was 55.1% in Q3 2017, improving by 13.1 percentage points year-on-year while the margin, excluding the above-mentioned release of historic SIM tax accruals, would have been 47.3%.
Capex increased to PKR 8.2 billion in Q3 2017 while the LTM capex to revenue ratio was 18.1% in Q3 2017 (12.5% excluding integration capex), broadly in line with Q2 2017. At the end of the Q3 2017, 3G was offered in more than 350 cities while 4G/LTE was offered in over 50 cities (defined as being those cities with at least 3 base stations per city).
The Warid integration is ahead of schedule and, having fully achieved the target run-rate of synergies announced with the transaction to merge Mobilink with Warid, Jazz remains fully focused and on track to complete the network integration activities by the end of 2017.
Finally, on 30 August 2017 VEON announced that Jazz had signed an agreement for the sale of its tower business ("Deodar") to Tanzanite, a tower operating company owned by edotco and Dawood, for PKR 98,700 million (USD 940 million equivalent) subject to adjustments. Following the classification of Deodar as a disposal group held-for-sale on 30 June 2017, VEON is no longer accounting for depreciation and amortization charges on these assets.
Completion of the transaction is subject to the satisfaction or waiver of certain conditions including receipt of customary regulatory approvals. The approval process is in progress and on track, with the parties aiming for completion to occur before the end of 2017. As result of this, and from the completion of the transaction onwards, the company expects an annualized negative impact on the Groups EBITDA margin of approximately 1.3 percentage points (based on Q3 2017 LTM results).
DZD billion 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 26.2 29.0 (9.8%) 76.9 86.5 (11.1%)
Mobile service revenue 25.6 28.9 (11.3%) 75.5 85.8 (11.9%)
of which mobile data 3.3 2.1 55.0% 9.3 5.6 66.4%
EBITDA 12.7 14.9 (14.6%) 36.6 45.9 (20.3%)
EBITDA underlying 12.7 16.3 (21.8%) 36.7 47.4 (22.6%)
EBITDA margin 48.5% 51.3% (2.8p.p.) 47.6% 53.1% (5.5p.p.)
EBITDA underlying margin 48.7% 56.2% (7.5p.p.) 47.7% 54.8% (7.1p.p.)
Capex excl. licenses 4.6 4.3 6.4% 10.7 12.0 (10.9%)
LTM capex excl. licenses/revenue 16.2% 16.3% (0.1p.p.)
Customers (mln) 15.2 15.9 (4.5%)
- of which mobile data customers (mln) 7.3 6.4 13.6%
ARPU (DZD) 553 593 (6.7%)
MOU (min)1 415 335 23.9%
Data usage (MB/user) 515 345 49.0%
1 MoU and ARPU have been adjusted in 2016 due to a change of components in the definition of traffic
Djezzys operational turnaround continued in Q3 2017, despite a challenging regulatory and macro-economic environment which remains characterized by strong competitive and inflationary pressures. As previously disclosed, the new Finance Law, with came into effect from January 2017, increased VAT from 7% to 19% on data services and from 17% to 19% on voice services and also increased taxes on recharges from 5% to 7%. These higher indirect taxes influenced Djezzys performance in relation to both revenue and EBITDA as these taxes could not be passed on to customers.
Revenue decreased by 9.8% year-on-year, slowing the year-on-year trend seen in Q2 2017. Price competition, on both voice and data, caused continued reduction of ARPU and a year-on-year increase in churn. Djezzys Q3 2017 service revenue was DZD 25.6 billion, an 11.3% reduction, while data revenue growth was 55.0%, due to higher usage and a substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out. This positive data revenue trend is also supported by the simplified data-centric pricing architecture.
The customer base in Algeria decreased 4.5% to 15.2 million as a result of competitive pressure in the market with ARPU declining by 6.7%, further slowing the trend compared to Q2 2017, primarily caused by the intense price competition.
In Q3 2017, EBITDA decreased by 14.6% year-on-year while underlying EBITDA, which in Q3 2016 was adjusted for exceptional costs of DZD 47 million related to the performance transformation program, decreased 21.8% to DZD 12.7 billion primarily due to the revenue decline. Underlying EBITDA margin remains strong at 48.7% and excluding the impact of the changes to indirect taxes with effect from 1 January 2017, the underlying EBITDA margin would have been 50.9%.
At the end of Q3 2017, the companys 4G/LTE services covered 24 wilayas and more than 22.2% of the countrys population, while the 3G network covers all 48 wilayas. Q3 2017 capex was DZD 4.6 billion, a 6.4% year-on-year reduction, with a LTM capex to revenue of 16.2%.
The Algerian regulatory environment has improved since Q3 2017 with mobile termination rate ("MTR") symmetry in place from 31 October 2017.
BDT billion 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 11.7 12.3 (4.6%) 35.7 36.7 (2.9%)
Mobile service revenue 11.3 12.0 (5.6%) 34.7 35.9 (3.6%)
of which mobile data 1.7 1.3 28.0% 4.7 3.5 33.9%
EBITDA 4.5 5.7 (21.1%) 14.9 16.6 (10.0%)
EBITDA underlying 4.6 5.7 (19.4%) 15.0 17.4 (13.7%)
EBITDA margin 38.6% 46.7% (8.1p.p.) 41.9% 45.2% (3.3p.p.)
EBITDA underlying margin 39.5% 46.7% (7.2p.p.) 42.2% 47.4% (5.2p.p.)
Capex excl. licenses 2.3 1.7 31.9% 4.5 5.6 (20.9%)
LTM capex excl. licenses/revenue 20.1% 18.3% 1.8p.p.
Customers (mln) 31.4 29.0 8.4%
- of which mobile data customers (mln) 17.1 14.6 17.1%
ARPU (BDT) 121 133 (8.6%)
MOU (min) 280 322 (13.0%)
Data usage (MB/user) 523 254 106.4%
In Bangladesh, Q3 2017 results were influenced by technical costs to restore network availability following flooding caused by severe monsoons along with intense market competition, in particular on customer acquisition. During the quarter, the focus was on restoring network availability and on customer acquisition, following the completion of the Government-mandated SIM re-verification program.
The customer base grew 8.4% year-on-year, reversing the negative trend from Q2, and this increase was fuelled by aggressive customer acquisition campaigns in the market by all operators.
Total revenue in Q3 2017 decreased by 4.6% year-on-year while Banglalinks service revenue decreased year-on-year by 5.6% to BDT 11.3 billion. The mid single-digit decline in service revenue is mainly attributable to the gap in 3G network coverage compared to the market leader and due to network availability issues caused by the extreme weather conditions in the country. In addition, the market remains characterized by intense price competition, which accelerated following the SIM re-verification process and which more than offset the continued increase in data revenue of 28.0%, which itself was driven by increased smart-phone penetration. Data revenue growth was driven by data usage growth of 106.4% along with 17.1% growth in active data users. ARPU decreased year-on-year as a result of the pricing pressure in the market.
Banglalinks underlying EBITDA in Q3 2017 decreased by 19.4% to BDT 4.6 billion, which was mainly caused by the revenue erosion together with higher customer acquisition costs and increased technical expenses to improve network availability, which more than offset savings from the performance transformation program. As a result, in Q3 2017, the underlying EBITDA margin was 39.5%, which represents a year-on-year reduction of 7.2 percentage points.
In Q3 2017, capex excluding licenses increased 31.9% year-on-year to BDT 2.3 billion, with a LTM capex to revenue ratio of 20.1%. Banglalink continues to invest in efficient, high-speed data networks aiming to substantially improve its 3G network coverage and availability. The 3G network covered approximately 69% of the population at the end of Q3 2017.
On the regulatory front, the Government of Bangladesh approved the Regulatory and Licensing Guidelines for 4G/LTE Cellular Mobile Services and Spectrum Auction Guidelines. A spectrum auction may occur by the first half of 2018, which could result in significant expenditures.
Banglalink is currently evaluating alternatives to improve its capital structure in the form of an additional credit facility and the proceeds from any such activity may be used for the refinancing of existing debt and general corporate purposes (including capital expenditures).
Finally, the Ministry of Post, Telecommunications and Information Technology issued a public consultation on draft Regulatory and Licensing Guidelines for Tower Sharing. The industry has provided comments on these guidelines to the Government of Bangladesh.
UAH million 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 4,316 3,922 10.0% 12,245 11,079 10.5%
Mobile service revenue 4,024 3,652 10.2% 11,352 10,250 10.8%
Fixed-line service revenue 275 261 5.1% 847 782 8.3%
EBITDA 2,349 2,170 8.2% 6,727 6,019 11.8%
EBITDA underlying 2,355 2,170 8.5% 6,762 5,999 12.7%
EBITDA margin 54.4% 55.3% (0.9p.p.) 54.9% 54.3% 0.6p.p.
EBITDA underlying margin 54.6% 55.3% (0.8p.p.) 55.2% 54.1% 1.1p.p.
Capex excl. licenses 643 860 (25.3%) 2,084 1,836 13.5%
LTM capex excl. licenses/revenue 18.1% 18.6% (0.5p.p.)
Total operating revenue 4,042 3,661 10.4% 11,398 10,297 10.7%
- of which mobile data 1,123 659 70.4% 2,901 1,699 70.8%
Customers (mln) 26.4 26.3 0.8% - - -
- of which data customers (mln) 11.8 10.6 10.8% -
ARPU (UAH) 50 46 8.2% - - -
MOU (min) 570 544 4.8% - - -
Data usage (MB/user) 835 400 108.4% - - -
Total operating revenue 275 261 5.1% 847 782 8.3%
Broadband revenue 167 150 11.9% 504 448 12.6%
Broadband customers (mln) 0.8 0.8 (0.2%) - - -
Broadband ARPU (UAH) 69 62 11.7% - - -
Kyivstar continued to deliver robust results in Q3 2017 and, in an increasingly competitive environment, the company remains the clear leader in both customer market share and NPS.
Total revenue increased 10.0% year-on-year to UAH 4.3 billion in Q3 2017 while mobile service revenue grew 10.2% to UAH 4.0 billion. This was driven by continued strong growth of mobile data revenue, which increased 70.4% as a result of growing data customers, and successful marketing activities driven by the continued 3G network roll-out and data-centric tariffs. As a result, data consumption per user more than doubled in Q3 2017 compared with the same quarter in the previous year.
Kyivstars mobile customer base increased 0.8% to 26.4 million in Q3 2017, due to higher gross additions, while mobile ARPU continued to increase by 8.2% year-on-year to UAH 50.
Fixed-line service revenue increased 5.1% to UAH 275 million, supported by broadband revenue which increased by 12% and which was driven primarily by the FMC launch. The fixed broadband customer base is stable year-on-year at 0.8 million and fixed broadband ARPU increased 11.7% year-on-year to UAH 69.
EBITDA increased 8.2% to UAH 2.3 billion in Q3 2017, representing an EBITDA margin of 54.4%, while underlying EBITDA, adjusted for performance transformation costs of UAH 6 million in Q3 2017, grew 8.5% year-on-year, driven by higher revenue partially mitigated by increased structural opex and commercial costs while underlying EBITDA margin decreased by 0.8 percentage points to 54.6%.
Q3 2017 capex was UAH 643 million with an LTM capex to revenue ratio of 18.1% and Kyivstar continued to roll out its 3G network in Q3 2017, reaching a population coverage of 73% up from 52% in the same quarter last year.
UZS bln 3Q17 3Q16 YoY 9M17 9M16 YoY
Total revenue 625 502 24.4% 1,714 1,450 18.3%
Mobile service revenue 620 499 24.3% 1,702 1,439 18.3%
- of which mobile data 149 114 31.0% 423 326 29.7%
Fixed-line service revenue 4 3 19.1% 11 10 9.5%
EBITDA 316 287 10.3% 893 845 5.7%
EBITDA underlying 316 287 10.3% 900 836 7.7%
EBITDA margin 50.6% 57.1% (6.5p.p.) 52.1% 58.3% (6.2p.p.)
EBITDA underlying margin 50.6% 57.1% (6.5p.p.) 52.1% 57.7% (5.5p.p.)
Capex excl. licenses 47 112 (57.8%) 182 244 (25.4%)
Capex excl. licenses LTM/revenue 21.1% 15.3% 5.8p.p.
Customers (mln) 9.5 9.6 (0.1%)
- of which mobile data customers (mln) 4.7 4.5 5.1%
ARPU (UZS) 21,484 17,527 22.6%
MOU (min) 581 580 0.1%
Data usage (MB/user) 519 256 102.7%
Note: Mobile data revenue have been restated for the prior periods to align it with Group accounting policies
Beeline continued to report strong revenue growth, despite the liberalization of the Uzbek som on 4 September 2017. The companys tariffs were fixed at the FX rate of UZS 4,210 to the USD, which is a higher level compared to the prior year. Total revenue increased 24.4% and mobile service revenue increased 24.3% to UZS 620 billion, supported by successful marketing activities, increased revenues from interconnect services, value added services and mobile data. Mobile data revenue increased 31.0%, driven by the continued high-speed data network roll-out, increased smartphone penetration and the launch of new bundled offerings. The overall customer base was broadly stable at 9.5 million.
Underlying EBITDA increased 10.3% compared to the prior year, driven by increased revenue, partially offset by higher interconnect costs as a result of both higher off-net usage and a negative currency effect, together with increases in customer costs, content costs, frequency fees and structural opex. Customer costs increased as a result of an 83.3% growth in customer tax to UZS 2,750 per customer per month. Adjusting for this negative effect, underlying EBITDA growth would have been 22.8% and underlying EBITDA margin for Q3 2017 would have been 5.8 percentage points higher at 56.4%.
Capex was UZS 47.2 billion and the LTM capex to revenue ratio was 21.1%, mainly due to prepayments of equipment in Q4 2016 for deployment in 2017. The company continued to invest in its high-speed data networks, improving the 4G/LTE coverage in Tashkent and increasing the number of nationwide 3G sites by 62%. Further improvements to the high-speed data networks will continue to be a priority for Beeline for the remainder of this year.
The Republican Radiofrequencies Council in Uzbekistan delayed the implementation of the decision to redistribute radio frequencies in Uzbekistan to April 2018. This will result in a reallocation of Unitels radio frequencies to other cellular communications providers in the market. The Company is analysing the effect of this measure, which might lead to increased investments in network capacity.
The cash and deposits balances of USD 372 million in Uzbek som are considered to be largely restricted from repatriation until the local government allows conversion to U.S. dollars for major cash holders such as Beeline.
ITALY JOINT VENTURE1
Mobile service revenue
Fixed-line service revenue
Capex excl. licenses
LTM capex excl. licenses/revenue
- of which mobile data
- of which data customers (mln)
Total voice customers (mln)
Broadband customers (mln)
Broadband ARPU (EUR)
1 The combined data for Q3 2016 consists of the sum of the WIND Telecomunicazioni s.p.a. and H3G s.p.a. businesses results, respectively, for the three months ended 30 September 2016, prior to the merger of the two businesses. The Q3 2016 data related to H3G s.p.a. was obtained through due diligence performed as part of the merger process. The Company has included this "combined data" because it believes that financial information on the Wind Tre joint venture is relevant to its business and results for the financial quarter. Going forward, the Company expects to include financial information related to the Wind Tre joint venture in the publication of its financial results. It should be noted that the Company owns 50% of the Wind Tre joint venture, while the results above reflect the entire business
2 Q3 2017 underlying EBITDA before integration costs of approximately EUR 60 million
3 Q3 2017 LTM EBITDA before integration costs of approximately EUR 260 million
Note: starting from Q2 2017 results, minor changes in accounting policies were adopted and for a proper comparison previous period results have been adjusted accordingly
Wind Tres total revenue in Q3 2017 decreased 6.4% to EUR 1.5 billion, driven by a 6.1% decline in mobile service revenue and lower other revenue, which was partially offset by a 1.4% growth in fixed-line service revenue. The mobile service revenue decline was primarily due to continuing aggressive competition in the market, which drove the customer base decline of 5.1% to 29.8 million, together with a impact from the new EU roaming regulations.
Mobile data revenue continued to show solid growth year-on-year with a 9.9% increase, driven by a 1.2% increase in data customers, data ARPU growth of 5.1% and data usage which grew by 52% to approximately 4 GB per customer per month. In Q3 2017, mobile ARPU slightly declined to EUR 11.8, a 1.2% year-on-year erosion, as an increase in data ARPU almost offset the decline in voice ARPU.
Fixed-line service revenue growth was driven by a 6.1% increase in broadband revenue to EUR 156 million, with direct and broadband customers growing 1.8% and 2.5% respectively. In Q3 2017, the fixed-line direct customer base and the broadband customer base reached 2.5 million and 2.4 million respectively, as a result of increased demand for ultra-broadband connections while fixed and broadband ARPU grew by 3.9% and 3.4% respectively. Wind Tre renewed the agreement with Open Fiber for the development of ultra-broadband connectivity services in FTTH technology, which was already active in 13 cities, extending it to a total of 271 cities.
Underlying EBITDA2 in the quarter declined by 4.9% year-on-year to EUR 579 million, mainly due to the revenue erosion, partially offset by opex synergies of EUR 44 million, which lead to an increase in underlying EBITDA2 margin of 0.5 percentage points to 37.5%.
Capex in the quarter totalled EUR 236 million and was primarily focused on expanding capacity and coverage of the 4G/LTE network, as well as modernizing and merging the former WIND and Tre networks.
The net leverage ratio (net debt/LTM underlying3 EBITDA) was 4.3x at the end Q3 2017 and the key reason for the increase in the leverage ratio in the quarter was the payment for the GSM spectrum renewal and refarming of approximately EUR 435 million.
In the first nine months of 2017, Wind Tre generated opex synergies of EUR 98 million, on track with the targets announced at the time of the announcement of the joint venture, and were mainly related to the termination of a national roaming contract, insourcing of activities and supplier contract renegotiation (network and IT), commissioning scheme harmonization, point of sale rationalization and optimization, company personnel right-sizing and facilities rationalization both for both headquarters and regional sites.
Finally, Wind Tre successfully completed the refinancing of its external debt, optimizing its capital structure, substantially reducing future interest costs by expected annual amount of approximately EUR 270 million and improving the maturity of its indebtedness.
CONFERENCE CALL INFORMATION
On 9 November 2017, VEON will also host a conference call at 2.00pm CET (1.00pm GMT) through video webcast on its website and through following dial-in numbers. The call and slide presentation may be accessed at http://www.veon.com
2.00pm CET investor and analyst conference call US call-in number: +1 (646) 254 3362 Confirmation Code: 2515988
International call-in number: +44 (0) 20 3427 1904 Confirmation Code: 2515988
The conference call replay and the slide presentation webcast will be available until 23 November 2017. The slide presentation will also be available for download on VEONs website.
Investor and analyst call replay US Replay Number: +1 719 457 0820 Confirmation Code: 2515988
UK Replay Number: 0800 101 1153 Confirmation Code: 2515988
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, VEONs plans to implement its strategic priorities, including with respect to its performance transformation, among others; anticipated performance and guidance for 2017, including VEONs ability to generate sufficient cash flow; future market developments and trends; expected synergies of the Wind Tre Joint Venture, including expectations regarding capex and opex benefits; realization of the synergies of the Warid transaction; 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; the timing for the expected completion of the tower sale in Pakistan and the sale of VEONs Laos operations and the Companys ability to realize its targets and strategic initiatives in its various countries of operation. The forward-looking statements included in this release are based on managements best assessment of the Companys 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 VEONs products and services; continued volatility in the economies in VEONs markets; unforeseen developments from competition; governmental regulation of the telecommunications industries; general political uncertainties in VEONs markets; government investigations or other regulatory actions and/or litigation with third parties; failure to realize the expected benefits of the Wind Tre Joint Venture or the Warid transaction as expected or at all due to, among other things, the parties inability to successfully implement integration strategies or otherwise realize the anticipated synergies; the satisfaction of completion conditions relation to the tower sale in Pakistan and the sale of VEONs Laos operations; risks associated with data protection or cyber security, other risks beyond the parties control or a failure to meet expectations regarding various strategic initiatives, including, but not limited to, the performance transformation program, 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 VEONs 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 the Companys Annual Report on Form 20-F for the year ended December 31, 2016 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. Furthermore, elements of this release contain, or may contain, "inside information" as defined under the Market Abuse Regulation (EU) No. 596/2014.
All non-IFRS measures disclosed in the document, i.e. EBITDA, EBITDA margin, underlying EBITDA, underlying 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 comparable IFRS measures in Attachment C.
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 the 235 million+ customers it currently serves, and many others in the years to come.
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CONTENT OF THE ATTACHMENTS
Attachment A Customers 23
Attachment B Definitions 23
Attachment C Reconciliation tables 26
Average rates and budget rates of functional currencies to USD
For more information on interim financial schedules please refer to the MD&A section and financial statements section.
For more information on financial and operating data for specific countries, please refer to the supplementary file Factbook3Q2017.xls on VEONs website at http://veon.com/Investor-relations/Reports--results/Results/ .
ATTACHMENT A: CUSTOMERS
Mobile Fixed-line broadband
million 3Q17 3Q16 YoY 3Q17 3Q16 YoY
Russia 58.8 58.4 0.7% 2.2 2.1 3.2%
Pakistan 53.1 51.0 4.1%
Algeria 15.2 15.9 (4.5%)
Bangladesh 31.4 29.0 8.4%
Ukraine 26.4 26.3 0.8% 0.8 0.8 0.3%
Uzbekistan 9.5 9.6 (0.1%)
Other 15.7 15.5 1.7% 0.5 0.4 21.1%
Total consolidated 210.3 205.6 2.3% 3.5 3.4
Italy 29.8 31.4 (5.1%) 2.4 2.3 2.5%
Total 240.1 237.0 1.3% 5.9 5.7 4.6%
Note: In Russia Fixed line and mobile customers have been restated in 2016 to align them with Group accounting policies
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 months 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.
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, 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.
EBIT is a non-IFRS measure and 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. EBITDA is defined as earnings before interest, tax, depreciation and amortization. VEON calculates EBITDA as operating income 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 Business Units except for its Russia Business Unit. For 2016 Russia Business Units EBITDA is calculated as operating income before depreciation, amortization, loss from disposal of non-current assets and impairment loss.
In addition, the components of EBITDA include the key revenue and expense items for which the Companys operating managers are responsible and upon which their performance is evaluated. EBITDA also assists management and investors by increasing the comparability of the Companys performance against the performance of other telecommunications companies that provide EBITDA information. This increased comparability is achieved by excluding the potentially inconsistent effects between periods or companies of depreciation, amortization and impairment losses, which items may significantly affect operating income between periods. However, our EBITDA results may not be directly comparable to other companies reported EBITDA results due to variances and adjustments in the components of EBITDA (including our calculation of EBITDA) or calculation measures.
Additionally, a limitation of EBITDAs 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 debt and short term debt.
Equity Free Cash Flow is derived from consolidated statements of cash flows and is cash flow before financing activities; net cash from operating activities less net cash used in investing activities. Reconciliation to the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment C below.
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.
MBOU (Megabyte of use) is calculated by dividing the total data traffic by the average mobile data customers during the period.
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.
MNP (Mobile number portability) is a facility provided by telecommunications operators, which enables customers to keep their telephone numbers when they change operators.
Mobile customers are generally customers in the registered customer base as of 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 FMC. For our business in Italy, prepaid mobile customers are counted in our customer base if they have activated our SIM card in the last 13 months (with respect to new customers) or if they have recharged their mobile telephone credit in the last 13 months and have not requested that their SIM card be deactivated and have not switched to another telecommunications operator via mobile number portability during this period (with respect to our existing customers), unless a fraud event has occurred. Postpaid customers in Italy are counted in our customer base if they have an active contract unless a fraud event has occurred or the subscription is deactivated due to payment default or because they have requested and obtained through mobile number portability a switch to another telecommunications operator.
MOU (Monthly Average Minutes of Use per User) measures the monthly average minutes of voice service use per mobile customer. We generally calculate mobile MOU by dividing the total number of minutes of usage for incoming and outgoing calls during the relevant period (excluding guest roamers) by the average number of mobile customers during the period and dividing by the number of months in that period. For our business in Italy, we calculate mobile MOU as the sum of the total traffic (in minutes) in a certain period divided by the average number of customers for the period (the average of each months average number of customers (calculated as the average of the total number of customers at the beginning of the month and the total number of customers at the end of the month)) divided by the number of months in that period.
Net debt is a non-IFRS financial measure and is calculated as the sum of interest bearing long-term debt and short-term debt minus cash and cash equivalents, long-term and short-term deposits and fair value hedges. The Company believes that net debt provides useful information to investors because it shows the amount of 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, VEONs 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. Our management uses Net foreign exchange (loss)/gain and others as a supplemental performance measure and believes that it provides useful information about the impact of our debt denominated in foreign currencies on our results of operations due to fluctuations in exchange rates, the performance of our equity investees and other losses and gains the Company needs to manage the business.
NPS (Net Promoter Score) is the methodology VEON uses to measure customer satisfaction.
Operational expenses (opex) represents service costs and selling, general and administrative expenses.
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. Intersegment revenue is eliminated in consolidation.
ATTACHMENT C: RECONCILIATION TABLES
RECONCILIATION OF CONSOLIDATED EBITDA
USD mln 3Q17 3Q16 9M17 9M16
EBITDA 1,042 896 2,834 2,449
Depreciation (341) (349) (1,117) (1,072)
Amortization (136) (130) (404) (355)
Impairment loss 3 (3) (2) (15)
Loss on disposals of non-current assets (7) (8) (16) (14)
Operating profit 561 406 1,295 993
Financial Income and Expenses (202) (211) (603) (565)
- including finance income 24 15 70 46
- including finance costs (226) (226) (673) (611)
Net foreign exchange (loss)/gain and others (35) (9) (431) 8
- including Other non-operating (losses)/gains 40 (5) (112) (67)
- including Shares of loss of associates and joint ventures (60) (13) (256) (29)
accounted for using the equity method
- impairment of JV and associates - - (110) -
- including Net foreign exchange gain (15) 8 47 104
Profit before tax 324 186 261 436
Income tax expense (173) (114) (379) (366)
Profit from discontinued operations - 421 - 804
Profit/(loss) for the period 151 493 (118) 874
Loss for the period attributable to non-controlling interest (26) (48) (40) (103)
Profit/(loss) for the year attributable to the owners of the parent 125 445 (158) 771
RECONCILIATION OF CONSOLIDATED REPORTED AND UNDERLYING EBITDA
USD mln, unaudited 3Q17 3Q16 9M17 9M16
EBITDA 1,042 896 2,834 2,485
One off vendor receivable (106) - (106) -
Performance transformation and other costs, of which
HQ and Other 49 40 104 -
Russia - 6 2 165
Emerging Markets 8 20 20 9
Other exceptionals - - 6 49
EBITDA underlying 993 962 2,861 2,708
Note: Q2 2016 one-offs have changed to USD 118 million from USD 116 million after reclassification of Opex expenses in 2016
RECONCILIATION OF CAPEX
USD mln unaudited 3Q17 3Q16 9M17 9M16
Cash paid for purchase of property, plant and equipment and intangible assets 363 389 1,559 1,103
Net difference between timing of recognition and payments for purchase of property, plant and equipment and intangible assets 42 37 (241) (132)
Capital expenditures 406 426 1,318 971
Less capital expenditures in licenses (8) (44) (325) (148)
Capital expenditures excl. licenses 398 382 993 823
RECONCILIATION OF ORGANIC AND REPORTED GROWTH RATES
3Q17 vs 3Q16
Total Revenue EBITDA
Organic Forex & other Reported Organic Forex & other Reported
Russia 2.9% 9.8% 12.7% 5.7% 10.0% 15.7%
Pakistan 6.9% (0.7%) 6.2% 42.8% (0.9%) 41.8%
Algeria (9.8%) (0.1%) (9.9%) (14.6%) (0.2%) (14.8%)
Bangladesh (4.6%) (3.3%) (7.9%) (21.1%) (2.7%) (23.8%)
Ukraine 10.0% (2.3%) 7.8% 8.2% (2.3%) 6.0%
Uzbekistan 24.4% (47.3%) (22.9%) 10.3% (41.1%) (30.9%)
Total 3.2% 0.7% 4.0% 16.7% (34.8%) (16.4%)
9M17 vs 9M16
Total Revenue EBITDA
Organic Forex & other Reported Organic Forex & other Reported
Russia 1.3% 16.8% 18.1% 1.1% 16.6% 17.6%
Pakistan 6.4% 17.4% 23.8% 28.6% 11.6% 40.3%
Algeria (11.1%) (0.5%) (11.6%) (20.3%) (0.6%) (20.8%)
Bangladesh (2.9%) (2.5%) (5.5%) (10.0%) (2.3%) (12.3%)
Ukraine 10.5% (4.3%) 6.2% 11.8% (4.4%) 7.4%
Uzbekistan 18.3% (30.8%) (12.5%) 5.7% (27.2%) (21.4%)
Total 2.1% 7.4% 9.5% 10.5% 5.2% 15.7%
RECONCILIATION OF VEON CONSOLIDATED NET DEBT
USD mln 30 September 2017 30 June 2017 31 March 2017
Net debt 8,672 8,403 7,661
Cash and cash equivalents 2,565 2,873 2,172
Long - term and short-term deposits 199 348 407
Gross debt 11,437 11,624 10,240
Interest accrued related to financial liabilities 179 146 160
Other unamortised adjustments to financial liabilities (fees, discounts etc.) (34) (36) 20
Derivatives not designated as hedges 311 309 302
Derivatives designated as hedges 40 33 53
Other financial liabilities 38 76 87
Total other financial liabilities 11,971 12,153 10,862
RECONCILIATION OF REPORTED CASH FLOW FROM CONTINUED OPERATIONS AND UNDERLYING EQUITY FREE CASH FLOW EXCLUDING LICENSES
USD million 3Q17 3Q16 9M17 9M16
Net cash from operating activities from continued operations 833 741 1,997 807
One off vendor receivable (66) - (66) -
PT costs 55 71 121 191
Settlement with DOJ/SEC/OM Investigation 795
IRAQNA provision 69
WHT on licence in Pakistan 30
Other 9 45 22 69
Underlying net cash flow from operating activities 831 857 2,173 1,862
Net cash used in investing activities from continued (376) (324) (1,690) (1,091)
Deposits & Financial assets (13) 51 (143) (11)
Purchase of license and other (7) (7) (339) (118)
Underlying net cash flow used in investing activities (356) (368) (1,208) (962)
Underlying Equity Free Cash Flow excluding licenses 475 489 965 900
RECONCILIATION OF REPORTED AND PRO-FORMA WARID INCOME STATEMENT FOR 9M 2016
USD million 9M16 Warid incl. 9M16
reported intercompany pro-forma
Total revenue 6,531 154 6,685
Service revenue 6,309 147 6,456
EBITDA 2,449 36 2,485
EBITDA margin 37.5% -0.3% 37.2%
Depreciation, amortization, impairments and other (1,456) (56) (1,512)
Operating profit 993 (21) 972
Financial income and expenses (565) (15) (580)
Net foreign exchange (loss)/gain and others 37 6 43
Share of profit/(loss) of joint ventures and associates (29) - (29)
Impairment of JV and associates - - -
Profit/(loss) before tax 436 (30) 406
Income tax expense (366) (4) (370)
Profit/(loss) from continued operations 70 (34) 36
Profit/(loss) from discontinued operations 804 (1) 803
Profit for the period attributable to VEON shareholders 771 (34) 737
RECONCILIATION OF WIND TRE JOINT VENTURE REPORTED NET RESULT TO VEONS SHARE OF PROFIT/(LOSS) FROM JV AND ASSOCIATES
USD mln 3Q17
Italy JV reported net result (608)
50% of Italy JV reported net result (304)
D&A - PPA adjustment 234
Other PPA adjustmnet 10
Total PPA adjustment 244
VEON share of profit/(loss) from JV and associates (60)
EBITDA RECONCILIATION FOR COUNTRY
Russia Pakistan Algeria Bangladesh Ukraine Uzbekistan HQ Other VEON
EBITDA underlying 478 215 116 57 91 67 (91) 60 993
Execptional costs (1) 7 0 1 0 - (61) 4 (49)
EBITDA 478 208 115 56 91 67 (30) 57 1,042
Depreciation (197) (36) (26) (28) (13) (11) (1) (29) (341)
Amortization (39) (35) (29) (10) (11) (1) (2) (9) (136)
Impairment loss 4 - - (0) (1) - - 1 4
Loss on disposals of non-current assets (5) (1) (0) (2) 1 (1) - (0) (8)
Operating profit 241 136 60 15 67 54 (32) 20 561
Russia Pakistan Algeria Bangladesh Ukraine Uzbekistan HQ Other VEON
EBITDA underlying 419 154 148 73 86 96 (57) 41 962
Execptional costs 6 7 13 - - 39 1 66
EBITDA 413 147 136 73 86 96 (96) 40 896
Depreciation (180) (46) (22) (29) (22) (15) (1) (34) (349)
Amortization (36) (22) (39) (10) (11) (2) (1) (8) (130)
Impairment loss (1) - - (1) (2) - - 0 (3)
Loss on disposals of non-current assets (3) 1 (0) 0 (0) (3) - (2) (8)
Operating profit 194 80 74 34 50 76 (98) (4) 406
Russia Pakistan Algeria Bangladesh Ukraine Uzbekistan HQ Other VEON
EBITDA underlying 1,361 548 334 186 256 230 (221) 165 2,861
Execptional costs 3 18 1 - 1 2 (21) 22 26
EBITDA 1,359 530 334 186 254 228 (200) 143 2,834
Depreciation (606) (153) (82) (100) (41) (42) (1) (89) (1,117)
Amortization (118) (99) (86) (30) (35) (3) (6) (27) (404)
Impairment loss (4) - - (0) 0 - - 2 (2)
Loss on disposals of non-current assets (17) 3 0 (8) 3 5 - (3) (17)
Operating profit 613 280 166 48 181 188 (207) 27 1,295
Russia Pakistan Algeria Bangladesh Ukraine Uzbekistan HQ Other VEON
EBITDA underlying 1,164 439 435 222 236 287 (204) 128 2,708
Execptional costs 9 25 13 10 (1) (3) 125 44 223
EBITDA 1,155 413 422 212 237 290 (329) 84 2,485
Depreciation (505) (216) (74) (94) (86) (44) (2) (103) (1,124)
Amortization (90) (57) (119) (30) (33) (10) (3) (19) (360)
Impairment loss (3) 5 (0) (3) (2) 0 - (19) (21)
Loss on disposals of non-current assets (12) 8 (0) (0) (0) (2) - (2) (8)
Operating profit 546 153 229 85 116 235 (335) (58) 972
RATES OF FUNCTIONAL CURRENCIES TO USD1
Average rates Closing rates
3Q17 3Q16 YoY 3Q17 3Q16 QoQ
Russian Ruble 59.02 64.62 (8.7%) 58.02 63.16 (8.1%)
Euro 0.85 0.90 (5.0%) 0.85 0.89 (4.9%)
Algerian Dinar 109.90 109.77 0.1% 113.04 109.62 3.1%
Pakistan Rupee 105.37 104.67 0.7% 105.39 104.46 0.9%
Bangladeshi Taka 81.11 78.32 3.6% 82.31 78.38 5.0%
Ukrainian Hryvnia 25.90 25.38 2.1% 26.52 25.91 2.4%
Kazakh Tenge 332.18 341.34 (2.7%) 341.19 334.93 1.9%
Uzbekistan Som 5,220.63 2,976.8 75.4% 8,066.96 3,010.2 168.0%
Armenian Dram 478.69 475.38 0.7% 478.41 474.46 0.8%
Kyrgyz Som 68.88 68.22 1.0% 68.66 67.93 1.1%
Georgian Lari 2.42 2.32 4.2% 2.48 2.33 6.3%
1 Functional currency in Tajikistan is USD
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SOURCE VEON Ltd.