VEON - Q4 2022

Transcript

Nik Kershaw (Group Director, Investor Relations)

Great. Good morning and good afternoon, ladies and gentlemen, welcome to VEON's 4th quarter and full year results presentation for the period ended December 31, 2022. Nik Kershaw here, VEON's Group Director for Investor Relations. I'm pleased to be joined today by Kaan Terzioglu, our Group CEO, along with our Group CFO, Serkan Okandan. Together we'll take you through the results presentation. We also have our incoming CFO, Joop Brakenhoff, with us on the call. Today's presentation will begin with an operational overview of our 4th quarter results from Kaan, followed by the financial review from Serkan. We will hand it back to Kaan to discuss our outlook for the balance of the year. We will ensure that there's time for your questions, we would ask that you submit these through the question function on Zoom.

Before getting started, I would like to remind you that we may make forward-looking statements during today's presentations, which involve certain risks and uncertainties. These statements relate in part to the company's anticipated performance and guidance for 2023, future market developments and trends, operational and network developments and network investments, and the company's ability to realize its targets and commercial and strategic initiatives, including current and future transactions. Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the company's annual reports on Form 20-F and other recent public filings made by the company with the SEC. The earnings release and this presentation, each of which include reconciliations of non-IFRS financial measures presented today, can be downloaded from our websites. With that, let me hand over to Kaan.

Kaan Terzioglu (Group CEO)

Well said, Nik. Thank Thank you. Good morning. Good afternoon to all, welcome to the presentation of our 4th quarter and full year results for 2022. From this announcement onwards, you will see a different VEON. With our Russia business now classified as assets held for sale and discontinued operations, our group, while smaller in size, will not only have a higher growth rate in both financial and operational metrics, but also the sale of Russia will result in the significant de-leveraging of the group balance sheets. This comes with significant growth opportunities that we are excited to seize, working diligently to meet the demand in our markets. As we will share with you in greater detail over the next hour, our teams delivered 2022 priorities despite numerous macro and geopolitical challenges.

In the 4th quarter, we have strengthened our position further and accelerated our growth, positioning us as we start 2023. For this, I would like to thank all of our teams and especially our colleagues at Kyivstar in Ukraine for serving our customers with essential connectivity and increasingly relevant digital services. I would also like to thank our leadership team who are joining me on the call today, and especially to our Group CFO, Serkan Okandan, who will pass his CFO duties to our Group Chief Internal Audit and Compliance Officer, Joop Brakenhoff, on May 1. Allow me to thank Serkan for a very successful three years and continuing to serve VEON in an advisory capacity, and cordially welcome Joop to his new position. With that, let me turn to review our performance. Let's start with a snapshot of 4th quarter.

In the quarter, VEON accelerated local currency revenue and EBITDA growth and continued to gain market share in each of its markets. Our top line growth in local currency for Q4 was 18.6%. This is double the growth rate that we achieved in Q4 2021, excluding Russia. Five of our countries reported a double-digit increase in revenues in local currency, and Ukraine revenues grew by 8.7% year-on-year, a strong performance given the unique set of challenges in the country. Service revenues for the group were up by 19.2% year-on-year in local currency. Group EBITDA for Q4 was up 30.1%, and the group EBITDA margin was 48.2%, which is 2.9 percentage points higher. In the 4th quarter, year-on-year revenue and EBITDA performance was impacted by several extraordinary non-recurring items.

Excluding these, group total revenue increased by 15.4, service revenues increased by 15.8, and EBITDA increased by 7.4% year-on-year. Higher 4G penetration, higher relevance of our digital operator offerings in line with our Digital Operator 1440 strategy, fair pricing for the true value we deliver, and good cost management has enabled us to deliver growth despite macroeconomic headwinds. In Q4, we did not shy away from investments where we saw the growth potential. Group capex was $263 million, with continuous investment in 4G, most notably in Ukraine, Bangladesh, and Uzbekistan. capex intensity stood at 22.1% with a marginal increase of 1.1 percentage points. As a group, we maintain a healthy cash position.

We closed the 4th quarter with total cash of $3 billion, including $2.5 billion at headquarters held in international tier-one U.S. and European banks. All local country operations remain largely self-funding. Before we dive into the details of our performance, let me recap the developments around the sale of our Russian operations. On November 24, we announced that following a competitive process, VEON has entered into an agreement to sell its Russian operations to certain members of the Beeline Russia management team at an enterprise value of approximately $5 billion as of December 2022. On February 7, the Russian regulator issued its approval of the proposed sale. In line with our previous communications, we anticipate that the remaining closing conditions will be satisfied and the transaction will complete on or before June 1, 2023.

The removal of the Russian operations field from VEON's reported financial and operational performance reduces the group's revenue and EBITDA in absolute terms. Without the Russian business, VEON has a healthier balance sheet and is a faster-growing company with greater room for growth in six emerging markets. VEON's pro forma leverage ratio, including the incremental approximate $1.8 billion of debt extinguishment from the sale of Russia, would reduce materially. As VEON management, we continue to believe that the proposed sale represents the optimal solution for all stakeholders, including shareholders, employees, creditors, and most importantly, our customers. The group will be well-positioned for faster growth with a strong balance sheet after the completion of the transaction. We are also pleased that Beeline Russia will be a sustainable company on a standalone basis, continuing to serve its customers with quality services in the future.

Now, let's move on to the details of our operational performance. As of the end of Q4, our operating companies served 157 million customers with 4.2 million more subscribers year-on-year. While expanding the base, we have also increased ARPU across all our markets, ranging from 5% to 22% year-on-year. In 2022, we added 14 million 4G customers, and 4G subscribers now account for 54% of our total subscriber base, up 7.5 percentage points from a year earlier. Supported by more 4G users in our base and their higher ARPU level, VEON's underlying data and digital revenues, excluding Ukraine, rose 25% year-on-year in local currency terms. As previously stated, our target 4G penetration level for the group is 70%.

The continued investment in 4G is an important enabler of this growth and our digital operator strategy, which I will expand in the next slide. In quarter four, VEON companies continued to successfully execute our Digital Operator 1440 model, leading to market share and wallet share gains in each of our operations. multiplay subscribers who consume at least one of our digital services on top of 4G data and voice increased 40% year-on-year and reached 28 million. In the 4th quarter, ARPU of multiplay customers was 3.6 times the ARPU of voice-only users, while their churn was just 40% of what we saw with voice-only users. With higher ARPU and lower churn, these customers account for 22% of VEON's total subscriber base and deliver 39% of our subscriber revenues.

I'm also happy to note that our Digital Operator 1440 model, successfully implemented across our operations, was recognized as the best mobile service for connected consumers at Mobile World Congress in Barcelona. Let's look into the performance of our operations, starting with the key financials for each one of them. In the final quarter of 2022, in our markets, service revenues grew 19.2% year-over-year with a growth range of 15%-30% in five of our countries and almost 9% in Ukraine. This was driven by a larger subscriber base, higher 4G penetration, increased engagement with our digital applications, disciplined inflationary pricing, resulting in higher ARPU and greater share of wallets. On this slide, I wanna cover the same metrics but for the full year.

In 2022, each of our operations achieved significant growth, both in terms of financial performance and operational metrics. You will note that the same five operations are double-digit growth companies, not only in the 4th quarter but also for the full year. The growth range is from 12% to 25% for the full year. The 4th quarter performance in the previous slide is in fact an acceleration of growth for all of our operations. Let me explain the one-off impacts on EBITDA which might have caught your attention. Kyivstar continues to support its employees and the community at large with charitable donations and the staff care program impacting full year EBITDA by almost UAH 1 billion. Normalized for these impacts, full year EBITDA would have grown by 1%. Bangladesh EBITDA was negatively impacted by BDT 1.3 billion of minimum tax paid on gross revenue.

Normalized for this, Bangladesh EBITDA would have seen 4% year-on-year growth. Kyrgyzstan EBITDA was also impacted by one-off items in 2021. Normalized for this, United Kyrgyzstan's local currency EBITDA would have increased 19% year-on-year. I want to take you through individual performance for each of our major markets, and we'll start with Ukraine. We have lost three colleagues over the last 12 months in Ukraine, and I would like to start by acknowledging their service to our customers. Our team in Ukraine continues to do a tremendous job keeping Ukrainians connected and putting employee safety first. Nearly 90% of Kyivstar's radio network sites were operational at the end of December. In Q4, Kyivstar agreed with international partners to extend Roam Like Home offers through the end of 2023, keeping displaced Kyivstar customers connected to Ukraine.

In 2022, 7.3 million unique Kyivstar subscribers benefited from roam services. We would like to thank all our partners, fellow competitors, and industry associations for their continued support. Inside Ukraine, national roaming and infrastructure sharing continues ensuring maximum coverage for Ukrainians. Kyivstar as the market leader continues to join forces with its competition to serve customers better. I am delighted to see this kind of cooperation in our industry when customers need it the most. With a focus on establishing connectivity and enabling high-quality mobile internet as widely as possible, Kyivstar continues to invest in 4G infrastructure. Kyivstar's 4G customer base grew by 1 million subscribers over the year. It accounts 53% of our subscriber base now. This allows us to help Ukrainians maintain access to essential services with digital healthcare, infotainment, and education services inside and outside Ukraine.

In August 2022, Kyivstar announced an investment in Helsi, the country's largest medical information system and a leading digital healthcare provider. With 23 million registered users, Helsi enabled access to 1,600 public and private medical institutions, 49,000 doctors. Helsi reported nearly 1.6 million appointments booked and conducted through the platform in Q4 only. Kyivstar TV, where generated educational content is also available, reached 1.1 million monthly active users end of December. With its connectivity and digital offers, Kyivstar retained its leading Net Promoter Score position with the net promoter score position improving in year-on-year in Q4 as well. Kyivstar also delivered another solid result with revenue growth of almost 9% year-on-year.

Given the current operating environment including increased energy tariffs, exceptional costs due to our support to employees, community, and charity programs, the change in the profile of our revenues as well, EBITDA was down 7.3%. On slide 13, we will look at our performance in Pakistan, where Jazz continues to gain market share, cementing its leadership position. Revenue growth was 24.3% year-on-year, including the positive one-off impact of a favorable decision from the Islamabad High Court on pending litigation, allowing us to recognize revenues that were not properly recognized before. Normalized for the late recognition, total revenues were up 13.2% year-on-year. Service revenues increased by 14% year-on-year. This was achieved despite the five percentage points increase in retail tax and more than 40% reduction in mobile termination rates among the other macroeconomic challenges.

Normalized EBITDA growth was 11.1%, a double-digit performance despite the increases in fuel and electricity, which were higher by around 71% and 53% year-on-year respectively. The growth of Jazz was driven by a higher number of 4G users, which were up 18% year-on-year, representing 56% of the subscriber base. With a heightened focus on its digital operator strategy, Jazz saw a 41% year-on-year increase in multiplay customers, who now account for 24% of the subscriber base and 44% of subscriber revenues. We continue to lead the digital financial services in the country with JazzCash and Mobilink Microfinance Bank. JazzCash reached 16.4 million monthly active users, enabling 2.1 billion transactions in 2022.

Mobilink Microfinance Bank, the youngest microfinance bank in Pakistan with the biggest customer base, enabled its 2.4 million clients to raise small business and nano loans with a gross loan portfolio of PKR 46 billion. Every single day, we issue 40,000 microfinance loans to customers, which are up to PKR 10,000. For Tamasha, the leading entertainment platform of the country, monthly active users increased 4.2 million. In December, total watch time increased by an impressive nine-fold year-on-year. In February, with T20 cricket back on small screen, we are back to more than 5 million monthly active users. Tamasha users who are also Jazz connectivity users have ARPU levels that are 50% higher than the average Jazz ARPUs. Turning to Kazakhstan. Beeline Kazakhstan is now in its 3rd year of market share gains.

Seventh quarter of above 20% top line revenue growth and remains the market leader in Net Promoter Score. 20% growth in total revenues, if normalized for a change in accounting rules for revenue recognition of bundles, would be actually 24.5% year-on-year, with a service revenue growth of 25.3%. Adjusting for 1Os, Beeline Kazakhstan EBITDA grew by 17.2%. With 69 penetration of 4G users in its customer base, Kazakhstan is now almost at our target of 70% penetration. In Q4, growth in data and digital revenues was 25.3%, driven by the higher use of digital applications and increase in the number of multiplayer users. DTV entertainment platform reached 860,000 monthly active users with 61% growth year-on-year.

It is available both on mobile devices and also as an IPTV offering in large and small screens. Beeline Kazakhstan's digital-first sub-brand, izi, reached 380,000 monthly active users, up by six times year-on-year. 160,000 izi customers are also subscribers of connectivity services with a SIM or an eSIM. Digital services, superpowers, as they are known in Kazakhstan to our customers, supported the ARPU growth of 10.7% year-on-year. Moving on to Bangladesh. Banglalink reported its 3rd consecutive quarter of double-digit year-on-year growth at 16.9% in Q4, with a top-line performance which has accelerated throughout the year to 19% in December. With accelerated nationwide network investment, Banglalink continues to gain both revenue and subscriber market share. We expect this to continue in 2023 as we surpass 40 million customers benchmark.

In the 4th quarter, revenue market share increased by 1.4 percentage points year-on-year. Revenue growth was twice as fast as the overall market. Banglalink took nearly 50% share of new subscribers and became the Net Promoter Score market in Q4 2022. The 4G subscriber base was up 34% year-on-year, reaching 16.1 million. Over the past two years, 4G penetration has nearly doubled from 24% to 43%. Toffee is the number one video platform in Bangladesh. In the 4th quarter, over 25 million minute viewers watched the World Cup on Toffee. It closed the quarter with 21.2 million monthly active users, a 3.3-fold growth year-on-year, and with higher levels of engagement as the average daily active users increased by 5-fold year-on-year.

Actually, every time Brazil or Argentina played in the World Cup, we reached more than 10 million concurrent users supported by edge services scaled with Google Cloud, allowing us to monetize the advertising space on our platform. 70% of Toffee customers are not yet telecom consumers of Banglalink. New costs associated with nationwide 4G network rollouts and acquisition of new customers, and with the minimum tax on gross revenue paid in Q4, EBITDA decreased 9.7% in Q4. In 2023, February year-to-date EBITDA is up 8.8%, which demonstrates the underlying strength. Uzbekistan. Beeline Uzbekistan reported record high top line growth of 30% year-on-year in Q4, which is also its 4th consecutive quarter of growth above 20%. EBITDA increased 14.4%.

With these results, Beeline Uzbekistan sustained its leading position in subscriber market share, gaining 1.9 percentage points of subscriber market share year-on-year. Beeline continues to be the market leader in terms of Net Promoter Score in December 2022. 4G subscribers reached 5.5 million, supported by the continued 4G rollout and attractive digital operator offers. This represents 4G penetration of 66%, a five percentage point increase year-on-year. We are happy to see an 8.7 year-on-year increase in ARPU and a 42% year-on-year growth in data and digital revenues. Let's take a look to some of our digital products in greater detail. Digital Operator 1440 stands for being highly relevant to customers every single minute of the day. Our digital applications drive this engagement.

On the FinTech side, JazzCash is the number one FinTech service in Pakistan, serving 16.4 million customers, partnering with 186,000 merchants, up 42% year-on-year. The total number of transactions processed by JazzCash in 2022 reached 2.1 billion, 22% higher year-on-year. Gross transaction value for the last 12 months was close to PKR 4.2 trillion with 31% year-on-year growth. This transaction volume represents approximately 7% of Pakistan's GDP. Jazz, JazzCash, and Mobilink Microfinance Bank provides the best experience in digital banking, from normal loans to payments, debit card management to merchant services, from SME loans to QR-based collection systems. Beeline Kazakhstan, simply a digital-only neobank, has 246,000 users in December 2022, and the total value of transactions grew to KZT 167 billion.

Customers are enjoying the benefits of domestic and international remittances linked to their mobile phone numbers, overdraft offers, in-app gamification campaigns, and payments for their online purchases. In 2022, Simply was named the best FinTech app by Visa International in Kazakhstan. I have already expanded on our leadership in mobile entertainment, most notably in Pakistan with Tamasha and with Toffee in Bangladesh and with DTV in Kazakhstan. Let me pause here and hand the call over to Serkan to discuss our 2022 financial results in more detail. Serkan.

Serkan Okandan (Group CFO)

Thanks, Kaan. Good morning. Good afternoon to all participants. On the following slides, I will elaborate on the financial highlights for our full year results in more detail. As Kaan mentioned already, the classification of the Russian operations and assets held for sale and discontinued operations in VEON's reported financial performance reduces the group's reported revenue and EBITDA in absolute terms. For the full year 2022, we reported double-digit local currency growth in both revenues and EBITDA. Local currency service revenues were up 13.9% year-over-year, local currency EBITDA was up by 12.6% year-over-year. For the full year, CapEx was $823 million, up by 2.9% year-over-year.

The higher reported EBITDA and stable CapEx compared to last year resulted in $346 million unlevered free cash flow, whereas EFCF for the year was $142 million. Moving first to revenues on slide 20. In 2022, we saw solid revenue performance across all of our markets. Kazakhstan, Uzbekistan, Kyrgyzstan, Bangladesh, and Pakistan all stood out with double-digit growth. In Ukraine, we achieved 8.2% year-over-year revenue growth despite the challenging operating environment. This is a testament to our team in Ukraine. In Pakistan, revenues were up by 14.3% year-over-year. This strong revenue growth in Pakistan comes despite the negative impacts of changes in taxation legislation and the reduction in mobile termination rates.

Pakistan revenues were positively impacted by a favorable decision from Islamabad High Court on a pending litigation, as a result of which a related provision on revenue and EBITDA was reversed. The overall revenue performance for the year was supported by strong 4G adoption, a continued increase in usage of our digital services, and various pricing initiatives. This strong performance has continued into 2023, with year-to-date February local currency revenues up by 15.2% year-over-year. We also saw good momentum across most of our markets in terms of underlying EBITDA, which I will cover on the next slide. Moving on to slide 21, which looks at our EBITDA performance in greater detail. Local currency EBITDA was up by 12.6% year-over-year, which is a strong result considering the headwinds we faced in 2022.

Although this was impacted by a number of one-offs, which Kaan has already covered in his section, the underlying performance remains strong. Adjusting for these one-offs, normalized local currency EBITDA would be up by 6.7% year-over-year, which is still a very solid result. Energy costs increased across the group by around 30% year-over-year, which is a significant increase for this expense line, negatively impacting group EBITDA margin. We remain focused on implementing plant cost efficiency measures across the group. Project Optimum delivered a $95 million in savings in 2022, with cost intensity improving by 2.5 percentage points year-over-year in local currency. This strong operational performance has also continued into 2022, and year to date February local currency EBITDA was up by 11.8% year-over-year.

Turning now to slide 22, I will cover some important balance sheet metrics. Our total cash position stands at $3 billion, with $2.5 billion at the headquarters level. This is held in both U.S dollar and euro, and highlights the group's continued strong liquidity position. The material decrease in gross debt and net debt was largely attributed to the classification of Russian operations as assets held for sale, as well as to the quarter-over-quarter depreciation of the Russian ruble against U.S dollar, resulting in lower reported currency levels of bank loans denominated in ruble. As we have reported, the scheme of arrangement was approved by the U.K courts, and the amendment to the notes will become effective upon receipt of the license of the final licenses. We expect to receive all these licenses very shortly.

Moving now to slide 23, which shows our debt and liquidity positions in more detail. As I said earlier, the significant decrease in debt was primarily impacted by classification of Russian operations as held for sale. Our gross debt, including leases, decreased to $7.5 billion, with a total cash position of $3 billion. As I previously mentioned, $2.5 billion of total cash is at the HQ level. While we are aware of the negative book implications of carrying such a large cash balance, we believe this is reasonable and justified considering the current situation in the market. Our net debt currently stands at $3.7 billion excluding leases, plus $800 million in capitalized leases. Moving on now to slide 24, which summarizes the debt and liquidity of our operations in Russia.

At the end of 2022, the business recorded gross debt of $3.2 billion. The sale of Russia is expected to be concluded at an enterprise value of around $5 billion based on December 31 Forex rates. Moving to slide 25, here we outline the group's debt maturities. As you can see from this chart, we have a favorable maturity schedule for the near term, with $1.4 billion of debt maturing until the end of 2023. Meanwhile, the RCF can roll each period until final maturities in 2024 and 2025. You may also see on the left-hand side of the slide our current cash position of $3 billion.

With implementation of the scheme of arrangement regarding 23 bonds, the maturities on $1.2 billion in VEON Holdings bonds will be extended from February and April 2023 to October and December 2023 once all relevant licenses are obtained. I would also note once again that we continue to meet all our legal obligations for all interest and principal payments due on our debt on a timely manner. Let me now hand back over to Kaan for Q&A guidance and closing remarks.

Kaan Terzioglu (Group CEO)

Thank you, Serkan. Let me do a quick recap of our guidance for 2023. Our 2023 local currency guidance for both revenue and EBITDA is 10%-14% growth. VEON's 2023 outlook for the group CapEx intensity will be in the range of 18%-20%. With our February to date results standing at 15.2% year-over-year for revenue and 11.8% for EBITDA, we have an encouraging start to the year. With this, we are returning to provide guidance, I'm pleased to note that this guidance is in line with the growth ambitions we have stated in our Capital Markets Day back in December 2021. In other words, we are picking up where we have left off.

Let me also talk about our achievements for 2022 priorities and where we stand. Last year, we talked about our priorities with you as protecting our people and supporting our employees, and this was our number 1 priority and continues to be so. Connectivity is a fundamental humanitarian need, and we are providers of an essential service. We operated with this awareness in 2022, and this service continuity will remain to be a top priority in 2023. Throughout this challenging year, we protecting the good standing of our company, maintaining appropriate liquidity and capital structures have been a top priority, and I'm happy to say that we have successfully delivered on this.

We promised to continue to drive growth with 4G and digital operator focus, have ended the year delivering on this promise, as we elaborated in greater detail earlier on this call. In 2022, maintaining a disciplined approach to our portfolio was a must. We concentrated in larger markets conducive to digital operator value generation and have successfully divested Algeria and Georgia operations. Moving on to 2023, let me set our priorities for this year as well. One, concluding the sale of Russia business as an optimal solution for all stakeholders remains to be a top priority for our team over the next few months. Two, we will continue to focus on optimizing our capital structure, including finalization of the scheme of arrangements, look to regain access to debt capital markets.

Three, we will seize the emerging markets growth opportunity, delivering best-in-class connectivity and digital services to our markets with our Digital Operator 1440 strategy. Four, we will remain focused on active portfolio management and the pursuit of opportunities to realize the value of our infrastructure assets. Five, lastly, but importantly, we are focused on unlocking further value for our shareholders, exploring and planning for low-commission opportunities, and returning value to shareholders. Let me once again reiterate my thanks to our employees and especially Serkan, who helped us successfully navigate some challenging times as our Group Chief Financial Officer. As a friend and a colleague, I look forward to working with him in your advisory role, Serkan. Once again, welcome to our new Chief Financial Officer role, Joop.

We look forward to working with you in this new capacity, and I have no doubts that you will carry VEON's financial management to even greater heights. With that, I would like to thank you for your attention, and I will hand over to Nik so that we can move on to Q&A session.

Nik Kershaw (Group Director, Investor Relations)

Hi. Good afternoon, everyone. Just to remind you, if you have any questions, if you can please submit those to the Q&A function on your Zoom. There have been a number of questions that have come through. Maybe we start, Kaan, actually for the first question for you. Can you maybe just talk a little bit about your guidance again? We obviously saw you had a very strong start to the year in January and February. Do you think you this is the right sort of guidance at this stage?

Kaan Terzioglu (Group CEO)

Thank you. Thank you, Nik. I wanted to start our guidance where we really left back in December 2024, as we shared our aspirations with our investors that our company is able to sustain an average 10%-14% cumulative average growth rate. I think it's prudent to start with this guidance given the complexities we have in many of the macroeconomic situations. I'm encouraged with the strong start for the year, as you said.

Nik Kershaw (Group Director, Investor Relations)

Thanks, Kaan. Serkan, just a question for you. When do you expect the scheme to become effective? Maybe you can comment on the timing of the licenses and also particularly around the amendments becoming effective as well.

Serkan Okandan (Group CFO)

Thank you, Nick. As you know, the scheme has become effective from January 31 When the U.K courts approved the scheme. We anticipate to receive the related licenses from related authorities. Once we receive all the licenses or we receive the confirmation that there is no need for a license, the amendments will also be effective. In the meantime, we are during this sensitive period. If we cannot receive all the licenses until May 2, this effectiveness will go away. However, this we consider that it will be a very unlikely scenario.

Nik Kershaw (Group Director, Investor Relations)

Thank you, Serkan. Kaan, back to you. Can you comment on the status of the tower transactions across several markets?

Kaan Terzioglu (Group CEO)

Sure. We are committed to our strategy of being an asset-light operator. We will be focused on looking for monetization of our tower assets. This is not as a matter of a need for cash generation. Actually, we are disciplined in terms of having clear demarcation lines for different type of business models. Tower operations, infrastructure operations are fundamentally different. Today's realities are putting telecom operators in a position to delayer themselves. No operator is rich and luxurious enough to have exclusive networks. Towers in the hand of capable independent tower operators represent a much bigger value and operational efficiency. This is why we will continue on our journey for monetizing our towers. This includes Pakistan, Bangladesh, Kazakhstan, and Uzbekistan operations. We already have also a tower company in Ukraine, and we are looking forward to peace and the next monetization opportunity there.

Nik Kershaw (Group Director, Investor Relations)

Thanks, Kaan. A question for you. Can you comment a little bit about the current operating environment in Pakistan, particularly given the current macro and geopolitical challenges that we've been reading about?

Kaan Terzioglu (Group CEO)

In Pakistan is going through a tough macroeconomic challenge, and we are well aware of that. We believe when the situation and the times are challenging, the strongest players with a healthy operation becomes even more important for the markets. We are closely watching the macroeconomic situation and the foreign current account deficits. Taking the necessary measures to make sure that our values are not eroded by the inflation. Our teams are focusing on making sure that our customers are provided with high quality services and with the right prices.

Nik Kershaw (Group Director, Investor Relations)

Thanks, Kaan. Serkan, just to you, what will happen to the remaining bonds, on completion of the Russian transaction and bonds that are still remaining and maybe still outstanding to Russian investors?

Serkan Okandan (Group CFO)

Yeah, Matthew, any bonds and bank loans at the level of Turkcell Group will stay with Turkcell Group at closing. Any bonds issued or bank loans raised by VEON Holdings B.V. will remain as VEON Holdings B.V. debts. After the closing of Russian transaction, we will review VEON's longer term capital structure in more detail. one, we want to have the better visibility about access to capital markets after the closing.

Nik Kershaw (Group Director, Investor Relations)

Okay. I guess a sort of linked to that question, have we had any discussions yet with the rating agencies around this?

Serkan Okandan (Group CFO)

We have not started a formal discussion with the rating agencies yet. We anticipate to have better visibility about the capacity to go back to the markets after closing the Russian transaction.

Nik Kershaw (Group Director, Investor Relations)

Thanks, Serkan. Kaan, back to you. Did you have any updates on your, you know, we expected to go back to the synergies and potential timing? Could you give some comments around that?

Kaan Terzioglu (Group CEO)

Sure. Our companies in the respective countries, Jazz in Pakistan, Banglalink in Bangladesh, Beeline in Kazakhstan and Uzbekistan, they are among the largest enterprises in these countries, and they are blue chip brands. As we see these countries building their capital markets infrastructures, we play, it is an important role and opportunity for us also to consider local listings to tap into local investor base, which is growing in a fundamental way. These will be the plans and preparations that we will do this year, and we will keep, of course, the investors posted on the developments.

Nik Kershaw (Group Director, Investor Relations)

Thank you. Serkan, could you talk about, you know, once the Russia transaction is completed, how that will impact sort of VEON's liquidity and debt position?

Serkan Okandan (Group CFO)

Yeah, sure. Under the agreement with the buyer, the total consideration for the stake in this agreement is RUB 130 billion. Based on the end of December fix rate, this represents around $1.8 billion. It is expected that the total consideration will be paid by the buyers by taking on and discharging certain VEON Holding's debt by the info group. If we take into consideration this $1.8 billion plus around $3.2 billion debt, including capital leases in VimpelCom balance sheet, we are talking about around $5 billion debt to be discharged from VEON Holding's consolidated balance sheet, which is a quite material amount for VEON.

Nik Kershaw (Group Director, Investor Relations)

Thank you. Serkan, staying with you, would you consider buying back your long dated bonds given the current pricing and our liquidity position?

Serkan Okandan (Group CFO)

As I mentioned in the presentation, currently we are focusing to ensure that we keep a strong liquidity. As I said, we are keeping around $2.5 billion liquidity at the HQ level. However, having said that, we are currently evaluating various options around our long-term capital structure.

Nik Kershaw (Group Director, Investor Relations)

Thank you. Kaan, maybe could you just please comment on our ability to increase prices, particularly considering the current inflation levels and some of the challenging macro environments in some of our markets?

Kaan Terzioglu (Group CEO)

It is really very critical for us to be able to disciplined way increase our prices in line with the inflation as the inflation rate gets higher. We have successfully done this this year, and we have proven that we are able to move our prices in line with the value that we deliver to customers. We see ourselves in a good position considering that we are among the lowest ARPU level countries in telecom sector. This actually gives us room to improve our pricing as we enrich our offers and provide more relevant digital services to customers bundled with our offers.

Nik Kershaw (Group Director, Investor Relations)

Thanks, Kaan. Serkan, could you give any comments on some of the ongoing cost initiatives in our cost initiative program?

Serkan Okandan (Group CFO)

Sure. As I mentioned in the presentation, we keep very focused on implementing the cost initiatives across the group. In Project Optimum, we delivered around $95 million cost savings in 2022. We expect that this kind of savings will continue in 2023 and also in the upcoming years as well. Understandably, we increased our one-off costs, extraordinary costs in 2022, which will gradually reduce in 2023 and the next year as well.

Nik Kershaw (Group Director, Investor Relations)

Thanks. Serkan, another important question that actually comes through from a number of people now is obviously given everything that's going on in the banking environment. Any comments on which institutions are holding our cash and in what form our cash is held at the moment?

Serkan Okandan (Group CFO)

Unfortunately, I cannot name these institutions, but what I can say is all are kept in tier one international banks in the U.S. and Europe. Also, our cash is fully held in U.S. dollar and euro, and we do not have any cash in bonds. They're all invested in demand deposits plus money market funds.

Nik Kershaw (Group Director, Investor Relations)

Thank you, Serkan. Kaan, can you maybe just give us just a bit about the timing on when we expect the Russian transaction to close and just, you know, an update on the prices and what is still needed there?

Kaan Terzioglu (Group CEO)

As we have announced on February seventh, we have received the approval of the transaction by the Russian regulators. Actually, approval was given to the buyers so that they can start the process. As we have earlier stated, we expect this transaction to be closing after the necessary procedures on or before June the first.

Nik Kershaw (Group Director, Investor Relations)

Thank you. Kaan, still with you. You know, the turnaround in Bangladesh has been very, very strong. Can you just comment around this already, you know, what's driven this very strong turnaround?

Kaan Terzioglu (Group CEO)

What we have seen in Bangladesh, actually almost like a blue ocean market opportunity, this is why we decided to improve our regional network to nationwide deployment. Together with our digital operated strategy, introduction of new digital services like education, healthcare, but most importantly, Toffee on the entertainment side, really made a improvement in the way our Net Promoter Scores work and availability of our services also improved. Most importantly, for the six consecutive quarters, Banglalink's network has been voted as the fastest network in the country. As I mentioned, during the last quarter, we almost acquired 50% of the new customers in the entire country. All these things is a combination of well-timed investments, brilliant execution by the local leadership team, and also excellent innovation on our product portfolio.

Nik Kershaw (Group Director, Investor Relations)

That's great. I think that's all we have time for from a question perspective. There are one or two outstanding questions that have come through and I'll get back to those individually. I just wanna thank everyone for dialing in. Appreciate your attendance on the call. To Kaan and Serkan, thank you very much.

Kaan Terzioglu (Group CEO)

Thank you.

Serkan Okandan (Group CFO)

Thank you.

Nik Kershaw (Group Director, Investor Relations)

Thank you.