VEON Ltd. · NASDAQ:VEON
VEON — VimpelCom — Q1 2016 Earnings Presentation
47 slides from VEON's earnings presentation, May 12, 2016
Slide 1: 1Q16 Results Presentation
1Q16 Results Presentation Amsterdam – May 12, 2016 Jean-Yves Charlier – Chief Executive Officer Andrew Davies – Chief Financial Officer
Slide 2: Disclaimer
Disclaimer This presentation 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. Forward-looking statements are not historical facts, and include statem
Slide 3: 1Q16 Results update - speakers and agenda
1Q16 Results update - speakers and agenda Jean-Yves Charlier – Chief Executive Officer Group highlights Financial highlights Andrew Davies – Chief Financial Officer Group results review Country results review Group FY16 guidance Jean-Yves Charlier – Chief Executive Officer Final remarks Q&A session
Slide 4: Revenue and underlying EBITDA back to organic growth
Revenue and underlying EBITDA back to organic growth, driven by strong EM, Ukraine and Uzbekistan, partially offset by Russia Highlights 1Q16 Italy JV regulatory review process ongoing; Phase II started, transaction expected to complete around year end Performance transformation accelerating and on
Slide 5: Financial highlights 1Q16
Financial highlights 1Q16 1 Revenue and EBITDA organic growth are non-GAAP financial measures that exclude the effect of foreign currency translation and certain items such as liquidations and disposals 2 Underlying EBITDA excludes: in 1Q15, ~USD 7 million related to SIM verification costs in Pakist
Slide 6: Financial highlights 1Q16 – YoY trends
Financial highlights 1Q16 – YoY trends 1 Organic revenue change is non-GAAP financial measure that excludes the effect of foreign currency translation and certain items such as liquidations and disposals 2 Underlying EBITDA and net result exclude the performance transformation costs of ~USD 44 milli
Slide 7: Improving organic growth
Improving organic growth Organic service revenue and EBITDA growth picking up
Slide 8: FOREX movements in VimpelCom's footprint
FOREX movements in VimpelCom’s footprint 1 VimpelCom Currency weightings calculated from the sum of the individual countries’ relative contribution to total countries revenue (= Total Group Revenue - Eliminations - HQ)
Slide 9: Creating a leading converged operator in Italian telecoms
Creating a leading converged operator in Italian telecoms …the proposed JV will drive competition, investments and consumer benefits by creating a peer with a 34% revenue market share, able to compete in the same league The merger will create a stronger competitor to the two market leaders… Digital
Slide 10: Performance transformation accelerating and on track
Performance transformation accelerating and on track1 Agile operating model Procurement Supply chain 7% net reduction of headcount 30% reduction of micro teams 5% of global office space eliminated 40% of contract value now managed globally vs 20% Forex exposure reduced by 15% through rate fixing or
Slide 11: 1Q16 speakers and agenda
1Q16 speakers and agenda Jean-Yves Charlier – Chief Executive Officer Group highlights Financial highlights Andrew Davies – Chief Financial Officer Group results review Country results review Group FY16 guidance Jean-Yves Charlier – Chief Executive Officer Final remarks Q&A session
Slide 12: 1Q16 service revenue evolution
1Q16 service revenue evolution -13.6% +2.6% USD million reported service revenue declining … … service revenue growing organically -1% YoY +5% YoY +5% YoY
Slide 13: 1Q16 EBITDA evolution
1Q16 EBITDA evolution -19.1% 2 +1.7% USD million 2 1 1Q15 exceptional items refers to ~USD 7 million related to SIM verification costs in Pakistan 2 1Q16 exceptional items refers to performance transformation costs of ~USD 44 million, reversal of legal costs’ provision and bad debt in Uzbekistan tot
Slide 14: 1Q16 income statement
1Q16 income statement due to currency headwind impact of USD 162 million and exceptional costs of USD 40 million in 1Q16 and USD 7 million in 1Q15 a result of local currencies depreciation and lower impairment charges: USD 98 million in 1Q15 related to Ukraine and Armenia, USD 8 million in 1Q16 posi
Slide 15: Net income from continued operations
Net income from continued operations USD million +69 1 On organic basis 1 1
Slide 16: Net cash flow from operating activities
Net cash flow from operating activities USD million +10% +10% 1 Algeria closing and other in 1Q15 consists of payments related to Algeria transaction in total amount of USD 1,312 million and USD 7 million payments related to SIM verification in Pakistan 2 Exceptional items in 1Q16 consist of payment
Slide 17: 1Q16 net debt evolution
1Q16 net debt evolution 1 Underlying EBITDA, which excludes: in 2015, exceptional items totaled USD 1,051 million and mainly consisted of provisions for investigations (related to SEC/DOJ/OM) of USD 900 million and transformation costs of USD 138 million; in 1Q16, LTM underlying EBITDA excludes adju
Slide 18: Changed dividend policy and focus on deleveraging
2013 2014 Prior to 2012 Changed dividend policy and focus on deleveraging PJSC1 guaranteed HQ bonds and loans Financing without OpCo guarantee Alfa Bank USD 1.0 billion RCF USD 1.8 billion 2015 Tender prioritizing PJSC1 bonds / PJSC1 guaranteed bonds over PJSC fall-away guaranteed VimpelCom HQ bonds
Slide 19: USD 1.2 billion of GTH bonds successfully issued
USD 1.2 billion of GTH bonds successfully issued Amount issued USD 1.2 billion in two tranches Issuer GTH Finance B.V. (wholly owned subsidiary of Global Telecom Holding S.A.E.) Guarantor VimpelCom Holdings B.V. (guarantee fee: 3.0%4) Use of proceeds Refinancing of the shareholder loan from VimpelCo
Slide 20: Russia: challenging environment, increasing competition
Russia: challenging environment, increasing competition Increasing competition Fixed-line service revenue decreased 11% YoY, mainly as a result of a change in B2B contracts from U.S. dollar to ruble Mobile service revenue increased 1% YoY, supported by 19% YoY growth in mobile data revenue EBITDA de
Slide 21: Russia: Performance transformation starting to deliver
Russia: Performance transformation starting to deliver Performance transformation savings driven by: Regional restructuring program in technical and IT functions Price reductions as a result of centralization of procurement and tendering processes Transport network cost optimization RUB MILLION -7.5
Slide 22: Algeria: transformation program ongoing
Algeria: transformation program ongoing Stable service revenue YoY, positively affected by: Favorable change in interconnect rates (+18% YoY) Data revenue increase (+135% YoY) The market remains challenging; focus of transformation is commercial recovery Customer base decrease due to lower sales as
Slide 23: Pakistan: double digit growth in revenue and EBITDA
Pakistan: double digit growth in revenue and EBITDA Double digit revenue growth supported by all revenue streams, gaining market share Strong data revenue increase of 80% YoY, due to successful data monetization initiatives and 3G expansion: Data users increase 24% YoY Data ARPU increase 50% YoY wit
Slide 24: Bangladesh: continued strong performance
Bangladesh: continued strong performance Maintained growth momentum in the face of intense competition Ongoing SIM verification process in the market: banglalink has verified 72% of its customers Sustainable growth in data revenue at 60% YoY Growth in EBITDA due to increased revenue which led to hig
Slide 25: Ukraine: robust results enabled by successful 3G launch
Ukraine: robust results enabled by successful 3G launch Strong market leader in challenging environment Robust mobile service revenue growth driven by successful 3G launch Mobile data revenue growth of 76% YoY Competition expected to increase in 2016 Intercompany debt of ~USD 100 million to fund 3G
Slide 26: Italy: improving mobile top line trend
Italy: improving mobile top line trend Mobile service revenue trend further improved, almost flat YoY Mobile ARPU YoY growth at 1.5%, confirming signs of market recovery Double digit growth in mobile data revenue of 13% YoY Fixed-broadband customers base grew 3.3% YoY 4G/LTE population coverage at 5
Slide 27: 2016 guidance confirmed
2016 guidance confirmed Service Revenue1 EBITDA Margin1 CAPEX / Revenue1 Leverage2 1 All targets except leverage calculated at constant currency. Targets for 2016 assume no major regulatory changes, no change to the asset portfolio and no major macro-economic changes; targets are also adjusted for I
Slide 28: 1Q16 speakers and agenda
1Q16 speakers and agenda Jean-Yves Charlier – Chief Executive Officer Group highlights Financial highlights Andrew Davies – Chief Financial Officer Group results review Country results review Group FY16 guidance Jean-Yves Charlier – Chief Executive Officer Final remarks Q&A session
Slide 29: Final remarks
Final remarks Revenue and underlying EBITDA back to organic growth in 1Q16 Challenging macro-economic environment still weighting on reported results, however improvement in sight 2 Italy transaction closing expected around the end of 2016 3 Performance transformation accelerating and on track 4 201
Slide 30: 1Q16 speakers and agenda
1Q16 speakers and agenda Jean-Yves Charlier – Chief Executive Officer Group highlights Financial highlights Andrew Davies – Chief Financial Officer Group results review Country results review Group FY16 guidance Jean-Yves Charlier – Chief Executive Officer Final remarks Q&A session
Slide 31: Further information
Further information Investor Relations Claude Debussylaan 88 1082 MD Amsterdam The Netherlands T: +31 20 79 77 234 E: ir@vimpelcom.com Visit our website www.vimpelcom.com
Slide 32: Appendix
Appendix
Slide 33: Kazakhstan: gaining EBITDA market share despite intense competition
Kazakhstan: gaining EBITDA market share despite intense competition Mobile service revenue decreased by 4% YoY, excluding MTR reductions Fixed-line service revenue growth of 29% YoY EBITDA decreased 26% YoY, due to decline in revenue and increase in service costs, structural opex, performance transf
Slide 34: Uzbekistan: competition intensifying
Uzbekistan: competition intensifying Strong growth in mobile service revenue of 15% YoY Competition expected to increase Increase in customer tax negatively impacted EBITDA margin by 6.4 pp UZS BILLION, UNLESS STATED OTHERWISE Mobile Fixed-line +14.6% YoY -8.3% YoY +11% YoY +7% YoY underlying1 n.m.
Slide 35: Armenia: strengthened market position
Armenia: strengthened market position NPS position improved to leading position Growing customer and EBITDA market share in a declining market Mobile data revenue growth of 12% YoY driven by promotion of data bundles AMD BILLION, UNLESS STATED OTHERWISE Mobile Fixed-line -13.6% YoY +6.7% YoY -10.7%
Slide 36: Kyrgyzstan: remained clear market leader
Kyrgyzstan: remained clear market leader Clear market leader, #1 in NPS as a result of network quality and value proposition Customer base decreased YoY mainly due to emigration as a result of Kyrgyzstan entering the Eurasian Customs Union EBITDA margin supported by network cost optimization KGS BIL
Slide 37: Georgia: continued customer improvement
Georgia: continued customer improvement Service revenue pressure due to mobile price competition and fixed-line transit traffic cancelation Strong mobile data revenue growth of 35% YoY driven by 4G/LTE launch EBITDA margin increased driven by savings in business costs and structural opex and positiv
Slide 38: Tajikistan: outperformance in a challenging market
Tajikistan: outperformance in a challenging market Challenging environment with increasing competition and currency headwinds Lower incoming international traffic due to fewer migrants living abroad EBITDA margin increased due to lower international and local interconnect costs Negative capex due to
Slide 39: 1Q16 cash flow statement
1Q16 cash flow statement USD million 1Q16 1Q15 YoY EBITDA 758 938 (179) Changes in working capital and other (805) (1,220) 415 Net interest paid (189) (252) 63 Income tax paid (125) (342) 217 Net operating cash flow from discontinued operations 123 112 11 Net cash from/(used in) operating activities
Slide 40: VimpelCom debt structure
VimpelCom debt structure VimpelCom debt as at 31 March 2016 USD million Outstanding (USD) HQ 4,982 PJSC 3,453 Algeria 508 Pakistan 365 Bangladesh 363 All other 15 VimpelCom 9,686 Apart from PJSC and the Bangladesh USD bonds, all OpCos are predominantly financed in local currency1 VimpelCom HQ debt a
Slide 41: Liquidity analysis
Liquidity analysis Group Cash breakdown by currency (March 31, 2016) Cash position largely held in USD Unused RCF headroom at the end 1Q16: VimpelCom - syndicate USD 1.8 billion PJSC VimpelCom - Sberbank RUB 15 billion (USD 0.2 billion ) Unused VF/CF headroom at the end 1Q16: VimpelCom - CDB RMB 0.7
Slide 42: Net debt/EBITDA
Net debt/EBITDA Net debt / EBITDA1 (December 31, 2015) Net debt / EBITDA1 (March 31, 2016) 1 Underlying EBITDA
Slide 43: Group debt maturity schedule
Group debt maturity schedule Group debt maturity schedule by currency1 As at 31 March 2016, in USD billion Group debt maturity schedule 1 After effect of cross currency swaps 2016 2017 2018 2019 2020 2021 2022 >2022 USD RUB Other 0.4 0.4 0.3 1.5 1.0 0.2 0.6 0.8 0.2 1.0 0.0 0.2 0.1 0.0 0.0 0.7 0.0 0.
Slide 44: Debt by entity
Debt by entity As at 31 March 2016, USD million Outstanding debt (millions) Type of debt/lender Entity Bonds Loans RCF Vendor Financing Other Total VimpelCom Holdings B.V. 3,360 - - - - 3,360 VimpelCom Amsterdam B.V. - 1,000 - 622 - 1,622 PJSC VimpelCom 2,008 1,299 - 103 43 3,453 Pakistan Mobile Com
Slide 45: Reconciliation of reported to underlying EBITDA
USD million, unaudited 1Q16 1Q15 EBITDA 758 938 Transformation costs, of which 44 - Other transformation costs at OpCo level 9 - Other transformation costs at HQ level 35 - Other exceptional items in OpCos, of which (4) 7 Reversal in tax and other provisions in Ukraine (1) - Release of legal expense
Slide 46: Reconciliation of consolidated net debt
USD million 31 March 2016 31 December 2015 Net debt 6,407 5,496 Cash and cash equivalents 2,928 3,614 Long - term and short-term deposits 351 434 Gross debt 9,686 9,544 Interest accrued related to financial liabilities 148 179 Fair value adjustment - - Other unamortised adjustments to financial liab
Slide 47: Rates of functional currencies to USD
Rates of functional currencies to USD Average rates Closing rates Closing rates 1Q16 1Q15 YoY FY16 Targets 1Q16 1Q15 YoY 4Q15 4Q14 YoY Russian Ruble 74.628299999999996 62.191899999999997 0.19996816305660384 70 67.607600000000005 58.46 0.15647622305850151 72.8827 56.258400000000002 0.2954989832629437